S-4/A
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As filed with the Securities and Exchange Commission on February 16, 2017

Registration No. 333-215183

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SUNOCO LOGISTICS PARTNERS L.P.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   4610   23-3096839

(State or other jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

3807 West Chester Pike

Newtown Square, Pennsylvania 19073

(866) 248-4344

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Kathleen Shea-Ballay

Senior Vice President, General Counsel and Secretary

Sunoco Partners LLC

3807 West Chester Pike

Newtown Square, Pennsylvania 19073

(866) 248-4344

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael J. Swidler

Lande A. Spottswood

Mike Rosenwasser

Vinson & Elkins L.L.P.

666 Fifth Avenue, 26th Floor

New York, New York 10103

(212) 237-0000

 

James M. Wright, Jr.

General Counsel

Energy Transfer Partners, L.L.C.

8111 Westchester Drive, Suite 600

Dallas, Texas 75225

(214) 981-0700

 

William N. Finnegan IV

Ryan J. Maierson

Debbie P. Yee

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

(713) 546-5400

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to the closing of the merger described herein.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  

 

 

 

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 the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this document is not complete and may be changed. Sunoco Logistics Partners L.P. may not issue the securities described herein until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED FEBRUARY 16, 2017

 

 

LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

                    , 2017

Dear Common Unitholders:

On November 20, 2016, Sunoco Logistics Partners L.P. (“SXL”), Energy Transfer Partners, L.P. (“ETP”) and certain of their affiliates entered into a merger agreement, as amended on December 16, 2016 (as so amended and as may be further amended from time to time, the “merger agreement”), pursuant to which SXL Acquisition Sub LP, a wholly owned subsidiary of SXL, will merge with ETP, with ETP continuing as the surviving entity and becoming a wholly owned subsidiary of SXL (the “merger”). Concurrently with the merger, Sunoco Partners LLC, the general partner of SXL (“SXL GP”), will merge with Energy Transfer Partners GP, L.P., the general partner of ETP (“ETP GP”), with ETP GP continuing as the surviving entity and becoming the general partner of SXL (the “GP merger” and, together with the merger, the “mergers”).

The board of directors (the “ETP Board”) of Energy Transfer Partners, L.L.C., the general partner of ETP GP, approved and agreed to submit the merger to a vote of ETP unitholders following the recommendation of the conflicts committee of the ETP Board (the “ETP Conflicts Committee”). The ETP Board and the ETP Conflicts Committee have determined that the merger agreement and the merger are advisable, fair and reasonable to and in the best interests of ETP and its common unitholders other than Energy Transfer Equity, L.P. (“ETE”), SXL and their affiliates, and have approved the merger agreement and the merger.

Under the terms of the merger agreement, subject to certain adjustments, holders of common units representing limited partner interests in ETP (“ETP common units” or “common units”) will receive, for each ETP common unit held, 1.5 common units representing limited partner interests in SXL (“SXL common units”). Additionally, the Class E units, Class G units, Class I units and Class K units of ETP issued and outstanding immediately prior to the effective time will be cancelled and converted automatically into an equal number of newly created classes of units representing limited partner interests in SXL, with the same rights, preferences, privileges, duties and obligations as such classes of ETP units had immediately prior to the closing of the merger. Under the terms of the merger agreement, ETP’s Class H units and incentive distribution rights will be cancelled for no consideration.

The merger consideration to be received by holders of ETP common units is valued at $39.29 per unit based on the closing price of SXL common units as of November 18, 2016, the last trading day before the public announcement of the merger, representing approximately a 0.2% discount to the closing price of ETP common units of $39.37 on November 18, 2016, a 5% premium to the volume-weighted average closing price of ETP common units for the five trading days ended November 18, 2016 and a 10% premium to the volume-weighted average closing price of ETP common units for the 30 trading days ended November 18, 2016. The merger consideration is valued at $         per unit based on the closing price of SXL common units as of                 , 2017, the most recent practicable trading day prior to the date of this proxy statement/prospectus, representing a     % premium to the closing price of ETP common units of $         on                     , 2017, and a     % premium to the volume-weighted average closing price of ETP common units for the five trading days ended                 , 2017.

Immediately following the completion of the merger, it is expected that ETP common unitholders will own approximately     % of the outstanding SXL common units, based on the number of SXL common units outstanding, on a fully diluted basis, as of                     , 2017. The common units of SXL and ETP are traded on the New York Stock Exchange (“NYSE”) under the symbols “SXL” and “ETP,” respectively. Following the consummation of the merger, it is expected that SXL will change its name to “Energy Transfer Partners, L.P.” and apply to continue the listing of its common units on the NYSE under the symbol “ETP,” and that ETP will change its name to “Energy Transfer, LP.”


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ETP is holding a special meeting of its common unitholders at                     , on                  at                 , local time, to obtain the vote of its common unitholders to adopt the merger agreement and the transactions contemplated thereby. Your vote is very important regardless of the number of ETP common units you own. The merger cannot be completed unless the holders of at least a majority of the outstanding ETP common units vote for the adoption of the merger agreement and the transactions contemplated thereby at the special meeting. The ETP Board recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting. Pursuant to the merger agreement, ETE, which indirectly owns all of the incentive distribution rights, the general partner interest in ETP and approximately     % of the ETP common units outstanding as of                     , 2017, has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof. Whether or not you expect to attend the special meeting in person, we urge you to submit your proxy as promptly as possible through one of the delivery methods described in the accompanying proxy statement/prospectus.

In addition, we urge you to read carefully the accompanying proxy statement/prospectus (and the documents incorporated by reference into the accompanying proxy statement/prospectus), which includes important information about the merger agreement, the proposed mergers and the special meeting. Please pay particular attention to the section titled “Risk Factors” beginning on page 30 of the accompanying proxy statement/prospectus.

On behalf of the ETP Board, we thank you for your continued support.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement/prospectus or determined that the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated                     , 2017 and is first being mailed to the common unitholders of ETP on or about                     , 2017.

 

Sincerely,

 

 

Kelcy L. Warren

 

Chief Executive Officer of Energy Transfer Partners, L.L.C., on behalf of Energy Transfer Partners, L.P.

 


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LOGO

8111 Westchester Drive, Suite 600

Dallas, Texas 75225

NOTICE OF SPECIAL MEETING OF UNITHOLDERS

TO BE HELD ON                     , 2017

To the Common Unitholders of Energy Transfer Partners, L.P.:

Notice is hereby given that a special meeting of common unitholders of Energy Transfer Partners, L.P. (“ETP”), will be held at              , on                     , 2017 at             , local time, solely for the following purposes:

 

    Merger proposal: To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of November 20, 2016, as amended by Amendment No. 1 thereto (the “amendment”), dated as of December 16, 2016 (as so amended and as may be further amended from time to time, the “merger agreement”), by and among Sunoco Logistics Partners L.P. (“SXL”), Sunoco Partners LLC, the general partner of SXL (“SXL GP”), SXL Acquisition Sub LLC, a wholly owned subsidiary of SXL (“SXL Merger Sub”), SXL Acquisition Sub LP, a wholly owned subsidiary of SXL (“SXL Merger Sub LP”), ETP, Energy Transfer Partners GP, L.P., the general partner of ETP (“ETP GP”), and, solely for purposes of certain provisions therein, Energy Transfer Equity, L.P. (“ETE”), a composite copy of which, incorporating the amendment into the text of the initial agreement, is attached as Annex A to the proxy statement/prospectus accompanying this notice, and the transactions contemplated thereby, including the merger of SXL Merger Sub LP with and into ETP (the “merger”); and

 

    Adjournment proposal: To consider and vote on a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and the transactions contemplated thereby at the time of the special meeting.

These items of business, including the merger agreement and the proposed merger, are described in detail in the accompanying proxy statement/prospectus. The board of directors (the “ETP Board”) of Energy Transfer Partners, L.L.C., the general partner of ETP GP (“ETP GP LLC”), and the conflicts committee of the ETP Board (the “ETP Conflicts Committee”) have determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair and reasonable to and in the best interests of ETP and its common unitholders other than ETE, SXL and their affiliates and the ETP Board recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of such adoption.

Only common unitholders of record as of the close of business on                     , 2017 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment or postponement thereof. A list of common unitholders entitled to vote at the special meeting will be available in our offices located at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225 during regular business hours for a period of 10 days before the special meeting, and at the place of the special meeting during the special meeting. Pursuant to the merger agreement, ETE has agreed to vote all of the common units representing limited partner interests in ETP (“ETP common units” or “common units”) owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof, which includes the merger proposal and, if necessary, the adjournment proposal. As of                     , 2017, ETE and its subsidiaries collectively held              ETP common units, representing approximately     % of the ETP units entitled to vote at the special meeting.


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Adoption of the merger agreement and the transactions contemplated thereby by the ETP unitholders is a condition to the consummation of the merger and requires the affirmative vote of holders of at least a majority of the outstanding ETP common units. Therefore, your vote is very important. Your failure to vote your units will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the transactions contemplated thereby.

 

By order of the board of directors,

 

James M. Wright, Jr.

General Counsel

Dallas, Texas

                    , 2017

YOUR VOTE IS IMPORTANT!

WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (1) BY TELEPHONE, (2) VIA THE INTERNET OR (3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE PREPAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before the special meeting. If your ETP common units are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished to you by such record holder.

We urge you to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety. If you have any questions concerning the merger, the adjournment vote, the special meeting or the accompanying proxy statement/prospectus or would like additional copies of the accompanying proxy statement/prospectus or need help voting your ETP common units, please contact ETP’s proxy solicitor:

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Toll free: (800) 322-2855

Collect: (212) 929-5500


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ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about SXL and ETP from other documents filed with the Securities and Exchange Commission (the “SEC”), that are not included in or delivered with this proxy statement/prospectus.

Documents incorporated by reference are available to you without charge upon written or oral request. You can obtain any of these documents by requesting them in writing or by telephone from the appropriate party at the following addresses and telephone numbers.

 

Sunoco Logistics Partners L.P.

Investor Relations

3807 West Chester Pike

Newtown Square, Pennsylvania 19073

(866) 248-4344

    

Energy Transfer Partners, L.P.

Investor Relations

8111 Westchester Drive, Suite 600

Dallas, Texas 75225

(214) 981-0795

To receive timely delivery of the requested documents in advance of the special meeting, you should make your request no later than                     , 2017.

For a more detailed description of the information incorporated by reference in this proxy statement/prospectus and how you may obtain it, see “Where You Can Find More Information.”

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the SEC by SXL (File No. 333-215183), constitutes a prospectus of SXL under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the common units representing limited partner interests in SXL (“SXL common units”) to be issued pursuant to the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of ETP common unitholders, at which ETP common unitholders will be asked to consider and vote on, among other matters, a proposal to adopt the merger agreement and the transactions contemplated thereby.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated                     , 2017. The information contained in this proxy statement/prospectus is accurate only as of that date 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. Neither the mailing of this proxy statement/prospectus to ETP common unitholders nor the issuance by SXL of its common units pursuant to the merger agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning SXL contained in this proxy statement/prospectus or incorporated by reference has been provided by SXL, and the information concerning ETP contained in this proxy statement/prospectus or incorporated by reference has been provided by ETP.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

     1   

SUMMARY

     9   

The Parties

     9   

The Merger

     9   

The GP Merger

     9   

Merger Consideration

     10   

Treatment of Restricted Units and Cash Units

     10   

Treatment of General Partner Interest; Incentive Distribution Rights and Class H Units

     10   

The Special Meeting; Units Entitled to Vote; Required Vote

     10   

Recommendation of the ETP Board; Reasons for the Merger

     11   

Opinion of the Financial Advisor to the ETP Conflicts Committee

     11   

No SXL Unitholder Approval Required

     12   

Directors and Executive Officers of SXL After the Merger

     12   

Ownership of SXL After the Merger

     13   

Interests of Directors and Executive Officers of ETP in the Merger

     13   

Interests of ETE and ETP in the Merger

     13   

Risk Factors Relating to the Merger and Ownership of SXL Common Units

     14   

Material U.S. Federal Income Tax Consequences of the Merger

     14   

Accounting Treatment of the Merger

     16   

Listing of SXL Common Units; Delisting and Deregistration of ETP Common Units

     16   

No Dissenters’ Rights or Appraisal Rights

     16   

Conditions to Consummation of the Mergers

     16   

SXL Amended and Restated Partnership Agreement

     18   

Regulatory Approvals and Clearances Required for the Merger

     18   

No Solicitation by ETP of Alternative Proposals

     18   

Change in ETP Board Recommendation

     19   

Termination of the Merger Agreement

     20   

Expenses

     21   

Termination Fee

     21   

Comparison of Rights of SXL Unitholders and ETP Unitholders

     21   

Litigation Relating to the Merger

     21   

Corporate Structure Prior to and Following the Mergers

     22   

Selected Historical Consolidated Financial Data of SXL

     23   

Selected Historical Consolidated Financial Data of ETP

     24   

Selected Unaudited Pro Forma Financial Information

     25   

Unaudited Comparative Per Unit Information

     26   

Comparative Unit Prices and Distributions

     28   

RISK FACTORS

     30   

Risk Factors Relating to the Merger

     30   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     37   

RECENT DEVELOPMENTS

     40   

THE PARTIES

     41   

EXECUTIVE COMPENSATION

     43   

THE SPECIAL MEETING

     59   

THE MERGER

     64   

Effect of the Merger and the GP Merger

     64   

Background of the Merger

     66   

Recommendation of the ETP Board; Reasons for the Merger

     77   

Opinion of the Financial Advisor to the ETP Conflicts Committee

     82   

Unaudited Financial Projections of ETP

     95   

Reasons of the SXL Conflicts Committee and the SXL Board for the Merger

     98   

Unaudited Financial Projections of SXL

     99   

Interests of Directors and Executive Officers of ETP in the Merger

     101   

Interests of ETE and ETP in the Merger

     104   

 

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No Dissenters’ Rights or Appraisal Rights

     105   

No SXL Unitholder Approval Required

     105   

Accounting Treatment of the Merger

     105   

SXL Amended and Restated Partnership Agreement

     106   

Regulatory Approvals and Clearances Required for the Merger

     106   

Directors and Executive Officers of SXL After the Merger

     107   

Listing of SXL Common Units; Delisting and Deregistration of ETP Common Units

     107   

Ownership of SXL After the Merger

     107   

Restrictions on Sales of SXL Common Units Received in the Merger

     107   

Litigation Relating to the Merger

     108   

PROPOSAL 1: THE MERGER AGREEMENT

     109   

The Merger

     109   

Effective Time; Closing

     110   

Conditions to Consummation of the Mergers

     110   

ETP Unitholder Approval

     113   

No Solicitation by ETP of Alternative Proposals

     114   

Change in ETP Board Recommendation

     115   

Merger Consideration

     117   

Treatment of Restricted Units and Cash Units

     117   

Treatment of General Partner Interest; Incentive Distribution Rights and Class H Units

     117   

Adjustments to Prevent Dilution

     117   

Withholding

     118   

Distributions

     118   

Regulatory Matters

     118   

Termination of the Merger Agreement

     118   

Termination Fee

     119   

Expenses

     120   

Conduct of Business Pending the Consummation of the Merger

     121   

Indemnification; Directors’ and Officers’ Insurance

     124   

Financing Matters

     125   

SXL Amended and Restated Partnership Agreement

     125   

Amendment and Waiver

     125   

Remedies; Specific Performance

     126   

Representations and Warranties

     126   

Distributions

     127   

ETE’s Obligation to Vote ETP Units

     128   

Additional Agreements

     128   

SUNOCO LOGISTICS PARTNERS L.P. UNAUDITED PRO FORMA FINANCIAL INFORMATION

     129   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     136   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF SXL COMMON UNIT OWNERSHIP

     140   

DESCRIPTION OF SXL COMMON UNITS

     157   

Where Common Units Are Traded

     157   

Quarterly Distributions

     157   

Transfer Agent and Registrar

     157   

Summary of Partnership Agreement

     157   

COMPARISON OF RIGHTS OF SXL UNITHOLDERS AND ETP UNITHOLDERS

     158   

PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING

     181   

LEGAL MATTERS

     182   

EXPERTS

     182   

WHERE YOU CAN FIND MORE INFORMATION

     182   

ANNEX A: COMPOSITE AGREEMENT AND PLAN OF MERGER

     A-1   

ANNEX B: OPINION OF BARCLAYS CAPITAL INC.

     B-1   

ANNEX C: FORM OF FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SUNOCO LOGISTICS PARTNERS L.P.

     C-1   

 

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QUESTIONS AND ANSWERS

Set forth below are questions that you, as a common unitholder of ETP, may have regarding the merger, the adjournment proposal and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety, including the composite merger agreement, which incorporates the text of the amendment into the text of the initial agreement and is attached as Annex A to this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled “Where You Can Find More Information.”

Q: Why am I receiving this proxy statement/prospectus?

A: SXL and ETP have agreed to a merger, pursuant to which SXL Merger Sub LP, a wholly owned subsidiary of SXL, will merge with ETP. ETP will continue its existence as the surviving entity and become a wholly owned subsidiary of SXL, but will cease to be a publicly traded limited partnership. In order to complete the merger, ETP common unitholders must vote to adopt the merger agreement and the transactions contemplated thereby. ETP is holding a special meeting of its common unitholders to obtain such unitholder approval.

In the merger, SXL will issue SXL common units as the consideration to be paid to holders of ETP common units. This document is being delivered to you as both a proxy statement of ETP and a prospectus of SXL in connection with the merger. It is the proxy statement by which the ETP Board is soliciting proxies from you to vote on the adoption of the merger agreement and the transactions contemplated thereby at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which SXL will issue SXL common units to you in the merger.

Q: What will happen in the merger?

A: In the merger, SXL Merger Sub LP will merge with ETP. ETP will be the surviving limited partnership in the merger and will become a wholly owned subsidiary of SXL, but ETP will cease to be a publicly traded limited partnership. Following the consummation of the merger, it is expected that SXL will change its name to “Energy Transfer Partners, L.P.” and ETP will change its name to “Energy Transfer, LP.”

Q: What will I receive in the merger?

A: If the merger is completed, each of your ETP common units will be cancelled and converted automatically into the right to receive 1.5 (the “exchange ratio”) SXL common units (the “merger consideration”). ETP common unitholders will not receive any fractional SXL common units in the merger. Instead, each holder of ETP common units that are converted pursuant to the merger agreement who otherwise would have received a fraction of an SXL common unit will instead be entitled to receive a whole SXL common unit. Based on the closing price of SXL common units on the New York Stock Exchange (the “NYSE”) on November 18, 2016, the last trading day prior to the public announcement of the merger, the merger consideration represented approximately $39.29 in value for each ETP common unit. Based on the closing price of $         for SXL common units on the NYSE on                     , 2017, the most recent practicable trading day prior to the date of this proxy statement/prospectus, the merger consideration represented approximately $         in value for each ETP common unit. The market price of SXL common units will fluctuate prior to the merger, and the market price of SXL common units when received by ETP common unitholders after the merger is completed could be greater or less than the current market price of SXL common units. See “Risk Factors.”

Q: What will happen to my ETP restricted units and cash units in the merger?

A: If the merger is completed, each outstanding restricted unit of ETP (an “ETP restricted unit”) will be converted into the right to receive an award of restricted units relating to SXL common units on the same terms

 

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and conditions as were applicable to the corresponding award of ETP restricted units (including the right to receive distribution equivalents with respect to such award), except that the number of SXL common units covered by the award will be equal to the number of ETP common units covered by the corresponding award of ETP restricted units multiplied by the exchange ratio, rounded up to the nearest whole unit. In addition, each outstanding award of cash units issued under the Energy Transfer Partners, L.P. Long-Term Incentive Cash Restricted Unit Plan (the “ETP cash unit plan”) representing the right to a cash payment based on the value of ETP common units (“ETP cash units”) will be converted into the right to receive an award of restricted cash units relating to SXL common units on the same terms and conditions as were applicable to the award of ETP cash units, except that the number of notional SXL common units relating to the award will be equal to the number of notional ETP common units relating to the corresponding award of ETP cash units multiplied by the exchange ratio, rounded up to the nearest whole unit.

Q: What will happen to the other series and classes of ETP units in the merger?

A: If the merger is completed, the outstanding Class E units representing limited partner interests in ETP (the “Class E units”), Class G units representing limited partner interests in ETP (the “Class G units”), Class I units representing limited partner interests in ETP (the “Class I units”) and Class K units representing limited partner interests in ETP (the “Class K units”) will be cancelled and converted automatically into an equal number of newly created classes of units representing limited partner interests in SXL, with the same rights, preferences, privileges, duties and obligations as such classes of ETP units had immediately prior to the closing of the merger.

If the merger is completed, each outstanding Class H unit representing a limited partner interest in ETP (a “Class H unit”) and the incentive distribution rights in ETP will be cancelled for no consideration.

Q: What happens if the merger is not completed?

A: If the merger agreement and the transactions contemplated thereby are not adopted by ETP common unitholders holding at least a majority of the outstanding ETP common units, or if the merger is not completed for any other reason, you will not receive any form of consideration for your ETP units in connection with the merger. Instead, ETP will remain an independent publicly traded limited partnership and its common units will continue to be listed and traded on the NYSE. If the merger agreement is terminated under specified circumstances, including if ETP unitholder approval is not obtained, ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by SXL and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. In addition, if the merger agreement is terminated under specified circumstances, including due to an adverse recommendation change having occurred, ETP may be required to pay SXL a termination fee of $630.0 million, less any expenses previously paid by ETP to SXL. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by SXL or its affiliates. Please read “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee” beginning on page 119 of this proxy statement/prospectus.

Q: Will I continue to receive future distributions on my ETP common units?

A: Before completion of the merger, ETP expects to continue to pay its regular quarterly cash distribution on its common units, which was $1.0550 per ETP common unit for the quarter ended December 31, 2016. However, SXL and ETP will coordinate the timing of distribution declarations leading up to the merger so that, in any quarter, a holder of ETP common units will either receive distributions in respect of its ETP common units or distributions in respect of the SXL common units that such holder will receive in the merger (but will not receive distributions in respect of both in any quarter). Receipt of the regular quarterly distribution will not reduce the merger consideration you receive. After completion of the merger, you will be entitled only to distributions on any SXL common units you receive in the merger and hold through the applicable distribution record date. While SXL provides no assurances as to the level or payment of any future distributions on its common units, and SXL determines the amount of its distributions each quarter, for the quarter ended September 30, 2016, SXL paid a cash distribution of $0.51 per SXL common unit on November 14, 2016 to holders of record as of the close of business on November 9, 2016. SXL has announced a cash distribution per SXL common unit of $0.52 for the quarter ended December 31, 2016.

 

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The current annualized distribution rate for each ETP common unit is $4.22 (based on the quarterly distribution rate of $1.0550 for each ETP common unit that was declared with respect to the quarter ended December 31, 2016). Based on the exchange ratio, the annualized distribution rate for each ETP common unit exchanged for 1.5 SXL common units would be approximately $3.12 (based on the quarterly distribution rate of $0.52 per SXL common unit that was declared with respect to the quarter ended December 31, 2016). Accordingly, based on the distribution rates for the quarter ended December 31, 2016, and the exchange ratio, an ETP common unitholder would initially receive approximately 26.0% less in quarterly cash distributions on an annualized basis after giving effect to the merger. For additional information, please read “Comparative Unit Prices and Distributions.”

Q: What am I being asked to vote on?

A: ETP’s common unitholders are being asked to vote on the following proposals:

 

    Merger proposal: To adopt the merger agreement, a composite copy of which, incorporating the amendment into the text of the initial agreement, is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

    Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

The approval of the merger proposal by ETP common unitholders holding at least a majority of the outstanding ETP common units is a condition to the obligations of SXL and ETP to complete the merger. The adjournment proposal is not a condition to the obligations of SXL or ETP to complete the merger.

Q: Does the ETP Board recommend that ETP common unitholders adopt the merger agreement and the transactions contemplated thereby?

A: Yes. The ETP Board and the ETP Conflicts Committee have approved the merger agreement and the transactions contemplated thereby, including the merger, and determined that these transactions are advisable and fair and reasonable to, and in the best interests of, ETP and the unaffiliated ETP unitholders. Therefore, the ETP Board recommends that you vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby at the special meeting. See “The Merger—Recommendation of the ETP Board; Reasons for the Merger” beginning on page 77 of this proxy statement/prospectus. In considering the recommendation of the ETP Board with respect to the merger agreement and the transactions contemplated thereby, including the merger, you should be aware that directors and executive officers of ETP are parties to agreements or participants in other arrangements that give them interests in the merger that may be different from, or in addition to, your interests as a unitholder of ETP. You should consider these interests in voting on the merger proposal. These different interests are described under “The Merger—Interests of Directors and Executive Officers of ETP in the Merger” beginning on page 101 of this proxy statement/prospectus.

Q: What unitholder vote is required for the approval of each proposal?

A: The following are the vote requirements for the ETP proposals:

 

    Merger proposal. The affirmative vote of the holders of at least a majority of the outstanding ETP common units. Accordingly, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as votes “AGAINST” the proposal.

 

   

Adjournment proposal. If a quorum is present at the special meeting, the affirmative vote of the holders of at least a majority of the outstanding ETP common units. If a quorum is not present at the meeting, the affirmative vote of holders of a majority of the outstanding ETP common units, represented thereat either in person or by proxy, will be required to approve the proposal. Accordingly,

 

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if a quorum is present, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as votes “AGAINST” the proposal. If a quorum is not present, abstentions and broker non-votes will have the same effect as votes “AGAINST” the proposal, but an ETP common unitholder’s failure to vote will have no effect on the adoption of the proposal.

Pursuant to the merger agreement, ETE, which directly and indirectly owns all of the incentive distribution rights and the general partner interest in ETP, has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof, which includes the merger proposal and, if necessary, the adjournment proposal. As of                     , 2017, ETE and its subsidiaries collectively held              ETP common units, representing approximately     % of the ETP units entitled to vote at the special meeting.

Q: What constitutes a quorum for the special meeting?

A: The holders of at least a majority of the outstanding ETP common units must be represented in person or by proxy at the special meeting in order to constitute a quorum.

Q: When is this proxy statement/prospectus being mailed?

A: This proxy statement/prospectus and the proxy card are first being sent to ETP common unitholders on or about                     , 2017.

Q: Who is entitled to vote at the special meeting?

A: Holders of outstanding ETP common units outstanding as of the close of business on                     , 2017, the record date, are entitled to one vote per unit at the special meeting.

As of the record date, there were approximately              ETP common units outstanding, all of which are entitled to vote at the special meeting.

Q: When and where is the special meeting?

A: The special meeting will be held at                     , on                     , 2017, at             , local time.

Q: How do I vote my common units at the special meeting?

A: There are four ways you may cast your vote. You may vote:

 

    In Person. If you are a common unitholder of record, you may vote in person at the special meeting. Common units held by a bank, broker or other nominee may be voted in person by you only if you obtain a legal proxy from the record holder (which is your bank, broker or other nominee) giving you the right to vote the units;

 

    Via the Internet. You may cause your common units to be voted at the special meeting by submitting your proxy electronically via the Internet by accessing the Internet address provided on each proxy card (if you are a common unitholder of record) or vote instruction card (if your common units are held by a bank, broker or other nominee);

 

    By Telephone. You may cause your common units to be voted at the special meeting by submitting your proxy by using the toll-free telephone number listed on the enclosed proxy card (if you are a common unitholder of record) or vote instruction card (if your common units are held by a bank, broker or other nominee); or

 

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    By Mail. You may cause your common units to be voted at the special meeting by submitting your proxy by filling out, signing and dating the enclosed proxy card (if you are a common unitholder of record) or vote instruction card (if your common units are held by a bank, broker or other nominee) and returning it by mail in the prepaid envelope provided.

Even if you plan to attend the special meeting in person, you are encouraged to submit your proxy as described above so that your vote will be counted if you later decide not to attend the special meeting.

If your common units are held by a bank, broker or other nominee, also known as holding units in “street name,” you should receive instructions from the bank, broker or other nominee that you must follow in order to have your common units voted. Please review such instructions to determine whether you will be able to submit your proxy via Internet or by telephone. The deadline for submitting your proxy by telephone or electronically through the Internet is 11:59 p.m., Eastern Time, on                     , 2017 (the “telephone/internet deadline”).

Q: If my common units are held in “street name” by my broker, will my broker automatically vote my common units for me?

A: No. If your common units are held in an account at a broker or through another nominee, you must instruct the broker or other nominee on how to vote your common units by following the instructions that the broker or other nominee provides to you with these materials. Most brokers offer the ability for unitholders to submit voting instructions by mail by completing a voting instruction card, by telephone and via the Internet.

If you do not provide voting instructions to your broker, your common units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the broker can register your common units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote on those matters for which specific authorization is required. Under the current rules of the NYSE, brokers do not have discretionary authority to vote on any of the proposals, at the special meeting, including the merger proposal. A broker non-vote will have the same effect as a vote “AGAINST” the merger proposal and the adjournment proposal.

Q: How will my ETP common units be represented at the special meeting?

A: If you submit your proxy by telephone, the Internet website or by signing and returning your proxy card, the officers named in your proxy card will vote your common units in the manner you requested if you correctly submitted your proxy. If you sign your proxy card and return it without indicating how you would like to vote your common units, your proxy will be voted as the ETP Board recommends, which is:

 

    Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby; and

 

    Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Q: Who may attend the special meeting?

A: ETP common unitholders (or their authorized representatives) and ETP’s invited guests may attend the special meeting. All attendees at the special meeting should be prepared to present government-issued photo identification (such as a driver’s license or passport) for admittance.

 

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Q: Is my vote important?

A: Yes, your vote is very important. If you do not submit a proxy or vote in person at the special meeting, it will be more difficult for ETP to obtain the necessary quorum to hold the special meeting. In addition, an abstention or your failure to submit a proxy or to vote in person will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the transactions contemplated thereby. If you hold your common units through a bank, broker or other nominee, your bank, broker or other nominee will not be able to cast a vote on such adoption without instructions from you. The ETP Board recommends that ETP common unitholders vote “FOR” the ETP merger proposal.

Q: Can I revoke my proxy or change my voting instructions?

A: Yes. If you are a common unitholder of record, you may revoke or change your vote at any time before the telephone/internet deadline or before the polls close at the special meeting by:

 

    sending a signed, written notice to Energy Transfer Partners, L.P. at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, Attention: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting and states that you revoke your proxy;

 

    submitting a valid proxy by telephone or internet that bears a date later than the date of the proxy, but no later than the telephone/internet deadline and is received prior to the special meeting; or

 

    attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your ETP common units through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee in order to revoke your proxy or change your voting instructions.

Q: What happens if I sell my common units after the record date but before the special meeting?

A: The record date for the special meeting is earlier than the date of the special meeting and earlier than the date that the merger is expected to be completed. If you sell or otherwise transfer your ETP common units after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting. However, you will not have the right to receive the merger consideration to be received by ETP’s common unitholders in the merger. In order to receive the merger consideration, you must hold your ETP common units through completion of the merger.

Q: What does it mean if I receive more than one proxy card or vote instruction card?

A: Your receipt of more than one proxy card or vote instruction card may mean that you have multiple accounts with ETP’s transfer agent or with a bank, brokerage firm or other nominee. If voting by mail, please sign and return all proxy cards or vote instruction cards to ensure that all of your ETP common units are voted. Each proxy card or vote instruction card represents a distinct number of units and it is the only means by which those particular units may be voted by proxy.

Q: Is completion of the merger subject to any conditions?

A: Yes. In addition to the adoption of the merger agreement by the holders of at least a majority of the outstanding ETP common units, completion of the merger requires the receipt of the necessary governmental clearances and the satisfaction or, to the extent permitted by applicable law, waiver of the other conditions specified in the merger agreement.

 

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Q: When do you expect to complete the merger?

A: SXL and ETP are working towards completing the merger promptly. SXL and ETP currently expect to complete the merger shortly following the conclusion of the meeting, subject to receipt of ETP unitholder approval, regulatory approvals and clearances and other usual and customary closing conditions. However, no assurance can be given as to when, or if, the merger will occur.

Q: What are the expected U.S. federal income tax consequences to an ETP unitholder as a result of the transactions contemplated by the merger agreement?

A: Although for state law purposes ETP will become a wholly owned subsidiary of SXL in the merger, for U.S. federal income tax purposes, ETP (rather than SXL) will be treated as the continuing partnership following the merger. As a result, for U.S. federal income tax purposes, SXL will be deemed to contribute all of its assets to ETP in exchange for ETP units and the assumption of SXL’s liabilities, followed by a liquidation of SXL in which ETP units are distributed to SXL unitholders. In addition, as a result of the merger, SXL unitholders immediately prior to the merger, who will be deemed to have received ETP units in the merger, will be deemed to become limited partners of ETP for U.S. federal income tax purposes and will be allocated a share of ETP’s nonrecourse liabilities.

It is anticipated that no gain or loss should be recognized by an ETP unitholder solely as a result of the merger, except to the extent any net decrease in such unitholder’s share of partnership liabilities pursuant to Section 752 of the Internal Revenue Code of 1986, as amended (the “Code”), exceeds such unitholder’s adjusted tax basis in its ETP units at the closing of the merger. Each ETP common unitholder’s share of ETP’s nonrecourse liabilities will be recalculated following the merger. Any resulting increase or decrease in an ETP common unitholder’s nonrecourse liabilities will result in a corresponding increase or decrease in such unitholder’s adjusted tax basis in its ETP common units. A reduction in a common unitholder’s share of nonrecourse liabilities would, if such reduction exceeds the unitholder’s tax basis in his or her ETP common units, under certain circumstances, result in the recognition of taxable gain by an ETP common unitholder. In addition, an ETP unitholder would recognize such unitholder’s distributive share of any gain recognized by ETP as a result of the merger. However, it is not anticipated that gain or loss should be recognized by ETP solely as a result of the merger. For additional information, please read “Material U.S. Federal Income Tax Consequences of the Merger—Tax Consequences of the Merger to ETP and ETP Common Unitholders” and “Risk Factors—Risk Factors Relating to the Merger.”

Q: What are the expected U.S. federal income tax consequences for an ETP common unitholder of the ownership of SXL common units after the merger is completed?

A: Each ETP common unitholder who becomes a holder of SXL common units as a result of the merger will, as is the case for existing SXL common unitholders, be allocated such unitholder’s distributive share of SXL’s 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 SXL conducts business or owns property following the merger, or in which the unitholder is a resident. Please read “Material U.S. Federal Income Tax Consequences of SXL Common Unit Ownership.”

Q: What do I need to do now?

A: Carefully read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes. Then, please vote your ETP common units in accordance with the instructions described above.

 

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If you hold ETP common units through a bank, broker or other nominee, please instruct your bank, broker or nominee to vote your common units by following the instructions that the bank, broker or nominee provides to you with these materials.

Q: Should I send in my unit certificates now?

A: No. ETP common unitholders should not send in their unit certificates at this time. After completion of the merger, SXL’s exchange agent will send you a letter of transmittal and instructions for exchanging your ETP common units for the merger consideration.

Q: Are holders of ETP common units entitled to dissenters’ rights or appraisal rights?

A: No. Neither dissenters’ rights nor appraisal rights are available in connection with the merger under the Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”), the merger agreement or the Second Amended and Restated Agreement of Limited Partnership of Energy Transfer Partners, L.P., as amended (the “ ETP partnership agreement”).

Q: Whom should I call with questions?

A: ETP common unitholders who have questions about the merger or the special meeting, or desire additional copies of this proxy statement/prospectus or additional proxy cards or voting instruction forms should contact MacKenzie Partners, Inc., ETP’s proxy solicitor, at:

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Toll free: (800) 322-2855

Collect: (212) 929-5500

 

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SUMMARY

This summary highlights selected information from this proxy statement/prospectus. You are urged to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the special meeting. See “Where You Can Find More Information.” Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

The Parties (See page 41)

Sunoco Logistics Partners L.P. is a Delaware limited partnership with common units traded on the NYSE under the symbol “SXL.” SXL owns and operates a logistics business consisting of a geographically diverse portfolio of complementary pipeline, terminalling, and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids (“NGLs”) and refined products. Sunoco Partners LLC, a Pennsylvania limited liability company, is SXL’s general partner, and SXL Acquisition Sub LLC, a Delaware limited liability company, and SXL Acquisition Sub LP, a Delaware limited partnership, are each a wholly owned subsidiary of SXL.

Energy Transfer Partners, L.P., is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETP.” ETP is engaged in the transportation and storage of natural gas, NGLs and crude oil, and terminalling services and acquisition and marketing activities through SXL. ETP holds a controlling ownership interest in SXL through its ownership of a 99.9% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL. Energy Transfer Partners GP, L.P., a Delaware limited partnership, is ETP’s general partner.

Energy Transfer Equity, L.P. is a Delaware limited partnership with common units traded on the NYSE under the symbol “ETE.” ETE indirectly owns all of the incentive distribution rights and general partner interest in ETP. Additionally, ETE directly owns approximately 3.3% of the outstanding ETP common units and indirectly owns a 0.1% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL, as well as all of the ETP Class H units, which entitle ETE to receive 90.05% of the distributions paid to ETP with respect to SXL’s incentive distribution rights and general partner interest. ETE is a party to the merger agreement solely for purposes of certain provisions therein.

The Merger (See page 64)

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the merger of SXL Merger Sub LP with ETP (the “merger”). ETP will survive the merger and become a wholly owned subsidiary of SXL, but ETP will cease to be a publicly traded limited partnership. Following the consummation of the merger, it is expected that SXL will change its name to “Energy Transfer Partners, L.P.” and ETP will change its name to “Energy Transfer, LP.”

The GP Merger (See page 64)

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law and Pennsylvania law, and concurrently with the merger, SXL GP will merge with ETP GP (the “GP merger” and, together with the merger, the “mergers”). ETP GP will survive the GP merger and become the general partner of SXL, owning the general partner interest and incentive distribution rights in SXL, which will remain unchanged following the mergers.

 



 

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Merger Consideration (See page 117)

Common Units. The merger agreement provides that, at the effective time, each ETP common unit issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time will be converted into the right to receive 1.5 SXL common units.

Other Classes of ETP Units. The merger agreement provides that, at the effective time, each Class E unit, Class G unit, Class I unit and Class K unit of ETP issued and outstanding immediately prior to the effective time will be converted into an equal number of newly created classes of SXL units, with the same rights, preferences, privileges, duties and obligations as such classes of ETP units had immediately prior to the closing of the merger.

Treatment of Restricted Units and Cash Units (See page 117)

Restricted Units. At the effective time, each outstanding award of ETP restricted units will, by virtue of the merger and without any action on the part of the holder of any such ETP restricted units, cease to relate to or represent a right to receive ETP common units and will be converted into the right to receive an award of SXL restricted units, on the same terms and conditions as were applicable to the corresponding award of ETP restricted units (including the right to receive distribution equivalents with respect to such award), except that the number of SXL common units covered by each such award will be equal to the number of ETP common units subject to the corresponding award of ETP restricted units multiplied by the exchange ratio, rounded up to the nearest whole unit.

Cash Units. At the effective time, each outstanding award of ETP cash units will, automatically and without any action on the part of the holder of such ETP cash units, be converted into the right to receive an award of restricted cash units relating to SXL common units on the same terms and conditions as were applicable to the award of ETP cash units, except that the number of notional SXL common units related to the award will be equal to the number of notional ETP common units relating to the corresponding award of ETP cash units multiplied by the exchange ratio, rounded up to the nearest whole unit.

Treatment of General Partner Interest; Incentive Distribution Rights and Class H Units (See page 117)

In connection with the mergers, ETP GP will transfer the 0.6% general partner interest in ETP to SXL Merger Sub and SXL Merger Sub will assume the rights and duties of the general partner of ETP. As a result of the merger and the related transactions, the 100% limited partner interest in SXL Merger Sub LP will convert into a 99.4% limited partner interest in ETP, the non-economic general partner interest in SXL Merger Sub LP will be cancelled and SXL Merger Sub will become the general partner of ETP, holding a 0.6% general partner interest. In addition, the incentive distribution rights in ETP and the Class H units outstanding immediately prior to the effective time will be cancelled.

The Special Meeting; Units Entitled to Vote; Required Vote (See page 59)

Meeting. The special meeting will be held at                     , on                     , 2017, at             , local time. At the special meeting, ETP common unitholders will be asked to vote on the following proposals:

 

    Merger proposal: To adopt the merger agreement, a composite copy of which, incorporating the amendment into the text of the initial agreement, is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

    Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

 



 

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Record Date. Only ETP common unitholders of record at the close of business on                     , 2017 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of                     , 2017, there were approximately              ETP common units outstanding and entitled to vote at the meeting. Each holder of ETP common units is entitled to one vote for each common unit owned as of the record date.

Required Vote. To adopt the merger agreement and the transactions contemplated thereby, holders of at least a majority of the outstanding ETP common units must vote in favor of such adoption. ETP cannot complete the merger unless its common unitholders adopt the merger agreement and the transactions contemplated thereby. Because approval is based on the affirmative vote of at least a majority of the outstanding ETP common units, an ETP common unitholder’s failure to vote, an abstention from voting or the failure of an ETP common unitholder who holds his or her units in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee, which we refer to as a broker non-vote, will have the same effect as a vote “AGAINST” adoption of the merger agreement.

If a quorum is present at the special meeting, to approve the adjournment of the meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting, holders of at least a majority of the outstanding ETP common units must vote in favor of the proposal. Therefore, if a quorum is present at the meeting, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as a vote “AGAINST” approval of this proposal. If a quorum is not present at the special meeting, to approve the adjournment of the meeting, holders of at least a majority of the outstanding ETP common units represented thereat either in person or by proxy must vote in favor of the proposal. Therefore, if a quorum is not present, abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the adjournment proposal, but an ETP common unitholder’s failure to vote will have no effect on the outcome of the proposal.

Unit Ownership of and Voting by ETP’s Directors, Executive Officers and Affiliates. As of                     , 2017, ETP’s directors and executive officers and their affiliates (including ETE and its subsidiaries) beneficially owned and had the right to vote              ETP common units at the special meeting, which represent     % of the ETP common units entitled to vote at the special meeting. It is expected that ETP’s directors and executive officers will vote their units “FOR” the adoption of the merger agreement and the transactions contemplated thereby, although none of them has entered into any agreement requiring them to do so. Additionally, under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

Recommendation of the ETP Board; Reasons for the Merger (See page 77)

The ETP Board recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby.

In the course of reaching their decisions to approve the merger agreement and the transactions contemplated by the merger agreement, the ETP Conflicts Committee and the ETP Board considered a number of factors in its deliberations. For a more complete discussion of these factors, see “The Merger—Recommendation of the ETP Board; Reasons for the Merger.”

Opinion of the Financial Advisor to the ETP Conflicts Committee (See page 82)

In connection with the proposed transaction, the ETP Conflicts Committee received, on November 20, 2016, an oral opinion from Barclays Capital Inc. (“Barclays”), which was subsequently confirmed in a written opinion,

 



 

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dated November 20, 2016, from Barclays, as to the fairness, as of the date of the opinion and based upon and subject to the qualifications, limitations and assumptions stated therein, from a financial point of view, to the holders of the ETP common units, other than ETE, SXL and their Affiliates (as defined in the merger agreement) (the “unaffiliated ETP unitholders”), of the exchange ratio to be offered to such unaffiliated ETP unitholders in the proposed transaction.

The full text of Barclays’ written opinion, which is attached to this proxy statement/prospectus as Annex B, sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully and in its entirety. Barclays’ opinion was provided for the information of the ETP Conflicts Committee in connection with its evaluation of the exchange ratio to be offered to unaffiliated ETP unitholders from a financial point of view and did not address any other aspects or implications of the proposed transaction. Barclays expressed no view as to, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the proposed transaction, the likelihood of consummation of the proposed transaction or the relative merits of the proposed transaction as compared to any other transaction or business strategy in which ETP might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of (i) any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the exchange ratio in the proposed transaction or otherwise; (ii) the fairness of any portion or aspect of the proposed transaction to the holders of any class of securities, creditors or other constituencies of ETP or any other person, or to any other person, other than the fairness, from a financial point of view, of the exchange ratio to be offered to the unaffiliated ETP unitholders; or (iii) any portion or aspect of the proposed transaction to any one class or group of ETP’s or any other person’s equity security holders vis a vis any other class or group of ETP’s security holders or any other person’s security holders (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders). The summary of Barclays’ opinion provided in this proxy statement/prospectus is qualified in its entirety by reference to the full opinion. Barclays’ opinion is not intended to be and does not constitute a recommendation to any unaffiliated ETP unitholder as to how such unaffiliated ETP unitholder should vote or act with respect to the proposed transaction or any other matter.

No SXL Unitholder Approval Required (See page 105)

SXL unitholders are not required to adopt the merger agreement or approve the merger or the issuance of SXL common units in connection with the merger.

Directors and Executive Officers of SXL After the Merger (See page 107)

Following the consummation of the GP merger, ETP GP, as the general partner of SXL, will have direct responsibility for conducting SXL’s business and for managing its operations. Therefore, after the closing of the mergers, the board of directors and officers of ETP GP will make decisions on SXL’s behalf. SXL expects that the directors and executive officers of SXL GP immediately prior to the merger will continue in management roles of ETP GP after the merger, except that (i) Kelcy L. Warren, Chief Executive Officer of ETP, is expected to become the Chief Executive Officer of SXL, (ii) Marshall S. (Mackie) McCrea, III, Group Chief Operating Officer and Chief Commercial Officer of ETE, is expected to become the Chief Commercial Officer of SXL, (iii) Matthew S. Ramsey, President and Chief Operating Officer of ETP, is expected to become the President of SXL, and (iv) Thomas E. Long, Chief Financial Officer of ETP, is expected to become the Chief Financial Officer of SXL. SXL also expects that Michael J. Hennigan, the current President and Chief Executive Officer of SXL, and other members of the SXL management team will continue in management roles of the combined company with the current SXL business operations continuing to be headquartered in Philadelphia. Specifically, Mr. Hennigan is expected to serve as President, Crude, NGL and Refined Products following the merger.

 



 

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Ownership of SXL After the Merger (See page 107)

SXL will issue approximately              million SXL common units to former ETP common unitholders pursuant to the merger agreement. Based on the number of SXL common units outstanding as of the date of this proxy statement/prospectus, immediately following the completion of the merger, SXL expects to have approximately              million common units outstanding. ETP unitholders are therefore expected to hold approximately     % of the aggregate number of SXL common units outstanding immediately after the merger and approximately     % of SXL’s total units of all classes. Holders of SXL common units (similarly to holders of ETP common units) are not entitled to elect SXL’s general partner or the directors of the board of directors (the “SXL Board”) of SXL’s general partner and have only limited voting rights on matters affecting SXL’s business.

Interests of Directors and Executive Officers of ETP in the Merger (See page 101)

ETP’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of ETP unitholders generally. The members of the ETP Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to ETP’s unitholders that the merger agreement be adopted.

These interests include:

 

    Certain members of the ETP Board are also members of the ETE board of directors and/or the SXL Board and are executives of ETE and/or ETP.

 

    The members of the ETP Board are expected to serve as members of the ETP Board following the merger, when the ETP Board becomes responsible for managing ETP GP as the general partner of SXL.

 

    Certain executive officers of ETP have been offered roles at SXL following the completion of the merger.

 

    As with all holders of ETP restricted units, the ETP restricted units held by executive officers and directors of ETP will be converted into the right to receive an award of restricted units relating to SXL common units on the same terms and conditions as were applicable to the ETP restricted units, except that the number of SXL common units covered by the award will be equal to the number of ETP common units multiplied by the exchange ratio, rounded up to the nearest whole unit.

Interests of ETE and ETP in the Merger (See page 104)

ETE holds a controlling ownership interest in ETP. ETE controls ETP through ETE’s ownership of ETP GP LLC, which is the general partner of ETP GP. ETE also owns all of the limited partner interests of ETP GP. ETP GP owns 100% of the general partner interest and incentive distribution rights in ETP. ETE also owns all of the Class H units and Class I units in ETP, as well as approximately 3.3% of the outstanding ETP common units. In addition, ETE indirectly owns a 0.1% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL. ETE has different economic interests in the merger than ETP common unitholders generally due to, among other things, ETE’s ownership of economic interests in ETP other than ETP common units and ETE’s ongoing ownership of the general partner interest and incentive distribution rights in SXL following the merger.

ETP holds a controlling ownership interest in SXL through its ownership of a 99.9% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL. ETP also owns all of the Class B units in SXL and approximately 21% of the outstanding SXL common units.

 



 

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Under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE and its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

Risk Factors Relating to the Merger and Ownership of SXL Common Units (See page 30)

ETP unitholders should consider carefully all the risk factors together with all of the other information included or incorporated by reference in this proxy statement/prospectus before deciding how to vote. Risks relating to the merger and ownership of SXL common units are described in the section titled “Risk Factors.” Some of these risks include, but are not limited to, those described below:

 

    Because the market price of SXL common units will fluctuate prior to the consummation of the merger, ETP unitholders cannot be sure of the market value of the SXL common units they will receive as merger consideration relative to the value of ETP common units they exchange.

 

    SXL and ETP may be unable to obtain the regulatory clearances required to complete the merger or, in order to do so, SXL and ETP may be required to comply with material restrictions or satisfy material conditions.

 

    The merger agreement contains provisions that limit ETP’s ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of ETP from making a favorable alternative transaction proposal and, in specified circumstances, including if unitholder approval is not obtained or if the merger agreement is terminated due to an adverse recommendation change having occurred, could require ETP to reimburse up to $30.0 million of SXL’s out-of-pocket expenses and pay a termination fee to SXL of $630.0 million, less any previous expense reimbursements by ETP. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by SXL or its affiliates.

 

    Directors and officers of ETP have certain interests that are different from those of ETP unitholders generally.

 

    ETP unitholders will have a reduced ownership in the combined organization after the merger.

 

    SXL common units to be received by ETP unitholders as a result of the merger have different rights from ETP common units.

 

    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 SXL and ETP being treated as partnerships for U.S. federal income tax purposes.

 

    ETP GP is owned by ETE and SXL GP is owned by ETP and ETE. This may result in conflicts of interest.

 

    SXL common unitholders have limited voting rights and are not entitled to elect SXL’s general partner or the directors of SXL’s general partner.

 

    SXL’s tax treatment following the merger will depend on its status as a partnership for U.S. federal income tax purposes, as well as it not being subject to a material amount of entity-level taxation by individual states or local entities. If the IRS were to treat SXL as a corporation or SXL were to become subject to a material amount of entity-level taxation for state or local tax purposes, the amount of cash available for payment for distributions on the SXL common units would be substantially reduced.

Material U.S. Federal Income Tax Consequences of the Merger (See page 136)

Tax matters associated with the merger are complicated. The U.S. federal income tax consequences of the merger to an ETP common unitholder will depend, in part, on such unitholder’s own personal tax situation. The

 



 

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tax discussions contained herein 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 ETP common units as capital assets, and these discussions have only limited application to other unitholders, including those subject to special tax treatment. ETP common 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.

The expected U.S. federal income tax consequences of the merger are dependent upon SXL and ETP being treated as partnerships for U.S. federal income tax purposes at the time of the merger. Whether each of SXL and ETP will be treated as partnerships for U.S. federal income tax purposes at the time of the merger will depend, in part, on whether at least 90% of the gross income of each of them for the calendar year that immediately proceeds the merger and the calendar year that includes the closing date of the merger is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code.

In connection with the merger, ETP expects to receive an opinion from Latham & Watkins LLP to the effect that (i) ETP should not recognize any income or gain as a result of the merger; (ii) no gain or loss should be recognized by holders of ETP common units as a result of the merger (other than any gain resulting from the distribution of cash or from any decrease in partnership liabilities pursuant to Section 752 of the Code); and (iii) at least 90% of the gross income of ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code. The requirement to deliver such opinion may be waived.

In connection with the merger, SXL expects to receive an opinion from Vinson & Elkins L.L.P. to the effect that (i) for U.S. federal income tax purposes SXL should not recognize any income or gain as a result of the merger (other than any gain resulting from a disguised sale attributable to contributions of cash or other property to SXL after the date of the merger agreement and prior to the effective time of the merger); (ii) for U.S. federal income tax purposes no gain or loss should be recognized by holders of SXL common units as a result of the merger (other than any gain resulting from (A) any decrease in partnership liabilities pursuant to Section 752 of the Code and (B) a disguised sale attributable to contributions of cash or other property to SXL after the date of the merger agreement and prior to the effective time of the merger); (iii) at least 90% of the gross income of SXL for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code; and (iv) at least 90% of the combined gross income of each of SXL and ETP for all of the calendar year that immediately precedes the calendar year that includes the closing date and each calendar quarter of the calendar year that includes the closing date for which the necessary financial information is available is from sources treated as “qualifying income” within the meaning of Section 7704(d) of the Code. The requirement to deliver such opinion may be waived.

Opinions of counsel, however, are subject to certain limitations and are not binding on the Internal Revenue Service (“IRS”) and no assurance can be given that the IRS would not successfully assert a contrary position regarding the merger and the opinions of counsel. In addition, such opinions will be based upon certain factual assumptions and representations made by the officers of SXL, SXL GP, ETP, ETP GP and any of their respective affiliates. If either SXL or ETP 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. Please read “Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax consequences of the merger.

 



 

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Accounting Treatment of the Merger (See page 105)

ETP controls SXL through its ownership of SXL GP and therefore currently consolidates the operations of SXL into ETP’s financial statements. For accounting purposes, the merger will result in ETP being considered the surviving consolidated entity, rather than SXL, which is the surviving consolidated entity for legal and reporting purposes. Subsequent to the merger, SXL will present consolidated financial statements that reflect the historical consolidated financial statements of ETP. The merger will be accounted for as an equity transaction and will be reflected in the consolidated financial statements as ETP’s acquisition of SXL’s noncontrolling interest. The carrying amounts of SXL’s and ETP’s assets and liabilities will not be adjusted, nor will a gain or loss be recognized as a result of the merger.

Listing of SXL Common Units; Delisting and Deregistration of ETP Common Units (See page 107)

SXL common units are currently listed on the NYSE under the ticker symbol “SXL.” It is a condition to closing that the SXL common units to be issued in the merger to ETP unitholders be approved for listing on the NYSE, subject to official notice of issuance. Following the consummation of the merger, it is expected that SXL will change its name to “Energy Transfer Partners, L.P.” and apply to continue the listing of its common units on the NYSE under the symbol “ETP.”

ETP common units are currently listed on the NYSE under the ticker symbol “ETP.” If the merger is completed, ETP common units will cease to be listed on the NYSE and will be deregistered under the Exchange Act. Following the consummation of the merger, it is expected that ETP will change its name to “Energy Transfer, LP.”

No Dissenters’ Rights or Appraisal Rights (See page 105)

Neither dissenters’ rights nor appraisal rights are available in connection with the merger under the Delaware LP Act, the merger agreement or the ETP partnership agreement.

Conditions to Consummation of the Mergers (See page 110)

SXL and ETP currently expect to complete the merger shortly following the conclusion of the meeting, subject to receipt of required ETP unitholder approval and regulatory approvals and clearances and to the satisfaction or waiver of the other conditions to the transactions contemplated by the merger agreement described below.

As more fully described in this proxy statement/prospectus, each party’s obligation to complete the transactions contemplated by the merger agreement depends on a number of customary closing conditions being satisfied or, where legally permissible, waived, including the following:

 

    the merger agreement and the transactions contemplated thereby must have been adopted by the affirmative vote or consent of the holders of at least a majority of the outstanding ETP common units;

 

    any waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) must have been terminated or expired, and any approval or consent under any other applicable antitrust law must have been obtained;

 

    no law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by any governmental authority will be in effect enjoining, restraining, preventing or prohibiting the consummation of the transactions contemplated by the merger agreement or making the consummation of such transactions illegal;

 



 

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    the registration statement of which this proxy statement/prospectus forms a part must have been declared effective by the SEC and must not be subject to any stop order or proceedings initiated or threatened by the SEC;

 

    the SXL common units to be issued in the merger must have been approved for listing on the NYSE, subject to official notice of issuance;

 

    ETP having received from Latham & Watkins LLP, tax counsel to ETP, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement— Conditions to Consummation of the Mergers”; and

 

    SXL having received from Vinson & Elkins L.L.P., tax counsel to SXL, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement— Conditions to Consummation of the Mergers.”

The obligations of SXL, SXL Merger Sub and SXL Merger Sub LP to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

    the representations and warranties of ETP and ETP GP in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Mergers”;

 

    ETP and ETP GP having performed, in all material respects, all obligations required to be performed by them under the merger agreement;

 

    the receipt of an officer’s certificate executed by an executive officer of ETP GP certifying that the two preceding conditions have been satisfied

 

    SXL having received from Vinson & Elkins L.L.P., tax counsel to SXL, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement— Conditions to Consummation of the Mergers”; and

 

    ETP GP, as the GP surviving entity and the successor to SXL GP as general partner of SXL, having executed and delivered to SXL a joinder agreement by which ETP GP agrees to assume the rights and duties of the general partner of SXL under the Fourth Amended and Restated Agreement of Limited Partnership of Sunoco Logistics Partners L.P., a form of which is attached to this proxy statement/prospectus as Annex C (the “SXL partnership agreement”), and to be bound by the provisions therein.

The obligations of ETP and ETP GP to effect the merger are subject to the satisfaction or waiver of the following additional conditions:

 

    the representations and warranties of SXL, SXL GP, SXL Merger Sub and SXL Merger Sub LP in the merger agreement being true and correct in all respects both when made and at and as of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Mergers”;

 

    SXL, SXL GP, SXL Merger Sub and SXL Merger Sub LP having performed, in all material respects, all obligations required to be performed by them under the merger agreement;

 

    the receipt of an officer’s certificate executed by an executive officer of SXL GP and an authorized signatory of SXL Merger Sub certifying that the two preceding conditions have been satisfied;

 

    ETP having received from Latham & Watkins LLP, tax counsel to ETP, a written opinion regarding certain U.S. federal income tax matters, as described under “Proposal 1: The Merger Agreement— Conditions to Consummation of the Mergers”; and

 



 

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    SXL GP having executed and delivered to ETP the SXL partnership agreement, as described under “Proposal 1: The Merger Agreement—Conditions to Consummation of the Mergers.”

SXL Amended and Restated Partnership Agreement (See page 106)

In conjunction with the merger, SXL GP will execute and deliver to ETP the SXL partnership agreement, and ETP GP will execute and deliver to SXL a joinder agreement by which ETP GP will agree to assume the rights and duties of the general partner of SXL under the SXL partnership agreement. The amendments to the current SXL partnership agreement contained within the SXL partnership agreement will provide for, among other things, (i) the reduction by ETE, as the indirect holder of SXL’s incentive distribution rights following the consummation of the merger, in quarterly distributions in respect of such rights equal to the amount of the reduction in quarterly distributions in respect of ETP’s incentive distribution rights set forth in the ETP partnership agreement prior to the date of the merger agreement, (ii) the creation of new, unissued Class J units representing limited partner interests in SXL (the “SXL Class J units”), with the same rights, preferences, privileges, duties and obligations that the Class J units representing limited partner interests in ETP (the “Class J units”) had immediately prior to the merger, (iii) the creation and issuance of the Class E, Class G, Class I and Class K units and (iv) a change in the definition of “Operating Surplus” in the SXL partnership agreement to provide that such term will include an amount equal to the accumulated and undistributed operating surplus of ETP as of the closing of the merger. See “The Merger—SXL Amended and Restated Partnership Agreement.”

Regulatory Approvals and Clearances Required for the Merger (See page 106)

Consummation of the merger is subject to the expiration or termination of the applicable waiting period under the HSR Act, if any, and obtaining any approval or consent under any other applicable antitrust law. There is no filing requirement under the HSR Act for the merger, and therefore no waiting period applies. Further, no approvals or consents are required under any other antitrust law. Therefore, there are no regulatory approvals or clearances required to consummate the merger. See “The Merger—Regulatory Approvals and Clearances Required for the Merger.”

No Solicitation by ETP of Alternative Proposals (See page 114)

The merger agreement contains detailed provisions prohibiting ETP from seeking an alternative proposal to the merger. Under these “no solicitation” provisions, ETP has agreed that it will not, and will cause its subsidiaries not to, and use its reasonable best efforts to cause its and its subsidiaries’ directors, officers, employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives not to, directly or indirectly:

 

    solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute or could reasonably be expected to lead to an alternative proposal;

 

    grant any waiver or release of any standstill or similar agreement with respect to any units of ETP or of any of its subsidiaries; or

 

    except as permitted by the merger agreement, enter into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or other similar agreement relating to an alternative proposal.

In addition, the merger agreement requires ETP and its subsidiaries to (i) cease and cause to be terminated any discussions or negotiations with any persons conducted prior to the execution of the merger agreement

 



 

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regarding an alternative proposal, (ii) request the return or destruction of all confidential information previously provided to any such persons and (iii) immediately prohibit any access by any persons (other than SXL and its representatives) to any physical or electronic data room relating to a possible alternative proposal.

Notwithstanding these restrictions, the merger agreement provides that, under specified circumstances at any time prior to ETP unitholders voting in favor of adopting the merger agreement, ETP may furnish information, including confidential information, with respect to it and its subsidiaries to, and participate in discussions or negotiations with, any third party that makes a written alternative proposal that the ETP Board (upon the recommendation of the ETP Conflicts Committee) believes is bona fide so long as (after consultation with its financial advisors and outside legal counsel) the ETP Board (upon the recommendation of the ETP Conflicts Committee) determines in good faith that (i) such alternative proposal constitutes or could reasonably be expected to lead to or result in a superior proposal, (ii) failure to furnish such information or participate in such discussions would be inconsistent with the ETP Board’s duties under the ETP partnership agreement or applicable law and (iii) such alternative proposal did not result from a material breach of the no solicitation provisions in the merger agreement.

ETP has also agreed in the merger agreement that it (i) will promptly, and in any event within 24 hours after receipt, notify SXL of any alternative proposal or any request for information or inquiry with regard to any alternative proposal and the identity of the person making any such alternative proposal, request or inquiry (including providing SXL with copies of any written materials received from or on behalf of such person relating to such proposal, offer, request or inquiry) and (ii) will provide SXL with the terms, conditions and nature of any such alternative proposal, request or inquiry. In addition, ETP agrees to keep SXL reasonably informed of all material developments affecting the status and terms of any such alternative proposals, offers, inquiries or requests (and promptly provide SXL with copies of any written materials received by it or that it has delivered to any third party making an alternative proposal that relate to such proposals, offers, requests or inquiries) and of the status of any such discussions or negotiations.

Change in ETP Board Recommendation (See page 115)

The merger agreement provides that ETP will not, and will cause its subsidiaries and use reasonable best efforts to cause its representatives not to, directly or indirectly, withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to SXL, the recommendation of the ETP Board that its unitholders adopt the merger agreement or publicly recommend the approval or adoption of, or publicly approve or adopt, or propose to publicly recommend, approve or adopt, any alternative proposal, or fail to recommend against acceptance of any tender offer or exchange offer for ETP units within ten business days after commencement of such offer, or resolve or agree to take any of the foregoing actions. In addition, subject to certain limitations, if ETP receives an alternative proposal it will, within five business days of receipt of a written request from SXL, publicly reconfirm the recommendation of the ETP Board that its unitholders adopt the merger agreement and ETP may not unreasonably withhold, delay (beyond the five business day period) or condition such public reconfirmation.

ETP’s taking or failing to take, as applicable, any of the actions described above is referred to as an “adverse recommendation change.”

Subject to the satisfaction of specified conditions in the merger agreement described under “Proposal 1: The Merger Agreement—Change in ETP Board Recommendation,” the ETP Board and the ETP Conflicts Committee may, at any time prior to the adoption of the merger agreement by the ETP unitholders, effect an adverse recommendation change in response to either (i) an alternative proposal constituting a superior proposal or (ii) a changed circumstance that was not known to or reasonably foreseeable by the ETP Board prior to the date of the merger agreement, in each case if the ETP Board, upon the recommendation of the ETP Conflicts Committee and

 



 

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after consultation with its outside legal counsel and financial advisors, determines in good faith that the failure to take such action would be inconsistent with its duties under the ETP partnership agreement or applicable law.

Termination of the Merger Agreement (See page 118)

The merger agreement may be terminated at any time prior to the effective time:

 

    by mutual written consent of SXL and ETP;

 

    by either SXL or ETP:

 

    if the merger has not been consummated on or before May 20, 2017 (the “outside date”); provided, that the right to terminate is not available to a party if the inability to satisfy such condition was due to the failure of such party to perform any of its obligations under the merger agreement or if the other party has filed and is pursuing an action seeking specific performance pursuant to the terms of the merger agreement;

 

    if any governmental authority has issued a final and nonappealable law, injunction, judgment or ruling that enjoins or otherwise prohibits the consummation of the transactions contemplated by the merger agreement or makes the transactions contemplated by the merger agreement illegal; provided, however, that the right to terminate is not available to a party if such final law, injunction, judgment or rule was due to the failure of such party to perform any of its obligations under the merger agreement; or

 

    if the ETP unitholders do not adopt the merger agreement at the special meeting or any adjournment or postponement of such meeting;

 

    by SXL:

 

    if an adverse recommendation change by the ETP Board shall have occurred;

 

    if prior to the adoption of the merger agreement by ETP unitholders, ETP is in willful breach of its obligations to (i) duly call, give notice of, convene and hold a special meeting of ETP unitholders for the purpose of obtaining unitholder approval of the merger agreement, use its reasonable best efforts to solicit proxies from the ETP unitholders in favor of such adoption and, through the ETP Board, recommend the adoption of the merger agreement to ETP unitholders or (ii) comply with the requirements described under “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals,” in each case, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”; or

 

    if there is a breach by ETP of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from SXL of such breach, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”;

 

    by ETP:

 

    if there is a breach by SXL of any of its representations, warranties, covenants or agreements in the merger agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice from ETP of such breach, subject to certain exceptions discussed in “Proposal 1: The Merger Agreement—Termination of the Merger Agreement”; or

 

   

prior to the adoption of the merger agreement by ETP’s unitholders, in order to enter into (concurrently with such termination) any agreement, understanding or arrangement providing for

 



 

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a superior proposal in accordance with the requirements described under “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals,” including payment of the termination fee.

Expenses (See page 120)

Generally, all fees and expenses incurred in connection with the transactions contemplated by the merger agreement will be the obligation of the party incurring such fees and expenses.

In addition, following a termination of the merger agreement in specified circumstances, including if ETP unitholder approval is not obtained, ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by SXL and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by SXL or its affiliates.

Termination Fee (See page 119)

Following termination of the merger agreement under specified circumstances, including due to an adverse recommendation change having occurred, ETP will be required to pay SXL a termination fee of $630.0 million, less any expenses of SXL and its affiliates previously reimbursed by ETP to SXL pursuant to the merger agreement. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by SXL or its affiliates.

Comparison of Rights of SXL Unitholders and ETP Unitholders (See page 158)

ETP unitholders will own SXL common units following the completion of the merger, and their rights associated with those SXL common units will be governed by the SXL partnership agreement, which differs in a number of respects from the ETP partnership agreement, and the Delaware LP Act.

Litigation Relating to the Merger (See page 108)

Between January 6, 2017 and February 8, 2017, seven purported ETP common unitholders (“Plaintiffs”) separately filed seven putative unitholder class action lawsuits challenging the merger and the disclosures made in connection with the merger. Plaintiffs allege causes of action challenging the preliminary joint proxy statement/prospectus filed in connection with the merger. According to Plaintiffs, the preliminary joint proxy statement/prospectus is allegedly misleading because, among other things, it fails to disclose certain information concerning, in general, (a) the background and process that led to the merger; (b) ETE’s, ETP’s, and SXL’s financial projections; (c) the financial analysis and fairness opinion provided by Barclays; and (d) alleged conflicts of interest concerning Barclays, ETE, and certain officers and directors of ETP and ETE. Plaintiffs also assert, in general, that the terms of the merger (including, among other terms, the merger consideration) are unfair to ETP common unitholders and resulted from an unfair and conflicted process. Based on these assertions, one Plaintiff also alleges causes of action for (a) breaches of the covenant of good faith and/or fiduciary duties, and (b) aiding and abetting those alleged breaches. Defendants cannot predict the outcome of these or any other lawsuits that might be filed subsequent to the date of the filing of this joint proxy statement/prospectus, nor can Defendants predict the amount of time and expense that will be required to resolve such litigation. Defendants believe the lawsuits are without merit and intend to defend vigorously against the lawsuits and any other actions challenging the merger.

 



 

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Corporate Structure Prior to and Following the Mergers

The following represents the simplified corporate structure of ETE, SXL and ETP prior to the mergers:

 

LOGO

 



 

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The following represents the simplified corporate structure of ETE, SXL and ETP following the completion of the mergers:

 

 

LOGO

 

(1) Following the consummation of the merger, it is expected that SXL will change its name to “Energy Transfer Partners, L.P.” and apply to continue the listing of its common units on the NYSE under the symbol “ETP.”
(2) Following the consummation of the merger, it is expected that ETP will change its name to “Energy Transfer, LP.”

Selected Historical Consolidated Financial Data of SXL

The following table shows SXL’s selected historical consolidated financial data for each of the years ended December 31, 2015, 2014, and 2013, the period from acquisition, October 5, 2012 to December 31, 2012, the period from January 1, 2012 to October 4, 2012, and the year ended 2011 and consolidated financial data for each of the nine months ended September 30, 2016 and 2015 and are derived from SXL’s audited and unaudited historical consolidated financial statements.

You should read the following historical financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the

 



 

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related notes thereto set forth in SXL’s Annual Report on Form 10-K for the year ended December 31, 2015 and SXL’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

 

    Successor           Predecessor  
(Dollars in millions, except per unit data)  

 

Nine Months Ended

September 30,

    Year Ended December 31,     Period from
Acquisition,
October 5,
2012 to
December 31,
2012
          Period
from
January 1,
2012 to
October 4,
2012
    Year
Ended
December 31,
 
      2016             2015         2015     2014     2013           2011  

Income Statement Data:

                   

Revenues:

                   

Sales and other operating revenue:

                   

Unaffiliated customers

  $ 5,927      $ 7,766      $ 9,971      $ 17,018      $ 15,073      $ 2,989          $ 9,460      $ 10,473   

Affiliates

    307        415        515        1,070        1,566        200            461        432   

Gain on divestment and related matters

    —          —          —          —          —          —              11        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total revenues

  $ 6,234      $ 8,181      $ 10,486      $ 18,088      $ 16,639      $ 3,189          $ 9,932      $ 10,905   

Operating income

  $ 613      $ 467      $ 530      $ 367      $ 560      $ 159          $ 460      $ 423   

Other income

  $ 27      $ 19      $ 22      $ 25      $ 21      $ 5          $ 18      $ 13   

Income before income tax expense

  $ 522      $ 389      $ 418      $ 325      $ 504      $ 150          $ 413      $ 347   

Net Income

  $ 503      $ 371      $ 397      $ 300      $ 474      $ 142          $ 389      $ 322   

Net income attributable to noncontrolling interests

    (2     (2     (3     (9     (11     (3         (8     (9

Net income attributable to redeemable noncontrolling interests

    —          (1     (1     —          —          —              —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Net Income Attributable to Sunoco Logistics Partners L.P.

  $ 501      $ 368      $ 393      $ 291      $ 463      $ 139          $ 381      $ 313   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Net Income Attributable to Sunoco Logistics Partners L.P. per Limited Partner unit:

                   

Basic

  $ 0.68      $ 0.67      $ 0.42      $ 0.52      $ 1.63      $ 0.55          $ 1.57      $ 1.28   

Diluted

  $ 0.68      $ 0.66      $ 0.42      $ 0.51      $ 1.63      $ 0.55          $ 1.57      $ 1.27   

Cash distributions per unit to Limited Partners:

                   

Paid

  $ 1.468      $ 1.257      $ 1.715      $ 1.426      $ 1.174      $ 0.259          $ 0.659      $ 0.805   

Declared

  $ 1.499      $ 1.315      $ 1.794      $ 1.495      $ 1.232      $ 0.273          $ 0.707      $ 0.818   

Selected Historical Consolidated Financial Data of ETP

The following summary historical consolidated balance sheet data as of December 31, 2015, 2014, 2013, 2012 and 2011 and the summary historical consolidated statement of operations for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 and consolidated financial data as of and for each of the nine months ended September 30, 2016 and 2015 are derived from ETP’s audited and unaudited historical consolidated financial statements.

You should read the following historical consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto set forth in ETP’s Annual Report on Form 10-K for the year ended December 31, 2015 and ETP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, which

 



 

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are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”

 

     Historical  
(Dollars in millions, except per unit data)    Nine Months Ended
September 30,
     Year Ended December 31,  
   2016     2015      2015     2014      2013     2012      2011  

Statement of Operations Data:

                 

Total revenues

   $ 15,301      $ 28,467       $ 34,292      $ 55,475       $ 48,335      $ 16,964       $ 8,190   

Operating income

     1,967        2,072         2,259        2,443         1,619        1,425         1,279   

Income from continuing operations

     986        1,500         1,521        1,235         713        1,754         740   

Basic net income (loss) per limited partner unit

     (0.54     0.70         (0.09     1.58         (0.23     4.93         1.12   

Diluted net income (loss) per limited partner unit

     (0.54     0.68         (0.10     1.58         (0.23     4.91         1.12   

Cash distributions per unit

     3.165        3.105         4.16        3.86         3.61        3.58         3.58   

Balance Sheet Data (at period end):

                 

Total assets

     67,927        64,145         65,173        62,518         49,900        48,394         20,443   

Long-term debt, less current maturities

     29,182        27,449         28,553        24,831         19,761        17,599         9,075   

Total equity

     26,915        27,064         27,031        25,311         18,694        19,982         9,247   

Other Financial Data:

                 

Capital expenditures:

                 

Maintenance (accrual basis)

     234        308         485        444         391        347         156   

Growth (accrual basis)

     3,803        5,792         7,682        5,050         2,936        3,186         1,757   

Cash paid for acquisitions

     159        604         804        2,367         1,737        1,364         1,972   

Selected Unaudited Pro Forma Financial Information

The following selected unaudited pro forma condensed consolidated balance sheet data as of September 30, 2016 reflects the merger as if it occurred on September 30, 2016. The unaudited pro forma condensed consolidated statement of continuing operations data for the nine months ended September 30, 2016 and the year ended December 31, 2015 reflect the merger as if it occurred on January 1, 2015.

The following selected unaudited pro forma combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what the combined organization’s condensed financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined organization. Future results may vary significantly from the results reflected because of various factors. The following selected unaudited pro forma combined financial information should be read in conjunction with the section entitled “Sunoco Logistics Partners L.P. Unaudited Pro Forma Financial Information” and related notes included in this proxy statement/prospectus.

 



 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet Data as of September 30, 2016 (in millions)

 

     ETP
Historical
     Pro Forma
Adjustments
     SXL Pro
Forma for
Merger
 

Total assets

   $ 67,927       $ (25    $ 67,902   
  

 

 

    

 

 

    

 

 

 

Total equity

     26,915         (25      26,890   
  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   $ 67,927       $ (25    $ 67,902   
  

 

 

    

 

 

    

 

 

 

Unaudited Pro Forma Condensed Consolidated Statement of Continuing Operations for the Nine Months Ended September 30, 2016

 

     ETP
Historical
     Pro Forma
Adjustments
     SXL Pro
Forma for
Merger
 

Net income (in millions)

   $ 986       $ —         $ 986   
  

 

 

    

 

 

    

 

 

 

Net income (loss) per common unit:

        

Basic

   $ (0.54       $ 0.20   
  

 

 

       

 

 

 

Diluted

   $ (0.54       $ 0.20   
  

 

 

       

 

 

 

Weighted average number of common units (in millions):

        

Basic

     499.8            968.7   
  

 

 

       

 

 

 

Diluted

     499.8            970.2   
  

 

 

       

 

 

 

Unaudited Pro Forma Condensed Consolidated Statement of Continuing Operations for the Year Ended December 31, 2015

 

     ETP
Historical
     Pro Forma
Adjustments
     SXL Pro
Forma for
Merger
 

Net income (in millions)

   $ 1,521       $ —         $ 1,521   
  

 

 

    

 

 

    

 

 

 

Net income (loss) per common unit:

        

Basic

   $ (0.09       $ 0.53   
  

 

 

       

 

 

 

Diluted

   $ (0.10       $ 0.53   
  

 

 

       

 

 

 

Weighted average number of common units (in millions):

        

Basic

     432.8            830.8   
  

 

 

       

 

 

 

Diluted

     433.5            835.6   
  

 

 

       

 

 

 

Unaudited Comparative Per Unit Information

The table below sets forth historical and unaudited pro forma combined per unit information of SXL and ETP.

Historical Per Unit Information of SXL and ETP

The historical per unit information of SXL and ETP set forth in the table below is derived from the audited and unaudited consolidated financial statements as of and for the year ended December 31, 2015 and as of and for the nine months ended September 30, 2016 for each of SXL and ETP.

 



 

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Pro Forma Combined Per Unit Information of SXL

The unaudited pro forma combined per unit information of SXL set forth in the table below gives effect to the merger under the purchase method of accounting, as if the merger had been effective on January 1, 2015, in the case of income from continuing operations per unit and cash distributions data, and December 31, 2015, in the case of book value per unit data, and, in each case, assuming that a number of SXL common units equal to 1.5 have been issued in exchange for each outstanding ETP common unit, after giving effect to the settlement of outstanding ETP restricted units and ETP cash units in accordance with the merger agreement. The unaudited pro forma combined per unit information of SXL is derived from the audited and unaudited consolidated financial statements as of and for the years ended December 31, 2015 and as of and for the nine months ended September 30, 2016 for each of SXL and ETP.

Equivalent Pro Forma Combined Per Unit Information of ETP

The unaudited ETP equivalent pro forma per unit amounts set forth in the table below are calculated by multiplying the unaudited pro forma combined per unit amounts of SXL by the sum of the exchange ratio of 1.5.

General

You should read the information set forth below in conjunction with the selected historical financial information of SXL and ETP included elsewhere in this proxy statement/prospectus and the historical financial statements and related notes of SXL and ETP that are incorporated into this proxy statement/prospectus by reference. See “—Selected Historical Consolidated Financial Data of SXL,” “—Selected Historical Consolidated Financial Data of ETP” and “Where You Can Find More Information.”

The unaudited pro forma per unit information of SXL does not purport to represent the actual results of operations that SXL would have achieved or distributions that would have been declared had the companies been combined during these periods or to project the future results of operations that SXL may achieve or the distributions it may pay after the merger.

 

     As of and for the Nine Months Ended
September 30, 2016
     As of and for the Year Ended
December 31, 2015
 
     (in millions, except per unit data)  

Historical—SXL

     

Income from continuing operations

   $ 503       $ 397   

Distribution per common unit declared for the period

   $ 1.499       $ 1.794   

Book value per limited partner unit

   $ 24       $ 24   

 

     As of and for the Nine Months Ended
September 30, 2016
     As of and for the Year Ended
December 31, 2015
 
     (in millions, except per unit data)  

Historical—ETP

     

Income from continuing operations

   $ 986       $ 1,521   

Distribution per common unit declared for the period

   $ 3.165       $ 4.160   

Book value per limited partner unit

   $ 38       $ 47   

 



 

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     As of and for the Nine Months Ended
September 30, 2016
     As of and for the Year Ended
December 31, 2015
 
     (in millions, except per unit data)  

Pro Forma Combined

     

Income from continuing operations

   $ 986       $ 1,521   

Distribution per common unit declared for the period(1)

   $ 1.499       $ 1.794   

Book value per limited partner unit

   $ 23       $ 27   

 

(1) Pro forma combined distributions per common unit are assumed to be consistent with the historical distributions per common unit declared by SXL.

Comparative Unit Prices and Distributions

SXL common units are currently listed on the NYSE under the ticker symbol “SXL.” ETP common units are currently listed on the NYSE under the ticker symbol “ETP.” The table below sets forth, for the calendar quarters indicated, the high and low sale prices per SXL common unit on the NYSE and per ETP common unit on the NYSE. The table also shows the amount of cash distributions declared on SXL common units and ETP common units, respectively, for the calendar quarters indicated.

 

     SXL Common Units      ETP Common Units  
     High      Low      Cash
Distributions
     High      Low      Cash
Distributions
 

2017

                 

First quarter (through February 10, 2017)(1)

   $ 26.73       $ 23.71       $ —         $ 39.71       $ 35.42       $ —     

2016

                 

Fourth quarter

   $ 28.61       $ 22.07       $ 0.5200       $ 40.70       $ 32.67       $ 1.0550   

Third quarter

     31.49         26.88         0.5100         43.50         35.02         1.0550   

Second quarter

     29.77         22.63         0.5000         41.29         29.86         1.0550   

First quarter

     28.72         15.43         0.4890         35.39         18.62         1.0550   

2015

                 

Fourth quarter

   $ 32.89       $ 21.41       $ 0.4790       $ 47.53       $ 27.44       $ 1.0550   

Third quarter

     38.65         25.44         0.4580         54.64         36.84         1.0550   

Second quarter

     44.90         37.10         0.4380         59.37         51.73         1.0350   

First quarter

     46.72         36.62         0.4190         66.58         53.25         1.0150   

 

(1) Cash distributions in respect of the first quarter of 2017 have not been declared or paid.

The following table presents per unit closing prices of SXL common units and ETP common units on (i) November 18, 2016, the last trading day before the public announcement of the merger, and (ii) on                     , 2017, the most recent practicable trading day before the date of this proxy statement/prospectus. This table also presents the equivalent market value per ETP common unit on such dates. The equivalent market value per ETP common unit has been determined by multiplying the closing price of SXL common units on those dates by the exchange ratio if the merger had been effective on such date.

 

     SXL
Common Units
     ETP
Common Units
     Equivalent Market
Value per ETP
Common Unit
 

November 18, 2016

   $ 26.19       $ 39.37       $ 39.29   

                     , 2017

   $         $         $     

 



 

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Although the exchange ratio is fixed, the market prices of SXL common units and ETP common units will fluctuate prior to the consummation of the merger and the market value of the merger consideration ultimately received by ETP common unitholders will depend on the closing price of SXL common units on the day the merger is consummated. Thus, ETP common unitholders will not know the exact market value of the merger consideration they will receive until the closing of the merger.

 



 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the adoption of the merger agreement and the transactions contemplated thereby. You should also read and carefully consider the risks associated with each of SXL and ETP and their respective businesses. These risks can be found in SXL’s and ETP’s respective Annual Reports on Form 10-K for the year ended December 31, 2015 as updated by any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. For further information regarding the documents incorporated into this proxy statement/prospectus by reference, please see the section titled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described in the documents incorporated by reference could have a material adverse effect on SXL’s, ETP’s or the combined organization’s businesses, financial condition, cash flows and results of operations and could result in a decline in the trading prices of their respective common units.

Risk Factors Relating to the Merger

Because the market price of SXL common units will fluctuate prior to the consummation of the merger, ETP common unitholders cannot be sure of the market value of the SXL common units they will receive as merger consideration relative to the value of ETP common units they exchange.

The market value of the merger consideration that ETP common unitholders will receive in the merger will depend on the trading price of SXL’s common units at the closing of the merger. The exchange ratio that determines the number of SXL common units that ETP common unitholders will receive as consideration in the merger is fixed. This means that there is no mechanism contained in the merger agreement that would adjust the number of SXL common units that ETP common unitholders will receive as the merger consideration based on any decreases in the trading price of SXL common units. Unit price changes may result from a variety of factors (many of which are beyond SXL’s or ETP’s control), including:

 

    changes in SXL’s business, operations and prospects;

 

    changes in market assessments of SXL’s business, operations and prospects;

 

    interest rates, general market, industry and economic conditions and other factors generally affecting the price of SXL common units; and

 

    federal, state and local legislation, governmental regulation and legal developments in the businesses in which SXL operates.

Because the merger will be completed after the special meeting, at the time of the meeting, you will not know the exact market value of the SXL common units that you will receive upon completion of the merger. If SXL’s common unit price at the closing of the merger is less than SXL’s common unit price on the date that the merger agreement was signed, then the market value of the merger consideration received by ETP unitholders will be less than contemplated at the time the merger agreement was signed.

 

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The fairness opinion rendered to the ETP Conflicts Committee by Barclays was based on Barclays’ financial analysis and considered factors such as market and other conditions then in effect, and financial forecasts and other information made available to Barclays, as of the date of the opinion. As a result, the opinion does not reflect changes in events or circumstances after the date of such opinion, including the amendment to the merger agreement. The ETP Conflicts Committee has not obtained, and does not expect to obtain, an updated fairness opinion from Barclays reflecting changes in circumstances that may have occurred since the signing of the merger agreement.

The fairness opinion rendered to the ETP Conflicts Committee by Barclays was provided in connection with, and at the time of, the evaluation of the merger and the merger agreement by the ETP Conflicts Committee. The opinion was based on the financial analyses performed, which considered market and other conditions then in effect, and financial forecasts and other information made available to Barclays, as of the date of the opinion, which may have changed, or may change, after the date of the opinion. The ETP Conflicts Committee has not obtained an updated opinion as of the date of the amendment to the merger agreement or as of the date of this proxy statement/prospectus from Barclays and does not expect to obtain an updated opinion prior to completion of the merger. Changes in the operations and prospects of SXL or ETP, general market and economic conditions and other factors that may be beyond the control of SXL and ETP, and on which the fairness opinion was based, may have altered the value of SXL or ETP or the prices of SXL common units or ETP common units since the date of such opinion, or may alter such values and prices by the time the merger is completed. The opinion does not speak as of any date other than the date of the opinion. For a description of the opinion that Barclays rendered to the ETP Conflicts Committee, please refer to “The Merger—Opinion of the Financial Advisor to the ETP Conflicts Committee.”

ETP is subject to provisions that limit its ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of ETP from making a favorable alternative transaction proposal and, in specified circumstances under the merger agreement, would require ETP to reimburse up to $30.0 million of SXL’s out-of-pocket expenses and pay a termination fee to SXL of $630.0 million less any previous expense reimbursements.

Under the merger agreement, ETP is restricted from entering into alternative transactions. Unless and until the merger agreement is terminated, subject to specified exceptions (which are discussed in more detail in “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals”), ETP is restricted from soliciting, initiating, knowingly facilitating, knowingly encouraging or knowingly inducing or negotiating, any inquiry, proposal or offer for a competing acquisition proposal with any person. In addition, ETP may not grant any waiver or release any standstill or similar agreement with respect to any units of ETP or any of its subsidiaries. Under the merger agreement, in the event of a potential change by the ETP Board of its recommendation with respect to the proposed merger in light of a superior proposal, ETP must provide SXL with five days’ notice to allow SXL to propose an adjustment to the terms and conditions of the merger agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of ETP from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher per unit market value than the merger consideration, or might result in a potential competing acquirer of ETP proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances.

If the merger agreement is terminated under specified circumstances, including if the ETP unitholder approval is not obtained, then ETP will be required to pay all of the reasonably documented out-of-pocket expenses incurred by SXL and its affiliates in connection with the merger agreement and the transactions contemplated thereby, up to a maximum amount of $30.0 million. In addition, if the merger agreement is terminated under specified circumstances, including due to an adverse recommendation change having occurred, ETP will be required to pay SXL a termination fee of $630.0 million, less any expenses previously paid by ETP. Following payment of the termination fee, ETP will not be obligated to pay any additional expenses incurred by SXL or its affiliates. Please read “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee.” If such a termination fee is

 

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payable, the payment of this fee could have material and adverse consequences to the financial condition and operations of ETP. For a discussion of the restrictions on soliciting or entering into an alternative transaction and the ability of the ETP Board to change its recommendation, see “Proposal 1: The Merger Agreement—No Solicitation by ETP of Alternative Proposals” and “—Change in ETP Board Recommendation.”

Directors and executive officers of ETP have certain interests that are different from those of ETP unitholders generally.

Directors and executive officers of ETP are parties to agreements or participants in other arrangements that give them interests in the merger that may be different from, or in addition to, your interests as a unitholder of ETP. You should consider these interests in voting on the merger. These different interests are described under “The Merger—Interests of Directors and Executive Officers of ETP in the Merger.”

SXL or ETP may have difficulty attracting, motivating and retaining executives and other employees in light of the merger.

Uncertainty about the effect of the merger on SXL or ETP employees may have an adverse effect on the combined organization. This uncertainty may impair these companies’ ability to attract, retain and motivate personnel until the merger is completed. Employee retention may be particularly challenging during the pendency of the merger, as employees may feel uncertain about their future roles with the combined organization. In addition, SXL or ETP may have to provide additional compensation in order to retain employees. If employees of SXL or ETP depart because of issues relating to the uncertainty and difficulty of integration or a desire not to become employees of the combined organization, the combined organization’s ability to realize the anticipated benefits of the merger could be adversely affected.

SXL and ETP are subject to business uncertainties and contractual restrictions while the proposed merger is pending, which could adversely affect each party’s business and operations.

In connection with the pending merger, it is possible that some customers, suppliers and other persons with whom SXL or ETP have business relationships may delay or defer certain business decisions, or might decide to seek to terminate, change or renegotiate their relationship with SXL or ETP as a result of the merger, which could negatively affect SXL’s and ETP’s respective revenues, earnings and cash available for distribution, as well as the market price of SXL common units and ETP common units, regardless of whether the merger is completed.

Under the terms of the merger agreement, each of SXL and ETP is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies. Such limitations could negatively affect each party’s businesses and operations prior to the completion of the merger. Furthermore, the process of planning to integrate two businesses and organizations for the post-merger period can divert management attention and resources and could ultimately have an adverse effect on each party. For a discussion of these restrictions, see “Proposal 1: The Merger Agreement—Conduct of Business Pending the Consummation of the Merger.”

SXL and ETP will incur substantial transaction-related costs in connection with the merger.

SXL and ETP expect to incur a number of non-recurring transaction-related costs associated with completing the merger, combining the operations of the two organizations and achieving desired synergies. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of SXL and ETP. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time. Thus, any net benefit may not be achieved in the near term, the long term or at all.

 

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Failure to successfully combine the businesses of SXL and ETP in the expected time frame may adversely affect the future results of the combined organization, and, consequently, the value of the SXL common units that ETP common unitholders receive as part of the merger consideration.

The success of the proposed merger will depend, in part, on the ability of SXL to realize the anticipated benefits and synergies from combining the businesses of SXL and ETP. To realize these anticipated benefits, the businesses must be successfully combined. If the combined organization is not able to achieve these objectives, or is not able to achieve these objectives on a timely basis, the anticipated benefits of the merger may not be realized fully or at all. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger. These integration difficulties could result in declines in the market value of SXL’s common units and, consequently, result in declines in the market value of the SXL common units that ETP common unitholders receive as part of the merger consideration.

The merger is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Failure to complete the merger, or significant delays in completing the merger, could negatively affect the trading prices of SXL common units and ETP common units and the future business and financial results of SXL and ETP.

The completion of the merger is subject to a number of conditions. The completion of the merger is not assured and is subject to risks, including the risk that approval of the merger by ETP common unitholders or by governmental agencies is not obtained or that other closing conditions are not satisfied. If the merger is not completed, or if there are significant delays in completing the merger, the trading prices of SXL common units and ETP common units and the respective future business and financial results of SXL and ETP could be negatively affected, and each of them will be subject to several risks, including the following:

 

    the parties may be liable for damages to one another under the terms and conditions of the merger agreement;

 

    negative reactions from the financial markets, including declines in the price of SXL common units or ETP common units due to the fact that current prices may reflect a market assumption that the merger will be completed;

 

    having to pay certain significant costs relating to the merger, including, in certain circumstances, the reimbursement by ETP of up to $30.0 million of SXL’s expenses and a termination fee of $630.0 million less any previous expense reimbursements by ETP, as described in “Proposal 1: The Merger Agreement—Expenses” and “—Termination Fee”; and

 

    the attention of management of SXL and ETP will have been diverted to the merger rather than each organization’s own operations and pursuit of other opportunities that could have been beneficial to that organization.

If a governmental authority asserts objections to the merger, SXL and ETP may be unable to complete the merger or, in order to do so, SXL and ETP may be required to comply with material restrictions or satisfy material conditions.

The closing of the merger is subject to the condition that there is no law, injunction, judgment or ruling by a governmental authority in effect enjoining, restraining, preventing or prohibiting the merger contemplated by the merger agreement. If a governmental authority asserts objections to the merger, SXL or ETP may be required to divest assets or accept other remedies in order to complete the merger. There can be no assurance as to the cost, scope or impact of the actions that may be required to address any governmental authority objections to the merger. If SXL or ETP takes such actions, it could be detrimental to it or to the combined organization following the consummation of the merger. Furthermore, these actions could have the effect of delaying or preventing completion of the proposed merger or imposing additional costs on or limiting the revenues or cash available for distribution of the combined organization following the consummation of the merger. See “Proposal 1: The Merger Agreement—Regulatory Matters.”

 

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Additionally, state attorneys general could seek to block or challenge the merger as they deem necessary or desirable in the public interest at any time, including after completion of the transaction. In addition, in some circumstances, a third party could initiate a private action under antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. SXL may not prevail and may incur significant costs in defending or settling any action under the antitrust laws.

If the merger is approved by ETP common unitholders, the date that ETP unitholders will receive the merger consideration is uncertain.

As described in this proxy statement/prospectus, completing the proposed merger is subject to several conditions, not all of which are controllable or waivable by SXL or ETP. Accordingly, if the proposed merger is approved by ETP unitholders, the date that ETP common unitholders will receive the merger consideration depends on the completion date of the merger, which is uncertain.

ETP’s and SXL’s financial estimates are based on various assumptions that may not prove to be correct.

The financial estimates set forth in the forecast included under “The Merger—Unaudited Financial Projections of ETP” and “—Unaudited Financial Projections of SXL” are based on assumptions of, and information available to, ETP and SXL at the time they were prepared and provided to the ETP Board and SXL Board, as applicable, and the ETP Conflicts Committee and SXL Conflicts Committee, as applicable, and their respective financial advisors. Neither ETP nor SXL knows whether such assumptions will prove correct. Any or all of such estimates may turn out to be wrong. Such estimates can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond ETP’s and SXL’s control. Many factors mentioned in this proxy statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining ETP’s and SXL’s future results. As a result of these contingencies, actual future results may vary materially from ETP’s and SXL’s estimates. In view of these uncertainties, the inclusion of ETP’s and SXL’s financial estimates in this proxy statement/prospectus is not and should not be viewed as a representation that the forecast results will be achieved.

ETP’s and SXL’s financial estimates were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and ETP and SXL undertake no obligation, other than as required by applicable law, to update their respective financial estimates herein to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The financial estimates included in this proxy statement/prospectus have been prepared by, and are the responsibility of, ETP and SXL alone. Moreover, neither ETP’s or SXL’s independent accountants, Grant Thornton LLP, nor any other independent accountants, have compiled, examined or performed any procedures with respect to ETP’s or SXL’s prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and, accordingly, Grant Thornton LLP assumes no responsibility for, and disclaims any association with, ETP’s or SXL’s prospective financial information. The reports of Grant Thornton LLP incorporated by reference herein relate exclusively to the historical financial information of the entities named in those reports and do not cover any other information in this proxy statement/prospectus and should not be read to do so. See “The Merger—Unaudited Financial Projections of ETP” for more information.

The number of outstanding SXL common units will increase as a result of the merger, which could make it more difficult for SXL to pay the current level of quarterly distributions.

As of                 , 2017, there were more than          million SXL common units outstanding. SXL will issue approximately          million common units in connection with the merger. Accordingly, the aggregate dollar

 

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amount required to pay the current per unit quarterly distribution on all SXL common units will increase, which could increase the likelihood that SXL will not have sufficient funds to pay the current level of quarterly distributions to all SXL unitholders. Using a $0.51 per SXL common unit distribution (the amount SXL paid with respect to the third fiscal quarter of 2016 on November 14, 2016 to holders of record as of November 9, 2016), the aggregate cash distribution paid to SXL unitholders totaled approximately $266.0 million, including a distribution of $102.0 million to SXL GP in respect of its general partner interest and ownership of incentive distribution rights. Using the same $0.51 per SXL common unit distribution, the combined pro forma SXL distribution with respect to the third fiscal quarter of 2016, had the merger been completed prior to such distribution, would have resulted in total cash distributions of approximately $763 million, including a distribution of $224 million to SXL GP in respect of its general partner interest and incentive distribution rights.

ETP common unitholders will have a reduced ownership after the merger.

When the merger occurs, each ETP common unitholder that receives SXL common units will become a unitholder of SXL with a percentage ownership of the combined organization that is smaller than such unitholder’s percentage ownership of ETP. Assuming that the merger had been completed on December 31, 2016, current ETP common unitholders would have owned approximately 75.6% of the combined entity based on the number of ETP and SXL common units outstanding at that date.

SXL common units to be received by ETP common unitholders as a result of the merger have different rights from ETP common units.

Following completion of the merger, ETP common unitholders will no longer hold ETP common units, but will instead be unitholders of SXL. There are important differences between the rights of ETP unitholders and the rights of SXL unitholders. See “Comparison of Rights of SXL Unitholders and ETP Unitholders” for a discussion of the different rights associated with SXL common units and ETP common units.

A downgrade in SXL’s or its subsidiaries’ credit ratings following the merger could impact the combined entity’s access to capital and costs of doing business, and maintaining credit ratings is under the control of independent third parties.

Following the merger, SXL will be a more leveraged entity on a consolidated basis than it is prior to the merger, and the merger may cause rating agencies to reevaluate SXL and its subsidiaries’ ratings. A downgrade of SXL or its subsidiaries’ credit ratings might increase SXL and its subsidiaries’ cost of borrowing and could require SXL to post collateral with third parties, negatively impacting its available liquidity. SXL and its subsidiaries’ ability to access capital markets could also be limited by a downgrade of its credit ratings and other disruptions.

Credit rating agencies perform independent analysis when assigning credit ratings. The analysis includes a number of criteria including, but not limited to, business composition, market and operational risks, as well as various financial tests. Credit rating agencies continue to review the criteria for industry sectors and various debt ratings and may make changes to those criteria from time to time. Credit ratings are not recommendations to buy, sell or hold investments in the rated entity. Ratings are subject to revision or withdrawal at any time by the rating agencies, and SXL cannot assure you that it will maintain its current credit ratings.

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, SXL and ETP are relying on the opinions of their respective counsel as to the U.S. federal income tax consequences of the merger, and such counsel’s conclusions may not be sustained if challenged by the IRS. Please read “Material U.S. Federal Income Tax Consequences of the Merger.”

 

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The expected U.S. federal income tax consequences of the merger are dependent upon SXL and ETP being treated as partnerships for U.S. federal income tax purposes.

If either SXL or ETP were to be treated as a corporation for U.S. federal income tax purposes, the consequences of the merger would be materially different. If SXL were to be treated as a corporation for U.S. federal income tax purposes, the merger would likely be a fully taxable transaction to ETP common unitholders.

ETP common unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the merger.

Although for state law purposes ETP will become a wholly owned subsidiary of SXL in the merger, for U.S. federal income tax purposes, ETP (rather than SXL) will be treated as the continuing partnership following the merger. As a result, for U.S. federal income tax purposes, SXL will be deemed to contribute all of its assets to ETP in exchange for ETP units and the assumption of SXL’s liabilities, followed by a liquidation of SXL in which ETP units are distributed to SXL unitholders. In addition, as a result of the merger, SXL unitholders will become limited partners of ETP for U.S. federal income tax purposes and will be allocated a share of ETP’s nonrecourse liabilities. No ETP common unitholder should recognize any income, gain or loss, 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 Code. Each ETP common unitholder’s share of ETP’s nonrecourse liabilities will be recalculated following the merger. Any resulting increase or decrease in an ETP common unitholder’s nonrecourse liabilities will result in a corresponding increase or decrease in such unitholder’s adjusted tax basis in its ETP common units. A reduction in a common unitholder’s share of nonrecourse liabilities would, if such reduction exceeds the unitholder’s tax basis in his or her ETP common units, under certain circumstances, result in the recognition of taxable gain by an ETP common unitholder. While there can be no assurance, ETP does not expect any ETP common unitholders to recognize gain in this manner. For additional information, please read “Material U.S. Federal Income Tax Consequences of the Merger—Tax Consequences of the Merger to ETP and Its Unitholders” and “Risk Factors Relating to the Merger.”

Tax Risks Related to Owning Common Units in SXL Following the Merger

For U.S. federal income tax purposes, the merger is intended to be a “merger” of SXL and ETP within the meaning of Treasury Regulations promulgated under Section 708 of the Code. Assuming the merger is treated as such, although for state law purposes ETP will become a wholly owned subsidiary of SXL in the merger, for U.S. federal income tax purposes, ETP (rather than SXL) will be treated as the continuing partnership following the merger and SXL will be treated as the terminated partnership. As a result, each holder of SXL common units, including SXL common unitholders and the ETP common unitholders that will receive SXL common units in the merger, will be treated as a partner of ETP for U.S. federal income tax purposes following the merger.

Following the merger, in addition to the risks described above, deemed holders of ETP common units, for U.S. federal income tax purposes, will continue to be subject to the risks that holders of ETP common units are currently subject to, which are described in ETP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as updated by any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference in this proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated herein by reference contain forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” or the negative of those terms or other variations of them or comparable terminology. Forward-looking statements are also found under “The Merger—Unaudited Financial Projections of ETP.” In particular, statements, express or implied, concerning future actions, conditions or events, future operating results, the ability to generate sales, income or cash flow, to realize cost savings or other benefits associated with the merger, to service debt or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine actual results are beyond the ability of SXL or ETP to control or predict. Specific factors which could cause actual results to differ from those in the forward-looking statements include:

 

    the ability to complete the merger;

 

    the ability to obtain requisite regulatory and unitholder approval and the satisfaction of the other conditions to the consummation of the merger;

 

    the potential impact of the announcement or consummation of the merger on relationships, including with employees, suppliers, customers, competitors, lenders and credit rating agencies;

 

    SXL’s ability to successfully integrate ETP’s operations and employees and to realize synergies and cost savings;

 

    any distribution increases by SXL or ETP;

 

    the amount of natural gas, NGLs, crude oil and refined products transported in the pipelines and gathering systems of SXL or ETP;

 

    volatility in the price of crude oil, refined products, natural gas and NGLs;

 

    SXL’s and ETP’s access to capital to fund organic growth projects and acquisitions, including significant acquisitions and their ability to obtain debt or equity financing on satisfactory terms;

 

    declines in the credit markets and the availability of credit for producers connected to SXL’s and ETP’s respective pipelines, ETP’s gathering and processing facilities, and for customers of SXL’s and ETP’s contract services business;

 

    changes in the financial condition or operating results of joint ventures or other holdings in which SXL or ETP have an equity ownership interest;

 

    the level of creditworthiness of, and performance by, the customers and counterparties of SXL and ETP;

 

    the use of derivative financial instruments to hedge commodity and interest rate risks;

 

    the amount of collateral required to be posted from time to time in transactions;

 

    changes in commodity prices and the projected demand for and supply of natural gas, crude oil, NGLs and refined products, interest rates and demand for the services of SXL and ETP;

 

    any impairment write-downs of SXL’s or ETP’s assets;

 

    changes in governmental regulation or enforcement practices with respect to the midstream sector of the natural gas industry, especially with respect to environmental, health and safety matters;

 

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    improvements in energy efficiency and development of technology resulting in reduced demand for refined petroleum products;

 

    the occurrence of unusual weather and other natural phenomena or operating conditions including force majeure events;

 

    environmental risks affecting the production, gathering and processing of natural gas;

 

    industry changes including the impact of consolidations and changes in competition among natural gas midstream companies;

 

    the ability of SXL and ETP to acquire midstream assets and new sources supply and connections to third-party pipelines on satisfactory terms;

 

    non-performance by or disputes with major customers, suppliers or other business partners;

 

    the ability of SXL and ETP to retain existing or acquire new natural gas midstream customers;

 

    regulation of transportation rates on SXL’s and ETP’s pipelines;

 

    risks related to labor relations and workplace safety;

 

    the age of, and changes in the reliability and efficiency of, SXL’s or ETP’s operating facilities;

 

    the ability to obtain indemnification related to cleanup liabilities and to clean up any released hazardous materials on satisfactory terms;

 

    delays related to construction of, or work on, new or existing facilities and the ability to obtain required approvals for construction or modernization of SXL’s or ETP’s facilities and the timing of production from such facilities;

 

    uncertainties relating to the effects of regulatory guidance on permitting under the Clean Water Act and the outcome of current and future litigation regarding mine permitting;

 

    risks and uncertainties relating to general domestic and international economic (including inflation, interest rates and financial and credit markets, disruptions in the crude oil, natural gas, NGLs and refined petroleum products markets, from terrorist activities, international hostilities and other events, and the government’s response thereto) and political conditions;

 

    the occurrence of operational hazards or unforeseen interruptions for which SXL or ETP may not be adequately insured;

 

    the amount of SXL’s and ETP’s debt, which could limit the ability to borrow additional funds, which could create a competitive disadvantage compared to competitors that have less debt, or have other adverse consequences;

 

    the effect of changes in accounting principles and tax laws, and interpretations of both; and

 

    unfavorable results of litigation and the fruition of contingencies referred to in the notes to the financial statements contained in the reports incorporated by reference into this proxy statement/prospectus.

Unless expressly stated otherwise, forward-looking statements are based on the expectations and beliefs of the respective managements of SXL and ETP, based on information currently available, concerning future events affecting SXL and ETP. Although SXL and ETP believe that these forward-looking statements are based on reasonable assumptions, they are subject to uncertainties and factors related to SXL’s and ETP’s operations and business environments, all of which are difficult to predict and many of which are beyond SXL’s and ETP’s control. Any or all of the forward-looking statements in this proxy statement/prospectus may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The foregoing list of factors should not be construed to be exhaustive. Many factors mentioned in this proxy statement/prospectus, including the risks outlined under the caption “Risk Factors” contained in SXL’s and

 

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ETP’s Exchange Act reports incorporated herein by reference, will be important in determining future results, and actual future results may vary materially. There is no assurance that the actions, events or results of the forward-looking statements will occur, or, if any of them do, when they will occur or what effect they will have on SXL’s and ETP’s results of operations, financial condition, cash flows or distributions. In view of these uncertainties, SXL and ETP caution that investors should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, SXL and ETP undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect new information or the occurrence of anticipated or unanticipated events or circumstances.

 

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RECENT DEVELOPMENTS

Class K Unit Issuance. On December 29, 2016, ETP GP adopted Amendment No. 15 to the ETP partnership agreement which provided for the issuance of a new class of units (the “Class K units”) and set forth the terms and provisions of the Class K Units, which were issued on December 29, 2016 to indirect subsidiaries of ETP, in exchange for cash contributions and the exchange of outstanding common units representing limited partner interests in ETP. Please read “Comparison of Rights of SXL Unitholders and ETP Unitholders” for additional information on the terms of the Class K units.

ETP Common Unit Private Placement. On January 6, 2017, ETE entered into a common unit purchase agreement with certain institutional investors to sell 32,222,225 of its common units in a private placement transaction at a purchase price of $18.00 per unit (the “ETE private placement”). The ETE private placement closed on January 12, 2017, and ETE received net proceeds of approximately $568 million, which ETE used to purchase 15,785,056 newly issued common units representing limited partner interests in ETP (the “ETP private placement”). ETP used the proceeds from the ETP private placement to repay existing indebtedness under its amended and restated revolving credit facility and for general partnership purposes.

Series A Unit Repurchase. On January 18, 2017, ETP entered into and completed a purchase and sale agreement with MTP Energy Master Fund Ltd., Magnetar Capital Fund II LP and MTP Energy Infrastructure Finance Special Fund, LLC pursuant to which ETP repurchased all of its 1,912,569 outstanding Series A Cumulative Convertible Preferred Units of ETP (the “Series A Units”) for cash in the aggregate amount of approximately $52.5 million (the “Series A unit repurchase”). Following the Series A unit repurchase, ETP no longer has any Series A units outstanding. Because there are no Series A units outstanding as of the record date for the special meeting, the Series A units will not be entitled to vote on the merger agreement and the transactions contemplated thereby. Furthermore, as no Series A units will be outstanding as of the closing date of the merger, no SXL Series A preferred units will be issued in exchange for the Series A Units; therefore, the form of SXL partnership agreement attached as Annex C to this proxy statement/prospectus has been revised to remove the references to the Series A preferred units of SXL.

 

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THE PARTIES

Sunoco Logistics Partners L.P.

SXL is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of a geographically diverse portfolio of complementary pipeline, terminalling, and acquisition and marketing assets, which are used to facilitate the purchase and sale of crude oil, NGLs and refined products. SXL conducts business activities in 37 states located throughout the United States. SXL GP, a Pennsylvania limited liability company and the general partner of SXL, is a consolidated subsidiary of ETP. SXL GP holds no assets other than its investment in SXL and notes receivable and other amounts receivable from affiliates of ETP.

SXL’s reporting segments are as follows:

 

    Crude Oil. The crude oil segment provides transportation, terminalling and acquisition and marketing services to crude oil markets throughout the southwest, midwest and northeastern United States. Included within the segment is approximately 6,100 miles of crude oil trunk and gathering pipelines in the southwest and midwest United States and equity ownership interests in three crude oil pipelines. SXL’s crude oil terminalling services operate with an aggregate storage capacity of approximately 33 million barrels, including approximately 26 million barrels at SXL’s Gulf Coast terminal in Nederland, Texas and approximately 3 million barrels at SXL’s Fort Mifflin terminal complex in Pennsylvania. SXL’s crude oil acquisition and marketing activities utilize its pipeline and terminal assets, its proprietary fleet crude oil tractor trailers and truck unloading facilities, as well as third-party assets, to service crude oil markets principally in the mid-continent United States.

 

    Natural Gas Liquids. The natural gas liquids segment transports, stores, and executes acquisition and marketing activities utilizing a complementary network of pipelines, storage and blending facilities, and strategic off-take locations that provide access to multiple NGLs markets. The segment contains approximately 900 miles of NGLs pipelines, primarily related to SXL’s Mariner systems located in the northeast and southwest United States. Terminalling services are facilitated by approximately 5 million barrels of NGLs storage capacity, including approximately 1 million barrels of storage at SXL’s Nederland, Texas terminal facility and 3 million barrels at SXL’s Marcus Hook, Pennsylvania terminal facility (the “Marcus Hook Industrial Complex”). This segment also carries out SXL’s NGLs blending activities, including utilizing SXL’s patented butane blending technology.

 

    Refined Products. The refined products segment provides transportation and terminalling service, through the use of approximately 1,800 miles of refined products pipelines and approximately 40 active refined products marketing terminals. SXL’s marketing terminals are located primarily in the northeast, midwest and southeast United States, with approximately 8 million barrels of refined products storage capacity. The refined products segment includes SXL’s Eagle Point facility in New Jersey, which has approximately 6 million barrels of refined products storage capacity. The segment also includes SXL’s equity ownership interests in four refined products pipeline companies. The segment also performs terminalling activities at the Marcus Hook Industrial Complex. The refined products segment utilizes SXL’s integrated pipeline and terminalling assets, as well as acquisition and marketing activities, to service refined products markets in several regions of the United States.

The address of SXL’s and SXL GP’s principal executive offices is 3807 West Chester Pike, Newtown Square, Pennsylvania 19073, and the telephone number at this address is (866) 248-4344.

Energy Transfer Partners, L.P.

ETP, a Delaware limited partnership, is one of the largest publicly traded master limited partnerships in the United States in terms of equity market capitalization (approximately $19 billion as of October 31, 2016). ETP is managed by its general partner, ETP GP, and ETP GP is managed by its general partner, ETP GP LLC, which is

 

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owned by ETE, another publicly traded master limited partnership. The primary activities in which ETP is engaged, all of which are in the United States, are as follows:

 

    Natural gas operations, including the following:

 

    natural gas midstream and intrastate transportation and storage; and

 

    interstate natural gas transportation and storage through Energy Transfer Interstate Holdings, LLC (“ET Interstate”) and Panhandle Eastern Pipe Line Company, LP (“Panhandle”). ET Interstate is the parent company of Transwestern Pipeline Company, LLC, ETC Fayetteville Express Pipeline, LLC, ETC Tiger Pipeline, LLC, CrossCountry Energy, LLC, ETC Midcontinent Express Pipeline, LLC and ET Rover Pipeline LLC. Panhandle is the parent company of Trunkline Gas Company, LLC and Sea Robin Pipeline Company LLC.

 

    Liquids operations, including NGL transportation, storage and fractionation services; and

 

    Product and crude oil transportation, terminalling services and acquisition and marketing activities through SXL.

The address of ETP’s and ETP GP’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

Energy Transfer Equity, L.P.

Energy Transfer Equity, L.P. is a Delaware limited partnership, publicly traded on the NYSE under the symbol “ETE.” ETE directly and indirectly owns equity interests in SXL and ETP.

The address of ETE’s principal executive offices is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, and the telephone number at this address is (214) 981-0700.

SXL Acquisition Sub LLC

SXL Acquisition Sub LLC is a Delaware limited liability company and a wholly owned subsidiary of SXL. SXL Merger Sub was formed on November 21, 2016 solely for the purpose of consummating the merger and has no operating assets. SXL Merger Sub has not carried on any activities to date, except for activities incidental to its and SXL Merger Sub LP’s formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

The address of SXL Merger Sub’s principal executive offices is 3807 West Chester Pike, Newtown Square, Pennsylvania 19073, and the telephone number at this address is (866) 248-4344.

SXL Acquisition Sub LP

SXL Acquisition Sub LP is a Delaware limited partnership and a wholly owned subsidiary of SXL. SXL Merger Sub LP was formed on December 14, 2016 solely for the purpose of consummating the merger and has no operating assets. SXL Merger Sub LP has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

The address of SXL Merger Sub LP’s principal executive offices is 3807 West Chester Pike, Newtown Square, Pennsylvania 19073, and the telephone number at this address is (866) 248-4344.

 

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EXECUTIVE COMPENSATION

Overview

The following discussion provides certain executive compensation information for the individuals who are expected to be the named executive officers of the combined company and is based on the compensation arrangements maintained by ETP and SXL for 2016 and prior years, where applicable. Neither ETP nor SXL have officers or directors. Instead, ETP and SXL are managed by the boards of directors of their respective general partners and the executive officers of the respective general partners perform all of the management functions. For 2016, compensation for these officers was administered by ETP GP, except where noted herein.

Compensation Discussion and Analysis

Named Executive Officers

The executive officers referred to in this discussion as the “named executive officers” are the following officers with the roles they held for 2016:

 

    Kelcy L. Warren, Chairman and Chief Executive Officer;

 

    Thomas E. Long, Chief Financial Officer and Group Chief Financial Officer of ETE’s general partner;

 

    Matthew S. Ramsey, President and Chief Operating Officer;

 

    James M. Wright, General Counsel and Assistant Secretary; and

 

    Michael J. Hennigan, President and Chief Executive Officer of SXL GP.

During 2016, Mr. Long provided services to each of the ETE, ETP, SXL and Sunoco LP (SUN) partnerships in his role as Group CFO of ETE’s general partner. Decisions with respect to Mr. Long’s compensation during 2016 were made by the ETE Compensation Committee in consultation as appropriate with the ETP Compensation Committee. For 2016 Mr. Hennigan’s primary business responsibilities related to ETP’s investment in SXL and its consolidated subsidiaries. For 2016, the compensation committee of SXL GP set the components of Mr. Hennigan’s compensation, including salary, long-term incentive awards and annual bonus utilizing the same philosophy and methodology adopted by ETP GP.

ETP GP’s Philosophy for Compensation of Executives

In general, ETP GP’s executive compensation philosophy is based on the premise that a significant portion of each executive’s compensation should be incentive-based or “at-risk” compensation and that executives’ total compensation levels should be highly competitive in the marketplace for executive talent and abilities. ETP GP seeks a total compensation program for the named executive officers that provides for a slightly below the median market annual base compensation rate (i.e. approximately the 40th percentile of market) but incentive-based compensation composed of a combination of compensation vehicles to reward both short and long-term performance that are both targeted to pay-out at approximately the top-quartile of market. ETP GP believes the incentive-based balance is achieved by (i) the payment of annual discretionary cash bonuses that consider the achievement of ETP’s financial performance objectives for a fiscal year set at the beginning of such fiscal year and the individual contributions of the named executive officers to the success of ETP and the achievement of the annual financial performance objectives and (ii) the annual grant of time-based restricted unit awards under the equity incentive plan(s), which awards are intended to provide a longer term incentive and retention value to the key employees to focus their efforts on increasing the market price of the publicly traded units and to increase the cash distribution paid to unitholders.

Prior to December 2012, equity awards were primarily in the form of restricted unit awards that vest over a specified time period, with substantially all of these awards vesting over a five-year period at 20% per year based

 

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generally on continued employment through each specified vesting date. Beginning in December 2012, restricted unit awards were granted that vest, based generally upon continued employment, at a rate of 60% after the third anniversary of the award and the remaining 40% after the fifth anniversary of the award. ETP GP believes that these equity-based incentive arrangements are important in attracting and retaining executives, including the named executive officers, and key employees as well as motivating these individuals to achieve business objectives. The equity-based compensation also reflects the importance of aligning the interests of the executives, including the named executive officers with those of ETP’s unitholders.

While ETP is responsible for the direct payment of the compensation of the named executive officers as employees of the ETP GP, ETP or its controlled affiliates, ETP does not participate or have any input in any decisions as to the compensation policies of ETP GP or the compensation levels of the executive officers of ETP GP. The compensation committee of the board of directors of ETP GP (the “ETP Compensation Committee”) is responsible for the approval of the compensation policies and the compensation levels of these executive officers. ETP directly pays these executive officers in lieu of receiving an allocation of overhead related to executive compensation from ETP GP. For a more detailed description of the compensation of the named executive officers, please see “Compensation Tables” below. Both the ETE Compensation and the compensation committee of SXL GP (the “SXL Compensation Committee”) follow a substantially similar executive compensation philosophy for executives as the ETP Compensation Committee.

Compensation Philosophy

The compensation program is structured to provide the following benefits:

 

    reward executives with an industry-competitive total compensation package of targeted base salaries and significant incentive opportunities yielding a total compensation package approaching the top-quartile of the market;

 

    attract, retain and reward talented executive officers and key management employees by providing total compensation competitive with that of other executive officers and key management employees employed by publicly traded limited partnerships of similar size and in similar lines of business;

 

    motivate executive officers and key employees to achieve strong financial and operational performance;

 

    emphasize performance-based or “at-risk” compensation; and

 

    reward individual performance.

Components of Executive Compensation

For the year ended December 31, 2016, the compensation paid to the named executive officers, other than the Chief Executive Officer, consisted of the following components:

 

    annual base salary;

 

    non-equity incentive plan compensation consisting solely of discretionary cash bonuses;

 

    time-vested restricted unit awards under the equity incentive plan(s);

 

    payment of distribution equivalent rights (“DERs”) on unvested time-based restricted unit awards under the equity incentive plan(s);

 

    vesting of previously issued time-based restricted unit/phantom restricted unit awards issued pursuant to the ETP equity incentive plan(s) or the equity incentive plan(s) of its affiliates; and

 

    401(k) plan employer contributions.

 

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Mr. Warren, the Chief Executive Officer, has voluntarily elected not to accept any salary, bonus or equity incentive compensation (other than a salary of $1.00 per year plus an amount sufficient to cover his allocated employee premium contributions for health and welfare benefits).

Methodology

The ETP Compensation Committee considers relevant data available to it to assess the competitive position with respect to base salary, annual short-term incentives and long-term incentive compensation for executive officers, including the named executive officers. The ETP Compensation Committee also considers individual performance, levels of responsibility, skills and experience.

Periodically, the compensation committee of the general partner of ETE (the “ETE Compensation Committee”) or the ETP Compensation Committee engages a third-party consultant to provide market information for compensation levels at peer companies in order to assist in the determination of compensation levels for the executives, including the named executive officers. Most recently, Longnecker & Associates (“Longnecker”) evaluated the market competitiveness of total compensation levels of a number of executives of ETE, ETP and SXL to provide market information with respect to compensation of those executives during the year ended December 31, 2015. In particular, the 2015 review by Longnecker was designed to (i) evaluate the market competitiveness of total compensation levels for certain members of senior management, including the named executive officers; (ii) assist in the determination of appropriate compensation levels for senior management, including the named executive officers; and (iii) confirm that the compensation programs were yielding compensation packages consistent with the overall compensation philosophy.

In conducting its review, Longnecker specifically considered the larger size of the combined ETE and ETP entities from an energy industry perspective, to form a public peer group, inclusive of energy and non-energy related peers, against which ETE and ETP can compare total compensation for its executives, including the named executive officers. During 2015, Longnecker assisted in the development of the final “peer group” of leading companies in the energy industry that most closely reflect ETP’s profile in terms of revenues, assets and market value as well as competition for talent at the senior management level and similarly situated general industry companies with similar revenues, assets and market value. The identified companies were:

 

Energy Peer Group:

  

•  Conoco Phillips

  

•  Anadarko Petroleum

•  Enterprise Products Partners, L.P.

  

•  Marathon Oil Corporation

•  Plains All American Pipeline, L.P.

  

•  Kinder Morgan Energy Partners, L.P.

•  Halliburton Company

  

•  The Williams Companies, Inc.

•  Valero Energy Corporation

  

General Industry Peer Group:

  

•  The Boeing Company

  

•  United Technologies Corporation

•  Dow Chemical Company

  

•  United Parcel Service, Inc.

•  Caterpillar Inc.

  

•  FedEx Corporation

•  Lockheed Martin Corporation

  

•  Honeywell International Inc.

•  Deere & Company

  

The compensation analysis provided by Longnecker in 2015 covered all major components of total compensation, including annual base salary, annual short-term cash bonus and long-term incentive awards for the senior executives of these companies. In preparing the review materials, Longnecker utilized generally accepted compensation principles as determined by WorldatWork and gathered data from the public peer companies and published salary surveys.

Following Longnecker’s 2015 review, the ETP Compensation Committee reviewed the information provided, including Longnecker’s specific conclusions and recommended considerations for all compensation

 

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going forward, but focused specifically on the industry related data to compare the levels of annual base salary, annual short-term cash bonus and long-term equity incentive awards at these other companies with those of the named executive officers to ensure that compensation of the named executive officers is both consistent with the compensation philosophy and competitive with the compensation for executive officers of these other companies. The ETP Compensation Committee considered and reviewed the results of the study performed by Longnecker to determine if the results indicated that the compensation programs were yielding a competitive total compensation model prioritizing incentive-based compensation and rewarding achievement of short and long-term performance objectives. The ETP Compensation Committee also specifically evaluated benchmarked results for the annual base salary, annual short-term cash bonus or long-term equity incentive awards of the named executive officers to the compensation levels at the identified “energy peer group” companies and considered Longnecker’s conclusions and recommendations. While Longnecker found that ETP is achieving its stated objectives with respect to the “at-risk” approach, they also found that certain adjustments should be implemented to allow ETP to achieve its targeted percentiles on base compensation and incentive compensation (short and long-term).

Longnecker provided some limited market updates during 2016 in situations where there were changes to roles and responsibilities of a previously benchmarked executive, but did not provide a full update to their market analysis from 2015. In 2016, Longnecker also provided information related to market trends on long-term equity incentive awards for industry based peer group companies. The information focused on the continued market competitiveness of using time-vested restricted units and the specific targeted annual value of the long-term equity incentive pools.

For 2016, the ETP Compensation Committee continued to use the results of the 2015 Longnecker compensation analysis, adjusted to account for general inflation and information obtained from other sources, such as 2016 third party survey results, in its determination of compensation levels for executives, including the named executive officers. Longnecker did not provide any non-executive compensation services for ETP during 2016.

In respect of SXL, the SXL Compensation Committee continued to rely principally on Longnecker’s 2015 review of various metrics in order to recognize that the SXL structure is unique given that (i) in certain respects, SXL operated as a significant operational division of ETP; (ii) for certain corporate functions SXL received certain shared-service support from ETE and ETP; and (iii) in other operational related functions, SXL operated as an independent publicly-traded organization. As such, during 2015 Longnecker reviewed certain of the executives, including the named executive officers of SXL, in their specific functions to determine the appropriate benchmarking technique. In all circumstances, Longnecker considered SXL annual revenues and market capitalization levels in its benchmarking.

In conducting its 2015 review with respect to SXL’s executives that were considered to have roles consistent with those of an executive at an independent publicly-traded entity, Longnecker worked with ETP and SXL to identify a “peer group” of companies in the energy industry that most closely reflect SXL’s profile in terms of revenues, assets and market value as well as compete with SXL for talent at the senior management level. The identified companies included:

 

Energy Peer Group:

  

•  Buckeye Partners, L.P.

  

•  PBF Energy Inc.

•  Enbridge Energy Partners, L.P.

  

•  Plains All American Pipeline, L.P.

•  HollyFrontier Corporation

  

•  Spectra Energy Corp.

•  MarkWest Energy Partners, L.P.

  

•  Targa Resources Corp.

•  NGL Energy Partners LP

  

•  Tesoro Corporation

•  ONEOK Inc.

  

The compensation analysis provided by Longnecker in 2015 covered all major components of total compensation, including annual base salary, annual short-term cash bonus and long-term incentive awards for the

 

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senior executives for certain companies in the oil and gas industry. The SXL Compensation Committee utilized the information provided by Longnecker to ensure that the total compensation is both competitive with the market information received and consistent with ETE’s compensation philosophy. While Longnecker found that SXL is achieving its stated objectives with respect to the “at-risk” approach, they also found that certain adjustments should be implemented to allow SXL to achieve its targeted percentiles on base compensation and incentive compensation (short and long-term). As noted above, for 2016, the SXL Compensation Committee continued to use the results of the 2015 Longnecker compensation analysis, adjusted to account for general inflation and information obtained from other sources, such as 2016 third party survey results, in its determination of compensation levels for executives, including the named executive officers.

Base Salary. Base salary is designed to provide for a competitive fixed level of pay that attracts and retains executive officers, and compensates them for their level of responsibility and sustained individual performance (including experience, scope of responsibility and results achieved). The salaries of the named executive officers are reviewed on an annual basis. As discussed above, the base salaries of the named executive officers are targeted to yield an annual base salary slightly below the median level of market (i.e. approximately the 40th percentile of market) and are determined by the ETP Compensation Committee after taking into account the recommendations of Mr. Warren. During the 2016 merit review process in July, the ETP Compensation Committee approved an increase to Mr. Ramsey’s base salary of 2.0% to $637,500 from its prior level of $625,000 and a 2.0% increase to Mr. Wright’s base salary to $382,500 from its prior level of $375,000. The CEO (who has voluntarily elected to forgo any base compensation) did not receive any base salary adjustment during 2016.

In the case of Mr. Long, the ETE Compensation Committee approved an increase to Mr. Long’s base salary of 2.0% to $459,000 from its prior level of $450,000.

In the case of Mr. Hennigan, the SXL Compensation Committee, in consultation with ETP GP, approved an increase to his base salary of 2.0% to $637,500 from its prior level of $625,000.

The 2% increase to each of the named executive officers’ base salary reflects a base salary increase consistent with the 2% annual merit increase pool established for all employees of the ETP GP, ETP, SXL and its and their affiliates for 2016 by the respective compensation committees.

Annual Bonus. In addition to base salary, the ETE Compensation Committee and the ETP Compensation Committee make determinations whether to make discretionary annual cash bonus awards to executives, including the named executive officers, other than the CEO (who has voluntarily elected to forgo any annual bonuses), following the end of the year under the Energy Transfer Partners, L.L.C. Annual Bonus Plan (the “Bonus Plan”). The ETE Compensation Committee will consider a 2016 annual cash bonus for Mr. Long and the ETP Compensation Committee will consider 2016 annual cash bonus awards for Messrs. Ramsey and Wright.

These discretionary bonuses, if awarded, are intended to reward the named executive officers for the achievement of financial performance objectives during the year for which the bonuses are awarded in light of the contribution of each individual to profitability and success during such year. The ETE Compensation Committee and the ETP Compensation Committee also consider the recommendation of the CEO in determining the specific annual cash bonus amounts for each of the other named executive officers. The ETE Compensation Committee and the ETP Compensation Committee do not establish their own financial performance objectives in advance for purposes of determining whether to approve any annual bonuses, and do not utilize any formulaic approach to determine annual bonuses.

For 2016, annual bonuses to be awarded to Messrs. Ramsey, Long and Wright will be determined under the Bonus Plan. The ETE Compensation Committee’s and the ETP Compensation Committee’s evaluation of performance and determination of an overall available bonus pool is based on an internal earnings target generally based on targeted EBITDA (the “Earnings Target”) budget and the performance of each department

 

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compared to the applicable departmental budget (with such performance measured based on the specific dollar amount of general and administrative expenses set for each department). The two performance criteria are weighted 75% on the internal Earnings Target budget criteria and 25% on internal department financial budget criteria. Internal Earnings Target is the primary performance factor in determining annual bonuses, while internal department financial budget criteria is considered to ensure that general and administrative costs are being effectively managed in a prudent manner.

The internal financial budgets are generally developed for each business segment, and then aggregated with appropriate corporate level adjustments, to reflect an overall performance objective that is reasonable in light of market conditions and opportunities based on a high level of effort and dedication across all segments of the business. The evaluation of performance versus the internal financial budget is based on EBITDA for a calendar year.

In general, both the ETE Compensation Committee and the ETP Compensation Committee believe that performance at or above the internal Earnings Target and at or below internal department financial budgets would support bonus pools to the named executive officers ranging from 105% to 140% of their annual base earnings (which amount reflects the actual base salary earned during the calendar year to reflect periods before and after any base salary adjustments) ,with the ability to fund up to an additional 20% above each named executive officer’s target bonus pool upon achievement of 110% of the internal Earnings Target and 110% of the internal department financial budgets. For 2016, the short-term annual cash bonus pool targets for each of the named executive officers were as follows: for Mr. Ramsey, 140% of his annual base earnings; for Mr. Long, 130% of his annual base earnings, which represents an increase from his previous target of 125%; and for Mr. Wright, 105% of his annual base earnings. The increase for Mr. Long was based on and related to his full-year of additional responsibilities as the Group Chief Financial Officer of ETE’s general partner and Chief Financial Officer of the ETP GP.

For 2016, SXL annual bonuses will be determined under the Sunoco Partners LLC Amended and Restated Annual Short-Term Incentive Bonus Plan (the “SXL Bonus Plan”). Mr. Hennigan’s target for 2016 was 140% of his annual base earnings.

As of the date of this proxy statement/prospectus, the 2016 annual bonus awards for the named executive officers have not yet been determined. Determinations are expected to be made regarding the 2016 annual bonus awards during February or March 2017 following final determination of 2016 performance results. In considering 2016 bonus awards for the named executive officers, it is expected that the ETE Compensation Committee, the ETP Compensation Committee and the SXL Compensation Committee will consider the achievement by the respective partnerships of all of the targeted performance objectives for 2016 and the individual performances of each of the named executive officers, as well as the Longnecker study results. It is anticipated that any annual cash bonuses awarded to the named executive officers for 2016 performance will be consistent with the partnerships’ applicable bonus pool targets.

Equity Awards. ETP currently has two incentive plans: (i) the Second Amended and Restated Energy Transfer Partners, L.P. 2008 Incentive Plan (the “2008 Incentive Plan”) and (ii) the Energy Transfer Partners, L.P. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Incentive Plan”). Each of the 2008 Incentive Plan and 2011 Incentive Plan authorizes the ETP Compensation Committee, in its discretion, to grant awards of restricted units, phantom units, unit options and other awards related to ETP common units upon such terms and conditions as it may determine appropriate and in accordance with general guidelines as defined by each such plan. The ETP Compensation Committee determined and/or approved the terms of the unit grants awarded to the named executive officers, including the number of common units subject to the restricted unit award and the vesting structure of those restricted unit awards. All of the awards granted to the named executive officers under these equity incentive plans have consisted of restricted unit awards that are subject to vesting over a specified time period. Upon vesting of any restricted unit award, ETP common units are issued. During 2016, Mr. Hennigan participated in the Sunoco Partners LLC Long-Term Incentive Plan, as amended, (the “SXL Plan”)

 

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under which restricted units are awarded, which restricted units have the same vesting terms as awards under the 2008 Incentive Plan.

For 2016, the annual long-term incentive targets for the named executive officers were 600% of annual base salary for Mr. Ramsey, 500% of annual base salary for Mr. Long, which represents an increase from his previous target of 400%, 250% of annual base salary for Mr. Wright, and 600% of annual base salary for Mr. Hennigan. The ETE Compensation Committee approved the increase to Mr. Long’s long-term incentive target in recognition of his additional responsibilities during 2016 as the Group Chief Financial Officer of ETE’s general partner and Chief Financial Officer of the ETP GP. In approving long-term incentive awards for Mr. Long, the ETP Compensation Committee, the SXL Compensation Committee and the compensation committee of the SUN’s general partner utilized the targets set by the ETE Compensation Committee.

In December 2016, the ETP Compensation Committee approved grants of restricted unit awards to Messrs. Ramsey, Long and Wright of 95,625 units, 28,688 units, and 23,906 units, respectively, under the 2008 Incentive Plan related to ETP common units.

As described below in the section titled “Subsidiary Equity Awards,” for 2016, in discussions between the ETE Compensation Committee and ETP Compensation Committees, as well as, the SXL Compensation Committee and the compensation committees of the general partners of Sunoco LP, it was determined that a portion of Mr. Long’s total long-term incentive award target value would be composed of restricted units awarded under the 2008 Incentive Plan as well as restricted/restricted phantom units under the SXL Plan and Sunoco LP equity plan in consideration for his role and responsibilities at those partnerships. Mr. Long’s total 2016 long-term awards were allocated 50% to the 2008 Incentive Plan, 20% to the SXL Plan and 30% to the Sunoco LP equity plan. Mr. Long serves as a financial advisor in matters related to mergers and acquisitions and financing activities to both SXL and SUN, and certain personnel responsible for the accounting and financial reporting functions provided to SUN report into his organization.

The restricted unit awards provide for vesting over a five-year period, with 60% vesting at the end of the third year and the remaining 40% vesting at the end of the fifth year, generally subject to continued employment through each specified vesting date. The restricted unit awards entitle the recipients of the restricted unit awards to receive, with respect to each ETP common unit subject to such award that has not either vested or been forfeited, a DER cash payment promptly following each such distribution by ETP to its unitholders. In approving the grant of such restricted unit awards, the ETP Compensation Committee considered several factors, including the long-term objective of retaining such individuals as key drivers of ETP’s future success, the existing level of equity ownership of such individuals and the previous awards to such individuals of equity awards subject to vesting. Vesting of the 2014, 2015 and 2016 awards would accelerate in the event of the death or disability of the named executive officer or in the event of a change in control of ETP as that term is defined under the 2008 Incentive Plan.

In the case of Mr. Hennigan, he received a long-term incentive award under the SXL Plan for 2016 of 133,508 restricted units, which was awarded by the SXL Compensation Committee. This award was awarded on identical terms and conditions with respect to vesting and the right to DER payments, as those awarded to Mr. Long, Ramsey and Wright under the 2008 Incentive Plan in 2016.

The issuance of common units pursuant to the equity incentive plans is intended to serve as a means of incentive compensation; therefore, no consideration will be payable by the plan participants upon vesting and issuance of the common units.

The restricted unit awards for 2016 under the 2008 Incentive Plan as well as awards under the SXL Plan and Sunoco LP equity incentive plan generally require the continued employment of the recipient during the vesting period, provided however, the unvested awards will be accelerated in the event of a change in control of the applicable partnership (other than a change in control to an affiliate) or the death or disability of the award

 

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recipient prior to the applicable vesting period being satisfied. In addition, in the event of a change in control of ETP, the awards granted in 2014 and 2015 under the 2008 Incentive Plan and the 2011 Incentive Plan, as applicable, would be accelerated. For awards previously granted under the 2008 Incentive Plan prior to December 2014, unvested awards may also become vested upon a change in control at the discretion of the ETP Compensation Committee. Under the SXL Plan and Sunoco LP equity incentive plan, awards granted in 2014 and 2015 would be accelerated in the event of a change in control of the applicable partnership (other than a change in control to an affiliate). The merger discussed in this proxy statement/prospectus will not be considered a change in control under any of these equity incentive plans and therefore will not result in any vesting acceleration for the named executive officers.

As discussed below under “Potential Payments Upon a Termination or Change of Control,” certain equity awards automatically accelerate upon a change in control event, which means vesting automatically accelerates upon a change of control irrespective of whether the officer is terminated. In addition, the 2015 award to Mr. Ramsey in accordance with the terms of his offer letter and the 2014 award to Mr. Hennigan included a provision in the applicable award agreement for acceleration of unvested restricted unit awards upon a termination of employment without “cause” by the general partner of the applicable partnership issuing the award. For purposes of the awards the term “cause” shall mean: (i) a conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised), (ii) willful refusal without proper cause to perform duties (other than any such refusal resulting from incapacity due to physical or mental impairment), (iii) misappropriation, embezzlement or reckless or willful destruction of property of the partnership or any of its affiliates, (iv) knowing breach of any statutory or common law duty of loyalty to the partnership or any of its or their affiliates, (v) improper conduct materially prejudicial to the business of the partnership or any of its or their affiliates, (vi) material breach of the provisions of any agreement regarding confidential information entered into with the partnership or any of its or their affiliates or (vii) the continuing failure or refusal to satisfactorily perform essential duties to the partnership or any of its or their affiliate.

Permitting the accelerated vesting of equity awards upon a change in control creates an important retention tool by enabling employees to realize value from these awards in the event of a change in control transaction.

Unit Ownership Guidelines. In December 2013, the ETP Board adopted the ETP Executive Unit Ownership Guidelines (the “Guidelines”), which set forth minimum ownership guidelines applicable to certain executives of ETP with respect to common units representing limited partnership interests in ETP. The applicable unit ownership guidelines are denominated as a multiple of base salary, and the amount of common units required to be owned increases with the level of responsibility. Under these guidelines, the President and Chief Operating Officer is expected to own common units having a minimum value of five times his base salary, while each of the remaining named executive officers (other than the CEO) are expected to own common units having a minimum value of four times their respective base salary. In addition to the named executive officers, these guidelines also apply to other covered executives, which executives are expected to own either directly or indirectly in accordance with the terms of the Guidelines, common units having minimum values ranging from two to four times their respective base salary. The Guidelines do not apply to the CEO, who receives a salary of $1.00 per year plus an amount sufficient to cover his allocated payroll deductions for health and welfare benefits.

ETP GP and the ETP Compensation Committee believe that the ownership of the common units, as reflected in the Guidelines, is an important means of tying the financial risks and rewards for the executives to total unitholder return, aligning the interests of such executives with those of ETP’s unitholders, and promoting ETP’s interest in good corporate governance.

Covered executives are generally required to achieve their ownership level within five years of becoming subject to the guidelines. Mr. Ramsey will be required to be compliant with the Guidelines in November 2020, Mr. Long beginning December 2018 and Mr. Wright for his current role in 2021.

Covered executives may satisfy the guidelines through direct ownership of common units or indirect ownership by certain immediate family members. Direct or indirect ownership of ETE, SXL and Sunoco LP

 

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common units shall count on a one-to-one ratio for purposes of satisfying minimum ownership requirements; however, unvested unit awards may not be used to satisfy the minimum ownership requirements.

Covered executives who have not yet met their respective guideline must retain and hold all common units (less common units sold to cover the executive’s applicable taxes and withholding obligation) received in connection with long-term incentive awards. Once the required ownership level is achieved, ownership of the required common units must be maintained for as long as the covered executive is subject to the guidelines. However, those individuals who have met or exceeded their applicable ownership guideline may dispose of common units in a manner consistent with applicable laws, rules and regulations, including regulations of the SEC and ETP’s internal policies, but only to the extent that such individual’s remaining ownership of common units would continue to exceed the applicable ownership guideline.

Affiliate and Subsidiary Equity Awards. In addition to his role as an officer of ETP GP, Mr. Long serves as financial advisor in matters related to mergers and acquisitions and financing activities to both SXL and SUN, and certain personnel responsible for the accounting and financial reporting functions provided to SUN report into his organization. In connection with his role at SXL, in December 2016, the SXL Compensation Committee awarded Mr. Long time-based restricted units of SXL in the amount of 16,021 units. In connection with his role at Sunoco LP, in December 2016, the compensation committee of Sunoco LP’s general partner awarded Mr. Long time-based restricted phantom units of Sunoco LP in the amount of 22,210 units. The terms and conditions of the restricted unit/restricted phantom unit awards to Mr. Long under the SXL Plan and SUN equity plan are identical to the terms and conditions of the restricted unit awards under ETP’s equity plan applicable to Mr. Long.

Qualified Retirement Plan Benefits. The Energy Transfer Partners GP, L.P. 401(k) Plan (the “ETP 401(k) Plan”) is a defined contribution 401(k) plan, which covers substantially all of ETP’s employees, including the named executive officers. Employees may elect to defer up to 100% of their eligible compensation after applicable taxes, as limited under the Code. Matching contributions are not less than the aggregate amount of matching contributions that would be credited to a participant’s account based on a rate of match equal to 100% of each participant’s elective deferrals up to 5% of covered compensation. The amounts deferred by the participant are fully vested at all times, and the amounts contributed by ETP become vested based on years of service. This benefit is provided as a means to incentivize employees and provide them with an opportunity to save for their retirement.

ETP provides a 3% profit sharing contribution to employee 401(k) accounts for all employees with a base compensation below a specified threshold. The contribution is in addition to the 401(k) matching contribution and employees become vested based on years of service.

Health and Welfare Benefits. All full-time employees, including the named executive officers, may participate in the health and welfare benefit programs including medical, dental, vision, flexible spending, life insurance and disability insurance.

Termination Benefits. The named executive officers do not have any employment agreements that call for payments of termination or severance benefits or that provide for any payments in the event of a change in control of ETP GP, and the named executive officers are not expected to enter into any employment agreements in connection with the merger. The 2008 Incentive Plan and 2011 Incentive Plan provide the ETP Compensation Committee with the discretion, unless otherwise specified in the applicable award agreement, to provide for immediate vesting of all unvested restricted unit awards in the event of (i) a change of control, as defined in the applicable plan; (ii) death or (iii) disability, as defined in the applicable plan. In the case of the December 2014, 2015 and 2016 long-term incentive awards to the named executive officers under the 2008 Incentive Plan or, as applicable, the SXL Plan and the Sunoco LP equity plan, the restricted stock unit awards would immediately and fully vest in the event of a change of control, as defined in the applicable plan. Please refer to “Compensation Tables—Potential Payments Upon a Termination or Change of Control” for additional information.

 

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In addition, ETP GP has also adopted the ETP GP Severance Plan and Summary Plan Description effective as of June 12, 2013, (the “Severance Plan”), which provides for payment of certain severance benefits in the event of Qualifying Termination (as that term is defined in the Severance Plan). In general, the Severance Plan provides payment of two weeks of annual base salary for each year or partial year of employment service, up to a maximum of fifty-two weeks or one year of annual base salary (with a minimum of four weeks of annual base salary) and up to three months of continued group health insurance coverage. The Severance Plan also provides that additional benefits in addition to those provided under the Severance Plan may be paid based on special circumstances, which additional benefits shall be unique and non-precedent setting. The Severance Plan is available to all salaried employees on a nondiscriminatory basis; therefore, amounts that would be payable to the named executive officers upon a Qualified Termination have been excluded from “Compensation Tables—Potential Payments Upon a Termination or Change of Control” below.

ETP Deferred Compensation Plan. ETP maintains a deferred compensation plan (“DC Plan”), which permits eligible highly compensated employees to defer a portion of their salary and/or bonus until retirement or termination of employment or other designated distribution. Under the DC Plan, each year eligible employees are permitted to make an irrevocable election to defer up to 50% of their annual base salary, 50% of their quarterly non-vested unit distribution income, and/or 50% of their discretionary performance bonus compensation to be earned for services performed during the following year. Pursuant to the DC Plan, ETP may make annual discretionary matching contributions to participants’ accounts; however, ETP has not made any discretionary contributions to participants’ accounts and currently has no plans to make any discretionary contributions to participants’ accounts. All amounts credited under the DC Plan (other than discretionary credits) are immediately 100% vested. Participant accounts are credited with deemed earnings or losses based on hypothetical investment fund choices made by the participants among available funds.

Participants may elect to have their accounts distributed in one lump sum payment or in annual installments over a period of three or five years upon retirement, and in a lump sum upon other termination. Participants may also elect to take lump-sum in-service withdrawals five years or longer in the future, and such scheduled in-service withdrawals may be further deferred prior to the withdrawal date. Upon a change in control (as defined in the DC Plan) of ETP, all DC Plan accounts are immediately vested in full. However, distributions are not accelerated and, instead, are made in accordance with the DC Plan’s normal distribution provisions unless a participant has elected to receive a change of control distribution pursuant to his deferral agreement.

ETP Deferred Compensation Plan for Former Sunoco Executives. The ETP Deferred Compensation Plan for Former Sunoco Executives (“SXL DC Plan”) is a deferred compensation plan established by ETP in connection with ETP’s acquisition of SXL. In 2012, Mr. Hennigan waived any future rights or benefits to which he otherwise would have been entitled under both the Sunoco, Inc. Executive Retirement Plan (“SERP”), a non-qualified, unfunded plan that provided supplemental pension benefits over and above the benefits under the Sunoco, Inc. Retirement Plan (“SCIRP”), a qualified defined benefit plan sponsored by Sunoco, Inc., under which benefits are subject to IRS limits for pay and amount, and SXL’s pension restoration plan, in return for which, $2,789,413 of such deferred compensation benefits was credited to Mr. Hennigan’s account under the SXL DC Plan. Mr. Hennigan is the only named executive officer eligible to participate in the SXL DC Plan. Mr. Hennigan’s account is 100 percent vested and will be distributed in one lump sum payment upon his retirement or termination of employment, or other designated distribution event, including a change of control (as defined in the SXL DC Plan). His account is credited with deemed earnings (or losses) based on hypothetical investment fund choices made by him among available funds.

Risk Assessment Related to Compensation Structure. ETP believes the compensation plans and programs for the named executive officers, as well as other employees, are appropriately structured and are not reasonably likely to result in material risk to ETP. ETP believes the compensation plans and programs are structured in a manner that does not promote excessive risk-taking that could harm value or reward poor judgment. ETP also believes that compensation is allocated among base salary and short and long-term compensation in such a way as to not encourage excessive risk-taking. In particular, ETP generally does not adjust base annual salaries for the

 

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executive officers and other employees significantly from year to year, and therefore the annual base salary of employees is not generally impacted by ETP’s overall financial performance or the financial performance of an operating segment. Whether, and to what extent, the named executive officers receive a cash bonus is generally determined based on the achievement of specified financial performance objectives as well as the individual contributions of the named executive officers to ETP’s success. Restricted units rather than unit options are used for equity awards because restricted units retain value even in a depressed market so that employees are less likely to take unreasonable risks to get, or keep, options “in-the-money.” Finally, the time-based vesting over five years for long-term incentive awards ensures that employees’ interests align with those of the unitholders for the long-term performance of ETP.

Compensation Tables

Summary Compensation Table

 

Name and
Principal Position

  Year     Salary
($)
    Bonus (1)
($)
    Equity
Awards (2)
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings (3)

($)
    All Other
Compensation (4)
($)
    Total
($)
 

Kelcy L. Warren (5)

    2016      $ 5,920      $      $      $      $      $      $ 58      $ 5,978   

Chief Executive Officer

    2015        6,338                                                  6,338   
    2014        6,921                                                  6,921   

Thomas E. Long

    2016        454,154               2,007,697                             14,679        2,476,530   

Chief Financial Officer

    2015        399,207        480,296        1,447,063                             14,282        2,340,848   
    2014        326,221        391,465        777,850                             14,032        1,509,568   

Matthew S. Ramsey (6)

    2016        630,769               3,433,894                             87,375        4,152,038   

President and Chief Operating Officer

    2015        72,115        200,000        2,749,161                             2,587        3,023,863   

James M. Wright, Jr.

    2016        378,462               858,464                      47,766        14,447        1,299,139   

General Counsel

             

Michael J. Hennigan

    2016        630,769               3,088,040                      360,066        14,818        4,093,693   

President and Chief Executive Officer of Sunoco Partners LLC

   
 
2015
2014
  
  
   
 
611,537
600,000
  
  
   
 
856,152
810,000
  
  
   
 
3,009,815
3,941,118
  
  
   
 

  
  
   
 

  
  
   
 

263,923
  
  
   
 
16,770
27,192
  
  
   
 
4,494,274
5,642,233
  
  

 

(1) The discretionary cash bonus amounts for the named executive officers in respect of 2016 performance have not yet been determined; the 2016 bonuses are subject to determination by the ETE Compensation Committee, the ETP Compensation Committee and the SXL Compensation Committee and are expected to be paid on or before March 15, 2017.
(2) Equity award amounts reflect the aggregate grant date fair value of unit awards granted for the periods presented, computed in accordance with FASB ASC Topic 718. For Messrs. Long, Ramsey and Wright, amounts include equity awards of ETP’s subsidiaries and affiliates, as reflected in the “Grants of Plan-Based Awards Table.”
(3) During 2016, Mr. Wright had a gain of $47,766 under the DC Plan and Mr. Hennigan had a gain of $360,066 under the SXL DC Plan.
(4)

The amounts reflected for 2016 in this column include (i) matching contributions to the 401(k) plan made by ETP on behalf of the named executive officers of $13,250 for each Messrs. Long, Ramsey, Wright and

 

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  Hennigan, (ii) the dollar value of life insurance premiums paid for the benefit of the named executive officers and (iii) $72,557 in relocation costs for Mr. Ramsey. The amounts deferred by the executive officers under the applicable 401(k) plan are fully vested at all times.

The amounts reflected for all periods exclude distribution payments in connection with distribution equivalent rights on unvested unit awards, because the dollar value of such distributions are factored into the grant date fair value reported in the “Equity Awards” column of the Summary Compensation Table at the time that the unit awards and distribution equivalent rights were originally granted. For 2016, distribution payments in connection with distribution equivalent rights totaled $206,848 for Mr. Long, $325,742 for Mr. Ramsey, $148,223 for Mr. Wright, and $775,758 for Mr. Hennigan. For Mr. Hennigan, the amounts of “All Other Compensation” reported in SXL’s Annual Report on Form 10-K in prior years have reflected such distribution payments; however, those distribution payments are excluded from the amounts reported above to conform with the amounts presented for the other ETP named executive officers.

(5) Mr. Warren voluntarily determined that his salary would be reduced to $1.00 per year (plus an amount sufficient to cover his allocated payroll deductions for health and welfare benefits). He does not accept a cash bonus or any equity awards under the equity incentive plans.
(6) Mr. Ramsey serves as a member of the board of directors of ETE.

Grants of Plan-Based Awards Table

 

Name

   Grant Date      All Other Unit
Awards:
Number of Units

(#)
     All Other Option
Awards: Number
of Securities
Underlying
Options

(#)
     Exercise or Base
Price of Option
Awards

($ / Unit)
     Grant Date Fair
Value of Unit
Awards(1)
 

ETP Unit Awards:

           

Kelcy L. Warren

     N/A                       $       $   

Thomas E. Long

     12/29/2016         28,688                         1,030,186   

Matthew S. Ramsey

     12/26/2016         95,625                         3,433,894   

James M. Wright, Jr.

     12/29/2016         23,906                         858,464   

Michael J. Hennigan

     N/A                                   

SXL Unit Awards:

           

Thomas E. Long

     12/29/2016         16,021                         384,504   

Michael J. Hennigan

     12/12/2016         133,508                         3,088,040   

SUN Unit Awards:

           

Thomas E. Long

     12/29/2016         22,210                         593,007   

 

(1) The grant date fair value of unit awards is computed in accordance with FASB ASC Topic 718.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

A description of material factors necessary to understand the information disclosed in the tables above with respect to salaries, bonuses, equity awards, nonqualified deferred compensation earnings, and 401(k) plan contributions can be found in the Compensation Discussion and Analysis that precedes these tables.

 

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Outstanding Equity Awards at Year-End Table

 

           Unit Awards  

Name

   Grant Date(1)     Equity Incentive Plan Awards:
Number of Units That Have
Not Vested(1)(2)

(#)
     Equity Incentive Plan Awards:
Market or Payout Value of Units
That Have Not Vested(3)

($)
 

ETP Unit Awards:

       

Kelcy L. Warren

     N/A              $   

Thomas E. Long

     12/29/2016        28,688         1,027,317   
     12/9/2015        18,525         663,380   
     12/16/2014(4)        13,651         488,842   
     12/5/2013(4)        4,344         155,559   
     12/5/2012(4)        4,124         147,680   

Matthew S. Ramsey

     12/29/2016        95,625         3,424,331   
     12/9/2015        77,190         2,764,174   

James M. Wright, Jr.

     12/29/2016        23,906         856,074   
     12/9/2015        14,620         523,542   
     12/16/2014        9,104         326,014   
     12/30/2013        2,960         105,998   
     1/10/2013        2,400         85,944   

Michael J. Hennigan

     N/A                  

SXL Unit Awards:

       

Thomas E. Long

     12/29/2016        16,021         384,824   
     12/4/2015        11,208         269,216   

Michael J. Hennigan

     12/12/2016        133,508         3,206,862   
     12/4/2015        116,750         2,804,335   
     12/5/2014        74,043         1,778,513   
     1/29/2014        4,000         96,080   
     12/5/2013        34,960         839,739   
     1/24/2013        16,000         384,320   
     12/5/2012        36,000         864,720   

SUN Unit Awards:

       

Thomas E. Long

     12/29/2016        22,210         597,227   
     12/16/2015        14,125         379,821   

Matthew S. Ramsey

     1/2/2015        2,035         54,721   
     11/10/2014        747         20,087   

 

(1) ETP common unit awards outstanding vest as follows:

 

  at a rate of 60% in December 2019 and 40% in December 2021 for awards granted in December 2016;
  at a rate of 60% in December 2018 and 40% in December 2020 for awards granted in December 2015;
  at a rate of 60% in December 2017 and 40% in December 2019 for awards granted in December 2014;
  at a rate of 60% in December 2016 and 40% in December 2018 for awards granted in December 2013;
  at a rate of 60% in December 2015 and 40% in December 2017 for awards granted in January 2013; and
  ratably in December of each year through 2017 for awards granted in December 2012.

SXL common unit awards outstanding vest as follows:

 

  at a rate of 60% in December 2019 and 40% in December 2021 for awards granted in December 2016;
  at a rate of 60% in December 2018 and 40% in December 2020 for awards granted in December 2015;
  at a rate of 60% in December 2017 and 40% in December 2019 for awards granted in December 2014;
  at a rate of 60% in December 2016 and 40% in December 2018 for awards granted in January 2014 and awards granted in December 2013; and
  ratably in December of each year through 2017 for awards granted in January 2013 and December 2012.

 

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Sunoco LP common unit awards outstanding vest as follows:

 

  at a rate of 60% in December 2019 and 40% in December 2021 for awards granted in December 2016;
  at a rate of 60% in December 2018 and 40% in December 2020 for awards granted in December 2015; and
  at a rate of 60% in December 2017 and 40% in December 2019 for awards granted in November 2014 and January 2015.

 

(2) SXL unit amounts reflect the two-for-one split of SXL common units in June 2014.
(3) Market value was computed based on the number of unvested awards as of December 31, 2016 multiplied by the closing price of the applicable common units on December 31, 2016.
(4) Upon the April 30, 2015 merger (the “Regency Merger”) between a wholly-owned subsidiary of ETP and Regency Energy Partners LP (“Regency”), each outstanding unvested Regency unit award converted into 0.4124 ETP unit awards, maintaining the same terms as the original Regency award terms, which were similar to those of ETP. These outstanding unit awards represent Regency awards that converted to ETP awards.

Option Exercises and Units Vested Table

 

     Unit Awards  

Name

   Number of Units
Acquired on Vesting(1)(2)

(#)
     Value Realized
on Vesting(1)

($)
 

ETP Unit Awards:

     

Kelcy L. Warren

           $   

Thomas E. Long

     8,372         294,937   

Matthew S. Ramsey

               

James M. Wright, Jr.

     6,040         212,783   

Michael J. Hennigan

               

SXL Unit Awards:

     

Michael J. Hennigan

     110,440         2,559,999   

 

(1) Amounts presented represent the number of unit awards vested during 2016 and the value realized upon vesting of these awards, which is calculated as the number of units vested multiplied by the closing price of the applicable common units upon the vesting date.
(2) SXL unit amounts reflect the two-for-one split of SXL common units in June 2014.

ETP has not issued option awards.

Nonqualified Deferred Compensation

The following table provides the voluntary salary deferrals made by the named executive officers in 2016 under the DC Plan and, in the case of Mr. Hennigan, the SXL DC Plan.

 

Name

   Executive
Contributions in
Last FY

($)
     Registrant
Contributions
in Last FY

($)
     Aggregate
Earnings in

Last FY
($)
     Aggregate
Withdrawals/

Distributions
($)
     Aggregate
Balance at
Last FYE

($)
 

Kelcy L. Warren

   $       $       $       $       $   

Thomas E. Long

                                       

Matthew S. Ramsey

                                       

James M. Wright, Jr.

                     47,766                 73,467   

Michael J. Hennigan

                     360,066                 3,682,582   

A description of the key provisions of the DC Plan and the SXL DC Plan can be found in the Compensation Discussion and Analysis above.

 

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Potential Payments Upon a Termination or Change of Control

Equity Awards. As discussed in the Compensation Discussion and Analysis above, the restricted unit awards under the 2008 Incentive Plan, the 2011 Incentive Plan, as well as, the SXL Plan and Sunoco LP equity plan, generally require the continued employment of the recipient during the vesting period, provided however, the unvested awards will be accelerated in the event of the death or disability of the award recipient prior to the applicable vesting period being satisfied. In addition, in the event of a change in control, all awards granted in 2014, 2015 and 2016 under the 2008 Incentive Plan or the 2011 Incentive Plan, as applicable, and/or SXL Plan and the Sunoco LP equity plan would be accelerated. For awards granted under the 2008 Incentive Plan or the SXL Plan and the Sunoco LP equity plan prior to December 2014, unless otherwise specified in the applicable award agreement, unvested awards may also become vested upon a change in control at the discretion of the applicable compensation committee. This discussion assumes a scenario in which the ETP Compensation Committee, the SXL Compensation Committee or the compensation committee of the general partner of Sunoco LP did not exercise their discretion to accelerate unvested awards in connection with a change in control.

The awards under the 2008 Incentive Plan, the 2011 Incentive Plan and the 2014, 2015 and 2016 awards under the SXL Plan and Sunoco LP equity incentive plan all provide for acceleration of vesting in the event of the death or disability of the award recipient. In addition, the ETP Compensation Committee has approved a retirement provision, which provides that employees with at least ten years of service with ETP GP, who leave ETP GP voluntarily due to retirement, are eligible for accelerated vesting of 40% of his or her award for named executive officers age 65 to 68, or 50% of his or her award for named executive officers over age 68. Under the assumption described above, none of the restricted units granted in December 2016 would vest upon a named executive officer’s retirement because none of such officers met the age criteria for vesting at such time. For 2015 and 2016 awards, the SXL Compensation Committee included a provision in their award agreements which provided that an employee with at least ten years of service, who leaves employment voluntarily due to retirement, is eligible for accelerated vesting of 40% of his or her award from age 65 to 68 or 50% of his or her award over age 68.

In the event of death, the named executive officers participate in the life insurance plans offered to all employees (i.e., life insurance benefits equal to one and one-half times the named executive officer’s annual base salary, up to a maximum of $750,000 plus any supplemental life insurance elected and paid for by the named executive officer).

Deferred Compensation Plans. As discussed in the Compensation Discussion and Analysis above, all amounts under the DC Plan and the SXL DC Plan (other than discretionary credits) are immediately 100% vested. Upon a change in control (as defined in the DC Plan and/or the SXL DC Plan), distributions from the respective plans would be made in accordance with the normal distribution provisions of the respective plan. A change in control is generally defined in the DC Plan and the SXL DC Plan as any change in control event within the meaning of Treasury Regulation Section 1.409A-3(i)(5).

Director Compensation

The following discussion provides information about the compensation arrangements for ETP GP’s non-employee directors who are expected to serve as directors of SXL GP following the merger. The ETP Compensation Committee periodically reviews and makes recommendations regarding the compensation of the directors of ETP GP. In 2016, non-employee directors each received an annual fee of $50,000 in cash. Additionally, the Chairman of the Audit Committee receives an annual fee of $15,000 and the members of the Audit Committee receive an annual fee of $10,000. The Chairman of the Compensation Committee receives an annual fee of $7,500 and the members of the Compensation Committee receive an annual fee of $5,000. In 2016, members of the Conflicts Committee received cash payments on a to-be-determined basis for each Conflicts Committee assignment. Employee directors, including Mr. Warren, do not receive any fees for service as directors. In addition, the non-employee directors participate in the 2008 Incentive Plan. Each director who is not

 

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also (i) a shareholder or a direct or indirect employee of any parent, or (ii) a direct or indirect employee of the general partner of ETP GP, ETP, or a subsidiary, who is elected or appointed to the board for the first time shall automatically receive, on the date of his or her election or appointment, an award of 2,500 unvested ETP common units. In 2016, non-employee directors received annual grants of restricted ETP common units equal to an aggregate of $100,000 divided by the closing price of ETP common units on the date of grant, which will vest 60% after the third year and the remaining 40% after the fifth year after the grant date.

The compensation paid to the non-employee directors of ETP GP in 2016 is reflected in the following table:

 

Name

   Fees Paid in
Cash(1)

($)
     Unit Awards(2)
($)
     All Other
Compensation

($)
     Total
($)
 

Ted Collins, Jr.

   $ 87,852       $ 100,001       $       $ 187,853   

Michael K. Grimm

     132,352         100,001                 232,353   

David K. Skidmore

     128,865         100,001                 228,866   

 

(1) Fees paid in cash are based on amounts paid during the period.
(2) Unit award amounts reflect the aggregate grant date fair value of awards based on the market price of ETP common units as of the grant date.

As of December 31, 2016, Messrs. Collins and Grimm each had 6,600 unit awards outstanding, and Mr. Skidmore had 7,176 unit awards outstanding.

 

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THE SPECIAL MEETING

ETP is providing this proxy statement/prospectus to its common unitholders in connection with the solicitation of proxies to be voted at the special meeting of common unitholders that ETP has called for, among other things, the purpose of holding a vote upon a proposal to adopt the merger agreement and the transactions contemplated thereby and at any adjournment or postponement thereof. This proxy statement/prospectus constitutes a proxy statement of ETP in connection with the special meeting of ETP common unitholders and a prospectus for SXL in connection with the issuance by SXL of its common units in connection with the merger. This proxy statement/prospectus is first being mailed to ETP’s common unitholders on or about                 , 2017, and provides ETP common unitholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting of ETP common unitholders.

Date, Time and Place

The special meeting will be held at                     , on                     , 2017, at                     , local time.

Purpose

At the special meeting, ETP common unitholders will be asked to vote solely on the following proposals:

 

    Merger proposal: To adopt the merger agreement, a composite copy of which, incorporating the amendment into the text of the initial agreement, is attached as Annex A to this proxy statement/prospectus, and the transactions contemplated thereby, including the merger; and

 

    Adjournment proposal: To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Recommendation of the ETP Board

The ETP Board recommends that common unitholders of ETP vote:

 

    Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby; and

 

    Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

The ETP Board and the ETP Conflicts Committee have (i) determined that the merger agreement and the merger are advisable and fair and reasonable to, and in the best interests of, ETP and the unaffiliated ETP unitholders, and (ii) approved the merger and the merger agreement, and the ETP Board has resolved to recommend adoption of the merger agreement and the transactions contemplated thereby to the ETP unitholders. See “The Merger—Recommendation of the ETP Board; Reasons for the Merger.”

In considering the recommendation of the ETP Board with respect to the merger agreement and the transactions contemplated thereby, you should be aware that some of ETP’s directors and executive officers may have interests that are different from, or in addition to, the interests of ETP unitholders more generally. See “The Merger—Interests of Directors and Executive Officers of ETP in the Merger.”

Record Date; Outstanding Units; Units Entitled to Vote

The record date for the special meeting is                     , 2017. Only ETP common unitholders of record at the close of business on the record date will be entitled to receive notice of and to vote at the special meeting or any adjournment or postponement of the meeting.

 

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As of the close of business on the record date of                     , 2017, there were approximately          ETP common units outstanding and entitled to vote at the meeting. Each ETP common unit is entitled to one vote.

If at any time any person or group (other than ETP GP and its affiliates, including ETE) beneficially owns 20% or more of any class of ETP units, such person or group loses voting rights on all of its units and such units will not be considered “outstanding.” This loss of voting rights does not apply to (i) any person or group who acquired 20% or more of any class of ETP units from ETP GP or its affiliates, (ii) any person or group who directly or indirectly acquired 20% or more of any class of ETP units from that person or group described in clause (i) provided ETP GP notified such transferee that such loss of voting rights did not apply, or (iii) any person or group who acquired 20% or more of any class of units issued by ETP with the prior approval of the ETP Board.

A complete list of ETP common unitholders entitled to vote at the special meeting will be available for inspection at the principal place of business of ETP during regular business hours for a period of no less than 10 days before the special meeting and at the place of the special meeting during the meeting.

Quorum

A quorum of ETP unitholders represented in person or by proxy at the special meeting is required to vote on adoption of the merger agreement at the special meeting, but not to vote on approval of any adjournment of the meeting. The holders of at least a majority of the outstanding ETP common units must be represented in person or by proxy at the meeting in order to constitute a quorum. Any abstentions and broker non-votes will be counted in determining whether a quorum is present at the special meeting.

Required Vote

To adopt the merger agreement and the transactions contemplated thereby, holders of at least a majority of the outstanding ETP common units must vote in favor of such adoption. ETP cannot complete the merger unless its common unitholders adopt the merger agreement and the transactions contemplated thereby. Because approval is based on the affirmative vote of at least a majority of the outstanding ETP common units an ETP common unitholder’s failure to vote, an abstention from voting or a broker non-vote will have the same effect as a vote “AGAINST” adoption of the merger agreement.

If a quorum is present at the special meeting, to approve the adjournment of the meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting, holders of at least a majority of the outstanding ETP common units must vote in favor of the proposal. Therefore, if a quorum is present at the meeting, abstentions, broker non-votes and an ETP common unitholder’s failure to vote will have the same effect as a vote “AGAINST” approval of this proposal. If a quorum is not present at the special meeting, to approve the adjournment of the meeting, holders of at least a majority of the outstanding ETP common units represented thereat either in person or by proxy must vote in favor of the proposal. Therefore, if a quorum is not present, abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the adjournment proposal, but an ETP common unitholder’s failure to vote will have no effect on the outcome of the proposal.

Unit Ownership of and Voting by ETP’s Directors, Executive Officers and Affiliates

As of                     , 2017, ETP’s directors and executive officers and their affiliates (including ETE and its subsidiaries) beneficially owned and had the right to vote          ETP common units at the special meeting, which represent     % of the ETP common units entitled to vote at the special meeting. It is expected that ETP’s directors and executive officers will vote their units “FOR” the adoption of the merger agreement and the transactions contemplated thereby, although none of them has entered into any agreement requiring them to do so. Additionally, under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE or its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

 

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Voting of Units by Holders of Record

If you are entitled to vote at the special meeting and hold your ETP common units in your own name, you can submit a proxy or vote in person by completing a ballot at the special meeting. However, ETP encourages you to submit a proxy before the special meeting even if you plan to attend the special meeting in order to ensure that your ETP common units are voted. A proxy is a legal designation of another person to vote your ETP common units on your behalf. If you hold units in your own name, you may submit a proxy for your ETP common units by:

 

    calling the toll-free number specified on the enclosed proxy card and following the instructions when prompted;

 

    accessing the Internet website specified on the enclosed proxy card and following the instructions provided to you; or

 

    filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy materials.

When a common unitholder submits a proxy by telephone or through the Internet, his or her proxy is recorded immediately. ETP encourages its unitholders to submit their proxies using these methods whenever possible. If you submit a proxy by telephone or the Internet website, please do not return your proxy card by mail.

All ETP common units represented by each properly executed and valid proxy received before the special meeting will be voted in accordance with the instructions given on the proxy. If an ETP common unitholder executes a proxy card without giving instructions, the ETP common units represented by that proxy card will be voted as the ETP Board recommends, which is:

 

    Merger proposal: “FOR” the adoption of the merger agreement and the transactions contemplated thereby; and

 

    Adjournment proposal: “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

Your vote is important. Accordingly, please submit your proxy by telephone, through the Internet or by mail, whether or not you plan to attend the meeting in person. Proxies must be received by 11:59 p.m., Eastern Time, on                 , 2017.

Voting of Units Held in Street Name

If your units are held in an account at a bank, broker or through another nominee, you must instruct the bank, broker or other nominee on how to vote your ETP common units by following the instructions that the bank, broker or other nominee provides to you with these proxy materials. Most brokers offer the ability for unitholders to submit voting instructions by mail by completing a voting instruction card, by telephone and via the Internet.

If you do not provide voting instructions to your broker, your ETP common units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the bank, broker or other nominee can register your ETP common units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote your ETP common units on those matters for which specific authorization is required. Under the current rules of the NYSE, brokers do not have discretionary authority to vote on any of the proposals, including the ETP merger proposal. A broker non-vote of an ETP common unit will have the same effect as a vote “AGAINST” the ETP merger proposal and the ETP adjournment proposal.

 

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If you hold ETP common units through a bank, broker or other nominee and wish to vote your ETP common units in person at the special meeting, you must obtain a proxy from your bank, broker or other nominee and present it to the inspector of election with your ballot when you vote at the special meeting.

Revocability of Proxies; Changing Your Vote

You may revoke your proxy and/or change your voting instructions at any time before your proxy is voted at the special meeting. If you are a ETP common unitholder of record, you can do this by:

 

    sending a written notice to Energy Transfer Partners, L.P. at 8111 Westchester Drive, Suite 600, Dallas, Texas 75225, Attention: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting and states that you revoke your proxy;

 

    submitting a valid proxy by mail, telephone or internet that bears a date later than the date of the proxy, but no later than the telephone/internet deadline, and is received prior to the special meeting; or

 

    attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself, revoke any proxy that you have previously given).

If you hold your ETP common units through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee in order to revoke your proxy or change your voting instructions.

Solicitation of Proxies

This proxy statement/prospectus is furnished in connection with the solicitation of proxies by the ETP Board to be voted at the special meeting. ETP will bear all costs and expenses in connection with the solicitation of proxies. ETP has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the meeting and ETP estimates it will pay MacKenzie Partners, Inc. a fee of approximately $         for these services. ETP has also agreed to reimburse MacKenzie Partners, Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify MacKenzie Partners, Inc. against certain losses, costs and expenses. In addition, ETP may reimburse brokerage firms and other persons representing beneficial owners of ETP common units for their reasonable expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of ETP’s directors, officers and employees by telephone, electronic mail, letter, facsimile or in person, but no additional compensation will be paid to them.

Unitholders should not send unit certificates with their proxies.

A letter of transmittal and instructions for the surrender of ETP common units will be mailed to ETP common unitholders shortly after the completion of the merger.

No Other Business

Under the ETP partnership agreement, the business to be conducted at the special meeting will be limited to the purposes stated in the notice to ETP unitholders provided with this proxy statement/prospectus.

Adjournments

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. If a quorum exists, an adjournment may be made from time to time with approval of the holders of at least a majority of the outstanding ETP common units. If a quorum does not exist, an adjournment may be made from time to time with the approval of the holders of at least a majority of the ETP common units entitled to vote at such meeting and represented thereat either in person or by proxy. ETP is not required to notify unitholders of any

 

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adjournment of 45 days or less if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At any adjourned meeting, ETP may transact any business that it might have transacted at the original meeting, provided that a quorum is present at such adjourned meeting. Proxies submitted by ETP unitholders for use at the special meeting will be used at any adjournment or postponement of the meeting. References to the special meeting in this proxy statement/prospectus are to such special meeting as adjourned or postponed.

Assistance

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact MacKenzie Partners, Inc. toll-free at (800) 322-2855 (banks and brokers call collect at (212) 929-5500).

 

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THE MERGER

This section of the proxy statement/prospectus describes the material aspects of the proposed merger. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated herein by reference, including the full text of the merger agreement and the amendment thereto, for a more complete understanding of the merger. A copy of the composite merger agreement, which incorporates the amendment into the text of the initial agreement, is attached as Annex A hereto. In addition, important business and financial information about each of SXL and ETP is included in or incorporated into this proxy statement/prospectus by reference. See “Where You Can Find More Information.”

Effect of the Merger and the GP Merger

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for (i) the merger of SXL Merger Sub LP with ETP and (ii) the merger of SXL GP with ETP GP. ETP, which is sometimes referred to following the merger as the surviving entity, and ETP GP, which is sometimes referred to following the GP merger as the GP merger surviving entity, will survive the mergers, and the separate limited partnership and limited liability company existence of SXL Merger Sub LP and SXL GP, respectively, will cease. As a result of the merger and the transactions contemplated thereby, SXL and SXL Merger Sub will become the sole limited partner and sole general partner, respectively, of ETP and, as a result, SXL will own, directly or indirectly, all of the outstanding general and limited partner interests in ETP. Further, ETP GP will become the sole general partner of SXL. After the completion of the merger, the certificate of limited partnership of ETP in effect immediately prior to the effective time will be the certificate of limited partnership of the surviving entity, until amended in accordance with its terms and applicable law, and the ETP partnership agreement in effect immediately prior to the effective time will be the agreement of limited partnership of the surviving entity (except to the extent the limited partnership agreement is amended to reflect the admission of SXL Merger Sub as the sole general partner of ETP), until amended in accordance with its terms and applicable law. After the completion of the GP merger, the certificate of limited partnership of ETP effective immediately prior to the effective time of the GP merger will be the certificate of limited partnership of the GP surviving entity, until amended in accordance with its terms and applicable law, and the limited partnership agreement of ETP GP in effect immediately prior to the effective time of the GP merger will be the limited partnership agreement of the GP merger surviving entity, until amended in accordance with its terms and applicable law.

The merger agreement provides that, at the effective time, each ETP common unit issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time will be converted into the right to receive 1.5 SXL common units. At the effective time, the other classes of ETP units (other than the ETP incentive distribution rights and Class H units, which shall be cancelled) will automatically convert into SXL units as follows:

 

    Each Class E unit issued and outstanding as of immediately prior to the effective time will be converted into a unit representing a limited partner interest in SXL having the same rights, preferences, privileges, duties and obligations that the Class E unit had immediately prior to the closing of the merger (the “SXL Class E units”);

 

    Each Class G unit issued and outstanding as of immediately prior to the effective time will be converted into a unit representing a limited partner interest in SXL having the same rights, preferences, privileges, duties and obligations that the Class G unit had immediately prior to the closing of the merger (the “SXL Class G units”);

 

    Each Class I unit issued and outstanding as of immediately prior to the effective time will be converted into a unit representing a limited partner interest in SXL having the same rights, preferences, privileges, duties and obligations that the Class I unit had immediately prior to the closing of the merger (the “SXL Class I units”); and

 

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    Each Class K unit issued and outstanding as of immediately prior to the effective time will be converted into a unit representing a limited partner interest in SXL having the same rights, preferences, privileges, duties and obligations that the Class K unit had immediately prior to the closing of the merger (the “SXL Class K units”).

Any SXL securities that are owned by ETP or any of its subsidiaries, excluding SXL GP, immediately prior to the effective time (including the 9,416,196 Class B units representing limited partner interests in SXL (“SXL Class B units”) and 67,061,274 SXL common units indirectly owned by ETP) will be cancelled without any conversion or payment of consideration in respect thereof. SXL’s common units had a value of $26.19 per unit, based on the closing price of SXL common units on the NYSE, as of November 18, 2016, the last trading day prior to the public announcement of the merger, and a value of $         per unit, based on the closing price of SXL common units on                     , 2017, the most recent practicable trading day prior to the date of this proxy statement/prospectus.

Because the exchange ratio was fixed at the time the merger agreement was executed and because the market value of SXL common units and ETP common units will fluctuate prior to the consummation of the merger, ETP common unitholders cannot be sure of the value of the merger consideration they will receive relative to the value of ETP common units that they are exchanging. For example, decreases in the market value of SXL common units will negatively affect the value of the merger consideration that ETP common unitholders receive, and increases in the market value of ETP common units may mean that the merger consideration that such unitholders receive will be worth less than the market value of the ETP common units that they are exchanging. See “Risk Factors—Risk Factors Relating to the Merger.”

SXL will not issue any fractional units in the merger. Instead, each holder of ETP common units that are converted pursuant to the merger agreement who otherwise would have received a fraction of an SXL common unit will instead be entitled to receive a whole SXL common unit.

At the effective time, each outstanding award of ETP restricted units will, by virtue of the merger and without any action on the part of the holder of any such ETP restricted units, cease to relate to or represent a right to receive ETP common units and will be converted into the right to receive an award of SXL restricted units, on the same terms and conditions as were applicable to the corresponding award of ETP restricted units (including the right to receive distribution equivalents with respect to such award), except that the number of SXL restricted units covered by each such award will be equal to the number of ETP common units subject to the corresponding award of ETP restricted units multiplied by the exchange ratio, rounded up to the nearest whole unit. With respect to each ETP restricted unit, any distribution equivalent amounts accrued but unpaid as of the closing will carry over and be paid to the holder as soon as practicable following the closing.

At the effective time, each outstanding award of ETP cash units will, automatically and without any action on the part of the holder of such cash unit, be converted into the right to receive an award of restricted cash units relating to SXL common units on the same terms and conditions as were applicable to the award of ETP cash units, except that the number of notional SXL common units related to the award will be equal to the number of notional ETP common units related to the corresponding award of ETP cash units multiplied by the exchange ratio, rounded up to the nearest whole unit. Prior to the effective time, the ETP Board will adopt an amendment to the ETP cash unit plan to permit the treatment of ETP cash units as provided in the merger agreement.

In connection with the mergers, ETP GP will transfer the 0.6% general partner interest in ETP to SXL Merger Sub and SXL Merger Sub will assume the rights and duties of the general partner of ETP. As a result of the merger and the related transactions, the 100% limited partner interest in SXL Merger Sub LP will convert into a 99.4% limited partner interest in ETP, the non-economic general partner interest in SXL Merger Sub LP will be cancelled and SXL Merger Sub will become the general partner of ETP, holding a 0.6% general partner interest. In addition, the incentive distribution rights in ETP and the Class H units outstanding immediately prior to the effective time will be cancelled.

 

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Background of the Merger

The senior management and boards of directors of each of ETP and SXL regularly review operational and strategic opportunities to maximize value for their respective investors. In connection with these reviews, the management and boards of directors of ETP and SXL from time to time evaluate potential transactions that would further their respective strategic objectives. As noted in more detail in the following paragraphs, ETP and SXL routinely, and in connection with preparation for semi-annual board meetings, considered potential synergistic transactions, including joint ventures, in an effort to increase unitholder value. The potential for further synergies was evidenced in successful joint ventures undertaken in advance of the commencement of discussions regarding a merger between ETP and SXL.

As part of ETP’s and SXL’s strategy to maximize value for investors, both ETP and SXL have from time to time evaluated transactions with each other. For example, ETP and SXL own a 45% and 30% economic interest in the Dakota Access Pipeline and ETCO Pipeline joint ventures, respectively, a combined pipeline system that will deliver crude oil from the Bakken/Three Forks production area in North Dakota to the Gulf Coast. Phillips 66 owns the remaining 25% economic interest in this pipeline system, and in August 2016, ETP and SXL each agreed to sell 49% of their economic interest in the pipeline system to a joint venture owned by Marathon Petroleum Corporation and Enbridge Energy Partners, L.P., with closing expected to occur in the first quarter of 2017. In addition, in 2015, ETP and SXL entered into the Bayou Bridge Pipeline joint venture with Phillips 66 Partners, with ETP and SXL each holding a 30% interest and Phillips 66 Partners owning 40%. The Bayou Bridge Pipeline will deliver crude oil from Phillips 66 Partners’ and SXL’s terminals in Nederland, Texas to refinery markets in Louisiana. Finally, in the fourth quarter of 2014, ETP and SXL commenced operations on the joint Mariner South project, where a subsidiary of ETP uses SXL’s Mariner South pipeline to deliver export-grade propane and butane products from its Mont Belvieu, Texas storage and fractionation complex to SXL’s marine terminal in Nederland, Texas.

In early October 2016, management of ETE, ETP and SXL commenced preparation for semi-annual meetings of the board of directors of each of these entities to be held between October 17 and October 19. In connection with these preparations, management of each of these entities reviewed information related to current and projected financial performance, including projected financial performance under various assumptions related to future crude oil, natural gas and natural gas liquids prices, expected timing for completion of capital expenditure projects, projected debt levels and leverage ratios and other matters. Based on this information, management of ETE analyzed various options to improve the distribution coverage ratios and leverage ratios at ETP and SXL under various assumptions related to future financial performance, including the possibility of a merger of ETP and SXL. Specifically, ETE analyzed potential reductions in ETP and SXL quarterly cash distribution levels, common equity issuances by ETP and SXL and/or preferred equity issuances by ETP and SXL, with the intention in each case of improving financial metrics with respect to distribution coverage and leverage of the two partnerships. ETE also concluded that the combination of ETP and SXL would create scope and scale of business, as well as cost and commercial synergies and other financial benefits that could not be achieved through any of the other alternatives considered.

On October 19, 2016, ETE management had an informal discussion with the ETP Board and the board of directors of LE GP, LLC, the general partner of ETE (the “ETE Board”), regarding the possibility of a merger of ETP and SXL.

On October 31, 2016, ETP contacted a representative of Latham & Watkins LLP (“Latham”) regarding the potential engagement of Latham as legal advisor to the ETP Board. ETP and the representative of Latham discussed a potential structure for the proposed transaction whereby ETP would merge with and into a wholly owned subsidiary of SXL subject to the necessary approval of the ETP Board, the SXL Board and the ETP unitholders, as well as customary regulatory approvals.

On October 31, 2016, Kelcy L. Warren, Chairman of the Board of Directors of LE GP, LLC, the general partner of ETE, met with Michael J. Hennigan, President and Chief Executive Officer of SXL, regarding the

 

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possibility of a merger between ETP and SXL. Mr. Warren subsequently contacted Steven R. Anderson, as Chairman of the standing SXL Conflicts Committee, to discuss the proposed transaction. On November 1, 2016, Mr. Hennigan held a call with Mr. Anderson, Scott Angelle and Basil Bray, the members of the standing SXL Conflicts Committee, to advise them of his discussions with Mr. Warren.

On November 1, 2016, the ETP Board and ETE Board held a joint meeting to discuss ETP management’s analysis related to a potential merger transaction between ETP and SXL and the expected structure for such transaction. The ETP Board determined that any such transaction would be subject to review and approval of the ETP Conflicts Committee and determined to appoint David K. Skidmore and Michael K. Grimm to the ETP Conflicts Committee and delegate to the ETP Conflicts Committee the authority to (i) review and evaluate the proposed transaction, (ii) negotiate the terms and conditions of the proposed transaction and (iii) determine whether to approve the proposed transaction and to recommend approval of the proposed transaction to the ETP Board. The formal resolutions establishing the ETP Conflicts Committee, appointing Messrs. Skidmore and Grimm to serve on such committee and delegating authority to the ETP Conflicts Committee to review the proposed transaction (consistent with the motions approved by the ETP Board on November 1, 2016) were adopted on November 14, 2016.

On November 1, 2016, the ETP Conflicts Committee held a telephonic meeting with Thomas P. Mason, Executive Vice President and General Counsel of ETE, James M. Wright, General Counsel of ETP, and representatives of Latham to discuss potential legal advisors to the ETP Conflicts Committee. The ETP Conflicts Committee authorized Latham to speak with Potter Anderson & Corroon LLP (“Potter Anderson”), which had served as legal counsel to various conflicts committees of the ETE Board on prior matters, to two special committees of the board of directors of the general partner of Sunoco LP (formerly Susser Petroleum Partners LP) on prior matters, and to ETE in connection with the merger of ETP and Regency Energy Partners LP, about their potential engagement as legal advisor to the ETP Conflicts Committee.

On November 1, 2016, representatives of Latham had a telephonic discussion with Potter Anderson about the proposed transaction and arranged for Potter Anderson to speak directly with Mr. Skidmore to discuss the potential engagement of Potter Anderson as legal counsel to the ETP Conflicts Committee. On November 1, 2016, Mr. Skidmore had a telephonic discussion with Potter Anderson to discuss the potential engagement of Potter Anderson as legal counsel to the ETP Conflicts Committee. On November 2, 2016, representatives of Latham had a telephonic discussion with Potter Anderson to further discuss the proposed transaction.

On November 2, 2016, SXL contacted a representative of Vinson & Elkins L.L.P. (“V&E”) regarding the potential engagement of V&E as legal advisor to the SXL Board.

On November 2, 2016, the ETP Conflicts Committee held a telephonic meeting with Potter Anderson and determined to engage Potter Anderson as legal counsel to the ETP Conflicts Committee. An engagement letter dated November 11, 2016 detailing the terms of Potter Anderson’s engagement was subsequently executed. The ETP Conflicts Committee and Potter Anderson discussed and confirmed Mr. Skidmore’s and Mr. Grimm’s satisfaction of the qualifications to serve as members of the ETP Conflicts Committee under the ETP partnership agreement and discussed and confirmed that Mr. Skidmore and Mr. Grimm were not otherwise subject to any potential conflicting interests in connection with the proposed transaction. Among other things, (i) the ETP Conflicts Committee discussed and considered Mr. Skidmore’s ownership interests in common units of ETE and Series A Convertible Preferred Units of ETE (the “ETE convertible units”), and determined such ownership interests would not impact Mr. Skidmore’s ability to serve as a member of the ETP Conflicts Committee and were not material to Mr. Skidmore, and (ii) the ETP Conflicts Committee discussed and considered that Mr. Grimm serves as a member (and chairman) of the board of directors of RSP Permian, Inc., along with Mr. Matthew S. Ramsey, the President and Chief Operating Officer of ETP and a member of each of the ETP Board, the ETE Board and the board of directors of Sunoco LP, and Mr. Ted Collins, Jr., a member of the ETP Board, and determined that such membership would not impact Mr. Grimm’s ability to serve as a member of the ETP Conflicts Committee or constitute a material conflict for Mr. Grimm. The ETP Conflicts Committee and Potter

 

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Anderson discussed potential financial advisors to the ETP Conflicts Committee. The ETP Conflicts Committee also determined to request from ETP management information regarding prior engagements of financial advisors by ETP and its affiliates. Latham subsequently provided to Potter Anderson a list of financial advisors who had been engaged over the past several years by ETP and its affiliates and describing the nature of such engagements.

On November 4, 2016, the SXL Board held a meeting to discuss the proposed transaction. The SXL Board determined that any such transaction would be subject to review and approval of the standing SXL Conflicts Committee and delegated to the SXL Conflicts Committee the authority to (i) review and evaluate any potential conflicts arising in connection with the proposed transaction, (ii) review and evaluate the terms and conditions of the proposed transaction and (iii) make any recommendations to the SXL Board regarding the proposed transaction in light of the potential conflicts of interest in connection with the proposed transaction. The formal resolutions delegating authority to the SXL Conflicts Committee to review the transaction were adopted later that day. The SXL Conflicts Committee selected Richards, Layton & Finger, P.A. (“RLF”) as legal counsel to the SXL Conflicts Committee and Citigroup Global Markets Inc. (“Citi”) as financial advisor to the SXL Conflicts Committee.

On November 4, 2016, the ETP Conflicts Committee held a telephonic meeting with Potter Anderson to discuss potential financial advisors to the ETP Conflicts Committee, the qualities the ETP Conflicts Committee should consider in evaluating and selecting among financial advisor candidates, the strengths and weaknesses of certain financial advisor candidates, and the desire to limit outbound contacts in order to maintain the confidentiality of the process. The ETP Conflicts Committee determined to further explore engaging Barclays Capital Inc. (“Barclays”) in light of, among other things, Barclays’ prior exemplary service as financial advisor to the ETP Conflicts Committee in connection with the merger transaction between ETP and Regency Energy Partners LP, Barclays’ intimate knowledge of ETP and the other affiliated Energy Transfer entities, and Barclays’ leading position as advisor in the energy, MLP and M&A spaces. The ETP Conflicts Committee determined to contact Barclays in order to seek additional information regarding Barclays’ prior engagements by ETP and its affiliates, including the nature of such work and the fees earned, the individual team members who would advise the ETP Conflicts Committee if engaged, and the scope of advisory services that Barclays could offer the ETP Conflicts Committee.

On November 4, 2016, Mr. Skidmore and Potter Anderson held a telephonic meeting with representatives of Barclays to discuss the potential engagement of Barclays as financial advisor to the ETP Conflicts Committee.

On November 5, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives from Potter Anderson to discuss the potential engagement of Barclays as financial advisor to the ETP Conflicts Committee. The ETP Conflicts Committee determined to engage Barclays, subject to receipt of the final results of Barclays’ internal conflicts and independence review and successful negotiation of an engagement letter and fees. Potter Anderson and the ETP Conflicts Committee also discussed the draft formal resolutions of the ETP Board delegating authority to, and establishing the mandate of, the ETP Conflicts Committee that had been provided to Potter Anderson by Latham. Subsequent to the meeting, Barclays provided to Potter Anderson a draft engagement letter and precedent investment banker fee information.

On November 6, 2016, Mr. Skidmore and Potter Anderson held a telephonic meeting with representatives of Barclays to discuss the potential engagement of Barclays as financial advisor to the ETP Conflicts Committee. During the call, Barclays informed Mr. Skidmore that Barclays had received formal conflicts approval earlier that afternoon and that Barclays and its individual team members did not hold material interests in the ETE family of entities. Mr. Skidmore and Barclays then negotiated and agreed upon Barclays’ fee.

On November 7, 2016, representatives of Barclays had a call with Mr. Long to discuss initial due diligence and the business rationale of the proposed transaction.

On November 8, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives of Potter Anderson, Barclays, Latham, Mr. Mason, Mr. Long, and Bradford Whitehurst, Executive Vice President

 

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and Head of Tax of LE GP, LLC to discuss the structure and rationale of the proposed transaction, the role of ETE in connection therewith, the exchange of diligence information, including financial projections, and the anticipated process regarding exchange of proposals and negotiations between the ETP Conflicts Committee and the SXL Conflicts Committee.

On November 8, 2016, V&E sent Latham and ETP a presentation containing a proposed structure and transaction steps for the mergers, which steps had previously been shared with SXL, and representatives of V&E, Latham and ETP discussed the proposed structure and transaction steps telephonically.

On November 9, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives of Potter Anderson to discuss process matters and to update the ETP Conflicts Committee as to the status of negotiations with Barclays regarding the terms of the Barclays engagement letter. Over the following days, the ETP Conflicts Committee, Potter Anderson and Barclays negotiated the remaining terms of Barclays’ engagement letter. The engagement letter detailing the terms of Barclays’ engagement was entered into on November 19, 2016.

On November 10, 2016, ETP furnished Barclays with a financial model for purposes of Barclays’ analysis.

On November 11, 2016, the ETP Conflicts Committee held a meeting with representatives of Potter Anderson and Barclays during which Barclays provided a preliminary financial review of ETP and SXL, a preliminary analysis of the proposed transaction and other background information. During the meeting, Potter Anderson presented a review of the duties and powers of the ETP Conflicts Committee in connection with the proposed transaction pursuant to the ETP partnership agreement and the draft resolutions of the ETP Board delegating authority to the ETP Conflicts Committee.

On November 11, 2016, Mr. Warren sent a letter to the SXL Board, which indicated that ETE believed that it would be advisable for SXL to consider making a proposal to acquire ETP in an all equity transaction in which the equity exchange ratio would be based on a volume weighted average price for the common units of each of SXL and ETP, with an appropriate premium being offered to the ETP common unitholders based on SXL’s analysis. The letter also indicated that, as SXL would be the acquiring entity in this transaction, the existing structure of incentive distribution rights in SXL embedded in the current SXL partnership agreement would continue following the closing of the transaction. The letter also indicated that ETE would evaluate and assist with any transaction that SXL would consider proposing to ETP and, in light of ETE’s various rights under the partnership agreements and limited liability company agreements related to the general partners of each of SXL and ETP, ETE would be prepared to take appropriate action to consent to a transaction between SXL and ETP that ETE determines is beneficial to the unitholders of ETE. Following the delivery of this letter, Mr. Mason had telephonic conversations with Mr. Hennigan, and a representative of RLF to clarify that, based on this transaction structure, the then-existing SXL incentive distribution subsidies would continue following the closing of the proposed transaction but that, due to the extinguishment of the incentive distribution rights in ETP in connection with ETP being merged with a subsidiary of SXL pursuant to the proposed transaction structure, the corresponding ETP incentive distribution subsidies provided for in the ETP partnership agreement would also be extinguished.

On November 14, 2016, representatives of ETP, SXL, ETE, Latham, V&E, Potter Anderson, RLF, Barclays and Citi, as well as the members of the ETP Conflicts Committee and the SXL Conflicts Committee, attended a meeting at which Matthew S. Ramsey, President and Chief Operating Officer of ETP, Thomas E. Long, Chief Financial Officer of ETP, and Dylan Bramhall, Senior Vice President-Finance and Treasurer of ETP, provided a presentation to the group regarding ETP’s business and operations, including a review of each of ETP’s business segments and future expected growth projects. The representatives of ETP also reviewed the financial projections for the business and later provided SXL, the SXL Conflicts Committee and Citi with electronic copies of the presentation, which included the financial projections. Following ETP’s presentation and extensive questions and answers, the parties agreed that representatives of ETP would further discuss the financial projections and address follow-up questions in a subsequent meeting.

 

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At the November 14th meeting, following the ETP presentation, Mr. Hennigan and Peter Gvazdauskas, Chief Financial Officer and Treasurer of SXL, also provided a presentation to the group regarding SXL’s business and operations, including a review of SXL’s crude oil projects, NGL projects and refined products projects. The representatives of SXL also reviewed the financial projections for the business and later provided ETP, the ETP Conflicts Committee and Barclays with electronic copies of the presentation, which included the financial projections. Following SXL’s presentation and extensive questions and answers, the parties agreed that representatives of SXL would further discuss the financial projections and address follow-up questions in a subsequent meeting.

On November 14, 2016, the ETP Conflicts Committee held an in-person meeting with Mr. Long, Mr. Wright, and Jason Healy, Associate General Counsel and Secretary of ETP, as well as representatives of Barclays, Potter Anderson and Latham, to discuss SXL’s management presentation and financial projections. The participants agreed that representatives of Barclays would meet with representatives of Citi to discuss in greater detail SXL’s and ETP’s financial projections and the assumptions used to calculate the financial projections.

Through the course of several meetings on November 15 and 16, 2016, Barclays engaged in a series of diligence discussions with ETP management and representatives of SXL management and Citi.

On November 15, 2016, the ETP Conflicts Committee held a series of in-person meetings with Barclays and Potter Anderson to discuss the financial analysis being performed by Barclays with respect to the proposed transaction and the ETP and SXL financial projections. During these meetings, the ETP Conflicts Committee discussed, among other things, the projected cash distribution coverage ratio shortfalls that would result if ETP were to continue to make quarterly cash distributions at the current distribution level as well as ETP’s possible efforts and alternatives to address those projected shortfalls. As a result of those discussions, the ETP Conflicts Committee questioned whether ETP could sustain its current level of cash distributions per common unit during the periods covered by the ETP projections, and also questioned whether ETE’s ability to provide additional ETP incentive distribution subsidies would be significantly constrained by, among other things, ETE’s credit metrics. Accordingly, the ETP Conflicts Committee determined that further input from ETP and ETE management was necessary in order for the ETP Conflicts Committee to assess any merger proposal.

On November 16, 2016, the ETP Conflicts Committee held a meeting with representatives from Potter Anderson and Barclays during which Barclays previewed preliminary merger consequences analyses in respect of the proposed transaction in anticipation of a proposal from SXL, including a review of the ETP distribution cut scenarios. During the meeting, the ETP Conflicts Committee and its advisors discussed some potential advantages of a proposed transaction, including with respect to simplification of structure, reduction of cost of capital, reduction of debt levels and improvement of debt ratios, expected impact on credit ratings, and equity market perception. The ETP Conflicts Committee and its advisors also discussed potential disadvantages of a proposed transaction, including the likelihood that a transaction would be dilutive to distributions per ETP common unit compared to current cash distribution levels.

From November 14, 2016 to November 16, 2016, the SXL Conflicts Committee held a series of in-person meetings each day, together with its legal and financial advisors, to discuss and consider the proposed transaction, including discussions regarding (i) the potential benefits and considerations of making a proposal with respect to the proposed transaction, (ii) certain legal and financial matters regarding the proposed transaction, (iii) the terms of the merger agreement being prepared for the proposed transaction, and (iv) other related matters. In discussions relating to the terms of the merger agreement, the SXL Conflicts Committee considered, among other things, the contemplated transaction structure and the implications thereof with respect to the proposed transaction, including (i) required ETP unitholder approvals and (ii) the absence of any required SXL unitholder approval. The SXL Conflicts Committee also invited Messrs. Hennigan and Gvazdauskas, Kathleen Shea-Ballay, Senior Vice President, General Counsel and Secretary of SXL, and representatives of V&E to attend portions of its meetings to solicit management’s views on the effect of possible terms of the proposed transaction on SXL’s operations, including growth plans, and determined that the proposed transaction

 

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could result in meaningful potential cost savings and commercial synergies. Following such discussions, the SXL Conflicts Committee determined that it was in the best interests of SXL and its common unitholders that are not affiliated with ETP, ETE and their affiliates to make a proposal regarding the proposed transaction to the ETP Conflicts Committee. The SXL Conflicts Committee then determined to propose that SXL acquire ETP (the “SXL Initial Proposal”) in a transaction in which (i) ETP common unitholders would receive a number of SXL common units at an exchange ratio reflecting a 5.0% discount to the spot trading price for the ETP common units, (ii) all non-affiliated holders of SXL common units would receive a one-time special distribution of $2.00 per SXL common unit prior to the closing of the merger, which would be funded through borrowings under SXL’s credit facility, (iii) in addition to any required ETP approvals, the transaction would be conditioned on obtaining the approval of holders of a majority of outstanding SXL common units, (iv) ETE would approve additional SXL incentive distribution subsidies in the amount of $125.0 million per quarter for the first four quarters following the closing of the merger and $40.0 million per quarter for the fifth through twelfth quarters following the closing of the merger and (v) all existing ETP incentive distribution subsidies and SXL incentive distribution subsidies currently in place would remain in place following the closing of the merger.

On November 16, 2016, the SXL Conflicts Committee and the ETP Conflicts Committee held an in-person meeting during which the SXL Conflicts Committee delivered the SXL Initial Proposal to the ETP Conflicts Committee.

On November 16, 2016, the ETP Conflicts Committee shared the terms of the SXL Initial Proposal with Potter Anderson, Barclays, ETP management and Latham. The ETP Conflicts Committee held various in-person meetings with Barclays, Potter Anderson and Mr. Long to discuss the SXL Initial Proposal. The ETP Conflicts Committee sought guidance from Mr. Long regarding the willingness of ETE to maintain the ETP incentive distribution subsidies (in addition to the existing SXL incentive distribution subsidies) in the combined company, and ETE’s willingness to provide additional incentive distribution subsidies to the combined company. The ETP Conflicts Committee also reiterated its need for formal guidance from ETP management regarding the ability of ETP to maintain its projected distributions per common unit (and the related coverage shortfalls), and the likely approach to be taken by ETP management to resolve such shortfalls. In subsequent meetings with Potter Anderson and Barclays, the ETP Conflicts Committee considered various aspects of the SXL Initial Proposal, including (i) the dilutive impact of the proposed exchange ratio on distributions per ETP common unit compared to current distribution levels, (ii) that the proposed one-time special distribution of $2.00 per SXL unit would increase debt at the ETE level and would be counter to the goal of reducing leverage metrics and improving credit ratings on a consolidated and entity basis, and (iii) that the vote of the SXL unitholders, as proposed in the SXL Initial Proposal, was not legally required. The ETP Conflicts Committee and its advisors also discussed the possibility of synergies available to the pro forma entity, and the ETP Conflicts Committee directed Barclays to explore possible synergies with ETP management and SXL.

Later on November 16, 2016, Mr. Long had an initial telephonic discussion with Mr. Warren regarding the incentive distribution subsidies contemplated by the SXL Initial Proposal, and Mr. Warren informed Mr. Long that ETE would be unwilling to continue the existing ETP incentive distribution subsidies provided for in the ETP Partnership Agreement or provide any additional SXL incentive distribution subsidies over and above existing levels in the current SXL partnership agreement.

On November 17, 2016, V&E sent an initial draft of the merger agreement (which did not address the economic terms of the merger) to Latham, Potter Anderson, ETP and ETE. Consistent with the SXL Initial Proposal, the draft merger agreement included a requirement that holders of a majority of outstanding SXL common units vote to approve the transaction. The draft merger agreement also contained a “no shop” covenant that would permit the ETP Board to change its recommendation to the ETP unitholders that they vote in favor of the merger only upon changed circumstances and would not allow the ETP Board to respond to any inquiries from third parties regarding an alternative transaction.

On November 17, 2016, representatives of Latham and Potter Anderson met in person to discuss issues identified in the initial draft of the merger agreement and related matters.

 

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On November 17 through November 18, 2016, representatives of Latham held various in-person meetings with Messrs. Mason, Wright and Healy to discuss issues identified in SXL’s initial draft of the merger agreement. The key issues discussed included (i) the “no shop” covenant, (ii) the requirement that holders of a majority of outstanding SXL common units vote to approve the transaction, (iii) the restrictions on ETP’s and SXL’s ability to engage in certain business activities after the execution of the merger agreement and prior to closing, (iv) the representations and warranties given by ETP and SXL and (v) the remedies and termination provisions.

On November 17, 2016, the ETP Conflicts Committee held a series of meetings with Barclays and Potter Anderson, and with Messrs. Long and Mason, to discuss the SXL Initial Proposal. At one of the meetings on November 17, 2016, Messrs. Long and Mason reported to the ETP Conflicts Committee that ETE had determined it would be willing to maintain all existing ETP incentive distribution subsidies and SXL incentive distribution subsidies following the closing of the merger. Messrs. Long and Mason, however, reiterated that ETE would not be willing to approve additional SXL incentive distribution subsidies. The unwillingness on the part of ETE to approve additional SXL incentive distribution subsidies was due to the significant level of existing incentive distribution subsidies by ETE in favor of ETP, and the need for ETE, for the benefit of the holders of its publicly traded common units, to responsibly manage its own credit metrics and distribution coverage ratios. Also during these meetings, among other matters discussed, the participants discussed the unsustainability of ETP’s current level of cash distributions per common unit for 2017, 2018 and 2019, with the understanding that, absent a merger transaction, ETP would likely need to reduce distributions per common unit in order to reduce its leverage ratios and increase its cash distribution coverage ratios to levels that would support the longer term financial health and future cash distribution growth potential at ETP. As detailed further below in “Unaudited Financial Projections of ETP,” an assumed 20% reduction in distributions in respect of ETP common units in 2017, and thereafter on a basis that results in ETP maintaining a cash coverage ratio of approximately 1.1x, and a hypothetical removal of a distribution subsidy would allow ETP to maintain a debt-to-EBITDA ratio of 5.1x in 2017, 4.2x in 2018 and 3.9x in 2019, in line with management’s desire for ETP to maintain its investment grade rating. Additionally, such reductions were deemed necessary by ETP management to maintain cash distribution coverage ratios of approximately 1.0x. The ETP Conflicts Committee and Barclays requested formal guidance from ETP management respecting the likelihood and range of future distribution cuts by ETP.

On November 17, 2016, Barclays held several discussions with ETP management and representatives of SXL and Citi regarding synergies and other efficiencies that could be achieved in connection with a combination of ETP and SXL.

On November 18, 2016, the ETP Conflicts Committee held a series of meetings with representatives from Barclays and Potter Anderson to further discuss the merits of the SXL Initial Proposal and possible responses thereto. The ETP Conflicts Committee, Barclays and Potter Anderson discussed the terms of the SXL Initial Proposal and its pro forma effects on the ETP unitholders, including the expected effect on distributions to former ETP unitholders. The ETP Conflicts Committee, Barclays and Potter Anderson also discussed the possibility of splitting the incentive distribution subsidies for the pro forma entity surviving the proposed transaction between the former ETP unitholders and the current SXL unitholders and the impact a range of such splits could have on the potential premium offered in the proposed transaction. The ETP Conflicts Committee determined it would not be productive to pursue a split of incentive distribution subsidies. During one of the ETP Conflicts Committee meetings held on November 18, Messrs. Long and Mason reported to Barclays and the ETP Conflicts Committee that it was ETP management’s belief that it is likely that ETP would need to reduce its quarterly distributions by 15% to 25% from the current distribution levels for 2017, 2018 and 2019, and that assuming reductions in this range, ETE would likely seek to renegotiate the ETP incentive distribution subsidies currently in effect for 2017, 2018 and 2019 in order for ETE to satisfy the leverage ratio covenants in ETE’s existing debt agreements (it being understood that ETP has no obligation to renegotiate such incentive distribution subsidies). Also after further inquiry from the ETP Conflicts Committee, representatives of ETE and ETP management again reiterated that ETE would not be willing to approve additional incentive distribution subsidies. The ETP Conflicts Committee and its advisors also discussed the recent fluctuations in the market

 

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price of SXL common units and ETP common units, and the impact on the premium or discount reflected in various possible exchange ratios, particularly with respect to a premium or discount determined by reference to the spot trading price. Following such discussions, the ETP Conflicts Committee determined to deliver to the SXL Conflicts Committee a counterproposal (the “ETP Counterproposal”), pursuant to which (i) ETP common unitholders would receive SXL common units at an exchange ratio that would equal a 10% premium to the spot trading price for the ETP common units, (ii) SXL would not make a one-time special cash distribution to the SXL unitholders prior to the closing of the transaction, (iii) no SXL unitholder vote would be required to approve the transaction and (iv) all existing ETP incentive distribution subsidies and SXL incentive distribution subsidies would remain in place following the closing of the merger. Mr. Grimm delivered the ETP Counterproposal to the SXL Conflicts Committee on November 18, 2016.

On November 18, 2016, the SXL Conflicts Committee met in person, together with its legal and financial advisors, to discuss possible responses to and related matters regarding the ETP Counterproposal. Following discussion, the SXL Conflicts Committee determined to propose (the “SXL Revised Proposal”) that ETP common unitholders would receive 1.475 SXL common units for each ETP common unit and that all ETP incentive distribution subsidies and SXL incentive distribution subsidies would remain in place following the closing of the merger. In deciding upon the terms of the SXL Revised Proposal, the SXL Conflicts Committee determined that the SXL Conflicts Committee’s focus should be on obtaining the most attractive exchange ratio for SXL and that, to do so, the SXL Conflicts Committee should not insist on an SXL unitholder vote as a condition to the proposed transaction.

On the evening of November 18, 2016, Mr. Anderson, the chairman of the SXL Conflicts Committee, held a telephone call with Mr. Skidmore during which he conveyed the SXL Revised Proposal.

On November 19, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives of Barclays and Potter Anderson to discuss the SXL Revised Proposal and possible responses thereto. At this meeting, Barclays discussed its analysis regarding the range of exchange ratios that may be appropriate given the anticipated status quo of ETP in the absence of the proposed transaction and the effect on ETP, SXL, and ETE. The ETP Conflicts Committee also discussed the impact of recent trading prices on the premiums reflected in possible exchange ratios. Following discussion, the ETP Conflicts Committee determined to propose that ETP common unitholders would receive 1.50 SXL common units for each ETP common unit (the “ETP Revised Counterproposal”), and Mr. Skidmore conveyed the ETP Revised Counterproposal to Mr. Anderson shortly after the meeting.

On November 19, 2016, representatives of Latham and Potter Anderson held a telephonic meeting to discuss issues regarding the draft merger agreement.

On November 19, 2016, the SXL Conflicts Committee held a series of in-person meetings, together with its legal and financial advisors, to discuss possible responses to and related matters regarding the ETP Revised Counterproposal. Following discussion, the SXL Conflicts Committee determined that it would reiterate its proposal that SXL would acquire ETP at a 1.475 exchange ratio.

On November 19, 2016, Mr. Anderson conveyed to Mr. Skidmore that the SXL Conflicts Committee rejected the ETP Revised Counterproposal and reiterated its proposal that SXL would acquire ETP at a 1.475 exchange ratio.

On November 19, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives of Barclays and Potter Anderson to discuss SXL’s response to the ETP Revised Counterproposal. During this meeting, the ETP Conflicts Committee also discussed with its advisors a list of merger agreement issues that Latham had provided to Potter Anderson, including the SXL Conflicts Committee’s agreement to forego its request that the proposed transaction be conditioned on the approval of a majority of the SXL unitholders, as well as a written statement from ETP management regarding the likelihood of future distribution cuts by ETP. The ETP Conflicts Committee and Barclays further discussed the amount of increased incentive distribution subsidies

 

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that would likely be necessary to account for the differential between the ETP Conflicts Committee’s proposed exchange ratio of 1.500 and the SXL Conflicts Committee’s proposed exchange ratio of 1.475, and the benefits ETP would obtain if ETE agreed to additional incentive distribution subsidies. Following this discussion, the ETP Conflicts Committee determined to reject the SXL Conflicts Committee’s proposal of a 1.475 exchange ratio and to reiterate its proposal of a 1.500 exchange ratio. Following this meeting, Mr. Skidmore communicated such proposal to Mr. Anderson.

On November 19, 2016, the SXL Conflicts Committee held another in-person meeting, together with its legal and financial advisors, to discuss possible responses to and related matters regarding ETP’s proposal of a 1.500 exchange ratio. Following discussion, the SXL Conflicts Committee determined that it would accept the proposed 1.500 exchange ratio, subject to final documentation of the transaction prior to opening of the market on Monday, November 21, 2016.

On November 19, 2016, Mr. Anderson conveyed to Mr. Skidmore the SXL Conflicts Committee’s acceptance of the proposed 1.500 exchange ratio, subject to final documentation of the transaction prior to opening of the market on Monday, November 21, 2016.

On November 19, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives of Barclays and Potter Anderson to discuss SXL’s response to the ETP Revised Counterproposal, and determined to accept such terms. Barclays and the ETP Conflicts Committee also discussed the expectation that the proposed transaction would strengthen the pro forma entity’s balance sheet.

On November 19, 2016, Latham sent a revised draft of the merger agreement to V&E, RLF, SXL, ETP, ETE and Potter Anderson. Consistent with the ETP Revised Counterproposal, the draft merger agreement provided for an exchange ratio of 1.500 SXL common units per ETP common unit.

On November 19, 2016, representatives of Latham, V&E, ETP, Potter Anderson and RLF held a telephonic meeting to discuss issues regarding the revised merger agreement, including the revised “no shop” covenant, which would allow the ETP Board to respond to inquiries from third parties regarding an alternative transaction, and the remedies and termination provisions.

On November 20, 2016, V&E provided additional comments to the merger agreement to Latham, including a proposed termination fee in the amount of 3.5% of the ETP equity value in the event the merger agreement was terminated under certain circumstances. Thereafter, Latham sent a revised draft of the merger agreement to V&E, RLF, SXL, ETP, ETE and Potter Anderson.

On November 20, 2016, the ETP Conflicts Committee held a telephonic meeting with representatives from Potter Anderson and Barclays. During the meeting, Barclays presented the ETP Conflicts Committee with its financial analysis of the terms agreed to in the proposed transaction, including the 1.500 exchange ratio, and Potter Anderson discussed certain material terms of the merger agreement and the SXL partnership agreement, including the proposed treatment of existing incentive distribution subsidies.

On November 20, 2016, Potter Anderson provided comments to the merger agreement and the SXL partnership agreement to Latham.

On November 20, 2016, the ETP Conflicts Committee held a telephonic meeting with Barclays, Potter Anderson, Latham and Mr. Whitehurst to consider and discuss the proposed transaction. Representatives of Latham summarized the terms of the merger agreement, including the closing conditions (including the required vote of the ETP common unitholders), the representations and warranties, the operating covenants, and the deal protections (including the no shop provisions and exceptions thereto, the ETP Conflicts Committee’s ability to change its recommendation and to negotiate alternative proposals, termination events, termination fees, and expense reimbursement) as well as the amendment and waiver provisions, and the governing law. The representatives of Latham also summarized the SXL partnership agreement for the ETP Conflicts Committee and its advisors, including the anticipated duration of certain incentive distribution subsidies.

 

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On November 20, 2016, ETP management finalized its written statement regarding the likelihood of distribution cuts by ETP and provided the statement to Potter Anderson and Barclays. The ETP Conflicts Committee then reconvened its meeting with Barclays and Potter Anderson, during which (i) Barclays presented the ETP Conflicts Committee with its financial analysis of the terms agreed to in the proposed transaction in light of such written statement of ETP management, (ii) Potter Anderson discussed certain terms related to the merger agreement and the SXL partnership agreement, including the anticipated duration of certain incentive distribution subsidies, and (iii) the ETP Conflicts Committee discussed and considered factors that supported approving the proposed transaction and factors that did not support approving the proposed transaction (which merger agreement terms and factors are discussed in the “Recommendation of the ETP Board; Reasons for the Merger” section). Upon the request of the ETP Conflicts Committee, Barclays delivered an oral fairness opinion as of November 20, 2016, which was subsequently confirmed by delivery of a written opinion dated as of such date, to the effect that the Exchange Ratio (as defined in the merger agreement) to be offered to the unaffiliated ETP unitholders was fair, from a financial point of view, to such unaffiliated ETP unitholders. Following such discussion and receipt of the Barclays fairness opinion, the ETP Conflicts Committee unanimously (i) determined in good faith that the proposed transaction, including the merger agreement and the transactions contemplated thereby, on the terms set forth in the merger agreement and the form of the SXL partnership agreement attached thereto, were advisable and fair and reasonable to, and in the best interests of ETP and the unaffiliated ETP unitholders, (ii) approved the proposed transaction (including the merger agreement) upon the terms and conditions set forth in the merger agreement and the SXL partnership agreement, and (iii) recommended that the ETP Board approve the merger agreement (including the consummation of the transactions contemplated thereby) and the proposed transaction, submit the merger agreement to the limited partners of ETP for approval and cause ETP to enter into the merger agreement and consummate the proposed transaction upon the terms and conditions set forth in the merger agreement and the SXL partnership agreement (subject to obtaining the requisite approval of limited partners of ETP).

On November 20, 2016, the ETP Board held a joint board meeting with the ETE Board, at which representatives from ETE management, ETP management and Latham attended as guests. All members of the ETP Board and ETE Board were present other than Marshall S. McCrea (member of the ETP Board and the ETE Board) and James R. Perry (former member of the ETP Board). Representatives of Latham summarized the terms of the merger agreement for the ETP Board and the ETE Board. The ETP Conflicts Committee then advised the ETP Board that it had approved the merger agreement and recommended that the ETP Board approve the merger agreement and submit the merger agreement to ETP’s limited partners for approval. Following this recommendation, and after a discussion of various financial, legal and other considerations relating to the proposed transaction, including factors that supported approving the proposed transaction and factors that did not support approving the proposed transaction, the ETP Board determined that it was in the best interests of ETP GP and its partners and ETP and its partners, and declared it advisable, for ETP GP and ETP to enter into the merger agreement, and the ETP Board approved and adopted the merger agreement and the transactions contemplated thereby, including the merger. Thereafter, the ETE Board determined that it was in the best interests of ETE and its partners, and declared it advisable, for ETE to enter into the merger agreement, and the ETE Board approved and adopted the merger agreement and the transactions contemplated thereby.

On November 20, 2016, the SXL Conflicts Committee held a meeting, together with its legal and financial advisors, to discuss the proposed transaction. At this meeting, among other matters, RLF reviewed with the SXL Conflicts Committee the terms of the merger agreement and Citi discussed with the SXL Conflicts Committee Citi’s financial perspectives regarding the Exchange Ratio. Following a discussion regarding the proposed transaction, the merger agreement, the SXL partnership agreement and related matters, the SXL Conflicts Committee approved, and recommended that the SXL Board approve, the proposed transaction, including the merger agreement and the SXL partnership agreement. The SXL Conflicts Committee then advised the SXL Board that it had approved the merger agreement and recommended that the SXL Board approve the merger agreement. Following this recommendation, and after discussion with the SXL Conflicts Committee members regarding the SXL Conflicts Committee’s process and rationale for its recommendation, and discussion with the

 

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SXL Board’s advisors, the SXL Board approved the proposed transaction, including the merger agreement and the SXL partnership agreement.

On November 20, 2016, the parties finalized and executed the merger agreement.

On November 21, 2016, prior to the opening of trading on the NYSE, the parties issued a press release announcing the transaction.

From November 22, 2016 to December 8, 2016, ETP, SXL, Latham, V&E, Potter Anderson and RLF had various discussions regarding alternative structures for the proposed transaction, and in particular, the structure of the GP merger.

On December 9, 2016, V&E sent an initial draft of the amendment to the merger agreement (the “Amendment”) to Latham, ETP and ETE reflecting a change in the merger structure, whereby SXL GP would merge with ETP GP, with ETP GP surviving the GP merger as an indirect wholly owned subsidiary of ETE and the general partner of SXL.

On December 12, 2016, representatives of Latham and Potter Anderson held a telephonic meeting to discuss issues identified in the initial draft of the Amendment.

On December 13, 2016, Latham sent a revised draft of the Amendment to V&E and SXL.

On December 14, 2016, V&E sent a revised draft of the Amendment to Latham, ETP, ETE and Potter Anderson, which was in near final form. Representatives of Latham, Potter Anderson and V&E held various telephonic meetings to discuss and finalize the Amendment.

On December 15, 2016, the ETP Conflicts Committee held a meeting with Potter Anderson, during which Potter Anderson discussed certain terms related to the Amendment, including the changes to the structure of the GP merger, representations and warranties, and indemnification provisions, as well as the revisions to the SXL partnership agreement. Following such discussion, the ETP Conflicts Committee unanimously (i) determined in good faith that the Amendment was advisable and fair and reasonable to, and in the best interests of ETP and the unaffiliated ETP unitholders, (ii) approved the Amendment upon the terms and conditions set forth therein, and (iii) recommended that the ETP Board approve the Amendment and cause ETP to enter into the Amendment.

On December 16, 2016, the SXL Conflicts Committee held a meeting, together with its legal and financial advisors, to discuss the Amendment. Following discussion, the SXL Conflicts Committee approved, and recommended that the SXL Board approve, the Amendment. The SXL Conflicts Committee then advised the SXL Board that it had approved the Amendment and recommended that the SXL Board approve the Amendment.

On December 16, 2016, the ETP Board executed a unanimous written consent whereby the ETP Board determined in good faith that it was in the best interests of ETP GP and its partners and ETP and the unaffiliated ETP unitholders, and declared it advisable, for ETP GP and ETP to enter into the Amendment, and the ETP Board approved and adopted the Amendment.

On December 16, 2016, the ETE Board executed a unanimous written consent whereby the ETE Board determined that it was in the best interest of ETE and its partners, and declared it advisable, for ETE to enter into the Amendment, and the ETE Board approved and adopted the Amendment.

On December 16, 2016, the SXL Board executed a unanimous written consent whereby the SXL Board approved and adopted the Amendment.

 

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Recommendation of the ETP Board; Reasons for the Merger

The ETP Conflicts Committee consists of two independent directors, Michael K. Grimm and David K. Skidmore, neither of whom are officers or controlling unitholders of ETP or its affiliates. The ETP Board authorized the ETP Conflicts Committee to (i) review and evaluate any potential conflicts arising in connection with the merger or other related arrangements and agreements, (ii) review, evaluate and negotiate with SXL the terms and conditions of the merger, together with the form, terms and provisions of the merger agreement, on behalf of ETP and the unaffiliated ETP unitholders, (iii) determine whether the merger and related arrangements are advisable and fair and reasonable to, and in the best interests of, ETP and the unaffiliated ETP unitholders, (iv) determine whether or not to approve, and to recommend that the ETP Board approve, the merger agreement and related arrangements, with any such approval and related recommendation of the ETP Conflicts Committee constituting “Special Approval” (as defined in the ETP partnership agreement and in the Fourth Amended and Restated Limited Liability Company Agreement of ETP GP LLC) of the merger.

The ETP Conflicts Committee retained and was advised by Potter Anderson & Corroon LLP as its outside legal counsel and Barclays as its financial advisor. The ETP Conflicts Committee oversaw the performance of financial and legal due diligence by its advisors, conducted an extensive review and evaluation of SXL’s proposal and maintaining the status quo, and conducted, with the assistance of its advisors, extensive negotiations with SXL and its representatives with respect to SXL’s proposal, the merger agreement and other related agreements. ETP retained Latham & Watkins LLP as its outside legal counsel.

The ETP Conflicts Committee, by unanimous vote at a meeting held on November 20, 2016, (i) determined in good faith that the proposed merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair, and reasonable to, and in the best interests of, ETP and the unaffiliated ETP unitholders, (ii) approved the merger agreement and the transactions contemplated thereby upon the terms set forth in the merger agreement and the SXL partnership agreement, (iii) recommended that the ETP Board approve the merger agreement and the transactions contemplated thereby, submit the merger agreement to the limited partners of ETP for approval and cause ETP to enter into the merger agreement and consummate the merger upon the terms and conditions set forth in the merger agreement and the SXL partnership agreement, subject to obtaining the requisite approval of the limited partners of ETP, with such approval and recommendation constituting “Special Approval” (as defined in the ETP partnership agreement and in the Fourth Amended and Restated Limited Liability Company Agreement of ETP GP LLC) of the merger agreement and the transactions contemplated thereby, including the merger.

The ETP Conflicts Committee, by unanimous vote at a meeting held on December 15, 2016, (i) determined in good faith that the amendment to the merger agreement is advisable and fair and reasonable to, and in the best interests of, ETP and the unaffiliated ETP unitholders, (ii) approved the amendment to the merger agreement and (iii) recommended that the ETP Board approve the amendment to the merger agreement and authorize the entry into the amendment to the merger agreement, with such approval and recommendation constituting “Special Approval” (as defined in the ETP partnership agreement and in the Fourth Amended and Restated Limited Liability Company Agreement of ETP GP LLC) of the amendment to the merger agreement.

Based on the ETP Conflicts Committee’s recommendation, the ETP Board (with Marshall S. (Mackie) McCrea, III and James R. (Rick) Perry not in attendance), at a meeting held on November 20, 2016, (i) determined that the merger is in the best interests of ETP and the unaffiliated ETP unitholders, (ii) approved the merger, the merger agreement and the execution, delivery and performance of the merger agreement, (iii) directed that the merger agreement be submitted to a vote of the limited partners of ETP and (iv) resolved to recommend that the ETP common unitholders vote in favor of the adoption of the merger agreement and the transactions contemplated thereby.

Further, based on the ETP Conflicts Committee’s recommendation, the ETP Board, by unanimous written consent dated December 16, 2016, (i) determined in good faith that the amendment to the merger agreement is in

 

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the best interests of ETP and the unaffiliated ETP unitholders and (ii) approved the amendment to the merger agreement and the execution, delivery and performance thereof. The amendment to the merger agreement was undertaken in order to simplify the resulting debt structure of the Energy Transfer family of partnerships by minimizing the conveyances of certain equity interests. As originally structured, the merger would have required additional debt restructuring to achieve the intended outcome. As amended, the merger has a reduced impact on the existing debt structure of the Energy Transfer family of partnerships.

The ETP Conflicts Committee and the ETP Board viewed the following factors as being generally positive or favorable in coming to their determinations and recommendation with respect to the merger:

 

    The financial terms offered to the holders of ETP common units, including:

 

    The consideration to be paid to holders of ETP common units, 1.5 SXL common units for each ETP common unit, represents:

 

    a 9.85% premium to the 30-day volume-weighted average closing price (“VWAP”) for the period ended on November 18, 2016 (the last trading day before the announcement of the merger agreement);

 

    a 6.59% premium to the 20-day VWAP for the period ended on November 18, 2016 (the last trading day before the announcement of the merger agreement);

 

    a 6.33% premium to the 10-day VWAP for the period ended on November 18, 2016 (the last trading day before the announcement of the merger agreement);

 

    a 5.10% premium to the 5-day VWAP for the period ended on November 18, 2016 (the last trading day before the announcement of the merger agreement); and

 

    a 6.80% premium to the closing price on November 16, 2016, the date of SXL’s initial proposal.

 

    The fact that the exchange ratio is fixed and therefore the market value of the consideration payable to ETP common unitholders would increase in the event that the market price of SXL common units increases relative to any change in the market price of ETP common units prior to the closing of the mergers.

 

    The fact that the merger consideration generally will not be taxable for U.S. federal income tax purposes to ETP’s common unitholders.

 

    Holders of ETP common units would be entitled to the right to receive SXL common units at the exchange ratio, which is a price the ETP Conflicts Committee viewed as fair and reasonable in light of ETP’s recent and projected financial performance and recent trading prices of the ETP common units and in light of the strengths of the surviving entity and benefits to be received by the holders of ETP common units, including:

 

    The likelihood that ETP would not be able to sustain quarterly distributions at current amounts per unit, taking into account ETP management’s projections indicating increasing leverage, significant additional equity issuances, constrained cash flow, and a sub-1.0x distribution coverage ratio for the last two quarters of 2016 and for the years 2017 and 2018 at current distribution amounts.

 

    The ETP Conflicts Committee’s belief that the public trading price of the ETP common units may have been supported by the market’s perception that ETP would be able to maintain current distribution levels.

 

   

The prospects that cash distributions with respect to ETP common units would likely be reduced in light of the ETP Management Written Statement (as more fully described in the section entitled “Unaudited Financial Projections of ETP”) to the effect that, if the merger is not consummated and ETE is unwilling or unable to provide additional incentive distribution subsidies, ETP

 

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management would likely consider a reduction in quarterly cash distributions in the range of 15% to 25% in order to reduce ETP’s leverage ratios and increase its distribution coverage ratio to maintain its investment grade rating, support its longer term financial health and promote its future cash distribution growth potential, and to the effect that, in the event of such reductions, ETP management believed that it was likely that ETE would seek to negotiate a reduction in the incentive distribution subsidies currently in effect in order to preserve ETE’s existing credit ratings.

 

    The opinion of Barclays, dated November 20, 2016, that based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio was fair to the unaffiliated ETP unitholders, from a financial point of view, including the various analyses undertaken by Barclays in connection with its opinion.

 

    The expectation that the merger will be accretive to SXL’s distributable cash flow per SXL common unit and distributable cash flow per SXL common unit, which will inure to the benefit of the current holders of ETP common units.

 

    ETE’s agreement to cause SXL GP to execute and deliver the SXL partnership agreement providing for, among other things, a reduction in distributions paid by SXL in respect of the incentive distribution rights in SXL in an amount equal to the amount of reductions in distributions paid by ETP in respect of the incentive distribution rights in ETP as set forth in the ETP partnership agreement.

 

    ETP unitholders’ receipt of the equity ownership in an entity with a diversified platform of assets and substantially lower cost of capital, which is expected to provide greater ability to pursue accretive capital projects and acquisitions that would provide for higher distribution growth.

 

    The expectation that, on a pro forma basis after giving effect to the merger, the pro forma entity will be the second largest midstream master limited partnership (“MLP”) in the United States as measured by enterprise value.

 

    The expected benefits from the merger resulting from the increased size and scale of midstream assets across multiple basins, the addition of builds, a major presence in the Marcellus and Utica basins, an increased presence in the Permian and Eagle Ford basins, the prospects for an increased upside to ETP’s intrastate gas system, the prospects for significant synergies for the combined company and the increased financial capacity to make additional accretive capital investments.

 

    The expectation that the merger will create operating and regulatory efficiencies and cost savings in administrative and interest costs, tax savings, and other combined benefits.

 

    SXL, as the combined entity, is expected to have a strong balance sheet and maintain an investment grade rating. SXL’s balance sheet and lower cost of capital will allow ETP’s unitholders to benefit from the investment grade rating of the combined entity.

 

    The strength of ETP’s and the ETP Conflicts Committee’s negotiations and the value obtained therefrom, including:

 

    The exchange ratio of 1.5 SXL common units for each ETP common unit represents an increase to the 1.334 ratio implied in SXL’s initial proposal, which reflected a 5% discount to the spot trading price for ETP common units as of November 16, 2016.

 

    In response to the SXL Conflicts Committee’s reiteration of its proposed exchange ratio of 1.475 SXL common units for each ETP common unit, the ETP Conflicts Committee reiterated its proposed exchange ratio of 1.5 SXL common units for each ETP common unit, which the SXL Conflicts Committee ultimately accepted.

 

   

The conclusion reached by the ETP Conflicts Committee that the exchange ratio of 1.5 SXL common units for each ETP common unit was likely the highest price SXL was willing to pay at

 

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the time of the ETP Conflicts Committee’s determination to approve and recommend to the ETP Board.

 

    Though initially requested by the SXL Conflicts Committee, the final merger agreement does not require a vote of the SXL unitholders.

 

    The SXL Conflicts Committee originally requested a special distribution of $2.00 per SXL common unit to the public, unaffiliated unitholders of SXL, which the ETP Conflicts Committee rejected.

 

    The ETP Conflicts Committee’s belief that any potential alternative transactions with third parties, simplification transactions, and incentive distribution right modification transactions were not achievable due to lack of support from ETE (and ETE’s control of ETP GP and ETP GP LLC) and the ETP Conflicts Committee’s consideration of maintaining the status quo and the potential impact maintaining the status quo would have on the ability of ETP to maintain its current distribution level.

 

    The following procedural safeguards involved in the negotiation of the merger agreement:

 

    The ETP Conflicts Committee consisted solely of directors who are not officers or controlling unitholders of ETE or its affiliates and who satisfied the requirements under the ETP partnership agreement for service on the ETP Conflicts Committee.

 

    The ETP Conflicts Committee was charged with evaluating and negotiating the terms and conditions of the proposed transaction on behalf of ETP and the unaffiliated ETP unitholders, with the power to decline to pursue a transaction, and that the ETP Board had resolved not to approve a proposed transaction without the prior approval and recommendation of the ETP Conflicts Committee.

 

    Other than with respect to any awards under the ETP equity plans or the ETP cash unit plan described below at “—Interests of Directors and Executive Officers of ETP in the Merger—Treatment of ETP Equity-Based Awards,” the members of the ETP Conflicts Committee will not personally benefit from the completion of the merger in a manner different from the unaffiliated ETP unitholders.

 

    The members of the ETP Conflicts Committee were appropriately compensated for their services and their compensation was in no way contingent on their approving the merger agreement or the merger.

 

    The terms and conditions of the merger agreement and the merger were determined through arms’-length negotiations between the ETP Conflicts Committee and the SXL Conflicts Committee, with the assistance of their respective representatives and advisors.

 

    The ETP Conflicts Committee retained and was advised by experienced and qualified advisors, consisting of legal counsel, Potter Anderson & Corroon LLP, and financial advisor, Barclays.

 

    The terms of the merger agreement, principally:

 

    Holders of ETP common units will receive the right to receive 1.5 SXL common units for each ETP common unit.

 

    The requirement that the merger agreement and the merger be approved by a vote of the holders of at least a majority of the outstanding ETP common units and the requirement that ETE vote or cause to be voted all ETP common units then owned beneficially or of record by it or any of its subsidiaries, as of the record date, in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

 

   

The provisions allowing the ETP Conflicts Committee and the ETP Board to withdraw or change their recommendation of the merger agreement in the event of a superior proposal from a third

 

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party (other than ETE or its affiliates) or a change of circumstance if the ETP Board (upon the recommendation of the ETP Conflicts Committee) makes a good faith determination that the failure to change its recommendation would be inconsistent with its duties under the ETP partnership agreement or applicable law and complies with the terms of the merger agreement.

 

    The provisions allowing ETP to provide information to, and participate in discussions and negotiations with, a third party (other than ETE or its affiliates) in response to an unsolicited alternative proposal, which may, in certain circumstances, result in a superior proposal.

 

    The operating covenants to which SXL is subject provide protection to ETP unitholders by restricting SXL’s ability to take certain actions prior to the closing of the merger that could reduce the value of SXL common units received by ETP unitholders in the merger.

 

    The limited conditions and exceptions to the closing conditions.

 

    Under the terms of the merger agreement, prior to the effective time of the merger, ETP is prohibited from revoking or diminishing the authority of the ETP Conflicts Committee.

 

    Any amendments to the merger agreement require consultation with the ETP Conflicts Committee, and the ETP Conflicts Committee is permitted to rescind its approval of the merger agreement, with such rescission resulting in the rescission of “Special Approval” (as defined in the ETP partnership agreement and in the Fourth Amended and Restated Limited Liability Company Agreement of ETP GP LLC), if the ETP Board takes or authorizes any amendment that is counter to any recommendation by the ETP Conflicts Committee.

 

    If the ETP Board (i) waives any inaccuracies in the representations and warranties of the other party under the merger agreement, (ii) extends time for performance of the other party’s obligations under the merger agreement, (iii) waives the other party’s compliance with any agreement or condition contained in the merger agreement, or (iv) otherwise grants any consent under the merger agreement without the concurrence of the ETP Conflicts Committee, then the ETP Conflicts Committee can rescind its approval of the merger agreement, with such rescission resulting in the rescission of “Special Approval” (as defined in the ETP partnership agreement and in the Fourth Amended and Restated Limited Liability Company Agreement of ETP GP LLC).

The ETP Conflicts Committee and the ETP Board considered the following additional factors in making their determinations and recommendation with respect to the merger:

 

    There are certain potential negative consequences that may affect ETP unitholders, including the following:

 

    The consideration to be paid to holders of ETP common units, 1.5 SXL common units for each ETP common unit, represents a 0.22% discount to the closing price of ETP common units on November 18, 2016.

 

    The fact that ETP unitholders will receive 1.5 SXL common units for each ETP common unit and that it is expected that the cash distributions per 1.5 SXL common units will initially be less than the current distributions on 1.0 ETP common unit.

 

    The fact that the exchange ratio is fixed and therefore the market value of the consideration payable to ETP common unitholders would decrease in the event that the market price of SXL common units decreases relative to any change in the market price of ETP common units prior to the closing of the merger.

 

    The absence of certain procedural safeguards, including:

 

    The fact that the ETP unitholders are not entitled to appraisal rights under the merger agreement, the ETP partnership agreement or Delaware law.

 

   

The ETP Conflicts Committee was not authorized to, and did not, conduct an auction process or other solicitation of interest from third parties for the acquisition of ETP. Given ETE’s control

 

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over ETP’s general partner, it was unrealistic to expect or pursue an unsolicited third party acquisition proposal or offer for the assets or control of ETP, and it was unlikely that the ETP Conflicts Committee could conduct a meaningful auction for the acquisition of the assets or control of ETP.

 

    Certain members of ETP management and the ETP Board may have interests that are different from those of the unaffiliated ETP unitholders. Please read “—Interests of Directors and Executive Officers of ETP in the Merger.”

 

    Although the merger is subject to approval by a majority of the ETP common units, the vote includes ETP units held by ETE and its affiliates, and there is no requirement of a separate approval by the unaffiliated ETP unitholders.

 

    Certain terms of the merger agreement, principally:

 

    The provisions limiting the ability of ETP to solicit, or to consider unsolicited, offers from third parties for ETP.

 

    The provisions obligating ETP to hold a special meeting of unitholders to vote on the merger even if the ETP Conflicts Committee changes its recommendation.

 

    Certain break-up fees payable by ETP, including in connection with termination of the merger agreement as a result of a superior proposal for ETP.

 

    ETP’s obligation to pay SXL’s expenses in certain circumstances.

 

    Litigation may occur in connection with the merger and any such litigation may result in significant costs and a diversion of management focus.

 

    There is risk that the merger might not be completed in a timely manner, or that the merger might not be consummated at all as a result of a failure to satisfy the conditions contained in the merger agreement, and a failure to complete the merger could negatively affect the trading price of the ETP common units or could result in significant costs and disruption to ETP’s normal business.

The foregoing discussion is not intended to be exhaustive, but is intended to address the material information and principal factors considered by the ETP Conflicts Committee and the ETP Board in considering the merger. In view of the number and variety of factors and the amount of information considered, the ETP Conflicts Committee and the ETP Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the ETP Conflicts Committee and the ETP Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the ETP Conflicts Committee and the ETP Board may have given different weights to different factors. The ETP Conflicts Committee and the ETP Board made their recommendations based on the totality of information presented to, and the investigation conducted by, the ETP Conflicts Committee and the ETP Board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

The ETP Board recommends that ETP common unitholders vote “FOR” the adoption of the merger agreement and the transactions contemplated thereby, and “FOR” the proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the merger agreement at the time of the special meeting.

Opinion of the Financial Advisor to the ETP Conflicts Committee

The ETP Conflicts Committee engaged Barclays to act as the ETP Conflicts Committee’s financial advisor with respect to the proposed transaction. On November 20, 2016, Barclays rendered its oral opinion (which was

 

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subsequently confirmed in writing) to the ETP Conflicts Committee that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the exchange ratio to be offered to the unaffiliated ETP unitholders in the proposed transaction is fair, from a financial point of view, to such unaffiliated ETP unitholders.

The full text of Barclays’ written opinion, dated as of November 20, 2016, is attached to this proxy statement/prospectus as Annex B. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Valuation and Fairness Opinion Committee, is addressed to the ETP Conflicts Committee, addresses only the fairness to unaffiliated ETP unitholders, from a financial point of view, of the exchange ratio to be offered to such unaffiliated ETP unitholders in the proposed transaction and does not constitute a recommendation to any unaffiliated ETP unitholder as to how such unaffiliated ETP unitholder should vote or act with respect to the proposed transaction or any other matter. The terms of the proposed transaction were determined through arm’s-length negotiations between the ETP Conflicts Committee and the SXL Conflicts Committee and were approved unanimously by the ETP Conflicts Committee. Barclays did not recommend that any specific form of consideration should be offered to unaffiliated ETP unitholders or that any specific form of consideration constituted the only appropriate consideration for the proposed transaction. Barclays was not requested to address, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the transaction or the likelihood of consummation of the transaction or the relative merits of the proposed transaction as compared to any other transaction or business strategy in which ETP might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of (i) any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the exchange ratio in the proposed transaction or otherwise; (ii) the fairness of any portion or aspect of the proposed transaction to the holders of any class of securities, creditors or other constituencies of ETP or any other person, or to any other person, other than the fairness, from a financial point of view, of the exchange ratio to be offered to the unaffiliated ETP unitholders; or (iii) any portion or aspect of the proposed transaction to any one class or group of ETP’s or any other person’s equity security holders vis a vis any other class or group of ETP’s security holders or any other person’s security holders (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders). No limitations were imposed by ETP or the ETP Conflicts Committee upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

In arriving at its opinion, Barclays reviewed and analyzed, among other things:

 

    a draft of the merger agreement, dated as of November 20, 2016, and the specific terms of the proposed transaction;

 

    publicly available information concerning ETP and SXL that Barclays believed to be relevant to its analysis, including each of ETP’s and SXL’s Annual Reports on Form 10-K for the fiscal year ended December 31, 2015 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2016, June 30, 2016 and September 30, 2016;

 

    financial and operating information with respect to the businesses, operations and prospects of ETP furnished to Barclays by ETP, including the ETP Unaudited Financial Projections (as defined in the section entitled “Unaudited Financial Projections of ETP”) (the “ETP Projections”);

 

    the ETP Management Written Statement (as more fully described in the section entitled “Unaudited Financial Projections of ETP”);

 

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    ETP’s expectations with respect to the potential impact of the proposed transaction on ETP’s credit ratings;

 

    financial and operating information with respect to the business, operations and prospects of SXL, initially prepared by management of SXL and furnished by SXL to the management of ETP (the “SXL Projections” and, together with the ETP Projections, the “Projections”);

 

    a schedule of the incentive distribution subsidies provided by, and projected to be provided by, ETE to each of ETP and SXL and the expectation that following completion of the proposed transaction ETE will maintain such incentive distribution subsidies at the projected levels (the “IDR Projected Subsidies”);

 

    a comparison of the trading histories of the ETP common units and the SXL common units with each other from May 18, 2016 to November 18, 2016;

 

    a comparison of the historical financial results and present financial condition of each of ETP and SXL with those of other companies that Barclays deemed relevant;

 

    a comparison of the financial terms of the proposed transaction with the financial terms of certain other transactions that Barclays deemed relevant; and

 

    certain estimates provided by ETP to Barclays as to the amounts and timing of the cost savings and revenue enhancements (collectively, the “Expected Synergies”) anticipated by the management of ETP to result from the proposed transaction.

In addition, Barclays had discussions with the managements of each of ETP and SXL concerning their respective businesses, operations, assets, liabilities, financial conditions and prospects and undertook such other studies, analyses and investigations as Barclays deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and has not assumed responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of the management of ETP that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the ETP Projections, upon the advice of ETP, Barclays assumed that such ETP Projections were reasonably prepared on a basis reflecting the best then-available estimates and judgments of the management of ETP as to the future financial performance of ETP and that ETP will perform substantially in accordance with such ETP Projections, and Barclays considered and relied on such projections. With respect to the SXL Projections, upon the advice of ETP, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best then-available estimates and judgments of the management of SXL, as confirmed to Barclays by the management of ETP, as to the future financial performance of SXL and that SXL will perform substantially in accordance with such SXL Projections, and Barclays considered and relied on such projections. With respect to the Expected Synergies, upon the advice of ETP, Barclays assumed that the amounts and timing of the Expected Synergies are reasonable and that the Expected Synergies will be realized in accordance with such estimates. In addition, upon the advice of ETP, Barclays assumed that the IDR Projected Subsidies were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of ETP, that, assuming the proposed transaction is consummated, the amounts and timing of the subsidies set forth in the IDR Projected Subsidies are reasonable, achievable and sustainable, and that such subsidies as set forth in the IDR Projected Subsidies will continue to inure to the benefit of each of ETP and SXL in the amounts and at the times contemplated by the IDR Projected Subsidies. Barclays assumed, upon the advice of ETP, that if the proposed transaction is not consummated, ETP would likely reduce the amount of its quarterly distributions to holders of ETP common units by 15% to 25% and that in light of the detrimental impact that such reduction would have on ETE’s credit profile, ETE would likely seek to negotiate a reduction in the incentive distribution subsidies that currently inure to the benefit of ETP. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any of such projections or estimates or the assumptions on which they were based. In arriving at its opinion, Barclays did not

 

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conduct a physical inspection of the properties and facilities of ETP or SXL, and did not make or obtain any evaluations or appraisals of the assets or liabilities of ETP or SXL. Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, November 20, 2016. Barclays was not authorized to solicit, and Barclays did not solicit, any indications of interest from any third party with respect to the purchase of all or any part of ETP’s business. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after the delivery of its opinion to ETP on November 20, 2016. In addition, Barclays expressed no opinion as to the prices at which (i) ETP common units or SXL common units would trade following the announcement of the proposed transaction or (ii) SXL common units would trade following the consummation of the proposed transaction. Barclays’ opinion should not be viewed as providing any assurance that the market value of the SXL common units to be held by the unaffiliated ETP unitholders after the consummation of the proposed transaction will be in excess of the market value of the ETP common units owned by such unaffiliated ETP unitholders at any time prior to the announcement or consummation of the proposed transaction.

Barclays assumed that the executed merger agreement will have conformed in all material respects to the last draft reviewed by Barclays. In addition, Barclays assumed the accuracy of the representations and warranties contained in the merger agreement and all agreements related thereto. Barclays also assumed, upon the advice of ETP, that all material governmental, regulatory and third party approvals, consents and releases for the proposed transaction will be obtained within the constraints contemplated by the merger agreement and that the proposed transaction will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays did not express any opinion as to any tax or other consequences that might result from the proposed transaction, nor does Barclays’ opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understood that ETP had obtained such advice as it deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to the ETP common units or the SXL common units but rather made its determination as to fairness, from a financial point of view, to unaffiliated ETP unitholders of the exchange ratio to be offered to such unaffiliated ETP unitholders in the proposed transaction on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

The following is a summary of the material financial analyses used by Barclays in preparing its opinion to the ETP Conflicts Committee. Certain financial, comparative and other analyses summarized below include information presented in tabular format. In order to fully understand the financial, comparative and other analyses used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. In performing its analyses, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of ETP or any other parties to the proposed transaction. None of the ETP Conflicts Committee, ETP, SXL, ETE, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or reflect the prices at which the businesses may actually be sold.

 

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Summary of Analyses

The following is a summary of the material financial analyses performed by Barclays with respect to ETP and SXL in preparing Barclays’ opinion:

 

    discounted distributable cash flows analysis;

 

    selected comparable company analysis;

 

    selected precedent transactions analysis; and

 

    analysis of public third-party equity research analyst price targets of ETP and SXL.

Each of these methodologies was used to generate reference per unit equity value ranges for ETP common units and reference per unit equity value ranges for SXL common units. In order to derive implied per unit values in the selected precedent transactions analysis, the implied equity value range for ETP and SXL was then divided by an applicable estimate of the number of diluted units outstanding. For purposes of the ETP calculations, the number of diluted units outstanding at year end 2016, per the ETP Projections, was used to derive implied per unit values. The reference per unit equity value ranges were then also used to generate implied exchange ratios for each of these methodologies. For purposes of the SXL calculations, the number of units estimated to be outstanding at year end 2016, per the SXL Projections, was used to derive implied per unit values. For purposes of its analyses, Barclays looked at the exchange ratio of 1.5000x SXL common units for each ETP common unit to determine an implied equity value of $39.29 per ETP common unit for the proposed transaction based on the closing price of an SXL common unit at market close on November 18, 2016. For each of the discounted distributable cash flow analysis, the selected comparable company analysis, the selected precedent transactions analysis, and the analysis of public third-party equity research analyst price targets, the implied equity value ranges per ETP common unit and the implied exchange ratios were then compared to the exchange ratio of 1.5000x SXL common units for each ETP common unit in the proposed transaction.

In addition to analyzing the value of the ETP common units and the SXL common units, to provide additional background and perspective to the ETP Conflicts Committee, Barclays also analyzed and reviewed: (i) the daily historical closing prices of ETP common units and SXL common units and the exchange ratios implied by those closing unit prices for the period from May 18, 2016 to November 18, 2016; (ii) certain publicly available information related to selected MLP merger transactions to calculate the amount of premiums paid by the acquirers to the acquired company’s unitholders; (iii) the pro forma impact of the proposed transaction on the current and future financial performance and credit profile of SXL, as the surviving entity, using projected estimates for 2017, 2018, and 2019 for distributable cash flow per unit and distributions per unit for the surviving entity based on the ETP Projections and the SXL Projections.

In particular, in applying the various valuation methodologies to the particular businesses, operations and prospects of ETP and SXL, and the particular circumstances of the proposed transaction, Barclays made qualitative judgments as to the significance and relevance of each analysis. In addition, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of ETP and SXL. Such qualitative judgments and assumptions of Barclays were made following discussions with the managements of each of ETP and SXL. Accordingly, the methodologies and the implied common equity value ranges and implied exchange ratio ranges derived therefrom must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied common equity value ranges or the implied exchange ratio ranges without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions represented by, Barclays’ opinion.

Discounted Distributable Cash Flow Analysis

In order to estimate the present values of ETP common units and SXL common units, Barclays performed discounted distributable cash flow analyses for each of ETP and SXL. A discounted cash flow analysis is a

 

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traditional valuation methodology used to derive an intrinsic valuation of an asset by calculating the “present value” of estimated future cash flows of the asset; in this case, the “present value” of the estimated future distributable cash flows of the ETP common units and the SXL common units. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future distributable cash flows by a range of discount rates that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns, the time value of money, and other appropriate factors. The discounted distributable cash flow analysis for the ETP common units was performed under two scenarios provided by the management of ETP, each of which are described below.

The first scenario considered status quo ETP utilizing the ETP Status Quo Case Projections (as defined in the section entitled “Unaudited Financial Projections of ETP”) which are derived from the ETP Projections from 2017 through 2019 (“ETP Status Quo Case”). The second scenario is based on the ETP Distribution Reduction Case Projections (as defined in the section entitled “Unaudited Financial Projections of ETP”) which are derived from the ETP Status Quo Case Projections but adjusted to reflect (i) a hypothetical reduction in distributions in respect of ETP common units by approximately 20% in 2017 and that thereafter distributions in respect of ETP common units are made on a basis that results in ETP maintaining a cash coverage ratio of 1.1x, and (ii) the hypothetical removal of a $465 million incentive distribution subsidy that was in place during 2017 (“ETP Distribution Reduction Case”). “Cash Coverage” refers to a ratio used to determine the amount of cash available to pay a unit’s distribution expense, and is expressed as a ratio of the cash available to the distribution being paid.

To calculate the estimated per ETP common unit equity value ranges in the discounted distributable cash flow analysis, Barclays added (i) projected distributable cash flow per ETP common unit for fiscal years 2017 through 2019 based on the ETP Projections to (ii) the terminal value at the end of the forecast period, or the “terminal value” of the ETP common units, as of December 31, 2019, and discounted such distributable cash flows per ETP common unit to their net present value using selected discount rates for each of the ETP Status Quo Case and ETP Distribution Reduction Case. For each case, Barclays used a nominal discount rate range of 12.5% to 14.5%. This discount rate range was selected by Barclays using its professional judgment and experience, taking into account projected cost of equity capital rates for ETP and the comparable companies utilized in the Selected Comparable Companies Analysis described below, which projected cost of equity capital rate ranges were derived from (i) an analysis of the relative cost of equity rates of such companies based on 2017 estimated distributable cash flow per unit yields, as adjusted to include the portion of the distributable cash flow attributable to the general partner of such companies, and using an estimated compound annual growth rate for such companies for the years 2017, 2018 and 2019, and (ii) an analysis of the cost of equity rates of such companies derived from reviewing certain metrics of such companies, including a five-year raw historical beta, market value of debt and equity, total capitalization, debt to equity ratio, debt in relation to debt plus equity, and unlevered beta. The terminal value of the ETP common units was estimated by applying a range of assumed yields of 8.0% to 10.0% in ETP Status Quo Case and a range of assumed yields of 7.5% to 9.5% in ETP Distribution Reduction Case to ETP’s estimated distributable cash flow per ETP common unit for 2019 for ETP Status Quo Case and ETP Distribution Reduction Case, respectively. The assumed yields were selected based on Barclays’ professional judgment and experience, taking into account the yields of ETP and the selected comparable companies utilized in the Selected Comparable Companies Analysis described below. The reference equity value range per ETP common unit yielded by the ETP discounted distributable cash flow analysis implied an equity value range for the ETP common units of (i) $39.50 to $44.00 per ETP common unit based on ETP Status Quo Case; and (ii) $40.00 to $46.00 per ETP common unit based on ETP Distribution Reduction Case, in each case, as compared to the closing ETP common unit price of $39.37 on November 18, 2016.

To calculate the estimated per SXL common unit equity value ranges in the discounted distributable cash flow analysis for SXL, Barclays added (i) projected distributable cash flow per SXL common unit for fiscal years 2017 through 2019 based on the SXL Projections to (ii) the terminal value of the SXL common units, as of December 31, 2019, and discounted such distributable cash flows per SXL common unit to their net present value as of January 1, 2017 using a nominal discount rate range of 10.0% to 12.0%. This discount rate range was selected by Barclays using its professional judgment and experience, taking into account projected cost of equity capital rates for SXL and the selected comparable companies utilized in the Selected Comparable Companies

 

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Analysis described below, which projected cost of equity capital rate ranges were derived from (i) an analysis of the relative cost of equity rates of such companies based on 2017 estimated distributable cash flow per unit yields, as adjusted to include the portion of the distributable cash flow attributable to the general partner of such companies, and using an estimated compound annual growth rate for such companies for the years 2017, 2018 and 2019, and (ii) an analysis of the cost of equity rates of such companies derived from reviewing certain metrics of such companies, including a five-year raw historical beta, market value of debt and equity, total capitalization, debt to equity ratio, debt in relation to debt plus equity, and unlevered beta. The terminal value of the SXL common units was estimated by applying a range of assumed yields of 7.5% to 9.5% to SXL’s 2019 estimated distributable cash flow per SXL common unit. The assumed yields were selected based on Barclays’ professional judgment and experience, taking into account the yields of SXL and the selected comparable companies utilized in the Selected Comparable Companies Analysis described below. The reference equity value range for the SXL common units yielded by the SXL discounted distributable cash flow analysis implied an equity value range for SXL of $29.00 to $33.00 per SXL common unit, as compared to the closing SXL common unit price of $26.19 on November 18, 2016.

Using the implied reference equity value per unit ranges for each of the ETP common units and the SXL common units, Barclays derived reference implied exchange ratio ranges of (i) 1.1970x to 1.5172x based on ETP Status Quo Case without including Expected Synergies; (ii) 1.1695x to 1.4778x based on ETP Status Quo Case with Expected Synergies; (iii) 1.2121x to 1.5862x based on ETP Distribution Reduction Case without Expected Synergies; and (iv) 1.1843x to 1.5450x based on ETP Distribution Reduction Case with Expected Synergies.

Barclays noted that the exchange ratio of 1.5000x to be offered to unaffiliated ETP unitholders in the proposed transaction was in line with the implied equity value ranges per ETP common unit and the implied exchange ratio yielded by Barclays’ discounted distributable cash flow analysis.

Selected Comparable Company Analysis

In order to assess how the public market values units of similar publicly traded MLPs, Barclays reviewed and compared specific financial and operating data relating to ETP and SXL to that of MLPs selected by Barclays based on Barclays’ experience with MLPs. None of the MLPs that were selected for such purpose were subsequently excluded in conducting this analysis.

The MLPs selected with respect to ETP were:

 

    Enbridge Energy Partners, LP;

 

    Enterprise Products Partners, LP;

 

    ONEOK Partners, LP;

 

    Plains All American Pipeline, LP; and

 

    Williams Partners, LP.

Barclays calculated and analyzed distributable cash flow per unit yields using published estimates by third party equity research analysts for estimated distributable cash flow per unit in 2017 and 2018 for each of the comparable companies selected and for ETP using the ETP Projections. The results of the ETP selected comparable company analysis are summarized below:

 

     Yield Range of Comparable MLPs of ETP  

Distributable Cash Flow per Unit Yield:

   Low     Median     High  

2017E Yield

     7.9     8.3     11.7

2018E Yield

     8.2     8.9     12.2

Barclays selected the comparable MLPs listed above because their business and operating profiles are reasonably similar to that of ETP. However, because of the inherent differences between the business, operations and prospects of ETP and those of the selected comparable companies, Barclays believed that it was

 

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inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made certain qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of ETP and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between ETP and the selected MLPs included in the selected comparable company analysis. The equity value range for the ETP common units yielded by the ETP selected comparable company analysis implied a reference equity value range for ETP of $37.00 to $45.00 per ETP common unit.

The MLPs selected with respect to SXL were:

 

    Buckeye Partners, LP;

 

    Enterprise Products Partners, LP;

 

    Magellan Midstream Partners, LP;

 

    MPLX, LP; and

 

    Plains All American Pipeline, LP.

Barclays calculated and analyzed distributable cash flow per unit yields using published estimates by third party equity research analysts for estimated distributable cash flow per unit in 2017 and 2018 for each of the comparable companies selected and for SXL using the SXL Projections. The results of the SXL selected comparable company analysis are summarized below:

 

     Yield Range of Comparable MLPs of SXL  

Distributable Cash Flow per Unit Yield:

   Low     Median     High  

2017E Yield

     6.6     7.9     8.6

2018E Yield

     6.8     8.4     9.1

Barclays selected the comparable MLPs listed above because their business and operating profiles are reasonably similar to that of SXL. However, because of the inherent differences between the business, operations and prospects of SXL and those of the selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made certain qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of SXL and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between SXL and the selected MLPs included in the selected comparable company analysis. The equity value range for the SXL common units yielded by the SXL comparable company analysis implied a reference equity value range for SXL of $26.00 to $33.00 per SXL common unit.

Using the implied reference equity value per unit ranges for each of ETP and SXL, Barclays derived a reference implied exchange ratio range of 1.1212x to 1.7308x without Expected Synergies, and 1.0955x to 1.6870x with Expected Synergies.

Barclays noted that the exchange ratio of 1.5000x to be offered to unaffiliated ETP unitholders in the proposed transaction was in line with the implied equity value range per ETP common unit and the implied exchange ratio range yielded by Barclays’ selected comparable companies analysis.

Selected Precedent Transactions Analysis

Barclays reviewed and compared the purchase prices and financial multiples paid in selected other transactions that Barclays deemed relevant based on its experience with merger and acquisition transactions, specifically in the MLP industry. Barclays chose such MLP merger transactions based on, among other things, the similarity of the applicable companies to ETP and SXL with respect principally to size and operational focus

 

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and because the organizations involved are all structured as MLPs. Each of the selected transactions was a merger of two MLPs that was announced between October 1997 and October 2016. None of the transactions selected based on the criteria were subsequently excluded in conducting this analysis. The following list sets forth the transactions analyzed based on such characteristics:

 

Target/Acquiror

 

Announcement Date

•       PennTex Midstream Partners, LP / Energy Transfer Partners, L.P.

 

October 2016

•       JP Energy Partners LP / American Midstream Partners, LP

 

October 2016

•       Markwest Energy Partners, LP / MPLX LP

 

July 2015

•       Crestwood Midstream Partners, LP / Crestwood Equity Partners, LP

 

May 2015

•       Regency Energy Partners LP / Energy Transfer Partners, L.P.

 

January 2015

•       Atlas Pipeline Partners, LP / Targa Resources Partners, LP

 

October 2014

•       Oiltanking Partners, LP / Enterprise Products Partners, LP

 

October 2014

•       Williams Partners, LP / Access Midstream Partners, LP

 

June 2014

•       PVR Partners, LP / Regency Energy Partners LP

 

October 2013

•       Crestwood Midstream Partners, LP / Inergy Midstream, LP

 

May 2013

•       Copano Energy, LLC / Kinder Morgan Energy Partners, LP

 

January 2013

•       Duncan Energy Partners, LP / Enterprise Products Partners, LP

 

April 2011

•       TEPPCO Partners, LP / Enterprise Products Partners, LP

 

June 2009

•       Pacific Energy Partners, LP / Plains All American Pipeline, LP

 

June 2006

•       Kaneb Pipe Line Partners, LP / Valero LP

 

November 2004

•       Gulfterra Energy Partners, LP / Enterprise Products Partners, LP

 

December 2003

•       Santa Fe Pacific Pipeline Partners, LP / Kinder Morgan
Energy Partners, LP

 

October 1997

Using publicly available information, Barclays calculated and analyzed the multiples of enterprise value, or “EV,” to last twelve month (“LTM”) earnings before interest, taxes, depreciation and amortization, or “LTM EBITDA,” represented by the prices paid in selected precedent transactions. The results of the selected precedent transactions analysis are summarized below:

 

            EV/LTM EBITDA  
     Low      Median      Mean      High  

Enterprise Value as a Multiple of:

                           

LTM EBITDA

     9.2x         15.5x         16.2x         25.9x   

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of ETP, SXL, and the MLPs included in the selected precedent transactions analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transactions analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the proposed transaction which would affect the acquisition values of the selected target companies and ETP and SXL. ETP’s and SXL’s LTM EBITDA were based on the ETP Projections and the SXL Projections, respectively, for the four quarters ending December 31, 2016, but the ETP LTM EBITDA was adjusted to remove 90.05% of the cash distributions related to the SXL incentive distribution rights and general partner interest of SXL received by ETP (which is payable by ETP to ETE through distributions on the ETP Class H units that are owned by ETE). Based

 

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upon these judgments, Barclays’ selected precedent transactions analysis yielded a reference equity value range for the ETP common units of $34.00 to $41.00 per ETP common unit and a reference equity value range for the SXL common units of $17.00 to $24.50 per SXL common unit.

Using the implied reference equity value per unit ranges for each of the ETP common units and the SXL common units, Barclays also derived a reference implied exchange ratio range of 1.3878x to 2.4118x.

Barclays noted that the exchange ratio of 1.5000x to be offered to unaffiliated ETP unitholders in the proposed transaction was in line with the implied equity value range per ETP common unit and the implied exchange ratio range yielded by Barclays’ selected precedent transactions analysis.

Analysis of Equity Research Analyst Price Targets

Barclays reviewed and compared, as of November 18, 2016, the publicly available price targets of ETP common units and SXL common units published by equity research analysts associated with various Wall Street firms, of which there were 14 (including Barclays’ equity research analyst price targets for each of ETP and SXL). The research analysts’ price targets per ETP common unit ranged from $36.00 to $55.00 and per SXL common unit ranged from $26.00 to $44.00. The publicly available share price targets published by such equity research analysts do not necessarily reflect the current market trading prices for ETP common units or SXL common units and these estimates are subject to uncertainties, including future financial performance of ETP and SXL and future market conditions. Using the range of research analyst price targets per ETP common unit and SXL common unit, Barclays also derived a reference implied exchange ratio range of 0.8182x to 2.1154x. Barclays noted that the exchange ratio of 1.5000x to be offered in the proposed transaction was in line with the implied equity value range per ETP common unit and the implied exchange ratio range yielded by Barclays’ research estimate analysis.

Historical Common Unit Trading Analysis

To provide background information and perspective with respect to the historical unit prices of ETP common units and SXL common units, Barclays reviewed the daily historical closing unit prices of ETP common units and SXL common units for the period from May 18, 2016 to November 18, 2016. Barclays analyzed the ratio of the daily closing price per ETP common unit to the corresponding closing price per SXL common unit of SXL over such period. Over the period, the implied relative exchange ratio ranged from a low of 1.2386x to a high of 1.5032x SXL common units per ETP common unit. In addition, Barclays reviewed the implied relative exchange ratio of the closing price per ETP common unit and closing price per SXL common unit based on November 18, 2016 closing prices and 5-day, 10-day, 20-day and 30-day volume weighted average prices (“VWAP”), respectively, as of November 18, 2016. This analysis implied relative exchange ratios ranging from a low of 1.3655x to a high of 1.5032x SXL common units per ETP common unit, which Barclays noted was in line with the exchange ratio of 1.5000x to be offered to unaffiliated ETP unitholders in the proposed transaction.

Premiums Analysis

In order to provide background information and perspective to, and to assess the implied premium offered to unaffiliated ETP unitholders in the proposed transaction, Barclays reviewed and analyzed the implied premium levels in the proposed transaction based on the exchange ratios as of November 18, 2016 closing prices and the 5-day, 10-day, 20-day and 30-day VWAP of ETP common units and SXL common units. The table below sets forth the summary results of the analysis:

 

     “Heads-Up”
Exchange Ratio
     Implied Premium /
(Discount) to Historical
“Heads-Up” Exchange  Ratio
 

Proposed Transaction

     1.5000x         —  

Current (11/18/2016)

     1.5032x         (0.22 %) 

5-Day VWAP

     1.4272x         5.10

10-Day VWAP

     1.4107x         6.33

20-Day VWAP

     1.4073x         6.59

30-Day VWAP

     1.3655x         9.85

 

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Pro Forma Merger Consequences Analysis

Barclays reviewed and analyzed the pro forma impact of the transaction on projected distributable cash flow (“DCF”) and distributions of the combined company for each of 2017, 2018, and 2019. Barclays performed this analysis based on the ETP Projections, SXL Projections, and with respect to ETE, based on the ETP Projections and SXL Projections, taking into account cash flows derived from ETE’s other subsidiaries per ETP management, and the IDR Projected Subsidies and taking into account the Expected Synergies, using pro forma EBITDA for the combined company of $5,144 million, $7,475 million and $8,178 million for the remainder of 2017 (assuming a closing date of March 31, 2017), 2018 and 2019, respectively. EBITDA is a non-GAAP financial performance measure that subtracts from Consolidated EBITDA amount related to less than wholly owned subsidiaries and adds back cash distributions from said entities. Based upon the IDR Projected Subsidies, Barclays assumed that ETE will provide total incentive distribution subsidies of $656 million in 2017, $153 million in 2018 and $128 million in 2019 and that $33 million of annual incentive distribution subsidies will remain in effect in perpetuity, consistent with the current incentive distribution subsidies in place at ETP. In connection with this analysis, Barclays noted that the implied pro forma debt to EBITDA ratio for SXL was 4.9x, 4.0x and 3.7x for 2017, 2018 and 2019, respectively, for ETP was 5.2x, 4.4x and 4.1x for 2017, 2018 and 2019, respectively, and for ETE, the pro forma consolidated debt to EBITDA ratio was 5.7x, 4.7x and 4.3x for 2017, 2018 and 2019, respectively. With respect to the pro forma analysis using ETP Projections and SXL Projections, Barclays noted that pro forma per unit distributions for the combined company would be dilutive to ETP standalone in each of 2017, 2018, and 2019, respectively. For SXL, with respect to the pro forma analysis based on ETP Projections and SXL Projections, Barclays noted that per unit distributions for the combined company would be accretive to SXL standalone in each of 2017, 2018, and 2019. Additionally, Barclays noted the pro forma dilution indicated to result from the proposed transaction under the pro forma merger consequence analysis relative to standalone ETP common unit distributions per the ETP Projections would be less than the distribution reduction arising from ETP Distribution Reduction Case, which ETP management stated would be the likely course of action in the absence of the proposed transaction, in 2017 and approximately neutral relative to such reduction in per ETP common unit distributions arising from ETP Distribution Reduction Case in each of 2018 and 2019. Barclays further noted the pro forma dilution indicated to result from the proposed transaction under the pro forma merger consequence analysis relative to standalone ETP distributable cash flow per ETP common unit per the ETP Projections would be less than the reduction in distributable cash flow per ETP common unit arising from ETP Distribution Reduction Case, which ETP management stated would be the likely course of action in the absence of the proposed transaction, in 2017, approximately neutral relative to distributable cash flow per ETP common unit arising from ETP Case in 2018 and accretive relative to distributable cash flow per ETP common unit arising from ETP Distribution Reduction Case in 2019. With respect to ETE, Barclays noted that the pro forma dilution indicated to result from the proposed transaction under the pro forma merger consequence analysis relative to standalone ETE distributable cash flow per ETE common unit would be less than the reduction in distributable cash flow per ETE common unit arising from ETP Distribution Reduction Case in 2017, less than the reduction in distributable cash flow per ETE common unit arising from ETP Distribution Reduction Case in 2018 and accretive relative to distributable cash flow per ETE common unit arising from ETP Distribution Reduction Case in 2019. The tables below provide a pro forma comparison of the ETP Status Quo Case relative to the ETP Distribution Reduction Case and a comparison of the pro forma consequences of the proposed transaction to SXL, ETP and ETE as compared to the ETP Status Quo Case.

 

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        Status
Quo Case
-- Metric
Per Unit
    Distribution
Reduction
Case -- Metric
Per Unit
    Distribution
Reduction Case
-- Percentage
Change Relative
To ETP Status
Quo Case
    Proposed
Transaction --
Metric Per Unit
    Proposed
Transaction
-- Percentage
Change
Relative To
ETP Status
Quo Case
 

Pro Forma Impact to SXL

  2017E DCF /
Common Unit
  $ 2.27        NA        NA      $ 2.51        10.5
  2018E DCF /
Common Unit
 

$

2.55

  

 

 

NA

  

    NA     

$

2.70

  

    5.9
  2019E DCF /
Common Unit
 

$

2.77

  

 

 

NA

  

    NA     

$

2.90

  

    4.6
  2017E
Distribution /
Common Unit
 

$

2.17

  

 

 

NA

  

    NA     

$

2.38

  

    9.9
  2018E
Distribution /
Common Unit
 

$

2.32

  

 

 

NA

  

    NA     

$

2.50

  

    7.4
  2019E
Distribution /
Common Unit
 

$

2.49

  

 

 

NA

  

    NA     

$

2.65

  

    6.2

Pro Forma Impact to ETP

  2017E DCF /
Common Unit
 

$

3.92

  

 

$

3.55

  

    (9.6 %)   

$

3.76

  

    (4.1 %) 
  2018E DCF /
Common Unit
 

$

4.02

  

 

$

4.04

  

    0.3  

$

4.05

  

    0.6
  2019E DCF /
Common Unit
 

$

4.26

  

 

$

4.28

  

    0.5  

$

4.35

  

    2.3
  2017E
Distribution /
Common Unit
 

$

4.22

  

 

$

3.37

  

    (20.1 %)   

$

3.57

  

    (15.3 %) 
  2018E
Distribution /
Common Unit
 

$

4.22

  

 

$

3.75

  

    (11.1 %)   

$

3.75

  

    (11.3 %) 
  2019E
Distribution /
Common Unit
 

$

4.22

  

 

$

3.98

  

    (5.7 %)   

$

3.97

  

    (6.0 %) 

Pro Forma Impact to ETE

  2017E DCF/
Common Unit
  $ 1.22      $ 1.19        (2.8 %)    $ 1.19        (2.1 %) 
  2018E DCF/
Common Unit
  $ 1.81      $ 1.54        (15.0 %)    $ 1.75        (3.6 %) 
  2019E DCF/
Common Unit
  $ 1.96      $ 1.81        (7.8 %)    $ 2.01        2.3

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The ETP Conflicts Committee selected Barclays because of its familiarity with ETP and SXL, and because of Barclays’ qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, knowledge of the industries in which ETP and SXL operate, as well as substantial experience in transactions comparable to the proposed transaction.

 

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Barclays is acting as financial advisor to the ETP Conflicts Committee in connection with the proposed transaction. As compensation for its services in connection with the proposed transaction, ETP will pay Barclays a fee of $7.5 million, conditioned upon and payable upon closing of the proposed transaction, which is referred to as the “Transaction Fee.” In addition, ETP paid Barclays a fee of $1 million upon delivery of the opinion, which is referred to as the “Opinion Fee.” The Opinion Fee was not contingent upon the conclusion of Barclays’ opinion and the Opinion Fee is creditable against the Transaction Fee upon the closing of the proposed transaction. In addition, the ETP Conflicts Committee, in its sole discretion, will consider whether to cause ETP to pay Barclays, based on the ETP Conflicts Committee’s assessment of the quality and quantity of work performed, and value added by, Barclays in connection with its engagement with the ETP Conflicts Committee, an additional discretionary fee of up to $1 million (payable with the Transaction Fee). In addition, ETP has agreed to reimburse Barclays for a portion of its reasonable expenses incurred in connection with the proposed transaction (not to exceed $150,000 without the prior consent of the ETP Conflicts Committee, not to be unreasonably withheld; provided that the foregoing expense cap will not limit or modify ETP’s indemnification obligations pursuant to the engagement letter entered into by Barclays and the ETP Conflicts Committee) and to indemnify Barclays for certain liabilities that may arise out of its engagement by the ETP Conflicts Committee and the rendering of Barclays’ opinion as set forth in Barclays’ engagement letter with the ETP Conflicts Committee. Barclays has performed various investment banking and financial services for ETP, ETE, SXL and their affiliates in the past, and Barclays expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, since January 2014, Barclays has performed the following investment banking and financial services: (i) agent on ETP’s $1.5 billion 2016 ATM equity offering program; (ii) bookrunner on ETP’s approximately $3 billion senior notes offering; (iii) financial advisor to the ETP Conflicts Committee on ETP’s acquisition of Regency Energy Partners LP; (iv) agent on ETP’s $1.5 billion 2015 ATM equity offering program; (v) financial advisor to the ETP Conflicts Committee on ETP’s acquisition of the Bakken Pipeline project from ETE; (vi) a financial advisor to the ETP Conflicts Committee on ETP’s divestiture of Mid-Atlantic Convenience Stores, LLC to Sunoco LP (in which ETE acquired the membership interest in the general partner of Sunoco LP from ETP in July 2015); (vii) agent on ETP’s $1.5 billion 2014 ATM equity offering program; (viii) financial advisor to ETP on its acquisition of Susser Holdings Corp.; (ix) bookrunner for ETE’s $400 million term loan offering in 2014; (x) bookrunner on SXL’s 2015 approximately $560 million equity offering; (xi) bookrunner on SXL’s 2016 approximately $650 million block equity offering; (xii) placement agent in SXL’s $1 billion 2014 equity offering program; (xiii) bookrunner on SXL’s 2014 approximately $373 million equity offering; (xiv) bookrunner on SXL’s 2014 $1 billion notes offering; and (xv) Barclays is currently a lender under ETP’s, ETE’s, SXL’s and Sunoco LP’s existing revolving credit facilities. In respect of these services, Barclays received fees since January 2014 of (a) less than $1 million from ETE; (b) approximately $12 million to $15 million from SXL; (c) approximately $22 million to $24 million from ETP (including fees received from PennTex Midstream Partners, LP, which ETP acquired in October 2016, and excluding any fees paid or payable in respect of the proposed transaction) and (d) approximately $2 million to $3.5 million from Sunoco LP. Barclays disclosed the nature of its relationship and engagements for ETP, ETE, SXL and their affiliates and the amount and nature of the fees it received from such parties to the ETP Conflicts Committee on or about November 4, 2016, and such relationships and fees were discussed at various times throughout November 4 to November 9, 2016 by the ETP Conflicts Committee with management and the ETP Conflict Committee’s legal counsel. See “The Merger—Background of the Merger” beginning on page 66 of this proxy statement/prospectus. Barclays subsequently disclosed such information directly to the ETP Conflicts Committee in its presentation dated November 20, 2016.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and its affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of ETP, ETE and SXL and their respective affiliates for Barclays’ own account and for the accounts of Barclays’ customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments

 

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Unaudited Financial Projections of ETP

ETP does not as a matter of course make public projections as to earnings or other results. However, the management of ETP has prepared prospective financial information to assist the ETP Board and the ETP Conflicts Committee in evaluating ETP’s operations and prospects, and for use in connection with discussions with third parties regarding possible combination transactions. The accompanying summary prospective financial information was not prepared with a view toward complying with United States generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections, with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of ETP’s management was, based on certain growth assumptions, prepared on a reasonable basis, reflected the best currently available estimates and judgments, and presented, to the best of ETP’s management’s knowledge and belief, the expected course of action and the expected future financial performance of ETP. However, this information is not fact. None of the unaudited financial projections reflect any impact of the proposed transaction.

Neither SXL’s nor ETP’s independent auditors, any other independent accountants nor any of their other respective advisors, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for the prospective financial information. The reports of the independent registered public accounting firms incorporated by reference into this proxy statement/prospectus relate to the historical financial information of SXL and ETP, respectively. Such reports do not extend to the unaudited financial projections and should not be read to do so.

In developing the ETP unaudited financial projections set forth below (the “ETP Unaudited Financial Projections”), the management of ETP made numerous material assumptions with respect to ETP for the periods covered by the projections, including, but not limited to, the following:

 

    the EBITDA and maintenance capital expenditures from existing assets and business activities;

 

    organic growth opportunities, and the amounts and timing of related capital expenditures and future EBITDA to be generated from such organic growth opportunities;

 

    the credit risk of customers and the potential impact from future deteriorations of credit quality, including the potential for bankruptcy, of certain customers and the financial impact to ETP related thereto;

 

    outstanding debt and debt and equity issuance during applicable periods, and the availability and cost of debt and equity capital;

 

    the amount and timing of debt repayments;

 

    the amount of incentive distribution subsidies that ETE provides to ETP; and

 

    other general business, market, and financial assumptions.

The principal quantifiable assumptions material to the unaudited financial projections of ETP include assumptions regarding pricing of crude oil and natural gas. In connection with the unaudited financial projections of ETP, the following assumptions related to price were made:

 

     2017      2018      2019  

Price of Crude Oil

   $ 50.00       $ 55.00       $ 60.00   

Price of Natural Gas

   $ 3.11       $ 3.01       $ 3.00   

In addition, as set forth in the ETP management’s written statement (the “ETP Management Written Statement”), ETP management has recently reviewed ETP’s projected results of operations, capital expenditures, debt and equity funding requirements, leverage metrics and distributable cash flow per ETP common unit,

 

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including the projected financial information provided to Barclays in connection with its role as the financial advisor to the ETP Conflicts Committee. In connection with this review, ETP management has evaluated the effects of the significant levels of equity issuances and borrowings that have occurred to fund capital expenditures related to organic growth projects and acquisitions and that will continue to occur through the completion of this $10.0 billion growth capital program, and has determined that:

 

    this significant growth capital expenditure program is expected to generate substantial cash flow from long-term contracts supporting such projects in future years as such projects are completed; however, due to delays in the completion of some of these projects, which have delayed cash flows, and the increased interest expense on additional borrowings and the additional cash distributions on newly issued ETP common units to fund these projects, ETP’s leverage has increased and its cash distribution coverage has decreased;

 

    ETP has several options to manage its leverage levels and its cash distribution coverage ratio, including the possibility of seeking additional incentive distribution subsidies from ETE or reducing its quarterly cash distributions; and

 

    if the proposed transaction with SXL is not consummated, ETP would need to consider its other alternatives and, in the event that ETE is unwilling or unable to provide additional incentive distribution subsidies, ETP management would likely consider a reduction in quarterly cash distributions in the range of 15% to 25% in order to reduce ETP’s leverage ratios and increase its distribution coverage ratio to maintain its investment grade rating, support its long-term financial health and promote its future distribution growth potential, and in the event that ETP were to make such cash distributions reductions in this range during this period, it is likely that ETE would seek to negotiate a reduction in the incentive distribution subsidies currently in effect in order for ETE to preserve its existing credit ratings.

The estimates and assumptions underlying the ETP Unaudited Financial Projections are inherently uncertain and, though considered reasonable by the management of ETP as of the date of the preparation of such unaudited financial projections, are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the unaudited financial projections, including, among other things, the matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 37 and 30, respectively. Accordingly, there can be no assurance that the ETP Unaudited Financial Projections are indicative of the future performance of ETP, or that actual results will not differ materially from the results presented in the ETP Unaudited Financial Projections. Inclusion of the ETP Unaudited Financial Projections in this proxy statement/prospectus should not be regarded as a representation by any person that the results contained in the ETP Unaudited Financial Projections will be achieved.

The unaudited financial projections were prepared solely for internal use to assist in the evaluation of the merger. Such projections are inherently subjective in nature, susceptible to interpretation and accordingly, contemplated results may not be achieved. While presented with numerical specificity, the unaudited financial projections reflect numerous estimates and assumptions with respect to future industry performance under various industry scenarios as well as assumptions for competition, general business, economic, market and financial conditions and matters specific to the businesses of SXL and ETP, all of which are difficult to predict and many of which are beyond the preparing parties’ control. Accordingly, there can be no assurance that the assumptions made in preparing any particular projection will prove accurate. There will be differences between actual and forecasted results, and the differences may be material. The risk that these uncertainties and contingencies could cause the assumptions to fail to be reflective of actual results is further increased due to the length of time over which these assumptions apply. The assumptions in early periods have a compounding effect on the projections shown in later periods. Thus, any failure of an assumption to be reflective of actual results in an early period would have a greater effect on the projected results failing to be reflective of actual events in later periods. While the SXL and ETP boards, Conflicts Committees and their advisors used the following projections as a tool in evaluating the merger, they did so with a thorough understanding of the foregoing limitations. In

 

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light of the foregoing factors and the uncertainties inherent in the ETP Unaudited Financial Projections, the unaffiliated ETP unitholders are cautioned not to place undue reliance on the ETP Unaudited Financial Projections.

The ETP Unaudited Financial Projections are not included in this proxy statement/prospectus to induce any unaffiliated ETP unitholders to vote in favor of any of the proposals at the ETP special meeting.

The following table sets forth select projected financial information derived from financial projections prepared by ETP management to reflect the base case for the financial performance for ETP based on the assumptions that the proposed transaction with SXL is not consumated and ETP maintains its cash distribution per ETP common unit at the current cash distribution rate of $4.22 per common unit on an annualized basis (the “ETP Status Quo Case Projections”).

 

     Year Ending December 31,  
       2017E          2018E          2019E    
     ($ in millions, except per unit amounts)  

Consolidated EBITDA

   $ 7,071       $ 8,560       $ 9,223   

EBITDA

   $ 5,025       $ 5,984       $ 6,485   

Distributable cash flow(1)

   $ 3,630       $ 4,560       $ 5,039   

Distributable cash flow per ETP common unit(2)

   $ 3.92       $ 4.02       $ 4.26   

Distribution per ETP common unit

   $ 4.22       $ 4.22       $ 4.22   

Distribution coverage ratio(3)

     0.93x         0.96x         1.02x   

 

(1) Distributable cash flow is defined as EBITDA less maintenance capital expenditures, interest expense and cash income taxes paid and the add back of non-cash and transaction-related expenses for ETP’s wholly owned subsidiaries.
(2) Gives effect to incentive distribution subsidies of $656.0 million, $138.0 million and $128.0 million for the years ending December 31, 2017, 2018 and 2019, respectively, previously agreed to by ETE.
(3) Distribution coverage ratio is distributable cash flow divided by total cash distributed in respect of limited partner and general partner interests.

The following table presents select projected financial information derived from financial projections proposed by ETP management based upon the ETP Status Quo Case Projections as adjusted to reflect (i) a hypothetical reduction in distributions in respect of ETP common units by approximately 20% in 2017 and that thereafter distributions in respect of ETP common units are made on a basis that results in ETP maintaining a cash coverage ratio of 1.1x, and (ii) a hypothetical removal of a $465 million incentive distribution subsidy that was in place during 2017 (the “ETP Distribution Reduction Case Projections”). The $465 million incentive distribution subsidy represents the 2017 amount of the recent incentive distribution subsidy announced on August 3, 2016. ETP management determined that it was likely that this particular subsidy would be reversed, based on the reduced distributions to ETE under the ETP Distribution Reduction Case Projections. While any reversal would require the consent of ETP, it is ETP management’s belief that a reversal would be necessary in order for ETE to maintain the leverage metrics required to sustain its current credit rating. Maintaining ETE’s credit rating is important for preserving the credit rating of ETP due to the relationship between the credit rating of a general partner and the credit rating of the underlying master limited partnership under existing rating agency policies. Negative credit ratings actions at ETE could have a “flow through” effect, creating negative ratings pressure at ETP. The hypothetical distribution reduction was intended to prevent such negative ratings pressure from impacting ETP. Accordingly, the removal of the incentive distribution subsidy is consistent with the thesis of the ETP Distribution Reduction Case Projections.

 

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The ETP Distribution Reduction Case Projections were prepared to demonstrate and evaluate the impact of a 15% to 25% reduction in the distributions in respect of ETP common units distribution per the ETP Management Written Statement, the primary effect of which is to reduce the number of ETP common units that would otherwise be necessary to issue in order to improve ETP’s debt to EBITDA ratio for the purpose of allowing ETP to maintain its investment grade ratings.

 

     Year Ending December 31,  
       2017E          2018E          2019E    
     ($ in millions, except per unit amounts)  

Consolidated EBITDA

   $ 7,071       $ 8,560       $ 9,223   

EBITDA

   $ 5,025       $ 5,984       $ 6,485   

Distributable cash flow

   $ 3,632       $ 4,575       $ 5,068   

Distributable cash flow per ETP common unit

   $ 3.55       $ 4.04       $ 4.28   

Distribution per ETP common unit

   $ 3.37       $ 3.75       $ 3.98   

Debt to EBITDA Ratio(1)

     5.1x         4.2x         3.9x   

 

(1) The Debt to EBITDA ratio is calculated by dividing total partnership non-joint venture debt by EBITDA.

Consolidated EBITDA is a non-GAAP financial performance measure that is defined as total partnership earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Consolidated EBITDA reflects amounts for less than wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on ETP’s proportionate ownership. Consolidated EBITDA is reported on a consistent basis as Adjusted EBITDA in ETP public filings. EBITDA is a non-GAAP financial performance measure that subtracts from Consolidated EBITDA amounts related to less than wholly owned subsidiaries and adds back cash distributions from said entities. Distributable cash flow is a non-GAAP financial performance measure that represents the distributable cash flow accruing to ETP. Distributable cash flow per ETP common unit is a non-GAAP financial performance measure that represents the distributable cash flow accruing to each ETP common unit. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. ETP’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with similar titles used by other companies.

ETP DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ETP UNAUDITED FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH ETP UNAUDITED FINANCIAL PROJECTIONS ARE NO LONGER APPROPRIATE.

Reasons of the SXL Conflicts Committee and the SXL Board for the Merger

The reasons for the SXL Conflicts Committee and the SXL Board approving the merger agreement and the merger on November 20, 2016, include:

 

    The value created in the merger for the SXL unitholders as a result of the expectation that the acquisition of ETP will provide SXL:

 

    the opportunity to extend its strategic footprint further upstream, to vertically integrate its NGL business and to realize potential benefits of controlling additional NGL volumes;

 

    benefits of additional scale and scope of business, including diversification of basin and geographic and product exposures;

 

    an enhanced ability to manage risk associated with large scale investment opportunities;

 

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    the ability to better capitalize on commercial synergies between the ETP and SXL businesses and to realize potential cost savings; and

 

    enhanced capital markets access.

 

    The expectation that, during at least the first three years following the merger, the distributions to be received by SXL common unitholders will be higher than the distributions that would have been received by SXL common unitholders if the merger were not completed.

 

    The opportunity for SXL to benefit from any future earnings and growth of ETP’s assets after the merger.

 

    The expectation that there should be relatively low execution risk in integrating ETP’s and SXL’s businesses due to existing shared services.

The SXL Board also based its determination to approve the merger agreement and the merger, in part, on the unanimous recommendation of the SXL Conflicts Committee that the SXL Board approve the merger agreement and the merger, following the SXL Conflicts Committee’s evaluation of the merger in consultation with its legal and financial advisors and with SXL management. The SXL Board also consulted with its legal advisors prior to approving the merger agreement and the merger.

The foregoing discussion is not intended to be exhaustive, and is only intended to address the principal factors considered by the SXL Conflicts Committee and the SXL Board in favor of the merger. In view of the number and variety of factors and the amount of information considered, the SXL Conflicts Committee and the SXL Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the SXL Conflicts Committee and the SXL Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the SXL Conflicts Committee and the SXL Board may have given different weights to different factors. The SXL Conflicts Committee and the SXL Board made their determinations based on the totality of information presented to, and the investigation conducted by, the SXL Conflicts Committee and the SXL Board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

Unaudited Financial Projections of SXL

SXL does not as a matter of course make public projections as to earnings or other results. However, the management of SXL prepared prospective financial information to assist the SXL Board and the SXL Conflicts Committee and its advisors in evaluating SXL’s operations and prospects and the potential merger, and these projections were provided to the ETP Board and the ETP Conflicts Committee, and to Barclays as the financial advisor to the ETP Conflicts Committee, in connection with the analysis and negotiation of the merger. The accompanying summary prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of SXL’s management was, based on certain growth assumptions, prepared on a reasonable basis, reflected the best currently available estimates and judgments, and presented, to the best of SXL’s management’s knowledge and belief, the expected course of action and the expected future financial performance of SXL. However, this information is not fact. None of the unaudited financial projections reflect any impact of the proposed transaction and have not been updated since the date of preparation.

Neither SXL’s nor ETP’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and

 

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assume no responsibility for the prospective financial information. The reports of the independent registered public accounting firms incorporated by reference into this proxy statement/prospectus relate to the historical financial information of SXL and ETP, respectively. Such reports do not extend to the unaudited financial projections and should not be read to do so.

In developing the unaudited financial projections set forth below (the “SXL Unaudited Financial Projections”), management of SXL made numerous material assumptions with respect to SXL for the periods covered by the projections, including, but not limited to, the following:

 

    the EBITDA and maintenance capital expenditures from existing assets and business activities;

 

    assumptions with respect to organic growth projects, including the timing of permitting, construction and start-up, and the amounts and timing of capital expenditures and EBITDA associated with such projects;

 

    the amount and timing of issuances of debt and equity securities, and the availability and cost of debt and equity capital;

 

    assumptions relating to the prices and production of, and demand for, crude oil, natural gas, NGLs, and other hydrocarbon and petrochemical products, and the commodities markets;

 

    the volumes of products handled and the margins associated with services and products provided to customers; and

 

    other general business, market and financial assumptions.

The principal quantifiable assumptions material to the unaudited financial projections of SXL include assumptions regarding pricing of crude oil. In connection with the unaudited financial projections of SXL, the following assumptions related to price were made:

 

     2017      2018      2019  

Price of Crude Oil

   $ 50.00       $ 55.00       $ 60.00   

All of these assumptions involve variables making them difficult to predict, and most are beyond the control of either SXL or ETP. Although management of SXL believes that there was a reasonable basis for the underlying assumptions related to the SXL Unaudited Financial Projections, any assumptions for near-term and long-term projected cases remain uncertain, and the risk of inaccuracy increases with the length of the forecast period.

The estimates and assumptions underlying the SXL Unaudited Financial Projections are inherently uncertain and, though considered reasonable by the management of SXL as of the date of the preparation of such projections, are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that are outside of the control of SXL and ETP and could cause actual results to differ materially from those contained in the SXL Unaudited Financial Projections, including, among other things, the matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 37 and 30, respectively. Accordingly, there can be no assurance that the projections are indicative of the future performance of SXL, or that actual results will not differ materially from those presented in the SXL Unaudited Financial Projections. Inclusion of the SXL Unaudited Financial Projections in this proxy statement/prospectus should not be regarded as a representation by any person that the results contained in the SXL Unaudited Financial Projections will be achieved.

The unaudited financial projections were prepared solely for internal use to assist in the evaluation of the merger. Such projections are inherently subjective in nature, susceptible to interpretation and accordingly, contemplated results may not be achieved. While presented with numerical specificity, the unaudited financial projections reflect numerous estimates and assumptions with respect to future industry performance under various industry scenarios as well as assumptions for competition, general business, economic, market and

 

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financial conditions and matters specific to the businesses of SXL and ETP, all of which are difficult to predict and many of which are beyond the preparing parties’ control. Accordingly, there can be no assurance that the assumptions made in preparing any particular projection will prove accurate. There will be differences between actual and forecasted results, and the differences may be material. The risk that these uncertainties and contingencies could cause the assumptions to fail to be reflective of actual results is further increased due to the length of time over which these assumptions apply. The assumptions in early periods have a compounding effect on the projections shown in later periods. Thus, any failure of an assumption to be reflective of actual results in an early period would have a greater effect on the projected results failing to be reflective of actual events in later periods. While the SXL and ETP boards, Conflicts Committees and their advisors used the following projections as a tool in evaluating the merger, they did so with a thorough understanding of the foregoing limitations. In light of the foregoing factors and the uncertainties inherent in the SXL Unaudited Financial Projections, the unaffiliated ETP unitholders are cautioned not to place undue reliance on the SXL Unaudited Financial Projections.

The SXL Unaudited Financial Projections are not included in this proxy statement/prospectus in order to induce any unaffiliated ETP unitholders to vote in favor of any of the proposals at the ETP special meeting.

 

     Year Ending December 31,  
       2017E          2018E          2019E    
     ($ in millions, except per unit amounts)  

EBITDA

   $ 1,698       $ 2,043       $ 2,256   

Distributable cash flow

   $ 1,208       $ 1,418       $ 1,607   

Distributable cash flow per SXL common unit

   $ 2.31       $ 2.55       $ 2.77   

Distribution per common unit

   $ 2.17       $ 2.32       $ 2.49   

EBITDA is a non-GAAP financial performance measure that represents pre-tax income, plus non-cash charges such as depreciation, amortization and stock-based compensation and excludes the income and charges recorded on account of previously divested operations. Distributable cash flow is a non-GAAP financial performance measure that represents the distributable cash flow accruing to SXL. Distributable cash flow per SXL common unit is a non-GAAP financial performance measure that represents the distributable cash flow accruing to each SXL common unit. Distribution per SXL common unit is a non-GAAP financial performance measure that represents the distributions accruing to each SXL common unit. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. SXL’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with similar titles used by other companies.

SXL DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE SXL UNAUDITED FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH SXL UNAUDITED FINANCIAL PROJECTIONS ARE NO LONGER APPROPRIATE.

Interests of Directors and Executive Officers of ETP in the Merger

In considering the recommendation of the ETP Board that you vote to adopt the merger agreement, you should be aware that aside from their interests as unitholders of ETP, ETP’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of ETP unitholders generally. The members of the ETP Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the unitholders of ETP that the merger agreement be adopted. See “—Background of the Merger” and “—Recommendation of the ETP Board; Reasons for the Merger.” ETP’s unitholders should take these interests into account in deciding whether to vote “FOR” the adoption of the merger agreement. These interests are described in more detail below, and certain of them are quantified in the narrative and the table below.

 

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Existing Relationships of ETP GP LLC Officers and Directors with ETE and SXL

ETE, as the sole member of ETP GP LLC, is entitled under the limited liability company agreement of ETP GP LLC to appoint all of the directors of ETP GP LLC. Accordingly, ETE has appointed to the ETP Board and has the ability to remove from the ETP Board each of the directors of ETP GP LLC, including, subject to the terms of the merger agreement restricting the removal of ETP Conflicts Committee members during the pendency of the merger agreement, each of the members of the ETP Conflicts Committee.

In addition, certain of the directors and executive officers of ETP GP LLC also serve as directors or executive officers of LE GP, LLC, the general partner of ETE (“ETE GP”) and/or SXL GP, as set forth below:

 

Name

  

Position at ETP GP LLC

   Position at SXL GP   

Position at ETE GP

Kelcy L. Warren

  

Chief Executive

Officer and Chairman

of the Board of Directors

   —      Chairman of the Board of Directors

Marshall S. (Mackie) McCrea, III

   Director    Chairman of the
Board of Directors
   Group Chief Operating Officer, Chief Commercial Officer and Director

Matthew S. Ramsey

  

President, Chief

Operating Officer and

Director

   —      Director

Thomas E. Long

  

Chief Financial

Officer

   —      Group Chief Financial Officer

Economic Interests of ETP GP LLC Officers and Directors in ETE and SXL

Certain of the directors and executive officers of ETP GP LLC hold common units in SXL and ETE, and thus may have economic interests in the merger that are different from ETP common unitholders generally. Set forth below is a summary of the common unit ownership of each of the directors and executive officers of ETP GP LLC in ETP, SXL and ETE, as of February 10, 2017, the most recent practicable date.

 

Name

   ETP Common Units
Beneficially Owned
     SXL Common Units
Beneficially Owned
     ETE Common Units
Beneficially Owned
 

Kelcy L. Warren(1)

     21,167         —           187,739,220   

Ted Collins, Jr.

     114,624         23,404         344,532   

Michael K. Grimm

     27,104         —           —     

Marshall S. (Mackie) McCrea, III

     351,710         58,495         2,347,200   

Matthew S. Ramsey(2)

     14,370         —           53,331   

David K. Skidmore(3)

     14,617         —           4,000   

Thomas E. Long

     27,340         —           —     

James M. Wright, Jr.

     18,537         —           10,352   

A. Troy Sturrock

     11,182         —           1,000   

 

(1) Mr. Warren also owns 187,313,942 ETE convertible units. In March 2016, ETE completed a private offering of 329.3 million ETE convertible units to certain unitholders who elected to participate in a plan to forgo a portion of future potential cash distributions on ETE common units participating in the plan for a period of up to nine fiscal quarters, commencing with distributions for the fiscal quarter ended March 31, 2016, and reinvest those distributions in ETE convertible units (the “Plan”). Mr. Warren participated in the Plan with respect to substantially all of his ETE common units.
(2) Mr. Ramsey also owns 51,317 ETE convertible units which he received as a result of his participation in the Plan with respect to substantially all of his ETE common units.
(3) Mr. Skidmore also owns 4,000 ETE convertible units which he received as a result of his participation in the Plan with respect to all of his ETE common units.

 

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Treatment of ETP Equity-Based Awards

Under the merger agreement, as with all holders of ETP restricted units, each ETP restricted unit held by ETP’s directors and executive officers that is outstanding as of immediately prior to the effective time will cease to relate to or represent a right to receive ETP common units and will be converted, at the effective time, into the right to receive an award of restricted units relating to SXL common units on the same terms and conditions as were applicable to the corresponding award of ETP restricted units, except that the number of SXL common units covered by the award will be equal to the number of ETP common units covered by the corresponding award of ETP restricted units multiplied by the exchange ratio, rounded up to the nearest whole unit.

As of February 10, 2017, the ETP executive officers and directors held the following numbers of outstanding ETP restricted units:

 

Name of Executive Officer

   Number of
Outstanding ETP
Restricted Units
 

Kelcy L. Warren

     —     

Marshall S. (Mackie) McCrea, III

     381,005   

Matthew S. Ramsey

     172,815   

Thomas E. Long

     69,332   

James M. Wright

     52,990   

A. Troy Sturrock

     26,781   

 

Name of Director

   Number of
Outstanding ETP
Restricted Units
 

Ted Collins, Jr.

     8,303   

Michael K. Grimm

     8,303   

David K. Skidmore

     8,879   

Indemnification and Insurance

The ETP partnership agreement requires ETP, among other things, to indemnify the directors and executive officers of ETP GP LLC, the general partner of ETP GP, against certain liabilities that may arise by reason of their service as directors or officers.

In addition, the merger agreement provides that, for a period of six years from the effective time, ETP, the surviving entity, and ETP GP, the GP merger surviving entity, will indemnify, defend and hold harmless each officer or director of ETP, ETP GP LLC, SXL, SXL GP or any of its subsidiaries and also with respect to any such person, in their capacity as a director, officer, employee, member, trustee or fiduciary of another corporation, foundation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise (whether or not such other entity or enterprise is affiliated with ETP) serving at the request of or on behalf of ETP, ETP GP LLC, SXL, SXL GP or any of its subsidiaries and together with such person’s heirs, executors or administrators against any cost or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages or liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative, investigative or otherwise and whether or not such claim, action, suit, proceeding or investigation results in a formal civil or criminal litigation or regulatory action.

In addition, pursuant to the terms of the merger agreement, ETP’s, ETP GP LLC’s, SXL’s or SXL GP’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving entity. Such indemnification and insurance coverage is further described in the section entitled “The Merger Agreement—Indemnification; Directors’ and Officers’ Insurance.”

 

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New Arrangements with SXL

Following the completion of the merger, (i) Kelcy L. Warren, Chief Executive Officer of ETP, is expected to become the Chief Executive Officer of SXL, (ii) Marshall S. (Mackie) McCrea, III, Group Chief Operating Officer and Chief Commercial Officer of ETE, is expected to become the Chief Commercial Officer of SXL, (iii) Matthew S. Ramsey, President and Chief Operating Officer of ETP, is expected to become the President of SXL, and (iv) Thomas E. Long, Chief Financial Officer of ETP, is expected to become the Chief Financial Officer of SXL. SXL also expects that Michael J. Hennigan, the current President and Chief Executive Officer of SXL, and other members of the SXL management team will continue in management roles of the combined company with the current SXL business operations continuing to be headquartered in Philadelphia. Specifically, Mr. Hennigan is expected to serve as President, Crude, NGL and Refined Products following the merger.

ETP GP Board Following the Merger

The current members of the ETP Board are expected to serve as members of the post-merger ETP Board following the merger, when the ETP Board becomes responsible for managing ETP GP as the general partner of SXL.

Severance Plan

ETP GP and its affiliates have not entered into any employment agreements with executive officers of ETP or SXL, and the executive officers are not expected to enter into any such agreements in connection with the merger. Executive officers participate in the Energy Transfer Partners GP, L.P. Severance Plan (the “Severance Plan”). The Severance Plan provides for payment of certain severance benefits in the event of a Qualifying Termination (as that term is defined in the Severance Plan). In general, the Severance Plan provides payment of two weeks of annual base salary for each year or partial year of employment service, up to a maximum of 52 weeks or one year of annual base salary (with a minimum of four weeks of annual base salary) and up to three months of continued group health insurance coverage. The Severance Plan also provides that additional benefits in addition to those provided under the Severance Plan may be paid based on special circumstances, which additional benefits will be unique and non-precedent setting. The Severance Plan is available to all salaried employees on a nondiscriminatory basis and is not related to or otherwise based on the merger. The merger is not currently expected to result in a Qualifying Termination for any of ETP’s named executive officers; however, benefits would be payable under the Severance Plan if an executive officer does incur a Qualifying Termination before, in connection with, or after the consummation of the merger.

In addition, in connection with the merger, ETE, SXL or their affiliates may adopt an additional severance plan or policy (or may pay additional benefits under the Severance Plan) in connection with a Qualifying Termination (or other termination) that relates to or occurs within a certain period of time following the consummation of the merger. As of the date of this filing, the terms of any such additional severance plan or policy (or such additional benefits under the Severance Plan) have not been determined and no such plan or agreements with respect to any executive officer exist.

Interests of ETE and ETP in the Merger

ETE holds a controlling ownership interest in ETP. ETE controls ETP through ETE’s ownership of ETP GP LLC, which is the general partner of ETP GP. ETE also owns all of the limited partner interests in ETP GP. ETP GP owns 100% of the general partner interest and incentive distribution rights in ETP. ETE also owns all of the Class H units and Class I units in ETP, as well as approximately 3.3% of the outstanding ETP common units. In addition, ETE indirectly owns a 0.1% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL. ETE has different economic interests in the merger than ETP common unitholders generally due to, among other things, ETE’s ownership of economic interests in ETP other than ETP common units and ETE’s ongoing indirect ownership of the general partner interest and incentive distribution rights in SXL following the merger. In addition, due to ETE’s ownership of incentive distribution

 

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rights in ETP, ETE has different interests than ETP common unitholders in certain of the alternatives ETP has indicated it would consider if a merger with SXL is not consummated, including any reduction in ETP’s distribution levels, which would have a disproportionately negative impact on ETE, as the holder of the incentive distribution rights in ETP, compared to ETP common unitholders generally. Please see “Unaudited Financial Projections of ETP” for a discussion of ETP management’s evaluation of its options to manage ETP’s leverage levels and cash distribution coverage ratio in the absence of the merger.

ETP holds a controlling ownership interest in SXL through its ownership of a 99.9% membership interest in SXL GP, which owns 100% of the general partner interest and incentive distribution rights in SXL. ETP also owns all of the Class B units in SXL and approximately 21% of the outstanding SXL common units.

Under the terms of the merger agreement, ETE has agreed to vote all of the ETP common units owned beneficially or of record by ETE and its subsidiaries in favor of the approval of the merger agreement and the merger and the approval of any actions required in furtherance thereof.

No Dissenters’ Rights or Appraisal Rights

Neither appraisal rights nor dissenters’ rights are available in connection with the merger under the Delaware LP Act, the merger agreement or the ETP partnership agreement.

No SXL Unitholder Approval Required

SXL unitholders are not required to adopt the merger agreement or approve the merger or the issuance of SXL common units in connection with the merger.

Accounting Treatment of the Merger

ETP controls SXL through its ownership of SXL GP and therefore currently consolidates the operations of SXL into ETP’s financial statements. For accounting purposes, the merger will result in ETP being considered the surviving consolidated entity, rather than SXL, which is the surviving consolidated entity for legal and reporting purposes. Subsequent to the merger, SXL will present consolidated financial statements that reflect the historical consolidated financial statements of ETP. The merger will be accounted for as an equity transaction and will be reflected in the consolidated financial statements as ETP’s acquisition of SXL’s noncontrolling interest. The carrying amounts of SXL’s and ETP’s assets and liabilities will not be adjusted, nor will a gain or loss be recognized as a result of the merger.

 

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SXL Amended and Restated Partnership Agreement

In conjunction with the merger, SXL GP will enter into the SXL partnership agreement, providing for, among other things, (i) the creation of the SXL Class J units, (ii) the creation and issuance of the SXL Class E units, SXL Class G units, SXL Class I units and SXL Class K units and (iii) a change in the definition of “Operating Surplus” in the SXL partnership agreement to provide that such term will include an amount equal to the accumulated and undistributed operating surplus of ETP as of the closing of the merger. In addition, the SXL partnership agreement will provide for the reduction by ETE, as the indirect holder of SXL’s incentive distribution rights following the consummation of the merger, in quarterly distributions in respect of such rights in the following amounts:

 

Quarter Ending

   Former ETP
IDR Reduction
     Former SXL
IDR Reduction
     Total IDR
Reduction
 

March 31, 2017

   $ 149,500,000       $ 7,500,000       $ 157,000,000   

June 30, 2017

   $ 154,500,000       $ 7,500,000       $ 162,000,000   

September 30, 2017

   $ 155,750,000       $ 7,500,000       $ 163,250,000   

December 31, 2017

   $ 165,750,000       $ 7,500,000       $ 173,250,000   

March 31, 2018

   $ 34,500,000       $ 7,500,000       $ 42,000,000   

June 30, 2018

   $ 34,500,000       $ 7,500,000       $ 42,000,000   

September 30, 2018

   $ 34,500,000