UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

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ENERGY TRANSFER PARTNERS, L.P.

 

 

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Energy Transfer Partners, L.P.
3738 Oak Lawn Ave.
Dallas, Texas 75219

 

November 21, 2008

 

To our common unitholders:

 

You are cordially invited to attend a special meeting of the common unitholders of Energy Transfer Partners, L.P. (the “Partnership”) to be held at The Warwick Melrose Hotel, 3015 Oak Lawn Ave., Dallas, Texas 75219 on Tuesday, December 16, 2008, at 10:00 a.m., Dallas, Texas time. The board of directors of Energy Transfer Partners, L.L.C. (the “Company”), the general partner of Energy Transfer Partners GP, L.P. (the “General Partner”), our general partner, which we refer to as our board of directors, has called the special meeting. At this important meeting, you will be asked to consider and vote upon a proposal to approve the terms of the Energy Transfer Partners, L.P. 2008 Long-Term Incentive Plan (the “2008 Incentive Plan”), which provides for awards of options to purchase our common units, awards of our restricted units, awards of our phantom units, awards of our common units, awards of distribution equivalent rights, or DERs, awards of common unit appreciation rights, and other unit-based awards to employees of the Partnership, the Company, the General Partner, a subsidiary or their affiliates, and the members of our board of directors (the “2008 Incentive Plan Proposal”).

 

Our board of directors has unanimously approved the 2008 Incentive Plan Proposal and the reservation and issuance from time to time of common units by us under the 2008 Incentive Plan. Our board of directors believes that the 2008 Incentive Plan Proposal is in the best interests of our unitholders and the Partnership and unanimously recommends that the unitholders approve the 2008 Incentive Plan Proposal.

 

Our currently effective incentive plan, the Amended and Restated Energy Transfer Partners, L.P. 2004 Unit Plan (as amended and restated as of June 27, 2007, the “2004 Plan”), permits us to issue a maximum of 1,800,000 of our common units. As of October 15, 2008, awards for 1,456,607 common units had been granted and 343,393 common units remained available for issuance under our 2004 Plan. We expect substantially all of these remaining common units available for grant will be awarded in 2008 and are therefore seeking approval of awards under the new plan to provide for additional common units for future grants to employees of the Partnership, the Company, the General Partner or their affiliates, and the members of our board of directors. A copy of the form of 2008 Incentive Plan is attached to this proxy statement as Exhibit A. The 2004 Plan will continue in effect and will not be affected by the 2008 Incentive Plan.

 

Your vote is very important.  Even if you plan to attend the special meeting, we urge you to mark, sign and date the enclosed proxy card and return it promptly. You will retain the right to revoke it at any time before the vote, or to vote your common units personally if you attend the special meeting. The form of proxy provides unitholders the opportunity to vote on the 2008 Incentive Plan Proposal.

 

The 2008 Incentive Plan Proposal will not be effective unless approved by the unitholders.  A quorum of more than 50% of our outstanding common units present in person or by proxy will permit us to conduct the proposed business at the special meeting. Our partnership agreement does not require that we present the 2008 Incentive Plan Proposal to our unitholders for approval. However, under the rules of the New York Stock Exchange, the 2008 Incentive Plan Proposal requires the approval of a majority of the votes cast by our unitholders, provided that the total votes cast on the proposal represents at least 50% of all common units entitled to vote.

 

I urge you to review carefully the attached proxy statement, which contains a detailed description of the 2008 Incentive Plan Proposal to be voted upon at the special meeting.

 

Sincerely,

 

KELCY L. WARREN

Chief Executive Officer of

Energy Transfer Partners, L.L.C.

on behalf of Energy Transfer Partners, L.P.

 

ENERGY TRANSFER PARTNERS, L.P.
3738 Oak Lawn Ave.
Dallas, Texas 75219

 

NOTICE OF SPECIAL MEETING OF COMMON UNITHOLDERS

To Be Held On December 16, 2008

 

To our common unitholders:

 

A special meeting of our common unitholders will be held at The Warwick Melrose Hotel, 3015 Oak Lawn Avenue, Dallas, Texas 75219 on December 16, 2008, at 10:00 a.m. Dallas, Texas time. At the meeting, our unitholders will act on a proposal (the “2008 Incentive Plan Proposal”) to approve the terms of the Energy Transfer Partners, L.P. 2008 Long-Term Incentive Plan (the “2008 Incentive Plan”), which provides for awards of options to purchase our common units, awards of our restricted units, awards of our phantom units, awards of our common units, awards of distribution equivalent rights, or DERs, awards of common unit appreciation rights, and other unit-based awards to employees of the Partnership, Energy Transfer Partners, L.L.C. (the “Company”), Energy Transfer Partners GP, L.P. (the “General Partner”), a subsidiary or their affiliates, and the members of our board of directors. A copy of the form of 2008 Incentive Plan is attached to this proxy statement as Exhibit A.

 

The form of proxy provides unitholders the opportunity to vote on the 2008 Incentive Plan Proposal. However, the 2008 Incentive Plan Proposal will not be effective unless approved by the unitholders. A quorum of more than 50% of our outstanding common units present in person or by proxy will permit us to conduct the proposed business at the special meeting. Our partnership agreement does not require that we submit the 2008 Incentive Plan Proposal to unitholders for a vote. However, under the rules of the New York Stock Exchange, the 2008 Incentive Plan Proposal requires the approval of a majority of the votes cast by our unitholders, provided that the total votes cast on the proposal represent at least 50% of all common units entitled to vote. We may adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the 2008 Incentive Plan Proposal.

 

We have set the close of business on November 21, 2008 as the record date for determining which common unitholders are entitled to receive notice of and to vote at the special meeting and any postponements or adjournments thereof. A list of common unitholders entitled to vote is on file at our principal offices, 3738 Oak Lawn Avenue, Dallas, Texas 75219, and will be available for inspection by any unitholder during the meeting.

 

Your Vote is Very Important.  If you cannot attend the special meeting, you may vote by mailing the proxy card in the enclosed postage-prepaid envelope. Any common unitholder attending the meeting may vote in person, even though he or she already has returned a proxy card.

 

BY ORDER OF THE BOARD OF DIRECTORS

OF ENERGY TRANSFER PARTNERS, L.L.C.,

the general partner of ENERGY TRANSFER PARTNERS GP, L.P.,

the general partner of ENERGY TRANSFER PARTNERS, L.P.

 

THOMAS P. MASON

Vice President, General Counsel and Secretary

Energy Transfer Partners, L.L.C.

 

Dallas, Texas

November 21, 2008

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THIS PROXY STATEMENT IS DATED NOVEMBER 21, 2008. YOU SHOULD ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF THAT DATE ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF

PROXY MATERIALS FOR THE SPECIAL

MEETING TO BE HELD ON DECEMBER 16, 2008

The Notice of Special Meeting of Common Unitholders and the Proxy Statement for

the Special Meeting of are available at http://www.energytransfer.com.

 

TABLE OF CONTENTS

 

ENERGY TRANSFER PARTNERS, L.P.
3738 Oak Lawn Avenue
Dallas, Texas 75219

 

PROXY STATEMENT

SPECIAL MEETING OF COMMON UNITHOLDERS
DECEMBER 16, 2008

 

This proxy statement contains information related to the special meeting of common unitholders of Energy Transfer Partners, L.P. (the “Partnership”) and any postponements or adjournments thereof. This proxy statement and the accompanying form of proxy are first being mailed to our unitholders on or about November 24, 2008.

 

The following is qualified in its entirety by the more detailed information contained in or incorporated by reference in this proxy statement. Common unitholders are urged to read carefully this proxy statement in its entirety. FOR ADDITIONAL COPIES OF THIS PROXY STATEMENT OR PROXY CARDS, OR IF YOU HAVE ANY QUESTIONS ABOUT THE SPECIAL MEETING, CONTACT INNISFREE M&A INCORPORATED AT 1-888-750-5834 OR 501 MADISON AVENUE, 20TH FLOOR, NEW YORK, NEW YORK 10022.

 

 

 

 

 

 

 

 

 

 

We are a publicly traded limited partnership that owns and operates a diversified portfolio of energy assets. Our natural gas operations include intrastate natural gas gathering and transportation pipelines, an interstate pipeline, natural gas treating and processing assets located in Texas, New Mexico, Arizona, Louisiana, Colorado and Utah, and three natural gas storage facilities located in Texas. These assets include approximately 14,500 miles of intrastate gas gathering and transportation pipeline in service, with an additional 300 miles of intrastate pipeline under construction. In addition, we own 2,450 miles of interstate pipelines in service, with approximately 250 miles of interstate pipeline under construction. Our intrastate and interstate pipeline systems transport natural gas from several significant natural gas producing areas, including the Barnett Shale in the Fort Worth Basin, the Bossier Sands in east Texas, the Permian Basin in west Texas, the San Juan Basin in New Mexico and other producing areas in south Texas and central Texas. Our gathering and processing operations are conducted in many of these same producing areas as well as in the Piceance and Uinta Basins in Colorado and Utah. We are also one of the three largest retail marketers of propane in the United States, serving more than one million customers across the country.

 

We are a limited partnership formed under the laws of the State of Delaware. Our common units are listed on the NYSE under the ticker symbol “ETP.” Our executive offices are located at 3738 Oak Lawn Avenue, Dallas, Texas 75219. Our telephone number is (214) 981-0700. We maintain a website at http://www.energytransfer.com that provides information about our business and operations.

 

As a limited partnership, we are managed by our general partner, Energy Transfer Partners GP, L.P., which in turn is managed by its general partner, Energy Transfer Partners, L.L.C. Energy Transfer Partners, L.L.C. is ultimately responsible for the business and operations of our general partner and conducts our business and operations, and the board of directors and officers of Energy Transfer Partners, L.L.C. make decisions on our behalf.

 

Adoption of the 2008 Incentive Plan

 

On November 11, 2008, our board of directors, subject to the approval of our unitholders as required under the NYSE’s rules, ratified and approved the 2008 Incentive Plan and authorized us to reserve and issue up to 5,000,000 common units under the 2008 Incentive Plan.

 

Subject to the adjustment provided therein, the remaining number of our common units with respect to which awards may be granted under our 2004 Plan, is approximately 343,393. We expect most, if not all, of the remaining common units to be granted in 2008. Without the approval of the 2008 Incentive Plan, there would be limited common units for future grants to employees of the Partnership, the Company, the General Partner, a subsidiary or their affiliates, and the members of our board of directors. The 2004 Plan will continue in effect and will not be affected by the 2008 Incentive Plan.

 

Advantages of the 2008 Incentive Plan

 

Our general partner believes that the 2008 Incentive Plan is in the best interests of us and our unitholders and should be approved for the following reasons:

 

 

 

 

Disadvantages of the 2008 Incentive Plan

 

Our unitholders will be subject to dilution if additional common units are issued pursuant to the 2008 Incentive Plan.

 

Description of the 2008 Incentive Plan

 

The following is a brief description of the principal features of the 2008 Incentive Plan. A copy of the 2008 Incentive Plan is attached to this proxy statement as Exhibit A, and you should refer to the 2008 Incentive Plan for details regarding the awards that may be made thereunder.

 

Restricted Units.  Restricted common units are common units granted under the 2008 Incentive Plan that are subject to forfeiture provisions and restrictions on transferability during the restricted period established by the Compensation Committee of our board of directors. The 2008 Incentive Plan provides for certain automatic grants of restricted units to the members of our board of directors.

 

Phantom Units.  Phantom common units are notional common units that can be granted under the 2008 Incentive Plan which, upon vesting, would entitle the holders to receive common units or an amount of cash equal to the fair market value of a common unit, as determined by the Compensation Committee in its discretion. Participants who receive phantom common units under the 2008 Incentive Plan will not have voting rights or rights to receive distributions made by us until the phantom common units become vested. However,

as described below, a contingent right to receive an amount of cash equal to any cash distributions made on the underlying common units could also be granted in tandem with the phantom common units.

 

Common Unit Options.  Common unit options are rights to purchase common units at a specified price. Common unit options may have such terms and conditions as our Compensation Committee determines.

 

Distribution Equivalent Rights.  Distribution equivalent rights, or DERs, are rights to receive all or a portion of the distributions otherwise payable on common units during a specified time. DERs may be granted in tandem with a specific phantom unit award.

 

Unit Distribution Rights.  Unit distribution rights, or UDRs, are distributions made by the Partnership with respect to a restricted unit.

 

Common Unit Appreciation Rights.  Common unit appreciation rights, or UARs, are contingent rights to receive the excess of the fair market value of a common unit on the vesting date over the grant price established for such common unit appreciation right. Such excess may be paid in cash and/or in common units as determined by the Compensation Committee in its discretion.

 

Common Unit Awards.  Common unit awards are common units granted under the 2008 Incentive Plan that are not subject to forfeiture provisions.

 

Other Unit-Based Awards.  Other unit-based awards are awards that can be granted under the 2008 Incentive Plan that are denominated or payable in, valued in or otherwise based on or related to common units, in whole or in part. The Compensation Committee determines the terms and conditions of other unit-based awards. Upon vesting, an other unit-based award may be paid in cash, common units (including restricted units) or any combination thereof as provided in the award agreement.

 

Administration.  The 2008 Incentive Plan is governed by the Compensation Committee of our board of directors, whose significant powers include, but are not limited to, (i) designating participants in the plan; (ii) determining the type of equity award and the number of common units to be covered by any equity award; (iii) determining the terms and conditions, including vesting conditions, of any equity award; (iv) determining, whether, to what extent, and under what circumstances participants may settle, exercise, cancel or forfeit any equity award; (v) interpreting and administering the 2008 Incentive Plan and any instrument or agreement relating to an award made thereunder; and (vi) establishing, amending, suspending, or waiving such rules and regulations and appointing such agents as it shall deem appropriate for the proper administration of the 2008 Incentive Plan. Subject to applicable law and any other limitations as the Compensation Committee may impose, the Compensation Committee, in its sole discretion, may delegate its powers and duties under the plan to the Chief Executive Officer of the Company or the General Partner. Notwithstanding the foregoing, the Chief Executive Officer may not grant awards to, or take any action with respect to any award previously granted to, a person who is an officer subject to Rule 16b-3 or any member of our Board of Directors. Subject to adjustment as provided in the plan, the number of common units that may be awarded to participants is 5,000,000. To the extent an award is forfeited or otherwise terminates or is cancelled without delivery of common units, the common units subject to such award shall again become available for grant to the extent of the forfeiture, cancellation or termination. In addition, common units withheld to satisfy tax withholding obligations will not be considered to have been delivered to participants and will again become available for awards. The common units to be delivered pursuant to an award under this plan shall consist of common units newly issued by the Partnership, common units acquired in the open market, from our affiliates or from any other person, or any combination of the foregoing, as determined by the Compensation Committee in its discretion.

 

Eligibility.  Any member of our board of directors or employee of the Partnership, the Company, the General Partner, a subsidiary or any of their affiliates are eligible to be designated as a participant in the plan by the Compensation Committee. Awards under the plan may be granted alone or in addition to, in tandem with, or in substitution for any other award granted under the 2008 Incentive Plan or awards granted under any other plan of the Partnership or any of its affiliates. Awards granted in addition to or in tandem with other option awards under the 2008 Incentive Plan or awards granted under any other plan of the Partnership or any

of its affiliates may be granted either at the same time as or at a different time from the grant of such other awards.

 

Awards.  The exercise price per common unit purchasable under an option or subject to a UAR awarded to participants is determined by the Compensation Committee (at its discretion) at the date of grant and may be no less than the fair market value of the common units subject to the option award or UAR as of the date of grant. The Compensation Committee determines the exercise terms and the restricted period with respect to an option or UAR grant, which may include, without limitation, a provision for accelerated vesting upon death or disability of the participant, the achievement of specified performance goals or such other events as the Compensation Committee may provide, and the method or methods by which any payment of the exercise price with respect to an option may be made or deemed to have been made, which may include cash, withholding units from the award, or cashless-broker transactions or other acceptable forms of payment. Awards may be granted to participants under the 2008 Incentive Plan for such consideration, including services, as the Compensation Committee shall determine. In addition, to the extent provided by the Compensation Committee, any restricted unit award or phantom unit award may include a contingent right to receive an amount in cash equal to any cash distributions made by us with respect to the underlying common units during the period the award is outstanding. Notwithstanding anything in the plan or any award grant agreement to the contrary, delivery of common units pursuant to the exercise or vesting of an award may be deferred for any period during which, in the good faith determination of the Compensation Committee, the Partnership is not reasonably able to obtain common units to deliver pursuant to such award without violating applicable law or NYSE rules. No common units may be delivered pursuant to the 2008 Incentive Plan until we have received full payment of any amount required to be paid pursuant to the plan or pursuant to the award grant agreement.

 

The specific individuals who will be granted awards under the 2008 Incentive Plan and the type and amount of any such awards will be based on the discretion of the Compensation Committee, subject to annual limits on the maximum awards that may be awarded to any individual as described above. Accordingly, future awards to be received by or allocated to particular individuals under the 2008 Incentive Plan are not presently determinable.

 

Amendments.  The 2008 Incentive Plan may be amended or terminated at any time by our board of directors or the Compensation Committee without the consent of any participant or unitholder, including an amendment to increase the number of common units available for awards under the plan; however, under NYSE rules, any material amendment, such as a change in the types of awards available under the plan, would also require the approval of the unitholders.

 

Term.  The 2008 Incentive Plan is effective until the tenth anniversary of the date unitholders approve the 2008 Incentive Plan or, if earlier, at the time that all available common units under the 2008 Incentive Plan have been paid to participants or the time of termination of the plan by our board of directors.

 

Tax Effects of Awards Under the 2008 Incentive Plan

 

No federal income tax is imposed on the optionee upon the grant of an option to purchase common units under the 2008 Incentive Plan. Generally, upon the exercise of such option, the optionee will be treated as receiving compensation taxable as ordinary income in the year of exercise in an amount equal to the excess of the fair market value of the common units on the date of exercise over the option price paid for the common units. Upon the sale of the common units acquired by the exercise of an option, assuming the participant holds the common units as a capital asset, the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after exercising the option and prior to the sale of such common units. The participant’s adjusted tax basis in the common units will be the purchase price plus the amount of ordinary income recognized by the participant at the time of exercise of the option, adjusted for intervening partnership gains, losses and distributions.

 

The recipient of a restricted unit award will not recognize income at the time of the award, assuming the restrictions applicable to such award constitute a substantial risk of forfeiture for federal income tax purposes

and the recipient does not make an election to include the value of the common units in his current income under Section 83(b) of the Internal Revenue Code (an “83(b) election”). If the recipient of a restricted unit award makes an 83(b) election, the recipient will recognize ordinary income equal to the fair market value of the common units on the date the award is granted. If the recipient does not make an 83(b) election with respect to the restricted unit award, then, when the applicable forfeiture restrictions lapse with respect to the award, the recipient will recognize compensation taxable as ordinary income in an amount equal to the fair market value of the common units on the date the forfeiture restrictions lapse. Upon the sale of the common units acquired by the settlement of a restricted unit award, assuming the participant holds the common units as a capital asset, the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after the settlement of the restricted unit award and prior to the sale of such common units. The participant’s adjusted tax basis in the common units will be the amount of ordinary income recognized by the participant at the time of settlement of the restricted unit award, adjusted for intervening partnership gains, losses and distributions.

 

The recipient of a phantom unit award will not recognize income at the time of the award, but, upon the lapse of applicable forfeiture restrictions, will recognize compensation taxable as ordinary income in an amount equal to the fair market value of the underlying common units on the date of payment of the vested phantom unit. In the event that a phantom unit award is settled in common units, then, upon the sale of the common units acquired by the settlement of a phantom unit award, assuming the participant holds the common units as a capital asset, the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after the settlement of the phantom unit award and prior to the sale of such common units. The participant’s adjusted tax basis in the common units will be the amount of ordinary income recognized by the participant at the time of payment of the vested phantom unit award, adjusted for intervening partnership gains, losses and distributions.

 

The recipient of a common unit appreciation right award will not recognize income at the time of the award, but, upon the exercise of the common unit appreciation right, will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the underlying common units at the date of exercise over the purchase price for such common unit appreciation right. In the event that a common unit appreciation right award is settled in common units, then, upon the sale of the common units acquired by the exercise of a common unit appreciation right award, assuming the participant holds the common units as a capital asset, the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after the settlement of the common unit appreciation right award and prior to the sale of such common units. The participant’s adjusted tax basis in the common units will be the purchase price plus the amount of ordinary income recognized by the participant at the time of exercise of the common unit appreciation right, adjusted for intervening partnership gains, losses and distributions.

 

The recipient of a common unit award will recognize income at the time of the award in an amount equal to the fair market value of the common units on the date of grant. Upon the sale of the common units acquired by the grant of the common unit award, assuming the participant holds the common units as a capital asset, the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after receiving the common unit award and prior to the sale of such common units. The participant’s adjusted tax basis in the common units is the amount of ordinary income recognized by the participant at the date of grant, adjusted for intervening partnership gains, losses and distributions.

 

The recipient of any other unit-based award will not recognize income at the time of the award, but, upon the lapse of applicable forfeiture restrictions, will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the underlying common units on the date the forfeiture restrictions lapse over the purchase price for such other unit-based award, if any. In the event that an other unit-based award is settled in common units, then, upon the sale of the common units acquired by the settlement of an other unit-based award, assuming the participant holds the common units as a capital asset,

the participant generally will have capital gain or loss, which may which may be short- or long-term capital gain or loss depending upon the length of time during which the participant held the common units after the settlement of the other unit-based award and prior to the sale of such common units. The participant’s adjusted tax basis in the common units will be the purchase price, if any, plus the amount of ordinary income recognized by the participant at the time of settlement of the other unit-based award, adjusted for intervening partnership gains, losses and distributions.

 

Since our partnership is not a taxable entity, all direct payments made by us to participants and reimbursements made by us to the Company with respect to awards under the 2008 Incentive Plan are treated as deductions that are allocated among the partners of our partnership in accordance with the partnership agreement.

 

Effect of American Jobs Protection Act of 2004

 

On October 22, 2004, the American Jobs Creation Act of 2004 (H.R. 4520) added a new Section 409A to the Internal Revenue Code. Section 409A will generally provide that any deferred compensation arrangement which does not meet specific requirements regarding (i) timing of payouts, (ii) advance election of deferrals and (iii) restrictions on acceleration of payouts will result in immediate taxation of any amounts deferred to the extent not subject to a substantial risk of forfeiture. In addition, tax on the amounts included in income as a result of not complying with the new Section 409A will be increased by an interest component as specified by statute, and the amount included in income will also be subject to an additional 20% tax. In general, to avoid a Section 409A violation, amounts deferred may only be paid out on separation from service, disability, death, a specified time, a change in control (as defined by the Treasury department) or an unforeseen emergency. Furthermore, the election to defer generally must be made in the calendar year prior to performance of services, and any provision for accelerated payout other than for reasons specified by the Treasury may cause the amounts deferred to be subject to early taxation and to the imposition of the additional 20% tax.

 

Section 409A will be broadly applicable to any form of deferred compensation other than tax-qualified retirement plans and bona fide vacation, sick leave, compensatory time, disability pay or death benefits, and may apply to certain awards under the 2008 Incentive Plan. For example, phantom common units, common unit appreciation rights and common unit options may be classified as deferred compensation for this purpose.

 

New Plan Benefits

 

No common units have been issued through the date of this proxy statement under the 2008 Incentive Plan. The number of such common units to be issued under the 2008 Incentive Plan to the individuals or groups of individuals eligible to receive awards under the 2008 Incentive Plan, and the net values to be realized upon such issuances, are not determinable.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL

 

Employees of the Partnership, the Company, the General Partner, a subsidiary or any of their affiliates, and the members of our board of directors will be eligible to receive awards under the 2008 Incentive Plan if it is approved. Accordingly, the members of our board of directors and the executive officers of the Company have a substantial interest in the passage of the 2008 Incentive Plan Proposal.

 

Equity Compensation Plan Information

 

At the time of our initial public offering, the equity owners of our General Partner adopted a Restricted Unit Plan, amended and restated as of February 4, 2002 as the Partnership’s Second Amended and Restated Restricted Unit Plan (the “Restricted Unit Plan”), which provided for the awarding of common units to key employees. At the June 23, 2004 special meeting of our common unitholders, common unitholders approved our 2004 Plan, which provides for awards of common units and other rights to our employees, officers and directors and the Restricted Unit Plan was terminated except for our future obligation to issue common units that have not previously vested.

 

The following table sets forth in tabular format, a summary of our equity plan information as of October 1, 2008:

 

 

 

 

The following table sets forth certain information as of October 1, 2008, regarding the beneficial ownership of our securities by certain beneficial owners, all directors and named executive officers of the General Partner of our General Partner, each of the named executive officers and all directors and named executive officers of the General Partner of our General Partner as a group, of our Common Units and Class E Units. The General Partner knows of no other person not disclosed herein who beneficially owns more than 5% of our Common Units.

 

Energy Transfer Partners, L.P. Units

 

 

 

 

 

 

Overview

 

As a limited partnership, we are managed by our general partner, Energy Transfer Partners GP, L.P. (“ETP GP”), which in turn is managed by its general partner, Energy Transfer Partners, L.L.C., which we refer to herein as “our General Partner”. Energy Transfer Equity, L.P. (“ETE”), a publicly-traded limited partnership, currently owns 100% of our General Partner and approximately 41% of our outstanding units. All of our employees are employed by and receive employee benefits from our subsidiary operating partnerships.

 

Compensation Discussion and Analysis

 

Named Executive Officers

 

We do not have officers or directors. Instead, we are managed by the board of directors of our General Partner, and the executive officers of our General Partner perform all of our management functions. As a result, the executive officers of our General Partner are essentially our executive officers, and their compensation is administered by our General Partner. This Compensation Discussion and Analysis is, therefore, focused on the total compensation of the executive officers of our General Partner as set forth below. The executive officers we refer to in this discussion as our “named executive officers” are the following officers of our General Partner:

 

 

In addition, the following individuals were “named executive officers” for the year ended August 31, 2007 but were no longer executive officers as of September 30, 2008:

 

 

In addition to the named executive officers identified above, the following individuals were executive officers of our General Partner during the year ended August 31, 2007 but were no longer executive officers as of August 31, 2007:

 

 

Our General Partner’s Philosophy for Compensation of Executives

 

In general, our General Partner’s philosophy for executive compensation is based on the premise that a significant portion of the executive’s compensation should be incentive-based and that the base salary levels should be competitive in the marketplace for executive talent and abilities. Our General Partner also believes the incentives should be competitive in the market place and balanced between short and long-term performance. Our General Partner believes this balance is achieved by the payment of annual cash bonuses based on the achievement of financial performance objectives for a fiscal year set at the beginning of such fiscal year, and the annual grant of restricted unit awards under our 2004 Plan which is intended to provide a longer term incentive to our key employees to focus their efforts to increase the market price of our publicly traded units and to increase the cash distribution we pay to our Unitholders. Under the 2004 Plan, we have generally issued restricted unit awards that vest over a three-year period based on the achievement of annual performance objectives relating to the total return of our units (defined as the appreciation in market price for our units plus total amount of cash distributions for our fiscal year) as compared to the total return of a peer group of other publicly traded limited partnerships determined by the compensation committee of our General Partner (“Compensation Committee”). Our General Partner believes that these incentive arrangements are

important in attracting and retaining our executives and key employees as well as motivating these individuals to achieve our business objectives. The incentive-based compensation also reflects the importance of aligning the interests of the executive officers with those of our Unitholders.

 

While we are responsible for the direct payment of the compensation of our named executive officers as employees of us, we do not participate or have any input in any decisions as to the compensation policies of our General Partner or the compensation levels of the executive officers of our General Partner. As discussed below, we do not have a compensation committee. The compensation committee of the board of directors of our General Partner (the “Compensation Committee”) is responsible for the approval of the compensation policies and the compensation levels of these executive officers. We directly incur the payment to these executive officers in lieu of receiving an allocation of overhead related to executive compensation from our General Partner. For the year ended August 31, 2007, we paid 100% of the compensation of the executive officers of our General Partner as we represent the only business managed by our General Partner.

 

Our General Partner is ultimately controlled by the general partner of Energy Transfer Equity, L.P., which general partner entity is partially-owned by certain of our current and prior named executive officers. We pay quarterly distributions to our General Partner in accordance with our partnership agreement with respect to its ownership of a 2% general partner interest and the incentive distribution rights specified in our partnership agreement. The amount of each quarterly distribution that we must pay to our General Partner is based solely on the provisions of our partnership agreement, which agreement specifies the amount of cash we distribute to our General Partner based on the amount of cash that we distribute to our limited partners each quarter. Accordingly, the cash distributions we make to our General Partner bear no relationship to the level or components of compensation of our General Partner’s executive officers. Our General Partner’s distribution rights are described in detail in Note 6 to our consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended August 31, 2007. Our named executive officers also own directly and indirectly certain of our limited partner interests and, accordingly, receive quarterly distributions. Such per unit distributions equal the per unit distributions made to all our limited partners and bear no relationship to the level of compensation of the named executive officers.

 

Compensation Committee

 

We are a limited partnership and our units are listed on the New York Stock Exchange, or NYSE. Although the rules of the NYSE do not require publicly traded limited partnerships to have a compensation committee, the board of directors of our General Partner has established a Compensation Committee that is composed of three directors of our General Partner. The members of the Compensation Committee are Mr. Michael K. Grimm, Mr. Bill W. Byrne and Mr. Ray C. Davis. Our General Partner has determined that Messrs. Grimm and Byrne are “independent” (as that term is defined in the applicable NYSE rules and Rule 10A-3 of the Exchange Act).

 

The Compensation Committee’s responsibilities include, among other duties, the following:

 

 

 

Compensation Philosophy

 

Our compensation program is structured to provide the following benefits:

 

 

Methodology

 

The 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 our executive officers. The Compensation Committee also considers individual performance, levels of responsibility, skills and experience.

 

Components of Executive Compensation

 

For the year ended August 31, 2007, the compensation paid to our named executive officers consisted of the following components:

 

 

Base Salary.  As discussed above, the base salaries of our named executive officers for the fiscal year ended August 31, 2007 were determined by the board of directors of our General Partner based on recommendations from the Compensation Committee which took into account the recommendations of Mr. Warren and Mr. Davis, the then-current Co-Chief Executive Officers of our General Partner. For fiscal year 2008, the Compensation Committee has engaged a consultant to assist in the determination of compensation levels.

 

Annual Bonus.  In addition to base salary, we award our named executive officers discretionary annual cash bonuses that are paid in a lump sum following the end of the fiscal year. The annual bonuses are awarded based upon our achievement of financial performance objectives during the year for which the bonuses are awarded and in part upon the contribution of each individual to our profitability and success during the year for which the bonuses are awarded. The Compensation Committee considers the recommendation of management in determining the financial performance objectives for a particular fiscal year and the aggregate amount of cash bonuses to be paid to the executives and key employees based on satisfying these performance objectives at specified levels. The CEO makes the determinations, based on recommendations from other executives and key employees in charge of specific business units, as to the specific bonus amounts for each participant in this bonus plan. The Compensation Committee alone determines the annual cash bonus amounts

for our Chief Executive Officer and our other named executive officers except for those executives who participate in the annual bonus plan (specifically, Mackie McCrea and R.C. Mills).

 

Equity Awards.  Our 2004 Plan authorizes the Compensation Committee, in its discretion, to grant awards of restricted units, unit options and other rights related to our units at such times and upon such terms and conditions as it may determine in accordance with the 2004 Plan. The Compensation Committee determined and/or approved the number of unit grants awarded to our named executive officers and also the vesting structure of those unit awards under our 2004 Plan. A description of the unit awards and related vesting structure is contained in the Unit Awards Table below. To date, the only awards under the 2004 Plan have consisted of restricted unit awards. All of the awards of restricted units granted to the named executive officers under our 2004 Plan have required the achievement of performance objectives such that up to one-third of the total number of units subject to an award will vest each year based on the level of achievement of the performance objectives for such year, with 100% of such one-third vesting if the total return for our units for such year is in the top quartile as compared to a peer group of energy-related publicly traded limited partnerships determined by the Compensation Committee, 65% of such one-third vesting if the total return of our units for such year is in the second quartile as compared to such peer group companies, and 25% of such one-third vesting if the total return of our units for such year is in the third quartile as compared to such peer group companies. Total return is defined as the sum of the per unit price appreciation in the market price of our units for the year plus the aggregate per unit cash distributions received for the year. For fiscal 2007, the peer group used to make the total return comparison consisted of Suburban Propane Partners L.P., Plains All-American Pipeline L.P., NuStar Energy L.P., Sunoco Logistics Partners L.P., Magellan Midstream Partners L.P., AmeriGas Partners L.P., ONEOK Partners L.P., Buckeye Partners L.P., Kinder Morgan Energy Partners L.P., Enterprise Product Partners L.P., Teppco Partners L.P., Enbridge Energy Partners L.P. and Ferrellgas Partners L.P. No distributions are made on the unit awards prior to vesting. The vesting of these awards is also subject to continued employment with us or our General Partner as of the end of each applicable year. Each of Messrs. Warren, McCrea, Mills, Davis and Krimbill have received unit awards under the 2004 Plan, a portion of which vested during our 2007 fiscal year.

 

On October 2, 2007 the Compensation Committee of our General Partner determined that based on our performance for the year ended August 31, 2007, of the employee awards scheduled to vest on September 1, 2007, 25% of the awards vested and 75% of the awards were forfeited. The Compensation Committee of our General Partner also approved a special one-time grant of the number of awards that were forfeited. Such awards are not subject to performance objectives but are subject only to continued employment with us through the first anniversary of the grant date of October 2, 2007. These Compensation Committee actions affected all employee awards, including awards granted to executive officers.

 

The issuance of Common Units pursuant to the 2004 Plan 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.

 

Compensation expense is measured as the grant date market value of our units, reduced by the present value of the distributions that will not be received during the vesting period. We assumed a weighted average risk-free interest rate of 4.45%, for the year ended August 31, 2007 in estimating the present value of the future cash flows of the distributions during the vesting period on the measurement date of each employee grant. For the employee awards outstanding during the year ended August 31, 2007, the grant-date average per unit cash distributions were estimated to be $5.50. Upon vesting, ETP Common Units are issued.

 

The unit awards under our 2004 Plan generally require the continued employment of the recipient during the vesting period. The Compensation Committee has in the past and may in the future, but is not required to, accelerate the vesting of unvested unit awards in the event of the termination or retirement of an executive officer. During the year ended August 31, 2007, the Compensation Committee did not accelerate the vesting of any unvested unit awards under the 2004 Plan granted to Mr. Davis at the time of his retirement as Co-Chief Executive Officer of our General Partner.

 

Affiliate Equity Awards.  During our year ended August 31, 2007, certain of our named executive officers received an award from a partnership, the general partner of which is owned and controlled by the President

of the general partner of ETE, which awards granted these named executive officers certain rights related to units of ETE previously issued by ETE to the President of the general partner of ETE. These rights include the economic benefits of ownership of these units based on a 5-year vesting schedule whereby the recipient will vest in the units at a rate of 20% per year. These awards were, and any future awards will be, made at the discretion of the President of the general partner of ETE and we have no input in any such decision. Neither we nor ETE pay any of the costs related to such awards. Based on generally accepted accounting principles covering related party transactions and unit-based compensation arrangements, we are recognizing non-cash compensation expense over the vesting period based on the grant date per unit market value of the ETE units awarded the ETP employees assuming no forfeitures. Awards granted for the year ended August 31, 2007 result in a total non-cash compensation expense of approximately $23.5 million to be recognized over the related vesting period. As these units were outstanding prior to these awards, the awards do not represent an increase in the number of outstanding units of either ETP or ETE and are not dilutive to cash distributions per unit with respect to either ETP or ETE. The recipients of the awards and the amount of non-cash compensation expense recognized during fiscal year 2007 and to be recognized in future periods related to these awards are as follows:

 

 

Qualified Retirement Plan Benefits.  We have established a defined contribution 401(k) plan which covers substantially all of our employees including our named executive officers. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). Employees who have completed one hour of service and have attained 21 years of age are eligible to participate. Employees may elect to defer up to 100% of defined eligible compensation after applicable taxes, as limited under the Code. We may contribute to the plan on behalf of our employees under a discretionary matching or a discretionary profit sharing arrangement, both of which are based on a percentage of compensation. Employee salary deferrals are always 100% vested. Employer contributions vest upon completion of one year of service. For the year ended August 31, 2007, the Compensation Committee approved an employer matching contribution of up to six percent.

 

Health and Welfare Benefits.  All full-time employees, including our executive officers, may participate in our health and welfare benefit programs including medical coverage and disability insurance.

 

Termination Benefits.  Our 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 our General Partner. Our 2004 Plan provides for immediate vesting of all unvested unit awards in the event of a change in control. A change of control as defined under our 2004 Plan means any of (i) the date on which Energy Transfer Partners GP, L.P. ceases to be the general partner of the Partnership; (ii) the date that ETE ceases to own, directly or indirectly through wholly-owned subsidiaries, in the aggregate at least 51% of the capital stock or equity interests of Energy Transfer Partners GP, L.P.; (iii) the sale of all or substantially all of ETP’s assets (other than to any Affiliate of ETE); or (iv) a liquidation or dissolution of ETP. No such accelerated vesting occurred during fiscal year 2007.

 

Deferred Compensation Arrangements.  We do not have any deferred compensation arrangements or defined benefit pension plans or other post retirement benefits for our named executive officers. Our named executive officers also do not receive any payments that would represent a perquisite.

Director Compensation

 

The Compensation Committee periodically reviews and makes recommendations regarding the compensation of the directors of our General Partner. On October 17, 2006, the Compensation Committee recommended, following its receipt and review of an independent third-party compensation study, and the Board of Directors approved, an amendment to the 2004 Plan to provide that annual grants of ETP Common Units to non-employee directors of our General Partner will be equal to $25,000 divided by the fair market value of Common Units on that date. All other annual director’s grants will be measured at September 1 of each year.

 

Tax and Accounting Implications of Equity-Based Compensation Arrangements

 

Deductibility of Executive Compensation

 

We are a limited partnership and not a corporation for U.S. federal income tax purposes. Therefore, we believe that the compensation paid to the named executive officers is generally fully deductible for federal income tax purposes.

 

Accounting for Unit-Based Compensation

 

We account for our unit-based compensation arrangements, including equity-based awards issued to certain of our named executive officers by an affiliate (as discussed above), in accordance with the requirements of SFAS No. 123R over the vesting period of the awards, as discussed further in Note 6 to our consolidated financial statements included in our annual report on Form 10-K for the year ended August 31, 2007.

 

Changes to Our Executive Compensation Program for Fiscal Year 2008

 

In November 2007, our board of directors approved an amendment to our partnership agreement which changed our fiscal year from a year ending on August 31 to a year ending on December 31. Our overall executive compensation philosophy has remained unchanged for fiscal year 2008, however, certain changes have been made to our executive compensation program since the end of fiscal year 2007. These changes include adjustments to the base salaries of certain of our named executive officers and the adoption of a new midstream cash bonus plan. We also paid cash bonuses and granted unit awards to certain of our named executive officers in fiscal year 2008 for their service in fiscal year 2007, as contemplated by our existing executive compensation philosophy. In addition, we have experienced changes in personnel at the executive management level during fiscal year 2008. The compensation arrangements for these new executives are described below.

 

Cash Bonuses for Fiscal Year 2007

 

As we previously reported, on December 1, 2007, the Compensation Committee determined the amount of discretionary bonuses to be paid to five of our named executive officers relating to fiscal year 2007. The payment of annual cash bonuses is based on the achievement of financial performance objectives for a fiscal

year set at the beginning of such fiscal year. The following table provides information reflecting these bonus amounts.

 

 

 

 

Equity Awards for Fiscal Year 2007

 

On December 5, 2007, based on our performance for fiscal year 2007, the Compensation Committee granted the unit awards reflected in the table below to certain named executive officers. These unit awards are

subject to vesting at 20% of the aggregate number of units on each anniversary of the grant date, based on continued employment with us on each such anniversary date.

 

 

 

 

Base Salaries for Fiscal Year 2008

 

For fiscal year 2008, the Compensation Committee made the following adjustments to the base salaries of the following named executive officers for fiscal year 2008:

 

 

 

 

Midstream Bonus Plan

 

On February 27, 2008, we adopted the Energy Transfer Partners, L.P. Midstream Bonus Plan (the “Midstream Bonus Plan”). This plan provides for annual cash awards to eligible employees based on achievement of certain pre-established performance goals during a specified performance period (generally a one-year period commencing on January 1 and concluding on December 31). Eligible employees include the salaried employees of our midstream business segment. Currently, Mr. McCrea, our President and Chief Operating Officer, is the only named executive officer that participates in the Midstream Bonus Plan. The Midstream Bonus Plan is administered by the Compensation Committee. Bonus amounts to be paid pursuant to the Midstream Bonus Plan for fiscal year 2008 have not yet been determined.

Changes in Management

 

On May 1, 2008, R.C. Mills retired as president of our propane division. As a result of Mr. Mills’ retirement, William G. (Bill) Powers was appointed to succeed Mr. Mills as president of the propane division, effective May 1, 2008. For fiscal year 2008, Mr. Powers will receive an annual salary of $400,000 and a unit award under the 2004 Plan of 20,000 restricted common units, which will vest in 20% increments each year over the next five years based on his continued employment with us.

 

On June 16, 2008, Brian J. Jennings resigned as Chief Financial Officer. Martin Salinas was appointed as our new Chief Financial Officer, effective June 16, 2008. For fiscal year 2008, Mr. Salinas will receive an annual base salary of $350,000 and will be eligible for a discretionary cash bonus of between 125% and 150% of his base salary. He also received a one-time cash bonus of $14,500. Mr. Salinas continues to be eligible to participate in the 2004 Plan and our other benefit plans on terms consistent with those applicable to our other executive officers.

 

In addition, pursuant to an equity award agreement between Mr. Salinas and us dated July 22, 2008, Mr. Salinas received 240,000 restricted common units representing limited partner interests of Energy Transfer Equity, L.P. (“ETE”). The ETE common units are subject to vesting at 20% of the aggregate number of ETE common units on each anniversary of July 1, 2008, based on Mr. Salinas’ continued employment with us on each such anniversary date. The unvested portion of the equity award will become 100% vested upon a change of control of us. The agreement also provides that we are obligated to make cash payments to Mr. Salinas in the same amounts and at the same times as the cash distributions ETE makes on a number of ETE common units equal to the unvested portion of Mr. Salinas’ equity award. A partnership controlled by John W. McReynolds, the President of ETE, has entered into an agreement with us pursuant to which this partnership has agreed to satisfy our obligations under the equity award agreement between us and Mr. Salinas.

 

On June 16, 2008, Mackie McCrea was named President and Chief Operating Officer. Mr. McCrea had previously served as our President of the Midstream Operations. His compensation arrangement did not change except as described under “— Base Salaries for Fiscal Year 2008.”

 

Report of Compensation Committee

 

The compensation committee of the board of directors of our General Partner has reviewed and discussed the section entitled “Compensation Discussion and Analysis” with the management of Energy Transfer Partners, L.P. Based on this review and discussion, we have recommended to the board of directors of our General Partner that the Compensation Discussion and Analysis be included in this proxy statement.

 

The Compensation Committee of the Board of Directors

of Energy Transfer Partners, L.L.C., the general partner

of the Energy Transfer Partners GP, L.P., the general

partner of Energy Transfer Partners, L.P.

 

Michael K. Grimm

Bill W. Byrne

Ray C. Davis

 

The foregoing report shall not be deemed to be incorporated by reference by any general statement or reference to this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts.

FISCAL YEAR 2007 SUMMARY COMPENSATION TABLE

 

 

 

 

 

FISCAL YEAR 2007 ALL OTHER COMPENSATION TABLE

 

 

 

FISCAL YEAR 2007 GRANTS OF PLAN-BASED AWARDS TABLE

 

 

 

 

The amounts above do not include the equity awards granted to certain of ETP’s named executive officers in equity of ETE held by a partnership controlled by Mr. McReynolds. These awards are not plan-based awards, and the final decision on such awards is in the sole discretion of Mr. McReynolds. The amount of compensation expense recognized during fiscal year 2007 and to be recognized in future periods for such awards is detailed above by individual recipient.

FISCAL YEAR 2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

 

 

 

 

FISCAL YEAR 2007 OPTION EXERCISES AND UNITS VESTED TABLE