Note 5. Equity-based Awards

An allocated portion of the fair value of EPCO's equity-based awards is charged to us under the ASA. The following table summarizes the expense we recognized in connection with equity-based awards for the periods presented:

	For Year Ended December 31,
	2011		2010		2009
Restricted common unit awards (1)	$	47.5	$	31.5	$	13.6
Unit option awards		3.1		3.4		2.0
Other (2)		0.3		35.5		9.4
Total compensation expense	$	50.9	$	70.4	$	25.0

(1) The increase in expense for restricted unit awards between periods is primarily due to a change in vesting provisions beginning with restricted common unit awards granted in 2010 (see below). (2) Primarily consists of unit appreciation rights (“UARs”), phantom units and similar awards. Also, the amounts presented for 2010 and 2009 include compensation expense for awards related to limited partnership interests in the Employee Partnerships, which were liquidated in August 2010.

The fair value of equity-classified awards (e.g., restricted common unit and unit option awards) is amortized to earnings over the requisite service or vesting period. Compensation expense for liability-classified awards (e.g., UARs and phantom units) is recognized over the requisite service or vesting period based on the fair value of the award remeasured at each reporting period. Liability-classified awards are settled in cash upon vesting.

At December 31, 2011, EPCO's significant long-term incentive plans applicable to us were the Enterprise Products 1998 Long-Term Incentive Plan (“1998 Plan”) and the Amended and Restated 2008 Enterprise Products Long-Term Incentive Plan (“2008 Plan”). In addition, there were unvested awards outstanding under an inactive plan, the Enterprise Products 2006 TPP Long-Term Incentive Plan (“2006 Plan”).

The 1998 Plan provides for awards of our common units and other rights to our non-employee directors and to employees of EPCO and its affiliates providing services to us. Awards under the 1998 Plan may be granted in the form of unit options, restricted common units, phantom units and distribution equivalent rights (“DERs”). Up to 7,000,000 of our common units may be issued as awards under the 1998 Plan. After giving effect to awards granted under the plan through December 31, 2011, a total of 1,484,801 additional common units could be issued.

The 2008 Plan provides for awards of our common units and other rights to our non-employee directors and to consultants and employees of EPCO and its affiliates providing services to us. Awards under the 2008 Plan may be granted in the form of unit options, restricted common units, phantom units, UARs and DERs. Up to 10,000,000 of our common units may be issued as awards under the 2008 Plan. After giving effect to awards granted under the plan through December 31, 2011, a total of 4,760,524 additional common units could be issued.

The 2006 Plan provided for awards of our common units (formerly of TEPPCO units) and other rights to our non-employee directors and to employees of EPCO and its affiliates providing services to us. Awards under the 2006 Plan were granted in the form of unit options, restricted common units, phantom units, UARs and DERs. Effective upon the consummation of the TEPPCO Merger (see Note 1), we assumed the vested and unvested options, restricted common units and UARs outstanding on October 26, 2009 under the 2006 Plan and converted them into our options, restricted common units and UARs based on the TEPPCO Merger exchange ratio. The vesting terms of each award and other provisions of the plan remain unchanged.

In connection with the Duncan Merger, the 2010 Duncan Energy Partners L.P. Long-Term Incentive Plan (“2010 Plan”) was terminated. The 2010 Plan provided for awards to employees, directors or consultants providing services to Duncan Energy Partners. Awards under the 2010 Plan were granted in the form of restricted common units. There were no awards outstanding under the 2010 Plan at September 6, 2011 (i.e., immediately prior to the Duncan Merger). See Note 1 for information regarding the Duncan Merger.

Restricted Common Unit Awards

Restricted common unit awards allow recipients to acquire our common units (at no cost to the recipient apart from service or other conditions) once a defined vesting period expires, subject to customary forfeiture provisions. For awards granted prior to 2010, the restrictions on such awards generally lapse four years from the date of grant. Beginning in 2010, new restricted common unit awards generally vest at a rate of 25% per year beginning one year after the grant date. As used in the context of EPCO's long-term incentive plans, the term “restricted common unit” represents a time-vested unit. Such awards are non-vested until the required service period expires. Restricted common units are included in the number of common units presented on our Consolidated Balance Sheets.

The fair value of a restricted common unit award is based on the market price per unit of the underlying security on the date of grant. Compensation expense is recognized based on the grant date fair value, net of an allowance for estimated forfeitures, over the requisite service or vesting period.

The following table presents information regarding restricted common unit awards for the periods presented:

				Weighted-
				Average Grant
	Number of			Date Fair Value
	Units			per Unit (1)
Enterprise restricted common unit awards:
Restricted common units at December 31, 2008		2,080,600		$	29.09
Granted (2)		1,025,650		$	24.89
Vested		(281,500	)	$	26.70
Forfeited		(411,884	)	$	28.37
Awards assumed in connection with TEPPCO Merger		308,016		$	27.64
Restricted common units at December 31, 2009		2,720,882		$	27.70
Granted (3,5)		1,393,925		$	32.60
Vested (5)		(383,628	)	$	25.51
Forfeited		(169,565	)	$	29.87
Restricted common units at December 31, 2010		3,561,614		$	29.78
Granted (4,6)		1,414,630		$	43.66
Vested (6)		(924,108	)	$	31.54
Forfeited		(183,920	)	$	34.27
Restricted common units at December 31, 2011		3,868,216		$	34.22

Duncan Energy Partners restricted common unit awards:
Restricted common units at December 31, 2009		--		$	--
Granted (5,7)		6,348		$	25.26
Vested (5)		(6,348	)	$	25.26
Restricted common units at December 31, 2010		--		$	--
Granted (6,8)		3,666		$	32.56
Vested (6)		(3,666	)	$	32.56
Restricted common units at September 6, 2011		--		$	--

Holdings restricted common unit awards:
Restricted common units at December 31, 2009		--		$	--
Granted (5,9)		3,424		$	41.47
Vested (5)		(3,424	)	$	41.47
Restricted common units at November 21, 2010		--		$	--

(1) Determined by dividing the aggregate grant date fair value of awards before an allowance for forfeitures by the number of awards issued. With respect to restricted common unit awards assumed in connection with the TEPPCO Merger, the weighted-average grant date fair value per unit was determined by dividing the aggregate grant date fair value of the assumed awards before an allowance for forfeitures by the number of awards assumed. (2) Aggregate grant date fair value of restricted common unit awards issued during 2009 was $25.5 million based on grant date market prices of our common units ranging from $20.08 to $28.73 per unit. An estimated annual forfeiture rate of 4.6% was applied to these awards. (3) Aggregate grant date fair value of restricted common unit awards issued during 2010 was $45.4 million based on grant date market prices of our common units ranging from $32.00 to $43.18 per unit. An estimated annual forfeiture rate of 4.6% was applied to these awards. (4) Aggregate grant date fair value of restricted common unit awards issued during 2011 was $61.8 million based on a grant date market price of our common units ranging from $40.54 to $44.67 per unit. An estimated annual forfeiture rate of 4.6% was applied to these awards. (5) Includes awards granted to the independent directors of the boards of directors of EPGP, DEP GP and Holdings GP as part of their annual compensation for 2010. A total of 6,960, 6,348 and 3,424 restricted common unit awards were issued in February 2010 to the independent directors of EPGP, DEP GP and Holdings GP, respectively, that immediately vested upon issuance. (6) Includes awards granted to the independent directors of the boards of directors of Enterprise GP and DEP GP as part of their annual compensation for 2011. A total of 10,230 and 3,666 restricted common unit awards were issued in February 2011 to the independent directors of Enterprise GP and DEP GP, respectively, that immediately vested upon issuance. (7) Aggregate grant date fair value of restricted common unit awards issued during 2010 denominated in Duncan Energy Partners' common units was $0.2 million based on a grant date market price of Duncan Energy Partners' common units of $25.26 per unit. (8) Aggregate grant date fair value of restricted common unit awards issued during 2011 denominated in Duncan Energy Partners' common units was $0.1 million based on a grant date market price of Duncan Energy Partners' common units of $32.56 per unit. (9) Aggregate grant date fair value of restricted common unit awards issued during 2010 denominated in Holdings' units was $0.1 million based on a grant date market price of Holdings' units of $41.47 per unit.

Typically, each recipient is also entitled to nonforfeitable cash distributions equal to the product of the number of restricted common units outstanding for the participant and the cash distribution per unit paid by the respective issuer. Since these restricted common units are participating securities, such distributions are included in cash distributions paid to partners (post-Holdings Merger) and cash distributions paid to noncontrolling interests (pre-Holdings Merger) as presented on our Statements of Consolidated Cash Flows.

The following table presents supplemental information regarding our restricted common unit awards for the periods presented:

	For Year Ended December 31,
	2011		2010		2009
Cash distributions paid to restricted common unit holders	$	9.6	$	8.0	$	5.2
Total intrinsic value of our restricted common unit awards vesting during year	$	39.1	$	13.9	$	7.8

For the EPCO group of companies, the unrecognized compensation cost associated with restricted common unit awards was an aggregate $49.3 million at December 31, 2011, of which our allocated share of the cost is currently estimated to be $46.7 million. We expect to recognize our share of the unrecognized compensation cost for these awards over a weighted-average period of 1.8 years.

Unit Option Awards

EPCO's long-term incentive plans provide for the issuance of non-qualified incentive options. These unit option awards are denominated in our common units. When issued, the exercise price of each unit option grant may be no less than the market price of our common units on the date of grant. In general, option grants have a vesting period of four years from the date of grant and expire at the end of the calendar year following the year of vesting (e.g., an option vesting on May 29, 2011 will expire on December 31, 2012). However, unit options only become exercisable at certain times (typically the months of February, May, August and November) during the calendar year following the year in which they vest.

The fair value of each unit option is estimated on the date of grant using a Black-Scholes option pricing model, which incorporates various assumptions including expected life of the option, risk-free interest rates, expected distribution yield of our common units, and expected price volatility of our common units. In general, our assumption of expected life of the options represents the period of time that the options are expected to be outstanding based on an analysis of our historical option activity. Our selection of risk-free interest rates is based on published yields for U.S. government securities with terms comparable to the expected life of the option. The expected distribution yield and unit price volatility assumptions are estimated based on several factors, which include an analysis of historical price volatility and distribution yield over a period of time equal to the expected life of the option. Compensation expense recorded in connection with unit options is based on the grant date fair value of such awards, net of an allowance for estimated forfeitures, over the requisite service or vesting period.

The following table presents unit option activity for the periods presented:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Strike Price		Contractual		Intrinsic
	Units			(dollars/unit)		Term (in years)		Value (1)
Unit options at December 31, 2008		2,963,500		$	27.56
Granted (2)		1,460,000		$	23.46
Exercised		(261,000	)	$	19.61
Forfeited		(930,540	)	$	26.69
Awards assumed in connection with TEPPCO Merger		593,960		$	26.12
Unit options at December 31, 2009		3,825,920		$	26.52
Granted (3)		785,000		$	32.26
Exercised		(857,500	)	$	24.98
Unit options at December 31, 2010		3,753,420		$	28.08
Unit options at December 31, 2011 (4)		3,753,420		$	28.08		2.6	$	11.1

Unit options exercisable at:
December 31, 2009		447,500		$	25.09		4.8	$	2.8
December 31, 2010		--		$	--		--	$	--
December 31, 2011 (4)		--		$	--		--	$	--

(1) Aggregate intrinsic value reflects fully vested unit options at the date indicated. (2) Aggregate grant date fair value of these unit options issued during 2009 was $8.1 million based on the following assumptions: (i) a weighted-average grant date market price of our common units of $23.46 per unit; (ii) weighted-average expected life of options of 4.8 years; (iii) weighted-average risk-free interest rate of 2.1%; (iv) weighted-average expected distribution yield on our common units of 9.4% and (v) weighted-average expected unit price volatility on our common units of 57.4%. An estimated annual forfeiture rate of 4.6% was applied to awards granted during 2009. (3) Aggregate grant date fair value of these unit options issued during 2010 was $2.3 million based on the following assumptions: (i) a weighted-average grant date market price of our common units of $32.26 per unit; (ii) weighted-average expected life of options of 4.9 years; (iii) weighted-average risk-free interest rate of 2.5%; (iv) weighted-average expected distribution yield on our common units of 6.9%; and (v) weighted-average expected unit price volatility on our common units of 23.3%. An estimated annual forfeiture rate of 4.6% was applied to awards granted during 2010. (4) At December 31, 2011 and 2010, we were committed to issue 3,753,420 of our common units if all outstanding unit options awarded were exercised. Option awards outstanding at December 31, 2011 include 712,280 awards that vested during 2011 and became exercisable beginning in February 2012. Of the remaining outstanding option awards at December 31, 2011, 736,000, 1,520,140 and 785,000 will vest in 2012, 2013, and 2014, respectively. These unit option awards become exercisable in the calendar year following the year in which they vest.

In order to fund its unit option-related obligations, EPCO may purchase common units at fair value either in the open market or directly from us. When employees exercise unit options, we reimburse EPCO for the cash difference between the strike price paid by the employee and the actual purchase price paid by EPCO for the units issued to the employee.

The following table presents supplemental information regarding our unit options during the periods presented:

	For Year Ended December 31,
	2011		2010		2009
Total intrinsic value of unit option awards exercised during period	$	--	$	10.6	$	2.4
Cash received from EPCO in connection with the exercise of unit option awards	$	--	$	7.2	$	1.7
Unit option-related reimbursements to EPCO	$	--	$	10.6	$	2.4

For the EPCO group of companies, the unrecognized compensation cost associated with unit option awards was an aggregate $3.7 million at December 31, 2011, of which our allocated share of the cost is currently estimated to be $3.3 million. We expect to recognize our share of the unrecognized compensation cost for these awards over a weighted-average period of 1.5 years.

Unit Appreciation Rights

UARs entitle the recipient to receive a cash payment on the vesting date of the award equal to the excess, if any, of the then current fair market value of our common units over the grant date fair value of the award. UARs are accounted for as liability awards. The following tables present information regarding UARs for the periods presented:

	UARs Based on Units of
	TEPPCO			Enterprise			Holdings			Total
UARs at December 31, 2008		431,377			--			180,000			611,377
Settled or forfeited		(166,217	)		(186,614	)		(90,000	)		(442,831	)
Awards assumed by Enterprise in connection with the TEPPCO Merger (based on 1.24:1 merger exchange ratio)		(265,160	)		328,810			--			63,650
UARs at December 31, 2009		--			142,196			90,000			232,196
Settled, forfeited or cancelled (1)		--			(107,092	)		(90,000	)		(197,092	)
Awards assumed by Enterprise in connection with the Holdings Merger (based on 1.5:1 merger exchange ratio) (2)		--			135,000			--			135,000
UARs at December 31, 2010		--			170,104			--			170,104
Vested		--			(17,776	)		--			(17,776	)
Cancelled		--			(45,000	)		--			(45,000	)
UARs at December 31, 2011		--			107,328			--			107,328

(1) Prior to the Holdings Merger, the non-employee directors of DEP GP, the general partner of Duncan Energy Partners, were granted 90,000 UARs denominated in Holdings units in connection with certain letter agreements. The compensation expense and associated liability for these UARs was recognized by Enterprise since it owned DEP GP. At the effective date of the Holdings Merger in November 2010, these UARs were settled and $2.5 million in cash was paid to award recipients. (2) At the effective date of the Holdings Merger, Enterprise assumed 90,000 UARs that had been issued by Holdings GP to its non-employee directors. Since these UARs were denominated in Holdings units, they converted into 135,000 Enterprise UARs based on the 1.5:1 merger exchange ratio.

At December 31, 2011, there were 107,328 UARs outstanding that had been granted under the 2006 Plan. These awards are subject to five-year cliff vesting requirements and are expected to settle in 2012. The grant date fair value with respect to these UARs is based on a unit price of $37.00 for our common units. If the employee resigns prior to vesting, the UARs are forfeited. Compensation expense associated with UARs during the years ended December 31, 2011 and 2010 was a benefit of $0.4 million and an expense of $3.1 million, respectively. Compensation expense associated with UARs was minimal during the year ended December 31, 2009. The accrued liability for UARs at December 31, 2011 and 2010 was $0.5 million and $1.0 million.

Employee Partnerships

EPCO granted its key employees who perform services on behalf of us, EPCO and other affiliated companies, limited partnership interests in the Employee Partnerships, which were privately held affiliates of EPCO. These partnerships were liquidated in August 2010. Prior to liquidation, the limited partnership interests entitled each holder to participate in the expected long-term appreciation in value of the equity securities owned by each Employee Partnership. Each Employee Partnership owned either Enterprise common units or Holdings' units or a combination of both. Equity-based compensation expense for the years ended December 31, 2010 and 2009 includes $31.3 million and $9.2 million, respectively, of expense associated with these limited partnership interests.

We recognized $26.8 million of expense in connection with the liquidation of the Employee Partnerships, of which $21.7 million was attributed to noncontrolling interests. Of this expense amount, $18.9 million was non-cash.

The grant date fair value of each Employee Partnership was based on (i) the estimated value of the assets, as determined using a Black-Scholes option pricing model, forecast to be distributed to the Class B limited partners upon dissolution of the Employee Partnerships plus (ii) the estimated value, based on a discounted cash flow analysis using appropriate discount rates, of the quarterly cash distributions that the Class B limited partners were forecast to receive (if any) over the assumed life of the Employee Partnership.

On an unallocated basis to the EPCO family of companies, the aggregate grant date fair value of the Employee Partnerships was $51.3 million at the time of liquidation, of which $40.4 million was attributable to the estimated value of the assets forecast to be distributed to the Class B limited partners upon dissolution of the Employee Partnerships. The following table presents changes in the aggregate grant date fair value (on an unallocated basis) of the Employee Partnerships for the periods shown:

	For Year Ended December 31,
	2010			2009
Aggregate grant date fair values at beginning of period	$	79.3		$	64.6
Modifications (1)		--			19.5
Other, including forfeiture and regrant activity (2,3)		(28.0	)		(4.8	)
Liquidation of partnerships		(51.3	)		--
Aggregate grant date fair values at end of period	$	--		$	79.3

(1) In December 2009, the expected liquidation date for each Employee Partnership was extended to February 2016. These modifications were intended to align the interests of the Class B partners with the long-term interests of EPCO and other unitholders in the relevant underlying publicly traded partnerships. (2) Amount presented for 2009 primarily reflects adjustments due to the dissolution of TEPPCO Unit L.P. and TEPPCO Unit II L.P. (3) Amount presented for 2010 reflects the decrease in fair value attributable to changes in the service period from February 2016 to August 2010 (the liquidation date) for all of the Employee Partnerships. The reduction is attributable to the cash distributions that the Class B limited partners would not receive from each Employee Partnership as a result of the August 2010 liquidations.

As noted previously, we used a Black-Scholes option pricing model to estimate the grant date fair value of the assets forecast to be distributed to the Class B limited partners upon dissolution of the Employee Partnerships. The following table summarizes the assumptions we used in determining the Black-Scholes values for each Employee Partnership:

Employee Partnership	Expected Life of Award	Risk-Free Interest Rate	Expected Distribution Yield	Expected Unit Price Volatility
EPE Unit I	3 to 6 years	1.2% to 5.0%	3.0% to 6.7%	16.6% to 35.0%
EPE Unit II	4 to 6 years	1.6% to 4.4%	3.8% to 6.4%	18.7% to 31.7%
EPE Unit III	4 to 6 years	1.4% to 4.9%	4.0% to 6.4%	16.6% to 32.2%
Enterprise Unit	4 to 6 years	1.4% to 3.9%	4.5% to 8.4%	15.3% to 31.7%
EPCO Unit	4 to 6 years	1.6% to 2.4%	8.1% to 11.1%	27.0% to 50.0%