424B3
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-227769

 

SPECTRA ENERGY PARTNERS, LP

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

November 9, 2018

To the Unitholders of Spectra Energy Partners, LP:

On August 24, 2018, Spectra Energy Partners, LP, which is referred to as “SEP”, entered into an Agreement and Plan of Merger (which, as may be amended from time to time, is referred to as the “Merger Agreement”), with the general partner of SEP, which is Spectra Energy Partners (DE) GP, LP (the “General Partner”), Enbridge Inc. (“Enbridge”), Enbridge (U.S.) Inc., Autumn Acquisition Sub, LLC (“Merger Sub”) and, solely for the purposes of Article I, Article II and Article XI therein, Enbridge US Holdings Inc., Spectra Energy Corp (“Spectra Energy”), Spectra Energy Capital, LLC, and Spectra Energy Transmission, LLC. The Merger Agreement provides that Merger Sub will be merged with and into SEP, with SEP being the surviving entity and becoming an indirect wholly owned subsidiary of Enbridge (the “Merger”). As a result of the Merger, Enbridge will acquire indirectly all of the outstanding common units representing limited partner interests in SEP (the “SEP common units”) that Enbridge and its subsidiaries do not already own.

A conflicts committee (the “Conflicts Committee”) composed of the independent members of the board of directors of the Spectra Energy Partners GP, LLC (“GP LLC”), the general partner of the General Partner, unanimously determined based upon the facts and circumstances it deemed relevant, reasonable or appropriate that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the holders of the outstanding SEP common units (other than Enbridge and its affiliates) (the “Unaffiliated SEP Unitholders”), and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. This action of the Conflicts Committee constitutes “Special Approval” of the Merger Agreement and the transactions contemplated thereby, including the Merger, under the Third Amended and Restated Agreement of Limited Partnership of SEP, dated as of January 21, 2018 (as may be amended from time to time, the “SEP Partnership Agreement”). The Conflicts Committee recommended that the board of directors of GP LLC (the “GP LLC Board”) approve the Merger Agreement and the transactions contemplated thereby, including the Merger. Based upon the recommendation of the Conflicts Committee, the GP LLC Board unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. The GP LLC Board directed that the Merger Agreement be submitted to the limited partners of SEP for their approval by written consent. The GP LLC Board recommends that the limited partners of SEP approve the Merger Agreement and the Merger.

The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. Pursuant to the terms of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc., a wholly owned subsidiary of Enbridge, which as of November 5, 2018 together beneficially owned 402,989,862 SEP common units representing approximately 83.1% of the outstanding SEP common units, have irrevocably agreed to deliver, or cause to be delivered, a written consent covering all of the SEP common units owned by Enbridge and its subsidiaries, approving the Merger, the Merger Agreement and any other matters necessary for consummation of the Merger and the other transactions contemplated in the Merger Agreement (the “Enbridge Written Consent”), within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units.


Table of Contents

If the Merger is successfully completed, each outstanding SEP common unit not owned by Enbridge or any of its subsidiaries will be converted into the right to receive 1.111 Enbridge common shares, which common shares are referred to as “Enbridge common shares” and such exchange ratio is referred to as the “Exchange Ratio”. Based on the number of Enbridge common shares and SEP common units that are outstanding as of November 5, 2018 (other than any SEP common units owned by Enbridge or its subsidiaries), the number of Enbridge common shares issued in exchange for SEP common units as a result of the proposed Merger would represent approximately 5.0% of the outstanding Enbridge common shares as of November 5, 2018 (or approximately 4.5% if the proposed Merger and the Other Merger Transactions (as defined and described below) were successfully completed, based on the number of Enbridge common shares expected to be issued in the proposed Merger and the Other Merger Transactions in accordance with the respective transaction agreements, as described below, and the number of outstanding Enbridge common shares and outstanding shares or units, as the case may be, of each of SEP, EEP, EEQ and ENF (each of EEP, EEQ and ENF, as defined below), as of November 5, 2018). The actual number of Enbridge common shares issued in the Merger will be determined by multiplying the Exchange Ratio by the number of issued and outstanding SEP common units held by Unaffiliated SEP Unitholders as of the closing date of the Merger. The actual number of Enbridge common shares issued in each of the Other Merger Transactions will be determined by multiplying the applicable exchange ratio by the number of publicly held shares or units of the acquired entity as of the closing date of each such transaction.

The GP LLC Board has set November 5, 2018 as the record date (the “Record Date”) for determining holders of SEP common units entitled to execute and deliver written consents with respect to this consent solicitation/prospectus. If you are a record holder of outstanding SEP common units as of that date, you may complete, date and sign the enclosed written consent and promptly return it to SEP. Please read the section titled “Written Consents of Holders of SEP Common Units” beginning on page 39 of this consent solicitation/prospectus.

On September 18, 2018, Enbridge announced that it also entered into definitive agreements on September 17, 2018 to acquire, in separate combination transactions, all of the outstanding equity securities that Enbridge does not already own of (i) Enbridge Energy Partners, L.P. (“EEP”), (ii) Enbridge Energy Management, L.L.C. (“EEQ”) and (iii) Enbridge Income Fund Holdings Inc. (“ENF”), which transactions are referred to separately as the “EEP merger”, the “EEQ merger” and the “ENF plan of arrangement”, respectively, and collectively as the “Other Merger Transactions”.

EEP and EEQ will each hold a special meeting of its unitholders or shareholders, as the case may be, to obtain their approval of the applicable merger agreement. Completion of the Merger is not contingent on the completion of any of the Other Merger Transactions. On November 8, 2018, Enbridge and ENF completed the previously announced ENF plan of arrangement pursuant to Section 193 of the Business Corporations Act (Alberta).

This consent solicitation/prospectus provides you with detailed information about the Merger Agreement, the proposed Merger, the proposed Other Merger Transactions and related matters. We encourage you to read the entire document carefully. In particular, please read the section titled “Risk Factors” beginning on page 28 of this consent solicitation/prospectus for a discussion of risks relevant to the Merger, Enbridge’s business following the Merger, Enbridge common shares, SEP’s business and SEP common units if the Merger does not occur and material tax consequences of the Merger.

The Enbridge common shares are traded on the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) under the symbol “ENB” and the SEP common units are traded on the NYSE under the symbol “SEP”. The last reported sale price of Enbridge common shares on the NYSE on November 8, 2018, was US$32.90. The last reported sale price of SEP common units on the NYSE on November 8, 2018, was US$36.59.


Table of Contents

On behalf of the GP LLC Board, thank you for your continued support.

 

Sincerely,

LOGO

William T. Yardley

President and Chairman of the Board of Directors
Spectra Energy Partners GP, LLC, as the general partner of Spectra Energy Partners (DE) GP, LP, the general partner of Spectra Energy Partners, LP

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER, THE APPROVAL OF THE MERGER AGREEMENT, THE ISSUANCE OF ENBRIDGE COMMON SHARES IN CONNECTION WITH THE MERGER OR ANY OTHER MERGER TRANSACTIONS DESCRIBED IN THE ACCOMPANYING CONSENT SOLICITATION/PROSPECTUS, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that Enbridge is incorporated under the laws of Canada, that at certain points in time, most of its officers and directors may be residents of Canada, that some of the experts named in the accompanying consent solicitation/prospectus are residents of Canada, and that all or a substantial portion of the assets of Enbridge and said persons are located outside the United States.

The accompanying consent solicitation/prospectus is dated November 9, 2018, and is first being mailed to SEP unitholders on or about November 13, 2018.


Table of Contents

ADDITIONAL INFORMATION

This consent solicitation/prospectus incorporates important business and financial information about Enbridge and SEP from other documents that Enbridge and SEP have filed with the U.S. Securities and Exchange Commission, which is referred to as the “SEC”, and that are contained in or incorporated by reference herein. For a listing of documents incorporated by reference herein, please see the section titled “Where You Can Find More Information” beginning on page 131 of this consent solicitation/prospectus. This information is available for you to review through the SEC’s website at www.sec.gov.

You will also be able to obtain copies of documents filed by Enbridge with the SEC from Enbridge’s website at https://www.enbridge.com/ under the “Investment Center” link and then under the heading “Reports and SEC Filings” or copies of documents filed by SEP with the SEC by accessing SEP’s website at https://www.spectraenergypartners.com/ under the “Investors” link, and then under the heading “Publications & SEC Filings”. The information contained on either of Enbridge’s or SEP’s respective websites is not incorporated into this consent solicitation/prospectus and is not a part of this consent solicitation/prospectus.

You may request copies of this consent solicitation/prospectus and any of the documents incorporated by reference herein or certain other information concerning Enbridge or SEP, without charge, upon written or oral request to the applicable company’s principal executive offices. The respective addresses and telephone numbers of such principal executive offices are listed below.

 

Spectra Energy Partners, LP    Enbridge Inc.

5400 Westheimer Court

Houston, Texas 77056

Attention: Corporate Secretary

Telephone: (713) 627-5400

  

200, 425-1st Street S.W.

Calgary, Alberta T2P 3L8, Canada

Attention: Investor Relations

Telephone: 1-800-481-2804

In addition, you may also obtain additional copies of this consent solicitation/prospectus or the documents incorporated by reference into this consent solicitation/prospectus by contacting SEP’s consent solicitor, D.F. King & Co., Inc., at the address and telephone numbers listed below. You will not be charged for any of these documents that you request.

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers call: (212) 269-5550

All others call toll-free: (888) 777-0320

Email: Enbridge@dfking.com

To obtain timely delivery of these documents prior to the conclusion of the consent process, holders of SEP common units must request the information no later than December 5, 2018. If you request any documents, Enbridge or SEP will mail them to you by first class mail or another equally prompt means within one business day after receipt of your request.

ABOUT THIS CONSENT SOLICITATION/PROSPECTUS

This consent solicitation/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Enbridge (File No. 333-227769), constitutes a prospectus of Enbridge under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the Enbridge common shares to be issued to holders of SEP common units pursuant to the Merger Agreement.

We are responsible for the information contained in, and incorporated by reference into, this consent solicitation/prospectus. We have not authorized anyone to give you any other information, and we take no


Table of Contents

responsibility for any other information that others may give you. You should bear in mind that although the information contained in, or incorporated by reference into, this consent solicitation/prospectus is intended to be accurate as of the date on the front of such documents, such information may also be amended, supplemented or updated by the subsequent filing of additional documents deemed by law to be or otherwise incorporated by reference into this consent solicitation/prospectus. Enbridge’s and SEP’s business, financial condition, results of operations and prospects may have changed since those dates.

This consent solicitation/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 it is unlawful to make any such offer or solicitation in such jurisdiction.

Enbridge and SEP have both contributed to the information contained in this consent solicitation/prospectus. The information concerning Enbridge contained in, or incorporated by reference into, this consent solicitation/prospectus has been provided by Enbridge, and information concerning SEP contained in, or incorporated by reference into, this consent solicitation/prospectus has been provided by SEP.

Unless otherwise specified, currency amounts referenced in this consent solicitation/prospectus are in U.S. dollars.


Table of Contents

CURRENCY EXCHANGE RATE DATA

The following table shows, for the years and dates indicated, certain information regarding the Canadian dollar/U.S. dollar exchange rate. The information is based on the daily exchange rate as reported by the Bank of Canada. Such exchange rate on November 1, 2018 was C$1.3088 = US$1.00.

 

     Period End      Average      Low      High  

Year ended December 31,

(C$ per US$)

           

2017

     1.2545        1.2986        1.2128        1.3743  

2016

     1.3427        1.3248        1.2544        1.4589  

2015

     1.3840        1.2787        1.1728        1.3990  

2014

     1.1601        1.1045        1.0614        1.1643  

2013

     1.0636        1.0299        0.9839        1.0697  

 

     Low      High  

Month ended,

(C$ per US$)

     

November 2018 (through November 1, 2018)

     1.3088        1.3088  

October 2018

     1.2803        1.3142  

September 2018

     1.2905        1.3188  

August 2018

     1.2917        1.3152  

July 2018

     1.3017        1.3255  

June 2018

     1.2913        1.3310  

May 2018

     1.2775        1.3020  

 

Source:

Bank of Canada website. Exchange rates prior to 2017 in the tables above represent daily noon rates. Due to a change in calculation methodology of the rates published by the Bank of Canada, the exchange rates for 2017 onward represent daily average exchange rates.


Table of Contents

FREQUENTLY USED TERMS

This consent solicitation/prospectus generally does not use technical defined terms, but a few frequently used terms may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this consent solicitation/prospectus:

“Canadian Tax Act” refers to the Income Tax Act (Canada), including the regulations promulgated thereunder, as amended from time to time.

“Closing Date” refers to the date on which the Merger is completed.

“Effective Time” refers to the time on the Closing Date at which the Merger becomes effective as specified in the certificate of merger of SEP and Merger Sub to be filed with the Secretary of State of the State of Delaware.

“Enbridge” refers to Enbridge Inc., a Canadian corporation.

“Enbridge shareholders” refers to the holders of Enbridge common shares.

“Exchange Ratio” refers to 1.111 validly issued, fully paid and non-assessable Enbridge common shares for each SEP common unit.

“Excluded Units” refers to any SEP common units owned by Enbridge, Spectra Energy Transmission, LLC, Merger Sub or any other direct or indirect wholly owned subsidiary of Enbridge and SEP common units owned by SEP or the General Partner or any direct or indirect wholly owned subsidiary of SEP, and in each case not held on behalf of third parties.

“General Partner” refers to Spectra Energy Partners (DE) GP, LP, a Delaware limited partnership and the general partner of SEP.

“GP LLC” refers to Spectra Energy Partners GP, LLC, a Delaware limited liability company and the general partner of the General Partner.

“Merger” refers to the proposed merger of Merger Sub with and into SEP, pursuant to which SEP will survive the merger as an indirect wholly owned subsidiary of Enbridge.

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of August 24, 2018, entered into by and among SEP, the General Partner, Enbridge, Enbridge (U.S.) Inc., Merger Sub and, solely for the purposes of Article I, Article II and Article XI therein, Enbridge US Holdings Inc., Spectra Energy, Spectra Energy Capital, LLC, and Spectra Energy Transmission, LLC.

“Merger Consideration” refers to the conversion of each issued and outstanding SEP common unit immediately prior to the Effective Time (other than the Excluded Units) into the right to receive 1.111 validly issued, fully paid and non-assessable Enbridge common shares.

“Merger Sub” refers to Autumn Acquisition Sub, LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of Enbridge.

“Midcoast Transaction” refers to the sale by Enbridge (U.S.) Inc., an indirect subsidiary of Enbridge, of Midcoast Operating, L.P. and its subsidiaries (collectively, “Midcoast”) to AL Midcoast Holdings, LLC for cash proceeds of approximately US$1.1 billion less deposits and other customary closing items, as disclosed in Enbridge’s Current Report on Form 8-K, filed on August 1, 2018.

“Record Date” refers to the close of business in New York, New York on November 5, 2018.


Table of Contents

“SEP” refers to Spectra Energy Partners, LP, a publicly-traded Delaware master limited partnership.

“SEP common units” refers to the common units representing limited partner interests in SEP.

“SEP unitholders” refers to holders of any SEP common unit.

“Treaty” refers to the Canada-United States Income Tax Convention (1980).

“Unaffiliated SEP Unitholders” refers to the holders of SEP common units, other than Enbridge and its affiliates.


Table of Contents

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS

     1  

SUMMARY

     8  

Information about the Companies

     8  

Written Consents of Holders of SEP Common Units

     9  

The Merger and the Merger Agreement

     9  

Merger Consideration

     10  

Recommendation of the GP LLC Board

     10  

Reasons for the Recommendation of the Conflicts Committee

     10  

Opinion of Jefferies, Financial Advisor to the Conflicts Committee

     10  

No Enbridge Shareholder Approval Required

     11  

Conditions to the Completion of the Merger

     11  

Termination

     11  

No Dissenters’ or Appraisal Rights

     11  

Regulatory Approvals

     12  

Litigation Matters

     12  

Security Ownership of Certain Beneficial Owners of SEP

     12  

Interests of Directors and Executive Officers of GP LLC in the Merger

     12  

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

     13  

Material Canadian Federal Income Tax Consequences of the Merger

     14  

Listing of Enbridge Common Shares

     14  

Delisting and Deregistration of the SEP Common Units

     14  

Comparison of Rights of Enbridge Shareholders and SEP Unitholders

     14  

The Other Merger Transactions

     14  

Risk Factors

     15  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENBRIDGE

     16  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SEP

     18  

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

     19  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE AND PER UNIT FINANCIAL INFORMATION

     20  

COMPARATIVE SHARE AND UNIT PRICES; DIVIDENDS AND DISTRIBUTIONS

     22  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     25  

RISK FACTORS

     28  

Risks Relating to the Merger

     28  

Risks Relating to the Enbridge Common Shares

     32  

Tax Risks Relating to the Merger and the Ownership of Enbridge Common Shares Received in the Merger

     35  

Risks Relating to Enbridge’s Business

     36  

Risks Relating to SEP’s Business

     36  

INFORMATION ABOUT THE COMPANIES

     37  

Enbridge Inc.

     37  

Spectra Energy Partners, LP

     37  

Merger Sub

     38  

The Other Merger Transactions

     38  

WRITTEN CONSENTS OF HOLDERS OF SEP COMMON UNITS

     39  

Record Date; SEP Unitholders Entitled to Consent and Consent Required

     39  

Approval of the Merger Agreement and the Transactions Contemplated Thereby, Including the Merger

     39  

Submission of Consents

     39  

Revocation of Consents

     39  

 

-i-


Table of Contents

Solicitation of Consents

     40  

Expenses

     40  

THE MERGER

     41  

Transaction Structure

     41  

Merger Consideration

     41  

Background of the Merger

     41  

Recommendation of the Conflicts Committee

     52  

Recommendation of the GP LLC Board

     52  

Reasons for the Recommendation of the Conflicts Committee

     52  

Opinion of Jefferies, Financial Advisor to the Conflicts Committee

     58  

Unaudited Financial Projections of Enbridge and SEP

     65  

Reasons of the Enbridge Board for the Merger

     68  

Regulatory Approvals

     68  

Litigation Matters

     69  

Interests of Directors and Executive Officers of GP LLC in the Merger

     69  

Indemnification and Insurance

     71  

Listing of Enbridge Common Shares

     71  

Delisting and Deregistration of SEP Common Units

     71  

No Dissenters’ or Appraisal Rights

     71  

Requisite SEP Unitholder Approval

     72  

No Enbridge Shareholder Approval Required

     72  

Accounting Treatment of the Merger

     72  

THE MERGER AGREEMENT

     73  

Explanatory Note Regarding the Merger Agreement

     73  

The Merger

     73  

Closing and Effective Time of the Merger

     73  

Organizational Documents of the Surviving Entity

     74  

Merger Consideration

     74  

Pre-Merger Subscriptions

     74  

United States Federal Income Tax Treatment of the Merger

     75  

Exchange Procedures

     75  

Distributions with Respect to Unsurrendered Certificates

     77  

Termination of the Exchange Fund

     77  

Lost, Stolen or Destroyed Certificates

     77  

Withholding Rights

     77  

Adjustments to Prevent Dilution

     78  

No Dissenters’ Rights

     78  

Termination of SEP Equity Plan

     78  

Representations and Warranties

     78  

Interim Operations

     82  

Consent Solicitation/Prospectus Filing; Information Supplied

     83  

Cooperation; Efforts to Consummate

     84  

Stock Exchange Listing and Delisting

     84  

Expenses

     85  

Indemnification; Directors’ and Officers’ Insurance

     85  

Distributions

     86  

Transaction Litigation

     86  

Voting

     86  

Conflicts Committee

     87  

Performance by General Partner

     87  

Conditions to the Completion of the Merger

     87  

Termination

     89  

Payment of SEP Expenses

     90  

 

-ii-


Table of Contents

Modification or Amendment

     90  

Waiver of Conditions

     90  

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     91  

In General

     91  

Holders Not Resident in Canada

     92  

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

     94  

Certain U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of SEP Common Units

     95  

Certain U.S. Federal Income Tax Consequences of Owning and Disposing of Enbridge Common Shares Received in the Merger

     97  

COMPARISON OF RIGHTS OF ENBRIDGE SHAREHOLDERS AND SEP UNITHOLDERS

     100  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF SEP

     124  

Owners of More than Five Percent of the Outstanding SEP Common Units

     124  

Security Ownership of the Management and Directors of GP LLC

     125  

DESCRIPTION OF ENBRIDGE COMMON SHARES

     126  

NO DISSENTERS’ RIGHTS

     127  

LEGAL MATTERS

     128  

EXPERTS

     129  

Enbridge

     129  

SEP

     129  

ENFORCEMENT OF CIVIL LIABILITIES

     130  

WHERE YOU CAN FIND MORE INFORMATION

     131  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

ANNEX A—MERGER AGREEMENT

     A-1  

ANNEX B—OPINION OF JEFFERIES LLC

     B-1  

 

-iii-


Table of Contents

QUESTIONS AND ANSWERS

The following section provides brief answers to certain questions that you may have regarding the Merger Agreement and the proposed Merger. Please note that this section does not address all issues that may be important to you as a holder of SEP common units. Accordingly, you should carefully read this entire consent solicitation/prospectus, including each of the annexes, and the documents that have been incorporated by reference into this consent solicitation/prospectus. Please read the section titled “Where You Can Find More Information” beginning on page 131.

 

Q:

What is the proposed transaction?

 

A:

Enbridge and SEP have agreed that Enbridge will acquire SEP by merging Merger Sub, a wholly owned subsidiary of Enbridge, with and into SEP, with SEP surviving the Merger as an indirect wholly owned subsidiary of Enbridge, under the terms of the Merger Agreement described in this consent solicitation/prospectus and attached as Annex A to this consent solicitation/prospectus. As a result of the Merger, each issued and outstanding SEP common unit, other than the Excluded Units, will be converted into the right to receive 1.111 Enbridge common shares. The 402,989,862 SEP common units owned by Enbridge and its subsidiaries will remain outstanding and will not be affected by the Merger and no consideration will be delivered in respect thereof.

 

    

The Merger will become effective at the Effective Time.

 

Q:

Why am I receiving these materials?

 

A:

This consent solicitation/prospectus is being provided by the GP LLC Board to holders of SEP common units in connection with the proposed Merger and the issuance of Enbridge common shares in connection therewith.

 

    

The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. If you are a record holder of outstanding SEP common units as of the Record Date, you may complete, date and sign the enclosed written consent and promptly return it to SEP. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units owned by Enbridge and its subsidiaries will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units. This consent solicitation/prospectus contains important information about the Merger Agreement, the Merger and the other actions contemplated thereby, and you should read this consent solicitation/prospectus carefully.

 

Q:

What will happen to SEP as a result of the Merger?

 

A:

If the Merger is successfully completed, Merger Sub will be merged with and into SEP, with SEP being the surviving entity, and SEP will become an indirect wholly owned subsidiary of Enbridge.

 

Q:

What will holders of SEP common units be entitled to receive in the Merger?

 

A:

At the Effective Time, by virtue of the Merger and without any action on the part of the parties or any holder of SEP partnership interests, each SEP common unit issued and outstanding (other than the Excluded Units) will be converted into the right to receive 1.111 Enbridge common shares, which is referred to as the “Merger Consideration”.

 

    

If the Exchange Ratio would result in an SEP unitholder being entitled to receive, after aggregating all fractional units to which such holder would otherwise be entitled to receive in connection with the Merger,

 

1


Table of Contents
  a fraction of an Enbridge common share rounding to three decimal places, such holder will receive a cash payment (without interest, rounded down to the nearest cent) in lieu of such fractional Enbridge common share in an amount equal to the product obtained by multiplying (i) the amount of the fractional share interest in an Enbridge common share to which such holder would be entitled rounding to three decimal places, and (ii) an amount equal to the average of the volume-weighted average price per share of Enbridge common shares on the NYSE (as reported by Bloomberg L.P., or, if not reported therein, in another authoritative source mutually selected by Enbridge and SEP) on the trading day immediately prior to the Effective Time for ten trading days ending on the fifth full business day immediately prior to the Closing Date. For additional information regarding exchange procedures, please read “The Merger Agreement—Exchange Procedures” beginning on page 75.

 

Q:

What will happen to future distributions on my SEP common units?

 

A:

Once the Merger is completed, former SEP unitholders who surrender their SEP common units in accordance with the Merger Agreement will be eligible, in their capacity as Enbridge shareholders, to receive dividends declared by the board of directors of Enbridge (the “Enbridge Board”) on Enbridge common shares, if any, after the Effective Time of the Merger. Enbridge has a sustained track record of declaring dividends on Enbridge common shares continuing through recent periods and has forecasted that it will continue to do so; however, there is no guarantee that the Enbridge Board will, in the future, declare dividends on Enbridge common shares. See the sections titled “Comparative Share and Unit Prices: Dividends and Distributions” beginning on page 22 and “Risk Factors—Risks Relating to the Enbridge Common Shares—Enbridge may not pay any cash dividends to Enbridge shareholders, and Enbridge’s ability to declare and pay cash dividends to Enbridge shareholders, if any, in the future will depend on various factors, many of which are beyond Enbridge’s control.” beginning on page 33.

 

Q:

What SEP unitholder approval is required to approve the Merger Agreement?

 

A:

The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. Pursuant to the terms of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc., which as of November 5, 2018 together beneficially owned 402,989,862 SEP common units representing approximately 83.1% of the outstanding SEP common units, have irrevocably agreed to deliver, or cause to be delivered, the Enbridge Written Consent, within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units. Upon the later of 20 business days after this consent solicitation/prospectus is sent to SEP unitholders and the date on which a sufficient number of consents to approve the Merger Agreement, and the transactions contemplated thereby, have been received, the consent process will conclude.

 

    

ENBRIDGE SHAREHOLDERS ARE NOT BEING ASKED FOR A CONSENT OR PROXY AND ENBRIDGE SHAREHOLDERS ARE REQUESTED NOT TO SEND ENBRIDGE A CONSENT OR PROXY.

 

Q:

When do you expect the Merger to be completed?

 

A:

Enbridge and SEP are working to complete the Merger as soon as possible. A number of conditions must be satisfied before Enbridge and SEP can complete the Merger. For more information about these conditions, please read “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 87. Although Enbridge and SEP cannot be sure when all of the conditions to the Merger will be satisfied, Enbridge and SEP expect to complete the Merger as soon as practicable following the

 

2


Table of Contents
  effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. Assuming timely satisfaction of the necessary closing conditions, Enbridge and SEP currently expect the Closing Date to occur in the fourth quarter of 2018.

 

Q:

Does the GP LLC Board recommend that SEP unitholders approve the Merger Agreement and the Merger?

 

A:

Yes. The GP LLC Board recommends that SEP unitholders provide their consent with respect to the Merger Agreement and the Merger.

 

    

The Conflicts Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. This action of the Conflicts Committee constitutes “Special Approval” of the Merger Agreement and the transactions contemplated thereby, including the Merger, under the SEP Partnership Agreement. The Conflicts Committee recommended that the GP LLC Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger. Based upon the recommendation of the Conflicts Committee, the GP LLC Board unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. The GP LLC Board directed that the Merger Agreement be submitted to the limited partners of SEP for their approval by written consent. The GP LLC Board recommends that the limited partners of SEP provide their consent with respect to the Merger Agreement and the Merger.

 

Q:

Who is entitled to give written consent with respect to the Merger?

 

A:

The GP LLC Board has set the close of business on November 5, 2018 as the Record Date for determining holders of outstanding SEP common units entitled to sign and deliver written consents with respect to the Merger. Holders of outstanding SEP common units as of the close of business on the Record Date will be entitled to consent to the approval of the Merger Agreement and the Merger using the written consent furnished with this consent solicitation/prospectus.

 

Q:

How can SEP unitholders return their written consents with respect to the Merger?

 

A:

If you hold SEP common units as of the close of business on the Record Date and you wish to submit your consent with respect to the Merger, you must fill out the enclosed written consent, date and sign it, and promptly return it to SEP. Once you have completed, dated and signed your written consent, deliver it to SEP by one of the means described in the section titled “Written Consents of Holders of SEP Common UnitsSubmission of Consents” beginning on page 39. SEP does not intend to hold a meeting of SEP unitholders to consider the Merger Agreement and the Merger.

 

Q:

Can SEP unitholders change or revoke their written consents?

 

A:

Yes. If you are a record holder of SEP common units on the Record Date, you may revoke your consent or, if you have previously revoked your consent, submit a new written consent at any time before the later of 20 business days after this consent solicitation/prospectus is sent to SEP unitholders and the date on which the consents of a sufficient number of SEP common units to approve the Merger Agreement have been received. However, the delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve

 

3


Table of Contents
  the Merger Agreement and the Merger and Enbridge and Enbridge (U.S.) Inc. have irrevocably and unconditionally agreed to deliver, or cause to be delivered, the Enbridge Written Consent two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. If you wish to change or revoke your consent within 20 business days after this consent/solicitation is sent to SEP unitholders, you may do so by sending in a new written consent with a later date by one of the means described in the section titled “Written Consents of Holders of SEP Common UnitsSubmission of Consents” beginning on page 39, or delivering a notice of revocation to the Corporate Secretary of GP LLC.

 

Q:

If my SEP common units are held in “street name” by my bank, in a brokerage firm or other nominee, will my bank, brokerage firm or other nominee automatically vote my SEP common units for me?

 

A:

No, if you hold your SEP common units in “street name” with a bank, brokerage firm or other nominee, you should follow the instructions provided by your bank, brokerage firm or other nominee.

 

Q:

Should holders of SEP common units tender their SEP common units now?

 

A:

No. After the Merger is completed, Unaffiliated SEP Unitholders who hold their SEP common units in certificated or book-entry form will receive written instructions for exchanging their SEP common units. More information on the documentation you are required to deliver to the exchange agent can be found in the section titled “The Merger Agreement—Exchange Procedures” beginning on page 75.

 

    

If you are an Unaffiliated SEP Unitholder and you own SEP common units in “street name”, each SEP common unit issued and outstanding immediately prior to the Effective Time that you own will be converted into the right to receive 1.111 validly issued, fully paid and non-assessable Enbridge common shares and should be credited to your account in accordance with the policies and procedures of your broker or nominee within a few days following the Closing Date.

 

Q:

What happens if I transfer or sell my SEP common units after the Record Date but before the consent process concludes?

 

A:

If you transfer your SEP common units after the Record Date but before the consent process concludes, you will, unless special arrangements are made, retain your right to consent with respect to the Merger. However, if you transfer your SEP common units before the Closing, you will not receive the Enbridge common shares at the Exchange Ratio for the SEP common units you have transferred. In order to receive the Merger Consideration, you must hold your SEP common units through the completion of the Merger.

 

Q:

What percentage of Enbridge common shares will current Unaffiliated SEP Unitholders own after the successful consummation of the proposed Merger?

 

A:

If the proposed Merger is successfully completed, Unaffiliated SEP Unitholders would collectively receive 90,998,687 Enbridge common shares, which shares are collectively referred to as the “Aggregate Merger Consideration” and represents approximately 5.0% of the outstanding Enbridge common shares, based on the Exchange Ratio and the number of outstanding Enbridge common shares and SEP common units (other than the Excluded Units) as of November 5, 2018 (excluding any Enbridge common shares to be issued in connection with the Other Merger Transactions). If, in addition to the Merger, each Other Merger Transaction is successfully completed, the Aggregate Merger Consideration would represent approximately 4.5% of the outstanding Enbridge common shares, based on the number of Enbridge common shares to be issued in the proposed Merger and the Other Merger Transactions pursuant to the respective merger agreements and arrangement agreement, and the number of outstanding Enbridge common shares and outstanding shares or units, as the case may be, of each of SEP, EEP, EEQ, and ENF,

 

4


Table of Contents
  as of November 5, 2018. The actual number of Enbridge common shares issued in the Merger will be determined by multiplying the Exchange Ratio by the number of issued and outstanding SEP common units held by Unaffiliated SEP Unitholders as of the closing date of the Merger. The actual number of Enbridge common shares issued in each of the Other Merger Transactions will be determined by multiplying the applicable exchange ratio by the number of publicly held shares or units of the acquired entity as of the closing date of each such transaction.

 

Q:

Where will SEP common units and Enbridge common shares trade after the Merger?

 

A:

SEP common units will no longer be publicly traded following the Merger and will be delisted from the NYSE. Enbridge common shares will continue to trade on the NYSE and the TSX under the symbol “ENB” after the Merger.

 

Q:

What are the expected U.S. federal income tax consequences to an SEP unitholder as a result of the Merger?

 

A:

The receipt of Enbridge common shares and cash in lieu of fractional shares, if any, in exchange for SEP common units pursuant to the Merger Agreement should be a taxable transaction to U.S. holders (as defined in the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94 for U.S. federal income tax purposes. In such case, a U.S. holder will generally recognize gain or loss on the receipt of Enbridge common shares and/or any cash received in lieu of fractional shares in exchange for SEP common units, generally taxable as capital gain or loss. However, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by SEP and its subsidiaries. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of SEP’s income may become available to offset a portion of the gain recognized by such U.S. holder. For more information, see the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94 for a more complete discussion of the expected material U.S. federal income tax consequences of the Merger.

 

Q:

What are the expected U.S. federal income tax consequences for an SEP unitholder as a result of the ownership of Enbridge common shares after the Merger is completed?

 

A:

Enbridge is a corporation organized under the laws of Canada that is treated as a corporation for U.S. federal income tax purposes, and thus, Enbridge and its subsidiaries (and not the Enbridge shareholders) are subject to taxation on their taxable income. A distribution of cash by Enbridge to a shareholder who is a U.S. holder (as defined in the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94) will generally be included in such U.S. holder’s income as ordinary dividend income to the extent of Enbridge’s current and accumulated “earnings and profits” as determined under U.S. federal income tax principles. Any portion of the cash distributed to Enbridge shareholders by Enbridge after the Merger that exceeds Enbridge’s current and accumulated earnings and profits will be treated as a non-taxable return of capital reducing a U.S. holder’s adjusted tax basis in such U.S. holder’s Enbridge common shares and, to the extent the distribution exceeds such shareholder’s adjusted tax basis, as capital gain from the sale or exchange of such Enbridge common shares. However, Enbridge does not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, each Enbridge shareholder should expect to generally treat distributions made by Enbridge as dividends. See the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94 for a more complete discussion of the expected U.S. federal income tax consequences of owning and disposing of Enbridge common shares received in the Merger.

 

5


Table of Contents
Q:

What are the expected Canadian federal income tax consequences for an SEP unitholder as a result of the ownership of Enbridge common shares after the Merger is completed?

 

A:

Dividends paid or credited or deemed to be paid or credited on Enbridge common shares to a Non-Canadian Resident Holder (as defined in the section titled “Material Canadian Federal Income Tax Consequences of the Merger” beginning on page 91) generally will be subject to Canadian withholding tax at a rate of 25% of the gross amount of the dividend, unless the rate is reduced under the provisions of an applicable income tax convention between Canada and the Non-Canadian Resident Holder’s jurisdiction of residence. For example, the rate of withholding tax under the Treaty applicable to a Non-Canadian Resident Holder who is a resident of the United States for purposes of the Treaty, is the beneficial owner of the dividend and is entitled to all of the benefits under the Treaty, generally will be 15%. Enbridge will be required to withhold the required amount of withholding tax from the dividend, and to remit the withheld tax to the CRA for the account of the Non-Canadian Resident Holder.

 

    

A Non-Canadian Resident Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition of Enbridge common shares, unless the shares are “taxable Canadian property” and the shares are not “treaty-protected property” (as those terms are defined in the Canadian Tax Act) of the Non-Canadian Resident Holder, at the time of the disposition. See the section titled “Material Canadian Federal Income Tax Consequences of the Merger” beginning on page 91 for a more complete discussion of the expected Canadian federal income tax consequences of owning and disposing of Enbridge common shares received in the Merger.

 

Q:

Are holders of SEP common units entitled to appraisal rights?

 

A:

No. Holders of SEP common units do not have appraisal rights under applicable law or contractual appraisal rights under the SEP Partnership Agreement or the Merger Agreement.

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger Agreement is not completed for any reason, you will not receive any form of consideration for your SEP common units in connection with the Merger. Instead, SEP will remain a public limited partnership and the SEP common units will continue to be listed and traded on the NYSE.

 

Q:

Enbridge has also entered into acquisition agreements in respect of the Other Merger Transactions. What impact will these transactions have on the Merger?

 

A:

Enbridge has also entered into acquisition agreements to acquire, in separate combination transactions, all of the outstanding equity securities that Enbridge does not already own of (i) EEP, (ii) EEQ and (iii) ENF. The completion of the Merger is not conditioned upon or subject to the completion of any of the Other Merger Transactions. In the event of the successful completion of any or all of the Other Merger Transactions, Enbridge expects to issue additional Enbridge common shares in exchange for the equity interests acquired in such transactions. See the section titled “Risk Factors—Risks Relating to the Enbridge Common Shares—There may be future dilution of the Enbridge common shares, including as a result of any Enbridge common shares issued in connection with the Other Merger Transactions, which could adversely affect the market price of Enbridge common shares.” beginning on page 34.

 

6


Table of Contents
Q:

Whom do I call if I have further questions about the Merger Agreement or the Merger?

 

A:

If you have any questions about the Merger or if you need additional copies of this consent solicitation/prospectus, you should contact:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers call: (212) 269-5550

All others call toll-free: (888) 777-0320

Email: Enbridge@dfking.com

 

7


Table of Contents

SUMMARY

This summary highlights selected information included in this consent solicitation/prospectus and does not contain all the information that may be important to you. To fully understand the Merger Agreement and the transactions contemplated thereby and for a more complete description of the terms of the Merger Agreement, you should read carefully this entire consent solicitation/prospectus, including the annexes, as well as the documents incorporated by reference into this consent solicitation/prospectus, and the other documents to which you are referred. In addition, Enbridge and SEP incorporate by reference important business and financial information about Enbridge and SEP into this document, as further described in the section titled “Where You Can Find More Information” beginning on page 131. You may obtain the information incorporated by reference into this document without charge by following the instructions in the section titled “Where You Can Find More Information” beginning on page 131. Each item in this summary includes a page reference directing you to a more complete description of that item.

Information about the Companies (page 37)

Enbridge Inc.

200, 425-1st Street S.W.

Calgary, Alberta T2P 3L8, Canada

Phone: 1-403-231-3900

Enbridge is a North American energy infrastructure company with strategic business platforms that include an extensive network of crude oil, liquids and natural gas pipelines, regulated natural gas distribution utilities and renewable power generation assets. Enbridge delivers an average of 2.9 million barrels of crude oil each day through its Mainline and Express Pipeline, and accounts for approximately 62% of United States-bound Canadian crude oil exports. Enbridge also moves approximately 22% of all natural gas consumed in the United States, serving key supply basins and demand markets. Its regulated utilities serve approximately 3.7 million retail customers in Ontario, Quebec and New Brunswick. Enbridge also has interests in more than 1,700 megawatts (MW) of net renewable power generation capacity in North America and Europe. Enbridge has ranked on the Global 100 Most Sustainable Corporations index for the past nine years. Enbridge was incorporated on April 13, 1970 under the Companies Ordinance of the Northwest Territories and was continued under the Canada Business Corporations Act (the “Canada Corporations Act”) on December 15, 1987. Enbridge indirectly holds all of the outstanding equity interests of Merger Sub, an indirect wholly owned subsidiary formed in Delaware for the sole purpose of completing the Merger.

Enbridge is a public company and the Enbridge common shares trade on both the TSX and the NYSE under the ticker symbol “ENB”. Enbridge’s principal executive offices are located at 200, 425-1st Street S.W., Calgary, Alberta T2P 3L8, Canada, and its telephone number is 1-403-231-3900.

Spectra Energy Partners, LP

5400 Westheimer Court

Houston, Texas 77056

Phone: (713) 627-5400

SEP is a publicly-traded Delaware master limited partnership formed in 2007 that is engaged in the transmission, storage and gathering of natural gas, and the transportation and storage of crude oil, through interstate pipeline systems in the United States and Canada with approximately 16,000 miles of transmission and transportation pipelines, the storage of natural gas in underground facilities with aggregate working gas storage capacity of approximately 170 billion cubic feet (Bcf) and crude oil storage of approximately 5.6 million barrels.



 

8


Table of Contents

SEP is managed by the General Partner, which is in turn managed by its general partner, GP LLC. GP LLC is indirectly wholly owned by Spectra Energy. Following its 2017 merger with a wholly owned subsidiary of Enbridge, Spectra Energy became a wholly owned subsidiary of Enbridge. As of November 5, 2018, Enbridge, through its ownership of Spectra Energy, owned 83.1% of the outstanding SEP common units.

SEP’s executive offices are located at 5400 Westheimer Court, Houston, Texas 77056 and its telephone number is (713) 627-5400.

Merger Sub

5400 Westheimer Court

Houston, Texas 77056

Phone: (713) 627-5400

Merger Sub, a Delaware limited liability company and an indirect wholly owned subsidiary of Enbridge, was formed solely for the purpose of facilitating the Merger. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the Merger Agreement. By operation of the Merger, Merger Sub will be merged with and into SEP. As a result, SEP will survive the Merger as a wholly owned subsidiary of Enbridge. Upon completion of the Merger, Merger Sub will cease to exist as a separate entity.

Merger Sub’s principal executive offices are located at 5400 Westheimer Court, Houston, Texas 77056, and its telephone number is (713) 627-5400.

Written Consents of Holders of SEP Common Units (page 39)

The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. Pursuant to the terms of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc., which as of November 5, 2018, together beneficially owned 402,989,862 SEP common units representing approximately 83.1% of the outstanding SEP common units, have irrevocably agreed to deliver, or cause to be delivered, the Enbridge Written Consent within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units. For further discussion, please read the section titled “Written Consents of Holders of SEP Common Units” beginning on page 39.

The Merger and the Merger Agreement (pages 41 and 73)

The terms and conditions of the Merger are contained in the Merger Agreement, which is attached to this document as Annex A and is incorporated by reference herein in its entirety. You are encouraged to read the Merger Agreement carefully, as it is the legal document that governs the Merger.

The Conflicts Committee and GP LLC Board have unanimously approved the Merger Agreement. The Merger Agreement provides for the acquisition by Enbridge of the outstanding SEP common units not already owned by Enbridge and its subsidiaries through the merger of Merger Sub, a wholly owned subsidiary of Enbridge, with and into SEP with SEP continuing as the surviving company. Each Unaffiliated SEP Unitholder will be entitled to receive 1.111 Enbridge common shares in exchange for each SEP common unit that such holder owns immediately prior to the Effective Time of the Merger.



 

9


Table of Contents

Merger Consideration (page 41)

At the Effective Time, by virtue of the Merger and without any action on the part of the parties or any holder of SEP partnership interests, each SEP common unit issued and outstanding immediately prior to the Effective Time (other than the Excluded Units) will be converted into the right to receive Enbridge common shares in exchange for such holder’s SEP common units at the Exchange Ratio. Enbridge will not issue any fractional Enbridge common shares in the Merger. For additional information regarding exchange procedures, please read “The MergerMerger Consideration” beginning on page 41.

Recommendation of the GP LLC Board (page 52)

Based upon the recommendation of the Conflicts Committee, the GP LLC Board has, acting in good faith, unanimously determined that the Merger Agreement and the transactions contemplated thereby are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. The GP LLC Board has directed that the Merger Agreement be submitted to the limited partners of SEP for their approval by written consent. The GP LLC Board recommends that the limited partners of SEP approve the Merger Agreement and the transactions contemplated thereby, including the Merger. For a further discussion of the recommendation of the GP LLC Board, please read the section titled “The MergerRecommendation of the GP LLC Board” beginning on page 52.

Reasons for the Recommendation of the Conflicts Committee (page 52)

The Conflicts Committee conducted a review and evaluation of the Merger and negotiated with Enbridge and its representatives on behalf of SEP and the Unaffiliated SEP Unitholders with respect to the Merger Agreement. The Conflicts Committee has, acting in good faith, unanimously determined based upon the facts and circumstances it deemed relevant, reasonable or appropriate, including the advice of its legal and financial advisors, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. This action of the Conflicts Committee constitutes “Special Approval” of the Merger Agreement and the transactions contemplated thereby, including the Merger, under the SEP Partnership Agreement. The Conflicts Committee recommended that the GP LLC Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger. For a further discussion of the recommendation of the Conflicts Committee, please read the section titled “The Merger—Reasons for the Recommendation of the Conflicts Committee” beginning on page 52.

Opinion of Jefferies, Financial Advisor to the Conflicts Committee (page 58)

In June 2018, the Conflicts Committee retained Jefferies LLC (“Jefferies”) to act as its financial advisor in connection with a possible sale, disposition or other business transaction or series of transactions involving all or substantially all of the equity in, or assets of, SEP. At the meeting of the Conflicts Committee on August 23, 2018, Jefferies rendered its opinion to the Conflicts Committee to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its opinion, the Exchange Ratio set forth in the Merger Agreement was fair, from a financial point of view, to SEP and to the Unaffiliated SEP Unitholders. The full text of Jefferies’ opinion is attached hereto as Annex B. For a description of the opinion that the Conflicts Committee received from Jefferies and further discussion, please read the section titled “The Merger—Opinion of Jefferies, Financial Advisor to the Conflicts Committee” beginning on page 58.



 

10


Table of Contents

No Enbridge Shareholder Approval Required (page 72)

The approval of the Merger Agreement and the Merger by Enbridge does not require the affirmative vote or consent of the Enbridge shareholders.

Conditions to the Completion of the Merger (page 87)

The completion of the Merger is subject to certain customary closing conditions, including (i) the receipt of approval of the Merger Agreement by written consent of the limited partners of SEP holding SEP common units constituting at least a majority of the outstanding SEP common units entitled to deliver such consent, (ii) the Enbridge common shares issuable in connection with the Merger having been approved for listing on the NYSE and the TSX, subject to official notice of issuance, (iii) the absence of any governmental order prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement and (iv) the registration statement having become effective under the Securities Act. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the representations and warranties of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers).

Termination (page 89)

Enbridge and SEP may terminate the Merger Agreement and abandon the Merger at any time prior to the Effective Time of the Merger by mutual written consent of Enbridge, duly authorized by the Enbridge Board, and SEP, duly authorized by the Conflicts Committee.

The Merger Agreement may also be terminated and the Merger abandoned by either the Enbridge Board or the GP LLC Board if:

 

   

the Merger has not been consummated by February 25, 2019 (the “Outside Date”); or

 

   

any applicable law or governmental order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger has become final and nonappealable.

The Merger Agreement may be terminated and the Merger abandoned by Enbridge prior to the Effective Time if there has been a breach by SEP of any representation, warranty, covenant or agreement set forth in the Merger Agreement, or if any such representation or warranty has become untrue after the date of the Merger Agreement, such that certain conditions to the obligations of Enbridge, Enbridge (U.S.) Inc. and Merger Sub to close would not be satisfied and such breach or failure to be true and correct is not curable prior to the Outside Date or, if curable prior to the Outside Date, is not cured within the earlier of 60 days after notice thereof is given by Enbridge to SEP or the Outside Date. The Merger Agreement may be terminated and the Merger abandoned by SEP prior to the Effective Time if there has been a breach by Enbridge, Enbridge (U.S.) Inc. or Merger Sub of any representation, warranty, covenant or agreement set forth in the Merger Agreement, or if any such representation or warranty has become untrue after the date of the Merger Agreement, such that certain conditions to the obligations of SEP and the General Partner to close would not be satisfied and such breach or failure to be true and correct is not curable prior to the Outside Date or, if curable prior to the Outside Date, is not cured within the earlier of 60 days after notice thereof is given by SEP to Enbridge or the Outside Date.

For further discussion, please read the section titled “The Merger Agreement—Termination” beginning on page 89.

No Dissenters’ or Appraisal Rights (page 71)

Holders of SEP common units do not have appraisal rights under applicable law or contractual appraisal rights under the SEP Partnership Agreement or the Merger Agreement.



 

11


Table of Contents

Regulatory Approvals (page 68)

In connection with the Merger, Enbridge intends to make all required filings under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”), as well as any required filings or applications with the NYSE and the TSX. Enbridge and SEP are unaware of any other requirement for the filing of information with, or the obtaining of the approval of, governmental authorities in any jurisdiction that is applicable to the Merger.

The Merger is not reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and therefore no filings with respect to the Merger are required with the United States Federal Trade Commission (“FTC”) or the United States Department of Justice Antitrust Division (the “DOJ”).

Litigation Matters (page 69)

Paul Morris v. Spectra Energy Partners (DE) GP, LP, Spectra Energy Corp, Defendants, and Spectra Energy Partners, LP, Nominal Defendant

A putative class action lawsuit asserting direct and derivative claims was filed in the Delaware Court of Chancery in March of 2016 by Paul Morris (the “Plaintiff”), a SEP unitholder (the “Morris Litigation”). The claims in the Morris Litigation relate to a transaction in October 2015 whereby 33% ownership interests in the Sand Hills and Southern Hills pipelines were sold by SEP to Spectra Energy and, subsequent to that transaction, Spectra Energy contributed those ownership interests to DCP Midstream, LLC, a joint venture in which Spectra Energy owns a 50% ownership interest. On June 27, 2017, the Delaware Court of Chancery issued a Memorandum Opinion dismissing the derivative claims of tortious interference against Spectra Energy and the breach of the implied duty of good faith and fair dealing against the General Partner, leaving only the derivative claim for breach of the SEP Partnership Agreement against the General Partner pending. As of September 18, 2018, all proceedings in the Morris Litigation have been stayed at the Plaintiff’s request pending either the closing of the Merger or the termination of the Merger Agreement. If the Merger closes and Enbridge acquires all of the outstanding SEP common units (other than the Excluded Units), Plaintiff will lose standing to continue his derivative claims on behalf of SEP and Enbridge will become the owner of such derivative claims.

Security Ownership of Certain Beneficial Owners of SEP (page 124)

Enbridge holds a controlling ownership interest in SEP. Enbridge controls SEP through Enbridge’s 100% ownership of Spectra Energy. As of November 5, 2018, Enbridge beneficially owned 402,989,862 SEP common units, representing approximately 83.1% of the outstanding SEP common units, and 100% of the non-economic general partner interest in SEP, held by GP LLC. As of November 5, 2018, the directors and executive officers of GP LLC held and were entitled to vote SEP common units representing less than 1.0% of the outstanding SEP common units. For a description of security ownership of directors and executive officers of GP LLC and further discussion, please read the section titled “Security Ownership of Certain Beneficial Owners of SEPSecurity Ownership of the Management and Directors of GP LLC” beginning on page 125.

Interests of Directors and Executive Officers of GP LLC in the Merger (page 69)

SEP does not have any employees and relies on GP LLC to manage the conduct of SEP’s business. None of the individuals who has served as a director or executive officer at GP LLC or Enbridge since the beginning of 2017 has any agreements or understandings with Enbridge, GP LLC, SEP or any other party with respect to any type of compensation (whether present, deferred or contingent) that is based on or otherwise relates to the Merger.



 

12


Table of Contents

GP LLC’s directors and executive officers may have other interests in the Merger that may differ from, or are in addition to, the interests of SEP unitholders generally. These interests include the following:

 

   

four of the seven directors of GP LLC hold positions at Enbridge or its subsidiaries (other than GP LLC);

 

   

six directors, including three non-management directors, of GP LLC own Enbridge common shares. Those directors, individually and in the aggregate, own shares representing less than 1.0% of the total Enbridge common shares outstanding as of November 5, 2018;

 

   

all of the executive officers of GP LLC hold positions at Enbridge or its subsidiaries (other than GP LLC);

 

   

seven individuals who serve as executive officers of GP LLC own Enbridge common shares, which, individually and in the aggregate, represent less than 1.0% of the Enbridge common shares outstanding as of November 5, 2018; and

 

   

all of the directors and executive officers of GP LLC have the right to indemnification under the SEP Partnership Agreement and the Merger Agreement. In addition, all of the directors and officers of Enbridge have the right to indemnification under the organizational documents of Enbridge and indemnification agreements with Enbridge.

These interests are described in more detail in the section titled “The MergerInterests of Directors and Executive Officers of GP LLC in the Merger” beginning on page 69.

Material U.S. Federal Income Tax Consequences of the Merger (page 94)

The receipt of Enbridge common shares and cash in lieu of fractional shares, if any, in exchange for the SEP common units pursuant to the Merger Agreement should be a taxable transaction for U.S. federal income tax purposes to U.S. holders (as defined in the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94).

In such case, a U.S. holder who receives Enbridge common shares and cash in lieu of fractional shares, if any, in exchange for SEP common units pursuant to the Merger will recognize gain or loss in an amount equal to the difference between:

 

   

the sum of (i) the fair market value of Enbridge common shares received, (ii) the amount of any cash received, and (iii) such U.S. holder’s share of SEP’s nonrecourse liabilities immediately prior to the Merger; and

 

   

such U.S. holder’s adjusted tax basis in the SEP common units exchanged therefor (which includes such U.S. holder’s share of SEP’s nonrecourse liabilities immediately prior to the Merger).

Gain or loss recognized by a U.S. holder will generally be taxable as capital gain or loss. However, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code of 1986, as amended (the “Code”), to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by SEP and its subsidiaries. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of SEP’s income may become available to offset a portion of the gain recognized by such U.S. holder.

The U.S. federal income tax consequences of the Merger to an SEP unitholder will depend on such common unitholder’s own personal tax situation. Accordingly, each SEP unitholder is strongly urged to consult its tax advisor for a full understanding of the particular tax consequences of the Merger to such common unitholder.



 

13


Table of Contents

For additional information, read the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94.

Material Canadian Federal Income Tax Consequences of the Merger (page 91)

A Non-Canadian Resident Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition of SEP common units pursuant to the Merger unless the SEP common units are “taxable Canadian property”, and are not “treaty-protected property” (as those terms are defined in the Canadian Tax Act) of the Non-Canadian Resident Holder, at the time of the disposition. See the section titled “Material Canadian Federal Income Tax Consequences of the Merger” beginning on page 91.

Listing of Enbridge Common Shares (page 71)

The completion of the Merger is conditioned upon the approval for listing of Enbridge common shares issuable pursuant to the Merger Agreement on the TSX and the NYSE, subject to official notice of issuance.

Delisting and Deregistration of the SEP Common Units (page 71)

Enbridge expects that, as promptly as practicable after the Effective Time, the SEP common units currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Comparison of Rights of Enbridge Shareholders and SEP Unitholders (page 100)

The differences between the rights of Enbridge shareholders and SEP unitholders result from differences between the organizational documents, governing law and type of organizational structure of Enbridge and SEP. Enbridge is a Canadian corporation. As a result, SEP unitholders who receive Enbridge common shares in the Merger will be principally governed by the Canada Corporations Act. SEP is a Delaware limited partnership. Ownership interests in a Delaware limited partnership are fundamentally different from ownership interests in a Canadian corporation. The rights of Enbridge shareholders are governed by the Enbridge Articles of Continuance and Certificates and Articles of Amendment, which is referred to as “Enbridge’s articles”, Enbridge General By-Law No. 1, as amended, and Enbridge By-Law No. 2, which we refer to collectively as “Enbridge’s by-laws”, and the Canada Corporations Act. The rights of SEP unitholders are governed by the SEP Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act (the “DRULPA”). The key differences are described in the section titled “Comparison of Rights of Enbridge Shareholders and SEP Unitholders” beginning on page 100.

The Other Merger Transactions (page 38)

On September 18, 2018, Enbridge, EEP and EEQ announced that they entered into separate agreements on September 17, 2018 under which Enbridge will acquire all of the outstanding public Class A common units of EEP and all of the outstanding public listed shares of EEQ, respectively, subject to the approval of the holders of the Class A common units of EEP and the listed shares of EEQ, respectively. Under the terms of the EEP merger agreement, EEP public unitholders will receive 0.3350 of an Enbridge common share for each Class A common unit of EEP. Under the terms of the EEQ merger agreement, EEQ public shareholders will receive 0.3350 of an Enbridge common share for each listed Share of EEQ, which is at parity with the exchange ratio in the EEP merger.

Also on September 18, 2018, Enbridge and ENF announced that they entered into the arrangement agreement on September 17, 2018 (as amended, the “arrangement agreement”). On November 8, 2018, Enbridge and ENF completed the previously announced ENF plan of arrangement pursuant to Section 193 of the Business



 

14


Table of Contents

Corporations Act (Alberta) under which Enbridge acquired all of the issued and outstanding public common shares of ENF. Pursuant to the ENF plan of arrangement, each ENF common share was exchanged for 0.7350 of an Enbridge common share and cash of C$0.45 per ENF common share.

Risk Factors (page 28)

The Merger and an investment in Enbridge common shares involve risks, some of which are related to the Merger. In considering the Merger, you should carefully consider the information about these risks set forth under the section titled “Risk Factors” beginning on page 28, together with the other information included in, or incorporated by reference into, this consent solicitation/prospectus.



 

15


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENBRIDGE

The following table sets forth the selected historical consolidated financial data of Enbridge as of and for the periods indicated. The selected historical consolidated financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 were derived from Enbridge’s audited consolidated financial statements included in its annual reports on Form 10-K. The selected historical consolidated financial data as of September 30, 2018 and 2017 and for the nine months ended September 30, 2018 and 2017 were derived from the unaudited consolidated interim financial statements of Enbridge included in its quarterly reports on Form 10-Q.

The information set forth below is not necessarily indicative of future results and should be read together with the other information contained in Enbridge’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. See the section titled “Where You Can Find More Information” beginning on page 131.

 

    For the
nine months ended
September 30,
    For the fiscal years ended December 31,  
    2018(1)     2017(1)     2017(1)     2016(1)     2015(1)     2014     2013  
(millions of Canadian dollars, except per share
amounts)
  (Unaudited)                                

Consolidated Statements of Earnings:

               

Operating Revenues

  $ 34,816     $ 31,489     $ 44,378     $ 34,560     $ 33,794     $ 37,641     $ 32,918  

Operating Income

    3,303       4,532       1,571       2,581       1,862       3,200       1,365  

Earnings/(loss) from continuing operations

    2,050       3,201       3,266       2,309       (159     1,562       490  

(Earnings)/loss attributable to noncontrolling interests and redeemable noncontrolling interests

    (352     (633     (407     (240     410       (203     135  

Earnings attributable to controlling interests

    1,698       2,568       2,859       2,069       251       1,405       629  

Earnings/(loss) attributable to common shareholders

    1,426       2,322       2,529       1,776       (37     1,154       446  
 

Common Share Data:

               

Earnings/(loss) per common share

               

Basic

  $ 0.84     $ 1.57     $ 1.66     $ 1.95     $ (0.04   $ 1.39     $ 0.55  

Diluted

    0.84       1.56       1.65       1.93       (0.04     1.37       0.55  

Dividends paid per common share

    2.013       1.803       2.41       2.12       1.86       1.40       1.26  

 

    As at September 30,     As at December 31,  
    2018(1)     2017(1)     2017(1)     2016(1)     2015(1)     2014     2013  
(millions of Canadian dollars)   (Unaudited)        

Consolidated Statements of Financial Position:

               

Total Assets(2)

  $ 163,223     $ 163,441     $ 162,093     $ 85,209     $ 84,154     $ 72,280     $ 57,196  

Long-term debt, less current portion

    58,707       61,434       60,865       36,494       39,391       33,423       22,357  


 

16


Table of Contents

 

(1)

Enbridge’s Consolidated Statements of Earnings and Consolidated Statements of Financial Position data reflect the following acquisitions, dispositions and impairment

 

   

2018—Midcoast Operating, L.P. impairment, Canadian natural gas gathering and processing goodwill impairment, Line 10 impairment and other impairment

 

   

2017—The combination of Enbridge and Spectra Energy through a stock-for-stock merger transaction that closed on February 27, 2017, acquisition of public interest in Midcoast Energy Partners, L.P., the income tax benefit due to the enactment of the Tax Cuts and Jobs Act by the United States in December 2017 and other impairment

 

   

2016—Sandpiper Project impairment, gain on disposition of South Prairie Region assets, Tupper Plants acquisition and other impairment

 

   

2015—Goodwill impairment

 

(2)

Enbridge combined cash and cash equivalents and other amounts previously presented as bank indebtedness where the corresponding bank accounts are subject to pooling arrangements.



 

17


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SEP

The following table sets forth the selected historical consolidated financial data of SEP as of and for the periods indicated. The selected historical consolidated financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 were derived from SEP’s audited consolidated financial statements included in its annual reports on Form 10-K. The selected historical consolidated financial data as of September 30, 2018 and 2017 and for the nine months ended September 30, 2018 and 2017 were derived from the unaudited consolidated interim financial statements of SEP included in its quarterly reports on Form 10-Q.

The information set forth below is not necessarily indicative of future results and should be read together with the other information contained in SEP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. See the section titled “Where You Can Find More Information” beginning on page 131.

 

    For the
nine months ended
September 30,
    For the fiscal years ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
(in millions of United States dollars, except per unit
amounts)
  (Unaudited)                                

Statement of Income Data:

               

Operating Revenues

  $ 2,242     $ 2,088     $ 1,950     $ 2,533     $ 2,455     $ 2,269     $ 1,965  

Operating Income

    1,195       1,049       563       1,228       1,273       1,136       973  

Net income attributable to noncontrolling interests

    32       87       94       78       40       23       16  

Net income attributable to controlling interests(1)

    1,154       1,105       609       1,161       1,225       1,004       1,070  
 

Unit Data:

               

Net income per limited partner unit-basic and diluted(2)

  $ 2.44     $ 2.65     $ 0.77     $ 2.84     $ 3.30     $ 2.84     $ 4.25  

Distributions paid per limited partner unit

    2.25375       2.10375       2.83       2.63       2.43       2.245       2.02125  

 

(1)

Includes a US$354 million benefit related to the elimination of accumulated deferred income tax liabilities in 2013.

(2)

Earnings related to the U.S. Assets Dropdown for periods prior to November 1, 2013 were allocated entirely to the general partner in calculating net income per limited partner unit.

 

    As at September 30,     As at December 31,  
    2018     2017     2017     2016     2015     2014     2013  
(in millions of United States dollars)   (Unaudited)                                

Balance Sheet Data:

               

Total assets

  $ 22,411     $ 21,719     $ 22,056     $ 21,606     $ 18,851     $ 17,778     $ 16,776  

Total long-term debt

    8,157       5,714       7,963       6,223       5,845       5,134       5,160  


 

18


Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following selected unaudited pro forma consolidated financial information is derived from the unaudited pro forma consolidated statements of Enbridge. The pro forma adjustments have been prepared as if the Merger and the Other Merger Transactions occurred on September 30, 2018, in the case of the unaudited pro forma condensed consolidated statements of financial position, and on January 1, 2017, in the case of the unaudited pro forma condensed consolidated statements of earnings for the nine months ended September 30, 2018 and the year ended December 31, 2017. In addition, the pro forma adjustments have been prepared as if the Midcoast Transactions occurred on January 1, 2017, in the case of the unaudited pro forma condensed consolidated statements of earnings for the nine months ended September 30, 2018 and the year ended December 31, 2017. The following selected unaudited pro forma consolidated financial information is for illustrative and informational purposes only and is not necessarily indicative of the results that might have occurred had such transactions taken place on January 1, 2017, for consolidated statements of earnings purposes, and September 30, 2018, for consolidated statements of financial position purposes, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section titled “Risk Factors” beginning on page 28 of this consent solicitation/prospectus. The following selected unaudited pro forma consolidated financial information should be read in conjunction with the Unaudited Pro Forma Condensed Consolidated Financial Statements section and related notes beginning on page F-1 of this consent solicitation/prospectus.

 

     For the
nine months ended
September 30,
2018
     For the
year ended
December 31,
2017
 
(millions of Canadian dollars, except per share amounts)    (Unaudited)  

Consolidated Statements of Earnings:

     

Operating Revenues

   $ 33,120      $ 41,209  

Operating Income

     4,199        6,285  

Earnings/(loss) from continuing operations

     2,638        6,808  

(Earnings)/loss attributable to noncontrolling interests and redeemable noncontrolling interests

     21        (39

Earnings attributable to controlling interests

     2,659        6,769  

Earnings/(loss) attributable to common shareholders

     2,387        6,439  

Common Share Data:

     

Earnings / (loss) per common share

     

Basic

   $ 1.20      $ 3.54  

Diluted

     1.20        3.52  

 

     As at
September 30, 2018
 
(millions of Canadian dollars)    (Unaudited)  

Pro Forma Condensed Consolidated Statements of Financial Position:

  

Total Assets

   $ 163,123  

Long-term debt, including capital leases, less current portion

     58,707  


 

19


Table of Contents

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE AND PER UNIT FINANCIAL INFORMATION

Presented below are Enbridge’s and SEP’s historical and pro forma per share/unit data for the year ended December 31, 2017 and nine months ended September 30, 2018. Except for the historical information for the year ended December 31, 2017, the information provided in the table below is unaudited. This information should be read together with the historical consolidated financial statements and related notes of Enbridge and SEP filed by each with the SEC, and incorporated by reference in this consent solicitation/prospectus, and with the unaudited pro forma condensed consolidated financial statements included in the Unaudited Pro Forma Condensed Consolidated Financial Statements section beginning on page F-1.

The pro forma consolidated and pro forma consolidated equivalent per share information gives effect to the Merger, the Midcoast Transaction (except in the case of the book value per share/unit information, which does not reflect any adjustments for the Midcoast Transaction, as it was completed on August 1, 2018) and the Other Merger Transactions as if such transactions had been completed as of the applicable date. Such pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Merger, the Midcoast Transaction or Other Merger Transactions had been completed as of the beginning of the periods presented or the financial position that would have occurred if the Merger or Other Merger Transactions had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the consolidated company. The pro forma information, although helpful in illustrating the financial characteristics of the consolidated company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring, or other factors that may result as a consequence of the Merger or other transactions and, accordingly, does not attempt to predict or suggest future results.

 

     Nine Months
Ended

September 30,
2018
     Year Ended
December 31,
2017
 

Enbridge Historical Data:

(C$)

     

Basic earnings per common share

   $ 0.84      $ 1.66  

Diluted earnings per common share

   $ 0.84      $ 1.65  

Dividends declared per common share for the period

   $ 2.013      $ 2.41  

Book value per share(1)

   $ 35.26      $ 34.30  

SEP Historical Data:

(US$)

     

Basic earnings per SEP common unit

   $ 2.44      $ 0.77  

Diluted earnings per SEP common unit

   $ 2.44      $ 0.77  

Distributions declared per SEP common unit for the period

   $ 2.25375      $ 2.83  

Book value per SEP common unit(1)

   $ 24.01      $ 36.93  

Pro Forma Consolidated Data—Enbridge:

(C$)

     

Basic earnings per common share(2)

   $ 1.20      $ 3.54  

Diluted earnings per common share(2)

   $ 1.20      $ 3.52  

Dividends declared per common share for the period(3)

   $ 2.013      $ 2.41  

Book value per common share at period end(1), (4)

   $ 34.68      $ n/a  

Equivalent Pro Forma Consolidated—SEP(5):

(US$)

     

Basic earnings per SEP common unit

   $ 1.33      $ 3.93  

Diluted earnings per SEP common unit

   $ 1.33      $ 3.91  

Cash distributions paid for the period per SEP common unit

   $ 2.24      $ 2.68  

Book value per SEP common unit at period end

   $ 38.53      $ n/a  


 

20


Table of Contents

 

(1)

Historical book value per Enbridge common share or SEP common unit represents total equity before noncontrolling interests and redeemable noncontrolling interests at period end divided by the number of Enbridge common shares or SEP common units, as applicable, outstanding as of period end.

(2)

Amounts are included under “Pro Forma Results” in the unaudited pro forma condensed consolidated statement of earnings included in the Unaudited Pro Forma Condensed Consolidated Pro Forma Financial Statements section on p. F-1.

(3)

For the purpose of the pro forma financial information, it was assumed that all Enbridge common shares issued in connection with the Merger and the Other Merger Transactions will receive the same dividend rate as existing Enbridge common shares. The actual dividend declared per share may differ from the pro forma information for the periods to which such transactions are given effect.

(4)

The pro forma consolidated—Enbridge, book value per share was calculated as follows (in Canadian dollars in millions, except per share amounts):

 

As of September 30, 2018  

Pro forma total Enbridge Inc. shareholders’ equity

   $ 70,056  

Divided by: Pro forma consolidated number of shares outstanding as of date of record

     2,020  

Book value per share (pro forma)

   $ 34.68  

 

(5)

Determined by multiplying the pro forma consolidated data—Enbridge disclosed above by the Exchange Ratio of 1.111 Enbridge common shares for each SEP common unit.



 

21


Table of Contents

COMPARATIVE SHARE AND UNIT PRICES; DIVIDENDS AND DISTRIBUTIONS

Enbridge common shares are currently listed on the TSX and the NYSE under the symbol “ENB” and the SEP common units are currently listed on the NYSE under the symbol “SEP”. The table below sets forth, for the periods indicated, the per share high and low sales prices for Enbridge common shares as reported on the TSX and the NYSE and for the SEP common units as reported on the NYSE. Numbers have been rounded to the nearest whole cent.

 

     Enbridge
Common Shares
     Enbridge
Common Shares
     SEP
Common Units
 
     TSX      NYSE      NYSE  
     High      Low      High      Low      High      Low  
     (in C$)      (in US$)      (in US$)  

Annual information for the past five calendar years

                   

2017

     58.28        43.91        44.52        34.39        47.49        38.42  

2016

     59.19        40.03        45.77        27.43        50.48        39.53  

2015

     66.14        40.17        54.43        29.19        58.56        36.21  

2014

     65.13        45.45        57.19        41.08        60.07        41.53  

2013

     49.17        41.47        47.87        39.70        47.73        31.59  

Quarterly information for the past two years and subsequent quarters

                   

2018

                   

Fourth Quarter
(through November 1, 2018)

     44.02       
39.40
 
     34.00        29.98        37.62        33.34  

Third Quarter

     47.54        41.66        36.57        32.15        39.62        34.01  

Second Quarter

     47.50        37.36        36.11        29.00        36.32        29.89  

First Quarter

     51.04        38.08        41.21        29.54        44.39        32.12  

2017

                   

Fourth Quarter

     52.59        43.91        42.10        34.39        45.70        38.42  

Third Quarter

     53.00        48.98        42.31        39.01        46.47        42.51  

Second Quarter

     57.75        49.61        42.92        37.37        45.50        40.75  

First Quarter

     58.28        53.87        44.52        40.25        47.49        41.56  

2016

                   

Fourth Quarter

     59.18        53.91        45.09        39.70        46.46        40.19  

Third Quarter

     59.19        50.76        45.77        38.58        49.45        42.58  

Second Quarter

     55.05        48.73        43.39        37.02        50.43        44.22  

First Quarter

     51.31        40.03        39.40        27.43        50.48        39.53  

The above table shows only historical data. You should obtain current market quotations for Enbridge common shares and SEP common units, as the market prices of such securities will fluctuate between the date of this consent solicitation/prospectus and the date on which the Merger is completed, at times in between and thereafter. You can obtain these quotations from publicly available sources.

Comparison of the Market Prices of Enbridge Common Shares and SEP Common Units and Implied Value of the Merger Consideration Payable for Each SEP Common Unit

The following table presents the closing price per share of Enbridge common shares on the TSX and the NYSE and of the SEP common units on the NYSE, in each case on (a) August 23, 2018, the last full trading day prior to the public announcement of the signing of the Merger Agreement, and (b) November 8, 2018 the last practicable trading day prior to the filing of this consent solicitation/prospectus with the SEC. This table also shows the estimated implied value of the Merger Consideration payable for each SEP common unit, which was



 

22


Table of Contents

calculated by multiplying the closing price of Enbridge common shares on the NYSE on those dates by the Exchange Ratio of 1.111.

 

     Enbridge
common
shares
     Enbridge
common
shares
     SEP
common

units
     Implied
value per
SEP common
unit
 

Date

   TSX      NYSE      NYSE      NYSE  
     (C$)      (US$)      (US$)      (US$)  

August 23, 2018

   $ 47.12      $ 36.00      $ 37.85      $ 40.00  

November 8, 2018

   $ 43.32      $ 32.90      $ 36.59      $ 10.76  

The market prices of Enbridge common shares and SEP common units have fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate prior to, and in the case of Enbridge common shares, after, completion of the Merger. No assurance can be given concerning the market prices of Enbridge common shares or SEP common units before completion of the Merger or of Enbridge common shares after completion of the Merger. The Exchange Ratio is fixed in the Merger Agreement, but the market price of Enbridge common shares (and therefore the value of the Merger Consideration) when received by SEP unitholders after the Merger is completed could be greater than, less than or the same as shown in the table above. Accordingly, these comparisons may not provide meaningful information to SEP unitholders in determining whether to vote to approve the Merger Agreement and the Merger. SEP unitholders are encouraged to obtain current market quotations for Enbridge common shares and SEP common units and to review carefully the other information contained in this consent solicitation/prospectus or incorporated by reference herein. For more information, see the section titled “Where You Can Find More Information” beginning on page 131.

The table below sets forth the dividends declared per Enbridge common share and the distributions declared per SEP common unit for the periods indicated.

 

     Enbridge      SEP  
     (C$)      (US$)  

Nine Months Ended September 30, 2018

     2.013        2.25375  

Year Ended December 31,

     

2017

     2.413        2.83  

Fourth Quarter

     0.610        0.72625  

Third Quarter

     0.610        0.71375  

Second Quarter

     0.610        0.70125  

First Quarter

     0.583        0.68875  

2016

     2.120        2.63  

Fourth Quarter

     0.530        0.67625  

Third Quarter

     0.530        0.66375  

Second Quarter

     0.530        0.65125  

First Quarter

     0.530        0.63875  

2015

     1.860        2.43  

Fourth Quarter

     0.465        0.62625  

Third Quarter

     0.465        0.61375  

Second Quarter

     0.465        0.60125  

First Quarter

     0.465        0.58875  

2014

     1.400        2.245  

Fourth Quarter

     0.350        0.57625  

Third Quarter

     0.350        0.56625  

Second Quarter

     0.350        0.55625  

First Quarter

     0.350        0.54625  


 

23


Table of Contents
     Enbridge      SEP  
     (C$)      (US$)  

2013

     1.260        2.02125  

Fourth Quarter

     0.3150        0.51625  

Third Quarter

     0.3150        0.50875  

Second Quarter

     0.3150        0.50125  

First Quarter

     0.3150        0.495  


 

24


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This registration statement on Form S-4, of which this consent solicitation/prospectus forms a part, and the documents to which Enbridge and SEP refer you in this registration statement, of which this consent solicitation/prospectus forms a part, as well as oral statements made or to be made by Enbridge and SEP, contain both historical and forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and forward-looking information within the meaning of Canadian securities laws (collectively, “forward-looking statements”). Forward-looking statements are typically identified by words such as “anticipate”, “expect”, “project”, “estimate”, “forecast”, “plan”, “intend”, “target”, “believe”, “likely” and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included in, or incorporated by reference into, this consent solicitation/prospectus include, but are not limited to, statements with respect to the following: the Merger; the Midcoast Transaction; each of the Other Merger Transactions; expected earnings before interest, income taxes and depreciation and amortization (“EBITDA”); expected earnings/(loss); expected earnings/(loss) per share; expected future cash flows; expected performance of the Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution, Green Power and Transmission, and Energy Services businesses; financial strength and flexibility; expectations on sources of liquidity and sufficiency of financial resources; expected costs related to announced projects and projects under construction; expected in-service dates for announced projects and projects under construction (including potentially competitive projects); expected capital expenditures; expected equity funding requirements for Enbridge’s commercially secured growth capital; expected future growth and expansion opportunities; expectations about Enbridge’s joint venture partners’ ability to complete and finance projects under construction; expected closing of acquisitions and dispositions, including the Merger and the Other Merger Transactions; estimated future dividends; expected future actions of regulators; expected costs related to leak remediation and potential insurance recoveries; expectations regarding commodity prices; supply forecasts; expectations regarding the impact of the stock-for-stock merger transaction on February 27, 2017 between Enbridge and Spectra Energy, including Enbridge’s combined scale, financial flexibility, growth capital, future business prospects and performance; impact of the Canadian L3R Program on existing integrity programs; the sponsored vehicle strategy; dividend payout policy; dividend growth and dividend payout expectation; expectations on impact of hedging program; and expectations resulting from the successful execution of Enbridge’s 2018-2020 Strategic Plan.

Although the management of Enbridge and SEP believe that these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and may not prove to be accurate, and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, future trends, levels of activity and achievements to differ materially from those matters expressed or implied by such statements. When considering forward-looking statements, readers and investors should keep in mind the risk factors and other cautionary statements described in the section titled “Risk Factors” beginning on page 28. Among the assumptions, risks and uncertainties that could cause actual results to differ from those described in forward-looking statements are the following:

 

   

the ability to complete the Merger, including as a result of the failure to satisfy a condition to completion of the Merger as specified in the Merger Agreement;

 

   

negative effects from the pendency of the Merger;

 

   

any delays or issues in negotiating the relevant documentation in relation to, and any failure to complete, any or all of the Other Merger Transactions;

 

   

the timing to consummate the Merger;

 

   

the focus of management time and attention on the Merger or the Other Merger Transactions and other disruptions arising from the Merger or the Other Merger Transactions;

 

   

the risk that the Merger may not be accretive, and may be dilutive, to Enbridge’s earnings per share, which may negatively affect the market price of Enbridge common shares;

 

25


Table of Contents
   

the possibility that Enbridge and SEP will incur significant transaction and other costs in connection with the Merger, which may be in excess of those anticipated by Enbridge or SEP;

 

   

the risk that any announcements relating to the Merger could have adverse effects on the market price of Enbridge common shares or SEP common units;

 

   

the failure to obtain, delays in obtaining or adverse conditions contained in, any required regulatory or other approvals;

 

   

that SEP and Enbridge may be required to modify the terms and conditions of the Merger Agreement to achieve regulatory or unitholder approval, or that the anticipated benefits of the Merger are not realized as a result of such things as the strength or weakness of the economy and competitive factors in the areas where SEP and Enbridge do business;

 

   

debt and equity market conditions, including the ability to access capital markets on favorable terms or at all, and the cost of debt and equity capital;

 

   

potential changes in the Enbridge share price which may negatively impact the value of consideration offered to SEP unitholders;

 

   

the expected supply of and demand for crude oil, natural gas, natural gas liquids (“NGL”) and renewable energy;

 

   

prices of crude oil, natural gas, NGL and renewable energy;

 

   

competitive changes in Enbridge’s industry (including competition from the same and alternative energy sources);

 

   

exchange rates, including the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar;

 

   

inflation; interest rates; availability and price of labor and construction materials; operational reliability; customer and regulatory approvals;

 

   

maintenance of support and regulatory approvals for Enbridge’s projects;

 

   

anticipated in-service dates for Enbridge’s projects and those of its competitors;

 

   

weather and natural disasters;

 

   

the timing and closing of the Other Merger Transactions and Enbridge’s announced dispositions;

 

   

the realization of anticipated benefits and synergies of the Merger, the merger transaction completed in February 2017 with Spectra Energy or the Other Merger Transactions;

 

   

the effects of existing and future governmental legislation;

 

   

the effects of future litigation;

 

   

acquisitions and the timing thereof and the success of integration plans and business plans;

 

   

impact of the dividend policy on Enbridge’s future cash flows;

 

   

credit ratings;

 

   

capital project funding;

 

   

expected EBITDA;

 

   

expected earnings/(loss);

 

   

expected earnings/(loss) per share; and

 

   

expected future cash flows and estimated future dividends.

 

26


Table of Contents

Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements, as they may impact current and future levels of demand for services of Enbridge or SEP. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which Enbridge and SEP operate and may impact levels of demand for services of Enbridge or SEP and cost of inputs, and are therefore inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to the impact of the Merger and the Other Merger Transactions on us, expected EBITDA, earnings/(loss), earnings/(loss) per share, or estimated future dividends. The most relevant assumptions associated with forward-looking statements on announced projects and projects under construction, including estimated completion dates and expected capital expenditures, include the following: the availability and price of labor and construction materials; the effects of inflation and foreign exchange rates on labor and material costs; the effects of interest rates on borrowing costs; the impact of weather and customer, government and regulatory approvals on construction and in-service schedules and cost recovery regimes.

Forward-looking statements of Enbridge and SEP are subject to risks and uncertainties pertaining to the realization of anticipated benefits and synergies of the Merger, the merger transaction completed in February 2017 with Spectra Energy and the Other Merger Transactions, operating performance, regulatory parameters, dispositions, dividend policy, project approval and support, renewals of rights-of-way, weather, economic and competitive conditions, public opinion, changes in tax laws and tax rates, changes in trade agreements, exchange rates, interest rates, commodity prices, political decisions and supply of and demand for commodities, including but not limited to those risks and uncertainties discussed in this consent solicitation/prospectus and in SEP’s other filings with United States securities regulators and Enbridge’s other filings with Canadian and United States securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and the future courses of action of Enbridge and SEP depend on management’s assessment of all information available at the relevant time. Except to the extent required by applicable law, Enbridge and SEP each assume no obligation to publicly update or revise any forward-looking statements made in this consent solicitation/prospectus or otherwise, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to Enbridge or SEP or persons acting on behalf of Enbridge or SEP, are expressly qualified in their entirety by these cautionary statements.

The aforementioned factors are difficult to predict and in many cases may be beyond Enbridge’s and SEP’s control. Consequently, these forward-looking statements may not prove to be accurate. 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 results of operations, financial condition, cash flows or dividends/distributions of Enbridge or SEP. In view of these uncertainties, Enbridge and SEP caution that investors should not place undue reliance on any forward-looking statements. All of the forward-looking statements Enbridge and SEP make in this document are qualified by the information contained or incorporated by reference herein, including, but not limited to, the information contained under this heading and the information detailed (a) in Enbridge’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2017 and Enbridge’s Quarterly Reports on Form 10-Q filed with the SEC for the quarterly periods ended March 31, 2018, June 30, 2018 and September 30, 2018, which are available at http://www.sec.gov, and (b) in SEP’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2017 and SEP’s Quarterly Reports on Form 10-Q filed with the SEC for the quarterly periods ended March 31, 2018, June 30, 2018 and September 30, 2018, which are available at http://www.sec.gov. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as required by applicable law, Enbridge and SEP undertake no obligation to update or revise any forward-looking statement made in this consent solicitation/prospectus to reflect new information, events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. All subsequent forward-looking statements, whether written or oral, attributable to Enbridge or SEP or persons acting on their behalf, are expressly qualified in their entirety by these cautionary statements.

 

27


Table of Contents

RISK FACTORS

In addition to the other information contained in or incorporated by reference herein, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 25, you should consider carefully the following risk factors, as well as the other information set forth in and incorporated by reference into this consent solicitation/prospectus, before making a decision on the Merger. As an Enbridge shareholder following completion of the Merger, you will be subject to all risks inherent in the business of Enbridge in addition to the risks relating to SEP. The market value of your Enbridge common shares will reflect the performance of the business relative to, among other things, that of the competitors of Enbridge and SEP and general economic, market and industry conditions. The value of your investment may increase or may decline and could result in a loss. You should also consider the other information in this consent solicitation/prospectus and the other documents incorporated by reference herein, particularly the risk factors contained in Enbridge’s and SEP’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. See the section titled “Where You Can Find More Information” beginning on page 131.

Risks Relating to the Merger

The number of Enbridge common shares that holders of SEP common units will be entitled to receive in the Merger is based upon a fixed Exchange Ratio and will not be adjusted in the event of any change in either the price of Enbridge common shares or the price of SEP common units.

The Exchange Ratio of 1.111 Enbridge common shares per SEP common unit is fixed, meaning that it does not change and is not dependent upon the relative values of Enbridge common shares and SEP common units. There will be no adjustment to the Exchange Ratio for changes in the market price of Enbridge common shares or SEP common units prior to the completion of the Merger. If the Merger is completed, there will be a time lapse between the date of this consent solicitation/prospectus and the date on which holders of the SEP common units who are entitled to receive the Merger Consideration actually receive such Merger Consideration. The market value of Enbridge common shares may fluctuate during and after this period as a result of a variety of factors, including general market and economic conditions, changes in Enbridge’s businesses, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases may be beyond the control of Enbridge and SEP. Consequently, at the time SEP unitholders must decide whether to approve the Merger Agreement, they will not know the actual market value of the Merger Consideration they will receive when the Merger is completed. The actual value of the Merger Consideration received by the holders of the SEP common units at the completion of the Merger will depend on the market value of the Enbridge common shares at that time. This market value may differ, possibly materially, from the market value of Enbridge common shares at the time the Merger Agreement was entered into or at any other time. For additional information about the SEP per unit Merger Consideration, see the section titled “The Merger Agreement—Merger Consideration” beginning on page 41.

The Merger Agreement may be terminated in accordance with its terms and there is no assurance when or if the Merger will be completed.

The completion of the Merger is subject to the satisfaction or waiver of a number of conditions as set forth in the Merger Agreement, including, among others, the requisite approval of the Merger Agreement by SEP unitholders, the accuracy of representations and warranties under the Merger Agreement (subject to the materiality standards set forth in the Merger Agreement) and SEP’s and Enbridge’s performance of their respective obligations under the Merger Agreement in all material respects. These conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed.

There can be no assurance as to when these conditions will be satisfied or waived, if at all, or that other events will not intervene to delay or result in the failure to complete the Merger.

 

28


Table of Contents

In addition, if the Merger is not completed by February 25, 2019, either Enbridge or SEP may choose not to proceed with the Merger, and the parties can mutually decide to terminate the Merger Agreement at any time. In addition, Enbridge and SEP may elect to terminate the Merger Agreement in certain other circumstances. Please read the section titled “The Merger Agreement—Termination” beginning on page 89.

The opinion rendered to the Conflicts Committee by Jefferies on August 23, 2018 was based on Jefferies’ financial analyses and considered factors such as market and other conditions then in effect, and financial forecasts and other information made available to Jefferies, 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. The Conflicts Committee has not requested, and does not expect to request, an updated opinion from Jefferies reflecting changes in circumstances that may have occurred since the signing of the Merger Agreement.

The opinion rendered to the Conflicts Committee by Jefferies on August 23, 2018 was provided in connection with, and at the time of, the evaluation of the Merger and the Merger Agreement by the 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 Jefferies, as of the date of the opinion, which may have changed, or may change, after the date of the opinion. The Conflicts Committee has not requested an updated opinion as of the date of this consent solicitation/prospectus from Jefferies and does not expect to request an updated opinion prior to completion of the Merger. Changes in the operations and prospects of Enbridge and SEP, general market and economic conditions and other factors that may be beyond the control of Enbridge and SEP, and on which the opinion was based, may have altered the value of Enbridge or SEP or the prices of Enbridge common shares or SEP common units since the date of such opinion, or may alter such values and prices by the time the Merger is completed. In this regard, Jefferies’ opinion did not take into account or give effect to the completion of the Merger or any of the Other Merger Transactions, as to which definitive agreements were announced by Enbridge subsequent to the date of Jefferies’ opinion. Jefferies’ opinion does not speak as of any date other than the date of the opinion. For a description of the opinion that Jefferies rendered to the Conflicts Committee, please read the section titled “The Merger—Opinion of Jefferies, Financial Advisor to the Conflicts Committee” beginning on page 58.

Failure to complete, or significant delays in completing, the Merger could negatively affect the trading prices of Enbridge common shares or the SEP common units or the future business and financial results of Enbridge and SEP.

The completion of the Merger is subject to certain customary closing conditions, including (i) the registration statement having become effective under the Securities Act, (ii) the receipt of approval of the Merger Agreement by written consent of holders of SEP common units constituting a majority of the outstanding SEP common units entitled to deliver such consent, (iii) the Enbridge common shares issuable in connection with the Merger having been approved for listing on the NYSE, subject to official notice of issuance, and (iv) the absence of any governmental order prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the representations and warranties of the other party as of the date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers).

There is no certainty that the various closing conditions will be satisfied and that the necessary approvals will be obtained. If these or other conditions are not satisfied or if there is a delay in the satisfaction of such conditions, then Enbridge and SEP may not be able to complete the Merger timely or at all, and such failure or delay may have other adverse consequences. If the Merger is not completed or is delayed, Enbridge and SEP will be subject to a number of risks, including:

 

   

Enbridge and SEP may experience negative reactions from the financial markets, including negative impacts on the market price of Enbridge common shares and SEP common units, particularly to the extent that their current market price reflects a market assumption that the Merger will be completed;

 

29


Table of Contents
   

Enbridge and SEP will not realize the expected benefits of the combined company; and

 

   

some costs relating to the Merger, such as investment banking, legal and accounting fees, and financial printing and other related charges, must be paid even if the Merger is not completed.

Enbridge also expects to acquire all of the outstanding equity securities of each of EEP, EEQ and ENF in the Other Merger Transactions, and Enbridge’s efforts to complete those transactions may result in delays in completing the Merger with SEP or make it more difficult or time consuming than expected.

On September 18, 2018, Enbridge announced that it had separately entered into definitive agreements to acquire, in separate combination transactions, all of the outstanding equity securities that Enbridge does not already own of EEP, EEQ and ENF. EEP and EEQ will each hold a special meeting of its unitholders or shareholders, as the case may be, to obtain their approval of the applicable merger agreement. On November 8, 2018, Enbridge and ENF completed the previously announced ENF plan of arrangement pursuant to Section 193 of the Business Corporations Act (Alberta). Completion of the EEQ merger is contingent on the completion of the EEP merger, while none of the Merger or the EEP merger is conditioned on the completion of any of such other transactions. Enbridge cannot predict whether the Other Merger Transactions (other than the ENF plan of arrangement) will be approved by the requisite votes of security holders of the respective sponsored vehicles, whether all of the other conditions precedent to such transactions will be satisfied or, if so, the timing of the completion of such transactions. Enbridge’s efforts to complete those transactions may result in delays in completing the Merger with SEP or make it more difficult or time consuming than expected.

The assumptions and estimates underlying the financial projections are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of Enbridge and SEP. As a result, the financial projections for Enbridge and SEP may not be realized.

In performing its financial analyses and rendering its opinion regarding the fairness, from a financial point of view, of the Exchange Ratio to SEP and the Unaffiliated SEP Unitholders, Jefferies, the financial advisor to the Conflicts Committee, reviewed and relied on, among other things, financial forecasts for Enbridge and SEP prepared by management. These financial projections speak only as of the date made and will not be updated. These financial projections were not provided with a view to public disclosure, are subject to significant economic, competitive, industry and other uncertainties, and may not be achieved in full, within projected time frames or at all. The financial projections on which the Conflicts Committee’s financial advisor based its opinion may not be realized.

The unaudited pro forma condensed consolidated financial information and unaudited forecasted financial information included in this consent solicitation/prospectus is presented for illustrative purposes only and does not represent the actual financial position or results of operations of the combined company following the completion of the Merger. Future results of Enbridge and SEP may differ, possibly materially, from the unaudited pro forma condensed consolidated financial information and unaudited forecasted financial information presented in this consent solicitation/prospectus.

The unaudited pro forma condensed consolidated financial statements and unaudited forecasted financial information contained in this consent solicitation/prospectus are presented for illustrative purposes only, contain a variety of adjustments, assumptions and preliminary estimates and do not represent the actual financial position or results of operations of Enbridge or SEP prior to the Merger or following the Merger, the Midcoast Transaction and/or the Other Merger Transactions for several reasons. See the Unaudited Pro Forma Condensed Consolidated Financial Statements section beginning on page F-1. In addition, the Merger and post-Merger integration process, as well as the Other Merger Transactions, may give rise to unexpected liabilities and costs.

 

30


Table of Contents

Unexpected delays in completing the Merger, or in completing the Other Merger Transactions, may significantly increase the related costs and expenses incurred by Enbridge. The actual financial positions and results of operations of Enbridge and SEP prior to the Merger and following the Merger, the Midcoast Transaction and the Other Merger Transactions may be different, possibly materially, from the unaudited pro forma condensed consolidated financial statements or forecasted financial information included in this consent solicitation/prospectus. In addition, the assumptions used in preparing the unaudited pro forma condensed consolidated financial statements and forecasted financial information included in this consent solicitation/prospectus may not prove to be accurate and may be affected by other factors. Any significant changes in the market price of Enbridge common shares may cause a significant change in the purchase price used for Enbridge’s accounting purposes and the unaudited pro forma financial statements contained in this consent solicitation/prospectus.

Enbridge, GP LLC and their directors and officers may have interests that differ from your interests, and these interests may have influenced their decision to propose and to approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

The nature of the respective businesses of Enbridge and SEP and their respective affiliates may give rise to conflicts of interest between Enbridge and GP LLC, which manages the affairs and business of SEP. The interests of Enbridge, GP LLC, and their directors and officers may differ from your interests as a result of the relationships among them. A conflict could be perceived to exist, for example, in connection with the number of Enbridge common shares offered as the Merger Consideration, particularly where four of the seven directors on the GP LLC Board hold positions at Enbridge or its subsidiaries (other than GP LLC).

Furthermore, the SEP Partnership Agreement contains provisions that limit the General Partner and GP LLC’s fiduciary duties to SEP or any SEP unitholders, and the resolution or course of action in respect of any actual or potential conflict of interest will not constitute a breach of the SEP Partnership Agreement, or any agreement contemplated thereby, if such resolution or course of action is approved by a majority of the members of the Conflicts Committee acting in good faith.

In considering the recommendation of the GP LLC Board to approve the Merger proposal, you should consider that the directors and executive officers of Enbridge and GP LLC may have other interests that differ from, or are in addition to, the interests of SEP unitholders generally. These interests include the following:

 

   

four of the seven directors of GP LLC also hold positions at Enbridge or its subsidiaries (other than GP LLC);

 

   

six directors, including three non-management directors, of GP LLC own Enbridge common shares. Those directors, individually and in the aggregate, own shares representing less than 1.0% of the total Enbridge common shares outstanding as of November 5, 2018;

 

   

all of the executive officers of GP LLC hold positions at Enbridge or its subsidiaries (other than GP LLC);

 

   

seven individuals who serve as executive officers of GP LLC own Enbridge common shares, which, individually and in the aggregate, represent less than 1.0% of the Enbridge common shares outstanding as of November 5, 2018; and

 

   

all of the directors and executive officers of GP LLC have the right to indemnification under the SEP Partnership Agreement and the Merger Agreement. In addition, all of the directors and officers of Enbridge have the right to indemnification under the organizational documents of Enbridge and indemnification agreements with Enbridge.

 

31


Table of Contents

In addition, certain executive officers of Enbridge are also directors and executive officers of GP LLC. The following executive officers of Enbridge hold positions at GP LLC:

 

Director

  

GP LLC

  

Enbridge

John K. Whelen

   Director   

Executive Vice President & Chief

Financial Officer

William T. Yardley

  

President and Chairman of the

Board of Directors

  

Executive Vice President &

President, Gas Transmission & Midstream

Vern D. Yu

  

Director and Chief Development

Officer

  

Executive Vice President & Chief

Development Officer

These interests are described in more detail in the section titled “The Merger—Interests of Directors and Executive Officers of GP LLC in the Merger” beginning on page 69.

Because Enbridge beneficially owns approximately 83.1% of the outstanding SEP common units and Enbridge and Enbridge (U.S.) Inc. have agreed to deliver, or cause to be delivered, the Enbridge Written Consent approving the Merger, approval of the Merger is assured regardless of whether any Unaffiliated SEP Unitholders consent to the Merger.

Regardless of whether any Unaffiliated SEP Unitholders consent to the Merger, the Merger receiving approval is assured because Enbridge and Enbridge (U.S.) Inc., which together own approximately 83.1% of the outstanding SEP common units as of November 5, 2018, have agreed to approve the Merger on behalf of all the SEP common units beneficially owned by Enbridge and Enbridge (U.S.) Inc.

SEP does not have the ability to enter into certain alternatives to the Merger that are not approved by Enbridge.

As of November 5, 2018, Enbridge indirectly owns approximately 83.1% of the outstanding SEP common units. Accordingly, certain alternative transactions to the Merger entered into by SEP would need to be approved by Enbridge. Because Enbridge controls the voting of approximately 83.1% of SEP common units, Enbridge can effectively block SEP from entering into alternative transactions to the Merger that require the approval of SEP unitholders that Enbridge does not support, which could discourage third parties that may have an interest in acquiring all or a significant part of SEP from considering or proposing that transaction.

Enbridge and SEP will be subject to certain operating restrictions until the completion of the Merger.

The Merger Agreement generally restricts SEP, without Enbridge’s consent, or Enbridge, without SEP’s consent, from taking specified actions until the Merger occurs or the Merger Agreement terminates. These restrictions may prevent SEP or Enbridge from taking actions that each respectively might otherwise consider beneficial. Please read the section titled “The Merger Agreement—Interim Operations” beginning on page 82.

Risks Relating to the Enbridge Common Shares

The market price of Enbridge common shares will continue to fluctuate after the Merger.

Upon completion of the Merger, Unaffiliated SEP Unitholders will become holders of Enbridge common shares. The market price of Enbridge common shares may fluctuate significantly following completion of the Merger and Unaffiliated SEP Unitholders could lose some or all of the value of their investment in Enbridge common shares. In addition, the stock market has experienced significant price and volume fluctuations in recent times which, if they continue to occur, could have a material adverse effect on the market for, or liquidity of, the Enbridge common shares, regardless of Enbridge’s actual operating performance.

The market price of Enbridge common shares may be affected by factors different from those that historically have affected SEP common units.

Upon completion of the Merger, Unaffiliated SEP Unitholders will become holders of Enbridge common shares. The businesses of Enbridge differ from those of SEP in certain respects, and, accordingly, the financial

 

32


Table of Contents

position or results of operations and/or cash flows of Enbridge after the Merger, as well as the market price of Enbridge common shares, may be affected by factors different from those currently affecting the financial position or results of operations and/or cash flows of SEP, and, in turn, the market price of the SEP common units. For a discussion of the businesses of Enbridge and SEP and of some important factors to consider in connection with those businesses, see the section titled “Information About the Companies” beginning on page 37, and the documents incorporated by reference in the section titled “Where You Can Find More Information” beginning on page 131, including, in particular, in the sections titled “Risk Factors” in each of Enbridge’s Annual Report on Form 10-K for the year ended December 31, 2017 and SEP’s Annual Report on Form 10-K for the year ended December 31, 2017, in each case, as modified by subsequent reports filed by Enbridge and SEP.

Holders of Enbridge common shares, which will be received by eligible holders of the SEP common units as a result of the Merger, will have rights different from the current holders of SEP common units.

Upon completion of the Merger, Unaffiliated SEP Unitholders will no longer be unitholders of SEP, and Unaffiliated SEP Unitholders will become Enbridge shareholders. There are certain differences between the current rights of Unaffiliated SEP Unitholders and the rights to which such unitholders will be entitled as Enbridge shareholders. Enbridge was formed under the federal laws of Canada and SEP was formed under the laws of the State of Delaware. See the section titled “Comparison of Rights of Enbridge Shareholders and SEP Unitholders” beginning on page 100 for a discussion of the different rights associated with Enbridge common shares.

Enbridge may not pay any cash dividends to Enbridge shareholders, and Enbridge’s ability to declare and pay cash dividends to Enbridge shareholders, if any, in the future will depend on various factors, many of which are beyond Enbridge’s control.

Unlike SEP, Enbridge is not required to declare dividends of its available cash to its equityholders. The Enbridge Board may not declare dividends in the future. Should the Enbridge Board declare dividends on the Enbridge common shares in the future, the dividend yield of the Enbridge common shares may only be a fraction of the historical or projected dividend yield of the SEP common units. Any payment of future dividends will be at the sole discretion of the Enbridge Board and will depend upon many factors, including the financial condition, earnings and capital requirements of its operating subsidiaries, covenants associated with certain debt obligations, legal requirements, regulatory constraints and other factors deemed relevant by its board of directors. For more information regarding Enbridge’s financial condition, earnings and capital requirements, level of indebtedness or legal, regulatory or contractual restrictions, please read Enbridge’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, incorporated by reference herein.

Enbridge declares its dividend in Canadian dollars. However, Enbridge delivers payment to U.S. holders of Enbridge common shares in U.S. dollars. Fluctuations in the Canadian dollar/U.S. dollar exchange rate may impact the value of dividend payments received by U.S. holders of Enbridge common shares.

Enbridge declares its dividend in Canadian dollars. However, Enbridge delivers payment to U.S. holders of Enbridge common shares in U.S. dollars. The U.S. dollar value of any cash payment for declared dividends to a U.S. holder of Enbridge common shares will be converted into U.S. dollars using the indicative rate of exchange for Canadian interbank transactions established by the Bank of Canada on the declared record date. Fluctuations in the Canadian dollar/U.S. dollar exchange rate may impact the value of any dividend payments received by U.S. holders of Enbridge common shares.

Enbridge is organized under the laws of Canada and a substantial portion of its assets are, and many of its directors and officers reside, outside of the United States. As a result, it may not be possible for shareholders to enforce civil liability provisions of the securities laws of the United States in Canada.

Enbridge is organized under the laws of Canada. A substantial portion of Enbridge’s assets are located outside the United States, and many of Enbridge’s directors and officers and some of the experts named in this

 

33


Table of Contents

consent solicitation/prospectus (including in documents that are incorporated by reference into this consent solicitation/prospectus) are residents of jurisdictions outside of the United States. As a result, it may be difficult for investors to effect service within the United States upon Enbridge and those directors, officers and experts, or to realize in the United States upon judgments of courts of the United States predicated upon civil liability of Enbridge and such directors, officers or experts under the U.S. federal securities laws. There is uncertainty as to the enforceability in Canada by a court in original actions, or in actions to enforce judgments of United States courts, of the civil liabilities predicated upon the U.S. federal securities laws.

There may be future dilution of the Enbridge common shares, including as a result of any Enbridge common shares issued in connection with the Other Merger Transactions, which could adversely affect the market price of Enbridge common shares.

If the Merger is successfully completed, Enbridge expects that it will issue to the Unaffiliated SEP Unitholders approximately 90,998,687 Enbridge common shares at the Effective Time in connection with the Merger, based on the number of Enbridge common shares and the estimated number of SEP common units that are outstanding as of November 5, 2018 (not including any Enbridge common shares that would be expected to be issued upon the successful completion of the Other Merger Transactions). If the Other Merger Transactions are all also successfully completed in accordance with their respective transaction agreements, based on the number of outstanding shares or units, as the case may be, of SEP, EEP, EEQ and ENF, as of November 5, 2018, and the exchange ratio in each applicable transaction agreement, Enbridge expects that it will issue approximately 296,284,573 Enbridge common shares in aggregate upon the completion of the proposed Merger and the Other Merger Transactions. The actual number of Enbridge common shares issued in the Merger will be determined by multiplying the Exchange Ratio by the number of issued and outstanding SEP common units held by Unaffiliated SEP Unitholders as of the closing date of the Merger. The actual number of Enbridge common shares issued in each of the Other Merger Transactions will be determined by multiplying the applicable exchange ratio by the number of publicly held shares or units of the acquired entity as of the closing date of each such transaction.

In addition, the Merger Agreement does not restrict Enbridge’s ability to issue additional Enbridge common shares prior to (with consent of each conflicts committee and special committee pursuant to the respective merger agreements and arrangement agreement applicable to the proposed Merger and the Other Merger Transactions) or following the Effective Time or thereafter. In the future (assuming such consents have been secured), Enbridge may issue additional Enbridge common shares to raise cash for its projects, operations, acquisitions or other purposes. Enbridge may also (assuming such consents have been secured) acquire interests in other companies by using a combination of cash and Enbridge common shares or just Enbridge common shares. Enbridge has issued securities convertible into, or exchangeable for, or that represent the right to receive, Enbridge common shares and may (assuming such consents have been secured) do so again in the future. Any of these events may dilute the ownership interests of current Enbridge common shares, reduce Enbridge’s earnings per share and have an adverse effect on the price of Enbridge common shares. The issuance of these new shares and the sale of additional shares that may become eligible for sale in the public market from time to time could have the effect of depressing the market value for Enbridge common shares. The increase in the number of Enbridge common shares may lead to sales of such Enbridge common shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market value of, Enbridge common shares.

Sales of a substantial number of Enbridge common shares in the public market could adversely affect the market price of Enbridge common shares.

Sales of a substantial number of Enbridge common shares in the public market, or the perception that these sales may occur, could reduce the market price of Enbridge common shares.

 

34


Table of Contents

Tax Risks Relating to the Merger and the Ownership of Enbridge Common Shares Received in the Merger

In addition to reading the following risk factors, SEP unitholders are urged to read “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94 and “Material Canadian Federal Income Tax Consequences of the Merger” beginning on page 91 for a more complete discussion of the expected U.S. and Canadian federal income tax consequences of the Merger and owning and disposing of Enbridge common shares received in the Merger.

The Merger should be a taxable transaction for U.S. federal income tax purposes and, in such case, the resulting tax liability of an SEP unitholder, if any, will depend on such unitholder’s particular situation. The tax liability of an SEP unitholder as a result of the Merger could be more than expected.

SEP unitholders will receive Enbridge common shares and cash in lieu of fractional shares, if any, as the Merger Consideration. Although SEP unitholders will receive no cash consideration other than any cash received in lieu of fractional shares, if any, the Merger should be treated as a taxable sale by SEP unitholders for U.S. federal income tax purposes. In such case, as a result of the Merger, an SEP unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between such unitholder’s amount realized and the unitholder’s adjusted tax basis in the SEP common units. The amount of gain or loss recognized by each SEP unitholder in the Merger will vary depending on each unitholder’s particular situation, including the value of the Enbridge common shares and the amount of cash in lieu of fractional shares, if any, received by each unitholder in the Merger, the adjusted tax basis of the SEP common units exchanged by each unitholder in the Merger, and the amount of any suspended passive losses that may be available to a particular unitholder to offset a portion of the gain recognized by the unitholder.

Because the value of any Enbridge common shares received in the Merger will not be known until the Effective Time of the Merger, an SEP unitholder will not be able to determine its amount realized, and therefore its taxable gain or loss, until such time. In addition, because prior distributions in excess of an SEP common unitholder’s allocable share of SEP’s net taxable income decrease such SEP unitholder’s tax basis in its SEP common units, the amount, if any, of such prior excess distributions with respect to such SEP common units will, in effect, become taxable income to an SEP unitholder if the aggregate value of the consideration received in the Merger is greater than such SEP unitholder’s adjusted tax basis in its SEP common units, even if the aggregate value of the consideration received in the Merger is less than such SEP unitholder’s original cost basis in its SEP common units. Furthermore, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by SEP.

For a more complete discussion of certain U.S. federal income tax consequences of the Merger, please read “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94.

The U.S. federal income tax treatment of SEP unitholders with respect to owning and disposing of any Enbridge common shares received in the Merger will be different than their U.S. federal income tax treatment with respect to owning and disposing of their SEP common units and dividends paid with respect to Enbridge common shares, which generally will be subject to withholding tax.

SEP is classified as a partnership for U.S. federal income tax purposes and, generally, is not subject to entity-level U.S. federal income taxes. Instead, each SEP unitholder is required to take into account such unitholder’s share of items of income, gain, loss, and deduction of SEP in computing its U.S. federal income tax liability, regardless of whether cash distributions are made to such SEP unitholder by SEP. A distribution of cash by SEP to an SEP unitholder who is a U.S. holder (as defined in the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94) is generally not taxable for U.S. federal income tax purposes unless the amount of cash distributed is in excess of the SEP unitholder’s adjusted tax basis in its SEP common units. In contrast, Enbridge is classified as a corporation for U.S. federal income tax purposes, and thus,

 

35


Table of Contents

Enbridge and its subsidiaries (and not the Enbridge shareholders) are subject to taxation on their taxable income. A distribution of cash by Enbridge to a shareholder who is a U.S. holder will generally be included in such U.S. holder’s income as ordinary dividend income to the extent of Enbridge’s current or accumulated “earnings and profits”, as determined under U.S. federal income tax principles. A portion of the cash distributed to Enbridge shareholders by Enbridge after the Merger may exceed Enbridge’s current and accumulated earnings and profits. Cash distributions in excess of Enbridge’s current and accumulated earnings and profits will be treated as a non-taxable return of capital, reducing a U.S. holder’s adjusted tax basis in such shareholder’s Enbridge common shares and, to the extent the cash distribution exceeds such shareholder’s adjusted tax basis, as gain from the sale or exchange of such Enbridge common shares. However, Enbridge does not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, each Enbridge shareholder should expect to generally treat distributions made by Enbridge as dividends.

Dividends paid or credited or deemed to be paid or credited on Enbridge common shares to a Non-Canadian Resident Holder generally will be subject to Canadian withholding tax at a rate of 25% of the gross amount of the dividend, unless the rate is reduced under the provisions of an applicable income tax convention between Canada and the Non-Canadian Resident Holder’s jurisdiction of residence. For example, the rate of withholding tax under the Treaty applicable to a Non-Canadian Resident Holder who is a resident of the United States for purposes of the Treaty, is the beneficial owner of the dividend and is entitled to all of the benefits under the Treaty, generally will be 15%.

Please read “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94 and “Material Canadian Federal Income Tax Consequences of the Merger” beginning on page 91 for a more complete discussion of certain U.S. and Canadian federal income tax consequences of owning and disposing of Enbridge common shares.

Future changes to U.S., Canadian and foreign tax laws could adversely affect the combined company.

The U.S. Congress, the Canadian House of Commons, the Organization for Economic Co-operation and Development, and other government agencies in jurisdictions where Enbridge and its affiliates do business have been focused on issues related to the taxation of multinational corporations. Specific attention has been paid to “base erosion and profit shifting”, where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the United States, Canada and other countries in which Enbridge and its affiliates do business could change on a prospective or retroactive basis, and any such change could adversely affect the combined company.

Further, there can be no assurance that applicable Canadian income tax laws, regulations or tax treaties will not be changed or interpreted in a manner that is, or that applicable taxing authorities will not take administrative positions that are, adverse to Enbridge and its shareholders. Such taxation authorities may also disagree with how Enbridge calculates or has in the past calculated its income for tax purposes. Any such event could adversely affect Enbridge, its share price or the dividends or other payments to be paid to shareholders of Enbridge.

Risks Relating to Enbridge’s Business

You should read and consider risk factors specific to Enbridge’s businesses that will also affect the combined company after the completion of the Merger. These risks are described in Part I, Item 1A of Enbridge’s Annual Report on Form 10-K for the year ended December 31, 2017, and in other documents that are incorporated by reference herein. See the section titled “Where You Can Find More Information” beginning on page 131 for the location of information incorporated by reference in this consent solicitation/prospectus.

Risks Relating to SEP’s Business

You should read and consider risk factors specific to SEP’s businesses that will also affect the combined company after the completion of the Merger. These risks are described in Part I, Item 1A of SEP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and in other documents that are incorporated by reference herein. See the section titled “Where You Can Find More Information” beginning on page 131 for the location of information incorporated by reference in this consent solicitation/prospectus.

 

36


Table of Contents

INFORMATION ABOUT THE COMPANIES

Enbridge Inc.

200, 425-1st Street S.W.

Calgary, Alberta T2P 3L8, Canada

Phone: 1-403-231-3900

Enbridge is a North American energy infrastructure company with strategic business platforms that include an extensive network of crude oil, liquids and natural gas pipelines, regulated natural gas distribution utilities and renewable power generation assets. Enbridge delivers an average of 2.9 million barrels of crude oil each day through its Mainline and Express Pipeline, and accounts for approximately 62% of United States-bound Canadian crude oil exports. Enbridge also moves approximately 22% of all natural gas consumed in the United States, serving key supply basins and demand markets. Its regulated utilities serve approximately 3.7 million retail customers in Ontario, Quebec and New Brunswick. Enbridge also has interests in more than 1,700 megawatts (MW) of net renewable power generation capacity in North America and Europe. Enbridge has ranked on the Global 100 Most Sustainable Corporations index for the past nine years. Enbridge was incorporated on April 13, 1970 under the Companies Ordinance of the Northwest Territories and was continued under the Canada Corporations Act on December 15, 1987. Enbridge indirectly holds all of the outstanding equity interests of Merger Sub, an indirect wholly owned subsidiary formed in Delaware for the sole purpose of completing the Merger.

Enbridge is a public company and the Enbridge common shares trade on both the TSX and the NYSE under the ticker symbol “ENB”. Enbridge’s principal executive offices are located at 200, 425-1st Street S.W., Calgary, Alberta T2P 3L8, Canada, and its telephone number is 1-403-231-3900.

Additional information about Enbridge can be found on its website at https://www.enbridge.com. The information contained in, or that can be accessed through, Enbridge’s website is not intended to be incorporated into this consent solicitation/prospectus. For additional information about Enbridge, see the section titled “Where You Can Find More Information” beginning on page 131.

Spectra Energy Partners, LP

5400 Westheimer Court

Houston, Texas 77056

Phone: (713) 627-5400

SEP is a publicly-traded Delaware master limited partnership formed in 2007 that is engaged in the transmission, storage and gathering of natural gas, and the transportation and storage of crude oil, through interstate pipeline systems in the United States and Canada with approximately 16,000 miles of transmission and transportation pipelines, the storage of natural gas in underground facilities with aggregate working gas storage capacity of approximately 170 billion cubic feet (Bcf) and crude oil storage of approximately 5.6 million barrels.

SEP is managed by the General Partner, which is in turn managed by its general partner, GP LLC. GP LLC is indirectly wholly owned by Spectra Energy. Following its 2017 merger with a wholly owned subsidiary of Enbridge, Spectra Energy became a wholly owned subsidiary of Enbridge. As of November 5, 2018, Enbridge, through its ownership of Spectra Energy, owned 83.1% of the outstanding SEP common units.

SEP’s executive offices are located at 5400 Westheimer Court, Houston, Texas 77056 and its telephone number is (713) 627-5400.

Additional information about SEP can be found on its website at https://www.spectraenergypartners.com/. The information contained in, or that can be accessed through, SEP’s website is not intended to be incorporated into this consent solicitation/prospectus. For additional information about SEP, see the section titled “Where You Can Find More Information” beginning on page 131.

 

37


Table of Contents

Merger Sub

5400 Westheimer Court

Houston, Texas 77056

Phone: (713) 627-5400

Merger Sub, a Delaware limited liability company and an indirect wholly owned subsidiary of Enbridge, was formed solely for the purpose of facilitating the Merger. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the Merger Agreement. By operation of the Merger, Merger Sub will be merged with and into SEP. As a result, SEP will survive the Merger as a wholly owned subsidiary of Enbridge. Upon completion of the Merger, Merger Sub will cease to exist as a separate entity.

Merger Sub’s principal executive offices are located at 5400 Westheimer Court, Houston, Texas 77056, and its telephone number is (713) 627-5400.

The Other Merger Transactions

On September 18, 2018, Enbridge, EEP and EEQ announced that they entered into separate agreements on September 17, 2018, under which Enbridge will acquire all of the outstanding public Class A common units of EEP and all of the outstanding public listed shares of EEQ, respectively, subject to the approval of the holders of the Class A common units of EEP and the listed shares of EEQ, respectively. Under the terms of the EEP merger agreement, EEP public unitholders will receive 0.3350 of an Enbridge common share for each Class A common unit of EEP. Under the terms of the EEQ merger agreement, EEQ public shareholders will receive 0.3350 of an Enbridge common share for each listed Share of EEQ, which is at parity with the exchange ratio in the EEP merger.

Also on September 18, 2018, Enbridge and ENF announced that they entered into the arrangement agreement. On November 8, 2018, Enbridge and ENF completed the previously announced ENF plan of arrangement pursuant to Section 193 of the Business Corporations Act (Alberta) under which Enbridge acquired all of the issued and outstanding public common shares of ENF. Pursuant to the ENF plan of arrangement, each ENF common share was exchanged for 0.7350 of an Enbridge common share and cash of C$0.45 per ENF common share.

For more information on the Other Merger Transactions, see the section titled “Where You Can Find More Information” beginning on page 131.

 

38


Table of Contents

WRITTEN CONSENTS OF HOLDERS OF SEP COMMON UNITS

Record Date; SEP Unitholders Entitled to Consent and Consent Required

The Record Date is November 5, 2018. Only SEP unitholders of record at the close of business on the Record Date will be notified of and be entitled to execute and deliver a written consent with respect to the approval of the Merger Agreement and the Merger. The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. As of the close of business on November 5, 2018, the Record Date, there were 484,896,871 SEP common units issued and outstanding, 402,989,862 of which were owned by Enbridge and its affiliates.

Approval of the Merger Agreement and the Transactions Contemplated Thereby, Including the Merger

Pursuant to the terms of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc., which as of November 5, 2018, together beneficially owned 402,989,862 SEP common units representing approximately 83.1% of the outstanding SEP common units, have irrevocably agreed to deliver, or cause to be delivered, the Enbridge Written Consent within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units.

Submission of Consents

SEP unitholders may consent to the approval of the Merger Agreement and the Merger with respect to their SEP common units by completing, dating and signing the written consent furnished with this consent solicitation/prospectus and returning it to SEP.

If you hold SEP common units as of the Record Date and you wish to give your written consent, you must fill out the enclosed written consent, date and sign it, and promptly return it to SEP. Once you have completed, dated and signed the written consent, you may deliver it to SEP by faxing it to Spectra Energy Partners, LP, Attention: Corporate Secretary, at 713-627-5400, by emailing a .pdf copy of your written consent to USCorporateSecretary@enbridge.com or by mailing your written consent to Spectra Energy Partners, LP at 5400 Westheimer Court, Houston, Texas 77056, Attention: Corporate Secretary. If you do not return your written consent, it will have the same effect as a vote against the approval of the Merger Agreement and Merger.

Upon the later of 20 business days after this consent solicitation/prospectus is sent to SEP unitholders and the date on which a sufficient number of consents to approve the Merger Agreement, and the transactions contemplated thereby, have been received, the consent process will conclude. The delivery of the Enbridge Written Consent with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units. Enbridge and Enbridge (U.S.) Inc. have irrevocably agreed to deliver, or cause to be delivered, the Enbridge Written Consent within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part.

Revocation of Consents

Your consent may be revoked at any time before the later of 20 business days after this consent solicitation/prospectus is sent to SEP unitholders and the date on which the consents of a sufficient number of SEP common units to approve the Merger Agreement and the Merger have been received. If you wish to revoke a previously given consent before that time, you may do so by faxing such revocation to SEP, Attention: Corporate Secretary, at (713) 386-4002, by emailing a .pdf copy of your written consent to USCorporateSecretary@enbridge.com or by mailing your written consent to SEP at 5400 Westheimer Court, Houston, Texas 77056, Attention: Corporate Secretary.

 

39


Table of Contents

Solicitation of Consents

SEP will bear all costs and expenses in connection with the solicitation of written consents from its unitholders, except that Enbridge has agreed to pay all expenses of printing and mailing this consent statement/prospectus and all filing fees payable to the SEC in connection with this consent statement/prospectus. In addition to the solicitation of written consent by mail, SEP will request that banks, brokers and other record holders send written consents and consent materials to the beneficial owners of SEP common units and secure their voting instructions, if necessary. SEP will reimburse the banks, brokers and other record holders for their reasonable expenses in taking those actions. SEP has also made arrangements with D.F. King & Co., Inc. to assist in soliciting written consents and in communicating with SEP unitholders and estimates that it will pay them a fee of approximately US$7,500, plus fees on a per call basis and reasonable out-of-pocket fees and expenses for these services.

Expenses

The expense of preparing, printing and mailing these consent materials is being borne by Enbridge.

 

40


Table of Contents

THE MERGER

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this consent solicitation/prospectus as Annex A and incorporated by reference herein in its entirety. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

Transaction Structure

The Merger Agreement provides that, upon the terms and conditions in the Merger Agreement, and in accordance with the Delaware Limited Liability Company Act (the “DLLCA”) and the DRULPA, at the Effective Time of the Merger, Merger Sub will be merged with and into SEP, with SEP being the surviving entity of the Merger and a wholly owned subsidiary of Enbridge.

Merger Consideration

At the Effective Time, by virtue of the Merger and without any action on the part of the parties, each SEP common unit issued and outstanding immediately prior to the Effective Time (other than the Excluded Units) will be converted into the right to receive Enbridge common shares in exchange for such holder’s SEP common units at the Exchange Ratio.

If the Exchange Ratio would result in an SEP unitholder being entitled to receive, after aggregating all fractional units to which such holder would otherwise be entitled to receive in connection with the Merger and rounding to three decimal places, a fraction of an Enbridge common share, such holder will receive a cash payment (without interest, rounded down to the nearest cent) in lieu of such fractional Enbridge common share in an amount equal to the product obtained by multiplying (i) the amount of the fractional share interest in an Enbridge common share to which such holder would be entitled and (ii) an amount equal to the average of the volume-weighted average price per share of Enbridge common shares on the NYSE (as reported by Bloomberg L.P., or, if not reported therein, in another authoritative source mutually selected by Enbridge and SEP) on the trading day immediately prior to the Effective Time for ten trading days ending on the fifth full business day immediately prior to the Closing Date.

Background of the Merger

The Enbridge Board and senior management of Enbridge, with the assistance of Enbridge’s financial and legal advisors, from time to time review and consider various potential strategic opportunities and alternatives in light of industry, regulatory and economic trends and developments. As part of such review, Enbridge has evaluated potential transactions, including various transactions with respect to its sponsored vehicles, to advance its strategic objective of streamlining Enbridge’s business to create value for Enbridge’s and its sponsored vehicles’ security holders.

On February 27, 2017, Enbridge and Spectra Energy completed their previously announced combination. As a result of this transaction and Spectra Energy becoming a wholly owned subsidiary of Enbridge, Enbridge obtained the ability to control SEP through its indirect ownership of GP LLC, the general partner of the General Partner. Also in connection with this transaction, Enbridge acquired beneficial ownership of the 236,792,888 SEP common units owned at that time by Spectra Energy, which comprised 75.1% of the total outstanding SEP common units.

On November 2, 2017, Enbridge filed with the SEC Amendment No. 1 to the Schedule 13D, filed by Enbridge and certain of its affiliates with the SEC on March 9, 2017 with respect to its investment in SEP (the “SEP Schedule 13D”). Enbridge disclosed in Amendment No. 1 to the SEP Schedule 13D that, as part of its ongoing evaluation of its investment in SEP, and alternatives to that investment, including a potential consolidation, acquisition or sale of assets or SEP common units, or changes to SEP’s capital structure, Enbridge

 

41


Table of Contents

may, from time to time, formulate plans or proposals with respect to such matters and hold discussions with or make formal proposals to the board of directors of the general partner of SEP, other holders of SEP common units or other third parties regarding such matters.

On November 29, 2017, Enbridge announced the finalization of its strategic plan and financial outlook for 2018 through 2020 (the “2018-2020 plan”), including Enbridge’s key objectives of growing organically, minimizing risk and streamlining Enbridge’s business. In connection with such strategic plan, and in order to help reduce SEP’s cost of capital and streamline Enbridge’s capital structure with respect to SEP, Enbridge also announced on November 29, 2017 that it made a formal offer to SEP to convert all of Enbridge’s incentive distribution rights (“IDRs”) and 2% economic general partner interest in SEP owned through the General Partner into a fixed number of additional common units in SEP and a non-economic general partner interest in SEP (the “GP/IDR Transaction”).

On December 22, 2017, the United States implemented U.S. tax reform. The Tax Cuts and Jobs Act (“TCJA”) was signed into law and became enacted for tax purposes. Substantially all of the provisions of the TCJA are effective for taxation years beginning after December 31, 2017. The most significant change included in the TCJA was a reduction in the corporate federal income tax rate from 35% to 21%.

On January 21, 2018, following negotiations between Enbridge and a conflicts committee empaneled by the board of directors of GP LLC to review the GP/IDR Transaction, SEP entered into and consummated an equity restructuring agreement with the General Partner (acting in its individual capacity and not in its capacity as the general partner of SEP), pursuant to which the IDRs and the 2% economic general partner interest in SEP held by the General Partner were converted into (a) 172,500,000 newly issued SEP common units and (b) a non-economic general partner interest in SEP. Following the consummation of the GP/IDR Transaction, Enbridge beneficially owned 83.11% of the total SEP common units outstanding.

On February 15, 2018, SEP disclosed in connection with its quarterly business update that it expected no material impact to cash flows over the 2018-2020 plan timeframe as a result of the TCJA.

On March 15, 2018, the Federal Energy Regulatory Commission (the “FERC”) revised a long-standing policy, announcing in a revised policy statement that it would no longer permit entities organized as master limited partnerships (“MLPs”) to recover an income tax allowance for interstate pipeline assets with cost-of-service rates. The FERC also, among other things, issued a notice seeking comment on how the FERC should address changes related to accumulated deferred income taxes (“ADIT”) (collectively, with the revised policy statement, the “March FERC Announcement”). The trading price of the Enbridge common shares and the SEP common units reacted negatively to the March FERC Announcement, including the price of Enbridge common shares closing 4.9% lower the day of the March FERC Announcement and 4.8% lower three weeks after the day of the March FERC Announcement, and the SEP common units closing 10.8% lower the day of the March FERC Announcement and 16.1% lower three weeks after the day of the March FERC Announcement, in each case, compared to their respective closing prices on the NYSE on the trading day immediately preceding the date of the March FERC Announcement.

On March 16, 2018, Enbridge announced that it was continuing to assess options to mitigate the effects of the March FERC Announcement on Enbridge’s sponsored vehicles, including through the acquisition of all of Enbridge’s sponsored vehicles by Enbridge, but that Enbridge did not expect a material impact to its previously disclosed 2018-2020 consolidated financial guidance as a result of the March FERC Announcement.

Also on March 16, 2018, SEP announced that based on its preliminary assessment of the potential impacts of the March FERC Announcement, it anticipated no immediate impact to its current gas pipeline cost of service rates and therefore to its previously announced 2018 financial guidance, and that any future impacts would only take effect upon the execution and settlement of a rate case. SEP also announced that any unmitigated impacts were not anticipated to materially change SEP’s distributable cash flow outlook beyond 2018.

 

42


Table of Contents

On April 24, 2018, the Enbridge Board held a telephonic meeting to discuss the financial effects of the March FERC Announcement on Enbridge, its sponsored vehicles, and the MLP market more broadly, as well as options with respect to minimizing those effects. Enbridge management highlighted the negative impact of the March FERC Announcement and the decline in the effectiveness of the MLP business model and recommended acceleration of Enbridge’s review of a potential corporate simplification.

Throughout April and May 2018, Enbridge management also developed updated projections for its sponsored vehicles, including extended five-year projections through 2022, in light of the March FERC Announcement and in connection with Enbridge’s review of a potential corporate simplification.

On May 9, 2018, SEP disclosed in connection with its quarterly business update that while many uncertainties remained in regard to the implementation of the March FERC Announcement, if implemented as announced, SEP estimated the unmitigated impact to revenue to be approximately US$110 to US$125 million per year, and while SEP expected no material impact on SEP’s distributable cash flows, any potential impacts to distributable cash flow beyond 2018 would be dependent on the success of mitigation efforts, including the execution of a rate case and final FERC policy implementation.

On May 10, 2018, Enbridge and SEP released their respective quarterly reports for the quarter ended March 31, 2018, which stated, among other things, that the March FERC Announcement was adversely affecting MLPs generally, including SEP, due to both the direct consequences of the changes in FERC policy and possible negative impact on the longer-term availability of capital on attractive terms to SEP.

On May 16, 2018, the Enbridge Board held a telephonic meeting, which was also attended by representatives of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofAML”) and Scotia Capital Inc., financial advisors to Enbridge, and Sullivan & Cromwell LLP (“S&C”) and McCarthy Tétrault LLP, legal advisors to Enbridge, to discuss Enbridge management’s conclusions and recommendations following completion of their review of a potential corporate simplification. Enbridge management noted that the unit and share prices of Enbridge’s sponsored vehicles, including SEP, weakened significantly following the March FERC Announcement, making them an ineffective source of capital for Enbridge, relative to alternative equity sources. Enbridge management also discussed potential alternatives to a buy-in of all of Enbridge’s sponsored vehicles, including maintaining Enbridge’s existing corporate structure or converting the sponsored vehicles into C-corporations for tax purposes but maintaining them as public vehicles. Following a discussion by the Enbridge Board of the potential risks and benefits of a buy-in of Enbridge’s sponsored vehicles and the viability of various alternatives, the Enbridge Board authorized Enbridge management to make an offer to each of its sponsored vehicles to acquire the outstanding public equity securities of the vehicles through separate combination transactions.

On May 17, 2018, representatives of Enbridge delivered a non-binding offer letter to the GP LLC Board proposing that Enbridge acquire all of the outstanding SEP common units not already owned by Enbridge and its affiliates through a merger between SEP and a wholly owned subsidiary of Enbridge (the “Proposed Transaction”), at an exchange ratio of 1.0123 Enbridge common shares for each issued and outstanding publicly held SEP common unit. On the same day, representatives of Enbridge delivered proposals to each of EEP, EEQ and ENF to acquire the outstanding publicly traded equity securities of those sponsored vehicles, at exchange ratios of (a) 0.3083 Enbridge common shares for each issued and outstanding publicly held Class A common unit of EEP; (b) 0.2887 Enbridge common shares for each issued and outstanding publicly held listed share of EEQ; and (c) 0.7029 Enbridge common shares for each issued and outstanding publicly held common share of ENF.

On May 17, 2018, immediately following the delivery of its non-binding offer letter, Enbridge publicly announced that it had made such proposal, as well as proposals with respect to EEP, EEQ and ENF, and that Enbridge believed that both the direct consequences of the March FERC Announcement, as well as the adverse market effects following such announcement, weakened SEP’s value proposition and made it an ineffective and unreliable standalone financing vehicle to support Enbridge’s growth. Enbridge further announced that it

 

43


Table of Contents

believed that, on a standalone basis, SEP would face the cessation of distribution growth and potential reductions in cash distribution to unitholders as early as 2019. On the same day, Enbridge also amended the SEP Schedule 13D and Enbridge’s Schedule 13D filings with the SEC in respect of Enbridge’s investments in EEP and EEQ to disclose its proposals to SEP, EEP and EEQ, respectively.

On May 17, 2018, the GP LLC Board held a telephonic meeting to discuss the offer received from Enbridge, including the need to establish a conflicts committee and the actions the GP LLC Board and such conflicts committee would need to take in coming weeks. Following that discussion, the GP LLC Board determined that J.D. Woodward, Michael G. Morris and Nora Mead Brownell each met the independence requirements for serving on the Conflicts Committee and formally constituted the Conflicts Committee, consisting of Mr. Woodward (Chair), Ms. Brownell and Mr. Morris. The GP LLC Board authorized the Conflicts Committee to, on behalf of SEP, (a) review, evaluate, consider, and negotiate the Proposed Transaction, (b) determine whether or not to approve the Proposed Transaction and, if the Conflicts Committee were to determine it appropriate, provide Special Approval (as defined in the SEP Partnership Agreement) of the Proposed Transaction, (c) make such recommendations to the GP LLC Board as the Conflicts Committee deems appropriate, including whether or not the GP LLC Board should approve the Proposed Transaction, and (d) do all things that may, in the judgment of the Conflicts Committee’s members, be deemed necessary, appropriate or advisable to assist the GP LLC Board in carrying out its responsibilities with respect to the Proposed Transaction.

Throughout the process of negotiating such offer, SEP received communications from certain Unaffiliated SEP Unitholders, which feedback was provided to the Conflicts Committee and its legal and financial advisors and considered by the Conflicts Committee as part of the review process.

On May 17, 2018, Mr. Woodward contacted a representative of Sidley Austin LLP (“Sidley Austin”) to discuss engaging Sidley Austin as legal counsel to represent the Conflicts Committee in connection with its consideration of the Proposed Transaction. On May 18, 2018, Mr. Woodward contacted a representative of Jefferies to discuss engaging Jefferies to advise the Conflicts Committee in connection with its consideration of the Proposed Transaction.

On May 18, 2018, SEP announced the receipt of Enbridge’s offer letter and that it had established the Conflicts Committee to review and consider the Proposed Transaction.

On May 23, 2018, the Conflicts Committee held a telephonic meeting to discuss the selection of legal and financial advisors. The Conflicts Committee, after considering the matter, unanimously approved the engagement of Sidley Austin as its legal advisor in relation to the Proposed Transaction because of Sidley Austin’s knowledge, expertise, and experience with respect to public merger and acquisition transactions and conflicts committee engagements. After the Conflicts Committee discussed Jefferies’ credentials and qualifications, the Conflicts Committee determined that it would be willing to engage Jefferies as its financial advisor in connection with the Proposed Transaction because of Jefferies’ knowledge and experience with respect to public merger and acquisition transactions, particularly transactions involving master limited partnerships, and because of Jefferies’ experience with SEP, including through its role as the financial advisor to the conflicts committee empaneled in connection with the GP/IDR Transaction. The Conflicts Committee also discussed the Morris Litigation. The Conflicts Committee noted that Enbridge had informed them that Friedman Oster & Tejtel PLLC and Grant & Eisenhofer P.A., counsels for the Plaintiff in the Morris Litigation (collectively, with Andrews & Springer LLC, “Plaintiff’s Counsel”), had sent a letter, dated May 18, 2018, regarding the Proposed Transaction to the Conflicts Committee, care of Skadden, Arps, Slate, Meagher & Flom LLP, the defense counsel in the Morris Litigation (“Skadden”), and asked a representative of Sidley Austin to obtain a copy of the letter from Skadden.

On May 29, 2018, the Conflicts Committee held a telephonic meeting to continue its discussion of preliminary matters related to the Proposed Transaction. At the meeting, the Conflicts Committee unanimously approved the engagement of Jefferies as the Conflicts Committee’s financial advisor. The Conflicts Committee also discussed the compensation to be paid to the members of the Conflicts Committee for their work in

 

44


Table of Contents

connection with the Proposed Transaction, expressing a preference to be compensated in the form of SEP common units. On this same date, a representative of Sidley Austin received from a representative of Skadden a copy of the May 18, 2018 letter addressed to the Conflicts Committee regarding the Proposed Transaction and forwarded the letter to the Conflicts Committee.

On June 1, 2018, the Conflicts Committee held a telephonic meeting in which it discussed the May 18, 2018 letter from Friedman Oster & Tejtel PLLC and Grant & Eisenhofer P.A. which asserted that (a) the Plaintiff’s derivative claim was a valuable asset of SEP and (b) Enbridge’s offer of an exchange ratio of 1.0123 Enbridge common shares for each issued and outstanding publicly held SEP common unit was inadequate because it did not provide SEP with any value associated with the derivative claim due to the failure of the offer to include any premium above the trading price of SEP common units. After discussing the letter with a representative of Sidley Austin, the Conflicts Committee determined that it would need to consider what value, if any, to attribute to the derivative claims in the Morris Litigation in connection with its negotiation of the Proposed Transaction. In furtherance thereof, the Conflicts Committee directed the representative of Sidley Austin to request further information from representatives of Skadden and Plaintiff’s Counsel, including by requesting that Skadden and Plaintiff’s Counsel hold telephonic meetings with the Conflicts Committee and/or its advisors.

On June 4, 2018, the directors of the GP LLC Board determined that (a) each member of the Conflicts Committee would receive a grant of SEP common units having a value of US$40,000 based on the closing price of SEP common units on the NYSE on May 16, 2018, the day before Enbridge announced the Proposed Transaction, plus US$1,500 for each related meeting of the Conflicts Committee and an additional US$1,500 for any required travel to Houston, Texas for an in-person meeting, and (b) the Chair of the Conflicts Committee would receive an additional grant of SEP common units having a value of US$40,000 based on the closing price of SEP common units on the NYSE on May 16, 2018. In the event that the Merger is consummated, each member of the Conflicts Committee would receive an additional hourly fee of US$500 for any time spent in connection with any litigation arising out of their service on the Conflicts Committee.

On June 5, 2018, the Conflicts Committee executed an engagement letter with Jefferies.

On June 6, 2018, members of Enbridge management, along with representatives of BofAML, S&C and Enbridge’s tax advisors, conducted an in-person presentation at Enbridge’s office in Houston, Texas, with the Conflicts Committee and representatives of Jefferies and Sidley Austin, to review Enbridge’s proposed terms for the Proposed Transaction, Enbridge’s rationale for pursuing the buy-in of SEP and a summary of certain financial projections for Enbridge and SEP prepared by Enbridge management. Following this presentation and discussion among the attendees, the members of Enbridge management and the representatives of S&C left the meeting. The Conflicts Committee then continued its meeting, in the presence of representatives of Sidley Austin and Jefferies, and discussed the presentation by Enbridge management.

On June 19, 2018, Enbridge provided the Conflicts Committee and its legal and financial advisors with access to an electronic data room in order to disseminate to the Conflicts Committee and its advisors key due diligence materials related to Enbridge, which electronic data room included financial projections with respect to Enbridge and SEP prepared by Enbridge management. From June 19, 2018 until the execution of the Merger Agreement, the Conflicts Committee and its advisors’ due diligence regarding Enbridge and its affiliates involved their review of materials made available in the electronic data room and conference calls between the Conflicts Committee and its advisors and representatives of Enbridge.

Later on June 19, 2018, representatives of Jefferies and BofAML conducted a due diligence call at which representatives of Jefferies, on behalf of the Conflicts Committee, outlined the key outstanding items not included in the initial contents of the electronic data room.

On June 22, 2018, representatives of Jefferies and Sidley Austin, on behalf of the Conflicts Committee, participated in a diligence call with Enbridge management and advisors to Enbridge to discuss the Proposed Transaction’s potential tax impacts to the Unaffiliated SEP Unitholders.

 

45


Table of Contents

On June 28, 2018, the Minnesota Public Utilities Commission approved the issuance of a Certificate of Need and pipeline route for construction of Enbridge’s United States Line 3 Replacement Program in Minnesota (the “Line 3 Approval”). The price of Enbridge common shares closed 4.5% higher the day of the Line 3 Approval and 10.8% higher one week after the day of the Line 3 Approval, and the SEP common units closed 4.9% higher the day of the Line 3 Approval and 10.9% higher one week after the day of the Line 3 Approval, in each case, compared to their respective closing prices on the NYSE on the trading day immediately preceding the date of the Line 3 Approval.

On July 6, 2018, representatives of S&C provided an initial draft of the Merger Agreement to representatives of Sidley Austin. Representatives of Sidley Austin distributed the draft to the Conflicts Committee.

On July 9, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, conducted a follow-up due diligence call with representatives of BofAML and Enbridge management to discuss various macroeconomic and company-specific assumptions utilized in Enbridge’s forecasts.

On the morning of July 17, 2018, the Conflicts Committee held a meeting with representatives of Sidley Austin to review the Conflicts Committee members’ legal duties in connection with, and best practices for, carrying out their evaluation, negotiations and review process in respect of the Proposed Transaction. Representatives of Jefferies then reviewed with the Conflicts Committee Jefferies’ preliminary financial analyses regarding Enbridge’s offer of an exchange ratio of 1.0123 Enbridge common shares for each issued and outstanding publicly held SEP common unit. The Conflicts Committee discussed with its legal and financial advisors its ongoing review of materials relating to the Morris Litigation and subsequently decided to make an initial counteroffer that would reserve any potential additional value that the Conflicts Committee subsequently determined to attribute to the Morris Litigation. The Conflicts Committee then discussed with its advisors the appropriate response to Enbridge’s proposal and, after discussion, the Conflicts Committee directed representatives of Jefferies to return to Enbridge with a counteroffer of an exchange ratio of 1.25 Enbridge common shares for each issued and outstanding publicly held SEP common unit (not accounting for any value that the Conflicts Committee might attribute to the Morris Litigation).

Later on July 17, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, conveyed to representatives of BofAML certain key issues that the Conflicts Committee had identified related to Enbridge’s initial proposal and communicated the Conflicts Committee’s counterproposal of an exchange ratio of 1.25 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

On July 18, 2018, after markets closed, the FERC issued a further order (the “July FERC Announcement”) that (a) dismissed all requests for rehearing of the March FERC Announcement and explained that the March FERC Announcement did not establish a binding rule, but was instead an expression of general policy that the FERC intended to follow in the future; and (b) provided guidance that if an MLP or other tax pass-through pipeline eliminates its income tax allowance from its cost of service pursuant to the March FERC Announcement, then ADIT will similarly be removed from its cost of service and MLP pipelines may also eliminate previously accumulated sums in ADIT instead of flowing ADIT balances back to ratepayers. The price of Enbridge common shares closed 3.0% higher the day after the July FERC Announcement and the SEP common units closed 5.4% higher the day after the July FERC Announcement, in each case, compared to their respective closing prices on the NYSE on the date of the July FERC Announcement.

On July 20, 2018, the Conflicts Committee, with its legal and financial advisors, held a telephonic meeting with representatives of Skadden in the Morris Litigation during which Skadden discussed with the Conflicts Committee and its advisors the current status of the Morris Litigation. The representatives of Skadden also discussed the arguments of the Plaintiff and the defense in the Morris Litigation and discussed what such counsel perceived as the strengths of the defense’s arguments and the weaknesses of the Plaintiff’s arguments.

 

46


Table of Contents

On July 24, 2018, the Conflicts Committee held a telephonic meeting to discuss (a) recent developments stemming from the July FERC Announcement and (b) the draft Merger Agreement. The Conflicts Committee expressed that it wished to hold a telephonic meeting with Enbridge to learn about Enbridge’s most up-to-date regulatory perspective in light of the July FERC Announcement. Representatives of Sidley Austin then reviewed with the Conflicts Committee the draft Merger Agreement received on July 6, 2018 from S&C and possible revisions to the draft Merger Agreement.

On July 26, 2018, the Conflicts Committee held a telephonic meeting at which the Conflicts Committee received a presentation from a representative of Enbridge management regarding the July FERC Announcement, Enbridge’s perspective on the July FERC Announcement (including as applied to SEP) and considerations with respect to SEP regarding its potential filing of a rate case. Separately, representatives of Jefferies informed the Conflicts Committee that they had recently requested, on behalf of the Conflicts Committee, that Enbridge and BofAML provide updated financial information taking into account the July FERC Announcement. In addition, the Conflicts Committee discussed with its advisors whether there would be a need to revise its counteroffer of an exchange ratio of 1.25 Enbridge common shares for each issued and outstanding publicly held SEP common unit in light of the July FERC Announcement and determined that, as long as there was no material change to the projections for SEP, there would be no need to revise its counteroffer.

On July 26, 2018, the Conflicts Committee’s advisors, on behalf of the Conflicts Committee, held a telephonic meeting with representatives of Plaintiff’s Counsel, during which such representatives discussed the current status of the Morris Litigation. Plaintiff’s Counsel also discussed the arguments of the Plaintiff and the defense in the Morris Litigation and discussed what such counsels perceived as the strengths of the Plaintiff’s arguments and the weaknesses of the defense’s arguments.

Later on July 26, 2018, Enbridge provided the Conflicts Committee with updated management projections, taking into account the July FERC Announcement, for SEP on a standalone basis, and on July 27, 2018, Enbridge provided the Conflicts Committee with updated management projections, taking into account the July FERC Announcement, for Enbridge both on a standalone and a pro forma basis, taking into account various scenarios with respect to the Proposed Transaction and the Other Merger Transactions.

On July 27, 2018, Enbridge management and representatives of BofAML held a call with representatives of Jefferies at which Enbridge management discussed with representatives of Jefferies the updated management projections for both SEP and Enbridge that were provided on July 26, 2018 and earlier that day, respectively, which in Enbridge management’s view did not materially differ from the prior sets of projections. Subsequently, representatives of Jefferies and a member of the Conflicts Committee reviewed the updated projections provided by Enbridge management, during which discussion representatives of Jefferies noted that they concurred with Enbridge management’s view regarding the updated projections.

Later on July 27, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, attended a call with members of Enbridge management and BofAML to reiterate the Conflicts Committee’s prior counterproposal of an exchange ratio of 1.25 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

On July 31, 2018 and August 1, 2018, the Enbridge Board held its regular quarterly meeting, where members of management of Enbridge provided an update to the Enbridge Board on the status and timeline of the negotiations with the Conflicts Committee and negotiations regarding the Other Merger Transactions and the July FERC Announcement.

On August 2, 2018, representatives of Sidley Austin and Jefferies attended a call with members of Enbridge management and Enbridge’s tax advisors at which Enbridge’s tax advisors provided incremental information to the representatives of Sidley Austin and Jefferies regarding potential tax impacts of the Proposed Transaction to Unaffiliated SEP Unitholders.

 

47


Table of Contents

On August 2, 2018, in connection with its quarterly business update, SEP announced that, although assessing the near- and long-term implications of the July FERC Announcement would be challenging pending greater clarification from FERC, SEP estimated that the effect of the July FERC Announcement, if implemented as announced, and combined with the impact of the U.S. tax reform, on SEP’s revenue and distributable cash flow would be immaterial and the benefit from changes related to the removal of ADIT from cost of service rates was expected to largely offset the income tax disallowance in cost of service rates.

On the morning of August 3, 2018, in connection with its quarterly business update, Enbridge announced that there were uncertainties with respect to implementation of the July FERC Announcement, including the potential for different outcomes as the result of rate case or customer challenges, and that while there would be varying impacts to each of Enbridge’s sponsored vehicles, on a consolidated basis, Enbridge did not expect a material impact to its results of operations or cash flows over the 2018 to 2020 horizon.

Also on the morning of August 3, 2018, the Conflicts Committee held a telephonic meeting at which the Conflicts Committee received a presentation from representatives of Sidley Austin regarding the Morris Litigation, including a summary and analysis of the positions of the respective counsels and additional materials relating to the litigation, including the respective expert reports. The Conflicts Committee then discussed with its advisors the relative merits of the arguments of the defense and the Plaintiff and deliberated as a committee.

Also on the morning of August 3, 2018, Mr. Mark A. Maki, Senior Vice President, Corporate Planning and Sponsored Vehicles, of Enbridge spoke telephonically with Mr. Woodward to deliver Enbridge’s revised proposal of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

Later on August 3, 2018, the Conflicts Committee held a telephonic meeting at which it received a presentation from members of Enbridge management regarding the Line 3 Replacement Program of Enbridge. Additionally, on August 3, 2018, as part of due diligence, representatives of Sidley Austin had a telephonic meeting with S&C and certain in-house lawyers at Enbridge to review due diligence questions with respect to the status of certain litigation and administrative proceedings at Enbridge and SEP, including Enbridge management’s estimates regarding the costs of continuing to litigate the Morris Litigation through its ultimate judicial resolution, assuming that the Proposed Transaction was not consummated and that, as a result, such derivative claim was not extinguished.

On August 4, 2018, the Conflicts Committee’s legal and financial advisors, members of Enbridge management and representatives of BofAML and S&C held a conference call to discuss Enbridge’s latest proposal of an exchange ratio of 1.05 Enbridge common shares for each issued and outstanding SEP common unit. On the call, Enbridge management delivered a presentation explaining Enbridge’s rationale for offering an exchange ratio of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit. The Conflicts Committee’s advisors asked Enbridge management questions regarding the presentation and expressed dissatisfaction with the offer of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

Later on August 4, 2018, the Conflicts Committee held a telephonic meeting with representatives of Jefferies and Sidley Austin at which representatives of Jefferies reviewed with the Conflicts Committee Jefferies’ updated preliminary financial analyses regarding Enbridge’s latest proposal of an exchange ratio of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit. Following discussion, the Conflicts Committee agreed that an exchange ratio of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit was too low and directed Jefferies to inform BofAML of this view and that, in lieu of the Conflicts Committee’s making a counteroffer, the Conflicts Committee requested that Enbridge instead submit an improved offer. The Conflicts Committee then discussed with its advisors the possibility of proposing to add a new condition to closing in the Merger Agreement that SEP obtain a vote of the majority of Unaffiliated SEP Unitholders in favor of the Proposed Transaction (a “majority of the minority vote”). The Conflicts Committee then returned to its discussion with its advisors regarding the Morris Litigation and what value, if any, to assign to such litigation. After further discussion and consultation with its

 

48


Table of Contents

legal and financial advisors, the Conflicts Committee determined that the claims in the Morris Litigation had no value for purposes of valuing SEP in connection with negotiation of the Proposed Transaction other than the benefit that would be received by SEP in avoiding the continuing litigation costs associated therewith due to the extinguishment of the derivative claim upon consummation of the Proposed Transaction (“avoided continuing litigation costs”).

Later on August 4, 2018, Jefferies, on behalf of the Conflicts Committee, communicated the Conflicts Committee’s disappointment with the proposed exchange ratio of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit and indicated that the Conflicts Committee would not be willing to continue engaging with Enbridge unless Enbridge increased its counteroffer.

Between August 4, 2018 and August 14, 2018, Enbridge management and its advisors continued to discuss internally the Conflicts Committee’s refusal to accept an exchange ratio of 1.05 Enbridge common shares for each issued and outstanding publicly held SEP common unit and whether to make an improved offer as the Conflicts Committee had requested.

On August 14, 2018, Mr. Maki called Mr. Woodward to deliver a revised offer of an exchange ratio of 1.065 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

Later on August 14, 2018, the Conflicts Committee held a telephonic meeting with representatives of Jefferies and Sidley Austin at which Jefferies reviewed with the Conflicts Committee Jefferies’ updated preliminary financial analyses regarding Enbridge’s new offer of an exchange ratio of 1.065 Enbridge common shares for each issued and outstanding publicly held SEP common unit. Following discussion with its advisors, the Conflicts Committee determined that, although the offer of an exchange ratio of 1.065 Enbridge common shares for each issued and outstanding publicly held SEP common unit was too low to accept, Enbridge’s offer of 1.065 Enbridge common shares for each issued and outstanding publicly held SEP common unit indicated a willingness on the part of Enbridge to continue to negotiate. Following further discussion with its advisors regarding the best counteroffer that could be made, and taking into consideration statements previously made in the negotiations by Enbridge and BofAML, the Conflicts Committee directed representatives of Jefferies to return to Enbridge and its advisors with a revised offer of an exchange ratio of 1.15 Enbridge common shares for each issued and outstanding publicly held SEP common unit and to suggest adding a majority of the minority vote condition to the Merger Agreement.

Later on August 14, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, delivered to representatives of BofAML a counterproposal of 1.15 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

On August 16, 2018, Mr. Maki called Mr. Woodward to deliver a further revised Enbridge offer of 1.09 Enbridge common shares for each issued and outstanding publicly held SEP common unit. Mr. Maki further clarified that the Enbridge offer assumed that there would be no majority of the minority vote condition. Mr. Maki further noted that Enbridge would ascribe no value to the claims in the Morris Litigation.

Later on August 16, 2018, the Conflicts Committee held a telephonic meeting with representatives of Jefferies and Sidley Austin at which representatives of Jefferies reviewed with the Conflicts Committee Jefferies’ updated preliminary financial analyses regarding Enbridge’s new offer of an exchange ratio of 1.09 Enbridge common shares for each issued and outstanding publicly held SEP common unit. Representatives of Jefferies informed the Conflicts Committee that Enbridge assumed that the proposal would not include a majority of the minority vote condition. Representatives of Sidley Austin then discussed with the Conflicts Committee certain additional comments to be included in a revised draft Merger Agreement. After further discussion with its advisors, the Conflicts Committee determined to make a counteroffer of an exchange ratio of 1.13 Enbridge common shares for each issued and outstanding publicly held SEP common unit, which took into account its determination that the claims in the Morris Litigation had no value to SEP other than the avoided continuing litigation costs. In response to a question raised, representatives of Jefferies noted that such avoided continuing litigation costs were so small in comparison to the total value of SEP that they would not have a meaningful

 

49


Table of Contents

impact on the exchange ratio. The Conflicts Committee then authorized representatives of Jefferies to return to BofAML with a counteroffer of an exchange ratio of 1.13 Enbridge common shares for each issued and outstanding publicly held SEP common unit and to inform them that (a) no majority of the minority vote would be contemplated and, (b) after careful consideration, the Conflicts Committee had determined that the claims in the Morris Litigation had no value to SEP other than the avoided continuing litigation costs. Later on August 16, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, delivered to representatives of BofAML the counterproposal of 1.13 Enbridge common shares for each issued and outstanding publicly held SEP common unit as well as the Conflicts Committee’s position regarding the majority of the minority vote and its determination regarding the value of the Morris Litigation.

On August 17, 2018, Mr. Maki called Mr. Woodward to deliver a further revised Enbridge offer of 1.11 Enbridge common shares for each issued and outstanding publicly held SEP common unit and to convey that this offer was Enbridge’s best and final offer. Representatives of BofAML subsequently called representatives of Jefferies to follow up and reiterate the offer of 1.11 Enbridge common shares for each issued and outstanding publicly held SEP common unit.

On August 17, 2018, the Conflicts Committee held a telephonic meeting with representatives of Jefferies and Sidley Austin at which Jefferies reviewed with the Conflicts Committee Jefferies’ updated preliminary financial analyses regarding Enbridge’s new offer for an exchange ratio of 1.11 Enbridge common shares for each issued and outstanding publicly held SEP common unit. Representatives of Jefferies confirmed that the value associated with the Morris Litigation, which the Conflicts Committee had determined was limited to the avoided continuing litigation costs, was considered in connection with Jefferies’ preliminary financial analyses. In response to a question raised, representatives of Jefferies reiterated that the Morris Litigation would not have a meaningful impact on the exchange ratio because the Conflicts Committee had determined that the avoided continuing litigation costs were so small in comparison to the total value of SEP. After discussion, the Conflicts Committee authorized the representatives of Jefferies to contact BofAML with a counteroffer for an exchange ratio of 1.111 Enbridge common shares for each issued and outstanding publicly held SEP common unit. After further discussion, since the parties were close to reaching agreement on the exchange ratio, the Conflicts Committee instructed representatives of Sidley Austin to send the previously discussed comments to the draft Merger Agreement to S&C for its review. The comments included, among other things, (a) a provision prohibiting Enbridge from eliminating the Conflicts Committee or removing directors serving on the Conflicts Committee prior to the termination or Effective Time, (b) provisions otherwise confirming the ability of the Conflicts Committee to act on behalf of SEP, (c) certain changes to operating covenants and indemnification provisions, and (d) a requirement that Enbridge reimburse SEP for its expenses up to a maximum amount (to be determined) in the event the Merger Agreement was terminated for certain reasons.

Later on August 17, 2018, representatives of Sidley Austin subsequently sent a revised draft of the Merger Agreement to representatives of S&C.

Later on August 17, 2018, representatives of Jefferies, on behalf of the Conflicts Committee, delivered to representatives of BofAML via email a further revised counterproposal of an exchange ratio of 1.111 Enbridge common shares for each issued and outstanding publicly held SEP common unit (other than Excluded Units). Members of Enbridge management and representatives of BofAML subsequently conveyed on August 17, 2018 to representatives of Jefferies that Enbridge accepted the Conflicts Committee’s counterproposal of 1.111 Enbridge common shares for each issued and outstanding publicly held SEP common unit, subject to finalizing definitive documentation and receipt of board approvals with respect to the Proposed Transaction.

On August 21, 2018, representatives of S&C sent a revised draft of the Merger Agreement to Sidley Austin containing revisions S&C had discussed with Enbridge and, shortly thereafter, representatives of S&C sent to Sidley Austin drafts of the disclosure letters to the Merger Agreement. Representatives of Sidley Austin distributed S&C comments to the draft Merger Agreement and draft disclosure letters to the Conflicts Committee.

 

50


Table of Contents

Later on August 21, 2018, representatives of Sidley Austin held a telephonic meeting, as part of due diligence, with members of Enbridge management to discuss questions involving Line 5 of the Enbridge Lakehead System.

On the morning of August 22, 2018, certain in-house lawyers at Enbridge and representatives of S&C and Sidley Austin held a telephonic meeting to discuss the current status of the draft Merger Agreement and determine which outstanding provisions the parties desired to negotiate further, including open issues related to the operating covenants, certain indemnification terms and the Conflicts Committee’s proposal that Enbridge be required to reimburse SEP for its expenses up to a maximum amount (to be specified) in the event the Merger Agreement was terminated for certain reasons. S&C indicated to Sidley Austin that Enbridge would accept the proposed expense reimbursement provision providing that the cap was a reasonable amount. Representatives of Sidley Austin proposed US$4,000,000 subject to confirmation by the Conflicts Committee. The participants also discussed the additional steps necessary prior to the signing of the Merger Agreement.

In the early evening of August 22, 2018, representatives of Sidley Austin sent a revised draft of the Merger Agreement and comments to the draft disclosure letters to S&C and certain in-house lawyers at Enbridge. The revised draft generally reflected resolution of the open points discussed on the call held that morning. Between the evening of August 22, 2018 and the morning of August 23, 2018, representatives of S&C and Sidley Austin continued to exchange drafts of the Merger Agreement and disclosure letters containing minor revisions and updates.

On August 23, 2018, the Enbridge Board, upon due consideration and discussion, unanimously (of those voting) (a) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement and (b) approved the issuance of Enbridge common shares in connection therewith.

Also on the morning of August 23, 2018, the Conflicts Committee met with representatives of Sidley Austin and Jefferies to discuss the Proposed Transaction. Representatives of Jefferies noted that the offer of 1.111 Enbridge common shares for each issued and outstanding publicly held SEP common unit improved the originally proposed exchange ratio by 9.8%. Representatives of Jefferies then delivered a presentation to the Conflicts Committee with Jefferies’ financial analyses of the Exchange Ratio. The representatives of Jefferies also confirmed that the value associated with the Morris Litigation, which the Conflicts Committee had determined was limited to the avoided continuing litigation costs, was considered in connection with Jefferies’ financial analyses. Representatives of Sidley Austin then provided a review of legal due diligence completed. Representatives of Sidley Austin then reviewed the Merger Agreement and the comments made on behalf of the Conflicts Committee since the initial draft that had been accepted by S&C and Enbridge, including the requirement that Enbridge reimburse SEP for its expenses up to a maximum amount of US$4,000,000 in the event the Merger Agreement was terminated for certain reasons. The Conflicts Committee then discussed reasons for, negative factors weighing against, and procedural considerations relating to, the Proposed Transaction, a list of which is described under “The Merger—Reasons for the Recommendation of the Conflicts Committee” beginning on page 52.

Following the Conflicts Committee’s further discussion of the foregoing matters, upon the request of the Conflicts Committee, representatives of Jefferies then rendered Jefferies’ opinion to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its written opinion dated August 23, 2018, the Exchange Ratio set forth in the Merger Agreement was fair, from a financial point of view, to SEP and to the Unaffiliated SEP Unitholders. The Conflicts Committee then unanimously, (a) determined that the Merger Agreement and the transactions contemplated thereby are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, (b) approved the Merger Agreement and the transactions contemplated thereby, on the terms and subject to the conditions set forth in the Merger Agreement, which such approval constituted “Special Approval” under the Partnership Agreement, and (c) recommended that the GP LLC Board approve the Merger Agreement and the transactions contemplated thereby.

 

51


Table of Contents

Later that day, based upon the recommendation of the Conflicts Committee, the GP LLC Board, acting in good faith, unanimously (a) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of SEP and the holders of the outstanding SEP common units (other than Enbridge and its affiliates), (b) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, and (c) resolved to recommend that the limited partners of SEP approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and directed that the Merger Agreement be submitted to the limited partners for their approval by written consent.

Thereafter, on August 24, 2018, the parties executed the definitive Merger Agreement.

On August 24, 2018, prior to market open, Enbridge and SEP issued a joint press release announcing the Merger.

Recommendation of the Conflicts Committee

On August 23, 2018, the Conflicts Committee, acting in good faith, unanimously determined based upon the facts and circumstances it deemed relevant, reasonable or appropriate, including the advice of its legal and financial advisors, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. This action of the Conflicts Committee constitutes “Special Approval” of the Merger Agreement and the transactions contemplated thereby, including the Merger, under the SEP Partnership Agreement. The Conflicts Committee recommended that the GP LLC Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

Recommendation of the GP LLC Board

Based upon the recommendation of the Conflicts Committee, the GP LLC Board has, acting in good faith, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, and approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement. The GP LLC Board has directed that the Merger Agreement be submitted to the limited partners of SEP for their approval by written consent. The GP LLC Board recommends that the limited partners of SEP approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

Reasons for the Recommendation of the Conflicts Committee

The Conflicts Committee consists of three independent directors: J.D. Woodward, III, Michael G. Morris and Nora Mead Brownell. The GP LLC Board authorized the Conflicts Committee to (i) review, evaluate, consider and negotiate the transaction proposed by Enbridge, (ii) determine whether or not to approve the initial Merger proposal and, if the Conflicts Committee determines it is appropriate, provide Special Approval (as that phrase is defined in the SEP Partnership Agreement) of such transaction, (iii) make such recommendations to the Board as it deems appropriate, including whether or not the Board should approve such transaction, and (iv) do all things that may, in the judgment of its members, be deemed necessary, appropriate or advisable to assist the GP LLC Board in carrying out its responsibilities with respect to such transaction.

The Conflicts Committee retained Sidley Austin LLP as its legal counsel and Jefferies as its financial advisor. The Conflicts Committee oversaw the performance of financial and legal due diligence by its advisors and, with its advisors, conducted an extensive review and evaluation of the transaction proposed by Enbridge, including withholding its approval and maintaining the status quo, and conducted negotiations with Enbridge and its representatives with respect to the Merger Agreement.

 

52


Table of Contents

The Conflicts Committee considered the benefits of the Merger Agreement and the transactions contemplated thereby as well as the associated risks, and on August 23, 2018, acting in good faith, unanimously (i) determined based upon the facts and circumstances it deemed relevant, reasonable or appropriate, including the advice of its legal and financial advisors, that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, which approval constituted “Special Approval” under the SEP Partnership Agreement and (iii) recommended that the GP LLC Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

Based upon such recommendation, the GP LLC Board, acting in good faith, unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair and reasonable to, and in the best interests of SEP and the Unaffiliated SEP Unitholders, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement and (iii) resolved to recommend that the limited partners of SEP approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and directed that the Merger Agreement be submitted to the limited partners for their approval by written consent.

The Conflicts Committee consulted with its financial and legal advisors and considered many factors in making its determination and approvals, and the related recommendation to the GP LLC Board. The Conflicts Committee considered the following factors to be generally positive or favorable in making its determination and approvals with respect to the Merger, and its related recommendation to the GP LLC Board:

 

   

the Merger Agreement provides that each Unaffiliated SEP Unitholder will be entitled to receive 1.111 shares (the Exchange Ratio) of Enbridge common shares in exchange for each SEP common unit owned;

 

   

the Exchange Ratio represents a premium to the Unaffiliated SEP Unitholders of 5.8% based on the closing prices on August 22, 2018, the day prior to the date on which the Conflicts Committee approved the Merger Agreement and made a recommendation to the GP LLC Board that it also approve the Merger Agreement, or a premium of 21.4% based on the closing prices on May 16, 2018 (the last trading day before Enbridge’s announcement of its proposal to acquire all of the outstanding SEP common units that Enbridge and its subsidiaries did not already own); the Exchange Ratio also represents a premium of 6.9%, 7.3%, and 9.0% to the 10-day, 20-day, and 30-day volume-weighted average closing price of SEP common units, respectively;

 

   

the Exchange Ratio offers a total value proposition to the Unaffiliated SEP Unitholders that is superior to the total value proposition that was available to the Unaffiliated SEP Unitholders, based on the trading value of SEP common units, before the March 15, 2018 announcement by FERC that it would no longer permit master limited partnerships (“MLPs”) to recover an income tax allowance in their cost of service rates (the “revised income tax allowance policy”);

 

   

the Exchange Ratio represents a 9.8% increase over Enbridge’s initial proposed exchange ratio of 1.0123 Enbridge common shares for each publicly held SEP common unit, which did not represent any premium based on the closing prices on May 16, 2018 (the last trading day before Enbridge’s announcement of its proposal to acquire all of the outstanding SEP common units that it and its subsidiaries did not already own);

 

   

given Enbridge’s representations about its best and final offer, the belief that the Conflicts Committee had negotiated the highest exchange ratio to which Enbridge would agree;

 

   

the Exchange Ratio is fixed, and therefore the value of the consideration payable to the Unaffiliated SEP Unitholders based on the ratio will increase in the event that the market price for Enbridge common shares increases relative to any change in the market price of SEP common units prior to the closing of the Merger;

 

53


Table of Contents
   

following the Merger, Unaffiliated SEP Unitholders will become shareholders in Enbridge, which is one of the largest energy infrastructure companies in North America, providing them with a number of benefits, including:

 

   

a business that generates diverse, safe and reliable cash flows;

 

   

a stronger balance sheet and improved credit profile;

 

   

a reduction in risks and uncertainties due to FERC’s revised income tax allowance policy for MLPs;

 

   

a more effective cost of capital to finance growth;

 

   

forecasted 10% annual dividend growth through 2020 with substantially enhanced dividend coverage; and

 

   

increased opportunity for further meaningful capital appreciation as Enbridge advances its strategic priorities;

 

   

Enbridge’s status as a corporation and its size following the Merger provide a number of benefits relative to SEP’s MLP structure, including the following:

 

   

corporations attract a broader group of investors as compared to MLPs because certain types of institutional investors face prohibitions or limitations on investing in entities other than corporations;

 

   

Enbridge common shares will provide greater liquidity to Unaffiliated SEP Unitholders than SEP common units because Enbridge common shares have a significantly larger average daily trading volume as result of the broader investor base and a significantly larger public float; and

 

   

Unaffiliated SEP Unitholders will benefit, as Enbridge shareholders, from enhanced voting and other rights as shareholders of a corporation as opposed to unitholders of an MLP controlled by a general partner;

 

   

Enbridge’s and SEP’s expectation that the Merger will, at least partially, simplify the corporate structure of Enbridge and its subsidiaries, thereby:

 

   

eliminating potential conflicts of interest between Enbridge and SEP;

 

   

creating synergies in the form of cost savings and other operating efficiencies, including costs associated with maintaining SEP as a separate public entity;

 

   

stand-alone projections for Enbridge and SEP and pro forma projections for Enbridge assuming consummation of the Merger, provided by Enbridge, and reviewed and discussed with Jefferies and the Conflicts Committee;

 

   

the valuation analyses regarding SEP and Enbridge prepared by Jefferies and reviewed and discussed with the Conflicts Committee, including the analyses summarized in the section titled “The Merger—Opinion of Jefferies, Financial Advisor to the Conflicts Committee” beginning on page 58;

 

   

the financial presentation and opinion of Jefferies, dated August 23, 2018, to the Conflicts Committee to the effect that, as of August 23, 2018 and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its opinion, the exchange ratio set forth in the Merger Agreement was fair, from a financial point of view, to SEP and the Unaffiliated SEP Unitholders. For a description of the opinion that the Conflicts Committee received from Jefferies, please read the section titled “The Merger—Opinion of Jefferies, Financial Advisor to the Conflicts Committee” beginning on page 58;

 

   

the concern that SEP’s growth prospects on a stand-alone basis could be limited due to SEP’s high equity cost of capital and the lack of access to public equity markets for MLPs and Enbridge’s representation that there would be no further dropdown potential at SEP at its current valuations;

 

54


Table of Contents
   

the concern that, following the announcement by FERC of its revised income tax allowance policy for MLPs, on a stand-alone basis, SEP would face greater uncertainty regarding the outcome for prospective rate cases;

 

   

the belief that potential alternative transactions involving third parties would not be achievable due to Enbridge’s control of the General Partner and GP LLC and its ownership of approximately 83.1% of the outstanding SEP common units;

 

   

the expectation that the Merger will result in an increase in the tax basis of the portion of SEP’s assets underlying the SEP common units surrendered in the Merger, which is expected to produce additional tax depreciation deductions that will either reduce the U.S. federal income tax burden of the resulting combined company following the Merger or create losses that can be utilized to offset U.S. taxable income in the future;

 

   

the terms and conditions of the Merger were determined through arm’s-length negotiations between Enbridge and the Conflicts Committee and their respective representatives and advisors;

 

   

the terms of the Merger Agreement, principally:

 

   

Enbridge’s covenant to deliver, within two business days of the registration statement becoming effective, a written consent covering all of the SEP common units it owns approving the Merger, which will be sufficient to ensure the required approval of the Merger by SEP unitholders;

 

   

Enbridge’s obligation to reimburse certain of SEP’s expenses, up to US$4.0 million, in connection with a termination of the Merger Agreement as a result of (i) a material uncured breach by Enbridge of the Merger Agreement, (ii) the failure to close prior to the “outside date” or (iii) a government order prohibiting consummation of the Merger;

 

   

the operating covenants of Enbridge providing protection to Unaffiliated SEP Unitholders by restricting the ability of Enbridge, the General Partner and GP LLC to take certain actions prior to the closing of the Merger;

 

   

limited closing conditions, including the absence of any required regulatory approvals or the concurrent closing of any of the Other Merger Transaction, and limited exceptions to those closing conditions;

 

   

the limited nature of the operational representations and warranties given by SEP;

 

   

the lack of any break-up fee payable by SEP for termination of the Merger Agreement in accordance with its terms;

 

   

the lack of any requirement that the Conflicts Committee or the GP LLC Board not change their respective recommendations in favor of the Merger;

 

   

the agreement between SEP and Enbridge to coordinate in setting record dates and payment dates for distributions on SEP common units and dividends on Enbridge common shares so that no Unaffiliated SEP Unitholder fails to receive either a distribution or a dividend in respect of any calendar quarter; and

 

   

the lack of any financing condition to Enbridge’s obligation to consummate the Merger.

In addition to the factors described above, the Conflicts Committee also considered a number of factors relating to the procedural safeguards involved in the negotiation of the Merger Agreement, including those discussed below, each of which supported its determination and approvals with respect to the Merger:

 

   

the Conflicts Committee’s retention of financial and legal advisors with knowledge and experience with respect to public Merger and acquisition transactions, MLPs, Enbridge’s and SEP’s industry generally, and Enbridge and SEP particularly, as well as substantial experience advising MLPs and other companies with respect to transactions similar to the Merger;

 

55


Table of Contents
   

the Conflicts Committee consisted solely of independent directors that are not officers of Enbridge, SEP, the General Partner or GP LLC;

 

   

the members of the Conflicts Committee have served on the GP LLC Board and are familiar with, and understand, the businesses, assets, liabilities, results of operations, financial condition and competitive positions and prospects of SEP;

 

   

the members of the Conflicts Committee will be appropriately compensated for their services, and their compensation was in no way contingent on their approving the Merger; and, further, because the compensation they receive for their services on the Conflicts Committee in connection with the Merger will be in the form of a fixed number of SEP common units, their interests are thereby aligned with those of the Unaffiliated SEP Unitholders;

 

   

the Merger Agreement:

 

   

provides that Enbridge may not (i) revoke or diminish of the authority of the Conflicts Committee and (ii) remove any member of the Conflicts Committee from the GP LLC Board prior to the closing of the Merger without the consent of the Conflicts Committee;

 

   

requires that any amendment to, waiver of any provision of or the termination of the Merger Agreement be approved by the Conflicts Committee; and

 

   

approvals by SEP, the General Partner and the GP LLC Board pursuant to the Merger Agreement are subject to approval by the Conflicts Committee;

 

   

the members of the Conflicts Committee have not been requested to serve on the Enbridge Board following the Merger and intend to resign from the GP LLC Board concurrently with the closing of the Merger;

 

   

while the Conflicts Committee was aware that Enbridge, as the party controlling SEP, controlled the delivery and presentation of information the Conflicts Committee received for purposes of evaluating the Merger and the fairness of the Merger Consideration, Enbridge indicated to the Conflicts Committee that it was not aware of any material facts with respect to the Proposed Transaction that were not disclosed to the Conflicts Committee; and

 

   

the Conflicts Committee had no obligation to recommend any transaction, including the proposal put forth by Enbridge.

The Conflicts Committee considered the followings factors to be generally negative or unfavorable in making its determination and approvals with respect to the Merger and the related recommendation to the GP LLC Board:

 

   

the Merger should be a taxable transaction to Unaffiliated SEP Unitholders for U.S. federal income tax purposes (See the section titled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 94;

 

   

following the Merger, the income of the resulting combined entity will be subject to double taxation (at the combined company and shareholder levels), while the income of SEP is currently only subject to one level of taxation (at the unitholder level);

 

   

each Enbridge common share is expected to pay a lower dividend over the medium term as compared to the expected distributions on SEP common units; however, this reduction in dividends would be moderated over the longer-term to the extent Enbridge achieves the forecasted increases in its distribution;

 

   

for Unaffiliated SEP Unitholders that are U.S. persons, the expectation that dividends received from Enbridge will be subject to Canadian withholding taxes (creditable or deductible against a unitholder’s U.S. federal income tax liability, subject to limitations) and U.S. federal income taxes;

 

56


Table of Contents
   

the Conflicts Committee was not authorized to, and did not, conduct an auction process or other solicitation of interest from third parties for the acquisition SEP; because Enbridge controls SEP, it was considered unrealistic for SEP to expect or pursue an unsolicited third-party acquisition proposal or offer for the assets or control of SEP or for the Conflicts Committee to have conducted an auction for the acquisition of such assets or control of SEP;

 

   

because the Merger is subject to the approval of a majority of the outstanding SEP common units, and Enbridge owns a majority of the outstanding SEP common units and has agreed to deliver its written consent approving the Merger, the affirmative vote of the Unaffiliated SEP Unitholders is not needed to approve the Merger;

 

   

the Exchange Ratio is fixed, and therefore the value of the consideration payable to Unaffiliated SEP Unitholders based on the Exchange Ratio will decrease in the event that the market price of Enbridge stock decreases relative to any change in the market price of SEP common units prior to the closing of the Merger;

 

   

the risk that the potential benefits sought in the Merger might not be fully realized;

 

   

the Merger may not be completed in a timely manner or at all, which could result in significant costs and disruption to SEP’s normal business (beyond any applicable reimbursement) and may result in a decline in the trading price of SEP common units;

 

   

certain terms of the Merger Agreement, principally (i) the limited pre-closing restrictions on Enbridge with regard to its business, including the lack of any restriction on Enbridge’s ability to make acquisitions and dispositions and incur indebtedness, (ii) the Enbridge Board is not required to maintain its approval of the Merger and (iv) the obligation by Enbridge to provide its written consent to the Merger, even if the Conflicts Committee or the GP LLC Board no longer support approval of the Merger;

 

   

the Conflicts Committee did not have ultimate authority to determine whether to proceed with the Merger, which was also subject to the approval of the full GP LLC Board following the Conflicts Committee’s recommendation that the GP LLC Board approve the Merger;

 

   

Unaffiliated SEP Unitholders are not entitled to dissenters’ or appraisal rights under the Merger Agreement, the Partnership Agreement or Delaware law;

 

   

Unaffiliated SEP Unitholders will be foregoing any benefits that would have been realized by remaining unitholders of SEP on a stand-alone basis;

 

   

litigation may occur in connection with the Merger and such litigation may increase the costs associated with the Merger and result in a diversion of management focus; and

 

   

the executive officers and directors of GP LLC who are employees of Enbridge may have interests in the Merger that are different from, or in addition to, the interest of SEP unitholders generally, including Unaffiliated SEP Unitholders.

The foregoing discussion of the information and factors considered by the Conflicts Committee is not intended to be exhaustive, but includes material factors the Conflicts Committee considered. In view of the variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Conflicts Committee did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors considered in making its determination and recommendation. In addition, each of the members of the Conflicts Committee may have given differing weights to different factors. Overall, the Conflicts Committee believed that the positive factors supporting the Merger outweighed the negative factors it considered.

The explanation of the reasoning of the Conflicts Committee and certain information presented in this section are forward-looking in nature and, therefore, the information should be read in light of the factors

 

57


Table of Contents

discussed in the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 25 and 28, respectively.

Opinion of Jefferies, Financial Advisor to the Conflicts Committee

In June 2018, the Conflicts Committee retained Jefferies to act as its financial advisor in connection with a possible sale, disposition or other business transaction or series of transactions involving all or substantially all of the equity in, or assets of, SEP. In connection with this engagement, the Conflicts Committee requested that Jefferies evaluate the fairness to SEP and to the Unaffiliated SEP Unitholders, from a financial point of view, of the Exchange Ratio set forth in the Merger Agreement. At the meeting of the Conflicts Committee on August 23, 2018, Jefferies rendered its opinion to the Conflicts Committee to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its opinion, the Exchange Ratio set forth in the Merger Agreement was fair, from a financial point of view, to SEP and to the Unaffiliated SEP Unitholders.

The full text of the written opinion of Jefferies, dated as of August 23, 2018, is attached hereto as Annex B. Jefferies’ opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. Jefferies’ opinion was directed to the Conflicts Committee and addresses only the fairness, from a financial point of view, of the Exchange Ratio set forth in the Merger Agreement as of the date of the opinion to SEP and to the Unaffiliated SEP Unitholders. It does not address any other aspects of the Merger and does not constitute a recommendation as to how or whether any SEP unitholder should consent, vote or act with respect to the Merger or any matter related thereto. The summary of the opinion of Jefferies set forth below is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Jefferies, among other things:

 

   

reviewed a draft dated August 22, 2018 of the Merger Agreement;

 

   

reviewed certain publicly available financial and other information about SEP and Enbridge;

 

   

reviewed certain information furnished to Jefferies by Enbridge’s management, including financial forecasts and analyses, relating to the business, operations and prospects of each of SEP and Enbridge;

 

   

held discussions with members of senior management of Enbridge concerning the matters described in the second and third bullet points above;

 

   

reviewed the trading price history and valuation multiples for the SEP common units and the Enbridge common shares and compared them with those of certain publicly traded companies and partnerships that Jefferies deemed relevant;

 

   

considered the potential pro forma impact of the Merger;

 

   

compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Jefferies deemed relevant; and

 

   

conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

In Jefferies’ review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by Enbridge or that was publicly available to Jefferies (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of Enbridge that it was not aware of any facts or circumstances that would make such information inaccurate or misleading. In Jefferies’ review, Jefferies did not obtain any independent valuation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, SEP or Enbridge, nor was Jefferies furnished with any such valuations or appraisals, nor did Jefferies assume any responsibility to obtain any such valuations or appraisals.

 

58


Table of Contents

With respect to the financial forecasts provided to and examined by Jefferies, Jefferies noted that projecting future results of any company is inherently subject to uncertainty. Enbridge informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Enbridge as to the future financial performance of each of SEP and Enbridge. Jefferies expressed no opinion as to such financial forecasts or the assumptions on which they were made.

Jefferies’ opinion was based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of the date of its opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting Jefferies’ opinion of which Jefferies became aware after the date of its opinion.

Jefferies made no independent investigation of any legal or accounting matters affecting SEP or Enbridge or any of their respective affiliates, and Jefferies assumed the correctness in all respects material to Jefferies’ analysis of all legal, regulatory, accounting and tax advice given to SEP, the General Partner, the GP LLC Board and the Conflicts Committee, including, without limitation, advice as to the legal, regulatory, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to SEP and the holders of SEP common units. In addition, in preparing its opinion, Jefferies did not take into account any tax consequences of the Merger to Enbridge, or SEP or any holders of SEP common units. Jefferies assumed that the final form of the Merger Agreement would be substantially similar to the last draft reviewed by Jefferies. Jefferies also assumed that the Merger would be consummated in accordance with the terms of the Merger Agreement and without waiver, modification or amendment in any respect material to Jefferies’ analysis or opinion of any term, condition or agreement and in compliance with all applicable laws, documents and other requirements and that, in the course of obtaining any necessary regulatory or third-party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on SEP, Enbridge, any of their respective affiliates or the contemplated benefits of the Merger.

Jefferies was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of SEP or any other alternative transaction.

Jefferies’ opinion was for the use and benefit of the Conflicts Committee (in its capacity as such) in its consideration of the Merger, and Jefferies’ opinion did not address the relative merits of the Merger as compared to any alternative transaction or opportunity that might be available to SEP, nor did it address the underlying business decision by SEP to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein. Jefferies’ opinion did not constitute a recommendation as to how or whether any holder of SEP common units should consent, vote or act with respect to the Merger or any matter related thereto. In addition, Jefferies was not asked to address, and its opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of SEP, other than the Unaffiliated SEP Unitholders. Jefferies expressed no opinion as to what the value of Enbridge common shares would be when issued pursuant to the Merger Agreement or the price at which Enbridge common shares or SEP common units will trade at any time. Furthermore, Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the officers, directors or employees, or any class of such persons, of SEP or any other party to the Merger Agreement in connection with the Merger relative to the Exchange Ratio or otherwise. Jefferies’ opinion was authorized by the Fairness Committee of Jefferies.

In connection with rendering its opinion, Jefferies performed a variety of financial and comparative analyses, which are summarized below. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Jefferies believes that its analyses must be considered as a whole. Considering any portion of Jefferies’ analyses or the factors considered by Jefferies, without considering

 

59


Table of Contents

all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Jefferies’ opinion. In addition, Jefferies may have given various analyses more or less weight than other analyses and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described below should not be taken to be Jefferies’ view of SEP’s or Enbridge’s actual value. Accordingly, the conclusions reached by Jefferies are based on all analyses and factors taken as a whole and also on the application of Jefferies’ own experience and judgment.

In performing its analyses, Jefferies made numerous assumptions with respect to industry performance, general business, economic, monetary, regulatory, market and other conditions and other matters, many of which are beyond the parties’ and Jefferies’ control. The analyses performed by Jefferies are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per unit or per share value of the SEP common units or the Enbridge common shares, respectively, do not purport to be appraisals or to reflect the prices at which the SEP common units or the Enbridge common shares, as applicable, may actually be sold or acquired. The analyses performed were prepared solely as part of Jefferies’ analysis of the fairness, from a financial point of view, of the Exchange Ratio to SEP and to the Unaffiliated SEP Unitholders, and were provided to the Conflicts Committee in connection with the delivery of Jefferies’ opinion.

The following is a summary of the material financial and comparative analyses performed by Jefferies in connection with Jefferies’ delivery of its opinion and that were presented to the Conflicts Committee at the meeting on August 23, 2018. The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses. The following summary does not purport to be a complete description of the financial analyses performed by Jefferies and factors considered in connection with Jefferies’ opinion.

Following Jefferies’s presentation to the Conflicts Committee on August 23, 2018 (the “August 23 Presentation”), Jefferies determined that the estimates of dividends per Enbridge common share used in the selected public companies analysis and the discounted cash flow analysis for Enbridge did not reflect the unaudited financial projections regarding Enbridge as set forth in the section titled “Unaudited Financial Projections of Enbridge and SEP” beginning on page 65. Jefferies subsequently performed such analyses, as of August 23, 2018, using the estimates of dividends per Enbridge common share as set forth in such unaudited financial projections regarding Enbridge (the “Corrected Estimated Enbridge Dividends”). Such subsequent analyses performed by Jefferies did not address any circumstances, developments or events occurring after August 23, 2018, which is the date of the written opinion of Jefferies, and Jefferies’ opinion set forth in its written opinion was provided only as of such date. Based upon and subject to the foregoing, Jefferies confirmed to the Conflicts Committee that, had Jefferies performed its financial analyses set forth in the August 23 Presentation using the Corrected Estimated Enbridge Dividends, there would have been no change to the conclusion set forth in the written opinion of Jefferies.

Unaudited Financial Projections Provided to Jefferies

Jefferies was provided by Enbridge management with unaudited financial projections regarding Enbridge, SEP and their respective businesses, including unaudited financial projections regarding Enbridge and SEP on a stand-alone basis without giving effect to any of the Other Merger Transactions. Jefferies used such unaudited financial projections in performing certain valuation analyses, as applicable, to imply valuations for each of Enbridge and SEP on a stand-alone basis without giving effect to any of the Other Merger Transactions. For further information regarding such unaudited financial projections regarding Enbridge and SEP on a stand-alone basis, including the terms Enbridge Adjusted EBITDA, SEP Adjusted EBITDA, Enbridge Adjusted Distributable Cash Flow and SEP Distributable Cash Flow referred to in the bullet points below, see the section titled “Unaudited Financial Projections of Enbridge and SEP” beginning on page 65.

 

60


Table of Contents

For purposes of the financial analyses described in this section:

 

   

“EBITDA” means earnings before interest, taxes, depreciation and amortization;

 

   

“Adjusted EBITDA” means EBITDA, less stock-based compensation and other non-recurring items. In the case of Enbridge, “Adjusted EBITDA” means Enbridge Adjusted EBITDA; and, in the case of SEP, “Adjusted EBITDA” means SEP Ongoing EBITDA;

 

   

For Enbridge, “Distributable Cash Flows” means “Enbridge Adjusted Distributable Cash Flow”;

 

   

For SEP, “Distributable Cash Flows” means “SEP Distributable Cash Flow”;

 

   

“Distributed Cash Flows” means Distributable Cash Flows divided by the dividend or distribution coverage ratio, as applicable;

 

   

“Yield” means current or estimated distributions per unit or dividends per share divided by the current unit or share price, as applicable;

 

   

Enterprise values were calculated as fully-diluted equity values based on closing share or unit prices on August 22, 2018, the last full trading day prior to the date that Jefferies delivered its opinion to Conflicts Committee, plus total debt, preferred shares and non-controlling interests (as applicable) and less cash and cash equivalents; and

 

   

Canadian dollar amounts for Enbridge were converted into U.S. dollars using a foreign exchange rate of C$1.30 per U.S. dollar (or US$0.77 per Canadian dollar) as of August 22, 2018.

In calculating implied exchange ratio ranges as reflected in certain of the analyses described below, Jefferies:

 

   

divided the low-end of the approximate implied per unit equity value ranges derived for SEP from such analyses by the high-end of the approximate implied per share equity value ranges derived for Enbridge from such analyses in order to calculate the low-end of the implied exchange ratio ranges; and

 

   

divided the high-end of the approximate implied per unit equity value ranges derived for SEP from such analyses by the low-end of the approximate implied per share equity value ranges derived for Enbridge from such analyses in order to calculate the high-end of the implied exchange ratio ranges.

Selected Public Companies Analysis

Jefferies performed selected public companies analyses of each of Enbridge and SEP in which Jefferies reviewed publicly available financial, stock market and operating information of Enbridge, SEP and the selected publicly traded companies and partnerships listed below.

In performing a selected public companies analysis of Enbridge, Jefferies reviewed publicly available financial, stock market information and operating information of the following five energy companies (the “Enbridge Selected Companies”) that Jefferies in its professional judgment considered generally relevant to Enbridge for purposes of its financial analyses:

 

   

Enterprise Products Partners L.P.,

 

   

Kinder Morgan, Inc.,

 

   

ONEOK, Inc.,

 

   

TransCanada Corporation, and

 

   

The Williams Companies, Inc.

 

61


Table of Contents

In performing a selected public companies analysis of SEP, Jefferies reviewed publicly available financial, stock market information and operating information of the following two partnerships (the “SEP Selected Partnerships,” and together with the Enbridge Selected Companies, the “Selected Companies”) , that Jefferies in its professional judgment considered generally relevant to SEP for purposes of its financial analyses:

 

   

Tallgrass Energy, LP, and

 

   

TC Pipelines, LP

For each of the Selected Companies, Jefferies reviewed, among other information, current yields as of August 22, 2018 and estimated yields for calendar year 2019, and estimated enterprise values as a multiple, to the extent publicly available, of estimated Adjusted EBITDA for calendar years 2018 and 2019. Jefferies also reviewed equity values based on closing share prices on August 22, 2018. Estimated financial data of the Selected Companies were based on publicly available research analysts’ estimates and other publicly available information. Estimated financial data of each of Enbridge and SEP were based on Enbridge’s unaudited forecasted financial information and publicly available research analysts’ estimates.

In its analysis, Jefferies derived and compared yields and multiples for Enbridge, SEP and the Selected Companies, as follows:

 

   

current yields as of August 22, 2018 (referred to below as “Current Yield”),

 

   

estimated yields for calendar year 2019 (referred to below as “2019E Yield”),

 

   

the total enterprise value divided by estimated Adjusted EBITDA for calendar year 2018 (referred to below as “TEV/2018E Adjusted EBITDA”), and

 

   

the total enterprise value divided by estimated Adjusted EBITDA for calendar year 2019 (referred to below as “TEV/2019E Adjusted EBITDA”).

This analysis indicated the following:

Selected Companies Multiples

 

     Low     High     Mean     Median  

Enbridge Selected Companies

        

Current Yield

     4.4     5.9     4.9     4.8

2019E Yield

     5.0     6.1     5.4     5.3

TEV/2018E Adjusted EBITDA

     10.6     15.2     12.9     12.7

TEV/2019E Adjusted EBITDA

     10.4     14.2     12.0     11.5

SEP Selected Partnerships

        

Current Yield

     7.7     7.7     7.7     7.7

2019E Yield

     7.8     8.7     8.2     8.2

TEV/2018E Adjusted EBITDA

     9.6     12.4     11.0     11.0

TEV/2019E Adjusted EBITDA

     10.8     11.0     10.9     10.9

 

62


Table of Contents

Using the reference ranges for the benchmarks set forth below, which ranges were selected by Jefferies in its professional judgement, Jefferies determined implied per share and per unit equity value ranges for Enbridge and SEP, respectively, as follows:

 

Enbridge Benchmark

   Range   Enbridge Implied Per Share
Equity Value Range
(in U.S. dollars)

Current Yield

   5.0% – 6.0%   $34.73 – $41.68

2019E Yield

   5.5% – 6.5%   $34.85 – $41.18(1)

TEV/2018E Adjusted EBITDA

   12.5x – 13.5x   $32.59 – $38.19

TEV/2019E Adjusted EBITDA

   12.0x – 13.0x   $31.63 – $37.39

 

(1)

Calculated using the Corrected Estimated Enbridge Dividends. As set forth in the August 23 Presentation, this analysis indicated an implied per share equity value range (in U.S. dollars) of $35.12 – $41.50.

 

SEP Benchmark

   Range   SEP Implied Per Unit
Equity Value Range
(in U.S. dollars)

Current Yield

   7.5% – 8.5%   $35.35 – $40.07

2019E Yield

   8.0% – 9.0%   $35.05 – $39.43

TEV/2018E Adjusted EBITDA

   11.5x – 12.5x   $34.76 – $39.29

TEV/2019E Adjusted EBITDA

   11.0x – 12.0x   $37.45 – $42.43

Utilizing the implied per share and per unit equity value ranges derived for Enbridge using the Corrected Estimated Enbridge Dividends and for SEP, respectively, described above, Jefferies calculated the following implied exchange ratio ranges, as compared to the Exchange Ratio set forth in the Merger Agreement of 1.111:

Implied Exchange Ratio Ranges

 

Benchmark

   Implied Exchange
Ratio Range

Current Yield

   0.848x – 1.154x

2019E Yield

   0.851x – 1.132x(1)

TEV/2018E Adjusted EBITDA

   0.910x – 1.206x

TEV/2019E Adjusted EBITDA

   1.002x – 1.341x

 

(1)

Calculated using the Corrected Estimated Enbridge Dividends. As set forth in the August 23 Presentation, this analysis indicated an implied exchange ratio range of 0.845x – 1.123x.

No company or partnership utilized in the selected public company analysis is identical to SEP or Enbridge. In evaluating the Selected Companies, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond SEP’s, Enbridge’s and Jefferies’ control. Mathematical analysis, such as determining the median, is not in itself a meaningful method of using comparable company data.

Discounted Cash Flow Analysis

Jefferies performed separate discounted cash flow analyses of Enbridge and SEP by calculating the estimated present value of the Distributable Cash Flows that each of Enbridge and SEP was forecasted to generate during the second half of 2018 through the calendar year ending December 31, 2022. Terminal values of Enbridge and SEP were calculated by applying to Enbridge’s and SEP’s respective estimated Distributed Cash Flows for the calendar year ending December 31, 2022, a selected terminal yield range of 5.5% to 6.5%, in the case of Enbridge, and 8.0% to 9.0%, in the case of SEP. The present values of the Distributable Cash Flows and terminal values were then calculated using a discount date range of 8.6% to 9.6%, in the case of Enbridge, and

 

63


Table of Contents

10.4% to 11.4%, in the case of SEP. As set forth in the August 23 Presentation, this analysis indicated an approximate implied per share equity value range for Enbridge of US$42.53 to US$49.42, and using the Corrected Estimated Enbridge Dividends, this analysis indicated an approximate implied per share equity value range for Enbridge of US$42.32 to US$49.15. In addition, this analysis indicated an approximate implied per unit equity value range for SEP of US$34.78 to US$38.76.

Utilizing the implied per share and per unit value ranges derived for Enbridge using the Corrected Estimated Enbridge Dividends and for SEP, respectively, described above, Jefferies calculated the following implied exchange ratio ranges, as compared to the Exchange Ratio set forth in the Merger Agreement of 1.111:

Implied Exchange Ratio Range

0.708x – 0.916x(1)

 

(1)

Calculated using the Corrected Estimated Enbridge Dividends. As set forth in the August 23 Presentation, this analysis indicated an implied exchange ratio range of 0.704x – 0.911x.

Selected Affiliate Mergers

For informational purposes only, using publicly available information, Jefferies analyzed the premiums offered in 24 selected mergers involving affiliate master limited partnerships announced since June 2009. For each of the selected transactions, Jefferies calculated the premium represented by the offer price over the target company’s closing unit price one trading day, seven trading days and 30 trading days prior to the transaction’s announcement. The analysis indicated the following premiums for those time periods prior to announcement:

Premiums Paid Percentages

 

Time Period Prior to Announcement

   75th
Percentile
    Mean     Median     25th
Percentile
 

1 Trading Day

     17.5     11.4     9.5     6.0

7 Trading Days Average

     17.9     12.1     11.6     5.4

30 Trading Days Average

     18.2     12.7     10.4     7.0

Using a range of the 25th percentile and the 75th percentile for each of the time periods described above, Jefferies performed a premiums paid analysis using the closing prices of the SEP common units one trading day, seven trading days and 30 trading days prior to August 22, 2018. This analysis indicated a range of implied share prices for SEP of US$39.35 to US$44.63. Based on Enbridge’s closing share price on August 22, 2018 of US$36.18, this analysis further indicated a range of implied exchange ratios of 1.088x to 1.234x, compared to the Exchange Ratio set forth in the Merger Agreement of 1.111.

Historical Exchange Ratio

For informational purposes only, Jefferies observed the historical implied exchange ratios for the one month, three months, six months and last 12 months prior to August 22, 2018, of the SEP common units to the Enbridge common shares, which indicated an average implied exchange ratio during that period of 1.0794x, and a range of implied exchange ratios of 0.9701x (on May 31, 2018) to 1.2433x (on March 1, 2018), compared to the Exchange Ratio set forth in the Merger Agreement of 1.111.

General

Jefferies’ opinion was one of many factors taken into consideration by the Conflicts Committee in making its determination to approve the proposed Merger and should not be considered determinative of the views of the Conflicts Committee with respect to the proposed Merger or the Exchange Ratio.

 

64


Table of Contents

Jefferies was selected by the Conflicts Committee based on Jefferies’ qualifications, expertise and reputation. Jefferies is an internationally recognized investment banking and advisory firm. Jefferies, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services.

SEP has agreed to pay Jefferies a fee of US$3.0 million, US$1.0 million of which was payable upon the execution of Jefferies’ engagement letter and US$2.0 million of which was payable upon delivery of Jefferies’ opinion. SEP has also agreed to reimburse Jefferies for certain expenses incurred. SEP has also agreed to indemnify Jefferies against certain liabilities arising out of or in connection with the services rendered and to be rendered by it under its engagement. In the past two years, prior to the date of its opinion, Jefferies (i) provided financial advisory services to the Conflicts Committee and received fees in an amount of US$3.5 million for the rendering of such services and (ii) did not provide financial advisory or financing services to, or receive fees from, Enbridge or any of its affiliates (other than the Conflicts Committee). Jefferies maintains a market in the securities of Enbridge, and in the ordinary course of business, Jefferies and its affiliates may trade or hold securities of SEP or Enbridge and/or their respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions in those securities. In addition, in the future Jefferies may seek to provide financial advisory and/or financing services to the Conflicts Committee, SEP, the General Partner, Enbridge or entities that are affiliated with SEP, the General Partner or Enbridge, for which Jefferies would expect to receive compensation. Except as otherwise expressly provided in its engagement letter with the Conflicts Committee, Jefferies’ opinion may not be used or referred to by SEP or Enbridge, or quoted or disclosed to any person in any manner, without Jefferies’ prior written consent.

Unaudited Financial Projections of Enbridge and SEP

In connection with the proposed Merger, management of Enbridge provided financial projections relating to Enbridge and SEP. The financial projections were prepared for Enbridge and SEP on a standalone basis (without giving effect to any of the Other Merger Transactions), and reflected during the periods presented the anticipated impacts of (i) the Midcoast Transaction, (ii) the March FERC Announcement and the July FERC Announcement (together, the “FERC Announcements”), (iii) the sale by Enbridge of certain renewable assets completed on August 1, 2018 (as described in Enbridge’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018) (the “Renewable Asset Sale”), and (iv) the expected completion of the transactions contemplated by the agreements entered into by Enbridge with Brookfield Infrastructure Partners L.P. and its institutional partners to sell Enbridge’s Canadian natural gas gathering and processing businesses for a cash purchase price of approximately C$4.31 billion (as described in Enbridge’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018) (the “Canadian G&P Sale”). These nonpublic financial projections were provided (a) to the Conflicts Committee for Jefferies’ use and consideration in its financial analysis and in preparation of its opinion to the Conflicts Committee, and (b) for use and consideration in financial analysis prepared for the Enbridge Board. A summary of these projections is included below to give holders of Unaffiliated SEP Unitholders and holders of Enbridge common shares access to certain nonpublic unaudited prospective financial information that was made available to the Conflicts Committee, Jefferies, the GP LLC Board, and the Enbridge Board in connection with the proposed Merger.

You should be aware that uncertainties are inherent in prospective financial information of any kind. None of Enbridge or SEP or any of their affiliates, advisors, officers, directors, or representatives has made or makes any representation or can give any assurance to any SEP unitholder or Enbridge shareholder, or any other person regarding the ultimate performance of SEP or Enbridge compared to the summarized information set forth below or that any such results will be achieved.

The summary financial projections set forth below summarize the financial projections made available to the legal and financial advisors to each of the parties to the Merger Agreement. The inclusion of the following summary financial projections in this consent solicitation/prospectus should not be regarded as an indication that

 

65


Table of Contents

SEP, Enbridge, or their respective representatives considered or consider the projections to be a reliable or accurate prediction of future performance or events, and the summary financial projections set forth below should not be relied upon as such.

The Enbridge and SEP financial projections were prepared in connection with the evaluation of the proposed Merger and for internal planning purposes only and not with a view toward public disclosure or guidance or toward compliance with generally accepted accounting principles in the U.S. (“GAAP”), the published guidelines of the SEC, or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Enbridge’s management, was prepared on a reasonable basis, reflected the best available estimates and judgments at such time, and presented, to the best of the Enbridge management’s knowledge and belief, the expected course of action and expected future financial performance of Enbridge and SEP. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results. The Enbridge prospective financial information was prepared by and is the responsibility of Enbridge’s management. None of PricewaterhouseCoopers LLP (“PwC”), PricewaterhouseCoopers LLP, Canada or any other independent registered public accounting firm has audited, reviewed, compiled, examined or performed any procedures with respect to such financial projections, including any prospective financial information contained therein. Accordingly, neither PwC nor any other independent registered public accounting firm expresses an opinion or any other form of assurance with respect thereto. The reports of PwC and Deloitte & Touche LLP incorporated by reference into this consent solicitation/prospectus with respect to Enbridge and SEP relate to historical financial information of Enbridge and SEP. Such reports do not extend to the financial projections included below and should not be read to do so. None of the GP LLC Board, the Conflicts Committee, the General Partner, SEP, Enbridge, or the Enbridge Board gives any assurance regarding, such financial projections. The Enbridge and SEP financial projections summarized below were prepared and provided to the Conflicts Committee prior to the execution on August 24, 2018 of the Merger Agreement, do not reflect the effect of the Other Merger Transactions or the exchange ratios contained in the applicable transaction agreements and do not take into account any circumstances or events occurring after the date they were prepared. Enbridge can give no assurance that, had the unaudited prospective financial information been prepared as of the date of this consent solicitation/prospectus, similar estimates and assumptions would be used. ENBRIDGE DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO, MAKE PUBLICLY AVAILABLE ANY UPDATE OR OTHER REVISION TO THE UNAUDITED PROSPECTIVE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE UNAUDITED PROSPECTIVE FINANCIAL PROJECTIONS ARE NOT REALIZED, OR TO REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS, EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.

The internal financial projections of Enbridge and SEP are, in general, prepared by Enbridge primarily for internal use. Such internal financial projections are inherently subjective in nature, susceptible to interpretation and, accordingly, such financial projections may not be achieved. Such internal financial projections also reflect numerous assumptions made by management of Enbridge, including material assumptions that may not be realized and are subject to significant uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of Enbridge. Enbridge management, consistent with past presentations to the GP LLC Board and public guidance representations, develops its financial projections according to several criteria. Additionally, anticipated impacts from prospective capital expenditures were included within the financial projections. Accordingly, there can be no assurance that the assumptions made in preparing the internal financial projections upon which the financial projections provided to the Conflicts Committee was based 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 in the future over which these assumptions apply. Any inaccuracy of assumptions and projections in early periods could have a compounding effect on the projections shown for the later periods. Thus, any failure of an assumption or projection to be reflective of actual results in an early period could have a greater effect on the projected results failing to be reflective of actual events in later periods.

 

66


Table of Contents

All of these assumptions involve variables making them difficult to predict, and some are beyond the control of SEP and Enbridge. Although Enbridge’s management believes that there was a reasonable basis for its financial projections and underlying assumptions, any assumptions for near-term projected cases remain uncertain, and the risk of inaccuracy increases with the length of the forecasted period. The projections are forward-looking statements and are subject to risks and uncertainties. Please read the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 25 and 28, respectively.

In developing the financial projections provided to the Conflicts Committee, Enbridge’s management made numerous material assumptions with respect to Enbridge and SEP for the period from 2018 to 2022, including:

 

   

capital expenditures and operating cash flows, including the related amounts and timing thereof;

 

   

outstanding debt during applicable periods, and the availability and cost of capital;

 

   

the cash flow from existing assets and business activities;

 

   

the Midcoast Transaction, FERC Announcements, Renewable Assets Sale and Canadian G&P Sale;

 

   

management’s ability to mitigate the impact of the FERC Announcements, on a pre-merger basis, including planned rate case filings

 

   

the prices and production of, and demand for crude oil, natural gas, NGLs and other hydrocarbon products, which could impact volumes and margins

 

   

the in-service dates of the significant competing liquids pipeline systems in Canada and the United States which reflected a January 1, 2021 in-service date for TransCanada Corporation’s Keystone XL pipeline and an October 1, 2020 in-service date for the TransMountain Pipeline Expansion Project; and

 

   

other general business, market, and financial assumptions.

The summarized projected financial information for Enbridge and SEP set forth below was based on Enbridge’s and SEP’s standalone projected results for 2018 through 2022, adjusted for the material assumptions set out above, including the anticipated impacts of the Midcoast Transaction, FERC Announcements, Renewable Assets Sale and Canadian G&P Sale, as applicable.

 

     Year ending December 31,  
     2018      2019      2020      2021      2022  
     (Millions of Canadian dollars)  

Enbridge Adjusted EBITDA(1)

   $ 12,509      $ 12,852      $ 14,772      $ 14,962      $ 16,572  

Enbridge Adjusted Distributable Cash Flow(2)

   $ 7,305      $ 7,710      $ 8,469      $ 8,392      $ 9,203  

Enbridge Dividend per Enbridge Common Share

   $ 2.68      $ 2.95      $ 3.24      $ 3.41      $ 3.58  

The above measures are not measures of financial performance under generally accepted accounting principles in the U.S. (“GAAP”), and should not be considered as alternatives to net income (loss), operating income, cash from operations or any other measure of financial performance or liquidity presented in accordance with GAAP. Enbridge’s computations of these measures may differ from similarly titled measures used by others.

 

(1)

Enbridge Adjusted EBITDA represents EBITDA adjusted for unusual, non-recurring or non-operating factors on both a consolidated and segmented basis.

(2)

Enbridge Adjusted Distributable Cash Flow is defined as cash flow provided by operating activities before the impact of changes in operating assets and liabilities (including changes in environmental liabilities) less distributions to noncontrolling interests and redeemable noncontrolling interests, preference share dividends and maintenance capital expenditures, and further adjusted for unusual, non-recurring or non-operating factors.

 

67


Table of Contents
     Year ending December 31,  
     2018      2019      2020      2021      2022  
     (Millions of US dollars, other than per unit
amounts)
 

SEP Ongoing EBITDA(1)

   $ 2,270      $ 2,347      $ 2,360      $ 2,350      $ 2,350  

SEP Distributable Cash Flow(2)

   $ 1,601      $ 1,731      $ 1,770      $ 1,734      $ 1,736  

SEP Distributions per SEP common unit

   $ 3.03      $ 3.16      $ 3.16      $ 3.16      $ 3.16  

The above measures are not measures of financial performance under GAAP, and should not be considered as alternatives to net income (loss), operating income, cash from operations or any other measure of financial performance or liquidity presented in accordance with GAAP. SEP’s computations of these measures may differ from similarly titled measures used by others.

 

(1)

SEP Ongoing EBITDA represents EBITDA, excluding special items.

(2)

SEP Distributable Cash Flow is defined as EBITDA plus distributions from equity investments and other non-cash items affecting net income, less earnings from equity investments, interest expense, equity allowance for funds used during construction, net cash paid for income taxes, distributions to noncontrolling interests and maintenance capital expenditures.

Reasons of the Enbridge Board for the Merger

The Merger is expected to generate several benefits for Enbridge and its shareholders, including Unaffiliated SEP Unitholders that will become Enbridge shareholders if the Merger is successfully completed:

 

   

Ownership in Core Businesses: The Merger will increase Enbridge’s ownership in its core businesses and further enhance its low-risk profile;

 

   

Simplified Corporate Structure: The Merger will significantly advance Enbridge’s strategy to simplify and streamline its corporate structure which further increases the transparency of its strong cash generating assets;

 

   

Cash Retention: The Merger will result in Enbridge having higher retention of cash generated from the SEP assets, which will support continued strong dividend coverage and self-funded growth;

 

   

Enhanced Credit Profile: The Merger will improve Enbridge’s credit profile due to the elimination of SEP public distributions, as well as opportunities to minimize structural subordination of Enbridge debt;

 

   

Tax Benefits: The Merger will provide significant benefits to Enbridge’s post-2020 outlook primarily due to tax optimization synergies;

 

   

Regulatory Uncertainty Benefits: The Merger will reduce risks related to uncertainty and potential unfavorable changes associated with regulatory tax policies applied to MLPs and incremental Enbridge support required by SEP in difficult capital markets; and

 

   

Maintain Financial Profile: The Merger will result in no change to Enbridge’s consolidated EBITDA following the completion of the Merger since the assets held by SEP are already managed and operated by Enbridge’s U.S. subsidiaries and consolidated for accounting purposes by Enbridge.

Regulatory Approvals

In connection with the Merger, Enbridge intends to make all required filings under the Securities Act and the Exchange Act, as well as any required filings or applications with the NYSE and the TSX. Enbridge and SEP are unaware of any other requirement for the filing of information with, or the obtaining of the approval of, governmental authorities in any jurisdiction that is applicable to the Merger.

 

68


Table of Contents

The Merger is not reportable under the HSR Act, and therefore no filings with respect to the Merger are required with the FTC or the DOJ.

Litigation Matters

Paul Morris v. Spectra Energy Partners (DE) GP, LP, Spectra Energy Corp, Defendants, and Spectra Energy Partners, LP, Nominal Defendant

A putative class action lawsuit asserting direct and derivative claims was filed in the Delaware Court of Chancery in March of 2016 by Paul Morris (the “Plaintiff”), a SEP unitholder. The claims in the Morris Litigation relate to a transaction in October 2015 whereby 33% ownership interests in the Sand Hills and Southern Hills pipelines were sold by SEP to Spectra Energy and, subsequent to that transaction, Spectra Energy contributed those ownership interests to DCP Midstream, LLC, a joint venture in which Spectra Energy owns a 50% ownership interest. The Morris Litigation alleges that the consideration paid to SEP by Spectra Energy in exchange for those ownership interests was approximately US$525 million less than the purported value of such ownership interests. The lawsuit asserted direct and derivative claims of breach of contract and breach of the implied duty of good faith and fair dealing against the General Partner and direct and derivative claims of tortious interference with the SEP Partnership Agreement against Spectra Energy. SEP is also named as a “nominal” defendant in the lawsuit for the derivative claims.

On January 13, 2017, the Plaintiff in the Morris Litigation withdrew all of his direct claims in the lawsuit. On June 27, 2017, the Delaware Court of Chancery issued a Memorandum Opinion dismissing the derivative claims of tortious interference against Spectra Energy and the breach of the implied duty of good faith and fair dealing against the General Partner, leaving only the derivative claim for breach of the SEP Partnership Agreement against the General Partner pending. The relief sought in the complaint includes rescission of the transaction, damages, interest and attorneys’ fees.

As of September 18, 2018, all proceedings in the Morris Litigation have been stayed at the Plaintiff’s request pending either the closing of the Merger or the termination of the Merger Agreement, and the trial originally scheduled to begin December 11, 2018, has been removed from the Delaware Court of Chancery’s calendar. If the Merger closes and Enbridge acquires all of the outstanding SEP common units (other than the Excluded Units), Plaintiff will lose standing to continue his derivative claims on behalf of SEP and Enbridge will become the owner of such derivative claims.

Interests of Directors and Executive Officers of GP LLC in the Merger

In considering the recommendation of the GP LLC Board with respect to the Merger proposal, SEP unitholders should be aware that certain of the directors and executive officers of Enbridge and GP LLC have interests in the transaction that may differ from, or are in addition to, the interests of SEP unitholders generally. These interests may present such directors and executive officers with actual or potential conflicts of interests, and these interests, to the extent they may be substantial, are described below.

Common Directors and Executive Officers

SEP does not have any employees and relies on GP LLC to manage the conduct of SEP’s business. Certain executive officers of Enbridge are also directors and executive officers of GP LLC. Enbridge compensates these officers for the performance of their duties to Enbridge, including in respect of the management of GP LLC. Persons who are directors or officers of both Enbridge and GP LLC owe duties to the equityholders of Enbridge and GP LLC, and may have interests in the Merger that are different from the interests of SEP unitholders generally.

 

69


Table of Contents

The following chart sets forth, as of the date of this consent solicitation/prospectus, the executive officers of Enbridge who hold positions at GP LLC.

 

Director

  

GP LLC

  

Enbridge

John K. Whelen

  

Director

  

Executive Vice President & Chief Financial Officer

William T. Yardley

  

President and Chairman of the Board of Directors

  

Executive Vice President & President, Gas Transmission & Midstream

Vern D. Yu

  

Director and Chief Development Officer

  

Executive Vice President & Chief Development Officer

In addition, four of the seven directors of GP LLC hold positions at Enbridge or its subsidiaries (other than GP LLC) and each executive officer of GP LLC is currently serving, and is expected to continue to serve, as an executive or other officer of Enbridge or its subsidiaries (other than GP LLC) following the Merger.

Equity Interests of GP LLC’s Directors and Executive Officers in SEP and Enbridge

Five directors of GP LLC beneficially own SEP common units and will receive the Merger Consideration upon completion of the Merger in accordance with the Merger Agreement. Please read the section titled “Security Ownership of Certain Beneficial Owners of SEPSecurity Ownership of the Management and Directors of GP LLC” beginning on page 125 for further detail.

All of the executive officers and six directors, including three non-management directors, of GP LLC beneficially own Enbridge common shares. Those individuals who own Enbridge common shares, and all of these individuals in the aggregate, hold Enbridge common shares representing less than 1.0% of Enbridge common shares outstanding as of November 5, 2018.

Conflicts Committee Compensation

In consideration of the expected time and effort that would be required of the members of the Conflicts Committee in evaluating the proposed Merger, including negotiating the terms and conditions of the Merger Agreement, the GP LLC Board determined that each member of the Conflicts Committee would receive (1) a grant of SEP common units equal to US$40,000 in value (based on the closing price of SEP common units on the NYSE on May 16, 2018) as a retainer, plus (2) a fee of US$1,500 in cash for each meeting of the Conflicts Committee, in addition to reimbursement of out-of-pocket expenses relating to such meeting, plus (3) in with respect to any in-person meetings of the Conflicts Committee, reimbursement of travel costs in connection with such meetings and, solely with respect to any members who attend such meetings from outside of the Houston metro area, an additional US$1,500 travel fee. In the event that the Merger is consummated, each member of the Conflicts Committee would receive an additional hourly fee of US$500 for any time spent in connection with any litigation arising out of their service on the Conflicts Committee. The Chairman of the Conflicts Committee would receive an additional grant of SEP common units equal to US$40,000 in value (based on the closing price of SEP common units on the NYSE on May 16, 2018). The compensation for the Chairman and members of the Conflicts Committee was approved by the GP LLC Board and was not, and is not, contingent upon the approval of the Merger Agreement and the completion of the Merger or any other transaction. No other meeting fees or other compensation (other than reimbursement for out-of-pocket expenses in connection with their service on the Conflicts Committee) will be paid to the members of the Conflicts Committee in connection with their service on the Conflicts Committee.

Executive Compensation

SEP does not directly employ any of the individuals responsible for managing or operating its business. None of the individuals who has served as a director or executive officer at GP LLC or Enbridge since the

 

70


Table of Contents

beginning of 2017 have any agreements or understandings with Enbridge, GP LLC, SEP or any other party with respect to any type of compensation (whether present, deferred or contingent) that is based on or otherwise relates to the Merger and is reportable under Item 402(t) of Regulation S-K under the Securities Act, and thus no advisory vote pursuant to Rule 14a-21(c) of the Exchange Act is required to be included in the SEP written consent in connection with this consent solicitation/prospectus.

Indemnification

All of the directors and executive officers of GP LLC have the right to indemnification under the SEP Partnership Agreement, the limited partnership agreement of the General Partner, the limited liability agreement of GP LLC and the Merger Agreement. In addition, all of the directors of Enbridge and all of the officers of Enbridge have the right to indemnification under the organizational documents of Enbridge and indemnification agreements with Enbridge.

Indemnification and Insurance

The parties to the Merger Agreement have agreed that, from and after the Effective Time, to the fullest extent permitted under applicable law, Enbridge and SEP, as the surviving entity, will jointly and severally indemnify, defend and hold harmless (subject to certain conditions regarding the advancement of expenses), each present and former director and officer of any of GP LLC, SEP, the General Partner or any of their respective subsidiaries, in each case, when acting in such capacity (including the heirs, executors and administrators of any such director or officer, the “Indemnified Parties”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, penalties, sanctions, losses, claims, damages or liabilities incurred and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any thereof) in connection with, arising out of or otherwise related to any acts or omissions or actual or threatened action, cause of action, claim, demand, litigation, suit, investigation, grievance, citation, summons, subpoena, inquiry, audit, hearing, originating application to a tribunal, arbitration, or other similar proceeding of any nature, civil, criminal, regulatory, administrative or otherwise, whether in equity or at law, in contract, in tort or otherwise, in each case in connection with, arising out of or otherwise related to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, including in connection with the transactions contemplated by the Merger Agreement and any actions to enforce the indemnification provisions in the Merger Agreement or any other indemnification or the advancement right of any Indemnified Party.

In addition, the Merger Agreement contains certain obligations related to the maintenance of directors’ and officers’ liability insurance for the directors and officers covered under GP LLC’s existing policies and fiduciary liability insurance for persons covered under SEP’s existing policies with respect to matters existing or occurring at or prior to the Effective Time of the Merger.

Listing of Enbridge Common Shares

The completion of the Merger is conditioned upon the approval for listing of Enbridge common shares issuable pursuant to the Merger Agreement on the TSX and the NYSE, subject to official notice of issuance.

Delisting and Deregistration of SEP Common Units

Enbridge expects that, as promptly as practicable after the Effective Time, the SEP common units currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

No Dissenters’ or Appraisal Rights

Holders of SEP common units do not have appraisal rights under applicable law or contractual appraisal rights under the SEP Partnership Agreement or the Merger Agreement.

 

71


Table of Contents

Requisite SEP Unitholder Approval

The approval of the Merger Agreement and the Merger by SEP requires the affirmative consent of holders of at least a majority of the outstanding SEP common units. Pursuant to the terms of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc., which as of November 5, 2018 together beneficially owned 402,989,862 SEP common units representing approximately 83.1% of the outstanding SEP common units, have irrevocably agreed to deliver, or cause to be delivered, the Enbridge Written Consent within two business days after the effectiveness of the registration statement of which this consent solicitation/prospectus forms a part. The delivery of the Enbridge Written Consent by Enbridge and Enbridge (U.S.) Inc. with respect to the SEP common units that Enbridge and its subsidiaries own will be sufficient to approve the Merger Agreement and the Merger without the receipt of written consent from any other holder of SEP common units.

No Enbridge Shareholder Approval Required

The approval of the Merger Agreement and the Merger by Enbridge does not require the affirmative vote or consent of Enbridge shareholders.

Accounting Treatment of the Merger

The Merger will be accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 810, Consolidation—Overall—Changes in a Parent’s Ownership Interest in a Subsidiary. Because Enbridge controlled SEP both before and after the completion of the Merger, the changes in Enbridge’s ownership interest in SEP will be accounted for as an equity transaction and no gain or loss will be recognized in the condensed consolidated statements of earnings resulting from the Merger. In addition, consistent with ASC 740, Income Taxes, the tax effects of the Merger is presented in additional paid-in capital.

 

72


Table of Contents

THE MERGER AGREEMENT

This section describes the material terms of the Merger Agreement, which was executed on August 24, 2018. The description of the Merger Agreement in this section and elsewhere in this consent solicitation/prospectus is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this consent solicitation/prospectus and is incorporated by reference herein in its entirety. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. You are encouraged to read the Merger Agreement carefully and in its entirety, because it is the legal document that governs the Merger.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement and this summary are included solely to provide you with information regarding the terms of the Merger Agreement. Factual disclosures about Enbridge, SEP, or any of their respective subsidiaries or affiliates contained in this consent solicitation/prospectus or in Enbridge’s or SEP’s public reports filed with the SEC may supplement, update or modify the factual disclosures about Enbridge or SEP, as applicable, contained in the Merger Agreement. The representations, warranties and covenants made in the Merger Agreement by Enbridge, Enbridge (U.S.) Inc., SEP, the General Partner and Merger Sub were made solely for the purposes of the Merger Agreement and as of specific dates and were qualified and subject to important limitations agreed to by Enbridge, Enbridge (U.S.) Inc., SEP, the General Partner and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to complete the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to shareholders or unitholders and reports and documents filed with the SEC, and in some cases were qualified by the matters contained in the disclosure letters that SEP and Enbridge delivered to each other in connection with the Merger Agreement, which disclosures were not reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this consent solicitation/prospectus, may have changed since the date of the Merger Agreement. You should not rely on the Merger Agreement representations, warranties, covenants or any descriptions thereof as characterizations of the actual state of facts of Enbridge, SEP or Merger Sub or any of their respective subsidiaries or affiliates.

The Merger

The Merger Agreement provides that, upon the terms and conditions in the Merger Agreement, and in accordance with the DLLCA and the DRULPA, at the Effective Time of the Merger, Merger Sub will be merged with and into SEP, with SEP being the sole surviving entity of the Merger as an indirect, wholly owned subsidiary of Enbridge (the “Surviving Entity”).

Closing and Effective Time of the Merger

The closing of the Merger (the “Closing”) will take place on the third business day following the day on which the last to be satisfied or waived of the conditions to the completion of the Merger, described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 87 (other than those conditions that by their nature are to be satisfied at the Closing, so long as such conditions are reasonably capable of being satisfied, or that may be waived at Closing, but subject to the satisfaction or waiver of those conditions), have been satisfied or waived in accordance with the Merger Agreement or at such other date, time or place (or by means of remote communication) as SEP and Enbridge may mutually agree in writing.

 

73


Table of Contents

Assuming timely satisfaction of the necessary closing conditions, the parties currently expect the Closing to occur in the fourth quarter of 2018. The Merger will become effective at the time when the Certificate of Merger has been duly filed with and accepted by the Secretary of State of the State of Delaware or at such later date and time as may be agreed by the parties in writing and specified in the Certificate of Merger.

Organizational Documents of the Surviving Entity

At the Effective Time, (a) the certificate of limited partnership of SEP as in effect immediately prior to the Effective Time will continue as the certificate of limited partnership of the Surviving Entity, until duly amended as provided therein or by applicable law, and (b) the Partnership Agreement will remain unchanged and will continue as the agreement of limited partnership of the Surviving Entity, until duly amended as provided therein or by applicable law, and in each case any further amendments or restatements must be consistent with the obligations set forth in the Merger Agreement.

Merger Consideration

At the Effective Time, by virtue of the Merger and without any action on the part of the parties or any holder of any SEP partnership interests, each SEP common unit issued and outstanding, other than Excluded Units (each such SEP common unit, an “Eligible Unit”) will be converted into the right to receive 1.111 Enbridge common shares.

Each Eligible Unit, upon being converted into the right to receive the Merger Consideration, and each certificate and each book-entry unit formerly representing any Eligible Units, will thereafter represent only the right to receive the Merger Consideration with respect to such Eligible Units, and the right, if any, to receive cash in lieu of fractional shares and any dividends or other distributions declared by Enbridge in respect of Enbridge common shares, the record date for which is at or after the Effective Time.

No fractional Enbridge common shares will be issued upon the conversion of SEP common units. All fractional Enbridge common shares that a holder of Eligible Units would otherwise be entitled to receive will be aggregated and rounded to three decimal places. Such holder of Eligible Units will be entitled to receive an amount in cash, without interest, rounded down to the nearest cent, equal to the product of (a) the amount of the fractional share interest in an Enbridge common share to which such holder would otherwise be entitled and (b) an amount equal to the average of the volume-weighted average price per share of Enbridge common shares on the NYSE (as reported by Bloomberg L.P., or, if not reported therein, in another authoritative source mutually selected by Enbridge and SEP) on the trading day immediately prior to the Effective Time for ten trading days ending on the fifth full business day immediately prior to the Closing Date.

At the Effective Time, by virtue of the Merger and without further action on the part of the parties or any holder of any SEP common units, each Excluded Unit will remain outstanding as a common unit in the Surviving Entity, unaffected by the Merger, and all other partnership interests, including the non-economic general partner interest in SEP owned by the General Partner, Enbridge or any of its subsidiaries will remain outstanding as partnership interests in the Surviving Entity, unaffected by the Merger, and no consideration will be delivered in respect thereof.

At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the parties, all membership interests in Merger Sub issued and outstanding immediately prior to the Effective Time will cease to be outstanding, be cancelled without payment of any consideration therefor and cease to exist.

Pre-Merger Subscriptions

On the Closing Date and immediately prior to the Effective Time, the following subscriptions for shares or membership interests will take place in the following order: (a) Enbridge will subscribe for shares of Enbridge

 

74


Table of Contents

US Holdings Inc. in exchange for the right of Enbridge US Holdings Inc. to receive from Enbridge the Aggregate Merger Consideration, (b) Enbridge US Holdings Inc. will subscribe for shares of Enbridge (U.S.) Inc. in exchange for the right of Enbridge (U.S.) Inc. to receive from Enbridge US Holdings Inc. the Aggregate Merger Consideration, (c) Enbridge (U.S.) Inc. will subscribe for shares in Spectra Energy in exchange for the right of Spectra Energy to receive from Enbridge (U.S.) Inc. the Aggregate Merger Consideration (the “Spectra Subscription”), (d) Spectra Energy will subscribe for additional membership interests of Spectra Energy Capital, LLC in exchange for the right of Spectra Energy Capital, LLC to receive from Spectra Energy the Aggregate Merger Consideration (the “SECLLC Subscription”), (e) Spectra Energy Capital, LLC will subscribe for additional membership interests in Spectra Energy Transmission, LLC (“SETLLC”) in exchange for the right of SETLLC to receive from Spectra Energy Capital, LLC the Aggregate Merger Consideration (the “SETLLC Subscription”) and (f) SETLLC will subscribe for additional membership interests of Merger Sub in exchange for the right of Merger Sub to receive from SETLLC the Aggregate Merger Consideration (the “Merger Sub Subscription”). Immediately prior to the Effective Time and following the Merger Sub Subscription, Merger Sub will direct Enbridge to deposit or cause to be deposited the Aggregate Merger Consideration with the Exchange Agent (as defined below) for the benefit (subject to closing) of the holders of Eligible Units.

United States Federal Income Tax Treatment of the Merger

For United States federal income tax purposes (and for purposes of any applicable state, local or foreign tax that follows the United States federal income tax treatment), the parties have agreed to treat the Merger, (a) with respect to the holders of Eligible Units, as a taxable sale of the Eligible Units to Spectra Energy and, (b) with respect to Spectra Energy, as an acquisition of the Aggregate Merger Consideration from Enbridge (U.S.) Inc. in accordance with the Spectra Subscription (as defined in the Merger Agreement) and then as a purchase by Spectra Energy of the Eligible Units from the holders of the Eligible Units in exchange for the Aggregate Merger Consideration (including any cash paid in lieu of fractional Enbridge common shares). The parties will prepare and file all tax returns consistent with the foregoing and will not take any inconsistent position on any tax return, or during the course of any action, cause of action, claim, demand, litigation, suit, investigation, grievance, citation, summons, subpoena, inquiry, audit, hearing, originating application to a tribunal, arbitration, or other similar proceeding of any nature, civil, criminal, regulatory, administrative or otherwise, whether in equity or at law, in contract, in tort or otherwise (each, a “Proceeding”), with respect to taxes, except as otherwise required by applicable law following a final determination by a court of competent jurisdiction or other administrative settlement with or final administrative decision by the relevant governmental entity.

Exchange Procedures

Immediately prior to the Effective Time, Enbridge will deposit, or cause to be deposited, with a nationally recognized financial institution or trust company selected by Enbridge with SEP’s prior approval (which will not be unreasonably withheld, conditioned or delayed) to serve as the exchange agent (the “Exchange Agent”), for the benefit of the holders of Eligible Units upon Closing, an aggregate number of Enbridge common shares to be issued in non-certificated book-entry form comprising the amounts required to be delivered in respect of Eligible Units and an aggregate amount of cash comprising approximately the amounts required to be delivered in lieu of any fractional shares. In addition, Enbridge will deposit, or cause to be deposited, with the Exchange Agent, as necessary from time to time after the Effective Time, dividends or other distributions, if any, to which the holders of Eligible Units may be entitled, with both a record date and payment date after the Effective Time and prior to the surrender of such Eligible Units as further described in the section titled “The Merger Agreement—Distributions with Respect to Unsurrendered Certificates” beginning on page 77. Such Enbridge common shares, cash in lieu of fractional shares and the amount of any dividends or other distributions deposited with the Exchange Agent collectively constitute the “Exchange Fund”.

With respect to certificates, as promptly as reasonably practicable after the Effective Time (and in any event within three business days thereafter), the Surviving Entity will cause the Exchange Agent to mail to each holder of record of each certificate (a) notice advising such holders of the effectiveness of the Merger, (b) a letter of

 

75


Table of Contents

transmittal in customary form, which will specify that delivery will be effected, and risk of loss and title to a certificate will pass, only upon delivery of the certificate (or an affidavit of loss in lieu of the certificate with the posting of a bond as indemnity) to the Exchange Agent and (c) instructions for surrendering a certificate (or the making of an affidavit of loss in lieu of a certificate and the posting of a bond as indemnity) to the Exchange Agent.

Upon surrender to the Exchange Agent of a certificate (or an affidavit of loss in lieu of a certificate with the posting of a bond as indemnity) together with a duly executed and completed letter of transmittal and such other documents as may reasonably be required pursuant to such instructions, the Surviving Entity will cause the Exchange Agent to mail to each holder of record of any certificate in exchange therefor, as promptly as reasonably practicable thereafter, (a) a statement reflecting the number of whole Enbridge common shares, if any, that such holder is entitled to receive in the name of such record holder and (b) a check in the amount (after giving effect to any required tax withholdings) of any cash in lieu of fractional shares plus any unpaid dividends or other distributions that such holder has the right to receive. Any certificate that has been so surrendered will be cancelled by the Exchange Agent.

With respect to book-entry units not held through The Depository Trust Company (“DTC”), as promptly as reasonably practicable after the Effective Time (and in any event within three business days thereafter), the Surviving Entity will cause the Exchange Agent to mail to each holder of record of a non-DTC book-entry unit, (a) notice advising such holders of the effectiveness of the Merger, (b) a statement reflecting the number of whole Enbridge common shares, if any, that such holder is entitled to receive pursuant to the Merger Agreement and in the name of such record holder and (c) a check in the amount (after giving effect to any required tax withholdings) of any cash in lieu of fractional shares plus any unpaid dividends or other distributions that such holder has the right to receive. Any holder of an Eligible Unit that is duplicatively evidenced by both a certificate and book-entry account will not receive the notice, statement and check contemplated by the preceding paragraph with respect to such Eligible Units, but will surrender the applicable certificate in accordance with the procedures set forth above regarding the surrender of certificates to receive the Merger Consideration and any other amounts due under the Merger Agreement with respect to such Eligible Unit, and no additional Merger Consideration or other amounts under the Merger Agreement will accrue or be payable to the duplicative book-entry account for such Eligible Unit.

With respect to book-entry units held through DTC, Enbridge and SEP will cooperate to establish procedures with the Exchange Agent and DTC to ensure that the Exchange Agent will transmit to DTC or its nominees as soon as reasonably practicable on or after the Closing Date, upon surrender of Eligible Units held of record by DTC or its nominees in accordance with DTC’s customary surrender procedures, the Merger Consideration, cash in lieu of fractional Enbridge common shares, if any, and any unpaid dividends or distributions, in each case, that such holder has the right to receive pursuant to the terms of the Merger Agreement.

No interest will be paid or accrued on any amount payable for Eligible Units.

In the event of a transfer of ownership of any certificate that is not registered in the transfer books of SEP as of the Effective Time, the proper number of Enbridge common shares, together with a check for any cash, (after giving effect to any required tax withholdings) to be paid upon due surrender of the certificate and any dividends or distributions in respect thereof, may be issued or paid to such a transferee if the certificate is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable, in each case, in form and substance, reasonably satisfactory to the Exchange Agent. Until surrendered, each certificate will be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration, cash in lieu of fractional Enbridge common shares, if any, and any unpaid dividends or other distributions. With respect to book-entry units, payment of the applicable Merger Consideration and any cash in lieu of fractional shares and any unpaid dividends or other distributions will only be made to the person in whose name such book-entry units are registered in the stock transfer books of SEP as of the Effective Time.

 

76


Table of Contents

Distributions with Respect to Unsurrendered Certificates

All Enbridge common shares to be issued pursuant to the Merger will be deemed issued and outstanding as of the Effective Time and whenever a dividend or other distribution is declared by Enbridge in respect of the Enbridge common shares, the record date for which is at or after the Effective Time, that declaration will include dividends or other distributions in respect of all Enbridge common shares issuable pursuant to the Merger Agreement. No dividends or other distributions in respect of Enbridge common shares will be paid to any holder with respect to any unsurrendered certificate until the certificate (or affidavit of loss in lieu of the certificate with the posting of a bond as indemnity) is surrendered for exchange. Subject to applicable law, following such surrender, dividends or distributions with respect to Enbridge common shares issued in exchange for Eligible Units will be paid to the holders of record of such Eligible Units, without interest, (a) promptly after the time of such surrender for any dividends or other distributions payable with respect to Enbridge common shares with a record date after the Effective Time but a payment date prior to surrender and (b) at the appropriate payment date for any dividends or other distributions payable with respect to Enbridge common shares with a record date after the Effective Time and prior to surrender, but with a payment date subsequent to surrender.

Termination of the Exchange Fund

Any portion of the Exchange Fund (including the proceeds of any investments of the Exchange Fund and any Enbridge common shares) that remains unclaimed as of the date that is 12 months following the Effective Time will be delivered to Enbridge. Any holder of Eligible Units will thereafter be entitled to look only to Enbridge for delivery of the Merger Consideration, cash in lieu of fractional Enbridge common shares, if any, and any unpaid dividends or other distributions, in each case, that such holder has the right to receive without interest. None of the Surviving Entity, Enbridge, the Exchange Agent or any other person will be liable to any former holder of SEP common units for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. Any portion of the Exchange Fund which remains undistributed to the holders of Eligible Units immediately prior to the time at which the Exchange Fund would otherwise escheat to, or become property of, any governmental entity, will, to the extent permitted by applicable law, become the property of Enbridge, free and clear of all claims or interest of any person previously entitled thereto.

Lost, Stolen or Destroyed Certificates

In the event that any certificate will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and the posting by such person of a bond in customary amount and upon such terms as may be required as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate, the Merger Consideration, cash in lieu of fractional Enbridge common shares, if any, and any unpaid dividends or other distributions, in each case, payable or issuable had such lost, stolen or destroyed certificate been surrendered.

Withholding Rights

Each of Enbridge, SETLLC, Merger Sub, SEP, the Exchange Agent and the Surviving Entity will be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Merger Agreement, without duplication, such amounts, which may include Enbridge common shares, as Enbridge, SETLLC, Merger Sub, SEP, the Exchange Agent and the Surviving Entity reasonably deem to be required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code or any applicable provision of state, local or foreign tax law. To the extent that amounts are so withheld by, Enbridge, SETLLC, Merger Sub, SEP, the Exchange Agent or the Surviving Entity, as applicable, such withheld amounts (a) will be timely remitted by Enbridge, SETLLC, Merger Sub, SEP, the Exchange Agent or the Surviving Entity, as applicable, to the applicable governmental entity, and (b) to the extent such withheld amounts are remitted to the appropriate governmental entity, will be treated for all purposes of the Merger Agreement as having been paid to the holder

 

77


Table of Contents

of SEP common units in respect of which such deduction and withholding was made by Enbridge, SETLLC, Merger Sub, SEP, the Exchange Agent or the Surviving Entity, as applicable. If withholding is taken in Enbridge common shares, Enbridge, SETLLC, Merger Sub, SEP, the Surviving Entity and the Exchange Agent, as applicable, shall be treated as having sold such consideration for an amount of cash equal to the fair market value of such consideration at the time of such deemed sale and paid such cash proceeds to the appropriate governmental entity.

Adjustments to Prevent Dilution

If, from the date of the Merger Agreement to the earlier of the Effective Time and termination of the Merger Agreement, the issued and outstanding SEP common units or securities convertible or exchangeable into or exercisable for SEP common units or the issued and outstanding Enbridge common shares or securities convertible or exchangeable into or exercisable for Enbridge common shares, will have been changed into a different number of shares or securities or a different class by reason of any reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, issuer tender or exchange offer, or other similar transaction, or a stock dividend with a record date within such period will have been declared, then the Merger Consideration (and the Exchange Ratio) will be equitably adjusted to provide the holders of SEP common units and Enbridge the same economic effect as contemplated by the Merger Agreement prior to such event, and such items so adjusted will, from and after the date of such event, be the Merger Consideration (and the Exchange Ratio).

No Dissenters’ Rights

No dissenters’ or appraisal rights will be available with respect to the Merger or the other transactions contemplated by the Merger Agreement.

Termination of SEP Equity Plan

Prior to the Effective Time, SEP and the General Partner will take all actions necessary to terminate the SEP Long-Term Incentive Plan, such termination to be effective at the Effective Time. From and after the Effective Time, the SEP Long-Term Incentive Plan will be terminated and no equity awards or other rights with respect to SEP common units or other partnership interests will be granted or be outstanding thereunder. As soon as practicable following the Effective Time, SEP will file a post-effective amendment to the Form S-8 registration statement filed by SEP on July 3, 2007, deregistering all common units thereunder.

Representations and Warranties

The Merger Agreement contains customary representations and warranties by SEP and the General Partner that are subject, in some cases, to specified expectations and qualifications contained in the Merger Agreement, in forms, statements, certifications, reports or documents filed with or furnished by SEP to the SEC (including the exhibits and schedules thereto) prior to the date of the Merger Agreement or in the disclosure letter delivered by SEP and the General Partner to Enbridge and Enbridge (U.S.) Inc. in connection with the Merger Agreement. These representations and warranties relate to, among other things:

 

   

the organization, good standing and qualification to do business of the General Partner, SEP and any of its subsidiaries;

 

   

the capital structure of SEP, including regarding:

 

   

the number of SEP common units outstanding;

 

   

the non-economic general partner interest outstanding;

 

   

the due authorization and validity of the SEP common units;

 

78


Table of Contents
   

the due authorization and validity of the general partner interest and the absence of any pledge, lien, charge, mortgage, encumbrance, option, right of first refusal or other preferential purchase right, adverse claim and interest or security interest of any kind on that interest;

 

   

the absence of any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or are convertible into or exercisable for securities having the right to vote) with the holders of SEP common units on any matter; and

 

   

the absence of preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or similar rights;

 

   

the corporate power, authority and approval relating to the execution, delivery and performance of SEP’s and the General Partner’s obligations under the Merger Agreement, subject to the approval of the Merger Agreement by the majority of the outstanding SEP common units entitled to vote on the matter;

 

   

the Conflicts Committee’s unanimous determination that the Merger Agreement and Merger are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders;

 

   

the GP LLC Board’s unanimous determination that the Merger Agreement and Merger are fair and reasonable to, and in the best interests of, SEP and the Unaffiliated SEP Unitholders;

 

   

government filings, notices, reports, consents, registrations, approvals, permits or authorizations in connection with the execution, delivery and performance of the Merger Agreement or the consummation of the Merger;

 

   

the execution, delivery and performance of the Merger Agreement by SEP and the General Partner not contravening, violating, resulting in a breach of or otherwise conflicting with the organizational documents of SEP or its subsidiaries or the material contracts of SEP or resulting in the creation of any lien on any of the assets or businesses of any of SEP or its subsidiaries under any such material contract;

 

   

filings with the SEC since December 31, 2016, the financial statements included therein and the maintenance of a system of internal controls;

 

   

the absence of a Material Adverse Effect with respect to SEP and its subsidiaries, taken as a whole, since December 31, 2017;

 

   

the absence of any Proceedings, pending or, to the knowledge of SEP and the General Partner, threatened in writing against SEP or its subsidiaries;

 

   

the absence of certain undisclosed liabilities or obligations, other than those incurred in the ordinary course since December 31, 2017;

 

   

the absence of any material judgment, order, writ, injunction, stipulation, ruling, determination, decree or award of any governmental entity against SEP or its subsidiaries;

 

   

compliance with applicable laws and the possession of and compliance with licenses and permits necessary to the conduct of business, none of which will cease to be effective as a result of the Merger;

 

   

environmental matters;

 

   

tax matters;

 

   

real property;

 

   

certain material contracts;

 

   

opinion of financial advisor;

 

79


Table of Contents
   

the absence of undisclosed broker or finders fees; and

 

   

insurance.

The Merger Agreement also contains customary representations and warranties by Enbridge, Enbridge (U.S.) Inc. and Merger Sub that are subject, in some cases, to specified expectations and qualifications contained in the Merger Agreement, in forms, statements, certifications, reports or documents filed with or furnished by Enbridge to the SEC (including the exhibits and schedules thereto) or filed on the System for Electronic Document Analysis and Retrieval maintained by Canadian securities regulators prior to the date of the Merger Agreement or in the disclosure letter delivered by Enbridge and Enbridge (U.S.) Inc. to SEP and the General Partner in connection with the Merger Agreement. These representations and warranties relate to, among other things:

 

   

the organization, good standing and qualification to do business of Enbridge and Enbridge (U.S.) Inc.;

 

   

the capital structure of Enbridge, Enbridge (U.S.) Inc. and Merger Sub, including regarding:

 

   

the number of Enbridge common shares and preference shares issued and outstanding;

 

   

the authorized capital stock of Enbridge (U.S.) Inc.;

 

   

the due authorization and validity of all outstanding Enbridge common shares and shares of Enbridge (U.S.) Inc. common stock;

 

   

the absence of any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or are convertible into or exercisable for securities having the right to vote) with Enbridge shareholders on any matter;

 

   

the absence of preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or similar rights; and

 

   

the ownership of Merger Sub by SETLLC and Merger Sub’s lack of assets, liabilities or obligations of any nature other than those incident to its formation in connection with the Merger;

 

   

the corporate power, authority and approval relating to the execution, delivery and performance of Enbridge’s, Enbridge (U.S.) Inc.’s and Merger Sub’s obligations under the Merger Agreement;

 

   

government filings, notices, reports, consents, registrations, approvals, permits or authorizations in connection with the execution, delivery and performance of the Merger Agreement or the consummation of the Merger;

 

   

the execution, delivery and performance of the Merger Agreement by Enbridge and Enbridge (U.S.) Inc. not contravening, violating, resulting in a breach of or otherwise conflicting with the organizational documents of Enbridge or its subsidiaries (other than SEP and its subsidiaries) or the material contracts of Enbridge or resulting in the creation of any lien on any of the assets or businesses of any of Enbridge or its subsidiaries (other than SEP and its subsidiaries) under any such material contract;

 

   

filings with the SEC since December 31, 2016, the financial statements included therein and the maintenance of a system of internal controls;

 

   

the absence of a Material Adverse Effect with respect to Enbridge and its subsidiaries (other than SEP and its subsidiaries), taken as a whole, since December 31, 2017;

 

   

the absence of any Proceedings, pending or, to the knowledge of Enbridge, threatened in writing against Enbridge or its subsidiaries (other than SEP and its subsidiaries);

 

   

the absence of certain undisclosed liabilities or obligations, other than those incurred in the ordinary course since December 31, 2017;

 

80


Table of Contents
   

the absence of any material judgment, order, writ, injunction, stipulation, ruling, determination, decree or award of any governmental entity against Enbridge or its subsidiaries (other than SEP and its subsidiaries);

 

   

compliance with applicable laws and the possession of and compliance with licenses and permits necessary to the conduct of business, none of which will cease to be effective as a result of the Merger;

 

   

environmental matters;

 

   

tax matters;

 

   

real property;

 

   

certain material contracts;

 

   

the absence of undisclosed broker or finders fees; and

 

   

insurance.

Many of the representations and warranties contained in the Merger Agreement are qualified by a “Material Adverse Effect” standard (that is, they would not be deemed untrue or incorrect unless their failure to be true and correct individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Enbridge or SEP) and/or by a general materiality standard.

A “Material Adverse Effect” means with respect to SEP or Enbridge, as applicable, any effect, event, development, change or occurrence, individually or in the aggregate with any other events, developments, changes, or occurrences, is, or would reasonably be expected to be, materially adverse to the financial condition, properties, assets, operations, liabilities, business or results of operations, taken as a whole, of Enbridge and its subsidiaries (other than SEP and its subsidiaries) or SEP and its subsidiaries, taken as a whole, as applicable, except that none of the following, alone or in combination, will be deemed to constitute a Material Adverse Effect, or be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur:

 

   

any effect, event, development, change or occurrence affecting the economy, credit, capital, securities or financial markets, or political, regulatory or business conditions, in general in the U.S., Canada or elsewhere in the world;

 

   

any changes in prices (benchmark, realized or otherwise) of energy products or other commodities or from changes in interest rates or currency exchange rates;

 

   

any factors affecting the energy products gathering, drilling, processing, treating, transportation, storage, marketing and other related industries, markets or geographical areas in which such party and its subsidiaries conduct their respective businesses, industry margins or any regulatory changes or changes in applicable law, and including those effects resulting from the actions of competitors or other changes in the industry in which such party conducts its business;

 

   

the entry into, announcement or performance of the transactions contemplated by the Merger Agreement, including the Merger, including any impact on relationships, contractual or otherwise, with customers, suppliers, distributors, lenders, partners, governmental entities or employees or any transaction litigation or actions taken or requirements imposed by any governmental entity in connection with the transactions contemplated by the Merger Agreement, including the Merger;

 

   

changes or modifications in GAAP or applicable accounting regulations or principles, or in the interpretation or enforcement thereof, after the date of the Merger Agreement;

 

   

any adoption, implementation, promulgation, repeal, modification, reinterpretation, change of enforcement or proposal of any law, decision or protocol or any other legislative or political conditions or policy or practices of any governmental entity;

 

81


Table of Contents
   

any failure by such party to meet any internal or public projections or forecasts or estimates of revenues, earnings or other financial or operational performance measures for any period (provided that this exception will not prevent or otherwise affect a determination that any effect underlying such failure has resulted in, or contributed to, or would reasonably be expected to result in, or contribute to, a Material Adverse Effect);

 

   

acts of war (whether or not declared), civil disobedience, hostilities, terrorism, military actions or the escalation of any of the foregoing, any hurricane, flood, tornado, earthquake or other weather or natural disaster or acts of God, whether or not caused by any person;

 

   

the performance by any party of its obligations under the Merger Agreement, including any action taken or omitted to be taken at the request or with the consent of Enbridge, with respect to SEP, or at the request or with the consent of SEP with respect to Enbridge, as applicable;

 

   

any change in the credit rating or other rating of financial strength of such party or any of its subsidiaries or any of their respective securities or any announcement of a prospective change therein (provided that this exception will not prevent or otherwise affect a determination that any effect underlying such effect or announcement of an effect has resulted in, or contributed to, or would reasonably be expected to result in, or contribute to, a Material Adverse Effect);

 

   

a decline in the market price, or change in trading volume, of the SEP common units on the NYSE, the Enbridge common shares on the TSX or the NYSE or any derivative securities related thereto, as applicable (provided that this exception will not prevent or otherwise affect a determination that any effect underlying such decline or change has resulted in, or contributed to, or would reasonably be expected to result in, or contribute to, a Material Adverse Effect);

 

   

any Proceeding commenced by or involving any current or former member, partner, unitholder or stockholder of such person (on their own behalf or on behalf of such person) arising out of or related to the Merger Agreement or the transactions contemplated thereby; or

 

   

any effect caused by the entry into, announcement, consummation or performance of, or failure to enter into or consummate the Other Parent Mergers, including any impact on relationships, contractual or otherwise, with customers, suppliers, distributors, lenders, partners, governmental entities or employees or any litigation related to certain other transactions involving Enbridge or actions taken or requirements imposed by any governmental entity in connection with certain other transactions involving Enbridge.

However, with respect to the first, second, third, fifth, sixth and eighth bullets listed above, such effect, event, development, change or occurrence will be taken into account in determining whether a Material Adverse Effect has occurred to the extent that it disproportionately adversely affects such party and its subsidiaries compared to other companies operating in the industries in which such party and its subsidiaries operate.

Interim Operations

Under the terms of the Merger Agreement, SEP and Enbridge have agreed that, after the date of the Merger Agreement and prior to the Effective Time, except as contemplated by the Merger Agreement, required by law or contract in effect as of the date of the Merger Agreement or agreed upon by the parties in writing (which approval will not be unreasonably withheld, conditioned or delayed), the business of each of Enbridge and SEP and their respective subsidiaries will be conducted in the ordinary course and each of Enbridge and SEP and their respective subsidiaries will use their commercially reasonable efforts to preserve their business organizations intact and maintain existing relations and goodwill with governmental entities, customers, suppliers, licensors, distributors, creditors, lessors, employees and business associates. SEP and Enbridge have also agreed that, after the date of the Merger Agreement and prior to the Effective Time, except as, among other things (a) contemplated by the Merger Agreement or in any contract entered into by Enbridge with respect to the Other Merger Transactions, (b) required by law or terms of any material contract of either Enbridge or SEP, or (c) as

 

82


Table of Contents

approved in writing by the other party (which approval shall not be unreasonably withheld, conditioned or delayed), SEP and Enbridge will not, and will not permit their respective subsidiaries to:

 

   

make any material change to the nature of its business and operations;

 

   

make any change to its organizational documents as in effect on the date of the Merger Agreement in any manner that would reasonably be expected to prohibit, prevent or materially impede, hinder or delay the ability of the party to satisfy any of the conditions to, or consummation of, the Merger or the Other Parent Mergers;

 

   

merge or consolidate itself or any of its subsidiaries with any other person or adopt a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization, except such transactions solely between or among, or solely involving, the party and one or more of its wholly owned subsidiaries, or a subsidiary of such party and one or more wholly owned subsidiaries of such subsidiary, as would not reasonably be expected to result in a Material Adverse Effect with respect to SEP or Enbridge, as applicable, or as would not reasonably be expected to prohibit, prevent or materially impede, hinder or delay the ability of such party to satisfy any of the conditions to, or consummation of, the Merger or the Other Parent Mergers;

 

   

issue, sell, pledge, dispose of, grant, transfer, encumber or authorize the issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance, or enter into any contract (including in respect to voting of), any of its partnership interests, limited liability company interests, shares of capital stock or equity interests, as applicable, (other than by a wholly owned subsidiary to the party or one or more of the party’s wholly owned subsidiaries or by a wholly owned subsidiary of the party’s subsidiary to such subsidiary or one or more other wholly owned subsidiaries of such subsidiary) or securities convertible or exchangeable into or exercisable for any partnership interests, limited liability company interests, shares of capital stock or equity interests, as applicable, or any options, warrants or other rights of any kind to acquire any such interests or such convertible or exchangeable securities;

 

   

reclassify, split, combine, subdivide or redeem, purchase or otherwise acquire any of its partnership interests, limited liability company interests, shares of capital stock or equity interests, as applicable, or securities convertible or exchangeable for such interests, as applicable;

 

   

waive, release, assign, settle or compromise any claim, action or proceeding, including any state or federal regulatory proceeding seeking damages or injunction or other equitable relief, which waiver, release, assignment, settlement or compromise would reasonably be expected to result in a Material Adverse Effect on SEP or Enbridge, as applicable;

 

   

other than in the ordinary course, make, change or revoke any material tax election (other than a tax election with respect to GP LLC), adopt or change any material tax accounting method, file any material amended tax return, settle any material tax claim, audit, assessment or dispute for an amount materially in excess of the amount reserved or accrued on the party’s most recent consolidated balance sheet included in the public filings of SEP or Enbridge, as applicable, or surrender any right to claim a refund of a material amount of taxes;

 

   

make any material change to its accounting policies, except as may be required as a result of a change in GAAP (or any interpretation thereof);

 

   

make or declare any dividends or distributions to the holders of SEP common units or Enbridge common shares, in each case, other than in the ordinary course; or

 

   

agree, authorize or commit to do any of the foregoing.

Consent Solicitation/Prospectus Filing; Information Supplied

SEP and Enbridge have agreed to cooperate in the preparation of this registration statement of which this consent solicitation/prospectus forms a part and to use their respective reasonable best efforts to have this

 

83


Table of Contents

registration statement declared effective under the Securities Act as promptly as reasonably practicable after such filing, and to maintain the effectiveness of the registration statement for as long as necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement or until the Merger Agreement is terminated. SEP will promptly thereafter use its reasonable best efforts to mail the consent solicitation/prospectus, which will include a form of consent that may be executed by the limited partners in connection with the approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by written consent without a meeting in accordance with Section 14.3(a) of the SEP Partnership Agreement, to the limited partners. The General Partner will specify the time period in which executed forms of consent must be returned to SEP, which will not be less than 20 days, and such time period will be set forth in the consent solicitation/prospectus.

Each of Enbridge and SEP will promptly notify the other of the receipt of all comments from the SEC and of any request by the SEC for any amendment or supplement to the registration statement or the consent solicitation/prospectus or for additional information and will promptly provide to the other copies of all correspondence between it or any of its directors, officers, principals, partners, managers, members (if such person is a member-managed limited liability company or similar entity), employees, consultants, investment bankers, financial advisors, legal counsels, attorneys-in-fact, accountants or other advisors, agents or other representatives of such person, in each case acting in their capacity as such (the “Representatives”) and the SEC with respect to the registration statement or consent solicitation/prospectus. Additionally, each of Enbridge and SEP will provide the other party and their respective legal counsel with a reasonable opportunity to review and comment on drafts of the consent solicitation/prospectus, the registration statement and other documents related to the approval of the Merger Agreement and the Merger by SEP unitholders or the issuance of the Enbridge common shares in respect of the Merger, prior to filing such documents with the applicable governmental entity and mailing such documents to the limited partners. All comments reasonably and promptly proposed by the other party or its legal counsel will be included and all information relating to Enbridge and its subsidiaries (not including SEP and its subsidiaries) or SEP and its subsidiaries included in the consent solicitation/prospectus and the registration statement will be in form and content satisfactory to Enbridge or SEP, respectively, acting reasonably.

Cooperation; Efforts to Consummate

On the terms and subject to the conditions of the Merger Agreement, SEP and Enbridge have agreed to cooperate with each other and use (and cause their respective subsidiaries to use) their respective reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on their part under the Merger Agreement and applicable law to consummate and make effective the Merger and the other transactions contemplated by the Merger Agreement as soon as practicable, including (a) preparing and filing as promptly as reasonably practicable all documentation to effect all necessary notices, reports and other filings, (b) obtaining as promptly as reasonably practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party or any governmental entity in order to consummate the Merger or any of the other transactions contemplated by the Merger Agreement and (c) defending any Proceedings challenging the Merger Agreement or any of the other transactions contemplated by the Merger Agreement and seeking to have lifted or rescinded any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the Merger and any other transactions contemplated by the Merger Agreement. However, no parties will be required to hold separate or make any divestiture of any asset or otherwise agree to any restriction on its operations or other condition in order to obtain any consent or approval or other clearance required by the Merger Agreement.

Stock Exchange Listing and Delisting

Enbridge will use its reasonable best efforts to cause the Enbridge common shares to be issued in the Merger to be approved for listing on the NYSE and the TSX, subject to official notice of issuance, prior to the Closing Date. Prior to the Closing Date, SEP will cooperate with Enbridge and use reasonable best efforts to

 

84


Table of Contents

take, or cause to be taken, all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable law and rules and policies of the NYSE to enable the delisting by the Surviving Entity of the SEP common units from the NYSE and the deregistration of the SEP common units under the Exchange Act as promptly as practicable after the Effective Time.

Expenses

Whether or not the Merger is consummated, subject to expense reimbursement described below in “—Payment of SEP Expenses”, all costs and expenses incurred in connection with the preparation, negotiation, execution and performance of the Merger Agreement and the transactions contemplated thereby, including the Merger, including all fees and expenses of its Representatives, will be paid by the party incurring such expenses, except that Enbridge will pay for any filing fees with respect to this registration statement of which this consent solicitation/prospectus forms a part, and the costs and expenses of printing and mailing of this consent solicitation/prospectus.

Indemnification; Directors’ and Officers’ Insurance

From and after the Effective Time, to the fullest extent permitted under applicable law, each of Enbridge and the Surviving Entity will jointly and severally indemnify, defend and hold harmless each present and former (determined as of the Effective Time) director and officer of GP LLC, SEP and the General Partner, in each case, when acting in such capacity (including the heirs, executors and administrators of any such director or officer, the “Indemnified Parties”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, penalties, sanctions, losses, claims, damages or liabilities incurred and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of any thereof) in connection with, arising out of or otherwise related to any acts or omissions or actual or threatened Proceeding, in each case in connection with, arising out of or otherwise related to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, including in connection with the transactions contemplated by the Merger Agreement, including the Merger, and actions to enforce indemnification or advancements rights of any Indemnified Party. Enbridge and the Surviving Entity will also advance expenses as incurred in each case described above to the fullest extent permitted under applicable law. However, any person to whom expenses are advanced must provide an undertaking to repay such advances if it is ultimately determined by a final and non-appealable judgment entered by a court of competent jurisdiction that such person is not entitled to indemnification.

In addition, Enbridge will maintain in effect, or cause to be maintained in effect, (a) the insurance liability coverage of the existing directors’ and officers’ insurance policies for directors and officers of GP LLC and (b) SEP’s existing fiduciary liability insurance policies (collectively, the “D&O Insurance”) in place as of the date of the Merger Agreement, in each case, for a claims reporting or discovery period of six years from and after the Effective Time (the “Tail Period”), with terms, conditions and limits of liability that are at least as favorable to the insureds as provided in the existing policies providing such coverage as of the date of the Merger Agreement. However, in no event during the Tail Period will Enbridge be required to expend more on the annual cost of the D&O Insurance than an amount per year equal to 300 percent of the current annual premiums charged to SEP by Enbridge for such insurance, except that if the cost of such insurance coverage exceeds such amount, the Surviving Entity will have the option to obtain a policy with the greatest coverage available for a cost not exceeding such amount. If Enbridge in its sole discretion elects, then, in lieu of the obligations of the Surviving Entity, Enbridge may, but will be under no obligation to, prior to the Effective Time, obtain and fully pay the premium for “tail” insurance policies for the extension of the D&O Insurance for the Tail Period with respect to matters existing or occurring at or prior to the Effective Time (including in connection with the Merger Agreement and the transactions contemplated thereby, including the Merger).

During the Tail Period, Enbridge will honor, and will cause GP LLC, the General Partner and the Surviving Entity to honor, all rights to indemnification, elimination of liability and exculpation from liabilities for acts or

 

85


Table of Contents

omissions occurring at or prior to the Effective Time and rights to advancement of expenses relating thereto as in effect as of the date of the Merger Agreement in favor of any Indemnified Party as provided in the organizational documents of GP LLC, the General Partner, SEP and their respective subsidiaries or any indemnification agreement between such Indemnified Party and GP LLC, the General Partner, SEP or any of their respective subsidiaries, in each case, as in effect on the date of the Merger Agreement, and all of such rights will survive the Merger and any other transactions contemplated by the Merger Agreement unchanged and will not be amended, restated, repealed or otherwise modified in any manner that would adversely affect any right thereunder of any such Indemnified Party.

If Enbridge, GP LLC, the General Partner or the Surviving Entity or any of their respective successors or assigns consolidates with or merges into any other person and will not be the continuing or surviving person of such consolidation or merger, or transfers all or substantially all of its properties and assets to any person, then, and in each such case, proper provisions will be made so that the successors and assigns of Enbridge, GP LLC, the General Partner or the Surviving Entity, as applicable, will assume all of the indemnification and D&O Insurance obligations.

The rights of the Indemnified Parties will be in addition to any rights such Indemnified Parties may have under the organizational documents of GP LLC, the General Partner, SEP or any of their respective subsidiaries or under any applicable laws or contracts. These rights will survive consummation of the Merger and are intended to benefit, and will be enforceable by, each Indemnified Person.

Distributions

SEP and Enbridge will coordinate with each other with respect to the declaration and setting of record dates and payment dates of distributions on SEP common units and Enbridge common shares, subject to applicable law, so that holders of SEP common units do not receive dividends and distributions, as applicable, on both SEP common units and Enbridge common shares received in the Merger or fail to receive a dividend or distribution, as applicable, on either SEP common units or Enbridge common shares received in the Merger in respect of any calendar quarter.

Transaction Litigation

In the event that any shareholder litigation related to the Merger Agreement or any transactions contemplated thereby, including the Merger, is brought, or, to SEP’s knowledge, threatened, against SEP or any members of the GP LLC Board from and following the date of the Merger Agreement and prior to the Effective Time (such litigation, “Transaction Litigation”), SEP will as promptly as reasonably practicable notify Enbridge of such Transaction Litigation and will keep Enbridge reasonably informed with respect to the status thereof. SEP will give Enbridge the opportunity to participate in the defense or settlement and will consider in good faith Enbridge’s advice with respect to such Transaction Litigation. SEP, however, will in any event control such defense or settlement, and the disclosure of information to Enbridge in connection therewith will be subject to the provisions set forth in the Merger Agreement. SEP has agreed not to settle any Transaction Litigation without the prior written consent of Enbridge (which consent will not be unreasonably withheld, conditioned or delayed).

Voting

Until the earlier of the Effective Time or the termination of the Merger Agreement, Enbridge and Enbridge (U.S.) Inc. have irrevocably and unconditionally agreed that they will, within two business days after the registration statement becomes effective under the Securities Act, deliver, or cause to be delivered, a written consent pursuant to Section 14.3(a) of the SEP Partnership Agreement covering all of the SEP common units then owned beneficially or of record by them or any of their subsidiaries in favor of the approval of the Merger Agreement and the Merger and the approval of any actions required in furtherance thereof.

 

86


Table of Contents

Conflicts Committee

Prior to the earlier of the Effective Time and the termination of the Merger Agreement in accordance with its terms, Enbridge will not, and will not permit any of its subsidiaries to, take any action intended to cause GP LLC to, without the consent of a majority of the then existing members of the Conflicts Committee, eliminate the Conflicts Committee, revoke or diminish the authority of the Conflicts Committee, or remove or cause the removal of any director of GP LLC that is a member of the Conflicts Committee either as a director or as a member of such committee. However, this will not apply to the filling, in accordance with the limited liability company agreement of GP LLC, of any vacancies caused by the resignation, death or incapacity of any such director.

Performance by General Partner

Enbridge has agreed to cause GP LLC and the General Partner to cause SEP and its subsidiaries to comply with the provisions of the Merger Agreement. However, any actions or inactions by SEP, the General Partner and their respective subsidiaries will not be deemed to be breaches or violations or failures to perform by SEP, the General Partner and their respective subsidiaries of any of the provisions of the Merger Agreement if such action or inaction was or was not taken, as applicable, at the direction of Enbridge, any of its subsidiaries (other than SEP and its subsidiaries) or any of their respective officers.

Conditions to the Completion of the Merger

Under the Merger Agreement, the respective obligation of each party to effect the Merger is subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions:

 

   

Unitholder Approval. The Merger Agreement must have been duly approved in accordance with applicable law by written consent without a meeting in accordance with Section 14.3 of the SEP Partnership Agreement by the limited partners of SEP holding SEP common units constituting the affirmative vote or consent of holders of a majority of the outstanding SEP common units entitled to vote on such matter (the “Written Consent”).

 

   

Listing. The Enbridge common shares issuable to the holders of SEP common units pursuant to the Merger Agreement must have been authorized for listing on the NYSE and TSX, subject to official notice of issuance.

 

   

No Orders. There must not have been enacted, issued, promulgated, enforced or entered any law or governmental order (whether temporary, preliminary or permanent) by any governmental entity of competent jurisdiction that is in effect and restrains, enjoins, makes illegal or otherwise prohibits the consummation of the transactions contemplated by the Merger Agreement, including the Merger.

 

   

Registration Statement. The registration statement must have become effective in accordance with the provisions of the Securities Act and must not be the subject of any stop order suspending its effectiveness issued by the SEC and any Proceedings for that purpose must not have been commenced or been threatened by the SEC unless subsequently withdrawn.

The obligations of Enbridge, Enbridge (U.S.) Inc. and Merger Sub to effect the Merger are also subject to the satisfaction or waiver by Enbridge at or prior to the Effective Time of the following conditions:

 

   

Representations and Warranties.

 

   

Each of the representations and warranties of SEP and the General Partner relating to authority, approval and fairness and absence of certain changes set forth in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct in all material respects as of such particular date or period of time);

 

87


Table of Contents
   

The representations and warranties of SEP and the General Partner relating to the capital structure of SEP set forth in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct in all material respects as of such particular date or period of time), except for such inaccuracies as would not be material in amount or effect; and

 

   

Each other representation and warranty of SEP and the General Partner must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct as of such particular date or period of time), except for any failure of any such representation and warranty to be so true and correct (without giving effect to any qualification by materiality or Material Adverse Effect contained therein) that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to SEP.

 

   

Performance of Obligations. SEP will have performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the Closing Date.

 

   

Closing Certificate. Enbridge, Enbridge (U.S.) Inc. and Merger Sub must have received a certificate signed on behalf of SEP by an executive officer of SEP certifying that the conditions set forth above have been satisfied.

The obligation of SEP and the General Partner to effect the Merger is also subject to the satisfaction or waiver by SEP at or prior to the Closing of the following conditions:

 

   

Representations and Warranties.

 

   

Each of the representations and warranties of Enbridge, Enbridge (U.S.) Inc. and Merger Sub relating to authority, approval and absence of certain changes set forth in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct in all material respects as of such particular date or period of time);

 

   

The representations and warranties of Enbridge, Enbridge (U.S.) Inc. and Merger Sub relating to the capital structure of Enbridge and Merger Sub set forth in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct in all material respects as of such particular date or period of time), except for such inaccuracies as would not be material in amount or effect; and

 

   

Each other representation and warranty of Enbridge, Enbridge (U.S.) Inc. and Merger Sub must be true and correct as of the date of the Merger Agreement and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of a particular date or period of time, in which case such representation and warranty will be true and correct as of such particular date or period of time), except for any failure of any such representation and warranty to be so true and correct (without giving effect to any qualification by materiality or Material Adverse Effect contained therein) that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to Enbridge.

 

   

Performance of Obligations. Each of Enbridge, Enbridge (U.S.) Inc. and Merger Sub will have performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the Closing Date.

 

88


Table of Contents
   

Closing Certificate. SEP must have received a certificate signed on behalf of Enbridge, Enbridge (U.S.) Inc. and Merger Sub by an executive officer of Enbridge certifying that the conditions set forth above have been satisfied.

Termination

The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by mutual written consent of SEP, duly authorized by the Conflicts Committee, and Enbridge, duly authorized by the Enbridge Board.

The Merger Agreement may also be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the board of directors of either Enbridge or GP LLC (on behalf of SEP) if:

 

   

the Merger has not been consummated by the Outside Date; or

 

   

any law or governmental order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger has become final and non-appealable;

provided that the right to terminate the Merger Agreement as described above will not be available to any party that has breached in any material respect its obligations under the Merger Agreement in any manner that will have proximately contributed to the occurrence of the failure of a condition to the consummation of the Merger.

In addition, the Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by:

 

   

action of the Enbridge Board if there has been a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement, or if any representation or warranty of SEP has become untrue, in either case, such that certain conditions to obligations of Enbridge, Enbridge (U.S.) Inc. and Merger Sub would not be satisfied and such breach or failure to be true and correct is not curable prior to the Outside Date or, if curable prior to the Outside Date, is not cured within the earlier of 60 days after written notice thereof is given by Enbridge to SEP or the Outside Date; or

 

   

action of the GP LLC Board (on behalf of SEP) if, at any time prior to the Effective Time, there has been a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement, or if any representation or warranty of Enbridge, Enbridge (U.S.) Inc. or Merger Sub will have become untrue, in either case, such that certain conditions to obligations of SEP and the General Partner would not be satisfied and such breach or failure to be true and correct is not curable prior to the Outside Date, or if curable prior to the Outside Date, is not cured within the earlier of 60 days after written notice thereof is given by SEP to Enbridge or the Outside Date.

However, the right of Enbridge or SEP to terminate the Merger Agreement as described above will not be available to Enbridge or SEP if such party has breached in any material respect its representations, warranties, covenants or agreements set forth in the Merger Agreement.

Under the Merger Agreement, any determination by SEP, the General Partner or the GP LLC Board to terminate the Merger Agreement must be duly authorized by the Conflicts Committee.

In the event of the termination of the Merger Agreement and the abandonment of the Merger, the Merger Agreement will become void and of no effect with no liability to any person on the part of any party (or any of its Representatives or affiliates). However, no such termination will relieve any party to the Merger Agreement of any liability or damages to the other party to the Merger Agreement resulting from any intentional and willful material breach of, or intentional and willful material failure to perform under, the Merger Agreement. The provisions or agreements of the parties related to definitions, interpretation and construction, survival of certain provisions, payment/allocation of expenses, the effect of termination and abandonment and payment of SEP expenses in the event of termination will survive the termination of the Merger Agreement.

 

89


Table of Contents

Payment of SEP Expenses

If the Merger Agreement is terminated by SEP due to the Merger not having been consummated by the Outside Date, any law or governmental order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger or a breach by Enbridge, Enbridge (U.S.) Inc. or Merger Sub of any representation, warranty, covenant or agreement set forth in the Merger Agreement such that SEP’s closing condition is not satisfied, Enbridge will pay to SEP by wire transfer of immediately available funds to an account designated by SEP an amount equal to SEP’s expenses up to a maximum amount of US$4.0 million, and such payment will be made within five business days after such termination.

Modification or Amendment

Subject to the provisions of applicable law and provisions of the Merger Agreement related to indemnification and directors’ and officers’ insurance, at any time prior to the Effective Time, the Merger Agreement may be amended, modified or waived, if such amendment, modification or waiver is in writing and signed, in the case of an amendment or modification or waiver, by each of the parties, or in the case of a waiver, by the party against whom the waiver is to be effective. Any amendments, modifications or waivers by SEP must be approved by the Conflicts Committee.

Waiver of Conditions

The conditions to each of the parties’ obligations to consummate the transactions contemplated by the Merger Agreement, including the Merger, are for the sole benefit of such party and may be waived by such party, in whole or in part to the extent permitted by applicable law. Any such waiver will only be effective if made in writing and executed by the party against whom the waiver is to be effective. However, SEP may not make or authorize any such waiver without the prior approval of the Conflicts Committee.

Partnership Board Consent

Unless otherwise expressly set forth in the Merger Agreement, whenever a determination, decision, approval or consent of SEP, the General Partner or the GP LLC Board is required pursuant to the Merger Agreement, such determination, decision, approval or consent must be authorized by the GP LLC Board. However, the GP LLC Board may not take or authorize any such action unless it has been approved in writing by the Conflicts Committee.

 

90


Table of Contents

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

In General

This summary is based on the description of the Merger set out in this consent solicitation/prospectus, the current provisions of the Canadian Tax Act, and an understanding of the current administrative policies and practices of the Canada Revenue Agency (which is referred to as the “CRA”) published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Canadian Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (which are referred to as the “proposed amendments”) and assumes that all proposed amendments will be enacted in the form proposed; however, no assurances can be given that the proposed amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policy or assessing practice whether by legislative, administrative or judicial action, nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may differ from those discussed herein.

This summary is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations applicable to the Merger. The income and other tax consequences of acquiring, holding or disposing of securities will vary depending on a holder’s particular status and circumstances, including the country in which the holder resides or carries on business. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder. No representations are made with respect to the income tax consequences to any particular holder. Holders should consult their own tax advisors for advice with respect to the income tax consequences of the Merger in their particular circumstances, including the application and effect of the income and other tax laws of any applicable country, province, state or local tax authority.

This summary does not discuss any non-Canadian income or other tax consequences of the Merger. Holders resident or subject to taxation in a jurisdiction other than Canada should be aware that the Merger may have tax consequences both in Canada and in such other jurisdiction. Such consequences are not described herein. Holders should consult with their own tax advisors with respect to their particular circumstances and the tax considerations applicable to them.

Application

The following summary describes the principal Canadian federal income tax considerations in respect of the Merger generally applicable under the Canadian Tax Act to a beneficial owner of SEP common units who disposes, or is deemed to have disposed, of SEP common units pursuant to the Merger and who, for the purposes of the Canadian Tax Act and at all relevant times, (i) deals at arm’s length with and is not affiliated with Enbridge, Merger Sub or SEP; and (ii) holds all SEP common units, and will hold all Enbridge common shares acquired pursuant to the Merger (which is referred to, collectively, in this portion of the summary as the “Securities”) as capital property (each of which is referred to in this portion of the summary as a “Holder”). Generally, the Securities will be considered to be capital property to a Holder for purposes of the Canadian Tax Act provided that the Holder does not use or hold those Securities in the course of carrying on a business and has not acquired such Securities in one or more transactions considered to be an adventure or concern in the nature of trade.

Canadian Currency

For the purposes of the Canadian Tax Act, where an amount that is relevant in computing a taxpayer’s “Canadian tax results” is expressed in a currency other than Canadian dollars, the amount must be converted to Canadian dollars using the indicative rate of exchange for Canadian interbank transactions established by the Bank of Canada for the day on which the amount arose, or such other rate of exchange as is acceptable to the CRA.

 

91


Table of Contents

Holders Not Resident in Canada

The following portion of the summary is generally applicable to a Holder who, at all relevant times and for purposes of the Canadian Tax Act, is not, and is not deemed to be, a resident of Canada and does not use or hold, and is not deemed to use or hold, SEP common units and will not use or hold, or be deemed to use or hold, Enbridge common shares in a business carried on in Canada (which is referred to in this portion of the summary as a “Non-Canadian Resident Holder”). This portion of the summary is not generally applicable to a Non-Canadian Resident Holder that is: (i) an insurer carrying on an insurance business in Canada and elsewhere or (ii) an “authorized foreign bank” (as defined in the Canadian Tax Act).

The following portion of the summary assumes that the Securities will not constitute “taxable Canadian property” to any particular Non-Canadian Resident Holder at any time. Generally, SEP common units will not constitute taxable Canadian property for a Non-Canadian Resident Holder at a particular time; provided that at no time during the 60-month period that ends at the particular time less than 50% of the fair market value of the SEP common units is derived directly or indirectly from one or any combination of: (A) real or immovable properties situated in Canada, (B) “Canadian resource properties” (as defined in the Canadian Tax Act), (C) “timber resource properties” (as defined in the Canadian Tax Act), and (D) options in respect of, or interests in, or for civil law rights in, any of the foregoing property whether or not the property exists. Generally, Enbridge common shares will not constitute taxable Canadian property to a Non-Canadian Resident Holder at a particular time provided that the applicable shares are listed at that time on a designated stock exchange (which includes the TSX and the NYSE), unless at any particular time during the 60-month period that ends at that time (i) one or any combination of (a) the Non-Canadian Resident Holder, (b) persons with whom the Non-Canadian Resident Holder does not deal at arm’s length, and (c) partnerships in which the Non-Canadian Resident Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of any class or series of the equity securities of Enbridge and (ii) more than 50% of the fair market value of Enbridge common shares was derived directly or indirectly from one or any combination of: (A) real or immovable properties situated in Canada, (B) “Canadian resource properties” (as defined in the Canadian Tax Act), (C) “timber resource properties” (as defined in the Canadian Tax Act), and (D) options in respect of, or interests in, or for civil law rights in, any of the foregoing property whether or not the property exists. In certain circumstances set out in the Canadian Tax Act, shares which are not otherwise “taxable Canadian property” may be deemed to be “taxable Canadian property”.

Disposition Pursuant to the Merger

A Non-Canadian Resident Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition of SEP common units, unless the units are “taxable Canadian property” and are not “treaty-protected property” (as those terms are defined in the Canadian Tax Act) of the Non-Canadian Resident Holder, at the time of disposition.

Non-Canadian Resident Holders whose SEP common units are taxable Canadian property should consult their own tax advisors for advice regarding their particular circumstances, including whether their SEP common units constitute treaty-protected property.

Dividends on Enbridge Common Shares (Post-Merger)

Dividends paid or credited, or deemed to be paid or credited, on Enbridge common shares to a Non-Canadian Resident Holder generally will be subject to Canadian withholding tax at a rate of 25% of the gross amount of the dividend, unless the rate is reduced under the provisions of an applicable income tax convention between Canada and the Non-Canadian Resident Holder’s jurisdiction of residence. For example, the rate of withholding tax under the Treaty applicable to a Non-Canadian Resident Holder who is a resident of the United States for the purposes of the Treaty, is the beneficial owner of the dividend and is entitled to all of the benefits under the Treaty, generally will be 15%. Enbridge will be required to withhold the required amount of withholding tax from the dividend, and to remit the withheld tax to the CRA for the account of the Non-Canadian Resident Holder.

 

92


Table of Contents

Disposition of Enbridge Common Shares (Post-Merger)

A Non-Canadian Resident Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition of Enbridge common shares, unless the shares are “taxable Canadian property” and the shares are not “treaty-protected property” (as those terms are defined in the Canadian Tax Act) of the Non-Canadian Resident Holder, at the time of disposition.

Non-Canadian Resident Holders whose Enbridge common shares are taxable Canadian property should consult their own tax advisors for advice regarding their particular circumstances, including whether their Enbridge common shares constitute treaty-protected property.

 

93


Table of Contents

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

The following is a discussion of certain material U.S. federal income tax consequences to U.S. holders (as defined below) of the Merger and of owning and disposing of Enbridge common shares received in the Merger. This discussion is based upon current provisions of the Code, existing and proposed Treasury regulations (the “Treasury Regulations”) promulgated under the Code and current administrative rulings and court decisions, all of which are subject to change, possibly with retroactive effect, or are subject to differing interpretations. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. No ruling has been or is expected to be sought from the Internal Revenue Service (the “IRS”) with respect to any of the tax consequences discussed below. As a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below.

This discussion is limited to U.S. holders of SEP common units that hold their SEP common units, and will hold their Enbridge common shares received in the Merger, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address all aspects of U.S. federal income taxation that may be relevant to U.S. holders in light of their personal circumstances. In addition, this summary does not address the Medicare tax on certain investment income, U.S. federal estate or gift tax laws, any state, local or non-U.S. tax laws or any tax treaties. This summary also does not address tax considerations applicable to investors that may be subject to special treatment under the U.S. federal income tax laws, such as:

 

   

banks, insurance companies or other financial institutions;

 

   

tax-exempt or governmental organizations;

 

   

qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);

 

   

dealers in securities or foreign currencies;

 

   

“controlled foreign corporations”, “passive foreign investment companies”, and corporations that accumulate earnings to avoid U.S. federal income tax;

 

   

traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;

 

   

persons subject to the alternative minimum tax;

 

   

partnerships or other pass-through entities for U.S. federal income tax purposes or holders of interests therein;

 

   

holders of SEP common units that received such common units through the exercise of an employee option, pursuant to a retirement plan or otherwise as compensation;

 

   

holders of options, or holders of restricted units or bonus units, granted under any Enbridge benefit plan;

 

   

persons whose functional currency is not the U.S. dollar;

 

   

holders of SEP common units that hold such SEP common units as part of a hedge, straddle, appreciated financial position, conversion or other “synthetic security” or integrated investment or risk reduction transaction;

 

   

persons who own or will acquire (directly, indirectly or by attribution) 10% or more of the total combined voting power or value of the outstanding Enbridge common shares;

 

   

persons that acquired the Enbridge common shares through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan; and

 

   

certain former citizens or long-term residents of the United States.

 

94


Table of Contents

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of SEP common units or Enbridge common shares after the Merger, that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or any state thereof or the District of Columbia;

 

   

a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person; or

 

   

an estate, the income of which is subject to United States federal income tax regardless of its source.

If a partnership, (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds SEP common units, the tax treatment of a partner in such partnership generally will depend on the status of the partner, the activities of the partnership and upon certain determinations made at the partner level. A partner in a partnership holding SEP common units should consult its own tax advisor about the U.S. federal income tax consequences of the Merger and of owning and disposing of Enbridge common shares received in the Merger.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER OR THE OWNERSHIP AND DISPOSITION OF ENBRIDGE COMMON SHARES RECEIVED IN THE MERGER. EACH HOLDER OF SEP COMMON UNITS IS STRONGLY URGED TO CONSULT WITH AND RELY UPON ITS OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER AND THE OWNERSHIP AND DISPOSITION OF ENBRIDGE COMMON SHARES RECEIVED IN THE MERGER, TAKING INTO ACCOUNT ITS OWN PARTICULAR CIRCUMSTANCES.

Certain U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of SEP Common Units

Tax Characterization of the Merger

The receipt of Enbridge common shares and cash in lieu of fractional shares, if any, in exchange for SEP common units pursuant to the Merger should be a taxable transaction to U.S. holders for U.S. federal income tax purposes. In general, the Merger should be treated as a taxable sale of a U.S. holder’s SEP common units in exchange for Enbridge common shares and cash received in lieu of fractional shares, if any, received in the Merger. The remainder of this discussion assumes that the Merger will be treated as a taxable transaction.

Amount and Character of Gain or Loss Recognized

A U.S. holder who receives Enbridge common shares and cash in lieu of fractional shares, if any, in exchange for SEP common units pursuant to the Merger will recognize gain or loss in an amount equal to the difference between (i) the sum of (A) the amount of any cash received, (B) the fair market value of any Enbridge common shares received, and (C) such U.S. holder’s share of SEP’s nonrecourse liabilities immediately prior to the Merger and (ii) such U.S. holder’s adjusted tax basis in the SEP common units exchanged therefor (which includes such U.S. holder’s share of SEP’s nonrecourse liabilities immediately prior to the Merger).

A U.S. holder’s initial tax basis in its SEP common units purchased with cash equaled, at the time of such purchase, the amount such holder paid for the SEP common units plus the U.S. holder’s share of SEP’s nonrecourse liabilities. Over time that basis would have (i) increased by the U.S. holder’s share of SEP’s income and by any increases in the U.S. holder’s share of SEP’s nonrecourse liabilities and (ii) decreased, but not below

 

95


Table of Contents

zero, by distributions from SEP, by the U.S. holder’s share of SEP’s losses, by any decreases in the U.S. holder’s share of SEP’s nonrecourse liabilities and by the U.S. holder’s share of SEP’s expenditures that are not deductible in computing taxable income and are not required to be capitalized.

Except as noted below, gain or loss recognized by a U.S. holder on the exchange of SEP common units in the Merger will generally be taxable as capital gain or loss. However, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by SEP and its subsidiaries. The term “unrealized receivables” includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the exchange of an SEP common unit pursuant to the Merger and may be recognized even if there is a net taxable loss realized on the exchange of such U.S. holder’s SEP common units pursuant to the Merger. Consequently, a U.S. holder may recognize both ordinary income and capital loss upon the exchange of SEP common units in the Merger.

Capital gain or loss recognized by a U.S. holder will generally be long-term capital gain or loss if the U.S. holder’s holding period for its SEP common units is more than 12 months as of the Effective Time of the Merger. If the U.S. holder is an individual, such long-term capital gain will generally be eligible for reduced rates of taxation. Capital losses recognized by a U.S. holder may offset capital gains and, in the case of individuals, no more than US$3,000 of ordinary income. Capital losses recognized by U.S. holders that are corporations may be used to offset only capital gains.

The amount of gain or loss recognized by each U.S. holder in the Merger will vary depending on each U.S. holder’s particular situation, including the value of the Enbridge common shares and the amount of cash received in lieu of fractional shares, if any, by each U.S. holder in the Merger, the adjusted tax basis of the SEP common units exchanged by each U.S. holder in the Merger, and the amount of any suspended passive losses that may be available to a particular unitholder to offset a portion of the gain recognized by each U.S. holder. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded the U.S. holder’s share of SEP’s income may be deducted in full upon the U.S. holder’s taxable disposition of its entire investment in SEP pursuant to the Merger.

Each U.S. holder is strongly urged to consult its own tax advisor with respect to the unitholder’s specific tax consequences of the Merger, taking into account its own particular circumstances.

SEP Items of Income, Gain, Loss, and Deduction for the Taxable Period Ending on the Date of the Merger.

U.S. holders of SEP common units will be allocated their share of SEP’s items of income, gain, loss, and deduction for the taxable period of SEP ending on the date of the Merger. These allocations will be made in accordance with the terms of the SEP partnership agreement. A U.S. holder will be subject to U.S. federal income taxes on any such allocated income and gain even if such U.S. holder does not receive a cash distribution from SEP attributable to such allocated income and gain. Any such income and gain allocated to a U.S. holder will increase the U.S. holder’s tax basis in the SEP common units held and, therefore, will reduce the gain, or increase the loss, recognized by such U.S. holder resulting from the Merger. Any losses or deductions allocated to a U.S. holder will decrease the U.S. holder’s tax basis in the SEP common units held and, therefore, will increase the gain, or reduce the loss, recognized by such U.S. holder resulting from the Merger.

Tax Basis and Holding Period in Enbridge Common Shares Received in the Merger.

A U.S. holder’s tax basis in the Enbridge common shares received in the Merger will equal the fair market value of such Enbridge common shares. A U.S. holder’s holding period in Enbridge common shares received in the Merger will begin on the day after the date of the Merger.

 

96


Table of Contents

Certain U.S. Federal Income Tax Consequences of Owning and Disposing of Enbridge Common Shares Received in the Merger

Dividends

Under the U.S. federal income tax laws, and subject to the passive foreign investment company, which is referred to as “PFIC”, rules discussed below, a U.S. holder generally will be required to treat distributions received with respect to its Enbridge common shares (including any Canadian taxes withheld from such distribution) as dividend income to the extent of Enbridge’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) and subject to U.S. federal income taxation. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the Enbridge shareholder’s basis in the Enbridge common shares and thereafter as capital gain. However, Enbridge does not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, each Enbridge shareholder should expect to generally treat distributions made by Enbridge as dividends. If the Enbridge shareholder is a noncorporate U.S. holder, dividends that constitute qualified dividend income will be taxable at the preferential rates applicable to long-term capital gains, provided that such Enbridge shareholder holds the Enbridge common shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends Enbridge pays with respect to Enbridge common shares generally will be qualified dividend income.

Each Enbridge shareholder must include any Canadian tax withheld from the dividend payment in this gross amount even though such shareholder does not in fact receive the dividend. The dividend is taxable to each Enbridge shareholder when such shareholder receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that each Enbridge shareholder must include in their income as a U.S. holder will be the U.S. dollar value of the Canadian dollar payments made, determined at the spot Canadian dollar/U.S. dollar rate on the date the dividend distribution is includible in such shareholder’s income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the Enbridge shareholder includes the dividend payment in income to the date such shareholder converts the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such foreign exchange gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Subject to certain limitations, Canadian tax withheld in accordance with the Treaty and paid over to Canada will be creditable or deductible against the Enbridge shareholder’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available under Canadian law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against an Enbridge shareholder’s U.S. federal income tax liability.

Dividends will be income from sources outside the United States and will, depending on each Enbridge shareholder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to such shareholder. The rules governing the foreign tax credit are complex and involve the application of rules that depend upon a U.S. holder’s particular circumstances. Accordingly, U.S. holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Capital Gains

Subject to the PFIC rules discussed below, if an Enbridge shareholder is a U.S. holder and such shareholder sells or otherwise disposes of their Enbridge common shares in a taxable disposition, such Enbridge shareholder will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S.

 

97


Table of Contents

dollar value of the amount realized and such shareholder’s tax basis (determined in U.S. dollars) in their Enbridge common shares. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

PFIC Rules

Special U.S. federal income tax rules apply to U.S. persons owning stock of a PFIC. A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is passive income, or (ii) 50% or more of the value (determined on the basis of a quarterly average) of its assets are considered “passive assets” (generally, assets that generate passive income).

Enbridge believes that Enbridge common shares should not be treated as stock of a PFIC for U.S. federal income tax purposes and Enbridge does not anticipate becoming a PFIC in the foreseeable future, but this conclusion is a factual determination that is made annually and thus may be subject to change. If Enbridge were to be treated as a PFIC for any taxable year during which a U.S. holder owns Enbridge common shares, the U.S. holder generally would be subject to adverse rules, regardless of whether Enbridge continued to be classified as a PFIC. Gain realized on the sale or other disposition of the Enbridge common shares would in general not be treated as capital gain. Instead, unless an Enbridge shareholder elects to be taxed annually on a mark-to-market basis with respect to its Enbridge common shares, such Enbridge shareholder would be treated as if it had realized such gain and certain “excess distributions” ratably over the Enbridge shareholder’s holding period for the Enbridge common shares and would generally be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. Dividends that an Enbridge shareholder receives from Enbridge will not be eligible for the tax rates applicable to qualified dividend income if Enbridge is treated as a PFIC with respect to an Enbridge shareholder either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

Information with Respect to Foreign Financial Assets

Owners of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include financial accounts maintained by foreign financial institutions, as well as the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (1) stocks and securities issued by non-U.S. persons, (2) financial instruments and contracts that have non-U.S. issuers or counterparties, and (3) interests in foreign entities. U.S. holders are urged to consult their own tax advisors regarding the application of this reporting requirement to their ownership of the Enbridge common shares.

Backup Withholding and Information Reporting

If an Enbridge shareholder is a noncorporate U.S. holder, information reporting requirements generally will apply to dividend payments or other taxable distributions made to such Enbridge shareholder within the United States, and the payment of proceeds to such Enbridge shareholder from the sale of Enbridge common shares effected in the United States or through a United States office of a broker.

In addition, backup withholding may apply to such payments if an Enbridge shareholder fails to comply with applicable certification requirements or is notified by the IRS that such shareholder has failed to report all interest and dividends required to be shown on its federal income tax returns.

Payment of the proceeds from the sale of Enbridge common shares effected through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale effected

 

98


Table of Contents

through a foreign office of a broker could be subject to information reporting in the same manner as a sale within the United States (and in certain cases may be subject to backup withholding as well) if (1) the broker has certain connections to the United States, (2) the proceeds or confirmation are sent to the United States or (3) the sale has certain other specified connections with the United States.

Enbridge shareholders generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed such shareholder’s income tax liability by filing a refund claim with the IRS.

This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. Moreover, it only addresses U.S. federal income tax and does not address any non-income tax or any state, local or non-United States tax consequences. Each SEP unitholder should consult its own tax advisors concerning the U.S. federal income tax consequences of the Merger and the ownership of Enbridge common shares in light of such unitholder’s particular situation, as well as any consequences arising under the laws of any other taxing jurisdiction.

 

99


Table of Contents

COMPARISON OF RIGHTS OF ENBRIDGE SHAREHOLDERS AND SEP UNITHOLDERS

This section describes the material differences between the rights of Enbridge shareholders and the rights of SEP unitholders. Enbridge is formed under the federal laws of Canada and, accordingly, the rights of Enbridge shareholders are principally governed by the Canada Business Corporations Act, which we refer to as the “Canada Corporations Act”. SEP is formed under the laws of the State of Delaware and the rights of SEP unitholders are governed by the SEP Partnership Agreement and the DRULPA.

The differences between the rights of Enbridge shareholders and SEP unitholders result from differences between the organizational documents, governing law and type of organizational structure of Enbridge and SEP. Enbridge is a Canadian corporation and SEP is a Delaware limited partnership. Ownership interests in a Delaware limited partnership are fundamentally different from ownership interests in a Canadian corporation. The rights of Enbridge shareholders are governed by the Enbridge Articles of Continuance and Certificates and Articles of Amendment, which are referred to as “Enbridge’s articles”, Enbridge General By-Law No. 1, as amended, and Enbridge By-Law No. 2, which is referred to collectively as “Enbridge’s by-laws”, and the Canada Corporations Act. The rights of SEP unitholders are governed by the SEP Partnership Agreement and the DRULPA.

As a result of the Merger, SEP unitholders that receive Merger Consideration in respect of their units will become Enbridge shareholders. Accordingly, once the Merger is completed, the rights of SEP unitholders as Enbridge shareholders will be governed by Enbridge’s articles, Enbridge’s by-laws and the Canada Corporations Act. There are many differences between the rights of SEP unitholders and the rights of Enbridge shareholders. Some of these, such as distribution/dividend and voting rights, are significant.

The following description summarizes the material differences that may affect the rights of Enbridge shareholders and SEP unitholders but does not purport to be a complete statement of all those differences, or a complete description of the specific provisions referred to in this summary. The identification of specific differences is not intended to indicate that other equally significant or more significant differences do not exist. SEP unitholders should read carefully the relevant provisions of the Canada Corporations Act and the DRULPA, Enbridge’s articles, Enbridge’s by-laws, the SEP Partnership Agreement and each other document referred to in this consent solicitation/prospectus for a more complete understanding of the differences between the rights of an Enbridge shareholder and the rights of an SEP unitholder. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the applicable governing document. This summary is qualified in its entirety by reference to the full text of each of Enbridge’s articles, Enbridge’s by-laws and the SEP Partnership Agreement. For information on how to obtain a copy of these documents, see the section titled “Where You Can Find More Information” beginning on page 131.

 

Enbridge Shareholders

 

SEP Unitholders

PURPOSE AND TERM OF EXISTENCE
Neither Enbridge’s articles nor Enbridge’s by-laws provide a stated purpose.   SEP’s stated purpose is to engage directly or indirectly in any business activity that is approved by the General Partner and that may lawfully be conducted or engaged in by a Delaware limited partnership; provided that the General Partner may not cause SEP to engage in any business activity that the General Partner determines would cause SEP to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.
Enbridge is to have perpetual existence.   SEP’s partnership term will continue until SEP is dissolved pursuant to the terms of the SEP Partnership Agreement. SEP’s existence as a separate legal entity will continue until cancellation of its certificate of limited partnership pursuant to the DRULPA.

 

100


Table of Contents

Enbridge Shareholders

   

SEP Unitholders

AUTHORIZED, ISSUED AND OUTSTANDING CAPITAL
The authorized share capital of Enbridge consists of an unlimited number of common shares and an unlimited number of preference shares, issuable in series.

 

  As of November 5, 2018, the Record Date, SEP had 484,896,871 common units issued and outstanding, 402,989,862 of which were owned by Enbridge and its affiliates.
As of November 5, 2018, the Record Date, Enbridge had 1,724,416,558 common shares issued and outstanding and the following preference shares issued and outstanding:

 

  SEP may issue an unlimited number of additional limited partner interests and other equity securities, including in additional classes or series, with such designations, preferences, rights, powers and duties, which may be senior to those of its common units or other existing classes of units, as the General Partner may determine, all without the approval of any limited partners.

Preference

Shares

Series

  Number     Per Share
Base
Redemption
Value
    Redemption
and Conversion
Option Date(1)
    Right to
Convert
into
 

Series A

    5,000,000     C$ 25       —        

Series B

    18,269,812     C$ 25       June 1, 2022       Series C    

Series C

    1,730,188     C$ 25       June 1, 2022       Series B    

Series D

    18,000,000     C$ 25       March 1, 2023       Series E    

Series F

    20,000,000     C$ 25       June 1, 2023       Series G    

Series H

    14,000,000     C$ 25       September 1, 2023       Series I    

Series J

    8,000,000     US$ 25       June 1, 2022       Series K    

Series L

    16,000,000     US$ 25       September 1, 2022       Series M    

Series N

    18,000,000     C$ 25       December 1, 2018       Series O    

Series P

    16,000,000     C$ 25       March 1, 2019       Series Q    

Series R

    16,000,000     C$ 25       June 1, 2019       Series S    

Series 1

    16,000,000     US$ 25       June 1, 2023       Series 2    

Series 3

    24,000,000     C$ 25       September 1, 2019       Series 4    

Series 5

    8,000,000     US$ 25       March 1, 2019       Series 6    

Series 7

    10,000,000     C$ 25       March 1, 2019       Series 8    

Series 9

    11,000,000     C$ 25       December 1, 2019       Series 10    

Series 11

    20,000,000     C$ 25       March 1, 2020       Series 12    

Series 13

    14,000,000     C$ 25       June 1, 2020       Series 14    

Series 15

    11,000,000     C$ 25       September 1, 2020       Series 16    

Series 17

    30,000,000     C$ 25       March 1, 2022       Series 18    

Series 19

    20,000,000     C$ 25       March 1, 2023       Series 20    

 

(1)   Preference Shares, Series A may be redeemed any time at Enbridge’s option. For all other series of preference shares, Enbridge may, at its option, redeem all or a portion of the outstanding preference shares for the per share base redemption value (as set forth in the table above) plus all accrued and unpaid dividends on the applicable redemption and conversion option date (as set forth in the table above) and on every fifth anniversary thereafter.

 

Holders of Enbridge common shares and preference shares are entitled to all of the applicable rights and obligations provided under the Canada Corporations Act and Enbridge’s articles and Enbridge’s by-laws, as applicable, with certain additional rights attaching to any series of preference shares. However, none of the existing preference shares carry the right to be convertible into or exchangeable for Enbridge common shares, directly or indirectly.

    

 

 

 

101


Table of Contents

Enbridge Shareholders

 

SEP Unitholders

Under the Canada Corporations Act, the Enbridge Board, without shareholder approval, may approve the issuance of authorized but unissued Enbridge common shares or preference shares, including one or more new series of preference shares.

 

The number of authorized Enbridge common shares or preference shares of Enbridge may be reduced (but not below the number of issued Enbridge common shares or preference shares of Enbridge, as applicable) through an amendment of Enbridge’s articles authorized by a special resolution of Enbridge shareholders, including, if applicable, a separate special resolution of the holders of the affected class or series of shares in accordance with the provisions of the Canada Corporations Act.

 

Repurchases/Redemptions

 

Under the Canada Corporations Act, Enbridge may repurchase its own shares, provided that there are no reasonable grounds for believing that (i) Enbridge is, or after the payment for the purchase of such shares would be, unable to pay its liabilities as they become due and (ii) the realizable value of Enbridge’s assets would after the payment for the purchase of such shares be less than the aggregate of Enbridge’s liabilities and the stated capital of all classes of Enbridge’s shares.

 

Under the Canada Corporations Act, Enbridge may purchase or redeem any redeemable shares issued by it at prices not exceeding the redemption price, or as calculated according to a formula, stated in the articles; provided that Enbridge may only purchase or redeem its redeemable shares if there are no reasonable grounds for believing that (i) Enbridge is, or after the payment for the purchase or redemption of such shares would be, unable to pay its liabilities as they become due and (ii) the realizable value of Enbridge’s assets would after the payment for the purchase or redemption of such shares be less than the aggregate of Enbridge’s liabilities and the amount that would be required to pay the holders of Enbridge’s shares that have a right to be paid, on a redemption or in a liquidation, ratably with or before the holders of the shares to be purchased or redeemed, to the extent that the amount has not been included in its liabilities.

 
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the Canada Corporations Act, the Enbridge Board may declare and pay dividends to the holders of Enbridge common shares or Enbridge preference shares provided there are no reasonable grounds for believing that: (i) Enbridge is, or would after the payment be, unable to   The SEP Partnership Agreement requires that SEP distribute 100% of “available cash,” as defined in the SEP Partnership Agreement, to its partners within 60 days following the end of each calendar quarter, subject to the DRULPA. Available cash generally

 

102


Table of Contents

Enbridge Shareholders

 

SEP Unitholders

pay its liabilities as they become due; and (ii) the realizable value of Enbridge’s assets would as a result of the payment be less than the aggregate of Enbridge’s liabilities and the stated capital of all classes of Enbridge’s shares.

 

Pursuant to Enbridge’s articles and the Canada Corporations Act, Enbridge shareholders are entitled to receive dividends if, as and when declared by the directors of Enbridge, subject to prior satisfaction of preferential dividends applicable to any preference shares. The preference shares of each series rank on a parity with the preference shares of every other series with respect to dividends and are entitled to a preference over the Enbridge common shares and over any other shares ranking junior to the preference shares with respect to priority in payment of dividends.

 

The outstanding series of preference shares of Enbridge have the following annual dividend entitlements, for the initial fixed period, as applicable:

 

means, with respect to any quarter, all cash and cash equivalents of SEP and its subsidiaries on hand, less the amount of cash reserves established by the General Partner to (i) provide for the proper conduct of SEP’s business, including future capital expenditures, anticipated future credit needs and for refunds of collected rates reasonably likely to be refunded as a result of a settlement or hearing relating to FERC rate proceedings; (ii) comply with applicable law, any of SEP’s debt instruments or other agreements; or (iii) provide funds for distributions in respect of any one or more of the next four quarters.

 

Available cash will be distributed to the limited partners in accordance with their percentage interest in SEP as of the record date selected by the General Partner.

Preference Shares
Series

  Dividend Yield   Dividend Amount    

Series A

  5.5%   C$1.375  

Series B

  3.42%   C$0.85360  

Series C

  3-month treasury

bill + 2.40%

  —    

Series D

  4.46%   C$1.115  

Series F

  4.69%   C$1.17225  

Series H

  4.38%   C$1.0940  

Series J

  4.89%   US$1.22160  

Series L

  4.96%   US$1.23972  

Series N

  4.0%   C$1.00  

Series P

  4.0%   C$1.00  

Series R

  4.0%   C$1.00  

Series 1

  5.95%   US$1.48728  

Series 3

  4.0%   C$1.00  

Series 5

  4.4%   US$1.10  

Series 7

  4.4%   C$1.10  

Series 9

  4.4%   C$1.10  

Series 11

  4.4%   C$1.10  

Series 13

  4.4%   C$1.10  

Series 15

  4.4%   C$1.10  

Series 17

  5.15%   C$1.28750  

Series 19

  4.90%   C$1.22500  

 

BUSINESS COMBINATIONS
Under the Canada Corporations Act, a merger, consolidation, sale, lease, exchange or other disposition of all or substantially all of the property of Enbridge other than in the ordinary course of business of Enbridge, including pursuant to an amalgamation (other    Merger or consolidation of SEP requires the prior consent of the General Partner. The General Partner must also approve the merger agreement or the plan of conversion, which must include certain information as set forth in the SEP Partnership

 

103


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

than an amalgamation with a parent or a subsidiary or an amalgamation with a sister corporation in accordance with the provisions of the Canada Corporations Act) and an arrangement, as defined in the Canada Corporations Act, or a dissolution of Enbridge, is generally required to be approved by special resolution, being 6623% of the votes cast, in person or by proxy, in respect of the resolution at a meeting of Enbridge shareholders.

 

Additionally, Multilateral Instrument 61-101—Protection of Minority Security Holders in Special Transactions, which is referred to as “MI 61-101”, of the Canadian Securities Administrators contains detailed requirements in connection with “related party transactions” and “business combinations”. A related party transaction means, generally, any transaction by which an issuer, directly or indirectly, consummates one or more specified transactions with a related party, including purchasing or disposing of an asset, acquiring or combining the related party, issuing securities or assuming liabilities. “Related party”, as defined in MI 61-101, includes:

 

•  directors and senior officers of the issuer;

 

•  holders of voting securities of the issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities; and

 

•  holders of a sufficient number of any securities of the issuer to materially affect control of the issuer.

 

A “business combination” means, generally, any amalgamation, arrangement, consolidation, amendment to share terms or other transaction, as a consequence of which the interest of a holder of an equity security may be terminated without the holder’s consent that involves a related party who is either a party to the transaction or will receive a benefit as a result of the transaction that is not available to other shareholders.

 

MI 61-101 requires, subject to certain exceptions, specific detailed disclosure in the proxy (information) circular sent to security holders in connection with a related party transaction or business combination where a meeting is required and, subject to certain exceptions, the preparation of a formal valuation of the subject matter of the related party transaction or business combination and any non-cash consideration offered in connection therewith, and the inclusion of a summary of the valuation in the proxy circular. MI 61-101 also requires, subject to certain exceptions, that an issuer not engage in a related party transaction or business combination unless, in addition to any other required

  

Agreement. Subject to certain exceptions set forth in the SEP Partnership Agreement and described below, once approved by the General Partner, the merger agreement or plan of conversion must be submitted to a vote of the limited partners, and the merger agreement or plan of conversion will be approved upon receipt of the affirmative vote or consent of a majority of the outstanding SEP common units.

 

As an exception to the foregoing, in the case of a merger where SEP would be the surviving entity, the existing SEP units would remain outstanding after the merger, the additional SEP units issued in the merger would not exceed 20% of SEP’s outstanding partnership securities immediately prior to such merger, the General Partner may consummate the merger without the prior approval of unitholders if the General Partner has received an opinion of counsel that the merger would not result in the loss of limited liability of any limited partner or cause SEP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes, the transaction would not result in an amendment to the SEP Partnership Agreement that could not otherwise be adopted solely by the General Partner, and each SEP unit outstanding immediately prior to the transaction would be identical following the merger.

 

The SEP Partnership Agreement contains provisions that may discourage a person or group from attempting to remove the General Partner or otherwise change management. For example, in addition to other provisions described in this section, the SEP Partnership Agreement provides that if at any time any person or group, other than the General Partner and its affiliates, acquires beneficial ownership of 20% or more of any class of units outstanding (other than a person or group who acquired 20% or more of the outstanding partnership units (i) directly from the General Partner or its affiliates, (ii) subject to a notice from the General Partner as described in the SEP Partnership Agreement from such person or group described above in clause (i), or (iii) made such acquisition with the prior approval of the GP LLC Board), that person or group cannot vote those units on any matter and those units will not be considered outstanding for the purposes of providing notice of meetings (unless otherwise required by law), calculating required votes, determining if a quorum is present or other similar purposes.

 

104


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

shareholder approvals, the disinterested shareholders of the issuer have approved the related party transaction or business combination by a simple majority of the votes cast.

 

The Canada Corporations Act provides that if an offer is made to shareholders of a distributing corporation, as defined in the Canada Corporations Act, such as Enbridge, at approximately the same time to acquire all of the shares of a class of issued shares, including an offer made by a distributing corporation to repurchase all of the shares of a class of its shares, which is referred to as a “takeover bid”, and such offer is accepted within 120 days of the takeover bid by holders of not less than 90% of the shares (other than the shares held by the offeror or an affiliate or associate of the offeror) of any class of shares to which the takeover bid relates, then the offeror is entitled to acquire the shares held by those holders of securities of that class who did not accept the takeover bid either on the same terms on which the offeror acquired shares under the takeover bid or for payment of the fair value of such holder’s shares as determined in accordance with the dissent right procedures under the Canada Corporations Act.

 

Enbridge has a shareholder rights plan, which is referred to as the “shareholder rights plan”, that is designed to encourage the fair treatment of shareholders in connection with any takeover bid for Enbridge. Rights issued under the shareholder rights plan become exercisable when a person, and any related parties, acquires or announces the intention to acquire 20% or more of the outstanding Enbridge common shares without complying with certain provisions set out in the shareholder rights plan or without approval of the Enbridge Board. Should such an acquisition or announcement occur, each rights holder, other than the acquiring person and its related parties, will have the right to purchase Enbridge common shares at a 50% discount to the market price at that time.

   The SEP Partnership Agreement provides specific means for the General Partner to seek approval of a conflict of interest transaction such that the determination to enter into the transaction will be permitted and deemed approved by all partners to not constitute a breach of the SEP Partnership Agreement. See below under “—Conflicts of Interest; Fiduciary Duties”.
APPRAISAL RIGHTS

The Canada Corporations Act provides that Enbridge shareholders are entitled to exercise dissent rights and to be paid the fair value of their shares as determined in accordance with the provisions of the Canada Corporations Act, if Enbridge:

 

•  is subject to an order in respect of an “arrangement” (as such term is defined in the Canada Corporations Act) in accordance with the provisions of the Canada Corporations Act;

   Holders of SEP common units are not entitled to exercise dissenters’ rights or appraisal rights under Delaware law or the SEP Partnership Agreement.

 

105


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

 

•  resolves to amend its articles to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of that class;

 

•  resolves to amend its articles to add, change or remove any restriction on the business or businesses that Enbridge may carry on;

 

•  resolves to amalgamate, other than an amalgamation with a parent or a subsidiary or an amalgamation with a sister corporation, in each case in accordance with the provisions of the Canada Corporations Act;

 

•  resolves to be continued under the laws of another jurisdiction;

 

•  resolves to sell, lease or exchange all or substantially all its property other than in the ordinary course of business; or

 

•  resolves to carry out a “going-private transaction” or a “squeeze-out transaction” (as such terms are defined in the Canada Corporations Act).

 

A shareholder is not entitled to dissent if an amendment to the articles is effected by a court order approving a reorganization (as defined in the Canada Corporations Act) or by a court order made in connection with an action for an oppression remedy.

  
MANAGEMENT BY BOARD OF DIRECTORS/GENERAL PARTNER

In accordance with the Canada Corporations Act, Enbridge’s business and affairs are managed by the Enbridge Board.

 

Enbridge’s articles provide that the number of directors will be determined by the Enbridge Board from time to time, but will in no case be less than one or more than 15. Enbridge’s by-laws provide that until the termination of the 2019 annual general meeting of the Enbridge shareholders, the Enbridge Board will be comprised of 13 directors, of which:

 

•  five must be individuals who were directors of Spectra Energy immediately prior to February 27, 2017 (the “2017 Effective Time”) and their permitted replacement directors who take office after the 2017 Effective Time who are nominated in accordance with the by-laws, as amended, who are referred to as the “continuing Spectra directors”; and

   As a Delaware limited partnership, SEP is not managed by a board of directors but by the General Partner. The General Partner conducts, directs and manages all of SEP’s activities. Except as expressly provided in the SEP Partnership Agreement, all management powers over SEP’s business and affairs are exclusively vested in the General Partner, and no limited partner or assignee has any management power over SEP’s business and affairs. The General Partner is managed by GP LLC, which is a wholly owned subsidiary of Spectra Energy, which is a wholly owned subsidiary of Enbridge.

 

106


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

 

•  eight must be individuals who were directors of Enbridge immediately prior to the 2017 Effective Time and their permitted replacement directors who take office after the 2017 Effective Time who are nominated in accordance with the by-laws, as amended, who are referred to as the “continuing Enbridge directors”.

 

The Canada Corporations Act requires that at least 25% of the directors of Enbridge (or if Enbridge ever has less than four directors, at least one director) must be resident Canadians.

 

The Enbridge Board may delegate certain of its duties to various committees, with the number of directors on each committee determined by the Enbridge Board. Until the termination of the 2019 annual general meeting of the Enbridge shareholders, each committee must contain a pro rata share of, or minimum of one of, the continuing Spectra directors in proportion to the number of continuing Spectra directors and continuing Enbridge directors on the Enbridge Board, unless otherwise approved by the affirmative vote of at least 75% of the entire Enbridge Board.

  
NOMINATION AND ELECTION OF DIRECTORS/GENERAL PARTNER

Pursuant to Enbridge’s by-laws, directors of Enbridge are elected at the annual meeting of shareholders or at a special meeting of shareholders called for such purpose and hold office until the close of the next annual meeting of shareholders or until their successors are elected.

 

Nominations of directors can generally be made by the Enbridge Board, by or at the direction or request of one or more shareholders or by a nominating shareholder, as defined in Enbridge’s by-laws. However, for any meeting called for the election of directors prior to the 2019 annual general meeting of the shareholders, the continuing Spectra directors and continuing Enbridge directors will have exclusive authority to nominate, on behalf of the Enbridge Board, nominees to fill the seats of any continuing Spectra directors or continuing Enbridge directors, respectively, unless otherwise determined by the affirmative vote of at least 75% of the entire board.

 

The election of directors of Enbridge currently occurs pursuant to a plurality voting standard, which provides that shares may only be voted “for” or “withheld” from voting. As a result, in situations where there are not more nominees than directors to be elected, only a

   SEP unitholders have no right to elect the General Partner unless the General Partner has been removed or withdrawn, as described below under “—Removal of Directors; Withdrawal or Removal of General Partner” and “—Filling Vacancies on the Board; Replacing the General Partner”, and have no right to elect the directors of the General Partner.

 

107


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

single vote in favor of a director is required to elect such director. In situations where there are more nominees than directors to be elected, the nominees receiving the highest number of “for” votes are elected.

 

In light of the current plurality voting standard and as a requirement of the rules of the TSX, the Enbridge Board has adopted a “majority voting” policy which provides that any nominee for director in an uncontested election who receives more withheld votes than for votes (i.e., the nominee is not elected by at least a majority of 50% + 1 vote) will immediately tender their resignation and will not participate in any meeting of the Enbridge Board or any committee thereof at which the resignation is considered. The Enbridge Board, on the recommendation of the Enbridge Governance Committee, will determine whether or not to accept the resignation within 90 days after the date of the meeting, and will accept the resignation absent exceptional circumstances. Enbridge will promptly issue a news release with the decision of the Enbridge Board, and if the Enbridge Board determines not to accept a resignation, the news release will state the reasons for that decision. The director’s resignation will be effective when accepted by the Enbridge Board. If the Enbridge Board accepts the director’s resignation, it can appoint a new director to fill the vacancy.

 

Recent amendments to the Canada Corporations Act that have not yet to come into force and effect as of the date of this consent solicitation/prospectus provide for a majority voting standard, replacing the current plurality voting standard, which provides that director nominees can only be elected in uncontested elections if the number of votes cast in favor of such nominee director represents a majority (i.e., the nominee is required to be elected by at least a majority of 50% + 1 vote) of the votes cast for or against them. Incumbent directors who do not meet this majority voting requirement will be able to remain in office until the earlier of 90 days after the date of their election or the day when their successor is appointed or elected.

 

Under the Canada Corporations Act, cumulative voting is only permitted if the articles of a corporation specifically provide for it. Enbridge’s articles do not provide for cumulative voting.

  
REMOVAL OF DIRECTORS; WITHDRAWAL OR REMOVAL OF GENERAL PARTNER
The Canada Corporations Act and Enbridge’s by-laws provide that Enbridge shareholders may, by a resolution passed at a special meeting of Enbridge shareholders,    The General Partner may withdraw as General Partner without first obtaining approval of any SEP unitholder by giving 90 days’ written notice, and that

 

108


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

remove any director or directors from office with or without cause. Notwithstanding the foregoing, pursuant to Enbridge’s bylaws, prior to the 2019 annual general meeting of shareholders, Enbridge shall not call a special meeting in which the removal of any continuing Spectra director would be proposed (other than as required pursuant to a valid shareholder requisition under the Canada Corporations Act).

 

In accordance with the rules of the TSX, Enbridge has adopted a “majority voting” policy providing that a director receiving more “withheld” votes than “for” votes in an uncontested election is required to tender his or her resignation to the Enbridge Board promptly following the applicable shareholder meeting. The Enbridge Board will then consider whether to accept or reject the resignation. See the information set forth in “—Nomination and Election of Directors/General Partner” above for further details regarding Enbridge’s majority voting policy and recent related amendments to the Canada Corporations Act.

  

withdrawal will not constitute a violation of the SEP Partnership Agreement. The General Partner may also withdraw without SEP unitholder approval upon 90 days’ notice to the limited partners if at least 50% of the outstanding units are held or controlled by one person and its affiliates other than the General Partner and its affiliates. The SEP Partnership Agreement provides for other events of withdrawal, including specified bankruptcy events or upon voluntary transfer of the General Partner’s rights, as described in “—Transfer of General Partner Interests” below, or upon removal of the General Partner.

 

The General Partner may be removed if such removal is approved by the vote of the SEP unitholders holding at least 662/3% of the outstanding (as such term is defined in the SEP Partnership Agreement) SEP units (including units held by the General Partner and its affiliates) voting as a single class. Any such action by such holders for removal of the General Partner must also provide for the election of a successor general partner by the SEP unitholders holding a majority of the outstanding common units of SEP voting as a class (including units held by the General Partner and its affiliates).

 

In the event of removal of the General Partner under circumstances where cause exists or withdrawal of the General Partner where that withdrawal violates the SEP Partnership Agreement, a successor general partner elected in accordance with the terms of the SEP Partnership Agreement will have the option to purchase the general partner interest and general partner interest, if any, in SEP’s subsidiaries, which is referred to as the “combined interest”, of the departing general partner for a cash payment equal to the fair market value of that combined interest, as determined under the SEP Partnership Agreement.

 

In the event of withdrawal of the General Partner under circumstances where such withdrawal does not violate the SEP Partnership Agreement or removal of the General Partner by the holders of the outstanding SEP units under circumstances where cause does not exist, if the successor general partner is elected in accordance with the terms of the SEP Partnership Agreement, the departing General Partner will have the option to require the successor general partner to purchase the combined interest for fair market value. In this context, cause means a situation where a court has entered a final, non-appealable judgment finding

 

109


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

   the General Partner liable for actual fraud or willful misconduct in its capacity as General Partner. In all other withdrawals or removals, the departing general partner will have the option to require the successor general partner to purchase the combined interest for the same cash amount. If the option described above is not exercised by either the departing or the successor general partner, as applicable, the departing general partner’s combined interest will automatically convert into common units pursuant to a valuation made by an investment banking firm or other independent expert.
FILLING VACANCIES ON THE BOARD; REPLACING THE GENERAL PARTNER

The Canada Corporations Act generally allows a vacancy on the board of directors to be filled by a quorum of directors, except for a vacancy resulting from an increase in the number or the minimum or maximum number of directors or a failure to elect the number or minimum number of directors provided for in the articles.

 

Pursuant to Enbridge’s by-laws, vacancies in the Enbridge Board may, except as described below, be filled for the remainder of the term of office from among persons qualified for election by the remaining directors if constituting a quorum. Otherwise, such vacancies will be filled at the next annual meeting of shareholders at which directors for the ensuing year are to be elected or at a special meeting of shareholders called for that purpose. If at any time the directors in office do not constitute a quorum, the remaining director(s) will call a special meeting of shareholders to fill the vacancies.

 

However, until the termination of the 2019 annual general meeting of the Enbridge shareholders, any vacancies on the Enbridge Board created by the cessation of service of a continuing Spectra director or continuing Enbridge director will be filled by a nominee selected by the continuing Spectra directors and continuing Enbridge directors, respectively, unless otherwise approved by the affirmative vote of at least 75% of the entire board. Subject to provisions regarding the non-executive Chairman term, the continuing Spectra directors and continuing Enbridge directors will have all the power and may exercise all the authority of the Enbridge Board to fill all vacancies on the Enbridge Board created by the cessation of service of a continuing Spectra director or continuing Enbridge director, respectively, prior to the 2019 annual general meeting of

  

Upon a voluntary withdrawal by the General Partner, the holders of at least a majority of the outstanding (as such term is defined in the SEP Partnership Agreement) SEP common units, including SEP common units owned by the General Partner and its affiliates, may select a successor to the withdrawing general partner. If, prior to the effective date of the General Partner’s withdrawal, a successor is not elected or SEP does not receive an opinion of counsel stating that such transfer would not result in loss of limited liability of any limited partner under the DRULPA or cause SEP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not already so treated or taxed), SEP will be dissolved, unless within a specified period after that withdrawal, the holders of a majority of the outstanding SEP common units agree to continue SEP’s business and to appoint a successor general partner.

 

Any removal of the General Partner is also subject to the approval of a successor general partner by the vote of the holders at least a majority of the outstanding (as such term is defined in the SEP Partnership Agreement) SEP common units voting as a class, including units held by the General Partner and its affiliates, as well as SEP’s receipt of an opinion of counsel regarding limited liability and tax matters.

 

110


Table of Contents

Enbridge Shareholders

  

SEP Unitholders

the Enbridge shareholders, provided that in the case of a vacancy created by the cessation of service of a continuing Spectra director, any nominee that was not a director of Spectra immediately prior to the Effective Time will be subject to the approval of the continuing Enbridge directors, not to be unreasonably withheld, delayed or conditioned.   
TRANSFER OF GENERAL PARTNER INTERESTS
Not applicable.    The General Partner may transfer all, but not less than all, of its general partner interest without SEP unitholder approval if (i) the transferee agrees to assume the rights and duties of the General Partner and be bound by the SEP Partnership Agreement, (ii) SEP receives an opinion of counsel with respect to specified tax and limited liability matters and (iii) the transferee agrees to purchase all of the partnership or membership interests of the General Partner as the General Partner or managing member, if any, of SEP or any of its subsidiaries.
LIMITED CALL RIGHTS
See “Redemptions/Repurchases” under the “Authorized, Issued and Outstanding Capital” section above for a description of certain redemption and repurchase rights attaching to Enbridge’s preference shares.   

If at any time the General Partner and its affiliates own more than 90% of the total limited partner interests of any class then outstanding, the General Partner will have the right, which it may assign and transfer to any of its affiliates or to SEP, to purchase all, but not less than all, of the SEP common units held by persons other than the General Partner and its affiliates as of a purchase date to be selected by the General Partner, on at least ten but not more than 60 days’ notice. The purchase price in the event of this purchase shall be the greater of the current market price (as defined below) as of the date three days prior to the date notice is mailed, or the highest price paid by the General Partner or any of its affiliates for any limited partner interests of such class that they purchased within the 90 days preceding the date notice is mailed.

 

Current market price means, in respect of any class of limited partner interests, as of the date of determination, the average of the daily Closing Price (as defined in the SEP Partnership Agreement) per limited partner interest of such class for the 20 consecutive trading days immediately prior to such date.

</