As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/01/12  Kinder Morgan Energy Partners LP  S-3                   14:681K                                   Merrill Corp-MD/FA
          Kinder Morgan Management LLC
          Kinder Morgan, Inc.

Document/Exhibit                   Description                      Pages   Size 

 1: S-3         Registration Statement for Securities Offered       HTML    335K 
                          Pursuant to a Transaction                              
 2: EX-5.1      Opinion re: Legality                                HTML     19K 
 3: EX-8.1      Opinion re: Tax Matters                             HTML     18K 
 4: EX-23.2     Consent of Experts or Counsel                       HTML      9K 
 5: EX-23.3     Consent of Experts or Counsel                       HTML      9K 
 6: EX-23.4     Consent of Experts or Counsel                       HTML     11K 
 7: EX-23.5     Consent of Experts or Counsel                       HTML      9K 
 8: EX-23.6     Consent of Experts or Counsel                       HTML     11K 
 9: EX-23.7     Consent of Experts or Counsel                       HTML      9K 
10: EX-23.8     Consent of Experts or Counsel                       HTML      9K 
11: EX-23.9     Consent of Experts or Counsel                       HTML     15K 
12: EX-24.1     Power of Attorney                                   HTML     18K 
13: EX-24.2     Power of Attorney                                   HTML     20K 
14: EX-24.3     Power of Attorney                                   HTML     38K 

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As filed with the Securities and Exchange Commission on March 1, 2012

Registration No. 333-        

Registration No. 333-        

Registration No. 333-        

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-3

 

REGISTRATION STATEMENTS UNDER THE SECURITIES ACT OF 1933

 

 

Kinder Morgan Management, LLC
Kinder Morgan Energy Partners, L.P.
Kinder Morgan, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Copy to:

Gary W. Orloff

Troy L. Harder

Bracewell & Giuliani LLP

711 Louisiana Street, Suite 2300

Houston, Texas 77002-2770

Phone: (713) 221-1306

Fax: (713) 221-2166

 

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of these registration statements.

 

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x

 

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

 

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

 

If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o

 

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Kinder Morgan Management, LLC – Large accelerated filer

Kinder Morgan Energy Partners, L.P. – Large accelerated filer

Kinder Morgan, Inc. – Non-accelerated filer

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered		Amount to be Registered			Proposed Maximum Aggregate Offering Price(1)			Amount of Registration Fee(2)
Shares representing limited liability company interests i-Units(3) Purchase obligation(4)	}	$	750,000,000		$	750,000,000		$	85,950

(1)   Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.

(2)   $69,586 of the registration fee is paid herewith. Pursuant to Rule 457(p) under the Securities Act, $16,365 previously paid in connection with registration statement nos. 333-156783, 333-156783-01 and 333-156783-02, withdrawn from registration on December 15, 2009, are to be credited to this registration fee.

(3)   To be issued by Kinder Morgan Energy Partners, L.P. The i-units are being registered solely due to the “co-registrant” status of Kinder Morgan Energy Partners, L.P., for which no separate registration fee is required.

(4)   To be issued by Kinder Morgan, Inc., for which no separate registration fee is required.

 

 

The Registrants hereby amend these Registration Statements on such date or dates as may be necessary to delay their effective date until the Registrants shall file a further amendment which specifically states that these Registration Statements shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statements shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

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EXPLANATORY NOTE

 

These registration statements contain a prospectus to be used in connection with the offer and sale of Kinder Morgan Management, LLC shares. These registration statements also register:

 

·                  the deemed offer and sale by Kinder Morgan Energy Partners, L.P. of i-units to be acquired by Kinder Morgan Management, LLC with the net proceeds of the offering of its shares, pursuant to Rule 140 under the Securities Act of 1933, as amended; and

 

·                  the obligation of Kinder Morgan, Inc. to purchase all of the outstanding shares of Kinder Morgan Management, LLC not owned by Kinder Morgan, Inc. or its affiliates under specified circumstances pursuant to the terms of an agreement, which is part of the limited liability company agreement of Kinder Morgan Management, LLC, between Kinder Morgan, Inc. and Kinder Morgan Management, LLC, for itself and for the express benefit of the owners of its shares.

 

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respective names or to our respective SEC file numbers referenced above. You also may read and copy any document we, KMP and KMI file with the SEC at the SEC’s public reference room located at:

 

100 F Street, N.E., Room 1580

Washington, D.C. 20549

 

Please call the SEC at 1-800-SEC-0330 for further information about the public reference room and its copy charges. Our, KMP’s and KMI’s SEC filings are also available to the public through the New York Stock Exchange, on which our shares, KMP’s common units and KMI’s common stock are listed, at 20 Broad Street, New York, New York 10005.

 

In addition, in connection with KMI’s proposed acquisition of El Paso Corporation described under “Kinder Morgan—Kinder Morgan, Inc.” below, the following information is incorporated by reference:

 

·                  the financial statements and supplementary data and financial statement schedule included under Item 8 and Item 15(c) of El Paso’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC; and

 

·                  the financial statements included under Part I, Item 1 of any Quarterly Reports on Form 10-Q El Paso subsequently files with the SEC.

 

You may obtain copies of these El Paso documents through the SEC’s EDGAR System referred to above by reference to El Paso’s corporate name or its SEC file number, 1-14365.

 

We will provide a copy of any document incorporated by reference in this prospectus and any exhibit specifically incorporated by reference in those documents, without charge, by written or oral request directed to us at the following address and telephone number:

 

Kinder Morgan Management, LLC

Investor Relations Department

500 Dallas Street, Suite 1000

Houston, Texas 77002

(713) 369-9000

 

The information concerning KMP, KMI and El Paso contained or incorporated by reference in this prospectus has been provided by KMP, KMI and El Paso, respectively.

 

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KINDER MORGAN

 

Kinder Morgan Management, LLC

 

We are a limited liability company, formed in Delaware in February 2001, that has elected to be treated as a corporation for United States federal income tax purposes. Our shares trade on the NYSE under the symbol “KMR.” We are a limited partner in KMP and manage and control its business and affairs. The outstanding shares of the class that votes to elect our directors are owned by Kinder Morgan G.P., Inc., the general partner of KMP. Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and the KMP partnership agreement, all of its rights and powers to manage and control the business and affairs of KMP and its subsidiary operating limited partnerships and their subsidiaries, subject to Kinder Morgan G.P., Inc.’s right to approve specified actions.

 

Kinder Morgan Energy Partners, L.P.

 

KMP is a limited partnership, formed in Delaware in August 1992, with its common units traded on the NYSE under the symbol “KMP.” KMP is one of the largest publicly-traded pipeline limited partnerships in the United States in terms of market capitalization. Its operations are conducted through its subsidiary operating limited partnerships and their subsidiaries and are grouped into the following business segments: Products Pipelines, Natural Gas Pipelines, CO2, Terminals and Kinder Morgan Canada.

 

Kinder Morgan, Inc.

 

KMI is a publicly-traded Delaware corporation, with its common stock traded on the NYSE under the symbol “KMI.” KMI is a leading pipeline transportation and energy storage company in North America and owns an interest in or operates more than 37,000 miles of pipeline and 180 terminals. KMI owns the general partner interest of, and a significant limited partner interest in, KMP. KMI also owns a significant number of our shares. Under the terms of an agreement, which is part of our limited liability company agreement, upon the occurrence of specified mandatory purchase events, KMI will be required to purchase for cash all of our shares that it and its affiliates do not own.

 

On October 16, 2011, KMI and El Paso Corporation, referred to as “El Paso,” announced a definitive agreement whereby KMI will acquire all of the outstanding shares of El Paso. El Paso owns North America’s largest interstate natural gas pipeline system, one of North America’s largest independent exploration and production companies and an emerging midstream business. El Paso also owns a 42 percent limited partner interest and the 2 percent general partner interest in El Paso Pipeline Partners, L.P., referred to as “EPB.” The combined enterprise, including the associated master limited partnerships, KMP and EPB, will represent the largest natural gas pipeline network in the United States, the largest independent transporter of petroleum products in the United States, the largest transporter of CO2 in the United States, the second largest oil producer in Texas and the largest independent terminal owner/operator in the United States. Completion of the transaction is subject to the approval of both KMI’s and El Paso’s shareholders, as well as the receipt of customary regulatory approvals.

 

Principal Offices

 

The address of KMR’s, KMP’s and KMI’s principal executive offices is 500 Dallas Street, Suite 1000, Houston, Texas 77002, and the telephone number at this address is (713) 369-9000.

 

Organizational Structure

 

The following chart depicts the current organizational structure of KMR, KMP and KMI.

 

 

USE OF PROCEEDS

 

We will use all the net proceeds from the sale of shares we are offering to purchase i-units from KMP. Unless otherwise set forth in a prospectus supplement, KMP intends to use the proceeds it receives from our purchases of i-units for

 

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DESCRIPTION OF OUR SHARES

 

Number of Shares

 

Pursuant to our limited liability company agreement, all of our voting shares are held by Kinder Morgan G.P., Inc. The shares offered pursuant to this prospectus are the same class we have previously sold to the public, which we call our listed shares, and do not entitle owners of such shares to vote on the election of our directors. Other than our voting shares, as of January 31, 2012, we had 98,509,387 listed shares outstanding, including approximately 14,055,425 listed shares held by KMI and its controlled affiliates. Our limited liability company agreement does not limit the number of shares we may issue.

 

Where Shares are Traded

 

Except for our voting shares, all of which are held by Kinder Morgan G.P., Inc., our outstanding shares are listed on the New York Stock Exchange under the symbol “KMR.” The shares we will issue in this offering will also be listed on the NYSE.

 

General

 

The following is a summary of the principal documents which relate to our shares, as well as documents which relate to the KMP i-units that we own and that will be purchased by us upon completion of an offering of our shares. Copies of those documents are on file with the SEC. See “Where You Can Find More Information” for information on how to obtain copies. You should refer to the provisions of each of the following agreements because they, and not this summary, will govern your rights as a holder of our shares. These agreements include:

 

·                  our limited liability company agreement, which provides for the issuance of our shares, distributions and limited voting rights attributable to our shares and which establishes the rights, obligations and limited circumstances for the mandatory or optional purchase of our shares by KMI as provided in the KMI purchase provisions;

 

·                  the KMI purchase provisions, which are part of our limited liability company agreement and which provide for the optional or mandatory purchase of our shares in the limited circumstances set forth in our limited liability company agreement;

 

·                  the KMI tax indemnification agreement, which provides that KMI will indemnify us for any tax liability attributable to our formation or our management and control of the business and affairs of KMP and for any taxes arising out of a transaction involving our i-units to the extent the transaction does not generate sufficient cash to pay our taxes;

 

·                  the KMP limited partnership agreement, which establishes the i-units as a class of limited partner interest in KMP and specifies the relative rights and preferences of the i-units; and

 

·                  the delegation of control agreement among us, Kinder Morgan G.P., Inc. and KMP and its operating partnerships, which delegates to us, to the fullest extent permitted under Delaware law and the KMP partnership agreement, the power and authority to manage and control the business and affairs of KMP and its operating partnerships, subject to Kinder Morgan G.P., Inc.’s right to approve specified actions.

 

Distributions

 

Under the terms of our limited liability company agreement, except in connection with our liquidation, we do not pay distributions on our shares in cash. Instead, we make distributions on our shares in additional shares or fractions of shares. At the same time that KMP makes any cash distribution on its common units, we distribute on each of our shares that fraction of a share determined by dividing the amount of the cash distribution to be made by KMP on each common unit by the average market price of a share determined for the ten consecutive trading days immediately prior to the ex-dividend date for our shares.

 

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KMP distributes an amount equal to 100% of its available cash to its unitholders of record on the applicable record date and the general partner within approximately 45 days after the end of each quarter. Available cash is generally, for any calendar quarter, all cash received by KMP from all sources less all of its cash disbursements and net additions to reserves.

 

The KMP partnership agreement provides for distributions to the extent of available cash to common unitholders, Class B unitholders and the general partner in cash and to us in additional i-units except in the event of a liquidation or dissolution. Therefore, generally, non-liquidating distributions will be made in cash to owners of common units, Class B units and the general partner and in additional i-units to us.

 

We also will distribute to owners of our shares additional shares if owners of common units receive a cash distribution or other cash payment on their common units other than a regular quarterly distribution. In that event, we will distribute on each share that fraction of a share determined by dividing the cash distribution declared by KMP on each common unit by the average market price of a share determined for a ten consecutive trading day period ending on the trading day immediately prior to the ex-dividend date for the shares.

 

Our limited liability company agreement provides that a shareholder’s right to a distribution that has been declared (or for which a record date has been set) but that has not yet been made ceases on the purchase date if the funds for KMI’s optional or mandatory purchase of the shares are deposited with the transfer agent and the notice of purchase has been given.

 

There is no public market for trading fractional shares. We issue fractional shares in payment of the distribution to owners of our shares. No fraction of a share can be traded on any exchange on which our shares are traded until a holder acquires the remainder of the fraction and has a whole share.

 

The term average market price is used above in connection with the share distributions and it is used below in connection with the optional and mandatory purchase of our shares. When we refer to the average market price of a share or a common unit, we mean the average closing price of a share or common unit during the ten consecutive trading days prior to the determination date but not including that date, unless a longer or shorter number of trading days is expressly noted.

 

The closing price of securities on any day means:

 

·                  for securities listed on a national securities exchange, the last sale price for that day, regular way, or, if there are no sales on that day, the average of the closing bid and asked prices for that day, regular way, in either case as reported in the principal composite transactions reporting system for the principal national securities exchange on which the securities are listed;

 

·                  if the securities are not listed on a national securities exchange

 

·                  the last quoted price on that day, or, if no price is quoted, the average of the high bid and low asked prices on that day, each as reported by NASDAQ;

 

·                  if on that day the securities are not so quoted, the average of the closing bid and asked prices on that day furnished by a professional market maker in the securities selected by our board of directors in its sole discretion (or, in the cases of mandatory or optional purchases, by the board of directors of KMI); or

 

·                  if on that day no market maker is making a market in the securities, the fair value of the securities as determined by our board of directors in its sole discretion (or, in the cases of mandatory or optional purchases, by the board of directors of KMI).

 

A trading day for securities means a day on which:

 

·                  the principal national securities exchange on which the securities are listed is open for business, or

 

·                  if the securities are not listed on any national securities exchange, a day on which banking institutions in New York, New York generally are open.

 

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Distributions are made in accordance with the New York Stock Exchange’s distribution standards.

 

Limited Voting Rights

 

The shares offered pursuant to this prospectus are the same class we have previously sold to the public, and do not entitle owners of such shares to vote on the election of our directors. Kinder Morgan G.P., Inc. owns all shares eligible to elect our directors and elects all of our directors. Owners of our shares are entitled to vote on the specified matters described under the following caption.

 

Actions Requiring Vote of Owners of Our Shares.  Our limited liability company agreement provides that we will not, without the approval of a majority of the shares owned by persons other than KMI and its affiliates, amend, alter or repeal any of the provisions of our limited liability company agreement, including the KMI purchase provisions, the KMI tax indemnification agreement or the delegation of control agreement, in a manner that materially adversely affects the preferences or rights of the owners of our shares as determined in the sole discretion of our board of directors, or reduces the time for any notice to which the holders of our shares may be entitled, except as provided below under “Actions Not Requiring the Vote of Holders.”

 

Under the terms of KMP’s partnership agreement, the i-units it issues to us are entitled to vote on all matters on which the common units are entitled to vote. We will submit to a vote of our shareholders any matter submitted to us by KMP for a vote of i-units. We will vote our i-units in the same way that our shareholders vote their shares for or against a matter, including non-votes or abstentions. In general, the i-units, common units and Class B units will vote together as a single class, with each i-unit, common unit and Class B unit having one vote. The i-units vote separately as a class on:

 

·                  amendments to the KMP partnership agreement that would have a material adverse effect on the rights or preferences of holders of the i-units in relation to the other outstanding classes of units;

 

·                  the approval of the withdrawal of Kinder Morgan G.P., Inc. as the general partner of KMP in some circumstances; and

 

·                  the transfer to a non-affiliate by Kinder Morgan G.P., Inc. of all its interest as a general partner of KMP.

 

Our limited liability company agreement also provides that we will not, without the approval of a majority of our shares owned by persons other than KMI and its affiliates, take an action that we have covenanted not to take without shareholder approval, as summarized below, or issue any shares of classes other than the two classes of shares that are currently outstanding.

 

Limitations on Voting Rights of KMI and its Affiliates.  The shares owned by KMI and its affiliates, generally, are entitled to vote on any matter submitted to us as the owner of i-units. Shares owned by KMI or its affiliates will not, however, be entitled to vote on the matters described below when submitted to a vote of shareholders to determine how the i-units should be voted as long as KMI or its affiliates owns our voting shares:

 

·                  any matters on which the i-units vote as a separate class;

 

·                  a proposed removal of the general partner of KMP;

 

·                  some proposed transfers of all of the general partner’s interest as the general partner of KMP and the admission of any successor transferee as a successor general partner; and

 

·                  a proposed withdrawal of the general partner of KMP in some circumstances.

 

When any shares, including voting shares, owned by KMI and its affiliates are not entitled to vote as described above, they will be treated as not outstanding. Therefore, they will not be included in the numerator of the number of shares voting for approval or the denominator of the number of shares outstanding in determining whether the required percentage has been voted to approve a matter. Similarly, a number of i-units equal to the number of our shares, including voting shares,

 

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owned by KMI and its affiliates will be treated as not being outstanding and will not be included in the numerator or denominator in determining if the required percentage of i-units or total units has been voted to approve a matter.

 

Limitations on Voting Rights of 20% or More Holders.  A person or group owning 20% or more of the aggregate number of issued and outstanding common units and shares is not entitled to vote its shares. Therefore, such shares will not be included in the numerator of the number of shares voting for approval or the denominator of the numbers of shares outstanding in determining whether the required percentage has been voted to approve a matter. This limitation does not apply to KMI and its affiliates, including Kinder Morgan G.P., Inc., although, as described above, there are a number of matters on which KMI and its affiliates may not vote.

 

Actions Not Requiring the Vote of Holders.  The relevant agreements provide that notwithstanding the voting provisions described above, we may make changes in the terms of our shares, our limited liability company agreement (including the purchase provisions), the tax indemnification agreement and the delegation of control agreement without any approval of holders of our shares, in order to meet the requirements of applicable securities and other laws and regulations and exchange rules, to effect the intent of the provisions of the limited liability company agreement and to make other changes which our board of directors determines in its sole discretion will not have a material adverse effect on the preferences or rights associated with our shares or reduce the time for any notice to which the holders of our shares may be entitled. The agreements provide that we are also permitted, in the good faith discretion of our board of directors, to amend the terms of the shares and these agreements without the approval of holders of shares to accommodate the assumption of the obligations of KMI by a person, other than KMI and its affiliates, who becomes the beneficial owner of more than 50% of the total voting power of all shares of capital stock of the general partner of KMP in a transaction that does not constitute a mandatory purchase event but that requires the vote of the holders of the outstanding common units and shares, or to accommodate changes resulting from a merger, recapitalization, reorganization or similar transaction involving KMP which in each case does not constitute a mandatory purchase event but that requires the vote of the holders of the outstanding common units and shares. We believe that amendments made pursuant to these agreements, except in some cases in the context of a merger, recapitalization, reorganization or similar transaction, would not be significant enough to constitute the issuance of a new security; but, if an amendment constituted the issuance of a new security, we would have to register the issuance of the securities with the SEC or rely on an exemption from registration.

 

Anti-Dilution Adjustments

 

The partnership agreement of KMP provides that KMP will adjust proportionately the number of i-units held by us through the payment to us of an i-unit distribution or by causing an i-unit subdivision, split or combination if various events occur, including:

 

·                  the payment of a common unit distribution on the common units; and

 

·                  a subdivision, split or combination of the common units.

 

Our limited liability company agreement provides that the number of all of our outstanding shares, including the voting shares, shall at all times equal the number of i-units we own. If there is a change in the number of i-units we own, we will make to all our shareholders a share distribution or effect a share split or combination to provide that at all times the number of shares outstanding equals the number of i-units we own. Through the combined effect of the provisions in the KMP partnership agreement and the provisions of our limited liability company agreement, the number of outstanding shares and i-units always will be equal.

 

Covenants

 

Our limited liability company agreement provides that our activities will be limited to being a limited partner in, and controlling and managing the business and affairs of, KMP and its operating partnerships and engaging in any lawful business, purpose or activity related thereto. It also includes provisions that are intended to maintain a one-to-one relationship between the number of i-units we own and our outstanding shares, including provisions:

 

·                  prohibiting our sale, pledge or other transfer of i-units;

 

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·                  prohibiting our issuance of options, warrants or other securities entitling the holder to subscribe for or purchase our shares;

 

·                  prohibiting us from borrowing money or issuing debt;

 

·                  prohibiting a liquidation, merger or recapitalization or similar transactions involving us; and

 

·                  prohibiting our purchase of any of our shares, including voting shares.

 

Under the terms of the KMP partnership agreement, KMP agrees that it will not:

 

·                  except in liquidation, make a distribution on an i-unit other than in additional i-units or a security that has in all material respects the same rights and privileges as the i-units;

 

·                  make a distribution on a common unit other than in cash, in additional common units or a security that has in all material respects the same rights and privileges as the common units;

 

·                  allow an owner of common units to receive any consideration other than cash, common units or a security that has in all material respects the same rights and privileges as the common units, or allow us, as the owner of the i-units, to receive any consideration other than i-units or a security that has in all material respects the same rights and privileges as the i-units in a:

 

·                  merger in which KMP is not the survivor, if the unitholders of KMP immediately prior to the transaction own more than 50% of the residual common equity securities of the survivor immediately after the transaction;

 

·                  merger in which KMP is the survivor, if the unitholders of KMP immediately prior to the transaction own more than 50% of the limited partner interests in KMP immediately after the transaction; or

 

·                  recapitalization, reorganization or similar transaction;

 

·                  be a party to a merger in which KMP is not the survivor, sell substantially all of its assets to another person or enter into similar transactions if:

 

·                  the survivor of the merger or the other person is to be controlled by KMI or its affiliates after the transaction; and

 

·                  the transaction would be a mandatory purchase event;

 

·                  make a tender offer for common units unless the consideration:

 

·                  is exclusively cash; and

 

·                  together with any cash payable in respect of any tender offer by KMP for the common units concluded within the preceding 360 days and the aggregate amount of any cash distributions to all owners of common units made within the preceding 360-day period is less than 12% of the aggregate average market value of all classes of units of KMP determined on the trading day immediately preceding the commencement of the tender offer; or

 

·                  issue any of its i-units to any person other than us.

 

The KMP partnership agreement provides that when any cash is to be received by a common unitholder as a result of a consolidation or merger of KMP with or into another person, other than a consolidation or merger in which KMP is a survivor and which does not result in any reclassification, conversion, exchange or cancellation of outstanding common units, or as a result of the sale or other disposition to another person of all or substantially all of the assets of KMP, that payment

 

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will require KMP to issue additional i-units or fractions of i-units to us except in liquidation. The distribution of additional i-units or fractions of i-units will be equal to the cash distribution on each common unit divided by the average market price of one of our shares determined for a consecutive ten day trading period ending immediately prior to the effective date of the transaction. This will result in us also issuing an equal number of shares to the holders of our shares.

 

Optional Purchase

 

The KMI purchase provisions, which are part of our limited liability company agreement, provide that if at any time KMI and its affiliates own 80% or more of our outstanding shares, then KMI has the right, but not the obligation, to purchase for cash all of our outstanding shares that KMI and its affiliates do not own. KMI can exercise its right to make that purchase by delivering notice to the transfer agent for the shares of its election to make the purchase not less than ten days and not more than 60 days prior to the date which it selects for the purchase. We will use reasonable efforts to cause the transfer agent to mail the notice of the purchase to the record holders of the shares.

 

The price at which KMI may make the optional purchase is equal to 110% of the higher of:

 

·                  the average market price for the shares for the ten consecutive trading days ending on the fifth trading day prior to the date the notice of the purchase is given; and

 

·                  the highest price KMI or its affiliates paid for the shares during the 90 day period ending on the day prior to the date the notice of purchase is given.

 

The KMI purchase provisions, which are a part of our limited liability company agreement, and KMP’s partnership agreement each provides that if at any time KMI and its affiliates own 80% or more of the outstanding common units and the outstanding shares on a combined basis, then KMI has the right to purchase all of our shares that KMI and its affiliates do not own, but only if the general partner of KMP, elects to purchase all of the common units that KMI and its affiliates do not own. The price at which KMI and the general partner may make the optional purchase is equal to the highest of:

 

·                  the average market price of our shares or the common units, whichever is higher, for the 20 consecutive trading days ending five days prior to the date on which the notice of the purchase is given; and

 

·                  the highest price KMI or its affiliates paid for such shares or common units, whichever is higher, during the 90-day period ending on the day prior to the date the notice of purchase is given.

 

KMI or the general partner, as the case may be, may exercise its right to make the optional purchase by giving notice to the transfer agent for the shares and for the common units of its election to make the optional purchase not less than ten days and not more than 60 days prior to the date which it selects for the purchase. We will use reasonable efforts to cause the transfer agent to mail that notice of the purchase to the record holders of our shares.

 

If either elects to purchase either our shares or the combination of the common units and our shares, KMI and, if applicable, the general partner, will deposit the aggregate purchase price for the shares and the common units, as the case may be, with the respective transfer agents. On and after the date set for the purchase, the holders of the shares or the common units, as the case may be, will have no rights as holders of shares or common units, except to receive the purchase price, and their shares or common units will be deemed to be transferred to KMI, or the general partner in the case of the common units, for all purposes.

 

KMI will comply with Rule 13e-3 under the Exchange Act if it makes an optional purchase.

 

Mandatory Purchase

 

General.  Under the terms of the KMI purchase provisions, upon the occurrence of any of the following mandatory purchase events, KMI will be required to purchase for cash all of our shares that it and its affiliates do not own at a purchase price equal to the higher of the average market price for the shares and the average market price for common units as determined for the ten-day trading period immediately prior to the date of the applicable event.

 

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A mandatory purchase event means any of the following:

 

·                  the first day on which the aggregate distributions or other payments by KMP on the common units, other than distributions or payments made in common units or in securities which have in all material respects the same rights and privileges as common units but including distributions or payments made pursuant to an issuer tender offer by KMP, during the immediately preceding 360-day period exceed 50% of the average market price of a common unit during the ten consecutive trading day period ending on the last trading day prior to the first day of that 360-day period.

 

·                  the occurrence of an event resulting in KMI and its affiliates ceasing to be the beneficial owner, as defined in Rules 13d-3 and 13d-5 under the Exchange Act, of more than 50% of the total voting power of all shares of capital stock of the general partner of KMP, unless:

 

·                  the event results in another person becoming the beneficial owner of more than 50% of the total voting power of all shares of capital stock of the general partner of KMP;

 

·                  that other person is organized under the laws of a state in the United States;

 

·                  that other person has long term unsecured debt with an investment grade credit rating, as determined by Moody’s Investor Services, Inc. and Standard & Poor’s Rating Service, immediately prior to the event; and

 

·                  that other person assumes all obligations of KMI to us and to the owners of the shares under the purchase provisions and the tax indemnification agreement.

 

·                  the merger of KMP with or into another person in any case where KMP is not the surviving entity, or the sale of all or substantially all of the assets of KMP and its subsidiaries, taken as a whole, to another person, unless in the transaction:

 

·                  the owners of common units receive in exchange for their common units a security of such other person that has in all material respects the same rights and privileges as the common units;

 

·                  we receive in exchange for all of the i-units a security of such other person that has in all material respects the same rights and privileges as the i-units;

 

·                  no consideration is received by an owner of common units other than securities that have in all material respects the same rights and privileges as the common units and/or cash, and the amount of cash received per common unit does not exceed 331/3% of the average market price of a common unit during the ten trading day period ending immediately prior to the date of execution of the definitive agreement for the transaction; and

 

·                  no consideration is received by the owners of i-units other than securities of such other person that have in all material respects the same rights and privileges as the i-units.

 

Procedure.  Within three business days following any event requiring a mandatory purchase by KMI, KMI will mail or deliver to the transfer agent for mailing to each holder of record of the shares on the earlier of the date of the purchase event and the most recent practicable date, a notice stating:

 

·                  that a mandatory purchase event has occurred and that KMI will purchase such holder’s shares for the purchase price described above;

 

·                  the circumstances and relevant facts regarding the mandatory purchase event;

 

·                  the dollar amount per share of the purchase price;

 

·                  the purchase date, which shall be no later than five business days from the date such notice is mailed; and

 

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·                  the instructions a holder must follow in order to have the holder’s shares purchased.

 

On or prior to the date of the purchase, KMI will irrevocably deposit with the transfer agent funds sufficient to pay the purchase price. Following the purchase date, a share owned by any person other than KMI and its affiliates will only represent the right to receive the purchase price.

 

For purposes of the optional and mandatory purchase provisions, including the definitions of the mandatory purchase events, KMI will be deemed to include KMI, its successors by merger, and any entity that succeeds to KMI’s obligations under the purchase provisions and the tax indemnification agreement in connection with an acquisition of all or substantially all of the assets of KMI.

 

KMI will comply with Rule 13e-3 under the Exchange Act in connection with the occurrence of a mandatory purchase event.

 

Tax Indemnity of KMI

 

We have a tax indemnification agreement with KMI. Pursuant to this agreement, KMI agreed to indemnify us for any tax liability attributable to our formation or our management and control of KMP, and for any taxes arising out of a transaction involving our i-units to the extent the transaction does not generate sufficient cash to pay our taxes.

 

Transfer Agent and Registrar

 

Our transfer agent and registrar for the shares is Computershare Inc. It may be contacted at 525 Washington Blvd., Jersey City, New Jersey 07310.

 

The transfer agent and registrar may at any time resign, by notice to us, or be removed by us. That resignation or removal would become effective upon the appointment by us of a successor transfer agent and registrar and its acceptance of that appointment. If no successor has been appointed and accepted that appointment within 30 days after notice of that resignation or removal, we are authorized to act as the transfer agent and registrar until a successor is appointed.

 

Replacement of Share Certificates

 

We will replace any mutilated certificate at your expense upon surrender of that certificate to the transfer agent. We will replace certificates that become destroyed, lost or stolen at your expense upon delivery to us and the transfer agent of satisfactory evidence that the certificate has been destroyed, lost or stolen, together with any indemnity that may be required by us or by the transfer agent.

 

Fractional Shares

 

We will make distributions of additional shares, including fractional shares. Records of fractional interests held by the holders of shares will be maintained by the Depositary Trust Company or the broker or other nominees through whom you hold your shares. You will be able to sell such fractional shares on the New York Stock Exchange only when they equal, in the aggregate, whole shares. Certificates representing fractional shares will not be issued under any circumstances. Fractional shares will receive distributions when distributions are made on our shares. All fractional shares will be rounded down, if necessary, and stated in six decimal places.

 

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DESCRIPTION OF THE I-UNITS

 

The i-units are a separate class of limited partner interests in KMP. All the i-units will be owned by us and will not be publicly traded. A number of the covenants in our limited liability company agreement and in KMP’s partnership agreement affect us as the holder of i-units. For a description of the material covenants, see “Description of Our Shares—Covenants.”

 

Voting Rights

 

Owners of i-units generally vote together with the common units and Class B units as a single class and sometimes vote as a class separate from the holders of common units and Class B units. The i-units have the same voting rights as the common units and Class B units voting together as a single class on the following matters:

 

·                  a sale or exchange of all or substantially all of KMP’s assets;

 

·                  the election of a successor general partner in connection with the removal of the general partner;

 

·                  a dissolution or reconstitution of KMP;

 

·                  a merger of KMP; and

 

·                  some amendments to the partnership agreement, including any amendment that would cause KMP to be treated as a corporation for income tax purposes.

 

The i-units vote separately as a class on the following:

 

·                  Amendments to the KMP partnership agreement that would have a material adverse effect on the rights or preferences of the holders of the i-units in relation to the other classes of units. This kind of an amendment requires the approval of two-thirds of the outstanding i-units other than the number of i-units corresponding to the number of shares owned by KMI and its affiliates.

 

·                  The approval of the withdrawal of the general partner in some circumstances or the transfer to a non-affiliate of all of its interest as a general partner. These matters require the approval of a majority of the outstanding i-units other than the number of i-units corresponding to the number of shares owned by KMI and its affiliates.

 

In all cases, i-units will be voted in proportion to the affirmative and negative votes, abstentions and non-votes of owners of our shares.

 

For further information regarding the voting rights of i-units and shares of Kinder Morgan Management, LLC, see “Description of Our Shares—Limited Voting Rights.”

 

Distributions and Payments

 

The number of i-units distributed to us by KMP is based upon the amount of cash to be distributed by KMP to an owner of a common unit. KMP distributes to us a number of i-units equal to the number of shares distributed by us.

 

Typically, if cash is paid to the holders of common units, we, as the owner of i-units, receive additional i-units or fractions of i-units instead of cash. The fraction of an i-unit received per i-unit owned by us is determined as if the cash payment on the common unit were a cash distribution.

 

If additional units are distributed to the owners of common units, as the owner of i-units, we receive an equivalent amount of units based on the number of i-units that we own.

 

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Merger, Consolidation or Sale of Assets

 

In the case of any of the following events:

 

·                  any consolidation or merger of KMP with or into another person,

 

·                  any consolidation or merger of another person into KMP, except a consolidation or merger which does not result in any reclassification, conversion, exchange or cancellation of the outstanding common units of KMP, or

 

·                  any sale or other disposition of all or substantially all the properties and assets of KMP,

 

if the owners of the common units receive cash in the transaction, a distribution on each i-unit will be made in additional i-units or fractions of i-units determined by dividing the cash received on a common unit by the average market price of one of our shares determined for a ten consecutive day trading period ending immediately prior to the effective date of the transaction, except that in the case of a liquidation, as the owner of the i-units, we will receive the distribution provided pursuant to the liquidation provisions in KMP’s partnership agreement.

 

United States Federal Income Tax Characteristics and Distribution Upon Liquidation of KMP

 

The i-units we own generally will not be allocated income, gain, loss or deduction until such time as there is a liquidation of KMP. Therefore, we do not anticipate that we will have material amounts of taxable income resulting from our ownership of the i-units unless we enter into a sale or exchange of the i-units or KMP is liquidated.

 

Upon the liquidation of KMP, KMI is generally obligated to purchase all of our outstanding shares at a price equal to the higher of the average market price for the shares and the average market price of the common units. If KMI fails to do so, then, as described below, the value of your shares will depend on the amount of the liquidating distribution received by us as the owner of the i-units and the taxes we incur as a result of that liquidation.

 

The liquidating distribution per i-unit may be less than the liquidating distribution received per common unit. The liquidating distribution for each i-unit and common unit will depend upon the relative per unit capital accounts of the i-units and the common units at liquidation. It is anticipated that over time the capital account per common unit will exceed the capital account per i-unit because the common units will be allocated income and gain prior to liquidation, but the i-units will not. At liquidation, it is intended that each i-unit will be allocated income and gain in an amount necessary for the capital account attributable to each i-unit to be equal to that of a common unit. However, there may not be sufficient amounts of income and gain at liquidation to cause the capital account of an i-unit to be increased to that of a common unit. In that event, the liquidating distribution per common unit will exceed the liquidating distribution per i-unit.

 

As a result of the allocation of income and gain to the i-units upon a liquidation, we will be required to pay taxes on that income and gain. Thus, in the event income and gain is allocated to us, then, because of taxes we pay, shareholders will receive less than the holders of the common units.

 

Because of these factors, and if KMI fails to purchase our shares as described above, the value of our shares likely will be lower than the value of the common units upon the liquidation of KMP.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

This section is a summary of the material U.S. federal income tax consequences that may be relevant to prospective owners of shares and, unless otherwise noted in the following discussion, is the opinion of our counsel, Bracewell & Giuliani LLP, insofar as it relates to legal conclusions with respect to matters of U.S. federal income tax law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), existing and proposed Treasury regulations promulgated under the Internal Revenue Code (“Treasury Regulations”) and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “us” or “we” are references to Kinder Morgan Management, LLC.

 

The following discussion does not comment on all U.S. federal income tax matters affecting us, KMP or the owners of shares. Moreover, the discussion focuses on owners of shares who are individual citizens or residents of the United States and has only limited application to corporations, estates, trusts, nonresident aliens or other shareholders subject to specialized tax treatment, such as financial institutions, insurance companies, real estate investment trusts (REITs), dealers and persons entering into hedging transactions. Accordingly, we urge each prospective owner of shares to consult, and depend on, his own tax advisor in analyzing the U.S. federal, state, local and foreign tax consequences particular to him of the ownership or disposition of shares.

 

All statements as to matters of law and legal conclusions, but not as to factual matters, contained in this section, unless otherwise noted, are the opinion of Bracewell & Giuliani LLP and are based on the accuracy of the representations made by us and, where applicable, KMP and its general partner.

 

No ruling has been or will be requested from the Internal Revenue Service (the “IRS”) regarding any matter affecting us or prospective owners of shares. Instead, we will rely on opinions of Bracewell & Giuliani LLP. Unlike a ruling, an opinion of counsel represents only that counsel’s best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made herein may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for shares and the prices at which shares trade. In addition, the costs of any contest with the IRS, principally legal, accounting and related fees, will be borne directly or indirectly by us and the owners of shares. Furthermore, the tax treatment of us or KMP or of an investment in us or KMP may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

 

U.S. Federal Income Tax Consequences Associated with the Ownership and Disposition of Shares

 

Kinder Morgan Management, LLC’s Status as a Corporation For U.S. Federal Income Tax Purposes

 

An election has been made with the IRS to treat us as a corporation for U.S. federal income tax purposes. Thus, we are subject to U.S. federal income tax on our taxable income at tax rates up to 35%. Additionally, in certain instances we could be subject to the alternative minimum tax of 20% on our alternative minimum taxable income to the extent that the alternative minimum tax exceeds our regular tax.

 

The terms of the i-units provide that the i-units owned by us are not entitled to allocations of income, gain, loss or deduction of KMP until such time as KMP is liquidated. Thus, we do not anticipate that we will have material amounts of either taxable income or alternative minimum taxable income resulting from our ownership of the i-units, unless we dispose of the i-units in a taxable transaction or KMP is liquidated. Please read “—U.S. Federal Income Tax Consequences Associated with the Ownership of i-units.”

 

Tax Consequences of Share Ownership

 

No Flow-Through of Our Taxable Income.  Because we are treated as a corporation for U.S. federal income tax purposes, an owner of shares will not report on its U.S. federal income tax return any of our items of income, gain, loss and deduction.

 

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Distributions of Additional Shares.  Under the terms of our limited liability company agreement, except in connection with our liquidation, we will not make distributions of cash in respect of shares but rather will make distributions of additional shares. Because these distributions of additional shares will be made proportionately to all owners of shares, the receipt of these additional shares will not be includable in the gross income of an owner of shares for U.S. federal income tax purposes. As each owner of shares receives additional shares, he will be required to allocate his basis in his shares in the manner described below. Please read “—Basis of Shares.”

 

Basis of Shares.  An owner’s initial tax basis for his shares will be the amount paid for them. As additional shares are distributed to an owner of shares, he will be required to allocate his tax basis in his shares equally between the old shares and the new shares received. If the old shares were acquired for different prices, and the owner can identify each separate lot, then the basis of each old lot of shares can be used separately in the allocation to the new shares received with respect to the identified old lot. If an owner of shares cannot identify each lot, then he must use the first-in first-out tracing approach. A shareholder cannot use the average cost for all lots for this purpose.

 

Disposition of Shares.  Gain or loss will be recognized on a sale or other disposition of shares, whether to a third party or to KMI pursuant to the KMI purchase provisions or in connection with the liquidation of us, equal to the difference between the amount realized and the owner’s tax basis for the shares sold or otherwise disposed of. An owner’s amount realized will be measured by the sum of the cash and the fair market value of other property received by him.

 

Except as noted below, gain or loss recognized by an owner of shares, other than a “dealer” in shares, on the sale or other disposition of a share generally will be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of shares held more than twelve months generally will be taxed at a maximum U.S. federal income tax rate of 15% through December 31, 2012 and 20% thereafter (absent new legislation extending or adjusting the current rate), subject to the discussion below relating to straddles. In addition, beginning after December 31, 2012, all or a portion of the gain realized by an individual on the sale or other disposition of a share, regardless of whether the share was held for more than twelve months, generally will be subject to a 3.8% Medicare tax.  Capital gain recognized by a corporation on the sale of shares generally will be taxed at a maximum rate of 35%. Net capital losses may offset capital gains and no more than $3,000 of ordinary income in the case of individuals, and may be used to offset only capital gains in the case of corporations.

 

Capital gain treatment may not result from a sale of shares to KMI pursuant to the KMI purchase provisions or otherwise if a single shareholder of us or our shareholders as a group own 50% or more of the stock of KMI. In that case, if either we or KMI has earnings and profits, then the amount received by a seller of shares may be taxed as a dividend to the extent of his portion of those earnings and profits, but only if the seller sells less than all of his shares or is a shareholder of KMI after applying the ownership attribution rules.

 

For purposes of determining whether capital gains or losses on the disposition of shares are short term or long term, subject to the discussion below relating to straddles, an owner’s holding period begins the day after the date he purchases shares. As additional shares are distributed to him, the holding period of each new share received also will include the period for which the owner held the old shares to which the new share relates.

 

Because the purchase rights in respect of the shares arise as a result of an agreement other than solely with us, these rights do not appear to constitute inherent features of the shares for U.S. federal income tax purposes. Please read “Description of Our Shares—Optional Purchase,” and “—Mandatory Purchase.” As such, it is possible that the IRS would assert that shares and the related purchase rights constitute a straddle for U.S. federal income tax purposes to the extent that those rights are viewed as resulting in a substantial diminution of a share purchaser’s risk of loss from owning his shares. In that case, any owner of shares who incurs interest or other carrying charges that are allocable to the shares (as would be the case if the owner finances his acquisition of shares with debt) would have to capitalize those interest or carrying charges to the basis of the related shares and purchase rights rather than deducting those interest or carrying charges currently. In addition, the holding period of the shares would be suspended, resulting in short-term capital gain or loss (generally taxed at ordinary income rates) upon a taxable disposition, even if the shares were held for more than twelve months. However, we believe that the purchase rights have minimal value and do not result in a substantial diminution of a share purchaser’s risk of loss from owning shares. Accordingly, the shares and the related purchase rights should not constitute a straddle for U.S. federal

 

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income tax purposes and, therefore, should not result in any suspension of an owner’s holding period or interest and carrying charge capitalization; although, there can be no assurance that the IRS or the courts would agree with this conclusion.

 

Investment in Shares by Tax-Exempt Investors, Regulated Investment Companies and Non-U.S. Persons.  Employee benefit plans and most other organizations exempt from U.S. federal income tax, including individual retirement accounts (IRAs), and other retirement plans, are subject to U.S. federal income tax on unrelated business taxable income. Because we will be treated as a corporation for U.S. federal income tax purposes, an owner of shares will not report on its U.S. federal income tax return any of our items of income, gain, loss and deduction. Therefore, a tax-exempt investor will not have unrelated business taxable income attributable to its ownership or sale of shares, unless its ownership of the shares is debt financed. In general, a share would be debt financed if the tax-exempt investor incurs debt to acquire a share or otherwise incurs or maintains a debt that would not have been incurred or maintained if that share had not been acquired.

 

A regulated investment company, or “mutual fund,” is required to derive at least 90% of its gross income for every taxable year from qualifying income. As stated above, an owner of shares will not report on its U.S. federal income tax return any of our items of income, gain, loss and deduction. Thus, ownership of shares will not result in income which is not qualifying income to a mutual fund. Furthermore, any gain from the sale or other disposition of the shares, and the associated purchase rights, will qualify for purposes of the 90% test. Finally, shares, and the associated purchase rights, will constitute qualifying assets to mutual funds, which also must own qualifying assets representing at least 50% of the value of their totals assets at the end of each quarter.

 

Because distributions of additional shares will be made proportionately to all owners of shares, the receipt of these additional shares will not be includable in the gross income of an owner of shares for U.S. federal income tax purposes. Therefore, no withholding taxes will be imposed on distributions of additional shares to nonresident alien individuals and foreign corporations, trusts or estates. A non-U.S. owner of shares generally will not be subject to U.S. federal income tax or subject to withholding on any gain recognized on the sale or other disposition of shares unless:

 

·      the gain is effectively connected with the conduct of a U.S. trade or business by the non-U.S. owner and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of that owner (and, in which case, if the owner is a foreign corporation, it may be subject to an additional branch profits tax equal to 30% or a lower rate as may be specified by an applicable income tax treaty);

 

·      the non-U.S. owner is a nonresident alien individual who holds the shares as a capital asset and is present in the United States for 183 or more days in the taxable year of the sale or other disposition and other conditions are met; or

 

·      we are or have been a “United States real property holding corporation” (a “USRPHC”) for U.S. federal income tax purposes.

 

We believe that we are a USRPHC for U.S. federal income tax purposes. Therefore, any gain on the sale or other disposition of shares by a non-U.S. owner will be subject to U.S. federal income tax, unless the shares are regularly traded on an established securities market and the non-U.S. owner has not actually or constructively held more than 5% of the shares at any time during the shorter of the five-year period preceding the disposition or that owner’s holding period. Our shares currently trade on an established securities market.

 

U.S. Federal Income Tax Consequences Associated with the Ownership of i-units

 

A partnership is not a taxable entity and incurs no U.S. federal income tax liability. Instead, each partner of a partnership is required to take into account its share of items of income, gain, loss and deduction of the partnership in computing its U.S. federal income tax liability, regardless of whether cash distributions are made to it by the partnership. Distributions of cash by a partnership to a partner generally are not taxable to the partner, unless the amount of cash distributed to the partner is in excess of its adjusted basis in its partnership interest.

 

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With respect to the i-units owned by us, the KMP partnership agreement provides that no allocations of income, gain, loss or deduction will be made in respect of the i-units until such time as there is a liquidation of KMP. If there is a liquidation of KMP, it is intended that we will receive allocations of income and gain, or deduction and loss, in an amount necessary for the capital account attributable to each i-unit to be equal to that of a common unit. The aggregate capital account of our i-units will not be increased as a result of our ownership of additional i-units.

 

Thus, each additional i-unit we own after a cash distribution to other unitholders generally will represent the right to receive additional allocations of such income and gain, or deduction and loss, on the liquidation of KMP. As a result, we likely would realize taxable income or loss upon the liquidation of KMP. However, no assurance can be given that there will be sufficient amounts of income and gain to cause the capital account attributable to each i-unit to be equal to that of a common unit. If they are not equal, we will receive less value than would be received by a holder of common units upon such a liquidation. We also would likely realize taxable income or loss upon any sale or other disposition of our i-units.

 

Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the “Qualifying Income Exception,” exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of “qualifying income.” Qualifying income includes income and gains derived from the exploration, development, mining or production, processing, refining, transportation, storage and marketing of any mineral or natural resource, including crude oil, natural gas and products thereof. Other types of qualifying income include interest (other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes qualifying income. KMP estimates that, as of the date of this prospectus, more than 90% of its current gross income is qualifying income. Based upon and subject to this estimate, the factual representations made by us, KMP and its general partner and a review of the applicable legal authorities, Bracewell & Giuliani LLP is of the opinion that at least 90% of KMP’s current gross income constitutes qualifying income. The portion of KMP’s income that is qualifying income may change from time to time.

 

The anticipated benefit of an investment in our shares depends largely on the treatment of KMP as a partnership for U.S. federal income tax purposes. No ruling has been or will be sought from the IRS, and the IRS has made no determination as to KMP’s status as a partnership for U.S. federal income tax purposes or whether KMP’s operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. Instead, we will rely on the opinion of Bracewell & Giuliani LLP on such matters. It is the opinion of Bracewell & Giuliani LLP that, based upon the Internal Revenue Code, Treasury Regulations, published revenue rulings and court decisions and the representations described below, KMP has been, is and will continue to be treated as a partnership for U.S. federal income tax purposes.

 

In rendering its opinion, Bracewell & Giuliani LLP has relied on the following factual representations made by us, KMP and its general partner:

 

·      neither KMP nor any of its operating partnerships has elected or will elect to be treated as a corporation for U.S. federal income tax purposes;

 

·      for each taxable year, more than 90% of KMP’s gross income has been and will be income that Bracewell & Giuliani LLP has opined or will opine is “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code; and

 

·      each hedging transaction that KMP treats as resulting in qualifying income has been and will be appropriately identified as a hedging transaction pursuant to applicable Treasury Regulations, and has been and will be associated with oil, gas or products thereof that are held or will be held by KMP in activities that Bracewell & Giuliani LLP has opined or will opine result in qualifying income.

 

If KMP fails to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, in which case the IRS may require KMP to make adjustments with respect to its unitholders or pay other amounts, KMP will be treated as if it had transferred

 

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The consolidated financial statements of Citrus Corp. and Subsidiaries as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 included in El Paso Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated by reference herein, and the consolidated financial statements of El Paso Corporation, to the extent they relate to Citrus Corp. and Subsidiaries, are so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

Information incorporated by reference in this prospectus regarding the estimated reserves attributable to certain of El Paso Corporation’s natural gas and oil properties were prepared by El Paso and audited by Ryder Scott Company, L.P., independent petroleum engineers, as stated in their report with respect thereto and is incorporated herein upon the authority of such firm as experts in petroleum engineering.

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus and the documents incorporated in this prospectus by reference include, and each accompanying prospectus supplement may include, forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict.  Specific factors which could cause actual results to differ from those in the forward-looking statements include:

 

·                  KMI’s ability to complete the acquisition of El Paso;

 

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

 

·                  the ability to complete the disposition of El Paso’s oil and gas properties and operations on a timely or satisfactory basis;

 

·                  KMI’s ability to successfully integrate El Paso’s operations and to realize synergies from the acquisition;

 

·                  price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, electricity, coal, steel and other bulk materials and chemicals in North America;

 

·                  economic activity, weather, alternative energy sources, conservation and technological advances that may affect price trends and demand;

 

·                  changes in tariff rates charged by KMP’s pipeline subsidiaries implemented by the Federal Energy Regulatory Commission, California Public Utilities Commission, Canada’s National Energy Board or another regulatory agency;

 

·                  KMP’s ability to acquire new businesses and assets and integrate those operations into its existing operations, as well as its ability to expand its facilities;

 

·                  difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from KMP’s terminals or pipelines;

 

·                  KMP’s ability to successfully identify and close acquisitions and make cost-saving changes in operations;

 

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·                  shut-downs or cutbacks at major refineries, petrochemical or chemical plants, ports, utilities, military bases or other businesses that use KMP’s services or provide services or products to KMP;

 

·                  changes in tax law, particularly as it relates to partnerships or other “pass-through” entities;

 

·                  changes in crude oil and natural gas production from exploration and production areas that KMP serves, such as the Permian Basin area of West Texas, the U.S. Rocky Mountains, areas of shale gas formation and the Alberta oil sands;

 

·                  changes in laws or regulations, third-party relations and approvals, and decisions of courts, regulators and governmental bodies that may adversely affect KMP’s business or its ability to compete;

 

·                  changes in accounting pronouncements that impact the measurement of KMP’s results of operations, the timing of when such measurements are to be made and recorded, and the disclosures surrounding these activities;

 

·                  our ability to offer and sell equity securities, and KMP’s ability to offer and sell equity securities and its ability to sell debt securities or obtain debt financing in sufficient amounts to implement that portion of KMP’s business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of its facilities;

 

·                  KMP’s indebtedness, which could make it vulnerable to general adverse economic and industry conditions, limit its ability to borrow additional funds and/or place it at competitive disadvantages compared to its competitors that have less debt or have other adverse consequences;

 

·                  interruptions of electric power supply to KMP’s facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

 

·                  KMP’s ability to obtain insurance coverage without significant levels of self-retention of risk;

 

·                  acts of nature, sabotage, terrorism or other similar acts or accidents causing damage greater than KMP’s insurance coverage limits;

 

·                  capital and credit markets conditions, inflation and interest rates;

 

·                  the political and economic stability of the oil producing nations of the world;

 

·                  national, international, regional and local economic, competitive and regulatory conditions and developments;

 

·                  KMP’s ability to achieve cost savings and revenue growth;

 

·                  foreign exchange fluctuations;

 

·                  the timing and extent of changes in commodity prices for oil, natural gas, electricity and certain agricultural products;

 

·                  the extent of KMP’s success in discovering, developing and producing oil and gas reserves, including the risks inherent in exploration and development drilling, well completion and other development activities;

 

·                  engineering and mechanical or technological difficulties that we may experience with operational equipment, in well completions and workovers, and in drilling new wells;

 

·                  the uncertainty inherent in estimating future oil and natural gas production or reserves that KMP may experience;

 

·                  the ability to complete expansion projects on time and on budget;

 

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·                  the timing and success of KMP’s business development efforts; and

 

·                  unfavorable results of litigation and the fruition of contingencies referred to in the notes to KMP’s consolidated financial statements contained in the reports incorporated by reference into this prospectus.

 

Forward-looking statements are based on our expectations and beliefs concerning future events affecting us, KMP and KMI and are subject to uncertainties and factors related to our, KMP’s and KMI’s respective operations and business environment, all of which are difficult to predict and many of which are beyond our control. The foregoing list should not be construed to be exhaustive. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether these expectations will prove correct. Any or all of the forward-looking statements in this prospectus and any accompanying prospectus supplement may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many factors mentioned in this prospectus or any accompany prospectus supplement, including the risks outlined under the caption “Risk Factors” contained in our, KMP’s and KMI’s respective Exchange Act reports incorporated by reference, will be important in determining future results. Actual future results may vary materially. There is no assurance that the actions, events or results of the forward-looking statements will occur, or, if any of them do, when they will occur or what effect they will have on our, KMP’s or KMI’s respective results of operations or financial condition. In view of these uncertainties, we caution that investors should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

 

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Kinder Morgan Management, LLC, Kinder Morgan Energy Partners, L.P., the KM General Partner and Kinder Morgan, Inc.

 

Kinder Morgan Management, LLC, Kinder Morgan Energy Partners, L.P., the KM General Partner and Kinder Morgan, Inc. maintain liability insurance policies covering their officers and directors against some liabilities, including certain liabilities under the Securities Act, that may be incurred by them.

 

ITEM 16.  Exhibits.

 

Reference is made to the Exhibit Index following the signature page hereto, which Exhibit Index is hereby incorporated into this item.

 

ITEM 17.  Undertakings.

 

(a)                                  The undersigned registrant hereby undertakes:

 

(1)                                  To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)                                     to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

(ii)                                  to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii)                               to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement;

 

(2)                                  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;

 

(3)                                  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

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(4)                                  That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i)                                     each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

(ii)                                  each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),(vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be a part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus.  As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

(5)                                  That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)                                     any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)                                  any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii)                               the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv)                              any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(b)                                 The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(c)                                  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for

 

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