As filed with the Securities Exchange Commission on June 10, 1997
Registration No. 333-25997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KINDER MORGAN ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0380342
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
(713) 844-9500
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
Thomas B. King
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
(713) 844-9500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy to:
George E. Rider, Esq.
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please 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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box.
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CALCULATION OF REGISTRATION FEE
===============================================================================
Proposed Proposed
Titles of maximum maximum
securities to Amount to offering price aggregate Amount of
be registered be registered per unit offering price Registration Fee
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Common Units 3,000,000 $46.19 $138,570,000 $41,990.91(2)
===============================================================================
(1) Pursuant to Rule 457(c) under the Securities Act, the offering price is
estimated, solely for the purpose of determining the registration fee, using the
average of the high and low prices reported on the New York Stock Exchange
Composite Transactions tape on April 22, 1997.
(2) Previously paid.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 10, 1997
3,000,000 COMMON UNITS
Representing Limited Partner Interests
KINDER MORGAN ENERGY PARTNERS, L.P.
Kinder Morgan Energy Partners, L.P. (the "Partnership") may offer from time
to time up to an aggregate of 3,000,000 Common Units (the "Common Units")
representing limited partner interests in the Partnership at prices and on terms
to be determined at the time of each offering hereunder and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). The Common Units may
be offered directly, through agents, to or through underwriters or dealers,
which may include affiliates of the Partnership, or through any combination of
the foregoing. If any agents, dealers or underwriters are involved in the sale
of any of the Common Units, their names, and any applicable fee, commission,
purchase prices or discount arrangements with them, will be set forth, or will
be calculable from the information set forth, in the applicable Prospectus
Supplement. The net proceeds to the Partnership from such sale will also be set
forth in the Prospectus Supplement. If so specified in the Prospectus
Supplement, Common Units may be issued in whole or in part in the form of one or
more temporary or permanent global securities. See "Plan of Distribution."
The Common Units are traded on the NYSE under the symbol "ENP." On June
6, 1997, the last reported sales price for the Common Units as reported on the
New York Stock Exchange Composite Transactions tape was $46 1/2 per Common Unit.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF THE MATERIAL
RISKS RELEVANT TO AN INVESTMENT IN THE COMMON UNITS OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The Date of this Prospectus is _________________, 1997
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AVAILABLE INFORMATION
The Partnership has filed with the Securities and Exchange Commission (the
"SEC") in Washington, D.C., a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered by this Prospectus.
Certain of the information contained in the Registration Statement is omitted
from this Prospectus, and reference is hereby made to the Registration Statement
and exhibits and schedules relating thereto for further information with respect
to the Partnership and the securities offered by this Prospectus. The
Partnership is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the SEC. Such reports and
other information are available for inspection and copying at the SEC's public
reference facilities located at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the SEC located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and at Seven World Trade Center, Suite 1300, New York, New York 10048, and
copies of such materials may be obtained from the SEC's Public Reference Section
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Common Units are traded on the NYSE, and such reports
and other information may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10002. The SEC maintains an Internet Web Site that
contains reports, information statements and other information regarding
registrants that file electronically with the SEC. The address of such Internet
Web Site is http://www.sec.gov.
The Partnership will furnish to record holders of Common Units within 120
days after the close of each calendar year, an annual report containing audited
financial statements and a report thereon by its independent public accountants.
The Partnership will also furnish each Unitholder with tax information within 90
days after the close of each taxable year of the Partnership.
IN CONNECTION WITH THIS OFFERING, UNDERWRITERS, BROKERS OR DEALERS
PARTICIPATING IN THE OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON UNITS AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INCORPORATION OF CERTAIN DOCUMENTS
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10- K"), the Partnership's Quarterly Report on Form
10-Q for the three months ended March 31, 1997, and the Partnership's Current
Reports on Form 8-K dated April 2, 1997 and April 17, 1997 are hereby
incorporated herein by reference.
The description of the Common Units which is contained in the Partnership's
registration statement on Form S-1 (File No. 33-48142) under the Exchange Act
filed on June 1, 1992, including any amendment or reports filed for the purpose
of updating such description, is incorporated herein by reference.
All documents filed by the Partnership pursuant to Section 13(e), 13(c), 14
or 15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the Registration Statement of which this Prospectus is a part
with respect to registration of the Common Units, shall be deemed to be
incorporated by reference in this Prospectus and be a part hereof from the date
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference in this Prospectus shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference, modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Partnership undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of any such person, a copy of any or all
of the documents incorporated by reference herein, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Written or oral requests for
such copies should be directed to: Kinder Morgan Energy Partners, L.P., 1301
McKinney Street, Suite 3450, Houston, Texas 77010, Attention: Carol Haskins,
telephone (713) 844- 9500.
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RISK FACTORS
An investment in the Common Units offered hereby is speculative and
involves a degree of risk. Prior to making an investment decision, prospective
investors should carefully consider each of the following risk factors, together
with other information set forth elsewhere in the Prospectus or incorporated
herein by reference.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
Cash Distributions Will Fluctuate with Partnership Performance
Although Kinder Morgan, G.P., Inc., the general partner of the Partnership
(the "General Partner"), will distribute 100% of the Partnership's Available
Cash, as defined in the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), there can be no assurance regarding
the amounts of Available Cash to be generated by the Partnership. The actual
amounts of Available Cash will depend upon numerous factors, many of which are
beyond the control of the Partnership. In addition, the Partnership Agreement
gives the General Partner broad latitude in establishing reserves that impact
the amount of Available Cash, because the General Partner may in its reasonable
discretion determine amounts that can be set aside as reserves for the proper
conduct of the business. As a result of these matters there can be no assurance
regarding the actual levels of cash distributions by the Partnership.
No Guaranteed Minimum Quarterly Distribution After September 30, 1997
From the formation of the Partnership until September 30, 1997, Enron Corp.
("Enron") agreed to purchase additional partnership interests ("APIs") if
necessary to fund a minimum quarterly distribution of $.55 per Common Unit (the
"Minimum Quarterly Distribution"). As of April 15, 1997, no APIs have been
purchased. After September 30, 1997, Enron's obligation to purchase APIs
terminates. Subsequent to this termination, the Partnership's quarterly
distribution will be based solely on the amount of Available Cash.
Partnership's Assets Pledged to Secure Debt
The Partnership has substantial indebtedness and, as a result, significant
debt service obligations. As of March 31, 1997, the Partnership had
approximately $162 million of indebtedness. The Partnership may in the future
incur additional indebtedness in order to finance acquisitions or for general
business purposes. The Partnership has granted liens on substantially all of its
properties to secure its existing indebtedness. If an event of default occurs,
the lenders will have the right to foreclose upon such collateral.
Instruments Governing Indebtedness Contain Restrictive Covenants
The Partnership may be prevented by the instruments governing its
indebtedness from engaging in certain transactions which might otherwise be
considered beneficial to the Partnership, and such provisions may limit or
prohibit distributions to Unitholders under certain circumstances. The
agreements governing such indebtedness generally require the Partnership to
comply with various affirmative and negative covenants, including without
limitation, the maintenance of certain financial ratios and restrictions on (i)
the incurrence of additional indebtedness; (ii) entering into mergers,
consolidations and sales of assets; (iii) making investments; and (iv) granting
liens. In addition, the agreements governing the Partnership's indebtedness
generally prohibit the Partnership from making cash distributions to Unitholders
more frequently than quarterly, from distributing amounts in excess of 100% of
available cash for the immediately preceding calendar quarter and from making
any distribution to Unitholders if an event of default exists or would exist
upon making such distribution. Any additional indebtedness, and any indebtedness
incurred to refinance existing indebtedness, may contain similar restrictions.
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The Partnership's $110 million First Mortgage Notes due June 30, 2007
permit the Partnership to prepay such indebtedness only upon payment of a
make-whole premium.
Lender Consent Required to Issue Additional Common Units
The parent of the General Partner has entered into a credit facility which
requires the consent of the lender prior to the issuance of additional Common
Units by the Partnership. The Partnership intends to obtain the consent of such
lender prior to any sale of the Common Units hereunder.
Risks Associated with Purchase Option on Cypress Pipeline
Until 2011, the current shipper of natural gas liquids ("NGLs") on the
Partnership's Cypress Pipeline (which extends from Mont Belvieu, Texas to Lake
Charles, Louisiana) has the right to purchase up to a 50% joint venture interest
in such pipeline at a price based on the construction cost of the pipeline, plus
adjustments for expansion and other items. The exercise price of this option
generally declines throughout the option term. If the option is exercised, the
stipulated purchase price paid by the shipper could be significantly less than
the Partnership's initial investment in the Cypress Pipeline, and could be less
than the Partnership's book value in the proportionate interest in the Cypress
Pipeline to be purchased by the shipper. Further, if the option is exercised,
the Partnership will continue as the operator of the Cypress Pipeline, although
the Partnership and the shipper will be required to negotiate and enter into a
joint operating agreement that will specify the terms and conditions of
operation of the Cypress Pipeline. Exercise of the option might have a material
adverse effect on the Partnership's results of operations or cash flows, thereby
limiting the Partnership's ability to make distributions to holders of Common
Units.
The Partnership's Profitability and Distributions to Unitholders Will
Depend Upon Transportation and Other Volumes
The Partnership's profitability and its ability to make distributions to
Unitholders will depend to a large extent upon (i) volumes of NGLs, refined
petroleum products and carbon dioxide ("CO2") that the Partnership's pipelines
(the "Liquids Pipelines") transport, (ii) the volume of coal transloaded and
stored by the Partnership's coal transfer and storage facility (the "Cora
Terminal") and (iii) volumes of NGLs for fractionation. Transportation volumes
for NGLs and related products are affected primarily by the market demand for
products in the geographic regions served by the Liquids Pipelines. Volumes for
the Cora Terminal depend on the demand for western coal, economic rail
transportation from sources of supply and economic barge transportation to
delivery points. Because the demand for such products is subject to numerous
factors outside the Partnership's control, no assurance can be given regarding
future volumes. The Partnership cannot predict the impact of future economic
conditions, fuel conservation measures, alternate fuel requirements,
governmental regulation or technological advances in fuel economy and energy
generation devices, all of which could affect the demand for the transportation
of NGLs and other products in the Liquids Pipelines and the handling and storage
of coal. Diminished volumes would decrease the Partnership's profits and,
consequently, the amount of cash available for distribution to holders of Common
Units.
No Assurance that Tariff Rates Can Be Maintained or Increased
Revenues from interstate common carrier transportation on the Liquids
Pipelines are determined in accordance with tariffs filed with the Federal
Energy Regulatory Commission ("FERC"). The tariffs are subject to rate
regulation by FERC under an "indexing rate" methodology effective January 1,
1995. If the Partnership's tariffs were challenged successfully, the Partnership
might ultimately be required to make refunds or reparations to its customers. If
the Partnership were required to make such refunds, the amount of cash available
for distribution to holders of Common Units would be adversely affected. In
addition, competitive conditions could in the future affect the tariffs charged
by the Partnership.
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Profitability is Dependent on Certain Major Customers
Major end-users of NGLs transported by the Liquids Pipelines include
refinery facilities in the Chicago area and a world-scale petrochemical plant
near Lake Charles, Louisiana. A disruption of operations at any of such
facilities could adversely affect the Partnership's revenues by reducing the
volumes of NGLs transported through the Liquids Pipelines. In addition, four
major customers ship approximately 80% of all coal loaded through the Cora
Terminal. The Partnership has business interruption insurance to protect itself
against losses from reduced volumes of products transported as a result of
disrupted operations of the Partnership's assets or of a supplier or end-user
because of physical loss or damage. However, there can be no assurance that
business interruption insurance will be adequate to cover losses that might
result from disruptions of operations. Should the Partnership lose any of its
major customers, the Partnership's profitability could be adversely impacted
along with its ability to make distributions to holders of Common Units.
Costs of Environmental Regulation
The Partnership's business and operations are subject to federal and state
laws and regulations relating to environmental practices. In particular, the
Partnership could incur significant costs and liabilities in the event of an
accidental leak or spill in connection with NGL fractionation, liquids
transportation or coal handling and storage. Moreover, it is possible that other
developments, such as increasingly strict environmental laws and regulations,
could result in increased costs and liabilities to the Partnership. The
Partnership cannot predict the ultimate impact of the EPA standards or the
impact of future environmental measures. The costs of environmental regulation
may be significant. There is a possibility that additional regulation could
negatively affect the level of cash available for distribution to holders of
Common Units.
Competition from Alternative Energy Sources and Feedstocks
Propane competes with electricity, fuel oil and natural gas in the
residential and commercial heating market. In the engine fuel market, propane
competes with gasoline and diesel fuel. Butanes and natural gasoline used in
motor gasoline blending and isobutane used in alkylation compete with
alternative products. NGLs used as feedstocks for refineries and petrochemical
plants compete with alternative feedstocks. As a result, NGL demand is
significantly impacted by the availability and prices of alternative energy
sources and feedstocks. Such competition could ultimately result in lower levels
of Partnership profits and lower cash distributions to holders of Common Units.
Demand for Transportation of NGLs and Handling of Coal is Affected by
Weather Conditions
Because residential and commercial customers use propane primarily as a
heating fuel, demand for propane fluctuates significantly with seasonal and
annual variations in weather patterns. Propane is also used as a fuel for crop
drying, and propane demand can vary depending upon weather conditions in
agricultural markets. The demand for coal handled by Cora Terminal is affected
by weather conditions in the areas served by customers of the Cora Terminal as
well as other factors. The ultimate impact of these cyclical weather conditions
is to increase or decrease the amount of cash available for distribution to the
Unitholders.
Demand for Transportation of NGLs and Handling of Coal is Affected by
Economic Conditions
The volumes of NGLs transported for use as petrochemical feedstocks or as
fuel for industrial or other facilities are affected by the general level of
economic activity in the Partnership's market areas as well as national and
world economic conditions. The demand for coal handled by Cora Terminal is
affected by the demand for electricity which is affected by the levels of
economic and industrial activity in the areas served by customers of the Cora
Terminal as well as other factors. The ultimate impact of these cyclical global
economic fluctuations is to increase or decrease the amount of cash available
for distribution to the Unitholders.
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Impact of Conservation and Technological Advances
Increased conservation and technological advances, including installation
of improved insulation, the development of more efficient furnaces and other
heating devices, and government-imposed fuel economy standards, have slowed the
growth in demand for propane, normal butane and natural gasoline. The
Partnership cannot predict the ultimate impact of future conservation and
technological advances on the Partnership's operations.
Limited Ability to Remove General Partner
Holders of Common Units have no right to elect the General Partner on an
annual or other continuing basis. The General Partner may not be removed unless
such removal is approved by the vote of the holders of not less than 66-2/3% of
the outstanding Common Units, excluding Common Units owned by the General
Partner and its affiliates, provided that certain other conditions are
satisfied. Any such removal is subject to the limited partners approving the
successor general partner by the same vote required for removing the General
Partner and receipt of an opinion of counsel that such removal and the approval
of a successor will not result in the loss of the limited liability of any
limited partner or cause the Partnership to be treated as an association taxable
as a corporation or otherwise taxed as an entity for federal income tax
purposes. These provisions mean that holders of Common Units only have a limited
say in matters affecting the operation of the Partnership and, if such holders
are in disagreement with the decisions of the General Partner, they may remove
the General Partner only as provided in the Partnership Agreement.
The General Partner's Liability to the Partnership and the Holders of
Common Units May be Limited
Certain provisions of the Partnership Agreement contain exculpatory
language purporting to limit the liability of the General Partner to the
Partnership or the Unitholders. For example, the Partnership Agreement provides
that:
(i) borrowings by the Partnership or the approval thereof by the
General Partner shall not constitute a breach of any duty of the General
Partner to the Partnership or the Unitholders whether or not the purpose or
effect thereof is to permit distributions on the Common Units (thereby
avoiding purchases of APIs) or to increase incentive distributions to the
General Partner;
(ii) any actions taken by the General Partner consistent with the
standards of reasonable discretion set forth in the definitions of
Available Cash and Cash from Operations contained in the Partnership
Agreement will be deemed not to breach any duty of the General Partner to
the Partnership or the Unitholders; and
(iii) in the absence of bad faith by the General Partner, the
resolution of conflicts of interest by the General Partner will not
constitute a breach of the Partnership Agreement or a breach of any
standard of care or duty.
The Partnership Agreement Limits the Liability and Modifies the Fiduciary
Duties of the General Partner Under Delaware Law
Provisions of the Partnership Agreement purport to limit the liability of
the General Partner to the Partnership and the Unitholders. Such provisions also
purport to modify the fiduciary duty standards to which the General Partner
would otherwise be subject under Delaware law, under which a general partner
owes its limited partners the highest duties of good faith, fairness and
loyalty. Such duty of loyalty would generally prohibit a general partner of a
Delaware limited partnership from taking any action or engaging in any
transaction as to which it has a conflict of interest. The Partnership Agreement
permits the General Partner to exercise the discretion and authority granted to
it thereunder in the management of the Partnership and the conduct of its
operations, so long as its actions are in, or not inconsistent with, the best
interests of the Partnership. Such modifications of state law standards of
fiduciary duty may significantly limit a Unitholder's
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ability to successfully challenge the actions of the General Partner as being a
breach of what would otherwise have been a fiduciary duty.
Potential Liability of the Unitholders to Repay Distributions
Holders of Common Units will not be liable for assessments in addition to
their initial capital investment in the Common Units. Under certain
circumstances, however, holders of Common Units may be required to repay to the
Partnership amounts wrongfully returned or distributed to them. Under the
Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"), a limited
partnership may not make a distribution to a partner to the extent that at the
time of the distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to partners on account of
their partnership interests and nonrecourse liabilities, exceed the fair value
of the assets of the limited partnership. The Delaware Act provides that a
limited partner who receives such a distribution and knew at the time of the
distribution that the distribution was in violation of the Delaware Act will be
liable to the limited partnership for the amount of the distribution for three
years from the date of the distribution. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for the
obligations of his assignor to make contributions to the partnership, except the
assignee is not obligated for liabilities unknown to him at the time he became a
limited partner and which could not be ascertained from the Partnership
Agreement.
The Partnership May Exercise its Limited Call Right
In the event at any time not more than 20% of the issued and outstanding
limited partners' interests of any class are held by persons other than the
General Partner and its affiliates, the General Partner will have the right,
assignable to any of its affiliates or to the Partnership, to purchase all, but
not less than all, of the remaining limited partner interests of such class held
by such unaffiliated persons, for a price equal to the most recent 20-day
average trading price, or the highest purchase price paid by the General Partner
or its affiliates to acquire limited partner interests of such class during the
prior 90 days, whichever is higher. As a consequence, a holder of such limited
partner interests may have his interest purchased even though he may not desire
to sell it, or the price paid may be less than the amount the holder would
desire to receive upon sale of his limited partner interests.
The Partnership May Sell Additional Limited Partner Interests, Diluting
Existing Unitholders' Interests
The Partnership Agreement authorizes the General Partner to cause the
Partnership to issue additional limited partner interests and other equity
securities of the Partnership for such consideration and on such terms and
conditions as shall be established by the General Partner. Prior to September
30, 1997, the Partnership may not issue (i) an aggregate of more than 3,000,000
additional Common Units or an equivalent amount of other limited partner
interests having rights to distributions or in liquidation ranking on a parity
with the Common Units or (ii) any other limited or general partner interests
(other than APIs) having rights to distributions or in liquidation ranking
senior to the Common Units, in either case without the approval of the holders
of at least a majority of the outstanding Common Units (excluding Common Units
held by the General Partner and its affiliates). After September 30, 1997, there
is no restriction under the Partnership Agreement on the ability of the
Partnership to issue additional limited or general partner interests.
Any issuance of additional Common Units or other equity securities of the
Partnership would result in a corresponding decrease in the proportionate
ownership interest in the Partnership represented by Common Units then
outstanding, and such issuance could therefore adversely affect the amount of
cash distributed with respect to, and the market price of, Common Units
outstanding prior to such issuance. Such additional issuances will also diminish
the relative voting strength of the previously outstanding Common Units. The
General Partner and its affiliates have certain preemptive rights to acquire
additional limited partner interests if the Partnership issues additional
limited partner interests.
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Effects of Anti-takeover Provisions
The Partnership Agreement provides that any person or group other than the
General Partner and its affiliates that acquires beneficial ownership of 20% or
more of the Common Units will lose its voting rights with respect to all of its
Common Units. This provision is intended to discourage a person or group from
attempting to remove Kinder Morgan G.P., Inc. as General Partner or otherwise
change management of the Partnership and may diminish the price at which the
Common Units will trade under certain circumstances. For example, the provision
may make it unlikely that a third party, in an effort to remove the General
Partner and take over the management of the Partnership, would make a tender
offer for the Common Units at a price above their trading market price.
THE GENERAL PARTNER AND ITS AFFILIATES MAY HAVE CONFLICTS OF INTEREST WITH THE
PARTNERSHIP AND THE HOLDERS OF THE COMMON UNITS
Certain conflicts of interest could arise among the General Partner, KMI
and the Partnership. Such conflicts may include, among others, the following
situations:
(i) The Partnership does not have any employees and relies solely on
employees of the General Partner and its affiliates, including KMI.
(ii) Under the terms of the Partnership Agreement, the Partnership
reimburses the General Partner for costs incurred in managing and operating
the Partnership.
(iii) The amount of cash expenditures, borrowings and reserves in any
quarter may affect whether or the extent to which there is sufficient
Available Cash constituting Cash from Operations to pay quarterly
distributions on the Common Units in such quarter or subsequent quarters.
Management intends to increase the quarterly distribution from $.63 per
Common Unit to $.80 per Common Unit in the second quarter of 1997, however,
the ability to meet such increase depends upon the operations of the
Partnership and various factors which cannot be guaranteed.
(iv) Whenever possible, the General Partner intends to limit the
liability under contractual arrangements of the Partnership to all or
particular assets of the Partnership, with the other party to the contract
having no recourse against the General Partner or its assets. The
Partnership Agreement provides that any action by the General Partner in so
limiting its liability or that of the Partnership will not be deemed to be
a breach of its fiduciary duty, even if the Partnership could have obtained
more favorable terms without such limitation on liability.
(v) Under the terms of the Partnership Agreement, the General Partner
is not restricted from paying its affiliates for any services rendered on
terms fair and reasonable to the Partnership or entering into additional
contractual arrangements with any of the affiliates of the General Partner
on behalf of the Partnership. Neither the Partnership Agreement nor any of
the other agreements, contracts and arrangements between the Partnership,
on the one hand, and the General Partner and its affiliates, on the other
hand, are or will be the result of arm's-length negotiations.
(vi) The Partnership Agreement provides that it will not constitute a
breach of the General Partner's fiduciary duty if the General Partner
exercises its right to call for and purchase limited partner interests as
provided in the Partnership Agreement or assigns this right to one of its
affiliates or to the Partnership.
TAX CONSIDERATIONS
Risk of Partnership Being Classified as a Corporation for Federal Income
Tax Purposes
Pursuant to IRS Final Regulations 301.7701-1, 301.7702-1 and 301.7701-3,
effective January 1, 1997 (the "Check-the-Box Regulations"), an entity in
existence on January 1, 1997, will generally retain its current
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classification for federal income tax purposes. As of January 1, 1997, the
Partnership was classified and taxed as a partnership. Pursuant to the
Check-the-Box Regulations this prior classification will be respected for all
periods prior to January 1, 1997, if (1) the entity had a reasonable basis for
the claimed classification; (2) the entity recognized federal tax consequences
of any change in classification within five years prior to January 1, 1997; and
(3) the entity was not notified prior to May 8, 1996, that the entity
classification was under examination. Based on these regulations and certain
representations by the General Partner, Morrison & Hecker L.L.P., counsel to
KMI, the General Partner and the Partnership, is of the opinion that, under
current law, the Partnership will be classified and taxed as a partnership for
federal income tax purposes. However, no ruling from the Internal Revenue
Service (the "IRS") as to such status has been or will be requested, and the
opinion of counsel is not binding on the IRS.
In rendering its opinion, counsel has relied on certain factual
representations and covenants made by the General Partner including:
(a) The Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the Partnership Agreement and (iii)
this Prospectus;
(b) Except as otherwise required by section 704 of the Code and
regulations promulgated thereunder, the General Partner will have an
interest in each material item of income, gain, loss, deduction or credit
of the Partnership and the Operating Partnerships equal to at least 1% at
all times during the existence of the Partnership and the Operating
Partnerships.
(c) The General Partner will maintain a minimum capital account balance
in the Partnership and in the Operating Partnerships equal to 1% of the
total positive capital account balances of the Partnership and the
Operating Partnerships.
(d) For each taxable year, less than 10% of the gross income of the
Partnership and of the Operating Partnerships will be derived from sources
other than (i) the exploration, development, production, processing,
refining, transportation or marketing of any mineral or natural resource,
including oil, gas or products thereof and naturally occurring carbon
dioxide or (ii) other items of "qualifying income" within the meaning of
Section 7704(d) of the Code.
Section 7704 of the Code provides that publicly-traded partnerships will,
as a general rule, be taxed as corporations. However, an exception (the "Natural
Resource Exception") exists with respect to publicly-traded partnerships 90% or
more of the gross income of which 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 or marketing of any mineral or natural resource including oil,
natural gas or products thereof. Other types of "qualifying income" include
interest, 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." The General Partner has
represented that in excess of 90% of the Partnership's gross income will be
derived from fees and charges for transporting (through the Liquids Pipelines)
NGLs, CO2 and other hydrocarbons, fees from loading coal, dividends from KMNGL
and interest. Based upon that representation, Counsel is of the opinion that the
Partnership's gross income derived from these sources will constitute
"qualifying income."
If the Partnership fails to meet the Natural Resource Exception (other than
a failure determined by the IRS to be inadvertent which is cured within a
reasonable time after discovery), the Partnership will be treated as if it had
transferred all of its assets (subject to liabilities) to a newly-formed
corporation (on the first day of the year in which it fails to meet the Natural
Resource Exception) in return for stock in such corporation, and then
distributed such stock to the partners in liquidation of their interest in the
Partnership. This contribution and liquidation should be tax-free to Unitholders
and the Partnership, so long as the Partnership, at such time, does not have
liabilities in excess of the basis of its assets. Thereafter, the Partnership
would be treated as a corporation.
9
<PAGE>
If the Partnership were treated as an association or otherwise taxable as a
corporation in any taxable year, as a result of a failure to meet the Natural
Resource Exception or otherwise, its items of income, gain, loss, deduction and
credit would be reflected only on its tax return rather than being passed
through to the Unitholders, and its net income would be taxed at the entity
level at corporate rates. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income (to the extent of the
Partnership's current or accumulated earnings and profits), in the absence of
earnings and profits as a nontaxable return of capital (to the extent of the
Unitholder's basis in his Common Units) or taxable capital gain (after the
Unitholder's basis in the Common Units is reduced to zero). Accordingly,
treatment of either the Partnership or the Operating Partnerships as an
association taxable as a corporation would result in a material reduction in a
Unitholder's cash flow and after-tax return.
There can be no assurance that the law will not be changed so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level
taxation. The Partnership Agreement provides that, if a law is enacted that
subjects the Partnership to taxation as a corporation or otherwise subjects the
Partnership to entity-level taxation for federal income tax purposes, certain
provisions of the Partnership Agreement relating to the General Partner's
incentive distributions will be subject to change.
Uncertainty Regarding Certain Allocations
The Partnership Agreement contains certain allocations of profits and
losses the validity of which under current law are uncertain and with respect to
which counsel is unable to opine. The Partnership believes that these
allocations are consistent with industry practice of publicly traded limited
partnerships and are intended to achieve uniformity of the Common Units such
that each Common Unit has the same intrinsic economic and federal income tax
characteristics in all material respects. The IRS may challenge such allocation
methods and if such a challenge were to be sustained, the uniformity of the
Common Units might be affected.
Limitations on Deductibility of Losses
Under the passive loss limitations, losses generated by the Partnership, if
any, will only be available to offset future income generated by the Partnership
and cannot be used to offset income from other activities, including passive
activities or investments. Unused losses may be deducted when the Unitholder
disposes of all of his Common Units in a fully taxable transaction with an
unrelated party. Net passive income from the Partnership may be offset by a
Unitholder's unused Partnership losses carried over from prior years, but not by
losses from other passive activities, including losses from other
publicly-traded partnerships.
Potential Tax Liability May Exceed Cash Distributions or Proceeds from
Dispositions of Common Units
A Unitholder will be required to pay federal income tax and, in certain
cases, state and local income taxes on his allocable share of the Partnership's
income, whether or not he receives cash distributions from the Partnership. No
assurance can be given that a Unitholder will receive cash distributions equal
to his allocable share of taxable income from the Partnership. Further, a
Unitholder may incur tax liability in excess of the amount of cash received.
Risks Associated with Ownership of Common Units by Tax-Exempt
Organizations and Certain Other Investors
Investment in Common Units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to such persons
and, as described below, may have substantially adverse tax consequences.
10
<PAGE>
Employee benefit plans and most other organizations exempt from federal
income tax (including individual retirement accounts and other retirement plans)
are subject to federal income tax on unrelated business taxable income. All of
the taxable income derived by such an organization from the ownership of a Unit
will be unrelated business taxable income and thus will be taxable to such a
Unitholder at corporate tax rates.
Regulated investment companies are required to derive 90% or more of their
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. It is not anticipated
that any significant amount of the Partnership's gross income will qualify as
such income.
Non-resident aliens and foreign corporations, trusts or estates which
acquire Units will be considered to be engaged in business in the United States
on account of ownership of Units and as a consequence will be required to file
federal tax returns in respect of their distributive shares of Partnership
income, gain, loss, deduction or credit and pay federal income tax at regular
rates on such income. Generally, a partnership is required to pay a withholding
tax on the portion of the partnership's income which is effectively connected
with the conduct of a United States trade or business and which is allocable to
the foreign partners, regardless of whether any actual distributions have been
made to such partners. However, under procedural guidelines applicable to
publicly-traded partnerships, the Partnership (or a broker holding Common Units
in street name) has elected instead to withhold at the rate of 39.6% on actual
cash distributions made quarterly to foreign Unitholders. Each foreign
Unitholder must obtain a taxpayer identification number from the IRS and submit
that number to the transfer agent of the Partnership on a Form W-8 in order to
obtain credit for the taxes withheld. Subsequent adoption of Treasury
Regulations or the issuance of other administrative pronouncements may require
the Partnership to change these procedures.
Because a foreign corporation which owns Units will be treated as engaged
in a United States trade or business, such a Unitholder may be subject to United
States branch profits tax at a rate of 30%, in addition to regular federal
income tax, on its allocable share of the Partnership's earnings and profits (as
adjusted for changes in the foreign corporation's "U.S. net equity") which are
effectively connected with the conduct of a United States trade or business.
Such a tax may be reduced or eliminated by an income tax treaty between the
United States and the country with respect to which the foreign corporate
Unitholder is a "qualified resident."
Assuming that the Units are regularly traded on an established securities
market, a foreign Unitholder who sells or otherwise disposes of a Unit and who
has not held more than 5% in value of the Units at any time during the five-year
period ending on the date of the disposition will not be subject to federal
income tax on gain realized on the disposition that is attributable to real
property held by the Partnership, but (regardless of a foreign Unitholder's
percentage interest in the Partnership or whether Units are regularly traded)
such Unitholder may be subject to federal income tax on any gain realized on the
disposition that is treated as effectively connected with a United States trade
or business of the foreign Unitholder. A foreign Unitholder will be subject to
federal income tax on gain attributable to real property held by the Partnership
if the holder held more than 5% in value of the Units during the five-year
period ending on the date of the disposition or if the Units were not regularly
traded on an established securities market at the time of the disposition.
Potential IRS Audit
No assurance can be given that the Partnership will not be audited by the
IRS or that tax adjustments will not be made. The rights of a Unitholder owning
less than a 1% profit interest in the Partnership to participate in the income
tax audit process have been substantially reduced. Further, any adjustments in
the Partnership's returns will lead to adjustments in the Unitholders' returns
and may lead to audits of the Unitholders' returns and adjustments of items
unrelated to the Partnership. Each Unitholder would bear the cost of any
expenses incurred in connection with an examination of such Unitholder's
personal tax return.
11
<PAGE>
THE PARTNERSHIP
Kinder Morgan Energy Partners, L.P. (the "Partnership", formerly Enron
Liquids Pipeline, L.P.), was formed as a Delaware limited partnership in August
1992. Effective February 14, 1997, Kinder Morgan, Inc. ("KMI") acquired all of
the issued and outstanding stock of Enron Liquids Pipeline Company, the general
partner, from Enron Liquids Holding Corp. ("ELHC"). At the time of the
acquisition, the general partner and the Partnership's subsidiaries were renamed
as follows: Kinder Morgan G.P., Inc. (the "General Partner", formerly Enron
Liquids Pipeline Company); Kinder Morgan Operating L.P. "A" ("OLP-A", formerly
Enron Liquids Pipeline Operating Limited Partnership); Kinder Morgan Operating
L.P. "B" ("OLP-B", formerly Enron Transportation Services, L.P.); and Kinder
Morgan Natural Gas Liquids Corporation ("KMNGL", formerly Enron Natural Gas
Liquids Corporation). The address of the Partnership was changed to 1301
McKinney Street, Suite 3450, Houston, Texas 77010. The new telephone number of
the Partnership is (713) 844-9500.
The Partnership is primarily engaged in the operation of interstate
pipelines used to transport natural gas liquids ("NGLs"), refined products and
carbon dioxide ("CO2"). The Partnership also owns and operates a coal transfer
facility and is involved in NGL fractionation.
The Partnership operates through two operating limited partnerships, OLP-A
and OLP-B (collectively, the "Operating Partnerships"). Kinder Morgan G.P., Inc.
is a wholly owned subsidiary of KMI and serves as the sole general partner of
the Partnership, OLP-A and OLP-B.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Partnership has filed a shelf registration statement on Form S-3
registering 431,000 Common Units held by the General Partner (comprising 6.6% of
the outstanding Common Units as of the date of filing) and 429,000 Common Units
held by First Union Investors, Inc. ("FUI") (comprising 6.6% of the outstanding
Common Units as of the date of filing), a wholly-owned subsidiary of First Union
Corporation ("First Union") (which may also be deemed to be the beneficial owner
of such Common Units), and constitute all of the Common Units beneficially owned
by First Union, FUI, and other subsidiaries of First Union as of the date of
such Registration Statement (except for Common Units held from time to time by
banking subsidiaries of First Union in fiduciary capacities in the ordinary
course of business, as to which beneficial ownership is disclaimed) (the General
Partner and the First Union Selling Unitholders are collectively referred to as
the "Selling Unitholders").
The Selling Unitholders may sell some, all or none of the Common Units
thereunder; consequently, the number and percentage of the Common Units to be
beneficially owned by the Selling Unitholders after the offering thereunder
cannot be determined, but the sale of all of the Common Units thereunder would
effect the disposition of all of the Common Units now beneficially owned by the
Selling Unitholders.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the
net proceeds to be received by the Partnership from the sale of the Common Units
will be available for general business purposes of the Partnership and may be
used for repayment of debt, future acquisitions, capital expenditures and
working capital.
PLAN OF DISTRIBUTION
The Partnership may sell the Common Units directly, through agents, to or
through underwriters or dealers, which may include affiliates of the
Partnership, or through any combination of the foregoing. The accompanying
Prospectus Supplement with respect to the Common Units will set forth the terms
of the offering of such Common Units, including the name or names of any
underwriters, dealers or agents, the purchase price of the Common Units, any
initial public offering price, any applicable underwriting discounts and sales
agents' commissions and other items constituting underwriters' or agents'
compensation from the
12
<PAGE>
Partnership, any discounts, concessions or commissions allowed or reallowed or
paid by any underwriters to other dealers and any exchange on which the Common
Units may be listed. Any initial public offering price and any discounts or
concessions allowed or reallowed or price to dealers may be changed from time to
time. Any discounts or commissions received by underwriters or agents and any
profits on the resale of Common Units by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Act"). Unless otherwise set forth in the Prospectus Supplement, the obligations
of underwriters to purchase the Common Units will be subject to certain
conditions precedent, and such underwriters will be obligated to purchase all
such Common Units, if any are purchased. Unless otherwise indicated in the
Prospectus Supplement, any agent will be acting on a best efforts basis for the
period of its appointment. The net proceeds to the Partnership from such sale
will also be set forth in the Prospectus Supplement.
Any brokers or dealers that participate in the distribution of the Common
Units may be deemed to be "underwriters" within the meaning of the Securities
Act in connection with such sales, and any profit on the sale of Common Units by
it and any commissions, discounts or concessions received by any such broker or
dealer may be deemed to be underwriting discounts and commissions under the
Securities Act.
The distribution of the Common Units may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at price related to such
prevailing market prices or at negotiated prices.
Underwriters, dealers or agents who participate in the distribution of the
Common Units may be entitled, under agreements which may be entered into by the
Partnership, to indemnification by the Partnership against certain liabilities,
including liabilities under the Securities Act, or to contribution by the
Partnership to payments such underwriters, dealers or agents may be required to
make in respect thereof. Underwriters, dealers and agents, and affiliates
thereof, may be customers of, engage in transaction with, or perform services
for the Partnership and its affiliates in the ordinary course of business.
VALIDITY OF THE COMMON UNITS
The validity of the Common Units is being passed upon by Morrison & Hecker
L.L.P., 2600 Grand Avenue, Kansas City, Missouri 64108-4606, as counsel for the
Partnership.
EXPERTS
The consolidated financial statements of the Partnership and its
subsidiaries and the financial statements of Mont Belvieu Associates
incorporated in this Prospectus by reference to the Partnership's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 have been audited by
Arthur Andersen & Co. LLP, as stated in their report, which is also incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The balance sheet of the General Partner as of February 14, 1997, included
in this Prospectus, has been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority as experts in
accounting and auditing.
13
<PAGE>
KINDER MORGAN G.P., INC.
------------------------
BALANCE SHEET
-------------
FEBRUARY 14, 1997
-----------------
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholder of
Kinder Morgan G.P., Inc.
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Kinder Morgan G.P., Inc. (the General
Partner), a wholly-owned subsidiary of Kinder Morgan Inc. at February 14, 1997,
in conformity with generally accepted accounting principles. This financial
statement is the responsibility of the General Partner's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
April 24, 1997
15
<PAGE>
KINDER MORGAN G.P., INC.
------------------------
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
BALANCE SHEET
-------------
FEBRUARY 14, 1997
Assets
------
Current assets - receivable from Partnership $ 801,773
Debt issue costs 165,285
Investment in partnership 21,744,981
----------
$22,712,039
==========
Liabilities and Equity
----------------------
Current liabilities - accounts payable to KMI $ 967,058
Long-term debt 15,000,000
- -------------- ----------
Total liabilities 15,967,058
----------------- ----------
Common stock, $10 par value, authorized, issued and
outstanding 1,000,000 shares 6,744,981
---------------------------- ---------
Total equity 6,744,981
------------ ---------
Commitments and contingencies (Note 4)
$22,712,039
===========
The accompanying notes are an integral part of this statement.
16
<PAGE>
KINDER MORGAN G.P., INC.
- ------------------------
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
NOTES TO BALANCE SHEET
----------------------
NOTE 1 - ORGANIZATION:
- ----------------------
Effective February 14, 1997, Kinder Morgan Inc. (KMI) acquired all of the issued
and outstanding stock of Enron Liquids Pipeline Company (ELPC), and ELPC was
renamed Kinder Morgan G.P., Inc. (the General Partner). The General Partner owns
approximately 8.6% of Kinder Morgan Energy Partners, LP (the Partnership). The
ownership interest consists of a 2% General Partner interest and 431,000 common
units of the Partnership.
KMI's acquisition of the General Partner was accounted for under the purchase
method of accounting and reflects the pushdown of the debt incurred in
connection with the acquisition of the General Partner. The purchase price of
the General Partner was approximately $21,745,000. The collateral on the debt
incurred in connection with the acquisition consists of pledges of the stock of
the general partner and the general partner's assets. Accordingly, the
accompanying balance sheet reflects KMI's basis in the assets acquired and the
debt incurred in the acquisition (Note 3). This pushdown results in common stock
reflected at below par value. The General Partner's equity in the earnings of
the Partnership will be recorded beginning February 14, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
The following significant accounting policies are followed by the General
Partner in the preparation of the balance sheet.
Use of estimates
- ----------------
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
Debt issue-costs
- ----------------
Debt issue costs are amortized utilizing the effective interest method over the
term of the financing for which they were incurred.
Investment in Partnership
- -------------------------
The General Partner's investment in the Partnership is accounted for under the
equity method. At February 14, 1997, the General Partner's investment in the
Partnership exceeded its share of the underlying equity in the net assets of the
Partnership by approximately $12,000,000. This excess will be amortized on a
straight-line basis over a period which approximates the useful lives of the
Partnership's assets ranging from 2.5% to 12.5%.
Income taxes
- ------------
The General Partner is included in KMI's consolidated federal income tax return.
Income taxes for the General Partner are reported as if it had filed on a
separate return basis. As of February 14, 1997, the book value of assets and
liabilities of the General Partner approximate their tax bases.
17
<PAGE>
NOTE 3 - LONG-TERM DEBT:
- ------------------------
On February 14, 1997, KMI entered into a borrowing agreement with First Union
National Bank (First Union) in connection with the acquisition of the common
stock of the General Partner. Pursuant to this agreement, KMI issued two notes
in the aggregate amount of $15,000,000. These notes bear interest, at KMI's
option, at either First Union's Base Rate plus one half of one percent or LIBOR
plus 2.5%. The notes are payable August 31, 1999. At February 14, 1997, the
carrying amounts of KMI's debt approximated fair value.
The borrowing agreement also provides for a credit facility, expiring in
November 1997, for borrowings up to $10,900,000 to support the Partnership's
guarantee of a minimum quarterly distribution (Note 4, Commitments and
Contingencies - Minimum Quarterly Distribution). At February 14, 1997, there
were no amounts outstanding under this facility. KMI is required to pay a
facility fee of 0.625% per annum on the unused balance of the credit facility.
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
- ---------------------------------------
Litigation
- ----------
The General Partner, in the ordinary course of business, is a defendant in
various lawsuits relating to the Partnership's assets. Although no assurance can
be given, the General Partner believes, based on its experience to date, that
the ultimate resolution of such items will not have a material adverse impact on
the General Partner's financial position.
The General Partner is a defendant in a suit filed on September 12, 1995 by the
state of Illinois (the State). The suit seeks civil penalties and an injunction
based on five counts of environmental violations for events relating to a
September 1994 fire that occurred at a storage field belonging to the
Partnership, The fire occurred when a sphere containing natural gasoline
overfilled and released product which ignited. There were no injuries and no
damage to property, other than Partnership property. The suit seeks civil
penalties in the stated amount of up to $50,000 each for three counts of air and
water pollution, plus $10,000 per day for any continuing violation. The state
also seeks an injunction against future similar events. On August 29, 1996, the
Illinois Attorney General's office proposed a settlement in the form of a
consent decree that would require the Partnership to implement several fire
protection recommendations, pay a $100,000 civil penalty and pay a $500 per day
penalty if established deadlines for implementing the recommendations are not
met. The Partnership has made a settlement offer to the State and settlement
negotiations are ongoing. If attempts at settlement are unsuccessful, the
General Partner will vigorously defend itself and the Partnership against the
charges. Although no assurance can be given, the General Partner believes that
the ultimate resolution of this matter will not have a material adverse effect
on its financial position or results of operations.
On December 10, 1996, the U.S. Department of Transportation (DOT) issued to the
General Partner a notice of eight probable violations of federal safety
regulations in connection with the aforementioned fire. The DOT proposed a civil
penalty of $90,000. The General Partner is currently in the process of
responding to the notice, but believes the alleged violations and proposed fine
will not have a material impact on the General Partner.
It is expected that the Partnership will reimburse the General Partner for any
liability or expenses incurred in connection with these legal proceedings.
Environmental
- -------------
The operations of the Partnership are subject to federal, state and local laws
and regulations relating to protection of the environment. The Partnership
believes that its operations and facilities are in general
18
<PAGE>
compliance with applicable environmental regulations. The Partnership has an
ongoing environmental audit and compliance program. Risks of accidental leaks or
spills are, however, associated with fractionation of NGLs, transportation of
NGLs and refined petroleum products, the handling and storage of coal, the
processing of gas, as well as the truck and rail loading of fractionated
products. There can be no assurance that significant costs and liabilities will
not be incurred, including those relating to claims for damages to property and
persons resulting from operation of the Partnership's businesses. Moreover, it
is possible that other developments, such as increasingly strict environmental
laws and regulations and enforcement policies thereunder, could result in
increased costs and liabilities to the Partnership.
Minimum quarterly distribution
- ------------------------------
Through November 1997, the General Partner has agreed to contribute cash if the
Partnership is unable to meet a minimum quarterly distribution of $0.55 per
unit. KMI has arranged for the credit facility described above (Note 3) as
support for this guarantee.
NOTE 5 - RELATED PARTY TRANSACTIONS:
- ------------------------------------
Receivable from Partnership
- ---------------------------
The receivable from Partnership represents primarily general and administrative
expenses and prepaid distributions paid to the prior owner of ELPC. Pursuant to
the Partnership agreement, these costs are reimbursable by the Partnership.
Payable to KMI
- --------------
The payable to KMI is the results of KMI's payment to the prior owner of ELPC of
items discussed above, as well as debt issue costs incurred by KMI.
Partnership distributions
- -------------------------
The General Partner owns 431,000 common units of the Partnership, representing
approximately 6.6% of the common units. The Partnership Agreements provide for
incentive distributions payable to the General Partner out of the Partnership's
available cash in the event that quarterly distributions to Unitholders exceed
certain specified targets. In general, subject to certain limitations, if a
quarterly distribution to Unitholders exceeds a target of $0.605 per unit, the
General Partner will receive incentive distributions equal to (1) 15% of the
portion of the quarterly distribution per unit that exceeds $0.605 per unit but
is not more than $0.715, plus (2) 25% of that portion of the quarterly
distribution per unit that exceeds the quarterly distribution amount of $0.715
but is not more than $0.935, plus (3) 50% of that portion of the quarterly
distribution per unit that exceeds $0.935.
NOTE 6 - CONCENTRATION OF RISK:
- -------------------------------
A substantial portion of the Partnership's revenues is derived from
transportation services to oil and gas refining and marketing companies in the
Midwest. This concentration could affect the Partnership's overall exposure to
credit risk inasmuch as these customers could be affected by similar economic or
other conditions. However, management believes that the Partnership is exposed
to minimal credit risk. The Partnership generally does not require collateral
for its receivables.
19
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Partnership. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of this Prospectus at
any time does not imply that the information contained herein is correct as of
any time subsequent its date.
TABLE OF CONTENTS
Page
Available Information................................... 2
Incorporation of Certain Documents...................... 2
Risk Factors............................................ 3
The Partnership........................................ 12
Security Ownership of Certain Beneficial Owners..........12
Use of Proceeds......................................... 12
Plan of Distribution.................................... 12
Validity of the Common Units............................ 13
Experts..................................................13
Balance Sheet of General Partner.........................14
3,000,000 Common Units
Representing Limited Parnter Interests
KINDER MORGAN
ENERGY PARTNERS, L.P.
______________________
PROSPECTUS
________, 1997
_______________________
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses and costs expected to be
incurred in connection with the issuance and distribution of the securities
registered hereby. All of such costs will be borne by the Partnership.
Securities and Exchange Commissions registration fee........$41,990.91
Printing....................................................$15,000.00
Legal fees and expenses ....................................$12,500.00
Accounting fees and expenses ...............................$10,000.00
Miscellaneous...............................................$10,000.00
----------
Total...................................................$89,490.91
==========
Item 15. Indemnification of Directors and Officers
The Partnership Agreement provides that the Partnership will indemnify any
person who is or was an officer or director of the General Partner or any
departing partner, to the fullest extent permitted by law. In addition, the
Partnership may indemnify, to the extent deemed advisable by the General Partner
and to the fullest extent permitted by law, any person who is or was serving at
the request of the General Partner or any affiliate of the General Partner or
any departing partner as an officer or director of the General Partner, a
Departing Partner or any of their Affiliates (as defined in the Partnership
Agreement) ("Indemnitees") from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
fees and expenses), judgments, fines, settlements and other amounts arising from
any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as an officer or director or a person serving at the request of the
Partnership in another entity in a similar capacity, provided that in each case
the Indemnitee acted in good faith and in a manner which such Indemnitee
believed to be in or not opposed to the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. Any indemnification under these provisions will be only
out of the assets of the Partnership and the General Partner shall not be
personally liable for, or have any obligation to contribute or loan funds or
assets to the Partnership to enable it to effectuate, such indemnification. The
Partnership is authorized to purchase (or to reimburse the General Partner or
its affiliates for the cost of) insurance against liabilities asserted against
and expenses incurred by such person to indemnify such person against such
liabilities under the provisions described above.
Item 16. Exhibits
*3.1 Amended and Restated Agreement of Limited Partnership of Enron Liquid
Pipeline, L.P.(Exhibit 3.1 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1993 ("1993 10-K"))
*3.2 First Amendment to Amended and Restated Agreement of Limited Partner-
ship of Enron Liquids Pipeline, L.P. effective as of August 6, 1992
(Exhibit 3.2 to the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1992)
*3.3 Second Amendment to Amended and Restated Agreement of Limited Partner-
ship of Enron Liquids Pipeline, L.P. effective as of September 30,
1993 (Exhibit 3.3 to 1993 10-K)
*3.4 Third Amendment to Amended and Restated Agreement of Limited
Partnership dated as of February 14, 1997 (Exhibit 4.0 to the
Partnership's Form 8-K Report dated February 14, 1997)
*4 Form of Certificate representing Common Units. (Exhibit 4.1 to the
Partnership's Amendment No. 2 to the S-1 Registration Statement filed
July 30, 1992)
<PAGE>
5 Opinion of Morrison & Hecker L.L.P. as to the legality of the
securities registered hereby
8 Opinion of Morrison & Hecker L.L.P. as to tax matters
24.1 Consent of Morrison & Hecker L.L.P. (included in Exhibits 5 and 8)
24.2 Consent of Arthur Anderson & Co. LLP
24.3 Consent of Price Waterhouse LLP
*25 Power of Attorney (included on signature page to Form S-3 filed on
April 28, 1997)
- ------------------------
* Asterisk indicates exhibits incorporated by reference as indicated; all
other exhibits are filed herewith.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), 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 Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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 Act;
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;
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 (1)(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
that are incorporated by reference into the Registration Statement;
(2) That, for the purpose of determining any liability under the Act, 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.
S-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the Common Units which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act 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.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 10, 1997.
KINDER MORGAN ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ Thomas B. King
______________________________
Thomas B. King
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Name Title Signature Date
Richard D. Kinder Chairman of the Board and *
and Chief Executive Officer ________________ June 10, 1997
of Kinder Morgan G.P., Inc.
William V. Morgan Director and Vice Chairman *
of Kinder Morgan G.P., Inc. ________________ June 10, 1997
Alan L. Atterbury Director of Kinder Morgan *
G.P, Inc. ________________ June 10, 1997
Edward O. Gaylord Director of Kinder Morgan *
G.P., Inc. ________________ June 10, 1997
Thomas B. King Director, President and Chief
Operating Officer of Kinder /s/Thomas B. King June 10, 1997
Morgan G.P., Inc.
Thomas P. Tosoni Chief Financial Officer of *
Kinder Morgan G.P., Inc. ________________ June 10, 1997
David G. Dehaemers Treasurer (Chief Accounting *
Officer) of Kinder Morgan ________________ June 10, 1997
G.P., Inc.
*By: /s/ Thomas B. King
__________________
Thomas B. King
Attorney-in-Fact
S-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
*3.1 Amended and Restated Agreement of Limited Partnership of Enron Liquids
Pipeline, L.P. (Exhibit 3.1 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1993 ("1993 10-K"))
*3.2 First Amendment to Amended and Restated Agreement of Limited Partnership of
Enron Liquids Pipeline, L.P. effective as of August 6, 1992 (Exhibit 3.2 to
the Partnership's Annual Report on Form 10-K for the year ended December
31, 1992)
*3.3 Second Amendment to Amended and Restated Agreement of Limited Partnership
of Enron Liquids Pipeline, L.P. effective as of September 30, 1993
(Exhibit 3.3 to 1993 10-K)
*3.4 Third Amendment to Amended and Restated Agreement of Limited Partnership
dated as of February 14, 1997 (Exhibit 4.0 to the Partnership's Form 8-K
Report dated February 14, 1997)
*4 Form of Certificate representing Common Units. (Exhibit 4.1 to the
Partnership's Amendment No. 2 to the S-1 Registration Statement filed
July 30, 1992)
5 Opinion of Morrison & Hecker L.L.P. as to the legality of the securities
registered hereby
8 Opinion of Morrison & Hecker L.L.P. as to tax matters
24.1 Consent of Morrison & Hecker L.L.P. (included in Exhibits 5 and 8)
24.2 Consent of Arthur Anderson & Co. LLP
24.3 Consent of Price Waterhouse LLP
*25 Power of Attorney (included on signature page to Form S-3 filed April 28,
1997)
- ------------------------
* Asterisk indicates exhibits incorporated by reference as indicated; all other
exhibits are filed herewith.
S-5
<PAGE>
June 10, 1997
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
Re: 3,000,000 Common Units
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of the
Registration Statement on Form S-3 (Registration No. 333-25997) (the
"Registration Statement") filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act") on April 28,
1997. The Registration Statement covers a total of 3,000,000 Common Units
("Common Units") representing limited partner interests in Kinder Morgan Energy
Partners, L.P. (the "Partnership") to be sold by the Partnership.
The opinions expressed herein are given only with respect to the
present status of the substantive laws of the state of Delaware. We express no
opinion as to any matter arising under the laws of any other jurisdiction.
In rendering the opinions set forth below, we have examined and relied
on the following: (1) the Registration Statement and the Prospectus; and (2)
such other documents, materials, and authorities as we have deemed necessary in
order to enable us to render our opinions set forth below.
Based on and subject to the foregoing and other qualifications set forth
below, we are of the opinion that the Common Units which are to be sold and
delivered by the Partnership as contemplated by the Registration Statement have
been duly authorized for issuance and when issued and sold will be duly issued
and, on the assumption that the Limited Partners of the Partnership take no part
in the control of the Partnership's business and otherwise act in conformity
with the provisions of the Partnership's Amended and Restated Agreement of
Limited Partnership regarding control and management of the Partnership
(Articles VI and VII), such Common Units will be fully paid and nonassessable.
<PAGE>
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference of this firm under the heading
"Legal Matters" in the Prospectus forming part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
MORRISON & HECKER L.L.P.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement File Number
333-25997 of our report dated February 21, 1997, included in Kinder Morgan
Energy Partners, L.P.'s Annual Report on Form 10-K for the year ended December
31, 1996, and to all references to our Firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
June 6, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 (No. 333-25997) of Kinder Morgan Energy
Partners, L.P. of our report dated April 24, 1997 relating to the balance sheet
of Kinder Morgan G.P., Inc., which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
June 6, 1997
