As filed with the Securities Exchange Commission on April 28, 1997
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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Title of Amount to be Proposed Proposed Amount of
securities to registered maximum maximum registration
be registered offering aggregate fee
price per offering
unit(1) price(1)
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Common Units 3,000,000 $46.19 $138,570,000 $41,990.91
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(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.
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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 APRIL 28, 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 April
22, 1997, the last reported sales price for the Common Units as reported on the
New York Stock Exchange Composite Transactions tape was $46 5/8 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.
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.
The Date of this Prospectus is April ___, 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") 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 Are Not Guaranteed and 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.
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.
Assets Securing Debt; Distributions Prohibited During Event of Default. 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.
Although the Partnership believes that the provisions of its existing
indebtedness provide it with sufficient flexibility to permit the Partnership to
have adequate capital resources and financial liquidity, the Partnership may be
prevented by such 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.
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.
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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.
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 of storage and coal. Diminished volumes would decrease the
Partnership's profits and, consequently, the amount of cash available for
distribution to holders of Common Units.
Uncertain Regulatory Standard; No Assurance that Tariff Rates Can Be
Maintained or Increased. Although revenues from interstate common carrier
transportation on the Liquids Pipelines are determined in accordance with
tariffs filed with the Federal Energy Regulatory Commission ("FERC"),
competitive conditions will have an impact on the tariffs to be charged by the
Partnership. 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. The
Partnership's operations are also subject to the jurisdiction of certain other
federal agencies with respect to environmental and safety matters.
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
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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 Conservation, Technology and Environmental Regulation. 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's
business and operations are subject to federal and state laws and regulations
relating to environmental practices. In 1989, the Environmental Protection
Agency (the "EPA") enacted rules which imposed new volatility standards for
gasoline during the summer months, resulting in a significant decrease in demand
for normal butane, a relatively volatile component used in motor gasoline
blending. The EPA imposed stricter volatility standards commencing in 1992,
which has resulted in a further decrease in demand for normal butane. Although
the EPA regulations, as well as the 1990 amendments to the Clean Air Act, have
decreased demand for certain NGL products, they have increased the demand for
others, such as isobutane, and have presented the Liquids Pipelines with
opportunities for additional transportation services. For instance, the
Partnership transports excess normal butane produced at Chicago area refineries
during the spring and summer to Bushton, Kansas for storage and subsequent
redelivery to the upper Midwest during the winter gasoline blending season. The
Partnership believes that the decrease in demand for normal butane has not had a
material adverse effect on the Partnership's financial condition or results of
operations. The Partnership cannot predict the ultimate impact of the EPA
standards or the impact of future conservation or environmental measures or
technological advances. The costs of conservation, technology and environmental
regulation may be significant. The possibility of additional regulation is
significant, and such regulation could negatively affect the level of cash
available for distribution to holders of Common Units.
The Partnership believes that its operations and facilities are in general
compliance with applicable environmental regulations. However, risks of
accidental leaks or spills are associated with NGL fractionation and liquids
transportation and coal handling and storage, and there can be no assurance that
significant costs and liabilities will not be incurred. Such costs and
liabilities could have a detrimental effect on the level of cash available for
distribution to Unitholders. 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.
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 and Economic 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 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
such as weather conditions. The ultimate impact of these cyclical weather
conditions and global economic fluctuations is to increase or decrease the
amount of cash available for distribution to the Unitholders.
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The General Partner Manages and Operates the Partnership. The General
Partner manages and operates the Partnership. Holders of Common Units have no
right to elect the General Partner on an annual or other continuing basis. If
the General Partner voluntarily withdraws, however, its successor may be elected
by the holders of a majority of the outstanding Common Units (excluding Common
Units owned by the withdrawing General Partner and its affiliates).
The General Partner may not be removed unless such removal is approved by
the vote of the holders of not less than 662/3% 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.
Kinder Morgan G.P., Inc. has agreed not to withdraw voluntarily as General
Partner prior to January 1, 2003 (with limited exceptions) without the approval
by the vote of the holders of at least a majority of the outstanding Common
Units (excluding for purposes of such determination Common Units owned by the
General Partner and its affiliates). The withdrawal or removal of the General
Partner as general partner of the Partnership also constitutes withdrawal or
removal, as the case may be, as the general partner of Kinder Morgan Operating
L.P. "A" ("OLP-A") and Kinder Morgan Operating L.P. "B" ("OLP-B") (collectively,
the "Operating Partnerships".)
The General Partner's Liability to the Partnership and the Holders of
Common Units May be Limited; The Partnership Agreement Limits the Liability and
Modifies the Fiduciary Duties of the General Partner Under Delaware Law;
Purchasers of Common Units Are Deemed to Have Consented to Certain Actions that
Might be Deemed Conflicts of Interest. 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.
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
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Partnership. Such modifications of state law standards of fiduciary duty may
significantly limit a Unitholder's ability to successfully challenge the actions
of the General Partner as being a breach of what would otherwise have been a
fiduciary duty, but these modifications are believed to be necessary and
appropriate to enable the General Partner to effectively conduct its management
duties without undue risk of liability.
Potential Liability of the Unitholders. 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 believes, however,
that it is unlikely that amounts would be distributed to limited partners in
violation of the Delaware Act.
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.
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
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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.
Conflicts of Interest
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
Partnership Classification 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 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,
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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.
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
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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.
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.
Tax Liability Exceeding 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.
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.
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
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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.
Tax Shelter Registration; Potential IRS Audit. The Partnership is
registered with the IRS as a "tax shelter." 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.
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.
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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 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.
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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 of said firm as
experts in auditing and accounting.
13
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KINDER MORGAN G.P., INC.
BALANCE SHEET
FEBRUARY 14, 1997
14
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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
<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
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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 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.
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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
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<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.
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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........................................ 11
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
<PAGE>
3,000,000 Common Units
Representing Limited Partner Interests
KINDER MORGAN
ENERGY PARTNERS, L.P.
-------------------
PROSPECTUS
April ___, 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 Commission 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)E("Indemnitees") from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
feesAandlexpenses), 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 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
dated February 14, 1997) (Exhibit 4.0 to the
Partnership's Form 8-K Report dated February 14, 1997)
<PAGE>
*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)
- ------------------------
* 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;
S-2
<PAGE>
(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.
(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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on April 28, 1997.
KINDER MORGAN ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ Richard D. Kinder
_________________________
Richard D. Kinder
Chairman of the Board and CEO
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard D. Kinder, William V. Morgan and
Thomas B. King his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and any and all other documents in
connection therewith, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 /s/ Richard D. Kinder April 28, 1997
Board and Chief _____________________
Executive Officer
of Kinder Morgan
G.P., Inc.
William V. Morgan Director and Vice /s/ William V. Morgan April 28, 1997
Chairman of Kinder _____________________
Morgan G.P., Inc.
Alan L. Atterbury Director of Kinder /s/ Alan L. Atterbury April 28, 1997
Morgan G.P., Inc. _____________________
Edward O. Gaylord Director of Kinder /s/ Edward O. Gaylord April 28, 1997
Morgan G.P., Inc. _____________________
Thomas B. King Director, President /s/ Thomas B. King April 28, 1997
and Chief Operating __________________
Officer of Kinder
Morgan G.P., Inc.
S-4
<PAGE>
Thomas P. Tosoni Chief Financial /s/ Thomas P. Tosoni April 28, 1997
Officer of Kinder ____________________
Morgan G.P., Inc.
David G. Dehaemers Treasurer (Chief /s/ David G. Dehaemers April 28, 1997
Accounting Officer) ______________________
of Kinder Morgan
G.P., Inc.
S-5
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
- -----------------------------------------------------------
*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 dated 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)
- ------------------------
* Asterisk indicates exhibits incorporated by reference as indicated; all
other exhibits are filed herewith.
S-6
April 28, 1997
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
Re: Common Units
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form S-3 (Registration No. 333-____) (the
"Registration Statement") to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"). The
Registration Statement covers Common Units ("Common Units") representing limited
partner interests in Kinder Morgan Energy Partners, L.P. (the "Partnership") to
be sold by First Union Investors, Inc., First Union Corporation ("First Union"),
subsidiaries of First Union and/or Kinder Morgan G.P., Inc.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. 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 Partnership has, pursuant to its
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), duly issued the
<PAGE>
Kinder Morgan Energy Partners, L.P.
April 28, 1997
Page 2
Common Units to be registered under the Registration Statement 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 Agreement regarding control and management of the
Partnership (Articles VI and VII), such Common Units are fully paid and
nonassessable.
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.
April 28, 1997
Kinder-Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
Dear Sirs:
We have acted as special counsel for Kinder Morgan, G.P., Inc., a Delaware
corporation (the "General Partner") and Kinder-Morgan Energy Partners, L.P., a
Delaware limited partnership (the "Partnership"), in connection with the
registration under the Securities Act of 1933 of units representing limited
partner interests in the Partnership ("Units") to be offered by a selling
unitholder of the Partnership, upon the terms and subject to the conditions set
forth in the Registration Statement on Form S-3 (Registration No. 333-
__________) (the "Registration Statement") relating thereto filed with the
Securities and Exchange Commission. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the prospectus contained in
the Registration Statement. In this connection, we have examined such documents
as we have deemed necessary for the expression of the opinions contained herein.
We have also relied on certain representations made by officers of the General
Partner.
On the basis of the foregoing, and assuming that the Partnership will be
maintained in compliance with the terms of the Limited Partnership Agreement, we
hereby confirm (i) our opinions set forth in the Registration Statement under
the caption 'Certain Federal Income Tax Considerations' and (ii) that, subject
to the qualifications set forth therein, the discussion set forth in the
Registration Statement under such caption is an accurate summary of the United
States federal income tax matters described therein.
We express no opinion with respect to the transactions described in the
Registration Statement other than as expressly set forth herein. Our opinions
are based upon the Internal Revenue Code of 1986, as amended, the Treasury
regulations promulgated thereunder, and other relevant authorities, all as in
effect on the date hereof. Consequently, future changes in the law may cause the
tax treatment of the transactions referred to herein to be materially different
from that described in the Registration Statement.
We hereby consent to the use of our name in the Registration Statement and
the filing of this opinion as an exhibit to the Registration Statement and to
the reference to us under "Tax Considerations" in the related prospectus. In
giving this consent, however, we do not hereby admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 and the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORRISON & HECKER L.L.P.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statement 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 ANDERSON LLP
Houston, Texas
April 25, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 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 references to us
under the heading "EXPERTS" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
April 24, 1997
