NOTICE OF SPECIAL MEETING OF UNITHOLDERS
To the Unitholders of Copano Energy, L.L.C.:
Notice
is hereby given that a special meeting of unitholders of Copano Energy, L.L.C., which is referred to as Copano, a Delaware limited liability company, will be held on Tuesday,
April 30, 2013 at 9:00 a.m., local time, at The Forum Room, 12th Floor, Two Allen Center, 1200 Smith Street, Houston, Texas 77002, solely for the following
purposes:
-
-
Proposal
1:
to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of January 29, 2013 (as it may be
amended from time to time), which is referred to as the merger agreement, by and among Copano, Kinder Morgan Energy Partners, L.P., which is referred to as Kinder Morgan, Kinder
Morgan G.P., Inc., the general partner of Kinder Morgan, and Javelina Merger Sub LLC, a direct, wholly owned subsidiary of Kinder Morgan, a copy of which agreement is attached as
Annex A to the proxy statement/prospectus accompanying this notice;
-
-
Proposal
2:
to consider and vote on a proposal to approve the adjournment of the Copano special meeting, if necessary to solicit additional
proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting; and
-
-
Proposal
3:
to consider and vote on a proposal to approve, on an advisory (non-binding) basis, the related compensation payments that
will or may be paid by Copano to its named executive officers in connection with the merger.
These
items of business, including the merger agreement and the proposed merger, are described in detail in the accompanying proxy statement/prospectus.
The
Copano board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of Copano
and its unitholders and recommends that Copano unitholders vote "FOR" the proposal to adopt the merger agreement, "FOR" the adjournment of the Copano special meeting if necessary to solicit additional
proxies in favor of such adoption and "FOR" the related compensation proposal.
Only
unitholders of record as of the close of business on March 25, 2013 are entitled to notice of the Copano special meeting and to vote at the Copano special meeting or at any
adjournment or postponement thereof. A list of unitholders entitled to vote at the special meeting will be available in our offices located at 1200 Smith Street, Suite 2300, Houston, Texas
77002, during regular business hours for a period of ten days before the special meeting, and at the place of the special meeting during the meeting.
Adoption
of the merger agreement by the Copano unitholders is a condition to the consummation of the merger and requires the affirmative vote of holders of at least a majority of the
outstanding Copano common units and Copano Series A convertible preferred units, voting together as a single
Table of Contents
class
on an "as if" converted basis. Therefore, your vote is very important.
Your failure to vote your units will have the same effect as a vote "AGAINST" the adoption of the
merger agreement.
|
|
|
|
|
By order of the board of directors,
|
|
|
|
|
|
Douglas L. Lawing
|
|
|
Executive Vice President, General Counsel and Secretary
|
Houston,
Texas
March 29, 2013
YOUR VOTE IS IMPORTANT!
WHETHER OR NOT YOU EXPECT TO ATTEND THE COPANO SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT YOUR PROXY AS
PROMPTLY AS POSSIBLE (1) THROUGH THE INTERNET, (2) BY TELEPHONE OR (3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID
ENVELOPE PROVIDED.
You may revoke your proxy or change your vote at any time before the Copano special meeting. If your common units are held in the name of a bank, broker or
other fiduciary, please follow the instructions on the voting instruction card furnished to you by such record holder.
We
urge you to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes
carefully and in their entirety. If you have any questions concerning the merger, the adjournment vote, the advisory (non-binding) vote on the related compensation payments that will or
may be paid by Copano to its named executive officers in connection with the merger, the special meeting or
the accompanying proxy statement/prospectus, would like additional copies of the accompanying proxy statement/prospectus or need help voting your Copano units, please contact Copano's proxy solicitor:
D.F.
King & Co., Inc.
48 Wall Street
New York, NY 10005
Unitholders, call toll-free: (800) 967-4604
Banks and brokers, call collect: (212) 269-5550
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important business and financial information about Kinder Morgan and Copano
from other documents filed with the Securities and Exchange Commission, referred to as the SEC, that are not included in or delivered with this proxy statement/prospectus. See "Where You Can Find More
Information."
Documents
incorporated by reference are available to you without charge upon written or oral request. You can obtain any of these documents by requesting them in writing or by telephone
from the appropriate party at the following addresses and telephone numbers.
|
|
|
Kinder Morgan Energy Partners, L.P.
Attention: Investor Relations
1001 Louisiana Street, Suite 1000
Houston, Texas 77002
(713) 396-9000
|
|
Copano Energy, L.L.C.
Attention: Investor Relations
1200 Smith Street, Suite 2300
Houston, Texas 77002
(713) 621-9547
|
To receive timely delivery of the requested documents in advance of the Copano special meeting, you should make your request no later than April 24, 2013.
ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form S-4 filed with the SEC by Kinder Morgan (File
No. 333-186623), constitutes a prospectus of Kinder Morgan under Section 5 of the Securities Act of 1933, as amended, which is referred to as the Securities Act, with respect
to the Kinder Morgan common units to be issued pursuant to the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities
Exchange Act of 1934, as amended, which is referred to as the Exchange Act, with respect to the special meeting of Copano unitholders, at which Copano unitholders will be asked to consider and vote
on, among other matters, a proposal to adopt the merger agreement.
You
should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is
different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated March 29, 2013. The information contained in this
proxy statement/prospectus is accurate only as of that date or, in the case of information in a document
incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to Copano
unitholders nor the issuance by Kinder Morgan of its common units pursuant to the merger agreement will create any implication to the contrary.
This
proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which
or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
The
information concerning Kinder Morgan contained in this proxy statement/prospectus or incorporated by reference has been provided by Kinder Morgan, and the information concerning
Copano contained in this proxy statement/prospectus or incorporated by reference has been provided by Copano.
Table of Contents
TABLE OF CONTENTS
i
Table of Contents
ii
Table of Contents
iii
Table of Contents
QUESTIONS AND ANSWERS
Set forth below are questions that you, as a unitholder of Copano, may have regarding the merger, the
adjournment proposal, the related compensation proposal and the Copano special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the
other documents referred to in this proxy statement/prospectus in their entirety, including the merger agreement, which is attached as Annex A to this proxy statement/prospectus, and the
documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the
special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled "Where You Can Find More
Information."
Q: Why am I receiving this proxy statement/prospectus?
-
A:
-
Kinder
Morgan and Copano have agreed to a merger, pursuant to which Copano will become a direct, wholly owned subsidiary of Kinder Morgan and will cease to
be a publicly held limited liability company. In order to complete the merger, Copano unitholders must vote to adopt the Agreement and Plan of Merger, dated as of January 29, 2013, among
Copano, Kinder Morgan, Kinder Morgan G.P., Inc., which is referred to as Kinder Morgan GP, and Javelina Merger Sub LLC, which is referred to as Merger Sub, which agreement,
as it may be amended from time to time, is referred to as the merger agreement. Copano is holding a special meeting of unitholders to obtain such unitholder approval. Copano unitholders will also be
asked to approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to its named executive officers in connection with the merger.
In
the merger, Kinder Morgan will issue Kinder Morgan common units as the consideration to be paid to holders of Copano common units. This document is being delivered to you as both a proxy statement
of Copano and a prospectus of Kinder Morgan in connection with the merger. It is the proxy statement by which the Copano board of directors is soliciting proxies from you to vote on the adoption of
the merger agreement at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which Kinder Morgan will issue Kinder Morgan common units to you
in the merger.
Q: What will happen in the merger?
-
A:
-
In
the merger, Merger Sub, a direct, wholly owned subsidiary of Kinder Morgan that was formed for the purpose of the merger, will be merged with and into
Copano. Copano will be the surviving limited liability company in the merger and will be a direct, wholly owned subsidiary of Kinder Morgan following completion of the merger.
Q: What will I receive in the merger?
-
A:
-
If
the merger is completed, your Copano common units will be cancelled and converted automatically into the right to receive a number of Kinder Morgan common
units equal to 0.4563 multiplied by the number of your Copano common units. Copano unitholders will receive cash for any fractional Kinder Morgan common units that they would otherwise receive in the
merger.
Based
on the closing price for Kinder Morgan common units on the New York Stock Exchange, which is referred to as the NYSE, on January 29, 2013, the last trading day before the public
announcement of the merger agreement, the merger consideration represented approximately $40.91 in value for each Copano common unit. Based on the closing price of $89.77 for Kinder Morgan common
units on the NYSE on March 28, 2013, the most recent practicable trading day prior to the date of this proxy statement/prospectus, the merger consideration represented approximately $40.96 in
value for each Copano common unit. The market price of Kinder Morgan
1
Table of Contents
common
units will fluctuate prior to the merger, and the market price of Kinder Morgan common units when received by Copano unitholders after the merger is completed could be greater or less than the
current market price of Kinder Morgan common units. See "Risk Factors" beginning on page 28 of this proxy statement/prospectus.
Q: What will happen to my Copano options, unit appreciation rights, phantom units and restricted units in the merger?
-
A:
-
If
the merger is completed, each outstanding Copano option, unit appreciation right, phantom unit and restricted unit will be converted into the right to
receive 0.4563 Kinder Morgan common units for each Copano common unit subject to such awards (in the case of options and unit appreciation rights, on a net exercise basis). Copano equity award holders
will receive cash for any fractional Kinder Morgan common units that they would otherwise receive in the merger. In the case of performance-based phantom units, performance will be deemed to be
attained at target. See "The Merger AgreementTreatment of Equity Awards" beginning on page 104 of this proxy statement/prospectus.
Q: What happens if the merger is not completed?
-
A:
-
If
the merger agreement is not adopted by Copano unitholders or if the merger is not completed for any other reason, you will not receive any form of
consideration for your Copano units in connection with the merger. Instead, Copano will remain an independent public company and its common units will continue to be listed and traded on the NASDAQ
Global Select Market. If the merger agreement is terminated under specified circumstances, Copano may be required to pay Kinder Morgan a termination fee of $115 million, and under specified
circumstances, Kinder Morgan may be required to pay Copano a termination fee of $75 million, as described under "The Merger AgreementTermination Fees" beginning on page 107
of this proxy statement/prospectus.
Q: Will I continue to receive future distributions?
-
A:
-
Before
completion of the merger, Copano expects to continue to pay its regular quarterly cash distributions on common units, which currently are $0.575 per
Copano common unit. However, Copano and Kinder Morgan will coordinate the timing of distribution declarations leading up to the merger so that, in any quarter, a holder of Copano common units will
either receive distributions in respect of its Copano common units or distributions in respect of Kinder Morgan common units that such holder will receive in the merger (but will not receive
distributions in respect of both in any quarter). Receipt of the regular quarterly distribution will not reduce the merger consideration you receive. After completion of the merger, you will be
entitled only to distributions on any Kinder Morgan common units you receive in the merger and hold through the applicable distribution record date. While Kinder Morgan provides no assurances as to
the level or payment of any future distributions on its common units, and Kinder Morgan determines the amount of its distributions each quarter, for the quarter ended December 31, 2012, Kinder
Morgan has declared and paid a cash distribution of $1.29 per Kinder Morgan common unit.
Q: What am I being asked to vote on?
-
A:
-
Copano's
unitholders are being asked to vote on the following proposals:
-
-
Proposal
1:
to adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus;
-
-
Proposal
2:
to approve the adjournment of the Copano special meeting, if necessary to solicit additional proxies if there are not sufficient
votes to adopt the merger agreement at the time of the special meeting; and
2
Table of Contents
-
-
Proposal
3:
to approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to
its named executive officers in connection with the merger.
The
approval of the proposal to adopt the merger agreement by Copano unitholders is a condition to the obligations of Copano and Kinder Morgan to complete the merger. Neither the approval of the
proposal to adjourn the Copano special meeting, if necessary, nor the approval of the related compensation proposal is a condition to the obligations of Copano or Kinder Morgan to complete the merger.
Q: Does Copano's board of directors recommend that unitholders adopt the merger agreement?
-
A:
-
Yes.
The Copano board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, and
determined that these transactions are advisable and in the best interests of the Copano unitholders. Therefore, the Copano board of directors unanimously recommends that you vote "FOR" the proposal
to adopt the merger agreement at the special meeting. See "Proposal 1: The MergerRecommendation of the Copano Board of Directors and Its Reasons for the Merger" beginning on
page 59 of this proxy statement/prospectus. In considering the recommendation of the Copano board of directors with respect to the merger agreement and the transactions contemplated thereby,
including the merger, you should be aware that directors and executive officers of Copano are parties to agreements or participants in other arrangements that give them interests in the merger that
may be different from, or in addition to, your interests as a unitholder of Copano. You should consider these interests in voting on this proposal. These different interests are described under
"Proposal 1: The MergerInterests of Directors and Executive Officers of Copano in the Merger" beginning on page 88 of this proxy statement/prospectus.
Q: Does Copano's board of directors recommend that unitholders approve the adjournment of the Copano special meeting, if necessary?
-
A:
-
Yes.
Copano's board of directors unanimously recommends that you vote "FOR" the proposal to adjourn the Copano special meeting if necessary to solicit
additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the Copano special meeting. See "Proposal 2: Adjournment of the Copano Special Meeting" beginning on
page 168 of this proxy statement/prospectus.
Q: What are the related compensation payments and why am I being asked to vote on them?
-
A:
-
The
SEC has adopted rules that require Copano to seek an advisory (non-binding) vote on the related compensation payments. The related
compensation payments are certain compensation payments that are tied to or based on the merger and that will or may be paid by Copano to its named executive officers in connection with the merger.
This proposal is referred to as the related compensation proposal.
Q: Does Copano's board of directors recommend that unitholders approve the related compensation proposal?
-
A:
-
Yes.
The Copano board of directors unanimously recommends that you vote "FOR" the proposal to approve the related compensation payments that will or may be
paid by Copano to its named executive officers in connection with the merger. See "Proposal 3: Advisory Vote on Related Compensation" beginning on page 169 of this proxy statement/prospectus.
3
Table of Contents
Q: What happens if the related compensation proposal is not approved?
-
A:
-
Approval
of the related compensation proposal is not a condition to completion of the merger. The vote is an advisory vote and is not binding. If the merger
is completed, Copano may pay the related compensation to its named executive officers in connection with the merger even if Copano unitholders fail to approve the related compensation proposal.
Q: What unitholder vote is required for the approval of each proposal?
-
A:
-
The
following are the vote requirements for the proposals:
-
-
Proposal 1:
Adoption of the Merger
Agreement
. The affirmative vote of holders of at least a majority of the outstanding Copano common units and Copano Series A
convertible preferred units, which are referred to as Series A convertible preferred units, voting together as a single class on an "as if" converted basis. Accordingly, abstentions and unvoted
units will have the same effect as votes "AGAINST" adoption.
-
-
Proposal 2:
Adjournment of the Copano Special
Meeting (if necessary)
. The affirmative vote of at least a majority of the votes cast affirmatively or negatively with respect to the
proposal by holders of the Copano common units and Series A convertible preferred units, voting together as a single class on an "as if" converted basis. Accordingly, an abstention or a broker
non-vote or other failure to vote will have no effect on the proposal.
-
-
Proposal 3:
Approval of Related
Compensation.
The affirmative vote of at least a majority of the votes cast affirmatively or negatively with respect to the proposal by
holders of the Copano common units and Series A convertible preferred units, voting together as a single class on an "as if" converted basis. Accordingly, an abstention or a broker
non-vote or other failure to vote will have no effect on the proposal.
Simultaneously
with the execution of the merger agreement, Copano, Kinder Morgan and Kinder Morgan GP entered into a voting agreement with TPG Copenhagen, L.P., which is referred to as
TPG, pursuant to which TPG agreed, among other things, to vote all of its Series A convertible preferred units and Copano common units, if any, in favor of adoption of the merger agreement and
the transactions contemplated thereby and against any action or agreement (including any amendment of any agreement) that would, or would reasonably be expected to, prevent or in any material respect
impede or delay the consummation of the merger and the other transactions contemplated by the merger agreement until the date on which the approval of the merger agreement by Copano unitholders is
obtained, the one year anniversary of the merger agreement or until the merger agreement is terminated in accordance with its terms, whichever occurs earliest. TPG also agreed, during the term of the
voting agreement, not to sell, transfer, pledge or otherwise dispose of any Series A convertible preferred units or Copano common units. At the close of business on the record
date for the special meeting of the Copano unitholders, TPG held approximately 15.5 percent of the voting power of Copano.
Q: What constitutes a quorum for the special meeting?
-
A:
-
Presence
of holders of at least a majority of the outstanding Copano common units and Series A convertible preferred units, voting together as a
single class on an "as if" converted basis, represented in person or by proxy constitutes a quorum for the special meeting.
Q: When is this proxy statement/prospectus being mailed?
-
A:
-
This
proxy statement/prospectus and the proxy card are first being sent to Copano unitholders on or about March 29, 2013.
4
Table of Contents
Q: Who is entitled to vote at the special meeting?
-
A:
-
All
holders of Copano common units and Series A convertible preferred units who held units at the close of business on the record date for the special
meeting (March 25, 2013) are entitled to receive notice of and to vote at the special meeting; provided, that such units remain outstanding on the date of the special meeting. As of the close
of business on the record date, there were 79,076,438 Copano common units outstanding and 13,219,454 Series A convertible preferred units outstanding. Each Copano common unit is entitled to one
vote, and each Series A convertible preferred unit is entitled to one vote in respect of each Copano common unit into which it is convertible. In accordance with the terms of the
Copano LLC agreement and the voting agreement pursuant to which TPG agreed, subject to the conditions set forth in the voting agreement, to convert all of its Series A convertible
preferred units into Copano common units immediately prior to the effective time, the Series A convertible preferred units will be convertible, effective immediately prior to the merger, into a
number of Copano common units equal to 110% of the number of Series A convertible preferred units then outstanding. In accordance with the Copano LLC agreement, the Series A
convertible preferred units outstanding on the record date will have that number of votes equal to the number of common units into which such Series A convertible preferred units will convert
immediately prior to the merger.
Q: When and where is the special meeting?
-
A:
-
The
special meeting will be held at The Forum Room, 12th Floor, Two Allen Center, 1200 Smith Street, Houston, Texas 77002, on Tuesday,
April 30, 2013 at 9:00 a.m., local time.
Q: How do I vote my units at the special meeting?
-
A:
-
If
you are entitled to vote at the Copano special meeting and hold your units in your own name, you can submit a proxy or vote in person by completing a
ballot at the special meeting. However, Copano encourages you to submit a proxy before the special meeting even if you plan to attend the special meeting. A proxy is a legal designation of another
person to vote your Copano units on your behalf. If you hold units in your own name, you may submit a proxy for your units by:
-
-
calling the toll-free number specified on the enclosed proxy card and following the instructions when
prompted;
-
-
accessing the Internet website specified on the enclosed proxy card and following the instructions provided to you; or
-
-
filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy
materials.
If
you submit a proxy by telephone or the Internet website, please do not return your proxy card by mail. See the response to the next question for how to vote units held through a broker or other
nominee.
Q: If my units are held in "street name" by my broker, will my broker automatically vote my units for me?
-
A:
-
No.
If your units are held in an account at a broker or through another nominee, you must instruct the broker or other nominee on how to vote your units by
following the instructions that the broker or other nominee provides to you with these materials. Most brokers offer the ability for unitholders to submit voting instructions by mail by completing a
voting instruction card, by telephone and via the Internet.
5
Table of Contents
If
you do not provide voting instructions to your broker, your units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is called a broker
non-vote. In these cases, the broker can register your units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote on those matters for
which specific authorization is required. Under the current rules of the NASDAQ Stock Market,
brokers do not have discretionary authority to vote on the proposal to adopt the merger agreement. A broker non-vote will have the same effect as a vote "AGAINST" adoption of the merger
agreement. A broker non-vote will have no effect on the proposal to adjourn the Copano special meeting, if necessary, or the related compensation proposal.
If
you hold units through a broker or other nominee and wish to vote your units in person at the special meeting, you must obtain a proxy from your broker or other nominee and present it to the
inspector of election with your ballot when you vote at the special meeting.
Q: How will my units be represented at the special meeting?
-
A:
-
If
you submit your proxy by telephone, the Internet website or by signing and returning your proxy card, the officers named in your proxy card will vote your
units in the manner you requested if you correctly submitted your proxy. If you sign your proxy card and return it without indicating how you would like to vote your units, your proxy will be voted as
the Copano board of directors recommends, which is:
-
-
Proposal
1:
"
FOR
" the adoption of the merger agreement;
-
-
Proposal
2:
"
FOR
" the approval of the adjournment of the Copano special meeting, if necessary to
solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting; and
-
-
Proposal
3:
"
FOR
" the approval, on an advisory (non-binding) basis, of the related
compensation payments that will or may be paid by Copano to its named executive officers in connection with the merger.
Q: Who may attend the special meeting?
-
A:
-
Copano
unitholders (or their authorized representatives) and Copano's invited guests may attend the special meeting. Unitholders may call the Copano Office
of the Corporate Secretary at (713) 621-9547 to obtain directions to the location of the special meeting.
Q: Is my vote important?
-
A:
-
Yes,
your vote is very important. If you do not submit a proxy or vote in person at the special meeting, it will be more difficult for Copano to obtain the
necessary quorum to hold the special meeting. In addition, an abstention or your failure to submit a proxy or to vote in person will have the same effect as a vote "AGAINST" the adoption of the merger
agreement. If you hold your units through a broker or other nominee, your broker or other nominee will not be able to cast a vote on the adoption of the merger agreement without instructions from you.
The Copano board of directors recommends that you vote "FOR" the adoption of the merger agreement.
Q: Can I revoke my proxy or change my voting instructions?
-
A:
-
Yes.
You may revoke your proxy and/or change your vote at any time before your proxy is voted at the special meeting. If you are a unitholder of record, you
can do this by:
-
-
sending a written notice stating that you revoke your proxy to Copano at 1200 Smith Street, Suite 2300, Houston,
Texas 77002, Attn: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting;
6
Table of Contents
-
-
submitting a valid, later-dated proxy by mail, telephone or Internet that is received prior to the special meeting; or
-
-
attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself,
revoke any proxy that you have previously given).
If
you hold your Copano units through a broker or other nominee, you must follow the directions you receive from your broker or other nominee in order to revoke your proxy or change your voting
instructions.
Q: What happens if I sell my units after the record date but before the special meeting?
-
A:
-
The
record date for the special meeting is earlier than the date of the special meeting and the date that the merger is expected to be completed. If you sell
or otherwise transfer your Copano common units after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting. However, you will not have
the right to receive the merger consideration to be received by Copano's unitholders in the merger. In order to receive the merger consideration, you must hold your units through completion of the
merger.
Q: What do I do if I receive more than one set of voting materials?
-
A:
-
You
may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus, proxy cards
and/or voting instruction forms. This can occur if you hold your units in more than one brokerage account, if you hold units directly as a record holder and also in "street name," or otherwise through
a nominee, and in certain other circumstances. If you receive more than one set of voting materials, each should be voted and/or returned separately in order to ensure that all of your units are
voted.
Q: Am I entitled to appraisal rights if I vote against the adoption of the merger agreement?
-
A:
-
No.
Appraisal rights, which generally confer on holders of securities who vote against a merger the right to demand payment of fair value for their
securities as determined by a court in a judicial proceeding instead of receiving the consideration offered to such holders in connection with the merger, are not available in connection with the
merger under the Delaware Limited Liability Company Act or under Copano's Fourth Amended and Restated Limited Liability Company Agreement, as amended, which is referred to as the Copano LLC
agreement.
Q: Is completion of the merger subject to any conditions?
-
A:
-
Yes.
In addition to the adoption of the merger agreement by Copano unitholders, completion of the merger requires the receipt of the necessary governmental
clearances and the satisfaction or, to the extent permitted by applicable law, waiver of the other conditions specified in the merger agreement.
Q: When do you expect to complete the merger?
-
A:
-
Copano
and Kinder Morgan are working towards completing the merger promptly. Copano and Kinder Morgan currently expect to complete the merger in May 2013,
subject to receipt of Copano's unitholder approval, regulatory approvals and clearances and other usual and customary closing conditions. However, no assurance can be given as to when, or if, the
merger will occur.
7
Table of Contents
Q: What are the expected U.S. federal income tax consequences to a Copano common unitholder as a result of the transactions contemplated by the merger
agreement?
-
A:
-
Under
current law, it is anticipated that for U.S. federal income tax purposes, no income or gain will be recognized by a Copano common unitholder solely as
a result of the merger, other than an amount of income or gain due to (i) any decrease in a Copano common unitholder's share of partnership liabilities pursuant to Section 752 of the
Internal Revenue Code or (ii) any cash received in lieu of fractional Kinder Morgan common units in the merger.
Please
read "Risk FactorsRisk Factors Relating to the Merger" and "Material U.S. Federal Income Tax Consequences of the MergerTax Consequences of the Merger to Copano and Its
Unitholders."
Q: Under what circumstances could the merger result in a Copano common unitholder recognizing taxable income or gain?
-
A:
-
As
a result of the merger, Copano common unitholders who receive Kinder Morgan common units will become limited partners of Kinder Morgan for U.S. federal
income tax purposes and will be allocated a share of Kinder Morgan's nonrecourse liabilities. Each Copano common unitholder will be treated as receiving a deemed cash distribution equal to the excess,
if any, of such Copano common unitholder's share of nonrecourse liabilities of Copano immediately before the merger over such common unitholder's share of nonrecourse liabilities of Kinder Morgan
immediately following the merger. If the amount of any deemed cash distribution received by a Copano common unitholder exceeds the common unitholder's basis in his Copano common units, such common
unitholder will recognize gain in an amount equal to such excess. Kinder Morgan and Copano expect that most Copano common unitholders will not recognize gain in this manner, except for certain Copano
common unitholders that acquired Copano common units prior to April 1, 2006 or between August 1, 2008 and July 31, 2009. The amount and effect of any gain that may be recognized
by these Copano common unitholders will depend on the Copano common unitholder's particular situation, including whether the Copano common unitholder owns additional Copano common units that were
acquired outside of the time periods referenced above and the ability of the Copano common unitholder to utilize any suspended passive losses. For additional information, please read "Material U.S.
Federal Income Tax Consequences of the MergerTax Consequences of the Merger to Copano and Its UnitholdersPossible Taxable Gain to Certain Copano Common Unitholders from
Reallocation of Nonrecourse Liabilities."
To
the extent Copano common unitholders receive cash in lieu of fractional Kinder Morgan common units in the merger, such common unitholders will recognize gain or loss equal to the difference between
the cash received and the common unitholders' adjusted tax basis allocated to such fractional Kinder Morgan common units.
Q: What are the expected U.S. federal income tax consequences for a Copano common unitholder of the ownership of Kinder Morgan common units after the merger is
completed?
-
A:
-
Each
Copano unitholder who becomes a Kinder Morgan unitholder as a result of the merger will, as is the case for existing Kinder Morgan common unitholders,
be required to report on its U.S. federal income tax return such unitholder's distributive share of Kinder Morgan's income, gains, losses, deductions and credits. In addition to U.S. federal income
taxes, such a holder will be subject to other taxes, including state and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the
various jurisdictions in which Kinder Morgan conducts business or owns property or in which the unitholder is resident. Please read "Material U.S. Federal Income Tax Consequences of Kinder Morgan
Common Unit Ownership."
8
Table of Contents
Q: Assuming the merger closes before December 31, 2013, how many Schedule K-1s will I receive if I am a Copano common
unitholder?
-
A:
-
You
will receive two Schedule K-1s, one from Copano, which will describe your share of Copano's income, gain, loss and deduction for the
period prior to effectiveness of the merger, and one from Kinder Morgan, which will describe your share of Kinder Morgan's income, gain, loss and deduction for the period after the effective time of
the merger.
At
the effective time of the merger, Copano will be treated as a terminated partnership under Section 708 of the Internal Revenue Code. Therefore, as a result of the merger, Copano's taxable
year will end as of the date of the merger, and Copano will be required to file a final U.S. federal income tax return for the taxable year ending on the date the merger is effective. Copano
expects to furnish a Schedule K-1 to each Copano unitholder, and Kinder Morgan expects to furnish a Schedule K-1 to each Kinder Morgan unitholder, within
90 days of the closing of Kinder Morgan's taxable year on December 31, 2013.
Q: What do I need to do now?
-
A:
-
Carefully
read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes. Then,
please vote your Copano units, which you may do by:
-
-
submitting your proxy by telephone or via the Internet by following the instructions included on your proxy card;
-
-
completing, dating, signing and returning the enclosed proxy card in the accompanying postage-paid envelope;
or
-
-
attending the special meeting and voting by ballot in person.
If
you hold units through a broker or other nominee, please instruct your broker or nominee to vote your units by following the instructions that the broker or nominee provides to you with these
materials.
Q: Should I send in my unit certificates now?
-
A:
-
No.
Copano unitholders should not send in their unit certificates at this time. After completion of the merger, Kinder Morgan's exchange agent will send you
a letter of transmittal and instructions for exchanging your Copano common units for the merger consideration. Unless you specifically request to receive Kinder Morgan unit certificates, the Kinder
Morgan common units you receive in the merger will be issued in book-entry form.
Q: Whom should I call with questions?
-
A:
-
Copano
unitholders should call D.F. King & Co., Inc., Copano's proxy solicitor, toll-free at
(800) 967-4604 (banks and brokers call collect at (212) 269-5550) with any questions about the merger or the special meeting, or to obtain additional copies of
this proxy statement/prospectus, proxy cards or voting instruction forms.
9
Table of Contents
SUMMARY
This summary highlights selected information from this proxy statement/prospectus. You are urged to read
carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all the information that
might be important to you with respect to the merger agreement, the merger and the other matters being considered at the Copano special meeting. See "Where You Can Find More Information." Each item in
this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.
The Parties (See page 45)
Kinder Morgan Energy Partners, L.P., which is referred to as Kinder Morgan, is a Delaware limited partnership with its common
units traded on the New York Stock Exchange, which is referred to as the NYSE, under the symbol "KMP." Kinder Morgan is one of the largest publicly-traded pipeline limited partnerships in the United
States in terms of market capitalization. Kinder Morgan G.P., Inc., a Delaware corporation, which is referred to as Kinder Morgan GP, is Kinder Morgan's general partner.
Copano
Energy, L.L.C., which is referred to as Copano, a Delaware limited liability company, is an energy company engaged in the business of providing midstream services to natural gas
producers, including gathering, transportation and processing of natural gas, fractionation and transportation of natural gas liquids, which are referred to as NGLs, and other related services.
Copano's assets are located in Texas, Oklahoma and Wyoming and include approximately 6,900 miles of active natural gas gathering and transmission pipelines and nine natural gas processing plants with
over one billion cubic feet per day of combined processing capacity. In addition to its natural gas pipelines, Copano operates 380 miles of NGL pipelines. Copano's common units are listed on the
NASDAQ Global Select Market under the symbol "CPNO."
Javelina
Merger Sub LLC, which is referred to as Merger Sub, is a Delaware limited liability company and a direct, wholly owned subsidiary of Kinder Morgan that was formed solely
in contemplation of the merger, has not commenced any operations, has only nominal assets and has no liabilities or contingent liabilities, nor any outstanding commitments other than as set forth in
the merger agreement.
The Merger (See page 52)
Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, the merger agreement provides for the
merger of Merger Sub with and into Copano. Copano will survive the merger and the separate limited liability company existence of Merger Sub will cease.
Merger Consideration (See page 52)
The merger agreement provides that, at the effective time of the merger, which is referred to as the effective time, each Copano common
unit issued and outstanding or deemed issued and outstanding immediately prior to the effective time will be converted into the right to receive 0.4563 Kinder Morgan common units (which, based on
$89.77, the closing price of Kinder Morgan common units as of March 28, 2013, had a value of $40.96 on a rounded basis). Each Copano security owned by Copano, Kinder Morgan or Merger Sub
immediately prior to the effective time will be cancelled without any conversion or payment of consideration in respect thereof. Any Copano securities owned by any other subsidiary of Kinder Morgan or
Copano will be exchanged for the merger consideration.
Treatment of Equity Awards (See page 104)
Options.
Each Copano option or similar right to purchase Copano common units that was granted under a Copano equity incentive
plan and that is
outstanding and unexercised immediately prior to the effective time (whether or not then vested or exercisable), as of immediately prior to the effective time, by virtue of the occurrence of the
consummation of the merger and without any action on the part of
10
Table of Contents
the
holder of such Copano option, will be deemed net exercised for that number of whole Copano common units, which shall be issued and outstanding as of immediately prior to the effective time, equal
to, rounded down to the nearest whole common unit, (i) the number of Copano common units subject to such Copano option immediately prior to the effective time minus (ii) the number of
whole and partial (computed to the nearest four decimal places) Copano common units with a fair market value (as such term is defined in the applicable Copano equity incentive plan) as of immediately
prior to the effective time equal to the aggregate exercise price of such Copano option. Each Copano common unit deemed issued and outstanding pursuant to such net exercise will at the effective time
be converted into the right to receive the merger consideration in accordance with the terms of the merger agreement.
Unit Appreciation Rights.
Each Copano unit appreciation right that was granted under a Copano equity incentive plan and that is
outstanding and
unexercised immediately prior to the effective time (whether or not then vested or exercisable), as of immediately prior to the effective time, by virtue of the occurrence of the consummation of the
merger and without any action on the part of the holder of such Copano unit appreciation right, will be deemed net exercised for that number of whole Copano common units, which shall be issued and
outstanding as of immediately prior to the effective time, equal to, rounded down to the nearest whole common unit, (i) the number of Copano common units subject to such Copano unit
appreciation right immediately prior to the effective time minus (ii) the number of whole and partial (computed to the nearest four decimal places) Copano common units with a fair market value
(as such term is defined in the applicable Copano equity incentive plan) as of immediately prior to the effective time equal to the aggregate exercise price of such Copano unit appreciation right.
Each Copano common unit deemed issued and outstanding pursuant to such net exercise will at the effective time be converted into the right to receive the merger consideration in accordance with the
terms of the merger agreement.
Phantom Units.
Each phantom Copano common unit that was granted under a Copano equity incentive plan and that is outstanding
immediately prior to the
effective time, automatically and without any action on the part of the holder of such phantom Copano common unit, will at the effective time vest in full (in the case of performance-based phantom
Copano common units, based on a target earned percentage of 100%), the restrictions with respect thereto will lapse, and each Copano common unit deemed to be issued in settlement thereof will be
deemed issued and outstanding as of immediately prior to the effective time and at the effective time will be converted into the right to receive the merger consideration in accordance with the terms
of the merger agreement. In addition, any tandem distribution equivalent rights payable with respect to each phantom Copano common unit that vests in accordance with the merger agreement will at the
effective time and without any action on the part of any holder thereof vest in full and become immediately payable in cash.
Restricted Units.
Each restricted Copano common unit that was granted under a Copano equity incentive plan and that is
outstanding immediately prior
to the effective time, automatically and without any action on the part of the holder of such restricted Copano common unit, will at the effective time vest
in full and the restrictions with respect thereto will lapse, and each restricted Copano common unit will be treated as an issued and outstanding Copano common unit as of immediately prior to the
effective time and at the effective time will be converted into the right to receive the merger consideration in accordance with the terms of the merger agreement. In addition, any accrued
distribution payable with respect to each restricted Copano common unit that vests in accordance with the merger agreement will at the effective time vest in full and become immediately payable in
cash.
11
Table of Contents
Copano Special Unitholder Meeting; Unitholders Entitled to Vote; Vote Required (See page 47)
Meeting.
The special meeting will be held at The Forum Room, 12th Floor, Two Allen Center, 1200 Smith Street, Houston,
Texas 77002, on Tuesday, April 30, 2013 at 9:00 a.m., local time. At the special meeting, Copano unitholders will be asked to vote on the following
proposals:
-
-
Proposal
1:
to adopt the merger agreement;
-
-
Proposal
2:
to approve the adjournment of the special meeting, if necessary to solicit additional proxies if there are not sufficient votes to
adopt the merger agreement at the time of the special meeting; and
-
-
Proposal
3:
to approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to
its named executive officers in connection with the merger.
Record Date.
Only Copano unitholders of record at the close of business on March 25, 2013 will be entitled to receive
notice of and to vote at
the special meeting. As of the close of business on the record date of March 25, 2013, there were 79,076,438 Copano common units and 13,219,454 Series A convertible preferred units
outstanding and entitled to vote at the meeting. Each holder of Copano common units is entitled to one vote for each common unit owned as of the record date. Each holder of Series A convertible
preferred units is entitled to one vote for each common unit into which the Series A convertible preferred units owned by such holder as of the record date are convertible.
Required Vote.
To adopt the merger agreement, holders of at least a majority of the outstanding Copano common units and
Series A convertible
preferred units, voting together as a single class on an "as if" converted basis, must vote in favor of adoption of the merger agreement.
Copano cannot complete the merger
unless its unitholders adopt the merger agreement.
Because approval is based on the affirmative vote of at least a majority of the outstanding Copano common units and
Series A convertible preferred units, voting together as a single class on an "as if" converted basis,
a Copano unitholder's failure to vote, an abstention from voting
or the failure of a Copano unitholder who holds his or her units in "street name" through a broker or other nominee to give voting instructions to such broker or other nominee will have the same
effect as a vote "AGAINST" adoption of the merger agreement
.
To
approve the adjournment of the Copano special meeting, if necessary to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the
special meeting, the affirmative vote of at least a majority of the votes cast affirmatively or negatively with respect to the proposal by the holders of the Copano common units and Series A
convertible preferred units, voting together as a single class on an "as if" converted basis, is required. Because approval of this proposal is based on the votes cast affirmatively or negatively by
holders of units present in person or by proxy and entitled to vote, abstentions, failures to be present to vote and failures of Copano unitholders who hold their units in "street name" through
brokers or other nominees to give voting instructions to such brokers or other nominees will have no effect on the vote held on such proposal.
To
approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to its named executive officers in connection with the
merger, the affirmative vote of at least a majority of the votes cast affirmatively or negatively with respect to the proposal by the holders of the Copano common units and Series A convertible
preferred units, voting together as a single class on an "as if" converted basis, is required. Because approval of this proposal is based on the votes cast affirmatively or negatively by holders of
the units present in person or by proxy and entitled to vote, abstentions, failures to be present to vote and failures of Copano unitholders who hold their units in "street name" through brokers or
other nominees to give voting instructions to such brokers or other nominees will have no effect on the vote held on such proposal.
Unit Ownership of and Voting by Copano's Directors and Executive Officers.
At the close of business on the record date for the
special meeting,
Copano's directors and executive officers and their affiliates
12
Table of Contents
beneficially
owned and had the right to vote 2,144,821 Copano common units at the special meeting, which represents approximately 2.2 percent of the Copano units entitled to vote at the special
meeting. It is expected that Copano's directors and executive officers will vote their units "
FOR
" the adoption of the merger agreement, although none
of them has entered into any agreement requiring them to do so.
The Voting Agreement (See page 117)
Simultaneously with the execution of the merger agreement, Copano, Kinder Morgan and Kinder Morgan GP entered into a voting
agreement with TPG Copenhagen, L.P., which is referred to as TPG, pursuant to which TPG agreed, among other things, to vote all of its Series A convertible preferred units and Copano
common units, if any, in favor of adoption of the merger agreement and the transactions contemplated thereby and against any action or agreement
(including any amendment of any agreement) that would, or would reasonably be expected to, prevent or in any material respect impede or delay the consummation of the merger and the other transactions
contemplated by the merger agreement until the date on which the approval of the merger agreement by Copano unitholders is obtained, the one year anniversary of the merger agreement or the merger
agreement is terminated in accordance with its terms, whichever occurs earliest. TPG also agreed, during the term of the voting agreement, not to sell, transfer, pledge or otherwise dispose of any
Series A convertible preferred units or Copano common units. At the close of business on the record date for the special meeting of the Copano unitholders, TPG held approximately
15.5 percent of the voting power of Copano.
On
February 8, 2013, in accordance with the terms of the Copano LLC agreement and the merger agreement and following receipt from Copano of a Series A change of control
offer, TPG notified Copano of its election, subject to the conditions set forth in the voting agreement, to have all of its Series A convertible preferred units converted into Copano common
units immediately prior to the effective time. For further information, see "The Merger AgreementSeries A Change of Control Offer."
For
additional details on the terms of the voting agreement, see "The Voting Agreement" and refer to the full text of the voting agreement, a copy of which is attached as Annex B.
Recommendation of the Copano Board of Directors and Its Reasons for the Merger (See page 59)
The Copano board of directors recommends that Copano unitholders vote "
FOR
" adoption of
the merger agreement.
In
the course of reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement, the Copano board of directors considered a number of
factors in its deliberations. For a more complete discussion of these factors, see "Proposal 1: The MergerRecommendation of the Copano Board of Directors and Its Reasons for the
Merger."
Opinions of Copano's Financial Advisors (See page 62)
Barclays Fairness Opinion.
Copano's financial advisor, Barclays, has conducted financial analyses and delivered an opinion to
the Copano board of
directors that, as of the date of the merger agreement and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, from a financial point of view, the exchange
ratio of 0.4563 Kinder Morgan common units per Copano common unit to be offered to holders of Copano common units was fair to such holders. The full text of Barclays' written opinion, dated as of
January 29, 2013, is attached hereto as Annex C and is incorporated by reference herein in its entirety. Barclays' written opinion sets forth, among other things, the assumptions made,
procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. Holders of Copano common units are encouraged to read the opinion and the
description carefully and in their entirety. This summary and the description of the opinion are qualified in their entirety by reference to the full text of the opinion.
13
Table of Contents
Jefferies Fairness Opinion.
In connection with Kinder Morgan's merger proposal to Copano, Jefferies rendered its oral opinion
(subsequently confirmed
in writing) to the Copano board of directors to the effect that, as of January 29, 2013, and based upon and subject to the various assumptions made, procedures followed, matters considered and
limitations on the review undertaken as set forth in its opinion, the conversion of each outstanding common unit of Copano (including any common units held as a result of the conversion of any
Series A convertible preferred units of Copano), other than common units owned by Copano, Kinder Morgan or Merger Sub, all of which will be canceled, into the right to receive 0.4563 common
units of Kinder Morgan to be received by the holders of Copano
common units pursuant to the merger agreement was fair, from a financial point of view, to such holders (other than Kinder Morgan, Kinder Morgan, Inc., which is referred to as KMI, Merger Sub and
their respective affiliates).
The
full text of Jefferies' written opinion, dated as of January 29, 2013, is attached hereto as Annex D and is incorporated by reference herein in its entirety. The opinion sets
forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. Copano encourages
its common unitholders to read the opinion and the description carefully and in their entirety. The summary and the description of the opinion of Jefferies set forth below are qualified in their
entirety by reference to the full text of the opinion.
Kinder Morgan Unitholder Approval is Not Required (See page 95)
Kinder Morgan unitholders are not required to adopt the merger agreement or approve the merger or the issuance of Kinder Morgan common
units in connection with the merger.
Directors and Executive Officers of Kinder Morgan After the Merger (See page 95)
Pursuant to a delegation of control agreement, Kinder Morgan GP has delegated to Kinder Morgan Management, LLC, a
Delaware limited liability company which is referred to as Kinder Morgan Management, the management and control of Kinder Morgan's business and affairs to the maximum extent permitted by Kinder
Morgan's limited partnership agreement and Delaware law, subject to Kinder Morgan GP's right to approve certain actions by Kinder Morgan Management. The directors and executive officers of
Kinder Morgan Management and Kinder Morgan GP immediately prior to the merger will continue as the directors and executive officers of Kinder Morgan Management and Kinder Morgan GP,
respectively, after the merger.
Ownership of Kinder Morgan After the Merger (See page 95)
Kinder Morgan will issue approximately 43.4 million Kinder Morgan common units to former Copano unitholders pursuant to the
merger. Immediately following the completion of the merger, Kinder Morgan expects to have at least 302.1 million common units outstanding. Copano unitholders are therefore expected to hold no
more than 14.5 percent of the aggregate number of Kinder Morgan common units, and no more than 10.3 percent of its total units of all classes, outstanding immediately after the merger.
Holders of Kinder Morgan common units are not entitled to elect the directors of Kinder Morgan GP or of Kinder Morgan Management and have only limited voting rights on matters affecting Kinder
Morgan's business. Consequently, Copano unitholders, as a general matter, will have less influence over the management and policies of Kinder Morgan than they currently exercise over the management
and policies of Copano.
Interests of Directors and Executive Officers of Copano in the Merger (See page 88)
Copano's directors and executive officers have interests in the merger that are different from, or in addition to, the interests of
Copano unitholders generally. The members of the Copano board of directors were aware of and considered these interests, among other matters, in evaluating and
14
Table of Contents
negotiating
the merger agreement and the merger, and in recommending to Copano's unitholders that the merger agreement be adopted.
These
interests include:
-
-
Copano's directors and executive officers are participants in Copano's Long-Term Incentive Plan, which is
referred to as the Copano LTIP. Pursuant to the terms of award agreements governing unit options, unit appreciation rights, phantom units and restricted units awarded under the Copano LTIP, upon a
change in control of Copano, all outstanding awards will vest, and all distribution equivalent rights with respect to phantom units and accrued distributions with respect to restricted units will
become payable. The merger agreement provides for settlement of all unit options, unit appreciation rights, phantom units and restricted units for the merger consideration and the vesting and payment
in cash of all distribution equivalent rights with respect to phantom units and accrued distributions with respect to restricted units.
-
-
Copano's executive officers are participants in Copano's Management Change in Control Severance Plan, which provides for
severance payments and benefits in the event of certain qualifying terminations of employment in connection with or following the merger.
-
-
Under the merger agreement, in the event that the merger closes in 2013, each participant (including each of the executive
officers) in Copano's management-level annual bonus plan, which is referred to as the Management Incentive Compensation Plan, will be entitled to a prorated annual incentive payment based on deemed
satisfaction of target performance levels, which amount is payable upon or as soon as practicable following the closing of the merger.
-
-
Amounts deferred by certain executive officers pursuant to Copano's Deferred Compensation Plan will become vested and
payable to such executive officers in connection with the merger.
-
-
Pursuant to his employment agreement, Mr. Northcutt, Copano's President and Chief Executive Officer, is entitled to
(i) continuation of life and disability insurance benefits and (ii) reimbursement of reasonable fees incurred for the services of a Copano-approved executive outplacement services firm,
in each case, for one year following certain qualifying terminations of his employment.
-
-
Copano's directors and executive officers are entitled to continued indemnification and insurance coverage under
indemnification agreements and the merger agreement.
-
-
Michael G. MacDougall, a member of the Copano board of directors, is also a partner with TPG. In connection with the
merger, (i) 12,897,029 Series A convertible preferred units held by TPG and outstanding as of the date of the merger agreement will be converted prior to the effective time into an
aggregate of 14,186,731 Copano common units and (ii) any Series A convertible preferred units issued as part of a distribution in kind after the date of the merger agreement and held by
TPG as of the effective time will be converted into a number of Copano common units equal to the product of 110% and the number of Series A convertible preferred units so issued. Any such
Copano common units outstanding at the effective time will be converted into the right to receive the merger consideration per Copano common unit.
-
-
Prior to the effective time, Kinder Morgan and its affiliates may initiate negotiations of agreements, arrangements and
understandings with certain of Copano's executive officers regarding compensation and benefits and may enter into definitive agreements regarding employment with, or the right to participate in the
equity of, Kinder Morgan or its affiliates, in each case on a going-forward basis following completion of the merger.
Risks Relating to the Merger and Ownership of Kinder Morgan Common Units (See page 28)
Copano unitholders should consider carefully all the risk factors together with all of the other information included or incorporated
by reference in this proxy statement/prospectus before deciding how to vote. Risks relating to the merger and ownership of Kinder Morgan common units are
15
Table of Contents
described
in the section titled "Risk Factors." Some of these risks include, but are not limited to, those described below:
-
-
Because the exchange ratio is fixed, Copano unitholders cannot be sure of the market value of the Kinder Morgan common
units they will receive as merger consideration relative to the value of the Copano common units they exchange.
-
-
Kinder Morgan and Copano may be unable to obtain the regulatory clearances and approvals required to complete the merger
or may be required to comply with material restrictions or satisfy material conditions.
-
-
The merger agreement contains provisions that limit Copano's ability to pursue alternatives to the merger and, in
specified circumstances, could require Copano to pay a termination fee of $115 million to Kinder Morgan.
-
-
Directors and executive officers of Copano have certain interests that are different from those of Copano unitholders
generally.
-
-
Copano unitholders will have a reduced ownership and voting interest after the merger and will exercise less influence
over management.
-
-
Kinder Morgan common units to be received by Copano unitholders as a result of the merger have different rights from
Copano common units.
-
-
No ruling has been requested with respect to the U.S. federal income tax consequences of the merger.
-
-
The intended U.S. federal income tax consequences of the merger are dependent upon Kinder Morgan and Copano being treated
as partnerships for U.S. federal income tax purposes.
-
-
Copano common unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the
merger.
-
-
KMI indirectly owns all of the common equity of Kinder Morgan GP and all of the voting shares of Kinder Morgan
Management and may have interests that differ from Kinder Morgan's interests and from the interests of Kinder Morgan's unitholders.
-
-
Kinder Morgan common unitholders have limited voting rights and limited control.
-
-
If Kinder Morgan were to be treated as a corporation for U.S. federal income tax purposes, or were to become subject to a
material amount of entity-level taxation for state tax purposes, Kinder Morgan's cash available for distribution to its common unitholders would be substantially reduced.
Material U.S. Federal Income Tax Consequences of the Merger (See page 118)
Tax matters associated with the merger are complicated. The U.S. federal income tax consequences of the merger to a Copano common
unitholder will depend on such common unitholder's own personal tax situation. The tax discussions in this proxy statement/prospectus focus on the U.S. federal income tax consequences generally
applicable to individuals who are residents or
citizens of the United States that hold their Copano common units as capital assets, and these discussions have only limited application to other unitholders, including those subject to special tax
treatment. Copano common unitholders are urged to consult their tax advisors for a full understanding of the U.S. federal, state, local and foreign tax consequences of the merger that will be
applicable to them.
Copano
expects to receive an opinion from Wachtell, Lipton, Rosen & Katz to the effect that no gain or loss will be recognized by Copano common unitholders to the extent Kinder
Morgan common units are received in exchange therefor as a result of the merger, other than gain resulting from either (i) any decrease in partnership liabilities pursuant to Section 752
of the Internal Revenue Code, or (ii) any cash received in lieu of any fractional Kinder Morgan common units. Kinder Morgan expects to receive an opinion from Bracewell &
Giuliani LLP to the effect that no gain or loss will be recognized
16
Table of Contents
by
Kinder Morgan common unitholders as a result of the merger (other than gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Internal Revenue Code).
Opinions of counsel, however, are subject to certain limitations and are not binding on the IRS and no assurance can be given that the IRS would not successfully assert a contrary position regarding
the merger and the opinions of counsel.
The U.S. federal income tax consequences described above may not apply to some holders of Kinder Morgan common units and Copano common units. Please read
"Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 118 for a more complete discussion of the U.S. federal income tax consequences of the
merger.
Accounting Treatment of the Merger (See page 94)
In accordance with accounting principles generally accepted in the United States and in accordance with the Financial Accounting
Standards Board's Accounting Standards Codification Topic 805
Business Combinations
, Kinder Morgan will account for the merger as an
acquisition of a business.
Listing of Kinder Morgan Common Units; Delisting and Deregistration of Copano Common Units (See page 95)
Kinder Morgan common units are currently listed on the NYSE under the ticker symbol "KMP." It is a condition to closing that the common
units to be issued in the merger to Copano unitholders be approved for listing on the NYSE, subject to official notice of issuance.
Copano
common units are currently listed on the NASDAQ Global Select Market under the ticker symbol "CPNO." If the merger is completed, Copano common units will cease to be listed on the
NASDAQ Global Select Market and will be deregistered under the Exchange Act.
No Appraisal Rights (See page 93)
Under Delaware law and pursuant to the Copano LLC agreement, Copano unitholders will not have appraisal rights in connection
with the merger.
Conditions to Completion of the Merger (See page 98)
Kinder Morgan and Copano currently expect to complete the merger in May 2013, subject to receipt of required Copano unitholder and
regulatory approvals and clearances and to the satisfaction or waiver of the other conditions to the transactions contemplated by the merger agreement described below.
As
more fully described in this proxy statement/prospectus, each party's obligation to complete the transactions contemplated by the merger agreement depends on a number of conditions
being satisfied or, where legally permissible, waived, including the following:
-
-
the merger agreement must have been approved by the affirmative vote or consent of the holders of at least a majority of
the outstanding Copano common units and Series A convertible preferred units as of the record date, voting together as a single class on an "as if" converted basis;
-
-
the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, which is referred to as the HSR Act, must have been terminated or expired (the waiting period expired on March 22, 2013);
-
-
no law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by any governmental
authority will be in effect enjoining, restraining, preventing or prohibiting the consummation of the merger or making the consummation of the merger illegal;
17
Table of Contents
-
-
the registration statement of which this proxy statement/prospectus forms a part must have been declared effective by the
SEC and must not be subject to any stop order or proceedings initiated or threatened by the SEC; and
-
-
Kinder Morgan common units to be issued in the merger must have been approved for listing on the NYSE, subject to official
notice of issuance.
The
obligations of each of Kinder Morgan and Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional
conditions:
-
-
the representations and warranties of Copano in the merger agreement being true and correct both when made and at and as
of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under "The Merger
AgreementConditions to Consummation of the Merger;"
-
-
Copano having performed, in all material respects, all obligations required to be performed by it under the merger
agreement;
-
-
the receipt of an officer's certificate executed by an executive officer of Copano certifying that the two preceding
conditions have been satisfied;
-
-
Kinder Morgan must have received from Bracewell & Giuliani LLP, tax counsel to Kinder Morgan, a written
opinion regarding certain U.S. federal income tax matters, as described under "The Merger AgreementConditions to Consummation of the Merger;" and
-
-
the conversion of (i) the 12,897,029 Series A convertible preferred units outstanding as of the date of the
merger agreement into an aggregate of 14,186,731 Copano common units and (ii) any Series A convertible preferred units issued as part of a distribution in kind, which are referred to as
PIK units, after the date of the merger agreement into a number of Copano common units equal to the product of (A) 110% and (B) the number of PIK units, in each case, as of immediately
prior to the effective time.
The
obligation of Copano to effect the merger is subject to the satisfaction or waiver of the following additional conditions:
-
-
the representations and warranties of Kinder Morgan in the merger agreement being true and correct both when made and at
and as of the date of the closing of the merger, subject to certain standards, including materiality and material adverse effect qualifications, as described under "The Merger
AgreementConditions to Consummation of the Merger;"
-
-
Kinder Morgan, Merger Sub and Kinder Morgan GP having performed, in all material respects, all obligations required
to be performed by them under the merger agreement;
-
-
the receipt of an officer's certificate executed by an executive officer of Kinder Morgan certifying that the two
preceding conditions have been satisfied; and
-
-
Copano must have received from Wachtell, Lipton, Rosen & Katz, tax counsel to Copano, a written opinion regarding
certain U.S. federal income tax matters, as described under "The Merger AgreementConditions to Consummation of the Merger."
Regulatory Approvals and Clearances Required for the Merger (See page 94)
Consummation of the merger is subject to the expiration or termination of any applicable waiting period under the HSR Act. On
March 22, 2013, the waiting period expired without a request for additional information. See "Proposal 1: The MergerRegulatory Approvals and Clearances Required for the
Merger."
No Solicitation by Copano of Alternative Proposals (See page 101)
Under the merger agreement, Copano has agreed that it will not, and will cause its subsidiaries and use reasonable best efforts to
cause its and its subsidiaries' directors, officers, employees,
18
Table of Contents
investment
bankers, financial advisors, attorneys, accountants, agents and other representatives not to, directly or indirectly:
-
-
solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or
knowingly induce or take any other action intended to lead to any inquiries or any proposals that constitute the submission of an alternative proposal (as defined under "The Merger
AgreementNo Solicitation by Copano of Alternative Proposals"); or
-
-
except as permitted by the merger agreement, enter into any confidentiality agreement, merger agreement, letter of intent,
agreement in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or other similar agreement relating to an alternative proposal.
In
addition, the merger agreement requires Copano and its subsidiaries to (i) cease and cause to be terminated any discussions or negotiations with any persons conducted prior to
the execution of the merger agreement regarding an alternative proposal, (ii) request the return or destruction of all confidential information previously provided to any such persons and
(iii) immediately prohibit any access to any persons (other than Kinder Morgan and its representatives) to any physical or electronic data room relating to a possible alternative proposal.
Notwithstanding
these restrictions, the merger agreement provides that, under specified circumstances at any time prior to Copano's unitholders voting in favor of adopting the merger
agreement, Copano may furnish information, including confidential information, with respect to it and its subsidiaries to, and participate in discussions or negotiations with, any third party that
makes a written alternative proposal that the Copano board of directors believes is
bona fide
, and (after consultation with its financial advisors and
outside legal counsel) the Copano board of directors determines in good faith constitutes or could reasonably be expected to result in a superior proposal and such alternative proposal did not result
from a material breach of the no solicitation provisions in the merger agreement.
Copano
has also agreed in the merger agreement that it (i) will promptly, and in any event within 24 hours after receipt, notify Kinder Morgan of any alternative proposal
or any request for information or inquiry with regard to any alternative proposal and the identity of the person making any such alternative proposal, request or inquiry, (ii) will provide
Kinder Morgan the terms, conditions and nature of any such alternative proposal, request or inquiry and (iii) will keep Kinder Morgan reasonably informed of all material developments affecting
the status and terms of any such alternative proposals, offers, inquiries or requests and of the status of any such discussions or negotiations.
Change in Copano Board Recommendation (See page 102)
The merger agreement provides that Copano will not withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in
a manner adverse to Kinder Morgan, Copano's board of directors' recommendation that Copano's unitholders adopt the merger agreement or publicly recommend the approval or adoption of, or publicly
approve or adopt, or propose to publicly recommend, approve or adopt, any alternative proposal. In addition, subject to certain limitations, within five business days of receipt of a written request
from Kinder Morgan following receipt by Copano of an alternative proposal, Copano will publicly reconfirm Copano's board of directors' recommendation that Copano's unitholders adopt the merger
agreement and Copano may not unreasonably withhold, delay (beyond the five business day period) or condition such public reconfirmation.
19
Table of Contents
Copano taking or failing to take, as applicable, any of the actions described above is referred to as an "adverse recommendation change."
Copano
may effect an adverse recommendation change, subject to certain procedural requirements and limitations as provided for in the merger agreement and described under "The Merger
AgreementChange in Copano Board Recommendation," (i) if Copano receives a written alternative proposal that Copano's board of directors believes is bona fide and the Copano board
of directors, after consultation with its financial advisors and outside legal counsel, concludes that such alternative proposal constitutes a superior proposal and if it determines in good faith,
after consultation with outside counsel, that failing to take any such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law or (ii) in response to
an intervening event (as described below) if Copano's board of directors concludes in good faith, after consultation with outside counsel and its financial advisors, that the exercise of its fiduciary
duties requires such adverse recommendation change.
An
"intervening event" means, with respect to Copano, a material event or circumstance that arises or occurs after the date of the merger agreement and was not, prior to such date,
reasonably foreseeable by Copano's board of directors; provided, however, that the receipt, existence or terms of an alternative proposal or any matter relating thereto or consequence thereof will not
constitute an intervening event.
Termination of the Merger Agreement (See page 106)
Kinder Morgan or Copano may terminate the merger agreement at any time prior to the effective time, whether before or after Copano
unitholders have approved the merger agreement:
-
-
by mutual written consent;
-
-
by either Kinder Morgan or Copano, if:
-
-
(i) the merger has not occurred on or before January 29, 2014, (ii) any governmental authority has issued a
final and nonappealable law, injunction, judgment or ruling that enjoins or otherwise prohibits the consummation of the transactions contemplated by the merger agreement or makes the transactions
contemplated by the merger agreement illegal or (iii) there is a breach by the non-terminating party of any of its representations, warranties, covenants or agreements in the merger
agreement such that certain closing conditions would not be satisfied, or if capable of being cured, such breach has not been cured within 30 days following delivery of written notice of such
breach by the terminating party, in each case, subject to certain exceptions discussed in "The Merger AgreementTermination of the Merger Agreement;" or
-
-
unitholders of Copano do not adopt the merger agreement at a special meeting of Copano unitholders or any adjournment or
postponement of such meeting;
-
-
by Kinder Morgan, if:
-
-
an adverse recommendation change shall have occurred; or
-
-
prior to the adoption of the merger agreement by the unitholders of Copano, Copano is in willful breach of its obligations
to (i) duly call, give notice of and hold a special meeting of Copano unitholders for the purpose of obtaining unitholder approval of the merger agreement and, through Copano's board of
directors, recommend the adoption of the merger agreement to Copano's unitholders or (ii) comply with the requirements described under "The Merger AgreementNo Solicitation by
Copano of Alternative Proposals," in each case, subject to certain exceptions discussed in "The Merger AgreementTermination of the Merger Agreement."
20
Table of Contents
Expenses and Termination Fees Relating to the Merger (See pages 107 and 108)
Generally, all fees and expenses incurred in connection with the transactions contemplated by the merger agreement will be the
obligation of the respective party incurring such fees and expenses, except that Kinder Morgan and Copano will each pay one-half of the expenses incurred in connection with the filing,
printing and mailing of this proxy statement/prospectus.
Following
termination of the merger agreement under specified circumstances, Kinder Morgan may be required to pay Copano a termination fee of $75 million and, under specified
circumstances, Copano may be required to pay Kinder Morgan a termination fee of $115 million.
Comparison of Rights of Kinder Morgan Unitholders and Copano Unitholders (See page 143)
Copano unitholders will own Kinder Morgan common units following the completion of the merger, and their rights associated with those
Kinder Morgan common units will be governed by the Kinder Morgan limited partnership agreement and Delaware limited partnership law, which differ in a number of respects from the Copano LLC
agreement and Delaware limited liability company law.
Litigation Relating to the Merger (See page 96)
Three purported class action lawsuits are currently pending that challenge the merger. Each of the actions names Copano, the board of
directors of Copano, Kinder Morgan GP, Kinder Morgan and Merger Sub as defendants. All three lawsuits are brought on behalf of a putative class seeking to enjoin the merger and alleging, among other
things, that the members of the board of directors of Copano breached their fiduciary duties by agreeing to sell Copano for inadequate and unfair consideration and pursuant to an inadequate and unfair
process, and that Copano, Kinder Morgan, Kinder Morgan GP and Merger Sub aided and abetted such alleged breaches. Each also asserts claims alleging that the disclosures made in connection with the
merger fail to provide the unitholders with all material information regarding the merger.
21
Table of Contents
Selected Historical Consolidated Financial Data of Kinder Morgan
The following selected historical consolidated financial data as of and for each of the years ended December 31, 2012, 2011,
2010, 2009 and 2008 are derived from Kinder Morgan's audited consolidated financial statements. You should read the following data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial statements and the related notes thereto set forth in Kinder Morgan's Annual Report on Form 10-K for
the year ended December 31, 2012 incorporated by reference into this proxy statement/prospectus. See "Where You Can Find More Information."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012(e)
|
|
2011(e)
|
|
2010(e)
|
|
2009(f)
|
|
2008(g)
|
|
|
|
(unaudited)
|
|
|
|
(dollars in millions, except per unit data)
|
|
Income and Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,642
|
|
$
|
7,889
|
|
$
|
7,739
|
|
$
|
6,697
|
|
$
|
11,362
|
|
Operating income
|
|
$
|
2,340
|
|
$
|
1,577
|
|
$
|
1,460
|
|
$
|
1,367
|
|
$
|
1,399
|
|
Earnings from equity investments
|
|
$
|
339
|
|
$
|
224
|
|
$
|
136
|
|
$
|
91
|
|
$
|
76
|
|
Income from continuing operations
|
|
$
|
2,025
|
|
$
|
1,067
|
|
$
|
1,092
|
|
$
|
1,036
|
|
$
|
1,078
|
|
Income (loss) from discontinued operations(a)
|
|
$
|
(669
|
)
|
$
|
201
|
|
$
|
235
|
|
$
|
248
|
|
$
|
240
|
|
Net income
|
|
$
|
1,356
|
|
$
|
1,268
|
|
$
|
1,327
|
|
$
|
1,284
|
|
$
|
1,319
|
|
Limited Partners' interest in net income (loss)
|
|
$
|
(78
|
)
|
$
|
83
|
|
$
|
431
|
|
$
|
332
|
|
$
|
499
|
|
Limited Partners' net income (loss) per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per unit from continuing operations
|
|
$
|
1.64
|
|
$
|
(0.35
|
)
|
$
|
0.65
|
|
$
|
0.32
|
|
$
|
1.02
|
|
Income (loss) from discontinued operations
|
|
$
|
(1.86
|
)
|
$
|
0.60
|
|
$
|
0.75
|
|
$
|
0.86
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per unit
|
|
$
|
(0.22
|
)
|
$
|
0.25
|
|
$
|
1.40
|
|
$
|
1.18
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit cash distribution declared(b)
|
|
$
|
4.98
|
|
$
|
4.61
|
|
$
|
4.40
|
|
$
|
4.20
|
|
$
|
4.02
|
|
Ratio of earnings to fixed charges(c)
|
|
|
3.81
|
|
|
2.82
|
|
|
3.07
|
|
|
3.20
|
|
|
3.26
|
|
Capital expenditures
|
|
$
|
1,806
|
|
$
|
1,199
|
|
$
|
1,004
|
|
$
|
1,324
|
|
$
|
2,533
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
19,603
|
|
$
|
15,596
|
|
$
|
14,604
|
|
$
|
14,154
|
|
$
|
13,241
|
|
Total assets
|
|
$
|
32,094
|
|
$
|
24,103
|
|
$
|
21,861
|
|
$
|
20,262
|
|
$
|
17,886
|
|
Long-term debt(d)
|
|
$
|
14,714
|
|
$
|
11,183
|
|
$
|
10,301
|
|
$
|
10,022
|
|
$
|
8,293
|
|
-
(a)
-
Represents
income (loss) from the operations and disposal of Kinder Morgan's (i) Kinder Morgan Interstate Gas Transmission natural gas pipeline
system; (ii) Trailblazer natural gas pipeline system; (iii) Casper and Douglas natural gas processing operations; (iv) 50% equity investment in the Rockies Express natural gas
pipeline system; and (v) for 2008 only, North System natural gas liquids pipeline system. For further information about the assets listed in (i) through (iv), see Notes 1, 2 and 3 to
Kinder Morgan's consolidated financial statements included in Kinder Morgan's Annual Report on Form 10-K for the year ended December 31, 2012 incorporated by reference in
this proxy statement/prospectus.
-
(b)
-
Represents
the amount of cash distributions declared with respect to that year.
-
(c)
-
For
the purpose of computing the ratio of earnings to fixed charges, earnings are defined as income from continuing operations before income taxes, equity
earnings (including amortization of excess cost of equity investments) and unamortized capitalized interest, plus fixed charges and distributed income of equity investees. Fixed charges are defined as
the sum of interest on all indebtedness (excluding capitalized interest), amortization of debt issuance costs and that portion of rental expense which Kinder Morgan believes to be representative of an
interest factor.
-
(d)
-
Excludes
debt fair value adjustments. Increases to long-term debt for debt fair value adjustments totaled $1,461 million as of
December 31, 2012, $1,055 million as of December 31, 2011, $582 million as of December 31, 2010, $308 million as of December 31, 2009, and
$933 million as of December 31, 2008.
-
(e)
-
For
each of the years 2012, 2011 and 2010, includes results of operations for net assets acquired since effective dates of acquisition. For further
information on these acquisitions, see Note 3 to Kinder Morgan's consolidated financial statements included in its Annual Report on Form 10-K for the year ended
December 31, 2012 incorporated by reference in this proxy statement/prospectus.
22
Table of Contents
-
(f)
-
Includes
results of operations for the terminal assets acquired from Megafleet Towing Co., Inc., the Portland Airport refined products
pipeline assets acquired from Chevron Pipe Line Company, the natural gas treating business acquired from Crosstex Energy, L.P. and Crosstex Energy, Inc., and the 40% equity membership
interest in Endeavor Gathering LLC acquired from GMX Resources Inc. since effective dates of acquisition. Kinder Morgan acquired the terminal assets from Megafleet effective
April 23, 2009, the Portland Airport Pipeline assets from Chevron effective July 31, 2009, the natural gas treating business from Crosstex effective October 1, 2009, and the 40%
membership interest in Endeavor effective November 1, 2009.
-
(g)
-
Includes
results of operations for the terminal assets acquired from Chemserve, Inc., and the refined petroleum products terminal located in Phoenix,
Arizona acquired from ConocoPhillips since effective dates of acquisition. Kinder Morgan acquired the terminal assets from Chemserve, Inc. effective August 15, 2008, and Kinder Morgan
acquired the refined petroleum products terminal from ConocoPhillips effective December 10, 2008. The increase in overall revenues in 2008 was primarily due to incremental revenues earned from
the sales of natural gas by Kinder Morgan's Natural Gas Pipelines business segment.
23
Table of Contents
Selected Historical Consolidated Financial Data of Copano
The following historical consolidated financial data as of and for each of the years ended December 31, 2012, 2011, 2010, 2009
and 2008 are derived from Copano's audited consolidated financial statements. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and the related notes thereto set forth in Copano's Annual Report on Form 10-K for the year ended
December 31, 2012 incorporated by reference into this proxy statement/prospectus. See "Where You Can Find More Information."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands, except per unit data)
|
|
Income and Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(a)
|
|
$
|
1,417,720
|
|
$
|
1,345,223
|
|
$
|
995,164
|
|
$
|
820,046
|
|
$
|
1,454,419
|
|
Equity in loss (earnings) from unconsolidated affiliates
|
|
$
|
137,088
|
|
$
|
145,324
|
|
$
|
20,480
|
|
$
|
(4,600
|
)
|
$
|
(6,889
|
)
|
Operating (loss) income
|
|
$
|
(82,614
|
)
|
$
|
(89,450
|
)
|
$
|
45,777
|
|
$
|
72,355
|
|
$
|
105,703
|
|
(Loss) income from continuing operations
|
|
$
|
(138,970
|
)
|
$
|
(156,312
|
)
|
$
|
(8,681
|
)
|
$
|
20,866
|
|
$
|
55,922
|
|
Preferred unit distributions
|
|
$
|
(36,117
|
)
|
$
|
(32,721
|
)
|
$
|
(15,188
|
)
|
$
|
|
|
$
|
|
|
Net (loss) income to common units
|
|
$
|
(175,087
|
)
|
$
|
(189,033
|
)
|
$
|
(23,869
|
)
|
$
|
20,866
|
|
$
|
55,922
|
|
Basic (loss) income per common from continuing operations
|
|
$
|
(2.39
|
)
|
$
|
(2.86
|
)
|
$
|
(0.37
|
)
|
$
|
0.39
|
|
$
|
1.15
|
|
Diluted (loss) income per common from continuing operations
|
|
$
|
(2.39
|
)
|
$
|
(2.86
|
)
|
$
|
(0.37
|
)
|
$
|
0.36
|
|
$
|
0.97
|
|
Per unit cash distribution declared(b)
|
|
$
|
2.30
|
|
$
|
2.30
|
|
$
|
2.30
|
|
$
|
2.30
|
|
$
|
2.17
|
|
Ratio of consolidated earnings to fixed charges(c)
|
|
|
1.5x
|
|
|
1.3x
|
|
|
1.6x
|
|
|
1.8x
|
|
|
2.1x
|
|
Capital expenditures
|
|
$
|
359,340
|
|
$
|
273,293
|
|
$
|
130,504
|
|
$
|
71,152
|
|
$
|
180,825
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
1,372,509
|
|
$
|
1,103,699
|
|
$
|
912,157
|
|
$
|
841,323
|
|
$
|
819,099
|
|
Total assets
|
|
$
|
2,200,164
|
|
$
|
2,064,597
|
|
$
|
1,906,993
|
|
$
|
1,867,412
|
|
$
|
2,013,665
|
|
Long-term debt
|
|
$
|
1,001,649
|
|
$
|
994,525
|
|
$
|
592,736
|
|
$
|
852,818
|
|
$
|
821,119
|
|
-
(a)
-
Selected
financial data as of and for the years ended December 31, 2009 and 2008 excludes the results attributable to Copano's crude oil pipeline and
related activities, as they are classified as discontinued operations.
-
(b)
-
Represents
the amount of cash distributions declared with respect to that period.
-
(c)
-
For
the purpose of calculating the ratio of consolidated earnings to fixed charges, "earnings" means the aggregate of the following items:
pre-tax income from continuing operations before adjustment for income or loss from equity investees; plus fixed charges; plus amortization of capitalized interest; plus distributed income
of equity investees; plus our share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges; less interest capitalized; less
preference security dividend requirements of consolidated subsidiaries; and less the noncontrolling interest in pre-tax income of subsidiaries that have not incurred fixed charges and
"fixed charges" means the sum of the following: (a) interest expensed and capitalized, (b) amortized premiums, discounts and capitalized expenses related to indebtedness, (c) an
estimate of the interest within rental expense and (d) preference security dividend requirements of consolidated subsidiaries; and "preference security dividend" means the amount of
pre-tax earnings that is required to pay the dividends on outstanding preference securities.
24
Table of Contents
Unaudited Comparative Per Unit Information
The table below sets forth historical and unaudited pro forma combined per unit information of Kinder Morgan and Copano.
Historical Per Unit Information of Kinder Morgan and Copano
The historical per unit information of Kinder Morgan and Copano set forth in the table below is derived from the audited consolidated
financial statements as of and for the year ended December 31, 2012 for each of Kinder Morgan and Copano.
Pro Forma Combined Per Unit Information of Kinder Morgan
The unaudited pro forma combined per unit information of Kinder Morgan set forth in the table below gives effect to the merger under
the purchase method of accounting, as if the merger had been effective on January 1, 2012, in the case of income from continuing operations per unit and cash distributions data, and
December 31, 2012, in the case of book
value per unit data, and, in each case, assuming that 0.4563 Kinder Morgan common units have been issued in exchange for each outstanding Copano common unit, after giving effect to the conversion of
the Series A convertible preferred units and the settlement of outstanding Copano options, unit appreciation rights, phantom units and restricted units in accordance with the merger agreement.
The unaudited pro forma combined per unit information of Kinder Morgan is derived from the audited consolidated financial statements as of and for the year ended December 31, 2012 for each of
Kinder Morgan and Copano.
Equivalent Pro Forma Combined Per Unit Information of Copano
The unaudited Copano equivalent pro forma per unit amounts set forth in the table below are calculated by multiplying the unaudited pro
forma combined per unit amounts of Kinder Morgan by the exchange ratio of 0.4563.
General
You should read the information set forth below in conjunction with the selected historical financial information of Kinder Morgan and
Copano included elsewhere in this proxy statement/prospectus and the historical financial statements and related notes of Kinder Morgan and Copano that are incorporated into this proxy
statement/prospectus by reference. See "Selected Historical Consolidated Financial Data of Kinder Morgan," "Selected Historical Consolidated Financial Data of Copano" and "Where You Can Find More
Information."
The
accounting for an acquisition of a business is based on the authoritative guidance for business combinations. Purchase accounting requires, among other things, that the assets
acquired and liabilities assumed be recognized at their fair values as of the date the merger is completed. The allocation of the purchase price is dependent upon certain valuations of Copano's assets
and liabilities and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments reflect
the assets and liabilities of Copano at their preliminary estimated fair values. Differences between these preliminary estimates and the final purchase accounting will occur, and these differences
could have a material impact on the unaudited pro forma combined per unit information set forth in the following table.
The
unaudited pro forma per unit information of Kinder Morgan does not purport to represent the actual results of operations that Kinder Morgan would have achieved or distributions that
would have been declared had the companies been combined during these periods or to project the future results of operations that Kinder Morgan may achieve or the distributions it may pay after the
merger.
25
Table of Contents
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2012
|
|
HistoricalKinder Morgan Energy Partners L.P.
|
|
|
|
|
Income from Continuing Operations Per UnitBasic and Diluted
|
|
$
|
1.64
|
|
Distribution per Unit declared for the period
|
|
|
4.98
|
|
Book value per Unit(a)
|
|
|
30.41
|
|
HistoricalCopano
|
|
|
|
|
Loss from Continuing Operations Per UnitBasic and Diluted
|
|
$
|
(2.39
|
)
|
Distribution per Unit declared for the period
|
|
|
2.30
|
|
Book value per Unit(b)
|
|
|
10.67
|
|
Pro Forma Combined
|
|
|
|
|
Income from Continuing Operations Per UnitBasic and Diluted(c)
|
|
$
|
0.84
|
|
Distribution per Unit declared for the period(d)
|
|
|
4.96
|
|
Book value per Unit(e)
|
|
|
37.30
|
|
Equivalent Pro Forma Combined(f)
|
|
|
|
|
Income from Continuing Operations Per UnitBasic and Diluted
|
|
$
|
0.38
|
|
Distribution per Unit declared for the period
|
|
|
2.26
|
|
Book value per Unit
|
|
|
17.02
|
|
-
(a)
-
Book
value per Kinder Morgan common unit was calculated by allocating 2% of net book value to the general partner interest in Kinder Morgan. The remaining
98% of net book value was divided by the total Kinder Morgan common units outstanding as of December 31, 2012.
-
(b)
-
Book
value per Copano common unit was calculated as the net book value divided by the common units and Series A convertible preferred units outstanding as
of December 31, 2012.
-
(c)
-
Pro
forma combined income from continuing operations per unit is calculated by dividing pro forma income from continuing operations allocable to Kinder
Morgan common units by the weighted average pro forma units outstanding.
-
(d)
-
Pro
forma distributions per unit declared are calculated by adding the total distributions declared to Copano common unitholders to the total distributions
declared by Kinder Morgan, inclusive of distributions to both limited partners and its general partner. This combined distributions total is then put through the distribution provisions of the Kinder
Morgan partnership agreement. The total distribution allocable to Kinder Morgan common units through the Kinder Morgan distribution calculation is then adjusted for the incentive distributions that
Kinder Morgan GP will forego in connection with the merger. The remaining cash available for distribution is then divided by the average pro forma Kinder Morgan common units outstanding.
-
(e)
-
Pro
forma combined book value per Kinder Morgan common unit as of December 31, 2012 was calculated by allocating 2% of pro forma net book value to
the general partner interest in Kinder Morgan at period end. The remaining 98% of net book value was divided by the pro forma common units outstanding at period end.
-
(f)
-
Pro
forma equivalent amounts are calculated by multiplying the unaudited pro forma combined per unit amounts of Kinder Morgan by the exchange ratio of
0.4563.
26
Table of Contents
Comparative Unit Prices and Distributions
Kinder Morgan common units are currently listed on the NYSE under the ticker symbol "KMP." Copano common units are currently listed on
the NASDAQ Global Select Market under the ticker symbol "CPNO." The table below sets forth, for the calendar quarters indicated, the high and low sale prices per Kinder Morgan common unit on the NYSE
and per Copano common unit on the NASDAQ Global Select Market. The table also shows the amount of cash distributions declared on Kinder Morgan common units and Copano common units, respectively, for
the calendar quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kinder Morgan Common Units
|
|
Copano Common Units
|
|
|
|
High
|
|
Low
|
|
Cash
Distributions
|
|
High
|
|
Low
|
|
Cash
Distributions
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter (through March 28, 2013)
|
|
$
|
89.89
|
|
$
|
80.83
|
|
|
|
|
$
|
40.52
|
|
$
|
31.84
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
|
86.32
|
|
|
74.76
|
|
$
|
1.29
|
|
|
34.00
|
|
|
27.72
|
|
$
|
0.575
|
|
Third quarter
|
|
|
86.47
|
|
|
78.60
|
|
|
1.26
|
|
|
33.43
|
|
|
26.10
|
|
|
0.575
|
|
Second quarter
|
|
|
85.50
|
|
|
74.15
|
|
|
1.23
|
|
|
37.20
|
|
|
24.24
|
|
|
0.575
|
|
First quarter
|
|
|
90.60
|
|
|
80.40
|
|
|
1.20
|
|
|
38.03
|
|
|
33.00
|
|
|
0.575
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
|
84.95
|
|
|
65.00
|
|
|
1.16
|
|
|
34.28
|
|
|
26.08
|
|
|
0.575
|
|
Third quarter
|
|
|
74.00
|
|
|
63.42
|
|
|
1.16
|
|
|
35.39
|
|
|
27.07
|
|
|
0.575
|
|
Second quarter
|
|
|
78.00
|
|
|
69.50
|
|
|
1.15
|
|
|
37.40
|
|
|
31.17
|
|
|
0.575
|
|
First quarter
|
|
|
74.51
|
|
|
69.66
|
|
|
1.14
|
|
|
36.40
|
|
|
30.23
|
|
|
0.575
|
|
The
following table presents per unit closing prices for Kinder Morgan common units and Copano common units on January 29, 2013, the last trading day before the public
announcement of the merger agreement, and on March 28, 2013, the last practicable trading day before the date of this proxy statement/prospectus. This table also presents the equivalent market
value per Copano common unit on such dates. The equivalent market value per Copano common unit has been determined by multiplying the closing prices of Kinder Morgan common units on those dates by the
exchange ratio of 0.4563 of a Kinder Morgan common unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
Kinder Morgan
Common Units
|
|
Copano
Common Units
|
|
Equivalent Market
Value per Copano
Common Unit
|
|
January 29, 2013
|
|
$
|
89.66
|
|
$
|
33.13
|
|
$
|
40.91
|
|
March 28, 2013
|
|
|
89.77
|
|
|
40.52
|
|
|
40.96
|
|
Although
the exchange ratio is fixed, the market prices of Kinder Morgan common units and Copano common units will fluctuate prior to the consummation of the merger and the market value
of the merger consideration ultimately received by Copano unitholders will depend on the closing price of Kinder Morgan common units on the day the merger is consummated. Thus, Copano unitholders will
not know the exact market value of the merger consideration they will receive until the closing of the merger.
27
Table of Contents
RISK FACTORS
In addition to the other information included and incorporated by reference into this proxy
statement/prospectus, including the matters addressed in the section titled "Cautionary Statement Regarding Forward-Looking Statements," you should carefully consider the following risks before
deciding whether to vote for the adoption of the merger agreement and the merger. In addition, you should read and carefully consider the risks associated with each of Kinder Morgan and Copano and
their respective businesses. These risks can be found in Kinder Morgan's and Copano's respective Annual Reports on Form 10-K for the year ended December 31, 2012, as updated
by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. For further information
regarding the documents incorporated into this proxy statement/prospectus by reference, please see the section titled "Where You Can Find More Information." Realization of any of the risks described
below, any of the events described under "Cautionary Statement Regarding Forward-Looking Statements" or any of the risks or events described in the documents incorporated by reference could have a
material adverse effect on Kinder Morgan's, Copano's or the combined organization's respective businesses, financial condition, cash flows and results of operations and could result in a decline in
the trading prices of their respective common units.
Risk Factors Relating to the Merger
Because the exchange ratio is fixed and because the market price of Kinder Morgan common units will fluctuate prior to the consummation of the merger, Copano unitholders
cannot be sure of the market value of the Kinder Morgan common units they will receive as merger consideration relative to the value of Copano common units they exchange.
The market value of the consideration that Copano unitholders will receive in the merger will depend on the trading price of Kinder
Morgan's common units at the closing of the merger. The exchange ratio that determines the number of Kinder Morgan common units that Copano unitholders will receive in the merger is fixed. This means
that there is no mechanism contained in the merger agreement that would adjust the number of Kinder Morgan common units that Copano unitholders will receive based on any decreases in the trading price
of Kinder Morgan common units. If Kinder Morgan's common unit price at the closing of the merger is less than Kinder Morgan's common unit price on the date that the merger agreement was signed, then
the market value of the consideration received by Copano unitholders will be less than contemplated at the time the merger agreement was signed.
Kinder
Morgan common unit price changes may result from a variety of factors, including general market and economic conditions, conditions affecting its industry generally or those of
its customers, changes in Kinder Morgan's business, operations and prospects, and regulatory considerations. Many of these factors are beyond Kinder Morgan's and Copano's control. For historical and
current market prices of Kinder Morgan common units and Copano common units, please read "SummaryComparative Unit Prices and Distributions" in this proxy statement/prospectus.
Kinder Morgan and Copano may be unable to obtain the regulatory clearances required to complete the merger or, in order to do so, Kinder Morgan and Copano may be required to
comply with material restrictions or satisfy material conditions.
The merger is subject to review by the Antitrust Division of the Department of Justice, which is referred to as the Antitrust Division,
and the Federal Trade Commission, which is referred to as the FTC, under the HSR Act, and potentially state regulatory authorities. The closing of the merger is subject to the condition that there be
no law, injunction, judgment or ruling by a governmental authority in effect enjoining, restraining, preventing or
prohibiting the merger contemplated by the merger agreement. Kinder Morgan and Copano can provide no assurance that all required regulatory
28
Table of Contents
clearances
will be obtained. If a governmental authority asserts objections to the merger, Kinder Morgan may be required to divest some assets in order to obtain antitrust clearance. There can be no
assurance as to the cost, scope or impact of the actions that may be required to obtain antitrust approval. In addition, the merger agreement provides that Kinder Morgan is not required to commit to
dispositions of assets in order to obtain regulatory clearance unless they do not exceed specified thresholds. If Kinder Morgan must take such actions, it could be detrimental to it or to the combined
organization following the consummation of the merger. Furthermore, these actions could have the effect of delaying or preventing completion of the proposed merger or imposing additional costs on or
limiting the revenues of the combined organization following the consummation of the merger. See "The Merger AgreementRegulatory Matters."
Although
the statutory waiting period under the HSR Act has expired, the Antitrust Division or the FTC could take action under the antitrust laws to prevent or rescind the merger,
require the divestiture of assets or seek other remedies. Additionally, state attorneys general could seek to block or challenge the merger as they deem necessary or desirable in the public interest
at any time, including after completion of the transaction. In addition, in some circumstances, a third party could initiate a private action under antitrust laws challenging or seeking to enjoin the
merger, before or after it is completed. Kinder Morgan may not prevail and may incur significant costs in defending or settling any action under the antitrust laws.
The fairness opinions rendered to the board of directors of Copano by its financial advisors were based on the respective financial analyses performed by Copano's financial
advisors, which considered factors such as market and other conditions then in effect, and financial forecasts and other information made available to Copano's financial advisors, as of the date of
their respective opinions. As a result, these opinions do not reflect changes in events or circumstances after the date of these opinions. Copano has not obtained, and does not expect to obtain,
updated fairness opinions from its financial advisors reflecting changes in circumstances that may have occurred since the signing of the merger agreement.
The fairness opinions rendered to the board of directors of Copano by Barclays and Jefferies were provided in connection with, and at
the time of, the board of director's evaluation of the merger and the merger agreement. These opinions were based on the respective financial analyses performed, which considered market and other
conditions then in effect, and financial forecasts and other information made available to them, as of the date of their respective opinions, which may have changed, or may change, after the date of
the opinions. Copano has not obtained updated opinions as of the date of this proxy statement/prospectus from its financial advisors, and it does not expect to obtain updated opinions prior to
completion of the merger. Changes in the
operations and prospects of Kinder Morgan or Copano, general market and economic conditions and other factors which may be beyond the control of Kinder Morgan and Copano, and on which the fairness
opinions were based, may have altered the value of Kinder Morgan or Copano or the prices of Kinder Morgan common units or Copano common units since the date of such opinions, or may alter such values
and prices by the time the merger is completed. The opinions do not speak as of any date other than the date of the opinions. For a description of the opinions that Copano received from its financial
advisors, please refer to "Proposal 1: The MergerOpinions of Copano's Financial Advisors."
Copano is subject to provisions that limit its ability to pursue alternatives to the merger, could discourage a potential competing acquirer of Copano from making a
favorable alternative transaction proposal and, in specified circumstances under the merger agreement, could require Copano to pay a termination fee of $115 million to Kinder Morgan.
Under the merger agreement, Copano is restricted from entering into alternative transactions. Unless and until the merger agreement is
terminated, subject to specified exceptions (which are discussed in more detail in "The Merger AgreementNo Solicitation by Copano of Alternative
29
Table of Contents
Proposals"),
Copano is restricted from soliciting, initiating, knowingly facilitating, knowingly encouraging or knowingly inducing or negotiating, any inquiry, proposal or offer for a competing
acquisition proposal with any person. Under the merger agreement, in the event of a potential change by the board of directors of Copano of its recommendation with respect to the proposed merger in
light of a superior proposal, Copano must provide Kinder Morgan with five days' notice to allow Kinder Morgan to propose an adjustment to the terms and conditions of the merger agreement. Copano
entered into confidentiality/standstill agreements with two potentially interested parties other than Kinder Morgan. While these agreements allow each interested party to engage Copano in certain
discussions regarding a potential competing transaction, one of the agreements prohibits discussions, and restricts requests to Copano to waive that prohibition, in a situation where public disclosure
of the discussions would be required. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of Copano from considering or proposing that
acquisition, even if such third party were prepared to pay consideration with a higher per unit market value than the market value proposed to be received or realized in the merger, or might result in
a potential competing acquirer of Copano proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in
specified circumstances.
Under
the merger agreement, Copano may be required to pay to Kinder Morgan a termination fee of $115 million if the merger agreement is terminated under specified circumstances
(which are discussed in more detail in "The Merger AgreementTerminations Fees"). If such a termination
fee is payable, the payment of this fee could have material and adverse consequences to the financial condition and operations of Copano. For a discussion of the restrictions on Copano soliciting or
entering into a takeover proposal or alternative transaction and Copano's board of directors' ability to change its recommendation, see "The Merger AgreementNo Solicitation by Copano of
Alternative Proposals," and "Change in Copano Board Recommendation."
Directors and executive officers of Copano have certain interests that are different from those of Copano unitholders generally.
Directors and executive officers of Copano are parties to agreements or participants in other arrangements that give them interests in
the merger that may be different from, or be in addition to, your interests as a unitholder of Copano. You should consider these interests in voting on the merger. These different interests are
described under "Proposal 1: The MergerInterests of Directors and Executive Officers of Copano in the Merger."
Copano may have difficulty attracting, motivating and retaining executives and other employees in light of the merger.
Uncertainty about the effect of the merger on Copano employees may have an adverse effect on the combined organization. This
uncertainty may impair Copano's ability to attract, retain and motivate personnel until the merger is completed. Employee retention may be particularly challenging during the pendency of the merger,
as employees may feel uncertain about their future roles with the combined organization. In addition, Copano may have to provide additional compensation in order to retain employees. If employees of
Copano depart because of issues relating to the uncertainty and difficulty of integration or a desire not to become employees of the combined organization, the combined organization's ability to
realize the anticipated benefits of the merger could be reduced.
Kinder Morgan and Copano will incur substantial transaction-related costs in connection with the merger.
Kinder Morgan and Copano expect to incur a number of non-recurring transaction-related costs associated with completing the
merger, combining the operations of the two companies and achieving desired synergies. These fees and costs will be substantial. Non-recurring transaction costs include, but are not
limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of Kinder Morgan
30
Table of Contents
and
Copano. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset
the incremental transaction-related costs over time. Thus, any net benefit may not be achieved in the near term, the long term or at all.
Failure to successfully combine the businesses of Copano and Kinder Morgan in the expected time frame may adversely affect the future results of the combined organization,
and, consequently, the value of the Kinder Morgan common units that Copano unitholders receive as the merger consideration.
The success of the proposed merger will depend, in part, on the ability of Kinder Morgan to realize the anticipated benefits and
synergies from combining the businesses of Kinder Morgan and Copano. To realize these anticipated benefits, the businesses must be successfully combined. If the combined organization is not able to
achieve these objectives, or is not able to achieve these objectives on a timely basis, the anticipated benefits of the merger may not be realized fully or at all. In addition, the actual integration
may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger. These integration difficulties could result in declines in the market value of Kinder
Morgan's common units and, consequently, result in declines in the market value of the Kinder Morgan common units that Copano unitholders receive as the merger consideration.
Failure to complete the merger, or significant delays in completing the merger, could negatively affect the trading prices of Kinder Morgan common units and Copano common
units and the future business and financial results of Kinder Morgan and Copano.
Completion of the merger is not assured and is subject to risks, including the risks that approval of the merger by the Copano
unitholders or by governmental agencies is not obtained or that other closing conditions are not satisfied. If the merger is not completed, or if there are significant delays in completing the merger,
the trading prices of Kinder Morgan common units and Copano common units and the respective future business and financial results of Kinder Morgan and Copano could be negatively affected, and each of
them will be subject to several risks, including the following:
-
-
the parties may be liable for damages to one another under the terms and conditions of the merger agreement;
-
-
negative reactions from the financial markets, including declines in the price of Kinder Morgan common units or Copano
common unit due to the fact that current prices may reflect a market assumption that the merger will be completed;
-
-
having to pay certain significant costs relating to the merger, including, in the case of Copano in certain circumstances,
a termination fee of $115 million and in the case of Kinder Morgan in certain circumstances, a termination fee of $75 million, in each case, as described in "The Merger
AgreementTermination Fees;" and
-
-
the attention of management of Kinder Morgan and Copano will have been diverted to the merger rather than each company's
own operations and pursuit of other opportunities that could have been beneficial to that company.
Purported class action complaints have been filed against Copano, Kinder Morgan, Copano's board of directors, Kinder Morgan GP and Merger Sub, challenging the merger,
and an unfavorable judgment or ruling in these lawsuits could prevent or delay the consummation of the proposed merger and result in substantial costs.
Three purported class action lawsuits are currently pending that challenge the merger. Each lawsuit names as defendants Copano, Kinder
Morgan, the individual members of Copano's board of directors, Kinder Morgan GP and Merger Sub. Among other remedies, the plaintiffs seek to enjoin the
31
Table of Contents
proposed
merger. If these lawsuits are not dismissed or otherwise resolved, they could prevent and/or delay completion of the merger and result in substantial costs to Copano and Kinder Morgan,
including any costs associated with the indemnification of directors. Additional lawsuits may be filed in
connection with the proposed merger. There can be no assurance that any of the defendants will prevail in the pending litigation or in any future litigation. The defense or settlement of any lawsuit
or claim may adversely affect the combined organization's business, financial condition or results of operations. See "Proposal 1: The MergerLitigation Relating to the Merger."
If the merger is approved by Copano unitholders, the date that those unitholders will receive the merger consideration is uncertain.
As described in this proxy statement/prospectus, completing the proposed merger is subject to several conditions, not all of which are
controllable or waiveable by Kinder Morgan or Copano. Accordingly, if the proposed merger is approved by Copano unitholders, the date that those unitholders will receive the merger consideration
depends on the completion date of the merger, which is uncertain.
Copano's and Kinder Morgan's financial estimates are based on various assumptions that may not prove to be correct.
The financial estimates set forth in the forecast included under "Proposal 1: The MergerCopano Projected Financial
Information" and "Kinder Morgan Projected Financial Information" are based on assumptions of, and information available to, Copano and Kinder Morgan, respectively, at the time they were
prepared and provided to Copano's and Kinder Morgan's respective boards of directors and Copano's financial advisors. Copano and Kinder Morgan do not know whether the assumptions they made will prove
correct. Any or all of such estimates may turn out to be wrong. They can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond
Copano's and Kinder Morgan's control. Many factors mentioned in this proxy statement/prospectus, including the risks outlined in this "Risk Factors" section and the events and/or circumstances
described under "Cautionary Statement Regarding Forward-Looking Statements" will be important in determining Kinder Morgan's and/or Copano's future results. As a result of these contingencies, actual
future results may vary materially from Copano's and Kinder Morgan's estimates. In view of these uncertainties, the inclusion of Copano's and Kinder Morgan's financial estimates in this proxy
statement/prospectus is not and should not be viewed as a representation that the forecasted results will be achieved.
Copano's
financial estimates are possible scenarios for Copano's internal use and were not prepared with a view toward public disclosure, and neither Copano's nor Kinder Morgan's
financial estimates were prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on
which it is made, and each of Copano and Kinder Morgan undertakes no obligation, other than as required by applicable law, to update its financial estimates herein to reflect events or circumstances
after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.
The
financial estimates included in this proxy statement/prospectus have been prepared by, and are the responsibility of, Copano and Kinder Morgan, as applicable. Moreover, neither
Copano's independent accountants, Deloitte & Touche LLP, Kinder Morgan's independent accountants, PricewaterhouseCoopers LLP, nor any other independent accountants have compiled,
examined or performed any procedures with respect to Copano's or Kinder Morgan's prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance
on such information or its achievability, and, accordingly, each of Deloitte & Touche LLP and PricewaterhouseCoopers LLP assumes no responsibility for, and disclaims any
association with,
32
Table of Contents
Copano's
and Kinder Morgan's prospective financial information. The reports of Deloitte & Touche LLP and of PricewaterhouseCoopers LLP incorporated by reference relate exclusively
to the historical financial information of the entities named in those reports and do not cover any other information in this proxy statement/prospectus and should not be read to do so. See "Proposal
1: The MergerCopano Projected Financial Information" for more information.
Copano unitholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management.
Copano unitholders currently have the right to vote in the election of the Copano board of directors and certain other matters
affecting Copano. When the merger occurs, each Copano unitholder that receives Kinder Morgan common units will become a unitholder of Kinder Morgan with a percentage ownership of the combined
organization that is much smaller than such unitholder's percentage ownership of Copano. Kinder Morgan unitholders are not entitled to elect the general partner unless it has been removed or
withdrawn, and are not entitled to elect the directors of Kinder Morgan's general partner or Kinder Morgan Management. In addition, Kinder Morgan unitholders have only limited voting rights on matters
affecting Kinder Morgan's business and, therefore, limited ability to influence management's decisions regarding Kinder Morgan's business. Because of this, Copano unitholders will have less influence
on the management and policies of Kinder Morgan than they have now on the management and policies of Copano.
Kinder Morgan common units to be received by Copano unitholders as a result of the merger have different rights from Copano common units.
Following completion of the merger, Copano unitholders will no longer hold Copano common units, but will instead be unitholders of
Kinder Morgan. Kinder Morgan is a limited partnership, and Copano is a limited liability company. There are important differences between the rights of Copano unitholders and the rights of Kinder
Morgan unitholders. See "Comparison of Rights of Kinder Morgan Unitholders and Copano Unitholders" for a discussion of the different rights associated with Copano common units and Kinder Morgan common
units.
No ruling has been obtained with respect to the U.S. federal income tax consequences of the merger.
No ruling has been or will be requested from the IRS with respect to the U.S. federal income tax consequences of the merger. Instead,
Kinder Morgan and Copano are relying on the opinions of their respective counsel as to the U.S. federal income tax consequences of the merger, and counsel's conclusions may not be sustained if
challenged by the IRS. Please read "Material U.S. Federal Income Tax Consequences of the Merger."
The intended U.S. federal income tax consequences of the merger are dependent upon Kinder Morgan and Copano being treated as partnerships for U.S. federal income tax
purposes.
The treatment of the merger as nontaxable to Copano unitholders is dependent upon Kinder Morgan and Copano each being treated as a
partnership for U.S. federal income tax purposes. If Kinder Morgan or Copano were treated as a corporation for U.S. federal income tax purposes, the consequences of the merger would be materially
different and the merger would likely be a fully taxable transaction to a Copano common unitholder.
Copano common unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the merger.
As a result of the merger, Copano common unitholders who receive Kinder Morgan common units will become limited partners of Kinder
Morgan for U.S. federal income tax purposes and will be
33
Table of Contents
allocated
a share of Kinder Morgan's nonrecourse liabilities. Each Copano common unitholder will be treated as receiving a deemed cash distribution equal to the excess, if any, of such Copano common
unitholder's share of nonrecourse liabilities of Copano immediately before the merger over such common unitholder's share of nonrecourse liabilities of Kinder Morgan immediately following the merger.
If the amount of any deemed cash distribution received by a Copano common unitholder exceeds the common unitholder's basis in his Copano common units, such common unitholder will recognize gain in an
amount equal to such excess. Kinder Morgan and Copano expect that most Copano common unitholders will not recognize gain in this manner, except for certain Copano common unitholders that acquired
Copano common units prior to April 1, 2006 or between August 1, 2008 and July 31, 2009. The amount and effect of any gain that may be recognized by these Copano common unitholders
will depend on the Copano common unitholder's particular situation, including whether the Copano common unitholder owns additional Copano common units that were acquired outside of the time periods
referenced above and the ability of the Copano common unitholder to utilize any suspended passive losses. For additional information, please read "Material U.S. Federal Income Tax Consequences of the
MergerTax Consequences of the Merger to Copano and Its UnitholdersPossible Taxable Gain to Certain Copano Common Unitholders from Reallocation of Nonrecourse Liabilities."
To
the extent Copano common unitholders receive cash in lieu of fractional Kinder Morgan common units in the merger, such unitholders will recognize gain or loss equal to the difference
between the cash received and the common unitholders' adjusted tax basis allocated to such fractional Kinder Morgan common units.
Risk Factors Relating to the Ownership of Kinder Morgan Common Units
The interests of KMI may differ from Kinder Morgan's interests and the interests of Kinder Morgan's unitholders.
KMI indirectly owns all of the common stock of Kinder Morgan GP and elects all of its directors. Kinder Morgan GP owns
all of Kinder Morgan Management's voting shares and elects all of its directors. Furthermore, some of Kinder Morgan Management's and Kinder
Morgan GP's directors and officers are also directors and officers of KMI and its other subsidiaries, including El Paso Pipeline Partners, L.P., and have fiduciary duties to manage the
businesses of KMI and its other subsidiaries in a manner that may not be in the best interests of Kinder Morgan's unitholders. KMI has a number of interests that differ from the interests of Kinder
Morgan unitholders. As a result, there is a risk that important business decisions will not be made in the best interests of Kinder Morgan unitholders.
Kinder Morgan's limited partnership agreement and Kinder Morgan Management's limited liability company agreement restrict or eliminate a number of the fiduciary duties that
would otherwise be owed by Kinder Morgan's general partner and/or its delegate to Kinder Morgan unitholders.
Modifications of state law standards of fiduciary duties may significantly limit the ability of Kinder Morgan unitholders to
successfully challenge the actions of the general partner in the event of a breach of fiduciary duties. These state law standards include the duties of care and loyalty. The duty of loyalty, in the
absence of a provision in the limited partnership agreement to the contrary, would generally prohibit the general partner from taking any action or engaging in any transaction as to which it has a
conflict of interest. Kinder Morgan's limited partnership agreement contains provisions that prohibit limited partners from advancing claims that otherwise might raise issues as to compliance with
fiduciary duties or applicable law. For example, that agreement provides that the general partner may take into account the interests of parties other than Kinder Morgan in resolving conflicts of
interest. It also provides that in the absence of bad faith by the general partner, the resolution of a conflict by the general partner will not be a breach of any duty. The provisions relating to the
general partner apply equally to Kinder Morgan Management as its delegate. It is not necessary for a limited partner to sign
34
Table of Contents
Kinder
Morgan's limited partnership agreement in order for the limited partnership agreement to be enforceable against that person.
Kinder Morgan common unitholders have limited voting rights and limited control.
Holders of Kinder Morgan common units have only limited voting rights on matters affecting Kinder Morgan. The general partner manages
partnership activities. Under a delegation of control agreement, Kinder Morgan GP has delegated the management and control of Kinder Morgan and its subsidiaries' business and affairs to Kinder
Morgan Management. Holders of
Kinder Morgan common units have no right to elect the general partner or any of the directors of the general partner or Kinder Morgan Management on an annual or other ongoing basis. If the general
partner withdraws, however, its successor may be elected by the holders of a majority of the outstanding units of all classes, excluding Kinder Morgan common units and Class B units owned by
the departing general partner and its affiliates and excluding the number of i-units corresponding to the number of any Kinder Morgan Management shares owned by the departing general
partner and its affiliates.
The
limited partners may remove the general partner only if (i) the holders of at least 66
2
/
3
% of the outstanding units of all classes, excluding Kinder Morgan
common units and Class B units owned by the general partner and its affiliates and excluding the number of i-units corresponding to the number of any Kinder Morgan Management shares
owned by the general partner and its affiliates, vote to remove the general partner; (ii) a successor general partner is approved by the same vote; and (iii) Kinder Morgan receives an
opinion of counsel opining that the removal would not result in the loss of the limited liability of any limited partner or of the limited partner of an operating partnership, or cause Kinder Morgan
or an operating partnership to be taxed as a corporation or otherwise to be taxed as an entity for federal income tax purposes.
A person or group owning 20% or more of the Kinder Morgan common units and Kinder Morgan Management shares on a combined basis cannot vote.
Any Kinder Morgan common units or Kinder Morgan Management shares held by a person or group that owns 20% or more of the aggregate
number of Kinder Morgan common units and Kinder Morgan Management shares on a combined basis cannot be voted. This limitation does not apply to the general partner and its affiliates. This provision
may (i) discourage a person or group from attempting to remove the general partner or otherwise change management; and (ii) reduce the price at which the Kinder Morgan common units will
trade under certain circumstances. For example, a third party will probably not attempt to take over Kinder Morgan's management by making a tender offer for the Kinder Morgan common units at a price
above their trading market price without removing the general partner and substituting an affiliate of its own.
The general partner's liability to Kinder Morgan and its unitholders may be limited.
Kinder Morgan's partnership agreement contains language limiting the liability of the general partner to Kinder Morgan or the holders
of Kinder Morgan common units. For example, Kinder Morgan's partnership agreement provides that (i) the general partner does not breach any duty to Kinder Morgan or the holders of Kinder Morgan
common units by borrowing funds or approving any borrowing (the general partner is protected even if the purpose or effect of the borrowing is to increase incentive distributions to the general
partner); (ii) the general partner does not breach any duty to Kinder Morgan or the holders of Kinder Morgan common units by taking any actions consistent with the standards of reasonable
discretion outlined in the definitions of available
cash and cash from operations contained in Kinder Morgan's partnership agreement; and (iii) the general partner does not breach any standard of care or duty by resolving conflicts of interest
unless the general partner acts in bad faith.
35
Table of Contents
Kinder Morgan unitholders may have liability to repay distributions.
Kinder Morgan unitholders will not be liable for assessments in addition to their initial capital investment in the Kinder Morgan
common units. Under certain circumstances, however, holders of Kinder Morgan common units may have to repay Kinder Morgan amounts wrongfully returned or distributed to them. Under Delaware law, Kinder
Morgan may not make a distribution to unitholders if the distribution causes Kinder Morgan's liabilities to exceed the fair value of its assets. Liabilities to partners on account of their partnership
interests and non-recourse liabilities are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that for a period of three years from the date
of such a distribution, a limited partner who receives the distribution and knew at the time of the distribution that the distribution violated Delaware law will be liable to the limited partnership
for the distribution amount. Under Delaware law, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of the assignor to make contributions to
the partnership. However, such an assignee is not obligated for liabilities unknown to the assignee at the time the assignee became a limited partner if the liabilities could not be determined from
the partnership agreement.
Kinder Morgan unitholders may be liable if Kinder Morgan has not complied with state partnership law.
Kinder Morgan conducts its business in a number of states. In some of those states, the limitations on the liability of limited
partners for the obligations of a limited partnership have not been clearly established. The unitholders might be held liable for the partnership's obligations as if they were a general partner if
(i) a court or government agency determined that Kinder Morgan was conducting business in the state but had not complied with the state's partnership statute; or (ii) unitholders' rights
to act together to remove or replace the general partner or take other actions under Kinder Morgan's partnership agreement constitute "control" of Kinder Morgan's business.
Kinder Morgan's general partner may buy out minority unitholders if it owns 80% of the aggregate number of Kinder Morgan common units and Kinder Morgan Management shares.
If at any time Kinder Morgan's general partner and its affiliates own 80% or more of the aggregate number of issued and outstanding
Kinder Morgan common units and Kinder Morgan Management shares, the general partner will have the right to purchase all, and only all, of the remaining common units, but only if KMI elects to purchase
all, and only all, of the outstanding Kinder Morgan Management shares that are not held by KMI and its affiliates pursuant to the purchase provisions that are a part of the limited liability company
agreement of Kinder Morgan Management. Because of this right, a Kinder Morgan unitholder could have to sell its common units at a time or price that may be undesirable. The purchase price for such a
purchase will be the greatest of (i) the 20-day average closing price for the Kinder Morgan common units or the Kinder Morgan Management shares as of the date five days prior to the
date the notice of purchase is mailed; or (ii) the highest purchase price paid by the general partner or its affiliates to acquire Kinder Morgan common units or Kinder Morgan Management shares
during the prior 90 days. The general partner can assign this right to its affiliates or to Kinder Morgan.
Kinder Morgan may sell additional limited partner interests, diluting existing interests of its unitholders.
Kinder Morgan's partnership agreement allows the general partner to cause Kinder Morgan to issue additional common units and other
equity securities. When Kinder Morgan issues additional equity securities, including additional i-units to Kinder Morgan Management when it issues additional shares, unitholders'
proportionate partnership interest in Kinder Morgan will decrease. Such an issuance could negatively affect the amount of cash distributed to Kinder Morgan unitholders and the market price of the
Kinder Morgan common units. Issuance of additional common units will also diminish the relative voting strength of the previously outstanding Kinder Morgan common units.
36
Table of Contents
Kinder
Morgan's partnership agreement does not limit the total number of common units or other equity securities Kinder Morgan may issue.
The general partner can protect itself against dilution.
Whenever Kinder Morgan issues equity securities to any person other than the general partner and its affiliates, the general partner
has the right to purchase additional limited partnership interests on the same terms. This allows the general partner to maintain its proportionate partnership interest in Kinder Morgan. No other
unitholder has a similar right. Therefore, only the general partner may protect itself against dilution caused by issuance of additional equity securities.
Kinder Morgan's tax treatment depends on its status as a partnership for U.S. federal income tax purposes, as well as its not being subject to a material amount of
entity-level taxation by individual states. If the IRS were to treat Kinder Morgan as a corporation for U.S. federal income tax purposes or if Kinder Morgan were to become subject to a material amount
of entity-level taxation for state tax purposes, then Kinder Morgan's cash available for distribution to its common unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in Kinder Morgan common units depends largely on Kinder Morgan
being treated as a partnership for U.S. federal income tax purposes. Kinder Morgan has not requested, and does not plan to request, a ruling from the IRS on this or any tax other matter affecting
Kinder Morgan.
Despite
the fact that Kinder Morgan is organized as a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as Kinder Morgan to be
treated as a corporation for U.S. federal income tax purposes. Although Kinder Morgan does not believe, based on its current operations, that it is or will be so treated, the IRS could disagree with
the positions Kinder Morgan takes or a change in Kinder Morgan's business (or a change in current law) could cause Kinder Morgan to be treated as a corporation for U.S. federal income tax purposes or
otherwise subject Kinder Morgan to taxation as an entity.
If
Kinder Morgan was treated as a corporation for U.S. federal income tax purposes, it would pay U.S. federal income tax on its taxable income at the corporate tax rate, which is
currently a maximum of 35%, and Kinder Morgan would likely pay state income taxes at varying rates. Distributions to Kinder Morgan's unitholders would generally be taxed again as corporate dividends
(to the extent of Kinder Morgan's current and accumulated earnings and profits), and no income, gains, losses, deductions or credits would flow through to Kinder Morgan's unitholders. Because tax
would be imposed on Kinder Morgan as a corporation, its cash available for distribution to its unitholders would be substantially reduced. Therefore, treatment of Kinder Morgan as a corporation for
U.S. federal income tax purposes would result in a material reduction in the anticipated cash flow and after-tax return to Kinder Morgan common unitholders, likely causing a substantial
reduction in the value of Kinder Morgan's common units.
The
present U.S. federal income tax treatment of publicly traded partnerships, including Kinder Morgan, or an investment in its units may be modified by administrative, legislative or
judicial changes or differing interpretations at any time. Moreover, from time to time, members of the U.S. Congress propose and consider substantive changes to the existing U.S. federal income tax
laws that could affect the tax treatment of certain publicly-traded partnerships. Kinder Morgan is unable to predict whether any of these changes or other proposals will ultimately be enacted.
In
addition, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of
state income, franchise or other forms of taxation. For example, the Texas margin tax is imposed at a maximum effective rate of 0.7% of Kinder Morgan's gross income that is apportioned to Texas. If
any additional state income taxes were imposed upon Kinder Morgan as an entity, its cash available for distribution
37
Table of Contents
would
be reduced. Any modification to the U.S. federal income or state tax laws, or interpretations thereof, may be applied retroactively and could negatively impact the value of an investment in
Kinder Morgan's common units.
If the IRS contests the U.S. federal income tax positions Kinder Morgan takes, the market for Kinder Morgan common units may be adversely affected and the costs of such
contest will reduce Kinder Morgan's cash available for distribution to its unitholders.
Kinder Morgan has not requested a ruling from the IRS with respect to its treatment as a partnership for U.S. federal income tax
purposes or any other tax matter affecting Kinder Morgan. The IRS may adopt positions that differ from the conclusions of Kinder Morgan's counsel or the positions Kinder Morgan takes, and the IRS's
positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of Kinder Morgan's counsel's conclusions or the positions Kinder
Morgan takes. A court may not agree with some or all of Kinder Morgan's counsel's conclusions or positions Kinder Morgan takes. Any contest with the IRS, and the outcome of any IRS contest, may
materially and adversely impact the market for Kinder Morgan's common units and the price at which they trade. In addition, Kinder Morgan's costs of any contest with the IRS will be borne indirectly
by Kinder Morgan's unitholders because the costs will reduce Kinder Morgan's cash available for distribution.
Kinder Morgan common unitholders will be required to pay taxes on their share of Kinder Morgan's income even if they do not receive any cash distributions from Kinder
Morgan.
Because Kinder Morgan common unitholders are treated as partners to whom Kinder Morgan allocates taxable income that could be different
in amount than the cash Kinder Morgan distributes, they are required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on their share of Kinder Morgan's taxable
income whether or not they receive cash distributions from Kinder Morgan. Common unitholders may not receive cash distributions from Kinder Morgan equal to their share of Kinder Morgan's taxable
income or even equal to the actual tax liability resulting from their share of Kinder Morgan's income.
Tax gain or loss on the disposition of Kinder Morgan common units could be more or less than expected.
If a common unitholder sells its Kinder Morgan common units, the common unitholder will recognize a gain or loss equal to the
difference between the amount realized and that common unitholder's adjusted tax basis in those common units. Because distributions in excess of a common unitholder's allocable share of Kinder
Morgan's net taxable income result in a decrease of that unitholder's tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the common units sold will,
in effect, become taxable income allocated to that unitholder if the unitholder sells such common units at a price greater than that unitholder's tax basis in those common units, even if the price
received is less than the original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items,
including depreciation recapture. In addition, because the amount realized includes a common unitholder's share of Kinder Morgan's nonrecourse liabilities, a unitholder that sells its common units may
incur a tax liability in excess of the amount of cash received from the sale.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning Kinder Morgan common units that may result in adverse tax consequences to
them.
Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known
as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of Kinder Morgan's income allocated to organizations that are exempt from U.S. federal income tax,
including IRAs and other retirement plans, will be unrelated business taxable income and
38
Table of Contents
will
be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes imposed at the highest applicable effective tax rate, and non-U.S. persons will
be required to file U.S. federal income tax returns and pay tax on their share of Kinder Morgan's taxable income. Any tax-exempt entity or non-U.S. person should consult
its tax advisor before investing in Kinder Morgan common units.
Kinder Morgan treats each purchaser of its common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this
treatment, which could adversely affect the value of the common units.
Because Kinder Morgan cannot match transferors and transferees of common units, Kinder Morgan treats each purchaser of its common units
as having the same tax benefits with regard to the actual common units purchased and Kinder Morgan adopts depreciation and amortization positions that may not conform to all aspects of existing
Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to a Kinder Morgan common unitholder. It also could affect the timing of
these tax benefits or the amount of gain from a sale of common units and could have a negative impact on the value of Kinder Morgan's common units or result in audit adjustments to the unitholder's
tax returns.
Kinder Morgan prorates its items of income, gain, loss and deduction between transferors and transferees of its common units each month based upon the ownership of its
common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of
items of income, gain, loss and deduction among Kinder Morgan's unitholders.
Kinder Morgan prorates its items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and
transferees of its common units each month based upon the ownership of its common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The
use of this proration method may not be permitted under existing Treasury Regulations, and, although the U.S. Treasury Department issued proposed Treasury Regulations allowing a similar monthly
simplifying convention, such regulations are not final and do not specifically authorize the use of the proration method Kinder Morgan has adopted. Accordingly, Kinder Morgan's counsel is unable to
opine as to the validity of this method. If the IRS were to challenge this method or new Treasury Regulations were issued, Kinder Morgan may be required to change the allocation of items of income,
gain, loss and deduction among its common unitholders.
Kinder Morgan adopts certain valuation methodologies that may result in a shift of income, gain, loss and deduction between its general partner and its common unitholders.
The IRS may challenge this treatment, which could adversely affect the value of the common units.
When Kinder Morgan issues additional common units or engages in certain other transactions, Kinder Morgan determines the fair market
value of its assets and allocates any unrealized gain or loss attributable to its assets to the capital accounts of its common unitholders and its general partner. Kinder Morgan's methodology may be
viewed as understating the value of its assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and Kinder Morgan's general partner, which may be
unfavorable to such unitholders. Moreover, under Kinder Morgan's valuation methods, subsequent purchasers of common units may have a greater portion of their Code Section 743(b) adjustment
allocated to Kinder Morgan's tangible assets and a lesser portion allocated to its intangible assets. The IRS may challenge Kinder Morgan's valuation methods, or its allocation of the
Section 743(b) adjustment attributable to its tangible and intangible assets, and allocations of taxable income, gain, loss and deduction between Kinder Morgan's general partner and certain of
Kinder Morgan's unitholders.
39
Table of Contents
A
successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to Kinder Morgan's common unitholders and its
general partner. It also could affect the amount of gain from Kinder Morgan common unitholders' sale of common units and could have a negative impact on the value of the common units or result in
audit adjustments to Kinder Morgan common unitholders' or Kinder Morgan's general partner's tax returns without the benefit of additional deductions.
The sale or exchange of 50% or more of Kinder Morgan's capital and profits interests during any twelve-month period will result in a termination of Kinder Morgan for U.S.
federal income tax purposes.
Kinder Morgan will be considered to have technically terminated as a partnership for U.S. federal income tax purposes if there is a
sale or exchange of 50% or more of the total interests in its capital and profits within a twelve-month period. Kinder Morgan's termination would, among other things, result in the closing of its
taxable year for all unitholders, which would result in Kinder Morgan filing two tax returns (and its unitholders could receive two Schedules K-1 if relief from the IRS was not
available, as described below) for one fiscal year. The termination could result in a deferral of depreciation deductions allowable in computing Kinder Morgan's taxable income. In the case of a common
unitholder reporting on a taxable year other than a calendar year, the closing of Kinder Morgan's taxable year may also result in more than twelve
months of its taxable income being includable in the common unitholder's taxable income for the year of termination. Under current law, a technical termination would not affect Kinder Morgan's
classification as a partnership for U.S. federal income tax purposes, but instead, after its termination Kinder Morgan would be treated as a new partnership for U.S. federal income tax purposes. If
treated as a new partnership, Kinder Morgan must make new tax elections and could be subject to penalties if it is unable to determine that a termination occurred. The IRS has announced a publicly
traded partnership technical termination relief program whereby a publicly traded partnership that technically terminated may request publicly traded partnership technical termination relief which, if
granted by the IRS, among other things would permit the partnership to provide only one Schedule K-1 to unitholders for the year notwithstanding the two partnership tax years.
A Kinder Morgan common unitholder whose common units are loaned to a "short seller" to effect a short sale of common units may be considered as having disposed of those
common units. If so, the common unitholder would no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan and may
recognize gain or loss from the disposition.
Because a common unitholder whose common units are loaned to a "short seller" to effect a short sale may be considered as having
disposed of the loaned common units, the unitholder may no longer be treated for U.S. federal income tax purposes as a partner with respect to those units during the period of the loan to the short
seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of Kinder Morgan's income, gain, loss or deduction with
respect to those units may not be reportable by the common unitholder and any cash distributions received by the common unitholder as to those common units could be fully taxable as ordinary income.
Kinder Morgan's counsel has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to effect a short sale of common units; therefore, common
unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit
their brokers from borrowing their common units.
40
Table of Contents
The issuance of additional i-units may cause more taxable income and gain to be allocated to the common units.
The i-units Kinder Morgan issues to Kinder Morgan Management in lieu of cash distributions generally are not allocated
income, gain, loss or deduction for U.S. federal income tax purposes until such time as Kinder Morgan is liquidated. Therefore, the
issuance of additional i-units may cause more taxable income and gain to be allocated to the common unitholders.
As a result of investing in Kinder Morgan common units, a common unitholder will likely be subject to state and local taxes and return filing requirements in states where
they do not live.
In addition to U.S. federal income taxes, Kinder Morgan's common unitholders will likely be subject to other taxes, including foreign,
state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which Kinder Morgan conducts business or owns property
now or in the future, even if they do not live in any of those jurisdictions. Kinder Morgan common unitholders will likely be required to file foreign, state and local income tax returns and pay
foreign, state and local income taxes in some or all of these various jurisdictions. Further, Kinder Morgan common unitholders may be subject to penalties for failure to comply with those
requirements. Kinder Morgan currently owns assets and conducts business in numerous states in the United States and in Canada. It is the responsibility of each common unitholder to file all required
U.S. federal, foreign, state and local tax returns. Kinder Morgan's counsel has not rendered an opinion on the foreign, state or local tax consequences of an investment in Kinder Morgan common units.
Kinder Morgan unitholders may have negative tax consequences if Kinder Morgan defaults on its debt or sells assets.
If Kinder Morgan defaults on any of its debt, the lenders will have the right to sue Kinder Morgan for non-payment. Such an
action could cause an investment loss and cause negative tax consequences for unitholders through the realization of taxable income by unitholders without a corresponding cash distribution. Likewise,
if Kinder Morgan was to dispose of assets and realize a taxable gain while there is substantial debt outstanding and proceeds of the sale were applied to the debt, unitholders could have increased
taxable income without a corresponding cash distribution.
There is the potential for a change of control of Kinder Morgan's general partner if KMI defaults on debt.
KMI indirectly owns all the common stock of Kinder Morgan GP, Kinder Morgan's general partner. If KMI defaults on its debt, then
the lenders under such debt, in exercising their rights as lenders, could acquire control of Kinder Morgan's general partner or otherwise influence Kinder Morgan's general partner through control of
KMI.
41
Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated herein by reference contain forward-looking statements. These
forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection,"
"forecast," "strategy," "position," "continue," "estimate," "expect," "may," or the negative of those terms or other variations of them or comparable terminology. Forward-looking statements are also
found under "Proposal 1: The MergerCopano Projected Financial Information" and "Kinder Morgan Projected Financial Information." In particular, statements, express or
implied, concerning future actions, conditions or events, future operating results, the ability to generate sales, income or cash flow, to realize cost savings or other benefits associated with the
merger, to service debt or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future
actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine actual results
are beyond the ability of Kinder Morgan or Copano to control or predict. Specific factors which could cause actual results to differ from those in the forward-looking statements
include:
-
-
the ability to complete the merger;
-
-
failure to obtain, delays in obtaining or adverse conditions contained in, any required regulatory approvals or
clearances;
-
-
the potential impact of the announcement or consummation of the merger on relationships, including with employees,
suppliers, customers and competitors;
-
-
Kinder Morgan's ability to successfully integrate Copano's operations and to realize synergies from the merger;
-
-
the timing and extent of changes in price trends and overall demand for natural gas liquids, refined petroleum products,
oil, carbon dioxide, natural gas, condensate, electricity, coal, steel and other bulk materials and chemicals and certain agricultural products in North America;
-
-
economic activity, weather, alternative energy sources, conservation and technological advances that may affect price
trends and demand;
-
-
changes in tariff rates charged by Kinder Morgan's and Copano's pipeline subsidiaries implemented by the Federal Energy
Regulatory Commission, the California Public Utilities Commission, Canada's National Energy Board or another regulatory agency;
-
-
Kinder Morgan's ability to acquire new businesses and assets and integrate those operations into its existing operations,
particularly if Kinder Morgan undertakes multiple acquisitions in a relatively short period of time, as well as the ability to expand its facilities;
-
-
Kinder Morgan's or Copano's ability to access or construct new pipeline, gas processing and NGL fractionation capacity;
-
-
difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from
terminals or pipelines;
-
-
the ability to successfully identify and close acquisitions and make cost-saving changes in operations;
-
-
shut-downs or cutbacks at major refineries, petrochemical or chemical plants, natural gas processing plants,
ports, utilities, military bases or other businesses that use Kinder Morgan's or Copano's services or provide services or products to them;
42
Table of Contents
-
-
changes in crude oil and natural gas production (and the NGL content of natural gas production) from exploration and
production areas that Kinder Morgan or Copano serves, such as the Permian Basin area of West Texas, the shale plays in Oklahoma, Pennsylvania and Texas, the U.S. Rocky Mountains and the Alberta,
Canada oil sands;
-
-
changes in laws or regulations, third-party relations and approvals, and decisions of courts, regulators and governmental
bodies that may adversely affect the business or ability to compete of Kinder Morgan or Copano;
-
-
interruptions of electric power supply to Kinder Morgan's or Copano's facilities due to natural disasters, power
shortages, strikes, riots, terrorism (including cyber attacks), war or other causes;
-
-
the uncertainty inherent in estimating future oil and natural gas production or reserves;
-
-
the ability to complete expansion projects on time and on budget;
-
-
the timing and success of business development efforts;
-
-
changes in accounting pronouncements that impact the measurement of results of operations, the timing of when such
measurements are to be made and recorded, and the disclosures surrounding these activities;
-
-
changes in tax law, particularly as it relates to partnerships or other "pass-through" entities;
-
-
Kinder Morgan's ability to offer and sell equity securities and debt securities or obtain debt financing in sufficient
amounts and on acceptable terms to implement that portion of its business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of facilities;
-
-
Kinder Morgan's indebtedness, which could make it vulnerable to general adverse economic and industry conditions, limit
its ability to borrow additional funds and/or place it at competitive disadvantages compared to its competitors that have less debt or have other adverse consequences;
-
-
the ability to obtain insurance coverage without significant levels of self-retention of risk;
-
-
acts of nature, sabotage, terrorism (including cyber attacks) or other similar acts or accidents causing damage greater
than Kinder Morgan's or Copano's insurance coverage limits;
-
-
possible changes in credit ratings;
-
-
capital and credit markets conditions, inflation and interest rates;
-
-
the political and economic stability of the oil producing nations of the world;
-
-
national, international, regional and local economic, competitive and regulatory conditions and developments;
-
-
Kinder Morgan's ability to achieve cost savings and revenue growth;
-
-
foreign exchange fluctuations;
-
-
the extent of Kinder Morgan's success in developing and producing oil and gas reserves, including the risks inherent in
development drilling, well completion and other development activities;
-
-
engineering and mechanical or technological difficulties that may be experienced with operational equipment, in well
completions and workovers, and in drilling new wells; and
43
Table of Contents
-
-
unfavorable results of litigation and the fruition of contingencies referred to in the notes to the financial statements
contained in the reports incorporated by reference into this proxy statement/prospectus.
Forward-looking
statements are based on the expectations and beliefs of the respective managements of Kinder Morgan and Copano, based on information currently available, concerning
future events affecting Kinder Morgan and Copano. Although Kinder Morgan and Copano believe that these forward-looking statements are based on reasonable assumptions, they are subject to uncertainties
and factors related to Kinder Morgan's and Copano's operations and business environments, all of which are difficult to predict and many of which are beyond Kinder Morgan's and Copano's control. Any
or all of the forward-looking statements in this proxy statement/prospectus may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The
foregoing list of factors should not be construed to be exhaustive. Many factors mentioned in this proxy statement/prospectus, including the risks outlined under the caption "Risk Factors" contained
in Kinder Morgan's and Copano's Exchange Act reports incorporated herein by reference, will be important in determining future results, and actual future results may vary materially. There is no
assurance that the actions, events or results of the forward-looking statements will occur, or, if any of them do, when they will occur or what effect they will have on Kinder Morgan's or Copano's
results of operations, financial condition, cash flows or distributions. In view of these uncertainties, Kinder Morgan and Copano caution that investors should not place undue reliance on any
forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, Kinder Morgan and Copano undertake no obligation to
update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
44
Table of Contents
THE PARTIES
Kinder Morgan Energy Partners, L.P.
Kinder Morgan Energy Partners, L.P. is a limited partnership formed in Delaware in August 1992, with its common units traded on
the NYSE under the symbol "KMP." Kinder Morgan is one of the largest publicly-traded pipeline limited partnerships in the United States in terms of market capitalization. Since February 1997, when
current management acquired Kinder Morgan's general partner, Kinder Morgan's operations have experienced significant growth, and its net income has increased from $17.7 million, for the year
ended December 31, 1997, to $1.4 billion, for the year ended December 31, 2012.
Kinder
Morgan focuses on providing fee-based services to customers, generally avoiding commodity price risks and maximizing the benefits of its characterization as a
partnership for federal income tax purposes. Where Kinder Morgan is exposed to commodity price risks, it enters into hedges to mitigate a significant portion of the risk. Kinder Morgan's operations
are conducted through its subsidiary operating limited partnerships and their subsidiaries and are grouped into the following business segments:
-
-
Products Pipelines:
Consists of approximately
8,600 miles of products pipelines that deliver gasoline, diesel fuel, jet fuel and natural gas liquids to various markets; plus approximately 62 associated product terminals and
petroleum pipeline transmix processing facilities serving customers across the United States;
-
-
Natural Gas Pipelines:
Consists of approximately 33,000
miles of natural gas transmission pipelines and gathering lines, plus natural gas storage, treating and processing facilities, through which natural gas is gathered, transported, stored, treated,
processed and sold;
-
-
CO
2
:
Produces, markets and transports, through
approximately 1,500 miles of pipelines, carbon dioxide, commonly called CO
2
, to oil fields that use CO
2
to increase production of oil; owns interests in and/or operates seven
oil fields in West Texas; and owns and operates a 450-mile crude oil pipeline system in West Texas;
-
-
Terminals:
Consists of approximately 113 owned or operated
liquids and bulk terminal facilities and approximately 35 rail transloading and materials handling facilities located throughout the United States and portions of Canada, which together transload,
store and deliver a wide variety of bulk, petroleum, petrochemical and other liquids products for customers across the United States and Canada; and
-
-
Kinder Morgan Canada:
Transports crude oil and refined
petroleum products through over 800 miles of pipelines (after giving effect to Kinder Morgan's recent sale of its one-third interest in the Express system) from Alberta, Canada to marketing terminals
and refineries in British Columbia and the State of Washington, plus five associated product terminal facilities.
Kinder
Morgan G.P., Inc., a Delaware corporation and the general partner of Kinder Morgan, has delegated to Kinder Morgan Management the management and control of Kinder
Morgan's business and affairs to the maximum extent permitted by Kinder Morgan's partnership agreement and Delaware law, subject to Kinder Morgan GP's right to approve certain actions by Kinder
Morgan Management.
The
address of Kinder Morgan's and Kinder Morgan GP's principal executive offices is 1001 Louisiana Street, Suite 1000, Houston, Texas 77002, and the telephone
number at this address is (713) 396-9000.
45
Table of Contents
Javelina Merger Sub LLC
Javelina Merger Sub LLC, a Delaware limited liability company, is a direct, wholly owned subsidiary of Kinder Morgan that was
formed in 2013 solely in contemplation of the merger, has not commenced any operations, has only nominal assets and has no liabilities or contingent liabilities, nor any outstanding commitments other
than as set forth in the merger agreement. Merger Sub has not incurred any obligations, engaged in any business activities or entered into any agreements or arrangements with any third parties other
than the merger agreement. Its principal executive offices are located at 1001 Louisiana Street, Suite 1000, Houston, Texas 77002, and its telephone number is (713) 396-9000.
Copano Energy, L.L.C.
Copano Energy, L.L.C., a Delaware limited liability company, is an energy company engaged in the business of providing midstream
services to natural gas producers, including gathering, transportation and processing of natural gas, fractionation and transportation of NGLs and other related services. Copano's assets are located
in Texas, Oklahoma and Wyoming and include approximately 6,900 miles of active natural gas gathering and transmission pipelines and nine natural gas processing plants with over one billion cubic feet
per day of combined processing capacity. In addition to its natural gas pipelines, Copano operates 380 miles of NGL pipelines.
Copano
was formed in August 2001 as a Delaware limited liability company to acquire entities operating under the Copano name since 1992, and to serve as a holding company for its
operating subsidiaries. Since inception in 1992, Copano has grown through strategic and bolt-on acquisitions and organic growth projects.
Copano's
common units are listed on the NASDAQ Global Select Market under the symbol "CPNO."
The
principal executive offices of Copano are located at 1200 Smith Street, Suite 2300, Houston, Texas 77002, its telephone number is (713) 621-9547 and its
website is www.copano.com.
46
Table of Contents
THE COPANO SPECIAL MEETING
Copano is providing this proxy statement/prospectus to its unitholders in connection with the solicitation of proxies to be voted at
the special meeting of unitholders that Copano has called for the purpose of holding a vote upon a proposal to adopt the merger agreement with Kinder Morgan, Kinder Morgan GP and Merger Sub and
at any adjournment or postponement thereof. This proxy statement/prospectus constitutes a prospectus for Kinder Morgan in connection with the issuance by Kinder Morgan of its common units in
connection with the merger. This proxy statement/prospectus is first being mailed to Copano's unitholders on or about March 29, 2013 and provides Copano unitholders with the information they
need to know to be able to vote or instruct their vote to be cast at the special meeting of Copano unitholders.
Date, Time and Place
The special meeting will be held at The Forum Room, 12th Floor, Two Allen Center, 1200 Smith Street, Houston,
Texas 77002, on Tuesday, April 30, 2013 at 9:00 a.m., local time.
Purpose
At the special meeting, Copano unitholders will be asked to vote solely on the following proposals:
-
-
Proposal
1:
to adopt the merger agreement;
-
-
Proposal
2:
to approve the adjournment of the Copano special meeting, if necessary to solicit additional proxies if there are not sufficient
votes to adopt the merger agreement at the time of the special meeting; and
-
-
Proposal
3:
to approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to
its named executive officers in connection with the merger.
Copano Board Recommendation
The board of directors of Copano recommends that unitholders of Copano vote:
-
-
Proposal
1:
"
FOR
" adoption of the merger agreement;
-
-
Proposal
2:
"
FOR
" any adjournment of the Copano special meeting, if necessary to solicit
additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting; and
-
-
Proposal
3:
"
FOR
" the approval on an advisory (non-binding) basis the related
compensation payments that will or may be paid by Copano to its named executive officers in connection with the merger.
The Copano board of directors unanimously (i) determined that the merger agreement and the merger are advisable and in the best interests of Copano and its
unitholders, (ii) approved the merger and the merger agreement and (iii) resolved to recommend adoption of the merger agreement to the Copano unitholders.
See
"Proposal 1: The MergerRecommendation of the Copano Board of Directors and Its Reasons for the Merger."
In
considering the recommendation of Copano's board of directors with respect to the merger agreement and the transactions contemplated thereby, you should be aware that some of Copano's
directors and executive officers may have interests that are different from, or in addition to, the interests of Copano unitholders more generally. See "Proposal 1: The MergerInterests of
Directors and Executive Officers of Copano in the Merger."
47
Table of Contents
Copano Record Date; Outstanding Units; Units Entitled to Vote
The record date for the Copano special meeting is March 25, 2013. Only Copano unitholders of record at the close of business on
the record date will be entitled to receive notice of and to vote at the special meeting or any adjournment or postponement of the meeting. Copano common units held by Copano as treasury units and by
Copano's subsidiaries will not be entitled to vote.
As
of the close of business on the record date of March 25, 2013, there were 79,076,438 Copano common units and 13,219,454 Series A convertible preferred units outstanding
and entitled to vote at the meeting. Each Copano common unit is entitled to one vote, and each Series A convertible preferred unit is entitled to one vote in respect of each Copano common unit
into which it is convertible. In accordance with the terms of the Copano LLC agreement and the voting agreement pursuant to which TPG agreed, subject to the conditions set forth in the voting
agreement, to convert all of its Series A convertible preferred units into Copano common units immediately prior to the effective time, the Series A convertible preferred units will be
convertible, effective immediately prior to the merger, into a number of Copano common units equal to 110% of the number of Series A convertible preferred units then outstanding. In accordance
with the Copano LLC agreement, the Series A convertible preferred units outstanding on the record date will have that number of votes equal to the number of common units into which such
Series A convertible preferred units will convert immediately prior to the merger.
A
complete list of Copano unitholders entitled to vote at the Copano special meeting will be available for inspection at the principal place of business of Copano during regular business
hours for a period of no less than ten days before the special meeting and at the place of the Copano special meeting during the meeting.
Quorum
A quorum of unitholders is required to adopt the merger agreement at the special meeting, but not to approve any adjournment of the
meeting. At least a majority of the outstanding Copano common units and Series A convertible preferred units, voting together as a single class on an "as if" converted basis, must be
represented in person or by proxy at the meeting in order to constitute a quorum. Any abstentions will be counted in determining whether a quorum is present at the special meeting. With respect to
broker non-votes (as defined below), the adoption of the merger agreement is not considered a routine matter. Therefore, your broker will not be permitted to vote on the adoption of the
merger agreement without instruction from you as the beneficial owner of the Copano common units. Broker non-votes will, however, be counted for purposes of determining whether a quorum is
present at the special meeting.
Required Vote
To adopt the merger agreement, holders of at least a majority of the outstanding Copano common units and Series A convertible
preferred units, voting together as a single class on an "as if" converted basis, must vote in favor of adoption of the merger agreement. Because approval is based on the affirmative vote of at least
a majority of the outstanding Copano common units and Series A convertible preferred units, voting together as a single class on an "as if" converted
basis, a Copano unitholder's failure to submit a proxy card or to vote in person at the special meeting or an abstention from voting, or the failure of a Copano unitholder who holds his or her units
in "street name" through a broker or other nominee to give voting instructions to such broker or other nominee, will have the same effect as a vote "AGAINST" adoption of the merger agreement.
To
approve the adjournment of the Copano special meeting, if necessary to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the
special meeting, the affirmative vote of a majority of the votes cast affirmatively or negatively with respect to
48
Table of Contents
the
proposal by holders of the Copano units present in person or represented by proxy at the special meeting and entitled to vote at the special meeting is required. Abstentions, broker
non-votes and units not in attendance at the special meeting will have no effect on the outcome of any vote to adjourn the special meeting.
To
approve, on an advisory (non-binding) basis, the related compensation payments that will or may be paid by Copano to its named executive officers in connection with the
merger, the affirmative vote of a majority of the votes cast affirmatively or negatively with respect to the proposal by holders of the Copano units present in person or represented by proxy at the
special meeting and entitled to vote at the special meeting is required. Abstentions, broker non-votes and units not in attendance at the special meeting will have no effect on the outcome
of any vote to approve the related compensation payments.
Unit Ownership of and Voting by Copano's Directors and Executive Officers
At the close of business on the record date for the special meeting, Copano's directors and executive officers and their affiliates
beneficially owned and had the right to vote 2,144,821 Copano units at the special meeting, which represents approximately 2.2 percent of the Copano units entitled to vote at the special
meeting. It is expected that Copano's directors and executive officers will vote their units "FOR" the adoption of the merger agreement, although none of them has entered into any agreement requiring
them to do so.
Voting Agreement with TPG
Simultaneously with the execution of the merger agreement, Copano, Kinder Morgan and Kinder Morgan GP entered into a voting
agreement with TPG, pursuant to which TPG agreed, among other things, to vote all of its Series A convertible preferred units and Copano common units, if any, in favor of adoption of the merger
agreement and the transactions contemplated thereby and against any action or agreement (including any amendment of any agreement) that would, or would reasonably be expected to, prevent or in any
material respect impede or delay the consummation of the merger and the other transactions contemplated by the merger agreement until the date on which the approval of the merger agreement by Copano
unitholders is obtained, the one year anniversary of the merger agreement or until the merger agreement is terminated in accordance with its terms, whichever occurs earliest. TPG also agreed, during
the term of the voting agreement, not to sell, transfer, pledge or otherwise dispose of any Series A convertible preferred units or Copano common units. At the close of business on the record
date for the special meeting of the Copano unitholders, TPG held approximately 15.5 percent of the voting power of Copano.
Voting of Units by Holders of Record
If you are entitled to vote at the special meeting and hold your units in your own name, you can submit a proxy or vote in person by
completing a ballot at the special meeting. However, Copano encourages you to submit a proxy before the special meeting even if you plan to attend the special meeting in order to ensure that your
units are voted. A proxy is a legal designation of another person to vote your Copano units on your behalf. If you hold units in your own name, you may submit a proxy for your units
by:
-
-
calling the toll-free number specified on the enclosed proxy card and follow the instructions when prompted;
-
-
accessing the Internet website specified on the enclosed proxy card and follow the instructions provided to you; or
49
Table of Contents
-
-
filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy
materials.
When
a unitholder submits a proxy by telephone or through the Internet, his or her proxy is recorded immediately. Copano encourages its unitholders to submit their proxies using these
methods whenever possible. If you submit a proxy by telephone or the Internet website, please do not return your proxy card by mail.
All
units represented by each properly executed and valid proxy received before the special meeting will be voted in accordance with the instructions given on the proxy. If Copano
unitholder executes a proxy card without giving instructions, the Copano units represented by that proxy card will be voted "FOR" approval of the proposal to adopt the merger agreement.
Your
vote is important. Accordingly, please submit your proxy by telephone, through the Internet or by mail, whether or not you plan to attend the meeting in person. Proxies must be
received by 11:59 p.m., Eastern Time, on Monday, April 29, 2013.
Voting of Units Held in Street Name
If your units are held in an account at a broker or through another nominee, you must instruct the broker or other nominee on how to
vote your units by following the instructions that the broker or other nominee provides to you with these proxy materials. Most brokers offer the ability for unitholders to submit voting instructions
by mail by completing a voting instruction card, by telephone and via the Internet.
If
you do not provide voting instructions to your broker, your units will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is
referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the broker or
other nominee can register your units as being present at the special meeting for purposes of determining a quorum, but will not be able to vote your units on those matters for which specific
authorization is required. Under the current rules of the NASDAQ Stock Market, brokers do not have discretionary authority to vote on the proposal to adopt the merger agreement. Therefore, a broker
non-vote will have the same effect as a vote "AGAINST" adoption of the merger agreement, but will have no effect on the adjournment proposal or the related compensation proposal.
If
you hold units through a broker or other nominee and wish to vote your units in person at the special meeting, you must obtain a proxy from your broker or other nominee and present it
to the inspector of election with your ballot when you vote at the special meeting.
Revocability of Proxies; Changing Your Vote
You may revoke your proxy and/or change your vote at any time before your proxy is voted at the special meeting. If you are a
unitholder of record, you can do this by:
-
-
sending a written notice stating that you revoke your proxy to Copano at 1200 Smith Street, Suite 2300, Houston,
Texas 77002, Attn: Corporate Secretary, that bears a date later than the date of the proxy and is received prior to the special meeting and states that you revoke your proxy;
-
-
submitting a valid, later-dated proxy by mail, telephone or Internet that is received prior to the special meeting; or
-
-
attending the special meeting and voting by ballot in person (your attendance at the special meeting will not, by itself,
revoke any proxy that you have previously given).
50
Table of Contents
If
you hold your units through a broker or other nominee, you must follow the directions you receive from your broker in order to revoke or change your vote.
Solicitation of Proxies
This proxy statement/prospectus is furnished in connection with the solicitation of proxies by the Copano board of directors to be
voted at the Copano special meeting. Copano will bear all costs and expenses in connection with the solicitation of proxies. Copano has engaged D.F. King & Co., Inc. to assist in
the solicitation of proxies for the meeting and Copano estimates it will pay D.F. King & Co., Inc. a fee of approximately $15,000 for these services. Copano has also agreed to
reimburse D.F. King & Co., Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify
D.F. King & Co., Inc. against certain losses, costs and expenses. In addition, Copano may reimburse brokerage firms and other persons representing beneficial owners of Copano
common units for their reasonable expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of Copano's directors, officers and employees by
telephone, electronic mail, letter, facsimile or in person, but no additional compensation will be paid to them.
Unitholders should not send unit certificates with their proxies.
A letter of transmittal and instructions for the surrender of Copano
common unit
certificates will be mailed to Copano unitholders shortly after the completion of the merger.
No Other Business
Under the Copano LLC agreement, the business to be conducted at the special meeting will be limited to the purposes stated in
the notice to Copano unitholders provided with this proxy statement/prospectus.
Adjournments
Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time
to time by the Chairman of the Copano board of directors or with the approval of at least a majority of the votes present in person or by proxy at the time of the vote, whether or not a quorum exists.
Copano is not required to notify unitholders of any adjournment of 30 days or less if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken,
unless after the adjournment a new record date is fixed for the adjourned meeting. At any adjourned meeting, Copano may transact any business that it might have transacted at the original meeting,
provided that a quorum is present at such adjourned meeting. Proxies submitted by Copano unitholders for use at the special meeting will be used at any adjournment or postponement of the meeting.
References to the Copano special meeting in this proxy statement/prospectus are to such special meeting as adjourned or postponed.
Assistance
If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact D.F.
King & Co., Inc. toll-free at (800) 967-4604 (banks and brokers call collect at (212) 269-5550).
51
Table of Contents
Certain Relationships Between Kinder Morgan and Copano
Eagle Ford Gathering LLC
Eagle Ford Gathering LLC, a joint venture that provides natural gas gathering, transportation and processing services to natural
gas producers in the Eagle Ford shale gas formation in South Texas, is owned 50% by Kinder Morgan and 50% by Copano. Copano serves as managing member of Eagle Ford Gathering LLC and operator of
the natural gas gathering assets owned by Eagle Ford Gathering LLC, other than those assets owned by Eagle Ford Gathering LLC's subsidiary, Eagle Ford Crossover LLC, and receives
a management fee for such services. Kinder Morgan serves as operator of the natural gas gathering assets owned by Eagle Ford Crossover LLC, and receives a management fee for such services. In
addition, each of Kinder Morgan and Copano is party to commercial agreements with Eagle Ford Gathering LLC or Eagle Ford Crossover LLC. Pursuant to these agreements, Kinder Morgan
provides Eagle Ford Gathering LLC or Eagle Ford Crossover LLC with natural gas transportation and related services, and Copano provides Eagle Ford Gathering LLC with natural gas
processing and related services.
Other Agreements
Copano and Kinder Morgan are parties to commercial agreements pursuant to which Kinder Morgan provides natural gas transportation and
related services to Copano and Copano provides natural gas processing and related services to Kinder Morgan.
Recommendation of the Copano Board of Directors and Its Reasons for the Merger
By
a vote at a meeting held on January 29, 2013, the Copano board of directors unanimously determined that the merger agreement, the voting agreement, the merger and the other
transactions contemplated by the merger agreement and voting agreement were in the best interests of Copano and its unitholders, declared it advisable to enter into the merger agreement and the voting
agreement and approved the execution, delivery and performance of the merger agreement and the voting agreement, and the transactions contemplated by the merger agreement and the voting agreement.
Copano's board of directors unanimously recommends that the Copano unitholders vote "
FOR
" the proposal to adopt the merger agreement at the Copano
special meeting.
In
evaluating the proposed transactions, Copano's board of directors consulted with Copano's management and its legal and financial advisors and, in reaching its determination and
recommendation, Copano's board of directors considered a number of factors. Copano's board of directors also consulted with outside legal counsel regarding its obligations, legal due diligence matters
and the terms of the merger agreement and the voting agreement.
The
material factors considered by Copano's board of directors in determining that the merger agreement and the voting agreement and the transactions contemplated by the merger agreement
and the voting agreement are advisable and in the best interests of Copano and its unitholders include, in
59
Table of Contents
addition
to the matters discussed by the Copano board of directors as described under "Background of the Merger," the following:
-
-
The aggregate value of the merger consideration to be received by Copano common unitholders in the merger.
-
-
That the merger consideration with a value of $40.92 per Copano common unit, based upon the closing price of Kinder Morgan
common units (of $89.67 per common unit) on January 28, 2013 (the last trading date before the date of the Copano board meeting and execution of the merger agreement), represented a premium
of:
-
-
22.4% to the closing price of Copano common units on the same date;
-
-
38.4% to the closing price of Copano common units on the date that was 30 days prior to such date; and
-
-
18.5% to Copano's 52-week average closing price.
-
-
The potential unitholder value that might result from other alternatives available to Copano, taking into account the
process that Copano had undertaken that resulted in entering into the merger agreement with Kinder Morgan, and including the alternative of remaining an independent public company and pursuing
Copano's existing and planned development projects and considering the risks and uncertainties associated with continuing to operate as a public company and the ability to achieve the valuations in
comparison to the proposed transaction.
-
-
The results of Copano's efforts to solicit acquisition proposals from several potential merger counterparties.
-
-
The ability of the Copano board of directors under the merger agreement to receive, consider and negotiate unsolicited
alternative merger proposals even after signing and announcement of the merger agreement.
-
-
The right and ability of the Copano board of directors to change its recommendation to Copano unitholders that they vote
to adopt the merger agreement, subject to the terms and conditions set forth in the merger agreement.
-
-
That the proposed transactions would enhance Copano's assets, customer opportunities and service capabilities and would
enable Copano to expand significantly its midstream services footprint, including by giving Copano access to Kinder Morgan's substantial funding capacity and access to the capital markets.
-
-
That receipt of Kinder Morgan common units in the merger would give Copano common unitholders a security with
significantly increased liquidity, as well as giving such common unitholders additional midstream value-chain diversification (including increased cash flow stability).
-
-
The belief of Copano's board of directors that the shared core values of Copano and Kinder Morgan, and their dedication to
pursuing new development projects to increase unitholder value, would assist in integration of the companies and enhance customer service going forward.
-
-
Copano's board of directors' familiarity with, and understanding of, Copano's business, assets, financial condition,
results of operations, current business strategy and prospects, and the benefits to a combined Kinder Morgan-Copano organization of Copano's gathering and processing expertise.
-
-
The financial analysis of Barclays presented to Copano's board of directors at the meeting held on January 29, 2013
and the oral opinion of that firm delivered to Copano's board of directors on that date, which was confirmed by delivery of a written opinion dated January 29, 2013, that,
60
Table of Contents
as
of such date and based upon and subject to the limitations and assumptions set forth therein, the exchange ratio to be offered to Copano common unitholders pursuant to the merger agreement was
fair, from a financial point of view, to such holders, as more fully described below under "Opinions of Copano's Financial Advisors." The full text of the written opinion of Barclays,
dated January 29, 2013, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as
Annex C to this proxy statement/prospectus.
-
-
The financial analysis of Jefferies presented to Copano's board of directors at the meeting held on January 29,
2013 and the oral opinion of that firm delivered to Copano's board of directors on that date, which was confirmed by delivery of a written opinion dated January 29, 2013, that, as of such date
and based upon and subject to the limitations and assumptions set forth therein, the merger consideration to be offered to Copano common unitholders pursuant to the merger agreement was fair, from a
financial point of view, to such holders, as more fully described below under "Opinions of Copano's Financial Advisors." The full text of the written opinion of Jefferies, dated
January 29, 2013, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as
Annex D to this proxy statement/prospectus.
-
-
Information and discussions with Copano's management and its financial advisors, as well as discussions between
representatives of Copano and representatives of Kinder Morgan, regarding Kinder Morgan's business, assets, financial condition, results of operations, business plan and prospects (for Kinder Morgan
as well as for the proposed combined company), including recent management changes announced by Kinder Morgan.
-
-
The possibility that the combined company would achieve greater returns for unitholders than Copano as a stand-alone
company.
-
-
That the merger consideration is payable in Kinder Morgan common units, providing Copano common unitholders with the
opportunity to participate in the equity value of the combined organization following the proposed merger, with Copano common unitholders expected to hold approximately 10 percent of the
combined organization's units outstanding immediately after the proposed merger, and the relative rights of common unitholders in Copano compared to common unitholders in Kinder Morgan (see
"Comparison of Rights of Kinder Morgan Unitholders and Copano Unitholders").
-
-
That completion of the merger requires the affirmative vote of holders of at least a majority of the outstanding Copano
common units and Series A convertible preferred units, voting together as a single class on an "as if" converted basis.
-
-
That Kinder Morgan currently pays regular quarterly cash distributions on its common units (which was $1.29 per common
unit at the time Copano's board of directors made its determination) and that, after the merger is consummated, Copano's common unitholders will be entitled to receive distributions paid by Kinder
Morgan on its common units (and that, between the date of the merger agreement and the date the merger is consummated, Copano common unitholders will be entitled to continue to receive Copano's
regular quarterly distributions (up to $0.575 per Copano common unit)).
-
-
The review by Copano's board of directors with its legal and financial advisors of the structure of the proposed
transactions and the financial and other terms of the merger agreement, including the parties' representations, warranties and covenants, the conditions to their respective obligations and the
termination and termination fee provisions, the provisions relating to Copano's ability to engage in negotiations with respect to a competing transaction should one be proposed, as well as the
likelihood of consummation of the proposed transactions and
61
Table of Contents
Copano's
board of directors considered all of these factors as a whole and, on balance, concluded that they supported a determination to approve the merger agreement. The foregoing
discussion of the information and factors considered by Copano's board of directors is not exhaustive. In view of the wide variety of factors considered by Copano's board of directors in connection
with its evaluation of the proposed merger and the complexity of these matters, Copano's board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign
relative weights to the specific factors that it considered in reaching its decision. Copano's board of directors evaluated the factors
described above, among others, and reached a consensus that the proposed transactions were advisable, fair to and in the best interests of Copano and its unitholders. In considering the factors
described above and any other factors, individual members of Copano's board of directors may have viewed factors differently or given different weight or merit to different factors.
In
considering the recommendation of Copano's board of directors to adopt the merger agreement and the voting agreement and to approve the transactions contemplated by the merger
agreement and the voting agreement, Copano unitholders should be aware that the executive officers and directors of Copano may have certain interests in the proposed transactions that may be different
from, or in addition to, the interests of Copano unitholders generally. Copano's board of directors was aware of these interests and considered them when approving the merger agreement and
recommending that Copano unitholders vote to adopt the merger agreement and the transactions contemplated by the merger agreement. See "Interests of the Copano Directors and Executive
Officers in the Merger" and "Certain Relationships Between Kinder Morgan and Copano."
Opinions of Copano's Financial Advisors
Barclays Fairness Opinion
Copano engaged Barclays to act as Copano's financial advisor in connection with a potential sale of the company. On January 29,
2013, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the Copano board of directors that, as of such date and based upon and subject to the qualifications,
limitations and assumptions stated in its opinion, from a financial point of view, the exchange ratio of 0.4563 Kinder Morgan common units per Copano common unit offered to the holders of Copano
common units in the merger was fair to such unitholders.
The full text of Barclays' written opinion, dated as of January 29, 2013, is attached hereto as Annex C. Barclays' written opinion sets forth, among
other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. Copano encourages holders of Copano common
units to read the opinion carefully and in its entirety. The following is a summary of Barclays' opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its
entirety by reference to the full text of the opinion.
Barclays'
opinion, the issuance of which was approved by Barclays' Valuation and Fairness Opinion Committee, is addressed to the Copano board of directors, addresses only the fairness,
from a financial
62
Table of Contents
point
of view, of the exchange ratio to be offered to the holders of Copano common units and does not constitute a recommendation to any unitholder of Copano as to how such unitholder should vote or
act with respect to the merger or any other matter. The terms of the merger were determined through arm's-length negotiations between Copano and Kinder Morgan and were approved unanimously by the
Copano board of directors. Barclays did not recommend any specific form of consideration to Copano or that any specific form of consideration constituted the only appropriate consideration for the
merger. Barclays was not requested to address, and its opinion does not in any manner address, Copano's underlying business decision to proceed with or effect the merger. In addition, Barclays
expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the
merger, or any class of such persons, relative to the consideration to be offered to the holders of Copano common units in the merger. No limitations were imposed by the Copano board of directors upon
Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.
In
arriving at its opinion, Barclays reviewed and analyzed, among other things:
-
-
the merger agreement and the specific terms of the merger;
-
-
publicly available information concerning Copano, Kinder Morgan, KMI, Kinder Morgan Management and El Paso Pipeline
Partners, L.P. that Barclays believed to be relevant to its analysis, including each of Copano's, Kinder Morgan's, KMI's, Kinder Morgan Management's and El Paso Pipeline Partners, L.P.'s
Annual Reports on Form 10-K for the fiscal year ended December 31, 2011 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2012, June 30, 2012 and September 30, 2012 and the information statement/proxy statement/prospectus, dated March 23, 2012, relating to the acquisition of El Paso Corporation,
which is referred to as El Paso, by KMI;
-
-
financial and operating information with respect to the businesses, operations and prospects of Copano furnished to
Barclays by Copano, including financial projections of Copano under alternative scenarios prepared by management of Copano, which are referred to as the Copano Projections;
-
-
financial and operating information with respect to the businesses, operations and prospects of Kinder Morgan, including
financial projections of Kinder Morgan prepared by management of Kinder Morgan GP for the fiscal year ending December 31, 2013 and annual expected Kinder Morgan unitholder distribution growth
for the five-year period ending December 31, 2016, which are referred to collectively as the Kinder Morgan Projections;
-
-
consensus estimates published by Thomson Reuters I/B/E/S of independent equity research analysts with respect to
(i) the future financial performance and price targets of Copano, which are referred to as the Copano Research Projections, and (ii) the future financial performance and price targets of
Kinder Morgan, which are referred to as the Kinder Morgan Research Projections;
-
-
the trading history of the Copano common units from January 31, 2011 to January 28, 2013 and a comparison of
that trading history with those of other companies that Barclays deemed relevant;
-
-
the trading history of the Kinder Morgan common units from January 31, 2011 to January 28, 2013 and a
comparison of that trading history with those of other companies that Barclays deemed relevant;
-
-
a comparison of the trading history of the Copano common units and the Kinder Morgan common units with each other from
January 30, 2012 to January 28, 2013;
63
Table of Contents
-
-
a comparison of the historical financial results and present financial condition of Copano and Kinder Morgan with each
other and with those of other companies that Barclays deemed relevant;
-
-
a comparison of the financial terms of the merger with the financial terms of certain other transactions that Barclays
deemed relevant;
-
-
the potential pro forma impact of the merger on the current and future financial performance of the combined organization,
including the amounts and timing of (i) cost savings and operating synergies to result from the merger and (ii) the GP Giveback, as defined below under "Pro Forma Merger
Consequences Analysis," expected by the management of Kinder Morgan GP to result from the merger;
-
-
the relative trading liquidity of the Copano common units and the Kinder Morgan common units;
-
-
the results of Barclays' efforts to solicit indications of interest from selected third parties with respect to a
potential transaction with Copano; and
-
-
alternatives available to Copano on a stand-alone basis to fund its future capital and operating requirements.
In
addition, Barclays had discussions with the managements of Copano and Kinder Morgan GP concerning their respective businesses, operations, assets, liabilities, financial conditions
and prospects and undertook such other studies, analyses and investigations as Barclays deemed appropriate.
In
arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of
such information (and has not assumed responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of the managements of Copano and
Kinder
Morgan GP that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the Copano Projections, upon the advice of Copano, Barclays
assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Copano as to Copano's future financial
performance and Barclays relied on such projections in performing its analysis. With respect to the Kinder Morgan Projections, upon the advice of Kinder Morgan GP, Barclays assumed that such
projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Kinder Morgan GP as to the future financial performance of Kinder
Morgan and Barclays relied on such projections in performing its analysis. Additionally, upon advice of Copano, Barclays considered and relied upon the Copano Research Projections and the Kinder
Morgan Research Projections. With respect to the GP Giveback, Barclays assumed, upon the advice of Kinder Morgan GP, that the amount and timing of the GP Giveback were reasonable as
estimated by the management of Kinder Morgan GP and Barclays also assumed, upon the advice of Kinder Morgan GP, that the GP Giveback would be realized substantially in accordance with such
estimates. In addition, based on discussions with the managements of Copano and Kinder Morgan GP and with the consent of Copano, Barclays assumed for the purposes of its analysis that cost savings and
operating synergies will result from the merger. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any such projections or estimates or the assumptions on
which they were based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of Copano or Kinder Morgan and did not make or obtain any evaluations
or appraisals of the assets or liabilities of Copano or Kinder Morgan. Barclays' opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as
of, January 29, 2013. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after the delivery of its opinion to Copano
on January 29, 2013. In addition,
64
Table of Contents
Barclays
expressed no opinion as to the prices at which (i) the Copano common units or the Kinder Morgan common units would trade at any time following the announcement of the merger or
(ii) the Kinder Morgan common units will trade at any time following the consummation of the merger.
In
connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a
specific range of values to the Copano common units or the Kinder Morgan common units but rather made its determination as to fairness, from a financial point of view, to the holders of Copano common
units of the exchange ratio to be offered to such holders in the merger on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and
involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to summary description.
In
arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the
significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the
context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors,
without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.
The
following is a summary of the material financial analyses used by Barclays in preparing its opinion to the Copano board of directors. Certain financial analyses summarized below
include information presented in tabular format. In order to fully understand the financial analyses used by Barclays, the tables must be read together with the text of each summary, as the tables
alone do not constitute a complete description of the financial analyses. In performing its analyses, Barclays made numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of Copano or any other parties to the merger. None of Copano, Kinder Morgan, Kinder Morgan GP, Merger Sub, Barclays
or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be
appraisals or reflect the prices at which the businesses may actually be sold.
Summary of Analyses
The following is a summary of the material financial analyses performed by Barclays with respect to Copano and Kinder Morgan in
preparing Barclays' opinion:
-
-
discounted cash flow analysis;
-
-
comparable company analysis;
-
-
analysis of equity research analyst price targets; and
-
-
in the case of Copano, comparable transactions analysis.
Each
of these methodologies was used to generate reference enterprise or equity value ranges for Copano and reference per unit equity value ranges for the Kinder Morgan common units.
Based on discussions with the management of Copano, the enterprise value ranges for Copano were adjusted for estimates of appropriate on-balance sheet and off-balance sheet
assets and liabilities, as of December 31, 2012, to arrive at implied equity value ranges (in aggregate dollars) for Copano. The implied equity value range for Copano was then divided by
diluted units outstanding, comprised of
65
Table of Contents
primary
units and incorporating the dilutive effect of the Series A convertible preferred units owned by TPG, which are referred to as the TPG units, outstanding including the applicable change
of control provisions, outstanding options, restricted units, phantom units and unit appreciation rights using the treasury share method, as applicable, in order to derive implied equity value ranges
per unit for Copano. For the discounted cash flow analysis, the comparable transaction analysis and the analysis of equity research analyst price targets, the implied equity value ranges per unit of
Copano common units and per unit of Kinder Morgan common units were used to derive implied exchange ratios which were then compared to the exchange ratio in the merger.
In
addition to analyzing the value of the Copano common units and the Kinder Morgan common units, Barclays also analyzed and reviewed: (i) the daily historical closing prices of
the Copano common units and the Kinder Morgan common units and the exchange ratios implied by those closing unit prices for the period from January 30, 2012 to January 28, 2013;
(ii) certain publicly available information related to the Selected Transactions (as defined below) to calculate the amount of premiums paid by the acquirers to the acquired company's
unitholders; (iii) the pro forma impact of the merger on the current and future financial performance and credit profile of the combined organization for (a) projected estimates for
2013, 2014, 2015 and 2016 for distributions per unit, which are referred to as LP Distributions, and general partner distributed cash flow, which are referred to as GP Distributions, for
the combined organization based on the Copano Projections and the Kinder Morgan Projections and (b) projected estimates for 2013 and 2014 for LP Distributions and GP Distributions
for the combined organization based on the Copano Research Projections and the Kinder Morgan Research Projections.
In
particular, in applying the various valuation methodologies to the particular businesses, operations and prospects of Copano and Kinder Morgan, and the particular circumstances of the
merger, Barclays made qualitative judgments as to the significance and relevance of each analysis. In addition, Barclays made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the control of Copano and Kinder Morgan. Such qualitative judgments and assumptions of Barclays were made following
discussions with the management of each of Copano and Kinder Morgan. Accordingly, the methodologies and the implied
exchange ratio ranges derived therefrom must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses.
Considering the implied exchange ratios without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or
incomplete view of the process underlying, and conclusions represented by, Barclays' opinion.
The
implied exchange ratios, derived using the various valuation methodologies listed above, supported the conclusion that the exchange ratio of 0.4563 Kinder Morgan common units per
Copano common unit to be offered to the holders of Copano common units was fair, from a financial point of view, to such holders.
Discounted Cash Flow Analysis
In order to estimate the present values of the Copano common units and the Kinder Morgan common units and the exchange ratios implied
therefrom, Barclays performed discounted cash flow analyses of each of Copano and Kinder Morgan. A discounted cash flow analysis is a traditional valuation methodology used to derive the valuation of
an asset by calculating the "present value" of estimated future cash flows of the asset. "Present value" refers to the current value of future cash flows or amounts and is obtained by discounting
those future cash flows or amounts by a range of discount rates that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other
appropriate factors.
66
Table of Contents
With respect to Copano, the discounted cash flow analysis was performed using the Copano Case I Projections and the Copano Case II Projections (see
"Proposal 1: The MergerCopano Projected Financial Information" for a further description of the Copano Case I Projections and Copano Case II Projections). To
calculate the estimated enterprise value ranges in the discounted cash flow analyses for Copano for each of the Copano Case I Projections and Copano Case II Projections, Barclays added
(i) unlevered free cash flows for fiscal years 2013 through 2016 to (ii) the residual enterprise value at the end of the forecast period, or the "terminal value" of Copano, as of
December 31, 2016, and discounted such amounts to their net present value using a range of selected discount rates. For each case, Barclays used a nominal discount rate range of 8.0% to 10.5%.
The discount rates were based on Barclays' analysis in accordance with the capital asset pricing model of the weighted average cost of capital for Copano as well as the weighted average cost of
capital for gathering and processing, referred to as G&P, master limited partnerships, each of which is referred to as an MLP, with similar size and similar operations, to Copano, as applicable. The
terminal value of Copano was estimated by applying enterprise value multiples ranging from 10.0x to 14.0x to the estimate of the earnings before interest, taxes and depreciation and amortization,
referred to as EBITDA, for 2016 for Copano for each of the Copano Case I Projections and Copano Case II Projections, respectively. Such enterprise value multiples were derived using information from
the comparable company analysis described below and based upon Barclays' professional judgment.
To
calculate the estimated per unit equity value range of Kinder Morgan common units using discounted cash flow analysis, Barclays added (i) projected distributions per Kinder
Morgan common unit for fiscal years 2013 through 2016 based on the Kinder Morgan Projections to (ii) the terminal value of Kinder Morgan's common unit price, as of December 31, 2016, and
discounted such amounts
to their net present value using a range of selected discount rates. Specifically, Barclays used a discount rate range of 10.0% to 14.0%. The discount rates were based on Barclays' analysis in
accordance with the cost of equity capital for MLPs with similar size and operations to those of Kinder Morgan, as applicable. The cost of equity capital was calculated as the current yield, based on
the latest announced annualized distribution for each such MLP divided by the applicable limited partner unit price as of January 28, 2013, plus the 2-year projected cumulative
annual distribution growth rate, calculated using Kinder Morgan Research Projections for 2013 and 2014. The terminal value of Kinder Morgan's common unit price was estimated by applying
long-term yields ranging from 6.5% to 4.5% to Kinder Morgan's 2016 estimated LP Distribution. Such long-term yields were derived using information from the comparable
company analysis described below and based upon Barclays' professional judgment.
Based
upon Barclays' judgments, the discounted cash flow methodology yielded implied exchange ratios ranging from 0.3139 to 0.5325 Kinder Morgan common units per Copano common unit for
the Copano Case I Projections and Kinder Morgan Projections and ranging from 0.3749 to 0.6630 Kinder Morgan common units per Copano common unit for the Copano Case II Projections and Kinder Morgan
Projections. Barclays noted that the exchange ratio to be offered to holders of Copano common units of 0.4563 Kinder Morgan common units per Copano common unit falls within the implied exchange ratio
range for both cases.
Comparable Company Analysis
In order to assess how the public market values units of similar publicly traded MLPs, Barclays reviewed and compared specific
financial and operating data relating to Copano and Kinder Morgan to that of MLPs selected by Barclays based on Barclays' experience with MLPs.
With
respect to Copano, Barclays reviewed the public stock market trading statistics for the following MLPs, which Barclays selected because of their generally similar size and asset
characteristics, including operations in the G&P industry, as compared to Copano. The MLPs selected were:
-
-
Access Midstream Partners, L.P.
67
Table of Contents
-
-
Atlas Pipeline Partners, L.P.
-
-
Crestwood Midstream Partners LP
-
-
Crosstex Energy, L.P.
-
-
DCP Midstream Partners, LP
-
-
Markwest Energy Partners, L.P.
-
-
Regency Energy Partners LP
-
-
Southcross Energy Partners, L.P.
-
-
Summit Midstream Partners, LP
-
-
Targa Resources Partners LP
-
-
Western Gas Partners, LP
Using
publicly available information, Barclays calculated and analyzed last quarter annualized distribution, referred to as LQA Distribution, yields and distributable cash flow per unit,
referred to as DCF per Unit, yields for each of the comparable MLPs selected. DCF per Unit was based on Wall Street Research (as defined below) using Copano Research Projections for EBITDA in 2012,
2013 and 2014. The results of the Copano comparable company analysis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield Range of
Comparable MLPs of
Copano
|
|
|
|
Low
|
|
Median
|
|
High
|
|
LQA Distribution Yield
|
|
|
4.02
|
%
|
|
6.68
|
%
|
|
7.85
|
%
|
DCF per Unit Yield:
|
|
|
|
|
|
|
|
|
|
|
2012E
|
|
|
4.08
|
%
|
|
6.79
|
%
|
|
9.39
|
%
|
2013E
|
|
|
4.87
|
%
|
|
7.07
|
%
|
|
9.14
|
%
|
2014E
|
|
|
5.51
|
%
|
|
8.20
|
%
|
|
9.58
|
%
|
Barclays
selected the comparable G&P MLPs listed above because their business and operating profiles are reasonably similar to that of Copano. However, because of the inherent
differences between the business, operations and prospects of Copano and those of the selected comparable MLPs, Barclays believed that it was inappropriate to, and therefore did not, rely solely on
the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the business, financial and operating
characteristics and prospects of Copano and the selected comparable MLPs that could affect the public trading values of each in order to provide a context in which to consider the results of the
quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between Copano and the selected MLPs
included in the comparable company analysis.
With
respect to Kinder Morgan, Barclays reviewed the public stock market trading statistics for the following MLPs, which Barclays selected because of their generally similar size and
asset characteristics as compared to Kinder Morgan. The MLPs selected were:
-
-
Enbridge Energy Partners, L.P.
-
-
Energy Transfer Partners, L.P.
-
-
Enterprise Products Partners L.P.
-
-
ONEOK Partners, L.P.
68
Table of Contents
-
-
Plains All American Pipeline, L.P.
-
-
Williams Partners L.P.
Using
publicly available information, Barclays calculated and analyzed LQA Distribution yields and DCF per Unit yields. DCF per Unit was based on Wall Street Research using Kinder Morgan
Research Projections for EBITDA in 2012, 2013 and 2014. The results of the Kinder Morgan comparable company analysis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield Range of
Comparable MLPs of
Kinder Morgan
|
|
|
|
Low
|
|
Median
|
|
High
|
|
LQA Distribution Yield
|
|
|
4.13
|
%
|
|
5.47
|
%
|
|
7.67
|
%
|
DCF per Unit Yield:
|
|
|
|
|
|
|
|
|
|
|
2012E
|
|
|
5.14
|
%
|
|
6.02
|
%
|
|
7.32
|
%
|
2013E
|
|
|
5.23
|
%
|
|
6.70
|
%
|
|
7.84
|
%
|
2014E
|
|
|
5.64
|
%
|
|
7.40
|
%
|
|
8.51
|
%
|
Barclays
selected the comparable MLPs listed above because their business and operating profiles are reasonably similar to that of Kinder Morgan. However, because of the inherent
differences between the
business, operations and prospects of Kinder Morgan and those of the selected comparable MLPs, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the selected comparable company analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the business, financial and operating characteristics and
prospects of Kinder Morgan and the selected comparable MLPs that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative
analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between Kinder Morgan and the selected MLPs
included in the comparable company analysis.
Based
upon Barclays' judgments, Barclays' comparable company analysis yielded implied exchange ratios ranging from 0.2800 to 0.5241 Kinder Morgan common units per Copano common unit.
Barclays noted that the exchange ratio to be offered to holders of Copano common units of 0.4563 Kinder Morgan common units per Copano common unit falls within the implied exchange ratio range as
calculated in Barclays' comparable company analysis.
Analysis of Equity Research Analyst Price Targets
Barclays evaluated the publicly available price targets of Copano common units and Kinder Morgan common units published by independent
equity research analysts associated with various Wall Street firms, which is referred to as Wall Street Research. Barclays used these research analyst price targets to calculate implied equity value
per unit ranges for each of the Copano common units and the Kinder Morgan common units. Barclays' analysis of equity research analyst price targets yielded implied exchange ratios ranging from 0.3061
to 0.4940 Kinder Morgan common units per Copano common unit. Barclays noted that the exchange ratio to be offered to holders of Copano common units of 0.4563 Kinder Morgan common units per Copano
common unit falls within the implied exchange ratio as calculated by Barclays' analysis of equity research price targets.
Comparable Transactions Analysis
With respect to the comparable transactions analysis for Copano, Barclays reviewed and compared the purchase prices and financial
multiples paid in selected other transactions, referred to as the Selected Transactions, that Barclays deemed relevant based on its experience with merger and
69
Table of Contents
acquisition
transactions involving MLPs. The Selected Transactions consist of every MLP merger and acquisition transaction announced since October 1997 in which all of the issued and publicly held
outstanding units of the target MLP were exchanged for units of the acquiring MLP:
-
-
Duncan Energy Partners L.P. / Enterprise Products Partners L.P. (April 2011)
-
-
TEPPCO Partners, L.P. / Enterprise Products Partners L.P. (June 2009)
-
-
Pacific Energy Partners, L.P. / Plains All American Pipeline, L.P. (June 2006)
-
-
Kaneb Pipe Line Partners, L.P. / Valero L.P. (November 2004)
-
-
Gulfterra Energy Partners, L.P. / Enterprise Products Partners L.P. (December 2003)
-
-
Santa Fe Pacific Pipeline Partners, L.P. / Kinder Morgan Energy Partners, L.P. (October 1997)
Using
publicly available information, Barclays calculated and analyzed enterprise multiples of last twelve month, referred to as LTM, EBITDA and equity value multiples of LTM DCF for the
Selected Transactions. The results of the comparable transaction analysis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple Range of
Comparable Transactions
of Copano
|
|
|
|
Low
|
|
Median
|
|
High
|
|
Enterprise Value as a Multiple of LTM EBITDA
|
|
|
11.0x
|
|
|
14.4x
|
|
|
19.8x
|
|
Equity Value as a Multiple of LTM DCF
|
|
|
9.7x
|
|
|
18.7x
|
|
|
19.4x
|
|
The
reasons for and the circumstances surrounding each of the Selected Transactions were diverse, and there are inherent differences between the businesses, operations, financial
conditions and prospects of Copano and the MLPs included in the comparable transaction analysis. Accordingly, Barclays believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of considering the merger. Barclays therefore made qualitative judgments concerning differences between the characteristics of the Selected Transactions and the
merger which would affect the acquisition values of the selected target MLPs and Copano. Based upon these judgments, Barclays' comparable transactions analysis yielded an equity value range for Copano
of $26.39 to $36.83 per Copano common unit. Barclays noted that the implied value per Copano common unit in the merger, based on Kinder Morgan common unit's closing price of $89.67 on
January 28, 2013 and the exchange ratio of 0.4563, was $40.92 per Copano common unit.
Historical Exchange Ratio Analysis
To provide background information and perspective with respect to the historical unit prices of Copano common units and Kinder Morgan
common units, Barclays reviewed the daily historical closing unit prices of the Copano common units and the Kinder Morgan common units for the period from January 30, 2012 to January 28,
2013. Barclays analyzed the ratio of the daily closing common unit price for Copano to the corresponding closing common unit price of Kinder Morgan over the one year period. In addition, Barclays
reviewed the implied relative exchange ratio of the closing common unit price for Copano and closing common unit price of Kinder Morgan based on 5-day, 10-day,
30-day, 60-day, 90-day and one-year averages, respectively, as of January 28, 2013. This analysis implied relative exchange ratios ranging from
0.3768 to 0.3850 Kinder Morgan common units per Copano common unit which Barclays noted was below the exchange ratio to be offered to holders of Copano common units of 0.4563 Kinder Morgan common
units per Copano common unit.
70
Table of Contents
Premiums Analysis
Barclays reviewed the Selected Transactions to calculate the amount of the premiums paid by the acquirers to the acquired MLPs'
unitholders. For each of the Selected Transactions, Barclays calculated the premiums paid by the acquirer by comparing the per unit purchase price in each transaction to the historical unit price of
the acquired MLP as of 1-day, 30-days, and 60-days prior to the announcement date. Barclays compared the premiums paid in the Selected Transactions to the premium
levels in the merger based on closing prices as of January 28, 2013. The table below sets forth the summary results of the analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Premium /
(Discount) to the Closing
Price Prior to Transaction
Announcement
|
|
|
|
1-Day
|
|
30-Days
|
|
60-Days
|
|
Selected MLP merger transactions:
|
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
18.6
|
%
|
|
22.4
|
%
|
|
26.2
|
%
|
Median
|
|
|
16.2
|
%
|
|
17.8
|
%
|
|
30.2
|
%
|
High
|
|
|
36.1
|
%
|
|
40.3
|
%
|
|
42.9
|
%
|
Low
|
|
|
2.2
|
%
|
|
5.8
|
%
|
|
2.8
|
%
|
Implied premium based on the Exchange Ratio as of January 28, 2013 close
|
|
|
22.4
|
%
|
|
38.4
|
%
|
|
34.2
|
%
|
Pro Forma Merger Consequences Analysis
Barclays reviewed and analyzed the pro forma impact of the merger on projected LP Distributions and GP Distributions of the combined
organization for each of 2013, 2014, 2015 and 2016 using (a) the Copano Case I Projections and the Kinder Morgan Projections, collectively referred to as the Case I Pro Forma
Merger Analysis, (b) the Copano Case II Projections and the Kinder Morgan Projections, collectively referred to as the Case II Pro Forma Merger Analysis, and (c) the
consensus Copano Research Projections and Kinder Morgan Research Projections for 2013 and 2014, collectively referred to as the Consensus Case Pro Forma Merger Analysis, respectively. Per Kinder
Morgan GP's management, Barclays assumed that Kinder Morgan GP will forego incentive distributions from Kinder Morgan, which is referred to as the GP Giveback, in the amount of $120 million in
each of 2014 and 2015 and $110 million in 2016. Barclays assumed a GP Giveback of $120 million in 2013 given that the analysis was performed on a full year 2013 basis; however, per
Kinder Morgan GP's management, the 2013 GP Giveback will be dependent on the time of close. With respect to the Case I Pro Forma Merger Analysis, Barclays noted that pro forma LP Distribution
would be break even to Kinder Morgan standalone LP Distributions for each of 2013, 2014, 2015 and 2016. In addition, Barclays noted that pro forma GP Distributions would be accretive to Kinder Morgan
GP standalone GP Distributions in each of 2013, 2014, 2015 and 2016, respectively. With respect to the Case II Pro Forma Merger Analysis, Barclays noted that pro forma LP Distributions would be
break even to Kinder Morgan standalone distributions for each of 2013 and 2014, respectively, and would be accretive to Kinder Morgan standalone LP Distributions in each of 2015 and 2016,
respectively. In addition, Barclays noted that pro forma GP Distributions would be accretive to Kinder Morgan GP standalone GP Distributions in each of 2013, 2014, 2015 and 2016, respectively. With
respect to the Consensus Case Pro Forma Merger Analysis, Barclays noted that pro forma distributions would be break even to Kinder Morgan standalone LP Distributions in each of 2013 and 2014 and that
pro forma GP Distributions would be accretive to Kinder Morgan GP standalone GP Distributions in each of 2013 and 2014.
Barclays
noted that the pro forma LP Distributions per unit would be dilutive for holders of Copano common units on a standalone basis in each of 2013, 2014, 2015 and 2016, respectively,
under both the Case I Pro Forma Merger Analysis and the Case II Pro Forma Merger Analysis. Barclays also
71
Table of Contents
noted
that for the Consensus Case Pro Forma Merger Analysis, pro forma LP Distributions per unit would be accretive for holders of Copano common units in 2013 and dilutive for holders of Copano common
units in 2014, respectively.
Barclays
also calculated the cumulative annual rate of return, referred to as the IRR, for holders of Copano common units implied by the pro forma analysis under each of the pro forma
merger analyses
performed. The IRR was calculated by utilizing the results of the pro forma analysis on a per unit basis and utilizing the Kinder Morgan common units LQA Distribution yield as of January 28,
2013. These pro forma implied IRRs for holders of Copano common units were compared to the standalone implied IRR per Copano common unit based upon the Copano Case I Projections, the Copano
Case II Projections and the Copano Research Projections and the standalone LQA Distribution yield per Copano common unit as of January 28, 2013. Barclays noted that the pro forma IRRs
calculated for holders of Copano common units in the Case I Pro Forma Merger Analysis were greater than the standalone implied IRRs in each of 2013, 2014, 2015 and 2016, respectively. Barclays
also noted that the pro forma IRRs calculated for holders of Copano common units in the Case II Pro Forma Merger Analysis were greater than the standalone implied IRRs in 2013 and 2014,
respectively, the same as the standalone implied IRR in 2015 and less than the standalone implied IRR in 2016. Barclays also noted that the pro form IRRs calculated in the Consensus Case Pro Forma
Merger Analysis were greater than the standalone implied IRRs in each of 2013 and 2014, respectively.
Barclays
also performed a sensitivity analysis to the pro forma impact on projected LP Distributions and GP Distributions assuming different amounts of synergies in the merger. The
synergies range evaluated was $0 per year, $25 million per year (which is the assumption throughout the pro forma analysis described previously) and $50 million per year. In regards to
the pro forma distributions, assuming $50 million per year of synergies, Case I Pro Forma Merger Analysis and Case II Pro Forma Merger Analysis are both accretive to Kinder Morgan
standalone LP Distributions in each of 2013, 2014, 2015, Case I Pro Forma Merger Analysis is break even in 2016 and Case II Pro Forma Merger Analysis is accretive in 2016. The Consensus
Case Pro Forma Merger Analysis is break even to standalone LP Distributions in each of 2013 and 2014, respectively. In regards to GP Distributions, all cases are accretive to GP Distributions by
Kinder Morgan GP in each of 2013 and 2014, and Case I Pro Forma Merger Analysis and Case II Pro Forma Merger Analysis are accretive in each of 2015 and 2016, respectively, assuming $0
per year, $25 million per year and $50 million per year of synergies.
General
Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Copano's board of directors selected Barclays because of its
familiarity with Copano and the MLPs that were approached as potential acquirers, and because of Barclays' qualifications, reputation and experience in the valuation of businesses and securities in
connection with mergers and acquisitions generally, knowledge of the industries in which Copano and Kinder Morgan operate, as well as substantial experience in transactions comparable to the merger.
Barclays
is acting as financial advisor to Copano in connection with the merger. As compensation for its services in connection with the merger, Copano will pay Barclays a fee of
approximately $16.9 million upon completion of the merger, which is referred to as the success fee. Copano paid Barclays, upon delivery of the opinion by Barclays, a fee of $1 million,
which is creditable against the success fee. In
addition, Copano has agreed to reimburse Barclays for a portion of its reasonable expenses incurred in connection with the merger and to indemnify Barclays for certain liabilities that
72
Table of Contents
may
arise out of its engagement by Copano and the rendering of Barclays' opinion. Barclays has performed various investment banking and financial services for Copano, KMI and their affiliates in the
past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, in the past two years, Barclays has performed the
following investment banking and financial services for Copano and its affiliates, for which Barclays received approximately $2.2 million in the aggregate in compensation: (i) in October
2012, Barclays acted as joint bookrunner on Copano's 6.5 million common units offering; (ii) in January 2012, Barclays acted as joint bookrunner on Copano's 5.8 million common
units offering and (iii) Barclays is currently a lender in Copano's $700 million revolving credit facility. In addition, Barclays has performed the following investment banking and
financial services for KMI and its affiliates, for which Barclays received approximately $114 million in the aggregate in compensation: (i) in December 2012, Barclays acted as sole
bookrunner on Kinder Morgan's 4.5 million common units offering; (ii) in November 2012, Barclays acted as financial advisor to Kinder Morgan on the $3,300 million divestiture of
Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Company, the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities and 50% of Rockies Express Pipeline;
(iii) in October 2012, Barclays acted as sole bookrunner on KMI's 69.3 million share offering; (iv) in September 2012, Barclays acted as joint bookrunner on El Paso Pipeline
Partners, L.P.'s 8.2 million common units offering; (v) in August 2012, Barclays acted as joint bookrunner on KMI's 66.7 million share offering; (vi) in August 2012,
Barclays acted as joint bookrunner on Kinder Morgan Management's 10.1 million share offering; (vii) in August 2012, Barclays acted as financial advisor to KMI on the
$6,220 million divestiture of 100% of Tennessee Gas Pipeline and 50% of El Paso Natural Gas pipeline to Kinder Morgan; (viii) in June 2012, Barclays acted as sole bookrunner on KMI's
63.0 million share offering; (ix) in May 2012, Barclays acted as financial advisor to KMI on the $7,150 million divestiture of El Paso's exploration and production business;
(x) in May 2012, Barclays acted as financial advisor to KMI on the $37,800 million acquisition of El Paso; (xi) in February 2012, Barclays acted as joint bookrunner on Ruby
Pipeline LLC's $1,075 million private placement of senior notes; (xii) in August 2011, Barclays acted as joint bookrunner on Kinder Morgan's $750 million notes offering;
(xiii) in June 2011, Barclays acted as joint bookrunner on Kinder Morgan's 6.7 million common units offering; (xiv) in May 2011, Barclays acted as joint bookrunner on El Paso
Pipeline Partners, L.P.'s 14.0 million common units offering; (xv) in March 2011, Barclays acted as joint bookrunner on El Paso Pipeline Partners, L.P.'s 13.8 million common units
offering; (xvi) in February 2011, Barclays acted as joint bookrunner on KMI's 109.8 million share initial public offering; (xvii) Barclays is currently a lender in KMI's
$5,000 million term loan; (xviii) Barclays is currently a lender in KMI's $1,750 million revolving credit facility; (xix) Barclays is currently a lender in Kinder Morgan's
$2,200 million revolving credit facility; (xx) Barclays is currently a lender in El Paso Pipeline Partners, L.P.'s $1,000 million revolving credit facility and
(xxi) Barclays is currently the repurchase agent on KMI's $250 million warrant repurchase program. Of the approximately $114 million of compensation referred to above,
approximately $59 million related to secondary offerings of KMI shares, for which the selling stockholders selected the underwriters and paid their compensation.
Barclays
and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial
services. In the ordinary course of its business, Barclays and affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and
financial instruments (including loans and other obligations) of Copano and KMI and their respective affiliates for Barclays' own account and for the accounts of Barclays' customers and, accordingly,
may at any time hold long or short positions and investments in such securities and financial instruments.
Jefferies Fairness Opinion
In connection with Kinder Morgan's merger proposal to Copano, the Copano board of directors retained Jefferies to provide Copano with
financial advisory services and render an opinion as to the
73
Table of Contents
fairness,
from a financial point of view, of the consideration to be paid to holders of Copano's common units (or the exchange ratio, in the case of a share-for-share
transaction) in a possible sale or other business transaction or series of transactions involving the acquisition of a third party of all or a majority of Copano's and its subsidiary's equity or
assets. At the meeting of the Copano board of directors on January 29, 2013, Jefferies rendered its oral opinion (subsequently confirmed in writing) to the Copano board of directors to the
effect that, as of January 29, 2013, and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the review undertaken as set forth in
its opinion, the conversion of each outstanding common unit of Copano (including any common units held as a result of the conversion of any preferred units of Copano), other than common units owned by
Copano, Kinder Morgan or Merger Sub, all of which will be canceled, into the right to receive 0.4563 common units of Kinder Morgan, which is referred to as the merger consideration, to be received by
the holders of Copano common units pursuant to the merger agreement was fair, from a financial point of view, to such holders (other than Kinder Morgan, KMI, Merger Sub and their respective
affiliates).
The full text of Jefferies' written opinion, dated as of January 29, 2013, is attached to this proxy statement/prospectus as Annex D. The opinion
sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. Copano
encourages its common unitholders to read the opinion carefully and in its entirety. Jefferies' opinion is directed to the Copano board of directors and addresses only the fairness, from a financial
point of view and as of the date of the opinion, of the merger consideration to be received by the Copano common unitholders in the merger. It does not address any other aspects of the merger and does
not constitute a recommendation as to how any Copano common unitholder should vote on the merger or any matter relating thereto. The summary of
the opinion of Jefferies set forth below is qualified in its entirety by reference to the full text of the opinion.
Except as otherwise expressly provided in Jefferies' engagement letter with Copano, Jefferies' opinion may not be used or referred to by Copano, or quoted or
disclosed to any person in any matter, without Jefferies' prior written consent. Jefferies has expressly consented to the inclusion of its opinion in this proxy statement/prospectus.
In
arriving at its opinion, Jefferies, among other things:
-
-
reviewed a draft dated January 28, 2013 of the merger agreement;
-
-
reviewed certain publicly available financial and other information about Copano;
-
-
reviewed certain information furnished to Jefferies by Copano's management, including the financial forecasts and analyses
comprising the Copano Case II Projections, relating to the business, operations and prospects of Copano;
-
-
held discussions with members of senior management of Copano concerning the matters described in the prior two bullet
points;
-
-
reviewed the unit trading price history and valuation multiples for the Copano common units and compared them with those
of certain publicly traded companies that Jefferies deemed relevant;
-
-
compared the proposed financial terms of the merger with the financial terms of certain other transactions that Jefferies
deemed relevant;
-
-
considered the potential pro forma financial impact of the merger; and
-
-
conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.
74
Table of Contents
In
Jefferies' review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the
accuracy and completeness of all financial and other information that was supplied or otherwise made available by Copano to Jefferies or that was publicly available (including, without limitation, the
information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of Copano that it was not aware of any facts or circumstances that would
make such information supplied by Copano inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did
Jefferies conduct a physical inspection of any of the properties or facilities of, Copano. Jefferies was not furnished with any such evaluations or appraisals of such physical inspections, and did not
assume any responsibility to obtain any such evaluations or appraisals.
With
respect to the financial forecasts provided to and examined by Jefferies, Jefferies' opinion noted that projecting future results of any company is inherently subject to
uncertainty. Copano informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith
judgment of the management of Copano as to the future financial performance of Copano. Jefferies expressed no opinion as to Copano's financial forecasts or the assumptions on which they were made.
Jefferies'
opinion was based on economic, monetary, regulatory, market and other conditions that existed and could be evaluated as of the date of its opinion. Jefferies has not
undertaken to reaffirm or revise its opinion or otherwise comment on events occurring after the date of its opinion and expressly disclaims any undertaking or obligation to advise any person of any
change in any fact or matter affecting Jefferies' opinion of which Jefferies became aware after the date of its opinion.
Jefferies
made no independent investigation of any legal or accounting matters affecting Copano, and Jefferies assumed no responsibility for any legal and accounting advice as to the
legal, accounting and tax consequences of the terms of, and transactions contemplated by, the merger agreement to Copano
and the Copano common unitholders. In addition, in preparing its opinion, Jefferies did not take into account any tax consequences of the transaction to Copano, Kinder Morgan, Kinder Morgan GP, Merger
Sub or any holder of Copano common units. In rendering its opinion, Jefferies assumed that the final form of the merger agreement would be substantially similar to the last draft reviewed by
Jefferies. Jefferies also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or
condition would be imposed that would have a material adverse effect on Copano, Kinder Morgan or the consummation, or the contemplated benefits of, the merger.
In
addition, Jefferies was not requested to and did not provide advice concerning the structure, the specific amount of merger consideration, or any other aspects of the merger, or to
provide services other than the delivery of its opinion. Jefferies was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any
part of Copano or any other alternative transaction. Jefferies did not participate in negotiations with respect to the terms of the merger and related transactions, and did not express an opinion as
to whether any alternative transaction might result in consideration more favorable to the Copano common unitholders than that contemplated by the merger agreement.
Jefferies'
opinion was for the use and benefit of the Copano board of directors in its consideration of the merger, and Jefferies' opinion did not address the relative merits of the
transactions contemplated by the merger agreement as compared to any alternative transaction or opportunity that might be available to Copano, nor did it address the underlying business decision by
Copano to engage in the merger or the terms of the merger agreement or the documents referred to therein. Jefferies' opinion does not constitute a recommendation as to how any holder of Copano common
units should vote on the merger or any matter related thereto. In addition, Copano did not ask Jefferies to address,
75
Table of Contents
and
Jefferies' opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Copano, other than the Copano
common unitholders. Jefferies expressed no opinion as to the price at which Copano common units will trade at any time. Jefferies did not express any view or opinion as to the fairness, financial or
otherwise, of the amount or nature of any compensation payable or to be received by any of Copano's officers, directors or employees, or any class of such persons, in connection with the merger,
relative to the merger consideration to be received by the Copano common unitholders. Jefferies' opinion was authorized by the Fairness Committee of Jefferies.
In
preparing its opinion, Jefferies performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process involving various determinations
as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not
necessarily susceptible to partial analysis or summary description. Jefferies believes that its analyses must be considered as a whole.
Considering any portion of Jefferies' analyses or the factors considered by Jefferies, without considering all analyses and factors, could create a misleading or incomplete view of the process
underlying the conclusion expressed in Jefferies' opinion. In addition, Jefferies may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more
or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described below should not be taken to be Jefferies' view of Copano's actual value.
Accordingly, the conclusions reached by Jefferies are based on all analyses and factors taken as a whole and also on the application of Jefferies' own experience and judgment.
In
performing its analyses, Jefferies made numerous assumptions with respect to industry performance, general business, economic, monetary, regulatory, market and other conditions and
other matters, many of which are beyond Copano's and Jefferies' control. The analyses performed by Jefferies are not necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per unit value of Copano common units do not purport to be appraisals or to reflect the
prices at which Copano common units may actually be sold. The analyses performed were prepared solely as part of Jefferies' analysis of the fairness, from a financial point of view, of the merger
consideration pursuant to the merger agreement to be received by the Copano common unitholders, and were provided to the Copano board of directors in connection with the delivery of Jefferies'
opinion.
The
following is a summary of the material financial and comparative analyses performed by Jefferies in connection with Jefferies' delivery of its opinion to the Copano board of
directors on January 29, 2013. The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies' financial analyses, the tables
must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the
full narrative descriptions of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies' financial
analyses.
Transaction Overview
Based upon the proposed exchange ratio of 0.4563 of a Kinder Morgan common unit for one Copano common unit and the closing price of
$89.00 per Kinder Morgan common unit on the NYSE on January 25, 2013, Jefferies noted that the implied value of the merger consideration pursuant to the merger agreement was approximately
$40.61 per Copano common unit (calculated by multiplying the $89.00 closing price by the 0.4563 exchange ratio).
76
Table of Contents
Selected Public Companies Analysis
Jefferies considered certain financial data for Copano and selected master limited partnerships with publicly traded equity securities
which Jefferies deemed relevant. These partnerships, which are referred to as Copano Selected Public Companies, were selected because they were deemed to be similar to Copano in one or more respects,
including the nature of their business, size, diversification and financial performance. No specific numeric or other similar criteria were used to select the Copano Selected Public Companies and all
criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a significantly larger or smaller partnership with
substantially similar lines of business and business focus may have been included while a similarly sized partnership with less similar lines of business and greater diversification may have been
excluded. Jefferies identified a number of partnerships for purposes of its analysis but may not have included all partnerships that might be deemed comparable to Copano.
The
financial data reviewed for Copano included:
-
-
Current declared quarterly distribution per unit divided by current closing unit price, which is referred to as Current LP
Yield;
-
-
2013E distribution per unit divided by current closing unit price, which is referred to as 2013E Yield; and
-
-
2014E distribution per unit divided by current closing unit price, which is referred to as 2014E Yield.
The
Copano Selected Public Companies were:
-
-
Access Midstream Partners, L.P.
-
-
Atlas Pipeline Partners, L.P.
-
-
Crestwood Midstream Partners LP
-
-
Crosstex Energy, L.P.
-
-
DCP Midstream Partners, LP
-
-
MarkWest Energy Partners, L.P.
-
-
Penn Virginia Resource Partners, L.P.
-
-
Regency Energy Partners LP
-
-
Targa Resources Partners LP
-
-
Western Gas Partners, LP
77
Table of Contents
The
selected public companies analysis for Copano utilizing the Copano Selected Public Companies indicated the following high, low, mean and median multiples of the financial data
reviewed for the Copano Selected Public Companies as of January 25, 2013:
Copano Selected Public Companies Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Implied Yield Range
for Copano
|
Current LP Yield
|
|
|
8.4
|
%
|
|
4.1
|
%
|
|
6.7
|
%
|
|
6.9
|
%
|
6.25% - 7.25%
|
2013E Yield
|
|
|
8.9
|
%
|
|
4.5
|
%
|
|
7.1
|
%
|
|
7.4
|
%
|
6.75% - 7.75%
|
2014E Yield
|
|
|
9.3
|
%
|
|
5.1
|
%
|
|
7.8
|
%
|
|
8.1
|
%
|
7.50% - 8.50%
|
Jefferies also considered certain financial data for Kinder Morgan and selected master limited partnerships with publicly traded equity
securities Jefferies deemed relevant. These partnerships, which are referred to as the Kinder Morgan Selected Public Companies, were selected because they were deemed to be similar to Kinder Morgan in
one or more respects, including the nature of their business, size, diversification and financial performance. No specific numeric or other similar criteria were used to select the Kinder Morgan
Selected Public Companies and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a significantly larger
or smaller partnership with substantially similar lines of business and business focus may have been included while a similarly sized partnership with less similar lines of business and greater
diversification may have been excluded. Jefferies identified a number of partnerships for purposes of its analysis but may not have included all partnerships that might be deemed comparable to Kinder
Morgan.
The
financial data reviewed for Kinder Morgan included:
-
-
Current LP Yield;
-
-
2013E Yield; and
-
-
2014E Yield.
The
Kinder Morgan Selected Public Companies were:
-
-
Enbridge Energy Partners, L.P.
-
-
Energy Transfer Partners, L.P.
-
-
Enterprise Products Partners, L.P.
-
-
ONEOK Partners, L.P.
-
-
Plains All American Pipeline, L.P.
-
-
Williams Partners L.P.
78
Table of Contents
The
selected public companies analysis for Kinder Morgan utilizing the Kinder Morgan Selected Public Companies indicated the following high, low, mean and median multiples of the
financial data reviewed for the Kinder Morgan Selected Public Companies as of January 25, 2013:
Kinder Morgan Selected Public Companies Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Implied Yield Range
for Kinder Morgan
|
Current LP Yield
|
|
|
7.7
|
%
|
|
4.4
|
%
|
|
5.9
|
%
|
|
5.7
|
%
|
5.50% - 6.50%
|
2013E Yield
|
|
|
7.9
|
%
|
|
4.5
|
%
|
|
6.1
|
%
|
|
6.0
|
%
|
5.75% - 6.75%
|
2014E Yield
|
|
|
8.2
|
%
|
|
5.0
|
%
|
|
6.5
|
%
|
|
6.5
|
%
|
6.00% - 7.00%
|
Jefferies applied multiple yield ranges based on the selected public companies analysis to corresponding financial data for Copano
(based on management forecasts and other publicly available data) and Kinder Morgan (based on market research provided by Wells Fargo and other publicly available data) to calculate an implied
exchange ratio reference range. The selected public companies analysis indicated a range of implied values per Copano common unit and Kinder Morgan common unit, which in turn indicated an implied
exchange ratio reference range of 0.338 to 0.466 of a Kinder Morgan common unit per Copano common unit, as compared to the merger exchange ratio of 0.4563 of a Kinder Morgan common unit per Copano
common unit.
None
of the Copano Selected Public Companies utilized in the selected public companies analysis is identical to Copano, and none of the Kinder Morgan Selected Public Companies utilized
in the selected public companies analysis is identical to Kinder Morgan. In evaluating the selected public companies that would comprise the Copano Selected Public Companies and the Kinder Morgan
Selected Public Companies, Jefferies made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which
are beyond Copano's and Jefferies' control. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using comparable company data.
79
Table of Contents
Selected Precedent Transactions Analysis
Using publicly available information, Jefferies examined the following eight precedent transactions, which consisted of certain
domestic midstream energy transactions announced since June 1, 2007, with a transaction value between $300 million and $3 billion, and which are referred to as the Selected
Comparable Transactions. Given the nature and size of the Selected Comparable Transactions, Jefferies believed that they were comparable to the merger. Similar precedent transactions that involved
related parties or non-domestic targets were not included for purposes of this analysis. Jefferies identified a sufficient number of transactions for the purposes of its analysis, but may
not have included all transactions that might be deemed to be comparable to the proposed transaction.
The
following table sets forth the Selected Comparable Transactions considered and their respective dates of announcement:
|
|
|
|
|
|
|
Date
|
|
Buyer
|
|
Seller
|
|
Asset
|
12/11/2012
|
|
Access Midstream Partners, L.P.
|
|
Chesapeake Energy Corporation
|
|
Substantial majority of Chesapeake Midstream Development
|
11/15/2012
|
|
Targa Resources Partners LP
|
|
Saddle Butte Pipeline, LLC
|
|
Bakken oil pipeline/terminal system and natural gas gathering/processing
|
11/08/2012
|
|
NuStar Energy L.P.
|
|
TexStar Midstream Services, LP
|
|
Crude oil assets in the Eagle Ford Shale
|
05/21/2012
|
|
NGL Energy Partners LP
|
|
High Sierra Energy, LP
|
|
100% interest in High Sierra Energy LP and High Sierra Energy GP, LLC
|
04/10/2012
|
|
Penn Virginia Resource Partners, L.P.
|
|
Chief E&D Holdings LP
|
|
Chief Gathering; assets include 6 gathering systems in the Marcellus
|
03/19/2012
|
|
Williams Partners L.P.
|
|
Caiman Energy, LLC
|
|
Caiman Eastern Midstream LLC
|
07/28/2010
|
|
Enbridge Energy Partners, L.P.
|
|
Atlas Pipeline Partners, L.P.
|
|
Elk City gathering and processing system
|
06/03/2007
|
|
Atlas Pipeline Partners, L.P.
|
|
Anadarko Petroleum Corporation
|
|
Chaney Dell and Midkiff / Benedum systems
|
Using
information provided by the management of Copano and publicly available financial information for each of these transactions, Jefferies analyzed transaction multiples for Copano
and the Selected Comparable Transactions. In its analysis, Jefferies derived and compared multiples for Copano and the Selected Comparable Transactions, calculated and referred to as
follows:
-
-
the transaction value divided by next twelve months, or NTM, projected EBITDA immediately following the announcement of
the transaction, which is referred to as Transaction Value / NTM EBITDA.
80
Table of Contents
This
selected precedent transactions analysis indicated the following:
Selected Comparable Transactions Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple Description
|
|
High
|
|
Low
|
|
Mean
|
|
Median
|
|
Transaction Value / NTM EBITDA
|
|
|
16.3
|
|
|
6.8x
|
|
|
12.0x
|
|
|
13.1x
|
|
Using
a reference range of 12.0x to 14.0x of Copano's NTM projected EBITDA, and based on Copano's NTM projected EBITDA of $360.7 million, Jefferies determined an implied
enterprise value for Copano, then subtracted net indebtedness to determine an implied equity value. Based on the number of fully diluted units outstanding, this analysis indicated a range of implied
values per Copano common unit of $36.60 to $44.16, as compared to the implied values per Kinder Morgan common unit of $78.52 to $92.17 per unit, based on Jefferies' projected 2013 selected public
companies analysis. The selected precedent transactions analysis indicated an implied exchange ratio reference range of 0.397 to 0.562 of a Kinder Morgan common unit per Copano common unit, as
compared to the merger exchange ratio of 0.4563 of a Kinder Morgan common unit per Copano common unit.
None
of the Selected Comparable Transactions utilized as a comparison in the selected transaction analysis is identical to the merger. In evaluating the merger and Selected Comparable
Transactions, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market, and financial conditions and other matters, many of which are
beyond Copano's and Jefferies' control. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using selected transaction data.
Discounted Cash Flow Analysis
Jefferies performed a discounted cash flow analysis by calculating the net present value of Copano's levered free cash flows through
the fiscal year ending December 31, 2016, based on management forecasts provided by Copano, and the net present value of Kinder Morgan's levered free cash flows through the fiscal year ending
December 31, 2016, based on market research provided by Wells Fargo. In performing this analysis, Jefferies applied (i) discount rates ranging from 7.50% to 8.50% to the projected cash
flows from Copano and 8.50% to 9.50% to the projected cash flows from Kinder Morgan, based on the estimated weighted average cost of capital; and (ii) terminal value yield ranges of 8.25% to
9.25% to the projected cash flows from Copano and 5.50% to 6.50% to the projected cash flows from Kinder Morgan, based on the trading metrics of similar companies.
The
discounted cash flow analysis indicated implied unit prices of $44.56 to $49.83 per Copano common unit and $86.09 to $101.14 per Kinder Morgan common unit, which in turn indicated an
implied exchange ratio reference range of 0.441 to 0.579 of a Kinder Morgan common unit per Copano common unit, as compared to the merger exchange ratio of 0.4563 of a Kinder Morgan common unit per
Copano common unit.
Historical Exchange Ratio Analysis
Based on the closing prices for Copano common units on the NASDAQ Global Select Market and Kinder Morgan common units on the NYSE, and
using the various time periods set forth below ending on January 25, 2013, Jefferies calculated a range of implied historical exchange ratios by dividing the average daily closing price per
Copano common unit by the average daily closing price per Kinder Morgan common unit. This analysis indicated that during the three years prior to January 25, 2013, the exchange ratio ranged
from 0.324 to 0.492 of a Kinder Morgan common unit per Copano common
81
Table of Contents
unit,
as compared to the merger exchange ratio of 0.4563. This analysis also indicated the following historical average trading price exchange ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Copano
Unit Price
|
|
Average Kinder
Morgan Unit
Price
|
|
Average Exchange
Ratio
|
|
Current Trading Price
Ratio as
Premium/(Discount) to
Prior Period
|
|
As of January 25, 2013
|
|
$
|
33.42
|
|
$
|
89.00
|
|
|
0.376x
|
|
|
|
|
10% Premium
|
|
|
36.76
|
|
|
89.00
|
|
|
0.413x
|
|
|
|
|
20% Premium
|
|
|
40.10
|
|
|
89.00
|
|
|
0.451x
|
|
|
|
|
30% Premium
|
|
|
43.45
|
|
|
89.00
|
|
|
0.488x
|
|
|
|
|
30-day average
|
|
|
32.84
|
|
|
85.48
|
|
|
0.385x
|
|
|
(2.3
|
)%
|
60-day average
|
|
|
31.80
|
|
|
82.64
|
|
|
0.385x
|
|
|
(2.5
|
)%
|
90-day average
|
|
|
31.49
|
|
|
82.22
|
|
|
0.383x
|
|
|
(2.0
|
)%
|
Last 12 months
|
|
|
31.82
|
|
|
82.65
|
|
|
0.385x
|
|
|
(2.3
|
)%
|
2-year average
|
|
|
32.56
|
|
|
78.27
|
|
|
0.418x
|
|
|
(10.2
|
)%
|
3-year average
|
|
|
30.73
|
|
|
74.59
|
|
|
0.413x
|
|
|
(9.0
|
)%
|
Premiums Paid Analysis
Using publicly available information and certain other database information available to Jefferies, Jefferies examined the following
four precedent transactions, which consisted of non-affiliated master limited partnership mergers (the "Selected MLP Merger Transactions").
The
following table sets forth the Selected MLP Merger Transactions considered and their respective dates of announcement:
|
|
|
|
|
Date
|
|
Buyer
|
|
Seller
|
06/29/2009
|
|
Enterprise Products Partners L.P.
|
|
TEPPCO Partners, L.P.
|
06/12/2006
|
|
Plains All American Pipeline, L.P.
|
|
Pacific Energy Partners, L.P.
|
10/31/2004
|
|
Valero L.P.
|
|
Kaneb Pipe Line Partners, L.P. / Kaneb Services LLC
|
12/15/2003
|
|
Enterprise Products Partners L.P.
|
|
GulfTerra Energy Partners, L.P.
|
For
each of the Selected MLP Merger Transactions, Jefferies calculated the premium represented by the offer price or merger consideration over the target company's closing unit price one
trading day, 30 trading days and 60 trading days prior to the transaction's announcement. This analysis indicated the following premiums for those time periods prior to announcement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Period Prior
to Announcement
|
|
High
|
|
75% Percentile
Premium
|
|
25% Percentile
Premium
|
|
Low
|
|
1 trading day
|
|
|
20.7
|
%
|
|
13.1
|
%
|
|
7.5
|
%
|
|
2.2
|
%
|
30 trading days
|
|
|
21.6
|
%
|
|
17.1
|
%
|
|
10.0
|
%
|
|
5.8
|
%
|
60 trading days
|
|
|
34.2
|
%
|
|
29.7
|
%
|
|
11.8
|
%
|
|
2.8
|
%
|
Using
a reference range of the 25th percentile to the 75th percentile premiums for each time period listed above, Jefferies performed a premiums paid analysis using the
closing prices of Copano common units one trading day, 30 trading days and 60 trading days prior to January 25, 2013.
82
Table of Contents
Applying
a "one trading day prior" premium reference range of 7.5% and 13.1% to Copano's closing price of $33.23 on January 24, 2013, this analysis indicated a range of implied
values per Copano common unit of approximately $35.73 to $37.60.
Applying
a "30 trading days prior" premium reference range of 10.0% and 17.1% to Copano's closing price of $30.92 on December 26, 2012, this analysis indicated a range of implied
values per Copano common unit of approximately $34.02 to $36.20.
Applying
a "60 trading days prior" premium reference range of 11.8% and 29.7% to Copano's closing price of $30.63 on November 26, 2012, this analysis indicated a range of implied
values per Copano common unit of approximately $34.26 to $39.72.
Based
on Jefferies' premiums paid analysis, the implied value per Copano common unit was indicated to be $34.02 to $39.72, as compared to an implied value per Kinder Morgan common unit
of $78.52 to $92.17, based on Jefferies' projected 2013 selected public companies analysis. In turn, this indicated an exchange ratio reference range from 0.369 to 0.506 of a Kinder Morgan common unit
per Copano common unit, as compared to the merger exchange ratio of 0.4563 of a Kinder Morgan common unit per Copano common unit.
No
Selected MLP Merger Transaction utilized as a comparison in the selected premiums paid analysis is identical to the merger.
General
Jefferies' opinion was one of many factors taken into consideration by the Copano board of directors in making its determination to
approve the merger and should not be considered determinative of the views of the Copano board of directors or management with respect to the merger or the merger consideration to be paid to the
Copano common unitholders in the merger.
Jefferies
was selected by the Copano board of directors based on Jefferies' qualifications, expertise and reputation. Jefferies is an internationally recognized investment banking and
advisory firm. Jefferies, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services.
Copano
has agreed to pay Jefferies a fee of $2.0 million, which fee was paid upon delivery of Jefferies' opinion. Jefferies also will be reimbursed by Copano for expenses
incurred. Copano has also agreed to indemnify Jefferies against liabilities arising out of or in connection with the services rendered and to be rendered by Jefferies under such engagement. Jefferies
maintains a market in Copano securities, and in the ordinary course of Jefferies' business, Jefferies and its affiliates may trade or hold securities of Copano or Kinder Morgan and/or their respective
affiliates for Jefferies' own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions in those securities. In addition, Jefferies may seek to, in
the future, provide financial advisory and financing services to Copano, Kinder Morgan or entities that are affiliated with Copano or Kinder Morgan, for which Jefferies would expect to receive
compensation. Except as otherwise expressly provided in its engagement letter with Copano, Jefferies' opinion may not be used or referred to by Copano, or quoted or disclosed to any person in any
matter, without Jefferies' prior consent.
PROPOSAL 3: ADVISORY VOTE ON RELATED COMPENSATION
Copano is providing its unitholders with the opportunity to cast an advisory (non-binding) vote to approve the related
compensation payments that will or may be made by Copano to its named executive officers in connection with the merger, as required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010. This proposal, which is referred to in this proxy statement/prospectus as the related compensation proposal, gives Copano unitholders the opportunity to vote on an advisory
(non-binding) basis on the related compensation payments that will or may be paid by Copano to its named executive officers in connection with the merger. The related compensation that
Copano's named executive officers may be entitled to receive from Copano in connection with the merger is summarized in the table under "Proposal 1: The MergerInterests of
Directors and Executive Officers in the MergerQuantification of Potential Payments to Copano's Named Executive Officers in Connection with the Merger." That summary includes all
compensation and benefits that will or may be paid by Copano to its named executive officers in connection with the merger.
The
Copano board of directors encourages you to review carefully the related compensation information disclosed in this proxy statement/prospectus.
The
Copano board of directors unanimously recommends that the unitholders of Copano approve the following resolution:
"RESOLVED,
that the unitholders of Copano approve, on an advisory (non-binding) basis, the compensation that will or may become payable by Copano to its named executive
officers in connection with the merger, as disclosed pursuant to Item 402(t) of Regulation S-K in the table in the section of the proxy statement entitled "Proposal 1:
The MergerInterests of Directors and Executive Officers in the MergerQuantification of Potential Payments to Copano's Named Executive Officers in Connection with the Merger"
and the related narrative disclosures."
The
vote on the related compensation proposal is a vote separate and apart from the vote on the adoption of the merger agreement. Accordingly, you may vote to approve the adoption of the
merger agreement and vote not to approve the related compensation proposal and vice versa. Because the vote on the related compensation proposal is advisory only, it will not be binding on either
Copano or Kinder Morgan. Accordingly, if the merger agreement is adopted and the merger is completed, the compensation payments that are contractually required to be paid by Copano to its named
executive officers will or may be paid, subject only to the conditions applicable thereto, regardless of the outcome of the advisory (non-binding) vote of Copano unitholders.
The
affirmative vote of at least a majority of the votes cast affirmatively or negatively with respect to the related compensation proposal by holders of the Copano common units and
Series A convertible preferred units, voting together as a single class on an "as if" converted basis, will be required to approve the related compensation proposal. Accordingly, an abstention
or a broker non-vote or other failure to vote will have no effect on the related compensation proposal.
The Copano board of directors unanimously recommends that you vote "FOR" the related compensation payments that will or may be paid by Copano to its named
executive officers in connection with the merger.
169
Table of Contents
COPANO UNITHOLDER PROPOSALS
Copano will not hold an annual meeting of its unitholders in 2013 if the merger has been completed. If, however, Copano does hold its
2013 annual meeting, under the rules of the SEC, in order to be considered for possible inclusion in the proxy statement for Copano's 2013 annual meeting, all Copano unitholder proposals must be
received at Copano's principal executive offices, Attn: Corporate Secretary, 1200 Smith Street, Suite 2300, Houston, Texas, 77002. Copano must have received all such unitholder proposals
on or before December 6, 2012. Copano will consider only proposals meeting the requirements of the applicable rules of the SEC.
For
any proposal that is not submitted for inclusion in Copano's proxy material for the 2013 annual meeting but is instead sought to be presented directly at that meeting,
Rule 14a-4(c) under the Exchange Act permits Copano management to exercise discretionary voting authority under proxies it
solicits unless Copano receives timely notice of the proposal in accordance with the procedures set forth in Section 11.13 of the Copano LLC agreement. For a unitholder proposal or director
nomination to be properly submitted for presentation at Copano's 2013 annual meeting, Copano's Corporate Secretary must have received written notice of the proposal or nomination at Copano's principal
executive offices during the period beginning on December 6, 2012 and ending on January 5, 2013.
Unitholder
proposals or director nominations must contain information specified in the Copano LLC agreement and must also be proper matters for unitholder action under the Copano LLC
agreement and under Delaware law. In addition, if a unitholder delivers a solicitation notice with respect to a proposal or director nomination, in order for such proposal or nomination to be properly
brought before the annual meeting, the unitholder must have actually delivered a proxy statement and form of proxy to holders of at least the percentage of units required to carry the proposal or
elect the unitholder's nominee, as applicable. If no solicitation notice is delivered with respect to a proposal or nomination, in order for such proposal or nomination to be properly brought before
the annual meeting, the unitholder or beneficial owner making the proposal or director nomination must not have solicited a number of proxies sufficient to have required the delivery of a solicitation
notice.
170
Table of Contents
LEGAL MATTERS
The validity of the Kinder Morgan common units to be issued in connection with the merger and being offered hereby, certain tax matters
relating to those common units and certain U.S. federal income tax consequences of the merger will be passed upon for Kinder Morgan by Bracewell & Giuliani LLP, Houston, Texas. Weil,
Gotshal & Manges LLP has also represented Kinder Morgan in connection with the merger described herein. Certain U.S. federal income tax consequences of the merger will be passed upon for
Copano by Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
Kinder Morgan
The consolidated financial statements and management's assessment of the effectiveness of internal control over financial reporting
(which is included in Management's Report on Internal Control Over Financial Reporting) incorporated in this proxy statement/prospectus by reference to Kinder Morgan Energy Partners, L.P.'s Annual
Report on Form 10-K for the year ended December 31, 2012 have been so incorporated in reliance on the report (which contains an explanatory paragraph on the effectiveness of
internal control over financial reporting due to the exclusion of Tennessee Gas Pipeline L.L.C. from their audit of internal controls over financial reporting as it was acquired from Kinder Morgan,
Inc. on May 25, 2012 and dropped down to Kinder Morgan Energy Partners, L.P. shortly thereafter) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
The
description of the review performed by Netherland, Sewell & Associates, Inc., independent petroleum consultants, included in Kinder Morgan's Annual Report on
Form 10-K for the year ended December 31, 2012, is incorporated herein by reference.
Copano
The consolidated balance sheets of Copano Energy, L.L.C. as of December 31, 2012 and 2011, the related consolidated statements
of operations, comprehensive loss, member's capital and cash flows for each of the three years in the period ended December 31, 2012, incorporated in this proxy statement/prospectus by
reference from Copano Energy, L.L.C.'s Annual Report on Form 10-K for the year ended December 31, 2012, and the effectiveness of Copano Energy, L.L.C.'s internal
control over financial reporting have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein
by reference. Such financial statements have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
The
consolidated balance sheets of Eagle Ford Gathering LLC as of December 31, 2012 and 2011, and the related consolidated statements of operations, members' equity and
cash flows for each of the years ended December 31, 2012 and 2011 and for the period from May 12, 2010 (date of inception) to December 31, 2010, incorporated in this proxy
statement/prospectus by reference from Copano Energy, L.L.C.'s Annual Report on Form 10-K for the year ended December 31, 2012, have been audited by Deloitte &
Touche LLP, independent auditors', as stated in their report, which is incorporated herein by reference. Such financial statements have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The
balance sheets of Bighorn Gas Gathering, L.L.C. as of December 31, 2012 and 2011, and the related statements of operations, members' equity and cash flows for each of the
three years in the period ended December 31, 2012, incorporated in this proxy statement/prospectus by reference from Copano Energy, L.L.C.'s Annual Report on Form 10-K for
the year ended December 31, 2012, have been audited by Deloitte & Touche LLP, independent auditors', as stated in their report, which is
171
Table of Contents
incorporated
herein by reference. Such financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The
balance sheets of Fort Union Gas Gathering, L.L.C. as of December 31, 2012 and 2011, and the related statements of operations, members' equity and cash flows for each of the
three years in the period ended December 31, 2012, incorporated in this proxy statement/prospectus by reference from Copano Energy, L.L.C.'s Annual Report on Form 10-K/A for
the year ended December 31, 2012, have been audited by Deloitte & Touche LLP, independent auditors', as stated in their report, which is incorporated herein by reference. Such
financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
172
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
Kinder Morgan has filed with the SEC a registration statement under the Securities Act of which this proxy statement/prospectus forms a
part, which registers the Kinder Morgan common units to be issued to Copano unitholders in connection with the merger. The registration statement, including the exhibits and schedules attached to the
registration statement, contains additional relevant information about Kinder Morgan and its common units. The rules and
regulations of the SEC allow Kinder Morgan and Copano to omit certain information that is included in the registration statement from this proxy statement/prospectus.
Kinder
Morgan and Copano file annual, quarterly and special reports and other information with the SEC. Copano also files proxy statements with the SEC. The SEC allows Kinder Morgan and
Copano to "incorporate by reference" into this proxy statement/prospectus the information they file with the SEC, which means that they can disclose important information to you by referring you to
those documents. This proxy statement/prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for
complete information. All of the summaries are qualified in their entirety by reference to the actual documents. The information incorporated by reference is an important part of this proxy
statement/prospectus, and information that Kinder Morgan or Copano files later with the SEC will automatically update and supersede this information as well as the information included in this proxy
statement/prospectus. Some documents or information, such as that called for by Items 2.02 and 7.01 of Form 8-K, or the exhibits related thereto under Item 9.01 of
Form 8-K, are deemed furnished and not filed in accordance with SEC rules. None of those documents and none of that information is incorporated by reference into this proxy
statement/prospectus. Kinder Morgan and Copano incorporate by reference the documents listed below and any future filings they make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the termination of this offering:
Kinder Morgan's Filings (SEC File No. 1-11234)
-
-
Annual Report on Form 10-K for the year ended December 31, 2012;
-
-
Current Reports on Form 8-K or Form 8-K/A filed on January 16, 2013,
January 30, 2013, February 4, 2013 (two filings) and February 5, 2013; and
-
-
Registration Statement on Form 8-A/A filed on March 7, 2002.
Kinder
Morgan will provide a copy of any document incorporated by reference in this proxy statement/prospectus and any exhibit specifically incorporated by reference in the documents it
incorporates by reference, without charge, by written or oral request directed to Kinder Morgan at the following address and telephone number:
Kinder
Morgan Energy Partners, L.P.
Investor Relations Department
1001 Louisiana Street, Suite 1000
Houston, Texas 77002
(713) 369-9000
Should
you want information regarding Kinder Morgan Management, LLC, the delegate of Kinder Morgan's general partner, or Kinder Morgan's parent corporation, Kinder
Morgan, Inc., please refer to the annual, quarterly and special reports, as applicable, filed with the SEC regarding that entity by reference to Kinder Morgan Management, LLC or its SEC
file number, 1-16459 or to Kinder Morgan, Inc. or its SEC file number, 1-35081.
173
Table of Contents
Copano's Filings (SEC File No. 1-32329)
-
-
Annual Report on Form 10-K/A for the year ended December 31, 2012;
-
-
Annual Report on Form 10-K for the year ended December 31, 2012;
-
-
Current Reports on Form 8-K filed on January 10, 2013, January 30, 2013,
February 4, 2013 and February 15, 2013; and
-
-
Registration Statement on Form 8-A filed on November 1, 2004.
Copano
will provide a copy of any document incorporated by reference in this proxy statement/prospectus and any exhibit specifically incorporated by reference in the documents it
incorporates by reference, without charge, by written or oral request directed to Copano at the following address and telephone number:
Copano
Energy, L.L.C.
Investor Relations Department
1200 Smith Street, Suite 2300
Houston, Texas 77002
(713) 621-9547
Kinder
Morgan and Copano also make available free of charge on their internet websites at www.kindermorgan.com and www.copano.com, respectively, the reports and other information filed
by Kinder Morgan and Copano with the SEC, as soon as reasonably practicable after such material is electronically filed or furnished to the SEC. Neither Kinder Morgan's nor Copano's websites, nor the
information contained on their websites, is part of this proxy statement/prospectus or the documents incorporated by reference.
The
SEC maintains an Internet website that contains reports, proxy and information statements and other material that are filed through the SEC's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) System. This system can be accessed at www.sec.gov. You can find information that Kinder Morgan and Copano file with the SEC by reference to their names or to their SEC file numbers.
You also may read and copy any document Kinder Morgan or Copano files with the SEC at the SEC's public reference room located at:
100 F
Street, N.E.
Room 1580
Washington, D.C. 20549
Please
call the SEC at 1-800-SEC-0330 for further information about the public reference room and its copy charges. Kinder Morgan SEC filings are also
available to the public through the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
The
information concerning Kinder Morgan contained in this proxy statement/prospectus or incorporated by reference has been provided by Kinder Morgan, and the information concerning
Copano contained in this proxy statement/prospectus or incorporated by reference has been provided by Copano.
In order to receive timely delivery of requested documents in advance of the Copano special meeting, your request should be received no later than
April 24, 2013. If you request any documents, Kinder Morgan or Copano will mail them to you by first class mail, or another equally prompt means, within one business day after receipt of your
request.
Neither Kinder Morgan nor Copano has authorized anyone to give any information or make any representation about the merger, Kinder Morgan or Copano that is
different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that have been
174
Table of Contents
incorporated
by reference. Therefore, if any one distributes this type of information, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of
offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or you are a person to whom it is unlawful to direct these types
or activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of its date, or in the
case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.
175
Annex A
AGREEMENT
AND PLAN OF MERGER
Dated
as of January 29, 2013
among
KINDER
MORGAN ENERGY PARTNERS, L.P.,
KINDER
MORGAN G.P., INC.,
JAVELINA
MERGER SUB LLC,
and
COPANO
ENERGY, L.L.C.
TABLE OF CONTENTS
A-i
A-ii
A-iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of January 29, 2013 (this
"
Agreement
"), is by and among Copano Energy, L.L.C., a Delaware limited liability company (the
"
Company
"), Kinder Morgan Energy Partners, L.P., a Delaware limited partnership ("
Parent
"),
Kinder Morgan G.P., Inc., a Delaware corporation and the general partner of Parent ("
Parent GP
"), and Javelina Merger
Sub LLC, a Delaware limited liability company and a direct, wholly owned Subsidiary of Parent ("
Merger Sub
" and, with Parent and
Parent GP, the "
Parent Entities
"). Certain terms used in this Agreement are defined in
Section 8.11
.
W I T N E S S E T H:
WHEREAS,
the Board of Directors of the Company (the "
Company Board
") has (i) determined that it is in
the best interests of the Company and its Members, and declared it advisable, to enter into this Agreement, (ii) approved the execution, delivery and performance of this Agreement and the
transactions contemplated hereby and (iii) resolved to submit the Agreement to a vote of the Members of the Company and recommend adoption of this Agreement by the Members of the Company;
WHEREAS,
Parent, in its capacity as the managing member of Merger Sub, and the Board of Directors of the delegate of Parent GP have each approved and declared advisable this
Agreement and the transactions contemplated hereby; and
WHEREAS,
as a condition to Parent entering into this Agreement and incurring the obligations set forth herein, concurrently with the execution and delivery of this Agreement, Parent and
the Company are entering into a voting agreement with TPG Copenhagen, L.P. (the "
Voting Agreement
") pursuant to which, among other things, TPG
Copenhagen, L.P. has agreed, subject to the terms of the Voting Agreement, to vote all of its Series A Preferred Units and Common Units in accordance with the terms of the Voting
Agreement and to convert its Series A Preferred Units to Common Units in accordance with the Company LLC Agreement.
NOW,
THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound, the parties agree as
follows:
ARTICLE I
The Merger
Section 1.1.
The Merger.
Upon the terms and subject to the conditions set forth in this Agreement, and
in accordance with the DLLCA, at the Effective Time, Merger Sub shall be merged with
and into the Company (the "
Merger
"), the separate limited liability company existence of Merger Sub will cease and the Company will continue its
existence under Delaware law as the surviving entity in the Merger (the "
Surviving Entity
").
Section 1.2.
Closing.
Subject to the provisions of
Article VI
, the closing of the Merger (the
"
Closing
") shall take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, 10019 at
10:00 A.M., New York time, on the second (2nd) business day after the satisfaction or waiver of the conditions set forth in
Article VI
(other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place, date and time as the Company and
Parent shall agree. The date on which the Closing actually occurs is referred to as the "
Closing Date
."
Section 1.3.
Effective Time.
Subject to the provisions of this Agreement, at the Closing, the
Company will cause a certificate of merger, executed in accordance with the relevant provisions
of the DLLCA (the "
Certificate of Merger
") to be duly filed with the Secretary of State of the State of Delaware. The Merger will become effective at
such time as the Certificate of Merger has been duly
A-1
filed
with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Certificate of Merger (the effective
time of the Merger being hereinafter referred to as the "
Effective Time
").
Section 1.4.
Effects of the Merger.
The Merger shall have the effects set forth in the applicable
provisions of the DLLCA.
Section 1.5.
Organizational Documents of the Surviving Entity.
(a) At
the Effective Time, the certificate of formation of the Company as in effect immediately prior to the Effective Time shall, by virtue of the Merger and the
Certificate of Merger, be amended and restated in its entirety to read as the certificate of formation of Merger Sub in effect immediately prior to the Effective Time and, as so amended, shall be the
certificate of formation of the Surviving Entity from and after the Effective Time, and thereafter may be amended as provided therein or by Law, in each case consistent with the obligations set forth
in
Section 5.8
.
(b) The
Company LLC Agreement shall, by virtue of the Merger and the Certificate of Merger, be amended and restated in its entirety as set forth in
Exhibit A
hereto, consistent with the obligations
set forth in
Section 5.8
.
Section 1.6.
Governance of the Surviving Entity.
(a) Each
of the parties hereto shall take all necessary action to cause the managing member of Merger Sub immediately prior to the Effective Time to be the managing member
of the Surviving Entity immediately following the Effective Time. The parties agree that there shall be no directors of the Surviving Entity from and after the Effective Time.
(b) The
officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Entity until their respective successors are duly
appointed and qualified or upon their earlier death, resignation or removal in accordance with the certificate of formation and limited liability company agreement of the Surviving Entity.
ARTICLE II
Effect on Units
Section 2.1.
Effect of Merger.
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company, Parent GP, Parent, Merger Sub or the holder of any
securities of the Company or Merger Sub:
(a)
Conversion of Common Units.
Subject to
Section 2.2(h)
and
Section 2.4
, each Common Unit issued and outstanding or deemed issued and outstanding in accordance with
Section 2.3
as of immediately prior
to the Effective Time shall be converted into the right to receive 0.4563 (the
"
Exchange Ratio
") Parent Units (the "
Merger Consideration
").
(b)
Equity of Merger Sub.
At the Effective Time, by virtue of the Merger and without any action on the part of
Parent, the membership interests in Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one hundred percent (100%) of the issued and outstanding
membership interests in the Company (as the Surviving Entity). At the Effective Time, the books and records of the Company shall be revised to reflect the admission of Parent as a Member of the
Company and the simultaneous withdrawal of all other Members of the Company, and Parent GP and Parent shall continue the existence of the Company (as the Surviving Entity) without dissolution.
(c)
Cancellation of Company-Owned Units and Parent-Owned Units.
Any Company Securities that are owned
immediately prior to the Effective Time by the Company, and any Company
A-2
Securities
owned immediately prior to the Effective Time by Parent or Merger Sub, shall be automatically canceled and shall cease to exist and no consideration shall be delivered in exchange for such
canceled Company Securities, and any Company Securities owned by any other Subsidiary of Parent or the Company shall be exchanged for the Merger Consideration.
(d)
Certificates.
As of the Effective Time, all Common Units converted into the Merger Consideration pursuant to
this
Article II
shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate (or
evidence of units in book-entry form) that immediately prior to the Effective Time represented any such Common Units (a "
Certificate
") shall
cease to have any rights with respect thereto, except the right to receive the Merger Consideration, any dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(g)
and cash in lieu of any fractional Parent Units to which such holder is entitled pursuant to
Section 2.2(h)
, in each case to be issued or paid in consideration therefor upon surrender of such
Certificate in accordance with
Section 2.2(c)
, without interest, and the right to be admitted as an Additional Limited Partner of Parent. Parent GP hereby consents to
the admission (as an Additional Limited Partner) of each Unitholder who is issued Parent Units in exchange for such Unitholder's Common Units in accordance with this
Article II
, upon the proper
surrender of the Certificate representing such Common Units. Upon such surrender of the Certificate (or upon a waiver
of the requirement to surrender a Certificate granted by Parent GP in its sole discretion) and the recording of the name of such Person as a limited partner of Parent on the books and records
of Parent, such Person shall automatically and effective as of the Effective Time be admitted to Parent as an Additional Limited Partner and be bound by the Parent Partnership Agreement as such. By
its surrender of a Certificate, or by its acceptance of Parent Units, a Unitholder confirms its agreement to be bound by all of the terms and conditions of the Parent Partnership Agreement.
Section 2.2.
Exchange of Certificates.
(a)
Exchange Agent.
Prior to the Closing Date, Parent shall appoint an exchange agent reasonably acceptable to
the Company (the "
Exchange Agent
") for the purpose of exchanging Certificates for Merger Consideration. As soon as reasonably practicable after the
Effective Time, but in no event more than three (3) business days following the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of record of Common
Units, Company Options, Company UARs, Restricted Units and Phantom Units as of the Effective Time (and, to the extent commercially practicable, to make available for collection by hand, during
customary business hours commencing
immediately after the Effective Time, if so elected by such holder of record), whose Common Units, Company Options, Company UARs, Restricted Units and Phantom Units were converted into the right to
receive the Merger Consideration, a letter of transmittal (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates
(or effective affidavits of loss in lieu thereof) to the Exchange Agent) in such forms as the Company and Parent may reasonably agree, including, as applicable, instructions for use in effecting the
surrender of Certificates (or effective affidavits of loss in lieu thereof) to the Exchange Agent in exchange for the Merger Consideration and cash in lieu of any fractional Common Units payable
pursuant to
Section 2.2(h)
.
(b)
Deposit.
At or prior to the Closing, Parent shall cause to be deposited with the Exchange Agent, in trust
for the benefit of the holders of Common Units, Company Options, Company UARs, Restricted Units and Phantom Units (and tandem distribution equivalent rights), Parent Units (which shall be in
non-certificated book-entry form) and an amount of cash in U.S. dollars sufficient to be issued and paid pursuant to
Section 2.3(c)
, payable upon due surrender of the Certificates or other evidence
of Company Options, Company UARs, Restricted Units and Phantom
Units (and tandem distribution rights) (or effective affidavits of loss in lieu thereof) pursuant to the provisions of this
Article II
. Following
the Effective Time, Parent agrees to make
A-3
available
to the Exchange Agent, from time to time as needed, cash in U.S. dollars sufficient to pay any dividends and other distributions pursuant to
Section 2.2(g)
and any Parent Units sufficient to pay
any Merger Consideration, in each case, that may be payable from time to time following the
Effective Time. All cash and book-entry units representing Parent Units deposited with the Exchange Agent or representing unit proceeds obtained pursuant to Section 2.2(h) shall be
referred to in this Agreement as the "
Exchange Fund
." The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration
contemplated to be issued or paid pursuant to this
Article II
out of the Exchange Fund. The Exchange Fund shall not be used for any other
purpose. The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Parent;
provided
that (i) no such investment or
losses thereon shall affect the Merger Consideration payable to holders of Common Units, Company Options, Company UARs, Restricted Units or Phantom Units (and tandem distribution rights) entitled to
receive such consideration or cash in lieu of fractional interests or in respect of tandem distribution rights pursuant to
Section 2.3(c)
and
Parent shall promptly cause to be provided additional funds to the Exchange Agent for the benefit of holders of Common Units, Company Options, Company UARs, Restricted Units or Phantom Units (and
tandem distribution rights) entitled to receive such consideration in the amount of any such losses; and (ii) such investments shall be in short term obligations of the United States of America
with maturities of no more than thirty (30) days.
(c)
Exchange.
Each holder of Common Units, Company Options, Company UARs, Restricted Units or Phantom Units (and
tandem distribution rights) that have been converted into the right to receive the Merger Consideration, upon surrender to the Exchange Agent of a properly completed letter of transmittal, duly
executed and completed in accordance with the instructions thereto, a Certificate (as applicable) and such other documents as may reasonably be required by the Exchange Agent, will be entitled to
receive in exchange therefor (i) the number of Parent Units representing, in the aggregate, the whole number of Parent Units that such holder has the right to receive in accordance with the
provisions of
Article II
and/or (ii) a check denominated in U.S. dollars in the amount of cash that such holder has the right to receive
pursuant to this
Article II
. The Merger Consideration shall be paid as promptly as practicable by mail after receipt by the Exchange Agent of the
Certificate and letter of transmittal in accordance with the foregoing. No interest shall be paid or accrued on any Merger Consideration, cash in lieu of fractional Parent Units or on any unpaid
dividends and distributions payable to holders of Certificates. Until so surrendered, each such Certificate shall, after the Effective Time, represent for all purposes only the right to receive such
Merger Consideration.
(d)
Other Payees.
If any cash payment is to be made to a Person other than the Person in whose name the
applicable surrendered Certificate is registered, it shall be a condition of such payment that the Person requesting such payment shall pay any transfer or other similar Taxes required by reason of
the making of such cash payment to a Person other than the registered holder of the surrendered Certificate or shall establish to the satisfaction of the Exchange Agent that such Tax has been paid or
is not payable. If any portion of the Merger Consideration is to be registered in the name of a Person other than the Person in whose name the applicable surrendered Certificate is registered, it
shall be a condition to the registration thereof that the surrendered Certificate shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such delivery of
the Merger Consideration shall pay to the Exchange Agent any transfer or other similar Taxes required as a result of such registration in the name of a Person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.
(e)
No Further Transfers.
From and after the Effective Time, there shall be no further registration on the books
of the Company of transfers of Common Units. From and after the Effective Time, the holders of Certificates representing Common Units outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Common Units,
A-4
except
as otherwise provided in this Agreement or by applicable Law. If, after the Effective Time, Certificates are presented to the Exchange Agent or Parent, they shall be canceled and exchanged for
the consideration provided for, and in accordance with the procedures set forth, in this
Article II
.
(f)
Termination of Exchange Fund.
Any portion of the Exchange Fund that remains unclaimed by the holders of
Common Units twelve (12) months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged his, her or its Common Units for the Merger
Consideration in accordance with this
Section 2.2
prior to that time shall thereafter look only to Parent for delivery of the Merger
Consideration in respect of such holder's Common Units. Notwithstanding the foregoing, Parent, Merger Sub and the Company shall not be liable to any holder of Common Units for any Merger Consideration
duly delivered to a public official pursuant to applicable abandoned property Laws. Any Merger Consideration remaining unclaimed by holders of Common Units immediately prior to such time as such
amounts would otherwise escheat to, or become property of, any Governmental Authority shall, to the extent permitted by applicable Law, become the property of Parent free and clear of any claims or
interest of any Person previously entitled thereto.
(g)
Dividends and Distributions.
No dividends or other distributions with respect to Parent Units issued in the
Merger shall be paid to the holder of any unsurrendered Certificates until such Certificates are surrendered as provided in this
Section 2.2.
Following such surrender, subject to the effect of escheat, Tax or other applicable Law, there shall be paid, without interest, to the record holder of the Parent Units, if any, issued in exchange
therefor (i) at the time of such surrender, all dividends and other distributions payable in respect of any such Parent Units with a record date after the Effective Time and a payment date on
or prior to the date of such surrender and not previously paid and (ii) at the appropriate payment date, the dividends or other distributions payable with respect to such Parent Units with a
record date after the Effective Time but with a payment date subsequent to such surrender. For purposes of dividends or other distributions in respect of Parent Units, all Parent Units to be issued
pursuant to the Merger shall be entitled to dividends pursuant to the immediately preceding sentence as if issued and outstanding as of the Effective Time.
(h)
No Fractional Units.
No certificates or scrip representing fractional Parent Units shall be issued upon the
surrender for exchange of Certificates. Notwithstanding any other provision of this Agreement, each holder of Common Units converted pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a Parent Unit (after taking into account all Certificates (or effective affidavits of loss in lieu thereof) delivered by such holder) shall be entitled to receive, from the
Exchange Agent in accordance with the provisions of this
Section 2.2(h)
, a cash payment, without interest, in lieu of such fractional units
representing such holder's proportionate interest, if any, in the proceeds from the sale by the Exchange Agent (reduced by reasonable and customary fees of the Exchange Agent attributable to such
sale) (as so reduced, the "
unit proceeds
") in one or more transactions of a number of Parent Units, such number equal to the excess of (i) the
aggregate number of Parent Units to be delivered to the Exchange Agent by Parent pursuant to
Section 2.2(b)
over (ii) the aggregate number
of whole Parent Units to be distributed to the holders of Certificates pursuant to
Section 2.2(c)
(such excess being, the
"
Excess Units
"). The parties acknowledge that payment of the cash unit proceeds in lieu of issuing certificates or scrip for fractional units was not
separately bargained-for consideration but merely represents a mechanical rounding off for purposes of avoiding the expense and inconvenience to Parent that would otherwise be caused by
the issuance of fractional units. As soon as practicable after the Effective Time, the Exchange Agent, as agent for the holders of the certificates representing Parent Units that would otherwise
receive fractional units, shall sell the Excess Units at then-prevailing prices on the NYSE in the manner provided in this
Section 2.2(h)
and shall be executed in round lots to the extent
practicable. Until the unit proceeds of such sale or sales have
A-5
been
distributed to the holders of such Common Units, or the Exchange Fund is terminated, the Exchange Agent shall hold such unit proceeds in trust for the benefit of the holders of such Common Units
(the "
Fractional Unit Proceeds
"). The Exchange Agent shall determine the portion of the Fractional Unit Proceeds to which each holder of such Common
Units shall be entitled, if any, by multiplying the amount of the aggregate unit proceeds comprising the Fractional Unit Proceeds by a fraction, the numerator of which is the amount of the fractional
unit interest to which such holder of such Common Units would otherwise be entitled and the denominator of which is the aggregate amount of fractional unit interests to which all holders of such
Common Units would otherwise be entitled. To the extent applicable, each holder of Common Units shall be deemed to have consented for U.S. federal income tax purposes (and to the extent applicable,
state or local income tax purposes) to report the cash received for fractional Parent Units in the Merger as a sale of a portion of the holder's Common Units to Parent consistent with Treasury
Regulation Section 1.708-1(c)(4).
(i)
Lost, Stolen or Destroyed Certificates.
If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond, in such reasonable
amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the Common Units represented by such Certificate as contemplated by this
Article II
.
(j)
Withholding Taxes.
Parent, Merger Sub and the Exchange Agent shall deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to a holder of Common Units, Company Options, Company UARs, Restricted Units and Phantom Units (and any tandem distribution equivalent
rights) such amounts as are required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "
Code
"), or under any provision of state, local or foreign tax Law (and to the extent deduction and withholding is required,
such deduction and withholding shall be taken in Parent Units). To the extent amounts are so withheld and paid over to the appropriate taxing authority, such withheld amounts shall be treated for the
purposes of this Agreement as having been paid to the former holder of the Common Units, Company Options, Company UARs, Restricted Units and Phantom Units (and tandem distribution equivalent rights),
as applicable, in respect of whom such withholding was made. If withholding is taken in Parent Units, Parent and the Exchange Agent shall be treated as having sold such consideration for an amount of
cash equal to the fair market value of such consideration at the time of such deemed sale and paid such cash proceeds to the appropriate taxing authority.
Section 2.3.
Treatment of Company Options, Company UARs, Phantom Units and Restricted Units.
As
soon as reasonably practicable following the date of this Agreement, and in any event prior to the Effective Time, the Company Board (or, if appropriate, any
committee administering any Company Equity Plan) will adopt resolutions, and the Company will take all other actions as may be necessary or required in accordance with applicable Law and each Company
Equity Plan (including, the award agreements in respect of awards granted thereunder) to give effect to this
Section 2.3
to provide that:
(a)
Treatment of Company Options.
Each Company Option outstanding and unexercised immediately prior to the
Effective Time (whether or not then vested or exercisable), as of immediately prior to the Effective Time, by virtue of the occurrence of the Closing and without any action on the part of any holder
of any Company Option, will be deemed net exercised for that number of whole Common Units, which shall be deemed issued and outstanding as of immediately prior to the Effective Time and otherwise
subject to the terms and conditions of this Agreement (including,
Sections 2.1
and
2.2
), equal
to, rounded down to the nearest whole unit,
A-6
(i) the
number of Common Units subject to such Company Option immediately prior to the Effective Time minus (ii) the number of whole and partial (computed to the nearest four decimal
places) Common Units with a Fair Market Value (as such term is defined in the applicable Company Equity Plan) as of immediately prior to the Effective Time equal to the aggregate exercise price of
such Company Option. For illustration purposes only, if (x) a Company Option to purchase one hundred (100) Common Units with an exercise price per Common Unit of $1.00 is outstanding and
unexercised immediately prior to the Effective Time and (y) the Fair Market Value of a Common Unit as of immediately prior to the Effective Time is $2.00, such Company Option would be converted
into the Merger Consideration pursuant to this
Section 2.3(a)
as follows: (100Equivalent Option Common Units)*(Exchange
Ratio) = 22 Parent Units, where "
Equivalent Option Common Units
" = Aggregate exercise price of such Company Option / the Fair Market Value
of one Common Unit (with such quotient computed to the nearest four decimal places).
(b)
Treatment of Company UARs.
Each Company UAR outstanding and unexercised immediately prior to the Effective
Time (whether or not then vested or exercisable), as of immediately prior to the Effective Time, by virtue of the occurrence of the Closing and without any action on the part of any holder of any
Company UAR, will be deemed net exercised for that number of whole Common Units, which shall be deemed issued and outstanding as of immediately prior to the Effective Time and otherwise subject to the
terms and conditions of this Agreement (including,
Sections 2.1
and
2.2
), equal to, rounded down
to the nearest whole unit, (i) the number of Common Units subject to such Company UAR immediately prior to the Effective Time minus (ii) the number of whole and partial (computed to the
nearest four decimal
places) Common Units with a Fair Market Value (as such term is defined in the applicable Company Equity Plan) as of immediately prior to the Effective Time equal to the aggregate exercise price of
such Company UAR. For illustration purposes only, if (x) a Company UAR in respect of one hundred (100) Common Units with an exercise price per Common Unit of $1.00 is outstanding and
unexercised immediately prior to the Effective Time and (y) the Fair Market Value of a Common Unit as of immediately prior to the Effective Time is $2.00, such Company UAR would be converted
into the Merger Consideration pursuant to this
Section 2.3(b)
as follows: (100Equivalent UAR Common Units)*(Exchange Ratio) =
22 Parent Units, where "
Equivalent UAR Common Units
" = Aggregate exercise price of such Company UAR / the Fair Market Value of one Common Unit
(with such quotient computed to the nearest four decimal places).
(c)
Treatment of Phantom Units.
Each Phantom Unit that is outstanding immediately prior to the Effective Time
shall, as of the Effective Time, automatically and without any action on the part of the holder thereof, vest in full (in the case of performance-based Phantom Units, based on a target earned
percentage of one hundred percent (100%)) and the restrictions with respect thereto shall lapse, and each Common Unit deemed to be issued in settlement thereof shall be deemed issued and outstanding
as of immediately prior to the Effective Time and otherwise subject to the terms and conditions of this Agreement (including,
Sections 2.1
and
2.2
).
In addition, any tandem distribution equivalent rights payable with respect to each Phantom Unit that vests pursuant to this
Section 2.3(c)
shall, as of the Effective Time, automatically and
without any action on the part of the holder thereof, vest in full and shall
become immediately payable in cash.
(d)
Treatment of Restricted Units.
Each Restricted Unit that is outstanding immediately prior to the Effective
Time shall, as of the Effective Time, automatically and without any action on the part of the holder thereof, vest in full and the restrictions with respect thereto shall lapse, and each Restricted
Unit shall be treated as an issued and outstanding Common Unit as of immediately prior to the Effective Time and otherwise subject to the terms and conditions of this Agreement (including,
Sections 2.1
and
2.2
).
A-7
(e)
Termination of Company Equity Plans.
Prior to the Effective Time, the Company shall take all actions
necessary to terminate all of the Company Equity Plans, such termination to be effective at the Effective Time, and from and after the Effective Time, all Company Equity Plans shall be terminated and
no Company Options, Company UARs, Restricted Units, Phantom Units or other rights with respect to Common Units or other Company Securities shall be granted or be outstanding thereunder, it being
understood that the terminations contemplated hereby shall in no respect limit Parent's obligations under this Section 2.3 with respect to Company Options, Company UARs, Restricted Units and
Phantom Units granted prior to the Effective Time.
Section 2.4.
Adjustments.
Notwithstanding any provision of this
Article II
to the contrary (but without in any way limiting the
covenants in
Section 5.2
), if between the date of this Agreement and the Effective Time the number of outstanding Common Units or Parent Units
shall have been changed into a different number of units or a different class by reason of the occurrence or record date of any unit dividend, subdivision, reclassification, recapitalization, split,
split-up, unit distribution, combination, exchange of units or similar transaction, the Exchange Ratio shall be appropriately adjusted to reflect fully the effect of such unit dividend,
subdivision, reclassification, split, combination, exchange of units or similar transaction and to provide the holders of Common Units the same economic effect as contemplated by this Agreement prior
to such event.
Section 2.5.
No Dissenters' Rights.
No dissenters' or appraisal rights shall be available with
respect to the Merger or the other transactions contemplated hereby.
ARTICLE III
Representations and Warranties of the Company
Except
as disclosed in (a) the Company SEC Documents filed with the SEC on or after December 31, 2010 and prior to the date of this Agreement
(but excluding any disclosure contained in any such Company SEC Documents under the heading "Risk Factors" or "Cautionary Note Regarding Forward-Looking Statements" or similar heading (other than any
factual information contained within such headings, disclosure or statements)) or (b) the disclosure letter delivered by the Company to Parent (the "
Company Disclosure
Schedule
") prior to the execution of this Agreement (
provided
that (i) disclosure in any section of such Company
Disclosure Schedule shall be deemed to be disclosed with respect to any other section of this Agreement to the extent that it is reasonably apparent on the face of such disclosure that it is
applicable to such other section notwithstanding the omission of a reference or cross reference thereto and (ii) the mere inclusion of an item in such Company Disclosure Schedule as an
exception to a representation or warranty shall not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had, would have
or would reasonably be expected to have a Company Material Adverse Effect), the Company represents and warrants to Parent as follows:
Section 3.1.
Organization, Standing and Corporate Power.
(a) Each
of the Company and its Subsidiaries is a legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is
incorporated, formed or organized, as applicable, and has all requisite limited liability company, corporate, partnership or other applicable power and authority necessary to own or lease all of its
properties and assets and to carry on its business as it is now being conducted, except where the failure to have such power or authority would not, individually or in the aggregate, have a Material
Adverse Effect on the Company ("
Company Material Adverse Effect
").
(b) Each
of the Company and its Subsidiaries is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or
A-8
qualification
necessary, except where the failure to be so licensed, qualified or in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect.
(c) All
the outstanding limited liability company interests, partnership interests, shares of capital stock of, or other equity interests in, each material Subsidiary of the
Company that are owned directly or indirectly by the Company have been duly authorized and validly issued and are fully paid and nonassessable and are owned free and clear of all liens, pledges,
charges, mortgages, encumbrances, options, rights of first refusal or other preferential purchase rights, adverse rights or claims and security interests of any kind or nature whatsoever (including
any restriction on the right to vote or transfer the same, except for such transfer restrictions of general applicability as may be provided under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "
Securities Act
"), and the "
blue sky
" laws of the various
States of the United States) (collectively, "
Liens
"). Except for those of the Company Joint Ventures, all such interests and shares of capital stock of
each Subsidiary are owned directly or indirectly by the Company.
(d) The
Company has made available to Parent correct and complete copies of its certificate of formation and the Company LLC Agreement (the
"
Company Charter Documents
"), and correct and complete copies of the certificates of formation and limited liability company agreements (or comparable
organizational documents) of each of its material Subsidiaries (the "
Company Subsidiary Documents
"), in each case as amended to the date of this
Agreement. All such Company Charter Documents are in full force and effect and the Company is not in violation of any of their provisions.
Section 3.2.
Capitalization.
(a) As
of the close of business on January 25, 2013, the Company has no Interests or other limited liability company interests or equity interests issued and
outstanding, other than: (i) 79,017,342 Common Units (which number includes 43,000 Common Units which are Restricted Units), (ii) no Common Units held by the Company in its treasury;
(iii) 634,112 Common Units issuable on the exercise of outstanding Company Options granted under the Company Equity Plans; (iv) 464,923 outstanding Company UARs; (v) 1,170,116
Common Units issuable upon the settlement of outstanding Phantom Units; (vi) 12,897,029 Series A Preferred Units; and (viii) 14,186,731 Common Units issuable upon conversion of
the 12,897,029 outstanding Series A Preferred Units. All outstanding Common Units and Series A Preferred Units have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
Section 3.2(a)
of the Company Disclosure Schedule sets forth, as of January 25, 2013,
(i) the aggregate number of outstanding options or other rights to purchase or receive
Common Units, Series A Preferred Units or other Company Securities granted under the Company Equity Plans or otherwise by the Company (including outstanding Company Options, Company UARs,
Phantom Units, tandem distribution equivalent rights and Restricted Units), organized by exercise or conversion price related thereto and (ii) each outstanding Company Option, Company UAR,
Phantom Unit, tandem distribution equivalent right and Restricted Unit and to the extent applicable, the number of Common Units issuable thereunder, the number of Common Units used as a reference for
payment thereunder, the expiration date, the exercise or conversion price relating thereto, the grant date, the vesting schedule, the settlement date, whether or not it is subject to performance based
vesting, the amount vested and outstanding, the amount unvested and outstanding, and the Company Equity Plan pursuant to which the award was made. Except as set forth above in this
Section 3.2(a)
or in
Section 3.2(a)
of the Company Disclosure Schedule, as of the date of
this Agreement there are not, and as of the Effective Time there will not be, any Interests or other limited liability company interests, voting securities or other equity interests of the Company
issued and outstanding or any subscriptions, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character providing for the
A-9
issuance
of any Interests or other limited liability company interests, voting securities or other equity interests of the Company, including any representing the right to purchase or otherwise
receive any of the foregoing.
(b) Since
the Balance Sheet Date to the date of this Agreement, the Company has not issued any Interests or other limited liability company interests, voting securities or
other equity interests, or any securities convertible into or exchangeable or exercisable for any Interests or other limited liability company interests, voting securities or other equity interests,
other than as set forth above in this
Section 3.2(a)
or in
Section 3.2(a)
of the Company
Disclosure Schedule. None of the Company or any of its Subsidiaries has issued or is bound by any outstanding subscriptions, options, warrants, calls, convertible or exchangeable securities, rights,
commitments or agreements of any character providing for the issuance or disposition of any limited liability company interests, shares of capital stock, voting securities or equity interests of any
Subsidiary of the Company (other than, with respect to the Company Joint Ventures, as set forth in the definitive agreements for such Company Joint Ventures). Except (i) as set forth in the
Company LLC Agreement, as in effect as of the date of this Agreement, (ii) in connection with the exercise of any Company Options or Company UARs or (iii) in connection with the
vesting, settlement or forfeiture of, or tax withholding with respect to, any equity or equity-based awards granted under the Company Equity Plans and outstanding as of the date of this Agreement,
there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Interests or other limited liability company interests, shares of capital
stock, voting securities or equity interests (or any options, warrants or other rights to acquire any Interests or other limited liability company interests, shares of capital stock, voting securities
or equity interests) of the Company or any of its Subsidiaries (other than, with respect to the Company Joint Ventures, as set forth in the definitive agreements for such Company Joint Ventures).
(c) All
distributions of Series A Preferred Units issued as PIK Units required to be made under the Company LLC Agreement have been made in accordance with the
terms of the Company LLC Agreement.
Section 3.3.
Authority; Noncontravention; Voting Requirements.
(a) The
Company has all necessary limited liability company power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby,
subject to obtaining the Company Unitholder Approval. The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, have been
duly authorized and approved by the Company Board, which, at a meeting duly called and held, has unanimously (i) approved and declared advisable this Agreement and the transactions contemplated
hereby and (ii) resolved to submit the Agreement to a vote of the Members of the Company and to recommend adoption of this Agreement by the Members of the Company, and except for obtaining the
Company Unitholder Approval for the adoption of this Agreement, and consummation of the transactions contemplated hereby, no other limited liability company action on the part of the Company is
necessary to authorize the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery of this Agreement by the other parties hereto, constitutes a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
(b) Neither
the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions of this Agreement, will (i) conflict with or violate any provision of the Company Charter Documents or any of the Company Subsidiary Documents,
A-10
(ii) assuming
that the authorizations, consents and approvals referred to in
Section 3.4
and the Company Unitholder Approval are obtained
and the filings referred to in
Section 3.4
are made, (x) violate any Law, judgment, writ or injunction of any Governmental Authority
applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any
of the respective properties or assets of, the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any loan or credit agreement, debenture, note, bond, mortgage,
indenture, deed of trust, license, lease, contract or other agreement, instrument or obligation (each, a "
Contract
") or Company Permit (including any
Environmental Permit), to which the Company or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected or (iii) result in
the exercisability of any right to purchase or acquire any material asset of the Company or any of its Subsidiaries, except, in the case of clauses (ii)(x) and (ii)(y), for such violations,
conflicts, losses, defaults, terminations, cancellations, accelerations or Liens as, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.
(c) The
affirmative vote or consent of the holders of a Unit Majority at the Company Unitholders Meeting or any adjournment or postponement thereof in favor of the adoption
of this Agreement (the "
Company Unitholder Approval
") is the only vote or approval of the holders of any class or series of Interests or other limited
liability company interests, equity interests or capital stock of the Company or any of its Subsidiaries which is necessary to adopt this Agreement and the transactions contemplated hereby.
Section 3.4.
Governmental Approvals.
Except for (i) filings required under, and compliance
with other applicable requirements of, the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "
Exchange Act
"), and the Securities Act, including the filing of a proxy or information statement with the
SEC in connection with the Merger (the "
Proxy Statement
"), (ii) the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware, (iii) filings required under, and compliance with other applicable requirements of, the HSR Act or (iv) any consents, authorizations, approvals, filings or exemptions in
connection with compliance with the rules of NASDAQ, no consents or approvals of, or filings, declarations or registrations with, any Governmental Authority are necessary for the execution, delivery
and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, other than such other consents, approvals, filings, declarations or
registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to (A) prevent or materially impede, interfere with or hinder the
consummation of the transactions contemplated hereby or (B) result in a Company Material Adverse Effect.
Section 3.5.
Company SEC Documents; Undisclosed Liabilities.
(a) The
Company and its Subsidiaries have filed and furnished all reports, schedules, forms, certifications, prospectuses, and registration, proxy and other statements
required to be filed by them with the SEC since December 31, 2010 (collectively and together with all documents filed on a voluntary basis on Form 8-K, and in each case
including all exhibits and schedules thereto and documents incorporated by reference therein, the "
Company SEC Documents
"). The Company SEC Documents,
as of their respective effective dates (in the case of Company SEC Documents that are
registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Company SEC Documents), or, if amended, as
finally amended prior to the date of this Agreement, complied in all material respects with the requirements of the Exchange Act, the Securities Act and the Sarbanes-Oxley Act, as the case may be,
applicable to such Company SEC Documents, and none of the Company SEC
A-11
Documents
as of such respective dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. As of the date of this Agreement, there are no outstanding or unresolved comments received from the SEC staff with
respect to the Company SEC Documents. To the Knowledge of the Company, none of the Company SEC Documents is the subject of ongoing SEC review or investigation.
(b) The
consolidated financial statements of the Company included in the Company SEC Documents as of their respective dates (if amended, as of the date of the last such
amendment) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited quarterly statements, as indicated in the notes thereto) applied on a consistent basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments, none of which has been or will be,
individually or in the aggregate, material to the Company and its consolidated Subsidiaries, taken as a whole).
(c) The
Company has established and maintains internal control over financial reporting and disclosure controls and procedures (as such terms are defined in
Rule 13a-15 and Rule 15d-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the
Company, including its consolidated Subsidiaries, required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company's principal executive officer and its principal financial officer to allow timely decisions regarding required disclosure; and such disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. The Company's principal executive officer and its principal financial officer have disclosed, based on their most recent evaluation, to the Company's auditors and the
audit committee of the Company Board (x) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls and (y) any fraud, whether or not
material, that involves management or other employees who have a significant role in the Company's internal controls. The principal executive officer and the principal financial officer of the Company
have made all certifications required by the Sarbanes-Oxley Act, the Exchange Act and any related rules and regulations promulgated by the SEC with respect to the Company SEC Documents, and the
statements contained in such certifications were complete and correct when made. The management of the Company has completed its assessment of the effectiveness of the Company's internal control over
financial reporting in compliance with the requirements of Section 404 of the Sarbanes Oxley Act for the year ended December 31, 2011, and such assessment concluded that such controls
were effective. To the Knowledge of the Company, as of the date of this Agreement there are no facts or circumstances that would prevent its chief executive officer and chief financial officer from
giving the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes Oxley Act, without qualification, when next due.
(d) Except
(i) as reflected or otherwise reserved against on the balance sheet of the Company and its Subsidiaries as of September 30, 2012 (the
"
Balance Sheet Date
") (including the notes thereto) included in the Company SEC Documents filed by the Company and publicly available
A-12
prior
to the date of this Agreement, (ii) for liabilities and obligations incurred since the Balance Sheet Date in the ordinary course of business and (iii) for liabilities and
obligations incurred under or in accordance with this Agreement or in connection with the transactions contemplated hereby, neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether or not accrued or contingent), that would be required to be reflected or reserved against on a consolidated balance sheet of the Company prepared in accordance with
GAAP or the notes thereto, other than as have not and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(e) Neither
the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership
or any similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among the Company and any of its Subsidiaries, on the one hand, and any
unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, or any "off-balance sheet arrangements" (as defined in
Item 303(a) of Regulation S-K of the SEC)), where the purpose of such Contract is to avoid disclosure of any material transaction involving, or material liabilities of, the
Company in the Company's published financial statements or any Company SEC Documents.
Section 3.6.
Absence of Certain Changes or Events.
(a) Since
the Balance Sheet Date, there has not been a Company Material Adverse Effect.
(b) Since
the Balance Sheet Date, (i) except for this Agreement and the transactions contemplated hereby, the Company and its Subsidiaries have carried on and
operated their respective businesses in all material respects in the ordinary course of business consistent with past practice and (ii) neither the Company nor any of its Subsidiaries has taken
any action described in
Sections 5.2(a)(ii)
,
(iii)
,
(v)
,
(vi)
,
(vii)
,
(ix)
or
(xiv)
(but, with respect to
(vii)
,
disregarding
the proviso to
(vii)(x)(1)
, and with respect to
(xiv)
, only to the extent applicable to the other
clauses designated in this
Section 3.6(b)(ii)
) that, if taken after the date of this Agreement and prior to the Effective Time without the prior
written consent of Parent, would violate such provisions.
Section 3.7.
Legal Proceedings.
There are no investigations or proceedings pending (or, to the
Knowledge of the Company, threatened) by any Governmental Authority with respect to the Company or
any of its Subsidiaries or actions, suits or proceedings pending (or, to the Knowledge of the Company, threatened) against the Company or any of its Subsidiaries or any of their respective properties
at law or in equity before any Governmental Authority, and there are no orders, judgments or decrees of any Governmental Authority against the Company or any of its Subsidiaries, in each case except
for those that would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.8.
Compliance With Laws; Permits.
(a) The
Company and its Subsidiaries are, and since the later of December 31, 2010 and their respective dates of incorporation, formation or organization have been,
in compliance with and are not in default under or in violation of any applicable federal, state, local or foreign or provincial law, statute, ordinance, rule, regulation, judgment, order, injunction,
decree or agency requirement of or undertaking to any Governmental Authority, including common law (collectively, "
Laws
" and each, a
"
Law
"), except where such non-compliance, default or violation would not have, individually or in the aggregate, a Company Material Adverse
Effect.
(b) The
Company and its Subsidiaries are in possession of all franchises, tariffs, grants, authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for the Company and its Subsidiaries to own, lease and operate their properties and assets or to carry on their businesses as
they are now being
A-13
conducted
(the "
Company Permits
"), except where the failure to have any of the Company Permits would not have, individually or in the aggregate, a
Company Material Adverse Effect. All Company Permits are in full force and effect, except where the failure to be in full force and effect would not have, individually or in the aggregate, a Company
Material Adverse Effect. No suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company, threatened, except where such suspension or cancellation would not
have, individually or in the aggregate, a Company Material Adverse Effect. The Company and its Subsidiaries are not, and since December 31, 2010 have not been, in violation or breach of, or
default under, any Company Permit, except where such violation, breach or default would not have, individually or in the aggregate, a Company Material Adverse Effect. As of the date of this Agreement,
to the Knowledge of the Company, no event or condition has occurred or exists which would result in a violation of, breach, default or loss of a benefit under, or acceleration of an obligation of the
Company or any of its Subsidiaries under, any Company Permit, or has caused (or would cause) an applicable Governmental Authority to fail or refuse to issue, renew, extend, any Company Permit (in each
case, with or without notice or lapse of time or both), except for violations, breaches, defaults, losses, accelerations or failures that would not have, individually or in the aggregate, a Company
Material Adverse Effect.
(c) Without
limiting the generality of
Section 3.8(a)
, the Company, each of its Subsidiaries, and, to the Knowledge of
the Company, each joint venture partner, joint interest owner, consultant, agent, or representative of any of the foregoing (in their respective capacities as such), (i) has not violated the
U.S. Foreign Corrupt Practices Act, and any other U.S. and foreign anti-corruption Laws that are applicable to the Company or its Subsidiaries; (ii) has not, to the Knowledge of the
Company, been given written notice by any Governmental Authority of any facts which, if true, would constitute a violation of the U.S. Foreign Corrupt Practices Act or any other U.S. or foreign
anti-corruption Laws by any such person; and (iii) to the Knowledge of the Company, is not being (and has not been) investigated by any Governmental Authority except, in each case
of the foregoing clauses (i) through (iii), as would not have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.9.
Information Supplied.
Subject to the accuracy of the representations and warranties
of Parent and Merger Sub set forth in
Section 4.9
, none of the information supplied (or to be supplied) in writing by or on behalf of the Company specifically for inclusion or
incorporation by reference in (a) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of Parent Units in connection with
the Merger (as amended or supplemented from time to time, the "
Registration Statement
") will, at the time the Registration Statement, or any amendment
or supplement thereto, is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading, and (b) the Proxy Statement will, on the
date it is first mailed to Unitholders of the Company, and at the time of the Company Unitholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the applicable requirements of the Exchange Act. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to information supplied by or on
behalf of Parent or Merger Sub for inclusion or incorporation by reference in any of the foregoing documents.
Section 3.10.
Tax Matters.
(a) Except
as would not have, individually or in the aggregate, a Company Material Adverse Effect: (i) all Tax Returns that were required to be filed by or with
respect to the Company or any of its Subsidiaries have been duly and timely filed (taking into account any extension of time
A-14
within
which to file) and all such Tax Returns are complete and accurate, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax
Return, have been so included, (iii) all Taxes owed by the Company or any of its Subsidiaries that are or have become due have been timely paid in full or an adequate reserve for the payment of
such Taxes has been established, (iv) all Tax withholding and deposit requirements imposed on or with respect to the Company or any of its Subsidiaries have been satisfied in full in all
respects, (v) there are no Liens on any of the assets of the Company or any of its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax, (vi) there
are no audits, examinations, investigations or other proceedings pending or threatened in writing in respect of Taxes or Tax matters of the Company or any
of its Subsidiaries, (vii) there is no written claim against the Company or any of its Subsidiaries for any Taxes, and no assessment, deficiency or adjustment has been asserted, proposed, or
threatened in writing with respect to any Tax Return of or with respect to the Company or any of its Subsidiaries, (viii) there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the Company or any of its Subsidiaries or any waiver or agreement for any extension of time for the assessment or payment of any Tax of or
with respect to any of the Company or any of its Subsidiaries, (ix) none of the Company or any of its Subsidiaries will be required to include any amount in income for any taxable period as a
result of a change in accounting method for any taxable period ending on or before the Closing Date or pursuant to any agreement with any Tax authority with respect to any such taxable period,
(x) except as set forth in
Section 3.10
of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries is a party to a
Tax allocation or sharing agreement, and no payments are due or will become due by the Company or any of its Subsidiaries pursuant to any such agreement or arrangement or any Tax indemnification
agreement, (xi) none of the Company or any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal income Tax Return or has any liability for the Taxes of any
Person (other than the Company or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), as a transferee or
successor, by contract, or otherwise, (xii) the Company and each of its Subsidiaries that is classified as a partnership for U.S. federal income tax purposes has in effect a valid election
under Section 754 of the Code, (xiii) the Company is properly classified as a partnership for U.S. federal income tax purposes, and not as an association or a publicly traded partnership
taxable as a corporation under Section 7704 of the Code and has been properly treated as such since its formation, (xiv) at least ninety percent (90%) of the gross income of the Company
for each taxable year since its formation has been from sources that will be treated as "qualifying income" within the meaning of Section 7704(d) of the Code, and (xv) each Company
Subsidiary is currently (and has been since its respective formation) either (a) properly classified as a partnership for U.S. federal income tax purposes or (b) properly disregarded as
an entity separate from its respective owner for U.S. federal income tax purposes pursuant to Treasury Regulation Section 301.7701-3(b).
(b) As
used in this Agreement, (i) "
Tax
" or "
Taxes
" means any and all
federal, state, local or foreign or provincial taxes, charges, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and similar charges, including any and all interest, penalties, fines, additions to tax or additional amounts imposed by any Governmental Authority in connection with respect
thereto and (ii) "
Tax Return
" means any return, report or similar filing (including any attached schedules, supplements and additional or
supporting material) filed or required to be filed with respect to Taxes, including any information return, claim for refund, amended return or declaration of estimated Taxes (and including any
amendments with respect thereto).
A-15
Section 3.11.
Employee Benefits.
(a)
Section 3.11(a)
of the Company Disclosure Schedule lists all material Company Benefit Plans.
"
Company Benefit Plans
" means (i) all "employee benefit plans" (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("
ERISA
")) and (ii) all other compensation or employee benefit plans, programs, policies, agreements or other
arrangements, whether or not subject to ERISA, including, cash or equity or equity-based, employment, retention, change of control, health, medical, dental, disability, accident, life insurance,
vacation, severance, retirement, pension, savings, or termination, in each case of clauses (i) and (ii) that are sponsored, maintained, contributed to or required to be contributed to by
the Company or any of its Subsidiaries for the benefit of current or former employees, directors or consultants of the Company or its Subsidiaries, or with respect to which the Company or its
Subsidiaries have any current or contingent liability, except that no "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) (a "
Multiemployer
Plan
") shall be considered a Company Benefit Plan).
(b) Neither
the Company, any of its Subsidiaries, nor any of their respective ERISA Affiliates contributes to, is required to contribute to, or has in the last six
(6) years contributed to or been required to contribute to a Multiemployer Plan. Neither the Company, any of its Subsidiaries, nor any of their respective ERISA Affiliates has incurred any
"withdrawal liability" (within the meaning of Section 4201 of ERISA) to a Multiemployer Plan that has not been satisfied in full or has (or is reasonably expected to have) any other current or
contingent liability with respect to any Multiemployer Plan.
(c) Except
for such claims which would not have, individually or in the aggregate, a Company Material Adverse Effect, no action, dispute, suit, claim, arbitration, or legal,
administrative or other proceeding or governmental action is pending or, to the Knowledge of the Company, threatened (x) with respect to any Company Benefit Plan other than claims for benefits
in the ordinary course, (y) alleging any breach
of the material terms of any Company Benefit Plan or any fiduciary duties with respect thereto or (z) with respect to any violation of any applicable Law with respect to such Company Benefit
Plan.
(d) Each
Company Benefit Plan has been maintained, funded and administered in compliance with its terms and with applicable Law, including ERISA and the Code, except for
such non-compliance which would not have, individually or in the aggregate, a Company Material Adverse Effect. Any Company Benefit Plan intended to be qualified under Section 401 of
the Code has received a favorable determination letter from the United States Internal Revenue Service that has not been revoked and, to the Knowledge of the Company, no fact or event has occurred
since the date of such determination letter or letters from the Internal Revenue Service that would reasonably be expected to adversely affect the qualified status of any such Company Benefit Plan.
Neither the Company nor any of its Subsidiaries maintains or contributes to or is required to contribute to any plan, agreement or arrangement which provides post-termination or
post-retirement health or life insurance benefits or coverage to any Person, except as required by applicable Law, pursuant to post-termination continuation provisions not in
excess of three (3) years set forth in employment agreements or severance arrangements that are Company Benefit Plans, or as would not have, individually or in the aggregate, a Company Material
Adverse Effect.
(e) Neither
the Company, any of its Subsidiaries, nor any of their respective ERISA Affiliates has in the last six (6) years sponsored, maintained, contributed to or
been required to contribute to, or has (or is reasonably expected to have) any current or contingent liability with respect to any "employee pension benefit plan," as defined in Section 3(2) of
ERISA, that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, excluding any Multiemployer Plan.
A-16
(f) Except
as would not have, individually or in the aggregate, a Company Material Adverse Effect, with respect to any Company Benefit Plan, all contributions, premiums and
other payments due from any of the Company or its Subsidiaries required by Law or any Company Benefit Plan have been made under any such plan to any fund, trust or account established thereunder or in
connection therewith by the due date thereof.
(g) Except
as set forth on
Section 3.11(g)
of the Company Disclosure Schedule, the consummation of the transactions
contemplated hereby will not, either alone or in combination with another event, (i) entitle any current or former employee, consultant or officer of the Company or any of its Subsidiaries to
any severance pay, retention bonuses, parachute payments, non-competition payments, unemployment compensation or any other payment, (ii) accelerate the time of payment or vesting,
or increase the amount of any compensation due any such employee, consultant or officer, (iii) result in any forgiveness of indebtedness or obligation to fund benefits with respect to any such
employee, director or officer or (iv) result in any amount failing to be deductible by reason of Section 280G of the
Code. No director, officer, employee or other service provider of the Company or any of its Subsidiaries is entitled to a gross up, make whole or other similar payment as a result of the imposition of
Taxes under Section 280G, Section 4999 or Section 409A of the Code pursuant to any agreement or arrangement with the Company or any of its Subsidiaries. Each Company Benefit Plan
may be amended or terminated at any time without penalty.
(h) No
Company Benefit Plan is subject to the Laws of any Governmental Authority other than those of the United States.
Section 3.12.
Labor Matters.
(a) None
of the employees of the Company or any of its Subsidiaries is represented in his or her capacity as an employee of the Company or any Subsidiary by any labor
organization. Neither the Company nor any Subsidiary has recognized any labor organization, nor has any labor organization been elected as the collective bargaining agent of any employees of the
Company or any of its Subsidiaries, nor has the Company or any Subsidiary entered into any collective bargaining agreement or union contract recognizing any labor organization as the bargaining agent
of any employees of the Company or any of its Subsidiaries.
(b) Except
for such matters which would not have, individually or in the aggregate, a Company Material Adverse Effect, neither the Company nor any of its Subsidiaries has
received written notice during the past two (2) years of the intent of any Governmental Authority responsible for the enforcement of labor, employment, occupational health and safety or
workplace safety and insurance/workers compensation laws to conduct an investigation of the Company or any of its Subsidiaries with respect to such matters and, to the Knowledge of the Company, no
such investigation is in progress. Except for such matters which would not have, individually or in the aggregate, a Company Material Adverse Effect, (i) there are no (and have not been during
the two (2) year period preceding the date of this Agreement) strikes or lockouts with respect to any employees of the Company or any of its Subsidiaries, (ii) to the Knowledge of the
Company, there is no (and has not been during the two (2) year period preceding the date of this Agreement) union organizing effort pending or threatened against the Company or any of its
Subsidiaries, (iii) there is no (and has not been during the two (2) year period preceding the date of this Agreement) unfair labor practice, labor dispute (other than routine individual
grievances) or labor arbitration proceeding pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries and (iv) there is no (and has not been during
the two (2) year period preceding the date of this Agreement) slowdown, or work stoppage in effect or, to the Knowledge of the Company, threatened with respect to any employees of the Company
or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has any liabilities under the
A-17
Worker
Adjustment and Retraining Act of 1988 (the "WARN Act") as a result of any action taken by the Company that would have, individually or in the aggregate, a Company Material Adverse Effect.
Except for such non-compliance which would not have, individually or in the aggregate, a Company Material Adverse Effect, the Company and each of its Subsidiaries is, and during the two
(2) year period preceding the date of this Agreement has been, in compliance with all applicable Laws in respect of employment and employment practices, terms and conditions of employment,
wages and hours and occupational safety and health (including, without limitation, classifications of service providers as employees and/or independent contractors).
Section 3.13.
Environmental Matters.
(a) Except
as would not, individually or in the aggregate, have a Company Material Adverse Effect: (i) each of the Company and its Subsidiaries is and has been in
compliance with all applicable Environmental Laws, which compliance includes obtaining, maintaining and complying with all Permits required under Environmental Laws
("
Environmental Permits
") and all such Environmental Permits are in good standing, (ii) there has been no release of any Hazardous Substance by
the Company or any of its Subsidiaries, or to the Knowledge of the Company, any other Person in any manner that would reasonably be expected to give rise to the Company or any of its Subsidiaries
incurring any remedial obligation or corrective action requirement under applicable Environmental Laws, (iii) there are no investigations, actions, suits or proceedings pending or, to the
Knowledge of the Company, threatened against the Company or any of its Subsidiaries or involving any real property currently or, to the Knowledge of the Company, formerly owned, operated or leased by
or for the Company or any Subsidiary alleging noncompliance with or liability under, any Environmental Law and (iv) to the Company's Knowledge, no Hazardous Substance has been disposed of,
released or transported in violation of any applicable Environmental Law, from any properties while owned or operated by the Company or any of its Subsidiaries or as a result of any operations or
activities of the Company or any of its Subsidiaries.
(b) As
used herein, "
Environmental Law
" means any Law relating to (i) the protection, preservation or restoration of
the environment (including air, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or (ii) the exposure to,
or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as in effect at the date of
this Agreement.
(c) As
used herein, "
Hazardous Substance
" means any substance, material or waste that is listed, defined, designated or
classified as hazardous, toxic, radioactive, dangerous or a "pollutant" or "contaminant" or words of similar meaning under any Environmental Law or are otherwise regulated by any Governmental
Authority with jurisdiction over the environment or natural resources, including without limitation petroleum or any derivative or byproduct thereof, radon, radioactive material, asbestos or asbestos
containing material, urea formaldehyde, foam insulation or polychlorinated biphenyls.
Section 3.14.
Contracts.
(a)
Section 3.14(a)
of the Company Disclosure Schedule contains a true and complete listing of the following Contracts
(which term, for purposes of this
Section 3.14
, shall not include any Company Benefit Plan) to which any of the Company or its Subsidiaries is a
party in effect on the date of this Agreement (each Contract that is described in this
Section 3.14(a)
being a "
Company
Material Contract
"):
(i) each
Contract that constitutes a commitment relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred,
assumed,
A-18
guaranteed
or secured by any asset) in excess of one million dollars ($1,000,000), other than Contracts solely between or among the Company and one or more of its Subsidiaries;
(ii) each
guarantee by the Company of any obligation of any Person that is not the Company or one of its Subsidiaries under any Contract of the type described in
Section 3.14(a)(i)
;
(iii) each
natural gas or oil transportation, gathering, treating, processing or other Contract, each natural gas liquids or oil fractionation, transportation, purchase,
sales or storage Contract and each natural gas or oil purchase and sales Contract that during the year ended December 31, 2012 individually involved, or is reasonably expected in the future to
involve, annual revenues or payments by the Company and the Company Subsidiaries in excess of five million dollars ($5,000,000) in the aggregate;
(iv) each
Contract for lease of personal property or real property involving aggregate payments in excess of one million dollars ($1,000,000) in any calendar year;
(v) each
Contract between any of the Company or any of its Subsidiaries, on the one hand, and any Unitholder of the Company holding five percent (5%) or more of the
Company's issued and outstanding Common Units, on the other hand;
(vi) each
Contract containing a non-compete or similar type of provision that, following the Effective Time, would by its terms materially restrict the ability
of Parent or any of its Subsidiaries (including the Surviving Entity and its Subsidiaries) to compete in any line of business or with any Person or in any geographic area during any period of time
after the Closing (each Contract described in this
Section 3.14(a)(vi)
, a "
Non-Competition
Agreement
");
(vii) each
Contract involving the pending acquisition or sale of (or option to purchase or sell) any assets or properties that are material to the Company and the Company
Subsidiaries, taken as a whole;
(viii) each
Contract for futures, swap, collar, put, call, floor, cap, option, or other Contract that is intended to reduce or eliminate the fluctuations in the prices of
commodities, including, without limitation, natural gas, natural gas liquids, crude oil and condensate (each Contract described in this
Section 3.14(a)(viii)
, a "
Commodity
Derivative Instrument
");
(ix) each
material partnership, joint venture or limited liability company agreement to which the Company or any of the Company Subsidiaries is a party, and each Contract
between the Company or any of its Subsidiaries and a Company Joint Venture;
(x) each
Company collective bargaining agreement to which the Company or any of the Company Subsidiaries is a party or is subject; and
(xi) each
Contract under which any of the Company or any of the Company Subsidiaries has advanced or loaned any amount of money to any of its officers, directors, employees
or consultants, in each case with a principal amount in excess of ten thousand dollars ($10,000).
(b) Except
as would not have, either individually or in the aggregate, a Company Material Adverse Effect, (i) each Company Material Contract is valid and binding on
the Company and its Subsidiaries, as applicable, and is in full force and effect, (ii) the Company and each of its Subsidiaries has in all material respects performed all obligations required
to be performed by it to date under each Company
Material Contract, (iii) neither the Company nor any of its Subsidiaries has received written notice of, or to the Company's Knowledge, knows of, the existence of any event or condition which
constitutes, or, after notice or lapse of time or both, will constitute, a material default on the part of the Company or any of its Subsidiaries under any such Company Material Contract and
(iv) to the Knowledge of the Company, as of the date of this Agreement no
A-19
other
party to any Company Material Contract is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by any such other party
thereunder.
(c) Neither
the execution and delivery of this Agreement by the Company, nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions of this Agreement, will violate, conflict with, result in the loss of any benefit under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by the Company or any of its
Subsidiaries under any of the terms, conditions or provisions of any governing document of a Company Joint Venture.
Section 3.15.
Property.
(a) Except
as would not have, individually or in the aggregate, a Company Material Adverse Effect, the Company or a Subsidiary of the Company owns and has good title to all
of its owned real property (other than severed oil, gas and/or mineral rights and other hydrocarbon interests) and good title to all its owned personal property, and has valid leasehold interests in
all of its leased real properties (other than hydrocarbon interests) free and clear of all Liens, in each case, sufficient to conduct their respective businesses as currently conducted (except in all
cases for Liens permissible under or not prohibited by any applicable material loan agreements and indentures (together with all related mortgages, deeds of trust and other security agreements)).
Except as would not have, individually or in the aggregate, a Company Material Adverse Effect, all leases under which the Company or any of its Subsidiaries lease any real or personal property (other
than hydrocarbon interests) are valid and effective against the Company or any of its Subsidiaries and, to the Company's Knowledge, the counterparties thereto, in accordance with their respective
terms and there is not, under any of such leases, any existing material default by the Company or any of its Subsidiaries or, to the Company's Knowledge, the counterparties thereto, or, to the
Company's Knowledge, any event which, with notice
or lapse of time or both, would become a material default by the Company or any of its Subsidiaries, or, to the Company's Knowledge, the counterparties thereto.
(b) The
Company and its Subsidiaries have such consents, easements, rights-of-way, permits or licenses from each person (collectively,
"
rights-of-way
") as are sufficient to conduct their businesses in all material respects as currently conducted, except such
rights-of-way that, if not obtained (or which, if obtained, if the same were to expire or be revoked or terminated), would not, individually or in the aggregate, have a Company
Material Adverse Effect. Except as would not, individually or in the aggregate, have a Company Material Adverse Effect, each of the Company and its Subsidiaries has fulfilled and performed all its
obligations with respect to such rights-of-way which are required to be fulfilled or performed as of the date of this Agreement (subject to all applicable waivers,
modifications, grace periods and extensions) and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or would result in any impairment of
the rights of the holder of any such rights-of-way, except for rights reserved to, or vested in, any municipality or other Governmental Authority or any railroad by the terms
of any right, power, franchise, grant, license, permit, or by any other provision of any applicable Law, to terminate or to require annual or other periodic payments as a condition to the continuance
of such right (collectively, "
Revocable Interests
").
Section 3.16.
Intellectual Property.
Except as would not have, individually or in the aggregate,
a Company Material Adverse Effect, either the Company or a Subsidiary of the Company owns, or is
licensed or otherwise possesses adequate rights to use, all material trademarks, trade names, service marks, service names, mark registrations, logos, assumed names, domain names, registered and
A-20
unregistered
copyrights, patents or applications and registrations, and trade secrets (collectively, the "
Company Intellectual Property
") used in their
respective businesses as currently conducted. Except as would not have, individually or in the aggregate, a Company Material Adverse Effect, (i) there are no pending or, to the Knowledge of the
Company, threatened claims by any Person alleging infringement or misappropriation by the Company or any of its Subsidiaries of such Person's intellectual property, (ii) to the Knowledge of the
Company, the conduct of the business of the Company and its Subsidiaries does not infringe or misappropriate any intellectual property rights of any Person, (iii) neither the Company nor any of
its Subsidiaries has made any claim of a violation or infringement, or misappropriation by others of its rights to or in connection with the Company Intellectual Property, and (iv) to the
Knowledge of the Company, no Person is infringing or misappropriating any Company Intellectual Property.
Section 3.17.
Insurance.
The Company and its Subsidiaries maintain, or are entitled to the
benefits of, insurance covering their properties, operations, personnel and businesses in
amounts customary for the businesses in which they operate. Except as would not have, individually or in the aggregate, a Company Material Adverse Effect, none of the Company or its Subsidiaries has
received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance, and all such insurance
is outstanding and duly in force.
Section 3.18.
Opinion of Financial Advisor.
The Company Board has received the opinion of each
of Barclays Capital Inc. and Jefferies & Company, Inc. (collectively, the
"
Company Financial Advisors
"), in each case, dated the date of this Agreement, to the effect that, as of such date, and subject to the assumptions and
qualifications set forth therein, from a financial point of view, the Exchange Ratio is fair to the Company's Unitholders (the "
Company Fairness
Opinions
"). A correct and complete copy of the form of each Company Fairness Opinion has been made available to Parent. The Company has been authorized by the Company Financial
Advisors to permit the inclusion of the Company Fairness Opinions and/or references thereto in the Proxy Statement by the Company Financial Advisors.
Section 3.19.
Brokers and Other Advisors.
Except for the Company Financial Advisors, the fees
and expenses of which will be paid by the Company, no broker, investment banker or financial advisor is
entitled to any broker's, finder's or financial advisor's fee or commission, or the reimbursement of expenses, in connection with the Merger or the transactions contemplated hereby based on
arrangements made by or on behalf of the Company or any of its Subsidiaries. The Company has heretofore made available to Parent a correct and complete copy of the Company's engagement letter with
each Company Financial Advisor, which letter describes all fees payable to each Company Financial Advisor in connection with the transactions contemplated hereby and all agreements under which any
such fees or any expenses are payable and all indemnification and other agreements with each Company Financial Advisor entered into in connection with the transactions contemplated hereby.
Section 3.20.
State Takeover Statutes.
Assuming the accuracy of the representation and warranty
contained in
Section 4.3(d)
, the action of the
Company Board in approving this Agreement and the transactions contemplated hereby is sufficient to render inapplicable to this Agreement and the transactions contemplated hereby the restrictions on
"business combinations" (as defined in Section 203 of the DGCL) as set forth in Section 203 of the DGCL and as incorporated by Section 12.6 of the Company LLC Agreement.
There is no unitholder rights plan in effect, to which the Company is a party or otherwise bound.
Section 3.21.
Regulatory Matters.
(a) None
of the Company or any of its Subsidiaries is a "natural gas company" subject to, and as defined in, the Natural Gas Act, 15 U.S.C. § 717, et seq.
(the "
NGA
"), and there are no proceedings pending, or to the Company's Knowledge, threatened, alleging that the Company or any of its Subsidiaries is in
material violation of the NGA, the Energy Policy Act of 2005, 42 U.S.C § 15801, et seq., or the Natural Gas Policy Act of 1978,
15 U.S.C. § 3301, et seq.
A-21
(b) None
of the Company or any of its Subsidiaries nor any of the services provided by the Company or any of its Subsidiaries are subject to regulation by the Federal Energy
Regulatory Commission pursuant to the Interstate Commerce Act, 49 U.S.C. App. § 1, et seq. (1988) ("
ICA
"), and there are no
Proceedings pending, or to the Company's Knowledge, threatened, alleging that the Company or any of its Subsidiaries is in material violation of the ICA.
Section 3.22.
No Other Representations or Warranties.
Except for the representations and
warranties set forth in this
Article III
, neither the Company nor any
other Person makes or has made any express or implied representation or warranty with respect to the Company or with respect to any other information provided to Parent or Merger Sub in connection
with the Merger or the other transactions contemplated hereby. Without limiting the generality of the foregoing, neither the Company nor any other Person will have or be subject to any liability or
other obligation to Parent, Merger Sub or any other Person resulting from the distribution to Parent or Merger Sub (including their respective Representatives), or Parent's or Merger Sub's (or such
Representatives') use of, any such information, including any information, documents, projections, forecasts or other materials made available to Parent or Merger Sub in certain "data rooms" or
management presentations in expectation of the Merger.
ARTICLE IV
Representations and Warranties of Parent and Merger Sub
Except
as disclosed in (a) the Parent SEC Documents filed with the SEC on or after December 31, 2010 and prior to the date of this Agreement (but
excluding any disclosure
contained in any such Parent SEC Documents under the heading "Risk Factors" or "Cautionary Note Regarding Forward-Looking Statements" or similar heading (other than any factual information
contained within such headings, disclosure or statements)) or (b) the disclosure letter delivered by Parent to the Company (the "
Parent Disclosure
Schedule
") prior to the execution of this Agreement (
provided
that (i) disclosure in any section of such Parent
Disclosure Schedule shall be deemed to be disclosed with respect to any other section of this Agreement to the extent that it is reasonably apparent on the face of such disclosure that it is
applicable to such other section notwithstanding the omission of a reference or cross reference thereto and (ii) the mere inclusion of an item in such Parent Disclosure Schedule as an exception
to a representation or warranty shall not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had, would have or would
reasonably be expected to have a Parent Material Adverse Effect), Parent represents and warrants to the Company as follows:
Section 4.1.
Organization, Standing and Corporate Power.
(a) Each
of Parent, Parent GP and their Subsidiaries is a legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction in
which it is incorporated, formed or organized, as applicable, and has all requisite partnership, corporate, limited liability company or other applicable power and authority necessary to own or lease
all of its properties and assets and to carry on its business as it is now being conducted, except where the failure to have such power or authority would not, individually or in the aggregate, have a
Material Adverse Effect on Parent ("
Parent Material Adverse Effect
").
(b) Each
of Parent, Parent GP and their Subsidiaries is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not, individually or in the aggregate, have a Parent Material Adverse Effect.
A-22
(c) All
the outstanding partnership interests, limited liability company interests, shares of capital stock of, or other equity interests in, each material Subsidiary of
Parent that are owned directly or indirectly by Parent have been duly authorized and validly issued and are fully paid and nonassessable and are owned free and clear of all Liens. Except for those of
the Parent Joint Ventures, all such interests and shares of capital stock of each Subsidiary are owned directly or indirectly by Parent.
(d) Parent
has made available to the Company correct and complete copies of its certificate of limited partnership and the Parent Partnership Agreement (the
"
Parent Charter Documents
") and correct and complete copies of the certificates of limited partnership and partnership agreements (or comparable
organizational documents) of each of its material Subsidiaries (the "
Parent Subsidiary Documents
"), in each case as amended to the date of this
Agreement. All such Parent Charter Documents are in full force and effect and Parent is not in violation of any of their provisions.
Section 4.2.
Capitalization.
(a) The
authorized equity interests of Parent consist of Parent Units, Class B units representing limited partner interests in Parent ("
Parent
Class B Units
"), I-units representing limited partner interests in Parent (the "
Parent I-Units
"),
and the general partner interest in Parent (which includes the right to receive incentive distribution) ("
Parent GP Interest
"). At the close of
business on January 25, 2013, the issued and outstanding limited partner interests and general partner interests of Parent consisted of (i) 252,756,425 Parent Units,
(ii) 5,313,400 Parent Class B Units, (iii) 115,118,338 Parent I-Units and (iv) the Parent GP Interest. Except (A) as set forth above in this
Section 4.2(a)
or
(B) as otherwise expressly permitted by
Section 5.2(b)
, as of the
date of this Agreement there are not, and as of the Effective Time there will not be, any limited partnership interests, voting securities or equity interests of Parent issued and outstanding or any
subscriptions, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character providing for the issuance of any limited partnership interests,
voting securities or equity interests of Parent, including any representing the right to purchase or otherwise receive any of the foregoing.
(b) None
of Parent or any of its Subsidiaries has issued or is bound by any outstanding subscriptions, options, warrants, calls, convertible or exchangeable securities,
rights, commitments or agreements of any character providing for the issuance or disposition of any limited partnership interests, shares of capital stock, voting securities or equity interests of any
Subsidiary of Parent (other than, with respect to the Parent Joint Ventures, as set forth in the definitive agreements for such Parent Joint Ventures). Except in connection with the exercise of any
option to acquire Parent Units or the vesting, settlement or forfeiture of, or tax withholding with respect to, any equity or equity-based awards outstanding as of the date of this Agreement and the
conversion of any Parent Units outstanding as of the date of this Agreement in accordance with the Parent Charter Documents, there are no outstanding obligations of Parent or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any limited partnership interests, shares of capital stock, voting securities or equity interests (or any options, warrants or other rights to acquire any
limited partnership interests, shares of capital stock, voting securities or equity interests) of Parent or any of its Subsidiaries (other than, with respect to the Parent Joint Ventures, as set forth
in the definitive agreements for such Parent Joint Ventures).
(c) Parent GP
is the sole general partner of Parent. Parent GP is the sole record and beneficial owner of the Parent GP Interest, and such
Parent GP Interest has been duly authorized and validly issued in accordance with applicable laws and the Parent Partnership Agreement. Parent GP owns such general partner interest free
and clear of any Liens.
A-23
(d) All
of the issued and outstanding limited liability company interests of Merger Sub are owned, beneficially and of record, by Parent. Merger Sub was formed solely for
the purpose of engaging in the Merger and the other transactions contemplated hereby. Except for obligations and liabilities incurred in connection with its formation and the Merger and the other
transactions contemplated hereby, Merger Sub has not and will not have incurred, directly or indirectly, any obligations or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any Person.
Section 4.3.
Authority; Noncontravention; Voting Requirements.
(a) Each
of the Parent Entities has all necessary entity power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Parent Entities of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized and approved by Merger Sub and
Parent, as its sole member, and by Parent GP and the delegate of Parent GP, on behalf of Parent and no other entity action on the part of the Parent Entities is necessary to authorize
the execution, delivery and performance by the Parent Entities of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by
the Parent Entities and, assuming due authorization, execution and delivery of this Agreement by the Company, constitutes a legal, valid and binding obligation of each of the Parent Entities,
enforceable against each of them in accordance with its terms.
(b) Neither
the execution and delivery of this Agreement by the Parent Entities, nor the consummation by the Parent Entities of the transactions contemplated hereby, nor
compliance by the Parent Entities with any of the terms or provisions of this Agreement, will (i) conflict with or violate any provision of the Parent Charter Documents or any of the Parent
Subsidiary Documents, (ii) assuming that the authorizations, consents and approvals referred to in
Section 4.4
are obtained and the
filings referred to in
Section 4.4
are made, (x) violate any Law, judgment, writ or injunction of any Governmental Authority applicable to
Parent or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by,
or result in the creation of any Lien upon any of the respective properties or assets of, Parent or any of its Subsidiaries under, any of the terms, conditions or provisions of any Contract to which
Parent or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected or (iii) result in the exercisability of any right to
purchase or acquire any material asset of Parent or any of its Subsidiaries, except, in the case of clauses (ii) (x) and (ii) (y), for such violations,
conflicts, losses, defaults, terminations, cancellations, accelerations or Liens as, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect.
(c) The
vote or consent of Parent as the sole member of Merger Sub is the only vote or consent of the members of Merger Sub necessary to adopt this Agreement and approve the
transactions contemplated hereby.
(d) None
of the Parent Entities or any of their Subsidiaries holds any limited liability company interests, capital stock, voting securities or equity interests of the
Company or any of its Subsidiaries, or holds any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for any such limited liability company
interests, shares of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any such
limited liability company interests, shares of capital stock, voting securities or equity interests or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the
right to subscribe for, any such
A-24
limited
liability company interests, shares of capital stock, voting securities or equity interests. None of the Parent Entities is, nor at any time during the last three (3) years has been, an
"interested stockholder" of the Company as defined in Section 203 of the DGCL.
Section 4.4.
Governmental Approvals.
Except for (i) filings required under, and compliance
with other applicable requirements of, the Exchange Act and the Securities Act, including the filing
of the Registration Statement with the SEC, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (iii) filings required under, and
compliance with other applicable requirements of, the HSR Act or (iv) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the rules of the NYSE, no
consents or approvals of, or filings, declarations or registrations with, any Governmental Authority are necessary for the execution, delivery and performance of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby, other than such other consents, approvals, filings, declarations or registrations that, if not obtained, made or given, would not,
individually or in the aggregate, reasonably be expected to (A) prevent or materially impede, interfere with or hinder the consummation of the transactions contemplated by this Agreement or
(B) result in a Parent Material Adverse Effect.
Section 4.5.
Parent SEC Documents; Undisclosed Liabilities.
(a) Parent
and its Subsidiaries have filed and furnished all reports, schedules, forms, certifications, prospectuses, and registration, proxy and other statements required
to be filed by them with the SEC since December 31, 2010 (collectively and together with all documents filed on a voluntary basis on Form 8-K, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein, the "
Parent SEC Documents
"). The Parent SEC Documents, as of their
respective effective dates (in the case of the Parent SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing
dates (in the case of all other Parent SEC Documents), or, if amended, as finally amended prior to the date of this Agreement, complied in all material respects with the requirements of the Exchange
Act, the Securities Act and the Sarbanes-Oxley Act, as the case may be, applicable to such Parent SEC Documents, and none of the Parent SEC Documents as of such respective dates contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were
made, not misleading. As of the date of this Agreement, there are no outstanding or unresolved comments received from the SEC staff with respect to the Parent SEC Documents. To the Knowledge of the
Parent Entities, none of the Parent SEC Documents is the subject of ongoing SEC review or investigation.
(b) The
consolidated financial statements of Parent included in the Parent SEC Documents as of their respective dates (if amended, as of the date of the last such amendment)
comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited quarterly statements, as indicated in the notes thereto) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto)
and fairly present in all material respects the consolidated financial position of Parent and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments, none of which has been or will be, individually or in
the aggregate, material to Parent and its Subsidiaries, taken as a whole).
(c) Parent
has established and maintains internal control over financial reporting and disclosure controls and procedures (as such terms are defined in
Rule 13a-15 and Rule 15d-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to Parent,
including its consolidated Subsidiaries, required to be
A-25
disclosed
by Parent in the reports that it files or submits under the Exchange Act is accumulated and communicated to Parent's principal executive officer and its principal financial officer to allow
timely decisions regarding required disclosure; and such disclosure controls and procedures are effective to ensure that information required to be disclosed by Parent in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Parent's principal executive officer and its principal
financial officer have disclosed, based on their most recent evaluation, to Parent's auditors and the audit committee of the Boards of Directors of Parent GP and the delegate of the
Parent GP (x) all significant deficiencies in the design or operation of internal controls which could adversely affect Parent's ability to record, process, summarize and report
financial data and have identified for Parent's auditors any material weaknesses in internal controls and (y) any fraud, whether or not material, that involves management or other employees who
have a significant role in Parent's internal controls. The principal executive officer and the principal financial officer of Parent have made all certifications required by the Sarbanes-Oxley Act,
the Exchange Act and any related rules and regulations promulgated by the SEC with respect to the Parent SEC Documents, and the statements contained in such certifications were complete and correct
when made. The management of Parent has completed its assessment of the effectiveness of Parent's internal control over financial reporting in compliance with the requirements of Section 404 of
the Sarbanes Oxley Act for the year ended December 31, 2011, and such assessment concluded that such controls were effective. To the Knowledge of Parent, as of the date of this Agreement, there
are no facts or circumstances that would prevent its chief executive officer and chief financial officer from giving the certifications and attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes Oxley Act, without qualification, when next due.
(d) Except
(i) as reflected or otherwise reserved against on the balance sheet of Parent and its Subsidiaries as of the Balance Sheet Date (including the notes
thereto) included in the Parent SEC Documents filed by Parent and publicly available prior to the date of this Agreement, (ii) for liabilities and obligations incurred since the Balance Sheet
Date in the ordinary course of business and (iii) for liabilities and obligations incurred under or in accordance with this Agreement or in connection with the transactions contemplated hereby,
neither Parent nor any of its Subsidiaries has any liabilities or obligations of any nature (whether or not accrued or contingent), that would be required to be reflected or reserved against on a
consolidated balance sheet of Parent prepared in accordance with GAAP or the notes thereto, other than as have not and would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
(e) Neither
Parent nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any
similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among Parent and any of its Subsidiaries, on the one hand, and any unconsolidated
Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, or any "off-balance sheet arrangements" (as defined in
Item 303(a) of Regulation S-K of the SEC)), where the purpose of such Contract is to avoid disclosure
of any material transaction involving, or material liabilities of, Parent in Parent's published financial statements or any Parent SEC Documents.
Section 4.6.
Absence of Certain Changes or Events.
(a) Since
the Balance Sheet Date, there has not been a Parent Material Adverse Effect.
(b) Since
the Balance Sheet Date, (i) except for this Agreement and the transactions contemplated hereby, Parent and its Subsidiaries have carried on and operated
their respective businesses in all material respects in the ordinary course of business consistent with past practice and (ii) neither Parent nor any of its Subsidiaries has taken any action
described in
Section 5.2(b)
A-26
that
if taken after the date of this Agreement and prior to the Effective Time without the prior written consent of Parent would violate such provision.
Section 4.7.
Legal Proceedings.
There are no investigations or proceedings pending (or, to the
Knowledge of the Parent Entities, threatened) by any Governmental Authority with respect to Parent
or any of its Subsidiaries or actions, suits or proceedings pending (or, to the Knowledge of the Parent Entities, threatened) against Parent or any of its Subsidiaries or any of their respective
properties at law or in equity before any Governmental Authority, and there are no orders, judgments or decrees of any Governmental Authority against Parent or any of its Subsidiaries, in each case
except for those that would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.8.
Compliance With Laws; Permits.
(a) Parent
and its Subsidiaries are, and since the later of December 31, 2010 and their respective dates of incorporation, formation or organization have been, in
compliance with and are not in default under or in violation of any applicable Laws, except where such non-compliance, default or violation would not have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Parent
and its Subsidiaries are in possession of all franchises, tariffs, grants, authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for Parent and its Subsidiaries to own, lease and operate their properties and assets or to carry on their businesses as they
are now being conducted (the "
Parent Permits
"), except where the failure to have any of Parent Permits would not have, individually or in the aggregate,
a Parent Material Adverse Effect. All Parent Permits are in full force and effect, except where the failure to be in full force and effect would not have, individually or in the aggregate, a Parent
Material Adverse Effect. No suspension or cancellation of any of Parent Permits is pending or, to the Knowledge of the Parent Entities, threatened, except where such suspension or cancellation would
not have, individually or in the aggregate, a Parent Material Adverse Effect. Parent and its Subsidiaries are not, and since December 31, 2010 have not been, in violation or breach of, or
default under, any Parent Permit, except where such violation, breach or default would not have, individually or in the aggregate a Parent Material Adverse Effect. As of the date of this Agreement, to
the Knowledge of Parent, no event or condition has occurred or exists which would result in a violation of, breach, default or loss of a benefit under, or acceleration of an obligation of Parent or
any of its Subsidiaries under, any Parent Permit or has caused (or would cause) an applicable Government Authority to fail or refuse to issue, renew or extend any Parent Permit (in each case, with or
without notice or lapse of time or both), except for violations, breaches, defaults, losses, accelerations or failures that would not have, individually or in the aggregate, a Parent Material Adverse
Effect.
Section 4.9.
Information Supplied.
Subject to the accuracy of the representations and warranties
of the Company set forth in
Section 3.9
, none
of the information supplied (or to be supplied) in writing by or on behalf of Parent specifically for inclusion or incorporation by reference in (a) the Registration Statement will, at the time
the Registration Statement, or any amendment or supplement thereto, is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading, and
(b) the Proxy Statement will, on the date it is first mailed to Unitholders of the Company, and at the time of the Company Unitholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, Parent makes no representation or warranty with respect to
A-27
information
supplied by or on behalf of the Company for inclusion or incorporation by reference in any of the foregoing documents.
Section 4.10.
Tax Matters.
Except as would not have, individually or in the aggregate, a Parent
Material Adverse Effect: (i) all Tax Returns that were required to be filed by or with
respect to Parent or any of its Subsidiaries have been duly and timely filed (taking into account any extension of time within which to file) and all such Tax Returns are complete and accurate,
(ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return, have been so included, (iii) all Taxes owed by Parent or any of
its Subsidiaries that are or have become due have been timely paid in full or an adequate reserve for the payment of such Taxes has been established, (iv) all Tax withholding and deposit
requirements imposed on or with respect to Parent or any of its Subsidiaries have been satisfied in full in all respects, (v) there are no Liens on any of the assets of Parent or any of its
Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax, (vi) there are no audits, examinations, investigations or other proceedings pending or threatened in
writing in respect of Taxes or Tax matters of Parent or any of its Subsidiaries, (vii) there is no written claim against Parent or any of its Subsidiaries for any Taxes, and no assessment,
deficiency or adjustment has been asserted, proposed, or threatened in writing with respect to any Tax Return of or with respect to Parent or any of its Subsidiaries, (viii) there is not in
force any extension of time with respect to the due date for the filing of any Tax Return of or with respect to Parent or any of its Subsidiaries or any waiver or agreement for any extension of time
for the assessment or payment of any Tax of or with respect to any of Parent or any of its Subsidiaries, (ix) none of Parent or any of its Subsidiaries will be required to include any amount in
income for any taxable period as a result of a change in accounting method for any taxable period ending on or before the Closing Date or pursuant to any agreement with any Tax authority with respect
to any such taxable period, (x) except as set forth in
Section 4.10
of the Parent Disclosure Schedule, none of Parent or any of its
Subsidiaries is a party to a Tax allocation or sharing agreement, and no payments are due or will become due by Parent or any of its Subsidiaries pursuant to any such agreement or arrangement or any
Tax indemnification agreement, (xi) none of Parent or any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal income Tax Return or has any liability for
the Taxes of any Person (other than Parent or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), as a
transferee or successor, by contract, or otherwise, (xii) Parent and each of its Subsidiaries that is classified as a partnership for U.S. federal income tax purposes has in effect a valid
election under Section 754 of the Code, (xiii) Parent is properly classified as a partnership for U.S. federal income tax purposes, and not as an association or a publicly traded
partnership taxable as a corporation under Section 7704 of the Code and has been properly treated as such since its formation and (xiv) at least ninety percent (90%) of the gross income
of Parent for each taxable year since its formation has been from sources that will be treated as "qualifying income" within the meaning of Section 7704(d) of the Code.
Section 4.11.
Environmental Matters.
Except as would not, individually or in the aggregate, have
a Parent Material Adverse Effect, (i) each of Parent and its Subsidiaries is and has been in
compliance with all applicable Environmental Laws, which compliance includes obtaining, maintaining and complying with all Environmental Permits and all such Environmental Permits are in good
standing, (ii) there has been no release of any Hazardous Substance by Parent or any of its Subsidiaries, or the Knowledge of the Parent Entities, any other Person in any manner that would
reasonably be expected to give rise to Parent or any of its Subsidiaries incurring any remedial obligation or corrective action requirement under applicable Environmental Laws, (iii) there are
no investigations, actions, suits or proceedings pending or, to the Knowledge of the Parent Entities, threatened against Parent or any of its Subsidiaries or involving any real property currently or,
to the Knowledge of the Parent Entities, formerly owned, operated or leased by or for Parent or any Subsidiary alleging noncompliance with or liability under, any Environmental Law, and (iv) to
the Knowledge of the Parent Entities no Hazardous Substance has been disposed of, released or transported in violation of any applicable Environmental Law, from any properties while owned or operated
by Parent or any of its Subsidiaries or as a result of any operations or activities of Parent or any of its Subsidiaries.
A-28
Section 4.12.
Contracts.
(a) Except
for this Agreement, the Parent Benefit Plans, or as filed with the SEC prior to the date of this Agreement, neither Parent nor any of its Subsidiaries is a party
to or bound by, as of the date of this Agreement, any Contract (whether written or oral) (i) which is a "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to Parent; or (ii) which constitutes a contract or commitment relating to indebtedness for borrowed money or the deferred purchase price of
property (in either case, whether incurred, assumed, guaranteed or secured by any asset) in excess of twenty-five million dollars ($25,000,000) (all contracts of the type described in this
Section 4.12(a)
being referred to herein as "
Parent Material Contracts
").
(b) Except
as would not have, either individually or in the aggregate, a Parent Material Adverse Effect: (i) each Parent Material Contract is valid and binding on
Parent and any of its Subsidiaries, as applicable, and is in full force and effect; (ii) Parent and each of its Subsidiaries has in all material respects performed all obligations required to
be performed by it to date under each Parent Material Contract; and (iii) neither Parent nor any of its Subsidiaries has received written notice of, or to the Knowledge of the Parent Entities,
knows of, the existence of any event or condition which constitutes, or, after notice or lapse of time or both, will constitute, a material default on the part of Parent or any of its Subsidiaries
under any such Parent Material Contract.
Section 4.13.
Property.
(a) Except
as would not have, individually or in the aggregate, a Parent Material Adverse Effect, Parent or a Subsidiary of Parent owns and has good title to all of its
owned real property (other than severed oil, gas and/or mineral rights and other hydrocarbon interests) and good title to all its owned personal property, and has valid leasehold interests in all of
its leased real properties (other than hydrocarbon interests) free and clear of all Liens, in each case, sufficient to conduct their respective businesses as currently conducted (except in all cases
for Liens permissible under or not prohibited by any applicable material loan agreements and indentures (together with all related mortgages, deeds of trust and other security agreements)). Except as
would not have, individually or in the aggregate, a Parent Material Adverse Effect, all leases under which Parent or any of its Subsidiaries lease any real or personal property (other than hydrocarbon
interests) are valid and effective against Parent or any of its Subsidiaries and, to Parent's Knowledge, the counterparties thereto, in accordance with their respective terms, and there is not, under
any of such leases, any existing material default by Parent or any of its Subsidiaries or, to Parent's Knowledge, the counterparties thereto, or, to Parent's Knowledge, any event which, with notice or
lapse of time or both, would become a material default by Parent or any of its Subsidiaries, or, to Parent's Knowledge, the counterparties thereto.
(b) Parent
and its Subsidiaries have such rights-of-way as are sufficient to conduct their businesses in all material respects as currently
conducted, except such rights-of-way that, if not obtained (or which, if obtained, if the same were to expire or be revoked or terminated), would not, individually or in the
aggregate, have a Parent Material Adverse Effect. Except as would not, individually or in the aggregate, have a Parent Material Adverse Effect, each of Parent and its Subsidiaries has fulfilled and
performed all its obligations with respect to such rights-of-way which are required to be fulfilled or performed as of the date of this Agreement (subject to all applicable
waivers, modifications, grace periods and extensions) and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or would result in any
impairment of the rights of the holder of any such rights-of-way, except for rights reserved to, or vested in, any municipality or other Governmental Authority or any railroad
by the terms of any right, power, franchise, grant, license, permit, or by any other provision of any applicable Law, to terminate or to require annual or other periodic payments as a condition to the
continuance of such right.
A-29
Section 4.14.
Opinion of Parent Financial Advisor.
The Board of Directors of the delegate of the
Parent GP and the Board of Directors of the Parent GP have received the opinion of Citigroup Global
Markets Inc. (the "
Parent Financial Advisor
") to the effect that, as of the date of such opinion and subject to the assumptions and
qualifications set forth therein, the Exchange Ratio is fair, from a financial point of view, to Parent.
Section 4.15.
Brokers and Other Advisors.
Except for the Parent Financial Advisor, the fees and
expenses of which will be paid by Parent, no broker, investment banker or financial advisor is entitled to
any broker's, finder's or financial advisor's fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated hereby based upon arrangements made by or on behalf
of Parent or any of its Subsidiaries.
Section 4.16.
State Takeover Statutes.
The action of the Boards of Directors of Parent GP
and the delegate of the Parent GP in approving this Agreement and the transactions contemplated
hereby is sufficient to render inapplicable to this Agreement and the transactions contemplated hereby any state takeover laws and any applicable provision of the Parent Partnership Agreement.
Section 4.17.
Financing.
Parent and Merger Sub have (and at the Effective Time will have),
available to them all funds necessary to consummate the Merger and to pay all cash amounts
required to be paid in connection with the Merger.
Section 4.18.
No Other Representations or Warranties.
Except for the representations and
warranties set forth in this Article IV, neither Parent nor any other Person makes or has made any express or implied
representation or warranty with respect to the Parent Entities or with respect to any other information provided to the Company in connection with the transactions contemplated hereby. Without
limiting the generality of the foregoing, neither Parent nor any other Person will have or be subject to any liability or other obligation to the Company or any other Person resulting from the
distribution to the Company (including its Representatives), or the Company's (or such Representatives') use of, any such information, including any information, documents, projections, forecasts or
other materials made available to the Company in any "data rooms" or management presentations in expectation of the Merger.
ARTICLE V
Additional Covenants and Agreements
Section 5.1.
Preparation of the Registration Statement and the Proxy Statement; Unitholder Meeting; Series A Change of Control Offer.
(a) As
soon as practicable following the date of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement and the Company and Parent shall prepare
and Parent shall file with the SEC the Registration Statement, in which the Proxy Statement will be included as a prospectus. Each of the Company and Parent shall use its reasonable best efforts to
have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and keep the Registration Statement effective for so long as necessary to
consummate the transactions contemplated hereby. The Company shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Unitholders of the Company as promptly as
practicable after the Registration Statement is declared effective under the Securities Act. No filing of, or amendment or supplement to, the Registration Statement will be made by Parent, and no
filing of, or amendment or supplement to, the Proxy Statement will be made by the Company without providing the other party a reasonable opportunity to review and comment thereon. If at any time prior
to the Effective Time any information relating to the Company or Parent, or any of their respective Affiliates, directors or officers, is discovered by the Company or Parent that should be set forth
in an amendment or supplement to either the Registration Statement or the Proxy
A-30
Statement,
so that either such document would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party that discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent required by Law, disseminated to the Unitholders of the Company. The parties shall notify each other promptly of the receipt of any
comments from the SEC or the staff of the SEC and of any request by the SEC or the staff of the SEC for amendments or supplements to the Proxy Statement or the Registration Statement or for additional
information and shall supply each other with copies of (i) all correspondence between it or any of its Representatives, on the one hand, and the SEC or the staff of the SEC, on the other hand,
with respect to the Proxy Statement, the Registration Statement or the transactions contemplated hereby and (ii) all orders of the SEC relating to the Registration Statement.
(b) The
Company shall, as soon as practicable following the date of this Agreement, establish a record date for, duly call, give notice of, convene and hold a special
meeting of its Unitholders (the "
Company Unitholders Meeting
") for the purpose of obtaining the Company Unitholder Approval. Subject to
Section 5.3
,
the Company shall, through the Company Board, recommend to its Unitholders adoption of
this Agreement (the "
Company Board Recommendation
"). The Proxy Statement shall include a copy of the Company Fairness Opinions and (subject to
Section 5.3
) the Company Board Recommendation. Without limiting the generality of the foregoing, but subject to
Section 5.3
, the Company's obligations pursuant to the first sentence of this
Section 5.1(b)
shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any
Alternative Proposal or (ii) the withdrawal or modification by the Company Board or any committee thereof of the Company Board Recommendation or the Company Board's or such committee's approval
of this Agreement or the transactions contemplated hereby. Notwithstanding anything in this Agreement to the contrary, the Company may postpone or adjourn the Company Unitholders Meeting (i) to
solicit additional proxies for the purpose of obtaining the Company Unitholder Approval, (ii) for the absence of quorum, (iii) to allow reasonable additional time for the filing and/or
mailing of any supplemental or amended disclosure that the Company has determined after consultation with outside legal counsel is necessary under applicable Law and for such supplemental or amended
disclosure to be disseminated and reviewed by the Unitholders of the Company prior to the Company Unitholders Meeting and (iv) if the Company has delivered any notice contemplated by
Section 5.3(d)
and the time periods contemplated by
Section 5.3(d)
have not expired.
(c) The
Company shall make a Series A Change of Control Offer to the Series A Preferred Unitholders in accordance with the Company LLC Agreement and,
following the election of the Series A Preferred Unitholders to have their Series A Preferred Units converted into Common Units in accordance with the Company LLC Agreement in
connection with such Series A Change of Control Offer, shall issue Common Units to such Series A Preferred Unitholders as of immediately prior to the Effective Time.
Section 5.2.
Conduct of Business.
(a) Except
(i) as expressly permitted by this Agreement, (ii) as set forth in the Company Disclosure Schedule, (iii) as required by applicable Law,
(iv) as provided for or contemplated by any agreement of the Company or any of its Subsidiaries in effect as of the date of this Agreement (including the Company LLC Agreement) or
(v) as agreed in writing by Parent (which consent shall not be unreasonably withheld, delayed or conditioned), during the period from the date of this Agreement until the Effective Time, the
Company shall, and shall cause each of its Subsidiaries and the Company Joint Ventures to, (A) conduct its business in the ordinary course of business consistent with past practice,
(B) use commercially reasonable efforts to maintain and
A-31
preserve
intact its business organization and the goodwill of those having business relationships with it and retain the services of its present officers and key employees, (C) use commercially
reasonable efforts to keep in full force and effect all material insurance policies maintained by the Company, its Subsidiaries and the Company Joint Ventures, other than changes to such policies made
in the ordinary course of business, and (D) use commercially reasonable efforts to comply in all material respects with all applicable Laws and the requirements of all Company Material
Contracts. Without limiting the generality of the foregoing, except (i) as expressly permitted by this Agreement, (ii) as set forth in the Company Disclosure Schedule, (iii) as
required by applicable Law, (iv) as required by any Company Material Contract in effect as of the date of this Agreement (including the Company LLC Agreement) or (iv) as agreed in
writing by Parent (in the case of clauses (iii), (iv), (v), (vi), (vii), (viii), (xii), (xiii) and (xiv) below (but, with respect to (xiv), only to the extent applicable to the
other clauses designated in this
Section 5.2(a)(iv)
), such consent shall not be unreasonably withheld, delayed or conditioned), during the period
from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries and the Company Joint Ventures to:
(i) (A)
issue, sell, grant, dispose of, accelerate the vesting of or modify, as applicable, any of its Interests, limited liability company interests, shares of capital
stock, voting securities or equity interests, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for, any Interests, limited liability
company interests, shares of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire
any of its Interests, limited liability company interests, shares of capital stock, voting securities or equity interests or any securities or rights convertible into, exchangeable or exercisable for,
or evidencing the right to subscribe for, any of the foregoing;
provided
that the Company may issue Common Units (x) upon the exercise of Company
Options or the settlement of any Company UARs or Phantom Units, in each case which are outstanding on the date of this Agreement and in accordance with the terms thereof or (y) upon the
conversion of Series A Preferred Units to Common Units in accordance with the Company LLC Agreement and pursuant to the terms of the Voting Agreement; (B) redeem, purchase or
otherwise acquire any of its outstanding limited liability company interests, shares of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or
any other agreements of any character to acquire any of its limited liability interests, shares of capital stock, voting securities or equity interests, except in connection with the exercise of any
Company Options or the vesting, settlement or forfeiture of, or tax withholding with respect to, any equity or equity-based awards granted under the Company Equity Plans and outstanding as of the date
of this Agreement; (C) declare, set aside for payment or pay any dividend on, or make any other distribution in respect of, any Common Units, Series A Preferred Units or other Interests,
or otherwise make any payments to its Unitholders in their capacity as such (other than (x) dividends by a direct or indirect Subsidiary of the Company to its parent, (y) the Company's
regular quarterly distribution in an amount not to exceed $0.575 per Common Unit or (z) the Series A Quarterly Distribution in accordance with the Company LLC Agreement, which
shall be paid in the form of PIK Units for all quarterly periods ending on or prior to June 30, 2013 and which shall be paid in cash for all quarterly periods ending after June 30, 2013)
or (D) split, combine, subdivide or reclassify any Common Units, Series A Preferred Units or other Interests;
(ii) (x)
incur, refinance or assume any indebtedness for borrowed money or guarantee any such indebtedness for borrowed money (or enter into a "keep well" or similar
agreement with respect to such indebtedness) or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its Subsidiaries
or the Company Joint Ventures, other than (A) borrowings by the Company in amounts not in
A-32
excess
of ten million dollars ($10,000,000) in the aggregate, (B) borrowings under the Company's Second Amended and Restated Credit Agreement, dated as of June 10, 2011, as it may be
amended, modified or supplemented from time to time (including to increase the aggregate lender commitments thereunder) (the "
Existing Credit
Facility
"), or any replacement thereof, and additional borrowings, in each case in this
Section 5.2(a)(ii)(B)
not in
excess of the amount set forth in
Section 5.2(a)(ii)(B)
of the Company Disclosure Schedule, (C) refinancing, replacement or amendment of
any indebtedness that may default or come due as a result of the transactions contemplated hereby (provided, that the Company will consult with Parent in connection with any such action) or that is
required to be repaid or repurchased pursuant to its terms (
provided
, that except with respect to clause (B) above (other than with respect to
any additional borrowings pursuant to clause (B) not under the Existing Credit Facility), the Company and its Subsidiaries shall not be permitted to incur or assume any indebtedness for
borrowed money or sell any debt securities to the extent that the terms of such indebtedness or debt securities would be breached by, conflict with or require the consent of any third party in order
to continue in full force following, the consummation of the transactions contemplated hereby), (D) borrowings from the Company or any of its Subsidiaries by the Company or any of its
Subsidiaries and (E) repayments of borrowings from the Company or any of its Subsidiaries by the Company or any of its Subsidiaries and guarantees by the Company or any of its Subsidiaries of
indebtedness of the Company or any of its Subsidiaries, or (y) except as permitted pursuant to clause (x) above, prepay or repurchase any long-term indebtedness for borrowed
money or debt securities of the Company or any of its Subsidiaries (other than (i) revolving indebtedness, (ii) borrowing from the Company or any of its Subsidiaries and
(iii) repayments or repurchases required pursuant to the terms of such indebtedness or debt securities);
(iii) sell,
transfer, lease, farmout or otherwise dispose of (including pursuant to a sale leaseback transaction or an asset securitization transaction) (x) any of
its properties or assets that do not generate cash on a recurring basis with a fair market value in excess of one million dollars ($1,000,000) in the aggregate and (y) any of its properties or
assets that generate cash on a recurring basis (including securities of Subsidiaries), except in the case of clause (x), (A) pursuant to Contracts in force at the date of this Agreement
and listed on
Section 5.2(a)(iii)(A)
of the Company Disclosure Schedule, correct and complete copies of which have been made available to Parent
and other potential transactions listed on
Section 5.2(a)(iii)(A)
of the Company Disclosure Schedule, (B) dispositions of obsolete or
worthless equipment which is replaced with equipment and materials of comparable or better value and utility, (C) transactions (including sales of natural gas, natural gas liquids and other
produced hydrocarbons) in
the ordinary course of business consistent with past practice or (D) sales, transfers, leases, farmouts or other disposals to the Company or any of its Subsidiaries;
(iv) make
any capital expenditure or capital expenditures (which shall include, any investments by contribution to capital, property transfers, purchase of securities or
otherwise) in excess of fifty million dollars ($50,000,000), in the aggregate for any fiscal year, except for any such capital expenditures set forth in
Section 5.2(a)(iv)
of the Company Disclosure
Schedule or except as may be reasonably required to conduct emergency operations, repairs or
replacements on any well, pipeline, or other facility;
(v) except
as set forth in
Section 5.2(a)(v)
of the Company Disclosure Schedule, directly or indirectly acquire
(A) by merging or consolidating with, or by purchasing all of or a substantial equity interest in, or by any other manner, any Person or division, business or equity interest of any Person or
(B) except in the ordinary course of business consistent with
A-33
past
practice, any assets that, in the aggregate, have a purchase price in excess of fifty million dollars ($50,000,000);
(vi) make
any loans or advances to any Person (other than (A) travel, relocation expenses and similar expenses or advances to its employees in the ordinary course of
business consistent with past practice, (B) loans and advances to the Company or any of its Subsidiaries and (C) trade credit granted in the ordinary course of business consistent with
past practice);
(vii) (x)
except (A) for Contracts relating to indebtedness permitted under
Section 5.2(a)(ii)
, (B) for
Commodity Derivative Instruments entered into in compliance with the Risk Management Policy, (C) as set forth in
Section 5.2(a)(vii)
of
the Company Disclosure Schedule and (D) as in the ordinary course of business consistent with past practice (
provided
,
however
, that this
clause (D) shall not apply in respect of any Non-Competition Agreement), (1) enter into any contract or
agreement that would be a Company Material Contract (provided that, for purposes of this Section 5.2(a)(vii)(x)(1), the five million dollar ($5,000,000) threshold in Section 3.14(a)(iii)
shall be deemed to be a two million dollar ($2,000,000) threshold) if in existence as of the date of this Agreement or (2) terminate or amend in any material respect any Company Material
Contract, or (y) (1) waive any material rights under any Company Material Contract, (2) enter into or extend the term or scope of any Company Material Contract that materially restricts
the Company or any of its Subsidiaries from engaging in any line of business or in any geographic area, (3) enter into any Company Material Contract that would be
breached by, or require the consent of any third party in order to continue in full force following, consummation of the transactions contemplated hereby, or (4) release any Person from, or
modify or waive any provision of, any standstill, confidentiality or similar agreement, in each case, related to a sale of the Company or any of its material Subsidiaries;
(viii) except
as required by applicable Law (including to avoid the imposition of any penalty taxes under Section 409A of the Code), or as required by the terms, as
of the date hereof, of any Company Benefit Plan set forth in
Section 3.11(a)
of the Company Disclosure Schedule, (A) increase the
compensation of any executive officer, (B) pay any bonus or incentive compensation, (C) grant any new equity or non-equity based compensation award, (D) enter into,
establish, amend or terminate any Company Benefit Plan or any other agreement or arrangement which would be a Company Benefit Plan if it were in effect on the date of this Agreement, or
(E) fund any Company Benefit Plan or trust relating thereto;
(ix) except
as required by applicable Law, (A) change its fiscal year or any method of tax accounting, (B) make, change or revoke any material Tax election,
(C) settle or compromise any material liability for Taxes or (D) file any material amended Tax Return;
(x) make
any changes in financial accounting methods, principles or practices (or change an annual accounting period), except insofar as may be required by a change in GAAP
or applicable Law;
(xi) amend
the Company Charter Documents;
(xii) adopt
a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization (other than
transactions exclusively between wholly owned Subsidiaries of the Company);
(xiii) except
as provided under any agreement entered into prior to the date of this Agreement, pay, discharge, settle or satisfy any suit, action, claims or proceeding, in
excess of one million dollars ($1,000,000) individually or five million dollars ($5,000,000) in the aggregate; or
A-34
(xiv) agree,
in writing or otherwise, to take any of the foregoing actions, or take any action or agree, in writing or otherwise, to take any action which would in any
material respect impede or delay the ability of the parties to satisfy any of the conditions to the transactions contemplated hereby.
(b) Except
(i) as expressly permitted by this Agreement, (ii) as set forth in the Parent Disclosure Schedule, (iii) as required by applicable Law,
(iv) as provided for or contemplated by any agreement of Parent in effect as of the date of this Agreement or (v) as agreed in writing by the Company (which consent shall not be
unreasonably withheld, delayed or conditioned), during the period from the date of this Agreement until the Effective Time Parent shall, and shall cause each of its Subsidiaries and the Parent Joint
Ventures to: (w) conduct its business in the ordinary course of business consistent with past practice, (x) use commercially reasonable efforts to comply in all material respects with
all applicable Laws and the requirements of all Parent Material Contracts, (y) use commercially reasonable efforts to maintain and preserve intact its business organization and the goodwill of
those having business relationships with it and retain the services of its present officers and key employees, and (y) use its commercially reasonable efforts to keep in full force and effect
all material insurance policies maintained by Parent, its Subsidiaries and the Parent Joint Ventures, other than changes to such policies made in the ordinary course of business. Without limiting the
generality of the foregoing, except (i) as expressly permitted by this Agreement, (ii) as set forth in the Parent Disclosure Schedule, (iii) as required by applicable Law,
(iv) as required by any Parent Material Contract in effect as of the date of this Agreement or (v) as agreed in writing by the Company (such consent shall not be unreasonably withheld,
delayed or conditioned) during the period from the date of this Agreement to the Effective Time, Parent shall not, and shall not permit any of its Subsidiaries and the Parent Joint Ventures to:
(i) (A)
issue, sell, grant, or dispose of, accelerate the vesting of or modify, as applicable, any of its limited partnership interests, shares of capital stock, voting
securities or equity interests, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for any of its limited partnership interests, shares
of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any of its limited
partnership interests, shares of capital stock, voting securities or equity interests or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to
subscribe for any of the foregoing, other than (x) in connection with the exercise of options for Parent Units that are outstanding on, or granted after, the date of this Agreement in
accordance with the terms thereof or the vesting or settlement of any equity or equity-based award that is outstanding on, or granted after, the date of this Agreement in accordance with the terms
thereof; (y) as set forth on
Section 5.2(b)(i)
of the Parent Disclosure Schedule; and (z) in connection with a transaction
involving the acquisition of assets or equity interests from an Affiliate of Parent (a "
Drop Down Transaction
"); (B) redeem, purchase or
otherwise acquire any of its outstanding limited partnership interests, shares of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any
other agreements of any character to acquire any of its limited partnership interests, shares of capital stock, voting securities or equity interests, other than in connection with the exercise of
options for Parent Units that are outstanding on, or granted after, the date of this Agreement in accordance with the terms thereof or the vesting, settlement or forfeiture of, or tax withholding with
respect to, any equity or equity-based award that is outstanding on, or granted after, the date of this Agreement in accordance with the terms thereof; (C) declare, set aside for payment or pay
any dividend on, or make any other distribution in respect of, any Parent Units, or otherwise make any payments to its unitholders in their capacity as such (other than (w) dividends by a
direct or indirect Subsidiary of Parent to its parent, (x) Parent's regular quarterly dividend and associated distributions to the Parent GP, (y) in connection with
A-35
any
Drop Down Transaction or (z) as provided in
Section 5.2(b)(i)
of the Parent Disclosure Schedule); or (D) split, combine,
subdivide or reclassify any of its limited partnership units or other interests;
(ii) incur
or assume any indebtedness for borrowed money or guarantee any indebtedness (or enter into a "keep well" or similar agreement) or issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt securities of Parent or any of its Subsidiaries or the Parent Joint Ventures, other than (A) aggregate borrowings by
Parent or any of its Subsidiaries of up to ten percent (10%) more than as set forth in Parent's annual budget for fiscal year 2013 in Section 5.2(b)(ii) of the Parent Disclosure Schedule,
(B) borrowings by Parent or any of its Subsidiaries in the ordinary course of business consistent with past practice, (C) borrowings under Parent's existing credit facility or any
replacement thereof, (D) refinancing, replacement or amendment of any indebtedness, (E) borrowings from Parent or any of its Subsidiaries by Parent or any of its Subsidiaries,
(F) repayments of borrowings from Parent or any of its Subsidiaries by Parent or any of its Subsidiaries and guarantees by Parent or any of its Subsidiaries of indebtedness of Parent or any of
its Subsidiaries or (G) in connection with any Drop Down Transaction;
(iii) amend
the Parent Charter Documents (other than amendments to the Parent Charter Documents in connection with a Drop Down Transaction or as set forth in
Section 5.2(b)(iii)
of the Parent Disclosure
Schedule);
(iv) adopt
a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization (other than
transactions exclusively between wholly owned Subsidiaries of Parent or as set forth in
Section 5.2(b)(iv)
of the Parent Disclosure Schedule); or
(v) agree,
in writing or otherwise, to take any of the foregoing actions, or take any action or agree, in writing or otherwise, to take any action, including proposing or
undertaking any merger, consolidation or acquisition, which would, or would reasonably be expected to, prevent or in any material respect impede or delay the ability of the parties to satisfy any of
the conditions to, or the consummation of, the transactions set forth in this Agreement.
Section 5.3.
No Solicitation by the Company; Etc.
(a) The
Company shall, and shall cause its Subsidiaries and use reasonable best efforts to cause the Company's and its Subsidiaries' respective directors, officers,
employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives (collectively, "
Representatives
") to,
immediately cease and cause to be terminated any discussions or negotiations with any Person conducted heretofore with respect to an Alternative Proposal, request the return or destruction of all
confidential information previously provided to such parties by or on behalf of the Company or its Subsidiaries and immediately prohibit any access by any Person (other than Parent and its
Representatives) to any physical or electronic data room relating to a possible Alternative Proposal. Except as permitted by this
Section 5.3
,
(x) the Company shall not, and shall cause its Subsidiaries and use reasonable best efforts to cause its Representatives not to, directly or indirectly (i) solicit, initiate, knowingly
facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to lead to any inquiries or any proposals that
constitute the submission of an Alternative Proposal, (ii) except for a confidentiality agreement permitted pursuant to
Section 5.3(b)
,
enter into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or
other similar agreement relating to an Alternative Proposal (an "
Acquisition Agreement
"), or (iii) withdraw, modify or qualify, or propose
publicly to withdraw, modify or qualify, in a manner adverse to Parent, the Company Board Recommendation or publicly recommend the approval or
A-36
adoption
of, or publicly approve or adopt, or propose to publicly recommend, approve or adopt, any Alternative Proposal and (y) within five (5) business days of receipt of a written
request of Parent following the receipt by the Company of any Alternative Proposal, the Company shall publicly reconfirm the Company Board Recommendation;
provided
that, in the event that Parent
requests such public reconfirmation of the Company Board Recommendation, then the Company may not unreasonably
withhold, delay (beyond the five (5) business day period) or condition the public reconfirmation of the Company Board Recommendation and
provided
further
that Parent shall not be permitted to make such request on more than one (1) occasion in respect of each Alternative Proposal and each material modification to
an Alternative Proposal, if any (the taking of any action described in clause (x)(iii) or the failure to take the action described in clause (y) being referred to as an
"
Adverse Recommendation Change
"). Without limiting the foregoing, it is understood that any violation of the foregoing restrictions by the Company's
Subsidiaries or Representatives shall be deemed to be a breach of this
Section 5.3
by the Company unless such violation is committed without the
Knowledge of the Company and the Company uses its reasonable best efforts to promptly cure such violation once the Company is made aware of such violation.
(b) Notwithstanding
anything to the contrary contained in
Section 5.3(a)
, if at any time following the date of this
Agreement and prior to obtaining the Company Unitholder Approval, (i) the Company has received a written Alternative Proposal that the Company Board believes is
bona
fide
, (ii) the Company Board, after consultation with its financial advisors and outside legal counsel, determines in good faith that such Alternative Proposal
constitutes or could reasonably be expected to lead to or result in a Superior Proposal and (iii) such Alternative Proposal did not result from a material breach of this
Section 5.3
, then the
Company may, subject to clauses (x) and (y) below, (A) furnish information, including confidential
information, with respect to the Company and its Subsidiaries to the Person making such Alternative Proposal and (B) participate in discussions or negotiations regarding such Alternative
Proposal;
provided
that (x) the Company will not, and will use reasonable best efforts to cause its Representatives not to, disclose any
non-public information to such Person unless the Company has, or first enters into, a confidentiality agreement with such Person with confidentiality provisions that are not less
restrictive to such Person than the provisions of the Company Confidentiality Agreement are to Parent (
provided
that such confidentiality agreement need
not include "standstill" provisions or similar restrictions) and (y) the Company will provide to Parent non-public information about the Company or its Subsidiaries that was not
previously provided or made available to Parent prior to or substantially concurrently with providing or making available such non-public information to such other Person.
(c) In
addition to the other obligations of the Company set forth in this
Section 5.3
, the Company shall promptly
advise Parent, orally and in writing, and in no event later than twenty-four (24) hours after receipt, if any proposal, offer, inquiry or other contact is received by, any
information is requested from, or any discussions or negotiations are sought to be initiated or continued with, the Company in respect of any Alternative Proposal, and shall, in any such notice to
Parent, indicate the identity of the Person making such proposal, offer, inquiry or other contact and the terms and conditions of any proposals or offers or the nature of any inquiries or contacts
(and shall include with such notice copies of any written materials received from or on behalf of such Person relating to such proposal, offer, inquiry or request), and thereafter shall promptly keep
Parent reasonably informed of all material developments affecting the status and terms of any such proposals, offers, inquiries or requests (and the Company shall promptly provide Parent with copies
of any additional written materials received by the Company or that the Company has delivered to any third party making an Alternative Proposal that relate to such proposals, offers, inquiries or
requests) and of the status of any such discussions or negotiations.
A-37
(d) Notwithstanding
the foregoing, if the Company receives a written Alternative Proposal that the Company Board believes is
bona
fide
and the Company Board, after consultation with its financial advisors and outside legal counsel, concludes that such Alternative Proposal constitutes a Superior Proposal,
then the Company Board may, at any time prior to obtaining the Company Unitholder Approval, if it determines in good faith, after consultation with outside counsel, that the failure to take such
action would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law, effect an Adverse Recommendation Change;
provided
,
however
, that the Company Board may not effect an Adverse Recommendation Change pursuant to the foregoing unless:
(i) the
Company has provided prior written notice to Parent specifying in reasonable detail the reasons for such action (including a description of the material terms of
such Superior Proposal and delivering to Parent a copy of (1) the Acquisition Agreement for such Superior Proposal in the form to be entered into and (2) any other relevant proposed
transaction agreements), at least five (5) calendar days in advance of its intention to take such action with respect to an Adverse Recommendation Change, unless at the time such notice is
otherwise required to be given there are less than five (5) calendar days prior to the Company Unitholders Meeting, in which case the Company shall provide as much notice as is reasonably
practicable (the period inclusive of all such days, the "
Notice Period
") (it being understood and agreed that any material amendment to the terms of a
Superior Proposal shall require a new notice pursuant to this
Section 5.3(d)
and a new Notice Period, except that such new Notice Period in
connection with any material amendment shall be for one (1) business day from the time Parent receives such notice (as opposed to five (5) calendar days); and
(ii) during
the Notice Period the Company has negotiated, and has used reasonable best efforts to cause its financial advisors and outside legal counsel to negotiate, with
Parent in good faith (to the extent Parent desires to negotiate) to make such adjustments in the terms and conditions of this Agreement so that such Superior Proposal ceases to constitute (in the
judgment of the Company Board) a Superior Proposal.
(e) For
purposes of this Agreement:
(i) "
Alternative Proposal
" means any inquiry, proposal or offer from any Person or "group" (as defined in
Section 13(d) of the Exchange Act), other than Parent and its Subsidiaries, relating to any (A) direct or indirect acquisition (whether in a single transaction or a series of related
transactions), outside of the ordinary course of business, of assets of the Company and its Subsidiaries (including securities of Subsidiaries) equal to twenty-five percent (25%) or more
of the Company's consolidated assets or to which twenty-five percent (25%) or more of the Company's revenues or earnings on a consolidated basis are attributable, (B) direct or
indirect acquisition (whether in a single transaction or a series of related transactions) of beneficial ownership (within the meaning of Section 13 under the Exchange Act) of
twenty-five percent (25%) or more of any class of equity securities of the Company, (C) tender offer or exchange offer that if consummated would result in any Person or "group" (as
defined in Section 13(d) of the Exchange Act) beneficially owning twenty-five percent (25%) or more of any class of equity securities of the Company or (D) merger,
consolidation, unit exchange, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company which is structured to permit such Person or
group to acquire beneficial ownership of at least twenty-five percent (25%) of the Company's consolidated assets or equity interests; in each case, other than the transactions contemplated
hereby.
(ii) "
Superior Proposal
" means a
bona fide
written offer, obtained after the
date of this Agreement and not in breach of this Section 5.3 (other than an immaterial breach), to
A-38
acquire,
directly or indirectly, more than fifty percent (50%) of the outstanding equity securities of the Company or assets of the Company and its Subsidiaries on a consolidated basis, made by a
third party, which is on terms and conditions which the Company Board determines in its good faith to be more favorable to the Company's Unitholders from a financial point of view than the
transactions contemplated hereby, taking into account at the time of determination any changes to the terms of this Agreement that as of that time had been committed to by Parent in writing.
(f) Notwithstanding
anything in this Section 5.3 to the contrary, the Company Board may, at any time prior to obtaining the Company Unitholder Approval, effect an
Adverse Recommendation Change in response to an Intervening Event if the Company Board concludes in good faith, after consultation with outside counsel and its financial advisors, that the exercise of
its fiduciary duties requires such Adverse Recommendation Change. An "
Intervening Event
" means, with respect to the Company, a material event or
circumstance that arises or occurs after the date of this Agreement and was not, prior to the
date of this Agreement, reasonably foreseeable by the Company Board;
provided
,
however
, that in no event
shall the receipt, existence or terms of an Alternative Proposal or any matter relating thereto or consequence thereof constitute an Intervening Event.
(g) Nothing
contained in this Agreement shall prevent the Company or the Company Board from issuing a "stop, look and listen" communication pursuant to
Rule 14d-9(f) under the Exchange Act or complying with Rule 14d-9 and Rule 14e-2 under the Exchange Act with respect to an Alternative Proposal
if the Company Board determines in good faith (after consultation with outside legal counsel) that its failure to do so would be reasonably likely to constitute a violation of applicable Law;
provided
that any Adverse Recommendation Change may only be made in accordance with
Section 5.3(d)
. For the avoidance of doubt, a public statement that describes the Company's receipt of an Alternative
Proposal and the operation
of this Agreement with respect thereto shall not be deemed an Adverse Recommendation Change.
Section 5.4.
Reasonable Best Efforts.
(a) Subject
to the terms and conditions of this Agreement (including
Section 5.4(d)
), each of the Parent Entities, on
the one hand, and the Company, on the other hand, shall cooperate with the other and use (and shall cause their respective Subsidiaries to use) its reasonable best efforts to (i) take, or cause
to be taken, all actions, and do, or cause to be done, all things, necessary, proper or advisable to cause the conditions to the Closing to be satisfied as promptly as practicable (and in any event no
later than the Outside Date) and to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated hereby, including preparing and filing promptly and fully
all documentation to effect all necessary filings, notifications, notices, petitions, statements, registrations, submissions of information, applications and other documents (including any required or
recommended filings under applicable Antitrust Laws), (ii) obtain promptly (and in any event no later than the Outside Date) all approvals, consents, clearances, expirations or terminations of
waiting periods, registrations, permits, authorizations and other confirmations from any Governmental Authority or third party necessary, proper or advisable to consummate the transactions
contemplated hereby, (iii) defend any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated
hereby and (iv) obtain all necessary consents, approvals or waivers from third parties. For purposes of this Agreement, "
Antitrust Laws
" means
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other applicable Laws issued by a Governmental Authority that are designed
or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition.
A-39
(b) In
furtherance and not in limitation of the foregoing, (i) each party hereto (including by their respective Subsidiaries) agrees to make an appropriate filing of
a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within fifteen (15) business days after
the date of this Agreement (unless a later date is mutually agreed to by the parties hereto) and to supply as promptly as practicable any additional information and documentary material that may be
requested by any Governmental Authority pursuant to the HSR Act or any other Antitrust Law and use its reasonable best efforts to take, or cause to be taken (including by their respective
Subsidiaries), all other actions consistent with this
Section 5.4
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable (and in any event no later than the Outside Date); and (ii) the Company and Parent shall each use its reasonable best efforts to (x) take
all action necessary to ensure that no state takeover statute or similar Law is or becomes applicable to any of the transactions contemplated hereby and (y) if any state takeover statute or
similar Law becomes applicable to any of the transactions contemplated hereby, take all action necessary to ensure that such transaction may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise minimize the effect of such Law on the transaction.
(c) Each
of the parties hereto shall use (and shall cause their respective Subsidiaries to use) its reasonable best efforts to (i) cooperate in all respects with each
other in connection with any filing or submission with a Governmental Authority in connection with the transactions contemplated hereby and in connection with any investigation or other inquiry by or
before a Governmental Authority relating to the transactions contemplated hereby, including any proceeding initiated by a private Person, (ii) promptly inform the other party of (and supply to
the other party) any communication received by such party from, or given by such party to, the Federal Trade Commission, the Antitrust Division of the Department of Justice, or any other Governmental
Authority and any material communication received or given in connection with any proceeding by a private Person, in each case regarding any of the transactions contemplated hereby,
(iii) permit the other party to review in advance and incorporate the other party's reasonable comments in any communication to be given by it to any Governmental Authority with respect to
obtaining any clearances required under any Antitrust Law in connection with the transactions contemplated hereby and (iv) consult with the other party in advance of any meeting or
teleconference with any Governmental Authority or, in connection with any proceeding by a private Person, with any other Person, and, to the extent not prohibited by the Governmental Authority or
other Person, give the other party the opportunity to attend and participate in such meetings and teleconferences. Parent shall have the principal responsibility for devising and implementing the
strategy for obtaining any clearances required under any Antitrust Law in connection with the transactions contemplated hereby and shall take the lead in all meetings and communications with any
Governmental Authority in connection with obtaining such clearances,
provided
,
however
, that Parent
shall consult in advance with the Company and in good faith take the Company's views into account regarding the overall strategy. Subject to
Section 5.6(b)
, the parties shall take reasonable
efforts to share information protected from disclosure under the attorney-client privilege,
work product doctrine, joint defense privilege or any other privilege pursuant to this
Section 5.4
in a manner so as to preserve the applicable
privilege.
(d) Parent
and the Company (including by causing their respective Subsidiaries) agree to use their reasonable best efforts to (x) resolve any objections that a
Governmental Authority or other Person may assert under any Antitrust Law with respect to the transactions contemplated hereby, and (y) avoid or eliminate each and every impediment under any
Antitrust Law that may be asserted by any Governmental Authority with respect to the transactions contemplated hereby, in each case, so as to enable the Closing to occur as promptly as practicable and
in any event no later than the Outside Date, and including taking or agreeing to take the types of actions, but subject to
A-40
the
limitations, described in the following sentence. Notwithstanding the foregoing or any other provision of this Agreement, the Company shall not, without Parent's prior written consent, commit to
any divestiture transaction or agree to any restriction on its business, and nothing in this
Section 5.4
shall (i) limit any applicable
rights a party may have to terminate this Agreement pursuant to
Section 7.1
in a case where
Section 7.1
permits such termination or
(ii) require Parent to offer, accept or agree to (A) dispose or hold separate any part of
the Company's, Parent's or their respective Subsidiaries' businesses, operations or assets (or a combination thereof), (B) not compete in any geographic area or line of business, and/or
(C) restrict the manner in which, or whether, Parent, the Company or any of their Affiliates may carry on business in any part of the world;
provided
,
however
, that Parent shall be required to offer, accept or agree to the actions in
clauses (A), (B) and/or (C) if (and only if) the following conditions are satisfied: (1) any such dispositions or holdings separate of, and/or limitations or restrictions
on, are, individually and in the aggregate, immaterial to the businesses, operations and/or assets of the Company, Parent or their respective Subsidiaries (provided that, in the case of Parent and its
Subsidiaries, for purposes of determining whether a business, operation or asset is immaterial, it shall be assumed that Parent and its Subsidiaries are of equivalent size to the current size of the
Company and its Subsidiaries, in each case taken as a whole) and (2) the effect of any such dispositions, holdings separate, limitations and/or restrictions would not, individually or in the
aggregate, reasonably be expected to result in a loss (other than an immaterial loss) of the reasonably expected benefits to Parent of the transactions contemplated hereby.
Section 5.5.
Public Announcements.
The initial press release with respect to the execution of
this Agreement shall be a joint press release to be reasonably agreed upon by Parent and the Company.
Thereafter, neither the Company nor Parent shall issue or cause the publication of any press release or other public announcement (to the extent previously issued or made in accordance with this
Agreement) with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party (which consent shall not be unreasonably withheld or delayed), except as
may be required by Law or by any applicable listing agreement with NASDAQ, the NYSE or other national securities exchange as determined in the good faith judgment of the party proposing to make such
release (in which case such party shall not issue or cause the publication of such press release or other public announcement without prior consultation with the other party);
provided
,
however
, that the Company shall not be required by this
Section 5.5
to consult with any other party with respect to a public announcement in connection with the
receipt and existence of an Alternative
Proposal that the Company Board believes is
bona fide
and matters related thereto or an Adverse Recommendation Change but nothing in this proviso shall
limit any obligation of the Company under
Section 5.3(d)
to negotiate with Parent in good faith; provided, further, that each party and their
respective controlled affiliates may make statements that are consistent with statements made in previous press releases, public disclosures or public statements made by Parent or the Company in
compliance with this
Section 5.5
.
Section 5.6.
Access to Information; Confidentiality.
(a) Upon
reasonable notice and subject to applicable Laws relating to the exchange of information, each party shall, and shall cause each of its Subsidiaries to afford to
the other party and its Representatives reasonable access during normal business hours (and, with respect to books and records, the right to copy) to all of its and its Subsidiaries' properties,
commitments, books, Contracts, records and correspondence (in each case, whether in physical or electronic form), officers, employees, accountants, counsel, financial advisors and other
Representatives. Each party shall furnish promptly to the other party (i) a copy of each report, schedule and other document filed or submitted by it pursuant to the requirements of federal or
state securities Laws and a copy of any communication (including "comment letters") received by such party from the SEC concerning compliance with securities Laws and (ii) all other information
concerning its and its
A-41
Subsidiaries'
business, properties and personnel as the other party may reasonably request (including information necessary to prepare the Proxy Statement). Except for disclosures permitted by the
terms of the Confidentiality Agreement, dated as of November 1, 2012, between Parent and the Company (as it may be amended from time to time, the "
Company
Confidentiality Agreement
") and the Confidentiality Agreement, dated as of January 17, 2013, between Parent and the Company (as it may be amended from time to time, the
"
Parent Confidentiality Agreement
" and, together with the Company Confidentiality Agreement, the "
Confidentiality
Agreements
"), each party and its Representatives shall hold information received from the other party pursuant to this
Section 5.6
in confidence in accordance with the terms
of the Confidentiality Agreements.
(b) This
Section 5.6
shall not require either party to permit any access, or to disclose any information, that in the
reasonable, good faith judgment (after consultation with counsel, which may be in-house counsel) of such party would reasonably be expected to result in (i) any violation of any
contract or Law to which such party or its Subsidiaries is a party or is subject or cause any privilege (including attorney-client privilege) that such party or any of its Subsidiaries would be
entitled to assert to be undermined with respect to such information and such undermining of such privilege could in such party's good faith judgment (after consultation with counsel, which may be
in-house counsel) adversely affect in any material respect such party's position in any pending or, what such party believes in good faith (after consultation with counsel, which may be
in-house counsel) could be, future litigation or (ii) if such party or any of its Subsidiaries, on the one hand, and the other party or any of its Subsidiaries, on the other hand,
are adverse parties in a litigation, such information being reasonably pertinent thereto;
provided
that, in the case of
clause (i), the parties hereto shall cooperate in seeking to find a way to allow disclosure of such information (including by entering into a joint-defense or similar agreement) to the extent
doing so (1) would not (in the good faith belief of the party being requested to disclose the information (after consultation with counsel, which may be in-house counsel))
reasonably be likely to result in the violation of any such contract or Law or reasonably be likely to cause such privilege to be undermined with respect to such information or (2) could
reasonably (in the good faith belief of the party being requested to disclose the information (after consultation with counsel, which may be in-house counsel)) be managed through the use
of customary "clean-room" arrangements pursuant to which appropriately designated Representatives of the other party shall be provided access to such information;
provided
,
further
, that the party being requested to disclose the information shall (x) notify
the other party that such disclosures are reasonably likely to violate its or its Subsidiaries' obligations under any such contract or Law or are reasonably likely to cause such privilege to be
undermined, (y) communicate to the other party in reasonable detail the facts giving rise to such notification and the subject matter of such information (to the extent it is able to do so in
accordance with the first proviso in this
Section 5.6(b)
) and (z) in the case where such disclosures are reasonably likely to violate its
or its Subsidiaries' obligations under any contract, use reasonable commercial efforts to seek consent from the applicable third party to any such contract with respect to the disclosures prohibited
thereby (to the extent not otherwise expressly prohibited by the terms of such contract).
(c) No
investigation, or information received, pursuant to this
Section 5.6
will modify any of the representations and
warranties of the parties hereto.
Section 5.7.
Notification of Certain Matters.
The Company shall give prompt notice to Parent,
and Parent shall give prompt notice to the Company, of (i) any notice or other communication received by
such party from any Governmental Authority in connection with the transactions contemplated hereby or from any Person alleging that the consent of such Person is or may be required in connection with
the transactions contemplated hereby, if the subject matter of such communication or the failure of such party to obtain such consent is reasonably likely to be material to the Company or Parent,
(ii) any actions, suits, claims, investigations or proceedings commenced or, to such party's knowledge,
A-42
threatened
against, relating to or involving or otherwise affecting such party or any of its Subsidiaries and that relate to the transactions contemplated hereby, (iii) the discovery of any
fact or circumstance that, or the occurrence or non-occurrence of any event the occurrence or non-occurrence of which, would result in the failure to be satisfied of any of the
conditions to the Closing in
Article VI
and (iv) any material failure of such party to comply with or satisfy any covenant or agreement to
be complied with or satisfied by it hereby which would result in the failure to be satisfied of any of the conditions to the Closing in
Article VI
;
provided
that, in the case of clauses (iii) and (iv), the failure to comply
with this
Section 5.7
shall not result in the failure to be satisfied of any of the conditions to the Closing in
Article VI
, or give rise to any
right to terminate this
Agreement under
Article VII
, if the underlying fact, circumstance, event or failure would not in and of itself give rise to such failure or
right.
Section 5.8.
Indemnification and Insurance.
(a) For
purposes of this
Section 5.8
, (i) "
Indemnified Person
"
shall mean any person who is now, or has been or becomes at any time prior to the Effective Time, an officer, director or employee of the Company or any of its Subsidiaries and also with respect to
any such Person, in their capacity as a director, officer, employee, member, trustee or fiduciary of another corporation, foundation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise (whether or not such other entity or enterprise is affiliated with the Company) serving at the request of or on behalf of the Company or any Company Subsidiary and together
with such Person's heirs, executors or administrators and (ii) "
Proceeding
" shall mean any actual or threatened claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative, investigative or otherwise and whether or not such claim, action, suit, proceeding or investigation results in a formal civil or criminal
litigation or regulatory action.
(b) From
and after the Effective Time, solely to the extent that the Company or any applicable Subsidiary would be permitted to indemnify an Indemnified Person, Parent and
the Surviving Entity jointly and severally agree to (i) indemnify and hold harmless against any cost or expenses (including attorneys' fees), judgments, fines, losses, claims, damages or
liabilities and amounts paid in settlement in connection with any Proceeding, and provide advancement of expenses to, all Indemnified Persons to the fullest extent permitted under applicable Law and
(ii) honor the provisions regarding elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses contained in the Company Charter
Documents and comparable governing instruments of any Subsidiary of the Company immediately prior to the Effective Time and ensure that the certificate of formation and limited liability company
agreement of the Surviving Entity shall, for a period of six (6) years following the Effective Time, contain provisions no less favorable with respect to indemnification, advancement of
expenses and exculpation of present and former directors, officers, employees and agents of the Company and its Subsidiaries than are presently set forth in the Company Charter Documents. Any right of
indemnification of an Indemnified Person pursuant to this
Section 5.8(b)
shall not be amended, repealed or otherwise modified at any time in a
manner that would adversely affect the rights of such Indemnified Person as provided herein.
(c) Parent
shall cause the Surviving Entity to, and the Surviving Entity shall, maintain in effect for six (6) years from the Effective Time the Company's current
directors' and officers' liability insurance policies covering acts or omissions occurring at or prior to the Effective Time with respect to Indemnified Persons
(
provided
that the Surviving Entity may substitute therefor policies with reputable carriers of at least the same coverage containing terms and
conditions that are no less favorable to the Indemnified Persons); provided, however, that in no event shall the Surviving Entity be required to expend pursuant to this
Section 5.8(c)
more than an
amount per year equal to 300% of current annual premiums paid by the Company for such insurance (the
"
Maximum Amount
"). In the event that, but for the proviso to the immediately preceding sentence,
A-43
the
Surviving Entity would be required to expend more than the Maximum Amount, the Surviving Entity shall obtain the maximum amount of such insurance as is available for the Maximum Amount. If the
Company in its sole discretion elects, then, in lieu of the obligations of Parent under this
Section 5.8(c)
, the Company may, prior to the
Effective Time, purchase a "tail policy" with respect to acts or omissions occurring or alleged to have occurred prior to the Effective Time that were committed or alleged to have been committed by
such Indemnified Persons in their capacity as such; provided that in no event shall the cost of such policy exceed six (6) times the Maximum Amount.
(d) The
rights of any Indemnified Person under this
Section 5.8
shall be in addition to any other rights such
Indemnified Person may have under the organizational documents of the Company, the Surviving Entity or the DLLCA. The provisions of this
Section 5.8
shall survive the consummation of the
transactions contemplated hereby for a period of six (6) years and are expressly
intended to benefit each of the Indemnified Persons and their respective heirs and representatives;
provided
,
however
, that in the event that any claim or
claims for indemnification set forth in this
Section 5.8
are asserted or made within such six (6)-year period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of all such claims. If Parent and/or the Surviving Entity, or any of their respective successors or assigns (i) consolidates with or merges into any
other Person, or (ii) transfers or conveys all or substantially all of their businesses or assets to any other Person, then, in each such case, to the extent necessary, a proper provision shall
be made so that the successors and assigns of Parent and/or the Surviving Entity, as the case may be, shall assume the obligations of Parent and the Surviving Entity set forth in this
Section 5.8
.
Section 5.9.
Securityholder Litigation.
The Company shall give Parent the opportunity to
participate in the defense or settlement of any securityholder litigation against the Company and/or its
directors relating to the transactions contemplated hereby,
provided
that the Company shall in any event control such defense and/or settlement (subject
to Section 5.2(a)(xiii)) and shall not be required to provide information if doing so would be reasonably expected to threaten the loss of any attorney-client privilege or other applicable
legal privilege.
Section 5.10.
Fees and Expenses.
All fees and expenses incurred in connection with the
transactions contemplated hereby including all legal, accounting, financial advisory, consulting and all
other fees and expenses of third parties incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby,
shall be the obligation of the respective party incurring such fees and expenses, except Parent and the Company shall each bear and pay one-half of the expenses incurred in connection with
the filing, printing and mailing of the Registration Statement and Proxy Statement.
Section 5.11.
Section 16 Matters.
Prior to the Effective Time, Parent and the Company shall
take all such steps as may be required (to the extent permitted under Applicable Law) to cause any
dispositions of Common Units (including derivative securities with respect to Common Units) or acquisitions of Parent Units (including derivative securities with respect to Parent Units) resulting
from the transactions contemplated by this Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company, or will
become subject to such reporting requirements with respect to Parent, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
Section 5.12.
Employee Benefits.
(a) As
of the Effective Time, Parent shall assume all Company Benefit Plans in accordance with their terms as in effect immediately before the Effective Time;
provided
that, nothing herein shall limit the
right of the Company or Parent or any of their respective Affiliates to amend or terminate such Company
Benefit Plans to the extent permitted by their terms. For a period of one
A-44
(1) year
following the Effective Time (the "
Continuation Period
"), Parent shall provide, or shall cause to be provided, (i) to each
employee of the Company or any of its Subsidiaries as of immediately prior to the Effective Time (the "
Company Employees
"), for so long as such Company
Employee remains an employee of the Parent, the Surviving Entity or any of their respective Affiliates during the Continuation Period, base salary or regular hourly wage which is the same as or no
less favorable than that provided to such Company Employee immediately before the Effective Time and (ii) to each
Company Employee, for so long as such Company Employee remains an employee of the Parent, the Surviving Entity or any of their respective Affiliates during the Continuation Period, eligibility to
participate in the employee benefit plans (including, cash incentive compensation plans) sponsored or maintained by Kinder Morgan, Inc. ("
KMI
")
on the same basis as such eligibility to participate is provided to similarly situated employees of KMI.
(b) Notwithstanding
anything to the contrary contained in
Section 5.12(a)
, Parent shall maintain the Company Severance
Plans in accordance with their terms. In addition, to the extent any portion of the Company's assets are sold during the Continuation Period, Parent will use its commercially reasonable efforts to
ensure that the purchaser of such assets provides the foregoing benefits to the applicable employees who will be employees of the purchaser of such assets through the end of the Continuation Period.
(c) For
all purposes (including purposes of vesting, eligibility to participate and level of benefits) under the employee benefit plans of Parent and its Subsidiaries
providing benefits to any Company Employees after the Effective Time as required pursuant to this
Section 5.12(c)
(the
"
New Plans
"), each Company Employee shall be credited with his or her years of service with the Company and its Subsidiaries and their respective
predecessors before the Effective Time, to the same extent as such Company Employee was entitled, before the Effective Time, to credit for such service under any similar Company Benefit Plan in which
such Company Employee participated or was eligible to participate immediately prior to the Effective Time;
provided
that the foregoing shall apply to
determine the crediting rate under Parent's cash balance plan but shall not apply with respect to either benefit accrual attributable to any period prior to the Effective Time under any defined
benefit pension plan, or to the extent that its application would result in a duplication of benefits. In addition, to the extent such Company Employee is eligible to participate in a New Plan
pursuant to
Section 5.12(a)
, and without limiting the generality of the foregoing, (i) each Company Employee shall be immediately eligible
to participate, without any waiting time, in any and all New Plans of the same type as any Company Benefit Plans in which such Company Employee participated immediately before the consummation of the
transactions contemplated hereby (such plans, collectively, the "
Old Plans
"), and (ii) for purposes of each New Plan providing medical, dental,
pharmaceutical and/or vision benefits to any Company Employee, Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such
New Plan to be waived for such employee and his or her covered dependents, unless such conditions would not have been waived under the comparable plans of the Company or its Subsidiaries in which such
employee participated immediately prior to the Effective Time, and Parent shall cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan
year of the Old Plan ending on the date such employee's participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible,
coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid
in accordance with such New Plan.
(d) Parent
hereby acknowledges that (i) a "change of control" (or similar phrase) within the meaning of the Company Equity Plans will occur as of the Effective Time
and (ii) a "change of control" (or similar phrase) within the meaning of the Company Benefit Plans (other than any Company Equity Plans) set forth in
Section 5.12(d)(ii)
of the Company
Disclosure Schedule will occur as of the Effective Time.
A-45
(e) At
or as soon as practicable following the Effective Time, the Company and its Subsidiaries shall pay to each Company Employee who participates in the Company's
Management Incentive Compensation Plan (the "
MICP
"), a prorated 2013 annual bonus in an amount that is no less than the product of (A) such
Company Employee's previously established target 2013 annual bonus (as provided to Parent in writing prior to the date hereof), multiplied by (B) a fraction equal to the number of days elapsed
in 2013, through and including the Closing Date, divided by three hundred and sixty-five (365).
(f) Parent
shall honor, or shall cause to be honored, all vacation that is accrued and unused by each of the Company Employees as of the Effective Time and reflected on the
balance sheet of the Company and its Subsidiaries (the "
Pre-Closing Vacation
") in accordance with the terms of the Company's policies as in
effect as of immediately prior to the Effective Time, for the avoidance of doubt, including the terms of such policies regarding the forfeiture and carryover of such Pre-Closing Vacation.
Upon each Company Employee's termination of employment with Parent and its Subsidiaries other than due to voluntary resignation or retirement (unless payment is required by applicable Law), such
Company Employee shall be entitled to a cash payment in respect of any then-accrued and unused Pre-Closing Vacation (at a rate based on such Company Employee's base salary then
in effect). All vacation and paid time off that is accrued by each Company Employee following the Effective Time shall be subject to the policies of KMI.
(g) Nothing
in this Agreement, expressed or implied, shall (i) confer upon any Company Employee or any other Person any right to continue in the employ or service of
Parent, the Surviving Entity or any Affiliate of Parent, or shall interfere with or restrict in any way the rights of Parent, the Surviving Entity or any Affiliate of Parent, which rights are hereby
expressly reserved, to discharge or terminate the services of any Company Employee or any Person at any time for any reason whatsoever, with or without cause, except to the extent expressly provided
otherwise in a written agreement between Parent, the Surviving Entity or any Affiliate of Parent and the Company Employee, (ii) constitute an amendment to any Company Benefit Plan or any
employee benefit or compensation plan of Parent or any of its Affiliates, or (iii) obligate Parent, the Surviving Entity or any Affiliate of Parent to maintain any particular compensation or
benefit plan, program arrangement, policy or contract. Notwithstanding any provision in this Agreement to the contrary, nothing in this
Section 5.12
shall create any third party
rights in any current or former service provider of the Company or its affiliates (or any beneficiaries or dependents thereof).
Section 5.13.
Listing.
Parent shall cause the Parent Units to be issued pursuant to and in
accordance with this Agreement to be approved for listing (subject, if applicable, to notice
of issuance) for trading on the NYSE prior to the Closing.
Section 5.14.
Issuance of PIK Units; Dividends and Distributions.
(a) Any
Series A Preferred Units issued as PIK Units prior to the Closing Date shall be issued as of the close of business on the record date for the distribution of
such Series A Preferred Units issued as PIK Units.
(b) After
the date of this Agreement until the Effective Time, each of Parent and the Company shall coordinate with the other regarding the declaration of any distributions
in respect of Parent Units, Common Units and Series A Preferred Units and the record dates and payment dates relating thereto, it being the intention of the parties that holders of Common Units
or Series A Preferred Units shall not receive, for any quarter, distributions both in respect of Common Units or Series A Preferred Units and also distributions in respect of Parent
Units that they receive in exchange therefor in the Merger, but that they shall receive for any such quarter either: (i) only distributions in respect of Common Units or Series A Units
or (ii) only distributions in respect of Parent Units that they receive in exchange therefor in the Merger.
A-46
ARTICLE VI
Conditions Precedent
Section 6.1.
Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of
each party hereto to effect the Merger shall be subject to the satisfaction (or waiver, if permissible under applicable Law) on or
prior to the Closing Date of the following conditions:
(a)
Company Unitholder Approval.
The Company Unitholder Approval shall have been obtained in accordance with
applicable Law, the certificate of formation of the Company and the Company LLC Agreement;
(b)
Regulatory Approval.
Any waiting period applicable to the transactions contemplated hereby under the HSR Act
shall have been terminated or shall have expired;
(c)
No Injunctions or Restraints.
No Law, injunction, judgment or ruling enacted, promulgated, issued, entered,
amended or enforced by any Governmental Authority (collectively, "
Restraints
") shall be in effect enjoining, restraining, preventing or prohibiting
consummation of the transactions contemplated hereby or making the consummation of the transactions contemplated hereby illegal;
(d)
Registration Statement.
The Registration Statement shall have become effective under the Securities Act and
no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC; and
(e)
Unit Listing.
The Parent Units deliverable to the Unitholders of the Company as contemplated by this
Agreement shall have been approved for listing on the NYSE, subject to official notice of issuance.
Section 6.2.
Conditions to Obligations of Parent and Merger Sub to Effect the Merger.
The
obligations of Parent and Merger Sub to effect the Merger are further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior
to the Closing Date of the following conditions:
(a)
Representations and Warranties.
(i) The representations and warranties of the Company contained in
Section 3.3(a)
,
Section 3.3(c)
and
Section 3.6(a)
, shall be true and correct in all respects, in each case both when made and at and as of the Closing Date, as
if made at and as of
such time (except to the extent expressly made as of an earlier date, in which case as of such date); (ii) the representations and warranties of the Company contained in
Section 3.2(a)
shall
be true and correct in all respects, other than immaterial misstatements or omissions, both when made and at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date); and (iii) all other representations and warranties of
the Company set forth herein shall be true and correct both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date,
in which case as of such date), except, in the case of this clause (iii), where the failure of such representations and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Company Material Adverse Effect" set forth in any individual such representation or warranty) does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Parent shall have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect.
(b)
Performance of Obligations of the Company.
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
A-47
to
the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect.
(c)
Tax Opinion.
Parent shall have received an opinion of Bracewell & Giuliani LLP dated as of the
Closing Date to the effect that for U.S. federal income tax purposes (i) no Parent Entity will recognize any income or gain as a result of the Merger (other than any gain resulting from any
decrease in partnership liabilities pursuant to Section 752 of the Code), (ii) no gain or loss will be recognized by holders of Parent Units as a result of the Merger (other than any
gain resulting from any decrease in partnership liabilities pursuant to Section 752 of the Code), and (iii) at least ninety percent (90%) of the
combined gross income of each of Parent and the Company for the most recent four complete calendar quarters ending before the Closing Date for which the necessary financial information is available
are from sources treated as "qualifying income" within the meaning of Section 7704(d) of the Code. In rendering such opinion, such counsel shall be entitled to receive and rely upon
representations of officers of the Parent Entities and the Company and any of their respective affiliates as to such matters as such counsel may reasonably request.
(d)
Conversion of Series A Preferred Units.
As of immediately prior to the Effective Time, in accordance
with the Company LLC Agreement (i) the 12,897,029 Series A Preferred Units outstanding as of the date hereof shall be converted into an aggregate of 14,186,731 Common Units and
(ii) any Series A Preferred Units issued as PIK Units after the date hereof shall be converted into a number of Common Units equal to the product of (A) one hundred and ten
percent (110%) and (B) the number of Series A Preferred Units so issued as PIK Units.
Section 6.3.
Conditions to Obligation of the Company to Effect the Merger.
The obligation of the
Company to effect the Merger is further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the
Closing Date of the following conditions:
(a)
Representations and Warranties.
The representations and warranties of Parent contained in
Section 4.3(a)
,
Section 4.3(c)
and
Section 4.6(a)
shall be true and correct in all respects, in each case both when made and at and as of the Closing Date, as if
made at and as of
such time (except to the extent expressly made as of an earlier date, in which case as of such date); (ii) the representations and warranties of Parent contained in
Section 4.2(a)
shall be
true and correct in all respects, other than immaterial misstatements or omissions, both when made and at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date); and (iii) all other representations and warranties of
Parent set forth herein shall be true and correct both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in
which case as of such date), except, in the case of this clause (iii), where the failure of such representations and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Parent Material Adverse Effect" set forth in any individual such representation or warranty) does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. The Company shall have received a certificate signed on behalf of Parent by an executive officer of Parent to such effect.
(b)
Performance of Obligations of the Parent Entities.
The Parent Entities shall have performed in all material
respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent to such effect.
(c)
Tax Opinion.
The Company shall have received an opinion of Wachtell, Lipton, Rosen & Katz dated as of
the Closing Date to the effect that for U.S. federal income tax purposes, except with respect to
fractional units, (i) the Company will not recognize any income or gain as a result of the Merger (other than any gain resulting from any decrease in partnership
A-48
liabilities
pursuant to Section 752 of the Code), and (ii) no gain or loss will be recognized by holders of Common Units as a result of the Merger (other than any gain resulting from any
decrease in partnership liabilities pursuant to Section 752 of the Code);
provided
that such opinion shall not extend to any holder who acquired
Common Units from the Company in exchange for property other than cash. In rendering such opinion, such counsel shall be entitled to receive and rely upon representations of officers of the Parent
Entities and the Company and any of their respective affiliates as to such matters as such counsel may reasonably request.
Section 6.4.
Frustration of Closing Conditions.
None of the Company or any of the Parent
Entities may rely on the failure of any condition set forth in
Section
6.1
,
6.2
or
6.3
, as the case may be, to be satisfied if such failure was caused
by such party's failure to use its reasonable best efforts to consummate the Merger and the other transactions contemplated hereby, or other breach of or noncompliance with this Agreement.
ARTICLE VII
Termination
Section 7.1.
Termination.
This Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Effective Time:
(a) by
the mutual written consent of the Company and Parent duly authorized by each of their respective Boards of Directors.
(b) by
either of the Company or Parent:
(i) if
the Closing shall not have been consummated on or before the one (1)-year anniversary of this Agreement (the "
Outside
Date
");
provided
,
further
, that the right to terminate this Agreement under this
Section 7.1(b)(i)
shall not be available (x) to a party if the inability to satisfy such condition was due to the failure of such party to
perform any of its obligations under this Agreement or (y) to a party if the other party has filed (and is then pursuing) an action seeking specific performance as permitted by
Section 8.8
;
(ii) if
any Restraint having the effect set forth in
Section 6.1(c)
shall be in effect and shall have become final and
nonappealable;
provided, however,
that the right to terminate this Agreement under this
Section 7.1(b)(ii)
shall not be available to a party if such
Restraint was due to the failure of such party to perform any of its obligations
under this Agreement; or
(iii) if
the Company Unitholders Meeting shall have concluded and the Company Unitholder Approval shall not have been obtained.
(c) by
Parent:
(i) if
an Adverse Recommendation Change shall have occurred;
(ii) prior
to the receipt of the Company Unitholder Approval, if the Company shall be in Willful Breach of its obligations pursuant to the first two sentences of
Section 5.1(b)
or
Section 5.3
, other than in the case where (x) such Willful Breach
is a result of an isolated action by a Person that is a Representative of the Company (other than a director or officer of the Company), (y) such Willful Breach was not caused by, or within the
Knowledge of, the Company and (z) the Company takes appropriate actions to remedy such Willful Breach upon discovery thereof;
provided
that
Parent shall not have the right to terminate this Agreement pursuant to this
Section 7.1(c)(ii)
if Parent is then in material breach of any of
its representations, warranties, covenants or agreements contained in this Agreement; or
A-49
(iii) if
the Company shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement (or if any of the
representations or warranties of the Company set forth in this Agreement shall fail to be true), which breach or failure (A) would (if it occurred or was continuing as of the Closing Date) give
rise to the failure of a condition set forth in
Section 6.2(a)
or
(b)
and (B) is incapable
of being cured, or is not cured, by the Company within thirty (30) days following receipt of written notice from Parent of such breach or failure;
provided
that Parent shall not have the right to
terminate this Agreement pursuant to this
Section 7.1(c)(iii)
if Parent is then in material breach of any of its representations, warranties, covenants or agreements contained in this
Agreement.
(d) by
the Company:
(i) if
Parent shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement (or if any of the
representations or warranties of Parent set forth in this Agreement shall fail to be true), which breach or failure (A) would (if it occurred or was continuing as of the Closing Date) give rise
to the failure of a condition set forth in
Section 6.3(a)
or
(b)
and (B) is incapable of
being cured, or is not cured, by Parent within thirty (30) days following receipt of written notice from the Company of such breach or failure;
provided
that the Company shall not have the right to
terminate this Agreement pursuant to this
Section 7.1(d)(i)
if the Company is then in material breach of any of its representations, warranties, covenants or agreements contained in this
Agreement.
Section 7.2.
Effect of Termination.
In the event of the termination of this Agreement as
provided in
Section 7.1
, written notice thereof shall
be given to the other party or parties, specifying the provision of this Agreement pursuant to which such termination is made, and this Agreement shall forthwith become null and void (other than the
provisions in
Sections 5.10, 7.2
and
7.3
and in the last sentence of
Section 5.6(a)
, and the
provisions in
Article VIII
, all of which shall survive termination
of this Agreement), and there shall be no liability on the part of any Parent Entity or the Company or their respective directors, officers and Affiliates, except (i) the Company and/or Parent
may have liability as provided in
Section 7.3
, and (ii) subject to
Section 7.3(f)
,
nothing shall relieve any party hereto from any liability for any failure to consummate the Merger and the other transactions contemplated hereby when required pursuant to this Agreement or any party
from liability for fraud or a Willful Breach of any covenant or other agreement contained in this Agreement.
Section 7.3.
Fees and Expenses.
(a) In
the event this Agreement is terminated by Parent or the Company (i) (A) pursuant to
Section 7.1(b)(ii)
(as a result of a Restraint under an Antitrust Law), or (B) pursuant to
Section 7.1(b)(i)
and, in the case of this clause (B), at
the time of such termination, the conditions set forth in at least one of
Section 6.1(b)
or
Section 6.1(c)
(as a result of a Restraint under an
Antitrust Law) shall not have been satisfied, (ii) the failure of one or more of the
conditions in
Section 6.1(b)
or
Section 6.1(c)
to be satisfied is not primarily caused by
any Willful Breach of
Section 5.4
by the Company, and (iii) all other conditions to the obligations of Parent and Merger Sub to consummate
the Merger set forth in
Section 6.1
and
Section 6.2
have been satisfied or waived (and, in
the case of those conditions that by their terms are to be satisfied at the Closing, such conditions would be satisfied if the Closing were to occur), then Parent shall pay to the Company a
termination fee equal to $75,000,000 (the "
Antitrust Termination Fee
").
(b) In
the event that (A) an Alternative Proposal shall have been publicly proposed or publicly disclosed prior to, and not withdrawn at the time of, the date of the
Company Unitholders Meeting (or, if the Company Unitholders Meeting shall not have occurred, prior to the termination of this Agreement pursuant to
Section 7.1(b)(i)
) and (B) this Agreement is
terminated
A-50
by
the Company or Parent pursuant to
Section 7.1(b)(i)
or
Section 7.1(b)(iii)
, and
(C) the Company enters into a definitive agreement with respect to, or consummates, an Alternative Proposal within twelve (12) months after the date this Agreement is terminated, then
the Company shall pay to Parent a termination fee equal to $115,000,000 (the "
Termination Fee
"), upon the earlier of the public announcement that the
Company has entered into such definitive agreement or the consummation of any such transaction. For purposes of this
Section 7.3(a)
, the term
"Alternative Proposal" shall have the meaning assigned to such term in
Section 5.3(e)(i)
, except that the references to "twenty-five
percent (25%) or more" shall be deemed to be references to "more than fifty percent (50%)."
(c) In
the event this Agreement is terminated by Parent pursuant to
Section 7.1(c)(i)
or
Section 7.1(c)(ii)
or by the Company pursuant to
Section 7.1(b)(iii)
in a case where an
Adverse Recommendation Change has occurred, then the Company shall pay to Parent, within two (2) business days after the date of termination, the Termination Fee.
(d) In
the event this Agreement is terminated by Parent pursuant to
Section 7.1(c)(iii)
as a result of a Willful
Breach by Company, then the Company shall pay to Parent, within two (2) business days after the date of termination, the Termination Fee.
(e) Any
payment of the Termination Fee or Antitrust Termination Fee shall be made in cash by wire transfer of same day funds to an account designated in writing by Parent or
the Company, as applicable.
(f) In
the event that the Company or Parent shall fail to pay the Termination Fee or Antitrust Termination Fee required pursuant to this Section 7.3 when due, such
fee shall accrue interest for the period commencing on the date such fee became past due, at a rate equal to the legal rate of interest provided for in Section 2301 of Title 6 of the Delaware
Code. In addition, if either the Company shall fail to pay the Termination Fee when due or Parent shall fail to pay the Antitrust Termination Fee when due, the party failing to pay such fee shall also
pay all of the other party's reasonable costs and expenses (including reasonable attorneys' fees) in connection with efforts to collect such fee. The Company and the Parent Entities acknowledge that
the provisions of this
Section 7.3
are an integral part of the transactions contemplated hereby and that, without these agreements, neither the
Company nor the Parent Entities would not enter into this Agreement. The parties agree that in the event that the Company pays the Termination Fee to Parent, the Company shall have no further
liability to any Parent Entity of any kind in respect of this Agreement and the transactions contemplated hereby, and that in no event shall the Company be required to pay the Termination Fee on more
than one occasion. The parties also agree that in the event that Parent pays the Antitrust Termination Fee to the Company,
Parent shall have no further liability to the Company of any kind in respect of this Agreement and the transactions contemplated hereby, and that in no event shall Parent be required to pay the
Antitrust Termination Fee on more than one occasion.
ARTICLE VIII
Miscellaneous
Section 8.1.
No Survival, Etc.
Except as otherwise provided in this Agreement, the representations,
warranties and agreements of each party hereto shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party hereto, whether prior to or after the execution of this Agreement. The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or, except as otherwise provided in
Section 7.2
, upon the termination of this Agreement pursuant
to
Section 7.1
, as the case may be, except that the agreements set forth in
Article II
and
Sections 5.8
,
5.10
and
5.12
and any other
agreement in this Agreement that contemplates performance after the Effective Time shall survive the Effective Time
A-51
and
those set forth in
Sections 5.10
,
7.2
and
7.3,
in the last sentence of Section 5.6(a) and this
Article VIII
shall survive
termination of this Agreement. The Confidentiality Agreements shall (i) survive termination of this Agreement in accordance with its terms and (ii) terminate as of the Effective Time.
Section 8.2.
Amendment or Supplement.
At any time prior to the Effective Time, this Agreement
may be amended or supplemented in any and all respects, whether before or after receipt of the Company
Unitholder Approval, by written agreement of the parties hereto, by action taken or authorized by their respective Boards of Directors;
provided,
however
, that following approval of the Merger and the other transactions contemplated hereunder by the Unitholders of the Company, there shall be no amendment or change to the
provisions of this Agreement which by Law would require further approval by the Unitholders of the Company without such approval.
Section 8.3.
Extension of Time, Waiver, Etc.
At any time prior to the Effective Time, any party
may, subject to applicable Law, (a) waive any inaccuracies in the representations and warranties of any
other party hereto, (b) extend the time for the performance of any of the obligations or acts of any other party hereto or (c) waive compliance by the other party with any of the
agreements contained herein or, except as otherwise provided herein, waive any of such party's conditions. Notwithstanding the foregoing, no failure or delay by the Company or any Parent Entity in
exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right
hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.
Section 8.4.
Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned, in whole or in part, by operation of Law or otherwise, by any
of the parties without the prior written consent of the other parties, except that Merger Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this
Agreement to any wholly owned Subsidiary of Parent, but no such assignment shall relieve Parent, Parent GP or Merger Sub of any of its obligations hereunder. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns. Any purported assignment not permitted
under this Section shall be null and void.
Section 8.5.
Counterparts.
This Agreement may be executed in counterparts (each of which shall
be deemed to be an original but all of which taken together shall constitute one and the same
agreement) and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.
Section 8.6.
Entire Agreement; No Third-Party Beneficiaries.
This Agreement, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Voting Agreement and the Confidentiality Agreements (a) constitute the
entire agreement, and supersede all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and thereof and
(b) shall not confer upon any Person other than the parties hereto any rights (including third-party beneficiary rights or otherwise) or remedies hereunder, except for, in the case of
clause (b), (i) the provisions of
Section 5.8
and
Section 8.13
and
(ii) the right of the Company's Unitholders to receive the Merger Consideration after the Closing (a claim by the Unitholders with respect to which may not be made unless and until the Closing
shall have occurred) and the right of holders of Company Options, Restricted Units, Company UARs, Phantom Units and other equity awards to receive the Merger Consideration to which they are entitled
pursuant to this Agreement after the Closing (a claim by such holders with respect to which may not be made unless and until the Closing shall have occurred).
A-52
Section 8.7.
Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) This
Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, applicable to contracts executed in and to be performed
entirely within that State.
(b) Each
of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for
recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns, shall be
brought and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept
jurisdiction over a particular matter, any state or federal court within the State of Delaware). Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for
itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any
reason other than the failure to serve in accordance with this
Section 8.7
, (ii) any claim that it or its property is exempt or immune
from the jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise) and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the suit, action or proceeding in such court is brought in an
inconvenient forum, (y) the venue of such suit, action or proceeding is improper or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(c) EACH
PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
Section 8.8.
Specific Enforcement.
(a) The
parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached and it is accordingly agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in each case, in accordance with this
Section 8.8
in the Delaware Court of Chancery or any
federal court sitting in the State of Delaware, this being in addition to any other remedy
to which they are entitled at law or in equity. Each of the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief as provided herein on
the basis that (x) either party has an adequate remedy at law or (y) an award of specific performance is not an appropriate remedy for any reason at law or equity. Each party further
agrees that no party shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this
Section 8.8
, and
each party irrevocably waives
A-53
any
right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.
Section 8.9.
Notices.
All notices, requests and other communications to any party hereunder
shall be in writing and shall be deemed given if delivered personally, facsimiled (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:
If
to Parent or Merger Sub, to:
with
a copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
Attention: R. Jay Tabor
Facsimile: (214) 746-7777
and
If
to Parent GP, to:
with
a copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
Attention: R. Jay Tabor
Facsimile: (214) 746-7777
and
A-54
If
to the Company, to:
Copano
Energy, L.L.C.
1200 Smith Street, Suite 2300
Houston, Texas
Fax No.: (888) 229-0479
Attn: Douglas L. Lawing
with
a copy (which shall not constitute notice) to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Lawrence S. Makow
Facsimile: (212) 403-2372
or
such other address or facsimile number as such party may hereafter specify by like notice to the other parties hereto. All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5:00 P.M. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.
Section 8.10.
Severability.
If any term or other provision of this Agreement is determined by a
court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible
to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
Section 8.11.
Definitions.
(a) As
used in this Agreement, the following terms have the meanings ascribed thereto below:
"
Additional Limited Partner
" has the meaning set forth in the Parent Partnership Agreement.
"
Affiliate
" means, as to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common
control with, such Person. For this purpose, "
control
" (including, with its correlative meanings, "
controlled
by
" and "
under common control with
" means the possession, directly or indirectly, of the power to direct or cause the direction
of management or policies of a
Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.
"
business day
" means a day except a Saturday, a Sunday or other day on which the SEC or banks in the City of New York are authorized or
required by Law to be closed.
"
Common Unit
" means a Company Security representing a fractional part of the Interests of all Members, and having the rights and
obligations specified with respect to Common Units in the Company LLC Agreement. For the avoidance of doubt, the term "Common Unit" does not refer to, or include, a Series A Preferred
Unit prior to its conversion into a Common Unit pursuant to the terms hereof.
"
Common Unitholders
" means the holders of the Common Units.
A-55
"
Company Equity Plans
" means any plans of the Company providing for the compensatory grant of awards of Common Units or awards
denominated, in whole or in part, in Common Units, including the Amended and Restated Copano Energy, L.L.C. Long-Term Incentive Plan.
"
Company Joint Ventures
" means Webb/Duval Gatherers, Eagle Ford Gathering LLC, Liberty Pipeline Group, LLC, Double Eagle
Pipeline LLC, Bighorn Gas Gathering, L.L.C., Fort Union Gas Gathering, L.L.C. and Southern Dome, LLC;
provided
that with respect to any
reference in this Agreement to the Company causing any Company Joint Venture to take any action, such reference shall only require the Company to cause such Company Joint Venture to use reasonable
best efforts to take such action to the extent permitted by the organizational documents and governance arrangements of such Company Joint Venture and, to the extent applicable, its fiduciary duties
in relation to such Company Joint Venture.
"
Company LLC Agreement
" means the Fourth Amended and Restated Limited Liability Company Agreement of the Company, as amended or
supplemented from time to time.
"
Company Option
" means an option or similar right to purchase Common Units granted under any Company Equity Plans.
"
Company Security
" means any class or series of equity interest in the Company (but excluding any options, rights, warrants and
appreciation rights relating to an equity interest in the Company), including without limitation, Common Units and Series A Preferred Units, which are separate classes of Interests.
"
Company Severance Plans
" means the Copano Energy, L.L.C. Management Change in Control Severance Plan and the Copano Energy, L.L.C. Change
in Control Severance Plan.
"
Company UAR
" means a Company Unit appreciation right granted under any Company Equity Plans.
"
DGCL
" means the General Corporation Law of the State of Delaware.
"
DLLCA
" means the Delaware Limited Liability Company Act.
"
ERISA Affiliate
" means, with respect to any Person, any trade or business, whether or not incorporated, that together with such Person,
would be deemed, or has in the last six (6) years been deemed, a single employer for purpose of Section 414(b), (c), (m) or (o) of the Code.
"
GAAP
" means generally accepted accounting principles in the United States.
"
Governmental Authority
" means any government, court, arbitrator, regulatory or administrative agency, commission or authority or other
governmental instrumentality, federal, state or local, domestic, foreign or multinational.
"
HSR Act
" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder.
"
Interests
" means the ownership interest of a Member in the Company, which may be evidenced by Common Units, Series A Preferred
Units or other Company Securities or a combination thereof or interest therein, and includes any and all benefits to which such Member is entitled as provided in the Company LLC Agreement,
together with all obligations of such Member to comply with the terms and provisions of the Company LLC Agreement.
"
Knowledge
" (i) when used with respect to the Company, means the actual knowledge of those individuals listed on
Section 8.11(a)
of the Company Disclosure
Schedule and (ii) when used with respect to the Parent Entities, means the actual knowledge of
those individuals listed on
Section 8.11(a)
of the Parent Disclosure Schedule.
A-56
"
Material Adverse Effect
" means, when used with respect to a Person, any change, effect, event or occurrence that, individually or in the
aggregate, has had or would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of such Person and its Subsidiaries, taken as a
whole;
provided
,
however
, that any adverse changes, effects, events or occurrences resulting from or due
to any of the following shall be disregarded in determining whether there has been a Material Adverse Effect: (i) changes, effects, events or occurrences generally affecting the United States
or global economy, the financial, credit, debt, securities or other capital markets or political, legislative or regulatory conditions or changes in the industries in which such Person operates;
(ii) the announcement or pendency of this Agreement or the transactions contemplated hereby or the performance of this Agreement (including, for the avoidance of doubt, performance of the
parties' obligations under
Section 5.4
); (iii) any change in the market price or trading volume of the limited liability company units,
limited partnership interests, shares of common stock or other equity securities of such Person (it being understood and agreed that the foregoing shall not preclude any other party to this Agreement
from asserting that any facts or occurrences giving rise to or contributing to such change that are not otherwise excluded from the definition of Material Adverse Effect should be deemed to
constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a Material Adverse Effect); (iv) acts of war or terrorism (or the escalation
of the foregoing) or natural disasters or other force majeure events; (v) changes in any Laws or regulations applicable to such Person or applicable accounting regulations or principles or the
interpretation thereof; (vi) any legal proceedings commenced by or involving any current or former member, partner or stockholder of such Person (on their own or on behalf of such Person)
arising out of or related to this Agreement or the transactions contemplated hereby; and (vii) changes, effects, events or occurrences generally affecting the prices of oil, gas, natural gas,
natural gas liquids or other commodities;
provided
,
however
, that changes, effects, events or
occurrences referred to in clauses (i), (iv) and (v) above shall be considered for purposes of determining whether there has been or would reasonably be expected to be a Material
Adverse Effect if and to the extent such state of affairs, changes, effects, events or occurrences has had or would reasonably be expected to have a disproportionate adverse effect on such Person and
its Subsidiaries, as compared to other companies operating in the industries in which such Person and its Subsidiaries operate.
"
Member
" has the meaning set forth in the Company LLC Agreement.
"
NASDAQ
" means The NASDAQ Global Select Market.
"
NYSE
" means the New York Stock Exchange.
"
Outstanding
" means, with respect to Company Securities as of any date of determination, all Company Securities that are issued by the
Company and reflected as outstanding on the Company's books and
records as of the date of determination;
provided
,
however
, that no Company Securities held by the
Company (other than Company Securities representing Interests held by the Company on behalf of Non-Citizen Assignees (as defined in the Company LLC Agreement)) or any other Group
Member (as defined in the Company LLC Agreement) shall be considered Outstanding.
"
Parent Joint Ventures
" means Battleground Oil Specialty Terminal LLC, North Cahokia Terminal, LLC, North Cahokia
Industrial, LLC, Guilford County Terminal Company, LLC, Pecos Carbon Dioxide Transportation Company, International Marine Terminals, Plantation Pipe Line Company, Deeprock
Development, LLC, Plantation Services LLC, SFPP, L.P., Midcontinent Express Pipeline LLC, Eagle Ford Gathering LLC, Fayetteville Express Pipeline LLC, El Paso
Natural Gas Company, L.L.C., and El Paso Midstream Investment Company, L.L.C.;
provided
that with respect to any reference in this Agreement to Parent
causing any Parent Joint Venture to take any action, such reference shall only require Parent to cause such Parent Joint Venture to take
A-57
such
action to the maximum extent permitted by the organizational documents and governance arrangements of such Parent Joint Venture and, to the extent applicable, its fiduciary duties in relation to
such Parent Joint Venture.
"
Parent Partnership Agreement
" means the Third Amended and Restated Agreement of Limited Partnership of Parent, as amended or supplemented
from time to time.
"
Parent Unit
" means a Common Unit of Parent (as defined in the Parent Partnership Agreement).
"
Person
" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity,
including a Governmental Authority.
"
Phantom Unit
" means an award of phantom Common Units granted under a Company Benefit Plan.
"
PIK Unit
" means any Series A Preferred Units issued in kind as a distribution pursuant to Section 5.12(b)(ii) of the
Company LLC Agreement.
"
Restricted Unit
" means an award of restricted Common Units granted under a Company Equity Plan.
"
Risk Management Policy
" means the Risk Management Policy of the Company as adopted by the Company Board and in effect on the date of this
Agreement;
provided
, that the Risk Management Policy may only be amended or modified after the date of this Agreement by the Company Board or a
committee thereof with the prior written consent of Parent.
"
SEC
" means the Securities and Exchange Commission.
"
Series A Change of Control Offer
" has the meaning set forth in the Company LLC Agreement.
"
Series A Preferred Unit
" means a Company Security representing a fractional part of the Interests of all Members, and having the
rights and obligations specified with respect to the Series A Preferred Units in the Company LLC Agreement and including PIK Units, but does not refer to a Common Unit issued upon
conversion of a Series A Preferred Unit pursuant to the terms of the Company LLC Agreement.
"
Series A Preferred Unitholders
" means the holders of the Series A Preferred Units.
"
Series A Quarterly Distribution
" has the meaning set forth in the Company LLC Agreement.
"
Subsidiary
" when used with respect to any party, means any corporation, limited liability company, partnership, association, trust or
other entity the accounts of which would be consolidated with those of such party in such party's consolidated financial statements if such financial statements were prepared in accordance with GAAP,
as well as any other corporation, limited liability company, partnership, association, trust or other entity of which securities or other ownership interests representing more than fifty percent (50%)
of the equity or more than fifty percent (50%) of the ordinary voting power (or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests or, in the case of a
limited liability company, the managing member) are, as of such date, owned by such party or one or more Subsidiaries of such party or by such party and one or more Subsidiaries of such party. For
purposes of
Article III
, when used with respect to the Company, the term "Subsidiary" shall include the Company Joint Ventures
(
provided
,
however
, that for purposes of
Article III
(other than
Section 3.3
), the term "Subsidiary" shall not include Fort Union
Gas Gathering, L.L.C.). For purposes of
Article IV
, when used with respect to Parent, the term "Subsidiary" shall include the Parent Joint
Ventures.
A-58
"
Unit Majority
" means at least a majority of the Outstanding Common Units and Series A Preferred Units, voting together as a single
class on an "as if" converted basis.
"
Unitholder
" means the Common Unitholders and the Series A Preferred Unitholders.
"
Willful Breach
" means (i) with respect to any breaches or failures to perform any of the covenants or other agreements contained
in this Agreement, a material breach that is a consequence of an act or intentional omission undertaken by the breaching party (or, in the case of
Section 5.3
with respect to the Company, the
consequence of an act or omission of a Subsidiary of the Company, or of a Representative of the
Company at the direction of the Company) with the Knowledge that the taking of, or failure to take, such act would, or would be reasonably expected to, cause a material breach of such covenant or
agreement and (ii) the failure by any party to consummate the transactions contemplated hereby after all of the conditions set forth in
Article VI
have been satisfied or waived (by the party
entitled to waive any such applicable conditions).
The
following terms are defined on the page of this Agreement set forth after such term below:
|
|
|
Acquisition Agreement
|
|
A-43
|
Additional Limited Partner
|
|
A-65
|
Adverse Recommendation Change
|
|
A-43
|
Affiliate
|
|
A-65
|
Agreement
|
|
A-1
|
Alternative Proposal
|
|
A-45
|
Antitrust Laws
|
|
A-47
|
Antitrust Termination Fee
|
|
A-59
|
Balance Sheet Date
|
|
A-15
|
business day
|
|
A-65
|
Certificate
|
|
A-3
|
Certificate of Merger
|
|
A-2
|
Closing
|
|
A-1
|
Closing Date
|
|
A-2
|
Code
|
|
A-7
|
Commodity Derivative Instrument
|
|
A-23
|
Common Unit
|
|
A-65
|
Common Unitholders
|
|
A-65
|
Company
|
|
A-1
|
Company Benefit Plans
|
|
A-18
|
Company Board
|
|
A-1
|
Company Board Recommendation
|
|
A-37
|
Company Charter Documents
|
|
A-10
|
Company Confidentiality Agreement
|
|
A-49
|
Company Disclosure Schedule
|
|
A-10
|
Company Employees
|
|
A-52
|
Company Equity Plans
|
|
A-65
|
Company Fairness Opinions
|
|
A-25
|
Company Financial Advisors
|
|
A-25
|
Company Intellectual Property
|
|
A-24
|
Company Joint Ventures
|
|
A-66
|
Company LLC Agreement
|
|
A-66
|
Company Material Adverse Effect
|
|
A-10
|
Company Material Contract
|
|
A-22
|
Company Option
|
|
A-66
|
Company Permits
|
|
A-16
|
Company SEC Documents
|
|
A-13
|
Company Security
|
|
A-66
|
Company Subsidiary Documents
|
|
A-10
|
Company UAR
|
|
A-66
|
Company Unitholder Approval
|
|
A-13
|
Company Unitholders Meeting
|
|
A-36
|
Confidentiality Agreements
|
|
A-49
|
Continuation Period
|
|
A-52
|
DGCL
|
|
A-66
|
DLLCA
|
|
A-66
|
Drop Down Transaction
|
|
A-42
|
Effective Time
|
|
A-2
|
Environmental Law
|
|
A-21
|
Environmental Permits
|
|
A-21
|
ERISA
|
|
A-18
|
ERISA Affiliate
|
|
A-66
|
Excess Units
|
|
A-6
|
Exchange Act
|
|
A-13
|
Exchange Agent
|
|
A-4
|
Exchange Fund
|
|
A-4
|
Exchange Ratio
|
|
A-3
|
Existing Credit Facility
|
|
A-39
|
Fractional Unit Proceeds
|
|
A-7
|
GAAP
|
|
A-66
|
Governmental Authority
|
|
A-66
|
Hazardous Substance
|
|
A-21
|
HSR Act
|
|
A-66
|
ICA
|
|
A-26
|
Indemnified Person
|
|
A-50
|
Interests
|
|
A-66
|
keep well
|
|
A-38
|
KMI
|
|
A-53
|
Knowledge
|
|
A-67
|
Law
|
|
A-16
|
Laws
|
|
A-16
|
Liens
|
|
A-10
|
A-59
|
|
|
Material Adverse Effect
|
|
A-67
|
Maximum Amount
|
|
A-51
|
Member
|
|
A-67
|
Merger
|
|
A-1
|
Merger Consideration
|
|
A-3
|
Merger Sub
|
|
A-1
|
MICP
|
|
A-54
|
Multiemployer Plan
|
|
A-19
|
NASDAQ
|
|
A-67
|
New Plans
|
|
A-53
|
NGA
|
|
A-25
|
Non-Competition Agreement
|
|
A-22
|
Notice Period
|
|
A-45
|
NYSE
|
|
A-67
|
Old Plans
|
|
A-53
|
Outside Date
|
|
A-58
|
Outstanding
|
|
A-68
|
Parent
|
|
A-1
|
Parent Charter Documents
|
|
A-27
|
Parent Class B Units
|
|
A-27
|
Parent Confidentiality Agreement
|
|
A-49
|
Parent Disclosure Schedule
|
|
A-26
|
Parent Entities
|
|
A-1
|
Parent Financial Advisor
|
|
A-35
|
Parent GP
|
|
A-1
|
Parent GP Interest
|
|
A-27
|
Parent I-Units
|
|
A-27
|
Parent Joint Ventures
|
|
A-68
|
Parent Material Adverse Effect
|
|
A-26
|
Parent Material Contracts
|
|
A-34
|
Parent Partnership Agreement
|
|
A-68
|
Parent Permits
|
|
A-32
|
Parent SEC Documents
|
|
A-30
|
Parent Subsidiary Documents
|
|
A-27
|
Parent Unit
|
|
A-68
|
Person
|
|
A-68
|
Phantom Unit
|
|
A-68
|
PIK Unit
|
|
A-68
|
Pre-Closing Vacation
|
|
A-54
|
Proceeding
|
|
A-51
|
Proxy Statement
|
|
A-13
|
Registration Statement
|
|
A-17
|
Representatives
|
|
A-43
|
Restraints
|
|
A-55
|
Restricted Unit
|
|
A-68
|
Revocable Interests
|
|
A-24
|
rights-of-way
|
|
A-24
|
Risk Management Policy
|
|
A-68
|
SEC
|
|
A-68
|
Securities Act
|
|
A-10
|
Series A Change of Control Offer
|
|
A-68
|
Series A Preferred Unit
|
|
A-68
|
Series A Preferred Unitholders
|
|
A-69
|
Series A Quarterly Distribution
|
|
A-69
|
Subsidiary
|
|
A-69
|
Superior Proposal
|
|
A-46
|
Surviving Entity
|
|
A-1
|
Tax
|
|
A-18
|
Tax Return
|
|
A-18
|
Taxes
|
|
A-18
|
Termination Fee
|
|
A-60
|
Unit Majority
|
|
A-69
|
unit proceeds
|
|
A-6
|
Unitholder
|
|
A-69
|
Voting Agreement
|
|
A-1
|
Willful Breach
|
|
A-69
|
Section 8.12.
Interpretation.
(a) When
a reference is made in this Agreement to an Article, a Section, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "
include
," "
includes
" or
"
including
" are used in this Agreement, they shall be deemed to be followed by the words "
without
limitation
." The words "
hereof
," "
herein
" and
"
hereunder
" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and
A-60
references
to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns.
(b) The
parties hereto have participated jointly in the negotiation and drafting of this Agreement with the assistance of counsel and other advisors and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement or interim drafts of this Agreement.
Section 8.13.
Non-Recourse.
No past, present or future director, officer, employee, incorporator,
member, partner, stockholder, agent, attorney, representative or affiliate of any party
hereto or of any of their respective Affiliates (unless such Affiliate is expressly a party to this Agreement) shall have any liability (whether in contract or in tort) for any obligations or
liabilities of such party arising under, in connection with or related to this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby;
provided
,
however
, that nothing in this
Section 8.13
shall limit any liability of the parties to this Agreement for breaches of the terms and conditions of this
Agreement.
[signature page follows]
A-61
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written.
|
|
|
|
|
|
|
|
|
|
|
|
|
PARENT:
|
|
|
KINDER MORGAN ENERGY PARTNERS, L.P.
|
|
|
By:
|
|
Kinder Morgan G.P., Inc., its general partner
|
|
|
|
|
By:
|
|
Kinder Morgan Management, LLC, its delegate
|
|
|
|
|
|
|
By:
|
|
/s/ JOSEPH LISTENGART
|
|
|
|
|
|
|
|
|
Name:
|
|
Joseph Listengart
|
|
|
|
|
|
|
|
|
Title:
|
|
Vice President and General Counsel
|
|
|
|
|
|
|
|
|
|
PARENT GP:
|
|
|
KINDER MORGAN G.P., INC.
|
|
|
By:
|
|
/s/ JOSEPH LISTENGART
|
|
|
|
|
Name:
|
|
Joseph Listengart
|
|
|
|
|
Title:
|
|
Vice President and General Counsel
|
|
|
|
|
|
|
|
|
|
MERGER SUB:
|
|
|
JAVELINA MERGER SUB LLC
|
|
|
By:
|
|
/s/ JOSEPH LISTENGART
|
|
|
|
|
Name:
|
|
Joseph Listengart
|
|
|
|
|
Title:
|
|
Vice President, General Counsel and Secretary
|
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
A-62
|
|
|
|
|
|
|
|
|
COMPANY:
|
|
|
COPANO ENERGY, L.L.C.
|
|
|
By:
|
|
/s/ R. BRUCE NORTHCUTT
|
|
|
|
|
Name:
|
|
R. Bruce Northcutt
|
|
|
|
|
Title:
|
|
President and Chief Executive Officer
|
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
A-63
EXHIBIT A
[FORM OF] FIFTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
COPANO ENERGY, L.L.C.
This Fifth Amended and Restated Limited Liability Company Agreement (this "
Agreement
")
of Copano Energy, L.L.C., a Delaware limited liability company (the "
Company
"), is entered into as of
[ ], 2013,
by Kinder Morgan Energy Partners, L.P., a Delaware limited partnership and the Company sole member (the "
Member
"), pursuant to and in accordance
with the Delaware Limited Liability Company Act (6
Del.C.
§ 18-101,
et
seq
.), as amended from time to time (the "
Act
").
1.
Name.
The name of the limited liability company is Copano Energy, L.L.C.
2.
Certificates.
The Member shall be designated as an authorized person within the meaning of the Act.
The Member shall execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business.
3.
Purpose.
The Company is formed for the object and purpose of, and the nature of the business to be
conducted and promoted by the Company is, engaging in all lawful
activities for which limited liability companies may be formed under the Act.
4.
Powers.
The Company shall have the power to do any and all acts reasonably necessary, appropriate,
proper, advisable, incidental or convenient to or for the furtherance
of the purpose and business described herein and for the protection and benefit of the Company, and shall have, without limitation, any and all of the powers that may be exercised on behalf of the
Company by the Member pursuant to this Agreement, including
Section 17
hereof.
5.
Principal Business Office.
The principal place of business and office of the Company shall be
located at, and the Company's business shall be conducted from, such place or places as may
hereafter be determined by the Member.
6.
Registered Office.
The address of the registered office of the Company in the State of Delaware is
Corporate Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801.
7.
Registered Agent.
The name and address of the registered agent of the Company for service of
process on the Company in the State of Delaware are The Corporation Trust Company,
Corporate Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801.
8.
Name and Mailing Address of the Member.
The name and business or residence address of the Member
are as follows:
|
|
|
Name
|
|
Address
|
Kinder Morgan Energy Partners, L.P.
|
|
1001 Louisiana Street, Suite 1000 Houston, Texas 77002
|
9.
Term.
The term of the Company commenced on the date of filing of the Certificate of Formation of
the Company in accordance with the Act and shall continue until
dissolution of the Company in accordance with
Section 25
of this Agreement.
A-64
10.
Fiscal Year.
The fiscal year of the Company shall be fixed by the Member.
11.
Limited Liability.
Except as otherwise provided by the Act, the debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely
the debts, obligations and liabilities of the Company, and none of the Member, any Officer (as hereinafter defined), employee or agent of the Company (including a person having more than one such
capacity) shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of acting in such capacity.
12.
Capital Contributions.
The Member is deemed admitted as a Member of the Company upon its
execution and delivery of this Agreement. The Member shall not make an initial capital
contribution to the Company but may make such later capital contributions as it shall, in its sole discretion, determine. The total capital of the Member in the Company from time to time shall be
referred to as the Member's "
Capital
."
13.
Additional Contributions.
The Member is not required to make additional capital contributions to
the Company.
14.
Profits and Losses.
The profits or losses incurred by the Company for each taxable year shall be
determined on an annual basis. For each taxable year in which the Company realizes
profits or losses, such profits or losses, respectively, shall be allocated to the Member.
15.
Distributions.
Distributions shall be made to the Member at such times and in such amounts as may
be determined in the sole discretion of the Member. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not make a distribution to the Member on account of its interest in the Company if such distribution would violate
Section 18-607 of the Act or other applicable law.
16.
Officers.
The Member may, from time to time as it deems advisable, appoint officers of the
Company
(the
"
Officers
") and assign in writing titles (including, without limitation, President, Vice President, Secretary, Assistant Secretary and Treasurer) to any
such person. Unless the Member decides otherwise, if the title is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such
title shall constitute the delegation to such person of the authorities and duties that are normally associated with that office. Any delegation pursuant to this
Section 16
may be revoked at any
time by the Member. Any Officer may resign at any time by giving written notice to the Member. Any such
resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. A vacancy in any office because of death, resignation, removal, disqualification or any other cause, shall be filled by the Member or any such person as may be
appointed by the Member.
17.
Management.
a. The
business and affairs of the Company shall be managed by the Member. Subject to the express limitations contained in any provision of this Agreement, the Member shall
have complete and exclusive control of the affairs and business of the Company, and shall possess all powers necessary, convenient or appropriate to carry out the purposes and business of the Company,
including, without limitation, doing all things and taking all actions necessary to carrying out the terms and provisions of this Agreement.
b. Subject
to the rights and powers of the Member and the limitations thereon contained herein, the Member may delegate to any person, any or all of its powers, rights and
obligations under this Agreement.
A-65
c. Subject
to the rights and powers of the Member and the limitations thereon contained herein, the Member may appoint, contract or otherwise deal with any person to perform
any acts or services for the Company as the Member may reasonably determine.
d. The
Member shall have the powers set forth above until the earliest to occur of its dissolution, termination, winding-up, bankruptcy or other inability to act
in such capacity, at which time the legal representative of the Member shall appoint a successor to the interest of the Member for the purpose of settling the estate or administering the property of
the Member.
e. The
Member may be compensated for its services to the Company, as determined in its sole discretion.
18.
Action Without a Meeting.
Any action that may be taken at a Member meeting may be taken without a
meeting if a consent in writing setting forth the action to be taken is signed by the
Member.
19.
Membership Interests; Certificates.
The Company may at its election issue certificates to
evidence ownership of the membership interests.
20.
Meeting Procedures.
The procedures of any meeting shall be as determined by the Member.
21.
Other Business.
The Member may engage in or possess an interest in other business ventures
(unconnected with the Company) of every kind and description, independently or with
others. The Company shall not have any rights in or to such independent ventures or the income or profits therefrom by virtue of this Agreement.
22.
Exculpation and Indemnification.
Section 22(b)
through
Section 22(o)
shall remain in
effect until and shall terminate on the sixth (6
th
) anniversary of this Agreement and are solely for the benefit of the directors, officers, employees and agents of the Company prior to
the date hereof.
a. Neither
the Member nor any of its respective members, employees, agents, officers, directors, any of their respective affiliates, consultants, employees or agents or any
Officer (each an "
Indemnified Party
") shall be liable to the Company or any other person or entity who has an interest in the Company for any loss,
damage, claim or expense (including attorneys' fees) incurred by reason of any act or omission performed or omitted by such Indemnified Party in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such Indemnified Party by this Agreement. To the fullest extent permitted by applicable law, an Indemnified Party shall be
entitled to indemnification and advancement of expenses from the Company for any loss, damage, claim or expense (including attorneys' fees) incurred by such Indemnified Party by reason of any act or
omission performed or omitted by such Indemnified Party in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Indemnified
Party by this Agreement;
provided
,
however
, that any indemnity under this
Section 22(a)
shall be
provided out of and to the extent of Company assets only, and the Member shall have no personal liability on account
thereof.
b. To
the fullest extent permitted by law as it currently exists and to such greater extent as applicable law hereafter may permit, but subject to the limitations expressly
provided in this Agreement, the Company shall indemnify any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or other enterprise
(including an employee benefit plan), association, government agency or political subdivision thereof or other entity (each, a "
Person
") who was or is a
party or is threatened to be made a party to, or otherwise requires representation of counsel in connection with, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that such Person is or was a director of the Company
("
Director
") or officer of the Company prior to the date hereto (a
A-66
"
Previous Officer
"), is or was serving as a tax matters partner of the Company or, at the request of the Company, as a director, officer, tax matters
partner, employee, partner, manager, fiduciary or trustee of any of the Company or any Subsidiary thereof ("
Company Group
") or any other Person (each an
"
Indemnitee
") or by reason of any action alleged to have been taken or omitted in such capacity, against losses, expenses (including attorneys' fees),
judgments, fines, damages, penalties, interest, liabilities and amounts paid in settlement actually and reasonably incurred by the Person in connection with such action, suit or proceeding if the
Person acted in good faith and in a manner the Person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such Person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere
or its
equivalent, shall not, of itself, create a presumption that the Person did not act in good faith and in a manner which the Person
reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the Person's conduct was
unlawful.
c. To
the fullest extent permitted by law, but subject to the limitations expressly provided in this Agreement, the Company shall indemnify any Person who was or is a party
or is threatened to be made a party to, or otherwise requires representation of counsel in connection with, any threatened, pending or completed action, suit or proceeding, by or in the right of the
Company to procure a judgment in its favor by reason of the fact that such Person was serving as an Indemnitee, or by reason of any action alleged to have been taken or omitted in such capacity,
against losses, expenses (including attorneys' fees), judgments, fines, damages, penalties, interest, liabilities and amounts paid in settlement actually and reasonably incurred by the Person in
connection with such action, suit or proceeding if the Person acted in good faith and in a manner the Person reasonably believed to be in or not opposed to the best interests of the Company and except
that no indemnification shall be made in respect of any claim, issue or matter as to which such Person shall have been adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of
the case, such Person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
d. To
the extent an Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in
Section 22(b)
or
Section 22(c)
, or in the defense of any claim, issue or
matter therein, such Person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such Person in connection therewith.
e. Any
indemnification under
Section 22(b)
or
Section 22(c)
(unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Indemnitee is proper in the circumstances because the
Person has met the applicable standard of conduct set forth in such section. Such determination shall be made, with respect to a Person who is a Director or Previous Officer at the time of such
determination, (i) by the Member, (ii) by a committee designated by the Member, or (iii) if the Member so directs, by independent legal counsel in an opinion of Counsel.
f. Expenses
(including attorneys' fees) incurred by an Indemnitee in defending any action, suit or proceeding referred to in
Section 22(b)
or
Section 22(c)
shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding and in advance of any determination that such Indemnitee is not entitled to be indemnified, upon receipt of an undertaking by or on behalf of such
Indemnitee to repay such amount if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a "
Final
A-67
Adjudication
") that such Person is not entitled to be indemnified by the Company as authorized in
Section 22(b)
through
Section 22(o)
.
g. The
indemnification, advancement of expenses and other provisions of
Section 22(b)
through
Section 22(o)
shall be in addition to any other rights to
which an Indemnitee may be entitled under any agreement, pursuant to any vote of the
Member, as a matter of law or otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and as to actions in any other capacity, and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.
h. The
Company may purchase and maintain insurance, on behalf of its Directors and Previous Officers, and such other Persons as the Member shall determine, against any
liability that may be asserted against or expense that may be incurred by such Person in connection with the Company's activities or such Person's activities on behalf of the Company, regardless of
whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.
i. For
purposes of the definition of Indemnitee in
Section 22(b)
, the Company shall be deemed to have requested a
Person to serve as fiduciary of an employee benefit plan whenever the performance by such Person of his duties to the Company also imposes duties on, or otherwise involves services by, such Person to
the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute "fines" within the
meaning of
Section 22(b)
; and action taken or omitted by such Person with respect to any employee benefit plan in the performance of such
Person's duties for a purpose reasonably believed by him to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is in, or not opposed to, the
best interests of the Company.
j. Any
indemnification pursuant to
Section 22(b)
through
Section 22(o)
shall be made only out of the assets of the Company, it being agreed that the
Member shall not be personally liable for such
indemnification and shall have no obligation to contribute or loan any monies or property to the Company to enable it to effectuate such indemnification.
k. An
Indemnitee shall not be denied indemnification in whole or in part under
Section 22(b)
through
Section 22(o)
because the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
l. If
a claim under
Section 22(b)
through
Section 22(o)
is not
paid in full by the Company within 60 days after a written claim has been received by the Company, except in the case of a claim for an advancement of expenses, in which case the applicable
period shall be 20 days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Company to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the reasonable expenses of
prosecuting or defending such suit. In (i) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to
an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Company to recover an advancement of expenses pursuant to the terms of an undertaking, the Company
shall be entitled to recover such expenses upon a Final Adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in this Agreement. Neither the failure of
the Company (including independent legal counsel or the Member) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the
circumstances
A-68
because
the Indemnitee has met the applicable standard of conduct set forth in this Agreement, nor an actual determination by the Company (including independent legal counsel or the Member) that the
Indemnitee has not met the applicable standard of conduct shall create a presumption that the Indemnitee has not met the applicable standard of conduct, or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Company to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified or to such advancement of expenses, under
Section 22(b)
through
Section 22(o)
or otherwise shall be on the Company.
m. The
Company may indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (whether or not an action by or in the right of the Company) by reason of the fact that the Person is or was an employee (other than an Officer or
Previous Officer) or agent of the Company, or, while serving as an employee (other than an Officer or Previous Officer) or agent of the Company or is or was serving at the request of the Company as a
director, officer, employee, partner, fiduciary, trustee or agent of another member of the Company Group or another Person to the extent (i) permitted by the laws of the State of Delaware as
from time to time in effect, and (ii) authorized by the Member. The Company may, to the extent permitted by Delaware law and authorized by the Member, pay expenses (including attorneys' fees)
reasonably incurred by an such employee or agent in defending any civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit
or proceeding, upon such terms and conditions as the Member determines. The provisions of this
Section 22(m)
shall not constitute a contract
right for any such employee or agent.
n. The
indemnification, advancement of expenses and other provisions of
Section 22(b)
through
Section 22(o)
are for the benefit of the Indemnitees,
their heirs, successors, assigns and administrators and shall not be deemed to create any
rights for the benefit of any other Persons.
o. Except
to the extent otherwise provided in
Section 22(m)
, the right to be indemnified and to receive advancement of
expenses in
Section 22(b)
through
Section 22(o)
shall be a contract right. No amendment,
modification or repeal of
Section 22(b)
through
Section 22(o)
or any provision hereof
shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Company, nor the obligations of the Company to indemnify any such
Indemnitee under and in accordance with the provisions of
Section 22(b)
through
Section 22(o)
as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
23.
Assignments.
The Member may transfer, assign, pledge or hypothecate, in whole or in part, its
limited liability company interest, as determined in its sole discretion.
24.
Termination of Membership.
The rights of the Member to share in the profits and losses of the
Company, to receive distributions and to assign its interest in the Company pursuant to
Section 23
shall, on its dissolution, termination, winding-up, bankruptcy or other inability to act in such
capacity, devolve on its
legal representative for the purpose of settling its estate or administering its property.
25.
Dissolution.
a. The
Company shall dissolve, and its affairs shall be wound up upon the first to occur of the following:
A-69
(ii) the
dissolution, termination, winding-up, bankruptcy, or other inability to act in such capacity, of the Member; and
(iii) the
entry of a decree of judicial dissolution under Section 18-802 of the Act.
b. In
the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in an
orderly manner).
26.
Tax Matters.
For purposes of U.S. federal income taxation (and, to the extent applicable, state
taxation), the Company shall be disregarded as an entity separate from its
owner within the meaning of Section 301.7701-3 of the U.S. Department of Treasury regulations promulgated under the Internal Revenue Code of 1986, as amended. No election shall be
made that would prevent the Company from being disregarded as an entity separate from its owner.
27.
Separability of Provisions.
Each provision of this Agreement shall be considered separable and if
for any reason any provision or provisions herein are determined to be invalid,
unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Agreement which are valid,
enforceable and legal.
28.
Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the Member and,
to the extent permitted by this Agreement, its successors, legal representatives
and assigns.
29.
Captions.
Captions contained in this Agreement are inserted as a matter of convenience and in no
way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof.
30.
Entire Agreement.
This Agreement constitutes the entire agreement of the Member with respect to
the subject matter hereof.
31.
Governing Law.
This Agreement shall be governed by, and construed exclusively under, the laws of
the State of Delaware (without regard to conflict of laws principles thereof),
and all rights and remedies shall be governed by such laws.
32.
Amendments and Waiver.
This Agreement may not be modified, altered, supplemented or amended
except pursuant to a written agreement executed and delivered by the Member. In addition, the
terms or conditions hereof may be waived only by a written instrument executed by the Member.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
A-70
IN
WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has duly executed this Agreement as of the date first above written.
|
|
|
|
|
|
|
MEMBER
:
|
|
|
KINDER MORGAN ENERGY PARTNERS, L.P.
|
|
|
By:
|
|
Kinder Morgan G.P., Inc., its general partner
|
|
|
By:
|
|
Kinder Morgan Management, LLC, its delegate
|
|
|
By:
|
|
[ ]
[ ]
|
[SIGNATURE
PAGE TO FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT OF COPANO ENERGY, L.L.C.]
A-71
Annex B
EXECUTION VERSION
VOTING AGREEMENT
This VOTING AGREEMENT (this "
Agreement
"), is dated as of January 29, 2013, by
and among Copano Energy, L.L.C., a Delaware limited liability company (the "
Company
"), Kinder Morgan Energy Partners, L.P., a Delaware limited
partnership ("
Parent
"), Kinder Morgan G.P., Inc., a Delaware corporation and the general partner of Parent
("
Parent GP
" and, with Parent, the "
Parent Parties
") and TPG Copenhagen, L.P. (the
"
Unitholder
"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement (as
defined below).
W I T N E S S E T H:
WHEREAS,
Parent, Parent GP, Javelina Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Parent
("
Merger Sub
"), and the Company entered into an Agreement and Plan of Merger, dated as of January 29, 2013 (as it may be amended from time to
time, the "
Merger Agreement
"), providing for, among other things, subject to the terms and conditions of the Merger Agreement, the merger of Merger Sub
with and into the Company (the "
Merger
");
WHEREAS,
as of the date hereof, the Unitholder is the record and beneficial owner of 12,897,029 Series A convertible preferred units of the Company (the
"
Preferred Units
") (such Preferred Units, the "
Existing Units
" and such Existing Units, together with
any Common Units and Preferred Units acquired by the Unitholder after the date hereof, including as indicated in
Section 4.1
below, the
"
Owned Units
"); and
WHEREAS,
as a condition to Parent's willingness to enter into the Merger Agreement, Parent has required that the Unitholder agree, and the Unitholder has agreed, to enter into this
Agreement.
NOW,
THEREFORE, in consideration of the premises and for other good and valuable consideration given to each party hereto, the receipt of which is hereby acknowledged, the parties agree
as follows:
1.
Agreement to Vote.
1.1
Agreement to Vote.
The Unitholder hereby irrevocably and unconditionally agrees that, from the date hereof
until the earlier of the (a) time that the Company Unitholder Approval has been obtained and (b) termination of this Agreement in accordance with
Section 5.1
(the "
Agreement Term
"), at any meeting of the Unitholders of the Company at which the
approval and adoption of the Merger Agreement and the transactions contemplated thereby is to be voted upon, however called, or any adjournment or postponement thereof, the Unitholder shall be present
(in person or by proxy) and vote (or cause to be voted), to the extent entitled to vote thereon, all of its Owned Units at such time: (i) in favor of (A) adoption of the Merger Agreement
and the transactions contemplated thereby, including the Merger and (B) the approval of any proposal to adjourn or postpone the meeting to a later date if there are not sufficient votes for
adoption of the Merger Agreement; (ii) against any Alternative Proposal; and (iii) against any action or agreement (including any amendment of any agreement) that would, or would
reasonably be expected to, prevent or in any material respect impede or delay the consummation of the Merger and the other transactions contemplated by the Merger Agreement.
1.2
Other Voting Rights.
Except as permitted by this Agreement, throughout the Agreement Term, the Unitholder
will continue to hold, and shall have the right to exercise, all voting rights related to the Owned Shares.
B-1
1.3
Grant of Irrevocable Proxy.
(a) The
Unitholder hereby irrevocably appoints Parent and any designee of Parent, and each of them individually, as the Unitholder's proxy and
attorney-in-fact, with full power of substitution and resubstitution, to vote at any annual or special meeting of Unitholders at which any of the matters described in
Section 1.1
. is to be
considered during the Agreement Term, with respect to the Owned Shares as of the applicable record date, in each case
solely to the extent and in the manner specified in
Section 1.1
;
provided
,
however
, that the
Unitholder's grant of the proxy contemplated by this
Section 1.3
shall be
effective if, and only if, the Unitholder has not delivered to the Secretary of the Company, at least two (2) business days prior to the applicable meeting, a duly executed irrevocable proxy
card directing that the Owned Units be voted in accordance with
Section 1.1
. This proxy, if it becomes effective, is given to secure the
performance of the duties of the Unitholder under this Agreement, and its existence will not be deemed to relieve the Unitholder of its obligations under
Section 1.1
. This proxy shall expire and be
deemed revoked automatically at the expiration or termination of the Agreement Term.
(b) The
Unitholder agrees and acknowledges that the proxy in
Section 1.3(a)
is: (i) given (x) in
connection with the execution of the Merger Agreement and (y) to secure the performance of the Unitholder's duties under this Agreement, (ii) coupled with an interest and may not be
revoked except as otherwise provided in this Agreement and (iii) intended to be irrevocable prior to the expiration or termination of the Agreement Term.
2.
Representations and Warranties of the Unitholder.
The Unitholder hereby represents and warrants to
the Parent Parties and the Company as follows:
2.1
Power; Due Authorization; Binding Agreement.
The Unitholder has the requisite entity power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by
the Unitholder of the transactions contemplated hereby have been duly and validly authorized by all necessary partnership or other applicable action on the part of the Unitholder, and no other
proceedings on the part of the Unitholder are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Unitholder and, assuming the due and valid authorization, execution and
delivery hereof by the other parties hereto, constitutes a valid and binding agreement of the Unitholder, enforceable against the Unitholder in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors' rights generally and
(ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
2.2
Ownership of Units.
On the date hereof, the Unitholder is beneficial owner of 12,897,029 Preferred Units and
no Common Units (
provided
that, for the avoidance of doubt, such amount does not include an additional 322,425 Preferred Units in respect of the
quarterly period ending December 31, 2012, which PIK Units the Company expects will be issued in February 2013). Other than restrictions in favor of Parent pursuant to this Agreement and except
for such transfer restrictions of general applicability as may be provided under the Securities Act or the "blue sky" Laws of the various states of the United States, and any restrictions contained in
the Company Charter Documents, as of the date hereof the Unitholder (a) has, and at any Unitholder meeting of the Company held during the Agreement Term, the Unitholder will have (except as
otherwise permitted by this Agreement), sole voting power and sole dispositive power with respect to the matters set forth in
Section 1.1
in
respect of all of the then Owned Units and (b) owns, and
B-2
will
during the Agreement Term, own the Owned Units free any clear of any adverse claim or other Lien.
2.3
No Conflict.
The execution and delivery of this Agreement by the Unitholder does not, and the performance of
the terms of this Agreement by the Unitholder will not, (a) require the consent or approval of any other person pursuant to any Contract binding on the Unitholder or its properties and assets,
(b) conflict with or violate any organizational document of the Unitholder or (c) conflict with or violate or result in any breach of, or default (with or without notice or lapse of
time, or both) under any Contract to which the Unitholder is a party, except for any consent or approval that has been obtained, made or given as of the date hereof or the failure of which to obtain,
make or give would not, or any conflict or violation which would not, individually or in the aggregate, prevent, materially delay or impair in any material respect the Unitholder's ability to perform
its obligations under this Agreement.
2.4
Acknowledgment.
The Unitholder understands and acknowledges that each of the Parent Parties and the Company
are entering into the Merger Agreement in reliance upon the Unitholder's execution, delivery and performance of this Agreement.
3.
Representations and Warranties of the Parent Parties and Representations and Warranties of the Company.
3.1
Representations and Warranties of the Parent Parties.
The Parent Parties hereby represent and warrant to the
Unitholder and the Company as follows: Each of the Parent Parties has the requisite entity power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by the Parent Parties of the transactions contemplated hereby have been duly and
validly authorized by all necessary entity action on the part of each Parent Party, and no other proceedings on the part of any Parent Party are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Parent Parties and, assuming the due and valid authorization, execution and delivery hereof
by the Unitholder and the Company, constitutes a valid and binding agreement of each Parent Party.
3.2
Representations and Warranties of the Company.
The Company hereby represents and warrants to the Unitholder
and the Parent Parties as follows: The Company has the requisite limited liability company power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of this Agreement and, except as expressly set forth herein, the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary limited liability company action on the part of the Company, and no other proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due and
valid authorization, execution and delivery hereof by the other parties hereto, constitutes a valid and binding agreement of the Company.
4.
Certain Covenants of the Unitholder.
4.1
Agreement to Convert.
(a) Within
five (5) Business Days (as defined in the Company LLC Agreement) of the date of this Agreement, the Company shall, pursuant to and in accordance
with Section 5.12(b)(ix)(A) of the Company LLC Agreement, mail to the Unitholder a notice of the Series A Change of Control Offer (as defined in the Company LLC Agreement)
(the "
Notice
").
B-3
(b) The
Unitholder agrees that, as soon as reasonably practicable after receipt from the Company of the Notice, the Unitholder shall notify the Company in writing of, and
shall not revoke, its election to have any and all Preferred Units held by the Unitholder converted as of immediately prior to the Effective Time into Conversion Units (as defined in the
Company LLC Agreement) as set forth in the Notice and otherwise in accordance with the terms and conditions of Section 5.12(b)(ix) of the Company LLC Agreement such that
(i) the 12,897,029 Preferred Units outstanding as of the date hereof shall be converted into an aggregate of 14,186,731 Common Units and (ii) any Preferred Units issued as PIK Units
after the date hereof (which PIK Units shall be issued as of the close of business on the record date for the distribution of such PIK Units) shall be converted into a number of Common Units equal to
the product of (A) one hundred and ten percent (110%) and (B) the number of Preferred Units so issued as PIK Units. The parties hereto acknowledge and agree that upon the issuance of the
Conversion Units to the Unitholder, all rights under the converted Owned Units shall cease and the Unitholder shall be the record holder of the Conversion Units.
(c) Notwithstanding
the foregoing, the parties hereto agree that if the Merger Agreement is terminated without the consummation of the Merger pursuant to its terms, the
election to convert contemplated hereby shall be deemed not to have been made and shall be deemed void
ab initio
. The Unitholder hereby acknowledges
that the transactions contemplated by the Merger Agreement constitute a Series A Change of Control (as defined in the Company LLC Agreement).
4.2
Restriction on Transfer, Proxies and Non-Interference.
The Unitholder hereby agrees, during the
Agreement Term, not to (i) sell, transfer (including by operation of law), pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any of the Owned Units (or any right, title or interest thereto or therein) (any such action,
a "
Transfer
"), (ii) grant any proxies or powers of attorney with respect to the Owned Units, deposit any Owned Units into a voting trust or enter
into a voting agreement with respect to any Owned Units, in each case with respect to the matters set forth in clauses (i) through (iii) of
Section 1.1
of this Agreement, (iii) take
any action that would make any representation or warranty of the Unitholder set forth in this
Agreement untrue or incorrect in any material respect or have the effect of preventing or materially impeding or delaying the Unitholder from performing any of its obligations under this Agreement or
(iv) commit or agree (in writing or otherwise) to take any of the foregoing actions during the Agreement Term;
provided
that the foregoing
notwithstanding, the following sales, transfers, pledges, encumbrances, assignments or other dispositions are permitted: (A) transfers of Owned Units to any Affiliate of the Unitholder who has
agreed in writing (the form and substance of which is reasonably acceptable to Parent and the Company) to be bound by the terms of this Agreement; and (B) such Transfers of Owned Units as
Parent and the Company may otherwise permit by prior written consent.
4.3
Merger Agreement Obligations.
The Unitholder (solely in its capacity as a Unitholder of the Company) agrees
that it shall not, and shall not authorize or permit any investment banker, attorney or other advisor or representative retained by the Unitholder to act on the Unitholder's behalf to, directly or
indirectly, (a) solicit, initiate, knowingly facilitate, knowingly encourage (including by way of furnishing confidential information) or knowingly induce or take any other action intended to
lead to any inquiries or any proposals that constitute the submission of an Alternative Proposal or (b) enter into any confidentiality agreement, merger agreement, letter of intent, agreement
in principle, unit purchase agreement, asset purchase agreement or unit exchange agreement, option agreement or other similar agreement relating to an Alternative Proposal;
provided
that this Agreement
shall not restrict the Unitholder from participating in
B-4
discussions
regarding an Alternative Proposal where the Company is engaging in such discussions as permitted by Section 5.3 of the Merger Agreement.
4.4
No Limitations on Actions.
Each of the Parent Parties and the Company expressly acknowledges that the
Unitholder is entering into this Agreement solely in its capacity as the beneficial owner of the Owned Units and this Agreement shall not limit or otherwise affect the actions or fiduciary duties of
the Unitholder, or any affiliate, partner, trustee, beneficiary, settlor, employee or designee of the Unitholder or any of its affiliates (collectively, "
Unitholder
Affiliates
") in its capacity, if applicable, as a director of the Company or any Subsidiary of the Company, and none of the Parent Parties or the Company shall assert any claim
that any action taken by the Unitholder or any of the Unitholder Affiliates in its capacity as a director of the Company violates this Agreement.
5.
Miscellaneous.
5.1
Termination of this Agreement.
This Agreement, and all obligations, terms and conditions contained herein,
shall automatically terminate without any further action required by any Person upon the earliest to occur of: (a) the termination of the Merger Agreement in accordance with its terms;
(b) the Effective Time; and (c) the Outside Date. In addition to the foregoing, this Agreement may be terminated (i) at any time by written consent of the parties hereto or
(ii) by the Unitholder upon written notice to the Parent and the Company at any time following the making of any change, by amendment, waiver or other modification to any provision of the
Merger Agreement that (1) decreases the amount or changes the form of the Merger Consideration, (2) imposes any material restrictions on or additional conditions on the payment of the
Merger Consideration to Unitholders or (3) extends the Outside Date.
5.2
Effect of Termination.
In the event of termination of this Agreement pursuant to
Section 5.1
, this Agreement shall
become void and of no effect with no liability on the part of any party hereto;
provided
,
however
, no such termination shall relieve any party hereto from
any liability for any breach
of this Agreement occurring prior to such termination and the provisions of this
Article 5
shall survive any such termination.
5.3
Additional Units.
During the Agreement Term, the Unitholder shall promptly notify Parent of the number and
class or series of Company Securities, if any, as to which the Unitholder acquires record or beneficial ownership after the date hereof. Any Company Securities as to which the Unitholder acquires
record or beneficial ownership after the date hereof and prior to termination of this Agreement in accordance with its terms shall be Owned Units for purposes of this Agreement.
5.4
Definition of "Beneficial Ownership".
For purposes of this Agreement, "beneficial ownership" with respect to
(or to "beneficially own") any securities means having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing.
5.5
Entire Agreement; No Third Party Beneficiaries.
This Agreement (a) constitutes the entire agreement,
and supersedes all other prior agreements and understandings both written and oral, among the parties with respect to the subject matter of this Agreement and thereof and (b) shall not confer
upon any Person other than the parties hereto any rights (including third-party beneficiary rights or otherwise) or remedies hereunder.
5.6
Assignment.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, in whole or in part, by operation of Law or otherwise, by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by, the parties
B-5
hereto
and their respective successors and permitted assigns. Any purported assignment not permitted under this
Section 5.6
shall be null and
void.
5.7
Amendments and Waivers.
This Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by each of the parties hereto, or in the case of a waiver, by each party against whom the waiver is to be effective. Notwithstanding the foregoing,
no failure or delay by the Company or Parent in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder.
5.8
Notices.
All notices, requests and other communications to any party hereunder shall be in writing and shall
be deemed given if delivered personally, facsimiled (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:
If
to the Unitholder:
TPG
Copenhagen, L.P.
345 California Street, Suite 3300
San Francisco, California 94104
Fax No: (415) 743-1501
Attn: Ronald Cami
If
to the Company:
Copano
Energy, L.L.C.
1200 Smith Street, Suite 2300
Houston, Texas
Fax No.: (888) 229-0479
Attn: Douglas L. Lawing
with
a copy (which shall not constitute notice) to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax No.: (212) 403-2000
Attn: Lawrence S. Makow, Esq.
If
to any of the Parent Parties:
Kinder
Morgan Energy Partners, L.P.
1001 Louisiana Street
Houston, Texas 7702
Fax No.: (713) 369-9410
Attn: General Counsel
with
a copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
Attention: R. Jay Tabor
Facsimile: (214) 746-7777
and
Bracewell &
Giuliani LLP
711 Louisiana Street
B-6
or
such other address or facsimile number as such party may hereafter specify by like notice to the other parties hereto. All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5:00 P.M. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.
5.9
Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) This
Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, applicable to contracts executed in and to be performed
entirely within that State.
(b) Each
of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for
recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns, shall be
brought and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept
jurisdiction over a particular matter, any state or federal court within the State of Delaware). Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for
itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any
reason other than the failure to serve in accordance with this
Section 5.9
, (ii) any claim that it or its property is exempt or immune
from the jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise) and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the suit, action or proceeding in such court is brought in an
inconvenient forum, (y) the venue of such suit, action or proceeding is improper or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(c) EACH
PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND BY THE MERGER AGREEMENT.
5.10
Specific Performance; Exclusive Remedy.
The parties agree that irreparable damage would occur and that the
parties would not have any adequate remedy at law in the event that any
B-7
of
the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and it is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in each case, in accordance with this
Section 5.10
in the
Delaware Court of Chancery or any federal court sitting in the State of Delaware, this being in addition to any other remedy
to which they are entitled at law or in equity. Each of the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief as provided herein on
the basis that (x) either party has an adequate remedy at law or (y) an award of specific performance is not an appropriate remedy for any reason at law or equity. Each party further
agrees that no party shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this
Section 5.10
, and
each party irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar
instrument.
5.11
Counterparts; Effectiveness.
This Agreement may be executed in counterparts (each of which shall be deemed
to be an original but all of which taken together shall constitute one and the same agreement) and shall become effective when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
5.12
Severability.
If any term or other provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby
are fulfilled to the extent possible.
5.13
Non-Recourse.
No past, present or future director, officer, employee, incorporator, member,
partner, stockholder, agent, attorney, representative or affiliate of any party hereto or of any of its respective Affiliates (unless such Affiliate is expressly a party to this Agreement) shall have
any liability (whether in contract or in tort) for any obligations or liabilities of such party arising under, in connection with or related to this Agreement or for any claim based on, in respect of,
or by reason of, the transactions contemplated hereby;
provided
,
however
, that nothing in this
Section 5.13
shall limit any liability of the parties to this Agreement for breaches of the terms and conditions of this Agreement.
5.14
Interpretation.
(a) When
a reference is made in this Agreement to an Article, a Section, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "
include,
" "
includes
" or
"
including
" are used in this Agreement, they shall be deemed to be followed by the words "
without
limitation
." The words "
hereof
," "
herein
" and
"
hereunder
" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term.
References to a Person are also to its permitted successors and assigns.
B-8
(b) The
parties hereto have participated jointly in the negotiation and drafting of this Agreement with the assistance of counsel and other advisors and, in the event an
ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this Agreement or interim drafts of this Agreement.
[
remainder of page intentionally blank
]
B-9
IN
WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be duly executed as of the day and year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
|
PARENT
:
|
|
|
KINDER MORGAN ENERGY PARTNERS, L.P.
|
|
|
By:
|
|
Kinder Morgan G.P., Inc., its general partner
|
|
|
|
|
By:
|
|
Kinder Morgan Management, LLC, its delegate
|
|
|
|
|
|
|
By:
|
|
/s/ JOSEPH LISTENGART
|
|
|
|
|
|
|
|
|
Name:
|
|
Joseph Listengart
|
|
|
|
|
|
|
|
|
Title:
|
|
Vice President and General Counsel
|
|
|
|
|
|
|
|
|
|
PARENT GP
:
|
|
|
KINDER MORGAN G.P., INC.
|
|
|
By:
|
|
/s/ JOSEPH LISTENGART
|
|
|
|
|
Name:
|
|
Joseph Listengart
|
|
|
|
|
Title:
|
|
Vice President and General Counsel
|
[VOTING AGREEMENT]
B-10
|
|
|
|
|
|
|
|
|
COMPANY
:
|
|
|
COPANO ENERGY, L.L.C.
|
|
|
By:
|
|
/s/ R. BRUCE NORTHCUTT
|
|
|
|
|
Name:
|
|
R. Bruce Northcutt
|
|
|
|
|
Title:
|
|
President and Chief Executive Officer
|
[VOTING AGREEMENT]
B-11
|
|
|
|
|
|
|
|
|
|
|
UNITHOLDER
:
|
|
|
TPG COPENHAGEN, L.P.
|
|
|
By:
|
|
TPG Advisors VI, Inc., its General Partner
|
|
|
|
|
By:
|
|
/s/ RONALD CAMI
|
|
|
|
|
|
|
Name:
|
|
Ronald Cami
|
|
|
|
|
|
|
Title:
|
|
Vice President
|
[VOTING AGREEMENT]
B-12
Table of Contents
Annex C
|
|
|
|
|
745 Seventh Avenue
New York, NY 10019
United States
|
January 29,
2013
Board
of Directors
Copano Energy, L.L.C.
1200 Smith, Suite 2300
Houston, Texas 77002
Members
of the Board of Directors:
We
understand that Copano Energy, L.L.C. ("Copano" or the "Company"), a Delaware limited liability company, intends to enter a transaction (the "Proposed Transaction") with Kinder Morgan
Energy Partners, L.P. ("KMP"), a Delaware limited partnership, and Kinder Morgan G.P., Inc. ("KMI"), the general partner ("GP") of KMP, pursuant to which (i) Javelina
Merger Sub LLC, a direct wholly owned subsidiary of KMP, will merge with and into Copano with Copano surviving the merger and (ii) upon the effectiveness of the merger, each common unit
of Copano then issued and outstanding (the "Copano Common Units") will be converted into the right to receive 0.4563 (the "Exchange Ratio")
limited partnership ("LP") units of KMP (the "KMP LP Units"). The terms and conditions of the Proposed Transaction are set forth in more detail in the Agreement and Plan of Merger dated as of
January 29, 2013 by and among KMP, KMI, Javelina Merger Sub LLC and Copano (the "Agreement") and the summary of the Proposed Transaction set forth above is qualified in its entirety by
the terms of the Agreement.
We
have been requested by the Board of Directors of the Company to render our opinion with respect to the fairness, from a financial point of view, to the Company's unitholders of the
Exchange Ratio to be offered to such unitholders in the Proposed Transaction. We have not been requested to opine as to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction. In addition, we express no opinion on, and our opinion does not in any manner address, the fairness of the amount or the nature of
any compensation to any officers, directors or employees of any parties to the Proposed Transaction, or any class of such persons, relative to the Exchange Ratio to be offered to the unitholders of
the Company in the Proposed Transaction or otherwise.
In
arriving at our opinion, we reviewed and analyzed: (1) the Agreement and the specific terms of the Proposed Transaction; (2) publicly available information concerning
Copano, KMP, KMI, Kinder Morgan Management, LLC ("KMR") and El Paso Pipeline Partners, L.P. ("EPP") that we believe to be relevant to our analysis, including, without limitation, each of
Copano's, KMP's, KMI's, KMR's and EPP's Annual Reports on Form 10-K for the fiscal year ended December 31, 2011 and Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 and the information statement/proxy statement/prospectus, dated March 23, 2012, relating to the
acquisition of El Paso Corporation ("El Paso") by KMI; (3) financial and operating information with respect to the businesses, operations and prospects of Copano furnished to us by Copano,
including financial projections of Copano under alternative scenarios prepared by management of Copano (the "Copano Management Projections"); (4) financial and operating information with
respect to the businesses, operations and prospects of KMP, including financial projections of KMP prepared by management of KMI for the fiscal year ending December 31, 2013 and annual expected
KMP LP unitholder distribution growth for the five-year period ending December 31, 2016 (collectively, the
C-1
Table of Contents
"KMP
Projections"); (5) consensus estimates published by Thomson Reuters I/B/E/S of independent equity research analysts with respect to (i) the future financial performance and price
targets of Copano (the "Copano Research Projections") and (ii) the future financial performance and price targets of KMP (the "KMP Research Projections"); (6) the trading history of
Copano Common Units from January 31, 2011 to January 28, 2013 and a comparison of that trading history with those of other companies that we deemed relevant; (7) the trading
history of KMP LP Units from January 31, 2011 to January 28, 2013 and a comparison of that trading history with those of other companies that we deemed relevant; (8) a
comparison of the trading history of the Copano Common Units and the KMP LP Units with each other from January 30, 2012 to January 28, 2013; (9) a comparison of the
historical financial results and present financial condition of Copano and KMP with each other and
with those of other companies that we deemed relevant; (10) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other transactions that we deemed
relevant; (11) the potential pro forma impact of the Proposed Transaction on the current and future financial performance of the combined company, including the amounts and timing of
(i) cost savings and operating synergies to result from the Proposed Transaction and (ii) the future reduced cash flow attributable to KMI, as GP of KMP, which will be allocated
to the combined company's LP unitholders (the "GP Giveback") expected by the management of KMI to result from the Proposed Transaction; (12) the relative trading liquidity of the Copano
Common Units and the KMP LP Units; (13) the results of our efforts to solicit indications of interest from selected third parties with respect to a potential transaction with Copano and
(14) alternatives available to Copano on a stand-alone basis to fund its future capital and operating requirements. In addition, we have (i) had discussions with the managements of
Copano and KMI concerning their respective businesses, operations, assets, liabilities, financial conditions and prospects and (ii) have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In
arriving at our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information used by us without any independent verification of such
information (and have not assumed responsibility or liability for any independent verification of such information) and have further relied upon the assurances of the managements of Copano and KMI
that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the Copano Management Projections, upon the advice of Copano, we have
assumed that such projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Copano as to the future financial
performance of Copano and we have relied on such projections in performing our analysis. With respect to the KMP Projections, upon the advice of KMI, we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of KMI as to the future financial performance of KMP and we have relied on such
projections in performing our analysis. Additionally, upon advice of Copano, we considered and relied upon the Copano Research Projections and the KMP Research Projections. With respect to
the GP Giveback, we have assumed, upon the advice of KMI, that the amount and timing of the GP Giveback are reasonable as estimated by the management of KMI and we have also assumed,
upon the advice of KMI, that the GP Giveback will be realized substantially in accordance with such estimates. In addition, based on our discussions with the managements of Copano and KMI and
with the consent of Copano, we have assumed for the purposes of our analysis that cost savings and operating synergies will result from the Proposed Transaction. We assume no responsibility for and we
express no view as to any such projections or estimates or the assumptions on which they are based. In arriving at our opinion, we have not conducted a physical inspection of the properties and
facilities of Copano or KMP and have not made or obtained any evaluations or appraisals of the assets or liabilities of Copano or KMP. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter. We assume no responsibility for updating or revising our opinion based on events or circumstances that may occur after
the date of this letter. In addition,
C-2
Table of Contents
we
express no opinion as to the prices at which (i) the Copano Common Units or KMP LP Units would trade at any time following the announcement of the Proposed Transaction or
(ii) the KMP LP Units will trade at any time following the consummation of the Proposed Transaction.
We
have assumed the accuracy of the representations and warranties contained in the Agreement and all agreements related thereto. We have also assumed, upon the advice of the Company,
that all material governmental, regulatory and third party approvals, consents and releases for the Proposed Transaction will be obtained within the constraints contemplated by the Agreement and that
the Proposed Transaction will be consummated in accordance with the terms of the Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. We do not
express any opinion as to any tax or other consequences that might result from the Proposed Transaction, nor does our opinion address any legal, tax, regulatory or accounting matters, as to which we
understand that the Company has obtained such advice as it deemed necessary from qualified professionals.
Based
upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the Exchange Ratio to be offered to the Company's unitholders
in the Proposed Transaction is fair to such unitholders.
We
have acted as financial advisor to the Company in connection with the Proposed Transaction and will receive fees for our services, a portion of which is payable upon rendering this
opinion and a substantial portion of which is contingent upon the consummation of the Proposed Transaction. In addition, the Company has agreed to reimburse our expenses and indemnify us for certain
liabilities that may arise out of our engagement. We have performed various investment banking and financial services for Copano and its affiliates and KMI and its affiliates in the past, and expect
to perform such services in the future, and have received, and expect to receive, customary fees for such services. Specifically, in the past two years, we have performed the following investment
banking and financial services for Copano, for which we received customary compensation: (i) in October 2012, we acted as joint bookrunner on Copano's 6.5 million units offering;
(ii) in January 2012, we acted as joint bookrunner on Copano's 5.8 million units offering and (iii) we are currently a lender in Copano's $700 million revolving credit
facility. In addition, we have performed the following investment banking and financial services for KMI and its affiliates, for which we received customary compensation: (i) in December 2012,
we acted as sole bookrunner on KMP's 4.5 million units offering; (ii) in November 2012, we acted as financial advisor to KMP on the $3,300 million divestiture of Kinder Morgan
Interstate Gas Transmission, Trailblazer Pipeline Company, the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities and 50% of Rockies Express Pipeline; (iii) in
October 2012, we acted as sole bookrunner on KMI's 69.3 million share offering; (iv) in September 2012, we acted as joint bookrunner on EPP's 8.2 million units offering;
(v) in August 2012, we acted as joint bookrunner on KMI's 66.7 million share offering; (vi) in August 2012, we acted as joint bookrunner on KMR's 10.1 million units
offering; (vii) in August 2012, we acted as financial advisor to KMI on the $6,220 million divestiture of 100% of Tennessee Gas Pipeline and 50% of El Paso Natural Gas pipeline to KMP;
(viii) in June 2012, we acted as sole bookrunner on KMI's 63.0 million share offering; (ix) in May 2012, we acted as financial advisor to KMI on the $7,150 million
divestiture of El Paso's
exploration and production business; (x) in May 2012, we acted as financial advisor to KMI on the $37,800 million acquisition of El Paso; (xi) in February 2012, we acted as joint
bookrunner on Ruby Pipeline LLC's $1,075 million private placement of senior notes; (xii) in August 2011, we acted as joint bookrunner on KMP's $750 million notes offering;
(xiii) in June 2011, we acted as joint bookrunner on KMP's 6.7 million units offering; (xiv) in May 2011, we acted as a joint bookrunner on EPP's 14.0 million units
offering; (xv) in March 2011, we acted as joint bookrunner on EPP's 13.8 million units offering; (xvi) in February 2011, we acted as joint bookrunner on KMI's 109.8 million
share initial public offering; (xvii) we are currently a lender in KMI's $5,000 million term loan; (xviii) we are currently a lender in KMI's $1,750 million revolving
credit facility; (xix) we are currently a lender in
C-3
Table of Contents
KMP's
$2,200 million revolving credit facility; (xx) we are currently a lender in EPP's $1,000 million revolving credit facility and (xxi) we are currently the repurchase
agent on KMI's $250 million warrant repurchase program.
Barclays
Capital Inc. and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and
non-financial services. In the ordinary course of our business, we and our affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any
derivatives thereof) and financial instruments (including loans and other obligations) of Copano and KMI and its affiliates for our own account and for the accounts of our customers and, accordingly,
may at any time hold long or short positions and investments in such securities and financial instruments.
This
opinion, the issuance of which has been approved by our Valuation and Fairness Opinion Committee, is for the use and benefit of the Board of Directors of the Company and is rendered
to the Board of Directors in connection with its consideration of the Proposed Transaction. This opinion is not intended to be and does not constitute a recommendation to any unitholder of the Company
as to how such unitholder should vote with respect to the Proposed Transaction.
|
|
|
|
|
Very truly yours,
|
|
|
/s/ Barclays Capital Inc.
BARCLAYS CAPITAL INC.
|
C-4
Table of Contents
Annex D
January 29,
2013
The
Board of Directors of Copano Energy, L.L.C.
1200 Smith Street
Suite 2300
Houston, TX 77002
Members
of the Board of Directors:
We
understand that Copano Energy, L.L.C. (the "Company"), Kinder Morgan Energy Partners, L.P. ("Parent"), Kinder Morgan G.P., Inc. ("Parent GP") and a
newly-formed wholly-owned subsidiary of Parent ("Merger Sub"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub will merge with and into the
Company (the "Merger") in a transaction in which each outstanding common unit of the Company (including any common units held as a result of the conversion of any preferred units of the Company, the
"Common Units"), other than Common Units owned by the Company, Parent or Merger Sub, all of which will be canceled, will be converted into the right to receive 0.4563 common units of the Parent (the
"Consideration"). The terms and conditions of the Merger are more fully set forth in the Merger Agreement.
You
have asked for our opinion as to whether the Consideration to be received by the holders of Common Units pursuant to the Merger Agreement is fair, from a financial point of view, to
such holders (other than Parent, Parent GP, Merger Sub and their respective affiliates).
In
arriving at our opinion, we have, among other things:
-
(i)
-
reviewed
a draft dated January 28, 2013 of the Merger Agreement;
-
(ii)
-
reviewed
certain publicly available financial and other information about the
-
(iii)
-
reviewed
certain information furnished to us by the Company's management, including financial forecasts and analyses, relating to the business, operations
and prospects of the Company;
-
(iv)
-
held
discussions with members of senior management of the Company concerning the matters described in clauses (ii) and (iii) above;
-
(v)
-
reviewed
the unit trading price history and valuation multiples for the Common Units and compared them with those of certain publicly traded companies that
we deemed relevant;
-
(vi)
-
compared
the proposed financial terms of the Merger with the financial terms of certain other transactions that we deemed relevant;
-
(vii)
-
considered
the potential pro forma financial impact of the Merger; and
-
(viii)
-
conducted
such other financial studies, analyses and investigations as we deemed appropriate.
In
our review and analysis and in rendering this opinion, we have assumed and relied upon, but have not assumed any responsibility to independently investigate or verify, the accuracy
and completeness of all financial and other information that was supplied or otherwise made available by the Company or that was publicly available to us (including, without limitation, the
information described above), or that was otherwise reviewed by us. We have relied on assurances of the management of the Company that it is not aware of any facts or circumstances that would make
such information supplied by the Company inaccurate or misleading. In our review, we did not obtain any
D-1
Table of Contents
independent
evaluation or appraisal of any of the assets or liabilities of, nor did we conduct a physical inspection of any of the properties or facilities of, the Company. We have not been furnished
with any such evaluations or appraisals of such physical inspections, nor do we assume any responsibility to obtain any such evaluations or appraisals.
With
respect to the financial forecasts provided to and examined by us, we note that projecting future results of any company is inherently subject to uncertainty. The Company has
informed us, however, and we have assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgment of the management
of the Company as to the future financial performance of the Company. We express no opinion as to the Company's financial forecasts or the assumptions on which they are made.
Our
opinion is based on economic, monetary, regulatory, market and other conditions that exist and can be evaluated as of the date hereof. We do not undertake to reaffirm or revise our
opinion or otherwise comment on events occurring after the date hereof, and we expressly disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting our
opinion of which we become aware after the date hereof.
We
have made no independent investigation of any legal or accounting matters affecting the Company, and we have assumed no responsibility for any legal and accounting advice as to the
legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to the Company and its unitholders. In addition, in preparing this opinion, we have not
taken into account any tax consequences of the transaction to the Company, Parent, Parent GP, Merger Sub or any holder of Common Units. We have assumed that the final form of the Merger
Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases
for the Merger, no delay, limitation, restriction or condition will be imposed that would have a material adverse effect on the Company, Parent or the consummation, or the contemplated benefits of,
the Merger.
In
addition, we were not requested to and did not provide advice concerning the structure, the specific amount of the Consideration, or any other aspects of the Merger, or to provide
services other than the delivery of this opinion. We were not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of the
Company or any other alternative transaction. We did not participate in negotiations with respect to the terms of the Merger and related transactions, and no opinion is expressed whether any
alternative transaction might result in consideration more favorable to the Company's unitholders than that contemplated by the Merger Agreement.
It
is understood that our opinion is for the use and benefit of the Board of Directors of the Company in its consideration of the Merger, and our opinion does not address the relative
merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor does it address the underlying
business decision by the Company to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein. Our opinion does not constitute a recommendation as to how any
holder of Common Units should vote on the Merger or any matter related thereto. In addition, you have not asked us to address, and this opinion does not address, the fairness to, or any other
consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of Common Units. We express no opinion as to the price at which
Common Units will trade at any time. Furthermore, we do not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable or to be
received by any of the Company's officers, directors or employees, or any class of such persons, in connection
with the Merger relative to the Consideration to be received by holders of Common Units. Our opinion has been authorized by the Fairness Committee of Jefferies & Company, Inc.
D-2
Table of Contents
We
have been engaged by the Company to act as financial advisor to the Company in connection with the Merger and will receive a fee for our services. We also will be reimbursed for
expenses incurred. The Company has agreed to indemnify us against liabilities arising out of or in connection with the services rendered and to be rendered by us under such engagement. We maintain a
market in the securities of the Company, and in the ordinary course of our business, we and our affiliates may trade or hold securities of the Company or Parent and/or their respective affiliates for
our own account and for the accounts of our customers and, accordingly, may at any time hold long or short positions in those securities. In addition, we may seek to, in the future, provide financial
advisory and financing services to the Company, Parent or entities that are affiliated with the Company or Parent, for which we would expect to receive compensation. Except as otherwise expressly
provided in our engagement letter with the Company, our opinion may not be used or referred to by the Company, or quoted or disclosed to any person in any matter, without our prior written consent.
Based
upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration to be received by the holders of Common Units pursuant to the Merger
Agreement is fair, from a financial point of view, to such holders (other than Parent, Parent GP, Merger Sub and their respective affiliates).
Very
truly yours,
/s/ JEFFERIES &
COMPANY, INC.
D-3
|
1 1 12345678
12345678 12345678 12345678 12345678 12345678 12345678 12345678 000000000000
NAME THE COMPANY NAME INC. - COMMON 123,456,789,012.12345 THE COMPANY NAME
INC. - CLASS A 123,456,789,012.12345 THE COMPANY NAME INC. - CLASS B
123,456,789,012.12345 THE COMPANY NAME INC. - CLASS C 123,456,789,012.12345
THE COMPANY NAME INC. - CLASS D 123,456,789,012.12345 THE COMPANY NAME INC. -
CLASS E 123,456,789,012.12345 THE COMPANY NAME INC. - CLASS F
123,456,789,012.12345 THE COMPANY NAME INC. - 401 K 123,456,789,012.12345 . x
02 0000000000 JOB # 1 OF 2 1 OF 2 PAGE SHARES CUSIP # SEQUENCE # THIS PROXY
CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR
BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN
BOX] Date Date CONTROL # SHARES 0 0 0 0 0 0 0 0 0 0000170028_1 R1.0.0.51160
COPANO ENERGY, L.L.C. 1200 SMITH STREET, SUITE 2300 HOUSTON, TX 77002 ATTN:
DOUGLAS L. LAWING Investor Address Line 1 Investor Address Line 2 Investor
Address Line 3 Investor Address Line 4 Investor Address Line 5 John Sample
1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 Investor Address Line 1 Investor
Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor
Address Line 5 John Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 VOTE BY
INTERNET - www.proxyvote.com Use the Internet to transmit your voting
instructions and for electronic delivery of information up until 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date. Have your proxy
card in hand when you access the web site and follow the instructions to
obtain your records and to create an electronic voting instruction form. VOTE
BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you call and
then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy
card and return it in the postage-paid envelope we have provided or return it
to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The
Board of Directors unanimously recommends you vote FOR the following
proposals: For Against Abstain 1 To adopt the Agreement and Plan of Merger,
dated as of January 29, 2013 (as it may be amended from time to time) by and
among Copano Energy, L.L.C. (the "Company"), Kinder Morgan Energy
Partners, L.P., Kinder Morgan G.P., Inc. and Javelina Merger Sub LLC, a wholly-owned
subsidiary of Kinder Morgan Energy Partners, L.P. (the "merger
agreement"). 2 To approve the adjournment of the Company's special
meeting, if necessary to solicit additional proxies if there are not
sufficient votes to adopt the merger agreement at the time of the special
meeting. 3 To approve, on an advisory (non-binding) basis, the related
compensation payments that will or may be paid by the Company to its named
executive officers in connection with the merger. NOTE: In their discretion,
the proxies are authorized to vote upon such other matters that may properly
come before the special meeting or any postponement or adjournment thereof.
The units represented by this proxy when properly executed will be voted in
the manner directed herein by the undersigned unitholder(s). If no direction
is made this proxy will be voted "FOR" each of proposals 1, 2 and
3. Please sign exactly as your name(s) appear(s) hereon. When signing as
attorney, executor, administrator, or other fiduciary, please give full title
as such. Joint owners should each sign personally. All holders must sign. If
a corporation or partnership, please sign in full corporate or partnership
name, by authorized officer.
|
|
0000170028_2
R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials
for the Special Meeting: The Notice & Proxy Statement is/are available at
www.proxyvote.com . COPANO ENERGY, L.L.C. PROXY FOR SPECIAL MEETING OF
UNITHOLDERS THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The
undersigned hereby appoints R. Bruce Northcutt, Carl A. Luna and Douglas L.
Lawing, and each of them, with or without the other and with the full power
of substitution, as proxies to vote as specified on the reverse side hereof
all units that the undersigned is entitled to vote at the special meeting of
unitholders of Copano Energy, L.L.C. (the "Company"), to be held on
April 30, 2013, at 9:00 a.m., local time, at The Forum Room, 12th Floor, Two
Allen Center, 1200 Smith Street, Houston, TX 77002, and any adjournments or
postponements thereof, and with all other powers which the undersigned would
possess if personally present. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED AS DIRECTED BY THE UNITHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS
PROXY WILL BE VOTED FOR the adoption of the merger agreement, FOR the
approval of one or more adjournments of the special meeting, if necessary to
solicit additional proxies if there are not sufficient votes to adopt the
merger agreement at the time of the special meeting and FOR the approval,
on an advisory (non-binding) basis, the related compensation payments that
will or may be paid by the Company to its named executive officers in
connection with the merger. Continued and to be signed on reverse side
|