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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

Commission file number:  001-32329

COPANO ENERGY, L.L.C.

(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)  is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No x

As of June 29, 2012, the aggregate market value of our voting and non-voting common equity held by non-affiliates of the registrant was approximately $2.0 billion based on $27.80 per common unit, the closing price of our common units as reported on The NASDAQ Global Select Market.

As of February 20, 2013, 78,994,980 of our common units were outstanding.

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Explanatory Note

Unless the context requires otherwise, references to “Copano,” “we,” “our,” “us” or like terms refer to Copano Energy, L.L.C., its subsidiaries and entities it manages or operates.

As previously disclosed, on January 29, 2013, we announced a definitive merger agreement with Kinder Morgan Energy Partners, L.P. (“Kinder Morgan”), under which Kinder Morgan will acquire all of Copano’s outstanding equity in a unit-for-unit transaction with an exchange ratio of 0.4563 Kinder Morgan units per Copano unit.  The transaction is valued at approximately $5 billion (including the assumption of debt) based on the closing price for Kinder Morgan’s units on January 29, 2013.  Our board of directors and Kinder Morgan’s board of directors have approved the merger agreement, and we have agreed to submit the merger agreement to a vote of our unitholders and to recommend that unitholders approve the merger agreement.  We will not hold an annual meeting of our unitholders in 2013 if the merger is completed.

This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, originally filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013 (the “Original Filing”). We are filing this Amendment to:

·                  amend Part III of the Original Filing to include the information required by and not included in the Original Filing because we do not expect to file our definitive annual meeting proxy statement within 120 days of the end of our fiscal year ended December 31, 2012;

·                  amend Parts II and IV to add, as required by Rule 3-09(b)(1) promulgated by the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”), the audited annual financial statements of one of our significant equity investments, Fort Union Gas Gathering, L.L.C., which were not available at the time of the Original Filing; and

·                  amend Part IV to include a revised Index of Exhibits and to add as exhibits certain new certifications in accordance with Exchange Act Rule 13a-14(a).

Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events that occurred at a date subsequent to the filing of the Original Filing other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Filing and our other filings made with the SEC on or subsequent to March 1, 2013.

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PART II

Item 8.  Financial Statements and Supplementary Data

The Independent Auditors’ Report and financial statements of Fort Union Gas Gathering, L.L.C. required under this Item are set forth beginning on pages F-1 of this Amendment and are incorporated herein by reference.

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Directors

(1)         President and Chief Executive Officer

(2)         Chairman of the Board

James G. Crump joined our Board of Directors upon completion of our initial public offering in November 2004. Mr. Crump is the Chairman of the Audit Committee and a member of the Conflicts Committee. He is also a member of the board of directors of Exterran GP, LLC, the general partner of the general partner of Exterran Partners, L.P. (a compression services company). Mr. Crump began his career at Price Waterhouse in 1962 and became a partner in 1974. From 1977 until the merger of Price Waterhouse and Coopers & Lybrand in 1998, Mr. Crump held numerous management and leadership roles. From 1998 until his retirement in 2001, Mr. Crump served as Global Energy and Mining Cluster Leader, a member of the U.S. Management Committee and the Global Management Committee and as Houston Office Managing Partner of PricewaterhouseCoopers. Mr. Crump holds a Bachelor of Business Administration degree in Accounting from Lamar University.

We believe that Mr. Crump’s expertise with accounting principles and financial reporting regulations, evaluating financial results and generally overseeing the financial reporting processes of a public company, both from an independent auditor’s perspective and as a public company director, make him a valuable asset to our Board.

Ernie L. Danner joined our Board of Directors upon completion of our initial public offering in November 2004, and is a member of the Audit and Conflicts Committees. Mr. Danner has also served as a Managing Director of SCF Partners, a private equity firm focused on oil service investments, since October 2012.  Mr. Danner served as President and Chief Executive Officer of Exterran Holdings, Inc. (formerly Universal Compression Holdings, Inc., a compression services company, which became Exterran Holdings, Inc. following a merger with Hanover Compression Company in August 2007) from July 2009 to October 2011, and as a member of its board of directors from 1998 to October 2011. He also served as President, Chief Executive Officer and a director of Exterran GP LLC, the general partner of the general partner of Exterran Partners, L.P. Mr. Danner joined Universal Compression in 1998 as its Chief Financial Officer. He holds a Bachelor of Arts degree and a Master of Arts degree in Accounting from Rice University.

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We believe that Mr. Danner’s extensive executive experience demonstrates his leadership capability and business acumen and enables him to contribute valuable insight regarding complex financial, operational and strategic issues in our industry.

Scott A. Griffiths joined our Board of Directors in December 2004. Mr. Griffiths is the Chairman of the Compensation Committee and a member of the Nominating and Governance Committee. He is also a member of the board of directors of Energy Partners, Ltd. (an independent oil and natural gas exploration and production company). Mr. Griffiths served as Senior Vice President and Chief Operating Officer of Hydro Gulf of Mexico, LLC from December 2005 to December 2006. From 2003 through December 2005, Mr. Griffiths served as Executive Vice President and Chief Operating Officer of Spinnaker Exploration Company. From 2002 to 2003, Mr. Griffiths served as Senior Vice President, Worldwide Exploration for Ocean Energy, Inc. Mr. Griffiths joined Ocean following the 1999 merger of Ocean and Seagull Energy Corporation, where he served as Vice President, Domestic Exploration. He holds a Bachelor of Science degree in Geology from the University of New Mexico and a Master of Arts degree in Geology from Indiana University.

Mr. Griffiths is an experienced operational leader with extensive upstream industry expertise, which contributes valuable knowledge and perspective to our Board.

Michael L. Johnson joined our Board of Directors in December 2004. Mr. Johnson is Chairman of the Conflicts Committee and a member of the Audit Committee. Mr. Johnson began his career in 1975 with Conoco Inc. and most recently served as Chairman and Chief Executive Officer of Conoco Gas and Power from 1997 until his retirement in 2002. Mr. Johnson holds a Bachelor of Science degree in Geology from New Mexico State University, a Master of Arts degree in Geochemistry from Rice University and an Master of Science degree in Management, Sloan Fellow, from the Alfred P. Sloan School of Business, Massachusetts Institute of Technology.

Mr. Johnson’s operational expertise in both the midstream and upstream industries, combined with his executive experience, enables him to provide our Board with valuable insight on operational and strategic matters.

Michael G. MacDougall joined our Board of Directors in July 2010. Mr. MacDougall is a partner with TPG (as defined below) and leads the firm’s global energy and natural resources investing practice. Prior to joining TPG in 2002, Mr. MacDougall was a vice president in the principal investment area of the Merchant Banking Division of Goldman, Sachs & Co., where he focused on private equity and mezzanine investments. He is a director of Energy Future Holdings Corp., (a retail energy company), Graphic Packaging Holding Company (a packaging manufacturer), Kraton Performance Polymers, Inc., (an engineered polymers manufacturer), Nexeo Solutions Holdings, LLC (a chemical distribution company) and Northern Tier Energy LLC (an independent downstream energy company). He is also a director of the general partner of Valerus Compression Services, L.P. (a compression services company). Mr. MacDougall received his Bachelors of Business Administration degree, with highest honors, from The University of Texas at Austin and received his Masters of Business Administration degree, with distinction, from Harvard Business School.

Mr. MacDougall’s extensive transactional and investment banking experience, his experience as a private equity investor and his experience as a director of other public companies enable Mr. MacDougall to provide valuable insight regarding complex financial and strategic issues in our industry.

Upon closing of our sale of preferred units to TPG Copenhagen, L.P., or TPG Copenhagen, an affiliate of TPG Capital, L.P. (together with its affiliates, TPG), we entered into a director designation agreement giving TPG Copenhagen the right to designate a member of our Board. TPG Copenhagen selected Mr. MacDougall as its director designee. We are required, pursuant to the terms of the director designation agreement, to nominate Mr. MacDougall for re-election to the Board at each annual meeting of unitholders unless TPG Copenhagen’s ownership of Copano securities falls below specified levels or certain other specified resignation events occur.

R. Bruce Northcutt joined our Board of Directors in November 2009. Mr. Northcutt has served as our President and Chief Executive Officer since November 2009 and was President and Chief Operating Officer from April 2003 until November 2009. Mr. Northcutt served as President of El Paso Global Networks Company from November 2001 until April 2003; Managing Director of El Paso Global Networks Company from April 1999 until November 2001 and Vice President, Business Development of El Paso Gas Services Company from January 1998 until April 1999. From 1988 until 1998, Mr. Northcutt held positions with various levels of responsibility at El Paso Energy and its predecessor, Tenneco Energy, including supervision of pipeline supply and marketing as well as regulatory functions. He began his career with Tenneco Oil Exploration and Production in 1982, working in the areas of

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drilling and production engineering. Mr. Northcutt holds a Bachelor of Science degree in Petroleum Engineering from Texas Tech University, and is a Registered Professional Engineer in the State of Texas.

Mr. Northcutt brings nearly 30 years of energy industry experience to his roles as director and leader of our management team, and he is well positioned to provide critical insight and guidance to the Board from the perspective of our daily operations.

T. William Porter joined our Board of Directors upon completion of our initial public offering in November 2004. Mr. Porter is the Chairman of the Nominating and Governance Committee and a member of the Compensation Committee. Mr. Porter is Chairman Emeritus and a retired partner of Porter & Hedges, L.L.P., a Houston law firm formed in 1981. He was a partner of that firm from its founding until his retirement in December 2009 and also served as Chairman of that firm for the ten years then ended. He also serves as a director of Helix Energy Solutions Group, Inc., an offshore energy services company.  Mr. Porter holds a Bachelor of Business Administration degree in Finance from Southern Methodist University and Bachelor of Law degree from Duke University.

Mr. Porter’s 45 years of legal practice, his leadership role within his own profession and his extensive experience advising companies in the energy industry on corporate and securities law matters enable him to provide valuable knowledge and perspective to our Board.

William L. Thacker was elected Chairman of the Board in November 2009 and has served on our Board of Directors since completion of our initial public offering in November 2004. Mr. Thacker is a member of the Compensation and Nominating and Governance Committees. Mr. Thacker serves on the boards of Kayne Anderson Energy Development Company and Kayne Anderson Midstream Energy Fund (closed-end funds that invest in midstream companies and master limited partnerships). Mr. Thacker joined Texas Eastern Products Pipeline Company (the general partner of TEPPCO Partners, L.P.) in September 1992 as President, Chief Operating Officer and director. He was elected Chief Executive Officer in January 1994. In March 1997, he was named to the additional position of Chairman of the Board, which he held until his retirement in May 2002. Prior to joining Texas Eastern Products Pipeline Company, Mr. Thacker was President of Unocal Pipeline Company from 1986 until 1992. Mr. Thacker is past Chairman of the Executive Committee of the Association of Oil Pipelines, has served as a member of the board of directors of the American Petroleum Institute, and has actively participated in many energy-related organizations during his 35-year career in the energy industry. Mr. Thacker holds a Bachelor of Mechanical Engineering degree from the Georgia Institute of Technology and a Masters of Business Administration degree from Lamar University.

Mr. Thacker’s extensive management experience in the energy industry, including in executive and board leadership positions, provides him with financial knowledge, business acumen and leadership capabilities that make him well-suited to serve as our Chairman.

Executive Officers

Certain information concerning Copano’s executive officers as of the date of this Amendment is set forth below.

R. Bruce Northcutt, Director, President and Chief Executive Officer, has served in his current capacity since November 2009 and was President and Chief Operating Officer from April 2003 until November 2009. Mr. Northcutt served as President of El Paso Global Networks Company from November 2001 until April 2003;

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Managing Director of El Paso Global Networks Company from April 1999 until November 2001 and Vice President, Business Development of El Paso Gas Services Company from January 1998 until April 1999. From 1988 until 1998, Mr. Northcutt held positions with various levels of responsibility at El Paso Energy and its predecessor, Tenneco Energy, including supervision of pipeline supply and marketing as well as regulatory functions. He began his career with Tenneco Oil Exploration and Production in 1982, working in the areas of drilling and production engineering. Mr. Northcutt holds a Bachelor of Science degree in Petroleum Engineering from Texas Tech University, and is a Registered Professional Engineer in the State of Texas.

Douglas L. Lawing, Executive Vice President, General Counsel and Secretary, has served in his current capacity since August 2009 and was Senior Vice President, General Counsel and Secretary from November 2007 until August 2009. Mr. Lawing served as our Vice President, General Counsel and Secretary from October 2004 until November 2007 and previously served as our General Counsel beginning in November 2003. From January 2002 until November 2003, Mr. Lawing served as our Corporate Counsel. Mr. Lawing has served as Corporate Secretary of our company and its predecessors since February 1994. Additionally, from March 1998 until January 2002, Mr. Lawing served as an Associate Counsel of Nabors Industries, Inc. (now Nabors Industries Ltd.), a land drilling contractor. Mr. Lawing holds a Bachelor of Science degree in Business Administration from the University of North Carolina at Chapel Hill and a Doctor of Jurisprudence from Washington and Lee University.

Carl A. Luna, Senior Vice President and Chief Financial Officer, has served in his current capacity since October 2009. Beginning in August 2009, he served as our Senior Vice President, Finance and Corporate Development and Interim Chief Financial Officer, and from May 2006 until August 2009, he served as our Vice President, Finance. Mr. Luna began his career with us in August 2005 as a financial consultant. From 1997 until 2005, he served as a Vice President in the Syndicated and Leveraged Finance Group of J.P. Morgan Securities Inc. Mr. Luna holds a Bachelor of Business Administration degree in Finance from Texas A&M University and a Master of Business Administration degree from Rice University. Mr. Luna serves as Treasurer and is a member of the Board of the National Association of Publicly Traded Partnerships.

Bryan W. Neskora, Senior Vice President and Chief Operating Officer, has served in his current capacity since July 2012. From 2010 to 2012, he served as Senior Vice President of Operations for El Paso Corporation’s Pipeline Group, where he was responsible for overseeing operations across El Paso’s interstate natural gas transmission system. From 2007 to 2010, Mr. Neskora served as Senior Vice President and Chief Commercial Officer for Tennessee Gas Pipeline Company, a subsidiary of El Paso, overseeing business development, marketing, commercial operations, engineering, project management and legal and regulatory affairs. Mr. Neskora served as Vice President of El Paso Marketing L.P. from June 2004 to February 2007 where he was responsible for all commercial aspects of El Paso’s merchant energy group, including the marketing of El Paso production. From October 1999 to June 2004, he held various senior leadership positions with El Paso Global Networks Company. From 1995 to 1999, Mr. Neskora worked in various capacities with Tennessee Gas Pipeline Company in business development and regulatory affairs. From 1993 to 1995, he was Director Asset Optimization for Pendulum Energy Services. He graduated from Texas A&M University with a Bachelor of Science degree in economics and earned his Master of Business Administration from the University of Houston

Lari Paradee, Senior Vice President, Controller and Principal Accounting Officer, has served in her current capacity since August 2009. She served as Vice President and Controller from July 2003 until August 2009. From September 2000 until March 2003, Ms. Paradee served as Accounting and Consolidations Manager for Intergen, a global power generation company jointly owned by Shell Generating (Holdings) B.V. and Bechtel Enterprises Energy B.V. Ms. Paradee served as Vice President and Controller of DeepTech International, Inc. (an offshore pipeline and exploration and production company) from May 1991 until August 1998, when DeepTech was merged into El Paso Energy Corporation. Ms. Paradee then served as Manager, Finance and Administration of El Paso Energy until March 2000. From 1987 to 1991, Ms. Paradee served in various accounting and internal audit positions with American Exploration Company. She began her career in 1985 as a Staff Auditor and then as a Senior Auditor for Price Waterhouse. Ms. Paradee graduated magna cum laude from Texas Tech University with a Bachelor of Business Administration degree in Accounting and is a Certified Public Accountant.

Sharon J. Robinson, Senior Vice President, Copano, and President and Chief Operating Officer, Oklahoma and Rocky Mountains, has served in her current capacity since May 2010, when she was named President and Chief Operating Officer of our Rocky Mountains business segment. Ms. Robinson was appointed Senior Vice President of Copano in August 2009, and has served as President of our Oklahoma business segment since August 2007 and

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Chief Operating Officer of that segment since June 2008. She joined Copano as Vice President, Commercial Activities, for our Oklahoma business segment in August 2005, when we acquired ScissorTail Energy, LLC. From July 2000 to August 2007, Ms. Robinson served in various commercial roles for ScissorTail. Ms. Robinson worked for Tejas Gas Corporation (a public midstream company) from July 1993 through December 1999 in both commercial and engineering positions. She began her career as a project engineer with Cities Service Oil Company, which later became Occidental Petroleum, and continued in that role through March 1992. Ms. Robinson holds a Bachelor of Science degree in Chemical Engineering from Oklahoma State University and is a Registered Professional Engineer in the State of Oklahoma. Ms. Robinson also serves on the Board of Directors of the Gas Processors Association.

James E. Wade, Senior Vice President, Copano, and President and Chief Operating Officer, Texas, has served in his current capacity since April 2010. From March 2006 until April 2010, he served as Vice President, Gas Supply, Marketing and Business Development for Southern Union Gas Services (formerly Sid Richardson Energy Services), a subsidiary of Southern Union Company (a midstream natural gas company). He was Vice President of Sid Richardson Energy Services from 1998 until 2006, when it was acquired by Southern Union. From 1994 to 1998, Mr. Wade was Vice President of Aquila Gas Pipeline Corporation. He began his career at Tenneco Inc. in 1984, where he held various positions at Tenneco Oil Company, Tennessee Gas Pipeline and Tenngasco. Mr. Wade holds a Bachelor of Business Administration degree from The University of Texas at Austin. He has served as chairman of and continues to serve on the Board of the Texas Pipeline Association.

John N. Goodpasture, Senior Vice President, Corporate Development, has served in his current capacity since June 2010. Between November 2009 and June 2010, Mr. Goodpasture worked as an independent consultant.  From 2001 until 2009, he served as Vice President, Corporate Development of Texas Eastern Products Pipeline Company, L.L.C., the general partner of TEPPCO Partners, L.P. (a petroleum pipeline company), and in 2003 he also assumed executive responsibility for TEPPCO’s midstream segment. Mr. Goodpasture served as Vice President, Business Development of Enron Transportation Services from 1999 until 2001. From 1980 to 1999, Mr. Goodpasture served in various capacities with Seagull Energy Corporation, ending his tenure there as President of Seagull Pipeline & Marketing Company. He began his career in 1970 at Union Carbide Corporation, where he held various positions. Mr. Goodpasture holds a Bachelor of Science degree in Mechanical Engineering from Texas Tech University. He is a member of the board of directors of Blue Dolphin Energy Company.

Corporate Governance

Our business affairs are managed under the direction of our Board of Directors in accordance with the laws of the State of Delaware and our limited liability company agreement. Our Board has adopted corporate governance guidelines to assist in the exercise of its responsibility to provide effective governance over our affairs for the benefit of our unitholders. In addition, our Board has adopted our code of business conduct and ethics, which sets forth legal and ethical standards of conduct for all our directors, officers, employees and other personnel.

Director Independence

Our corporate governance guidelines require that at least a majority of our directors must qualify as “independent” under the listing standards of The NASDAQ Stock Market, or NASDAQ. To qualify as independent, a director must meet objective criteria set forth in the NASDAQ rules, and the Nominating and Governance Committee of our Board must also make a subjective determination that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) that would interfere with his exercise of independent judgment in carrying out his responsibilities as a director. In conducting its review of director independence, our Nominating and Governance Committee reviewed the direct or indirect business relationships between each non-executive director (including his or her immediate family) and our company, as well as each non-executive director’s relationships with any charitable organizations.

The Nominating and Governance Committee determined in February 2012 that Messrs. Crump, Danner, Griffiths, Johnson, Porter and Thacker qualify as “independent” in accordance with NASDAQ listing standards. The Nominating and Governance Committee did not make an independence determination with respect to Mr. MacDougall, and Mr. Northcutt is not independent by virtue of his role as President and Chief Executive Officer of our company.  If our proposed merger with Kinder Morgan is completed, we will not hold an annual meeting of

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our unitholders in 2013.  However, if we do hold an annual meeting in 2013, our Nominating and Governance Committee will review and determine the independence of each nominee for election as director.

During the Nominating and Governance Committee’s February 2012 review of independence of the nominees, the committee considered the following relationships and determined that these relationships would not interfere with the independent judgment of the Board members involved:

·                  Mr. Thacker is a member of the board of directors of Kayne Anderson Energy Development Company (“KED”) and the Kayne Anderson Midstream/Energy Fund (“KMF”), both of which are investment companies that invest in private and publicly traded energy companies. The main functions of the boards of KED and KMF are to approve valuations of their investments in private companies, their distribution policies and SEC reports. Investment decisions for KED and KMF are made by its investment advisor, KA Fund Advisors, LLC.

KED, KMF and KA Fund Advisors are subsidiaries of Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson”), a registered investment advisor. Kayne Anderson beneficially owns approximately 4.09% (as of the date of its most recent Schedule 13G filing) of our common units through various investment partnerships, a registered investment company and institutional accounts.

·                  Mr. Crump is a member of the board of directors of Exterran GP, LLC, the general partner of the general partner of Exterran Partners, L.P., and serves as chairman of Exterran GP’s audit and conflicts committees and also serves on its compensation committee.

·                  Mr. Danner was formerly President and Chief Executive Officer and a member of the board of directors of Exterran Holdings, Inc. Mr. Danner was also President and Chief Executive Officer and a member of the board of directors of Exterran GP. Mr. Danner resigned from these positions with Exterran Holdings and Exterran GP on October 31, 2011. Certain subsidiaries of Exterran (including subsidiaries of Exterran GP) provided goods and services relating to natural gas compression to our operating subsidiaries or affiliates during 2011. Total payments for these goods and services equaled less than 1% of Exterran’s consolidated revenue for 2011.

In addition, the Nominating and Governance Committee has determined that each member of the Audit Committee qualifies as “independent” under enhanced independence standards established by the SEC for members of audit committees. The Board has also designated Mr. Crump as the “audit committee financial expert” based on its finding that Mr. Crump’s experience and understanding with respect to certain accounting and auditing matters meet the SEC criteria for an “audit committee financial expert.” Designation of one member of our audit committee as an “audit committee financial expert” is a requirement of the SEC; it does not impose on Mr. Crump any duties, obligations or liability that are greater than those generally imposed on him as a member of the Audit Committee and the Board of Directors, nor does it affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

Board Committees

Our Board of Directors currently has, and appoints the members of, standing audit, compensation, conflicts, and nominating and governance committees. These committees are composed solely of independent directors in accordance with applicable NASDAQ listing standards and SEC rules. The Board has adopted a written charter for each committee, which sets forth the committee’s purposes, responsibilities and authority. Each committee reviews and assesses on an annual basis the adequacy of its charter and recommends any proposed modifications to the Board for its approval. The following are brief descriptions of the functions and operations of our Board committees.

Audit Committee.  The Audit Committee assists our Board of Directors in its general oversight of our financial reporting, internal audit, internal controls and audit functions, and is directly responsible for the appointment, retention, compensation and oversight of the work of our independent registered public accounting firm. The Audit Committee has three members: Mr. Crump (Chairman), Mr. Danner and Mr. Johnson.

Compensation Committee.  The Compensation Committee’s primary responsibilities are to (i) approve compensation arrangements for officers of our company and for our Board members, including salaries and bonuses

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and other compensation for executive officers of our company, (ii) approve any compensation plans in which officers and directors of our company are eligible to participate, and to administer such plans, including the granting of equity awards or other benefits under any such plans, (iii) exercise general oversight of the company’s overall compensation structure, practices and programs and (iv) review and discuss with our management the CD&A and related disclosure to be included in our annual report or proxy statement. For a discussion of the roles of executive officers and compensation consultants in determining or recommending compensation, please read “Compensation Discussion and Analysis — The Compensation-Setting Process.”  The Compensation Committee has three members: Mr. Griffiths (Chairman), Mr. Porter and Mr. Thacker.

Conflicts Committee.  The Conflicts Committee reviews, at the Board’s request, specific matters that the Board believes may involve conflicts of interest between our Board members or their affiliates and our company. Any matters approved by the Conflicts Committee will be permitted and deemed approved by all unitholders and will not constitute a breach of our limited liability company agreement or of any duty stated or implied by law or equity, including any fiduciary duty.

In addition to conflicts involving Board members, the Conflicts Committee is responsible for investigating, reviewing and acting on other matters where a conflict of interest arises. The committee’s charter sets forth the Conflicts Committee’s policy and procedures for review, approval and ratification of transactions involving our company and “related persons” (directors, director nominees, executive officers or their immediate family members, or unitholders owning five percent or greater of our company’s outstanding voting securities). The charter covers any related-person transaction that meets the minimum threshold for disclosure in our annual report or proxy statement under the relevant SEC rules (generally, transactions with our company involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). The charter states that, in determining whether to approve or ratify a conflict-of-interest transaction, including a related-person transaction, the Conflicts Committee shall consider whether the transaction is (i) on terms no less favorable to us than those generally being provided to or available from unrelated third parties, or (ii) fair and reasonable to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). The Conflicts Committee has three members: Mr. Johnson (Chairman), Mr. Crump and Mr. Danner.

Currently, our only transactions with related persons (other than in their capacity as our employees) are those described under “Certain Relationships and Related Transactions, and Director Independence.”

Nominating and Governance Committee. The Nominating and Governance Committee’s primary responsibilities are (i) to recruit and recommend candidates for election to the Board and for committee appointments, (ii) to review the qualifications of officer candidates for our company and recommend officer nominees for such positions to the Board, (iii) to develop and recommend corporate governance guidelines to the Board of Directors, and to assist the Board in implementing such guidelines, (iv) to lead the Board in its annual review of the performance of the Board and its committees, (v) to make annual determinations as to the independence of director nominees under applicable NASDAQ and SEC rules and (vi) to develop and monitor our succession plan.  The Nominating and Governance Committee has three members: Mr. Porter (Chairman), Mr. Griffiths and Mr. Thacker.

The Nominating and Governance Committee will consider director nominations by unitholders in the same manner as other director candidates. Any such nominations, together with appropriate biographical information, should be submitted to the Chairman of the Nominating and Governance Committee, in care of the Corporate Secretary, Copano Energy, L.L.C., 1200 Smith Street, Suite 2300, Houston, Texas 77002. For a description of the procedures required of unitholders seeking to nominate director candidates, please read “Unitholder Proposals and Director Nominations — Recommendation of Director Candidates to the Nominating and Governance Committee.”

Compensation Committee Interlocks and Insider Participation

Messrs. Griffiths, Porter and Thacker served as members of the Compensation Committee during all of 2012. No member of the Compensation Committee is or has been an executive officer of our company, and no member of the committee had a relationship with us in 2012 requiring “related-person” transaction disclosure under Item 404 of Regulation S-K. None of our executive officers serves as a director or member of a compensation committee of any entity whose executive officers include a member of our Board or Compensation Committee.

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Communications to our Board of Directors and Availability of Documents

Our Board is receptive to direct communication from unitholders and recommends that unitholders initiate any communications in writing and send them to our Board in care of our Corporate Secretary, Copano Energy, L.L.C., 1200 Smith Street, Suite 2300, Houston, Texas 77002. All such communications will be forwarded without review to the appropriate director. This centralized process will assist our Board in reviewing and responding to unitholder communications in an appropriate manner. Communications to our Board must include the number of units owned by the unitholder as well as the unitholder’s name, address, telephone number and email address, if any.

Our code of business conduct and ethics and corporate governance guidelines and the charters for committees of our Board are available on our website at www.copano.com, and paper copies will be provided free of charge to any unitholder requesting a copy by writing to our Corporate Secretary, Copano Energy, L.L.C., 1200 Smith Street, Suite 2300, Houston, Texas 77002. The information on our website is not a part of this Amendment or incorporated into any other filing we make with the SEC.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors to file reports with the SEC relating to their ownership, and changes in ownership, of our common units. Officers, directors and greater than 10% equity holders are required by the regulations of the SEC to furnish the Company with copies of all Section 16(a) reports they file. Based on our records and representations from our executive officers and directors, we believe that all reports due in 2012 were filed as required.

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Item 11.  Executive Compensation

Compensation Discussion and Analysis

Overview

This section discusses our compensation philosophy and programs, the elements of compensation we provide to our named executive officers and the analysis underlying the types and amounts of named executive officer compensation presented in the section titled “Executive Compensation.”

In 2012, our named executive officers were:

·                  R. Bruce Northcutt, President and Chief Executive Officer;

·                  Carl A. Luna, Senior Vice President and Chief Financial Officer;

·                  Bryan W. Neskora, Senior Vice President and Chief Operating Officer;

·                  Sharon J. Robinson, Senior Vice President; President and Chief Operating Officer, Oklahoma and Rocky Mountains; and

·                  James E. Wade, Senior Vice President; President and Chief Operating Officer, Texas.

Executive Compensation Overview

Our executive compensation program is designed to align the interests of management with those of our unitholders through the following long-term strategic objectives:

·                Attract, motivate and retain a highly qualified and effective management team to drive our financial and operational performance;

·                  Deliver sustained, strong business and financial results;

·                  Encourage commitment to safety and the environment throughout our company; and

·                  Build unitholder value over the long-term.

Decisions regarding executive compensation elements, incentive plan design and award levels for our executives are guided by a series of principles intended to ensure:

·                  Compensation levels are sufficiently competitive to attract and retain talent;

·                  Compensation is consistent with leadership position and responsibility;

·                  Compensation is tied to both short-term and long-term performance, and ultimately, growth in long-term unitholder value; and

·                  Incentive compensation does not encourage inappropriate risk-taking.

2012 Company Highlights

In 2012, the performance of our named executive officers furthered our mission of building a more diversified midstream company with scale and stability of cash flows, above-average returns on invested capital, and secure and growing distributions to our unitholders. Our accomplishments in 2012, which we believe provide a strong platform for future growth, included:

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Increased Scale

·                  Execution of expansion capital projects in Texas that are supported by long-term, fee-based capacity commitments from major producers in the Eagle Ford Shale:

·                  A 400 MMcf/d cryogenic processing expansion at our Houston Central complex, which was near completion by the end of 2012 and we expect to place in service in April 2013;

·                  A second 400 MMcf/d cryogenic facility, which is in the initial stage of construction and we expect to place in service in 2014;

·                  A 60-mile southwest extension of our DK pipeline into McMullen County, Texas, which was near completion by the end of 2012 and we expect to place in service in April 2013; and

·                  The Double Eagle crude and condensate gathering system, our joint venture with Magellan Midstream Partners, which we expect to begin initial service in April 2013.  We expect to place the full system in service by the third quarter of 2013.

·                  In the Woodbine Shale play in Texas, we are installing a leased 10 MMcf/d refrigeration unit and expect to begin processing gas early in the second quarter of 2013.

·                  In Oklahoma, we completed construction of a pipeline connecting our Osage and Stroud systems, which enables us to gather rich Mississippi Lime gas on the Osage system and provide processing and nitrogen rejection services for this gas at our Paden processing plant.

Improved Stability of Cash Flows

·                  Continued reduction of our sensitivity to commodity prices by increasing the fee-based component of our contract mix, which represented 48% of our total segment gross margin for the first quarter of 2012 and 63% of our total segment gross margin for the fourth quarter of 2012.

Invested Capital at Above-Average Returns

·                  Investment of approximately $420 million of expansion capital at an expected internal rate of return in excess of 20%, which is well in excess of our estimated cost of capital.

Improved Quality of Distributions

·                  Continued shift toward a more fee-based contract mix has increased the stability and predictability of our cash flows in a volatile commodity price environment.

Management’s accomplishments in furtherance of our strategic objectives as described above were key considerations as the Compensation Committee determined compensation for our named executive officers.

Elements of Compensation

We use a combination of short-term and long-term incentives to reward our executive officers’ achievement of our near-term business goals and to encourage their commitment to us and our long-term business strategy.

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In determining the appropriate amounts and types of compensation for our executive officers, the Compensation Committee considers a number of factors, including:

·                  historical compensation levels;

·                  data regarding market levels of compensation prepared by our independent compensation consultant;

·                  competition for executives with specific experience in our business;

·                  the specific role the executive plays within our company and his or her potential to influence our performance and future success;

·                  the executive’s performance and individual level of responsibility, knowledge and experience, including the executive’s role in projects or initiatives that deliver value to our company and our unitholders; and

·                  relative compensation levels among our executive officers.

To determine the mix of salary, short-term and long-term compensation for each executive, the Compensation Committee considers (i) the amount of performance-contingent compensation appropriate to incentivize achievement of both near-term and long-term results, (ii) the responsibilities of each named executive officer and (iii) the levels of contingent compensation used by peer companies for their executive officers.

The Compensation-Setting Process

The Compensation Committee

The Compensation Committee assists the Board in fulfilling its duties relating to executive officer and director compensation and has general oversight responsibility for our compensation structure, practices and programs. The fundamental responsibilities of the Compensation Committee related to executive compensation are to:

·                  establish the objectives of our executive compensation program;

·                  approve and administer our incentive compensation plans;

·                  monitor the performance and compensation of executive officers; and

·                  set compensation levels and make awards under incentive compensation plans that are consistent with our compensation objectives and the performance of our company and its executive officers.

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The Compensation Committee also has responsibility for evaluating and making a recommendation to our Board regarding compensation for service on our Board.

Role of Compensation Consultant

The Compensation Committee Charter grants the Compensation Committee the sole and direct authority to retain, amend the engagement with or terminate compensation advisors and to approve their compensation, which we are obligated to pay.  Any advisors so hired report directly to the Compensation Committee. The Compensation Committee has engaged BDO USA, LLP, or BDO, our independent compensation consultant, to assist it in assessing and determining compensation packages for our executive officers that are consistent with market practice and our compensation philosophy. During 2012, the Compensation Committee analyzed the relationships BDO has with members of the Compensation Committee as well as with management and the Company and concluded that, after consideration of the requirements of Item 407(e)(3)(iv) of Regulation S-K and rules of the NASDAQ that affect the independence of compensation advisers, no conflict of interest exist between our company and BDO.

In February 2013, our Board amended the Compensation Committee Charter to require the Compensation Committee to analyze the relationships any adviser has with members of the Compensation Committee as well as management and the Company as a whole prior to such engagement.

From time to time, BDO may also provide non-executive compensation consulting services to us. During 2012, fees for such additional services were less than $20,000.

Market Analysis

We believe that compensation levels of executive officers of companies in our peer group are relevant to our compensation decisions because we compete with these companies for executive talent.

BDO has, from time to time at the Compensation Committee’s request, developed assessments of market levels of compensation through an analysis of peer data and information disclosed in our compensation peer group’s public filings. Information compiled by BDO typically includes compensation trends in the midstream natural gas industry and for publicly traded master limited partnerships. BDO provides analyses of levels of compensation for similarly situated executive officers of companies within these groups and in other companies comparable in size to us as measured by revenues or market capitalization. The make-up of the compensation peer group is reviewed annually by the Compensation Committee in consultation with BDO. For 2012, this peer group consisted of the following companies:

The Compensation Committee does not set compensation targets at a specific percentile level of the peer group data. Rather, the Committee takes the peer company data into consideration when making pay decisions, taking into account, among other factors, our size relative to that of companies in our peer group.

Compensation Risk Assessment

In 2010, the Company engaged BDO to conduct an independent assessment of whether any risks arising from our compensation policies and practices were likely to have a material adverse effect on our company.

Based upon BDO’s review, we concluded at that time that our compensation arrangements contained a number of design elements that minimize incentives for risk-taking and that we had many effective oversight controls. Because the structure of compensation opportunities for our named executive officers that were subjected to the risk analysis in 2010 remained the same for 2012, we do not believe that any risks arising from our compensation policies and practices are reasonably likely to have a material adverse effect on us. The Compensation Committee considers the risk inherent in compensation programs as it makes compensation decisions in the context of our overall philosophy and the company’s strategic objectives.

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Consideration of Results of Say-on-Pay Vote

At our 2011 annual meeting of unitholders, we held our first advisory unitholder vote on the compensation paid to our named executive officers, or say on pay.  At that meeting, 98% of our unitholders voting on say on pay cast a vote in favor of our compensation philosophy, programs and policies and the compensation of our named executive officers. Our unitholders also voted in favor of a three-year frequency for future say on pay votes.

Because the vote was advisory, the result was not binding on our Compensation Committee. However, the Compensation Committee considered the vote to be an endorsement of our executive compensation philosophy, programs and policies, and took into account the outcome of the vote in reviewing those programs and policies. The Compensation Committee considered unitholders’ support and other factors in determining that no significant changes to the Company’s executive compensation programs and policies were necessary in 2012.

Role of Executive Officers

Except with respect to his own compensation, our Chief Executive Officer plays a significant role in the Compensation Committee’s decisions regarding compensation for our executive officers. In fulfilling his role, the Chief Executive Officer relies in part on advice from other executive officers and market information provided by BDO at the request of the Compensation Committee. The most significant aspects of our Chief Executive Officer’s role are:

·                  providing the Compensation Committee with his evaluation of the individual performance of our executives;

·                recommending targets and objectives under our Management Incentive Compensation Plan, or MICP, and our Long-Term Incentive Plan, or LTIP, for executive officers other than himself; and

·                  recommending base salary levels, MICP awards and LTIP awards for executive officers other than himself.

Our Executive Compensation Program

Compensation Elements

2012 Target Compensation

After consideration of market information prepared by BDO and each executive’s role in our company and his or her potential to influence our performance, the Compensation Committee allocated target compensation for 2012 for our named executive officers among our various compensation elements as reflected below:

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Base Salary

The Compensation Committee reviews base salaries of our executive officers annually.

2012 Base Salaries.  When approving base salary increases for 2012, the Compensation Committee primarily considered: (i) an analysis of market information provided by BDO, (ii) individual performance and (iii) relative salary levels among our executive officers. Mr. Neskora’s base salary was determined after consideration of an analysis of market information provided by BDO and compensation opportunities of our other executives. The following base salary increases for our named executive officers for 2012 (other than for Mr. Neskora) represented an average increase of approximately 7% over 2011 base salaries and were effective January 1, 2012. Based on BDO’s peer group analysis, we believe our named executive officers’ 2012 base salaries were competitive with base salaries of similarly situated executive officers of companies in our peer group, taking into consideration our size relative to companies in the peer group.

Base Salaries for 2012

(1)       Mr. Neskora commenced employment with us on July 16, 2012.

2013 Base Salaries.  In November 2012, the Compensation Committee reviewed base salaries for all executive officers and approved increases for 2013 for our named executive officers, representing an average increase of approximately 7% over base salaries in effect for 2012. The increases were effective January 1, 2013. Under our merger agreement with Kinder Morgan, we are prohibited from making any further increases in the base salaries of our named executive officers for 2013 without the consent of Kinder Morgan.

Short-Term Incentive Compensation

MICP — Annual Incentive Awards. The MICP provides annual bonus opportunities for our officers and certain key employees based upon the achievement of company or individual performance objectives, or both, as established for the year by our Compensation Committee and, in the case of company objectives, by our Board. The MICP provides for settlement of MICP bonuses with either cash or equity, at the discretion of the Compensation Committee. Target incentive opportunities, or target awards, under the MICP are established each year by the Compensation Committee as a percentage of base salary. Target incentive opportunities are intended to provide a contingent compensation opportunity comparable to similar opportunities available for comparable positions in our peer group and sufficient, in the Compensation Committee’s judgment, to drive performance. The 2012 MICP target incentive opportunities for our named executive officers were as follows:

2012 Target Incentive Opportunity

Actual bonus amounts are subject to final approval by the Compensation Committee, which has the discretion to adjust some or all of the amount of any award that would otherwise be payable to an individual participant or to all participants upon satisfaction of applicable objectives. In making any such adjustment, the Compensation Committee may take into account any factor or factors it considers appropriate. Our MICP provides that no participant may receive an annual MICP award that exceeds 200% of his or her annual base salary during any calendar year.

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The MICP also provides the Compensation Committee the authority to make special incentive awards in recognition of exemplary performance by a participant. A special incentive award may not exceed 50% of a participant’s annual base salary during any calendar year. The Chief Executive Officer typically recommends the amount of any special incentive award for a participant (other than for himself) to the Compensation Committee.

2012 MICP Objectives.  In February 2012, the Compensation Committee adopted MICP guidelines for 2012, which provided for bonus opportunities based upon achievement of the objectives described below.

·                Financial Objective:  60% of each MICP participant’s bonus was contingent on achievement of specified levels of total distributable cash flow(1). We believe total distributable cash flow is an important performance measure for our unitholders because it serves as an indicator of our success in providing a cash return on investment — specifically, whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates.

·                Operational Objectives: 30% of each MICP participant’s bonus was contingent on achievement of operational objectives related to the following:

·                Safety (10%) — intended to encourage company-wide safety consciousness, commitment and execution. Our safety objective was comprised of five equally weighted measures: (i) recordable incident rates, (ii) lost time incident rates, (iii) vehicle accident rates, (iv) major regulatory citations (those with monetary penalty in excess of $50,000) and (v) spills (those that must be reported to the National Response Center);

·                  Management of key capital projects (10%) — intended to focus participants on completing major capital projects on time and on budget (excluding scope changes, force majeure events and other factors out of our control); and

·                  Company growth (10%) — intended to establish a presence (through organic growth or acquisitions) in a new geographic area or add a new line of business.

·                  Personal Objective:  10% of each MICP participant’s bonus was contingent on a subjective assessment of such participant’s performance by our Chief Executive Officer after consultation with the participant’s supervisor and other executive officers, or in the case of the performance of our Chief Executive Officer, a subjective assessment by the Compensation Committee.

Depending on the level of achievement for each of the financial, operational and personal objectives, MICP participants could earn between 0% and 150% of their target bonus opportunity as shown in the table below. The level of achievement for the financial objective and the operational objective related to safety was measured based on specified performance levels. To the extent that performance fell between specified performance levels, the amount of the bonus was determined by straight-line interpolation. The level of achievement of the operational objectives related to management of capital projects and company growth and the personal objective was not measured based on specified performance levels; instead, the level of achievement was determined by the Compensation Committee, in its sole discretion, after considering the recommendations of our Chief Executive Officer.

The table below sets forth possible and actual percent of target payouts for the financial, operational and personal objectives for 2012:

(1)             Our discussion of MICP financial objectives includes references to the non-GAAP financial measures of total distributable cash flow per unit (used in 2010) and total distributable cash flow (used in 2011 and 2012).  For a discussion of how we calculate these measures and reconciliations of these measures for historical periods to net income (loss), their most directly comparable GAAP measure, please see “Reconciliation of Non-GAAP Financial Measures.”

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2012 MICP Financial, Operational and Personal Objectives

(1)         Performance level was $155.4 million for threshold, $189.5 million for target and $212.2 million for maximum. Payout was based on $191.7 million total distributable cash flow for 2012 (estimated as of February 11, 2013, the date on which the Compensation Committee approved bonuses for 2012). Results reflect inclusion of volume deficiency fees of $15.5 million, which were earned in 2012 but have been or will be received in 2013.

(2)         Performance level was at industry standards for threshold, 10% better than industry standards for target and better than our 2011 performance for maximum. Payout was based on maximum level of achievement.

(3)         No specified performance levels. Payout was based on Committee determination that, including cost and schedule impacts related to scope changes, Board-approved capital projects were delivered under budget and completed on schedule. Key considerations were strong project management oversight and a focus on project controls.

(4)         No specified performance levels. Payout was based on Committee determination after review of projects begun in and contracts related to new areas.

(5)         No specified performance levels. Payout was based on subjective Committee determination. Results reflect average of level of achievement.

MICP — Special Incentive Awards.  In February 2013, the Compensation Committee approved special incentive awards under our MICP for Messrs. Northcutt, Luna and Wade for their individual performance during 2012. The special incentive awards were made in recognition of their contributions to accomplishments and initiatives that we believe provide a foundation for growth in long-term unitholder value. During 2012, Mr. Northcutt led our executive team’s efforts to further our strategic objectives, including key financings, key process improvement initiatives, execution on organic growth opportunities of our company and additions to the executive team. Mr. Luna’s contributions included two public offerings of common units and a senior notes offering and Mr. Wade’s contributions included initiation of a number of strategic projects and execution of key commercial agreements in the Eagle Ford Shale. The amounts of the awards, which were determined by the Compensation Committee based on a recommendation from our Chief Executive Officer (except for the award to Mr. Northcutt), were not tied to any specific target or metric but rather were viewed as appropriate in light of each recipient’s contributions and existing compensation.

In February 2012, the Compensation Committee approved a special cash incentive award of $75,000 under our MICP for Mr. Wade in recognition of his key role in our Eagle Ford Shale growth projects during 2011. The award was contingent on the successful completion of an upgrade to the cryogenic processing facility at our Houston Central complex and was payable on March 20, 2012. The amount of the award, which was determined based on a recommendation from our Chief Executive Officer in consultation with BDO, was not tied to any specific target or other metric but rather was viewed as appropriate in light of Mr. Wade’s contributions and existing compensation. The Compensation Committee also approved a special LTIP award to Mr. Wade in recognition of his role in our Eagle Ford growth projects during 2011, which is discussed in “Long-Term Incentive Compensation — LTIP — Special LTIP Award to Mr. Wade” below.

2012 MICP Payout Amounts. The table below reflects incentive compensation awards, including special incentive awards, under our MICP for 2012 for each of our named executive officers:

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Named Executive Officer MICP Awards for 2012

2013 MICP.  In February 2013, the Compensation Committee adopted MICP guidelines for 2013, which provide for (i) a single financial objective — total distributable cash flow, (ii) operational objectives that relate to management of key capital projects, safety and company expansion goals, and (iii) a personal objective. Our Compensation Committee increased the target incentive opportunities for Messrs. Luna and Wade and Ms. Robinson for 2013 to reflect the increased scale of the Company’s operations and compensation trends among peer companies.  The short-term incentive opportunities of our named executive officers for 2013 under the MICP are subject to the provisions of the merger agreement with Kinder Morgan, which provides for a prorated payout at not less than target upon closing of the merger. The table below summarizes target bonus opportunities for our named executive officers for 2013:

2013 Target Incentive Opportunity

(1)        As a percentage of base salary earned in 2013.

(2)         Estimate based on base salary in effect as of January 1, 2013.

(3)         Subject to the terms of the merger agreement with Kinder Morgan.

In making the annual determination of the threshold, target and maximum levels for financial and operational objectives, the Compensation Committee and the Board consider the specific circumstances facing us during the applicable year as well as the level of ease or difficulty in meeting our goals in recent years. The expectation that management will achieve the threshold level of performance is relatively high, while the achievement of the target level is considered reasonably likely and the achievement of maximum level performance is considered possible but not likely.

As an illustration of the challenge represented by the annual objectives approved by the Compensation Committee, the table below sets forth, for each of the last three completed fiscal years, the threshold, target and maximum goals established in advance for the financial objective and the actual results in each of those years:

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MICP Financial Objective

(1)         Reflects the percentage payout of participant target awards attributable to the financial objective for the period indicated.

(2)         Estimated as of February 11, 2013, the date on which the Compensation Committee approved MICP awards for 2012. Results reflect inclusion of deficiency fees of $15.5 million, which were earned in 2012, but have been or will be received in 2013.

The table below sets forth, for each of the last three completed fiscal years, the average payout attributable to achievement of the operational objectives:

MICP Operational Objectives

As noted above, if the proposed merger with Kinder Morgan closes in 2013, pursuant to the merger agreement, upon the closing the named executive officers will be entitled to a prorated annual incentive payment at not less than target levels, which amount is payable upon or as soon as practicable following the closing of the merger.

Long-Term Incentive Compensation

LTIP.  We provide long-term incentive compensation through our LTIP. The size of awards made to each named executive officer is determined after considering a number of factors, including (i) position, scope of responsibility and ability to affect profits and unitholder value, (ii) historic and recent performance, (iii) the value of LTIP awards in relation to other elements of compensation, (iv) the practices of our peer companies with respect to equity grants for comparable positions, (v) the projected compensation expense that we would be required to recognize under FASB ASC Topic 718 — Stock Compensation, and (vi) the dilutive effect of equity grants on our unitholders.

The Compensation Committee has adopted formal procedures relating to the grant of awards under our LTIP. With respect to awards to our executive officers, these procedures specify when grants are to be effective, what price will be used to determine the amount of an award and how the exercise price for an option or UAR is determined.

2012 Annual Grants.  The awards granted to our executive officers for 2012 consisted of 50% service-based phantom units and 50% performance-based phantom units. The service-based phantom units vest in three equal annual installments commencing May 15, 2013. The performance-based phantom units will cliff vest on May 15, 2015, provided that the performance goal, which is declaration of a specified annualized distribution per common unit, is met at any time during the three-year vesting period. The performance-based phantom units may vest at a threshold (50%), target (100%) or maximum (200%) level depending on the level of achievement of the performance goal. The awards include tandem distribution equivalent rights, which are subject to the same vesting and forfeiture terms as the related phantom unit. Upon vesting of a phantom unit, the executive will be entitled to an amount equal to the cash distributions made by the company on a common unit during the period from the time of grant until the phantom unit vests.

In determining the size of the award granted to each named executive officer for 2012, the Compensation Committee established a target award value, expressed as a percentage of base salary, for each executive. The target award value was established based on BDO’s review of market data, internal pay equity considerations and the executive’s level of responsibility and potential to influence company performance. Target award values for 2012 are shown in the table below:

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2012 Annual LTIP Target Awards

To determine the number of phantom units granted to our named executive officers (other than to Mr. Neskora whose grant is discussed below), we multiplied the target award value by the named executive officer’s base salary and divided that amount by $28.53, which was the closing price of a common unit on May 14, 2012, the day preceding the day the Compensation Committee approved the awards.

Special LTIP Award to Mr. Wade. In February 2012, the Compensation Committee approved an award of phantom units, valued at $75,000, to Mr. Wade in recognition of his key role in our Eagle Ford Shale growth projects during 2011. The award was contingent on the successful completion of an upgrade to the cryogenic processing facility at our Houston Central complex and became payable on March 20, 2012. The amount of the award, which was determined based on a recommendation from our Chief Executive Officer in consultation with BDO, was not tied to any specific target or other metric but rather was viewed as appropriate in light of Mr. Wade’s contributions and existing compensation. The number of units awarded was determined by dividing the value of the award by $35.84, which was the closing price of a common unit on the day before the award became payable. The phantom units will vest in three equal annual installments. The Compensation Committee also approved a special incentive award under our MICP to Mr. Wade, which is discussed in “Short-Term Incentive Compensation — MICP — Special Incentive Awards” above.

LTIP Awards to Mr. Neskora. In July 2012, in connection with Mr. Neskora’s commencement of employment with us, the Compensation Committee approved awards to him of time-based phantom units, performance-based phantom units and long-term retention phantom units. The awards of time-based and performance-based phantom units are subject to the same terms as the 2012 annual grants described above. The number of time-based phantom units and performance based phantom units, was determined based upon the target award value established for him by the Compensation Committee and was prorated to reflect service from his date of hire until the expected date of the annual grant for 2013. The number of long-term retention phantom units awarded to Mr. Neskora was determined after consideration of data regarding market levels of compensation prepared by BDO and long-term retention awards made to our other executive officers. One-half of the long-term retention award will vest on July 16, 2015 and one-half will vest on July 16, 2017.

The following table summarizes LTIP awards made to our named executive officers during 2012:

Named Executive Officer LTIP Awards in 2012

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Under the LTIP, the proposed merger with Kinder Morgan will be a change in control of our company.  Upon the consummation of the proposed merger, all outstanding LTIP awards will vest and be settled in accordance with the terms of the merger agreement. Also, the merger agreement prohibits the grant of any new awards under out LTIP while the merger is pending.

Deferred Compensation Plan

In 2008, the Compensation Committee approved our Deferred Compensation Plan, or DCP, and related participation agreements, which impose company performance requirements prior to payout of deferred amounts to certain of our named executive officers. Under the DCP and related participation agreements, 5% of the 2009 base salaries in effect on January 1, 2009 for Mr. Northcutt and Ms. Robinson was deferred and will not be paid unless and until we have generated cumulative distributable cash flow of at least $4.00 per common unit within a period of four consecutive quarters, referred to as the DCF Target. (For a discussion of how we calculate distributable cash flow and a reconciliation of this measure for historical periods to net income (loss), its most directly comparable GAAP measure, please see “Reconciliation of Non-GAAP Financial Measures”). However, deferred amounts would be paid earlier upon a change in control of our company, in the event of the participant’s death or disability, or upon termination of employment by the participant for “good reason” or by us other than for “cause” as defined in the participation agreements. Under the DCP, the proposed merger with Kinder Morgan will be a change in control of our company. If the DCF Target has not been met after determination of distributable cash flow for the fourth quarter of 2015, outstanding deferred amounts will be forfeited. No other amounts have been deferred under our DCP. For a summary of activity under our DCP during 2012, see the “Nonqualified Deferred Compensation” table below.

Management Change in Control Severance Plan

We adopted our Management Change in Control Severance Plan, or CICP, to ensure that our executive officers will perform their roles for an extended period of time in the context of a change in control of our company. We believe that the CICP is an important retention tool and that the benefits it provides to our named executive officers are similar to those provided by other companies against whom we compete for talent. Under the CICP, the proposed merger with Kinder Morgan will be a change in control of our company.

The CICP provides that if a participant’s employment is terminated in connection with a “change in control” as defined in the CICP, the participant will be entitled to benefits if (i) the termination is by us for reasons other than for “cause” or (ii) the termination is by the participant for “good reason,” in each case as defined in the CICP. Upon such termination, a participant will be entitled to receive a lump-sum payment in the amount of the participant’s annual base salary plus the participant’s target bonus under the MICP, the sum of which is multiplied by (i) 300% for Mr. Northcutt, (ii) 250% for Messrs. Luna and Neskora and (iii) 200% for Ms. Robinson and Mr. Wade. In addition, the participants will be entitled to continued health insurance benefits for up to 18 months. For a further description of our CICP, see “Potential Payments upon Termination or Change in Control — Management Change in Control Severance Plan” below.

Retirement Savings Plan

All of our employees age 21 or older, including our named executive officers, may participate in our 401(k) Retirement Savings Plan, or 401(k) Plan. We provide this plan to help our employees save for retirement in a tax-efficient manner. For 2012, each employee could have made pre-tax contributions of up to $17,000 ($22,500 if the employee is age 50 or older) of his or her compensation. For the fiscal year ended December 31, 2012, we elected to match employee contributions (i) 100% for up to 3% of base salary and (ii) 50% for the next 2% of base salary for each employee employed by us on December 31, 2012.

Health and Welfare Benefits

All eligible employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance.

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Perquisites

Other than a stipend of $170 per month for transportation and parking expenses that we began paying to all Houston-based employees in June 2012, we did not provide perquisites or other personal benefits exceeding a total value of $10,000 to any executive officer.

Clawback Provisions

Our MICP includes a “clawback” provision, which applies if we fail to comply with securities laws and are required to restate our financial results due to misconduct. The clawback will be triggered if our Board or Audit Committee determines that an MICP participant engaged in fraudulent, willful or grossly negligent misconduct that contributed to the need for a restatement or was knowingly or grossly negligent in failing to prevent such misconduct. Under these circumstances, for any year affected by the restatement, we could require the MICP participant to repay the portion of his or her bonus that would not have been paid had our financial results been properly reported. Additionally, if our Board or Audit Committee concludes that an MICP participant has engaged in fraud, embezzlement or other similar misconduct materially detrimental to us, then we could require the participant to repay all MICP awards he or she received for the years during which the misconduct occurred.

Our MICP also has an additional “clawback” provision enabling us to require repayment of bonuses to the extent needed to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations adopted under the Act.

Unit Ownership Guidelines

The Compensation Committee has not implemented unit ownership guidelines for our executive officers, but periodically reviews its position with respect to unit ownership guidelines.

Insider Trading Policy

Our insider trading policy prohibits our directors, executive officers and employees, including our named executive officers, from buying our common units on margin, engaging in short sales and buying or selling options or any other derivative securities of any kind relating to our common units.

Accounting and Tax Considerations

We account for awards under our LTIP in accordance with the requirements of FASB ASC Topic 718 - Stock Compensation, which requires the grant date fair value of the award to be recognized as compensation expense over the vesting period of the award. When determining whether to grant equity awards and the appropriate size of those awards, the Compensation Committee considers the estimated compensation expense we would recognize in connection with an award. For additional information, please read Note 6, “Members’ Capital and Distributions — Accounting for Equity-Based Compensation” to our consolidated financial statements included in Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Because we are treated as a partnership for tax purposes, Section 162(m) of the Internal Revenue Code does not apply to compensation paid to our named executive officers. Accordingly, the Compensation Committee did not consider its impact in determining compensation levels for 2012.

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Executive Compensation

Summary Compensation Table

The following table sets forth certain information with respect to the compensation paid to our named executive officers for the fiscal years ended December 31, 2012, 2011 and 2010.

Summary Compensation Table for 2012

(1)                       Amounts reported under “Unit Awards” and “Option/UAR Awards” reflect the grant-date fair value of phantom unit, UAR and unit awards, as calculated in accordance with FASB ASC Topic 718 — Stock Compensation. Assumptions used in calculating these amounts are discussed in Note 6, “Members’ Capital and Distributions — Accounting for Equity-Based Compensation” to our consolidated financial statements included in Item 8 in our Annual Report on Form 10-K for 2012. Pursuant to FASB ASC Topic 718, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards rather than the actual value that may be realized by the named executive officer.

(2)                       Reflects annual bonuses earned in 2012, but paid in 2013.

(3)        The company did not provide perquisites and other personal benefits exceeding a total value of $10,000 to any named executive officer, except for amounts in 2010 and 2011 associated with Mr. Wade’s relocation to our corporate headquarters.

(4)                       Includes special incentive award of $200,000 paid in February 2013 for performance in 2012.

(5)        Reflects our contribution of $10,000 to the 401(k) Plan for 2012 and payment of $1,190 for transportation and parking expenses, which amount was paid to all Houston-based employees.

(6)                       Includes unit awards used to settle MICP bonuses earned in 2011, but paid in 2012.

(7)                       Reflects our contribution of $7,350 to the 401(k) Plan for 2011.

(8)                       Includes unit awards to settle MICP bonuses earned in 2010, but paid in 2011.

(9)                       Includes special incentive award of $100,000 paid in February 2013 for performance in 2012.

(10)                Reflects base salary paid from July 16, 2012 through December 31, 2012.

(11)                Reflects payment of $1,020 for transportation and parking expenses, which amount was paid to all Houston-based employees.

(12)                Reflects our contribution of $10,000 to the 401(k) Plan for 2012.

(13)                Includes special award of phantom units, valued at $75,000 in recognition of Mr. Wade’s key role in our Eagle Ford Shale growth projects during 2011. The award was contingent on the successful completion of an upgrade to the cryogenic processing facility at our Houston Central complex and was payable March 20, 2012.

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(14)                Includes special incentive award of $50,000 paid in February 2013 for performance in 2012 and $75,000 special incentive award paid in March 2012 in recognition of Mr. Wade’s role in our Eagle Ford Shale growth projects during 2011.

(15)                Includes our contribution of $7,350 to the 401(k) Plan for 2011 and reimbursement of $64,561 to Mr. Wade for losses and costs associated with the sale of his home, including $17,760 for income recognized as a result of the reimbursement.

(16)                LTIP awards to Mr. Wade in connection with his commencement of employment with us were determined after consideration of compensation he would forfeit upon termination of employment with his prior employer.

(17)                Reflects travel, moving and temporary living expenses.

Grants of Plan-Based Awards during 2012