Exhibit 10.12

RESIGNATION AND NON-COMPETE AGREEMENT

     This Agreement ("Agreement") is enteredinto this 21st day of July, 2004 between KMGP Services, Inc. (on behalf of itself and theother persons and entities included in the definition of KM (as defined below), and MichaelC. Morgan ("Employee").

     WHEREAS, Employee is currently employed as anat-will employee of KM;

     WHEREAS, Employee has decided to resign from hisposition as President of Kinder Morgan, Inc. ("KMI"), Kinder Morgan G.P., Inc.,Kinder Morgan Management, LLC and as an officer and director of their respectiveaffiliates in order to pursue other opportunities, including as a principal of PortcullisPartners, L.P., while remaining an unpaid employee and retaining his membership on KMI'sBoard of Directors (the "Board");

     WHEREAS, the parties wish to provide for certainterms and conditions associated with this resignation;

     WHEREAS, the parties negotiated certain terms toextend past employment, including, without limitation, terms relating non-competition andconfidentiality;

     WHEREAS, Employee agrees that ample considerationwas provided to ensure enforcement of such provisions;

     NOW THEREFORE, in consideration of the foregoingpremises and the following promises, the parties agree as follows:

          1.    **Intent of the Parties.** It is theintent of the parties that all rights under any previous agreement(s) or understandingsconcerning Employee's employment by KM shall be waived and forfeited upon execution ofthis Agreement, except as described on Schedule 1 attached hereto.

          2.    **Definitions.**
               (a)   KM. "KM" as used in this Agreementshall mean and include Kinder Morgan Energy Partners, L.P., Kinder Morgan, Inc., KinderMorgan Management, LLC and their respective divisions, subsidiaries, parents and/oraffiliates, successors or assigns, and, for purposes of this Agreement, the term"affiliates" shall have the same definition as the term "affiliatedgroup" in Section 1504(a) of the Internal Revenue Code of 1986, as amended from timeto time.

               (b)   Confidential Information. "ConfidentialInformation" shallinclude all information comprising, concerning or relating to (i) KM's Customers (asdefined below), providers, suppliers, and other business affiliates; (ii) KM's policies,practices, operating information, pricing, profits, margins, costs, expenses, returnexpectations, financial information, business plans, economic models and marketapproaches; and (iii) other information, techniques or approaches used by KM and notgenerally known or applied in KM's industry. KM believes that some or all of thisinformation constitutes trade secrets; however, the Confidential Information covered inthis Agreement need not satisfy the legal definition or requirements of a "tradesecret" to be protected from disclosure hereunder. Confidential Information shall not

 

include any information that is generally known in KM's industry and informationalready known to any future employer of Employee through no fault of Employee, and anyinformation disclosed by KM in public filings including without limitation SEC or FERCfilings.

               (e)   Customer. "Customer" shall includeany person or entity to whom at any time during the Employment Period (as defined below)services are being sold by KM, and any person or entity with which, at any time during theEmployment Period, KM has established a strategic marketing alliance.

               (f)   Effective Date. This Agreement shall beeffective upon execution hereof by both parties.

          3.    **Resignation.** Employee herebyresigns his position as an officer and director of each entity included in KM, other thanhis position as a director of KMI.

          4.    **KM's Promises.** In considerationof Employee's performance hereunder:

               (a)   Bonus. Employee will be eligible for a 2004annual incentive bonus under the terms of the KM bonus program. All Bonus Payments shallbe subject to applicable required withholdings. Employee shall not be eligible for anannual incentive bonus for any periods flowing calendar year 2004.

               (b)   Medical Benefits. KM agrees to provide bestefforts to allow Employee to participate, at Employee's cost, in those health benefitplans that active employees are eligible to participate in to the extent permissible byapplicable law and subject to the terms and conditions of the applicable plan(s).

               (c)   Restricted Stock. In consideration forEmployee's promises set forth in Section 5 below (but not in consideration for Employee'sservice as a director of KMI) and subject to Section 6 below, Employee shall continue tohold 23,333 shares of restricted stock of KMI (as described on Schedule 1 attached hereto)on the same terms and conditions as are set forth in that certain Restricted StockAgreement (the "July 16, 2003 Grant"), dated July 16, 2003, between Employee andKMI; provided that (i) 8,333 shares shall vest and cease to be subject to forfeiturerestrictions on July 16, 2006 and 15,000 shares shall vest on July 16, 2008; (ii) 76,667shares subject to the July 16, 2003 Grant shall be forfeited; and (iii) to the extent theapproval of the shareholders of KMI is not necessary for Employee to continue to hold such23,333 shares or to cancel the July 16, 2003 Grant and issue Employee a new grant of23,333 shares of restricted stock of KMI, KM may substitute cash payments in lieu of thevalue of the restricted stock and the dividends paid thereon. Such payments shall be made(x) on July 16, 2006 and July 16, 2008 in the case of the value of the shares ofrestricted stock and (y) on the date(s) KMI pays dividends to its shareholders in the caseof dividends.

          5.    **Employee's Promises.** Employeeacknowledges and agrees that; 1) KM and its affiliates are engaged in, among other things,owning and/or operating integrated natural gas assets, products, chemicals and bulkterminals, refined products, natural gas, natural gas liquids and carbon dioxidepipelines, electricity generating assets, crude oil production assets and other midstreamenergy assets; (the "Business"); 2) the Business is conducted throughout the

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United States; 3) his work for KM gave and will continue (during the Employment Period)to give him access to Confidential Information, proprietary information and trade secretsof and concerning KM, KM's actual and potential Customers, providers, suppliers, and otherbusiness affiliates; 4) his work for KM gave and will continue (during the EmploymentPeriod) to give him access to KM's actual and potential Customers, providers, suppliers,and other business affiliates with whom KM has expended substantial efforts tosuccessfully establish goodwill; and 4) the agreements and covenants contained in thisParagraph 4 are essential to protect the Business and the trade secrets, ConfidentialInformation, proprietary information, goodwill and other legitimate interests of KM.Accordingly, Employee agrees and covenants as follows:

               (a)   Confidential Information. Employee agrees andcovenants that he shall not at any time, directly or indirectly, (i) use or apply anyConfidential Information for any purpose not expressly authorized by an officer of KM,alone or with any other person or entity; or (ii) disclose or provide any ConfidentialInformation to any person or entity not expressly authorized by an officer of KM toreceive such Confidential Information provided, however, that Employee shall not be heldin breach of this provision should Employee be required to testify pursuant to subpoenaunder oath or as otherwise required by law, provided additionally that Employee testifiestruthfully and that, prior to providing such testimony, Employee notifies KM within 48hours that his testimony is being sought so as to permit KM to seek to prevent or limitsuch testimony or otherwise seek to obtain a protective order.

               (b)   Non-Disparagement Agreement. Employee agreesand covenants that he will not in any way knowingly disparage KM, its officers, directors,employees, consultants, agents, or business performance, methods, practices, operations,decisions or plans; provided, however, that Employee shall not be held in breach of thisprovision should Employee be required to testify pursuant to subpoena under oath or asotherwise required by law, provided additionally that Employee testifies truthfully andthat, prior to providing such testimony, Employee notifies KM within 48 hours that histestimony is being sought so as to permit KM to seek to prevent or limit such testimony orotherwise seek to obtain a protective order. KM likewise agrees not to disparage Employee,in the same manner and subject to the same limitations set forth in this Section 5(b).

               (c)   Non-Solicitation of KM Employees. Employeeagrees and covenants that prior to the earlier of (i) July 21, 2008 or (ii) for one (1)years following the date of termination of Employee's membership on the Board for anyreason whatsoever, he will not hire, encourage, entice, or otherwise solicit any employeeof KM, or aid any third party to hire, encourage, entice or solicit any employee of KM, toleave employment with KM in order to accept employment elsewhere. For purposes of thisparagraph, "employment elsewhere" shall include any relationship ofemployer/employee, any relationship of principal/independent contractor and anyrelationship of client/consultant.

               (d)   Non-Competition. Employee agrees and covenantsthat prior to the earlier of (i) July 21, 2008 or (ii) one (1) years following the date oftermination of Employee's membership on the Board for any reason whatsoever, Employee willnot, directly or indirectly, engage or become interested, as employee, owner, consultant,advisor, officer, director or partner, or through stock ownership, investment of capital,lending of money or property, or rendering of services or otherwise, either alone or inassociation with others, in any type of business or enterprise which is in competitionwith or which is directly or indirectly 

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detrimental to KM's Business, *provided, however*, that the record or beneficialownership by Employee of one percent (1%) or less of the outstanding publicly tradedcapital stock of any such business or enterprise shall not be deemed to be in violation ofthis Paragraph 5(d), provided further that Employee is not an employee, consultant,advisor, officer, director or partner of such business or enterprise.

               (e)   Confidentiality of this Agreement. KM andEmployee agree not to divulge, disclose or publicize in any manner to any third party,including but not limited to current or former employees of KM, the existence or terms andconditions of this Agreement, except, with respect to disclosure by Employee: (1) insofaras is necessary to enforce the Agreement, comply with this Agreement, applicable laws orregulations, or to respond to an order of a court or administrative agency for disclosure,(2) to Employee's legal counsel, spouse, or tax or financial advisors, on condition thatany such person to whom the terms or conditions of this Agreement are disclosed shall beinstructed not to disclose the terms or conditions to anyone else; and with respect todisclosure by KM: (1) insofar as is necessary to enforce the Agreement, comply with thisAgreement, applicable laws or regulations, or to respond to an order of a court oradministrative agency for disclosure, (2) to KM's legal counsel, KM's directors andofficers, and KM's internal human resources and accounting personnel and auditors (only tothe extent necessary for reporting purposes), on condition that any such person to whomthe terms or conditions of this Agreement are disclosed shall be instructed not todisclose the terms or conditions to anyone else.

               (f)   Employee acknowledges and agrees that anybreach by him of the covenants, commitments and agreements in Paragraph 5 of thisAgreement shall constitute a material breach of this Agreement and is likely to result inirreparable injury to KM that could not be compensated by money damages alone. Employeetherefore agrees that, notwithstanding any other provision of this Agreement, in additionto any other remedies KM may have at law and/or equity, in the event that KM determinesthat Employee has breached any of said provisions of this Agreement, KM shall be entitled,at its election, to immediately stop making any payments hereunder and/or to terminate thevesting of, or otherwise cancel or terminate, the unvested portion of the restricted stockreferenced in Section 4(c) hereof and/or to enforce the specific performance of thisAgreement by Employee and/or to seek to enjoin Employee from activities in breach of saidprovisions of this Agreement without having to show that there are no other adequateremedies available, whether such breach of said provisions occurs during the EmploymentPeriod or thereafter. KM acknowledges and agrees that, without limiting the remedies setforth above, its sole remedy with respect to monetary damages shall be forfeiture ofunvested restricted stock described in Section 4(c) hereof.

               (g)   The parties stipulate and agree that theterms, covenants, commitments and agreements contained in this Paragraph 5 are fair andreasonable in all respects, and that these restrictions are necessary for the reasonableprotection of the legitimate business interests of KM. If, at the time of enforcement ofany of these provisions, a court holds that the restrictions stated herein areunreasonable under the circumstances then existing, the parties hereto agree that themaximum period, scope or geographical area reasonable under such circumstances will besubstituted for the stated period, scope or area. In such event, but only in such event,the parties hereto hereby specifically request a trial court or other tribunal presentedwith this Agreement for enforcement to reform it as to time, geographic area or scope of 

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activities prohibited to the fullest extent allowed by law and to enforce thisAgreement as so reformed.

               (h)   Employee shall have the right to request in aspecial exception to Section 5 of this Agreement. Such request shall be in writing,directed to KM's General Counsel, and shall clearly and specifically identify theexemption sought and the bases therefore. KM shall have thirty (30) business days torespond to such written request for a special exception. If, after a timely review, KMIdetermines in its sole discretion that no significant issues exist regarding theprotection of its trade secrets, proprietary information and/or Confidential Information,the preservation of its goodwill, or a conflict of interest, KMI shall not withhold thegranting in writing of said special exception. In the event that KM does not respond to arequest for a special exception with the thirty day period described above, KM shall bedeemed to have granted the request for special exception. KMI's decision to grant aspecial exception (or failure to respond to a response therefore) shall not be consideredto be a waiver of the provisions of Section 5 except as to the specific activities onbehalf of the specific entity for which Employee sought such waiver.

          6.    **Payment Conditions.** In the eventthat KM determines that Employee has breached any of the provisions of Paragraph 5 of thisAgreement, KM shall be entitled to immediately stop making any payments of any type underParagraph 4(c) of this Agreement and/or to terminate the vesting or exercisability of23,333 shares of restricted stock reference in Section 5 hereof (to the extent vesting hasnot occurred at the time of breach), or to require that Employee's stock option grant ofOctober 9, 1999 shall expire on the thirtieth day after KM provides Employee notice ofsuch breach.

          **7.**    **Adequacy of Consideration.** Byexecuting this Agreement, KM and Employee acknowledges the receipt and sufficiency of theconsideration provided by the other in conjunction with executing this Agreement and theFurther Release. Each acknowledges and confirms to the other that the considerationprovided by the other is good and valuable consideration legally supportive of eachparty's respective rights, duties and obligations hereunder and under the Further Release.By executing this Agreement, KM and Employee shall be estopped from raising and herebyexpressly waive any defense regarding the receipt and/or legal sufficiency of theconsideration provided by one to the other with respect to this Agreement and the FurtherRelease.

          **8.**    **Assignability.** This Agreementshall inure to the benefit of, and be binding upon, Employee and Employee's personal orlegal representatives, employees, administrators, successors, heirs, distributees,devisees and legatees, and KM, its successors and assignees, provided, however, thatneither KM nor Employee may assign any of Employee's or its obligations, rights orbenefits hereunder without the prior written consent of the other.

          **9.**    **Headings.** The headings ofsections and paragraphs herein are included solely for convenience of reference and shallnot control the meaning or interpretation of any of the provisions of this Agreement.

          **10.**   **Controlling Law.** This Agreement shallbe governed and construed in accordance with the laws of Texas. The parties agree that anylegal action regarding this Agreement must be filed in the state of Texas.

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          **11.**   **Entire Agreement.** This documentconstitutes the entire agreement of the parties on the subject matters addressed hereinand may not be expanded or except by express written agreement executed by both.

          **12.**   **Counterparts.** This Agreement may beexecuted in as many counterparts as may be deemed necessary and convenient, and by thedifferent parties on separate counterparts, each of which shall be deemed an original butall of which shall constitute one and the same instrument.
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6** ****  **KMGP SERVICES, INC.    KINDER MORGAN ENERGY PARTNERS, L.P.    KINDER MORGAN, INC.    KINDER MORGAN MANAGEMENT, LLC    (each on its own behalf and on behalf    of the other persons or entities included    within the definition of KM)          By:**  **Title:**  **        **  **EMPLOYEE  **  ****  ****  ****  **Michael C. MorganDate
 

 

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**Exhibit A

FURTHER RELEASE**
     For good and valuable consideration set forth inParagraph 3 of the Retention and Non-Competition Agreement of which this Exhibit is a part(the "Agreement"), the receipt and sufficiency of which is hereby acknowledged,Michael C. Morgan ("Morgan") and KM (as defined in the Agreement) hereby agreeas follows:

1.    **GeneralRelease.** Morgan, for himself and his representatives, heirs, and assigns, herebyreleases and forever discharges KM, and any present or former parent, sister, affiliate orsubsidiary company, partnership, limited partnership or entity, and each of its and theirshareholders, unit holders, partners, general partners, limited partners, officers,directors, employees, agents, representatives, legal representatives, accountants,successors, predecessors, and assigns (the "KM Releasees"), from all claims,demands, and actions of any nature, known or unknown, which Morgan may have against the KMReleasees as of the Effective Date of this Further Release, and specifically, but notlimited to, any and all claims, known or unknown, in any manner arising out of orinvolving any aspect of his employment with any of the KM Releasees, and including, butnot limited to, any rights or claims under the Texas Anti-Discrimination Act, the AgeDiscrimination in Employment Act ("ADEA"); Title VII of the Civil Rights Act of1964; the Vocational Rehabilitation Act; the Americans with Disabilities Act; ExecutiveOrder 11246; the Civil Rights Act of 1871; the National Labor Relations Act; the WorkerAdjustment and Retraining Notification Act; the Employee Retirement Income Security Act of1974; the Equal Pay Act (all as may have been or may be amended from time to time); andany and all other municipal, state, and/or federal statutory, executive order, orconstitutional provisions pertaining to employment, an employment relationship, sexualharassment and/or employee benefits; provided, however, that this release and waiver shallnot apply to any rights which, by law, may not be waived, or any rights expressly setforth in the Agreement. This release and waiver also specifically includes, but is notlimited to, any known or unknown claims in the nature of tort, statutory law, common lawor contract claims, including specifically but not limited to any claim of wrongfulrefusal to hire, wrongful discharge, retaliatory discharge, unpaid wages, unpaid vacation,unpaid bonuses, unvested stock or stock options, unpaid benefits, intentional or negligentinfliction of emotional distress, defamation, or other such claims in any manner arisingout of or involving any aspect of Morgan's employment, the terms and conditions of suchemployment, or termination of employment with KM. This release also includes, withoutlimitation, any and all known or unknown claims concerning attorney fees, costs, and anyand all other expenses related to the claims released herein.

2.     **ADEARelease.** By executing this Further Release, Morgan knowingly and voluntarily waivesany and all claims under the Age Discrimination in Employment Act ("ADEA"), andfurther agrees with respect to the ADEA that:

     (a)  
This waiver is part of an Agreement that    is written in a manner that he understands.
  
     (b)  
This waiver specifically refers to rights    and claims arising under the ADEA.
 
  
     (c)  
Morgan does not waive any claims under the    ADEA that may arise after the date that he executes this Further Release.
  
     (d)  
Morgan waives ADEA rights or claims.
  
     (e)  
Morgan has had an opportunity to consult    with an attorney before executing this Further Release insofar as it relates to waiver of    claims under the ADEA and has been urged to do so.
  
     (f)  
Morgan has been afforded a minimum of 21    days from the date he received the Further Release within which to consider this Further    Release insofar as it relates to claims under the ADEA.  
     (g)  Morgan shall have 7 days from the date he accepts and signs    this Further Release within which to revoke his acceptance of this Further Release. To be    effective, such revocation must be made in writing and delivered to the Executive Vice    President Human Resources and Administration, Kinder Morgan, One Allen Center, 500 Dallas    Suite 1000, Houston TX 77002, on or before the seventh (7th) day after Morgan    signs it. If Morgan revokes this Further Release it shall not be effective or enforceable    and he shall not receive the additional consideration set forth in Paragraph 4 of the    Retention and Non-Compete Agreement that has not yet been paid to Morgan.
  
     (h)  This Further Release shall become effective immediately upon    the eighth (8th) day after Morgan signs this Further Release, assuming such    Further Release is not revoked as provided in Paragraph 2(g) above.          Date:      Michael C. Morgan
 

 

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SCHEDULE 1
Restricted stock granted on January 17, 2000 and January 16, 2001 shall    not be affected in any way by this agreement.
Stock Option Agreements, dated April 20,    2000, and October 9, 1999, shall not be affected in any way by this agreement.

Restricted Stock Agreement, dated July 16, 2003, shall be amended to provide that 8,333    shares shall vest on July 16, 2006 and 15,000 shares shall vest on July 16, 2008. All    other shares subject to that agreement shall be forfeited. The remaining terms and    conditions of the Restricted Stock Agreement shall apply with respect to the 23,333 shares    that are not forfeited in connection with this Agreement.
 

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