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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to______
Commission File Number 1-6446
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KINDER MORGAN, INC.
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(Exact name of registrant as specified in its charter)
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Kansas 48-0290000
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1301 McKinney, Suite 3400, Houston, Texas 77010
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (713) 844-9500
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common stock, par value $5 per share New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Preferred stock, Class A $5 cumulative series
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(Title of class)
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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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $2,168,755,111 as of March 10, 2000.
The number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date was: Common stock, $5 par value;
authorized 150,000,000 shares; outstanding 113,035,166 shares as of March 10,
2000.
Documents Incorporated by Reference
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Part III of this report incorporates by reference specific portions of the
Registrant's Proxy Statement relating to the 2000 Annual Meeting of
Stockholders.
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KINDER MORGAN, INC. AND SUBSIDIARIES
CONTENTS
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Page Number
PART I
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ITEMS 1&2: BUSINESS AND PROPERTIES .............................................. 3-13
ITEM 3: LEGAL PROCEEDINGS .................................................... 13-15
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS .............. 15
EXECUTIVE OFFICERS OF THE REGISTRANT ................................. 16-18
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS ............................................... 19
ITEM 6: SELECTED FINANCIAL DATA .............................................. 20
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................... 21-37
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS .......... 37
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......................... 38-80
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
CONDITION AND RESULTS OF OPERATIONS ............................... 81
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................... 81
ITEM 11: EXECUTIVE COMPENSATION ............................................... 81
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ....... 82
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................... 82
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8K ........................................................... 83-88
SIGNATURES ............................................................................... 89
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Note: Individual financial statements of the parent Company are omitted pursuant
to the provisions of Accounting Series Release No. 302.
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PART I
ITEMS 1 and 2: BUSINESS and PROPERTIES
As used in this report "Kinder Morgan" refers to Kinder Morgan, Inc., a Kansas
corporation, together with its consolidated subsidiaries, unless the context
otherwise requires. All volumes of natural gas referred to herein are stated at
a pressure base of 14.73 pounds per square inch absolute and at 60 degrees
Fahrenheit and, in most instances, are rounded to the nearest major multiple. As
used in this report, the term "Mcf" means thousand cubic feet, the term "MMcf"
means million cubic feet, the term "Bcf" means billion cubic feet, the term
"Tcf" means trillion cubic feet, the term "MMBtus" means million British thermal
units ("Btus") and the term "Bbls" means barrels. Natural gas liquids consist of
ethane, propane, butane, iso-butane and natural gasoline.
(A) General Description
Kinder Morgan is traded on the New York Stock Exchange under the symbol "KMI"
and is one of the largest midstream energy companies in America, operating more
than 30,000 miles of natural gas and products pipelines in 26 states. It also
has significant retail natural gas distribution, electric generation and bulk
terminal operations. Kinder Morgan, through a general partner interest, operates
Kinder Morgan Energy Partners, L.P., America's largest pipeline master limited
partnership, traded on the New York Stock Exchange under the symbol "KMP."
Kinder Morgan also holds a significant limited partner interest in Kinder Morgan
Energy Partners. Combined, these two entities have an enterprise value of
approximately $10 billion.
Kinder Morgan's executive offices are located at 1301 McKinney, Suite 3400,
Houston Texas 77010 and its telephone number is (713) 844-9500. Kinder Morgan,
(formerly named K N Energy, Inc.) was incorporated in the State of Kansas on May
18, 1927. Kinder Morgan employed 3,195 people at December 31, 1999.
On July 8, 1999, K N Energy announced the signing of an agreement and plan of
merger to acquire Kinder Morgan, Inc., a Delaware corporation later renamed
Kinder Morgan (Delaware), Inc., the sole stockholder of the general partner of
Kinder Morgan Energy Partners. As used in this report, Kinder Morgan Delaware
will refer to Kinder Morgan (Delaware), Inc. This merger was completed on
October 7, 1999. Pursuant to the terms of the merger agreement, K N Energy
issued approximately 41.5 million shares of its common stock in exchange for all
of the outstanding shares of Kinder Morgan Delaware. Upon closing of the
transaction, Richard D. Kinder, Chairman and Chief Executive Officer of Kinder
Morgan Delaware, was named Chairman and Chief Executive Officer of Kinder
Morgan. In addition, K N Energy, Inc. was renamed Kinder Morgan, Inc.
As a result of the October 1999 business combination with Kinder Morgan
Delaware, Kinder Morgan owns the entity (Kinder Morgan G. P., Inc.) which owns
the general partner interest in Kinder Morgan Energy Partners and is the
operator of Kinder Morgan Energy Partners. In addition, as of December 31, 1999,
and after inclusion of incremental units resulting from the sale of certain
assets by Kinder Morgan to Kinder Morgan Energy Partners as discussed following,
Kinder Morgan owned approximately 10.7 million limited partner units of Kinder
Morgan Energy Partners, representing approximately 18% of the total units
outstanding. As a result of Kinder Morgan's general and limited partner
interests in Kinder Morgan Energy Partners (including incentive distributions to
the general partner), Kinder Morgan currently is entitled to receive
approximately 44% of all distributions from Kinder Morgan Energy Partners and
approximately 59% of incremental distributions. The actual level of
distributions received by Kinder Morgan in the future will vary with the level
of distributable cash determined by Kinder Morgan Energy Partners' partnership
agreement. Kinder Morgan reflects its investment in Kinder Morgan Energy
Partners under the equity method of accounting and, accordingly, reports its
share of Kinder Morgan Energy Partners' earnings as "Equity in Earnings" and
"Amortization of Excess
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
Investment" in its consolidated income statement in the period in which such
earnings are reported by Kinder Morgan Energy Partners.
Kinder Morgan Energy Partners manages a diverse group of assets used in the
transportation, storage and processing of energy products, including six refined
products/liquids pipeline systems containing over 5,000 miles of pipeline and
over 20 truck loading terminals. Kinder Morgan Energy Partners also operates 25
bulk terminal facilities that transfer over 40 million tons of coal, petroleum
coke and other products annually. In addition, Kinder Morgan Energy Partners
owns 51% of Plantation Pipeline Company and 20% of Shell CO2 Company. On March
9, 2000, Kinder Morgan Energy Partners announced it had reached a definitive
agreement to increase its interest in Shell CO2 Company to 100% by acquiring a
78% limited partner interest and a 2% general partner interest from affiliates
of Shell Exploration & Production Company. Kinder Morgan G.P.'s cash incentive
distributions provide it with a strong incentive to increase unitholder
distributions through the successful management and business growth of Kinder
Morgan Energy Partners. Kinder Morgan Energy Partners is the largest publicly
traded limited partnership in the pipeline industry and the second largest
products pipeline system in the United States in terms of volumes delivered. In
most instances, Kinder Morgan Energy Partners transports and/or handles products
for a fee and is not engaged in the purchase and resale of commodity products.
As a result, Kinder Morgan Energy Partners does not face significant risks
relating to shifts in commodity prices.
Effective December 31, 1999, Kinder Morgan sold over $700 million of assets to
Kinder Morgan Energy Partners consisting of (i) Kinder Morgan Interstate Gas
Transmission LLC (formerly KN Interstate Gas Transmission Co.), (ii) a 49
percent interest in Red Cedar Gathering Company and (iii) a subsidiary that owns
a one-third interest in Trailblazer Pipeline Company. As consideration for the
transfer, Kinder Morgan received 9.81 million Kinder Morgan Energy Partners
common units representing limited partner interests and approximately $330
million ($200 million of which was received in cash on January 21, 2000, with
the balance of $130 million represented by a short-term obligation of Kinder
Morgan Energy Partners to Kinder Morgan.) In conjunction with the sale, Kinder
Morgan recorded a pre-tax gain of approximately $158.8 million. Additional
information on this transaction (including certain pro forma financial
information) is contained in Kinder Morgan's Report on Form 8-K dated February
4, 2000.
The reader is directed to Kinder Morgan Energy Partners' 1999 Annual Report on
Form 10-K for the year ended December 31, 1999 for additional information
concerning the business of Kinder Morgan Energy Partners.
During the third quarter of 1999, Kinder Morgan adopted a plan to discontinue
the direct marketing of non-energy products and services (principally made under
the "Simple Choice" brand), which activities had been carried on largely through
Kinder Morgan's en*able joint venture with PacifiCorp. During the fourth quarter
of 1999 (following the business combination with Kinder Morgan Delaware and
associated management changes as described preceding), Kinder Morgan elected to
narrow the focus of its business operations and adopted a plan to dispose of
assets and businesses which did not fit its new corporate strategy and risk
profile. The businesses identified for discontinuation included (i) the
gathering and processing of natural gas, and the provision of field services to
natural gas producers, (ii) the commodity marketing of natural gas and natural
gas liquids, (iii) international operations and (iv) non-end-user based
intrastate pipeline operations. The disposition of all these businesses have
been or are expected to be by sale.
During 1999, Kinder Morgan completed the sale of its field services businesses.
During early 2000, Kinder Morgan completed the sale of (i) certain of its
gathering and processing assets and (ii) Orcom Solutions, which has constituted
Kinder Morgan's remaining investment in the direct marketing of non-energy
services business. On February 8, 2000, Kinder Morgan announced the signing of a
definitive agreement with ONEOK, Inc. for the sale of all of Kinder Morgan's
natural gas gathering and processing businesses in Oklahoma, Kansas and West
Texas. In addition, ONEOK agreed to purchase Kinder Morgan's marketing and
trading businesses, as well as certain storage and transmission pipelines in the
mid-continent region. As consideration for the sale,
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
ONEOK will pay Kinder Morgan $114 million in cash plus an amount equal to
working capital at closing and will assume (i) the operating lease on the
Bushton, Kansas processing plant and (ii) long-term capacity commitments on
Natural Gas Pipeline Company of America and Kinder Morgan Interstate Gas
Transmission LLC. Upon completion of this pending sale, Kinder Morgan's
divestiture plan will be more than 80% complete.
Additional information on discontinued operations is contained in the
accompanying Consolidated Financial Statements and related Notes, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
On February 22, 1999, Sempra Energy and Kinder Morgan announced that their
respective boards of directors had unanimously approved a definitive agreement
under which Sempra and Kinder Morgan would combine in a stock-and-cash
transaction valued at $6.0 billion. On June 21, 1999, Sempra and Kinder Morgan
announced that they had mutually agreed to terminate the merger agreement.
Sempra reimbursed Kinder Morgan $5.95 million for expenses incurred in
connection with the proposed merger.
(B) Narrative Description of Business
OVERVIEW
Kinder Morgan is an integrated energy services provider whose operations include
(i) transportation and storage of natural gas, (ii) retail distribution of
natural gas and (iii) electric power generation and sales. In addition, Kinder
Morgan has a major investment in liquids and refined products pipelines and bulk
terminals through its general and limited partner interests in Kinder Morgan
Energy Partners. Reflecting the manner in which Kinder Morgan manages and
evaluates the performance of its various business units, Kinder Morgan has
segregated the results of operations of its consolidated businesses into (i)
Natural Gas Pipeline Company of America and certain associated entities,
referred to as "NGPL," a major interstate natural gas pipeline system, (ii)
MidCon Texas Pipeline Operator, Inc. and certain associated entities, referred
to as "MTP," a major intrastate natural gas pipeline located in Texas, (iii)
retail natural gas distribution, referred to as "Retail," providing natural gas
utility and certain non-utility services to residential, commercial and
industrial customers, (iv) electric power generation and sales, referred to as
"Power" and (v) "Other," various other activities not constituting business
segments. See Note 19 of Notes to Consolidated Financial Statements for
financial information for each of Kinder Morgan's business segments. Kinder
Morgan previously engaged in other businesses which have been discontinued or
sold to Kinder Morgan Energy Partners, in each case as described preceding. As
discussed following, certain of Kinder Morgan's operations are regulated by
various federal and state entities.
NATURAL GAS PIPELINE COMPANY OF AMERICA
Through NGPL, Kinder Morgan owns and operates approximately 11,000 miles of
interstate natural gas pipelines, field system lines and related facilities,
consisting primarily of two major interconnected transmission pipelines
terminating in the Chicago metropolitan area. The system is powered by 61
compressor stations in mainline and storage service having an aggregate of
approximately 1.0 million horsepower. NGPL's system has over 1,700 points of
interconnection with 31 interstate pipelines, 24 intrastate pipelines and 54
local distribution companies and end users, thereby providing significant
flexibility in the receipt and delivery of gas. One of NGPL's primary pipelines,
the "Amarillo Line," originates in the West Texas and New Mexico producing areas
and is comprised of approximately 3,900 miles of mainline and various
small-diameter pipelines. The other major pipeline, the "Gulf Coast Line,"
originates in the Gulf Coast areas of Texas and Louisiana and consists of
approximately 4,400 miles of mainline and various small-diameter pipelines.
These two main pipelines are connected at points in Texas and Oklahoma by NGPL's
700-mile Amarillo/Gulf Coast pipeline.
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
NGPL provides transportation and storage services to third-party natural gas
distribution utilities, marketers and producers, industrial end users,
affiliates and other shippers. Pursuant to transportation agreements and Federal
Energy Regulatory Commission tariff provisions, NGPL offers its customers firm
and interruptible transportation, storage and no-notice services. Under NGPL's
tariffs, firm transportation customers pay reservation charges each month plus a
commodity charge based on actual volumes transported. Interruptible
transportation customers pay a commodity charge based upon actual volumes
transported. Reservation and commodity charges are both based upon geographical
location, time of year and distance of the transportation service provided.
Under no-notice service, customers pay a reservation charge for the right to
have up to a specified volume of natural gas delivered but, unlike with firm
transportation service, are able to meet their peaking requirements without
making specific nominations. NGPL's revenues have historically been higher in
the first and fourth quarters of the year, reflecting higher system utilization
during the colder months. During the winter months, NGPL collects higher
transportation commodity revenue, higher interruptible transportation revenue,
winter only capacity revenue and higher peak rates on certain contracts.
NGPL's principal delivery market area encompasses the states of Illinois,
Indiana and Iowa and portions of Wisconsin, Nebraska, Kansas, Missouri and
Arkansas. NGPL is the largest transporter of gas to the Chicago market and
Kinder Morgan believes that its cost of service is one of the most competitive
in the region. In 1999, NGPL delivered an average of 4.1 Bcf per day of natural
gas to this market. Given its strategic location at the center of the North
American pipeline grid, Kinder Morgan believes that Chicago is likely to
continue to be a major natural gas trading hub for the rapidly growing markets
in the Midwest and Northeast.
Substantially all of NGPL's pipeline capacity to Chicago is committed under firm
transportation contracts ranging from one to five years. As of December 31,
1999, approximately 81% of the total transportation volume committed under
NGPL's firm transportation contracts had remaining terms of less than three
years. NGPL continues to actively pursue the renegotiation, extension and/or
replacement of expiring contracts. In September 1999, Kinder Morgan announced
(i) a three year contract with Nicor Gas for approximately 1 Bcf per day of
transportation and significant storage services and (ii) a two year contract
with Aquila Energy for 500 MMBtu per day of transportation services. In January
2000, Kinder Morgan announced the signing of contracts with Peoples Energy for
approximately 300 MMcf per day of firm transportation (generally through 2005)
and 20 Bcf of storage services (generally through 2003). Nicor Gas and Peoples
Energy are NGPL's two largest customers. As of March 8, 2000, contracts
representing 21% of NGPL's total contracted firm transport capacity are
scheduled to expire during the remainder of 2000.
Through NGPL, Kinder Morgan is one of the nation's largest natural gas storage
operators with approximately 600 Bcf of total natural gas storage capacity, 210
Bcf of working gas capacity and up to 4.0 Bcf per day of peak deliverability
from its storage facilities, which are located near the markets NGPL serves.
NGPL owns and operates eight underground storage fields in four states. These
storage assets complement NGPL's pipeline facilities and allow it to optimize
pipeline deliveries and meet peak delivery requirements in its principal
markets. NGPL provides firm and interruptible gas storage service pursuant to
storage agreements and tariffs. Firm storage customers pay a monthly demand
charge irrespective of actual volumes stored. Interruptible storage customers
pay a monthly charge based upon actual volumes of gas stored.
On February 9, 2000, Kinder Morgan jointly announced with Nicor, Inc. (an energy
and transportation holding company whose subsidiary, Nicor Gas, is a major
customer of NGPL as discussed preceding) the signing of an agreement to become
equal partners in the Horizon Pipeline. The Horizon Pipeline is a $75 million
natural gas pipeline that will originate in Joliet, Illinois and extend 74 miles
into northern Illinois, connecting the emerging supply hub at Joliet with Nicor
Gas' distribution system and an existing NGPL pipeline. The initial capacity of
the pipeline, expected to be completed in spring of 2002, is 380 MMcf/day, of
which 300 MMcf/day has been committed to by Nicor Gas.
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
MIDCON TEXAS PIPELINE OPERATOR, INC.
Through MTP, Kinder Morgan operates an intrastate natural gas pipeline system
principally located in the Texas Gulf Coast area. This pipeline, acquired in
conjunction with Kinder Morgan's January 30, 1998 purchase of MidCon Corp. from
Occidental Petroleum Corporation, is leased from Occidental under a 30-year
lease which commenced on December 31, 1996. The system includes approximately
2,700 miles of pipelines, supply lines, sales laterals and related facilities.
The MTP pipeline system transports natural gas from producing fields in South
Texas, the Gulf Coast and the Gulf of Mexico to markets in southeastern Texas
and, through interconnections with NGPL and 22 other intrastate and interstate
pipelines, to markets throughout the United States.
Unlike NGPL, MTP acts as a seller of natural gas as well as a transporter.
Principal customers of MTP include the electric and natural gas utilities that
serve the Houston area and industrial customers located along the Houston Ship
Channel and in the Beaumont/Port Arthur area. During 1999, approximately 37
percent of MTP's revenues were attributable to sales and transportation services
provided to Reliant Energy. On March 17, 2000, Kinder Morgan announced that
MidCon Texas Pipeline Operator, Inc. has renewed its natural gas sales and
transportation contract with Reliant Energy HL&P through March 1, 2004.
Additionally, MidCon Texas Pipeline has entered into a new transportation
services agreement with Reliant Energy HL&P beginning in 2002 and extending
through 2012. Reliant HL&P provides electric service to approximately 1.6
million customers in the Houston area. The Houston Ship Channel/Beaumont/Port
Arthur market is one of the largest and most competitive natural gas markets in
the United States. Large industrial end users of gas in this market have, on
average, three pipelines connected to their plants. Large local distribution
companies and electric utilities have multiple pipeline connections. Multiple
pipeline connections provide the consumer of gas the opportunity to purchase gas
directly from a number of pipelines and/or from third parties that may hold
capacity on the various pipelines. Contract terms for the major utilities will
expire between 2002 and 2004. Other contracts vary in length from month-to-month
to five or more years. During 1999, MTP delivered an average of 1.599 Bcf per
day of natural gas to this area, of which 60 percent of the deliveries were for
sales contracts and 40 percent were for transportation contracts. In MTP's
markets, the greatest demand for natural gas deliveries for space heating needs
occurs in the winter months, while electric generation peak demand occurs in the
summer.
Through MTP, Kinder Morgan developed a salt dome storage facility located near
Markham, Texas with a subsidiary of NIPSCO Industries, Inc. The facility has two
salt dome caverns and approximately 8.3 Bcf of total storage capacity, over 5.7
Bcf of working gas capacity and up to 500 MMcf per day of peak deliverability.
The storage facility is leased by a partnership in which MTP and a subsidiary of
NIPSCO are partners. MTP has executed a 20-year sublease with the partnership
under which it has rights to 50% of the facility's working gas capacity, 85% of
its withdrawal capacity and approximately 70% of its injection capacity. MTP
also leases a salt dome cavern from Dow Hydrocarbon & Resources, Inc. in
Brazoria County, Texas, referred to as the "Stratton Ridge Facility." The
Stratton Ridge Facility has a total capacity of 6.8 Bcf, working gas capacity of
2.9 Bcf and a peak day deliverability of 150 MMcf per day.
KINDER MORGAN RETAIL
As of December 31, 1999, Kinder Morgan's retail natural gas business served over
223,000 customers in Colorado, Nebraska and Wyoming through approximately 7,400
miles of distribution pipelines. Kinder Morgan's intrastate pipelines,
distribution facilities and retail sales in Colorado and Wyoming are subject to
the regulatory authority of each state's utility commission. In Nebraska, retail
gas sales rates for residential and small commercial customers are regulated by
each municipality served.
Retail's operations in Nebraska, Wyoming and northeastern Colorado serve areas
that are primarily rural and agriculturally based where gas is used primarily
for space heating, crop irrigation, grain drying and processing of
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
agricultural products. In much of Nebraska, the winter heating load is balanced
by irrigation requirements in the summer and grain drying in the fall. Retail
operations in western Colorado serve fast-growing resort and associated service
areas, and rural communities. These areas are characterized primarily by natural
gas use for space heating, with annual growth rates of 6-8%.
To support Retail's business, underground storage facilities are used to provide
gas for load balancing and peak system demand. Storage services for Kinder
Morgan's retail natural gas services are provided by three facilities in Wyoming
owned by Northern Gas Company (a wholly owned subsidiary of Kinder Morgan), one
facility in Colorado owned by Wildhorse Energy Partners (a joint venture in
which Kinder Morgan owns a 55% interest), and one facility located in Nebraska
and owned by Kinder Morgan Energy Partners. The peak natural gas withdrawal
capacity available for Retail's business is approximately 99 MMcf per day.
Retail's natural gas business relies on both the intrastate pipelines it
operates and third-party pipelines for transportation and storage services
required to serve its markets. The gas supply requirements for Retail's natural
gas business have historically been met through a combination of purchases from
marketing affiliates and third-party suppliers. With Kinder Morgan's sale of its
natural gas marketing business as discussed preceding, Retail's future gas
requirements are expected to be met by third-party suppliers.
Through Rocky Mountain Natural Gas Company in Colorado and Northern Gas Company
in Wyoming, Retail provides transportation services to affiliated local
distribution companies as well as to irrigators, grain dryers, gas producers,
shippers and industrial customers. These two intrastate pipeline systems include
approximately 1,400 miles of transmission lines, field system lines and related
facilities. Through Northern Gas Company, Retail provides storage services in
Wyoming to its customers from its three storage fields, Oil Springs, Bunker Hill
and Kirk Ranch, which combined have 29.7 Bcf of total storage capacity, 11.7 Bcf
of working gas capacity, and up to 36 MMcf per day of peak withdrawal capacity.
KINDER MORGAN POWER
Kinder Morgan's power service businesses position Kinder Morgan to take
advantage of its significant natural gas pipeline assets as the trend toward
distributed electric power generation accelerates. Instead of creating large,
new centrally-located electric power generation facilities, utilities are
increasingly looking toward smaller, strategically located non-utility-owned
generation facilities to meet the incremental need for electric power due, in
addition to increased demand, to the closing and anticipated closing of nuclear
power plants and environmental concerns with large coal-fired generation plants.
Kinder Morgan plans to acquire and develop gas-fired non-utility electric
generation assets, generally sited along its existing natural gas pipeline
systems. In addition, as part of its distributive electric generation strategy,
Kinder Morgan plans to optimize operations in its current generation facilities,
as well as monitoring and participating in continued electric industry
restructuring.
Kinder Morgan's 1998 acquisition of interests in the Thermo Companies provided
Kinder Morgan with its first electric generation assets as well as the knowledge
and expertise of Thermo's management which Kinder Morgan expects will prove
beneficial in the development of merchant power plants along its pipeline
assets. Thermo has interests in four independent natural gas fired power plants
in Colorado representing approximately 380 megawatts of electric generation
capacity with access to approximately 130 BCF of natural gas reserves. In
general, the output from these facilities is sold to the local electric utility
under long-term contracts.
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
REGULATION
FEDERAL AND STATE REGULATION
Both the performance of interstate transportation and storage services by
natural gas companies, including interstate pipeline companies, and the rates
charged for such services, are regulated by the Federal Energy Regulatory
Commission under the Natural Gas Act and, to a lesser extent, the Natural Gas
Policy Act. As used in this report, FERC refers to the Federal Energy Regulatory
Commission.
With the adoption of FERC Order No. 636, the FERC required interstate pipelines
that perform open access transportation under blanket certificates to "unbundle"
or separate their traditional merchant sales services from their transportation
and storage services and to provide comparable transportation and storage
services with respect to all gas supplies, whether purchased from the pipeline
or from other merchants such as marketers or producers. The pipelines must now
separately state the applicable rates for each unbundled service. Order 636 has
been affirmed in all material respects upon judicial review and Natural Gas
Pipeline Company of America's own FERC orders approving its unbundling plans are
final and not subject to any pending judicial review.
Natural Gas Pipeline Company of America, referred to in this report as Natural,
(as distinct from "NGPL" which includes certain affiliates of Natural), had a
number of gas purchase contracts that required Natural to purchase natural gas
at prices in excess of the prevailing market price. As a result of Order 636
prohibiting interstate pipelines from using their gas transportation and storage
facilities to market gas to sales customers, Natural no longer had a sales
market for the gas it is required to purchase under these contracts. Order 636
went into effect on Natural's system on December 1, 1993. Natural agreed to pay
substantial transition costs to reform these contracts with the gas suppliers.
Under settlement agreements between Natural and its former sales customers,
Natural recovered from these customers a significant amount of the gas supply
realignment costs over a four-year period beginning December 1, 1993. These
settlement agreements were approved by the FERC. The FERC also permitted Natural
to implement a tariff mechanism to recover additional portions of its gas supply
realignment costs in rates charged to transportation customers that were not
party to the settlements. On December 1, 1997, the FERC allowed recovery of gas
supply realignment costs initially allocated to interruptible transportation but
not recovered. Effective December 1, 1998, the FERC allowed Natural to recover
its remaining gas supply realignment costs over the period from December 1, 1998
through November 30, 2001.
INTRASTATE TRANSPORTATION AND SALES
The operations of Kinder Morgan's intrastate pipeline located primarily in Texas
are affected by FERC rules and regulations issued pursuant to the Natural Gas
Act and the Natural Gas Policy Act. Of particular importance are regulations
that allow increased access to interstate transportation services, without the
necessity of obtaining prior FERC authorization for each transaction. A key
element of the program is nondiscriminatory access, under which a regulated
pipeline must agree, under certain conditions, to transport gas for any party
requesting such service.
Kinder Morgan's intrastate pipeline in Texas, MidCon Texas Pipeline Operator,
Inc., falls under the jurisdiction of Texas in regards to sales and
transportation within the state. The rates for city gate gas sales within Texas
are subject to regulation by the Railroad Commission of Texas. The rates for
other sales and transportation of natural gas within Texas are determined by
market conditions and are largely unregulated. The Railroad Commission has
authority to regulate various activities of persons selling or transporting
natural gas for public use within Texas, including the authority to fix rates.
Under Texas law, rates charged by a gas utility to industrial and other large
volume users through contract negotiation are considered to be just and
reasonable and must be approved by the Railroad Commission if they meet the
objective standard set forth in Texas law. MidCon Texas also performs certain
transportation services in interstate commerce pursuant to Section 311 of the
Natural Gas Policy Act of 1978.
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ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
Kinder Morgan's intrastate pipeline in Colorado, Rocky Mountain Natural Gas
Company, is regulated by the Colorado Public Utilities Commission as a public
utility in regard to its transportation and sales services within the state.
Rocky Mountain also performs certain transportation services in interstate
commerce pursuant to Section 311 of the Natural Gas Policy Act of 1978. The
Colorado Public Utilities Commission regulates the rates, terms, and conditions
of natural gas sales and transportation services performed by public utilities
in the state of Colorado.
Kinder Morgan's intrastate pipeline in Wyoming, Northern Gas Company, is
regulated by the Wyoming Public Service Commission as a public utility in regard
to its transportation and sales services within the state. Northern Gas also
performs certain transportation services in interstate commerce pursuant to
Section 311 of the Natural Gas Policy Act of 1978. The Wyoming Public Service
Commission regulates the rates, terms, and conditions of natural gas sales and
transportation services performed by public utilities in the state of Wyoming.
INTERSTATE TRANSPORTATION AND STORAGE SERVICES
Facilities for the transportation of natural gas in interstate commerce and for
storage services in interstate commerce are subject to regulation by the FERC
under the Natural Gas Act and the Natural Gas Policy Act. Kinder Morgan is also
subject to the requirements of FERC Order Nos. 497, et seq., and 566, et. seq.,
the Marketing Affiliate Rules, which prohibit preferential treatment by an
interstate pipeline of its marketing affiliates and govern, in particular, the
provision of information by an interstate pipeline to its marketing affiliates.
In January 1997, Amoco Production Company and Amoco Energy Trading Corporation
filed a complaint against Natural before the FERC contending that Natural had
improperly provided its affiliate, MidCon Gas Services Corp., transportation
service on preferential terms, and seeking termination of currently effective
contracts and the imposition of civil penalties. A subsequent FERC staff audit
made proposed findings that Natural had favored MidCon Gas, which Natural
challenged. In July 1997, Amoco and Natural agreed to a settlement of this
proceeding. Amoco filed to withdraw its complaint subject to the FERC's
procedures. Several intervenors opposed the withdrawal of the complaint and
Natural filed an answer to that opposition. By orders issued January 16, 1998,
the FERC ruled that Natural had violated certain of the FERC's regulations
regarding its business relationships with its affiliate, MidCon Gas. Relying
upon its authority under the Natural Gas Policy Act, the FERC provided notice to
Natural that, in addition to other remedial action, it proposed to assess civil
penalties of $8,840,000. Such orders also required Natural to take certain other
actions, including making a new tariff filing, and imposed certain restrictions
on the sharing of employees by Natural and MidCon Gas. The FERC proposed to
suspend one-half of the penalty provided that for two years following the date
of the order Natural does not violate specified sections of the FERC's
regulations. Natural and other parties sought rehearing in February 1998.
Natural also made several filings in compliance with that order, including
payment of a $4.42 million civil penalty. On March 26, 1998, the FERC issued an
order denying all rehearing requests, including those of several parties which
had argued for more onerous penalties or restrictions. Natural filed a petition
for review of the orders with the U.S. Court of Appeals for the District of
Columbia. On May 11, 1999, Natural and an intervenor filed a joint motion to
withdraw their petitions for review. The Court of Appeals granted such
withdrawal. There remains only one appeal by another intervenor regarding
Natural's tariff settlement of this proceeding. Kinder Morgan does not believe
the ultimate resolution of these issues will have a material adverse affect on
Kinder Morgan's business, cash flows, financial position or results of
operations.
RETAIL NATURAL GAS SERVICES
Certain of Kinder Morgan's intrastate pipelines, storage, distribution and/or
retail sales in Colorado, Texas and
10
<PAGE> 11
ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
Wyoming are under the regulatory authority of those state's utility commission.
In Nebraska, certain retail gas sales rates for residential and small commercial
customers are regulated by the municipality served.
In certain of the incorporated communities in which Kinder Morgan provides
retail natural gas services, Kinder Morgan operates under franchises granted by
the applicable municipal authorities. The duration of these franchises varies.
In unincorporated areas, Kinder Morgan's natural gas utility services are not
subject to municipal franchise. Kinder Morgan has been issued various
certificates of public convenience and necessity by the regulatory commissions
in Colorado and Wyoming authorizing it to provide natural gas utility services
within certain incorporated and unincorporated areas of those states.
Continuing regulatory change will provide energy consumers with increasing
choices among their suppliers. Kinder Morgan emerged as a leader in providing
for customer choice by filing an application with the Wyoming Public Service
Commission in 1995 to allow 10,500 residential and commercial customers to
choose to purchase the gas from a qualified list of suppliers. The proposal
provided that Kinder Morgan would continue to provide all other utility
services. In early 1996, the Wyoming Public Service Commission issued an order
allowing Kinder Morgan to bring competition to these 10,500 residential and
commercial customers beginning in mid 1996. Choosing from a menu of three
competing suppliers, approximately 80% of Kinder Morgan's customers chose to
remain with Kinder Morgan. The experience gave Kinder Morgan early and valuable
experience in competing in an unbundled environment and led to the development
of new products and services. The innovative program was one of the first in the
nation that allowed essentially all customers the opportunity to exercise energy
choice for natural gas. In November 1997, Kinder Morgan announced a similar plan
to give residential and small commercial customers in Nebraska a choice of
natural gas suppliers. This program, the Nebraska Choice Gas program, became
effective June 1, 1998. As of December 31, 1999, the plan had been approved by
177 communities, representing approximately 92,000 customers served by Kinder
Morgan in Nebraska.
ENVIRONMENTAL REGULATION
Kinder Morgan's operations and properties are subject to extensive and evolving
Federal, state and local laws and regulations governing the release or discharge
of regulated materials into the environment or otherwise relating to
environmental protection or human health and safety. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations can also impose
liability for remedial costs on the owner or operator of properties or the
generators of waste materials, regardless of fault. Moreover, the recent trends
toward stricter standards in environmental legislation and regulation are likely
to continue.
On December 20, 1999, the U.S. Department of Justice filed a Complaint on behalf
of the U.S. Environmental Protection Agency against Natural alleging that
Natural failed to obtain all of the necessary air quality permits in 1979 when
it constructed the Akron Compressor Station which consisted of three compressor
engines in Weld County, Colorado. Natural constructed and then operated the
facility until August 1996 when it was sold to High Plains Gathering System.
High Plains sold one of the compressor engines to Colorado Interstate Gas
Company in October 1997.
The complaint makes the standard request for penalties up to the statutory
maximums of $25,000 for each day of violation prior to January 30, 1997 and
$27,500 for each day of violation after January 31, 1997. Natural has identified
a number of defenses to the complaint and plans to defend the action vigorously.
Although Kinder Morgan cannot express an opinion as to the probable outcome of
this case, Kinder Morgan believes that this litigation will not have a material
adverse effect on Kinder Morgan's business, cash flows, financial position or
results of operations.
11
<PAGE> 12
ITEMS 1 and 2: BUSINESS and PROPERTIES (continued)
On December 17, 1999, the State of Colorado notified Kinder Morgan of air
quality permit compliance issues for several Kinder Morgan facilities. The
notice included civil penalties of $164,000. Kinder Morgan is currently in the
process of negotiating a consent order with the State of Colorado to resolve the
outstanding issues.
The Environmental Protection Agency recently published a final rule addressing
transport of ground level ozone. The rule affects 22 Eastern and Midwestern
states, including Illinois and Missouri in which Kinder Morgan operates gas
compression facilities. The rule requires reductions in emissions of nitrogen
oxide, a precursor to ozone formation, from various emission sources, including
utility and non-utility sources. The rule requires that the affected states
prepare and submit State Implementation Plans to the Environmental Protection
Agency by September 1999, reflecting how the required emissions reductions will
be achieved. Emission controls are required to be installed by May 1, 2003. This
rule will likely require Kinder Morgan, as well as its competitors, to install
some form of new emissions control technology on certain equipment it operates.
The rule may also result in broadly increased use of natural gas, as other
sources of nitrogen oxide air emissions, including utilities, seek to achieve
the reductions required under the rule. The State Implementation Plans which
will effectuate this rule have yet to be proposed or promulgated, and will
require detailed analysis before their final economic impact can be ascertained.
On March 3, 2000, the Washington D.C. Circuit Court issued a decision regarding
the rule. The Circuit Court remanded certain issues back to the Environmental
Protection Agency. The rule is stayed pending resolution of the remanded issues.
While additional capital costs are likely to result from this rule, based on
currently available information, Kinder Morgan does not believe that these costs
will have a material adverse effect on its business, cash flows, financial
position or results of operations.
On June 17, 1999, the Environmental Protection Agency published a final rule
creating a standard to limit emissions of hazardous air pollutants from oil and
natural gas production as well as from natural gas transmission and storage
facilities. The standard requires that the affected facilities reduce emissions
of hazardous air pollutants by 95 percent. This standard will require Kinder
Morgan to achieve this reduction either by process modifications or by
installing new emissions control technology. The standard will affect Kinder
Morgan and its competitors in a like manner. The rule allows most affected
sources three years from the publication date to come into compliance. Kinder
Morgan is conducting a detailed analysis of the final rule to determine its
overall effect. While additional capital costs are likely to result from this
rule, Kinder Morgan believes that the rule will not have a material adverse
effect on Kinder Morgan's business, cash flows, financial position or results of
operations.
Based on current information and taking into account reserves established for
environmental matters, Kinder Morgan does not believe that compliance with
Federal, state and local environmental laws and regulations
12
<PAGE> 13
will have a material adverse effect on Kinder Morgan's business, cash flows,
financial position or results of operations. In addition, the clean-up programs
in which Kinder Morgan is engaged are not expected to interrupt or diminish
Kinder Morgan's operational ability to gather or transport natural gas. However,
there can be no assurances that future events, such as changes in existing laws,
the promulgation of new laws, or the development of new facts or conditions will
not cause Kinder Morgan to incur significant costs.
Other
Amounts spent by Kinder Morgan during 1999, 1998 and 1997 on research and
development activities were not material.
(C) Financial Information About Foreign and Domestic Operations and Export
Sales
Substantially all of Kinder Morgan's operations are in the contiguous 48 states.
ITEM 3: LEGAL PROCEEDINGS
Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas Company, and
GASCO, Inc., Civil Action No. 92-N-2000. On October 9, 1992, Jack J. Grynberg
filed suit in the United States District Court for the District of Colorado
against Kinder Morgan, Rocky Mountain Natural Gas Company and GASCO, Inc.
alleging that these entities, referred to here as the "K N Entities," as well as
K N Production Company and K N Gas Gathering, Inc., have violated federal and
state antitrust laws. In essence, Grynberg asserts that the companies have
engaged in an illegal exercise of monopoly power, have illegally denied him
economically feasible access to essential facilities to store, transport and
distribute gas, and illegally have attempted to monopolize or to enhance or
maintain an existing monopoly. Grynberg also asserts certain state causes of
action relating to a gas purchase contract. In February 1999, the Federal
District Court granted summary judgment as to some of Grynberg's antitrust and
state law claims, while allowing other claims to proceed to trial. In addition
to monetary damages, Grynberg has requested that the K N Entities be ordered to
divest all interests in natural gas exploration, development and production
properties, all interests in distribution and marketing operations, and all
interests in natural gas storage facilities, separating these interests from
Kinder Morgan's natural gas gathering and transportation system in northwest
Colorado. No trial date has been set. However, a settlement conference is
currently scheduled for April 25, 2000.
Jack J. Grynberg, individually and as general partner for the Greater Green
River Basin Drilling Program: 72-73 v. Rocky Mountain Natural Gas Company and
K N Energy, Inc., Case No. 90-CV-3686. On June 5, 1990, Jack J. Grynberg filed
suit, which is presently pending in Jefferson County District Court for
Colorado, against Rocky Mountain Natural Gas Company and Kinder Morgan alleging
breach of contract and fraud. In essence, Grynberg asserts claims that the named
companies failed to pay Grynberg the proper price, impeded the flow of gas,
mismeasured gas, delayed his development of gas reserves, and other claims
arising out of a contract to purchase gas from a field in northwest Colorado. On
February 13, 1997, the trial judge entered partial summary judgment for Mr.
Grynberg on his contract claim that he failed to receive the proper price for
his gas. This ruling followed an appellate decision which was adverse to Kinder
Morgan on the contract interpretation of the price issue, but which did not
address the question of whether Grynberg could legally receive the price he
claimed or whether he had illegally diverted gas from a prior purchase. On
August 29, 1997, the trial judge stayed the summary judgment pending resolution
of a proceeding at the FERC to determine if Grynberg was entitled to
administrative relief from an earlier dedication of the same gas to interstate
commerce. The background of that proceeding is described below. On March 15,
1999, an Administrative Law Judge for the FERC ruled, after an evidentiary
hearing, that Mr. Grynberg had illegally diverted the gas when he entered the
contract with the named companies and was not entitled to relief. Grynberg filed
exceptions to this ruling, and a ruling from the FERC is expected soon. The
action in Colorado remains stayed pending final resolution of the FERC
proceeding.
Jack J. Grynberg v. Rocky Mountain Natural Gas Company, Docket No. GP91-8-008.
On May 8, 1991, Grynberg filed a petition for declaratory order with the FERC
seeking a determination whether he was entitled to the price he seeks in the
Jefferson County District Court proceeding referred to above. While Grynberg
initially received a favorable decision from the FERC, that decision was
reversed by the Court of Appeals for the District of Columbia Circuit on June 6,
1997. This matter has been remanded to the FERC for subsequent proceedings. The
matter was set for an expedited evidentiary hearing, and an Initial Decision
favorable to Rocky Mountain was issued on March 15, 1999. That decision
determined that Grynberg had intentionally diverted gas from an earlier
dedication to interstate commerce in violation of the Natural Gas Act and denied
him equitable administrative relief. Grynberg filed exceptions to this Initial
Decision. In late March 2000, the FERC issued an order affirming in part and
denying in part its Initial Decision. Kinder Morgan is currently studying the
order.
13
<PAGE> 14
ITEM 3: LEGAL PROCEEDINGS (continued)
United States of America, ex rel., Jack J. Grynberg v. K N Energy, Civil Action
No. 97-D-1233, filed in the U.S. District Court, District of Colorado. This
action was filed pursuant to the federal False Claim Act and involves
allegations of mismeasurement of natural gas produced from federal and Indian
lands. The Department of Justice has decided not to intervene in support of the
action. The complaint is part of a larger series of similar complaints filed by
Mr. Grynberg against 77 natural gas pipelines (approximately 330 other
defendants). An earlier single action making substantially similar allegations
against the pipeline industry was dismissed by Judge Hogan of the U.S. District
Court for the District of Columbia on grounds of improper joinder and lack of
jurisdiction. As a result, Mr. Grynberg filed individual complaints in various
courts throughout the country. These cases were recently consolidated by the
Judicial Panel for Multidistrict Litigation, and transferred to the District of
Wyoming. Motions to Dismiss were filed on November 19, 1999. Plaintiff filed his
response on January 14, 2000 and defendants filed their Reply Brief on February
14, 2000. An oral argument on the Motion to Dismiss occurred on March 17, 2000.
Quinque Operating Company, et. al. v. Gas Pipelines, et. al., Cause No.
99-1390-CM, United States District Court for the District of Kansas. This action
was originally filed in Kansas state court in Stevens County, Kansas as a class
action against approximately 245 pipeline companies and their affiliates,
including certain Company entities. The plaintiffs in the case purport to
represent a class of natural gas producers and fee royalty owners who allege
that they have been subject to systematic gas mismeasurement by the defendants
for more than 25 years. Subsequently, one of the defendants removed the action
to Kansas Federal District Court. Thereafter, Kinder Morgan filed a motion with
the Judicial Panel for Multidistrict Litigation to consolidate this action for
pretrial purposes with the False Claim Act cases referred to above, because of
common factual questions. The motion is briefed and a hearing has been set for
March 30, 2000.
Dirt Hogs, Inc. v. Natural Gas Pipeline Company of America, et al.. There have
been several related cases with Dirt Hogs, Inc. with allegations of breach of
contract, false representations, improper requests for kickbacks and other
improprieties. Essentially, the Plaintiff claims that it should have been
awarded extensive pipeline reclamation work without having to qualify or bid as
a qualifying contractor. Case No. Civ-98-231-R, is a case which was dismissed in
the U.S. District Court for the Western District of Oklahoma because of pleading
deficiencies and is now on appeal to the 10th Circuit (Case No. 99-6-026). This
appeal has been fully briefed and a decision is pending. Another case, arising
out of the same factual allegations, was filed by Dirt Hogs in the District
Court, Caddo County, Oklahoma (Case No. CJ-99-92), on March 29, 1999. By
agreement of all parties, this action is currently stayed pending resolution of
a third case styled Natural Gas Pipelines Company of America, et al. v. Dirt
Hogs, Inc. (Case No. 99-360-R). Following a default judgment against Dirt Hogs,
Dirt Hogs dismissed their appeal.
KN Energy, Inc., et al. v. James P. Rode and Patrick R. McDonald, Case No.
99CV1239, filed in the District Court, Jefferson County, Division 8, Colorado.
Defendants counterclaimed and filed third party claims against several former KN
Energy officers and/or directors. Messrs. Rode and McDonald are former principal
shareholders of Interenergy Corporation. Interenergy was merged into K N Energy
on December 19, 1997 pursuant to a Merger Agreement dated August 25, 1997. Rode
and McDonald allege that K N Energy committed securities fraud, common law fraud
and negligent misrepresentation as well as breach in contract. They are seeking
an unspecified amount of compensatory damages that we estimate could be greater
than $2 million, plus unspecified exemplary or punitive damages, attorney's fees
and their costs. Kinder Morgan has filed a Motion to Dismiss which is briefed
and awaiting oral argument. Defendants also filed a federal securities fraud
action in the United States District Court for the District of Colorado on
January 27, 2000 titled: James P. Rode and Patrick R. McDonald v. KN Energy,
Inc., et al., Civil Action No. 00-N-190. This case also raises the identical
state law claims contained in the counterclaim and third party complaint in
state court. In addition to the federal claims, defendants have moved to stay
the state case pending resolution of the federal action.
14
<PAGE> 15
ITEM 3: LEGAL PROCEEDINGS (continued)
Kinder Morgan believes it has meritorious defenses to all lawsuits and legal
proceedings in which it is a defendant and will vigorously defend against them.
Based on its evaluation of the above matters, and after consideration of
reserves established, Kinder Morgan believes that the resolution of such matters
will not have a material adverse effect on Kinder Morgan's business, cash flows,
financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Identification and Business Experience of Executive Officers
<TABLE>
<CAPTION>
Name Age Position and Business Experience
---- --- --------------------------------
<S> <C> <C>
William V. Allison............................ 52 President, Natural Gas Pipeline Operations since September 1999.
President, Pipeline Operations of Kinder Morgan Energy Partners from
February 1999 to September 1999. Vice President and General Counsel of
Kinder Morgan Energy Partners from April 1998 to February 1999. From
1997 to April 1998, Mr. Allison was employed at Enron Corp. where he
held various executive positions, including President of Enron Liquid
Services Corporation, Florida Gas Transmission Company and Houston
Pipeline Company and Vice President and Associate General Counsel of
Enron Corp. Prior to joining Enron Corp. he was an attorney at the
FERC.
David G. Dehaemers, Jr........................ 39 Vice President of Corporate Development since January 2000. Vice
President and Chief Financial Officer from October 1999 to January
2000. Also Vice President, Corporate Development of Kinder Morgan G.P.,
Inc. since January 2000. Treasurer of Kinder Morgan G.P., Inc. from
February 1997 to January 2000. Vice President and Chief Financial
Officer of Kinder Morgan G.P., Inc. from July 1997 to January 2000.
Secretary of Kinder Morgan G.P., Inc. from February 1997 to August 1997.
Chief Financial Officer of Morgan Associates, Inc., an energy
investment and pipeline management company, from October 1992 to
January 1997.
Jack W. Ellis II.............................. 46 Vice President and Controller since December 1997. Assistant Treasurer
and Assistant Secretary. Vice President and Controller of NorAm Energy
Corp. from December 1989 to August 1997.
Richard D. Kinder............................. 55 Director, Chairman and Chief Executive Officer since October 1999.
Director, Chairman and Chief Executive Officer of Kinder Morgan G.P.,
Inc. since February 1997. From 1992 to 1994, Chairman of Kinder Morgan
G.P., Inc. From October 1990 until December, 1996, President of Enron
Corp. Mr. Kinder was employed by Enron and its affiliates and
predecessors for over 16 years.
P. Anthony Lannie............................. 46 President of Power Operations since January of 2000. Previously,
President of Coral Energy Canada from August 1999 to December 1999 and
Senior Vice President and General Counsel of Coral Energy and its
predecessor Tejas Energy Corporation from January 1994. Tejas Energy
Corporation was acquired by Shell Oil Company in January 1998.
</TABLE>
16
<PAGE> 17
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
<TABLE>
<S> <C> <C>
Joseph Listengart............................. 31 Vice President, General Counsel and Secretary since October 1999. Also
Vice President and General Counsel of Kinder Morgan G.P., Inc. since
October 1999. Mr. Listengart became an employee of Kinder Morgan G.P.,
Inc. in March 1998 and was elected its Secretary in November 1998. From
March 1995 through February 1998, Mr. Listengart worked as an attorney
for Hutchins, Wheeler & Dittmar, a Professional Corporation.
Deborah Macdonald........................... 48 Vice President and President of Natural Gas Pipeline Company of America
since October 1999. Senior Vice President - Legal Affairs of Aquila
Energy, a subsidiary of Utilicorp United, from March 1999 to October
1999. Independent energy consultant from June 1996 to March 1999.
President of Transwestern Pipeline Company, a subsidiary of Enron
Corp., from April 1993 through May 1996.
Michael C. Morgan............................ 31 Vice President, Strategy and Investor Relations since January 2000.
Also Vice President, Strategy and Investor Relations of Kinder Morgan
G.P., Inc. since January 2000. Vice President of Corporate Development
of Kinder Morgan G.P., Inc. from February 1997 to January 2000. From
August 1995 until February 1997, an associate with McKinsey & Company,
an international management consulting firm. Son of William V. Morgan.
William V. Morgan............................ 56 Director, Vice Chairman and President since October 1999. Director of
Kinder Morgan G.P., Inc. since June 1994. Vice Chairman of Kinder
Morgan G.P., Inc. since February 1997. President of Kinder Morgan G.P.,
Inc. since November 1998. President of Morgan Associates, Inc., an
investment and pipeline management company, since February 1987, and
Cortez Holdings Corporation, a related pipeline investment company,
since October 1992. Legal and management positions in the energy
industry since 1975, including the presidencies of three major
interstate natural gas companies which are now part of Enron Corp.:
Florida Gas Transmission Company, Transwestern Pipeline Company and
Northern Natural Gas Company. Prior to joining Florida Gas in 1975, Mr.
Morgan was engaged in the private practice of law in Washington, D.C.
Rose M. Robeson.............................. 39 Vice President and Treasurer since April 1998. Assistant Treasurer from
1996 to 1998. Assistant Treasurer of Total Petroleum, Inc. from 1992 to
1996.
C. Park Shaper................................ 31 Vice President and Chief Financial Officer since January 2000. Also
Vice President, Treasurer and Chief Financial Officer of Kinder Morgan
G.P., Inc. since January 2000. Previously, President and Director of
Altair Corporation, an enterprise focused on the distribution of
web-based investment research for the financial services industry. Vice
President and Chief Financial Officer of First Data Analytics, a
subsidiary of First Data Corporation, from 1997 to June 1999. From 1995
to 1997, a consultant with The Boston Consulting Group. Previous
experience with TeleCheck
</TABLE>
17
<PAGE> 18
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
<TABLE>
<S> <C> <C>
Services, Inc. and as a management consultant
with the Strategic Services Division of Andersen Consulting.
James E. Street............................... 43 Vice President of Human Resources and Administration since August 1999.
Also Vice President, Human Resources and Administration of Kinder
Morgan G.P., Inc., since August 1999. Senior Vice President, Human
Resources and Administration for Coral Energy, a subsidiary of Shell
Oil Company, from October 1996 to August 1999. Vice President, Human
Resources of Enron Corp. from July 1989 to August 1992.
Laurel L. Tiffin.............................. 41 Vice President and Chief Information Officer since October 1999.
Director of Information Systems of Kinder Morgan G.P., Inc. from April
1998 to October 1999. Employee of Kinder Morgan G.P., Inc., providing
systems administration support, from February 1997 to April 1998.
Employee of Electronic Data Systems, supporting Enron Oil & Gas Company
in various capacities including: Information Technology support of
engineering systems, domestic and international systems administration
and client/server applications development, from 1992 to February 1997.
</TABLE>
These officers generally serve until April of each year.
(B) Involvement in Certain Legal Proceedings
None.
18
<PAGE> 19
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Kinder Morgan's common stock is listed for trading on the New York Stock
Exchange under the symbol KMI. Dividends paid and the price range of Kinder
Morgan's common stock by quarter for the last two years are provided below. All
amounts have been restated to reflect the three-for-two split of Kinder Morgan's
common stock effective December 31,1998.
<TABLE>
<CAPTION>
MARKET PRICE DATA
-----------------
1999 1998
----------------------------------------- -----------------------------------------
Quarter Ended: LOW HIGH CLOSE LOW HIGH CLOSE
--- ---- ----- --- ---- -----
<S> <C> <C> <C> <C> <C> <C>
March 31 $18.813 $24.188 $19.938 $33.328 $39.375 $39.375
June 30 $12.188 $22.438 $13.375 $32.797 $40.328 $36.125
September 30 $12.188 $24.688 $22.438 $25.000 $36.125 $34.172
December 31 $17.125 $24.500 $20.188 $22.328 $34.922 $24.250
Dividends
Quarter Ended:
March 31 $0.2000 $0.1867
June 30 $0.2000 $0.1867
September 30 $0.2000 $0.1867
December 31 $0.0500 $0.2000
Common Stockholders
at Year-end 10,397 9,659
</TABLE>
19
<PAGE> 20
ITEM 6: SELECTED FINANCIAL DATA
FIVE-YEAR REVIEW
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1999(2) 1998(3) 1997
----------- ----------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Natural Gas Sales $ 1,003,535 $ 955,134 $ 214,775
Natural Gas Transportation
and Storage 651,647 640,906 87,579
Other 90,299 64,854 38,084
----------- ----------- -----------
Total Operating Revenues $ 1,745,481 $ 1,660,894 $ 340,438
=========== =========== ===========
OPERATING INCOME $ 305,057 $ 401,207 $ 78,280
Other Income and (Deductions) (59,878) (181,547) (21,089)
----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 245,179 219,660 57,191
Income Taxes 90,527 81,492 12,810
----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS 154,652 138,168 44,381
----------- ----------- -----------
DISCONTINUED OPERATIONS, NET
OF TAX
Income (Loss) From Discontinued
Operations (51,718) (78,179) 33,116
Loss on Disposal of Discontinued
Operations (344,378) -- --
----------- ----------- -----------
TOTAL INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (396,096) (78,179) 33,116
----------- ----------- -----------
NET INCOME (LOSS) (241,444) 59,989 77,497
Less -Preferred Stock Dividends 129 350 350
Less-Premium Paid on
Preferred Stock Redemption 350 -- --
----------- ----------- -----------
EARNINGS (LOSS) AVAILABLE FOR
COMMON STOCK $ (241,923) $ 59,639 $ 77,147
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
Continuing Operations $ 1.92 $ 2.13 $ 0.93
Discontinued Operations (4.93) (1.21) 0.70
----------- ----------- -----------
TOTAL DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (3.01) $ 0.92 $ 1.63
=========== =========== ===========
DIVIDENDS PER COMMON SHARE $ 0.65 $ 0.76 $ 0.73
=========== =========== ===========
NUMBER OF SHARES USED IN
COMPUTING DILUTED EARNINGS
PER COMMON SHARE 80,358 64,636 47,307
=========== =========== ===========
TOTAL ASSETS $ 9,540,283 $ 9,716,129 $ 2,305,805
=========== =========== ===========
CAPITAL EXPENDITURES(1) $ 94,348 $ 118,452 $ 228,735
=========== =========== ===========
CAPITALIZATION:
Common Stockholders' Equity $ 1,665,841 32% $ 1,216,821 25% $ 606,132 48%
Preferred Stock -- -- 7,000 -- 7,000 --
Preferred Stock Subject to
Mandatory Redemption -- -- -- -- -- --
Preferred Capital Trust
Securities 275,000 5% 275,000 6% 100,000 8%
Long-term Debt 3,293,326 63% 3,300,025 69% 553,816 44%
----------- ----- ----------- ----- ----------- -----
Total Capitalization $ 5,234,167 100% $ 4,798,846 100% $ 1,266,948 100%
=========== ===== =========== ===== =========== =====
BOOK VALUE PER COMMON
SHARE $ 14.79 $ 17.74 $ 12.63
=========== =========== ===========
<CAPTION>
1996 1995
----------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Natural Gas Sales $ 191,506 $ 204,429
Natural Gas Transportation
and Storage 73,825 60,172
Other 34,277 33,424
----------- -----------
Total Operating Revenues $ 299,608 $ 298,025
=========== ===========
OPERATING INCOME $ 67,988 $ 57,332
Other Income and (Deductions) (14,798) (15,653)
----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 53,190 41,679
Income Taxes 17,304 14,837
----------- -----------
INCOME FROM CONTINUING
OPERATIONS 35,886 26,842
----------- -----------
DISCONTINUED OPERATIONS, NET
OF TAX
Income (Loss) From Discontinued
Operations 27,933 25,680
Loss on Disposal of Discontinued
Operations -- --
----------- -----------
TOTAL INCOME (LOSS) FROM
DISCONTINUED OPERATIONS 27,933 25,680
----------- -----------
NET INCOME (LOSS) 63,819 52,522
Less -Preferred Stock Dividends 398 492
Less-Premium Paid on
Preferred Stock Redemption -- --
----------- -----------
EARNINGS (LOSS) AVAILABLE FOR
COMMON STOCK $ 63,421 $ 52,030
=========== ===========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
Continuing Operations $ 0.80 $ 0.62
Discontinued Operations 0.63 0.60
----------- -----------
TOTAL DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ 1.43 $ 1.22
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.70 $ 0.67
=========== ===========
NUMBER OF SHARES USED IN
COMPUTING DILUTED EARNINGS
PER COMMON SHARE 44,436 42,540
=========== ===========
TOTAL ASSETS $ 1,629,720 $ 1,257,457
=========== ===========
CAPITAL EXPENDITURES(1) $ 88,755 $ 48,263
=========== ===========
CAPITALIZATION:
Common Stockholders' Equity $ 519,794 55% $ 426,760 57%
Preferred Stock 7,000 1% 7,000 1%
Preferred Stock Subject to
Mandatory Redemption -- -- 572 --
Preferred Capital Trust
Securities -- -- -- --
Long-term Debt 423,676 44% 315,564 42%
----------- ----- ----------- -----
Total Capitalization $ 950,470 100% $ 749,896 100%
=========== ===== =========== =====
BOOK VALUE PER COMMON
SHARE $ 11.44 $ 10.13
=========== ===========
</TABLE>
(1) Capital Expenditures shown are for continuing operations only.
(2) Reflects the acquisition of Kinder Morgan Delaware on October 7, 1999. See
Note 2 of the accompanying Notes to Consolidated Financial Statements.
(3) Reflects the acquisition of MidCon Corp. on January 30, 1998. See Note 2 of
the accompanying Notes to Consolidated Financial Statements.
20
<PAGE> 21
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As used in this report, "Kinder Morgan" refers to Kinder Morgan, Inc. (a Kansas
corporation, formerly K N Energy, Inc.) and its consolidated subsidiaries. The
following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and related Notes. Specifically, as discussed
in Notes 2, 5 and 6 of the accompanying Notes to Consolidated Financial
Statements, Kinder Morgan has engaged in acquisitions (including the October
1999 acquisition of Kinder Morgan (Delaware), Inc., a Delaware corporation and
the indirect owner of the general partner interest in Kinder Morgan Energy
Partners, L.P., a publicly-traded master limited partnership), and divestitures
(including the discontinuance of certain businesses) which may affect
comparisons of results between periods.
CONSOLIDATED FINANCIAL RESULTS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Dollars In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Operating Revenues $ 1,745,481 $ 1,660,894 $ 340,438
Gross Margin(1) $ 789,300 $ 827,619 $ 206,102
Operating Income:
Before Merger-related and Severance Costs $ 342,500 $ 406,970 $ 78,280
Merger-related and Severance Costs (37,443) (5,763) --
------------ ------------ ------------
Consolidated Operating Income $ 305,057 $ 401,207 $ 78,280
============ ============ ============
Income from Continuing Operations:
Before Merger-related and Severance Costs
and Gain from Sale to KMEP(2) $ 77,121 $ 141,686 $ 44,381
Merger-related and Severance Costs, Net of Tax (23,327) (3,518) --
Gain from Sale to KMEP(2), Net of Tax 100,858 -- --
------------ ------------ ------------
Income from Continuing Operations 154,652 138,168 44,381
Income (Loss) from Discontinued Operations (51,718) (78,179) 33,116
Loss on Disposal of Discontinued Operations (344,378) -- --
------------ ------------ ------------
Net Income (Loss) $ (241,444) $ 59,989 $ 77,497
============ ============ ============
Diluted Earnings (Loss) Per Share:
From Continuing Operations Before Merger-related
and Severance Costs and Gain from Sale to KMEP(2) $ 0.96 $ 2.18 $ 0.93
Merger Related and Severance Costs (0.29) (0.05) --
Gain from Sale to KMEP(2) 1.25 -- --
Income (Loss) from Discontinued Operations (0.64) (1.21) 0.70
Loss on Disposal of Discontinued Operations (4.29) -- --
------------ ------------ ------------
Diluted Earnings (Loss) Per Share $ (3.01) $ 0.92 $ 1.63
============ ============ ============
</TABLE>
(1) Gross margin equals total operating revenues less gas purchases and other
costs of sales.
(2) KMEP refers to Kinder Morgan Energy Partners.
Kinder Morgan's results for 1999 reflect an increase of $84.6 million in
operating revenues, a decrease of $38.3 million in gross margin and a decrease
of $64.5 million in operating income before merger-related and severance costs.
The increase in operating revenues is principally due to (i) the fact that 1999
results include 12 months of the operations of assets acquired in the January
30, 1998, acquisition of MidCon Corp. (see Note 2 of the accompanying Notes to
Consolidated Financial Statements), while 1998 results include only 11 months,
(ii) increased 1999 sales by Kinder Morgan's MidCon Texas Pipeline Operator,
Inc. subsidiary and (iii) increased
21
<PAGE> 22
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
1999 sales by Kinder Morgan's power operations, partially offset by (i) reduced
per unit revenues realized by Kinder Morgan's Natural Gas Pipeline Company of
America subsidiary and (ii) decreased 1999 sales by Kinder Morgan's retail
natural gas distribution operations. The decrease in gross margin that occurred
from 1998 to 1999, despite the increased operating revenues, was principally due
to lower 1999 margins realized by Natural Gas Pipeline Company of America and
retail natural gas distribution, partially offset by increased 1999 margins in
Kinder Morgan's other businesses. Individual business unit results are discussed
in detail under "Results of Operations" following.
Results for 1999 and 1998 included pre-tax merger-related and severance-related
costs of $37.4 million and $5.8 million, respectively, as further discussed in
Note 3 of the accompanying Notes to Consolidated Financial Statements. In
addition, results for both 1999 and 1998 included significant gains from the
sale of assets. In 1999, earnings included a $158.8 million pre-tax gain from
the sale of assets to Kinder Morgan Energy Partners (see Note 5 of the
accompanying Notes to Consolidated Financial Statements), as well as equity in
earnings (and associated amortization of excess investment) associated with
Kinder Morgan's investment in Kinder Morgan Energy Partners. Interest expense
increased significantly in 1999 due, in large part, to the January 1998
acquisition of MidCon Corp., as discussed in Note 2 of the accompanying Notes to
Consolidated Financial Statements. Additional information on these items is
included under "Other Income and (Deductions)" following.
Diluted earnings per common share from continuing operations before
merger-related and severance costs and the gain from the sale of assets to
Kinder Morgan Energy Partners decreased from $2.18 per share in 1998 to $0.96
per share in 1999. In addition to the operating and financing factors described
preceding, this decrease reflects an increase of 15.7 million (24.3%) in average
diluted shares outstanding, largely due to shares issued in conjunction with the
acquisition of Kinder Morgan Delaware as further discussed in Note 2 of the
accompanying Notes to Consolidated Financial Statements. Diluted earnings per
common share declined from $0.92 per common share in 1998 to a loss of $3.01 in
1999 reflecting, in addition to the factors discussed preceding, the impact of
discontinued operations in each period and, in 1999, the loss from disposal of
discontinued operations. See "Discontinued Operations" following and Note 6 of
the accompanying Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Following Kinder Morgan's October 1999 business combination with Kinder Morgan
Delaware (see Note 2 of the accompanying Notes to Consolidated Financial
Statements), Richard D. Kinder (formerly the Chairman of the Board of Kinder
Morgan Delaware) became chairman of Kinder Morgan's board of directors, certain
directors of Kinder Morgan Delaware became members of Kinder Morgan's board of
directors and certain members of senior management of Kinder Morgan Delaware
assumed similar positions with Kinder Morgan. In addition, during the fourth
quarter of 1999, Kinder Morgan made the decision to dispose of a number of
businesses (see Note 6 of the accompanying Notes to Consolidated Financial
Statements) and to alter its business unit structure.
In accordance with the manner in which Kinder Morgan currently manages its
businesses, including the allocation of capital and evaluation of business unit
performance, Kinder Morgan reports its operations in the following segments: (1)
Natural Gas Pipeline Company of America and certain associated entities,
referred to as "NGPL," a major interstate natural gas pipeline system; (2)
MidCon Texas Pipeline Operator, Inc. and certain associated entities, referred
to as "MTP", a major intrastate natural gas pipeline system; (3) "Retail," the
(largely regulated) distribution of natural gas to retail customers; (4)
"Power," the generation and sale of electric power and (5) "Other," various
other activities not constituting business segments. Prior to its December 31,
1999 sale to Kinder Morgan Energy Partners (see Note 5 of the accompanying Notes
to Consolidated Financial Statements), Kinder Morgan also owned and operated
Kinder Morgan Interstate Gas Transmission LLC
22
<PAGE> 23
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
(formerly K N Interstate Gas Transmission Co.), which is referred to in this
report as "KMIGT." For comparative purposes, Kinder Morgan's previously reported
segment results have been restated to conform to the current presentation.
Following are operating results by individual segment (before intersegment
eliminations), including explanations of significant variances between the
periods presented.
<TABLE>
<CAPTION>
NGPL 1999 1998
- ---- ----------- -----------
(In Thousands Except Systems Throughput)
<S> <C> <C>
Operating Revenues
Transportation and Storage $ 471,895 $ 484,145
Other 61,461 72,816
----------- -----------
533,356 556,961
----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 21,949 24,273
Operations and Maintenance 71,008 59,055
Depreciation and Amortization 109,346 121,008
Taxes, Other Than Income Taxes 22,575 15,800
----------- -----------
224,878 220,136
----------- -----------
Operating Income Before Corporate Costs $ 308,478 $ 336,825
=========== ===========
Systems Throughput (Trillion Btus) 1,509.2 1,298.0
=========== ===========
</TABLE>
Operating results for NGPL are included in Kinder Morgan's consolidated results
beginning with the January 30, 1998 acquisition of MidCon Corp. See Note 2 of
the accompanying Notes to Consolidated Financial Statements for more information
regarding Kinder Morgan's acquisition of MidCon Corp.
NGPL's operating income before corporate costs decreased by $28.3 million (8.4%)
from 1998 to 1999. This segment was negatively impacted in 1999, relative to
1998, by (i) a decrease in the margin per MMBtu of throughput from $0.41 in 1998
to $0.34 in 1999 resulting from (1) two recent mild winters, including the
impact of the resultant high levels of gas in underground storage and (2)
increased competitive pressures in Midwest markets due to actual or projected
supply increases and (ii) increased operations and maintenance expenses and
property taxes. These negative impacts were partially offset by (i) an increase
in average monthly throughput volumes from 118 trillion Btus in 1998 to 126
trillion Btus in 1999 (although, in general, interstate pipelines receive the
majority of their transportation revenues from demand charges which are not
affected by the level of throughput), (ii) reduced amortization expense in 1999
resulting from a change in the estimated useful life of NGPL's assets (see Note
4 of the accompanying Notes to Consolidated Financial Statements) and (iii) the
fact that 1999 results for Kinder Morgan included 12 months of the operations of
NGPL, while 1998 results included only 11 months.
23
<PAGE> 24
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
<TABLE>
<CAPTION>
KMIGT 1999 1998 1997
- ----- ----------- ----------- -----------
(In Thousands Except Systems Throughput)
<S> <C> <C> <C>
Operating Revenues
Transportation and Storage $ 112,732 $ 105,160 $ 73,777
Other 475 417 6,267
----------- ----------- -----------
113,207 105,577 80,044
----------- ----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 13,954 3,763 4,236
Operations and Maintenance 23,379 20,026 14,957
Depreciation and Amortization 16,985 19,474 12,432
Taxes, Other Than Income Taxes 4,607 4,308 2,966
----------- ----------- -----------
58,925 47,571 34,591
----------- ----------- -----------
Operating Income Before Corporate Costs $ 54,282 $ 58,006 $ 45,453
=========== =========== ===========
Systems Throughput (Trillion Btus) 203.1 216.6 177.4
=========== =========== ===========
</TABLE>
Effective December 31, 1999, Kinder Morgan contributed KMIGT and Kinder Morgan
Trailblazer LLC (formerly NGPL-Trailblazer, Inc.), as well as its interest in
Red Cedar Gathering Company to Kinder Morgan Energy Partners in exchange for
$330 million in cash plus approximately 9.8 million Kinder Morgan Energy
Partners common units. See Note 5 of the accompanying Notes to Consolidated
Financial Statements for more information regarding this transaction.
KMIGT's operating income before corporate costs decreased by $3.7 million (6.4%)
from 1998 to 1999. This segment was negatively impacted in 1999, relative to
1998, by (i) the 1999 write-off of approximately $5.8 million of deferred fuel
tracker costs that had accumulated since the initial implementation of FERC
Order No. 636 and were deemed unrecoverable due to the settlement of the general
rate case, (see Note 8 of the accompanying Notes to Consolidated Financial
Statements for more information regarding KMIGT's general rate case), (ii) a
decrease in shipper supplied fuel requirements under the terms of KMIGT's
general rate case which, in conjunction with normal system fuel and loss
requirements, caused KMIGT to purchase additional system fuel supplies and (iii)
increased operations and maintenance expenses, primarily related to the Pony
Express Pipeline. These negative impacts were partially offset by (i) increased
revenues in 1999 due to higher transportation rates under the terms of the
general rate case and (ii) reduced depreciation expense in 1999 resulting from
the assets of KMIGT being classified as assets held for sale effective November
1, 1999, at which time further depreciation of these assets was suspended in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
KMIGT's operating income before corporate costs increased by $12.6 million
(27.6%) from 1997 to 1998. This segment was positively impacted in 1998,
relative to 1997, by (i) incremental revenue from the Pony Express Pipeline,
which became fully operational in late 1997 and (ii) incremental revenues due to
higher transportation rates from KMIGT's rate case subsequent to August 1, 1998,
at which date the FERC allowed KMIGT to place its new rates into effect, subject
to refund. These positive impacts were partially offset by (i) a decrease in
other operating revenues in 1998 due to the transfer of the Casper processing
plant to KN Gas Gathering in August 1997 and (ii) increased 1998 operating
expenses associated with the Pony Express Pipeline.
24
<PAGE> 25
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
<TABLE>
<CAPTION>
RETAIL 1999 1998 1997
- ------ ----------- ----------- -----------
(In Thousands Except Systems Throughput)
<S> <C> <C> <C>
Operating Revenues
Gas Sales $ 134,208 $ 186,527 $ 212,710
Transportation 34,919 27,309 19,865
Other 13,785 20,470 16,967
----------- ----------- -----------
182,912 234,306 249,542
----------- ----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 107,264 123,099 140,699
Operations and Maintenance 40,463 41,093 39,817
Depreciation and Amortization 11,382 11,014 10,582
Taxes, Other Than Income Taxes 3,355 2,886 3,651
----------- ----------- -----------
162,464 178,092 194,749
----------- ----------- -----------
Operating Income Before Corporate Costs $ 20,448 $ 56,214 $ 54,793
=========== =========== ===========
Systems Throughput (Trillion Btus) 56.6 61.7 72.9
=========== =========== ===========
</TABLE>
Retail's operating income before corporate costs decreased by $35.8 million
(63.6%) from 1998 to 1999. This segment was negatively impacted in 1999,
relative to 1998, by (i) the fact that 1998 results include three months of the
operations of distribution assets in Kansas that were sold in March 1998 (see
Note 5 of the accompanying Notes to Consolidated Financial Statements) and (ii)
reduced margins from sales and transportation due primarily to (1)
weather-related reductions in 1999 irrigation demand and (2) reduced margins
related to the Nebraska Choice Gas program.
Retail's operating income before corporate costs increased by $1.4 million
(2.6%) from 1997 to 1998. This increase was due primarily to weather-related
increases in space-heating and irrigation loads, which were largely offset by
the fact that 1997 results include twelve months of the operations of
distribution assets in Kansas, while 1998 results include only three months.
<TABLE>
<CAPTION>
MTP 1999 1998
- --- ----------- -----------
(In Thousands Except Systems Throughput)
<S> <C> <C>
Operating Revenues
Gas Sales $ 815,557 $ 704,190
Transportation and Storage 23,971 19,192
Other 32,633 15,819
----------- -----------
872,161 739,201
----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 804,674 680,766
Operations and Maintenance 45,714 51,067
Depreciation and Amortization 2,466 1,615
Taxes, Other Than Income Taxes 2,689 3,624
----------- -----------
855,543 737,072
----------- -----------
Operating Income Before Corporate Costs $ 16,618 $ 2,129
=========== ===========
Systems Throughput (Trillion Btus) 575.3 581.6
=========== ===========
</TABLE>
Operating results for MTP are included in Kinder Morgan's consolidated results
beginning with the January 30, 1998 acquisition of MidCon Corp. See Note 2 of
the accompanying Notes to Consolidated Financial Statements for more information
regarding Kinder Morgan's acquisition of MidCon Corp.
MTP's operating income before corporate costs increased by $14.5 million from
1998 to 1999. This segment
25
<PAGE> 26
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
was positively impacted in 1999, relative to 1998, by (i) the fact that 1999
results include 12 months of the operations of MTP, while 1998 results include
only 11 months, (ii) increased per unit margins from sales and transportation in
1999, (iii) increased 1999 margins from natural gas liquids sales due to an
improved pricing environment, (iv) reduced 1999 operations and maintenance
expenses and (v) reduced 1999 ad valorem taxes. These positive impacts were
partially offset by (i) reduced 1999 overall systems throughput volumes and (ii)
increased 1999 depreciation expense resulting from capital expenditures made in
1998 and 1999.
<TABLE>
<CAPTION>
POWER 1999 1998
- ----- ----------- -----------
(In Thousands)
<S> <C> <C>
Operating Revenues $ 21,609 $ 8,485
----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 4,525 1,547
Operations and Maintenance 3,023 750
Depreciation and Amortization 1,991 618
Taxes, Other Than Income Taxes 132 -
----------- -----------
9,671 2,915
----------- -----------
Operating Income Before Corporate Costs $ 11,938 $ 5,570
=========== ===========
</TABLE>
Results of operations for the Power segment are included beginning with the
acquisition of interests in power plants from the Denver-based Thermo Companies,
which acquisition was completed in the third quarter of 1998 (see Note 2 of the
accompanying Notes to Consolidated Financial Statements). Differences in
operating results between 1999 and 1998 are principally attributable to the fact
that 1998 includes only a partial year of operations.
<TABLE>
<CAPTION>
OTHER 1999 1998 1997
- ----- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Operating Revenues $ 48,978 $ 39,530 $ 38,471
----------- ----------- -----------
Operating Costs and Expenses
Gas Purchases and Other Costs of Sales 19,687 14,555 16,065
Operations and Maintenance 6,852 5,180 5,705
Depreciation and Amortization 2,098 1,633 854
Taxes, Other Than Income Taxes 1,202 1,672 1,278
General and Administrative 88,403 68,264 36,535
Merger-related and Severance 37,443 5,763 -
----------- ----------- -----------
155,685 97,067 60,437
----------- ----------- -----------
Operating Loss $ (106,707) $ (57,537) $ (21,966)
=========== =========== ===========
</TABLE>
Results included in "Other" include earnings from Kinder Morgan's agreement with
HS Resources, Inc. as discussed following, earnings from certain
telecommunications assets used primarily by internal business segments and
certain general and administrative, and merger-related and severance costs. As
announced by Kinder Morgan on November 30, 1999, Kinder Morgan has entered into
agreements with HS Resources, Inc. to sell certain assets in the Wattenberg
field area of the Denver-Julesberg Basin. Under the terms of the agreements, HS
Resources, Inc. commenced operating these assets. Kinder Morgan will receive
cash payments from HS Resources, Inc. during 2000 and 2001, with the legal
transfer of ownership expected to occur on or before December 15, 2001.
Operating losses increased by $49.2 million (85.5%) from 1998 to 1999. This
increase was largely the result of (i) $20.1 million of increased general and
administrative expenses due primarily to (1) the fact that 1999 results
26
<PAGE> 27
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
included 12 months of the operations of NGPL and MTP, while 1998 results
included only 11 months (see Note 2 of the accompanying Notes to Consolidated
Financial Statements) and (2) reduced capitalization of overhead costs in 1999
resulting from a significantly reduced capital spending program, (ii) additional
severance costs related to corporate reorganization and (iii) merger-related
costs resulting from the merger with Kinder Morgan Delaware.
Operating losses increased by $35.6 million from 1997 to 1998. This increase was
largely the result of (i) the inclusion in 1998 results of 11 months of the
operations of NGPL and MTP, which were acquired in the January 1998 acquisition
of MidCon Corp. and (ii) merger-related and severance costs associated with the
MidCon acquisition.
<TABLE>
<CAPTION>
OTHER INCOME AND (DEDUCTIONS) 1999 1998 1997
- ----------------------------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Interest Expense, Net $ (251,986) $ (205,899) $ (29,057)
Equity in Earnings of KMEP(1):
Equity in Earnings 15,733 -- --
Amortization of Excess Investment (7,335) -- --
Other Equity in Earnings 14,140 22,465 4,906
Minority Interests (24,740) (19,396) (5,849)
Gain on Sale of Assets to KMEP1 158,832 -- --
Other Gains on Asset Sales 30,946 19,552 1,547
Other, Net 4,532 1,731 7,364
---------- ---------- ----------
$ (59,878) $ (181,547) $ (21,089)
========== ========== ==========
</TABLE>
(1) KMEP refers to Kinder Morgan Energy Partners.
The decrease of $121.7 million in net expense reported under "Other Income and
(Deductions)" from 1998 to 1999 is principally due to the gain from the sale of
assets to Kinder Morgan Energy Partners (see Note 2 of the accompanying Notes to
Consolidated Financial Statements) and to other factors as discussed following.
The increase of $46.1 million (22.4%) in "Interest Expense, Net" from 1998 to
1999 is principally due the incremental debt outstanding as a result of the
January 1998 acquisition of MidCon (see Note 2 of the accompanying Notes to
Consolidated Financial Statements) and decreased capitalized interest in 1999
due to the reduced level of capital spending (see "Net Cash Flows from Investing
Activities"). The equity in earnings of Kinder Morgan Energy Partners (and
associated amortization) resulted from the October 1999 business combination
with Kinder Morgan Delaware (see Note 2 of the accompanying Notes to
Consolidated Financial Statements). The decrease of $8.3 million in "Other
Equity in Earnings" from 1998 to 1999 is principally due to the sale of certain
equity method investments as described following. The increase of $11.4 million
(58.3%) in "Other Gains on Asset Sales" from 1998 to 1999 is principally due to
the inclusion in 1999 results of (i) a gain of $17.5 million from the June 1999
sale of Kinder Morgan's interests in the HIOS and UTOS offshore pipeline systems
and (ii) a gain of $11.4 million from the September 1999 sale of Kinder Morgan's
interest in Stingray Pipeline Company, L.L.C. and West Cameron Dehydration
Company, L.L.C., while 1998 results included (i) a gain of $8.5 million from the
March 1998 sale of Kinder Morgan's Kansas natural gas distribution properties
and (ii) a gain of $10.9 million from Kinder Morgan's September 1998 sale of
certain microwave facilities. For additional information on these transactions,
see Note 5 of the accompanying Notes to Consolidated Financial Statements.
The increase of $176.8 million in "Interest Expense, Net" from 1997 to 1998 was
principally due to the acquisition of MidCon (see Note 2 of the accompanying
Notes to Consolidated Financial Statements) and to construction costs associated
with the Pony Express Pipeline. The increase of $13.5 million in net expense
associated with "Minority Interests" from 1997 to 1998 was principally due to
the dividend requirements associated with the $175 million of Capital Trust
Securities issued in April 1998. The $18.0 million increase in "Other Gains on
Asset Sales" from 1997 to 1998 reflects the fact that 1998 results included the
gains from asset
27
<PAGE> 28
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
sales as described preceding, while 1997 included only minor gains. The decrease
of $5.6 million in "Other, Net" from 1997 to 1998 is primarily the result of the
inclusion, in 1998 results, of $5.0 million of expense representing an increased
provision for regulatory refund obligations.
<TABLE>
<CAPTION>
INCOME TAXES FROM CONTINUING OPERATIONS 1999 1998 1997
- --------------------------------------- ----------- ----------- -----------
(Dollars In Thousands)
<S> <C> <C> <C>
Income Tax Provision $ 90,527 $ 81,492 $ 12,810
=========== =========== ===========
Effective Tax Rate 36.9% 37.1% 22.4%
=========== =========== ===========
</TABLE>
The increase of $9.0 million in income tax expense from 1998 to 1999 reflected
an increase of $9.5 million due to an increase in 1999 pre-tax income, partially
offset by a decrease of $0.5 million due to a decrease in the 1999 effective tax
rate. The decrease in the 1999 effective tax rate was principally due to the
impact of asset sales and dispositions of certain lines of business. The $68.7
million net increase in income tax expense from 1997 to 1998 reflected an
increase of $36.4 million due to an increase in 1998 pre-tax income and an
increase of $32.3 million due to an increase in the effective tax rate. The
increase in the 1998 effective tax rate was principally due to (i) increased
state income taxes due to the addition of MidCon's results of operations
beginning January 30, 1998 and (ii) the inclusion in 1997 results of adjustments
to income tax expense resulting from the successful resolution of certain issues
from prior years' federal income tax filings.
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS 1999 1998 1997
- ----------------------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Income (Loss) from Discontinued Operations, Net of Tax $ (51,718) $ (78,179) $ 33,116
=========== =========== ===========
</TABLE>
During the third quarter of 1999, Kinder Morgan adopted a plan to discontinue
the direct marketing of non-energy products and services (principally under the
"Simple Choice" brand), which activities had been carried on largely through
Kinder Morgan's enoable joint venture with PacifiCorp. During the fourth quarter
of 1999, Kinder Morgan adopted plans to discontinue the following lines of
business: (i) gathering and processing natural gas, and providing field services
to natural gas producers, (ii) commodity marketing of natural gas and natural
gas liquids, (iii) international operations, and (iv) West Texas intrastate
pipelines. For more information on these discontinued operations, see Note 6 of
the accompanying Notes to Consolidated Financial Statements.
Losses from discontinued operations, net of tax benefits of $32.1 million and
$41.5 million in 1999 and 1998, respectively, decreased by $26.5 million from
1998 to 1999. Operating results were positively impacted in 1999, relative to
1998, by (i) improvement in the natural gas liquids pricing environment in 1999
and (ii) the fact that 1998 operating results included (1) $6.4 million of
adjustments to write down certain natural gas due from third parties and in
underground storage to their current market values, (2) $3.7 million of
increased provision for uncollectible accounts receivable, (3) natural gas
liquids storage inventory write-downs and (4) operating losses associated with
gas processing facilities that were sold in the fourth quarter of 1998. These
positive impacts were partially offset by the fact that 1998 results included
$6.0 million in margin from sales of storage gas.
The operating results of discontinued operations, net of a tax benefit of $41.5
million in 1998 and income tax expense of $23.2 million in 1997, decreased from
income of $33.1 million in 1997 to a loss of $74.1 million in 1998. Operating
results were negatively impacted in 1998, relative to 1997, by (i) lower natural
gas liquids prices in 1998, (ii) a decrease in earnings from commodity marketing
in 1998, which reflected (1) certain unfavorable adjustments as described
preceding and (2) reduced 1998 sales of gas in storage, (iii) increased 1998
downtime resulting from plant turnaround and installation of additional
measurement facilities, (iv) operational problems in 1998 associated with
deficient vendor performance, (v) 1998 natural gas liquids storage
28
<PAGE> 29
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
inventory write-downs, (vi) reduced 1998 revenues from the sale of natural gas
liquids marketing rights and processing agreements and (vii) increased equity in
losses of ENOable. These negative impacts were partially offset by the fact that
1997 results included $4.0 million of losses from power marketing activities.
Liquidity and Capital Resources
The following table illustrates the sources of Kinder Morgan's invested capital.
The balances at December 31, 1999 and 1998, reflect the incremental capital
associated with the acquisition of MidCon Corp., including the post-acquisition
refinancings completed in 1998. The balances at December 31, 1999 also reflect
the impacts associated with the acquisition of Kinder Morgan Delaware and the
sale of certain assets to Kinder Morgan Energy Partners (see Notes 2 and 12 of
the accompanying Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998 1997
------------ ------------ ------------
(Dollars In Thousands)
<S> <C> <C> <C>
Long-term Debt $ 3,293,326 $ 3,300,025 $ 553,816
Common Equity 1,665,841 1,216,821 606,132
Preferred Stock -- 7,000 7,000
Capital Trust Securities 275,000 275,000 100,000
------------ ------------ ------------
Capitalization 5,234,167 4,798,846 1,266,948
Short-term Debt 581,567 1,702,013 (1) 359,951
------------ ------------ ------------
Invested Capital $ 5,815,734 $ 6,500,859 $ 1,626,899
============ ============ ============
Capitalization:
Long-term Debt 62.9% 68.8% 43.7%
Common Equity 31.8% 25.4% 47.8%
Preferred Stock -- 0.1% 0.6%
Capital Trust Securities 5.3% 5.7% 7.9%
Invested Capital:
Total Debt (2) 66.6% 76.9% 56.2%
Equity, Including Capital
Trust Securities 33.4% 23.1% 43.8%
</TABLE>
(1) Includes the $1,394,846 Substitute Note assumed in conjunction with the
acquisition of MidCon Corp. This note was repaid on January 4, 1999.
(2) If the government securities then held as collateral were offset against
the related debt, the ratio of total debt to invested capital at December
31, 1998, would have been 72.3 percent.
The following discussion of cash flows should be read in conjunction with the
accompanying Consolidated Statements of Cash Flows and related supplemental
disclosures.
Net Cash Flows From Operating Activities
"Net Cash Flows From Operating Activities" increased from $95.3 million in 1998
to $312.0 million in 1999, an increase of $216.7 million or 227 percent. This
increase was principally attributable to (i) cash provided by reductions in
working capital for continuing operations in 1999 and (ii) increased 1999
operating cash flows associated with discontinued operations reflecting, among
other things, improved operating results and the sale of accounts receivable,
partially offset by (i) reduced 1999 earnings from continuing operations before
asset sales and (ii) the inclusion in 1998 results of $27.5 million of proceeds
from the buyout of certain contractual gas obligations.
"Net Cash Flows From Operating Activities" decreased from $97.5 million in 1997
to $95.3 million in 1998, a decrease of $2.2 million or 2.3 percent. This
decrease was principally attributable to (i) an increase in 1998 earnings from
continuing operations, due principally to the acquisition of MidCon Corp. and
(ii) the 1998 receipt of $27.5 million of proceeds from the buyout of certain
contractual gas obligations, largely offset by (i)
29
<PAGE> 30
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
cash used to increase working capital during 1998 and (ii) reduced 1998
operating cash flows associated with discontinued operations.
In September 1999, Kinder Morgan established a receivables sales facility that
provides up to $150 million of additional liquidity. In accordance with this
agreement, proceeds of $150 million were received on September 30, 1999. These
proceeds were subsequently used to retire debt obligations of Kinder Morgan
Delaware outstanding at the time of its acquisition by Kinder Morgan (see Note 7
of the accompanying Notes to Consolidated Financial Statements). In accordance
with authoritative accounting guidelines, cash flows (both continuing and
discontinuing) associated with this facility are included with "Cash flows from
Operating Activities" in the accompanying Consolidated Statements of Cash Flows.
In February 2000, approximately $120 million of this facility was repaid,
largely as a result of Kinder Morgan's agreement to dispose of certain
businesses.
Net Cash Flows From Investing Activities
"Net Cash Flows From Investing Activities" increased from a net outflow of $3.5
billion in 1998 to a net inflow of $1.0 billion in 1999. This increase was
principally attributable to the net impact of (i) a net cash outflow of $2.2
billion in 1998 for the purchase of MidCon Corp., (ii) net purchases of U.S.
Government securities of $1.1 billion in 1998, principally to act as collateral
for the Substitute Note assumed in the acquisition of MidCon Corp., (iii) net
sales of U.S. government securities of $1.1 billion in 1999, which proceeds were
used, together with proceeds of additional short-term borrowings, to repay the
Substitute Note, (iv) additional cash used in 1999 for other acquisitions,
principally the cash portion of consideration paid for the Thermo acquisition,
(v) the 1999 receipt of $28.7 million of proceeds from the sale of Tom Brown,
Inc. preferred stock, (vi) increased proceeds from sales of assets in 1999 and
(vi) decreased net cash outflows for investing activities of discontinued
operations in 1999. See Note 2 of the accompanying Notes to Consolidated
Financial Statements for additional information regarding the MidCon Corp.
acquisition, related assumption of the Substitute Note and the Thermo
acquisition.
Major asset sales during 1999 included (i) the transfer of KMIGT, Kinder Morgan
Trailblazer LLC and Kinder Morgan's interest in Red Cedar Gathering Company to
Kinder Morgan Energy Partners, (ii) all of Kinder Morgan's major offshore assets
in the Gulf of Mexico area, including Kinder Morgan's interests in Stingray
Pipeline Company L.L.C. and West Cameron Dehydration Company L.L.C., and the
HIOS and UTOS offshore pipeline systems and (iii) MidCon Gas Products of New
Mexico Corp. Total proceeds received in 1999 from asset sales (both continuing
and discontinued) were $111.1 million. In addition, on January 21, 2000, Kinder
Morgan received $200 million in cash from Kinder Morgan Energy Partners as
partial consideration for the aforementioned transfer of assets. Kinder Morgan
Energy Partners is also obligated to pay Kinder Morgan an additional $130
million in cash in early 2000. See Notes 5 and 6 of the accompanying Notes to
Consolidated Financial Statements for more information concerning these
investments and sales.
"Net Cash Flows From Investing Activities" increased from $496.6 million in 1997
to $3.5 billion in 1998, an increase of approximately $3.0 billion, principally
due to (i) the $2.2 billion of net cash paid in 1998 and (ii) the net use of
cash for the purchases of approximately $1.1 billion of U.S. government
securities as collateral for the Substitute Note, in each case in conjunction
with the acquisition of MidCon Corp. In addition, (i) cash outflows for
investments were approximately $71 million less in 1998 than in 1997, reflecting
the inclusion in 1997 of the investment in Red Cedar Gathering Company, (ii)
proceeds from sales of assets increased by approximately $36 million in 1998,
reflecting the sales of Kinder Morgan's Kansas natural gas distribution assets
and certain microwave towers and (iii) net cash outflows for investing
activities of discontinued operations decreased in 1998.
30
<PAGE> 31
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Net Cash Flows From Financing Activities
"Net Cash Flows From Financing Activities" decreased from a net inflow of $3.4
billion in 1998 to a net outflow of $1.3 billion in 1999. This decrease was
principally the result of the 1998 financings associated with the acquisition of
MidCon Corp. and the repayment of the Substitute Note in 1999, in each case as
described following. In addition, Kinder Morgan retired $158.9 million of
long-term debt in 1999, compared to $35.8 million in 1998. The long-term debt
retired in 1999 included $148.6 million of debt assumed in conjunction with the
acquisition of Kinder Morgan Delaware.
"Net Cash Flows From Financing Activities" increased from $411.2 million in 1997
to approximately $3.4 billion in 1998, an increase of approximately $3.0
billion. This increase reflected reduced 1998 cash from short-term borrowings
and the 1998 receipt of (i) $2.75 billion from the public sale of debt
securities, (ii) $650 million from the public sale of common stock and (iii)
$175 million from the public sale of Capital Trust Securities (in each case
representing the refinancing of acquisition debt associated with the purchase of
MidCon), net of associated issuance costs of approximately $78.2 million (see
Notes 2 and 12 of the accompanying Notes to Consolidated Financial Statements).
In addition, 1998 cash used for dividends and long-term debt retirement
increased by $17.3 million and $8.0 million, respectively.
In March 1998, Kinder Morgan issued 12.5 million shares (18.75 million shares
after adjustment for the December 1998 three-for-two stock split) of common
stock in an underwritten public offering, receiving net proceeds of
approximately $624.6 million. Also in March 1998, Kinder Morgan issued $2.35
billion principal amount of debt securities of varying maturities and interest
rates in an underwritten public offering, receiving net proceeds of
approximately $2.34 billion. The net proceeds from these two offerings were used
to refinance borrowings under the MidCon Corp. acquisition financing
arrangements and to purchase U.S. government securities to collateralize a
portion of the Substitute Note. In April 1998, Kinder Morgan sold $175 million
of 7.63% Capital Securities due April 15, 2028, in an underwritten offering,
with the net proceeds of $173.1 million used to purchase U.S. government
securities to further collateralize the Substitute Note. In November 1998,
Kinder Morgan completed the concurrent underwritten public offerings of $400
million of 3-year senior notes and $460 million principal amount of premium
equity participating security units. The $397.4 million of net proceeds from the
senior notes offering were used to retire a portion of Kinder Morgan's
then-outstanding short-term borrowings. The proceeds from the security units
offering was used to purchase U.S. Treasury Notes on behalf of the security unit
holders, which notes are the property of the security unit holders and will be
held as collateral to fund the obligation of the security unit holders to
purchase Kinder Morgan common stock at the end of a three-year period. For
additional information on each of these financings, including terms of the
specific securities and the associated accounting treatment, see Note 12 of the
accompanying Notes to Consolidated Financial Statements.
On January 4, 1999, Kinder Morgan repaid the $1.4 billion Substitute Note
payable to Occidental Petroleum as part of the MidCon Corp. acquisition. The
note was repaid using the proceeds of approximately $1.1 billion from the sale
of U.S. government securities which had been held as collateral, with the
balance of the funds provided by an increase in short-term borrowings.
Kinder Morgan's principal sources of short-term liquidity are its revolving bank
facilities and, to a lesser extent, its receivable sales facility (see "Net Cash
Flows from Operating Activities"). As of December 31, 1999, Kinder Morgan had
available a $550 million 364-day facility dated November 18, 1999, and a $400
million amended and restated five-year revolving credit agreement dated January
30, 1998. The bank facilities can be used for general corporate purposes,
including backup for Kinder Morgan's commercial paper program. At December 31,
1999, Kinder Morgan had $574.4 million of bank borrowings and commercial paper
(which is backed by the bank facilities) issued and outstanding. The
corresponding amount outstanding was $402.3 million at February 15, 2000. After
inclusion of applicable letters of credit, the remaining available borrowing
31
<PAGE> 32
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
capacity under the bank facilities was $354.5 million and $526.6 million at
December 31, 1999 and February 15, 2000, respectively. The bank facilities
include covenants that are common in such arrangements. For example, the $350
million facility requires consolidated debt to be less than 71% of consolidated
total capitalization. The $400 million facility requires that upon issuance of
common stock to the holders of the premium equity participating security units
at the maturity of the security units, consolidated debt must be less than 67%
of consolidated total capitalization. Both of the bank facilities require the
debt of consolidated subsidiaries to be less than 10% of consolidated debt of
Kinder Morgan, require the consolidated debt of each material subsidiary to be
less than 65% of its consolidated total capitalization and require Kinder
Morgan's consolidated net worth (inclusive of trust preferred securities) be at
least $1.236 billion plus 50 percent of consolidated net income earned for each
fiscal quarter beginning with the last quarter of 1998.
Capital Expenditures and Commitments
Capital expenditures in 1999 were $94.3 million and $31.7 million for continuing
operations and discontinued operations, respectively. The 2000 capital
expenditure budget totals approximately $120 million, and the funds are expected
to be provided from internal sources and, if necessary, incremental borrowings.
Approximately $8.5 million of this amount had been committed for the purchase of
plant and equipment at December 31, 1999. Additional information on commitments
is contained in Note 17 of the accompanying Notes to Consolidated Financial
Statements.
REGULATION
On January 23, 1998, KMIGT filed a general rate case with the Federal Energy
Regulatory Commission ("FERC") requesting a $30.2 million increase in annual
revenues. As a result of the FERC's action, KMIGT was allowed to place its rates
into effect on August 1, 1998, subject to refund, and provisions for refund were
recorded based on expected ultimate resolution. On November 3, 1999, KMIGT filed
a comprehensive Stipulation and Agreement to resolve all issues in this
proceeding. The FERC approved the Stipulation and Agreement on December 22,
1999. The settlement rates have been placed in effect, and it is anticipated
that refunds for past periods (totaling $36.6 million at December 31, 1999) will
be made in early 2000.
On December 29, 1998, Rocky Mountain Natural Gas Company, a wholly owned
subsidiary of Kinder Morgan, received a "show cause" order from the Colorado
Public Utilities Commission. Rocky Mountain has reached settlement on the issue,
and a Stipulation and Agreement memorializing the settlement with the Staff of
the Commission and the Office of Consumer Counsel has been filed and approved.
As part of this settlement, Rocky Mountain agreed to reduce its sales and
transportation rates effective June 1, 1999. The settled rate reduction is
anticipated to reduce Rocky Mountain's annual revenues by approximately $0.9
million per year.
RISK MANAGEMENT
To minimize the risk of price changes in the natural gas and natural gas liquids
markets, Kinder Morgan uses certain financial instruments for hedging purposes.
These instruments include energy products traded on the New York Mercantile
Exchange, the Kansas City Board of Trade and over-the-counter markets including,
but not limited to, futures and options contracts and fixed-price swaps. Kinder
Morgan is exposed to credit-related losses in the event of nonperformance by
counterparties to these financial instruments but, given their existing credit
ratings, does not expect any counterparties to fail to meet their obligations.
32
<PAGE> 33
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Pursuant to a policy approved by its Board of Directors, Kinder Morgan is to
engage in these activities only as a hedging mechanism against price volatility
associated with (i) pre-existing or anticipated physical gas and condensate
sales, (ii) gas purchases and (iii) system use and storage in order to protect
profit margins, and is not to engage in speculative trading. Commodity-related
activities of the risk management group are monitored by Kinder Morgan's Risk
Management Committee, which is charged with the review and enforcement of the
Board of Directors' risk management policy. The Risk Management Committee
reviews the types of hedging instruments used, contract limits and approval
levels and may review the pricing and hedging of any or all commodity
transactions. All energy futures, swaps and options are recorded at fair value.
The fair value of these risk management instruments reflects the estimated
amounts that Kinder Morgan would receive or pay to terminate the contracts at
the reporting date, thereby taking into account the current unrealized gains or
losses on open contracts. Market quotes are available for substantially all
financial instruments used by Kinder Morgan. Gains and losses on hedging
positions are deferred and recognized as gas purchases expense in the periods in
which the underlying physical transactions occur.
Kinder Morgan measures the risk of price changes in the natural gas and natural
gas liquids markets utilizing a Value-at-Risk model. Value-at-Risk is a
statistical measure of how much the marked-to-market value of a portfolio could
change during a period of time, within a certain level of statistical
confidence. Kinder Morgan utilizes a closed form model to evaluate risk on a
daily basis. The Value-at-Risk computations utilize a confidence level of 97.7
percent for the resultant price movement and a holding period of one day chosen
for the calculation. The confidence level used means that there is a 97.7
percent probability that the mark-to-market losses for a single day will not
exceed the Value-at-Risk number presented. Instruments evaluated by the model
include forward physical gas, storage and transportation contracts and financial
products including commodity futures and options contracts, fixed price swaps,
basis swaps and over-the-counter options. Value-at-Risk at December 30, 1999,
was $3.1 million and averaged $3.7 million for 1999.
Kinder Morgan's calculated Value-at-Risk exposure represents an estimate of the
reasonably possible net losses that would be recognized on Kinder Morgan's
portfolio of derivatives assuming hypothetical movements in future market rates,
and is not necessarily indicative of actual results that may occur. It does not
represent the maximum possible loss or any expected loss that may occur, since
actual future gains and losses will differ from those estimated. Actual gains
and losses may differ from estimates due to actual fluctuations in market rates,
operating exposures and the timing thereof, as well as changes in Kinder
Morgan's portfolio of derivatives during the year.
As a result of Kinder Morgan's planned divestiture of certain of its businesses,
primarily its commodity marketing business, it is expected that Kinder Morgan's
portfolio of financial instruments held for the purposes of hedging, and
corresponding exposure to loss from such instruments, will be smaller in the
future.
Kinder Morgan's treasury department manages interest rate exposure utilizing
interest rate swaps, caps or similar derivatives within Board-established
policy. None of these interest rate derivatives is leveraged. Kinder Morgan
currently is not hedging its interest rate exposure resulting from its
short-term borrowings. The market risk related to short-term borrowings from a
one percent change in interest rates would result in an approximate $6.2 million
annual impact on pre-tax income, based on short-term borrowing levels as of
March 15, 2000.
There are recently issued accounting pronouncements that change the accounting
and reporting requirements for certain risk management activities (see Note 14
of the accompanying Notes to Consolidated Financial Statements).
33
<PAGE> 34
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
OUTLOOK/FORWARD-LOOKING INFORMATION
Certain information contained in this report may include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to risks and uncertainties and are based
on the beliefs and assumptions of Kinder Morgan's management, based on
information currently available to Kinder Morgan's management. When words such
as "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should" or similar expressions are used, Kinder Morgan is making
forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Kinder Morgan may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond Kinder Morgan's ability to control or predict.
These statements are necessarily based upon various assumptions involving
judgments with respect to the future including, among others, the ability to
achieve synergies and revenue growth, national, international, regional and
local economic, competitive and regulatory conditions and developments,
technological developments, capital market conditions, inflation rates, interest
rates, the political and economic stability of oil producing nations, energy
markets, weather conditions, business and regulatory or legal decisions, the
pace of deregulation of retail natural gas and electricity, the timing and
extent of changes in commodity prices for oil, natural gas, natural gas liquids,
electricity and certain agricultural products, the timing and success of
business development efforts, and other uncertainties, all of which are
difficult to predict and many of which are beyond Kinder Morgan's control.
Readers are cautioned not to put undue reliance on any forward-looking
statements. For those statements, Kinder Morgan claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Business Strategy
On October 7, 1999, the merger between Kinder Morgan and Kinder Morgan Delaware
was completed. Pursuant to the terms of the merger agreement, Kinder Morgan
issued approximately 41.5 million shares of common stock in exchange for all of
the outstanding shares of Kinder Morgan Delaware. Upon closing of the
transaction, Richard D. Kinder was named Chairman of the combined company, which
was renamed Kinder Morgan, Inc.
In accordance with previously announced plans, Kinder Morgan implemented and has
continued to pursue its "Back to Basics" strategy. This strategy includes the
following key aspects: (i) focus on Kinder Morgan's core assets, (ii) divest
non-core assets and use the proceeds to reduce debt, (iii) sell certain core
assets for fair market value to Kinder Morgan Energy Partners, (iv) reduce
corporate overhead costs, (v) align employee and shareholder incentives, (vi)
reduce the shareholder dividend and (vii) seek accretive acquisitions and
business expansions.
Currently, Kinder Morgan's primary source of operating income is NGPL, a major
interstate natural gas pipeline system which runs from natural gas producing
areas in West Texas and the Gulf of Mexico to its principal market area of
Chicago, Illinois. In accordance with its strategy to focus on core assets,
Kinder Morgan has worked toward agreements to fully utilize the transportation
and storage capacity of NGPL on a long-term basis. Kinder Morgan has experienced
some successes in these endeavors as discussed under "NGPL" elsewhere in this
Form 10-K.
During the third quarter of 1999, Kinder Morgan chose to discontinue certain of
its business activities related to the sale of non-energy products and services
- - principally consisting of Kinder Morgan's en*able joint venture with
PacifiCorp. During the fourth quarter of 1999, Kinder Morgan chose to
discontinue several other lines of business, including natural gas gathering and
processing, natural gas marketing, West Texas intrastate natural gas pipeline
and storage businesses and international operations. Kinder Morgan has announced
sales, or
34
<PAGE> 35
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
agreements to sell a number of these assets as more fully described under
"General Description" elsewhere in this Form 10-K and in Note 6 of the
accompanying Notes to Consolidated Financial Statements. In addition, during
1999, Kinder Morgan sold its major offshore natural gas gathering and pipeline
interests.
In addition to sales of assets to third parties, Kinder Morgan's strategy also
includes plans to transfer qualifying assets to Kinder Morgan Energy Partners.
Kinder Morgan Energy Partners is a publicly traded master limited partnership
which manages a variety of midstream energy assets. Kinder Morgan Energy
Partners, G.P., Inc., a wholly owned subsidiary of Kinder Morgan, is the general
partner of Kinder Morgan Energy Partners. According to the terms of Kinder
Morgan Energy Partners' partnership agreement, the general partner may qualify
to receive cash incentive distributions from Kinder Morgan Energy Partners. By
contributing assets to Kinder Morgan Energy Partners that are accretive to the
earnings and cash flow of Kinder Morgan Energy Partners, Kinder Morgan can
receive fair value for its assets, while still maintaining an indirect interest
in the earnings and cash flows of the assets through its interests in Kinder
Morgan Energy Partners. Effective December 31, 1999, Kinder Morgan contributed
(i) KMIGT, (ii) a subsidiary holding the interest in Trailblazer Pipeline
Company and (iii) its interest in Red Cedar Gathering Company to Kinder Morgan
Energy Partners in return for $330 million in cash and approximately 9.81
million common units of Kinder Morgan Energy Partners. By significantly
increasing its stake in Kinder Morgan Energy Partners, Kinder Morgan expects to
receive additional future cash distributions from Kinder Morgan Energy Partners
through incremental general partner incentive distributions as well as increased
limited partner distributions due to its ownership of additional common units
(see Note 5 of the accompanying Notes to Consolidated Financial Statements).
Kinder Morgan believes that opportunities exist both with respect to existing
assets and future acquisitions for increasing shareholder value through cost
reductions and other efficiency improvements. Through the merger with Kinder
Morgan Delaware and other cost reduction actions, Kinder Morgan expects to
realize between $60 million and $70 million of annual cost savings. Another
measure intended to increase shareholder value is the All Employee Stock Option
Plan (see Note 16 of the accompanying Notes to Consolidated Financial
Statements), implemented in October 1999. Through this plan, virtually all
employees, with the exception of Richard D. Kinder and William V. Morgan, have
received options to purchase shares of Kinder Morgan's common stock. By aligning
employee incentives with shareholder value, Kinder Morgan expects to increase
employee productivity, retention and satisfaction, and correspondingly increase
earnings and overall shareholder value.
Kinder Morgan expects to grow and increase profitability through acquisitions
and system expansions, as well as through increased earnings from Kinder Morgan
Energy Partners. To reduce debt and provide funds for future growth, Kinder
Morgan reduced the regular quarterly common dividend from $0.20 per share to
$0.05 per share in the fourth quarter of 1999. In February 2000, NGPL signed an
agreement with Nicor Inc. to become equal partners in the planned Horizon
Pipeline. The Horizon Pipeline is a $75 million natural gas pipeline with an
initial capacity of 380 million cfd. The pipeline will originate in Joliet,
Illinois and extend 74 miles into northern Illinois where it will connect with
Nicor's gas distribution system. Future expansion of the Horizon system could
potentially serve markets in southern Wisconsin. In addition to natural gas
pipeline expansions, Kinder Morgan expects to participate in the expansion of
gas-fired electric power generation by providing natural gas transportation and
storage services, as in its agreement with Ameren, or through direct ownership
of power generating assets.
Readiness for Year 2000
In prior Reports on Form 10-K and 10-Q, Kinder Morgan discussed the nature and
progress of its plans to become Year 2000-ready. In late 1999, Kinder Morgan
completed its remediation and testing of systems. As a result of these planning
and implementation efforts, Kinder Morgan experienced no significant disruption
in mission-critical information technology and non-information technology
systems and believes these systems
35
<PAGE> 36
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
successfully responded to the Year 2000 date change. Kinder Morgan incurred less
than $5 million in direct costs since 1997 in connection with replacing its
non-compliant systems. In addition, approximately $25 million in costs were
incurred (most of which were capitalized) modifying or replacing computer
systems as part of the integration of its systems with the systems of MidCon.
These computer systems addressed the Year 2000 problem. Kinder Morgan is not
aware of any material problems resulting from Year 2000 issues with its internal
systems or the products and services of third parties. Kinder Morgan will
continue to monitor its mission-critical computer applications and those of its
suppliers and vendors throughout the Year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
Litigation and Environmental
Kinder Morgan's anticipated environmental capital costs and expenses for 2000,
including expected costs for voluntary remediation efforts, are approximately
$2.3 million. A substantial portion of Kinder Morgan's environmental costs are
either recoverable through insurance and indemnification provisions or have
previously recorded liabilities associated with them.
Refer to Notes 9(A) and 9(B) to the accompanying Consolidated Financial
Statements for additional information on Kinder Morgan's pending litigation and
environmental matters. Kinder Morgan believes it has established adequate
reserves such that the resolution of pending litigation and environmental
matters will not have a material adverse impact on Kinder Morgan's business,
cash flows, financial position or results of operations.
Significant Operating Variables
Kinder Morgan's principal exposure to market variability is related to the
variation in natural gas prices and basis differentials, which can affect gross
margins in its NGPL, MTP and Retail Distribution segments. "Basis differential"
is a term that refers to the difference in natural gas prices between two
locations or two points in time. These price differences can be affected by,
among other things, natural gas supply and demand, available transportation
capacity, storage inventories and deliverability, prices of alternative fuels
and weather conditions. Kinder Morgan has attempted to reduce its exposure to
this form of market variability by pursuing long-term, fixed-rate type contract
agreements for capacity on NGPL as described preceding. Additional competitive
pressures have been generated in Midwest natural gas markets due to the
introduction and planned introduction of additional supplies into the Chicago
market area. In December 1998, the Northern Border Pipeline began operations on
its 645 million cubic feet per day expansion project from Canadian supply areas
into the Chicago market area, which is the terminus of NGPL's main pipeline
system. In addition, the Alliance Pipeline, a joint venture of several energy
companies, is currently constructing a 1.3 billion cubic feet per day pipeline
to transport natural gas from Canada into the Chicago market area. The
in-service date for the Alliance pipeline is currently projected for late 2000.
In addition, various pipelines have proposed projects to take gas out of the
Chicago area to market areas in the Northeast United States. It is currently
unknown what impact, if any, this
36
<PAGE> 37
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
additional pipeline capacity will have on gas prices and basis differentials for
delivery points in the upper Midwest.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is in Item 7 under the heading "Risk
Management."
37
<PAGE> 38
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C> <C>
Report of Independent Accountants...................................................................................39-40
Consolidated Statements of Income...................................................................................41-42
Consolidated Balance Sheets............................................................................................43
Consolidated Statements of Common Stockholders' Equity.................................................................44
Consolidated Statements of Cash Flows..................................................................................45
Notes to Consolidated Financial Statements..........................................................................46-78
Selected Quarterly Financial Data (unaudited).......................................................................79-80
</TABLE>
38
<PAGE> 39
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Kinder Morgan, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1), present fairly, in all material respects, the
financial position of Kinder Morgan, Inc. (formerly K N Energy, Inc.) and its
subsidiaries at December 31, 1999 and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2),
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 16, 2000
39
<PAGE> 40
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kinder Morgan, Inc.:
We have audited the accompanying consolidated balance sheet of Kinder Morgan,
Inc. (formerly K N Energy, Inc. and a Kansas corporation) and subsidiaries as of
December 31, 1998, and the related consolidated statements of income,
comprehensive income, common stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kinder Morgan, Inc.
and subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule for the year ended December 31, 1998
listed in the index of financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Denver, Colorado
February 2, 1999 (except with respect to the matter discussed in Note 6, as to
which the date is March 16, 2000).
40
<PAGE> 41
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF INCOME
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Natural Gas Sales $ 1,003,535 $ 955,134 $ 214,775
Natural Gas Transportation and Storage 651,647 640,906 87,579
Other 90,299 64,854 38,084
------------ ------------ ------------
Total Operating Revenues 1,745,481 1,660,894 340,438
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Gas Purchases and Other Costs of Sales 956,181 833,275 134,336
Operations and Maintenance 179,569 168,733 59,524
General and Administrative 88,403 68,264 36,535
Depreciation and Amortization 144,268 155,362 23,868
Taxes, Other Than Income Taxes 34,560 28,290 7,895
Merger-related and Severance Costs 37,443 5,763 --
------------ ------------ ------------
Total Operating Costs and Expenses 1,440,424 1,259,687 262,158
------------ ------------ ------------
OPERATING INCOME 305,057 401,207 78,280
------------ ------------ ------------
OTHER INCOME AND (DEDUCTIONS):
Kinder Morgan Energy Partners:
Equity in Earnings 15,733 -- --
Amortization of Excess Investment (7,335) -- --
Equity in Earnings of Other Equity Investments 14,140 22,465 4,906
Interest Expense, Net (251,986) (205,899) (29,057)
Minority Interests (24,740) (19,396) (5,849)
Gains from Sales of Assets 189,778 19,552 1,547
Other, Net 4,532 1,731 7,364
------------ ------------ ------------
Total Other Income and (Deductions) (59,878) (181,547) (21,089)
------------ ------------ ------------
Income from Continuing Operations
Before Income Taxes 245,179 219,660 57,191
Income Taxes 90,527 81,492 12,810
------------ ------------ ------------
Income from Continuing Operations 154,652 138,168 44,381
------------ ------------ ------------
DISCONTINUED OPERATIONS, NET OF TAX:
Income (Loss) From Discontinued Operations (51,718) (78,179) 33,116
Loss on Disposal of Discontinued Operations (344,378) -- --
------------ ------------ ------------
Total Income (Loss) From Discontinued
Operations (396,096) (78,179) 33,116
------------ ------------ ------------
NET INCOME (LOSS) (241,444) 59,989 77,497
Less-Preferred Dividends 129 350 350
Less-Premium Paid on Preferred Stock
Redemption 350 -- --
------------ ------------ ------------
Earnings (Loss) Available for Common Stock $ (241,923) $ 59,639 $ 77,147
============ ============ ============
Number of Shares Used in Computing Basic
Earnings Per Common Share 80,284 64,021 46,589
============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 1.92 $ 2.15 $ 0.95
Discontinued Operations (4.93) (1.22) 0.71
------------ ------------ ------------
Basic Earnings (Loss) Per Common Share $ (3.01) $ 0.93 $ 1.66
============ ============ ============
Number of Shares Used in Computing Diluted
Earnings Per Common Share 80,358 64,636 47,307
============ ============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 1.92 $ 2.13 $ 0.93
Discontinued Operations (4.93) (1.21) 0.70
------------ ------------ ------------
Diluted Earnings (Loss) Per Common Share $ (3.01) $ 0.92 $ 1.63
============ ============ ============
Dividends Per Common Share $ 0.65 $ 0.76 $ 0.73
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE> 42
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
NET INCOME (LOSS) $ (241,444) $ 59,989 $ 77,497
Unrealized (Loss) Gain on Equity Securities, Net of Tax 852 (6,697) (1,492)
---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (240,592) $ 53,292 $ 76,005
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE> 43
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED BALANCE SHEETS
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
------------ ------------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 26,378 $ 21,955
Restricted Deposits 51 9,096
U.S. Government Securities -- 1,092,415
Accounts Receivable 306,451 693,044
Receivable From Kinder Morgan Energy Partners 330,000 --
Inventories 50,328 144,831
Gas Imbalances 172,501 189,266
Other 19,154 46,812
Net Current Assets of Discontinued Operations 58,991 --
------------ ------------
963,854 2,197,419
------------ ------------
INVESTMENTS:
Kinder Morgan Energy Partners 1,791,768 --
Other 126,103 252,543
------------ ------------
1,917,871 252,543
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 5,789,564 7,023,176
------------ ------------
DEFERRED CHARGES AND OTHER ASSETS 209,758 242,991
------------ ------------
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 659,236 --
------------ ------------
TOTAL ASSETS $ 9,540,283 $ 9,716,129
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-term Debt $ 7,167 $ 10,167
Notes Payable 574,400 297,000
Substitute Note -- 1,394,846
Accounts Payable 224,625 489,414
Accrued Taxes 36,075 18,914
Gas Imbalances 196,469 178,774
Payable for Purchase of Thermo Companies 44,320 86,799
Reserve for Loss on Disposal of Discontinued Operations 535,630 --
Other 206,620 247,465
------------ ------------
1,825,306 2,723,379
------------ ------------
OTHER LIABILITIES AND DEFERRED CREDITS:
Deferred Income Taxes 2,228,553 1,699,072
Other 242,926 431,565
------------ ------------
2,471,479 2,130,637
------------ ------------
LONG-TERM DEBT 3,293,326 3,300,025
------------ ------------
KINDER MORGAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL TRUST
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF KINDER MORGAN 275,000 275,000
------------ ------------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 9,331 63,267
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 2, 5, 9 AND 17)
STOCKHOLDERS' EQUITY:
Preferred Stock -- 7,000
------------ ------------
Common Stock-
Authorized - 150,000,000 Shares, Par Value $5 Per Share
Outstanding - 112,665,977 and 68,597,308 Shares,
After Deducting 172,402 and 48,598 Shares Held in Treasury 564,192 343,230
Additional Paid-in Capital 1,203,008 694,223
Retained Earnings (Deficit) (95,615) 193,925
Other (5,744) (14,557)
------------ ------------
Total Common Stockholders' Equity 1,665,841 1,216,821
------------ ------------
Total Stockholders' Equity 1,665,841 1,223,821
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,540,283 $ 9,716,129
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
43
<PAGE> 44
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
------------ ------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
COMMON STOCK:
Beginning Balance 68,645,906 $ 343,230 32,024,557 $ 160,123
Sale of Common Stock, Net -- -- 12,500,000 62,500
Exercise of Common Stock Warrants -- -- -- --
Acquisition of Kinder Morgan Delaware 41,683,323 208,417 -- --
Acquisition of Other Businesses 2,065,909 10,330 689,810 3,449
Employee and Executive Benefit Plans 443,241 2,215 549,570 2,758
Common Stock Split -- -- 22,881,969 114,400
------------ ------------ ------------ ------------
Ending Balance 112,838,379 564,192 68,645,906 343,230
------------ ------------ ------------ ------------
ADDITIONAL PAID-IN CAPITAL:
Beginning Balance 694,223 266,435
Sale of Common Stock, Net -- 558,053
Costs Related to PEPS Offering -- (62,150)
Exercise of Common Stock Warrants -- --
Acquisition of Kinder Morgan Delaware 470,831 --
Acquisition of Other Businesses 34,670 30,985
Employee and Executive Benefit Plans 3,284 15,371
Common Stock Split -- (114,471)
------------ ------------
Ending Balance 1,203,008 694,223
------------ ------------
RETAINED EARNINGS (DEFICIT)
Beginning Balance 193,925 185,658
Net Income (Loss) (241,444) 59,989
Cash Dividends:
Common (47,967) (51,372)
Preferred (129) (350)
------------ ------------
Ending Balance (95,615) 193,925
------------ ------------
OTHER:
DEFERRED COMPENSATION:
Beginning Balance (10,686) (9,203)
Executive Benefit Plans 10,686 (1,483)
------------ ------------
Ending Balance -- (10,686)
------------ ------------
TREASURY STOCK, AT COST:
Beginning Balance (48,598) (1,417) (28,482) (1,124)
Treasury Stock Acquired (135,510) (2,956) (60,994) (2,834)
Acquisition of Businesses -- -- 39,970 1,801
Dividend Reinvestment Plan 11,706 231 17,135 740
Common Stock Split -- -- (16,227) --
------------ ------------ ------------ ------------
Ending Balance (172,402) (4,142) (48,598) (1,417)
------------ ------------ ------------ ------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (NET OF TAX):
Beginning Balance (2,454) 4,243
Unrealized Gain (Loss) on Equity
Securities 852 (6,697)
------------ ------------
Ending Balance (1,602) (2,454)
------------ ------------
TOTAL OTHER (172,402) (5,744) (48,598) (14,557)
------------ ------------ ------------ ------------
TOTAL COMMON STOCKHOLDERS'
EQUITY 112,665,977 $ 1,665,841 68,597,308 $ 1,216,821
============ ============ ============ ============
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997
------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
COMMON STOCK:
Beginning Balance 30,295,792 $ 151,479
Sale of Common Stock, Net -- --
Exercise of Common Stock Warrants 642,232 3,211
Acquisition of Kinder Morgan Delaware -- --
Acquisition of Other Businesses 544,604 2,723
Employee and Executive Benefit Plans 541,929 2,710
Common Stock Split -- --
------------ ------------
Ending Balance 32,024,557 160,123
------------ ------------
ADDITIONAL PAID-IN CAPITAL:
Beginning Balance 223,167
Sale of Common Stock, Net --
Costs Related to PEPS Offering --
Exercise of Common Stock Warrants 8,060
Acquisition of Kinder Morgan Delaware --
Acquisition of Other Businesses 21,411
Employee and Executive Benefit Plans 13,797
Common Stock Split --
------------
Ending Balance 266,435
------------
RETAINED EARNINGS (DEFICIT)
Beginning Balance 142,578
Net Income (Loss) 77,497
Cash Dividends:
Common (34,067)
Preferred (350)
------------
Ending Balance 185,658
------------
OTHER:
DEFERRED COMPENSATION:
Beginning Balance (2,908)
Executive Benefit Plans (6,295)
------------
Ending Balance (9,203)
------------
TREASURY STOCK, AT COST:
Beginning Balance (7,216) (257)
Treasury Stock Acquired (53,190) (2,096)
Acquisition of Businesses -- --
Dividend Reinvestment Plan 31,924 1,229
Common Stock Split -- --
------------ ------------
Ending Balance (28,482) (1,124)
------------ ------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (NET OF TAX):
Beginning Balance 5,735
Unrealized Gain (Loss) on Equity
Securities (1,492)
------------
Ending Balance 4,243
------------
TOTAL OTHER (28,482) (6,084)
------------ ------------
TOTAL COMMON STOCKHOLDERS'
EQUITY 31,996,075 $ 606,132
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE> 45
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
KINDER MORGAN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from Continuing Operations $ 154,652 $ 138,168 $ 44,381
Adjustments to Reconcile Income from Continuing Operations to
Net Cash Flows from Operating Activities:
Depreciation and Amortization 144,268 155,362 23,868
Deferred Income Taxes 57,473 24,148 3,401
Deferred Purchased Gas Costs 6,646 468 (16,575)
Gains from Sales of Assets (126,348) (19,552) (1,547)
Proceeds from Buyout of Contractual Gas Obligations -- 27,500 --
Change in Gas in Underground Storage (18,608) (6,987) (5,801)
Changes in Other Working Capital Items [Note 1(L)] 50,539 (44,592) (12,613)
Changes in Deferred Revenues (15,641) 6,300 (5,166)
Other, Net (22,913) 11,837 12,183
------------ ------------ ------------
Net Cash Flows Provided by Continuing Operations 230,068 292,652 42,131
Net Cash Flows Provided by (Used In) Discontinued Operations 81,925 (197,383) 55,372
------------ ------------ ------------
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES 311,993 95,269 97,503
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (94,348) (118,452) (228,735)
Cash Paid for Acquisition of MidCon, Net of Cash Acquired -- (2,191,555) --
Other Acquisitions (34,565) 1,086 (1,393)
Investments (10,044) (9,179) (80,400)
Sale of U.S. Government Securities 1,092,415 1,062,453 --
Purchase of U.S. Government Securities -- (2,154,868) --
Proceeds from Sales of Tom Brown, Inc. Preferred Stock 28,650 -- --
Proceeds from Sales of Assets 87,949 38,634 2,732
------------ ------------ ------------
Net Cash Flows Provided by (Used In) Continuing
Investing Activities 1,070,057 (3,371,881) (307,796)
Net Cash Flows Used In Discontinued Investing Activities (49,864) (121,529) (188,761)
------------ ------------ ------------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,020,193 (3,493,410) (496,557)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term Debt, Net (1,117,446) (32,687) 199,900
Long-term Debt, Issued -- 2,750,000 150,000
Long-term Debt, Retired (158,934) (35,787) (27,832)
Common Stock Issued in Public Offering -- 650,000 --
Other Common Stock Issued 8,323 13,437 19,091
Mandatorily Redeemable Trust Securities Issued -- 175,000 100,000
Preferred Stock, Redeemed (7,350) -- --
Treasury Stock, Issued 231 740 1,229
Treasury Stock, Acquired (2,956) (2,834) (2,096)
Cash Dividends, Common (47,967) (51,372) (34,067)
Cash Dividends, Preferred (129) (350) (350)
Minority Interests, Net - Continuing Operations (1,100) (854) --
Minority Interests, Net - Discontinued Operations 1,479 10,551 7,611
Security Unit Contract Fees (1,914) -- --
Securities Issuance Costs -- (78,219) (2,300)
------------ ------------ ------------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,327,763) 3,397,625 411,186
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 4,423 (516) 12,132
Cash and Cash Equivalents at Beginning of Period 21,955 22,471 10,339
------------ ------------ ------------
Cash and Cash Equivalents at End of Period $ 26,378 $ 21,955 $ 22,471
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE> 46
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
Effective with K N Energy, Inc.'s acquisition of Kinder Morgan (Delaware), Inc.,
formerly Kinder Morgan, Inc., a Delaware corporation, K N Energy, Inc. changed
its name to Kinder Morgan, Inc. As used in these Notes, "Kinder Morgan" refers
to Kinder Morgan, Inc. (a Kansas corporation, formerly K N Energy, Inc.) and its
consolidated subsidiaries unless the context otherwise requires (see Note 2),
while "Kinder Morgan Delaware" refers to Kinder Morgan (Delaware), Inc.
Kinder Morgan is an energy services provider and has operations in 16 states in
the Rocky Mountain and mid-continent regions, with principal operations in
Arkansas, Colorado, Illinois, Iowa, Kansas, Nebraska, Oklahoma, Texas and
Wyoming. During 1999, Kinder Morgan made significant acquisitions, including
Kinder Morgan Delaware (see Note 2). As a result, Kinder Morgan, through its
general partner interest, operates Kinder Morgan Energy Partners L.P., a
publicly traded pipeline master limited partnership. Energy services offered by
Kinder Morgan include: storing, transporting and selling natural gas, providing
retail natural gas distribution services, and generating and selling
electricity. Kinder Morgan has both regulated and nonregulated operations.
During the third and fourth quarters of 1999, Kinder Morgan adopted and
implemented plans to discontinue its businesses involved in (i) gathering,
processing and wholesale marketing of natural gas, (ii) providing field services
to natural gas producers, (iii) direct marketing of non-energy products and
services, (iv) international operations, as well as (v) its West Texas
intrastate pipelines (see Note 6). As used in these Notes, "Kinder Morgan Energy
Partners" refers to Kinder Morgan Energy Partners L.P.
(B) Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.
The consolidated financial statements include the accounts of Kinder Morgan,
Inc. and its majority-owned subsidiaries. Investments in jointly owned
operations in which Kinder Morgan has 20 to 50 percent ownership are accounted
for under the equity method, as is Kinder Morgan's investment in Kinder Morgan
Energy Partners. All material intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to conform to the
current presentation.
(C) Accounting for Regulatory Activities
Kinder Morgan's regulated public utilities are accounted for in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 71,
Accounting for the Effects of Certain Types of Regulation, which prescribes the
circumstances in which the application of generally accepted accounting
principles is affected by the economic effects of regulation. As of December 31,
1999, there were $56.3 million of regulatory assets and $63.1 million of
regulatory liabilities reflected in the accompanying Consolidated Balance
Sheets.
46
<PAGE> 47
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(D) Revenue Recognition Policies
Kinder Morgan recognizes revenues as services are rendered or goods are
delivered. Kinder Morgan's rate-regulated retail natural gas distribution
business bills customers on a monthly cycle billing basis. Revenues are recorded
on an accrual basis, including an estimate at the end of each accounting period
for gas delivered but for which bills have not yet been rendered.
(E) Earnings Per Share
Basic earnings per share is computed based on the monthly weighted-average
number of common shares outstanding during each period. Diluted earnings per
share is computed based on the monthly weighted-average number of common shares
outstanding during the periods, increased by the assumed exercise or conversion
of securities (stock options and warrants) convertible into common stock for
which the effect of conversion or exercise using the treasury stock method would
be dilutive. Dilutive securities assumed to have been converted or exercised
totaled 73,800 for 1999, 614,500 for 1998 and 718,500 for 1997. Remaining stock
options outstanding and all premium equity participating security units were not
included in the earnings per share calculation because to do so would have been
antidilutive. See Note 12(B) for more information regarding premium equity
participating security units and Note 16 for more information regarding stock
options.
(F) Restricted Deposits
Restricted Deposits consist of monies on deposit with brokers that are
restricted to meet exchange trading requirements (see Note 14).
(G) Inventories
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
--------- ---------
(In Thousands)
<S> <C> <C>
Gas in Underground Storage (Current) $ 38,499 $ 106,971
Natural Gas Liquids - 11,226
Materials and Supplies 11,829 26,634
--------- ---------
$ 50,328 $ 144,831
========= =========
</TABLE>
Inventories are accounted for using the following methods, with the percent of
the total dollars at December 31, 1999 shown in parentheses: average cost
(89.97%), last-in, first-out (8.31%) and first-in, first-out (1.72%). All
non-utility inventories held for resale are valued at the lower of cost or
market. Kinder Morgan also maintains gas in its underground storage facilities
on behalf of certain third parties. Kinder Morgan receives a fee for its storage
services but does not reflect the value of gas stored for third parties in the
accompanying consolidated financial statements.
47
<PAGE> 48
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(G) Other Investments
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
----------- -----------
(In Thousands)
<S> <C> <C>
Thermo Companies $ 63,441 $ 65,683
TransColorado Pipeline Company 31,160 34,675
Tom Brown, Inc. Common and Preferred Stock(1) 12,283 35,690
Other 19,219 116,495
----------- -----------
$ 126,103 $ 252,543
=========== ===========
</TABLE>
(1) Tom Brown Preferred Stock was sold during 1999, see Note 5.
Investments consist primarily of equity method investments in unconsolidated
subsidiaries and joint ventures, and include ownership interests in net profits
and net cash flows. In addition, Kinder Morgan has an investment in Tom Brown,
Inc. common stock, considered to be an available-for-sale security and, as a
result, unrealized holding gains and losses, net of tax, are recognized as
comprehensive income and included as a component of stockholders' equity.
(I) Property, Plant and Equipment
Property, plant and equipment is stated at historical cost which, for
constructed plant, includes indirect costs such as payroll taxes, fringe
benefits, administrative and general costs. Expenditures that increase
capacities, improve efficiencies or extend useful lives are capitalized. Routine
maintenance, repairs and renewal costs are expensed as incurred.
The cost of normal retirements of depreciable utility property, plant and
equipment, plus the cost of removal less salvage, is deducted from accumulated
depreciation with no effect on current period earnings. Gains or losses are
recognized upon retirement of non-utility property, plant and equipment, and
utility property, plant and equipment constituting an operating unit or system,
when sold or abandoned.
In accordance with the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, Kinder Morgan
reviews the carrying values of its long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable. As
yet, no asset or group of assets has been identified for which the sum of
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset(s) and, accordingly, no impairment losses
have been recorded. However, currently unforeseen events and changes in
circumstances could require the recognition of impairment losses at some future
date.
(J) Depreciation and Amortization
Depreciation is computed based on the straight-line method over the estimated
useful lives of assets. The range of estimated useful lives of assets used in
depreciating assets for each business segment are as follows:
<TABLE>
<CAPTION>
BUSINESS
SEGMENT(1) RANGE OF ESTIMATED USEFUL LIVES OF ASSETS (IN YEARS)
---------- ------------------------------------------------------------
<S> <C>
NGPL 5 to 56 (Transmission assets: 56)
KMIGT 7 to 40 (Transmission assets: 40)
Retail 7 to 40 (Distribution assets: 33)
MTP 13 to 40 (Transmission leasehold improvements, primarily 28)
Power and Other 2 to 30
</TABLE>
(1) See Note 19 for definitions of the business segments.
48
<PAGE> 49
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(K) Interest Expense, Net
"Interest Expense, Net" as presented in the accompanying Consolidated Statements
of Income is net of (i) capitalized interest, (ii) the debt component of the
allowance for funds used during construction ("AFUDC") and (iii) interest income
related to government securities (collectively, "Interest Income"), as shown in
the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Capitalized Interest and AFUDC $ 1.9 $ 2.3 $ 7.0
Interest Income $ 0.5 $46.4 $ --
</TABLE>
As discussed in Note 2, in conjunction with the January 30, 1998, acquisition of
MidCon Corp., Kinder Morgan was required by the definitive stock purchase
agreement to assume the Substitute Note for $1.4 billion and to collateralize
the Substitute Note with bank letters of credit, a portfolio of government
securities or a combination of the two. As a result, Kinder Morgan had a
significant amount of interest income during 1998 associated with the issuance
of the Substitute Note, which has been reported together with the related
interest expense as described preceding.
(L) Cash Flow Information
Kinder Morgan considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. "Other, Net," presented
as a component of "Net Cash Flows From Operating Activities" in the accompanying
Consolidated Statements of Cash Flows includes, among other things,
undistributed equity in earnings of unconsolidated subsidiaries and joint
ventures and other non-cash charges and credits to income.
ADDITIONAL CASH FLOW INFORMATION:
CHANGES IN OTHER WORKING CAPITAL ITEMS
(NET OF EFFECTS OF ACQUISITIONS AND SALES)
INCREASE (DECREASE) IN CASH AND CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Accounts Receivable $(15,782) $(16,985) $(22,299)
Material and Supplies Inventory 2,894 (962) 229
Other Current Assets (25,212) (12,548) 11,039
Accounts Payable 37,492 (68,810) 11,751
Other Current Liabilities 51,147 54,713 (13,333)
-------- -------- --------
$ 50,539 $(44,592) $(12,613)
======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
CASH PAID FOR:
Interest (Net of Amount Capitalized) $ 284,762 $ 189,929 $ 41,986
========== ========== ==========
Income Taxes Paid (Received) $ (10,883) $ 39,756 $ 15,823
========== ========== ==========
Distributions on Preferred Capital Trust Securities $ 21,913 $ 14,754 $ 4,066
========== ========== ==========
</TABLE>
In October 1999, Kinder Morgan acquired Kinder Morgan Delaware in a non-cash
transaction. During 1998, Kinder Morgan acquired MidCon Corp. and interests in
assets from the Thermo Companies in transactions that
49
<PAGE> 50
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
included both cash and non-cash components. For additional information on these
transactions, see Note 2.
(M) Accounts Receivable
The caption "Accounts Receivable" in the accompanying Consolidated Balance
Sheets is presented net of allowances for doubtful accounts of $1.7 million and
$10.8 million at December 31, 1999 and 1998, respectively.
(N) Stock-Based Compensation
SFAS 123, Accounting for Stock-Based Compensation, encourages, but does not
require, entities to adopt the fair value method of accounting for stock-based
compensation plans. As allowed under SFAS 123, Kinder Morgan continues to apply
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, compensation expense is not recognized for stock options
unless the options were granted at an exercise price lower than the market price
on the grant date.
2. BUSINESS COMBINATIONS
On October 7, 1999, K N Energy, Inc. completed the acquisition of Kinder Morgan
Delaware, the sole stockholder of the general partner of Kinder Morgan Energy
Partners. Kinder Morgan Energy Partners is the nation's largest pipeline master
limited partnership. It owns and operates one of the largest product pipeline
systems in the United States, serving customers in sixteen states with more than
5,000 miles of pipeline and over twenty associated terminals. Kinder Morgan
Energy Partners also operates 24 bulk terminal facilities which transload over
40 million tons of coal, petroleum coke and other products annually. In
addition, Kinder Morgan Energy Partners owns 51 percent of Plantation Pipe Line
Company and 20 percent of Shell CO2 Company, Ltd. (and has executed a definitive
agreement to acquire the remaining 80%).
To effect the business combination, K N Energy, Inc. issued approximately 41.5
million shares of its common stock in exchange for all of the outstanding shares
of Kinder Morgan Delaware. Upon closing of the transaction, Richard D. Kinder,
Chairman and Chief Executive Officer of Kinder Morgan Delaware, was named
Chairman and Chief Executive Officer of Kinder Morgan, which was renamed Kinder
Morgan, Inc. In addition, Kinder Morgan issued 200,000 shares of its common
stock to Petrie Parkman & Co., Inc. in consideration for Petrie Parkman's
advisory services rendered in connection with the acquisition of Kinder Morgan
Delaware. The issuance of these shares was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
This acquisition was accounted for as a purchase for accounting purposes and,
accordingly, the assets acquired and liabilities assumed were recorded at their
respective estimated fair market values as of the acquisition date. The
allocation of the purchase price resulted in an excess of the purchase price
over Kinder Morgan Delaware's share of the underlying equity in the net assets
of Kinder Morgan Energy Partners totaling $1.3 billion. This excess has been
fully allocated to the Kinder Morgan Delaware investment in Kinder Morgan Energy
Partners and reflects the estimated fair market value of this investment. This
excess investment is being amortized over 44 years, approximately the estimated
remaining useful life of Kinder Morgan Energy Partners' assets, and is shown in
the accompanying Consolidated Income Statements as "Amortization of Excess
Investment" under the sub-heading "Kinder Morgan Energy Partners" within "Other
Income and (Deductions)." The assets, liabilities and results of operations of
Kinder Morgan Delaware are included with those of Kinder Morgan beginning with
the October 7, 1999 acquisition date.
The following pro forma information gives effect to the acquisition of Kinder
Morgan Delaware as if the business combination had occurred at the beginning of
each period presented. The pro forma adjustments that
50
<PAGE> 51
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
have been made are based on a preliminary allocation of the purchase price to
assets acquired and liabilities assumed. This unaudited pro forma information
should be read in conjunction with the accompanying consolidated financial
statements. This pro forma information is not necessarily indicative of the
financial results that would have occurred had this acquisition taken place on
the dates indicated, nor is it necessarily indicative of future financial
results.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
UNAUDITED PRO FORMA FINANCIAL INFORMATION 1999 1998
- ----------------------------------------- ------------ ------------
(Dollars In Millions Except Per Share Amounts)
<S> <C> <C>
Operating Revenues $ 1,745.5 $ 1,660.9
Net Income (Loss) $ (233.9) $ 62.5
Diluted Earnings (Loss) Per Common Share $ (2.09) $ 0.58
Number of Shares Used in Computing Diluted Earnings
Per Common Share (In Thousands) 112,334 106,319
</TABLE>
During the third quarter of 1998, Kinder Morgan completed its acquisition of
interests in four independent power plants in Colorado from the Denver-based
Thermo Companies ("Thermo"), representing approximately 380 megawatts of
electric generation capacity and access to approximately 130 Bcf of natural gas
reserves. These generating facilities are located in Ft. Lupton, Colorado (272
megawatts) and Greeley, Colorado (108 megawatts) and sell their power output to
Public Service Company of Colorado under long-term agreements. Payments for the
Thermo interests are being made over a two-year period, with the initial payment
of 1,034,715 shares of Kinder Morgan's common stock having been made on October
21, 1998. Additional payments were made on January 4, 1999, consisting of
833,623 shares of Kinder Morgan's common stock and $15 million in cash, and on
April 20, 1999, consisting of 1,232,286 shares of Kinder Morgan's common stock
and $20 million in cash. The remaining payment, due in 2000, is expected to be
made in a combination of cash and common stock as agreed to by Kinder Morgan and
Thermo, with the default mix being 50 percent stock and 50 percent cash. This
transaction was accounted for as a purchase.
On January 30, 1998, pursuant to a definitive stock purchase agreement, Kinder
Morgan acquired all of the outstanding shares of capital stock of MidCon Corp.
from Occidental Petroleum Corporation for $2.1 billion in cash and the
assumption of a $1.4 billion short-term note referred to as the "Substitute
Note", at which time MidCon Corp. became a wholly owned subsidiary of Kinder
Morgan. The Substitute Note bore interest at 5.798% and was required to be
collateralized by U.S. government securities, letters of credit or a combination
thereof. The Substitute Note was paid in full on January 4, 1999. In conjunction
with the acquisition, Kinder Morgan also assumed the obligation of a wholly
owned subsidiary of MidCon Corp. to lease the MidCon Texas intrastate pipeline
system under a 30-year operating lease, requiring average annual lease payments
of approximately $30 million. The acquisition was initially financed through a
combination of credit agreements (see Note 12).
MidCon Corp. and its subsidiaries (which will be referred to as "MidCon" in
these Notes) is engaged in the purchase, gathering, processing, transmission,
storage and sale of natural gas to utilities, municipalities, and industrial and
commercial users. MidCon's pipeline system includes over 13,000 miles of natural
gas pipelines located in the center of the North American pipeline grid, with
access to major supply and market areas. MidCon is also one of the nation's
largest natural gas storage operators and owns and operates several natural gas
gathering and natural gas processing facilities.
The acquisition was accounted for as a purchase for accounting purposes and,
accordingly, the MidCon assets acquired and liabilities assumed were recorded at
their respective estimated fair market values as of the acquisition date. The
allocation of purchase price resulted in the recognition of a gas plant
acquisition adjustment of approximately $4.0 billion, principally representing
the excess of the assigned fair market value of the assets of Natural Gas
Pipeline Company of America, a wholly owned subsidiary of MidCon Corp., over
51
<PAGE> 52
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
the historical cost for ratemaking purposes. This gas plant acquisition
adjustment, none of which is currently being recognized for rate-making
purposes, is being amortized over 55 years (see Note 4), approximately the
estimated remaining useful life of Natural Gas Pipeline Company of America's
interstate pipeline system. For the years ended December 31, 1999 and 1998,
$96.0 million and $97.9 million of such amortization, respectively, was charged
to expense. The assets, liabilities and results of operations of MidCon are
included with those of Kinder Morgan beginning with the January 30, 1998
acquisition date.
The following previously reported pro forma information is provided in
accordance with authoritative accounting guidelines and gives effect to the
acquisition of MidCon Corp. as if the business combination had occurred at the
beginning of each period presented. This unaudited pro forma information should
be read in conjunction with the accompanying consolidated financial statements.
This pro forma information is not necessarily indicative of the financial
results that would have occurred had the acquisition taken place on the dates
indicated, nor is it necessarily comparable to subsequent financial results or
indicative of future financial results. This pro forma information has not been
restated to reflect the discontinued operations described in Note 6.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
UNAUDITED PRO FORMA FINANCIAL INFORMATION 1998 1997
- ----------------------------------------- ---------- ----------
(Dollars In Millions Except Per Share Amounts)
<S> <C> <C>
Operating Revenues $ 4,655.9 $ 5,194.1
Net Income $ 65.6 $ 78.8
Diluted Earnings Per Common Share $ 1.01 $ 1.67
Number of Shares Used in Computing Diluted Earnings
Per Common Share (In Thousands) 64,636 47,307
</TABLE>
On February 22, 1999, Sempra Energy and Kinder Morgan announced that their
respective boards of directors had unanimously approved a definitive agreement
under which Sempra and Kinder Morgan would combine in a stock-and-cash
transaction valued in the aggregate at $6.0 billion. On June 21, 1999, Sempra
and Kinder Morgan announced that they had mutually agreed to terminate the
merger agreement. Sempra reimbursed Kinder Morgan $5.95 million for expenses
incurred in connection with the proposed merger.
3. MERGER-RELATED AND SEVERANCE COSTS
In anticipation of the completion of the transaction with Kinder Morgan
Delaware, during the third quarter of 1999, a number of Kinder Morgan's officers
terminated their employment with Kinder Morgan, as did certain other employees.
In addition, Kinder Morgan terminated the employment of a number of additional
employees during the fourth quarter of 1999 and in early 2000 as a result of
cost saving initiatives implemented following the closing of the Kinder Morgan
Delaware transaction. In total, approximately 150 employees were severed. In
conjunction with these terminations, Kinder Morgan agreed to provide severance
benefits and incurred certain legal and other associated costs. Also in
conjunction with the Kinder Morgan Delaware transaction, Kinder Morgan elected
to discontinue certain projects, consolidate certain facilities and relocate
certain employees. The $37.4 million pre-tax expense ($23.6 million after tax or
$0.29 per diluted share) associated with these matters (included in the
accompanying Consolidated Income Statement for 1999 under the caption
"Merger-related and Severance Costs") was composed of the following: (i)
severance and relocation, including restricted stock -- $22.7 million, (ii)
facilities costs, including moving expenses -- $5.3 million, (iii)
write-down/write-off of project costs -- $8.0 million and (iv) other -- $1.4
million. Of this total, approximately $9.4 million remained as an accrual at
December 31, 1999, all of which is expected to be expended during the first half
of 2000. The $5.8 million pre-tax expense ($3.6 million after tax or $0.06 per
diluted share) included under the same caption for the year ended December 31,
1998 represents costs associated with Kinder Morgan's January 30, 1998
acquisition of MidCon Corp. For additional information on these business
combinations, see Note 2.
52
<PAGE> 53
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
4. CHANGE IN ACCOUNTING ESTIMATE
Pursuant to a revised study of the useful lives of the underlying assets by an
independent third party, in July 1999, Kinder Morgan changed the depreciation
rates associated with the gas plant acquisition adjustment recorded in
conjunction with the acquisition of MidCon Corp. This change had the effect of
decreasing "Depreciation and Amortization" by approximately $19.3 million and
increasing "Income from Continuing Operations" and "Net Income" for the year
ended December 31, 1999 by approximately $12.1 million or $0.15 per diluted
share in comparison to the amounts which would have been recorded utilizing the
previous depreciation rates.
5. INVESTMENTS AND SALES
See Note 6 for information regarding sales of assets and businesses included in
discontinued operations.
On December 30, 1999, Kinder Morgan entered into a Contribution Agreement among
Kinder Morgan, several of its wholly owned subsidiaries and Kinder Morgan Energy
Partners. As a result, effective as of December 31, 1999, Kinder Morgan
contributed all of its interest in the following to Kinder Morgan Energy
Partners: (i) Kinder Morgan Interstate Gas Transmission LLC, formerly K N
Interstate Gas Transmission Co., a wholly owned subsidiary which will be
referred to as "KMIGT" in these Notes, (ii) Kinder Morgan Trailblazer LLC
(formerly NGPL-Trailblazer, Inc.), a wholly owned subsidiary and owner of a
one-third interest in Trailblazer Pipeline Company and (iii) Red Cedar Gathering
Company (a 49% interest).
In exchange, Kinder Morgan Energy Partners issued to Kinder Morgan 9,810,000
common units representing limited partnership interest in Kinder Morgan Energy
Partners. In addition, Kinder Morgan Energy Partners paid Kinder Morgan $200
million in cash on January 20, 2000 and is obligated to pay Kinder Morgan an
additional $130 million in cash in early 2000. Kinder Morgan recorded a pre-tax
gain of $158.8 million (approximately $100.9 million after tax or $1.25 per
diluted share) in conjunction with the transfer of interests.
On September 30, 1999, Kinder Morgan sold (to an unaffiliated party) its
interests in Stingray Pipeline Company, L.L.C., an offshore pipeline that
gathers natural gas, and West Cameron Dehydration Company, L.L.C., which
dehydrates natural gas for shippers on the Stingray Pipeline. Kinder Morgan
received approximately $24 million in cash from the sale and recorded a pre-tax
gain of $11.4 million (approximately $6.9 million after tax or $0.10 per diluted
share). With this sale, Kinder Morgan completed its divestiture of its major
offshore interests.
On September 3, 1999, Kinder Morgan sold 1,000,000 shares of Tom Brown, Inc.
preferred stock for approximately $29 million in cash, realizing a pre-tax gain
of $2.2 million (approximately $1.3 million after tax or $0.02 per diluted
share). The preferred stock was originally issued to Kinder Morgan in 1996 as
part of Tom Brown, Inc.'s acquisition of K N Production Company. The preferred
stock was convertible into 1,666,000 shares of Tom Brown, Inc. common stock, and
paid dividends quarterly at an annual rate of $1.75 per share. Kinder Morgan
retained ownership of approximately 918,000 shares of Tom Brown, Inc. common
stock.
In September 1999, Thunder Creek Gas Services, LLC, a joint venture owned 25
percent by Kinder Morgan and 75 percent by Devon Energy Corporation, placed into
service a 126-mile-long-trunkline natural gas gathering system extending from
Glenrock, Wyoming to approximately 12 miles north of Gillette, Wyoming. The
trunkline has an initial capacity of 450 million cubic feet of natural gas per
day. The gathering system is located in the Powder River Basin of northeast
Wyoming. The total committed cost of the system was approximately $76.7 million
at December 31, 1999.
53
<PAGE> 54
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
On June 30, 1999, Kinder Morgan sold its interests in the HIOS and UTOS offshore
pipeline systems and related laterals to Leviathan Gas Pipeline Partners, L. P.
Kinder Morgan received approximately $51 million in cash in conjunction with the
sale and recorded a pre-tax gain of $17.5 million (approximately $10.7 million
after tax or $0.15 per diluted share).
In May 1999, Kinder Morgan announced plans to build the Horizon Pipeline which,
through its wholly owned subsidiary NGPL, it planned to own jointly with one or
more other partners. An open season closed in June 1999 with service requests
from shippers of more than 800 MMcf of natural gas per day, including 300 MMcf
per day from Nicor Gas. In February 2000, Nicor, Inc. announced that it had
signed an agreement to become an equal partner in the planned Horizon Pipeline
with NGPL. The Horizon Pipeline is a $75 million natural gas pipeline that will
originate in Joliet, Illinois and extend 74 miles into northern Illinois,
connecting the emerging supply hub at Joliet with Nicor Gas' distribution system
and an existing NGPL pipeline. Construction is expected to be completed by the
spring of 2002. The initial capacity of the pipeline is proposed to be 380 MMcf
of natural gas per day. The project is expected to be funded through a
combination of non-recourse debt securities and equity contributions.
On March 31, 1999, the TransColorado Gas Transmission Company ("TransColorado"),
an enterprise jointly owned by Kinder Morgan and Questar Corp., placed in
service a 280-mile-long natural gas pipeline. This pipeline includes two
compressor stations and extends from near Rangely, Colorado, to its southern
terminus at the Blanco Hub near Aztec, New Mexico. The pipeline has a design
transmission capacity of approximately 300 million cubic feet of natural gas per
day. On October 14, 1998, TransColorado entered into a $200 million revolving
credit agreement with a group of commercial banks. Kinder Morgan provides a
corporate guarantee for one-half of all amounts borrowed under the agreement.
Beginning 24 months after the in-service date, Questar has the right, for a
12-month period, to require that Kinder Morgan purchase Questar's ownership
interest in TransColorado for $121 million. It is not currently known whether
Questar will exercise its right.
In September 1998, Kinder Morgan sold certain of its microwave towers and
associated land and equipment to American Tower Corp. for $14.6 million. The
sale resulted in a pre-tax gain of $10.9 million ($6.7 million after tax or
$0.10 per diluted share), included in the accompanying Consolidated Statements
of Income under the caption "Other, Net."
In March 1998, Kinder Morgan sold its Kansas retail natural gas distribution
properties, located in 58 Kansas communities and serving approximately 30,000
residential, commercial and industrial customers, to Midwest Energy, Inc., a
customer-owned cooperative based in Hays, Kansas. Kinder Morgan received
approximately $24 million in cash in conjunction with the sale and recorded a
pre-tax gain of approximately $8.5 million (approximately $5.2 million after tax
or $0.08 per diluted share). Concurrently with the sale, Kinder Morgan received
$27.5 million in cash in exchange for the release of the purchaser from certain
contractual gas purchase obligations, which amount is being amortized as an
offset to gas purchases over a period of years as the associated volumes are
sold.
6. DISCONTINUED OPERATIONS
During the third quarter of 1999, Kinder Morgan adopted a plan to discontinue
the direct marketing of non-energy products and services (principally under the
"Simple Choice" brand), which activities had been carried on largely through
Kinder Morgan's en*able joint venture with PacifiCorp. During the fourth quarter
of 1999, Kinder Morgan adopted and implemented plans to discontinue the
following lines of business: gathering and processing natural gas and providing
field services to natural gas producers, commodity marketing of natural gas and
natural gas liquids, international operations and West Texas intrastate
pipelines.
54
<PAGE> 55
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
In accordance with the provisions of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, ("APB 30"), the consolidated financial statements of
Kinder Morgan have been restated to present these businesses as discontinued
operations. Accordingly, the revenues, costs and expenses, assets and
liabilities and cash flows of these discontinued operations have been excluded
from the respective captions in the accompanying Consolidated Statements of
Income, Consolidated Balance Sheets and Consolidated Statements of Cash Flows,
and have been reported in the various statements under the captions
"Discontinued Operations, Net of Tax"; "Loss on Disposal of Discontinued
Operations, Net of Tax"; "Net Current Assets of Discontinued Operations"; "Net
Non-current Assets of Discontinued Operations"; "Net Cash Flows from
Discontinued Operations" and "Net Cash Flows Provided By (Used In) Discontinued
Investing Activities" for all relevant periods. In addition, certain of these
Notes have been restated for all relevant periods to reflect the discontinuance
of these operations.
Summarized financial data of discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Income Statement Data
Operating Revenues:
Commodity Marketing $ 3,550,568 $ 2,580,459 $ 1,519,674
Gathering and Processing $ 570,688 $ 550,111 $ 513,316
West Texas Intrastate Pipelines $ 59,317 $ 90,512 $ 84,900
International Operations $ 1,129 $ 4,249 $ 247
Income (Loss) From Discontinued Operations, Net of Tax:
Commodity Marketing, net of $(9,300), ($7,869) and $11,327 of tax $ (15,046) $ (14,837) $ 16,182
Gathering and Processing, net of ($11,405), ($21,373) and $15,554 of tax $ (18,452) $ (40,300) $ 22,220
West Texas Intrastate Pipelines, net of ($6,330), ($9,120) and ($5,745) of tax $ (10,241) $ (17,196) $ (8,208)
International Operations, net of ($919), ($344) and ($69) of tax $ (1,488) $ (648) $ (98)
en*able/Orcom, net of ($4,150), ($2,757) and $2,114 of tax $ (6,491) $ (5,198) $ 3,020
Loss on Disposal of Discontinued
Operations, Net of Tax:
Commodity Marketing, net of ($34,588) of tax $ (55,780) $ -- $ --
Gathering and Processing, net of ($136,539) of tax $ (220,187) $ -- $ --
West Texas Intrastate Pipelines, net of ($32,874) of tax $ (53,015) $ -- $ --
International Operations, net of ($2,430) of tax $ (3,917) $ -- $ --
en*able/Orcom, net of ($7,340) of tax $ (11,479) $ -- $ --
</TABLE>
55
<PAGE> 56
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------------
WEST TEXAS
COMMODITY GATHERING INTRASTATE INTERNATIONAL en*ABLE/
MARKETING PROCESSING PIPELINES OPERATIONS ORCOM TOTAL
--------- ---------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (In Thousands)
Net Current Assets of Discontinued Operations:
Cash and Cash Equivalents $ 83 $ 6,323 $ 254 $ 3,362 $ -- $ 10,022
Restricted Deposits 17,169 -- -- -- -- 17,169
Accounts Receivable 189,376 56,202 7,107 3,963 -- 256,648
Inventories 72,986 15,700 6,136 -- -- 94,822
Gas Imbalances Receivable 12,496 5,583 2,313 -- -- 20,392
Other Current Assets 3,264 13,305 10,296 35 -- 26,900
Accounts Payable (329,130) (25,183) (2,544) (25) -- (356,882)
Accrued Taxes 13,157 14,243 (11,095) 341 -- 16,646
Gas Imbalances Payable -- (4,631) 314 -- -- (4,317)
Other Current Liabilities (9,786) (9,783) (2,651) (189) -- (22,409)
--------- --------- --------- --------- --------- ---------
$ (30,385) $ 71,759 $ 10,130 $ 7,487 $ -- $ 58,991
========= ========= ========= ========= ========= =========
Net Non-current Assets of Discontinued Operations:
Investments $ -- $ 18,984 $ -- $ 6,433 $ 6,807 $ 32,224
Property, Plant and Equipment, Net 27,015 473,497 199,031 8,032 -- 707,575
Deferred Charges 750 18,370 3,114 3,661 -- 25,895
Other Deferred Credits (39,265) (9,429) (3,925) -- -- (52,619)
Minority Interests in Equity of Subsidiaries -- (51,192) (1,880) (767) -- (53,839)
--------- --------- --------- --------- --------- ---------
$ (11,500) $ 450,230 $ 196,340 $ 17,359 $ 6,807 $ 659,236
========= ========= ========= ========= ========= =========
</TABLE>
Kinder Morgan has essentially completed the disposition of its investment in
en*able. Kinder Morgan sold its businesses involved in providing field services
to natural gas producers (K N Field Services, Inc. and Compressor Pump and
Engine, Inc.) and MidCon Gas Products of New Mexico Corp., a wholly owned
subsidiary providing natural gas gathering and processing services, prior to the
end of 1999. Kinder Morgan received $23.3 million in cash as consideration for
these sales. The net impact of these sales on earnings is included in the
caption "Loss on Disposal of Discontinued Operations, Net of Tax" in the
preceding table and the accompanying Consolidated Statements of Income.
On February 8, 2000, Kinder Morgan and ONEOK, Inc. announced the signing of a
definitive agreement for ONEOK to purchase all of Kinder Morgan's natural gas
gathering and processing businesses in Oklahoma, Kansas and West Texas. In
addition, ONEOK agreed to purchase Kinder Morgan's natural gas commodity
marketing and trading business, as well as its West Texas intrastate natural gas
pipelines. As consideration, ONEOK has agreed to (i) pay Kinder Morgan
approximately $114 million plus an amount equal to net working capital at
closing, (ii) assume the operating lease associated with the Bushton, Kansas gas
processing plant and (iii) assume long-term capacity commitments on Natural Gas
Pipeline Company of America and on KMIGT.
The expected loss from disposal of the businesses not yet sold, including both
the expected losses from the sale of assets and the estimated operating losses
until the disposal is completed (the substantial majority of which dispositions
are currently expected to occur by early 2000), is subject to uncertainty with
respect to the proceeds to be received from the sale and operation of these
assets (among other factors) and, accordingly, the actual loss may differ
materially from the estimate. In accordance with the provisions of APB 30, any
such difference will be recognized in the period in which it is identified, and
classified in the same manner as the original estimated loss.
56
<PAGE> 57
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
7. ACCOUNTS RECEIVABLE SALES FACILITY
In September 1999, certain wholly owned subsidiaries of Kinder Morgan entered
into a five-year agreement to sell all of their accounts receivable, on a
revolving basis, to K N Receivables Corporation, a wholly owned subsidiary of
Kinder Morgan. K N Receivables was formed prior to the execution of that
receivables agreement for the purpose of buying and selling accounts receivable
and has been determined to be bankruptcy remote. Also in September 1999, K N
Receivables entered into a five-year agreement with a financial institution
whereby K N Receivables can sell, on a revolving basis, an undivided percentage
ownership interest in certain eligible accounts receivable, as defined, up to a
maximum of $150 million. This transaction is accounted for as a sale of
receivables in accordance with Statement of Financial Accounting Standards No.
125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities. Accordingly, Kinder Morgan's accompanying
Consolidated Balance Sheet reflects the portion of receivables transferred to
the financial institution as a reduction of Accounts Receivable. Losses from the
sale of these receivables are included in "Other, Net" in the accompanying
Consolidated Statements of Income. Kinder Morgan receives compensation for
servicing that is approximately equal to the amount an independent servicer
would receive. Accordingly, no servicing assets or liabilities have been
recorded. The full amount of the allowance for possible losses has been retained
by K N Receivables. The fair value of this recourse liability approximated the
allocated allowance for doubtful accounts given the short-term nature of the
transferred receivables.
Kinder Morgan received $150 million in proceeds from the sale of receivables on
September 30, 1999. The proceeds were subsequently used to retire notes payable
of Kinder Morgan Delaware outstanding at the time of its acquisition by Kinder
Morgan. Cash flows associated with this program are included with "Accounts
Receivable" under "Cash Flows from Operating Activities" in the accompanying
Statements of Consolidated Cash Flows. In February 2000, Kinder Morgan reduced
its participation in this receivables sale program by approximately $120
million, principally as a result of its pending disposition of its wholesale gas
marketing business (see Note 6).
8. REGULATORY MATTERS
(A) Rate Matters
On January 23, 1998, KMIGT filed a general rate case with the Federal Energy
Regulatory Commission, referred to in these Notes as "FERC", requesting a $30.2
million increase in annual revenues. As a result of the FERC's action, KMIGT was
allowed to place its rates into effect on August 1, 1998, subject to refund, and
provisions for refund were recorded based on expected ultimate resolution. On
November 3, 1999, KMIGT filed a comprehensive Stipulation and Agreement to
resolve all issues in this proceeding. The FERC approved the Stipulation and
Agreement on December 22, 1999. The settlement rates have been placed in effect,
and it is anticipated that refunds for past periods (totaling $36.6 million at
December 31, 1999) will be made in early 2000.
On December 29, 1998, Rocky Mountain Natural Gas Company, a wholly owned
subsidiary of Kinder Morgan, received a "show cause" order from the Colorado
Public Utilities Commission. Rocky Mountain has reached settlement on the issue,
and a Stipulation and Agreement memorializing the settlement with the Staff of
the Commission and the Office of Consumer Counsel has been filed and approved.
As part of this settlement, Rocky Mountain agreed to reduce its sales and
transportation rates effective June 1, 1999. The settled rate reduction is
anticipated to reduce Rocky Mountain's annual revenues by approximately $0.9
million per year.
57
<PAGE> 58
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(B) Retail Unbundling
In November 1997, Kinder Morgan announced a plan to give residential and small
commercial customers in Nebraska a choice of natural gas suppliers. This
program, the Nebraska Choice Gas program, became effective June 1, 1998. This
program separates, or "unbundles," the consumer's natural gas purchases from
other utility services. As of December 31, 1999, the plan had been approved by
177 communities, representing approximately 92,000 customers served by Kinder
Morgan in Nebraska.
9. ENVIRONMENTAL AND LEGAL MATTERS
(A) Environmental Matters
On December 20, 1999, the U.S. Department of Justice filed a Complaint on behalf
of the U.S. Environmental Protection Agency against Natural Gas Pipeline Company
of America alleging that Natural failed to obtain all of the necessary air
quality permits in 1979 when it constructed the Akron Compressor Station, which
consisted of three compressor engines in Weld County, Colorado. Natural
constructed and then operated the facility until August 1996 when it was sold to
High Plains Gathering System. High Plains sold one of the compressor engines to
Colorado Interstate Gas Company in October 1997.
The complaint makes the standard request for penalties up to the statutory
maximums of $25,000 for each day of violation prior to January 30, 1997 and
$27,500 for each day of violation after January 31, 1997. Natural has identified
a number of defenses to the complaint and plans to defend the action vigorously.
Although Kinder Morgan cannot express an opinion as to the probable outcome of
this case, Kinder Morgan believes that this litigation will not have a material
adverse effect on Kinder Morgan's business, cash flows, financial position or
results of operations.
On December 17, 1999, the State of Colorado notified Kinder Morgan of air
quality permit compliance issues for several Kinder Morgan facilities. The
notice included civil penalties of $164,000. Kinder Morgan is currently in the
process of negotiating a consent order with the State of Colorado to resolve the
outstanding issues.
The U.S. Environmental Protection Agency recently published a final rule
addressing transport of ground level ozone. The rule affects 22 Eastern and
Midwestern states, including Illinois and Missouri, in which Kinder Morgan
operates gas compression facilities. The rule requires reductions in emissions
of nitrogen oxide, a precursor to ozone formation, from various emission
sources, including utility and non-utility sources. The rule requires that the
affected states prepare and submit State Implementation Plans to the
Environmental Protection Agency by September 1999, reflecting how the required
emissions reductions will be achieved. Emission controls are required to be
installed by May 1, 2003. This rule will likely require Kinder Morgan, as well
as its competitors, to install some form of new emissions control technology on
certain equipment it operates. The rule may also result in broadly increased use
of natural gas, as other sources of nitrogen oxide air emissions, including
utilities, seek to achieve the reductions required under the rule. The State
Implementation Plans which will effectuate this rule have yet to be proposed or
promulgated, and will require detailed analysis before their final economic
impact can be ascertained. On March 3, 2000, the Washington D.C. Circuit Court
issued a decision regarding the rule. The Circuit Court remanded certain issues
back to the Environmental Protection Agency. The rule is stayed pending
resolution of the remanded issues. While additional capital costs are likely to
result from this rule, based on currently available information, Kinder Morgan
does not believe that these costs will have a material adverse effect on its
business, cash flows, financial position or results of operations.
On June 17, 1999, the Environmental Protection Agency published a final rule
creating a standard to limit emissions of hazardous air pollutants from oil and
natural gas production as well as from natural gas
58
<PAGE> 59
transmission and storage facilities. The standard requires that the affected
facilities reduce emissions of hazardous air pollutants by 95 percent. This
standard will require Kinder Morgan to achieve this reduction either by process
modifications or by installing new emissions control technology. The standard
will affect Kinder Morgan and its competitors in a like manner. The rule allows
most affected sources three years from the publication date to come into
compliance. Kinder Morgan is conducting a detailed analysis of the final rule to
determine its overall effect. While additional capital costs are likely to
result from this rule, Kinder Morgan believes that the rule will not have a
material adverse effect on Kinder Morgan's business, cash flows, financial
position or results of operations.
In connection with Kinder Morgan's acquisition of MidCon Corp. in January 1998,
Occidental Petroleum Corporation indemnified Kinder Morgan against certain
liabilities, including litigation and the failure of MidCon to be in compliance
with applicable laws, which, in each case, would have a material adverse effect
on MidCon, for one year following the closing date. To the extent that an
environmental liability of MidCon is not covered by Occidental's indemnity
obligation or, to the extent that matters arise following the termination of
Occidental's indemnification obligation, Kinder Morgan will be responsible for
MidCon's environmental liabilities. Kinder Morgan does not expect that such
costs will have a material adverse effect on its business, cash flows, financial
position or results of operations.
Pursuant to certain acquisition agreements involving Cabot Corporation, Cabot
indemnified Kinder Morgan for certain environmental liabilities associated with
assets in Texas, Oklahoma and New Mexico acquired from American Oil and Gas
Corporation. Issues arose concerning Cabot's indemnification obligations, and
Kinder Morgan and Cabot entered into binding arbitration to resolve all issues
in dispute. The binding decision of the arbitrators resulted in the requirement
that Cabot pay Kinder Morgan for a substantial portion of past and future
environmental related costs associated with the properties. In December 1998,
Kinder Morgan recorded a charge of approximately $7.2 million representing both
previously incurred costs which were not awarded in the arbitration and the
recognition of a liability for Kinder Morgan's share of estimated future costs.
As a result of this settlement, Kinder Morgan will have no future expense
associated with this matter. Kinder Morgan does not expect its potential
exposure for the remaining liabilities to have a material adverse effect on
Kinder Morgan's business, cash flows, financial position or results of
operations.
Based on current information and taking into account reserves established for
environmental matters, Kinder Morgan does not believe that compliance with
federal, state and local environmental laws and regulations will have a material
adverse effect on Kinder Morgan's business, cash flows, financial position or
results of operations. In addition, the clean-up programs in which Kinder Morgan
is engaged are not expected to interrupt or diminish Kinder Morgan's operational
ability to gather or transport natural gas. However, there can be no assurances
that future events, such as changes in existing laws, the promulgation of new
laws, or the development of new facts or conditions will not cause Kinder Morgan
to incur significant costs.
(B) Litigation Matters
Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas Company, and
GASCO, Inc., Civil Action No. 92-N-2000. On October 9, 1992, Jack J. Grynberg
filed suit in the United States District Court for the District of Colorado
against Kinder Morgan, Rocky Mountain Natural Gas Company and GASCO, Inc.
alleging that these entities, referred to here as the "K N Entities," as well as
K N Production Company and K N Gas Gathering, Inc., have violated federal and
state antitrust laws. In essence, Grynberg asserts that the companies have
engaged in an illegal exercise of monopoly power, have illegally denied him
economically feasible access to essential facilities to store, transport and
distribute gas, and illegally have attempted to monopolize or to enhance or
maintain an existing monopoly. Grynberg also asserts certain state causes of
action relating to a gas purchase contract. In February 1999, the Federal
District Court granted summary judgment as to some of Grynberg's antitrust and
state law claims, while allowing other claims to proceed to trial. In addition
to
59
<PAGE> 60
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
monetary damages, Grynberg has requested that the K N Entities be ordered to
divest all interests in natural gas exploration, development and production
properties, all interests in distribution and marketing operations, and all
interests in natural gas storage facilities, separating these interests from
Kinder Morgan's natural gas gathering and transportation system in northwest
Colorado. No trial date has been set. However, a settlement conference is
currently scheduled for April 25, 2000.
Jack J. Grynberg, individually and as general partner for the Greater Green
River Basin Drilling Program: 72-73 v. Rocky Mountain Natural Gas Company and K
N Energy, Inc., Case No. 90-CV-3686. On June 5, 1990, Jack J. Grynberg filed
suit, which is presently pending in Jefferson County District Court for
Colorado, against Rocky Mountain Natural Gas Company and Kinder Morgan alleging
breach of contract and fraud. In essence, Grynberg asserts claims that the named
companies failed to pay Grynberg the proper price, impeded the flow of gas,
mismeasured gas, delayed his development of gas reserves, and other claims
arising out of a contract to purchase gas from a field in northwest Colorado. On
February 13, 1997, the trial judge entered partial summary judgment for Mr.
Grynberg on his contract claim that he failed to receive the proper price for
his gas. This ruling followed an appellate decision which was adverse to Kinder
Morgan on the contract interpretation of the price issue, but which did not
address the question of whether Grynberg could legally receive the price he
claimed or whether he had illegally diverted gas from a prior purchase. On
August 29, 1997, the trial judge stayed the summary judgment pending resolution
of a proceeding at the FERC to determine if Grynberg was entitled to
administrative relief from an earlier dedication of the same gas to interstate
commerce. The background of that proceeding is described below. On March 15,
1999, an Administrative Law Judge for the FERC ruled, after an evidentiary
hearing, that Mr. Grynberg had illegally diverted the gas when he entered the
contract with the named companies and was not entitled to relief. Grynberg filed
exceptions to this ruling, and a ruling from the FERC is expected soon. The
action in Colorado remains stayed pending final resolution of the FERC
proceeding.
Jack J. Grynberg v. Rocky Mountain Natural Gas Company, Docket No. GP91-8-008.
On May 8, 1991, Grynberg filed a petition for declaratory order with the Federal
Energy Regulatory Commission ("Commission") seeking a determination whether he
was entitled to the price he seeks in the Jefferson County District Court
proceeding referred to above. While Grynberg initially received a favorable
decision from the FERC, that decision was reversed by the Court of Appeals for
the District of Columbia Circuit on June 6, 1997. This matter has been remanded
to the FERC for subsequent proceedings. The matter was set for an expedited
evidentiary hearing, and an Initial Decision favorable to Rocky Mountain was
issued on March 15, 1999. That decision determined that Grynberg had
intentionally diverted gas from an earlier dedication to interstate commerce in
violation of the Natural Gas Act and denied him equitable administrative relief.
Grynberg filed exceptions to this Initial Decision. In late March, 2000, the
FERC issued an order affirming in part and denying in part its Initial Decision.
Kinder Morgan is currently studying the order.
United States of America, ex rel., Jack J. Grynberg v. K N Energy, Civil Action
No. 97-D-1233, filed in the U.S. District Court, District of Colorado. This
action was filed pursuant to the federal False Claim Act and involves
allegations of mismeasurement of natural gas produced from federal and Indian
lands. The Department of Justice has decided not to intervene in support of the
action. The complaint is part of a larger series of similar complaints filed by
Mr. Grynberg against 77 natural gas pipelines (approximately 330 other
defendants). An earlier single action making substantially similar allegations
against the pipeline industry was dismissed by Judge Hogan of the U.S. District
Court for the District of Columbia on grounds of improper joinder and lack of
jurisdiction. As a result, Mr. Grynberg filed individual complaints in various
courts throughout the country. These cases were recently consolidated by the
Judicial Panel for Multidistrict Litigation, and transferred to the District of
Wyoming. Motions to Dismiss were filed on November 19, 1999. Plaintiff filed his
response on January 14, 2000 and defendants filed their Reply Brief on February
14, 2000. An oral argument on the Motion to Dismiss occurred on March 17, 2000.
60
<PAGE> 61
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Quinque Operating Company, et. al. v. Gas Pipelines, et. al., Cause No.
99-1390-CM, United States District Court for the District of Kansas. This action
was originally filed in Kansas state court in Stevens County, Kansas as a class
action against approximately 245 pipeline companies and their affiliates,
including certain Company entities. The plaintiffs in the case purport to
represent a class of natural gas producers and fee royalty owners who allege
that they have been subject to systematic gas mismeasurement by the defendants
for more than 25 years. Subsequently, one of the defendants removed the action
to Kansas Federal District Court. Thereafter, Kinder Morgan filed a motion with
the Judicial Panel for Multidistrict Litigation to consolidate this action for
pretrial purposes with the False Claim Act cases referred to above, because of
common factual questions. The motion is briefed and a hearing has been set for
March 30, 2000.
Dirt Hogs, Inc. v. Natural Gas Pipeline Company of America, et al.. There have
been several related cases with Dirt Hogs, Inc. with allegations of breach of
contract, false representations, improper requests for kickbacks and other
improprieties. Essentially, the Plaintiff claims that it should have been
awarded extensive pipeline reclamation work without having to qualify or bid as
a qualifying contractor. Case No. Civ-98-231-R, is a case which was dismissed in
the U.S. District Court for the Western District of Oklahoma because of pleading
deficiencies and is now on appeal to the 10th Circuit (Case No. 99-6-026). This
appeal has been fully briefed and a decision is pending. Another case, arising
out of the same factual allegations, was filed by Dirt Hogs in the District
Court, Caddo County, Oklahoma (Case No. CJ-99-92), on March 29, 1999. By
agreement of all parties, this action is currently stayed pending resolution of
a third case styled Natural Gas Pipelines Company of America, et al. v. Dirt
Hogs, Inc. (Case No. 99-360-R). Following a default judgment against Dirt Hogs,
Dirt Hogs dismissed their appeal.
KN Energy, Inc., et al. v. James P. Rode and Patrick R. McDonald, Case No.
99CV1239, filed in the District Court, Jefferson County, Division 8, Colorado.
Defendants counterclaimed and filed third party claims against several former K
N Energy officers and/or directors. Messrs. Rode and McDonald are former
principal shareholders of Interenergy Corporation. Interenergy was merged into K
N Energy on December 19, 1997 pursuant to a Merger Agreement dated August 25,
1997. Rode and McDonald allege that K N Energy committed securities fraud,
common law fraud and negligent misrepresentation as well as breach in contract.
They are seeking an unspecified amount of compensatory damages that we estimate
could be greater than $2 million, plus unspecified exemplary or punitive
damages, attorney's fees and their costs. Kinder Morgan has filed a Motion to
Dismiss which is briefed and awaiting oral argument. Defendants also filed a
federal securities fraud action in the United States District Court for the
District of Colorado on January 27, 2000 titled: James P. Rode and Patrick R.
McDonald v. KN Energy, Inc., et al., Civil Action No. 00-N-190. This case also
raises the identical state law claims contained in the counterclaim and third
party complaint in state court. In addition to the federal claims, defendants
have moved to stay the state case pending resolution of the federal action.
Kinder Morgan believes it has meritorious defenses to all lawsuits and legal
proceedings in which it is a defendant and will vigorously defend against them.
Based on its evaluation of the above matters, and after consideration of
reserves established, Kinder Morgan believes that the resolution of such matters
will not have a material adverse effect on Kinder Morgan's business, financial
position or results of operations.
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<PAGE> 62
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
10. PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment, at cost, and accumulated
depreciation and amortization ("Accumulated D&A"), detailed by business segment,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT D&A NET
--------------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
NGPL $5,579,249 $ 170,593 $5,408,656
Retail 395,474 152,979 242,495
MTP 70,726 9,827 60,899
Power and Other 121,802 44,288 77,514
---------- ---------- ----------
PP&E Related to Continuing Operations $6,167,251 $ 377,687 $5,789,564
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT D&A NET
--------------- ----------- ----------
(In Thousands)
<S> <C> <C> <C>
NGPL $5,373,939 $ 113,858 $5,260,081
KMIGT 720,808 183,038 537,770
Retail 389,785 144,490 245,295
MTP 57,459 7,453 50,006
Power and Other 113,907 42,254 71,653
---------- ---------- ----------
PP&E Related to Continuing Operations 6,655,898 491,093 6,164,805
PP&E Related to Discontinued Operations 1,111,434 253,063 858,371
---------- ---------- ----------
Total Property, Plant and Equipment $7,767,332 $ 744,156 $7,023,176
========== ========== ==========
</TABLE>
11. INCOME TAXES
Deferred income tax assets and liabilities are recognized for temporary
differences between the basis of assets and liabilities for financial reporting
and tax purposes. Changes in tax legislation are included in the relevant
computations in the period in which such changes are effective. Deferred tax
assets are reduced by a valuation allowance for the amount of any tax benefit
not expected to be realized.
Components of the income tax provision applicable to continuing operations for
federal and state income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
TAXES CURRENTLY PAYABLE:
Federal $ 19,299 $ 48,906 $ 7,811
State 13,755 8,438 1,598
-------- -------- --------
Total 33,054 57,344 9,409
-------- -------- --------
TAXES DEFERRED:
Federal 63,950 24,700 6,594
State (6,477) (552) (3,193)
-------- -------- --------
Total 57,473 24,148 3,401
-------- -------- --------
TOTAL TAX PROVISION $ 90,527 $ 81,492 $ 12,810
======== ======== ========
EFFECTIVE TAX RATE 36.9% 37.1% 22.4%
======== ======== ========
</TABLE>
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<PAGE> 63
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The difference between the statutory federal income tax rate and Kinder Morgan's
effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FEDERAL INCOME TAX RATE 35.0% 35.0% 35.0%
INCREASE (DECREASE) AS A RESULT OF:
State Income Tax, Net of Federal Benefit 1.9% 2.1% (1.8)%
Adjustments to Prior Year Accruals* -- -- (10.2)%
Other -- -- (0.6)%
-------- -------- --------
EFFECTIVE TAX RATE 36.9% 37.1% 22.4%
======== ======== ========
</TABLE>
*Adjustments relate to the resolution of certain issues from prior years' income
tax filings.
Deferred tax assets and liabilities result from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
(Dollars In Thousands)
<S> <C> <C>
DEFERRED TAX ASSETS:
Post-retirement Benefits $ 28,299 $ 44,506
Gas Supply Realignment Deferred Receipts 15,847 36,478
Vacation Accrual 4,948 4,930
State Taxes 112,049 68,332
Contract Impairments 4,682 11,075
Operating and Misc. Reserves 24,238 7,583
Alternative Minimum Tax Credits 8,222 16,620
Net Operating Loss Carryforwards 112,080 --
Discontinued Operations 208,317 --
Other 2,083 26,501
---------- ----------
TOTAL DEFERRED TAX ASSETS 520,765 216,025
---------- ----------
DEFERRED TAX LIABILITIES:
Property, Plant and Equipment 2,084,438 1,904,706
Rate Matters 4,460 550
Prepaid Pension Costs 1,952 3,560
Stock Investments 656,781 1,809
Other 1,687 4,472
---------- ----------
TOTAL DEFERRED TAX LIABILITIES 2,749,318 1,915,097
---------- ----------
NET DEFERRED TAX LIABILITIES $2,228,553 $1,699,072
========== ==========
</TABLE>
For tax purposes Kinder Morgan had available, at December 31, 1999, net
operating loss carryforwards for regular federal income tax purposes of
approximately $ 277 million which will expire as follows: $66 million in the
year 2018 and $211 million in the year 2019. Kinder Morgan believes that it is
more likely than not that all of the net operating loss carryforwards will be
utilized prior to their expiration.
12. FINANCING
(A) Notes Payable
As of December 31, 1999, Kinder Morgan had available a $550 million 364-day
facility dated November 18, 1999, and a $400 million amended and restated
five-year revolving credit agreement dated January 30, 1998. These bank
facilities can be used for general corporate purposes, including backup for
Kinder Morgan's commercial paper program and include covenants which are common
in such arrangements. For example, the $550 million facility requires
consolidated debt to be less than 71% of consolidated captialization. The $400
million facility requires that upon issuance of common stock to the holders of
the premium equity participating security units at the maturity of the security
units, consolidated debt must be less than 67% of consolidated total
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<PAGE> 64
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
capitalization. Both of the bank facilities require the debt of consolidated
subsidiaries to be less than 10% of consolidated debt of Kinder Morgan, require
the consolidated debt of each material subsidiary to be less than 65% of its
consolidated total capitalization and require Kinder Morgan's consolidated net
worth (inclusive of trust preferred securities) be at least $1.236 billion plus
50 percent of consolidated net income earned for each fiscal quarter beginning
with the last quarter of 1998. Under the bank facilities, Kinder Morgan is
required to pay a facility fee based on the total commitment, at a rate which
varies based on Kinder Morgan's senior debt rating. Facility fees paid in 1999
and 1998 were $1.9 million and $1.7 million, respectively. At December 31, 1999,
$300 million was outstanding under the bank facilities and there were no amounts
outstanding at December 31, 1998.
Commercial paper issued by Kinder Morgan and supported by the bank facilities
are unsecured short-term notes with maturities not to exceed 270 days from the
date of issue. During 1999, all commercial paper was redeemed within 182 days,
with interest rates ranging from 4.25 percent to 7.25 percent. Commercial paper
outstanding at December 31, 1999 and 1998, respectively, was $274.4 million and
$297.0 million. The weighted-average interest rates on short-term borrowings
outstanding at December 31, 1999 and 1998, respectively, were 7.00 percent and
5.70 percent. Average short-term borrowings outstanding during 1999 and 1998
were $620.9 million and $732.9 million, respectively. During 1999 and 1998, the
weighted-average interest rates on short-term borrowings outstanding were 5.56
percent and 5.91 percent (excluding the Substitute Note as described below),
respectively.
Effective with the acquisition of MidCon Corp. on January 30, 1998, Kinder
Morgan entered into a $4.5 billion credit facility consisting of (i) a $1.4
billion 364-day credit facility to support the note issued to Occidental
Petroleum Corporation in conjunction with the purchase of MidCon Corp., (ii) a
$2.1 billion 364-day revolving facility, (iii) the $400 million facility,
providing for loans and letters of credit, of which the letter of credit usage
may not exceed $100 million and (iv) a 364-day $600 million revolving credit
facility. The $1.4 billion and $2.1 billion facilities could be used only in
conjunction with the acquisition of MidCon Corp. In addition to the working
capital and acquisition components of the $4.5 billion facility, Kinder Morgan
assumed a short-term note for $1.4 billion payable to Occidental referred to as
the "Substitute Note", which was initially collateralized by letters of credit
issued under the $1.4 billion facility.
The $2.1 billion facility was repaid in its entirety and cancelled on March 10,
1998. The Substitute Note was repaid on January 4, 1999. On January 5, 1999,
Kinder Morgan cancelled the remaining letters of credit used to collateralize
the Substitute Note. On January 8, 1999, the $600 million facility was replaced
with a new $600 million 364-day facility which was essentially the same as the
previous agreement. On November 18, 1999, Kinder Morgan replaced its
then-existing $600 million 364-day facility with a new $550 million 364-day
facility.
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<PAGE> 65
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
(B) Long-term Debt and Premium Equity Participating Security Units
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
----------- -----------
(In Thousands)
DEBENTURES:
<S> <C> <C>
6.50% Series, Due 2013 $ 50,000 $ 50,000
7.85% Series, Due 2022 25,731 26,631
8.75% Series, Due 2024 75,000 75,000
7.35% Series, Due 2026 125,000 125,000
6.67% Series, Due 2027 150,000 150,000
7.25% Series, Due 2028 500,000 500,000
7.45% Series, Due 2098 150,000 150,000
SINKING FUND DEBENTURES:
9.95% Series, Due 2020 20,000 20,000
9.625% Series, Due 2021 45,000 45,000
8.35% Series, Due 2022 35,000 35,000
SENIOR NOTES:
7.27%, Due 2000-2002 15,000 20,000
6.45%, Due 2001 400,000 400,000
6.45%, Due 2003 500,000 500,000
6.65%, Due 2005 500,000 500,000
6.80%, Due 2008 300,000 300,000
Reset Put Securities, 6.30%, Due 2021 400,000 400,000
Medium-term Notes, 9.98% -- 3,000
Other 14,883 16,318
Unamortized Debt Discount (5,121) (5,757)
Current Maturities of Long-term Debt (7,167) (10,167)
----------- -----------
TOTAL LONG-TERM DEBT $ 3,293,326 $ 3,300,025
=========== ===========
</TABLE>
Maturities of long-term debt (in thousands) for the five years ending December
31, 2004 are $7,167, $408,167, $10,417, $507,167 and $12,167, respectively.
In November 1998, Kinder Morgan completed an underwritten public offering of
$400 million of three-year senior notes bearing an interest rate of 6.45
percent. The net proceeds of approximately $397.4 million were used to retire a
portion of Kinder Morgan's then-outstanding short-term borrowings. Concurrently
with the senior notes offering, Kinder Morgan sold $460 million principal amount
of premium equity participating security units in an underwritten public
offering. The net cash proceeds from the sale of the security units, together
with additional funds provided by Kinder Morgan, were used to purchase U.S.
Treasury Notes on behalf of the security unit holders. The Treasury Notes are
the property of the security unit holders and are pledged to the collateral
agent, for the benefit of Kinder Morgan, to secure the obligation of the
security unit holders to purchase Kinder Morgan's common stock. These security
units obligate the holders to purchase a certain amount of Kinder Morgan common
stock, depending on the market price at that time, at the end of a three-year
period coinciding with the maturity of the senior notes (unless earlier
terminated or settled at the option of the holders of the security units), and
provide for receipt by the holders of 8.25 percent per year during the
three-year period. The 8.25 percent is paid by the agent which receives part
from the collateral agent, which holds 5.875% U.S. Treasury Notes purchased with
the proceeds of the initial investment by the security unit holders, and the
remaining 2.375 percent is paid by Kinder Morgan. Payment by Kinder Morgan of
all or any part of its portion of contract fees may be deferred until no later
than the end of the three-year period and any portion so deferred will accrue
interest at the annual rate of 8.25 percent until paid.
The face value of the security units is not recorded in the accompanying
Consolidated Balance Sheets. The $29.4 million present value of the contract fee
payable to the security unit holders has been recorded as a liability and as a
reduction to paid-in capital. During the period in which the 2.375 percent
contract fees are payable, accretion of the $3.4 million of discount initially
recorded will increase the liability and further decrease paid-in capital. In
addition, paid-in capital has been reduced for the issuance costs associated
with the
65
<PAGE> 66
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
security units and the premium paid upon purchase of the Treasury Notes pledged
to the collateral agent, which amounts total approximately $32.8 million.
In March 1998, Kinder Morgan received net proceeds of approximately $2.34
billion from the public offerings of senior debt securities of varying
maturities with principal totaling $2.35 billion. The net proceeds from these
offerings were used to refinance borrowings under the $4.5 billion facility and
to purchase U.S. government securities to replace a portion of the letters of
credit that collateralized the Substitute Note.
The 2003 Senior Notes and the 2005 Senior Notes are not redeemable prior to
maturity. The 2008 Senior Notes, 2028 Senior Debentures and 2098 Senior
Debentures are redeemable in whole or in part, at the option of Kinder Morgan at
any time, at redemption prices defined in the associated prospectus supplement.
The Reset Put Securities due March 1, 2021 are subject to mandatory redemption
from the then-existing holders on March 1, 2001, either (i) through the exercise
of a call option by Morgan Stanley & Co. International Limited or (ii) in the
event Morgan Stanley does not exercise the call option, the automatic exercise
of a mandatory put by First Trust National Association on behalf of the holders.
The $12 million of proceeds received by Kinder Morgan from Morgan Stanley as
consideration for the call option are being amortized as an adjustment to the
effective interest rate on the Reset Put Securities. If Morgan Stanley elects to
exercise the call option, the interest rate will be reset at that time.
At December 31, 1999 and 1998, the carrying amount of Kinder Morgan's long-term
debt was $3.3 billion. The estimated fair values of Kinder Morgan's long-term
debt December 31, 1999 and 1998 are shown in Note 8.
(C) Capital Securities
In April 1998, Kinder Morgan sold $175 million of 7.63% Capital Trust Securities
maturing on April 15, 2028, in an underwritten public offering. The sale was
effected through a wholly owned business trust, K N Capital Trust III. Kinder
Morgan used the net proceeds from the offering to purchase U.S. government
securities to replace a portion of the letters of credit that collateralized the
Substitute Note.
The transactions and balances of K N Capital Trust III are included in Kinder
Morgan's consolidated financial statements, with the Capital Securities treated
as a minority interest, shown in Kinder Morgan's Consolidated Balance Sheets
under the caption "Kinder Morgan-Obligated Mandatorily Redeemable Preferred
Capital Trust Securities of Subsidiary Trust Holding Solely Debentures of Kinder
Morgan." See Note 18 for the fair value of these securities.
(D) Common Stock
On November 17, 1999, the Board of Directors of Kinder Morgan, Inc. approved a
reduction in the quarterly dividend from $0.20 per share to $0.05 per share.
On November 9, 1998, the Board of Directors of Kinder Morgan, Inc. approved a
three-for-two split of Kinder Morgan's common stock. The stock split was
distributed on December 31, 1998, to shareholders of record at the close of
business on December 15, 1998. The par value of the stock did not change.
Weighted-average shares outstanding and all per share amounts in the
accompanying consolidated financial statements and these Notes have been
restated to reflect the stock split.
In March 1998, Kinder Morgan received net proceeds of approximately $624.6
million from a public offering of 12.5 million shares (18.75 million shares
after adjustment for the December 1998 three-for-two stock split) of its common
stock. The net proceeds from this offering were used to refinance borrowings
under the $4.5 billion
66
<PAGE> 67
Facility and to purchase U.S. government securities to replace a portion of the
letters of credit that collateralized the Substitute Note.
13. PREFERRED STOCK
Kinder Morgan has authorized 200,000 shares of Class A and 2,000,000 shares of
Class B preferred stock, all without par value.
(A) Class A $5.00 Preferred Stock
On April 13, 1999, Kinder Morgan sent notices to holders of its Class A $5.00
Cumulative Preferred Stock, of its intent to redeem these shares on May 14,
1999. Holders of 70,000 preferred shares were advised that on April 13, 1999,
funds were deposited with the First National Bank of Chicago to pay the
redemption price of $105 per share plus accrued but unpaid dividends. Under the
terms of Kinder Morgan's Articles of Incorporation, upon deposit of funds to pay
the redemption price, all rights of the preferred stockholders ceased and
terminated except the right to receive the redemption price upon surrender of
their stock certificates.
At December 31, 1999, Kinder Morgan did not have any outstanding shares of Class
A $5.00 Cumulative Series preferred stock. At December 31, 1998 and 1997, Kinder
Morgan had 70,000 shares of Class A $5.00 Cumulative Series preferred stock
outstanding.
(B) Class B Preferred Stock
Kinder Morgan did not have any outstanding shares of Class B Preferred Stock at
December 31, 1999, 1998 or 1997.
14. RISK MANAGEMENT
Kinder Morgan uses energy financial instruments to reduce its risk of price
changes in the spot and fixed price natural gas and natural gas liquids markets
as discussed following. Kinder Morgan is exposed to credit-related losses in the
event of nonperformance by counterparties to these financial instruments but,
given their existing credit ratings, does not expect any counterparties to fail
to meet their obligations.
The fair value of these risk management instruments reflects the estimated
amounts that Kinder Morgan would receive or pay to terminate the contracts at
the reporting date, thereby taking into account the current unrealized gains or
losses on open contracts. Market quotes are available for substantially all
financial instruments used by Kinder Morgan.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (the "Statement").
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. If the derivatives meet these criteria, the
Statement allows a derivative's gains and losses to offset related results on
the hedged item in the income statement, and requires that a company formally
designate a derivative as a hedge and document and assess the effectiveness of
derivatives associated with transactions that receive hedge accounting.
The Statement is effective for fiscal years beginning after June 15, 2000. The
Statement cannot be applied retroactively. The Statement must be applied to (i)
derivative instruments and (ii) certain derivative instruments
67
<PAGE> 68
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at Kinder Morgan's election, before
January 1, 1998). Kinder Morgan has not yet quantified the impacts of adopting
the Statement on its financial position or results of operations and has not
determined the timing of or method of adoption of the Statement.
In December 1998, the Emerging Issues Task Force ("EITF") issued EITF 98-10,
Accounting for Energy Trading and Risk Management Activities. This consensus
establishes accounting for energy trading activities prior to the adoption of
the Statement. EITF 98-10 requires that energy contracts associated with trading
activities be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. The effects of initial application of EITF
98-10 are required to be reported as a cumulative effect of a change in
accounting principle. Financial statements for periods prior to initial adoption
of EITF 98-10 may not be restated. EITF 98-10 is effective for fiscal years
beginning after December 15, 1998. Given Kinder Morgan's restrictive policy with
respect to the use of energy derivatives as discussed following, Kinder Morgan
had no material impact from the application of EITF 98-10 to its operations.
Energy risk management products used by Kinder Morgan include commodity futures
and options contracts, fixed-price swaps and basis swaps. Pursuant to its Board
of Directors' approved policy, Kinder Morgan is to engage in these activities
only as a hedging mechanism against price volatility associated with
pre-existing or anticipated physical gas and condensate sales, gas purchases,
system use and storage in order to protect profit margins, and is prohibited
from engaging in speculative trading. Commodity-related activities of the risk
management group are monitored by Kinder Morgan's Risk Management Committee,
which is charged with the review and enforcement of the Board of Directors' risk
management policy. Changes in fair value for trading activities are recognized
currently in earnings within the caption "Other, Net" under the heading "Other
Income and (Deductions)" in the Consolidated Statements of Income. All energy
futures, swaps and options are recorded at fair value. Gains and losses on
hedging positions are deferred and recognized as gas purchases expense in the
periods which the underlying physical transactions occur.
Purchases of commodity contracts and over-the-counter swaps and options require
75 percent of the contract amount to be placed in margin accounts. At December
31, 1999, Kinder Morgan had $51,000 in such margin accounts, which amounts are
shown as "Restricted Deposits" in the accompanying Consolidated Balance Sheets.
The differences between the current market value and the original physical
contracts' value, associated with hedging activities, are reflected, depending
on maturity, as deferred charges or credits and other current assets or
liabilities in the accompanying Consolidated Balance Sheets. These deferrals are
offset by the corresponding value of the underlying physical transactions. In
the event energy financial instruments do not meet the criteria for hedge
accounting, the deferred gains or losses associated with the corresponding
financial instruments would be included in the results of operations in the
current period. In the event energy financial instruments are terminated prior
to the period of physical delivery of the items being hedged, the gains or
losses on the energy financial instruments at the time of termination remain
deferred until the period of physical delivery unless both the energy financial
instruments and the items being hedged result in a loss. If this occurs, the
loss is recorded immediately.
68
<PAGE> 69
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Following is selected information concerning Kinder Morgan's risk management
activities:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
COMMODITY OVER-THE-COUNTER
CONTRACTS SWAPS AND OPTIONS TOTAL
---------- ----------------- ----------
(In Thousands)
<S> <C> <C> <C>
Deferred Net (Loss) Gain $ (9,503) $ (6,589) $ (16,092)
Contract Amounts $ (355,982) $ (99,034) $ (455,016)
Credit Exposure of Loss $ -- $ 1,518 $ 1,518
(Billions of Cubic Feet)
Notional Volumetric Positions: Long 75.6 1,268.3 1,343.9
Notional Volumetric Positions: Short 72.7 1,237.5 1,310.2
Net Notional Totals to Occur in 2000 2.7 33.7 36.4
Net Notional Totals to Occur in 2001 & Beyond 0.2 (2.9) (2.7)
</TABLE>
Deferred net losses are reflected in "Deferred Charges and Other Assets" in the
accompanying Consolidated Balance Sheets and will be matched with the
corresponding underlying physical transactions.
15. EMPLOYEE BENEFITS
(A) Retirement Plans
Kinder Morgan has defined benefit pension plans covering substantially all
full-time employees. These plans provide pension benefits that are based on the
employees' compensation during the period of employment, age and years of
service. These plans are tax-qualified subject to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. Kinder
Morgan's funding policy is to contribute annually the recommended contribution
using the actuarial cost method and assumptions used for determining annual
funding requirements. Plan assets consist primarily of pooled fixed income,
equity, bond and money market funds. Plan assets included securities of Kinder
Morgan valued at $ 5.1 million and $5.0 million as of December 31, 1999 and
1998, respectively.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Service Cost $ 9,977 $ 4,859 $ 3,462
Interest Cost 8,170 7,537 7,155
Expected Return on Assets (13,381) (11,812) (10,276)
Net Amortization and Deferral (210) (864) (311)
Recognition of Curtailment Gain (9) -- --
-------- -------- --------
Net Periodic Pension (Benefit) Cost $ 4,547 $ (280) $ 30
======== ======== ========
</TABLE>
69
<PAGE> 70
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The following table sets forth the reconciliation of the beginning and ending
balances of the pension benefit obligation:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Benefit Obligation at Beginning of Year $ (121,076) $ (106,383)
Service Cost (9,977) (4,859)
Interest Cost (8,170) (7,537)
Actuarial Gain (Loss) 14,602 (8,477)
Benefits Paid 6,421 6,180
Curtailment Gain 162 --
---------- ----------
Benefit Obligation at End of Year $ (118,038) $ (121,076)
========== ==========
</TABLE>
The following table sets forth the reconciliation of the beginning and ending
balances of the fair value of the plans' assets, the plans' funded status and
prepaid pension cost amounts recognized under the caption "Other Current Assets"
in Kinder Morgan's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Fair Value of Plan Assets at Beginning of Year $ 143,983 $ 141,423
Actual Return on Plan Assets During the Year 13,338 8,740
Benefits Paid During the Year (6,421) (6,180)
---------- ----------
Fair Value of Plan Assets at End of Year 150,900 143,983
Benefit Obligation at End of Year (118,038) (121,076)
---------- ----------
Plan Assets in Excess of Projected Benefit Obligation 32,862 22,907
Unrecognized Net Gain (27,080) (12,619)
Prior Service Cost Not Yet Recognized in Net Periodic
Pension Costs 105 218
Unrecognized Net Asset at Transition (842) (989)
---------- ----------
Prepaid Pension Cost $ 5,045 $ 9,517
========== ==========
</TABLE>
The rate of increase in future compensation was 3.5 percent for 1999, 1998 and
1997. The expected long-term rate of return on plan assets was 9.5 percent for
1999 and 8.5 percent for both 1998 and 1997. The weighted-average discount rate
used in determining the actuarial present value of the projected benefit
obligation was 7.75 percent, 6.75 percent and 7.25 percent for 1999, 1998 and
1997, respectively.
Kinder Morgan makes discretionary annual contributions to the Kinder Morgan,
Inc. Profit Sharing and Savings Plan, a defined contribution plan. Contributions
are made in the year following the year for which the contribution amount is
calculated. Kinder Morgan's contribution amount is determined by comparing
actual results for that year to a predetermined graduated scale of annual
operating goals. No contribution was made to the profit sharing plan for 1999 or
1998. For 1997, Kinder Morgan contributed an amount equal to seven percent of
eligible employee compensation. The 1997 contribution was $5.3 million, 50
percent of which was in the form of Company stock. In January 1998, Kinder
Morgan acquired the MidCon Retirement Plan as part of its acquisition of MidCon
Corp. (see Note 2). The MidCon plan was a defined contribution plan.
Contributions to the plan were based on age and earnings. Effective January 1,
1999, the MidCon plan was merged into the Profit Sharing Plan, at which time
eligible MidCon employees joined Kinder Morgan's defined benefit pension plans.
In 1999 and 1998, Kinder Morgan contributed $0.7 million and $4.6 million,
respectively, to the MidCon plan.
(B) Other Postretirement Employee Benefits
Kinder Morgan has a defined benefit postretirement plan providing medical and
life insurance benefits upon retirement for eligible employees and their
eligible dependents, including former MidCon employees who met the eligibility
requirements on the date of acquisition of MidCon Corp. (see Note 2). Kinder
Morgan acquired the
70
<PAGE> 71
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
postretirement medical and life insurance plans of already retired employees of
MidCon as a result of the acquisition of MidCon Corp. The MidCon plans were
"grandfathered" in by Kinder Morgan as of the acquisition date and no new
employees have or will be added to the MidCon plans subsequent to the
acquisition date. Kinder Morgan funds the future expected postretirement benefit
cost under the plan by making payments to Voluntary Employee Benefit Association
trusts. Plan assets consist primarily of pooled fixed income funds.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Service Cost $ 450 $ 592 $ 205
Interest Cost 6,655 6,425 1,394
Expected Return on Assets (3,720) (2,854) (159)
Net Amortization and Deferral 908 919 811
Curtailment Gain -- (1,569) --
---------- ---------- ----------
Net Periodic Postretirement Benefit Cost $ 4,293 $ 3,513 $ 2,251
========== ========== ==========
</TABLE>
The following table sets forth the reconciliation of the beginning and ending
balances of the accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Benefit Obligation at Beginning of Year $ (101,988) $ (19,768)
Service Cost (450) (592)
Interest Cost (6,655) (6,425)
Actuarial Gain (Loss) 3,278 (7,663)
Benefits Paid 15,330 11,812
Retiree Contributions (2,595) (2,060)
Transfer from MidCon Plan -- (78,861)
Curtailment -- 1,569
---------- ----------
Benefit Obligation at End of Year $ (93,080) $ (101,988)
========== ==========
</TABLE>
The following table sets forth the reconciliation of the beginning and ending
balances of the fair value of plan assets, the plan's funded status and the
amounts included under the caption "Other" in the category "Other Liabilities
and Deferred Credits" in Kinder Morgan's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Fair Value of Plan Assets at Beginning of Year $ 45,364 $ 3,569
Actual Return on Plan Assets 4,320 4,850
Contributions by Employer 2,771 2,368
Retiree Contributions 2,246 1,207
Benefits Paid (2,129) (883)
Transfer from MidCon Plan -- 34,253
---------- ----------
Fair Value of Plan Assets at End of Year 52,572 45,364
Benefit Obligation at End of Year (93,080) (101,988)
---------- ----------
Excess of Projected Benefit Obligation Over Plan Assets (40,508) (56,624)
Unrecognized Net (Gain) Loss (2,313) 3,790
Unrecognized Net Obligations at Transition 12,078 13,007
---------- ----------
Accrued Expense $ (30,743) $ (39,827)
========== ==========
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the accumulated postretirement benefit obligation was 7.75 percent,
6.75 percent and 7.25 percent for 1999, 1998 and 1997, respectively. The
expected long-term rate of return on plan assets was 9.5 percent for 1999 and
8.5 percent for
71
<PAGE> 72
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
both 1998 and 1997. The assumed health care cost trend rate was 7 percent per
year for 1999 and beyond (3 percent per year for 1999 and beyond for the MidCon
plans). A one-percentage-point increase (decrease) in the assumed health care
cost trend rate for each future year would have increased (decreased) the
aggregate of the service and interest cost components of the 1999 net periodic
postretirement benefit cost by approximately $23,000 ($21,000) and would have
increased (decreased) the accumulated postretirement benefit obligation as of
December 31, 1999, by approximately $220,000 ($211,000).
16. COMMON STOCK OPTION AND PURCHASE PLANS
Kinder Morgan has the following stock option plans: The 1982 Incentive Stock
Option Plan, the 1982 Stock Option Plan for Non-Employee Directors, the 1986
Incentive Stock Option Plan, the 1988 Incentive Stock Option Plan, the 1992
Stock Option Plan for Non-Employee Directors, the 1994 Kinder Morgan, Inc.
Long-term Incentive Plan (which also provides for the issuance of restricted
stock), the American Oil and Gas Corporation Stock Incentive Plan and the Kinder
Morgan, Inc. Amended and Restated 1999 Stock Option Plan. Kinder Morgan also has
an employee stock purchase plan. All per share amounts and shares outstanding or
exercisable presented in this note have been restated to reflect the impact of
the December 31, 1998, three-for-two common stock split as discussed in Note
12(D).
On October 8, 1999, Kinder Morgan's Board of Directors approved the creation of
the 1999 stock option plan, a broadly based non-qualified stock option plan.
Under the plan, options may be granted to individuals who are regular full-time
employees (including officers and directors who are employees) of Kinder Morgan
or an entity in which Kinder Morgan has an ownership interest. The aggregate
number of shares of stock which may be issued under the plan is 5.5 million.
Options under the plan vest in 25 percent increments on the anniversary of the
grant over a four-year period from the date of grant. All options granted under
the plan have a 10-year life, and must be granted at not less than the fair
market value of Kinder Morgan's common stock at the close of trading on the date
of grant. On October 8, 1999, grants totaling 4.6 million stock options, all
priced at $23.8125 per share, the closing price of Kinder Morgan's common stock
on October 8, 1999, were awarded. However, no options were allocated to Richard
D. Kinder and William V. Morgan.
On October 8, 1999, Kinder Morgan's Board of Directors approved the granting of
12,500 options to each non-employee director of Kinder Morgan under the 1992
Stock Option Plan for Non-Employee Directors. All of the options vest in six
months and have an exercise price of $23.8125 per share, the closing price of
Kinder Morgan's common stock on October 8, 1999.
Kinder Morgan accounts for its plans under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. Had compensation cost for
these plans been determined consistent with SFAS No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), Kinder Morgan's net income and diluted
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
NET INCOME (LOSS):
As Reported $ (241,444) $ 59,989 $ 77,497
============ ============ ============
Pro Forma, Unaudited $ (246,296) $ 55,887 $ 73,028
============ ============ ============
EARNINGS (LOSS) PER DILUTED SHARE:
As Reported $ (3.01) $ 0.92 $ 1.63
============ ============ ============
Pro Forma, Unaudited $ (3.07) $ 0.86 $ 1.53
============ ============ ============
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
72
<PAGE> 73
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Additionally, the pro forma amounts include $0.6 million, $0.6 million and $0.4
million related to the purchase discount offered under the ESP Plan for 1999,
1998 and 1997, respectively.
Kinder Morgan may sell up to 2,400,000 shares of common stock to eligible
employees under the employee stock purchase plan. Employees purchase shares
through voluntary payroll deductions. Prior to the 2000 plan year, shares were
purchased annually at a 15 percent discount from the market value of the common
stock, as defined in the plan, and issued in the month following the end of the
plan year. Beginning with the 2000 plan year, shares will be purchased quarterly
at a 15 percent discount from the closing price of the common stock on the last
trading day of each calendar quarter. Also beginning with the 2000 plan year, in
addition to Kinder Morgan employees, employees of certain affiliated equity
method investees will be eligible to participate in the employee stock purchase
plan. Employees purchased 187,567 shares, 163,799 shares and 132,202 shares for
plan years 1999, 1998 and 1997, respectively. The weighted-average fair value
per share of purchase rights granted in 1999, 1998 and 1997 was $6.41, $5.94 and
$6.48, respectively.
<TABLE>
<CAPTION>
OPTION SHARES
GRANTED
SHARES SUBJECT THROUGH VESTING EXPIRATION
PLAN NAME TO THE PLAN 12/31/99 PERIOD PERIOD
--------- -------------- ------------- ------- ----------
<S> <C> <C> <C> <C>
1982 Plan 1,332,788 1,332,788 Immediate 10 years
1982 Directors' Plan 186,590 186,590 3 years 10 years
1986 Plan 618,750 618,750 Immediate 10 years
1988 Plan 618,750 618,750 Immediate 10 years
1992 Directors' Plan 525,000 400,375 0 - 6 months 10 years
L-T Incentive Plan 5,700,000 3,826,932 0 - 5 years 5 - 10 years
AOG Plan 775,500 775,500 3 years 10 years
1999 Plan 5,500,000 4,648,500 4 years 10 years
</TABLE>
Under all plans, except the Long-term Incentive Plan and the AOG Plan, options
are granted at not less than 100 percent of the market value of the stock at the
date of grant. Under the Long-term Incentive Plan options may be granted at less
than 100 percent of the market value of the stock at the date of grant. Certain
restricted stock awards include provisions accelerating the lapsing of
restrictions in the event certain operating goals are met. Kinder Morgan
recorded compensation expense totaling $8.6 million, $3.1 million, and $2.4
million for 1999, 1998 and 1997, respectively, relating to restricted stock
grants awarded under the plans.
73
<PAGE> 74
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
A summary of the status of Kinder Morgan's stock option plans at December 31,
1999, 1998 and 1997, and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
WTD AVG WTD AVG WTD AVG
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING
OF YEAR 4,218,191 $ 24.38 3,220,065 $ 19.19 2,589,730 $ 18.52
Granted 4,837,656 $ 23.81 1,781,761 $ 31.40 1,128,603 $ 19.01
Exercised (602,928) $ 8.00 (662,274) $ 16.46 (379,575) $ 14.11
Forfeited (910,021) $ 27.79 (121,361) $ 27.35 (118,693) $ 18.97
---------- ---------- ---------- ---------- ---------- ----------
OUTSTANDING AT END OF YEAR 7,542,898 $ 24.92 4,218,191 $ 24.38 3,220,065 $ 19.19
========== ========== ========== ========== ========== ==========
EXERCISABLE AT END OF YEAR 1,918,868 $ 26.54 1,794,112 $ 25.11 1,343,123 $ 19.75
========== ========== ========== ========== ========== ==========
WEIGHTED-AVERAGE FAIR VALUE
OF OPTIONS GRANTED $ 5.83 $ 12.08 $ 10.47
========== ========== ==========
</TABLE>
The weighted-average fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.5 percent, expected weighted-average
lives of 4 years and expected volatility of 0.31 for grants in 1999, 0.25 for
grants in 1998, and 0.20 for grants in 1997; and expected dividend yields of 3.2
percent for grants in 1999, 3.5 percent for grants in 1998, and 2.5 percent for
grants in 1997.
The following table sets forth Kinder Morgan's December 31, 1999, common stock
options outstanding, weighted-average exercise prices, weighted-average
remaining contractual lives, common stock options exercisable and the
exercisable weighted-average exercise price:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------- -----------------------------------
WTD AVG
WTD AVG REMAINING WTD AVG
PRICE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OUTSTANDING PRICE LIFE EXERCISABLE PRICE
----- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $23.79 483,827 $14.11 5.56 years 369,993 $17.55
$23.81 - $23.81 4,748,500 $23.81 9.77 years -- $ 0.00
$24.04 - $39.23 2,310,571 $29.47 7.62 years 1,548,875 $28.68
--------- ---------
7,542,898 $24.92 8.84 years 1,918,868 $26.54
========= =========
</TABLE>
17. COMMITMENTS AND CONTINGENT LIABILITIES
(A) Leases
Kinder Morgan has entered into a number of operating leases, including those
referred to in Note 2. Expenses incurred under operating leases were $57.8
million in 1999, $56.9 million in 1998, and $9.5 million in 1997.
74
<PAGE> 75
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Future minimum commitments under major operating leases as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
(In Thousands)
<S> <C>
2000 $ 68,509
2001 69,071
2002 83,974
2003 74,100
2004 77,270
Thereafter 885,124
----------
Total $1,258,048
==========
</TABLE>
Of the total commitments shown in the preceding table, $30.5 million, $32.3
million, $27.8 million, $22.4 million, $27.1 million and $190.8 million for the
years 2000, 2001, 2002, 2003, 2004 and the period thereafter, respectively,
represent commitments of discontinued operations which will not continue beyond
disposal of these businesses (see Note 6).
(B) Guarantees of Unconsolidated Subsidiaries' Debt
Kinder Morgan has executed various guarantees of unconsolidated subsidiaries'
revolving credit agreements as follows:
<TABLE>
<CAPTION>
MAXIMUM BORROWED FINAL
SUBSIDIARY AMOUNT AT 12/31/99 MATURITY
---------- -------- ----------- --------
(In Millions)
<S> <C> <C> <C>
TransColorado $ 100 $ 100.0 10/13/01
Coyote Gas Treating, LLC $ 10 $ 7.1 09/06/00
Coyote Gas Treating, LLC $ 10 $ 10.0 06/30/00
Red Cedar Gas Gathering Company $ 55 $ 55.0 10/31/10
</TABLE>
Kinder Morgan's investment in Coyote Gas Treating, LLC is part of the operations
discontinued in the fourth quarter of 1999 (see Note 6). Kinder Morgan's
investment in Red Cedar Gathering Company was transferred to Kinder Morgan
Energy Partners in a transaction effective December 31, 1999 (see Note 5).
Kinder Morgan's guarantee of Red Cedar Gathering Company's debt was assigned to
Kinder Morgan Energy Partners in February 2000.
(C) Capital Expenditures Budget
The consolidated capital expenditures budget for 2000 totals $120 million.
Approximately $8.5 million had been committed for the purchase of plant and
equipment at December 31, 1999.
(D) Commitment to Sell or Purchase Assets
As announced by Kinder Morgan on November 30, 1999, Kinder Morgan has entered
into agreements with HS Resources, Inc. to sell certain assets in the Wattenberg
field area of the Denver-Julesberg Basin. Under the terms of the agreements, HS
Resources, Inc. commenced operating these assets. Kinder Morgan will receive
cash payments from HS Resources, Inc. during 2000 and 2001, with the legal
transfer of ownership expected to occur on or before December 15, 2001. Kinder
Morgan is committed, during a specified period, to purchase, at the option of
the other party, an incremental 50% interest in a joint venture pipeline, see
Note 5.
75
<PAGE> 76
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
18. FAIR VALUE
The following fair values of Investments, Long-term Debt, Capital Securities and
Kinder Morgan Preferred Stock were estimated based on an evaluation made by an
independent securities analyst. Fair values of "Energy Financial Instruments,
Net" reflect the estimated amounts that Kinder Morgan would receive or pay to
terminate the contracts at the reporting date, thereby taking into account the
current unrealized gains or losses on open contracts. Market quotes are
available for substantially all instruments used by Kinder Morgan.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1999 1998
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In Millions)
FINANCIAL ASSETS:
Tom Brown, Inc.:
<S> <C> <C> <C> <C>
Class A Preferred Stock $ - $ - $ 26.5 $ (i)
Common Stock $ 12.3 $ 12.3 $ 9.2 $ 9.2
FINANCIAL LIABILITIES:
Long-term Debt $ 3,305.6 $ 3,146.1 $ 3,315.9 $ 3,395.9
Capital Securities $ 275.0 $ 265.4 $ 275.0 $ 297.6
Energy Financial Instruments, Net $ 16.1 $ 16.1 $ 3.2 $ 3.2
KMI Class A $5.00 Preferred Stock $ - $ - $ 7.0 $ 5.3
</TABLE>
(i) Fair values for Tom Brown, Inc. Class A Preferred Stock are not readily
available, See Note 5 regarding the sale of this stock.
19. BUSINESS SEGMENT INFORMATION
In accordance with the manner in which Kinder Morgan currently manages its
businesses, including the allocation of capital and evaluation of business unit
performance, Kinder Morgan reports its operations in the following segments: (1)
Natural Gas Pipeline Company of America and certain associated entities,
referred to as "NGPL," a major interstate natural gas pipeline system; (2)
MidCon Texas Pipeline Operator, Inc. and certain associated entities, referred
to as "MTP," a major intrastate natural gas pipeline system; (3) "Retail," the
(largely regulated) distribution of natural gas to retail customers; (4)
"Power," the generation and sale of electric power and (5) "Other," various
other activities not constituting business segments. Prior to its December 31,
1999 sale to Kinder Morgan Energy Partners (see Note 5), Kinder Morgan also
owned and operated KMIGT.
The accounting policies applied in the generation of segment information are
generally the same as those described in Note 1 except that items below the
"Operating Income" line are either not allocated to business segments or are not
considered by Management in its evaluation of business unit performance. In
addition, certain items included in operating income (such as the merger-related
and severance costs and general and administrative expenses) are not allocated
to individual business segments. With adjustment for these items, Kinder Morgan
currently evaluates business segment performance primarily based on operating
income in relation to the level of capital employed. Intersegment sales are
accounted for at market prices, while asset transfers are made at either market
value or, in some instances, book value. For comparative purposes, prior period
results and balances have been reclassified to conform to the current
presentation.
During 1999 and 1998, Kinder Morgan had revenues from a single customer of
$346.2 million and $289.3 million, respectively, amounts in excess of 10 percent
of consolidated operating revenues for both years. These revenues are reported
in the NGPL and MTP segments.
76
<PAGE> 77
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
NGPL KMIGT RETAIL MTP POWER OTHER CONSOLIDATED
---- ----- ------ --- ----- ----- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers $ 532,174 $ 96,531 $ 182,859 $ 872,161 $ 21,609 $ 40,147 $ 1,745,481
Intersegment Revenues $ 1,182 $ 16,676 $ 53 $ - $ - $ 8,831 $ 26,742
Depreciation and Amortization $ 109,346 $ 16,985 $ 11,382 $ 2,466 $ 1,991 $ 2,098 $ 144,268
Operating Income Before
Corporate Costs $ 308,478 $ 54,282 $ 20,448 $ 16,618 $ 11,938 $ 19,139 $ 430,903
General and Administrative
Expenses 88,403
Merger-related and Severance
Costs 37,443
Operating Income -----------
Other Income and (Deductions) 305,057
(59,878)
Income from Continuing -----------
Operations, Before Income
Taxes $ 245,179
===========
Assets
Continuing Operations $ 5,558,874 $ - $ 332,618 $ 286,853 $ 188,706 $2,455,005(1) $ 8,822,056
Discontinued Operations 718,227
-----------
Consolidated $ 9,540,283
===========
Capital Expenditures
Continuing $ 41,716 $ 20,743 $ 11,749 $ 4,567 $ 4,803 $ 10,770 $ 94,348
Discontinued 31,659
-----------
Consolidated $ 126,007
===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------------------
NGPL KMIGT RETAIL MTP POWER OTHER CONSOLIDATED
---- ----- ------ --- ----- ----- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers $ 556,662 $ 88,244 $ 234,306 $ 739,201 $ 7,710 $ 34,771 $ 1,660,894
Intersegment Revenues $ 299 $ 17,333 $ - $ - $ 775 $ 4,759 $ 23,166
Depreciation and Amortization $ 121,008 $ 19,474 $ 11,014 $ 1,615 $ 618 $ 1,633 $ 155,362
Operating Income Before
Corporate Costs $ 336,825 $ 58,006 $ 56,214 $ 2,129 $ 5,570 $ 16,490 $ 475,234
General and Administrative
Expenses 68,264
Merger-related and Severance
Costs 5,763
-----------
Operating Income 401,207
Other Income and (Deductions) (181,547)
-----------
Income from Continuing
Operations, Before Income
Taxes $ 219,660
===========
Assets
Continuing Operations $ 5,505,119 $ 581,089 $ 362,289 $ 210,398 $ 174,524 $1,341,195(2) $ 8,174,614
Discontinued Operations 1,541,515
-----------
Consolidated $ 9,716,129
===========
Capital Expenditures
Continuing $ 40,855 $ 49,044 $ 17,405 $ 8,037 $ 1 $ 3,110 $ 118,452
Discontinued 138,062
-----------
Consolidated $ 256,514
===========
</TABLE>
77
<PAGE> 78
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------
NGPL KMIGT RETAIL MTP POWER OTHER CONSOLIDATED
---- ----- ------ --- ----- ----- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from External Customers $ - $ 52,475 $ 249,523 $ - $ - $ 38,440 $ 340,438
Intersegment Revenues $ - $ 27,569 $ 19 $ - $ - $ 31 $ 27,619
Depreciation and Amortization $ - $ 12,432 $ 10,582 $ - $ - $ 854 $ 23,868
Operating Income Before
Corporate Costs $ - $ 45,453 $ 54,793 $ - $ - $ 14,569 $ 114,815
General and Administrative
Expenses 36,535
-----------
Operating Income 78,280
Other Income and (Deductions) (21,089)
-----------
Income from Continuing
Operations, Before Income
Taxes $ 57,191
===========
Assets
Continuing Operations $ - $ 537,708 $ 383,069 $ - $ - $ 223,635 $ 1,144,412
Discontinued Operations 1,161,393
-----------
Consolidated $ 2,305,805
===========
Capital Expenditures
Continuing $ - $ 184,892 $ 28,301 $ - $ - $ 15,542 $ 228,735
Discontinued 82,358
-----------
Consolidated $ 311,093
===========
</TABLE>
(1) Principally the investment in Kinder Morgan Energy Partners
(2) Principally government securities held as collateral for the Substitute
Note
GEOGRAPHIC INFORMATION
All but an insignificant amount of Kinder Morgan's assets and operations are
located in the continental United States.
78
<PAGE> 79
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
KINDER MORGAN, INC. AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS FOR 1999 AND 1998
<TABLE>
<CAPTION>
1999
----
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 406,742 $ 408,184 $ 471,080 $ 459,475
Operating Expenses 306,582 340,801 409,647 383,394
---------- ---------- ---------- ----------
Operating Income 100,160 67,383 61,433 76,081
Other Income and (Deductions) (60,966) (47,089) (51,783) 99,960(1)
---------- ---------- ---------- ----------
Income From Continuing Operations Before Income Taxes 39,194 20,294 9,650 176,041
Income Taxes 15,286 7,914 3,764 63,563
---------- ---------- ---------- ----------
Income From Continuing Operations 23,908 12,380 5,886 112,478
---------- ---------- ---------- ----------
Discontinued Operations, Net of Tax:(2)
Loss From Discontinued Operations (16,786) (14,788) (8,925) (11,219)
Loss on Disposal of Discontinued Operations -- -- (11,479) (332,899)
---------- ---------- ---------- ----------
Total Loss From Discontinued Operations (16,786) (14,788) (20,404) (344,118)
---------- ---------- ---------- ----------
Net Income (Loss) 7,122 (2,408) (14,518) (231,640)
Less-Preferred Dividends 88 41 -- --
Less-Premium Paid on Preferred Stock Redemption -- 350 -- --
---------- ---------- ---------- ----------
Earnings (Loss) Available for Common Stock $ 7,034 $ (2,799) $ (14,518) $ (231,640)
========== ========== ========== ==========
Number of Shares Used in Computing Basic Earnings Per Share 69,486 70,689 70,914 110,047
Number of Shares Used in Computing Diluted Earnings Per Share 69,578 70,761 70,986 110,105
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 0.34 $ 0.17 $ 0.08 $ 1.02
Discontinued Operations (0.24) (0.21) (0.12) (0.10)
Loss on Disposal of Discontinued Operations -- -- (0.16) (3.02)
---------- ---------- ---------- ----------
Total Basic Earnings (Loss) Per Common Share $ 0.10 $ (0.04) $ (0.20) $ (2.10)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 0.34 $ 0.17 $ 0.08 $ 1.02
Discontinued Operations (0.24) (0.21) (0.12) (0.10)
Loss on Disposal of Discontinued Operations -- -- (0.16) (3.02)
---------- ---------- ---------- ----------
Total Diluted Earnings (Loss) Per Common Share $ 0.10 $ (0.04) $ (0.20) $ (2.10)
========== ========== ========== ==========
</TABLE>
(1) Includes the $158 million pre-tax gain from the contribution of certain
assets to KMEP, see Note 5 of the accompanying Notes to Consolidated
Financial Statements.
(2) See Note 6 of the accompanying Notes to Consolidated Financial Statements.
79
<PAGE> 80
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
<TABLE>
<CAPTION>
1998(1)
-------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 343,363 $ 402,162 $ 433,370 $ 481,999
Operating Expenses 247,294 303,669 333,305 375,419
---------- ---------- ---------- ----------
Operating Income 96,069 98,493 100,065 106,580
Other Income and (Deductions) (28,099) (48,782) (41,401) (63,265)
---------- ---------- ---------- ----------
Income From Continuing Operations Before Income Taxes 67,970 49,711 58,664 43,315
Income Taxes 25,149 18,393 21,706 16,244
---------- ---------- ---------- ----------
Income From Continuing Operations 42,821 31,318 36,958 27,071
---------- ---------- ---------- ----------
Loss From Discontinued Operations, Net of Tax:(2) (20,313) (14,628) (12,484) (30,754)
---------- ---------- ---------- ----------
Net Income (Loss) 22,508 16,690 24,474 (3,683)
Less-Preferred Dividends 88 87 88 87
---------- ---------- ---------- ----------
Earnings (Loss) Available for Common Stock $ 22,420 $ 16,603 $ 24,386 $ (3,770)
========== ========== ========== ==========
Number of Shares Used in Computing Basic Earnings Per Share 52,635 67,170 67,493 68,442
Number of Shares Used in Computing Diluted Earnings Per Share 53,429 67,986 67,991 68,823
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 0.81 $ 0.47 $ 0.54 $ 0.39
Discontinued Operations (0.38) (0.22) (0.18) (0.45)
---------- ---------- ---------- ----------
Total Basic Earnings (Loss) Per Common Share $ 0.43 $ 0.25 $ 0.36 $ (0.06)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations $ 0.80 $ 0.46 $ 0.54 $ 0.39
Discontinued Operations (0.38) (0.22) (0.18) (0.44)
---------- ---------- ---------- ----------
Total Diluted Earnings (Loss) Per Common Share $ 0.42 $ 0.24 $ 0.36 $ (0.05)
========== ========== ========== ==========
</TABLE>
(1) Includes the results of operations of MidCon Corp. Beginning with its
January 30, 1998 acquisition, See Note 2 of the accompanying Notes to
Consolidated Financial Statements.
(2) See Note 6 of the accompanying Notes to Consolidated Financial Statements.
80
<PAGE> 81
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 22, 1999, Kinder Morgan Inc. (the registrant) replaced Arthur
Andersen LLP (Arthur Andersen) as the principal accountant for the registrant
and its affiliates. For the past two fiscal years, the reports of Arthur
Andersen did not contain an adverse opinion nor a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to replace Arthur Andersen was approved by the Board of
Directors of the registrant.
In connection with the audits of the registrant's financial statements for the
two fiscal years ended December 31, 1997 and December 31, 1998 and in the
subsequent interim period preceding Arthur Andersen's replacement, there were no
disagreements on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make
references to the matter in their report.
On November 22, 1999, the registrant engaged as its new principal accountant
PricewaterhouseCoopers LLP. During the two most recent fiscal years and through
the date of their appointment, the registrant has not consulted with
PricewaterhouseCoopers on matters of the type contemplated by Item 304(a)(2) of
Regulation S-K.
The registrant requested that PricewaterhouseCoopers review this disclosure made
in accordance with Item 304(a) of Regulation S-K before it was filed with the
Securities and Exchange Commission. PricewaterhouseCoopers determined that no
additional disclosure was necessary.
The registrant requested that Arthur Andersen furnish it with a letter addressed
to the Securities and Exchange Commission stating whether or not it agrees with
the statements set forth in the Form 8-K filed with respect to this matter. A
copy of that letter, dated November 29, 1999, is filed as Exhibit 16 to this
Form 10-K.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required by this item is contained in Kinder Morgan's Proxy
Statement related to the 2000 Annual Meeting of Stockholders, to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 and is
incorporated herein by reference.
For information regarding Kinder Morgan's current executive officers, see
Executive Officers of the Registrant under Part I.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this item is contained in Kinder Morgan's Proxy
Statement related to the 2000 Annual Meeting of Stockholders, to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 and is
incorporated herein by reference.
81
<PAGE> 82
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in Kinder Morgan's Proxy
Statement related to the 2000 Annual Meeting of Stockholders, to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 and is
incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in Kinder Morgan's Proxy
Statement related to the 2000 Annual Meeting of Stockholders, to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 and is
incorporated herein by reference.
82
<PAGE> 83
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
(a) 1. Financial Statements.........................................................................................38
Reference is made to the listings of financial statements and
supplementary data under Item 8 in Part II.
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts..........................................................84
Separate Financial Statements of Subsidiaries Not Consolidated
and 50% or Less Owned Persons........................................................................84
3. Exhibits
List of Executive Compensation Plans and Arrangements.................................................84-86
Exhibit Index.........................................................................................90-93
Exhibit 4(m) - $550,000,000 364-day Credit Agreement
Exhibit 10(aa) - Kinder Morgan, Inc. Amended and Restated 1999 Stock Option Plan
Exhibit 13 - 1999 Annual Report to Shareholders*
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23.1 - Consent of Independent Accountants
Exhibit 23.2 - Consent of Independent Public Accountants
Exhibit 27 - Financial Data Schedule**
(b) Reports on Form 8-K..........................................................................................86-88
</TABLE>
* Such report is being furnished for the information of the Securities and
Exchange Commission only and is not to be deemed filed as part of this
annual report on Form 10-K.
** Included in Securities and Exchange Commission copy only.
83
<PAGE> 84
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
KINDER MORGAN, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------
ADDITIONS
----------- DEDUCTIONS
BALANCE AT CHARGED TO WRITE-OFF OF DISCONTINUED
BEGINNING OF COST AND UNCOLLECTIBLE OPERATIONS BALANCE AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
(In Millions)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts $10.8 $3.6 $(0.6) $(12.1) $1.7
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------------------
ADDITIONS
------------------------------
CHARGED TO DEDUCTIONS
BALANCE AT CHARGED TO OTHER ACCOUNTS WRITE-OFF OF
BEGINNING OF COST AND ACQUISITION OF UNCOLLECTIBLE BALANCE AT END
PERIOD EXPENSES MIDCON ACCOUNTS OF PERIOD
(In Millions)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts $1.7 $5.0 $5.8 $(1.7) $10.8
</TABLE>
Note: Activity and balances prior to 1998 were not material.
The financial statements of Kinder Morgan Energy Partners, an equity method
investee of the Registrant, are incorporated herein by reference from F-1
to F-30 of Kinder Morgan Energy Partners' Annual Report on Form 10-K for
the year ended December 31, 1999 dated March 14, 2000.
Any reference made to K N Energy, Inc. in the List of Executive Compensation
Plans and Arrangements is a reference to the former name of Kinder Morgan, Inc.,
a Kansas corporation and the Registrant, and is made because the executive
compensation plan or arrangement being listed and incorporated by reference was
originally filed before October 7, 1999, the date of the change in the
Registrant's name.
Executive Compensation Plans and Arrangements
Form of Key Employee Severance Agreement (Exhibit 10.2, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
1982 Stock Option Plan for Nonemployee Directors of K N Energy, Inc.
with Form of Grant Certificate (Exhibit 10.3, Amendment No. 1 on Form 8 dated
September 2, 1988 to the Annual Report on Form 10-K for the year ended December
31, 1987)*
1982 Incentive Stock Option Plan for key employees of K N Energy, Inc.
(Exhibit 10.4, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
1986 Incentive Stock Option Plan for key employees of K N Energy, Inc.
(Exhibit 10.5, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
1988 Incentive Stock Option Plan for key employees of K N Energy, Inc.
(Exhibit 10.6, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*
Form of Grant Certificate for Employee Stock Option Plans (Exhibit
10.7, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
84
<PAGE> 85
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
Directors' Deferred Compensation Plan Agreement (Exhibit 10.8,
Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*
1987 Directors' Deferred Fee Plan As Amended and Form of Participation
Agreement regarding the Plan (Exhibit 10(h) to the Annual Report on Form 10-K
for the year ended December 31, 1995)*
1992 Stock Option Plan for Nonemployee Directors of K N Energy, Inc.
with Form of Grant Certificate (Exhibit 4.1, File No. 33-46999)*
1994 K N Energy, Inc. Long-term Incentive Plan (Attachment A to the K N
Energy, Inc. 1994 Proxy Statement on Schedule 14-A)*
K N Energy, Inc. 1996 Executive Incentive Plan (Exhibit 10(l) to the
Annual Report on Form 10-K for the year ended December 31, 1995)*
K N Energy, Inc. Nonqualified Deferred Compensation Plan (Exhibit 10(m)
to the Annual Report on Form 10-K for the year ended December 31, 1994)*
K N Energy, Inc. Nonqualified Retirement Income Restoration Plan
(Exhibit 10(n) to the Annual Report on Form 10-K for the year ended December 31,
1994)*
K N Energy, Inc. Nonqualified Profit Sharing Restoration Plan (Exhibit
10(o) to the Annual Report on Form 10-K for the year ended December 31, 1994)*
Employment Agreement dated December 14, 1995 between K N Energy, Inc.
and Morton C. Aaronson (Exhibit 10(p) to the Annual Report on Form 10-K for the
year ended December 31, 1995)*
Letter Agreement dated December 4, 1995 between K N Energy, Inc. and
Charles W. Battey (Exhibit 10(q) to the Annual Report on Form 10-K for the year
ended December 31, 1995)*
K N Energy, Inc. Performance Incentive Plan (Exhibit 10(u) to the
Annual Report on Form 10-K for the year ended December 31, 1995)*
Form of Change of Control Severance Agreement (Exhibit 10(u) to the
Annual Report on Form 10-K for the year ended December 31, 1996)*
Form of Incentive Stock Option Agreement (Exhibit 10(v) to the Annual
Report on Form 10-K for the year ended December 31, 1996)*
Form of Restricted Stock Agreement (Exhibit 10(w) to the Annual Report
on Form 10-K for the year ended December 31, 1996)*
Employment Agreement dated March 21, 1996 between K N Energy, Inc. and
Murray R. Smith (Exhibit 10(x) to the Annual Report on Form 10-K for the year
ended December 31, 1996)*
Directors and Executives Deferred Compensation Plan effective January
1, 1998 for executive officers and directors of K N Energy, Inc. (Exhibit 10(aa)
to the Annual Report on Form 10-K for the year ended December 31, 1998)*
85
<PAGE> 86
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
Management Deferred Compensation Plan effective January 1, 1998 for
senior management of K N Energy, Inc. (Exhibit 10(bb) to the Annual Report on
Form 10-K for the year ended December 31, 1998)*
Kinder Morgan, Inc. Amended and Restated 1999 Stock Option Plan
(Attached hereto as Exhibit 10(cc))
* Incorporated herein by reference.
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 21,1999, was filed on November 15,1999,
pursuant to Items 2, 5 and 7 of that form. Pursuant to Item 2 of that form,
Kinder Morgan disclosed that on October 7, 1999, Kinder Morgan consummated its
acquisition of Kinder Morgan Delaware and changed its name from "K N Energy,
Inc." to "Kinder Morgan, Inc." Pursuant to Item 5 of that form, the following
was disclosed:
1) On October 7, 1999, Kinder Morgan issued a press release
announcing the closing of the agreement that consummated the
acquisition of Kinder Morgan Delaware (the "Merger Agreement")
and Kinder Morgan's subsequent name change to "Kinder Morgan,
Inc."
2) On October 7, 1999, David W. Burkholder, Robert H. Chitwood,
Howard P. Coghlan, Jordan L. Haines and James C. Taylor
resigned as directors of Kinder Morgan effective as of the
closing of the transactions contemplated by the Merger
Agreement. On October, 8, 1999, the number of directors
constituting the Board of Directors was set at 10 and the
remaining directors appointed Richard D. Kinder, William V.
Morgan, Ted A. Gardner and Fayez Sarofim to fill the four
vacancies on Kinder Morgan's Board of Directors.
3) On October 7, 1999, upon consummation of the Merger Agreement,
Kinder Morgan entered into Governance Agreements with each of
Richard D. Kinder and Morgan Associates, Inc., a Kansas
corporation. Also, upon consummation of the Merger, Kinder
Morgan entered into an Employment Agreement with Richard D.
Kinder.
Pursuant to Item 7 of that form, the financial statements of Kinder Morgan
Delaware and Kinder Morgan Energy Partners as of and for the year ended December
31, 1998 and the six-month period ended June 30, 1999 were incorporated by
reference to Kinder Morgan's Registration Statement on Form S-4 filed on August
23, 1999 (File No. 333-85747). In addition, the pro forma financial information
related to the acquisition was incorporated by reference to Kinder Morgan's
Registration Statement on Form S-4 filed on August 23, 1999 (File No.
333-85747). Also, the following were filed as exhibits:
Exhibit
Number Description
2.1 Agreement and Plan of Merger (incorporated by reference to
Annex A-1 of Kinder Morgan's Registration Statement on Form
S-4 filed on August 23, 1999 (File No. 333-85747))
2.2 First Amendment to the Agreement and Plan of Merger
(incorporated by reference to Annex A-2 of Kinder Morgan's
Registration Statement on Form S-4 filed on August 23, 1999
(File No. 333-85747))
10.1 Governance Agreement between Kinder Morgan and Richard D.
Kinder (incorporated by reference to Exhibit 99.C of the
Schedule 13D filed by Mr. Kinder on October 8, 1999).
10.2 Governance Agreement between Kinder Morgan and Morgan
Associates, Inc. (incorporated by reference to Exhibit 99.C of
the Schedule 13D filed by Morgan Associates, Inc. on October
8, 1999).
10.3 Employment Agreement between Kinder Morgan and Richard D.
Kinder (incorporated by reference to Exhibit 99.D of the
Schedule 13D filed by Mr. Kinder on October 8, 1999).
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Press Release of Kinder Morgan issued October 7, 1999.
86
<PAGE> 87
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
Current Report on Form 8-K dated November 18, 1999, was filed on November 18,
1999, pursuant to Item 7 of that form. Pursuant to Item 7 of that form, the
financial statements of Kinder Morgan Delaware as of and for the nine months
ended September 30, 1999 were included. In addition, the pro forma financial
statements of Kinder Morgan, giving effect to the acquisition by merger of
Kinder Morgan Delaware as of and for the nine months ended September 30, 1999
were included. Also, the following were filed as exhibits:
Exhibit
Number Description
2.1 Agreement and Plan of Merger (incorporated by reference to
Annex A-1 of Kinder Morgan's Registration Statement on Form
S-4 filed on August 23, 1999 (File No. 333-85747)).
2.2 First Amendment to the Agreement and Plan of Merger
(incorporated by reference to Annex A-2 of Kinder Morgan's
Registration Statement on Form S-4 filed on August 23, 1999
(File No. 333-85747)).
Current Report on Form 8-K dated November 29, 1999, was filed on November 29,
1999, pursuant to Item 4 and Item 7 of that form. Pursuant to Item 4 of that
form, Kinder Morgan disclosed that on November 22, 1999, Kinder Morgan replaced
Arthur Andersen LLP as the principal accountant for Kinder Morgan. Also on
November 22, 1999, Kinder Morgan engaged as its new principal accountant
PricewaterhouseCoopers LLP. Pursuant to Item 7 of that form, a letter dated
November 29, 1999, from Arthur Andersen LLP to the Securities and Exchange
Commission was filed as Exhibit 16.1.
Current Report on Form 8-K dated January 14, 2000, was filed on January 14,
2000, pursuant to Item 5 and Item 7 of that form. Pursuant to Item 5 of that
form, Kinder Morgan disclosed that Kinder Morgan had entered into a Contribution
Agreement dated as of December 30, 1999 (the "Agreement"), among Kinder Morgan
Energy Partners, Kinder Morgan G. P., Inc., a wholly owned subsidiary and the
sole general partner of Kinder Morgan Energy Partners ("KMGP"), Kinder Morgan,
NGPL, and K N Gas Gathering, Inc., a wholly owned subsidiary ("KNGG"). Pursuant
to the Agreement, Kinder Morgan Energy Partners agreed to issue common units
representing limited partnership units of Kinder Morgan Energy Partners to
Kinder Morgan, NGPL and KNGG and make a special distribution of $330 million to
Kinder Morgan in exchange for the contribution to Kinder Morgan Energy Partners
of:
1) all of Kinder Morgan's interest in KMIGT;
2) all of NGPL's interest in NGPL-Trailblazer, Inc., which owns a
one-third interest in Trailblazer Pipeline Company; and
3) all of KNGG's interest in Red Cedar Gathering Company.
Pursuant to Item 7 of that form, the Contribution Agreement was filed as Exhibit
99.1.
Current Report on Form 8-K dated February 4, 2000, was filed on February 4,
2000, pursuant to Items 2, 5 and 7 of that form. Pursuant to Item 2 of that
form, Kinder Morgan disclosed that on January 20, 2000, but effective as of
December 31, 1999, the contribution of assets contemplated by the Contribution
Agreement was completed, and that Kinder Morgan Energy Partners had taken the
following actions:
1) issued an aggregate of 9,810,000 common units representing
limited partnership units of Kinder Morgan Energy Partners to
Kinder Morgan, NGPL and KNGG;
2) made a payment in the amount of $ 220 million in cash to
Kinder Morgan; and
3) has the obligation to pay Kinder Morgan $ 130 million within
90 days of January 20, 2000.
Pursuant to Item 5 of that form, Kinder Morgan disclosed that on January 20,
2000, Kinder Morgan issued a press release announcing, among other things, the
completion of the transaction referenced in Item 2. Pursuant to Item 7 of that
form, pro forma financial statements of Kinder Morgan, giving effect to the
transaction referenced in Item 2 as of and for the nine months ended September
30, 1999 and for the 12 months ended December 31, 1998 were included. Also, the
Contribution Agreement (incorporated by reference from Exhibit
87
<PAGE> 88
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
99.1 to Kinder Morgan's Current Report on Form 8-K filed January 14, 2000) and
portions of the press release of Kinder Morgan dated January 20, 2000, were
filed as exhibits.
Current Report on Form 8-K dated February 23, 2000, was filed on February 23,
2000, pursuant to Item 5 and Item 7 of that form. Pursuant to Item 5 of that
form, Kinder Morgan disclosed that Kinder Morgan and certain of its subsidiaries
had entered into a definitive agreement dated as of February 8, 2000 with ONEOK,
Inc. The agreement provided for the sale to ONEOK, Inc. of (i) all of Kinder
Morgan's natural gas gathering and processing business in Oklahoma, Kansas and
West Texas, (ii) Kinder Morgan's marketing and trading business, and (iii)
certain of Kinder Morgan's storage and transmission pipelines in the
mid-continent region. According to the agreement, ONEOK will (i) pay
approximately $114 million plus an amount equal to net working capital at
closing, (ii) assume the operating lease associated with the Bushton, Kansas gas
processing plant and (iii) assume long-term capacity commitments on NGPL and on
KMIGT. Also, Kinder Morgan disclosed that on February 8, 2000, Kinder Morgan
issued a press release. Pursuant to Item 7 of that form, the definitive
agreement with ONEOK and the press release were filed as exhibits.
88
<PAGE> 89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KINDER MORGAN, INC.
(Registrant)
Date: March 27, 2000
By /s/ C. Park Shaper
------------------------------------------
C. Park Shaper
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
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/s/ Edward H. Austin, Jr. Director
- -----------------------------------
Edward H. Austin, Jr.
/s/ Charles W. Battey Director
- -----------------------------------
Charles W. Battey
/s/ Stewart A. Bliss Director
- -----------------------------------
Stewart A. Bliss
/s/ Ted A. Gardner Director
- -----------------------------------
Ted A. Gardner
/s/ William J. Hybl Director
- -----------------------------------
William J. Hybl
/s/ Richard D. Kinder Chairman, Chief Executive Officer
- ----------------------------------- and Director (Principal Executive Officer)
Richard D. Kinder
/s/ William V. Morgan Vice Chairman, President and
- ----------------------------------- Director
William V. Morgan
/s/ Edward Randall, III Director
- -----------------------------------
Edward Randall, III
/s/ Fayez Sarofim Director
- -----------------------------------
Fayez Sarofim
/s/ C. Park Shaper Vice President and Chief Financial Officer
- ----------------------------------- (Principal Financial and Accounting Officer)
C. Park Shaper
/s/ H. A. True, III Director
- -----------------------------------
H. A. True, III
</TABLE>
89
<PAGE> 90
Any reference made to K N Energy, Inc. in the exhibit index is a reference to
the former name of Kinder Morgan, Inc., a Kansas corporation and the Registrant,
and is made because the exhibit being listed and incorporated by reference was
originally filed before October 7, 1999, the date of the change in the
Registrant's name.
EXHIBIT INDEX
<TABLE>
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<S> <C>
List of Executive Compensation Plans and Arrangements................................84-86
Exhibit 2(a) - Agreement and Plan of Merger, dated as of July
8, 1999, by and among K N Energy, Inc., a Kansas
corporation, Rockies Merger Corp., a Delaware corporation,
and Kinder Morgan, Inc., a Delaware corporation (Annex A-1
of Registration Statement on Form S-4 (File No. 333-85747))*
Exhibit 2(b) - First Amendment to Agreement and Plan of
Merger, dated as of August 20, 1999, by and among K N
Energy, Inc., a Kansas corporation, Rockies Merger Corp., a
Delaware corporation, and Kinder Morgan, Inc., a Delaware
corporation (Annex A-2 of Registration Statement on Form S-4
(File No. 333-85747))*
Exhibit 2(c) - Contribution Agreement, dated as of December
30, 1999, by and among Kinder Morgan, Inc., Natural Gas
Pipeline Company of America, K N Gas Gathering, Inc., Kinder
Morgan G.P., Inc. and Kinder Morgan Energy Partners, L.P.
(Exhibit 99.1 to Current Report on Form 8-K filed on January
14, 2000)*
Exhibit 3(a) - Restated Articles of Incorporation of Kinder
Morgan, Inc. (Exhibit 3(a) to the K N Energy, Inc. Annual
Report on Form 10-K for the year ended December 31, 1994)*
Exhibit 3(b) - Certificate of Amendment to the Restated
Articles of Incorporation of Kinder Morgan, Inc. as filed on
October 7, 1999, with the Secretary of State of Kansas
(Exhibit 3.1 to Kinder Morgan, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999)*
Exhibit 3(c) - Bylaws of Kinder Morgan, Inc. as amended to
October 7, 1999 (Exhibit 3.2 to Kinder Morgan, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)*
Exhibit 4(a) - Indenture dated as of September 1, 1988,
between K N Energy, Inc. and Continental Illinois National
Bank and Trust Company of Chicago (Exhibit 1.2, Current
Report on Form 8-K Dated October 5, 1988)*
Exhibit 4(b) - First supplemental indenture dated as of
January 15, 1992, between K N Energy, Inc. and Continental
Illinois National Bank and Trust Company of Chicago (Exhibit
4.2, File No. 33-45091)*
Exhibit 4(c) - Second supplemental indenture dated as of
December 15, 1992, between K N Energy, Inc. and Continental
Bank, National Association (Exhibit 1.2 Current Report on
Form 8-K dated December 15, 1992)*
</TABLE>
<PAGE> 91
EXHIBIT INDEX (continued)
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<S> <C>
Exhibit 4(d) - Indenture dated as of November 20, 1993,
between K N Energy, Inc. and Continental Bank, National
Association (Exhibit 4.1, File No. 33-51115)* Note - Copies
of instruments relative to long-term debt in authorized
amounts that do not exceed 10 percent of the consolidated
total assets of Kinder Morgan and its subsidiaries have not
been furnished. Kinder Morgan will furnish such instruments
to the Commission upon request.
Exhibit 4(e) - $600,000,000 364-Day Credit Agreement among K N
Energy, Inc., certain banks listed therein and Morgan
Guaranty Trust Company of New York as Administrative Agent
(Exhibit 4(e) to the Annual Report on Form 10-K for the year
ended December 31, 1997)*
Exhibit 4(f) - $400,000,000 Five-Year Credit Agreement among K
N Energy, Inc., certain banks listed therein and Morgan
Guaranty Trust Company of New York as Administrative Agent
(Exhibit 4(f) to the Annual Report on Form 10-K for the year
ended December 31, 1997)*
Exhibit 4(g) - $2,100,000,000 364-Day Credit Agreement among K
N Energy, Inc., certain banks listed therein and Morgan
Guaranty Trust Company of New York as Administrative Agent
(Exhibit 4(g) to the Annual Report on Form 10-K for the year
ended December 31, 1997)*
Exhibit 4(h) - $1,394,846,122 Reimbursement Agreement among K
N Energy, Inc., certain banks listed therein and Morgan
Guaranty Trust Company of New York as Administrative Agent
(Exhibit 4(e) to the Annual Report on Form 10-K for the year
ended December 31, 1997)*
Exhibit 4(i) - Purchase Contract Agreement dated as of
November 25, 1998, between K N Energy, Inc. and U.S. Bank
Trust National Association, as Purchase Contract Agent for
the PEPS Units (Exhibit 4.4 to the Current Report on Form
8-K Dated November 24, 1998)*
Exhibit 4(j) - Amendment No. 1 to Credit Agreements dated as
of November 6, 1998, among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company of New York
as Administrative Agent (Exhibit 4(j) to the Annual Report
on Form 10-K for the year ended December 31, 1998)*
Exhibit 4(k) - $600,000,000 364-Day Credit Agreement dated as
of January 8, 1999, among K N Energy, Inc., certain banks
listed therein and Morgan Guaranty Trust Company of New York
as Administrative Agent (Exhibit 4(k) to the Annual Report
on Form 10-K for the year ended December 31, 1998)*
Exhibit 4(l) - Amendment No. 2 to the $400,000,000 Five-Year
Credit Agreement, dated as of January 8, 1999, among K N
Energy, Inc., certain banks listed therein and Morgan
Guaranty Trust Company of New York as Administrative Agent
(Exhibit 4(l) to the Annual Report on Form 10-K for the year
ended December 31, 1998)*
Exhibit 4(m) - $550,000,000 364-day Credit Agreement, dated as
of November 18, 1999, among Kinder Morgan, Inc., certain
banks listed therein and Bank of America, N.A., as
Administrative Agent (Attached hereto as Exhibit 4(m))**
Exhibit 4(n) - Rights Agreement between K N Energy, Inc. and
the Bank of New York, as Rights Agent, dated as of August
21, 1995 (Exhibit 1 on Form 8-A dated August 21, 1995)*
Exhibit 4(o) - Amendment No. 1 to Rights Agreement between K
N Energy, Inc. and the Bank of New York, as Rights Agent,
dated as of September 8, 1998 (Exhibit 10(cc) to the Annual
Report on Form 10-K for the year ended December 31, 1998)*
Exhibit 4(p) - Amendment No. 2 to Rights Agreement of Kinder
Morgan, Inc. dated July 8, 1999, between Kinder Morgan, Inc.
and First Chicago Trust Company of New York, as
successor-in-interest to the Bank of New York, as Rights
Agent (Exhibit 4.1 to Kinder Morgan, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999)*
Exhibit 10(a) - Form of Key Employee Severance Agreement
(Exhibit 10.2, Amendment No. 1 on Form 8 dated September 2,
1998 to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(b) - 1982 Stock Option Plan for Non-employee
Directors of K N Energy, Inc. with Form of Grant Certificate
(Exhibit 10.3, Amendment No. 1 on Form 8 dated September 2,
1988 to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(c) - 1982 Incentive Stock Option Plan for key
employees of K N Energy, Inc. (Exhibit 10.4, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
</TABLE>
<PAGE> 92
EXHIBIT INDEX (continued)
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Exhibit 10(d) - 1986 Incentive Stock Option Plan for key
employees of K N Energy, Inc. (Exhibit 10.5, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Exhibit 10(e) - 1988 Incentive Stock Option Plan for key
employees of K N Energy, Inc. (Exhibit 10.6, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Exhibit 10(f) - Form of Grant Certificate for Employee Stock
Option Plans (Exhibit 10.7, Amendment No. 1 on Form 8 dated
September 2, 1988 to the Annual Report on Form 10-K for the
year ended December 31, 1987)*
Exhibit 10(g) - Directors' Deferred Compensation Plan
Agreement (Exhibit 10.8, Amendment No. 1 on Form 8 dated
September 2, 1988 to the Annual Report on Form 10-K for the
year ended December 31, 1987)*
Exhibit 10(h) - 1987 Directors' Deferred Fee Plan As Amended
and Form of Participation Agreement regarding the Plan
(Exhibit 10(h) to the Annual Report on Form 10-K for the
year ended December 31, 1995)*
Exhibit 10(i) - 1992 Stock Option Plan for Nonemployee
Directors of K N Energy, Inc. with Form of Grant Certificate
(Exhibit 4.1, File No. 33-46999)*
Exhibit 10(j) - 1994 K N Energy, Inc. Long-term Incentive Plan
(Attachment A to the K N Energy, Inc. 1994 Proxy Statement
on Schedule 14-A)*
Exhibit 10(k) - K N Energy, Inc. 1996 Executive Incentive Plan
(Exhibit 10(l) to the Annual Report on Form 10-K for the
year ended December 31, 1995)*
Exhibit 10(l) - K N Energy, Inc. Nonqualified Deferred
Compensation Plan (Exhibit 10(m) to the Annual Report on
Form 10-K for the year ended December 31, 1994)*
Exhibit 10(m) - K N Energy, Inc. Nonqualified Retirement
Income Restoration Plan (Exhibit 10(n) to the Annual Report
on Form 10-K for the year ended December 31, 1994)*
Exhibit 10(n) - K N Energy, Inc. Nonqualified Profit Sharing
Restoration Plan (Exhibit 10(o) to the Annual Report on Form
10-K for the year ended December 31, 1994)* Exhibit 10(o) -
Employment Agreement dated December 14, 1995 between K N
Energy, Inc. and Morton C. Aaronson (Exhibit 10(p) to the
Annual Report on Form 10-K for the year ended December 31,
1995)*
Exhibit 10(o) - Letter Agreement dated December 4, 1995
between K N Energy, Inc. and Charles W. Battey (Exhibit
10(q) to the Annual Report on Form 10-K for the year ended
December 31, 1995)*
Exhibit 10(p) - Amended and Restated Basket Agreement dated as
of June 30, 1990, by and between American Pipeline Company
("APC"), Cabot and Cabot Transmission Corporation (Exhibit
10.5(a) to the Annual Report on Form 10-K for American Oil
and Gas Corporation ("AOG") for the year ended December 31,
1993)*
Exhibit 10(q) - First Amendment to Amended and Restated
Omnibus Acquisition Agreement and Amended and Restated
Basket Agreement dated as of March 31, 1992, by and among
AOG, APC, Cabot and Cabot Transmission (Exhibit 10.5(d) to
the Annual Report on Form 10-K for AOG for the year ended
December 31, 1993)*
</TABLE>
<PAGE> 93
EXHIBIT INDEX (continued)
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Exhibit 10(r) - K N Energy, Inc. Performance Incentive Plan
(Exhibit 10(u) to the Annual Report on Form 10-K for the
year ended December 31, 1995)*
Exhibit 10(s) - Form of Change of Control Severance Agreement
(Exhibit 10(u) to the Annual Report on Form 10-K for the
year ended December 31, 1996)*
Exhibit 10(t) - Form of Incentive Stock Option Agreement
(Exhibit 10(v) to the Annual Report on Form 10-K for the
year ended December 31, 1996)*
Exhibit 10(u) - Form of Restricted Stock Agreement (Exhibit
10(w) to the Annual Report on Form 10-K for the year ended
December 31, 1996)*
Exhibit 10(v) - Employment Agreement dated March 21, 1996
between K N Energy, Inc. and Murray R. Smith (Exhibit 10(x)
to the Annual Report on Form 10-K for the year ended
December 31, 1996)*
Exhibit 10(w) - Intrastate Pipeline System Lease, dated
December 31, 1996, between MidCon Texas Pipeline, L.P. and
MidCon Texas Pipeline Operator, Inc. (Exhibit 10(y) to the
Annual Report on Form 10-K for the year ended December 31,
1997)*
Exhibit 10(x) - Amendment Number One To Intrastate Pipeline
System Lease, dated January 31, 1998, between MidCon Texas
Pipeline, L.P. and MidCon Texas Pipeline Operator, Inc.
(Exhibit 10(z) to the Annual Report on Form 10-K for the
year ended December 31, 1997)*
Exhibit 10(y) - Directors and Executives Deferred
Compensation Plan effective January 1, 1998 for executive
officers and directors of K N Energy, Inc. (Exhibit 10(aa)
to the Annual Report on Form 10-K for the year ended
December 31, 1998)*
Exhibit 10(z) - Management Deferred Compensation Plan
effective January 1, 1998 for senior management of K N
Energy, Inc. (Exhibit 10(bb) to the Annual Report on Form
10-K for the year ended December 31, 1998)*
Exhibit 10(aa) - Kinder Morgan, Inc. Amended and Restated 1999
Stock Option Plan (Attached hereto as Exhibit 10(aa))**
Exhibit 10(bb) - Stock Purchase Agreement, dated December 18,
1997, between K N Energy, Inc. and Occidental Petroleum
Corporation (Exhibit 2.1, File No. 333-44421)*
Exhibit 10(cc) - Amendment No. 1 to Stock Purchase Agreement,
dated January 30,1998, between K N Energy, Inc. and
Occidental Petroleum Corporation (Exhibit 2(b) to the Annual
Report on Form 10-K for the year ended December 31, 1997)*
Exhibit 10(dd) - Governance Agreement dated October 7, 1999,
between the Kinder Morgan, Inc. and Richard D. Kinder
(incorporated by reference to Exhibit 99.C of the Schedule
13D filed by Mr. Kinder on October 8, 1999)*
Exhibit 10(ee) - Governance Agreement dated October 7, 1999,
between the Kinder Morgan, Inc. and Morgan Associates, Inc.
(incorporated by reference to Exhibit 99.C of the Schedule
13D filed by Morgan Associates, Inc. and William V. Morgan
on October 8, 1999)*
Exhibit 10(ff) - Employment Agreement dated October 7, 1999,
between the Company and Richard D. Kinder (incorporated by
reference to Exhibit 99.D of the Schedule 13D filed by Mr.
Kinder on October 8, 1999)*
Exhibit 10(gg) - Receivables Purchase Agreement dated
September 28, 1999, among KN Receivables Corporation, as
Seller, Falcon Asset Securitization Corporation,
International Securitization Corporation and The Financial
Institutions Party Hereto, as Investors and Bank One, NA, as
Agent (Exhibit 10.4 to Kinder Morgan, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999)*
Exhibit 10(hh) - Receivables Sale Agreement dated September
28, 1999, between K N Energy, Inc., as the Originator, and
other Originators specified herein and KN Receivables
Corporation, as Buyer (Exhibit 10.5 to Kinder Morgan, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)*
Exhibit 13 - 1999 Annual Report to Shareholders***...................................95
Exhibit 21 - Subsidiaries of the Registrant (attached hereto)
Exhibit 23.1 - Consent of Independent Accountants (attached hereto)
Exhibit 23.2 - Consent of Independent Public Accountants (attached hereto)
Exhibit 27 - Financial Data Schedule****
</TABLE>
* Incorporated herein by reference.
** Included in SEC and NYSE copies only.
*** Such report is being furnished for the information of the Securities
and Exchange Commission only and is not to be deemed filed as a part of
this annual report on Form 10-K.
**** Included in SEC copy only.
<PAGE> 1
EXHIBIT 4(m)
$550,000,000
364-DAY CREDIT AGREEMENT
dated as of
November 18, 1999
among
KINDER MORGAN, INC.
The Banks Listed Herein,
and
BANK OF AMERICA, N.A.,
as Administrative Agent
------------------
THE CHASE MANHATTAN BANK,
Syndication Agent
FIRST UNION NATIONAL BANK,
Documentation Agent
BANK ONE, N.A.,
Co-Documentation Agent
BANC OF AMERICA SECURITIES LLC,
Lead Arranger and Sole Book Manager
CHASE SECURITIES INC.
FIRST UNION SECURITIES, INC.
Co-Arrangers
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS.....................................................................................1
SECTION 1.01. Definitions...............................................................................1
SECTION 1.02. Accounting Terms and Determinations......................................................10
SECTION 1.03. Types of Borrowings......................................................................11
ARTICLE 2 THE CREDITS....................................................................................11
SECTION 2.01. Commitments to Lend; Term Loans..........................................................11
SECTION 2.02. Notice of Committed Borrowing............................................................11
SECTION 2.03. Money Market Borrowings..................................................................12
SECTION 2.04. Notice to Banks; Funding of Loans........................................................15
SECTION 2.05. Notes....................................................................................15
SECTION 2.06. Maturity of Loans........................................................................16
SECTION 2.07. Interest Rates...........................................................................16
SECTION 2.08. Facility Fees............................................................................18
SECTION 2.09. Optional Termination or Reduction of Commitments.........................................19
SECTION 2.10. Method of Electing Interest Rates........................................................19
SECTION 2.11. Optional Prepayments.....................................................................20
SECTION 2.12. General Provisions as to Payments........................................................20
SECTION 2.13. Funding Losses...........................................................................21
SECTION 2.14. Computation of Interest and Fees.........................................................21
SECTION 2.15. Regulation D Compensation................................................................21
ARTICLE 3 CONDITIONS.....................................................................................22
SECTION 3.01. Effectiveness............................................................................22
SECTION 3.02. Borrowings...............................................................................22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................................................................23
SECTION 4.01. Corporate Existence and Power............................................................23
SECTION 4.02. Corporate and Governmental Authorization; No Contravention...............................23
SECTION 4.03. Binding Effect...........................................................................23
SECTION 4.04. Financial Information....................................................................23
SECTION 4.05. Litigation...............................................................................24
SECTION 4.06. Compliance with ERISA....................................................................24
SECTION 4.07. Environmental Matters....................................................................24
SECTION 4.08. Taxes....................................................................................25
SECTION 4.09. Subsidiaries.............................................................................25
SECTION 4.10. Not an Investment Company................................................................25
SECTION 4.11. Full Disclosure..........................................................................25
SECTION 4.12. Year 2000 Readiness......................................................................25
ARTICLE 5 COVENANTS......................................................................................25
SECTION 5.01. Information..............................................................................25
SECTION 5.02. Payment of Obligations...................................................................27
SECTION 5.03. Maintenance of Property; Insurance.......................................................27
SECTION 5.04. Conduct of Business and Maintenance of Existence.........................................28
SECTION 5.05. Compliance with Laws.....................................................................28
SECTION 5.06. Inspection of Property, Books and Records................................................28
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.07. Debt.....................................................................................28
SECTION 5.08. Minimum Net Worth........................................................................29
SECTION 5.09. Negative Pledge..........................................................................29
SECTION 5.10. Consolidations, Mergers and Sales of Assets..............................................29
SECTION 5.11. Use of Proceeds..........................................................................30
SECTION 5.12. Transactions with Affiliates.............................................................30
ARTICLE 6 DEFAULTS.......................................................................................30
SECTION 6.01. Events of Default........................................................................30
SECTION 6.02. Notice of Default........................................................................32
ARTICLE 7 THE AGENTS.....................................................................................32
SECTION 7.01. Appointment and Authorization............................................................32
SECTION 7.02. Administrative Agent and Affiliates......................................................32
SECTION 7.03. Action by Administrative Agent...........................................................32
SECTION 7.04. Consultation with Experts................................................................32
SECTION 7.05. Liability of Administrative Agent........................................................33
SECTION 7.06. Indemnification..........................................................................33
SECTION 7.07. Credit Decision..........................................................................33
SECTION 7.08. Successor Administrative Agent...........................................................33
SECTION 7.09. Agents' Fees.............................................................................34
SECTION 7.10. Other Agents.............................................................................34
ARTICLE 8 CHANGE IN CIRCUMSTANCES........................................................................34
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.................................34
SECTION 8.02. Illegality...............................................................................34
SECTION 8.03. Increased Cost and Reduced Return........................................................35
SECTION 8.04. Taxes....................................................................................36
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans................................37
SECTION 8.06. Substitution of Bank.....................................................................37
ARTICLE 9 MISCELLANEOUS..................................................................................38
SECTION 9.01. Notices..................................................................................38
SECTION 9.02. No Waivers...............................................................................38
SECTION 9.03. Expenses; Indemnification................................................................38
SECTION 9.04. Sharing of Set-offs......................................................................38
SECTION 9.05. Amendments and Waivers...................................................................39
SECTION 9.06. Successors and Assigns...................................................................39
SECTION 9.07. Designated Lender........................................................................40
SECTION 9.08. Collateral...............................................................................41
SECTION 9.09. Maximum Interest Rate....................................................................41
SECTION 9.10. Governing Law; Submission to Jurisdiction................................................42
SECTION 9.11. Counterparts; Integration................................................................42
SECTION 9.12. WAIVER OF JURY TRIAL.....................................................................42
</TABLE>
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<PAGE> 4
PRICING SCHEDULE
EXHIBIT A - NOTE
EXHIBIT B - MONEY MARKET QUOTE REQUEST
EXHIBIT C - INVITATION FOR MONEY MARKET QUOTES
EXHIBIT D - MONEY MARKET QUOTE
EXHIBIT E- 1 - OPINION OF KANSAS COUNSEL FOR THE BORROWER
EXHIBIT E-2 - OPINION OF COUNSEL TO THE BORROWER
EXHIBIT F - OPINION OF HAYNES AND BOONE, LLP, SPECIAL COUNSEL FOR THE
ADMINISTRATIVE AGENT
EXHIBIT G - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT H - DESIGNATION AGREEMENT
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<PAGE> 5
364-DAY CREDIT AGREEMENT
AGREEMENT dated as of November 18, 1999 among KINDER MORGAN, INC., the
BANKS listed on the signature pages hereof and BANK OF AMERICA, N.A., as
Administrative Agent.
The parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"ADJUSTED CD RATE" has the meaning set forth in Section 2.07(b).
"ADMINISTRATIVE AGENT" means Bank of America, N.A. in its capacity as
administrative agent for the Banks under this Agreement, and its successors in
such capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"AFFILIATE" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "CONTROLLING PERSON") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"CONTROL" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"AGENT" means each of the Administrative Agent, the Syndication Agent,
the Documentation Agent and the Co-Documentation Agent, and "Agents" means any
combination of them, as the context may require.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"ASSESSMENT RATE" has the meaning set forth in Section 2.07(b).
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"BANK" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
<PAGE> 6
"BASE RATE LOAN" means a Committed Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election, or pursuant to Article 8.
"BASE RATE MARGIN" has the meaning set forth in Section 2.07(a).
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"BORROWER" means Kinder Morgan, Inc., a Kansas corporation, and its
successors.
"BORROWER'S 1998 FORM 10-K" means the Borrower's annual report on Form
10-K for 1998, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934.
"BORROWER'S LATEST FORM 10-Q" means the Borrower's quarterly report on
Form 10-Q for the quarter ended September 30, 1999 as filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
"BORROWING" has the meaning set forth in Section 1.03.
"CD BASE RATE" has the meaning set forth in Section 2.07(b).
"CD LOAN" means a Committed Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Committed Borrowing.
"CD MARGIN" has the meaning set forth in Section 2.07(b).
"CD REFERENCE BANKS" means Bank of America, N.A., The Chase Manhattan
Bank, First Union National Bank and Bank One, N.A..
"CO-DOCUMENTATION AGENT" means Bank One, N.A. in its capacity as a
co-documentation agent in respect of this Agreement.
"COMMITMENT" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on Schedule 1.01, as such amount may be reduced
from time to time pursuant to Sections 2.01(b) and 2.09.
"COMMITTED LOAN" means a revolving loan or a term loan made by a Bank
pursuant to Section 2.01, provided that if any such Loan or Loans are combined
or subdivided pursuant to a Notice of Interest Rate Election, the term
"Committed Loan" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.
"CONSOLIDATED ASSETS" means the total amount of assets appearing on the
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
prepared in accordance with generally accepted accounting principles as of the
date of the most recent regularly prepared consolidated financial statements
prior to the taking of any action for the purposes of which the determination is
being made.
"CONSOLIDATED DEBT" of any Person means at any date the sum (without
duplication) of (i) the Debt of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis as of such date plus (ii)
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<PAGE> 7
the excess (if any) of the Trust Preferred Securities of such Person over 10% of
the Consolidated Total Capitalization of such Person at such date.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
for such period plus, to the extent deducted in determining Consolidated Net
Income for such period, the aggregate amount of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation and amortization
expense.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
"CONSOLIDATED SUBSIDIARY" of any Person means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Borrower and its Consolidated Subsidiaries before extraordinary items,
determined on a consolidated basis for such period.
"CONSOLIDATED NET WORTH" of any Person means at any date the sum
(without duplication) of (i) the consolidated stockholders' equity of such
Person and its Consolidated Subsidiaries, determined as of such date plus (ii)
the Mandatorily Convertible Preferred Stock of such Person plus (iii) the Trust
Preferred Securities of such Person; provided that the amount of Trust Preferred
Securities added pursuant to this clause (iii) shall not exceed 10% of
Consolidated Total Capitalization of such Person at such date.
"CONSOLIDATED TOTAL CAPITALIZATION" of any Person means at any date the
sum of Consolidated Debt of such Person and Consolidated Net Worth of such
Person, each determined as of such date.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable or deferred employee and director
compensation arising in the ordinary course of business, (iv) all obligations of
such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, (v) all non-contingent obligations (and, for
purposes of Section 5.09 and the definitions of Material Debt and Material
Financial Obligations, all contingent obligations) of such Person to reimburse
any bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vi) all Debt secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person, and (vii)
all Debt of others Guaranteed by such Person.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DESIGNATED LENDER" means with respect to each Designating Bank, each
Eligible Designee designated by such Designating Bank pursuant to Section
9.07(a).
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<PAGE> 8
"DESIGNATING BANK" means, with respect to each Designated Lender, the
Bank that designated such Designated Lender pursuant to Section 9.07(a).
"DOCUMENTATION AGENT" means First Union National Bank, in its capacity
as a documentation agent in respect of this Agreement.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent; provided that any Bank may
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"DOMESTIC LOANS" means CD Loans or Base Rate Loans or both.
"DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section
2.07(b).
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 3.01.
"ELIGIBLE DESIGNEE" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S & P or P-1 or
the equivalent thereof by Moody's.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
4
<PAGE> 9
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Administrative Agent.
"EURO-DOLLAR LOAN" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.07(c).
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of
Bank of America, N.A., The Chase Manhattan Bank, First Union National Bank and
Bank One, N.A..
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING AGREEMENT" means the Amended and Restated 364-Day Credit
Agreement dated as of January 8, 1999, as amended, among the Borrower, the banks
party thereto and Morgan Guaranty Trust Company of New York, as administrative
agent for such banks.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Bank of America, N.A. on such day on
such transactions as determined by the Administrative Agent.
"FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"GROUP OF LOANS" means at any time a group of Loans consisting of (i)
all Committed Loans which are Base Rate Loans at such time or (ii) all Committed
Loans which are Euro-Dollar Loans or CD Loans having the same Interest Period at
such time.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee
5
<PAGE> 10
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "GUARANTEE" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"INDEMNITEE" has the meaning set forth in Section 9.03(b).
"INTEREST COVERAGE RATIO" means, at any date, the ratio of Consolidated
EBITDA to Consolidated Interest Expense for the period of four consecutive
fiscal quarters most recently ended on or before such date.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of the Borrowing specified in the
applicable Notice of Borrowing or the date specified in the applicable Notice of
Interest Rate Election and ending one, two, three or six months thereafter as
the Borrower may elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date;
(2) with respect to each CD Borrowing, the period commencing on the
date of Borrowing specified in the applicable Notice of Borrowing or the date
specified in the applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter as the Borrower may elect in the applicable notice;
provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date;
(3) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter (but not more than nine months) as the Borrower may elect in
accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Euro-Dollar Business Day;
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<PAGE> 11
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of
a calendar month; and
(c) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date;
(4) with respect to each Money Market Absolute Rate Borrowing, the
period commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than seven days nor more than 360 days) as the Borrower
may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period beginning prior to the Termination
Date which would otherwise end after the Termination Date shall end on the
Termination Date, and any Interest Period beginning on or after the Termination
Date which would otherwise end after the Maturity Date shall end on the Maturity
Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"INVESTMENT" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"LIBOR AUCTION" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.03.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"LOAN" means a Domestic Loan or a Euro-Dollar Loan or a Money Market
Loan and "LOANS" means Domestic Loans or Euro-Dollar Loans or Money Market Loans
or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.07(c).
"MANDATORILY CONVERTIBLE PREFERRED STOCK" means, with respect to the
Borrower, preferred securities of a Subsidiary which are (i) mandatorily
convertible into common equity securities of the Borrower within approximately
three years of their date of issuance, (ii) issued in conjunction with, and
pledged to secure, an obligation to purchase common equity securities of the
Borrower within approximately three years for an equal amount or (iii) otherwise
structured in a manner satisfactory to the Administrative Agent so as to ensure
the issuance of incremental common equity securities of the Borrower in a
substantially equal amount within approximately three years.
"MATERIAL DEBT" means Debt (other than (i) the Notes and (ii) Debt
owing to the Borrower or a Subsidiary) of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $75,000,000.
7
<PAGE> 12
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of
Debt (other than (i) the Notes and (ii) Debt owing to the Borrower or a
Subsidiary) and/or payment obligations in respect of Derivatives Obligations of
the Borrower and/or one or more of its Subsidiaries, arising in one or more
related or unrelated transactions, exceeding in the aggregate $125,000,000.
"MATERIAL SUBSIDIARY" means any Subsidiary the consolidated assets of
which constitute 10% or more of Consolidated Assets.
"MATURITY DATE" means the day that is one year after the Termination
Date.
"MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section
2.03(d).
"MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Administrative Agent; provided that any Bank may from time to time by
notice to the Borrower and the Administrative Agent designate separate Money
Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and
its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to
a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01 (a)).
"MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"MONEY MARKET MARGIN" has the meaning set forth in Section 2.03(d).
"MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NOTES" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section
2.03(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.10.
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<PAGE> 13
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PRICING SCHEDULE" means the Schedule attached hereto identified as
such.
"PRIME RATE" means the rate of interest publicly announced by Bank of
America, N.A. in New York City from time to time as its Prime Rate. The Prime
Rate is based upon various factors including Bank of America, N.A.'s costs and
desired return, general economic factors and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate. Any change in the Prime Rate announced by Bank of America,
N.A. shall take effect at the opening of business on the day specified in the
public announcement of such change.
"PURCHASE AGREEMENT" means the Purchase and Sale Agreement dated as of
January 28, 1994, among K N Gas Supply Services, Inc., the Borrower, Bank of
America National Trust and Savings Association, as the initial Purchaser (as
defined therein), and Bank of America National Trust and Savings Association, as
agent for the Purchasers.
"REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "REFERENCE BANK" means any one
of such Reference Banks.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REQUIRED BANKS" means at any time Banks having at least 66-2/3 % of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66-2/3% of the aggregate unpaid
principal amount of the Loans.
"REVOLVING CREDIT PERIOD" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "SUBSIDIARY" means a Subsidiary of the Borrower.
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<PAGE> 14
"TERM LOAN PHASE" means the period beginning on the Termination Date
and ending on the Maturity Date (or, if the maturity of the Loans has been
accelerated to an earlier date, then ending on such earlier date).
"TERMINATION DATE" means November 16, 2000, or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"TRUST PREFERRED SECURITIES" means, with respect to the Borrower,
mandatorily redeemable capital trust securities of trusts which are Subsidiaries
and the subordinated debentures of the Borrower in which the proceeds of the
issuance of such capital trust securities are invested, including, without
limitation, $275,000,000 of such securities outstanding at the Effective Date.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" of any Person means any
Consolidated Subsidiary all of the shares of capital stock or other ownership
interests of which (except directors' qualifying shares) are at the time
directly or indirectly owned by such Person.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks; provided that, if the Borrower notifies the Administrative Agent
that the Borrower wishes to amend any covenant in Article 5 to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Administrative Agent notifies the Borrower
that the Required Banks wish to amend Article 5 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Banks.
SECTION 1.03. Types of Borrowings. The term "BORROWING" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on a single date and, in the case of Fixed Rate Loans, for a single
Interest Period. Borrowings are classified for purposes of this Agreement either
by reference to the pricing of Loans comprising such Borrowing (e.g., a
"EURO-DOLLAR BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "COMMITTED BORROWING" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "MONEY
MARKET BORROWING" is a Borrowing under Section 2.03 in which the Bank
participants are determined on the basis of their bids in accordance therewith).
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ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend; Term Loans. (a) During the Revolving
Credit Period each Bank severally agrees, on the terms and conditions set forth
in this Agreement, to make loans to the Borrower pursuant to this Section from
time to time in amounts such that the aggregate principal amount of Committed
Loans by such Bank at any one time outstanding shall not exceed the amount of
its Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that
any such Borrowing may be in the aggregate amount available in accordance with
Section 3.02(c)) and shall be made from the several Banks ratably in proportion
to their respective Commitments. Within the foregoing limits, the Borrower may
borrow under this Section, repay, or to the extent permitted by Section 2.11,
prepay Loans and reborrow at any time during the Revolving Credit Period under
this Section.
(b) The Commitments shall terminate at the close of business
on the Termination Date, and amounts repaid on or after the Termination Date may
not be reborrowed.
(c) All Committed Loans which are outstanding on the
Termination Date shall automatically become term loans, due and payable on the
Maturity Date.
SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give
the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later
than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z)
the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day
in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In
addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as
set forth in this Section, request the Banks during the Revolving Credit Period
to make offers to make Money Market Loans to the Borrower. The Banks may, but
shall have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept any such offers in the manner set forth in this
Section.
(b) Money Market Quote Request. When the Borrower wishes to
request offers to make Money Market Loans under this Section, it shall transmit
to the Administrative Agent by telex or facsimile transmission a Money Market
Quote Request substantially in the form of Exhibit B hereto so as to be received
not later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar
Business Day prior to the date of Borrowing proposed therein, in the case of a
LIBOR Auction or (y) the Domestic Business Day next preceding the date of
Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall
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<PAGE> 16
have notified to the Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which
shall be $5,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to
set forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more
than one Interest Period in a single Money Market Quote Request. No Money Market
Quote Request shall be given within five Euro-Dollar Business Days (or such
other number of days as the Borrower and the Administrative Agent may agree) of
any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt
of a Money Market Quote Request, the Administrative Agent shall send to the
Banks by telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each
Bank may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Administrative Agent by telex or facsimile transmission at
its offices specified in or pursuant to Section 9.01 not later than (x) 2:00
P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New
York City time) on the proposed date of Borrowing, in the case of an Absolute
Rate Auction (or, in either case, such other time or date as the Borrower and
the Administrative Agent shall have mutually agreed and shall have notified to
the Banks not later than the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for which such change is to be
effective); provided that Money Market Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and
6, any Money Market Quote so made shall be irrevocable except with the written
consent of the Administrative Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit D hereto and shall in any case
specify:
(A) the proposed date of Borrowing,
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<PAGE> 17
(B) the principal amount of the Money Market
Loan for which each such offer is being made, which principal
amount (w) may be greater than or less than the Commitment of
the quoting Bank, (x) must be $5,000,000 or a larger multiple
of $1,000,000, (y) may not exceed the principal amount of
Money Market Loans for which offers were requested and (z) may
be subject to an aggregate limitation as to the principal
amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the
margin above or below the applicable London Interbank Offered
Rate (the "MONEY MARKET MARGIN") offered for each such Money
Market Loan, expressed as a percentage (specified to the
nearest 1/10,000th of 1%) to be added to or subtracted from
such base rate,
(D) in the case of an Absolute Rate Auction,
the rate of interest per annum (specified to the nearest
1/10,000th of 1%) (the "MONEY MARKET ABSOLUTE RATE") offered
for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the
quoting Bank with respect to each Interest Period specified in the related
Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if
it:
(A) is not substantially in conformity with
Exhibit D hereto or does not specify all of the information
required by subsection (d)(ii);
(B) contains qualifying, conditional or
similar language;
(C) proposes terms other than or in addition
to those set forth in the applicable Invitation for Money
Market Quotes; or
(D) arrives after the time set forth in
subsection (d)(i).
(e) Notice to Borrower. The Administrative Agent shall
promptly notify the Borrower of the terms (x) of any Money Market Quote
submitted by a Bank that is in accordance with subsection (d) and (y) of any
Money Market Quote that amends, modifies or is otherwise inconsistent with a
previous Money Market Quote submitted by such Bank with respect to the same
Money Market Quote Request. Any such subsequent Money Market Quote shall be
disregarded by the Administrative Agent unless such subsequent Money Market
Quote is submitted solely to correct a manifest error in such former Money
Market Quote. The Administrative Agent's notice to the Borrower shall specify
(A) the aggregate principal amount of Money Market Loans for which offers have
been received for each Interest Period specified in the related Money Market
Quote Request, (B) the respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case may be, so offered and (C) if
applicable, limitations on the aggregate principal amount of Money Market Loans
for which offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30
A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR
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<PAGE> 18
Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Money Market Quote Request for the first
LIBOR Auction or Absolute Rate Auction for which such change is to be
effective), the Borrower shall notify the Administrative Agent of its acceptance
or non-acceptance of the offers so notified to it pursuant to subsection (e). In
the case of acceptance, such notice (a "NOTICE OF MONEY MARKET BORROWING") shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The Borrower may accept any Money Market Quote in whole or in
part; provided that:
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request,
(ii) the principal amount of each Money Market
Borrowing must be $5,000,000 or a larger multiple of $ 1,000,000,
(iii) acceptance of offers may only be made on the
basis of ascending Money Market Margins or Money Market Absolute Rates,
as the case may be, and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to comply with
the requirements of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by
two or more Banks with the same Money Market Margins or Money Market Absolute
Rates, as the case may be, for a greater aggregate principal amount than the
amount in respect of which such offers are accepted for the related Interest
Period, the principal amount of Money Market Loans in respect of which such
offers are accepted shall be allocated by the Administrative Agent among such
Banks as nearly as possible (in multiples of $1,000,000, as the Administrative
Agent may deem appropriate) in proportion to the aggregate principal amounts of
such offers. Determinations by the Administrative Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date
of each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. Unless the
Administrative Agent determines that any applicable condition specified in
Article 3 has not been satisfied, the Administrative Agent will make the funds
so received from the Banks available to the Borrower at the Administrative
Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which
the Borrower is to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Bank to the
Administrative Agent as provided in subsection (b) of this Section, or remitted
by the Borrower to the Administrative Agent as provided in Section 2.12, as the
case may be.
(d) Unless the Administrative Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
available to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
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the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.04 and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount Administrative Agent, at (i) in the case of the Borrower, a rate per
annum equal to the higher of the Federal Funds Rate and the interest rate
applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Bank's
Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a
single Note payable to the order of such Bank for the account of its Applicable
Lending Office in an amount equal to the aggregate unpaid principal amount of
such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the
Administrative Agent, request that its Loans of a particular type be evidenced
by a separate Note in an amount equal to the aggregate unpaid principal amount
of such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant type. Each reference in this Agreement to the
"NOTE" of such Bank shall be deemed to refer to and include any or all of such
Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.01(b), the Administrative Agent shall forward such Note to such Bank. Each
Bank may record the date, amount, type and maturity of each Loan made by it and
the date and amount of each payment of principal made by the Borrower with
respect thereto, and may, if such Bank so elects in connection with any transfer
or enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that the failure of any Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing
made pursuant to Section 2.01 shall mature, and the principal amount thereof
shall be due and payable, together with accrued interest thereon, on the
Maturity Date. Each Loan included in any Borrowing made pursuant to Section 2.03
shall mature, and the principal amount thereof shall be due and payable,
together with accrued interest thereon, on the last day of the Interest Period
applicable thereto.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the sum of
the Base Rate Margin for such day plus the Base Rate for such day. Such interest
shall be payable on the last Domestic Business Day of each calendar quarter. Any
overdue principal of or interest on any Base Rate Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 2% plus the rate otherwise applicable to Base Rate Loans for such day. "BASE
RATE MARGIN" means a rate per annum determined in accordance with the Pricing
Schedule.
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the CD Margin for such day plus
the Adjusted CD Rate applicable to such Interest Period; provided that if any CD
Loan shall, as a result of clause (2)(b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such
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period. Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than 90 days, at intervals of 90
days after the first day thereof. Any overdue principal of or interest on any CD
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin
for such day plus the Adjusted CD Rate applicable to the Interest Period for
such Loan and (ii) the rate applicable to Base Rate Loans for such day.
"CD MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
The "ADJUSTED CD RATE" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
[CDBR ]*
ACDR = [_____________] + AR
[1.00 - DRP]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
---------------
* The amount in brackets being rounded upward, if necessary, to the
next higher 1/100 of 1%
The "CD BASE RATE" applicable to any Interest Period is the
rate of interest determined by the Administrative Agent to be the
average (rounded upward, if necessary, to the next higher 1/100 of 1%)
of the prevailing rates per annum bid at 10:00 A.M. (New York City
time) (or as soon thereafter as practicable) on the first day of such
Interest Period by two or more New York certificate of deposit dealers
of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable
to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to
such Interest Period.
"DOMESTIC RESERVE PERCENTAGE" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency
reserves) for a member bank of the Federal Reserve System in New York
City with deposits exceeding five billion dollars in respect of new
non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of
$ 100,000 or more. The Adjusted CD Rate shall be adjusted automatically
on and as of the effective date of any change in the Domestic Reserve
Percentage.
"ASSESSMENT RATE" means for any day the annual assessment rate
in effect on such day which is payable by a member of the Bank
Insurance Fund classified as adequately capitalized and within
supervisory subgroup "A" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. ss. 327.4(a) (or any
successor provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such
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<PAGE> 21
successor's) insuring time deposits at offices of such institution in
the United States. The Adjusted CD Rate shall be adjusted automatically
on and as of the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar
Margin for such day plus the London Interbank Offered Rate applicable to such
Interest Period. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof.
"EURO-DOLLAR MARGIN" means a rate per annum determined in
accordance with the Pricing Schedule.
The "LONDON INTERBANK OFFERED RATE" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which deposits
in dollars are offered to each of the Euro-Dollar Reference Banks in
the London interbank market at approximately 11:00 A.M. (London time)
two Euro-Dollar Business Days before the first day of such Interest
Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such
Interest Period is to apply and for a period of time comparable to such
Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin
for such day plus the London Interbank Offered Rate applicable to the Interest
Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1 %) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than six months as the
Administrative Agent may select) deposits in dollars in an amount approximately
equal to such overdue payment due to each of the Euro-Dollar Reference Banks are
offered to such Euro-Dollar Reference Bank in the London interbank market for
the applicable period determined as provided above by (y) 1.00 minus the
Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a)
or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2%
plus the rate applicable to Base Rate Loans for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the sum of the
London Interbank Offered Rate for such Interest Period (determined in accordance
with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a
Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted
by the Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.
(f) The Administrative Agent shall determine each interest
rate applicable to the Loans hereunder. The Administrative Agent shall give
prompt notice to the Borrower and the participating Banks
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of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Administrative Agent as contemplated by this Section.
If any Reference Bank does not furnish a timely quotation, the Administrative
Agent shall determine the relevant interest rate on the basis of the quotation
or quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.08. Facility Fees. The Borrower shall pay to the
Administrative Agent for the account of the Banks ratably a facility fee at the
Facility Fee Rate (determined daily in accordance with the Pricing Schedule).
Such facility fee shall accrue (i) from and including the Effective Date to but
excluding the Termination Date (or earlier date of termination of the
Commitments in their entirety), on the daily aggregate amount of the Commitments
(whether used or unused) and (ii) from and including the Termination Date or
such earlier date of termination to but excluding the date the Loans shall be
repaid in their entirety, on the daily aggregate outstanding principal amount of
the Loans. Accrued fees under this Section shall be payable quarterly in arrears
on each March 31, June 30, September 30 and December 31 and upon the date of
termination (other than a termination on the Termination Date pursuant to
Section 2.01(b)) of the Commitments in their entirety (and, if later, the date
the Loans shall be repaid in their entirety).
SECTION 2.09. Optional Termination or Reduction of Commitments. During
the Revolving Credit Period, the Borrower may, upon at least three Domestic
Business Days' notice to the Administrative Agent, (i) terminate the Commitments
at any time, if no Loans are outstanding at such time or (ii) ratably reduce
from time to time by an aggregate amount of $10,000,000 or any larger multiple
of $1,000,000, the aggregate amount of the Commitments in excess of the
aggregate outstanding principal amount of the Loans. Promptly after receiving a
notice pursuant to this subsection, the Administrative Agent shall notify each
Bank of the contents thereof.
SECTION 2.10. Method of Electing Interest Rates. (a) The Loans included
in each Group of Loans within a Borrowing shall bear interest initially at the
type of rate specified by the Borrower in the applicable Notice of Committed
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article 8), as follows:
(i) if such Loans are Domestic Loans, the Borrower
may elect to convert such Loans to Euro-Dollar Loans as of any
Euro-Dollar Business Day;
(ii) if such Loans are Euro-Dollar Loans or CD Loans,
the Borrower may elect to convert such Loans to Domestic Loans or elect
to continue such Loans as Euro-Dollar Loans or CD Loans for an
additional Interest Period, in each case effective on the last day of
the then current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent at least three Euro-Dollar Business
Days in the case of conversion to or continuation of a Euro-Dollar Loan, and two
Domestic Business Days in the case of conversion to or continuation of a CD Rate
Loan, before the conversion or continuation selected in such notice is to be
effective. A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each $5,000,000 or any larger multiple
of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
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(i) the Group of Loans (or portion thereof) to which
such notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with the
applicable clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be
converted, the new type of Loans and, if such new Loans are Euro-Dollar
Loans or CD Loans, the duration of the initial Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar
Loans or CD Loans for an additional Interest Period, the duration of
such additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from
the Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by such Borrower. If the Borrower fails to deliver a
timely Notice of Interest Rate Election to the Administrative Agent for any
Group of Euro-Dollar Loans or CD Loans, such Loans shall be converted into Base
Rate Loans on the last day of the then current Interest Period applicable
thereto.
(d) If upon the expiration of any Interest Period applicable
to Euro-Dollar Loans or CD Loans, the Borrower has failed to select timely a new
Interest Period to be applicable to such CD Rate Loans or Euro-Dollar Loans, as
the case may be, the Borrower shall be deemed to have submitted a Notice of
Interest Rate Election electing to convert such CD Rate Loans or Euro-Dollar
Loans into Base Rate Loans effective as of the expiration date of such Interest
Period.
SECTION 2.11. Optional Prepayments. (a) The Borrower may, upon at least
one Domestic Business Day's notice by 11:00 A.M. (New York City time) to the
Administrative Agent, prepay any Base Rate Borrowing (or any Money Market
Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in
whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Base Rate
Loans of the several Banks included in such Borrowing.
(b) Subject to Section 2.13, the Borrower may, upon at least
three Domestic Business Days' notice to the Administrative Agent, prepay any CD
Borrowing or upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent prepay any Euro-Dollar Borrowing, in each case in whole at
any time, or from time to time in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(c) Except as provided in Section 2.11(a), the Borrower may
not prepay all or any portion of the principal amount of any Money Market Loan
prior to the maturity thereof.
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(d) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Bank of the
contents thereof and of such Bank's ratable share (if any) of such prepayment
and such notice shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, without any set-off or counterclaim, not later than 12:00 Noon (New
York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Administrative Agent at its address referred
to in Section 9.01. The Administrative Agent will promptly distribute to each
Bank its ratable share of each such payment received by the Administrative Agent
for the account of the Banks. Whenever any payment of principal of, or interest
on, the Domestic Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan (pursuant to Article 2, 6 or 8 or
otherwise) on any day other than the last day of the Interest Period applicable
thereto, or the last day of an applicable period fixed pursuant to Section
2.07(d), or if the Borrower fails to borrow, convert, continue or prepay any
Fixed Rate Loans after notice has been given to any Bank in accordance with
Section 2.04(a), 2.10(c) or 2.11(d), the Borrower shall reimburse each Bank
within 15 days after demand for any resulting loss or expense incurred by it (or
by an existing or prospective Participant in the related Loan), including
(without limitation) any loss incurred in obtaining, liquidating or employing
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to borrow, convert, continue or prepay, provided
that such Bank shall have delivered to the Borrower a certificate setting forth
in reasonable detail the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Regulation D Compensation. For so long as any Bank
maintains reserves against "EUROCURRENCY LIABILITIES" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets
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which includes loans by a non-United States office of such Bank to United States
residents), and as a result the cost to such Bank (or its Euro-Dollar Lending
Office) of making or maintaining its Euro-Dollar Loans is increased, then such
Bank may require the Borrower to pay, contemporaneously with each payment of
interest on the Euro-Dollar Loans, additional interest on the related
Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in which
case such additional interest on the Euro-Dollar Loans of such Bank shall be
payable to such Bank at the place indicated in such notice with respect to each
Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans an officer's certificate setting forth the amount to which
such Bank is then entitled under this Section (which shall be consistent with
such Bank's good faith estimate of the level at which the related reserves are
maintained by it). Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein.
ARTICLE 3
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective upon
receipt by the Administrative Agent of the following documents, each dated the
Effective Date unless otherwise indicated:
(a) counterparts hereof signed by each of the parties hereto
(or, in the case of any party as to which an executed counterpart shall not have
been received, receipt by the Administrative Agent in form satisfactory to it of
telegraphic, telex, facsimile or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) a duly executed Note for the account of each Bank dated on
or before the Effective Date complying with the provisions of Section 2.05;
(c) opinions of Morrison & Hecker, L.L.P, Kansas counsel for
the Borrower, and Bracewell & Patterson, L.L.P., counsel for the Borrower,
substantially in the respective forms of Exhibits E-1 and E-2 hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(d) an opinion of Haynes and Boone, LLP, special counsel for
the Administrative Agent, substantially in the form of Exhibit F hereto;
(e) evidence satisfactory to the Administrative Agent of the
payment of all principal of and interest on any loans outstanding under, and of
all fees accrued under, the Existing Agreement up to but excluding the Effective
Date;
(f) evidence satisfactory to the Administrative Agent that the
Borrower shall have paid or shall concurrently pay all fees then due and payable
to the Administrative Agent for the account of any Agent or Bank, as previously
agreed;
(g) a certificate of the chief financial officer of the
Borrower certifying that no material adverse change has occurred since September
30, 1999 in the business, assets, liabilities (actual or contingent), operations
or condition (financial or otherwise) of the Borrower and its Subsidiaries taken
as a whole, or in the facts and information regarding such entities as
represented to date, taken as a whole; and
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(h) all documents the Administrative Agent may reasonably
request relating to the existence of the Borrower, the corporate authority for
and the validity of this Agreement and the Notes, and any other matters relevant
hereto, all in form and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower and each
Bank of the effectiveness of this Agreement, and such notice shall be conclusive
and binding on all parties hereto. The Banks which are parties to the Existing
Agreement, constituting the "REQUIRED BANKS" under the Existing Agreement, and
the Borrower agree that the Commitments under the Existing Agreement shall
terminate automatically on the Effective Date without need for further action by
any party to the Existing Agreement.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on
the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) the fact that the Effective Date shall have occurred on or
prior to November 18, 1999;
(b) receipt by the Administrative Agent of a Notice of
Borrowing as required by Section 2.02, or 2.03, as the case may be;
(c) the fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(d) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true on and as of the date of such
Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (c), (d) and (e) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Kansas, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (other
than filings of this Agreement and the Notes with the Securities and Exchange
Commission pursuant to the reporting requirements of the Securities Exchange Act
of 1934) and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the articles of incorporation or by-laws of
the Borrower or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries or result in the
creation or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.
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SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of December 31, 1998 and
the related consolidated statements of income, cash flows and common
stockholders' equity for the fiscal year then ended, reported on by Arthur
Andersen LLP and set forth in the Borrower's 1998 Form 10-K, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles, the consolidated financial position of
the Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of September 30, 1999 and the related
unaudited consolidated statements of income and cash flows for the nine months
then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has
been delivered to each of the Banks, fairly present, in conformity with
generally accepted accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a) of this Section, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such nine-month period (subject to normal year-end adjustments).
(c) Since September 30, 1999 there has been no material
adverse change in the business, financial position, results of operations or
prospects of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
SECTION 4.05. Litigation. Except as disclosed in the most recent Annual
Report on Form 10-K delivered by the Borrower to the Banks, there is no action,
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which would materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
of this Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA, which waiver, failure or
liability could reasonably be expected to materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.07. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, in the course of which it identifies and evaluates associated
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently or
previously owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit
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or contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including the
costs of compliance with Environmental Laws, are unlikely to have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes shown to be due
on such returns or pursuant to any assessment received by the Borrower or any
Subsidiary to the extent that such taxes have become due and before they have
become delinquent, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with generally accepted accounting principles.
SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. Not an Investment Company. The Borrower is not an
"INVESTMENT COMPANY" or controlled by an "INVESTMENT COMPANY" within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 4.11. Full Disclosure. All information heretofore furnished by
the Borrower to any Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to any Agent or any Bank will be, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Banks in writing any and
all facts peculiar to the business of the Company or any of its Subsidiaries
which materially and adversely affect or may affect (to the extent the Borrower
can now reasonably foresee), the business, operations or financial condition of
the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability
of the Borrower to perform its obligations under this Agreement.
SECTION 4.12. Year 2000 Readiness. The Borrower has (i) initiated a
review and assessment of all areas within the business and operations of the
Borrower and each of its Subsidiaries (including those areas affected by
suppliers and vendors) that could be adversely affected by the "YEAR 2000
PROBLEM" (that is, the risk that computer applications used by it or any of its
subsidiaries (or their respective suppliers and vendors) may be unable to
recognize and perform properly date sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis and (iii) to
date, implemented such plan in accordance with such timetable. The Borrower
reasonably believes that all mission critical computer applications that are
material to the business or operations of the Borrower or any of its
Subsidiaries will on a timely basis be able to perform properly date sensitive
functions for all dates before and from and after January 1, 2000, except to the
extent that a failure to do so could not reasonably be expected to have any
material adverse effect on the business, financial position, results of
operations or prospects of the Borrower and its Subsidiaries taken as a whole.
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ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 100 days
after the end of each fiscal year of the Borrower, a consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income, cash flows and common
stockholder's equity for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all audited by Arthur
Andersen LLP or other independent public accountants of nationally recognized
standing; provided, however, that delivery pursuant to clause (g) below of
copies of the Annual Report on Form 10 K (without exhibits) of the Borrower for
such fiscal year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (a);
(b) as soon as available and in any event within 50 days after
the end of each of the first three quarters of each fiscal year of the Borrower,
a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
as of the end of such quarter and the related consolidated statements of income
and cash flows for such quarter (in the case of such statements of income) and
for the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such income and cash flows in comparative form the
figures for the corresponding quarter (in the case of such statements of income)
and the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by an
authorized financial or accounting officer of the Borrower; provided, however,
that delivery pursuant to clause (g) below of copies of the Quarterly Report on
Form 10-Q (without exhibits) of the Borrower for such quarter filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this clause (b);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
Borrower signed by an authorized financial or accounting officer of the Borrower
(i) setting forth in reasonable detail the calculations required to establish
whether the Borrower was in compliance with the requirements of Section 5.07
and, if applicable, Sections 5.08 and 5.09 on the date of such financial
statements, (ii) stating whether any Default exists on the date of such
certificate and, if any Default then exists, setting forth the details thereof
and the action which the Borrower is taking or proposes to take with respect
thereto, and (iii) during the Term Loan Phase, certifying that all
representations and warranties of the Borrower set forth in Article 4 of this
Agreement are true and correct on and as of the date of such certificate as if
made on such date;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements and (ii) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith pursuant
to clause (c) above; provided, however, that such accountants shall not be
liable to anyone by reason of their failure to obtain knowledge of any Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards;
(e) within five Domestic Business Days after any officer of
the Borrower obtains knowledge of any Default, if such Default is then
continuing, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
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(f) promptly upon the mailing thereof to the public
shareholders of the Borrower generally, copies of all financial statements,
reports and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and
8-K (or their equivalents, in each case without exhibits) which the Borrower
shall have filed with the Securities and Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "REPORTABLE EVENT" (as defined in
Section 4043 of ERISA) (other than such event as to which the 30-day notice
requirement is waived or which is triggered by the Acquisition) with respect to
any Plan which might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of any Plan has given or
is required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code, a copy
of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth details as to such occurrence
and action, if any, which the Borrower or applicable member of the ERISA Group
is required or proposes to take; and
(i) from time to time such additional information regarding
the financial position or business of the Borrower and its Subsidiaries as the
Administrative Agent, at the request of any Bank, may reasonably request.
Information required to be delivered pursuant to clauses 5.01(a),
5.01(b), 5.01(f) or 5.01(g) above shall be deemed to have been delivered on the
date on which the Borrower provides notice to the Banks that such information
has been posted on the Borrower's website on the Internet at the website address
listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at
another website identified in such notice and accessible by the Banks without
charge; provided that (i) such notice may be included in a certificate delivered
pursuant to clause 5.01(c) and (ii) the Borrower shall deliver paper copies of
the information referred to in clauses 5.01(a), 5.01(b), 5.01(f) or 5.01(g) to
any Bank which requests such delivery.
SECTION 5.02. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Subsidiary to keep, all property useful and necessary
in its business in good working order and condition, ordinary wear and tear
excepted.
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(b) The Borrower will maintain or cause to be maintained with,
in the good faith judgment of the Borrower, financially sound and reputable
insurers, or through self-insurance, insurance with respect to its properties
and business and the properties and businesses of its Subsidiaries against loss
or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or similar business and similarly
situated, of such types and in such amounts as are customarily carried under
similar circumstances by such other corporations. Such insurance may include
self-insurance or be subject to co-insurance, deductibility or similar clauses
which, in effect, result in self-insurance of certain losses, provided that such
self-insurance is in accord with the approved practices of corporations
similarly situated and adequate insurance reserves are maintained in connection
with such self-insurance, and, notwithstanding the foregoing provisions of this
Section 5.03 the Borrower or any Subsidiary may effect workers' compensation or
similar insurance in respect of operations in any state or other jurisdiction
either through an insurance fund operated by such state or other jurisdiction or
by causing to be maintained a system or systems of self-insurance in accord with
applicable laws.
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Material Subsidiary to continue, to
engage in business of the same general type as now conducted by the Borrower and
its Subsidiaries, and will preserve, renew and keep in full force and effect,
and will cause each Subsidiary to preserve, renew and keep in full force and
effect their respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the normal conduct of
business; provided that nothing in this Section 5.04 shall prohibit (i) the
merger of a Subsidiary into the Borrower or the merger or consolidation of a
Subsidiary with or into another Person if the corporation surviving such
consolidation or merger is a Subsidiary and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing, (ii) the sale
or other disposition (whether by merger or otherwise) of the capital stock or
assets of any Subsidiary, if such transaction complies with the provisions of
Section 5.10 or (iii) the termination of the corporate existence of any
Subsidiary if the Borrower in good faith determines that such termination is in
the best interest of the Borrower and is not materially disadvantageous to the
Banks.
SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause
each Subsidiary to comply, in all respects with all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities (including,
without limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where the necessity of compliance therewith is contested
in good faith by appropriate proceedings or (ii) where failure to comply could
not reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 5.06. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full, true and correct entries, as required by generally
accepted accounting principles, shall be made of all dealings and transactions
in relation to its business and activities; and will permit, and will cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense to
visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records (subject to compliance
with confidentiality agreements, copyrights and the like) and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.07. Debt. (a) Consolidated Debt of the Borrower will at no
time exceed 71.0% of Consolidated Total Capitalization.
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(b) Total Debt of all Consolidated Subsidiaries (excluding
Debt of a Consolidated Subsidiary of the Borrower to the Borrower or to another
Consolidated Subsidiary of the Borrower) will at no time exceed 10% of
Consolidated Debt of the Borrower.
(c) Consolidated Debt of each Material Subsidiary will at no
time exceed 65% of the Consolidated Total Capitalization of such Material
Subsidiary.
SECTION 5.08. Minimum Net Worth. Consolidated Net Worth will at no time
be less than an amount equal to the sum of (a) $1,236,000,000 plus (b) 50% of
Consolidated Net Income for each fiscal quarter of the Borrower ending after
December 30, 1998 and at or prior to such time (but only if such Consolidated
Net Income for such fiscal quarter is a positive amount).
SECTION 5.09. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) any Liens deemed to exist on the date of this Agreement
under the Purchase Agreement;
(b) Liens on assets of any Person existing at the time such
Person becomes a Subsidiary and not created in contemplation of such event,
provided that any such Lien covers only property or assets that were covered at
the time such Person becomes a Subsidiary and such Lien secures only Debt that
was secured at the time such Person becomes a Subsidiary;
(c) Liens arising in the ordinary course of its business which
(i) do not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $150,000,000 and (iii) do not in the aggregate
materially detract from the value of its assets or materially impair the use
thereof in the operation of its business;
(d) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $75,000,000;
(e) statutory or common law Liens of or upon deposits of cash
in favor of banks or other depository institutions; and
(f) Liens not otherwise permitted by the foregoing clauses of
this Section securing Debt in an aggregate principal or face amount at any date
not to exceed 10% of Consolidated Net Worth of the Borrower.
SECTION 5.10. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, all or substantially all of
its assets to any other Person, unless:
(i) immediately after giving effect to the
transaction, no Default shall have occurred and be continuing; and
(ii) except in the case of a merger in which the
Borrower is the surviving corporation:
(x) the Person formed by or surviving such
transaction, in the case of a consolidation or merger, and the
transferee, in the case of a
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transfer, assumes all obligations of the Borrower hereunder
and under the Notes;
(y) the Person formed by or surviving such
transaction, in the case of a consolidation or merger, and the
transferee, in the case of a transfer, is organized under the
laws of the United States or any state thereof; and
(z) the Borrower has delivered to the
Administrative Agent an officer's certificate and opinion of
counsel, each stating that such consolidation, merger, or
transfer and such assumption comply with the provisions
hereof.
No such sale, lease or other transfer of assets shall have the effect of
releasing the Borrower (or any successor that shall have become such in the
manner prescribed in this Section) from its liability under this Agreement and
the Notes.
SECTION 5.11. Use of Proceeds. The proceeds of the Loans made under
this Agreement will be used by the Borrower for general lawful corporate
purposes, including but not limited to providing liquidity for commercial paper.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "MARGIN
STOCK" within the meaning of Regulation U.
SECTION 5.12. Transactions with Affiliates. The Borrower will not
participate in any material transaction with an affiliate (other than a
Subsidiary) unless such transaction is in the ordinary course of its business
and on terms no less advantageous to the Borrower than could be obtained in such
a transaction with an unaffiliated party.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of
any Loan or shall fail to pay within three Domestic Business Days of the due
date thereof any interest on any Loan, any fees or any other amount payable
hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.10 to 5.12, inclusive; or shall fail to observe or
perform any covenant contained in Sections 5.07 to 5.09, inclusive, and such
failure shall continue for 10 days;
(c) the Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by clause (a)
or (b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement
made by the Borrower in this Agreement or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall prove to
have been incorrect in any material respect when made (or deemed made);
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(e) the Borrower or any Subsidiary shall fail to make any
payment in respect of any Material Financial Obligations when due or within any
applicable grace period; provided, however, that if any such failure is cured by
the Borrower or such Subsidiary or is waived by the requisite percentage of
holders of such Material Financial Obligations entitled to so waive, then the
Event of Default under this Agreement by reason of such failure shall be deemed
to have been cured;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of such Debt
or any Person acting on such holder's behalf to accelerate the maturity thereof,
provided, however, that if any such acceleration is rescinded, or any such event
or condition is cured by the Borrower or any Subsidiary or is waived by the
requisite percentage of holders of such Material Debt entitled to so waive, then
the Event of Default under this Agreement by reason of such acceleration, event
or condition shall be deemed to have been cured;
(g) the Borrower or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
or any Material Subsidiary under the federal bankruptcy laws as now or hereafter
in effect;
(i) any member of the ERISA Group shall fail to pay when due
an amount which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or to cause a trustee to be appointed to administer any
Plan; or a condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation; and in each of the foregoing instances such condition (i)
could reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole, and (ii)
shall continue for 10 days after notice thereof has been given to the Borrower
by the Administrative Agent at the request of any Bank;
(j) a judgment or judgments for the payment of money (not paid
or fully covered by insurance or indemnification) in excess of $60,000,000 in
the aggregate shall be rendered against the Borrower or any Material Subsidiary
and such judgment or judgments are not, within 30 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 30
days after the expiration of such stay; or
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(k) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act) of 30% or more of the
outstanding shares of common stock of the Borrower; or, during any period of
twelve consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than 50% in
aggregate principal amount of the Loans, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and the Notes shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Administrative Agent or the Banks, the
Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) or 6.01(i) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.02. Administrative Agent and Affiliates. Bank of America,
N.A. shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Administrative Agent, and Bank of America, N.A. and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Administrative Agent hereunder.
SECTION 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in
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the absence of its own gross negligence or willful misconduct. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, facsimile transmission or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
Without limiting the generality of the foregoing, the use of the term "AGENT" in
this Agreement with reference to the Administrative Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify any Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or omitted
by such indemnitees hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent, with the consent of the Borrower, which shall
not be unreasonably withheld. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
SECTION 7.09. Agents' Fees. The Borrower shall pay to the
Administrative Agent for the account of the Agents fees in the amounts and at
the times previously agreed upon between the Borrower and the Agents.
SECTION 7.10. Other Agents. Nothing contained in this Agreement shall
be construed to impose any obligation or duty whatsoever on any of the
Syndication Agent, Documentation Agent or the Co-Documentation Agent, in its
capacity as such an Agent.
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ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Fixed Rate
Borrowing:
(a) the Administrative Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts) are not being offered to
the Reference Banks in the relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks having 50% or
more of the aggregate amount of the Commitments advise the Administrative Agent
that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may
be, as determined by the Administrative Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans,
as the case may be, for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, shall be suspended. Unless the Borrower notifies the Administrative Agent at
least two Domestic Business Days before the date of any Fixed Rate Borrowing for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Administrative Agent, the Administrative Agent
shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before
giving any notice to the Administrative Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine
that it may not lawfully continue to maintain and fund any of its outstanding
Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower
shall immediately prepay in full the then outstanding principal amount of each
such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with
prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan
in an equal principal amount from such Bank (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x)
the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation,
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or any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.15), special deposit,
insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Administrative Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If any Bank shall have determined that, after the date
hereof, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (including any determination by any such authority, central
bank or comparable agency that, for purposes of capital adequacy requirements,
the Commitments hereunder do not constitute commitments with an original
maturity of one year or less), has or would have the effect of reducing the rate
of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. A certificate of any Bank claiming compensation under this Section and
setting forth in reasonable detail the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing subsections (a) and (b) of
this Section 8.03, the Borrower shall only be obligated to compensate any Bank
for any amount arising or accruing during (i) any time or period commencing not
more than 90 days prior to the date on which such Bank notifies the
Administrative Agent and the Borrower that it proposes to demand such
compensation and identifies to the Administrative Agent and the Borrower the
statute, regulation or other basis upon which the claimed compensation is or
will be based and (ii) any time or period during which, because of the
retroactive application of such statute, regulation or other such basis, such
Bank did not know that such amount would arise or accrue.
34
<PAGE> 39
SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to
any payment by the Borrower pursuant to this Agreement or under any
Note, and all liabilities with respect thereto, excluding (i) in the
case of each Bank and the Administrative Agent, taxes imposed on its
income, and franchise or similar taxes imposed on it, by a jurisdiction
under the laws of which such Bank or the Administrative Agent (as the
case may be) is organized or in which its principal executive office is
located or, in the case of each Bank, in which its Applicable Lending
Office is located and (ii) in the case of each Bank, any United States
withholding tax imposed on such payments but only to the extent that
such Bank is subject to United States withholding tax at the time such
Bank first becomes a party to this Agreement.
"OTHER TAXES" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or
levies, which arise from any payment made pursuant to this Agreement or
under any Note or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Note.
(b) Any and all payments by the Borrower to or for the account
of any Bank or the Administrative Agent hereunder or under any Note shall be
made without deduction for any Taxes or Other Taxes; provided that, if the
Borrower shall be required by law to deduct any Taxes or Other Taxes from any
such payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Administrative Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(c) The Borrower agrees to indemnify each Bank and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 8.04) paid by such Bank or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising, therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this Agreement in the case of each Bank listed on the signature pages hereof
and on or prior to the date on which it becomes a Bank in the case of each other
Bank, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Bank remains lawfully able to do so), shall provide
the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or
35
<PAGE> 40
regulation occurring subsequent to the date on which such form originally was
required to be provided), such Bank shall not be entitled to indemnification
under Section 8.04(b) or (c) with respect to Taxes imposed by the United States;
provided that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower, at such Bank's expense, shall
take such steps as such Bank shall reasonably request to assist such Bank to
recover such Taxes.
(f) If the Borrower is required to pay additional amounts to
or for the account of any Bank pursuant to this Section 8.04, then such Bank
will change the jurisdiction of its Applicable Lending Office if, in the
judgment of such Bank, such change (i) will eliminate or reduce any such
additional payment which may thereafter accrue and (ii) is not otherwise
disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and
the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Administrative Agent, have elected that the provisions of
this Section shall apply to such Bank, then, unless and until such Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD
Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans (on which interest and principal shall be payable contemporaneously
with the related Fixed Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the
case may be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate
Loans instead.
SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank
to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii)
any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower
shall have the right, with the assistance of the Administrative Agent, to seek a
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Note and assume the Commitment of such Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Administrative Agent, at its address,
facsimile number or telex number set forth on the signature pages hereof, (y) in
the case of any Bank, at its address, facsimile number or telex number set forth
in its Administrative Questionnaire or (z) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Administrative Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received or (ii) if given by any
other means, when delivered at the address specified in this Section; provided
that notices to the Administrative Agent under Article 2 or Article 8 shall not
be effective until received.
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<PAGE> 41
SECTION 9.02. No Waivers. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
fees and disbursements of Haynes and Boone, LLP, special counsel for the
Administrative Agent, in connection with the preparation and administration of
this Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by each Agent and Bank, including (without
duplication) the fees and disbursements of outside counsel and the allocated
cost of inside counsel, in connection with such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify each Agent and Bank,
their respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of (i) any actual or proposed use of proceeds of
Loans hereunder or (ii) any actual or alleged Default under this Agreement or
any actual or alleged untruth or inaccuracy of any representation or warranty
made by the Borrower in or in connection with this Agreement; provided that no
Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as finally determined by
a court of competent jurisdiction.
SECTION 9.04. Sharing of Set-offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the proportion received by
any other Bank in respect of the aggregate amount of principal and interest due
with respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness hereunder. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of any Agent are affected thereby, by such Agent); provided
that no such amendment or waiver shall:
(a) unless signed by all the Banks, (i) increase or decrease
the Commitment of any Bank (except for a ratable decrease in the Commitments of
all Banks) or subject any Bank to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or for termination of
37
<PAGE> 42
any Commitment or (iv) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement; or
(b) unless signed by a Designated Lender or its Designating
Bank, subject any Designated Lender to any additional obligation hereunder or
otherwise affect its rights hereunder as described in Section 9.07.
SECTION 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or
other institutions (each a "PARTICIPANT") participating interests in its
Commitment or any or all of its Loans. In the event of any such grant by a Bank
of a participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; provided that such participation agreement may provide that such
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii) or (iii) of Section 9.05(a) without the consent of
the Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 with respect to its participating interest. An assignment or other transfer
which is not permitted by subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or
other institutions (each an "ASSIGNEE") all, or a proportionate part (equivalent
to an initial Commitment of not less than $10,000,000, unless the Administrative
Agent otherwise agrees in writing) of all, of its rights and obligations under
this Agreement and the Notes, and such Assignee shall assume such rights and
obligations, pursuant to an Assignment and Assumption Agreement in substantially
the form of Exhibit G hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Borrower, which shall not be
unreasonably withheld, and the Administrative Agent; provided that if an
Assignee is an affiliate of such transferor Bank or was a Bank immediately prior
to such assignment, no such consent shall be required; and provided further that
if at the time an Event of Default shall be continuing, no such consent of the
Borrower shall be required; and provided further that such assignment may, but
need not, include rights of the transferor Bank in respect of outstanding Money
Market Loans. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Administrative Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall pay
to the Administrative Agent an administrative fee for processing such assignment
in the amount of $2,500. If the Assignee is not incorporated under the laws of
the United States of America or a state thereof, it shall deliver to the
Borrower and the Administrative Agent certification as to
38
<PAGE> 43
exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.03 or
8.04 than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.07. Designated Lender. (a) Subject to the terms and
conditions set forth in this Section 9.07(a), any Bank may from time to time
elect to designate an Eligible Designee to provide all or any part of Loans to
be made by such Bank pursuant to this Agreement, provided the designation of an
Eligible Designee by any Bank for purposes of this Section 9.07(a) shall be
subject to the approval of the Borrower and the Administrative Agent, which
consent shall not be unreasonably withheld. Upon the execution by parties to
each such designation of an agreement substantially in the form of Exhibit H
hereto (a "DESIGNATION AGREEMENT") and the acceptance thereof by the Borrower
and the Administrative Agent, the Eligible Designee shall become a Designated
Lender for purposes of this Agreement. The Designating Bank shall thereafter
have the right to permit such Designated Lender to provide all or a portion of
the Loans to be made by such Designating Bank pursuant to Section 2.01 or 2.03,
and the making of such Loans or portion thereof shall satisfy the obligation of
the Designating Bank to the same extent, and as if, such Loan were made by the
Designating Bank. As to any Loan made by it, each Designated Lender shall have
all the rights a Bank making such Loan would have had under this Agreement and
otherwise provided, (x) that all voting rights under this Agreement shall be
exercised solely by the Designating Bank and (y) each Designating Bank shall
remain solely responsible to the other parties hereto for its obligations under
this Agreement, including all obligations of a Bank in respect of Loans made by
its Designated Lender. No additional Note shall be required with regard to Loans
provided by a Designated Lender; provided, however, to the extent any Designated
Lender shall advance funds, the Designating Bank shall be deemed to hold the
Note in its possession as an agent for such Designated Lender to the extent of
the Loan funded by such Designated Lender. Such Designating Bank shall act as
administrative agent for its Designated Lender and give and receive notices and
other communications hereunder. Any payments for the account of any Designated
Lender shall be paid to its Designating Bank as administrative agent for such
Designated Lender and neither the Borrower nor the Administrative Agent shall be
responsible for any Designating Bank's application of any such payments. In
addition, any Designated Lender may (i) with notice to, but without the prior
written consent of the Borrower and the Administrative Agent, assign all or
portions of its interest in any Loans to its Designating Bank or to any
financial institutions consented to by the Borrower and the Administrative Agent
(it being understood that such consent shall not be unreasonably withheld)
providing liquidity and/or credit facilities to or for the account of such
Designated Lender to support the funding or maintenance of Loans made by such
Designated Lender and (ii) subject to advising any such Person that such
information is to be treated as confidential in accordance with such Person's
customary practices for dealing with confidential, non-public information,
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any
guarantee, surety, credit or liquidity enhancement to such Designated Lender.
(b) Each party to this Agreement hereby agrees that it shall
not institute against, or join any other person in instituting against, any
Designated Lender any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other proceedings under any federal or state
bankruptcy or similar law, for one year and a day after the payment in full of
all outstanding senior indebtedness of any Designated
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<PAGE> 44
Lender; provided that the Designating Bank for each Designated Lender hereby
agrees to indemnify, save, and hold harmless each other party hereto for any
loss, cost, damage and expense arising out of their inability to institute any
such proceeding against such Designated Lender. This Section 9.07(b) shall
survive the termination of this Agreement.
SECTION 9.08. Collateral. Each of the Banks represents to each Agent
and each of the other Banks that it in good faith is not relying upon any
"MARGIN STOCK" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.09. Maximum Interest Rate. Regardless of any provision
contained herein or in any Note or other document relating to the Loans (the
"LOAN DOCUMENTS"), no Bank shall ever be entitled to receive, collect, take,
reserve, charge or apply as interest (whether termed interest herein or deemed
to be interest by operation of law or judicial determination) on any Loan any
amount in excess of interest calculated at the Maximum Rate, and, in the event
that any Bank ever receives, collects, or applies as interest any such excess,
then the amount which would be excessive interest shall be deemed to be a
partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the applicable Loans are paid in full, then any remaining
excess shall forthwith be paid to the Borrower. In determining whether or not
the interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, the Borrower and the Banks shall, to the maximum
extent permitted under applicable law: (a) characterize any non-principal
payment as an expense, fee, or premium rather than as interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate, and spread, in equal parts, the total amount of interest throughout
the entire contemplated term of the Loans; provided that, if Loans are paid and
performed in full prior to the end of the full contemplated term thereof, and if
the interest received for the actual period of existence thereof exceeds
interest calculated at the Maximum Rate, then the applicable Lender shall refund
to the Borrower the amount of such excess or credit the amount of such excess
against the principal amount of the applicable Loans and, in such event, no Bank
shall be subject to any penalties provided by any laws for contracting for,
charging, taking, reserving, or receiving interest in excess of interest
calculated at the Maximum Rate. "MAXIMUM RATE" means the highest nonusurious
rate of interest (if any) permitted from day to day by applicable law. The
parties agree that Chapter 346 of the Texas Finance Code, which regulates
certain revolving loan accounts and revolving tri-party accounts, shall not be
applicable to this Agreement, any Note or any Loans.
SECTION 9.10. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York and the applicable laws of the United States of America.
The Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City having subject matter jurisdiction for
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
SECTION 9.11. Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
SECTION 9.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL
40
<PAGE> 45
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[SIGNATURES BEGIN ON THE NEXT PAGE]
41
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
KINDER MORGAN, INC.
By: /s/ David G. Dehaemers, Jr.
-------------------------------------------
David G. Dehaemers, Jr.
Vice President and Chief Financial Officer
370 Van Gordon Street
Lakewood, CO 80228-8304
Attention: Rose Robeson
Facsimile Number: 303-763-3155
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 47
Administrative Agent
BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Daryl G. Patterson
------------------------------------
Daryl G. Patterson
Managing Director
BANK OF AMERICA, N.A.,
as a Bank
By: /s/ Daryl G. Patterson
------------------------------------
Daryl G. Patterson
Managing Director
Address for Payments:
Bank of America, N.A.
901 Main Street
Dallas, Texas 75202
Attn: Ms. Renita Cummings
Telephone: (214) 209-9254
Facsimile: (214) 290-8373
Payment Office:
ABA No. 111000012
Acct. No. 1292000883
Ref.: Kinder Morgan, Inc.
Bank of America, N.A.
901 Main Street
Dallas, Texas 75202
Attn: Ms. Renita Cummings
Telephone: (214) 209-9254
Facsimile: (214) 290-8373
<PAGE> 48
Address for Requests for Extensions of
Credit:
Bank of America, N.A.
901 Main Street
Dallas, Texas 75202
Attn: Ms. Vicki Wages
Telephone: (214) 209-9254
Facsimile: (214) 290-8373
With a copy to:
Bank of America, N.A.
Three Allen Center
333 Clay Street, Suite 4550
Houston, Texas 77002
Attn: Pamela K. Rodgers
Assistant Vice President
Telephone: (713) 651-4880
Facsimile: (713) 651-4808
Address for Notices
other than Requests
for Extensions of
Credit:
Bank of America, N.A.
Three Allen Center
333 Clay Street, Suite 4550
Houston, Texas 77002
Attn: Daryl G. Patterson
Managing Director
Telephone: (713) 651-4950
Facsimile: (713) 651-4808
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 49
Syndication Agent
THE CHASE MANHATTAN BANK
By: /s/ Peter M. Ling
------------------------------------
Peter M. Ling
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 50
Documentation Agent
FIRST UNION NATIONAL BANK
By: /s/ Russell Clingman
------------------------------------
Russell Clingman
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 51
Co-Documentation Agent
BANK ONE, N.A.
By: /s/ Joseph C. Giampetroni
------------------------------------
Joseph C. Giampetroni
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 52
Participants
ABN AMRO BANK N.V.
By: /s/ Charles W. Randall
------------------------------------
Charles W. Randall
Title: Senior Vice President
By: /s/ Brandi Lippincott
------------------------------------
Brandi Lippincott
Title: Assistant Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 53
THE BANK OF NOVA SCOTIA
By: /s/ Chris Osborn
------------------------------------
Chris Osborn
Title: Director
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 54
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By: /s/ S. Otani
------------------------------------
S. Otani
Title: Deputy General Manager
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 55
CITIBANK, N.A.
By: /s/ Steve Baillie
------------------------------------
Steve Baillie
Title: Attorney-in-fact
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 56
COMMERZBANK, AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Harry P. Yergey
------------------------------------
Harry P. Yergey
Title: SVP & Manager
By: /s/ W. David Suttles
------------------------------------
W. David Suttles
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 57
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Philippe Soustra
------------------------------------
Philippe Soustra
Title: Senior Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 58
THE NORTHERN TRUST COMPANY
By: /s/ Jaron Grimm
------------------------------------
Jaron Grimm
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 59
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Richard A. Gould
------------------------------------
Richard A. Gould
Title: Director
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 60
TORONTO DOMINION (TEXAS), INC.
By: /s/ Alva J. Jones
------------------------------------
Alva J. Jones
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 61
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark E. Thompson
------------------------------------
Mark E. Thompson
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 62
WELLS FARGO BANK (TEXAS), N.A.
By: /s/ J. Alan Alexander
------------------------------------
J. Alan Alexander
Title: Vice President
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 63
WESTDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK BRANCH
By: /s/ Richard R. Newman
------------------------------------
Richard R. Newman
Title: Director
By: /s/ Barry S. Wadler
------------------------------------
Barry S. Wadler
Title: Associate
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT.]
<PAGE> 64
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN" AND "FACILITY
FEE RATE" for any day are the respective percentages set forth below in the
applicable row under the column corresponding to the Status that exists on such
day:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Level Level Level Level Level
Status I II III IV V
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Utilization < 25% 0.40% 0.50% 0.70% 1.125% 1.40%
Utilization => 25% 0.525% 0.625% 0.825% 1.25% 1.525%
=======================================================================================================
CD Margin
Utilization < 25% 0.525% 0.625% 0.825% 1.25% 1.525%
Utilization => 25% 0.65% 0.75% 0.95% 1.375% 1.65%
=======================================================================================================
Base Rate Margin -0- -0- -0- 0.125% 0.50%
Facility Fee Rate 0.10% 0.125% 0.175% 0.25% 0.35%
- -------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I STATUS" exists at any date if, at such date, the Borrower's
senior unsecured long-term debt is rated BBB+ or higher by S&P and Baal or
higher by Moody's.
"LEVEL II STATUS" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB or higher by S&P and
Baa2 or higher by Moody's, and the Borrower's commercial paper is rated A2 or
higher by S&P and P2 or higher by Moody's and (ii) Level I Status does not
exist.
"LEVEL III STATUS" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) neither Level I Status nor Level II Status
exists.
"LEVEL IV STATUS" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BB+ or higher by S&P and Ba1
or higher by Moody's and (ii) none of Level I Status, Level II Status and Level
III Status exists.
"LEVEL V STATUS" exists at any date if, at such date, no other Status
exists.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status or Level V Status exists at any
date.
"UTILIZATION" means, at any date, the percentage equivalent of a
fraction (i) the numerator of which is the aggregate outstanding principal
amount of the Loans at such date and (ii) the denominator of which is, (x)
during the period from the Effective Date through the Termination Date, the
aggregate amount of the Commitments at such date or (y) during the Term Loan
Phase, the aggregate amount of the Commitments as of the Termination Date. If
for any reason any Loans remain outstanding following termination of the
Commitments (except during the Term Loan Phase), Utilization shall be deemed to
be in excess of 25%.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities and/or
commercial paper, as the case may be, of the Borrower without third-party credit
enhancement, and any rating assigned to any other debt security of the Borrower
shall be disregarded. The rating in effect at any date is that in effect at the
close of business on such date.
<PAGE> 65
Schedule 1.01
Commitments
<TABLE>
<CAPTION>
Bank Commitments
---- -----------
<S> <C>
First Union National Bank $ 50,500,000
Bank of America, N.A $ 47,750,000
Bank One, N.A $ 47,750,000
The Chase Manhattan Bank $ 45,000,000
Citibank, N.A $ 40,000,000
Toronto Dominion (Texas), Inc. $ 40,000,000
The Bank of Nova Scotia $ 35,000,000
Commerzbank, AG $ 35,000,000
U.S. Bank National Association $ 35,000,000
ABN AMRO Bank N.V $ 30,000,000
Societe Generale $ 30,000,000
Credit Lyonnais New York Branch $ 30,000,000
Wells Fargo Bank (Texas), N.A $ 27,000,000
Westdeutsche Landesbank Girozentrale $ 21,000,000
The Northern Trust Company $ 20,000,000
The Bank of Tokyo-Mitsubishi, Ltd. $ 16,000,000
TOTAL $550,000,000
</TABLE>
Schedule 1.01 - Page 1
<PAGE> 66
EXHIBIT A
NOTE
New York, New York
November 18, 1999
For value received, Kinder Morgan, Inc., a Kansas corporation (the
"BORROWER"), promises to pay to the order of _________________________ (the
"BANK"), for the account of its Applicable Lending Office, the unpaid principal
amount of each Loan made by the Bank to the Borrower pursuant to the Credit
Agreement referred to below on the Maturity Date set forth in the Credit
Agreement. The Borrower promises to pay interest on the unpaid principal amount
of each such Loan on the dates and at the rate or rates provided for in the
Credit Agreement. All such payments of principal and interest shall be made in
lawful money of the United States in Federal or other immediately available
funds at the office of Bank of America, N.A., 901 Main Street, Dallas, Texas.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof may be recorded by the Bank and, if
the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof, provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit
Agreement dated as of November 18, 1999 among the Borrower, the banks listed on
the signature pages thereof and Bank of America, N.A., as Administrative Agent
(as the same may be amended from time to time, the "CREDIT AGREEMENT"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof. Without limiting the
preceding sentence, reference is made to the provisions of the Credit Agreement
concerning the Maximum Lawful Rate.
This Note shall be governed by and construed in accordance with the
laws of the State of New York and the applicable laws of the United States of
America.
KINDER MORGAN, INC.
By
--------------------------------------
Title:
Exhibit A - Page 1
<PAGE> 67
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Amount of
Date Amount of Type of Principal Maturity Notation
Loan Loan Repaid Date Made By
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit A - Page 2
<PAGE> 68
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Bank of America, N.A.
(the "ADMINISTRATIVE AGENT")
From: Kinder Morgan, Inc.
Re: 364-Day Credit Agreement (the "CREDIT AGREEMENT") dated as of November
18, 1999 among the Borrower, the Banks listed on the signature pages
thereof and the Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing:
Principal Amount* Interest Period**
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
KINDER MORGAN, INC.
By
---------------------------------
Title:
- --------------------
* Amount must be $5,000,000 or a larger multiple of $ 1,000,000.
** Not less than one month and not more than nine months (LIBOR Auction)
or not less than seven days and not more than 360 days (Absolute Rate
Auction), subject to the provisions of the definition of Interest
Period.
Exhibit B - Page 1
<PAGE> 69
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Kinder Morgan, Inc. (the
"BORROWER")
Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of
November 18, 1999 among the Borrower, the Banks parties thereto and the
undersigned, as Administrative Agent, we are pleased on behalf of the Borrower
to invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: ________________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
BANK OF AMERICA, N.A.
By
--------------------------------------
Authorized Officer
Exhibit C - Page 1
<PAGE> 70
EXHIBIT D
Form of Money Market Quote
To: Bank of America, N.A., as Administrative Agent
Re: Money Market Quote to Kinder Morgan, Inc. (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_______________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. Date of Borrowing:
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at
the following rates:
Principal Interest Money Market
- ---------------
* As specified in the related Invitation.
Exhibit D - Page 1
<PAGE> 71
<TABLE>
<CAPTION>
Amount** Period*** [Margin****] [Absolute Rate*****]
<S> <C> <C> <C> <C>
$
$
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$_______________.]**
</TABLE>
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the 364-Day Credit
Agreement dated as of November 18, 1999 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By
--------------- ---------------------------------
Authorized Officer
- ---------------
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids
must be made for $5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month and not more than nine months or not less than
seven days and not more than 360 days, as specified in the related
Invitation. No more than five bids are permitted for each Interest
Period.
**** Margin over or under the London Interbank Offered Rate determined for
the applicable Interest Period. Specify percentage (to the nearest
1/10,000th of 1%) and specify whether "PLUS" OR "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1 %).
Exhibit D - Page 2
<PAGE> 72
EXHIBIT E-1
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
November ____, 1999
To the Banks and the Administrative Agent
Referred to Below
c/o Bank of America, N.A., as Administrative Agent
333 Clay Street, Suite 4550
Houston, TX 77002
Dear Sirs:
We have acted as counsel in the State of Kansas for Kinder Morgan, Inc.
(the "Borrower") in connection with the 364-Day Credit Agreement (the "Credit
Agreement") dated as of November 18, 1999 among the Borrower, the banks listed
on the signature pages thereof and Bank of America, N.A., as Administrative
Agent. Terms defined in the Credit Agreement are used herein as therein defined.
This opinion is being rendered to you at the request of our client pursuant to
Section 3.01(c) of the Credit Agreement.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion. In rendering the opinions set forth below, we have
assumed (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity to authentic
original documents of all documents submitted to us as draft, certified,
conformed or photostatic copies, (iv) the authenticity of the originals of all
such draft, certified, conformed or photostatic copies, (v) the accuracy and
completeness of all official public records (including their proper indexing and
filing), and (vi) the legal capacity of all natural persons. As to questions of
fact relevant to this letter, we have, without independent investigation, relied
upon and assumed to be true (a) certificates, statements and representations
made to us by officers and other representatives of the Borrower, (b) the
representations contained in or incorporated into the Credit Agreement, and (c)
certain representations of public officials.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Kansas, and has all corporate powers
required to perform its obligations under the Credit Agreement.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official of the
State of Kansas and do not contravene, or constitute a default under, any
provision of applicable law or regulation of the State of Kansas.
We are members of the Bar of the State of Kansas and the foregoing
opinion is limited to the laws of the State of Kansas.
Exhibit E-1 - Page 1
<PAGE> 73
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter, and to Haynes and Boone, LLP, counsel to
the Administrative Agent and to Bracewell & Patterson L.L.P. We acknowledge that
Haynes and Boone LLP and Bracewell & Patterson L.L.P. are each relying on the
opinions herein expressed in rendering certain opinions to the Administrative
Agent and the Banks. This opinion may not be relied upon by you or any Assignee
or Participant for any other purpose or relied upon by any other person without
our prior written consent. This opinion speaks as of the date hereof, and we
undertake no, and hereby disclaim any, obligation to advise you of any change in
any matter set forth herein in response to subsequent changes in law or future
events or circumstances affecting the transactions contemplated by the Credit
Agreement whether based on a change in any fact relating to the Borrower or any
other person, or any other circumstance.
Very truly yours,
Exhibit E-1 - Page 2
<PAGE> 74
EXHIBIT E-2
OPINION OF
COUNSEL TO THE BORROWER
To the Banks and the Administrative Agent
Referred to Below
c/o Bank of America, N.A., as Administrative Agent
333 Clay Street, Suite 4550
Houston, Texas 77002
Dear Sirs:
We are counsel to Kinder Morgan, Inc., a Kansas corporation (the
"BORROWER"), and have represented the Borrower in connection with the 364-Day
Credit Agreement (the "CREDIT AGREEMENT") dated as of November 18, 1999 among
the Borrower, the banks listed on the signature pages thereof and Bank of
America, N.A., as Administrative Agent. Terms defined in the Credit Agreement
are used herein as therein defined. This opinion is being rendered to you at the
request of our client pursuant to Section 3.01(c) of the Credit Agreement.
In connection with this opinion, we have examined the following (the
"Documents"):
1. The Credit Agreement, executed by the Borrower; and
2. The __ Notes dated the date hereof, executed by the Borrower.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials, certificates or comparable documents of
officers of the Borrower and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion. We have assumed (a) the genuineness of all signatures
(other than those of the Borrower), (b) the authenticity of all documents and
records submitted to us as originals, (c) the conformity to original documents
and records of all documents and records submitted to us as copies (including
conformed copies), and (d) the truthfulness of all statements of fact contained
therein.
Upon the basis of the foregoing, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. To our knowledge after due inquiry, the Borrower has all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Documents require no action by or in respect of, or filing with, any
governmental body, agency or official of the State of Texas or the United States
of America (other than filings of the Credit Agreement and the Notes with the
Securities and Exchange Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934) and do not contravene, or constitute a default
under, any provision
Exhibit E-2 - Page 1
<PAGE> 75
of applicable law or regulation of the State of Texas or the United States of
America or of the articles of incorporation or by-laws of the Borrower or of any
material agreement, judgment, injunction, order, decree or other instrument,
known to us after due inquiry, binding upon the Borrower or any of its
Subsidiaries or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable against the Borrower in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
4. To our knowledge after due inquiry, there is no action, suit or
proceeding pending against, or threatened against or affecting, the Borrower or
any of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner draws
into question the validity of the Documents.
5. To our knowledge after due inquiry, each of the Borrower's corporate
Material Subsidiaries is a corporation validly existing and in good standing
under the laws of its jurisdiction of incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
6. The choice of New York law (other than conflict of laws rules) to
govern the construction and interpretation of the Documents which contain such a
choice of law should, if the issue is properly presented to a court of competent
jurisdiction sitting in the State of Texas, be found by such court to be a valid
choice of law under the laws of the State of Texas.
Our opinion is subject to the following:
(a) We are members of the Bar of the State of Texas and the foregoing
opinion is limited to the laws of the State of Texas and the federal laws of the
United States of America. In rendering the opinion in paragraph 3 above, (i)
insofar as such opinion involves matters governed by the laws of the State of
Kansas, we have relied, without independent investigation, upon the opinion of
Morrison & Hecker, L.L.P., delivered to you pursuant to Section 3.01(c) of the
Credit Agreement and (ii) insofar as such opinion includes matters governed by
the laws of the State of New York, we have assumed such laws are the same as the
laws of the State of Texas.
(b) Our opinion is subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, preference,
liquidation, conservatorship or other similar laws affecting creditor's rights
generally.
(c) The enforceability of each of the Documents is subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law), and we express no opinion as to the
availability of specific performance or any other equitable remedy.
Exhibit E-2 - Page 2
<PAGE> 76
(d) We express no opinion as to the legality, validity, binding effect
or enforceability of any provision in the Documents (i) purporting to restrict
access to courts or to legal or equitable remedies; (ii) purporting to establish
evidentiary standards; (iii) purporting to grant a right of set-off or similar
rights against moneys, securities and other properties of Persons other than the
Person granting such right or purporting to permit any Person purchasing a
participation to exercise a right of set-off or similar rights with respect to
such participation; (iv) purporting to indemnify, defend, or hold harmless any
Person; (v) purporting to affect any right to trial by jury, venue or
jurisdiction; or (vi) pertaining to subrogation rights, delay or omission of
enforcement of rights or remedies, severability or marshaling of assets.
(e) We express no opinion as to the legality, validity, binding effect
or enforceability of any waiver under the Credit Agreement, or any consent
thereunder, relating to the rights of, or duties owing to, any Person which
exist as a matter of law except to the extent such Person may legally so waive
or consent and has so waived and consented.
(f) We have assumed, as to each Person (other than the Borrower) shown
as being a party to the Credit Agreement, (i) that such Person is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized; (ii) that the Credit Agreement has been
duly authorized, executed and delivered by such Person; (iii) that such Person
has the requisite power and authority to perform its obligations under the
Credit Agreement and will perform such obligations in compliance with all laws
and regulations applicable to it; (iv) that there are neither suits, actions or
proceedings pending against such Person nor judicial or administrative orders,
judgments or decrees binding on such Person that affect the legality, validity,
binding effect or enforceability of the Credit Agreement; (v) that no consent,
license, approval or authorization of, or filing or registration with, any
governmental authority is required for the valid execution, delivery and
performance of the Credit Agreement, and (vi) that the execution, delivery and
performance of the Credit Agreement by such Person do not violate (1) any
provision of any law or regulation, (2) any order, judgment, writ, injunction,
award or decree of any court, arbitrator, or governmental authority, (3) the
charter or bylaws of such Person, or (4) any indenture, lease or other agreement
to which such Person is a party or by which such Person or any of its assets is
bound; and (vii) that the Credit Agreement constitutes the legal, valid and
binding obligation of such Person enforceable against such Person in accordance
with its terms, subject to the type of qualifications regarding enforceability
as are set forth in this opinion. We have also assumed that each Bank will make
each Loan under the documents for its own account in the ordinary course of its
commercial lending business and not with a view to, or for sale in connection
with, any distribution of the Notes and that no Bank is participating in any
such distribution.
(g) We have assumed that the Administrative Agent and the Banks will
comply with each usury savings clause in the Documents and that none of the
Administrative Agent or the Banks has taken, reserved, charged or received
interest or will take, reserve, charge or receive interest, except as provided
in the Documents. We express no opinion as to the effect of the law of any
jurisdiction other than the State of Texas wherein any Bank may be located or
wherein enforcement of the Documents may be sought which limits the rates of
interest legally chargeable or collectible.
(h) Our opinion is subject to the qualification that certain remedial
provisions of the Documents are or may be unenforceable in whole or in part, but
such possible unenforceability of
Exhibit E-2 - Page 3
<PAGE> 77
such remedial provisions will not render any Document inadequate for enforcing
payment of the indebtedness that is evidenced by such Document and for the
practical realization of the principal rights and benefits afforded by such
Document.
(i) We have assumed that a party to the Documents is a resident of the
State of New York or that a party to the Documents has its place of business or,
if that party has more than one place of business, its chief executive office or
an office from which it conducts a substantial part of the negotiations relating
to the transaction, in the State of New York.
(j) Whenever our opinion is given "to our knowledge after due inquiry"
or is based on circumstances "known to us after due inquiry", we have relied
exclusively upon certificates of officers (after the discussion of the contents
thereof with such officers) of the Borrower as to the existence or non-existence
of the circumstances upon which such opinion is predicated. We have no reason to
believe, however, that any such certificate is untrue or inaccurate in any
material respect.
(k) In rendering the opinions herein relating to the absence of any
litigation, investigation or administrative proceeding, we express no opinion
with respect to the possible effect of any litigation, investigation or
proceeding as to which the Borrower is not a named party.
You are advised that various members of this firm are stockholders of
Kinder Morgan, Inc.; however, no member owns in excess of one percent of Kinder
Morgan, Inc.'s outstanding common stock.
This opinion is rendered solely to you and any Assignee or Participant
in connection with the above matter, and to Haynes and Boone, LLP, counsel to
the Administrative Agent. We acknowledge that Haynes and Boone, LLP is relying
on the opinions herein expressed in rendering certain opinions to the
Administrative Agent and the Banks. This opinion may not be relied upon by you
or any Assignee or Participant for any other purpose or relied upon by any other
person without our prior written consent.
Very truly yours,
Exhibit E-2 - Page 4
<PAGE> 78
EXHIBIT F
OPINION OF
HAYNES AND BOONE, LLP, SPECIAL COUNSEL
FOR THE ADMINISTRATIVE AGENT
November 18, 1999
Bank of America, N.A.,
as Administrative Agent
Three Allen Center
333 Clay Street, Suite 4550
Houston, Texas 77002
And to the Banks party to the Credit Agreement
(as defined below)
Ladies and Gentlemen:
We have acted as counsel to Bank of America, N.A. (the "ADMINISTRATIVE AGENT")
in connection with the preparation, execution and delivery of the 364-Day Credit
Agreement dated as of November 18, 1999 (the "CREDIT AGREEMENT"), among Kinder
Morgan, Inc. ("BORROWER"), the Administrative Agent and the Banks as therein
defined. Unless otherwise defined herein, capitalized terms used herein and not
otherwise defined have the meanings given in the Credit Agreement.
In this connection, we have examined the Credit Agreement and the Notes and such
records, certificates, instruments and other documents in our judgment necessary
or appropriate to enable us to render this opinion.
In our examination of the Credit Agreement and the Notes, we have assumed,
without independent investigation: (a) the due execution and delivery, pursuant
to due authorization, of the Credit Agreement and the Notes by all parties
thereto; (b) the genuineness of all signatures; (c) the authenticity of the
originals of the documents submitted to us; and (d) the conformity to originals
of any documents submitted to us as copies; (e) the full corporate (or
equivalent) power, authority and legal right of each Person to enter into and
perform its obligations under the Credit Agreement and the Notes.
Based upon the foregoing examination and assumptions and upon such other
investigation as we have deemed necessary and subject to the qualifications as
set forth below, we are of the opinion that the Credit Agreement and each Note
constitutes the legal, valid and binding obligation of the Borrower, in each
case enforceable against the Borrower in accordance with its terms.
Our opinion above is subject to the following qualifications:
(a) Our opinion above is subject to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium, or similar law affecting
creditors' rights generally.
(b) Our opinion above is also subject to the effect of general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered in
a proceeding in equity or at law).
Exhibit F - Page 1
<PAGE> 79
(c) We express no opinion as to the validity or enforceability of any
provision contained in the Credit Agreement or the Notes that purports to
preclude the amendment, waiver, release or discharge of obligations except by an
instrument in writing.
(d) Our opinion above is limited to the law of the State of New York
and the federal law of the United States of America and we do not express any
opinion herein concerning any other law. Without limiting the generality of the
foregoing, we express no opinion as to the effect of the law of a jurisdiction
other than the State of New York wherein enforcement of the Credit Agreement or
any of the Notes may be sought that limits the rates of interest legally
chargeable or collectible.
This opinion is provided to you by us in our capacity as special counsel to the
Administrative Agent. Without our prior written consent, this opinion may not be
relied upon by any Person other than you, and as of the date hereof, other
Persons who become Banks in accordance with the provisions of the Credit
Agreement. This opinion may not be relied upon by any Person for any purpose
other than in connection with the transactions contemplated by the Credit
Agreement without our prior written consent.
This opinion letter speaks only as of the date hereof. We expressly disclaim any
responsibility to advise you or any other Bank who is permitted to rely on the
opinion expressed herein as specified in the next preceding paragraph of any
development of circumstances of any kind including any change of law or fact
that may occur after the date of this opinion letter, even though such
development, circumstances or change may affect the legal analysis, a legal
conclusion or any other matter set forth in or relating to this opinion letter.
Very truly yours,
HAYNES AND BOONE, LLP
Exhibit F - Page 2
<PAGE> 80
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _______________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "ASSIGNEE"), KINDER MORGAN, INC. (the "BORROWER")
and BANK OF AMERICA, N.A., as Administrative Agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the 364-Day Credit Agreement dated as of November 18, 1999 among the
Borrower, the Assignor and the other Banks party thereto, as Banks, and the
Administrative Agent (the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at any
time outstanding not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof, and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee[, the Borrower and
the Administrative Agent] and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.* [It is
understood that commitment and/or facility fees accrued to the date hereof are
for the account of the Assignor and such fees accruing from and including the
date hereof are for the account of the Assignee.] Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit Agreement
which is for the account of the other party hereto, it shall receive the same
for the account of such
Exhibit G - Page 1
<PAGE> 81
other party to the extent of such other party's interest therein and shall
promptly pay the same to such other party.
SECTION 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this
Agreement by the Borrower and the Administrative Agent is evidence of this
consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver
a Note payable to the order of the Assignee to evidence the assignment and
assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
- ---------------
* Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any
portion of any upfront fee to be paid by the Assignor to the Assignee.
It may be preferable in an appropriate case to specify these amounts
generically or by formula rather than as a fixed sum.
Exhibit G - Page 2
<PAGE> 82
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By
--------------------------------------
Title:
[ASSIGNEE]
By
--------------------------------------
Title:
KINDER MORGAN, INC.
By
--------------------------------------
Title:
BANK OF AMERICA, N.A.,
as Administrative Agent
By
--------------------------------------
Title:
Exhibit G - Page 3
<PAGE> 83
EXHIBIT H
DESIGNATION AGREEMENT
Dated ________________, 19__
Reference is made to the $550,000,000 364-Day Credit Agreement dated as
of November 18, 1999 ([amended or otherwise modified from time] to time, the
"CREDIT AGREEMENT") among Kinder Morgan, Inc., a Kansas corporation (the
"BORROWER"), the banks listed on the signature pages thereof (the "BANKS") and
Bank of America, N.A., as Administrative Agent. Terms defined in the Credit
Agreement are used herein as therein defined.
_______________ (the "DESIGNATOR"), _______________ (the "DESIGNEE"),
and the Borrower, agree as follows:
1 The Designator hereby designates the Designee, and the Designee
hereby accepts such designation, as its Designated Lender under the Credit
Agreement.
2. The Designator makes no representations or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto.
3. The Designee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Article 5 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Designation Agreement; (ii) agrees that it will, independently and without
reliance upon the Agents, the Designator or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action it may be
permitted to take under the Credit Agreement; (iii) confirms that it is an
Eligible Designee; (iv) appoints and authorizes the Designator as its
administrative agent and attorney-in-fact and grants the Designator an
irrevocable power of attorney to receive payments made for the benefit of the
Designee under the Credit Agreement and to deliver and receive all
communications and notices under the Credit Agreement, if any, that Designee is
obligated to deliver or has the right to receive thereunder; (v) acknowledges
that it is subject to and bound by the confidentiality provisions of the Credit
Agreement (except as permitted under Section 9.07(a) thereof); and (vi)
acknowledges that the Designator retains the sole right and responsibility to
vote under the Credit Agreement, including, without limitation, the right to
approve any amendment, modification or waiver of any provision of the Credit
Agreement, and agrees that the Designee shall be bound by all such votes,
approvals, amendments, modifications and waivers and all other agreements of the
Designator pursuant to or in connection with the Credit Agreement, all subject
to Section 9.05(b) of the Credit Agreement.
4. Following the execution of this Designation Agreement by the
Designator, the Designee and the Borrower, it will be delivered to the
Administrative Agent for acceptance and recording by the Administrative Agent.
The effective date of this Designation Agreement shall be the date of acceptance
thereof by the Administrative Agent, unless otherwise specified on the signature
page hereto (the "EFFECTIVE DATE").
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date (a) the Designee shall have the right to make Loans as a
Bank pursuant to Section 2.01 or 2.03 of the Credit Agreement and the rights of
a Bank related thereto and (b) the making of any such Loans by the Designee
shall satisfy the obligations of the Designator under the Credit Agreement to
the same extent, and as if, such Loans were made by the Designator.
Exhibit H - Page 1
<PAGE> 84
6. This Designation Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Designation Agreement
to be executed by their respective officers hereunto duly authorized, as of the
date first above written.
Effective Date*: _________________, ________
[NAME OF DESIGNATOR]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[NAME OF DESIGNEE]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
KINDER MORGAN, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Accepted and Approved this
_____ day of _______________, _______
BANK OF AMERICA, N.A.,
as Administrative Agent
By:
----------------------------------------
Title:
----------------------------
- -----------------
* This date should be no earlier than the date of acceptance by the
Administrative Agent.
Exhibit H - Page 2
<PAGE> 1
EXHIBIT 10(aa)
KINDER MORGAN, INC.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
SECTION I.
PURPOSE OF THE PLAN
This Plan is an amendment and restatement of the K N Energy, Inc. 1999
Stock Option Plan. The KINDER MORGAN, INC. AMENDED AND RESTATED 1999 STOCK
OPTION PLAN (the "Plan) is intended to provide a means whereby certain employees
of KINDER MORGAN, INC., a Kansas corporation (the "Company"), and its
subsidiaries may develop a sense of proprietorship and personal involvement in
the development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may grant to certain employees ("Optionees") the option
("Option") to purchase shares of the common stock of the Company, par value
$5.00 per share ("Stock"), as hereinafter set forth. Options granted under the
Plan shall be options that do not constitute incentive stock options within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code").
SECTION II.
ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors of the Company (the "Board"), and the
Committee shall be (a) comprised solely of two or more outside directors (within
the meaning of Section 162(m) of the Code and applicable interpretive authority
thereunder), and (b) constituted so as to permit the Plan to comply with Rule
16b-3, as currently in effect or as hereinafter modified or amended ("Rule
16b-3"), promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Committee shall have sole authority to select the Optionees
from among those individuals eligible hereunder and to establish the number of
shares of Stock which may be issued under each Option. In selecting the
Optionees from among individuals eligible hereunder and in establishing the
number of shares of Stock that may be issued under each Option, the Committee
may take into account the nature of the services rendered by such individuals,
their present and potential contributions to the Company's success and such
other factors as the Committee in its discretion shall deem relevant. The
Committee is authorized to interpret the Plan and may from time to time adopt
such rules and regulations, consistent with the provisions of the Plan, as it
may deem advisable to carry out the Plan. All decisions made by the Committee in
selecting the Optionees, in establishing the number of shares of Stock which may
be issued under each Option and in construing the provisions of the Plan shall
be final, conclusive and binding on all persons, including the Company, its
subsidiaries and other entities in which the Company has an ownership interest,
its shareholders, Optionees and their estates and beneficiaries.
<PAGE> 2
SECTION III.
OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be approved by the Committee, including, but not limited to,
the number of shares of Stock that may be purchased under the Option and the
price per share of Stock purchasable under the Option ("Option Price"). The
terms and conditions of the respective Option Agreements need not be identical.
Specifically, an Option Agreement may provide for the surrender of the right to
purchase shares of Stock under the Option in return for a payment in cash or
shares of Stock or a combination of cash and shares of Stock equal in value to
the excess of the fair market value of the shares of Stock with respect to which
the right to purchase is surrendered over the Option Price therefor ("Stock
Appreciation Rights"), on such terms and conditions as the Committee in its sole
discretion may prescribe. Moreover, an Option Agreement may provide for the
payment of the Option Price, in whole or in part, by the delivery of a number of
shares of Stock (plus cash if necessary) having a fair market value equal to
such Option Price.
(b) For all purposes under the Plan, the fair market value of a share
of Stock on a particular date shall be equal to the closing sales price of the
Stock reported on the New York Stock Exchange Composite Tape on that date; or,
if no prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. In the event Stock is not publicly traded
at the time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate.
(c) Each Option and all rights granted thereunder shall not be
transferable other than (i) by will or the laws of descent and distribution,
(ii) between an Optionee and his or her former spouse, but only if such transfer
is incident to a divorce under Section 1041(a) of the Code, or (iii) with the
consent of the Committee.
SECTION IV.
ELIGIBILITY OF OPTIONEE
The Plan is intended to constitute a "broadly-based plan" for purposes
of the shareholder approval policy of the New York Stock Exchange relating to
stock option plans, and the Plan shall be administered accordingly.
Options may be granted only to individuals who are employees (including
officers and directors who are also employees) of the Company or an entity in
which the Company has an ownership interest, directly or indirectly, at the time
the Option is granted or who will be future employees within 90 days of any
grant of Options, and, in any event, at least a majority of the full-time
employees in the United States of the Company or any parent or subsidiary
corporation (as defined in Section 424 of the Code) (who are "exempt employees"
under the Fair Labor Standards Act of 1938) shall be eligible to receive grants
of Options. Options may be granted to the same individual on more than one
occasion.
-2-
<PAGE> 3
At least a majority of the shares of Stock underlying Options awarded
under the Plan, during the three-year period commencing on the date the Plan is
adopted by the Company, shall be made to eligible employees who are neither
officers nor directors of the Company.
SECTION V.
SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Stock which may be issued under
Options granted under the Plan shall not exceed 5,500,000. Such shares may
consist of authorized but unissued shares of Stock or previously issued shares
of Stock reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Options at the termination of the Plan
shall cease to be subject to the Plan, but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to meet
the requirements of the Plan. Should any Option hereunder expire or terminate
prior to its exercise in full, the shares theretofore subject to such Option may
again be subject to an Option granted under the Plan to the extent permitted
under Rule 16b-3. The aggregate number of shares of Stock which may be issued
under the Plan shall be subject to adjustment in the same manner as provided in
Paragraph VIII hereof with respect to shares of Stock subject to Options then
outstanding. Exercise of an Option in any manner, including an exercise
involving a Stock Appreciation Right, shall result in a decrease in the number
of shares of Stock which may thereafter be available, both for purposes of the
Plan and for sale to any one individual, by the number of shares as to which the
Option is exercised.
Notwithstanding any provision in the Plan to the contrary, no more than
1,000,000 shares of Stock may be subject to Options granted under the Plan to
any one individual during the term of the Plan. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of Section 162(m) of the Code, including, without limitation, counting
against such maximum number of shares of Stock, to the extent required under
Section 162(m) of the Code and applicable interpretive authority thereunder, any
shares of Stock subject to Options that are canceled or repriced.
SECTION VI.
OPTION PRICE
The Option Price of Stock issued under each Option shall be determined
by the Committee, but such Option Price shall not be less than the fair market
value of Stock subject to the Option on the date the Option is granted.
SECTION VII.
TERM OF PLAN
This Plan was originally effective on October 8, 1999 (the "Effective
Date"). This Plan, as amended and restated, shall be effective on January 20,
2000, which is the date on which the Board adopted this amended and restated
Plan, subject to the approval of the shareholders.
-3-
<PAGE> 4
Except with respect to Options then outstanding, if not sooner terminated under
the provisions of Paragraph IX, the Plan shall terminate upon and no further
Options shall be granted after the expiration of ten years from the Effective
Date.
SECTION VIII.
RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall
not affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the expiration
of an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the Option Price per share shall be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the Option Price per share shall be proportionately
increased. Any fractional share resulting from such adjustment shall be rounded
up to the next whole share.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "Recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the Recapitalization if, immediately prior to the
Recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) any "person," as such term
is used in Sections 13(d) and 14(d) of the 1934 Act (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities, (ii) during any period of
two consecutive years (not including any period prior to the Effective Date of
this Plan), individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in (i), (iii) or (iv) of this Paragraph VIII(c)) whose election by the Board or
nomination for election by the Company's shareholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors
-4-
<PAGE> 5
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason other than normal retirement, death
or disability to constitute at least a majority thereof, (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other
person, other than (1) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being converted into
voting securities for the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (2) a
merger in which the Company is the surviving entity but no "person" (as defined
above) acquires more than fifty percent (50%) of the combined voting power of
the Company's then outstanding securities, or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect) (each such event
described in clauses (i), (ii), (iii) and (iv) is referred to herein as a
"Corporate Change"), no later than (A) ten days after the approval by the
shareholders of the Company of such merger or consolidation, plan of complete
liquidation, or sale or disposition of assets or (B) thirty days after a change
of control of the type described in clause (i) or (ii), the Committee, acting in
its sole discretion without the consent or approval of any Optionee, shall act
to effect one or more of the following alternatives, which may vary among
individual Optionees and which may vary among Options held by any individual
Optionee: (I) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change) fixed
by the Committee, after which specified date all unexercised Options and all
rights of Optionees thereunder shall terminate, (II) require the mandatory
surrender to the Company by selected Optionees of some or all of the outstanding
Options held by such Optionees (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after such
Corporate Change, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and the Company shall pay to each Optionee an
amount of cash per share equal to the excess, if any, of the amount calculated
in Subparagraph (d) below (the "Change of Control Value") of the shares subject
to such Option over the Option Price(s) under such Options for such shares,
(III) make such adjustments to Options then outstanding as the Committee deems
appropriate to reflect such Corporate Change (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (IV) provide that the number and class of shares
of Stock covered by an Option theretofore granted shall be adjusted so that such
Option shall thereafter cover the number and class of shares of Stock or other
securities or property (including, without limitation, cash) to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution, the Optionee had
been the holder of record of the number of shares of Stock then covered by such
Option. Notwithstanding anything herein to the contrary, if a Corporate Change
occurs and, in connection with or as a result of such Corporate Change, neither
William V. Morgan nor Richard D. Kinder holds or continues to hold the office of
Chairman or Vice Chairman of the Company, all Options granted hereunder shall
immediately become fully exercisable.
-5-
<PAGE> 6
(d) For the purposes of clause (II) in Subparagraph (c) above, the
"Change of Control Value" shall equal the amount determined in clause (i), (ii)
or (iii), whichever is applicable, as follows: (i) the per share price offered
to shareholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. In the
event that the consideration offered to shareholders of the Company in any
transaction described in this Subparagraph (d) or Subparagraph (c) above
consists of anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the consolidation offered which is other than
cash.
(e) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options theretofore granted or the Option
Price per share.
SECTION IX.
AMENDMENT OR TERMINATION
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that (a) no change in any Option theretofore granted may
be made which would impair the rights of the Optionee without the consent of
such Optionee; (b) the Board may not make any alteration or amendment which
would decrease any authority granted to the Committee hereunder in contravention
of Rule 16b-3; and (c) no such action of the Board shall be taken without
approval of the Company's shareholders if such approval is required to comply
with Rule 16b-3, any rule promulgated by the New York Stock Exchange, or Section
162(m) of the Code or any successor provisions.
SECTION X.
SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to
any Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
-6-
<PAGE> 7
(b) It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the 1934 Act meet all of the requirements of
Rule 16b-3. If any provision of the Plan or any such Option would disqualify the
Plan or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3.
SECTION XI.
MISCELLANEOUS
(a) Neither the adoption of the Plan by the Company nor any action of
the Board or the Committee shall be deemed to give an employee any right to be
granted an Option or any other rights hereunder except as may be evidenced by an
Option Agreement duly executed on behalf of the Company, and then only to the
extent and on the terms and conditions expressly set forth therein. The Plan
shall be unfunded.
(b) Nothing contained in the Plan shall (i) confer upon any employee
any right with respect to continuation of employment with the Company or any
subsidiary or (ii) interfere in any way with the right of the Company or any
subsidiary to terminate his or her employment at any time.
(c) Nothing contained in the Plan shall be construed to prevent the
Company or any subsidiary from taking any corporate action which is deemed by
the Company or such subsidiary to be appropriate or in its best interest,
whether or not such action would have an adverse effect on the Plan or any
Option made under the Plan. No employee, beneficiary or other person shall have
any claim against the Company or any subsidiary as a result of any such action.
(d) Any Option Agreement or related document may be executed by
facsimile signature. If any officer who shall have signed or whose facsimile
signature shall have been placed upon any such Option Agreement or related
document shall have ceased to be such officer before the related Option is
granted by the Company, such Option may nevertheless be issued by the Company
with the same effect as if such person were such officer at the date of grant.
(e) This Plan shall be construed in accordance with the laws of the
State of Texas.
-7-
<PAGE> 8
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board of Directors, Kinder Morgan, Inc. has caused these
presents to be duly executed in its name and behalf by its proper officers
thereunto duly authorized as of this ____ day of _______________, 2000.
KINDER MORGAN, INC.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 13
KINDER MORGAN, INC.
1999 ANNUAL REPORT TO SHAREHOLDERS
Interested persons may receive a copy of Kinder Morgan's 1999 Annual Report to
Shareholders without charge by forwarding a written request to: Kinder Morgan,
Inc., Investor Relations Department, 1301 McKinney, Suite 3400 Houston, Texas,
77010.
<PAGE> 1
EXHIBIT 21
KINDER MORGAN, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF COMPANY STATE OF INCORPORATION
- --------------- ----------------------
<S> <C>
AOG Gas Transmission Company, L.P. ....................................................................... Texas
AOG Holdings, Inc. ....................................................................................... Delaware
American Gas Storage, L.P. ............................................................................... Texas
American Gathering, L.P. ................................................................................. Texas
American Oil & Gas Corporation ........................................................................... Delaware
American Pipeline Company ................................................................................ Delaware
American Processing, L.P. ................................................................................ Texas
Blue Moon Holdings, LLC* ................................................................................. Delaware
Caprock Pipeline Company ................................................................................. Delaware
Compressor Pump & Engine Machine, Inc. ................................................................... Wyoming
Coyote Gas Treating Limited Liability Company* ........................................................... Colorado
Enoable, LLC* ............................................................................................ Delaware
Energy Mountain Services ................................................................................. Colorado
Evolve Solutions, L.L.C .................................................................................. Delaware
FR Holdings, L.L.C. ...................................................................................... Colorado
Gas Natural del Noroeste, S.A. de C.V. ................................................................... Mexico
Interenergy Corporation .................................................................................. Colorado
Interenergy Distribution Corporation ..................................................................... Colorado
Interenergy Resources Corporation ........................................................................ Colorado
Interenergy Resources, L.P. .............................................................................. Texas
Interenergy Resources Corporation of New Mexico .......................................................... New Mexico
Kinder Morgan (Delaware), Inc ............................................................................ Delaware
Kinder Morgan G.P., Inc .................................................................................. Delaware
Kinder Morgan Power Company .............................................................................. Colorado
KNFS Investments ......................................................................................... Colorado
K N Cogeneration ......................................................................................... Colorado
K N Energy Foundation .................................................................................... Colorado
</TABLE>
<PAGE> 2
EXHIBIT 21 (continued)
<TABLE>
<S> <C>
K N Energy Igasamex, Inc. ................................................................................ Delaware
K N Energy International, Inc. ........................................................................... Delaware
K N Energy de Mexico, S.A. de C.V. ....................................................................... Mexico
K N Field Services, Inc. ................................................................................. Colorado
K N Finance Company ...................................................................................... Colorado
K N Gas Gathering, Inc. .................................................................................. Colorado
K N Gas Supply Services, Inc. ............................................................................ Colorado
K N Management Corp. ..................................................................................... Delaware
K N Marketing, L.P. ...................................................................................... Texas
K N Natural Gas, Inc. .................................................................................... Colorado
K N Processing, Inc. ..................................................................................... Delaware
K N Services, Inc. ....................................................................................... Colorado
K N Telecommunications, Inc. ............................................................................. Colorado
K N Thermo Acquisition, Inc. ............................................................................. Colorado
K N Thermo, LLC .......................................................................................... Colorado
K N Trading, Inc. ........................................................................................ Delaware
K N TransColorado, Inc. .................................................................................. Colorado
K N Wattenberg Transmission Limited Liability Company .................................................... Colorado
K N Weatherwise LLC ...................................................................................... Delaware
K N WesTex Gas Service Company ........................................................................... Texas
Lake Power, L.L.C ........................................................................................ Delaware
mc2 Inc. ................................................................................................. Delaware
MCN Gulf Processing Corp. ................................................................................ Delaware
MCN Properties Corp. ..................................................................................... Delaware
MidCon Corp. ............................................................................................. Delaware
MidCon Dehydration Corp. ................................................................................. Delaware
MidCon Development Corp. ................................................................................. Delaware
MidCon Exploration Company ............................................................................... Illinois
MidCon Gas Natural de Mexico, S.A. de C.V. ............................................................... Mexico
MidCon Gas Products Corp. ................................................................................ Delaware
MidCon Gas Services Corp. ................................................................................ Delaware
MidCon Marketing Corp. ................................................................................... Delaware
</TABLE>
<PAGE> 3
EXHIBIT 21 (continued)
<TABLE>
<S> <C>
MidCon Mexico Pipeline Corp. ............................................................................. Delaware
MidCon NGL Corp. ......................................................................................... Delaware
MidCon Power Services Corp. .............................................................................. Delaware
MidCon Texas Gas Services Corp. .......................................................................... Delaware
MidCon Texas Pipeline Operator, Inc. ..................................................................... Delaware
NALOCO, Inc. ............................................................................................. Delaware
NATOCO, Inc. ............................................................................................. Delaware
Natural Gas Pipeline Company of America .................................................................. Delaware
NGPL-Canyon Compression Co. .............................................................................. Delaware
NGPL Offshore Company .................................................................................... Delaware
NGPL-Overthrust Inc. ..................................................................................... Delaware
Northern Gas Company ..................................................................................... Wyoming
Occidental Energy Development Corp. ...................................................................... Delaware
Palo Duro Pipeline Company, Inc. ......................................................................... Delaware
Panola/Rusk Gatherers .................................................................................... Texas
Red River Pipeline, L.P. ................................................................................. Texas
Red Rock Energy, LLC ..................................................................................... Delaware
Rocky Mountain Natural Gas Company ....................................................................... Colorado
Slurco Corporation ....................................................................................... Colorado
TCP Gathering Co. ........................................................................................ Colorado
Temple & Petty Construction Co., L.L.C. .................................................................. Colorado
Thermo Greeley L.L.C. .................................................................................... Colorado
Thermo Salt Company, LLC ................................................................................. Colorado
Thunder Creek Gas Services, L.L.C. ....................................................................... Wyoming
Valley Operating, Inc. ................................................................................... Colorado
Westar Transmission Company .............................................................................. Delaware
Wildhorse Energy Partners, LLC ........................................................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on (i) Form S-16, (Nos. 2-51894, 2-55664, 2-63470 and 2-75654); (ii)
Form S-8, (Nos. 2-77752, 33-10747, 33-24934, 33-33018, 33-54403, 33-54443,
33-54555, 333-08059, 333-08087 and 333-60839); and (iii) Form S-3, (Nos.
2-84910, 33-26314, 33-23880, 33-42698, 33-44871, 33-45091, 33-46999, 33-54317,
33-69432, 333-04385, 333-40869, 333-44421, 333-55921, and 333-68257) of Kinder
Morgan, Inc. and subsidiaries of our report dated March 16, 2000 relating to
the financial statements and schedule, which appear in this Form 10-K, and of
our report dated March 10, 2000 relating to the financial statements of
Kinder Morgan Energy Partners, L.P., which are incorporated by reference in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 27, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in (i) Registration Statements on Form S-16, File Nos. 2-51894,
2-55664, 2-63470 and 2-75654; (ii) Registration Statements on Form S-8, File
Nos. 2-77752, 33-10747, 33-24934, 33-33018, 33-54403, 33-54443, 33-54555,
333-08059, 333-08087 and 333-60839; and (iii) Registration Statements on Form
S-3, File Nos. 2-84910, 33-26314, 33-23880, 33-42698, 33-44871, 33-45091,
33-46999, 33-54317, 33-69432, 333-04385, 333-40869, 333-44421, 333-55921 and
333-68257 of our report dated February 2, 1999 (except with respect to the
matter discussed in Note 6 to the December 31, 1999 consolidated financial
statements, as to which the date is March 16, 2000), on the consolidated
financial statements and schedule of Kinder Morgan, Inc. (formerly K N Energy,
Inc.) and subsidiaries for the year ended December 31, 1998 included in this
Form 10-K.
/s/ Arthur Andersen LLP
Denver, Colorado
March 27, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<RECEIVABLES> 638,120
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<BONDS> 3,293,326
0
0
<COMMON> 564,192
<OTHER-SE> 1,101,649
<TOTAL-LIABILITY-AND-EQUITY> 9,540,283
<SALES> 1,745,481
<TOTAL-REVENUES> 1,745,481
<CGS> 956,181
<TOTAL-COSTS> 1,440,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,460
<INTEREST-EXPENSE> 251,986
<INCOME-PRETAX> 245,179
<INCOME-TAX> 90,527
<INCOME-CONTINUING> 154,652
<DISCONTINUED> (396,096)
<EXTRAORDINARY> 0
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