<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
KINDER MORGAN, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KINDER MORGAN, INC.
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No filing fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[KINDER MORGAN INC. LOGO]
1301 McKinney, Suite 3400
Houston, Texas 77010
April 11, 2000
To our stockholders:
You are cordially invited to attend the annual meeting of our
stockholders to be held at the Doubletree Hotel at Allen Center, 400 Dallas
Street, Houston, Texas on May 9, 2000, at 10:00 a.m. local time. The meeting has
been called by our Board of Directors.
The accompanying proxy statement describes the matters to be presented
for approval at the annual meeting. In summary, the agenda of the meeting will
include the election of Class I Directors, the consideration of proposals that
relate to our employee benefit plans and the ratification of our auditors.
Representation of your shares at the meeting is very important. We urge
each stockholder, whether or not you plan to attend the meeting, to promptly
vote by proxy. If you attend the meeting, you may, if you wish, revoke your
proxy and vote in person.
You may notice that the format of this proxy statement is different from
others you have seen. The Securities and Exchange Commission is encouraging
companies to write documents for investors in plain English and we support this
effort. We hope that this format will help make the attached proxy statement
easier to understand.
Sincerely,
/s/ RICHARD D. KINDER
Richard D. Kinder
Chairman and Chief Executive Officer
<PAGE> 3
[KINDER MORGAN INC. LOGO]
1301 McKinney, Suite 3400
Houston, Texas 77010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 2000
------------------------
To our stockholders:
We, the Board of Directors of Kinder Morgan, Inc., give notice that the
annual meeting of our stockholders will be held at the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, on Tuesday, May 9, 2000, beginning at
10:00 a.m. local time. At the meeting, the holders of our common stock will act
on the following matters:
(1) election of four Class I Directors to hold office for a
three-year term in accordance with the terms of our Restated Articles of
Incorporation and By-Laws;
(2) a proposal to amend and restate our 1994 K N Energy, Inc.
Long Term Incentive Plan;
(3) a proposal to amend and restate our K N Energy, Inc. 1999
Stock Option Plan;
(4) a proposal to amend and restate our 1992 Nonqualified Stock
Option Plan for Non-Employee Directors;
(5) a proposal to ratify and approve our 2000 Annual Incentive
Plan;
(6) a proposal to amend our K N Energy, Inc. Employees Stock
Purchase Plan;
(7) a proposal to ratify and approve the selection of
PricewaterhouseCoopers LLP as our auditors for 2000; and
(8) any and all other business that may properly come before the
annual meeting or any adjournment or adjournments thereof.
We are sending this proxy statement to our stockholders on April 11,
2000. We have set the close of business on March 13, 2000 as the record date for
determining stockholders entitled
<PAGE> 4
to receive notice of and to vote at the annual meeting. A list of all
stockholders entitled to vote is on file at our principal offices at 1301
McKinney, Suite 3400, Houston, Texas 77010, and will be available for inspection
by any stockholder during the meeting.
If you cannot attend the meeting, you may vote over the telephone or the
Internet as instructed on the enclosed proxy card or by mailing the proxy card
in the enclosed postage-prepaid envelope. Any stockholder attending the meeting
may vote in person, even though he or she has already voted by proxy.
IF YOU PLAN TO ATTEND:
Please note that space limitations make it necessary to limit attendance
to stockholders and one guest. Admission to the meeting will be on a first-come,
first-served basis. Registration will begin at 9:00 a.m. and seating will begin
at 9:30 a.m. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Stockholders holding
stock in brokerage accounts will need to bring a copy of a brokerage statement
reflecting stock ownership as of the record date. Cameras, recording devices and
other electronic devices will not be permitted at the meeting.
By order of the Board of Directors,
/s/ RICHARD D. KINDER
Richard D. Kinder
Chairman and Chief Executive Officer
April 11, 2000
Houston, Texas
-2-
<PAGE> 5
[KINDER MORGAN INC. LOGO]
1301 McKinney, Suite 3400
Houston, Texas 77010
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE MEETING............................................................................1
Who sent me this proxy statement?....................................................1
Why did I receive this proxy statement and proxy card?...............................1
What does it mean if I receive more than one proxy card?.............................2
What is the purpose of the annual meeting?...........................................2
Who is entitled to vote at the annual meeting?.......................................2
What are the voting rights of stockholders?..........................................2
Who can attend the annual meeting?...................................................2
What constitutes a quorum?...........................................................2
How do I vote?.......................................................................3
Can I vote by telephone or electronically?...........................................3
Can I change my vote after I return my proxy card?...................................3
What are the recommendations of our Board of Directors?..............................3
What vote is required to approve each item?..........................................4
Do I have any dissenters' rights?....................................................5
Where can I find the voting results of the meeting?..................................5
How can I find more information about Kinder Morgan?.................................5
COMMON STOCK OWNERSHIP.......................................................................6
Who are the largest owners of our common stock?......................................6
How much common stock do our directors and executive officers own?...................6
Have our directors, officers and the ten-percent stockholders complied with
Section 16(a) of the Exchange Act?............................................8
Certain Relationships and Related Transactions.......................................8
EXECUTIVE COMPENSATION.......................................................................9
Summary Compensation Table...........................................................9
Option Grants in Fiscal 1999........................................................11
Option Exercises and Values for Fiscal 1999.........................................12
Executive Compensation Plans For Our Subsidiaries...................................12
How are our directors compensated?..................................................14
Report of our Compensation Committee................................................14
Compensation Committee Interlocks and Insider Participation.........................16
Employment And Termination Agreements...............................................16
Comparison of Five-year Cumulative Total Return.....................................18
Comparison of Cumulative Total Return with Our Current Management ..................19
</TABLE>
-i-
<PAGE> 6
<TABLE>
<S> <C>
ITEM 1-ELECTION OF DIRECTORS................................................................20
ITEM 2-PROPOSAL TO AMEND AND RESTATE OUR K N ENERGY, INC. 1994 LONG-TERM INCENTIVE PLAN.....24
ITEM 3-PROPOSAL TO AMEND AND RESTATE OUR K N ENERGY, INC. 1999 STOCK OPTION PLAN............33
ITEM 4-PROPOSAL TO AMEND AND RESTATE OUR 1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS..40
ITEM 5-PROPOSAL TO RATIFY AND APPROVE OUR 2000 ANNUAL INCENTIVE PLAN........................43
ITEM 6-PROPOSAL TO AMEND OUR K N ENERGY, INC. EMPLOYEES STOCK PURCHASE PLAN.................48
ITEM 7-PROPOSAL TO RATIFY AND APPROVE THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR
INDEPENDENT AUDITORS................................................................51
OTHER MATTERS...............................................................................51
ADDITIONAL INFORMATION......................................................................51
</TABLE>
-ii-
<PAGE> 7
[KINDER MORGAN INC. LOGO]
1301 McKinney, Suite 3400
Houston, Texas 77010
----------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 2000
---------------------
This proxy statement contains information related to the annual meeting
of our stockholders to be held on Tuesday, May 9, 2000, beginning at 10:00 a.m.
local time, at the Doubletree Hotel at Allen Center, 400 Dallas Street, Houston,
Texas, and at any postponements or adjournments thereof.
ABOUT THE MEETING
WHO SENT ME THIS PROXY STATEMENT?
Our Board of Directors sent you this proxy statement and proxy card. We
will pay for the solicitation. In addition to this solicitation by mail, proxies
may be solicited by our directors, officers and other employees by telephone,
Internet, telegraph, telefax or telex, in person or otherwise. These people will
not receive any additional compensation for assisting in the solicitation. We
may also request brokerage firms, nominees, custodians and fiduciaries to
forward proxy materials to the beneficial owners of our shares. We will
reimburse those people and our transfer agent for their reasonable out-of-pocket
expenses in forwarding such material. We have also retained Corporate Investor
Communications, Inc. to perform the broker nominee search and to distribute
proxy materials to banks, brokers, nominees and intermediaries. We will pay to
third parties approximately $8,000, plus out-of-pocket expenses, for all of
these services.
WHY DID I RECEIVE THIS PROXY STATEMENT AND PROXY CARD?
You received this proxy statement and proxy card from us because you
owned our common stock as of March 13, 2000. We refer to this date as the record
date. This proxy statement contains important information for you to consider
when deciding whether to vote for the election of directors, the proposals of
our Board of Directors relating to our employee benefit plans and ratifying the
selection of our independent auditors. Please read this proxy statement
carefully.
<PAGE> 8
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have multiple accounts at the transfer agent and/or
with stockbrokers. Please sign and return all proxy cards to ensure that all
your shares are voted.
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, our stockholders will act upon the matters
outlined in the notice of annual meeting on the cover page of this proxy
statement, including the election of directors, the consideration of five
proposals of our Board of Directors related to employee benefit plans and the
ratification of the selection of our independent auditors. In addition, our
management will report on our performance during fiscal 1999 and respond to
questions from stockholders.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
All stockholders who owned our common stock at the close of business on
the record date, March 13, 2000, are entitled to receive notice of the annual
meeting and to vote the shares of common stock that they held on that date at
the meeting, or any postponements or adjournments of the meeting.
WHAT ARE THE VOTING RIGHTS OF STOCKHOLDERS?
Each outstanding share of our common stock will be entitled to one vote
on all matters to be considered.
WHO CAN ATTEND THE ANNUAL MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting, and each may be accompanied by one guest. Seating,
however, is limited. Admission to the meeting will be on a first-come,
first-served basis. Registration will begin at 9:00 a.m. and seating will begin
at 9:30 a.m. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.
Please note that if you hold your shares in street name (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of our common stock outstanding on the record date will
constitute a quorum. The presence of a quorum will permit us to conduct the
proposed business at the annual meeting. As of the record date, approximately
113,035,179 shares of our common stock were issued and outstanding.
-2-
<PAGE> 9
Your common stock will be counted as present at the meeting if you:
o are present at the meeting; or
o have properly submitted a proxy card or voted over the telephone
or the Internet.
Proxies received but marked as abstentions and broker non-votes will be included
in the number of shares considered to be present at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return
it to us, it will be voted as you direct. If you are a registered stockholder
and attend the meeting, you may deliver your completed proxy card in person.
Street name stockholders who wish to vote at the meeting will need to obtain a
proxy form from the institution that holds their shares. Even if you plan to
attend the annual meeting, your plans may change, so it is a good idea to
complete, sign and return your proxy card or vote by Internet or telephone in
advance of the meeting.
CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
If you are a registered stockholder (that is, if you hold your stock in
certificate form), you may vote by telephone or through the Internet by
following the instructions included with your proxy card.
If your shares are held in street name, please check your proxy card or
contact your broker or nominee to determine whether you will be able to vote by
telephone or electronically.
The deadline for voting by telephone or electronically is 11:59 p.m.
(Eastern Daylight Savings Time) on May 8, 2000.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with our Secretary
either a notice of revocation or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if you attend the annual meeting
in person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
WHAT ARE THE RECOMMENDATIONS OF OUR BOARD OF DIRECTORS?
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors. Our Board of Directors'
recommendation is set forth together with the description of each item in this
proxy statement. In summary, our Board of Directors recommends a vote:
o for the election of the nominated slate of directors (see page
20);
-3-
<PAGE> 10
o for the proposal to amend and restate our 1994 K N Energy, Inc.
Long-Term Incentive Plan (see page 24);
o for the proposal to amend and restate our K N Energy, Inc. 1999
Stock Option Plan (see page 33);
o for the proposal to amend and restate our 1992 Stock Option Plan
for Non-Employee Directors (see page 40);
o for the proposal to ratify and approve our 2000 Annual Incentive
Plan (see page 43);
o for the proposal to amend our K N Energy, Inc. Employees Stock
Purchase Plan (see page 48); and
o for the proposal to ratify and approve the selection of
PricewaterhouseCoopers LLP as our auditors for 2000 (see page
51).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum. Accordingly, a "WITHHOLD AUTHORITY" vote will have the effect of a
negative vote.
Other Items. For each other item, the affirmative vote of the holders of
a majority of the shares represented in person or by proxy and entitled to vote
on the item will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any such matter will not be voted, although it will be
counted for purposes of determining whether there is a quorum. Accordingly, an
abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
-4-
<PAGE> 11
DO I HAVE ANY DISSENTERS' RIGHTS?
No. Under the laws of the State of Kansas, dissenters' rights are not
available to our stockholders with respect to matters to be voted on at the
annual meeting.
WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?
The preliminary voting results will be announced at the meeting. The
final results will be published in our quarterly report on Form 10-Q for the
second quarter of fiscal 2000.
HOW CAN I FIND MORE INFORMATION ABOUT KINDER MORGAN?
We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission. You may read and copy any of these
documents at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. (Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room.) You may also read and copy
any of these documents at either of the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048 and Chicago Regional Office, Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the material
may be obtained by mail at prescribed rates from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. We are listed on the New York Stock Exchange. Reports and other
information concerning us may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, Washington, D.C. 10005. Our filings also are
available to the public at the Commission's web site at http://www.sec.gov. You
may also request a copy of our filings by contacting our Secretary, c/o Kinder
Morgan, Inc., 1301 McKinney, Suite 3400, Houston, Texas 77010.
-5-
<PAGE> 12
COMMON STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF OUR COMMON STOCK?
Except as set forth below, we know of no single person or group that was
the beneficial owner of more than 5% of our common stock during 1999.
Information set forth in the table with respect to beneficial ownership of our
common stock has been obtained from filings with the Securities and Exchange
Commission made by the named beneficial owners. Beneficial ownership for the
purposes of the foregoing table is defined by Rule 13d-3 under the Exchange Act.
Under that rule, a person is generally considered to be the beneficial owner of
a security if he or she has or shares the power to vote or direct the voting
thereof or to dispose or direct the disposition thereof or has the right to
acquire either of those powers within sixty days.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY PERCENTAGE
OWNED OF CLASS
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard D. Kinder 23,989,992(1) 21.2%
Morgan Associates, Inc. 7,035,408(2) 6.2%
First Union Corporation 6,299,747(3) 5.6%
FMR Corp. 7,090,520(4) 6.3%
</TABLE>
- -------------------
(1) The aggregate number of shares beneficially owned by Mr. Kinder does not
include: (a) 485,583 shares held by a Kinder family charitable foundation, a
charitable not-for-profit corporation, or (b) 2,500 shares held by Nancy G.
Kinder, Mr. Kinder's wife. Mr. Kinder disclaims any and all beneficial or
pecuniary interest in these shares.
(2) Mr. William V. Morgan may be deemed to own the 7,035,408 shares and thereby
shares in the voting and disposition power with Morgan Associates, Inc.
(3) As reported on First Union's Schedule 13G filed February 14, 2000. First
Union Corporation reports that it has sole voting power over 6,298,822
shares, sole disposition power over 6,293,830 shares and shared disposition
power over 917 shares. The shares exclude shares owned by Ted A. Gardner, an
officer of affiliates of First Union Corporation.
(4) As reported on FMR Corp.'s Schedule 13G filed August 10, 1999. FMR Corp.
reports that it has sole voting power over 436,720 shares and sole
disposition power over 7,090,520 shares.
The address for Mr. Kinder and Morgan Associates, Inc. is 1301 McKinney,
Suite 3400, Houston, Texas 77010. The address for First Union Affordable Housing
Community Development Corporation and First Union Corporation is One First Union
Center, 5th Floor, 301 College Street, Charlotte, North Carolina 28288-0732. The
address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts 02109.
HOW MUCH COMMON STOCK DO OUR DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table shows the amount of our common stock beneficially
owned (unless otherwise indicated) by our directors, our executive officers
named in the Summary Compensation Table, and our directors and executive
officers as a group. Except as otherwise indicated, all information is as of
March 1, 2000. None of our officers or directors is a party adverse to us or our
subsidiaries nor do they have material interest adverse to us or our
subsidiaries.
-6-
<PAGE> 13
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF SHARES ACQUIRABLE WITHIN PERCENT OF SHARES
NAME BENEFICIALLY OWNED 60 DAYS OUTSTANDING
------------------ ----------------- -----------
<S> <C> <C> <C>
Richard D. Kinder 23,989,992 (1) -- 21.2%
William V. Morgan 7,035,408 (2) -- 6.2%
Edward H. Austin 240,026 12,500 *
William J. Hybl 12,068 37,443 *
Charles W. Battey 64,455 30,500 *
H. A. True, III 21,900 21,500 *
Stewart A. Bliss 4,675 35,000 *
Edward Randall, III 109,500 12,500 *
Fayez Sarofim 1,669,968 (3) 12,500 1.5%
Ted A. Gardner 231,159 12,500 *
Michael C. Morgan -- -- --
David G. Dehaemers, Jr. -- -- --
William V. Allison -- -- --
Joseph Listengart -- -- --
Larry Hall 204,701 (4) 523,375 (5) *
(former CEO/Chairman)
All current directors and 33,574,808 697,818 30.3%
executive officers as a
group (17 persons)
</TABLE>
- --------------------
* Less than 1%
(1) The aggregate number of shares beneficially owned by Mr. Kinder does not
include: (a) 485,583 shares held by a Kinder family charitable foundation, a
charitable not-for-profit corporation, or (b) 2,500 shares held by Nancy G.
Kinder, Mr. Kinder's wife. Mr. Kinder disclaims any and all beneficial or
pecuniary interest in these shares.
(2) Mr. William V. Morgan may be deemed to own the 7,035,408 shares and thereby
shares in the voting and disposition power with Morgan Associates, Inc.
(3) As reported to us on March 7, 2000, Mr. Sarofim may be deemed to be the
beneficial owner of 1,669,968 shares of our common stock. Of these shares,
Mr. Sarofim has sole voting and dispositive powers with respect to 1,012,500
shares which are owned of record and beneficially by him, and may be deemed
to have shared voting and dispositive power as to 657,468 shares of our
common stock. Of the securities which are not subject to sole voting and
dispositive powers, 428,916 shares are held in investment advisory accounts
managed by Fayez Sarofim & Co. for numerous clients, 160,251 shares are held
by Sarofim International Management Company for its own account, 26,800
shares are held in investment advisory accounts managed by Sarofim
International Management Company, and 4,400 shares are held in investment
advisory accounts managed by Sarofim Trust Co. Fayez Sarofim & Co. is an
Investment Adviser registered under the Investment Advisers Act of 1940, of
which Mr. Sarofim is Chairman of the Board, President, and, through a
holding company, majority shareholder. Sarofim International Management
Company is a wholly-owned subsidiary of Fayez Sarofim & Co., and Sarofim
Trust Co. is a wholly-owned subsidiary of Sarofim International Management
Company. Additionally, 37,101 shares are held in trusts of which Mr. Sarofim
is trustee, as to which he shares voting and dispositive powers but has no
beneficial interest.
(4) Excludes 208 shares owned by Mr. Hall's wife, as to which Mr. Hall disclaims
beneficial ownership and over which he has neither investment nor voting
power.
(5) The number of shares is as of July 16, 1999 as reported in the joint proxy
statement dated August 23, 1999 by K N Energy, Inc. and Kinder Morgan
(Delaware), Inc. regarding the merger between Kinder Morgan (Delaware), Inc.
and us.
Unless otherwise indicated the directors and named executive officers
have sole voting and
-7-
<PAGE> 14
dispositive power over the shares listed above, other than shared rights created
under joint tenancy or marital property laws as between the directors or named
executive officers and their respective spouses.
For executive officers, except as noted otherwise, the numbers include
interests in shares held in the various employee benefit plans. The column
entitled "Acquirable within 60 Days" reflects the number of shares that could be
purchased by the exercise of options available on March 13, 2000 or within 60
days thereafter under our stock option plans. The percentage listed in column
entitled "Percent of Shares Outstanding" is calculated based on 113,035,179
shares of our common stock outstanding on March 13, 2000.
HAVE OUR DIRECTORS, OFFICERS AND THE TEN-PERCENT STOCKHOLDERS COMPLIED WITH
SECTION 16(a) OF THE EXCHANGE ACT?
Based upon a review of filings with the Securities and Exchange Commission and
written representations that no other reports were required, we believe that all
of our directors and executive officers complied during fiscal 1999 with the
reporting requirements of Section 16(a) of the Exchange Act, except for our
former Executive Vice President, H. Rickey Wells, who did not file a timely Form
5 disclosing a disposition of common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 7, 1999, each of Mr. Kinder and Morgan Associates, Inc.
entered into a governance agreement with us. Each governance agreement restricts
the acquisition of our common stock, joining a group or the execution of a
voting agreement if after the acquisition, joinder or agreement that party or
the group would own or control the voting of more than 34.9% of our outstanding
common stock in the case of Mr. Kinder or more than 15% of our outstanding
common stock in the case of Morgan Associates, Inc.
Neither governance agreement restricts Mr. Kinder or Morgan Associates,
Inc. from proposing, supporting or participating in a transaction that offers
each of our stockholders the opportunity to dispose of all of their common stock
if a majority of our independent directors approve the transaction or we receive
a fairness opinion that the transaction is fair to our stockholders from a
financial point of view. Mr. Kinder and Morgan Associates, Inc. both agreed not
to support or vote in favor of a transaction such as a merger or tender offer
unless the same offer is made to all of our stockholders.
Each of Mr. Kinder and Morgan Associates, Inc. generally agreed not to
sell our common stock owned by them except in compliance with Rule 144 under the
Securities Act or in a public offering. Additionally, Mr. Kinder may sell up to
3.5% of his common stock and Morgan Associates, Inc. may sell up to 1.4% of its
common stock in a private placement as long as the other restrictions described
above do not apply. If a majority of our independent directors otherwise agree
and our stockholders have the ability to join in a sale, Mr. Kinder and Morgan
Associates, Inc. may sell their common stock.
Both governance agreements terminate April 7, 2001, 18 months after the
date of our acquisition by merger of Kinder Morgan (Delaware), Inc. Mr. Kinder's
governance agreement also
-8-
<PAGE> 15
terminates when he beneficially owns less than 10% of our common stock. Morgan
Associates, Inc.'s governance agreement also terminates when it beneficially
owns less than 5% of our common stock.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total compensation
earned or paid to our Chief Executive Officer and our four most highly
compensated executive officers who were serving in such capacities as of
December 31, 1999, for each of the last three fiscal years. In addition, the
table includes the total compensation earned or paid to persons who formerly
served as our chief executive officer during the past fiscal year.
Please note that since the completion of the merger with Kinder Morgan
(Delaware), Inc. on October 7, 1999, the date Mr. Kinder became the Chief
Executive Officer and Chairman of the Board, Mr. Kinder has received a salary of
$1. Since October 7, 1999, Mr. Kinder has received no additional compensation
from any of our affiliates. The $150,003 of salary reflected in the table
represents salary Mr. Kinder received from our indirectly wholly-owned
subsidiary, Kinder Morgan G.P., Inc. for his services as Chief Executive Officer
and Chairman of the Board of Kinder Morgan G.P., Inc. between January 1, 1999
and October 7, 1999.
The amounts listed in the table under the columns entitled "Salary" and
"Bonus" for Messrs. Kinder, Allison, Morgan, Dehaemers, and Listengart are
required to include compensation that they received for services rendered to us
and our subsidiaries. We must therefore include compensation that our executive
officers received for the services that they rendered during fiscal 1999 to our
indirectly wholly-owned subsidiary, Kinder Morgan G.P., Inc.
-9-
<PAGE> 16
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
---------------------------------------------------------------------
ANNUAL
COMPENSATION * AWARDS PAYOUTS
- ---------------------------------------------------------------------------------
ALL OTHER
RESTRICTED SECURITIES COMPENSATION***
NAME AND STOCK UNDERLYING LTIP ($)
PRINCIPAL FISCAL SALARY BONUS AWARD(S) OPTIONS- PAYOUTS
POSITIONS YEAR ($) ($) ($) SARS ($)
(#)(**)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard D. Kinder 1999 $150,003(1) -- -- -- -- $7,554(3)
Chief Executive 1998 -- -- -- -- -- --
Officer 1997 -- -- -- -- -- --
and Chairman of the
Board
- ---------------------------------------------------------------------------------------------------
William V. Allison 1999 $192,497 $200,000 -- 250,000 -- $9,335(3)
President, Natural 1998 -- -- -- -- -- --
Gas Pipeline 1997 -- -- -- -- -- --
Operations
- ---------------------------------------------------------------------------------------------------
Michael C. Morgan 1999 $161,249 $250,000 -- 250,000 $3,753,868(2) $7,408(3)
Vice President-Strategy 1998 -- -- -- -- -- --
and Investor Relations 1997 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
David G. Dehaemers, Jr. 1999 $161,249 $250,000 -- 250,000 $3,753,868(2) $7,408(3)
Vice President-Corporate 1998 -- -- -- -- -- --
Development 1997 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
Joseph Listengart 1999 $124,336 $140,436 -- 175,000 -- $7,408(3)
Vice-President, 1998 -- -- -- -- -- --
Secretary 1997 -- -- -- -- -- --
and General Counsel
- ---------------------------------------------------------------------------------------------------
Larry D. Hall 1999 $636,923 -- -- -- -- $151,930(4)
Former Chief 1998 623,247 -- $416,000 135,001(5) -- 9,983(1)
Executive Officer 1997 499,999 $450,000 2,662,656 120,000(5) -- 11,220(1)
and Chairman of the
Board
- ---------------------------------------------------------------------------------------------------
Stewart A. Bliss 1999 $241,200 $301,500 -- 17,000 -- --
Former Interim 1998 -- -- 4,500(2) -- --
Chief Executive 1997 -- -- 4,500(2) -- --
Officer and
Chairman of the Board
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
* The salaries and bonuses for Messrs. Kinder, Allison, Morgan, Dehaemers and
Listengart are paid by our indirectly wholly-owned subsidiary Kinder Morgan
G.P., Inc.
** The amounts listed in this column have been adjusted to reflect the 3-for-2
stock split effective December 31, 1998.
*** We provide our current executive officers with certain group life, health,
medical and other non-cash benefits generally available to all salaried
employees and which have not been included in the amounts listed in this
column.
(1) Since October 7, 1999, the date Mr. Kinder became the Chief Executive
Officer and Chairman of the Board, Mr. Kinder has received a salary of $1.
Since October 7, 1999, Mr. Kinder has received no additional compensation
from any of our affiliates. The $150,003 of salary reflected in the table
represents salary Mr. Kinder received from our indirectly wholly-owned
subsidiary, Kinder Morgan G.P., Inc., for his services as Chief Executive
Officer and Chairman of the Board of Kinder Morgan G.P., Inc. between
January 1, 1999 and October 7, 1999.
(2) These amounts were paid to Messrs. Morgan and Dehaemers pursuant to Kinder
Morgan Energy Partner's Executive Compensation Plan described on page 13.
(3) Represents Kinder Morgan G.P., Inc.'s contributions to the Retirement
Savings Plan (a 401(k) plan), the imputed value of Kinder Morgan G.P.,
Inc.'s paid group term life insurance exceeding $50,000 and compensation
attributable to taxable moving and parking expenses allowed. The amount
shown for Mr. Kinder relates to periods prior to October 7, 1999.
(4) This payment was made to Mr. Hall in connection with his resignation as an
executive officer.
(5) Mr. Hall was granted these options under our 1994 Incentive Plan, which were
granted at an exercise price of 100% of the fair market value of our common
stock as of the date of grant, are exercisable within 10 years from the
respective dates of grant, and vest over a three, four or five-year period.
-10-
<PAGE> 17
OPTION GRANTS IN FISCAL 1999
The table below sets forth information with respect to stock option
grants during fiscal 1999 to each of our named executives.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM
--------------------------------------------------------------------------
NAME AND PRINCIPAL NUMBER OF % OF TOTAL
POSITIONS SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES EXERCISE
GRANTED (#) IN FISCAL OR BASE EXPIRATION 5% 10%
YEAR PRICE DATE
($/SH)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Kinder -- -- -- -- -- --
Chief Executive
Officer and
Chairman of the
Board
- -----------------------------------------------------------------------------------------------
William V. Allison 250,000 5.4% $23.8125 10/8/2009 $3,743,900 $9,487,750
President, Natural
Gas Pipeline
Operations
- -----------------------------------------------------------------------------------------------
Michael C. Morgan, 250,000 5.4% $23.8125 10/8/2009 $3,743,900 $9,487,750
Vice
President-Strategy
and Investor
Relations
- -----------------------------------------------------------------------------------------------
David G. 250,000 5.4% $23.8125 10/8/2009 $3,743,900 $9,487,750
Dehaemers, Jr.
Vice
President-Corporate
Development
- -----------------------------------------------------------------------------------------------
Joseph Listengart 175,000 3.8% $23.8125 10/8/2009 $2,620,730 $6,641,425
Vice President,
Secretary and
General Counsel
- -----------------------------------------------------------------------------------------------
Larry D. Hall -- -- -- -- -- --
Former Chief
Executive Officer
and Chairman of
the Board
- -----------------------------------------------------------------------------------------------
Stewart A. Bliss 17,000 0.4% $23.7188(1) 1/4/2009 $ 67,125 $ 170,188
Former Interim
Chief Executive $23.8125(2) 10/8/2009 $ 187,195 $ 474,388
Officer and
Chairman of the
Board
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Exercise price for an option to purchase 4,500 shares granted as of
January 4, 1999.
(2) Exercise price for an option to purchase 12,500 shares granted
October 8, 1999.
-11-
<PAGE> 18
OPTION EXERCISES AND VALUES FOR FISCAL 1999
The table below sets forth information with respect to stock option
exercises during fiscal 1999 by each of our named executive officers and the
status of their options at December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT FY-
OPTIONS/SARS AT FY-END(#) END ($)
NAME SHARES
AND PRINCIPAL ACQUIRED ON VALUE
POSITION EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard D. Kinder -- -- -- / -- -- / --
Chief Executive
Officer and
Chairman of the
Board
- --------------------------------------------------------------------------------------------------------
William V. Allison -- -- -- / 250,000 --- / ---
President, Natural
Gas Pipeline
Operations
- --------------------------------------------------------------------------------------------------------
Michael C. Morgan -- -- -- / 250,000 -- / --
Vice
President-Strategy
and Investor
Relations
- --------------------------------------------------------------------------------------------------------
David G. -- -- -- / 250,000 -- / --
Dehaemers, Jr.
Vice
President-Corporate
Development
- --------------------------------------------------------------------------------------------------------
Joseph Listengart -- -- -- / 175,000 -- / --
Vice President,
Secretary and
General Counsel
- --------------------------------------------------------------------------------------------------------
Larry D. Hall 129,375 $628,375 -- / -- -- / --
Former Chief
Executive Officer
and Chairman of
the Board
- --------------------------------------------------------------------------------------------------------
Stewart A. Bliss -- -- 22,500 / 12,500 $8,391 / --
Former Interim
Chief Executive
Officer and
Chairman of the
Board
- --------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTIVE COMPENSATION PLANS FOR OUR SUBSIDIARIES
As we are required to report compensation that our named executive
officers receive from our subsidiaries, most notably Kinder Morgan G.P., Inc.,
we are including the following descriptions of Kinder Morgan G.P., Inc.
compensation plans, through which certain of our named executive officers
receive compensation which is included in the Summary Compensation Table on page
10. As of October 7, 1999, neither of Messrs. Kinder or William V. Morgan
receive any compensation from Kinder Morgan G.P., Inc. or any of our other
subsidiaries.
Retirement Savings Plan
Effective July 1, 1997, Kinder Morgan G.P., Inc. established the Kinder
Morgan Retirement Savings Plan, a defined contribution 401(k) plan, that permits
all full-time employees of Kinder
-12-
<PAGE> 19
Morgan G.P., Inc. to contribute 1% to 15% of base compensation, on a pre-tax or
after-tax basis, into participant accounts. In addition to a mandatory
contribution equal to 4% of base compensation per year for each plan
participant, Kinder Morgan G.P., Inc. may make discretionary contributions in
years when specific performance objectives are met. Any discretionary
contributions are made during the first quarter following the performance year.
In March 2000, an additional 2% discretionary contribution was made to
individual accounts based on 1999 financial targets to unitholders. All
contributions, together with earnings thereon, are immediately vested and not
subject to forfeiture. Participants may direct the investment of their
contributions into a variety of investments.
Executive Compensation Plan
Executive officers of Kinder Morgan G.P., Inc. are eligible for awards
equal to a percentage of the "Incentive Compensation Value," which is defined as
cash distributions to Kinder Morgan G.P., Inc. during the four calendar quarters
preceding the date of redemption times eight (less a participant adjustment
factor, if any). Under the Executive Compensation Plan, no eligible employee may
receive a grant in excess of 2%, and total awards under the Plan may not exceed
10%. In general, participants may redeem vested awards in whole or in part from
time to time by written notice. Kinder Morgan Energy Partners may, at its
option, pay the participant in units (provided, however, the unitholders approve
the plan prior to issuing such units) or in cash. Kinder Morgan Energy Partners
may not issue more than 200,000 units in the aggregate under the Executive
Compensation Plan. Units will not be issued to a participant unless the units
have been listed for trading on the principal securities exchange on which the
units are then listed. The Executive Compensation Plan terminates January 1,
2007 and any unredeemed awards will be automatically redeemed. The board of
directors of Kinder Morgan G.P., Inc. may, however, terminate the Executive
Compensation Plan before such date, and upon that early termination, Kinder
Morgan Energy Partners will redeem all unpaid grants of compensation at an
amount equal to the highest incentive compensation value, using as the
determination date any day within the previous twelve months, multiplied by 1.5.
The Executive Compensation Plan was established in July 1997 and on July 1,
1997, the board of directors of Kinder Morgan G.P., Inc. granted awards totaling
2% of the incentive compensation value to each of David Dehaemers and Michael
Morgan. Originally, 50% of such awards were to vest on each of January 1, 2000
and January 1, 2002. No awards were granted during 1998 and 1999.
On January 4, 1999, the awards granted to Messrs. Dehaemers and Morgan
were amended to provide for the immediate vesting and pay-out of 50% of their
awards, or 1% of the incentive compensation value. The Board of Directors of
Kinder Morgan G.P., Inc. believes that accelerating the vesting and pay-out of
the awards was in the best interest of Kinder Morgan Energy Partners because it
capped the total payment the participants were entitled to receive with respect
to 50% of their awards.
Unit Option Plan
Key personnel of Kinder Morgan G.P., Inc. and affiliates of Kinder
Morgan Energy Partners are eligible to receive grants of options to acquire
units of Kinder Morgan Energy Partners. The total number of units available
under the plan is 250,000. None of the options granted under the Unit Option
Plan may be "Incentive Stock Options" under Section 422 of the Internal Revenue
Code. If
-13-
<PAGE> 20
an option expires without being exercised, the number of units covered by such
option will be available for a future award. The exercise price for an option
may not be less than the fair market value of a unit on the date of grant.
Either the board of directors of Kinder Morgan G.P., Inc. or a committee
of the board of directors will administer the Unit Option Plan. The Unit Option
Plan terminates on March 5, 2008.
No individual employee may be granted options for more than 10,000 units
in any year. The Board of Directors of Kinder Morgan G.P., Inc. or the committee
will determine the duration and vesting of the options to employees at the time
of grant. As of December 31, 1999, options for 211,200 units were granted to 100
employees of Kinder Morgan G.P., Inc. Forty percent of the options will vest on
the first anniversary of the date of grant and twenty percent on each subsequent
anniversary. The options expire seven years from the date of grant. No options
to purchase units were granted in 1999 under the plan to any of the named
executive officers.
HOW ARE OUR DIRECTORS COMPENSATED?
Directors who are not also our employees participate in our 1992 Stock
Option Plan for Non-Employee Directors, which has been amended this year. Under
our plan, each continuing director who is not one of our salaried employees, at
the discretion of our Compensation Committee, may be granted an option to
purchase an amount not to exceed 10,000 shares of our common stock. Each
newly-elected director who is not one of our salaried employees, at the
discretion of our Compensation Committee, may be granted an option to purchase
an amount not to exceed 20,000 shares of our common stock. Options may be
granted at not less than 100% of the fair market value of our common stock on
the date of grant, but must be at least the par value of the shares subject to
the option. Options expire 10 years from the date of grant. Options granted
pursuant to our 1992 Stock Option Plan are intended as nonqualified stock
options.
Following the merger with Kinder Morgan (Delaware), Inc., our directors
elected unanimously to accept options to purchase 12,500 shares of our common
stock as compensation for their services in the fourth quarter of 1999 and for
the entire fiscal year 2000 in lieu of receiving cash or other compensation.
These options were granted at an exercise price of $23.8125.
On January 4, 1999, prior to the merger with Kinder Morgan (Delaware),
Inc., options to purchase 4,500 shares each were granted to Messrs. Austin,
Battey, Bliss, Hybl, Kinder, Randall, True, and other former directors at an
exercise price of $23.7188 per share, the average sales price of our common
stock on that date. Prior to the merger with Kinder Morgan (Delaware), Inc., Mr.
Kinder relinquished these options.
All directors are reimbursed for reasonable travel and other expenses
incurred in attending all meetings.
REPORT OF OUR COMPENSATION COMMITTEE
The Board of Directors has a standing Compensation Committee composed of
four non-management directors. Our Compensation Committee is charged with the
management and oversight of employee benefit plans approved by our Board of
Directors, employment agreements
-14-
<PAGE> 21
approved by our Board of Directors and the compensation of all of our directors,
officers and employees.
The Report of our Compensation Committee and the performance graphs
included elsewhere in this proxy statement do not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act or the Exchange Act, except to the
extent we specifically incorporate this Report or the performance graphs by
reference therein.
Our Compensation Committee of the Board of Directors has furnished the
following report on our executive compensation for fiscal 1999:
What is our philosophy of executive officer compensation?
Annual executive compensation is principally comprised of base salary,
annual incentive cash and stock awards. It is our philosophy to pay our
executive officers a fair base salary which is generally below market. The
majority of an executive officer's compensation is allocated to the "at-risk"
portions of the annual incentives and long-term compensation. It is our
philosophy that compensation of our executive officers and other key employees
should be directly and materially tied to corporate financial performance and
aligned with stockholders. To achieve this objective, executive compensation is
weighted toward cash incentives and long-term compensation payable on the basis
of such financial and stock performance. Grants of stock options are the
principal component of long-term executive compensation.
Our executive compensation components are reviewed periodically by
outside compensation consultants. The purpose of this review is to ensure that
our total compensation package operates effectively, remains both reasonable and
competitive with the energy industry, and is generally comparable to the
compensation offered by companies of similar size and scope of our company.
Our 1994 Long-Term Incentive Plan and our 1999 Stock Option Plan give
our Compensation Committee the flexibility to recommend that our Board of
Directors grant stock options, both non-qualified and incentive, restricted
stock awards, stock appreciation rights and other stock-based awards. The plans
have permitted us to keep pace with changing developments in compensation and
benefit programs, making us competitive with those companies that offer
incentives to attract and retain employees. We currently plan to issue only
non-qualified stock options to our executive officers, unless specific
circumstances dictate otherwise.
How is our Chief Executive Officer and President compensated?
At their personal request, Mr. Kinder, our Chief Executive Officer and
Chairman, and Mr. Morgan, our President and Vice Chairman, receive $1 of base
salary per year. Additionally, Messrs. Kinder and Morgan requested they receive
no annual bonus or stock option grants for 1999. They both wish to be rewarded
strictly on the basis of stock performance which impacts their holdings.
-15-
<PAGE> 22
How are we addressing Internal Revenue Code limits on deductibility of
compensation?
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation for our Chief Executive Officer and our additional four
highest paid executive officers to $1,000,000 per year. If certain conditions
are met, including the removal of discretion in determining individual rewards,
compensation may be excluded from consideration of the $1,000,000 limit. Annual
compensation of our individual executive officers has historically been below
$1,000,000. The policy of our Compensation Committee to date is to establish and
maintain a compensation program which maximizes the creation of long-term
stockholder value by recognizing and rewarding performance that increases our
value and complies with Section 162(m), a number of the resolutions at this
annual meeting allow the Company to comply with such regulations.
Compensation Committee
----------------------
Ted A. Gardner (Chairman)
William J. Hybl
Edward Randall, III
H. A. True
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee is or has been one of
our officers or employees.
EMPLOYMENT AND TERMINATION AGREEMENTS
Richard D. Kinder's Employment Agreement
On October 7, 1999, we entered into an employment agreement with Mr.
Kinder pursuant to which he became our Chairman and Chief Executive Officer. His
employment agreement is for a term of three years and will be extended on each
anniversary of the October 7th merger date for an additional one-year period.
Mr. Kinder, at his initiative, accepted a salary of $1 per year to
demonstrate his belief in the long term viability of the combined company. Mr.
Kinder is eligible for personnel policies and employee benefits as apply to
other employees.
We may terminate Mr. Kinder's employment at any time "without cause." If
we were to terminate Mr. Kinder without cause, we would be required to provide
Mr. Kinder with the following severance benefits:
o a lump sum cash payment in an amount equal to three times the
aggregate of (x) the greater of Mr. Kinder's current base salary
or $750,000 and (y) the greater of (1) the amount of any cash
incentive bonus to be paid to Mr. Kinder pursuant to any
applicable plan based on the maximum of the current year's target
or (2) Mr. Kinder's aggregate cash bonus paid with regard to our
prior fiscal year;
o continuation of medical, dental, life insurance and accidental
death and dismemberment coverages which we provide to our active
employees for up to 36 months; and
-16-
<PAGE> 23
o stock options, restricted stock and other stock awards granted to
Mr. Kinder under all of our stock plans, and our subsidiaries'
stock plans will vest and become immediately exercisable and all
restrictions thereon will be removed. Mr. Kinder has no such
stock options, restricted stock or other stock awards.
If we terminate Mr. Kinder "with cause," Mr. Kinder will receive his
salary for the period to the date of his termination, but we will not be
obligated to pay any salary or other compensation for any period of time after
termination and Mr. Kinder will not be entitled to receive severance pay. For
purposes of the employment agreement, "cause" means the occurrence of any of the
following events:
o a grand jury indictment or prosecutorial information charging Mr.
Kinder with illegal or fraudulent acts, criminal conduct or
willful misconduct whether or not relating to our activities;
o a grand jury indictment or prosecutorial information charging Mr.
Kinder with any criminal acts involving moral turpitude whether
or not it has a material adverse effect upon us;
o grossly negligent failure by Mr. Kinder to perform his duties in
a manner which he knows, or has reason to know, to be in our best
interests;
o bad faith refusal by Mr. Kinder to carry out reasonable
instructions of our Board of Directors not inconsistent with the
provisions of the employment agreement; or
o material violation by Mr. Kinder of any of the terms of the
employment agreement.
If Mr. Kinder dies during the term of the employment agreement, we will
pay Mr. Kinder's estate an amount equal to the greater of his annual salary or
$750,000 as severance pay.
We may terminate Mr. Kinder if he becomes totally and permanently
disabled so as to preclude him from performing his duties. If so terminated, Mr.
Kinder will be entitled to receive:
o the amount of any insurance proceeds payable to him under
disability insurance policies, if any, then maintained for his
benefit; and
o the greater of his salary or an annual amount of $750,000 through
the effective date of termination of employment.
Mr. Kinder has the right to terminate his employment at any time by
providing us at least 30-days prior written notice of termination. Following
such termination, Mr. Kinder will receive his salary for the period through the
date of termination. Mr. Kinder will also have the right to terminate the
employment agreement and to receive severance benefits if he is subject to a
"change in duties" (as defined in the employment agreement).
-17-
<PAGE> 24
Mr. Kinder has agreed that, with limited exceptions, while he remains
employed by us and for a period of 12 months following the termination of his
employment with cause or his voluntary termination of employment, he will not,
directly or indirectly, own, manage, operate, join, contract or participate in
the ownership, management or control of or be employed by or be connected in any
manner with any business which is or may be competitive in any manner with us.
Larry D. Hall's Termination Agreement
Mr. Hall's last date of employment with K N Energy, Inc. was September
10, 1999. At that time, it was agreed that he would be paid $25,321.75 per month
for fifty-eight months. In addition, it was agreed that he would be paid $25,000
per month for twenty months following that date. Mr. Hall's restricted stock
grants were vested, while he forfeited all non-vested stock options after August
29, 1999. Mr. Hall will continue to receive certain benefit coverage through
November 8, 2000. A payment of $75,000 shall be made to Mr. Hall for agreed upon
expenses. In consideration for these payments, Mr. Hall agreed to not disparage
us, to keep our information confidential and to release us from any claims he
may have had, if any.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following performance graph compares the performance of our common
stock to the Standard & Poor's 500 Stock Index and to the Standard & Poor's
Natural Gas Index for our last five fiscal years. The graph assumes that the
value of the investment in our common stock and each index was $100 at December
31, 1994, and that all dividends were reinvested. Total net return to our
stockholders in 1999 was -13.68%, as compared to an average return of 21.04% for
the Standard & Poor's 500 Stock Index and of 19.06% for the Standard & Poor's
Natural Gas Index for the same period.
FIVE-YEAR CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning December 31, 1994
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
INDEXED RETURNS
- -------------------------------------------------------------------------------------
BASE YEAR END
- -------------------------------------------------------------------------------------
PERIOD
- -------------------------------------------------------------------------------------
COMPANY / INDEX DEC 94 DEC 95 DEC 96 DEC 97 DEC 98 DEC 99
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KINDER MORGAN INC 100 127.41 176.98 249.46 172.04 148.50
- -------------------------------------------------------------------------------------
S&P 500 INDEX 100 137.58 169.17 225.60 290.08 351.12
- -------------------------------------------------------------------------------------
NATURAL GAS-500 100 141.44 187.96 221.77 243.35 289.74
- -------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 25
COMPARISON OF CUMULATIVE TOTAL RETURN WITH OUR CURRENT MANAGEMENT
The following performance graph compares the performance of our common
stock to the Standard & Poor's 500 Stock Index and to the Standard & Poor's
Natural Gas Index from July 8, 1999 through December 31, 1999. July 8, 1999, was
the date that the merger with Kinder Morgan (Delaware), Inc. was announced and
it was proposed that our current management would operate our business following
the merger. The graph assumes that the value of the investment in our common
stock and each index was $100 at July 8, 1999, and that all dividends were
reinvested.
CUMULATIVE TOTAL RETURN WITH OUR CURRENT MANAGEMENT
Based on reinvestment of $100 beginning July 8, 1999
[GRAPH]
<TABLE>
<CAPTION>
INDEXED RETURNS
- --------------------------------------------
BASE YEAR END
- --------------------------------------------
PERIOD
- --------------------------------------------
<S> <C> <C>
COMPANY / INDEX 7/8/99 DEC 99
- --------------------------------------------
KINDER MORGAN INC 100 167.53
- --------------------------------------------
S&P 500 INDEX 100 106.03
- --------------------------------------------
NATURAL GAS-500 100 93.12
- --------------------------------------------
</TABLE>
-21
<PAGE> 26
ITEM 1-ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
Our Board of Directors is currently divided into three classes, having
three-year terms that expire in successive years. The current term of the
directors in Class I expires at the annual meeting. Our Board of Directors
proposes that the nominees listed below, all of whom are currently serving as
Class I directors, be re-elected for a new term of three years and until their
successors are duly elected and qualified.
Each of the nominees has consented to serve a three-year term. If any of
them becomes unavailable to serve as a director, our Board of Directors may
designate a substitute nominee. In that case, the persons named as proxies will
vote for the substitute nominee designated by our Board of Directors.
CLASS I DIRECTORS. The directors standing for election are:
CLASS I
RICHARD D. KINDER Director since October 1999
Age 55 also from 1998 to June 1999
Mr. Kinder was appointed to our Board of Directors upon completion of our
acquisition by merger of Kinder Morgan (Delaware), Inc. on October 7, 1999, as
one of his own designees, in accordance with a governance agreement entered into
between Mr. Kinder and us. Mr. Kinder has been our Chairman of the Board of
Directors and Chief Executive Officer since October 7, 1999. In addition, Mr.
Kinder has been the Chairman of the Board of Directors and Chief Executive
Officer of our indirectly, wholly-owned subsidiary, Kinder Morgan G.P., Inc.,
since 1997. Mr. Kinder was President and Chief Operating Officer of Enron Corp.
from 1990 to 1996. Mr. Kinder was employed by Enron Corp. and its affiliates and
predecessors for over 16 years. Mr. Kinder is also a director of TransOcean
Offshore Inc. and Baker Hughes Incorporated.
EDWARD H. AUSTIN, JR. Director since 1994
Age 58
Mr. Austin has served as a partner and an Executive Vice President of Austin,
Calvert & Flavin, Inc., an investment advisory firm based in San Antonio, Texas
for the past 5 years. Mr. Austin is a director of Advanced Extraction
Technologies, Inc. and Texas Cavalcade, Inc.
WILLIAM J. HYBL Director since 1988
Age 57
Mr. Hybl has been the Chairman and Chief Executive Officer and Trustee of El
Pomar Foundation, a charitable foundation based in Colorado Springs, Colorado
for the past five years. Over the past 5 years, Mr. Hybl has also been Vice
Chairman and Director of Broadmoor Hotel, Inc., which is based in Colorado
Springs, Colorado, a director of USAA, an insurance company based in San
-21-
<PAGE> 27
Antonio, Texas, FirstBank Holding Co. of Colorado, and Garden City Company.
TED A. GARDNER Director since 1999
Age 42
Mr. Gardner was appointed to our Board of Directors upon completion of our
acquisition by merger of Kinder Morgan (Delaware), Inc. entered into between Mr.
Kinder and us on October 7, 1999, as a designee of Mr. Kinder in accordance with
the governance agreement entered into between Mr. Kinder and us. Mr. Gardner has
been a Managing Partner of First Union Capital Partners and a Senior Vice
President of First Union Corporation since 1990. Mr. Gardner is a director of
Beacon Industrial Group, Xcelerate Inc. (formerly Insight Technology Partners),
U.S. Salt Holdings, COMSYS Holdings, Naviant, Inc., Vanteon, Inc. and Belenos,
Inc. Wheat First Union and First Union Securities, Inc., both affiliates of
First Union Corporation and First Union Capital Partners, have provided our
affiliates investment banking services.
DIRECTORS CONTINUING IN OFFICE
CLASS II AND CLASS III DIRECTORS. The following Class II and Class III
directors were elected at our 1998 annual meeting, our 1999 annual meeting or
our special meeting of September 28, 1999, for terms ending in 2001 and 2002,
respectively:
CLASS II
CHARLES W. BATTEY Director since 1971
Age 68
Mr. Battey was elected to his current term as a Class II director at the 1999
annual meeting. Mr. Battey has been an independent consultant and an active
community volunteer based in Kansas City for the past 5 years. Mr. Battey is
also a Director of SIT/KIM International Investment Associates, Inc. Mr. Battey
was Chairman of our Board from 1989 to 1996, and our Chief Executive Officer
from 1989 to 1994.
H. A. TRUE, III Director since 1991
Age 57
Mr. True was elected to his current term as a Class II director at the 1998
annual meeting. Mr. True has been an owner and director of the True Companies,
which are involved in energy, agriculture and financing, and based in Casper,
Wyoming for the past 5 years. Mr. True is director of Hilltop National Bank.
FAYEZ SAROFIM Director since 1999
Age 71
Mr. Sarofim was appointed to our Board of Directors upon completion of our
acquisition by merger of Kinder Morgan (Delaware), Inc. on October 7, 1999, as a
designee of Mr. Kinder in accordance with the governance agreement between Mr.
Kinder and us. Mr. Sarofim has been President and Chairman of the Board of Fayez
Sarofim & Co., an investment advisory firm, since he founded it
-22-
<PAGE> 28
in 1958. Mr. Sarofim is also a director of Argonaut Group, Inc. and Unitrin,
Inc.
CLASS III
WILLIAM V. MORGAN Director since 1999
Age 56
Mr. Morgan was appointed to our Board of Directors upon completion of our
acquisition by merger of Kinder Morgan (Delaware), Inc. on October 7, 1999, as a
designee of Morgan Associates, Inc., in accordance with the governance agreement
entered into between Morgan Associates, Inc. and us. Mr. Morgan is our Vice
Chairman of the Board and our President. Mr. Morgan was President and a Director
of Kinder Morgan (Delaware), Inc. since October 1996. In February 1997, he was
also elected Vice Chairman of Kinder Morgan (Delaware), Inc. In addition, Mr.
Morgan was elected as Director of Kinder Morgan G.P., Inc. in June 1994, Vice
Chairman of Kinder Morgan G.P., Inc. in February 1997 and President of Kinder
Morgan G.P., Inc. in November 1998. Mr. Morgan has held 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.
(namely, 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. Mr. Morgan is the father of Michael
C. Morgan, our Vice President-Strategy and Investor Relations.
STEWART A. BLISS Director since 1993
Age 66
Mr. Bliss was elected to his current term as a Class III director at the 1999
annual meeting. Mr. Bliss has been a Financial Consultant and Senior Business
Advisor in Denver, Colorado for the past 5 years. Mr. Bliss is President of the
Board for the Colorado State Board of Agriculture. Mr. Bliss served as our
Interim Chairman and Chief Executive Officer from July to October of 1999.
EDWARD RANDALL, III Director since 1994
Age 73
Mr. Randall was elected to his current term as a Class III director at the 1999
annual meeting. Mr. Randall is a private investor. Mr. Randall is also a
director of PaineWebber, Inc., EOG Resources, Inc., and EcOutlook.com, Inc.
COMMITTEES
How often did our Board meet during fiscal 1999?
Our Board of Directors met 19 times during fiscal 1999. Each director
attended more than 75% of the total number of meetings of the Board of Directors
and committees on which he served.
-23-
<PAGE> 29
What committees has our Board established?
Our Board of Directors has a standing Compensation Committee and Audit
Committee. As of January, 20, 2000, the Stock Option Committee is no longer a
standing committee of our Board of Directors. During 1999, our Board of
Directors also established a Special Committee in connection with our
acquisition by merger of Kinder Morgan (Delaware), Inc.
As of December 31, 1999, the following members of the Board of Directors
were members of the Audit and/or Compensation Committees as indicated in the
table below.
<TABLE>
<CAPTION>
COMPENSATION AUDIT
NAME COMMITTEE COMMITTEE
<S> <C> <C>
-----------------------------------------------------------------
Edward H. Austin *
-----------------------------------------------------------------
Charles W. Battey *
-----------------------------------------------------------------
Stewart A. Bliss **
-----------------------------------------------------------------
Ted A. Gardner **
-----------------------------------------------------------------
William J. Hybl *
-----------------------------------------------------------------
Richard D. Kinder
-----------------------------------------------------------------
William V. Morgan
-----------------------------------------------------------------
Edward Randall, III *
-----------------------------------------------------------------
Fayez Sarofim *
-----------------------------------------------------------------
H. A. True *
-----------------------------------------------------------------
</TABLE>
* Member.
** Chair.
Audit Committee. Our Audit Committee's functions are:
o recommending to our Board of Directors the retention or discharge
of our independent auditors;
o reviewing and approving the engagement of independent auditors to
conduct an audit of us, including the scope, extent and
procedures of the audit and the fees to be paid therefor;
o reviewing, in consultation with the independent auditors, the
audit results and the auditors' proposed opinion letter or audit
report and any related management letter;
o reviewing and approving our audited financial statements;
o consulting with our independent auditors and management, together
or separately, on
-24-
<PAGE> 30
the adequacy of our internal accounting controls and the review
of the results thereof;
o reviewing the independence of our independent auditors;
o supervising investigations into matters within the scope of the
Audit Committee's duties; and
-25-
<PAGE> 31
o performing such other functions as may be necessary or
appropriate in the efficient discharge of the Audit Committee's
duties.
The Audit Committee met two times during fiscal 1999. Three out of the
five members of the Audit Committee are independent as defined and required by
in the New York Stock Exchange listing standards. Our Audit Committee has not
yet adopted a charter, but plans to do so at the Audit Committee's next meeting
in April of 2000.
Compensation Committee. Our Compensation Committee is charged with the
management and oversight of employee benefit plans approved by our Board of
Directors, employment agreements approved by our Board of Directors and the
compensation of all of our directors, officers and employees. Our Compensation
Committee met one time during fiscal 1999.
Stock Option Committee. Our Stock Option Committee, which was composed
of Messrs. Kinder and Morgan, previously administered our 1992 Non-Employee
Director Stock Option Plan. As of January 20, 2000, the Stock Option Committee
is no longer a standing committee.
RECOMMENDATION
The nominees for Class I directors will be elected by the favorable vote
of a plurality of the votes cast at the annual meeting.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF ALL FOUR NOMINEES FOR CLASS I DIRECTORS.
ITEM 2-PROPOSAL TO AMEND AND RESTATE OUR K N ENERGY, INC. 1994
LONG-TERM INCENTIVE PLAN
DESCRIPTION OF OUR K N ENERGY, INC. 1994 LONG-TERM INCENTIVE PLAN
The current number of shares subject to the plan is 5,700,000 shares.
The plan's purposes are to:
o further our financial success and that of our subsidiaries by
increasing the plan participants' proprietary interest in our
growth and success; and
o increase our flexibility to compensate, motivate, attract and
retain key employees.
Our Board of Directors believes that the plan is accomplishing its
purpose. However, our Board of Directors believes that it is necessary to expand
the group of employees eligible to receive awards under the plan and to make
certain technical amendments. Accordingly, at our October 8, 1999 and January
20, 2000 meetings, our Board of Directors decided to submit to stockholders the
amendment and restatement of the plan for their approval at our annual meeting.
-26-
<PAGE> 32
The amendments approved by our Board of Directors are:
o allowing for the grant of awards under the plan to employees of
entities owned less than 50% by us;
o renaming the plan to reflect our name change; and
o adopting certain technical amendments regarding:
- the manner of determining the fair market value of shares
subject to awards;
- the treatment of awards upon a change of control of us;
and
- the deductibility of compensation under Section 162(m) of
the Internal Revenue Code relating to awards granted to
certain executive officers under the plan.
The following summary of the plan, as amended and restated effective as
of January 20, 2000, is qualified by reference to the full text of the amended
and restated plan which is attached as Appendix A to this proxy statement.
General Provisions
Our Compensation Committee of our Board of Directors administers the
plan. Our Compensation Committee consists solely of two or more outside
directors in accordance with the Internal Revenue Code and Rule 16b-3 under the
Securities Exchange Act. Our Compensation Committee is authorized to:
o interpret the plan;
o establish rules and regulations for the plan's operation;
o select which of our employees and the employees of our
subsidiaries are to receive awards;
o determine the form, amount and other terms and conditions of
awards;
o modify or waive restrictions on awards;
o amend awards; and
o grant extensions and accelerate awards.
Our officers and other key employees, in addition to those of our
subsidiaries, are eligible to be selected to participate in the plan. Incentive
stock options may be granted only to our employees and employees of our
subsidiaries in which we own directly or indirectly more than a
-27-
<PAGE> 33
50% voting equity interest. Our Compensation Committee has the sole discretion
to select participants from among the eligible persons. Directors who are not
employees are not eligible to participate in the plan. Approximately 145 current
employees have received awards under the plan. It is estimated that the total
number of key employees who are eligible to receive awards under the plan at
present would not exceed 200.
The aggregate number of shares of common stock which may be issued under
the plan with respect to awards may not exceed 5,700,000. That limit is subject
to adjustment for certain transactions affecting the common stock. Lapsed,
forfeited or canceled awards will not count against this limit and can be
regranted under the plan unless the recipient received dividends or other
economic benefits with respect to the awards. However, the cancellation of an
option upon exercise of a stock appreciation right granted in tandem with the
option will count against the limit. If the exercise price of an option is paid
in common stock or if shares are withheld from payment of an award to satisfy
tax obligations with respect to the award, those shares will not count against
the above limits. Awards with respect to more than 1,000,000 shares of common
stock may not be granted to any employee during the term of the plan. The shares
issued under the plan may be issued from shares held in treasury or from
authorized but unissued shares. The market value of the stock underlying the
options and stock appreciation rights as of March 13, 2000 is $582,160.
Types of Awards
The plan provides for the grant of:
o stock options, including incentive stock options and nonqualified
stock options;
o stock appreciation rights, in tandem with stock options or
freestanding;
o stock awards, including restricted stock; and
o any other stock-based award established by our Compensation
Committee with terms consistent with the plan's purposes.
Any stock option granted in the form of an incentive stock option must
comply with Section 422 of the Internal Revenue Code. Our Compensation Committee
may grant awards individually, in combination, or in tandem.
Options
Options granted under the plan may be:
o incentive stock options, as defined in the Internal Revenue Code,
as amended; or
o nonqualified options, which do not qualify for treatment as
incentive stock options.
Our Compensation Committee selects the recipients of options. Our
Compensation Committee also sets the terms of the options, including:
-28-
<PAGE> 34
o the number of shares for which an option is granted;
o the term of the option; and
o the time(s) when the option can be exercised.
An option agreement or our Compensation Committee's procedures may set
forth conditions respecting the exercise of an option. Our Compensation
Committee may in its discretion waive any condition respecting the exercise of
any option and may accelerate the time at which any option is exercisable.
The option price, or price per share of common stock subject to an
option, may not be less than the fair market value of common stock on the date
of the grant of the option. The fair market value generally is determined to be
the closing sale price reported in The Wall Street Journal for the New York
Stock Exchange-Composite Transactions. Our Compensation Committee also
determines how an option may be paid. Specifically, an option may be paid in
cash or securities, the withholding of common stock or cash to be received
through grants, or any other arrangements satisfactory to the Committee.
The plan provides that no incentive stock option may be exercisable
after ten years from the date of grant. The plan, however, does not restrict the
term of a nonqualified option. Options are not transferable except by will or
the laws of descent and distribution.
Stock Appreciation Rights
Our Compensation Committee may decide that stock appreciation rights may
be granted separately or in tandem with the grant of an option. A stock
appreciation right is a grant entitling the participant to receive an amount in
cash or shares of common stock or a combination thereof, as the Committee may
determine. Our Compensation Committee may decide that the value of the stock
appreciation right will be no greater than the excess of:
o the fair market value on the date of exercise of the shares of
common stock with respect to which the stock appreciation right
is exercised over
o either:
- the fair market value of such shares on the date of the
grant; or
- the option price, if the stock appreciation right is
granted in tandem with an option.
A stock appreciation right granted in tandem with a nonqualified option
may be granted either at or after the time of the grant of the nonqualified
option. A stock appreciation right granted in tandem with an incentive stock
option may be granted only at the time of the grant of the incentive stock
option. A stock appreciation right granted in tandem with an option terminates
and is no longer exercisable upon the termination or exercise of the related
option. Our Compensation Committee may set the terms and conditions of stock
appreciation rights, subject to the limitations set forth in the plan. Our
Compensation Committee at any time may accelerate the exercisability of any
stock appreciation right and otherwise waive or amend any conditions to the
grant of a stock
-29-
<PAGE> 35
appreciation right. Stock appreciation rights are not transferable except by
will or the laws of descent and distribution.
Restricted Stock
Our Compensation Committee will have discretion to make grants of
restricted stock. A restricted stock grant entitles the recipient to acquire, at
no cost or for a purchase price determined by our Compensation Committee on the
date of the grant, shares of our common stock subject to such restrictions and
conditions as our Compensation Committee may determine at the time of the grant.
The recipient may have all the rights of a stockholder with respect to the
restricted stock. These rights include voting and dividend rights, and they are
effective as soon as:
o restricted stock is granted (or upon payment of the purchase
price for restricted stock if a purchase price is required); and
o issuance of the restricted stock is recorded in our stock ledger.
A grant of restricted stock will be subject to non-transferability
restrictions, repurchase and forfeiture provisions and such other conditions
(including conditions on voting and dividends) as our Compensation Committee may
impose at the time of grant. A participant may not transfer or otherwise dispose
of shares of restricted stock except as the plan provides.
Our Compensation Committee will specify the conditions and time periods,
if any, under which the restrictions on the shares subject to the grant will
lapse. Our Compensation Committee will specify these conditions and time periods
upon the grant of a restricted stock award. Restrictions may include vesting
restrictions based upon matters such as:
o the attainment of performance targets established by our
Compensation Committee that are based on:
- the share price of common stock;
- our earnings per share;
- our market share or the market share of any of our
business units;
- our sales or the sales of any of our business units;
- our net income (before or after taxes) or the net income
of any of our business units;
- our cash flow return on investment of us or the cash flow
return on investment of any of our business units;
- the earnings before or after interest, taxes,
depreciation, and/or amortization of us or any of our
business units;
-30-
<PAGE> 36
- the economic value added; or
- the return on stockholders' equity that we achieve;
o the participant's continued employment for a specified period of
time;
o the occurrence of an event or the satisfaction of any other
condition specified by our Compensation Committee; or
o a combination of any of the above.
Any restricted shares shall cease to be restricted stock and shall be
deemed "vested" after the lapse of all restrictions on shares of restricted
stock. Our Compensation Committee may in its discretion waive any condition or
restriction related to a grant of restricted stock or accelerate the date(s) on
which a grant of restricted stock vests.
If a participant's employment is terminated for any reason prior to shares of
restricted stock becoming vested, we have the right, in the discretion of our
Compensation Committee, to:
o repurchase those shares at their purchase price, or
o require forfeiture of those shares if acquired at no cost.
Other Awards
The plan permits our Compensation Committee to grant awards consisting
of any other form of stock-based consideration that our Compensation Committee
determines is consistent with the purposes of the plan. The grant of additional
types of awards is limited by the number of shares of common stock (or stock
equivalents) that may be granted under the plan. Pursuant to such authority, our
Compensation Committee could grant awards such as: restricted units, phantom
stock, performance awards, performance units, limited stock appreciation rights,
stock acquisition rights, valuation protection rights, or any other type of
stock-based award or combination or derivative of various types of awards. Our
Compensation Committee will determine the form and terms of any such additional
types of awards, as well as the terms and conditions of the grant of any such
awards. The form, terms and conditions will be set forth in agreements with
participants and in our Compensation Committee's procedures. Grants (including
grants of options, stock appreciation rights and restricted stock) may be
settled at the discretion of our Compensation Committee in cash, shares of our
common stock or any combination thereof.
Our Compensation Committee has not previously granted awards other than
stock options under other Company plans. Also, our Compensation Committee has no
present plans to change from past practice. Nonetheless, our Compensation
Committee could approve the grant of other forms of awards under the plan.
Provisions Relating to a Change of Control
The plan provides certain benefits in the event of a change in control.
For purposes of this
-31-
<PAGE> 37
plan, there are two definitions of change of control; the first definition
applies to awards granted after January 20, 2000, and the second definition
applies to awards granted before January.
For awards granted after January 20, 2000, a change in control is deemed
to have occurred if:
o any person acquires beneficial ownership of 50% or more of our
voting securities;
o there is a change in the composition of a majority of our Board
of Directors within any period of two consecutive years for any
reason other than normal retirement, death or disability of
directors;
o our stockholders approve a merger or consolidation of us with any
other person, other than:
- a merger or consolidation which would result in our voting
securities outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities for the
surviving entity) more than 50% of the combined voting
power of the voting securities of us or such surviving
entity outstanding immediately after such merger or
consolidation; or
- a merger in which we are the surviving entity but no
person acquires more than 50% of the combined voting power
of our then outstanding securities; or
o our stockholders approve a plan of complete liquidation of us or
an agreement for the sale or disposition by us of all or
substantially all of our assets, or any transaction having a
similar effect.
Because the definition cannot be amended for awards granted prior to
January 20, 2000, a change in control for awards granted prior to this date is
deemed to have occurred if:
o any person acquires beneficial ownership of 30% or more of our
voting securities;
o there is a change in the composition of a majority of our Board
of Directors within any period of two consecutive years for any
reason;
o our stockholders approve a merger or consolidation of us with any
other person, other than:
- a merger or consolidation which would result in the voting
securities of us outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities for the
surviving entity) more than 50% of the combined voting
power of the voting securities of us or such surviving
entity outstanding immediately after such
-32-
<PAGE> 38
merger or consolidation; or
- a merger in which we are the surviving entity but no
person acquires more than 30% of the combined voting power
of our then outstanding securities; or
- our stockholders approve a plan of complete liquidation of
us or an agreement for the sale or disposition by us of
all or substantially all of our assets, or any transaction
having a similar effect.
Upon the occurrence of a change in control under either definition, our
Compensation Committee has the discretion to make adjustments to outstanding
awards. If, in connection with or as a result of a change in control under
either definition, neither Richard D. Kinder nor William V. Morgan serves as our
Chairman or Vice Chairman, all outstanding awards will immediately vest or
become exercisable, unless the related agreements provide otherwise, and will
remain vested and exercisable for the remaining life of the award.
Other Provisions
In the event of specified changes in our capital structure, our
Compensation Committee will have the power to adjust the number and kind of
shares authorized by the plan (including any limitations on individual awards)
and the number, option price or kinds of shares covered by outstanding awards.
Our Compensation Committee will also have the power to make other appropriate
adjustments in awards under the plan.
Our Board of Directors may amend the plan without stockholder approval,
unless that approval is required by law or stock exchange requirements. Our
Board of Directors may terminate the plan at any time. No awards may be granted
under the plan after March 24, 2004.
Federal Income Tax Consequences
The Internal Revenue Code provides that a participant receiving a
nonqualified option ordinarily does not realize taxable income upon the grant of
the option. A participant does, however, realize ordinary income upon the
exercise of a nonqualified option to the extent that the fair market value of
the common stock on the date of exercise exceeds the option price. We are
entitled to a federal income tax deduction for compensation in an amount equal
to the ordinary income so realized by the participant. This deduction is
conditioned on us withholding federal income tax with respect to the amount of
that compensation. When the participant sells the shares acquired pursuant to a
nonqualified option, any gain or loss will be capital gain or loss. This assumes
that the shares represent a capital asset in the participant's hands, although
there will be no tax consequences for us.
The grant of an incentive stock option does not result in taxable income
to a participant. The exercise of an incentive stock option also does not result
in taxable income, provided that the circumstances satisfy the employment
requirements in the Internal Revenue Code. However, the exercise of an incentive
stock option may give rise to alternative minimum tax liability for the
participant. In addition, if the participant does not dispose of the common
stock acquired upon
-33-
<PAGE> 39
exercise of an incentive stock option during the statutory holding period, then
any gain or loss upon subsequent sale of the common stock will be a long-term
capital gain or loss. This assumes that the shares represent a capital asset in
the participant's hands.
The statutory holding period lasts until the later of:
o two years from the date the option is granted, and
o one year from the date the common stock is transferred to the
participant pursuant to the exercise of the option.
If the employment and statutory holding period requirements are
satisfied, we may not claim any federal income tax deduction upon either the
exercise of the incentive stock option or the subsequent sale of the common
stock received upon exercise. If these requirements are not satisfied, the
amount of ordinary income taxable to the participant is the lesser of:
o the fair market value of the common stock on the date of exercise
minus the option price, and
o the amount realized on disposition minus the option price
Any excess is long-term or short-term capital gain or loss, assuming the
shares represent a capital asset in the participant's hands. We are entitled to
a federal income tax deduction in an amount equal to the ordinary income
realized by the participant.
The exercisability of an option or a stock appreciation right, or the
elimination of restrictions on restricted stock, may be accelerated, and special
cash settlement rights may be triggered and exercised, as a result of a change
in control. If any of the foregoing occurs, all or a portion of the value of the
relevant award at that time may be a parachute payment. This is relevant for
determining whether a 20% excise tax (in addition to income tax otherwise owed)
is payable by the participant as a result of the receipt of an excess parachute
payment pursuant to the Internal Revenue Code. We will not be entitled to a
deduction for that portion of any parachute payment which is subject to the
excise tax.
As a general rule, we or one of our subsidiaries will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee recognizes ordinary income from awards under the plan.
The amount of the deduction is the amount of the award that is considered
reasonable compensation under the Internal Revenue Code. However, the Internal
Revenue Code limits to $1,000,000 the annual tax deduction that we and our
subsidiaries can take with respect to our compensation of certain executive
officers unless the compensation qualifies as performance-based or certain other
exemptions apply. We believe that if the plan is approved by stockholders, all
compensation recognized with respect to options and restricted stock granted
under the plan will be deemed performance-based.
-34-
<PAGE> 40
Additional Information
If the stockholders do not approve the plan as amended and restated, we
intend to continue to grant awards under the plan as currently in effect (to the
extent shares are available for grant under the plan), or as may be amended from
time to time by our Board of Directors to the extent such amendments do not
require stockholder approval.
In 1999, no options were granted to named executive officers, the
executive group, or the non-executive director group under the 1994 Long-Term
Incentive Plan. The number of options granted to non-executive officer employees
under the 1994 Long-Term Incentive Plan in 1999 was 26,156. The dollar value of
those options as of March 13, 2000, was $100,892. The dollar value was
calculated by subtracting the price of the stock options on the date of grant
from the high/low average price of our common stock on March 13, 2000.
RECOMMENDATION
Not all of the important information about the 1994 Long-Term Incentive
Plan is contained in the foregoing summary. The full text of the amended and
restated plan is attached to this proxy statement as Appendix A. You may obtain
a copy of our public filings without charge by following the instructions in the
section entitled "How I can find more information about Kinder Morgan?" on page
5 of this proxy statement.
This proposal will be approved by the favorable vote of a majority of
our outstanding shares of common stock present at the annual meeting, in person
or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND AND RESTATE OUR K N ENERGY, INC. 1994 LONG-TERM INCENTIVE PLAN.
ITEM 3-PROPOSAL TO AMEND AND RESTATE OUR K N ENERGY, INC. 1999
STOCK OPTION PLAN
DESCRIPTION OF OUR K N ENERGY, INC. 1999 STOCK OPTION PLAN
The purposes of our K N Energy, Inc. 1999 Stock Option Plan are to:
o enable our employees and the employees of our subsidiaries to
develop a sense of proprietorship and personal involvement in our
financial success, and
o encourage those employees to remain with and devote their best
efforts to our business.
Our Board of Directors believes that the plan is accomplishing its
purposes. However, our Board believes that it is necessary to amend the plan to:
-35-
<PAGE> 41
o expand the group of employees eligible to receive options under
the plan, and
o make certain technical amendments.
Accordingly, our Board has decided to submit the amendment and
restatement of the plan to our stockholders at the annual meeting.
The amendments approved by our Board are:
o allowing for the granting of options under the plan to employees
of entities owned less than 50% by us;
o renaming the plan to reflect our corporate name change; and
o adopting certain technical amendments regarding:
- the manner of determining the fair market value of shares
subject to options;
- the treatment of options upon a change of control of us;
and
- and the deductibility of compensation relating to options
granted to certain executive officers under the plan.
The following summary of the plan, as amended and restated effective as
of January 20, 2000, is qualified by reference to the full text of the plan
which is attached as Appendix B to this proxy statement.
General Provisions
Our Compensation Committee administers the plan. Our Compensation
Committee consists solely of two or more outside directors, in accordance with
Internal Revenue Code and Rule 16b-3 under the Exchange Act. Our Compensation
Committee is authorized to:
o establish rules and regulations for the plan's operation;
o select our employees and those of our subsidiaries to receive
options; and
o determine the form, amount and other terms and conditions of
options.
Our Compensation Committee also has the power to modify or waive
restrictions on options, to amend options and to grant extensions and accelerate
options.
Officers and other employees of us and subsidiary companies are eligible
to participate in the plan. Our Compensation Committee has the sole discretion
to select participants from among eligible persons. Directors who are not
employees are not eligible to participate in the plan. Approximately 3,500
current employees have received options under the plan. It is estimated that
-36-
<PAGE> 42
the total number of employees who are eligible to receive options under the plan
would not at present exceed approximately 3,500.
The aggregate number of shares of our common stock which may be issued
under the plan with respect to options may not exceed 5,500,000, subject to
adjustment for certain transactions affecting the common stock. Lapsed,
forfeited or canceled options will not count against this limit and can be
regranted under the plan. Options with respect to more than 1,000,000 shares of
our common stock may not be granted to any employee during the term of the plan.
The shares issued under the plan may be issued from shares held in treasury or
from authorized but unissued shares. The market value of the stock underlying
the options and stock appreciation rights granted as of January 14, 2000 was
$1,307,391.
Types of Awards
The plan provides for the grant of:
o nonqualified stock options, and
o stock appreciation rights in tandem with stock options.
Awards may be granted individually, in combination, or in tandem as
determined by our Compensation Committee.
Options
Options granted under the plan will be nonqualified options, which do
not qualify for treatment as incentive stock options under the Internal Revenue
Code. Our Compensation Committee sets the terms of the options, including:
o the number of shares for which an option is granted;
o the term of the option; and
o the time(s) when the option can be exercised.
The option agreement or our Compensation Committee's procedures may set
forth conditions respecting the exercise of an option. Our Compensation
Committee may in its discretion waive any condition respecting the exercise of
any option and may accelerate the time at which any option is exercisable.
The option price, or price per share of common stock subject to an
option, may not be less than the fair market value of common stock on the date
of the grant of the option. The fair market value generally is determined to be
the closing sale price reported in The Wall Street Journal for the New York
Stock Exchange-Composite Transactions. Our Compensation Committee also
determines whether an option may be paid in cash or securities.
-37-
<PAGE> 43
Options are not transferable except:
o by will or the laws of descent and distribution;
o between an option holder and his or her spouse if such transfer
is incident to a divorce; or
o with the consent of our Compensation Committee.
Stock Appreciation Rights
Our Compensation Committee may decide that stock appreciation rights may
be granted in tandem with the grant of an option. A stock appreciation right is
a grant entitling the participant to receive an amount in cash or shares of
common stock or a combination thereof, as our Compensation Committee may
determine. Our Compensation Committee may decide that the value of the stock
appreciate right will be equal to the excess of:
o the fair market value on the date of exercise of the shares of
common stock with respect to which the Stock appreciation right
is exercised over
o the option price.
A stock appreciation right granted in tandem with an option terminates
and is no longer exercisable upon the termination or exercise of the related
option. Our Compensation Committee will set the terms and conditions of the
stock appreciation rights, subject to the limitations in the plan. Our
Compensation Committee at any time may accelerate the exercisability of any
stock appreciation right and otherwise waive or amend any conditions to the
grant of a stock appreciation right.
Stock appreciation rights are not transferable except:
o by will or the laws of descent and distribution;
o between an option holder and his or her spouse if such transfer
is incident to a divorce; or
o with the consent of our Compensation Committee.
Provisions Relating to a Corporate Change
The plan provides for certain benefits in the event that we experience a
corporate change. A corporate change is deemed to have occurred if:
o any person acquires beneficial ownership of 50% or more of our
voting securities;
-38-
<PAGE> 44
o there is a change in the composition of a majority of our Board
of Directors within any period of two consecutive years for any
reason other than normal retirement, death or disability;
o our stockholders approve a merger or consolidation of us with any
other person, other than:
- a merger or consolidation which would result in the voting
securities of us outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities for the
surviving entity) more than 50% of the combined voting
power of the voting securities of us or such surviving
entity outstanding immediately after such merger or
consolidation; or
- a merger in which we are the surviving entity but no
person acquires more than 50% of the combined voting power
of our then outstanding securities; or
- our stockholders approve a plan of complete liquidation of
us or an agreement for the sale or disposition by us of
all or substantially all of our assets, or any transaction
having a similar effect.
Upon the occurrence of a corporate change, our Compensation Committee
will chose one or more of the following alternatives, which may vary among
outstanding options:
o outstanding options will vest immediately but must be exercised
within a limited period of time;
o outstanding options must be surrendered in return for payment of
cash in an amount equal to the excess of the value of common
stock as a result of the corporate change over the option price;
or
o outstanding options will be adjusted as our Compensation
Committee deems appropriate, including adjusting the options to
cover securities the option holder would have received as a
result of the corporate change had the option holder owned the
common stock covered by the option at the time of the corporate
change.
Only if in connection with a corporate change, neither William V. Morgan
nor Richard D. Kinder serves as Chairman or Vice Chairman of the Company, will
all options under the 1999 Stock Option Plan immediately become fully
exercisable.
Other Provisions
In the event of specified changes in our capital structure, our
Compensation Committee may:
o adjust:
-39-
<PAGE> 45
- the number and kind of shares authorized by the plan
(including any limitations on individual options); and
- the number, option price or kinds of shares covered by
outstanding options; and
o make other adjustments in options under the plan as it deems
appropriate.
Our Board of Directors may amend the plan without stockholder approval,
unless that approval is required by law or stock exchange requirements. Our
Board may terminate the plan at any time. No options may be granted under the
plan after October 8, 2009.
Federal Income Tax Consequences
The Internal Revenue Code provides that a participant receiving a
nonqualified option ordinarily does not realize taxable income upon the grant of
the option. A participant does, however, realize ordinary income upon the
exercise of a nonqualified option to the extent that the fair market value of
the common stock on the date of exercise exceeds the option price. We are
entitled to a federal income tax deduction for compensation in an amount equal
to the ordinary income so realized by the participant. This deduction is
conditioned on us withholding federal income tax with respect to the amount of
that compensation. When the participant sells the shares acquired pursuant to a
nonqualified option, any gain or loss will be capital gain or loss. This assumes
that the shares represent a capital asset in the participant's hands, although
there will be no tax consequences for us.
The exercisability of an option or a stock appreciation right may be
accelerated, and special cash settlement rights are triggered and exercised, as
a result of a corporate change. If any of the foregoing occurs, all or a portion
of the value of the relevant award at that time may be a parachute payment for
purposes of determining whether a 20% excise tax (in addition to income tax
otherwise owed) is payable by the participant as a result of the receipt of an
excess parachute payment pursuant to the Internal Revenue Code. We will not be
entitled to a deduction for that portion of any parachute payment which is
subject to the excise tax.
As a general rule, we or one of our subsidiaries will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee recognizes ordinary income from awards under the plan.
The amount of the deduction is equal to what is considered reasonable
compensation under the Internal Revenue Code. However, the Internal Revenue Code
limits to $1,000,000 the annual tax deduction that we and our subsidiaries can
take with respect to our Compensation of certain executive officers unless the
compensation qualifies as performance-based or certain other exemptions apply.
We believe that if the plan is approved by stockholders, all compensation
recognized with respect to options and restricted stock granted under the plan
will be deemed performance-based.
Additional Information
If the stockholders do not approve the plan as amended and restated, we
intend to continue to grant options under the plan. We will grant these options
under the plan as currently in effect, to
-40-
<PAGE> 46
the extent shares are available for grant under the plan, or as may be amended
from time to time by our Board of Directors to the extent such amendments do not
require stockholder approval.
The following table depicts options to purchase shares granted in fiscal
1999 under the K N Energy, Inc. 1999 Stock Option Plan.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 STOCK OPTION
PLAN
-------------------
DOLLAR NUMBER
VALUE OF
NAME AND POSITION ($)(1) OPTIONS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
William V. Allison $70,313 250,000
President, Natural Gas Pipeline Operations
- -----------------------------------------------------------------------------------------------
Michael C. Morgan $70,313 250,000
Vice President-Strategy and Investor Relations
- -----------------------------------------------------------------------------------------------
David G. Dehaemers, Jr. $70,313 250,000
Vice President-Corporate Development
- -----------------------------------------------------------------------------------------------
Joseph Listengart $49,212 175,000
Vice-President, Secretary
and General Counsel
- -----------------------------------------------------------------------------------------------
Executive Group $316,406 1,125,000
- -----------------------------------------------------------------------------------------------
Non-Executive Officer Employee Group $990,984 3,523,500
- -----------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) The "Dollar Value" was calculated by subtracting the price of the common
stock on the date of grant from the high/low average price of our common
stock on January 14, 2000.
RECOMMENDATION
Not all of the important information about our 1999 Stock Option Plan is
contained in the foregoing summary. The full text of the amended and restated
plan is attached to this proxy statement as Appendix B. You may obtain a copy of
our public filings without charge by following the instructions in the section
entitled "How I can find more information about Kinder Morgan?" on page 5 of
this proxy statement.
This proposal will be approved by the favorable vote of a majority of
our outstanding shares of common stock present at the annual meeting, in person
or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND AND RESTATE OUR K N ENERGY, INC. 1999 STOCK OPTION PLAN.
-41-
<PAGE> 47
ITEM 4-PROPOSAL TO AMEND AND RESTATE OUR 1992 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
DESCRIPTION OF OUR 1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Our Board of Directors adopted our 1992 Stock Option Plan for
Non-Employee Directors, effective January 1, 1992, for a term of 10 years,
subject to stockholder approval. Our stockholders approved the plan at our 1992
annual meeting. Our Board of Directors adopted amendments to the plan in 1996
to:
o increase the authorized number of shares of common stock issuable
thereunder, as adjusted for a stock split in 1993, from 150,000
to 350,000;
o increase the number of options that may be granted to directors;
and
o change the grant date for the options.
Our stockholders approved those amendments at the 1996 Annual Meeting. A
stock split in 1998 increased the shares issuable under our 1992 Stock Option
Plan to 525,000.
The purpose of our 1992 Stock Option Plan is to permit us to remain
competitive in attracting and retaining high-caliber members on our Board. Our
Board believes the plan has been successful in this regard, but that in order to
carry out the plan's purpose it is necessary to amend the plan. Accordingly, at
its January 20, 2000 meeting, our Board of Directors decided to submit to
stockholders the amendment and restatement of the plan at the annual meeting.
Our Board of Directors adopted amendments to:
o change the administration of our 1992 Stock Option Plan to our
Compensation Committee;
o increase the number of shares of common stock that may be subject
to options granted to each director after his initial election to
our Board from 3,000 to 20,000;
o increase the number of shares of common stock that may be subject
to options granted to each director on an annual basis from 3,000
to 10,000;
o rename our 1992 Stock Option Plan to reflect our corporate name
change;
o extend the term of our 1992 Stock Option Plan from December 31,
2001 to December 31, 2009; and
o adopt certain technical amendments regarding the manner of
determining the fair market value of shares subject to options
and the adjustment of options upon certain changes in our
capitalization.
-42-
<PAGE> 48
The following summary of our 1992 Stock Option Plan, as amended and
restated effective as of January 20, 2000, is qualified by reference to the full
text of our 1992 Stock Option Plan which is attached as Appendix C to this proxy
statement.
Administration
The Stock Option Committee previously administered our 1992 Stock Option
Plan. The Stock Option Committee consisted of directors who were also our
employees. As amended, the our 1992 Stock Option Plan is administered by our
Compensation Committee of our Board of Directors to permit our 1992 Stock Option
Plan to comply with Rule 16b-3 under the Exchange Act. Within 30 days after the
initial election to our Board of any person who is not a salaried employee of
us, our Compensation Committee may grant to that person an option to purchase up
to 20,000 shares of common stock. On the first business day after each annual
stockholders meeting, our Compensation Committee may grant to all eligible
directors an option to purchase up to 10,000 shares of common stock. Our
Compensation Committee determines the number of shares subject to the options
granted each year.
The option price, or price per share of common stock subject to an
option, may not be less than either:
o the fair market value of common stock on the date of the grant of
the option or
o the par value of the common stock.
The fair market value generally is determined to be the closing sale
price reported in The Wall Street Journal for the New York Stock
Exchange-Composite Transactions. The options are exercisable on the date of
grant and expire ten years from the date of grant. Our Compensation Committee
also determines whether an option may be paid in cash or common stock. Options
are not transferable except by will or the laws of descent and distribution.
However, our Compensation Committee may in its discretion, upon written request
by a director, allow a director to transfer an option to a family partnership or
other estate planning arrangement or to a charity.
Our Compensation Committee will be authorized to interpret our 1992
Stock Option Plan and options granted under our 1992 Stock Option Plan and to
determine the number of shares to be subject to options granted annually to the
directors. Our Board of Directors may amend our 1992 Stock Option Plan without
stockholder approval, unless such approval is required by law or stock exchange
requirements. Our Board of Directors may terminate our 1992 Stock Option Plan at
any time. No options may be granted under the plan after December 31, 2009.
-43-
<PAGE> 49
Shares Available
The aggregate number of shares of our common stock which may be issued
under our 1992 Stock Option Plan with respect to options may not exceed 525,000.
Our 1992 Stock Option Plan provides for appropriate adjustments or other action
to reflect:
o mergers;
o consolidations;
o recapitalizations;
o certain sales of assets;
o combinations of shares;
o change in control of us through share ownership or a contested
election of directors;
o changes in corporate structure;
o stock splits;
o stock dividends; or
o certain other significant changes in the common stock.
Lapsed or canceled options will not count against this limit and can be
regranted under the plan. The shares issued under the plan may be issued from
shares held in treasury or from authorized but unissued shares. The market value
of the stock underlying the options granted as of March 13, 2000 is $399,388.
Participation
Directors who are our full-time employees are not eligible to
participate in our 1992 Stock Option Plan. Thus, eight directors will be
eligible to participate.
Federal Income Tax Consequences
The Internal Revenue Code provides that a participant receiving a
nonqualified option ordinarily does not realize taxable income upon the grant of
the option. A participant does, however, realize ordinary income upon the
exercise of a nonqualified option. The amount of ordinary income realized is
equal to the amount that the fair market value of the common stock on the date
of exercise exceeds the option price. We are entitled to a federal income tax
deduction for compensation in an amount equal to the ordinary income realized by
the participant, provided that we withhold federal income tax with respect to
the amount of such compensation. When the participant sells shares acquired
pursuant to a nonqualified option, any gain or loss will be capital gain or
loss. This
-44-
<PAGE> 50
assumes, however, that the shares represent a capital asset in the participant's
hands, although there will be no tax consequences for us.
Additional Information
If the stockholders do not approve our 1992 Stock Option Plan as amended
and restated, we intend to continue to grant options under our 1992 Stock Option
Plan as currently in effect or as may be amended from time to time by our Board
of Directors to the extent such amendments do not require stockholder approval.
In 1999, no options were granted to our named executive officers, our
executive group or our non-executive officer employee group. The number of
outstanding options granted in 1999 under the 1992 Stock Option Plan to our
non-executive director group was 135,250. The dollar value of those outstanding
options as of March 13, 2000, was $430,195. The dollar value was calculated by
subtracting the price of the stock options on the date of grant from the
high/low average price of our common stock on March 13, 2000.
RECOMMENDATION
Not all of the important information about our 1992 Stock Option Plan
for Non-Employee Directors is contained in the foregoing summary. The full text
of the amended and restated plan is attached to this proxy statement as Appendix
C. You may obtain a copy of our public filings without charge by following the
instructions in the section entitled "How I can find more information about
Kinder Morgan?" on page 5 of this proxy statement.
This proposal will be approved by the favorable vote of a majority of
our outstanding shares of common stock present at the annual meeting, in person
or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND AND RESTATE THE 1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
ITEM 5-PROPOSAL TO RATIFY AND APPROVE OUR 2000 ANNUAL INCENTIVE PLAN
DESCRIPTION OF OUR 2000 ANNUAL INCENTIVE PLAN
Our 2000 Annual Incentive Plan will permit annual bonuses to be paid in
fiscal year 2000 and in subsequent years to our officers and other employees
based on their individual performance, our performance and the performance of
our subsidiaries. The tax deduction available with respect to compensation paid
to certain executive officers is limited, unless the compensation qualifies as
performance based under the Internal Revenue Code. Among the requirements for
performance based compensation are:
-45-
<PAGE> 51
o the compensation must be paid based solely on the attainment of
objective performance measures established by a committee of
outside directors, and
o the plan must provide for such compensation be approved by
stockholders.
Our Board of Directors wants to create a bonus plan providing for
objective performance goals. This bonus plan would enable the portion of an
officer or employee's annual bonus based on objective performance criteria to
qualify as performance based. That amount would be deductible without regard to
the deduction limit otherwise imposed by the Internal Revenue Code. Accordingly,
on January 20, 2000, our Board of Directors took action to adopt, subject to
stockholder approval at the annual meeting, the 2000 Annual Incentive Plan.
Principal Provisions of the Plan
The following summary of the 2000 Annual Incentive Plan is qualified by
reference to the full text of the Plan, which is attached as Appendix D to this
proxy statement. The purpose of the 2000 Annual Incentive Plan is to increase
our officer or employee's personal stake in the continued success of the Company
by providing them additional incentives through the payment of bonuses.
Administration
Our Compensation Committee administers the 2000 Annual Incentive Plan.
Our Compensation Committee consists of two or more directors, each of whom
qualifies as an "outside director" for purposes of the Internal Revenue Code.
Our Compensation Committee is authorized to:
o interpret the 2000 Annual Incentive Plan;
o adopt rules and regulations for carrying out the 2000 Annual
Incentive Plan; and
o take any other action necessary or advisable for the
administration of the 2000 Annual Incentive Plan.
Eligibility
All of our employees and the employees of our subsidiaries are eligible
to participate in the 2000 Annual Incentive Plan. However, only employees who
are selected by our Compensation Committee will participate. Directors who are
not our officers or officers of our subsidiaries are not eligible. As of March
13, 2000, approximately 3,500 employees were eligible to participate in the 2000
Annual Incentive Plan.
Terms and Conditions of Awards
Our Compensation Committee determines which of the eligible employees
will be granted an award under the 2000 Annual Incentive Plan for any given
year. At or before the start of each calendar year, our Compensation Committee
establishes written performance objectives for each
-46-
<PAGE> 52
eligible employee chosen to receive an award for that year. The performance
objectives are based on one or more of the criteria set forth in the 2000 Annual
Incentive Plan. At the same time, our Compensation Committee also establishes a
bonus opportunity for each employee, which is the amount of the bonus the
employee will earn if the performance objectives are fully satisfied. Our
Compensation Committee may specify a minimum acceptable level of achievement of
each performance objective below which no bonus is payable with respect to that
objective. Our Compensation Committee may set additional levels above the
minimum (which may also be above the targeted performance objective), with a
formula to determine the percentage of the bonus opportunity to be earned at
each level of achievement above the minimum. Performance at a level above the
targeted performance objective may entitle the employee to earn a bonus in
excess of 100% of the bonus opportunity. However, the maximum payout to any
individual under our 2000 Annual Incentive Plan in any year is $1,500,000.
Performance Objectives may be based on one or more of the following
criteria:
o our earnings per share;
o cash distributions to stockholders;
o our earnings or the earnings of our subsidiaries before interest
and taxes or earnings before interest, taxes and corporate
charges;
o our net income or the net income of our subsidiaries;
o our revenues or the revenues of one of our subsidiaries;
o our revenues or the revenues of one of our subsidiaries' unit
revenues minus unit variable costs;
o the return on capital, return on equity, return on assets, or
return on invested capital of us or one of our subsidiaries;
o cash flow return on assets or cash flows from operating
activities of us or one of our subsidiaries;
o our capital expenditures or the capital expenditures of one of
our subsidiaries;
o operations and maintenance expense or general and administrative
expense of us or one of our subsidiaries; and
o debt-equity ratios and key profitability ratios of us or one of
our subsidiaries.
At the end of the year, our Compensation Committee determines the extent
to which the performance objectives have been attained and the extent to which
the bonus opportunity has been earned under the formula previously established
by our Compensation Committee. Our Compensation Committee may exercise its
discretion to reduce the award for any reason, including:
-47-
<PAGE> 53
o its judgment that a performance objective has become an
inappropriate measure of achievement;
o a change in the employment status, position or duties of the
employee;
o unsatisfactory performance of the employee; or
o the employee's service for less than the entire year.
Awards under the 2000 Annual Incentive Plan are paid in cash in a lump
sum or in a combination of cash, common stock or stock options. Awards are paid
promptly after our Compensation Committee has determined the amount of bonus to
be paid, unless our Compensation Committee determines, either at the time of the
grant or the time of distribution, to distribute all or a portion of the award
in installments or as deferred compensation. The 2000 Annual Incentive Plan also
authorizes our Compensation Committee, in its discretion, to adopt a program
under which employees may elect to defer all or a portion of their award.
Change of Control
In the event of a change in control, our Compensation Committee has the
discretion to make adjustments to outstanding awards as it deems necessary. If,
in connection with or as a result of a change in control, neither Richard D.
Kinder nor William V. Morgan continues to serve as Chairman or Vice Chairman of
the Company, all participants are deemed to have fully earned the bonus
opportunities contained in their outstanding awards, and the amount of their
bonus opportunities is payable promptly in a cash lump sum. Following a change
in control, our Compensation Committee will have no power to decrease the amount
of the bonus opportunity payable under an award.
Under the 2000 Annual Incentive Plan, a change in control occurs if:
o any person acquires beneficial ownership of 50% or more of our
voting securities;
o there is a change in the composition of a majority of our Board
of Directors within any period of two consecutive years for any
reason other than normal retirement, death or disability;
o our stockholders approve a merger or consolidation of us with any
other person, other than:
- a merger or consolidation which would result in the voting
securities of us outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities for the
surviving entity) more than 50% of the combined voting
power of our voting securities of us or such surviving
entity outstanding immediately after such merger or
consolidation; or
-48-
<PAGE> 54
- a merger in which we are the surviving entity but no
person acquires more than 50% of the combined voting power
of our then outstanding securities; or
o our stockholders approve a plan of complete liquidation of us or
an agreement for the sale or disposition by us of all or
substantially all of our assets, or any transaction having a
similar effect.
Amendment and Termination
Our Board of Directors may amend the 2000 Annual Incentive Plan from
time to time without stockholder approval except as required to satisfy the
Internal Revenue Code. Awards may be granted under the 2000 Annual Incentive
Plan for calendar years 2000 through 2005, unless the 2000 Annual Incentive Plan
is terminated earlier by our Board. However, the 2000 Annual Incentive Plan will
remain in effect until payment has been completed with respect to all awards
granted under the 2000 Annual Incentive Plan prior to its termination.
Benefits under the 2000 Annual Incentive Plan
Our Compensation Committee will set the amount of each employee's bonus
opportunity each year in its discretion, subject to the 2000 Annual Incentive
Plan's limitation that the bonus paid to any employee under the 2000 Annual
Incentive Plan for any year may not exceed $1,500,000.
As of March 13, 2000, no options had been issued under the 2000 Annual
Incentive Plan to our named executive officers, our executive group, our
non-executive director group, and our non-executive officer employee group. At
this time, we are not able to determine the options or dollar amounts that will
be granted under the 2000 Annual Incentive Plan.
RECOMMENDATION
Not all of the important information about the 2000 Annual Incentive
Plan is contained in the foregoing summary. The full text of the amended and
restated plan is attached to this proxy statement as Appendix D. You may obtain
a copy of our public filings without charge by following the instructions in the
section entitled "How I can find more information about Kinder Morgan?" on page
5 of this proxy statement.
This proposal will be approved by the favorable vote of a majority of
our outstanding shares of common stock present at the annual meeting, in person
or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO RATIFY AND APPROVE OUR 2000 ANNUAL INCENTIVE PLAN.
-49-
<PAGE> 55
ITEM 6-PROPOSAL TO AMEND OUR K N ENERGY, INC. EMPLOYEES
STOCK PURCHASE PLAN
DESCRIPTION OF OUR K N ENERGY, INC. EMPLOYEES STOCK PURCHASE PLAN
Our K N Energy, Inc. Employees Stock Purchase Plan became effective when
it received stockholder approval at our 1990 annual meeting. In 1998, the
stockholders approved an amendment to our Employees Stock Purchase Plan. The
amendment increased the number of shares subject to our Employees Stock Purchase
Plan from 600,000 to 1,600,000. A stock split in 1998 increased the number of
shares subject to our Employees Stock Purchase Plan to 2,400,000. The market
value of the stock issued from 1990 - 1999 under the plan as of March 13, 2000
was $24,921,868.
Our Employees Stock Purchase Plan is intended to qualify under the
Internal Revenue Code. The purpose of the plan is to encourage eligible
employees to establish a closer identification of their interests with our
interests by enabling them to acquire proprietary interests in us through the
ownership of common stock. The plan provides the employees with a direct means
of participating in our growth and earnings. This participation will provide
motivation for participating employees to remain in our employ and to give
greater effort on our behalf.
Our Board of Directors believes that our Employees Stock Purchase Plan
is accomplishing its purpose. However, our Board believes that it is necessary
to amend our Employees Stock Purchase Plan to make certain technical amendments.
Accordingly, at its January 20, 2000 meetings, our Board decided to submit to
stockholders the amendment and restatement of our Employees Stock Purchase Plan
at the annual meeting.
The amendments approved by our Board of Directors are:
o renaming our Employees Stock Purchase Plan to reflect our
corporate name change;
o changing the requirements for eligibility to participate in the
plan;
o changing the frequency of offerings from annual to quarterly;
o changing the minimum and maximum amounts an employee can
contribute towards the purchase of common stock;
o changing the method for determining the purchase price of common
stock;
o imposing a 180-day waiting period after the purchase of common
stock before shares of common stock will be issued to employees;
and
o adopting certain technical amendments regarding the manner of
determining the fair market value of shares subject to options
and the adjustment of options upon certain changes in our
capitalization.
The following summary of our Employees Stock Purchase Plan, as amended
and restated
-50-
<PAGE> 56
effective as of January 1, 2000, is qualified by reference to the full text of
our Employees Stock Purchase Plan which is attached as Appendix E to this proxy
statement.
Employees Stock Purchase Plan Summary
Under our Employees Stock Purchase Plan, the committee appointed by our
Board of Directors administers the plan. Each of our eligible full-time
employees or the employees of our subsidiaries may elect to purchase shares
through payroll deductions during each offering, which will be for a period of
three months. Payroll deductions must be at least $20 per month, but no more
than $25,000 during a calendar year. At the end of the offering, the balance in
each participant's payroll deduction account will be used to purchase as many
shares, including fractional shares, as the amount will purchase. The purchase
price per share pursuant to the plan shall be 85% of the market value of our
common stock on the last day of the offering. In no event shall the purchase
price per share be less than the par value of our common stock, which is $5. The
number of shares an employee is allowed to purchase in any one offering is
restricted by provisions of the Internal Revenue Code. That number may be
limited further by the committee before the beginning of an offering. An
employee is not eligible to participate in the plan if:
o he or she possesses 5% or more of the total combined voting power
or value of all classes of our stock, including shares that could
be purchased under to the plan;
o his or her customary employment is for twenty hours or less per
week; or
o he or she is a highly compensated employee and the committee
determines that he or she is not eligible to participate in a
particular offering.
The number of eligible employees is approximately 3,500. Our executive officers
do not participate in the plan. Directors who are not our employees are not
eligible to participate in the plan. At any time after the expiration of 180
days after the day on which shares of common stock are purchased, an employee
can request that the shares be issued in the name of the employee. Shares issued
under the plan may be either authorized and unissued shares or treasury shares,
or shares purchased by us on the open market. The plan provides for appropriate
adjustments or other action by the committee or our Board of Directors to
reflect:
o mergers;
o consolidations;
o recapitalizations;
o certain sales of assets;
o combinations of shares;
-51-
<PAGE> 57
o a change in control of us through share ownership or a contested
election of directors;
o changes in corporate structure;
o stock splits;
o stock dividends; or
o certain other significant changes in our common stock or in us.
Our Board of Directors may amend the plan. However, our Board of Directors may
not amend the plan in a manner which would change or impair outstanding rights
to purchase common stock unless our Board obtains the participant's consent.
Without stockholder approval, our Board may not:
o modify the requirements as to eligibility for participation;
o materially increase the benefits accruing to participants under
the plan;
o increase the maximum number of shares which may be purchased by
all employees under the plan; or
o make any other changes to the plan for which stockholder approval
is required by law or stock exchange requirements.
Under the Employees Stock Purchase Plan, during fiscal 1999, our
non-executive officer employees acquired 187,567 shares of common stock with a
dollar value of $5,058,457, as of March 13, 2000. The dollar value was
calculated by subtracting the discounted price of the stock options on the date
of grant from the high/low average price of our common stock on March 13, 2000.
None of our named executive officers, our executive group, or our non-executive
director group participates in our Employees Stock Purchase Plan.
RECOMMENDATION
Not all of the important information about our Employees Stock Purchase
Plan is contained in the foregoing summary. The full text of the amended and
restated plan is attached to this proxy statement as Appendix E. You may obtain
a copy of our public filings without charge by following the instructions in the
section entitled "How I can find more information about Kinder Morgan?" on page
5 of this proxy statement.
This proposal will be approved by the favorable vote of a majority of
our outstanding shares of common stock present at the annual meeting, in person
or by proxy.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND OUR K N ENERGY, INC. EMPLOYEES STOCK PURCHASE PLAN.
ITEM 7-PROPOSAL TO RATIFY AND APPROVE THE SELECTION OF
-52-
<PAGE> 58
PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT AUDITORS
We have selected PricewaterhouseCoopers LLP as our independent auditors
for the fiscal year ending December 31, 2000. PricewaterhouseCoopers LLP has
served as our independent auditors since November 22, 1999. Prior to that,
Arthur Anderson LLP served as our independent auditors for fiscal 1999. Services
provided to us and our subsidiaries by PricewaterhouseCoopers LLP in fiscal 1999
included the examination of our consolidated financial statements, limited
reviews of quarterly reports, services related to filings with the Securities
and Exchange Commission, services in connection with consultations on various
tax, information services and business process matters.
Representatives of PricewaterhouseCoopers LLP will be present at the
annual meeting to respond to appropriate questions and to make such statements
as they may desire.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO RATIFY AND APPROVE OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR
INDEPENDENT AUDITORS.
In the event stockholders do not ratify the appointment, the selected
will be reconsidered by our Audit Committee and our Board of Directors.
OTHER MATTERS
As of the date of this proxy statement, we know of no business that will
be presented for consideration at the annual meeting other than the items
referred to above. If any other matter is properly brought before the meeting
for action by stockholders, proxies in the enclosed form returned to us will be
voted in accordance with the recommendation of our Board of Directors or, in the
absence of such a recommendation, in accordance with the judgment of the proxy
holder.
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING. Stockholders
interested in submitting a proposal for inclusion in the proxy materials for our
annual meeting of stockholders in 2001 may do so by following the procedures
prescribed in Rule l4a-8 under the Exchange Act. To be eligible for inclusion,
stockholder proposals must be received by our Corporate Secretary no later than
December 1, 2000.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THIS PROXY STATEMENT IS DATED APRIL 11, 2000. YOU SHOULD
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF
THAT DATE ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
-53-
<PAGE> 59
APPENDIX A
1994 AMENDED AND RESTATED
KINDER MORGAN, INC. LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.01 Purpose. This Plan is an amendment and restatement of the 1994 K N
Energy, Inc. Long-Term Incentive Plan. The purpose of the 1994 Amended and
Restated Kinder Morgan, Inc. Long-Term Incentive Plan (the "Plan") is to further
the growth and financial success of Kinder Morgan, Inc., a Kansas corporation
(the "Company"), and its subsidiaries by aligning the personal interests of key
employees, through the ownership of shares of the Company's common stock and
through other incentives, to those of the Company's shareholders. The Plan is
further intended to provide flexibility to the Company in its ability to
compensate key employees and to motivate, attract and retain the services of
such key employees. The Plan permits the granting of Options, Stock Appreciation
Rights, Restricted Stock and other Stock-based Awards.
ARTICLE II
DEFINITIONS
2.01 Agreement. Agreement shall mean the agreement as described in
Section 4.04 of the Plan between the Company and the Participant under which
such Participant receives an Award pursuant to this Plan.
2.02 Award. Award shall mean an incentive award granted under the Plan,
whether in the form of Options, Stock Appreciation Rights, Restricted Stock or
any other form of Stock-Based consideration (which may provide for settlement in
shares of Stock, cash and/or a combination thereof) determined by the Committee
to be consistent with the purposes of the Plan, including but not limited to,
restricted units, phantom stock, performance awards, performance units,
performance shares, stock appreciation shares, stock acquisition rights,
valuation protection rights or any other type of stock-based award or
combination or derivative of various types of awards.
2.03 Board of Directors. Board or Board of Directors shall mean the
Board of Directors of the Company.
2.04 Code. Code shall mean the Internal Revenue Code of 1986, as
amended, unless otherwise specifically provided herein.
2.05 Committee. Committee shall mean the Compensation Committee of the
Board, which 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 Exchange Act. No member of the Committee,
during the one year prior to such membership or during such membership, shall be
granted or
<PAGE> 60
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its Subsidiaries, except as permitted by Rule 16b-3.
2.06 Company. Company shall mean Kinder Morgan, Inc., a Kansas
corporation, and any successor thereof.
2.07 Effective Date. Effective Date shall have the meaning assigned to
such term in Section 14.01 hereof.
2.08 Exchange Act. Exchange Act shall mean the Securities Exchange Act
of 1934, as amended.
2.09 Fair Market Value. Fair Market Value of the Stock shall mean the
closing sale price at which Stock is traded on any given date, or if no Stock is
traded on such date, the most recent prior date on which Stock was traded, as
reported in The Wall Street Journal for the New York Stock Exchange-Composite
Transactions.
2.10 Incentive Stock Option. Incentive Stock Option shall have the
meaning given to it by Section 422(b) of the Code and as further defined in
Article VI hereof.
2.11 Nonstatutory Stock Option. Nonstatutory Stock Option shall mean
any Option granted by the Company pursuant to this Plan which is not an
Incentive Stock Option.
2.12 Option. Option shall mean an option granted by the Company to
purchase Stock pursuant to the provisions of this Plan and the Agreement
executed pursuant hereto.
2.13 Option Price. Option Price shall mean the price per share of Stock
purchasable under an Option. The Option Price shall not be less than the Fair
Market Value of the Stock subject to the Option on the date of grant.
2.14 Parent. Parent shall have the same meaning as "parent corporation"
as defined in Section 424 of the Code.
2.15 Participant. Participant shall mean an individual who has received
an Award granted by the Committee hereunder.
2.16 Restricted Stock Awards. A Restricted Stock Award shall mean a
grant made by the Committee entitling the Participant to acquire, either at no
cost or for a purchase price determined by the Committee at the time of grant,
shares of Stock subject to such restrictions and conditions as the Committee may
determine at the time of grant ("Restricted Stock").
2.17 Stock. Stock shall mean common stock, par value $5.00 per share,
of the Company.
-2-
<PAGE> 61
2.18 Stock Appreciation Rights. A Stock Appreciation Right shall mean a
grant entitling the Participant to receive an amount in cash, or shares of
Stock, or a combination thereof, having a value equal to (or if the Committee
shall so determine at the time of grant, less than) the excess of the fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the Option Price, if the
Stock Appreciation Right was granted in tandem with an Option) multiplied by the
number of shares with respect to which the Stock Appreciation Right shall have
been exercised, with the Committee having sole discretion to determine the form
for payment. A Stock Appreciation Right is further defined in Article VII
hereof.
2.19 Subsidiary. Subsidiary shall have the same meaning as "subsidiary
corporation" as defined in Section 424 of the Code.
2.20 Ten Percent Shareholder. Ten Percent Shareholder shall mean an
individual who, at the time of grant of an Option, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or its Parent or Subsidiary.
ARTICLE III
PARTICIPATION
3.01 Participation. Subject to the provisions of the Plan, the
Committee may grant Awards under this Plan to any officer or other key employee
of the Company or an entity in which the Company has a direct or indirect
ownership interest who, in its sole discretion, is expected to contribute to its
success. Awards may be granted to the same individual on more than one occasion.
Notwithstanding anything herein to the contrary, an Incentive Stock Option may
be granted only to an employee of the Company or its Parent or Subsidiary.
Notwithstanding any provision in the Plan to the contrary, no more than
1,000,000 shares of Stock may be subject to Awards granted under the Plan to any
one employee 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.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.01 Limitations.
(A) Subject to adjustments pursuant to the provisions of
Section 4.03 hereof, the number of shares of Stock or Stock equivalents
which may be granted to Participants under all forms of Awards shall
not exceed 5,700,000 shares, subject to adjustment as provided in
Section 4.03. These shares may consist in whole or in part of
authorized and unissued Stock or treasury Stock.
-3-
<PAGE> 62
(B) For purposes of this Section 4.01, the shares of Stock that
shall be counted toward such limitation shall include all Stock:
(1) issued or issuable pursuant to Options that have
been or may be exercised;
(2) subject to Stock Appreciation Rights that have
been or may be exercised (other than Stock Appreciation Rights
granted in tandem with outstanding Options);
(3) issued as, or subject to issuance as, Restricted
Stock;
(4) used to calculate payments of dividends and
dividend equivalents in conjunction with any outstanding
Awards; and
(5) to the extent that an Award is settled in cash or
any form other than in Stock, the appropriate shares of Stock
represented by such settlement of the Awards, as determined by
the Committee.
4.02 Availability of Shares Once Issued Under Plan. Once grants of
Awards have lapsed, terminated or are forfeited, the Committee shall have the
sole discretion to issue a new grant to any Participant, covering the number of
shares to which such lapsed, terminated or forfeited grant related; provided,
however, that the Participant has received no monetary benefits of ownership
therefrom, such as dividends.
4.03 Anti-Dilution Adjustments. In the event that the outstanding
shares of Stock are changed into or exchanged for a different number or kind of
share or other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend, the Committee shall
make such corresponding adjustment, if any, as is appropriate, adjusting the
number and kind of shares which may be granted under the Plan, the maximum
number and kind of shares which may be granted to any one eligible Participant,
and the number, the Option Price, and the kind of shares or property subject to
each outstanding Award.
4.04 Grants and Agreements. Each grant of an Award under this Plan
shall be evidenced by a written Agreement dated as of the date of the grant and
executed by the Company and the Participant. This Agreement shall set forth the
terms and conditions of such Award, as may be determined by the Committee
consistent with this Plan, and if such Agreement related to the grant of an
Option, shall indicate whether the Option is intended to be an Incentive Stock
Option or a Nonstatutory Stock Option.
-4-
<PAGE> 63
ARTICLE V
OPTIONS
5.01 Option Exercise. Subject to federal and state statutes then
applicable, the terms and procedures by which an Option may be exercised shall
be set forth in the Participant's Agreement or in procedures established by the
Committee; provided, however, that no Incentive Stock Option shall be
exercisable later than ten (10) years (or five (5) years in the case of an
Option granted to a Ten Percent Shareholder) after the date of grant. The
Committee may permit payment of the Option Price to be made through the tender
of cash or securities, the withholding of Stock or cash to be received through
Awards, or any other arrangement satisfactory to the Committee.
5.02 Nonstatutory Stock Options. The Committee may grant Nonstatutory
Stock Options under this Plan. Such Nonstatutory Stock Options must comply with
all requirements of this Plan except for those contained in Article VI, Article
VII, and Article VIII hereof.
5.03 Vesting of Options. The Agreement shall specify the date or dates
on which the Participant may begin to exercise all or a portion of his Option.
Notwithstanding the terms of any Agreement, the Committee may, at any time,
accelerate such date or dates and otherwise waive or amend any conditions of the
Option; provided, however, that with respect to an Incentive Stock Option, the
Committee shall not take any action which would constitute a modification,
extension or renewal (within the meaning of Section 424(h) of the Code) of such
Incentive Stock Option.
ARTICLE VI
INCENTIVE STOCK OPTIONS
6.01 General. All Incentive Stock Options shall comply with all the
restrictions and limitations set forth in Section 422 of the Code and this Plan.
No Incentive Stock Option shall be granted to a Ten Percent Shareholder unless
(i) the Option Price is at least 110% of the Fair Market Value of the Stock
subject to the Option at the time such Incentive Stock Option is granted, and
(ii) such Incentive Stock Option by its terms is not exercisable after the
expiration of five years from the date of grant. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its Parent and
Subsidiaries exceeds $100,000, such excess Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such determination
as soon as practicable after such determination.
ARTICLE VII
STOCK APPRECIATION RIGHTS
-5-
<PAGE> 64
7.01 Grant and Exercise of Stock Appreciation Rights. Stock
Appreciation Rights may be granted to Participants by the Committee in tandem
with, or independently of, any Option granted pursuant to Article V or Article
VI of this Plan. In the case of a Stock Appreciation Right granted in tandem
with a Nonstatutory Stock Option, such Stock Appreciation Right may be granted
either at or after the time of the grant of such Nonstatutory Stock Option. In
the case of a Stock Appreciation Right granted in tandem with an Incentive Stock
Option, such Stock Appreciation Right may be granted only at the time of the
grant of such Incentive Stock Option.
A Stock Appreciation Right, or the applicable portion thereof granted
in tandem with an Option, shall terminate and no longer be exercisable upon the
termination or exercise of the related Option. However, if a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Option, such Stock Appreciation Right shall terminate only if and to
the extent that the number of shares covered by the exercise or termination of
the related Option exceeds the number of shares not covered by such Stock
Appreciation Right.
7.02 Terms and Conditions of Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee and embodied in the Agreements and
in procedures established by the Committee. The Committee may, at any time,
accelerate the exercisability of any Stock Appreciation Right and otherwise
waive or amend any conditions of the grant of a Stock Appreciation Right;
provided, however, that with respect to any Stock Appreciation Right granted in
tandem with an Incentive Stock Option, the Committee shall not take any action
which would constitute a modification, extension or renewal (within the meaning
of Section 424(h) of the Code) of such Incentive Stock Option.
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.01 Agreement. If the purchase of Restricted Stock is required by the
Agreement, a Participant who is granted a Restricted Stock Award shall have
rights with respect to such grant provided the Participant shall have accepted
the grant within sixty (60) days (or such shorter date as the Committee may
specify) following the date of the grant, by making payment to the Company by
certified bank check or other instrument acceptable to the Committee in an
amount equal to the specified purchase price, if any, of the shares covered by
the grant and by executing and delivering to the Company an Agreement in such
form as the Committee shall determine.
8.02 Rights as a Shareholder. After the issuance of the Restricted
Stock has been recorded in the stock ledger of the Company, and
(A) upon complying with Section above, if the purchase of
Restricted Stock is required by the Agreement; or
(B) immediately, if no purchase of Restricted Stock is
required by the Agreement,
a Participant shall have all the rights of a shareholder with respect to such
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions and Company purchase or
-6-
<PAGE> 65
forfeiture rights described in this Section and Section 8.03, and subject to
such other conditions (including but not limited to, any conditions on voting
and dividend rights) as are contained in the Agreement. Unless the Committee
shall otherwise determine, certificates evidencing shares of Restricted Stock
shall remain in the possession of the Company until such shares are vested as
provided in Section 8.04 below and the Agreement.
8.03 Restrictions. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. Restrictions on shares of Restricted Stock shall
be set forth in an Agreement and may include such vesting restrictions as the
Committee shall determine, including but not limited to, restrictions related to
(i) the attainment of one or more performance targets established by the
Committee that are based on (1) the price of a share of Stock, (2) the Company's
earnings per share, (3) the Company's market share, (4) the market share of a
business unit of the Company designated by the Committee, (5) the Company's
sales, (6) the sales of a business unit of the Company designated by the
Committee, (7) the net income (before or after taxes) of the Company or any
business unit of the Company designated by the Committee, (8) the cash flow
return on investment of the Company or any business unit of the Company
designated by the Committee, (9) the earnings before or after interest, taxes,
depreciation, and/or amortization of the Company or any business unit of the
Company designated by the Committee, (10) the economic value added, or (11) the
return on stockholders' equity achieved by the Company, (ii) the Participant's
continued employment for a specified period of time, (iii) the occurrence of any
event or the satisfaction of any other condition specified by the Committee in
its sole discretion, or (iv) a combination of any of the foregoing. In the event
of a Participant's termination of employment for any reason (including death)
prior to the date shares of Restricted Stock awarded to such Participant become
vested, the Company shall have the right, at the discretion of the Committee, to
repurchase such shares at their purchase price, or to require forfeiture of such
shares to the Company if acquired at no cost, from such Participant or the
Participant's legal representative.
8.04 Vesting of Restricted Stock. The Committee at the time of grant
shall specify the date or dates (which may depend upon or be related to the
attainment of performance goals and other conditions) on which the restrictions
imposed upon the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. The Committee at any time may accelerate such date or
dates and otherwise waive or amend any conditions of the grant; provided,
however, the Committee may not take any action described in this Section with
respect to Restricted Stock that has been granted to a "covered employee"
(within the meaning of Treasury Regulation Section 1.162-27(c)(2)) if such
Restricted Stock has been designed to meet the exception for performance-based
compensation under Section 162(m) of the Code. With respect to Restricted Stock
granted to a "covered employee," if the restrictions imposed upon such
Restricted Stock lapse because of the attainment of performance goals, the
Committee shall certify in writing that such performance goals have been
attained.
ARTICLE IX
STOCK CERTIFICATES
-7-
<PAGE> 66
9.01 Stock Certificates. The Company shall not be required to issue or
deliver any certificate for shares of Stock under this Plan prior to fulfillment
of all of the following conditions:
(A) the admission of such shares to listing on all stock
exchanges on which the Stock is then listed, if any;
(B) the completion of any registration or other qualification
of such shares under any federal or state law, under the rules or
regulations of the Securities and Exchange Commission, or under any
other governmental regulatory agency which the Committee shall in its
sole discretion determine to be necessary or advisable;
(C) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its
sole discretion determine to be necessary or advisable; and
(D) the lapse of such reasonable period of time following the
exercise of the grant as the Committee from time to time may establish
for reasons of administrative convenience.
If these conditions are not satisfied the employee may lose his rights
to such Stock as determined by the Committee.
Separate stock certificates shall be issued by the Company for those
shares acquired pursuant to the exercise of an Incentive Stock Option and for
those shares acquired pursuant to the exercise of a Nonstatutory Stock Option.
ARTICLE X
DIVIDENDS
10.01 Dividends. At the time of each grant of an Award (other than an
Option, Stock Appreciation Right or Restricted Stock) the Committee may, in it
sole discretion, determine whether the grant shall provide a dividend or a
dividend equivalent and the terms and conditions under which any such dividend
or dividend equivalent is to be provided, including but not limited to,
permitting or requiring immediate payment, deferral or investment of dividends
or dividend equivalents.
ARTICLE XI
PLAN ADMINISTRATION
11.01 Plan Administration. The Plan and all Agreements shall be
administered, and all grants under this Plan shall be awarded, by the Committee.
The Committee shall have full authority and absolute sole discretion to:
(A) determine, consistent with provisions of the Plan, which
of the employees shall be granted Awards; the form and terms of such
Awards; the timing of such grants; the number of shares subject to each
Award and the Option Price of Stock covered by each Option (if
applicable); and the period over which the Awards shall become and
remain exercisable (if applicable);
-8-
<PAGE> 67
(B) construe and interpret the Plan and any Agreement or
instrument entered into under the Plan;
(C) determine the terms and provisions of each respective
Agreement, which need not be identical;
(D) make all other determinations and take all other actions
deemed necessary or advisable for the proper administration of the
Plan; and
(E) adopt, alter, and repeal such rules, guidelines, and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any grant (including related Agreements); to
decide all disputes arising in connection with the Plan; and to
otherwise supervise the administration of the Plan.
11.02 Decisions Binding. All determinations and decisions by the
Committee pursuant to the Plan and all related orders or resolutions of the
Board of Directors 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, Participants and their estates and
beneficiaries.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 Applicable Law. To the extent not preempted by any laws of the
United States, the Plan shall be construed, regulated, interpreted and
administered according to the laws of the State of Texas.
12.02 Expenses. The cost of Awards and the expenses of administering
the Plan shall be borne by the Company.
12.03 Gender and Number. Unless the context clearly requires otherwise,
the masculine pronoun whenever used shall include the feminine and neuter
pronoun, the singular shall include the plural, and vice versa.
12.04 Headings Not Part of Plan. Headings of Articles and Sections are
inserted for convenience of reference only.
12.05 Indemnification. No member of the Board of Directors or the
Committee shall be liable for any action or determination taken or made in good
faith with respect to this Plan nor shall any member of the Board of Directors
or the Committee be liable for any Agreement issued pursuant to this Plan or any
grants under it. Each member of the Board of Directors and the Committee shall
be indemnified by the Company against any losses incurred in such administration
of the Plan, unless his action constitutes gross negligence or willful
misconduct.
-9-
<PAGE> 68
12.06 Limitation of Rights. Neither the adoption and maintenance of the
Plan or any Agreement nor anything contained herein shall, with respect to any
Participant, be deemed to:
(A) limit the right of the Company or any subsidiary to
discharge or discipline any such person, or otherwise terminate or
modify the terms of his employment; or
(B) create any contract or other right or interest under the
Plan other than as specifically provided in the Plan and an Agreement.
12.07 Nontransferability. An Award shall not be transferable by the
Participant otherwise than by will or the laws of descent and distribution.
During the lifetime of the Participant, such Award shall be exercisable or
perfected only by the Participant or his guardian or legal representative in
accordance with the terms of this Plan and the Agreement.
12.08 Other Compensation Plans. The adoption of the Plan shall not
affect any other existing or future incentive or compensation plans for
directors, officers or employees of the Company or its subsidiaries. Moreover,
the adoption of this Plan shall not preclude the Company or its subsidiaries
from:
(A) establishing any other forms of incentive or other
compensation for directors, officers or employees of the Company or its
subsidiaries; or
(B) assuming any forms of incentive or other compensation of
any person or entity in connection with the acquisition or the business
or assets, in whole or in part, of any person or entity.
12.09 Plan Binding on Successors. This Plan shall be binding upon the
successors of the Company.
12.10 Tax Withholding. Each Participant shall, no later than the date
as of which the value of a grant or of any Stock or other amount received
thereunder first becomes includable in the gross income of the Participant for
federal income tax purposes, pay to the Company or other entity which has a
withholding obligation with respect to the Participant, or make arrangements
satisfactory to the Committee regarding payment of any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Committee may permit payment of such taxes to be made through the tender of
cash or Stock, the withholding of Stock or cash to be received through Awards or
any other arrangement satisfactory to the Committee. The Company and its
subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Participant.
12.11 Securities Laws. Notwithstanding anything to the contrary
expressed in the Plan, any provisions that vary from or conflict with any
applicable federal or state securities laws (including
-10-
<PAGE> 69
any regulations promulgated thereunder) shall be deemed to be modified to
conform to and comply with such laws. Without limiting the generality of the
foregoing, it is the intention of the Company that the Plan shall comply in all
respect with Rule 16b-3 and, if any Plan provision is later found not to be in
compliance with Section 16 of the Exchange Act, the provision shall be deemed
null and void, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3. Notwithstanding anything in the Plan to
the Contrary, the Board, in its absolute discretion, may bifurcate the Plan so
as to restrict, limit or condition the use of any provision of the Plan to
Participants who are officers subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other
Participants.
12.12 Severability. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed and
enforced as though the illegal or invalid provision had not been included.
12.13 Unfunded Status of the Plan. The Plan is intended to be unfunded.
With respect to any payments as to which a Participant has a fixed and vested
interest but which are not yet made to a Participant by the Company, nothing
contained herein shall give any Participant any rights that are greater than
those of a general creditor of the Company.
12.14 Fractional Shares. No Option may at any time be exercised with
respect to a fractional share. In the event shares of Stock are issued pursuant
to exercise of a Stock Appreciation Right, no fractional shares shall be issued;
however, a fractional Stock Appreciation Right may be exercised for cash.
12.15 Section 162(m). If the Company is subject to Section 162(m) of
the Code, it is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options, Stock Appreciation
Rights and Restricted Stock granted hereunder and, if determined by the
Committee, other Awards, shall constitute "performance-based" compensation
within the meaning of such section. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan to comply with
Section 162(m) of the Code as so intended, such provision shall be construed or
deemed amended to conform to the requirements or provisions of Section 162(m) of
the Code; provided that no such construction or amendment shall have an adverse
effect on the economic value to a Participant with respect to any Award
previously granted hereunder. With respect to any Award granted to a "covered
employee" (as defined in Section 162(m)(3) of the Code), if the payment of such
Award is contingent on the satisfaction of performance goals, such performance
goals shall be established in writing by the Committee not later than ninety
(90) days after the commencement of the period of service to which the
performance goals relate; provided, however, that the performance goals must be
established before twenty-five percent (25%) of such period of service has
elapsed. The performance goals shall comply with the requirements of Treasury
Regulation Section 1.162-27(e)(2). The Committee shall certify in writing prior
to payment of any such Award that such performance goals have been satisfied.
-11-
<PAGE> 70
ARTICLE XIII
CHANGE IN CONTROL
13.01 Change in Control. In the event of a Change in Control of the
Company, the Committee, in its discretion, may take any action with respect to
outstanding Awards that it deems appropriate, including but not limited to
accelerating the exercisability of Awards or removing any restrictions
therefrom, which action may vary among Awards granted to individual
Participants.
For purposes of this Section 13.01, a Change in Control of the Company
shall be deemed to have occurred if the conditions set forth in any one or more
of the following shall have been satisfied:
(A) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange 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 Exchange 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;
(B) during any period of two consecutive years (not including
any period prior to the Effective Date of the Plan), individuals who at
the beginning of such period constitute the Board of Directors, 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 paragraph (A), (C) or (D) of this Section 13.01) whose
election by the Board of Directors or nomination for election by the
Company's shareholders was approved by a vote of a least two-thirds
(2/3) of the directors then still in office who either were directors
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;
(C) the shareholders of the Company approve a merger or
consolidation of the Company with any other person, other than (i) 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 by 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 (ii) 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
(D) 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).
-12-
<PAGE> 71
Notwithstanding anything herein to the contrary, with respect to Awards
granted prior to January 20, 2000, in the event of a Change in Control, all such
Awards that are still outstanding and not yet exercisable or are subject to
restrictions, shall, unless otherwise provided for in the related Agreements,
become immediately exercisable, and all restrictions shall be removed, as of the
first date that the Change in Control has been deemed to have occurred, and
shall remain as such for the remaining life of the Award as provided herein and
within the provisions of the related Agreements. With respect to Awards granted
prior to January 20, 2000, a Change in Control of the Company shall be deemed to
have occurred if the conditions set forth in any one or more of the following
shall have been satisfied:
(A) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange 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 Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding securities;
(B) during any period of two consecutive years (not including
any period prior to the Effective Date of the Plan), individuals who at
the beginning of such period constitute the Board of Directors, 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 paragraph (A), (C) or (D) of this Section 13.01) whose
election by the Board of Directors or nomination for election by the
Company's shareholders was approved by a vote of a least two-thirds
(2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute
at least a majority thereof;
(C) the shareholders of the Company approve a merger or
consolidation of the Company with any other person, other than (i) 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 by 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 (ii) a merger in which no "person" (as
defined above) acquires more than thirty percent (30%) of the combined
voting power of the Company's then outstanding securities; or
(D) 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).
-13-
<PAGE> 72
Notwithstanding anything herein or in any Agreements to the contrary,
if a Change in Control occurs and, in connection with or as a result of such
Change in Control, neither William V. Morgan nor Richard D. Kinder holds or
continues to hold the office of Chairman or Vice Chairman of the Company, all
Awards granted under the Plan that are still outstanding and not yet exercisable
or are subject to restrictions shall become immediately exercisable, and all
restrictions shall be removed, as of the first date that the Change in Control
has been deemed to have occurred, and shall remain as such for the remaining
life of the Award as provided herein and within the provisions of the related
Agreements.
ARTICLE XIV
EFFECTIVE DATE AND PLAN AMENDMENTS, TERMINATION
14.01 Effective Date. This Plan was originally effective on March 24,
1994 (the "Effective Date"). This Plan, as amended and restated, shall be
effective on January 20, 2000, which is the date on which the Board of Directors
adopted this amended and restated Plan, subject to the approval of the
shareholders. All Awards granted under the Plan shall be granted on or before
the tenth anniversary of the Effective Date.
14.02 Termination, Amendment and Modification of Plan. The Board of
Directors may at any time terminate or suspend, and may at any time and from
time to time and in any respect amend or modify, the Plan; provided, however,
that no such action of the Board of Directors 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 Sections 162(m)
or 422 of the Code or any successor provisions.
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:
-----------------------------
-14-
<PAGE> 73
APPENDIX B
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> 74
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> 75
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> 76
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> 77
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> 78
(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> 79
(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> 80
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> 81
APPENDIX C
KINDER MORGAN, INC.
AMENDED AND RESTATED 1992 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE OF THE PLAN: This Plan is an amendment and restatement of
the K N Energy, Inc. 1992 Stock Option Plan for Non-Employee Directors, as
amended. The purpose of the Kinder Morgan, Inc. Amended and Restated 1992 Stock
Option Plan for Non-Employee Directors (the "Plan") is to promote the interests
of Kinder Morgan, Inc., a Kansas corporation (the "Company"), and its
stockholders by increasing the potential compensation of the non-employee
members of the Company's Board of Directors (the "Board"), thereby assisting the
Company in its efforts to attract well-qualified individuals to serve as its
directors and to retain their services. Options granted under this Plan are
intended to constitute nonqualified stock options (options that do not qualify
as incentive stock options within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code")), and the Plan shall be construed
so as to carry out that intention.
2. COMPENSATION COMMITTEE: The Plan shall be administered by the
Compensation Committee of the Board (the "Committee"), which shall be
constituted so as to permit the Plan to comply with Rule 16b-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934. The interpretation by the Committee of the Plan and of options granted
under the Plan shall be conclusive upon all participants.
3. SHARES SUBJECT TO THE PLAN: The aggregate number of shares of the
Company's Common Stock, $5 par value per share ("Common Stock"), which may be
issued under options granted under the Plan shall not exceed 525,000, subject to
adjustment as provided in Paragraph 5. Shares issued under the Plan may be
either authorized and unissued shares or treasury shares. Shares subject to, but
not delivered under, any option terminating or expiring for any reason prior to
exercise thereof, shall thereafter be available for issuance upon exercise of
any other option under the Plan granted on or prior to December 31, 2009.
4. NUMBER OF SHARES TO BE GRANTED EACH ELIGIBLE DIRECTOR:
(a) Within thirty (30) days after initial election to the
Board by the Company's stockholders, the Committee shall grant to each
director an option for a number of shares equal to the number of shares
authorized by the Committee, not to exceed 20,000 shares per calendar
year.
(b) If an individual is elected by the Board to fill an
unexpired term or vacancy on the Board, the Committee shall, within
thirty (30) days of such election, grant to such director an option for
a number of shares not to exceed 20,000.
-1-
<PAGE> 82
(c) On the first business day on or after each annual
shareholders meeting, the Committee, in its discretion, may grant to
each director an option not to exceed 10,000 shares for that calendar
year.
5. ADJUSTMENT: Appropriate adjustments in the maximum number of
shares of Common Stock issuable pursuant to the Plan, the number and the
purchase price of shares covered by outstanding options granted under the Plan
and the maximum number of shares that may be subject to each grant of options
under Paragraph 4 shall be made to give effect to any stock splits, stock
dividends or other relevant changes in the capitalization of the Company
occurring after the date of adoption of the Plan and any amendments to the Plan
by the Board. The decision of the Board as to the amount and timing of any such
adjustments shall be conclusive. In the event of any merger, consolidation or
other reorganization of the Company with any other corporation or corporations
in which the Company is not the survivor, there shall be substituted for each
share of Common Stock then subject to the Plan, whether or not at the time
subject to outstanding options, the number and kind of shares of stock, or other
securities into which each outstanding share of Common Stock of the Company
shall be converted by such merger, consolidation or reorganization. In the event
of any other relevant change in the capitalization of the Company, the Board
shall provide for an equitable adjustment in the number of shares of Common
Stock then subject to the Plan, whether or not then subject to outstanding
options, and the 4 maximum number of shares to be subject to each grant of
options under Paragraph shall also be adjusted. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted as
necessary.
6. ELIGIBLE NON-EMPLOYEE DIRECTORS: Options shall be granted to all
elected directors of the Company who are not salaried employees of the Company.
7. OPTION PRICE: The purchase price to be paid for each share of Common
Stock deliverable upon exercise of any option shall be determined by the
Committee in its discretion at or prior to the time the option is granted, but
shall not be less than one hundred percent (100%) of the fair market value of
the Common Stock on the date the option is granted or less than the par value of
the shares subject to the option. The fair market value per share on any given
date shall be the closing price per share of Common Stock on the New York Stock
Exchange on such date.
8. OPTION PERIOD AND CONDITION OF EXERCISE: A director receiving an
option pursuant to the Plan may purchase the shares issuable thereunder,
commencing on the date of grant. Each option shall cease to be exercisable upon
the expiration of a period of ten (10) years from the date of grant. To the
extent an option may be exercised pursuant to the foregoing, it may be exercised
in whole at any time, or in part from time to time. An option may be exercised
by giving written notice to the Company addressed to the attention of the Senior
Vice President of Human Resources and Administration (i) specifying the number
of shares to be purchased and accompanied by payment therefor in full in cash
or, in the sole discretion of the Committee, in full or in part, in shares of
Common Stock of the Company at their fair market value at the close of business
on the date of exercise determined in the manner consistent with Paragraph 7,
and (ii) unless the Company consents to the contrary, representing that all
shares purchased are being acquired for investment and
-2-
<PAGE> 83
not with a view to, or for resale in connection with, any distribution of said
shares (except in the case of a purchase by the executors or administrators
under Paragraph 10, for distribution to the director's legal heirs, legatees or
other testamentary beneficiaries, but not for sale).
9. OPTIONS NOT TRANSFERABLE: No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution and
shall be exercisable, during his or her lifetime, only by the director to whom
an option is granted. Except as permitted by the preceding sentence, no option
or any right thereunder shall be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt so to transfer,
assign, pledge, hypothecate or otherwise dispose of, or be subject to execution,
attachment or similar process, any option, or of any right thereunder, contrary
to the provisions hereof, such option and all rights thereunder shall
immediately become null and void. Notwithstanding the foregoing, if a director
obtains the approval of the Committee after making a request to the Committee in
writing, a director may transfer or assign an option to a family partnership or
other estate planning arrangement, or to a charity.
10. TERMINATION OF BOARD MEMBERSHIP OR DEATH:
(a) If the membership on the Board of a director to whom an
option has been granted is terminated for any reason other than his or
her death, such option may be exercised by the terminated director at
any time prior to the end of the calendar year in which it was granted,
or within three (3) months after the termination, whichever is longer
(but in no event after the expiration of ten (10) years from the date
of the grant thereof with respect to all or any part of the number of
shares remaining subject to the option.)
(b) If the membership on the Board of a director to whom an
option has been granted is terminated by reason of his or her death,
such director's option shall be exercisable by his or her estate or the
person or persons who acquire the right to exercise such option by
bequest or inheritance at any time within one (1) year after the date
of death to the extent the director was entitled to exercise the option
at the time of his or her death (but in not event after the expiration
of a period of ten (10) years from the date of grant) with respect to
all or any part of the number of shares remaining subject to the
option.
11. LISTING AND REGISTRATION OF SHARES: Each option shall be subject to
the requirement that, if at any time the Board determines, in its discretion,
that the listing, registration or qualification of the shares to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issue or purchase of shares thereunder,
such option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained and the same shall have been free of any conditions not acceptable to
the Board. The Company may require that certificates evidencing shares issued
upon the exercise of any option bear an appropriate legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited unless
such shares have been registered under the Securities Act of 1933,
-3-
<PAGE> 84
as amended, for transfer in accordance with the intended method of distribution
or the Company shall have been furnished with an opinion of counsel satisfactory
to it to the effect that such registration is not required.
12. ADMINISTRATION: Subject to the provisions of the Plan, the
Committee shall be authorized to interpret the Plan and the options granted
under the Plan, to establish, amend and rescind such rules and regulations as it
deems necessary for the proper administration of the Plan, and to make all other
determinations necessary or advisable for its administration. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option in the manner and to the extent it shall deem desirable to
carry it into effect. The determinations of the Committee on the matters
referred to in this paragraph shall be conclusive on all parties.
13. FEDERAL INCOME TAX CONSEQUENCES: The following summary is intended
only as a general guide as to the United States federal income tax consequences
under the current law with respect to participation in the Plan, and does not
attempt to describe all possible federal or other tax consequences of such
participation. Participants should consult their own tax advisors prior to the
exercise of any option and prior to the disposition of any shares of Common
Stock acquired upon the exercise of an option.
There are no federal income tax consequences to an optionee upon the
grant of an option which does not constitute an incentive stock option
("Nonincentive Stock Option") within the meaning of Section 422 of the Code.
Generally, upon the exercise of a Nonincentive Stock Option, the optionee will
realize ordinary income in the year of exercise, in an amount equal to the
excess of the fair market value of the shares on the date of exercise over the
option price. Upon a subsequent disposition of the shares received upon exercise
of a Nonincentive Stock Option, any difference between the amount received for
the stock and the basis of the stock (option price plus any ordinary income
recognized) will be treated as long-term or short-term capital gain or loss,
depending on the holding period of the shares. Upon an optionee's exercise of a
Nonincentive Stock Option, the Company will usually be entitled to claim a
deduction at the same time and in the same amount as income is recognized to the
optionee.
Each optionee shall, no later than the date as of which an amount
related to an option first becomes includable in the gross income of the
optionee for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of any federal,
state, or local taxes of any kind required by law to be withheld with respect to
such income. The Committee may permit payment of such taxes to be made through
the tender of cash or Common Stock or any other arrangement satisfactory to the
Committee. The Company and its subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the optionee.
The Plan is not qualified under Section 401(a) of the Code. The United
States Department of Labor has not yet issued definitive regulations or other
authority regarding the applicability of the
-4-
<PAGE> 85
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to stock
option plans such as the Plan. Subject to the issuance or regulations or other
authority to the contrary, the Company believes the Plan is not subject to any
provisions of ERISA.
14. EFFECTIVE DATE: This Plan was originally effective on January 1,
1992. This Plan, as amended and restated, shall be effective on January 20,
2000, which is the date on which the Board of Directors adopted this amended and
restated Plan, subject to the approval of the stockholders of the Company.
Unless terminated sooner pursuant to Paragraph 17, this Plan shall terminate on
December 31, 2009.
15. NO RIGHT TO CONTINUE AS A DIRECTOR: Nothing contained in the Plan
or any agreement hereunder will confer upon any optionee any right to continue
to serve as a director of the Company.
16. NO STOCKHOLDER RIGHTS CONFERRED: Nothing contained in the Plan or
any agreement hereunder will confer upon any optionee (or any person or entity
claiming rights by or through a optionee) any rights of a stockholder of the
Company unless and until an option is validly exercised in accordance with the
terms hereof.
17. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN: The Board may at
any time terminate or suspend, and may at any time and from time to time and in
any respect amend or modify, the Plan; provided, however, that to the extent
necessary and desirable to comply with the Code or any other applicable law or
regulation, including the requirements of any stock exchange on which the Common
Stock is listed or quoted, no such action of the Board shall be taken without
approval of the Company's shareholders in such manner and to such degree as is
required by the applicable law or regulation.
No suspension, termination, modification or amendment of the Plan may,
without the consent of an optionee, adversely affect his or her rights with
respect to options theretofore granted to such optionee.
18. GOVERNING LAW: To the extent not preempted by any laws of the
United States, the Plan shall be construed, regulated, interpreted and
administered according to the laws of the State of Texas.
-5-
<PAGE> 86
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board, 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:
-----------------------------
-6-
<PAGE> 87
APPENDIX D
2000 ANNUAL INCENTIVE PLAN
OF
KINDER MORGAN INC.
I GENERAL
1.1 PURPOSE OF THE PLAN
The 2000 Annual Incentive Plan (the "Plan") of Kinder Morgan, Inc. (the
"Company") is intended to advance the best interests of the Company and its
subsidiaries by providing certain employees with additional incentives through
the payment of bonuses based on the performance of the Company relating to
specified objective financial and business criteria, thereby increasing the
personal stake of such employees in the continued success and growth of the
Company and encouraging them to remain in the employ of the Company. Awards
under the Plan are intended to qualify as "qualified performance-based
compensation" for purposes of Section 162(m) of the Internal Revenue Code
("Section 162(m)") and the regulations thereunder.
1.2 ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee or other
designated Committee (the "Committee") of the Board of Directors of the Company
(the "Board of Directors") which shall consist solely of two or more directors,
each of whom qualifies as an "outside director" for purposes of Section 162(m).
The Committee shall have authority, subject to the provisions of the Plan, in
its discretion, to grant awards ("Awards") under the Plan, to interpret
conclusively the provisions of the Plan, to adopt such rules and regulations for
carrying out the Plan as it may deem advisable, to decide conclusively all
questions of fact arising in the application of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions and acts of the Committee shall be final and binding upon all affected
Plan participants. No member of the Committee shall be liable for any action
taken, or determination made, in good faith.
1.3 ELIGIBILITY
All employees of the Company and its subsidiaries shall be eligible to
participate in the Plan ("Eligible Employees"). Directors who are not employees
of the Company or its subsidiaries shall not be eligible to participate in the
Plan.
1.4 AWARDS UNDER THE PLAN
The Committee shall designate the Eligible Employees, if any, to be granted
Awards under the Plan ("Participant"). No employee shall be a Participant or be
entitled to any payment hereunder unless such employee is granted an Award by
the Committee. All Awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
<PAGE> 88
1.5 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of the
Board of Directors in compensating employees of the Company and its subsidiaries
in such other forms and amounts, including compensation pursuant to any other
plans as may be currently in effect or adopted in the future, as it may
determine from time to time.
II TERMS AND CONDITIONS OF AWARDS
2.1 ESTABLISHMENT OF PERFORMANCE OBJECTIVES AND BONUS OPPORTUNITY
Prior to the commencement of each Performance Year (or such later time as
may be permitted for qualified performance-based compensation under Section
162(m) and the regulations thereunder), the Committee shall establish written
Performance Objectives and a Bonus Opportunity for each Award granted to a
Participant for such Performance Year. The Performance Objectives shall be based
on one or more of the following criteria:
(a) Company earnings per share;
(b) Cash distributions to shareholders;
(c) Company or subsidiary earnings before interest and taxes or earnings
before interest, taxes and corporate charges;
(d) Company or subsidiary net income;
(e) Company or subsidiary revenues;
(f) Company or subsidiary unit revenues minus unit variable costs;
(g) Company or subsidiary return on capital, return on equity, return on
assets, or return on invested capital;
(h) Company or subsidiary cash flow return on assets or cash flows from
operating activities;
(i) Company or subsidiary capital expenditures;
(j) Company or subsidiary operations and maintenance expense or general
and administrative expense; and
(k) Company or subsidiary debt-equity ratios and key profitability ratios.
-2-
<PAGE> 89
At the time of setting the Performance Objectives, the Committee shall
specify the formula to be used in calculating each of the criteria on which an
Award is based. The Bonus Opportunity shall be expressed as an amount of cash.
The Committee may also specify a minimum acceptable level of achievement of the
relevant Performance Objectives, as well as one or more additional levels of
achievement, and a formula to determine the percentage of the Bonus Opportunity
deemed to have been earned by the Participant upon attainment of each such level
of achievement, which percentage may exceed 100%. The Performance Objectives and
Bonus Opportunity relating to any particular Award need not be the same as those
relating to any other Award, whether made at the same or a different time.
2.2 PERFORMANCE YEAR
The Performance Year with respect to an Award shall be the calendar year
within which the Performance Objectives relating to that Award are to be
achieved.
2.3 EARNING OF AWARD
Promptly after the date on which the necessary information for a particular
Performance Year becomes available, the Committee shall determine, and certify
in writing, the extent to which the Bonus Opportunity for such Performance Year
has been earned, through the achievement of the relevant Performance Objectives,
by each Participant for such Performance Year. Notwithstanding the terms of any
Award, the maximum payout under this Plan to any individual for any Performance
Year shall not exceed $1,500,000.
2.4 DISCRETIONARY DOWNWARD ADJUSTMENTS
Notwithstanding the terms of any Award, the Committee, in its sole and
absolute discretion, may reduce the amount of the Award payable to any
Participant for any reason, including the Committee's judgment that the
Performance Objectives have become an inappropriate measure of achievement, a
change in the employment status, position or duties of the Participant,
unsatisfactory performance of the Participant, or the Participant's service for
less than the entire Performance Year. Notwithstanding the foregoing, the
reduction of an Award payable to a Participant may not result in an increase in
the amount of an Award payable to another Participant.
2.5 DISTRIBUTIONS
Promptly after the Committee has determined and certified in writing the
extent to which an Award has been earned, such Award shall be distributed in
cash in a lump sum or in a combination of cash and company stock or stock
options, unless the Committee determines, either at the time of grant or the
time of distribution, to distribute all or a portion of such Award in
installments or as deferred compensation. The Committee, in its discretion, may
adopt a program to permit Participants to defer all or a portion of their Award.
-3-
<PAGE> 90
2.6 CHANGE IN CONTROL
Notwithstanding any other provision of this Plan or contained in any Award
granted hereunder (including any provision for deferred payment thereof), upon
the occurrence of a Change in Control (as defined in Section 3.6), the
Committee, in its discretion, may take any action with respect to outstanding
Awards that it deems appropriate, which action may vary among Awards granted to
individual Participants. If a Change in Control occurs and, in connection with
or as a result of such Change in Control, neither William V. Morgan nor Richard
D. Kinder holds or continues to hold the office of Chairman or Vice Chairman of
the Company, each Participant shall be deemed to have earned 100% of the Bonus
Opportunities contained in any outstanding Awards for which the determinations
described in Section 2.3 have not been made, and the amount of such Bonus
Opportunities shall be paid promptly (and no later than 30 days after the Change
of Control) in a cash lump sum. Notwithstanding the provisions of Section 2.4,
following a Change in Control the Committee shall not adjust the Bonus
Opportunity specified in an Award from that in effect immediately prior to the
Change in Control in a manner adverse to the Participant.
III ADDITIONAL PROVISIONS
3.1 AMENDMENTS
The Board of Directors may, in its sole discretion, amend the Plan from
time to time. Any such amendment may be made without stockholder approval unless
required to satisfy Section 162(m).
3.2 WITHHOLDING
Payments under the Plan shall be net of an amount sufficient to satisfy any
federal, state or local withholding tax liability.
3.3 NON-ASSIGNABILITY; DEATH OF PARTICIPANT
No Award under the Plan shall be assignable or transferable by the holder
thereof except by will or by the laws of descent and distribution. In the event
of the death of a Participant, any payments due to such Participant shall be
paid to his beneficiary designated in writing to the Committee, or, if none has
been designated, to his estate.
3.4 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive Awards; the terms and
provisions of such Awards; the relevant Performance Objectives; the amount of
Bonus Opportunity; and the amount of any downward adjustment) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
-4-
<PAGE> 91
3.5 NO GUARANTEE OF EMPLOYMENT
The grant of an Award under the Plan shall not constitute an assurance of
continued employment for any period.
3.6 CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one or more of the following shall have been satisfied:
(a) any "person," as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange 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 promulgated under the Exchange
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;
(b) during any period of two consecutive years (not including any
period prior to the Effective Date of the Plan), individuals who at the
beginning of such period constitute the Board of Directors, 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
paragraph (a), (c) or (d) of this Section 3.6) whose election by the Board
of Directors 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 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;
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other person, other than (i) 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 by 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 surviving entity
outstanding immediately after such merger or consolidation, or (ii) 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
(d) 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).
-5-
<PAGE> 92
3.7 UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS
The Plan is intended to constitute an "unfunded" plan. With respect to any
amounts payable to a Participant pursuant to an Award, nothing contained in the
Plan (or in any documents related thereto), nor the creation or adoption of the
Plan, the grant of any Award, or the taking of any other action pursuant to the
Plan, shall give any such Participant any rights that are greater than those of
a general creditor of the Company. The Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan, which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan.
3.8 EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on January 1, 2000 subject to the approval
thereof by stockholders of the Company at the 2000 annual meeting. No payments
shall be made under the Plan if the stockholder approval requirements of Section
162(m) and the regulations thereunder are not satisfied. Awards may be granted
under the Plan for calendar years 2000 through 2005, unless the Plan is
terminated earlier by the Board of Directors, in its sole discretion. The Plan
shall remain in effect for purposes of administering the payment of Awards
granted under the Plan until such payments have been completed.
-6-
<PAGE> 93
APPENDIX E
KINDER MORGAN, INC.
EMPLOYEES STOCK PURCHASE PLAN
1. Purpose. This Plan is an amendment and restatement of the K N Energy,
Inc. Employees Stock Purchase Plan. The purpose of this Employee Stock Purchase
Plan is to encourage and enable eligible employees of Kinder Morgan, Inc. and
its Subsidiaries to acquire proprietary interests in the Company through the
ownership of Common Stock in order to establish a closer identification of their
interests with those of the Company by providing them with another and more
direct means of participating in its growth and earnings which, in turn, will
provide motivation for participating employees to remain in the employ of and to
give greater effort on behalf of their Employers. It is the intention of the
Company that the Plan qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as now in effect and as may hereafter
from time to time be amended (the "Code"). The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that Section of the Code.
2. Definitions. Unless the context clearly requires a different meaning,
the following words or terms, when used herein, shall have the following
respective meanings:
(a) "Account" shall mean the separate book entry account(s) which the
Plan Administrator shall maintain for each Participant under the
Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Closing Price" on a particular date shall mean and refer to the
closing price of the Stock on the New York Stock Exchange, Inc.
composite tape on such date, or if no such prices are reported on
that date, on the preceding day on which such prices of the Stock
are so reported. If the Stock is not listed on the New York Stock
Exchange at the time a determination of its Closing Price is
requested to be made hereunder, then the determination of Closing
Price shall be made by the Committee in such a manner as its
deems appropriate.
(d) "Committee" shall mean and refer to the committee appointed by
the Board to interpret and oversee the administration of this
Plan.
(e) "Company" shall mean Kinder Morgan, Inc., a Kansas corporation,
and its successors.
(f) "Date of Purchase" shall mean the last trading day of the
Purchase Period, or such other date as specified in Paragraph 17
herein, on which date shares of Stock relating to Options for
such Purchase Period shall be purchased.
-1-
<PAGE> 94
(g) "Election to Purchase Shares" shall mean a statement signed by an
Eligible Employee on a form provided by the Plan Supervisor
indicating the employee elects to purchase and authorizing a
payroll deduction for the purchase of as many Shares of stock as
the amount of his accrued payroll deductions at the end of any
Offering can purchase.
(h) "Eligible Employee" or "Employee" shall mean and refer to all
persons regularly employed by the Company, or one of its
Subsidiaries; provided, however, the Plan shall neither permit
nor deny participation in the Plan contrary to requirements of
the Code; provided further, persons whose customary employment is
for twenty hours or less per week shall not be an "Employee" or
an "Eligible Employee" as those terms are used herein; and
provided further, that the Committee may determine, as to any
Offering of Common Stock made under this Plan, that the offer
will not be extended to highly compensated employees (within the
meaning of Section 414(q) of the Code).
(i) "Employer" shall mean the Company and its Subsidiaries. As used
in this Plan, the term "Employer" means collectively the Company
and all Subsidiaries, unless the context requires a different
meaning.
(j) "Enrollment Date" shall mean the first day of each Purchase
Period.
(k) "Option" or "Options" shall mean and refer to the right or rights
granted to Eligible Employees to purchase the Company's Common
Stock under an Offering made under this Plan.
(l) "Participant" is an Employee who is eligible to be and becomes a
Participant in an Offering in accordance with the provisions of
Paragraph 7 herein.
(m) "Plan" shall mean and refer to this Kinder Morgan, Inc. Employees
Stock Purchase Plan, as it may be amended from time to time.
(n) "Plan Administrator" shall mean and refer to the Plan
Administrator appointed by the Board to administer this Plan.
(o) "Plan Year" shall mean the period beginning on each January 1 and
ending on the following December 31.
(p) "Plan Supervisor" shall mean and refer to the person(s)
designated pursuant to Paragraph 4 herein to assist Employees
and/or Participants in Plan matters.
(q) "Purchase Period" or "Offering" shall mean and refer to a three
month period beginning on each January 1, April 1, July 1 and
October 1.
-2-
<PAGE> 95
(r) "Rule 16b-3" shall mean Rule 16b-3, as currently in effect or as
hereinafter modified or amended, promulgated under the Securities
Exchange Act of 1934.
(s) "Shares," "Stock" or "Common Stock" shall mean and refer to
shares of common stock of the Company, par value $5.00.
(t) "Subscription/Enrollment Deadline" shall mean, for each Purchase
Period, the date which is two weeks prior to an Eligible
Employee's first payday during such Purchase Period.
Notwithstanding the foregoing, a newly-hired Employee shall have
an initial Subscription/Enrollment Deadline, which shall be the
date which is 30 days after such Employee's date of hire.
Thereafter, such newly-hired Employee shall be subject to the
Subscription/Enrollment Deadline described in the first sentence
of this paragraph. Elections to Purchase Shares during each
Purchase Period must be received no later than the applicable
Subscription/Enrollment Deadline, as provided in Paragraph 7.(a)
and 7.(b) herein. Notwithstanding the preceding sentence, the
Committee, in its discretion, may allow Employees to file an
Election to Purchase Shares after a Subscription/Enrollment
Deadline for a particular Purchase Period, to be effective as of
the first payroll period beginning after the Election to Purchase
Shares is filed. Such discretion, if exercised, must be applied
to all Employees.
(u) "Subsidiary" means any "subsidiary corporation" of the Company,
as defined in Code Section 424(f).
3. Number of Shares Under the Plan. A total of 2,400,000 Shares of Common
Stock may be sold to Eligible Employees under this Plan. These may be new issue
Shares or may be Shares reacquired by the Company, both at the sole option of
the Company. Such Shares may be sold pursuant to one or more Offerings under the
Plan. The aggregate number of Shares which may be issued under the Plan shall be
subject to adjustment in the same manner as provided in Paragraph 17 herein with
respect to Shares subject to Options then outstanding.
4. Administration of the Plan. This Plan shall be administered by a Plan
Administrator appointed from time to time by the Board. The Plan Administrator
is vested with full authority to administer the Plan. The Committee is vested
with full authority to make and interpret such equitable rules and regulations
regarding this Plan as it may deem advisable. The Committee's determinations as
to the interpretation and operation of this Plan shall be final and conclusive.
All actions taken by the Plan Administrator, and all actions taken, and all
interpretations and determinations made by the Committee and the Plan Supervisor
in good faith (including determinations of fair market value) shall be final and
binding upon Eligible Employees, Participants, the Company and all other
interested persons. Neither the Plan Administrator nor any member of the
Committee nor the Plan Supervisor shall be personally liable for any action,
-3-
<PAGE> 96
determination or interpretation made in good faith with respect to the Plan, and
all members of the Committee shall, in addition to their rights as directors, be
fully protected by the Company with respect to any such action, determination or
interpretation.
The Committee may act by a majority vote at a regular or special meeting of
the Committee or by decision reduced to writing and signed by a majority of the
Committee without holding a formal meeting.
Vacancies in the membership of the Committee arising from death,
resignation or other inability to serve shall be filled by appointment by the
Board.
To aid in administering the Plan, the Committee may appoint one or more
Plan Supervisors and the Committee may allocate to each person so appointed
certain limited responsibilities to carry out the directives of the Committee in
all phases of the administration of the Plan. Specifically, the Committee may
delegate to such agent or agents any of its responsibilities under the Plan
except its responsibilities to establish the maximum and minimum dollar amounts
to be paid by any single Eligible Employee for the purchase of Stock during any
Offering, allocations of available Stock, and its authority to construe and
interpret the provisions of the Plan and to amend and terminate the Plan.
The Company will pay all expenses incident to establishing and
administering the Plan and purchasing or issuing Shares, except the costs
associated with the issuance of Share certificates.
5. Offering Periods. Prior to January 1, 2000, the Plan will be implemented
by annual Offerings which shall be consecutively numbered. Effective January 1,
2000, the Plan will be implemented by quarterly Offerings. Each Offering, if
authorized by the Board (or by the Committee in the event the Board shall by
resolution delegate such authority to the Committee), shall commence on each
January 1, April 1, July 1 and October 1, and shall continue through the last
business day of the second month thereafter, or as provided in Paragraph 17
herein. Only one Offering may be in effect at any one time. Participation in any
Offering under the Plan shall neither limit nor require participation in any
other Offering. In no event shall an Option be exercised after the expiration of
five years from the date the Option is granted.
6. Number of Shares Which May be Purchased. Each Eligible Employee shall be
granted an Option to purchase as many shares of Stock as the amount of his
accrued payroll deductions at the end of any Offering can purchase, not to
exceed the number of Shares determined by dividing the total sum of his
authorized payroll deductions for the Purchase Period by the Option price per
Share (as set forth in Paragraph 8); provided, that no Employee shall be granted
an Option to purchase Shares under this Plan if such Employee, immediately after
such Option is granted, owns, or holds Options to purchase, stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any of its Subsidiaries; provided, further, no Employee may be
granted an Option to purchase Shares which permits his rights to purchase stock
under all employee stock purchase plans of the Company and its Subsidiaries to
accrue at a rate which exceeds in any one calendar year $25,000 of the fair
market value of the stock determined as of the date the Option to purchase is
granted; provided, however, that, subject to the limits set forth
-4-
<PAGE> 97
in this paragraph, the Committee may set in any Offering a maximum number of
Shares for which a Participant may be granted an Option.
An Employee may elect to purchase less than the total number of Shares
which he is entitled to purchase. In the event the total number of Shares
included in all Elections to Purchase Shares under any Offering of Shares made
under the Plan exceeds the available Shares, the Committee reserves the right to
allocate the number of Shares which Participants may purchase in such manner as
it deems fair and equitable, and notify each Participant of such allocation.
All shares included in any Offering under this Plan which are not issued
shall be available for inclusion in any subsequent Offering under this Plan.
7. Participation in the Plan; Payroll Deductions.
(a) An Eligible Employee may become a Participant by completing an
Election to Purchase Shares and filing it with the Plan
Supervisor no later than the Subscription/Enrollment Deadline. No
Election to Purchase Shares will be accepted from an individual
who is not on the active payroll of an Employer on the
Subscription/Enrollment Deadline. Once an Employee has enrolled
in the Plan, he will remain a Participant until: (i) he withdraws
from the Plan, or (ii) he ceases to be an Employee of an
Employer. An Eligible Employee who has withdrawn from the Plan
must wait until the next Offering before re-enrolling in the
Plan.
(b) If a newly hired Eligible Employee completes an Election to
Purchase Shares and files it with the Plan Supervisor no later
than his initial Subscription/Enrollment Deadline (as described
in Paragraph 2.(t)), such Employee shall be a Participant as of
the first payroll period beginning after the date he files his
Election to Purchase Shares. Otherwise, such Employee may not
become a Participant until the next Purchase Period after his
initial Subscription/Election Deadline, provided he files an
Election to Purchase Shares no later than the
Subscription/Election Deadline for such Purchase Period.
(c) Payroll deductions for a Participant shall be made through the
end of a Purchase Period unless sooner terminated by a
cancellation of Election to Purchase Shares as provided in
Paragraphs 6, 13, 14, 16 or 17 herein. Payroll deductions shall
be specified in dollar amounts from a minimum of $20 per month to
a maximum of $25,000 per Plan Year. Such deductions shall be in
uniform amounts in conformity with the Employee's payroll
deduction schedule. There shall be no rights of prepayment.
(d) At the end of each Purchase Period, accrued payroll deductions
made for each Participant will be applied to the purchase of
shares of Common Stock,
-5-
<PAGE> 98
including fractional shares, at the purchase price determined
under Paragraph 8 herein. In no event shall any right to purchase
Common Stock under the Plan be exercised for more than the
available number of Shares, and, after the available Shares have
been purchased, any remaining balance of any amount previously
collected from the Participant shall be refunded.
8. Option Price. Except as otherwise provided herein, the Option price per
Share shall be 85% of the Closing Price on the Date of Purchase ("Purchase Date
Price"); provided that the Option price will in no event be less than the par
value per Share. In no event shall the Option price per Share be less than the
lesser of (a) 85% of the fair market value of the Stock at the time an Option is
granted, or (b) 85% of the fair market value of the Stock at the time an Option
is exercised.
9. Interest on Payments. No interest shall accrue or be paid on sums
withheld from a Participant's pay for purchase of Shares.
10. Rights as Stockholder. A Participant will not become a stockholder, and
will have no rights as a stockholder, with respect to Shares being purchased
under this Plan until after Shares are purchased and an entry of the book Shares
in the Participant's name is made by the Plan Administrator. Subject to
Paragraph 12, a certificate for the Shares purchased will be issued to a
Participant upon his request providing the Participant shall be required to pay
all costs associated with the issuance of any certificates.
11. Option to Purchase Shares Not Transferable. A Participant's Option may
not be sold, pledged, assigned or transferred in any manner and is exercisable
during his lifetime only by him. If this provision is violated, the right of the
Participant to purchase Shares shall terminate and the only right remaining to
such Participant under the Plan will be to have paid over to the person entitled
thereto the amount of accrued payroll deductions then credited to such
Participant.
12. Transfer of Shares to Employee After Purchase Period. Unless an
Election to Purchase Shares is canceled as provided herein or by operation of
law prior to the close of business on the last trading day of the Purchase
Period, the Participant's Option will be automatically exercised for him at such
time. At any time after the expiration of 180 days after the last trading day of
the Purchase Period, the Participant may request, by written notice delivered to
the Plan Supervisor, that the Shares be issued in the name of the Participant as
it appears on the records maintained by the Plan Supervisor. The Participant may
direct by written notice delivered to the Plan Supervisor that such Shares be
issued in the names of the Participant and one such other person as may be
designed by the Participant, as joint tenants with rights of survivorship, to
the extent permitted by applicable law.
13. Cancellation of Election to Purchase Shares. A Participant may (at any
time prior to the close of business on the last trading day of the Purchase
Period) cancel his election to Purchase Shares and withdraw from the Offering by
filing the prescribed notification form with the Plan Supervisor. The notice of
cancellation shall be effective upon receipt and be irrevocable. A Participant
has no right with respect to the Shares for which his election is canceled. He
will receive
-6-
<PAGE> 99
in cash, as soon as practicable after receipt of the notice of cancellation, the
amount of accrued payroll deductions with respect to such canceled Election to
Purchase Shares.
14. Change or Suspension of Payroll Deductions. A Participant may, at any
time during a Purchase Period, increase or decrease the amount of his payroll
deductions to be paid for shares of Common Stock under his Election to Purchase
Shares but not to an amount less than the minimum dollar amount or greater than
the maximum dollar amount determined under Paragraph 7.(c) herein, by filing a
written notification with the Plan Supervisor. Such change shall be prospective
only and effective as soon as practicable.
A Participant may suspend his payroll deduction without withdrawing from
the Offering at any time during the Purchase Period by filing the prescribed
form with the Plan Supervisor. Such change shall be prospective only and
effective as soon as practicable. Once suspended, payroll deductions may not be
resumed during the remainder of the Purchase Period. All amounts received to the
date of suspension will be applied to the purchase of Stock on the Date of
Purchase.
15. Purchase Period Limitation. In no event shall a Participant be
permitted to complete payment for or to exercise an Option to purchase Shares
after the expiration of the Purchase Period pertaining to the Option.
16. Termination of Employment. If, prior to the last trading day of a
Purchase Period, a Participant ceases to be employed by the Company or a
Subsidiary for any reason (including death, retirement and involuntary
termination, with or without cause), his Election to Purchase Shares shall be
deemed to have been canceled as to the last business day of the month preceding
the month in which termination occurs. The Participant's or his legal
representative's only right will be to receive in cash the total amount of
accrued payroll deductions during the Purchase Period as soon as practicable
after his termination of employment.
17. Changes in Capitalization.
(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
Company's stockholders 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 ahead of or
affecting Stock or the rights thereof, 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 or the payment
of a stock dividend on Stock without receipt of consideration
-7-
<PAGE> 100
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.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore
granted, the optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock as to which such
Option shall then be exercisable, 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 such recapitalization, the optionee had been
the holder of record of the number of shares of Stock as to which
such Option is then exercisable. If (i) any "person," as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (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 Securities Exchange Act of 1934), 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 17.(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 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
-8-
<PAGE> 101
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"), then effective as of a date (selected by the Committee)
within (a) ten days after the approval by the stockholders of the
Company of such merger or consolidation, plan of complete
liquidation, or sale or disposition of assets, or (b) thirty days
after a Corporate Change of the type described in clause (i) or
(iii), the Committee, acting in its sole discretion without the
consent or approval of any optionee, shall effect one of the
following alternatives: (1) 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 of Purchase (before or after such Corporate
Change) fixed by the Committee, after which specified Date of
Purchase all unexercised Options shall be canceled, (2) require
the mandatory surrender to the Company by selected optionees of
some or all of the outstanding Options held by such optionees 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 pay to each optionee an amount of cash
per Share equal to the excess of the amount calculated in
Subparagraph (d) below (the "Change of Control Value") of the
Shares subject to such Option over the Option price of such
Options for such Shares, (3) 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 (4) provide that thereafter upon
any exercise of an Option theretofore granted the optionee shall
be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be
exercisable, the number and class of shares of stock or other
securities or property 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 as to which such Option is then
applicable. 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.
Notwithstanding anything herein to the contrary, with respect any
Option granted prior to January 1, 2000, a "Corporate Change"
shall occur if (i) the
-9-
<PAGE> 102
Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of an entity
other than a previously wholly-owned subsidiary of the Company),
(ii) the Company sells, leases or exchanges or agrees to sell,
lease or exchange all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of
the Company), (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange Act
of 1934, acquires or gains ownership or control (including,
without limitation, power to vote) of more than 50% of the
outstanding shares of voting stock of the Company, or (v) as a
result of or in connection with a contested election of
directors, the persons who were directors of the Company before
such election shall cease to constitute a majority of the Board.
(d) For the purposes of clause (2) in Subparagraph 17.(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 price per Share offered to stockholders in any such
merger, consolidation, sale of assets or dissolution transaction,
(ii) the price per Share offered to stockholders 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 Closing Price as of the date
determined by the Committee to be the date of cancellation and
surrender of such Options, which date shall also be deemed to be
the Date of Purchase of such Options for purposes of determining
the Purchase Date Price. In the event that the consideration
offered to stockholders in any transaction described in this
Subparagraph 17.(d) or Subparagraph 17.(c) above consists of
anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the consideration offered which
is other than cash.
(e) Any adjustment provided for in Subparagraphs 17.(b) or 17.(c)
above shall be subject to any required stockholder action.
(f) 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.
-10-
<PAGE> 103
18. Option Agreements. Each Option may be evidenced by a separate option
agreement containing such terms and conditions, consistent with this Plan, as
may be approved by the Committee. The terms and conditions of the respective
option agreements need not be identical.
19. Application of Funds.
(a) The Company will maintain payroll deduction records for each
Eligible Employee who elects pursuant to the provisions of
Paragraph 7 herein to participate in an Offering under the Plan
on which all payroll deductions attributable to that Participant
with respect to a Purchase Period will be credited.
(b) Amounts thus credited will be under the control of the Company,
may be maintained or controlled as a single fund or account, and
may be used for any corporate purpose. Amounts credited for
employees of Subsidiaries will be remitted to the Company from
time to time.
(c) In the event that any law or regulation, in the opinion of
counsel for the Company, may prohibit the handling or use of all
or any part of the funds in the manner contemplated by the Plan,
the Company may deal with such funds in any lawful manner it may
deem advisable, including the deposit of any such funds in a bank
account(s) opened for Participants.
20. Governmental Approvals or Consents; Amendments or Termination. This
Plan and any offering and sales to Employees and Participants under it are
subject to any governmental approvals or consents that may be or become
applicable in connection therewith. Except as otherwise provided herein, the
Board may terminate or make such changes in the Plan and include such terms in
any Offering under this Plan as may be necessary to desirable, in the opinion of
the Company's counsel, to comply with the rules or regulations of any
governmental authority or any national securities exchange, or to be eligible
for tax benefits under the Code or the laws of any state, or for any other
reason; provided that no termination or amendment may adversely affect the
rights of any Participant without his consent, may affect Options previously
granted, or may make any change in an Option theretofore granted which would
adversely affect the rights of any Participant; and provided, further, that the
Board may not make any amendment which would materially increase the benefits
accruing to Participants under the Plan, increase the aggregate number of Shares
which may be sold hereunder, change the designation of corporations whose
employees may be offered Options under the Plan, or which would otherwise
require the approval of the Company's shareholders to comply with Rule 16b-3,
any rule promulgated by the New York Stock Exchange, or any other applicable
laws, without approval of the stockholders of the Company.
21. Notices. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received by the Plan Supervisor in the form specified by the
Committee.
-11-
<PAGE> 104
22. Plan History. The Plan was originally adopted by the Board on November
21, 1989. The Plan was approved by the Company's shareholders on March 29, 1990,
and the Plan commenced on April 2, 1990. The Plan was amended and restated,
effective November 1, 1996.
23. Word Usage. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of the Plan dictates, the plural
shall be read as the singular and the singular as the plural.
24. Headings. Headings at the beginning of paragraphs are for the
convenience of reference, shall not be construed as a part of the Plan, and
shall not influence its construction.
25. Employment Not Guaranteed. Nothing contained in this Plan or any
modification or amendment to the Plan, or the granting or exercise of any
Option, or the payment of any other benefit hereunder, shall give any Employee,
Participant or any beneficiary of an Employee or Participant any right to
continue employment, any legal or equitable right against the Company or any of
its Subsidiaries, its directors, officers, employees or agents, the Committee,
the Plan Supervisor or any other persons, except as expressly provided by the
Plan or by separate option agreements.
26. Equal Rights and Privileges. All Eligible Employees shall have equal
rights and privileges with respect to the Plan so that the Plan qualifies as an
"employee stock purchase plan" within the meaning of Code Section 423 or any
successor provision of the Code and related regulations. Any provision of the
Plan which is inconsistent with Code Section 423 or any successor provision of
the Code shall without further act or amendment by the Company be reformed to
comply with the requirements of Code Section 423. This Paragraph 26 shall take
precedence over all other provisions in the Plan.
27. Discontinuance. The Board may at any time terminate, withdraw, suspend,
modify, or amend the Plan. Except as otherwise provided herein, no such
termination or amendment may adversely affect the rights of any Participant
without his consent, may affect Options previously granted, may make any change
in an Option theretofore granted which would adversely affect the rights of any
Participant, nor may an amendment be made without the prior approval of the
Company's stockholders if such amendment requires the sale of more Shares than
is authorized under the Plan, materially increases the benefits accruing to
Participants under the Plan, or changes the designation of corporations whose
employees may be offered Options under the Plan. Although it is presently
contemplated that Offerings will be made under the Plan each year when Shares
are available, the Company shall not be obligated to any Employee, Participant
or other person whatsoever to make any Offering under the Plan, or having made
any Offering or Offerings, to make any further Offering or Offerings under the
Plan.
28. Governing Law. This Plan and all option agreements entered into under
the Plan shall be construed in accordance with and shall be governed by the laws
of the State of Texas, except as provided by the Code.
-12-
<PAGE> 105
29. Severability. The provisions of this Plan shall be severable. If any
provision is found to be unenforceable, the balance of the Plan shall remain in
effect.
IN WITNESS WHEREOF, the Company has executed this Plan to be effective as
amended and restated herein on January 1, 2000.
COMPANY:
KINDER MORGAN, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
-13-
<PAGE> 106
_ _ |
[X] PLEASE MARK YOUR | |
VOTES AS IN THIS | |
EXAMPLE. |_ _ _ _
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
FOLLOWING PROPOSALS:
FOR WITHHELD Nominees: 01. Richard D. Kinder
1. Election of [ ] [ ] 02. Edward H. Austin, Jr.
Directors 03. William J. Hybl
04. Ted A. Gardner
For, except vote withheld from the following nominee(s):
----------------------------------------------------------
FOR AGAINST ABSTAIN
2. A proposal to amend and restate our [ ] [ ] [ ]
1994 K N Energy, Inc. Long Term
Incentive Plan;
3. A proposal to amend and restate our [ ] [ ] [ ]
K N Energy, Inc. 1999 Stock Option Plan;
4. A proposal to amend and restate our [ ] [ ] [ ]
1992 Nonqualified Stock Option Plan
for Non-Employee Directors;
5. A proposal to ratify and approve our [ ] [ ] [ ]
2000 Annual Incentive Plan;
6. A proposal to amend our K N Energy, Inc. [ ] [ ] [ ]
Employees Stock Purchase Plan; and
7. A proposal to ratify and approve the [ ] [ ] [ ]
selection of PricewaterhouseCoopers
LLP as our auditors for 2000.
Check this box if you have comments or a change [ ]
of address and use the back of this card.
Check this box if you want to attend [ ]
and vote at the meeting.
SIGNATURE(S) DATE
----------------------------------- --------------------------
NOTE: Your signature should conform with your name as printed above.
- --------------------------------------------------------------------------------
Detach Proxy Card Here If You Are Voting by Mail and Return in Enclosed Envelope
KINDER MORGAN, INC.-- ANNUAL MEETING-- May 9, 2000
KINDER MORGAN, INC. NOW OFFERS PHONE OR INTERNET VOTING
24 hours a day, 7 days a week
- --------------------------------------------------------------------------------
On a touch-tone phone call toll-free 1-877-PRX-VOTE (1-877-779-8683). You will
hear these instructions.
- --------------------------------------------------------------------------------
~ Enter the last four digits from your social security number.
~ Enter the control number from the box above, just below the perforation.
~ You will then have two options:
OPTION 1: To vote as the Board of Directors recommends on the
proposals; or
OPTION 2: To vote on the proposals separately.
~ Your vote will be repeated to you and you will be asked to confirm it.
- --------------------------------------------------------------------------------
Log onto the Internet and type http://www.eproxyvote.com/kmi
- --------------------------------------------------------------------------------
~ Have your proxy card ready and follow the instructions.
~ You will be able to elect to receive future mailings via the Internet.
Your electronic vote authorizes the proxies named on the reverse side of this
card to vote your shares to the same extent as if you marked, signed, dated and
returned the proxy card.
IF YOU HAVE VOTED BY PHONE OR INTERNET, PLEASE DO NOT RETURN THE PROXY CARD.
<PAGE> 107
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
KINDER MORGAN, INC.
P The undersigned, whose signature appears on the reverse, hereby
appoints RICHARD D. KINDER and JOSEPH LISTENGART and each of them,
proxies with full power of substitution for and in the name of the
undersigned to vote all the shares of Common Stock of KINDER MORGAN,
R INC. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held on May 9,
2000, and at any and all adjournments thereof, on all matters that may
properly come before the meeting.
O
Your shares will be voted as directed on this card. If signed and no
direction is given for any item, it will be voted in favor of all
items. To vote by telephone or Internet, please see the reverse side of
X this card. To vote by mail, please sign and date this card on the
reverse side, tear off at the perforation, and mail promptly in the
enclosed postage-paid envelope.
Y If you have any comments or a change of address, mark the appropriate
box on the reverse side and use the following space:
-----------------------------------------------------------------------
|
| -----------------------------------------------------------------------
|
-----------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. BY RETURNING YOUR VOTING INSTRUCTIONS PROMPTLY, YOU CAN
AVOID THE INCONVENIENCE OF RECEIVING FOLLOW-UP MAILINGS PLUS HELP
THE COMPANY AVOID ADDITIONAL EXPENSES.
---------------
| SEE REVERSE |
| SIDE |
---------------
- --------------------------------------------------------------------------------
Detach Proxy Card Here If You Are Voting by Mail and Return in Enclosed Envelope
LOG ONTO OUR WEB SITE AT HTTP://WWW.KINDERMORGAN.COM
FOR MORE COMPREHENSIVE INFORMATION!
