UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 1-11234
KINDER MORGAN ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0380342
_______________________________ _______________________________
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1301 McKinney St.
Suite 3450
Houston, Texas 77010
_______________________________ _______________________________
(Address of principal executive (Zip Code)
Offices)
(713) 844-9500
__________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The Registrant had 64,212,109 units outstanding at May 4, 2000.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
________
PART I. FINANCIAL INFORMATION
ITEM 1. - Financial Statements (Unaudited)
Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 4
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
ITEM 3. - Quantitative and Qualitative Disclosures about
Market Risk 24
PART II. OTHER INFORMATION
ITEM 1. - Legal Proceedings 25
ITEM 2. - Changes in Securities and Use of Proceeds 25
ITEM 3. - Defaults Upon Senior Securities 25
ITEM 4. - Submission of Matters to a Vote of Security Holders 26
ITEM 5. - Other Information 26
ITEM 6. - Exhibits and Reports on Form 8-K 26
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Unit Amounts)
(Unaudited)
Three Months Ended March 31,
2000 1999
____________ _______________
Revenues $ 157,358 $ 100,049
Costs and Expenses
Operations and maintenance 55,032 28,919
Depreciation and amortization 18,845 11,396
General and administrative 14,323 7,818
Taxes, other than income taxes 6,097 4,271
____________ _______________
94,297 52,404
____________ _______________
Operating Income 63,061 47,645
Other Income (Expense)
Earnings from equity investments 14,817 7,955
Amortization of excess cost of equity investments (1,673) (658)
Interest, net (20,118) (11,799)
Other, net 7,911 (11)
Minority Interest (1,678) (621)
____________ _______________
Income Before Income Taxes 62,320 42,511
Income Taxes (2,761) (1,442)
____________ _______________
Net Income $ 59,559 $ 41,069
============ ===============
General Partner's interest in Net Income $ 22,257 $ 13,363
Limited Partners' interest in Net Income 37,302 27,706
____________ _______________
Net Income $ 59,559 $ 41,069
============ ===============
Net Income per Unit $ 0.63 $ 0.57
============ ===============
Number of Units used in Computation 59,510 48,817
============ ===============
The accompanying notes are an integral part of these consolidated
financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31
2000 1999
____________ ______________
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 56,771 $ 40,052
Accounts and notes receivable 69,071 71,783
Inventories
Products 9,080 8,380
Materials and supplies 4,870 4,703
Other Current Assets 30,960 7,014
____________ ______________
170,752 131,932
____________ ______________
Property, Plant and Equipment, at cost 2,730,653 2,696,122
Less accumulated depreciation 135,571 117,809
____________ ______________
2,595,082 2,578,313
____________ ______________
Equity Investments 422,007 418,651
____________ ______________
Notes receivable 10,041 10,041
Intangibles 63,942 56,630
Deferred charges and other assets 56,217 33,171
____________ ______________
TOTAL ASSETS $ 3,318,041 $ 3,228,738
============ ==============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable
Trade $ 16,949 $ 15,692
Related parties 30,635 3,569
Current portion of long-term debt - 209,200
Accrued rate refunds 5,860 36,607
Accrued interest 10,668 10,014
Accrued right-of-way liabilities 7,413 7,039
Accrued taxes 9,270 8,870
Accrued other liabilities 50,165 28,170
____________ ______________
130,960 319,161
____________ ______________
Long-Term Liabilities and Deferred Credits
Long-term debt 1,219,860 989,101
Other 109,874 97,379
____________ ______________
1,329,734 1,086,480
____________ ______________
Commitments and Contingencies
Minority Interest 50,183 48,299
____________ ______________
Partners' Capital
Common Units 1,784,028 1,759,142
General Partner 23,136 15,656
____________ ______________
1,807,164 1,774,798
____________ ______________
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 3,318,041 $ 3,228,738
============ ==============
The accompanying notes are an integral part of these consolidated
financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended March 31,
2000 1999
______________ _______________
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 59,559 $ 41,069
Depreciation and amortization 18,845 11,396
Amortization of excess cost of equity 1,673 658
Earnings from equity investments (14,817) (7,955)
Distributions from equity investments 7,738 7,816
Changes in components of working capital 5,708 487
Other, net (5,880) (7,106)
______________ ______________
Net Cash Provided by Operating Activities 72,826 46,365
______________ ______________
Cash Flows From Investing Activities
Acquisitions of assets (330,215) -
Additions to property, plant and equipment for
expansion and maintenance projects (24,716) (18,347)
Sale of investments, property, plant and equipment 3,753 -
Removal Costs, net of salvage (26) -
Changes in gas stored underground (612) -
Contributions to equity investments (58) (552)
______________ ______________
Net Cash Used in Investing Activities (351,874) (18,899)
______________ ______________
Cash Flows From Financing Activities
Issuance of debt 903,186 249,683
Payment of debt (554,174) (230,063)
Debt - refinancing / issue costs (1,662) (1,916)
Contributions from General Partner's
Minority Interest 238 -
Distributions to partners
Common Units (35,762) (31,171)
General Partner (14,778) (11,598)
Minority Interest (1,441) (493)
Other, net 160 (367)
______________ ______________
Net Cash Provided by (Used in) Financing
Activities 295,767 (25,925)
______________ ______________
Increase in Cash and Cash Equivalents 16,719 1,541
Cash and Cash Equivalents, Beginning of Period 40,052 31,735
______________ ______________
Cash and Cash Equivalents, End of Period $ 56,771 $ 33,276
============== ==============
Noncash Investing and Financing Activities
Assets acquired by the issuance of Common Units $ 23,319 $ -
Assets acquired by the assumption of liabilities $ 3,140 $ -
The accompanying notes are an integral part of these consolidated
financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The unaudited consolidated financial statements included herein have been
prepared by Kinder Morgan Energy Partners, L.P. (the "Partnership") pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they reflect all adjustments, which are, in the opinion of
management, necessary for a fair presentation of the financial results for the
interim periods. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Partnership believes, however, that the disclosures are adequate to make the
information presented not misleading. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1999 ("Form 10-K").
The Net Income per Unit was computed by dividing the Limited Partners'
interest in Net Income by the weighted average number of units outstanding
during the periods.
2. Acquisitions and Joint Ventures
During 1999 and the first quarter of 2000, the Partnership completed
certain significant acquisitions. With respect to the following acquisitions and
joint ventures, the results of operations are included in the consolidated
financial statements from the effective date of acquisition.
Plantation Pipe Line Company
On September 15, 1998, OLP-A acquired an approximate 24% interest in
Plantation Pipe Line Company for $110 million. On June 16, 1999, OLP-D acquired
an approximate 27% interest in Plantation Pipe Line Company for $124.2 million.
Collectively, the Partnership now owns approximately 51% of Plantation Pipe Line
Company, and ExxonMobil Pipeline Company, an affiliate of ExxonMobil
Corporation, owns approximately 49%. Plantation Pipe Line Company owns and
operates a 3,100 mile pipeline system throughout the southeastern United States
which serves as a common carrier of refined petroleum products to various
metropolitan areas, including Atlanta, Georgia; Charlotte, North Carolina; and
the Washington, D.C. area. The Partnership does not control Plantation Pipe Line
Company, and therefore, accounts for its investment in Plantation under the
equity method of accounting and includes its activity as part of the
Mid-Continent Operations.
Transmix Operations
On September 10, 1999, the Partnership acquired certain net assets,
including transmix processing plants in Richmond, Virginia and Dorsey Junction,
Maryland, from Primary Corporation. As consideration for the purchase, the
Partnership paid Primary $18.25 million (before purchase price adjustments) and
510,147 units valued at approximately $14.3 million. The processing plants are
strategically positioned to service transmix requirements along the Atlantic
Coast from the Gulf Coast refineries to the distribution terminals in the New
York harbor. Both the petroleum products refining and marketing activities of
the transmix operations are included as part of the Mid-Continent Operations.
Trailblazer Pipeline Company
Effective November 30, 1999, the Partnership acquired a 33 1/3% interest in
Trailblazer Pipeline Company for $37.6 million from Columbia Gulf
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Transmission Company, an affiliate of Columbia Energy Group. Trailblazer
Pipeline Company is an Illinois partnership that owns and operates a 436-mile
natural gas pipeline system that traverses from Colorado through southeastern
Wyoming to Beatrice, Nebraska. Trailblazer has a certificated capacity of 492
million cubic feet per day ("MMcf/d") of natural gas. For the month of December
1999, the Partnership accounted for its 33 1/3% interest in Trailblazer Pipeline
Company under the equity method of accounting and included its activity as part
of the Mid-Continent Operations. Effective December 31, 1999, following the
Partnership's acquisition of an additional 33 1/3% interest in Trailblazer,
Trailblazer's activities were included in the Natural Gas Operations business
segment.
KMI Asset Contributions
Effective December 31, 1999, the Partnership acquired over $700 million of
assets from Kinder Morgan, Inc. ("KMI"). The Partnership paid KMI $330 million
and 9.81 million common units as consideration for the assets. The Partnership
purchased Kinder Morgan Interstate Gas Transmission LLC ("KMIGT", formerly K N
Interstate Gas Transmission Co.), a 33 1/3% interest in Trailblazer Pipeline
Company and a 49% equity interest in the Red Cedar Gathering Company. The
acquired interest in Trailblazer, when combined with the interest purchased on
November 30, 1999, gave the Partnership a 66 2/3% controlling ownership
interest. The transaction was accounted for under the purchase method of
accounting, and going forward from December 31, 1999, these assets comprise the
Partnership's Natural Gas Operations business segment.
Bulk Terminals
On February 7, 2000, the Partnership announced that it had acquired all
shares of the capital stock of Milwaukee Bulk Terminals, Inc. and Dakota Bulk
Terminal, Inc., both Wisconsin corporations. The effective date of the
acquisitions was January 1, 2000. The Partnership paid an aggregate
consideration of approximately $24.1 million, including 574,172 units and
approximately $0.8 million. The acquisition of the two entities was accounted
for under the purchase method of accounting, and going forward from January 1,
2000, have been included as part of the Bulk Terminals business segment.
Pro Forma Information
The following summarized unaudited Pro Forma Consolidated Income Statement
information for the three months ended March 31, 1999, assumes the above
acquisitions had occurred as of January 1, 1999. The unaudited Pro Forma
financial results have been prepared for comparative purposes only and may not
be indicative of the results that would have occurred if the Partnership had
completed the above acquisitions on the dates indicated or which will be
attained in the future.
Amounts presented below are in thousands, except for per unit amount:
Pro Forma
Three Months Ended
Income Statement March 31, 1999
________________ ______________
(Unaudited)
Revenues $143,678
Operating Income $ 71,010
Net Income $61,793
Net Income per unit $0.71
3. Litigation and Other Contingencies
FERC Proceedings
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SFPP
Tariffs charged by SFPP are subject to certain proceedings involving
shippers' protests regarding the interstate rates, as well as practices and the
jurisdictional nature of certain facilities and services on the Pacific
Operations' pipeline systems. In September 1992, El Paso Refinery, L.P. ("El
Paso") filed a protest/complaint with the FERC challenging SFPP's East Line
rates from El Paso, Texas to Tucson and Phoenix, Arizona, challenging SFPP's
proration policy and seeking to block the reversal of the direction of flow of
SFPP's six inch pipeline between Phoenix and Tucson. At various dates following
El Paso's September 1992 filing, other shippers on SFPP's South System,
including Chevron U.S.A. Products Company ("Chevron"), Navajo, ARCO Products
Company ("ARCO"), Texaco Refining and Marketing Inc. ("Texaco"), Refinery
Holding Company, L.P. (a partnership formed by El Paso's long-term secured
creditors that purchased El Paso's refinery in May 1993), Mobil Oil Corporation
and Tosco Corporation, filed separate complaints, and/or motions to intervene in
the FERC proceeding, challenging SFPP's rates on its East and West Lines.
Certain of these parties also claimed that a gathering enhancement charge at
SFPP's Watson origin pump station in Carson, California was charged in violation
of the ICA. In subsequent procedural rulings, the FERC consolidated these
challenges (Docket Nos. OR92-8-000, et al.) and ruled that they must proceed as
a complaint proceeding, with the burden of proof being placed on the complaining
parties. Such parties must show that SFPP's rates and practices at issue violate
the requirements of the ICA.
Hearings in the FERC proceeding commenced on April 9, 1996 and concluded on
July 19, 1996. The parties completed the filing of their post-hearing briefs on
December 9, 1996. An initial decision by the FERC administrative law judge was
issued on September 25, 1997 (the "Initial Decision").
The Initial Decision upheld SFPP's position that "changed circumstances"
were not shown to exist on the West Line, thereby retaining the just and
reasonable status of all West Line rates that were "grandfathered" under the
Energy Policy Act of 1992 ("EPACT"). Accordingly, such rates are not subject to
challenge, either for the past or prospectively, in that proceeding. The
administrative law judge's decision specifically excepted from that ruling
SFPP's Tariff No. 18 for movement of jet fuel from Los Angeles to Tucson, which
was initiated subsequent to the enactment of EPACT.
The Initial Decision also included rulings that were generally adverse to
SFPP on such cost of service issues as the capital structure to be used in
computing SFPP's 1985 starting rate base under FERC Opinion 154-B, the level of
income tax allowance, and the recoverability of civil and regulatory litigation
expense and certain pipeline reconditioning costs. The administrative law judge
also ruled that a gathering enhancement service at SFPP's Watson origin pump
station in Carson, California was subject to FERC jurisdiction and ordered that
a tariff for that service and supporting cost of service documentation be filed
no later than 60 days after a final FERC order on this matter.
On January 13, 1999, the FERC issued its Opinion No. 435, which affirmed in
part and modified in part the Initial Decision. In Opinion No. 435, the FERC
ruled that all but one of the West Line rates are "grandfathered" as just and
reasonable and that "changed circumstances" had not been shown to satisfy the
complainants' threshold burden necessary to challenge those rates. The FERC
further held that the one "non-grandfathered" West Line tariff did not require
rate reduction. Accordingly, all complaints against the West Line rates were
dismissed without any requirement that SFPP reduce, or pay any reparations for,
any West Line rate.
With respect to the East Line rates, Opinion No. 435 reversed in part and
affirmed in part the Initial Decision's ruling regarding the methodology of
calculating the rate base for the East Line. Among other things, Opinion No. 435
modified the Initial Decision concerning the date on which the starting
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rate base should be calculated and the income tax allowance and allowable cost
of equity used to calculate the rate base. In addition, Opinion No. 435 ruled
that no reparations would be owed to any complainant for any period prior to the
date on which that complainant's complaint was filed, thus reducing the
potential reparations period for most complainants by two years. On January 19,
1999, ARCO Products Company filed a petition with the United States Court of
Appeals for the District of Columbia Circuit for review of Opinion No. 435. SFPP
and a number of the complainants have each sought rehearing by FERC of elements
of Opinion No. 435. In compliance with Opinion No. 435, on March 15, 1999, SFPP
submitted a compliance filing implementing the rulings made by FERC,
establishing the level of rates to be charged by SFPP in the future, and setting
forth the amount of reparations owed by SFPP to the complainants under the
order. SFPP's compliance filing was contested by the complainants. SFPP's
compliance filing and the rehearing petitions of SFPP and others are pending
before the FERC. The Partnership believes Opinion No. 435 substantially reduces
the negative impact of the Initial Decision.
In December 1995, Texaco filed an additional FERC complaint, which involves
the question of whether a tariff filing was required for movements on certain of
SFPP's lines upstream of its Watson, California station origin point (the
"Sepulveda Lines") and, if so, whether those rates may be set in that proceeding
and what those rates should be. Texaco's initial complaint was followed by
several other West Line shippers filing similar complaints and/or motions to
intervene, all of which have been consolidated into Docket Nos. OR96-2-000 et
al. Hearings before an administrative law judge were held in December 1996 and
the parties completed the filing of final post-hearing briefs on January 31,
1997.
On March 28, 1997, the administrative law judge issued an initial decision
holding that the movements on SFPP's Sepulveda Lines are not subject to FERC
jurisdiction. On August 5, 1997, the FERC reversed that decision and found the
Sepulveda Lines to be subject to the jurisdiction of the FERC. SFPP was ordered
to make a tariff filing within 60 days to establish an initial rate for these
facilities. The FERC reserved decision on reparations until it ruled on the
newly-filed rates. On October 6, 1997, SFPP filed a tariff establishing the
initial interstate rate for movements on the Sepulveda Lines from Sepulveda
Junction to Watson Station at the preexisting rate of five cents per barrel,
along with supporting cost of service documentation. Subsequently, several
shippers filed protests and motions to intervene at the FERC challenging that
rate. On October 27, 1997, SFPP made a responsive filing at the FERC, requesting
that these protests be held in abeyance until the FERC ruled on SFPP's request
for rehearing of the August 5, 1997 order, and also indicating that SFPP
intended to defend the new tariff both on the basis of its cost of service and
as a market-based rate. On November 5, 1997, the FERC issued an order accepting
the new rate effective November 6, 1997, subject to refund, and referred the
proceeding to a settlement judge. On December 10, 1997, following a settlement
conference held at the direction of the FERC, the settlement judge recommended
that the settlement procedures be terminated. On December 24, 1997, FERC denied
SFPP's request for rehearing of the August 5, 1997 decision. On December 31,
1997, SFPP filed an application for market power determination, which, if
granted, will enable it to charge market-based rates for this service. Several
parties protested SFPP's application. On September 30, 1998, the FERC issued an
order finding that, based on SFPP's application, SFPP lacks market power in the
Watson Station destination market served by the Sepulveda Lines. The FERC found
that SFPP appeared to lack market power in the origin market served by the
Sepulveda Lines as well, but established a hearing to permit the protesting
parties to substantiate allegations that SFPP possessed market power in the
origin market. Hearing before a FERC administrative law judge on this limited
issue commenced on February 7, 2000 and concluded on February 17, 2000. The
Partnership anticipates that the matter will be briefed to the administrative
law judge in May 2000.
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On October 22, 1997, ARCO Products Company, Mobil Oil Corporation and
Texaco Refining and Marketing, Inc. filed another complaint at the FERC (Docket
No. OR98-1-000) challenging the justness and reasonableness of all of SFPP's
interstate rates. The complaint again challenges SFPP's East and West Line rates
and raises many of the same issues, including a renewed challenge to the
grandfathered status of West Line rates, that have been at issue in Docket Nos.
OR92-8-000, et al. The complaint includes an assertion that the acquisition of
SFPP and the cost savings anticipated to result from the acquisition constitute
"changed circumstances" that provide a basis for terminating the "grandfathered"
status of SFPP's otherwise protected rates. The complaint also seeks to
establish that SFPP's grandfathered interstate rates from the San Francisco Bay
area to Reno, Nevada and from Portland to Eugene, Oregon are also subject to
"changed circumstances" and, therefore, can be challenged as unjust and
unreasonable. On November 26, 1997, Ultramar Diamond Shamrock Corporation filed
a similar complaint at the FERC (Docket No. OR98-2-000). Both reparations and
prospective rate deductions are sought for movements on all of the lines.
SFPP filed answers to both complaints with the FERC on November 21, 1997
and December 22, 1997, respectively, and intends to vigorously defend all of the
challenged rates. On January 20, 1998, the FERC issued an order accepting the
complaints and consolidating both complaints into one proceeding, but holding
them in abeyance pending a Commission decision on review of the Initial Decision
in Docket Nos. OR92-8-000 et al. In July 1998, some complainants amended their
complaints to incorporate updated financial and operational data on SFPP. SFPP
answered the amended complaints. In a companion order to Opinion No. 435, the
FERC directed the complainants to amend their complaints, as may be appropriate,
consistent with the terms and conditions of its orders, including Opinion No.
435. On January 10th and 11th, 2000, the complainants again amended their
complaints to incorporate further updated financial and operational data on
SFPP. SFPP filed an answer to these amended complaints on February 15, 2000, and
intends to defend vigorously all of the challenged rates.
Applicable rules and regulations in this field are vague, relevant factual
issues are complex and there is little precedent available regarding the factors
to be considered or the method of analysis to be employed in making a
determination of "changed circumstances", which is the showing necessary to make
"grandfathered" rates subject to challenge. The Partnership believes, after
consultation with FERC counsel, that the acquisition of SFPP, standing alone,
should not be found to constitute "changed circumstances", however, the
Partnership's realization of cost savings resulting from the acquisition may
increase the risk of a finding of "changed circumstances".
If "changed circumstances" are found, SFPP rates previously "grandfathered"
under EPACT may lose their "grandfathered" status and, if such rates are found
to be unjust and unreasonable, shippers may be entitled to a prospective rate
reduction together with reparations for periods from the date of the complaint
to the date of the implementation of the new rates.
The Partnership is not able to predict with certainty whether settlement
agreements will be completed with some or all of the complainants, the final
terms of any such settlement agreements that may be consummated, or the final
outcome of the FERC proceedings should they be carried through to their
conclusion, and it is possible that current or future proceedings could be
resolved in a manner adverse to the Partnership.
KMIGT
On January 23, 1998, KMIGT filed a general rate case with the FERC
requesting a $30.2 million increase in annual revenues. As a result of the
FERC's action, KMIGT was allowed to place its rates into effect on August 1,
1998, subject to refund. On November 3, 1999, KMIGT filed a comprehensive
Stipulation and Agreement to resolve all issues in this proceeding. The FERC
approved the Stipulation and Agreement on December 22, 1999. The settlement
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rates have been placed in effect, and the Partnership paid refunds for past
periods in April 2000. The refunds did not exceed amounts previously accrued by
the Partnership.
Trailblazer
On July 1, 1997, Trailblazer filed a rate case with the FERC (Docket No.
RP97-408) which reflected a proposed annual revenue increase of $3.3 million.
The timing of the rate case filing was in accordance with the requirements of
Trailblazer's previous rate case settlement in Docket No. RP93-55. The FERC
issued an order on July 31, 1997, which suspended the rates to be effective
January 1, 1998. Major issues in the rate case include throughput levels used in
the design of rates, levels of depreciation rates, return on investment and the
cost of service treatment of the Columbia settlement revenues. Trailblazer filed
a proposed settlement agreement with the administrative law judge on May 8,
1998. The presiding administrative law judge certified the settlement to the
FERC in an order dated June 25, 1998. The FERC issued an order on October 19,
1998 remanding the settlement, which was contested by two parties, to the
presiding administrative law judge for further action. A revised settlement was
filed on November 20, 1998. The presiding administrative law judge certified the
revised settlement to the FERC on January 25, 1999.
The FERC issued orders on April 28, 1999 and August 3, 1999, approving the
revised settlement as to all parties except the two parties who contested the
settlement. Rehearing is pending. As to the two contesting parties, the FERC
established hearing procedures. On March 3, 2000, Trailblazer and the two
parties filed a joint motion indicating that a settlement in principle had been
reached. On March 6, 2000, the presiding administrative law judge issued an
order suspending the procedural schedule and hearing pending the filing of the
appropriate documents necessary to terminate the proceeding. On March 16, 2000,
the two contesting parties filed a motion to withdraw their requests for
rehearing of the FERC orders approving the settlement and concurrently those
parties and Trailblazer jointly moved to terminate the proceeding. On March 30,
2000, the Administrative Law Judge issued an order granting motion to terminate
further proceedings, followed by an initial decision on April 7, 2000,
terminating the proceedings. Refunds related to the rate case will be made in
April 2000 and will total approximately $19 million. Adequate reserves had
previously been established.
California Public Utilities Commission Proceeding
A complaint was filed with the California Public Utilities Commission
("CPUC") on April 7, 1997 by ARCO Products Company, Mobil Oil Corporation and
Texaco Refining and Marketing Inc. against SFPP, L.P. The complaint challenges
rates charged by SFPP for intrastate transportation of refined petroleum
products through its pipeline system in the State of California and requests
prospective rate adjustments. On October 1, 1997, the complainants filed
testimony seeking prospective rate reductions aggregating approximately $15
million per year.
On August 6, 1998, the CPUC issued its decision dismissing the
complainants' challenge to SFPP's intrastate rates. On June 24, 1999, the CPUC
granted limited rehearing of its August 1998 decision for the purpose of
addressing the proper ratemaking treatment for partnership tax expenses, the
calculation of environmental costs and the public utility status of SFPP's
Sepulveda Line and its Watson Station gathering enhancement facilities. In
pursuing these rehearing issues, complainants seek prospective rate reductions
aggregating approximately $10 million per year.
On March 16, 2000, SFPP filed an application with the CPUC seeking
authority to justify its rates for intrastate transportation of refined
petroleum products on competitive, market-based conditions rather than on
traditional, cost-of-service analysis.
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On April 10, 2000, ARCO Products Company and Mobil Oil Corporation filed a
new complaint with the CPUC asserting that SFPP's California intrastate rates
are not just and reasonable based on a 1998 test year and requesting the CPUC to
reduce SFPP's rates prospectively. The amount of the reduction in SFPP rates
sought by the complainants is not discernible from the complaint.
Procedurally, the rehearing complaint, the April 10, 2000 complaint and
SFPP's market-based application may be heard separately or consolidated for
hearing by the CPUC. If heard individually, evidentiary hearings on the
rehearing complaint are likely to be conducted in June or July 2000, while
evidentiary hearings on SFPP's market-based application and the April 10, 2000
complaint will not be conducted until October or November 2000. If the three
matters are consolidated for ultimate resolution by the CPUC, the joined matters
will not be heard until October or November 2000. CPUC decisions resolving the
rehearing complaint, the April 10, 2000 complaint, and SFPP's market-based
application are expected within six months of the dates of the evidentiary
hearings conducted with respect to each matter.
The Partnership believes it has adequate reserves recorded for any adverse
decision related to this matter.
SPTC Easements
SFPP and Southern Pacific Transportation Company ("SPTC") are engaged in a
judicial reference proceeding to determine the extent, if any, to which the rent
payable by SFPP for the use of pipeline easements on rights-of-way held by SPTC
should be adjusted pursuant to existing contractual arrangements (Southern
Pacific Transportation Company vs. Santa Fe Pacific Corporation, SFP Properties,
Inc., Santa Fe Pacific Pipelines, Inc., SFPP, L.P., et al., Superior Court of
the State of California for the County of San Francisco, filed August 31, 1994).
Although SFPP received a favorable ruling from the trial court in May 1997, in
September 1999, the California Court of Appeals remanded the case back to the
trial court for further proceeding. SFPP is accruing amounts for payment of the
rental for the subject rights-of-way consistent with the Partnership's
expectations of the ultimate outcome of the proceeding.
Trailblazer
On March 25, 1998, CIG Trailblazer Gas Company ("CIG Trailblazer") filed a
lawsuit in the First Judicial District, State of Wyoming in Docket 149 No. 387,
subsequently amended on February 3, 1999, against the three partners of
Trailblazer. CIG Trailblazer purchased Tennessee Trailblazer Gas Company's
("Tennessee Trailblazer") interest in an agreement ("Tennessee agreement") dated
November 1, 1982 with the Trailblazer partners. The Tennessee agreement gave
Tennessee Trailblazer the right to participate as an equity owner and partner in
Trailblazer expansions beyond Trailblazer's original certificated capacity of
525 MMcf/d. The agreement also gave Tennessee Trailblazer the right to attend
management committee meetings of Trailblazer. CIG Trailblazer claims in the
lawsuit, that as owners of the Tennessee agreement it has a right to attend
management committee meetings but has been excluded from them by the management
committee of Trailblazer. CIG Trailblazer originally claimed that it had the
right to participate in the 1997 expansion of Trailblazer, but has amended its
complaint to eliminate that contention and its claim for damages. In its amended
answer, the partners in Trailblazer contend that the Tennessee agreement is no
longer valid and enforceable. They also contend that if it is valid and
enforceable, CIG Trailblazer will have an obligation to cause Wyoming Interstate
Company ("Wyoming Interstate") to be offered for sale to Trailblazer. CIG
Trailblazer also filed a separate lawsuit on February 2, 1999, in Docket 152 No.
408, requesting a declaratory order that if they become a partner in Trailblazer
under the 1982 agreement, CIG Trailblazer will not be required to contribute or
sell Wyoming Interstate to Trailblazer. On January
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31, 2000, the parties reached a settlement of all claims and counterclaims in
these two proceedings. Accordingly, on February 29, 2000 and March 1, 2000, the
Wyoming Court issued orders dismissing the litigation in Docket 149 No. 387 and
Docket 152 No. 408, respectively.
Environmental Matters
The Partnership is subject to environmental cleanup and enforcement actions
from time to time. In particular, the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund" law) generally
imposes joint and several liability for cleanup and enforcement costs, without
regard to fault or the legality of the original conduct, on current or
predecessor owners and operators of a site. The operations of the Partnership
are also subject to Federal, state and local laws and regulations relating to
protection of the environment. Although the Partnership believes its operations
are in general compliance with applicable environmental regulations, risks of
additional costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance significant costs and liabilities will
not be incurred by the Partnership. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in substantial
costs and liabilities to the Partnership.
The Partnership is currently involved in the following governmental
proceedings related to compliance with environmental regulations:
o SFPP, along with several other respondents, is involved in one cleanup
ordered by the United States Environmental Protection Agency related
to ground water contamination in the vicinity of SFPP's storage
facilities and truck loading terminal at Sparks, Nevada.
o SFPP is currently involved in several ground water hydrocarbon
remediation efforts under administrative orders issued by the
California Regional Water Quality Control Board and two other state
agencies.
In addition, the Partnership from time to time is involved in civil
proceedings relating to damages alleged to have occurred as a result of
accidental leaks or spills of refined petroleum products or natural gas liquids.
Among these matters is a lawsuit originally filed in February 1998 against SFPP
in the Superior Court of the State of California in and for the County of Solano
by 283 individual plaintiffs alleging personal injury and property damage
arising from a release in 1996 of petroleum products from SFPP's pipeline
running through Elmira, California. An amended complaint was filed on May 22,
1998. No trial date has been set. The Partnership continues to aggressively
defend the action, has settled the personal injury claims of approximately 80
plaintiffs and is in the process of settling the entire case globally of
personal injury, property damage and outstanding claims with the remaining
plaintiffs.
Although no assurance can be given, the Partnership believes that the
ultimate resolution of all these matters will not have a material adverse effect
on its financial position or results of operations. The Partnership has recorded
a reserve for environmental claims in the amount of $19.0 million at March 31,
2000.
Other
The Partnership, in the ordinary course of business, is a defendant in
various lawsuits relating to the Partnership's assets. Although no assurance can
be given, the Partnership believes, based on its experience to date, that
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the ultimate resolution of such items will not have a material adverse impact on
the Partnership's financial position or results of operations.
For more detailed information regarding these proceedings and other
litigation, please refer to the Partnership's 1999 Form 10-K, Note 16 of the
Notes to the Consolidated Financial Statements.
4. Distributions
On February 14, 2000, the Partnership paid a cash distribution for the
quarterly period ended December 31, 1999, of $0.725 per unit. The distribution
was declared on January 20, 2000, payable to unitholders of record as of January
31, 2000.
On April 20, 2000, the Partnership declared a cash distribution for the
quarterly period ended March 31, 2000, of $0.775 per unit. The distribution will
be paid on or before May 15, 2000, to unitholders of record as of May 1, 2000.
5. Debt
The Partnership's debt facilities consist primarily of:
o a $300 million unsecured five-year credit facility;
o a $300 million unsecured 364-day credit facility;
o $250 million of 6.30% Senior Notes due February 1, 2009;
o $200 million of 8.00% Senior Notes due March 15, 2005;
o $200 million of Floating Rate Senior Notes due March 22, 2002;
o $181 million of Series F First Mortgage Notes (a subsidiary, SFPP, L.P., is
the obligor on the notes);
o a $175 million secured credit facility of SFPP, L.P.;
o $25.25 million of Senior Secured Notes (a subsidiary, Trailblazer Pipeline
Company, is the obligor on the notes);
o $23.7 million of tax-exempt bonds due 2024 (a subsidiary, Kinder Morgan
Operating L.P. "B" ("OLP-B"), is the obligor on these bonds);
o a $10 million unsecured 364-day credit facility of Trailblazer Pipeline
Company; and
o $154.6 million in short-term commercial paper.
See Note 9 to the Partnership's Consolidated Financial Statements included
in the Partnership's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on March 14, 2000 for a more detailed description of the
Partnership's debt facilities.
Under an indenture dated March 22, 2000, the Partnership completed a
private placement of $400 million in debt securities to qualified institutional
buyers in reliance on Rule 144A under the Securities Act of 1933. The indenture
is a contract between the Partnership and First Union National Bank, which acts
as trustee. The notes are unsecured obligations of the Partnership and rank
equally with all unsecured and unsubordinated debt of the Partnership. The notes
consist of $200 million in principal amount of Floating Rate Senior Notes due
March 22, 2002 ("Floating Rate Notes") and $200 million in principal amount of
8.0% Senior Notes due March 15, 2005 ("8.0% Notes"), unless sooner redeemed.
The Floating Rate Notes will bear interest from March 22, 2000 at a
floating rate payable quarterly on March 22, June 22, September 22 and December
22 of each year. The per annum interest rate on the Floating Rate Notes will be
equal to the three-month LIBOR rate, plus 50 basis points. The Floating Rate
Notes will not be redeemable prior to maturity. Interest on the 8.0% Notes are
payable semi-annually in arrears on March 15 and September 15
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of each year. The 8.0% Notes will be redeemable, at the Partnership's option, at
a price equal to 100% of their principal amount plus accrued and unpaid interest
plus a make-whole premium, if any. In no event will the redemption price ever be
less than 100% of the principal amount of the 8.0% Notes plus accrued interest
to the redemption date. In the offering, the Partnership received proceeds, net
of underwriting discounts and commissions, of approximately $397.9 million. The
proceeds were used to pay the outstanding balance on the five-year credit
facility, to fund the Partnership's $130 million payment to KMI associated with
the acquisition of KMI assets on December 31, 1999 and for working capital and
other Partnership purposes.
At the closing of the offering of the Floating Rate Notes and the 8.0%
Notes (the "Original Notes"), the Partnership entered into a registration rights
agreement with the initial purchasers pursuant to which the Partnership agreed,
for the benefit of the holders of the notes, at its cost, to make an offer to
exchange the Original Notes for new notes that are substantially identical to
the terms of the Original Notes of the same series (the "Exchange Notes"),
except that the Exchange Notes will be freely transferable and issued free of
any covenants regarding exchange and registration rights. The Partnership agreed
to use its reasonable efforts to cause a registration statement relating to the
exchange offer to be declared effective under the Securities Act of 1933 within
180 days after the date of original issuance of the Original Notes. If the
Partnership does not accomplish certain actions with respect to the exchange
offer by certain specified dates, the interest rate on the Original Notes will
be increased until the Partnership accomplishes those actions. The exchange
offer is scheduled to expire on May 31, 2000, unless extended, and the
Partnership does not anticipate that it will pay any additional interest on the
notes.
The outstanding balance under the five-year credit facility was $197.6
million at December 31, 1999. Following the issuance of the 8.0% Notes and the
Floating Rate Notes on March 22, 2000, the Partnership repaid the balance under
the five-year credit facility on March 23, 2000. No borrowings were outstanding
under the 364-day credit facility at December 31, 1999 or March 31, 2000.
As of December 31, 1999, the Partnership financed $330 million through KMI
to fund part of the acquisition of assets acquired from KMI on December 31,
1999. Per the Closing Agreement entered into as of January 20, 2000, the
Partnership paid KMI a per diem fee of $180.56 for each $1,000,000 financed. The
Partnership paid KMI $200 million on January 21, 2000, and the remaining $130
million on March 23, 2000 with a portion of the proceeds from the issuance of
the 8.0% Notes and the Floating Rate Notes.
At March 31, 2000, the outstanding balance under SFPP's bank facility was
$174.0 million and the interest rate on the credit facility debt was 6.3575%.
At March 31, 2000, the outstanding balance under Trailblazer's revolving
credit agreement was $10 million. The agreement provides for an interest rate of
LIBOR plus 0.875%. At March 31, 2000, the interest rate on the credit facility
debt was 7.0063%.
For the quarter ended March 31, 2000, the weighted-average interest rate on
OLP-B's tax-exempt bonds issued by the Jackson-Union Counties Regional Port
District was 3.60% per annum.
At March 31, 2000 the Partnership had $154.6 million of commercial paper
outstanding.
6. Partners' Capital
At December 31, 1998, the Partnership had 48,821,690 units outstanding.
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<PAGE>
On January 21, 1999, and January 29, 1999, the Partnership repurchased and
immediately cancelled 4,000 and 2,000 units, respectively. At March 31, 1999,
the Partnership had 48,815,690 units outstanding.
At December 31, 1999, the Partnership had 59,137,137 units outstanding. On
February 2, 2000, the Partnership issued 574,172 units for the acquisition of
Milwaukee Bulk Terminals, Inc. and Dakota Bulk Terminal, Inc. Additionally, 400
units were issued on each of February 7, 2000 and February 23, 2000, in
accordance with unit option exercises. At March 31, 2000, the Partnership had
59,712,109 units outstanding.
On April 4, 2000, the Partnership issued 4,500,000 units in a public
offering at an issuance price of $39.75 per unit, less commissions and
underwriting expenses. The Partnership used the proceeds from the unit issuance
to acquire the remaining ownership interest in Shell CO2 Company. See Note 8 for
more information.
These units represent the limited partners' interest and an effective 98%
economic interest in the Partnership, exclusive of the general partner's
incentive distribution. The general partner interest represents an effective 2%
interest in the Partnership, excluding the general partner's incentive
distribution.
For the purposes of maintaining partner capital accounts, the partnership
agreement specifies that items of income and loss shall be allocated among the
partners in accordance with their respective percentage interests. Normal
allocations according to percentage interests are done only, however, after
giving effect to any priority income allocations in an amount equal to incentive
distributions allocated 100% to the general partner.
Incentive distributions allocated to the general partner are determined by
the amount quarterly distributions to unitholders exceed certain specified
target levels. The Partnership's cash distribution of $0.725 per unit paid on
February 14, 2000 for the fourth quarter of 1999 required an incentive
distribution to the general partner of $14,416,737. The Partnership's cash
distribution of $0.65 per unit paid on February 12, 1999 for the fourth quarter
of 1998 required an incentive distribution to the general partner of
$10,717,464. The increased incentive distribution paid for the fourth quarter of
1999 over the distribution paid for the fourth quarter of 1998 reflects the
increase in amount distributed per unit as well as the issuance of additional
units.
The Partnership's declared distribution for the first quarter of 2000 of
$0.775 per unit will result in an incentive distribution to the general partner
of $21,880,451. This compares to the Partnership's cash distribution of $0.70
per unit and incentive distribution to the general partner of $13,083,847 for
the first quarter of 1999. The increased incentive distribution paid for the
first quarter of 2000 over the distribution paid for the first quarter of 1999
reflects the increase in amount distributed per unit as well as the issuance of
additional units.
7. Reportable Segments
The Partnership competes in four reportable business segments: Pacific
Operations, Mid-Continent Operations, Natural Gas Operations and Bulk Terminals.
The Partnership evaluates performance based on each segments' earnings, which
excludes general and administrative expenses, third-party debt costs,
unallocable non-affiliated interest income and expense and minority interest.
The Partnership's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment involves different products and marketing strategies.
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Financial information by segment follows (in thousands):
Three Months Ended March 31,
2000 1999
_______________ _________________
Revenues
Pacific Operations $ 60,983 $ 60,723
Mid-Continent Operations 25,421 10,631
Natural Gas Operations 39,774 -
Bulk Terminals 31,180 28,695
_______________ _________________
Total Segments $ 157,358 $ 100,049
=============== =================
Operating expenses
Pacific Operations $ 13,818 $ 8,240
Mid-Continent Operations 16,123 3,756
Natural Gas Operations 6,624 -
Bulk Terminals 18,467 16,923
_______________ _________________
Total Segments $ 55,032 28,919
=============== =================
Operating income
Pacific Operations $ 36,200 42,025
Mid-Continent Operations 6,448 4,312
Natural Gas Operations 25,372 -
Bulk Terminals 9,364 9,126
_______________ _________________
Total Segments $ 77,384 $ 55,463
=============== =================
Earnings from equity investments, net of
amortization of excess cost
Pacific Operations $ 542 $ 386
Mid-Continent Operations 8,888 6,898
Natural Gas Operations 3,714 -
Bulk Terminals - 13
_______________ ________________
Total Segments $ 13,144 $ 7,297
=============== ================
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Three Months Ended March 31,
2000 1999
_______________ _________________
Segment earnings
Pacific Operations $ 44,093 $ 42,400
Mid-Continent Operations 12,906 10,071
Natural Gas Operations 29,134 -
Bulk Terminals 9,545 8,839
_______________ ________________
Total Segments (1) $ 95,678 61,310
=============== ================
March 31, Dec. 31,
Business Segment Assets 2000 1999
_______________ ________________
Pacific Operations $ 1,605,983 $ 1,592,111
Mid-Continent Operations 504,098 510,568
Natural Gas Operations 910,523 879,076
Bulk Terminals 235,434 203,601
_______________ ________________
Total Segments (2) $ 3,256,038 $ 3,185,356
=============== ================
(1) The following reconciles segment earnings to net income.
Three Months Ended March 31,
2000 1999
_______________ _________________
Segment earnings $ 95,678 $ 61,310
Interest and corporate
administrative expenses (a) (36,119) (20,241)
_______________ _________________
Net Income $ 59,559 $ 41,069
=============== =================
(a) Includes interest expense, general and administrative expenses,
minority interest and other insignificant items.
(2) The following reconciles segment assets to consolidated assets.
March 31, Dec. 31,
2000 1999
_______________ _________________
Segment assets $ 3,256,038 $ 3,185,356
Corporate assets (b) 62,003 43,382
_______________ _________________
Total assets $ 3,318,041 $ 3,228,738
=============== =================
(b) Includes cash, cash equivalents and certain unallocable
deferred charges.
8. Subsequent Events
On April 4, 2000, the Partnership issued 4,500,000 units in a public
offering at an issuance price of $39.75 per unit, less commissions and
underwriting expenses. The Partnership used the proceeds from the unit issuance
to acquire the remaining ownership interest in Shell CO2 Company as described
below.
On April 5, 2000, the Partnership acquired from affiliates of Shell
Exploration & Production Company the 80% of Shell CO2 Company not owned by the
Partnership for $212.1 million. The Partnership renamed the company Kinder
Morgan CO2 Company, L.P.
On April 12, 2000, the Partnership and KMI announced an agreement with
Aerie Networks, Inc. and 11 other pipeline companies to build a nationwide
broadband network. Together, KMI and the Partnership will receive equity
positions in Aerie in exchange for assisting Aerie with its development of a
broadband network along the pipeline right-of-ways of KMI and the Partnership.
The majority of Aerie's broadband network will be built along 14,958 miles of
rights-of-way of 12 natural gas, oil and liquid petroleum pipeline and
communications companies. Combined, these 12 companies are acquiring a 30%
ownership interest in Aerie. Aerie plans to begin construction of its national
broadband platform this summer and complete it in early 2003.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
First Quarter 2000 Compared With First Quarter 1999
The Partnership reported record quarterly revenues and earnings for the
first quarter of 2000. Total earnings for the Partnership increased 45% (to
$59.6 million or $0.63 per unit) and total revenues increased 57% (to $157.4
million) for the three months ended March 31, 2000 compared to the same period
in 1999. The Partnership reported earnings of $41.1 million ($0.57 per unit) on
revenues of $100.0 million for the first quarter of 1999. The increases in
earnings and revenues primarily resulted from the inclusion of the Natural Gas
Operations, which were acquired from Kinder Morgan, Inc. on December 31, 1999,
however, revenues and earnings from each of the Partnership's other three
business segments also increased in the first quarter of 2000 compared with the
first quarter of last year. The acquisitions of the Mid-Continent Operations'
transmix business in September 1999 and certain bulk terminal businesses in
January 2000 were the main contributors to the increase in period-to-period
revenues for those three segments.
Operating expenses, excluding depreciation, amortization, and taxes, other
than income taxes, totaled $55.0 million in the first quarter of 2000 versus
$28.9 million in the first quarter of 1999. Total Partnership operating income
for first quarter 2000 increased 33% (to $63.1 million) compared to first
quarter 1999. Operating income totaled $47.6 million in the first quarter of
1999. The increases in operating expenses and operating income were mainly due
to the acquisitions of the transmix business and the Natural Gas Operations.
First quarter earnings from equity investments, net of amortization of excess
acquisition costs, were $13.1 million in 2000 versus $7.3 million in 1999. The
79% increase ($5.8 million) in net equity earnings was mainly due to income
realized on the Partnership's December 1999 investment in Red Cedar Gathering
Company and its June 1999 investment in Plantation Pipe Line Company.
Pacific Operations
The Pacific Operations' operating results produced a 4% increase in segment
earnings for the first quarter of 2000 when compared with the first quarter of
1999. Period-to-period revenues remained flat; a 3% increase in mainline
delivery volumes were offset by an almost 4% decrease in average tariff rates.
The decrease in average tariff rates was mainly due to the reduction in
transportation rates, effective April 1, 1999, on the segment's East Line. For
the quarter ended March 31, 2000, the segment reported earnings of $44.1 million
on revenues of $61.0 million. For the quarter ended March 31, 1999, the segment
reported earnings of $42.4 million on revenues of $60.7 million. Segment
operating expenses increased to $13.8 million in first quarter 2000 versus $8.2
million in first quarter 1999. During the first quarter of 2000, the segment
incurred some atypical increases in major maintenance expense, but reported
offsetting increases in other income due to insurance recoveries and favorable
adjustments to post-retirement benefit liabilities. Income from the segment's
50% equity investment in the Colton transmix processing facility increased 40%
(to $0.5 million) in the first quarter of 2000 compared with the same quarter
last year. The increase was primarily due to an increase in volumes processed at
the facility.
Mid-Continent Operations
The Mid-Continent Operations reported segment earnings of $12.9 million in
the first quarter of 2000 versus $10.1 million in the comparable period of 1999.
Segment revenues and operating expenses were $25.4 million and $16.1 million,
respectively, in the first quarter of 2000. These amounts compare to
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<PAGE>
revenues and operating expenses of $10.6 million and $3.8 million, respectively,
in the first quarter of 1999. The increases in revenues and operating expenses
in the first quarter of 2000 relative to the first quarter of 1999 resulted
primarily from the inclusion of transmix operations acquired in September 1999.
Additionally, quarterly revenues from the Partnership's North System increased
11% over 1999 amounts due to a 24% increase in throughput volume, partially
offset by a 6% decrease in average tariff rates. The decrease in rates was due
to a higher volume of lower tariff shipments in the first quarter of 2000.
Segment operating income totaled $6.4 million in first quarter 2000 versus $4.3
million in first quarter 1999. The segment's earnings from equity investments,
net of amortization of excess costs, increased to $8.9 million in the first
quarter of 2000 versus $6.9 million in the same period last year. The $2.0
million increase was driven by higher income from the segment's investment in
Plantation Pipe Line Company, reflecting the Partnership's additional 27%
investment made in June 1999. The overall increase in the segment's earnings
from equity investments was partially offset by the loss of income from the
Partnership's investment in the Mont Belvieu fractionation facility, which was
sold in the third quarter of 1999.
Natural Gas Operations
The Partnership's Natural Gas Operations, acquired on December 31, 1999
produced strong operating results across its various businesses. Income and
volumes exceeded the Partnership's expectations, with volumes up almost 3%
compared to the first quarter of 1999. The segment reported earnings of $29.1
million on revenues of $39.8 million during the first quarter of 2000. Operating
income for first quarter 2000 was $25.4 million, reflecting the gas transmission
and storage results from the segment's two natural gas pipelines, Kinder Morgan
Interstate Gas Transmission LLC and Trailblazer Pipeline Company. Segment
operating expenses totaled $6.6 million in the first quarter of 2000. The
segment also reported $3.7 million in earnings from equity investments, net of
amortization of excess costs. The equity earnings represent the income from the
Partnership's 49% interest in the Red Cedar Gathering Company.
Bulk Terminals
The Bulk Terminals segment reported an 8% increase in earnings in the first
quarter of 2000 compared to the same period in 1999. The segment reported
earnings of $9.5 million on revenues of $31.2 million in the first quarter of
2000. In the same 1999 period, the segment earned $8.8 million on revenues of
$28.7 million. The increases in earnings and revenues were mainly attributable
to terminal acquisitions made by the Partnership since the first quarter of
1999. The acquisitions helped generate a 9% increase in segment operating
revenues and a 15% increase in overall volumes transferred in first quarter 2000
over first quarter 1999. Higher overall segment revenues were partially offset
by a 6% decrease in average coal transfer rates and by lower coal marketing
revenues. Combined operating expenses increased 9% (to $18.5 million) in the
first quarter of 2000 due to the higher volumes transported. Combined
depreciation, amortization and taxes, other than income taxes, increased 27% (to
$3.3 million) primarily due to the terminal acquisitions. Operating income for
the segment was $9.4 million in the first quarter of 2000 versus $9.1 million in
the same quarter last year.
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Operating statistics for the first three months of 2000 and 1999 are as follows:
Three Months Ended March 31,
2000 1999
___________________
Pacific Operations
Mainline Delivery Volumes (MMBbls) 88.7 86.3
Other Delivery Volumes (MMBbls) 3.1 3.0
Average Tariff ($/Bbl) $0.53 $0.55
Mid-Continent Operations *
Delivery Volumes (MMBbls) 13.6 11.9
Average Tariff ($/Bbl) $0.95 $0.97
Natural Gas Operations
Transport Volumes (000-MMBtus) 107,838 -
Average Tariff ($/000-MMBtus) $0.32 -
Bulk Terminals
Transport Volumes (MM Tons) 11.0 9.6
_______________________________________________________________________
* North System and Cypress only.
Items not attributable to any segment include general and administrative
expenses, unallocable interest income and expense and minority interest. General
and administrative expenses were $14.3 million in the first quarter of 2000
compared with $7.8 million in the same period last year. The increase was
principally associated with assets acquired from Kinder Morgan, Inc. on December
31, 1999. Unallocated interest expense, net of interest income, was $20.1
million in the first quarter of 2000 compared with $11.8 million in the same
year-earlier period. The increase was due to higher average debt balances and
higher average borrowing rates. Minority interest was $1.7 million for the first
quarter of 2000 versus $0.6 million in the first quarter of the prior year. The
increase reflects the 33 1/3% minority interest in Trailblazer Pipeline Company
as well as overall higher Partnership net income.
The Partnership reported an increase in income tax expense of $1.3 million
in the first quarter of 2000 compared to last year's first quarter. The increase
represents the Partnership's higher share of income tax expense from its
investment in Plantation Pipe Line Company.
Financial Condition
The Partnership's primary cash requirements, in addition to normal
operating expenses, are debt service, sustaining capital expenditures, expansion
capital expenditures and quarterly distributions to partners. In addition to
utilizing cash generated from operations, the Partnership could meet its cash
requirements through borrowings under its credit facilities or issuing
short-term commercial paper, long-term notes or additional units. The
Partnership expects to fund future cash distributions and sustaining capital
expenditures with existing cash and cash flows from operating activities.
Expansion capital expenditures are expected to be funded through additional
Partnership borrowings or issuance of additional units. Interest payments are
expected to be paid from cash flows from operating activities and debt principal
payments will be met by additional borrowings as they become due or by issuance
of additional units.
Operating Activities
Net cash provided by operating activities was $72.8 million for the three
months ended March 31, 2000, versus $46.4 million in the comparable period of
1999. The period-to-period increase of $26.4 million in cash flow from
operations was primarily the result of higher net earnings, higher non-cash
depreciation and amortization charges and higher cash inflows relative to net
changes in working capital items. Higher net earnings in the first
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<PAGE>
quarter of 2000 produced an additional $18.5 million in operating funds compared
to last year's first quarter, and higher depreciation and amortization charges,
including amortization of excess cost of equity investments, produced an
incremental $8.5 million. The higher earnings and non-cash charges in the first
quarter of 2000 compared to the prior year were chiefly due to business
acquisitions made since the first quarter of 1999. The overall increase in cash
provided by operating activities was partially offset by a $6.9 million increase
in undistributed earnings from equity investments. The increase in undistributed
earnings from equity investments resulted primarily from income generated from
the Partnership's investments in Red Cedar Gathering Company and Plantation Pipe
Line Company that were acquired since March 31, 1999. The absence of earnings
from the Partnership's investment in the Mont Belvieu fractionation facility
offset higher overall earnings from equity investments. The Partnership sold its
interest in the fractionation facility in the third quarter of 1999.
Investing Activities
Net cash used in investing activities was $351.9 million for the three
month period ended March 31, 2000, compared to $18.9 million in the comparable
1999 period. The $333.0 million increase in funds used for investing activities
was primarily attributable to asset acquisitions. The first quarter of 2000
included $330.0 million paid to Kinder Morgan, Inc. for the Natural Gas
Operations and $0.2 million used for Bulk Terminal acquisitions. Cash used for
capital expenditures increased $6.4 million (to $24.7 million) in the first
quarter of 2000 versus the same quarter last year. The increase primarily
reflects higher investments made in the Partnership's Bulk Terminals business
segment. All funds classified as additions to property, plant and equipment
include both expansion and sustaining capital expenditures.
Financing Activities
Net Cash provided by financing activities amounted to $295.8 million for
the three months ended March 31, 2000. This increase of $321.7 million from the
comparable 1999 period was mainly the result of an additional $329.4 million
received from overall debt financing activities. The increase reflects the
Partnership's completion of a private placement of $400 million in debt
securities during the first quarter of 2000, resulting in a net cash inflow of
$397.9 million net of discounts and issuing costs. The overall increase in cash
provided by financing activities was partially offset by a period-to-period
increase of $8.7 million in distributions to partners.
Distributions to all partners increased to $52.0 million in the three month
period ended March 31, 2000, compared to $43.3 million in the comparable 1999
period. The increase in distributions was due to an increase in the per unit
distribution paid, the number of units outstanding and the general partner
incentive distributions, which resulted from increased distributions to
unitholders. The Partnership paid a distribution of $0.725 per unit in the first
three months of 2000 compared with a distribution of $0.65 per unit in the first
three months of 1999.
The 12% increase in paid distributions per unit resulted from favorable
operating results in the fourth quarter of 1999. On April 20, 2000, the
Partnership declared a distribution of $0.775 per unit for the first quarter of
2000. The Partnership believes that future operating results will continue to
support similar levels of quarterly cash distributions, however, no assurance
can be given that future distributions will continue at such levels.
The partnership agreement requires the Partnership to distribute 100% of
"Available Cash" (as defined in the partnership agreement) to the Partners
within 45 days following the end of each calendar quarter in accordance with
their respective percentage interests. Available Cash consists generally of all
cash receipts of the Partnership and its operating partnerships, less cash
Page 22 of 28
<PAGE>
disbursements and net additions to reserves (including any reserves required
under debt instruments for future principal and interest payments) and amounts
payable to the former Santa Fe general partner in respect of its 0.5% interest
in SFPP.
Available Cash of the Partnership is initially distributed 98% to the
limited partners (including the approximate 2% limited partner interest of the
general partner) and 2% to the general partner. These distribution percentages
are modified to provide for incentive distributions to be paid to the general
partner in the event that quarterly distributions to unitholders exceed certain
specified targets.
Available Cash for each quarter is distributed, first, 98% to the limited
partners and 2% to the general partner until the limited partners have received
a total of $0.3025 per unit for such quarter, second, 85% to the limited
partners and 15% to the general partner until the limited partners have received
a total of $0.3575 per unit for such quarter, third, 75% to the limited partners
and 25% to the general partner until the limited partners have received a total
of $0.4675 per unit for such quarter, and fourth, thereafter 50% to the limited
partners and 50% to the general partner. Incentive distributions are generally
defined as all cash distributions paid to the general partner that are in excess
of 2% of the aggregate amount of cash being distributed. The general partner's
incentive distribution declared by the Partnership for the first quarter of 2000
was $21.9 million, while the incentive distribution paid during the first three
months of 2000 and 1999 were $14.4 million and $10.7 million, respectively.
Information Regarding Forward Looking Statements
This filing includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward looking statements are identified as any
statement that does not relate strictly to historical or current facts. They use
words such as "anticipate," "continue," "estimate," "expect," "may," "will," or
other similar words. These statements discuss future expectations or contain
projections. Specific factors which could cause actual results to differ from
those in the forward looking statements, include:
o price trends and overall demand for natural gas liquids, refined
petroleum products, carbon dioxide, natural gas, coal and other bulk
materials in the United States. Economic activity, weather,
alternative energy sources, conservation and technological advances
may affect price trends and demand;
o changes in the Partnership's tariff rates implemented by the Federal
Energy Regulatory Commission or the California Public Utilities
Commission;
o the Partnership's ability to integrate any acquired operations into
its existing operations;
o if railroads experience difficulties or delays in delivering products
to the bulk terminals;
o the Partnership's ability to successfully identify and close strategic
acquisitions and make cost saving changes in operations;
o shut-downs or cutbacks at major refineries, petrochemical plants,
utilities, military bases or other businesses that use the
Partnership's services;
o the condition of the capital markets and equity markets in the
United States; and
o the political and economic stability of the oil producing nations of
the world.
See Items 1 and 2 "Business and Properties - Risk Factors" of the Annual
Page 23 of 28
<PAGE>
Report filed on Form 10-K with the Securities and Exchange Commission on March
14, 2000 for a more detailed description of these and other factors that may
affect the forward looking statements. When considering forward looking
statements, one should keep in mind the risk factors described in the Form 10-K.
The risk factors could cause the Partnership's actual results to differ
materially from those contained in any forward looking statement. The
Partnership disclaims any obligation to update the above list or to announce
publicly the result of any revisions to any of the forward looking statements to
reflect future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that would
affect the quantitative and qualitative disclosures presented as of December 31,
1999, in Item 7a of the Partnership's 1999 Form 10-K.
Page 24 of 28
<PAGE>
PART II. OTHER INFORMATION
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I, Item 1, Note 3 to Consolidated Financial Statements entitled
"Litigation and Other Contingencies" which is incorporated herein by
reference.
ITEM 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 2000, the Partnership issued the
following securities, which were not registered under the Securities Act of
1933, as amended.
On February 7, 2000, the Partnership issued 574,172 units in exchange for
all of the capital stock of Milwaukee Bulk Terminals, Inc. and Dakota Bulk
Terminal, Inc. The units were issued to the five individuals that owned the
two acquired corporations pursuant to Section 4(2) of the Securities Act of
1933.
On March 22, 2000, the Partnership issued $200,000,000 aggregate principal
amount of floating rate senior notes due 2002 and $200,000,000 aggregate
principal amount of 8% senior notes due 2005 (the "Original Notes"). The
Original Notes were sold to qualified institutional buyers as defined in
Rule 144A under the Securities Act through Goldman, Sachs & Co., Merrill
Lynch & Co., Banc of America Securities LLC and First Union Securities,
Inc., as initial purchasers. The Original Notes were sold to investors for
an aggregate price of $399.6 million. The Partnership paid underwriting
discounts and commissions of approximately $1.7 million, resulting in net
proceeds to the Partnership of approximately $397.9 million.
At the closing of the offering of the Original Notes, the Partnership
entered into a registration rights agreement with the initial purchasers
pursuant to which the Partnership agreed, for the benefit of the holders of
the notes, at its cost, to make an offer to exchange the Original Notes for
new notes that are substantially identical to the terms of the Original
Notes of the same series (the "Exchange Notes"), except that the Exchange
Notes will be freely transferable and issued free of any covenants
regarding exchange and registration rights. The Partnership agreed to use
its reasonable efforts to cause a registration statement relating to the
exchange offer to be declared effective under the Securities Act within 180
days after the date of original issuance of the Original Notes. If the
Partnership does not accomplish certain actions with respect to the
exchange offer by certain specified dates, the interest rate on the
Original Notes will be increased until the Partnership accomplishes those
actions. The exchange offer is scheduled to expire on May 31, 2000, unless
extended, and the Partnership does not anticipate that it will pay any
additional interest on the Original Notes.
ITEM 3. Defaults Upon Senior Securities
None.
Page 25 of 28
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*3.1 - Second Amended and Restated Agreement of Limited Partnership of
Kinder Morgan Energy Partners, L.P. effective as of February 14, 1997
(filed as Exhibit 3.1 to Amendment No. 1 to Kinder Morgan Energy
Partners, L.P. Registration Statement on Form S-4, file No. 333-46709,
filed on April 14, 1998)
*3.2 - Amendment No. 1 to Second Amended and Restated Agreement of Limited
Partnership of Kinder Morgan Energy Partners, L.P. dated as of January
20, 2000 (filed as Exhibit 4.1 to the Partnership's Current Report on
Form 8-K filed January 20, 2000)
*4.1 - Indenture dated March 22, 2000 between Kinder Morgan Energy Partners
and First Union National Bank, as Trustee (filed as Exhibit 4.1 to
Kinder Morgan Energy Partners, L.P. Registration Statement on Form S-4
(file no. 333-35112) filed on April 19, 2000 (the "2000 Form S-4")).
*4.2 - Form of Floating Rate Note and Form of 8% Note (contained in the
Indenture filed as Exhibit 4.1 to the 2000 Form S-4).
*4.3 - Registration Rights Agreement dated March 22, 2000 among Kinder Morgan
Energy Partners, Goldman, Sachs & Co., Merrill Lynch & Co., Banc of
America Securities LLC and First Union Securities, Inc. (filed as
Exhibit 4.3 to the 2000 Form S-4).
4.4 - Certain instruments with respect to long-term debt of the Partnership
and its consolidated subsidiaries which relate to debt that does not
exceed 10% of the total assets of the Partnership and its consolidated
subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of
Regulation S-K, 17 C.F.R. ss.229.601. The Partnership hereby agrees to
furnish supplementally to the Securities and Exchange Commission a
copy of each such instrument upon request.
**10.1 - Settlement and Termination of Amended and Restated Incentive
Compensation Grant Agreement dated April 20, 2000 between Kinder
Morgan Energy Partners, L.P. and David G. Dehaemers, Jr.
**10.2 - Settlement and Termination of Amended and Restated Incentive
Compensation Grant Agreement dated April 20, 2000 between Kinder
Morgan Energy Partners, L.P and Michael C. Morgan.
**10.3 - Employment Agreement dated April 20, 2000 among Kinder Morgan, Inc.,
Kinder Morgan G.P., Inc. and David G. Dehaemers, Jr.
**10.4 - Employment Agreement dated April 20, 2000 among Kinder Morgan, Inc.,
Kinder Morgan G.P., Inc. and Michael C. Morgan.
**27.1 - Financial Data Schedule for Kinder Morgan Energy Partners, L.P.
========================
* Incorporated by reference.
** Filed herewith.
(b) Reports on Form 8-K.
Current report dated December 30, 1999, on Form 8-K was filed January 14, 2000,
pursuant to Items 5 and 7 of that form. A Contribution Agreement dated
Page 26 of 28
<PAGE>
as of December 30, 1999 between the Registrant, Kinder Morgan G.P., Inc., Kinder
Morgan, Inc., Natural Gas Pipeline Company of America, and K N Gas Gathering,
Inc. concerning the issuance of units and cash for the contribution of the
Natural Gas Operations was disclosed pursuant to Item 5 of this filing. The
Contribution Agreement was attached as an exhibit pursuant to Item 7.
Current report dated January 20, 2000, on Form 8-K, as amended March 28, 2000.
The Registrant's acquisition of the Natural Gas Operations was disclosed as
Acquisition of Assets pursuant to Item 2 of that form. A press release, issued
January 20, 2000 declaring the closing of the transaction, effective as of
December 31, 1999 was disclosed pursuant to Item 5. Audited financial statements
of the businesses acquired by the Registrant and the unaudited pro forma
condensed combined statement of income for the Registrant, giving effect to the
acquisition of the Natural Gas Operations and the Registrant's additional 33
1/1% interest in Trailblazer Pipeline Company was disclosed pursuant to Item 7.
The Contribution Agreement, dated as of December 30, 1999, Amendment No. 1 to
Second Amended and Restated Agreement of Limited Partnership of the Partnership
dated as of January 20, 2000, and a portion of the January 20, 2000 press
release were attached as exhibits pursuant to Item 7 of that form.
Current report dated March 30, 2000, on Form 8-K was filed March 31, 2000. The
Consent of Independent Accountants and the Balance Sheet of Kinder Morgan G.P.,
Inc., as of December 31, 1999 were disclosed pursuant to Item 7 of that form.
Page 27 of 28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KINDER MORGAN ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ C. Park Shaper
_____________________________
C. Park Shaper
Vice President, Treasurer
and Chief Financial Officer
Date: May 4, 2000
Page 28 of 28
KINDER MORGAN ENERGY PARTNERS, L.P.
EXECUTIVE COMPENSATION PLAN
SETTLEMENT AND TERMINATION OF
AMENDED AND RESTATED
INCENTIVE COMPENSATION GRANT AGREEMENT
This Settlement and Termination ("Settlement and Termination") of that
certain Amended and Restated Incentive Compensation Grant Agreement (the
"Restated Grant Agreement") is made as of April 20, 2000, between KINDER MORGAN
ENERGY PARTNERS, L.P. (the "Partnership") and DAVID G. DEHAEMERS, JR.
(the "Participant").
WHEREAS, as of July 1, 1997, an Incentive Compensation Grant Agreement
(the "Original Agreement") was entered into between the Partnership and
Participant pursuant to which the Partnership made a grant to Participant as of
February 14, 1997 of Incentive Compensation pursuant to the Partnership's
Executive Compensation Plan (the "Plan"), all as specified in the Original
Agreement;
WHEREAS, as of January 4, 1999, the Partnership and Participant entered
into the Restated Grant Agreement;
NOW, THEREFORE, in order to carry out the purposes of the Kinder Morgan
Energy Partners, L.P. Executive Compensation Plan, a copy of which is attached
hereto as Exhibit A and the provisions of which are incorporated by reference as
though fully stated herein, and in consideration of the mutual agreements and
other matters set forth herein and in the Plan, the Partnership and Participant
hereby agree as follows:
Section 1. Recitals. The terms of the foregoing Recitals are incorporated
herein and made a part of this Settlement and Termination.
Section 2. Settlement of Incentive Compensation. Contemporaneously herewith,
Participant, Kinder Morgan, Inc. and Kinder Morgan G.P., Inc. executed an
employment agreement which provides for compensation in settlement of the
Partnership's obligations under the Plan, the Original Agreement and the
Restated Grant Agreement. This Settlement and Termination supercedes and
terminates the Restated Grant Agreement and the Original Agreement in their
entirety, and the Restated Grant Agreement and the Original Agreement are of no
further force or effect. Participant does not have any remaining grant of
Incentive Compensation or other rights under the Plan.
Section 3. Binding Effect. This Settlement and Termination shall be binding
upon and inure to the benefit of any successors to the Partnership and all
persons lawfully claiming under Participant.
<PAGE>
Section 4. Capitalized Terms. Capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to them in the Plan.
IN WITNESS WHEREOF, the Partnership has caused this Settlement and
Termination to be duly executed by one of its officers thereunto duly
authorized, and Participant has executed this Settlement and Termination, all as
of the day and year first above written.
KINDER MORGAN ENERGY PARTNERS, L.P.
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ Joseph Listengart
----------------------------------
Title: Vice President
/s/ David G. Dehaemers, Jr.
-----------------------------------
David G. Dehaemers, Jr.
KINDER MORGAN ENERGY PARTNERS, L.P.
EXECUTIVE COMPENSATION PLAN
SETTLEMENT AND TERMINATION OF
AMENDED AND RESTATED
INCENTIVE COMPENSATION GRANT AGREEMENT
This Settlement and Termination ("Settlement and Termination") of that
certain Amended and Restated Incentive Compensation Grant Agreement (the
"Restated Grant Agreement") is made as of April 20, 2000, between KINDER MORGAN
ENERGY PARTNERS, L.P. (the "Partnership") and MICHAEL C. MORGAN (the
"Participant").
WHEREAS, as of July 1, 1997, an Incentive Compensation Grant Agreement
(the "Original Agreement") was entered into between the Partnership and
Participant pursuant to which the Partnership made a grant to Participant as of
February 14, 1997 of Incentive Compensation pursuant to the Partnership's
Executive Compensation Plan (the "Plan"), all as specified in the Original
Agreement;
WHEREAS, as of January 4, 1999, the Partnership and Participant entered
into the Restated Grant Agreement;
NOW, THEREFORE, in order to carry out the purposes of the Kinder Morgan
Energy Partners, L.P. Executive Compensation Plan, a copy of which is attached
hereto as Exhibit A and the provisions of which are incorporated by reference as
though fully stated herein, and in consideration of the mutual agreements and
other matters set forth herein and in the Plan, the Partnership and Participant
hereby agree as follows:
Section 1. Recitals. The terms of the foregoing Recitals are incorporated herein
and made a part of this Settlement and Termination.
Section 2. Settlement of Incentive Compensation. Contemporaneously herewith,
Participant, Kinder Morgan, Inc. and Kinder Morgan G.P., Inc. executed an
employment agreement which provides for compensation in settlement of the
Partnership's obligations under the Plan, the Original Agreement and the
Restated Grant Agreement. This Settlement and Termination supercedes and
terminates the Restated Grant Agreement and the Original Agreement in their
entirety, and the Restated Grant Agreement and the Original Agreement are of no
further force or effect. Participant does not have any remaining grant of
Incentive Compensation or other rights under the Plan.
Section 3. Binding Effect. This Settlement and Termination shall be binding upon
and inure to the benefit of any successors to the Partnership and all persons
lawfully claiming under Participant.
<PAGE>
Section 4. Capitalized Terms. Capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed to them in the Plan.
IN WITNESS WHEREOF, the Partnership has caused this Settlement and
Termination to be duly executed by one of its officers thereunto duly
authorized, and Participant has executed this Settlement and Termination, all as
of the day and year first above written.
KINDER MORGAN ENERGY PARTNERS, L.P.
By: Kinder Morgan G.P., Inc.,
its General Partner
By: /s/ Joseph Listengart
----------------------------------
Title: Vice President
/s/ Michael C. Morgan
-----------------------------------
Michael C. Morgan
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is entered into this 20th day of April, 2000
(the "Effective Date") by and among Kinder Morgan, Inc., a Kansas corporation
("KMI"), Kinder Morgan G.P., Inc., a Delaware corporation ("KMGP"), and David G.
Dehaemers, Jr. ("Employee").
WHEREAS, the parties acknowledge wherever KMI is used in this Agreement it
is intended to refer to both KMI and KMGP;
WHEREAS, the parties acknowledge Employee is an officer of
KMI and KMGP;
WHEREAS, the parties wish to provide for certain conditions
of employment as negotiated relating to continued employment;
WHEREAS, the parties negotiated certain terms to extend past employment,
including, without limitation, terms relating to a non-compete obligation;
WHEREAS, Employee agrees that ample consideration was provided to ensure
enforcement of certain provisions and the waiver of certain rights;
NOW THEREFORE, in consideration of the foregoing premises and the
following promises, the parties agree as follows:
1. Intent of the Parties. It is the intent of the parties that Employee's
rights under the Kinder Morgan Energy Partners, L.P. Executive Compensation Plan
shall be waived and forfeited upon execution of this Agreement.
2. Definitions.
(a) Termination for Cause. "Termination for Cause" shall mean
termination of Employee's employment by KMI because of (i)Employee's
conviction of a felony which in the reasonable, good faith opinion of the
Compensation Committee of the Board of Directors of Kinder Morgan, Inc.
would have an adverse impact on the reputation or business of KMI or any of
its affiliates; (ii) subject to the notice provision's set forth below in
this Section 2(a), Employee's willful refusal without proper legal cause to
perform his duties and responsibilities; (iii) Employee's willfully
engaging in conduct which Employee has reason to know is materially
injurious to KMI or any of its affiliates; or (iv) subject to the notice
and counseling provisions set forth below in this Section 2(a), failure to
meet clearly established and reasonable performance objectives or standards
established by KMI for Employee's job position. Such termination shall be
effected by notice thereof delivered by KMI to Employee and shall be
effective as of the date of such notice; provided, however, that if such
termination is pursuant to clause (ii) above and within seven (7) days
following the date of such notice Employee shall cease such refusal and
shall use his or her best efforts to perform such duties and
responsibilities, the termination shall not be effective; provided further,
that termination pursuant to clause (iv) above shall not become effective
unless Employee has been counseled about such unacceptable performance and
coached to improve performance for at least forty-five (45) days; and,
provided further, that KMI shall consult with Employee
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<PAGE>
and provide an opportunity for Employee to be heard prior to effecting any
termination under this section, and KMI's failure to do so shall
constitute Involuntary Termination and not Termination for Cause.
(b) Change of Duties. A "Change of Duties" means;
(i) A significant reduction in the nature, scope of authority or
duties of Employee (without the written consent of Employee) from
those applicable to him on the Effective Date of this Agreement;
(ii) Any reduction in Employee's annual base salary, without the
consent of Employee, unless it is part of a program to reduce salaries
for all similarly situated employees;
(iii) Receipt of employee benefits (including but not limited to
medical, dental, life insurance, accidental death and dismemberment;
and long term disability plans) that are materially inconsistent with
and inferior to the employee benefits provided by KMI to employees
with comparable duties; or
(iv) A change in the location of Employee's principal place of
employment by KMI by more than 50 miles from the location where he was
principally employed on the Effective Date of this Agreement, without
Employee's consent.
(c) Pro-Rata Portion. "Pro-Rata Portion" is the amount determined by
the formula: the compensation payment received by Employee pursuant to
section 4(b) hereof, multiplied by the Pro-Rata Percentage. The Pro-Rata
Percentage is defined as: 1460 minus the number of calendar days from
Effective Date of this Agreement up to the date of a Non-Competition
Violation, as defined in Section 5(d) below, not to exceed 1460 days,
divided by 1460.
(d) Confidential Information. "Confidential Information" shall include
all information, the use of which by persons or entities other than KMI or
its employees, agents or representatives would be detrimental to KMI's
business interests, relating to (i) KMI's Customers, providers, suppliers,
and other business affiliates; (ii) KMI's policies, practices, operating
information, financial information, business plans, and market approaches;
and (iii) other information, techniques or approaches used by KMI and not
generally known or applied in KMI's industry. KMI believes that some or all
of this information constitutes trade secrets; however, the Confidential
Information covered in this Agreement need not satisfy the legal definition
or requirements of a "trade secret" to be protected from disclosure
hereunder. Confidential Information shall exclude any information that is
generally known in KMI's industry and information known to any future
employer of Employee and any information disclosed by KMI in public
filings, including, without limitation, filings with the Securities and
Exchange Commission and the Federal Energy Regulatory Commission.
(e) Customer. "Customer" shall include any person or entity to whom
during the Term of this Agreement, services are being sold by KMI, and any
person or
2
<PAGE>
entity with whom, during the Term of this Agreement, KMI has established a
strategic marketing alliance.
(f) He, him, himself, his. "He," "him," "himself" and "his" when used
herein shall be synonymous with "she," "her," "herself," and "her," as
applicable.
(g) Involuntary Termination. "Involuntary Termination" means (i)
termination of Employee's employment at the behest of KMI other than a
Termination for Cause; (ii) Employee's resignation on or before thirty (30)
days following receipt by Employee of a notice of a Change of Duties; or
(iii) a termination which under the terms of the last clause of Section
2(a) is not a Termination for Cause. "Involuntary Termination" does not
include (i) Termination for Cause; (ii) termination of Employee's
employment due to the death of Employee; (iii) termination of Employee's
employment due to Employee's disability under circumstances entitling him
to benefits under KMI's long term disability plan; (iv) or any change of
employer due to transfer of Employee's employment to a successor company
that is a wholly owned KMI subsidiary or affiliate and/or any change of
employer due to transfer of Employee's employment to a purchaser of or
successor to KMI.
(h) KMI. "KMI" means collectively Kinder Morgan, Inc., a Kansas
corporation, Kinder Morgan G.P., Inc., their successors and assigns, and
their divisions and affiliates. For purposes of this Agreement, the term
"affiliates" shall have the same definition as the term "affiliated group"
in Section 1504(a) of the Internal Revenue Code of 1986, as amended from
time to time.
(i) Welfare Benefit Coverages. "Welfare Benefit Coverages" shall mean
the medical, dental, life insurance, long term disability and accidental
death and dismemberment coverages provided by KMI to its active employees.
3. Term of This Agreement. The term of this Agreement shall be four (4)
years from the Effective Date of this Agreement. It is expressly understood and
agreed that this Agreement shall terminate and be of no further force or effect
at the end of the initial four (4) year term.
4. KMI's Promises. In consideration of Employee's promises, KMI hereby
agrees as follows:
(a) Salary. Employee shall receive a base salary of two hundred
thousand dollars ($200,000) annually. Increases may occur at the behest of
the senior management of the Company if approved by the Compensation
Committee of the Board. Salary shall be continued only if Employee's
employment continues.
(b) Compensation Payment. In consideration of the obligations of
Employee set forth in Section 5(d) hereof and for waiving all rights under
the Kinder Morgan Energy Partners, L.P. Executive Compensation Plan, Kinder
Morgan, Inc. shall cause Kinder Morgan G.P., Inc., on behalf of Kinder
Morgan Energy Partners, L.P., to
3
<PAGE>
pay Employee a lump sum payment of seven million, ten thousand dollars
($7,010,000.00) within three (3) days of execution of this Agreement. The
parties acknowledge that Employee and Kinder Morgan Energy Partners, L.P.
have executed a termination and settlement of the grant agreement
evidencing Employee's grant under the Kinder Morgan Energy Partners, L.P.
Executive Compensation Plan.
(c) Stock Options. Kinder Morgan, Inc. will provide Employee a grant
of 150,000 stock options priced at $33.125, the closing price of Kinder
Morgan, Inc.'s common stock on the New York Stock Exchange on April 20,
2000. The terms and conditions are specified in the Option Agreement
(Exhibit B).
(d) Bonus. Employee will be eligible for any applicable incentive
compensation plan of KMI or its predecessors, at the same level as other
senior officers.
(e) Directors and Officers Insurance. As long as Employee is an
officer or director of either Kinder Morgan, Inc. or any of its affiliates,
KMI will provide director and officer liability coverage to Employee on the
same terms as it provides to other officers and directors.
(f) Bridging. KMI will provide for bridging of service for eligible
employees in accordance with approved plan documents in effect on the
Effective Date of Employee's Involuntary Termination.
(g) Condition to Receipt of Benefits Listed in This Paragraph 4. As a
condition of receipt of any benefit listed in this Paragraph 4, Employee
shall execute Exhibit A, Exhibit B and be subject to all promises provided
in Section 5(d) of this Agreement. Exhibit A and Exhibit B shall be
executed upon execution of this Agreement.
5. Employee's Promises.
(a) Confidential Information. Employee shall not, while employed by
KMI or at any time thereafter, directly or indirectly, (i) use or apply any
Confidential Information for unauthorized purposes, alone or with any other
person or entity; or (ii) disclose or provide any Confidential Information
to any person or entity not authorized by KMI to receive such Confidential
Information.
(b) Non-Disparagement Agreement. Employee specifically agrees that he
will not in any way disparage KMI, its officers, directors, employees,
consultants, agents, or business operations or decisions; provided,
however, that Employee shall not be held in breach of this provision should
Employee testify pursuant to subpoena under oath and give testimony that
KMI considers to be disparaging.
(c) Non-Solicitation of KMI Employees. Employee agrees that, for the
term of the Agreement from the date of termination of employment hereunder,
he will not encourage, entice, or otherwise solicit any employee of KMI or
any of its affiliates or subsidiaries, or aid any third party to encourage,
entice or solicit any employee of KMI, to leave employment with KMI in
order to accept employment elsewhere. For purposes
4
<PAGE>
of this paragraph, "employment elsewhere" shall include any relationship
of employer/employee and any relationship of principal/independent
contractor.
(d) Non-Competition. Employee acknowledges that; 1) KMI and its
affiliates are engaged in the business (the "Business")of owning and/or
operating integrated natural gas assets, products and bulk terminals,
refined products, natural gas, natural gas liquids and carbon dioxide
pipelines, electricity generating assets and other midstream energy assets;
2) the Business is conducted throughout the United States; 3) his work for
KMI gives or gave him access to proprietary information and trade secrets
of and confidential information concerning KMI, and 4) the agreements and
covenants contained in this provision are essential to protect the Business
and the trade secrets, confidential and proprietary information and other
legitimate interests of KMI. Accordingly, Employee covenants and agrees as
follows:
(i) Employee agrees that for a period of four (4) years following
the Effective Date of this Agreement regardless of whether Employee
remains employed by KMI, Employee, other than on behalf of KMI, will
not engage in any conduct, line of business or activity which is the
same as or substantially similar to any conduct, activity or line of
business conducted by KMI or their affiliates in which Employee was or
is engaged in during his employment by KMI (each such line of business
or activity being an "Exclusive Activity"), in any geographic area in
which Company conducts such Exclusive Activities.
(ii) The parties stipulate and agree that the terms and covenants
contained in this provision are fair and reasonable in all respects,
including the time period and geographical coverage and that these
restrictions are designed for the reasonable protection of the
business of KMI. If, at the time of enforcement of any of these
provisions, a court holds that the restrictions stated herein are
unreasonable under the circumstances then existing, the parties hereto
agree that the maximum period, scope or geographical area reasonable
under such circumstances will be substituted for the stated period,
scope or area. In such event KMI and Employee hereby specifically
request a trial court presented with this Agreement for enforcement to
reform it as to time, geographic area or scope of activities
prohibited and to enforce this Agreement as reformed.
(iii) In the event KMI determines that Employee has violated the
provisions of this Section 5(d), KMI agrees to provide Employee
written notice of such violation. If Employee does not cease the
conduct prohibited by this Section 5(d) and cure the impact of such
conduct on KMI within 30 days after receipt of written notice from
KMI, a "Non-Competition Violation" shall be deemed to have occurred at
the end of such 30 day period, and the provisions of Section 7 shall
apply.
(iv) KMI hereby waives any rights under, and Employee shall not
be deemed to have violated, the provisions of this Section 5(d) with
respect to any conduct or activity of Employee if Employee gives KMI
30 days written
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notice prior to engaging in such conduct or activity, and KMI does not
object to such conduct or activity in writing within the 30 day period
following notice from Employee.
(e) Section 5 shall be enforceable only to the extent either Richard
D. Kinder or William V. Morgan serves as Chief Executive Officer of Kinder
Morgan, Inc. or its successor.
6. Effects of Termination. During the term of this Agreement, a
termination of Employee's employment for any of the following reasons shall
have the effects set forth below:
(a) Termination is for Cause. If the Employee's employment is
terminated by a Termination for Cause:
(i) subject to Section 7 below, Employee shall be entitled to
retain the all payments and benefits made under Sections 4(b) hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof;
(iii) Employee shall not be eligible for severance payments under
KMI's severance policy; and
(iv) all benefits otherwise payable under Sections 4(a) and 4(d)
hereof shall cease.
(b) Termination for Change of Duties or Involuntary Termination. If
the Employee's employment is terminated by a Termination for Change of
Duties or an Involuntary Termination:
(i) subject to Section 7 below, Employee shall be entitled to
retain all payments and benefits made under Sections 4(b) hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof;
(iii) Employee shall be eligible for severance consistent with
KMI's severance policy; and
(iv) all benefits otherwise payable under Sections 4(a) and 4(d)
hereof shall cease.
(c) Termination for Death, Disability ,Retirement or Resignation.
If the Employee's employment is terminated due to the death,
disability, retirement or resignation of Employee:
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(i) subject to Section 7 below, Employee shall be entitled
to retain all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof; and
(iii) All other payments and benefits relating to Employee's
employment shall cease upon last day of employment other than
benefits which generally continue for all KMI employees after
termination of employment under the terms of KMI's benefit plans.
7. Violation of Non-Competition; Payment of Pro-Rata Portion. Within three
business days following a Non-Competition Violation which occurs during the term
of this Agreement,, Employee shall pay to KMI an amount in U.S. dollars equal to
the Pro-Rata Portion, calculated in accordance with Section 2(c) hereof.
8. Adequacy of Consideration. By executing this Agreement, KMI and Employee
acknowledges the receipt and sufficiency of the consideration provided by the
other in conjunction with executing this Agreement. Each acknowledges and
confirms to the other that the consideration provided by the other is good and
valuable consideration legally supportive of each party's respective rights,
duties and obligations hereunder. By executing this Agreement, KMI and Employee
shall be estopped from raising and hereby expressly waive any defense regarding
the receipt and/or legal sufficiency of the consideration provided by one to the
other with respect to this Agreement.
9. Nonassignability. This Agreement shall inure to the benefit of, and be
binding upon, Employee and Employee's personal or legal representatives,
employees, administrators, successors, heirs, distributees, devisees and
legatees, and KMI, its successors and assignees, provided, however, that neither
KMI nor Employee may assign any of Employee's or its rights or benefits
hereunder without the prior written consent of the other.
10. No Attachment. Except as required by law, the right to receive payments
under this Agreement shall not be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void ab initio and of no effect.
11. Arbitration. The parties agree that any dispute regarding the
interpretation or breach of any term of this Agreement shall be resolved through
arbitration pursuant to the guidelines set forth by the American Arbitration
Association and that any attempt by either party to bring a court action
concerning this Agreement shall be subject to dismissal for lack of jurisdiction
at the request of the other party. The arbitration and all related activities
shall occur in Houston, Texas. To the extent that either party should initiate
action to enforce this
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Agreement, the party prevailing in the action for breach shall be entitled to
recover its attorney fees and costs incurred in the prosecution or defense of
said action.
12. Headings. The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. Controlling Law. This Agreement shall be governed and construed in
accordance with the laws of Texas.
14. Entire Agreement. This document constitutes the entire agreement of the
parties on the subject matters addressed herein and may not be expanded or
except by express written agreement executed by both.
15. Counterparts. This Agreement may be executed in as many counterparts as
may be deemed necessary and convenient, and by the different parties on separate
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
16. Effective Date. The Effective Date of this Agreement shall be the date
provided at the top of this Agreement.
KINDER MORGAN, INC. and KINDER MORGAN G.P., INC.
By /s/ Joseph Listengart
---------------------------------------------
Title: Vice President
Witness: /s/ Andre Massey
---------------------------------------
EMPLOYEE
/s/ David G. Dehaemers, Jr.
- ------------------------------------------------
Name: David G. Dehaemers, Jr.
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In connection with the Employment Agreement (the "Agreement") dated April
20, 2000, by and among David G. Dehaemers, Jr., Kinder Morgan, Inc. and Kinder
Morgan G.P., Inc. (collectively ("KMI"), Employee for himself and his
representatives, heirs, and assigns, hereby releases and discharges KMI, any
parent, sister or subsidiary company, and any present or former shareholders,
officers, directors, employees, agents, representatives, legal representatives,
accountants, successors, and assigns, , Richard Kinder, and William Morgan, from
all claims, demands, and actions of any nature, known or unknown, in any manner
arising out of or involving any aspect of his rights under the Kinder Morgan
Energy Partners, L.P. Executive Compensation Plan and any agreement executed in
connection therewith. This release includes any and all claims concerning
attorney fees, costs, and any and all other expenses related to the claims
released herein. This release does not include claims for breach of the
Agreement, indemnification, coverage or defense under any applicable directors
and officers' insurance policy or vested employee benefits.
EMPLOYEE:
/s/ David G. Dehaemers, Jr.
- ----------------------------------------
Employee Signature
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KINDER MORGAN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
For the
1994 KINDER MORGAN LONG TERM INCENTIVE PLAN
This Nonqualified Stock Option Agreement ("Option Agreement") is between
Kinder Morgan, Inc. (the "Company"), and David G. Dehaemers, Jr. ("Optionee"),
who agree as follows:
Section 1. Introduction. The Company has heretofore adopted the Kinder
Morgan, Inc. (f/k/a KN Energy, Inc.) 1994 Kinder Morgan Long Term Incentive Plan
(the "Plan") for the purpose of providing eligible employees of the Company and
its Affiliates (as defined in the Plan) with incentive and reward opportunities
designed to enhance the profitable growth of the Company. The Company, acting
through the Committee (as defined in the Plan), has determined that its
interests will be advanced by the issuance to Optionee of a nonqualified stock
option under the Plan.
Section 2. Option. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company 150,000 shares of the Company's common
stock, $5.00 par value ("Stock"), at a price of $33.125 per share.
Section 3. Option Period. The Option, herein granted, may be exercised by
Optionee in whole or in part at any time during a ten year period (the "Option
Period") beginning on April 20, 2000 (the "Date of Grant").:
Section 4. Procedure for Exercise. The Committee or its designee shall
establish procedures for Exercise of the Option.
Section 5. Termination of Employment. If, for any reason other than Death,
Optionee ceases to be employed by the Company or its Affiliates, the Option may
be exercised to the extent Optionee would have been entitled to do so, but in no
event may the Option be exercised after the expiration of the Option Period.
Section 6. Death. In the event that Optionee's employment is terminated
because of Optionee's death, this Option may be exercised, at any time and from
time to time, within the Option Period after such Death, by (i) the guardian of
Optionee's estate, (ii) the executor or administrator of Optionee's estate, or
(iii) the person or persons to whom Optionee's rights under this Option
Agreement shall pass by will or the laws of descent and distribution, but in no
event may the Option be exercised after the expiration of the Option Period.
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Section 7. Transferability. This Option shall not be transferable by
Optionee otherwise than by Optionee's will or by the laws of descent and
distribution. During the lifetime of Optionee, the Option shall be exercisable
only by Optionee or his guardian or authorized legal representative. Any heir or
legatee of Optionee shall take rights herein granted subject to the terms and
conditions hereof. No such transfer of this Option Agreement to heirs or
legatees of Optionee shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
Section 8. No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares of Stock covered by this Option Agreement
until the Option is exercised by written notice and accompanied by payment as
provided in Section 4 of this Option Agreement.
Section 9. Extraordinary Corporate Transactions. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Stock or other securities or subscription rights
thereto, or any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or the rights thereof, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
Section 10. Changes in Capital Structure. If the outstanding shares of
Stock or other securities of the Company, or both, for which the Option is then
exercisable shall at any time be changed or exchanged by declaration of a stock
dividend, stock split or combination of shares, the number and kind of shares of
Stock or other securities subject to the Plan or subject to the Option, and the
exercise price, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares or other securities without changing the
aggregate exercise price.
Section 11. Compliance With Securities Laws. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Optionee (or any
person acting under Section 7) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
Section 12. Compliance With Laws. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the Option or the issuance
of such shares of Stock would constitute a violation by Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
Section 13. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income
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to Optionee for federal or state income tax purposes, Optionee shall pay to the
Company at the time of such exercise or disposition such amount of money as the
Company may require to meet its obligation under applicable tax laws or
regulations and, if Optionee fails to do so, the Company is authorized to
withhold from any cash remuneration then or thereafter payable to Optionee, any
tax required to be withheld by reason of such resulting compensation income or
Company may otherwise refuse to issue or transfer any shares otherwise required
to be issued or transferred pursuant to the terms hereof.
Section 14. No Right to Employment or Directorship. Optionee shall be
considered to be in the employment of the Company or its Affiliates or in
service on the Board so long as he or she remains an employee or director of the
Company or its Affiliates. Any questions as to whether and when there has been a
termination of such employment or service on the Board and the cause of such
termination shall be determined by the Committee, and its determination shall be
final. Nothing contained herein shall be construed as conferring upon Optionee
the right to continue in the employ of the Company or its Affiliates or to
continue service on the Board, nor shall anything contained herein be construed
or interpreted to limit the "employment at will" relationship between Optionee
and the Company or its Affiliates.
Section 15. Resolution of Disputes. As a condition of the granting of the
Option hereby, Optionee and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Committee in its sole discretion and judgment, and
that any such determination and any interpretation by the Committee of the terms
of this Option Agreement shall be final and shall be binding and conclusive, for
all purposes, upon the Company, Optionee, and Optionee's heirs, personal
representatives and successors.
Section 16. Legends on Certificate. The certificates representing the
shares of Stock purchased by exercise of the Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
Section 17. Notices. Every notice hereunder shall be in writing and shall
be given by registered or certified mail or by any other method accepted by the
Company or the Company's designee. All notices of the exercise of any Option
hereunder shall be directed to Kinder Morgan, Inc., 1301 McKinney, Suite 3450,
Houston, Texas 77010, Attention: Secretary, or to the Company's designee. Any
notice given by the Company to Optionee directed to Optionee at the address on
file with the Company shall be effective to bind Optionee and any other person
who shall acquire rights hereunder. The Company shall be under no obligation
whatsoever to advise Optionee of the existence, maturity or termination of any
of Optionee's rights hereunder and Optionee shall be deemed to have familiarized
himself or herself with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
Section 18. Construction and Interpretation. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in
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accordance with the provisions of Section 7 hereof, may be transferred, the word
"Optionee" shall be deemed to include such person or persons.
Section 19. Agreement Subject to Plan. This Option Agreement is subject to
the Plan. The terms and provisions of the Plan (including any subsequent
amendments thereto) are hereby incorporated herein by reference thereto. In the
event of a conflict between any term or provision contained herein and a term or
provision of the Plan, the applicable terms and provisions of the Plan will
govern and prevail. All definitions of words and terms contained in the Plan
shall be applicable to this Option Agreement.
Section 20. Entire Agreement; Amendment. This Option Agreement and any
other agreements and instruments contemplated by this Option Agreement contain
the entire agreement of the parties, and this Option Agreement may be amended
only in writing signed by both parties.
Section 21. Modification and Severability. If a court of competent
jurisdiction declares that any provision of this Option Agreement is illegal,
invalid or unenforceable, then such provision shall be modified automatically to
the extent necessary to make such provision fully enforceable. If such court
does not modify any such provision as contemplated herein, but instead declares
it to be wholly illegal, invalid or unenforceable, then such provision shall be
severed from this Option Agreement, and such declaration shall in no way affect
the legality, validity and enforceability of the other provisions of this Option
Agreement to which such declaration does not relate. In this event, this Option
Agreement shall be construed as if it did not contain the particular provision
held to be illegal, invalid or unenforceable, the rights and obligations of the
parties hereto shall be construed and enforced accordingly, and this Option
Agreement otherwise shall remain in full force and effect. If any provision of
this Option Agreement is capable of two constructions, one of which would render
the provision void and the other of which would render the provision valid, then
the provision shall have the construction which renders it valid.
Section 22. Binding Effect. This Option Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all persons
lawfully claiming under Optionee as provided herein.
Section 23. Governing Law. This Option Agreement shall be interpreted and
construed in accordance with the laws of the State of Colorado and applicable
federal law.
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IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been executed
as of the 20th day of April, 2000.
KINDER MORGAN, INC.
By: /s/ Joseph Listengart
---------------------------------
Joseph Listengart
Vice President
OPTIONEE
/s/ David G. Dehaemers, Jr.
---------------------------------------
David G. Dehaemers, Jr.
5
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is entered into this 20th day of April, 2000
(the "Effective Date") by and among Kinder Morgan, Inc., a Kansas corporation
("KMI"), Kinder Morgan G.P., Inc., a Delaware corporation ("KMGP"), and Michael
C. Morgan ("Employee").
WHEREAS, the parties acknowledge wherever KMI is used in this Agreement it
is intended to refer to both KMI and KMGP;
WHEREAS, the parties acknowledge Employee is an officer of
KMI and KMGP;
WHEREAS, the parties wish to provide for certain conditions
of employment as negotiated relating to continued employment;
WHEREAS, the parties negotiated certain terms to extend past employment,
including, without limitation, terms relating to a non-compete obligation;
WHEREAS, Employee agrees that ample consideration was provided to ensure
enforcement of certain provisions and the waiver of certain rights;
NOW THEREFORE, in consideration of the foregoing premises and the
following promises, the parties agree as follows:
1. Intent of the Parties. It is the intent of the parties that Employee's
rights under the Kinder Morgan Energy Partners, L.P. Executive Compensation Plan
shall be waived and forfeited upon execution of this Agreement.
2. Definitions.
(a) Termination for Cause. "Termination for Cause" shall mean
termination of Employee's employment by KMI because of
(i)Employee's conviction of a felony which in the
reasonable, good faith opinion of the Compensation Committee
of the Board of Directors of Kinder Morgan, Inc. would have
an adverse impact on the reputation or business of KMI or
any of its affiliates; (ii) subject to the notice
provision's set forth below in this Section 2(a), Employee's
willful refusal without proper legal cause to perform his
duties and responsibilities; (iii) Employee's willfully
engaging in conduct which Employee has reason to know is
materially injurious to KMI or any of its affiliates; or
(iv) subject to the notice and counseling provisions set
forth below in this Section 2(a), failure to meet clearly
established and reasonable performance objectives or
standards established by KMI for Employee's job position.
Such termination shall be effected by notice thereof
delivered by KMI to Employee and shall be effective as of
the date of such notice; provided, however, that if such
termination is pursuant to clause (ii) above and within
seven (7) days following the date of such notice Employee
shall cease such refusal and shall use his or her best
efforts to perform such duties and responsibilities, the
termination shall not be effective; provided further, that
termination pursuant to clause (iv) above shall not become
effective unless Employee has been counseled about such
unacceptable performance and coached to improve performance
for at least forty-five (45) days; and, provided further,
that KMI shall consult with Employee
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and provide an opportunity for Employee to be heard prior to effecting any
termination under this section, and KMI's failure to do so shall constitute
Involuntary Termination and not Termination for Cause.
(b) Change of Duties. A "Change of Duties" means;
(i) A significant reduction in the nature, scope of authority or
duties of Employee (without the written consent of Employee) from
those applicable to him on the Effective Date of this Agreement;
(ii) Any reduction in Employee's annual base salary, without the
consent of Employee, unless it is part of a program to reduce salaries
for all similarly situated employees;
(iii) Receipt of employee benefits (including but not limited to
medical, dental, life insurance, accidental death and dismemberment;
and long term disability plans) that are materially inconsistent with
and inferior to the employee benefits provided by KMI to employees
with comparable duties; or
(iv) A change in the location of Employee's principal place
of employment by KMI by more than 50 miles from the location where he
was principally employed on the Effective Date of this Agreement,
without Employee's consent.
(c) Pro-Rata Portion. "Pro-Rata Portion" is the amount
determined by the formula: the compensation payment
received by Employee pursuant to section 4(b) hereof,
multiplied by the Pro-Rata Percentage. The Pro-Rata
Percentage is defined as: 1460 minus the number of calendar
days from Effective Date of this Agreement up to the date of
a Non-Competition Violation, as defined in Section 5(d)
below, not to exceed 1460 days, divided by 1460.
(d) Confidential Information. "Confidential Information" shall
include all information, the use of which by persons or
entities other than KMI or its employees, agents or
representatives would be detrimental to KMI's business
interests, relating to (i) KMI's Customers, providers,
suppliers, and other business affiliates; (ii) KMI's
policies, practices, operating information, financial
information, business plans, and market approaches; and
(iii) other information, techniques or approaches used by
KMI and not generally known or applied in KMI's industry.
KMI believes that some or all of this information
constitutes trade secrets; however, the Confidential
Information covered in this Agreement need not satisfy the
legal definition or requirements of a "trade secret" to be
protected from disclosure hereunder. Confidential
Information shall exclude any information that is generally
known in KMI's industry and information known to any future
employer of Employee and any information disclosed by KMI in
public filings, including, without limitation, filings with
the Securities and Exchange Commission and the Federal
Energy Regulatory Commission.
(e) Customer. "Customer" shall include any person or entity to whom
during the Term of this Agreement, services are being sold by KMI, and any
person or
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entity with whom, during the Term of this Agreement, KMI has established a
strategic marketing alliance.
(f) He, him, himself, his. "He," "him," "himself" and "his" when
used herein shall be synonymous with "she," "her," "herself," and "her,"
as applicable.
(g) Involuntary Termination. "Involuntary Termination" means
(i) termination of Employee's employment at the behest of
KMI other than a Termination for Cause; (ii) Employee's
resignation on or before thirty (30) days following receipt
by Employee of a notice of a Change of Duties; or (iii) a
termination which under the terms of the last clause of
Section 2(a) is not a Termination for Cause. "Involuntary
Termination" does not include (i) Termination for Cause;
(ii) termination of Employee's employment due to the death
of Employee; (iii) termination of Employee's employment due
to Employee's disability under circumstances entitling him
to benefits under KMI's long term disability plan; (iv) or
any change of employer due to transfer of Employee's
employment to a successor company that is a wholly owned KMI
subsidiary or affiliate and/or any change of employer due to
transfer of Employee's employment to a purchaser of or
successor to KMI.
(h) KMI. "KMI" means collectively Kinder Morgan, Inc., a Kansas
corporation, Kinder Morgan G.P., Inc., their successors and assigns, and
their divisions and affiliates. For purposes of this Agreement, the term
"affiliates" shall have the same definition as the term "affiliated group"
in Section 1504(a) of the Internal Revenue Code of 1986, as amended from
time to time.
(i) Welfare Benefit Coverages. "Welfare Benefit Coverages" shall
mean the medical, dental, life insurance, long term disability and
accidental death and dismemberment coverages provided by KMI to its active
employees.
3. Term of This Agreement. The term of this Agreement shall be four (4)
years from the Effective Date of this Agreement. It is expressly understood and
agreed that this Agreement shall terminate and be of no further force or effect
at the end of the initial four (4) year term.
4. KMI's Promises. In consideration of Employee's promises, KMI hereby
agrees as follows:
(a) Salary. Employee shall receive a base salary of two hundred
thousand dollars ($200,000) annually. Increases may occur at the behest of
the senior management of the Company if approved by the Compensation
Committee of the Board. Salary shall be continued only if Employee's
employment continues.
(b) Compensation Payment. In consideration of the obligations of
Employee set forth in Section 5(d) hereof and for waiving all rights under
the Kinder Morgan Energy Partners, L.P. Executive Compensation Plan,
Kinder Morgan, Inc. shall cause Kinder Morgan G.P., Inc., on behalf of
Kinder Morgan Energy Partners, L.P., to
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pay Employee a lump sum payment of seven million, ten thousand
dollars ($7,010,000.00) within three (3) days of execution of
this Agreement. The parties acknowledge that Employee and
Kinder Morgan Energy Partners, L.P. have executed a termination
and settlement of the grant agreement evidencing Employee's grant
under the Kinder Morgan Energy Partners, L.P. Executive
Compensation Plan.
(c) Stock Options. Kinder Morgan, Inc. will provide Employee a
grant of 150,000 stock options priced at $33.125, the closing price of
Kinder Morgan, Inc.'s common stock on the New York Stock Exchange on April
20, 2000. The terms and conditions are specified in the Option Agreement
(Exhibit B).
(d) Bonus. Employee will be eligible for any applicable incentive
compensation plan of KMI or its predecessors, at the same level as other
senior officers.
(e) Directors and Officers Insurance. As long as Employee is an
officer or director of either Kinder Morgan, Inc. or any of its
affiliates, KMI will provide director and officer liability coverage to
Employee on the same terms as it provides to other officers and directors.
(f) Bridging. KMI will provide for bridging of service for eligible
employees in accordance with approved plan documents in effect on the
Effective Date of Employee's Involuntary Termination.
(g) Condition to Receipt of Benefits Listed in This Paragraph 4. As
a condition of receipt of any benefit listed in this Paragraph 4, Employee
shall execute Exhibit A, Exhibit B and be subject to all promises provided
in Section 5(d) of this Agreement. Exhibit A and Exhibit B shall be
executed upon execution of this Agreement.
5. Employee's Promises.
(a) Confidential Information. Employee shall not, while employed by
KMI or at any time thereafter, directly or indirectly, (i) use or apply
any Confidential Information for unauthorized purposes, alone or with any
other person or entity; or (ii) disclose or provide any Confidential
Information to any person or entity not authorized by KMI to receive such
Confidential Information.
(b) Non-Disparagement Agreement. Employee specifically agrees that
he will not in any way disparage KMI, its officers, directors, employees,
consultants, agents, or business operations or decisions; provided,
however, that Employee shall not be held in breach of this provision
should Employee testify pursuant to subpoena under oath and give testimony
that KMI considers to be disparaging.
(c) Non-Solicitation of KMI Employees. Employee agrees that,
for the term of the Agreement from the date of termination
of employment hereunder, he will not encourage, entice, or
otherwise solicit any employee of KMI or any of its
affiliates or subsidiaries, or aid any third party to
encourage, entice or solicit any employee of KMI, to leave
employment with KMI in order to accept employment
elsewhere. For purposes
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of this paragraph, "employment elsewhere" shall include any relationship
of employer/employee and any relationship of principal/independent
contractor.
(d) Non-Competition. Employee acknowledges that; 1) KMI and its
affiliates are engaged in the business (the "Business")of
owning and/or operating integrated natural gas assets,
products and bulk terminals, refined products, natural gas,
natural gas liquids and carbon dioxide pipelines,
electricity generating assets and other midstream energy
assets; 2) the Business is conducted throughout the United
States; 3) his work for KMI gives or gave him access to
proprietary information and trade secrets of and
confidential information concerning KMI, and 4) the
agreements and covenants contained in this provision are
essential to protect the Business and the trade secrets,
confidential and proprietary information and other
legitimate interests of KMI. Accordingly, Employee
covenants and agrees as follows:
(i) Employee agrees that for a period of four (4) years
following the Effective Date of this Agreement
regardless of whether Employee remains employed by KMI,
Employee, other than on behalf of KMI, will not engage
in any conduct, line of business or activity which is
the same as or substantially similar to any conduct,
activity or line of business conducted by KMI or their
affiliates in which Employee was or is engaged in
during his employment by KMI (each such line of
business or activity being an "Exclusive Activity"), in
any geographic area in which Company conducts such
Exclusive Activities.
(ii) The parties stipulate and agree that the terms and
covenants contained in this provision are fair and reasonable in
all respects, including the time period and
geographical coverage and that these restrictions are
designed for the reasonable protection of the business
of KMI. If, at the time of enforcement of any of these
provisions, a court holds that the restrictions stated
herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under
such circumstances will be substituted for the stated
period, scope or area. In such event KMI and Employee
hereby specifically request a trial court presented
with this Agreement for enforcement to reform it as to
time, geographic area or scope of activities prohibited
and to enforce this Agreement as reformed.
(iii) In the event KMI determines that Employee has violated the
provisions of this Section 5(d), KMI agrees to provide Employee
written notice of such violation. If Employee does not cease the
conduct prohibited by this Section 5(d) and cure the impact of such
conduct on KMI within 30 days after receipt of written notice from
KMI, a "Non-Competition Violation" shall be deemed to have occurred
at the end of such 30 day period, and the provisions of Section 7
shall apply.
(iv) KMI hereby waives any rights under, and Employee shall
not be deemed to have violated, the provisions of this Section 5(d)
with respect to any conduct or activity of Employee if Employee gives
KMI 30 days written
5
<PAGE>
notice prior to engaging in such conduct or activity, and
KMI does not object to such conduct or activity in writing within the
30 day period following notice from Employee.
(e) Section 5 shall be enforceable only to the extent either Richard
D. Kinder or William V. Morgan serves as Chief Executive Officer of Kinder
Morgan, Inc. or its successor.
6. Effects of Termination. During the term of this Agreement, a termination
of Employee's employment for any of the following reasons shall have the effects
set forth below:
(a) Termination is for Cause. If the Employee's employment is
terminated by a Termination for Cause:
(i) subject to Section 7 below, Employee shall be entitled
to retain the all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof;
(iii) Employee shall not be eligible for severance payments
under KMI's severance policy; and
(iv) all benefits otherwise payable under Sections 4(a)
and 4(d) hereof shall cease.
(b) Termination for Change of Duties or Involuntary Termination. If
the Employee's employment is terminated by a Termination for Change of
Duties or an Involuntary Termination:
(i) subject to Section 7 below, Employee shall be entitled
to retain all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof;
(iii)Employee shall be eligible for severance consistent
with KMI's severance policy; and
(iv) all benefits otherwise payable under Sections 4(a) and
4(d) hereof shall cease.
(c) Termination for Death, Disability ,Retirement or Resignation. If
the Employee's employment is terminated due to the death, disability,
retirement or resignation of Employee:
6
<PAGE>
(i) subject to Section 7 below, Employee shall be entitled
to retain all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options granted in
accordance with Section 4(c) hereof; and
(iii) All other payments and benefits relating to
Employee's employment shall cease upon last day of employment
other than benefits which generally continue for all KMI
employees after termination of employment under the terms of
KMI's benefit plans.
7. Violation of Non-Competition; Payment of Pro-Rata Portion. Within
three business days following a Non-Competition Violation which occurs during
the term of this Agreement,, Employee shall pay to KMI an amount in U.S. dollars
equal to the Pro-Rata Portion, calculated in accordance with Section 2(c)
hereof.
8. Adequacy of Consideration. By executing this Agreement, KMI and Employee
acknowledges the receipt and sufficiency of the consideration provided by the
other in conjunction with executing this Agreement. Each acknowledges and
confirms to the other that the consideration provided by the other is good and
valuable consideration legally supportive of each party's respective rights,
duties and obligations hereunder. By executing this Agreement, KMI and Employee
shall be estopped from raising and hereby expressly waive any defense regarding
the receipt and/or legal sufficiency of the consideration provided by one to the
other with respect to this Agreement.
9. Nonassignability. This Agreement shall inure to the benefit of, and be
binding upon, Employee and Employee's personal or legal representatives,
employees, administrators, successors, heirs, distributees, devisees and
legatees, and KMI, its successors and assignees, provided, however, that neither
KMI nor Employee may assign any of Employee's or its rights or benefits
hereunder without the prior written consent of the other.
10. No Attachment. Except as required by law, the right to receive payments
under this Agreement shall not be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void ab initio and of no effect.
11. Arbitration. The parties agree that any dispute regarding the
interpretation or breach of any term of this Agreement shall be resolved through
arbitration pursuant to the guidelines set forth by the American Arbitration
Association and that any attempt by either party to bring a court action
concerning this Agreement shall be subject to dismissal for lack of jurisdiction
at the request of the other party. The arbitration and all related activities
shall occur in Houston, Texas. To the extent that either party should initiate
action to enforce this
7
<PAGE>
Agreement, the party prevailing in the action for breach shall be entitled to
recover its attorney fees and costs incurred in the prosecution or defense of
said action.
12. Headings. The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
13. Controlling Law. This Agreement shall be governed and construed in
accordance with the laws of Texas.
14. Entire Agreement. This document constitutes the entire agreement of the
parties on the subject matters addressed herein and may not be expanded or
except by express written agreement executed by both.
15. Counterparts. This Agreement may be executed in as many counterparts as
may be deemed necessary and convenient, and by the different parties on separate
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
16. Effective Date. The Effective Date of this Agreement shall be the date
provided at the top of this Agreement.
KINDER MORGAN, INC. and KINDER MORGAN G.P., INC.
By /s/ Joseph Listengart
---------------------------------------------
Title: Vice President
Witness: /s/ Andre Massey
---------------------------------------
EMPLOYEE
/s/ Michael C. Morgan
- ------------------------------------------------
Name: Michael C. Morgan
8
<PAGE>
In connection with the Employment Agreement (the "Agreement") dated April
20, 2000, by and among Michael C. Morgan, Kinder Morgan, Inc. and Kinder Morgan
G.P., Inc. (collectively ("KMI"), Employee for himself and his representatives,
heirs, and assigns, hereby releases and discharges KMI, any parent, sister or
subsidiary company, and any present or former shareholders, officers, directors,
employees, agents, representatives, legal representatives, accountants,
successors, and assigns, , Richard Kinder, and William Morgan, from all claims,
demands, and actions of any nature, known or unknown, in any manner arising out
of or involving any aspect of his rights under the Kinder Morgan Energy
Partners, L.P. Executive Compensation Plan and any agreement executed in
connection therewith. This release includes any and all claims concerning
attorney fees, costs, and any and all other expenses related to the claims
released herein. This release does not include claims for breach of the
Agreement, indemnification, coverage or defense under any applicable directors
and officers' insurance policy or vested employee benefits.
EMPLOYEE:
/s/ Michael C. Morgan
- ----------------------------------------
Employee Signature
1
<PAGE>
KINDER MORGAN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
For the
1994 KINDER MORGAN LONG TERM INCENTIVE PLAN
This Nonqualified Stock Option Agreement ("Option
Agreement") is between Kinder Morgan, Inc. (the "Company"), and
Michael C. Morgan ("Optionee"), who agree as follows:
Section 1. Introduction. The Company has heretofore adopted the Kinder
Morgan, Inc. (f/k/a KN Energy, Inc.) 1994 Kinder Morgan Long Term Incentive Plan
(the "Plan") for the purpose of providing eligible employees of the Company and
its Affiliates (as defined in the Plan) with incentive and reward opportunities
designed to enhance the profitable growth of the Company. The Company, acting
through the Committee (as defined in the Plan), has determined that its
interests will be advanced by the issuance to Optionee of a nonqualified stock
option under the Plan.
Section 2. Option. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company 150,000 shares of the Company's common
stock, $5.00 par value ("Stock"), at a price of $33.125 per share.
Section 3. Option Period. The Option, herein granted, may be exercised by
Optionee in whole or in part at any time during a ten year period (the "Option
Period") beginning on April 20, 2000 (the "Date of Grant").
Section 4. Procedure for Exercise. The Committee or its
designee shall establish procedures for Exercise of the Option.
Section 5. Termination of Employment. If, for any reason other than Death,
Optionee ceases to be employed by the Company or its Affiliates, the Option may
be exercised to the extent Optionee would have been entitled to do so, but in no
event may the Option be exercised after the expiration of the Option Period.
Section 6. Death. In the event that Optionee's employment is terminated
because of Optionee's death, this Option may be exercised, at any time and from
time to time, within the Option Period after such Death, by (i) the guardian of
Optionee's estate, (ii) the executor or administrator of Optionee's estate, or
(iii) the person or persons to whom Optionee's rights under this Option
Agreement shall pass by will or the laws of descent and distribution, but in no
event may the Option be exercised after the expiration of the Option Period.
Section 7. Transferability. This Option shall not be
transferable by Optionee otherwise than by Optionee's will or by
the laws of descent and distribution. During the lifetime of
Optionee, the Option shall be exercisable only by Optionee or his
guardian or authorized legal
1
<PAGE>
representative. Any heir or legatee of Optionee shall take rights herein
granted subject to the terms and conditions hereof. No such transfer of this
Option Agreement to heirs or legatees of Optionee shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of such evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of
the terms and conditions hereof.
Section 8. No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares of Stock covered by this Option Agreement
until the Option is exercised by written notice and accompanied by payment as
provided in Section 4 of this Option Agreement.
Section 9. Extraordinary Corporate Transactions. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Stock or other securities or subscription rights
thereto, or any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or the rights thereof, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
Section 10. Changes in Capital Structure. If the outstanding shares of
Stock or other securities of the Company, or both, for which the Option is then
exercisable shall at any time be changed or exchanged by declaration of a stock
dividend, stock split or combination of shares, the number and kind of shares of
Stock or other securities subject to the Plan or subject to the Option, and the
exercise price, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares or other securities without changing the
aggregate exercise price.
Section 11. Compliance With Securities Laws. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Optionee (or any
person acting under Section 7) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
Section 12. Compliance With Laws. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the Option or the issuance
of such shares of Stock would constitute a violation by Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
Section 13. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Optionee for federal or state income tax
purposes, Optionee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its
obligation under applicable tax laws or regulations and, if Optionee fails to do
so, the Company is authorized to withhold from any cash remuneration then or
thereafter payable to
2
<PAGE>
Optionee, any tax required to be withheld by reason of such resulting
compensation income or Company may otherwise refuse to issue or transfer any
shares otherwise required to be issued or transferred pursuant to the terms
hereof.
Section 14. No Right to Employment or Directorship. Optionee shall be
considered to be in the employment of the Company or its Affiliates or in
service on the Board so long as he or she remains an employee or director of the
Company or its Affiliates. Any questions as to whether and when there has been a
termination of such employment or service on the Board and the cause of such
termination shall be determined by the Committee, and its determination shall be
final. Nothing contained herein shall be construed as conferring upon Optionee
the right to continue in the employ of the Company or its Affiliates or to
continue service on the Board, nor shall anything contained herein be construed
or interpreted to limit the "employment at will" relationship between Optionee
and the Company or its Affiliates.
Section 15. Resolution of Disputes. As a condition of the granting of the
Option hereby, Optionee and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Committee in its sole discretion and judgment, and
that any such determination and any interpretation by the Committee of the terms
of this Option Agreement shall be final and shall be binding and conclusive, for
all purposes, upon the Company, Optionee, and Optionee's heirs, personal
representatives and successors.
Section 16. Legends on Certificate. The certificates representing the
shares of Stock purchased by exercise of the Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
Section 17. Notices. Every notice hereunder shall be in writing and shall
be given by registered or certified mail or by any other method accepted by the
Company or the Company's designee. All notices of the exercise of any Option
hereunder shall be directed to Kinder Morgan, Inc., 1301 McKinney, Suite 3450,
Houston, Texas 77010, Attention: Secretary, or to the Company's designee. Any
notice given by the Company to Optionee directed to Optionee at the address on
file with the Company shall be effective to bind Optionee and any other person
who shall acquire rights hereunder. The Company shall be under no obligation
whatsoever to advise Optionee of the existence, maturity or termination of any
of Optionee's rights hereunder and Optionee shall be deemed to have familiarized
himself or herself with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
Section 18. Construction and Interpretation. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in accordance with the provisions of Section 7 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
Section 19. Agreement Subject to Plan. This Option
Agreement is subject to the Plan. The terms and provisions of
the Plan (including any subsequent amendments thereto) are hereby
3
<PAGE>
incorporated herein by reference thereto. In the event of a conflict
between any term or provision contained herein and a term or provision of the
Plan, the applicable terms and provisions of the Plan will govern and prevail.
All definitions of words and terms contained in the Plan shall be applicable to
this Option Agreement.
Section 20. Entire Agreement; Amendment. This Option Agreement and any
other agreements and instruments contemplated by this Option Agreement contain
the entire agreement of the parties, and this Option Agreement may be amended
only in writing signed by both parties.
Section 21. Modification and Severability. If a court of competent
jurisdiction declares that any provision of this Option Agreement is illegal,
invalid or unenforceable, then such provision shall be modified automatically to
the extent necessary to make such provision fully enforceable. If such court
does not modify any such provision as contemplated herein, but instead declares
it to be wholly illegal, invalid or unenforceable, then such provision shall be
severed from this Option Agreement, and such declaration shall in no way affect
the legality, validity and enforceability of the other provisions of this Option
Agreement to which such declaration does not relate. In this event, this Option
Agreement shall be construed as if it did not contain the particular provision
held to be illegal, invalid or unenforceable, the rights and obligations of the
parties hereto shall be construed and enforced accordingly, and this Option
Agreement otherwise shall remain in full force and effect. If any provision of
this Option Agreement is capable of two constructions, one of which would render
the provision void and the other of which would render the provision valid, then
the provision shall have the construction which renders it valid.
Section 22. Binding Effect. This Option Agreement shall be
binding upon and inure to the benefit of any successors to the
Company and all persons lawfully claiming under Optionee as
provided herein.
Section 23. Governing Law. This Option Agreement shall be
interpreted and construed in accordance with the laws of the
State of Colorado and applicable federal law.
4
<PAGE>
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has been executed
as of the 20th day of April, 2000.
KINDER MORGAN, INC.
/s/ Joseph Listengart
By: _________________________________
Joseph Listengart
Vice President
OPTIONEE
/s/ Michael C. Morgan
---------------------------------------
Michael C. Morgan
5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Consolidated Statements of Income, Cash
Flows and Partners' Capital for the three months ended March
31, 1999 and 2000 and the Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 and the Notes thereto,
for Kinder Morgan Energy Partners, L.P. and subsidiaries and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 56,771
<SECURITIES> 0
<RECEIVABLES> 69,071
<ALLOWANCES> 0
<INVENTORY> 13,950
<CURRENT-ASSETS> 170,752
<PP&E> 2,730,653
<DEPRECIATION> 135,571
<TOTAL-ASSETS> 3,318,041
<CURRENT-LIABILITIES> 130,960
<BONDS> 1,219,860
0
0
<COMMON> 0
<OTHER-SE> 1,807,164
<TOTAL-LIABILITY-AND-EQUITY> 3,318,041
<SALES> 157,358
<TOTAL-REVENUES> 157,358
<CGS> 11,848
<TOTAL-COSTS> 94,297
<OTHER-EXPENSES> (20,351)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,092
<INCOME-PRETAX> 62,320
<INCOME-TAX> 2,761
<INCOME-CONTINUING> 59,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,559
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.63
</TABLE>
