KINDER MORGAN MANAGEMENT LLC - S-1/A - 20010430 - THE_OFFERING
OFFERING:
i-units (entire class owned by Kinder Morgan
Management, LLC)...................................... 11.5%
Common units owned by the public....................... 68.6%
Common units and Class B units owned by Kinder Morgan,
Inc. and affiliates................................... 17.9%
General partner interest............................... 2.0%
------
Total........................................ 100.0%
The above chart assumes that no holder of our shares has exercised its
right to exchange its shares for common units of Kinder Morgan Energy Partners,
L.P.
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THE OFFERING
Shares offered................ 9,000,000 shares representing limited liability
company interests
Shares offered to the
public...................... 8,100,000 shares representing limited liability
company interests
Shares offered to Kinder
Morgan, Inc. ................ 900,000 shares representing limited liability
company interests
Shares outstanding after this
offering.................... - 9,000,000 shares representing limited
liability company interests; and
- one voting share owned by Kinder Morgan G.P.,
Inc.
Use of proceeds............... We will use all of the net proceeds of the
offering of our shares, expected to be
approximately $588 million based on the assumed
public offering price of $69.35 per share, as
follows:
- approximately $587 million for the purchase
of a number of i-units from Kinder Morgan
Energy Partners, L.P. that will equal the
number of our shares to be sold in this
offering; and
- approximately $1 million to compensate Kinder
Morgan, Inc. for its purchase, exchange and
tax indemnity obligations, which we refer to
as the "related rights".
The i-units are a new class of Kinder Morgan
Energy Partners, L.P.'s limited partner
interests. Kinder Morgan Energy Partners, L.P.
will use the cash it receives from the sale of
i-units to us to reduce short-term debt it
incurred in its acquisition of the domestic
pipeline and terminal businesses of GATX
Corporation. Kinder Morgan Energy Partners,
L.P.'s total debt prior to this offering is
approximately $3 billion. This total debt will
be reduced to approximately $2.4 billion
following the close of this offering. Kinder
Morgan, Inc. will use the proceeds it receives
from Kinder Morgan Management, LLC for general
corporate purposes.
Unless otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' option to purchase up to 1,350,000 additional
shares to cover over-allotments.
THE SHARES
Kinder Morgan Management,
LLC ........................ Our shares are interests in Kinder Morgan
Management, LLC, a limited liability company
treated as a corporation for United States
income tax purposes. Kinder Morgan Management,
LLC will be a limited partner in Kinder Morgan
Energy Partners, L.P. and will manage and
control that partnership's business and
affairs.
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Federal Income Tax Matters
Associated with our
Shares...................... Because we will be treated as a corporation for
United States income tax purposes, an owner of
our shares will not report on its United States
income tax return any of our items of income,
gain, loss and deduction. As a result of owning
our shares, you will not receive a Schedule K-1
and will not be subject to state tax filings in
the various states in which Kinder Morgan
Energy Partners, L.P. conducts business.
A tax-exempt investor's ownership or sale of
our shares will not generate income derived
from an unrelated trade or business regularly
carried on by the tax-exempt investor, which is
generally referred to as unrelated business
taxable income or "UBTI", unless its ownership
of our shares is debt financed by it.
The ownership or sale of our shares by a mutual
fund will generate qualifying income to it,
which generally includes interest, dividends
and gains from the sale of stock or securities.
Furthermore, the ownership of our shares by a
mutual fund will be treated as a qualifying
asset, which generally includes cash, certain
receivables, government securities and other
securities.
There will not be any withholding taxes imposed
on quarterly or other distributions of
additional shares to non U.S. persons or gain
from the sale of our shares by a non U.S.
person provided it owns fewer than 5% of our
shares and our shares are traded on a
nationally recognized securities exchange.
Income Tax Matters Associated
with i-units................ We will be subject to income taxes on our
taxable income; however, the i-units owned by
us generally will not be entitled to
allocations of income, gain, loss or deduction
of Kinder Morgan Energy Partners, L.P.
Therefore, we do not anticipate that we
generally will have material amounts of taxable
income resulting from our ownership of the
i-units. In the event that we do have taxable
income, Kinder Morgan, Inc. has agreed to
indemnify us for the related tax liability to
the extent that liability exceeds the cash we
receive relating to that income.
Distributions................. We will make distributions on our shares only
in additional shares except upon our
liquidation. The fraction of an additional
share distributed each quarter per share
outstanding will be calculated by dividing the
amount of the cash distribution declared by
Kinder Morgan Energy Partners, L.P. on each
common unit for that quarter by the average
market price of one of our shares as determined
for a ten-trading day period ending on the
trading day immediately prior to the
ex-dividend date for the shares.
Exchange Feature.............. At any time after the 45th day following the
closing of this offering, owners of our shares
may exchange some or all
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of their whole shares for common units of
Kinder Morgan Energy Partners, L.P. owned by
Kinder Morgan, Inc. and its subsidiaries on a
one for one basis. Upon exercise of this right
to exchange, Kinder Morgan, Inc. may elect to
deliver cash rather than common units. As of
the date of this prospectus, Kinder Morgan,
Inc. and its subsidiaries own 11,312,000 common
units and 2,656,700 Class B units which are
convertible into common units under some
circumstances.
Mandatory Purchase............ If any of the events listed below occurs,
Kinder Morgan, Inc. will be required to
purchase all of our then outstanding shares not
owned by it or its affiliates at a purchase
price equal to the higher of the average market
price of the shares and the common units as
determined for a ten-trading day period ending
on the trading day immediately prior to the
date of the applicable event. The events
include:
- aggregate distributions or other payments by
Kinder Morgan Energy Partners, L.P. on its
common units, including pursuant to an issuer
tender offer by Kinder Morgan Energy
Partners, L.P., during a 360-day period
exceeding 50% of the average market price of
a common unit for the ten trading days ending
on the trading day immediately prior to the
beginning of that 360-day period;
- an event resulting in Kinder Morgan, Inc. and
its affiliates ceasing to be the beneficial
owners of more than 50% of the total voting
power of all shares of capital stock of the
general partner of Kinder Morgan Energy
Partners, L.P., unless:
-- a new person or entity that becomes the
beneficial owner of more than 50% of that
total voting power is organized under the
laws of a state in the United States and
has long term unsecured debt with an
investment grade credit rating (as
determined by Moody's and Standard &
Poor's) immediately prior to the closing
of the transaction; and
-- that beneficial owner assumes all
obligations of Kinder Morgan, Inc. to us
and to the owners of our shares;
- Kinder Morgan Energy Partners, L.P. merges
with another entity where Kinder Morgan
Energy Partners, L.P. is not the surviving
entity, or sells substantially all of its
assets, unless in the transaction:
-- the owners of common units receive a
security that has in all material respects
the same rights and privileges as the
common units;
-- we receive a security that has in all
material respects the same rights and
privileges as the i-units;
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-- an owner of common units receives no
consideration other than securities of the
type described above and/or cash, and the
amount of cash received per common unit
does not exceed 33 1/3% of the average
market price of a common unit for the
ten-day trading period ending on the
trading day immediately prior to the date
of execution of the definitive agreement
for the transaction; and
-- no consideration is received by us, as the
owner of i-units, other than the
securities referred to above.
For purposes of the mandatory purchase
provisions, including the definitions of the
mandatory purchase events, and the optional
purchase provisions and the exchange
provisions, Kinder Morgan, Inc. will be deemed
to include Kinder Morgan, Inc., its successors
by merger, and any entity that succeeds to
Kinder Morgan, Inc.'s obligations under the
purchase provisions, the exchange provisions,
the registration rights agreement and the tax
indemnification agreement in connection with an
acquisition of all or substantially all of the
assets of Kinder Morgan, Inc.
Optional Purchase............. Kinder Morgan, Inc. has the right to purchase
all of our shares not owned by it or its
affiliates in two circumstances:
- when Kinder Morgan, Inc. and its affiliates
own 80% or more of our outstanding shares,
and
- when Kinder Morgan, Inc. and its affiliates
own a number of our shares and common units
which equals 80% or more of the sum of the
aggregate number of our outstanding shares
and the aggregate number of outstanding
common units. In this second case, however,
Kinder Morgan, Inc. has the right to purchase
both the shares and the common units not
owned by it or its affiliates, and cannot
purchase either the shares or the common
units alone.
In these two circumstances, the purchase price
per share is calculated differently. If the
first circumstance exists and Kinder Morgan,
Inc. elects to purchase the shares, the
purchase price per share will equal 110% of the
higher of:
- the average closing price for the shares for
the ten consecutive trading days ending five
days prior to the date the notice of the
purchase is mailed to the owners of our
shares; and
- the highest price Kinder Morgan, Inc. or its
affiliates paid for such shares during the 90
days prior to the giving of the notice,
excluding exchanges or cash settlements
pursuant to the exchange feature of the
shares.
If the second circumstance exists and Kinder
Morgan, Inc. elects to purchase both the shares
and the common units,
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the purchase price per share and the purchase
price per common unit will both equal the
higher of:
- the average closing price for the shares or
common units for the 20 consecutive trading
days ending five days prior to the date the
notice of the purchase is mailed to the
owners; and
- the highest price Kinder Morgan, Inc. or its
affiliates paid for such shares or common
units during the 90 days prior to the giving
of the notice, excluding exchanges or cash
settlements pursuant to the exchange feature
of the shares.
Voting Rights................. Kinder Morgan G.P., Inc. owns all of our shares
eligible to vote for the election of our
directors. Owners of the class of shares issued
in this offering may vote on the following
matters:
- on any matter submitted by Kinder Morgan
Energy Partners, L.P. for a vote of the
i-units as a class or as part of a vote of
all units, the i-units we own will be voted
proportionately to the number of affirmative
and negative votes cast and abstentions and
non-votes by the owners of our shares,
including the voting shares. In general the
i-units vote with the Kinder Morgan Energy
Partners, L.P. common units and Class B units
on all matters the common units and Class B
units vote on, and also, as a class, on
additional matters related to the i-units
alone, such as amendments to the Kinder
Morgan Energy Partners, L.P. partnership
agreement that would have a material adverse
effect on owners of the i-units in relation
to the owners of other then existing classes
of limited partner interests; and
- on amendments to our limited liability
company agreement, including the purchase or
exchange provisions, the Kinder Morgan Energy
Partners, L.P. registration rights agreement,
the Kinder Morgan, Inc. tax indemnification
agreement and the delegation of control
agreement, each as described below, but only
if any of these amendments would have a
material adverse effect on us or the owners
of our shares, except for limited amendments
or changes required by law or to accomodate
mergers, recapitalizations and similar
transactions.
Kinder Morgan, Inc. and its affiliates may not
vote any shares owned by them:
- on any matter involving a class vote of
i-units as well as some other matters
principally involving the general partner of
Kinder Morgan Energy Partners, L.P. where a
class vote is not required; and
- on any amendment of the agreements under the
circumstances described in the second bullet
point in the preceding paragraph.
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When Kinder Morgan, Inc. and its affiliates may
not vote as described above, the relevant
agreements provide that the approval of the
specified percentage of the shares not owned by
Kinder Morgan, Inc. and its affiliates is
required.
A person or group owning shares, common units
or both common units and shares which
constitute 20% or more of the aggregate number
of issued and outstanding common units and
shares cannot vote. This particular limitation,
however, does not apply to Kinder Morgan, Inc.
and its affiliates. However, as described
above, there are a number of circumstances in
which Kinder Morgan, Inc. and its affiliates
may not vote their shares.
Anti-dilution Adjustments..... Through the combined effect of the provisions
in the Kinder Morgan Energy Partners, L.P.
partnership agreement and the provisions of our
limited liability company agreement, the number
of our outstanding shares and the number of
outstanding i-units will always be equal.
Our Covenants................. Our limited liability company agreement
provides:
- that our activities will be limited to being
a limited partner in Kinder Morgan Energy
Partners, L.P. and managing and controlling
its business and affairs;
- that we may not issue other classes of
shares; and
- for the maintenance of a one-to-one
relationship between the number of i-units
owned by us and the number of our outstanding
shares.
Covenants of Kinder Morgan
Energy Partners, L.P........ Upon the closing of this offering, the Kinder
Morgan Energy Partners, L.P. partnership
agreement will be amended to provide that
Kinder Morgan Energy Partners, L.P. will not:
- except in liquidation, make a distribution on
an i-unit other than in additional i-units or
a security that has in all material respects
the same rights and privileges as the
i-units;
- make a distribution on a common unit or Class
B unit other than in cash, additional common
units or Class B units or a security that has
in all material respects the same rights and
privileges as the common units or Class B
units;
- allow an owner of common units or Class B
units to receive any consideration other than
cash, common units or a security that has in
all material respects the same rights and
privileges as the common units or Class B
units, or allow us as the owner of the
i-units to receive any consideration other
than i-units or a security that has in all
material respects the same rights and
privileges as the i-units, in a:
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-- merger in which Kinder Morgan Energy
Partners, L.P. is not the survivor, if the
unitholders of Kinder Morgan Energy
Partners, L.P. immediately prior to the
transaction own more than 50% of the
common equity securities of the survivor
immediately after the transaction;
-- merger in which Kinder Morgan Energy
Partners, L.P. is the survivor if the
unitholders of Kinder Morgan Energy
Partners, L.P. immediately prior to the
transaction own more than 50% of the
limited partner interests in Kinder Morgan
Energy Partners, L.P. immediately after
the transaction; or
-- recapitalization, reorganization or
similar transaction;
- be a party to a merger, sell substantially
all of its assets to another person, or enter
into similar transactions, if:
-- the survivor of the merger or the other
person is to be controlled by Kinder
Morgan, Inc. or its affiliates after the
transaction; and
-- the transaction would be a mandatory
purchase event;
- make a tender offer for common units unless
the consideration:
-- is exclusively cash; and
-- together with any cash payable in respect
of any tender offer by Kinder Morgan
Energy Partners, L.P. for the common units
concluded within the preceding 360 days
and the aggregate amount of any cash
distributions to all owners of common
units made within the preceding 360-day
period is less than 12% of the aggregate
average market value of all classes of
units of Kinder Morgan Energy Partners,
L.P. determined on the trading day
immediately preceding the commencement of
the tender offer;
or
- issue any of its i-units to any person other
than us.
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