PRER14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No. 1)

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

Kayne Anderson Acquisition Corp.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 2018

PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF THE 2018 ANNUAL MEETING OF

STOCKHOLDERS OF KAYNE ANDERSON ACQUISITION CORP.

Dear Stockholders of Kayne Anderson Acquisition Corp.:

You are cordially invited to attend the special meeting in lieu of the 2018 annual meeting (the “special meeting”) of stockholders of Kayne Anderson Acquisition Corp. (“KAAC,” “we,” “our” or “us”). At the special meeting, KAAC stockholders will be asked to consider and vote on proposals to:

 

  (1)

(a) approve and adopt the Contribution Agreement, dated as of August 8, 2018 (as the same may be amended, the “Contribution Agreement”), by and among KAAC, Altus Midstream LP, a Delaware limited partnership and our wholly owned subsidiary (“Altus Midstream”), Apache Midstream LLC, a Delaware limited liability company (the “Apache Contributor”), Alpine High Gathering LP, a Delaware limited partnership (“Alpine High Gathering”), Alpine High Pipeline LP, a Delaware limited partnership (“Alpine High Pipeline”), Alpine High Processing LP, a Delaware limited partnership (“Alpine High Processing”), Alpine High NGL Pipeline LP, a Delaware limited partnership (“Alpine High NGL”), and Alpine High Subsidiary GP LLC, a Delaware limited liability company (“Alpine High GP” and, together with Alpine High Gathering, Alpine High Pipeline, Alpine High Processing and Alpine High NGL, the “Alpine High Entities”), pursuant to which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor (i) 100% of the equity interests in each of the Alpine High Entities and (ii) options, currently held by the Apache Contributor, to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020, which include (A) an option to acquire up to a 15% equity interest in the Gulf Coast Express pipeline, (B) an option to acquire up to a 15% equity interest in the EPIC Crude pipeline, (C) an option to acquire a 50% equity interest in the Salt Creek NGL pipeline, and (D) an option to acquire up to a 33% equity interest in the Shin Oak pipeline (collectively, the “Options”), and (b) approve such acquisition and the other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”);

 

  (2)

approve and adopt amendments to KAAC’s amended and restated certificate of incorporation (the “Charter”) to create a new class of capital stock designated as Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock” and such proposal, the “Class C Charter Proposal”);

 

  (3)

approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), from 200,000,000 shares to 1,500,000,000 shares (the “Authorized Class A Share Charter Proposal”);

 

  (4)

approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s preferred stock, par value $0.0001 per share (the “Preferred Stock”), from 1,000,000 shares to 50,000,000 shares (the “Authorized Preferred Share Charter Proposal”);

 

  (5)

approve and adopt amendments to the Charter to declassify our board of directors upon the closing of the business combination (the “Board Declassification Proposal”);

 

  (6)

approve and adopt amendments to the Charter eliminating provisions in the Charter relating to our initial business combination that will no longer be applicable to us following the closing of the business combination (the “Additional Charter Proposal” and, together with the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal and the Board Declassification Proposal, the “Charter Proposals”);

 

  (7)

approve, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”): (a) the issuance of up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor in connection with the business combination; (b) the future issuance of up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its common units representing limited partner interests in Altus Midstream in accordance with Altus Midstream’s amended and


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  restated agreement of limited partnership; (c) the issuance of 3,182,140 warrants to the Apache Contributor in connection with the business combination and the future issuance of up to 3,182,140 shares of Class A Common Stock upon the exercise of such warrants; (d) the future issuance of up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and (e) the issuance and sale of 57,234,023 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors (including certain funds and client accounts advised by Kayne Anderson Capital Advisors, L.P., together with its affiliates (“Kayne Anderson”), and directors, management and employees of KAAC, Kayne Anderson and Apache Corporation) in a private placement (the “Private Placement”) (the “NASDAQ Proposal”);

 

  (8)

elect one director to serve as a Class I director on our board of directors for a term of three years expiring at the annual meeting of stockholders to be held in 2021 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal assuming the Board Declassification Proposal is not approved and our board of directors remains classified. Assuming the Board Declassification Proposal is approved and our board of directors is declassified, such nominee, if elected, will serve on our board of directors for a term expiring at the 2019 annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal”); and

 

  (9)

approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NASDAQ Proposal or the Director Election Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal, the “Transaction Proposals” and, together with the Director Election Proposal, the “Proposals”).

Each of the Proposals is more fully described in the accompanying proxy statement, which each KAAC stockholder is encouraged to review carefully.

We refer to (a) the business combination, (b) the completion of the Private Placement, (c) the conversion of the outstanding shares of KAAC’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock” and such outstanding shares, the “founder shares”), into shares of Class A Common Stock on a one-for-one basis in connection with the business combination, and (d) the redemption, if any, by KAAC of shares of Class A Common Stock held by any public stockholders (as defined below) in connection with the business combination, collectively, as the “Transactions.”

KAAC’s Class A Common Stock and warrants, which are exercisable for shares of Class A Common Stock under certain circumstances, are currently listed on the NASDAQ under the symbols “KAAC” and “KAACW,” respectively. Certain of our shares of Class A Common Stock and warrants currently trade as units consisting of one share of Class A Common Stock and one-third of one warrant, and are listed on the NASDAQ under the symbol “KAACU.” The units will automatically separate into the component securities upon the closing of the business combination and, as a result, will no longer trade as a separate security. Upon the closing of the business combination, we intend to change our name from “Kayne Anderson Acquisition Corp.” to “Altus Midstream Company,” and we have applied to continue the listing of our Class A Common Stock and warrants on the NASDAQ under the symbols “ALTM” and “ALTMW,” respectively.

Pursuant to our Charter, we are providing the holders of shares of Class A Common Stock originally sold as part of the units issued in our initial public offering, which closed on April 4, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem, upon the closing of the business combination, shares of Class A Common Stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing of the business combination) in the trust account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from the IPO and a concurrent private placement of warrants to Kayne Anderson Sponsor, LLC (our “Sponsor”). For


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illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million, the estimated per share redemption price would have been approximately $10.09. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. A public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from seeking redemption with respect to more than an aggregate of 15% of the outstanding shares of Class A Common Stock sold in the IPO without the prior consent of KAAC. Holders of KAAC’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A Common Stock under certain circumstances, do not have redemption rights in connection with the business combination. Our Sponsor, officers and directors have agreed to waive their redemption rights in connection with the closing of the business combination with respect to any shares of Class A Common Stock they may hold, and the founder shares will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, our Sponsor, officers and directors own approximately 20% of the combined outstanding shares of Class A Common Stock and Class B Common Stock, including all of the founder shares. Our Sponsor, officers and directors have agreed to vote any shares of Class A Common Stock and Class B Common Stock owned by them in favor of each of the Transaction Proposals.

KAAC is providing this proxy statement and accompanying proxy card to its stockholders in connection with the solicitation of proxies to be voted at the special meeting and any adjournments or postponements of the special meeting. Your vote is very important. Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay.

We encourage you to read this proxy statement carefully. In particular, you should review the matters discussed under the caption “Risk Factors” beginning on page 39 of this proxy statement.

KAAC’s board of directors recommends that KAAC stockholders vote FOR each of the Proposals. When you consider the recommendation of KAAC’s board of directors in favor of each of the Transaction Proposals, you should keep in mind that certain of KAAC’s directors and officers have interests in the business combination that may conflict with your interests as a stockholder. See the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Approval of the Business Combination Proposal, the NASDAQ Proposal and the Adjournment Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Approval of each of the Charter Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon at the special meeting, voting as a single class. The election of the director nominee pursuant to the Director Election Proposal requires the affirmative vote of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the special meeting, voting as a single class.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the Proposals presented at the special meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or over the Internet, or fail to instruct your bank, broker or other nominee how to vote, and do not attend the special meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have no effect on the Business Combination Proposal, the NASDAQ Proposal, the Director Election Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST each of the Charter Proposals. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST ELECT TO HAVE KAAC REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND


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TENDER YOUR SHARES TO KAAC’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

Thank you for your consideration of these matters.

Sincerely,

Robert S. Purgason

Chief Executive Officer

Kayne Anderson Acquisition Corp.

Whether or not you plan to attend the special meeting, please submit your proxy by completing, signing, dating and mailing the enclosed proxy card in the pre-addressed postage paid envelope or by using the telephone or Internet procedures provided to you by your broker or bank. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote in person, you must obtain a proxy from your broker or bank.

Neither the Securities and Exchange Commission nor any state securities commission has passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated                     , 2018 and is first being mailed to KAAC stockholders on or about                     , 2018.


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KAYNE ANDERSON ACQUISITION CORP.

811 Main Street, 14th Floor

Houston, Texas 77002

NOTICE OF SPECIAL MEETING IN LIEU OF 2018 ANNUAL MEETING OF STOCKHOLDERS

OF KAYNE ANDERSON ACQUISITION CORP.

To Be Held On                     , 2018

To the Stockholders of Kayne Anderson Acquisition Corp.:

NOTICE IS HEREBY GIVEN that the special meeting in lieu of the 2018 annual meeting (the “special meeting”) of stockholders of Kayne Anderson Acquisition Corp. (“KAAC,” “we,” “our” or “us”) will be held at                     a.m., local time, on                     , 2018, at                      for the following purposes:

 

  1.

The Business Combination Proposal—To consider and vote upon a proposal to (a) approve and adopt the Contribution Agreement, dated as of August 8, 2018 (as the same may be amended, the “Contribution Agreement”), by and among KAAC, Altus Midstream LP, a Delaware limited partnership and our wholly owned subsidiary (“Altus Midstream”), Apache Midstream LLC, a Delaware limited liability company (the “Apache Contributor”), Alpine High Gathering LP, a Delaware limited partnership (“Alpine High Gathering”), Alpine High Pipeline LP, a Delaware limited partnership (“Alpine High Pipeline”), Alpine High Processing LP, a Delaware limited partnership (“Alpine High Processing”), Alpine High NGL Pipeline LP, a Delaware limited partnership (“Alpine High NGL”), and Alpine High Subsidiary GP LLC, a Delaware limited liability company (“Alpine High GP” and, together with Alpine High Gathering, Alpine High Pipeline, Alpine High Processing and Alpine High NGL, the “Alpine High Entities”), pursuant to which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor (i) 100% of the equity interests in each of the Alpine High Entities and (ii) options, currently held by the Apache Contributor, to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020, which include (A) an option to acquire up to a 15% equity interest (as well as pursuant to a supplemental option, an additional 1% equity interest) in the Gulf Coast Express pipeline, (B) an option to acquire up to a 15% equity interest in the EPIC Crude pipeline, (C) an option to acquire a 50% equity interest in the Salt Creek NGL pipeline, and (D) an option to acquire up to a 33% equity interest in the Shin Oak pipeline, and (b) approve such acquisition and the other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”). A copy of the Contribution Agreement is attached to the accompanying proxy statement as Annex A.

 

  2.

The Class C Charter Proposal—To consider and act upon a proposal to approve and adopt amendments to KAAC’s amended and restated certificate of incorporation (the “Charter”) to create a new class of capital stock designated as Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock” and such proposal, the “Class C Charter Proposal”). A copy of our second amended and restated certificate of incorporation (the “Second A&R Charter”) reflecting the proposed amendments pursuant to the Class C Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  3.

The Authorized Class A Share Charter Proposal—To consider and act upon a proposal to approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), from 200,000,000 shares to 1,500,000,000 shares (the “Authorized Class A Share Charter Proposal”). A copy of the Second A&R Charter reflecting the proposed amendment pursuant to the Authorized Class A Share Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  4.

The Authorized Preferred Share Charter Proposal—To consider and act upon a proposal to approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s preferred stock, par value $0.0001 per share (the “Preferred Stock”), from 1,000,000 shares to 50,000,000 shares (the “Authorized Preferred Share Charter Proposal”). A copy of the Second A&R Charter reflecting the


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  proposed amendment pursuant to the Authorized Preferred Share Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  5.

The Board Declassification Proposal—To consider and act upon a proposal to approve and adopt amendments to the Charter to declassify our board of directors upon the closing of the business combination (the “Board Declassification Proposal”). A copy of the Second A&R Charter reflecting the proposed amendment pursuant to the Board Declassification Proposal is attached to the accompanying proxy statement as Annex B.

 

  6.

The Additional Charter Proposal—To consider and act upon a proposal to approve and adopt amendments to the Charter eliminating provisions in the Charter relating to our initial business combination that will no longer be applicable to us following the closing of the business combination (the “Additional Charter Proposal” and, together with the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal and the Board Declassification Proposal, the “Charter Proposals”). A copy of the Second A&R Charter reflecting the proposed amendments pursuant to the Additional Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  7.

The NASDAQ Proposal—To consider and vote upon a proposal to approve, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”): (a) the issuance of up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor in connection with the business combination; (b) the future issuance of up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its common units representing limited partner interests in Altus Midstream in accordance with Altus Midstream’s amended and restated agreement of limited partnership; (c) the issuance of 3,182,140 warrants to the Apache Contributor in connection with the business combination and the future issuance of up to 3,182,140 shares of Class A Common Stock upon the exercise of such warrants; (d) the future issuance of up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and (e) the issuance and sale of 57,234,023 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors (including certain funds and client accounts advised by Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson”) and directors, management and employees of KAAC, Kayne Anderson and Apache Corporation) in a private placement (the “Private Placement”) (the “NASDAQ Proposal”).

 

  8.

The Director Election Proposal—To consider and vote upon a proposal to elect one director to serve as a Class I director on our board of directors for a term of three years expiring at the annual meeting of stockholders to be held in 2021 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal assuming the Board Declassification Proposal is not approved and our board of directors remains classified. Assuming the Board Declassification Proposal is approved and our board of directors is declassified, such nominee, if elected, will serve on our board of directors for a term expiring at the 2019 annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal”).

 

  9.

The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NASDAQ Proposal or the Director Election Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals, and the NASDAQ Proposal, the “Transaction Proposals” and, together with the Director Election Proposal, the “Proposals”).

We refer to (a) the business combination, (b) the completion of the Private Placement, (c) the conversion of the outstanding shares of KAAC’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock” and such outstanding shares, the “founder shares”), into shares of Class A Common Stock on a


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one-for-one basis in connection with the business combination, and (d) the redemption, if any, by KAAC of shares of Class A Common Stock held by any public stockholders (as defined below) in connection with the business combination, collectively, as the “Transactions.”

Only holders of record of Class A Common Stock and Class B Common Stock at the close of business on                     , 2018 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements thereof. A complete list of KAAC’s stockholders of record entitled to vote at the special meeting will be available for ten days before the special meeting at KAAC’s principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

Pursuant to our Charter, we are providing the holders of shares of Class A Common Stock originally sold as part of the units issued in our initial public offering, which closed on April 4, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem, upon the closing of the business combination, shares of Class A Common Stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing of the business combination) in the trust account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from the IPO and a concurrent private placement of warrants to Kayne Anderson Sponsor, LLC (our “Sponsor”). For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million, the estimated per share redemption price would have been approximately $10.09. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. A public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from seeking redemption with respect to more than an aggregate of 15% of the outstanding shares of Class A Common Stock sold in the IPO without the prior consent of KAAC. Holders of KAAC’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A Common Stock under certain circumstances, do not have redemption rights in connection with the business combination. Our Sponsor, officers and directors have agreed to waive their redemption rights in connection with the closing of the business combination with respect to any shares of Class A Common Stock they may hold, and the founder shares will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, our Sponsor, officers and directors own approximately 20% of the combined outstanding shares of Class A Common Stock and Class B Common Stock, including all of the founder shares. Our Sponsor, officers and directors have agreed to vote any shares of Class A Common Stock and Class B Common Stock owned by them in favor of each of the Transaction Proposals.

The closing of the business combination is conditioned on the approval of the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal at the special meeting. The Charter Proposals are conditioned on the approval of the Business Combination Proposal and the NASDAQ Proposal. Neither the Director Election Proposal nor the Adjournment Proposal is conditioned on the approval of any other Proposal set forth in the accompanying proxy statement.

Your attention is directed to the proxy statement accompanying this notice (including the annexes thereto) for a more complete description of the proposed business combination and related Transactions and each of our Proposals. We encourage you to read this proxy statement carefully. If you have any questions or need assistance voting your shares, please call our proxy solicitor, Morrow Sodali LLC, at (800) 662-5200 (banks and brokers call collect at (203) 658-9400).

                    , 2018

By Order of the Board of Directors

Robert S. Purgason

Chief Executive Officer

Kayne Anderson Acquisition Corp.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be held on                     , 2018: This notice of meeting and the related proxy statement will be available at                     .


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR KAAC STOCKHOLDERS

     1  

SUMMARY OF THE PROXY STATEMENT

     16  

SELECTED HISTORICAL FINANCIAL INFORMATION OF KAAC

     34  

SELECTED HISTORICAL FINANCIAL INFORMATION OF ALPINE HIGH MIDSTREAM

     35  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     37  

RISK FACTORS

     39  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     76  

CAPITALIZATION

     88  

SPECIAL MEETING IN LIEU OF 2018 ANNUAL MEETING OF KAAC STOCKHOLDERS

     89  

PROPOSAL NO. 1—THE BUSINESS COMBINATION PROPOSAL

     94  

PROPOSAL NO. 2—THE CLASS C CHARTER PROPOSAL

     139  

PROPOSAL NO. 3—THE AUTHORIZED CLASS A SHARE CHARTER PROPOSAL

     140  

PROPOSAL NO. 4—THE AUTHORIZED PREFERRED SHARE CHARTER PROPOSAL

     141  

PROPOSAL NO. 5—THE BOARD DECLASSIFICATION PROPOSAL

     142  

PROPOSAL NO. 6—THE ADDITIONAL CHARTER PROPOSAL

     144  

PROPOSAL NO. 7—THE NASDAQ PROPOSAL

     145  

PROPOSAL NO. 8—THE DIRECTOR ELECTION PROPOSAL

     147  

PROPOSAL NO. 9—THE ADJOURNMENT PROPOSAL OVERVIEW

     148  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF KAAC

     149  

BUSINESS OF KAAC

     153  

OFFICERS AND DIRECTORS OF KAAC PRIOR TO CLOSING OF THE BUSINESS COMBINATION

     155  

EXECUTIVE COMPENSATION

     162  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALPINE HIGH MIDSTREAM

     163  

BUSINESS OF ALPINE HIGH MIDSTREAM

     176  

OFFICERS AND DIRECTORS OF KAAC FOLLOWING CLOSING OF THE BUSINESS COMBINATION

     193  

BENEFICIAL OWNERSHIP OF SECURITIES

     196  

HOUSEHOLDING INFORMATION

     198  

SUBMISSION OF STOCKHOLDER PROPOSALS

     198  

FUTURE STOCKHOLDER PROPOSALS

     199  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     199  

 

INDEX TO FINANCIAL STATEMENTS

     Fin-1  

ANNEX A: CONTRIBUTION AGREEMENT

     A-1  

ANNEX B: FORM OF SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF KAAC

     B-1  

ANNEX C: FORM OF STOCKHOLDERS AGREEMENT

     C-1  

ANNEX D: FORM OF WARRANT AGREEMENT

     D-1  

ANNEX E: FORM OF SUBSCRIPTION AGREEMENT

     E-1  

ANNEX F: FORM OF ALTUS MIDSTREAM LPA

     F-1  

 

i


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CERTAIN DEFINED TERMS

Unless the context otherwise requires, references in this proxy statement to:

 

   

“Additional Option” are to an option to acquire equity in either (i) the Permian Highway Pipeline Project or (ii) the next similar pipeline project if the Permian Highway Pipeline Project is not placed into service;

 

   

“Alpine High Entities” are to Alpine High Gathering, Alpine High Pipeline, Alpine High Processing, Alpine High NGL, and Alpine High GP, collectively;

 

   

“Alpine High Gathering” are to Alpine High Gathering LP, a Delaware limited partnership;

 

   

“Alpine High GP” are to Alpine High Subsidiary GP LLC, a Delaware limited liability company;

 

   

“Alpine High Midstream” are to Alpine High Gathering, Alpine High Pipeline, Alpine High Processing and Alpine High NGL, collectively;

 

   

“Alpine High NGL” are to Alpine High NGL Pipeline LP, a Delaware limited partnership;

 

   

“Alpine High Pipeline” are to Alpine High Pipeline LP, a Delaware limited partnership;

 

   

“Alpine High Processing” are to Alpine High Processing LP, a Delaware limited partnership;

 

   

“Alpine High resource play” are to Apache’s Alpine High acreage in the Southern Delaware Basin within the Permian Basin of West Texas;

 

   

“Altus Midstream” are to Altus Midstream LP, a Delaware limited partnership;

 

   

“Altus Midstream GP” are to Altus Midstream GP LLC, a Delaware limited liability company and the sole general partner of Altus Midstream;

 

   

“Apache” are to Apache Corporation, a Delaware corporation and parent company of the Apache Contributor;

 

   

“Apache Contributor” are to Apache Midstream LLC, a Delaware limited liability company;

 

   

“business combination” are to the transactions contemplated by the Contribution Agreement;

 

   

“Class A Common Stock” are to our Class A Common Stock, par value $0.0001 per share;

 

   

“Class B Common Stock” are to our Class B Common Stock, par value $0.0001 per share;

 

   

“Class C Common Stock” are to our Class C Common Stock, par value $0.0001 per share;

 

   

“Contribution Agreement” are to the Contribution Agreement, dated as of August 8, 2018, among KAAC, Altus Midstream, the Apache Contributor and the Alpine High Entities;

 

   

“Contribution Warrants” are to the 3,182,140 warrants that will be issued by KAAC, contributed to Altus Midstream, and distributed to the Apache Contributor at the closing of the business combination;

 

   

“Common Units” are to common units representing limited partner interests in Altus Midstream;

 

   

“EPIC Option” are to an option, exercisable until February 1, 2019, to acquire up to a 15% equity interest in the EPIC Crude pipeline;

 

   

“founder shares” are to shares of our Class B Common Stock initially purchased by our Sponsor in a private placement prior to our IPO;

 

   

“GCX Option” are to an option, exercisable until December 31, 2018, to acquire up to a 15% equity interest in the Gulf Coast Express pipeline;

 

   

“initial stockholders” are to holders of our founder shares prior to the IPO, including our Sponsor and our independent directors;

 

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“IPO” are to our initial public offering of units, which closed on April 4, 2017;

 

   

“KAAC,” “we,” “our” or “us” are to Kayne Anderson Acquisition Corp.;

 

   

“Kayne Anderson” are to Kayne Anderson Capital Advisors, L.P. and its affiliates, including our Sponsor, collectively;

 

   

“management” or our “management team” are to our offıcers and directors;

 

   

“Options” are to (a) the GCX Option, (b) the EPIC Option, (c) the Salt Creek Option, (d) the Shin Oak Option, and (e) the Supplemental GCX Option, which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor pursuant to the Contribution Agreement;

 

   

“Permian Highway Pipeline Project” are to a long-haul natural gas pipeline from the Permian Basin in Texas to the Texas Gulf Coast which recently announced it reached a “final investment decision” and is being developed by affiliates of Kinder Morgan, Inc.;

 

   

“PIPE Investors” are to the qualified institutional buyers and accredited investors, including certain funds and client accounts advised by Kayne Anderson and the directors, management and employees of KAAC, Kayne Anderson and Apache, that have agreed to purchase shares of Class A Common Stock in the Private Placement;

 

   

“Private Placement” are to the issuance and sale of up to 57,234,023 shares of Class A Common Stock to the PIPE Investors in a private placement that will close concurrently with the closing of the business combination;

 

   

“private placement warrants” are to the warrants issued to the Sponsor in a private placement simultaneously with the closing of our IPO;

 

   

“public shares” are to shares of our Class A Common Stock sold as part of the units in the IPO (whether they were purchased in the IPO or thereafter in the open market);

 

   

“public stockholders” are to the holders of our public shares;

 

   

“public warrants” are to the warrants sold as part of the units in the IPO;

 

   

“Salt Creek Option” are to an option, exercisable until January 31, 2020, to acquire a 50% equity interest in the Salt Creek NGL pipeline;

 

   

“Shin Oak Option” are to an option, exercisable until the 60th day following the in-service date of the Shin Oak pipeline, which is expected to be in the second quarter of 2019, to acquire up to a 33% equity interest in the Shin Oak pipeline;

 

   

“Sponsor” are to Kayne Anderson Sponsor, LLC, a Delaware limited liability company and an affiliate of Kayne Anderson;

 

   

“Supplemental GCX Option” are to an option, exercisable until September 6, 2019, to acquire up to an additional 1% equity interest in the Gulf Coast Express pipeline;

 

   

“Transactions” are to (a) the business combination, (b) the completion of the Private Placement, (c) the conversion of the founder shares into shares of Class A Common Stock on a one-for-one basis in connection with the business combination and (d) the redemption, if any, by KAAC of public shares held by any public stockholders in connection with the business combination;

 

   

“units” are to our units sold in the IPO, each of which consists of one share of Class A Common Stock and one-third of one public warrant;

 

   

“voting common stock” are to our Class A Common Stock and Class B Common Stock prior to the consummation of the Transactions, and to our Class A Common Stock and Class C Common Stock following the consummation of the Transactions; and

 

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“warrants” are to our warrants that will be outstanding upon the closing of the business combination, including the public warrants, private placement warrants and Contribution Warrants.

Unless otherwise specified, the voting and economic interests of KAAC stockholders set forth in this proxy statement assume that (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares (as defined below) are issued to the Apache Contributor and, therefore, our Sponsor forfeits only 1,862,606 shares of Class B Common Stock at the closing of the business combination; (iii) no earn-out consideration is delivered to the Apache Contributor; (iv) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchase shares of Class A Common Stock in the open market; (v) there are no other issuances of equity interests of KAAC; and (vi) the warrants remain outstanding immediately following the closing of the business combination.

 

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SUMMARY TERM SHEET

This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Proposals for KAAC Stockholders” and “Summary of the Proxy Statement,” summarizes certain information contained in this proxy statement, but does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the attached annexes, for a more complete understanding of the matters to be considered at the special meeting of KAAC stockholders.

 

   

Kayne Anderson Acquisition Corp., a Delaware corporation (“KAAC,” “we,” “our” or “us”), is a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (an “initial business combination”).

 

   

There are currently 47,165,140 shares of KAAC’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), and Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”), issued and outstanding, consisting of (a) 37,732,112 shares of Class A Common Stock originally sold as part of the units issued in KAAC’s initial public offering (the “IPO” and such shares, the “public shares”), consummated on April 4, 2017, and (b) 9,433,028 shares of Class B Common Stock that were originally issued to Kayne Anderson Sponsor, LLC (the “Sponsor”) prior to the IPO (the “founder shares”). In addition, there are currently 18,941,651 warrants of KAAC outstanding, consisting of (i) 12,577,370 warrants originally sold as part of the units in the IPO (the “public warrants”) and (ii) 6,364,281 warrants sold to our Sponsor in a private placement (the “private placement warrants” and, together with the public warrants, the “warrants”). Each whole warrant entitles the holder to purchase one whole share of Class A Common Stock for $11.50 per share. The warrants will become exercisable 30 days after the completion of an initial business combination. Additionally, the warrants will expire five years after the completion of an initial business combination or earlier upon redemption or liquidation. Once the warrants become exercisable, KAAC may redeem the outstanding warrants in whole and not in part, at a price of $0.01 per warrant, if the last sale price of our Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third trading day before KAAC sends the notice of redemption to the warrant holders. The private placement warrants and the warrants to be issued to the Apache Contributor, however, are non-redeemable so long as they are held by our Sponsor, the Apache Contributor or their permitted transferees. For more information about KAAC, see the sections entitled “Business of KAAC” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of KAAC.”

 

   

The Alpine High Entities were formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing, and operating midstream oil and gas assets in the Alpine High resource play. Alpine High Midstream primarily focuses on providing natural gas gathering, compression, processing, and transportation to producers of natural gas, NGLs, crude oil, and condensate in the Permian Basin. Alpine High Midstream owns, develops, and operates a midstream energy asset network in the Southern Delaware Basin of West Texas, anchored by midstream service contracts to service Apache’s production in the Alpine High resource play. For more information about Alpine High Midstream, see the sections entitled “Business of Alpine High Midstream” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alpine High Midstream.”

 

   

On August 8, 2018, we entered into that certain Contribution Agreement (as the same may be amended, the “Contribution Agreement”) with Altus Midstream LP, a Delaware limited partnership and our wholly owned subsidiary (“Altus Midstream”), the Apache Contributor and the Alpine High Entities, pursuant to which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor 100% of the equity interests in each of the Alpine High Entities and options, currently held by the Apache Contributor, to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020, which include (A) an option to acquire up to a 15% equity interest (as well as pursuant to a supplemental option, an additional 1% equity interest) in the Gulf

 

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Coast Express pipeline, (B) an option to acquire up to a 15% equity interest in the EPIC Crude pipeline, (C) an option to acquire a 50% equity interest in the Salt Creek NGL pipeline, and (D) an option to acquire up to a 33% equity interest in the Shin Oak pipeline (collectively, the “Options”), subject to the terms and conditions set forth therein (such acquisition, together with the other transactions contemplated by the Contribution Agreement, the “business combination”). In addition, pursuant to the Purchase Rights and Restrictive Covenant Agreement to be entered into between KAAC and Apache Corporation (“Apache”) at the closing of the business combination (the “Purchase Rights and Restrictive Covenant Agreement”), Apache will, among other things, assign to us an option to acquire equity in either (i) a long-haul natural gas pipeline from the Permian Basin in Texas to the Texas Gulf Coast which recently announced it reached a “final investment decision” and is being developed by affiliates of Kinder Morgan, Inc. (the “Permian Highway Pipeline Project”) or (ii) the next similar pipeline project if the Permian Highway Pipeline Project is not placed into service (the “Additional Option”).

In exchange for the equity interests in each of the Alpine High Entities and the Options, the Apache Contributor will receive the following consideration:

 

   

equity consideration, consisting of: (a) 250,000,000 common units representing limited partner interests in Altus Midstream (“Common Units”), (b) 1,862,606 newly-issued shares of Class A Common Stock and (c) a number of newly-issued shares of Class A Common Stock equal to the product of (i) the number of public shares of Class A Common Stock redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6% (provided that such number of shares of Class A Common Stock will not be less than 0 or greater than 5,450,422) (the number of shares referred to in this clause (c), the “Assigned Shares”), with such amounts of Class A Common Stock set forth in clauses (b) and (c) corresponding to certain forfeitures of founder shares by our Sponsor as described below;

 

   

because the closing of the business combination is expected to occur after September 30, 2018, cash consideration in an amount equal to the capital expenditures incurred by or on behalf of the Alpine High Entities from and including October 1, 2018 through and including the closing date of the business combination (the “Closing Date”);

 

   

3,182,140 Contribution Warrants exercisable for shares of Class A Common Stock, with such amount of warrants corresponding to certain forfeitures of private placement warrants by our Sponsor as described below; and

 

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the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock as follows:

 

Number of Shares of
Class A Common Stock  to be
Received

  

Condition to be Satisfied

12,500,000 shares

   if, during the calendar year 2021, the aggregate gathered gas from an area of dedication in Reeves, Pecos, Culberson and Jeff Davis Counties in Texas that is assessed a low pressure gathering fee pursuant to that certain Amended and Restated Gas Gathering Agreement, dated August 8, 2018, between Apache and Alpine High Gathering, LP (“Alpine High Gathering”) is equal to or greater than 574,380 million cubic feet

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $14.00 for any 20 trading days within such 30-trading-day period

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $16.00 for any 20 trading days within such 30-trading-day period

In addition to the above, at the closing of the business combination, we will contribute to Altus Midstream cash in an amount equal to the Available Funds (as defined below), in exchange for the issuance by Altus Midstream to KAAC of (a) a number of Common Units equal to the number of shares of Class A Common Stock outstanding following the consummation of the Transactions and (b) a number of warrants issued by Altus Midstream equal to the number of KAAC warrants outstanding following the consummation of the Transactions. “Available Funds” means (i) the amount of funds from the trust account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from our IPO and the concurrent issuance of private placement warrants to our Sponsor, plus (ii) the proceeds of the Private Placement (as defined below), minus (iii) the amount to be paid to our public stockholders who timely exercise and do not waive their right to have their public shares redeemed for cash at the closing of the business combination, minus (iv) certain amounts payable by us and our subsidiaries in respect of all out-of-pocket costs, fees and expenses incurred by or on our or our subsidiaries’ behalf, other than the financing fees described in clause (v) below (including deferred underwriting commissions payable by us to the underwriters in our IPO and all costs, fees and expenses related to pursuing a business combination), minus (v) approximately $3.8 million of fees related to the Private Placement and all out-of-pocket costs, fees, and expenses incurred by the Apache Contributor or its affiliates related to marketing the Transactions that will not otherwise be subject to the COMA (as defined below), plus any amounts payable by KAAC or any of its subsidiaries in respect of all out-of-pocket costs, fees, and expenses incurred by or on behalf of them related to obtaining a new credit facility prior to the Closing Date.

A copy of the Contribution Agreement is attached to this proxy statement as Annex A. For more information about the Contribution Agreement and the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal.”

 

   

We will issue an aggregate of 250,000,000 shares of our Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock”), to the Apache Contributor. We are establishing the Class C Common Stock to provide the Apache Contributor with a voting interest in KAAC (attributable only to those shares of Class C Common Stock and not to any shares of Class A Common Stock received by the Apache Contributor at the closing of the business combination) equal to the economic interest that the Apache Contributor will have in Altus Midstream as a result of the issuance of Common Units to

 

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the Apache Contributor at the closing of the business combination. Holders of Class C Common Stock, together with holders of Class A Common Stock voting as a single class, will have the right to vote on all matters properly submitted to a vote of the stockholders, but holders of Class C Common Stock will not be entitled to any dividends or liquidating distributions from KAAC. At any time following 180 days after the Closing Date, the Apache Contributor will have the right to cause Altus Midstream to redeem all or a portion of the Apache Contributor’s Common Units in exchange for shares of our Class A Common Stock or, at Altus Midstream’s option, an equivalent amount of cash; provided that we may, at our option, effect a direct exchange of cash or Class A Common Stock for such Common Units in lieu of such a redemption by Altus Midstream. Upon the future redemption or exchange of Common Units held by the Apache Contributor, a corresponding number of shares of Class C Common Stock held by the Apache Contributor will be cancelled. For more information about the Class C Common Stock, see the section entitled “Proposal No. 2—The Class C Charter Proposal—Description of Class C Common Stock.”

 

   

In connection with the execution of the Contribution Agreement, Apache entered into the following agreements with certain of the Alpine High Entities:

 

   

Gas Gathering Agreement. Apache and Alpine High Gathering have entered into a Gas Gathering Agreement (the “Gas Gathering Agreement”) with an effective date of July 1, 2018, which amended and restated a prior gas gathering agreement between Apache and Alpine High Gathering. Pursuant to the Gas Gathering Agreement, among other things, Apache dedicated to Alpine High Gathering all gas produced and saved from certain dedicated acreage, as described in the Gas Gathering Agreement. In return, Alpine High Gathering will receive, gather, and redeliver all of the dedicated natural gas at the low pressure receipt points on a first priority basis and receive, gather, and redeliver all of the dedicated gas and condensate at the high pressure receipt points on a first priority basis. The Gas Gathering Agreement is effective for a primary term beginning on the July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Gathering at least nine months’ prior written notice. After the primary term, the Gas Gathering Agreement will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High Gathering upon at least six months’ prior written notice. For more information about the Gas Gathering Agreement, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Gas Gathering Agreement.”

 

   

Gas Processing Agreement. Apache and Alpine High Processing have entered into a Gas Processing Agreement (the “Gas Processing Agreement”) with an effective date of July 1, 2018, which amended and restated a prior gas processing agreement between Apache and Alpine High Processing. Pursuant to the Gas Processing Agreement, among other things, Apache dedicated to Alpine High Processing for processing all gas produced from certain dedicated acreage, as described in the Gas Processing Agreement. In return, Alpine High Processing agreed, on a firm basis, to (i) receive Apache’s gas, (ii) receive Apache’s condensate, (iii) dehydrate, compress, and/or treat all of Apache’s non-processable gas at central conditioning facilities and purchase or redeliver such residue gas to Apache, (iv) dehydrate, compress, treat, and/or remove plant products from Apache’s processable gas via cryogenic processing facilities or mechanical refrigeration units, (v) purchase or redeliver to Apache all residue gas and plant products for volumes attributable to Apache’s processable gas, (vi) construct and place into operation at least three cryogenic processing facilities and deliver and process a minimum volume of gas at such facilities, and (vii) expand its facilities pursuant to requirements in the Gas Processing Agreement. The Gas Processing Agreement is effective for a primary term beginning on July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Processing at least nine months’ prior written notice. After the primary term, the Gas Processing Agreement will continue in effect from year to year until such

 

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time as the agreement is terminated by either Apache or Alpine High Processing upon at least six months’ prior written notice. For more information about the Gas Processing Agreement, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Gas Processing Agreement.”

 

   

NGL Transportation Services Agreement. Apache and Alpine High NGL have entered into an NGL Transportation Services Agreement (the “NGL TSA”) with an effective date of July 1, 2018, which amended and restated a prior NGL transportation services agreement between Apache and Alpine High NGL. Pursuant to the NGL TSA, among other things, Apache dedicated to Alpine High NGL all NGLs produced and saved from certain dedicated acreage, as described in the NGL TSA. In return, Alpine High NGL will receive, transport, and redeliver all of the dedicated NGLs at various destination points, as nominated by Apache, served by Alpine High NGL’s pipeline system on a priority shipper basis. The NGL TSA is effective for a primary term beginning on July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High NGL at least 12 months’ prior written notice. After the primary term, the NGL TSA will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High NGL upon at least eight months’ prior written notice. For more information about the NGL TSA, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—NGL Transportation Services Agreement.”

 

   

Residue Gas Transportation Services Agreements. Apache and Alpine High Pipeline have entered into residue gas Transportation Service Agreements and associated confirmations for intrastate and Section 311 service under the Natural Gas Policy Act of 1978 (“NGPA”), effective April 1, 2017, which incorporate by reference Alpine High Pipeline’s Statement of Operating Conditions (the Transportation Services Agreements, associated confirmations, and Statement of Operating Conditions (SOC), collectively and as amended, the “Residue Gas TSA”). Pursuant to the firm intrastate Residue Gas TSA, among other things, Apache dedicated to Alpine High Pipeline for transportation all gas produced from certain dedicated acreage located in the Alpine High resource play, as described in the Residue Gas TSA. In return, Alpine High Pipeline will provide to Apache both firm and fully interruptible intrastate transportation services and fully interruptible transportation services under Section 311 of the NGPA. The Residue Gas TSA is effective for a primary term beginning on April 1, 2017 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Pipeline at least 12 months’ prior written notice. After the second extension period, the Residue Gas TSA will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High Pipeline upon at least six months’ prior written notice. For more information regarding the Residue Gas TSA, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Residue Gas Transportation Services Agreements.”

 

   

In connection with the closing of the business combination, our Sponsor will forfeit to us: (a) 1,862,606 founder shares; (b) a number of founder shares equal to the number of Assigned Shares; and (c) 3,182,140 private placement warrants. In connection with our Sponsor’s forfeiture of founder shares and private placement warrants, we will issue to the Apache Contributor a corresponding number of shares of Class A Common Stock and warrants, respectively, as described above.

 

   

In connection with the closing of the business combination, we will also enter into, among others, the following agreements with the Apache Contributor and certain of its affiliates and Kayne Anderson:

 

   

Stockholders Agreement. At the closing of the business combination, we will enter into a Stockholders Agreement with the Apache Contributor and our Sponsor (the “Stockholders

 

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Agreement”) to set forth certain corporate governance rights of the Apache Contributor and our Sponsor. Under the Stockholders Agreement, our Sponsor will be entitled to nominate two directors to the board of directors of KAAC until the earlier of the time that our Sponsor and its affiliates own less than 1% of the outstanding voting common stock of KAAC or the second anniversary of the date of the Stockholders Agreement. Additionally, the Apache Contributor will be entitled to nominate a certain number of directors to our board of directors based on its and its affiliates ownership of our outstanding voting common stock as follows:

 

Ownership Threshold

   Number of Directors  

50% or more

     7  

40% or more but less than 50%

     6  

30% or more but less than 40%

     5  

20% or more but less than 30%

     4  

10% or more but less than 20%

     3  

5% or more but less than 10%

     2  

1% or more but less than 5%

     1  

For so long as our Sponsor is entitled to nominate directors as provided above and the Apache Contributor and its affiliates own 50% or more of our outstanding voting common stock, at least one of the directors nominated by the Apache Contributor will be an “independent director” in accordance with NASDAQ listing rules. Further, we have agreed to include at least one director nominated by the Apache Contributor on each committee of our board of directors, unless such inclusion would violate applicable securities laws or stock exchange or stock market rules.

The Stockholders Agreement will terminate automatically upon (i) the dissolution of KAAC, (ii) with respect to the Apache Contributor, the time when the Apache Contributor and its affiliates cease to own at least 1% of our outstanding voting common stock, and (iii) with respect to our Sponsor, upon the earlier of (A) the time when our Sponsor and its affiliates cease to own at least 1% of our outstanding voting common stock and (B) the second anniversary of the date of the Stockholders Agreement. For more information about Stockholders Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholders Agreement.”

 

   

Construction, Operations and Maintenance Agreement. We will enter into a construction, operations and maintenance agreement with Apache (the “COMA”), pursuant to which Apache will provide certain services related to the design, development, construction, operation, management and maintenance of certain gathering, processing and other midstream assets on behalf of KAAC. For more information about the COMA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Construction, Operations and Maintenance Agreement.”

 

   

Purchase Rights and Restrictive Covenant Agreement. We will enter into the Purchase Rights and Restrictive Covenants Agreement with Apache. Under the Purchase Rights and Restrictive Covenants Agreement, until the later of the five-year anniversary of the closing of the business combination and the date on which Apache and its affiliates cease to own a majority of our voting common stock, Apache is obligated to provide us with (i) the first right to pursue any opportunity of Apache to acquire or invest in any midstream assets or participate in any midstream opportunities located, in whole or part, within an area covering approximately 1.7 million acres in Reeves, Pecos, Brewster, Culberson and Jeff Davis Counties in Texas, and (ii) a right of first offer on certain retained midstream assets of Apache located in the Alpine High resource play. Apache will also assign to us the Additional Option. For more information about the Purchase Rights and Restrictive Covenant Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Purchase Rights and Restrictive Covenant Agreement.”

 

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Option Letter. On August 8, 2018, we entered into a letter agreement with Apache and the Apache Contributor with respect to the GCX Option, the Shin Oak Option, and the EPIC Option (the “Option Letter”). Pursuant to the Option Letter, the Apache Contributor is required to comply in all material respects with the terms and conditions of the agreements governing such Options and use commercially reasonable efforts to preserve the ability of KAAC or our designated subsidiaries to exercise such Options from and after closing of the business combination. The Option Letter also imposes certain obligations on Apache with respect to certain commercial agreements associated with such Options. If, as a result of a breach of the obligations of the Apache Contributor or Apache, as applicable, under the Option Letter, we are not able to exercise one or more of the GCX Option, the Shin Oak Option, or the EPIC Option, certain of the Common Units (together with a corresponding number of shares of Class C Common Stock) received by the Apache Contributor at the closing of the business combination will be subject to forfeiture. The maximum number of Common Units (and associated shares of Class C Common Stock) subject to forfeiture pursuant to the Option Letter is 40,000,000. For more information about the Option Letter, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Option Letter.”

 

   

Other Agreements. For more information about other agreements to be entered into by KAAC and its affiliates at the closing of the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements.”

 

   

Unless waived by the parties to the Contribution Agreement, the closing of the business combination is subject to a number of conditions set forth in the Contribution Agreement, including, among others, receipt of the requisite KAAC stockholder approval of the Contribution Agreement and the business combination as contemplated by this proxy statement. For more information about the closing conditions to the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

 

   

The Contribution Agreement may be terminated at any time prior to the closing of the business combination upon agreement of the parties thereto, or by KAAC or the Apache Contributor, acting alone, in specified circumstances. For more information about the termination rights under the Contribution Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Termination.”

 

   

The proposed Transactions involve numerous risks. For more information about these risks, please read “Risk Factors.”

 

   

Under our amended and restated certificate of incorporation (the “Charter”), in connection with the business combination, holders of our public shares may elect to have their public shares redeemed for cash at the applicable redemption price per share calculated in accordance with our Charter. As of June 30, 2018, this would have amounted to approximately $10.09 per share (based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million). If a holder exercises its redemption rights, then such holder will be exchanging its public shares for cash, will no longer own shares of KAAC following the business combination and will not have the right to participate in or have any interest in any future growth of KAAC following the business combination. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its public shares (either physically or electronically) to our transfer agent at least two business days prior to the special meeting. See the section entitled “Special Meeting in Lieu of 2018 Annual Meeting of KAAC Stockholders—Redemption Rights.”

 

   

In connection with the business combination, we have obtained commitments for the purchase of 57,234,023 newly issued shares of Class A Common Stock by certain qualified institutional buyers and accredited investors, including certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache (collectively, the “PIPE Investors”) in a private placement (the “Private Placement”). We expect to receive approximately

 

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$568.5 million in net proceeds from the Private Placement, which will be used to fund our future capital expenditures following the business combination.

 

   

Our Charter includes a conversion adjustment, which provides that the founder shares will automatically convert at the time of the closing of the business combination into a number of shares of Class A Common Stock such that the holders of the founder shares will continue to own, in the aggregate, 20% of our issued and outstanding shares of common stock after giving effect to any issuances of equity securities in connection with the business combination. However, this conversion adjustment has been waived, and the holders of our founder shares will instead receive upon conversion one share of Class A Common Stock for each founder share converted as of the closing of the business combination. As discussed above, in connection with the closing of the business combination, our Sponsor will forfeit to us 1,862,606 founder shares and a number of founder shares equal to the number of Assigned Shares, and these forfeited founder shares will not be converted into shares of Class A Common Stock.

 

   

It is anticipated that, upon completion of the Transactions, our ownership will be as follows:

 


Holder

   Number of Shares of
Class A Common Stock
     Number of Shares of
Class C Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     37,732,112        —          10.6     36.1

PIPE Investors(1)

     57,234,023        —          16.2     54.8

Holders of founder shares(2)

     7,570,422        —          2.1     7.3

Apache Contributor(3)

     1,862,606        250,000,000        71.1     1.8

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The number of shares and the economic and voting interests set forth above assume that (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) no earn-out consideration is delivered to the Apache Contributor; (iv) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchase shares of Class A Common Stock in the open market; (v) there are no other issuances of equity interests of KAAC; and (vi) the warrants remain outstanding immediately following the closing of the business combination. As a result of the Transactions, the voting interest of our public stockholders will decrease from 80.0% to 10.6%, and the Apache Contributor will hold a majority of the combined voting power of all classes of our outstanding voting common stock. In addition, if public stockholders elect to have their public shares redeemed in connection with the business combination, the Apache Contributor will be entitled to receive additional shares of Class A Common Stock equal to the product of (i) the number of public shares redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6%, subject to a maximum cap of 5,450,422 shares of Class A Common Stock. In such an event, our Sponsor will forfeit a number of founder shares equal to the number of shares of Class A Common Stock issued to the Apache Contributor, and the economic and voting interests of the holders of our founder shares, as a group, will decrease, and the economic and voting interests of the Apache Contributor will increase, accordingly.

 

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The ownership percentages with respect to KAAC set forth above do not take into account any earn-out consideration delivered to the Apache Contributor. Assuming that the earn-out consideration were payable at the closing of the business combination, and based on the other assumptions set forth above, the ownership of our voting and economic interests would be as follows:

 

     Earn-Out Consideration Payable  
     12,500,000 Shares     25,000,000 Shares     37,500,000 Shares  

Holder

   Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     10.3     32.3     9.9     29.2     9.6     26.6

PIPE Investors(1)

     15.6     49.0     15.1     44.2     14.6     40.3

Holders of founder shares(2)

     2.1     6.5     2.0     5.8     1.9     5.3

Apache Contributor(3)

     72.1     12.3     73.0     20.8     73.8     27.8

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The ownership percentages with respect to KAAC set forth above do not take into account warrants to purchase Class A Common Stock that will remain outstanding immediately following the business combination, but do include the founder shares (even though they and the shares of Class A Common Stock into which they will convert upon the closing of the business combination are subject to transfer restrictions) due to the continued voting rights associated with the founder shares. Our warrants will become exercisable 30 days after the closing of the business combination and will expire five years after the closing of the business combination or earlier upon their redemption or liquidation. If we assume that all 18,941,651 warrants to be outstanding at the closing of the business combination were exercisable and exercised following the closing of the business combination for aggregate proceeds to KAAC of approximately $217.8 million, then our ownership would be as follows:

 

Holder

   Number of Shares of
Class A Common Stock
     Number of Shares of
Class C Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     50,309,482        —          13.5     40.8

PIPE Investors(1)

     57,234,023        —          15.3     46.4

Holders of founder shares(2)

     10,752,563        —          2.9     8.7

Apache Contributor(3)

     5,044,746        250,000,000        68.3     4.1

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

Please see the section entitled “Summary of the Proxy Statement—Impact of the Business Combination on KAAC’s Public Float” and “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

 

   

Our board of directors considered various factors in determining whether to approve the Contribution Agreement and the business combination. For more information about our decision-making process, see the section entitled “Proposal No. 1—The Business Combination Proposal—KAAC’s Board of Directors’ Reasons for the Approval of the Business Combination.”

 

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In addition to voting on the proposal to approve and adopt the Contribution Agreement and the business combination (the “Business Combination Proposal”) at the special meeting, KAAC’s stockholders will also be asked to vote on:

 

   

amendments to our Charter to create the Class C Common Stock (the “Class C Charter Proposal”);

 

   

an amendment to our Charter to increase the number of authorized shares of Class A Common Stock from 200,000,000 shares to 1,500,000,000 shares (the “Authorized Class A Share Charter Proposal”);

 

   

an amendment to our Charter to increase the number of authorized shares of KAAC’s preferred stock, par value $0.0001 per share (the “Preferred Stock”), from 1,000,000 shares to 50,000,000 shares (the “Authorized Preferred Share Charter Proposal”);

 

   

amendments to our Charter to declassify our board of directors upon the closing of the business combination (the “Board Declassification Proposal”);

 

   

amendments to our Charter eliminating provisions in the Charter relating to an initial business combination that will no longer be applicable to us following the closing of the business combination (the “Additional Charter Proposal” and, together with the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal and the Board Declassification Proposal, the “Charter Proposals”);

 

   

a proposal, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (the “NASDAQ Proposal”), to approve:

 

   

the issuance of up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor in connection with the business combination;

 

   

the future issuance of up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its Common Units in accordance with Altus Midstream’s amended and restated agreement of limited partnership;

 

   

the issuance of 3,182,140 Contribution Warrants to the Apache Contributor in connection with the business combination and the future issuance of up to 3,182,140 shares of Class A Common Stock upon the exercise of such Contribution Warrants;

 

   

the future issuance of up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and

 

   

the issuance and sale of 57,234,023 shares of Class A Common Stock in the Private Placement;

 

   

the election of one director to serve as a Class I director on our board of directors for a term of three years expiring at the annual meeting of stockholders to be held in 2021 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (assuming the Board Declassification Proposal is not approved and our board of directors remains classified) or for a term expiring at the 2019 annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (assuming the Board Declassification Proposal is approved and our board of directors is declassified) (the “Director Election Proposal”); and

 

   

a proposal to adjourn the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of any of the proposals presented at the special meeting (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals, and the NASDAQ Proposal, the “ Transaction Proposals” and, together with the Director Election Proposal, the “Proposals”).

 

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For more information, see the sections entitled “Proposal No. 2—The Class C Charter Proposal,” “Proposal No. 3—The Authorized Class A Share Charter Proposal,” “Proposal No. 4—The Authorized Preferred Share Charter Proposal,” “Proposal No. 5—The Board Declassification Proposal,” “Proposal No. 6—The Additional Charter Proposal,” “Proposal No. 7—The NASDAQ Proposal,” “Proposal No. 8—The Director Election Proposal” and “Proposal No. 9—The Adjournment Proposal.”

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

FOR KAAC STOCKHOLDERS

The following questions and answers briefly address some commonly asked questions about the Proposals to be presented at the special meeting in lieu of the 2018 annual meeting (the “special meeting”) of stockholders of Kayne Anderson Acquisition Corp. (“KAAC,” “we,” “our” or “us”), including the proposed business combination. The following questions and answers do not include all the information that is important to KAAC stockholders. We urge KAAC stockholders to read carefully this entire proxy statement, including the annexes and other documents referred to herein.

 

Q:

Why am I receiving this proxy statement?

 

A:

KAAC stockholders are being asked to consider and vote upon, among other things, a proposal to (a) approve and adopt the Contribution Agreement, dated as of August 8, 2018 (as the same may be amended, the “Contribution Agreement”), by and among KAAC, Altus Midstream LP, a Delaware limited partnership and our wholly owned subsidiary (“Altus Midstream”), Apache Midstream LLC, a Delaware limited liability company (the “Apache Contributor”), Alpine High Gathering LP, a Delaware limited partnership (“Alpine High Gathering”), Alpine High Pipeline LP, a Delaware limited partnership (“Alpine High Pipeline”), Alpine High Processing LP, a Delaware limited partnership (“Alpine High Processing”), Alpine High NGL Pipeline LP, a Delaware limited partnership (“Alpine High NGL”), and Alpine High Subsidiary GP LLC, a Delaware limited liability company (“Alpine High GP” and, together with Alpine High Gathering, Alpine High Pipeline, Alpine High Processing and Alpine High NGL, the “Alpine High Entities”), pursuant to which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor (i) 100% of the equity interests in each of the Alpine High Entities and (ii) options, currently held by the Apache Contributor, to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020, which include (A) an option to acquire up to a 15% equity interest (as well as pursuant to a supplemental option, an additional 1% equity interest) in the Gulf Coast Express pipeline, (B) an option to acquire up to a 15% equity interest in the EPIC Crude pipeline, (C) an option to acquire a 50% equity interest in the Salt Creek NGL pipeline, and (D) an option to acquire up to a 33% equity interest in the Shin Oak pipeline (collectively, the “Options”) and (b) approve such acquisition and the other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”).

A copy of the Contribution Agreement is attached to this proxy statement as Annex A. This proxy statement and its annexes contain important information about the proposed business combination and the other matters to be acted upon at the special meeting. You should read this proxy statement and its annexes carefully and in their entirety.

Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.

 

Q:

What is being voted on at the special meeting?

 

A:

Below are the Proposals on which KAAC stockholders will vote at the special meeting.

 

  1.

The Business Combination Proposal—To approve and adopt the Contribution Agreement and approve the business combination.

 

  2.

The Class C Charter Proposal—To approve and adopt amendments to KAAC’s amended and restated certificate of incorporation (the “Charter”) to create a new class of capital stock designated as Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock” and such proposal, the “Charter Proposal”). A copy of our second amended and restated certificate of incorporation (the “Second A&R Charter”) reflecting the proposed amendments pursuant to the Class C Charter Proposal is attached to this proxy statement as Annex B.

 

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  3.

The Authorized Class A Share Charter Proposal—To approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), from 200,000,000 shares to 1,500,000,000 shares (the “Authorized Class A Share Charter Proposal”). A copy of the Second A&R Charter reflecting the proposed amendment pursuant to the Authorized Class A Share Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  4.

The Authorized Preferred Share Charter Proposal—To approve and adopt an amendment to the Charter to increase the number of authorized shares of KAAC’s preferred stock, par value $0.0001 per share (the “Preferred Stock”), from 1,000,000 shares to 50,000,000 shares (the “Authorized Preferred Share Charter Proposal”). A copy of the Second A&R Charter reflecting the proposed amendment pursuant to the Authorized Preferred Share Charter Proposal is attached to the accompanying proxy statement as Annex B.

 

  5.

The Board Declassification Proposal—To approve and adopt amendments to the Charter to declassify our board of directors upon the closing of the business combination (the “Board Declassification Proposal”). A copy of the Second A&R Charter reflecting the proposed amendment pursuant to the Board Declassification Proposal is attached to the accompanying proxy statement as Annex B.

 

  6.

The Additional Charter Proposal—To approve and adopt amendments to the Charter eliminating provisions in the Charter relating to our initial business combination that will no longer be applicable to us following the closing of the business combination (the “Additional Charter Proposal” and, together with the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal and the Board Declassification Proposal, the “Charter Proposals”). A copy of the Second A&R Charter reflecting the proposed amendments pursuant to the Additional Charter Proposal is attached to this proxy statement as Annex B.

 

  7.

The NASDAQ Proposal—To approve, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”): (a) the issuance of up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor in connection with the business combination; (b) the future issuance of up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its common units representing limited partner interests in Altus Midstream (“Common Units”) in accordance with Altus Midstream’s amended and restated agreement of limited partnership; (c) the issuance of 3,182,140 Contribution Warrants to the Apache Contributor in connection with the business combination and the future issuance of up to 3,182,140 shares of Class A Common Stock upon the exercise of such Contribution Warrants; (d) the future issuance of up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and (e) the issuance and sale of 57,234,023 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors (including certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache) in a private placement (the “Private Placement”) (the “NASDAQ Proposal”).

 

  8.

The Director Election Proposal—To elect one director to serve as a Class I director on our board of directors for a term of three years expiring at the annual meeting of stockholders to be held in 2021 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal assuming the Board Declassification Proposal is not approved and our board of directors remains classified. Assuming the Board Declassification Proposal is approved and our board of directors is declassified, such nominee, if elected, will serve on our board of directors for a term expiring at the 2019 annual meeting of stockholders or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal”).

 

  9.

The Adjournment Proposal—To approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that

 

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  there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NASDAQ Proposal or the Director Election Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal, the “Transaction Proposals” and, together with the Director Election Proposal, the “Proposals”).

 

Q:

Are the Proposals conditioned on one another?

 

A:

The closing of the business combination is conditioned on the approval of the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal at the special meeting. Neither the Director Election Proposal nor the Adjournment Proposal is conditioned on the approval of any other proposal set forth in this proxy statement.

 

Q:

Why is KAAC providing stockholders with the opportunity to vote on the business combination?

 

A:

Under our Charter, we must provide all holders of shares of Class A Common Stock and Class B Common Stock originally sold as part of the units issued in our initial public offering, which closed on April 4, 2017 (the “IPO” and such shares and holders, the “public shares” and “public stockholders,” respectively) with the opportunity to redeem their public shares upon the consummation of an initial business combination (as defined below) either in conjunction with a tender offer or in conjunction with a stockholder vote. For business and other reasons, we have elected to provide our stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote rather than a tender offer. Therefore, we are seeking to obtain the approval of our stockholders of the Business Combination Proposal in order to allow our public stockholders to effectuate redemptions of their public shares in connection with the closing of the business combination. The approval of our stockholders of the Business Combination Proposal is also a condition to closing in the Contribution Agreement.

 

Q:

What will happen in the business combination?

 

A:

On August 8, 2018, KAAC, Altus Midstream, the Apache Contributor and the Alpine High Entities entered into the Contribution Agreement, pursuant to which, among other things, Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor 100% of the equity interests in each of the Alpine High Entities and Options, subject to the terms and conditions set forth therein. Under the terms of the Contribution Agreement, in exchange for the equity interests in each of the Alpine High Entities and the Options, the Apache Contributor will receive the following consideration:

 

   

equity consideration, consisting of: (a) 250,000,000 Common Units, (b) 1,862,606 newly-issued shares of Class A Common Stock and (c) a number of newly-issued shares of Class A Common Stock equal to the product of (i) the number of public shares of Class A Common Stock redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6% (provided that such number of shares of Class A Common Stock will not be less than 0 or greater than 5,450,422) (the number of shares referred to in this clause (c), the “Assigned Shares”), with such amounts of Class A Common Stock set forth in clauses (b) and (c) corresponding to certain forfeitures of founder shares by our Sponsor;

 

   

because the closing of the business combination is expected to occur after September 30, 2018, cash consideration in an amount equal to the capital expenditures incurred by or on behalf of the Alpine High Entities from and including October 1, 2018 through and including the closing date of the business combination (the “Closing Date”);

 

   

3,182,140 Contribution Warrants exercisable for shares of Class A Common Stock, with such amount of warrants corresponding to certain forfeitures of private placement warrants by our Sponsor; and

 

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the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock as follows:

 

Number of Shares of

Class A Common Stock to be
Received

  

Condition to be Satisfied

12,500,000 shares

   if, during the calendar year 2021, the aggregate gathered gas from an area of dedication in Reeves, Pecos, Culberson and Jeff Davis Counties, Texas that is assessed a low pressure gathering fee pursuant to the Gas Gathering Agreement (as defined below), dated August 8, 2018, between Apache and Alpine High Gathering is equal to or greater than 574,380 million cubic feet

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $14.00 for any 20 trading days within such 30-trading-day period

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $16.00 for any 20 trading days within such 30-trading-day period

In addition to the above, at the closing of the business combination, we will contribute to Altus Midstream cash in an amount equal to the Available Funds (as defined below), in exchange for the issuance by Altus Midstream to KAAC of (a) a number of Common Units equal to the number of shares of Class A Common Stock outstanding following the consummation of the Transactions and (b) a number of warrants issued by Altus Midstream (“Altus Midstream Warrants”) equal to the number of KAAC warrants outstanding following the consummation of the Transactions. “Available Funds” means (i) the amount of funds from the trust account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from our IPO and the concurrent issuance of private placement warrants to our Sponsor, plus (ii) the proceeds of the Private Placement, minus (iii) the amount to be paid to our public stockholders who timely exercise and do not waive their right to have their public shares redeemed for cash at the closing of the business combination, minus (iv) certain amounts payable by us and our subsidiaries in respect of all out-of-pocket costs, fees and expenses incurred by or on our or our subsidiaries’ behalf, other than the financing fees described in clause (v) below (including deferred underwriting commissions payable by us to the underwriters in our IPO and all costs, fees and expenses related to pursuing a business combination), minus (v) approximately $3.8 million of fees related to the Private Placement and all out-of-pocket costs, fees, and expenses incurred by the Apache Contributor or its affiliates related to marketing the Transactions that will not otherwise be subject to the construction, operations and maintenance agreement to be entered into with Apache at the closing of the business combination, plus any amounts payable by KAAC or any of its subsidiaries in respect of all out-of-pocket costs, fees, and expenses incurred by or on behalf of them related to obtaining a new credit facility prior to the Closing Date.

A copy of the Contribution Agreement is attached to this proxy statement as Annex A. For more information about the Contribution Agreement and the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal.”

 

Q:

What is the relationship between KAAC, Kayne Anderson and the PIPE Investors?

 

A:

Our Sponsor is an affiliate of Kayne Anderson and the holder of a substantial majority of our founder shares and all of the private placement warrants. KAAC was organized by our Sponsor with the intention to capitalize on the Kayne Anderson platform to identify, acquire and operate a business in the energy industry. The PIPE Investors consist of (i) funds and client accounts advised by Kayne Anderson, (ii) funds

 

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  and client accounts advised by investment advisors unaffiliated with KAAC or Kayne Anderson and (iii) certain directors, management and employees of KAAC, Kayne Anderson and Apache.

Kayne SPAC Investment, LLC, an entity in which certain directors, management and employees of KAAC and Kayne Anderson hold an interest, agreed to purchase 1,823,750 shares of Class A Common Stock in the Private Placement. Kevin S. McCarthy and Robert V. Sinnott, who are current directors of KAAC, Robert S. Purgason, our current Chief Executive Officer, and Terry A. Hart, our current Chief Financial Officer, hold an interest in Kayne SPAC Investment LLC. Altus SPAC Investment, LLC, an entity in which certain directors, management and employees of Apache hold an interest, agreed to purchase 1,017,500 shares of Class A Common Stock in the Private Placement. Brian W. Freed, who will be our Chief Executive Officer following the business combination, and Ben C. Rodgers, who will be our Chief Financial Officer following the business combination, hold an interest in Altus SPAC Investment, LLC.

 

Q:

What conditions must be satisfied to complete the business combination?

 

A:

There are a number of closing conditions in the Contribution Agreement, including the approval by our stockholders of the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal. For a summary of the conditions that must be satisfied or waived prior to closing of the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

 

Q:

How will KAAC and Altus Midstream be managed and governed following the business combination?

 

A:

We are, and after the closing of the business combination will continue to be, managed by our board of directors. Following the closing of the business combination, we anticipate expanding the size of our board of directors from five directors to 11, and                 individuals currently serving on our board of directors, will resign from our board of directors following the closing of the business combination. As a result, we will appoint                new directors, including our current Chief Executive Officer, Robert S. Purgason, six non-independent directors selected by the Apache Contributor, two independent directors selected by Kayne Anderson and one independent director selected by the Apache Contributor, effective as of and contingent upon closing of the business combination. Please see the sections entitled “Officers and Directors of KAAC Prior to the Closing of the Business Combination” and “Officers and Directors of KAAC Following Closing of the Business Combination.”

Following the closing of the business combination, we will act as the general partner of Altus Midstream, and as such, will manage and govern Altus Midstream’s business. Upon the closing of the business combination, we expect that Robert S. Purgason and Terry A. Hart will resign as our Chief Executive Officer and Chief Financial Officer, respectively, and that our management team will include Brian W. Freed, as Chief Executive Officer, and Ben C. Rodgers, as Chief Financial Officer, both of whom are currently members of Apache’s senior management team.

 

Q:

Will the Apache Contributor receive any cash consideration?

 

A:

Because the closing of the business combination is expected to occur following September 30, 2018, we will pay to the Apache Contributor cash consideration in an amount equal to the capital expenditures incurred by or on behalf of the Alpine High Entities from and including October 1, 2018 through and including the Closing Date.

 

Q:

Will KAAC obtain new financing in connection with the business combination?

 

A:

In connection with the business combination, we have obtained commitments for the purchase of 57,234,023 newly issued shares of Class A Common Stock by the PIPE Investors in the Private Placement.

 

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  We expect to receive approximately $568.5 million in net proceeds from the Private Placement, which will be used to fund our future capital expenditures following the business combination.

In addition, at the closing of the business combination, we expect to enter into a revolving credit agreement with customary terms, including affirmative and negative covenants and events of default.

 

Q:

What equity stake will current KAAC stockholders, the PIPE Investors, the holders of our founder shares and the Apache Contributor hold in KAAC following the consummation of the Transactions?

 

A:

It is anticipated that, upon completion of the Transactions, our ownership will be as follows:

 

Holder

   Number of Shares of
Class A Common Stock
     Number of Shares of
Class C Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     37,732,112        —          10.6     36.1

PIPE Investors(1)

     57,234,023        —          16.2     54.8

Holders of founder shares(2)

     7,570,422        —          2.1     7.3

Apache Contributor(3)

     1,862,606        250,000,000        71.1     1.8

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The number of shares and the economic and voting interests set forth above assume that (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) no earn-out consideration is delivered to the Apache Contributor; (iv) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchase shares of Class A Common Stock in the open market; (v) there are no other issuances of equity interests of KAAC; and (vi) the warrants remain outstanding immediately following the closing of the business combination. As a result of the Transactions, the voting interest of our public stockholders will decrease from 80.0% to 10.6%, and the Apache Contributor will hold a majority of the combined voting power of all classes of our outstanding voting common stock. In addition, if public stockholders elect to have their public shares redeemed in connection with the business combination, the Apache Contributor will be entitled to receive additional shares of Class A Common Stock equal to the product of (i) the number of public shares redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6%, subject to a maximum cap of 5,450,422 shares of Class A Common Stock. In such an event, our Sponsor will forfeit a number of founder shares equal to the number of shares of Class A Common Stock issued to the Apache Contributor, and the economic and voting interests of the holders of our founder shares, as a group, will decrease, and the economic and voting interests of the Apache Contributor will increase, accordingly.

The ownership percentages with respect to KAAC set forth above do not take into account any earn-out consideration delivered to the Apache Contributor. Assuming that the earn-out consideration were payable at the closing of the business combination, and based on the other assumptions set forth above, the ownership of our voting and economic interests would be as follows:

 

     Earn-Out Consideration Payable  
     12,500,000 Shares     25,000,000 Shares     37,500,000 Shares  

Holder

   Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     10.3     32.3     9.9     29.2     9.6     26.6

PIPE Investors(1)

     15.6     49.0     15.1     44.2     14.6     40.3

Holders of founder shares(2)

     2.1     6.5     2.0     5.8     1.9     5.3

Apache Contributor(3)

     72.1     12.3     73.0     20.8     73.8     27.8

 

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(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The ownership percentages with respect to KAAC set forth above do not take into account warrants to purchase Class A Common Stock that will remain outstanding immediately following the business combination, but do include the founder shares (even though they and the shares of Class A Common Stock into which they will convert upon the closing of the business combination are subject to transfer restrictions) due to the continued voting rights associated with the founder shares. Our warrants will become exercisable 30 days after the closing of the business combination and will expire five years after the closing of the business combination or earlier upon their redemption or liquidation. If we assume that all 18,941,651 warrants to be outstanding at the closing of the business combination were exercisable and exercised following the closing of the business combination for aggregate proceeds to KAAC of approximately $217.8 million, then our ownership would be as follows:

 

Holder

   Number of Shares of
Class A Common Stock
     Number of Shares of
Class C Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     50,309,482        —          13.5     40.8

PIPE Investors(1)

     57,234,023        —          15.3     46.4

Holders of founder shares(2)

     10,752,563        —          2.9     8.7

Apache Contributor(3)

     5,044,746        250,000,000        68.3     4.1

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

Please see the section entitled “Summary of the Proxy Statement—Impact of the Business Combination on the KAAC’s Public Float” and “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

 

Q:

Why is KAAC proposing the amendments to the Charter set forth in the Charter Proposals?

 

A:

The proposed amendments to the Charter that KAAC is asking its stockholders to approve in connection with the business combination provide for, among other things, the creation of the Class C Common Stock that will be issued to the Apache Contributor at the closing of the business combination, as well as the elimination of certain provisions relating to an initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (an “initial business combination”) that will no longer be applicable to us following the closing of the business combination. In addition, KAAC is asking its stockholders to approve an amendment to increase the number of authorized shares of Class A Common Stock from 200,000,000 to 1,500,000,000, an amendment to increase the number of authorized shares of Preferred Stock from 1,000,000 to 50,000,000 and an amendment to declassify our board of directors upon closing of the business combination. Stockholder approval of the Charter Proposals are required under our Charter. See the sections entitled “Proposal No. 2—The Class C Charter Proposal,” “Proposal No. 3—The Authorized Class A Share Charter Proposal,” “Proposal No. 4—The Authorized Preferred Share Charter Proposal,” “Proposal No. 5—The Board Declassification Proposal” and “Proposal No. 6—The Additional Charter Proposal” for additional information.

 

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Q:

Why is KAAC proposing the NASDAQ Proposal?

 

A:

KAAC is proposing the NASDAQ Proposal in order to comply with NASDAQ listing rules, which require stockholder approval of certain transactions that result in the issuance of 20% or more of a company’s outstanding voting power or shares of common stock outstanding before the issuance of stock or securities. In connection with the Transactions, we intend to issue (subject to customary terms and conditions, including the closing of the business combination): (a) up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor; (b) up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its Common Units in accordance with the Altus Midstream LPA (as defined below); (c) up to 3,182,140 shares of Class A Common Stock to the Apache Contributor in connection with any exercise of the Contribution Warrants issued to the Apache Contributor in connection with the business combination; (d) up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and (e) 57,234,023 shares of Class A Common Stock in the Private Placement. Because KAAC will issue 20% or more of its outstanding voting power and outstanding common stock in connection with the Transactions, it is required to obtain stockholder approval of such issuances pursuant to NASDAQ listing rules. Stockholder approval of the NASDAQ Proposal is also a condition to closing in the Contribution Agreement. See the section entitled “Proposal No. 7—The NASDAQ Proposal” for additional information.

 

Q:

What happens if I sell my shares of Class A Common Stock before the special meeting?

 

A:

The record date for the special meeting is earlier than the date that the business combination is expected to be completed. If you transfer your shares of Class A Common Stock after the record date, but before the special meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the special meeting. However, you will not be able to seek redemption of your shares of Class A Common Stock because you will no longer be able to deliver them for cancellation upon the closing of the business combination in accordance with the provisions described herein. If you transfer your shares of Class A Common Stock prior to the record date, you will have no right to vote those shares at the special meeting or redeem those shares for a pro rata portion of the proceeds held in the Trust Account.

 

Q:

What vote is required to approve the Proposals presented at the special meeting?

 

A:

Approval of the Business Combination Proposal, the NASDAQ Proposal and the Adjournment Proposal requires the affirmative vote (in person or by proxy) of the holders of the majority of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Approval of the Charter Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon at the special meeting, voting as a single class. The election of a director to our board of directors pursuant to the Director Election Proposal requires the affirmative vote (in person or by proxy) of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Cumulative voting is not permitted in the election of directors.

 

Q:

May our Sponsor, directors, officers, advisors or their affiliates purchase shares in connection with the business combination?

 

A:

In connection with the stockholder vote to approve the proposed business combination, our Sponsor, directors, officers, or advisors or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per share pro rata portion of the Trust Account. None of our Sponsor, directors, officers or advisors or their respective affiliates will make any such

 

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  purchases when they are in possession of any material non-public information not disclosed to the seller. Such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof and, therefore, agrees not to exercise its redemption rights, and could include a contractual provision that directs such stockholder to vote such shares in a manner directed by the purchaser. In the event that our Sponsor, directors, officers or advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are below or in excess of the per share pro rata portion of the Trust Account.

 

Q:

How many votes do I have at the special meeting?

 

A:

KAAC’s stockholders are entitled to one vote at the special meeting for each share of Class A Common Stock or Class B Common Stock held of record as of                 , 2018, the record date for the special meeting. As of the close of business on the record date, there were a combined 47,165,140 outstanding shares of Class A Common Stock and Class B Common Stock.

 

Q:

What constitutes a quorum at the special meeting?

 

A:

Holders of a majority in voting power of Class A Common Stock and Class B Common Stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitute a quorum. In the absence of a quorum, the chairman of the special meeting has the power to adjourn the special meeting. As of the record date for the special meeting, 23,582,570 shares of Class A Common Stock and Class B Common Stock, in the aggregate, would be required to achieve a quorum.

 

Q:

How will KAAC’s Sponsor, directors and officers vote?

 

A:

In connection with our IPO, we entered into an agreement with our Sponsor and each of our directors and officers, pursuant to which each agreed to vote any shares of Class A Common Stock and Class B Common Stock owned by them in favor of each of the Transaction Proposals. Currently, our Sponsor, directors and officers own approximately 20% of our combined issued and outstanding shares of Class A Common Stock and Class B Common Stock, including all of the founder shares.

 

Q:

What interests do the current officers and directors have in the business combination?

 

A:

In considering the recommendation of our board of directors to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, our Sponsor and our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

   

the fact that our Sponsor holds private placement warrants that would expire worthless if a business combination is not consummated;

 

   

the fact that our Sponsor, officers and directors have agreed not to redeem any of the founder shares or shares of Class A Common Stock held by them in connection with a stockholder vote to approve the business combination;

 

   

the fact that our Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

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if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share originally sold as part of the units issued in the IPO (the “public shares”), or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

   

the continuation of certain of our existing directors and officers as directors of KAAC, including Kevin S. McCarthy and Robert S. Purgason;

 

   

the fact that each of our independent directors owns 40,000 founder shares that were purchased from our Sponsor at its original purchase price, which if unrestricted and freely tradeable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

   

the fact that all of our officers and directors hold an interest in our Sponsor;

 

   

the fact that our Sponsor, officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an initial business combination or fail to complete an initial business combination by April 4, 2019;

 

   

the fact that our Sponsor, officers and directors will lose their entire investment in us if an initial business combination is not completed; and

 

   

that we will enter into an amended and restated registration rights agreement with our Sponsor, certain of our directors and the Apache Contributor, which provides for registration rights to such parties.

 

Q:

What happens if I vote against the Business Combination Proposal?

 

A:

Under our Charter, if the Business Combination Proposal is not approved and we do not otherwise consummate an alternative business combination by April 4, 2019, we will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such account to our public stockholders.

 

Q:

Do I have redemption rights?

 

A:

If you are a holder of public shares, you may elect to have your public shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the Trust Account as of two business days prior to the closing of the business combination, including interest not previously released to KAAC to pay its franchise and income taxes, by (b) the total number of shares of Class A Common Stock included as part of the units sold in the IPO; provided that KAAC will not redeem any public shares to the extent that such redemption would result in Altus Midstream having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of less than $5,000,001. A public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption with respect to more than an aggregate of 15% of the outstanding shares of Class A Common Stock sold in the IPO without the prior consent of KAAC (the “15% threshold”). Unlike some other blank check companies, other than the net tangible asset requirement and the 15% threshold described above, KAAC has no specified maximum redemption threshold and there is no other limit on the amount of public shares that you can redeem. Holders of KAAC’s outstanding public warrants do not have redemption rights in connection with the business combination. Our Sponsor, directors and officers have agreed to waive their redemption rights with respect to any shares of KAAC’s capital stock they may hold in

 

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  connection with the closing of the business combination, and the founder shares will be excluded from the pro rata calculation used to determine the per share redemption price. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million, the estimated per share redemption price would have been approximately $10.09. Additionally, shares properly tendered for redemption will only be redeemed if the business combination is consummated; otherwise holders of such shares will only be entitled to a pro rata portion of the Trust Account (including interest but net of franchise and income taxes payable) in connection with the liquidation of the Trust Account or if we subsequently complete a different business combination on or prior to April 4, 2019.

 

Q:

Will how I vote affect my ability to exercise redemption rights?

 

A:

No. You may exercise your redemption rights whether you vote your shares of Class A Common Stock for or against or abstain from voting on the Business Combination Proposal or any other Proposal described in this proxy statement. As a result, the business combination can be approved by stockholders who will redeem their shares and no longer remain stockholders.

 

Q:

How do I exercise my redemption rights?

 

A:

In order to exercise your redemption rights, you must (i) if you hold your shares of Class A Common Stock through units, elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares, (ii) check the box on the enclosed proxy card marked “Stockholder Certification,” and (iii) prior to 5:00 p.m., Eastern Time, on                 , 2018 (two business days before the special meeting), tender your public shares physically or electronically and submit a request in writing that we redeem your public shares for cash to American Stock Transfer & Trust Company, our transfer agent, at the following address:

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, New York 11219

Attention: Client Support

Email: admin42@astfinancial.com

Please check the box on the enclosed proxy card marked “Stockholder Certification” if you are not acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) with any other stockholder with respect to shares of Class A Common Stock or Class B Common Stock. Notwithstanding the foregoing, a public stockholder, together with any of his, her or its affiliates or any other person with whom it is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to his, her or its shares or, if part of such a group, the group’s shares, in excess of the 15% threshold. Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the transfer agent and time to effect delivery. It is KAAC’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, KAAC does not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically.

Holders of outstanding units of KAAC must separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If you hold units registered in your own name, you must deliver the certificate for such units to American Stock Transfer & Trust Company with written instructions to separate such units into public shares and public warrants. This must be completed far enough in advance to permit the mailing of the public share certificates back to you so that you may then exercise your redemption rights upon the separation of the public shares from the units.

 

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If a broker, dealer, commercial bank, trust company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written instructions by facsimile to American Stock Transfer & Trust Company. Such written instructions must include the number of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using the Depository Trust Company’s (the “DTC”) DWAC (deposit withdrawal at custodian) system, a withdrawal of the relevant units and a deposit of an equal number of public shares and public warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights upon the separation of the public shares from the units. While this is typically done electronically on the same business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your public shares to be separated in a timely manner, you will likely not be able to exercise your redemption rights.

Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the business combination. If you delivered your public shares for redemption to the transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that the transfer agent return the public shares (physically or electronically). You may make such request by contacting our transfer agent at the phone number or address listed under the question “Who can help answer my questions?” below.

 

Q:

What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A:

Whether the redemption is subject to U.S. federal income tax depends on your particular facts and circumstances. See the section entitled “Proposal No. 1—The Business Combination Proposal—Certain United States Federal Income Tax Considerations.” We urge you to consult your tax advisors regarding the tax consequences of exercising your redemption rights.

 

Q:

Are there any other material U.S. federal income tax consequences to KAAC that are expected to result from the business combination?

 

A:

If the business combination is effected, we expect to be classified as a United States real property holding corporation for U.S. federal income tax purposes following the business combination. If you are a Non-U.S. holder (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain United States Federal Income Tax Considerations”), we urge you to consult your tax advisors regarding the tax consequences of such treatment.

 

Q:

If I am a warrant holder, can I exercise redemption rights with respect to my warrants?

 

A:

No. The holders of our warrants have no redemption rights with respect to our warrants.

 

Q:

Do I have appraisal rights if I object to the proposed business combination?

 

A:

No. There are no appraisal rights available to holders of Class A Common Stock or Class B Common Stock in connection with the business combination.

 

Q:

What happens to the funds deposited in the Trust Account after the closing of the business combination?

 

A:

If the Business Combination Proposal is approved, KAAC intends to use a portion of the funds held in the Trust Account to pay (i) a portion of KAAC’s aggregate costs, fees and expenses in connection with the consummation of the Transactions, (ii) tax obligations and deferred underwriting commissions from the IPO and (iii) for any redemptions of public shares. The remaining balance in the Trust Account, together with proceeds received from the Private Placement, will be contributed to Altus Midstream, in exchange for (a) a number of Common Units equal to the number of shares of Class A Common Stock outstanding following

 

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  the consummation of the Transactions and (b) a number of Altus Midstream Warrants equal to the number of KAAC warrants outstanding following the consummation of the Transactions. See the section entitled “Proposal No. 1—The Business Combination Proposal” for additional information.

 

Q:

What happens if the business combination is not consummated or is terminated?

 

A:

There are certain circumstances under which the Contribution Agreement may be terminated. See the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Termination” for additional information regarding the parties’ specific termination rights. In accordance with our Charter, if an initial business combination is not consummated by April 4, 2019, KAAC will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter subject to lawfully available funds therefor, redeem 100% of the public shares in consideration of a per share price, payable in cash, equal to the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest not previously released to KAAC to pay its franchise and income taxes (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding public shares, which redemption will completely extinguish rights of the public stockholders as stockholders of KAAC (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under the General Corporation Law of the State of Delaware (the “DGCL”) to provide for claims of creditors and other requirements of applicable law.

KAAC expects that the amount of any distribution its public stockholders will be entitled to receive upon its dissolution will be approximately the same as the amount they would have received if they had redeemed their shares in connection with the business combination, subject in each case to KAAC’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law. Holders of our founder shares have waived any right to any liquidating distributions with respect to those shares.

In the event of liquidation, there will be no distribution with respect to KAAC’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q:

When is the business combination expected to be consummated?

 

A:

It is currently anticipated that the business combination will be consummated promptly following the special meeting to be held on                 , 2018; provided that all the requisite stockholder approvals are obtained and other conditions to the closing of the business combination have been satisfied or waived. For a description of the conditions for the closing of the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

 

Q:

What do I need to do now?

 

A:

You are urged to read carefully and consider the information contained in this proxy statement, including “Risk Factors” and the annexes, and to consider how the business combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q:

How do I vote?

 

A:

If you were a holder of record of Class A Common Stock or Class B Common Stock on                 , 2018, the record date for the special meeting, you may vote with respect to the Proposals in person at the special

 

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  meeting or by completing signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special meeting and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q:

What will happen if I abstain from voting or fail to vote at the special meeting?

 

A:

At the special meeting, KAAC will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, failure to vote or an abstention will have no effect on the Business Combination Proposal, the NASDAQ Proposal, the Director Election Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST each of the Charter Proposals.

 

Q:

What will happen if I sign and submit my proxy card without indicating how I wish to vote?

 

A:

Signed and dated proxies received by KAAC without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each proposal presented to the stockholders.

 

Q:

If I am not going to attend the special meeting in person, should I submit my proxy card instead?

 

A:

Yes. Whether you plan to attend the special meeting or not, please read the enclosed proxy statement carefully, and vote your shares by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

Q:

If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A:

No. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. KAAC believes the Proposals presented to the stockholders will be considered non-discretionary and, therefore, your broker, bank, or nominee cannot vote your shares without your instruction. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

 

Q:

May I change my vote after I have submitted my executed proxy card?

 

A:

Yes. You may change your vote by sending a later-dated, signed proxy card to KAAC’s secretary at the address listed below so that it is received by our secretary prior to the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to KAAC’s secretary, which must be received prior to the special meeting.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

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Q:

Who can help answer my questions?

 

A:

If you have questions about the Proposals or if you need additional copies of the proxy statement or the enclosed proxy card you should contact:

Kayne Anderson Acquisition Corp.

811 Main Street, 14th Floor

Houston, Texas 77002

Attention: Investor Relations

Telephone: (877) 657-3863

You may also contact our proxy solicitor at:

Morrow Sodali LLC

470 West Avenue

Stamford, Connecticut 06902

Telephone: (800) 662-5200

(banks and brokers call collect at (203) 658-9400)

Email: KAAC.info@morrowsodali.com

To obtain timely delivery, our stockholders must request the materials no later than five business days prior to the special meeting.

You may also obtain additional information about KAAC from documents filed with the United States Securities and Exchange Commission (the “SEC”) by following the instructions in the section entitled “Where You Can Find More Information.”

If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to our transfer agent at least two business days prior to the special meeting in accordance with the procedures detailed under the question “How do I exercise my redemption rights?” If you have questions regarding the certification of your position or delivery of your stock, please contact:

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, New York 11219

Attention: Client Support

Email: admin42@astfinancial.com

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

KAAC will pay the cost of soliciting proxies for the special meeting. KAAC has engaged Morrow Sodali LLC (“Morrow Sodali”), to assist in the solicitation of proxies for the special meeting. KAAC has agreed to pay Morrow Sodali a fee of $30,000, plus reimbursements for expenses. KAAC will reimburse Morrow Sodali for reasonable out-of-pocket expenses and will indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses. KAAC will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Class A Common Stock and Class B Common Stock for their expenses in forwarding soliciting materials to beneficial owners of Class A Common Stock and Class B Common Stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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SUMMARY OF THE PROXY STATEMENT

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the business combination and the Proposals to be considered at the special meeting, you should read this entire proxy statement carefully, including the annexes. See also the section entitled “Where You Can Find More Information.”

Parties to the Business Combination

Kayne Anderson Acquisition Corp.

Kayne Anderson Acquisition Corp. (“KAAC,” “we,” “our” and “us”) is a blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Upon the closing of the business combination (as defined below), we intend to change our name from “Kayne Anderson Acquisition Corp.” to “Altus Midstream Company.”

Our Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), warrants and units, consisting of one share of Class A Common Stock and one-third of one warrant (“units”), are traded on The NASDAQ Capital Market (“NASDAQ”) under the ticker symbols “KAAC,” “KAACW” and “KAACU,” respectively. We have applied to continue the listing of our Class A Common Stock and warrants on NASDAQ under the symbols “ALTM” and “ALTMW,” respectively, upon the closing of the business combination. The units will automatically separate into the component securities upon the closing of the business combination and, as a result, will no longer trade as a separate security.

The mailing address of KAAC’s principal executive office is 811 Main Street, 14th Floor, Houston, Texas 77002.

For more information about KAAC, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of KAAC” and “Business of KAAC.”

Alpine High Midstream

The Alpine High Entities were formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing, and operating midstream oil and gas assets in the Alpine High resource play. Alpine High Midstream primarily focuses on providing natural gas gathering, compression, processing, and transportation to producers of natural gas, NGLs, crude oil, and condensate in the Permian Basin. Alpine High Midstream owns, develops, and operates a midstream energy asset network in the Southern Delaware Basin of West Texas, anchored by midstream service contracts to service Apache’s production in the Alpine High resource play.

The mailing address of Alpine High Midstream’s principal executive office is 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056.

For more information about Alpine High Midstream, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alpine High Midstream” and “Business of Alpine High Midstream.”

The Business Combination

On August 8, 2018, we entered into that certain Contribution Agreement (as the same may be amended, the “Contribution Agreement”) with Altus Midstream LP, a Delaware limited partnership and our wholly owned



 

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subsidiary (“Altus Midstream”), the Apache Contributor and the Alpine High Entities, pursuant to which Altus Midstream and/or its subsidiaries will acquire from the Apache Contributor 100% of the equity interests in each of the Alpine High Entities and options, currently held by the Apache Contributor, to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020, which include (A) an option to acquire up to a 15% equity interest (as well as pursuant to a supplemental option, an additional 1% equity interest) in the Gulf Coast Express pipeline, (B) an option to acquire up to a 15% equity interest in the EPIC Crude pipeline, (C) an option to acquire a 50% equity interest in the Salt Creek NGL pipeline, and (D) an option to acquire up to a 33% equity interest in the Shin Oak pipeline (collectively, the “Options”), subject to the terms and conditions set forth therein (such acquisition, together with the other transactions contemplated by the Contribution Agreement, the “business combination”). In addition, pursuant to the Purchase Rights and Restrictive Covenant Agreement to be entered into between KAAC and Apache Corporation (“Apache”) at the closing of the business combination (the “Purchase Rights and Restrictive Covenant Agreement”), Apache will, among other things, assign to us an option to acquire equity in either (i) a long-haul natural gas pipeline from the Permian Basin in Texas to the Texas Gulf Coast being developed by affiliates of Kinder Morgan, Inc. (the “Permian Highway Pipeline Project”) or (ii) the next similar pipeline project if the Permian Highway Pipeline Project is not placed into service (the “Additional Option”).

In exchange for the equity interests in each of the Alpine High Entities and the Options, the Apache Contributor will receive the following consideration:

 

   

equity consideration, consisting of: (a) 250,000,000 common units representing limited partner interests in Altus Midstream (“Common Units”), (b) 1,862,606 newly-issued shares of Class A Common Stock and (c) a number of newly-issued shares of Class A Common Stock equal to the product of (i) the number of public shares of Class A Common Stock redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6% (provided that such number of shares of Class A Common Stock will not be less than 0 or greater than 5,450,422) (the number of shares referred to in this clause (c), the “Assigned Shares”), with such amounts of Class A Common Stock set forth in clauses (b) and (c) corresponding to certain forfeitures of founder shares by our Sponsor;

 

   

because the closing of the business combination is expected to occur after September 30, 2018, cash consideration in an amount equal to the capital expenditures incurred by or on behalf of the Alpine High Entities from and including October 1, 2018 through and including the closing date of the business combination (the “Closing Date”);

 

   

3,182,140 Contribution Warrants exercisable for shares of Class A Common Stock, with such amount of warrants corresponding to certain forfeitures of private placement warrants by our Sponsor;



 

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the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock as follows:

 

Number of Shares of
Class A Common Stock  to be
Received

  

Condition to be Satisfied

12,500,000 shares

   if, during the calendar year 2021, the aggregate gathered gas from an area of dedication in Reeves, Pecos, Culberson and Jeff Davis Counties in Texas that is assessed a low pressure gathering fee pursuant to the Gas Gathering Agreement, dated August 8, 2018, between Apache and Alpine High Gathering is equal to or greater than 574,380 million cubic feet

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $14.00 for any 20 trading days within such 30-trading-day period

12,500,000 shares

   if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending prior to the fifth anniversary of the Closing Date is equal to or greater than $16.00 for any 20 trading days within such 30-trading-day period

In addition to the above, at the closing of the business combination, we will contribute to Altus Midstream cash in an amount equal to the Available Funds (as defined below), in exchange for the issuance by Altus Midstream to KAAC of (a) a number of Common Units equal to the number of shares of Class A Common Stock outstanding following the consummation of the Transactions and (b) a number of Altus Midstream Warrants equal to the number of KAAC warrants outstanding following the consummation of the Transactions. “Available Funds” means (i) the amount of funds from the trust account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from our IPO and the concurrent issuance of private placement warrants to our Sponsor, plus (ii) the proceeds of the Private Placement (as defined below), minus (iii) the amount to be paid to our public stockholders who timely exercise and do not waive their right to have their public shares redeemed for cash at the closing of the business combination, minus (iv) certain amounts payable by us and our subsidiaries in respect of all out-of-pocket costs, fees and expenses incurred by or on our or our subsidiaries’ behalf, other than the financing fees described in clause (v) below (including deferred underwriting commissions payable by us to the underwriters in our IPO and all costs, fees and expenses related to pursuing a business combination) (the “KAAC Fees”), minus (v) approximately $3.8 million of fees related to the Private Placement and all out-of-pocket costs, fees, and expenses incurred by the Apache Contributor or its affiliates related to marketing the Transactions that will not otherwise be subject to the COMA (as defined below), plus any amounts payable by KAAC or any of its subsidiaries in respect of all out-of-pocket costs, fees, and expenses incurred by or on behalf of them related to obtaining a new credit facility prior to the Closing Date.

We will also issue an aggregate of 250,000,000 shares of our Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock”), to the Apache Contributor. Further, in connection with the closing of the business combination, our Sponsor will forfeit to us: (a) 1,862,606 founder shares; (b) a number of founder shares equal to the number of Assigned Shares; and (c) 3,182,140 private placement warrants.

For more information about the Contribution Agreement and the business combination and other transactions contemplated thereby, see the section entitled “Proposal No. 1—The Business Combination Proposal.”



 

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Conditions to the Closing

Conditions to Our Obligations to Consummate the Business Combination. Our obligations to consummate the business combination are subject to the satisfaction at or prior to the closing of the business combination of the following conditions, any or all of which may be waived exclusively by KAAC, in whole or in part, to the extent permitted by applicable law:

 

   

the warranties of the Apache Contributor set forth in the Contribution Agreement must be true and correct in all respects as of the date of the Contribution Agreement and as of the Closing Date, as though made on and as of the Closing Date (or, if given as of a specific date, at and as of such date), except where the failure of such warranties (other than the Apache Contributor’s fundamental warranties) to be so true and correct (without regard to qualification or exceptions contained therein as to “materiality” or “Material Adverse Effect”) would not have a Material Adverse Effect;

 

   

the Apache Contributor must have performed and complied in all material respects with all covenants, taken as a whole, required to be performed or complied with by the Apache Contributor under the Contribution Agreement prior to the Closing Date, except where the failure of such performance or compliance would not or would not reasonably be expected to be materially adverse to the assets, condition (financial or otherwise), results of operations, or business of the Alpine High Entities, taken as a whole;

 

   

there shall not be any law or order of any governmental entity having jurisdiction (except for any such order issued in connection with a proceeding instituted by the Apache Contributor or its affiliates) restraining, enjoining, or otherwise prohibiting or making illegal the consummation of the transactions contemplated by the Contribution Agreement; and

 

   

KAAC stockholder approval of the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal must have been obtained.

Conditions to the Apache Contributor’s Obligations to Consummate the Business Combination. The obligations of the Apache Contributor to consummate the business combination are subject to the satisfaction at or prior to the closing of the business combination of the following additional conditions, any or all of which may be waived exclusively by the Apache Contributor, in whole or in part, to the extent permitted by applicable law:

 

   

the warranties of KAAC set forth in the Contribution Agreement must be true and correct in all respects as of the date of the Contribution Agreement and as of the Closing Date, as though made on and as of the Closing Date (or, if given as of a specific date, at and as of such date), except where the failure of such warranties (other than KAAC’s fundamental warranties) to be so true and correct (without regard to qualification or exceptions contained therein as to “materiality” or “Material Adverse Effect”) would not have a Material Adverse Effect;

 

   

KAAC must have performed and complied in all material respects with all covenants, taken as a whole, required to be performed or complied with by KAAC under the Contribution Agreement prior to the Closing Date, except where the failure of such performance or compliance would not or would not reasonably be expected to prevent, materially delay, or materially impair the ability of KAAC or Altus Midstream to consummate any of the transactions contemplated by the Contribution Agreement;

 

   

there shall not be any law or order of any governmental entity having jurisdiction (except for any such order issued in connection with a proceeding instituted by KAAC or its affiliates) restraining, enjoining, or otherwise prohibiting or making illegal the consummation of the transactions contemplated by the Contribution Agreement;

 

   

KAAC stockholder approval of the Business Combination Proposal, the Charter Proposals and the NASDAQ Proposal must have been obtained;



 

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KAAC must have at least $475,000,000 of Available Funds; and

 

   

KAAC shall have provided the Apache Contributor with a schedule of the KAAC Fees through and including the closing of the business combination, and the KAAC Fees shall not have exceeded $30,000,000.

Regulatory Matters

Neither KAAC nor the Apache Contributor is aware of any material regulatory approvals or actions that are required for closing of the business combination. The parties have determined that a premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is not required to be filed. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Related Agreements

Second Amended and Restated Charter. Pursuant to the terms of the Contribution Agreement, upon the closing of the business combination, we will amend and restate our Charter (as so amended and restated, the “Second A&R Charter”) to, among other things, (a) create a new class of capital stock, the Class C Common Stock, to be issued to the Apache Contributor, (b) increase the number of our authorized shares of Class A Common Stock and Preferred Stock, (c) declassify the board of directors of KAAC upon the closing of the business combination, and (d) eliminate certain provisions relating to an initial business combination that will no longer be applicable to us following the closing of the business combination. For more information about the amendments to our Charter, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Second Amended and Restated Charter.”

Stockholders Agreement. At the closing of the business combination, we will enter into a Stockholders Agreement with the Apache Contributor and our Sponsor (the “Stockholders Agreement”) to set forth certain corporate governance rights of the Apache Contributor and our Sponsor. Under the Stockholders Agreement, our Sponsor will be entitled to nominate two directors to the board of directors of KAAC until the earlier of the time that our Sponsor and its affiliates own less than 1% of the outstanding voting common stock of KAAC or the second anniversary of the date of the Stockholders Agreement. Additionally, the Apache Contributor will be entitled to nominate a certain number of directors to our board of directors based on its and its affiliates’ ownership of our outstanding voting common stock as follows:

 

Ownership Threshold

   Number of Directors

50% or more

   7

40% or more but less than 50%

   6

30% or more but less than 40%

   5

20% or more but less than 30%

   4

10% or more but less than 20%

   3

5% or more but less than 10%

   2

1% or more but less than 5%

   1

For so long as our Sponsor is entitled to nominate directors as provided above and the Apache Contributor and its affiliates own 50% or more of our outstanding voting common stock, at least one of the directors nominated by the Apache Contributor will be an “independent director” in accordance with NASDAQ listing rules. Further, we have agreed to include at least one director nominated by the Apache Contributor on each committee of our board of directors, unless such inclusion would violate applicable securities laws or stock exchange or stock market rules.



 

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The Stockholders Agreement will terminate automatically upon (i) the dissolution of KAAC, (ii) with respect to the Apache Contributor, the time when the Apache Contributor and its affiliates cease to own at least 1% of our outstanding voting common stock, and (iii) with respect to our Sponsor, upon the earlier of (A) the time when our Sponsor and its affiliates cease to own at least 1% of our outstanding voting common stock and (B) the second anniversary of the date of the Stockholders Agreement. For more information about Stockholders Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholders Agreement.”

Amended and Restated Agreement of Limited Partnership of Altus Midstream. Following the closing of the business combination, we will operate our business through Altus Midstream and its subsidiaries, including the Alpine High Entities. At the closing of the business combination, we, Altus Midstream GP and the Apache Contributor will enter into an amended and restated agreement of limited partnership of Altus Midstream (the “Altus Midstream LPA”), which will set forth, among other things, the rights and obligations of the general partner and limited partners of Altus Midstream. For more information about the Altus Midstream LPA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Amended and Restated Agreement of Limited Partnership of Altus Midstream.”

Amended and Restated Registration Rights Agreement. We will enter into an amended and restated registration rights agreement with our Sponsor, certain holders party thereto (the “Existing Holders”) and the Apache Contributor (as amended and restated, the “Registration Rights Agreement”). Under the Registration Rights Agreement, within 30 days following the consummation of the Transactions, we will be required to register for resale (i) shares of Class A Common Stock issuable upon the conversion of our founder shares, (ii) the private placement warrants (and any shares of Class A Common Stock issuable upon the exercise of such private placement warrants), (iii) shares of Class A Common Stock held by any Existing Holders as of the Closing Date, (iv) any equity securities (including the shares of Class A Common Stock issued or issuable upon the exercise of any such equity security) of ours issuable upon conversion of any working capital loans in an amount up to $1,500,000 made to us by an Existing Holder, (v) shares of Class A Common Stock issued or issuable upon the redemption or exchange of any Common Units owned by any holder, in each case in accordance with the terms of the Altus Midstream LPA, (vi) the shares of Class A Common Stock issued to the Apache Contributor in connection with the Transactions, (vii) warrants owned by the Apache Contributor (including any shares of Class A Common Stock issued or issuable upon the exercise of any such warrants) and (viii) the shares of Class A Common Stock, if any, issued in connection with the earn-out consideration (collectively, “Registrable Securities”). The holders of a majority-in-interest of the Registrable Securities held by the Apache Contributor and any of its permitted transferees (the “Apache Holders”) are entitled to demand that we register the resale of such securities; provided, however, that we will not be required to effect an underwritten offering for any resale of Registrable Securities on a Registration Statement on Form S-3 unless such underwritten offering is reasonably expected to result in gross proceeds in excess of $10 million. The Apache Holders will also have certain “piggy back” registration rights with respect to registration statements and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. For more information about the Altus Midstream LPA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Amended and Restated Registration Rights Agreement.”

Construction, Operations and Maintenance Agreement. We will enter into a construction, operations and maintenance agreement with Apache (the “COMA”), pursuant to which Apache will provide certain services related to the design, development, construction, operation, management and maintenance of certain gathering, processing and other midstream assets on behalf of KAAC. For more information about the COMA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Construction, Operations and Maintenance Agreement.”

Purchase Rights and Restrictive Covenants Agreement. We will enter into the Purchase Rights and Restrictive Covenants Agreement with Apache. Under the Purchase Rights and Restrictive Covenants



 

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Agreement, until the later of the five-year anniversary of the closing of the business combination and the date on which Apache and its affiliates cease to own a majority of our voting common stock, Apache is obligated to provide us with (i) the first right to pursue any opportunity of Apache to acquire or invest in any midstream assets or participate in any midstream opportunities located, in whole or part, within an area covering approximately 1.7 million acres in Reeves, Pecos, Brewster, Culberson and Jeff Davis Counties in Texas, and (ii) a right of first offer on certain retained midstream assets of Apache located in the Alpine High resource play. Apache will also assign to us the Additional Option. For more information about the Purchase Rights and Restrictive Covenant Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Purchase Rights and Restrictive Covenant Agreement.”

Gas Gathering Agreement. Apache and Alpine High Gathering have entered into a Gas Gathering Agreement (the “Gas Gathering Agreement”) with an effective date of July 1, 2018, which amended and restated a prior gas gathering agreement between Apache and Alpine High Gathering. Pursuant to the Gas Gathering Agreement, among other things, Apache dedicated to Alpine High Gathering all gas produced and saved from certain dedicated acreage, as described in the Gas Gathering Agreement. In return, Alpine High Gathering will receive, gather and redeliver all of the dedicated natural gas at the low pressure receipt points on a first priority basis and receive, gather and redeliver all of the dedicated gas and condensate at the high pressure receipt points on a first priority basis. The Gas Gathering Agreement is effective for a primary term beginning on the July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Gathering at least nine months’ prior written notice. After the primary term, the Gas Gathering Agreement will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High Gathering upon at least six months’ prior written notice. For more information about the Gas Gathering Agreement, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Gas Gathering Agreement.”

Gas Processing Agreement. Apache and Alpine High Processing have entered into a Gas Processing Agreement (the “Gas Processing Agreement”) with an effective date of July 1, 2018, which amended and restated a prior gas processing agreement between Apache and Alpine High Processing. Pursuant to the Gas Processing Agreement, among other things, Apache dedicated to Alpine High Processing for processing all gas produced from certain dedicated acreage, as described in the Gas Processing Agreement. In return, Alpine High Processing agreed, on a firm basis, to (i) receive Apache’s gas, (ii) receive Apache’s condensate, (iii) dehydrate, compress and/or treat all of Apache’s non-processable gas at central conditioning facilities and purchase or redeliver such residue gas to Apache, (iv) dehydrate, compress, treat, and/or remove plant products from Apache’s processable gas via cryogenic processing facilities or mechanical refrigeration units, (v) purchase or redeliver to Apache all residue gas and plant products for volumes attributable to Apache’s processable gas, (vi) construct and place into operation at least three cryogenic processing facilities and deliver and process a minimum volume of gas at such facilities, and (vii) expand its facilities pursuant to requirements in the Gas Processing Agreement. The Gas Processing Agreement is effective for a primary term beginning on July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Processing at least nine months’ prior written notice. After the primary term, the Gas Processing Agreement will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High Processing upon at least six months’ prior written notice. For more information about the Gas Processing Agreement, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Gas Processing Agreement.”

NGL Transportation Services Agreement. Apache and Alpine High NGL have entered into an NGL Transportation Services Agreement (the “NGL TSA”) with an effective date of July 1, 2018, which amended and restated a prior NGL transportation services agreement between Apache and Alpine High NGL. Pursuant to the



 

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NGL TSA, among other things, Apache dedicated to Alpine High NGL all NGLs produced and saved from certain dedicated acreage, as described in the NGL TSA. In return, Alpine High NGL will receive, transport, and redeliver all of the dedicated NGLs at various destination points, as nominated by Apache, served by Alpine High NGL’s pipeline system on a priority shipper basis. The NGL TSA is effective for a primary term beginning on July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High NGL at least 12 months’ prior written notice. After the primary term, the NGL TSA will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High NGL upon at least eight months’ prior written notice. For more information about the NGL TSA, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—NGL Transportation Services Agreement.”

Residue Gas Transportation Services Agreements. Apache and Alpine High Pipeline have entered into residue gas Transportation Service Agreements and associated confirmations for intrastate and Section 311 service under the Natural Gas Policy Act of 1978 (“NGPA”), effective April 1, 2017, which incorporate by reference Alpine High Pipeline’s Statement of Operating Conditions (the Transportation Services Agreements, associated confirmations, and Statement of Operating Conditions (SOC), collectively and as amended, the “Residue Gas TSA”). Pursuant to the firm intrastate Residue Gas TSA, among other things, Apache dedicated to Alpine High Pipeline for transportation all gas produced from certain dedicated acreage located in the Alpine High resource play, as described in the Residue Gas TSA. In return, Alpine High Pipeline will provide to Apache both firm and fully interruptible intrastate transportation services and fully interruptible transportation services under Section 311 of the NGPA. The Residue Gas TSA is effective for a primary term beginning on April 1, 2017 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache gives Alpine High Pipeline at least 12 months’ prior written notice. After the second extension period, the Residue Gas TSA will continue in effect from year to year until such time as the agreement is terminated by either Apache or Alpine High Pipeline upon at least six months’ prior written notice. For more information regarding the Residue Gas TSA, see the section entitled “Business of Alpine High Midstream—Alpine High Midstream’s Relationship with Apache—Alpine High Midstream’s Midstream Service Contracts with Apache—Residue Gas Transportation Services Agreements.”

Subscription Agreements. In connection with our entry into the Contribution Agreement, we entered into subscription agreements (the “Subscription Agreements”) with the PIPE Investors, pursuant to which the PIPE Investors have agreed to purchase, in the aggregate, 57,234,023 shares of Class A Common Stock at $10.00 per share, for an aggregate commitment amount of approximately $572 million. The shares of Class A Common Stock to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Subscription Agreements provide that KAAC must file a registration statement registering the resale of the shares of Class A Common Stock issued thereunder within 30 calendar days after consummation of the Transactions and, under certain circumstances (including KAAC’s failure to have the registration statement declared effective by the SEC prior to a specified date), KAAC will be required to pay the holders certain liquidated damages.

The closings under the Subscription Agreements will occur substantially concurrently with the closing of the business combination and are conditioned thereon, as well as on other customary closing conditions. The Subscription Agreements will be terminated, and be of no further force and effect, upon the earlier to occur of (i) the termination of the Contribution Agreement in accordance with its terms, (ii) if any of the conditions to the closing under the Subscription Agreements are not satisfied or waived on or prior to the closing and (iii) December 31, 2018, if the closing of the Transactions has not occurred by such date. For more information about the Subscription Agreements, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Subscription Agreements.”



 

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Option Letter. On August 8, 2018, we entered into a letter agreement with Apache and the Apache Contributor with respect to the GCX Option, the Shin Oak Option, and the EPIC Option (the “Option Letter”). Pursuant to the Option Letter, the Apache Contributor is required to comply in all material respects with the terms and conditions of the agreements governing each of the GCX Option, the Shin Oak Option, and the EPIC Option and use commercially reasonable efforts to preserve the ability of KAAC or its designated subsidiaries to exercise such Options from and after the closing of the business combination. However, nothing in the Option Letter requires the Apache Contributor or Apache to provide, or cause any of their respective affiliates to provide, any guaranty or credit support or to take any actions or incur any expenses not required or set forth in the agreements pertaining to each Option. The Option Letter also imposes certain obligations on Apache with respect to certain commercial agreements associated with such Options as follows:

 

   

GCX Option. To the extent within Apache’s control, Apache is required to use commercially reasonable efforts to not cause the termination of any of the natural gas transportation agreements between Apache and Gulf Coast Express Pipeline LLC; provided that such requirement will not prevent Apache from exercising its termination rights under such natural gas transportation agreements. The GCX Option will terminate automatically upon the termination of any such natural gas transportation agreements.

 

   

Shin Oak Option. It is a condition precedent to the exercise of the Shin Oak Option that (i) the NGL purchase agreement between Apache and Enterprise Products Operating LLC shall not have been terminated and (ii) Apache shall not be in material breach of any provision of such NGL purchase agreement. To the extent within Apache’s control, Apache is required to use commercially reasonable efforts to not cause the failure of such condition precedent or the termination of such NGL purchase agreement.

 

   

EPIC Option. Apache is required (i) to the extent within Apache’s control, to use commercially reasonable efforts to ensure that no event of default has occurred and is continuing to occur under the crude oil transportation agreement between Apache and Epic Crude Pipeline, LP and (ii) to use commercially reasonable efforts to provide an equity commitment letter, if required pursuant to the agreement governing the EPIC Option.

If, as a result of a breach of the obligations of the Apache Contributor or Apache, as applicable, under the Option Letter (or, in the case of the GCX Option, Apache exercising its termination rights under its natural gas transportation agreements with Gulf Coast Express Pipeline LLC):

 

   

we are not able to exercise the GCX Option or acquire the equity interest in Gulf Coast Express Pipeline, LLC on the same terms and in the same time frame as specified in the GCX Option, then 16,500,000 of the Common Units (together with a corresponding number of shares of Class C Common Stock) received by the Apache Contributor at the closing of the business combination will be subject to forfeiture;

 

   

we are not able to exercise the Shin Oak Option, 18,500,000 of the Common Units (together with a corresponding number of shares of Class C Common Stock) received by the Apache Contributor at the closing of the business combination will be subject to forfeiture; or

 

   

we are not able to exercise the EPIC Option, 5,000,000 of the Common Units (together with a corresponding number of shares of Class C Common Stock) received by the Apache Contributor at the closing of the business combination will be subject to forfeiture.

The maximum number of Common Units (and associated shares of Class C Common Stock) subject to forfeiture pursuant to the Option Letter is 40,000,000. Upon any such forfeiture, we will not have any further recourse against Apache or the Apache Contributor in respect of the applicable Option.

The Option Letter will remain in full force with respect to the agreements governing each of the GCX Option, the Shin Oak Option and the EPIC Option until the earlier to occur of (i) the expiration of each such Option and (ii) the termination of the Contribution Agreement in accordance with its terms.



 

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For more information about the Option Letter, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Option Letter.”

Other Agreements. For more information about other agreements to be entered into by KAAC and its affiliates at the closing of the business combination, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements.”

Interests of Certain Persons in the Business Combination

In considering the recommendation of our board of directors to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, our Sponsor and our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

   

the fact that our Sponsor holds private placement warrants that would expire worthless if a business combination is not consummated;

 

   

the fact that our Sponsor, officers and directors have agreed not to redeem any of the founder shares or shares of Class A Common Stock held by them in connection with a stockholder vote to approve the business combination;

 

   

the fact that our Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

   

if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share originally sold as part of the units issued in the IPO (the “public shares”), or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

   

the continuation of certain of our existing directors and officers as directors of KAAC following the closing of the business combination, including Kevin S. McCarthy and Robert S. Purgason;

 

   

the fact that each of our independent directors owns 40,000 founder shares that were purchased from our Sponsor at its original purchase price, which if unrestricted and freely tradeable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

   

the fact that all of our officers and directors hold an interest in our Sponsor;

 

   

the fact that our Sponsor, officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an initial business combination or fail to complete an initial business combination by April 4, 2019;

 

   

the fact that our Sponsor, officers and directors will lose their entire investment in us if an initial business combination is not completed; and

 

   

that we will enter into an amended and restated registration rights agreement with our Sponsor, certain of our directors and the Apache Contributor, which provides for registration rights to such parties.



 

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Reasons for the Approval of the Business Combination

After careful consideration, the KAAC board of directors recommends that KAAC stockholders vote “FOR” each Proposal being submitted to a vote of the KAAC stockholders at the KAAC special meeting.

For a more complete description of KAAC’s board of directors’ reasons for the approval of the business combination and their recommendation, see the section entitled “Proposal No. 1—The Business Combination Proposal—KAAC’s Board of Directors’ Reasons for the Approval of the Business Combination.”

Redemption Rights

Under our Charter, holders of our Class A Common Stock may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the Trust Account as of two business days prior to the closing of the business combination, including interest (which interest shall be net of taxes payable), by (b) the total number of shares of Class A Common Stock issued in the IPO; provided that KAAC will not redeem any public shares to the extent that such redemption would result in KAAC having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) of less than $5,000,001. As of June 30, 2018, this would have amounted to approximately $10.09 per share (based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million). Under our Charter, in connection with an initial business combination, a holder of public shares (a “public stockholder”), together with any affiliate or any other person with whom such stockholder is acting in concert of as a “group” (as defined under Section 13(d)(3) of the Exchange Act), is restricted from seeking redemption rights with respect to more than 15% of the public shares.

If a holder exercises its redemption rights, then such holder will be exchanging its shares of Class A Common Stock for cash and will no longer own shares of Class A Common Stock and will have no interest in KAAC following the business combination. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to KAAC’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of KAAC Stockholders—Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

Impact of the Business Combination on KAAC’s Public Float

It is anticipated that, upon completion of the Transactions, our ownership will be as follows:

 

Holder

   Number of
Shares of
Class A
Common Stock
     Number of
Shares of
Class C
Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     37,732,112        —          10.6     36.1

PIPE Investors(1)

     57,234,023        —          16.2     54.8

Holders of founder shares(2)

     7,570,422        —          2.1     7.3

Apache Contributor(3)

     1,862,606        250,000,000        71.1     1.8

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The number of shares and the economic and voting interests set forth above assume that (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache



 

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Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchase shares of Class A Common Stock in the open market; (iv) there are no other issuances of equity interests of KAAC; and (v) the warrants remain outstanding immediately following the closing of the business combination. As a result of the Transactions, the voting interest of our public stockholders will decrease from 80.0% to 10.6%, and the Apache Contributor will hold a majority of the combined voting power of all classes of our outstanding voting common stock. In addition, if public stockholders elect to have their public shares redeemed in connection with the business combination, the Apache Contributor will be entitled to receive additional shares of Class A Common Stock equal to the product of (i) the number of public shares redeemed for cash at the closing of the business combination minus 2,000,000 and (ii) 26.6%, subject to a maximum cap of 5,450,422 shares of Class A Common Stock. In such an event, our Sponsor will forfeit a number of founder shares equal to the number of shares of Class A Common Stock issued to the Apache Contributor, and the economic and voting interests of the holders of our founder shares, as a group, will decrease, and the economic and voting interests of the Apache Contributor will increase, accordingly.

The ownership percentages with respect to KAAC set forth above do not take into account any earn-out consideration delivered to the Apache Contributor. Assuming that the earn-out consideration were payable at the closing of the business combination, and based on the other assumptions set forth above, the ownership of our voting and economic interests would be as follows:

 

     Earn-Out Consideration Payable  
     12,500,000 Shares     25,000,000 Shares     37,500,000 Shares  

Holder

   Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
    Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     10.3     32.3     9.9     29.2     9.6     26.6

PIPE Investors(1)

     15.6     49.0     15.1     44.2     14.6     40.3

Holders of founder shares(2)

     2.1     6.5     2.0     5.8     1.9     5.3

Apache Contributor(3)

     72.1     12.3     73.0     20.8     73.8     27.8

 

(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

The ownership percentages with respect to KAAC set forth above do not take into account warrants to purchase Class A Common Stock that will remain outstanding immediately following the business combination, but do include the founder shares (even though they and the shares of Class A Common Stock into which they will convert upon the closing of the business combination are subject to transfer restrictions) due to the continued voting rights associated with the founder shares. Our warrants will become exercisable 30 days after the closing of the business combination and will expire five years after the closing of the business combination or earlier upon their redemption or liquidation. If we assume that all 18,941,651 warrants to be outstanding at the closing of the business combination were exercisable and exercised following the closing of the business combination for aggregate proceeds to KAAC of approximately $217.8 million, then our ownership would be as follows:

 

Holder

   Number of
Shares of
Class A
Common Stock
     Number of
Shares of
Class C
Common Stock
     Voting
Interest
    Economic
Interest
 

KAAC IPO Shares (Public Stockholders)

     50,309,482        —          13.5     40.8

PIPE Investors(1)

     57,234,023        —          15.3     46.4

Holders of founder shares(2)

     10,752,563        —          2.9     8.7

Apache Contributor(3)

     5,044,746        250,000,000        68.3     4.1


 

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(1)

Includes certain funds and client accounts advised by Kayne Anderson and directors, management and employees of KAAC, Kayne Anderson and Apache.

(2)

Includes our Sponsor and independent directors.

(3)

The Apache Contributor will also have an economic interest in Altus Midstream that is equal to the Apache Contributor’s voting interest in KAAC attributable to its shares of Class C Common Stock.

Please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

Organizational Structure

The following diagram illustrates the ownership structure of KAAC immediately following the closing of the business combination. The voting and economic interests shown in the diagram are based on the assumptions that (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) none of the below investors purchase shares of Class A Common Stock in the open market; (iv) there are no other issuances of equity interests of KAAC; and (v) the warrants remain outstanding immediately following the closing of the business combination.

 

 

LOGO



 

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Board of Directors and Management of KAAC Following the Transactions

We are, and after the closing of the business combination will continue to be, managed by our board of directors. Following the closing of the business combination, we anticipate expanding the size of our board of directors from five directors to 11, and                  individuals currently serving on our board of directors will resign from our board of directors following the closing of the business combination. As a result, we will appoint                  new directors, including our current Chief Executive Officer, Robert S. Purgason, six non-independent directors selected by the Apache Contributor, two independent directors selected by Kayne Anderson and one independent director selected by the Apache Contributor, effective as of and contingent upon closing of the business combination. In addition, we expect to form a conflicts committee of our board of directors following the closing of the business combination, which will initially be composed of three independent directors. Please see the sections entitled “Officers and Directors of KAAC Prior to Closing of the Business Combination” and “Officers and Directors of KAAC Following Closing of the Business Combination.”

Upon completion of the Transactions, the Apache Contributor will control a majority of our outstanding voting common stock and will have the ability to influence the election of our board of directors. As a result, we expect to be a controlled company within the meaning of the NASDAQ corporate governance standards, and may elect not to comply with certain NASDAQ corporate governance requirements, including the requirements that a majority of the board of directors consist of independent directors and that the nominating and governance committee and compensation committee be composed entirely of independent directors. These requirements will not apply to us as long as we remain a controlled company.

Following the closing of the business combination, we will act as the general partner of Altus Midstream, and as such, will manage and govern Altus Midstream’s business. It is expected that Robert S. Purgason and Terry A. Hart will resign as our Chief Executive Officer and Chief Financial Officer, respectively, upon the closing of the business combination, and that our management team will include Brian W. Freed, as Chief Executive Officer, and Ben C. Rodgers, as Chief Financial Officer, both of whom are currently members of Apache’s senior management team.

Accounting Treatment

The business combination will be accounted for as a reverse recapitalization of KAAC in accordance with generally accepted accounting principles in the United States (“GAAP”). Under this method of accounting, KAAC will be treated as the “acquired” company for accounting purposes and the business combination will be treated as the equivalent of Alpine High Midstream issuing stock for the net assets of KAAC, accompanied by a recapitalization. The net assets of KAAC will be stated at historical cost, with no goodwill or other intangible assets recorded.

Appraisal Rights

Appraisal rights are not available to KAAC stockholders in connection with the business combination.

Other Proposals

In addition to the proposal to approve and adopt the Contribution Agreement and the business combination (the “Business Combination Proposal”), KAAC stockholders will be asked to vote on (i) amendments to the Charter to create a new class of capital stock, Class C Common Stock, par value $0.0001 per share (the “Class C Charter Proposal”), (ii) an amendment to increase the number of authorized shares of Class A Common Stock from 200,000,000 shares to 1,500,000,000 shares (the “Authorized Class A Share Charter Proposal”), (iii) an amendment to increase the number of authorized shares of Preferred Stock from 1,000,000 shares to 50,000,000 shares (the “Authorized Preferred Share Charter Proposal”), (iv) amendments to the Charter to



 

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declassify our board of directors upon the closing of the business combination (the “Board Declassification Proposal”), and (v) amendments eliminating provisions in the Charter relating to an initial business combination that will no longer be applicable to us following the closing of the business combination (the “Additional Charter Proposal”). A copy of our Second A&R Charter reflecting the proposed amendments pursuant to the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal, the Board Declassification Proposal and the Additional Charter Proposal is attached to this proxy statement as Annex B. For more information about the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal, the Board Declassification Proposal and the Additional Charter Proposal, see the section entitled “Proposal No. 2—The Class C Charter Proposal,” “Proposal No. 3—The Authorized Class A Share Charter Proposal,” “Proposal No. 4—The Authorized Preferred Share Charter Proposal,” “Proposal No. 5—The Board Declassification Proposal” and “Proposal No. 6—The Additional Charter Proposal.”

In addition, KAAC stockholders will be asked to vote on (i) a proposal to approve, for purposes of complying with applicable NASDAQ listing rules, (a) the issuance of up to 7,313,028 shares of Class A Common Stock and 250,000,000 shares of Class C Common Stock to the Apache Contributor in connection with the business combination; (b) the future issuance of up to 250,000,000 shares of Class A Common Stock to the Apache Contributor in connection with any redemption or exchange of its Common Units in accordance with the Altus Midstream LPA; (c) the issuance of 3,182,140 Contribution Warrants to the Apache Contributor in connection with the business combination and the future issuance of up to 3,182,140 shares of Class A Common Stock upon the exercise of the Contribution Warrants; (d) the future issuance of up to 37,500,000 shares of Class A Common Stock to the Apache Contributor as earn-out consideration in connection with the business combination; and (e) the issuance and sale of 57,234,023 shares of Class A Common Stock in the Private Placement (the “NASDAQ Proposal”), (ii) a proposal to elect one director to serve as a Class I director on our board of directors for a term of three years expiring at the annual meeting of stockholders to be held in 2021 or until such director’s successor has been duly elected and qualified, or until such director’s earlier death, resignation, retirement or removal (the “Director Election Proposal”) and (iii) a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NASDAQ Proposal or the Director Election Proposal (the “Adjournment Proposal”).

See the sections entitled “Proposal No. 7—The NASDAQ Proposal,” “Proposal No. 8—The Director Election Proposal” and “Proposal No. 9—The Adjournment Proposal” for more information.

Date, Time and Place of Special Meeting

The special meeting will be held at                  a.m., local time, on                 , 2018, at                 , or such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the Proposals.

Voting Power; Record Date

You will be entitled to vote or direct votes to be cast at the special meeting if you owned shares of Class A Common Stock or Class B Common Stock at the close of business on                 , 2018, which is the record date for the special meeting. You are entitled to one vote for each share of Class A Common Stock or Class B Common Stock that you owned as of the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were                  shares of Class A Common Stock and Class B Common Stock outstanding in the aggregate, of which                  are public shares and 9,433,028 are founder shares held by the Sponsor and our independent directors.



 

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Proxy Solicitation

Proxies may be solicited by mail. KAAC has engaged Morrow Sodali to assist in the solicitation of proxies. If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the special meeting. A stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “Special Meeting of KAAC Stockholders—Revoking Your Proxy.”

Quorum and Required Vote for Proposals for the Special Meeting

A quorum of KAAC stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting if a majority of the Class A Common Stock and Class B Common Stock outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum.

The approval of the Business Combination Proposal, the NASDAQ Proposal, and the Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Class A Common Stock and Class B Common Stock represented in person or by proxy and entitled to vote thereon and actually cast at the special meeting, voting as a single class. Approval of the Charter Proposals require the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock represented in person or by proxy and entitled to vote thereon at the special meeting, voting as a single class. Approval of the election of the director nominee pursuant to the Director Election Proposal requires the affirmative vote of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Cumulative voting is not permitted in the election of directors. Accordingly, if a valid quorum is otherwise established, a stockholder’s failure to vote by proxy or to vote in person at the special meeting will have no effect on the outcome of any vote on the Business Combination Proposal, NASDAQ Proposal, the Director Election Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST the Charter Proposals.

Recommendation to KAAC Stockholders

Our board of directors believes that each of the Business Combination Proposal, the Class C Charter Proposal, the Authorized Class A Share Charter Proposal, the Authorized Preferred Share Charter Proposal, the Board Declassification Proposal, the Additional Charter Proposal, the NASDAQ Proposal, the Director Election Proposal and the Adjournment Proposal is in the best interests of KAAC and its stockholders and recommends that its stockholders vote “FOR” each of the Proposals to be presented at the special meeting.

When you consider the recommendation of our board of directors in favor of approval of the Transaction Proposals, you should keep in mind that the Sponsor, members of our board of directors and officers have interests in the business combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. Please see the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Risk Factors

In evaluating the Proposals set forth in this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”



 

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Summary Historical and Pro Forma Financial Information of KAAC

The following table presents summary historical unaudited financial information of KAAC and summary unaudited pro forma financial information for KAAC after giving effect to the business combination, assuming two redemption scenarios as follows:

 

   

Assuming No Redemption: This scenario assumes that no shares of Class A Common Stock are redeemed; and

 

   

Assuming Illustrative Redemption: This scenario assumes for illustrative purposes that 22,490,308 shares of Class A Common Stock are redeemed, resulting in an aggregate payment of approximately $226.9 million from the Trust Account, which is the amount of redemptions set forth in the Contribution Agreement, that would result in (i) the Apache Contributor receiving a maximum of 5,450,422 additional newly issued shares of Class A Common Stock, (ii) a corresponding forfeiture of 5,450,422 founder shares by our Sponsor, and (iii) the balance of cash at the closing of the business combination being reduced by approximately $226.9 million.

The unaudited pro forma condensed combined statement of operations data of KAAC for the six months ended June 30, 2018 combines the historical statement of operations of KAAC and the combined historical statement of the operations of Alpine High Midstream, giving effect to the business combination as if it had been consummated on January 1, 2017. The unaudited pro forma condensed combined balance sheet of KAAC as of June 30, 2018 presents the historical balance sheet of KAAC and the historical combined balance sheet of Alpine High Midstream, giving effect to the business combination as if it had been consummated on June 30, 2018. For more information, please see the sections entitled “Selected Historical Financial Information of KAAC” and “Unaudited Pro Forma Condensed Combined Financial Information.”



 

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     Six Months Ended June 30, 2018  
     KAAC      Pro Forma
Assuming No
Redemption
    Pro Forma
Assuming
Illustrative
Redemption
 
     (unaudited, in thousands, except share and per
share data)
 

Statement of Operations Data:

       

Revenues

   $ —        $ 24,616     $ 24,616  

Operating Expenses:

       

Gathering, transmission and processing

   $ —        $ 22,219     $ 22,219  

Depreciation and accretion

     —          8,921       8,921  

General and administrative

     714        3,975       3,975  

Taxes other than income

     100        5,353       5,353  
  

 

 

    

 

 

   

 

 

 

Total operating expenses

     814        40,468       40,468  

Other income—investment income on Trust Account

     2,650        —         —    
  

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     1,836        (15,852     (15,852

Income tax expense (benefit)

     538        2,603       2,180  
  

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to common shares

   $ 1,298      $ (18,455   $ (18,032
  

 

 

    

 

 

   

 

 

 

Less: loss attributable to non-controlling interest

     —          11,182       11,940  
  

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to Class A Common Stockholders

   $ 1,298      $ (7,273   $ (6,092
  

 

 

    

 

 

   

 

 

 

Weighted average number of shares outstanding:

       

Basic

     11,137,469        104,399,163       81,908,855  

Diluted

     47,165,140        104,399,163       81,908,855  

Net income (loss) per common share:

       

Basic

   $ 0.12      $ (0.07   $ (0.07

Diluted

   $ 0.03      $ (0.07   $ (0.07
     As of June 30, 2018  
     KAAC      Pro Forma
Assuming No
Redemption
    Pro Forma
Assuming
Illustrative
Redemption
 
     (unaudited, in thousands)  

Balance Sheet Data:

       

Total current assets

   $ 239      $ 924,487     $ 697,560  

Investment held in Trust Account

     380,712        —         —    

Total property, plant and equipment, net

     —          933,831       933,831  
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 380,951      $ 1,858,318     $ 1,631,391  
  

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,178        29       29  

Total long-term liabilities

     13,206        30,349       30,349  
  

 

 

    

 

 

   

 

 

 

Total liabilities

     14,384        30,378       30,378  
  

 

 

    

 

 

   

 

 

 

Class A Common Stock subject to redemption

     361,567        —         —    

Class A Common Stock

     —          10       8  

Class B Common Stock

     1        —         —    

Class C Common Stock

     —          25       25  

Additional paid-in capital

     3,891        568,442       424,511  

Retained earnings (accumulated deficit)

     1,108        (30,001     (29,445

Non-controlling interest

     —          1,289,464       1,205,914  
  

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 380,951      $ 1,858,318     $ 1,631,391  
  

 

 

    

 

 

   

 

 

 


 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF KAAC

The following table shows selected historical financial information of KAAC for the periods and as of the dates indicated. The selected historical financial information of KAAC as of and for the year ended December 31, 2017 and for the period from December 12, 2016 (inception) to December 31, 2016 was derived from the audited historical financial statements of KAAC included elsewhere in this proxy statement. The selected historical interim financial information of KAAC as of and for the six months ended June 30, 2018 was derived from the unaudited interim financial statements of KAAC included elsewhere in this proxy statement. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of KAAC” and our historical financial statements and the notes and schedules related thereto, included elsewhere in this proxy statement.

 

     (in thousands, except share and per share data)  
     Six Months
Ended
June 30, 2018
     Year Ended
December 31, 2017
    Period from
December 12, 2016
(inception) to
December 31, 2016
 
     (unaudited)               

Statement of Operations Data:

       

Total expenses

   $ 814      $ 1,738     $ 2  

Other income—investment income on Trust Account

     2,650        2,247       —    

Current income tax expense

     538        696       —    
  

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 1,298      $ (187   $ (2

Weighted average number of common shares outstanding

       

Basic

     11,137,469        10,682,217       10,062,500  

Diluted

     47,165,140        10,682,217       10,062,500  

Net income (loss) per common share—basic

   $ 0.12      $ (0.02   $ (0.00
  

 

 

    

 

 

   

 

 

 

Net income (loss) per common share—diluted

   $ 0.03      $ (0.02   $ (0.00
  

 

 

    

 

 

   

 

 

 
     (in thousands)  
     As of
June 30,
2018
     As of
December 31, 2017
    As of
December 31,
2016
 
     (unaudited)               

Balance Sheet Data:

       

Total assets

   $ 380,951      $ 379,724     $ 46  

Total liabilities

   $ 14,384      $ 14,454     $ 23  

Value of Class A Common Stock that may be redeemed in connection with a business combination

   $ 361,567      $ 360,270     $ —    

Total stockholders’ equity

   $ 5,000      $ 5,000     $ 23  

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF ALPINE HIGH MIDSTREAM

The following table shows selected historical financial information of Alpine High Midstream for the periods and as of the dates indicated. The selected historical financial information of Alpine High Midstream as of December 31, 2017 and 2016 and for the year ended December 31, 2017 and the period from inception of Apache’s Alpine High operations (May 26, 2016) through December 31, 2016 was derived from the audited combined historical financial statements of Alpine High Midstream included elsewhere in this proxy statement. The selected historical financial information of Alpine High Midstream as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 was derived from the unaudited combined interim financial statements of Alpine High Midstream included elsewhere in this proxy statement. The combined financial statements of Alpine High Midstream reflect the combined results of operations of Alpine High Gathering, Alpine High Pipeline, Alpine High Processing, and Alpine High NGL, which operate and conduct Apache’s Alpine High midstream business.

Alpine High Midstream’s historical results are not necessarily indicative of the future operating results. The selected financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alpine High Midstream,” as well as the combined historical financial statements of Alpine High Midstream and accompanying notes included elsewhere in this proxy statement.

 

     (in thousands)  
     Six Months Ended
June 30,
    Year Ended
December 31,

2017
    Period from
May 26, 2016
(Inception)
through
December 31,

2016
 
     2018     2017  
     (unaudited)              

Statement of Operations Data:

 

Total revenues

   $ 24,616     $     1,570     $   15,142     $        —    

Total operating expenses

     39,654       3,699       26,676       —    

Net loss before income taxes

     (15,038     (2,129     (11,534     —    

Net loss

   $ (24,228   $ (2,429   $ (18,575   $ —    

Other Financial Data:

 

Adjusted EBITDA(1)

   $ (6,117   $ (1,490   $ (5,543   $      —    

 

     (in thousands)  
     June 30,
2018
     December 31,  
     2017      2016  
     (unaudited)                

Balance Sheet Data:

 

Current assets

   $ 5,377      $ 6,165      $ —    

Property and equipment, net

     933,831        699,586        155,967  
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 939,208      $ 705,751      $ 155,967  
  

 

 

    

 

 

    

 

 

 

Current liabilities

   $ 78,282      $ 124,471      $ 96,626  

Total liabilities

     124,863        149,701        96,626  

Partner’s capital

     814,345        556,050        59,341  
  

 

 

    

 

 

    

 

 

 

Total liabilities & partner’s capital

   $ 939,208      $ 705,751      $ 155,967  
  

 

 

    

 

 

    

 

 

 

 

(1)

Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss), see “Non-GAAP Financial Measure” below. Adjusted EBITDA is unaudited for all periods presented.

 

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Non-GAAP Financial Measure

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by Alpine High Midstream’s management and external users of its financial statements. Alpine High Midstream defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation, and accretion, and also excludes (when applicable) impairments and other items affecting comparability of results to peers. Adjusted EBITDA is not a measure of net income (loss) as determined by generally accepted accounting principles in the United States of America (“GAAP”).

Alpine High Midstream management believes Adjusted EBITDA is useful for evaluating operating performance and comparing its results of operations from period-to-period and against its peers without regard to Alpine High Midstream’s financing or capital structure. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) or any other measure determined in accordance with GAAP or as an indicator of Alpine High Midstream’s operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing Alpine High Midstream’s financial performance, such as the impacts of the Alpine High Midstream tax structure and the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. The presentation of Adjusted EBITDA should not be construed as an inference that results will be unaffected by unusual or non-recurring items. Additionally, computation of Adjusted EBITDA for Alpine High Midstream may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of Adjusted EBITDA to net loss, Alpine High Midstream’s most directly comparable financial measure calculated and presented in accordance with GAAP.

 

     (in thousands)  
     Six Months Ended
June 30,
    Year Ended
December 31,

2017
    Period from
May 26, 2016
(Inception)
through
December 31,

2016
 
     2018     2017  

Adjusted EBITDA reconciliation to net loss:

 

Net loss

   $ (24,228   $ (2,429   $ (18,575   $         —    

Interest expense

     —         —         —         —    

Income taxes

     9,190       300       7,041       —    

Depreciation and accretion

     8,921       639       5,991       —    

Impairments

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (6,117   $ (1,490   $ (5,543   $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this proxy statement may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would,” “outlook,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this proxy statement may include, for example, statements about:

 

   

our ability to consummate the business combination;

 

   

the benefits of the business combination;

 

   

the future financial performance of KAAC following the business combination, including those reflected in the unaudited financial projections of Alpine High Midstream in “Unaudited Financial Projections of Alpine High Midstream”;

 

   

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following the business combination;

 

   

changes in the future operating results of Alpine High Midstream; and

 

   

expansion plans and opportunities, including opportunities with respect to KAAC’s and/or its subsidiaries’ ability to exercise the Options and the Additional Option.

These forward-looking statements are based on information available as of the date of this proxy statement, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should not place undue reliance on these forward-looking statements in deciding how to grant your proxy or instruct how your vote should be cast on the Proposals set forth in this proxy statement. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

 

   

the occurrence of any event, change or other circumstances that could delay the business combination or give rise to the termination of the Contribution Agreement;

 

   

the outcome of any legal proceedings that may be instituted against KAAC following announcement of the proposed business combination and the Transactions contemplated thereby;

 

   

the inability to complete the business combination due to the failure to obtain approval of the stockholders of KAAC, or other conditions to closing in the Contribution Agreement;

 

   

the risk that the proposed business combination disrupts current plans and operations of Alpine High Midstream as a result of the announcement and consummation of the Transactions described herein;

 

   

our ability to recognize the anticipated benefits of the business combination, which may be affected by, among other things, competition, the ability of KAAC to grow and manage growth profitably following the business combination and the ability of KAAC and/or its subsidiaries to exercise the Options and the Additional Option on the terms described in this proxy statement or at all;

 

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costs related to the business combination;

 

   

changes in applicable laws or regulations;

 

   

the possibility that KAAC or Alpine High Midstream may be adversely affected by other economic, business, and/or competitive factors; and

 

   

other risks and uncertainties indicated in this proxy statement, including those under the section entitled “Risk Factors.”

 

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RISK FACTORS

The following risk factors apply to the business and operations of Alpine High Midstream and will also apply to our business and operations following the closing of the business combination. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of Alpine High Midstream and our business, financial condition and prospects following the closing of the business combination. You should carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with our and Alpine High Midstream’s financial statements and notes to the financial statements included herein.

Risks Related to the Business of Alpine High Midstream

Alpine High Midstream derives, and following the closing of the business combination will continue to derive, a substantial portion of its revenue from Apache, and its plans for growth will heavily depend on Apache’s growth in the Alpine High resource play. If Apache changes its business strategy in the Alpine High resource play, alters its current drilling and development plan on acreage dedicated to Alpine High Midstream, or otherwise significantly reduces the volumes of natural gas or NGLs with respect to which Alpine High Midstream performs midstream services, Alpine High Midstream’s revenue would decline and its business, financial condition, results of operations, and cash flows would be materially and adversely affected.

All of Alpine High Midstream’s current commercial agreements are with Apache or its affiliates, and as a result, Alpine High Midstream derives substantially all of its revenue from Apache. Following the closing of the business combination, we expect Apache to be a significant driver of any growth in our revenue. Accordingly, we will be subject to the operational and business risks of Apache, the most significant of which include the following:

 

   

a reduction in or slowing of Apache’s drilling and development plans for the acreage dedicated to Alpine High Midstream, which would directly and adversely impact demand for our midstream services;

 

   

the volatility of crude oil, natural gas, and NGL prices, which could have a negative effect on Apache’s drilling and development plans for the acreage dedicated to Alpine High Midstream or Apache’s ability to finance its operations and drilling and completion costs relating to the acreage dedicated to Alpine High Midstream;

 

   

the availability of capital on an economic basis to fund Apache’s exploration and development activities;

 

   

drilling and operating risks, including potential environmental liabilities, associated with Apache’s operations on the acreage dedicated to Alpine High Midstream;

 

   

downstream processing and transportation capacity constraints and interruptions, including the failure of Apache to have sufficient contracted transportation capacity; and

 

   

adverse effects of increased or changed governmental and environmental regulation or enforcement of existing regulation.

In addition, we will be indirectly subject to the business risks of Apache generally and other factors, including, among others:

 

   

Apache’s financial condition, credit ratings, leverage, market reputation, liquidity, and cash flows;

 

   

Apache’s ability to maintain or replace its reserves;

 

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adverse effects of governmental and environmental regulation on Apache’s upstream operations; and

 

   

losses, if any, from pending or future litigation.

Further, Alpine High Midstream does not have control over Apache’s business decisions and operations, and Apache is under no obligation to adopt a business strategy that is favorable to Alpine High Midstream or us following the closing of the business combination. For example, Apache may decide to allocate capital that we expect to be spent in the Alpine High resource play to other parts of its business. Thus, we will be subject to the risk of cancellation of planned development, breach of commitments with respect to future dedications, and other non-payment or non-performance by Apache, including with respect to our commercial agreements, which do not contain minimum volume commitments. Apache is currently operating eight drilling rigs in the Alpine High resource play. A decrease in the number of drilling rigs that Apache operates on the acreage dedicated to Alpine High Midstream could result in lower throughput on our midstream infrastructure. Furthermore, we cannot predict the extent to which Apache’s businesses would be impacted if conditions in the energy industry were to deteriorate nor can we estimate the impact such conditions would have on Apache’s ability to execute its drilling and development plan on the acreage dedicated to Alpine High Midstream or to perform under our commercial agreements. Any material non-payment or non-performance by Apache under our commercial agreements would have a significant adverse impact on our business, financial condition, results of operations, and cash flows.

The long-term commercial agreements between Alpine High Midstream and Apache have initial terms of approximately 14 years, through March 31, 2032, which may be extended by Apache for two five-year periods. There is no guarantee that Apache will extend these agreements beyond the initial terms or that Alpine High Midstream will be able to renew or replace these agreements on equal or better terms, or at all, upon their expiration. The ability of Alpine High Midstream to renew or replace these commercial agreements following their expiration at rates sufficient to maintain the current revenues and cash flows of Alpine High Midstream could be adversely affected by activities beyond its control, including the activities of its competitors and Apache.

In addition to the commercial agreements with Apache, Alpine High Midstream may engage in significant business with new third-party customers or enter into material commercial contracts with customers for which they do not have material commercial arrangements or commitments today and who may not have investment grade credit ratings. To the extent Alpine High Midstream derives substantial income from, or commits to capital projects to service, new or existing customers, each of the risks indicated above would apply to such arrangements and customers.

Because Alpine High Midstream has a limited operating history and has generated minimal revenues and operating cash flows, it may be difficult to evaluate Alpine High Midstream’s business and its ability to successfully implement its business strategy.

Because of Alpine High Midstream’s limited operating history, the operating performance of its assets and business strategy are not yet proven. Alpine High Midstream began construction of its midstream assets in the fourth quarter of 2016, and Alpine High Midstream has only generated minimal revenues and operating cash flows since such time. As a result, it may be difficult for you to evaluate Alpine High Midstream’s business and results of operations to date and to assess its future prospects.

In addition, Alpine High Midstream may encounter risks and difficulties experienced by companies whose performance is dependent upon newly constructed assets, such as Alpine High Midstream’s assets failing to function as expected, higher than expected operating costs, equipment breakdown or failures, and operational errors. Alpine High Midstream may be less successful in achieving a consistent operating level capable of generating cash flows from its operations as compared to a company whose major assets have had longer operating histories. In addition, Alpine High Midstream may be less equipped to identify and address operating risks and hazards in the conduct of its business than those companies whose major assets have had longer operating histories.

 

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If Alpine High Midstream and/or Altus Midstream is unable to exercise the Options and the Additional Option on economically acceptable terms, its future growth will be limited.

Alpine High Midstream’s growth strategy includes acquiring ownership interests in or benefiting from certain midstream pipeline projects pursuant to the Options and the Additional Option. If Alpine High Midstream and/or Altus Midstream is unable to exercise one or more Options or the Additional Option either because it does not have adequate funds available or it is unable to obtain financing to fund the applicable exercise price on economically acceptable terms or at all, then its future growth will be limited.

In addition, from time to time, Alpine High Midstream may evaluate and seek to acquire assets or businesses that it believes complement its existing business and related assets. Alpine High Midstream may acquire assets or businesses that it plans to use in a manner materially different from its prior owner’s use. Any acquisition involves potential risks, including:

 

   

the inability to integrate the operations of recently acquired businesses or assets, especially if the assets acquired are in a new business segment or geographic area;

 

   

the failure to realize expected volumes, revenues, profitability, or growth;

 

   

the failure to realize any expected synergies and cost savings;

 

   

the coordination of geographically disparate organizations, systems, and facilities;

 

   

the assumption of unknown liabilities;

 

   

the loss of customers or key employees from the acquired businesses; and

 

   

potential environmental or regulatory liabilities and title problems.

Any assessment of these risks will be inexact and may not reveal or resolve all existing or potential problems associated with an acquisition. Realization of any of these risks could adversely affect Alpine High Midstream’s financial condition, results of operations, and cash flows. If Alpine High Midstream consummates any future acquisition, its capitalization and results of operations may change significantly.

Following the closing of the business combination, if we are unable to exercise the Options and the Additional Option as planned, or if any of the underlying pipelines experience cost overruns or do not generate the cash flows we expect after we exercise, our plans for growth will be impaired.

Our strategy to grow our business depends in part on our ability to exercise the Options and the Additional Option being acquired in the business combination, and we can offer no assurance that we will be able to exercise the Options or the Additional Option, or that, if exercised, we will be able to finance the acquisition of the underlying interests in the applicable pipelines or that those pipelines will perform as expected. The Additional Option and each Option pertains to a pipeline that is either under construction or has not yet commenced construction. The Additional Option and each Option has conditions precedent that must be satisfied before we can exercise, some of which are outside of our control. The obligations of each of the parties to the Options and the Additional Option to close on the exercise of the applicable option are conditioned on (i) no proceeding having been instituted that seeks to restrain, enjoin or otherwise prohibit or make illegal the closing of such option and (ii) the exercise price having been determined in accordance with the terms of the agreement regarding such option (the “Option Closing Conditions”). In addition:

 

   

EPIC Midstream Holdings, LP’s obligation to close on the exercise of the EPIC Option is conditioned on (i) no default occurring and continuing to occur under the crude oil transportation agreement between Apache and Epic Crude Pipeline, LP and (ii) Apache providing an equity commitment letter if required pursuant to the agreement governing the EPIC Option.

 

   

The obligations of the each of the parties to close on the exercise of the Shin Oak Option are conditioned on (i) the NGL purchase agreement between Apache and Enterprise Products Operating LLC not being terminated and (ii) Apache not being in material breach of any provision of such NGL purchase agreement that has not been cured within the periods specified by such NGL purchase agreement.

 

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The GCX Option will terminate automatically upon the termination of any of such natural gas transportation agreements between Apache and Gulf Coast Express Pipeline LLC.

 

   

The obligation of each of the parties to close on the exercise of the Supplemental GCX Option is conditioned on the unanimous approval of the members of Gulf Coast Express Pipeline LLC and the waiver of the preferential purchase rights of such members with respect to the equity interest associated with the Supplemental GCX Option. In addition, the obligation of Kinder Morgan Texas Pipeline LLC to close on the exercise of the Supplemental GCX Option is conditioned on (i) the exercise of the GCX Option in full and (ii) the exercise of the Additional Option in full and, following such exercise of the Additional Option, us holding less than 30% of the equity interests in the Permian Highway Pipeline Project. In addition, the Supplemental GCX Option will terminate automatically upon the termination of certain transaction agreements between Apache and Gulf Coast Express Pipeline LLC.

 

   

The Additional Option will terminate automatically upon the termination of any of the transportation agreements between Apache Midstream and Permian Highway Pipeline LLC.

There are no additional obligations of any of the parties to the Salt Creek Option to close other than the Option Closing Conditions. As described above, some of such conditions precedent are within the control of Apache, and we will have no ability to ensure Apache’s satisfaction of such conditions precedent. If we are able to exercise the Options and the Additional Option and the applicable pipelines do not perform as expected, we may experience losses on our investments in such pipelines or we could lose our entire investment in such pipelines.

In addition, each of the pipelines to which the Options and the Additional Option relate is subject to risks associated with construction delays, cost over-runs, operational hazards, environmental matters, regulatory matters, and legal matters, as well as other risks and uncertainties, many of which are beyond the control of the operator of the pipeline. If any of these risks were to materialize, Alpine High Midstream’s financial condition, results of operations, and cash flows could be adversely affected.

Following the closing of the business combination, if we successfully exercise the Options and the Additional Option, we will be required to make significant capital contributions to the owners of the pipelines for our share of the capital expenditures spent through the date of exercise and may, from time to time, have to make additional capital contributions, both of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we successfully exercise the Options and the Additional Option, we will own non-operating interests in the pipelines relating to such Options and the Additional Option. Upon exercise of the Options and the Additional Option, we will be required to contribute our share of the capital expenditures spent through the date of exercise, including any financing charges for certain of these Options and the Additional Option associated with our proportionate share of such capital prior to exercising such Options and the Additional Option. Thereafter, we will also be required to fund our share of any remaining capital expenditures required to complete construction of the pipeline. Once the pipelines are operational, as a non-operating, minority owner, we will not have control over decisions to make maintenance and growth capital expenditures on the pipelines. To the extent that the operator of one of the pipelines decides to make additional capital expenditures for a pipeline, we could be required to contribute additional capital to maintain our ownership interest, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Alpine High Midstream does not have any employees and relies entirely on services provided by Apache’s employees.

Alpine High Midstream does not have any employees and relies on Apache’s employees. Following the closing of the business combination, we will continue to rely on Apache’s employees to conduct our business and activities pursuant to the COMA. Apache conducts businesses and activities of its own in which we will not have an economic interest. As a result, there could be material competition for the time and effort of the officers and employees who provide services to us and Apache. If Apache’s employees who provide services to us do not

 

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devote sufficient attention to the management and operation of our business and activities following the closing of the business combination, our business, financial condition, results of operations, and cash flows could be materially and adversely affected. The COMA is subject to termination by us or Apache under certain circumstances, including if Apache or one of its affiliates no longer owns a direct or indirect interest in at least 50% of the voting or other equity securities of KAAC. For more information about the COMA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Construction, Operations and Maintenance Agreement.” Should the COMA be terminated by us or Apache, we will be required to attract and hire employees to perform the services currently performed by Apache’s employees under the COMA or otherwise contract with third parties for the provision of such services, which, in either case, could subject us to substantial additional costs and could cause significant disruptions to our business and may be on terms less favorable than the terms of the COMA and, as a result, our financial condition, results of operations, and cash flows could be adversely affected.

The services that Alpine High Midstream offers require laborers skilled in multiple disciplines, such as equipment operators, mechanics, and engineers, among others. In the event that the COMA is terminated and Alpine High Midstream is required to attract and hire employees, Alpine High Midstream’s business will be dependent on its ability to recruit, retain, and motivate employees. Certain circumstances, such as an aging workforce without appropriate replacements, a mismatch of existing skill sets to future needs, competition for skilled labor, or the unavailability of contract resources may lead to operating challenges such as a lack of resources, loss of knowledge, or a lengthy time period associated with skill development. Alpine High Midstream’s costs, including costs for contractors to replace employees, productivity costs, and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect Alpine High Midstream’s ability to manage and operate its business. If Alpine High Midstream is unable to successfully attract and retain an appropriately qualified workforce, its financial condition, results of operations, or cash flows could be adversely affected.

All of Alpine High Midstream’s operations are located in the Alpine High resource play, making Alpine High Midstream vulnerable to risks associated with having revenue-producing operations concentrated in one geographic area.

Alpine High Midstream’s revenue-producing operations are geographically concentrated in the Alpine High resource play of the Southern Delaware Basin of West Texas, causing it to be disproportionally exposed to risks associated with regional factors. The concentration of Alpine High Midstream’s operations in this region increases Alpine High Midstream’s exposure to unexpected events that may occur in this region such as natural disasters. Furthermore, Alpine High Midstream may be exposed to increases in costs as a result of regional economic conditions and availability of goods and services. For example, Alpine High Midstream is relying on temporary power sources until local utilities can install permanent power. If availability of permanent power from local service providers is delayed, Alpine High Midstream’s results of operations could be adversely impacted. In addition, Alpine High Midstream relies on the availability of a skilled labor force, which could become more expensive (or at certain times, unavailable) if the labor market in the Permian Basin continues to tighten. Any one of these events has the potential to have a significant adverse impact on Alpine High Midstream’s operations and growth plans, decrease cash flows, increase operating and capital costs, and prevent development within originally anticipated time frames. Any of these risks could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

Alpine High Midstream is dependent on the supply of natural gas and NGLs to its system, and any decrease in the supply of such commodities could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

Alpine High Midstream currently generates all of its revenues under agreements with Apache’s upstream development located in the Alpine High resource play. None of these agreements contain minimum volume commitments, and, therefore, Alpine High Midstream’s cash flows will completely depend upon the volumes

 

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Apache produces in the Alpine High resource play for so long as Apache is its sole customer. Further, Alpine High Midstream may not be able to obtain additional contracts for natural gas and NGL supplies. If Alpine High Midstream is unable to maintain or increase the volumes on its system by accessing new supplies to offset the natural decline in reserves, its business and financial results could be adversely affected. In addition, Alpine High Midstream’s future growth will depend in part upon whether it can contract for additional supplies at a greater rate than the rate of natural decline in its current supplies.

Fluctuations in energy prices can greatly affect production rates and investments by Apache and third parties in the development of new crude oil and natural gas reserves. Alpine High Midstream could see downward pressure on future drilling activity in the Alpine High resource play if commodity prices decline below current levels, which may result in lower volumes. Tax policy changes or additional regulatory restrictions on development could also have a negative impact on drilling activity, reducing supplies of product available to Alpine High Midstream’s system and assets. Alpine High Midstream has no control over Apache or other producers and depends on them to maintain sufficient levels of drilling activity. An ongoing decrease in the level of drilling activity or a material decrease in production in Alpine High Midstream’s area of operation for a prolonged period, as a result of continued depressed commodity prices or otherwise, would adversely affect Alpine High Midstream’s financial condition, results of operations, and cash flow.

Any decrease in the volumes that Alpine High Midstream gathers, processes, stores, or transports would adversely affect its financial condition, results of operations, or cash flows.

Alpine High Midstream’s financial performance depends to a large extent on the volumes of natural gas and NGLs gathered, processed, and transported on its assets. Decreases in the volumes of natural gas and NGLs that Alpine High Midstream gathers, processes, or transports would directly and adversely affect its financial condition, results of operations, or cash flows. These volumes can be influenced by factors beyond Alpine High Midstream’s control, including:

 

   

environmental or other governmental regulations;

 

   

weather conditions;

 

   

increases in storage levels of crude oil, natural gas, and NGLs;

 

   

increased use of alternative energy sources;

 

   

decreased demand for crude oil, natural gas, and NGLs;

 

   

continued fluctuation in commodity prices, including the prices of crude oil, natural gas, and NGLs;

 

   

economic conditions;

 

   

supply disruptions;

 

   

availability of supply connected to Alpine High Midstream’s systems; and

 

   

availability and adequacy of infrastructure to gather and process supply into and out of Alpine High Midstream’s systems.

The volumes of natural gas and NGLs gathered, processed, and transported on Alpine High Midstream’s assets also depend on the production from the region that supplies its systems. Supply of natural gas and NGLs can be affected by many of the factors listed above, including commodity prices, the decision to recover or reject ethane from rich gas processed through Alpine High Midstream’s rich gas processing facilities, and weather. In order to increase throughput levels on Alpine High Midstream’s system, Alpine High Midstream must obtain new sources of natural gas and NGLs. The primary factors affecting Alpine High Midstream’s ability to obtain new sources of natural gas and NGLs include (i) Apache’s drilling activity in Alpine High Midstream’s area of operations, (ii) the level of successful leasing, permitting, and drilling activity in Alpine High Midstream’s areas of operation, (iii) Alpine High Midstream’s ability to compete for volumes from new wells, and (iv) Alpine High Midstream’s

 

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ability to compete successfully for volumes from sources connected to other pipelines. Alpine High Midstream has no control over the level of drilling activity in its area of operation, the amount of reserves associated with wells connected to its system, or the rate at which production from a well declines. Furthermore, Alpine High Midstream does not have minimum volume commitments in its current commercial agreements with Apache that would otherwise generate a minimum amount of cash in the event that Apache’s production in the Alpine High resource play declines or ceases. Likewise, Alpine High Midstream has no control over producers or their drilling or production decisions, which are affected by, among other things, commodity prices, the availability and cost of capital, levels of reserves, availability of drilling rigs, and other costs of production and equipment.

Apache may suspend, reduce, or terminate its obligations under its commercial agreements with Alpine High Midstream in certain circumstances, which could have a material adverse effect on the financial condition, results of operations, and cash flows of Alpine High Midstream.

Alpine High Gathering, Alpine High Processing, Alpine High NGL, and Alpine High Pipeline entered into the Gas Gathering Agreement, the Gas Processing Agreement, the NGL TSA, and the Residue Gas TSA, respectively, with Apache, which include provisions that permit Apache to suspend, reduce, or terminate its obligations under each agreement if certain events occur. These events include force majeure events that would prevent Alpine High Midstream from performing some or all of the required services under the applicable agreement. Apache, as the counterparty under these commercial agreements, has the discretion to make such decisions notwithstanding the fact that they may significantly and adversely affect Alpine High Midstream. Any such reduction, suspension, or termination of Apache’s obligations under these agreements would have a material adverse effect on the financial condition, results of operations, and cash flow of Alpine High Midstream. Please read “Proposal No. 1—The Business Combination Proposal—Related Agreements.”

While Apache has agreed to grant us a right of first offer to provide additional midstream services in the Alpine High resource play and acquire Apache’s retained midstream assets in the Alpine High resource play, Apache does not have to accept our offer if a competitor provides more attractive economic terms.

In connection with the closing of the business combination, Apache will grant us a right of first offer to provide additional midstream services in the Alpine High resource play and acquire Apache’s retained midstream assets in the Alpine High resource play. Although Apache will grant us this right of first offer, we can make no assurances that the economic terms that we offer Apache will be acceptable to Apache, and another midstream service provider or a third party may be willing to make an offer to Apache on economic terms that we are unwilling or unable to offer. Our inability to take advantage of the opportunities with respect to the right of first offer could adversely affect our growth strategy.

A significant amount of the revenue currently generated by Alpine High Midstream is from contracts with Apache that contain most favored nations rights and other consent rights, limiting flexibility to offer certain capacity to new shippers.

All of Alpine High Midstream system’s current available capacity is provided to Apache under the Gas Gathering Agreement, the Gas Processing Agreement, the NGL TSA, and the Residue Gas TSA. The Gas Gathering Agreement, the Gas Processing Agreement, and the NGL TSA contain most favored nations rights (“MFNs”) that could result in lower rates being charged to Apache in the event that any of the rates being charged to other customers are less than the similar rates charged to Apache. Triggering the MFNs in the Gas Gathering Agreement, the Gas Processing Agreement, or the NGL TSA could lead to a reduction in revenue generated by Alpine High Midstream, which could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows. These three agreements also require Apache’s consent to offer third-party customers priority of service in Alpine High Midstream’s facilities that is at least equal to Apache’s priority of service. If Apache refuses to grant such consent, Alpine High Midstream’s ability to attract third-party customers to its midstream facilities could be negatively impacted, thereby adversely impacting Alpine High Midstream’s ability to grow as expected.

 

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Without Apache’s consent, the MFNs effectively limit Alpine High Midstream’s flexibility in negotiating rates for some of its services with other shippers to fill excess system capacity, because triggering the MFNs contained in the Gas Gathering Agreement, the Gas Processing Agreement, or the NGL TSA would lead to a reduction in the rates that Alpine High Midstream charges to Apache, which would adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

To maintain and grow its business, Alpine High Midstream is, and following the closing of the business combination we will be, required to make substantial capital expenditures.

In order to meet our contractual obligations under the Gas Gathering Agreement and the Gas Processing Agreement with Apache, we will have to make substantial capital investments based on Apache’s forecasted development plans in order to have facilities available to provide services at the time Apache commences production from new wells, or shortly thereafter. Apache’s plans are subject to change and there is no guarantee that facilities we build will be utilized to provide services consistent with Apache’s forecast, or at all. As a result, we could potentially incur material capital expenses that generate no return.

In order to maintain and grow our business following the closing of the business combination, we will need to make substantial capital expenditures to fund growth capital expenditures as well as our share of capital expenditures associated with any Options and the Additional Option we exercise, if any. If we do not make sufficient or effective capital expenditures, we will be unable to maintain and grow our business and, as a result, we may be unable to increase our cash flow over the long term. To fund our capital expenditures, we will be required to use cash from our operations, incur debt, engage in structured financing transactions, or sell additional shares of Class A Common Stock or other equity securities. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our then-current debt agreements, as well as by general economic conditions, contingencies, and uncertainties that are beyond our control. Also, due to our relationship with Apache, our ability to access the capital markets, or the pricing or other terms of any capital markets transactions, may be adversely affected by any impairment to the financial condition of Apache or adverse changes in Apache’s credit ratings. Any material limitation on our ability to access capital as a result of such adverse changes to Apache could limit our ability to obtain future financing under favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes affecting Apache could negatively impact our share price, limiting our ability to raise capital through equity issuances or debt financing, or could negatively affect our ability to engage in, expand, or pursue our business activities, or could also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.

Even if we are successful in obtaining the necessary funds to support our growth plan, the terms of such financings could limit our ability to institute a dividend to our stockholders in the future. In addition, incurring debt will cause us to incur interest expense and increase our financial leverage, and issuing additional shares of Class A Common Stock or other equity interests may result in significant stockholder dilution, which could materially decrease our ability to institute a dividend to our stockholders in the future. While Alpine High Midstream historically received funding from Apache, none of Apache or any of its affiliates is committed to providing any direct or indirect financial support to fund our growth following the closing of the business combination.

Construction of Alpine High Midstream’s assets subjects it to risks of construction delays, cost over-runs, limitations on its growth, and negative effects on its financial condition, results of operations, or cash flows.

Alpine High Midstream is engaged in the construction of its assets, some of which will take a number of months before they begin commercial operation. The construction of these assets is complex and subject to a number of factors beyond Alpine High Midstream’s control, including delays from third-party landowners, the permitting process, complying with laws, unavailability or increased cost of materials, labor disruptions, labor availability, environmental hazards, financing, accidents, weather, and other factors. Any delay in the completion

 

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of the assets could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows. The construction of pipelines and gathering and processing and storage facilities requires the expenditure of significant amounts of capital, which may exceed Alpine High Midstream’s estimated costs. Estimating the timing and expenditures related to these development projects is very complex and subject to variables that can significantly increase expected costs. Should the actual costs of these projects exceed Alpine High Midstream’s estimates, its liquidity and capital position could be adversely affected. Following the closing of the business combination, we will rely exclusively on Apache to provide certain services related to the design, development, construction, operation, management, and maintenance of our midstream assets on our behalf pursuant to the COMA. Although the COMA provides for certain fixed annual limits on the support services fee payable to Apache through 2022, there is no limit on such fees thereafter. As a result, after 2022, we may be required to pay Apache higher fees than would be available from third parties. The COMA is subject to termination by us or Apache under certain circumstances, including if Apache or one of its affiliates no longer owns a direct or indirect interest in at least 50% of the voting or other equity securities of KAAC. Should the COMA be terminated by us or Apache, we may be forced to contract for services previously provided under the COMA, which may be disruptive to our operations and may be on terms less favorable than the terms of the COMA and, as a result, our financial condition, results of operations, and cash flows could be adversely affected. Additionally, the COMA provides Apache with broad discretion to enter into contracts on our behalf.

Alpine High Midstream’s construction of new assets may be more expensive than anticipated and may not result in revenue increases, and may be subject to regulatory, environmental, political, legal, and economic risks that could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

The construction of additions or modifications to Alpine High Midstream’s existing systems and the construction of new midstream assets (including the pipelines to which the Options and the Additional Option relate) involves numerous regulatory, environmental, political, and legal uncertainties beyond its control, including potential protests, tariffs on materials used in construction or operations (including steel used to construct pipelines), or legal actions by interested third parties, and may require the expenditure of significant amounts of capital. Financing may not be available on economically acceptable terms or at all. If Alpine High Midstream undertakes these projects, it may not be able to complete them on schedule, at the budgeted cost, or at all. Moreover, Alpine High Midstream’s revenues may not increase due to the successful construction of a particular project. For instance, if Alpine High Midstream expands a pipeline or constructs a new pipeline, the construction may occur over an extended period of time, and it may not receive any material increases in revenues promptly following completion of a project or at all. Moreover, Alpine High Midstream may construct facilities to capture anticipated future production growth in an area in which such growth does not materialize. As a result, new facilities may not be able to attract enough throughput to achieve its expected investment return, which could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows. In addition, the construction of additions to Alpine High Midstream’s existing gathering and processing assets will generally require it to obtain new rights-of-way and permits prior to constructing new pipelines or facilities. Alpine High Midstream may be unable to timely obtain such rights-of-way or permits to connect new product supplies to its existing gathering lines or capitalize on other attractive expansion opportunities. Additionally, it may become more expensive for Alpine High Midstream to obtain new rights-of-way or to expand or renew existing rights-of-way. If the cost of renewing or obtaining new rights-of-way increases, Alpine High Midstream’s cash flows could be adversely affected.

Alpine High Midstream may be unable to obtain or renew permits necessary for its operations, which could inhibit its ability to do business.

Performance of Alpine High Midstream’s operations require that it obtain and maintain a number of federal and state permits, licenses, and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. All of these permits, licenses, approval limits, and standards require a significant amount of monitoring, record keeping, and reporting in order to demonstrate compliance with the underlying permit, license, approval limit, or standard. Noncompliance or incomplete

 

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documentation of Alpine High Midstream’s compliance status may result in the imposition of fines, penalties, and injunctive relief. A decision by a government agency to deny or delay the issuance of a new or existing material permit or other approval, or to revoke or substantially modify an existing permit or other approval, could adversely affect Alpine High Midstream’s ability to initiate or continue operations at the affected location or facility or on Alpine High Midstream’s financial condition, results of operations, or cash flows.

Additionally, in order to obtain permits and renewals of permits and other approvals in the future, Alpine High Midstream may be required to prepare and present data to governmental authorities pertaining to the potential adverse impact that any proposed pipeline or processing-related activities may have on the environment, individually or in the aggregate. Certain approval procedures may require preparation of archaeological surveys, endangered species studies, and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time required to prepare applications and to receive authorizations.

Alpine High Midstream does not obtain independent evaluations of hydrocarbon reserves and relies on evaluations of hydrocarbon reserves obtained by its customers; therefore, volumes that Alpine High Midstream services in the future could be less than anticipated.

Alpine High Midstream does not obtain independent evaluations of hydrocarbon reserves connected to its gathering systems or that it otherwise services, and it relies on reserves reports if and when provided by its customers. Accordingly, Alpine High Midstream does not have independent estimates of total reserves serviced by its assets or the anticipated life of such reserves. If the total reserves or estimated life of these reserves is less than Alpine High Midstream anticipates, in reliance on its customers’ reports, and it is unable to secure additional sources, then the volumes transported on Alpine High Midstream’s gathering systems or that it otherwise services in the future could be less than anticipated. A decline in such volumes could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

Debt we incur following the closing of the business combination may limit our flexibility to obtain financing and to pursue other business opportunities.

Our future level of debt could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures (including building additional gathering and processing assets or exercising the Options or the Additional Option), or other purposes may be impaired or such financing may not be available on favorable terms;

 

   

our funds available for operations, future business opportunities, and dividends to our stockholders in the future, if any, will be reduced by that portion of our cash flows required to make interest payments on our debt;

 

   

we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and

 

   

our flexibility in responding to changing business and economic conditions may be limited.

Our ability to service any debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory, and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as not instituting a dividend (or reducing or eliminating a dividend, if already instituted), reducing or delaying our business activities, investments, or capital expenditures, selling assets, or issuing equity. We may not be able to effect any of these actions on satisfactory terms or at all.

 

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Alpine High Midstream’s exposure to commodity price risk may change over time.

Alpine High Midstream currently generates all of its revenues pursuant to fee-based contracts under which it is paid based on the volumes that it gathers, processes, and transports, rather than the underlying value of the commodity. However, Alpine High Midstream may enter into contracts or may acquire or develop additional midstream assets in a manner that increases its exposure to commodity price risk. Future exposure to the volatility of crude oil, natural gas, and NGL prices could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

If third-party pipelines or other midstream facilities interconnected to Alpine High Midstream’s gathering, processing, or transportation systems become partially or fully unavailable, or if the volumes Alpine High Midstream gathers, processes, or transports do not meet the quality requirements of the pipelines or facilities to which Alpine High Midstream connects, Alpine High Midstream’s cash flows could be adversely affected.

Alpine High Midstream’s gathering, processing, and transportation assets connect to other pipelines or facilities owned and operated by unaffiliated third parties. The continuing operation of Alpine High Midstream’s continuing access to, such third-party pipelines, processing facilities, and other midstream facilities are not within Alpine High Midstream’s control. These pipelines, plants, and other midstream facilities may become unavailable because of testing, turnarounds, line repair, maintenance, reduced operating pressure, lack of operating capacity, regulatory requirements, and curtailments of receipt or deliveries due to insufficient capacity or because of damage from severe weather conditions or other operational issues. In addition, if Alpine High Midstream’s costs to access and transport on these third-party pipelines significantly increase, its profitability could be reduced. If any such increase in costs occurs, if any of these pipelines or other midstream facilities become unable to receive, transport, or process product, or if the volumes Alpine High Midstream gathers or transports do not meet the product quality requirements of such pipelines or facilities, its cash flows could be adversely affected.

Alpine High Midstream’s industry is highly competitive, and increased competitive pressure could adversely affect its financial condition, results of operations, or cash flows.

Alpine High Midstream competes with similar enterprises in its industry. The principal elements of competition are rates, terms of service, and flexibility and reliability of service. Alpine High Midstream’s competitors include large midstream companies that have greater financial resources and access to supplies of crude oil, natural gas, and NGLs than Alpine High Midstream. Some of these competitors may expand or construct gathering, processing, transportation, and storage systems that would create additional competition for the services Alpine High Midstream provides to its customers. In addition, potential customers may develop their own gathering systems instead of using Alpine High Midstream’s systems. Excess pipeline capacity in the region served by Alpine High Midstream’s intrastate pipelines could also increase competition and adversely impact its ability to renew or enter into new contracts with respect to its available capacity when existing contracts expire. Alpine High Midstream’s ability to renew or replace existing contracts with its customers at rates sufficient to maintain or increase current revenues and cash flows could be adversely affected by the activities of its competitors and customers. Further, natural gas utilized as a fuel competes with other forms of energy available to end-users, including electricity, coal, liquid fuels, and sources of alternative energy. Increased demand for such other forms of energy at the expense of natural gas could lead to a reduction in demand for natural gas gathering, processing, storage, and transportation services. All of these competitive pressures could adversely affect Alpine High Midstream’s financial condition, results of operations, or cash flows.

In addition, competition could intensify the negative impact of factors that decrease demand for natural gas in the markets served by Alpine High Midstream’s systems, such as adverse economic conditions, weather, higher fuel costs, and taxes or other governmental or regulatory actions that directly or indirectly increase the cost or limit the use of natural gas.

 

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Our ability to institute a dividend following the closing of the business combination will depend on our ability to generate sufficient cash flow, which we may not be able to accomplish.

We may not generate sufficient cash flow to enable us to institute a dividend in the future. Our ability to institute a dividend will principally depend upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things, the volumes of natural gas we gather and process, commodity prices, and other factors impacting our financial condition, some of which are beyond our control.

Alpine High Midstream may not be able to retain existing customers or acquire new customers, which would reduce its revenues and limit its future profitability.

The renewal or replacement of Alpine High Midstream’s existing contracts with its customers at rates sufficient to maintain or increase current revenues and cash flows depends on a number of factors, some of which are beyond Alpine High Midstream’s control, including competition from other midstream service providers and the price of, and demand for, crude oil, natural gas, and NGLs in the markets it serves. The inability of Alpine High Midstream’s management to renew or replace Alpine High Midstream’s current or future contracts as they expire and to respond appropriately to changing market conditions could have a negative effect on Alpine High Midstream’s profitability.

Alpine High Midstream is, and following the closing of the business combination we will be, exposed to the credit risk of its customers and counterparties, including Apache, and the nonpayment and nonperformance by its customers could have an adverse effect on its financial condition, results of operations, or cash flows.

Alpine High Midstream is subject to risks of loss resulting from nonpayment or nonperformance by its customers and other counterparties, including Apache. Any increase in the nonpayment and nonperformance by Alpine High Midstream’s customers could adversely affect its financial condition, results of operations, or cash flows. Additionally, equity values for Alpine High Midstream’s customers may be low. The combination of a reduction of cash flow resulting from lower commodity prices, a reduction in borrowing bases under reserve-based credit facilities, and the lack of availability of debt or equity financing may result in a significant reduction in the liquidity of Alpine High Midstream’s customers and their ability to make payment or perform on their obligations to Alpine High Midstream. Furthermore, some of Alpine High Midstream’s customers may be leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to Alpine High Midstream.

In the event Apache elects to sell acreage that is dedicated to Alpine High Midstream to a third party, the third party’s financial condition could be materially worse than Apache’s, and, thus, Alpine High Midstream could be subject to the nonpayment or nonperformance by the third party.

In the event Apache elects to sell acreage that is dedicated to Alpine High Midstream to a third party, the third party’s financial condition could be materially worse than Apache’s. In such a case, Alpine High Midstream may be subject to risks of loss resulting from nonpayment or nonperformance by the third party, which risks may increase during periods of economic uncertainty. Furthermore, the third party may be subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to Alpine High Midstream. Any material nonpayment or nonperformance by the third party could adversely impact the business, financial condition, results of operations, and cash flows of Alpine High Midstream.

Alpine High Midstream is subject to regulation by multiple governmental agencies, which could adversely impact its business, results of operations, and financial condition.

Alpine High Midstream is subject to regulation by multiple federal, state, and local governmental agencies. Proposals and proceedings that affect the midstream industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions, agencies, and courts. Alpine High Midstream cannot predict when or whether any such proposals or proceedings may become effective or the magnitude of the

 

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impact changes in laws and regulations may have on its business. However, additions to the regulatory burden on the midstream industry can increase Alpine High Midstream’s cost of doing business and affect its profitability.

Increased federal, state, and local legislation and regulatory initiatives, as well as government reviews relating to hydraulic fracturing could result in increased costs and reductions or delays in crude oil and natural gas production by Alpine High Midstream’s customers, including Apache, which could adversely affect its financial condition, results of operations, or cash flows.

Substantially all of Alpine High Midstream’s suppliers’ and customers’ crude oil and natural gas production is developed from unconventional sources, such as deep oil or gas shales, that require hydraulic fracturing as part of the completion process. State legislatures and agencies have enacted legislation and promulgated rules to regulate hydraulic fracturing, require disclosure of hydraulic fracturing chemicals, temporarily or permanently ban hydraulic fracturing, and impose additional permit requirements and operational restrictions in certain jurisdictions or in environmentally sensitive areas. The U.S. Environmental Protection Agency (the “EPA”) and the Bureau of Land Management (the “BLM”) have also issued rules, conducted studies, and made proposals that, if implemented, could either restrict the practice of hydraulic fracturing or subject the process to further regulation. For instance, the EPA has issued final regulations under the Clean Air Act of 1970 (the “CAA”) establishing performance standards, including standards for the capture of air emissions released during hydraulic fracturing and adopted rules prohibiting the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants. The BLM also adopted new rules, effective on January 17, 2017, to reduce venting, flaring, and leaks during oil and natural gas production activities on onshore federal and Indian leases. However, the status of recent and future rules and rulemaking initiatives under the current presidential administration is uncertain. For example, in June 2017, the EPA published a proposed rule to stay certain provisions of the performance standards, but elected not to finalize the stay, and instead, in February 2018, finalized amendments to some of the requirements. In addition, in December 2017, the BLM temporarily suspended some of the new venting and flaring requirements, only to have a court subsequently enjoin the suspension.

State and federal regulatory agencies also have recently focused on a possible connection between the operation of injection wells used for oil and gas waste waters and an observed increase in induced seismicity, which has resulted in some regulation at the state level. As regulatory agencies continue to study induced seismicity, additional legislative and regulatory initiatives could affect the injection well operations of Alpine High Midstream’s customers as well.

Alpine High Midstream cannot predict whether any additional legislation or regulations will be enacted and, if so, what the provisions would be. If additional levels of regulation and permits were required through the adoption of new laws and regulations at the federal or state level, that could lead to delays, increased operating costs, and process prohibitions for Alpine High Midstream’s suppliers and customers that could reduce the volumes of crude oil and natural gas that move through its gathering systems which could materially adversely affect its revenue and results of operations.

If Alpine High Midstream’s assets (including assets acquired in the future pursuant to the Options and the Additional Option, if any) become subject to FERC regulation or federal, state, or local regulations or policies change, Alpine High Midstream’s financial condition, results of operations, and cash flows could be materially and adversely affected.

Alpine High Midstream’s natural gas gathering facilities are exempt from regulation by the Federal Energy Regulatory Commission (“FERC”) under the Natural Gas Act of 1938 (“NGA”). Section 1(b) of the NGA exempts natural gas gathering facilities from regulation by FERC under the NGA. Although FERC has not made any formal determinations with respect to any of Alpine High Midstream’s facilities, its gathering facilities meet the traditional tests FERC has used to establish whether a pipeline is a gathering pipeline not subject to FERC jurisdiction. The distinction between FERC-regulated transmission services and federally unregulated gathering services, however, has been the subject of substantial litigation, and FERC determines whether facilities are

 

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gathering facilities on a case-by-case basis. Accordingly, the classification and regulation of Alpine High Midstream’s gathering facilities may be subject to change based on future determinations by FERC, the courts, or Congress. If FERC were to consider the status of an individual facility and determine that the facility or services provided by it are not exempt from FERC regulation under the NGA, the rates for, and terms and conditions of, services provided by such facility would be subject to regulation by FERC under the NGA and the rules and regulations promulgated under that statute. Such regulation could decrease revenue, increase operating costs, and, depending upon the facility in question, could adversely affect Alpine High Midstream’s results of operations and cash flows.

Alpine High Midstream’s natural gas gathering and transportation facilities are largely regulated by the Railroad Commission of Texas (“RRC”), and to the extent that our intrastate natural gas transportation systems transport natural gas in interstate commerce, the rates and terms and conditions of such services are subject to FERC jurisdiction under Section 311 of the Natural Gas Policy Act (“NGPA”). The NGPA regulates, among other things, the provision of transportation services by an intrastate natural gas pipeline on behalf of a local distribution company or an interstate natural gas pipeline. Under Section 311 of the NGPA, rates charged for interstate transportation must be fair and equitable, and amounts collected in excess of fair and equitable rates are subject to refund with interest. The terms and conditions of service set forth in the intrastate facility’s statement of operating conditions for transportation service under Section 311 of the NGPA are also subject to FERC review and approval. Should the FERC determine not to authorize rates equal to or greater than our currently approved rates under Section 311 of the NGPA, our business may be adversely affected. Failure to observe the service limitations applicable to transportation services under Section 311 of the NGPA, failure to comply with the rates approved by the FERC for service under Section 311 of the NGPA, and failure to comply with the terms and conditions of service established in the pipeline’s FERC-approved statement of operating conditions could result in an alteration of jurisdictional status, and/or the imposition of administrative, civil, and criminal remedies. Alpine High Midstream’s natural gas transportation facilities and operations are also subject to the Texas Utilities Code and the Texas Natural Resources Code, as implemented by the RRC. Generally, the RRC is vested with authority to ensure that rates, operations, and services of gas utilities, including intrastate pipelines, are just and reasonable and not discriminatory. The rates Alpine High Midstream charges for transportation services are deemed just and reasonable under Texas law unless challenged in a customer or RRC complaint. Alpine High Midstream cannot predict whether such a complaint will be filed against us or whether the RRC will change its regulation of these rates. Failure to comply with the Texas Utilities Code or the Texas Natural Resources Code can result in the imposition of administrative, civil, and criminal remedies.

Alpine High Midstream’s NGL pipeline facilities do not provide interstate transportation service and are therefore not subject to FERC’s jurisdiction under Interstate Commerce Act (“ICA”). Whether an NGL shipment is in interstate commerce under the ICA depends on the fixed and persistent intent of the shipper as to the NGLs’ final destination, absent a break in the interstate movement. Alpine High Midstream’s NGL pipelines meet the traditional tests FERC has used to determine that a pipeline is not providing transportation service in interstate commerce subject to FERC ICA jurisdiction. However, the determination of the interstate or intrastate character of shipments on Alpine High Midstream’s NGL pipelines depends on the shipper’s intentions and the transportation of the NGLs outside of Alpine High Midstream’s system and may change over time. If FERC were to consider the status of an individual facility and the character of an NGL shipment and determine that the shipment is in interstate commerce, the rates for, and terms and conditions of, transportation services provided by such facility would be subject to regulation by FERC under the ICA. Such FERC regulation could decrease revenue, increase operating costs, and, depending on the facility in question, adversely affect Alpine High Midstream’s results of operations and cash flows.

If Alpine High Midstream fails to comply with applicable FERC-administered statutes, rules, regulations and orders, it could be subject to substantial penalties and fines. Under the Energy Policy Act of 1992 (the “EPAct”), for instance, FERC has civil penalty authority to impose penalties for current violations of the NGA or NGPA of up to $1,213,503 per day for each violation. The maximum penalty authority established by statute has been and will continue to be adjusted periodically for inflation. FERC also has the power to order disgorgement

 

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of profits from transactions deemed to violate the NGA and the EPAct. In addition, if any of Alpine High Midstream’s facilities were found to have provided services or otherwise operated in violation of the ICA, this could result in the imposition of administrative and criminal remedies and civil penalties, as well as a requirement to disgorge charges collected for such services in excess of the rate established by FERC.

Alpine High Midstream may incur significant costs and liabilities resulting from compliance with pipeline safety regulations.

The pipelines Alpine High Midstream owns and operates are subject to stringent and complex regulation related to pipeline safety and integrity management. For instance, the U.S. Department of Transportation (“DOT”), through the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), has established a series of rules that require pipeline operators to develop and implement integrity management programs for hazardous liquid (including oil) pipeline segments that, in the event of a leak or rupture, could affect high-consequence areas. In 2016, PHMSA proposed rulemaking that would expand existing integrity management requirements to natural gas transmission and gathering lines in areas with medium population densities. A final rule has yet to be issued, although PHMSA recently announced its intention to finalize the rulemaking in 2019. Additional action by PHMSA with respect to pipeline integrity management requirements may occur in the future. At this time, Alpine High Midstream cannot predict the cost of such requirements, but they could be significant. Moreover, violations of pipeline safety regulations can result in the imposition of significant penalties.

Several states have also passed legislation or promulgated rules to address pipeline safety. Compliance with pipeline integrity laws and other pipeline safety regulations issued by state agencies such as the RRC could result in substantial expenditures for testing, repairs and replacement. If Alpine High Midstream’s pipelines fail to meet the safety standards mandated by the RRC or the DOT regulations, then Alpine High Midstream may be required to repair or replace sections of such pipelines or operate the pipelines at a reduced maximum allowable operating pressure, the cost of which cannot be estimated at this time.

Due to the possibility of new or amended laws and regulations or reinterpretation of existing laws and regulations, there can be no assurance that future compliance with PHMSA or state requirements will not have a material adverse effect on Alpine High Midstream’s results of operations or financial position. Because certain of Alpine High Midstream’s operations are located around areas that may become more populated areas, such as the Alpine High resource play, Alpine High Midstream may incur expenses to mitigate noise, odor, and light that may be emitted in its operations and expenses related to the appearance of its facilities. Municipal and other local or state regulations are imposing various obligations including, among other things, regulating the location of Alpine High Midstream’s facilities, imposing limitations on the noise levels of its facilities and requiring certain other improvements that increase the cost of its facilities. Alpine High Midstream is also subject to claims by neighboring landowners for nuisance related to the construction and operation of its facilities, which could subject it to damages for declines in neighboring property values due to Alpine High Midstream’s construction and operation of facilities.

Failure to comply with existing or new environmental laws or regulations or an accidental release of hazardous substances, hydrocarbons, or wastes into the environment may cause Alpine High Midstream to incur significant costs and liabilities.

Many of the operations and activities of Alpine High Midstream’s pipelines, gathering systems, processing plants, and other facilities are subject to significant federal, state, and local environmental laws and regulations, the violation of which can result in administrative, civil, and criminal penalties, including civil fines, injunctions, or both. The obligations imposed by these laws and regulations include obligations related to air emissions and the discharge of pollutants from Alpine High Midstream’s pipelines and other facilities and the cleanup of hazardous substances and other wastes that are or may have been released at properties currently or previously owned or operated by it or locations to which it has sent wastes for treatment or disposal. These laws may impose strict, joint, and several liability for the remediation of contaminated areas. Private parties, including the owners

 

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of properties near Alpine High Midstream’s facilities or upon or through which its systems traverse, may also have the right to pursue legal actions to enforce compliance and to seek damages for non-compliance with environmental laws for releases of contaminants or for personal injury or property damage.

Alpine High Midstream’s business may be adversely affected by increased costs due to stricter pollution control requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. New environmental laws or regulations, including, for example, legislation relating to the control of greenhouse gas emissions, or changes in existing environmental laws or regulations might adversely affect Alpine High Midstream’s products and activities, including processing, storage, and transportation, as well as waste management and air emissions. Federal and state agencies could also impose additional safety requirements, any of which could affect Alpine High Midstream’s profitability. Changes in laws or regulations could also limit the operation of Alpine High Midstream’s assets or adversely affect its ability to comply with applicable legal requirements or the demand for crude oil or natural gas, which could adversely affect its business and its profitability.

Recent rules under the CAA imposing more stringent requirements on the oil and gas industry could cause Alpine High Midstream and its customers to incur increased capital expenditures and operating costs as well as reduce the demand for its services.

Alpine High Midstream is subject to stringent and complex regulation under the CAA, implementing regulations, and state and local equivalents, including regulations related to controls for oil and natural gas production, pipelines, and processing operations. For instance, in 2016, the EPA issued three final rules intended to curb emissions of methane, volatile organic compounds, and toxic air pollutants (such as benzene) from new, reconstructed, and modified oil and gas sources, including the rule affecting storage tanks constructed, modified or reconstructed, (the so-called “OOOOa Rule”). In April 2017, the EPA announced its intention to reconsider certain aspects of the 2016 rules for the oil and natural gas industry in response to several petitions for reconsideration, and issued a 90-day stay of the June 3, 2017 compliance deadline for the fugitive emissions monitoring requirements in the OOOOa Rule. Subsequently, on May 31, 2017, the EPA issued a 90-day stay of certain requirements under the rule, but this stay was vacated by a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit on July 3, 2017 and again by an en banc D.C. Circuit on July 31, 2017. In the interim, on July 16, 2017, the EPA issued a proposed rule that would provide a two-year extension of the initial 90-day stay. Most recently, on March 12, 2018, the EPA announced amendments to the fugitive emissions monitoring requirements, although the agency’s reconsideration of other aspects of the 2016 rule remains ongoing. Accordingly, substantial uncertainty exists with respect to implementation of this methane rule. The BLM also adopted new rules on November 15, 2016, to reduce venting, flaring, and leaks during oil and natural gas production activities on onshore federal and Indian leases. On June 15, 2017, the BLM suspended indefinitely compliance dates for certain aspects of these rules, pending judicial review, but a court subsequently enjoined the BLM’s suspension.

Additional regulation of greenhouse gas (“GHG”) emissions from the oil and gas industry remains a possibility. These regulations could require a number of modifications to Alpine High Midstream’s operations, and its natural gas exploration and production suppliers’ and customers’ operations, including the installation of new equipment, which could result in significant costs, including increased capital expenditures and operating costs. The incurrence of such expenditures and costs by Alpine High Midstream suppliers and customers could result in reduced production by those suppliers and customers and thus translate into reduced demand for its services.

Climate change legislation and regulatory initiatives could result in increased operating costs and reduced demand for the natural gas and NGLs services Alpine High Midstream provides.

Congress has from time to time considered adopting legislation to reduce emissions of GHGs, and there has been a wide-ranging policy debate, both nationally and internationally, regarding the impact of these gases and

 

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possible means for their regulation. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues. In 2015, the United States participated in the United Nations Conference on Climate Change, which led to the adoption of the Paris Agreement. The Paris Agreement requires countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals, every five years beginning in 2020. The Paris Agreement was signed by the United States in April 2016 and entered into force in November 2016; however, the GHG emission reductions called for by the Paris Agreement are not binding. On June 1, 2017, President Trump announced that the United States plans to withdraw from the Paris Agreement and to seek negotiations either to reenter the Paris Agreement on different terms or to establish a new framework agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016, which would result in an effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States may reenter the Paris Agreement or a separately negotiated agreement are unclear at this time. Moreover, at the federal regulatory level, both the EPA and the BLM have promulgated regulations for the control of methane emissions, which also include leak detection and repair requirements, from the oil and gas industry, although the current status of those regulations is uncertain under the current presidential administration.

The EPA has adopted regulations under existing provisions of the CAA that, among other things, establish Prevention of Significant Deterioration (“PSD”) construction and Title V operating permit reviews for certain large stationary sources that emit GHGs. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards that will be established by the states or, in some cases, by the EPA on a case-by-case basis. These EPA rule makings could adversely affect Alpine High Midstream’s operations and restrict or delay its ability to obtain air permits for new or modified sources. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore crude oil and natural gas production sources in the U.S. on an annual basis.

In addition, many states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and NGLs fractionation plants, to acquire and surrender emission allowances with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved.

Although it is not possible at this time to predict whether future legislation or new regulations may be adopted to address GHG emissions or how such measures would impact Alpine High Midstream’s business, the adoption of legislation or regulations imposing reporting or permitting obligations on, or limiting emissions of GHGs from, its equipment and operations could require Alpine High Midstream to incur additional costs to reduce emissions of GHGs associated with its operations, could adversely affect its performance of operations in the absence of any permits that may be required to regulate emission of GHGs or could adversely affect demand for the natural gas Alpine High Midstream gathers, processes or otherwise handles in connection with its services.

The Federal Endangered Species Act (the “ESA”) and the Migratory Bird Treaty Act of 1918 (the “MBTA”) govern Alpine High Midstream’s operations and additional restrictions may be imposed in the future, which could have an adverse impact on its operations.

The ESA and analogous state laws restrict activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the MBTA. The U.S. Fish and Wildlife Service (“FWS”) and state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species, which could materially restrict use of or access to federal, state and private lands.

 

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On July 19, 2018, the FWS announced a series of proposed changes to the rules implementing the ESA, including proposed revisions to the regulations governing interagency cooperation, listing species and delisting critical habitat, and prohibitions related to threatened wildlife and plants. The proposed revisions are intended to streamline these processes and create more flexibility for the FWS when making ESA-related decisions. It is not possible at this time to accurately predict how such changes, if adopted, would impact Alpine High Midstream’s operations.

Some of Alpine High Midstream’s operations may be located in areas that are designated as habitats for endangered or threatened species or that may attract migratory birds. In these areas, Alpine High Midstream may be obligated to develop and implement plans to avoid potential adverse impacts to protected species, and it may be prohibited from conducting operations in certain locations or during certain seasons, such as breeding and nesting seasons, when its operations could have an adverse effect on the species. It is also possible that a federal or state agency could order a complete halt to Alpine High Midstream’s activities in certain locations if it is determined that such activities may have a serious adverse effect on a protected species. In addition, the FWS and state agencies regularly review species that are listing candidates, and designations of additional endangered or threatened species, or critical or suitable habitat, under the ESA could cause Alpine High Midstream to incur additional costs or become subject to operating restrictions or bans in the affected areas.

Alpine High Midstream’s business involves many hazards and operational risks, some of which may not be fully covered by insurance. The occurrence of a significant accident or other event that is not fully insured could adversely affect Alpine High Midstream’s operations and financial condition.

Alpine High Midstream’s operations are subject to the many hazards inherent in the gathering, compressing, processing, and transporting of natural gas and NGLs, including:

 

   

damage to pipelines, related equipment and surrounding properties caused by hurricanes, floods, fires, and other natural disasters and acts of terrorism;

 

   

leaks of natural gas, NGLs, and other hydrocarbons;

 

   

induced seismicity; and

 

   

fires and explosions.

These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage and may result in curtailment or suspension of Alpine High Midstream’s related operations. Alpine High Midstream is not fully insured against all risks incident to its business. In accordance with typical industry practice, Alpine High Midstream has appropriate levels of business interruption and property insurance on its underground pipeline systems. Alpine High Midstream is not insured against all environmental accidents that might occur. If a significant accident or event occurs that is not fully insured, it could adversely affect Alpine High Midstream’s financial condition, results of operations or cash flows.

Alpine High Midstream does not own in fee any of the land on which its pipelines and facilities are located, which could result in disruptions to its operations.

Alpine High Midstream does not own in fee any of the land on which its midstream assets have been constructed. Its only interests in these properties are rights granted under surface use agreements, rights-of-way, surface leases, or other easement rights (collectively, “Rights-of-Way”), which may limit or restrict its rights or access to or use of the surface estates. Accommodating these competing rights of the surface owners may adversely affect the operations of Alpine High Midstream. Apache and certain of its affiliates are, and after the closing of the business combination will continue to be, party to certain of these Rights-of-Way. Furthermore, many of the Rights-of-Way on which Alpine High Midstream’s assets have been constructed are not perpetual in duration, and upon the expiration of their terms will require us to pay a renewal fee to the applicable surface

 

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owners in order to maintain access to such Rights-of-Way. These Rights-of-Way also require compliance with certain terms and conditions in order to renew their terms, some of which may be outside of our control.

Alpine High Midstream is subject to the possibility of more onerous terms or increased costs to retain necessary land use if it does not have valid Rights-of-Way or if such usage rights lapse or terminate. Alpine High Midstream may obtain the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time. The loss of these rights, through the inability to renew Rights-of-Way or otherwise, could have a material adverse effect on the business, financial condition, results of operations, and cash flows of Alpine High Midstream.

A failure in Alpine High Midstream’s computer systems or a terrorist or cyber-attack on Alpine High Midstream, or third parties with whom it does business, may adversely affect its ability to operate its business.

Alpine High Midstream is reliant on technology to conduct its business. Alpine High Midstream’s business is dependent upon its operational and financial computer systems to process the data necessary to conduct almost all aspects of its business, including operating its pipelines and gathering, processing and storage facilities, recording and reporting commercial and financial transactions and receiving and making payments. Any failure of Alpine High Midstream’s computer systems, or those of its customers, suppliers or others with whom it does business, could materially disrupt Alpine High Midstream’s ability to operate its business. Unknown entities or groups have mounted so-called “cyber-attacks” on businesses to disable or disrupt computer systems, disrupt operations, and steal funds or data. Cyber-attacks could also result in the loss of confidential or proprietary data or security breaches of other information technology systems that could disrupt Alpine High Midstream’s operations and critical business functions. In addition, Alpine High Midstream’s pipeline systems may be targets of terrorist or environmental activist group activities that could disrupt its ability to conduct its business and have a material adverse effect on its business and results of operations. Strategic targets, such as energy-related assets, may be at greater risk of future terrorist attacks, environmental activist group activities, or cyber-attacks than other targets in the United States. Alpine High Midstream’s insurance may not protect it against such occurrences. Any such terrorist attack, environmental activist group activity, or cyber-attack that affects Alpine High Midstream or its customers, suppliers, or others with whom it does business, could have a material adverse effect on its business, cause it to incur a material financial loss, subject it to possible legal claims and liability, and/or damage its reputation.

Moreover, as the sophistication of cyber-attacks continues to evolve, Alpine High Midstream may be required to expend significant additional resources to further enhance its digital security or to remediate vulnerabilities. In addition, cyber-attacks against it or others in its industry could result in additional regulations, which could lead to increased regulatory compliance costs, insurance coverage cost, or capital expenditures. Alpine High Midstream cannot predict the potential impact to its business or the energy industry resulting from additional regulations.

The loss of key personnel could adversely affect the ability of Alpine High Midstream to operate.

Alpine High Midstream depends on the services of a relatively small group of Apache’s management, and following the closing of the business combination, we will continue to rely on this group. Alpine High Midstream does not maintain, nor do we plan to obtain, any insurance against the loss of any of these individuals. The loss of the services of these individuals, including Brian W. Freed and Ben C. Rodgers, who will be our Chief Executive Officer and our Chief Financial Officer, respectively, following the closing of the business combination could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 

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Alpine High Midstream may become subject to the requirements of the Investment Company Act of 1940, which would limit its business operations and require it to spend significant resources to comply with such act.

The Investment Company Act of 1940 (the “Investment Company Act”) defines an “investment company” as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities and owns investment securities having a value exceeding 40% of the issuer’s unconsolidated assets, excluding cash items and securities issued by the federal government. If Alpine High Midstream and/or Altus Midstream exercises the Options and/or the Additional Option, it is possible that some or all of those interests will be investment securities and that the value of those interests that are investment securities over time may exceed 40% of Alpine High Midstream’s and/or Altus Midstream’s unconsolidated assets, excluding cash and government securities, in which case Alpine High Midstream and/or Altus Midstream may meet this threshold definition of an investment company. The Investment Company Act provides certain exclusions from this definition. However, if Alpine High Midstream and/or Altus Midstream relies on any one or more of these exclusions from the definition of an investment company, and such reliance is not correct, Alpine High Midstream and/or Altus Midstream may be in violation of the Investment Company Act, the consequences of which can be significant. For example, investment companies that fail to register under the Investment Company Act are prohibited from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate commerce. Section 47(b) of the Investment Company Act provides that a contract made, or whose performance involves, a violation of the Investment Company Act is unenforceable by either party unless a court finds that enforcement would produce a more equitable result than non-enforcement. Similarly, a court may not deny rescission to any party seeking to rescind a contract that violates the Investment Company Act, unless the court finds that denial of rescission would produce more equitable result than granting rescission.

If in the future the nature of Alpine High Midstream’s and/or Altus Midstream’s business changes such that no exception to the threshold definition of investment company is available to it, Alpine High Midstream and/or Altus Midstream may be deemed to be an investment company under the Investment Company Act. However, Rule 3a-2 of the Investment Company Act provides that inadvertent or transient investment companies will not be treated as investment companies subject to the provisions of the Investment Company Act provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement of the earlier of (1) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the value of such issuer’s total assets on either a consolidated or unconsolidated basis or (2) the date on which an issuer owns or proposes to acquire investment securities (as defined in section 3(a) of the Investment Company Act) having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. If Alpine High Midstream and/or Altus Midstream becomes an inadvertent investment company, and fails to meet the requirements of the transient investment company exemption under Rule 3a-2 of the Investment Company Act, then Alpine High Midstream and/or Altus Midstream will be required to register as an investment company with the SEC.

The ramifications of becoming an investment company, both in terms of the restrictions it would have on Alpine High Midstream and/or Altus Midstream and the cost of compliance, would be significant. For example, in addition to expenses related to initially registering as an investment company, the Investment Company Act also would impose various restrictions with regard to Alpine High Midstream’s and/or Altus Midstream’s ability to enter into affiliated transactions, the diversification of its assets, and its ability to borrow money. If Alpine High Midstream and/or Altus Midstream became subject to the Investment Company Act at some point in the future, Alpine High Midstream’s and/or Altus Midstream’s ability to continue pursuing its business plan would be severely limited.

 

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Risks Related to KAAC and the Business Combination

After completion of the Transactions, the Apache Contributor will own over a majority of the outstanding voting shares of KAAC.

Upon completion of the Transactions (and assuming (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchases shares of Class A Common Stock in the open market; (iv) there are no other issuances of equity interests of KAAC; and (v) the warrants remain outstanding immediately following the closing of the business combination), the Apache Contributor will beneficially own approximately 71.1% of our outstanding voting common stock. As long as the Apache Contributor owns or controls a significant percentage of our outstanding voting power, it will have the ability to strongly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our board of directors, any amendment of our Charter or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets, and will be able to cause or prevent a change in the composition of our board of directors or a change in control of our company that could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company. In addition, under the Stockholders Agreement, our Sponsor will be entitled to nominate two directors to the board of directors of KAAC until the earlier of the time that our Sponsor and its affiliates own less than 1% of the outstanding voting common stock of KAAC or the second anniversary of the date of the Stockholders Agreement. Additionally, the Apache Contributor will be entitled to nominate a certain number of directors to our board of directors based on its and its affiliates’ ownership of our outstanding voting common stock. In connection with the Stockholders Agreement, the Apache Contributor and our Sponsor will agree to vote for the directors nominated by the other. For more information about Stockholders Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholders Agreement.” The interests of the Apache Contributor and its affiliates, including Apache, may not align with the interests of our other stockholders.

We expect to be a “controlled company” within the meaning of the NASDAQ listing rules following the Transactions and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon completion of the Transactions (and assuming (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchases shares of Class A Common Stock in the open market; (iv) there are no other issuances of equity interests of KAAC; and (v) the warrants remain outstanding immediately following the closing of the business combination), the Apache Contributor will control a majority, expected to be approximately 71.1%, of our outstanding voting common stock. As a result, we expect to be a controlled company within the meaning of the NASDAQ corporate governance standards. Under the NASDAQ listing rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NASDAQ corporate governance requirements, including the requirements that:

 

   

a majority of the board of directors consist of independent directors;

 

   

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

These requirements will not apply to us as long as we remain a controlled company. Following the business combination, we intend to utilize some or all of these exemptions. Accordingly, you may not have the same

 

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protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ. See “Officers and Directors of KAAC Following Closing of the Business Combination—Status as a Controlled Company.”

Following the closing of the business combination, our only significant assets will be ownership of the non-economic general partner interest and an approximate 29.5% limited partner interest in Altus Midstream, and such ownership may not be sufficient for Altus Midstream to make distributions or loans to us to enable us to pay any dividends on our Class A Common Stock or satisfy our other financial obligations.

Following the closing of the business combination, we will have no direct operations and no significant assets other than the ownership of the non-economic general partner interest and an approximate 29.5% limited partner interest in Altus Midstream. We will depend on Altus Midstream for distributions, loans and other payments to generate the funds necessary to meet our financial obligations or to pay any dividends with respect to our Class A Common Stock. Subject to certain restrictions, Altus Midstream generally will be required to (i) make pro rata distributions to its partners, including us, on a quarterly basis in an amount at least sufficient to allow us to pay our taxes and make tax advances to its limited partners, other than us, in certain circumstances and (ii) reimburse us for certain corporate and other overhead expenses. However, legal and contractual restrictions in agreements governing future indebtedness of Altus Midstream, as well as the financial condition and operating requirements of Altus Midstream, may limit our ability to obtain cash from Altus Midstream. The earnings from, or other available assets of, Altus Midstream may not be sufficient to make distributions or loans to us to enable us to pay any dividends on our Class A Common Stock or satisfy our other financial obligations.

Subsequent to the closing of the business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although we have conducted due diligence on the Alpine High Entities, we cannot assure you that this diligence revealed all material issues that may be present in their business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our control will not later arise. As a result, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about KAAC following the closing of the business combination or our securities. In addition, charges of this nature may cause us to be unable to obtain future financing on favorable terms or at all.

We and the Alpine High Entities will be subject to business uncertainties and contractual restrictions while the business combination is pending.

Uncertainty about the effect of the business combination on employees and third parties may have an adverse effect on us and the Alpine High Entities. These uncertainties may impair the ability of the Apache Contributor, the Alpine High Entities and their affiliates to retain and motivate key personnel and could cause third parties that deal with them to defer entering into contracts or making other decisions or seek to change existing business relationships. If employees depart because of uncertainty about their future roles and the potential complexities of the business combination, our or the Alpine High Entities’ business could be harmed.

Our Sponsor, officers and directors have agreed to vote in favor of the business combination, regardless of how our public stockholders vote.

Unlike many other blank check companies in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by our public stockholders in connection with an initial business

 

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combination, our Sponsor, officers and directors have agreed to vote any shares of Class A Common Stock and Class B Common Stock owned by them in favor of the business combination. As of the date hereof, our Sponsor, officers and directors own shares equal to approximately 20% of the combined issued and outstanding shares of Class A Common Stock and Class B Common Stock. Accordingly, it is more likely that the necessary stockholder approval will be received for the business combination than would be the case if our Sponsor, officers and directors agreed to vote any shares of Class A Common Stock and Class B Common Stock owned by them in accordance with the majority of the votes cast by our public stockholders.

Our Sponsor and our directors and officers have interests in the business combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other Transaction Proposals described in this proxy statement.

When considering the recommendation of our board of directors that our stockholders vote in favor of the approval of the Business Combination Proposal, our stockholders should be aware that our Sponsor and our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include:

 

   

the fact that our Sponsor holds private placement warrants that would expire worthless if a business combination is not consummated;

 

   

the fact that our Sponsor, officers and directors have agreed not to redeem any of the founder shares or shares of Class A Common Stock held by them in connection with a stockholder vote to approve the business combination;

 

   

the fact that our Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

   

if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

   

the continuation of certain of our existing directors and officers as directors of KAAC following the closing of the business combination, including Kevin S. McCarthy and Robert S. Purgason;

 

   

the fact that each of our independent directors owns 40,000 founder shares that were purchased from our Sponsor at its original purchase price, which if unrestricted and freely tradeable would be valued at approximately $        , based on the closing price of our Class A Common Stock on                 , 2018;

 

   

the fact that all of our officers and directors hold an interest in our Sponsor;

 

   

the fact that our Sponsor, officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an initial business combination or fail to complete an initial business combination by April 4, 2019;

 

   

the fact that our Sponsor, officers and directors will lose their entire investment in us if an initial business combination is not completed; and

 

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that we will enter into an amended and restated registration rights agreement with our Sponsor, certain of our directors and the Apache Contributor, which provides for registration rights to such parties.

Our Sponsor and our independent directors hold a significant number of founder shares. They will lose their entire investment in us if we do not complete an initial business combination.

Our Sponsor and our independent directors hold all of our 9,433,028 founder shares, representing 20% of the total outstanding voting common stock upon completion of our IPO. The founder shares will be worthless if we do not complete an initial business combination by April 4, 2019. In addition, our Sponsor holds an aggregate of 6,364,281 private placement warrants that will also be worthless if we do not complete an initial business combination by April 4, 2019.

The founder shares are identical to the shares of Class A Common Stock included in the units, except that (i) the founder shares and the shares of Class A Common Stock into which the founder shares convert upon an initial business combination are subject to certain transfer restrictions, (ii) our Sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed (a) to waive their redemption rights with respect to their founder shares and public shares owned in connection with the completion of an initial business combination and (b) to waive their rights to liquidating distributions from the Trust Account with respect to their founder shares if we fail to complete an initial business combination by April 4, 2019 (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete an initial business combination by April 4, 2019) and (iii) the founder shares are automatically convertible into shares of our Class A Common Stock at the time of an initial business combination, as described herein.

The personal and financial interests of our Sponsor, officers and directors may have influenced their motivation in identifying and selecting the Alpine High Entities, completing the business combination with the Apache Contributor and influencing the operation of KAAC following the business combination.

We will incur significant transaction costs in connection with the business combination.

We have and expect to incur significant, non-recurring costs in connection with consummating the business combination. All expenses incurred in connection with the Contribution Agreement and the business combination, including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be for the account of the party incurring such fees, expenses and costs; provided, however, that the obligation of the Apache Contributor to consummate the business combination is conditioned upon, among other things, our out-of-pocket costs, fees and expenses related to the business combination (other than financing fees and including the deferred underwriting commissions to the underwriters of our IPO) not exceeding $30.0 million. Our transaction expenses as a result of the business combination are currently estimated at approximately $        , including $13.2 million in deferred underwriting commissions to the underwriters of our IPO.

The unaudited pro forma condensed combined financial information included in this proxy statement may not be indicative of what our actual financial position or results of operations would have been.

The unaudited pro forma condensed combined financial information for KAAC following the closing of the business combination in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the business combination been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for more information.

 

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Financial projections with respect to Alpine High Midstream may not prove to be reflective of actual future results.

In connection with the business combination, our board of directors considered, among other things, financial forecasts for Alpine High Midstream. These financial projections speak only as of the date they were made and are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. In addition, the failure of Alpine High Midstream to achieve projected results could have a material adverse effect on KAAC’s share price and financial position following the closing of the business combination.

We may waive one or more of the conditions to the business combination.

We may agree to waive, in whole or in part, one or more of the conditions to our obligations to complete the business combination, to the extent permitted by our Charter, bylaws and applicable laws. For example, it is a condition to our obligations to close the business combination that there be no breach of the Apache Contributor’s warranties (other than fundamental warranties) as of the Closing Date that would have a Material Adverse Effect. However, if our board of directors determines that any such breach is not material to the business of the Alpine High Entities, taken as a whole, then our board of directors may elect to waive that condition and close the business combination. We are not able to waive the condition that our stockholders approve the business combination.

If we are unable to complete an initial business combination on or prior to April 4, 2019, our public stockholders may receive only approximately $10.09 per share on the liquidation of our Trust Account (or less than $10.09 per share in certain circumstances where a third party brings a claim against us that our Sponsor is unable to indemnify), and our warrants will expire worthless.

If we are unable to complete an initial business combination on or prior to April 4, 2019, our public stockholders may receive only approximately $10.09 per share (based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million) on the liquidation of our Trust Account (or less than $10.09 per share in certain circumstances where a third party brings a claim against us that our Sponsor is unable to indemnify (as described below)), and our warrants will expire worthless.

If third parties bring claims against us, the proceeds held in our Trust Account could be reduced and the per public share redemption amount received by stockholders may be less than $10.00 per public share.

Our placing of funds in our Trust Account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers (other than our independent auditors), prospective target businesses, including the Apache Contributor, or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in our Trust Account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against our Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in our Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in our Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where

 

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management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against our Trust Account for any reason. Upon redemption of our public shares, if we are unable to complete the initial business combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with the business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption.

Accordingly, the per share redemption amount received by public stockholders could be less than the $10.00 per public share initially held in our Trust Account, due to claims of such creditors. Our Sponsor has agreed that it will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in our Trust Account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in our Trust Account as of the date of the liquidation of our Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to our Trust Account and except as to any claims under our indemnity of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, our Sponsor will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether our Sponsor has sufficient funds to satisfy their indemnity obligations and believe that our Sponsor’s only assets are securities of our company and, therefore, our Sponsor may not be able to satisfy those obligations. We have not asked our Sponsor to reserve for such eventuality.

Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public stockholders. In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share or (ii) such lesser amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations.

While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public stockholders may be reduced below $10.00 per public share.

If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board of directors may be exposed to claims of punitive damages.

If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the Trust Account prior to addressing the claims of creditors.

 

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If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per public share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per public share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

Even if we consummate the business combination, there is no guarantee that the public warrants will be in the money at the time they become exercisable, and they may expire worthless.

The exercise price for our warrants is $11.50 per share of Class A Common Stock. There is no guarantee that the public warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless.

We have not registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis and potentially causing such warrants to expire worthless.

We have not registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed, as soon as practicable, but in no event later than 15 business days after the closing of the business combination, to use our best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the Class A Common Stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in such registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption is available. Notwithstanding the above, if our Class A Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A Common Stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of Class A Common Stock for sale under all applicable state securities laws.

 

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We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your public warrants could be increased, the exercise period could be shortened and the number of shares of our Class A Common Stock purchasable upon exercise of a public warrant could be decreased, all without your approval.

Our public warrants were issued in registered form under a warrant agreement between American Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the public warrants, shorten the exercise period or decrease the number of shares of our Class A Common Stock purchasable upon exercise of a public warrant.

We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force the warrant holders (i) to exercise their warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so, (ii) to sell their warrants at the then-current market price when they might otherwise wish to hold their warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of their warrants. None of the private placement warrants will be redeemable by us so long as they are held by our Sponsor or its permitted transferees.

Because certain of our shares of Class A Common Stock and warrants currently trade as units consisting of one share of Class A Common Stock and one-third of one warrant, the units may be worth less than units of other blank check companies.

Certain of our shares of Class A Common Stock and warrants currently trade as units consisting of one share of Class A Common Stock and one-third of one warrant. Because, pursuant to the warrant agreement, the warrants may only be exercised for a whole number of shares, only a whole warrant may be exercised at any given time. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the public warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of Class A Common Stock to be issued to the warrant holder. As a result, public warrant holders who did not purchase a number of units or warrants that would convert into a whole share must sell any odd number of warrants in order to obtain full value from the fractional interest that will not be issued. This is different from other companies similar to ours whose units include one share of common stock and one warrant to purchase one whole share. This unit structure may cause our units to be worth less than if it included a warrant to purchase one whole share.

Warrants will become exercisable for our Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

Upon the closing of the business combination, we will have outstanding public warrants to purchase 12,577,370 shares of Class A Common Stock issued as part of the units in our IPO, private placement warrants to

 

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purchase 3,182,141 shares of Class A Common Stock held by our Sponsor and the Contribution Warrants. In addition, prior to consummating an initial business combination, nothing prevents us from issuing additional securities in a private placement so long as they do not participate in any manner in the Trust Account or vote as a class with the Class A Common Stock and Class B Common Stock on the business combination. To the extent such warrants are exercised, additional shares of our Class A Common Stock will be issued, which will result in dilution to the then existing holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Class A Common Stock.

The private placement warrants and the Contribution Warrants are identical to the public warrants sold as part of the units issued in our IPO, except that, so long as they are held by our Sponsor or its permitted transferees, in the case of the private placement warrants, or the Apache Contributor or its permitted transferees, in the case of the Contribution Warrants, (i) they will not be redeemable by us, (ii) they (including the Class A Common Stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by our Sponsor until 30 days after the completion of an initial business combination and (iii) they may be exercised by the holders on a cashless basis.

Following the closing of the business combination, the Apache Contributor may receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock upon the achievement of certain stock price and operational goals, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

Pursuant to the Contribution Agreement, the Apache Contributor will have the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock if certain stock price and operational goals are achieved. Please see “Proposal No. 1—The Business Combination Proposal—General Description of the Contribution Agreement; Consideration.” To the extent such stock price or operational goals are achieved and the Apache Contributor becomes entitled to receive a portion or all of the earn-out consideration, additional shares of our Class A Common Stock will be issued, which will result in dilution to the then-existing holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. In connection with the closing of the business combination, we will enter into an amended and restated registration rights agreement with the Apache Contributor, which provides for registration rights with respect to any shares of Class A Common Stock issued to the Apache Contributor as earn-out consideration. Sales of substantial numbers of such shares by the Apache Contributor in the public market could adversely affect the market price of our Class A Common Stock.

A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.

Following the business combination, the price of our securities may fluctuate significantly due to the market’s reaction to the business combination and general market and economic conditions. An active trading market for our securities following the business combination may never develop or, if developed, it may not be sustained. In addition, the price of our securities after the business combination can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities are not listed on, or become delisted from, NASDAQ for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if our securities were quoted or listed on NASDAQ or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

 

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A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A Common Stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A Common Stock. After the closing of the Transactions (and assuming no redemptions by our public stockholders of public shares), our Sponsor, officers and directors and the PIPE Investors will hold approximately 62.1% of our Class A Common Stock. Additionally, the Apache Contributor will have the ability to redeem or exchange its 250,000,000 Common Units for shares of Class A Common Stock on a one-for-one basis, subject to adjustments. Pursuant to the terms of a letter agreement entered into at the time of the IPO, the founder shares (which will be converted into shares of Class A Common Stock at the closing of the business combination) may not be transferred until the earlier to occur of (i) one year after the closing of the business combination or (ii) the date on which we complete a liquidation, merger, stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of our Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and other similar transactions) for any 20 trading days within any 30-trading day period commencing at least 150 days after the closing of the business combination, the shares of Class A Common Stock into which the founder shares convert will be released from these transfer restrictions.

In connection with the closing of the business combination, we will enter into an amended and restated registration rights agreement with our Sponsor, certain of our directors and the Apache Contributor, which provides for registration rights to such parties. In addition, we have agreed with the PIPE investors to file a registration statement registering the shares of Class A Common Stock held by them for resale within 30 days following the closing of the business combination.

If the business combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.

If the benefits of the business combination do not meet the expectations of investors or securities analysts, the market price of our securities prior to the closing of the business combination may decline. The market values of our securities at the time of the business combination may vary significantly from their prices on the date the Contribution Agreement was executed, the date of this proxy statement, or the date on which our stockholders vote on the business combination.

In addition, following the business combination, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Prior to the business combination, there has not been a public market for equity securities of the Alpine High Entities and trading in the shares of our Class A Common Stock has not been active. Accordingly, the valuation ascribed to the Alpine High Entities and our Class A Common Stock in the business combination may not be indicative of the price that will prevail in the trading market following the business combination. If an active market for our securities develops and continues, the trading price of our securities following the business combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities, and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

Factors affecting the trading price of our securities following the business combination may include:

 

   

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

   

changes in the market’s expectations about our operating results;

 

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success of competitors;

 

   

our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

   

changes in financial estimates and recommendations by securities analysts concerning KAAC or the market in general;

 

   

operating and stock price performance of other companies that investors deem comparable to KAAC;

 

   

changes in laws and regulations affecting our business;

 

   

commencement of, or involvement in, litigation involving KAAC;

 

   

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

   

the volume of shares of our Class A Common Stock available for public sale;

 

   

any major change in our board of directors or management;

 

   

sales of substantial amounts of Class A Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

 

   

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and NASDAQ have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to KAAC following the business combination could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

Following the business combination, if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Class A Common Stock adversely, the price and trading volume of our Class A Common Stock could decline.

The trading market for our Class A Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover KAAC following the business combination change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A Common Stock would likely decline. If analysts who may cover KAAC following the business combination were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Activities taken by affiliates of KAAC to purchase, directly or indirectly, public shares of our Class A Common Stock will increase the likelihood of approval of the Business Combination Proposal and other Transaction Proposals and may affect the market price of our securities.

Our Sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions either prior to or following the closing of the business combination. None of our Sponsor, directors, officers, advisors or their affiliates will make any such purchases when such parties are in possession of any

 

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material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Although none of our Sponsor, directors, officers, advisors or their affiliates currently anticipate paying any premium purchase price for such public shares, in the event such parties do, the payment of a premium may not be in the best interest of those stockholders not receiving any such additional consideration. There is no limit on the number of shares that could be acquired by our Sponsor, directors, officers, advisors or their affiliates, or the price such parties may pay.

If such transactions are effected, the consequence could be to cause the business combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Business Combination Proposal and other Transaction Proposals and would likely increase the chances that such Proposals would be approved. If the market does not view the business combination positively, purchases of public shares may have the effect of counteracting the market’s view, which would otherwise be reflected in a decline in the market price of our securities. In addition, the termination of the support provided by these purchases may materially adversely affect the market price of our securities.

As of the date of this proxy statement, no agreements with respect to the private purchase of public shares by KAAC or the persons described above have been entered into with any such investor or holder. We will file a Current Report on Form 8-K with the SEC to disclose private arrangements entered into or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combination Proposal or other Transaction Proposals.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

We are subject to laws, regulations and rules enacted by national, regional and local governments. In particular, we are required to comply with certain SEC, NASDAQ and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.

There can be no assurance that our Class A Common Stock that will be issued in connection with the business combination will be approved for listing on NASDAQ following the closing of the business combination, or that we will be able to comply with the continued listing standards of NASDAQ.

Our Class A Common Stock, public units and public warrants are currently listed on NASDAQ. Our continued eligibility for listing, and the approval of the Class A Common Stock to be issued in connection with the Transactions for listing, may depend on, among other things, the number of our shares that are redeemed. If, after the business combination, NASDAQ delists our Class A Common Stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

 

   

a limited availability of market quotations for our securities;

 

   

reduced liquidity for our securities;

 

   

a determination that our Class A Common Stock is a “penny stock,” which will require brokers trading in our Class A Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

   

a limited amount of news and analyst coverage; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

 

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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our Class A Common Stock, units and public warrants are listed on NASDAQ, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on NASDAQ, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.

We will be subject to income taxes in the United States, and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

tax effects of stock-based compensation;

 

   

costs related to intercompany restructurings;

 

   

changes in tax laws, regulations or interpretations thereof; or

 

   

lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

The recently passed comprehensive tax reform bill could adversely affect our financial condition and results of operations.

On December 22, 2017, President Trump signed into law a comprehensive tax reform bill (the “Tax Cuts and Jobs Act,” or the “TCJA”), that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including a permanent reduction of the corporate income tax rate, a partial limitation on the deductibility of business interest expense, limitation of the deduction for certain net operating losses to 80% of current year taxable income, an indefinite net operating loss carryforward, immediate deductions for certain new investments instead of deductions for depreciation expense over time and modification or repeal of many business deductions and credits. The presentation of our financial condition and results of operations have been recorded in accordance with GAAP, which requires the financial statement impact of the TCJA to be recorded in the period in which the TCJA was enacted. The financial statement impact of the TCJA is based on our current interpretation of the provisions contained in the TCJA and the Treasury Regulations and administrative guidance relating thereto. In the future, the Department of the Treasury and the Internal Revenue Service are expected to release additional Treasury Regulations and administrative guidance relating to the TCJA. Any significant variance of our current interpretation of this law from any future Treasury Regulations or administrative guidance could result in a change to the presentation of our financial condition and results of operations and could negatively affect our business.

 

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The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following April 4, 2022, the fifth anniversary of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

We cannot predict if investors will find our Class A Common Stock less attractive because we will rely on these exemptions. If some investors find our Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and our stock price may be more volatile.

Our stockholders will experience immediate dilution as a consequence of the issuance of Class A Common Stock and Class C Common Stock in the business combination and Class A Common Stock pursuant to the Private Placement.

We will issue 1,862,606 shares of Class A Common Stock (assuming (i) no public stockholders elect to have their public shares redeemed and (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares) and 250,000,000 shares of Class C Common Stock to the Apache Contributor at the closing of the business combination. Additionally, we will issue an aggregate of 57,234,023 shares of our Class A Common Stock in the Private Placement. As a result, following the Transactions, our public stockholders will hold 37,732,112 shares of Class A Common Stock, or approximately 10.6% of our voting common stock and a 36.1% economic interest in us (assuming (i) no public stockholders elect to have their public shares redeemed; (ii) no Assigned Shares are issued to the Apache Contributor and, therefore, our Sponsor forfeits to us only 1,862,606 founder shares; (iii) none of the PIPE Investors, holders of our founder shares or the Apache Contributor purchases shares of Class A Common Stock in the open market; (iv) there are no other issuances of equity interests of KAAC; and (v) the warrants remain outstanding immediately following the closing of the business combination).

 

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Non-U.S. holders may be subject to U.S. federal income tax with respect to gain on disposition of their Class A Common Stock and warrants.

We expect to be classified as a United States real property holding corporation following the business combination. As a result, after the business combination is effected, Non-U.S. holders (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain United States Federal Income Tax Considerations”) that own (or are treated as owning under constructive ownership rules) more than a specified amount of our Class A Common Stock or warrants during a specified time period may be subject to U.S. federal income tax on a sale, exchange, or other disposition of such Class A Common Stock or warrants and may be required to file a U.S. federal income tax return. If you are a Non-U.S. holder, we urge you to consult your tax advisors regarding the tax consequences of such treatment.

Unlike some other blank check companies, KAAC does not have a specified maximum redemption threshold. The absence of such a redemption threshold will make it easier for us to consummate the business combination even if a substantial number of our stockholders elect to redeem their shares.

Unlike some other blank check companies, KAAC has no specified maximum redemption threshold, except that we will not redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Some other blank check companies’ structure disallows the consummation of a business combination if the holders of the blank check company’s public shares elect to redeem or convert more than a specified percentage of the shares sold in such company’s initial public offering. Because we have no such maximum redemption threshold, we may be able to consummate the business combination even though a substantial number of our public stockholders elect to redeem their shares.

Our Second A&R Charter will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

The Second A&R Charter, like the existing Charter, will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court of Chancery”) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim against us or any of our directors, officers, or employees of ours arising pursuant to any provision of the DGCL, the Second A&R Charter, or our bylaws, or (iv) any action asserting a claim against us or any of our directors, officers, or other employees that is governed by the internal affairs doctrine, in each case except for such claims as to which (a) the Court of Chancery determines that it does not have personal jurisdiction over an indispensable party, (b) exclusive jurisdiction is vested in a court or forum other than the Court of Chancery, or (c) the Court of Chancery does not have subject matter jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our Second A&R Charter described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our Second A&R Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

 

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Risks Related to the Redemption

There is no guarantee that a stockholder’s decision whether to redeem its shares for a pro rata portion of the Trust Account will put the stockholder in a better future economic position.

We can give no assurance as to the price at which a stockholder may be able to sell its public shares in the future following the closing of the business combination or any alternative business combination. Certain events following the consummation of any initial business combination, including the business combination, may cause an increase in our share price, and may result in a lower value realized now than a stockholder of KAAC might realize in the future had the stockholder redeemed its shares. Similarly, if a stockholder does not redeem its shares, the stockholder will bear the risk of ownership of the public shares after the consummation of any initial business combination, including the business combination, and there can be no assurance that a stockholder can sell its shares in the future for a greater amount than the redemption price set forth in this proxy statement. A stockholder should consult its own tax and/or financial advisor for assistance on how this may affect its individual situation.

If our stockholders fail to comply with the redemption requirements specified in this proxy statement, they will not be entitled to redeem their shares of Class A Common Stock for a pro rata portion of the funds held in the Trust Account.

In order to exercise their redemption rights, holders of public shares are required to submit a request in writing and deliver their stock (either physically or electronically) to our transfer agent at least two business days prior to the special meeting. Stockholders electing to redeem their shares will receive their pro rata portion of the Trust Account less franchise and income taxes payable, calculated as of two business days prior to the anticipated the closing of the business combination. See the section entitled “Special Meeting of KAAC Stockholders—Redemption Rights” for additional information on how to exercise your redemption rights.

Stockholders of KAAC who wish to redeem their shares for a pro rata portion of the Trust Account must comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline.

Public stockholders who wish to redeem their shares for a pro rata portion of the Trust Account must, among other things, as fully described in the section entitled “Special Meeting of KAAC Stockholders—Redemption Rights,” tender their certificates to our transfer agent or deliver their shares to the transfer agent electronically through the DTC prior to 5:00 p.m., Eastern Time, on                 , 2018. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers, it may take significantly longer than two weeks to obtain a physical stock certificate. If it takes longer than anticipated to obtain a physical certificate, stockholders who wish to redeem their shares may be unable to obtain physical certificates by the deadline for exercising their redemption rights and thus will be unable to redeem their shares.

In addition, holders of outstanding units of KAAC must separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If you hold units registered in your own name, you must deliver the certificate for such units to American Stock Transfer & Trust Company with written instructions to separate such units into public shares and public warrants. This must be completed far enough in advance to permit the mailing of the public share certificates back to you so that you may then exercise your redemption rights upon the separation of the public shares from the units.

 

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If a broker, dealer, commercial bank, trust company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written instructions by facsimile to American Stock Transfer & Trust Company. Such written instructions must include the number of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using DTC’s DWAC (deposit withdrawal at custodian) system, a withdrawal of the relevant units and a deposit of an equal number of public shares and public warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights upon the separation of the public shares from the units. While this is typically done electronically on the same business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your public shares to be separated in a timely manner, you will likely not be able to exercise your redemption rights.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined statements of operations of KAAC for the six months ended June 30, 2018 and for the year ended December 31, 2017 combine the historical statements of operations of KAAC and the historical combined statements of Alpine High Midstream giving effect to the Transactions, summarized below, as if they had been consummated on January 1, 2017, the beginning of the earliest period presented:

 

   

the acquisition by Altus Midstream and/or its subsidiaries from the Apache Contributor of 100% of the interests in Alpine High Midstream and the Options in exchange for the Apache Contributor receiving the following consideration at the closing of the business combination (i) 250,000,000 Common Units, (ii) 250,000,000 shares of Class C Common Stock and (iii) 1,862,606 newly issued shares of Class A Common Stock;

 

   

the contribution of the Available Funds by KAAC to Altus Midstream in exchange for the issuance by Altus Midstream to KAAC of (a) a number of Common Units equal to the number of shares of Class A Common Stock outstanding following the consummation of the Transactions and (b) a number of warrants issued by Altus Midstream equal to the number of KAAC warrants outstanding following the consummation of the Transactions;

 

   

the forfeiture by our Sponsor of 1,862,606 shares of Class B Common Stock and the conversion of the remaining 7,570,422 shares of Class B Common Stock held by our Sponsor and independent directors into 7,570,422 shares of Class A Common Stock, in connection with the closing of the business combination; and

 

   

the illustrative redemption by KAAC of shares of Class A Common Stock held by public stockholders in connection with the Transactions and the adjustments to the foregoing consideration, including the Assigned Shares (if any), received by the Apache Contributor as more fully described below.

The unaudited pro forma condensed combined balance sheet of KAAC as of June 30, 2018 combines the historical condensed balance sheet of KAAC and the historical combined balance sheet of Alpine High Midstream, as if the Transactions had been consummated on June 30, 2018.

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to events that are: (i) directly attributable to the Transactions; (ii) factually supportable; and (iii) with respect to the statement of operations, expected to have a continuing impact on KAAC’s results following the completion of the Transactions.

The unaudited pro forma condensed combined financial statements have been developed from and should be read in conjunction with:

 

   

the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

   

the (i) historical audited financial statements of KAAC as of and for the year ended December 31, 2017 and (ii) historical condensed unaudited financial statements of KAAC as of and for the six months ended June 30, 2018, included elsewhere in this proxy statement;

 

   

the (i) historical audited combined financial statements of Alpine High Midstream as of and for the year ended December 31, 2017 and (ii) historical unaudited combined financial statements of Alpine High Midstream as of and for the six months ended June 30, 2018, included elsewhere in this proxy statement; and

 

   

other information relating to KAAC and Alpine High Midstream contained in this proxy statement.

Pursuant to the Charter, public stockholders are being offered the opportunity to redeem, upon the closing of the business combination, shares of Class A Common Stock then held by them for cash equal to their pro rata

 

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share of the aggregate amount on deposit (as of two business days prior to the closing of the business combination) in the Trust Account. For illustrative purpose, based on the fair value of marketable securities held in the Trust Account as of June 30, 2018 of approximately $380.7 million, the estimated per share redemption price would have been approximately $10.09.

The unaudited pro forma condensed combined financial statements present two redemption scenarios as follows:

 

   

Assuming No Redemption: This scenario assumes that no shares of Class A Common Stock are redeemed; and

 

   

Assuming Illustrative Redemption: This scenario assumes for illustrative purposes that 22,490,308 shares of Class A Common Stock are redeemed, resulting in an aggregate payment of approximately $226.9 million from the Trust Account, which is the amount of redemptions set forth in the Contribution Agreement, that would result in (i) the Apache Contributor receiving a maximum of 5,450,422 additional newly issued shares of Class A Common Stock, (ii) a corresponding forfeiture of 5,450,422 founder shares by our Sponsor, and (iii) the balance of cash at the closing of the business combination being reduced by approximately $226.9 million.

Pursuant to the terms of the Contribution Agreement, the Transactions have been accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, KAAC will be treated as the acquired company and Alpine High Midstream will be treated as the acquirer for financial statement reporting purposes.

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Transactions and the other related transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of KAAC following the completion of the Transactions and the other related transactions. The unaudited pro forma adjustments represent our management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2018

(in thousands)

 

    KAAC     Alpine High
Midstream
    Combined     Pro Forma
Adjustments
        Pro Forma
Combined-
No Redemption
    Redemption
Adjustments
        Pro Forma
Combined-
Illustrative
Redemption
 
    (a)     (b)                                        
ASSETS                  

CURRENT ASSETS:

                 

Cash

  $ 49     $ —       $ 49     $ 923,238     (c)   $ 923,287     $ (226,927   (x)   $ 696,360  

Revenue receivables

    —         4,367       4,367       (4,367   (k)     —         —           —    

Inventories

    —         1,010       1,010       —           1,010       —           1,010  

Prepaid expenses and other current assets

    190       —         190       —           190       —           190  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

    239       5,377       5,616       918,871         924,487       (226,927       697,560  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Investment held in Trust Account

    380,712       —         380,712       (380,712   (d)     —         —           —    

PROPERTY AND EQUIPMENT:

                 

Gathering, transmission and processing facilities

    —         947,749       947,749       —           947,749       —           947,749  

Less: Accumulated depreciation, depletion and amortization

    —         (13,918     (13,918     —           (13,918     —           (13,918
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total property, plant and equipment, net

    —         933,831       933,831       —           933,831       —           933,831  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

  $ 380,951     $ 939,208     $ 1,320,159     $ 538,159       $ 1,858,318     $ (226,927     $ 1,631,391  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 
LIABILITIES AND EQUITY                                                  

CURRENT LIABILITIES:

                 

Accrued expenses

  $ 1,049     $ —       $ 1,049     $ (1,049   (h)   $ —       $ —         $ —    

Accrued franchise taxes

    20       —         20       —           20       —           20  

Accrued income taxes

    9       —         9       —           9       —           9  

Sponsor note

    100       —         100       (100   (i)     —         —           —    

Other current liabilities

    —         78,282       78,282       (78,282   (k)     —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

    1,178       78,282       79,460       (79,431       29       —           29  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

                 

Asset retirement obligation

    —         30,349       30,349       —           30,349       —           30,349  

Deferred tax liability

    —         16,232       16,232       (16,232   (l)     —         —           —    

Deferred underwriting compensation

    13,206       —         13,206       (13,206   (f)     —         —           —    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

    14,384       124,863       139,247       (108,869       30,378       —           30,378  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

COMMITMENTS AND CONTINGENCIES:

                 

Class A Common Stock subject to redemption

    361,567       —         361,567       (361,567   (m)     —         —           —    

EQUITY:

                 

Contributions from Apache

    —         857,148       857,148       (857,148   (n)     —         —           —    

Class A Common Stock

    —         —         —         10     (o)     10       (2   (o)     8  

Class B Common Stock

    1       —         1       (1   (q)     —         —           —    

Class C Common Stock

    —         —         —         25     (j)     25       —           25  

Additional paid-in capital

    3,891       —         3,891       564,551     (r)     568,442       (143,931   (r)     424,511  

Retained earnings (accumulated deficit)

    1,108       (42,803     (41,695     11,694     (u)     (30,001     556     (u)     (29,445

Non-controlling interest

    —         —         —         1,289,464     (w)     1,289,464       (83,550   (w)     1,205,914  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities and equity

  $ 380,951     $ 939,208     $ 1,320,159     $ 538,159       $ 1,858,318     $ (226,927     $ 1,631,391  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

See accompanying notes to pro forma financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(in thousands, except share and per share data)

 

    KAAC     Alpine High
Midstream
    Combined     Pro Forma
Adjustments
        Pro Forma
Combined-
No Redemption
        Redemption
Adjustments
        Pro Forma
Combined-
Illustrative
Redemption
     
    (a)     (b)                                                

REVENUES:

                     

Midstream services—affiliate

  $ —       $ 24,616     $ 24,616     $ —         $ 24,616       $ —         $ 24,616    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Total revenues

    —         24,616       24,616       —           24,616         —           24,616    

OPERATING EXPENSES:

                     

Gathering, transmission and processing

    —         22,219       22,219       —           22,219         —           22,219    

Depreciation and accretion

    —         8,921       8,921       —           8,921         —           8,921    

General and administrative

    714       3,261       3,975       —           3,975         —           3,975    

Taxes other than income

    100       5,253       5,353       —           5,353         —           5,353    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expenses

    814       39,654       40,468       —           40,468         —           40,468    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Other income—investment income on Trust Account

    2,650       —         2,650       (2,650   (c)     —           —           —      

INCOME (LOSS) BEFORE INCOME TAXES

    1,836       (15,038     (13,202     (2,650       (15,852       —           (15,852  

Income tax expense (benefit)

    538       9,190       9,728       (7,125   (d)     2,603         (423   (d)     2,180    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

NET INCOME (LOSS)

    1,298       (24,228     (22,930     4,475         (18,455       423         (18,032  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Less: loss attributable to non-controlling interest

    —         —         —         11,182     (e)     11,182         758         11,940    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A STOCKHOLDERS

  $ 1,298     $ (24,228   $ (22,930   $ 15,657       $ (7,273     $ 1,181       $ (6,092  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Weighted average shares outstanding:

                     

Basic

    11,137,469           93,261,694         104,399,163         (22,490,308       81,908,855    

Diluted

    47,165,140           57,234,023         104,399,163     (f)     (22,490,308       81,908,855     (f)

Net income (loss) per common share:

                     

Basic

  $ 0.12             $ (0.07         $ (0.07  

Diluted

  $ 0.03             $ (0.07         $ (0.07  

See accompanying notes to pro forma financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

(in thousands, except share and per share data)

 

    KAAC     Alpine High
Midstream
    Combined     Pro Forma
Adjustments
        Pro Forma
Combined-
No Redemption
        Redemption
Adjustments
        Pro Forma
Combined-
Illustrative
Redemption
     
    (a)     (b)                                                

REVENUES:

                     

Midstream services—affiliate

  $ —       $ 15,142     $ 15,142     $ —         $ 15,142       $ —         $ 15,142    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Total revenues

    —         15,142       15,142       —           15,142         —           15,142    

OPERATING EXPENSES:

                     

Gathering, transmission and processing

    —         16,597       16,597       —           16,597         —           16,597    

Depreciation and accretion

    —         5,991       5,991       —           5,991         —           5,991    

General and administrative

    1,538       3,991       5,529       —           5,529         —           5,529    

Taxes other than income

    200       97       297       —           297         —           297    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expenses

    1,738       26,676       28,414       —           28,414         —           28,414    
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Other income—investment income on Trust Account

    2,247       —         2,247       (2,247   (c)     —           —           —      

INCOME (LOSS) BEFORE INCOME TAXES

    509       (11,534     (11,025     (2,247       (13,272       —           (13,272  

Income tax expense (benef