<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1994
REGISTRATION NUMBER 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
K N ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
4922
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
<TABLE>
<S> <C>
KANSAS 48-0290000
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
370 VAN GORDON STREET WILLIAM S. GARNER, JR.
P. O. BOX 281304 VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
LAKEWOOD, COLORADO 80228-8304 370 VAN GORDON STREET, P. O. BOX 281304
(303) 989-1740 LAKEWOOD, COLORADO 80228-8304
(303) 989-1740
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL TELEPHONE NUMBER,
EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------------
Copies to:
<TABLE>
<S> <C>
C. MICHAEL HARRINGTON JAMES M. PRINCE
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
3604 FIRST CITY TOWER 4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2148 (713) 220-4486
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value $5.00
per share.................. 14,000,000 shares $9.8125 $290,709,511 $100,246
- -------------------------------------------------------------------------------------------------
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</TABLE>
(1) A maximum of 14,000,000 shares of Common Stock of the registrant are to be
offered in exchange for a maximum of 29,626,447 shares of Common Stock, par
value $.04 per share, of American Oil and Gas Corporation ("AOG"). Pursuant
to Rule 457(f), the registration fee was computed on the basis of the
average of the high and low prices of a share of Common Stock of AOG
reported on the New York Stock Exchange Composite Tape on April 19, 1994.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
K N ENERGY, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 CAPTION IN REGISTRATION STATEMENT
------------------------------------------ ---------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Forepart of Registration Statement; Outside
Outside Front Cover Page of Front Cover Page of Prospectus
Prospectus..............................
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page of Prospectus;
of Prospectus........................... Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Outside Front and Inside Front Cover Pages of
Charges and Other Information........... Prospectus; Summary
4. Terms of the Transaction.................. Outside Front Cover Page of Prospectus;
Summary; The Special Meetings; The Merger;
Management and Operations After the Merger;
Terms of the Merger; Proposed K N Charter
Amendments; Comparative Rights of K N and
AOG Common Stockholders
5. Pro Forma Financial Information........... Unaudited Pro Forma Condensed Consolidated
Financial Statements
6. Material Contacts With the Company Being The Merger; Management and Operations After
Acquired................................ the Merger; Terms of the Merger; Proposed K N
Charter Amendments
7. Additional Information Required For *
Reoffering by Persons and Parties Deemed
to be
Underwriters............................
8. Interests of Named Experts and Counsel.... Legal Matters; Experts
9. Disclosure of Commission Position on *
Indemnification For Securities Act
Liabilities.............................
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 *
Registrants.............................
11. Incorporation of Certain Information by Incorporation of Certain Documents by
Reference............................... Reference; Description of K N Capital Stock
12. Information with Respect to S-2 or S-3 *
Registrants.............................
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM OF FORM S-4 CAPTION IN REGISTRATION STATEMENT
------------------------------------------ ---------------------------------------------
<S> <C> <C>
13. Incorporation of Certain Information by *
Reference...............................
14. Information with Respect to Registrants *
Other than S-2 or S-3 Registrants.......
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Incorporation of Certain Documents by
Companies............................... Reference; Description of AOG Capital Stock
16. Information with Respect to S-2 or S-3 *
Companies...............................
17. Information with Respect to Companies *
Other Than S-2 or S-3 Companies.........
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Notice of Special Meeting of Stockholders;
Authorizations Are to be Solicited...... The Special Meetings; The Merger; Management
and Operations After the Merger; Terms of
the Merger; Principal Stockholders of K N
and AOG
19. Information if Proxies, Consents or *
Authorizations Are Not to be Solicited
in an Exchange Offer....................
</TABLE>
- ---------------
* Not applicable or answer is negative.
<PAGE> 4
[K N LETTERHEAD]
, 1994
Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 10:00 a.m., Mountain Daylight Time, on , June , 1994 at
the Stouffer Concourse Hotel, 3801 Quebec Street, Denver, Colorado 80207.
At the Special Meeting, you will be asked to consider and vote upon (i) the
approval and adoption of amendments to the Company's Restated Articles of
Incorporation increasing the Company's authorized Common Stock from 25,000,000
shares to 50,000,000 shares and increasing the maximum number of directors of
the Company from fourteen to fifteen and (ii) approval of the issuance and
reservation for issuance of up to 14,000,000 shares of the Company's Common
Stock pursuant to an Agreement of Merger (the "Merger Agreement") providing for
the merger of KNE Acquisition Corporation, a wholly-owned subsidiary of the
Company, with and into American Oil and Gas Corporation. Pursuant to the terms
of the Merger Agreement, each outstanding share of Common Stock of American Oil
and Gas Corporation will be converted into 0.47 of a share of Common Stock of
the Company.
The proposed merger is subject to a number of conditions, including
obtaining the approval of the stockholders of American Oil and Gas Corporation
and the stockholders of the Company and regulatory and lender approvals. The
Boards of Directors of the Company and American Oil and Gas Corporation have
approved the Merger Agreement and the transactions contemplated thereby. A
summary of the basic terms and conditions of the proposed merger, certain
financial and other information relating to the proposed merger and a copy of
the Merger Agreement are set forth in the Joint Proxy Statement/Prospectus.
Please review and consider the enclosed materials carefully.
YOUR BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE INCREASE IN THE
COMPANY'S AUTHORIZED COMMON STOCK, THE INCREASE IN THE MAXIMUM NUMBER OF
DIRECTORS AND THE ISSUANCE OF THE COMPANY'S SHARES OF COMMON STOCK IN THE
PROPOSED MERGER ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR APPROVAL OF EACH OF SUCH MATTERS.
Your vote is very important. Accordingly, we urge you to complete, sign,
date and return the enclosed proxy immediately, whether or not you plan to
attend the Special Meeting. You may, of course, attend the Special Meeting and
vote in person even if you have returned a proxy.
Very truly yours,
Charles W. Battey
Chairman of the Board
<PAGE> 5
K N ENERGY, INC.
370 VAN GORDON STREET
LAKEWOOD, COLORADO 80228
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of K N Energy, Inc.:
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of K N Energy, Inc. ("K N") will be held on , June
, 1994, at the Stouffer Concourse Hotel, 3801 Quebec Street, Denver, Colorado
80207, at 10:00 a.m., Mountain Daylight Time, to consider and act upon the
following matters which are described in more detail in the accompanying Joint
Proxy Statement/Prospectus:
1. To consider and vote upon the adoption of a proposed amendment to K
N's Restated Articles of Incorporation, as amended, increasing the maximum
number of directors of K N from 14 to 15.
2. To consider and vote upon the adoption of a proposed amendment to K
N's Restated Articles of Incorporation, as amended, increasing its
authorized Common Stock from 25,000,000 shares to 50,000,000 shares.
3. To consider and approve the issuance and reservation for issuance
by K N of up to 14,000,000 shares of its Common Stock pursuant to an
Agreement of Merger dated as of March 24, 1994 (the "Merger Agreement"),
among K N, KNE Acquisition Corporation and American Oil and Gas Corporation
("AOG"), providing for the merger of KNE Acquisition Corporation with and
into AOG, and pursuant to which each outstanding share of AOG Common Stock,
$.04 par value, will be converted into 0.47 of a share of K N Common Stock,
$5.00 par value.
4. To consider and take action upon such other matters as may properly
come before the Special Meeting, or any adjournment thereof.
The record date for determination of stockholders entitled to notice of and
to vote at the Special Meeting is May 13, 1994. A list of the stockholders
entitled to vote at the Special Meeting may be examined at the offices of K N at
370 Van Gordon Street, Lakewood, Colorado, during the ten-day period preceding
such meeting.
When the proxies are returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However, if
no choice has been specified, the shares will be voted FOR adoption of each of
the proposed amendments to the Restated Articles of Incorporation, as amended,
and FOR approval of the issuance and reservation for issuance of the K N shares
pursuant to the Merger Agreement. Any stockholder giving a proxy has the power
to revoke it at any time before it is voted by filing, with the Secretary of K
N, either an instrument revoking the proxy or a duly executed proxy bearing a
later date. Proxies also may be revoked by attending the meeting and voting in
person.
By Order of the Board of Directors,
William S. Garner, Jr.
Secretary
, 1994.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING; HOWEVER, WHETHER
OR NOT YOU EXPECT TO ATTEND, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY WITHOUT DELAY IN THE ENCLOSED POSTPAID ENVELOPE. THE PROXY IS
REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AND PREFER TO VOTE IN PERSON.
<PAGE> 6
[AOG LETTERHEAD]
, 1994
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 10:00 a.m., Central Daylight Time, on , June , 1994 at the
, , Houston, Texas.
At the Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement of Merger (the "Merger Agreement")
providing for the merger of KNE Acquisition Corporation, a wholly-owned
subsidiary of K N Energy, Inc. ("K N"), with and into American Oil and Gas
Corporation ("AOG"). Pursuant to the terms of the Merger Agreement, each
outstanding share of American Oil and Gas Corporation Common Stock will be
converted into 0.47 of a share of K N Common Stock.
The proposed merger is subject to a number of conditions, including
obtaining the approval of the stockholders of AOG and the stockholders of K N
and regulatory and lender approvals. The Board of Directors of AOG has approved
the Merger Agreement and the transactions contemplated thereby. A summary of the
basic terms and conditions of the proposed merger, certain financial and other
information relating to the merger and a copy of the Merger Agreement are set
forth in the Joint Proxy Statement/Prospectus. Please review and consider the
enclosed materials carefully.
YOUR BOARD OF DIRECTORS AND MANAGEMENT BELIEVE THAT THE PROPOSED MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, AOG STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR ITS APPROVAL.
Your vote is very important. The affirmative vote of the holders of
two-thirds of the outstanding shares of AOG Common Stock is required to approve
and adopt the Merger Agreement. Failure to sign and return your proxy will have
the same effect as a vote against approval and adoption of the Merger Agreement.
Accordingly, we urge you to complete, sign, date and return the enclosed proxy
immediately, whether or not you plan to attend the Special Meeting. You may, of
course, attend the Special Meeting and vote in person even if you have returned
a proxy.
Very truly yours,
David M. Carmichael
Chairman of the Board
<PAGE> 7
AMERICAN OIL AND GAS CORPORATION
333 CLAY STREET, SUITE 2000
HOUSTON, TEXAS 77002
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of American Oil and Gas Corporation:
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of American Oil and Gas Corporation ("AOG") will be held on
, June , 1994, at the , , Houston, Texas,
at 10:00 a.m., Central Daylight Time, to consider and act upon the following
matters which are described in more detail in the accompanying Joint Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the
Agreement of Merger dated March 24, 1994 (the "Merger Agreement"), among
AOG, K N Energy, Inc. ("K N") and KNE Acquisition Corporation, providing
for the merger of KNE Acquisition Corporation with and into AOG, and
pursuant to which each outstanding share of AOG Common Stock, $.04 par
value, will be converted into 0.47 of a share of K N Common Stock, $5.00
par value.
2. To consider and take action upon such other matters as may properly
come before the Special Meeting, or any adjournment thereof.
The record date for determination of stockholders entitled to notice of and
to vote at the Special Meeting is May 13, 1994. A list of the stockholders
entitled to vote at the Special Meeting may be examined at the offices of AOG at
333 Clay Street, Suite 2000, Houston, Texas 77002, during the ten-day period
preceding such meeting.
When the proxies are returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However, if
no instructions have been specified on a returned proxy, the shares represented
thereby will be voted FOR approval and adoption of the Merger Agreement. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted by filing, with the Secretary of AOG, either an instrument revoking the
proxy or a duly executed proxy bearing a later date. Proxies also may be revoked
by attending the meeting and voting in person.
By Order of the Board of Directors,
Thomas W. Pounds
Secretary
, 1994.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING; HOWEVER, WHETHER
OR NOT YOU EXPECT TO ATTEND, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY WITHOUT DELAY IN THE ENCLOSED POSTPAID ENVELOPE. THE PROXY IS
REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AND PREFER TO VOTE IN PERSON.
<PAGE> 8
*******************************************************************************
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed with the *
* Securities and Exchange Commission. These securities may *
* not be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer *
* to buy nor shall there be any sale of these securities in any State in *
* which such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such State. *
*******************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 22, 1994.
PRELIMINARY PROXY MATERIAL -- NO PROXIES ARE BEING SOLICITED HEREWITH.
SOLICITATIONS WILL BE MADE ONLY PURSUANT TO A COMPLETED DEFINITIVE JOINT PROXY
STATEMENT/PROSPECTUS.
JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
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PROXY STATEMENT AND PROSPECTUS PROXY STATEMENT
- --------------------------------------------------------------------------------------------
K N ENERGY, INC. AMERICAN OIL AND GAS CORPORATION
370 VAN GORDON STREET 333 CLAY STREET, SUITE 2000
LAKEWOOD, COLORADO 80228-8304 HOUSTON, TEXAS 77002
(303) 989-1740 (713) 739-2900
</TABLE>
---------------------
K N Energy, Inc. ("K N") has filed a registration statement on Form S-4
(the "Registration Statement") pursuant to the Securities Act of 1933 (the
"Securities Act") covering up to 14,000,000 shares of its Common Stock, $5.00
par value per share (the "K N Common Stock"), issuable in connection with a
transaction in which KNE Acquisition Corporation ("Sub"), a newly-formed,
wholly-owned subsidiary of K N, will be merged (the "Merger") with and into
American Oil and Gas Corporation ("AOG"). This Joint Proxy Statement/Prospectus
constitutes a part of the Registration Statement and is being furnished to
stockholders of each of K N and AOG in connection with the solicitation of
proxies by the respective Boards of Directors of K N and AOG for use at their
respective Special Meetings of Stockholders (or any adjournments or
postponements thereof) to be held on June , 1994. This Joint Proxy
Statement/Prospectus also constitutes the Prospectus of K N filed as part of the
Registration Statement. The information contained or incorporated by reference
herein with respect to K N and its subsidiaries has been supplied by K N and the
information contained or incorporated by reference herein with respect to AOG
and its subsidiaries has been supplied by AOG.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of K N and AOG on or about ,
1994.
---------------------
THE SHARES OF K N COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus, and if
given or made, such information or representation should not be relied upon as
having been authorized. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Joint Proxy Statement/Prospectus, or the solicitation
of a proxy, in any jurisdiction in which, or to any person to whom, it is
unlawful to make such offer or solicitation of an offer or proxy solicitation.
Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of the securities offered hereby shall, under any circumstances,
create an implication that there has been no change in the affairs of K N or AOG
since the date hereof.
---------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1994.
<PAGE> 9
AVAILABLE INFORMATION
K N and AOG are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the offices of the Commission, Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Regional Offices of the Commission at Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661, and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549.
The reports, proxy statements and other information concerning K N and AOG can
also be inspected at the offices of the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Statements made in this Joint Proxy Statement/Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, are available for inspection and copying at the Commission's
offices as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
K N incorporates herein by reference the following documents filed by it
with the Commission (File No. 1-6446) pursuant to the Exchange Act: Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 and Current
Report on Form 8-K dated March 25, 1994 respecting the Merger.
AOG incorporates herein by reference the following documents filed by it
with the Commission (File No. 1-8717) pursuant to the Exchange Act: Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 and Current
Report on Form 8-K dated March 30, 1994 respecting the Merger.
All documents filed by K N and AOG pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of their special meetings of
stockholders shall be deemed to be incorporated herein by reference and to be
part hereof from the date of filing of such document. Any statement contained
herein or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
K N AND AOG HEREBY UNDERTAKE TO PROVIDE WITHOUT CHARGE TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY
SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE
BEEN OR MAY BE INCORPORATED IN THIS JOINT PROXY STATEMENT/PROSPECTUS BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS. SUCH REQUESTS FOR K
N DOCUMENTS SHOULD BE DIRECTED TO THE OFFICE OF THE TREASURER, K N ENERGY, INC.,
P.O. BOX 281304, LAKEWOOD, COLORADO 80228-8304, TELEPHONE NUMBER (303) 989-1740.
SUCH REQUESTS FOR AOG DOCUMENTS SHOULD BE DIRECTED TO AMERICAN OIL AND GAS
CORPORATION, 333 CLAY STREET, SUITE 2000, HOUSTON, TEXAS 77002, ATTENTION:
DIRECTOR OF INVESTOR RELATIONS, TELEPHONE NUMBER (713) 739-2900. IN ORDER TO
ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE APPLICABLE STOCKHOLDER MEETING,
REQUESTS SHOULD BE RECEIVED BY JUNE , 1994.
2
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................ 2
Incorporation of Certain Documents By
Reference.......................... 2
Summary.............................. 4
The Companies...................... 4
The Special Meetings............... 4
The Merger......................... 5
Comparative Rights of AOG and
K N Common Stockholders......... 9
Market Price and Dividend Data..... 9
Summary Financial Information...... 10
Comparative Per Share Data......... 13
K N/AOG Map.......................... 14
The Companies........................ 15
K N and Sub........................ 15
AOG................................ 15
The Special Meetings................. 16
Time, Date, Place and Purpose of
Special Meetings................ 16
Record Date and Outstanding Shares. 16
Voting and Revocation of Proxies... 16
Vote Required...................... 17
Solicitation of Proxies............ 18
Other Matters...................... 18
The Merger........................... 18
General Description of the Merger.. 18
Background......................... 18
K N's Reasons for the Merger;
Recommendation of Board of
Directors of K N................ 20
AOG's Reasons for the Merger;
Recommendation of Board of
Directors of AOG................ 21
Opinions of Financial Advisors..... 22
Interests of Certain Persons in the
Merger.......................... 28
Certain Federal Income Tax
Consequences.................... 29
Accounting Treatment............... 30
Governmental and Regulatory
Approvals....................... 30
Restrictions on Resales by
Affiliates...................... 31
Management and Operations After
the Merger......................... 32
Board of Directors................. 32
Management......................... 34
Benefits of the Merger............. 34
Future Opportunities and Projects.. 36
Post-Merger Dividend Policy........ 36
Terms of the Merger.................. 36
Effective Time of the Merger....... 36
Manner and Basis of Converting
Shares.......................... 36
AOG Options and Warrants........... 37
Conditions to the Merger........... 37
Representations and Warranties..... 39
Conduct of the Business of K N and
AOG Prior to the Merger......... 39
<CAPTION>
PAGE
----
<S> <C>
No Solicitation.................... 40
Conduct of the Business of the
Combined Companies Following
the Merger...................... 41
Termination or Amendment of
Merger Agreement................ 41
Termination Fee.................... 42
Employee Benefit Plans............. 42
Indemnification.................... 42
No Appraisal Rights................ 43
Proposed K N Charter Amendments...... 43
Increasing Maximum Number of
Directors....................... 43
Increasing Authorized K N Common
Stock........................... 43
Comparative Rights of AOG and K N
Common Stockholders................ 44
Number and Classification of Board
of Directors.................... 44
Removal of Directors............... 44
Director Nominations and Special
Meetings........................ 45
Stockholder Vote Required for
Certain Transactions............ 45
Market Prices of Common Stock and
Dividend Information............... 47
Market Information................. 47
Dividend Information............... 47
Unaudited Pro Forma Condensed
Consolidated Financial Statements.. 48
Principal Stockholders of K N
and AOG............................ 54
K N................................ 54
AOG................................ 55
Description of K N Capital Stock..... 56
General............................ 56
Certain Provisions of the K N
Charter and By-laws............. 58
Kansas Business Combination Act.... 59
Kansas Control Share Acquisitions
Act............................. 59
Other Matters...................... 59
Description of AOG Capital Stock..... 59
AOG Common Stock................... 59
AOG Preferred Stock................ 60
Registration Rights................ 60
Certain Provisions of Certificate of
Incorporation and Delaware Law.. 60
Transfer Agent and Registrar....... 60
Relationships With Independent Public
Accountants........................ 61
Legal Matters........................ 61
Experts.............................. 61
Stockholders' Proposals.............. 61
Appendices:
A -- Agreement of Merger
B -- Opinion of Petrie Parkman & Co.
C -- Opinion of Goldman, Sachs & Co.
</TABLE>
3
<PAGE> 11
SUMMARY
The following contains a brief summary of certain information contained in
this Joint Proxy Statement/Prospectus. This summary does not contain a complete
statement of all material information relating to the Merger and the Merger
Agreement and is subject and qualified in its entirety by reference to the more
detailed information and financial statements contained elsewhere in this Joint
Proxy Statement/Prospectus, including the appendices hereto, or incorporated by
reference herein. You are urged to read this Joint Proxy Statement/Prospectus,
the Merger Agreement, a conformed copy of which is attached hereto and
incorporated herein by reference, and other appendices attached hereto in their
entirety. All information contained in this Joint Proxy Statement/Prospectus has
been adjusted to reflect the three-for-two split of the K N Common Stock which
was distributed on October 4, 1993. Certain capitalized terms used in this
Summary are defined elsewhere in this Joint Proxy Statement/Prospectus.
THE COMPANIES
K N Energy, Inc. and Sub. K N is a natural gas services company focusing on
gas reserves development, gas gathering, processing, marketing, storage,
transportation and retail gas distribution services. Sub is a wholly-owned
subsidiary of K N incorporated in Delaware on February 8, 1994 for the sole
purpose of effecting the Merger pursuant to the Merger Agreement. The principal
executive offices of K N are located at 370 Van Gordon Street, Lakewood,
Colorado 80228-8304, and its telephone number is (303) 989-1740.
American Oil and Gas Corporation. AOG operates principally in Texas in the
mid-stream segment of the natural gas industry, providing gathering, processing,
transportation, storage and marketing services between the wellhead and the end
user. The principal executive offices of AOG are located at 333 Clay Street,
Suite 2000, Houston, Texas 77002, and its telephone number is (713) 739-2900.
As used herein, unless the context otherwise requires, the term "K N"
refers to K N Energy, Inc. and its subsidiaries, and the term "AOG" refers to
American Oil and Gas Corporation and its subsidiaries.
THE SPECIAL MEETINGS
Time, Date, Place and Purpose. The K N Special Meeting will be held at
10:00 a.m., Mountain Daylight Time, at the Stouffer Concourse Hotel, 3801 Quebec
Street, Denver, Colorado, on June , 1994, for the purpose of (i) adopting
proposed amendments to K N's Restated Articles of Incorporation, as amended (the
"K N Charter"), increasing its authorized Common Stock from 25,000,000 shares to
50,000,000 shares and increasing its maximum number of directors from 14 to 15
and (ii) approving, as required by the rules of the NYSE, the issuance and
reservation for issuance of up to 14,000,000 shares of its Common Stock pursuant
to the Merger Agreement. The AOG Special Meeting will be held at 10:00 a.m.,
Central Daylight Time, on June , 1994, at the , Houston, Texas,
for the purpose of approving and adopting the Merger Agreement, as required
under Delaware law.
Record Date and Vote Required. Only those stockholders of K N and
stockholders of AOG of record at the close of business on May 13, 1994 (the
"Record Date") are entitled to notice of, and to vote at, the K N Special
Meeting and the AOG Special Meeting, respectively.
The affirmative vote of the holders of a majority of the shares of K N
Common Stock and K N Preferred Stock outstanding on the Record Date is required
to adopt the proposed amendment to the K N Charter increasing K N's authorized
Common Stock and the affirmative vote of the holders of two-thirds of the shares
of K N Common Stock and K N Preferred Stock outstanding on the Record Date is
required to adopt the proposed amendment to the K N Charter increasing its
maximum number of directors. Under the rules of the NYSE the issuance and
reservation for issuance of up to 14,000,000 shares of K N Common Stock pursuant
to the Merger Agreement require the approval of a majority of the votes cast on
the proposal, provided that the total vote cast thereon represents over 50% of
the total number of shares of K N Common Stock and K N Preferred Stock entitled
to vote on the proposal. On the Record Date, there was an aggregate of
shares of K N Common Stock and 103,576 shares of K N Preferred Stock outstanding
and entitled to vote at the K N Special Meeting. The K N Common Stock and the K
N Preferred Stock will vote on a share-for-share
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<PAGE> 12
basis as a single class at the K N Special Meeting. On the Record Date, the
directors and executive officers of K N and their affiliates held approximately
% of the combined outstanding shares of both classes.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of at least two-thirds of the shares of AOG Common Stock
outstanding on the Record Date. On the Record Date, there was an aggregate of
25,969,395 shares of AOG Common Stock outstanding and entitled to vote at the
AOG Special Meeting, and approximately 41.4% of such shares were held by the
directors and executive officers of AOG and their affiliates. Cabot Corporation,
the largest stockholder of AOG ("Cabot"), has entered into an agreement with K N
pursuant to which it has agreed, subject to certain conditions, to vote its
8,931,818 shares (34.4%) of AOG Common Stock in favor of approval and adoption
of the Merger Agreement. Cabot's agreement is subject to the continued support
of the Board of Directors of AOG in recommending approval of the Merger
Agreement and the absence of any third party proposal for an AOG Acquisition
Transaction (as hereinafter defined). David M. Carmichael, Chairman of the Board
of AOG, and William P. Conner, Executive Vice President of AOG, who hold
collectively 2.4% of the outstanding AOG Common Stock, have entered into similar
agreements. See "The Special Meetings -- Vote Required."
THE MERGER
Terms of the Merger. At the Effective Time (hereinafter defined), Sub will
merge with and into AOG, with AOG becoming the surviving corporation and a
wholly-owned subsidiary of K N (the "Surviving Corporation"). In the Merger,
each outstanding share of AOG Common Stock will be converted into 0.47 of a
share of K N Common Stock (the "Exchange Ratio"). Any resulting fractional
shares will be settled in cash. The full text of the Merger Agreement is
attached to this Joint Proxy Statement/Prospectus as Appendix A.
Based upon the number of shares of K N Common Stock and AOG Common Stock
outstanding as of the Record Date, approximately shares of K N Common
Stock will be outstanding immediately after the Effective Time, of which
approximately shares, representing % of the total, will be held by
former holders of AOG Common Stock.
Recommendations of the Boards of Directors. THE BOARD OF DIRECTORS OF K N
HAS DETERMINED THAT THE PROPOSED AMENDMENTS TO THE K N CHARTER AND THE ISSUANCE
AND RESERVATION OF SHARES OF K N COMMON STOCK PURSUANT TO THE MERGER AGREEMENT
ARE ADVISABLE AND IN THE BEST INTERESTS OF K N AND THE STOCKHOLDERS OF K N AND
RECOMMENDS THAT THE STOCKHOLDERS OF K N APPROVE AND ADOPT EACH OF SUCH
PROPOSALS. See "The Merger -- Background," "-- K N's Reasons for the Merger;
Recommendation of Board of Directors of K N" and "Proposed K N Charter
Amendments."
THE BOARD OF DIRECTORS OF AOG HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF AOG APPROVE AND ADOPT THE MERGER AGREEMENT. See "The
Merger -- Background," "-- AOG's Reasons for the Merger; Recommendation of Board
of Directors of AOG." In considering the recommendation of the AOG Board with
respect to the Merger, AOG stockholders should be aware that certain officers
and directors of AOG have direct or indirect interests in recommending the
Merger, apart from their interests as stockholders of AOG, which are not
identical to those of unaffiliated stockholders of AOG. See "The
Merger -- Interests of Certain Persons in the Merger."
Opinions of Financial Advisors. The Board of Directors of K N has received
a written opinion from Petrie Parkman & Co., Inc. ("Petrie Parkman") to the
effect that the Exchange Ratio is fair to the stockholders of K N from a
financial point of view, and the Board of Directors of AOG has received a
written opinion from Goldman, Sachs & Co. ("Goldman Sachs") to the effect that
the Exchange Ratio is fair to the stockholders of AOG.
K N has paid Petrie Parkman a fee of $250,000 for rendering its fairness
opinion and will pay Petrie Parkman an additional transaction fee of 0.50% of
the transaction value (as defined) upon consummation of the Merger for its
services as a financial advisor to K N in connection with the Merger, of which
$75,000 has been paid and will be credited against the transaction fee. K N has
also agreed to pay Rauscher Pierce Refsnes, Inc. ("Rauscher Pierce") a
transaction fee of 0.50% of the transaction value upon consummation of the
Merger for its services as a financial advisor to K N in connection with the
Merger, of which $75,000 has
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<PAGE> 13
been paid and will be credited against the transaction fee. K N has also agreed
to indemnify Petrie Parkman and Rauscher Pierce against certain liabilities and
expenses in connection with their services as financial advisors to K N,
including certain liabilities under federal securities laws.
AOG has paid Goldman Sachs a fee of $100,000 for financial advisory
services relating to possible business combinations, including the proposed
Merger, and rendering a related fairness opinion. AOG will also pay Goldman
Sachs a transaction fee of 1.0% of the transaction value (as defined) upon
consummation of the Merger (including the $100,000 fee) for its services as the
financial advisor to AOG in connection with the Merger. AOG has also agreed to
indemnify Goldman Sachs against certain liabilities and expenses in connection
with its services as financial advisor to AOG, including certain liabilities
under federal securities laws.
For information on the assumptions made, matters considered and limits of
reviews by Petrie Parkman and Goldman Sachs, see "The Merger -- Opinions of
Financial Advisors." Stockholders are urged to and should read in their entirety
the full texts of the Petrie Parkman and Goldman Sachs opinions, which are
attached to this Joint Proxy Statement/Prospectus as Appendices B and C,
respectively.
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a tax-free reorganization under the Internal Revenue Code of 1986, as amended
(the "Code"), so that no gain or loss would be recognized by K N, AOG or the
stockholders of AOG, except for gain or loss attributable to cash received in
lieu of fractional shares. See "The Merger -- Certain Federal Income Tax
Consequences."
Accounting Treatment. The Merger is expected to be accounted for as a
"pooling of interests" in accordance with generally accepted accounting
principles. See "The Merger -- Accounting Treatment."
Governmental and Regulatory Approvals. Consummation of the Merger is
conditioned upon the expiration or termination of the waiting period applicable
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). On April 7, April 11 and April 14, 1994, K N, AOG and Cabot,
respectively, filed notification reports under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Department of Justice"). Consummation of the Merger is also
conditioned upon the receipt by Cabot of a "no action" letter from the
Commission's staff to the effect that following the Merger, Cabot will not be a
public utility holding company with respect to K N under the Public Utility
Holding Company Act of 1935 ("PUHCA"), so long as it complies with certain
conditions including restrictions on voting K N Common Stock. The issuance by K
N of shares of K N Common Stock in the Merger is also subject to the approval of
certain state public utility commissions. See "The Merger -- Governmental and
Regulatory Approvals." K N and AOG are aware of no other governmental or
regulatory approvals required for consummation of the Merger, other than
compliance with applicable securities laws.
Effective Time of the Merger. The Merger will become effective upon the
issuance of a certificate of merger by the Secretary of State of Delaware (the
"Effective Time"). Assuming all conditions to the Merger contained in the Merger
Agreement are satisfied or waived prior thereto, it is anticipated that the
Effective Time of the Merger will occur as soon as practicable following the
Special Meetings.
Exchange of AOG Common Stock Certificates. Promptly after consummation of
the Merger, Chemical Bank (the "Exchange Agent") will mail a letter of
transmittal with instructions to each holder of record of AOG Common Stock
immediately before the Effective Time for use in exchanging certificates
representing shares of AOG Common Stock for certificates representing shares of
K N Common Stock and cash in lieu of any fractional shares. Certificates should
not be surrendered by the holders of AOG Common Stock until they have received
the letter of transmittal from the Exchange Agent. See "Terms of the
Merger -- Manner and Basis of Converting Shares."
Assumption of AOG Options and AOG Warrants. As of the Effective Time, K N
will assume each AOG Option and each AOG Warrant that remain unexercised in
whole or in part. Accordingly, each AOG Option and AOG Warrant will be deemed to
remain outstanding as an option or warrant, as the case may be, to purchase, in
place of the shares of AOG Common Stock previously subject thereto, that number
of shares of K N Common Stock equal to the product of the number of shares of
AOG Common Stock subject to the AOG Option or AOG Warrant, as the case may be,
multiplied by the Exchange Ratio. The exercise price per
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<PAGE> 14
share of K N Common Stock will be equal to the previous exercise price per share
under the AOG Option or AOG Warrant, as the case may be, divided by the Exchange
Ratio. See "Terms of the Merger -- AOG Options and Warrants."
Other Conditions to the Merger. In addition to the approvals by the
requisite votes of K N stockholders and AOG stockholders and the receipt of
regulatory approvals, the respective obligations of K N and AOG to effect the
Merger are subject to the satisfaction or waiver, where permissible, of certain
other conditions, including (i) confirmation of tax opinions and accountants'
comfort letters, (ii) the receipt by each party of advice from its accountants
that the Merger will be accounted for as a pooling of interests and various
legal opinions, environmental reports, certificates and consents (including the
consents of lenders of AOG, which consents have been obtained), and (iii) that
the opinions of the financial advisors have not been withdrawn. There can be no
assurance that all of the conditions set forth in the Merger Agreement will be
satisfied. See "Terms of the Merger -- Conditions to the Merger."
No Solicitation. The Merger Agreement provides that neither K N nor AOG
will, directly or indirectly, through any officer, director, employee,
representative or otherwise, solicit, initiate or encourage submission of
proposals or offers from any person or entity (other than each other) relating
to any merger, acquisition or purchase of all or (other than in the ordinary
course of business) a portion of the assets of, or any equity interest in, it or
any of its significant subsidiaries or any business combination with it or any
of its significant subsidiaries (collectively, a "K N Acquisition Transaction,"
in the case of K N, and an "AOG Acquisition Transaction," in the case of AOG),
or participate in any negotiations regarding, or furnish any other person with
information with respect to it for the purposes of, or otherwise cooperate with
or assist in facilitating or encouraging any effort or attempt by any other
person to seek or effect a K N Acquisition Transaction or an AOG Acquisition
Transaction, as the case may be. Notwithstanding the foregoing, K N or AOG (i)
may furnish information concerning its businesses, properties or assets to a
third party, (ii) may engage in discussions or negotiations with a third party,
and (iii) following the receipt of a proposal for a K N Acquisition Transaction
or an AOG Acquisition Transaction, as the case may be, its Board of Directors
may withdraw, modify or amend its recommendation to its stockholders regarding
approval of the Merger Agreement and discontinue the solicitation of proxies in
connection therewith and may take and disclose to its stockholders a position as
required under federal securities laws or otherwise make appropriate disclosures
to its stockholders, but, in each case set forth in the foregoing clauses (i)
and (iii), only to the extent its Board of Directors concludes in good faith,
after receipt of advice from its outside financial advisors and legal counsel,
that such action is necessary for the Board to comply with its fiduciary
obligations under applicable law. In each such case, K N or AOG, as the case may
be, must promptly notify the other party of any such proposal or offer or any
inquiry or contact with any person with respect thereto.
Termination or Amendment of Merger Agreement. The Merger Agreement may be
terminated under certain circumstances, including, among others, (a) the mutual
consent of K N and AOG; (b) by either party if the Merger is not effected on or
before October 31, 1994 (whether by failure to satisfy a condition or
otherwise); (c) by K N if an AOG Acquisition Transaction has been proposed and
(i) the Board of Directors of AOG withdraws its recommendation in favor of the
adoption and approval of the Merger Agreement, (ii) the Merger Agreement is not
approved by the requisite vote of stockholders of AOG or (iii) the fairness
opinion of Goldman Sachs is withdrawn; (d) by AOG if a K N Acquisition
Transaction has been proposed and (i) the Board of Directors of K N withdraws
its recommendation in favor of the adoption and approval of the matters to be
voted on at the K N Special meeting, (ii) any such matter is not approved by the
requisite vote of stockholders of K N or (iii) the fairness opinion of Petrie
Parkman is withdrawn; and (e) by either party if, after the date of the Merger
Agreement, there shall have been a material adverse change in the condition
(financial or otherwise), assets, liabilities, business or operations of the
other party and its subsidiaries, taken as a whole, or a material breach of any
representation or warranty set forth in the Merger Agreement by the other party.
Whether or not a K N Acquisition Transaction or an AOG Acquisition Transaction
has been proposed, the Boards of Directors of K N and AOG each have the right to
withdraw their recommendation of each proposal submitted to their respective
stockholders set forth herein and cease efforts to obtain the approval of such
proposals, in the event such Board determines that it is required to do so in
the exercise of its fiduciary duties. The Merger Agreement may be amended or
supplemented by an
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<PAGE> 15
instrument in writing authorized by the Board of Directors and signed on behalf
of each party, provided that after the Merger Agreement has been approved and
adopted by the stockholders of AOG, it may be amended only as permitted under
applicable law. See "Terms of the Merger -- Termination or Amendment of Merger
Agreement."
Termination Fee. If K N terminates the Merger Agreement for the reasons
described in clause (c) of the immediately preceding paragraph, then AOG will be
required to pay K N $7,000,000. If, however, AOG terminates the Merger Agreement
for the reasons described in clause (d) of the immediately preceding paragraph,
then K N will be required to pay AOG $7,000,000.
Management After the Merger. The Board of Directors of K N at the Effective
Time of the Merger will increase from ten to 14 members, and the directors of K
N will elect four persons designated by AOG to fill such vacancies. It is
presently contemplated that David M. Carmichael, Edward H. Austin, Jr., Edward
Randall, III and James C. Taylor (collectively, the "AOG Designees"), all of
whom, with the exception of Mr. Taylor, are currently directors of AOG, will be
the persons designated by AOG to be elected directors of K N. Two of the AOG
designees (Messrs. Carmichael and Austin) will be elected as Class I directors
for a term expiring in 1997 and the other two designees (Messrs. Randall and
Taylor) will be elected as Class III directors for a term expiring in 1996. The
Board of Directors of K N will also elect a designee of Cabot as a non-voting
advisory director of K N, and at such time as Cabot owns less than 10% of K N's
voting stock and so long as it owns at least 5% of such voting stock, Cabot will
be entitled to designate one person for election as a director of K N. In
addition, pursuant to the terms of the Merger Agreement, at the Effective Time,
the Board of Directors of K N will elect an AOG Designee to the audit and
compensation committees of such Board.
Concurrently with the Effective Time of the Merger, Larry D. Hall, the
current President and Chief Operating Officer of K N, will be elected as
President and Chief Executive Officer of K N, Charles W. Battey will remain as
Chairman of the Board of K N, and David M. Carmichael, Chairman of AOG, will be
elected as Vice Chairman of the Board of K N. Also, concurrently with the
Effective Time of the Merger, the By-laws of K N will be amended to establish a
Management Committee, in lieu of the existing Executive Committee, consisting of
David M. Carmichael, Chairman, Charles W. Battey, Larry D. Hall and Edward H.
Austin, Jr., each of whom will serve for a term expiring on the date of K N's
1996 annual meeting of stockholders. Any vacancy arising during the term of the
office of Chairman of the Board, Vice Chairman of the Board, Chief Executive
Officer or Chief Operating Officer, or any vacancy occurring on the Management
Committee or in the position of the Chairman of the Management Committee shall
be filled by the Board of Directors upon recommendation of a special committee
consisting of two directors of K N who served as directors of K N prior to the
Effective Time and two other directors designated by AOG from among the AOG
Designees. The duties of the Management Committee will be to oversee and direct
management decisions with respect to the day-to-day operations of K N, to
supervise the integration and consolidation of K N and AOG and to have the
duties and powers previously delegated to K N's Executive Committee. K N's
By-laws will be further amended to provide that, from the Effective Time until K
N's 1997 annual meeting of stockholders, the By-law amendments respecting the
foregoing management matters cannot be amended, modified or revoked, the current
retirement policy of K N cannot be changed and the maximum number of directors
of K N cannot be increased, except by an affirmative vote of at least 12 of 14
directors, or 11 of 13 directors, or 10 of 12 directors, or 9 of 11 directors,
as the case may be, or, in all other cases, at least 85% of the total number of
directors. See "Management and Operations After the Merger."
Employee Benefits. The Merger Agreement provides that, from the Effective
Time until January 1, 1995, K N will continue retirement plans, health benefit
plans and other policies and programs with respect to certain fringe benefits
and perquisites maintained by AOG as of the date of the Merger Agreement,
subject to changes required by law and changes not adverse to AOG employees. On
and after January 1, 1995, K N has agreed to offer to AOG employees the same
benefits under employee benefit plans, policies and programs offered to other
employees of K N who are similarly situated to AOG employees. See "Terms of the
Merger -- Employee Benefit Plans."
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Indemnification. The Merger Agreement also provides that the officers and
directors of AOG will be indemnified against certain liabilities and costs,
including those arising out of, or pertaining to, the Merger Agreement, the
Merger or the transactions contemplated thereby. See "Terms of the Merger --
Indemnification."
No Appraisal Rights. Kansas law does not afford appraisal rights to
stockholders of K N who vote against the issuance and reservation for issuance
of shares of K N Common Stock pursuant to the Merger Agreement. Delaware law
does not afford appraisal rights to stockholders of AOG who object to the Merger
and who vote against or abstain from voting in favor of the Merger Agreement.
COMPARATIVE RIGHTS OF AOG AND K N COMMON STOCKHOLDERS
Rights of stockholders of AOG are currently governed by Delaware law, the
Amended and Restated Certificate of Incorporation of AOG (the "AOG Charter") and
AOG's By-laws. Upon consummation of the Merger, AOG stockholders will become
common stockholders of K N and their rights as common stockholders of K N will
be governed by Kansas law, the K N Charter and K N's By-laws. There are various
differences between the rights of AOG stockholders and the rights of K N common
stockholders. See "Comparative Rights of AOG and K N Common Stockholders,"
"Description of K N Capital Stock" and "Description of AOG Capital Stock."
MARKET PRICE AND DIVIDEND DATA
The K N Common Stock is traded on the NYSE under the symbol "KNE" and the
AOG Common Stock is also traded on the NYSE under the symbol "AOG." The
following table sets forth the range of high and low per share sale prices for K
N Common Stock and AOG Common Stock for the periods indicated, as reported on
the NYSE composite tape, and the cash dividends paid on each share of K N Common
Stock. No cash dividends have been paid during such periods on the AOG Common
Stock.
<TABLE>
<CAPTION>
K N COMMON STOCK AOG COMMON STOCK
---------------------------- -------------------
HIGH LOW DIVIDENDS HIGH LOW
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
1992
First quarter............................... $18.33 $15.17 $0.207 $13.125 $ 10.75
Second quarter.............................. 16.58 13.83 0.207 13.125 10.25
Third quarter............................... 20.00 15.83 0.22 15.875 11.25
Fourth quarter.............................. 19.33 17.17 0.22 15.375 11.125
1993
First quarter............................... $24.67 $18.67 $ 0.22 $13.625 $ 11.25
Second quarter.............................. 24.67 22.17 0.22 14.50 11.75
Third quarter............................... 26.83 23.33 0.24 12.75 10.125
Fourth quarter.............................. 30.00 24.75 0.24 12.75 9.25
1994
First quarter............................... $25.50 $22.00 $ 0.24 $ 11.50 $ 9.625
Second quarter (through )....
</TABLE>
On March 24, 1994, the last trading day prior to the announcement by K N
and AOG that they had reached an agreement concerning the Merger, the closing
per share sale prices of K N Common Stock and AOG Common Stock, as reported on
the NYSE composite tape, were $23.375 and $10.50, respectively.
On , 1994, the closing sale prices of K N Common Stock and
AOG Common Stock, as reported on the NYSE composite tape, were $ and
$ per share, respectively.
Following the Merger, K N Common Stock will continue to be traded on the
NYSE. Following the Merger, AOG Common Stock will cease to be traded on the
NYSE, and there will be no further market for such stock.
See "Market Prices of Common Stock and Dividend Information -- Dividend
Information" respecting K N's post-Merger dividend policy.
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SUMMARY FINANCIAL INFORMATION
The following historical consolidated financial data of K N and AOG have
been derived from their respective historical consolidated financial statements
and should be read in conjunction with such consolidated financial statements
and notes thereto, which are incorporated by reference into this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference." The
unaudited pro forma financial data are based on adjustments to the historical
consolidated balance sheets and related consolidated statements of income and
cash flows of K N and AOG to give effect to the Merger using the pooling of
interests method of accounting. This pro forma information should be read in
conjunction with such unaudited pro forma condensed consolidated financial
statements and notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus. The unaudited pro forma statement of income data are not
necessarily indicative of the operating results that would have occurred had the
Merger been consummated as of January 1, 1991, nor are they necessarily
indicative of future operating results.
K N
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL CONSOLIDATED STATEMENT OF
INCOME DATA:(1)
Operating Revenues...................... $493,349 $391,819 $395,339 $367,127 $338,787
Operating Income........................ $ 58,618 $ 50,370 $ 51,269 $ 47,505 $ 43,054
Income from Continuing Operations Before
Income Taxes......................... $ 38,654 $ 31,396 $ 35,282 $ 29,895 $ 28,690
Income from Continuing Operations....... $ 24,275 $ 19,593 $ 21,600 $ 18,646 $ 17,507
Preferred Stock Dividends............... $ 810 $ 989 $ 1,382 $ 1,561 $ 1,742
Income from Continuing Operations
Available for Common Stock........... $ 23,465 $18,604.. $ 20,218 $ 17,085 $ 15,765
Income from Continuing Operations Per
Common Share......................... $ 1.57 $ 1.28 $ 1.40 $ 1.20 $ 1.13
Dividends Per Common Share.............. $ 0.92 $ 0.85 $ 0.79 $ 0.71 $ 0.67
Ratio of Earnings to Fixed Charges...... 2.64 2.52 2.97 2.70 2.49
HISTORICAL CONSOLIDATED STATEMENT OF CASH
FLOWS DATA:(1)
Net Cash Flows Provided by Operating
Activities........................... $ 43,314 $ 33,227 $ 72,121 $ 45,790 $ 22,958
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
(As of December 31)
Total Assets............................ $731,269 $618,947 $559,656 $560,785 $550,749
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Capitalization:
Common Stockholders' Equity.......... $201,556 $184,869 $175,164 $181,815 $147,229
Preferred Stock...................... 7,000 7,000 7,000 7,000 7,000
Preferred Stock Subject to Mandatory
Redemption(2)...................... 2,858 4,500 6,643 11,286 13,429
Long-Term Debt(2).................... 231,881.. 220,009 158,585 140,652 138,084
-------- -------- -------- -------- --------
Total Capitalization.................... $443,295 $416,378 $347,392 $340,753 $305,742
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Book Value Per Common Share............. $ 13.41 $ 12.62 $ 12.09 $ 12.70 $ 10.44
</TABLE>
- ---------------
(1) Excludes extraordinary item or discontinued operations, as applicable.
(2) Excludes current maturities.
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AOG
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL CONSOLIDATED STATEMENT OF
INCOME DATA:(1),(2) and (3)
Operating Revenues..................... $539,345 $430,098 $380,717 $441,166 $194,052
Operating Income....................... $ 21,494 $ 31,626 $ 30,064 $ 22,312 $ 2,079
Income (Loss) Before Income Taxes and
Extraordinary Item.................. $ 10,814 $ 25,014 $ 23,074 $ 11,694 $(16,278)
Income (Loss) Before Extraordinary
Item................................ $ 6,594 $ 16,749 $ 15,474 $ 6,417 $(16,278)
Preferred Stock Dividends.............. $ 43 $ 1,987 $ 3,426 $ 3,909 $ 1,771
Income (Loss) from Continuing
Operations Available for Common
Stock............................... $ 6,551 $ 14,762 $ 12,048 $ 2,508(4) $(18,049)
Income (Loss) from Continuing
Operations Per Common Share:
Primary............................. $ 0.25 $ 0.68 $ 0.72 $ 0.15(4) $ (1.83)
Fully Diluted....................... $ 0.70
Dividends Per Common Share............. $ -- $ -- $ -- $ -- $ --
Ratio of Earnings to Fixed
Charges(5).......................... 1.99 3.55 3.73 2.32 --
HISTORICAL CONSOLIDATED STATEMENT OF CASH
FLOWS DATA:(2) and (3)
Net Cash Flows Provided by Operating
Activities.......................... $ 22,673 $ 15,997 $ 24,253 $ 25,974 $ 15,141
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
(As of December 31)
Total Assets........................... $422,028 $377,038 $244,527 $255,473 $283,292
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Capitalization:
Common Stockholders' Equity......... $189,906 $162,869 $ 81,441 $ 69,393 $ 64,661
Preferred Stock..................... -- 19,310 24,360 24,360 24,560
Preferred Stock Subject to Mandatory
Redemption........................ -- -- -- 10,000 15,000
Long-Term Debt(6)................... 100,232 89,946 69,017 64,457 62,026
-------- -------- -------- -------- --------
Total Capitalization................... $290,138 $272,125 $174,818 $168,210 $166,247
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Book Value Per Common Share............ $ 7.34 $ 7.01 $ 5.02 $ 4.28 $ 3.87
</TABLE>
- ---------------
(1) Includes equity in loss of WellTech, Inc. ("WellTech") of $1.1 million, $3.0
million and $14.2 million for 1991, 1990 and 1989, respectively, and the
write-down of AOG's investment in WellTech of $4.5 million in 1993.
(2) Includes the operating results of the natural gas processing business
acquired from The Maple Gas Corporation from the acquisition date of April
1, 1992.
(3) Includes the operating results of the natural gas pipeline business acquired
from Cabot from the acquisition date of November 1, 1989.
(4) Excludes extraordinary item.
(5) Earnings were $3.3 million below that necessary to cover fixed charges in
1989.
(6) Excludes current maturities.
11
<PAGE> 19
CONSOLIDATED K N AND AOG (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
---------- -------- --------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA:
Operating Revenues..................................... $1,032,694 $821,917 $776,056
Operating Income....................................... $ 80,112 $ 81,996 $ 81,333
Income from Continuing Operations Before Income
Taxes............................................... $ 49,468 $ 56,410 $ 58,356
Income from Continuing Operations...................... $ 30,869 $ 36,342 $ 37,074
Preferred Stock Dividends.............................. $ 853 $ 2,976 $ 4,808
Income from Continuing Operations Available for Common
Stock............................................... $ 30,016 $ 33,366 $ 32,266
Income from Continuing Operations Per Common
Share(1)............................................ $ 1.09 $ 1.34 $ 1.45
Dividends Per Common Share(1).......................... $ 0.51 $ 0.51 $ 0.51
Ratio of Earnings to Fixed Charges..................... 2.44 2.85 3.21
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net Cash Flows Provided by Operating Activities........ $ 65,987 $ 49,224 $ 96,374
EQUIVALENT AOG PRO FORMA PER SHARE DATA:(2)
Income from Continuing Operations Per Common Share..... $ 0.51 $ 0.63 $ 0.68
Dividends Per Common Share............................. $ 0.24 $ 0.24 $ 0.24
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
(As of December 31)
Total Assets........................................... $1,149,804 $995,318 $804,183
---------- -------- --------
---------- -------- --------
Capitalization:
Common Stockholders' Equity......................... $ 391,462 $347,738 $256,605
Preferred Stock..................................... 7,000 26,310 31,360
Preferred Stock Subject to Mandatory Redemption..... 2,858 4,500 6,643
Long-Term Debt...................................... 332,113 309,955 227,602
---------- -------- --------
Total Capitalization................................... $ 733,433 $688,503 $522,210
---------- -------- --------
---------- -------- --------
Book Value Per Common Share(1)......................... $ 14.39
EQUIVALENT AOG PRO FORMA BOOK VALUE PER
COMMON SHARE(2)........................................ $ 6.76
</TABLE>
- ---------------
(1) Pro forma per common share amounts give effect to the conversion of each
share of AOG Common Stock outstanding into 0.47 share of K N Common Stock.
See "The Merger -- General Description of the Merger."
(2) Represents the pro forma equivalent of one share of AOG Common Stock
calculated by multiplying the corresponding pro forma consolidated amount by
the exchange ratio of 0.47.
12
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data for K N and AOG
and pro forma consolidated per share data as if the Merger had been effective
for all periods presented. Pro forma information for AOG is also presented on an
equivalent share basis, which reflects the pro forma consolidated per share
amounts multiplied by the exchange ratio of 0.47. See the K N and AOG historical
consolidated financial statements incorporated herein by reference, and the
unaudited pro forma condensed consolidated financial statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL UNAUDITED PRO FORMA
------------------- -------------------
K N AOG CONSOLIDATED AOG
------ ----- ------ -----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Income from Continuing Operations............. $ 1.57 $0.25 $1.09 $0.51
Cash Dividends................................ 0.92 -- 0.51 0.24
Book Value as of December 31, 1993............ 13.41 7.34 14.39 6.76
YEAR ENDED DECEMBER 31, 1992:
Income from Continuing Operations............. $ 1.28 $0.68 $1.34 $0.63
Cash Dividends................................ 0.85 -- 0.51 0.24
YEAR ENDED DECEMBER 31, 1991:
Income from Continuing Operations:
Primary.................................... $ 1.40 $0.72 $1.45 $0.68
Fully Diluted.............................. 0.70
Cash Dividends................................ 0.79 -- 0.51 0.24
</TABLE>
13
<PAGE> 21
[MAP SHOWING GEOGRAPHIC SCOPE OF
OPERATIONS OF KN ENERGY AND
AMERICAN OIL AND GAS SYSTEMS]
14
<PAGE> 22
THE COMPANIES
K N AND SUB
K N Energy, Inc. is a natural gas services company. These services include
gas reserves development, gas gathering, processing, marketing, storage and
transportation and retail gas distribution. K N's involvement in all facets of
the natural gas business favorably positions it to meet the challenges brought
on by the changing nature of the natural gas industry.
K N operates in seven states and serves customers through three pipeline
systems; K N's interstate systems, its Wyoming intrastate system and its
Colorado intrastate system. These pipeline systems interconnect with other major
pipelines, allowing K N to move natural gas to other markets throughout the
country. K N supplies retail natural gas to over 340 communities and 232,000
direct customers in Colorado, Kansas, Nebraska and Wyoming.
On October 1, 1993, K N implemented its unbundling of pipeline
services -- gas sales, storage, transportation, gathering and processing -- in
response to the Federal Energy Regulatory Commission's Order No. 636, as amended
("Order 636"). K N has restructured its operations in response to this order,
and now operates its interstate transmission pipeline and its gathering and
processing facilities through separate subsidiaries, K N Interstate Gas
Transmission Co. and K N Gas Gathering, Inc., respectively. K N continues to
provide retail natural gas services through the parent company and its two
intrastate divisions, Rocky Mountain Natural Gas in Colorado and Northern Gas of
Wyoming.
K N has been involved in oil and gas exploration and development since
1951, and it currently conducts this activity through two wholly-owned
subsidiaries, K N Production Company and GASCO, Inc. Another wholly-owned
subsidiary, K N Gas Marketing, Inc., arranges for the purchase and
transportation of producers' excess or uncommitted gas to end-users, acting as
shipper or agent for the end-users, administering nominations and providing
balancing assistance when requested.
K N's interstate transmission pipeline operations are subject to regulation
by the Federal Energy Regulatory Commission ("FERC"), and its retail natural gas
services are regulated by state utility commissions in Colorado, Kansas and
Wyoming and by various municipalities in Nebraska. Generally, K N's other
natural gas service operations, including gathering, processing and marketing,
are not subject to rate-making governmental regulation.
Sub is a wholly-owned subsidiary of K N, incorporated in Delaware on
February 8, 1994 for the sole purpose of the Merger. Sub engages in no other
business.
The principal executive offices of K N are located at 370 Van Gordon
Street, Lakewood, Colorado 80228-8304, and its telephone number is (303)
989-1740.
AOG
American Oil and Gas Corporation is a holding company that is engaged,
through its subsidiaries, in the business of gathering, processing,
transporting, storing and marketing natural gas and natural gas liquids. AOG
owns the principal intrastate pipeline system (Westar Transmission) in West
Texas and the Texas Panhandle. AOG also owns gas processing plants and gathering
lines that are complementary to its Westar pipeline system. In addition, AOG
owns a natural gas storage facility, WesTex Storage, in West Texas and a 75
percent interest in Red River Pipeline, located in West Texas and the Texas
Panhandle. AOG also owns interests in gathering and transmission systems in
South Texas and East Texas.
AOG owns and operates approximately 6,200 net miles of pipeline with net
throughput capacity of approximately two billion cubic feet ("Bcf") per day. AOG
also owns eight operating gas processing plants located in Texas, Oklahoma and
New Mexico that have an aggregate net processing capacity of 271 million cubic
feet ("MMcf") per day. The Westar system consists of approximately 1,300 miles
of gathering and 4,400 miles of transmission lines. Red River Pipeline, a
372-mile intrastate gas pipeline, extends from near the Oklahoma state line to
Pecos County in West Texas. AOG also owns a small interstate pipeline, a portion
of which is used for gas deliveries from Oklahoma into the Westar system and Red
River in the Texas Panhandle.
15
<PAGE> 23
AOG's executive offices are located at 333 Clay Street, Suite 2000,
Houston, Texas 77002, and its telephone number is (713) 739-2900. AOG was
incorporated in Delaware in 1986.
THE SPECIAL MEETINGS
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETINGS
The K N Special Meeting will be held at 10:00 a.m., Mountain Daylight Time,
on June , 1994, at the Stouffer Concourse Hotel, 3801 Quebec Street, Denver,
Colorado, for the purpose of (i) adopting proposed amendments to the K N Charter
increasing its authorized Common Stock from 25,000,000 shares to 50,000,000
shares and increasing its maximum number of directors from 14 to 15 (the "K N
Amendments" or the "Company Charter Amendments") and (ii) approving the issuance
and reservation for issuance of up to 14,000,000 shares of its Common Stock (the
"K N Issuance of Common Stock") pursuant to the Merger Agreement, as required by
the rules of the NYSE. The AOG Special Meeting will be held at 10:00 a.m.,
Central Daylight Time, on June , 1994, at the , Houston, Texas,
for the purpose of approving and adopting the Merger Agreement, as required
under Delaware law.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of K N Common Stock and K N's Class A $8.50
Cumulative Preferred Stock, its Class A $5.00 Cumulative Preferred Stock and its
Class B $8.30 Series Cumulative Preferred Stock (collectively, the "K N
Preferred Stock", and collectively with the K N Common Stock, the "K N Voting
Stock") outstanding at the close of business on the Record Date, are entitled to
notice of, and to vote at, the K N Special Meeting. Only holders of record of
Common Stock, par value $.04 per share, of AOG (the "AOG Common Stock") at the
close of business on the Record Date, are entitled to notice of, and to vote at,
the AOG Special Meeting.
On the Record Date, there were holders of record of K N Common
Stock with shares of K N Common Stock issued and outstanding and
holders of record of K N Preferred Stock with 103,576 shares of K N
Preferred Stock issued and outstanding. Each share of K N Common Stock and each
share of K N Preferred Stock entitles the holder thereof to one vote on each
matter submitted for stockholder approval. See "Principal Stockholders of K N
and AOG -- K N" for information regarding persons known to the management of K N
to be the beneficial owners of more than 5% of the outstanding K N Voting Stock.
All shares of K N Common Stock and K N Preferred Stock will vote on a
share-for-share basis as a single class at the K N Special Meeting.
There were holders of record of AOG Common Stock on the Record
Date with shares of AOG Common Stock issued and outstanding. Each
share of AOG Common Stock entitles the holder thereof to one vote on each matter
submitted for stockholder approval. See "Principal Stockholders of K N and
AOG -- AOG" for information regarding persons known to the management of AOG to
be the beneficial owners of more than 5% of the outstanding AOG Common Stock.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the K N
Special Meeting and the AOG Special Meeting, as applicable, in accordance with
the instructions contained therein. If a holder of K N Voting Stock executes and
returns a proxy and does not specify otherwise, the shares represented by such
proxy will be voted "for" approval and adoption of (i) the K N Amendments and
(ii) the K N Issuance of Common Stock in accordance with the recommendation of
the Board of Directors of K N. If a holder of AOG Common Stock executes and
returns a proxy and does not specify otherwise, the shares represented by such
proxy will be voted "for" approval and adoption of the Merger Agreement in
accordance with the recommendation of the Board of Directors of AOG. A
stockholder of K N or a stockholder of AOG who has executed and returned a proxy
may revoke it at any time before it is voted at the appropriate Special Meeting
by (i) executing and returning a proxy bearing a later date, (ii) filing written
notice of such revocation with
16
<PAGE> 24
the Secretary of K N or AOG, as appropriate, stating that the proxy is revoked
or (iii) attending the appropriate Special Meeting and voting in person.
As a matter of policy, proxies, ballots and voting tabulations that
identify individual stockholders of K N or AOG are kept private by such
corporation. Such documents are available for examination only by the inspectors
of the election and certain personnel associated with processing proxy cards and
tabulating the vote at each Special Meeting. The vote of any stockholder will
not be disclosed except as may be necessary to meet legal requirements.
VOTE REQUIRED
K N. K N's By-laws provide that the presence at the K N Special Meeting, in
person or by proxy, of the holders of a majority of the outstanding shares of K
N Voting Stock entitled to vote thereat will constitute a quorum for the
transaction of business. Under the K N Charter, the affirmative vote of the
holders of a majority of the outstanding shares of K N Voting Stock entitled to
vote at the K N Special Meeting is required to adopt the proposed amendment to
the K N Charter increasing K N's authorized Common Stock and the affirmative
vote of the holders of two-thirds of the outstanding shares of K N Voting Stock
entitled to vote at the K N Special Meeting is required to adopt the proposed
amendment to the K N Charter increasing its maximum number of directors. In
determining whether either of the K N Amendments has received the requisite
number of affirmative votes, abstentions and broker nonvotes will have the same
effect as a vote against the proposal.
The K N Issuance of Common Stock does not, under state law, require
stockholder approval. However, the rules of the NYSE require, as a prerequisite
to the listing on the NYSE of the shares of K N Common Stock that are issued
pursuant to the Merger Agreement, that such issuance be approved by a majority
of the votes cast on the proposal, provided that the total vote cast on the
proposal represents over 50% of the shares of K N Voting Stock entitled to vote
on the proposal. Abstentions, but not broker nonvotes, will be included in the
total vote and, assuming that holders of over 50% of the shares of K N Voting
Stock entitled to vote on the proposal cast votes in favor of or against the
proposal or abstain, broker nonvotes will have no effect upon the outcome of the
vote. Abstentions will have the same effect as votes against the proposal.
Stockholder adoption of both of the K N Amendments is a condition to
effectuation of the Merger, but neither of the K N Amendments is conditioned
upon the occurrence of the Merger.
On the Record Date, there was an aggregate of shares of K N
Voting Stock ( shares of K N Common Stock and 103,576 shares of K N
Preferred Stock) outstanding and entitled to vote at the K N Special Meeting. On
the Record Date, the directors and executive officers of K N and their
affiliates held approximately % of the outstanding shares of K N Voting
Stock. Such persons have indicated to K N that they intend to vote their shares
in favor of the K N Amendments and the K N Issuance of Common Stock.
AOG. The presence at the AOG Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of AOG Common Stock entitled to
vote thereat will constitute a quorum for the transaction of business, however,
under the AOG Charter, approval and adoption of the Merger Agreement requires
the affirmative vote of the holders of at least two-thirds of the shares of AOG
Common Stock outstanding on the Record Date, or at least 17,312,930 shares. On
the Record Date, there was an aggregate of 25,969,395 shares of AOG Common Stock
outstanding and entitled to vote at the AOG Special Meeting. In determining
whether the Merger Agreement has received the requisite number of affirmative
votes, abstentions and broker nonvotes will have the same effect as a vote
against the Merger Agreement. On the Record Date, the directors and executive
officers of AOG and their affiliates held approximately 41.4% of the outstanding
shares of AOG Common Stock. Cabot has entered into an agreement with K N
pursuant to which it agreed to vote its 8,931,818 shares of AOG Common Stock,
representing approximately 34.4% of outstanding shares of AOG Common Stock, in
favor of approval and adoption of the Merger Agreement. Cabot's agreement is
subject to the continued support of the Board of Directors of AOG in
recommending approval of the Merger and the absence of any third party proposal
for an AOG Acquisition Transaction.
17
<PAGE> 25
David M. Carmichael, Chairman of the Board of AOG, and William P. Conner,
Executive Vice President of AOG, who hold 349,660 (1.3%) and 273,324 (1.1%)
shares of AOG Common Stock, respectively, have entered into similar agreements.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and employees
of each of K N and AOG may solicit proxies from their respective stockholders by
personal interview, telephone, telegram or otherwise. K N and AOG will each bear
the costs of the solicitation of proxies from their respective stockholders,
except that K N and AOG will share the cost of printing this Joint Proxy
Statement/Prospectus pro rata in accordance with their respective numbers of
record holders. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries who hold of record voting securities of K N
or AOG for the forwarding of solicitation materials to the beneficial owners
thereof. K N and AOG will reimburse such brokers, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by them in
connection therewith. K N has also engaged the services of D. F. King & Company,
Inc. to distribute proxy solicitation materials to brokers, banks and other
nominees and to assist in the solicitation of proxies from K N stockholders for
an anticipated fee of $7,000, plus reasonable out-of-pocket expenses.
OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of K N and AOG do not know of any business to be presented at their
respective Special Meetings other than as set forth in the notices accompanying
this Joint Proxy Statement/Prospectus. If any other matters should properly come
before the respective Special Meetings, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting such proxies.
THE MERGER
The detailed terms and conditions to the consummation of the Merger are
contained in the Agreement of Merger (the "Merger Agreement"), a conformed copy
of which is attached hereto as Appendix A and incorporated herein by reference.
The following discussion sets forth a description of certain material terms and
conditions of the Merger Agreement. The description in this Joint Proxy
Statement/Prospectus of the terms and conditions to the consummation of the
Merger is qualified by, and made subject to, the more complete information set
forth in the Merger Agreement.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Sub will merge
with and into AOG with AOG becoming the Surviving Corporation, and each
outstanding share of AOG Common Stock (other than shares of AOG Common Stock
owned by K N or by any direct or indirect wholly-owned subsidiary of K N or AOG,
all of which will be canceled), will be converted into 0.47 of a share of K N
Common Stock.
Based upon the number of shares of K N Common Stock and AOG Common Stock
outstanding as of the Record Date, approximately shares of K N Common
Stock will be outstanding immediately following the Effective Time, of which
approximately shares, representing % of the total, will be held by
former holders of AOG Common Stock.
BACKGROUND
Changes in the natural gas business in the past ten years have
significantly affected the manner in which natural gas and related services are
marketed. Among these, regulatory changes such as the FERC's Order 636
"unbundling" of natural gas services have resulted in increased competition from
and among interstate pipelines. In response to these changes, both K N and AOG
developed independent strategies to pursue opportunities in the evolving natural
gas business. Both companies pursued acquisitions to expand operations primarily
in the nonregulated segments of the natural gas business.
18
<PAGE> 26
Since April of 1992, K N has made six different acquisitions with a total
value of approximately $100 million. These acquisitions have targeted
opportunities in the Rocky Mountain and Mid-Continent regions and have been
principally in the nonregulated segments of the natural gas industry. K N has
acquired or leased gathering and processing facilities at Douglas, Wyoming, the
Wattenberg gathering and transmission system in the Denver-Julesburg Basin in
Colorado, and a gathering system in the Wind River basin in Wyoming. In
addition, K N acquired gas reserves and production in Colorado and Wyoming and a
local distribution company in Wyoming.
During the past two years, AOG management determined that, in order to
better position AOG competitively, AOG should seek to expand its gas
transmission and gathering system and thus acquire more direct access to
increased gas supplies and broader geographical on-system markets, as well as
offer broader related gas services. AOG has investigated and analyzed as
possible acquisitions several major natural gas pipeline systems located in
Texas, Oklahoma, Louisiana, New Mexico and Wyoming. These acquisitions would
have been funded initially through borrowings. AOG found, however, that
acquisitions of significant gas transmission and marketing assets in these areas
were not obtainable on terms acceptable to AOG management. During this period,
David M. Carmichael, Chairman of the Board and Chief Executive Officer of AOG,
and Larry D. Hall, President and Chief Operating Officer of K N, engaged in
several informal discussions regarding the future of the gas business. These
discussions included exploring the possibility of K N and AOG engaging in joint
business development opportunities or the possible acquisition of a portion of K
N's assets in western Oklahoma.
During meetings of the Board of Directors of K N starting in August 1993,
the possibility was discussed that some type of business combination with AOG
could form a strategic alliance for future growth of K N. On November 9, 1993,
Mr. Hall informed Mr. Carmichael that K N was preliminarily investigating with
its financial advisors the possibility of combining K N with AOG. After some
initial discussions with K N regarding the feasibility of such combination, on
November 16, 1993, AOG engaged Goldman Sachs as its financial advisor to assist
AOG management in analyzing the possible combination of the companies from AOG's
perspective. In November 1993, K N retained Petrie Parkman and Rauscher Pierce
as financial advisors to assist K N management in analyzing a possible
combination of the companies from K N's perspective. At its meeting on November
16, 1993, K N's Board instructed K N's management and its financial advisors to
pursue a confidentiality agreement with AOG and to undertake due diligence
analysis.
On December 16, 1993, the Board of Directors of AOG met to discuss with
AOG's officers and representatives of Goldman Sachs, the possibility of a K
N/AOG combination. The Board also reviewed a preliminary study by Goldman Sachs
of the possible structures for such a combination. At the meeting, the Board
authorized AOG's officers to continue discussions with K N and designated Edward
Randall, III, an outside director of AOG, as a representative of the AOG Board
to participate in discussions with K N and keep other directors informed.
Subsequently, Mr. Randall had several conversations with Robert H. Chitwood, an
outside director of K N, who had been designated by K N's Board to participate
in discussions with AOG.
Pursuant to a confidentiality agreement dated December 29, 1993, K N and
AOG agreed to exchange confidential non-public information and conduct mutual
due diligence investigations. K N's Board reviewed information on AOG at its
meeting on January 11, 1994. On January 26, 1994, the Board of Directors of AOG
met and reviewed with AOG management and representatives of Goldman Sachs the
results of its due diligence investigation of K N and certain estimates as to
the cost savings and revenue enhancements that may be achievable in such a
combination.
On January 31, 1994, AOG received an unsolicited offer letter from Parker &
Parsley Petroleum Company ("PDP") seeking an indication of interest from AOG in
discussing a possible acquisition by PDP of all of the outstanding common stock
of AOG in exchange for common stock of PDP worth $12.50 per AOG share. The
letter did not indicate how or when the PDP common stock would be valued. (PDP
is an NYSE-listed independent oil and gas producer located in Midland, Texas.)
In July 1993, PDP had made a previous inquiry of AOG regarding PDP's interest in
making an offer in the "mid-teens" for each share of outstanding common stock of
AOG. At such time, AOG and PDP had entered into confidentiality agreements and
shared
19
<PAGE> 27
confidential information. AOG engaged Goldman Sachs as financial advisor to
assist AOG in evaluating any possible transaction with PDP. PDP ultimately
suggested that any further negotiations regarding a possible combination would
have to be at values lower than originally discussed with AOG. AOG discontinued
negotiations with PDP on July 30, 1993.
On February 4, 1994, the Board of Directors of AOG met to further discuss
and analyze a possible combination with K N and the renewed PDP inquiry. The PDP
inquiry was reviewed and analyzed based upon publicly-available information and
other information acquired by AOG in the summer of 1993. At the meeting, the
Board of Directors requested that Goldman Sachs conduct a limited due diligence
investigation of PDP to answer specific questions regarding the financial
condition and asset base of PDP. On February 14, 1994, Goldman Sachs provided
responses to the AOG directors' questions based on information provided to it by
PDP. Thereafter, the AOG directors discussed the PDP inquiry and directed AOG's
management not to pursue further discussions with PDP.
During February 1994, AOG's management continued discussions with K N
regarding a possible strategic combination of the two companies. Continued
discussions with K N focused primarily upon an appropriate exchange ratio,
management and corporate governance issues and issues concerning the status of
Cabot, AOG's largest stockholder, in a combined company under PUHCA.
At its regular meeting of February 15, 1994 and after due diligence
activities had been substantially completed, K N's Board reviewed economic
analyses of its outside advisors, Petrie Parkman and Rauscher Pierce, in
addition to a detailed economic analysis prepared by internal company
representatives.
Further discussions were held at a K N Board meeting on February 25, 1994.
Representatives of K N and AOG met on March 2, 1994 and reached preliminary
agreement on various operating and management matters and continued to negotiate
an exchange ratio and other terms of a combination of the companies. Further
discussions during March resulted in a mutually acceptable framework for
resolving management and corporate governance issues.
On March 24, 1994, the Board of Directors of AOG met to review the proposed
terms of a business combination and a proposed Merger Agreement. The directors
reviewed and discussed presentations made by AOG's management (including
discussions by AOG's management regarding achievability of certain cost savings
and revenue enhancing prospects) and Goldman Sachs. At the conclusion of the
presentations and discussions, Goldman Sachs presented its oral opinion to the
effect that the Exchange Ratio is fair to the stockholders of AOG. AOG's Board
of Directors approved the Merger and the Merger Agreement. Also on March 24,
1994, at a special meeting, the Board of Directors of K N approved the terms of
the Merger Agreement. As a part of such approval, the final terms of the Merger
Agreement were reviewed with K N's Board, and Petrie Parkman advised the Board
that the Exchange Ratio was fair, from a financial point of view, to the
stockholders of K N. See "-- Opinions of Financial Advisors." After receiving
confirmation of the favorable approval of the other party, the Merger Agreement
was executed and delivered by K N, Sub and AOG.
Certain members of management of AOG have special interests in connection
with the consummation of the Merger that are not identical to those of
unaffiliated AOG stockholders. See "-- Interests of Certain Persons in the
Merger."
K N'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF K N
K N's reasons for engaging in the Merger are several. First, the Merger is
a natural gas industry strategic alliance which will combine two geographically
distinct gas systems with complementary gas supply basins, service territories,
and target marketing areas. The proximity of the two companies' Rocky Mountain,
Mid-Continent and Texas operating regions enhances the opportunity to integrate
facilities and services, and compete more effectively in the natural gas
industry.
Further, the combined company will be a major pipeline participant in the
natural gas gathering, processing, transportation and marketing sector and
initially will market, sell and transport an aggregate of approximately 1.5
billion cubic feet of natural gas per day -- almost 3% of total United States
natural gas consumption. When the Merger is effected, the combined company will
have over 18,700 total miles of
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transmission and gathering pipeline that serve direct markets and also
interconnect with other major pipelines. The combined company will offer natural
gas shippers greater access to natural gas markets and natural gas buyers access
to more supply areas throughout the United States than either company currently
offers and, therefore, should be better able to utilize existing pipeline system
capacity.
Also, the combined company's diversity of operations in all facets of the
natural gas value stream will allow it to moderate the potential risks of any
one sector of the industry. The combined company should attain economies of
scale in operations and should be able to reduce overall administrative overhead
costs, making it a more competitive service provider from the natural gas
wellhead to the burnertip. K N's stockholders should benefit from the Merger as
a result of the combined company's stronger financial position, undiminished
dividend payments and enhanced prospects for future growth.
The Merger fulfills stated strategic goals of K N to maximize
value-creating opportunities by providing and moving natural gas in the vital
U.S. energy resource regions of the Rocky Mountains and the Mid-Continent, by
acquiring profitable new energy assets, and by becoming a significant service
provider in the post-Order 636 environment.
For the foregoing reasons and the reasons set forth under "Background," the
Board of Directors of K N believes that the terms of the Merger Agreement are
fair to, and in the best interests of, K N and the stockholders of K N. In
reaching its conclusion K N's Board considered, among other things the prior
financial performance and future operating prospects of AOG, the reasonableness
of achieving prospective cost savings and future incremental revenues from the
combined operation, the financial flexibility offered by the combination, the
terms of the Merger Agreement, the opinions of its internal and external
financial advisors, including that of Petrie Parkman, described below, and the
risks associated with achieving expected results. All but one of the members of
the Board of K N were present at the special meeting held on March 24, 1994, and
those present unanimously approved the Merger Agreement and recommended that the
stockholders of K N vote "FOR" adoption and approval of the K N Amendments and
the K N Issuance of Common Stock.
In analyzing the Merger Agreement, the K N Board of Directors was assisted
and advised by Petrie Parkman and Rauscher Pierce and, at the March 24, 1994
special meeting, the Board received an opinion from Petrie Parkman that the
Exchange Ratio was fair, from a financial point of view, to the stockholders of
K N. See "-- Opinions of Financial Advisors -- K N" as to K N's agreement to
compensate and indemnify Petrie Parkman. K N will also pay Rauscher Pierce a
transaction fee of .50% of the transaction value (as defined), but not in excess
of $1,750,000, upon consummation of the Merger, of which $75,000 has been paid
and will be credited against the transaction fee. See "-- Opinions of Financial
Advisors -- K N."
AOG'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF AOG
For the following reasons and the reasons set forth under "Background", the
Board of Directors of AOG believes that the terms of the Merger are fair to, and
in the best interests of, AOG's stockholders and has approved the Merger
Agreement and recommends approval and adoption of the Merger Agreement by AOG's
stockholders. In reaching its conclusion, the Board of Directors of AOG
considered, among other things: (i) the financial performance, operations,
assets, business conditions and prospects of each of the respective companies,
(ii) an analysis of the estimates and achievability of synergistic cost savings,
and revenue and earnings enhancements, (iii) the terms of the Merger Agreement,
(iv) provisions for corporate governance and management, (v) the opinion of its
financial advisor, Goldman Sachs, described below, (vi) the changing regulatory
environment, including the impact on the gas industry resulting from the
"unbundling" of the interstate gas services under Order 636, (vii) the
competitive advantages afforded a combined K N/AOG due to increased geographic
coverage and direct access to diversified gas supplies and broader markets and
(viii) the enhancement of future growth opportunities for the larger combined
company.
All of the members of the Board were present at the special meeting held on
March 24, 1994 at which the Board of Directors of AOG approved the Merger
Agreement and recommended that the stockholders of AOG vote "FOR" the adoption
and approval of the Merger Agreement. All directors voted in favor of the
adoption and approval of the Merger Agreement, except Mr. Dienstbier, who
abstained from voting in view of a
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potential conflict of interest arising from acceleration of certain benefits and
compensation inuring to him under his employment agreement upon completion of
the Merger. See "-- Interests of Certain Persons in the Merger."
In analyzing the Merger Agreement, the AOG Board of Directors was assisted
and advised by Goldman Sachs and, at the March 24, 1994 special meeting, the
Board received an opinion from Goldman Sachs that the Exchange Ratio was fair to
the stockholders of AOG. Goldman Sachs delivered a confirming opinion dated as
of the date hereof (a copy of which is attached hereto as Appendix C) in
substantially identical form as the opinion dated March 24, 1994. See
" -- Opinions of Financial Advisors -- AOG" as to AOG's agreement to compensate
and indemnify Goldman Sachs.
OPINIONS OF FINANCIAL ADVISORS
K N. The K N Board of Directors engaged Petrie Parkman to act as its
financial advisor in connection with the transactions contemplated by the Merger
Agreement. The K N Board of Directors instructed Petrie Parkman, in its role as
financial advisor, to evaluate the fairness, from a financial point of view, to
K N's stockholders of the consideration to be paid by K N in connection with the
Merger and, in such regard, to conduct such investigations as Petrie Parkman
deemed appropriate for such purpose. Petrie Parkman advised the Board of
Directors of K N, in its written opinion dated March 24, 1994, that the
consideration to be paid by or on behalf of K N in connection with the Merger
was fair to the stockholders of K N from a financial point of view.
In rendering its opinion, Petrie Parkman relied upon the accuracy and
completeness of the financial, operating, and other information provided to it
and assumed that such information had been reasonably prepared on bases
reflecting the best currently available estimates and judgments. Petrie Parkman
did not independently verify such information or make an independent evaluation
or appraisal of the assets or liabilities of AOG or K N nor, except for the
draft gas supply study and estimates referred to in its opinion, was Petrie
Parkman furnished with such an evaluation or appraisal. Petrie Parkman's opinion
relates only to the consideration to be paid by or on behalf of K N in
connection with the Merger and does not constitute a recommendation to any
stockholder of K N as to how such stockholder should vote at the K N Special
Meeting. THE FULL TEXT OF PETRIE PARKMAN'S WRITTEN OPINION, WHICH CONTAINS A
DESCRIPTION OF THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED BY PETRIE PARKMAN,
AND THE LIMITS OF ITS REVIEW, IS ATTACHED HERETO AS APPENDIX B, AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE ENCOURAGED TO READ THE
OPINION CAREFULLY IN ITS ENTIRETY.
In connection with its opinion, Petrie Parkman, among other things, (i)
reviewed certain publicly available business and financial information relating
to AOG and K N, including audited financial statements for AOG and K N as of
December 31, 1993; (ii) analyzed certain internal financial and operating data
concerning AOG and K N, all of which were prepared or provided by the management
of AOG or K N; (iii) discussed the current operations and prospects of AOG with
the management and operating staff of AOG and K N; (iv) discussed with the
management and operating staff of K N the current operations and prospects of K
N and the expected operations and prospects of the combined company, giving pro
forma effect to the Merger, including the operational efficiencies expected by K
N to be realized from the Merger; (v) reviewed the draft gas supply study of
Huddleston & Co., Inc. relating to the gas reserves which are presently or, as
deemed by Huddleston, could be in the future, connected and/or dedicated to
AOG's gathering systems; (vi) reviewed the historical market prices and trading
volume of the shares of common stock of K N and AOG; (vii) compared the
financial terms of the Merger with the financial terms of certain other
transactions which it deemed to be relevant; (viii) discussed the Merger with
Cabot, including Cabot's plans with respect to the K N Common Stock to be
acquired by it pursuant to the Merger; and (ix) made such other analyses and
examinations as Petrie Parkman deemed necessary or appropriate.
In rendering its opinion, Petrie Parkman conducted several analyses
including (i) a review of the historical trading prices and relative prices of
the shares of AOG and K N ("Trading History Analysis"); (ii) an analysis of the
potential financial effects of the Merger ("Pro Forma Merger Analysis"); (iii) a
discounted cash flow analysis of AOG ("Discounted Cash Flow Analysis"); (iv)
comparisons with selected
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publicly traded comparable companies ("Common Stock Comparison"); and (v) an
analysis of selected comparable industry transactions ("Comparable Transactions
Analysis"). These analyses are described below. Based upon the reference values
resulting from the various analyses and subject to the assumptions and
limitations set forth in its opinion, Petrie Parkman came to a composite range
of asset reference values for AOG of $400 to $500 million and equity reference
values per share of AOG common stock of $11.00 to $12.86 per share.
Trading History Analysis. Petrie Parkman reviewed the closing prices of the
common shares of AOG and K N as well as the ratio of AOG's closing price to K
N's closing price (the "Stock Price Ratio") from January 4, 1993 to March 18,
1994. This analysis showed that the common stock of AOG and K N had traded
between $9.25 and $14.50 per share and between $18.75 and $29.75 per share,
respectively, for that period. Furthermore, the analysis showed that the Stock
Price Ratio varied during that period from a high of approximately 0.64 to a low
of approximately 0.33. During the period between January 4, 1993 and June 17,
1993, the Stock Price Ratio ranged between 0.46 and 0.64; for the period between
June 18, 1993 and July 22, 1993, it ranged from 0.63 to 0.41; and for the period
between July 23, 1993 and March 18, 1994, it ranged between 0.33 and 0.49.
Pro Forma Merger Analysis. Petrie Parkman analyzed certain pro forma
effects from the Merger on K N for 1993 and projected for the following four
years. In connection with such analysis, Petrie Parkman relied upon the
estimates and projections provided by, and discussions with, members of
management of K N and AOG with respect to the future financial and operating
performance of K N and AOG for the years 1994 through 1997.
This analysis indicated that the combined company would have a lower ratio
of long-term debt to total capitalization (long-term debt plus stockholders'
equity plus preferred stock) than K N would have had on a stand-alone basis. The
analysis indicated that the Merger would be dilutive to projected 1994 K N
earnings per share, due mainly to the expected transaction costs associated with
the Merger, and that the Merger would be anti-dilutive to projected 1995-1997
earnings per share due to the pro forma operational efficiencies expected to be
achieved by the managements of K N and AOG.
Discounted Cash Flow Analysis. Under this method, Petrie Parkman performed
an analysis of future after-tax cash flows using three scenarios for AOG
utilizing information and projections regarding AOG provided by K N and AOG. The
three scenarios consisted of a base case, a downside case, and an upside case
which differed in assumptions regarding liquids prices, new gas sales volumes
growth rates, and transportation margin growth rates. Other factors included
discount rates of 10.0% to 12.5%, terminal multiples of 15.0x earnings and 8.0x
cash flow, and assumption of AOG's existing tax position. The Discounted Cash
Flow Analysis did not incorporate the effects of certain transaction costs and
operational efficiencies identified by K N.
Common Stock Comparisons. Using publicly available information, Petrie
Parkman reviewed adjusted capitalization multiples of certain historical
financial criteria (such as gross pretax cash flow, sales, operating cash flow,
and adjusted net income) for 23 publicly traded energy companies. The adjusted
capitalization of each company was obtained by adding its long-term debt to the
sum of the market value of its common equity, the value of its preferred stock
(market value if publicly traded or liquidation value or book value if not), and
the book value of its minority interest in other companies minus its cash
balance. Seven of these companies -- Aquila Gas Pipeline Corporation, Associated
Natural Gas Corporation, Tejas Gas Corporation, Tejas Power Corporation, Trident
NGL Holding, Inc., USX Corporation-Delhi Group, and Western Gas Resources,
Inc. -- which in Petrie Parkman's judgment were more relevant to an evaluation
of AOG, were examined in greater detail. For these seven companies, the highest,
average, and lowest multiples of gross pretax cash flow were 13.3x, 8.1x, and
3.2x, respectively. The highest, average, and lowest multiples of sales were
2.0x, 1.0x, and 0.4x, respectively. The highest, average, and lowest multiples
of operating cash flow were 10.5x, 6.4x, and 2.3x, respectively. The highest,
average, and lowest multiples of adjusted net income were 28.6x, 20.8x, and
11.1x, respectively. Petrie Parkman determined that, with respect to AOG, the
appropriate benchmark multiples for gross pretax cash flow, sales, operating
cash flow, and adjusted net income were in the ranges of 8.0 to 10.0, 0.9 to
1.1, 7.0 to 9.0, and 20.0 to 25.0, respectively.
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Petrie Parkman reviewed additional multiples of certain projected financial
criteria (such as earnings per share, discretionary cash flow per share,
earnings before interest expense, taxes, and depreciation) for the following six
companies: Aquila Gas Pipeline Corporation, Associated Natural Gas Corporation,
Tejas Gas Corporation, Tejas Power Corporation, Trident NGL Holding, Inc., and
Western Gas Resources, Inc. For these six companies, the highest, average, and
lowest multiples of stock price to earnings per share were 24.7x, 19.3x, and
13.8x, respectively. The highest, average, and lowest multiples of stock price
to discretionary cash flow per share were 8.2x, 6.9x, and 5.7x, respectively.
The highest, average, and lowest multiples of market capitalization (market
value of common equity) plus long-term debt minus net working capital to
earnings before interest expense, taxes, and depreciation were 8.9x, 7.0x, and
4.4x, respectively. Petrie Parkman determined that, with respect to AOG, the
average multiples of these companies for this analysis were appropriate
benchmark multiples for earnings per share, discretionary cash flow per share,
and earnings before interest expense, taxes, and depreciation.
Comparable Transactions Analysis. Petrie Parkman reviewed certain publicly
available information on 41 acquisition transactions in the gas gathering,
transportation, and marketing industry which took place between January 1986 and
February 1994. Of these 41 transactions, five were considered more relevant:
Associated Natural Gas/Grand Valley Gas, Hadson Corporation/Santa Fe Energy
Resources, Equitable Resources/Louisiana Interstate Gas, Tejas Gas/Exxon, and
Western Gas Resources/Mountain Gas Resources. Using publicly available
information, Petrie Parkman calculated total investment (purchase price plus any
obligations assumed) multiples of certain historical financial criteria (such as
gross pretax cash flow, sales, operating cash flow, and adjusted net income) for
the acquired company in each transaction. For these five transactions, the
highest, average, and lowest multiples of gross pretax cash flow were 15.0x,
10.8x, and 6.1x, respectively. The highest, average, and lowest multiples of
sales were 1.7x, 0.9x, 0.3x, respectively. The highest, average, and lowest
multiples (excluding instances in which certain historical financial criteria
were not available) of operating cash flow were 10.9x, 7.4x, and 4.9x,
respectively. The highest, average, and lowest multiples (excluding instances in
which certain historical financial criteria were not available) of adjusted net
income were 40.2x, 24.0x, and 15.9x, respectively. Petrie Parkman determined
that, with respect to AOG, the appropriate benchmark multiples for gross pretax
cash flow, sales, operating cash flow, and adjusted net income were in the
ranges of 9.0 to 10.0, 0.9 to 1.1, 7.0 to 9.0, and 15.0 to 20.0, respectively.
The description set forth above constitutes a summary of the material
analyses and assumptions employed by Petrie Parkman in rendering its opinion to
K N's Board of Directors. Petrie Parkman believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the factors
considered by it, without considering all analyses and factors, could create an
incomplete view of the processes underlying its opinion. The preparation of a
fairness opinion is a complex process, judgmental in nature, and not necessarily
susceptible to partial analysis or summary description. In its analyses, Petrie
Parkman made numerous assumptions with respect to industry performance, capital
market conditions, general business and economic conditions, and other matters,
many of which are beyond AOG's or K N's control. Any estimates contained therein
are not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth therein. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which
companies may actually be sold. Because such estimates are inherently subject to
uncertainty, no assurances can be given that such estimates will prove to be
accurate.
Petrie Parkman confirmed, as of the date of this Joint Proxy
Statement/Prospectus, its opinion of March 24, 1994 that the Exchange Ratio is
fair to the stockholders of K N from a financial point of view. In rendering
such confirmation, Petrie Parkman performed procedures to update certain of its
analyses made in connection with its March 24, 1994 opinion and reviewed the
assumptions on which such analyses were based and the factors considered in
connection therewith. Petrie Parkman considered, among other things, K N's and
AOG's recent financial performance and recent market conditions and developments
based on the foregoing.
As described above, Petrie Parkman's opinion and presentation to the K N
Board of Directors was one of many factors taken into consideration by the K N
Board of Directors in making its determination to approve the Merger
Agreement.
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Petrie Parkman, as part of its investment banking business, is continually
engaged in the valuation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. K N selected Petrie Parkman as its
financial advisor because it is a nationally recognized investment banking firm
that has substantial experience in transactions similar to the Merger.
Pursuant to the terms of the engagement letter dated November 8, 1993, K N
has paid Petrie Parkman $75,000 for acting as financial advisor in connection
with the Merger. In addition, K N has agreed to pay Petrie Parkman an additional
$250,000 in connection with rendering its opinion and a fee equal to 0.50% of
the transaction value upon consummation of the Merger, against which the $75,000
advisory fee is creditable. The term "transaction value" means (i) the market
value of the securities to be issued by K N at the close of business on the last
trading day prior to the Effective Time, plus (ii) the market value of any
securities issuable by K N pursuant to the Merger Agreement upon exercise of
options, warrants, and other convertible securities of AOG, and valued at the
close of business on the last trading day prior to the Effective Time, plus
(iii) any cash to be paid by K N in lieu of issuing fractional shares. Whether
or not the Merger is consummated, K N has also agreed to reimburse Petrie
Parkman for its reasonable out-of-pocket expenses, including all reasonable fees
and disbursements of counsel, and to indemnify Petrie Parkman and certain
related persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
Petrie Parkman has, in the past two years, performed certain other advisory
assignments for K N.
AOG. Goldman Sachs has delivered its written opinion dated March 24, 1994
to the Board of Directors of AOG that as of the date of such opinion, the
Exchange Ratio is fair to the stockholders of AOG. Goldman Sachs subsequently
confirmed its March 24, 1994 written opinion by delivery of its written opinion
dated as of the date hereof.
THE FULL TEXT OF THE OPINION OF GOLDMAN SACHS DATED AS OF THE DATE HEREOF,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED HERETO AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF AOG ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. THE TEXT OF THIS OPINION IS SUBSTANTIALLY IDENTICAL TO
THE OPINION DATED MARCH 24, 1994.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) this Joint Proxy Statement/Prospectus; (iii) the
Annual Reports to Stockholders and Annual Reports on Form 10-K of AOG and K N
for the five years ended December 31, 1993; (iv) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of AOG and K N; (v) certain
other communications from AOG and K N to their respective stockholders; and (vi)
certain internal financial analyses and forecasts for AOG and K N prepared by
their respective managements. Goldman Sachs also held discussions with members
of the senior management of AOG and K N regarding the past and current business
operations, financial condition, and future prospects of their respective
companies. In addition, Goldman Sachs reviewed the reported price and trading
activity for the AOG Common Stock and the K N Common Stock, compared certain
financial and stock market information for AOG and K N with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations and
performed such other studies and analyses as it considered appropriate. Goldman
Sachs was not requested to solicit and did not solicit interest from other
parties in a potential business combination. Goldman Sachs' opinion does not
address the relative merits of the transaction contemplated pursuant to the
Merger Agreement as compared to any alternative business transaction that might
be available to AOG.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with AOG's
consent, that the projected cost savings and operating synergies resulting from
the transaction contemplated pursuant to the Merger Agreement have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the managements of AOG and K N and management of AOG has
advised Goldman Sachs that it may assume, and Goldman Sachs has so assumed, for
the purposes of its opinion, the reasonableness and achievability of such
projected cost savings and operating synergies. In addition, Goldman Sachs has
not made an independent evaluation or appraisal of the
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assets and liabilities of AOG or K N or any of their respective subsidiaries and
Goldman Sachs has not been furnished with any such evaluation or appraisal.
Goldman Sachs has assumed, with AOG's consent, that the consummation of the
transaction contemplated pursuant to the Merger Agreement will be recorded as a
pooling of interests under generally accepted accounting principles.
The following is a summary of certain of the financial analyses relating to
AOG presented by Goldman Sachs to AOG's Board of Directors on March 24, 1994, in
connection with its opinion of that date:
(i) Contribution Analysis. The analysis indicated that the AOG
stockholders would receive 45.3% of the outstanding shares of the combined
companies after the Merger. Goldman Sachs also analyzed the relative income
statement contribution of AOG and K N to the combined companies on a pro
forma basis based on a scenario assuming pretax cost savings and operating
synergies ("synergies") in the amount of $3.5 million and $21.4 million in
1994 and 1995, respectively, and a scenario assuming no synergies, and
based on actual 1993 and estimated years 1994 and 1995 based on financial
data provided to Goldman Sachs by AOG and K N management. This analysis
indicated that in 1993 AOG would have contributed 52.2% to combined
revenues, 31.4% to combined earnings before interest, taxes, and
depreciation ("EBITD"), 26.8% to combined earnings before interest and
taxes ("EBIT"), and 21.3% to combined net income based on both the scenario
with such synergies and the scenario without such synergies. Based on the
scenario with such synergies, for 1994 and 1995, the analysis indicated
that AOG would contribute 48.0% and 47.8% to combined revenues, 34.0% and
31.8% to combined EBITD, 30.9% and 28.6% to combined EBIT and 36.6% and
32.4% to combined net income, respectively. Based on the scenario without
any synergies, for 1994 and 1995, the analysis indicated that AOG would
contribute 48.0% and 47.8% to combined revenues, 34.8% and 35.9% to
combined EBITD, 31.9% and 34.0% to combined EBIT, and 38.4% and 41.1% to
combined net income, respectively. The analysis also indicated that such
synergies would not have contributed to combined revenues in the years
1993, 1994 and 1995, and would not have contributed to combined EBITD,
combined EBIT or combined net income in 1993. In 1994 and 1995, such
synergies would contribute 2.1% and 11.4% in combined EBITD, 3.1% and 15.9%
in combined EBIT, and 4.6% and 21.0% in combined net income, respectively.
(ii) Comparable Companies Analysis. Goldman Sachs compared certain
financial information relating to AOG to corresponding financial
information, ratios and public market multiplies for four publicly traded
corporations: Aquila Gas Pipeline Corporation, Associated Natural Gas
Corporation, Tejas Gas Corporation and Western Gas Resources, Inc. (the
"Selected Companies"). The Selected Companies were chosen because they were
publicly-traded companies with significant mid-stream operations. Goldman
Sachs considered, among other things, the Selected Companies': debt as a
percentage of total capitalization, price/earnings ("P/E") ratios for the
years 1993 and 1994, market capitalization/cash flow ratio and dividend
yield. Goldman Sachs then utilized the median and mean for selected
multiples and ratios of the Selected Companies for comparison with AOG
(based upon actual 1993 AOG EPS and AOG's management projections for
estimated 1994 EPS) in its valuation analysis. With the exception of (a)
AOG's 1993 P/E ratio of 41.50x (due, in part, to additional charges
associated with a write-down of assets and executive compensation related
to stock grants in the year 1993) compared to the Selected Companies' 1993
mean P/E ratio of 25.58x and 1993 median P/E ratio of 23.30x and (b) AOG's
dividend yield of 0.0% compared to the Selected Companies' mean dividend
yield of 0.3% and median dividend yield of 0.4%, the analysis indicated
that AOG's multiples and ratios were near the means and medians established
by the Selected Companies in the other selected multiples and ratios.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis under the following two scenarios: (a) using
AOG's management projections (the "Management Case") and (b) using a 25%
reduction in AOG management's growth projections (the "Second Case"). Using
a discounted cash flow analysis, Goldman Sachs estimated the net present
value of the future cash flows set forth in each such case. Goldman Sachs
calculated a net present value of free cash flows for the years 1994
through 1998 using discount rates ranging from 10% to 20%. Goldman Sachs
calculated AOG's terminal values in the year 1999 based on multiples
ranging from 5x earnings before interest, taxes, depreciation and
amortization ("EBITDA") to 8x EBITDA. These terminal values were then
discounted
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to present value using discount rates ranging from 10% to 20%. Various
ranges for discount rates and terminal value multiples were chosen to
reflect theoretical analyses of cost of capital.
Using AOG's terminal values in the year 1999 based on multiples ranging
from 6x EBITDA to 7x EBITDA and discounting these terminal values to
present value using discount rates ranging from 12% to 16% (such multiples
and rates being appropriate for AOG in relation to trading ranges for
comparable companies), the implied per share values ranged from $8.35 to
$14.33 in the Management Case and from $7.84 to $11.68 in the Second Case.
(iv) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger. Using earnings estimates
for AOG and K N prepared by their respective managements for the years
1994, 1995 and 1996, Goldman Sachs compared the earnings per share ("EPS")
of AOG Common Stock, on a standalone basis, to the EPS of the common stock
of the combined companies on a pro forma basis. Goldman Sachs performed
this analysis based on a price of $10.63 per share of AOG Common Stock and
$24.13 per share of K N Common Stock under the following four scenarios:
(i) assuming no pretax cost savings or operating synergies, (ii) assuming
$12.6 million in synergies ($3.5 million of such synergies being achieved
in 1994), (iii) assuming $17.0 million in synergies ($3.5 million of such
synergies being achieved in 1994), and (iv) assuming $21.4 million in
synergies ($3.5 million of such synergies being achieved in 1994). Based on
such analyses, the proposed transaction would be accretive to AOG's
stockholders on an earnings per share basis in all four of the above
scenarios in the years 1994, 1995 and 1996, except for a slight dilution in
1996 in the scenario assuming no synergies, with significant accretion in
the years 1994, 1995 and 1996 under the scenarios assuming $17.0 million
and $21.4 million in synergies.
In addition, based on the current dividend paid on the AOG Common
Stock ($0.00 per share) and the K N Common Stock ($0.96 per share), AOG
stockholders would receive an additional $0.45 in dividends on a pro forma
per share of AOG Common Stock basis.
(v) Net Present Value of Synergies Analysis. Goldman Sachs calculated
the net present value of $3.5 million of synergies in 1994 ($3.2 million of
which represents pretax cost savings projected by management as achievable)
and $21.4 million in annual synergies ($12.6 million of which represents
pretax cost savings projected by management as achievable) thereafter,
respectively, on a per share of AOG Common Stock basis, using discount
rates ranging from 10% to 20%. On the basis of such varying discount rates,
Goldman Sachs calculated a net present value of such synergies ranging from
$0.91 per share to $1.98 per share of AOG Common Stock.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analysis or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analysis as a comparison is identical to AOG or K
N or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion as to the fairness of the
Exchange Ratio to the Board of Directors of AOG and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses.
As described above, Goldman Sachs' opinion and presentation to the AOG
Board of Directors was one of many factors taken into consideration by the AOG
Board of Directors in making its determination to approve the Merger Agreement.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. AOG selected Goldman
Sachs as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger.
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<PAGE> 35
Pursuant to a letter agreement dated November 12, 1993 (the "Engagement
Letter"), AOG engaged Goldman Sachs to act as its financial advisor in
connection with a possible business combination, including the Merger (the
"Transaction") pursuant to which AOG and AOG's stockholders might realize the
value of the business and assets of AOG. AOG has paid Goldman Sachs $100,000 for
its services pursuant to the terms of the Engagement Letter. In addition, the
Engagement Letter provides that if the Transaction is accomplished in one or a
series of steps, including private or open market purchases of AOG stock, a
tender offer, a merger or a sale by AOG of all or a substantial portion of its
stock or assets, Goldman Sachs will charge a Transaction fee of 1.0% of the
aggregate consideration paid in such steps (the "Transaction Fee"). As of
, 1994, based on the Exchange Ratio, the Transaction Fee payable to
Goldman Sachs would be $ . AOG has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorneys' fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of AOG's Board of Directors with respect
to the Merger, AOG's stockholders should be aware that certain members of AOG's
Board and management have certain interests separate from their interests as
holders of AOG Common Stock, including those referred to below.
K N has agreed, at the Effective Time, to appoint David M. Carmichael,
Edward H. Austin, Jr., Edward Randall, III and James C. Taylor to serve on its
Board of Directors. Each of these persons, other than Mr. Taylor, is currently a
director of AOG. K N has also agreed, at the Effective Time, to elect (i) David
M. Carmichael, Chairman of the Board and Chief Executive Officer of AOG, as Vice
Chairman of K N, and (ii) a nominee of Cabot as an advisory director of K N.
Further, K N will establish a four-person Management Committee as of the
Effective Time, and elect Messrs. Carmichael and Austin to serve on such
committee. Mr. Carmichael will chair the Management Committee. See "Management
and Operations After the Merger." Messrs. Carmichael and Austin will also serve
as two of the four directors of the Surviving Corporation, and the officers of
AOG immediately prior to the Effective Time will be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified. See "Terms of the Merger -- Conduct of the
Business of the Combined Companies Following the Merger."
Under the Merger Agreement, K N has agreed to take action as of the
Effective Time to assume (i) each of the options to purchase AOG Common Stock
(the "AOG Options") granted under the Stock Incentive Plan of AOG and (ii) each
of the warrants to purchase AOG Common Stock ("AOG Warrants") that remains
unexercised in whole or in part at such time. See "Terms of the Merger -- AOG
Options and Warrants." Pursuant to such assumption, K N will substitute the
assumed option or warrant, as the case may be, with an option or warrant of K N
for the purchase of such number of shares of K N Common Stock that the holder of
the AOG Option or AOG Warrant being assumed would have received upon
consummation of the Merger had such AOG Option or AOG Warrant been exercised
immediately prior to the Effective Time, including appropriate adjustments to
the per share exercise price. The executive officers and directors of AOG hold
AOG Options to purchase an aggregate of 935,000 shares of AOG Common Stock.
Cabot holds AOG Warrants to purchase 1,366,452 shares of AOG Common Stock.
K N and AOG are engaged in discussions regarding the integration of the
companies following the Effective Time with the goal of eliminating duplications
in personnel, responsibilities and functions. Following the Effective Time, it
is anticipated that a number of officers and other employees of the combined
companies will be terminated over a transition period. K N intends to enter into
arrangements with officers and other key employees of AOG and its subsidiaries
who are terminated or who resign following the Merger, including employment,
retainer or various other arrangements, to assure access to such employees'
services and historical perspectives as required.
Under the stated terms of the AOG Stock Incentive Plan and all grants made
thereunder, outstanding restricted stock and stock options (which options will
be assumed by K N pursuant to the Merger Agreement) held by any officer,
director or employee of AOG or its affiliates (including those persons retained
as described
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<PAGE> 36
above) will, subject to other provisions of the Stock Incentive Plan, remain
outstanding as long as such holder is still an officer, director or employee of
AOG or its affiliates.
Daniel L. Dienstbier, President, Chief Operating Officer and a director of
AOG, is a party to an employment agreement with AOG, which contains a "change in
control" provision that provides for the acceleration or vesting of certain
remuneration and benefits payable to Mr. Dienstbier upon the occurrence of
certain transactions such as the Merger, including (i) salary of $300,000 per
year through October 27, 1995 (payable in lump sum upon termination or
resignation), (ii) a $250,000 cash bonus otherwise payable October 28, 1994 and
(iii) removal of restrictions on 75,000 shares of restricted AOG Common Stock
granted pursuant to the AOG Stock Incentive Plan. These accelerated benefits and
remuneration will be made available upon Mr. Dienstbier's resignation or
termination other than for "cause" following the Merger. It is not expected that
Mr. Dienstbier will remain an officer of AOG for any significant period
following the Merger. Executive officers (other than Messrs. Carmichael and
Dienstbier) and certain key employees of AOG have severance agreements with AOG
that will entitle the officer or employee, in the event of termination or
resignation for "good reason" (as defined in the agreement) following the
occurrence of a transaction such as the Merger, to (i) one or two years' salary
(depending upon the category of such officer or employee) payable in a lump sum,
(ii) extended medical and life insurance benefit coverage for the length of the
salaried period and (iii) the cost of outplacement services of up to $5,000.
The Merger Agreement provides for broad indemnification of the officers and
directors of AOG and obligates K N to continue for six years AOG's directors'
and officers' liability insurance. See "Terms of the Merger -- Indemnification."
See "Terms of the Merger -- Employee Benefit Plans" as to post-Merger
arrangements respecting AOG employee benefit plans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the Merger to holders of AOG Common Stock under the Code, but does not deal
with all tax consequences of the Merger that may be relevant to particular
stockholders of AOG, such as dealers in securities and foreign persons.
THIS SUMMARY SHOULD NOT BE REGARDED AS A SUBSTITUTE FOR AN INDIVIDUAL
ANALYSIS OF THE TAX CONSEQUENCES OF THE MERGER TO A STOCKHOLDER OF AOG. EACH
STOCKHOLDER OF AOG SHOULD CONSULT A TAX ADVISOR REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER'S OWN SITUATION.
None of K N, Sub or AOG has requested a ruling from the Internal Revenue
Service (the "Service") in connection with the Merger. K N has received from its
counsel, Vinson & Elkins L.L.P., an opinion to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, that K N, Sub and AOG will each be a
party to the reorganization within the meaning of Section 368(b) of the Code,
and that K N, Sub and AOG will not recognize any gain or loss as a result of the
Merger. It is a condition to the obligation of K N to consummate the Merger that
such opinion shall not have been withdrawn or modified in any material respect.
AOG has received from its counsel, Andrews & Kurth L.L.P., an opinion to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, that K N, Sub
and AOG will each be a party to the reorganization within the meaning of Section
368(b) of the Code, and that stockholders of AOG will not recognize any gain or
loss as a result of the Merger, other than to the extent they receive cash in
lieu of a fractional share of K N Common Stock. It is a condition to the
obligation of AOG to consummate the Merger that such opinion shall not have been
withdrawn or modified in any material respect. Such opinions will be subject to
certain assumptions and based on certain representations of K N, Sub, AOG and
affiliates of AOG. Stockholders of AOG should be aware that such opinions will
neither be binding upon the Service nor will the Service be precluded from
adopting a contrary position.
Assuming the Merger qualifies as a reorganization under Section 368(a) of
the Code, the following federal income tax consequences will occur:
(a) no gain or loss will be recognized by K N, Sub or AOG in
connection with the Merger;
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<PAGE> 37
(b) no gain or loss will be recognized by a holder of AOG Common Stock
who exchanges all of his shares of AOG Common Stock solely for shares of K
N Common Stock in the Merger;
(c) the aggregate basis of the shares of K N Common Stock to be
received by an AOG stockholder in the Merger (including any fractional
share not actually received) will be the same as the aggregate basis of the
shares of AOG Common Stock surrendered in exchange therefor;
(d) the holding period of the shares of K N Common Stock to be
received by an AOG stockholder in the Merger will include the holding
period of the shares of AOG Common Stock surrendered in exchange therefor,
provided that such shares of AOG Common Stock are held as capital assets at
the Effective Time; and
(e) a stockholder of AOG receiving cash in lieu of a fractional share
will recognize gain or loss upon such payment equal to the difference, if
any, between such stockholder's basis in the fractional share (as described
in paragraph (c) above) and the amount of cash received. Such gain or loss
will be a capital gain or loss if the AOG Common Stock is held as a capital
asset at the Effective Time.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the combining
companies have been merged from inception, and the historical consolidated
financial statements for periods prior to consummation of the Merger are
restated as though the companies had been combined from inception. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
K N and AOG have been preliminarily advised by their independent public
accountants, Arthur Andersen & Co., that the Merger will be treated as a pooling
of interests in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon the written confirmation of such
advice. Also, such advice contemplates that each person who may be deemed an
affiliate of AOG will enter into an agreement with K N on or before the
Effective Date not to sell or otherwise transfer any shares of K N Common Stock
prior to the date that K N first publishes financial statements reflecting at
least 30 days of combined operations of K N and AOG. Such agreement with Cabot,
however, will permit disposition of its shares of K N Common Stock within such
period if the Commission notifies Cabot of a scheduled hearing for the purpose
of determining whether or not Cabot will be deemed to be a public utility
holding company with respect to K N under PUHCA. K N and AOG regard the
probability that Cabot would sell shares of K N Common Stock during such period
for such reason as extremely remote.
GOVERNMENTAL AND REGULATORY APPROVALS
Transactions such as the Merger are reviewed by the Department of Justice
and the FTC to determine whether they comply with applicable antitrust laws.
Under the provisions of the HSR Act, the Merger may not be consummated until
such time as the specified waiting period requirements of the HSR Act have been
satisfied. K N, AOG and Cabot filed notification reports, together with requests
for early termination of the waiting period, with the Department of Justice and
the FTC under the HSR Act on April 7, April 11 and April 14, 1994, respectively.
At any time before or after the Effective Time, the Department of Justice,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause K N to divest itself, in whole or
in part, of AOG or of other businesses conducted by K N. There can be no
assurance that a challenge to the Merger will not be made or that, if such a
challenge is made, K N and AOG will prevail.
Consummation of the Merger is also conditioned upon the receipt by Cabot of
a favorable "no action" letter from the Commission's staff respecting the status
of Cabot following the Merger under PUHCA. It is expected that the no-action
letter will be conditioned upon, among other things, Cabot's agreement, for so
long as it holds in excess of 10% of the aggregate outstanding shares of K N
Voting Stock, to vote all its shares of
30
<PAGE> 38
K N Voting Stock in excess of such percentage in the same proportion as other
shares are voted in respect of any matter submitted to K N stockholders.
The issuance by K N of the shares of K N Common Stock in the Merger is also
subject to the approval of the Colorado Public Utility Commission (the "PUC")
and the Wyoming Public Service Commission (the "PSC").
K N and AOG are aware of no other governmental or regulatory approvals
required for consummation of the Merger, other than compliance with applicable
securities laws.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of K N Common Stock received by AOG stockholders in connection
with the Merger have been registered under the Securities Act and, except as set
forth in this paragraph, may be traded without restriction. The shares of K N
Common Stock issued in the Merger and received by persons who are deemed to be
"affiliates" (as that term is defined in Rule 144 under the Securities Act) of
AOG prior to the Merger may be resold by them only in transactions permitted by
the resale provisions of Rule 145 under the Securities Act (or, in the case of
such persons who become affiliates of K N, Rule 144 under the Securities Act) or
as otherwise permitted under the Securities Act. Under generally accepted
accounting principles, the sale of K N Common Stock or AOG Common Stock by an
affiliate of either K N or AOG within 30 days prior to the Effective Time or
thereafter prior to the publication of financial statements that include at
least 30 days of combined operations of K N and AOG (the "Expiration Date")
could preclude pooling of interests accounting treatment of the Merger.
Accordingly, the Merger Agreement provides that AOG will use its reasonable
efforts to cause its affiliates to execute a written agreement to the effect
that such persons will not sell, transfer or otherwise dispose of any shares of
K N Common Stock issued to such persons pursuant to the Merger prior to the
Expiration Date or at any time in violation of the Securities Act or the rules
and regulations promulgated thereunder, including Rule 145. In such agreements K
N will agree to use its best efforts to register under the Securities Act all of
such shares (up to a maximum of 1,500,000 shares per AOG affiliate) for resale
in market transactions following the Effective Time by affiliates who will
beneficially own at least 1% of the outstanding shares of K N Common Stock at
the Effective Time. K N's registration statement (the "Shelf Registration
Statement") will remain effective continuously until no such affiliate
beneficially owns more than 10% of the then outstanding shares of K N Common
Stock. The Merger Agreement further provides that K N will grant certain rights
to registration under the Securities Act to each affiliate of AOG who holds at
the Effective Time 1% or more of the shares of K N Common Stock then
outstanding, so as to permit such affiliates the opportunity to dispose of
shares of K N Common Stock received by them in the Merger without constraint by
the volume limitation restrictions imposed by Rule 145. In addition to the right
to request registration of not less than 750,000 shares on two occasions within
five years of the Effective Time, the affiliates will also have "piggyback"
registration rights on two occasions during such five-year period. Such
registration rights will not extend, however, to any shares of K N Common Stock
that are then subject to the Shelf Registration Statement. K N and each
affiliate whose shares are registered for resale under the Securities Act will
indemnify each other in a customary manner against any resulting liabilities,
and K N will bear all expenses in connection with each registration, excluding
any underwriter's commission and fees and expenses of counsel for any affiliate.
Cabot has indicated that it has no present intention to sell or otherwise
dispose of its shares of K N Common Stock received in the Merger. Cabot will
continue to evaluate its investment in K N following the Merger in light of
market conditions and other factors.
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<PAGE> 39
MANAGEMENT AND OPERATIONS AFTER THE MERGER
BOARD OF DIRECTORS
Pursuant to the Merger Agreement, the Board of Directors of K N will take
action to increase the number of directors comprising the Board of Directors at
the Effective Time to 14 persons and appoint four persons (named in the table
below) designated by AOG to fill the four vacancies created by such increase.
Pursuant to the K N Amendments, the maximum number of directors (exclusive of
advisory directors) will be increased to 15. The Board of Directors of K N is
divided into three classes with terms of office of the classes ending in
successive years after the annual meetings of stockholders in such years.
Set forth below is certain information about each person who is to be a
member of the Board of Directors of K N as of the Effective Time.
<TABLE>
<CAPTION>
YEAR FIRST
SERVED AS A
DIRECTOR OF OTHER BUSINESS EXPERIENCE
NAME K N OR AOG AGE DURING PAST 5 YEARS
- ------------------------------- ------------- --- ----------------------------------------
<S> <C> <C> <C>
CLASS I DIRECTORS:
TERMS EXPIRING IN 1997
Edward H. Austin Jr............ 1987 (AOG) 52 Principal of Austin, Calvert & Flavin,
Inc., an investment counseling firm, San
Antonio, Texas; Director of Security
Capital Industrial Trust.
David W. Burkholder............ 1984 (K N) 51 President of Will Feed, Inc. (cattle
feeding), Willow Island, Nebraska;
President of Island Dehy Company, Inc.
(alfalfa dehydration), Cozad, Nebraska;
and President of Consolidated Blenders,
Inc. (alfalfa dehydration), Hastings,
Nebraska.
David M. Carmichael............ 1986 (AOG) 55 Chairman of the Board and Chief
Executive Officer of AOG (also President
until October 1993).
Jordan L. Haines............... 1983 (K N) 66 Director of Fourth Financial Corporation
(bank holding company), Wichita, Kansas
(retired as Chairman, 1991); Director of
The Coleman Company (manufacturer
outdoor equipment); Director of Southern
Pacific Rail Corp.
William J. Hybl................ 1988 (K N) 51 Chairman and Chief Executive Officer
(1989-present), President and Chief
Operating Officer (1983-1989) and
Trustee of El Pomar Foundation
(charitable foundation), Colorado
Springs, Colorado; Vice Chairman and
Director of Broadmoor Hotel, Inc.,
Colorado Springs, Colorado; Director of
Bank One of Colorado, Denver, Colorado;
and President, United States Olympic
Committee (1991-1992).
CLASS III DIRECTORS:
TERMS EXPIRING IN 1996
Stewart A. Bliss............... 1993 (K N) 60 Consultant, Denver, Colorado; Chief of
Staff, Governor's Office, State of
Colorado, Denver, Colorado (1987-1993).
</TABLE>
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<PAGE> 40
<TABLE>
<CAPTION>
YEAR FIRST
SERVED AS A
DIRECTOR OF OTHER BUSINESS EXPERIENCE
NAME K N OR AOG AGE DURING PAST 5 YEARS
- ------------------------------- ------------- --- ----------------------------------------
<S> <C> <C> <C>
Robert H. Chitwood............. 1990 (K N) 63 President, R.H. Chitwood Company (oil
and gas production, investments and
petroleum consulting) Tulsa, Oklahoma.
Howard P. Coghlan.............. 1981 (K N) 67 Senior Partner, Coghlan, Crowson &
Fitzpatrick, Attorneys at Law; and
Director, Longview Bank & Trust Co. and
Longview Financial Corp. (1983-1993),
all of Longview, Texas.
Edward Randall, III............ 1988 (AOG) 67 Private investor since 1990; Partner
from 1985 to 1990, Duncan, Cook & Co. (a
private investment banking firm),
Houston, Texas; Director, PaineWebber
Group, Inc. and Enron Oil & Gas Company.
James C. Taylor................ AOG Designee: 56 Owner and Operator, Wytana Livestock
not a current Company, Bozeman, Montana; Private
AOG Director Investor.
CLASS II DIRECTORS:
TERMS EXPIRING IN 1995
Charles W. Battey.............. 1971 (K N) 62 Chairman of the Board and Chief
Executive Officer of K N.
Robert B. Daugherty............ 1983 (K N) 72 Chairman of the Board and Director of
Valmont Industries, Inc. (manufacturer
of products for the electrical industry,
producer of mechanized irrigation
equipment), Valley, Nebraska; Director,
Peter Kiewit Sons' Co. (contracting,
mining and manufacturing), Omaha,
Nebraska.
Larry D. Hall.................. 1984 (K N) 51 Director, President and Chief Operating
Officer of K N.
H. A. True, III................ 1991 (K N) 51 Partner, True Companies (energy,
agriculture and financing), Casper,
Wyoming.
</TABLE>
The retirement age policy applicable to K N Directors will result in
retirements from the K N Board of Directors from time to time. The current
intention of the K N Board of Directors is not to fill the vacancies on the
Board created by these retirements until the number of directors is reduced to
11.
Pursuant to the Merger Agreement, at the Effective Time, the Board of
Directors will also elect a designee of Cabot as a non-voting advisory director
of K N, and for so long as Cabot continues to own beneficially at least 10% of
the K N Voting Stock, Cabot will have the right to designate one such advisory
director. If Cabot's beneficial ownership in K N is reduced below 10% but
continues over 5% then the Board of Directors of K N will appoint the Cabot
advisory director as a full director, to serve the remaining term of a Class II
director, and Cabot will be entitled to have one designee for election to the
Board of Directors of K N.
Pursuant to the Merger Agreement, at the Effective Time AOG will designate
Mr. Austin and Mr. Randall to serve, respectively, on the Audit Committee and
Compensation Committee of the Board of Directors of K N, and a Management
Committee of the K N Board of Directors will be established as described under
"-- Management" below.
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<PAGE> 41
MANAGEMENT
The Merger Agreement provides that, concurrently with the Effective Time,
Larry D. Hall will be elected as the President and Chief Executive Officer of K
N, Charles W. Battey will remain as Chairman of the Board of K N, and David M.
Carmichael, Chairman of the Board of AOG, will be elected as Vice Chairman of
the Board of K N. The term of each of these three officers will expire on the
date of K N's 1996 Annual Meeting of Stockholders.
Also, concurrently with the Effective Time, the By-laws of K N will be
amended to establish a Management Committee, in lieu of the existing Executive
Committee, consisting of Mr. Carmichael, as Chairman, and Messrs. Battey, Hall
and Austin, each of whom will serve for a term expiring on the date of K N's
1996 Annual Meeting of Stockholders. Any vacancy arising following the Effective
Time in the office of Chairman of the Board, Vice Chairman of the Board, Chief
Executive Officer, Chief Operating Officer, or Chairman of the Management
Committee or on the Management Committee, will be filled by the Board of
Directors upon recommendation of a Special Nominating Committee consisting of
two directors of K N who served as directors of K N prior to the Effective Time
and two other directors designated by AOG from among the four AOG Designees. The
duties of the Management Committee will consist of oversight and direction of
management decisions with respect to the day-to-day operations of K N and its
subsidiaries and oversight and direction of matters relating to the integration
and consolidation of the business and operations of K N and AOG as well as the
duties and powers previously delegated to K N's Executive Committee, which will
be abolished. K N's By-laws will be further amended to provide that, from the
Effective Time until K N's 1997 Annual Meeting of Stockholders, the By-law
amendments respecting the management matters described in this and the preceding
two paragraphs cannot be amended, modified or revoked, the current retirement
policy for officers of K N cannot be changed and the number of persons serving
on the Board of Directors of K N cannot be increased, except by an affirmative
vote of at least 12 of 14 directors, or 11 of 13 directors, or 10 of 12
directors, or 9 of 11 directors, as the case may be, or, in all other cases, at
least 85% of the total number of directors.
BENEFITS OF THE MERGER
Following the Merger, managements of both K N and AOG expect the combined
company to achieve substantial recurring improvements in earnings by enhancing
gross margin and by reducing general/administrative and operating costs. Among
the areas identified for improvement are:
(1) Natural Gas Supply. The combined company will operate along an
axis of major gas supply basins stretching from the northern Rocky Mountain
region through the Mid-Continent to South Texas. Access to six major,
geographically diverse producing basins will enable the combined company to
balance complementary peaking periods with a greater choice of supply
alternatives. An additional future opportunity to provide broader gas
supply access for K N and AOG should come from K N's participation in the
proposed TransColorado Pipeline Project.
AOG's service territory experiences strong demand in the summer when
natural gas is used to generate electricity and to power irrigation pump
engines, whereas K N's strongest demand occurs during the winter heating
season. These sales patterns are complementary. AOG has paid a premium for
gas supply during peaking periods, and K N should be able to deliver gas to
AOG at more competitive prices during these periods.
(2) Gas Sales, Marketing, Transportation and Storage. The marketing
efforts of the combined company should yield efficiencies in purchasing gas
supplies, provide leverage in contracting for those supplies and improve
utilization of the systems by increasing sales to non-historical market
areas. In addition, the combined company should be more effective in
converting current spot market sales to longer term premium markets and in
developing incremental marketing, transportation, storage and other service
opportunities, while retaining the current retail and on-system markets as
a base load. The combined company will have over 18,700 total miles of
transmission and gathering pipelines that both serve direct markets and
interconnect with more than 60 delivery points into 20 major pipelines. The
combined natural gas sales volumes in 1993 for K N and AOG were 333 Bcf.
Combined transportation
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<PAGE> 42
volumes in 1993 for the two companies were 211 Bcf. A one percent increase
in throughput capacity utilization on AOG's systems would provide
incremental operating income ranging from approximately $700,000 to $1.7
million for the combined company. This sensitivity is based on 1993 average
margins, and would depend upon the mix of transportation and sales volumes.
The combined company will have over 27 Bcf of core working gas storage
capacity in conventional storage fields near major pipeline interconnects
in the Rocky Mountain, Mid-Continent and Permian Basin areas. The present
combined deliverability from these storage fields is over 600 MMcf of gas
per day. AOG's storage fields have working gas capacity of more than 12
Bcf, with an additional three Bcf of high-deliverability salt cavern
storage under development. The salt cavern storage projects have the
potential to provide multiple cycling of gas during seasonal peak periods,
a service which should be in high demand in the post-Order 636 environment.
AOG's storage sites are located near the Waha, Texas market center and are
directly connected to Waha and to K N's Buffalo Wallow market center in the
Texas Panhandle through the Red River Pipeline, operated by AOG and 75
percent owned by AOG. The key location of this pipeline between two market
centers, with storage connected, means that the combined company will be
able to provide a broader range of services to its customers than either of
the companies would have been able to do separately. These services will
include physical gas movement between market centers and load balancing
services and delivery reliability supported by storage. By way of
illustration, for every additional 10 MMcf of gas per day that is
transported through Red River Pipeline's available capacity, approximately
$100,000 of annual incremental operating income would be generated at
prevailing transportation rates. Storage services, marketing contracts and
trading contracts add upside revenue generating opportunities.
Post-Order 636 unbundled services will be provided at market centers,
which will tie into the combined company's multiple interconnects in the
Rocky Mountain, Mid-Continent and West Texas regions. The ability to move
physical gas volumes between market centers should enhance the combined
company's ability to trade and exchange gas for a profit. Natural gas price
differentials among the Rocky Mountains, the Mid-Continent and the Permian
areas have been as high as $0.15 to $0.40 per million Btus.
(3) Gathering and Processing. The combined company should have greater
leverage in the marketing of natural gas liquids. The combined sales
volumes of liquids in 1993 for K N and AOG was 320 million gallons. Adding
incremental gathering and processing volumes to AOG's systems provides
additional gas supply volumes that are transported through downstream
pipelines and may be purchased and sold by AOG to incremental markets.
Thus, gathering and processing are an integral part of the total business
opportunity. In 1993, AOG's processing facilities operated at approximately
60 percent of total processing capacity. For each one percent increase in
AOG's plant throughput, gas liquids sales will increase by approximately
$100,000 to $300,000, depending upon plant location, based on AOG's average
1993 natural gas liquids sales margins. Based on combined 1993 processing
volumes, each one cent change in average natural gas liquids prices is
estimated to impact operating income by approximately $2 million.
(4) Cost Savings -- Management of both K N and AOG expects a recurring
improvement in results through consolidation of administrative and
operational staff, space requirements and information systems. Cost savings
will also result from eliminating certain outside legal, accounting and
other services. Combined general and administrative expenses for both
companies totaled $57 million for 1993.
On a pro forma basis as of December 31, 1993 the combined company will have
equity capital of approximately $398 million and a long-term debt to total
capitalization ratio of approximately 45 percent, which will provide significant
financial flexibility to pursue continued growth opportunities. The ratio
compares to an average long-term debt to total capitalization ratio of 50
percent among diversified natural gas companies and about 55 percent among
natural gas gathering, transportation and marketing companies. The performance
of the combined company is expected to increase cash flow from operations and
provide for positive earnings momentum once the combination is completed and the
non-recurring transaction costs
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associated with the combination have been absorbed. Such costs are expected to
be less than $20 million before income taxes, and will be expensed in 1994.
Both K N and AOG managements believe that recurring operating income
benefits that should result from incremental profit margin generating
opportunities and expense reductions should total in a range of at least $15-20
million annually for 1995 and beyond.
These profit margin enhancements and expense reductions are expected to be
realized over time as the consolidation is completed. Because of the increased
competitive nature of the natural gas industry and the inherent uncertainties
involved in combining two companies, there can be no assurance that the combined
company will be able fully to realize the profit margin enhancements and expense
reductions discussed above. Further, there can be no assurance that operating
income resulting from identified profit margin enhancements and expense
reductions will not be offset by other revenue shortfall or expense increases.
FUTURE OPPORTUNITIES AND PROJECTS
Management of K N and AOG expects that, following the Merger, the combined
company will continue to evaluate and pursue capital projects and business
development opportunities previously identified by management of each company.
POST-MERGER DIVIDEND POLICY
It is the intention of the Board of Directors of K N to maintain its
current dividend policy with respect to the K N Common Stock following the
Merger. See "Market Prices of Common Stock and Dividend Information -- Dividend
Information."
TERMS OF THE MERGER
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective at the
effective time (the "Effective Time") set forth in the certified copy of the
Certificate of Merger issued by the Secretary of State of Delaware with respect
to the Merger. It is anticipated that, if the K N Amendments and K N Issuance of
Common Stock are adopted and approved at the K N Special Meeting and the Merger
Agreement is approved and adopted at the AOG Special Meeting and all other
conditions to the Merger have been satisfied or waived, the Effective Time will
occur on the date of the Special Meetings or as soon thereafter as practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, each outstanding share of AOG Common Stock, other
than shares of AOG Common Stock held in the treasury of AOG or owned by K N or
any direct or indirect wholly-owned subsidiary of either K N or AOG, which
shares will be canceled at the Effective Time, will be converted into 0.47 of a
share of K N Common Stock.
As soon as practicable following the Effective Time, K N will cause
Chemical Bank, which will act as Exchange Agent, to mail to each record holder
of AOG Common Stock immediately prior to the Effective Time, a letter of
transmittal and other information advising such holder of the consummation of
the Merger and for use in exchanging AOG Common Stock certificates for K N
Common Stock certificates and cash in lieu of fractional shares. Letters of
transmittal will also be available following the Effective Time at the offices
of the Exchange Agent in New York City. After the Effective Time, there will be
no further registration of transfers on the stock transfer books of AOG of
shares of AOG Common Stock that were outstanding immediately prior to the
Effective Time. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY
STOCKHOLDERS OF AOG PRIOR TO THE EFFECTIVE TIME AND THE RECEIPT OF A LETTER OF
TRANSMITTAL.
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No fractional shares of K N Common Stock will be issued in the Merger. Each
stockholder of AOG entitled to a fractional share will receive an amount in cash
equal to the value of such fractional share based upon the closing sale price of
K N Common Stock on the NYSE composite tape on the last trading day prior to the
Effective Time. No interest will be paid on such amount, and all shares of AOG
Common Stock held by a record holder shall be aggregated for purposes of
computing the number of shares of K N Common Stock to be issued in the Merger.
Until such time as a holder of AOG Common Stock surrenders his outstanding
stock certificate to the Exchange Agent, together with the letter of
transmittal, the shares of AOG Common Stock represented thereby will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of earlier dividends and distributions, to evidence the ownership of the
number of full shares of K N Common Stock into which such shares shall have been
converted. Unless and until such certificates are surrendered, no dividends or
other distributions payable to the holders of K N Common Stock, as of any time
on or after the Effective Time, will be paid to the holders of such
certificates. Upon surrender of the certificates previously representing AOG
Common Stock, the holder thereof will receive one or more certificates
representing the number of shares of K N Common Stock to which he is entitled,
cash in lieu of any fractional share, and the amount of any dividends or other
distributions payable to holders of record of K N Common Stock on or after the
Effective Time with respect to such shares, without interest thereon.
AOG OPTIONS AND WARRANTS
The Merger Agreement provides that K N will take such action as of the
Effective Time as may be necessary to assume each AOG Option and each AOG
Warrant that remains unexercised in whole or in part and to substitute shares of
K N Common Stock as purchasable under such assumed option or warrant, subject to
certain terms and conditions. K N is required to give the holder of such assumed
option or warrant the same benefit rights which the holder had under the AOG
Option or AOG Warrant before such assumption.
The number of shares of K N Common Stock purchasable under any AOG Option
or AOG Warrant assumed by K N will be equal to the number of shares of K N
Common Stock that the holder of the AOG Option or AOG Warrant would have
received upon consummation of the Merger had such AOG Option or AOG Warrant been
exercised immediately prior to the Effective Time, and the per share option
price will be equal to the per share option price of the AOG Option or AOG
Warrant divided by 0.47.
CONDITIONS TO THE MERGER
The respective obligations of K N and AOG to consummate the Merger are
subject to the satisfaction of the following mutual conditions: (a) that the K N
Amendments and the K N Issuance of Common Stock have been approved and adopted
by the requisite vote of the stockholders of K N and that the Merger Agreement
has been approved and adopted by the requisite vote of the stockholders of AOG,
in each case as may be required by law, the rules of the NYSE and any applicable
provisions of their respective charters or bylaws; (b) that the waiting period
applicable to the consummation of the Merger under the HSR Act has expired or
been terminated; (c) that no order has been entered and remains in effect in any
action or proceeding before any foreign, federal or state court or governmental
agency or other foreign, federal or state regulatory or administrative agency or
commission that would prevent or make illegal the consummation of the Merger;
(d) that the Registration Statement has become effective, and all post-effective
amendments filed have been declared effective or been withdrawn, and no stop
order suspending such effectiveness has been issued and no proceedings for such
purpose been initiated or, to the knowledge of the parties, threatened by the
Commission; (e) that all material permits, approvals and consents of securities
commissions of any jurisdiction, the PUC, the PSC and of any other governmental
body or agency that may be deemed necessary for the Merger and the transactions
contemplated thereby to be in compliance with applicable laws have been
received, the failure to comply with which would have a material adverse effect
on the business, assets, or results of operations or condition (financial or
otherwise) of K N, the Surviving Corporation and their subsidiaries, taken as a
whole following the Merger; (f) the shares of K N Common Stock issuable (i) upon
consummation of the Merger and (ii) thereafter upon exercise of any of the
assumed AOG Options or assumed AOG Warrants, have been approved for listing on
the NYSE; (g) all approvals of private persons or
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corporations, (i) the granting of which are necessary for consummation of the
Merger or the transactions contemplated thereby and (ii) the nonreceipt of which
would have such a material adverse effect on K N, the Surviving Corporation and
their subsidiaries following the Merger, have been obtained; and (h) prior to
the Merger, there has not been (i) any action taken, or any statute, rule,
regulation or order enacted, issued, entered, enforced or deemed applicable to
the Merger or to K N or its significant subsidiaries by any federal or state
governmental entity which in connection with the grant of a requisite regulatory
approval for the Merger and the transactions contemplated in the Merger
Agreement, imposes any condition or restriction upon or applicable to K N or its
significant subsidiaries after the Effective Time or (ii) any other action
taken, or rule, regulation or order issued or entered, by the FERC, the PUC, the
PSC or any municipality or group of municipalities which is applicable to K N or
its significant subsidiaries, which in either case would have such a material
adverse effect on K N, the Surviving Corporation and their subsidiaries after
the Effective Time.
The obligation of K N to consummate the Merger is further subject to the
satisfaction of the following conditions that: (a) the representations and
warranties of AOG set forth in the Merger Agreement are accurate as of the date
on which the transactions contemplated thereby are closed (the "Closing Date"),
and that all terms, covenants and conditions of the Merger Agreement to be
complied with and performed by AOG on or before the Closing Date have been
complied with and performed in all material respects; (b) no material adverse
change in the business, operations or financial condition of AOG and its
subsidiaries, taken as a whole, has occurred since the date of the Merger
Agreement, and AOG and its subsidiaries have not suffered any damage,
destruction or loss (whether or not covered by insurance) materially adversely
affecting AOG and its subsidiaries taken as a whole; (c) K N has been advised in
writing on the Closing Date by Arthur Andersen & Co. that the Merger qualifies
for treatment as a pooling of interests in accordance with generally accepted
accounting principles if consummated in accordance with the Merger Agreement;
(d) the Board of Directors of K N has received from Petrie Parkman a written
opinion, dated as of the date of the Merger Agreement, to the effect that the
Exchange Ratio is fair to the stockholders of K N, and such opinion has been
confirmed in writing to such Board as of the date of this Joint Proxy
Statement/Prospectus and not subsequently withdrawn; (e) AOG received, and
furnished copies to K N of, agreements by each person deemed to be an affiliate
of AOG confirming that such person will not sell, transfer or otherwise dispose
of any shares of K N Common Stock received pursuant to the Merger in violation
of the Securities Act or the rules and regulations promulgated thereunder, and
will comply with the holding period requirement necessary to permit
qualification of the Merger for pooling of interests accounting treatment; (f) K
N has received from Andrews & Kurth L.L.P. and Thomas W. Pounds, General Counsel
of AOG, their opinions as to certain corporate matters relating to AOG; (g) K N
has received from Vinson & Elkins L.L.P. an opinion to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, that K N, Sub and AOG will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code, and that K N, Sub and AOG will not recognize any gain or loss as a
result of the Merger; (h) K N has received a letter from Arthur Andersen & Co.
addressed to K N, in form and substance reasonably satisfactory to K N and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to this Joint Proxy Statement/Prospectus and K N's
Registration Statement of which it forms a part, together with a letter from
such firm updating the comfort letter as of a date within five days prior to the
Closing Date; (i) K N has received an environmental assessment report (the "AOG
Environmental Report") indicating no violations of, or noncompliance with, or
reclamation or remediation obligations under, federal, state or local
environmental laws, rules, regulations, ordinances or orders, in effect as of
the Effective Time, which violations, noncompliance or obligations, in the
aggregate, are reasonably likely to result in the incurrence by AOG or its
significant subsidiaries of a material liability; (j) K N has determined that
the gas processing plants, gas storage facilities, gas gathering and
transmission facilities and other material properties of AOG and the AOG
significant subsidiaries are in good working order and repair (reasonable wear
and tear excepted); and (k) the Amended and Restated Basket Agreement dated as
of June 30, 1990 (the "Cabot Basket Agreement"), between American Pipeline
Company, Cabot Corporation and Cabot Transmission Corporation has been
terminated on terms and conditions reasonably satisfactory to K N.
The obligation of AOG to consummate the Merger is further subject to the
satisfaction of the following conditions that: (a) the representations and
warranties of K N and Sub set forth in the Merger Agreement are
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accurate as of the Closing Date, and that all terms, covenants and conditions of
the Merger Agreement to be complied with and performed by K N or Sub on or
before the Closing Date have been complied with and performed in all material
respects; (b) no material adverse change in the business, operations or
financial condition of K N and its subsidiaries, taken as a whole, has occurred
since the date of the Merger Agreement, and K N and its subsidiaries have not
suffered any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting K N and its subsidiaries taken as a whole; (c)
AOG has been advised in writing on the Closing Date by Arthur Andersen & Co.
that the Merger qualifies for treatment as a pooling of interests in accordance
with generally accepted accounting principles if consummated in accordance with
the Merger Agreement; (d) the Board of Directors of AOG has received from
Goldman Sachs a written opinion, dated as of the date of the Merger Agreement,
to the effect that the Exchange Ratio is fair to the stockholders of AOG, and
such opinion has been confirmed in writing to such Board as of the date of this
Joint Proxy Statement/Prospectus and not subsequently withdrawn; (e) the Board
of Directors of K N has taken all necessary action to elect the four persons
designated by AOG to K N's Board of Directors, to elect certain executive
officers and to establish a Management Committee consisting of certain persons,
in each case effective as of the Effective Time; (f) AOG has received from
Andrews & Kurth L.L.P. an opinion to the effect that the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, that K N, Sub and AOG will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, and the
stockholders of AOG will not recognize any gain or loss as a result of the
Merger, except to the extent they receive cash in lieu of a fractional share of
K N Common Stock; (g) AOG has received from Vinson & Elkins L.L.P. and William
S. Garner, Jr., General Counsel of K N, their opinions as to certain corporate
matters relating to K N; (h) AOG has received a letter from Arthur Andersen &
Co. addressed to AOG, in form and substance reasonably satisfactory to AOG and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to this Joint Proxy Statement/Prospectus and K N's
Registration Statement of which it forms a part, together with a letter from
such firm updating the comfort letter as of a date within five days prior to the
Closing Date; (i) AOG has been advised by Cabot that it has received evidence
satisfactory to it in the form of a "no action" letter from the Commission (the
"Cabot PUHCA Letter") to the effect that, under Section 2(a)(7) of PUHCA, the
Commission would take no action with respect to Cabot upon consummation of the
Merger asserting Cabot to be a public utility holding company with respect to K
N; (j) AOG has received an environmental assessment report (the "K N
Environmental Report") indicating no violations of, or noncompliance with, or
reclamation or remediation obligations under, federal, state or local
environmental laws, rules, regulations, ordinances, or orders, in effect as of
the Effective Time, which violations, noncompliance or obligations, in the
aggregate, are reasonably likely to result in the incurrence by K N or its
significant subsidiaries of a material liability; (k) the By-laws of K N have
been amended by the Board of Directors of K N in the manner set forth in the
Merger Agreement; and (l) the Shelf Registration Statement has become effective.
AOG has agreed that it will not waive any of the foregoing conditions
without the consent of Cabot.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, K N, Sub and AOG have made various representations
and warranties relating to, among other things, their respective capitalization,
businesses and financial condition, the accuracy of their various filings with
the Commission, the satisfaction of certain legal requirements for the Merger
and certain litigation matters. With certain exceptions, the representations and
warranties of each of the parties to the Merger Agreement will expire upon
consummation of the Merger.
CONDUCT OF THE BUSINESS OF K N AND AOG PRIOR TO THE MERGER
Pursuant to the Merger Agreement, both K N and AOG have agreed that, prior
to the Effective Time, and except as otherwise consented to in writing by the
other party, each (a) will, and will cause each of its
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significant subsidiaries to, conduct their respective businesses in the ordinary
course and consistent with past practice; (b) will not directly or indirectly
(i) issue, sell, pledge, dispose of or encumber (A) any capital stock of itself
or any of its significant subsidiaries except upon the exercise of AOG Options
or AOG Warrants outstanding as of the date of the Merger Agreement or, in the
case of K N, pursuant to its Dividend Reinvestment and Cash Investment Plan or
certain stock option or employee benefit plans, or (B) other than in the
ordinary course of business and consistent with past practice and not relating
to the borrowing of money, any of its assets or assets of its significant
subsidiaries; (ii) amend or propose to amend the respective partnership
agreements, charter or bylaws of itself or any of its significant subsidiaries;
(iii) split, combine or reclassify any outstanding capital stock, or declare,
set aside or pay any dividend with respect to its capital stock, except, in the
case of K N, regular quarterly cash dividends on the K N Common Stock and
regular periodic dividends on the K N Preferred Stock, (iv) redeem, purchase or
acquire or offer to acquire, or permit any of its significant subsidiaries to
redeem, purchase or acquire or offer to acquire, any of its or their capital
stock, except, in the case of K N, for acquisitions of K N Preferred Stock to
satisfy sinking fund obligations; (v) grant additional options or awards or
materially alter the terms of the outstanding options or awards pursuant to its
stock incentive plans or materially modify any employee benefit plan; (vi)
except in the ordinary course of business and consistent with past practice,
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing matters; (c) will use its reasonable efforts (i) to
preserve intact its business organization and that of each of its significant
subsidiaries, (ii) to maintain in effect any of its franchises, authorizations
or similar rights and those of its significant subsidiaries, (iii) to keep
available the services of its current officers and key employees, (iv) to
preserve the goodwill of those having business relationships with it and its
significant subsidiaries, (v) to maintain and keep its properties and those of
its subsidiaries in as good a repair and condition as existed on the date of the
Merger Agreement, and (vi) to maintain in effect insurance comparable in amount
and scope of coverage to that maintained by it and its subsidiaries on the date
of the Merger Agreement; (d) will not make or agree to make, or permit any of
its subsidiaries to make or agree to make, any new capital expenditure other
than those made in the ordinary course of business and consistent with past
practice; (e) will not take, will cause its subsidiaries not to take and will
use its reasonable efforts to prevent its affiliates from taking, any action
that would cause the Merger not to be treated (i) in the judgment of Arthur
Andersen & Co. as a pooling of interests for accounting purposes or (ii) as a
reorganization within the meaning of Section 368(a) of the Code; (f) will, and
will cause its subsidiaries to, perform their respective obligations under any
contracts and agreements to which any of them is a party or to which any of
their assets is subject, except to the extent such failure to perform would not
have a material adverse effect on it and its subsidiaries, taken as a whole, and
except for such obligations as may be disputed in good faith; and (g) will not,
and will not permit its subsidiaries to, take any action that would (or
reasonably could be expected to) result in any of the representations and
warranties set forth in the Merger Agreement becoming untrue or any of the
conditions set forth therein not being satisfied, and will promptly advise the
other party orally and in writing of any change or event that might have a
material adverse effect on it and its subsidiaries, taken as a whole.
NO SOLICITATION
The Merger Agreement further provides that neither K N nor AOG will,
directly or indirectly, through any officer, director, employee, representative
or otherwise, solicit, initiate or encourage submission of proposals or offers
from any person or entity (other than each other) relating to a K N Acquisition
Transaction, in the case of K N, and an AOG Acquisition Transaction, in the case
of AOG, or participate in any negotiations regarding, or furnish any other
person with information with respect to it for the purposes of, or otherwise
cooperate with or assist in facilitating or encouraging any effort or attempt by
any other person to seek or effect a K N Acquisition Transaction or AOG
Acquisition Transaction, as the case may be. Notwithstanding the foregoing, K N
or AOG (i) may furnish information concerning its businesses, properties or
assets to a third party, (ii) may engage in discussions or negotiations with a
third party, and (iii) following the receipt of a proposal for a K N Acquisition
Transaction or AOG Acquisition Transaction, as the case may be, its Board of
Directors may withdraw, modify or amend its recommendation to its stockholders
regarding approval of the Merger Agreement and discontinue the solicitation of
proxies in connection therewith and may take and disclose to its stockholders a
position contemplated by Rule 14e-2 under the Exchange Act or
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otherwise make appropriate disclosures to its stockholders, but, in each case
set forth in clauses (i) through (iii), only to the extent its Board of
Directors concludes in good faith, after receipt of advice from its outside
financial advisors and legal counsel, that such action is necessary for the
Board to comply with its fiduciary obligations under applicable law. In each
such case, K N or AOG, as the case may be, must promptly notify the other party
of any such proposal or offer or any inquiry or contact with any person with
respect thereto.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Once the Merger is consummated, Sub will cease to exist as a corporation,
and AOG as the Surviving Corporation will succeed to all of the assets, rights
and obligations of Sub.
Pursuant to the Merger Agreement, the AOG Charter and the By-laws of AOG,
as in effect immediately prior to the Effective Time, will be the certificate of
incorporation and bylaws of the Surviving Corporation until amended as provided
therein and under the Delaware General Corporation Law ("DGCL"); provided,
however, the AOG Charter will be amended to reduce its authorized capital stock
to 1,000 shares of common stock, $1.00 par value per share, and to eliminate
Article IX, which requires a two-thirds stockholder vote to approve certain
business combinations.
Charles W. Battey, Larry D. Hall, David M. Carmichael and Edward H. Austin,
Jr. will be the initial directors of the Surviving Corporation, and the officers
of AOG immediately prior to the Effective Time will be the initial officers of
the Surviving Corporation, each to hold office until his successor is elected or
appointed and qualified. While K N has no present intention to change the
members of the Surviving Corporation's Board of Directors after the Effective
Time, K N, as the sole stockholder of the Surviving Corporation after the
Merger, may change the Board of Directors of the Surviving Corporation at any
time in its discretion. It is anticipated that Daniel L. Dienstbier, President
and Chief Operating Officer and a director of AOG, will not remain an officer or
director of AOG or become an officer or director of K N if the Merger occurs.
For information concerning operations and management of K N after the
Effective Time, see "Management and Operations After the Merger."
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
AOG: (a) by mutual consent of K N and AOG; (b) by either K N or AOG if the
Merger has not been consummated on or before October 31, 1994 (whether by
failure to satisfy a condition or otherwise); (c) by K N if (i) Petrie Parkman
withdraws its written opinion to the effect that the Exchange Ratio is fair to
the stockholders of K N, (ii) K N has not received the AOG Environmental Report,
(iii) K N determines that certain material properties of AOG and its
subsidiaries are not in good working order and repair, or (iv) the Cabot Basket
Agreement has not been terminated satisfactorily to K N; (d) by AOG if (i)
Goldman Sachs withdraws its written opinion to the effect that the Exchange
Ratio is fair to the stockholders of AOG, (ii) the Cabot PUHCA Letter has not
been received or (iii) AOG has not received the K N Environmental Report; (e) by
K N if an AOG Acquisition Transaction has been proposed and (i) the Board of
Directors of AOG withdraws its recommendation in favor of the adoption and
approval of the Merger Agreement, (ii) the Merger Agreement is not approved and
adopted by the requisite vote of the stockholders of AOG, (iii) Goldman Sachs
withdraws its written opinion as to the fairness of the Exchange Ratio or (iv)
Cabot withdraws its request for the Cabot PUHCA Letter; (f) by AOG if a K N
Acquisition Transaction has been proposed and (i) the Board of Directors of K N
withdraws its recommendation in favor of the adoption and approval of the
issuance by K N of the K N Common Stock contemplated by the Merger Agreement or
the K N Amendments, (ii) any such matter is not approved by the requisite vote
of the stockholders of K N or (iii) Petrie Parkman withdraws its written opinion
as to the fairness of the Exchange Ratio to the stockholders of K N; (g) by
either K N or AOG if a final, nonappealable order restraining, enjoining or
otherwise preventing, ordering the divestiture of substantial assets or awarding
substantial damages in connection with, consummation of the transactions
contemplated by the Merger
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Agreement is entered; (h) by either K N or AOG if any required approval of the
stockholders of K N or stockholders of AOG has not been obtained at the K N
Special Meeting and the AOG Special Meeting, respectively; (i) by either K N or
AOG if there has been a material adverse change in the condition (financial or
other), assets, liabilities, business or operations of the other party and its
subsidiaries, taken as a whole, or there has been a material breach of any
representation or warranty set forth in the Merger Agreement by the other party
that has not been cured within five business days following receipt by such
party of notice of such breach. Whether or not a K N Acquisition Transaction or
an AOG Acquisition Transaction has been proposed, the Boards of Directors of K N
and AOG each have the right to withdraw their recommendation of each proposal
submitted to their respective stockholders set forth herein and to cease efforts
to obtain the approval of such proposals, in the event such Board determines
that it is required to do so in the exercise of its fiduciary duties. The Merger
Agreement may be amended or supplemented by an instrument in writing signed on
behalf of each party thereto, provided that after the Merger Agreement has been
approved and adopted by the stockholders of AOG, the Merger Agreement may be
amended only as permitted by the DGCL.
TERMINATION FEE
If K N terminates the Merger Agreement for the reasons described in clause
(e) of the immediately preceding paragraph, then AOG will be required to pay K N
$7,000,000. If, however, AOG terminates the Merger Agreement for the reasons
described in clause (f) of the immediately preceding paragraph, then K N will be
required to pay AOG $7,000,000. Notwithstanding the foregoing, neither K N nor
AOG is required to pay the termination fee if its Board of Directors and
financial advisor delivering a fairness opinion (and Cabot, in the case of AOG)
continue to support the Merger in all respects, but its stockholders do not
approve the matters presented at the Special Meeting.
EMPLOYEE BENEFIT PLANS
Under the terms of the Merger Agreement, K N has agreed that, from the
Effective Time until January 1, 1995, it will continue separately without
substantive change AOG's employee benefit plans and its benefit policies,
practices and programs, except for any changes required by law or not adverse to
AOG's employees, and provided that the employer matching contributions made to
AOG's 401(K) Retirement and Savings Plan on behalf of a participant will be, as
a percentage of such participant's contributions, at least equal to that made by
AOG to such plan for its 1993 plan year.
In the event an employee of AOG as of the Effective Time is transferred or
reassigned from AOG to a position with K N after the Effective Time and is no
longer covered under one of the benefit plans, practices or programs described
in the preceding paragraph, K N has agreed to afford coverage to such individual
under benefit plans, practices and programs available to other similarly
situated K N employees.
The Merger Agreement provides that, beginning January 1, 1995, K N will
provide to employees who were employed by AOG at the Effective Time, benefit
plans, policies and programs that are no less favorable than those provided to K
N's similarly situated employees.
INDEMNIFICATION
The Merger Agreement provides for the indemnification by K N and the
Surviving Corporation of the officers and directors of AOG and any subsidiary of
AOG against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, the fact that such person is or was an officer or director, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, at or after the Effective Time, as
well as all liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to, the Merger Agreement, the Merger or the
transactions contemplated thereby. The Merger Agreement also obligates K N, for
six years after the Effective Time, to maintain, to the extent commercially
practicable, AOG's current directors' and officers' liability insurance policies
or to substitute equivalent policies.
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<PAGE> 50
NO APPRAISAL RIGHTS
Kansas law does not afford appraisal rights to stockholders of K N who vote
against the issuance and reservation for issuance of shares of K N Common Stock
pursuant to the Merger Agreement. Delaware law does not afford appraisal rights
to stockholders of AOG who object to the Merger and who vote against or abstain
from voting in favor of the Merger Agreement.
PROPOSED K N CHARTER AMENDMENTS
INCREASING MAXIMUM NUMBER OF DIRECTORS
The K N Charter provides for a range of from nine to 14 members of the
Board of Directors (exclusive of any advisory director), divided into three
classes. The Board of Directors of K N, by a unanimous vote (with one director
absent), has proposed, and recommends to the K N stockholders that they consider
and adopt, an amendment to the K N Charter that would increase the maximum
number of directors to 15 as required by the Merger Agreement. As discussed
under "Management and Operations After the Merger -- Board of Directors," the
number of K N directors will be increased to 14 at the Effective Time and the
By-laws of K N will be amended at such time to provide, among other things, that
Cabot will have the right to designate one person to serve as an advisory
director of K N and the Board of Directors of K N will appoint the Cabot
advisory director as a full director, to serve the then remaining term of a
Class II director, in the event Cabot's beneficial ownership of the outstanding
voting stock of K N is reduced below 10% but constitutes at least 5%. The
proposed amendment to the K N Charter is intended to accommodate such By-law
amendments by permitting a fifteenth full director.
INCREASING AUTHORIZED K N COMMON STOCK
In addition, the K N Board of Directors, by a unanimous vote (with one
director absent), has proposed, and recommends to the K N stockholders that they
consider and adopt, an amendment to the K N Charter that would increase the
number of authorized shares of K N Common Stock from 25,000,000 to 50,000,000.
The par value of the K N Common Stock would remain $5.00 per share. The
additional 25,000,000 shares would be a part of the existing class of K N Common
Stock and, if and when issued, would have the same rights and privileges as the
shares of K N Common Stock presently issued and outstanding. See "Description of
K N Capital Stock -- General."
As of December 31, 1993, 15,035,301 shares of K N Common Stock were
outstanding and an additional 2,111,299 shares were reserved for issuance under
K N's stock option, dividend reinvestment, employee stock purchase and employee
benefit plans. At the K N Special Meeting, K N stockholders are being asked to
approve the issuance and reservation for issuance of up to 14,000,000 shares of
K N Common Stock pursuant to the Merger Agreement. K N lacks sufficient
authorized shares to issue 14,000,000 additional shares of K N Common Stock,
even if none of the currently reserved shares were ever issued. Accordingly, the
proposed increase in authorized shares of K N Common Stock is necessary for K N
to effect the Merger.
If all of the approximately 14,000,000 shares of K N Common Stock to be
issued and reserved for issuance pursuant to the Merger Agreement, together with
the currently reserved shares of K N Common Stock, were issued, K N would have
outstanding approximately 31,000,000 shares. K N has no present plan,
understanding or agreement to issue any of the approximately 19,000,000
authorized but unreserved shares of K N Common Stock that would result from
stockholder approval of the proposed amendment. The K N Board of Directors,
however, believes that the proposed increase in the number of authorized shares
of K N Common Stock from 25,000,000 to 50,000,000 is desirable at this time to
permit K N not only to effect the Merger but also thereafter to raise equity
capital and to enhance the flexibility of K N in connection with other possible
future actions such as stock dividends or splits, corporate mergers or
acquisitions or employee benefit plans. In addition, the availability for
issuance of approximately 19,000,000 authorized and unreserved shares would
enable K N to take timely advantage of market conditions and other favorable
opportunities for raising new capital without the delay and expense associated
with holding special meetings of stockholders as would otherwise be required by
law or stock exchange regulations.
43
<PAGE> 51
Although the K N Board of Directors' purpose for proposing an increase in
the number of authorized shares of K N Common Stock is to permit K N to effect
the Merger and also to provide K N with flexibility in raising additional
capital and in meeting other needs of K N as they arise, the ability of the K N
Board of Directors to issue such shares could be considered to have an
anti-takeover effect to the extent that such Board could use such shares to
dilute the percentage ownership or voting power of a person seeking to obtain
control of K N. The K N Board of Directors will be authorized to determine
whether, when and on what terms the issuance of shares of K N Common Stock may
be warranted in connection with any of the foregoing purposes.
The K N Charter and the By-laws of K N contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the K N Board of Directors and in the policies formulated by such
Board and to discourage an unsolicited takeover of K N if such Board determines
that such a takeover is not in the best interests of K N and its stockholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire K N or to remove incumbent management even if some (or even a
majority) of the stockholders of K N deem such an attempt to be in their best
interests. For a specific description of such provisions, see "Description of K
N Capital Stock -- Anti-takeover Matters."
The K N Board of Directors recommends a vote "FOR" the proposals to amend
the K N Charter to increase the maximum number of directors and the number of
authorized shares of K N Common Stock. Stockholder adoption of both amendments
is a condition to the obligations of both K N and AOG to effect the Merger, but,
if such amendments are so adopted, they will be made effective by the filing
with the Secretary of State of Kansas of requisite amendments to the K N
Charter, whether or not the Merger occurs.
COMPARATIVE RIGHTS OF AOG AND K N COMMON STOCKHOLDERS
The following is a summary of material differences between the rights of
holders of K N Common Stock and the rights of holders of AOG Common Stock. Since
the rights provided holders of K N Common Stock pursuant to the Kansas General
Corporation Code ("KGCC") are substantially the same as the rights provided
holders of AOG Common Stock pursuant to the DGCL, differences arise principally
from various provisions of the K N Charter, the AOG Charter and the By-laws of
each of K N and AOG. The proposed K N Charter Amendments are described under
"Proposed K N Charter Amendments" in this Joint Proxy Statement/Prospectus, and
such amendments do not affect the discussion set forth below, except for the
amendment increasing the maximum number of directors of K N from 14 to 15.
NUMBER AND CLASSIFICATION OF BOARD OF DIRECTORS
The K N Charter and K N's By-laws provide for the classification of the
Board of Directors of K N into three classes, with directors serving staggered
three-year terms. The K N Charter also provides that the number of directors
shall be fixed from time to time by the Board of Directors of K N, but may not
consist of less than nine nor more than 14 persons. The foregoing provisions
cannot be altered, amended or repealed without the affirmative vote of the
holders of two-thirds of the outstanding voting securities of K N.
The AOG Charter and AOG's By-laws do not provide for the classification of
the Board of Directors of AOG. AOG's By-laws provide that the number of
directors shall be fixed from time to time by the AOG Board, but may not consist
of less than one nor more than ten persons. Currently, the number of AOG
directors is eight.
REMOVAL OF DIRECTORS
The K N Charter and K N's By-laws provide that, subject to the rights of
the holders of K N Preferred Stock, directors may be removed from office (i) by
the stockholders of K N only for cause, or (ii) by unanimous vote of the Board
of Directors of K N. The K N Charter provides that a director may be removed for
"cause" if the director has been convicted of a felony or has been adjudged to
be liable for negligence or misconduct in his performance of his duty to K N, in
either case, by a court of competent jurisdiction, and such conviction or
finding of negligence or misconduct is no longer subject to direct appeal. The
foregoing
44
<PAGE> 52
provisions cannot be altered, amended or repealed without the affirmative vote
of the holders of two-thirds of the outstanding voting securities of K N.
AOG's By-laws provide that directors may not be removed from office by the
stockholders of AOG except for cause, but do not define the term "cause."
DIRECTOR NOMINATIONS AND SPECIAL MEETINGS
K N's By-laws provide that a special meeting of stockholders may be called
at the request of stockholders owning 51% or more of the outstanding voting
stock of K N, by the Board of Directors, the Chairman of the Board of Directors
or the President of K N. AOG's By-laws provide that a special meeting of
stockholders may be called by the Board of Directors, the Chairman of the Board,
the Executive Committee, the Chairman of the Executive Committee or the
President of AOG.
Pursuant to K N's By-laws, stockholders may nominate candidates for the
Board of Directors by notifying K N of the name of such candidate and by
furnishing other required information at least 40 days prior to the
stockholders' meeting at which such election will be held. AOG's By-laws do not
provide a procedure for director nominations.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
Certain Business Combinations. The K N Charter contains certain provisions
that require that a higher percentage of stockholders approve certain mergers,
business combinations and other similar transactions than would otherwise be
required under the KGCC. Pursuant to the K N Charter, any Business Combination
(as defined below) involving a beneficial owner (an "Interested Person") of more
than 5% of the outstanding securities of K N then entitled to vote at a meeting
of stockholders considered for the purposes thereof as one class (the "Voting
Stock"), must be approved by the affirmative vote of at least two-thirds of all
of the outstanding shares of Voting Stock. The K N Charter also contains fair
price provisions applicable to certain Related Person Business Combinations (as
defined below) involving a beneficial owner (a "Related Person") of 10% or more
of the outstanding voting securities of K N. Such transactions must be approved
by the affirmative vote of 80% of the outstanding voting securities of all
classes of K N entitled to vote in elections of directors. In each case, the
required vote shall be in addition to any class vote or other vote otherwise
required and the Board of Directors of K N has the power and duty to make a
final and binding determination as to whether the special voting provisions of
the K N Charter are applicable with respect to such Business Combination or
Related Person Business Combination, as the case may be.
The special vote requirements in the case of a transaction involving an
Interested Person will not be applicable if the Business Combination satisfies
either of the following two conditions: (1) the Board of Directors has approved
the Business Combination either (A) prior to the time the Interested Person
became an Interested Person, or (B) by a majority of Disinterested Directors (as
defined below), or (2) a majority of the outstanding shares of all classes of
stock then entitled to vote at a meeting of stockholders of the Interested
Person is owned by K N and its subsidiaries. The special vote requirements
applicable to an Interested Person transaction can not be altered, amended or
repealed without the affirmative vote of two-thirds of the outstanding voting
securities of K N.
The special vote requirements in the case of a transaction involving a
Related Person will not be applicable if the Related Person Business Combination
satisfies either of the following two conditions: (1) it has been approved by
three-fourths of the members of the Board of Directors who are not Related
Person Directors (as defined below), or (2) certain minimum price, form or
consideration and procedural requirements are satisfied. The special vote
requirements applicable to a Related Person transaction can not be altered,
amended or repealed without the affirmative vote of 80% or more of the
outstanding voting securities of K N entitled to vote in elections of directors,
unless approved by an affirmative vote of three-fourths of the Board of
Directors then in office who are not themselves Related Person Directors.
A "Business Combination" includes (i) any agreement for the merger or
consolidation of K N with or into an Interested Person, (ii) any sale, lease,
exchange, mortgage, pledge or other disposition of all, or
45
<PAGE> 53
substantially all, or any Substantial Part (defined below) of the assets of K N
or any subsidiary to an Interested Person or (iii) any issuance or transfer by K
N of securities of a Substantial Amount (defined below) in exchange for the
securities or assets of an Interested Person.
A "Disinterested Director" is any member of the Board of Directors of K N
who was a director prior to the time that an Interested Person became an
Interested Person.
A "Related Person Director" is any member of the Board of Directors of K N
who is a Related Person or an affiliate or associate of a Related Person or an
officer, director, employee or agent of a Related Person or of an affiliate or
associate of a Related Person.
A "Related Person Business Combination" includes (i) any agreement for the
merger or consolidation of K N or any of its subsidiaries with or into any
Related person, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of all, or substantially all, or any substantial part of the
assets of K N or its subsidiaries to a Related person, (iii) any issuance or
transfer by K N and its subsidiaries of any Substantial Amount of voting
securities of K N in exchange for the securities or assets of a Related person
or (iv) any recapitalization of K N or any subsidiary, or merger or
consolidation of K N with any subsidiary, which has the effect of increasing the
proportionate interest of a Related Person in the outstanding voting securities
of any class of K N or any subsidiary.
The term "Substantial Part" means any assets having a then fair market
value, in the aggregate, of more than $5,000,000.
The term "Substantial Amount" means (i) with respect to a Business
Combination, any Securities of K N having a fair market value of more than
$5,000,000 and (ii) with respect to a Related Person Business Combination, any
voting securities of K N having a then fair market value of more than
$5,000,000.
The AOG Charter provides that the affirmative vote of the holders of at
least two-thirds of the outstanding shares of AOG entitled to vote thereon is
necessary to approve and adopt (i) any plan or agreement of merger or
consolidation of AOG into or with any other corporation, or (ii) the sale,
lease, exchange or other disposition of all, or substantially all, of the
properties and assets of AOG. If, however, the DGCL provides that any class of
shares of AOG is entitled to vote separately as a class with respect to a
transaction set forth in (i) or (ii) above, then, in addition to the two-thirds
vote set forth above, the affirmative vote of two-thirds of such class will also
be necessary for approval and adoption of such transaction.
46
<PAGE> 54
MARKET PRICES OF COMMON STOCK AND DIVIDEND INFORMATION
MARKET INFORMATION
The K N Common Stock is traded on the NYSE under the symbol "KNE" and the
AOG Common Stock is also traded on the NYSE under the symbol "AOG." The
following table sets forth the range of high and low per share sale prices for K
N Common Stock and AOG Common Stock for the periods indicated, as reported on
the NYSE composite tape, and the cash dividends paid on each share of K N Common
Stock. No cash dividends have been paid during such periods on the AOG Common
Stock.
<TABLE>
<CAPTION>
K N COMMON STOCK AOG COMMON STOCK
----------------------------- -----------------
HIGH LOW DIVIDENDS HIGH LOW
------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C>
1992
First quarter................................. $18.33 $15.17 $0.207 $13.125 $10.75
Second quarter................................ 16.58 13.83 0.207 13.125 10.25
Third quarter................................. 20.00 15.83 0.22 15.875 11.25
Fourth quarter................................ 19.33 17.17 0.22 15.375 11.125
1993
First quarter................................. $24.67 $18.67 $0.22 $13.625 $11.25
Second quarter................................ 24.67 22.17 0.22 14.50 11.75
Third quarter................................. 26.83 23.33 0.24 12.75 10.125
Fourth quarter................................ 30.00 24.75 0.24 12.75 9.25
1994
First quarter................................. $25.50 $22.00 $0.24 $11.50 $ 9.625
Second quarter (through 1994).......
</TABLE>
On March 24, 1994, the last trading day prior to the announcement by K N
and AOG that they had reached an agreement concerning the Merger, the closing
sale prices of K N Common Stock and AOG Common Stock, as reported on the NYSE
composite tape, were $23.375 and $10.50 per share, respectively.
On , 1994, the closing sale prices of K N Common Stock and
AOG Common Stock, as reported on the NYSE composite tape, were $ and
$ per share, respectively.
Following the Merger, K N Common Stock will continue to be traded on the
NYSE. Following the Merger, AOG Common Stock will cease to be traded on the
NYSE, and there will be no further market for such stock.
DIVIDEND INFORMATION
K N has paid cash dividends on the K N Common Stock each year since 1938,
and K N anticipates that it will maintain the current $0.24 per share quarterly
dividend level on the K N Common Stock after the Merger, although future
dividend payments will necessarily depend upon K N's earnings and financial
position, capital requirements and other relevant factors.
AOG has not declared or paid any cash dividends on the AOG Common Stock,
and, if the Merger is not consummated, has no current intention to pay any such
cash dividends.
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<PAGE> 55
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements reflect adjustments to the historical consolidated balance sheets and
statements of income of K N and AOG to give effect to the Merger, using the
pooling of interests accounting method. The unaudited pro forma condensed
consolidated balance sheet at December 31, 1993, assumes the Merger was
consummated as of December 31, 1993 and the unaudited pro forma condensed
consolidated statements of income assume the Merger was consummated as of
January 1, 1991.
The following pro forma condensed consolidated financial statements have
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of KNE and AOG, incorporated
by reference into this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference." The pro forma condensed statements of income
are not necessarily indicative of operating results that would have occurred had
the Merger been consummated as of January 1, 1991, nor are they indicative of
future operating results of the combined companies.
48
<PAGE> 56
K N ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- --------------------------
K N AOG ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents..................... $ 4,760 $ 9,207 $ 13,967
Accounts Receivable........................... 88,491 88,785 177,276
Contract Demand Receivables................... 38,732 -- 38,732
Materials and Supplies, at Average Cost....... 8,603 2,762 11,365
Gas in Underground Storage.................... 5,836 15,017 20,853
Prepaid Gas................................... 11,689 -- 11,689
Exchange Gas and Other........................ 28,707 9,231 37,938
-------- -------- ------------
Total Current Assets............................ 186,818 125,002 311,820
-------- -------- ------------
Property, Plant and Equipment, at Cost:
Gas Services.................................. 842,638 344,127 1,186,765
Oil and Gas Production........................ 34,381 -- 34,381
-------- -------- ------------
877,019 344,127 1,221,146
Less -- Accumulated Depreciation, Depletion and
Amortization.................................. 369,957 52,367 422,324
-------- -------- ------------
507,062 291,760 798,822
-------- -------- ------------
Deferred Charges and Other Assets............... 37,389 1,773 39,162
-------- -------- ------------
$731,269 $418,535 $ 1,149,804
-------- -------- ------------
-------- -------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Preferred Stock and
Long-Term Debt............................. $ 3,500 $ 22,568 $ 26,068
Notes Payable................................. 47,000 -- 47,000
Accounts Payable.............................. 73,713 70,685 144,398
Accrued Taxes................................. 10,299 153 10,452
Exchange Gas and Other........................ 27,447 5,347 32,794
-------- -------- ------------
Total Current Liabilities....................... 161,959 98,753 260,712
-------- -------- ------------
Deferred Liabilities, Credits and Reserves:
Deferred Income Taxes......................... 60,444 29,387 89,831
Deferred Revenues............................. 43,692 -- 43,692
Other......................................... 21,879 257 22,136
-------- -------- ------------
126,015 29,644 155,659
-------- -------- ------------
Long-Term Debt.................................. 231,881 100,232 332,113
-------- -------- ------------
Preferred Stock Subject to Mandatory
Redemption.................................... 2,858 -- 2,858
-------- -------- ------------
Stockholders' Equity:
Preferred Stock............................... 7,000 -- 7,000
-------- -------- ------------
Common Stock(1)............................... 75,177 1,035 59,793 136,005
Additional Paid-in Capital(1)................. 28,907 195,313 (59,793) 164,427
Retained Earnings (Deficit)................... 97,472 (5,285) 92,187
Deferred Compensation......................... -- (1,157) (1,157)
-------- -------- ------------
Total Common Stockholders' Equity............... 201,556 189,906 391,462
-------- -------- ------------
Total Stockholders' Equity...................... 208,556 189,906 398,462
-------- -------- ------------
$731,269 $418,535 $ 1,149,804
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
49
<PAGE> 57
K N ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ---------------------------
K N AOG ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Gas Services.................................. $488,028 $539,345 $ 1,027,373
Oil and Gas Production........................ 5,321 -- 5,321
-------- -------- ------------
Total Operating Revenues........................ 493,349 539,345 1,032,694
-------- -------- ------------
Operating Costs and Expenses:
Gas Purchases................................. 260,520 418,912 679,432
Operations and Maintenance.................... 136,221 78,387 214,608
Depreciation, Depletion and Amortization...... 26,156 17,229 43,385
Taxes, Other Than Income Taxes................ 11,834 3,323 15,157
-------- -------- ------------
Total Operating Costs and Expenses.............. 434,731 517,851 952,582
-------- -------- ------------
Operating Income................................ 58,618 21,494 80,112
-------- -------- ------------
Other Income and (Deductions):
Interest Expense.............................. (21,200) (8,927) (30,127)
Other, Net.................................... 1,236 (1,753) (517)
-------- -------- ------------
Total Other Income and (Deductions)............. (19,964) (10,680) (30,644)
-------- -------- ------------
Income Before Income Taxes...................... 38,654 10,814 49,468
Income Taxes.................................... 14,379 4,220 18,599
-------- -------- ------------
Net Income...................................... 24,275 6,594 30,869
Less -- Preferred Stock Dividends............... 810 43 853
-------- -------- ------------
Net Income Available for Common Stock........... $ 23,465 $ 6,551 $ 30,016
-------- -------- ------------
-------- -------- ------------
Number of Shares Used in Computing Earnings Per (26,619)
Common Share(1)............................... 14,913 26,619 12,511 27,424
-------- -------- ------------
-------- -------- ------------
Earnings Per Common Share....................... $ 1.57 $ 0.25 $ 1.09
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
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<PAGE> 58
K N ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ---------------------------
K N AOG ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Gas Services.................................. $387,109 $430,098 $817,207
Oil and Gas Production........................ 4,710 -- 4,710
-------- -------- ------------
Total Operating Revenues........................ 391,819 430,098 821,917
-------- -------- ------------
Operating Costs and Expenses:
Gas Purchases................................. 208,147 317,419 525,566
Operations and Maintenance.................... 99,010 63,543 162,553
Depreciation, Depletion and Amortization...... 24,187 14,358 38,545
Taxes, Other Than Income Taxes................ 10,105 3,152 13,257
-------- -------- ------------
Total Operating Costs and Expenses.............. 341,449 398,472 739,921
-------- -------- ------------
Operating Income................................ 50,370 31,626 81,996
-------- -------- ------------
Other Income and (Deductions):
Interest Expense.............................. (19,373) (8,372) (27,745)
Other, Net.................................... 399 1,760 2,159
-------- -------- ------------
Total Other Income and (Deductions)............. (18,974) (6,612) (25,586)
-------- -------- ------------
Income Before Income Taxes...................... 31,396 25,014 56,410
Income Taxes.................................... 11,803 8,265 20,068
-------- -------- ------------
Net Income...................................... 19,593 16,749 36,342
Less -- Preferred Stock Dividends............... 989 1,987 2,976
-------- -------- ------------
Net Income Available for Common Stock........... $ 18,604 $ 14,762 $ 33,366
-------- -------- ------------
-------- -------- ------------
Number of Shares Used in Computing Earnings Per (21,803)
Common Share(1)............................... 14,580 21,803 10,248 24,828
-------- -------- ------------
-------- -------- ------------
Earnings Per Common Share....................... $ 1.28 $ 0.68 $ 1.34
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
51
<PAGE> 59
K N ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- --------------------------
K N AOG ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Gas Services.................................. $392,286 $380,717 $773,003
Oil and Gas Production........................ 3,053 -- 3,053
-------- -------- ------------
Total Operating Revenues........................ 395,339 380,717 776,056
-------- -------- ------------
Operating Costs and Expenses:
Gas Purchases................................. 211,391 304,560 515,951
Operations and Maintenance.................... 103,069 32,866 135,935
Depreciation, Depletion and Amortization...... 21,361 10,285 31,646
Taxes, Other Than Income Taxes................ 8,249 2,942 11,191
-------- -------- ------------
Total Operating Costs and Expenses.............. 344,070 350,653 694,723
-------- -------- ------------
Operating Income................................ 51,269 30,064 81,333
-------- -------- ------------
Other Income and (Deductions):
Interest Expense.............................. (17,169) (7,671) (24,840)
Other, Net.................................... 1,182 681 1,863
-------- -------- ------------
Total Other Income and (Deductions)............. (15,987) (6,990) (22,977)
-------- -------- ------------
Income from Continuing Operations
Before Income Taxes........................... 35,282 23,074 58,356
Income Taxes.................................... 13,682 7,600 21,282
-------- -------- ------------
Income from Continuing Operations............... 21,600 15,474 37,074
Less -- Preferred Stock Dividends............... 1,382 3,426 4,808
-------- -------- ------------
Income from Continuing Operations Available for
Common Stock.................................. $ 20,218 $ 12,048 $ 32,266
-------- -------- ------------
-------- -------- ------------
Number of Shares Used in Computing Primary (16,725)
Earnings Per Common Share(1).................. 14,459 16,725 7,861 22,320
-------- -------- ------------
-------- -------- ------------
Earnings Per Common Share from Continuing
Operations:
Primary....................................... $ 1.40 $ 0.72 $ 1.45
-------- -------- ------------
-------- -------- ------------
Fully Diluted................................. $ 0.70
--------
--------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
52
<PAGE> 60
K N ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) The unaudited pro forma condensed consolidated balance sheet reflects the
conversion of each outstanding share of AOG Common Stock as of December 31,
1993 into 0.47 of a share of K N Common Stock. This conversion results in a
reallocation of $59,793,000 between common stock and additional paid-in
capital. The unaudited pro forma statements of income reflect the
conversion of the historical AOG number of shares used in computing
earnings per share into K N Common Stock and common stock equivalents using
the Exchange Ratio of 0.47. See "The Merger -- General Description of the
Merger."
(2) Certain reclassifications have been made to the historical consolidated
financial statements of AOG to conform with K N's presentation. There were
no material intercompany transactions between K N and AOG requiring
elimination.
(3) The pro forma unaudited condensed consolidated financial statements do not
include estimated merger expenses, which are not expected to exceed $20
million. These expenses, which primarily consist of financial advisory
fees, outside legal, accounting and environmental professional fees and
one-time costs of consolidating certain operational and administrative
functions of the companies, will be expensed in 1994. The pro forma
statements also do not include any cost savings expected to occur as a
result of the Merger (see "Management and Operations After the
Merger -- Benefits of the Merger").
53
<PAGE> 61
PRINCIPAL STOCKHOLDERS OF K N AND AOG
K N
Common Stock. According to information supplied to K N by the beneficial
owners listed below and, where applicable, the books and records of K N, the
following entities each owned beneficially more than 5% of the outstanding
shares of the K N Common Stock on the dates indicated in parentheses below. No
other person is known by K N to be the beneficial owner of more than 5% of the K
N Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
BENEFICIAL OWNER AND DATE AMOUNT AND NATURE OF PERCENT TOTAL VOTING
INFORMATION PROVIDED BENEFICIAL OWNERSHIP OF CLASS POWER
- ---------------------------------------------------- -------------------- -------- ------------
<S> <C> <C> <C>
Employees Retirement Fund Trust Profit Sharing Plan
of K N Energy, Inc................................ 1,371,294(1) 9.05% 8.99%
P.O. Box 281304
Lakewood, CO 80228 (2/1/94)
Invesco Funds Group, Inc. .......................... 1,226,500(2) 8.09% 8.04%
7800 E. Union Avenue
Suite 800
Denver, CO 80234 (12/31/93)
Prudential Insurance Company of America............. 1,192,450(3) 7.87% 7.81%
Prudential Plaza
Newark, NJ 07102 (12/31/93)
State Farm Mutual Automobile Insurance Company...... 988,965(2) 6.52% 6.48%
One State Farm Plaza
Bloomington, IL 61701 (12/31/93)
</TABLE>
- ---------------
(1) The trustees of the Employees Retirement Fund Trust Profit Sharing Plan have
sole investment power over such shares and have sole voting power as to
shares of K N Common Stock allocated to participants' accounts as to which
such participants do not exercise their power to vote, but are required to
vote them in the same proportion as those voted by participants.
(2) The owner listed above states that it has sole investment and voting power
over its shares and that the shares were acquired solely for investment
purposes.
(3) The owner listed above states that it has shared investment and voting power
over all of the shares and that the shares were acquired solely for
investment purposes.
Preferred Stock. No person is known by K N to be the beneficial owner of
5% or more of the 75,000 outstanding shares of Class A Preferred Stock.
54
<PAGE> 62
According to the records of K N, the following insurance companies each
owned beneficially on December 31, 1993, more than 5% of the 28,576 outstanding
shares of Class B Preferred Stock. No other person is known by K N to be the
beneficial owner of more than 5% of the Class B Preferred Stock.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT TOTAL
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS VOTING POWER
- --------------------------------------------------------- ------------- -------- ------------
<S> <C> <C> <C>
Allstate Insurance Co.................................... 21,436 75.01% *
Allstate Plaza
Northbrook, IL 60061
Century Life of America.................................. 1,904 6.67% *
Heritage Way
Waverly, VA 50677
Volunteer State Life Insurance Co........................ 5,236 18.32% *
P.O. Box 1615
Warren, NJ 07061-1615
</TABLE>
- ---------------
(1) The owners of the shares set forth above have, to the knowledge of K N, sole
voting and sole investment power over those shares.
(2) Less than 1.0%.
AOG
No person (or "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) is known to AOG to have beneficially owned on
March 24, 1994, more than 5% of the Common Stock entitled to vote at any meeting
of stockholders of AOG other than as indicated in the following table:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OF CLASS
- ------------------------------------------------------------------ ------------- --------
<S> <C> <C>
Cabot Corporation
75 State Street
Boston, Massachusetts 02109-1806................................ 10,298,270(1) 37.8%(2)
The Prudential Insurance Company of America ("Prudential")
751 Broad Street
Newark, New Jersey 07102-3777................................... 2,114,500(3) 7.8%(4)
</TABLE>
- ---------------
(1) Comprised of (i) 8,931,818 shares of AOG Common Stock owned of record by
Cabot, which represents approximately 34.5% of the outstanding shares of
AOG Common Stock and (ii) 1,366,452 shares of AOG Common Stock issuable
upon the exercise of warrants held by Cabot.
(2) Assumes (i) exercise of all warrants to acquire additional shares of AOG
Common Stock held by Cabot and (ii) no exercise of warrants to acquire
additional shares of AOG Common Stock held by any other person.
(3) Comprised of (i) 954,500 shares of AOG Common Stock owned by Prudential,
which represents approximately 3.7% of the outstanding shares of AOG Common
Stock, as reported as beneficially owned on Schedule 13G, and (ii)
1,160,000 shares of AOG Common Stock issuable upon the exercise of warrants
held by Prudential.
(4) Assumes (i) exercise of all warrants to acquire additional shares of AOG
Common Stock held by Prudential and (ii) no exercise of warrants to acquire
additional shares of AOG Common Stock held by any other person.
55
<PAGE> 63
DESCRIPTION OF K N CAPITAL STOCK
The following statements are brief summaries of certain provisions relating
to the K N Common Stock and the K N Preferred Stock and are qualified in their
entirety by the provisions of the K N Charter and By-laws and the Certificates
of Designation for the Class A $8.50 Cumulative Preferred Stock and the Class B
$8.30 Series Cumulative Preferred Stock, which are included as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
GENERAL
K N is currently authorized by the K N Charter to issue 25,000,000 shares
of Common Stock, of which were outstanding on the Record Date; 200,000
shares of Class A Preferred Stock, no par value ("Class A Preferred Stock"), of
which 5,000 shares were outstanding as Class A $8.50 Cumulative Preferred Stock
on such date, and 70,000 shares were outstanding as Class A $5.00 Cumulative
Preferred Stock on such date; and 2,000,000 shares of Class B Preferred Stock,
no par value ("Class B Preferred Stock"), of which 28,576 shares were
outstanding as Class B $8.30 Series Cumulative Preferred Stock on such date.
The Board of Directors of K N is authorized by the K N Charter to provide,
without further stockholder action, for the issuance of one or more series of
Class A Preferred Stock and Class B Preferred Stock. The Board of Directors has
the power to fix various terms with respect to each such series, including
voting power, designations, preferences, dividend rates, conversion and exchange
provisions, redemption provisions and the amounts which holders are entitle to
receive upon any liquidation, dissolution or winding up of K N. Class A
Preferred Stock and Class B Preferred Stock will rank prior to the K N Common
Stock with respect to both dividends and distribution of assets on liquidation,
dissolution or winding up of K N.
The Class A $8.50 Cumulative Preferred Stock is subject to mandatory
redemption through a sinking fund (at $100 per share, plus accrued and unpaid
dividends of $500,000 in 1994). At the option of K N, the Class A $8.50
Cumulative Preferred Stock is redeemable, in whole or in part, at any time or
from time to time, at $100.85 per share on or prior to December 31, 1994; and
such redemption price reduces ratably annually thereafter until January 1, 1996,
when it becomes $100 per share. Upon liquidation, dissolution or winding up of K
N, the holders of the Class A $8.50 Cumulative Preferred Stock are entitled to
receive $100 plus accrued and unpaid dividends for each such share then
outstanding. Holders of shares of Class A $8.50 Cumulative Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of K N,
cumulative preferential cash dividends at the annual rate of $8.50 per share
prior to the payment of any dividends or other distributions on (or purchase or
redemption of) K N Common Stock.
The Class B $8.30 Series Cumulative Preferred Stock is subject to mandatory
redemption (at $100 per share, plus accrued and unpaid dividends) of $571,000
annually from 1995 through 1998 and $572,000 in 1999. At the option of K N, this
series of K N Preferred Stock is redeemable, in whole or in part, at $101.74 per
share, plus accrued and unpaid dividends, prior to January 2, 1995; such
redemption price reduces ratably annually thereafter until January 2, 1998, when
it becomes $100 per share. In addition, K N may, at its option, redeem 5,714
shares of such series (or less, if less than 5,714 shares are outstanding) on
January 1 in each of the years 1994 through 1998, inclusive, at $100 per share
plus accrued and unpaid dividends. Upon liquidation, dissolution or winding up
of K N, the holders of such series are entitled to receive (subject to the prior
rights of the holders of shares of Class A Preferred Stock) $100 plus accrued
and unpaid dividends for each such share then outstanding. Holders of shares of
Class B $8.30 Series Cumulative Preferred Stock are entitled to receive, when
and as declared by the Board of Directors of K N, cumulative preferential cash
dividends at the annual rate of $8.30 per share prior to the payment of any
dividends or other distributions on (or purchase or redemption of) K N Common
Stock. Dividends may not be declared or paid or set apart for payment on any
series of Class B Preferred Stock, unless there shall be no arrearages in
dividends on any series of Class A Preferred Stock entitled to cumulative
dividends for any past dividend period and dividends in full for the current
dividend period have been paid or declared or set aside for payment on all Class
A Preferred Stock.
The Class A $5.00 Cumulative Preferred Stock is redeemable, in whole or in
part, at the option of K N at any time, or from time to time, at $105 per share
plus accrued and unpaid dividends. This series has no sinking fund requirements.
Upon liquidation, dissolution or winding up of K N, the holders of such stock
are entitled
56
<PAGE> 64
to receive $100 plus accrued and unpaid dividends for each such share then
outstanding. Holders of shares of Class A $5.00 Cumulative Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of K N,
cumulative preferential cash dividends at the annual rate of $5.00 per share
prior to the payment of any dividends or other distributions on (or purchase or
redemption of) Common Stock.
In addition, the holders of the Class A Preferred Stock then outstanding
have the right to vote separately as a class with respect to (i) certain
amendments to the K N Charter or the By-laws of K N which adversely affect the
voting powers, rights or preferences of the holders of shares of Class A
Preferred Stock, (ii) the creation of any class of stock or any security
convertible into or exchangeable for or evidencing the right to purchase any
stock ranking prior to or on a parity with, either as to dividends or upon
liquidation, the Class A Preferred Stock, or (iii) certain mergers or
consolidations of K N with or into any other corporation. For such actions to be
taken by K N, including increasing the authorized amount of any class of stock
ranking prior to the Class A Preferred Stock, the affirmative vote of the
holders of at least 50% of the shares of the Class A Preferred Stock then
outstanding would be required. The affirmative vote of at least 50% of the
shares of any series of Class A Preferred Stock then outstanding is required for
K N to amend the K N Charter or resolutions of the Board of Directors of K N
providing for the issue of such series of Class A Preferred Stock so as to
affect adversely the powers, preferences or rights of holders of Class A
Preferred Stock of such series. The holders of Class B Preferred Stock then
outstanding also have the right to a separate vote regarding (a) the events
described in the first sentence of this paragraph with regard to such Class B
Preferred Stock, requiring the affirmative vote of 50% of the shares of Class B
Preferred Stock then outstanding, and (b) amendments to the K N Charter, or to
resolutions of K N's Board of Directors providing for the issue of any series of
Class B Preferred Stock so as to affect adversely the powers, preferences or
rights of the holders of such series, requiring the affirmative vote of 50% of
the shares of such series then outstanding.
Additionally, the Class A $8.50 Cumulative Preferred Stock is entitled to
approve by vote or consent of the holders of a majority of the shares of such
series at the time outstanding, voting or consenting separately as a class, the
issuance or sale by K N of any shares of preferred stock (other than shares
issued in connection with the redemption of, or in exchange for, shares of
preferred stock then outstanding), unless a certain ratio of net earnings to
fixed charges is met. Also, without the affirmative vote or consent of the
holders of all the shares of Class A $8.50 Cumulative Preferred Stock at the
time outstanding, voting or consenting separately as a class, K N is not
permitted to increase above 125,000 the aggregate number of shares constituting
the Class A $8.50 Cumulative Preferred Stock authorized for issuance, nor is K N
permitted to issue or reissue any shares of such series (other than for the
purposes of exchanges or transfers) in excess of the first 125,000 shares
authorized and issued.
Without the affirmative vote or consent of the holders of the Class B $8.30
Series Cumulative Preferred Stock at the time outstanding, voting or consenting
separately as a series, K N is not permitted to (i) issue or reissue any shares
of Class A Preferred Stock (other than for purposes of exchanges or transfers)
in excess of the first 195,000 shares of Class A Preferred Stock authorized and
issued, or (ii) increase above 120,000 the aggregate number of shares
constituting the Class B $8. 30 Series Cumulative Preferred Stock authorized for
issuance, or issue or reissue any shares of such series (other than for purposes
of exchanges or transfers) in excess of the first 120,000 shares authorized and
issued.
If dividends are in arrears on the shares of any series of Class A
Preferred Stock to which the following provisions are made applicable pursuant
to the K N Charter or resolutions of K N's Board of Directors providing for the
issue of any such series (i) in an aggregate amount equal to three but less than
six full quarterly dividends, then the holders of the shares of all such series
of Class A Preferred Stock have the exclusive right, voting separately as a
class and without regard to series, to elect directors constituting one-third of
K N's Board of Directors or (ii) in an aggregate amount equal to six full
quarterly dividends, then such holders have the exclusive right, voting
separately as a class and without regard to series, to elect directors
constituting one-half of K N's Board of Directors plus one additional director,
in each case until all arrearages in dividends and dividends in full for the
current quarterly period have been paid on or declared and set aside for payment
on the shares of such series. These provisions are applicable to the Class A
$8.50 Cumulative Preferred Stock and the Class A $5.00 Cumulative Preferred
Stock. The holders of the outstanding Class B $8.30 Series Cumulative Preferred
Stock have the right to elect directors of K N similar
57
<PAGE> 65
to the Class A $8.50 Cumulative Preferred Stock and the Class A $5.00 Cumulative
Preferred Stock in the event of non-declaration of dividends, for the periods
described above, on the Class B $8.30 Series Cumulative Preferred Stock if the
holders of the Class A $8.50 Cumulative Preferred Stock or the Class A $5.00
Cumulative Preferred Stock are not then entitled to elect directors as described
above.
All outstanding shares of K N Common Stock are, and shares of K N Common
Stock issued pursuant to the Merger Agreement will be, validly issued, fully
paid and nonassessable. Holders of K N Common Stock, Class A $5.00 Cumulative
Preferred Stock, Class A $8.50 Cumulative Preferred Stock and Class B $8.30
Series Cumulative Preferred Stock are entitled to one vote for each share on all
matters voted on by stockholders. Holders of K N Common Stock, Class A Preferred
Stock and Class B Preferred Stock have no preemptive rights to subscribe for or
purchase any additional securities issued by K N. Subject to the preferential
rights of the holders of the Class A Preferred Stock and Class B Preferred
Stock, the holders of K N Common Stock are entitled to receive any dividends
which may be declared by the Board of Directors out of funds legally available
therefor and to share pro rata in the net assets of K N upon liquidation. Shares
of K N Common Stock have no cumulative voting rights or redemption, sinking fund
or conversion privileges.
CERTAIN PROVISIONS OF THE K N CHARTER AND BY-LAWS
Certain provisions of the K N Charter and the By-laws of K N could have the
effect of preventing a change in control of K N in certain situations. These
provisions generally provide for (a) the classification of the Board of
Directors of K N into three classes of as nearly an equal number as possible,
having staggered terms of three years each; (b) the removal of directors only
for cause or by unanimous vote of the remaining members of the Board of
Directors; (c) the filling of any vacancy on the Board of Directors by the
remaining directors then in office; (d) the limitation of the number of
directors to a minimum of nine and a maximum of 14, with the exact number to be
determined by the Board of Directors; (e) increasing the stockholder vote
required to amend, repeal or adopt any provision in a manner inconsistent with
the foregoing provisions under (a), (b) and (d) above to two-thirds of the
outstanding voting securities of K N; (f) the requirement that certain business
combinations or transactions involving K N and any beneficial owner of more than
5% of the outstanding voting securities of K N be approved by holders of at
least two-thirds of the outstanding voting securities of K N, including those
held by such beneficial owner, unless the business combination or transaction is
(I) approved by the Board of Directors before such beneficial owner became a
holder of more than 5% of K N's outstanding voting securities or (II) approved
by sufficient members of the Board of Directors to constitute a majority of the
members of the full Board of Directors in office prior to the time such
beneficial owner became a holder of more than 5% of K N's voting securities, or
(III) with an entity of which a majority of the outstanding shares of voting
securities is owned by K N and its subsidiaries; (g) increasing the stockholder
vote required to amend, repeal or adopt any provision in a manner inconsistent
with the foregoing provision under (f) above to two-thirds or more of the then
outstanding shares of voting securities of K N; (h) the requirement that certain
business combinations or transactions involving K N and any beneficial owner of
10% or more of the outstanding voting securities of K N be approved by holders
of at least 80% of the outstanding voting securities of K N, including those
held by such beneficial owner, unless (I) the business combination or
transaction is approved by three-fourths of the Board of Directors then in
office who are not associated with or related to anyone who beneficially owns,
and do not themselves own, 10 percent or more of K N's voting securities or (II)
certain conditions relating generally to the fairness of the price to be
received by stockholders of K N in such business combination or transaction are
satisfied; (i) increasing the stockholder vote required to amend, repeal or
adopt any provision in a manner inconsistent with the foregoing provision under
(h) above to 80% or more of the outstanding voting securities of K N unless
approved by an affirmative vote of three-fourths of the Board of Directors then
in office who are not associated with or related to anyone who beneficially
owns, and do not themselves own, 10% or more of K N's voting securities; (j)
certain procedural requirements for stockholder nominations to the Board of
Directors; and (k) the requirement that special meetings of stockholders may
only be called by stockholders owning 51% or more of the outstanding voting
securities of K N, by the Board of Directors, the Chairman of the Board of
Directors or the President of K N.
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<PAGE> 66
KANSAS BUSINESS COMBINATION ACT
K N is subject to Sections 17-12,100 et seq. of the Kansas Statutes
Annotated (the "K.S.A."), which imposes a three-year moratorium on business
combinations between a Kansas corporation and an "interested stockholder" (in
general, a stockholder owning 15% or more of a corporation's outstanding voting
stock) or an affiliate or associate thereof unless (a) prior to an interested
stockholder becoming such, the Board of directors of the corporation has
approved either the business combination or the transaction by which the
interested stockholder became such; (b) upon consummation of the transaction
resulting in an interested stockholder becoming such, the interested stockholder
owns 85% of the voting stock that was outstanding at the time the transaction
commenced (excluding, from the calculation of outstanding shares, shares
beneficially owned by management, directors and certain employees stock plans);
or (c) on or after the date an interested stockholder becomes such, the business
combination is approved by (i) the Board of Directors and (ii) the affirmative
vote of the holders of at least 66 2/3% of the outstanding shares (other than
those shares beneficially owned by the interested stockholder) at a meeting of
stockholders.
KANSAS CONTROL SHARE ACQUISITIONS ACT
K N is also subject to Sections 17-1286 et seq. of the K.S.A. (the "Kansas
Control Share Acquisitions Act"), which applies to public corporations
incorporated in Kansas that have certain other connections with the state. The
Kansas Control Share Acquisitions Act relates principally to the acquisition of
"control shares" in such a corporation. Under the Kansas Control Share
Acquisitions Act, a control share acquisition is one that, except for the
operation of the Act, would raise the acquiring person's voting power in the
election of directors of the subject corporation to or above any of three
thresholds: one-fifth or more but less than one-third of all voting power;
one-third or more but less than a majority of all voting power; and at least a
majority of all voting power. Whenever a control share acquisition occurs, the
acquiring person has no voting rights with respect to those shares unless both a
majority of all outstanding shares and a majority of all such shares excluding
all "interested shares" (in general, shares beneficially controlled by the
acquiring person or any officer or inside director of the subject corporation)
approve the acquisition. If the control shares are accorded voting rights, then
dissenters' rights are available under the Kansas Control Share Acquisitions Act
to stockholders who did not vote in favor of the control share acquisition and
who comply with certain prescribed procedures. If the stockholders vote not to
accord voting rights to the control shares, however, then the issuing
corporation has a 60-day option to redeem all such shares at market value.
OTHER MATTERS
K N serves with Chemical Bank as co-registrar and co-transfer agent for the
K N Common Stock, and K N acts as registrar and transfer agent for its Class A
$5.00 Cumulative Preferred Stock, Class A $8.50 Cumulative Preferred Stock, and
Class B $8.30 Series Cumulative Preferred Stock.
DESCRIPTION OF AOG CAPITAL STOCK
AOG is authorized to issue up to 50,000,000 shares of AOG Common Stock, par
value $.04 per share, and up to 5,000,000 shares of Preferred Stock ("AOG
Preferred Stock"), par value $10.00 per share. As of the date of this Joint
Proxy Statement/Prospectus, there were 25,969,395 shares of AOG Common Stock
outstanding and no shares of AOG Preferred Stock outstanding.
AOG COMMON STOCK
The holders of AOG Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders except as
otherwise provided by law. There are no cumulative voting rights with respect to
the election of directors. Common stockholders of AOG are entitled to receive
ratably such dividends as may be declared by the Board of Directors of AOG out
of legally available funds. In the event of dissolution of AOG, the common
stockholders will be entitled to share ratably in all assets remaining after
payment of liabilities and amounts owed in respect of any outstanding shares of
AOG Preferred Stock with preferential liquidation rights. Common stockholders of
AOG have no preemptive rights and have no right to
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<PAGE> 67
convert AOG Common Stock into any other securities. All of the outstanding
shares of AOG Common Stock are fully paid and nonassessable.
See "Terms of the Merger -- AOG Options and Warrants" for information in
respect to outstanding options and warrants to purchase AOG Common Stock and
their treatment under the Merger Agreement.
AOG PREFERRED STOCK
The Board of Directors of AOG has the authority to issue AOG Preferred
Stock in one or more series, and to fix the number of shares and the
designations and the powers, preferences and rights and the qualifications,
limitations or restrictions of such series. The AOG Board of Directors may issue
AOG Preferred Stock without stockholder approval with voting and conversion
rights that could adversely affect the voting power of the stockholders and have
the effect of delaying, deferring or preventing a change in control of AOG.
REGISTRATION RIGHTS
AOG has entered into registration rights agreements with certain holders of
the AOG Common Stock and AOG Warrants granting each of them the right, subject
to minimum offering requirements and certain other limitations, to require AOG
to register any or all of their AOG Common Stock, or the AOG Common Stock
issuable upon exercise of their warrants, at the expense of AOG. In addition,
the holders of such registration rights have the right to have any or all such
AOG common Stock included, at AOG's expense, in any registration statement
relating to the AOG Common Stock filed by AOG, subject to the right of the
underwriter of that offering to limit the number of shares of AOG Common Stock
to be included in that registration statement. Pursuant to the Merger Agreement,
K N will assume the obligations with respect to AOG Warrants assumed by K N and
will grant certain registration rights to AOG affiliates. See "The
Merger -- Restrictions on Resales by Affiliates."
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND DELAWARE LAW
The AOG Charter contains certain provisions that may have an affect of
delaying, deferring or preventing a change of control of AOG. Specifically, the
AOG Charter provides that the approval of any plan or agreement of merger or
consolidation, or any sale or other disposition of substantially all of AOG's
assets, requires the affirmative vote of the holders of at least two-thirds of
AOG's capital stock entitled to vote thereon (unless any class of capital stock
is entitled to vote as a class, in which case the affirmative vote of the
holders of at least two-thirds of the shares of capital stock in such class and
the holders of at least two-thirds of all other shares of capital stock entitled
to vote shall be required). This increases the percentage that would otherwise
be required under Delaware law to approve such a transaction, and thus may make
it more difficult to effect a takeover of AOG.
AOG is subject to Section 203 of the Delaware General Corporation Law,
which provides for restrictions on business combinations (as defined therein)
with interested persons (any person who acquires 15 percent or more of AOG's
outstanding voting stock). In general, AOG is prohibited from engaging in
business combinations with an interested person for a period of three years from
the date a person becomes an interested person, subject to certain exceptions.
By restricting the ability of AOG to engage in business combinations with an
interested person, the application of Section 203 to the Company may provide a
barrier to hostile or unwanted takeovers. Cabot became an interested person
under Section 203 upon its acquisition of shares of AOG's capital stock in
November 1989 as consideration for AOG's purchase of the Westar system and other
assets, but because the Board approved the transaction whereby Cabot acquired
such capital stock and, in any event, three years have elapsed since the date of
such acquisition, Cabot is not prohibited from engaging in a business
combination with AOG under Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the AOG Common Stock is The Bank of
New York.
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<PAGE> 68
RELATIONSHIPS WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co. has acted as independent public accountants for K N
continuously since 1940, and such firm also acts as independent public
accountants for AOG. It is expected that representatives of Arthur Andersen &
Co. will be present at the K N Special Meeting and the AOG Special Meeting, to
respond to appropriate questions of stockholders and to make a statement if they
so desire.
LEGAL MATTERS
The legality of the K N Common Stock offered hereby will be passed upon for
K N by William S. Garner, Jr., Vice President and General Counsel of K N, who
will rely on the opinion of the Law Offices of Glaves, Irby and Rhoads, 600 One
Twenty Building, Wichita, Kansas, 67202, as to matters of Kansas law. Certain
tax consequences of the Merger will be passed upon for K N by Vinson & Elkins
L.L.P., 1001 Fannin, Houston, Texas 77002, and for AOG by Andrews & Kurth
L.L.P., 4200 Texas Commerce Tower, Houston, Texas 77002.
EXPERTS
The consolidated financial statements and schedules, included in K N's and
AOG's Annual Reports on Form 10-K for the year ended December 31, 1993, which
are incorporated by reference herein, have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in giving said reports. Reference is made to K N's report, which
calls attention to certain changes in accounting principles during the periods
reported thereon.
STOCKHOLDERS' PROPOSALS
Any proposals of holders of K N Voting Stock intended to be presented at
the Annual Meeting of Stockholders of K N to be held in 1995 must be received by
K N, addressed to the Secretary at P. O. Box 281304, Lakewood, Colorado
80228-8304, no later than October 27, 1994, to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, any proposals of stockholders of AOG
intended to be presented at the Annual Meeting of Stockholders of AOG to be held
in 1995 must be received by AOG, addressed to the Secretary at 333 Clay Street,
Suite 2000, Houston, Texas 77002, no later than December 9, 1994, to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
61
<PAGE> 69
APPENDIX A
AGREEMENT OF MERGER
AMONG
K N ENERGY, INC.
KNE ACQUISITION CORPORATION
AND
AMERICAN OIL AND GAS CORPORATION
MARCH 24, 1994
<PAGE> 70
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C> <C> <C>
1.1 The Merger...................................................................... A-1
1.2 Closing Date.................................................................... A-1
1.3 Consummation of the Merger...................................................... A-1
1.4 Effect of the Merger............................................................ A-1
1.5 Certificate of Incorporation; Bylaws............................................ A-1
1.6 Directors and Officers.......................................................... A-2
1.7 Conversion of Securities; Exchange; Fractional Shares........................... A-2
1.8 No Dissenters' Rights........................................................... A-3
1.9 Taking of Necessary Action; Further Action...................................... A-3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of KNE and Sub................................... A-3
(a) Organization and Compliance with Law...................................... A-3
(b) Capitalization............................................................ A-4
(c) Authorization and Validity of Agreement................................... A-5
(d) No Approvals or Notices Required; No Conflict with Instruments to which
KNE or any of its Significant Subsidiaries is a Party................... A-5
(e) Commission Filings; Financial Statements; Information Supplied............ A-6
(f) Conduct of Business in the Ordinary Course; Absence of Certain Changes and
Events.................................................................. A-7
(g) Certain Fees.............................................................. A-7
(h) Litigation................................................................ A-7
(i) Employee Benefit Plans.................................................... A-7
(j) Taxes..................................................................... A-8
(k) Environmental............................................................. A-9
(l) Certain Agreements........................................................ A-9
(m) Voting Requirements....................................................... A-10
(n) Insurance................................................................. A-10
(o) Title to Property......................................................... A-10
(p) Interim Operations of Sub................................................. A-10
(q) Utility Status............................................................ A-10
(r) Ownership of AOG Common Stock............................................. A-10
(s) Labor Agreements.......................................................... A-10
2.2 Representations and Warranties of AOG........................................... A-10
(a) Organization and Compliance with Law...................................... A-10
(b) Capitalization............................................................ A-11
(c) Authorization and Validity of Agreement................................... A-12
(d) No Approvals or Notices Required; No Conflict with Instruments to which
AOG or any of its Significant Subsidiaries is a Party................... A-12
(e) Commission Filings; Financial Statements; Information Supplied............ A-12
(f) Conduct of Business in the Ordinary Course; Absence of Certain Changes and
Events.................................................................. A-13
(g) Certain Fees.............................................................. A-13
(h) Litigation................................................................ A-13
(i) Employee Benefit Plans.................................................... A-14
</TABLE>
<PAGE> 71
<TABLE>
<S> <C> <C> <C>
(j) Taxes..................................................................... A-14
(k) Environmental............................................................. A-15
(l) Certain Agreements........................................................ A-15
(m) Voting Requirements....................................................... A-16
(n) Insurance................................................................. A-16
(o) Title to Property......................................................... A-16
(p) Utility Status............................................................ A-16
(q) Ownership of KNE Common Stock............................................. A-16
ARTICLE III
COVENANTS OF AOG PRIOR TO THE EFFECTIVE TIME
3.1 Conduct of Business by AOG Pending the Merger................................... A-16
3.2 No Shopping..................................................................... A-17
3.3 Access to Information; Confidentiality.......................................... A-17
3.4 Share Transfer and Registration Agreement....................................... A-18
3.5 KNE Environmental Report........................................................ A-18
3.6 Governmental Filings............................................................ A-18
ARTICLE IV
COVENANTS OF KNE PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by KNE Pending the Merger................................... A-18
4.2 No Shopping..................................................................... A-19
4.3 Access to Information; Confidentiality.......................................... A-20
4.4 Reservation of KNE Common Stock................................................. A-20
4.5 Stock Exchange Listing; Regulatory Approvals.................................... A-20
4.6 AOG Environmental Report........................................................ A-20
4.7 Governmental Filings............................................................ A-20
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement........................ A-21
5.2 Comfort Letters................................................................. A-21
5.3 Meetings of Stockholders........................................................ A-21
5.4 Filings; Consents; Reasonable Efforts........................................... A-22
5.5 Notification of Certain Matters................................................. A-22
5.6 Agreement to Defend............................................................. A-22
5.7 Expenses........................................................................ A-22
5.8 KNE's Board of Directors, Officers and Committees............................... A-23
5.9 Indemnification................................................................. A-23
5.10 AOG Employee Benefits........................................................... A-24
5.11 Standstill Agreement and Registration Rights Agreement.......................... A-25
5.12 Tax Opinion..................................................................... A-25
5.13 Stockholders' Agreements........................................................ A-25
5.14 AOG Stock Options............................................................... A-25
5.15 AOG Warrants.................................................................... A-26
5.16 Registration Statement on Form S-3.............................................. A-26
</TABLE>
ii
<PAGE> 72
<TABLE>
<S> <C> <C> <C>
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect the Merger..................... A-26
6.2 Additional Conditions to Obligations of KNE..................................... A-27
6.3 Additional Conditions to Obligations of AOG..................................... A-28
ARTICLE VII
MISCELLANEOUS
7.1 Termination..................................................................... A-29
7.2 Effect of Termination........................................................... A-30
7.3 Waiver and Amendment............................................................ A-30
7.4 Nonsurvival of Representations, Warranties, Covenants and Agreements............ A-30
7.5 Public Statements............................................................... A-31
7.6 Assignment...................................................................... A-31
7.7 Notices......................................................................... A-31
7.8 Governing Law................................................................... A-31
7.9 Severability.................................................................... A-31
7.10 Counterparts.................................................................... A-31
7.11 Headings........................................................................ A-31
7.12 Entire Agreement................................................................ A-31
Signatures............................................................................. A-32
Exhibit 5.8............................................................................ A-33
Exhibit 6.3(r)......................................................................... A-34
</TABLE>
- ---------------------------
* Exhibits 1.6 (directors of AOG), 2.1(a) and 2.2(a) (Significant Subsidiaries),
3.4 (Share Transfer and Registration Rights Agreement), 5.11 (Registration
Rights Agreement), 6.2(f) and 6.3(g) (legal opinions) have been omitted as
immaterial.
iii
<PAGE> 73
AGREEMENT OF MERGER
This Agreement of Merger, dated as of the 24th day of March, 1994 (the
"Agreement"), is among K N Energy, Inc., a Kansas corporation ("KNE"), KNE
Acquisition Corporation, a newly-formed Delaware corporation and a wholly-owned
subsidiary of KNE ("Sub"), and American Oil and Gas Corporation, a Delaware
corporation ("AOG").
WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement, the respective Boards of Directors of KNE, Sub and AOG, and KNE as
sole stockholder of Sub, have approved the merger of Sub with and into AOG (the
"Merger"), whereby each issued and outstanding share of common stock, par value
$.04 per share, of AOG ("AOG Common Stock") will be converted into the right to
receive common stock, par value $5.00 per share, of KNE ("KNE Common Stock"), as
provided herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the Merger is intended to be treated as a "pooling of interests"
for accounting purposes; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the Delaware General Corporation Law
(the "DGCL"), at the Effective Time (as defined in Section 1.3) Sub shall be
merged with and into AOG. As a result of the Merger, the separate corporate
existence of Sub shall cease and AOG shall continue as the surviving corporation
(sometimes referred to herein as the "Surviving Corporation") and shall succeed
to and assume all of the assets, property, rights, privileges, powers,
franchises and obligations of Sub in accordance with the DGCL.
1.2 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Vinson & Elkins
L.L.P., First City Tower, Houston, Texas 77002 as soon as practicable after the
satisfaction or waiver of the conditions set forth in Article VI or at such
other time and place and on such other date as KNE and AOG shall agree;
provided, that the closing conditions set forth in Article VI shall have been
satisfied or waived at or prior to such time. The date on which the Closing
occurs is herein referred to as the "Closing Date".
1.3 Consummation of the Merger. As soon as practicable on the Closing
Date, the parties hereto will cause the Merger to be consummated by filing with
the Secretary of State of Delaware a certificate of merger in such form as
required by, and executed in accordance with, the relevant provisions of the
DGCL. The "Effective Time" of the Merger as that term is used in this Agreement
shall mean the effective time set forth in the certified copy of the certificate
of merger issued by the Secretary of State of Delaware with respect to the
Merger.
1.4 Effect of the Merger. The Merger shall have the effect set forth in
Section 1.1 hereof and the applicable provisions of the DGCL.
1.5 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Amended and Restated Certificate of
Incorporation of AOG, as in effect immediately prior to the Effective Time,
shall continue to be the certificate of incorporation of AOG, as the Surviving
Corporation, until duly amended in accordance with law; provided, however, that
Article IV of the
A-1
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Amended and Restated Certificate of Incorporation of AOG shall be amended in its
entirety to read as follows:
"The aggregate number of shares which the Corporation shall have authority
to issue is one thousand (1,000), of the par value of one dollar ($1.00)
each, to be designated Common Stock."
; and provided further, that Article IX of the Amended and Restated Certificate
of Incorporation of AOG shall be deleted in its entirety and Articles X and XI
renumbered as Articles IX and X, respectively.
(b) At the Effective Time, the Bylaws of AOG, as in effect immediately
prior to the Effective Time, shall become the bylaws of AOG, as the Surviving
Corporation, until duly amended in accordance with law.
1.6 Directors and Officers. The persons named in Exhibit 1.6 shall be the
directors of the Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and bylaws of the Surviving Corporation, and
the officers of AOG immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified. If, prior to the
Effective Time, any such designees shall decline or be unable to serve, KNE or
AOG, as the case may be, shall designate another person to serve in such
person's stead.
1.7 Conversion of Securities; Exchange; Fractional Shares. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of AOG, Sub or their stockholders:
(a) Each share of AOG Common Stock issued and outstanding immediately
prior to the Effective Time (the "Shares"), shall be converted, subject to
the provisions of this Section 1.7, into 0.47 fully paid and nonassessable
shares of KNE Common Stock; provided, however, that no fractional shares of
KNE Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made pursuant to Section 1.7(g) hereof.
(b) Each share of AOG Common Stock held in the treasury of AOG and
each Share owned by Sub, KNE or any direct or indirect wholly-owned
subsidiary of KNE or of AOG immediately prior to the Effective Time, if
any, shall be cancelled and extinguished at the Effective Time without any
conversion thereof and no payment shall be made with respect thereto.
(c) Each share of common stock, par value $1.00 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged at the Effective Time for one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.
(d) As of the Effective Time, KNE shall deposit with Chemical Bank or
such other bank or trust company as may be reasonably acceptable to each of
KNE and AOG (the "Exchange Agent") for the benefit of holders of Shares,
for exchange in accordance with this Section 1.7, certificates representing
the shares of KNE Common Stock issuable pursuant to Section 1.7(a) hereof.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented Shares (the
"Certificates") that were converted into shares of KNE Common Stock
pursuant to Section 1.7(a), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only by delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
KNE and AOG may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of KNE Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing the
number of whole shares of KNE Common Stock which such holder has the right
to receive in respect of the Certificate surrendered pursuant to the
provisions of this Section 1.7 (after taking into account all Shares then
held by such holder), and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each Certificate shall be deemed from and
after the Effective Time, for all corporate purposes, other than the
payment of earlier dividends and distributions, to evidence the ownership
of the number of full shares of KNE Common Stock into which
A-2
<PAGE> 75
such Shares shall have been converted pursuant to this Section 1.7. Unless
and until any such Certificates shall be surrendered, no dividends or other
distributions payable to the holders of record of KNE Common Stock, as of
any time on or after the Effective Time, shall be paid to the holders of
such Certificates; provided, however, that, upon surrender and exchange of
such Certificates, subject to any applicable escheat laws and paragraph D.3
of Section 4 of Article Sixth of the Restated Articles of Incorporation of
KNE, there shall be paid to the record holders of the certificates issued
and exchanged therefor the amount, without interest thereon, of dividends
and other distributions, if any, that theretofore were declared and became
payable since the Effective Time with respect to the number of full shares
of KNE Common Stock issued to such holders.
(e) All shares of KNE Common Stock into which the Shares shall have
been converted pursuant to this Section 1.7 shall be issued in full
satisfaction of all rights pertaining to such converted Shares.
(f) If any certificate for shares of KNE Common Stock is to be issued
in a name other than that in which the Certificate surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall have paid to KNE or the Exchange Agent any transfer or other
taxes required by reason of the issuance of a certificate for shares of KNE
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of KNE or the
Exchange Agent that such tax has been paid or is not payable.
(g) No fraction of a share of KNE Common Stock shall be issued, but in
lieu thereof each holder of Shares who would otherwise be entitled to a
fraction of a share of KNE Common Stock shall, upon surrender of the
Certificate representing such Shares to the Exchange Agent, be paid an
amount in cash equal to the value of such fraction of a share based upon
the closing price of KNE Common Stock on the New York Stock Exchange
Composite Tape on the last trading day prior to the Effective Time. No
interest shall be paid on such amount. KNE shall provide the Exchange Agent
with sufficient funds to make all payments due under this Section 1.7(g).
All Shares held by a record holder shall be aggregated for purposes of
computing the number of shares of KNE Common Stock to be issued pursuant to
this Section 1.7.
(h) None of KNE, Sub, AOG, or their officers, directors, transfer
agents or the Exchange Agent shall be liable to a holder of Shares for any
amount properly paid to a public official pursuant to applicable property,
escheat or similar laws.
1.8 No Dissenters' Rights. The shares of KNE Common Stock and the shares
of AOG Common Stock that are held by stockholders of KNE and AOG, respectively,
shall not be entitled to appraisal rights.
1.9 Taking of Necessary Action; Further Action. The parties hereto shall
take all such reasonable and lawful action as may be necessary or appropriate in
order to effectuate the Merger as promptly as possible in accordance with the
terms of this Agreement. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
AOG or Sub, such corporations shall direct their respective officers and
directors to take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of KNE and Sub. KNE and Sub hereby
represent and warrant to AOG that:
(a) Organization and Compliance with Law. KNE and each Significant
Subsidiary (as such term is defined below) of KNE is a corporation or
partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is chartered or organized and has all
requisite
A-3
<PAGE> 76
corporate or partnership power and authority and all necessary governmental
authorizations to own, lease and operate all of its properties and assets
and to carry on its business as now being conducted, except where the
failure to have any such governmental authorization would not have a
material adverse effect on KNE. Except as set forth in a disclosure letter
delivered by KNE to AOG on the date hereof (the "KNE Disclosure Letter"),
each of KNE and its Subsidiaries is duly qualified as a foreign corporation
or partnership to do business, and is in good standing, in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be duly qualified does
not and would not, either individually or in the aggregate, have a material
adverse effect on KNE. KNE and each of its Subsidiaries are in compliance
with all applicable laws, judgments, orders, rules and regulations,
domestic and foreign, except where failure to be in such compliance would
not have a material adverse effect on KNE. KNE has heretofore delivered to
AOG true and complete copies of KNE's Restated Articles of Incorporation
including the designations of rights, powers and preferences of the KNE
Preferred (as defined below) (the "KNE Articles") and bylaws of KNE, as
amended, and as in existence on the date hereof. Exhibit 2.1(a) hereto sets
forth each of the Significant Subsidiaries of KNE and the respective
jurisdiction of its incorporation or formation. As used in this Agreement,
(i) the word "Subsidiary", when used with respect to any party, means any
corporation, or any partnership or other business entity of which such
party (or any other Subsidiary of such party) is a general partner
(excluding partnerships, the aggregate general partner interests of which
held by such party (or a Subsidiary of such party) do not constitute a
majority of the voting interests of such partnership), at least a majority
of the securities or other interests having by their terms ordinary voting
power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation, partnership or other
business entity is directly or indirectly owned or controlled by such party
or by any one or more of its Subsidiaries, or by such party and one or more
of its Subsidiaries; (ii) a "Significant Subsidiary" means any Subsidiary
of KNE or AOG, as the case may be, that would constitute a "significant
subsidiary" of such party within the meaning of Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "Commission");
(iii) any reference to any event, change, condition or effect being
"material" with respect to any entity means an event, change, condition or
effect which is material in relation to the condition (financial or
otherwise), assets, liabilities, business or operations of such entity and
its Subsidiaries taken as a whole; and (iv) the term "material adverse
effect" means, with respect to KNE and AOG, a material adverse effect of
the business, assets, results of operations or condition (financial or
otherwise) of such party and its Subsidiaries taken as a whole or on the
ability of such party (and, with respect to KNE, of Sub) to perform its
obligations hereunder.
(b) Capitalization.
(i) The authorized capital stock of KNE consists of 25,000,000
shares of KNE Common Stock, of which 15,035,301 were legally issued and
outstanding on December 31, 1993; 200,000 shares of Class A Preferred
Stock, no par value ("Class A Preferred Stock"), of which 5,000 shares
were legally issued and outstanding as Class A $8.50 Cumulative
Preferred Stock on such date, and 70,000 shares were legally issued and
outstanding as Class A $5.00 Cumulative Preferred Stock on such date;
and 2,000,000 shares of Class B Preferred Stock, no par value ("Class B
Preferred Stock"), of which 28,576 shares were legally issued and
outstanding as Class B $8.30 Series Cumulative Preferred Stock on such
date. (The Class A Preferred Stock and the Class B Preferred Stock are
referred to collectively as the "KNE Preferred.") As of December 31,
1993, there were reserved for issuance 2,111,299 shares of KNE Common
Stock under KNE's (A) incentive stock option plans for key employees and
nonqualified stock option plans for nonemployee directors, (B) Dividend
Reinvestment and Cash Investment Plan, (C) Employees Retirement Trust
Fund Profit Sharing Plan and (D) other employee benefit plans
(collectively, the "KNE Stock Plans"). Subject to shareholder approval
of KNE's 1994 Long-Term Incentive Plan (the "KNE LTIP") at KNE's 1994
annual meeting of shareholders, an additional 700,000 shares of KNE
Common Stock will be reserved for issuance thereunder. All issued shares
of KNE Common Stock are validly issued, fully paid and nonassessable and
no holder thereof is entitled to preemptive rights. All shares of KNE
Common Stock to be issued pursuant to the Merger, when issued in
accordance with this
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<PAGE> 77
Agreement, will be validly issued, fully paid and nonassessable and will
not violate the preemptive rights of any person. KNE is not a party to,
and is not aware of, any voting agreement, voting trust or similar
agreement or arrangement relating to any class or series of its capital
stock, or, except as contemplated hereby, any agreement or arrangement
providing for registration rights with respect to any capital stock or
other securities of KNE. Except as set forth in the KNE Disclosure
Letter, all outstanding shares of capital stock of, or partnership
interests in, the KNE Significant Subsidiaries are owned by KNE or a
direct or indirect wholly-owned subsidiary of KNE, free and clear of all
liens, minority interests, charges, encumbrances, adverse claims and
options of any nature which are material to KNE. As of the date hereof
and immediately prior to the Effective Time, the authorized capital
stock of Sub consists of 1,000 shares of common stock, par value $1.00
per share, all of which are validly issued, fully paid and nonassessable
and are directly owned by KNE.
(ii) As of December 31, 1993, options to purchase 426,678 shares of
KNE Common Stock were outstanding and options to purchase an additional
171,174 such shares were available for grant pursuant to the plans set
forth in Section 2.1(b)(i)(A) above, and subsequent to such date and
subject to shareholder approval of the KNE LTIP, options, stock
appreciation rights, restricted shares and other types of stock-based
awards relating to an aggregate of 700,000 shares of KNE Common Stock
became available for grant pursuant to the KNE LTIP. Since December 31,
1993, there have been no options, stock appreciation rights, restricted
shares or other types of stock-based awards granted by KNE, except as
disclosed in the KNE Disclosure Letter. Other than as set forth in the
first sentence of each of Section 2.1(b)(i) and 2.1(b)(ii) and other
than as contemplated by this Agreement to be issued in connection with
the Merger, there are not now, and at the Effective Time there will not
be, any (A) shares of capital stock of KNE outstanding (other than KNE
Common Stock issued pursuant to the KNE Stock Plans) or (B) outstanding
options, warrants, scrip, rights to subscribe for, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any class of capital
stock of KNE or any of its corporate Significant Subsidiaries, or
contracts, understandings or arrangements to which KNE or any of its
Significant Subsidiaries is a party, or by which it is or may be bound,
to issue additional shares of its or any Significant Subsidiary's
capital stock or equity interest or options, warrants, scrip or rights
to subscribe for, or securities or rights convertible into or
exchangeable for, any additional shares of its or any Significant
Subsidiary's capital stock or equity interest or (C) issued and
outstanding bonds, debentures, notes or other indebtedness of KNE or any
its Significant Subsidiaries having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any
matters on which stockholders of KNE or its Significant Subsidiaries, as
the case may be, may vote. All shares of KNE Common Stock issued
pursuant to the exercise of outstanding options granted pursuant to the
KNE Stock Plans will be validly issued, fully paid and nonassessable and
no holder thereof will be entitled to preemptive rights.
(c) Authorization and Validity of Agreement. KNE and Sub have all
requisite corporate power and authority to enter into this Agreement and to
perform their obligations hereunder. The execution and delivery by KNE and
Sub of this Agreement and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by
KNE and Sub and is the valid and binding obligation of KNE and Sub,
enforceable against KNE and Sub in accordance with its terms.
(d) No Approvals or Notices Required; No Conflict with Instruments to
which KNE or any of its Significant Subsidiaries is a Party. Neither the
execution and delivery of this Agreement nor the performance by KNE or Sub
of its obligations hereunder, nor the consummation of the transactions
contemplated hereby by KNE and Sub, will (i) conflict with the KNE Articles
or bylaws of KNE or the partnership agreement, charter or bylaws of any of
its Significant Subsidiaries; (ii) assuming satisfaction of the
requirements set forth in clause (iii) below, violate any provision of law
applicable to KNE or any of its Subsidiaries; (iii) except for (A) filing
with the Commission of (x) a joint proxy statement in preliminary form
relating to the meetings of KNE's and AOG's stockholders to be held for the
purpose of obtaining stockholder approvals relating to the Merger (the
"Proxy Statement"), (y) such reports under
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<PAGE> 78
Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as may be required in connection with this Agreement and
the transactions contemplated hereby, and (z) the registration statements
referred to in Sections 5.1 and 5.14(c) hereof, (B) requirements arising
out of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), (C) approvals of the Colorado Public Utility Commission (the "PUC")
and the Wyoming Public Service Commission (the "PSC"), (D) the filing of a
certificate of merger by Sub in accordance with the DGCL, and (E) such
filings, qualifications and approvals as may be required under state
securities or takeover laws, require any consent or approval of, or filing
with or notice to, any public body or authority, domestic or foreign, under
any provision of law applicable to KNE or any of its Subsidiaries; or (iv)
require any consent, approval or notice under, or violate, breach, be in
conflict with or constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the creation or imposition of
any lien upon any properties, assets or business of KNE or any of its
Subsidiaries under, any note, bond, indenture, mortgage, deed of trust,
lease, franchise, permit, authorization, license, employee benefit plan,
contract, instrument or other agreement or commitment or any order,
judgment or decree to which KNE or any of its Subsidiaries is a party or by
which KNE or any of its Subsidiaries or any of its assets or properties is
bound or encumbered, except (A) those that have already been given,
obtained or filed and (B) those that are set forth in the KNE Disclosure
Letter, which will be obtained prior to the Effective Time, and except in
any of the cases enumerated in clauses (ii) through (iv) those that, in the
aggregate, would not have a material adverse effect on KNE.
(e) Commission Filings; Financial Statements; Information
Supplied. Since January 1, 1991, KNE has filed all reports, registration
statements and other filings, together with any amendments required to be
made with respect thereto, that it has been required to file with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act. All reports, registration statements and other
filings (including all notes, exhibits and schedules thereto and documents
incorporated by reference therein but excluding any preliminary proxy
material) filed by KNE with the Commission since January 1, 1991 through
the date of this Agreement, together with any amendments thereto, are
sometimes collectively referred to as the "KNE Commission Filings". As of
the respective dates of their filing with the Commission, the KNE
Commission Filings complied, and the Registration Statement (as defined in
Section 5.1) and the Proxy Statement (except with respect to information
concerning AOG and its Significant Subsidiaries furnished by or on behalf
of AOG to KNE specifically for use therein) will comply, at the time of
effectiveness of the Registration Statement and the initial date of mailing
of the Proxy Statement to stockholders of each of KNE and AOG, in all
material respects with the Securities Act, the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and did not or
will not, as the case may be, at such time or date, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
All material contracts of KNE and its Subsidiaries have been included
in the KNE Commission Filings, except for those contracts not required to
be filed, pursuant to the rules and regulations of the Commission.
Each of the consolidated financial statements (including any related
notes or schedules) included in the KNE Commission Filings (i) was, and
each of the consolidated financial statements to be included in the
Registration Statement and Proxy Statement (except for those financial
statements of AOG and its Significant Subsidiaries furnished by or on
behalf of AOG to KNE specifically for use therein) will be, in compliance
as to form in all material respects with applicable accounting requirements
and with the published rules and regulations of the Commission with respect
thereto, (ii) was or will be, as the case may be, prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be noted therein or in the notes or schedules thereto or, in
the case of unaudited financial statements, as permitted by Form 10-Q and
Regulation S-X of the Commission), and (iii) fairly presents or will fairly
present, as the case may be, the consolidated financial position of KNE and
its consolidated Significant Subsidiaries as of the dates thereof and the
results of operations and cash
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flows for the periods then ended (subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments on a
basis comparable with past periods). As of the date hereof, neither KNE nor
its Subsidiaries has any liabilities, absolute or contingent, that are
material to KNE and not reflected in the KNE Commission Filings, except (i)
those incurred in the ordinary course of business consistent with past
operations, and (ii) those set forth in the KNE Disclosure Letter.
(f) Conduct of Business in the Ordinary Course; Absence of Certain
Changes and Events. Since January 1, 1993, except as contemplated by this
Agreement, disclosed in the KNE Commission Filings filed with the
Commission since that date or set forth in the KNE Disclosure Letter, KNE
and its Significant Subsidiaries have conducted their business only in the
ordinary and usual course, and there has not been (i) any material adverse
effect on such business, or any condition, event or development that
reasonably may be expected to result in any such material adverse effect on
such business; (ii) any change by KNE in its accounting methods, principles
or practices; (iii) any revaluation by KNE or any of its Significant
Subsidiaries of any of its or their assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (iv) any entry by
KNE or any of its Significant Subsidiaries into any commitment or
transaction material to KNE; (v) any declaration, setting aside or payment
of any dividends or distributions in respect of the KNE Common Stock or KNE
Preferred, except for the regular periodic cash dividends on the KNE Common
Stock and the KNE Preferred, or any redemption, purchase or other
acquisition of any of its securities or any securities of any of its
Significant Subsidiaries (other than acquisitions of KNE Common Stock
pursuant to previously authorized approval of the KNE Board of Directors or
KNE Preferred to satisfy sinking fund obligations); (vi) any damage,
destruction or loss (whether or not covered by insurance) having a material
adverse effect on KNE; (vii) any increase in long-term indebtedness for
borrowed money; (viii) any granting of a security interest or lien on any
material property or assets of KNE and its Significant Subsidiaries, taken
as a whole, other than (A) liens for taxes not due and payable or which are
being contested in good faith; (B) mechanics', warehousemen's and other
statutory liens incurred in the ordinary course of business; and (C)
defects and irregularities in title and encumbrances which are not
substantial in character or amount and do not materially impair the use of
the property or asset in question (collectively, "Permitted Liens"); or
(ix) except in the ordinary course of business and consistent with past
practice, any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan or any other increase in the
compensation payable or to become payable to any officers or key employees
of KNE or any of its Significant Subsidiaries, except for the establishment
of the KNE LTIP and, subject to shareholder approval of such plan, grants
of awards thereunder.
(g) Certain Fees. With the exception of the engagement of Petrie
Parkman & Co., Inc. and Rauscher Pierce Refsnes, Inc., neither KNE nor any
of its officers, directors or employees, on behalf of KNE or any of its
Subsidiaries or its or their respective Boards of Directors (or any
committee thereof), has employed any financial advisor, broker or finder or
incurred any liability for any financial advisory, brokerage or finders'
fees or commissions in connection with the transaction contemplated hereby.
(h) Litigation. Except as disclosed in the KNE Commission Filings or
set forth in the KNE Disclosure Letter, there are no claims, actions,
suits, investigations or proceedings pending or, to the knowledge of KNE,
threatened against or affecting KNE or any of the KNE Significant
Subsidiaries or any of their respective properties at law or in equity, or
any of their respective employee benefit plans or fiduciaries of such
plans, or before or by any federal, state, municipal or other governmental
agency or authority, or before any arbitration board or panel, wherever
located, that individually or in the aggregate if adversely determined
would have a material adverse effect on KNE, or that involve a material
risk of criminal liability.
(i) Employee Benefit Plans. There are no "employee pension benefit
plans," as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by KNE or its
Significant Subsidiaries for the benefit of their employees except
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for those plans (each a "KNE Pension Plan") disclosed in KNE's Proxy
Statement dated February 26, 1993 or in the KNE Disclosure Letter. Each
"employee benefit plan," as such term is defined in Section 3(3) of ERISA,
including such plans that may not be subject to ERISA such as foreign plans
maintained by KNE or a Subsidiary (each a "KNE Benefit Plan") complies in
all material respects with all applicable requirements of ERISA, the Code
and other applicable laws. Neither KNE nor any Subsidiary, nor any of their
respective directors, officers, employees or agents, has, with respect to
any KNE Benefit Plan, engaged in any conduct that would result in any taxes
or penalties on prohibited transactions under Section 4975 of the Code or
under Section 502(i) of ERISA or in any breach of fiduciary duty liability
under Section 409 of ERISA, which in the aggregate could be material to
KNE.
Each of KNE and its Subsidiaries has fulfilled its obligations to the
extent applicable under the minimum funding requirements of Section 302 of
ERISA and Section 412 of the Code with respect to each KNE Pension Plan.
The assets of each KNE Pension Plan that is subject to Title IV of ERISA
exceed the present value of vested benefits accrued under such plan,
determined as of December 31, 1992 on a termination basis using the
actuarial assumptions established by the Pension Benefit Guaranty
Corporation (the "PBGC") as in effect on such date. Neither KNE nor any
Subsidiary has, or expects to have, any obligation or liability (whether
accrued, contingent, secondary or otherwise) to contribute to any
"multiemployer plan," as defined in Section 3(37) of ERISA, and neither KNE
nor any Subsidiary has any material liability under (i) Title IV of ERISA
(excluding liability for required premium payments) to the PBGC in
connection with any KNE Pension Plan that is subject to Title IV of ERISA
or (ii) Subtitle J, Coal Industry Health Benefits, of the Code.
The Internal Revenue Service (the "IRS") has issued for each KNE
Pension Plan intended to be qualified under Section 401(a) of the Code a
letter determining that such plan is exempt from United States federal
income tax under Sections 401(a) and 501 (a) of the Code and approving the
form of such plan as amended to comply with the requirements of the Tax
Equity and Fiscal Responsibility Act of 1982, as amended ("TEFRA"), the Tax
Reform Act of 1984, as amended ("TRA"), and the Retirement Equity Act of
1984, as amended ("REA"), and there has been no occurrence since the date
of any such determination letter which has adversely affected such
qualification.
Except as disclosed in the notes to the latest audited financial
statements included in the KNE Commission Filings or as set forth in the
KNE Disclosure Letter, neither KNE nor any Subsidiary has any obligation to
provide welfare benefits to any of its former employees except to the
extent required by COBRA.
Upon request, KNE will furnish AOG true and complete copies as in
effect on the date hereof of each of (A) the KNE Benefit Plans, including
without limitation the KNE Pension Plans, the KNE Stock Plans and the KNE
LTIP, (B) the most recent summary plan description for each KNE Benefit
Plan for which a summary plan description is required, (C) each trust
agreement and group annuity contract, if any relating to the KNE Benefit
Plans, (D) the most recent reports on Form 5500 filed with the IRS with
respect to any KNE Benefit Plan, (E) the most recent actuarial report or
valuation relating to a KNE Benefit Plan subject to Title IV of ERISA and
(F) the most recent determination letter issued by the IRS with respect to
any KNE Benefit Plan qualified under Section 401(a) of the Code.
(j) Taxes. Except as set forth in the KNE Disclosure Letter, all
returns and reports, including, without limitation, information and
withholding returns and reports ("Tax Returns"), of or relating to any
foreign, federal, state or local tax, assessment or other governmental
charge ("Taxes" or a "Tax") that are required to be filed on or before the
Closing Date by or with respect to KNE or any of its Subsidiaries or any
other corporation that is or was a member of an affiliated group (within
the meaning of Section 1504(a) of the Code) of corporations of which KNE
was a member for any period ending on or before the Closing Date and with
respect to which such corporation was a member of such affiliated group,
have been or will be duly and timely filed, and all Taxes, including
interest and penalties, due and payable pursuant to such Tax Returns have
been paid or, except as set forth in the KNE Disclosure Letter, adequately
provided for in reserves established by KNE, except where the failure to
file, pay or provide for would not have a material adverse effect on KNE.
Except as set forth in the KNE Disclosure
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Letter, (i) all Tax Returns of or with respect to KNE and its Significant
Subsidiaries have been audited by the applicable governmental authority, or
the applicable statute of limitations has expired, for all periods up to
and including the taxable year ended December 31, 1985 and (ii) there are
no outstanding audits, examinations or other proceedings with respect to
any periods covered by Tax Returns which involve or could involve the
payment of any material Taxes. There is no material claim against KNE or
any of its Subsidiaries with respect to any Taxes, and no material
assessment, deficiency or adjustment has been asserted or proposed with
respect to any Tax Return of or with respect to KNE or any of its
Subsidiaries that has not been adequately provided for in reserves
established by KNE. The total amounts set up as liabilities for current and
deferred Taxes in the consolidated financial statements included in the KNE
Commission Filings have been established in accordance with generally
accepted accounting principles and, except as set forth in the KNE
Disclosure Letter, are sufficient to cover the payment of all material
Taxes in the aggregate, including any penalties or interest thereon and
whether or not assessed or disputed, that are, or are hereafter found to
be, or to have been, due with respect to the operations of KNE and its
Significant Subsidiaries through the periods covered thereby.
KNE has no plan or intention to (i) liquidate the Surviving
Corporation, (ii) merge the Surviving Corporation with or into another
corporation, (iii) sell or otherwise dispose of stock of the Surviving
Corporation (or cause the Surviving Corporation to issue additional shares
of its capital stock) that would result in KNE losing control of the
Surviving Corporation within the meaning of Section 368(d) of the Code),
(iv) cause or permit the Surviving Corporation to sell or otherwise dispose
of any of the assets acquired from AOG or the assets acquired from Sub
except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled (within the meaning of
Section 368(d) of the Code) by the Surviving Corporation, (v) reacquire any
of the stock issued to the AOG stockholders pursuant to the Merger, or (vi)
cause or permit the Surviving Corporation to discontinue the historic
business of AOG.
KNE does not own, nor has it owned during the past five years, any
shares of the capital stock of AOG.
KNE is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(k) Environmental. Except as set forth in the KNE Disclosure Letter,
KNE and its Subsidiaries are in substantial compliance with all applicable
federal, state and local laws and regulations relating to pollution control
and environmental contamination including, but not limited to, all laws and
regulations governing the generation, use, collection, treatment, storage,
transportation, recovery, removal, discharge or disposal of Hazardous
Materials and all laws and regulations with regard to recordkeeping,
notification and reporting requirements respecting Hazardous Materials. For
purposes of this Section 2.1(k), "substantial compliance" shall mean
compliance, except to the extent that failure to comply would not have a
material adverse effect on KNE.
Except as set forth in the KNE Disclosure Letter, neither KNE nor any
of its Subsidiaries is subject to any order or decree of or has received,
within the past five years, any notice from any governmental agency with
respect to any alleged violation by KNE or any of its Subsidiaries or, to
KNE's knowledge, any former Subsidiary, of, or the incurrence of any
remedial obligation by KNE or its Subsidiaries or, to KNE's knowledge, any
former Subsidiary, under, any applicable federal, state or local
environmental or health and safety statutes and regulations, which in any
instance is material to KNE.
The term "Hazardous Materials" shall mean material, substances, waste
or byproducts defined as "hazardous substances", "hazardous wastes" or
"solid wastes" in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. Sections 9601-9657 and any amendments
thereto ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901-6987 and any amendments thereto ("RCRA"), or any other
applicable federal, state or local environmental statute or regulation
defining such terms.
(l) Certain Agreements. Except as disclosed in the KNE Commission
Filings filed prior to the date of this Agreement or as disclosed in the
KNE Disclosure Letter or as provided under this Agreement,
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neither KNE nor any of its Significant Subsidiaries is a party to any oral
or written (i) agreement with, or obligation to, any executive officer or
key employee of KNE or any of its Significant Subsidiaries (A) for any term
of employment or guaranteed compensation of such person by KNE or any of
its Significant Subsidiaries beyond a period of three months or (B) the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving KNE of the nature
contemplated in this Agreement, or (ii) agreement or plan, including any of
the KNE Stock Plans or the KNE LTIP, any of the benefits of which will be
increased, or the vesting of benefits which will be accelerated, by the
occurrence of the transactions contemplated in this Agreement or the value
of which benefits will be calculated on the basis of the transactions
contemplated by this Agreement.
(m) Voting Requirements. Approval of the issuance of the KNE Common
Stock issuable in the Merger by a majority of the votes cast thereon by
holders of KNE Common Stock and KNE Preferred, voting as a single class, at
the special stockholders' meeting, is the only vote of the holders of any
class or series of the capital stock of KNE necessary to approve the
transactions contemplated by this Agreement.
(n) Insurance. The KNE Disclosure Letter sets forth all material
policies of insurance currently in effect relating to the business or
operations of KNE and its Significant Subsidiaries.
(o) Title to Property. Except as set forth in the KNE Disclosure
Letter or in the KNE Commission Filings, KNE and each of its Significant
Subsidiaries have good and indefeasible title to all of their material real
properties purported to be owned in fee and good title to all their other
material assets, free and clear of all mortgages, liens, charges and
encumbrances other than Permitted Liens.
(p) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no
other business activities, has no liabilities or obligations (except those
incurred hereunder) and has conducted its operations only as contemplated
hereby and will not transfer to AOG any assets subject to liabilities in
the Merger.
(q) Utility Status. Neither KNE nor any of its Subsidiaries is a
"holding company," a "subsidiary company" of a "holding company," an
"affiliate" of a "holding company" or a "public utility," within the
meaning of the Public Utility Holding Company Act of 1935, as amended
("PUHCA"), except that KNE is a "gas utility company" within the meaning of
PUHCA.
(r) Ownership of AOG Common Stock. Neither KNE nor any of its
Subsidiaries, nor to the knowledge of KNE, any of their respective
affiliates or associates (as such terms are defined under the Exchange
Act), (i) beneficially owns, directly or indirectly, or (ii) are parties to
any agreement, arrangement or understanding (other than this Agreement) for
the purpose of acquiring, holding, voting or disposing of, in each case,
shares of capital stock of AOG, which in the aggregate represent 10% or
more of the outstanding shares of capital stock of AOG entitled to vote
generally in the election of directors.
(s) Labor Agreements. Neither the business nor the employment
activities of AOG and its Subsidiaries, as conducted as of the date of this
Agreement, nor any of the AOG Employees (as defined in Section 5.10(f)
hereof), will become subject at the Effective Time of the Merger to any
collective bargaining or other labor agreement to which KNE or any of its
Subsidiaries is a party, either by operation of law or as a consequence of
the provisions of any such agreement.
2.2 Representations and Warranties of AOG. AOG hereby represents and
warrants to KNE that:
(a) Organization and Compliance with Law. AOG and each of its
Significant Subsidiaries is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is chartered or organized and has all requisite corporate or
partnership power and authority and all necessary governmental
authorizations to own, lease and operate all of its properties and assets
and to carry on its business as now being conducted, except where the
failure to have any such governmental authorization would not have a
material adverse effect on AOG. AOG and each of its Subsidiaries are duly
qualified as a foreign corporation or partnership to do business, and is in
good standing, in each jurisdiction in which the property owned, leased or
operated by it or the nature of the
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business conducted by it makes such qualification necessary, except in such
jurisdictions where the failure to be duly qualified does not and would
not, either individually or in the aggregate, have a material adverse
effect on AOG. AOG and each of its Subsidiaries are in compliance with all
applicable laws, judgments, orders, rules and regulations, domestic and
foreign, except where failure to be in such compliance would not have a
material adverse effect on AOG. AOG has heretofore delivered to KNE true
and complete copies of AOG's Amended and Restated Certificate of
Incorporation (the "AOG Certificate") and bylaws as in existence on the
date hereof. Exhibit 2.2(a) hereto sets forth each of the Significant
Subsidiaries of AOG and the respective jurisdiction of its incorporation or
formation.
(b) Capitalization.
(i) The authorized capital stock of AOG consists of 50,000,000
shares of AOG Common Stock, par value $.04 per share, and 2,000,000
shares of Preferred Stock, $10.00 par value per share (the "AOG
Preferred Stock"). As of the date hereof, there were issued and
outstanding 25,894,395 shares of AOG Common Stock and no shares of AOG
Preferred Stock. A total of 1,500,000 shares of AOG Common Stock have
been reserved for issuance pursuant to the Stock Incentive Plan of AOG.
All issued shares of AOG Common Stock are validly issued, fully paid and
nonassessable and no holder thereof is entitled to preemptive rights.
Except for (A) the Standstill and Registration Rights Agreement, dated
as of November 13, 1989 (the "Standstill Agreement"), between AOG and
Cabot Corporation and (B) as set forth in a disclosure letter delivered
by AOG to KNE on the date hereof (the "AOG Disclosure Letter"), AOG is
not a party to, and is not aware of, any voting agreement, voting trust
or similar agreement or arrangement relating to any class or series of
its capital stock, or any agreement or arrangement providing for
registration rights with respect to any capital stock or other
securities of AOG. Except as set forth in the AOG Disclosure Letter, all
outstanding shares of capital stock of, or partnership interests in, the
AOG Significant Subsidiaries are owned by AOG or one or more direct or
indirect wholly-owned subsidiaries of AOG, free and clear of all
minority interests, liens, charges, encumbrances, adverse claims and
options of any nature which are material to AOG.
(ii) As of the date hereof, there are (A) outstanding options (the
"AOG Options") to purchase an aggregate of 1,185,000 shares of AOG
Common Stock under the Stock Incentive Plan of AOG and (B) warrants (the
"AOG Warrants") to purchase an aggregate of 2,557,052 shares of AOG
Common Stock. AOG Warrants to purchase 30,600 such shares are
exercisable at $3.53 per warrant and expire on March 9, 1997, and AOG
Warrants to purchase 2,526,452 such shares are exercisable at $8.25 per
warrant and expire on September 30, 1999. Since December 31, 1993, there
have been no options, stock appreciation rights, restricted shares or
other types of stock-based awards granted by AOG, except as disclosed in
the AOG Disclosure Letter. Other than as set forth in this Section
2.2(b), there are not now, and at the Effective Time there will not be,
any (A) shares of capital stock or other equity securities of AOG
outstanding (other than AOG Common Stock issued pursuant to the exercise
of AOG Options or AOG Warrants) or (B) outstanding options, warrants,
scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any class of capital stock of AOG or any of
its corporate Significant Subsidiaries, or contracts, understandings or
arrangements to which AOG or any of its Significant Subsidiaries is a
party, or by which it is or may be bound, to issue additional shares of
its or any Significant Subsidiary's capital stock or options, warrants,
scrip or rights to subscribe for, or securities or rights convertible
into or exchangeable for, any additional shares of its or any
Significant Subsidiary's capital stock or (C) issued and outstanding
bonds, debentures, notes or other indebtedness of AOG or any of its
Significant Subsidiaries having the right to vote (or convertible into
or exercisable for securities having the right to vote) on any matters
on which stockholders of AOG or its Significant Subsidiaries, as the
case may be, may vote. All shares of AOG Common Stock issued pursuant to
the exercise of outstanding options granted pursuant to the Stock
Incentive Plan of AOG or the AOG Warrants will be validly issued, fully
paid and nonassessable and no holder thereof will be entitled to
preemptive rights.
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(c) Authorization and Validity of Agreement. AOG has all requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery by AOG of this
Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action (subject
only, with respect to the Merger, to adoption of this Agreement by its
stockholders as provided for in Section 5.3(a)). On or prior to the date
hereof the Board of Directors of AOG has determined to recommend approval
of the Merger to the stockholders of AOG, and such determination is in
effect as of the date hereof. This Agreement has been duly executed and
delivered by AOG and is the valid and binding obligation of AOG,
enforceable against AOG in accordance with its terms.
(d) No Approvals or Notices Required; No Conflict with Instruments to
which AOG or any of its Significant Subsidiaries is a Party. Neither the
execution and delivery of this Agreement nor the performance by AOG of its
obligations hereunder, nor the consummation of the transactions
contemplated hereby by AOG, will (i) conflict with the AOG Certificate or
bylaws of AOG or the partnership agreement, charter or bylaws of any of its
Significant Subsidiaries; (ii) assuming satisfaction of the requirements
set forth in clause (iii) below, violate any provision of law applicable to
AOG or any of its Subsidiaries; (iii) except for (A) filing with the
Commission of (x) the Proxy Statement in preliminary form and (y) such
reports under Section 13(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby,
(B) requirements arising out of the HSR Act, (C) requirements of notice
filings in such foreign jurisdictions as may be applicable, (D) the filing
of a certificate of merger in accordance with the DGCL, and (E) such
filings, qualifications and approvals as may be required under state
securities or takeover laws, require any consent or approval of, or filing
with or notice to, any public body or authority, domestic or foreign, under
any provision of law applicable to AOG or any of its Subsidiaries; or (iv)
require any consent, approval or notice under, or violate, breach, be in
conflict with or constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the creation or imposition of
any lien upon any properties, assets or business of AOG or any of its
Subsidiaries under, any note, bond, indenture, mortgage, deed of trust,
lease, franchise, permit, authorization, license, employee benefit plan,
contract, instrument or other agreement or commitment or any order,
judgment or decree to which AOG or any of its Subsidiaries is a party or by
which AOG or any of its Subsidiaries or any of its assets or properties is
bound or encumbered, except (A) those that have already been given,
obtained or filed and (B) those that are required pursuant to loan
agreements or leasing arrangements, as set forth in the AOG Disclosure
Letter, which will be obtained prior to the Effective Time, and except in
any of the cases enumerated in clauses (ii) through (iv) those that, in the
aggregate, would not have a material adverse effect on AOG.
(e) Commission Filings; Financial Statements; Information Supplied.
Since January 1, 1991, AOG has filed all reports, registration statements
and other filings, together with any amendments required to be made with
respect thereto, that they have been required to file with the Commission
under the Securities Act and the Exchange Act. All reports, registration
statements and other filings (including all notes, exhibits and schedules
thereto and documents incorporated by reference therein but excluding any
preliminary proxy material) filed by AOG with the Commission since January
1, 1991 through the date of this Agreement, together with any amendments
thereto, are sometimes collectively referred to as the "AOG Commission
Filings". AOG has heretofore delivered to KNE copies of the AOG Commission
Filings. As of the respective dates of their filing with the Commission,
the AOG Commission Filings complied, and the Proxy Statement (except with
respect to information concerning KNE and its Significant Subsidiaries
furnished by or on behalf of KNE to AOG specifically for use therein) will
comply, at each of the time of effectiveness of the Registration Statement
and the initial date of mailing of the Proxy Statement to stockholders of
each of KNE and AOG, in all material respects with the Securities Act, the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and did not or will not, as the case may be, at such time or
date, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
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All material contracts of AOG and its Subsidiaries have been included
in the AOG Commission Filings, except for those contracts not required to
be filed, pursuant to the rules and regulations of the Commission.
Each of the consolidated financial statements (including any related
notes or schedules) included in the AOG Commission Filings (i) was, and
each of the consolidated financial statements to be included in the Proxy
Statement (except for those financial statements of KNE and its Significant
Subsidiaries furnished by or on behalf of KNE to AOG specifically for use
therein) will be, in compliance as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, (ii) was or will be, as
the case may be, prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be noted therein or
in the notes or schedules thereto), and (iii) fairly presents or will
fairly present, as the case may be, the consolidated financial position of
AOG and its consolidated Significant Subsidiaries as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments on a basis comparable with past periods).
As of the date hereof, neither AOG nor its Subsidiaries has any
liabilities, absolute or contingent, that are material to AOG and not
reflected in the AOG Commission Filings, except (i) those incurred in the
ordinary course of business consistent with past operations and not
relating to the borrowing of money, and (ii) those set forth in the AOG
Disclosure Letter.
(f) Conduct of Business in the Ordinary Course; Absence of Certain
Changes and Events. Since January 1, 1993, except as contemplated by this
Agreement, disclosed in the AOG Commission Filings filed with the
Commission since that date or set forth in the AOG Disclosure Letter, AOG
and its Significant Subsidiaries have conducted their business only in the
ordinary and usual course, and there has not been (i) any material adverse
effect on such business, or any condition, event or development that
reasonably may be expected to result in any such material adverse effect on
such business; (ii) any change by AOG in its accounting methods, principles
or practices; (iii) any revaluation by AOG or any of its Significant
Subsidiaries of any of its or their assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (iv) any entry by
AOG or any of its Significant Subsidiaries into any commitment or
transaction material to AOG; (v) any declaration, setting aside or payment
of any dividends or distributions in respect of the AOG Common Stock or any
redemption, purchase or other acquisition of any of its securities or any
securities of any of its Significant Subsidiaries; (vi) any damage,
destruction or loss (whether or not covered by insurance) having a material
adverse effect on AOG; (vii) any increase in long-term indebtedness for
borrowed money; (viii) any granting of a security interest or lien on any
material property or assets of AOG and its Significant Subsidiaries, taken
as a whole, other than Permitted Liens; or (ix) except in the ordinary
course of business and consistent with past practice, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan or any other increase in the compensation payable or
to become payable to any officers or key employees of AOG or any of its
Significant Subsidiaries.
(g) Certain Fees. With the exception of the engagement of Goldman,
Sachs & Co. ("Goldman Sachs") by AOG, neither AOG nor any of its officers,
directors or employees, on behalf of AOG or any of its Subsidiaries or its
or their respective Boards of Directors (or any committee thereof), has
employed any financial advisor, broker or finder or incurred any liability
for any financial advisory, brokerage or finders' fees or commissions in
connection with the transactions contemplated hereby.
(h) Litigation. Except as disclosed in the AOG Commission Filings or
set forth in the AOG Disclosure Letter, there are no claims, actions,
suits, investigations or proceedings pending or, to the knowledge of AOG,
threatened against or affecting AOG or any of the AOG Significant
Subsidiaries or any of their respective properties at law or in equity, or
any of their respective employee benefit plans or fiduciaries of such
plans, or before or by any federal, state, municipal or other governmental
agency or authority, or before any arbitration board or panel, wherever
located, that individually or in the aggregate
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if adversely determined would have a material adverse effect on AOG, or
that involve a material risk of criminal liability.
(i) Employee Benefit Plans. There are no "employee pension benefit
plans," as such term is defined in Section 3(2) of ERISA, maintained by AOG
or the AOG Significant Subsidiaries for the benefit of their employees,
except for those plans (each an "AOG Pension Plan") disclosed in the AOG
Disclosure Letter. Each "employee benefit plan," as such term is defined in
Section 3(3) of ERISA, including such plans which may not be subject to
ERISA such as foreign plans, maintained by AOG or any Subsidiary (each an
"AOG Benefit Plan") complies in all material respects with all applicable
requirements of ERISA, the Code and other applicable laws. Neither AOG nor
any AOG Subsidiary, nor any of their respective directors, officers,
employees or agents, has, with respect to any AOG Benefit Plan, engaged in
any conduct that would result in any taxes or penalties on prohibited
transactions under Section 4975 of the Code or under Section 502(i) of
ERISA or in breach of fiduciary duty liability under Section 409 of ERISA,
which in the aggregate could be material to AOG.
Neither AOG nor any AOG Subsidiary has, or within the preceding five
years has had, any obligation to contribute to any "multiemployer plan," as
defined in Section 3(37) of ERISA, or any plan subject to Title IV of
ERISA.
Except for AOG's 401(K) Plan, the IRS has issued for each AOG Pension
Plan intended to be qualified under Section 401(a) of the Code a letter
determining that such plan is exempt from United States federal income tax
under Sections 401(a) and 501(a) of the Code and approving the form of such
plan as amended to comply with the requirements of TEFRA, TRA, and REA, and
there has been no occurrence since the date of any such determination
letter which has adversely affected such qualification.
Except as set forth in the AOG Disclosure Letter, neither AOG nor any
Subsidiary has any obligation to provide welfare benefits to any of its
former employees except to the extent required by COBRA.
Upon request, AOG will furnish KNE true and complete copies as in
effect on the date hereof of each of (A) the AOG Benefit Plans, (B) the
most recent summary plan description for each AOG Benefit Plan for which a
summary plan description is required, (C) each trust agreement and group
annuity contract, if any relating to the AOG Benefit Plans, (D) the most
recent reports on Form 5500 filed with the IRS with respect to any AOG
Benefit Plan, and (E) the most recent determination letter, if any, issued
by the IRS with respect to any AOG Benefit Plan qualified under Section
401(a) of the Code.
(j) Taxes. Except as set forth in the AOG Disclosure Letter, all Tax
Returns of or relating to any Tax that are required to be filed on or
before the Closing Date by or with respect to AOG or any of its
Subsidiaries, or any other corporation that is or was a member of an
affiliated group (within the meaning of Section 1504 (a) of the Code) of
corporations of which AOG was a member for any period ending on or prior to
the Closing Date and with respect to which such corporation was a member of
such affiliated group, have been or will be duly and timely filed, and all
Taxes, including interest and penalties, due and payable pursuant to such
Tax Returns have been paid or adequately provided for in reserves
established by AOG, except where the failure to file, pay or provide for
would not have a material adverse effect on AOG. Except as set forth in the
AOG Disclosure Letter, (i) all Tax Returns of or with respect to AOG or any
of its Significant Subsidiaries have been audited by the applicable
governmental authority, or the applicable statute of limitations has
expired, for all periods up to and including the tax year ended December
31, 1985 and (ii) there are no outstanding audits, examinations or other
proceedings with respect to any period covered by Tax Returns which involve
or could involve any material Taxes. There is no material claim against AOG
or any of its Subsidiaries with respect to any Taxes, and no material
assessment, deficiency or adjustment has been asserted or proposed with
respect to any Tax Return of or with respect to AOG or any of its
Subsidiaries that has not been adequately provided for in reserves
established by AOG. The total amounts set up as liabilities for current and
deferred Taxes in the consolidated financial statements included in the AOG
Commission Filings have been prepared in
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accordance with generally accepted accounting principles and are sufficient
to cover the payment of all material Taxes in the aggregate, including any
penalties or interest thereon and whether or not assessed or disputed, that
are, or are hereafter found to be, or to have been, due with respect to the
operations of AOG and its Significant Subsidiaries through the periods
covered thereby.
There is no plan or intention by any stockholder of AOG who owns five
percent or more of the AOG Common Stock, and to the best knowledge of the
management of AOG there is no plan or intention on the part of any of the
remaining stockholders of AOG Common Stock, to sell, exchange or otherwise
dispose of a number of shares of KNE Common Stock to be received in the
Merger that would reduce the AOG stockholders' ownership of KNE Common
Stock to a number of shares having a value, as of the Effective Time, of
less than 50 percent of the value of all of the AOG Common Stock (including
shares of AOG Common Stock exchanged for cash in lieu of fractional shares
of KNE Common Stock) outstanding immediately prior to the Effective Time.
AOG and the stockholders of AOG Common Stock will each pay their
respective expenses, if any, incurred in connection with the Merger.
There is no intercorporate indebtedness existing between AOG and KNE
or AOG and Sub that was issued, acquired, or will be settled at a discount.
AOG is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
AOG is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
To the knowledge of AOG, the total amount of cash to be received by
stockholders of AOG Common Stock in lieu of fractional shares of KNE Common
Stock will not exceed one percent of the total fair market value of the KNE
Common Stock (as of the Effective Time) to be issued in the Merger.
(k) Environmental. Except as set forth in the AOG Disclosure Letter,
AOG and its Subsidiaries are in substantial compliance with all applicable
federal, state and local laws and regulations relating to pollution control
and environmental contamination including, but not limited to, all laws and
regulations governing the generation, use, collection, treatment, storage,
transportation, recovery, removal, discharge or disposal of Hazardous
Materials and all laws and regulations with regard to recordkeeping,
notification and reporting requirements respecting Hazardous Materials. For
purposes of this Section 2.2(k), "substantial compliance" shall mean
compliance, except to the extent that failure to comply would not have a
material adverse effect on AOG.
Except as set forth in the AOG Disclosure Letter, neither AOG nor any
of its Subsidiaries is subject to any order or decree of or has received,
within the past five years, any notice from any governmental agency with
respect to any alleged violation by AOG or any of its Subsidiaries of, or
the incurrence of any remedial obligation by AOG or any of its Subsidiaries
under, any applicable federal, state or local environmental or health and
safety statutes and regulations, which in any instance is material to AOG.
(l) Certain Agreements. Except as disclosed in the AOG Commission
Filings filed prior to the date of this Agreement or as disclosed in the
AOG Disclosure Letter or as provided under this Agreement, neither AOG nor
any of its Significant Subsidiaries is a party to any oral or written (i)
agreement with, or obligation to, any executive officer or key employee of
AOG or any of its Significant Subsidiaries (A) for any term of employment
or guaranteed compensation of such person by AOG or any of its Significant
Subsidiaries beyond a period of three months or (B) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving AOG of the nature contemplated in
this Agreement, (ii) agreement or plan, including the AOG Stock Incentive
Plan, any of the benefits of which will be increased, or the vesting of
benefits which will be accelerated, by the occurrence of the transactions
contemplated in this Agreement or the value of which benefits will be
calculated on the basis of the transactions contemplated by this Agreement.
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(m) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of AOG Common Stock is the only vote of
the holders of any class or series of the capital stock of AOG necessary to
approve this Agreement and the Merger.
(n) Insurance. The AOG Disclosure Letter sets forth all material
policies of insurance currently in effect relating to the business or
operations of AOG and its Significant Subsidiaries.
(o) Title to Property. Except as set forth in the AOG Disclosure
Letter or in the AOG Commission Filings, AOG and each of its Significant
Subsidiaries have good and indefeasible title to all of their material real
properties purported to be owned in fee and good title to all their other
material assets, free and clear of all mortgages, liens, charges and
encumbrances other than Permitted Liens.
(p) Utility Status. Neither AOG nor any of its Subsidiaries is a
"holding company," a "subsidiary company" of a "holding company," an
"affiliate" of a "holding company" or a "public utility," within the
meaning of PUHCA.
(q) Ownership of KNE Common Stock. Neither AOG nor any of its
Subsidiaries, nor to the knowledge of AOG, any of their respective
affiliates or associates (as such terms are defined under the Exchange
Act), (i) beneficially owns, directly, or indirectly, or (ii) are parties
to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of KNE, which in the aggregate represent 10% or more of the
outstanding shares of capital stock of KNE entitled to vote generally in
the election of directors.
ARTICLE III
COVENANTS OF AOG PRIOR TO THE EFFECTIVE TIME
3.1 Conduct of Business by AOG Pending the Merger. AOG covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
KNE shall otherwise agree in writing or as otherwise expressly contemplated by
this Agreement or set forth in the AOG Disclosure Letter:
(a) The business of AOG and its Significant Subsidiaries shall be
conducted only in, and AOG and its Significant Subsidiaries shall not take
any action except in, the ordinary course of business and consistent with
past practice; provided, however, that AOG shall not enter into any natural
gas futures contract that is not designated as a hedge of its price risks;
(b) AOG shall not directly or indirectly do any of the following: (i)
issue, sell, pledge, dispose of or encumber, or permit any of its
Significant Subsidiaries to issue, sell, pledge, dispose of or encumber,
(A) any capital stock of AOG or any of its Significant Subsidiaries except
upon the exercise of AOG Options or AOG Warrants outstanding as of the date
of this Agreement or (B) other than in the ordinary course of business and
consistent with past practice and not relating to the borrowing of money,
any assets of AOG or any of its Significant Subsidiaries; (ii) amend or
propose to amend the respective partnership agreements, charters or bylaws
of AOG or any of its Significant Subsidiaries; (iii) split, combine or
reclassify any outstanding capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or otherwise with respect to its
capital stock whether now or hereafter outstanding; (iv) redeem, purchase
or acquire or offer to acquire, or permit any of its Significant
Subsidiaries to redeem, purchase or acquire or offer to acquire, any of its
or their capital stock; or (v) grant additional options or awards or
materially alter the terms of outstanding options or awards pursuant to the
AOG Stock Incentive Plan, or materially modify the provisions of any AOG
Benefit Plan; (vi) except in the ordinary course of business and consistent
with past practice, enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section
3.1(b);
(c) AOG shall use all reasonable efforts (i) to preserve intact the
business organization of AOG and each of its Significant Subsidiaries, (ii)
to maintain in effect any franchises, authorizations or similar rights of
AOG and each of its Significant Subsidiaries, (iii) to keep available the
services of its and their current officers and key employees, (iv) to
preserve the goodwill of those having business relationships with it and
its Significant Subsidiaries, (v) to maintain and keep its properties and
the properties of its
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Significant Subsidiaries in as good a repair and condition as presently
exists, except for deterioration due to ordinary wear and tear and damage
due to casualty, and (vi) to maintain in full force and effect insurance
comparable in amount and scope of coverage to that currently maintained by
it and its Significant Subsidiaries;
(d) AOG shall not make or agree to make, or permit any of its
Subsidiaries to make or agree to make, any new capital expenditure other
than those made in the ordinary course of business and consistent with past
practice;
(e) Neither AOG nor any of its Subsidiaries shall take, and AOG will
use its reasonable efforts to prevent any affiliate of AOG from taking, any
action that, in the judgment of Arthur Andersen & Co., AOG's independent
auditors, would cause the Merger not to be treated as a "pooling of
interests" for accounting purposes or as a reorganization within the
meaning of Section 368(a) of the Code;
(f) AOG shall, and shall cause its Subsidiaries to, perform their
respective obligations under any contracts and agreements to which any of
them is a party or to which any of their assets is subject, except to the
extent such failure to perform would not have a material adverse effect on
AOG, and except for such obligations as AOG or its Subsidiaries in good
faith may dispute; and
(g) AOG shall not, and shall not permit any of its Subsidiaries to,
take any action that would, or that reasonably could be expected to, result
in any of the representations and warranties set forth in this Agreement
becoming untrue or any of the conditions to the Merger set forth in Article
VI not being satisfied. AOG promptly shall advise KNE orally and in writing
of any change or event having, or which, insofar as reasonably can be
foreseen, would have, a material adverse effect on AOG.
3.2 No Shopping. AOG will not, directly or indirectly, through any
officer, director, employee, representative or otherwise, solicit, initiate or
encourage submission of proposals or offers from any person or entity (other
than KNE) relating to any merger, acquisition or purchase of all or (other than
in the ordinary course of business) a portion of the assets of, or any equity
interest in, AOG or any of its Significant Subsidiaries or any business
combination with AOG or any of its Significant Subsidiaries (collectively, an
"AOG Acquisition Transaction") or participate in any negotiations regarding, or
furnish to any other person any information with respect to AOG for the purposes
of, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to seek or
effect an AOG Acquisition Transaction; provided, however, that (i) AOG may
furnish or cause to be furnished information concerning its businesses,
properties or assets to a third party; (ii) AOG may engage in discussions or
negotiations with a third party; (iii) following the receipt of a proposal for
an AOG Acquisition Transaction, the Board of Directors of AOG may withdraw,
modify or amend its recommendation to the stockholders of AOG regarding approval
of the Merger and this Agreement and discontinue the solicitation of proxies in
favor of such adoption and approval; and (iv) following receipt of a proposal
for an AOG Acquisition Transaction, AOG may take and disclose to its
stockholders a position contemplated by Rule 14e-2 under the Exchange Act or
otherwise make appropriate disclosures to AOG's stockholders, but in each case
referred to in the foregoing clauses (i) through (iv), only to the extent that
the Board of Directors of AOG concludes in good faith, after receipt of advice
from its outside financial advisors and legal counsel, that such action is
necessary for the Board of Directors of AOG to act in a manner which is
consistent with its fiduciary obligations under applicable law. AOG shall
promptly notify KNE (orally and in writing) if any such proposal or offer, or
any inquiry or contact with any person with respect thereto, is made.
3.3 Access to Information; Confidentiality. From the date hereof to the
Effective Time, AOG shall, and shall cause its Subsidiaries and its and their
officers, directors, employees and representatives to, afford the
representatives of KNE complete access during normal business hours to its
officers, employees, representatives, properties, books and records, and shall
furnish KNE all financial, operating and other data and information as KNE,
through its representatives, reasonably may request; provided, however, that
notwithstanding the foregoing provisions of this Section 3.3 or any other
provision of this Agreement, AOG shall not be required to provide to KNE any
information that is the subject of a confidentiality agreement and that relates
primarily to a party other than AOG, its Subsidiaries or a former Subsidiary of
AOG.
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AOG agrees to hold in confidence all, and not to disclose to others for any
reason whatsoever, any non-public information received by it, any of its
Subsidiaries or its or their representatives in connection with the transactions
contemplated hereby except (i) as required by law; (ii) for disclosure to
officers, directors, employees and representatives of AOG and its Subsidiaries
as necessary in connection with the transactions and filings contemplated hereby
or as necessary to the operation of AOG's business; and (iii) for information
which becomes publicly available other than through AOG. In the event the Merger
is not consummated, AOG will return all non-public documents and other material
obtained from KNE, its Subsidiaries or their representatives in connection with
the transactions contemplated hereby, or certify to KNE that such information
has been destroyed.
3.4 Share Transfer and Registration Agreement. AOG will use its reasonable
efforts to cause each stockholder who, in the opinion of counsel for AOG, is an
"affiliate" of AOG to enter into an agreement on the Closing Date substantially
in the form of Exhibit 3.4.
3.5 KNE Environmental Report. As soon as practicable after the date of
this Agreement, AOG may engage at its own expense Ecology and Environment, Inc.,
or such other environmental consulting firm as may be mutually acceptable to AOG
and KNE, to undertake and prepare a written environmental assessment report (the
"KNE Environmental Report") of such firm's environmental review of the business
and properties of KNE and its Subsidiaries, provided such review and report are
designed in course and scope to be completed no later than 60 days from the date
of this Agreement.
3.6 Governmental Filings. During the period from the date of this
Agreement to the Effective Time, AOG and its Subsidiaries shall, prior to making
any AOG Critical Filing (as defined below), make copies of such Critical Filing
available to KNE at a reasonable time prior to any filing deadline and, prior to
making such Critical Filing, AOG shall confer with KNE on the matters set forth
therein. Copies of filed Critical Filings shall be furnished to KNE promptly
upon filing. As used in this Agreement, an AOG Critical Filing shall mean any
filing by AOG or its Subsidiaries with the Federal Energy Regulatory Commission
("FERC") or any state utility commission or state or local public body having
jurisdiction over the gas pipeline or gas storage businesses and operations of
AOG or its Significant Subsidiaries which would (i) increase or seek to increase
a tariffed rate by more than 20%, (ii) seek abandonment of any service, or any
facility necessary to the performance of, any service accounting for more than
five percent of the consolidated revenues of AOG and its Subsidiaries or (iii)
represent or involve the incurrence by AOG or its Subsidiaries of obligations in
excess of $10 million.
ARTICLE IV
COVENANTS OF KNE PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by KNE Pending the Merger. KNE covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
AOG shall otherwise agree in writing or as otherwise expressly contemplated by
this Agreement or set forth in the KNE Disclosure Letter:
(a) The business of KNE and its Significant Subsidiaries shall be
conducted only in, and KNE and its Significant Subsidiaries shall not take
any action except in, the ordinary course of business and consistent with
past practice;
(b) KNE shall not directly or indirectly do any of the following: (i)
issue, sell, pledge, dispose of or encumber, or permit any of its
Significant Subsidiaries to issue, sell, pledge, dispose of or encumber,
(A) any capital stock of KNE or any of its Significant Subsidiaries except
pursuant to the KNE Stock Plans or (B) other than in the ordinary course of
business and consistent with past practice and not relating to the
borrowing of money, any assets of KNE or any of its Significant
Subsidiaries; (ii) amend or propose to amend the respective partnership
agreements, charters or bylaws of KNE or any of its Significant
Subsidiaries, except as required by the provisions of this Agreement; (iii)
split, combine or reclassify any outstanding capital stock, or declare, set
aside or pay any dividend payable in cash, stock, property or otherwise
with respect to its capital stock whether now or hereafter outstanding,
except for its regular quarterly cash dividends on the KNE Common Stock and
regular periodic dividends on the KNE
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Preferred; (iv) redeem, purchase or acquire or offer to acquire, or permit
any of its Significant Subsidiaries to redeem, purchase or acquire or offer
to acquire, any of its or their capital stock, except for acquisitions of
KNE Preferred to satisfy sinking fund obligations; (v) grant additional
options or awards or materially alter the terms of outstanding options or
awards pursuant to the KNE Stock Plans or the KNE LTIP, or materially
modify the provisions of any such plan; or (vi) except in the ordinary
course of business and consistent with past practice, enter into any
contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 4.1(b);
(c) KNE shall use all reasonable efforts (i) to preserve intact the
business organization of KNE and each of its Significant Subsidiaries, (ii)
to maintain in effect any franchises, authorizations, or similar rights of
KNE and each of its Significant Subsidiaries, (iii) to keep available the
services of its and their necessary officers and key employees, (iv) to
preserve the goodwill of those having business relationships with it and
its Significant Subsidiaries, (v) to maintain and keep its properties and
the properties of its Significant Subsidiaries in as good a repair and
condition as presently exists, except for deterioration due to ordinary
wear and tear and damage due to casualty, and (vi) to maintain in full
force and effect insurance comparable in amount and scope of coverage to
that currently maintained by it and its Significant Subsidiaries;
(d) KNE shall not make or agree to make, or permit any of its
Subsidiaries to make or agree to make, any new capital expenditure other
than those made in the ordinary course of business and consistent with past
practice;
(e) Neither KNE nor any of its Subsidiaries shall take, and KNE will
use its reasonable efforts to prevent any affiliate of KNE from taking, any
action that, in the judgment of Arthur Andersen & Co., KNE's independent
auditors, would cause the Merger not to be treated as a "pooling of
interests" for accounting purposes or as a reorganization within the
meaning of Section 368(a) of the Code;
(f) KNE shall, and shall cause its Subsidiaries to, perform their
respective obligations under any contracts and agreements to which any of
them is a party or to which any of their assets is subject, except to the
extent such failure to perform would not have a material adverse effect on
KNE, and except for such obligations as KNE or its Subsidiaries in good
faith may dispute; and
(g) KNE shall not, and shall not permit any of its Subsidiaries to,
take any action that would, or that reasonably could be expected to, result
in any of the representations and warranties set forth in this Agreement
becoming untrue or any of the conditions to the Merger set forth in Article
VI not being satisfied. KNE promptly shall advise AOG orally and in writing
of any change or event having, or which, insofar as reasonably can be
foreseen, would have, a material adverse effect on KNE.
4.2 No Shopping. KNE will not, directly or indirectly, through any
officer, director, employee, representative or otherwise, solicit, initiate or
encourage submission of proposals or offers from any person or entity (other
than AOG) relating to any merger, acquisition or purchase of all or (other than
in the ordinary course of business) a portion of the assets of, or any equity
interest in, KNE or any of its Significant Subsidiaries or any business
combination with KNE or any of its Significant Subsidiaries (collectively, a
"KNE Acquisition Transaction") or participate in any negotiations regarding, or
furnish to any other person any information with respect to KNE for the purposes
of, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to seek or
effect a KNE Acquisition Transaction; provided, however, that (i) KNE may
furnish or cause to be furnished information concerning its businesses,
properties or assets to a third party; (ii) KNE may engage in discussions or
negotiations with a third party; (iii) following the receipt of a proposal for a
KNE Acquisition Transaction, the Board of Directors of KNE may withdraw, modify
or amend its recommendation to the stockholders of KNE regarding approval of the
Merger and this Agreement and discontinue the solicitation of proxies in favor
of such adoption and approval; and (iv) following receipt of a proposal for a
KNE Acquisition Transaction, KNE may take and disclose to its stockholders a
position contemplated by Rule 14e-2 under the Exchange Act or otherwise make
appropriate disclosures to KNE's stockholders, but in each case referred to in
the foregoing clauses (i) through (iv), only to the extent that the Board of
Directors of KNE concludes in good faith, after
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receipt of advice from its outside financial advisors and legal counsel, that
such action is necessary for the Board of Directors of KNE to act in a manner
which is consistent with its fiduciary obligations under applicable law. KNE
shall promptly notify AOG (orally and in writing) if any such proposal or offer,
or any inquiry or contact with any person with respect thereto, is made.
4.3 Access to Information; Confidentiality. From the date hereof to the
Effective Time, KNE shall, and shall cause its Subsidiaries and its and their
officers, directors, employees and representatives to, afford the
representatives of AOG complete access during normal business hours to its
officers, employees, representatives, properties, books and records, and shall
furnish AOG all financial, operating and other data and information as AOG,
through its representatives, reasonably may request; provided, however, that
notwithstanding the foregoing provisions of this Section 4.3 or any other
provision of this Agreement, KNE shall not be required to provide to AOG any
information that is the subject of a confidentiality agreement and that relates
primarily to a party other than KNE, its Subsidiaries or a former Subsidiary of
KNE.
KNE agrees to hold in confidence all, and not to disclose to others for any
reason whatsoever, any non-public information received by it, any of its
Subsidiaries or its or their representatives in connection with the transactions
contemplated hereby except (i) as required by law; (ii) for disclosure to
officers, directors, employees and representatives of KNE and its Subsidiaries
as necessary in connection with the transactions and filings contemplated hereby
or as necessary to the operation of KNE's business; and (iii) for information
which becomes publicly available other than through KNE. In the event the Merger
is not consummated, KNE will return all non-public documents and other material
obtained from AOG, its Subsidiaries or their representatives in connection with
the transactions contemplated hereby, or certify to AOG that such information
has been destroyed.
4.4 Reservation of KNE Common Stock. KNE shall reserve for issuance, out
of its authorized but unissued capital stock, such number of shares of KNE
Common Stock as may be issuable (i) upon consummation of the Merger and (ii)
thereafter upon exercise of any Assumed Options or Assumed Warrants (as such
terms are defined in Sections 5.14 and 5.15).
4.5 Stock Exchange Listing; Regulatory Approvals. KNE shall use all
reasonable efforts to cause the shares of KNE Common Stock to be issued (i) upon
consummation of the Merger and (ii) thereafter upon exercise of any Assumed
Options or Assumed Warrants (as such terms are defined in Sections 5.14 and
5.15) to be approved for listing on the New York Stock Exchange, subject to
official notice of issuance, prior to the Closing Date. In addition, KNE shall
use all reasonable efforts to obtain the requisite approvals of the PUC and the
PSC for issuance of such shares, in each case prior to the Closing Date.
4.6 AOG Environmental Report. As soon as practicable after the date of
this Agreement, KNE may engage at its own expense Dames & Moore, or such other
environmental consulting firm as may be mutually acceptable to KNE and AOG, to
undertake and prepare a written environmental assessment report (the "AOG
Environmental Report") of such firm's environmental review of the business and
properties of AOG and its Subsidiaries, provided such review and report are
designed in course and scope to be completed no later than 60 days from the date
of this Agreement.
4.7 Governmental Filings. During the period from the date of this
Agreement to the Effective Time, KNE and its Subsidiaries shall, prior to making
any KNE Critical Filing (as defined below), make copies of such Critical Filing
available to AOG at a reasonable time prior to any filing deadline and, prior to
making such Critical Filing, KNE shall confer with AOG on the matters set forth
therein. Copies of filed Critical Filings shall be furnished to AOG promptly
upon filing. As used in this Agreement, a KNE Critical Filing shall mean any
filing or related filings by KNE or its Subsidiaries with the FERC or any state
utility commission or state or local public body having jurisdiction over the
gas pipeline, distribution or storage businesses and operations of KNE or its
Subsidiaries which would (i) increase or seek to increase a tariffed rate by
more than 20%, (ii) seek abandonment of any service, or any facility necessary
to the performance of, any service accounting in the aggregate for more than
five percent of the consolidated revenues of KNE and its Significant
Subsidiaries or (iii) represent or involve the incurrence by KNE or its
Subsidiaries of aggregate obligations in excess of $10 million.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement. As promptly
as practicable after the execution of this Agreement, KNE and AOG shall prepare
and file with the Commission the Proxy Statement in preliminary form. As
promptly as practicable after comments are received from the Commission on the
preliminary proxy materials and after the furnishing by AOG and KNE of all
information required to be contained therein, AOG and KNE shall file with the
Commission a registration statement on Form S-4 (the "Registration Statement")
containing the Proxy Statement as a prospectus and relating to, inter alia, the
approval and adoption of the Merger and this Agreement by the stockholders of
AOG and the issuance by KNE of KNE Common Stock in connection with the Merger
and the approval of such issuance by the stockholders of KNE, and AOG and KNE
shall use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. Subject to the terms and conditions
set forth in Section 3.2 and Section 5.3, the Proxy Statement shall contain the
recommendation of the Board of Directors of AOG that the stockholders of AOG
vote to approve and adopt the Merger and this Agreement. Subject to the terms
and conditions set forth in Section 4.2 and Section 5.3, the Proxy Statement
shall contain the recommendation of the Board of Directors of KNE that the
stockholders of KNE vote to approve (i) the issuance by KNE of the KNE Common
Stock contemplated by this Agreement and (ii) an amendment to the KNE Articles
increasing the number of authorized shares of KNE Common Stock to 50,000,000
shares and increasing the maximum number of directors of KNE from 14 to 15 (the
"Charter Amendment").
5.2 Comfort Letters.
(a) AOG shall use its reasonable efforts to cause to be delivered to KNE a
letter of Arthur Andersen & Co. dated as of a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to KNE, in form and substance reasonably satisfactory to KNE and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Registration Statement and Proxy Statement.
(b) KNE shall use its reasonable efforts to cause to be delivered to AOG a
letter of Arthur Andersen & Co. dated as of a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to AOG, in form and substance reasonably satisfactory to AOG and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Registration Statement and Proxy Statement.
5.3 Meetings of Stockholders.
(a) AOG shall promptly take all action reasonably necessary in accordance
with the DGCL and the AOG Certificate and bylaws to convene a meeting of its
stockholders to consider and vote upon the adoption and approval of the Merger
and this Agreement. Subject to the terms and conditions set forth in Section
3.2, the Board of Directors of AOG: (i) shall recommend at such meeting that the
stockholders of AOG vote to adopt and approve the Merger and this Agreement;
(ii) shall use its reasonable efforts to solicit from stockholders of AOG
proxies in favor of such adoption and approval; and (iii) shall take all other
action reasonably necessary to secure a vote of its stockholders in favor of the
adoption and approval of the Merger and this Agreement; provided that the
recommendation of the Board of Directors may be withdrawn, modified or amended,
and the actions required in clauses (ii) and (iii) hereof may be suspended, to
the extent that the Board of Directors determines in good faith, after receipt
of advice from its outside financial advisors and legal counsel, that the Board
of Directors is required to do so in the exercise of its fiduciary duties.
(b) KNE shall promptly take all action reasonably necessary in accordance
with the Kansas General Corporation Code (the "KGCC") and the KNE Articles and
bylaws to convene a meeting of its stockholders to consider and vote upon the
approval of the Charter Amendment and the issuance by KNE of the KNE Common
Stock contemplated by this Agreement. Subject to the terms and conditions set
forth in Section 4.2,
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the Board of Directors of KNE: (i) shall recommend at such meeting that the
stockholders of KNE vote to approve the Charter Amendment and such issuance;
(ii) shall use its reasonable efforts to solicit from stockholders of KNE
proxies in favor of such approval; and (iii) shall take all other action
reasonably necessary to secure a vote of its stockholders in favor of such
approval; provided that the recommendation of the Board of Directors may be
withdrawn, modified or amended, and the actions required in clauses (ii) and
(iii) hereof may be suspended, to the extent that the Board of Directors
determines in good faith, after receipt of advice from its outside financial
advisors and legal counsel, that the Board of Directors is required to do so in
the exercise of its fiduciary duties.
(c) Notwithstanding anything to the contrary in this Agreement, if the
Board of Directors of AOG or KNE, as the case may be, determines in good faith,
after receipt of advice from its outside financial advisors and legal counsel,
that the Board of Directors is required in the exercise of its fiduciary duties
to withdraw, modify or amend its recommendation, or suspend any action described
in clauses (ii) and (iii) of Section 5.3(a) or 5.3(b), such withdrawal,
modification, amendment or suspension of action shall not constitute a breach of
this Agreement.
5.4 Filings; Consents; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, AOG and KNE shall (i) make all necessary filings
with respect to the Merger and this Agreement under the HSR Act, the Securities
Act, the Exchange Act and applicable state takeover laws, blue sky or similar
securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto; (ii) obtain all consents,
waivers, approvals, authorizations and orders required in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger; and (iii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement.
5.5 Notification of Certain Matters. AOG shall give prompt notice to KNE,
and KNE shall give prompt notice to AOG, orally and in writing, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate at any time from the date hereof to the Effective Time,
(ii) any material failure or reasonably likely inability of AOG or KNE, as the
case may be, or any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder, and (iii) any fact or event that would make it necessary to
amend the Registration Statement or the Proxy Statement in order to render the
statements therein not misleading or to comply with applicable law.
5.6 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, whether before or after the Effective Time, the parties
hereto agree to cooperate and use their reasonable efforts to defend against and
respond thereto.
5.7 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses. Notwithstanding the provisions of the immediately
preceding sentence, (i) if this Agreement is terminated by KNE pursuant to
Section 7.1(e), then AOG shall promptly, but in no event later than three
business days after written request by KNE, pay to KNE an amount equal to
$7,000,000 in immediately available funds; and (ii) if this Agreement is
terminated by AOG pursuant to Section 7.1(f), then KNE shall promptly, but in no
event later than three business days after written request by AOG, pay to AOG an
amount equal to $7,000,000 in immediately available funds. Notwithstanding the
foregoing, AOG shall not be required to pay such amount to KNE if the AOG Board
of Directors, Goldman Sachs and Cabot Corporation support the Merger in all
respects, but this Agreement is not approved by the AOG stockholders, and KNE
shall not be required to pay such amount to AOG if the KNE Board and Petrie
Parkman & Co., Inc. support the approval of the issuance by KNE of the KNE
Common Stock pursuant to this Agreement and the Charter Amendment in all
respects, but such matters are not approved by the KNE stockholders.
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5.8 KNE's Board of Directors, Officers and Committees. KNE's Board of
Directors will take action to increase the number of directors comprising the
full Board of Directors of KNE at the Effective Time to 14 persons and the
directors of KNE shall elect as of the Effective Time four persons designated by
AOG to fill the vacancies created by the increase in the number of directors
prior to the Effective Time. The designees and their term of office and certain
new officers of KNE as of the Effective Time are set forth on Exhibit 5.8. If,
prior to the Effective Time, any such designees shall decline or be unable to
serve, AOG or KNE, as the case may be, shall designate another person to serve
in such person's stead. KNE's Board of Directors will also take action to cause
the election of an AOG designee to the audit and compensation committees of the
Board of Directors of KNE. KNE's Board of Directors will also take action to
cause a designee of Cabot Corporation to be elected as of the Effective Time as
an advisory director of KNE. In addition, the Board of Directors of KNE will
take action to establish a Management Committee consisting of four designees as
set forth on Exhibit 5.8.
5.9 Indemnification.
(a) AOG shall, and from and after the Effective Time, KNE and the Surviving
Corporation shall, to the fullest extent permitted under applicable law, defend,
indemnify and hold harmless each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Effective Time, an officer
or director of AOG or any of its Subsidiaries (each, an "Indemnified Party" and,
collectively, the "Indemnified Parties") against (i) all costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, administrative
or investigative, based in whole or in part on, or arising in whole or in part
out of, the fact that such person is or was an officer or director, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
(collectively, the "Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to, this Agreement, the Merger or the transactions contemplated
hereby. The Indemnified Parties shall be entitled to the indemnification
provided herein whether such Indemnified Liabilities shall be based on their own
negligence, whether such persons are solely, concurrently or comparatively
negligent, strict liability or any other theory of recovery. AOG (or after the
Effective Time, KNE and the Surviving Corporation) will be entitled to
participate in and, to the extent that it may wish, to assume the defense of any
action, with counsel reasonably satisfactory to the Indemnified Party but, if
any Indemnified Party believes that, by reason of an actual or potential
conflict of interest, it is advisable for such Indemnified Party to be
represented by separate counsel, or if AOG (or after the Effective Time, KNE and
the Surviving Corporation) shall fail to assume responsibility for such defense,
such Indemnified Party may retain counsel reasonably satisfactory to AOG (or
after the Effective Time, KNE and the Surviving Corporation) who will represent
such Indemnified Party, and AOG (or after the Effective Time, KNE and the
Surviving Corporation) shall pay all reasonable fees and disbursements of such
counsel promptly as statements therefor are received to the full extent
permitted by applicable law upon receipt of any undertaking contemplated by
Section 145(e) of the DGCL or Section 17-6305(e) of the KGCC, as the case may
be. The Indemnified Party and AOG (or after the Effective Time, KNE and the
Surviving Corporation) will cooperate with each other and use all reasonable
efforts to assist each other in the vigorous defense of any such matter;
provided, however, that neither AOG, KNE nor the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 5.9, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
AOG, KNE or the Surviving Corporation, as applicable (but the failure to be so
notified by an indemnifying party shall not relieve it from any liability which
it may have under this Section 5.9 except to the extent such failure prejudices
such party). The indemnifying parties shall be required to pay for only one law
firm selected by the Indemnified Parties as a group in accordance with the
foregoing provisions with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict in any significant
issue between the positions of any two or more Indemnified Parties.
(b) For a period of six years after the Effective Time, KNE shall, to the
extent commercially practicable, make all reasonable efforts to cause to be
maintained in effect the current policies of directors' and
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officers' liability insurance maintained by AOG, or such substitute policies of
at least the same coverage and amounts and terms and conditions which are no
less advantageous, with respect to claims arising from the facts or events which
occurred before the Effective Time, excluding pending and prior litigation or
claims that would have been required to have been reported on or prior to the
Effective Time under such current AOG policies and which pending and prior
litigation or claims were not timely reported under such policies. As a
condition precedent to the obligation of KNE to maintain or obtain such
policies, AOG shall cooperate in the seeking of such insurance.
(c) Nothing in this Section 5.9 shall give rise to any right to
indemnification for the malfeasance or willful misfeasance of any person. This
Section 5.9 is intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his heirs and his representatives.
5.10 AOG Employee Benefits.
(a) From and after the Effective Time until January 1, 1995, KNE and AOG
agree that any AOG Pension Plan shall be continued separately without change,
except for (i) changes required by applicable law, and (ii) changes not adverse
to the AOG Employees (as hereinafter defined), for the benefit of, and
participation therein shall be continue to be made available to the AOG
Employees; provided, however, that the employer matching contributions to be
made to each such plan on behalf of an AOG Employee who is a participant shall
be, as a percentage of such participant's contributions, at least equal to the
rate at which employer matching contributions for participants in such plan were
made by AOG for the plan year ending in 1993, subject to compliance with the
terms of each such AOG Pension Plan.
(b) From and after the Effective Time until January 1, 1995, KNE and AOG
agree that the AOG Benefit Plans (other than any AOG Pension Plans) existing as
of the Effective Time shall be continued without change for the benefit of the
AOG Employees, except for (i) changes required by applicable law, and (ii)
changes not adverse to the AOG Employees.
(c) From and after the Effective Time until January 1, 1995, KNE and AOG
agree that the AOG benefit policies, practices and programs existing as of the
Effective Time shall be continued without change for the benefit of the AOG
Employees, except for (i) changes required by applicable law, and (ii) changes
not adverse to the AOG Employees.
(d) In the event that an AOG Employee is transferred or reassigned from AOG
or any AOG Significant Subsidiary to an employment status with KNE or any
Significant Subsidiary (other than AOG) and is no longer covered under any of
the benefit plans, policies, practices or programs described in the preceding
paragraphs of this Section 5.10, such individual shall be afforded coverage
under the KNE Benefit Plans and benefit policies, practices or programs that are
available to similarly situated KNE employees on the terms provided in paragraph
(e) below.
(e) From and after January 1, 1995, KNE will provide or cause to be
provided to, the AOG Employees benefit plans, policies and programs that are no
less favorable than the benefit plans, policies and programs that KNE and its
Significant Subsidiaries provide to their similarly situated employees and shall
credit, or cause to be credited, the service that such AOG Employees had
completed with AOG, the AOG Significant Subsidiaries, their predecessors and any
previous service in connection with any business or assets acquired by AOG as of
the Effective Time (but only to the extent that any such service was recognized
by AOG) and service completed with KNE and its Significant Subsidiaries prior to
January 1, 1995, for all purposes under the KNE Benefit Plans, except for (i)
the accrual of benefits under any defined benefit pension plan, (ii) the
eligibility to participate in, or receive benefits under, any portion of a
welfare benefit plan which provides post-retirement medical, dental or other
health benefits, and (iii) any allocation of contributions under any defined
contribution pension plan for any plan year ending before the earlier of (A) the
date that such AOG Employee is transferred or reassigned from AOG or any AOG
Significant Subsidiary to an employment status with KNE or any Significant
Subsidiary (other than AOG) or (B) January 1, 1995. Further, with respect to any
KNE Benefit Plan which provides medical, dental or other health benefits, KNE
shall, or cause such plan to, waive any pre-existing conditions or limitations
thereunder applicable to the AOG Employees and their
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dependents to the extent that an AOG Employee or dependent's condition would not
have operated as a preexisting condition or would not have been subject to
limitation under any similar AOG Benefit Plan.
(f) The term "AOG Employees" shall mean those individuals who are employed
by AOG or any AOG Significant Subsidiary immediately prior to the Effective Time
and shall include those individuals employed by AOG or any AOG Significant
Subsidiary (or their successors) on or after the Effective Time. KNE agrees to
effect the removal of restrictions applicable to restricted AOG Common Stock
issued under the AOG Stock Incentive Plan promptly upon the lapse of such
restrictions in accordance with the terms of such grant and the AOG Stock
Incentive Plan.
(g) KNE shall guarantee all obligations of AOG and the AOG Significant
Subsidiaries arising under any AOG Benefit Plan, including, without limitation,
any severance plan, policy or agreement existing as of the Effective Time.
5.11 Standstill Agreement and Registration Rights Agreement. AOG's
agreements and obligations under its Standstill Agreement with its principal
stockholder, Cabot Corporation, will be terminated on or before the Closing Date
and KNE will enter into on the Closing Date a Registration Rights Agreement in
the form of Exhibit 5.11 with each "affiliate" of AOG or KNE who will hold at
the Effective Time one percent (1%) or more of the KNE Common Stock outstanding.
5.12 Tax Opinion. KNE covenants and agrees that during the two year period
following the Effective Time it will not cause or permit the Surviving
Corporation to discontinue its historic business or, in the alternative, cease
to use a significant portion of its historic business assets in a business.
5.13 Stockholders' Agreements. AOG has delivered to KNE agreements from
certain key stockholders of AOG whereby such persons agree to vote in favor of
the adoption and approval of this Agreement and in favor of the Merger, subject
to the terms and conditions of this Agreement.
5.14 AOG Stock Options.
(a) KNE agrees to assume, effective as of the Effective Time, each AOG
Option (whether or not vested) which remains as of such date unexercised in
whole or in part and to substitute shares of KNE Common Stock as purchasable
under such assumed option ("Assumed Option"), with such assumption and
substitution to be effected as follows:
(i) The Assumed Option shall not give the optionee additional benefits
which he did not have under the AOG Option before such assumption;
(ii) The number of shares of KNE Common Stock purchasable under any
Assumed Option shall be equal to the number of whole shares of KNE Common
Stock that the holder of the AOG Option being assumed would have received
upon consummation of the Merger had such AOG Option been exercised
immediately prior to the Merger;
(iii) The per share option price of the Assumed Option shall be equal
to the per share option price of the AOG Option divided by 0.47; and
(iv) The Assumed Option shall provide the optionee with the same
benefit rights which he had under the AOG Option before such assumption.
(b) As soon as practicable after the Effective Time, KNE shall deliver to
the holders of AOG Options appropriate agreements evidencing its assumption of
such options.
(c) Prior to the Effective Time, KNE shall file a registration statement on
Form S-8, with respect to the shares of KNE Common Stock issuable in respect of
the Assumed Options and KNE shall use its best efforts to cause such
registration statement to become effective promptly after the Effective Time and
to maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Assumed Options remain outstanding. So long as any holder of an Assumed
Option shall be subject to the reporting requirements under Section 16(a) of the
Exchange Act,
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KNE shall cause the AOG Stock Incentive Plan to be administered in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act.
5.15 AOG Warrants.
(a) KNE agrees to assume, effective as of the Effective Time, each AOG
Warrant which remains as of such date unexercised in whole or in part and to
substitute shares of KNE Common Stock as purchasable under such assumed warrant
("Assumed Warrants"), with such assumption and substitution to be effected as
follows:
(i) The Assumed Warrant shall not give the holder additional benefits
which it did not have under the AOG Warrant before such assumption;
(ii) The number of shares of KNE Common Stock purchasable under any
Assumed Warrant shall be equal to the number of shares of KNE Common Stock
that the holder of the AOG Warrant being assumed would have received upon
consummation of the Merger had such AOG Warrant been exercised immediately
prior to the Merger;
(iii) The per warrant exercise price of the Assumed Warrant shall be
equal to the per warrant exercise price of the AOG Warrant divided by 0.47;
and
(iv) The Assumed Warrant shall provide the holder with the same
benefit rights which the holder had under the AOG Warrant before such
assumption.
(b) On the Closing Date, KNE shall deliver to the holders of Assumed
Warrants appropriate agreements evidencing its assumption of such Assumed
Warrants and related registration rights (including all rights under that
certain Warrant Share Registration Rights Agreement dated November 19, 1988, by
and between AOG and Cabot Corporation).
5.16 Registration Statement on Form S-3. On or prior to the Closing Date,
KNE shall file the registration statement on Form S-3 described in the Share
Transfer and Registration Agreement provided for in Section 3.4 hereof. KNE
shall use its best efforts to cause such registration statement to become
effective on or before the Closing Date. KNE shall make such registration
statement available to all "affiliates" of KNE and AOG who will beneficially own
more than one percent (1%) of the issued and outstanding shares of KNE Common
Stock immediately after the Effective Time.
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote of the stockholders of AOG, and the issuance by KNE
of the KNE Common Stock contemplated by this Agreement and the Charter
Amendment shall have been approved by the stockholders of KNE, in each case
as may be required by law, by the rules of the New York Stock Exchange and
by any applicable provisions of their respective charters or bylaws;
(b) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;
(c) No order shall have been entered and remain in effect in any
action or proceeding before any foreign, federal or state court or
governmental agency or other foreign, federal or state regulatory or
administrative agency or commission that would prevent or make illegal the
consummation of the Merger;
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(d) The Registration Statement shall be effective on the Closing Date,
and all post-effective amendments filed shall have been declared effective
or shall have been withdrawn; and no stop-order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the Commission;
(e) There shall have been obtained any and all material permits,
approvals, qualifications and consents of securities or blue sky
commissions of any jurisdiction, the PUC, the PSC and of any other
governmental body or agency, that reasonably may be deemed necessary so
that the consummation of the Merger and the transactions contemplated
thereby will be in compliance with applicable laws, the failure to comply
with which would have a material adverse effect on KNE after consummation
of the Merger;
(f) The shares of KNE Common Stock issuable (i) upon consummation of
the Merger and (ii) thereafter upon exercise of any Assumed Options or
Assumed Warrants shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance;
(g) All approvals of private persons or corporations, (i) the granting
of which is necessary for the consummation of the Merger or the
transactions contemplated in connection therewith and (ii) the non-receipt
of which would have a material adverse effect on KNE after the consummation
of the Merger, shall have been obtained; and
(h) After the date of this Agreement and prior to the Closing, there
shall not have been (i) any action taken, or any statute, rule, regulation
or order enacted, issued, entered, enforced or deemed applicable to the
Merger or to KNE or its Significant Subsidiaries by any federal or state
governmental entity which in connection with the grant of a requisite
regulatory approval for the Merger and the transactions contemplated in
this Agreement, imposes any condition or restriction upon or applicable to
KNE or its Significant Subsidiaries after the Effective Time or (ii) any
other action taken, or rule, regulation or order issued or entered, by the
FERC, the PUC, the PSC or any municipality or group of municipalities which
is applicable to KNE or its Significant Subsidiaries, which in either case
would have a material adverse effect on KNE after the Effective Time.
6.2 Additional Conditions to Obligations of KNE. The obligation of KNE to
effect the Merger is, at the option of KNE, also subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) The representations and warranties of AOG contained in Section 2.2
shall be accurate as of the Closing Date (except for such representations
and warranties that by their terms are expressly limited to the date hereof
or some other date) as though such representations and warranties had been
made at and as of that time; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by AOG on or before the
Closing Date shall have been duly complied with and performed in all
material respects, and a certificate to the foregoing effect dated the
Closing Date and signed by the chief executive officer of AOG shall have
been delivered to KNE;
(b) Since the date of this Agreement, no material adverse change in
the business, operations or financial condition of AOG and its
Subsidiaries, taken as a whole, shall have occurred, and AOG and its
Subsidiaries shall not have suffered any damage, destruction or loss
(whether or not covered by insurance) having a material adverse effect on
AOG, and KNE shall have received a certificate signed by the chief
executive officer of AOG dated the Closing Date to such effect;
(c) KNE shall have been advised in writing on the Closing Date by
Arthur Andersen & Co. that, in accordance with generally accepted
accounting principles, the Merger qualifies for treatment as a "pooling of
interests" for accounting purposes if consummated in accordance with this
Agreement, and that AOG is a poolable entity;
(d) The Board of Directors of KNE shall have received from Petrie
Parkman & Co., Inc. a written opinion, dated as of the date of this
Agreement, satisfactory in form and substance to the Board of Directors of
KNE, to the effect that the number of shares of KNE Common Stock to be
issued for each share of AOG Common Stock pursuant to the Merger is fair to
the stockholders of KNE, which opinion
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<PAGE> 100
shall have been confirmed in writing to such Board as of the date the Proxy
Statement is first mailed to the stockholders of KNE and not subsequently
withdrawn;
(e) AOG shall have received, and furnished written copies to KNE of,
the AOG affiliates' agreements pursuant to Section 3.4;
(f) KNE shall have received from Messrs. Andrews & Kurth L.L.P. and
the General Counsel of AOG opinions dated the Effective Time covering the
matters set forth in Exhibit 6.2(f);
(g) KNE shall have received a copy of the "comfort letter" of Arthur
Andersen & Co. pursuant to Section 5.2(a) and on or prior to the Closing
Date an additional letter from Arthur Andersen & Co. dated as of the
Closing Date, in form and substance reasonably satisfactory to KNE, stating
that nothing has come to their attention, as of a date no earlier than five
days prior to the Closing Date, which would require any change in their
letter delivered pursuant to Section 5.2(a) if it were required to be dated
and delivered on the Closing Date;
(h) KNE shall have received from Messrs. Vinson & Elkins L.L.P. a
written opinion dated as of the date that the Proxy Statement is first
mailed to stockholders of KNE to the effect that (i) the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, (ii) KNE, Sub and AOG will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code, and (iii) KNE, Sub and AOG shall not recognize any gain or loss as a
result of the Merger, and such opinion shall not have been withdrawn or
modified in any material respect;
(i) KNE shall have received the AOG Environmental Report, such report
shall not indicate violations of, or noncompliance with, or reclamation or
remediation obligations under, federal, state or local environmental laws,
rules, regulations, ordinances or orders, in effect as of the Effective
Time, which violations, noncompliance or obligations, in the aggregate, are
reasonably likely to result in the incurrence by AOG or its Significant
Subsidiaries of a material liability;
(j) KNE shall have determined that the gas processing plants, gas
storage facilities, gas gathering and transmission facilities and other
material properties of AOG and the AOG Significant Subsidiaries are in good
working order and repair (reasonable wear and tear excepted); and
(k) The Amended and Restated Basket Agreement dated as of June 30,
1990, between American Pipeline Company, Cabot Corporation and Cabot
Transmission Corporation shall have been terminated on terms and conditions
reasonably satisfactory to KNE.
6.3 Additional Conditions to Obligations of AOG. The obligation of AOG to
effect the Merger is, at the option of AOG, also subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) The representations and warranties of KNE and Sub contained in
Section 2.1 shall be accurate as of the Closing Date (except for such
representations and warranties that by their terms are expressly limited to
the date hereof or some other date) as though such representations and
warranties had been made at and as of that time; all the terms, covenants
and conditions of this Agreement to be complied with and performed by KNE
or Sub on or before the Closing Date shall have been duly complied with and
performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive officers of
KNE or Sub shall have been delivered to AOG;
(b) Since the date of this Agreement, no material adverse change in
the business, operations or financial condition of KNE and its
Subsidiaries, taken as a whole, shall have occurred, and KNE and its
Subsidiaries shall not have suffered any damage, destruction or loss
(whether or not covered by insurance) materially adversely affecting KNE,
and AOG shall have received a certificate signed by the chief executive
officer of KNE dated the Closing Date to such effect;
(c) AOG shall have been advised in writing on the Closing Date by
Arthur Andersen & Co. that, in accordance with generally accepted
accounting principles, the Merger qualifies for treatment as a "pooling of
interests" for accounting purposes if consummated in accordance with this
Agreement, and that KNE is a poolable entity;
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<PAGE> 101
(d) AOG shall have received from Goldman Sachs a written opinion,
dated as of the date of this Agreement, satisfactory in form and substance
to the Board of Directors of AOG, to the effect that the number of shares
of KNE Common Stock to be issued for each share of AOG Common Stock
pursuant to the Merger is fair to the stockholders of AOG, which opinion
shall have been confirmed in writing to such Board as of the date the Proxy
Statement is first mailed to the stockholders of AOG and not subsequently
withdrawn;
(e) The Board of Directors of KNE shall have taken such action as may
be necessary to elect the persons listed on Exhibit 5.8 to the positions
and for the terms set forth on Exhibit 5.8, effective as of the Effective
Time;
(f) AOG shall have received from Messrs. Andrews & Kurth L.L.P.,
counsel to AOG, a written opinion dated as of the date that the Proxy
Statement is first mailed to stockholders of AOG to the effect that (i) the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) KNE, Sub and AOG
will each be a party to that reorganization within the meaning of Section
368(b) of the Code; and (iii) the stockholders of AOG shall not recognize
any gain or loss as a result of the Merger, other than to the extent such
stockholders receive cash in lieu of fractional shares, and such opinion
shall not have been withdrawn or modified in any material respect;
(g) AOG shall have received from Messrs. Vinson & Elkins L.L.P. and
the General Counsel of KNE opinions dated the Effective Time covering the
matters set forth in Exhibit 6.3(g);
(h) AOG shall have received a copy of the "comfort letter" of Arthur
Andersen & Co. pursuant to Section 5.2(b) and on or prior to the Closing
Date an additional letter from Arthur Andersen & Co. dated as of the
Closing Date, in form and substance reasonably satisfactory to AOG, stating
that nothing has come to their attention, as of a date no earlier than five
days prior to the Closing Date, which would require any change in their
letter delivered pursuant to Section 5.2(b) if it were required to be dated
and delivered on the Closing Date;
(i) AOG shall have been advised by Cabot Corporation, the principal
stockholder of AOG, that it has received evidence satisfactory to it in the
form of a "no action" letter from the Commission to the effect that, under
Section 2(a)(7) of PUHCA, the Commission would take no action with respect
to Cabot Corporation upon consummation of the Merger asserting Cabot
Corporation to be a public utility holding company under PUHCA with respect
to KNE;
(j) AOG shall have received the KNE Environmental Report, and such
report shall not indicate violations of, or noncompliance with, or
reclamation or remediation obligations under, federal, state or local
environmental laws, rules, regulations, ordinances, or orders, in effect as
of the Effective Time, which violations, noncompliance or obligations, in
the aggregate, are reasonably likely to result in the incurrence by KNE or
its Significant Subsidiaries of a material liability; and
(k) The Bylaws of KNE shall have been amended by the Board of
Directors of KNE in the manner set forth in Exhibit 6.3(k) hereto.
(l) The registration statement referred to in Section 5.16 shall have
become effective.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether prior to or after approval by the stockholders of AOG:
(a) by mutual consent of KNE and AOG;
(b) by either KNE or AOG if the Merger has not been effected on or
before October 31, 1994;
(c) by KNE if the condition set forth in Section 6.2(d), 6.2(i),
6.2(j) or 6.2(k) is not satisfied;
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<PAGE> 102
(d) by AOG if the condition set forth in Section 6.3(d), 6.3(i) or
6.3(j) is not satisfied;
(e) by KNE if (A) an AOG Acquisition Transaction has been proposed and
(i) the recommendation of the Board of Directors of AOG in favor of the
adoption and approval of the Merger and this Agreement is withdrawn; (ii)
regardless of whether such recommendation remains in effect, the Merger is
not approved by the requisite vote of the stockholders of AOG; or (iii) the
opinion of Goldman Sachs pursuant to Section 6.3(d) is withdrawn or (B) if
Cabot Corporation does not file or, for any reason, withdraws its request
for a "no action" letter from the Commission as set forth in Section 6.3(i)
herein;
(f) by AOG if a KNE Acquisition Transaction has been proposed and (i)
the recommendation of the Board of Directors of KNE in favor of the
approval of the issuance by KNE of the KNE Common Stock contemplated by
this Agreement or the Charter Amendment is withdrawn; (ii) regardless of
whether such recommendation remains in effect, either such matter is not
approved by the requisite vote of the stockholders of KNE; or (iii) the
opinion of Petrie Parkman & Co., Inc. pursuant to Section 6.2(d) is
withdrawn;
(g) by either KNE or AOG if a final, unappealable order restraining,
enjoining or otherwise preventing, ordering the divestiture of substantial
assets or awarding substantial damages in connection with, a consummation
of this Agreement or the transactions contemplated in connection herewith
shall have been entered;
(h) by either KNE or AOG if (i) the required approval of the
stockholders of AOG for the adoption and approval of the Merger and this
Agreement, or (ii) the required approval of the stockholders of KNE of the
matters set forth in paragraph (f) above, is not received at their
respective meetings;
(i) by KNE if (i) since the date of this Agreement there has been a
material adverse change with respect to AOG, or (ii) there has been a
material breach of any representation or warranty set forth in this
Agreement by AOG, which breach has not been cured within five business days
following receipt by AOG of notice of such breach; or
(j) by AOG if (i) since the date of this Agreement there has been a
material adverse change with respect to KNE, or (ii) there has been a
material breach of any representation or warranty set forth in this
Agreement by KNE or Sub, which breach has not been cured within five
business days following receipt by KNE of notice of such breach.
7.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 7.1, AOG on the one hand and KNE and Sub on the
other hand shall have no obligation or liability to each other except that (i)
the provisions of the second paragraphs of Sections 3.3 and 4.3 and the
provisions of Sections 5.6, 5.7, 5.9 and Article VII shall survive any such
termination, and (ii) nothing herein and no termination pursuant hereto will
relieve any party from liability for any breach of this Agreement.
7.3 Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is, or whose stockholders are, entitled to the
benefits thereof. This Agreement may not be amended or supplemented at any time,
except by an instrument in writing authorized by action taken by the Board of
Directors and signed on behalf of each party hereto, provided that after this
Agreement has been approved and adopted by the stockholders of AOG, this
Agreement may be amended only as may be permitted by applicable provisions of
the DGCL. The waiver by any party hereto of any condition or of a breach of
another provision of this Agreement shall not operate or be construed as a
waiver of any other condition or subsequent breach. The waiver by any party
hereto of any of the conditions precedent to its obligations under this
Agreement shall not preclude it from seeking redress for breach of this
Agreement other than with respect to the condition so waived.
7.4 Nonsurvival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants or agreements in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the terms of Article I, the second, third
and fourth paragraphs of Section 2.1(j), the second, third and fourth paragraphs
of Section 2.2(j), Sections 5.7, 5.9, 5.10,
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<PAGE> 103
5.11, 5.12, 5.14 and 5.15, Article VII, and the agreements of the affiliates of
AOG delivered pursuant to Section 3.4.
7.5 Public Statements. AOG and KNE agree to consult with each other prior
to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or applicable stock exchange policy.
7.6 Assignment. This Agreement shall inure to the benefit of and will be
binding upon the parties hereto and their respective successors and permitted
assigns. Except as set forth in this Agreement, this Agreement shall not be
assignable by the parties hereto.
7.7 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be (i) delivered in person or by courier, (ii)
sent by telecopy or facsimile transmission, answer back requested, or (iii)
mailed, certified first class mail, postage prepaid, return receipt requested,
to the parties hereto at the following addresses:
<TABLE>
<S> <C>
if to AOG: American Oil and Gas Corporation
333 Clay, Suite 2000
Houston, Texas 77002
Attention: David M. Carmichael, Chairman of the Board
with a copy to: Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: P. Dexter Peacock
if to KNE or Sub: K N Energy, Inc.
370 Van Gordon Street
P.O. Box 281304
Lakewood, Colorado 80228-8304
Attention: Larry D. Hall, President
with a copy to: Vinson & Elkins L.L.P.
2500 First City Tower
Houston, Texas 77002-6760
Attention: Robert H. Whilden, Jr.
</TABLE>
or to such other address as any party shall have furnished to the others by
notice given in accordance with this Section 7.7. Such notices shall be
effective only upon receipt.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware.
7.9 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
7.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.
7.11 Headings. The Article or Section headings herein are for convenience
only and shall not affect the construction hereof.
7.12 Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all other prior agreements and understandings, both oral and written,
among the parties or any of them, with respect to the subject matter hereof.
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<PAGE> 104
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized, all as of the
date first above written.
K N Energy, Inc.
By: /s/ CHARLES W. BATTEY
--------------------------------------
Charles W. Battey, Chairman of the
Board
KNE Acquisition Corporation
By: /s/ LARRY D. HALL
--------------------------------------
Larry D. Hall, President
American Oil and Gas Corporation
By: /s/ DAVID M. CARMICHAEL
--------------------------------------
David M. Carmichael, Chairman of
the Board
A-32
<PAGE> 105
EXHIBIT 5.8
TO
AGREEMENT OF MERGER
AOG DIRECTOR DESIGNEES:
<TABLE>
<CAPTION>
TERM
NAME EXPIRES
----------------------------------------------------------------------------- -------
<S> <C>
David M. Carmichael.......................................................... 1997
Edward H. Austin, Jr......................................................... 1997
Edward Randall, III.......................................................... 1996
[To be designated by AOG prior to the effectiveness of the Registration
Statement referred to in Section 5.1]...................................... 1996
</TABLE>
Certain Officers of KNE at the Effective Time of the Merger:
<TABLE>
<CAPTION>
NAME OFFICE
------------------------------------------------- --------------------------------------
<S> <C>
Charles W. Battey................................ Chairman of the Board
David M. Carmichael.............................. Vice Chairman of the Board
Larry D. Hall.................................... President and Chief Executive Officer
</TABLE>
MANAGEMENT COMMITTEE DESIGNEES:
David M. Carmichael, Chairman
Charles W. Battey
Edward H. Austin, Jr.
Larry D. Hall
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<PAGE> 106
EXHIBIT 6.3(K)
TO
AGREEMENT OF MERGER
AMENDMENT TO BY-LAWS
OF KN ENERGY, INC.
The Board of Directors of KNE shall adopt the following amendment to its
By-Laws as of the Effective Date:
"ARTICLE XII
SPECIAL MANAGEMENT PROVISIONS
SECTION 1. General. The provisions of this Article XII of the By-Laws have
been adopted by the Board of Directors of the Corporation pursuant to that
certain Agreement of Merger by and between the Corporation, KNE Acquisition
Corporation, a Delaware corporation, and American Oil and Gas Corporation, a
Delaware corporation dated March , 1994 (the "Merger Agreement"). Capitalized
terms used in this Article XII not otherwise defined herein shall have the
meaning ascribed to them in the Merger Agreement. The provisions of this Article
XII shall be effective from and after the Effective Time notwithstanding any
other provisions of these By-Laws to the contrary. In the event of a conflict
between the provisions of this Article XII and other provisions of the By-Laws,
the provisions of this Article XII shall control.
SECTION 2. Management Committee. The Corporation shall establish a
Management Committee consisting of four (4) members of the Board of Directors.
The initial members of the Management Committee shall consist of David M.
Carmichael (who shall serve as the Chairman), Charles W. Battey, Edward H.
Austin, Jr. and Larry D. Hall. The initial directors serving on the Management
Committee shall serve for a term which shall end upon the earlier of (i) the
date of such director's resignation, removal or failure to stand for reelection
to the Board of Directors, and (ii) the date of the Corporation's annual meeting
of stockholders in the year 1996. The duties delegated by the Board of Directors
to the Management Committee shall consist of (w) oversight and direction of
management decisions with respect to the day-to-day operations of the
Corporation and its subsidiaries, (x) oversight and direction of matters
relating to the integration and consolidation of the business, operations and
assets of the Corporation with those of American Oil and Gas Corporation and its
subsidiaries, (y) the duties, powers and procedures heretofore delegated to the
Executive Committee in Article VI of these By-laws, and (z) such additional
duties as are from time to time delegated to the Management Committee by the
Board of Directors. The Corporation shall not have an Executive Committee.
SECTION 3. Vice-Chairman. The office of Vice-Chairman of the Board shall be
established by the Board of Directors. The Vice-Chairman shall perform the
duties of the Chairman of the Board as provided in these By-Laws in the
Chairman's absence and such additional duties as the Board of Directors may
prescribe from time to time.
SECTION 4. Chief Executive Officer/Chief Operating Officer. The Board of
Directors may elect only the Chief Executive Officer or the Chief Operating
Officer as President of the Corporation. The Chief Operating Officer shall be
elected by the Board of Directors upon recommendation of the Management
Committee.
SECTION 5. Cabot Director. For so long as Cabot Corporation shall continue
to own beneficially (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission) 10% or more of the issued and outstanding
voting stock of the Corporation, Cabot Corporation shall have the right to
designate one person to serve as an advisory director of the Corporation. In the
event beneficial ownership of Cabot Corporation of the issued and outstanding
voting stock of the Corporation falls below 10% but constitutes more than 5%,
the Board of Directors shall appoint the Cabot Corporation advisory director as
a full director, to serve the then remaining term of a Class II director. For so
long as Cabot Corporation continues to own beneficially less than 10% but more
than 5% of the issued and outstanding voting stock of the Corporation, the Board
of Directors shall nominate a Cabot Corporation designee (provided that such
nominee is otherwise
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<PAGE> 107
qualified as required by these Bylaws) for election by the Corporation's
shareholders as a director. The Corporation shall at all times during which
Cabot Corporation shall beneficially own in excess 10% of the issued and
outstanding voting stock of the Corporation, maintain a vacancy on its Board of
Directors for such Cabot designee.
SECTION 6. Terms of Office for Certain Officers. The persons designated as
of the Effective Time to hold the offices of Chairman of the Board, Vice
Chairman of the Board, President, Chief Executive Officer and Chairman of the
Management Committee will be elected to terms commencing as of the Effective
Time and terminating on the date of the Corporation's annual meeting of
stockholders in 1966. After such date, notwithstanding any other provision of
this Article XII to the contrary, such officers shall be elected by majority of
the Board of Directors.
SECTION 7. Vacancies in Certain Offices. Any vacancy arising following the
Effective Time and prior to the Corporation's Annual Meeting of Stockholders in
1996, in the offices of the Chairman of the Board, Vice-Chairman of the Board,
President, Chief Executive Officer or Chief Operating Officer, or on the
Management Committee or the Chairman of the Management Committee, shall be
filled by the Board of Directors upon recommendation by a Special Nominating
Committee of the Board of Directors. The Board of Directors shall by majority
vote establish a Special Nominating Committee in the event of a vacancy in any
of the foregoing positions. The Special Nominating Committee shall consist of
four directors, two of whom shall be designated by the Board of Directors from
the directors of the Corporation who served as a director prior to the Effective
Time, and two of whom shall be designated by the directors designated by
American Oil and Gas Corporation in the Merger Agreement.
SECTION 8. Continuation of Retirement Policy. The Corporation shall
continue its present retirement policy that officers of the Corporation
(including the Chairman of the Board, Vice-Chairman of the Board, President and
Chief Executive Officer or Chief Operating Officer) shall be ineligible and
cease to serve as an officer of the Corporation as of the first of the month
coincident with or next following his or her 65th birthday.
SECTION 9. Super-Majority Vote. For purposes of this Article XII, the term
"Super-Majority Vote" shall mean the affirmative vote of at least 12 of a
14-member Board of Directors; at least 11 of a 13-member Board of Directors; at
least 10 of a 12-member Board of Directors; at least 9 of an 11-member Board of
Directors; or in all other cases, the affirmative vote of a number of directors
equal to at least 85% of the total number of directors. A Super-Majority Vote
shall be required for the following actions to be taken by the Board of
Directors; (i) amendment, modification or revocation of any provision of this
Article XII; (ii) amendment, modification or revocation of the current
retirement policy of the Corporation; and (iii) any increase in the number of
members to serve on the Board of Directors; provided that, no Super-Majority
Vote shall be required for any such action taken by the Board of Directors from
and after the date of the annual stockholders meeting for 1997."
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<PAGE> 108
APPENDIX B
PETRIE PARKMAN & CO.
6350 Texas Commerce Tower
Houston, Texas 77002
713/650-3383 - Fax: 713/650-8461
March 24, 1994
The Board of Directors
K N Energy, Inc.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228
Dear Sirs:
You have asked us to advise you with respect to the fairness from a
financial point of view to the stockholders of K N Energy, Inc. ("KNE") of the
consideration to be paid by or on behalf of KNE pursuant to the terms of the
Merger Agreement, dated as of the 24th day of March, 1994 (the "Merger
Agreement"), among KNE, KNE Acquisition Corporation, a wholly-owned subsidiary
of KNE ("Sub"), and American Oil and Gas Corporation ("AOG"). The Merger
Agreement provides for the merger (the "Merger") of Sub with and into AOG
pursuant to which AOG will become a wholly-owned subsidiary of KNE and each
issued and outstanding share of common stock, par value $0.04 per share, of AOG
will be converted into the right to receive 0.47 of a share of common stock, par
value $5.00 per share, of KNE (the "Shares").
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to AOG and KNE, including audited financial statements
for AOG and KNE as of December 31, 1993;
(ii) analyzed certain internal financial and operating data concerning
AOG and KNE, all of which were prepared or provided by the management of
AOG or KNE;
(iii) discussed the current operations and prospects of AOG with the
management and operating staff of AOG and KNE;
(iv) discussed with the management and operating staff of KNE the
current operations and prospects of KNE and the expected operations and
prospects of the combined company, giving proforma effect to the merger,
including the operational efficiencies expected by KNE to be realized from
the Merger;
(v) reviewed the draft gas supply of Huddleston & Co., Inc.
("Huddleston"), an independent petroleum engineering firm, dated February
10, 1994 relating to the gas reserves which are presently or, as deemed by
Huddleston, could be in the future, connected and/or dedicated to AOG's
gathering systems;
(vi) reviewed the historical market prices and trading volume of the
shares of common stock of KNE and AOG;
(vii) compared the financial terms of the Merger with the financial
terms of certain other transactions which we deemed to be relevant;
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<PAGE> 109
(viii) discussed the Merger with Cabot Corporation ("Cabot"),
including Cabot's plans with respect to the Shares to be acquired by it
pursuant to the Merger; and
(ix) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have not independently verified the information considered in our
review, and for purposes of the opinion set forth below, we have assumed and
relied upon the accuracy and completeness of such information, including,
without limitation, the statement made in the discussions referred to above.
With respect to the gas supply study and the financial and operating data,
including the operational efficiencies expected by KNE to be realized from the
Merger, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments relating to the
gas properties which are presently or could reasonably be expected to be
connected and/or dedicated to AOG's gathering systems and the future financial
and operational performance of AOG and KNE. Consistent with the Merger
Agreement, we have assumed that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, and will be treated as "a pooling of
interests" for accounting purposes. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities of AOG or KNE nor, except
for the gas supply study and estimates referred to above, have we been furnished
with such an evaluation or appraisal.
Our opinion relates solely to the fairness from a financial point of view
to the stockholders of KNE of the consideration to be paid by or on behalf of
KNE pursuant to the Merger. We have not been requested to, and do not, express
any opinion regarding the fairness to AOG, Cabot, or any other stockholder of
AOG of the consideration to be received by each of them as a result of the
Merger. Our engagement and the opinion expressed herein are solely for the
benefit of KNE's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, AOG, any stockholder of KNE or AOG,
or any person other than KNE's Board of Directors. This letter may not be used
for any other purpose without our prior written consent. As you are aware, we
will receive a fee in connection with rendering this opinion and a fee for
advising KNE in connection with the Merger.
Our opinion is rendered on the basis of conditions in the securities
markets and the oil and gas markets prevailing as of the date hereof and the
condition and prospects, financial and otherwise, of AOG and KNE as they have
been represented to us as of the date hereof or as they were reflected in the
materials and discussions described above.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by or on behalf of KNE in connection
with the Merger is fair to the stockholders of KNE from a financial point of
view.
Very truly yours,
/s/ JOHN C. HUGHES
B-2
<PAGE> 110
APPENDIX C
DRAFT
[LETTERHEAD OF GOLDMAN, SACHS & CO.]
June , 1994
Board of Directors
American Oil and Gas Corporation
333 Clay Street, Suite 2000
Houston, Texas 77002
Dear Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.04 per share ("AOG Common
Stock"), of American Oil and Gas Corporation ("AOG" or the "Company") of the
exchange ratio of 0.47 shares of Common Stock, par value $5.00 per share ("KNE
Common Stock"), of KN Energy, Inc. ("KNE") per share of AOG Common Stock (the
"Exchange Ratio") to be received by holders of AOG Common Stock pursuant to the
Agreement of Merger dated as of March 24, 1994 among KNE and the Company (the
"Merger Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with AOG having acted as its financial advisor from time to time,
including having acted as its financial advisor in connection with and having
participated in certain of the negotiations leading to the Merger Agreement.
In connection with this opinion, we have reviewed, among other things, the
Merger Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K
of the Company and KNE for the five years ended December 31, 1993; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and KNE; certain other communications from the Company and KNE to their
respective stockholders; and certain internal financial analyses and forecasts
for AOG and KNE prepared by their respective managements. We also have held
discussions with members of the senior management of AOG and KNE regarding the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for AOG Common Stock and KNE Common Stock, compared certain
financial and stock market information for AOG and KNE with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations and
performed such other studies and analyses as we considered appropriate. We were
not requested to solicit and did not solicit interest from other parties in a
potential business combination. Our opinion does not address the relative merits
of the transaction contemplated pursuant to the Merger Agreement as compared to
any alternative business transaction that might be available to the Company.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the projected cost savings and operating synergies resulting from the
transaction contemplated pursuant to the Merger Agreement have been reasonably
prepared on a basis reflecting the best currently available judgements and
estimates of AOG and KNE and management of AOG has advised us that we may
assume, and we have so assumed, for the purposes of this opinion the
reasonableness and achievability of such projected cost savings and operating
synergies. In addition, we have not made an independent evaluation or appraisal
of the assets and liabilities of the Company or KNE or any of their respective
subsidiaries and we have not been furnished with any such evaluation or
C-1
<PAGE> 111
appraisal. We have assumed, with your consent, that the consummation of the
transaction contemplated pursuant to the Merger Agreement will be recorded as a
pooling of interests under generally accepted accounting principles.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Merger Agreement is fair to the holders of AOG
Common Stock.
Very truly yours,
C-2
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-6305 of the Kansas General Corporation Law provides that a
Kansas corporation shall have power to indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action or suit (including an action by or in the right of the
corporation to procure a judgment in its favor) or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit by or
in the right of the corporation, including attorney fees, and against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, including
attorney fees, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation; and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. Article Ninth of
the articles of incorporation of the registrant requires the registrant to
provide substantially the same indemnification of its directors and officers as
that authorized by Kansas General Corporation Law.
The registrant has insurance policies which, among other things, include
liability insurance coverage for directors and officers, with a $200,000
corporate reimbursement deductible clause, under which directors and officers
are covered against "loss" arising from any claim or claims which may be made
against a director or officer by reason of any "wrongful act" in their
respective capacities as directors and officers. "Loss" is defined so as to
exclude, among other things, fines or penalties, as well as matters deemed
uninsurable under the law pursuant to which the policy is to be construed.
"Wrongful act" is defined to include any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement or omission done or
wrongfully attempted. The policy also contains other specific definitions and
exclusions and provides an aggregate of more than $20,000,000 of insurance
coverage.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- ----------------------------------------------------------------------
<S> <C>
2 Agreement of Merger among K N Energy, Inc., KNE Acquisition
Corporation and American Oil and Gas Corporation, dated March 24,
1994. Included as Annex A to the Joint Proxy Statement/Prospectus.
4.1 Restated Articles of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 28 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1988.
4.2 By-laws of the Registrant, as amended. Incorporated herein by
reference to Exhibit 4.2 to Registration Statement on Form S-3 (File
No. 33-42698).
4.3 Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of the Class A
$8.50 Cumulative Preferred Stock, Without Par Value, of the
Registrant. Incorporated herein by reference to Exhibit 4.3 to
Registration Statement on Form S-3 (File No. 33-26314).
</TABLE>
II-1
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- ----------------------------------------------------------------------
<S> <C>
4.4 Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional and Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of the Class B
$8.30 Series Cumulative Preferred Stock, Without Par Value, of the
Registrant. Incorporated herein by reference to Exhibit 4.4 to
Registration Statement on Form S-3 (File No. 33-26314).
*5.1 Opinion of William S. Garner, Jr. regarding the legality of the
securities.
*5.2 Opinion of Glaves, Irby and Rhoades, regarding the legality of the
securities.
*23.1 Consent of William S. Garner, Jr. (included in Exhibit 5.1 hereof).
*23.2 Consent of Glaves, Irby and Rhoades (included in Exhibit 5.2 hereof).
*23.3 Consent of Arthur Andersen & Co.
*23.4 Consent of Arthur Andersen & Co.
*23.5 Consent of Petrie Parkman & Co., Inc.
**23.6 Consent of Goldman, Sachs & Co.
*24.1-24.10 Powers of Attorney from Officers and Directors of the Registrant.
*99.1 Form of K N Proxy
*99.2 Form of AOG Proxy
*99.3 Consent of James C. Taylor to serve on Registrant's Board of Directors
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules
None Required.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against the
registrant by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may
II-2
<PAGE> 114
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) Every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakewood, State of
Colorado on the 22nd day of April, 1994.
K N ENERGY, INC.
By: /s/ E. Wayne Lundhagen
-----------------------------------
E. Wayne Lundhagen
Vice President -- Finance and
Accounting
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 22, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<C> <S>
(i) Principal executive officer:
Charles W. Battey* Chairman of the Board and Chief Executive
- -------------------------------------------- Officer
(CHARLES W. BATTEY)
(ii) Principal financial and accounting
officer:
/s/ E. Wayne Lundhagen Vice President -- Finance and Accounting
- --------------------------------------------
(E. WAYNE LUNDHAGEN)
(iii) Directors
Charles W. Battey*
- --------------------------------------------
(CHARLES W. BATTEY)
Stewart A. Bliss*
- --------------------------------------------
(STEWART A. BLISS)
David W. Burkholder*
- --------------------------------------------
(DAVID W. BURKHOLDER)
Robert H. Chitwood*
- --------------------------------------------
(ROBERT H. CHITWOOD)
- --------------------------------------------
(HOWARD P. COGHLAN)
Robert B. Daugherty*
- --------------------------------------------
(ROBERT B. DAUGHERTY)
Jordan L. Haines*
- --------------------------------------------
(JORDAN L. HAINES)
</TABLE>
II-4
<PAGE> 116
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- -------------------------------
<S> <C>
Larry D. Hall*
- --------------------------------------------
(LARRY D. HALL)
William J. Hybl*
- --------------------------------------------
(WILLIAM J. HYBL)
H. A. True, III*
- --------------------------------------------
(H. A. TRUE, III)
By: /s/ E. Wayne Lundhagen
- --------------------------------------------
(E. WAYNE LUNDHAGEN, ATTORNEY-IN-FACT)
</TABLE>
II-5
<PAGE> 117
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ---------- -----------
<S> <C> <C>
2 Agreement of Merger among K N Energy, Inc., KNE Acquisition
Corporation and American Oil and Gas Corporation, dated March 24,
1994. Included as Annex A to the Joint Proxy Statement/Prospectus.
4.1 Restated Articles of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 28 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988.
4.2 By-laws of the Registrant, as amended. Incorporated herein by
reference to Exhibit 4.2 to Registration Statement on Form S-3 (File
No. 33-42698).
4.3 Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of the Class A
$8.50 Cumulative Preferred Stock, Without Par Value, of the
Registrant. Incorporated herein by reference to Exhibit 4.3 to
Registration Statement on Form S-3 (File No. 33-26314).
4.4 Certificate of the Voting Powers, Designation, Preferences and
Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of the Class B
$8.30 Series Cumulative Preferred Stock, Without Par Value, of the
Registrant. Incorporated herein by reference to Exhibit 4.4 to
Registration Statement on Form S-3 (File No. 33-26314).
5.1 Opinion of William S. Garner, Jr. regarding the legality of the
securities.
5.2 Opinion of Glaves, Irby and Rhoades, regarding the legality of the
securities.
23.1 Consent of William S. Garner, Jr. (included in Exhibit 5.1 hereof).
23.2 Consent of Glaves, Irby and Rhoades (included in Exhibit 5.2
hereof).
23.3 Consent of Arthur Andersen & Co.
23.4 Consent of Arthur Andersen & Co.
23.5 Consent of Petrie Parkman & Co., Inc.
23.6 Consent of Goldman, Sachs & Co.
24.1-24.10 Powers of Attorney from Officers and Directors of the Registrant.
99.1 Form of K N Proxy.
99.2 Form of AOG Proxy.
99.3 Consent of James C. Taylor to serve on Registrant's Board of
Directors.
</TABLE>
II-6
<PAGE> 1
EXHIBIT 5.1
April 22, 1994
K N Energy, Inc.
370 Van Gordon Street
P. O. Box 281304
Lakewood, Colorado 80228-8304
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of K N Energy, Inc., a
Kansas corporation (the "Company"), and have acted in such capacity in
connection with the registration of an aggregate of 14,000,000 shares of Common
Stock, $5.00 par value (the "Common Stock"), of the Company, pursuant to a Joint
Proxy Statement/Prospectus (the "Prospectus") concerning the proposed merger of
KNE Acquisition Corporation, a wholly-owned subsidiary of the Company ("Sub"),
with and into American Oil and Gas Corporation ("AOG") and the conversion of
each outstanding share of AOG into 0.47 of a share of Common Stock, as more
fully set forth in that certain Agreement of Merger, dated March 24, 1994, among
the Company, Sub and AOG, forming a part of the Registration Statement on Form
S-4, which is being filed herewith with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
In connection herewith, I have examined the Restated Articles of
Incorporation and the By-laws of the Company, each as amended to the date
hereof, the records of corporate proceedings which have occurred prior to the
date hereof with respect to such offering, the Registration Statement, and such
other certificates, instruments, documents and records of the Company as I have
deemed necessary, and I have reviewed such questions of law as I have considered
necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, I am of the opinion that the shares of Common
Stock being registered pursuant to such Registration Statement will be, when
issued, validly issued, fully paid and non-assessable.
In rendering the opinion expressed above, I have relied on the opinion
dated today (a copy of which is filed as Exhibit 5.2 to the Registration
Statement) of Glaves, Irby and Rhoades as to the matters of Kansas law.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, I do not thereby admit that I am within the category of
persons whose consent is required under Section 7 of the Act and the rules and
regulations thereunder.
Very truly yours,
/s/ William S. Garner, Jr.
William S. Garner, Jr.
Vice President, General Counsel
and Secretary
<PAGE> 1
EXHIBIT 5.2 AND 23.2
April 22, 1994
K N Energy, Inc.
370 Van Gordon Street
P. O. Box 281304
Lakewood, Colorado 80228-8304
Ladies and Gentlemen:
In connection with the registration by K N Energy, Inc., a Kansas
corporation (the "Company"), of an aggregate of 14,000,000 shares of Common
Stock, $5.00 par value (the "Common Stock"), of the Company, pursuant to a Joint
Proxy Statement/Prospectus (the "Prospectus") describing the proposed merger of
KNE Acquisition Corporation, a wholly-owned subsidiary of the Company ("Sub"),
with and into American Oil and Gas Corporation ("AOG") and the conversion of
each outstanding share of AOG into 0.47 of a share of Common Stock, as more
fully set forth in that certain Agreement of Merger, dated March 24, 1994, among
the Company, Sub and AOG, forming a part of the Registration Statement on Form
S-4 which is being filed contemporaneously with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), you have
requested the opinion expressed below.
In connection herewith, we have examined the Restated Articles of
Incorporation and the By-laws of the Company, each as amended to the date
hereof, the records of corporate proceedings which have occurred prior to the
date hereof with respect to such offering, the Registration Statement, and such
other certificates, instruments, documents and records of the Company as we have
deemed necessary, and we have reviewed such questions of law as we have
considered necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, and subject to stockholder approval of the
Company Charter Amendments (as defined in the Prospectus), we are of the opinion
that the shares of the Common Stock being registered pursuant to such
Registration Statement will be, when issued, validly issued, fully paid and
non-assessable.
We are members of the bar of the State of Kansas, and this opinion is
limited to the laws of such state.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act and the rules and
regulations thereunder.
Very truly yours,
GLAVES, IRBY AND RHOADS
/s/ JACK GLAVES
Jack Glaves
<PAGE> 1
EXHIBIT 23.3
CONSENT OF K N INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated February 10,
1994, included in K N Energy, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1993 and to all references to our firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Denver, Colorado
April 22, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF AOG INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated March 7, 1994,
included in American Oil and Gas Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 and to all references to our firm included in
this Registration Statement.
/s/ ARTHUR ANDERSEN & CO.
Arthur Andersen & Co.
Houston, Texas
April 22, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PETRIE PARKMAN & CO.
We hereby consent to the reference to our firm under the captions
"Summary -- The Merger -- Opinions of Financial Advisors," "The
Merger -- Background," "The Merger -- K N's Reasons for the Merger;
Recommendation of Board of Directors of K N," "The Merger -- Opinions of
Financial Advisors" and "Terms of the Merger -- Conditions to the Merger" and to
the inclusion of a copy of our opinion letter as Appendix B to the
Prospectus/Proxy Statement which is a part of the Registration Statement filed
by K N Energy, Inc. on Form S-4 under the Securities Act of 1933, as amended. By
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
PETRIE PARKMAN & CO.
By: /s/ J. C. HUGHES
J. C. Hughes
Houston, Texas
April 22, 1994
<PAGE> 1
EXHIBIT 24.1
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Stewart A. Bliss
STEWART A. BLISS
<PAGE> 2
EXHIBIT 24.2
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ David W. Burkholder
DAVID W. BURKHOLDER
<PAGE> 3
EXHIBIT 24.3
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ E. Wayne Lundhagen
E. WAYNE LUNDHAGEN
<PAGE> 4
EXHIBIT 24.4
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 23rd day
of March, 1994.
/s/ H. A. True, III
H. A. TRUE, III
<PAGE> 5
EXHIBIT 24.5
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Jordan L. Haines
JORDAN L. HAINES
<PAGE> 6
EXHIBIT 24.6
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ William J. Hybl
WILLIAM J. HYBL
<PAGE> 7
EXHIBIT 24.7
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Robert B. Daugherty
ROBERT B. DAUGHERTY
<PAGE> 8
EXHIBIT 24.8
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Robert Chitwood
ROBERT CHITWOOD
<PAGE> 9
EXHIBIT 24.9
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Larry D. Hall
LARRY D. HALL
<PAGE> 10
EXHIBIT 24.10
LIMITED POWER OF ATTORNEY
K N ENERGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director or officer of
K N Energy, Inc. a Kansas corporation, does hereby make, constitute and appoint
CHARLES W. BATTEY, LARRY D. HALL, E. WAYNE LUNDHAGEN, and WILLIAM S. GARNER,
JR., and each of them acting individually, his true and lawful attorney with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on his behalf, and in his name and in his capacity or
capacities as aforesaid, a Registration Statement on Form S-4 for filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and any other documents in support thereof or supplemental thereto,
with respect to any securities, including Common Stock of said K N Energy, Inc.,
necessary or appropriate to be registered in connection with the merger of
American Oil and Gas Corporation with KNE Acquisition Corporation, and any and
all amendments thereto, hereby granting to said attorneys and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney or attorneys may deem necessary or advisable to carry out fully
the intent of the foregoing as the undersigned might or could do personally or
in the capacity of capacities as aforesaid, hereby ratifying and confirming all
acts and things which said attorney or attorneys may do or cause to be done by
virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1994.
/s/ Charles W. Battey
CHARLES W. BATTEY
<PAGE> 1
EXHIBIT 99.1
FORM OF K N PROXY
[FRONT]
PROXY FOR SPECIAL SHAREHOLDERS MEETING , 1994
The undersigned hereby appoints Charles W. Battey, Larry D. Hall and William S.
Garner, Jr. and each of them proxies (to act by majority decision if more than
one shall act), with full power of substitution, to vote all shares of stock of
K N Energy, Inc., which the undersigned would be entitled to vote if personally
present at the Special Meeting of Shareholders to be held at the Stouffer
Concourse Hotel, 3801 Quebec Street, Denver, Colorado on ,
1994 at 10:00 a.m., Mountain Time, and at any adjournment thereof, upon the
matters described in the accompanying Joint Proxy Statement and Prospectus and
upon other business that may properly come before the meeting or any adjournment
thereof. Said proxies are directed to vote as instructed on the mattes set forth
below and otherwise at their discretion. Receipt of a copy of the Notice of said
meeting and Joint Proxy Statement and Prospectus is hereby acknowledged. The
Board of Directors recommends a vote "for" the adoption of both proposed
amendments to K N's Restated Articles of Incorporation and a vote "for" the
issuance of up to 14,000,000 shares of Company Common Stock pursuant to the
Merger Agreement.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN THE ABSENCE OF DIRECTION,
THIS PROXY WILL BE VOTED "FOR" THE ADOPTION OF BOTH PROPOSED AMENDMENTS TO K N'S
RESTATED ARTICLES OF INCORPORATION AND A VOTE "FOR" THE ISSUANCE OF UP TO
14,000,000 SHARES OF COMPANY COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
Please mark your proxy, date, sign, and return it promptly in the accompanying
envelope, which requires no postage if mailed in the United States.
-OVER-
[BACK]
1. Adoption of amendment to K N Energy, Inc.'s Restated Articles of
Incorporation, as amended, increasing the maximum number of directors of
K N from 14 to 15.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Adoption of amendment to K N Energy, Inc.'s Restated Articles of
Incorporation, as amended, increasing its authorized Common Stock from
25,000,000 shares to 50,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the issuance and reservation for issuance by K N Energy,
Inc. of up to 14,000,000 shares of its Common Stock pursuant to an
Agreement of Merger dated as of March 24, 1994, among K N Energy, Inc.,
KNE Acquisition Corporation and American Oil and Gas Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<TABLE>
<S> <C>
P
R NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as custodian, attorney,
O executor, administrator, trustee, etc., please give your full title as such. All joint owners
X should sign this proxy. If account is registered in the name of a corporation, partnership or other
Y entity, a duly authorized individual must sign on its behalf and give title.
Signature(s) Date Signature(s) Date
</TABLE>
<PAGE> 1
EXHIBIT 99.2
[FRONT]
- --------------------------------------------------------------------------------
AMERICAN OIL AND GAS CORPORATION
PROXY SOLICITED ON BEHALF OF DIRECTORS FOR THE SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD , JUNE , 1994
The undersigned hereby appoints David M. Carmichael and William P. Conner,
and each of them, as proxies, with full power of substitution, to represent and
vote, as designated on the reverse side hereof, all shares of Common Stock of
American Oil and Gas Corporation (the "Company") which the undersigned is
entitled to vote, and to vote all shares of Common Stock on all other matters
which may come before the Special Meeting of Stockholders of the Company to be
held June , 1994, or any adjournments thereof.
UNLESS A CONTRARY VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
MERGER PROPOSAL LISTED ON THE REVERSE SIDE. YOUR PROXY MUST BE SIGNED, DATED AND
RETURNED FOR YOUR VOTE TO COUNT.
(Continued and the be signed on reverse side)
- --------------------------------------------------------------------------------
<PAGE> 2
[REVERSE]
- --------------------------------------------------------------------------------
- -------
- -------
<TABLE>
<S> <C>
1. PROPOSAL TO APPROVE AND ADOPT the Agreement of
Merger dated March 24, 1994 among the Company,
K N Energy, Inc. and KNE Acquisition
Corporation providing for the merger of KNE
Acquisition Corporation with and into the
Company, and pursuant to which each
outstanding share of Common Stock, $.04 par
value, of the Company will be converted into
0.47 of a share of Common Stock, $5.00 par
value, of K N Energy, Inc. FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, the Proxies are
authorized to vote upon such other business as
may properly come before the meeting.
Address Change
and/or Comments Mark Here / /
PROXY DEPARTMENT
NEW YORK, N.Y. 10203-0053
</TABLE>
(In signing as Attorney,
Administrator, Executor,
Guardian, Trustee or
Corporate Officer, please
add your title as such.)
Dated: , 1994
---------------------------
Signature
---------------------------
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE
INK. /X/
PLEASE SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
JAMES C. TAYLOR
1115 N. 7TH AVENUE
BOZEMAN, MT 59715
April 11, 1994
Mr. David M. Carmichael
American Oil and Gas Corporation
333 Clay Street, Suite 2000
Houston, Texas 77002
Re: Service on KNE's Board of Directors
Dear Mr. Carmichael:
This letter will evidence my consent to serve on the Board of Directors of
K N Energy Inc. ("KNE") following the closing of the merger currently
contemplated between KNE and American Oil and Gas Corporation pursuant to that
certain Agreement of Merger dated March 24, 1994. In addition, this letter will
evidence my agreement to the use of my name as a future KNE Director in any
Registration Statement or other document filed in connection with the merger.
Very truly yours,
/s/ James C. Taylor
James C. Taylor
