K N ENERGY INC, DEF 14A, 1994-02-24

K N ENERGY INC
DEF 14A, 1994-02-24
NATURAL GAS TRANSMISISON & DISTRIBUTION

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [_]

Filed by a Party other than the Registrant [X]

Check the appropriate box:

[_] Preliminary Proxy Statement

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

KN Energy, Inc.
(Name of Registrant as Specified In Its Charter)

KN Energy, Inc.
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*

(4) Proposed maximum aggregate value of transaction:
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*Set forth the amount on which the filing is calculated and state how it was
determined.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

Notes:

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K N Energy, Inc.
LOGO 370 Van Gordon
Street
P.O. Box 281304
Lakewood,
CO 80228-8304
(303) 989-1740

CHARLES W.
BATTEY
Chairman of the
Board

February 25, 1994

FELLOW SHAREHOLDER:

You are cordially invited to attend the Annual Meeting of Shareholders to be
held in the Rocky Room of the Company's corporate headquarters located at 370
Van Gordon Street, Lakewood, Colorado 80228, on Thursday, March 24, 1994, at
10:00 A.M., Mountain Standard Time.

You are requested to read carefully the accompanying Notice of Meeting and
Proxy Statement which contain details concerning the business to come before
the meeting. You will note that the Board of Directors of the Company
recommends a vote "FOR" the election of three directors for terms of three
years each and "FOR" the approval of the K N Energy, Inc. Long-Term Incentive
Plan, including reservation of 700,000 shares of Company Common Stock to be
used in accordance with such plan. As is the past, in the election of
directors, you may vote for all persons nominated by the Board by checking the
box marked "For all nominees listed below". If you do not wish to vote for all
of the persons nominated, draw a line through the name of any nominee for whom
you do not wish to vote.

To be sure that your shares will be voted, whether or not you plan to attend
the meeting in person, please complete, sign, date and mail the accompanying
Proxy in the enclosed return envelope promptly. If you then do attend the
meeting, your Proxy will be returned to you if you wish to vote in person.

Very truly yours,
/s/ C W Battey
Charles W. Battey
Chairman of the Board

<PAGE>

K N ENERGY, INC.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228-8304
(303) 989-1740

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

The annual meeting of shareholders of K N Energy, Inc. will be held in the
Rocky Room of the Company's corporate headquarters located at 370 Van Gordon
Street, Lakewood, Colorado 80228, on Thursday, March 24, 1994, at 10:00 A.M.,
Mountain Standard Time, for the following purposes:

1. To elect three directors to terms of three years each.

2. To consider and vote on a proposal to approve the 1994 K N Energy, Inc.
Long-Term Incentive Plan.

3. To transact such other business as may properly come before the meeting
or any adjournment thereof.

Accompanying this Notice of Annual Meeting is a form of Proxy, a Proxy
Statement, and a copy of the Company's 1993 Annual Report to Shareholders. The
1993 Annual Report to Shareholders is not to be considered part of the proxy
soliciting material.

Only shareholders of record at the close of business on February 1, 1994, are
entitled to vote at the meeting.

A complete list of the shareholders entitled to vote at the annual meeting
will be available for examination by any shareholder, for purposes germane to
the meeting, during ordinary business hours for a period of at least 10 days
prior to the meeting at the Company's offices at 370 Van Gordon Street,
Lakewood, Colorado 80228.

Shareholders who do not intend to be present at the meeting in person are
requested to date and sign the enclosed Proxy and mail it in the enclosed
envelope which does not require postage if mailed within the United States.

IMPORTANT:

PLEASE MARK AND DATE THE PROXY AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR
THEREON. IF STOCK IS HELD JOINTLY, SIGNATURE SHOULD INCLUDE BOTH NAMES.
EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS, CUSTODIANS, CORPORATE OFFICERS
AND OTHERS SIGNING IN A REPRESENTATIVE CAPACITY SHOULD GIVE THEIR FULL TITLES.

William S. Garner, Jr.
Secretary

Lakewood, Colorado
February 25, 1994

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K N ENERGY, INC.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228-8304
(303) 989-1740

February 25, 1994

PROXY STATEMENT

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ANNUAL MEETING OF SHAREHOLDERS

- --------------------------------------------------------------------------------

This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of K N Energy, Inc. (the "Company" or "K N") of proxies for
use at the annual meeting of shareholders of the Company to be held at 10:00
A.M. MST on March 24, 1994, at 370 Van Gordon Street, Lakewood, Colorado, and
at any adjournment of such meeting.

Proxies may be revoked at any time before they are voted. Revocation may be
effected in any of the following ways: (i) by instruction to the Secretary
reasonably indicating the shareholder's desire to revoke an existing proxy;
(ii) by appropriately signing and returning to the Company a proxy with a more
recent date than that of the proxy first given; or (iii) by signing and
returning a floor ballot at the meeting of shareholders.

The Proxy Statement and form of Proxy will be first mailed to the
shareholders on or about February 25, 1994.

SHARES OUTSTANDING

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On February 1, 1994, the Company had outstanding the following shares of
capital stock: 5,000 shares of Class A $8.50 Cumulative Preferred Stock, 70,000
shares of Class A $5.00 Cumulative Preferred Stock, 28,576 shares of Class B
$8.30 Cumulative Preferred Stock and 15,154,632 shares of Common Stock. Each
share of Preferred and Common Stock has one vote and all shares vote as one
class for all matters to come before the meeting. The holders of a majority of
the issued and outstanding shares of the Company who are entitled to vote at
the meeting must be present at the meeting, in person or represented by proxy,
so that a quorum may be present for the transaction of business.

Only shareholders of record at the close of business on February 1, 1994, are
entitled to vote at the meeting. If a quorum is present at the meeting (i) the
three nominees for election as directors who receive the greatest number of
votes cast for the election of directors at the meeting by the shares present
in person or by proxy and entitled to vote shall be elected directors and (ii)
the 1994 K N Energy, Inc. Long-Term Incentive Plan and any other matters
submitted to a vote of the shareholders must be approved by the affirmative
vote of the majority of shares present in person or by proxy and entitled to
vote on the matter. In the election of directors, any action other than a vote
for a nominee will have the practical effect of voting against the nominee.
Abstention from voting will have the practical effect of voting against any of
the other matters since it is one less vote for approval. Broker nonvotes on
one or more matters will have no impact on such matters since they are not
considered "shares present" for voting purposes. The By-laws require that
directors be elected by written ballot.

As a matter of policy, proxies, ballots, and voting tabulations that identify
individual shareholders are kept private by the Company. Such documents are
available for examination only by the inspectors of election and certain
personnel associated with processing proxy cards and tabulating the vote. The
vote of any shareholder is not disclosed except as may be necessary to meet
legal requirements.

The Proxyholders, who are Messrs. Charles W. Battey, Larry D. Hall and
William S. Garner, Jr., will vote the shares covered by proxies received by
them with a view to causing the three nominees named herein

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to be elected as members of the Company's Board of Directors and in accordance
with the directors' recommendations on all other matters. A shareholder may, in
the manner set forth on the enclosed proxy card, instruct the Proxyholders not
to vote that shareholder's shares for any of the named nominees or for approval
of the 1994 Long-Term Incentive Plan.

ELECTION OF DIRECTORS

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The Restated Articles of Incorporation of the Company provide for a Board of
Directors of no fewer than nine nor more than fourteen members, divided into
three classes of as nearly an equal number as possible, the directors in each
class being elected for three years. There are currently ten authorized
positions on the Board of Directors. Messrs. David W. Burkholder, Jordan L.
Haines and William J. Hybl have been nominated for reelection as Class I
directors. Mr. Stewart A. Bliss was elected to fill the vacant authorized Class
III directorship in November 1993. Class III Directors will stand for election
by shareholders in 1996.

Proxies will be voted, unless authority to vote is withheld by the
shareholder, for the election of Messrs. Burkholder, Haines and Hybl to serve
until the 1997 annual meeting of shareholders and until the election and
qualification of their respective successors. If any such nominee shall be
unable or shall fail to accept nomination or election by virtue of an
unexpected occurrence, proxies may be voted for such other person or persons as
shall be determined by the Proxyholders in their discretion. Proxies cannot be
voted by the Proxyholders for more than the number of nominees named, which is
three persons.

The name of each nominee for election as a director at this meeting and of
each director whose term of office will continue after the meeting, and each
individual's business experience, year first elected as director, beneficial
ownership of Company Common Stock, age and relationship to the Company are as
follows:

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<TABLE>
<CAPTION>
COMPANY
SHARES
YEAR BENEFICIALLY
FIRST OWNED AS OF
ELECTED FEBRUARY 1, POSITIONS HELD
AS 1994 WITH THE COMPANY OTHER BUSINESS EXPERIENCE
NAME DIRECTOR (1) (2) (3) AGE AND SUBSIDIARIES (4) DURING PAST 5 YEARS (4)
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<S> <C> <C> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1996 (CLASS III)
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Stewart A. Bliss 1993 1,150 60 Director Consultant, Denver, Colora-
do; Chief of Staff, Gover-
nor's Office, State of Colo-
rado, Denver, Colorado
(1987-1993).
Robert H. Chitwood 1990 9,000 63 Director President, R.H. Chitwood
Company (oil and gas produc-
tion, investments and petro-
leum consulting), Tulsa,
Oklahoma.
Howard P. Coghlan 1981 12,918 66 Director Senior Partner, Coghlan,
Crowson & Fitzpatrick, At-
torneys at Law; and Direc-
tor, Longview Bank & Trust
Co. and Longview Financial
Corp. (1983-1993), all of
Longview, Texas.
- ---------------------------------------------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1995 (CLASS II)
- ---------------------------------------------------------------------------------------------------------
Charles W. Battey 1971 67,868 61 Chairman and Chief
Executive Officer
(1989-present) and
Director; Director
and officer of some
subsidiaries
Robert B. Daugherty 1983 78,615 72 Director Chairman of the Board and
Director of Valmont Indus-
tries, Inc. (manufacturer of
products for the electrical
industry, producer of mecha-
nized irrigation equipment),
Valley, Nebraska; Director,
Peter Kiewit Sons' Co. (con-
tracting, mining and manu-
facturing), Omaha, Nebraska.
Larry D. Hall 1984 36,401(5) 51 President and Chief
Operating Officer
(May 1988-present),
and Director;
Director and officer
of some
subsidiaries.
H.A. True, III 1991 3,900 51 Director Partner, True Companies (en-
ergy, agriculture and fi-
nancing), Casper, Wyoming.
</TABLE>
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(1) No director owns any Preferred Stock of the Company or more than 1 percent
of the outstanding shares of Common Stock. In making the computations
required in connection with the preceding statement, with respect to any
director who held options to purchase shares of the Common Stock
exercisable within 60 days of February 1, 1994, it was assumed that such
options had been exercised. The following number of shares representing
such unexercised options were added to the holdings of each of the
following directors: Mr. Battey, 27,750 shares; Mr. Bliss, 1,000 shares;
Mr. Burkholder, 750 shares; Mr. Chitwood, 3,750 shares; Mr. Coghlan, 9,231
shares; Mr. Daugherty, 7,500 shares; Mr. Haines, 9,346 shares; Mr. Hall,
14,250 shares; Mr. Hybl, 4,500 shares; and Mr. True, 3,750 shares.
(2) Unless otherwise indicated, the directors have sole voting and investment
power over the shares listed above, other than shared rights created under
joint tenancy or marital property laws as between the directors and their
respective spouses, if any.
(3) All shares have been adjusted to reflect the three-for-two stock split
which was declared on August 10, 1993 and distributed on October 4, 1993 to
common shareholders of record on September 15, 1993.
(4) All of these persons have held such positions for at least five years
unless otherwise indicated.
(5) Includes 139 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power.

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RELATIONSHIP BETWEEN CERTAIN DIRECTORS AND THE COMPANY

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In 1993 the law firm of Coghlan, Crowson & Fitzpatrick in Longview, Texas, of
which Mr. Howard Coghlan, a director of the Company, is a partner, served as
counsel for the Company and several of its subsidiaries in a small number of
instances relating to operations in Texas and in certain litigation. The
Company anticipates that the relationship will continue in 1994.

Mr. David W. Burkholder, a director of the Company, is a director, officer
and 10 percent owner of Consolidated Blenders, Inc., Island Dehy, Inc., Western
Alfalfa, Shofstall Alfalfa and Cozad Cattle Feeders (collectively, the
"Burkholder Companies"). The Burkholder Companies purchased gas from the
Company pursuant to year-to-year contracts at an industrial rate that is the
same for all alfalfa dehydration customers in Nebraska. Further, in 1993
subsidiaries of K N sold gas to the Burkholder Companies on the spot market and
transported gas for the Burkholder Companies for compensation. During 1993, the
Burkholder Companies paid K N and its subsidiaries a total of $351,697 under
such gas purchase and transportation arrangements. Similar contracts may be
entered into by the Company and some of its subsidiaries with the Burkholder
Companies in the future.

No family relationships exist between any director, executive officer, or
person nominated or chosen by the Company to become a director or executive
officer.

DIRECTOR AND COMMITTEE MEETINGS

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The Board of Directors met six times during 1993. During 1993, all directors
attended 100 percent of the aggregate meetings of the Board of Directors and
committees thereof on which they served.

During 1993, the Audit Committee was composed of Messrs. Bliss, Burkholder,
Chitwood, Coghlan, Hybl (Chairman) and True. It met three times in 1993. The
duties of the Audit Committee include recommendation of the independent auditor
for selection by the Board of Directors, review of the arrangements and scope
of the independent auditor's examination, review of the findings and
recommendation of the independent auditor and internal auditors concerning
internal accounting procedures and controls, review of professional services
rendered by the independent auditor and review of the independence of the
auditor in regard to the Company and its management.

The Compensation Committee during 1993 was composed of Messrs. Daugherty
(Chairman), Haines and Hybl. It met four times in 1993. The duties of the
Compensation Committee are set forth in the Compensation Committee Report
below.

The Executive Committee during 1993 was composed of Messrs. Battey,
Daugherty, Haines and Hall. It met once in 1993.

The Board of Directors does not presently have a separate nominating
committee, but develops nominations as a whole. Pursuant to the Company's By-
laws, shareholders may nominate candidates for the Board of Directors by
notifying the Company at its principal executive offices of the name of such
candidate and by furnishing other required information at least forty days
before the shareholders meeting at which such election will be held. See "Date
for Receipt of Shareholder Proposals" below.

DIRECTOR COMPENSATION

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A Director (except a current employee) receives a retainer of $20,000 per
year plus a fee of $1,500 per day for each meeting attended. Members of the
Audit, Compensation and Executive Committees also receive a fee of $1,500 per
day for each committee meeting attended on a day other than that of a Board
meeting. Directors who are full-time employees of the Company receive no
additional compensation in their capacity

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as Director. All Directors are reimbursed for reasonable travel and other
expenses incurred in attending all meetings. Directors who are not also
employees or officers may elect to defer until age 65, and/or until such
Director retires from the Board, all or any portion of their compensation
pursuant to the Deferred Compensation Plan for Outside Directors which was
adopted by the Company effective May 1, 1984, or the 1987 Directors' Deferred
Fee Plan effective May 1, 1987.

Directors who are not also employees participate in the 1992 Stock Option
Plan for Non-Employee Directors (the "Directors Plan"). Within 30 days after
the election to the Company's Board of Directors of any person who is not a
salaried employee of the Company, the committee of the Board of Directors which
administers the Directors Plan is required to grant to that person an option to
purchase a number of shares of Common Stock of the Company equal to 1,000 times
the number of years in the term to which he is elected. If any person is
elected by the Board of Directors to fill an unexpired term or vacancy on the
Board of Directors, the committee is required, within 30 days of the election,
to grant to that person an option for a number of shares equal to 1,000 for
each twelve-month period of such term plus 1,000 for any fraction of a twelve-
month period. Options may be granted at not less than 100 percent of the fair
market value of the Common Stock on the date of grant and expire 10 years from
the date of grant. Options granted pursuant to the Directors Plan are not
intended to qualify as incentive stock options. The options become exercisable
in one-third increments annually over the succeeding three-year period. In
1993, options to purchase 4,500 shares were granted to Messrs. Chitwood and
Coghlin at an exercise price of $23.25 per share (adjusted to reflect the
Company's three-for-two stock split which occurred on August 10, 1993 and was
distributed on October 4, 1993 to common shareholders of record on September
15, 1993). Options to purchase 3,000 shares were granted to Mr. Bliss at an
exercise price of $28.00 per share (granted after the three-for-two stock split
occurred).

Non-employee Directors who were elected prior to 1992 received grants under
the 1982 Stock Option Plan for Non-Employee Directors (the "1982 Plan"). Grants
are no longer being made out of the 1982 Plan. The terms of the 1982 Plan are
identical to the Directors Plan, except that the participants were granted
options to purchase the number of shares equal to 500 (rather than 1,000) times
the number of years or partial years in the term to which he was elected.

BOARD RECOMMENDATION

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The Board of Directors recommends a vote FOR each of the Director nominees.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

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The Compensation Committee of the Board of Directors is composed entirely of
three independent non-employee directors: Mr. Daugherty, Committee Chairman,
Mr. Haines and Mr. Hybl. There are no interlocking relationships among these
directors and K N.

The Compensation Committee is responsible for setting and administering the
policies which govern both annual compensation and long-term compensation of
executive officers. Following review and approval by the Compensation
Committee, all issues pertaining to executive compensation are submitted to the
full Board of Directors for approval.

COMPENSATION COMPONENTS AND PHILOSOPHY

Annual executive compensation is principally comprised of salary and
incentive cash awards. It is the philosophy of the Company that annual
compensation of its executive officers and other key employees should be
directly and materially tied to operating performance. To achieve this
objective, annual executive compensation decisions are weighted towards cash
incentives payable on the basis of performance. The Company also believes that
long-term executive compensation should be tied to operating performance.
Grants of incentive stock options have been the principal component of long-
term executive compensation.

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Recently, the Compensation Committee has reassessed the Company's long-term
executive compensation plans, and it and the Board of Directors have approved
the 1994 Long-Term Incentive Plan. This plan, if approved by the shareholders,
would give the Compensation Committee the flexibility to grant both non-
qualified and incentive stock options, restricted stock awards, stock
appreciation rights and other stock-based awards. This new plan is more
thoroughly described below.

Because the Company's executive compensation currently falls far below
$1,000,000, the Compensation Committee does not have a policy regarding
qualifying compensation paid to executive officers for deductibility under
Section 162(m) of the Internal Revenue Code. Section 162(m) limits the
Company's tax deduction for all compensation paid to certain executive officers
in any one year to $1,000,000. However, the Compensation Committee will
consider the need to develop such a policy annually in connection with its
ongoing review of executive compensation.

BASE SALARY

Salary decisions are also based on achievement of both personal and company-
wide performance objectives as well as recommendations for salary ranges
developed from data obtained through surveys of comparable companies. The types
of performance objectives considered when making salary decisions are the same
as those described in the discussion below titled Executive Incentive Plan.
Salary recommendations are prepared annually by the compensation consultants
William M. Mercer Incorporated, and are done to ensure that Company salaries
remain competitive and reasonable in the industry.

INCENTIVE STOCK OPTIONS

Stock options granted under the Company's Incentive Stock Option Plans
comprise the Company's chief long-term executive compensation. Stock options
were granted to certain executive officers during 1993, but were not granted in
1992. Incentive Stock Options are granted to meet certain corporate objectives,
including to encourage contributions by executive officers to key corporate and
operating goals, to show confidence and high expectations that the judgment,
initiative and efforts of executive officers will result in the Company's
success and to align the interests of executive officers with shareholder
interests. Decisions concerning the granting of options are directly related to
performance-based objectives. The Compensation Committee believes the proposed
1994 Long-Term Incentive Plan, which provides for grants of both incentive and
non-qualified stock options, will enhance the Compensation Committee's ability
to meet the Company's objectives of attracting and retaining well qualified
individuals to serve as executive officers and key employees.

PROFIT SHARING PLAN

Executive officers, along with all other employees who meet certain
requirements regarding length of employment and full-time status, are eligible
to participate in the Company's Employee Retirement Fund Trust Profit Sharing
Plan ("Profit Sharing Plan"). Contributions to the Profit Sharing Plan are
based on the Company's financial performance.

EXECUTIVE INCENTIVE PLAN

The Compensation Committee annually approves an Executive Incentive Plan
("Incentive Plan"), which provides the means for determining and paying at-risk
executive cash awards. The first Incentive Plan was established in 1989, and
was designed with the help of William M. Mercer Incorporated.

The Incentive Plan contains detailed criteria for the evaluation of
performance by executive officers. Particular emphasis is placed on performance
oriented objectives, financial measures, cost control measures and other
measures linked to strategic objectives designed to improve existing
performance, management effectiveness, productivity, safety, cost control,
service levels and efficiencies to clearly benefit customers and,

6
<PAGE>

thereby, shareholders. Target objectives are set for corporate performance and
for division and personal objectives. Examples of financial objectives in the
1993 Incentive Plan include results against budgeted earnings and return on
common equity. Examples of operating goals in the 1993 Incentive Plan include
completion of major projects in an efficient, timely fashion, within budget or
at a cost savings; meeting and maintaining high safety standards; completion
and successful implementation and integration of business transactions; and the
successful restructuring of the Company consistent with Federal Energy
Regulatory Commission Order No. 636.

Prior to January 31 of each year, the Compensation Committee designates
executive officer participants in the Incentive Plan for that year.
Participation in one year does not guarantee participation in following years.
Participants are assigned to levels of eligibility, based on their degree of
responsibility for corporate-wide results.

The Incentive Plan is designed to keep individuals focused on their specific
tasks while working as a team. In all cases, at least 50% of each participant's
incentive compensation opportunity is based upon the Company's overall results.
Depending upon the individual's position, the mix of corporate and
division/personal performance objectives can range from 50% corporate and 40%
division/personal to 90% corporate and 10% division/personal (and 100%
corporate for the Chief Executive Officer). The amount of incentive
compensation paid under an Incentive Plan is based upon actual achievements in
a combination of corporate-wide, division and personal goals.

The Company's executive officers were very successful against the established
objectives in the 1991 Incentive Plan. This success was reflected in the
individual incentive pay-outs reflected in the Bonus column of the Summary
Compensation Table set forth herein. The Company's 1992 operating results did
not meet certain of the 1992 financial objectives due to unprecedented
unfavorable weather. Thus, the incentive payments for 1992 reflected in the
Bonus column of the Summary Compensation Table were significantly lower,
reflecting the failure to meet certain of these objectives. Payments under an
Incentive Plan are made in March of the following year, after financial results
are finalized and an evaluation can be made as to each participant's success in
meeting objectives. Therefore, no definitive Incentive Plan payout information
is available for 1993. However, the Company's 1993 operating results exceeded
the Company's 1993 financial objectives, despite a wet, cool summer which
significantly decreased the Company's irrigation gas sales. Thus, the incentive
payments for 1993 will reflect the success of the Company in meeting its
objectives.

The 1994 Long-Term Incentive Plan, which is described below, will supplement
the annual Incentive Plans.

CHIEF EXECUTIVE OFFICER COMPENSATION

As indicated, the Company's executive compensation program, both annual and
long-term, is based in large part upon business performance. Annual incentive
compensation for the Chief Executive Officer depends entirely upon the overall
performance of the Company. His long-term compensation from stock options and
his salary level are likewise largely dependent upon Company performance. The
Compensation Committee pays particularly close attention to the performance of
the Chief Executive Officer, meeting without his presence to evaluate his
success in achieving the corporate objectives in each year. Since the 1992
operating results did not meet objectives, the chief executive officer did not
receive an incentive payment for 1992. The 1993 operating results, however,
exceeded the Company's objectives, and the Chief Executive Officer's incentive
compensation will reflect this successful Company-wide performance.

Compensation Committee of
the Board of Directors

Mr. Robert B. Daugherty (Chairman)
Mr. Jordan L. Haines
Mr. William J. Hybl

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<PAGE>

EXECUTIVE COMPENSATION

- --------------------------------------------------------------------------------

The following table sets forth information regarding compensation during the
last three fiscal years of the Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company (collectively,
the "named executive officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
NAME AND --------------------- -------------------------------------
PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#)(3)(4) COMPENSATION($)
--------- ---- --------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Charles W.
Battey 1993 $264,584 (2) 0 $11,416(5)
Chairman/CEO 1992 $242,499 $ 0 0 $20,515(6)
1991 $219,996 $95,000 0 --
Larry D. Hall 1993 $236,335 (2) 0 $10,064(7)
President/COO 1992 $223,750 $30,000 0 $19,335(8)
1991 $219,996 $75,000 0 --
Leland L. Hurst 1993 $137,919 (2) 2,250 $ 642(9)
Sr. V.P. Ops 1992 $135,000 $17,000 0 $ 6,448(10)
1991 $133,752 $30,000 3,000 --
E. Wayne
Lundhagen 1993 $133,754 (2) 4,500 $ 594(11)
V.P. Fin/Acctg 1992 $125,000 $12,000 0 $ 5,870(12)
1991 $123,753 $35,000 3,000 --
S. Wesley Haun 1993 $133,754 (2) 4,500 $ 599(13)
V.P.Mkt/Supply 1992 $123,003 $17,000 0 $ 5,818(14)
1991 $115,251 $36,000 3,000 --
</TABLE>
- --------
(1) The Company has no permanent long-term cash incentive plans. Instead, the
Compensation Committee of the Board of Directors reviews the advisability
of an executive cash incentive plan on an annual basis as discussed in the
Report of the Compensation Committee on Executive Compensation contained
herein. Amounts earned under such annual cash incentive plans are actually
paid in the year following the year in which they were earned; however
such amounts are reflected in the table in the year in which such amounts
were earned. Cash incentive awards for 1993 will not be awarded until
early March 1994 and are unknown at this time.
(2) While cash incentive awards for 1993 are unknown at this time, it is clear
that the Company's 1993 operating results will exceed the Company's
financial objectives. Therefore, the incentive payments for Mr. Battey, as
Chief Executive Officer, and Mr. Hall, Mr. Hurst, Mr. Lundhagen and Mr.
Haun will reflect the Company's success in meeting these objectives.
(3) These options were granted under the Company's Incentive Stock Option
Plans at an exercise price of 100% of the fair market value of the Common
Stock as of the date of grant, are exercisable within 10 years from the
respective dates of grant, and vest over a four or five-year period.
(4) All option shares have been adjusted to reflect the three-for-two stock
split which was declared on August 10, 1993 and distributed on October 4,
1993 to common shareholders of record on September 15, 1993.
(5) Mr. Battey's 1993 earnings under the All Other Compensation column will
include an amount earned under the Company's Employees Retirement Fund
Trust Profit Sharing Plan ("Profit Sharing Plan"). Under the provisions of
the Company's Profit Sharing Plan (a defined contribution plan)
established in 1945, the Company contributes annually the lesser of an
amount equal to 10 percent of the annual eligible compensation of eligible
employees, excluding bonuses, or 10 percent of net income as defined by
the plan. All full-time employees who have completed two years of service,
as defined by the plan, are participants. Amounts allocated to an
employee's plan account vest immediately. Benefits are generally only
payable on termination or retirement. Amounts earned under the Profit
Sharing Plan are actually paid in the year following the year in which
they were earned; however, once such amounts are known, they will be
reflected in the table in the year in which such amounts were earned.
Earnings

8
<PAGE>

for 1993 under the Profit Sharing Plan will not be distributed until early
March 1994 and are unknown at this time. The Company also paid $1,188 in
term life and accidental death and dismemberment insurance premiums on
behalf of Mr. Battey. In addition, Mr. Battey elected to receive deferred
compensation from the Company while he served as an outside, non-employee
director of the Company. Interest applicable to Mr. Battey's deferred
compensation exceeded 120% of market interest rates in 1993 and totalled
$10,228.
(6) Mr. Battey's earnings for 1992 under the Profit Sharing Plan were $10,430
which is reflected in the 1992 All Other Compensation column.
(7) Mr. Hall's 1993 earnings under the All Other Compensation column will
include an amount he earned under the Company's Executive Benefit
Equalization Plan. Effective January 1, 1987, the Company established its
Executive Benefit Equalization Plan as a response to Section 415 of the
Internal Revenue Code of 1986 (the "Code"), which may limit the
contributions to and benefits payable from the Company's Retirement Plan
and Trust Agreement for Non-Bargaining Employees, the Profit Sharing Plan,
and the 401(k) Retirement Savings Plan (collectively the "retirement
plans") in certain circumstances. It is the Company's intent to equalize
contributions and/or benefits so no participant in the retirement plans is
adversely affected by the limitations of Code Section 415. Any participant
in the retirement plans whose contribution to or benefit from such plans
is less than that which the contribution or benefit would have been had no
limitation been imposed under Code Section 415 may become a participant in
this plan. The plan is discretionary, unfunded and any benefits are paid
solely from the Company's general assets. To date, Mr. Hall has been the
only employee who has been subject to the Section 415 limitations. In 1993
Mr. Hall earned $8,994 to equalize the 401(k) portion of the benefits. A
portion of funds have been directed to be invested in Company Stock and,
while no shares have actually been purchased at this time, such investment
would equal 212 shares (on an after-stock split basis). Amounts to
equalize the Profit Sharing Plan benefits are actually accounted for in
the year following the year in which they were earned; however once such
amounts are known they will be reflected in the table in the year in which
such amounts were earned. Profit Sharing Plan benefits earned for 1993
under the Executive Benefit Equalization Plan will not be accounted for
until early March 1994 and are unknown at this time. The Company also paid
$1,070 in term life and accidental death and dismemberment insurance
premiums on behalf of Mr. Hall.
(8) Mr. Hall's 1992 amount to equalize the Profit Sharing Plan benefits was
$9,625, which is reflected in the 1992 All Other Compensation column. A
portion of this amount was directed to be invested in Company stock and,
while no shares have actually been purchased at this time, such investment
would equal 223 shares (on an after-stock split basis).
(9) Mr. Hurst's 1993 earnings under the All Other Compensation column will
include an amount to be earned under the Company's Profit Sharing Plan
(see discussion in footnote (5) above). The Company also paid $642 in term
life and accidental death and dismemberment insurance premiums in 1993 on
behalf of Mr. Hurst.
(10) Mr. Hurst's earnings for 1992 under the Profit Sharing Plan were $5,806,
which is reflected in the 1992 All Other Compensation column.
(11) Mr. Lundhagen's 1993 earnings under the All Other Compensation column will
include an amount to be earned under the Company's Profit Sharing Plan
(see discussion in footnote (5) above). The Company also paid $594 in term
life and accidental death and dismemberment insurance premiums on behalf
of Mr. Lundhagen.
(12) Mr. Lundhagen's earnings for 1992 under the Profit Sharing Plan were
$5,376, which is reflected in the 1992 All Other Compensation column.
(13) Mr. Haun's 1993 earnings under the All Other Compensation column will
include an amount to be earned under the Company's Profit Sharing Plan
(see discussion in footnote (5) above). The Company also paid $599 in term
life and accidental death and dismemberment insurance premiums in 1993 on
behalf of Mr. Haun.
(14) Mr. Haun's earnings for 1992 under the Profit Sharing Plan were $5,290,
which is reflected in the 1992 All Other Compensation column.

9
<PAGE>

STOCK OPTIONS

- --------------------------------------------------------------------------------
Information concerning 1993 stock option grants to and exercises by the named
executive officers is provided below.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SHARES ANNUAL RATES OF STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OR OPTION TERM
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME (#)(1)(2) IN FISCAL YEAR(3) ($/SH)(2) DATE 5% ($) 10% ($)
---- ---------- ----------------- ----------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Battey....... 0 0% N/A N/A N/A N/A
Larry D. Hall........... 0 0% N/A N/A N/A N/A
Leland L. Hurst......... 2,250 2.03% $23.0417 5/20/03 $ 32,604 $ 82,626
E. Wayne Lundhagen...... 4,500 4.05% $23.0417 5/20/03 $ 65,209 $ 165,251
S. Wesley Haun.......... 4,500 4.05% $23.0417 5/20/03 $ 65,209 $ 165,251
</TABLE>
- --------
(1) Under the terms of the 1988 Incentive Stock Option Plan, the per share
option price is the fair market value of the K N Common Stock on the date
of grant, and the term of an option is 10 years. The options become
exercisable in one-quarter increments over a four year period.
(2) All option shares and exercise prices have been adjusted to reflect the
three-for-two stock split which was declared on August 10, 1993 and
distributed on October 4, 1993 to common shareholders of record on
September 15, 1993.
(3) The total number of options granted to Company employees in 1993 was
111,000.

The following table sets forth information about option exercises in 1993 by
the named executive officers and the value of the remaining options held by
each such officer at year-end.

AGGREGATED OPTION EXERCISES IN 1993
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE YEAR-END (#) YEAR-END ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#)(1) ($) UNEXERCISABLE UNEXERCISABLE(2)
---- --------------- -------- --------------------- -----------------
<S> <C> <C> <C> <C>
Charles W. Battey....... 0 0 27,750/12,000 $305,590/$118,000
Larry D. Hall........... 1,491 $39,219 14,250/12,000 $140,125/$118,000
Leland L. Hurst......... 0 0 750/3,750 $8,000/$22,094
E. Wayne Lundhagen...... 6,750 $91,781 5,250/6,000 $62,875/$28,187
S. Wesley Haun.......... 3,750 32,781 0/6,750 $0/$36,438
</TABLE>
- --------
(1) All option shares and exercise prices have been adjusted to reflect the
three-for-two stock split which was declared on August 10, 1993 and
distributed on October 4, 1993 to common shareholders of record on
September 15, 1993.

(2) Based on the closing price of Company Common Stock on the NYSE composite
tape on 12/31/93 which was $25.75.

10
<PAGE>

EXECUTIVE STOCK OWNERSHIP

- --------------------------------------------------------------------------------

The following table sets forth information about beneficial stock ownership
of the named executive officers as well as all executive officers and directors
as a group.

EXECUTIVE OFFICER
BENEFICIAL STOCK OWNERSHIP

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF COMMON STOCK
BENEFICIALLY OWNED
AS OF FEBRUARY 1,
NAME 1994(1)(2)(3)(4)
---- ---------------------------------
<S> <C>
Charles W. Battey...................... 67,868
Larry D. Hall.......................... 36,401(5)
Leland L. Hurst........................ 4,358
E. Wayne Lundhagen..................... 22,722
S. Wesley Haun......................... 6,712
All executive officers and
directors as a group.................. 401,562
</TABLE>
- --------
(1) No executive officer owns any preferred stock of the Company or more than 1
percent of the Company's outstanding Common Stock. All executive officers
and directors as a group owned 2.6 percent of the outstanding Common Stock.
Respecting share ownership by directors, see "Election of Directors" above.
In making the computations required in connection with the preceding
statement, with respect to any executive officer who held options to
purchase shares of the Common Stock exercisable within 60 days of February
1, 1994, it was assumed that such options had been exercised. The following
number of shares representing such unexercised options were added to the
holdings of each of the following executive officers: Mr. Battey, 27,750
shares; Mr. Hall, 14,250 shares; Mr. Hurst 1,500 shares; Mr. Lundhagen
6,000 shares and; Mr. Haun, 1,500 shares.
(2) Does not include shares earned in 1993 under the Company's Profit Sharing
Plan which will not be distributed until early March 1994 and are unknown
at this time.
(3) Unless otherwise indicated, the executive officers have sole voting and
investment power over the shares listed above, other than shared rights
created under joint tenancy or marital property laws as between the
Company's executive officers and their respective spouses, if any.
(4) All shares have been adjusted to reflect the three-for-two stock split
which was declared on August 10, 1993 and distributed on October 4, 1993 to
common shareholders of record on September 15, 1993.
(5) Includes 139 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power. Does not include shares earned by Mr. Hall
under the Executive Benefit Equalization Plan, which is described in
footnote (7) to the Summary Compensation Table. While no shares have
actually been purchased at this time, the cumulative number of shares
attributable thereto is 2,640 (on an after-stock split basis).

11
<PAGE>

PERFORMANCE GRAPH

- --------------------------------------------------------------------------------

The following Performance Graph compares the performance of the Company's
Common Stock to the Standard & Poor's 500 Stock Index and to the Standard &
Poor's Natural Gas Index for the Company's last five fiscal years. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 30, 1988, and that all dividends were reinvested.

<TABLE>
<CAPTION>
YEAR ENDING
-----------------------------
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
K N Energy........................................ 100 146 140 169 187 266
S&P 500........................................... 100 132 128 166 179 197
S&P Natural Gas................................... 100 156 136 118 132 157
</TABLE>

PENSION BENEFITS

- --------------------------------------------------------------------------------

The Company's employees and officers participate in its Retirement Plan and
Trust Agreement for Non-Bargaining Employees (the "Pension Plan"). This is a
defined benefit plan which is not based upon a participant's final years'
compensation. Annual pension benefits at the normal retirement age of 65 are
equal to the total of the yearly accrued annuity credits. Prior to January 1,
1989, the yearly annuity credit equaled

12
<PAGE>

1.1 percent of the first $8,400 of compensation and 2.1 percent of compensation
in excess of $8,400. Effective January 1, 1989, the yearly annuity credit
equals 1.75 percent of the first $19,200 of compensation and 2.1 percent of
compensation in excess of $19,200. For purposes of the Pension Plan,
compensation excludes bonuses and commissions, and includes overtime and
special duty compensation. Assuming continued employment at age 65 at present
salaries, the estimated annual pension benefits of the named executive officers
are as follows: Mr. Battey, $41,532, Mr. Hall, $123,600, Mr. Hurst, $24,936,
Mr. Lundhagen, $56,844, and Mr. Haun, $65,436. These benefits are not subject
to any deduction for Social Security benefits or other offset amounts.

SEVERANCE AGREEMENTS

- --------------------------------------------------------------------------------

The Company has entered into severance agreements with certain key employees,
including all of its executive officers except Mr. Battey, effective on or
after January 9, 1988. The agreements provide severance benefits if the officer
is terminated under certain circumstances within one year following a change in
control of the Company. A "change in control" means a change in the majority of
the Board of Directors of the Company as a result of (i) a cash tender or
exchange offer, merger or other business combination, sale of assets,
liquidation, or contested election; (ii) the sale by the Company of all or
substantially all of its assets, or (iii) a person or group becoming the
beneficial owner of 30% or more of the outstanding voting stock of the Company.
Such benefits are provided if, within one year following a change in control,
the officer is involuntarily terminated (other than for willful misconduct,
gross negligence, death, disability or retirement), or the officer terminates
his employment for good reason. "Good reason" means generally a reduction in
compensation, downgrading of position or authority, or the requirement to
relocate. Upon such termination, the officer would be entitled to receive in a
lump sum an amount, subject to withholding tax and employee benefit premiums or
similar adjustments, equal to the officer's annual base salary earned at
termination (or just prior to the change of control, if the salary is lower at
termination), divided by 52, multiplied by 3 times the number of weeks equal to
such officer's full and partial years service to the Company; however, the
number of weeks' salary to be paid shall not be less than 12 nor greater than
104. Such payments would not be offset by income earned from other sources. In
addition, the officer would receive outplacement services and would continue to
participate in all applicable medical and life insurance and similar benefit
plans for the same number of weeks as his salary, computed as above, or until
benefits were available from subsequent employment, whichever first occurs.
Within 90 days after an initial two-year term, and within 90 days after each
successive two-year term, the Company has the right to terminate, extend or
modify the agreements; failure of the Board of Directors to take any action
within such 90-day period results in an automatic two-year extension. No
severance benefits have been paid to any employee under these agreements.

1994 K N ENERGY, INC. LONG-TERM INCENTIVE PLAN

- --------------------------------------------------------------------------------

The Board of Directors has recommended for shareholder approval the 1994 K N
Energy, Inc. Long-Term Incentive Plan (the "Plan"). The purposes of the Plan
are (i) to further the growth and financial success of K N and its subsidiaries
by aligning the interests of the Company's shareholders and recipients of
awards under the Plan by increasing the proprietary interest of such recipients
in the Company's growth and success, and (ii) to increase the flexibility of K
N to compensate key employees and to motivate, attract and retain such
employees. Reference should be made to Attachment A for a complete statement of
the provisions of the Plan which are summarized below. Certain capitalized
terms used in this summary have the meanings ascribed to them in the Plan.

In structuring the Plan, the Board of Directors sought to provide for a
variety of awards that could be flexibly administered in order to carry out the
purposes of the Plan. This authority will permit the Company to keep pace with
changing developments in compensation programs and make the Company more
competitive with those companies that offer creative incentives to attract and
keep employees. The flexibility of the Plan will allow the Company to respond
to changing circumstances such as changes in tax laws, accounting rules,
securities regulations and other rules regarding benefit plans. The Plan grants
the administrators flexibility in creating the terms and restrictions deemed
appropriate for particular awards as facts and circumstances warrant.

13
<PAGE>

SHARES AVAILABLE

An aggregate of 700,000 shares (subject to adjustment for certain
transactions affecting the Common Stock) of Common Stock will be available for
awards under the Plan. Shares covered by any stock option, stock appreciation
right or other stock award that expire or terminate unexercised or are
cancelled or forfeited would again be available for awards under the Plan.

ADMINISTRATION

The Plan provides for administration by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). No member of the
Compensation Committee can participate in the Plan. Among the powers granted to
the Compensation Committee are the authority to interpret the Plan, establish
rules and regulations for its operation, select employees of the Company and
its subsidiaries to receive awards, and determine the form, amount and other
terms and conditions of awards. The Compensation Committee also has the power
to modify or waive restrictions on awards, to amend awards and to grant
extensions and accelerate awards.

ELIGIBILITY FOR PARTICIPATION

Officers and other key employees of the Company and subsidiary companies (in
which the Company owns directly or indirectly more than a 50% voting equity
interest) are eligible to be selected to participate in the Plan. The selection
of participants from eligible persons is within the sole discretion of the
Compensation Committee. Directors who are not employees are not eligible to
participate in the Plan. Two of the Directors, Mr. Battey and Mr. Hall, are
employees and as such are eligible to participate in the Plan. The Company
estimates that approximately fifty persons are currently eligible to receive
awards under the Plan. No person has yet been selected to received any such
award, however.

TYPES OF AWARDS

The Plan provides for the grant of any or all of the following types of
awards: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights, in tandem with stock options or
freestanding; (3) stock awards, including restricted stock; and (4) any other
stock-based award established by the Committee with terms consistent with the
Plan's purposes. Any stock option granted in the form of an incentive stock
option must satisfy the applicable requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Awards may be granted
individually, in combination, or in tandem as determined by the Committee.

OPTIONS

Options granted under the Plan may be Incentive Stock Options ("ISOs"), as
defined in Section 422 of the Code, or options not qualifying for treatment as
ISOs ("Nonstatutory Stock Options"). The Compensation Committee determines the
recipients of Options and the terms of the Options, including the number of
shares for which an Option is granted, the term of the Option and the time(s)
when the Option can be exercised. Conditions respecting the exercise of an
Option may, in the discretion of the Compensation Committee, be contained in
the Agreement with the participant or in the Compensation Committee's
procedures. Each ISO must comply with all the requirements of Section 422 of
the Code. The Compensation Committee may in its discretion waive any condition
respecting the exercise of any Option and may accelerate the time at which any
Option is exercisable.

The price per share of Common Stock subject to an Option (the "Option Price")
shall not be less than the fair market value of Common Stock (generally
determined to be the average of the high and low sale price reported in The
Wall Street Journal for the New York Stock Exchange--Composite Transactions) on

14
<PAGE>

the date of the grant of the Option. As of February 1, 1994, the average of the
high and low sale price of a share of Common Stock as reported in The Wall
Street Journal for the New York Stock Exchange--Composite Transactions was
$24.1875. The Compensation Committee also determines the manner in which the
Option Price of an Option may be paid, which may include the tender of cash or
securities or the withholding of Common Stock or cash to be received through
grants or any other arrangements satisfactory to the Compensation Committee.

The Plan provides that no ISO shall be exercisable later than 10 years after
the date of grant. The Plan, however, does not restrict the term of a
Nonstatutory Stock Option.

Options are not transferable except by will or the laws of descent and
distribution.

STOCK APPRECIATION RIGHTS

In the discretion of the Compensation Committee, Stock Appreciation Rights
("SARs") may be granted separately or in tandem with the grant of an Option. An
SAR is a grant entitling the participant to receive an amount in cash or shares
of Common Stock or a combination thereof, as the Compensation Committee may
determine, having a value equal to (or if the Compensation Committee shall
determine at the time of grant, less than) the excess of (i) the fair market
value on the date of exercise of the shares of Common Stock with respect to
which the SAR is exercised over (ii) the fair market value of such shares on
the date of the grant (or over the Option Price, if the SAR is granted in
tandem with an Option).

An SAR granted in tandem with a Nonstatutory Stock Option may be granted
either at or after the time of the grant of the Nonstatutory Stock Option. An
SAR granted in tandem with an ISO may be granted only at the time of the grant
of the ISO. An SAR granted in tandem with an Option terminates and is no longer
exercisable upon the termination or exercise of the related Option. Subject to
the limitations set forth in the Plan, SARs shall be subject to such terms and
conditions as shall be determined from time to time by the Compensation
Committee. The Compensation Committee at any time may accelerate the
exercisability of any SAR and otherwise waive or amend any conditions to the
grant of an SAR.

SARs are not transferable except by will or the laws of descent and
distribution.

RESTRICTED STOCK

The Plan provides that the Compensation Committee will have discretion to
make grants of Restricted Stock. A Restricted Stock grant entitles the
recipient to acquire, at no cost or for a purchase price determined by the
Compensation Committee on the date of the grant, shares of Common Stock subject
to such restrictions and conditions as the Committee may determine at the time
of the grant. Upon (i) the grant of Restricted Stock (or upon payment of the
purchase price for Restricted Stock if a purchase price is required) and (ii)
recording of the issuance of the Restricted Stock in the stock ledger of the
Company, the recipient may have all the rights of a stockholder with respect to
the Restricted Stock, including voting and dividend rights. A grant of
Restricted Stock will be subject to non-transferability restrictions, Company
repurchase and forfeiture provisions and such other conditions (including
conditions on voting and dividends) as the Compensation Committee shall impose
at the time of grant. Shares of Restricted Stock may not be transferred or
otherwise disposed of by a participant except as specifically provided for in
the Plan.

Upon the grant of a Restricted Stock award, the Compensation Committee shall
specify the conditions and time periods, if any, under which the restrictions
on the shares subject to the grant will lapse. Restrictions may include vesting
restrictions based upon matters such as timing, but also could relate to other
matters. Subsequent to the lapse of all restrictions on shares of Restricted
Stock, such shares shall cease to be Restricted Stock and shall be deemed
"vested". The Compensation Committee may in its discretion waive any condition
or restriction related to a grant of Restricted Stock or accelerate the date(s)
on which a grant of Restricted Stock vests.

15
<PAGE>

In the event of employment termination for a participant, for any reason,
prior to shares of Restricted Stock becoming vested, the Company has the right,
in the discretion of the Compensation Committee, to repurchase such shares at
their purchase price, or to require forfeiture of such shares if acquired at no
cost.

OTHER AWARDS

In addition to Options, SARs and Restricted Stock, the Plan permits the
Compensation Committee to grant awards consisting of any other form of stock-
based consideration that the Compensation Committee determines is consistent
with the purposes of the Plan. The grant of additional types of awards is
subject to the overall limitation on the number of shares of Common Stock (or
stock equivalents) that may be granted under the Plan. Pursuant to such
authority, the Compensation Committee could grant awards such as restricted
units, phantom stock, performance awards, performance units, limited stock
appreciation rights, stock acquisition rights, valuation protection rights, or
any other type of stock-based award or combination or derivative of various
types of awards. The form and terms of any such additional types of awards, as
well as the terms and conditions of the grant of any such awards, will be
determined by the Compensation Committee and set forth in the agreements
entered into with participants and in the Compensation Committee's procedures.
Such grants (including grants of Options, SARs and Restricted Stock) may be
settled at the discretion of the Compensation Committee in cash, shares of
Common Stock or any combination thereof.

Although the Compensation Committee has not previously granted awards under
other Company plans other than stock options, and has no present plans to
change from past practice, future circumstances could result in other forms of
awards being granted by the Compensation Committee under the Plan.

FEDERAL TAX CONSEQUENCES

Under the Code, a participant receiving a Nonstatutory Stock Option
ordinarily does not realize taxable income upon the grant of the Option. A
participant does, however, realize ordinary income upon the exercise of a
Nonstatutory Stock Option to the extent that the fair market value of the
Common Stock on the date of exercise exceeds the Option Price. The Company is
entitled to a Federal income tax deduction for compensation in an amount equal
to the ordinary income so realized by the participant, provided that the
Company withholds Federal income tax with respect to the amount of such
compensation. Upon the subsequent sale of the shares acquired pursuant to a
Nonstatutory Stock Option, any gain or loss will be capital gain or loss,
assuming the shares represent a capital asset in the hands of the participant,
although there will be no tax consequences for the Company.

The grant of an ISO does not result in taxable income to a participant. The
exercise of an ISO also does not result in taxable income, provided that the
employment requirements specified in the Code are satisfied, although such
exercise may give rise to alternative minimum tax liability for the
participant. In addition, if the participant does not dispose of the Common
Stock acquired upon exercise of an ISO during the statutory holding period,
then any gain or loss upon subsequent sale of the Common Stock will be a long-
term capital gain or loss, assuming the shares represent a capital asset in the
participant's hands.

The statutory holding period is the later of two years from the date the
Option is granted or one year from the date the Common Stock is transferred to
the participant pursuant to the exercise of the Option. If the employment and
statutory holding period requirements are satisfied, the Company may not claim
any Federal income tax deduction upon either the exercise of the ISO or the
subsequent sale of the Common Stock received upon exercise. If these
requirements are not satisfied, the amount of ordinary income taxable to the
participant is the lesser of (i) the fair market value of the Common Stock on
the date of exercise minus the Option Price, and (ii) the amount realized on
disposition minus the Option Price; and any excess is long-term or short-term
capital gain or loss, assuming the shares represent a capital asset in the
participants hands. The Company is entitled to a Federal income tax deduction
in an amount equal to the ordinary income so realized by the participant.

16
<PAGE>

Generally, a recipient does not realize taxable income upon the grant of a
SAR but realizes ordinary income upon its exercise in an amount equal to the
cash received and/or the fair market value of any Common Stock received. The
Company is entitled to a Federal income tax deduction in an amount equal to the
ordinary income realized by the participant, provided that the Company
withholds Federal income tax with respect to the amount of such compensation.
Upon the subsequent sale of shares acquired pursuant to a SAR, any gain or loss
will be capital gain or loss, assuming the shares represent a capital asset in
the hands of the participant.

In general, a participant receiving Restricted Stock does not realize taxable
income upon the grant of Restricted Stock. A participant will, however, realize
ordinary income when the Restricted Stock becomes vested to the extent that the
fair market value of the Common Stock on that date exceeds the price, if any,
paid for the Restricted Stock or, if no price was paid, to the extent of the
fair market value of the Common Stock on that date. However, the participant
may elect (within 30 days after the grant of Restricted Stock) to realize
ordinary income on the date of the grant to the extent of the fair market value
of the Restricted Stock (determined without regard to restrictions on
transferability and any substantial risk of forfeiture). If such election is
made, the participant will not realize ordinary income when the Restricted
Stock becomes vested. In addition, if such an election is made and the
Restricted Stock is subsequently forfeited, the participant is not entitled to
a deduction but will be allowed a capital loss equal to the excess of the
amount paid, if any, for such shares over the amount realized if any, on such
forfeiture. Upon a subsequent sale of vested Restricted Stock, any gain or loss
will be capital gain or loss, assuming the shares represent a capital asset in
the hands of the participant. The Company is entitled to a Federal income tax
deduction in an amount equal to the ordinary income realized by the recipient
of the Restricted Stock, provided that the Company withholds Federal income tax
with respect to the amount of such compensation. Dividends paid to the
participant on Restricted Stock during the restricted period are ordinary
compensation income to the participant and deductible as such by the Company.

If the exercisability of an Option or a SAR, or the elimination of
restrictions on Restricted Stock is accelerated, or special cash settlement
rights are triggered and exercised, as a result of a Change in Control of the
Company, all or a portion of the value of the relevant award at that time may
be a "parachute payment" for purposes of determining whether a 20% excise tax
(in addition to income tax otherwise owed) is payable by the participant as a
result of the receipt of an "excess parachute payment" pursuant to Section 4999
of the Code. The Company will not be entitled to a deduction for that portion
of any parachute payment which is subject to the excise tax.

Recent tax legislation limits the Company's tax deduction for all
compensation paid to certain executive officers in any one year to $1,000,000.
The Company's deductions related to grants under the Plan would be subject to
this limitation.

ACCOUNTING TREATMENT AND OTHER MATTERS

Under present accounting rules, a grant or exercise of an Option with an
Option Price not less than the fair market value of the underlying Common Stock
does not result in any charge to the Company's earnings (although a change in
accounting rules which would require a charge is pending). The mere grant of a
SAR does not, at the time of such grant, result in such a charge. After the
date of grant, however, outstanding SARs may from time to time give rise to
compensation expense to reflect changes in the market price of the Company's
Common Stock. Restricted Stock awards will give rise to compensation expense
which may vary in amount and timing to reflect changes from time to time in the
market price of the Company's Common Stock. Dividend equivalents on Options and
SARs will give rise to compensation expense. Dividends on Restricted Stock will
give rise to compensation expense while the awards are restricted.

Rule changes proposed by the Financial Accounting Standards Board and
currently pending would change certain aspects of the accounting treatment of
awards under the Plan.

17
<PAGE>

The adoption of the Plan shall not affect any other incentive or compensation
plan (including plans providing for the grant of stock options, stock
appreciation rights or restricted stock) in effect, or which may at a later
date become effective for directors, officers or employees of the Company or
its subsidiaries. In addition, the Plan shall not preclude the Company or its
subsidiaries from establishing any other form of incentive or other
compensation (including stock options, stock appreciation rights or restricted
stock awards) for their directors, officers or employees, or from assuming any
form of incentives or other compensation of any person or entity in connection
with the acquisition of the business or assets of any person or entity.

BOARD RECOMMENDATION

- --------------------------------------------------------------------------------

The Board of Directors unanimously recommends a vote FOR the Plan.

PRINCIPAL SHAREHOLDERS

- --------------------------------------------------------------------------------

COMMON STOCK

According to information supplied to the Company by the beneficial owners
listed below and, where applicable, the books and records of the Company, the
following entities each owned beneficially, as indicated on the dates shown,
more than five percent of the 15,154,632 outstanding shares of the Common Stock
of the Company on the dates indicated in parentheses below. No other person is
known by the Company to be the beneficial owner of more than five percent of
the Common Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER AND DATE AMOUNT AND NATURE OF PERCENT OF PERCENT OF TOTAL
INFORMATION PROVIDED BENEFICIAL OWNERSHIP(1) CLASS VOTING POWER
------------------------- ----------------------- ---------- ----------------
<S> <C> <C> <C>
Employees Retirement Fund
Trust Profit Sharing Plan
of
K N Energy, Inc............ 1,371,294(2) 9.05% 8.99%
P.O. Box 281304
Lakewood, CO 80228 (2/1/94)
Invesco Funds Group, Inc.... 1,226,500(3) 8.09% 8.04%
7800 E. Union Avenue
Suite 800
Denver, CO 80234 (12/31/93)
Prudential Insurance Company
of America................. 1,192,450(4) 7.87% 7.81%
Prudential Plaza
Newark, NJ 07102 (12/31/93)
State Farm Mutual Automobile
Insurance Company.......... 988,965(3) 6.52% 6.48%
One State Farm Plaza
Bloomington, IL 61701
(12/31/93)
</TABLE>
- --------
(1) All shares reflect the three-for-two stock split which was declared on
August 10, 1993 and distributed on October 4, 1993 to common shareholders
of record on September 15, 1993.
(2) 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 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.
(3) 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.
(4) 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.

CLASS A PREFERRED STOCK

No person is known to be the owner of five percent or more of the 75,000
outstanding shares of Class A Preferred Stock of the Company, including the
$8.50 and the $5.00 series.

18
<PAGE>

CLASS B PREFERRED STOCK

According to the records of the Company, the following insurance companies
each owned beneficially, on February 1, 1994, more than five percent of the
28,576 outstanding shares of Class B Preferred Stock of the Company. No other
person is known by the Company to be the beneficial owner of five percent or
more of the Class B Preferred Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF PERCENT OF TOTAL
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS VOTING POWER
------------------- ----------------------- ---------- ----------------
<S> <C> <C> <C>
Allstate Insurance Co... 21,436 75.01% .14%
Allstate Plaza
Northbrook, IL 60061
Century Life of America. 1,904 6.67% .01%
Heritage Way
Waverly, VA 50677
Volunteer State Life 5,236 18.32% .03%
Insurance Co............
P.O. Box 1615
Warren, NJ 07061-1615
</TABLE>
- --------
(1) The owners of the shares set forth above have, to the best knowledge of the
Company, sole voting and sole investment power over those shares.

INDEPENDENT PUBLIC ACCOUNTANTS

- --------------------------------------------------------------------------------

Arthur Andersen & Co. has acted as independent public accountants for the
Company continuously since 1940. A representative of Arthur Andersen & Co. will
be present at the annual meeting and will have the opportunity to make a
statement if he desires to do so and will be available to respond to
appropriate questions.

Arthur Andersen & Co. was recommended by the Audit Committee to perform the
audit function for 1993, and that recommendation was approved by the Board of
Directors. No independent public accountant has yet been recommended to perform
the audit function for 1994. The Audit Committee normally makes such a
recommendation at the regular Board of Directors meeting in November.

COST AND METHOD OF PROXY SOLICITATION

- --------------------------------------------------------------------------------

The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting, the enclosed form of Proxy, the Chairman's Letter, and any
additional material relating to the meeting which may be furnished to
shareholders by the Board of Directors subsequent to the furnishing of this
Proxy Statement, has been or is to be borne by the Company.

In addition to the solicitation of Proxies by use of the mails, the Company
may utilize the services of some of its directors and administrative office
personnel (who will receive no compensation therefor in addition to their
regular salaries) to solicit Proxies personally, by telephone or telegraph from
brokerage houses and other shareholders. The Company will reimburse banks and
brokers who hold shares of the Company's stock in their name or custody, or in
the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the Proxy materials to those persons for whom they hold
such shares. The Company has also retained D. F. King & Company, Inc. to aid in
the solicitation at an estimated cost of $7,500 plus reasonable out-of-pocket
expenses.

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

- --------------------------------------------------------------------------------

Pursuant to Securities and Exchange Commission regulations, any proposal
which a shareholder intends to present to the 1995 annual meeting must be
received by October 27, 1994, at the Company's principal executive offices in
order to be included in the Proxy Statement and the form of Proxy for that
meeting.

19
<PAGE>

The Company's By-laws establish an advance notice procedure with regard to
certain matters to be brought before the annual meeting of shareholders. In
general, written notice must be received by the Secretary of the Company at its
principal executive offices not less than forty days prior to the meeting and
must contain certain specified information concerning the matters to be brought
before the meeting as well as the shareholder submitting the proposal. A copy
of the applicable By-law provisions may be obtained, without charge, upon
request to the Secretary of the Company at the address set forth on page 1 of
this Proxy Statement. The annual shareholders meeting is customarily held in
late March.

OTHER MATTERS

- --------------------------------------------------------------------------------

The Board of Directors does not intend to present, and does not have any
reason to believe that others will present, any other items of business at the
annual meeting. However, if other matters are properly presented for a vote,
Proxies will be voted upon such matters in accordance with the judgment of the
Proxyholders.

By Order of the Board of Directors

William S. Garner, Jr.
Secretary

20
<PAGE>

ATTACHMENT A

1994 K N ENERGY, INC. LONG-TERM INCENTIVE PLAN

ARTICLE I

PURPOSE

1.01 Purpose. The purpose of the 1994 K N Energy, Inc. Long-Term Incentive
Plan (the "Plan") is to further the growth and financial success of K N Energy,
Inc., a Kansas corporation (the "Company") and its Subsidiaries by aligning the
personal interests of key employees, through the ownership of shares of the
Company's Common Stock and through other incentives, to those of the Company's
shareholders. The Plan is further intended to provide flexibility to the
Company in its ability to compensate key employees and to motivate, attract and
retain the services of such key employees. The Plan permits the granting of
Options, Stock Appreciation Rights, Restricted Stock and other Stock-based
Awards.

ARTICLE II

DEFINITIONS

2.01 Agreement. Agreement shall mean the agreement as described in Section
4.04 of the Plan between the Company and the Participant under which such
Participant receives an Award pursuant to this Plan.

2.02 Award. Award shall mean an incentive award granted under the Plan,
whether in the form of Options, Stock Appreciation Rights, Restricted Stock or
any other form of Stock-Based consideration (which may provide for settlement
in shares of Stock, cash and/or a combination thereof) determined by the
Committee to be consistent with the purposes of the Plan, including but not
limited to, restricted units, phantom stock, performance awards, performance
units, performance shares, stock appreciation shares, stock acquisition rights,
valuation protection rights or any other type of stock-based award or
combination or derivative of various types of awards.

2.03 Board of Directors. Board or Board of Directors shall mean the Board of
Directors of the Company.

2.04 Code. Code shall mean the Internal Revenue Code of 1986, as amended,
unless otherwise specifically provided herein.

2.05 Committee. Committee shall mean the Compensation Committee of the Board.
No member of the Committee, during the one year prior to such membership or
during such membership, shall be granted or awarded equity securities pursuant
to the Plan or any other plan of the Company or any of its Subsidiaries, except
as permitted by Rule 16b-3 as promulgated under the Exchange Act.

2.06 Company. Company shall mean K N Energy, Inc., a Kansas corporation, and
any successor thereof.

2.07 Effective Date. Effective Date shall have the meaning assigned to such
term in Section 14.01 hereof.

2.08 Exchange Act. Exchange Act shall mean the Securities Exchange Act of
1934, as amended.

2.09 Fair Market Value. Fair Market Value of the Stock shall mean the average
of the high and low sale price at which Stock is traded on any given date, or
if no Stock is traded on such date, the most recent

21
<PAGE>

prior date on which Stock was traded, as reported in The Wall Street Journal
for the New York Stock Exchange-Composite Transactions.

2.10 Incentive Stock Option. Incentive Stock Option shall have the meaning
given to it by Section 422(b) of the Code and as further defined in Article VI
hereof.

2.11 Nonstatutory Stock Option. Nonstatutory Stock Option shall mean any
Option granted by the Company pursuant to this Plan which is not an Incentive
Stock Option.

2.12 Option. Option shall mean an option granted by the Company to purchase
Stock pursuant to the provisions of this Plan and the Agreement executed
pursuant hereto.

2.13 Option Price. Option Price shall mean the price per share of Stock
purchasable under an Option. The Option Price shall not be less than the Fair
Market Value on the date of grant.

2.14 Participant. Participant shall mean an employee or former employee of
the Company or one of its Subsidiaries who has received an Award granted by the
Committee hereunder.

2.15 Restricted Stock Awards. A Restricted Stock Award shall mean a grant
made by the Committee entitling the Participant to acquire, either at no cost
or for a purchase price determined by the Committee at the time of grant,
shares of Stock subject to such restrictions and conditions as the Committee
may determine at the time of grant ("Restricted Stock").

2.16 Stock. Stock shall mean common stock, par value $5.00 per share, of the
Company.

2.17 Stock Appreciation Rights. A Stock Appreciation Right shall mean a grant
entitling the Participant to receive an amount in cash, or shares of Stock, or
a combination thereof, having a value equal to (or if the Committee shall so
determine at the time of grant, less than) the excess of the fair Market Value
of a share of Stock on the date of exercise over the Fair Market Value of a
share of Stock on the date of grant (or over the Option Price, if the Stock
Appreciation Right was granted in tandem with an Option) multiplied by the
number of shares with respect to which the Stock Appreciation Right shall have
been exercised, with the Committee having sole discretion to determine the form
for payment. A Stock Appreciation Right is further defined in Article VII
hereof.

2.18 Subsidiary. Subsidiary shall have the same meaning as defined in Section
424 of the Code.

ARTICLE III

PARTICIPATION

3.01 Participation. Subject to the provisions of the Plan, the Committee may
grant Awards under this Plan to any officer or other key employee of the
Company or a Subsidiary who, in its sole discretion, is expected to contribute
to its success. Awards may be granted to the same individual on more than one
occasion.

ARTICLE IV

SHARE SUBJECT TO THE PLAN

4.01 Limitations.

(A) Subject to adjustments pursuant to the provisions of Section 4.03 hereof,
the number of shares of Stock or Stock equivalents which may be granted to
Participants under all forms of Awards shall not exceed 700,000 shares. These
shares may consist in whole or in part of authorized and unissued Stock or
Treasury Stock.

22
<PAGE>

(B) For purposes of this Section 4.01, the shares of Stock that shall be
counted toward such limitation shall include all Stock:

(1) issued or issuable pursuant to Options that have been or may be
exercised;

(2) subject to Stock Appreciation Rights that have been or may be
exercised (other than Stock Appreciation Rights granted in tandem with
outstanding Options);

(3) issued as, or subject to issuance as, Restricted Stock;

(4) used to calculate payments of dividends and dividend equivalents in
conjunction with any outstanding Awards; and

(5) to the extent that an Award is settled in cash or any form other than
in Stock, the appropriate shares of Stock represented by such settlement of
the Awards, as determined by the Committee.

4.02 Availability of Shares Once Issued Under Plan. Once grants of Awards
have lapsed, terminated or are forfeited, the Committee shall have the sole
discretion to issue a new grant to any Participant, covering the number of
shares to which such lapsed, terminated or forfeited grant related; provided,
however, that the Participant has received no monetary benefits of ownership
therefrom, such as dividends.

4.03 Anti-Dilution Adjustments. In the event that the outstanding shares of
Stock are changed into or exchanged for a different number or kind of share or
other securities of the Company or of another corporation by reason of merger,
consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend, the Committee shall
make such corresponding adjustment, if any, as is appropriate, adjusting the
number and kind of shares which may be granted under the Plan, the maximum
number and kind of shares which may be granted to any one eligible Participant,
and the number, the Option Price, and the kind of shares or property subject to
each outstanding grant.

4.04 Grants and Agreements. Each grant of an Award under this Plan shall be
evidenced by a written Agreement dated as of the date of the grant and executed
by the Company and the Participant. This Agreement shall set forth the terms
and conditions of such Award, as may be determined by the Committee consistent
with this Plan, and if such Agreement related to the grant of an Option, shall
indicate whether the Option is intended to be an Incentive Stock Option or a
Nonstatutory Stock Option.

ARTICLE V

OPTIONS

5.01 Option Exercise. Subject to Federal and state statutes then applicable,
the terms and procedures by which an Option may be exercised shall be set forth
in the Participant's Agreement or in procedures established by the Committee;
provided, however, that no Option shall be exercisable later than ten (10)
years (or five (5) years as required by Section 422(b)(6) of the Code) after
date granted if an Incentive Stock Option. The Committee may permit payment of
the Option Price to be made through the tender of cash or securities, the
withholding of Stock or cash to be received through Awards, or any other
arrangement satisfactory to the Committee.

5.02 Nonstatutory Stock Options. The Committee may grant Nonstatutory Stock
Options under this Plan. Such Nonstatutory Stock Options must comply with all
requirements of this Plan except for those contained in Article VI, Article
VII, and Article VIII hereof.

5.03 Vesting of Options. The Agreement shall specify the date or dates on
which the Participant may begin to exercise all or a portion of his Option.
Notwithstanding the terms of any Agreement, the Committee may, at any time,
accelerate such date or dates and otherwise waive or amend any conditions of
the Option; provided, however, that with respect to an Incentive Stock Option,
the Committee shall not take any action which would constitute a modification,
extension or renewal (within the meaning of Section 424(h) of the Code) of such
Incentive Stock Option.

23
<PAGE>

ARTICLE VI

INCENTIVE STOCK OPTIONS

6.01 General. All Incentive Stock Options shall comply with all the
restrictions and limitations set forth in Section 422 of the Code and this
Plan. No Incentive Stock Option shall be granted to an individual if, at the
time the Option is granted, such individual owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or of
its parent or subsidiary corporation, within the meaning of Section 422(b)(6)
of the Code, unless (i) at the time such Incentive Stock Option is granted the
Option Price is at least 110% of the Fair Market Value of the Stock subject to
the Option and (ii) such Incentive Stock Option by its terms is not exercisable
after the expiration of five years from the date of grant. To the extent that
the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of stock with respect to which Incentive
Stock Options are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the Company and its
parent and Subsidiaries exceeds $100,000, such excess Incentive Stock Options
shall be treated as Options which do not constitute Incentive Stock Options.
The Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such determination
as soon as practicable after such determination.

ARTICLE VII

STOCK APPRECIATION RIGHTS

7.01 Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
Rights may be granted to Participants by the Committee in tandem with, or
independently of, any Option granted pursuant to Article V or Article VI of
this Plan. In the case of a Stock Appreciation Right granted in tandem with a
Nonstatutory Stock Option, such Stock Appreciation Right may be granted either
at or after the time of the grant of such Nonstatutory Stock Option. In the
case of a Stock Appreciation Right granted in tandem with an Incentive Stock
Option, such Stock Appreciation Right may be granted only at the time of the
grant of such Incentive Stock Option.

A Stock Appreciation Right, or the applicable portion thereof granted in
tandem with an Option, shall terminate and no longer be exercisable upon the
termination or exercise of the related Option. However, if a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Option, such Stock Appreciation Right shall terminate only if and to
the extent that the number of shares covered by the exercise or termination of
the related Option exceeds the number of shares not covered by such Stock
Appreciation Right.

7.02 Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined
from time to time by the Committee and embodied in the Agreements and in
procedures established by the Committee. The Committee may, at any time,
accelerate the exercisability of any Stock Appreciation Right and otherwise
waive or amend any conditions of the grant of a Stock Appreciation Right;
provided, however, that with respect to any Stock Appreciation Right granted in
tandem of an Incentive Stock Option, the Committee shall not take any action
which would constitute a modification, extension or renewal (within the meaning
of Section 424(h) of the Code) of such Incentive Stock Option.

ARTICLE VIII

RESTRICTED STOCK AWARDS

8.01 Agreement. If the purchase of Restricted Stock is required by the
Agreement, a Participant who is granted a Restricted Stock Award shall have
rights with respect to such grant provided the Participant

24
<PAGE>

shall have accepted the grant within sixty (60) days (or such shorter date as
the Committee may specify) following the date of the grant, by making payment
to the Company by certified bank check or other instrument acceptable to the
Committee in an amount equal to the specified purchase price, if any, of the
shares covered by the grant and by executing and delivering to the Company an
Agreement in such form as the Committee shall determine.

8.02 Rights as a Shareholder. After the issuance of the Restricted Stock has
been recorded in the stock ledger of the Company and

(A) upon complying with Section 8.01 above, if the purchase of Restricted
Stock is required by the Agreement; or

(b) immediately, if no purchase of Restricted Stock is required by the
Agreement,

a Participant shall have all the rights of a shareholder with respect to such
Restricted Stock including voting and dividend rights, subject to non-
transferability restrictions and Company purchase or forfeiture rights
described in this Section and Section 8.03, and subject to such other
conditions (including but not limited to, any conditions on voting and dividend
rights) as are contained in the Agreement. Unless the Committee shall otherwise
determine, certificates evidencing shares of Restricted Stock shall remain in
the possession of the Company until such shares are vested as provided in
Section 8.04 below and the Agreement.

8.03 Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. Restrictions on shares of Restricted Stock shall
be set forth in an Agreement and may include such vesting restrictions as the
Committee shall determine, including but not limited to, restrictions related
to timing, profitability of the Company, and growth of the share price. In the
event of a Participant's termination of employment with the Company and its
Subsidiaries for any reason (including death) prior to the date shares of
Restricted Stock awarded to such Participant become vested, the Company shall
have the right, at the discretion of the Committee, to repurchase such shares
at their purchase price, or to require forfeiture of such shares to the Company
if acquired at no cost, from such Participant or the Participant's legal
representative.

8.04 Vesting of Restricted Stock. The Committee at the time of grant shall
specify the date or dates (which may depend upon or be related to the
attainment of performance goals and other conditions) on which the restrictions
imposed upon the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. The Committee at any time may accelerate such date or
dates and otherwise waive or amend any conditions of the grant. A Participant
may transfer or dispose of any Restricted Stock that has vested, subject to any
Federal and state laws then applicable, specifically securities laws.

ARTICLE IX

STOCK CERTIFICATES

9.01 Stock Certificates. The Company shall not be required to issue or
deliver any certificate for shares of Stock under this Plan prior to
fulfillment of all of the following conditions:

(A) the admission of such shares to listing on all stock exchanges on
which the Stock is then listed, if any;

(B) the completion of any registration or other qualification of such
shares under any Federal or state law, under the rules or regulations of
the Securities and Exchange Commission, or under any other governmental
regulatory agency which the Committee shall in its sole discretion
determine to be necessary or advisable;

(C) the obtaining of any approval or other clearance from any Federal or
state governmental agency which the Committee shall in its sole discretion
determine to be necessary or advisable; and

25
<PAGE>

(D) the lapse of such reasonable period of time following the exercise of
the grant as the Committee from time to time may establish for reasons of
administrative convenience.

If these conditions are not satisfied the employee may lose his rights to
such Stock as determined by the Committee.

Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of a Nonstatutory Stock Option.

ARTICLE X

DIVIDENDS

10.01 Dividends. At the time of each grant of an Award (other than an Option
Stock Appreciation Right or Restricted Stock) the Committee may, in it sole
discretion, determine whether the grant shall provide a dividend or a dividend
equivalent and the terms and conditions under which any such dividend or
dividend equivalent is to be provided, including but not limited to, permitting
or requiring immediate payment, deferral or investment of dividends or dividend
equivalents.

ARTICLE XI

PLAN ADMINISTRATION

11.01 Plan Administration. The Plan and all Agreements shall be administered,
and all grants under this Plan shall be awarded, by the Committee. The
Committee shall have full authority and absolute sole discretion to:

(A) determine, consistent with provisions of the Plan, which of the
employees shall be granted Awards; the form and terms of such Awards; the
timing of such grants; the number of shares subject to each Award and the
Option Price of Stock covered by each Option (if applicable); and the
period over which the Awards shall become and remain exercisable (if
applicable);

(B) construe and interpret the Plan and any Agreement or instrument
entered into under the Plan;

(D) make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan; and

(E) adopt, alter, and repeal such rules, guidelines, and practices for
administration of the Plan and for its own acts and proceedings as it shall
deem advisable; to interpret the terms and provisions of the Plan and any
grant (including related Agreements); to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration of
the Plan.

11.02 Decisions Binding. All determinations and decisions by the Committee
pursuant to the Plan and all related orders or resolutions of the Board of
Directors shall be final, conclusive and binding on all persons, including the
Company, its Subsidiaries, its shareholders, Participants and their estates and
beneficiaries.

ARTICLE XII

MISCELLANEOUS PROVISIONS

12.01 Applicable Law. To the extent not preempted by any laws of the United
States, the Plan shall be construed, regulated, interpreted and administered
according to the laws of the State of Colorado.

26
<PAGE>

12.02 Expenses. The cost of Awards and the expenses of administering the Plan
shall be borne by the Company.

12.03 Gender and Number. Unless the context clearly requires otherwise, the
masculine pronoun whenever used shall include the feminine and neuter pronoun,
the singular shall include the plural, and vice versa.

12.04 Headings Not Part of Plan. Headings of Articles and Sections are
inserted for convenience of reference only.

12.05 Indemnification. No member of the Board of Directors or the Committee
shall be liable for any action or determination taken or made in good faith
with respect to this Plan nor shall any member of the Board of Directors or the
Committee be liable for any Agreement issued pursuant to this Plan or any
grants under it. Each member of the Board of Directors and the Committee shall
be indemnified by the Company against any losses incurred in such
administration of the Plan, unless his action constitutes gross negligence or
willful misconduct.

12.06 Limitation of Rights. Neither the adoption and maintenance of the Plan
or any Agreement nor anything contained herein shall, with respect to any
Participant, be deemed to:

(A) limit the right of the Company or any Subsidiary to discharge or
discipline any such person, or otherwise terminate or modify the terms of
his employment; or

(B) create any contract or other right or interest under the Plan other
than as specifically provided in the Plan and an Agreement.

12.07 Nontransferability. An Award shall not be transferable by the
Participant otherwise than by will or the laws of descent and distribution.
During the lifetime of the Participant, such Award shall be exercisable or
perfected only by the Participant or his guardian or legal representative in
accordance with the terms of this Plan and the Agreement.

12.08 Other Compensation Plans. The adoption of the Plan shall not affect any
other existing or future incentive or compensation plans for directors,
officers or employees of the Company or its Subsidiaries. Moreover, the
adoption of this Plan shall not preclude the Company or its Subsidiaries from:

(A) establishing any other forms of incentive or other compensation for
directors, officers or employees of the Company or its Subsidiaries; or

(B) assuming any forms of incentive or other compensation of any person
or entity in connection with the acquisition or the business or assets, in
whole or in part, of any person or entity.

12.09 Plan Binding on Successors. This Plan shall be binding upon the
successors of the Company.

12.10 Tax Withholding. Each Participant shall, no later than the date as of
which the value of a grant or of any Stock or other amount received thereunder
first becomes includable in the gross income of the Participant for Federal
income tax purposes, pay to the Company, or make arrangements satisfactory to
the Committee regarding payment of any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Committee
may permit payment of such taxes to be made through the tender of cash or
Stock, the withholding of Stock or cash to be received through Awards or any
other arrangement satisfactory to the Committee. The Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.

12.11 Securities Laws. Notwithstanding anything to the contrary expressed in
the Plan, any provisions that vary from or conflict with any applicable Federal
or state securities laws (including any regulations promulgated thereunder)
shall be deemed to be modified to conform to and comply with such laws. Without

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limiting the generality of the foregoing, it is the intention of the Company
that the Plan shall comply in all respect with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with
Section 16 of the Exchange Act, the provision shall be deemed null and void,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
Contrary, the Board, in its absolute discretion, may bifurcate the Plan so as
to restrict, limit or condition the use of any provision of the Plan to
Participants who are officers subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other
Participants.

12.12 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed
and enforced as though the illegal or invalid provision had not been included.

12.13 Unfunded Status of the Plan. The Plan is intended to be unfunded. With
respect to any payments as to which a Participant has a fixed and vested
interest but which are not yet made to a Participant by the Company, nothing
contained herein shall give any Participant any rights that are greater than
those of a general creditor of the Company.

12.14 Fractional Shares. No Option may at any time be exercised with respect
to a fractional share. In the event shares of Stock are issued pursuant to
exercise of a Stock Appreciation Right, no fractional shares shall be issued;
however, a fractional Stock Appreciation Right may be exercised for cash.

ARTICLE XIII

CHANGE OF CONTROL

13.01 Change in Control. In the event of a Change in Control of the Company,
all Awards granted under the Plan that are still outstanding and not yet
exercisable or are subject to restrictions, shall, unless otherwise provided
for in the related Agreements, become immediately exercisable, and all
restrictions shall be removed, as of the first date that the Change in Control
has been deemed to have occurred, and shall remain as such for the remaining
life of the Award as provided herein and within the provisions of the related
Agreements.

For purposes of this Section 13.01, a Change in Control of the Company shall
be deemed to have occurred if the conditions set forth in any one or more of
the following shall have been satisfied:

(A) any "person", as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities;

(B) during any period of two consecutive years (not including any period
prior to the Effective Date of the Plan), individuals who at the beginning
of such period constitute the Board of Directors, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in paragraph
(A), (B) or (C) of this Section 13.01) whose election by the Board of
Directors or nomination for election by the Company's shareholders was
approved by a vote of a least two-thirds ( 2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof; or

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(C) the shareholders of the Company approve a merger or consolidation of
the Company with any other person, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities for the surviving
entity) more than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a merger in which
no "person" (as defined above) acquires more than thirty percent (30%) of
the combined voting power of the Company's then outstanding securities; or

(D) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets (or any
transaction having a similar effect).

ARTICLE XIV

EFFECTIVE DATE AND PLAN AMENDMENTS, TERMINATION

14.01 Effective Date. This Plan shall become effective upon the approval of
the shareholders. The date of such approval is herein call the "Effective
Date". All Awards granted under the Plan shall be granted on or before the
tenth anniversary of the Effective Date.

14.02 Termination, Amendment and Modification of Plan. The Board of Directors
may at any time terminate or suspend, and may at any time and from time to time
and in any respect amend or modify, the Plan; provided, however, that no such
action of the Board of Directors shall be taken without approval of the
Company's shareholders if such approval is required to comply with Rule 16b-3
under the Exchange Act or Section 422 of the Code, or any successor provision.

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(K N ENERGY LOGO)

PROXY FOR SHAREHOLDERS MEETING MARCH 24, 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 Annual Meeting of Shareholders to be held in the Rocky
Room of the Company's corporate headquarters located at 370 Van Gordon Street,
Lakewood, Colorado on March 24, 1994 at 10 a.m., Mountain Time, and at any
adjournment thereof, upon the matters described in the accompanying Proxy
Statement and upon other business that my properly come before the meeting or
any adjournment thereof. Said proxies are directed to vote as instructed on the
matters set forth below and otherwise at their discretion. Receipt of a copy of
the Notice of said meeting and Proxy Statement is hereby acknowledged. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES AND A
VOTE "FOR" THE ADOPTION OF THE PROPOSAL.

THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN THE ABSENCE OF DIRECTION,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES LISTED ON THE
REVERSE HEREOF AND "FOR" PROPOSAL NUMBER 2 SO LISTED.

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

<PAGE>

PROXY
1. Election of Class I Directors David W. Burkholder Jordan L. Haines
William J. Hybl
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote for all nominees
listed
(To withhold authority to vote for any individual
nominee, strike a line through his name above)

2. Adoption of 1994 K N Energy, Inc. Long-Term Incentive Plan
[_] For [_] Against [_] Abstain

NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON, When signing as
custodian, attorney, executor, administrator, trustee, etc., please give your
full title as such. All joint owners should sign this proxy. If account is
registered in the name of a corporation, partnership or other entity, a duly
authorized individual must sign on its behalf and give title.

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Signature(s) Date Signature(s) Date