<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
K N ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
K N 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(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $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:
Class A $5.00 Cumulative Preferred Stock, Class B $8.30 Cumulative
Preferred Stock and Common Stock.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
27,800,881
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:
N/A
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
(K N Energy LOGO) K N Energy, Inc.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228-8304
(303) 989-1740
March 6, 1995
Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Stouffer Renaissance Hotel located at 3801 Quebec Street, Denver,
Colorado 80207, on Thursday, April 6, 1995, 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 four directors for terms of three years each. As in
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/ CHARLES W. BATTEY
CHARLES W. BATTEY
Chairman of the Board
<PAGE> 3
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 at the
Stouffer Renaissance Hotel at 3801 Quebec Street, Denver, Colorado 80207, on
Thursday, April 6, 1995, at 10:00 A.M., Mountain Standard Time, for the
following purposes:
1. To elect four directors to terms of three years each.
2. 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 1994 Annual Report to Shareholders. The
1994 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 15, 1995,
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
March 6, 1995
<PAGE> 4
K N ENERGY, INC.
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, CO 80228-8304
(303) 989-1740
March 6, 1995
PROXY STATEMENT
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 April 6, 1995, at 3801 Quebec Street, Denver, 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 March 6, 1995.
SHARES OUTSTANDING
On February 15, 1995, the Company had outstanding the following shares of
capital stock: 70,000 shares of Class A $5.00 Cumulative Preferred Stock, 17,148
shares of Class B $8.30 Cumulative Preferred Stock and 27,713,733 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 15, 1995,
are entitled to vote at the meeting. If a quorum is present at the meeting, the
four 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 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 four nominees named herein 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.
<PAGE> 5
ELECTION OF DIRECTORS
The Restated Articles of Incorporation of the Company provide for a Board
of Directors of no fewer than nine nor more than fifteen members (exclusive of
any advisory director), 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 fourteen members of the Board of Directors and one non-voting
advisory director.
Messrs. Charles W. Battey, Robert B. Daugherty, Larry D. Hall and H.A.
True, III have been nominated for reelection as Class II directors. Proxies will
be voted, unless authority to vote is withheld by the shareholder, for the
election of Messrs. Battey, Daugherty, Hall and True to serve until the 1998
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 four persons.
On July 13, 1994, pursuant to the Agreement and Plan of Merger dated as of
March 24, 1994 (the "Merger Agreement"), among the Company, KNE Acquisition
Corporation and American Oil and Gas Corporation ("AOG"), each share of common
stock of AOG was converted into 0.47 of a share of K N's Common Stock and AOG
became a wholly-owned subsidiary of K N. Pursuant to the Merger Agreement, the
Board of Directors of K N increased the number of directors comprising the Board
of Directors to fourteen persons and appointed four designees of AOG (Edward H.
Austin, Jr., David M. Carmichael, Edward Randall, III and James C. Taylor) to
fill the four vacancies created by such increase. In addition, the Board of
Directors of K N elected John G. L. Cabot, a designee of Cabot Corporation
("Cabot"), as an advisory director of K N. K N's By-laws were amended, effective
July 13, 1994, to provide that, for so long as Cabot continues to own
beneficially at least 10% of the voting stock of K N, Cabot will have the right
to designate an advisory director. Further, if Cabot's beneficial ownership in
K N is reduced below 10% but continues over 5%, then the Board of Directors of
K N will appoint the Cabot advisory director as a full director, to serve the
remaining term of a Class II director, and Cabot will be entitled to have one
designee for election to the Board of Directors of K N.
2
<PAGE> 6
The name of each nominee for election as a director at this meeting and of
each director and advisory 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:
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1995(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION FOR TERM OF 3 YEARS EXPIRING IN 1998 (CLASS II)
- ------------------------------------------------------------------------------------------------------
Charles W. Battey 1971 80,878 63 Chairman (1989-
Present); and Chief
Executive Officer
(1989-July 1994)
Robert B. Daugherty 1983 80,115 73 Director Chairman of the
Board of Valmont
Industries, Inc.
(manufacturer of
products for the
electrical industry,
producer of
mechanized
irrigation
equipment), Valley,
Nebraska; Director,
Peter Kiewit Sons'
Co. (contracting,
mining and
manufacturing).
Larry D. Hall 1984 63,443(4) 52 President and Chief
Executive Officer
(July 1994-Present);
President and Chief
Operating Officer
(May 1988-July
1994); Director
H.A. True, III 1991 5,400 52 Director Partner, True
Companies (energy,
agriculture and
financing), Casper,
Wyoming.
DIRECTORS WHOSE TERMS EXPIRE IN 1997 (CLASS I)
- ------------------------------------------------------------------------------------------------------
Edward H. Austin, Jr. 1994 272,484 53 Director Principal of Austin,
Calvert & Flavin,
Inc., an investment
advisory firm, San
Antonio, Texas.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1995(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
David W. Burkholder 1984 11,961 52 Director President of Will
Feed, Inc. (cattle
feeding), Willow
Island, Nebraska;
President of Island
Dehy Company, Inc.
(alfalfa
dehydration), Cozad,
Nebraska; and
President of
Consolidated
Blenders, Inc.
(alfalfa
dehydration),
Hastings, Nebraska.
David M. Carmichael 1994 321,400(5) 56 Vice Chairman (July Chairman of the
1994-Present) Board and Chief
Executive Officer of
American Oil and Gas
Corporation (1993-
1994); President,
Chairman of the
Board and Chief
Executive Officer of
American Oil and Gas
Corporation (1986-
1993).
Jordan L. Haines 1983 13,877 67 Director Director of Fourth
Financial
Corporation (bank
holding company);
Director of The
Coleman Company
(manufacturer of
outdoor equipment);
Director of Southern
Pacific Rail Corp.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1995(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
William J. Hybl 1988 5,800 52 Director Chairman and Chief
Executive Officer
(1989-Present), and
Trustee of El Pomar
Foundation
(charitable
foundation),
Colorado Springs,
Colorado; Vice
Chairman and
Director of
Broadmoor Hotel,
Inc., Colorado
Springs, Colorado;
Director of USAA,
(insurance company);
and President,
United States
Olympic Committee
(1991-1992).
DIRECTORS WHOSE TERMS EXPIRE IN 1996 (CLASS III)
- ------------------------------------------------------------------------------------------------------
Stewart A. Bliss 1993 2,250 61 Director Financial
Consultant, Denver,
Colorado
(1993-Present);
Board Member of
Colorado State Board
of Agriculture
(1993-Present);
Chief of Staff to
Governor of
Colorado, Denver,
Colorado
(1987-1993).
Robert H. Chitwood 1990 14,500 64 Director President, R.H.
Chitwood Company
(oil and gas
production,
investments and
petroleum
consulting), Tulsa,
Oklahoma.
Howard P. Coghlan 1981 14,712 67 Director Senior Partner,
Coghlan, Crowson &
Fitzpatrick,
Attorneys at Law,
Longview, Texas.
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1995(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Edward Randall, III 1994 281,991 68 Director Private investor
(1990-Present);
Partner of Duncan,
Cook & Co. (private
investment banking
firm), Houston, TX
(1985-1990);
Director,
PaineWebber Group
Inc. and Enron Oil &
Gas Company.
James C. Taylor 1994 91,330 57 Director Owner and Operator
Wytana Livestock
Company, Bozeman,
Montana; Private
investor.
ADVISORY DIRECTOR
John G.L. Cabot 1994 -0- 60 Advisory Director Vice Chairman, Chief
Financial Officer
and Director of
Cabot Corporation
(manufacturer of
specialty chemicals
and materials),
Boston, Mass.;
Director, Cabot Oil
and Gas Corporation,
Eaton Vance
Corporation and
Hollingsworth and
Vose Company.
</TABLE>
- ---------------
(1) No director owns any Preferred Stock of the Company. Except for Mr.
Carmichael and Mr. Randall, no director owns more than one percent of the
outstanding shares of Common Stock of the Company. In making the
computations required in connection with the preceding statement, with
respect to any director who held options to purchase shares of Common Stock
exercisable within 60 days of February 15, 1995, 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. Austin, 1,000 shares; Mr. Battey, 38,750 shares;
Mr. Bliss, 2,000 shares; Mr. Burkholder, 1,750 shares; Mr. Cabot, 0 shares;
Mr. Carmichael, 156,966 shares; Mr. Chitwood, 5,250 shares; Mr. Coghlan,
7,500 shares; Mr. Daugherty, 9,000 shares; Mr. Haines, 10,346 shares; Mr.
Hall, 40,250 shares; Mr. Hybl, 5,500 shares; Mr. Randall, 1,000 shares; Mr.
Taylor, 1,000 shares; and Mr. True, 5,250 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 of these persons have held such positions for at least five years
unless otherwise indicated.
(4) 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.
(5) Includes 940 shares of Common Stock owned by Mr. Carmichael's wife, as to
which Mr. Carmichael disclaims beneficial ownership and over which he has
neither investment nor voting power.
6
<PAGE> 10
CERTAIN TRANSACTIONS
In connection with its acquisition of AOG by merger (the "Merger") on July
13, 1994, K N issued the number of shares of its Common Stock indicated below to
the indicated persons and assumed outstanding AOG stock options or warrants held
by such persons currently exercisable for the number of shares of K N's Common
Stock indicated in the table.
<TABLE>
<CAPTION>
OPTIONS TO WARRANTS TO
PURCHASE PURCHASE
K N SHARES(1) K N SHARES(2) K N SHARES(3)
------------- ------------- -------------
<S> <C> <C> <C>
K N DIRECTORS
Edward H. Austin, Jr.............................. 271,484 0 0
David M. Carmichael............................... 164,434 183,300 0
Edward Randall, III............................... 263,537 0 0
K N EXECUTIVE OFFICERS
Samuel H. Charlton, III........................... 1,705 0 0
Thomas H. Fanning................................. 3,149 0 0
K N 5% STOCKHOLDERS
Cabot Corporation................................. 4,197,954 0 642,232
The Prudential Insurance Company of America....... 444,385 0 545,200
</TABLE>
- ---------------
(1) On July 13, 1994, the closing price for K N's Common Stock on the New York
Stock Exchange Composite Tape was $24.75.
(2) Exercisable at prices ranging from $11.70 to $28.99 per share of K N Common
Stock and expiring at various dates between April 19, 1998 and September
15, 2003.
(3) Exercisable at $17.55 per share of K N Common Stock at any time prior to
October 1, 1999
As mentioned under the "Election of Directors", on July 14, 1994 the four
designees of AOG listed in the table above were elected to the Board of
Directors of K N pursuant to the Merger Agreement, and a designee of Cabot was
elected as an advisory director. In addition, pursuant to the Merger Agreement,
on July 14, 1994 the Board of Directors elected David M. Carmichael to serve as
Vice Chairman of the Board and Chairman of the Company's Management Committee,
for a term expiring on the date of K N's 1996 annual meeting of shareholders.
The Merger Agreement provides for broad indemnities by K N of the former
officers and directors of AOG (including the individuals named in the table
above) against certain liabilities and costs, including those arising out of, or
pertaining to, the Merger Agreement, the Merger or the transactions contemplated
thereby. The Merger Agreement also obligates K N, for six years after the
effective time of the Merger, to maintain, to the extent commercially
practicable, the directors' and officers' liability insurance policies
maintained by AOG prior to the Merger or to substitute equivalent policies.
The Merger Agreement also obligated K N to prepare and file a registration
statement with the Securities and Exchange Commission respecting the resale by
Cabot from time to time of up to 1,500,000 of the shares issued by K N in the
Merger. Such registration statement (the "Shelf Registration Statement") became
effective on July 13, 1994 and will remain effective continuously until Cabot
beneficially owns less than 10% of the then outstanding shares of K N's Common
Stock. Also pursuant to the Merger Agreement, K N granted certain rights to
registration under the Securities Act of 1933 to Cabot and every other affiliate
of AOG who held 1% or more of the shares of K N's Common Stock outstanding at
the effective time of the Merger, so as to permit such affiliates the
opportunity to dispose of shares of K N's Common Stock received by them in the
Merger without constraint by the volume limitations imposed by Rule 145 under
such Act. In addition to the right to request registration of not less than
750,000 shares on two occasions within five years of the effective time of the
Merger, such affiliates also have "piggyback" registration rights on two
occasions during such five-year period. Such registration rights do not extend,
however, to any shares of Common Stock that are then subject to the Shelf
Registration Statement. K N and each affiliate whose shares are registered for
resale under the Securities Act of 1933 will indemnify each other in a customary
manner against any resulting
7
<PAGE> 11
liabilities, and K N will bear all expenses in connection with each
registration, excluding any underwriter's commission and fees and expenses of
counsel for any affiliate.
RELATIONSHIP BETWEEN CERTAIN DIRECTORS AND THE COMPANY
In 1994 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 certain 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 1995.
Mr. David W. Burkholder, a director of the Company, is a director, officer
and ten percent owner of Consolidated Blenders, Inc., Island Dehy Company, Inc.,
Western Alfalfa, Shofstall Alfalfa and Cozad Cattle Feeders (collectively, the
"Burkholder Companies"). The Burkholder Companies purchase 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 1994 subsidiaries of
K N sold gas to the Burkholder Companies on the spot market and transported gas
for the Burkholder Companies for compensation. During 1994, the Burkholder
Companies paid K N and its subsidiaries a total of $277,585 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.
During 1994 Cabot Corporation and a K N oil and gas subsidiary jointly
drilled a number of oil and gas wells and participated in other oil and gas well
activities. Cabot Corporation is a beneficial owner of K N stock, as set forth
in the table of Common Stock for Principal Shareholders, and has designated an
advisory director, John G. L. Cabot, to the Board of Directors. Cabot
Corporation paid K N and its subsidiary a total of $570,546 in connection with
such activities. Similar arrangements may be entered into with Cabot Corporation
in the future.
Mr. Edward H. Austin, Jr. is married to the niece of Mr. James C. Taylor.
No other 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
The Board of Directors met nine times during 1994. During 1994, all
directors attended 96 percent of the aggregate meetings of the Board of
Directors and committees thereof on which they served.
During 1994, the Audit Committee was composed of Messrs. Austin, Bliss,
Burkholder, Chitwood, Coghlan, Hybl (Chairman), Taylor and True. It met three
times in 1994. 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 recommendations 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 1994 was composed of Messrs. Daugherty
(Chairman), Haines, Hybl and Randall. It met four times in 1994. The duties of
the Compensation Committee are set forth in the Compensation Committee Report
below.
The Executive Committee, which was constituted from January through July
1994, was composed of Messrs. Battey, Daugherty, Haines and Hall. It did not
meet in 1994 because of the unusually frequent meetings of the Board of
Directors during that time. Pursuant to the Merger Agreement, in July 1994 the
Executive Committee was replaced by a Management Committee composed of Messrs.
Austin, Battey, Carmichael (Chairman) and Hall. The Management Committee met
five times in 1994. The duties of the Management Committee consist of oversight
and direction of management decisions with respect to the day-to-day operations
of K N and its subsidiaries, and oversight and direction of matters relating to
the integration
8
<PAGE> 12
and consolidation of the businesses and operations of K N and AOG, as well as
the duties and powers previously delegated to K N's Executive Committee.
The Board of Directors does not presently have a separate nominating
committee, but develops nominations as a whole, except in the case of
nominations for the Chairman and Vice Chairman of the Board of Directors. Should
those two positions become vacant prior to next year's annual meeting of
shareholders, they may only be filled upon recommendations of a special
nominating committee consisting of two directors of K N who served as directors
of K N prior to the effective time of the Merger and two other directors of K N
who joined the Board of K N as a result of the Merger. 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
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 Management (or Executive while it was constituted)
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 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 retirement
from the Board, all or any portion of their compensation pursuant to the
Deferred Compensation Plan for Outside Directors or the 1987 Directors' Deferred
Fee Plan, which were adopted by the Company effective May 1, 1984, and May 1,
1987, respectively.
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 1000 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 1000 for each
twelve-month period of such term plus 1000 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 March 1994,
options to purchase 3,000 shares each were granted to Messrs. Burkholder, Haines
and Hybl at an exercise price of $23.25 per share. In August 1994, options to
purchase 3,000 shares were granted to Mr. Austin and options to purchase 2,000
shares each were granted to Messrs. Randall and Taylor, all at an exercise price
of $24.00 per share.
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 each participant was granted
options to purchase the number of shares equal to 500 (rather than 1000) times
the number of years or partial years in the term to which he was elected.
BOARD RECOMMENDATION
The Board of Directors recommends a vote FOR each of the Director nominees.
9
<PAGE> 13
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely
of four independent non-employee directors: Mr. Daugherty, Committee Chairman,
Mr. Haines, Mr. Hybl and Mr. Randall. 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 personal and corporate performance. To achieve
this objective, annual executive compensation decisions are weighted towards
cash incentives payable on the basis of personal and corporate performance. The
Company also believes that long-term executive compensation should be tied to
operating performance. Grants of stock options have been the principal component
of long-term executive compensation.
At the Company's Annual Meeting in March 1994, the shareholders approved
the 1994 Long-Term Incentive Plan. This plan gives 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.
Because the Company's compensation for each of its individual executives
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 any employee 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 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
comparisons are prepared periodically in cooperation with nationally-recognized
compensation consultants and are done to ensure that Company salaries remain
competitive and reasonable in the industry.
STOCK OPTIONS
In 1994, stock options granted under the Company's 1994 Long-Term Incentive
Plan comprised the Company's chief long-term executive compensation. Stock
options were granted during 1993 under the Company's Incentive Stock Option
Plans, but were not granted in 1992.
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 1994 Long-Term Incentive
Plan, which provides for a variety of stock-based awards that can be flexibly
administered, permits the Company to keep pace with changing developments in
compensation programs, making the Company more competitive with those companies
that offer creative incentives to attract and keep employees. The ability to
grant both incentive and non-qualified stock options enhances the Compensation
Committee's ability
10
<PAGE> 14
to meet the Company's objectives of attracting and retaining well-qualified
individuals to serve as executive officers and key employees.
RESTRICTED STOCK AWARDS
In 1994 three executive officers were granted restricted stock awards under
the 1994 Long-Term Incentive Plan, covering a total of 11,000 shares of Common
Stock. Vesting of these shares is directly tied to the successful performance of
specific and concrete objectives by each executive officer, including goals and
objectives related to the successful integration of operations of the assets
acquired in the Merger, reduction of operating costs of the assets acquired in
the Merger, and continued employment with the Company over the next five years
or until normal retirement age. The Compensation Committee is closely monitoring
these performance objectives to determine whether the required outcome has been
achieved and the restrictions of the stock awards have been met.
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.
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, thereby,
shareholders. Target objectives are set for corporate performance and for
division and personal objectives. Examples of financial objectives in the 1994
Incentive Plan include results against budgeted earnings and return on common
equity. Examples of operating goals in the 1994 Incentive Plan include
successful implementation of the Gas Information Management System; meeting and
maintaining high safety standards; maximization of profitability and strategic
synergies of recent acquisitions; and successful implementation of shared
services within the corporate center.
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
50% 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 1992 operating results did not meet certain of the 1992
financial objectives due to unprecedented unfavorable weather. Thus, the
incentive payments to the Company's executive officers for 1992 reflected in the
Bonus column of the Summary Compensation Table set forth herein were
significantly lower than those shown for 1993, reflecting the failure to meet
certain of these objectives. The Company's executive officers were more
successful against the established objectives in the 1993 Incentive Plan. The
11
<PAGE> 15
Company's 1993 operating results exceeded the Company's 1993 financial
objectives, despite a wet, cool summer which significantly decreased the
Company's irrigation sales. This success was reflected in the individual
incentive pay-outs reflected in the Bonus column of the Summary Compensation
Table. Payments under an Incentive Plan are made in mid-to-late 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
Incentive Plan payout information is available for 1994.
CHIEF EXECUTIVE OFFICER COMPENSATION
As indicated, the Company's executive compensation program, both annual and
long-term, is based in large part upon the Company's 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 closely monitors 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
reflected this successful Company-wide performance. The 1994 Incentive Plan
payout information is not available at this time. In July 1994, Mr. Hall was
elected as the President and Chief Executive Officer of K N and Mr. Battey
remained as Chairman of K N. Therefore, Mr. Battey will be evaluated on his
performance as Chief Executive Officer during the first half of 1994 and Mr.
Hall will be evaluated on his performance as Chief Executive Officer during the
second half of 1994.
Compensation Committee of
the Board of Directors
Mr. Robert B. Daugherty (Chairman)
Mr. Jordan L. Haines
Mr. William J. Hybl
Mr. Edward Randall, III
12
<PAGE> 16
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"). Because Mr. Hall became Chief Executive Officer
during 1994, this table reflects the compensation of six of the Company's
executive officers during 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND ---------------------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS($) OPTIONS(#) COMPENSATION($)
- ----------------------- ---- --------- ----------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Battey 1994 $264,587 $ (1) $ 0 25,000(3) $10,766(5)
Chairman/CEO 1993 264,584 125,000 0 0 24,364(6)
1992 242,499 0 0 0 20,515
Larry D. Hall 1994 297,500 (1) 0 100,000(3) 874(7)
President/CEO 1993 236,335 100,000 0 0 22,074(8)
1992 223,750 30,000 0 0 19,335
S. Wesley Haun 1994 146,252 (1) 0 20,000(3) 470(9)
V.P.Mkt/Supply 1993 133,754 38,000 0 4,500(4) 7,144(10)
1992 123,003 17,000 0 0 5,818
E. Wayne Lundhagen 1994 142,087 (1) 0 10,000(3) 470(11)
V.P. Fin/Acctg 1993 133,754 38,000 0 4,500(4) 7,139(12)
1992 125,000 12,000 0 0 5,870
Leland L. Hurst 1994 140,000 (1) 25,625(2) 0 470(13)
Sr. V.P. Ops 1993 137,919 35,000 0 2,250(4) 7,187(14)
1992 135,000 17,000 0 0 6,448
William S. Garner, Jr. 1994 136,253 (1) 0 15,000(3) 437(15)
VP Gen. Counsel/ 1993 127,917 37,000 0 4,500(4) 6,854(16)
Secretary 1992 122,499 11,000 0 0 5,815
</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 1994 will not be awarded until mid-late
March 1995 and are unknown at this time.
(2) The restricted stock was granted to Mr. Hurst on September 15, 1994. The
closing stock price of K N's Common Stock on that date was $25.625. The
market value of the 1,000 shares of restricted stock awarded to Mr. Hurst
at year-end 1994 was $23,875. Assuming the successful completion by Mr.
Hurst of certain goals and objectives tied to this restricted stock award,
the 1,000 shares of restricted stock will vest on July 1, 1995. Dividends
will be paid on the restricted stock awarded to Mr. Hurst.
(3) These options were granted under the Company's 1994 Long-Term Incentive
Plan, and were granted 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 five-year
period. (See "Stock Options" below)
(4) These options were granted under the Company's Incentive Stock Option Plan
at an exercise price of 100% of the fair market value of the Common Stock
as of the date of grant, and vest over a four-to-five year period.
13
<PAGE> 17
(5) Mr. Battey's 1994 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 for 1994 under the Profit Sharing
Plan will not be distributed until late February 1995 and are unknown at
this time. The Company also paid $924 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 1994 and totalled $9,842.
(6) Mr. Battey's earnings for 1993 under the Profit Sharing Plan were $12,948
which is reflected in the 1993 All Other Compensation column.
(7) Mr. Hall's 1994 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 $874 in term life
and accidental death and dismemberment insurance premiums in 1994 on behalf
of Mr. Hall.
(8) Mr. Hall's earnings for 1993 under the Profit Sharing Plan were $12,010,
which is reflected in the 1993 All Other Compensation column.
(9) Mr. Haun's 1994 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 $470 in term life
and accidental death and dismemberment insurance premiums in 1994 on behalf
of Mr. Haun.
(10) Mr. Haun's earnings for 1993 under the Profit Sharing Plan were $6,545,
which is reflected in the 1993 All Other Compensation column.
(11) Mr. Lundhagen's 1994 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 $470 in term life
and accidental death and dismemberment insurance premiums in 1994 on behalf
of Mr. Lundhagen.
(12) Mr. Lundhagen's earnings for 1993 under the Profit Sharing Plan were
$6,545, which is reflected in the 1993 All Other Compensation column.
(13) Mr. Hurst's 1994 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 $470 in term life
and accidental death and dismemberment insurance premiums in 1994 on behalf
of Mr. Hurst.
(14) Mr. Hurst's earnings for 1993 under the Profit Sharing Plan were $6,545,
which is reflected in the 1993 All Other Compensation column.
(15) Mr. Garner's 1994 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 $437 in term life
and accidental death and dismemberment insurance premiums in 1994 on behalf
of Mr. Garner.
(16) Mr. Garner's earnings for 1993 under the Profit Sharing Plan were $6,260,
which is reflected in the 1993 All Other Compensation column.
14
<PAGE> 18
STOCK OPTIONS
Information concerning 1994 grants to and exercises by the named executive
officers is provided below.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE($/SH) DATE 5%($) 10%($)
---- ------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Battey........... 25,000 8.52% $ 23.875 7/15/04 $ 375,371 $ 951,265
Larry D. Hall............... 100,000 34.07 23.875 7/15/04 1,501,486 3,805,060
S. Wesley Haun.............. 20,000 6.81 23.875 8/08/04 300,297 761,012
E. Wayne Lundhagen.......... 10,000 3.41 23.875 8/08/04 150,149 380,506
Leland L. Hurst............. 0 0 N/A N/A 0 0
William S. Garner, Jr....... 15,000 5.11 23.875 8/08/04 225,223 570,759
</TABLE>
- ---------------
(1) Each option granted in 1994 has an exercise price equal to the fair market
value of K N's Common Stock on the date of grant and expires ten years from
the date of grant, subject to earlier termination in certain events related
to termination of employment of the optionee. The options granted in 1994
become exercisable in one-fifth increments on each of the first five
anniversaries of the grant date, subject to automatic acceleration of full
exercisability upon a Change in Control of K N (as defined in the 1994
Long-Term Incentive Plan). The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already owned
shares or by offset of the underlying shares, subject to certain
conditions. Under the terms of the 1994 Long-Term Incentive Plan, the
Compensation Committee retains discretion, subject to plan limits, to
accelerate exercise dates and otherwise waive or amend any conditions of
options granted thereunder.
(2) The total number of options granted to Company employees in 1994 was
293,500.
(3) The values set forth in this column assume annual rates of stock
appreciation of 5% and 10%. The Company has no ability to predict whether
such appreciation rates will be achieved, and, therefore, cannot predict
whether the potential realizable values set forth in this column
realistically indicate the value of the options granted to the named
executive officers in 1994.
15
<PAGE> 19
The following table sets forth information about option exercises in 1994
by the named executive officers and the value of the remaining options held by
each such officer at year-end.
AGGREGATED OPTION EXERCISES IN 1994
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT YEAR-
SHARES YEAR-END(#) END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Charles W. Battey...................... 0 $0 38,750/26,000 $297,090/ $47,000
Larry D. Hall.......................... 0 0 40,250/86,000 158,625/ 47,000
S. Wesley Haun......................... 0 0 6,625/20,125 14,047/ 8,891
E. Wayne Lundhagen..................... 0 0 9,125/12,125 59,672/ 8,891
Leland L. Hurst........................ 0 0 2,063/ 2,437 13,399/ 7,695
William S. Garner, Jr. ................ 0 0 20,625/16,125 178,641/ 8,891
</TABLE>
- ---------------
(1) Based on the closing price of Company Common Stock on the NYSE Composite
Tape on December 31, 1994 which was $23.75.
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 15,
NAME 1995(1)(2)(3)
---- -------------------------
<S> <C>
Charles W. Battey............................................... 80,878
Larry D. Hall................................................... 63,443(4)
S. Wesley Haun.................................................. 13,745
E. Wayne Lundhagen.............................................. 26,597
Leland L. Hurst................................................. 6,732
William S. Garner, Jr. ......................................... 26,474
All executive officers and directors as a group................. 1,507,878
</TABLE>
- ---------------
(1) No named executive officer beneficially 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 approximately 5.5%
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 15, 1995, 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, 38,750 shares; Mr. Hall, 40,250
shares; Mr. Haun, 7,375 shares; Mr. Lundhagen, 9,875 shares; Mr. Hurst,
1,500 shares; and Mr. Garner, 21,375 shares. A total of 397,622 shares
representing such unexercised options were added to the holdings of all
executive officers and directors as a group.
(2) Does not include shares earned in 1994 under the Company's Profit Sharing
Plan, which will not be distributed until late February 1995 and are
unknown at this time.
16
<PAGE> 20
(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) 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 any of the 2,967 shares
earned by Mr. Hall under the Company's Executive Benefit Equalization Plan
because such shares had not actually been purchased for his account at such
date. The cumulative number of shares attributable thereto is 2,967.
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, 1989, and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG K N ENERGY, INC., THE S&P 500 INDEX AND THE S&P NATURAL GAS INDEX
(COMPARISON GRAPH)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) K N ENERGY, INC S&P 500 S&P NATURAL GAS
--------------------- --------------- ------- ---------------
<S> <C> <C> <C>
1989 100 100 100
1990 96 97 88
1991 116 126 76
1992 128 136 85
1993 183 150 101
1994 175 152 96
</TABLE>
- ---------
* $100 invested on 12/31/89 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
17
<PAGE> 21
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 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, $37,813, Mr. Hall,
$148,309, Mr. Haun, $71,000, Mr. Lundhagen, $57,636, Mr. Hurst, $24,936, and Mr.
Garner, $77,688. 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 named 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 (i) a
change in the majority of the Board of Directors of the Company as a result of 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.
18
<PAGE> 22
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 27,713,733 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>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT
BENEFICIAL OWNER AND DATE BENEFICIAL PERCENT OF TOTAL
INFORMATION PROVIDED OWNERSHIP OF CLASS VOTING POWER
------------------------- ------------ -------- ------------
<S> <C> <C> <C>
Cabot Corporation....................................... 4,840,186(1) 17.1% 17.0%
75 State Street
Boston, Massachusetts 02109 (12/31/94)
Employees Retirement Fund Trust......................... 1,925,454(2) 6.9 6.9
Profit Sharing Plan of K N Energy, Inc.
P.O. Box 281304
Lakewood, CO 80228 (2/1/95)
The Prudential Insurance Company of America............. 2,429,743(3) 8.6 8.5
Prudential Plaza, Newark, NJ 07102 (12/31/94)
State Farm Mutual Automobile Insurance Company.......... 1,789,965(4) 6.5 6.4
One State Farm Plaza
Bloomington, IL 61701 (12/31/94)
</TABLE>
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(1) Comprised of (i) 4,197,954 outstanding shares of Common Stock reported as
beneficially owned by Cabot on its Schedule 13G and (ii) 642,232 shares of
Common Stock issuable upon the exercise of warrants held by Cabot. Cabot
has sole investment and voting power over such shares.
(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) Comprised of (i) 1,884,543 outstanding shares of Common Stock reported as
beneficially owned by Prudential on its Schedule 13G and (ii) 545,200
shares of Common Stock issuable upon the exercise of warrants held by
Prudential. Prudential states that it has shared investment and voting
power over all of such outstanding shares, and that the shares were
acquired solely for investment purposes.
(4) State Farm states that it has sole investment and voting power over its
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 70,000
outstanding shares of Class A $5.00 Preferred Stock of the Company.
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CLASS B PREFERRED STOCK
According to the records of the Company, the following insurance companies
each owned beneficially, on February 15, 1995, more than five percent of the
17,148 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>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL PERCENT OF TOTAL
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS VOTING POWER
------------------- ------------ -------- ------------
<S> <C> <C> <C>
Allstate Insurance Co. ............................ 12,866 75.0% (2)
Allstate Plaza
Northbrook, IL 60061
Gerlach & Co. ..................................... 1,142 6.7 (2)
c/o Citibank, N.A.
P.O. Box 1530,
Grand Central Station
111 Wall Street, 8th Floor
New York, NY 10043
Atwell & Co. ...................................... 3,140 18.3 (2)
c/o United States Trust Co. of NY
P.O. Box 456,
Wall Street Station
New York, NY 10005
</TABLE>
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(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.
(2) Less than 1%.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP (formerly known as Arthur Anderson & Co.) has acted as
independent public accountants for the Company continuously since 1940. A
representative of Arthur Andersen LLP 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 LLP was recommended by the Audit Committee to perform the
audit function for 1994, and that recommendation was approved by the Board of
Directors. No independent public accountant has yet been recommended to perform
the audit function for 1995. The Audit Committee normally makes such a
recommendation at the regular Board of Directors' meeting in November.
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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 $7,000 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 1996 annual meeting must be
received by November 11, 1995, at the Company's principal executive offices in
order to be included in the Proxy Statement and the form of Proxy for that
meeting.
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 one of this
Proxy Statement. The annual shareholders meeting is customarily held in late
March or early April.
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
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<PAGE> 25
(K N ENERGY LOGO)
Proxy for Shareholders Meeting April 6, 1995
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 at the Stouffer
Renaissance Hotel located at 3801 Quebec Street, Denver, Colorado 80207, on
April 6, 1995 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 may 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.
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.
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
PROXY
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Class II Directors Charles W. Battey Robert B. Daugherty Larry D. Hall H. A. True, III
</TABLE>
<TABLE>
<S> <C>
( ) 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)
</TABLE>
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
