K N ENERGY INC, 10-K405, 1995-03-08

K N ENERGY INC
10-K405, 1995-03-08
NATURAL GAS TRANSMISISON & DISTRIBUTION

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
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Commission File Number 1-6446
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K N ENERGY, INC.
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(Exact name of registrant as specified in its charter)

Kansas 48-0290000
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

370 Van Gordon Street
P.O. Box 281304, Lakewood, Colorado 80228-8304
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (303) 989-1740
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
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Common stock, par value
$5 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Preferred stock, Class A $5 cumulative series
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(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.

$590,861,367 as of February 15, 1995
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Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.

Common stock, $5 par value; authorized 50,000,000 shares; outstanding
27,713,733 shares as of February 15, 1995
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List hereunder documents incorporated by reference and the Part of the Form
10-K into which the document is incorporated.

1995 Proxy Statement Part III
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K N ENERGY, INC. AND SUBSIDIARIES
Documents Incorporated by Reference and Index

<TABLE>
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Page Number
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1995 Proxy Included
Statement Herein
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<S> <C> <C> <C>
PART I

ITEMS 1 & 2: BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 5-16
ITEM 3: LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 16-20
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the last quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . 20-21

PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 6: SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . 24-31
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants. . . . . . . . . . . . . 32
Consolidated Statements of Income for the Three Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . 33
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . 34
Consolidated Statements of Common Stockholders' Equity for
the Three Years Ended December 31, 1994, 1993 and 1992 . . . . 35
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . . . . . 37-58
Business Segment Information . . . . . . . . . . . . . . . . . . 59
Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . 60
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no such matters during 1994.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . 3-6*,13*
ITEM 11: EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . 9-18*
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . 3-6*, 16-17*, 19-20*
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . 7-8*

PART IV

ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the listing of financial
statements and supplementary data under Item 8 in
Part II of this index.
2. Financial Statement Schedules
None
3. Exhibits
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 66-67
List of Executive Compensation Plans and Arrangements . 63
Exhibit 3(a) - Restated Articles of Incorporation
(Exhibit 3(a) - Attached hereto as Exhibit 3(a))**
Exhibit 3(b) - By-laws of the Company, as amended
(Exhibit 3(b) - Attached hereto as Exhibit 3(b))**
Exhibit 3(c) - Certificate of the Voting Powers,
Designation, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof,
of the Class B $8.30 Cumulative Preferred Stock,
Without Par Value (Exhibit 4.4, File No. 33-26314)*
Exhibit 4(a) - Indenture dated as of September 1,
1988, between K N Energy, Inc. and Continental
Illinois National Bank and Trust Company of Chicago
(Exhibit 1.2, Current Report on Form 8-K
Dated October 5, 1988)*
Exhibit 4(b) - First supplemental indenture dated
as of January 15, 1992, between K N Energy, Inc.
and Continental Illinois National Bank and Trust
Company of Chicago (Exhibit 4.2, File No. 33-45091)*
</TABLE>

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K N ENERGY, INC. AND SUBSIDIARIES
Documents Incorporated by Reference and Index

<TABLE>
<CAPTION>
Page Number
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1995 Proxy Included
Statement Herein
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PART IV (Continued)

Exhibit 4(c) - Second supplemental indenture dated
as of December 15, 1992, between K N Energy, Inc.
and Continental Bank, National Association (Exhibit
1.2 Current Report on Form 8-K dated December 15,
1992)*
Exhibit 4(d) - Indenture dated as of November 20, 1993,
between K N Energy, Inc. and Continental Illinois
National Bank and Trust Company of Chicago (Exhibit
4.1, File No. 33-51115)*
Note - Copies of instruments relative to
long-term debt in authorized amounts that do not
exceed 10 percent of the consolidated total assets
of the Company and its subsidiaries have not been
furnished. The Company will furnish such instru-
ments to the Commission upon request.
Exhibit 10(a) - Form of Key Employee Severance
Agreement (Exhibit 10.2, Amendment No. 1 on Form 8
dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*
Exhibit 10(b) - 1982 Stock Option Plan for Non-
employee Directors of the Company with Form of
Grant Certificate (Exhibit 10.3, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(c) - 1982 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.4,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(d) - 1986 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.5,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(e) - 1988 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.6,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(f) - Form of Grant Certificate for
Employee Stock Option Plans (Exhibit 10.7, Amend-
ment No. 1 on Form 8 dated September 2, 1988 to
the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(g) - Directors' Deferred Compensation
Plan Agreement (Exhibit 10.8, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(h) - 1987 Directors' Deferred Fee Plan
and Form of Participation Agreement regarding the
Plan (Exhibit 10.9, Amendment No. 1 on Form 8
dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Exhibit 10(i) - 1992 Stock Option Plan for Nonemployee
Directors of the Company with Form of Grant Certificate
(Exhibit 4.1, File No. 33-46999).
Exhibit 10(j) - K N Energy, Inc. 1994 Executive
Incentive Plan (Exhibit 10(k) to the Annual Report on
Form 10-K for the Year Ended December 31, 1993)*
Exhibit 10(k) - 1994 K N Energy, Inc. Long-Term Incentive Plan
(Attachment A to the K N Energy, Inc. 1994 Proxy Statement
on Schedule 14-A)*
</TABLE>

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K N ENERGY, INC. AND SUBSIDIARIES
Documents Incorporated by Reference and Index

<TABLE>
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Page Number
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1995 Proxy Included
Statement Herein
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PART IV (Continued)

Exhibit 10(l) - K N Energy, Inc. 1995 Executive Incentive Plan
(Attached hereto as Exhibit 10(l))**
Exhibit 10(m) - K N Energy, Inc. Nonqualified Deferred
(Compensation Plan (Attached hereto as Exhibit 10(m))**
Exhibit 10(n) - K N Energy, Inc. Nonqualified Retirement Income
(Restoration Plan (Attached hereto as Exhibit 10(n))**
Exhibit 10(o) - K N Energy, Inc. Nonqualified Profit Sharing
(Restoration Plan (attached hereto as Exhibit 10(o))**
Exhibit 12 - Ratio of Earnings to Fixed Charges . . . . . . . . 68
Exhibit 13 - 1994 Annual Report to Shareholders*** . . . . . . . 69
Exhibit 22 - Subsidiaries of the Registrant . . . . . . . . . . 70-71
Exhibit 24 - Consent of Independent Public Accountants . . . . . 72
Exhibit 27 - Financial Data Schedule****
(b) Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 64

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>

Note: Individual financial statements of the parent Company are
omitted pursuant to the provisions of Accounting Series
Release No. 302.

* Incorporated herein by reference.
** Included in SEC and NYSE copies only.
*** Such report is being furnished for the information of the Securities
and Exchange Commission only and is not to be deemed filed as a part
of this annual report on Form 10-K.
**** Included in SEC copy only.

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PART I

ITEMS 1 and 2: BUSINESS and PROPERTIES

As used in this report, the term "K N" means K N Energy, Inc. and the
term "Company" means collectively K N Energy, Inc. and its subsidiaries, unless
the context requires a different meaning. (See "Subsidiaries of the
Registrant" in Exhibit 22.)

All volumes of natural gas referred to herein are stated at a pressure
base of 14.73 pounds per square inch absolute and at 60 degrees Fahrenheit and,
in most instances, are rounded to the nearest major multiple. The term "Mcf"
means thousand cubic feet, the term "MMcf" means million cubic feet, and the
term "Bcf" means billion cubic feet. The term "MMBtus" means million British
thermal units ("Btus"). "NGLs" refers to natural gas liquids, which consist of
ethane, propane, normal and iso-butane, and natural gasoline. The term "Bbls"
means barrels. As used herein, "throughput" refers to volumes of gas sold by
the Company and gas transported on the Company's systems for third parties.

(A) General Description

The Company is a natural gas energy products and services provider.
Activities include: (1) developing, producing, gathering, processing, storing,
transporting, selling and marketing natural gas; (2) processing, selling and
marketing NGLs; and (3) developing and producing crude oil.

On July 13, 1994, pursuant to the Agreement of Merger dated March 24,
1994, American Oil and Gas Corporation ("AOG") was merged into the Company. As
a result of the merger, each outstanding share of common stock of AOG was
converted into 0.47 of a share of common stock of K N and the right to receive
in cash the value of any fractional share of K N. In connection with the
merger, all the outstanding shares of AOG common stock were converted into
approximately 12.2 million shares of K N stock, and the authorized number of
shares of K N common stock was increased to 50 million shares. On July 13,
1994, the stockholders of K N approved the issuance of stock in connection with
the merger, as well as certain other matters, and the shareholders of AOG
approved the merger. AOG is engaged in the business of gathering, processing,
storing, transporting, selling and marketing natural gas and NGLs primarily in
West Texas and the Texas Panhandle.

The merger was accounted for as a pooling of interests and,
accordingly, the historical consolidated financial statements for periods prior
to consummation of the merger have been restated as though the companies had
been combined for all periods reported herein. (As used in this report, the
term "AOG" means collectively American Oil and Gas Corporation and its
subsidiaries, unless the context requires a different meaning.)

Effective February 1, 1995, the Company acquired, for approximately
$80 million, two West Texas intrastate pipeline systems, gas storage assets in
the Houston area, and a joint-venture interest in a third West Texas intrastate
pipeline, including certain strategic gas supply contracts which complement and
enhance the assets owned by the Company.

On October 1, 1993, the Company implemented its unbundling of pipeline
services in response to the Federal Energy Regulatory Commission's ("FERC")
Order No. 636 ("Order 636"). The Order is designed to stimulate competition in
the interstate transportation and sale of natural gas. Of the many elements
that make up Order 636, the central feature involves the unbundling of gas
sales and transportation services. Unbundling means that traditional pipeline
customers, such as wholesale customers, direct end-users and shippers, have new
options when contracting for various pipeline services such as transportation
and storage.

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In response to Order 636, the Company no longer operates as a single
business unit that purchases, gathers, processes, stores, transports and sells
natural gas at retail and wholesale. Instead, the Company restructured its
operations and now operates its interstate transmission pipeline through a
wholly-owned subsidiary.

The Company's local distribution operations are operated as a separate
business unit within the parent company.

Substantially all of the gathering and processing facilities that were
previously part of the Company's regulated transmission operation are now being
operated as nonregulated facilities by a wholly-owned subsidiary which also
operates a number of other gathering and processing facilities acquired since
its inception in 1989.

The Company's executive offices are located at 370 Van Gordon Street,
P.O. Box 281304, Lakewood, Colorado 80228-8304 and its telephone number is
(303) 989-1740. The Company was incorporated in the State of Kansas on May 18,
1927. The number of persons employed by the Company at December 31, 1994 was
2,014.

(B) Narrative Description of Business

(1) Retail Natural Gas Services

Overview. This business segment provides retail natural gas services
to residential, commercial, agricultural and industrial customers for space
heating, crop irrigation and drying, and processing of agricultural products.
Revenues from this business segment are derived primarily from natural gas
sales and transportation services.

The Company's retail natural gas business serves approximately 237,000
retail customers in 302 communities in Colorado, Kansas, Nebraska and Wyoming
through distribution pipelines totaling nearly 8,200 miles at December 31,
1994. In addition, this business segment operates intrastate natural gas
pipeline systems serving industrial customers and much of the Company's retail
natural gas business in Colorado and Wyoming. These intrastate pipeline
systems include over 1,300 miles of transmission, gathering and storage lines
at December 31, 1994.

Underground storage facilities are used to provide deliverabilities
for peak system demand. This business segment owned 4.0 Bcf of working gas at
December 31, 1994, stored in:

o four facilities operated by the Company's interstate pipeline system;

o five facilities in Wyoming operated by this business segment; and

o one facility in Colorado operated by one of the Company's gas and oil
subsidiaries.

Restructuring. K N's retail natural gas business is in the process
of a formal restructuring of its customer service functions. This
restructuring will give customers greater choice and convenience in the
natural gas services they select.

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As part of the reorganization, K N's retail operations have been
divided into the following market segments:

o Heartland Team, which includes all of K N's retail operations in
Kansas and Nebraska, excluding the Nebraska Panhandle. This area is
primarily agriculturally based with a year-round sales load where
irrigation and grain-drying in summer months balance the winter
heating load.

o Northern Plains Team, which includes all of K N's retail operations in
the Nebraska Panhandle, northeast Colorado and Wyoming. This area is
primarily rural, with peak sales typically occurring during the
winter months.

o Mountain Team, which includes K N's retail operations located
primarily in western Colorado. The economy in this market
continues to grow rapidly as a result of growth in mountain resort
communities and development of retirement communities.

A significant part of the restructuring is the establishment of a
centralized customer remittance and 24-hour customer service center at
Scottsbluff, Nebraska. The center is expected to be operational during the
1995 third quarter.

As part of this plan, K N will maintain a responsive service presence
to meet the needs of natural gas customers in the communities it serves. These
changes will improve K N's customer service and cost competitiveness, as well
as provide opportunities for additional retail growth.

Gas Purchases and Supply. This business segment relies on the
Company's interstate pipeline system, the intrastate pipeline systems it
operates, and other pipelines for transportation and storage services required
to serve its markets. Its gas supply requirements are being met through a
combination of purchases from wholly-owned marketing and gas and oil
subsidiaries and third-party suppliers.

The retail natural gas business unit's gas supply comes primarily from
the following areas:

o Anadarko Basin, including the Hugoton, Bradshaw and Panoma fields in
Kansas;

o Barton Arch area of central Kansas;

o Denver-Julesburg Basin in northeast Colorado, northwest Kansas and
western Nebraska;

o Wind River Basin in central Wyoming;

o Bowdoin area in north central Montana; and

o Piceance Basin in western Colorado.

Certain gas purchase contracts containing market-out clauses were
redetermined to a competitive price for 1993 and beyond, reflecting an increase
in gas prices from the 1992 redetermined price.

Gas purchase contracts also may contain a take-or-pay clause which
requires that a certain purchase level be attained each contract year, or the
Company must make a payment equal to the contract price multiplied by the
deficient volume. At December 31, 1994, the amount of gas prepayments
outstanding for this business segment was $5.5 million. All such payments are
fully recoupable under the terms of the gas purchase contracts and the existing
regulatory rules and regulations. To date, no buy-out or buy-down payments
relating to take-or-pay contracts have been made by this business segment.

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Competition. Natural gas competes with fuel oil, coal, propane and
electricity in the areas served by the Company's retail natural gas business.
In a few of the communities for which it has a franchise, the Company competes
with other local distribution systems for retail natural gas sales and
transportation services. Such competition is expected to increase as a result
of implementation of Order 636.

(2) Interstate Transportation and Storage Services

Overview. The Company's interstate pipeline system provides
transportation and storage services to affiliates, third-party natural gas
distribution utilities and shippers. As of December 31, 1994, the Company's
interstate pipeline system provided transportation and storage services
directly to utilities serving 293 communities, as follows:

<TABLE>
<CAPTION>
Served By Colorado Kansas Nebraska Wyoming
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<S> <C> <C> <C> <C>
Affiliated Entities 12 52 177 10
Other Utilities 5 10 27 -
</TABLE>

Effective January 1, 1994, 1,691 miles of gathering lines and the
products extraction plant at Scott City, Kansas, were transferred to a gas
gathering subsidiary as part of the corporate reorganization. See
"Restructuring and Reorganization". As of December 31, 1994, the interstate
pipeline properties included transmission, gathering and storage lines totaling
over 6,500 miles and one products extraction plant.

The changes made in the merchant function to a FERC-regulated
transportation and storage service at cost of service-based rates have
substantially reduced this business segment's operating revenues and gas
purchase expenses. This has not, however, impacted this business segment's
operating income since gas purchases were previously recoverable
dollar-for-dollar from customers as a result of purchased gas adjustment
clauses in the Company's tariffs. However, the transfer of gathering and
products extraction facilities described above has reduced this segment's
operating income. Results of this business segment have historically been
seasonal in nature due to fluctuating needs for natural gas for space heating
and irrigation. However, Order 636 mandated the use of straight fixed-variable
rate design for FERC-regulated services. This rate methodology results in this
business segment collecting a significant portion of its revenues from
customers through demand charges collected evenly throughout the year.
Accordingly, fluctuations in operating revenues resulting from seasonal
variations in weather conditions are reduced.

The Company filed with FERC for an increase in its regulated rates in
December 1993, with the higher rates becoming effective July 1, 1994. The
Company reached settlement with its customers and FERC, and the filing was
approved by FERC in January 1995. The settlement provides for an $8.7 million
annual increase in revenues.

Transportation. This business segment provides not only firm and
interruptible transportation, but also no-notice services to its customers.
Under no-notice service, customers are able to meet their peak day requirements
without making specific nominations as required by firm and interruptible
transportation service tariffs.

Under Order 636, the local distribution companies and other shippers
may release their unused firm transportation capacity rights to other shippers.
It is the Company's experience that this released capacity has, to

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a large extent, replaced interruptible transportation on the Company's
interstate pipeline system. Interruptible transportation is charged on the
basis of volumes shipped.

The Company filed with FERC in December 1994 for an expansion of its
pipeline system in Wyoming. This $14.9 million project is designed to increase
the capacity of the system to move gas from Wyoming to markets in the
midwestern United States by 50 MMcf per day. The filing is in the review
process at FERC while the Company continues to market the capacity to potential
customers. Timing for construction of the project will depend on
customer/shipper commitments and on FERC approval.

Storage. The Company's interstate pipeline system provides storage
services to its customers through four underground gas storage facilities. Its
major underground storage facilities are the Huntsman Storage Field in Cheyenne
County, Nebraska, and the Big Springs Storage Field in Deuel County, Nebraska.

In connection with Order 636, the Company received FERC approval to
reclassify, as of October 1, 1993, 54.9 Bcf of working gas to cushion gas. As
part of the corporate restructuring, all cushion gas (88.1 Bcf) was transferred
to its wholly-owned interstate pipeline subsidiary. The remaining working gas
of 11.1 Bcf at October 1, 1993, was purchased in-place by the Company's former
wholesale customers, with the Company's retail services division retaining 4.3
Bcf of this working gas for its use. In January 1995, the Company filed an
application with FERC to transfer a portion of the storage assets held by its
wholly-owned interstate pipeline subsidiary to another subsidiary. On the
interstate system, year-end working gas inventory owned by all parties totaled
8.8 Bcf. The approximate unused working gas capacity at December 31, 1994, was
8.0 Bcf.

Transportation Marketing. The Company is continuing its efforts to
increase its transportation business through expanded capacity and new
interconnects, as well as new transportation services. While there is
considerable competition for this business, the Company has certain strategic
advantages that enable it to be a successful competitor, including favorable
geographic pipeline locations providing access to both major gas supply areas
and potential new markets. The Company will continue developing its role as an
operator of transportation hubs, facilitating market-center services.

A K N subsidiary is a one-third joint-venture partner in the
TransColorado Gas Transmission Pipeline Project ("TransColorado"). This
pipeline is expected to provide increased flexibility in accessing multiple
natural gas basins in the Rocky Mountain region. TransColorado continues to
pursue supply and transportation commitments from western Colorado producers.
Construction of the pipeline is now expected to begin in 1996. The
TransColorado pipeline will operate as an interstate pipeline system regulated
by FERC.

Competition. The interstate transportation pipeline and storage
services business segment faces competition from other transporters. In
addition, natural gas competes with fuel oil, coal, propane and electricity in
the areas served by the Company's interstate pipeline system.

(3) Gathering, Processing and Marketing Services

Overview. This business segment provides natural gas gathering,
processing, marketing and supply services, including transportation and storage
to a variety of customers. Within this business segment, the Company owns and
operates approximately 11,000 miles of pipeline in seven states, operating 14
gas processing

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plants with a total processing capacity of approximately 730 MMcf per day and a
natural gas storage facility in West Texas.

Revenues from this business segment's gathering, processing, storage,
transporting and marketing activities are generated in four different ways.
First, the Company performs a merchant function whereby the Company purchases
gas at the wellhead, aggregates such gas with other supplies of gas, and
markets the aggregated gas to consumers. Second, the Company, for a fee,
gathers, transports and may process gas for producers or other third parties
who retain title to the gas. Third, the Company processes gas and markets
NGLs. Fourth, the Company provides gas marketing and supply services including
certain storage services, to various natural gas resellers and end-users either
on or connected to the Company's pipeline systems or on other pipeline
facilities. The Company works with producers and end-users on the pipeline
systems to provide a wide range of services. It arranges the purchase and
transportation of producers' excess or uncommitted gas to end-users, acts as
shipper or agent for the end-users, administers nominations and provides
balancing assistance when needed. Services provided by the Company within the
traditional gathering, processing, transporting and marketing activities have
expanded due to increased demand for gas and the result of Order 636. Some of
these services include variable pricing and variable or firm receipt/delivery
of gas. Additionally, storage services and transportation balancing
arrangements are being provided to assist markets in meeting peak demand needs
and maximizing their use of capacity on interstate pipelines.

This business segment also engages in price risk management activities
in the gas commodities futures market. The Company buys and sells gas
commodity futures positions on the New York Mercantile Exchange ("NYMEX") and
uses over-the-counter gas commodity financial instruments for the purpose of
reducing adverse price exposure for gas supply costs or specific market
margins. (See "Price Risk Management" below.)

Natural Gas Sales. In 1994, this business segment sold natural gas to
approximately 1,900 customers in 17 states. These customers included local
distribution companies, industrial, commercial and agricultural end-users,
electric utilities, Company affiliates and other marketers located both on- and
off-system.

Westar Transmission Company ("Westar Transmission") is the Company's
principal intrastate pipeline system in West Texas and the Texas Panhandle.
The Westar system consists of approximately 5,600 miles of gathering and
transmission lines (of which approximately 4,300 miles comprise Westar
Transmission) and is connected to the American WesTex Gas Services, Inc.
("WesTex") storage facility. The Westar system has significant markets
connected directly to its pipelines ("on-system markets"), including the
largest local distribution company in West Texas and the Texas Panhandle, and
direct-sale customers such as electric utilities, industrial companies and
agricultural end-users. The Company also owns a 75 percent operating interest
in Red River Pipeline Company ("Red River"), a 372-mile intrastate gas pipeline
extending from Hemphill County, Texas, near the Oklahoma state line to Pecos
County in West Texas.

The Company's Wattenberg system, located in the Denver-Julesburg
Basin in northeastern Colorado, consists of approximately 1,300 miles of
gathering and transmission lines.

Within this business segment, the Company utilizes its high-pressure
transportation facilities to transport gas for third parties at negotiated
fees. The Westar system offers combined gathering and transportation services,

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while Red River is solely a transportation system. The Wattenberg system offers
both gathering and transportation services.

The Company's largest customer, Energas Company, a division of Atmos
Energy Corporation, accounted for more than 10 percent of the Company's
consolidated revenues for 1994. No other sales customer accounted for more
than 10 percent of the Company's consolidated revenues in 1994.

Pricing mechanisms under the Company's gas sales agreements vary,
including gas sales at fixed margins over cost of gas, at fixed prices where
the unit margin is a function of the sales price and cost of gas, and at
market-sensitive prices where the unit margin fluctuates as a percentage of
the market price of gas. A majority of the gas sales are made under agreements
with terms of one year or less.

Gas Gathering. As of December 31, 1994, the Company's subsidiaries
in this business segment operated gathering systems in Colorado, Kansas,
Nebraska, Texas and Wyoming with approximately 6,900 miles of gathering lines.
This includes 1,691 miles of gathering lines which were transferred from the
interstate transportation and storage services segment effective January 1,
1994, as part of the corporate reorganization under Order 636.

In December 1994, FERC approved the Company's application to transfer
the Bowdoin gathering system from its wholly-owned interstate pipeline
subsidiary to a gathering subsidiary. The transfer occurred in early 1995.

Processing and NGLs Marketing. In 1994, the 14 Company-operated gas
processing plants averaged total inlet volumes of approximately 462,000 MMBtus
per day. In the same period, the total liquids produced, including condensate,
averaged approximately 26,000 Bbls per day. NGLs from the gas processing
plants are sold by the Company on a month-to-month basis to various NGLs
marketers and end-users at negotiated prices. Gas purchases shown in the
financial statements include fuel and shrink expenses incurred at the plants.

Storage. The WesTex storage facility has recently been expanded to a
working storage capacity of approximately 13 Bcf. The Company is expanding the
WesTex storage facility by leaching three caverns in a bedded salt formation.
Upon completion, each cavern will have approximately one Bcf of working gas.
The first of these caverns began operating in late 1994. In early 1994, the
Company began marketing storage services to third parties who are interested in
the storage facility due to its strategic geographic location (Gaines County,
Texas) and multiple pipeline interconnects which provide access to a variety of
markets and supply sources. The WesTex storage facility has traditionally been
used to meet the peak demand requirements of the Westar system's customers and
to maintain purchases from supply sources on the Westar system during periods
of low demand. The conventional storage reservoirs have a peak withdrawal
capacity ranging from 120 to 300 MMcf of gas per day. Each salt cavern will
be able to provide an additional peak withdrawal of 200 MMcf per day.

Gas Purchases and Supply. Natural gas is purchased from various
sources, including gas producers, gas processing plants and from pipeline
interconnections. This business segment's gas supply in 1994 was purchased
from approximately 860 suppliers ranging in size from major oil and gas
companies to small independent producers. Most of the gas purchase agreements
are typical of those used in the industry. Because of prevailing industry
conditions, most agreements are for periods of one year or less, and many are
for periods of 60 days or less. Various agreements permit the purchaser or the
supplier to renegotiate the purchase price or discontinue the purchase under
certain circumstances.

11
<PAGE> 12
Purchase volume obligations under many of the agreements utilized by
this business segment are generally "best efforts" and do not have traditional
take-or-pay provisions. However, certain agreements utilized within this
business segment require the Company to take or pay for, or to receive, minimum
quantities of natural gas. At December 31, 1994, the amount of gas prepayments
outstanding for this business segment, which does not include payments made
under the Basket Agreement discussed below, was $6.9 million, and is fully
recoupable under the terms of the gas purchase contracts. In addition, because
of the Company's success in marketing excess gas under contracts, for which it
receives credit against minimum take requirements, the Company believes that
its exposure to potential take-or-pay or minimum take claims is not material.
The Company does, however, have exposure with regard to claims under gas
purchase contracts assumed in its acquisition of the Westar pipeline system
from Cabot Corporation ("Cabot"), which claims are covered by an agreement with
Cabot (the "Basket Agreement"). Under the Basket Agreement, Cabot and the
Company equally share liability up to a certain amount, after which Cabot bears
all such liabilities. The Company's maximum exposure under this arrangement is
$20 million. The Company's estimated liability under the Basket Agreement is
approximately $6.0 million, which was recorded in connection with the
acquisition of the natural gas pipeline business from Cabot, and as such will
not have a material adverse effect on the Company's financial position or
results of operation. (See "Item 3: Legal Proceedings".)

Price Risk Management. The Company engages in energy futures
trading activities to minimize its risk of price changes in the spot and fixed
price natural gas, crude oil, and natural gas liquids markets. Energy futures
trading activities include the use of crude oil and natural gas commodity
contracts and options, fixed price swaps, and basis swaps and options. Pursuant
to its Board of Directors' approved guidelines, the Company engages in these
activities only as a hedging mechanism against pre-existing physical gas sale,
purchase, system use and storage contracts in order to protect profit margins,
and does not engage in speculative trading. These energy futures, swaps and
options are recorded at fair value. Gains and losses on hedging positions are
deferred and recognized as operating expenses in the period the underlying
physical transactions take place. As the Company engages in no speculative
trading activities, all 1994 transactions are recorded as hedges.

Acquisitions. Effective February 1, 1995, the Company acquired, for
approximately $80 million, two West Texas intrastate pipeline systems, gas
storage assets in the Houston area, and a joint-venture interest in a third
West Texas intrastate pipeline, including certain strategic gas supply
contracts and markets which complement and enhance the Company's West Texas
assets.

As part of the February 1995 acquisition discussed above, the Company
acquired storage assets and lease rights in the Stratton Ridge field near
Houston, Texas, which will increase the Company's working gas in storage by 6.0
Bcf.

Competition. The deregulation of the natural gas industry has
provided this business segment with expanded marketing and transportation
opportunities outside of its traditional on-system market base. This business
segment competes in these markets with other pipeline companies, marketers and
brokers of varying size, resources and experience as well as with producers who
are able to market gas directly.

Factors influencing the competitive environment include: (i) the
industrywide supply and demand imbalance that has existed since the early
1980s but which was substantially reduced during 1993 and 1994, (ii)
regulatory changes that provide greater access to interstate markets by gas
producers and marketers (Order 636), (iii) the ability of certain markets to
switch to alternative fuels at favorable prices, and (iv) increased gas storage

12
<PAGE> 13
capacity in the United States. Principal competitive considerations affecting
this business segment's ability to acquire and market natural gas include
price, services offered, reliability, security of supply and physical proximity
of pipelines to customers.

(4) Gas and Oil Production

Overview. The Company owns and participates in the development and
production of gas and oil reserves through two wholly-owned subsidiaries.

Total net reserves for the gas and oil business segment approximate 50
Bcf equivalent of natural gas (including net reserves purchased in the
acquisition described below). The 1994 year-end net production was 18.3 MMcf
per day compared with 9.5 MMcf per day at year-end 1993. During 1994, this
business segment participated in the drilling and completion of six development
wells in the Denver-Julesburg Basin, 12 development wells in Wyoming, 37
development wells in Colorado and worked-over 59 wells on the Western Slope of
Colorado. At December 31, 1994, the Company had approximately 163,000 net
undeveloped acres under lease and owned interests in 677 producing wells (297
net), of which it operated 358 (247 net). In addition to gas and oil
properties, this business segment owns the Wolf Creek gas storage field, and
also owns interests in three small gathering systems.

Acquisitions. In February 1994, this business segment finalized an
acquisition of gas reserves and production for approximately $30 million. The
properties are located near existing Company gas and oil operations in western
Colorado and in the Moxa Arch region of southwestern Wyoming. Total net
reserves purchased in this acquisition approximate 50 Bcf equivalent of natural
gas. In October 1994, the Company sold a 50 percent undivided interest in
these properties and entered into a joint development agreement with its
partner which governs the management and operations of the properties. The
Company continues to act as operator of the properties.

This business segment will continue to focus on the acquisition and
development of natural gas reserves in the Mid-Continent region, including
Texas, and in the Rocky Mountain region, emphasizing areas contiguous to
current Company pipeline operations.

(5) General

Federal and State Regulation

Retail Natural Gas Services. The Company's intrastate pipelines,
distribution facilities and retail sales in Colorado, Kansas and Wyoming are
under the regulatory authority of each state's utility commission. The Wyoming
and Colorado commissions also may review the Company's issuance of securities.
In Nebraska, retail gas sales rates for residential and commercial customers
are regulated by each municipality served.

In the incorporated communities in which the Company sells natural gas
at retail, the Company operates under franchises granted by the applicable
municipal authorities. Franchises in Colorado must also be approved by the
state regulatory commission. The duration of franchises varies with applicable
law. In unincorporated areas, the Company's direct sales of natural gas are
not subject to franchise, but, in all states except Nebraska, are
"certificated" by the state regulatory commissions.

13
<PAGE> 14
Interstate Transportation and Storage Services. Facilities for the
transportation of natural gas in interstate commerce and for storage services
in interstate commerce are subject to regulation by FERC. In addition, the
Company is subject to the requirements of FERC Order Nos. 497, et al., the
Marketing Affiliate Rules, which govern the provision of information by an
interstate pipeline to its marketing affiliates.

Through agreements with its former wholesale customers, the Company
was able to formulate and implement a plan which resulted in the transition to
Order 636 services and which avoided the necessity of any gas supply cost
recovery filings with FERC. As a part of its action on the Company's
restructuring proposal, on January 13, 1994, FERC approved the offer of
settlement which implemented the Company's gas supply realignment crediting
mechanism.

Gathering, Processing and Marketing Services. Under the Natural Gas
Act, facilities used for and operations involving the production and gathering
of natural gas are exempt from FERC jurisdiction, while facilities used for and
operations involving interstate transmission are not exempt. However, FERC's
determination of what constitutes exempt gathering facilities as opposed to
jurisdictional transmission facilities has evolved over time. Under current
law, facilities which otherwise are classified as gathering may be subject to
ancillary FERC rate and service jurisdiction when owned by an interstate
pipeline company and used in connection with interstate transportation or
jurisdictional sales. FERC has historically distinguished between facilities
owned by noninterstate pipeline companies, such as the Company's gathering
facilities, on a fact-specific basis.

The Kansas Corporation Commission, New Mexico Public Service
Commission, Railroad Commission of Texas and Wyoming Public Service Commission
have all recently expressed interest in asserting jurisdiction over gathering
issues, and the Company is closely monitoring developments in this area.

As part of its corporate reorganization, K N requested and was granted
authority to transfer substantially all of its gathering facilities to a
wholly-owned subsidiary. FERC determined that after the transfer, the
gathering facilities would be nonjurisdictional, but FERC reserved the right to
reassert jurisdiction if the Company was found to be operating the facilities
in an anti-competitive manner or contrary to open access principles.

Because certain volumes of gas in interstate commerce are transported
by the Company for third parties and by third parties on behalf of the Company,
the operations of the Company's intrastate pipeline and marketing subsidiaries
in Texas are affected by FERC rules and regulations issued pursuant to the
Natural Gas Act and the Natural Gas Policy Act. Of particular importance are
regulations which allow increased access to interstate transportation services
by both interstate and intrastate pipeline and marketing companies, without the
necessity of obtaining prior FERC authorization for each transaction. The most
important element of the program is nondiscriminatory access, under which a
participating pipeline must agree, if capacity is available, to transport gas
for any party requesting such service. The FERC also adopted a policy relating
to the pass-through in pipeline rates to interstate transportation and sales
customers of "buyout" or "buydown" costs prudently incurred in the settlement
of take-or-pay liabilities. The effect on the Company and other pipelines of
these pass-through costs has been to increase the cost of gas acquired from,
and costs of transportation in, certain interstate pipelines.

The interstate gas marketing activities of the Company's various
marketing and pipeline subsidiaries are conducted either as unregulated first
sales or pursuant to blanket certificate authority granted by the FERC under
the Natural Gas Act.

14
<PAGE> 15
The Colorado Public Utilities Commission, Kansas Corporation
Commission, Railroad Commission of Texas and the Wyoming Public Service
Commission have authority to regulate the intrastate transportation, sale,
delivery and pricing of natural gas by intrastate pipeline and distribution
systems.

Gas and Oil Production. Gas and oil operations are primarily subject
to the regulation of the Minerals Management Service ("MMS") and the Bureau of
Land Management on the Federal level. Each state in which the Company's gas
and oil subsidiaries operate regulates the volume and manner of production of
natural gas in that state under laws directed toward conservation and the
prevention of waste of natural resources.

Environmental Regulation

The Company's operations and properties are subject to extensive and
changing Federal, state and local laws and regulations governing the discharge
of materials into the environment or otherwise relating to environmental
protection. Numerous governmental departments issue rules and regulations to
implement and enforce such laws which are often difficult and costly to comply
with and which carry substantial penalties for failure to comply. Moreover,
the recent trends toward stricter standards in environmental legislation and
regulation are likely to continue.

The United States Oil Pollution Act of 1990 and regulations
promulgated thereunder by the MMS impose a variety of requirements on persons
who are or may be responsible for oil spills in waters of the United States.
The term "waters of the United States" has been broadly defined to include
inland waterbodies, including wetlands, playa lakes and intermittent streams.
The Company has a limited number of oil and gas facilities that could affect
"waters of the United States." The Federal Water Pollution Control Act, also
known as the Clean Water Act, and regulations promulgated thereunder, require
containment of potential discharges of oil or hazardous substances and
preparation of oil spill contingency plans. The Company currently is
implementing programs that address containment of potential discharges and
spill contingency planning. The failure to comply with ongoing requirements or
inadequate cooperation during a spill event may subject a responsible party to
civil or criminal enforcement actions.

The Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("Superfund"), imposes liability, without regard to fault or
the legality of the original conduct, on certain classes of persons who are
considered to have contributed to the release of a "hazardous substance" into
the environment. Under Superfund, such persons may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment and for damages to natural resources.
Furthermore, it is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused
by the hazardous substances released into the environment.

Federal and state regulations were changed as a result of the 1990
Amendments to the Clean Air Act. This affects the Company's operations in
several ways. Natural gas compressors for both gathering and transmission
activity are now required to meet stricter air emission standards.
Additionally, states in which the Company operates are adopting new regulations
under the authority of the "Operating Permit Program" under Title V of these
1990 Amendments. These Operating Permits will require operators of certain
facilities to obtain individual site-specific air permits containing stricter
operational and technological standards of operation in order

15
<PAGE> 16
to achieve compliance with this section of the 1990 Clean Air Act Amendments
and associated state air regulations.

The Toxic Substance Control Act (the "TSCA"), as amended, imposes
liability on persons or persons who manufacture, process, distribute, use or
dispose of TSCA-related chemicals, including such things as polychlorinated
biphenyls ("PCBs"), asbestos, and lead-based paints. The Company has
facilities which may contain such TSCA-related substances, and is currently
implementing programs to address the identification and, if necessary,
remediation of such facilities.

Compliance with Federal, state and local provisions with respect to
the protection of the environment has had no material effect upon capital
expenditures, earnings, or the competitive position of the Company, except as
described in Item 3, "Mystery Bridge Road Environmental Matters" and "Other
Environmental Matters."

Safety Regulation

The operations of certain of the Company's gas pipelines are subject
to regulation by the United States Department of Transportation (the "DOT")
under the Natural Gas Pipeline Safety Act of 1968 (the "NGPSA"), as amended.
The NGPSA establishes safety standards with respect to the design,
installation, testing, construction, operation and management of natural gas
pipelines, and requires entities that own or operate pipeline facilities to
comply with the applicable safety standards, to establish and maintain
inspection and maintenance plans, and to comply with such plans.

The NGPSA was amended by the Pipeline Safety Act of 1992 to require
the DOT's Office of Pipeline Safety to consider, among other things,
protection of the environment when developing minimum pipeline safety
regulations. Management believes the Company's operations, to the extent they
may be subject to the NGPSA, comply in all material respects with the NGPSA.

The Company is also subject to laws and regulations concerning
occupational health and safety.

Other

Amounts spent by the Company during 1994, 1993 and 1992 on research
and development activities were not material.

(D) Financial Information About Foreign and Domestic Operations and Export
Sales

All of the Company's operations are in the contiguous 48 states.

ITEM 3: LEGAL PROCEEDINGS

Mystery Bridge Road Environmental Matters

16
<PAGE> 17
near Casper, Wyoming (the "Brookhurst Subdivision"). The EPA's remedy consists
of two parts, "Operating Unit One," which addresses the groundwater cleanup and
"Operating Unit Two," which addresses cleanup procedures for the soil and
free-phase petroleum product. A Consent Decree between the Company, the EPA
and another PRP was entered on October 2, 1991, in the Wyoming Federal District
Court. Groundwater cleanup under Operating Units One and Two have been
proceeding since 1990 and 1992, respectively, and is expected to proceed
through 1996 at a total cost remaining estimated not to exceed $150,000.
(United States of America v. Dow Chemical Company, Dowell Schlumberger, Inc.,
and K N Energy, Inc., Civil Action No. 91CV1042, United States District Court
for the District of Wyoming; formerly reported as Administrative Orders for
Removal Action on Consent, October 15, 1987, and Amendment to Administrative
Order for Removal Order on Consent, October 10, 1989, Docket No. CERCLA
VII-88-01, United States Environmental Protection Agency; Judicial Entry of
Consent Decree, United States v. Dow Chemical Company, et al. (D. Wyo)
USDC-WY-91CV1042B, Superfund Site Number 8T83, Natrona County, Wyoming; EPA
Docket Number CERCLA-VIII.)

Other Environmental Matters

An environmental audit performed by the Company revealed that a grease
known as Rockwell 860 had been used as a valve sealant at several of the
Company's locations in Nebraska and Colorado. Rockwell 860 is a solid
clay-like material which does not easily spill into the environment, but
contains approximately ten percent PCBs. The PCBs are contained within the
pipeline and valves at the subject locations. PCBs are regulated under the
Toxic Substances Control Act. On March 31, 1993, the Company filed suit
against Rockwell International Corporation, manufacturer of the valve sealant,
and two other related defendants, alleging that the defendants were responsible
for the Company's environmental expenses and commercial losses resulting from
any EPA or state required PCB cleanup or mitigation. The Company settled with
Rockwell, et al. in March 1994 which resolved all disputes between the parties.
(K N Energy, Inc. and Rocky Mountain Natural Gas Company v. Rockwell
International Corp et al., United States District Court for the District of
Colorado, Case No. 93-711.)

During February 1994, the Company submitted its Phase I Report and
PCBs Work Plan to EPA Region VII (covering Nebraska) and EPA Region VIII
(covering Colorado). During March 1994, EPA Region VIII accepted both the
Phase I Report and the PCBs Work Plan as administratively complete. EPA Region
VIII also granted the Company permission to proceed with implementation of the
PCBs management and remediation activities described in its Work Plan to
address sites in Colorado. EPA Region VII has not yet formally responded. The
Company currently estimates the total cost of remediation to be approximately
$1.7 million, a substantial portion of which is recoverable under the Rockwell
settlement. The unrecoverable amount will not have a material adverse impact
on the Company's financial position or results of operations. The PCBs cleanup
program is not expected to interrupt or diminish the Company's operational
ability to gather or transport natural gas, and will occur over a period of
years.

Certain used pipe reclaimed at the Company's Holdrege, Nebraska
pipeyard was wrapped with asphalt-saturated asbestos felt, which was commonly
removed in accordance with Company practices. The removed wrap contains
friable asbestos fibers above the regulatory standard. The Nebraska Department
of Environmental Control, the agency having jurisdiction over this matter, was
notified and approved the Company's remediation plan. Remediation was
effectively completed in 1994 and the total cost is not expected to exceed
$700,000. The asbestos cleanup program did not interrupt or diminish the
Company's operational ability to gather or transport natural gas.

17
<PAGE> 18
In the spring of 1994, the Kansas Department of Health and Environment
("KDHE") notified a number of pipeline companies operating in Kansas, including
K N, that residual elemental mercury might be present in the soils adjacent to
certain natural gas metering facilities. In July 1994, the Company initiated a
mercury sampling program on its systems in central and western portions of
Kansas, pursuant to a five year assessment program which has been approved by
the KDHE and will require that 20 percent (135) of the 675 sites be tested each
year. The sampling for the first year has been completed; however, no
determination regarding remediation has been reached at this time. The Company
currently cannot estimate the extent of the remediation nor the costs, although
the Company believes all or a portion of such costs will be recoverable from
insurance carriers. On December 27, 1994, the Company received notice from the
KDHE that no active remediation will be required until completion of the
five-year assessment program. Such costs are not expected to have any material
adverse impact on the Company's financial position or results of operations.
The mercury cleanup program is not expected to interrupt or diminish the
Company's operational ability to gather or transport natural gas.

In May 1994, the Company discovered that use of a lubricating oil
containing PCBs has caused contamination in certain equipment, soils and
liquids at the Company's Scott City, Kansas, helium extraction facility. A
Site Assessment Report has been submitted to the EPA for its review, and no
response has yet been received. The Company's investigation of this situation
is ongoing, and a workplan is being developed for EPA review. The Company
estimates the total cost for remediation to be approximately $600,000, which is
not expected to have a material adverse impact on the Company's financial
position or results of operations. The PCBs cleanup program is not expected to
interrupt or diminish the Company's operational ability at the helium facility.

Effective April 1, 1992, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of the Maple Gas
Corporation ("Maple"). The assets consisted of 10 natural gas processing
plants and approximately 1,100 miles of related gas gathering pipelines. The
Maple assets contained certain environmental liabilities for which the Company
obtained indemnifications from Maple and the Cabot Corporation ("Cabot"). The
Company is unable to estimate its potential exposure, if any, for such
liabilities at this time, but does not expect them to have any material adverse
impact on the company's financial position or results of operation.

In November 1989, the Company acquired gathering and transmission
assets from certain subsidiaries of Cabot. These assets contained certain
environmental liabilities for which the Company obtained indemnities from Cabot
pursuant to an Omnibus Acquisition Agreement. Issues have arisen concerning
Cabot's indemnification obligations; however, in conjunction with the merger,
the Company and Cabot entered into a standstill agreement pertaining to these
and other matters. The Company believes it will be able to reach agreement
with Cabot, and is unable to estimate its potential exposure for such
liabilities at this time, but does not expect them to have a material adverse
impact on the Company's financial position or results of operations.

Grynberg v. K N,et al.

18
<PAGE> 19
exercise of monopoly power, have illegally denied him economically feasible
access to essential facilities to transport and distribute gas produced from
fewer than 20 wells located in northwest Colorado, and have illegally attempted
to monopolize or to enhance or maintain an existing monopoly. Grynberg also
asserts certain causes of action relating to a gas purchase contract. No
specific monetary damages have been claimed, although Grynberg has requested
that any actual damages awarded be trebled. In addition, Grynberg has
requested that the K N Entities be ordered to divest all interests in natural
gas exploration, development and production properties, all interests in
distribution and marketing operations, and all interests in natural gas storage
facilities, separating these interests from the Company's natural gas gathering
and transportation system in northwest Colorado. On August 13, 1993, the United
States District Court, District of Colorado, stayed this proceeding pending
exhaustion of appeals in a related state court action involving the same
plaintiff. (Grynberg v. K N, et al., Civil Action No. 92-2000, United States
District Court for the District of Colorado.)

Westerman, et al. v. K N Energy, Inc.,et al.

On December 8, 1994, K N and its wholly owned subsidiary K N Gas
Supply Services, Inc. were sued by gas producers in northeastern Colorado in
District Court, Dallas County, Texas, under claims arising from two gas purchase
contracts covering gas purchases from wells in the Niobrara Field, Colorado.
The producers assert take-or-pay claims for contract years 1993 and 1994 in the
amount of $1,157,000 plus interest, as well as actual and punitive damages in
the amount of $156,000,000 for breaches of contractual and fiduciary duties
arising out of a January 1977 Farmout Agreement between the producers and K N.

On December 21, 1994, the lawsuit was removed from Texas state court
to the United States District Court for the Northern District of Texas
(Dallas). (Westerman, et al. v. K N Energy, Inc. and K N Gas Supply Services,
Inc., Civil Action No.:3:94-CV-2773-X, United States District Court for the
Northern District of Texas, Dallas Division.)

Take-or-Pay Matters

Certain of the companies acquired from Cabot when the Company acquired
the Westar System were parties to a number of lawsuits or were subject to
asserted claims by natural gas purchase contracts containing take-or-pay
provisions, which require the purchaser either to take a minimum amount of gas
or to pay for such minimum quantities. All of these lawsuits and most claims
have been resolved under terms which the Company considers favorable. Most gas
suppliers of the Company have entered into excess gas purchase contracts with
one of the Company's gas marketing subsidiaries. These excess gas purchases
contracts are generally credited against take-or-pay gas volumes, which
minimizes take-or-pay exposure.

The Basket Agreement between the Company and Cabot provides for an
equal sharing of up to $40 million (any excess will be borne solely by Cabot)
between the Company and Cabot of certain gas contract take-or-pay liabilities
of the companies acquired from Cabot for periods prior to the closing date of
the acquisition from Cabot and for certain other potential gas contract claims.
(See "Items 1 and 2: Business and Properties"). The Company's maximum exposure
under this arrangement is $20 million. The Company's estimated liability under
the Basket Agreement is approximately $6.0 million, which was recorded in
connection with the acquisition of the natural gas pipeline business from
Cabot, and as such will not have a material adverse effect on the Company's
financial position or results of operation. As of December 31, 1994, the
Company had made net payments of approximately $12.4 million.

19
<PAGE> 20
The Company is also involved in various disputes and litigation
arising in the normal course of business including take-or-pay exposure not
covered by the matters discussed above, including the Westerman litigation
described in this Item 3. The Company believes that it has adequate defenses
or insurance coverage relating to such litigation and that the outcome of these
proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company's financial position or results of operations.

The Company believes it has meritorious defenses to all lawsuits and
legal proceedings in which it is a defendant and will vigorously defend against
them. Based on its evaluation of the above matters, and after consideration of
reserves established, the Company believes that the resolution of such matters
will not have a material adverse effect on the Company's financial position or
results of operations.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

EXECUTIVE OFFICERS OF THE REGISTRANT

(A) Identification and Business Experience of Executive Officers

<TABLE>
<CAPTION>
Name Age Position and Business Experience
- - ----------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Judith A. Aden . . . . . . . 53 Vice President and Treasurer since March 1991. Treasurer since January 1981.
Assistant Secretary since March 1989.

William E. Asbury . . . . . . 42 Vice President, Gas Service since 1988.

Eugene B. Bade . . . . . . . 48 Vice President and Controller since May 1993. Vice President of K N Gas
Marketing, Inc. from April 1989 to May 1993. Director of Internal Audit from
November 1985 to April 1989.

Charles W. Battey . . . . . . 63 Chairman since January 1989. Chief Executive Officer from January 1989 to July
1994. Director since 1971.

Richard M. Buxton . . . . . . 46 Vice President, Strategic Planning and Financial Services since March 1991.
Director, Financial Services from 1986 to March 1991.

David M. Carmichael . . . . . 56 Vice Chairman and Director since July 1994. Chairman of the Board and Chief
Executive Officer of AOG since 1986. President of AOG until October 1993.

Samuel H.Charlton, III . . . 50 Vice President since January 1995. Sr. Vice President of certain K N subsidiaries
since July 1994. Sr. Vice President - Gas Marketing and Supply for AOG from
February 1994 to July 1994. Vice President Gas Marketing of AOG from April 1993
to February 1994. Vice President Marketing and Transportation for
</TABLE>

20
<PAGE> 21

<TABLE>
<S> <C> <C>
Wintershall Energy, a division of BASF Corporation from September 1990 to July 1992.
Vice President and Regional Manager for Delhi Gas Pipeline Corporation from February
1988 to September 1990.

John N. DiNardo . . . . . . . 47 Vice President - Gas Gathering since March 1994. General Manager of K N Gas
Gathering, Inc. and K N Front Range Gathering Company from May 1993 to March
1994. Director of Project Development for K N Gas Gathering, Inc. from August
1991 to May 1993. Consultant to K N Gas Gathering, Inc. from 1989 to August
1991. Partner DiNardo, Markham Energy Consultants from 1976 to 1989.

Thomas H. Fanning . . . . . . 46 Vice President since January 1995. Sr. Vice President, Chief Financial Officer
and Treasurer of certain K N subsidiaries since July 1994. Sr. Vice President,
Chief Financial Officer and Treasurer of AOG from October 1993 to July 1994.
Vice President, Controller and Chief Accounting Officer of AOG from May 1990 to
October 1993. Director, Contract Administration AOG from December 1987 to May
1990.

William S. Garner, Jr. . . . 45 Vice President, General Counsel and Secretary since April 1992. Vice President
and General Counsel from January 1991 to April 1992. Vice President and Deputy
General Counsel from September 1989 through 1990. Vice President, Law from June
1988 to September 1989.

Larry D. Hall . . . . . . . . 52 President and Chief Executive Officer since July 1994. President and Chief
Operating Officer from May 1988 to July 1994. Director since 1984.

S. Wesley Haun . . . . . . . 47 Vice President, Marketing and Supply since May 1993. Vice President, Gas Supply
from March 1990 to May 1993. Vice President, Gas Acquisition from November 1988
to March 1990.

Leland L. Hurst . . . . . . . 64 Senior Vice President since June 1988.

E. Wayne Lundhagen . . . . . 58 Vice President, Finance and Accounting since May 1988.

John W. Simonton . . . . . . 49 Vice President, Administration and Human Resources since May 1988.

H. Rickey Wells . . . . . . . 38 Vice President, Operations since June 1988.
</TABLE>

These officers generally serve until March of each year.

(B) Involvement in Certain Legal Proceedings

None.

21
<PAGE> 22
PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is listed for trading on the New York Stock
Exchange under the symbol KNE. Dividends paid and the price range of the
Company's common stock by quarters for the last two years, are provided below.

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C>
Market Price Data
(Low-High-Close)
Quarter Ended:
March 31 $22.00-$25.50-$22.50 $18.67-$24.67-$23.50
June 30 21.25- 23.75- 22.25 22.17- 24.67- 24.33
September 30 22.00- 26.875-26.125 23.33- 26.83- 26.67
December 31 20.75- 26.125-23.75 24.75- 30.00- 25.75

Dividends
Quarter Ended:
March 31 $0.133* $0.121*
June 30 0.133* 0.121*
September 30 0.24 0.133*
December 31 0.25 0.133*

Common Stockholders
Year-end 8,933 8,265
</TABLE>

* Pre-merger dividend rate reflects the effect of pooling of interests
accounting. AOG did not pay a dividend on common stock.

22
<PAGE> 23
ITEM 6: SELECTED FINANCIAL DATA

FIVE-YEAR REVIEW

Selected Financial Data (In Thousands Except Per Share Amounts)

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Retail Natural Gas Services $ 213,088 $ 202,975 $ 188,073 $220,726 $206,121
Interstate Transportation and
Storage Services 21,044 99,838 127,611 130,821 132,558
Gathering, Processing and
Marketing Services 838,474 730,895 507,756 424,586 468,629
Gas and Oil Production 11,328 5,321 4,710 3,053 3,164
---------- ---------- ---------- -------- --------
Total Operating Revenues $1,083,934 $1,039,029 $ 828,150 $779,186 $810,472
========== ========== ========== ======== ========
OPERATING INCOME $ 54,175 $ 80,204 $ 83,757 $ 81,490 $ 69,282
Other Income (Deductions) (29,354) (30,736) (27,347) (23,134) (27,693)
---------- ---------- ---------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 24,821 49,468 56,410 58,356 41,589
Income Taxes 9,500 18,599 20,068 21,282 16,526
---------- ---------- ---------- -------- --------
INCOME FROM CONTINUING
OPERATIONS 15,321 30,869 36,342 37,074 25,063
Income (Loss) from
Discontinued Operations - - - (17,250) 320
---------- ---------- ---------- -------- --------
INCOME BEFORE EXTRAORDINARY
ITEM 15,321 30,869 36,342 19,824 25,383
Extraordinary Item - - - - 30,244
---------- ---------- ---------- -------- --------
NET INCOME 15,321 30,869 36,342 19,824 55,627
Less - Preferred Stock
Dividends 630 853 2,976 4,808 5,470
---------- ---------- ---------- -------- --------
EARNINGS AVAILABLE FOR
COMMON STOCK $ 14,691 $ 30,016 $ 33,366 $ 15,016 $ 50,157
========== ========== ========== ========= ========
EARNINGS PER COMMON SHARE:
Continuing Operations $ 0.52 $ 1.09 $ 1.34 $ 1.45 $ 0.89
Discontinued Operations - - - (0.77) 0.01
Extraordinary Item - - - - 1.37
---------- ---------- ---------- -------- --------
Total Earnings Per Common
Share $ 0.52 $ 1.09 $ 1.34 $ 0.68 $ 2.27
========== ========== ========== ======== ========

DIVIDENDS PER COMMON SHARE $ 0.76 $ 0.51 $ 0.51 $ 0.51 $ 0.46
========== ========== ========== ======== ========
NUMBER OF SHARES USED IN
COMPUTING EARNINGS PER
COMMON SHARE 28,044 27,424 24,828 22,320 22,098
========== ========== ========== ========= ========
TOTAL ASSETS $1,172,384 $1,169,275 $1,007,411 $816,514 $828,525
========== ========== ========== ======== ========
CAPITAL EXPENDITURES $ 70,596 $ 100,780 $ 74,787 $ 69,080 $ 51,656
========== ========== ========== ======== ========
ACQUISITIONS $ 31,363 $ 65,172 $ 110,833 $ 1 $ 7,684
========== ========== ========== ======== ========

CAPITALIZATION:
Common Stockholders' Equity $ 393,686 54% $ 391,462 53% $ 347,738 51% $256,605 50% $251,208 50%
Preferred Stock 7,000 1% 7,000 1% 26,310 4% 31,360 6% 31,360 6%
Preferred Stock Subject to
Mandatory Redemption 1,715 -% 2,858 -% 4,500 1% 6,643 1% 21,286 4%
Long-Term Debt 334,644 45% 335,190 46% 303,224 44% 222,850 43% 199,586 40%
---------- ---- ---------- ---- ---------- ---- -------- ---- -------- ----
Total Capitalization $ 737,045 100% $ 736,510 100% $ 681,772 100% $517,458 100% $503,440 100%
========== ==== ========== ==== ========== ==== ======== ==== ======== ====

BOOK VALUE PER COMMON SHARE $ 14.25 $ 14.39 $ 13.60 $ 11.60 $ 11.45
========== ========== ========== ======== ========
</TABLE>

23
<PAGE> 24
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CONSOLIDATED FINANCIAL RESULTS OF OPERATIONS

In the third quarter of 1994, the Company expensed $25.9 million of
non-recurring costs related to the merger of AOG into K N and to the
restructuring of the Company's retail natural gas services segment. These
costs, primarily professional fees, severance-related expenses and the
write-off of certain information systems costs, reduced 1994 net income by
$19.3 million, or $0.69 per common share.

Excluding the effect of the merger and restructuring costs, net income
was $34.7 million, $30.9 million and $36.3 million for 1994, 1993 and 1992,
respectively. After payment of preferred dividends, the respective earnings
per common share were $1.21, $1.09 and $1.34.

The improvement in 1994 earnings over 1993 was attributable to rate
increases in both retail and interstate system jurisdictions, increased
deliveries to irrigation customers and expense reductions resulting from the
merger. Net income in 1993 was reduced by a $4.5 million (pre-tax) write-down
of an investment in a well servicing company. Operating results were adversely
affected by mild fourth quarter 1994 weather (impacting systems throughput as
well as margins on nonregulated gas sales) and lower 1994 prices for natural
gas liquids ("NGLs").

The decline in 1993 earnings reflected the impact of unfavorable
summer weather on gas sales to irrigation customers, a significant decline in
prices for NGLs during the second half of 1993, and the investment write-down
referred to previously. Incremental earnings from 1993 and 1992 acquisitions of
natural gas gathering and processing facilities, favorable resolution of retail
rate cases and insurance settlements related to environmental issues partially
offset the unfavorable 1993 factors.

RESULTS OF OPERATIONS

Operating results by business segment, excluding the non-recurring
merger and restructuring costs, and consolidated other income and (deductions)
and income taxes are discussed below. The Company's retail natural gas
services segment, which includes its Colorado and Wyoming intrastate
operations, and the interstate transportation and storage services segment have
been combined to provide meaningful comparisons. The interstate segment became
a separate business unit effective with the implementation of Federal Energy
Regulatory Commission ("FERC") Order No. 636 ("Order 636") on October 1, 1993.
Segment operating revenues, gas purchases, operations and maintenance expenses,
and volumetric data cited below are before intersegment eliminations (dollars
in millions).

24
<PAGE> 25
<TABLE>
<CAPTION>
RETAIL NATURAL GAS SERVICES AND
INTERSTATE TRANSPORTATION AND STORAGE SERVICES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Revenues -
Gas Sales $207.7 $254.5 $272.1
Transportation and Storage 30.6 30.6 17.3
Natural Gas Liquids and Other 6.4 28.4 31.2
------ ------ ------
244.7 313.5 320.6
------ ------ ------
Operating Costs and Expenses -
Gas Purchases 92.7 133.6 150.9
Operations and Maintenance 83.8 100.6 91.1
Depreciation, Depletion and Amortization 20.5 21.3 20.9
Taxes, Other Than Income Taxes 8.9 10.1 9.4
------ ------ ------
205.9 265.6 272.3
------ ------ ------
Operating Income $ 38.8 $ 47.9 $ 48.3
====== ====== ======
Systems Throughput (Trillion Btus) -
Gas Sales 40.8 58.4 67.4
Transportation 111.9 97.2 79.0
------ ------ ------
152.7 155.6 146.4
====== ====== ======
Natural Gas Liquids (Millions of Gallons) 12.9 81.3 74.4
====== ====== ======
</TABLE>

The decline in 1994 and 1993 gas sales revenues and volumes and gas
purchases primarily reflects the implementation of Order 636, which became
effective October 1, 1993. As a result, merchant services to wholesale
customers were converted to transportation and storage services. Gas sales
volumes to wholesale customers totaled 16.4 trillion Btus and 26.8 trillion
Btus in 1993 and 1992, respectively. In addition to Order 636, effective
January 1, 1994, the interstate segment's principal gas processing plant and
substantially all of its gathering facilities were transferred to a
nonjurisdictional subsidiary included in the gathering, processing and
marketing services business segment. Accordingly, the above table reflects
results of K N's rate-regulated businesses post-Order 636. The increase in
1993 transportation and storage revenues and volumes, compared to 1992, largely
resulted from the Order 636-related change in service to wholesale customers.
The full year's impact of Order 636 on 1994 transportation and storage revenues
was offset by the effect of the transfer of gathering facilities. The decline
in this segment's 1994 NGLs and other revenues, NGLs volumes, operations and
maintenance expenses, and depreciation, depletion and amortization was
primarily due to the transfer of properties. Operations and maintenance
expenses were favorably impacted in the second half of 1994 due to merger
savings.

Rate activity and weather have significantly influenced the operating
results of this business segment. Favorable resolution of retail and
interstate system rate cases generated additional annual revenues of $10.7
million during 1994. Retail rate activity in 1993 resulted in additional
annual revenues of $4.9 million. The level of sales and transportation volumes
delivered to irrigation customers depends on precipitation levels during the
summer months. These volumes totaled 10.1 trillion Btus, 4.9 trillion Btus and
8.1 trillion Btus in 1994, 1993 and 1992, respectively. Retail sales volumes
related to space heating were approximately the same in 1994 and 1992; however,
1993 sales volumes were approximately 4 trillion Btus higher, or 11 percent
higher, than 1994 or 1992 due to colder weather.

25
<PAGE> 26

<TABLE>
<CAPTION>
GATHERING, PROCESSING AND
MARKETING SERVICES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Revenues -
Gas Sales $720.3 $638.5 $427.4
Transportation and Gathering 45.2 32.3 14.2
Natural Gas Liquids and Other 120.5 89.4 66.3
------ ------ ------
886.0 760.2 507.9
------ ------ -----
Operating Costs and Expenses -
Gas Purchases 726.6 636.7 412.2
Operations and Maintenance 88.3 67.6 42.3
Depreciation, Depletion and Amortization 25.8 20.0 15.4
Taxes, Other Than Income Taxes 6.9 4.9 3.3
------ ------ ------
847.6 729.2 473.2
------ ------ ------
Operating Income $ 38.4 $ 31.0 $ 34.7
====== ====== ======
System Throughput (Trillion Btus) -
Gas Sales 353.0 290.3 225.3
Transportation 318.7 222.3 136.8
------ ------ ------
671.7 512.6 362.1
====== ====== ======
Natural Gas Liquids (Millions of Gallons) 375.0 241.0 171.1
====== ====== ======
</TABLE>

Operating results of this business segment, which include the merged
AOG assets, were significantly impacted in 1994 by the transfer to this segment
of certain properties from the interstate segment, as explained previously. In
addition, 1994 revenues, expenses and operating income reflect the full year
contribution of gathering and processing asset acquisitions in 1993 and 1992.
In April 1992, the Company acquired 10 processing plants and related gathering
systems. In October 1992, the Company assumed operations of the Douglas
gathering and processing system. The Wattenberg gathering and transmission
system was acquired in April 1993, and the Wind River joint-venture gathering
facilities were acquired in June 1993.

Operating results in 1994 and 1993 were adversely impacted by
declining NGLs prices and lower margins on 1994 gas sales due, primarily, to
unfavorable weather. The average NGLs price per gallon for 1994 was
approximately $0.04 below 1993 prices; average prices for 1993 were $0.03 per
gallon lower than 1992. Earnings from properties transferred from the
interstate segment and expense reductions resulting from the merger more than
offset the impact on segment operating income of lower 1994 NGLs prices and gas
sales margins. The positive contributions of acquisitions (approximately $1.8
million of incremental operating income) to 1993 pre-tax earnings partially
offset the effects of lower NGLs prices.

<TABLE>
<CAPTION>
GAS AND OIL PRODUCTION 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Revenues -
Gas and Oil Sales $11.5 $7.2 $5.3
Other 2.6 1.3 1.8
----- ---- ----
14.1 8.5 7.1
----- ---- ----
Operating Costs and Expenses -
Operations and Maintenance 6.0 3.2 2.6
Depreciation, Depletion and Amortization 4.0 3.3 3.1
Taxes, Other Than Income Taxes 1.2 0.7 0.6
----- ---- ----
11.2 7.2 6.3
----- ---- ----
Operating Income $ 2.9 $1.3 $0.8
===== ==== ====
Gas and Oil Production (Equivalent Bcf) 6.6 3.7 2.6
===== ==== ====
</TABLE>

26
<PAGE> 27
Sustained increases in revenues, expenses and production have resulted
from acquisitions of gas and oil reserves and production in February 1994 and
July 1992. In October 1994, the Company sold a 50 percent interest in the gas
reserves and production acquired earlier in 1994. At December 31, 1994, net
proved reserves were approximately 50 Bcf equivalent of natural gas.

<TABLE>
<CAPTION>
OTHER INCOME AND (DEDUCTIONS) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest Expense $(31.6) $(30.5) $(27.0)
Minority Interests and Other, Net 2.2 (0.2) (0.3)
------ ------ ------
$(29.4) $(30.7) $(27.3)
====== ====== ======
</TABLE>

Increases in interest expense resulted from the issuance of long-term
debt to fund capital expenditures and acquisitions. The impact of higher
amounts of long-term borrowings has been partially offset by the refunding of
$65 million of higher coupon debt in 1993 and 1992. The Company realized a
$1.5 million gain from the sale of a gathering system in the 1994 second
quarter, which is included in "Minority Interests and Other, Net".

<TABLE>
<CAPTION>
INCOME TAXES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Provisions $ 9.5 $18.6 $20.1
===== ===== =====
Effective Tax Rate 38.3% 37.6% 35.6%
===== ===== =====
</TABLE>

The 1994 effective tax rate reflects the non-deductibility of certain
merger costs. Additionally, the one percent increase in the Federal tax rate,
due to enactment of the Revenue Reconciliation Act of 1993, impacted the
effective tax rate for both 1994 and 1993. Refer to Note 8 of Notes to
Consolidated Financial Statements for a reconciliation of statutory rates to
effective rates.

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of cash during 1994 were generated from
operations, the issuance of long-term debt, the sale of contract demand
receivables and short-term borrowings. Principal non-operating cash outflows
included capital expenditures and acquisitions, redemptions of long-term debt
and preferred stock, and payments of interest and dividends.

CASH FLOWS FROM OPERATING ACTIVITIES

Excluding the $41 million of proceeds from the sale of contract demand
receivables and cash expenditures of $18.1 million related to the merger and
restructuring, 1994 net cash flows from operations were $68.3 million, compared
with $67.9 million and $51.0 million for 1993 and 1992, respectively. Net
operating cash flows for 1994 and 1992 were adversely impacted by higher income
tax payments, gas prepayments and litigation and environmental settlements.

CAPITAL EXPENDITURES AND COMMITMENTS

Excluding acquisitions, 1994 capital expenditures totaled $70.6
million compared with expenditures of $100.8 million in 1993 and $74.8 million
in 1992. The higher level of spending in 1993 was due to implementation of
Order 636 (measurement facilities and systems) and construction of new
corporate office facilities.

The 1995 capital expenditures budget totals $73.9 million, excluding
acquisitions. On February 16, 1995, the Company acquired natural gas
transmission pipeline and storage assets in Texas for approximately $80

27
<PAGE> 28
million. The Company is negotiating the termination of certain pre-Order 636
gas purchase contracts with producers. This could result in significant
expenditures in 1995.

The Company does not believe it has a material exposure related to
take-or-pay matters. Generally, all amounts paid by the Company for
take-or-pay are either fully recoupable under the terms of the gas purchase
contracts, or are recoverable from offsetting gas purchase obligations under
certain contractual arrangements. Take-or-pay obligations, including payments
of above-market prices incurred with respect to the Company's retail
distribution operations, are recoverable through purchased gas adjustment
clauses in existing state or local regulations. At December 31, 1994, the
cumulative amount of take-or-pay payments was $12.5 million.

CAPITAL RESOURCES

Short-term borrowings were $60.0 million and $47.0 million at year-end
1994 and 1993, respectively. The Company has credit agreements with 10 banks to
either borrow or use as commercial paper support up to $225 million.
Additionally, $125 million of debt securities are issuable under K N's 1993
shelf registration statement filed with the Securities and Exchange Commission.
At December 31, 1994, the Company's long-term debt to capitalization ratio was
45 percent and the weighted-average cost of its long-term debt was 8.9 percent.

Following the March 1994 announcement of the K N-AOG merger, Standard
and Poor's and Fitch Investor Service placed the Company under credit watch.
Subsequently, the two agencies affirmed their previous ratings and Moody's
Investors Services upgraded the rating of the Company's debt securities from A3
to A2.

The Company expects that 1995 cash requirements for debt service,
preferred stock redemptions, dividends and capital expenditures will be provided
by internal cash flows, short-term borrowings and the issuance of common stock
for dividend reinvestment and employee benefit plans. The issuance of long-term
debt, if any, will be dependent on market conditions. The February 1995
acquisition of natural gas transmission pipeline and storage assets will be
funded by short-term borrowings and an operating lease.

REGULATION

Beginning in 1993 and continuing into 1994, the Company has
restructured to take advantage of the opportunities and comply with the
requirements of Order 636. The competitive opportunities accompanying the
unbundling of natural gas services under Order 636 are challenging the Company
to become a more customer-responsive provider of natural gas services. In
response to this challenge, the Company is repositioning its workforce to be a
more dynamic, agile and accessible provider of services and products demanded
by its customers.

In all of its regulatory jurisdictions, rates are currently determined
on cost-based regulation. At the present time, the Company does not expect a
significant change in the manner in which rates are set by regulators.
Additionally, the impact of competition has not yet fully impacted the
Company's businesses, and to date has generally resulted in conversion of
services from the "bundled" merchant and transportation function to
transportation services only. The gas cost component of the bundled service
rate recovers only actual costs incurred.

28
<PAGE> 29
RISK MANAGEMENT

To minimize the risk of price changes in the natural gas and NGLs
markets and interest rate fluctuations, the Company uses certain financial
instruments for hedging purposes only. These instruments include energy
futures traded on the New York Mercantile Exchange and over-the-counter
markets, including fixed price and basis swaps, options, and interest rate
swaps and caps.

During 1994, K N's Board of Directors approved formal energy price
risk management policies and procedures. These policies and procedures include
the formation of a price risk management committee, and guidelines for
authorizing the types of hedging instruments, contract limits, and approval
levels. The policy also states that at no time will the Company enter into
speculative trading.

OUTLOOK

MERGER

The merged Company operates along an axis of major gas supply basins
stretching from the northern Rocky Mountain region through the Mid-Continent to
south Texas. Access to six major, geographically diverse producing basins
enables the Company to balance complementary peaking periods with a greater
choice of supply alternatives. The Company's gas supply group is continually
searching for opportunities to achieve lower gas supply costs, while seeking to
take advantage of the Company's broader gas supply access. Additional future
opportunities to provide broader gas supply access for the Company will come
from its participation in the proposed TransColorado Pipeline Project and from
the February 1995 acquisition of pipeline and storage assets. These assets are
connected to currently existing assets in West Texas and provide expanded
opportunities with new and existing customers.

The ongoing marketing efforts of the merged Company are expected to
yield efficiencies in purchasing gas supplies, provide leverage in contracting
for those supplies and improve utilization of the systems by increasing sales
to customers in non-historical market areas. In addition, the Company plans to
increase its emphasis on converting current spot market sales to longer-term
premium markets and in developing incremental marketing, transportation,
storage and other service opportunities, while retaining the current retail and
on-system markets as a base load.

At year-end 1994, the Company had over 46 Bcf of working gas storage
capacity in conventional and salt cavern storage fields near major pipeline
interconnects in the Rocky Mountain, Mid-Continent and Permian Basin areas. An
additional six Bcf of working gas storage capacity, strategically located near
Houston, Texas, was acquired in the Company's February 1995 transaction. The
combined deliverability from these storage fields is over 750 MMcf of gas per
day. The key locations of these storage fields means that the merged Company
will be able to provide a broader range of services to its customers, including
physical gas movement between market centers, load balancing services and
delivery reliability supported by storage.

The Company expects to realize greater leverage in the sales of NGLs
in 1995 as a result of the merger and incremental throughput. The consolidated
sales volumes of NGLs in 1994 were 385 million gallons.

Incremental throughput volumes on the Company's Texas systems provide
additional gas supply volumes that are transported through downstream pipelines
and may be purchased and sold to incremental markets.

29
<PAGE> 30
Continued cost savings will result from consolidation of
administrative and operational staff, space requirements and information
systems and from eliminating certain outside legal, accounting and other
services. Reduction in personnel in 1994 totaled 115 persons at an annual
savings of $7.0 million. Cash costs related to the merger and restructuring
were $18.1 million in 1994 and are expected to be $5.3 million in 1995.

At December 31, 1994, the Company had equity capital of approximately
$401 million and a long-term debt to total capitalization ratio of
approximately 45 percent, which provides significant financial flexibility to
pursue continued growth opportunities. The performance of the combined Company
is expected to increase cash flow from operations and provide for positive
earnings momentum.

LITIGATION/ENVIRONMENTAL

The Company has been sued in Dallas County, Texas, by Westerman, et
al., for breach of contractual and fiduciary duties, including take-or-pay
claims, covering properties in Colorado. The Company denies the allegations.
In a separate lawsuit filed in federal court in Colorado, the Company has sued
the plaintiffs and others asserting that contractual provisions require payment
of refunds for gas purchased at above-market prices and, prospectively, for a
reduction in gas prices paid under the contracts to market levels. The actual
damages claimed by Westerman, et al., total $1.5 million and the punitive
damages claimed total $156 million. Although these substantial claims have been
made, the Company believes it has a meritorious position in this matter, and
does not expect this lawsuit to have a material adverse impact on the Company's
results of operations or financial position.

As discussed in Note 6 of Notes to Consolidated Financial Statements,
the Company has reported certain environmental liabilities assumed as a result
of the July 13, 1994 merger. Included in these liabilities were certain
environmental matters related to the Company's acquisition of various assets
from the Cabot Corporation in 1989. While the Cabot Corporation agreed to
indemnify the Company against certain of these liabilities, the Company may be
responsible for certain costs associated with remediation in the future. The
Company is presently unable to determine what, if any, dollar amount is
associated with this contingency.

The Company's overall potential environmental cost exposure for 1995
is estimated to be approximately $1 million. A substantial part of the
Company's 1995 environmental costs are either recoverable through insurance and
indemnification provisions, or have been expensed as part of ongoing business.

Refer to Note 6 of Notes to Consolidated Financial Statements for
additional information on the Company's pending litigation and environmental
matters. Company management believes it has established adequate reserves such
that resolution of pending litigation and environmental matters will not have a
material adverse impact on the Company's financial position or results of
operations.

SIGNIFICANT OPERATING VARIABLES

Natural gas prices have continued on a steady downward trend during
1994 and early 1995. While the Company cannot know actual future prices of
natural gas, continued unusually warm winter weather conditions nationwide
could cause the downward trend to continue. The Company, however, is partially
insulated from the severe impact of such a continuing downturn because of its
diverse array of services offered, which span the natural gas value stream from
wellhead to burnertip. Although the Company's earnings and success are not
directly tied to natural gas price exposure, if the downturn continues over
time and affects the industry to the degree the Company experiences
significantly reduced gas flows throughout its pipeline systems, the Company's
earnings could be negatively impacted.

30
<PAGE> 31
As part of the processing business, NGLs are extracted from the raw
natural gas stream and sold. The average prices for NGLs declined
significantly during the second half of 1993 and showed some additional decline
in 1994. Over the past six months, prices have been relatively stable. The
Company expects a low likelihood of further material price declines in this
market arena in the near future. For purposes of comparison, a one cent change
in average NGLs prices impacts the Company's operating income by approximately
$2.0 million.

31
<PAGE> 32
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To K N Energy, Inc.:

We have audited the accompanying consolidated balance sheets of K N
Energy, Inc. (a Kansas corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of K N
Energy, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.

As explained in Note 12 of Notes to Consolidated Financial Statements,
the Company changed its method of accounting for postemployment benefits
effective January 1, 1994, and its method of accounting for postretirement
benefits other than pensions effective January 1, 1993.

/s/ Arthur Andersen LLP

Denver, Colorado
February 16, 1995.

32
<PAGE> 33
CONSOLIDATED STATEMENTS OF INCOME
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1994 1993 1992
---------- ---------- --------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Retail Natural Gas Services $ 213,088 $ 202,975 $188,073
Interstate Transportation and Storage Services 21,044 99,838 127,611
Gathering, Processing and Marketing Services 838,474 730,895 507,756
Gas and Oil Production 11,328 5,321 4,710
---------- ---------- --------
Total Operating Revenues 1,083,934 1,039,029 828,150
---------- ---------- --------
OPERATING COSTS AND EXPENSES:

Gas Purchases 763,228 728,960 557,168
Operations and Maintenance 173,283 169,525 134,563
Depreciation, Depletion and Amortization 50,278 44,644 39,353
Taxes, Other Than Income Taxes 17,025 15,696 13,309
Merger and Restructuring Costs 25,945 - -
---------- ---------- --------
Total Operating Costs and Expenses 1,029,759 958,825 744,393
---------- ---------- --------

OPERATING INCOME 54,175 80,204 83,757
---------- ---------- --------
OTHER INCOME AND (DEDUCTIONS):

Interest Expense (31,605) (30,513) (27,012)
Minority Interests (659) 292 (1,559)
Other, Net 2,910 (515) 1,224
---------- ---------- --------
Total Other Income and (Deductions) (29,354) (30,736) (27,347)
---------- ---------- --------
INCOME BEFORE INCOME TAXES 24,821 49,468 56,410
Income Taxes 9,500 18,599 20,068
---------- ---------- --------
NET INCOME
Less - Preferred Stock Dividends 15,321 30,869 36,342
630 853 2,976
---------- ---------- --------
EARNINGS AVAILABLE FOR
COMMON STOCK $ 14,691 $ 30,016 $ 33,366
========== ========== ========
EARNINGS PER COMMON SHARE $ 0.52 $ 1.09 $ 1.34
========== ========== ========
</TABLE>

The accompanying notes are an integral part of these statements.

33
<PAGE> 34
CONSOLIDATED BALANCE SHEETS
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 20,613 $ 14,353
Accounts Receivable 151,834 177,146
Contract Demand Receivables (Note 1(I)) - 38,732
Material and Supplies, at Average Cost 12,687 11,604
Gas in Underground Storage 31,695 20,853
Prepaid Gas 12,456 11,689
Exchange Gas and Other 50,029 38,479
---------- ----------
279,314 312,856
---------- ----------
INVESTMENTS 9,186 5,280
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT (NOTE 7) 850,649 815,704
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS 33,235 35,435
---------- ----------
$1,172,384 $1,169,275
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Preferred Stock and Long-Term Debt $ 30,384 $ 26,837
Notes Payable 60,000 47,000
Accounts Payable 108,755 145,672
Accrued Taxes 6,197 10,474
Exchange Gas and Other 50,434 33,348
---------- ----------
255,770 263,331
---------- ----------
DEFERRED LIABILITIES, CREDITS AND RESERVES:
Deferred Income Taxes 96,054 89,831
Deferred Revenues (Note 1(I)) 42,090 43,692
Other 28,194 22,136
---------- ----------
166,338 155,659
---------- ----------
LONG-TERM DEBT 334,644 335,190
---------- ----------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 13,231 13,775
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTES 1, 6 AND 15)
PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION 1,715 2,858
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock 7,000 7,000
---------- ----------
Common Stock:
Authorized - 50,000,000 Shares, Par Value $5 Per Share
Outstanding - 27,617,531 and 27,200,967 Shares, Respectively 138,088 136,005
Additional Paid-in Capital 170,932 164,427
Retained Earnings 86,032 92,187
Deferred Compensation (378) (1,157)

Treasury Stock, at Cost, (44,417 and 0 Shares, Respectively) (988) -
---------- ----------
Total Common Stockholders' Equity 393,686 391,462
---------- ----------
Total Stockholders' Equity 400,686 398,462
---------- ----------
$1,172,384 $1,169,275
========== ==========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

34
<PAGE> 35
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
K N ENERGY, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL DEFERRED
------------------------ ------------------ PAID-IN COMPEN- RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SATION EARNINGS
---------- -------- ------- ------- ---------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1991 14,743,101 $ 73,716 (64,770) $(1,727) $127,863 $ - $ 56,753
Net Income 36,342
Cash Dividends -
Common, $0.51 Per Share (12,417)
Preferred (2,976)
Treasury Stock Acquired (48,833) (1,306)
Employee Stock Options 46,593 233 423
Employee Benefit Plans 3,943 20 31,070 830 87 (51)
Dividend Reinvestment and Stock
Purchase Plans 54,355 271 82,533 2,203 916 (108)
Sale of Common Stock 1,981,833 9,909 53,098
Conversion of AOG 9% Cumulative
Convertible Preferred Stock 207,089 1,035 4,015
Other Issuances 10,152 51 173
Buyback of 200,000 AOG Warrants (1,615)
---------- -------- ------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1992 17,047,066 85,235 - - 186,575 - 75,928
Net Income 30,869
Cash Dividends -
Common, $0.51 Per Share (13,757)
Preferred (853)
Common Stock Split 8,639,721 43,199 (43,233)
Employee Stock Options 81,416 407 949
Employee Benefit Plans 20,717 104 560
Dividend Reinvestment and Stock
Purchase Plans 171,592 858 4,135
Conversion of AOG 9% Cumulative
Convertible Preferred Stock 1,141,755 5,709 13,601
Issuance of Common Shares as
Executive Compensation 94,000 470 1,867 (1,420)
Amortization of Deferred
Compensation 263
Other, Net 4,700 23 (27)
---------- -------- ------- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1993 27,200,967 136,005 - - 164,427 (1,157) 92,187
Net Income 15,321
Cash Dividends -
Common, $0.76 Per Share (20,846)
Preferred (630)
Treasury Stock Acquired (91,601) (2,065)
Employee Stock Options 59,492 298 466
Employee Benefit Plans 136,922 685 27,805 633 2,858
Dividend Reinvestment and Stock
Purchase Plans 181,069 905 19,379 444 2,676
Exercise of Common Stock Warrants 19,081 95 111
Issuance of Common Shares as
Executive Compensation 20,000 100 394 (322)
Amortization of Deferred
Compensation 1,101
---------- -------- ------- ------- -------- ------ --------
BALANCE, DECEMBER 31, 1994 27,617,531 $138,088 (44,417) $ (988) $170,932 $ (378) $ 86,032
========== ======== ======= ======= ======== ====== ========
</TABLE>

The accompanying notes are an integral part of these statements.

35
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS
K N ENERGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1994 1993 1992
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $15,321 $ 30,869 $ 36,342
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities:
Depreciation, Depletion and Amortization 50,278 44,644 39,353
Asset Write-off Associated with Merger 2,500 - -
Write-down of Investment in WellTech, Inc. - 4,513 -
Provision for Losses on Accounts Receivable 627 1,197 251
Gain on Sale of Facilities (1,458) (902) (63)
Resolution of Contractual Obligations
Under Basket Agreement (684) (1,020) (7,780)
Executive Stock Compensation 1,274 1,174 -
Deferred Income Taxes 7,302 9,748 11,258
Deferred Purchased Gas Costs 1,601 (11,925) -
Changes in Other Working Capital Items 16,523 (25,287) (23,852)
Changes in Deferred Revenues - 4,960 -
Other, Net (2,072) 9,972 (4,488)
------- -------- --------
NET CASH FLOWS FROM
OPERATING ACTIVITIES 91,212 67,943 51,021
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (70,596) (100,780) (74,787)
Acquisitions (Net of Cash Acquired of $1,535,000 in
(1992) (31,231) (47,521) (21,468)
Investments (3,906) (150) (3,796)
Proceeds from Sale of Facilities 22,305 7,206 1,107
(Payments) Collections Under Basket Agreement (306) 1,760 908
Other Funds Used During Construction 85 516 203
------- -------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (83,649) (138,969) (97,833)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt (Net) 13,000 45,000 2,000
Long-Term Debt - Issued 83,100 113,347 151,000
- Retired (79,078) (81,401) (154,755)
Preferred Stock Redemption (1,643) (2,143) (2,143)
Common Stock Issued 8,093 7,020 64,927
Payment for Buyback of Common Stock Warrants - - (1,615)
Treasury Stock - Issued 1,077 - 3,033
- Acquired (2,065) - (1,306)
Cash Dividends - Common (20,846) (13,757) (12,417)
- Preferred (630) (1,217) (3,088)
Minority Interests - Contributions 1,163 2,306 1,299
- Distributions (2,183) (3,733) (1,125)
Premium on Debt Re-acquisition and Issue Costs (1,291) (3,597) (2,557)
------- -------- --------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (1,303) 61,825 43,253
------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 6,260 (9,201) (3,559)
Cash and Cash Equivalents at Beginning of Year 14,353 23,554 27,113
------- -------- --------
Cash and Cash Equivalents at End of Year $20,613 $ 14,353 $ 23,554
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of Consolidation

The consolidated financial statements include the accounts of K N
Energy, Inc. ("K N") and its majority-owned subsidiaries (the "Company").

Investments in jointly-owned gas pipeline systems representing 20
to 50 percent ownership of such systems are accounted for under the equity
method.

All material intercompany items and transactions have been eliminated.

(B) Accounting for Regulatory Activities

The Company's regulated public utilities are accounted for in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71, which prescribes the circumstances in which the application of
generally accepted accounting principles is effected by the economic effect of
regulation.

Regulatory assets and liabilities represent probable future revenue or
expense to the Company associated with certain charges and credits which will
be recovered from or refunded to customers through the ratemaking process. The
following regulatory assets and liabilities were reflected in the accompanying
financial statements (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
------- -------
<S> <C> <C>
Regulatory Assets:
Benefit Costs $ 795 $ -
Debt Refinancing Costs 3,964 1,675
Deferred Income Taxes 1,272 2,004
Purchased Gas Costs 10,982 12,385
Plant Acquisition Adjustments 1,253 2,406
Rate Regulation and Application Costs 2,216 1,915
Other - 6,681
------- -------
Total Regulatory Assets 20,482 27,066
------- -------
Regulatory Liabilities:
Debt Refinancing Costs 46 121
Deferred Income Taxes 5,212 4,926
Purchased Gas Costs 4,858 781
------- -------
Total Regulatory Liabilities 10,116 5,828
------- -------
Net Regulatory Assets $10,366 $21,238
======= =======
</TABLE>

As of December 31, 1994, $18.5 million of the Company's regulated
assets and $7.7 million of the Company's regulated liabilities were being
recovered from or refunded to customers through rates over periods ranging from
1 to 19 years.

37
<PAGE> 38
(C) Earnings Per Share

Primary earnings per share are computed based on the monthly weighted
average number of common shares outstanding during the periods and the assumed
exercise of dilutive common stock equivalents (stock options and warrants)
using the treasury stock method.

On August 10, 1993, K N's Board of Directors declared a three-for-two
common stock split. The number of common shares used in computing earnings per
share and per share amounts in the accompanying financial statements have been
restated to reflect the stock split and the tax-free exchange of 0.47 of a
share of K N common stock for each outstanding share of American Oil and Gas
Corporation ("AOG") common stock (see Note 2). The number of common shares
used in computing earnings per share was 28,044,000 in 1994, 27,424,000 in 1993
and 24,828,000 in 1992.

(D) Gas in Underground Storage

K N's regulated interstate retail distribution business and Northern
Gas Company account for gas in underground storage using the last-in, first-out
("LIFO") method. K N Gas Supply Services, Inc., K N Gas Marketing, Inc. and
Anthem Energy Company, L.P., nonjurisdictional subsidiaries, value gas in
underground storage at average cost. Rocky Mountain Natural Gas Company and
Westar Transmission Company use the first-in, first-out ("FIFO") method.

The Company also maintains gas in its underground storage facilities
on behalf of certain third parties. The Company receives a fee for its storage
services but does not reflect the value of third party gas in the accompanying
financial statements.

(E) Prepaid Gas

Prepaid gas represents payments made in lieu of taking delivery of
(and purchasing) natural gas under the take-or-pay provisions of the Company's
gas purchase contracts, net of any subsequent recoupments in kind from
producers. Funds paid by the Company for take-or-pay are fully recoupable from
future production, and are recorded as an asset (Prepaid Gas). When recoupment
is made in kind in a subsequent contract year, natural gas purchase expense is
recorded and the asset is reduced.

(F) Property, Plant and Equipment

Property, plant and equipment is stated at cost, which for constructed
plant includes indirect costs such as payroll taxes, fringe benefits, and
administrative and general costs. Expenditures which increase capacities or
extend useful lives are capitalized. Routine maintenance, repairs and renewal
costs are expensed as incurred.

The cost of depreciable utility property, plant and equipment retired,
plus the cost of removal less salvage, is deducted from accumulated
depreciation with no effect on current period earnings. Gains or losses are
recognized upon retirement of nonutility property, plant and equipment.

38
<PAGE> 39
(G) Exploration and Development Costs

K N's gas and oil subsidiaries follow the "successful efforts" method
of accounting. Under this method, acquisition costs, successful exploration
costs and development costs are capitalized and unsuccessful exploration costs,
lease rentals and evaluation costs are expensed.

(H) Depreciation, Depletion and Amortization

Depreciation is computed based on the straight-line method over the
estimated useful life for most gas service property, plant and equipment. The
unit-of-production method is used for computing depreciation, depletion and
amortization for gas and oil properties.

(I) Deferred Revenues

In conjunction with the Federal Energy Regulatory Commission ("FERC")
Order No. 636 ("Order 636") restructuring activities, the Company negotiated
new gas sales agreements with its former wholesale customers. As a result, the
Company is now responsible for performance under, or to otherwise dispose of,
certain pre-Order 636 gas purchase contracts. The gas sales agreements
provide for such customers to pay fixed demand charges over the agreement term,
and to purchase gas from a subsidiary of the Company at negotiated commodity
rates. The demand portion of the gas sales agreements was recorded as deferred
revenues in 1993. Commodity charges are recorded as deferred revenues as gas is
delivered under these agreements. Gas purchase, gathering, transportation, and
contract administration costs are recorded as a reduction to the related
revenues. In addition, losses on sales of excess gas supplies to a marketing
affiliate at market clearing rates are recorded in deferred revenues.
Subsequent margins earned on these sales by the marketing affiliate are
recognized as income when the gas is delivered. Company management believes
that the revenues being collected and deferred under these agreements will be
sufficient to offset future costs associated with the gas purchase contracts.

In January 1994, contract demand receivables with a face amount of $41
million were sold to a financial institution. No gain or loss was recorded on
the sale.

(J) Reclassification of Prior Year Amounts

Certain prior year amounts have been reclassified to conform with the
1994 presentation.

(K) Cash Flow Information

The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Changes in Other Working Capital Items Summary, Supplemental
Disclosures of Cash Flow Information and Supplemental Schedule of Noncash
Investing and Financing Activities are as follows (in thousands):

39
<PAGE> 40
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CHANGES IN OTHER WORKING CAPITAL
ITEMS SUMMARY (NET OF ACQUISITION EFFECTS):
Accounts Receivable $ 24,685 $(35,314) $(30,870)
Contract Demand Receivables 38,732 - -
Material and Supplies (1,083) (1,042) 1,365
Gas in Underground Storage (10,842) (4,292) (1,359)
Accounts Payable, Accrued Taxes
and Other Current Liabilities (18,640) 22,460 11,308
Exchange Gas, Net 1,233 (833) 1,206
Other Current Assets (17,562) (6,266) (5,502)
------- -------- --------
$ 16,523 $(25,287) $(23,852)
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest (Net of Amount Capitalized) $ 28,721 $ 30,383 $ 25,422
======== ======== ========
Income Taxes $ 12,763 $ 7,386 $ 7,670
======== ======== ========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

On December 31, 1992, AOG acquired a partner's 25 percent interest in
Red River Pipeline partnership ("Red River") by assuming that partner's share
of Red River's liabilities. In January 1993, AOG acquired an additional 25
percent interest in Red River for cash and the assumption of liabilities. In
April 1992, AOG acquired the assets of The Maple Gas Corporation ("Maple") for
$5.5 million cash, a $5.5 million note payable and the assumption of certain of
Maple's liabilities. In 1992, K N purchased all of the capital stock of two
corporations, each of which owned gas distribution systems, for $5.2 million.
The liabilities assumed in conjunction with these acquisitions are as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
------ --------
<S> <C> <C>
Fair Value of Assets Acquired $9,194 $104,442
Cash Paid for Assets and Capital Stock
Including Direct Acquisition Costs (2,093) (17,700)
------ --------
Liabilities Assumed $7,101 $ 86,742
====== ========
</TABLE>

2. MERGER

On July 13, 1994, pursuant to the Agreement of Merger dated March 24,
1994, AOG was merged into the Company. As a result of the merger, each
outstanding share of common stock of AOG was converted into 0.47 of a share of
common stock of K N and the right to receive in cash the value of any
fractional share of K N. In connection with the merger, all the outstanding
shares of AOG common stock were converted into approximately 12.2 million
shares of K N stock, and the authorized number of shares of K N common stock
was increased to 50 million shares. On July 13, 1994, the stockholders of K N
approved the issuance of stock in connection with the merger, as well as
certain other matters, and the shareholders of AOG approved the merger.

40
<PAGE> 41
The following table provides a reconciliation of revenues and earnings
reported by K N to the combined amounts presented (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1994
----------------------------------------
K N AOG* TOTAL
--- ---- -----
<S> <C> <C> <C>
Total Operating Revenues $814,059 $269,875 $1,083,934
Net Income $ 12,708** $ 2,613 $ 15,321

1993
----------------------------------------
K N AOG TOTAL
--- --- -----
Total Operating Revenues $496,345 $542,684 $1,039,029
Net Income $ 24,275 $ 6,594 $ 30,869

1992
----------------------------------------
K N AOG TOTAL
--- --- -----
Total Operating Revenues $392,572 $435,578 $ 828,150
Net Income $ 19,593 $ 16,749 $ 36,342
</TABLE>

* Represents revenues and earnings of AOG prior to the July 13, 1994
merger.
** Includes merger and restructuring costs totaling $19.3 million after
taxes.

3. MERGER AND RESTRUCTURING COSTS

The Company recorded merger and restructuring costs totaling $25.9
million in the third quarter of 1994. Total expected cash expenditures relating
to these charges are $23.4 million, of which $5.3 million had not yet been paid
as of December 31, 1994.

Merger expenses include $12.4 million in investment bankers' and other
professional fees, $7.7 million for severance and employee benefit costs for
approximately 230 employees who have been or will be terminated through
consolidation of administrative and operational staff, and $4.6 million in
costs to eliminate duplicative space requirements and equipment, and to
write-off the cost of information systems not required subsequent to the
merger.

Costs related to the formal restructuring plan of the Company's retail
distribution operations total $1.2 million, representing severance and employee
benefit costs for terminating approximately 90 retail distribution employees as
a result of the restructuring and centralization of customer service functions.
The restructuring is expected to be completed in the third quarter of 1995.

4. ACQUISITIONS

(A) Transmission and Storage Systems

On February 16, 1995, K N's gas transmission affiliate, AOG Gas
Transmission Company, L.P., acquired natural gas transmission pipeline and
storage assets in Texas.

The assets include two West Texas pipeline systems, comprised of 347
miles of pipeline and related facilities, which are currently connected to
AOG's core pipeline system. In addition, surface facilities, lease rights and
approximately 10.8 Bcf of natural gas in storage in a leased, Gulf Coast
storage field will be acquired. AOG

41
<PAGE> 42
also acquired the remaining 50 percent interest it did not previously own in a
90-mile joint venture pipeline near Midland, Texas.

The total price was $80.1 million, subject to closing adjustments.
K N utilized an operating lease and short-term debt financing arrangements to
fund the acquisition.

(B) Natural Gas Processing Business

Effective April 1, 1992, AOG acquired substantially all of the assets
and assumed substantially all of the liabilities of Maple. The assets
consisted of 10 natural gas processing plants and approximately 1,056 miles of
related gas gathering pipelines. The purchase price was approximately $86
million, consisting of $5.5 million cash, a $5.5 million note payable and the
assumption of substantially all of Maple's liabilities. The acquisition was
accounted for as a purchase.

The results of operations of the acquired business are included in the
accompanying financial statements from the date of the acquisition.

On April 1, 1993, the Company completed the $48 million acquisition of
the Wattenberg natural gas gathering and transmission system. The system has
both regulated and nonregulated components. The regulated transmission
segment, approximately $18 million of the acquisition, was financed with
corporate funds, and the balance of the system was financed through an
operating lease. The system gathers and transports gas from approximately
1,800 receipt points in northeastern Colorado.

(D) Gas and Oil Reserve Acquisition

On February 1, 1994, the Company's gas and oil development
subsidiaries, K N Production Company and GASCO, Inc., acquired gas reserves and
production properties located near existing K N operations in western Colorado
and in the Moxa Arch region of southwestern Wyoming for a total purchase price
of approximately $30 million. The acquired properties have total net reserves
of approximately 50 Bcf equivalent of natural gas. In October 1994, the
Company sold a 50 percent undivided interest in substantially all the acquired
properties to a third party with whom they will jointly develop the properties.

5. REGULATORY MATTERS

(A) Restructuring and Reorganization

On April 8, 1992, FERC issued Order 636 which requires a fundamental
restructuring of interstate natural gas pipelines. K N implemented Order 636
restructured services on October 1, 1993. As a part of its action on K N's
restructuring proposal, FERC approved implementation of K N's gas supply
realignment ("GSR") crediting mechanism.

K N requested FERC approval, as a result of Order 636, to transfer all
of its interstate transmission and storage facilities to K N Interstate Gas
Transmission Co. ("KNI"), a wholly-owned jurisdictional subsidiary of K N, and
substantially all of its gathering and processing facilities to K N Gas
Gathering, Inc. ("KNGG"), a nonjurisdictional wholly-owned subsidiary of K N.
FERC approved the transfer of K N's interstate gas

42
<PAGE> 43
transmission and storage facilities to KNI effective October 1, 1993. FERC
authorized the transfer of certain gathering and processing facilities from KNI
to KNGG effective January 1, 1994. KNI's only remaining gathering system was
transferred to KNGG in early 1995. AOG's assets and facilities were not a part
of this reorganization.

Order 636 required pipelines to unbundle sales and transportation
services. KNI has complied with FERC's directive to mitigate its GSR costs
caused by this restructuring. KNI's GSR process allows for the assignment of
its above-market contracts. Under KNI's tariff, every shipper has a right to
take assignment of these above-market contracts. Shippers may either take
assignment of these above-market contracts or enter into a negotiated exit fee.
This eliminated the need to make any GSR cost recovery filing with FERC.

In January 1995, as a result of a settlement reached with its
customers, the Company filed an application with FERC to transfer certain
storage assets held by KNI to a newly created nonjurisdictional subsidiary,
K N Natural Gas, Inc. If this transfer is approved, KNI will own only the
Huntsman, Nebraska storage facilities.

(B) Rate Matters

On December 30, 1993, KNI made a rate filing with FERC requesting a
$12.0 million annual increase in revenues. The new rates became effective July
1, 1994, subject to refund. KNI submitted a Stipulation and Agreement ("S&A")
to FERC in November 1994. On January 20, 1995, FERC approved the S&A, which
provides for an $8.7 million annual increase in revenues. As part of the
settlement, test year depreciation expense was reduced $0.7 million as a result
of lower depreciation rates on FERC jurisdictional facilities. Revenues
collected above the settlement rates will be refunded to customers in early
1995.

K N's retail natural gas services business segment received rate
increases from a number of jurisdictions during 1994, 1993 and 1992, as
summarized below:

<TABLE>
<CAPTION>
ENTITY REQUESTING APPROVED ANNUALIZED EFFECTIVE DATE
INCREASE JURISDICTION REVENUE INCREASE OF NEW RATES
-------- ------------ ---------------- ------------
(In Millions)
<S> <C> <C> <C>
RMNGD* Colorado $ 1.5 4-2-94
RMNGD* Colorado 0.5 9-1-94
K N Kansas 2.4 10-1-93
K N All Nebraska Communities 1.4 5-2-93
K N Wyoming 1.1 5-1-93
K N Colorado 0.7 8-1-92
</TABLE>

*Rocky Mountain Natural Gas Division of K N Energy, Inc.

Additionally, in connection with a 1990 Nebraska rate case, $1.6
million of previously deferred revenues were recorded as revenue in 1993.

6. LEGAL MATTERS

The Company was named as one of four potentially responsible parties
("PRPs") at a U.S. Environmental Protection Agency ("EPA") Superfund site known
as the Mystery Bridge Road/U.S. Highway 20 site located near Casper, Wyoming
(the "Brookhurst Subdivision"). The EPA's remedy consists of two parts,
"Operating Unit One," which addresses the groundwater cleanup, and "Operating
Unit Two," which addresses cleanup procedures for the soil and free-phase
petroleum product. A Consent Decree between the Company, the EPA and another

43
<PAGE> 44
PRP was entered on October 2, 1991, in the Wyoming Federal District Court.
Groundwater cleanup under Operating Unit One and Two have been proceeding since
1990 and 1992, respectively, and is expected to continue through 1996 at a
total remaining estimated cost not to exceed $150,000.

An environmental audit performed by the Company revealed that a grease
known as Rockwell 860 had been used as a valve sealant at several of the
Company's locations in Nebraska and Colorado. Rockwell 860 is a solid
clay-like material which does not easily spill into the environment, but
contains approximately 10 percent polychlorinated biphenyls ("PCBs"). The PCBs
are contained within the pipeline and valves at the subject locations. PCBs
are regulated under the Toxic Substances Control Act. On March 31, 1993, the
Company filed suit against Rockwell International Corporation, manufacturer of
the valve sealant, and two other related defendants, alleging that the
defendants were responsible for the Company's environmental expenses and
commercial losses resulting from any EPA or state required PCBs cleanup or
mitigation. The Company settled with Rockwell, et al. in March 1994 which
resolved all disputes between the parties.

Certain used pipe reclaimed at the Company's Holdrege, Nebraska,
pipeyard was wrapped with asphalt-saturated asbestos felt, which was commonly
removed in accordance with Company practices. The removed wrap contains
friable asbestos fibers above the regulatory standard. The Nebraska Department
of Environmental Control, the agency having jurisdiction over this matter, was
notified and approved the Company's remediation plan. Remediation was
effectively completed in 1994 and the total cost is not expected to exceed
$700,000. The asbestos cleanup program did not interrupt or diminish the
Company's operational ability to gather or transport natural gas.

In the spring of 1994, the Kansas Department of Health and Environment
("KDHE") notified a number of pipeline companies operating in Kansas, including
K N, that residual elemental mercury might be present in the soils adjacent to
certain natural gas metering facilities. In July 1994, the Company initiated a
mercury sampling program on its systems in central and western portions of
Kansas, pursuant to a five-year assessment program which has been approved by
the KDHE and will require that 20 percent (135) of the 675 sites be tested each
year. The sampling for the first year has been completed; however, no
determination regarding remediation has been reached at this time. The Company
currently cannot estimate the extent of the remediation nor the costs, although
the Company believes all or a portion of such costs will be recoverable from
insurance carriers. On December 27, 1994, the Company received notice from the
KDHE that no active remediation will be required until completion of the
five-year assessment program. Such costs are not expected to have any material
adverse impact on the Company's financial position or results of operations.
The mercury cleanup program is not expected to interrupt or diminish the
Company's operational ability to gather or transport natural gas.

44
<PAGE> 45
In May 1994, the Company discovered that use of a lubricating oil
containing PCBs has caused contamination in certain equipment, soils and
liquids at the Company's Scott City, Kansas, helium extraction facility. A Site
Assessment Report has been submitted to the EPA for its review, and no response
has yet been received. The Company's investigation of this situation is
ongoing, and a workplan is being developed for EPA review. The Company
estimates the total cost for remediation to be approximately $600,000, which is
not expected to have a material adverse impact on the Company's financial
position or results of operations. The PCBs cleanup program is not expected to
interrupt or diminish the Company's operational ability at the helium facility.

Effective April 1, 1992, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Maple. The assets
consisted of 10 natural gas processing plants and approximately 1,056 miles of
related gas gathering pipelines. The Maple assets contained certain
environmental liabilities for which the Company obtained indemnifications from
Maple and Cabot Corporation ("Cabot"). The Company is unable to estimate its
potential exposure for such liabilities at this time, but does not expect them
to have any material adverse impact on the Company's financial position or
results of operations.

On October 9, 1992, Jack J. Grynberg filed suit in the United States
District Court for the District of Colorado against the Company, Rocky Mountain
Natural Gas Company and GASCO, Inc. (the "K N Entities") alleging that the K N
Entities as well as K N Production Company and K N Gas Gathering, Inc., have
violated federal and state antitrust laws. In essence, Grynberg asserts that
the companies have engaged in an illegal exercise of monopoly power, have
illegally denied him economically feasible access to essential facilities to
transport and distribute gas produced from fewer than 20 wells located in
northwest Colorado, and illegally have attempted to monopolize or to enhance or
maintain an existing monopoly. Grynberg also asserts certain causes of action
relating to a gas purchase contract. No specific monetary damages have been
claimed, although Grynberg has requested that any actual damages awarded be
trebled. In addition, Grynberg has requested that the K N Entities be ordered
to divest all interests in natural gas exploration, development and production
properties, all interests in distribution and marketing operations, and all
interests in natural gas storage facilities, separating these interests from
the Company's natural gas gathering and transportation system in northwest
Colorado. On August 13, 1993, the United States District Court, District of
Colorado, stayed this proceeding pending exhaustion of appeals in a related
state court action involving the same plaintiff.

On December 8, 1994, K N and its wholly-owned subsidiary K N Gas
Supply Services, Inc. ("KNGSS") were sued by gas producers in northeastern
Colorado in District Court, Dallas County, Texas under claims arising from two
gas purchase contracts covering gas purchases from wells in the Niobrara Field,
Colorado. The producers assert actual take-or-pay claims for contract years
1993 and 1994 in the amount of $1,157,000 plus interest, as well as punitive
damages in the amount of $156,000,000 for alleged breaches of contractual and
fiduciary duties arising out of a January 1977 Farmout Agreement between the
producers and K N. On

45
<PAGE> 46
December 21, 1994, the lawsuit was removed from Texas state court to the United
States District Court for the Northern District of Texas (Dallas). On January
12, 1995, K N and KNGSS filed a motion to dismiss for lack of personal
jurisdiction or, if jurisdiction is found to exist, a motion to transfer the
cause of action to federal court in Colorado. That motion is pending.
Additional litigation was initiated on January 31, 1995, by KNGSS against the
plaintiffs and others in federal court in Colorado. In this lawsuit, KNGSS
asserts that contractual provisions require payment of refunds for gas
purchased at above-market prices and, prospectively, for a reduction in gas
prices paid under the contracts to market levels. The Company believes it has
a meritorious position in these matters, and does not expect these lawsuits to
have a material adverse effect on the Company's financial position or results
of operations.

7. PROPERTY, PLANT AND EQUIPMENT

Investment in property, plant and equipment, at cost, and accumulated
depreciation, depletion and amortization ("Accumulated DD&A"), detailed by
business segment, are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT DD&A NET
--------------- ----------- ---------
<S> <C> <C> <C>
Retail Natural Gas Services $ 358,337 $133,781 $224,556
Interstate Transportation and Storage Services 371,253 159,591 211,662
Gathering, Processing and Marketing Services 533,226 154,391 378,835
Gas and Oil Production 49,578 13,982 35,596
---------- -------- --------
$1,312,394 $461,745 $850,649
========== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------
PROPERTY, PLANT ACCUMULATED
AND EQUIPMENT DD&A NET
--------------- ----------- ---------
<S> <C> <C> <C>
Retail Natural Gas Services $ 333,711 $121,886 $211,825
Interstate Transportation and Storage Services 436,249 196,744 239,505
Gathering, Processing and Marketing Services 438,519 94,861 343,658
Gas and Oil Production 34,867 14,151 20,716
---------- -------- --------
$1,243,346 $427,642 $815,704
========== ======== ========
</TABLE>

8. INCOME TAXES

Deferred income tax assets and liabilities are recognized based on
enacted tax laws for all temporary differences between financial reporting and
tax bases of assets and liabilities. Deferred tax assets are reduced by a
valuation allowance for the amount of any tax benefit that is not expected to
be realized. .

46
<PAGE> 47
Components of the income tax provision applicable to federal and state
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Taxes Currently Payable:
Federal $5,992 $ 6,272 $ 8,025
State (3,794) 2,579 785
------ ------- -------
Total 2,198 8,851 8,810
------ ------- -------
Taxes Deferred:
Federal 4,081 9,920 9,616
State 3,221 (172) 1,642
------ ------- -------
Total 7,302 9,748 11,258
------ ------- -------

Total Tax Provision $9,500 $18,599 $20,068
====== ======= =======
Effective Tax Rate 38.3% 37.6% 35.6%
====== ======= =======
</TABLE>

The difference between the statutory federal income tax rate and the
Company's effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal Income Tax Rate 35.0% 35.0% 34.0%
Increase (Decrease) as a Result of -
State Income Tax, Net of Federal Benefit (1.5%) 3.1% 3.0%
Nonconventional Fuels Credit (3.0%) (2.0%) (1.4%)
Nondeductible Merger Costs 7.8% - -
Other - 1.5% -
----- ----- -----
Effective Tax Rate 38.3% 37.6% 35.6%
===== ===== =====
</TABLE>

The Company has recorded deferred regulatory assets of $1.3 million
and $2.0 million, and deferred regulatory liabilities of $5.2 million and $4.9
million at December 31, 1994 and 1993, respectively, which are expected to
result in cost-of-service adjustments. These amounts reflect the "gross of
tax" presentation required under Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes". The deferred tax assets
and liabilities and deferred regulatory assets and liabilities for
rate-regulated entities computed according to SFAS 109 result from the
following (in thousands):

47
<PAGE> 48
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
<S> <C> <C>
Deferred Tax Assets:
Unbilled Revenue $ 2,128 $ 2,521
Vacation Accrual 1,556 1,482
State Taxes 4,252 2,724
Capitalized Overhead Adjustment 1,958 3,605
Operating Reserves 968 1,826
WellTech Investment 1,436 -
Deferred Revenues 4,866 1,568
Net Operating Loss ("NOL") Carryforwards 1,894 1,500
Alternative Minimum Tax ("AMT") Credits 15,410 8,029
Investment Tax Credit ("ITC") Carryforwards - 1,247
Other 3,458 3,815
------- -------
Total Deferred Tax Assets 37,926 28,317
------- -------
Deferred Tax Liabilities:
Liberalized Depreciation 119,912 105,925
Rate Matters 8,301 6,270
Prepaid Pension 3,438 3,526
Other 2,329 2,427
------- -------
Total Deferred Tax Liabilities 133,980 118,148
------- -------
Net Deferred Tax Liabilities $96,054 $89,831
======= =======
SFAS 109 Deferred Accounts for Rate Regulated Entities:
Liabilities $ 5,212 $ 4,926
======= =======
Assets $ 1,272 $ 2,004
======= =======
</TABLE>

As of December 31, 1994, the Company had for tax purposes: (i)
estimated NOL carryforwards of $5.4 million and (ii) capital loss
carryforwards of $1.0 million. The NOL carryforwards will expire in 2003
through 2008. The capital loss carryforwards, which are available to reduce
future capital gains, expire in 1996. The Company also has AMT credits of
approximately $15.4 million available to reduce its regular future tax liability
in excess of the AMT otherwise due in any year.

9. FINANCING

(A) Notes Payable

On December 1, 1994, K N entered into a credit agreement with eight
banks to borrow for general corporate purposes, including commercial paper
support, up to a total of $200 million. Depending on the type of borrowing
made under the credit agreement, borrowings may bear interest at or above
prime, or at margins above certificate of deposit rates bid by New York
certificate of deposit dealers, or at margins above rates offered by certain
designated banks in the London Interbank market, or at money market rates
quoted by the banks under the agreement. The term of borrowing may range
from one day to no more than 360 days. Under the credit agreement, K N agrees
to pay a facility fee based on the total commitment, at rates which vary based
on the financial rating of K N's long-term debt. The credit agreement expires
December 1, 1999. K N also has credit agreements with two banks to either
borrow or use for commercial paper support up to a total of $25 million.
Borrowings are made at rates negotiated on the borrowing date and for a term of
not more than one year. Under these agreements, K N pays a commitment fee on
the unused commitment. At December 31, 1994, no amounts were outstanding under
these credit agreements. At December 31, 1993, $10 million was outstanding
under credit agreement arrangements in effect at that time.

48
<PAGE> 49
Commercial paper issued by K N represents unsecured short-term notes
with maturities not to exceed 270 days from the date of issue. During 1994,
all commercial paper issued was redeemed within 50 days, with interest rates
ranging from 3.12 percent to 6.30 percent. At December 31, 1994 and 1993,
$60.0 million and $37.0 million of commercial paper, respectively, were
outstanding at rates ranging from 5.87 percent to 6.30 percent and from 3.45
percent to 3.58 percent, respectively.

The weighted average interest rates on short-term borrowings
outstanding were 6.09 percent and 3.45 percent as of December 31, 1994 and
1993, respectively.

(B) Long-Term Debt

<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Debentures:
6.5% Series, Due 2013 $ 50,000 $ 50,000
7.85% Series, Due 2022 28,866 29,985
8.75% Series, Due 2024 75,000 -
Sinking Fund Debentures:
9.95% Series, Due 2020 20,000 20,000
9.625% Series, Due 2021 45,000 45,000
8.35% Series, Due 2022 35,000 35,000
Unamortized Debt Discount (1,124) (604)
Senior Notes:
7.27%, Due 1995-2002 35,000 35,000
11.846% (AOG), Due 1995-1999 33,928 39,018
Medium-Term Notes:
9.98% Average Rate, Due 1995-1999 17,500 20,500
$75 Million Senior Revolving
Credit and Term Note Facility
(AOG), Interest at a Bank's
Base Rate or Eurodollar Rates
Plus 0.875% (4.125%) - 58,000
$25 Million Subordinated Revolving
Credit Note (AOG) with Cabot
Corporation, Interest at the
London Interbank Offered Rate
("LIBOR") Plus 0.925%
at December 31, 1994 and 1993,
(6.9875% and 4.4875%,
Respectively), Due 1995 12,829 13,282
8.5% Note Payable of Red River Pipeline, L.P.,
75%-owned by the Company, Guaranteed
by Partners, Due 1995-1998 13,029 16,346
Current Maturities of Long-Term Debt (30,384) (26,337)
-------- --------
Total Long-Term Debt $334,644 $335,190
======== ========
</TABLE>

49
<PAGE> 50
Maturities of long-term debt for the five years ending December 31,
1999, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR AMOUNT
- - ---- ------
<S> <C>
1995 $30,384
1996 17,055
1997 16,055
1998 19,055
1999 14,786
</TABLE>

In October 1994, K N sold publicly $75 million of 30-year, 8.75%
debentures at an all-in cost to the Company of 8.91 percent. This debt was
issued from the Company's $200 million shelf registration statement which the
Securities and Exchange Commission declared effective in November 1993.
Proceeds from this financing were used to fund capital expenditures and to
reduce short-term borrowing incurred in July 1994 to retire the Senior
Revolving Credit and Term Note Facility of AOG.

In September 1993, K N sold $50 million of 6.5% debentures at an
all-in cost to K N of 6.61 percent. Proceeds from the debt financing were used
to redeem K N's 10 3/4% sinking fund debentures and to fund capital
expenditures.

As discussed more fully in Note 11, in 1993, AOG entered into two
interest-rate swap agreements and, in 1994, the Company entered into four
interest rate cap agreements covering $35 million of notional principal.

At December 31, 1994 and 1993, the carrying amount of the Company's
long-term debt was $366.2 million and $362.1 million, respectively, and the
estimated fair value was $355.2 million and $384.0 million, respectively. The
fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues, or on the current rates offered
to the Company for debt of the same remaining maturation.

10. PREFERRED STOCK

<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Authorized - K N Class A, 200,000 Shares; K N Class B,
2,000,000 Shares, All Without Par Value-
Redeemable Solely at Option of Company -
K N Class A, $5.00 Cumulative
Series, 70,000 Shares $7,000 $7,000
====== ======
Subject to Mandatory Redemption at $100 Per Share -
Class A, $8.50 Cumulative Series, 5,000 Shares at December 31, 1993 $ - $ 500
Class B, $8.30 Cumulative Series, 17,148 Shares
and 28,576 Shares at December 31, 1994 and 1993, Respectively 1,715 2,858

Current Sinking Fund Requirements - (500)
------ ------

Total Preferred Stock Subject to Mandatory Redemption $1,715 $2,858
====== ======
</TABLE>

50
<PAGE> 51
(A) K N Class A $8.50 Preferred Stock

The remaining 5,000 shares of K N Class A $8.50 Preferred Stock
subject to mandatory redemption were redeemed by the Company in 1994. In each
of the years 1993 and 1992, the Company redeemed 10,000 shares subject to
mandatory redemption.

(B) K N Class B $8.30 Preferred Stock

The K N Class B $8.30 Preferred Stock is subject to mandatory
redemption through a sinking fund (at $100 per share, plus accrued and unpaid
dividends) of $571,400 annually in 1996 and 1997 and $572,000 in 1998. At the
option of the Company, this stock is redeemable, in whole or in part, at
$101.31 per share prior to January 2, 1996; such redemption price is reduced
annually thereafter until January 2, 1998, when it becomes $100 per share.
Also, at the option of the Company, 5,714 shares of this stock may be redeemed
in each of the years 1995 through 1997, inclusive, at $100 per share. In each
of the years 1994, 1993 and 1992, the Company redeemed 5,714 shares subject to
mandatory redemption, and an additional 5,714 shares at $100 per share.

The K N Class A $5.00 Preferred Stock is redeemable, in whole or in
part, at the option of the Company at any time on 30 days' notice at $105 per
share plus accrued dividends. This series has no sinking fund requirements.

(D) AOG 9% Cumulative Convertible Preferred Stock

In November 1992, AOG called all outstanding shares of its 9%
cumulative convertible preferred stock for redemption. Prior to the redemption
date, all holders elected to convert their shares into AOG's common stock.
Effective January 20, 1993, AOG issued 2,429,265 of its common shares
(equivalent to 1,141,755 shares of K N common stock) in connection with the
conversion.

(E) Rights of Preferred Shareholders

All outstanding series of preferred stock have voting rights.

If, for any class of preferred stock, the Company (i) is in arrears on
dividends, (ii) has failed to pay or set aside any amounts required to be paid
or set aside for all sinking funds, or (iii) is in default on any of its
redemption obligations, then no dividends shall be paid or declared on any
junior stock nor shall any junior stock be purchased or redeemed by the
Company. Also, if dividends on any class of preferred stock are sufficiently
in arrears, the holders of that stock may elect one-third of the Company's
Board of Directors.

(F) Fair Value

At December 31, 1994, the carrying amounts and the estimated fair
value of the Company's outstanding preferred stock subject to mandatory
redemption were $1.7 million and $1.6 million, respectively. The comparable
amounts at December 31, 1993, were both $3.4 million. The fair value of the
Company's preferred stock is estimated based on an evaluation made by an
independent security analyst.

51
<PAGE> 52
11. RISK MANAGEMENT

The Company uses two types of risk management instruments - energy
futures and interest rate swaps - which are discussed below. The Company is
exposed to credit-related losses in the event of nonperformance by
counterparties to these financial instruments, but does not expect any
counterparties to fail to meet their obligations given their existing credit
ratings.

The fair value of these risk management instruments reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date, thereby taking into account the current
unrealized gains or losses on open contracts. Market quotes are available for
significantly all instruments used by the Company.

(A) Energy Futures

The Company engages in energy futures trading activities to minimize
its risk of price changes in the spot and fixed price natural gas, crude oil,
and natural gas liquids markets. Energy futures trading activities include the
use of crude oil and natural gas commodity contracts and options, fixed price
swaps, and basis swaps and options. Pursuant to its Board of Directors'
approved guidelines, the Company engages in these activities only as a hedging
mechanism against pre-existing physical gas sale, purchase, system use, and
storage contracts in order to protect profit margins, and does not engage in
speculative trading. These energy futures, swaps, and options are recorded at
fair value. Gains and losses on hedging positions are deferred and recognized
as operating expenses in the period the underlying physical transactions take
place. As the Company engages in no speculative trading activities, all 1994
transactions are recorded as hedges.

As of December 31, 1994, the Company had deferred $13.4 million,
representing the difference between the current market value and the original
physical contracts' value, associated with its hedging activities, of which
$5.3 million relates to commodity contracts and $8.1 million relates to
over-the-counter swaps and options. The deferrals will be offset by the
corresponding underlying physical transactions and are reflected as deferred
charges in the accompanying financial statements. At December 31, 1994, the
Company held notional long volumetric positions of 69.4 Bcf of gas, of which
34.1 Bcf were held in gas commodity positions and 35.3 Bcf were held in
over-the-counter swaps and options. Of the 69.4 Bcf notional total, associated
physical transactions of 51.9 Bcf are expected to occur in 1995, 8.7 Bcf in
1996, and 8.8 Bcf in 1997 and beyond. A change of plus or minus 10 percent of
the fair market prices of the above financial instruments would have the
approximate effect of reducing or increasing the above deferrals by $13.4
million, which would be offset by corresponding increases or decreases in the
value of the underlying physical transactions.

(B) Interest Rate Swaps

The Company has entered into various interest rate swap and cap
agreements for the purpose of managing interest rate exposure. Settlement
amounts payable or receivable under these agreements are recorded as interest
expense or income in the accounting period they are incurred.

In February 1993, AOG entered into a three-year interest rate swap
agreement covering $25 million of notional principal whereby it pays LIBOR,
which is reset every six months in arrears, in exchange for a fixed rate of
5.07 percent. This agreement terminates March 1996.

52
<PAGE> 53
In September 1993, AOG entered into a second three-year interest rate
swap agreement covering $10 million of notional principal at LIBOR rates, which
are reset every 12 months in arrears, in exchange for a fixed rate of 5.27
percent. In August 1994, the counterparty to this second agreement exercised
its rights to extend this agreement by one additional year, with the agreement
now terminating in September 1997.

In 1994, the Company entered into four interest rate cap agreements
which effectively cap the LIBOR rate to be paid by the Company under these swap
agreements at 7.5 percent for the terms of the original swap agreements.

12. EMPLOYEE BENEFITS

(A) Retirement Plans

The Company has defined benefit pension plans covering substantially
all full-time K N employees. The Merger Agreement provides that, beginning
January 1, 1995, K N will provide to employees who were employed by AOG at the
effective time of the merger and are currently with the Company, benefit plans,
policies and programs that are no less favorable than those provided to K N's
similarly situated employees. These plans provide pension benefits that are
based on the employees' compensation during the period of employment. These
plans are tax qualified subject to the minimum funding requirements of ERISA.
The Company's funding policy is to contribute annually the recommended
contribution using the actuarial cost method and assumptions used for
determining annual funding requirements. Plan assets consist primarily of
pooled fixed income, equity, bond and money market funds.

Net pension cost includes the following components (in thousands):

1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service Cost - Benefits Earned During the Period $2,721 $ 2,579 $2,712

Interest Cost on Projected Benefit Obligation 5,986 5,698 5,153
Actual Return on Assets 565 (14,976) (5,486)
Net Amortization and Deferral (9,166) 6,714 (2,598)
------ ------- ------
Net Periodic Pension Cost $ 106 $ 15 $ (219)
====== ======= ======
</TABLE>

The following table sets forth the plans' funded status and amounts
recognized in the Company's financial statements at December 31, 1994 and 1993
(in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $(68,229) $(71,914)
======== ========
Accumulated Benefit Obligation $(70,682) $(73,005)
======== ========
Projected Benefit Obligation $(78,660) $(81,554)
Plan Assets at Fair Value 96,724 101,457
-------- --------
Plan Assets in Excess of Projected Benefit Obligation 18,064 19,903
Unrecognized Net Gain (7,894) (9,504)
Prior Service Cost Not Yet Recognized in Net Periodic
Pension Costs 217 236
Unrecognized Net Asset at January 1 (1,533) (1,675)
-------- --------

Prepaid Pension Cost $ 8,854 $ 8,960
======== ========
</TABLE>

53
<PAGE> 54
The rate of increase in future compensation and the expected long-term
rate of return on assets were 4.5 and 8.5 percent, respectively, for 1994, 4.5
and 9.25 percent, respectively, for 1993 and 5.0 and 9.25 percent,
respectively, for 1992. The weighted average discount rate used in determining
the actuarial present value of the projected benefit obligation was 8.25
percent for 1994 and 7.5 percent for the 1993 and 1992 periods.

The Company also contributes the lesser of 10 percent of K N's net
income or 10 percent of normal K N employee compensation to the Employees
Retirement Fund Trust Profit Sharing Plan (a defined contribution plan).
Contributions by the Company were $2.3 million, $2.6 million and $2.1 million
for 1994, 1993 and 1992, respectively.

(B) Other Postretirement Employee Benefits

The Company has a defined benefit postretirement plan providing
medical care benefits upon retirement for all eligible K N employees with at
least five years of credited service as of January 1, 1993, and their eligible
dependents. Retired K N employees are required to contribute monthly amounts
which depend upon the retired employee's age, years of service upon retirement
and date of retirement.

This plan also provides life insurance benefits upon retirement for
all K N employees with at least 10 years of credited service who are age 55 or
older when they retire. The Company pays for a portion of the life insurance
benefit; K N employees may, at their option, increase the benefit by making
contributions from age 55 until age 65 or retirement, whichever is earlier. In
1993, the Company began funding the future expected postretirement benefit
costs under the plan by making payments to Voluntary Employee Benefit
Association trusts. The Company's funding policy is to contribute amounts
within the deductible limits imposed on Internal Revenue Code Sec. 501(c)(9)
trusts. Plan assets consist primarily of pooled fixed income funds.

Effective January 1, 1993, the Company prospectively adopted Statement
of Financial Accounting Standards No. 106 ("SFAS 106") which requires the
accrual of the expected costs of postretirement benefits other than pensions
during the years that employees render service. The Accumulated Postretirement
Benefit Obligation ("APBO") of the plan at January 1, 1993, was approximately
$18.8 million. The Company has elected to amortize this transition obligation
to expense over a 20-year period.

Net postretirement benefit cost includes the following components (in
thousands):

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Service Cost - Benefits Earned During the Period $ 321 $ 379
Interest Cost on APBO 1,307 1,349
Actual Return on Assets 7 (14)
Net Amortization and Deferral 805 953
------ ------
Net Periodic Postretirement Benefit Cost $2,440 $2,667
====== ======
</TABLE>

Prior to 1993, the cost of providing medical care benefits to retired
K N employees was recognized as expense as claims were paid, and the cost of
life insurance benefits for retirees was not accrued. Instead, life insurance
claims were paid from a trust fund resulting from termination of third-party
coverage. The Company's net cost of medical care claims for retirees was
approximately $1.2 million in 1992.

54
<PAGE> 55
The following table sets forth the plan's funded status and the
amounts recognized in the Company's financial statements as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $(13,106) $(13,920)
Eligible Active Plan Participants (3,411) (5,197)
Ineligible Active Plan Participants (1,768) -
-------- --------
Total APBO (18,285) (19,117)
Plan Assets at Fair Value 1,867 924
-------- --------

Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets (16,418) (18,193)
Unrecognized Net Gain (1,066) (6)
Prior Service Cost Not Yet Recognized in Net
Periodic Postretirement Benefit Cost - -
Unrecognized Transition Obligation 16,750 17,847
-------- --------
Accrued Postretirement Benefit Cost $ (734) $ (352)
======== ========
</TABLE>

The weighted average discount rate used in determining the actuarial
present value of the APBO was 7.5 percent for both periods. The assumed health
care cost trend rate was nine percent for 1994 and seven percent for 1995 and
beyond. A one-percentage-point increase in the assumed health care cost trend
rate for each future year would have increased the aggregate of the service and
interest cost components of the 1994 net periodic postretirement benefit cost
by approximately $17,000 and would have increased the APBO as of December 31,
1994, by approximately $215,000.

K N's interstate retail distribution business, in connection with rate
filings described in Note 5(B) for Kansas, Nebraska and Wyoming, has received
regulatory approval to include in the cost-of-service component of its rates
the cost of postretirement benefits as measured by application of SFAS 106. In
addition, KNI has received approval from FERC for similar regulatory treatment
in connection with its rate filing, also described in Note 5(B). At December
31, 1994, no SFAS 106 costs were deferred as regulatory assets.

In November 1992, FASB issued SFAS 112, which establishes standards of
financial accounting and reporting for the estimated cost of benefits provided
by an employer to former or inactive employees after employment but before
retirement. The Company adopted SFAS 112 on January 1, 1994. Implementation
of SFAS 112 had no material effect on the Company's financial position or
results of operations. At December 31, 1994, $0.8 million of SFAS 112 costs
were deferred as regulatory assets.

13. COMMON STOCK OPTION AND PURCHASE PLANS

K N has incentive stock option plans for key employees and
nonqualified stock option plans for its nonemployee directors and employees. In
1994, the Company's shareholders approved an expanded stock-based awards plan
for key employees which allows for the granting of both nonqualified and
incentive options, restricted stock awards, stock appreciation rights and other
stock-based awards. Outstanding stock options granted under

55
<PAGE> 56
an AOG stock plan have been converted to stock options for K N common stock
using the exchange ratio of 0.47. Under all plans, except the 1994 plan and
the AOG plan, options are granted at not less than 100 percent of the market
value of the stock at the date of grant. Under the 1994 plan, options may be
granted at less than 100 percent of the market value of the stock at the date
of grant. Options granted under these plans vest immediately or up to five
years and expire no later than 10 years after date of grant.

During 1993, AOG issued to its chief executive officer 50,000 shares
of restricted AOG common stock (23,500 shares of K N common stock) which vest
50 percent per year. AOG also sold 150,000 shares of AOG common stock (70,500
shares of K N common stock) to its president and chief operating officer for
$0.04 per share of AOG common stock ($0.0851 per share of K N common stock).
One-half of these shares was fully vested and nonforfeitable upon issuance, and
the remainder became fully vested upon consummation of the merger described in
Note 2. The market value of these AOG shares issued was approximately $2.3
million based on the average market price per share of AOG common stock on the
date of issuance. The market value of the restricted shares was reflected as
deferred compensation and is being amortized over the vesting period. The
Company recorded compensation expense totaling $1.3 million and $1.2 million
for 1994 and 1993, respectively, relating to restricted stock grants awarded
under the plans.

At December 31, 1994, 114 employees, officers and directors of the
Company held options under the plans. The changes in stock options outstanding
during 1994, 1993 and 1992 are as follows, restated to reflect the
three-for-two common stock split described in Note 1(C) and the merger
described in Note 2:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES $ PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1991 875,149 5.28-17.29
Granted 39,592 16.46-28.99
Exercised (99,840) 5.28-16.76
---------
Outstanding at December 31, 1992 814,901 5.28-28.99
Granted 311,000 21.68-28.00
Exercised (135,522) 8.28-16.79
Expired (6,751) 6.72-23.04
---------
Outstanding at December 31, 1993 983,628 8.96-28.99
Granted 309,500 0.00-24.00
Exercised (67,093) 0.00-23.04
Expired (12,011) 15.08-23.01
---------
OUTSTANDING AT DECEMBER 31, 1994 1,214,024 0.00-28.99
=========
EXERCISABLE AT DECEMBER 31, 1994 776,945
=========
</TABLE>

Unexercised options outstanding at December 31, 1994, expire at
various dates between 1995 and 2004.

Effective April 1, 1990, and for each succeeding year, K N established
an Employee Stock Purchase Plan under which eligible employees may purchase
K N's common stock through voluntary payroll deductions at a 15 percent discount
from the market value of the common stock, as defined in the plan.

Under K N's Stock Option, Dividend Reinvestment, Employee Stock
Purchase and Employee Benefit Plans, 4,853,498 shares were reserved for
issuance at December 31, 1994.

56
<PAGE> 57
14. COMMON STOCK WARRANTS

At December 31, 1994, warrants to purchase 1,187,432 shares of the
Company's common stock were outstanding. The warrants are exercisable at $17.55
per warrant and expire on September 30, 1999.

15. COMMITMENTS AND CONTINGENT LIABILITIES

(A) Leases

On February 16, 1995, AOG Gas Transmission Company, L.P. acquired
natural gas transmission pipeline and storage assets in Texas. (See Note
4(A)). A portion of these assets has been funded through 10-year operating
leases and payment amounts have been included in the future minimum commitments
shown below.

In 1993, K N Front Range Gathering Company began to lease gas
gathering equipment and facilities under a 10-year operating lease. In 1992,
KNGG began to lease gas gathering facilities and processing equipment under a
seven-year operating lease. These operating leases contain purchase options at
the end of their lease terms. The Company also leases certain office space,
properties and equipment under operating leases.

Payments made under operating leases were $9.6 million in 1994, $8.3
million in 1993 and $5.1 million in 1992.

Future minimum commitments under major operating leases are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- - ----------- ------
<S> <C>
1995 $ 14,130
1996 15,139
1997 13,602
1998 11,602
1999 22,111
Thereafter 55,121
--------
Total Commitments $131,705
========
</TABLE>

(B) Basket Agreement

Under terms of an agreement (the "Basket Agreement") entered into with
Cabot Corporation ("Cabot"), the Company's largest stockholder, as part of
AOG's acquisition of Cabot's natural gas pipeline business, AOG and Cabot
equally share net payments made in settlement of certain liabilities related to
operations of the acquired business prior to the acquisition date. During
1995, the Company expects to settle all significant matters covered by the
Basket Agreement. The Company's estimated liability is approximately $6.0
million, which was recorded in connection with the acquisition of the natural
gas pipeline business from Cabot. As of December 31, 1994, the Company had
made net payments of approximately $12.4 million. The difference between net
payments made by the Company and its estimated liability is reflected in
current assets and consists of (i) the present value of Cabot's share of net
payments and (ii) future recoveries from customers.

57
<PAGE> 58
(C) Capital Expenditure Budget

The consolidated capital expenditure budget for 1995 is approximately
$73.9 million, excluding acquisitions.

16. MAJOR CUSTOMER

Energas Company and affiliates comprised 11 percent of consolidated
revenues in 1994 and 12 percent of consolidated revenues in both 1993 and 1992.

17. BUSINESS SEGMENT INFORMATION

The Company is a natural gas energy products and services provider
engaged in the following activities:
(1) selling natural gas at retail (Retail Natural Gas Services),
(2) interstate storing and transporting natural gas (Interstate
Transportation and Storage Services),
(3) gathering, processing, marketing, storing and transporting
natural gas (Gathering, Processing and Marketing Services), and
(4) developing and producing natural gas and crude oil (Gas and Oil
Production).

58
<PAGE> 59
BUSINESS SEGMENT INFORMATION

<TABLE>
<CAPTION>
1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Retail Natural Gas Services $ 218,617 $ 203,846 $ 189,133
Interstate Transportation and
Storage Services 60,562 118,026 133,251
Gathering, Processing and Marketing Services 885,949 760,245 507,916
Gas and Oil Production 14,128 8,462 7,119
Intersegment Eliminations (95,322) (51,550) (9,269)
---------- ---------- ---------
$1,083,934 $1,039,029 $ 828,150
========== ========== =========

OPERATING INCOME:
Retail Natural Gas Services $ 12,540 )
Interstate Transportation and } $ 47,927 $ 48,304
Storage Services 16,347 )
Gathering, Processing and Marketing Services 22,380 31,028 34,650
Gas and Oil Production 2,908 1,249 803
---------- ---------- ---------

OPERATING INCOME 54,175 80,204 83,757
Other Income and (Deductions) - Net ( 29,354) (30,736) (27,347)
---------- ---------- ---------

INCOME BEFORE INCOME TAXES $ 24,821 $ 49,468 $ 56,410
========== ========== =========

IDENTIFIABLE ASSETS:
Retail Natural Gas Services $ 304,065 )
Interstate Transportation and } $ 545,424 $ 561,561
Storage Services 216,753 )
Gathering, Processing and Marketing Services 574,280 575,423 387,218
Gas and Oil Production 43,932 25,743 22,374
Corporate * 33,354 22,685 36,258
---------- ---------- ---------
$1,172,384 $1,169,275 $1,007,411
========== ========== ==========

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE:
Retail Natural Gas Services $ 12,111 )
Interstate Transportation and } $ 21,271 $ 20,876
Storage Services 8,338 )
Gathering, Processing and Marketing Services 25,830 20,018 15,384
Gas and Oil Production 3,999 3,355 3,093
---------- ---------- ---------
$ 50,278 $ 44,644 $ 39,353
========== ========== =========

CAPITAL EXPENDITURES AND ACQUISITIONS:
Retail Natural Gas Services $ 23,673 )
Interstate Transportation and } $ 56,782 $ 58,471
Storage Services 16,509 )
Gathering, Processing and Marketing Services 26,521 104,219 117,659
Gas and Oil Production 35,256 4,951 9,490
---------- ---------- ---------
$ 101,959 $ 165,952 $ 185,620
========== ========== =========
</TABLE>

* Principally cash and investments

59
<PAGE> 60
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY OPERATING RESULTS FOR 1994 AND 1993

(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1994
----
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating Revenues $348,970 $238,685 $230,696 $265,583
Operating Income (Loss) 25,940 10,410 (7,628) 25,453
Net Income (Loss) 11,959 2,910 (12,460) 12,912
Preferred Dividends 157 158 157 158
Number of Common Shares Used In
Computing Earnings Per Share 27,718 27,855 28,153 28,149

Earnings (Loss) Per Common Share $ 0.42 $ 0.10 $ (0.45)* $ 0.45
</TABLE>

*Includes merger and restructuring costs totaling $19.3 million after
taxes, or $0.69 per common share.

<TABLE>
<CAPTION>
1993
----
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating Revenues $288,121 $218,197 $236,653 $296,058
Operating Income 33,981 7,484 11,361 27,378
Net Income 16,665 1,020 2,731 10,453
Preferred Dividends 246 202 203 202
Number of Common Shares Used In
Computing Earnings Per Share 27,097 27,545 27,435 27,580

Earnings Per Common Share $ 0.60 $ 0.03 $ 0.10 $ 0.36
</TABLE>

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

There were no such matters during 1994.

60
<PAGE> 61
PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(A) Identification of Directors

For information regarding the Directors, see pages 3-6 of the 1995
Proxy Statement.

(B) Identification of Executive Officers

See Executive Officers of the Registrant under Part I.

None.

(D) Family Relationships

See "Relationship Between Certain Directors and the Company" on page 8
of the 1995 Proxy Statement.

(E) Business Experience

See Executive Officers of the Registrant under Part I.

(F) Involvement in Certain Legal Proceedings

See Executive Officers of the Registrant under Part I.

(G) Promoters and Control Persons

None.

ITEM 11: EXECUTIVE COMPENSATION

See "Executive Compensation", "Stock Options", "Pension Benefits" and
"Director Compensation" on pages 9-18 of the 1995 Proxy Statement.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the following pages of the 1995 Proxy Statement: (i) Pages 3-6
relating to common stock owned by directors; (ii) pages 16-17, "Executive
Stock Ownership"; and (iii) pages 19-20, "Principal Shareholders".

61
<PAGE> 62

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(A) Transactions with Management and Others

See "Certain Transactions" on pages 7-8 of the 1995 Proxy Statement
and "Relationship Between Certain Directors and the Company" on page 8 of the
1995 Proxy Statement.

(B) Certain Business Relationships

See "Relationship Between Certain Directors and the Company" on page 8
of the 1995 Proxy Statement.

None.

(D) Transactions with Promoters

Not applicable.

62
<PAGE> 63
PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) See the index for a listing and page numbers of financial
statements and exhibits included herein or incorporated by reference.

Executive Compensation Plans and Arrangements

Form of Key Employee Severance Agreement (Exhibit 10.2,
Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*

1982 Stock Option Plan for Nonemployee Directors of the
Company with Form of Grant Certificate (Exhibit 10.3, Amendment No. 1 on Form 8
dated September 2, 1988 to the Annual Report on Form 10-K for the year ended
December 31, 1987)*

1982 Incentive Stock Option Plan for key employees of the
Company (Exhibit 10.4, Amendment No. 1 on Form 8 dated September 2, 1988 to the
Annual Report on Form 10-K for the year ended December 31, 1987)*

1986 Incentive Stock Option Plan for key employees of the
Company (Exhibit 10.5, Amendment No. 1 on Form 8 dated September 2, 1988 to the
Annual Report on Form 10-K for the year ended December 31, 1987)*

1988 Incentive Stock Option Plan for key employees of the
Company (Exhibit 10.6, Amendment No. 1 on Form 8 dated September 2, 1988 to the
Annual Report on Form 10-K for the year ended December 31, 1987)*

Form of Grant Certificate for Employee Stock Option Plans
(Exhibit 10.7, Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended December 31, 1987)*

Directors' Deferred Compensation Plan Agreement (Exhibit 10.8,
Amendment No. 1 on Form 8 dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*

1987 Directors' Deferred Fee Plan and Form of Participation
Agreement regarding the Plan (Exhibit 10.9, Amendment No. 1 on Form 8 dated
September 2, 1988 to the Annual Report on Form 10-K for the year ended December
31, 1987)*

1992 Stock Option Plan for Nonemployee Directors of the
Company with Form of Grant Certificate (Exhibit 4.1, File No. 33-46999)*

K N Energy, Inc. 1994 Executive Incentive Plan (Exhibit 10(k)
to the Annual Report on Form 10-K for the year ended December 31, 1993)*

K N Energy, Inc. 1995 Executive Incentive Plan (attached
hereto as Exhibit 10(l))**

K N Energy, Inc. Nonqualified Deferred Compensation Plan
(attached hereto as Exhibit 10(m)**

63
<PAGE> 64
(b) Reports on Form 8-K

On October 18, 1994, a Current Report on form 8-K was filed to
report that on October 19, 1994, K N sold $75 million of its 8.75% Debentures
due October 15, 2024, pursuant to an underwritten public offering.*

On January 11, 1995, a Current Report on Form 8-K was filed to
report that on January 6, 1995, an affiliate of K N announced its proposed
acquisition of certain gas gathering and gas storage assets located in Texas
from affiliates of Meridian Oil Inc.*

On February 16, 1995, a Current Report on Form 8-K was filed
to report that on February 16, 1995, an affiliate of K N closed its previously
announced acquisition of certain gas gathering and gas storage assets located
in Texas from affiliates of Meridian Oil Inc.*

* Incorporated herein by reference.
** Included in SEC and NYSE copies only.

64
<PAGE> 65
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

K N ENERGY, INC.
(Registrant)

March 8, 1995 By /s/ E. Wayne Lundhagen
-------------------------------
E. Wayne Lundhagen
Vice President, Finance and
Accounting

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C>
/s/ Edward H. Austin, Jr. Director
- - ------------------------------------------------
Edward H. Austin, Jr.

/s/ Charles W. Battey Chairman and Director
- - ------------------------------------------------
Charles W. Battey

/s/ Stewart A. Bliss Director
- - ------------------------------------------------
Stewart A. Bliss

/s/ David W. Burkholder Director
- - ------------------------------------------------
David W. Burkholder

/s/ David M. Carmichael Vice Chairman and Director
- - ------------------------------------------------
David M. Carmichael

/s/ Robert H. Chitwood Director
- - ------------------------------------------------
Robert H. Chitwood

/s/ Howard P. Coghlan Director
- - ------------------------------------------------
Howard P. Coghlan

/s/ Robert B. Daugherty Director
- - ------------------------------------------------
Robert B. Daugherty

/s/ Jordan L. Haines Director
- - ------------------------------------------------
Jordan L. Haines

/s/ Larry D. Hall President, Chief Executive Officer and
- - ------------------------------------------------ Director (Principal Executive Officer)
Larry D. Hall

/s/ William J. Hybl Director
- - ------------------------------------------------
William J. Hybl

/s/ E. Wayne Lundhagen Vice President, Finance and Accounting
- - ------------------------------------------------ (Principal Financial and Accounting Officer)
E. Wayne Lundhagen

/s/ Edward Randall, III Director
- - ------------------------------------------------
Edward Randall, III

/s/ James C. Taylor Director
- - ------------------------------------------------
James C. Taylor

/s/ H. A. True, III Director
- - ------------------------------------------------
H. A. True, III
</TABLE>

65
<PAGE> 66
<TABLE>
<CAPTION>

Exhibit Index Page Number
------------- -----------
<S> <C>
List of Executive Compensation Plans and Arrangements . . . 63
Exhibit 3(a) - Restated Articles of Incorporation
(Exhibit 3(a) - Attached hereto as Exhibit 3(a))**
Exhibit 3(b) - By-laws of the Company, as amended
(Exhibit 3(b) - Attached hereto as Exhibit 3(b))**
Exhibit 3(c) - Certificate of the Voting Powers,
Designation, Preferences and Relative, Participa-
ting, Optional or Other Special Rights, and Quali-
fications, Limitations or Restrictions Thereof,
of the Class B $8.30 Cumulative Preferred Stock,
Without Par Value (Exhibit 4.4, File No.
33-26314)*
Exhibit 4(a) - Indenture dated as of September 1,
1988, between K N Energy, Inc. and Continental
Illinois National Bank and Trust Company of Chi-
cago (Exhibit 1.2, Current Report on Form 8-K
Dated October 5, 1988)*
Exhibit 4(b) - First supplemental indenture dated
as of January 15, 1992, between K N Energy, Inc.
and Continental Illinois National Bank and Trust
Company and Chicago (Exhibit 4.2, File No. 33-45091)*
Exhibit 4(c) - Second supplemental indenture dated
as of December 15, 1992, between K N Energy, Inc.
and Continental Bank, National Association (Exhibit
1.2 Current Report on Form 8-K dated December 15,
1992)*
Exhibit 4(d) - Indenture dated as of November 20, 1993,
between K N Energy, Inc. and Continental Illinois
National Bank and Trust Company of Chicago (Exhibit
4.1, File No. 33-51115)*
Note - Copies of instruments relative to
long-term debt in authorized amounts that do not
exceed 10 percent of the consolidated total assets
of the Company and its subsidiaries have not been
furnished. The Company will furnish such instru-
ments to the Commission upon request.
Exhibit 10(a) - Form of Key Employee Severance
Agreement (Exhibit 10.2, Amendment No. 1 on Form 8
dated September 2, 1988 to the Annual Report on Form
10-K for the year ended December 31, 1987)*
Exhibit 10(b) - 1982 Stock Option Plan for Non-
employee Directors of the Company with Form of
Grant Certificate (Exhibit 10.3, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(c) - 1982 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.4,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(d) - 1986 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.5,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year
ended December 31, 1987)*
Exhibit 10(e) - 1988 Incentive Stock Option Plan
for key employees of the Company (Exhibit 10.6,
Amendment No. 1 on Form 8 dated September 2, 1988
to the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(f) - Form of Grant Certificate for
Employee Stock Option Plans (Exhibit 10.7, Amend-
ment No. 1 on Form 8 dated September 2, 1988 to
the Annual Report on Form 10-K for the year ended
December 31, 1987)*
Exhibit 10(g) - Directors' Deferred Compensation
Plan Agreement (Exhibit 10.8, Amendment No. 1
on Form 8 dated September 2, 1988 to the Annual
Report on Form 10-K for the year ended
December 31, 1987)*
</TABLE>

66
<PAGE> 67

<TABLE>
<CAPTION>
Exhibit Index (Continued)
Page Number
-----------
<S> <C>
Exhibit 10(h) - 1987 Directors' Deferred Fee Plan
and Form of Participation Agreement regarding the
Plan (Exhibit 10.9, Amendment No. 1 on Form 8
dated September 2, 1988 to the Annual Report on
Form 10-K for the year ended December 31, 1987)*
Exhibit 10(i) - 1992 Stock Option Plan for Nonemployee
Directors of the Company with Form of Grant Certificate
(Exhibit 4.1, File No. 33-46999).
Exhibit 10(j) - K N Energy, Inc. 1994 Executive
Incentive Plan (Exhibit 10(k) to the Annual Report on
Form 10-K for the Year Ended December 31, 1993)*
Exhibit 10(k) - 1994 K N Energy, Inc. Long-Term Incentive Plan
(Attachment A to the K N Energy, Inc. 1994 Proxy Statement
on Schedule 14-A)*
Exhibit 10(l) - K N Energy, Inc. 1995 Executive Incentive Plan
(Attached hereto as Exhibit 10(l))**
Exhibit 10(m) - K N Energy, Inc. Nonqualified Deferred Compensation
Plan (Attached hereto as Exhibit 10(m))**
Exhibit 10(n) - K N Energy, Inc. Nonqualified Retirement Income
Restoration Plan (Attached hereto as Exhibit 10(n))**
Exhibit 10(o) - K N Energy, Inc. Nonqualified Profit Sharing Restoration
Plan (attached hereto as Exhibit 10(o))**
Exhibit 12 - Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . 68
Exhibit 13 - 1994 Annual Report to Shareholders*** . . . . . . . . . . . . 69
Exhibit 22 - Subsidiaries of the Registrant . . . . . . . . . . . . . . . . 70-71
Exhibit 24 - Consent of Independent Public Accountants . . . . . . . . . . 72
Exhibit 27 - Financial Data Schedule****
</TABLE>

<PAGE> 1

EXHIBIT 3 (a)

CERTIFICATE OF RESTATEMENT OF ARTICLES OF INCORPORATION

K N ENERGY, INC.

STATE OF KANSAS )
) ss
COUNTY OF PHILLIPS )

We, Larry D. Hall, President and William S. Garner, Jr., Secretary of
K N Energy, Inc., a Kansas corporation (herein called the "Corporation"), whose
registered office is in Phillipsburg, Phillips County, Kansas, DO HEREBY
CERTIFY:

That the Board of Directors of the Corporation, at a regular meeting
duly held on the 23rd of May, 1989, adopted a resolution setting forth Restated
Articles of Incorporation of the Corporation, and declared their advisability.
Said Restated Articles of Incorporation were amended with approval of the
Corporation's Shareholders on July 13, 1994, and are as follows, namely:

K N, ENERGY, INC.
--------------------
RESTATED ARTICLES OF INCORPORATION
--------------------

The following are the Restated Articles of Incorporation of K N
Energy, Inc., which corporation was originally incorporated under the name of
Kansas Pipe Line & Gas Company in Articles filed with the Secretary of State of
Kansas on May 18, 1927. These Restated Articles were duly adopted by the Board
of Directors of the Company at their regular meeting on August 16, 1988 in
accordance with the provisions of Section 17-6605 of the

1
<PAGE> 2
Kansas Statutes Annotated.
FIRST

The name of the Corporation shall be K N ENERGY, INC.

SECOND
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Kansas General Corporation Code.

THIRD

The location of the principal place of business of the Corporation and
its registered office in this state is 205 "F" Street, City of Phillipsburg,
Phillips County, Kansas. The Corporation shall be its own Resident Agent and
for such purpose its business office shall be its registered office.

FOURTH

That the term for which the Corporation is to exist is perpetual.

FIFTH

SECTION 1

Except as otherwise provided in Article Sixth, the number of directors
which shall constitute the whole Board of Directors of the Corporation shall be
the number from time to time fixed by the By-laws of the Corporation; provided
that such number of directors shall not be less than nine, nor more than
fifteen, each of whom shall be a stockholder of the Corporation; and

2
<PAGE> 3
provided, further, that any change in such minimum or maximum number of
directors shall be made only by amendment of this Article Fifth. Nominees for
directorships receiving the highest number of votes shall be elected. The
Board of Directors shall be divided into three classes: Class I, Class II, and
Class III. Such classes shall be as nearly equal in number as possible. The
term of office of the initial Class I directors shall expire at the annual
meeting of the stockholders in 1976; the term of office of the initial Class II
directors shall expire at the annual meeting of stockholders in 1977; and the
term of office of the initial Class III directors shall expire at the annual
meeting of stockholders in 1978, or thereafter in each case when their
respective successors are elected and qualified. At each annual election held
thereafter, the directors chosen to succeed those whose terms have expired
shall be identified as being of the same class as the directors that they
succeed and shall be elected for a term expiring at the third succeeding annual
meeting of stockholders or thereafter in each case when their respective
successors are elected and qualified. When the number of directors is changed
any increase or decrease in the number of directorships shall be apportioned
among the classes so as to make all classes as nearly equal in number as
possible.
SECTION 2

No director of the Corporation shall be removed from his office as a
director unless all other directors constituting the Board of Directors at the
time unanimously vote in favor of such

3
<PAGE> 4
removal, in which event his removal shall be considered accomplished. No
director of the Corporation shall be removed from his office as a director by
vote or other action of stockholders or otherwise unless the director to be
removed has been convicted of a felony by a court of competent jurisdiction and
such conviction has become no longer subject to direct appeal or unless the
director to be removed has been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation by a court of
competent jurisdiction and such adjudication has become no longer subject to
direct appeal. In the event of such conviction, or finding of negligence or
misconduct a director may be removed by the stockholders in the manner provided
in the By-laws of the Corporation.

SIXTH

SECTION 1

The minimum amount of capital with which the Corporation will commence
business is $l,000.00.

SECTION 2

1. That the total number of shares of all classes of stock which
the Corporation shall have authority to issue shall be 27,200,000.

2. That the number of shares which are to have a par value shall
be 50,000,000 of the par value of $5 each, all of which shares shall be one
class of common stock (hereinafter referred to as the "Common Stock").

3. That the number of shares that are to be without par

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<PAGE> 5
value shall be 2,200,000, of which 200,000 shall be Class A Preferred Stock
(hereinafter referred to as the "Class A Preferred Stock"), and of which
2,000,000 shall be Class B Preferred Stock (hereinafter referred to as the
"Class B Preferred Stock").

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<PAGE> 6
SECTION 3

1. Definitions. As used in this Article Sixth or in any
resolution adopted by the Board of Directors providing for the issue of any
particular series of Class A Preferred Stock or Class B Preferred Stock
authorized by these Articles of Incorporation or any amendment thereto, the
following terms shall have the following meanings, respectively:

(a) The term "arrearages", whenever used in connection with
dividends on any share of Class A Preferred Stock or Class B Preferred
Stock, shall refer to the condition that exists as to dividends, to
the extent that they are cumulative (either unconditionally, or
conditionally to the extent that the conditions have been fulfilled),
on such shares which shall not have been paid or declared and set
apart for payment to the date or for the period indicated; but the
term shall not refer to the condition that exists as to dividends, to
the extent that they are non-cumulative, on such shares which shall
not have been paid or declared and set apart for payment.

(b) The term "stock junior to the Class A Preferred Stock",
whenever used with reference to the Class A Preferred Stock, shall
mean the Class B Preferred Stock, Common Stock and any other stock of
the Corporation over which the Class A Preferred Stock has preference
or priority in the payment of dividends and in the distribution of
assets on any dissolution, liquidation or winding up of the
Corporation.

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<PAGE> 7
(c) The term "stock junior to the Class B Preferred Stock",
whenever used with reference to the Class B Preferred Stock, shall
mean the Common Stock and any other stock of the Corporation over
which the Class B Preferred Stock has preference or priority in the
payment of dividends and in the distribution of assets on any
dissolution, liquidation or winding up of the Corporation.

(d) The term "subsidiary" means any corporation of which at
least a majority of the outstanding stock having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency, is, at the
time of determination thereof, directly or indirectly owned by the
Corporation, or by one or more subsidiaries of the Corporation, or by
the Corporation and one or more subsidiaries. As used in this
definition, the term "corporation" shall include comparable types of
business organizations authorized under the laws of any state,
territory or possession of the United States or any foreign country
however designated.

SECTION 4

That the voting powers (full or limited, or without voting powers)
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations

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<PAGE> 8
or restrictions thereof, of the shares of Class A Preferred Stock, Class B
Preferred Stock and Common Stock and the authority of the Board of Directors of
the Corporation to fix by resolution such of the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof (sometimes hereinafter
referred to in this Article Sixth as "powers, preferences and rights"), are as
follows:

A. CLASS A PREFERRED STOCK

1. Authority of the Board of Directors of the Corporation to
issue Class A Preferred Stock in Series. The Class A Preferred Stock consists
of (i) shares constituting a series designated and hereinafter referred to as
"Class A $5 Cumulative Preferred Stock", shares of which have heretofore been
issued and designated as "$5 Cumulative Preferred Stock", (ii) shares
constituting a series designated and hereinafter referred to as "Class A $5.65
Cumulative Preferred Stock", shares of which have heretofore been issued and
designated as "$5.65 Cumulative Preferred Stock", and (iii) additional
authorized shares the issuance of which may be provided for by the Board of
Directors of the Corporation as set forth in this Subdivision A of Section 4.
The voting powers (full or limited, or without voting powers), designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, not inconsistent with the
provisions of this Article Sixth, of the Class A $5 Cumulative Preferred Stock
and of the Class A $5.65 Cumulative Preferred

8
<PAGE> 9
Stock are respectively fixed by and set forth in paragraph 9 of this
Subdivision A of Section 4 and in the Certificate of Resolutions adopted by the
Board of Directors of the Corporation providing for the issuance of shares of
the Class A $5.65 Cumulative Preferred Stock filed in the office of the
Secretary of State of Kansas on September 28, 1953.

The Class A Preferred Stock may be issued from time to time in one or
more series. Subject to the provisions of these Articles of Incorporation or
any amendment thereto, authority is expressly granted to the Board of Directors
of the Corporation to authorize the issue of one or more series of Class A
Preferred Stock, and to fix by resolutions providing for the issue of each such
series the powers, preferences and rights thereof, to the full extent now or
hereafter permitted by law, including but not be limited to the following:

(a) The number of shares of such series (which may
subsequently be increased by resolutions of the Board of Directors of
the Corporation) and the distinctive designation thereof;

(b) The dividend rate of such series and any limitations,
restrictions or conditions on the payment of such dividends;

(c) The terms and conditions, if any, on which, and the price
or prices at which, the shares of such series may be redeemed;

(d) The terms of any purchase, retirement or sinking fund to
be provided for the shares of such series;

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<PAGE> 10
(e) Restrictions upon the declaration or payment of dividends
or other distributions on, or the acquisition or retirement by the
Corporation of, the Common Stock to take effect upon the occurrence of
any default in the provisions for a sinking fund, if any, for the
particular series and to remain in effect so long as such default
continues; and provisions extending for the benefit of the particular
series for so long as any shares thereof remain outstanding, similar
restrictions with respect to the stock of the Corporation imposed by
the terms of any of its funded indebtedness then outstanding;

(f) The terms and conditions, if any, upon which the shares of
such series shall be convertible into or exchangeable for shares of
any other class or classes, or of any other series of the same or any
class or classes of stock of the Corporation;

(g) The voting powers, if any, of such series in addition to
the voting powers provided in paragraphs 5 and 8 of Subdivision A of
Section 4; and

(h) Any other variance in the relative powers, preferences and
rights as between different series not inconsistent with these
Articles of Incorporation or any amendments thereto, to the full
extent now or hereafter allowed by law.

The Class A Preferred Stock of each series shall rank on a parity with
the Class A Preferred Stock of every other series in

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<PAGE> 11
priority of payment of dividends and in the distribution of assets in the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, to the extent of the preferential amounts to which
the Class A Preferred Stock of the respective series shall be entitled under
the provisions of these Articles of Incorporation or any amendment thereto or
the resolutions of the Board of Directors of the Corporation providing for the
issue of such series. All shares of any one series of Class A Preferred Stock
shall be identical except as to the dates of issue and the dates from which
dividends on shares of the series issued on different dates shall accumulate
(if cumulative).

2. Dividend rights.

(a) The holders of shares of Class A Preferred Stock of each
series shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, preferential dividends, from the date
fixed by the resolutions of the Board of Directors of the Corporation
authorizing the issuance thereof, in cash payable at such rate, from
such date, and on such quarterly dividend payment dates and, if
cumulative, cumulative from such date or dates, as may be fixed by the
provisions of these Articles of Incorporation or any amendment thereto
or by the resolutions of the Board of Directors of the Corporation
providing for the issue of such series. The holders of shares of
Class A Preferred Stock shall not be entitled to receive any dividends
thereon other than those specifically provided for by these Articles
of Incorporation

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<PAGE> 12
or any amendment thereto, or such resolutions of the Board of
Directors of the Corporation, nor shall any arrearages in dividends on
the Class A Preferred Stock bear any interest.

(b) So long as any of the Class A Preferred Stock is
outstanding, no dividends (other than dividends payable in stock
junior to the Class A Preferred Stock and cash in lieu of fractional
shares in connection with any such dividend) shall be paid or declared
in cash or otherwise, nor shall any other distribution be made, on any
stock junior to the Class A Preferred Stock, unless

(i) there shall be no arrearages in dividends on
the Class A Preferred Stock for any past quarterly dividend
period, and dividends in full for the current quarterly
dividend period shall have been paid or declared on all of the
Class A Preferred Stock (cumulative and non-cumulative); and

(ii) the Corporation shall have paid or set aside all
amounts, if any, then or theretofore required to be paid or
set aside for all sinking funds, if any, for the Class A
Preferred Stock of any series; and

(iii) the Corporation shall not be in default on any of
its obligations to redeem any of the Class A Preferred Stock.

(c) So long as any of the Class A Preferred Stock is
outstanding, no shares of any stock junior to the Class A Preferred
Stock shall be purchased, redeemed or otherwise

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<PAGE> 13
acquired by the Corporation or by any subsidiary except (i) in
connection with a reclassification or exchange of any stock junior to
the Class A Preferred Stock through the issuance of other stock junior
to the Class A Preferred Stock at the time outstanding, or (ii) in
connection with the purchase, redemption or other acquisition of any
stock junior to the Class A Preferred Stock with proceeds of a
reasonably contemporaneous sale of other stock junior to the Class A
Preferred Stock at the time outstanding or (iii) payments in cash in
lieu of fractional shares upon the conversion of any convertible stock
junior to the Class A Preferred Stock, nor shall any funds be set
aside or made available for any sinking fund for the purchase or
redemption of any stock junior to the Class A Preferred Stock, unless

(i) there shall be no arrearages in dividends on
Class A Preferred Stock for any past quarterly dividend
period, and dividends in full for the current quarterly
dividend period shall have been paid or declared on all of the
Class A Preferred Stock (cumulative and non-cumulative); and

(iii) the Corporation shall not be in default on any
of its obligations to redeem any of the Class A Preferred

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<PAGE> 14
Stock.

(d) Subject to the foregoing provisions and not otherwise,
such dividends (payable in cash, property or stock junior to the Class
A Preferred Stock) as may be determined by the Board of Directors of
the Corporation may be declared and paid on the shares of any stock
junior to the Class A Preferred Stock from time to time, and in the
event of the declaration and payment of any such dividends, the
holders of shares of such junior stock shall be entitled, to the
exclusion of holders of shares of Class A Preferred Stock, to share
ratably therein according to their respective interests.

(e) Dividends in full shall not be declared or paid or set
apart for payment on any series of Class A Preferred Stock, unless
there shall be no arrearages in dividends on any Class A Preferred
Stock for any past quarterly dividend period and dividends in full for
the current quarterly dividend period shall have been paid or declared
on all Class A Preferred Stock to the extent that such dividends are
cumulative, and any dividends paid or declared when dividends are not
so paid or declared in full shall be shared ratably by the holders of
all series of Class A Preferred Stock in proportion to such respective
arrearages and unpaid and undeclared current quarterly dividends.

3. Liquidation rights.

(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or

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<PAGE> 15
involuntary, the holders of shares of Class A Preferred Stock of each
series shall be entitled to receive in full out of the Corporation's
assets the sum of One Hundred Dollars ($100) for each share of Class A
Preferred Stock held by them, plus any arrearages in dividends thereon
to the date fixed for the payment in liquidation, before any
distribution shall be made to the holders of shares of any stock
junior to the Class A Preferred Stock. After such payment in full to
the holders of shares of the Class A Preferred Stock, the remaining
assets of the Corporation shall then be distributable exclusively
among the holders of shares of any stock junior to the Class A
Preferred Stock, according to their respective interests.

(b) If the assets of the Corporation are insufficient to
permit the payment of the full preferential amounts payable to the
holders of shares of Class A Preferred Stock of the respective series
in the event of a liquidation, dissolution or winding up, then the
assets available for distribution to holders of shares of Class A
Preferred Stock shall be distributed ratably to such holders in
proportion to the full preferential amounts payable on the respective
shares.

(c) A consolidation or merger of the Corporation with or into
one or more other corporations or a sale of all or substantially all
of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of
the Corporation.

4. Redemption.

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<PAGE> 16
(a) The Corporation may, at the option of the Board of
Directors, redeem the whole or any part of the Class A Preferred
Stock, or of any series thereof, at any time or from time to time
within the period during which such stock is, according to these
Articles of Incorporation or any amendment thereto, or the resolutions
of the Board of Directors of the Corporation providing for the issue
thereof, redeemable at the option of the Board of Directors, by paying
such redemption price thereof as shall have been fixed by these
Articles of Incorporation or any amendment thereto or by the
resolutions of the Board of Directors of the Corporation providing for
the issue of the Class A Preferred Stock to be redeemed, including an
amount in the case of each share so to be redeemed equal to any
arrearages in dividends thereon to the date fixed for redemption (the
total amount so to be paid being hereinafter referred to as the
"redemption price"). The Class A $5 cumulative Preferred Stock and
the Class A $5.65 Cumulative Preferred Stock shall be redeemable at
any time at the option of the Board of Directors of the Corporation.

(b) Unless expressly provided otherwise in the resolutions of
the Board of Directors of the Corporation providing for the issue of
the Class A Preferred Stock to be redeemed, (i) notice of each such
redemption shall be mailed not less than thirty days nor more than
ninety days prior to the date fixed for redemption to each holder of
record of shares of the Class A Preferred Stock to be redeemed, at
his

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<PAGE> 17
address as the same may appear on the books of the Corporation, and
(ii) in case of a redemption of a part only of any series of the Class
A Preferred Stock, the shares of such series to be redeemed shall be
selected pro rata or by lot or in such other equitable manner as the
Board of Directors of the Corporation may determine. The Board of
Directors of the Corporation shall have full power and authority,
subject to the limitations and provisions contained in these Articles
of Incorporation or any amendment thereto or in the resolutions of the
Board of Directors of the Corporation providing for the issue of the
Class A Preferred Stock to be redeemed, to prescribe the manner in
which and the terms and conditions upon which the Class A Preferred
Stock may be redeemed from time to time.

(c) If any such notice of redemption shall have been duly
given, then on and after the date fixed in such notice of redemption
(unless default shall be made by the Corporation in the payment or
deposit of the redemption price pursuant to such notice) all
arrearages in dividends, if any, on the shares of Class A Preferred
Stock so called for redemption shall cease to accumulate, and on such
date all rights of the holders of shares of Class A Preferred Stock so
called for redemption shall cease and terminate except the right to
receive the redemption price upon surrender of their certificates for
redemption and such rights, if any, of conversion or exchange as may
exist with respect to such

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<PAGE> 18
Class A Preferred Stock under the provisions of these Articles of
Incorporation or any amendment thereto or in the resolutions of the
Board of Directors of the Corporation providing for the issue of such
Class A Preferred Stock.

(d) If, before the redemption date specified in any notice of
the redemption of any Class A Preferred Stock, the Corporation shall
deposit the redemption price with a bank or trust company in the
continental United States having a capital and surplus of at least
$5,000,000 according to its last published statement of condition, in
trust for payment on the redemption date to the holders of shares of
Class A Preferred Stock to be redeemed, from and after the date of
such deposit all rights of the holders of shares of Class A Preferred
Stock so called for redemption shall cease and terminate except the
right to receive the redemption price upon surrender of their
certificates for redemption and such rights, if any, of conversion or
exchange as may exist with respect to such Class A Preferred Stock
under the provisions of these Articles of Incorporation or any
amendment thereto or in the resolutions of the Board of Directors of
the Corporation providing for the issue of such Class A Preferred
Stock. Any funds so deposited which are not required for such
redemption because of the exercise of any such right of conversion or
exchange subsequent to the date of such deposit shall be returned to
the Corporation forthwith. The Corporation shall be entitled to
receive from the depositary,

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<PAGE> 19
from time to time, the interest, if any, allowed on such funds
deposited with it, and the holders of the shares so redeemed shall
have no claim to any interest. Any funds so deposited and remaining
unclaimed at the end of six years from the redemption date shall, if
thereafter requested by the Board of Directors of the Corporation, be
repaid to the Corporation.

(e) Shares of Class A Preferred Stock of any series may also
be subject to redemption, in the manner hereinabove prescribed under
this paragraph 4 of Subdivision A of Section 4, through operation of
any sinking fund created therefor, at the redemption prices and under
the terms and provisions contained in the resolutions of the Board of
Directors of the Corporation providing for the issue of such series.

(f) The Corporation shall not be required to register a
transfer of any share of Class A Preferred Stock (i) within fifteen
days preceding a selection for redemption of shares of the series of
Class A Preferred Stock of which such share is a part or (ii) which
has been selected for redemption.

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<PAGE> 20
liquidation, nor permit any subsidiary to do so without the consent
given in writing or affirmative vote given in person or by proxy at a
meeting called for the purpose, by the holders of at least fifty per-
cent (50%) of all the shares of Class A Preferred Stock then
outstanding; provided that (i) to meet the requirements of any
purchase, retirement or sinking fund provisions with respect to any
series, the Corporation may use shares of such series acquired by it
prior to such arrearages in dividends or failure of payment and then
held by it as treasury stock, valued at the redemption price, and (ii)
the Corporation may complete the purchase or redemption of shares of
Class A Preferred Stock or of any other stock ranking on a parity with
the Class A Preferred Stock as to dividends and upon liquidation for
which a purchase contract was entered into for any purchase,
retirement or sinking fund purposes, or the notice of redemption of
which was initially mailed, prior to such arrearages in dividends or
failure of payment.

(h) If any obligation to retire shares of Class A Preferred
Stock is not paid in full on all series as to which such obligation
exists, the number of shares of each such series to be retired
pursuant to any such obligation shall be in proportion to the
respective amounts which would be payable if all amounts payable for
the retirement of such series were discharged in full.

5. Restrictions on certain action affecting Class A

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<PAGE> 21
Preferred Stock. The Corporation will not, without the consent given in
writing or affirmative vote given in person or by proxy at a meeting held for
the purpose,

(a) by the holders of at least fifty percent (50%) of the
shares of Class A Preferred Stock then outstanding,

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<PAGE> 22
(i) amend, alter or repeal any of the provisions of
these Articles of Incorporation, or any amendment thereto, or
By-laws of the Corporation, so as to affect adversely the
voting powers, rights or preferences of the holders of shares
of Class A Preferred Stock or to reduce the time for any
notice to which the holders of shares of Class A Preferred
Stock may be entitled; provided, however, that the amendment
of the provisions of these Articles of Incorporation, as
amended, so as to increase the authorized amount of Common
Stock, Class B Preferred Stock, Class A Preferred Stock, any
other class of stock junior to the Class A Preferred Stock or
any stock of any class ranking on a parity with the Class A
Preferred Stock shall not be deemed to affect adversely the
powers, rights or preferences of the holders of shares of
Class A Preferred Stock;

(ii) create any other class or classes of stock or
any security convertible into, or exchangeable for or
evidencing the right to purchase any stock of a class ranking
on a parity with the Class A Preferred Stock, either as to
dividends or upon liquidation;

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<PAGE> 23
(iii) increase the authorized amount of or create any
class or classes of stock ranking prior to the Class A
Preferred Stock; or

(iv) merge or consolidate with or into any other
corporation, unless the corporation resulting from such merger
or consolidation will have after such merger or consolidation
no class of stock either authorized or outstanding ranking
prior to the Class A Preferred Stock, and no securities either
authorized or outstanding which are convertible or
exchangeable into stock ranking prior to the Class A Preferred
Stock except the same number of shares of prior stock and the
same amount of such convertible securities with the same
rights and preferences as the prior stock and such convertible
securities of the Corporation, respectively, authorized and
outstanding immediately preceding such merger or
consolidation, and unless each holder of shares of Class A
Preferred Stock, immediately preceding such a merger or
consolidation shall receive the same number of shares, with
substantially the same rights and preferences, of the
resulting corporation;

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<PAGE> 24
provided, however, that no such consent of the holders of shares of
Class A Preferred Stock then outstanding shall be required if, at or
prior to the taking effect of the event which would otherwise require
such consent, provision shall be made for the redemption of all shares
of Class A Preferred Stock.

(b) by the holders of at least fifty percent (50%) of the
shares of any series of Class A Preferred Stock then outstanding,
amend, alter or repeal any of the provisions of these Articles of
Incorporation or any amendment thereto or of the resolutions of the
Board of Directors of the Corporation providing for the issue of such
series so as to affect adversely the powers, preferences or rights of
the holders of shares of Class A Preferred Stock of such series;
provided, however, that no such consent of the holders of shares of
any series of Class A Preferred Stock shall be required if, at or
prior to the taking effect of the event which would otherwise require
such consent, provision shall have been made for the redemption of all
shares of such series.

6. Status of Class A Preferred Stock purchased, redeemed or
converted. Shares of Class A Preferred Stock purchased, redeemed or converted
into or exchanged for shares of any other class or series shall be deemed to
be authorized but unissued shares of Class A Preferred Stock undesignated as to
series.

7. Voting Rights. On all matters upon which the holders of shares of
Common Stock of the Corporation are entitled to vote,

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<PAGE> 25
unless otherwise provided in these Articles of Incorporation or any amendment
thereto or the resolutions of the Board of Directors of the Corporation
providing for the issuance of shares of one or more series of Class A Preferred
Stock, each holder of shares of Class A Preferred Stock shall have the right to
vote upon a share-for-share basis with the holders of shares of Common Stock.

8. Election of Directors by holders of shares of Class A Preferred
Stock in event of Nondeclaration of Dividends.

(a) The provisions of this paragraph 8 shall apply only to the
Class A $5 Cumulative Preferred Stock, Class A $5.65 Cumulative
Preferred Stock and to those other series of Class A Preferred Stock
to which such provisions are expressly made applicable by these
Articles of Incorporation or any amendment thereto or resolutions of
the Board of Directors of the Corporation providing for the issue of
such series (hereinafter referred to as the applicable Class A
Preferred Stock). (b) If 30 days prior to the date of any annual
meeting of the stockholders declarations of dividends (including
non-cumulative dividends) on the shares of any series of applicable
Class A Preferred Stock shall be omitted (i) in an aggregate amount
equal to 3 (but less than 6) full quarterly dividends, the number of
authorized directorships shall be increased by six if twelve
directorships are authorized immediately prior to such meeting, or by
that number of full directorships which will represent at least
one-third of the total number of directorships giving effect

25
<PAGE> 26
to the increase (but no more) if other than twelve directorships are
authorized immediately prior to such meeting, and the holders of
shares of applicable Class A Preferred Stock shall have the exclusive
and special right, voting separately as a class and without regard to
series, to elect at such annual meeting of stockholders or special
meeting held in place thereof, directors to fill such vacancies so
created, which directors shall not be included in the classes created
by Article Fifth or (ii) in an aggregate amount equal to 6 full
quarterly dividends, the number of authorized directorships shall be
increased by the number of authorized directorships in existence
immediately prior to such meeting plus one additional directorship,
and the holders of shares of applicable Class A Preferred Stock shall
have the exclusive and special right, voting separately as a class and
without regard to series, to elect at such annual meeting of
stockholders or special meeting held in place thereof, directors to
fill such vacancies so created, which directors shall not be included
in the classes created by Article Fifth, in each case until four
consecutive quarterly dividends shall have been paid on or declared
and set apart for payment on the shares of such series, if the shares
of such series are non-cumulative, or until all arrearages in
dividends and dividends in full for the current quarterly period shall
have been paid on or declared and set apart for payment on the shares
of such series, if the shares of such series are cumulative, whereupon

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<PAGE> 27
all voting rights as a class of the holders of shares of applicable
Class A Preferred Stock provided for under this paragraph 8
Subdivision A of Section 4 shall be divested from the holders of
shares of applicable Class A Preferred Stock (subject, however, to
being at any time or from time to time similarly revived if
declarations of dividends for subsequent quarterly periods shall be
omitted).

(c) At any meeting at which the holders of shares of
applicable Class A Preferred Stock shall be entitled to vote as a
class for the election of directors as above provided, the holders of
a majority of the shares of applicable Class A Preferred Stock then
outstanding present in person or by proxy shall constitute a quorum
for the election of such directors and for no other purpose, and the
vote of the holders of a majority of the shares of applicable Class A
Preferred Stock so present at any such meeting at which there shall be
such a quorum shall be sufficient to elect such directors. The
persons so elected as directors by the holders of shares of applicable
Class A Preferred Stock shall hold office until (i) their successors
shall have been elected by such holders or (ii) until the annual
meeting next following the divestiture of the right of the holders of
shares of applicable Class A Preferred Stock to vote as a class in the
election of directors as provided in subparagraph (b) of this
paragraph 8 of Subdivision A of Section 4. If a vacancy occurs in a
directorship elected by the holders of shares of applicable

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<PAGE> 28
Class A Preferred Stock voting as a class, a successor may be
appointed by the remaining director or directors so elected by the
holders of shares of applicable Class A Preferred Stock. Directors
elected pursuant to this paragraph 8 of Subdivision A of Section 4
shall not be removed otherwise than as provided in Article Fifth.

(d) At any such meeting or any adjournment thereof, (i)the
absence of a quorum of the holders of shares of applicable Class A
Preferred Stock shall not prevent the election of the directors other
than those to be elected by holders of shares of applicable Class A
Preferred Stock voting as a class, and the absence of a quorum of
holders of the shares entitled to vote for directors other than those
to be elected by the holders of shares of applicable Class A Preferred
Stock voting as a class shall not prevent the election of the
directors to be elected by the holders of shares of applicable Class A
Preferred Stock voting as a class, and (ii) in the absence of a quorum
of the holders of shares of applicable Class A Preferred Stock, the
holders of a majority of the shares of applicable Class A Preferred
Stock present in person or by proxy shall have power to adjourn from
time to time the meeting for the election of the directors which they
are entitled to elect voting as a class, without notice other than
announcement at the meeting until a quorum shall be present.

9. Class A $5 Cumulative Preferred Stock. The preferences

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<PAGE> 29
and relative, participating, optional and other special rights, and
qualifications, limitations or restrictions of said shares of the Class A $5
Cumulative Preferred Stock shall be as hereinafter set forth, namely:

(a) The annual dividend rate upon the Class A $5 Cumulative
Preferred Stock shall be $5;

(b) The quarterly dividend payment dates of the Class A $5
Cumulative Preferred Stock shall be the first days of January, April,
July and October in each year;

(c) The Class A $5 Cumulative Preferred Stock may be redeemed
at the price of $l05 per share, plus accrued and unpaid dividends.

B. CLASS B PREFERRED STOCK

1. Authority of the Board of Directors of the Corporation to issue
Class B Preferred Stock in Series. The Class B Preferred Stock may be issued
from time to time in one or more series. Subject to the provisions of these
Articles of Incorporation or any amendment thereto, authority is expressly
granted to the Board of Directors of the Corporation to authorize the issue of
one or more series of Class B Preferred Stock, and to fix by resolutions
providing for the issue of each such series the powers, preferences and rights
thereof, to the full extent now or hereafter permitted by law, including but
not limited to the following:

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(a) The number of shares of such series (which may
subsequently be increased by resolutions of the Board of Directors of
the Corporation) and the distinctive designation thereof.

(b) The dividend rate of such series and any limitations,
restrictions or conditions on the payment of such dividends;

(c) The terms and conditions, if any, on which, and the price
or prices at which, the shares of such series may be redeemed;

(d) The amounts which the holders of the shares of such series
are entitled to receive upon any liquidation, dissolution or winding
up of the Corporation;

(e) The terms of any purchase, retirement or sinking fund to
be provided for the shares of such series;

(f) Restrictions upon the declaration or payment of dividends
or other distributions on, or the acquisition or retirement by the
Corporation of, the Common Stock, to take effect upon the occurrence
of any default in the provisions for a sinking fund, if any, for
the particular series and to remain in effect so long as such default
continues; and provisions extending for the benefit of the particular
series for so long as any shares thereof remain outstanding, similar
restrictions with respect to the stock of the Corporation imposed by
the terms of any of its funded indebtedness then outstanding;

(g) The terms and conditions, if any, upon which the

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<PAGE> 31
shares of such series shall be convertible into or exchangeable for
shares of any other class or classes, or of any other series of the
same or any other class or classes of stock of the Corporation;

(h) The voting powers, if any, of such series in addition to
the voting powers provided in paragraphs 5 and 8 of this subdivision B
of Section 4; and

(i) Any other variance in the relative powers, preferences and
rights as between different series not inconsistent with these
Articles of Incorporation or any amendments thereto, to the full
extent now or hereafter allowed by law.

The Class B Preferred Stock of each series shall rank on a parity
with the Class B Preferred Stock of every other series in priority of payment
of dividends and in the distribution of assets in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
to the extent of the preferential amounts to which the Class B Preferred Stock
of the respective series shall be entitled under the provisions of these
Articles of Incorporation or any amendment thereto or the resolutions of the
Board of Directors of the Corporation providing for the issue of such series.
All shares of any one series of Class B Preferred Stock shall be identical
except as to the dates of issue and the dates from which dividends on shares
of the series issued on different dates shall accumulate (if cumulative).

2. Dividend rights.

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<PAGE> 32
(a) The holders of shares of Class B Preferred Stock of each
series shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, preferential dividends, from the date
fixed by the resolutions of the Board of Directors of the Corporation
authorizing the issuance thereof, in cash payable at such rate, from
such date, and on such quarterly dividend payment dates and, if
cumulative, cumulative from such date or dates, as may be fixed by the
provisions of these Articles of Incorporation or any amendment thereto
or by the resolutions of the Board of Directors of the Corporation
providing for the issue of such series. The holders of shares of
Class B Preferred Stock shall not be entitled to receive any dividends
thereon other than those specifically provided for by these Articles
of Incorporation or any amendment thereto, or such resolutions of the
Board of Directors of the Corporation, nor shall any arrearages in
dividends on the Class B Preferred Stock bear any interest.

(b) So long as any of the Class B Preferred Stock is outstanding,
no dividends (other than dividends payable in stock junior to the
Class B Preferred Stock and cash in lieu of fractional shares in
connection with any such dividend) shall be paid or declared in cash
or otherwise, nor shall any other distribution be made, on any stock
junior to the Class B Preferred Stock, unless

(i) there shall be no arrearages in dividends on the
Class B Preferred Stock for any past quarterly

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<PAGE> 33
dividend period, and dividends in full for the current
quarterly dividend period shall have been paid or declared
on all of the Class B Preferred Stock (cumulative and
non-cumulative) and

(ii) the Corporation shall have paid or set aside
all amounts, if any, then or theretofore required to be paid
or set aside for all sinking funds, if any, for the Class B
Preferred Stock of any series; and

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<PAGE> 34
(iii) the Corporation shall not be in default on any
of its obligations to redeem any of the Class B Preferred
Stock.

(c) So long as any of the Class B Preferred Stock is
outstanding, no shares of any stock junior to the Class B Preferred
Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or by any subsidiary except (i) in connection with a
reclassification or exchange of any stock junior to the Class B
Preferred Stock through the issuance of other stock junior to the
Class B Preferred Stock at the time outstanding, or (ii) in connection
with the purchase, redemption or other acquisition of any stock junior
to the Class B Preferred Stock with proceeds of a reasonably
contemporaneous sale of other stock junior to the Class B Preferred
Stock at the time outstanding, or (iii) payments in cash in lieu of
fractional shares upon the conversions of any convertible stock junior
to the Class A Preferred Stock, nor shall any funds be set aside or
made available for any sinking fund for the purchase or redemption of
any stock junior to the Class B Preferred Stock, unless

(i) there shall be no arrearages in dividends on
Class B Preferred Stock for any past quarterly dividend
period, and dividends in full for the current dividend period
shall have been paid or declared on all of the Class B
Preferred Stock (cumulative and non-cumulative); and

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<PAGE> 35
(ii) the Corporation shall have paid or set aside all
amounts, if any, then or theretofore required to be paid or
set aside for all sinking funds, if any, for the Class B
Preferred Stock of any series; and

(iii) the Corporation shall not be in default on any
of its obligations to redeem any of the Class B Preferred
Stock.

(d) Subject to the foregoing provisions and not otherwise,
such dividends (payable in cash, property or stock junior to the Class
B Preferred Stock) as may be determined by the Board of Directors of
the Corporation may be declared and paid on the shares of any stock
junior to the Class B Preferred Stock from time to time, and in the
event of the declaration and payment of any such dividends, the
holders of shares of such junior stock shall be entitled, to the
exclusion of holders of shares of Class B Preferred Stock, to share
ratably therein according to their respective interests.

(e) Dividends in full shall not be declared or paid or set
apart for payment on any series of Class B Preferred Stock, unless
there shall be no arrearages in dividends on any Class B Preferred
Stock for any past quarterly dividend period and dividends in full
for the current quarterly dividend period shall have been paid or
declared on all Class B Preferred Stock to the extent that such
dividends are cumulative and any dividends paid or declared when
dividends

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<PAGE> 36
are not so paid or declared in full shall be shared ratably by the
holders of shares of all series of Class B Preferred Stock in
proportion to such respective arrearages and unpaid and undeclared
current quarterly dividends.

(f) Dividends shall not be declared or paid or set apart for
payment on any series of Class B Preferred Stock, unless there shall
be no arrearages in dividends on any series of Class A Preferred Stock
entitled to cumulative dividends for any past quarterly dividend
period and dividends in full for the current dividend period shall
have been paid or declared or set apart for payment on all Class A
Preferred Stock.

3. Liquidation rights.

(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of
shares of Class B Preferred Stock of each series shall be entitled to
receive, subject to the prior rights of the holders of shares of Class
A Preferred Stock set forth in paragraph 3 of Subdivision A of Section
4, the full preferential amount fixed by these Articles of
Incorporation or any amendment thereto, or by the resolutions of the
Board of Directors of the Corporation providing for the issue of such
series, including any arrearages in dividends thereon to the date
fixed for the payment in liquidation, before any distribution shall be
made to the holders of shares of any stock junior to the Class B
Preferred Stock. After such payment in full to the holders of shares
of the Class B

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<PAGE> 37
Preferred Stock, the remaining assets of the Corporation shall then be
distributable exclusively among the holders of shares of any stock
junior to the Class B Preferred Stock, according to their respective
interests.

(b) If the assets of the Corporation are insufficient to
permit the payment of the full preferential amounts payable to the
holders of shares of Class B Preferred Stock of the respective series
in the event of a liquidation, dissolution or winding up, then the
assets available for distribution to holders of shares of Class B
Preferred Stock shall be distributed ratably to such holders in
proportion to the full preferential amounts payable on the respective
shares.

(c) A consolidation or merger of the Corporation with or
into one or more other corporations or a sale of all or substantially
all of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of
the Corporation.

4. Redemption.

(a) The Corporation may, at the option of the Board of
Directors, redeem the whole or any part of the Class B Preferred
Stock, or of any series thereof, at any time or from time to time
within the period during which such stock is, according to the
resolutions of the Board of Directors of the Corporation providing for
the issue thereof, redeemable at the option of the Board of Directors
of the Corporation, by paying such redemption price thereof, as shall
have been fixed

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<PAGE> 38
by these Articles of Incorporation or any amendment thereto or by the
resolutions of the Board of Directors of the Corporation providing for
the issue of the Class B Preferred Stock to be redeemed, including an
amount in the case of each share so to be redeemed equal to any
arrearages in dividends thereon to the date fixed for redemption (the
total amount so to be paid being hereinafter referred to as the
"redemption price").

(b) Unless expressly provided otherwise in the resolutions of
the Board of Directors of the Corporation providing for the issue of
the Class B Preferred Stock to be redeemed, (i) notice of each such
redemption shall be mailed not less than thirty days nor more than
ninety days prior to the date fixed for redemption to each holder of
record of shares of the Class B Preferred Stock to be redeemed, at his
address as the same may appear on the books of the Corporation, and
(ii) in case of a redemption of a part only of any series of the Class
B Preferred Stock, the shares of such series to be redeemed shall be
selected pro rata or by lot or in such other equitable manner as the
Board of Directors of the Corporation may determine. The Board of
Directors of the Corporation shall have full power and authority,
subject to the limitations and provisions contained in these Articles
of Incorporation or any amendment thereto or in the resolutions of the
Board of Directors of the Corporation providing for the issue of the
Class B Preferred Stock to be redeemed, to prescribe the manner in
which and the

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<PAGE> 39
terms and conditions upon which the Class B Preferred Stock may be
redeemed from time to time.

(c) If any such notice of redemption shall have been duly
given, then on and after the date fixed in such notice of redemption
(unless default shall be made by the Corporation in the payment or
deposit of the redemption price pursuant to such notice) all
arrearages in dividends, if any, on the shares of Class B Preferred
Stock so called for redemption shall cease to accumulate, and on such
date all rights of the holders of shares of the Class B Preferred
Stock so called for redemption shall cease and terminate except the
right to receive the redemption price upon surrender of their
certificates for redemption and such rights, if any, of conversion or
exchange as may exist with respect to such Class B Preferred Stock
under the provisions of these Articles of Incorporation or any
amendment thereto or in the resolutions of the Board of Directors of
the Corporation providing for the issue of such Class B Preferred
Stock.

(d) If, before the redemption date specified in any notice of
the redemption of any Class B Preferred Stock, the Corporation shall
deposit the redemption price with a bank or trust company in the
continental United States, having a capital and surplus of at least
$5,000,000 according to its last published statement of condition, in
trust for payment on the redemption date to holders of shares of Class
B Preferred Stock to be redeemed, from and after the date of such
deposit

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<PAGE> 40
all rights of the holders of shares of Class B Preferred Stock so
called for redemption shall cease and terminate except the right to
receive the redemption price upon surrender of their certificates for
redemption and such rights, if any, of conversion or exchange as may
exist with respect to such Class B Preferred Stock under the
provisions of these Articles of Incorporation or any amendment thereto
or in the resolutions of the Board of Directors of the Corporation
providing for the issue of such Class B Preferred Stock. Any funds so
deposited which are not required for such redemption because of the
exercise of any such right of conversion or exchange subsequent to the
date of such deposit shall be returned to the Corporation forthwith.
The Corporation shall be entitled to receive from the depositary, from
time to time, the interest, if any, allowed on such funds deposited
with it, and the holders of the shares so redeemed shall have no claim
to any interest. Any funds so deposited and remain unclaimed at the
end of six years from the redemption date shall, if thereafter
requested by the Board of Directors of the Corporation, be repaid to
the Corporation.

(e) Shares of Class B Preferred Stock of any series may
also be subject to redemption, in the manner hereinabove prescribed
under this paragraph 4 of Subdivision B of Section 4, through
operation of any sinking fund created therefor, at the redemption
prices and under the terms and provisions contained in the
resolutions of the Board of Directors of the

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<PAGE> 41
Corporation providing for the issue of such series.

(f) The Corporation shall not be required to register a
transfer of any share of Class B Preferred Stock (i) within fifteen
days preceding a selection for redemption of shares of the series of
Class B Preferred Stock of which such share is a part or (ii) which
has been selected for redemption.

(g) During the continuance of any arrearages in dividends
for any past quarterly dividend period or a failure in fulfillment of
any sinking fund or redemption obligation on any series of Class B
Preferred Stock, the Corporation shall not purchase or redeem less
than all of the shares of Class B Preferred Stock or of any other
stock ranking on a parity with the Class B Preferred Stock as to
dividends and upon liquidation, nor permit any subsidiary to do so
without the consent given in writing or affirmative vote given in
person or by proxy at a meeting called for the purpose, by the holders
of at least fifty per cent (50%) of all the shares of Class B
Preferred Stock then outstanding; provided that (i) to meet the
requirements of any purchase, retirement or sinking fund provisions
with respect to any series, the Corporation may use shares of such
series acquired by it prior to such arrearages in dividends or failure
of payment and then held by it as treasury stock, valued at the
redemption price, and (ii) the Corporation may complete the purchase
or redemption of shares of Class B Preferred Stock or any other stock
ranking on a parity with the Class B Preferred Stock as to dividends

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<PAGE> 42
and upon liquidation for which a purchase contract was entered into
for any purchase, retirement or sinking fund purposes, or the notice
of redemption of which was initially mailed, prior to such arrearages
in dividends or failure of payment.

(h) If any obligation to retire shares of Class B
Preferred Stock is not paid in full on all series as to which such
obligation exists, the number of shares of each such series to be
retired pursuant to any such obligation shall be in proportion to the
respective amounts which would be payable

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<PAGE> 43
if all amounts payable for the retirement of such series were
discharged in full.

5. Restrictions on certain actions affecting Class B Preferred
Stock. The Corporation will not, without the consent given in writing or
affirmative vote given in person or by proxy at a meeting held for the purpose,

(a) by the holders of at least fifty per cent (50%) of the
shares of Class B Preferred Stock then outstanding,

(i) amend, alter or repeal any of the provisions of
these Articles of Incorporation, or any amendment thereto, or
By-laws of the Corporation, so as to affect adversely the
voting powers, rights or preferences of the holders of
shares of Class B Preferred Stock or reduce the time for any
notice to which the holders of shares of Class B Preferred
Stock may be entitled; provided, however, that the amendment
of the provisions of these Articles of Incorporation, as
amended, so as to increase the authorized amount of Common
Stock, Class B Preferred Stock, any other class of stock
junior to the Class B Preferred Stock, any stock of any class
ranking on a parity with the Class B Preferred Stock or the
Class A Preferred Stock shall not be deemed to affect
adversely the powers, rights or preferences of the holder of
shares of Class B Preferred Stock;

(ii) create any other class or classes of stock
or any security convertible into, or exchangeable for or

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<PAGE> 44
evidencing the right to purchase any stock of a class ranking
on a parity with the Class B Preferred Stock, either as to
dividends or upon liquidation;

(iii) create any class or classes of stock ranking
prior to the Class B Preferred Stock; or (iv) merge or
consolidate with or into any other corporation, unless the
corporation resulting from such merger or consolidation will
have after such merger or consolidation no class of stock
either authorized or outstanding ranking prior to the Class B
Preferred Stock, and no securities either authorized or
outstanding which are convertible into or exchangeable for
stock ranking prior to the Class B Preferred Stock except the
same number of shares of prior stock and the same amount of
such convertible securities with the same rights and
preferences as the prior stock and such convertible securities
of the Corporation, respectively, authorized and outstanding
immediately preceding such merger or consolidation, and unless
each holder of shares of Class B Preferred Stock immediately
preceding such a merger or consolidation shall receive the
same number of shares, with substantially the same rights and
preferences, of the resulting corporation;

provided, however, that no such consent of the holders of shares of
Class B Preferred Stock then outstanding shall be required if, at or
prior to the taking effect of the event

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which would otherwise require such consent, provision shall be made
for the redemption of all shares of Class B Preferred Stock.

(b) by the holders of at least fifty per cent (50%) of the
shares of any series of Class B Preferred Stock then outstanding,
amend, alter or repeal any of the provisions of these Articles of
Incorporation or any amendment thereto or of the resolutions of the
Board of Directors of the Corporation providing for the issue of such
series so as to affect adversely the powers, preferences or rights of
the holders of shares of Class B Preferred Stock of such series;
provided, however, that no such consent of the holders of shares of
any series of Class B Preferred Stock shall be required if, at or
prior to the taking effect of the event which would otherwise require
such consent, provision shall have been made for the redemption of all
shares of such series.

6. Status of Class B Preferred Stock purchased, redeemed or
converted. Shares of Class B Preferred Stock purchased, redeemed or converted
into or exchanged for shares of any other class or series shall be deemed to
be authorized but unissued shares of Class B Preferred Stock undesignated as
to series.

7. Voting Rights. On all matters upon which the holders of
shares of Common Stock of the Corporation are entitled to vote, unless
otherwise provided in these Articles of Incorporation or any amendment thereto
or the resolutions of the Board of Directors providing for the issuance of
shares of one or more series of Class

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B Preferred Stock, each holder of shares of Class B Preferred Stock shall have
the right to vote upon a share-for-share basis with the holders of shares of
Common Stock.
8. Election of Directors by holders of shares of Class B
Preferred Stock in event of Nondeclaration of Dividends.

(a) The provisions of this paragraph 8 of Subdivision B
of Section 4 shall apply only to those series of Class B Preferred
Stock to which such provisions are expressly made applicable by these
Articles of Incorporation or any amendment thereto or resolutions of
the Board of Directors of the Corporation providing for the issue of
such series (hereinafter referred to as the applicable Class B
Preferred Stock), subject to the rights of the holders of Class A
Preferred Stock.

(b) If 30 days prior to the date of any annual meeting of
the stockholders, holders of shares of Class A Preferred Stock are not
entitled to exclusive and special voting rights in the election of
directors pursuant to paragraph 8 of Subdivision A of Section 4 and
declarations of dividends (including non-cumulative dividends) on the
shares of any series of applicable Class B Preferred Stock shall be
omitted (i) in an aggregate amount equal to 3 (but less than 6) full
quarterly dividends, the number of authorized directorships shall be
increased by six, if twelve directorships are authorized immediately
prior to such meeting, or by the number of full directorships which
will represent at least one-third

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<PAGE> 47
of the total number of directorships giving effect to the increase
(but no more) if other than twelve directorships are authorized
immediately prior to such meeting, and the holders of shares of
applicable Class B Preferred Stock shall have the exclusive and
special right, voting separately as a class and without regard to
series, to elect at such annual meeting of stockholders or special
meeting held in place thereof, directors to fill such vacancies so
created, which directors shall not be included in the classes created
by Article Fifth or (ii) in an aggregate amount equal to 6 full
quarterly dividends, the number of authorized directorships shall be
increased by the number of authorized directorships in existence
immediately prior to such meeting plus one additional directorship,
and the holders of shares of applicable Class B Preferred Stock shall
have the exclusive and special right, voting separately as a class and
without regard to series, to elect at such annual meeting of
stockholders or special meeting held in place thereof, directors to
fill such vacancies so created, which directors shall not be included
in the classes created by Article Fifth, in each case until four
consecutive quarterly dividends shall have been paid on or declared
and set apart for payment on the shares of such series, if the shares
of such series are non-cumulative, or until all arrearages in
dividends and dividends in full for the current quarterly period shall
have been paid on or declared and set apart for payment on the shares
of such

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<PAGE> 48
series, if the shares of such series are cumulative whereupon all
voting rights as a class of the holders of shares of applicable Class
B Preferred Stock provided for under this paragraph 8 Subdivision B of
Section 4 shall be divested from the holders of shares of applicable
Class B Preferred Stock (subject, however, to being at any time or
from time to time similarly revived if declarations of dividends for
subsequent quarterly periods shall be omitted).

(c) At any meeting at which the holders of shares of
applicable Class B Preferred Stock shall be entitled to vote as a
class for the election of such directors as above provided, the
holders of a majority of the shares of applicable Class B Preferred
Stock then outstanding present in person or by proxy shall constitute
a quorum for the election of such directors and for no other purpose,
and the vote of the holders of a majority of the shares of applicable
Class B Preferred Stock so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect such directors.
The persons so elected as directors by the holders of shares of
applicable Class B Preferred Stock shall hold office until (i) their
successors shall have been elected by such holders or (ii) until the
annual meeting next following the divestiture of the right of the
holders of shares of applicable Class B Preferred Stock to vote as a
class in the election of directors as provided in subparagraph (b) of
this paragraph 8 of Subdivision B of Section 4. If a vacancy

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<PAGE> 49
occurs in a directorship elected by the holders of shares of
applicable Class B Preferred Stock voting as a class, a successor may
be appointed by the remaining director or directors so elected by the
holders of shares of applicable Class B Preferred Stock. Directors
elected pursuant to this paragraph 8 of Subdivision B of Section 4
shall not be removed otherwise than as provided in Article Fifth.

(d) At any such meeting or any adjournment thereof,
(i) the absence of a quorum of the holders of shares of applicable
Class B Preferred Stock shall not prevent the election of the
directors other than those to be elected by holders of shares of
applicable Class B Preferred Stock voting as a class, and the absence
of a quorum of holders of the shares entitled to vote for directors
other than those to be elected by the holders of shares of applicable
Class B Preferred Stock voting as a class shall not prevent the
election of the directors to be elected by the holders of shares of
applicable Class B Preferred Stock voting as a class, and (ii) in the
absence of a quorum of the holders of shares of applicable Class B
Preferred Stock, the holders of a majority of the shares of applicable
Class B Preferred Stock present in person or by proxy shall have power
to adjourn from time to time the meeting for the election of the
directors which they are entitled to elect voting as a class, without
notice other than announcement at the meeting until a quorum shall be
present.

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C. COMMON STOCK

1. Dividends rights. Subject to provisions of law and the
preferences of the Class A Preferred Stock and the Class B Preferred Stock, the
holders of shares of the Common Stock of the Corporation shall be entitled to
receive dividends at such time and in such amounts as may be determined by the
Board of Directors of the Corporation.

2. Voting rights. The holders of shares of the Common Stock of
the Corporation shall have one vote for each share on each matter submitted to
a vote of the stockholders of the Corporation.

3. Liquidation rights. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of
the Corporation and the preferential amounts to which the holders of shares of
Class A Preferred Stock and Class B Preferred Stock shall be entitled, the
holders of shares of the Common Stock shall be entitled to share ratably in the
remaining assets of the Corporation.

D. GENERAL PROVISIONS

1. Authority to authorize additional shares. The authorized
number of shares of the Common Stock, Class A Preferred Stock and Class B
Preferred Stock of the Corporation may be increased at any time and from time
to time upon affirmative vote of the holders of a majority of all the shares of
stock of the Corporation at the time outstanding.

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2. Authority for issuance of shares. The Board of Directors of
the Corporation shall have authority to authorize the issuance, from time to
time without any vote or other action by the holders of shares of stock of the
Corporation, of shares of Common Stock, Class A Preferred Stock and Class B
Preferred Stock and any authorized shares of Common Stock into which such
shares of stock are convertible to such persons and for such consideration and
on such terms as the Board of Directors of the Corporation from time to time in
its discretion lawfully may determine. Shares of Common Stock, Class A
Preferred Stock and Class B Preferred Stock so issued, for which the
consideration has been paid to the Corporation, shall be full paid stock, and
the holders of shares of such stock shall not be liable to any further call or
assessments thereon. Authorized shares of Common Stock issued upon the
conversion of any other stock of the Corporation shall be full paid stock, and
the holders of such stock shall not be liable to any further call or
assessments thereon.

3. Abandonment of dividends and distributions. Anything herein
contained to the contrary notwithstanding any and all right, title, interest,
and claim in or to any dividends declared, or other distributions made, by the
Corporation, whether in cash, stock or otherwise, on the Stock of the
Corporation which are unclaimed by the stockholder entitled thereto for a
period of six years after the close of business on the payment date, shall be
and be deemed to be extinguished and abandoned; and such unclaimed dividends or
other distributions in the possession of the

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Corporation, its transfer agents or other agents or depositaries, shall at such
time become the absolute property of the Corporation free and clear of any and
all claims of any persons whatsoever.

4. No stockholder of this Corporation and no holder of any other
security issued by this Corporation shall, by reason of his holding any of its
shares of stock or other securities have any preemptive or preferential right
to purchase or subscribe for any shares of stock of this Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase any of its shares
of stock now or hereafter to be authorized, whether or not the issuance of any
such shares, or such notes, debentures, bonds or other securities would
adversely affect the dividend, voting or other rights of such stockholder or
other security holders, other than such rights, if any, as the Board of
Directors, in its discretion from time to time may grant, and at such price as
the Board of Directors in its discretion may fix and the Board of Directors may
issue shares of stock of this Corporation, or any notes, debentures, bonds, or
other securities convertible into or carrying options or warrants to purchase
any of its shares of stock without offering any such shares, either in whole or
in part, to existing stockholders of the Corporation.

SEVENTH

SECTION 1

For the purposes of this Article Seventh: (i) the term "Person" shall
include any individual, corporation, partnership,

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trust, unincorporated organization or other entity, any syndicate or group or
any two or more of the foregoing that have any agreement or understanding (or,
with or without an agreement or understanding, act in concert) with respect to
acquiring, holding, voting or disposing of securities of the Corporation, and
shall include also any "affiliate" or "associate" (as those terms are defined
in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect on January 1, 1975) of any Person: (ii) any
Person shall be deemed to be the beneficial owner of any securities of the
Corporation which such Person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise; (iii) the term "Substantial Part" shall mean any assets having a
then fair market value, in the aggregate, of more than $5,000,000; (iv) the
term "Subsidiary" shall mean any corporation in which the Corporation owns,
directly or indirectly, more than 50% of the voting securities; (v) the term
"Substantial Amount" shall mean any securities of the Corporation having a then
fair market value of more than $5,000,000; (vi) the outstanding securities of
any class of the Corporation shall include securities deemed owned through
application of the preceding clauses of this Section 2 of this Article Seventh,
but shall not include any other securities which may be issuable pursuant to
any agreement or upon exercise of conversion rights, warrants or options, or
otherwise; and (vii) a "Required Vote" shall mean the affirmative vote of at
least the holders of two-thirds (2/3) of all of the securities of the

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Corporation then entitled to vote at a meeting of stockholders, considered for
the purposes of this Article Seventh as one class.

SECTION 2

Except as set forth in Section 4 of this Article Seventh, a Required
Vote shall be necessary (i) for the adoption of any agreement for the merger or
consolidation of the Corporation with or into any other Person, or (ii) to
authorize any sale, lease, exchange, mortgage, pledge or other disposition of
all, or substantially all, or any Substantial Part of the assets of the
Corporation or any Subsidiary to any other Person, or (iii) to authorize the
issuance or transfer by the Corporation of any Substantial Amount of securities
of the Corporation in exchange for the securities or assets of any other
Person, if, in any such case, as of the record date for the determination of
security holders entitled to notice thereof and to vote thereon, such other
Person is the beneficial owner, directly or indirectly, of more than 5% of the
outstanding securities of the Corporation then entitled to vote at a meeting of
stockholders, considered for the purposes of this Article Seventh as one class.
The Required Vote shall be in lieu of any lesser vote of the holders of the
voting securities of the Corporation voting as one class otherwise required by
law or by agreement, but shall be in addition to any class vote or other vote
otherwise required by law, these Articles of Incorporation or by any agreement
or contract to which the Corporation is a party.

SECTION 3

The Board of Directors of the Corporation shall have the power

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and duty to determine for the purposes of this Article Seventh, on the basis of
information known to the Corporation, whether this Article Seventh applies to
any transaction, including but not limited to whether (i) such transaction
involves a Substantial Part of the assets of the Corporation and its
subsidiaries, (ii) one or more Persons are to be deemed to be a single Person,
(iii) a Person is an "affiliate" or "associate" (as defined above) of another,
(iv) any Person beneficially owns more than 5% of the outstanding securities of
the Corporation then entitled to vote at a meeting of stockholders, (v) a
Person has an agreement or understanding, or is acting in concert, with respect
to acquiring, holding, voting or disposing of securities of the Corporation,
and (vi) the memorandum of understanding referred to in Section 4 of this
Article Seventh is substantially consistent with the transaction covered
thereby. Determinations of the Board of Directors of the Corporation shall be
conclusive and binding for all purposes of this Article Seventh.

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SECTION 4

The provisions of this Article Seventh shall not be applicable to (i)
any agreement or transaction referred to in Section 2 of this Article Seventh,
if the Board of Directors of the Corporation shall by resolution have approved
a memorandum of understanding with the other Person who is a party to such
agreement or transaction with respect to, and substantially consistent with,
such transaction and such resolution shall have been approved either (A) prior
to the time that such Person shall have become a holder of more than 5% of the
outstanding securities of the Corporation then entitled to vote at a meeting of
stockholders, or (B) by sufficient members of the Board of Directors who were
directors prior to the time that such Person shall have become a holder of more
than 5% of the outstanding securities of the Corporation then entitled to vote
at a meeting of stockholders, to constitute a majority of the total number of
directorships (including vacant directorships), or (ii) any merger or
consolidation of the Corporation with or into any Person, or any sale, lease or
exchange of any of the assets of any Person to the Corporation or any
subsidiary thereof if a majority of the outstanding shares of all classes of
stock then entitled to vote at

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a meeting of stockholders of such Person is owned by the Corporation and its
Subsidiaries.

EIGHTH

The power to make, alter or repeal the By-laws of the Corporation
shall be vested exclusively in the Board of Directors of the Corporation.

NINTH

SECTION 1

The Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the Corporation, by
reason of the fact that he is or was a director or officer of the Corporation,
or, while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including attorneys' fees, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo

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contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe, that his conduct was unlawful.

SECTION 2

The Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
Corporation, or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit including attorneys' fees if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably

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entitled to indemnity for such expenses which the court shall deem proper.

SECTION 3

The Board of Directors of the Corporation shall have the power, in its
discretion, to cause the Corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding referred to in Sections 1 or 2 of this
Article Ninth by reason of the fact that (although not a director or officer of
the Corporation) he is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise to the extent that any such person would have been entitled to be
indemnified under Sections 1 and 2 had he at all times been a director or
officer of the Corporation.

SECTION 4

To the extent that a person who is or was a director or officer of the
Corporation, or, while a director or officer of the Corporation, of any other
corporation, partnership, joint venture, trust or other enterprise with which
he is or was serving in such capacity at the request of the Corporation, has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by

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him in connection therewith, including attorneys' fees.

SECTION 5

Any indemnification under Sections 1, 2 or 3 of this Article Ninth,
unless ordered by a court, shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Sections 1 or 2. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders.

SECTION 6

Expenses incurred by a director or officer in defending a civil,
criminal, administrative or investigative action, suit or proceeding, or threat
thereof, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that he shall not be entitled to be indemnified by the Corporation
as authorized by this Article Ninth. Such expenses incurred by other employees
and agents may be so paid upon such term and condition, if any, as the Board of
Directors deems appropriate.
SECTION 7

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The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue unless otherwise provided when authorized or
ratified, as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.

SECTION 8

For purposes of this Article, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.

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SECTION 9

For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.

SECTION 10

The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article Ninth.

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TENTH

Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them, secured or unsecured, or
between this Corporation and its stockholders, or any class of them, any court,
state or federal, of competent jurisdiction with the state of Kansas may on the
application in a summary way of this Corporation, or of any creditor, secured
or unsecured, or stockholders thereof, or on the application of trustees in
dissolution, or on the application of any receiver or receivers appointed for
this Corporation by any Court, state or federal, of competent jurisdiction,
order a meeting of the creditors or class of creditors, secured or unsecured,
or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

ELEVENTH

The Corporation may voluntarily liquidate and dissolve only if

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the proposed liquidation and dissolution is approved by the affirmative vote of
at least the holders of two-thirds (2/3) of all of the securities of the
Corporation then entitled to vote at a meeting of stockholders, considered for
the purposes of this Article Eleventh as one class.

TWELFTH

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in any manner now
or hereafter prescribed by statute; provided that no amendment to these
Articles of Incorporation shall amend, alter, change or repeal any of the
provisions of Article Fifth, Article Seventh, Article Eighth, Article Eleventh
or this Article Twelfth; unless the amendment effectuating such amendment,
alteration, change or repeal shall have received the affirmative vote of the
holders of at least two-thirds (2/3) of all the securities of the Corporation
then entitled to vote on such amendment, alteration, change or repeal,
considered as one class. Such two-thirds (2/3) affirmative vote shall be in
addition to any vote of the holders of securities of the Corporation otherwise
required by law, these Articles of Incorporation, or any agreement or contract
to which the Corporation is a party.

THIRTEENTH

SECTION 1

For the purpose of this Article Thirteenth: (i) the term
"Person" shall include any individual, corporation, partnership, trust,
unincorporated organization or other entity, any syndicate

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or group of any two or more of the foregoing that have any agreement or
understanding (or, with or without an agreement or understanding, act in
concert) with respect to acquiring, holding, voting or disposing of voting
securities of the Corporation, and shall include also any affiliate or
associate of any Person; (ii) any Person shall be deemed to be the beneficial
owner of any voting securities of the Corporation (a) which such Person
beneficially owns, as determined pursuant to Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of l934 as in effect on
January 1, l985, and (b) which such Person has the right to acquire pursuant to
any agreement or upon exercise of conversion rights, warrants or options, or
otherwise; (iii) the term "Substantial Part" shall mean any assets having a
then fair market value, in the aggregate, of more than $5,000,000; (iv) the
term "Subsidiary" shall mean any corporation in which the Corporation owns,
directly or indirectly, more than 50% of the voting securities; (v) the term
"Substantial Amount" shall mean any voting securities of the Corporation having
a then fair market value of more than $5,000,000; (vi) the outstanding voting
securities of any class of the Corporation shall include voting securities
deemed owned through application of the preceding clauses of this Section 1 of
this Article Thirteenth, but shall not include any other voting securities
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise; (vii) the term "Related Person"
shall mean and include any Person which is the beneficial owner, directly or
indirectly,

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of 10% or more of the outstanding voting securities of the Corporation
(considered for the purposes of this Article Thirteenth as one class); (viii)
the term "Related Person Director" shall mean and include each director of the
Corporation who is himself or herself a Related Person or an affiliate or
associate of a Related Person or an officer, director, employee or agent of a
Related Person or of an affiliate or associate of a Related Person; (ix) the
term "Interested Related Person" shall mean and include a Related Person that
is a party to, or is an affiliate or associate of a party to, or will
experience an increase in its proportionate interest in the outstanding voting
securities of any class of the Corporation as a result of, an agreement,
authorization or transaction referred to in Section 2 of this Article
Thirteenth; (x) the term "Required Vote" shall mean the affirmative vote or
consent of the holders of 80% of the outstanding voting securities of all
classes of the Corporation entitled to vote in elections of directors
(considered for the purposes of this Article Thirteenth as one class); (xi) the
terms "affiliate" and "associate" shall have the meanings ascribed to them in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934 as in effect on January 1, 1985; and (xii) the term "Fair Market
Price" of any voting security of any class shall mean the highest sale price
reported during the 30-day period immediately preceding the date in question of
such security (a) on the Composite Tape of the New York Stock Exchange-Listed
Stocks, or (b) if such voting security is not quoted on such Composite Tape, on
the New York

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Stock Exchange, or (c) if such voting security is not listed on such Exchange,
on the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such voting security is listed, or (d)
if such voting security is not listed on any such exchange, the highest asked
quotation for such voting security reported during the 30-day period preceding
the date in question on the National Association of Securities Dealers, Inc.
Automated Quotations Systems or any system then in use. If no such quotations
are available, the "Fair Market Price" of any voting security of any class
shall mean the fair value on the date in question of such voting security as
determined by a majority of the directors who are not Related Person Directors.

SECTION 2

Except as set forth in Section 4 of this Article Thirteenth, a
Required Vote shall be necessary (i) for the adoption of any agreement for the
merger or consolidation of the Corporation or any of its subsidiaries with or
into any Related Person; or (ii) to authorize any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all, or substantially all,
or any Substantial Part of the assets of the Corporation or of any Subsidiary
to any Related Person; or (iii) to authorize the issuance or transfer by the
Corporation and its subsidiaries of any Substantial Amount of voting securities
of the Corporation in exchange for the securities or assets of any Related
Person; or (iv) to authorize any recapitalization of the Corporation or any
Subsidiary, or merger or consolidation of the Corporation with any Subsidiary,
which has the

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effect, directly or indirectly, of increasing the proportionate interest of any
Related Person in the outstanding voting securities of any class of the
Corporation or any Subsidiary. The Required Vote shall be in lieu of any
lesser vote of the holders of the voting securities of the Corporation voting
as one class otherwise required by law or by agreement, but shall be in
addition to any class vote or other vote otherwise required by law, these
Articles of Incorporation or by any agreement or contract to which the
Corporation is a party.

SECTION 3

The Board of Directors of the Corporation, acting by resolution
adopted by a majority of those members of the Board of Directors who are not
themselves Related Person Directors, shall have the power and duty to determine
for the purposes of this Article Thirteenth on the basis of information known
to the Corporation, whether this Article Thirteenth applies to any transaction,
including but not limited to whether (i) such transaction involves a
Substantial Part of the assets of the Corporation or any Subsidiary, (ii) such
transaction involves a Substantial Amount of the voting securities of the
Corporation, (iii) one or more Persons are to be deemed to be a single Person,
(iv) a Person is an affiliate or associate of another, (v) any Person
beneficially owns more than 10% of the outstanding voting securities of the
Corporation, (vi) any Person has the right to acquire voting securities of the
Corporation, (vii) any Person has any agreement or understanding with respect
to acquiring,

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holding, voting or disposing of voting securities of the Corporation, (viii)
any Person is acting in concert with any Person, (ix) an amount equals or
exceeds the highest per share price paid or payable by an Interested Related
Person for voting securities of the Corporation or (x) an amount equals or
exceeds the Fair Market Price of the voting securities of the Corporation,
(xi) a form of consideration other than cash is the same form as that used by
an Interested Related Person to acquire the largest number of voting securities
of the Corporation previously acquired by an Interested Related Person, (xii)
an investment banking firm is a major investment banking firm of national
reputation, (xiii) a fee to be paid by investment banking firm is reasonable,
or (xiv) an investment banking firm has been previously associated with an
Interested Related Person within the three years immediately preceding its
selection. Determinations of the Board of Directors

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of the Corporation shall be conclusive and binding for all purposes of this
Article Thirteenth.

SECTION 4

The provisions of this Article Thirteenth shall not be applicable to
any agreement or transaction referred to in Section 2 of this Article
Thirteenth if either:

(i) such agreement or transaction shall have been
approved by a resolution adopted by three-fourths of those
members of the Board of Directors of the Corporation holding
office at the time such resolution is adopted who are not
themselves Related Person Directors; or

(ii) all of the following conditions have been met:
(a) the aggregate amount of the cash and the fair market value
(as determined by the investment banking firm referred to in
clause (d) below) of consideration other than cash to be
received per voting security in the transaction by holders of
voting securities of the Corporation is not less than the
higher of (1) the highest price per voting security (including
any brokerage commissions, transfer taxes, soliciting dealer's
fees, dealer-management compensation and similar expenses)
paid or payable by any Interested Related Person in connection
with the acquisition of beneficial ownership of any voting
securities within the three-year period immediately prior to
the record date for the

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determination of stockholders of the Corporation entitled to
vote on or consent to the transaction, and (2) the Fair Market
Price per voting security on such record date; (b) the
consideration to be received by holders of voting securities
of the Corporation other than any Interested Related Person
shall be either in cash or in the form used by any Interested
Related Person in connection with the acquisition of the
largest number of voting securities of the Corporation
previously acquired by any interested Related Person; (c) at
the record date for the determination of stockholders of the
Corporation entitled to vote on the proposed transaction,
there shall be one or more directors of the Corporation who
are not Related Person Directors; and (d) a proxy or
information statement describing the proposed transaction and
complying with the requirements of the Securities Exchange Act
of l934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to the holders of outstanding
voting securities of the Corporation entitled to vote in
elections of directors as of the record date for the
determination of stockholders of the Corporation entitled to
vote on such proposed transaction, at least 30 days prior to
the consummation of such transaction (whether or not such
proxy or information statement is required to be mailed
pursuant

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to such Act or subsequent provisions), and such proxy or
information statement shall contain in a prominent place (1)
any recommendations as to the advisability (or inadvisability)
of the proposed transaction that those members of the Board of
Directors who are not Related Person Directors of the
Corporation may choose to state, and (2) if deemed advisable
by a majority of the directors of the Corporation who are not
Related Person Directors, the opinion of an investment banking
firm as to both (A) the fair market value of any consideration
other than cash to be received in the proposed transaction by
holders of voting securities of the Corporation (as required
by clause (a) above), and (B) the fairness (or not) of the
terms of the proposed transaction from the point of view of
the financial interests of the holders of voting securities of
the Corporation other than Interested Related Persons. Such
investment banking firm shall be engaged solely on behalf of
the holders of voting securities of the Corporation other than
Interested Related Person Directors, shall be paid a
reasonable fee for its services by the Corporation upon
receipt of such opinion and shall be a major investment
banking firm of national reputation that has not been
associated with any Interested Related Person during the three
year period immediately preceding its selection for this
purpose.

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For purposes of clause (a) above, the term "consideration
other than cash to be received" shall include voting
securities of the Corporation retained by its stockholders in
the event of a transaction in which the Corporation is the
surviving corporation.

SECTION 5

In addition to any other requirements for amendments to these Articles
of Incorporation, no amendment to these Articles of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article Thirteenth unless
the amendment effectuating such amendment, alteration, change or repeal shall
have received the affirmative vote of the holders of 80% of the outstanding
voting securities of all classes of the Corporation entitled to vote in
elections of directors (considered for the purposes of this Article Thirteenth
as one class), provided that this Section 5 of Article Thirteenth shall not
apply to any amendment to these Articles of Incorporation approved by a
resolution adopted by three-fourths (3/4) of those members of the Board of
Directors of the Corporation holding office at the time such resolution is
adopted who are not themselves Related Person Directors.

FOURTEENTH

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or

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its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the
provisions of K.S.A. 17-6424 and amendments thereto, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the Kansas General Corporation Code is amended, after approval by the
stockholders of this article, to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Kansas General Corporation Code, as so amended.

Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

FIFTEENTH

In the election of directors of the Corporation, the principle of
cumulative voting shall not apply. Every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected
and for whose election he has a right to vote.

K N ENERGY, INC.

BY: /s/ Larry D. Hall
Larry D. Hall, President

BY: /s/ William S. Garner, Jr.
William S. Garner, Jr., Secretary

<PAGE> 1

EXHIBIT 3 (b)

K N ENERGY, INC.

(Formerly Kansas-Nebraska Natural Gas Company, Inc.)

---ooOoo---

B Y - L A W S

As Amended to June 24, 1994

Effective July 13, 1994

---ooOoo---

ARTICLE I

OFFICES

Section 1. Offices. The registered office shall be at 205 F Street
in the City of Phillipsburg, County of Phillips, State of Kansas. The
Company's principal executive office shall be at 370 Van Gordon Street,
Lakewood, Colorado 80228-8304 (mailing address: Post Office Box 281304,
Lakewood, Colorado 80228-8304).

Section 2. Additional Offices. The corporation may also have offices
at such other places both within and without the State of Kansas as the Board
of Directors may from time to time determine or the business of the corporation
may require.

ARTICLE II

MEETING OF STOCKHOLDERS

Section 1. Time and Place. The annual meeting of the shareholders
for the election of directors and all special meetings of shareholders for that
or for any other purpose may be held at such time and place within or without
the State of Kansas
<PAGE> 2
executed waiver of notice thereof.

Section 2. Annual Meeting. The annual meeting of the shareholders
shall be held each year at a time to be determined by the Board of Directors,
at which meeting the shareholders shall elect a Board of Directors, and
transact such other business as may be properly brought before the meeting.

Section 3. Special Meetings. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by statute may be
called by the Chairman of the Board, if any, the President or the Board of
Directors, and shall be called by the President or the Secretary at the request
in writing of a majority of the directors, or at the request in writing of
shareholders owning at least fifty-one percent (51%) in amount of the shares of
the Corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.

Section 4. Notice. Written notice of the place, date and hour of any
annual or special meeting of shareholders shall be given personally or by mail
to each shareholder entitled to vote thereat, not less than ten (10) nor more
than fifty (50) days prior to the meeting.

The notice shall state in addition, the purpose or purposes for which
the meeting is called, and by, or at whose direction it is being issued.

Section 5. Quorum. Except as otherwise provided by the Articles of
Incorporation, the holders of a majority of the

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<PAGE> 3
shares of the Corporation issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall be necessary to and shall
constitute a quorum for the transaction of business at all meetings of the
shareholders.

If, however, such quorum shall not be present or represented at any
meeting of the shareholders, the shareholders entitled to vote thereat present
in person or represented by proxy shall have power to adjourn the meeting from
time to time, but not for more than thirty (30) days, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.

Section 6. Voting. At any meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote in person, or by
proxy. Except as otherwise provided by law or the Articles of Incorporation,
each shareholder of record shall be entitled, as to each proposal, to one vote
for each share of stock standing in his name on the books of the Corporation on
the date fixed as the record date for the determination of its shareholders
entitled to vote. All elections of directors shall be by written ballot and
shall be determined by a plurality vote, and, except as otherwise provided by
law or the Articles of Incorporation, all other matters shall be determined by
vote of a majority of the shares present or represented at such meeting and
voting on such questions.

Section 7. Proxies. Every proxy must be executed in

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writing by the shareholder or by his attorney-in-fact. No proxy shall be valid
after the expiration of eleven (11) months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except in those cases where an
irrevocable proxy is permitted by law.

Section 8. Consents. Whenever by any provision of law or of the
Articles of Incorporation, the vote of shareholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action, the
meeting and vote of shareholders may be dispensed with, if all the shareholders
who would have been entitled to vote upon the action if such meeting were held,
shall consent in writing to such corporate action being taken.

Section 9. Presiding Officer. Meetings of the shareholders shall be
presided over by the Chairman of the Board, if any, or if he is not present, by
the President, or, if he is not present, by a Vice President or, if neither the
Chairman of the Board, the President nor a Vice President is present, by a
chairman to be chosen at the meeting. The Secretary of the Company or, if he
is not present, an Assistant Secretary of the Company or, if neither the
Secretary nor an Assistant Secretary is present, a secretary to be chosen at
the meeting, shall act as secretary of the meeting.

Section 10. Notice of Shareholder Business. At an annual meeting of
shareholders, only such business shall be conducted as

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shall have been properly brought before the meeting (a) by or at the direction
of the Board of Directors or (b) by a shareholder who is a shareholder of
record at the time of giving such notice, who shall be entitled to vote at such
meeting and who complies with the notice procedures set forth in this Section.
For business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary. To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation, not less
than 40 days prior to the meeting. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the shareholder, and
(d) any material interest of the shareholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the

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provisions of this Section, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
Section, a shareholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended and the rules and regulations
thereunder with respect to the matters set forth in this Section.

ARTICLE III

DIRECTORS

Section 1. Number and Tenure. The whole Board of Directors of the
Corporation shall consist of fourteen members. The directors shall be
classified with respect to the time for which they shall severally hold office
by dividing them into three classes, which were first approved at the annual
meeting of shareholders in 1975; Class I shall consist of three directors whose
initial term of office shall expire in 1994, Class II shall consist of four
directors whose initial term of office shall expire in 1995, and Class III
shall consist of three directors whose initial term of office shall expire in
1996. Each director shall hold office until his successor is duly elected and
qualified or until his resignation in writing has been filed with the
corporation. At each annual election, the successors of the class of directors
whose terms shall expire that year shall be elected to hold office for a term
of three years, so that the

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term of office of one class of directors shall expire in each year, except
where the Board of Directors determines that a newly elected director shall be
elected by the shareholders to fill a vacancy of a directorship created
subsequent to the previous annual meeting, such director shall be elected to
hold office for the balance of the term of the class of directors of which he
is to be a member, as determined by the Board of Directors, and until his
successor is elected and qualified.

Section 2. Vacancies. A vacancy on the Board of Directors or a newly
created directorship may be filled by a majority of the remaining directors,
though less than a quorum, or by the sole director, by election of a new
director, who at the time of his election shall be designated as a member of
one of the classes of directors and shall hold office until the next election
of the class of which he has become a member, unless his term of office is
terminated by death, resignation, or otherwise.

Section 3. Resignation; Removal. Any director may resign at any
time. The Board of Directors may by unanimous vote of other directors then in
office, remove a director with or without cause. The shareholders entitled to
vote for the election of

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directors may remove a director, with cause as provided in the Articles of
Incorporation.

Section 4. Advisory Directors and Directors Emeritus. The Board of
Directors by a vote of a majority of the directors present and entitled to
vote, at any regular or special meeting at which a quorum is present, may
designate such number of persons as it may from time to time determine, as an
"Advisory Director" or may designate a former member of the Board as a
"Director Emeritus," if such former member is willing to so serve. Each
Advisory Director and each Director Emeritus shall serve, subject to the
pleasure of the regular Board of Directors, until the next succeeding annual
meeting of the regular Board of Directors, following the annual meeting of the
stockholders, at which such regular directors are elected, unless he shall have
resigned. Each Advisory Director and each Director Emeritus shall be notified
of all regular or special meetings of the regular Board of Directors, shall be
entitled to attend and participate therein, but shall not be entitled to vote.
Each Advisory Director and each Director Emeritus shall be reimbursed for any
necessary expenses of attending directors' meetings.

Section 5. Nomination of Director Candidates.

(a) Eligibility to Make Nominations. Nominations of candidates for
election as directors of the Corporation at any meeting of shareholders called
for election of directors, in whole or in part (an "Election Meeting"), may be
made by the Board of Directors or by any shareholder who is a shareholder of

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record at the time of giving notice, who shall be entitled to vote at such
Election Meeting and who complies with the notice procedures set forth in this
Section.

(b) Procedure for Nominations by Shareholders. Nominations, other
than those made by the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary. To be timely, shareholder's notice shall
be delivered to or mailed and received at the principal executive offices of
the Corporation not less than 40 days prior to the date of the Election
Meeting. Such shareholder's notice shall set forth (i) the name, age, business
address and residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of capital stock of the Corporation which are beneficially owned by each
such nominee and (iv) such other information concerning each such nominee as
would be required, under the rules of the SEC, in a proxy statement soliciting
proxies for the election of such nominees. Such notice shall include a signed
consent to serve as a director of the Corporation, if elected, of each such
nominee. Such notice shall also set forth as to the shareholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder.

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<PAGE> 10
accordance with the procedures set forth in this Section. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
a nomination was not made in accordance with the procedures prescribed by this
Section 5, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.

(d) Substitution of Nominees. In the event that a person is validly
designated as a nominee to the Board and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the shareholder who proposed such nominee, as the case may be, may
designate a substitute nominee.

(e) Securities Exchange Act of 1934. Notwithstanding the foregoing
provisions of this Section, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended and the rules
and regulations thereunder with respect to the matters set forth in this
Section.

ARTICLE IV

MEETINGS OF THE BOARD OF DIRECTORS

Section 1. Place. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Kansas.

Section 2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.

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Section 3. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if any, or by the
President on two days' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the Chairman, President or
Secretary in like manner and on like notice on the written request of two
directors.

Section 4. Quorum. At all meetings of the Board of Directors a
majority of the entire Board shall be necessary to and constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation. If a quorum shall not be present at any meeting
of the Board of Directors the directors present thereat may adjourn the meeting
from time to time until a quorum shall be present. Notice of such adjournment
shall be given to any directors who were not present and, unless announced at
the meeting, to the other directors.

Section 5. Consents. Unless otherwise restricted by the Articles of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or of such committee as the case
may be, consent thereto in writing and such written consent is filed with the
minutes of the Board or committee. Such consents may be in counterpart so that
each member will have signed a consent, but

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all members need not sign the same document.

Section 6. Compensation. Directors, as such, shall not receive any
stated salary for their services, but, by resolution of the Board of Directors
an annual fee, plus a fee and expenses for attendance at meetings may be
allowed, provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.

Section 7. Presiding Officer. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or, if he is not
present, by the President or, if he is not present, by a chairman to be chosen
at the meeting. The Secretary of the Company, or, if he is not present, an
Assistant Secretary of the Company, or, if neither the Secretary nor an
Assistant Secretary is present, a secretary to be chosen at the meeting, shall
act as secretary of the meeting.

ARTICLE V

COMMITTEES OF DIRECTORS

Section 1. Designation. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate from among its members
one or more committees, each consisting of two or more directors, each of
which, to the extent provided in such resolution, shall have and may exercise
the powers of the Board of Directors in the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.

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The Board may designate one or more directors as alternate members of
any committee who may replace any absent or disqualified member at any meeting
of the committee.

Section 2. Tenure; Reports. Each such committee shall serve at the
pleasure of the Board. It shall keep minutes of its meetings and report the
same to the Board.

ARTICLE VI

EXECUTIVE COMMITTEE

Section 1. Appointment and Authority. The Board of Directors may by
resolution or resolutions passed by a majority of the whole Board create and
designate an Executive Committee consisting of the officer who is designated as
Chief Executive Officer and two or more other directors of the Company who
shall hold office subject to the pleasure of the Board of Directors, and the
Board shall have the power at any time to remove any of the members of the
Executive Committee and to appoint to the Committee other directors in lieu of
the directors so removed. The resolution designating the members of the
Executive Committee shall also designate the chairman thereof. During the
intervals between the meetings of the Board of Directors the Executive
Committee shall possess and may exercise all the powers of the Board of
Directors, including the power to authorize the seal of the Company to be
affixed to all papers which may require it, to authorize the payment of
dividends and to authorize the issuance of stock; provided, however, that the
Executive Committee shall

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not have power to amend these By-Laws or to fill vacancies on the Board of
Directors or to fill vacancies in, or to change the membership of, said
Committee. The Executive Committee shall also have and may exercise all the
powers of the Board of Directors except as aforesaid whenever a quorum of the
Board shall fail to be present at any meeting of the Board.

Section 2. Report of Action Taken. All action of the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action, and shall be subject to revision and alteration by the
Board, provided that no rights of third parties shall be affected by any such
revision or alteration. Regular minutes of the proceedings of the Executive
Committee shall be kept in a book provided for that purpose.

Section 3. Quorum and Procedure. A majority of the members of the
Executive Committee shall be necessary to constitute a quorum, and, in every
case, an affirmative vote of a majority of the members shall be necessary for
the passage of any resolution. It shall fix its own rules of procedure and
shall meet as provided by such rules or by resolution of the Board, and it
shall also meet at the call of the Chairman or of any two members of the
Committee. Should the Executive Committee fail to fix its own rules therefor,
the provisions of these By-Laws, pertaining to the calling of meetings and
conduct of business by the Board of Directors, shall apply as nearly as may be.

Section 4. Consent. Unless otherwise restricted by statute, the
Articles of Incorporation or these By-Laws, any

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action required or permitted to be taken at any meeting of the Executive
Committee thereof may be taken without a meeting, if a written consent thereto
is signed by each member of the Executive Committee, and such written consent
is filed with the minutes of proceedings of the Executive Committee. Such
consents may be in counterpart so that each member will have signed a consent
but all members need not sign the same document.

ARTICLE VII

NOTICES

Section 1. Form; Delivery. Notices to directors and shareholders
shall be in writing and delivered personally or mailed to the directors or
shareholders at their addresses appearing on the books of the Corporation.
Notice by mail shall be deemed to be given at the time when the same shall be
mailed. Notice to directors may also be given by telegram.

Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the Articles of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto. In addition, any shareholder attending a meeting of
shareholders in person or by proxy without protesting at the beginning of the
meeting the lack of notice thereof to him, and any director attending a meeting
of the Board of Directors without protesting prior to the meeting or at its

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commencement such lack of notice shall be conclusively deemed to have waived
notice of such meeting.

ARTICLE VIII

OFFICERS

Section 1. Executive Officers. The executive officers of the
Corporation shall be a President and one or more Vice Presidents, a Secretary,
a Treasurer and may include a Chairman of the Board.

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Section 2. Designation; Term of Office; Removal. All officers shall
be elected by the Board of Directors and shall hold office for such term as may
be prescribed by the Board or until their successors are chosen and qualified
or until their resignation is filed in the office of the Secretary, whichever
first occurs. Any officer elected by the Board may be removed with or without
cause at any time by the Board.

Section 3. Authority and Duties. All officers, as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-Laws, or, to the
extent not so provided, by the Board of Directors.

Section 4. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors and the compensation of
agents shall either be so fixed or shall be fixed by officers thereunto duly
authorized.

Section 5. Vacancies. If an office becomes vacant for any reason,
the Board of Directors shall fill such vacancy. Any officer so elected by the
Board shall serve only until such time as the unexpired term of his predecessor
shall have expired unless re-elected or reappointed by the Board.

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Section 6. The Chairman of the Board. The Chairman of the Board of
Directors, if there be a Chairman, shall preside at all meetings of the
shareholders and directors and shall have such other powers and duties as may
from time to time be assigned by the Board including designation as Chief
Executive Officer if the President is not so designated.

Section 7. The President. The President shall be the Chief Executive
Officer of the Corporation unless the Chairman of the Board is so designated,
in which event the President shall be Chief Operating Officer of the
Corporation. In the absence of the Chairman of the Board, or if there be no
Chairman, he shall preside at all meetings of the shareholders and directors.
The Chief Executive Officer, whether the Chairman of the Board or the
President, shall be ex officio a member of all standing committees, shall have
general and active management and control of the business and affairs of the
Corporation subject to the control of the Board of Directors, and shall see
that all orders and resolutions of the Board are carried into effect.

Section 8. Vice Presidents. The Vice Presidents in the order of
their seniority or in any other order determined by the Board, shall in the
absence or disability of the President, perform the duties and exercise the
powers of the President, and shall generally assist the President and perform
such other duties as the Board of Directors or the President shall prescribe.

Section 9. The Secretary. The Secretary shall attend all

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meetings of the Board and all meetings of the shareholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose and
shall perform like duties for the standing committees when required. He shall
give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall act. He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board, affix the same to any instrument
requiring it and, when so affixed, it shall be attested by his signature or by
the signature of the Treasurer or an Assistant Secretary or Assistant
Treasurer. He shall keep in safe custody the certificate books and shareholder
records and such other books and records as the Board may direct and shall
perform all other duties incident to the office of the Secretary.

Section 10. Assistant Secretaries. The Assistant Secretaries, if
any, in order of their seniority or in any other order determined by the Board
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other duties as the
Board of Directors or the Secretary shall prescribe.

Section 11. The Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and

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other valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
President and the Board of Directors at its regular meetings, or when the Board
of Directors so requires, an account of all his transactions as Treasurer and
of the financial condition of the Corporation. He shall establish and execute
programs for the provision of the capital required by the Company, including
negotiating the procurement of capital and maintaining the required financial
arrangements. He shall establish and maintain an adequate market for the
Company's securities and, in connection therewith, maintain adequate liaison
with investment bankers, financial analysts and shareholders. He shall
maintain adequate sources for the Company's current borrowings from commercial
banks and other lending institutions.

He shall maintain banking arrangements to receive, have custody of and
disburse the Company's moneys and securities. He shall invest the Company's
funds as required and establish and coordinate policies for investment in
pension and other similar trusts.

Section 12. Assistant Treasurers. The Assistant Treasurers, if any,
in the order of their seniority or in any other order determined by the Board,
shall in the absence or disability of the Treasurer, perform the duties and
exercise the

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power of the Treasurer and shall perform such other duties as the Board of
Directors or the Treasurer shall prescribe.

ARTICLE IX

CERTIFICATE OF SHARES

Section 1. Form; Signature. The certificates for shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors and shall be numbered consecutively and entered in the books of the
Corporation as they are issued. Each certificate shall exhibit the registered
holder's name and the number and class of shares, and shall be signed by the
President or a Vice President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, and shall bear the seal of the
Corporation or a facsimile thereof. Where any such certificate is
countersigned by a transfer agent or by a registrar other than the Corporation,
the signature of any such officer may be a facsimile signature. In case any
officer who signed, or whose facsimile signature or signatures were placed on
any such certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with
the same effect as if he were such officer at the date of issue.

Section 2. Lost Certificates. The Board of Directors may direct a
new share certificate or certificates to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost
or destroyed, upon the

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making of an affidavit of that fact by the person claiming the certificate to
be lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed.

Section 3. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation,
or such transfer agent to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

Section 4. Registered Shareholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends or
other distributions, and to vote as such owner, and to hold liable for calls a
person registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or legal claim to or interest in such share or
shares on the part of any other person.

Section 5. Record Date. For the purpose of determining the

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shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action affecting the interests of shareholders, the Board
of Directors may fix, in advance, a record date. Such date shall not be more
than sixty (60) nor less than ten (10) days before the date of any such
meeting, nor more than sixty (60) days prior to any other action.

In each such case, except as otherwise provided by law, only such
persons as shall be shareholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting and any adjournment
thereof, or to express such consent or dissent, or to receive payment of such
dividend, or such allotment of rights, or otherwise to be recognized as
shareholders for the related purpose, notwithstanding any registration of
transfer of shares on the books of the Corporation after any such record date
so fixed.

ARTICLE X

GENERAL PROVISIONS

Section 1. Dividends. Subject to the provisions of the Articles of
Incorporation, if any, dividends upon the outstanding shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law and

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may be paid in cash, in property, or in shares of the Corporation.

Section 2. Reserves. Before payment of any dividends, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.

Section 3. Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.

Section 4. Instruments Under Seal. All deeds, bonds, mortgages,
contracts, and other instruments requiring a seal may be signed in the name of
the Corporation by the President or by

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any other officer authorized to sign such instrument by the President or the
Board of Directors.

Section 5. Checks. All checks or demands for money and notes or
other instrument evidencing indebtedness or obligation of the Corporation shall
be signed by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate.

Section 6. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January of each year and shall end on the
thirty-first day of December following.

Section 7. Seal. The corporate seal shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Kansas 1927." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

ARTICLE XI

AMENDMENTS

Section 1. These By-Laws may be altered or repealed at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors if notice of such alteration or repeal be contained in the notice of
such special meeting.

ARTICLE XII

SPECIAL MANAGEMENT PROVISIONS

Section 1. General. The provisions of this Article XII of

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the By-Laws have been adopted by the Board of Directors of the Corporation
pursuant to that certain Agreement of Merger by and between the Corporation,
KNE Acquisition Corporation, a Delaware corporation, and American Oil and Gas
Corporation, a Delaware corporation dated March 24, 1994 (the "Merger
Agreement"). Capitalized terms used in this Article XII not otherwise defined
herein shall have the meaning ascribed to them in the Merger Agreement. The
provisions of this Article XII shall be effective from and after the Effective
Time notwithstanding any other provisions of these By-Laws to the contrary. In
the event of a conflict between the provisions of this Article XII and other
provisions of the By-Laws, the provisions of this Article XII shall control.

Section 2. Management Committee. The Corporation shall establish a
Management Committee consisting of four (4) members of the Board of Directors.
The initial members of the Management Committee shall consist of David M.
Carmichael (who shall serve as the Chairman), Charles W. Battey, Edward H.
Austin, Jr. and Larry D. Hall. The initial directors serving on the Management
Committee shall serve for a term which shall end upon the earlier of (i) the
date of such director's resignation, removal or failure to stand for reelection
to the Board of Directors, and (ii) the date of the Corporation's Annual
Meeting of Stockholders in the year 1996. The duties delegated by the Board of
Directors to the Management Committee shall consist of (w) oversight and
direction of management decisions with respect to the day-to-day

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operations of the Corporation and its subsidiaries, (x) oversight and direction
of matters relating to the integration and consolidation of the business,
operations and assets of the Corporation with those of American Oil and Gas
Corporation and its subsidiaries, (y) the duties, powers and procedures
heretofore delegated to the Executive Committee in Article VI of these By-Laws,
and (z) such additional duties as are from time to time delegated to the
Management Committee by the Board of Directors. The Corporation shall not have
an Executive Committee.

Section 3. Vice-Chairman. The office of Vice-Chairman of the Board
shall be established by the Board of Directors. The Vice-Chairman shall
perform the duties of the Chairman of the Board as provided in these By-Laws in
the Chairman's absence and such additional duties as the Board of Directors may
prescribe from time to time.

Section 4. Chief Executive Officer/Chief Operating Officer. The
Board of Directors may elect only the Chief Executive Officer or the Chief
Operating Officer as President of the Corporation. The Chief Operating Officer
shall be elected by the Board of Directors upon recommendation of the
Management Committee.

Section 5. Cabot Director. For so long as Cabot Corporation shall
continue to own beneficially (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission) 10% or more of the issued and
outstanding voting stock of the Corporation, Cabot Corporation shall have the
right to designate one person to serve as an advisory director of the

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Corporation. In the event beneficial ownership of Cabot Corporation of the
issued and outstanding voting stock of the Corporation falls below 10% but
constitutes more than 5%, the Board of Directors shall appoint the Cabot
Corporation advisory director as a full director, to serve the then remaining
term of a Class II director. For so long as Cabot Corporation continues to own
beneficially less than 10% but more than 5% of the issued and outstanding
voting stock of the Corporation, the Board of Directors shall nominate a Cabot
Corporation designee (provided that such nominee is otherwise qualified as
required by these By-Laws) for election by the Corporation's stockholders as a
director. The Corporation shall at all times during which Cabot Corportion
shall beneficially own in excess 10% of the issued and outstanding voting stock
of the Corporation, maintain a vacancy on its Board of Directors for such Cabot
designee.

Section 6. Terms of Office for Certain Officers. The persons
designated as of the Effective Time to hold the offices of Chairman of the
Board, Vice-Chairman of the Board, President, Chief Executive Officer and
Chairman of the Management Committee will be elected to terms commencing as of
the Effective Time and terminating on the date of the Corporation's Annual
Meeting of Stockholders in 1996. After such date, nothwithstanding any other
provision of this Article XII to the contrary, such officers shall be elected
by majority of the Board of Directors.

Section 7. Vacancies in Certain Offices. Any vacancy arising
following the Effective Time and prior to the

28
<PAGE> 29
Corporation's Annual Meeting of Stockholders in 1996, in the offices of the
Chairman of the Board, Vice-Chairman of the Board, President, Chief Executive
Officer or Chief Operating Officer, or on the Management Committee or the
Chairman of the Management Committee, shall be filled by the Board of Directors
upon recommendation by a Special Nominating Committee of the Board of
Directors. The Board of Directors shall by majority vote establish a Special
Nominating Committee in the event of a vacancy in any of the foregoing
positions. The Special Nominating Committee shall consist of four directors,
two of whom shall be designated by the Board of Directors from the directors of
the Corporation who served as a director prior to the Effective Time, and two
of whom shall be designated by the directors designated by American Oil and Gas
Corporation in the Merger Agreement.

Section 8. Continuation of Retirement Policy. The Corporation shall
continue its present retirement policy that officers of the Corporation
(including the Chairman of the Board, Vice-Chairman of the Board, President and
Chief Executive Officer or Chief Operating Officer) shall be ineligible and
cease to serve as an officer of the Corporation as of the first of the month
coincident with or next following his or her 65th birthday.

Section 9. Super-Majority Vote. For purposes of this Article XII,
the term "Super-Majority Vote" shall mean the affirmative vote of at least 12
of a 14-member Board of Directors; at least 11 of a 13-member Board of
Directors; at

29
<PAGE> 30
least 10 of a 12-member Board of Directors; at least 9 of an 11-member Board of
Directors; or in all other cases, the affirmative vote of a number of directors
equal to at least 85% of the total number of directors. A Super-Majority Vote
shall be required for the following actions to be taken by the Board of
Directors; (i) amendment, modification or revocation of any provision of this
Article XII; (ii) amendment, modification or revocation of the current
retirement policy of the Corporation; and (iii) any increase in the number of
members to serve on the Board of Directors; provided that, no Super-Majority
Vote shall be required for any such action taken by the Board of Directors from
and after the date of the annual stockholders meeting for 1997.

I hereby certify that the foregoing are the By-Laws of K N Energy,
Inc. as the same were adopted at the meeting of the Board of Directors on May
20, 1975, and subsequently amended at meetings of the Board of Directors on
November 20, 1975, November 8, 1978, August 5, 1983, November 11, 1983,
November 16, 1984, January 9, 1988, March 24, 1989, August 10, 1989, January
20, 1991, November 10, 1993, June 24, 1994, and are still in force and effect
on this 13th day of July 13, 1994.

__________________________________

William S. Garner, Jr.

Secretary

<PAGE> 1

EXHIBIT 10 (l)
K N Energy, Inc.
1995 EXECUTIVE INCENTIVE PLAN
January 1, 1995

I. PLAN PURPOSE - To enhance K N's ability to achieve stated goals
through at risk compensation that is contingent on accomplishment of
primary corporate and division/personal objectives and subject to the
absolute discretion of the Compensation Committee of the Board of
Directors.

II. PLAN ADMINISTRATION
A. The Plan shall be administered by the Compensation Committee of
the Board of Directors appointed from among its own number
(hereafter called the "Committee"). Membership of the Committee
is governed by Board provisions. No member of the Committee shall
be eligible for Plan participation while serving upon the
Committee.

B. The Committee shall have full power to construe and interpret this
Plan, and to establish and amend rules for its administration.
Similarly the determination of officers who may participate under
the Plan, and the amount of awards to such participants shall rest
in the absolute discretion of the Committee. This Plan is
administered for non-officer participants by the Management
Committee.

C. This Plan is administered without regard to race, color, religion,
sex, national origin, age, disability, Vietnam Era Veteran,
disabled veteran status, or citizenship status.

III. PARTICIPATION
A. Prior to January 31, 1995, the Committee designates officer
participants for the next year. The Management Committee
designates non-officer participants. Participation in one year
will not guarantee participation in following years.

B. Participants will be assigned to level of eligibility, based on
degree of responsibility for corporate-wide results.

<TABLE>
<S> <C>
Level I: Responsible for K N-wide results

Level II: Responsible for multiple major segments

</TABLE>

1
<PAGE> 2

<TABLE>
<S> <C>
Level III: Responsible for major segment(s) within K N and selected key contributors

Level IV: Responsible for important segment(s) within K N and selected key contributors

</TABLE>

IV. BASIS OF AWARDS
A. Awards are to be based on a combination of corporate and
division/personal goals and the extent to which superior personal
performance contributed to goal achievement. The mix between such
goals will depend on participant level.

<TABLE>
<S> <C>
Level I: 100% corporate.

Level II: Vary by participant with a minimum 70% corporate. The mix will be determined at the
beginning of a Plan year and should consider the relative impact such participant has
on a specific business segment versus the corporate results.

Level III: Vary by participant with a minimum 60% corporate. The mix will be determined at the
beginning of a Plan year and should consider the relative impact such participant has
on a specific business segment/key contribution area versus the corporate results.

Level IV: Vary by participant with a minimum 60% corporate. The mix will be determined at the
beginning of a Plan year and should consider the relative impact such participant has
on a specific business segment versus the corporate results.
</TABLE>

B. Specific target objectives will be established each year for
corporate performance and for division/personal performance.

1. Up to four corporate objectives may be established to
focus on attainment of primary goals.

2. Up to four division/personal objectives may be established
and assigned appropriate weightings.

3. Prior to the start of each Plan year threshold, target and
optimum performance levels will be defined for each
objective. Particular emphasis will be placed on
performance oriented objectives, financial measures, cost
control measures and other

2
<PAGE> 3
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.

4. When individual performance objectives and annual
financial results are available following the conclusion
of each year, the Compensation Committee shall review the
performance relative to all objectives of Level I
participants (Management Committee reviews all other
participants) and rate the level of contribution as
follows:

<TABLE>
<CAPTION>
PERFORMANCE
LEVEL GUIDELINE DEFINITION
----------- --------------------
<S> <C>
Maximum Superior results produced -
significantly above target.

Target Overall results fully meet desired
level of performance, which
represented a "stretch" for the
participant.

Threshold Overall results fall somewhat short
of Target performance in the absence
of any significant external business conditions.

Minimum Unacceptable progress toward achieving performance objectives.
</TABLE>

C. Corporate Goals for 1995
1. Achieve primary objective of net operating income
per share:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Threshold = 1.80
Target (budget) = 1.89
Maximum = 1.97
</TABLE>

2. Achieve consolidated return on beginning equity:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Threshold = 12.9%
Target (budget) = 13.6%
Maximum = 14.2%
</TABLE>

3. Maximize merger profitability and strategic synergy

4. Implement V-360; achieve service and financial
objectives

3
<PAGE> 4

5. Restructure accounting and information
organizations and systems. Provide timely
information and meet flexibility requirements.
Efficiently add new businesses within 60 days
after closing.

6. Develop an aligned, cross-functional management
team with the competence and cohesion to bring the
corporate vision "Alive".

7. Achieve the objectives consistent with our corporate
values without compromising employee or public
safety, or the investments that will serve as the
foundation for future growth.

V. SIZE OF INCENTIVE PAYMENTS
A. The corporate incentive and the division/personal
incentive are entirely separate and not contingent on
the performance level of the other. However, each is
reviewed based on the extent to which superior personal
performance contributed to goal achievement.

B. The 1995 incentive targets, expressed as a percent of
the participant's 1995 salary range midpoint are:

<TABLE>
<CAPTION>
LevelI Level II Level III Level IV
----------------------------------------------
<S> <C> <C> <C> <C>
Threshold 10% 10% 10% 5%
Target 25% 20% 15% 10%
Maximum 40% 30% 20% 15%
</TABLE>

These targets require adjustment to reflect the
appropriate corporate and division/personal allocation;
for instance, a Level II participant with a 50%
corporate and 50% division/personal goal allocation
would have incentive potential of:

<TABLE>
<CAPTION> Division/
Corporate Personal Combined
---------------------------------------------
<S> <C> <C> <C>
Threshold 5% 5% 10%
Target 10% 10% 20%
Maximum 15% 15% 30%
</TABLE>

C. Incentive amounts may be prorated based on performance between
the stated Threshold, Target and Maximum levels. No payment
will be made for performance below the Threshold level.

VI. DISCRETIONARY AWARDS - In addition to the incentive award established
above, the Committee, in its sole discretion, may grant an additional
award to any or all participants to

4
<PAGE> 5
recognize exceptional contribution not anticipated at the time the
annual objectives were developed. The amount of this award would not
exceed 10% of the salary grade midpoint of the participant receiving
the award.

VII. TIMING OF PAYMENTS
A. At risk, contingent compensation will be paid, in cash, as soon as
practical after individual performance has been reviewed and
fiscal results are available following the end of the year to
participants who are active employees as of the last day of the
year. Payments will be prorated for participants who become
totally disabled or retire during the year, based on the portion
of the year that they were active employees. Incentive payments
will be paid to the estate of a deceased participant.

B. Participants may elect, before the beginning of a year, to defer
all or a portion of their awards earned, if any. Amounts deferred
shall accrue interest at a rate to be determined at the time the
deferral is designated. Participants electing to defer will be
unsecured creditors of K N, with respect to such deferrals.

VIII. PLAN EFFECTIVE DATE
A. The Plan shall be effective for 1995 if ratified by the Board of
Directors prior to January 31, 1995.

B. The Plan shall remain in effect for 1995, subject to modifications
by the Board.

IX. OTHER ITEMS
A. Not a Contract of Employment. This Plan shall not be deemed to
constitute a contract of employment, nor shall any provision
hereof restrict the right of K N Energy, Inc. (or its
subsidiaries) to discharge a participant(s) at will.

B. Controlling Law. This Plan and its provisions shall be governed
by, and construed in accordance with, the Laws of the State of
Colorado.

C. Number and Gender. Wherever appropriate herein, words used in the
singular shall include the plural and the plural shall include the
singular. The masculine gender where appearing herein shall be
deemed to include the feminine gender.

D. Unfunded obligation. The obligation to pay amounts under this
Plan is an unfunded obligation of K N Energy, Inc.

5
<PAGE> 6
(including its subsidiaries), and no such obligation shall create
a trust or be deemed to be secured by any pledge or encumbrance on
any property of K N Energy, Inc. (including its subsidiaries).

E. Non-Alienation. Participant(s) shall not have any right to
pledge, hypothecate, anticipate or assign this Plan or the rights
hereunder, except by will or the laws of descent and distribution.

F. Severability. Any provision in this Plan that is prohibited or
unenforceable in any jurisdiction under applicable law shall, as
to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

<PAGE> 1

EXHIBIT 10 (m)

K N ENERGY, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

<PAGE> 2
K N ENERGY, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article Section Page
------- ------- ----
<S> <C> <C> <C>
I Purpose and Effective Date . . . . . . . . . . . . . . . . . . . . . 1
1.01 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II Definitions and Construction of the Plan Document . . . . . . . . . . 1
2.01 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Bookkeeping Account . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.04 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.05 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.06 Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.07 Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . 1
2.08 Election Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.09 Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Named Fiduciary . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.12 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.14 Termination of Service . . . . . . . . . . . . . . . . . . . . . . . 2
2.15 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.16 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.17 Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

III Eligibility and Participation . . . . . . . . . . . . . . . . . . . . 2
3.01 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.02 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV Deferral of Compensation . . . . . . . . . . . . . . . . . . . . . . 3
4.01 Salary Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.02 Incentive Compensation Deferral . . . . . . . . . . . . . . . . . . . 3
4.03 Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.04 No Deferral Without Agreement . . . . . . . . . . . . . . . . . . . . 3
4.05 Duration of Deferral Agreement . . . . . . . . . . . . . . . . . . . 3

V Deferral Account and Crediting . . . . . . . . . . . . . . . . . . . 3
5.01 Bookkeeping Account . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.02 Account Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.03 Transfer Among Funds . . . . . . . . . . . . . . . . . . . . . . . . 4
5.04 Statement of Account . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)

<TABLE>
<S> <C> <C> <C>
VI Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.01 Distribution of Account Balance . . . . . . . . . . . . . . . . . . . 4
6.02 Death Before Distribution of Account . . . . . . . . . . . . . . . . 5
6.03 Form of Distribution . . . . . . . . . . . . . . . . . . . . . . . . 5

VII Hardship Distributions . . . . . . . . . . . . . . . . . . . . . . . 5
7.01 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

VIII Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8.01 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . 5
8.02 Proper Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 5
8.03 Minor or Incompetent Beneficiary . . . . . . . . . . . . . . . . . . 5

IX Administration of the Plan . . . . . . . . . . . . . . . . . . . . . 6
9.01 Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.02 Finality of Determination . . . . . . . . . . . . . . . . . . . . . . 6
9.03 Certificates and Reports . . . . . . . . . . . . . . . . . . . . . . 6
9.04 Indemnification and Exculpation . . . . . . . . . . . . . . . . . . . 6
9.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

X Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10.01 Written Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10.02 Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10.03 Review Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10.04 Committee Review . . . . . . . . . . . . . . . . . . . . . . . . . . 7

XI Nature of Company's Obligation . . . . . . . . . . . . . . . . . . . 7
11.01 Company's Obligation . . . . . . . . . . . . . . . . . . . . . . . . 7
11.02 Creditor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

XII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12.01 Written Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12.02 Change of Address . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.03 Merger, Consolidation or Acquisition . . . . . . . . . . . . . . . . 8
12.04 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.05 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . 8
12.06 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.07 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.08 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.09 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.10 Acceleration of Payment . . . . . . . . . . . . . . . . . . . . . . . 8
12.11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 4
ARTICLE I

PURPOSE AND EFFECTIVE DATE

1.01 Title This Plan shall be known as the K N Energy, Inc. Nonqualified
Deferred Compensation Plan (hereinafter referred to as the "Plan").

1.02 Purpose The purpose of the Plan is to permit certain members of
management and highly compensated employees to defer current salary and
incentive compensation.

1.03 Effective Date The Effective Date of this Plan shall be January 1, 1995.

ARTICLE II

DEFINITIONS AND CONSTRUCTION OF THE PLAN DOCUMENT

2.01 Beneficiary "Beneficiary" shall mean the person or persons or the estate
of a Participant entitled to receive any benefits under this Plan in the event
of the Participant's death prior to distribution of his account value.

2.02 Board "Board" shall mean the Board of Directors of K N Energy, Inc.

2.03 Bookkeeping Account A "Bookkeeping Account" will be established only as
a bookkeeping record for each Participant who elects to defer compensation
under this Plan and may, at the discretion of the Committee, include one (1) or
more subaccounts to reflect amounts credited to a Participant under the various
terms of this Plan.

2.04 Committee "Committee" means the Compensation Committee of the Company
who will manage and administer the Plan.

2.05 Company "Company" shall mean K N Energy, Inc., a Delaware corporation.

2.06 Deferral Agreement "Deferral Agreement" means the written form which is
submitted to the Named Fiduciary before the relevant Election Date which
indicates whether the Executive wishes to defer a portion of his compensation
and indicates the portion of salary and/or incentive pay to be deferred. No
Deferral Agreement shall be effective until acknowledged, in writing, by the
Company.

2.07 Deferred Compensation "Deferred Compensation" means the portion of a
Participant's salary for any calendar year and the portion of a Participant's
incentive compensation for any calendar year that has been deferred pursuant to
the Plan.

2.08 Election Date The "Election Date" is the date established by this Plan
as the date before which an Executive must submit a valid Deferral Agreement to
the Committee. The applicable Election Dates are as follows: (a) thirty (30)
days after a newly eligible employee is notified of his right to participate in
the Plan; or (b) December 31 of any calendar year if (a) above does not apply.
<PAGE> 5
2.09 EXECUTIVE "Executive" shall mean any executive who participates in the
K N Energy, Inc. Executive Incentive Plan or any other member of management or
any highly compensated employee who has been recommended for participation in
the Plan by the Chief Executive Officer of the Company and approved by the
Committee.

2.10 NAMED FIDUCIARY "Named Fiduciary," for purposes of the claims procedure
of this Plan, shall mean the Chairman of the Committee.

2.11 PARTICIPANT "Participant" means an Executive who has deferred a portion
of salary or a portion of incentive compensation pursuant to the terms of this
Plan and whose account balance has not yet been distributed.

2.12 PLAN "Plan" means the K N Energy, Inc. Nonqualified Deferred
Compensation Plan as described in this instrument and as amended from time to
time.

2.13 PLAN YEAR The "Plan Year" is the same as the calendar year.

2.14 TERMINATION OF SERVICE "Termination of Service" or similar expression
means the termination of the Participant's employment as a regular employee of
the Company and any division, subsidiary or affiliate thereof.

2.15 VALUATION DATE "Valuation Date" shall mean the last day of each calendar
quarter. By appropriate action, the Committee may provide for Valuation Dates
at such other times as it deems necessary or expedient.

2.16 GENDER AND NUMBER Wherever the context so requires, masculine pronouns
include the feminine and singular words shall include the plural.

2.17 TITLES Titles of the Articles of this Plan are included for ease of
reference only and are not to be used for the purpose of construing any portion
or provision of this Plan document.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01 ELIGIBILITY Any Executive who participates in the K N Energy, Inc.
Executive Incentive Plan shall be eligible to participate in this Plan.
Additional eligibility for participation in this Plan shall be determined on an
individual basis by recommendation from the Chief Executive Officer and
approval by the Committee, but no Executive shall be selected for participation
in this Plan unless he qualifies as a member of a select group of management or
as a highly compensated employee of the Company.

3.02 PARTICIPATION An Executive, after having been selected for participation
by the Committee, shall, as a condition to participation, annually complete and
return to the Committee a duly executed Deferral Agreement.

- 2 -
<PAGE> 6
ARTICLE IV

DEFERRAL OF COMPENSATION

4.01 SALARY DEFERRAL Each Participant in the Plan may elect to have either a
percentage or dollar amount of his salary deferred in accordance with the terms
and conditions of this Plan. Any election to defer salary must be for a
minimum of $5,000 but no more than 20% (twenty percent) of base salary.

4.02 INCENTIVE COMPENSATION DEFERRAL Each Participant in the Plan may elect
to have either a percentage or dollar amount of his incentive compensation
earned, if any, during the Plan Year deferred in accordance with the terms and
conditions of this Plan. Any election to defer incentive compensation must be
for a minimum of $5,000 but no more than 85% of the incentive compensation
earned for such Plan Year.

4.03 DEFERRAL AGREEMENT An eligible Executive electing to participate in the
Plan must submit his written Deferral Agreement to the Named Fiduciary on or
before the applicable Election Date. Valid Deferral Agreements filed by the
applicable Election Date as provided in Section 2.08(a) shall cause
compensation to be deferred in the Plan Year for which such Deferral Agreement
is made. Deferral Agreements entered into under the conditions of Section
2.08(b) shall cause elected compensation to be deferred beginning January 1 of
the next calendar year and elected incentive compensation to be deferred as of
the time it otherwise would have been paid under the terms of the Incentive
Plan.

4.04 NO DEFERRAL WITHOUT AGREEMENT A Participant who has not submitted a
valid Deferral Agreement to the Named Fiduciary before the relevant Election
Date may not defer any compensation under this Plan for the applicable Plan
Year.

4.05 DURATION OF DEFERRAL AGREEMENT Deferral Agreements remain in effect for
the Plan Year for which they apply. A Participant must file a new Deferral
Agreement for any subsequent Plan Year. The terms of any Deferral Agreement
may, but need not be, similar to the terms of any prior Deferral Agreement.

ARTICLE V

DEFERRAL ACCOUNT AND CREDITING

5.01 BOOKKEEPING ACCOUNT Salary and incentive compensation deferred by a
Participant under a written Deferral Agreement shall be credited in a dollar
amount to a separate Bookkeeping Account for each Participant. Salary deferred
under subsequent written election agreements by a Participant shall be added to
his Bookkeeping Account. The Company shall create as many subaccounts as it
deems necessary to administer the terms of this Plan.

5.02 ACCOUNT VALUATION The value of the Bookkeeping Account and any
subaccounts shall be based upon the performance of selected funds in which
deferrals have been directed at the election of the Participant. The funds
into which the Participant may elect that his deferrals will be credited will
be based upon the funds and investment options available to employees

- 3 -
<PAGE> 7
participating in the K N Energy, Inc. 401(k) Retirement Savings Plan, as
amended from time to time. Notwithstanding, the Company reserves the right to
amend and to determine, in its sole discretion, the funds into which deferrals
will be credited. Deferred amounts will be credited into subaccount funds in
multiples of the total amounts deferred as elected by the Participants. All
dividends and earnings paid with respect to an elected fund will be deemed to
have been immediately reinvested in such fund.

5.03 TRANSFER AMONG FUNDS Amounts deferred into this Plan and credited to a
fund within the Participant's Bookkeeping Account or subaccounts may be
transferred between eligible funds pursuant to an election which may be made
once per calendar quarter. Such election shall be effective, and the transfer
shall be based on the value of the Participant's Bookkeeping Account or
subaccount with respect to that fund as of the Valuation Date immediately
following the date the election is received by the Company, provided, that the
election is received no later than the Valuation Date.

5.04 STATEMENT OF ACCOUNT The Company shall provide periodically to each
Participant (but not less frequently than once each calendar year) a statement
setting forth the balances and funds to the Participant's credit.

ARTICLE VI

DISTRIBUTION

6.01 DISTRIBUTION OF ACCOUNT BALANCE Distribution of the value of a
Participant's Bookkeeping Account balance shall be made according to the
election of the Participant set forth in the Deferral Agreement and the terms
of this Plan, as described in (a), (b) or (c) below.

(a) If the Participant remains employed until a specified deferral
year, all amounts relating to that Plan Year's deferral will be
paid in a lump sum, less applicable withholding taxes, in the
January of the deferral year elected. Any deferral to a year
certain must be at least five years following the year of
deferral.

(b) In the event of Termination of Services for any reason before
completion of the elected deferral period, payment shall be made
in a lump sum, less applicable withholding taxes, as soon as
practicable after the end of the quarter in which the Termination
of Services occurred.

(c) In the event of Retirement, payment shall be made either (i) in a
lump sum, less applicable withholding taxes, as soon as
practicable after the quarter in which the retirement occurs, or
(ii) in annual cash installments in the five (5) or ten (10)
successive calendar years (as selected by the Participant)
beginning as soon as practicable after Retirement. Each
installment shall be made as of the first working day of the
applicable year. The amount of each installment shall equal the
Participant's Bookkeeping Account divided by the number of
remaining installments (including the installment being
determined).

- 4 -
<PAGE> 8
6.02 DEATH BEFORE DISTRIBUTION OF ACCOUNT In the event of the Participant's
death prior to the complete distribution of his Bookkeeping Account, payment of
any remaining balance shall be made to the Participant's Beneficiary as soon as
practicable after notification of the Participant's death.

6.03 FORM OF DISTRIBUTION All distributions of a Participant's Bookkeeping
Account shall be made in cash only.

ARTICLE VII

HARDSHIP DISTRIBUTIONS

7.01 HARDSHIP At the request of a Participant before or after the
Participant's retirement or Termination of Service, or at the request of any of
the Participant's Beneficiaries after the Participant's death, the Committee
may, in its sole discretion, accelerate and pay all or part of the value of a
Participant's Bookkeeping Account due under this Plan. Accelerated
distributions at the request of the Participant or the Participant's
Beneficiaries may be allowed only due to an immediate and heavy financial need
of the Participant (or Beneficiary). An accelerated distribution must be
limited to only that amount necessary to relieve the financial need.

ARTICLE VIII

BENEFICIARY

8.01 BENEFICIARY DESIGNATION A Participant shall designate his Beneficiary to
receive benefits under the Plan by completing the Beneficiary Designation
accompanying the Deferral Agreement. If more than one (1) Beneficiary is
named, the shares and/or percentage of each Beneficiary is named, the shares
and/or percentage of each Beneficiary shall be indicated. A Participant shall
have the right to change the Beneficiary by submitting to the Committee a
Change of Beneficiary Form. However, no change of Beneficiary shall be
effective until acknowledged, in writing, by the Committee.

8.02 PROPER BENEFICIARY If the Company has any doubt as to the proper
Beneficiary to receive payments hereunder, the Company shall have the right to
withhold such payments until the matter is finally adjudicated. However, any
payment made by the Company, in good faith and in accordance with this Plan,
shall fully discharge the Company from all further obligations with respect to
that payment.

8.03 MINOR OR INCOMPETENT BENEFICIARY In making any payments to or for the
benefit of any minor or an incompetent Beneficiary, the Committee, in its sole
and absolute discretion, may make a distribution to a legal or natural guardian
or other relative of a minor or court appointed committee of such incompetent.
Or, it may make a payment to any adult with whom the minor or incompetent
temporarily or permanently resides. The receipt by a guardian, committee,
relative or other person shall be a complete discharge to the Company. Neither
the Committee nor the Company shall have any responsibility to see to the
proper application of any payments so made.

- 5 -
<PAGE> 9
ARTICLE IX

ADMINISTRATION OF THE PLAN

9.01 MAJORITY VOTE All resolutions or other actions taken by the Committee
shall be by vote of a majority of those present at a meeting at which a
majority of the members are present, or in writing by all the members, at the
time in office, if they act without a meeting.

9.02 FINALITY OF DETERMINATION Subject to the Plan, the Committee shall, from
time to time, establish rules, forms and procedures for the administration of
the Plan. Except as herein otherwise expressly provided, the Committee shall
have the sole and absolute discretion to (a) construe and interpret the Plan,
(b) decide all questions of eligibility to participate in the Plan, and (c)
determine the amount, manner and time of payment of any benefits to any
Participant or Beneficiary. The decisions, actions and records of the
Committee shall be conclusive and binding upon the Company and all persons
having or claiming to have any right or interest in or under the Plan.

9.03 CERTIFICATES AND REPORTS The members of the Committee and the officers
and directors of the Company shall be entitled to rely on all certificates and
reports made by any duly appointed accountants, and on all opinions given by
any duly appointed legal counsel, which legal counsel may be counsel for the
Company.

9.04 INDEMNIFICATION AND EXCULPATION The Company shall indemnify and hold
harmless each member of the Committee against any and all expenses and
liabilities arising out of his membership on the Committee. Expenses against
which a member of the Committee shall be indemnified hereunder shall include,
without limitation, the amount of any settlement or judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted, or a proceeding brought or settlement thereof. The foregoing rights
of indemnification shall be in addition to any other rights to which the any
such member of the committee may be entitled as a matter of law.

9.05 EXPENSES The expenses of administering the Plan shall be borne by the
Company.

ARTICLE X

CLAIMS PROCEDURE

10.01 WRITTEN CLAIM Benefits shall be paid in accordance with the provisions
of this Plan. The Participant, or a designated recipient or any other person
claiming through the Participant, shall make a written request for benefits
under this Plan. This written claim shall be mailed or delivered to the Named
Fiduciary. Such claim shall be reviewed by the Named Fiduciary or his
delegate.

- 6 -
<PAGE> 10
10.02 DENIED CLAIM If the claim is denied, in full or in part, the Named
Fiduciary shall provide a written notice within ninety (90) days setting forth
the specific reasons for denial and any additional material or information
necessary to perfect the claim and an explanation of why such material or
information is necessary and appropriate information and explanation of the
steps to be taken if a review of the denial is desired.

10.03 REVIEW PROCEDURE If the claim is denied and a review is desired, the
Participant (or Beneficiary) shall notify the Named Fiduciary, in writing,
within sixty (60) days (a claim shall be deemed denied if the Named Fiduciary
does not take any action within the aforesaid ninety (90) day period) after
receipt of the written notice of denial. In requesting a review, the
Participant or his Beneficiary may request a review of the Plan document or
other pertinent documents with regard to the employee benefit plan created
under this agreement, may submit any written issues and comments, may request
an extension of time for such written submission of issues and comments and may
request that a hearing be held, but the decision to hold a hearing shall be
within the sole discretion of the Committee.

10.04 COMMITTEE REVIEW The decision on the review of the denied claim shall
be rendered by the Committee within sixty (60) days after the receipt of the
request for review (if no hearing is held) or within sixty (60) days after the
hearing if one is held. The decision shall be written and shall state the
specific reasons for the decision including reference to the specific
provisions of this Plan on which the decision is based.

ARTICLE XI

NATURE OF COMPANY'S OBLIGATION

11.01 COMPANY'S OBLIGATION The Company's obligations under this Plan shall be
an unfunded and unsecured promise to pay. The Company shall not be obligated
under any circumstances to fund its financial obligations under this Plan.
However, the Company may choose to establish an irrevocable trust to settle its
obligations under this Plan. The assets of such trust, if any, shall be
subject to the claims of the Company's creditors as set forth in Section 11.02
below.

11.02 CREDITOR STATUS Any assets which the Company may acquire or set aside
to help cover its financial liabilities are, and must, remain general assets of
the Company subject to the claims of its creditors. Neither the Company nor
this Plan gives the Participant any beneficial ownership interest in any asset
of the Company. All rights of ownership in any such assets are, and remain, in
the Company.

ARTICLE XII

MISCELLANEOUS

12.01 WRITTEN NOTICE Any notice which shall or may be given under this Plan
or a Deferral Agreement shall be in writing and shall be mailed by United
States mail, postage prepaid. If notice is to be given to the Company, such
notice shall be addressed to the

- 7 -
<PAGE> 11
Company at 12055 West Second Place, Lakewood, Colorado 80228-9304 or, if notice
is to an Executive, addressed to the address shown on such Executive's Deferral
Agreement.

12.02 CHANGE OF ADDRESS Any party may, from time to time, change the address
to which notices shall be mailed by giving written notice of such new address.

12.03 MERGER, CONSOLIDATION OR ACQUISITION The Plan shall be binding upon the
Company, its assigns, and any successor company which shall succeed to
substantially all of its assets and business through merger, acquisition or
consolidation, and upon an Executive, his Beneficiary, assigns, heirs,
executors and administrators.

12.04 CHANGE IN CONTROL In the event of a "change in control" of the Company,
as defined in the K N Energy, Inc. Long- Term Executive Incentive Plan, all
amounts credited to the Participant's Bookkeeping Account, as of the effective
date of the change in control, will be distributed in a lump sum within 30 days
of such change in control, less applicable withholding taxes.

12.05 AMENDMENT AND TERMINATION The Company retains the sole and unilateral
right to terminate, amend, modify or supplement this Plan, in whole or in part,
at any time. This right includes the right to make retroactive amendments.
However, no Company action under this right shall reduce the Bookkeeping
Account of any Participant or his Beneficiary as of the date of amendment or
termination.

12.06 EMPLOYMENT This Plan does not provide a contract of employment between
the Company and the Participant, and the Company reserves the right to
terminate the Participant's employment, for any reason, at any time,
notwithstanding the existence of this Plan.

12.07 NONTRANSFERABILITY Except insofar as prohibited by applicable law, no
sale, transfer, alienation, assignment, pledge, collateralization or attachment
of any benefits under this Plan shall be valid or recognized by the Company.
Neither the Participant, his spouse, or designated Beneficiary, shall have any
power to hypothecate, mortgage, commute, modify or otherwise encumber in
advance of any of the benefits payable hereunder, nor shall any of said
benefits be subject to seizure for the payment of any debts, judgments, alimony
maintenance, owed by the Participant or his Beneficiary, or be transferable by
operation of law in the event of bankruptcy, insolvency or otherwise.

12.08 LEGAL FEES All reasonable legal fees incurred by any Participant (or
former Participant) to successfully enforce his valid rights under this Plan
shall be paid by the Company in addition to sums due under this Plan.

12.09 TAX WITHHOLDING The Company may withhold from a payment any federal,
state or local taxes required by law to be withheld with respect to such
payment and such sum as the Company may reasonably estimate as necessary to
cover any taxes for which the Company may be liable and which may be assessed
with regard to such payment. The Company may either withhold from current
salary and/or incentive compensation that has not been deferred or make other
necessary arrangements with a Participant with respect to any FICA and Medicare
taxes required.

- 8 -
<PAGE> 12
12.10 ACCELERATION OF PAYMENT The Company reserves the right to accelerate
the payment of any benefits payable under this Plan at any time without the
consent of the Participant, his estate, his Beneficiary or any other person
claiming through the Participant.

12.11 APPLICABLE LAW This Plan shall be governed by the laws of the state of
Colorado.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by
its duly authorized officer on this _____ day of __________________, 1994.

K N ENERGY, INC.

By ______________________________________
Chief Executive Officer

ATTEST:

By: ____________________________

[SEAL]

- 9 -

<PAGE> 1

EXHIBIT 10 (n)

KN ENERGY, INC.
NONQUALIFIED RETIREMENT INCOME RESTORATION PLAN

SUMMARY OF PLAN PROVISIONS

<TABLE>
<S> <C>
Purpose To restore retirement income benefits, through a nonqualified plan, that have
been reduced due to Internal Revenue Section 415 limits that cap the benefits
permitted under a qualified pension plan and Internal Revenue Code Section
401(a)17 that caps compensation that may be considered in determining
benefits.

Eligible Executives Any executive who is vested in the KN Energy Pension Plan and is affected by
either the Section 415 or the Section 401(a)17 limits will automatically be a
Participant in this Plan.

Benefits A Participant shall receive a benefit equal to the difference between (i) what
he would have received pursuant to the KN Energy Pension Plan at the time
benefits are received thereunder if there were no limitations in benefits due
to Internal Revenue Code Sections 415 and 401(a)17 and (ii) what he actually
receives pursuant to the KN Energy Pension Plan because of such limitations.

Distribution of Benefits Benefits shall be distributed at the time and in the form that has been
selected by the Participant to be received under the KN Energy Pension Plan.

Death In the event of the Participant's death before retirement, benefits shall be
distributed to the Participants' spouse in the same manner and amounts as
though such benefits had been covered by the Pension Plan.

Change in Control In the event of a "change in control," the value of the Participant's vested
benefits will be distributed within 30 days of such change in control, less
applicable withholding taxes.

Contractual Right Only Any benefits under this Plan will create a contractual right only, and
benefits will be subject to the claims of creditors of KN.
</TABLE>

1
<PAGE> 2
<TABLE>
<S> <C>
Social Security and The additional benefits that accrue each year under this
Medicare Taxes Plan are subject to Social Security and Medicare taxes. There is no
compensation limit on Medicare taxes so withholding and KN matching tax
payments will be an issue. The IRS is to provide regulations for determining
the value of additional accrued benefits and withholding thereon by early
1995. At a minimum, withholding and payment of payroll taxes will be required
annually.

Plan Administration The Plan will be administered by the Compensation Committee of KN.
</TABLE>

<PAGE> 1
EXHIBIT 10 (O)
KN ENERGY, INC.
NONQUALIFIED PROFIT SHARING RESTORATION PLAN

SUMMARY OF PLAN PROVISIONS

<TABLE>
<S> <C>
Purpose To restore profit sharing benefits, through a nonqualified plan, that have
been reduced due to Internal Revenue Section 415 limits that cap the benefits
permitted under a qualified profit sharing plan and Internal Revenue Code
Section 401(a)17 that caps compensation that may be considered in determining
benefits.

Eligible Executives Any executive who participates in the KN Energy Profit Sharing Plan and is
affected by either the Section 415 or the Section 401(a)17 limits will
automatically be a Participant in this Plan.

Plan Year Calendar year.

Contributions to Profit Sharing KN shall credit a Profit Sharing Restoration Account for
Restoration Account the Participant in an amount equal to the difference between (i) the
contribution KN would have made to the KN Energy Profit Sharing Plan on the
Participant's behalf if there were no limitations due to Internal Revenue Code
Sections 415 and 401(a)17 and (ii) the contribution actually made on his
behalf because of such limitations.

Earnings Credited on The Participant's Profit Sharing Restoration Account
Contributions shall be credited with interest or valued based upon an agreed interest rate
or the performance of funds which are provided, from time to time, in the KN
Energy Profit Sharing Plan. The Participant shall elect how his Account is to
be invested among such funds and may transfer deemed investment among funds as
of the first of each calendar quarter. Any notice to transfer or change
deemed investments must be received by KN on or before the last business day
of the preceding calendar quarter.

Distribution of Benefits The value of the Participant's account will be distributed at the time that
benefits are distributed under the KN Energy Profit Sharing Plan.

Hardship In the event of a severe financial hardship, the Compensation Committee may
distribute part of the Participant's Profit Sharing Restoration Account, but
only to the extent of the amount necessary to relieve the hardship.
</TABLE>

1
<PAGE> 2
<TABLE>
<S> <C>
Death In the event of the Participant's death before full distribution of his Profit
Sharing Restoration Account, the balance of his Account will be paid to his
Beneficiaries as soon as practical after notification of death.

Change in Control In the event of a "change in control," the value of the Participant's Profit
Sharing Restoration Account will be distributed within 30 days of such change
in control, less applicable withholding taxes.

Contractual Right Only Any benefits under this Plan will create a contractual right only and will be
subject to the claims of creditors of KN.

Social Security and The contributions to the Plan on behalf of the Participant
Medicare Taxes are subject to Social Security and Medicare taxes. There is no compensation
limit on Medicare taxes so withholding and matching KN tax payments will be an
issue. The IRS is to provide regulations for withholding by early 1995. At a
minimum, withholding and payment of payroll taxes will be required annually.

Plan Administration The Plan will be administered by the Compensation Committee of KN.
</TABLE>

<PAGE> 1

EXHIBIT 12

K N ENERGY, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Income From Continuing Operations
Before Extraordinary Item
per Statements of Income $15,321 $30,869 $36,342 $37,074 $25,063
Add:
Interest and Debt Expense 32,009 31,478 27,608 24,298 24,454
Income Taxes 9,500 18,599 20,068 21,282 16,526
Portion of Rents Representative
of the Interest Factor 3,492 2,863 1,901 1,542 1,348
------- ------- ------- ------- -------
Income as Adjusted $60,322 $83,809 $85,919 $84,196 $67,391
======= ======= ======= ======= =======
Fixed Charges:
Interest and Debt Expense per
Statements of Income
(Includes Amortization of Debt
Discount, Premium and Expense) $31,815 $30,909 $27,090 $24,091 $24,045
Add:
Interest Capitalized 338 965 842 207 409
Portion of Rents Representative
of the Interest Factor 3,492 2,863 1,901 1,542 1,348
Preferred Stock Dividends of
Subsidiary - 69 3,084 5,393 6,487
------- ------- ------- ------- -------
Fixed Charges $35,645 $34,806 $32,917 $31,233 $32,289
======= ======= ======= ======= =======

Ratio of Earnings to Fixed Charges 1.69 2.41 2.61 2.70 2.09
======= ======= ======= ======= =======
</TABLE>

<PAGE> 1
EXHIBIT 13

K N ENERGY, INC.
1994 ANNUAL REPORT TO SHAREHOLDERS

Interested persons may receive a copy of the Company's 1994
Annual Report to Shareholders without charge by forwarding a written request
to: K N Energy, Inc., Securities Services Department, P. O. Box 281304,
Lakewood, Colorado 80228-8304.

<PAGE> 1
EXHIBIT 22
K N ENERGY, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
Name of Company State of Incorporation
- - --------------- ----------------------
<S> <C>
AOG Consulting, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
AOG Gas Transmission Company, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
AOG Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
AOG Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
American Energy Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
American Gas Storage, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
American Gathering, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
American Oil & Gas Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
American Pipeline Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
American Processing, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
American Webb, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
American WesTex Gas Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Anthem Energy Company, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
Caprock Pipeline Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Gas Marketing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
GASCO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
Industrial Mechanics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utah
K N Dakota Company (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Front Range Gathering Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Front Range Operating Company (inactive) . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Gas Gathering, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Gas Marketing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Natural Gas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Gas Supply Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Interstate Gas Transmission Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Optima Company (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
</TABLE>

70
<PAGE> 2
<TABLE>
<S> <C>
K N Production Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
K N Trading, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
K N TransColorado, Inc. (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Wattenberg Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
K N Wattenberg Transmission Limited Liability Company . . . . . . . . . . . . . . . . . . . . Colorado
Midlands Transportation Company (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
Northern Gas Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wyoming
Picor Pipeline Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
R M N G Gathering Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
RRP Financing Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Red River Gas Pipeline Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Rocky Mountain Natural Gas Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
Slurco Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
Slurco, Inc. (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
Sunflower Pipeline Company (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
TCP Gathering Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
Westar Transmission Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Wyoming Gasmark, Inc. (inactive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Wind River Gathering Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado
</TABLE>

All of the subsidiaries named above are included in the consolidated financial
statements of the Registrant included herein.

<PAGE> 1
EXHIBIT 24

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation by reference in (i) Registration Statements on Form S-16, File
Nos. 2-51894, 2-55664, 2-63470 and 2-75654; (ii) Registration Statements on
Form S-8, File Nos. 2-77752, 33-10747, 33-24934, 33-33018, 33-54403, 33-54443
and 33-54555; (iii) Registration Statements on Form S-3, File Nos. 2-84910,
33-26314, 33-23880, 33-42698, 33-44871, 33-45091, 33-46999, 33-51115 and
33-54317; and (iv) Registration Statement on Form S-4, file No. 33-53255 of
our report dated February 16, 1995, on the consolidated financial statements of
K N Energy, Inc. and subsidiaries for the year ended December 31, 1994.

/s/ Arthur Andersen LLP

Denver, Colorado
March 8, 1995.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 20,613
<SECURITIES> 0
<RECEIVABLES> 151,834
<ALLOWANCES> 0
<INVENTORY> 44,382
<CURRENT-ASSETS> 279,314
<PP&E> 1,312,394
<DEPRECIATION> 461,745
<TOTAL-ASSETS> 1,172,384
<CURRENT-LIABILITIES> 255,770
<BONDS> 334,644
<COMMON> 138,088
1,715
7,000
<OTHER-SE> 255,598
<TOTAL-LIABILITY-AND-EQUITY> 1,172,384
<SALES> 1,083,934
<TOTAL-REVENUES> 1,083,934
<CGS> 763,228
<TOTAL-COSTS> 1,029,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,605
<INCOME-PRETAX> 24,821
<INCOME-TAX> 9,500
<INCOME-CONTINUING> 15,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,321
<EPS-PRIMARY> 0.52
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</TABLE>