K N ENERGY INC, DEF 14A, 1996-03-11

K N ENERGY INC
DEF 14A, 1996-03-11
NATURAL GAS TRANSMISISON & DISTRIBUTION

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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

Filed by the registrant / /

Filed by a party other than the registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement

/ / Definitive Additional Materials

/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

K N ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

K N ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.

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

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

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

Class A $5.00 Cumulative Preferred Stock, Class B $8.30 Cumulative
Preferred Stock and Common Stock.
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:

27,800,881
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):

N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:

N/A
- --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

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

(1) Amount Previously Paid:

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

- --------------------------------------------------------------------------------
(3) Filing Party:

- --------------------------------------------------------------------------------
(4) Date Filed:

- --------------------------------------------------------------------------------
<PAGE> 2

<TABLE>
<S> <C>
(K N ENERGY LOGO) K N Energy, Inc.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228-8304
(303) 989-1740
</TABLE>

March 11, 1996

Fellow Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Brown Palace Hotel located at 321 Seventeenth Street, Denver,
Colorado 80220, on Thursday, April 11, 1996, at 10:00 A.M., Mountain Daylight
Time.

Please read carefully the accompanying Notice of Meeting and Proxy
Statement which contain details concerning the business to come before the
meeting. You will note that the Board of Directors of the Company recommends a
vote: "FOR" the authorization of an additional 1,500,000 shares of common stock
for issuance under the Company's 1994 Long-Term Incentive Plan; "FOR" the
authorization of an additional 200,000 shares of common stock for issuance under
the Company's Stock Option Plan for Non-Employee Directors, as well as
amendments to that Plan to increase the number of shares awarded to each
director and to change the timing of such awards; and "FOR" the reelection of
five directors for terms of three years each.

As in the past, in the election of directors, you may vote either for or
against all persons nominated by the Board by checking the appropriate box. If
you wish to vote for some but not all of the persons nominated, mark the
"Exceptions" box and write the name of the nominees for whom you do not wish to
vote in the space provided.

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

Very truly yours,

(CHARLES W. BATTEY SIG)

CHARLES W. BATTEY
Chairman of the Board
<PAGE> 3

K N ENERGY, INC.
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, CO 80228-8304
(303) 989-1740

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of Shareholders of K N Energy, Inc. will be held at the
Brown Palace Hotel at 321 Seventeenth Street, Denver, Colorado 80220, on
Thursday, April 11, 1996 at 10:00 A.M., Mountain Daylight Time, for the
following purposes:

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

2. To consider and vote upon a proposal to increase the number of
shares authorized for issuance under the 1994 K N Energy, Inc. Long-Term
Incentive Plan.

3. To consider and vote upon a proposal to increase the number of
shares authorized for issuance under the 1992 Stock Option Plan for
Nonemployee Directors, as well as amendments to the plan to increase the
number of shares awarded to each director and to change the timing of such
awards.

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

Accompanying this Notice of Annual Meeting is a form of Proxy, a Proxy
Statement, and a copy of the Company's 1995 Annual Report to Shareholders. The
1995 Annual Report to Shareholders is not to be considered part of the proxy
soliciting material.

Only shareholders of record at the close of business on February 15, 1996,
are entitled to vote at the meeting.

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

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

IMPORTANT:

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

WILLIAM S. GARNER, JR.
Vice President, General Counsel
and Secretary

Lakewood, Colorado
March 11, 1996
<PAGE> 4

K N ENERGY, INC.
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, CO 80228-8304
(303) 989-1740

March 11, 1996

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of K N Energy, Inc. (the "Company" or "K N") of proxies
for use at the Annual Meeting of Shareholders of the Company to be held at 10:00
A.M. MDT on April 11, 1996, at the Brown Palace Hotel, 321 Seventeenth Street,
Denver, Colorado, and at any adjournment of such meeting.

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

The Proxy Statement and form of Proxy will be first mailed to the
shareholders on or about March 11, 1996.

SHARES OUTSTANDING

Only shareholders of record at the close of business on February 15, 1996,
are entitled to vote at the meeting. On that date the Company had outstanding
the following shares of capital stock: 70,000 shares of Class A $5.00 Cumulative
Preferred Stock, 5,720 shares of Class B $8.30 Cumulative Preferred Stock and
28,232,687 shares of Common Stock. Each share of Preferred and Common Stock has
one vote and all shares vote as one class for all matters to come before the
meeting.

The holders of a majority of the issued and outstanding shares of the
Company who are entitled to vote at the meeting must be present at the meeting,
in person or represented by proxy, so that a quorum may be present for the
transaction of business. If a quorum is present at the meeting, the five
nominees for election as directors who receive the greatest number of votes cast
for the election of directors at the meeting by the shares present in person or
by proxy and entitled to vote shall be elected directors. The other matters
submitted to a vote of the shareholders must be approved by the affirmative vote
of the majority of shares present in person or by proxy and entitled to vote on
the matter. In the election of directors, abstentions will have no effect on the
vote. However, an abstention will have the practical effect of voting against
any of the other matters since it is one less vote for approval. Broker nonvotes
on one or more matters will have no impact on such matters since they are not
considered "shares present" for voting purposes. The By-laws require that
directors be elected by written ballot.

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

All properly executed Proxies delivered pursuant to this solicitation and
not revoked will be voted at the meeting in accordance with the directions
given. If no specific instructions are given with respect to the matters to be
voted upon, the Proxyholders, who are Messrs. Charles W. Battey, Larry D. Hall
and William S. Garner, Jr., will vote the shares covered by proxies received by
them for the election of all five nominees to the Board of Directors, for the
proposals to increase the numbers of authorized shares under the 1994 K N
Energy, Inc. Long-Term Incentive Plan (the "Incentive Plan") and the 1992 Stock
Option Plan for
<PAGE> 5

Nonemployee Directors (the "Directors' Option Plan") as well as amendments to
the Directors' Option Plan, and in accordance with the directors'
recommendations on all other matters.

ELECTION OF DIRECTORS (ITEM 1)

The Restated Articles of Incorporation of the Company provide for a Board
of Directors of no fewer than nine nor more than fifteen members (exclusive of
any advisory director), divided into three classes of as nearly an equal number
as possible, the directors in each class being elected for three years. There
are currently fourteen members of the Board of Directors and one non-voting
advisory director.

Messrs. Stewart A. Bliss, Robert H. Chitwood, Howard P. Coghlan, Edward
Randall, III and James C. Taylor have been nominated for reelection as Class III
directors. Proxies will be voted, unless authority to vote is withheld by the
shareholder, for the election of Messrs. Bliss, Chitwood, Coghlan, Randall and
Taylor to serve until the 1999 Annual Meeting of Shareholders and until the
election and qualification of their respective successors. If any such nominee
shall be unable or shall fail to accept nomination or election by virtue of an
unexpected occurrence, proxies may be voted for such other person or persons as
shall be determined by the Proxyholders in their discretion. Proxies cannot be
voted by the Proxyholders for more than the number of nominees named, which is
five persons.

On July 13, 1994, in connection with K N's acquisition by merger of
American Oil and Gas Corporation ("AOG"), the Board of Directors of K N
increased the number of its members to fourteen and appointed four designees of
AOG (Edward H. Austin, Jr., David M. Carmichael, Edward Randall, III and James
C. Taylor) to fill the four vacancies created by such increase. In addition, the
Board of Directors of K N elected John G. L. Cabot, a designee of Cabot
Corporation ("Cabot"), as an advisory director of K N. K N's By-laws were also
amended to provide that, among other things, for so long as Cabot continues to
own beneficially at least 10% of the voting stock of K N, Cabot will have the
right to designate an advisory director.

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

2
<PAGE> 6

<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1996(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Robert H. Chitwood 1990 16,000 65 Director President, R.H.
Chitwood Company
(oil and gas
production,
investments and
petroleum
consulting), Tulsa,
Oklahoma.
Howard P. Coghlan 1981 16,492 68 Director Senior Partner,
Coghlan, Crowson,
Fitzpatrick &
Westbrook,
Attorney's at Law,
Longview, Texas.
Edward Randall, III 1994 282,991 69 Director Private investor;
Director of Paine
Webber Group, Inc.;
Director of Enron
Oil & Gas Company.
James C. Taylor 1994 92,330 58 Director Owner and Operator,
Wytana Livestock
Company, Bozeman,
Montana; Private
investor.
DIRECTORS WHOSE TERMS EXPIRE IN 1997 (CLASS I)
- ------------------------------------------------------------------------------------------------------
Edward H. Austin, Jr. 1994 259,484 54 Director Principal of Austin,
Calvert & Flavin,
Inc., an investment
advisory firm, San
Antonio, Texas.
David W. Burkholder 1984 12,961 53 Director President of Will
Feed, Inc. (cattle
feeding), Willow
Island, Nebraska;
President of Island
Dehy Company, Inc.
(alfalfa
dehydration), Cozad,
Nebraska; and
President of
Consolidated
Blenders, Inc.
(alfalfa
dehydration),
Hastings, Nebraska.
</TABLE>

3
<PAGE> 7

<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1996(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
David M. Carmichael 1994 341,973 57 Vice Chairman(7) Chairman of the
(July Board and Chief
1994 -- Present) Executive Officer of
American Oil and Gas
Corporation (1993-
1994); President,
Chairman of the
Board and Chief
Executive Officer of
American Oil and Gas
Corporation (1986-
1993).
Jordan L. Haines 1983 14,877 68 Director Director of The
Coleman Company
(manufacturer
outdoor equipment);
Director of Southern
Pacific Rail Corp.
William J. Hybl 1988 7,670(8) 53 Director Chairman and Chief
Executive Officer
(1989- Present), and
Trustee of El Pomar
Foundation
(charitable
foundation),
Colorado Springs,
Colorado; Vice
Chairman and
Director of
Broadmoor Hotel,
Inc., Colorado
Springs, Colorado;
Director of USAA,
San Antonio, TX
(insurance company);
and President,
United States
Olympic Committee
(1991-1992).
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS II)
- ------------------------------------------------------------------------------------------------------
Charles W. Battey 1971 93,671 64 Chairman(4) (1989-
Present); and Chief
Executive Officer
(1989-July 1994)
</TABLE>

4
<PAGE> 8

<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 15, WITH THE DURING PAST
NAME DIRECTOR 1996(1)(2) AGE COMPANY(3) 5 YEARS(3)
- ---------------------- -------- ------------ --- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Robert B. Daugherty 1983 81,115 74 Director Chairman of the
Board of Valmont
Industries, Inc.
(manufacturer of
products for the
electrical industry,
producer of
mechanized
irrigation
equipment), Valley,
Nebraska; Director,
Peter Kiewit Sons'
Co. (contracting,
mining and
manufacturing).
Larry D. Hall 1984 90,080(5) 53 President and Chief
Executive Officer
(6) (July
1994-Present);
President and Chief
Operating Officer
(May 1988-July
1994); Director
H.A. True, III 1991 6,400 53 Director Partner, True
Companies (energy,
agriculture and
financing), Casper,
Wyoming.
ADVISORY DIRECTOR
John G.L. Cabot 1994 0 60 Advisory Director(9) Retired Vice
Chairman, Chief
Financial Officer
Cabot Corporation;
Director of Cabot
Corporation
(manufacturer of
specialty chemicals
and materials),
Boston, Mass.;
Director, Cabot Oil
and Gas Corporation,
Eaton Vance
Corporation and
Hollingsworth and
Vose Company.
</TABLE>

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

(1) No director owns any Preferred Stock of the Company. Except for Mr.
Carmichael and Mr. Randall, no director owns more than one percent of the
outstanding shares of Common Stock of the Company. In making the
computations required in connection with the preceding statement, with
respect to any director who held options to purchase shares of Common Stock
exercisable within 60 days of February 15, 1996, it was assumed that such
options had been exercised. The following number of shares representing
such unexercised options were added to the holdings of each of the
following directors:

5
<PAGE> 9

Mr. Austin, 2,000 shares; Mr. Battey, 49,750 shares; Mr. Bliss, 3,000
shares; Mr. Burkholder, 2,000 shares; Mr. Cabot, 0 shares; Mr. Carmichael,
41,333 shares; Mr. Chitwood, 6,750 shares; Mr. Coghlan, 9,000 shares; Mr.
Daugherty, 10,000 shares; Mr. Haines, 6,500 shares; Mr. Hall, 66,250
shares; Mr. Hybl, 6,500 shares; Mr. Randall, 2,000 shares; Mr. Taylor,
2,000 shares; and Mr. True, 6,250 shares.

(2) Unless otherwise indicated, the directors have sole voting and investment
power over the shares listed above, other than shared rights created under
joint tenancy or marital property laws as between the directors and their
respective spouses, if any.

(3) All of these persons have held such positions for at least five years unless
otherwise indicated.

(4) Mr. Battey will retire as Chairman after the Annual Meeting, but will remain
as a K N director.

(5) Includes 139 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power.

(6) Mr. Hall will assume the position of Chairman of the Board after the Annual
Meeting.

(7) Mr. Carmichael will retire as Vice Chairman after the Annual Meeting, but
will remain as a K N director.

(8) Includes 400 shares of Common Stock owned by Mr. Hybl's wife, as to which
Mr. Hybl disclaims beneficial ownership and over which he has neither
investment nor voting power.

(9) Mr. Cabot will retire from his Advisory Director position at the Annual
Meeting and Cabot Corporation has designated as his successor R. Gordon
Shearer, age 41, President of Cabot LNG Corporation who owns 200 shares of
K N Common Stock beneficially as of February 15, 1996.

Mr. Edward H. Austin, Jr. is married to the niece of Mr. James C. Taylor.
No other family relationships exist between any director, executive officer, or
person nominated or chosen by the Company to become a director or executive
officer.

RELATIONSHIP BETWEEN CERTAIN DIRECTORS AND THE COMPANY

Mr. David W. Burkholder, a director of the Company, is a director, officer
and ten percent owner of Consolidated Blenders, Inc., Island Dehy Company, Inc.,
Western Alfalfa, Shofstall Alfalfa and Cozad Cattle Feeders (collectively, the
"Burkholder Companies"). The Burkholder Companies purchase gas from the Company
pursuant to year-to-year contracts at an industrial rate that is the same for
all alfalfa dehydration customers in Nebraska. Further, in 1995 subsidiaries of
K N sold gas to the Burkholder Companies on the spot market and transported gas
for the Burkholder Companies for compensation. During 1995, the Burkholder
Companies paid K N and its subsidiaries a total of $229,928 under such gas
purchase and transportation arrangements. Similar contracts may be entered into
by the Company and some of its subsidiaries with the Burkholder Companies in the
future.

DIRECTOR AND COMMITTEE MEETINGS

The Board of Directors met 8 times during 1995. During 1995, all directors
attended 95% percent of the aggregate meetings of the Board of Directors and
committees thereof on which they served.

During 1995, the Audit Committee was composed of Messrs. Austin, Bliss,
Burkholder, Chitwood (Chairman), Coghlan, Hybl, Taylor and True. It met 3 times
in 1995. The duties of the Audit Committee include recommendation of the
independent auditor for selection by the Board of Directors, review of the
arrangements and scope of the independent auditor's examination, review of the
findings and recommendations of the independent auditor and internal auditors
concerning internal accounting procedures and controls, review of professional
services rendered by the independent auditor and review of the independence of
the auditor in regard to the Company and its management.

6
<PAGE> 10

The Compensation Committee during 1995 was composed of Messrs. Bliss,
Daugherty, Haines (Chairman), Hybl and Randall. It met 3 times in 1995. The
duties of the Compensation Committee are set forth in the Report of the
Compensation Committee on Executive Compensation below.

The Management Committee, composed of Messrs. Austin, Battey, Carmichael
(Chairman) and Hall, met 7 times in 1995. The duties of the Management Committee
consist of oversight and direction of management decisions with respect to the
day-to-day operations of K N and its subsidiaries, and oversight and direction
of matters relating to the integration and consolidation of the businesses and
operations of K N and AOG, as well as the duties and powers previously delegated
to K N's Executive Committee.

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

DIRECTOR COMPENSATION

A director (except a current employee) receives a retainer of $20,000 per
year, which may be taken in the form of K N Common Stock or cash, plus a fee of
$1,500 per day for each meeting attended. Members of the Audit, Compensation and
Management Committees also receive a fee of $1,500 per day for each committee
meeting attended on a day other than that of a Board meeting. Directors who are
full-time employees of the Company receive no additional compensation in their
capacity as director. All directors are reimbursed for reasonable travel and
other expenses incurred in attending all meetings. Directors who are not also
employees or officers may elect to defer until age 65, and/or until retirement
from the Board, all or any portion of their compensation pursuant to the
Deferred Compensation Plan for Outside Directors or the 1987 Directors' Deferred
Fee Plan, which were adopted by the Company effective May 1, 1984, and May 1,
1987, respectively. The Deferred Compensation Plan for Outside Directors was
amended in November 1995 to allow Directors to defer their retainer and/or
meeting fees in the form of K N Common Stock or cash equivalency.

Directors who are not also employees participate in the Directors' Option
Plan. As the Directors' Option Plan is currently stated, within 30 days after
the election to the Company's Board of Directors of any person who is not a
salaried employee of the Company, the committee of the Board of Directors which
administers the Directors' Option Plan is required to grant to that person an
option to purchase a number of shares of Common Stock of the Company equal to
1000 times the number of years in the term to which he is elected. If any person
is elected by the Board of Directors to fill an unexpired term or vacancy on the
Board of Directors, the committee is required, within 30 days of the election,
to grant to that person an option for a number of shares equal to 1000 for each
twelve-month period of such term plus 1000 for any fraction of a twelve-month
period. Options may be granted at not less than 100 percent of the fair market
value of the Common Stock on the date of grant and expire 10 years from the date
of grant. Options granted pursuant to the Directors' Option Plan are not
intended to qualify as incentive stock options. The options become exercisable
in one-third increments annually over the succeeding three-year period.

The Company is requesting shareholder approval to amend the Directors'
Option Plan to (i) change the option grant to an annual grant, with a grant and
vesting date of the first business day of each calendar year, and (ii) to
increase the number of options available for grant each year to each Director to
up to 3000 per year or partial year for which they serve. See "Proposal to Amend
Directors' Option Plan (Item 3)"

In April 1995, options to purchase 3,000 shares each, 1,000 shares for each
year of their term, were granted to Messrs. Daugherty and True at an exercise
price of $24.44 per share, the average sales price of the Common Stock on that
date. The Company is requesting shareholder approval of an increase in the
number of shares issuable under the Directors' Option Plan. See "Proposal to
Amend Directors' Option Plan (Item 3)."

Non-employee Directors who were elected prior to 1992 received grants under
the 1982 Stock Option Plan for Non-Employee Directors (the "1982 Plan"). Grants
are no longer being made from the 1982 Plan. The terms of the 1982 Plan are
identical to the current Directors' Option Plan, except that each participant
was granted options to purchase the number of shares equal to 500 (rather than
1000) times the number of years or partial years in the term to which he was
elected.

7
<PAGE> 11

BOARD RECOMMENDATION

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

REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION

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

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

COMPENSATION COMPONENTS AND PHILOSOPHY

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

The Incentive Plan gives the Compensation Committee the flexibility to
grant both non-qualified and incentive stock options, restricted stock awards,
stock appreciation rights and other stock-based awards.

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

BASE SALARY

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

STOCK OPTIONS

In 1995, stock options granted under the Incentive Plan comprised the
Company's major long-term executive benefit.

Stock options are granted to meet certain corporate objectives, including
to encourage contributions by executive officers to key corporate and operating
goals, to show confidence and high expectations that the judgment, initiative
and efforts of executive officers will result in the Company's success and to
align the interests of executive officers with shareholder interests. Decisions
concerning the granting of options are directly related to performance-based
objectives. The Compensation Committee believes the Incentive Plan, which
provides for a variety of stock-based awards that can be flexibly administered,
permits the Company to keep pace with changing developments in compensation and
benefit programs, making the Company competitive with those companies that offer
creative incentives to attract and keep employees. The ability to

8
<PAGE> 12

grant both incentive and non-qualified stock options enhances the Compensation
Committee's ability to meet the Company's objectives of attracting and retaining
well-qualified individuals to serve as executive officers and key employees. The
Company is requesting shareholder approval to increase the number of shares of
Common Stock authorized for issuance under the Incentive Plan. See "Proposal to
Amend Incentive Plan (Item 2)."

RESTRICTED STOCK AWARDS

In 1995 no executive officers were granted restricted stock awards. Under
the Incentive Plan, restricted stock awards are directly tied to the successful
performance of specific and concrete objectives by the executive officers,
including goals and objectives related to the successful development of the
Company's strategic business initiatives, meeting budget and financial
objectives, and continued employment with the Company. At the direction of the
Compensation Committee, the Company's Chief Executive Officer closely monitors
these performance objectives to determine whether the required outcome has been
achieved and the restrictions of the stock awards have been met.

PROFIT SHARING PLAN

Executive officers, along with all other employees who meet certain
requirements regarding length of employment and full-time status, are eligible
to participate in the Company's Employee Retirement Fund Trust Profit Sharing
Plan ("Profit Sharing Plan"). Contributions to the Profit Sharing Plan in 1995
were based on the Company's net income. The Profit Sharing Plan has been amended
in 1996 to provide that future contributions made under the plan will be based
solely on the Company's success against financial objectives to be set annually
by the Board of Directors.

EXECUTIVE INCENTIVE PLAN

The Compensation Committee annually approves an Executive Incentive Plan,
which provides the means for determining and paying executive cash awards.

The Executive Incentive Plan contains detailed criteria for the evaluation
of performance by executive officers. Particular emphasis is placed on
performance-oriented objectives, financial measures, cost control measures and
other measures linked to strategic objectives designed to improve existing
performance, management effectiveness, productivity, safety, cost control,
service levels and efficiencies to clearly benefit customers and, thereby,
shareholders. Target objectives are set for corporate performance and for
division and personal objectives in January of each year. Examples of financial
objectives in the 1995 Executive Incentive Plan include results against budgeted
earnings for net operating income and return on beginning common equity.
Examples of operating goals in the 1995 Executive Incentive Plan include
maximization of merger profitability and strategic synergy, successful
restructuring of the Company's accounting and information organizations to
provide for flexibility and timely response, successful development of an
aligned, cross-functional management team which will bring competence and
cohesion to the corporate vision, successful implementation of the realignment
of the Company's retail business, and meeting and maintaining high safety
standards.

Prior to April 15 of each year, the Compensation Committee designates
executive participants in the Executive Incentive Plan for that year.
Participation in one year does not guarantee participation in following years.
Participants are assigned to levels of eligibility, based on their degree of
responsibility for corporate-wide results.

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

9
<PAGE> 13

The Company's 1994 operating results met the Company's 1994 financial
objectives, and this success is reflected in the individual incentive pay-outs
reported in the Bonus column of the Summary Compensation Table. The Company's
1995 operating results exceeded its 1995 financial objectives and this success
mirrors in the individual incentive pay-outs reported in the bonus column of the
Summary Compensation Table.

CHIEF EXECUTIVE OFFICER COMPENSATION

As indicated, the Company's executive compensation program, both annual and
long-term, is based in large part upon the Company's business performance.
Annual incentive compensation for the Chief Executive Officer depends upon the
overall performance of the Company. His long-term compensation from stock
options and his salary level are likewise largely dependent upon Company
performance. The Compensation Committee closely monitors the performance of the
Chief Executive Officer, meeting without his presence to evaluate his success in
achieving the corporate objectives in each year. The 1994 operating results met
the Company's objectives, and the Chief Executive Officer's incentive
compensation reflected this successful Company-wide performance. The 1995
operating results exceeded the Company's expectations, and the Chief Executive
Officer's incentive compensation mirrors this achievement.

Compensation Committee of
the Board of Directors

Mr. Jordan L. Haines (Chairman)
Mr. Stewart A. Bliss
Mr. Robert B. Daugherty
Mr. William J. Hybl
Mr. Edward Randall, III

10
<PAGE> 14

EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND ---------------------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS($) OPTIONS(#) COMPENSATION($)(3)
- -------------------- ---- --------- ----------- --------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall 1995 $ 362,500 $ 125,000 $ 0 50,000(2) $ 13,582(4)
President/CEO 1994 297,500 100,000 0 100,000(2) 6,683(5)
1993 236,335 100,000 0 0 22,074
Charles W. Battey 1995 250,008 0 0 0 20,608(6)
Chairman 1994 264,587 100,000 0 25,000(2) 16,575(7)
1993 264,584 125,000 0 0 24,364
David M. Carmichael 1995 250,008 0 0 0 13,540(8)
Vice Chairman 1994 313,937 0 0 25,000(2) 0
1993 359,600(9) 0(9) 512,500(9) 47,000(9) 3,517(9)
Samuel H. 1995 175,210 45,000 31,406(12) 25,000(2) 13,524(10)
Charlton, III 1994 154,600 10,000 30,156(12) 0 1,500(11)
V.P. Marketing 1993 109,550(13) 0(13) 0(13) 9,400(13) 0(13)
S. Wesley Haun 1995 176,878 31,000 0 25,000(2) 13,524(14)
V.P. Mkt/Supply 1994 146,252 25,000 0 20,000(2) 6,134(15)
1993 133,754 38,000 0 4,500(16) 7,144
</TABLE>

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

(1) The Company has no permanent long-term cash incentive plans. Instead, the
Compensation Committee of the Board of Directors reviews the advisability
of an executive cash incentive plan on an annual basis as discussed in the
Report of the Compensation Committee on Executive Compensation contained
herein. Amounts earned under such annual cash incentive plans are actually
paid in the year following the year in which they were earned; however such
amounts are reflected in the table in the year in which such amounts were
earned.

(2) These options were granted under the Incentive Plan, and were granted at an
exercise price of 100% of the fair market value of the Common Stock as of
the date of grant, are exercisable within 10 years from the respective
dates of grant, and vest over a four or five-year period. See "Stock
Options" below.

(3) 1995 earnings under the All Other Compensation column include an amount
earned under the Profit Sharing Plan. Under the provisions of the Company's
Profit Sharing Plan (a defined contribution plan) established in 1945,
during 1993-1995 the Company contributed annually the lesser of an amount
equal to 10 percent of the annual eligible compensation of eligible
employees, excluding bonuses, or 10 percent of net income as defined by the
Profit Sharing Plan. All full-time employees who have completed two years
of service, as defined by the Profit Sharing Plan, are participants.
Amounts allocated to an employee's Profit Sharing Plan account vest
immediately. Benefits are generally only payable on termination or
retirement. Amounts earned under the Profit Sharing Plan are actually paid
in the year following the year in which they were earned.

(4) Mr. Hall's 1995 earnings under the All Other Compensation column include
$13,470 earned under the Company's Profit Sharing Plan (see discussion in
footnote (3) above). The Company also paid $112 in term life and accidental
death and dismemberment insurance premiums in 1995 on behalf of Mr. Hall.

(5) Mr. Hall's earnings for 1994 under the Profit Sharing Plan were $5,809,
which is reflected in the 1994 All Other Compensation column.

11
<PAGE> 15

(6) Mr. Battey's 1995 earnings under the All Other Compensation column include
$13,470 earned under the Company's Profit Sharing Plan (see discussion in
footnote (3) above). The Company also paid $70 in term life and accidental
death and dismemberment insurance premiums in 1995 on behalf of Mr. Battey.
In addition, Mr. Battey elected to receive deferred compensation from the
Company while he served as an outside, non-employee director of the
Company. Interest applicable to Mr. Battey's deferred compensation exceeded
120% of market interest rates in 1995 and totaled $7,068.

(7) Mr. Battey's earnings for 1994 under the Profit Sharing Plan were $5,809,
which is reflected in the 1994 All Other Compensation column.

(8) Mr. Carmichael's 1995 earnings under the All Other Compensation column
include $13,470 earned under the Company's Profit Sharing Plan (see
discussion in footnote (3) above). The Company also paid $70 in term life
and accidental death and dismemberment insurance premiums in 1995 on behalf
of Mr. Carmichael.

(9) Mr. Carmichael's 1993 compensation information is derived from the Summary
Compensation Table in the American Oil and Gas Corporation Proxy Statement
dated April 11, 1994. Securities underlying options have been converted to
reflect the exchange ratio of 0.47 of a share of K N Common Stock for each
share of AOG Common Stock pursuant to the Agreement of Merger.

(10) Mr. Charlton's 1995 earnings under the All Other Compensation column
include $13,470 earned under the Company's Profit Sharing Plan (see
discussion in footnote (3) above). The Company also paid $54 in term life
and accidental death and dismemberment insurance premiums in 1995 on behalf
of Mr. Charlton.

(11) Mr. Charlton's earnings for 1994 under the employer match in the AOG 401(k)
Plan were $1,500, which is reflected in the 1994 All Other Compensation
column.

(12) 7,500 shares of restricted stock were granted to Mr. Charlton on August 12,
1994. 2,500 shares vested on August 12, 1994; 1,250 shares vested on August
12, 1995; 1,250 shares will vest on August 12, 1996; 1,250 shares will vest
on August 12, 1997; and 1,250 shares will vest on August 12, 1998. The
average price of K N Common Stock on August 12, 1994 was $24.625, and on
August 12, 1995 was $25.125. The market value of the 7,500 shares of
restricted stock awarded to Mr. Charlton at year-end 1995 was $184,688.
Assuming the successful completion by Mr. Charlton of certain goals and
objectives tied to this restricted stock award, the remaining 3,750 shares
of restricted stock will vest in increments of 1,250 shares on each of
August 12 of 1996, 1997 and 1998. Dividends will be accrued and paid on the
restricted stock awarded as the shares vest to Mr. Charlton.

(13) Reflects salary earned by Mr. Charlton during the part of 1993 that he was
employed by AOG. Securities underlying options have been converted to
reflect the exchange ratio of 0.47 of a share of K N Common Stock for each
share of AOG Common Stock pursuant to the Agreement of Merger.

(14) Mr. Haun's 1995 earnings under the All Other Compensation column include
$13,470 earned under the Company's Profit Sharing Plan (see discussion in
footnote (3) above). The Company also paid $54 in term life and accidental
death and dismemberment insurance premiums in 1995 on behalf of Mr. Haun.

(15) Mr. Haun's earnings for 1994 under the Profit Sharing Plan were $5,664,
which is reflected in the 1994 All Other Compensation column.

(16) These options were granted under the 1988 Incentive Stock Option Plan at an
exercise price of 100% of the fair market value of Common Stock as of the
date of grant, and vest over a four year period.

12
<PAGE> 16

STOCK OPTIONS

Information concerning 1995 grants to and exercises by the named executive
officers is provided below.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) PRICE($/SH) DATE 5%($) 10%($)
- --------------------------------------- --------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall............. 50,000 14.9% $ 25.19 8/18/05 $792,014 $2,007,119
Charles W. Battey......... 0 0 0 n/a 0 0
David M. Carmichael....... 0 0 0 n/a 0 0
Samuel H. Charlton III.... 25,000 7.5 25.19 8/18/05 396,007 1,003,560
S. Wesley Haun............ 25,000 7.5 25.19 8/18/05 396,007 1,003,560
</TABLE>

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

(1) Each option granted in 1995 has an exercise price equal to the fair market
value of K N's Common Stock on the date of grant and expires ten years from
the date of grant, subject to earlier termination in certain events related
to termination of employment of the optionee. The options granted in 1995
become exercisable in one-fourth increments on each of the first four
anniversaries of the grant date, subject to automatic acceleration of full
exercisability upon a Change in Control of K N (as defined in the Incentive
Plan). The exercise price and tax withholding obligations related to
exercise may be paid by delivery of already owned shares or by offset of
the underlying shares, subject to certain conditions. Under the terms of
the Incentive Plan, the Compensation Committee retains discretion, subject
to plan limits, to accelerate exercise dates and otherwise waive or amend
any conditions of options granted thereunder.

(2) The total number of options granted to Company employees in 1995 was
371,200.

(3) The values set forth in this column assume annual rates of stock
appreciation of 5% and 10%. The Company has no ability to predict whether
such appreciation rates will be achieved, and, therefore, cannot predict
whether the potential realizable values set forth in this column
realistically indicate the value of the options granted to the named
executive officers in 1995.

The following table sets forth information about option exercises in 1995
by the named executive officers and the value of the remaining options held by
each such officer at year-end.

AGGREGATED OPTION EXERCISES IN 1995
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
SHARES YEAR-END(#) OPTIONS AT YEAR-
ACQUIRED ON VALUE EXERCISABLE/ END($) EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------------------------- ----------- -------------- --------------------
<S> <C> <C> <C> <C>
Larry D. Hall....................... 0 $ 0 66,250/110,000 $556,719/$511,875
Charles W. Battey................... 0 0 49,750/ 15,000 610,246/ 78,750
David M. Carmichael................. 136,300 2,082,344 41,333/ 30,667 285,868/ 195,438
Samuel H. Charlton III.............. 1,250 31,406 5,483/ 32,667 32,718/ 228,711
S. Wesley Haun...................... 2,250 24,390 10,250/ 39,250 55,687/ 175,125
</TABLE>

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

(1) Based on the closing price of Company Common Stock on the NYSE Composite
Tape on December 29, 1995, which was $29.125.

13
<PAGE> 17

EXECUTIVE STOCK OWNERSHIP

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

EXECUTIVE OFFICER BENEFICIAL STOCK OWNERSHIP

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
COMMON STOCK BENEFICIALLY
OWNED AS OF FEBRUARY 15,
NAME 1996(1)(2)(3)
------------------------------------------------------------------------------------------
<S> <C>
Larry D. Hall................................................. 90,080(4)
Charles W. Battey............................................. 93,671
David M. Carmichael........................................... 341,973
Samuel H. Charlton III........................................ 12,839
S. Wesley Haun................................................ 18,625
All executive officers and directors as a group............... 1,556,999
</TABLE>

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

(1) No named executive officer beneficially owns any preferred stock of the
Company. Except for Mr. Carmichael, who beneficially owned 1.2 percent, no
named executive officer beneficially owned more than 1 percent of the
Company's outstanding Common Stock. All executive officers and directors as
a group owned approximately 5.5% percent of the outstanding Common Stock.
Respecting share ownership by directors, see "Election of Directors" above.
In making the computations required in connection with the preceding
statement, with respect to any executive officer who held options to
purchase shares of the Common Stock exercisable within 60 days of February
15, 1996, it was assumed that such options had been exercised. The
following number of shares representing such unexercised options were added
to the holdings of each of the following executive officers: Mr. Hall,
66,250 shares; Mr. Battey, 49,750 shares; Mr. Carmichael, 41,333 shares;
Mr. Charlton, 5,483 shares; and Mr. Haun, 10,250 shares. A total of 322,497
shares representing such unexercised options were added to the holdings of
all executive officers and directors as a group.

(2) Does not include shares earned in 1995 under the Company's Profit Sharing
Plan, which were distributed after February 15, 1996.

(3) Unless otherwise indicated, the executive officers have sole voting and
investment power over the shares listed above, other than shared rights
created under joint tenancy or marital property laws as between the
Company's executive officers and their respective spouses, if any.

(4) Includes 139 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power. Does not include any of the shares earned by
Mr. Hall under the Company's Executive Benefit Equalization Plan because
such shares had not actually been purchased for his account at such date.
The cumulative number of shares attributable thereto as of December 31,
1995 is 3,082.

14
<PAGE> 18

PERFORMANCE GRAPH

The following Performance Graph compares the performance of the Company's
Common Stock to the Standard & Poor's 500 Stock Index and to the Standard &
Poor's Natural Gas Index for the Company's last five fiscal years. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 31, 1990, and that all dividends were reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

AMONG K N ENERGY, INC., THE S&P 500 INDEX AND THE S&P NATURAL GAS INDEX

<TABLE>
<CAPTION>
MEASUREMENT PERIOD K N ENERGY, S&P NATURAL
(FISCAL YEAR COVERED) INC S&P 500 GAS
<S> <C> <C> <C>
1990 100 100 100
1991 121 130 87
1992 133 140 97
1993 190 154 115
1994 182 156 110
1995 232 215 155
</TABLE>

* $100 invested on 12/31/90 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.

PENSION BENEFITS

The Company's employees and officers participate in its Retirement Plan and
Trust Agreement for Non-Bargaining Employees (the "Pension Plan"). This is a
defined benefit plan which is not based upon a participant's final years'
compensation. Annual pension benefits at the normal retirement age of 65 are
equal to the total of the yearly accrued annuity credits. Prior to January 1,
1989, the yearly annuity credit equaled 1.1 percent of the first $8,400 of
compensation and 2.1 percent of compensation in excess of $8,400. Effective
January 1, 1989, the yearly annuity credit equals 1.75 percent of the first
$19,200 of compensation and 2.1 percent of compensation in excess of $19,200.
For purposes of the Pension Plan, compensation excludes bonuses and commissions,
and includes overtime and special duty compensation. Assuming continued
employment at age 65 at present salaries, the estimated annual pension benefits
of the named executive officers are as follows: Mr. Hall, $91,632, Mr. Battey,
$32,928, Mr. Carmichael, $21,576, Mr. Charlton, $46,248, and Mr. Haun, $67,368.
These benefits are not subject to any deduction for Social Security benefits or
other offset amounts.

15
<PAGE> 19

SEVERANCE AND OTHER AGREEMENTS

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

The Company has entered into an agreement with Mr. Battey obligating him to
provide consulting services to the Company for two years following his
retirement on April 11, 1996, for compensation of $300,000, payable in four
equal semi-annual installments over the term of the agreement.

PROPOSAL TO AMEND INCENTIVE PLAN (ITEM 2)

The Incentive Plan became effective when it received shareholder approval
at the 1994 Annual Meeting. On November 14, 1991, the Board of Directors agreed
on a policy of granting options in an amount equaling up to 1% per year of the
total outstanding stock of the Company and on January 16, 1996 voted to amend
the Incentive Plan to increase the authorized number of shares of Common Stock
issuable thereunder from 700,000 to 2,200,000, an increase of 1,500,000 shares.
Such amendment will become effective upon the affirmative vote of a majority of
shares present in person or by proxy and entitled to vote at the 1996 Annual
Meeting. Should the amendment not be approved, the Incentive Plan will remain in
force as originally adopted.

The purposes of the Incentive Plan are (i) to further the growth and
financial success of K N and its subsidiaries by aligning the interest of the
Company's shareholders and recipients of awards under the Incentive Plan thereby
increasing the proprietary interest of such recipients in the Company's growth
and success, and (ii) to increase the flexibility of K N to compensate key
employees and to motivate, attract and retain such employees. The Board of
Directors believes that the Incentive Plan has fulfilled these purposes to date.
As indicated in the "Report of the Compensation Committee on Executive
Compensation" herein, during the past two years awards of stock options under
the Incentive Plan have comprised the Company's major long-term executive
benefit. At February 15, 1996, only 85,300 shares remained authorized for
issuance under the Incentive Plan. The proposed increase in the total number of
shares authorized under the Incentive Plan is expected to extend the prospective
life of the Incentive Plan for at least five more years.

In structuring the Incentive Plan, the Board of Directors sought to provide
for a variety of awards that could be flexibly administered in order to carry
out the purposes of the Incentive Plan, to permit the Company to keep pace with
changing developments in compensation programs and to make the Company more

16
<PAGE> 20

competitive with those companies that offer creative incentives to attract and
keep employees. The flexibility of the Incentive Plan allows the Company to
respond to changing circumstances such as changes in tax laws, accounting rules,
securities regulations and other rules regarding benefit plans. The Incentive
Plan grants the administrators flexibility in creating the terms and
restrictions deemed appropriate for particular awards as facts and circumstances
warrant.

INCENTIVE PLAN SUMMARY

ADMINISTRATION

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

ELIGIBILITY FOR PARTICIPATION

Officers and other key employees of the Company and subsidiary companies
(in which the Company owns directly or indirectly more than a 50% voting equity
interest) are eligible to be selected to participate in the Incentive Plan. The
selection of participants from eligible persons is within the sole discretion of
the Compensation Committee. Directors who are not employees are not eligible to
participate in the Incentive Plan. The Company estimates that approximately
fifty persons are currently eligible to receive awards under the Incentive Plan.

TYPES OF AWARDS

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

OPTIONS

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

The price per share of Common Stock subject to an Option (the "Option
Price") is set by the Compensation Committee. In the case of ISOs, the Option
Price shall not be less than the fair market value of Common Stock (generally
determined to be the average of the high and low sale price reported in The Wall
Street Journal for the New York Stock Exchange -- Composite Transactions) on the
date of the grant of the ISOs. The Compensation Committee also determines the
manner in which the Option Price of an Option may be paid, which may include the
tender of cash or securities or the withholding of Common Stock or cash to be

17
<PAGE> 21

received through grants or any other arrangements satisfactory to the
Compensation Committee. The Incentive Plan provides that no ISO shall be
exercisable later than 10 years after the date of grant. The Incentive Plan,
however, does not restrict the term of a Nonstatutory Stock Option. Options are
not transferable except by will or the laws of descent and distribution.

STOCK APPRECIATION RIGHTS

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

An SAR granted in tandem with a Nonstatutory Stock Option may be granted
either at or after the time of the grant of the Nonstatutory Stock Option. An
SAR granted in tandem with an ISO may be granted only at the time of the grant
of the ISO. An SAR granted in tandem with an Option terminates and is no longer
exercisable upon the termination or exercise of the related Option. Subject to
the limitations set forth in the Incentive Plan, SARs shall be subject to such
terms and conditions as shall be determined from time to time by the
Compensation Committee. The Compensation Committee at any time may accelerate
the exercisability of any SAR and otherwise waive or amend any conditions to the
grant of an SAR. SARs are not transferable except by will or the laws of descent
and distribution.

RESTRICTED STOCK

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

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

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

OTHER AWARDS

In addition to Options, SARs and Restricted Stock, the Incentive Plan
permits the Compensation Committee to grant awards consisting of any other form
of stock-based consideration that the Compensation Committee determines is
consistent with the purposes of the Incentive Plan. The grant of additional
types of awards is subject to the overall limitation on the number of shares of
Common Stock (or stock equivalents)

18
<PAGE> 22

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

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

FEDERAL TAX CONSEQUENCES

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

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

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

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

In general, a participant receiving Restricted Stock does not realize
taxable income upon the grant of Restricted Stock. A participant will, however,
realize ordinary income when the Restricted Stock becomes vested to the extent
that the fair market value of the Common Stock on that date exceeds the price,
if any, paid for the Restricted Stock or, if no price was paid, to the extent of
the fair market value of the Common Stock on that date. However, the participant
may elect (within 30 days after the grant of Restricted Stock) to realize
ordinary income on the date of the grant to the extent of the fair market value
of the Restricted Stock

19
<PAGE> 23

(determined without regard to restrictions on transferability and any
substantial risk of forfeiture). If such election is made, the participant will
not realize ordinary income when the Restricted Stock becomes vested. In
addition, if such an election is made and the Restricted Stock is subsequently
forfeited, the participant is not entitled to a deduction but will be allowed a
capital loss equal to the excess of the amount paid, if any, for such shares
over the amount realized if any, on such forfeiture. Upon a subsequent sale of
vested Restricted Stock, any gain or loss will be capital gain or loss, assuming
the shares represent a capital asset in the hands of the participant. The
Company is entitled to a Federal income tax deduction in an amount equal to the
ordinary income realized by the recipient of the Restricted Stock, provided that
the Company withholds Federal income tax with respect to the amount of such
compensation. Dividends paid to the participant on Restricted Stock during the
restricted period are ordinary compensation income to the participant and
deductible as such by the Company. If the exercisability of an Option or a SAR,
or the elimination of restrictions on Restricted Stock is accelerated, or
special cash settlement rights are triggered and exercised, as a result of a
Change in Control of the Company, all or a portion of the value of the relevant
award at that time may be a "parachute payment" for purposes of determining
whether a 20% excise tax (in addition to income tax otherwise owed) is payable
by the participant as a result of the receipt of an "excess parachute payment"
pursuant to Section 4999 of the Code. The Company will not be entitled to a
deduction for that portion of any parachute payment which is subject to the
excise tax.

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

ACCOUNTING TREATMENT AND OTHER MATTERS

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

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

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

BOARD RECOMMENDATION

The Board of Directors unanimously recommends a vote FOR the proposal to
increase by 1,500,000 the number of shares authorized for issuance under the
Incentive Plan.

PROPOSAL TO AMEND DIRECTORS' OPTION PLAN (ITEM 3)

The Board of Directors adopted the Directors' Option Plan effective January
1, 1992, for a term of 10 years, subject to shareholder approval. The Directors'
Option Plan was adopted at the 1992 Annual Meeting.

20
<PAGE> 24

On January 16, 1996, the Board of Directors voted to amend the Directors'
Option Plan to (i) increase the authorized number of shares of Common Stock
issuable thereunder, as adjusted for the 1993 stock split, from 150,000 to
350,000, an increase of 200,000 shares, (ii) to increase the number of options
to be granted to Directors from 1000 to 3000 per year or partial year of
service, and (iii) to change the grant date for the options to the first
business day of each calendar year. Such amendments will become effective upon
the affirmative vote of a majority of shares present in person or by proxy and
entitled to vote at the Annual Meeting. Should the amendment not be approved,
the Directors' Option Plan will remain in force as originally adopted.

The purpose of the Directors' Option Plan is to permit the Company to
remain competitive in attracting and retaining high caliber members on its Board
of Directors. The Board of Directors believes the plan has been successful in
this regard, and it further believes that an increase in shares available for
option under the plan is appropriate at this time. At February 15, 1996, only
107,000 shares remained authorized for issuance under the Directors' Option
Plan. The proposed increase in the total number of shares authorized under the
Directors' Option Plan is expected to extend the prospective life of the
Directors' Option Plan through the end of its term.

SUMMARY OF THE DIRECTORS' OPTION PLAN

Reference should be made to Attachment A for a complete statement of the
provisions of the Directors' Option Plan which are summarized below. Certain
capitalized terms used in this summary have the meanings ascribed to them in the
Directors' Option Plan.

ADMINISTRATION

Within 30 days after the election to the Company's Board of Directors of
any person who is not a salaried employee of the Company, the committee of the
Board of Directors which administers the Directors' Option Plan ("Directors'
Option Committee") is required to grant to that person an option to purchase up
to 3,000 shares of Common Stock. The option granted shall be equal to the option
granted to all other directors in that calendar year. Thereafter, on the first
business day of each calendar year, the Directors' Option Committee shall grant
to all eligible directors an option to purchase up to 3,000 shares of Common
Stock. Options may be granted at not less than 100% of the fair market value of
the Common Stock as of the date of grant, are exercisable on the date of grant,
and expire 10 years from the date of grant.

Under the Directors' Option Plan, the Directors' Option Committee shall
consist of a committee of the Board of Directors made up of only those directors
who are also employees of the Company.

SHARES AVAILABLE

Shares issued under the Directors' Option Plan may be either authorized and
unissued shares or treasury shares. The Directors' Option Plan provides for
appropriate adjustments or other action to reflect mergers, consolidations,
recapitalizations, certain sales of assets, combinations of shares, a change in
control of the Company through share ownership or a contested election of
directors, changes in corporate structure, stock splits, stock dividends, or
certain other significant changes in the Common Stock.

PARTICIPATION

Directors who are full-time employees of the Company are not eligible to
participate in the Directors' Option Plan. As of the date hereof eleven of the
directors are not full-time employees.

FEDERAL INCOME TAX CONSEQUENCES

The discussion under "Proposal to Amend Incentive Plan (Item 2)" above of
the federal income tax consequences to K N and holders of Nonstatutory Stock
Options granted under the Incentive Plan applies equally to K N and optionees
under the Directors' Option Plan.

21
<PAGE> 25

BOARD RECOMMENDATION

The Board of Directors unanimously recommends a vote FOR the proposal to
increase by 200,000 the number of shares authorized for issuance under the
Directors' Option Plan as well as amendments to increase the number of shares
awarded to each director and to change the timing of such awards.

PRINCIPAL SHAREHOLDERS

COMMON STOCK

According to information supplied to the Company by the beneficial owners
listed below and, where applicable, the books and records of the Company, the
following entities each owned beneficially, as indicated on the dates shown,
more than five percent of the 28,232,687 outstanding shares of the Common Stock
of the Company on the dates indicated in parentheses below. No other person is
known by the Company to be the beneficial owner of more than five percent of the
Common Stock.

<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT
BENEFICIAL OWNER AND DATE BENEFICIAL PERCENT OF TOTAL
INFORMATION PROVIDED OWNERSHIP OF CLASS VOTING POWER
- -------------------------------------------------------- ------------ -------- ------------
<S> <C> <C> <C>
Cabot Corporation....................................... 4,840,186(1) 17.1% 17.1%
75 State Street
Boston, Massachusetts 02109 (12/31/95)
The Prudential Insurance Company of America............. 3,357,748(2) 11.9 11.9
Prudential Plaza
Newark, NJ 07102 (12/31/95)
Employees Retirement Fund Trust......................... 1,825,626(3) 6.5 6.4
Profit Sharing Plan of K N Energy, Inc.
P.O. Box 281304
Lakewood, CO 80228 (2/15/96)
State Farm Mutual Automobile Insurance Company.......... 1,789,965(4) 6.3 6.3
One State Farm Plaza
Bloomington, IL 61701 (1/22/96)
Jurika & Voyles, Inc.................................... 1,698,125(5) 6.0 6.0
1999 Harrison Street Suite 700
Oakland, CA 94612 (2/12/96)
</TABLE>

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

(1) Comprised of (i) 4,197,954 outstanding shares of Common Stock reported as
beneficially owned by Cabot and (ii) 642,232 shares of Common Stock
issuable upon the exercise of warrants held by Cabot. Cabot has sole
investment and voting power over such shares.

(2) Comprised of (i) 2,289,156 outstanding shares of Common Stock reported as
beneficially owned by Prudential on its Schedule 13G and (ii) 1,068,592
shares of Common Stock issuable upon the exercise of warrants held by
Prudential. Prudential states that it has shared investment and voting
power over all of such outstanding shares, and that the shares were
acquired solely for investment purposes.

(3) The trustees of the Employees Retirement Fund Trust Profit Sharing Plan have
sole investment power over such shares and have sole voting power as to
shares of Common Stock allocated to participants' accounts as to which such
participants do not exercise their power to vote, but are required to vote
them in the same proportion as those voted by participants.

(4) State Farm states that it has sole investment and voting power over its
shares, and that the shares were acquired solely for investment purposes.

22
<PAGE> 26

(5) Jurika & Voyles is a registered investment advisor, and as such has shared
investment and voting power over its shares.

CLASS A PREFERRED STOCK

No person is known to be the owner of five percent or more of the 70,000
outstanding shares of Class A $5.00 Preferred Stock of the Company.

CLASS B PREFERRED STOCK

According to the records of the Company, the following insurance companies
each owned beneficially, on February 15, 1996, more than five percent of the
5,720 outstanding shares of Class B Preferred Stock of the Company. No other
person is known by the Company to be the beneficial owner of five percent or
more of the Class B Preferred Stock.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL PERCENT OF TOTAL
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS VOTING POWER
------------------------------------------------- ------------ -------- ------------
<S> <C> <C> <C>
Allstate Insurance Co............................ 4,296 75.1% (2)
Allstate Plaza
Northbrook, IL 60061
Atwell & Co...................................... 1,044 18.3 (2)
c/o United States Trust Co. of NY
P.O. Box 456,
Wall Street Station
New York, NY 10005
Gerlach & Co..................................... 380 6.6 (2)
c/o Citibank, N.A.
P.O. Box 1530,
Grand Central Station
111 Wall Street, 8th Floor
New York, NY 10043
</TABLE>

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

(1) The owners of the shares set forth above have, to the best knowledge of the
Company, sole voting and sole investment power over those shares.

(2) Less than 1%.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's Common Stock to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange, and to provide
copies of such reports to the Company.

To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and written representations of
its directors, executive officers and ten percent holders, the Company believes
that during the year ended December 31, 1995 all Section 16(a) filing
requirements applicable to its directors, executive officers and ten percent
holders were satisfied, except in the cases of Edward H. Austin, Jr., director,
two late reports, two transactions; William J. Hybl, director, one late report,
one transaction; and William S. Garner, Jr., Vice President, General Counsel and
Secretary, one late report, one transaction.

23
<PAGE> 27

INDEPENDENT PUBLIC ACCOUNTANTS

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

Arthur Andersen LLP was recommended by the Audit Committee to perform the
audit function for 1995, and that recommendation was approved by the Board of
Directors. No independent public accountant has yet been recommended to perform
the audit function for 1996. The Audit Committee normally makes such a
recommendation at the regular Board of Directors' meeting in November.

COST AND METHOD OF PROXY SOLICITATION

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

In addition to the solicitation of Proxies by use of the mails, the Company
may utilize the services of some of its directors and administrative office
personnel (who will receive no compensation therefor in addition to their
regular salaries) to solicit Proxies personally, by telephone or telegraph from
brokerage houses and other shareholders. The Company will reimburse banks and
brokers who hold shares of the Company's stock in their name or custody, or in
the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the Proxy materials to those persons for whom they hold
such shares. The Company has also retained D. F. King & Company, Inc. to aid in
the solicitation at an estimated cost of $7,000 plus reasonable out-of-pocket
expenses.

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Pursuant to Securities and Exchange Commission regulations, any proposal
which a shareholder intends to present to the 1997 Annual Meeting must be
received by November 11, 1996, at the Company's principal executive offices in
order to be included in the Proxy Statement and the form of Proxy for that
meeting.

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

OTHER MATTERS

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

By Order of the Board of Directors

WILLIAM S. GARNER, JR.
Vice President, General
Counsel
and Secretary

24
<PAGE> 28

ATTACHMENT A

K N ENERGY, INC.

1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
AS AMENDED

1. PURPOSE OF THE PLAN: The purpose of the 1992 Stock Option Plan for
Non-Employee Directors, as amended (the "Plan") is to promote the interests of K
N Energy, Inc., a Kansas corporation (the "Company"), and its stockholders by
increasing the potential compensation of the non-employee members of the
Company's Board of Directors (the "Board"), thereby assisting the Company in its
efforts to attract well-qualified individuals to serve as its directors and to
retain their services. Options granted under this Plan are intended to
constitute nonqualified stock options (options that do not qualify as "incentive
stock options" within the meaning of section 422(b) of the Internal Revenue Code
of 1986, as amended), and the Plan shall be construed so as to carry out that
intention.

2. STOCK OPTION COMMITTEE: The Plan shall be administered by a Stock Option
Committee (the "Committee") made up of all of the directors of the Company who
are also salaried employees of the Company, none of whom is eligible to
participate in the Plan. The interpretation by the Committee of the Plan and of
options granted under the Plan shall be conclusive upon all participants.

3. SHARES SUBJECT TO THE PLAN: The Committee shall, before January 1, 2002,
grant to all eligible directors options under which an aggregate of not more
than 350,000 shares of the Company's Common Stock, $5 par value per share
("Common Stock"), subject to adjustment as provided in Paragraph 5. Shares
issued under the Plan may be either authorized and unissued shares or treasury
shares. Shares subject to, but not delivered under, any option terminating or
expiring for any reason prior to exercise thereof, shall thereafter be available
for issuance upon exercise of any other option under the Plan granted on or
prior to December 31, 2002.

4. NUMBER OF SHARES TO BE GRANTED EACH ELIGIBLE DIRECTOR:

(a) On the first business day of each calendar year, or within thirty
(30) days after initial election to the Board by the Company's
stockholders, the Committee shall grant to each director an option for a
number of shares equal to the number of shares authorized by the Committee,
not to exceed 3,000 shares per calendar year.

(b) If an individual is elected by the Board to fill an unexpired term
or vacancy on the Board, the Committee shall, within thirty (30) days of
such election, grant to such a director an option for a number of shares
equal to the number of shares granted to all other directors for that
calendar year.

5. ADJUSTMENT: Appropriate adjustments in the maximum number of shares of
Common Stock issuable pursuant to the Plan and in the number and the purchase
price of shares covered by outstanding options granted under the Plan shall be
made to give effect to any stock splits, stock dividends or other relevant
changes in the capitalization of the Company occurring after the date of
adoption of the Plan and any amendments to the Plan by the Board. The decision
of the Board as to the amount and timing of any such adjustments shall be
conclusive. In the event of any merger, consolidation or other reorganization of
the Company with any other corporation or corporations in which the Company is
not the survivor, there shall be substituted for each share of Common Stock then
subject to the Plan, whether or not at the time subject to outstanding options,
the number and kind of shares of stock, or other securities into which each
outstanding share of Common Stock of the Company shall be converted by such
merger, consolidation or reorganization. In the event of any other relevant
change in the capitalization of the Company, the Board shall provide for an
equitable adjustment in the number of shares of Common Stock then subject to the
Plan, whether or not then subject to outstanding options. In the event of any
such adjustment, the purchase price per share shall be proportionately adjusted.

A-1
<PAGE> 29

6. ELIGIBLE NON-EMPLOYEE DIRECTORS: Options shall be granted to all elected
directors of the Company who are not salaried employees of the Company.

7. OPTION PRICE: The purchase price to be paid for each share of Common
Stock deliverable upon exercise of any option shall be determined by the
Committee in its discretion at or prior to the time the option is granted, but
shall not be less than one hundred percent (100%) of the fair market value of
the Common Stock on the date the option is granted or less than the par value of
the shares subject to option. The fair market value per share shall be (1) the
average of the reported highest and lowest prices per share on the New York
Stock Exchange on the date the option is granted, as reported in the Wall Street
Journal, or (2) in the absence of reported sales on that date, the average of
the highest and lowest prices per share on the New York Exchange on the last
preceding date on which such prices of the Common Stock are so reported.

8. OPTION PERIOD AND CONDITION OF EXERCISE: A director receiving an option
pursuant to the Plan may purchase the shares issuable thereunder, commencing on
the date of grant. Each option shall cease to be exercisable upon the expiration
of a period of ten (10) years from the date of grant. To the extent an option
may be exercised pursuant to the foregoing, it may be exercised in whole at any
time, or in part from time to time. An option may be exercised by giving written
notice to the Company addressed to the attention of its Vice President and
Treasurer (i) specifying the number of shares to be purchased and accompanied by
payment therefor in full in cash or, in the sole discretion of the Committee, in
full or in part, in shares of Common Stock of the Company at their fair market
value at the close of business on the date preceding the date of exercise
determined in the manner consistent with Paragraph 7, and (ii) unless the
Company consents to the contrary, representing that all shares purchased are
being acquired for investment and not with a view to, or for resale in
connection with, any distribution of said shares (except in the case of a
purchase by the executors or administrators under Paragraph 10, for distribution
to the director's legal heirs, legatees or other testamentary beneficiaries, but
not for sale).

9. OPTIONS NOT TRANSFERABLE: No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution and
shall be exercisable, during his or her lifetime, only by the director to whom
an option is granted. Except as permitted by the preceding sentence, no option
or any right thereunder shall be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise) or be subject to
execution, attachment or similar process. Upon any attempt so to transfer,
assign, pledge, hypothecate or otherwise dispose of, or be subject to execution,
attachment or similar process, any option, or of any right thereunder, contrary
to the provisions hereof, such option and all rights thereunder shall
immediately become null and void.

10. TERMINATION OF BOARD MEMBERSHIP OR DEATH:

(a) If the membership on the Board of a director to whom an option has
been granted is terminated for any reason other than his or her death, such
option may be exercised by the terminated director at any time prior to the
end of the calendar year in which it was granted, or within three (3)
months after the termination, whichever is longer (but in no event after
the expiration of ten (10) years from the date of the grant thereof with
respect to all or any part of the number of shares remaining subject to the
option.)

(b) If the membership on the Board of a director to whom an option has
been granted is terminated by reason of his or her death, such director's
option shall be exercisable by his or her estate or the person or persons
who acquire the right to exercise such option by bequest or inheritance at
any time within one (1) year after the date of death to the extent the
director was entitled to exercise the option at the time of his or her
death (but in no event after the expiration of a period of ten (10) years
from the date of grant) with respect to all or any part of the number of
shares remaining subject to the option.

11. LISTING AND REGISTRATION OF SHARES: Each option shall be subject to the
requirement that, if at any time the Board determines, in its discretion, that
the listing, registration or qualification of the shares to such option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issue or purchase of shares thereunder,
such option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained and the same shall

A-2
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have been free of any conditions not acceptable to the Board. The Company may
require that certificates evidencing shares issued upon the exercise of any
option in reliance upon an investment representation as contemplated by
Paragraph 8(d) bear an appropriate legend indicating that the sale, transfer or
other disposition thereof by the holder is prohibited unless such shares have
been registered under the Securities Act of 1933, as amended, for transfer in
accordance with the intended method of distribution or the Company shall have
been furnished with an opinion of counsel satisfactory to it to the effect that
such registration is not required.

12. ADMINISTRATION: Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan and the options granted under the
Plan, to establish, amend and rescind such rules and regulations as it deems
necessary for the proper administration of the Plan, and to make all other
determinations necessary or advisable for its administration. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option in the manner and to the extent it shall deem desirable to
carry it into effect. The determinations of the Committee on the matters
referred to in this paragraph shall be conclusive on all parties.

13. FEDERAL INCOME TAX CONSEQUENCES: The following summary is intended only
as a general guide as to the United States federal income tax consequences under
the current law with respect to participation in the Plan, and does not attempt
to describe all possible federal or other tax consequences of such
participation. Participants should consult their own tax advisors prior to the
exercise of any option and prior to the disposition of any shares of Common
Stock acquired upon the exercise of an option.

There are no federal income tax consequences to an optionee upon the grant
of an option which does not constitute an incentive stock option ("Nonincentive
Stock Option") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Generally, upon the exercise of a Nonincentive
Stock Option, the optionee will realize ordinary income in the year of exercise,
in an amount equal to the excess of the fair market value of the shares on the
date of exercise over the option price. Upon a subsequent disposition of the
shares received upon exercise of a Nonincentive Stock Option, any difference
between the amount received for the stock and the basis of the stock (option
price plus any ordinary income recognized) will be treated as long-term or
short-term capital gain or loss, depending on the holding period of the shares.
Upon an optionee's exercise of a Nonincentive Stock Option, the Company will
usually be entitled to claim a deduction at the same time and in the same amount
as income is recognized to the optionee.

The Plan is not qualified under Section 401(a) of the Code. The United
States Department of Labor has not yet issued definitive regulations or other
authority regarding the applicability of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), to stock option plans such as the Plan.
Subject to the issuance or regulations or other authority to the contrary, the
Company believes the Plan is not subject to any provisions of ERISA.

14. EFFECTIVE DATE: The Plan and these amendments to the Plan, have been
adopted and authorized by the Board for submission to the stockholders of the
Company. If the Plan, as amended, is approved by the requisite vote of the
stockholders of the Company present and entitled to vote at a meeting of
stockholders, it shall be deemed to have become and remain effective on January
1, 1992.

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<PAGE> 31
K N ENERGY, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF K N ENERGY, INC.
FOR THE ANNUAL MEETING ON APRIL 11, 1996

The undersigned appoints Charles W. Battey, Larry D. Hall and William S.
Garner, Jr., and each of them, with full power of substitution in each, the
proxies of the undersigned, to represent the undersigned and vote all shares of
K N Energy, Inc. Common and Preferred Stock which the undersigned may be
entitled to vote at the Annual Meeting of Shareholders to be held on April 11,
1996, and at any adjournment or postponement thereof, as indicated on the
reverse side.

This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR proposals 1, 2 and 3.

(Continued and to be dated and signed on the reverse side.)

K N ENERGY, INC.
P.O. BOX 11162
NEW YORK, N.Y. 10203-0162

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<TABLE>
<S> <C> <C> <C>
1. Election of Class III FOR all nominees / / WITHHOLD AUTHORITY to vote / / *EXCEPTIONS / /
Directors listed below for all nominees listed below

Nominees: Stewart A. Bliss, Robert H. Chitwood, Howard P. Coghlan, Edward Randall III, James C. Taylor
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that nominee's name in
the space provided below.)
*Exceptions
-------------------------------------------------------------------------------------------------------------------------

2. To approve an increase in the number of shares of K N Energy, Inc. Common Stock authorized for issuance under the 1994 K N
Energy, Inc. Long-Term Incentive Plan by 1,500,000 shares.

FOR / / AGAINST / / ABSTAIN / /

3. To approve an increase in the number of shares of K N Energy, Inc. Common Stock authorized for issuance under the 1992 Stock
Option Plan for Non-Employee Directors by 200,000 shares, and to amend such plan to increase the number of options awarded to
directors under the plan and to change the timing of such awards.

FOR / / AGAINST / / ABSTAIN / /

Change of Address and / /
or Comments Mark Here

The signature on this Proxy should correspond exactly with stockholder's name
as printed to the left. In the case of joint tenancies, co-executors, or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their full title.

Dated: , 1996
----------------------------------------------

--------------------------------------------------------------------
Please print name of Stockholder here.

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Please sign here.

VOTES MUST BE INDICATED /X/
(X) IN BLACK OR BLUE INK.

(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.)
</TABLE>