K N ENERGY INC, PRE 14A, 1998-03-04

K N ENERGY INC
PRE 14A, 1998-03-04
NATURAL GAS TRANSMISISON & DISTRIBUTION

Previous: FORT JAMES CORP, S-3, 1998-03-04

Next: KIRBY CORP, DEF 14A, 1998-03-04

<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 /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

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

/ / Definitive Additional Materials

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

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

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(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:

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

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

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

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

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:

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

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

March 16, 1998

Fellow Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders to
be held at The Westin Central Park South located at 112 Central Park South, New
York, New York, on Thursday, April 16, 1998, at 10:00 A.M., Eastern Daylight
Time.

Please read carefully the accompanying Notice of Annual 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" an amendment to the Restated Articles of Incorporation of the
Company increasing the authorized Common Stock, par value $5.00 per share, of
the Company from 50,000,000 shares to 150,000,000 shares; "FOR" the
authorization of an additional 1,600,000 shares of Common Stock for issuance
under the Company's 1994 Long-Term Incentive Plan; "FOR" the authorization of an
additional 1,000,000 shares of Common Stock for issuance under the Company's
1990 Employee Stock Purchase Plan; and "FOR" the reelection of five directors,
four directors for terms of three years each and one director for a term of one
year.

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,

/s/ LARRY D. HALL

LARRY D. HALL
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
Westin Central Park South located at 112 Central Park South, New York, New York,
on Thursday, April 16, 1998, at 10:00 A.M., Eastern Daylight Time, for the
following purposes:

1. To elect five Class II Directors, with four directors to serve
terms of three years each and one director to serve a one-year term.

2. To consider and vote upon a proposal to amend the Restated Articles
of Incorporation of the Company to increase the authorized Common Stock,
par value $5.00 per share, of the Company from 50,000,000 shares to
150,000,000 shares.

3. 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.

4. To consider and vote upon a proposal to increase the number of
shares authorized for issuance under the 1990 Employee Stock Purchase Plan.

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

Accompanying this Notice of Annual Meeting of Shareholders is a form of
Proxy, a Proxy Statement, and a copy of the Company's 1997 Annual Report to
Shareholders. The 1997 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 20, 1998,
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.

MARTHA B. WYRSCH
Vice President, General Counsel
and Secretary

Lakewood, Colorado
March 16, 1998
<PAGE> 4

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

March 16, 1998

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. Eastern Daylight Time on April 16, 1998, at The Westin Central Park South,
112 Central Park South, New York, New York, 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 16, 1998.

SHARES OUTSTANDING

Only shareholders of record at the close of business on February 20, 1998,
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, and 32,140,425 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. Any other matters
submitted to a vote of the shareholders must be approved by the affirmative vote
of the holders of a 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 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 of the Company 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 Larry D. Hall and Martha B. Wyrsch, will
vote the shares covered by proxies received by them for the election of all five
nominees to the Board of Directors, for the proposal to amend the Restated
Articles of Incorporation of the Company to increase the authorized Common Stock
of the Company from 50,000,000 shares to 150,000,000 shares, for the proposals
to increase the authorized shares under the 1994 Long-Term Incentive Plan (the
"Incentive Plan") and the 1990 Employee
<PAGE> 5

Stock Purchase Plan (the "Employee Stock Purchase Plan"), and in accordance with
the directors' recommendations on any other matters that may come before the
meeting.

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. In 1996,
the Company's By-laws were amended to provide that any non-employee director of
the Company must retire from his position as a director at the annual meeting of
shareholders of the Company which next occurs after the director reaches 72
years of age. In 1998, the Company's By-laws were amended to provide a board
position for Charles W. Battey for a period of one year, subject to his
reelection at this meeting. There are currently fifteen members of the Board of
Directors.

Messrs. Charles W. Battey, Larry D. Hall, Richard D. Kinder, John F.
Riordan and H.A. True, III have been nominated for reelection as Class II
directors. Proxies will be voted, unless authority to vote is withheld by the
shareholder, for the election of Messrs. Hall, Kinder, Riordan and True to serve
until the 2001 Annual Meeting of Shareholders and until the election and
qualification of their respective successors, and for the election of Mr. Battey
to serve until the 1999 Annual Meeting of Shareholders. 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.

Under the terms of the Company's By-laws, Cabot Corporation ("Cabot"), the
Company's largest shareholder, has the right to nominate a director for election
to the Board of Directors as long as Cabot beneficially owns over 5% of the
voting stock of K N. Cabot has indicated to the Company that it does not intend
to designate a nominee for a board position at this meeting.

Mr. Kinder was elected by the Board of Directors as a Class II Director in
January 1998 to fill one of the two vacancies on the Board of Directors, and
John F. Riordan, the former President and Chief Executive Officer of MidCon
Corp. ("MidCon"), was elected by the Board of Directors in February 1998 as a
Class II Director to fill the other vacancy. K N purchased all of the shares of
MidCon from Occidental Petroleum Corporation on January 30, 1998.

2
<PAGE> 6

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

Charles W. Battey(4) 1971 98,919 66 Director; Chairman(5)
(1989-1996); and Chief
Executive Officer
(1989-1994)
NOMINEES FOR ELECTION FOR TERM OF THREE YEARS EXPIRING IN 2001 (CLASS II)(6)
- ------------------------------------------------------------------------------------------------------------

Larry D. Hall 1984 385,738(7) 55 Chairman(8) (April
1996-Present);
President and Chief
Executive Officer
(1994-Present);
President and Chief
Operating Officer
(1988-1994); Director

Richard D. Kinder(9) 1998 3,200 53 Director (January Chairman and Chief
1998-Present); Executive Officer of
Kinder Morgan Energy
Partners, L.P. (1997
to Present); President
and Chief Operating
Officer of Enron Corp.
(1990 to 1996);
Director of Baker
Hughes, Inc.,
Transocean Offshore
Inc., USA Waste, Inc.
and Kinder Morgan
Energy Partners, L.P.

John F. Riordan(10) 1998 9,866(10) 62 Vice Chairman Chief Executive
(February Officer and President
1998-Present) of MidCon Corp (1990-
February 1998);
Director and Executive
Vice President of
Occidental Petroleum
Corporation
(1991-February 1998)
H.A. True, III 1991 17,600(11) 55 Director Partner, True
Companies (energy,
agriculture and
financing), Casper,
Wyoming.
</TABLE>

3
<PAGE> 7

Edward H. Austin, Jr. 1994 269,684(12) 56 Director Principal of Austin,
Calvert & Flavin,
Inc., an investment
advisory firm, San
Antonio, Texas.

David W. Burkholder 1984 22,161 55 Director President of Will
Feed, Inc. (cattle
feeding), Willow
Island, Nebraska;
President of Island
Dehy Company, Inc.
(alfalfa dehydration),
Cozad, Nebraska; and
President of
Consolidated Blenders,
Inc. (alfalfa
dehydration),
Hastings, Nebraska.

David M. Carmichael 1994 245,540 59 Director; Vice Director of Tom Brown,
Chairman (July Inc. (1996-Present);
1994-1996)(13) Chairman of the Board
and Chief Executive
Officer of American
Oil and Gas
Corporation
(1983-1994);
President, Chairman of
the Board and Chief
Executive Officer of
American Oil and Gas
Corporation
(1986-1993).

Jordan L. Haines 1983 25,077 70 Director Director of Forest Oil
Corporation; Director
of Qwest
Communications
International Inc.
</TABLE>

4
<PAGE> 8

<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 20, WITH THE DURING PAST
NAME DIRECTOR 1998(1)(2) AGE COMPANY(3) 5 YEARS(3)
---- -------- ------------ --- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
William J. Hybl 1988 17,712(14) 55 Director Chairman and Chief
Executive Officer and
Trustee of El Pomar
Foundation (charitable
foundation), Colorado
Springs, Colorado;
Vice Chairman and
Director of Broadmoor
Hotel, Inc., Colorado
Springs, Colorado;
Director and President
of the Garden City
Company; Director of
USAA, San Antonio, TX
(insurance company);
President, United
States Olympic
Committee (1996-2000);
Director of FirstBank
Holding Co. of
Colorado.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS III)
- ------------------------------------------------------------------------------------------------------------

Stewart A. Bliss 1993 12,450 64 Director Financial Consultant
and Senior Business
Advisor, Denver,
Colorado (1993-
Present); Board Member
of Colorado State
Board of Agriculture
(1993-Present); Chief
of Staff to Governor
of Colorado, Denver,
Colorado (1987-1993);
Director of MACTEC.

Robert H. Chitwood 1990 25,200 67 Director President, R.H.
Chitwood Company (oil
and gas production,
investments and
petroleum consulting),
Tulsa, Oklahoma.

Howard P. Coghlan 1981 26,116 70 Director Senior Partner,
Coghlan, Crowson,
Fitzpatrick &
Westbrook, Attorneys
at Law, Longview,
Texas.
</TABLE>

5
<PAGE> 9

James C. Taylor 1994 103,932(16) 60 Director Owner and Operator,
Wytana Livestock
Company, Bozeman,
Montana; Private
investor.
</TABLE>

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

(1) No Director owns any Preferred Stock of the Company. No director owns
beneficially more than one percent of the outstanding shares of Common
Stock of the Company other than Mr. Hall who beneficially owns 1.2% of the
outstanding Common Stock. In making the computations required in connection
with the preceding statement, with respect to any director who held options
to purchase shares of Common Stock exercisable within 60 days of February
20, 1998, it was assumed that such options had been exercised. The
following number of shares representing such unexercised options were added
to the holdings of each of the following directors: Mr. Austin, 12,000
shares; Mr. Battey, 34,000 shares; Mr. Bliss, 12,000 shares; Mr.
Burkholder, 9,000 shares; Mr. Carmichael, 81,000 shares; Mr. Chitwood,
15,750 shares; Mr. Coghlan, 9,000 shares; Mr. Haines, 16,500 shares; Mr.
Hall, 241,250 shares; Mr. Hybl, 14,250 shares; Mr. Kinder, 3,000 shares;
Mr. Randall, 11,000 shares; Mr. Riordan, 6,666 shares; Mr. Taylor, 11,000
shares; and Mr. True, 12,000 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, and unexercised options.

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

(4) Mr. Battey is being nominated for a one-year term expiring in 1999.

(5) Mr. Battey retired as Chairman after the 1996 Annual Meeting, but remains
as a K N Director.

(6) Mr. Shearer, formerly a Class II Director, resigned as a K N Director
effective December 12, 1997.

(7) 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. Also includes 88,000 restricted shares that
Mr. Hall has the right to vote. Does not include any of the shares
attributable to the K N Energy, Inc. Non-Qualified Benefit Plan Trust of
which Mr. Hall is a beneficiary. The cumulative number of shares
attributable thereto and held by the Trustee thereof as of December 31,
1997 is 4,392 shares.

(8) Mr. Hall assumed the position of Chairman of the Board after the 1996
Annual Meeting.

(9) Mr. Kinder filled a vacancy when he was elected by the Board of Directors
on January 13, 1998.

(10) Mr. Riordan filled a vacancy when he was elected by the Board of Directors
on February 10, 1998. As of February 2, 1998, Mr. Riordan was granted stock
options to purchase 20,000 shares of Common Stock, vesting in one-third
increments, with the first third immediately vested, and 3,000 shares of
restricted stock vesting in one-third increments beginning in 1999. Mr.
Riordan has the right to vote all such 3,000 restricted shares. The stock
options were granted at 100% of the fair market value of the Common Stock
as of the date of grant.

6
<PAGE> 10

(11) Mr. True has sole voting and investment power over 5,450 shares.

(12) Includes shares of Common Stock owned by various family members or their
estates, over which Mr. Austin either has power of attorney or with respect
to which Mr. Austin is executor; family trusts; a family partnership and a
hedge fund partnership, for both of which Mr. Austin is general partner.
Mr. Austin has sole voting power over 61,635 shares; shared voting power
over 77,249 shares; and shared investment power over 118,800 shares.

(13) Mr. Carmichael retired as Vice Chairman after the 1996 Annual Meeting, but
remains as a K N Director.

(14) 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.

(15) Includes 181,748 shares of Common Stock owned by various family trusts as
to which Mr. Randall disclaims beneficial ownership. Mr. Randall has shared
voting and investment power over 64,936 shares and sole voting and
investment power over 186,268 shares.

(16) Mr. Taylor has sole voting and investment power over 74,882 shares and
shared voting and investment power over 18,050 shares.

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. Stewart A. Bliss, a Director of the Company, shared office space with
and provided business development consulting services to the law firm of Parcel,
Mauro & Spaanstra in 1997, which firm was retained by the Company in 1997, and
provided in excess of $60,000 in services to the Company. Mr. Bliss is neither a
member of, nor counsel to, the above named law firm and did not provide legal
services to the Company.

On December 30, 1997, Mr. Hall, the Chairman of the Board, Chief Executive
Officer and President of the Company, executed a promissory note in favor of the
Company in the amount of $120,479 to cover certain tax withholding obligations
for employee stock option exercises and the release of restrictions on
restricted stock. The promissory note is due to be paid in full on June 15,
1998, and bears interest at a rate of 8.5% per annum.

Mr. Howard P. Coghlan, a Director of the Company, is a senior partner at
the law firm of Coghlan, Crowson, Fitzpatrick & Westbrook, which provided $3,137
in services to the Company in 1997.

7
<PAGE> 11

DIRECTOR AND COMMITTEE MEETINGS

The Board of Directors met twelve times during 1997, seven of the meetings
being regularly-scheduled and five being special meetings. During 1997, all
directors attended at least 96% percent of the aggregate meetings of the Board
of Directors and committees thereof on which they served.

During 1997, the Audit Committee was composed of Messrs. Burkholder
(Chairman, January to April), Battey, Chitwood, Taylor, and Shearer (Chairman,
May to December), and it met four times in 1997. 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 audit, 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,
review of the independence of the auditor in regard to the Company and its
management and review of the Company's risk management policies and procedures.

The Compensation Committee during 1997 was composed of Messrs. Randall
(Chairman, January to April), Austin, Bliss (Chairman, May to December), and
Coghlan. It met five times in 1997. The duties of the Compensation Committee are
set forth in the Report of the Compensation Committee on Executive Compensation
which follows.

The Executive Committee, composed of Messrs. Hall (Chairman), Haines, Hybl,
True, and Carmichael met seven times in 1997. The duties of the Executive
Committee consist of oversight and direction of management decisions with
respect to the day-to-day operations of K N and its subsidiaries, and
nominations for Directors of the Board of the Company. The Executive Committee
replaced the Management Committee on April 11, 1996 pursuant to an amendment to
the Company's By-laws.

The Board of Directors does not presently have a separate Nominating
Committee; rather, the Executive Committee serves as the Nominating Committee
for the Board. 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 also "Date for Receipt of Shareholder Proposals" on
page 33.

DIRECTOR COMPENSATION

A director (except a current employee) receives a retainer of $20,000 per
year, which may be taken in the form of Common Stock or cash, plus a fee of
$1,500 per day for each meeting attended. In addition, beginning in 1998 each
non-employee director receives 200 shares of Common Stock on the first business
day of the calendar year, with the 1998 issuance occurring on February 10, 1998.
Members of the Audit, Compensation and Executive Committees also receive a fee
of $1,500 per day for each committee meeting attended on a day other than that
of a Board meeting. Directors who are full-time employees of the Company receive
no additional compensation in their capacity 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 and
December 1997 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 1992 Stock Option
Plan for Non-Employee Directors ("Directors' Option Plan"), which was amended in
1996. Under the Directors' Option Plan, on the first business day of each
calendar year, each Director who is not a salaried employee of the Company is
granted an option to purchase up to 3,000 shares of the Company's Common Stock.
Options, which vest on the date of grant, may be granted at not less than 100
percent of the fair market value of the Common Stock on the date of grant, but
must be at least the par value of the shares subject to the option, and expire
10 years from the date of grant. Options granted pursuant to the Directors'
Option Plan are not intended to qualify as
8
<PAGE> 12

incentive stock options, but rather are intended to constitute "nonqualified
stock options" as defined by Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"). The options become exercisable commencing on the
date of the grant.

On January 2, 1998, options to purchase 3,000 shares each were granted to
Messrs. Austin, Battey, Bliss, Burkholder, Carmichael, Chitwood, Coghlan,
Haines, Hybl, Randall, Taylor and True at an exercise price of $53.9375 per
share, the average sales price of the Common Stock on that date. On January 13,
1998, Mr. Kinder was appointed to the Board of Directors and was granted an
option to purchase 3,000 shares at an exercise price of $54.7188, the average
sales price of the Common Stock on that date.

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. Under the terms of the 1982 Plan,
each participant was granted options to purchase the number of shares equal to
500 times the number of years or partial years in the term to which he was
elected, which were exercisable in one-third increments annually over the
succeeding three-year period.

At the request of the Company, Mr. David M. Carmichael is a Director of Tom
Brown, Inc. The Company pays Mr. Carmichael the annual Tom Brown, Inc. Board of
Directors fees. In 1997, those fees totaled $48,000.

BOARD RECOMMENDATION

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

REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION

The Company's employees are the most important and valued asset it has. Its
senior executives are responsible for developing and driving a business strategy
for sustained growth and enhanced rates of return that results in maximum value
to the shareholders of the Company. Fiscal year 1997 was a unique year for the
Company. The Board of Directors and the Company's senior executives targeted as
a primary objective the identification and acquisition of a significant business
opportunity, and achieved it. The Company's acquisition of MidCon in January
1998 resulted in a combined company with $8.2 billion in assets and $5.2 billion
in operating revenues. It is the goal and obligation of the Compensation
Committee and the Board of Directors to attract and retain highly qualified
people with the skills to manage opportunities and create shareholder value, and
the compensation philosophy discussed in this Report is aimed at creating
shareholder value by tying the compensation of the senior executives of the
Company to increases in that value.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors is presently composed
entirely of four independent non-employee directors: Mr. Austin, Mr. Bliss
(Chairman), Mr. Coghlan and Mr. Randall. Mr. Coghlan is a senior partner at the
law firm of Coghlan, Crowson, Fitzpatrick & Westbrook, which provided $3,137 in
services to the Company in 1997. There are no other 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 corporate operating and financial performance.
To achieve this
9
<PAGE> 13

objective, annual executive compensation decisions are weighted towards cash
incentives payable on the basis of such performance. The Company also believes
that long-term executive compensation should be tied to corporate operating and
financial performance. Grants of stock options, and, more recently, restricted
stock awards, have been the principal component of long-term executive
compensation.

The Company's executive compensation components are reviewed periodically
and are under review in 1998 by outside compensation consultants to ensure that
the Company's compensation package operates effectively and remains both
reasonable and competitive with the industry, and is comparable to the
compensation offered by companies of the size and scope of the new combined
company.

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

Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation for the Chief Executive Officer and the additional four
highest paid executive officers of the Company to $1 million per year. If
certain conditions are met, including the removal of discretion in determining
individual rewards, compensation may be excluded from consideration of the $1
million limit. Annual compensation of the Company's individual executive
officers has historically been below $1 million. However, principally due to the
acquisition of MidCon, it is expected that compensation may exceed this limit.
The policy of the Compensation Committee to date is to establish and maintain a
compensation program which maximizes the creation of long-term shareholder value
by recognizing and rewarding performance which increases the value of the
Company. Therefore, the Compensation Committee will continue to base the overall
compensation of its senior executives on Company performance that favorably
impacts shareholder value rather than limit such compensation due to the impact
of Section 162(m). However, the Compensation Committee expects to address this
issue again later in 1998 due to the rapid growth of the Company.

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 on page 13 under the heading entitled
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. Such salary comparisons are
currently being developed to ensure competitiveness with companies of comparable
size and scope.

STOCK OPTIONS

In 1997, stock options granted under the Incentive Plan comprised part of
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, operating and
financial 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 stock options are directly
related to performance-based objectives. In 1997, the Company awarded options to
purchase 482,652 shares of Common Stock to a total of 115 employees.

10
<PAGE> 14

The following table shows the stock option grants made on August 8, 1997,
to the five most highly compensated executive officers of the Company and the
portion of those grants which vest in 1998.

1997 STOCK OPTIONS

<TABLE>
<CAPTION>
SHARES
UNDERLYING
OPTIONS GRANTED SHARES UNDERLYING
ON AUGUST 8, PURCHASE OPTIONS WHICH
NAME 1997 PRICE WILL VEST IN 1998
---- --------------- -------------- -----------------
<S> <C> <C> <C>
Larry D. Hall..................................... 80,000 $41.8438 16,000
Morton C. Aaronson................................ 20,000 $41.8438 4,000
John N. DiNardo................................... 20,000 $41.8438 4,000
Clyde E. McKenzie................................. 20,000 $41.8438 4,000
H. Rickey Wells................................... 20,000 $41.8438 4,000
</TABLE>

The following table shows the stock option grants made during fiscal year
1997 to all employees other than the five most highly compensated executive
officers of the Company.

1997 STOCK OPTIONS

<TABLE>
<CAPTION>
SHARES
UNDERLYING
OPTIONS GRANTED PURCHASE
IN 1997 PRICE VESTING SCHEDULE
--------------- -------- ----------------------------
<S> <C> <C> <C>
All employees as a group excluding the five
most highly compensated executive officers one-third increments over
(110 persons).............................. 352,652 varies three years
</TABLE>

Additionally, as part of a special award approved by the Board of Directors
on February 10, 1998, in recognition of the extraordinary contributions of the
five most highly compensated executive officers in 1997 related to their work on
the acquisition of MidCon, the Board granted stock options with an exercise
price equal to the public offering price of the Company's Common Stock in the
Company's equity offering which was expected to be completed in early March
1998. The stock option grants to each of the five most highly compensated
officers were as follows: Mr. Hall 90,000 shares; Mr. Aaronson, 60,000 shares;
Mr. DiNardo 60,000 shares; Mr. McKenzie 60,000 shares; and Mr. Wells 60,000
shares. The exercise price of each of these options was set at $ per
share on March , 1998 when the Company's public offering was priced. These
awards are not included in the columns reflecting stock ownership because the
grants are subject to forfeiture as described in "Proposal to Amend the
Incentive Plan" below.

RESTRICTED STOCK AWARDS

In 1997, restricted stock awards were granted to the five most highly
compensated executives under the Incentive Plan as a component of long-term
executive compensation. These grants are intended to reward executive officers
for their contributions to key corporate operating and financial results, and to
align the interests of these officers with the interests of the Company's
shareholders.

11
<PAGE> 15

The following table shows the restricted stock grants which were made on
February 10, 1997 and August 8, 1997, and the portion of those grants with
respect to which restrictions will be lifted in 1998. Holders of the restricted
stock identified below are entitled to receive dividends on this stock and to
exercise all voting rights with respect thereto.

1997 RESTRICTED STOCK

<TABLE>
<CAPTION>
RESTRICTED STOCK RESTRICTED STOCK GRANTED
GRANTED ON IN 1997 FOR WHICH
----------------- RESTRICTIONS WILL BE LIFTED
NAME 2/10/97 8/8/97 IN 1998
---- ------- ------ ---------------------------
<S> <C> <C> <C>
Larry D. Hall....................................... 55,000 15,000 3,000
Morton C. Aaronson.................................. 36,250 3,500 700
John N. DiNardo..................................... 36,250 3,500 700
Clyde E. McKenzie................................... 36,250 3,500 700
H. Rickey Wells..................................... 36,250 3,500 700
</TABLE>

In recognition of the special performance of the Company's senior
executives in completing the acquisition of MidCon in early 1998 as well as the
overall performance of the Company in 1997, and consistent with the Incentive
Plan to provide competitive compensation to attract and retain the Company's
executive officers, on February 10, 1998, the Board of Directors approved a
restricted stock award totaling 24,000 shares of stock for the five most highly
compensated officers. The allocation of this award to these officers is as
follows: Mr. Hall 10,000 shares, Mr. Aaronson 3,500 shares, Mr. DiNardo 3,500
shares, Mr. McKenzie 3,500 shares, and Mr. Wells 3,500 shares. Similar to the
stock option awards approved on February 10, 1998, these restricted stock awards
are not included in the columns reflecting stock ownership because the grants
are not effective until the Company closes its equity offering, which is to be
completed in early March 1998, and they are subject to forfeiture unless the
shareholders approve the proposal to amend the Incentive Plan. See "Proposal to
Amend the Incentive Plan." The only requirement for lapse of restrictions on the
stock awards made in 1997 is the continued employment with the Company of the
executive on the date the restrictions are set to lapse. The restrictions for
the restricted stock granted on February 10, 1998, lapse 20% immediately, and
20% each year on the anniversary date in 1999, 2000, 2001 and 2002.

DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN

The Board of Directors adopted the Directors and Executive Officers
Deferred Compensation Plan (the "Deferred Compensation Plan") effective January
1, 1998. Under the terms of the Deferred Compensation Plan, directors and
executive officers, along with all other key employees who meet certain
requirements as highly compensated employees of the Company, are eligible to
participate in the plan. The Deferred Compensation Plan permits plan
participants the option of deferring for each plan year base annual salary,
incentive payments, director's fees, qualifying gains on stock options and
restricted stock awards. One benefit of participating in the plan includes the
opportunity for executive officers to earn a matching contribution of up to 15%
of their annual base salary, based on the Company's annual attainment of
performance objectives announced prior to the plan year during which the match
will be earned.

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"). Effective with the 1996 plan year, the profit
sharing contribution was revised to relate directly to the attainment by the
Company of specific earnings targets which were approved by the Board of
Directors. The Profit Sharing Plan distribution opportunities range from 0% to
10% depending on successful achievement of these specific earnings targets. The
Profit Sharing payout for 1997 is expected to be in the range of 7%, reflecting
the Company's accomplishments in 1997.

12
<PAGE> 16

EXECUTIVE INCENTIVE PLAN

The Compensation Committee annually approves an Executive Incentive Plan,
which provides the means for determining and paying annual 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, development of business growth opportunities, 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 operating objectives in the 1997
Executive Incentive Plan included: identification and acquisition of a
significant business opportunity such as the acquisition of MidCon; acquisition
and integration of the Bushton Plant; completion of the Pony Express Pipeline
including achievement of full operational capability; and achievement of
satisfactory safety goals. Examples of financial goals in the 1996 Executive
Incentive Plan included achievement of objectives for net operating income,
annual operating income, and for consolidated return on beginning common equity.

Fiscal year 1997 was a unique year for the Company, and the 1997 Executive
Incentive Plan rewards for the five most highly compensated executives reflect
special awards made in recognition of the identification, acquisition and
integration of MidCon.

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. In 1997, the five most highly
compensated executives had bonus opportunities with a target range of 75%. The
Compensation Committee has the discretionary authority to exceed these ranges.

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 mix of corporate and division/personal goals for each of the five most
highly compensated executives, and the 1997 payout, is as follows:

INCENTIVE COMPENSATION PERFORMANCE CRITERIA

<TABLE>
<CAPTION>
EXECUTIVE CORPORATE GOAL DIVISION/PERSONAL GOAL 1997 PAYOUT
--------- -------------- ---------------------- -----------
<S> <C> <C> <C>
Larry D. Hall......................... 90% 0%/10% $450,000
Morton C. Aaronson.................... 80% 10%/10% $180,000
John N. DiNardo....................... 80% 10%/10% $210,000
Clyde E. McKenzie..................... 80% 10%/10% $200,000
H. Rickey Wells....................... 80% 10%/10% $210,000
</TABLE>

The amount of incentive compensation paid under the Executive Incentive
Plan is based upon actual achievements in the combination of corporate-wide,
division and personal goals. Each of the five most highly compensated executives
exceeded 100% of his corporate-wide, division and personal goals as well as
completing the MidCon acquisition, for which special awards were made.
Participants in the Executive Incentive Plan may defer a portion of the awards
made under this Plan.

The Company's 1996 financial and operating results also exceeded its 1996
financial and operating objectives and this success is reflected in the
individual incentive pay-outs reported in the 1996 portions of the bonus column
of the Summary Compensation Table on page 15.

13
<PAGE> 17

CHIEF EXECUTIVE OFFICER COMPENSATION

As indicated above, 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 under
the Executive Incentive Plan depend primarily upon the overall performance of
the Company. His long-term compensation from both performance-based and
nonperformance-based stock options and restricted stock awards, and his salary
level, also depends primarily 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. As reported above, in 1997, Mr.
Hall was awarded stock options to acquire 80,000 shares of the Company's stock
and restricted stock of 70,000 shares, pursuant to the performance criteria
described above.

On February 10, 1998, the Compensation Committee determined that based on
the Company's extraordinary achievement of 14.5% growth in corporate earnings
per share in 1997, coupled with the successful acquisition of MidCon and the
strong 1997 financial and operating results for the Company, Mr. Hall had
exceeded all performance objectives for 1997 under the incentive stock option
agreement, his restricted stock agreement, and the Executive Incentive Plan and
was granted the following awards as a part of his 1997 compensation: options to
acquire 90,000 shares, 10,000 shares of restricted stock, the lifting of
restrictions on 6,000 shares of formerly restricted stock, and a cash incentive
compensation award of $450,000 under the Executive Incentive Plan. The options
and restricted stock awarded to Mr. Hall are subject to forfeiture as described
in "Proposal to Amend the Incentive Plan" below.

The 1996 financial and operating results also exceeded the Company's
expectations, and the Chief Executive Officer's cash incentive compensation
under the Executive Incentive Plan in 1996 also reflects this achievement.

Compensation Committee of
the Board of Directors

Mr. Edward H. Austin, Jr.
Mr. Stewart A. Bliss (Chairman)
Mr. Howard P. Coghlan
Mr. Edward Randall, III

14
<PAGE> 18

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
----------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
NAME AND ------------------------------ STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS($)(2) (#)(3) ($)(4)
------------------ ---- --------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall 1997 499,999 450,000 2,662,656(5) 80,000(6) 11,200(7)
Chairman/ 1996 434,006 375,000 1,081,875(5) 300,000(6) 16,299(7)
President/CEO 1995 362,500 125,000 0 50,000(6) 13,583(7)
Morton C. Aaronson 1997 210,000 180,000 1,487,703(9) 20,000(6) 10,280(10)
Vice President & 1996 204,000 162,500(8) 761,719(9) 71,000(6) 87,269(10)
Chief Marketing 1995(11) N/A N/A N/A N/A N/A
Officer
John N. DiNardo 1997 188,333 210,000 1,487,703(12) 20,000(6) 10,248(13)
Vice President & 1996 159,155 101,250 119,006(12) 33,000(6) 15,457(13)
General Manager 1995 125,000 23,000 0 10,000(6) 15,426(13)
Clyde E. McKenzie 1997 214,000 200,000 1,487,703(15) 20,000(6) 10,293(16)
Vice President & 1996 164,615(14) 112,500 769,688(15) 71,000(6) 50,462(16)
Chief Financial 1995(17) N/A N/A N/A N/A N/A
Officer
H. Rickey Wells 1997 199,999 210,000 1,487,703(18) 20,000(6) 10,248(19)
Vice President -- 1996 180,252 112,500 540,938(18) 51,000(6) 15,473(19)
Business Operations 1995 122,500 0 0 15,000(6) 23,002(19)
</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) The amounts disclosed in this column represent the dollar values of the
restricted shares of Common Stock granted to the named executive officers
in 1997 and 1996. The amounts listed in this column do not reflect the
February 10, 1998 restricted stock awards of 24,000 shares to the named
executive officers that are described in the last paragraph of the section
entitled "Restricted Stock Awards" in the Report of the Compensation
Committee on Executive Compensation.

(3) The amounts listed in this column do not reflect the February 10, 1998
stock option awards of 330,000 shares to the named executive officers which
are described in the last paragraph of the section entitled "Stock Options"
in the Report of the Compensation Committee on Executive Compensation.

(4) 1997 earnings under the All Other Compensation column include an amount
earned under the Profit Sharing Plan earned in 1997 but credited under the
plan in 1998. Under the provisions of the Company's Profit Sharing Plan (a
defined contribution plan) established in 1945, during 1997, the Company
contributed 7 percent and for 1996 an amount equal to a maximum of 10
percent of eligible employee compensation (determined by comparing 1997 and
1996 actual results to a predetermined graduated scale of annual operating
income goals) to the Profit Sharing Plan; and for 1995 the Company
contributed an amount equal to the lesser of 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 employees
who have completed 1,000 hours of service in a plan year are participants.
Amounts allocated

15
<PAGE> 19

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 credited under the plan in the year
following the year in which they were earned.

(5) Mr. Hall was awarded 30,000 shares of performance-based restricted stock on
August 19, 1996, 55,000 shares of restricted stock on February 10, 1997 and
15,000 shares of restricted stock on August 8, 1997, having a market value
(based on the grant date average of the high and low prices of the Common
Stock) of $36.0625, $37.00 and $41.8438, respectively. As of December 31,
1997, Mr. Hall owned 88,000 shares of restricted stock, having a market
value of $4,716,254, which were still subject to restriction, and with
respect to which Mr. Hall receives dividends and may exercise all voting
rights. Restrictions on the 1996 restricted stock award of 30,000 shares
and the August 8, 1997 restricted stock award of 15,000 shares are eligible
for lapsing over a five-year period in equal annual portions. The
restrictions on the February 10, 1997 restricted stock award of 55,000
shares are eligible for lapsing over a five-year period, with 40% of such
shares eligible for lapsing in 1999 and 20% of such shares eligible for
lapsing in 2000, 2001 and 2002, respectively.

(6) 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 three, four or five-year period. See "Stock
Options" on page 18 below.

(7) Mr. Hall's 1997 earnings under the All Other Compensation column include
$9,600 earned for 1997 under the Company's Profit Sharing Plan (see
discussion in footnote (4) above). The Company also paid $1,620 in term
life and accidental death and dismemberment insurance premiums in 1997 on
behalf of Mr. Hall. Mr. Hall's earnings for 1996 under the Profit Sharing
Plan was $15,000 and insurance premiums paid on behalf of Mr. Hall for 1996
were $1,299, which amounts are reflected in the 1996 All Other Compensation
column. Mr. Hall's 1995 Profit Sharing Plan distribution was $13,471 and
insurance premiums paid on behalf of Mr. Hall for 1995 totaled $112.

(8) Mr. Aaronson was awarded a signing bonus of $50,000 on January 4, 1996, and
received an Executive Incentive Payout of $112,500 for the 1996 year.

(9) Mr. Aaronson was awarded 7,500 shares of performance-based restricted stock
on January 4, 1996, 15,000 shares of performance-based restricted stock on
August 19, 1996, 36,250 shares of restricted stock on February 10, 1997 and
3,500 shares of restricted stock on August 8, 1997, having a market value
(based on the grant date average of the high and low prices of the Common
Stock) of $29.4375, $36.0625, $37.00 and $41.8438, respectively. As of
December 31, 1997, Mr. Aaronson owned 47,250 shares of restricted stock,
having a market value of $2,532,307, which were still subject to
restriction, and with respect to which Mr. Aaronson receives dividends and
may exercise all voting rights. Restrictions on the 1996 restricted stock
awards of 7,500 and 15,000, and the August 8, 1997 restricted stock award
of 3,500 shares, are eligible for lapsing in equal annual portions over a
three-year and five-year periods, respectively. The restrictions on the
February 10, 1997 restricted stock award of 36,250 shares are eligible for
lapsing over a five-year period, with 40% of such shares eligible for
lapsing in 1999 and 20% of such shares eligible for lapsing in 2000, 2001
and 2002, respectively.

(10) Mr. Aaronson's 1997 earnings under the All Other Compensation column
include $9,600 earned for 1997 under the Company's Profit Sharing Plan (see
discussion in footnote (4) above), and $680 in term life and accidental
death and dismemberment insurance premiums paid in 1997 on behalf of Mr.
Aaronson. Mr. Aaronson's 1996 Profit Sharing Plan distribution was $15,000
and insurance premiums paid on behalf of Mr. Aaronson for 1996 totaled
$655. The All Other Compensation column for 1996 also reflects $71,614 in
relocation and moving allowances.

(11) Mr. Aaronson was not employed by the Company in 1995.

(12) Mr. DiNardo was awarded 3,300 shares of performance-based restricted stock
on August 19, 1996, 36,250 shares of restricted stock on February 10, 1997
and 2,500 shares of restricted stock on August 8, 1997, having a market
value (based on the grant date average of the high and low prices of the
Common Stock) of $36.0625, $37.00 and $41.8438, respectively. As of
December 31, 1997, Mr. DiNardo owned 40,850 shares of restricted stock,
having a market value of $2,189,306, which were still subject to
restriction, and with respect to which Mr. DiNardo receives dividends and
may exercise all voting rights. Restrictions on the 1996 restricted stock
award of 3,300 shares and the August 8, 1997 restricted stock

16
<PAGE> 20

award of 3,500 shares are eligible for lapsing in equal annual portions
over a three-year and five-year period, respectively. The restrictions on
the February 10, 1997 restricted stock award of 36,250 shares are eligible
for lapsing over a five-year period, with 40% of such shares eligible for
lapsing in 1999 and 20% of such shares eligible for lapsing in 2000, 2001
and 2002, respectively.

(13) Mr. DiNardo's 1997 earnings under the All Other Compensation column include
$9,600 earned for 1997 under the Company's Profit Sharing Plan (see
discussion in footnote (4) above), and $648 in term life and accidental
death and dismemberment insurance premiums paid in 1997 on behalf of Mr.
DiNardo. Mr. DiNardo's 1996 Profit Sharing Plan distribution was $15,000
and insurance premiums paid on behalf of Mr. DiNardo for 1996 totaled $457.
Mr. DiNardo's 1995 Profit Sharing Plan distribution and insurance premiums
paid on behalf of Mr. DiNardo totaled $11,226, and Mr. DiNardo received an
automobile allowance of $4,200.

(14) Mr. McKenzie's employment by the Company began on March 25, 1996.

(15) Mr. McKenzie was awarded 7,500 shares of performance-based restricted stock
on March 25, 1996, 15,000 shares of performance-based restricted stock on
August 19, 1996, 36,250 shares of restricted stock on February 10, 1997 and
3,500 shares of restricted stock on August 8, 1997, having a market value
(based on the grant date average of the high and low prices of the Common
Stock) of $30.50, $36.0625, $37.00 and $41.8438, respectively. As of
December 31, 1997, Mr. McKenzie owned 52,250 shares of restricted stock,
having a market value of $2,800,276, which were still subject to
restriction, and with respect to which Mr. McKenzie receives dividends, and
may exercise all voting rights. Restrictions on the 1996 restricted stock
awards of 7,500 and 15,000 shares and the August 8, 1997 restricted stock
award of 3,500 shares are eligible for lapsing in equal annual portions
over a three-year and five-year periods, respectively. The restrictions on
the February 10, 1997 restricted stock award of 36,250 shares are eligible
for lapsing over a five-year period, with 40% of such shares eligible for
lapsing in 1999 and 20% of such shares eligible for lapsing in 2000, 2001
and 2002, respectively.

(16) Mr. McKenzie's 1997 earnings under the All Other Compensation column
include $9,600 earned for 1997 under the Company's Profit Sharing Plan (see
discussion in footnote (4) above), and $693 in term life and accidental
death and dismemberment insurance premiums paid in 1997 on behalf of Mr.
McKenzie. Mr. McKenzie's 1996 Profit Sharing Plan distribution was $15,000
and insurance premiums paid on behalf of Mr. McKenzie for 1996 totaled
$462. The All Other Compensation column for 1996 also reflects $35,000 in
relocation allowance granted to Mr. McKenzie.

(17) Mr. McKenzie was not employed by the Company in 1995.

(18) Mr. Wells was awarded 15,000 shares of performance-based restricted stock
on August 19, 1996, 36,250 shares of restricted stock of February 10, 1997
and 3,500 shares of restricted stock on August 8, 1997, having a market
value (based on the grant date average of the high and low prices of the
Common Stock) of $36.0625, $37.00 and $41.8438, respectively. As of
December 31, 1997, Mr. Wells owned 44,750 shares of restricted stock,
having a market value of $2,398,322, which were still subject to
restriction, and with respect to which Mr. Wells receives dividends and may
exercise all voting rights. Restrictions on the 1996 restricted stock award
of 15,000 shares and the August 8, 1997 restricted stock award of 3,500
shares are eligible for lapsing in equal annual portions over a three-year
and five-year period, respectively. The restrictions on the February 10,
1997 restricted stock award of 36,250 shares are eligible for lapsing over
a five-year period, with 40% of such shares eligible for lapsing in 1999
and 20% of such shares eligible for lapsing in 2000, 2001 and 2002,
respectively.

(19) Mr. Wells' 1997 earnings under the All Other Compensation column include
$9,600 earned for 1997 under the Company's Profit Sharing Plan (see
discussion in footnote (4) above). The Company also paid $648 in term life
and accidental death and dismemberment insurance premiums in 1997 on behalf
of Mr. Wells. Mr. Wells' 1996 Profit Sharing Plan distribution was $15,000
and insurance premiums paid on behalf of Mr. Wells for 1996 totaled $473.
Mr. Wells' earnings for 1995 included Profit Sharing Plan contributions and
insurance premiums paid on behalf of Mr. Wells totaling $11,002 and an
automobile allowance of $12,000.

17
<PAGE> 21

STOCK OPTIONS

Information concerning 1997 grants of options to purchase the Common Stock
to the named executive officers follows:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR OPTION TERM(3)
GRANTED FISCAL BASE PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall.................. 80,000(4) 16.5% 41.8438 8/8/07 2,105,220 5,335,048
Morton C. Aaronson............. 20,000(4) 4.1% 41.8438 8/8/07 526,305 1,333,762
John N. DiNardo................ 20,000(4) 4.1% 41.8438 8/8/07 526,305 1,333,762
Clyde E. McKenzie.............. 20,000(4) 4.1% 41.8438 8/8/07 526,305 1,333,762
H. Rickey Wells................ 20,000(4) 4.1% 41.8438 8/8/07 526,305 1,333,762
</TABLE>

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

(1) Each option granted in 1997 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 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 1997 was
482,652.

(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 1997.

(4) These options vest over five years, subject to automatic acceleration of
full exercisability upon a Change of Control of the Company (as defined in
the Change of Control Severance Agreement).

The following table sets forth information about option exercises in 1997
by the named executive officers and the value of the remaining options held by
each such officer at year-end.

AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT YEAR-END(#) YEAR-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ----------- --------------------- -------------------
<S> <C> <C> <C> <C>
Larry D. Hall................. 26,000 611,541 181,250/349,000 4,336,959/6,264,046
Morton C. Aaronson............ 9,290 188,852 22,210/ 45,000 374,261/1,207,924
John N. DiNardo............... 425 10,748 30,950/ 45,000 714,363/ 775,158
Clyde E. McKenzie............. 2,500 99,375 29,000/ 67,000 529,782/1,329,159
H. Rickey Wells............... 1,250 39,791 42,000/ 57,500 1,050,783/ 997,111
</TABLE>

18
<PAGE> 22

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

(1) Based on the average of the high and low price of the Company's Common
Stock on the NYSE Composite Tape on December 31, 1997, which was $53.5938.

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 20,
NAME 1998(1)(2)(3)
---- -------------------------
<S> <C>
Larry D. Hall............................................... 385,738(4)
Morton C. Aaronson.......................................... 106,889
John N. DiNardo............................................. 88,778
Clyde E. McKenzie........................................... 111,886
H. Rickey Wells............................................. 115,450
All executive officers and directors as a group............. 2,094,530
</TABLE>

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

(1) No named executive officer beneficially owns any preferred stock of the
Company. No named executive officer beneficially owned more than 1 percent
of the Company's outstanding Common Stock other than Mr. Hall, who
beneficially owns 1.2% of the outstanding Common Stock. All executive
officers and directors as a group owned approximately 6.5% percent of the
outstanding Common Stock. Respecting share ownership by directors, see
"Election of Directors" on page 3. 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 20, 1998, 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, 241,250 shares; Mr. Aaronson, 43,210 shares; Mr.
DiNardo, 41,950 shares; Mr. McKenzie, 52,500 shares; and Mr. Wells, 59,000
shares. A total of 778,467 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 1997 under the Company's Profit Sharing
Plan, which have not yet been paid. Fifty percent of the profit sharing
award is required to be invested in the Company's Common Stock.

(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 attributable
to the K N Energy, Inc. Non-Qualified Benefit Plan Trust of which Mr. Hall
is a beneficiary. The cumulative number of shares attributable thereto and
held by the Trustee thereof as of December 31, 1997 is 4,392 shares.

19
<PAGE> 23

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, 1992, and that all dividends were reinvested.
Total net return to the Company's shareholders in 1997 exceeded 40.9%, as
compared to an average return of 32.8% for the Standard & Poor's 500 Stock Index
and of 18.3% for the Standard & Poor's Natural Gas Index for the same period.

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 S & P
(FISCAL YEAR COVERED) K N E S & P 500 NATURAL GAS
- --------------------- ----- --------- -----------
<S> <C> <C> <C>
1992 100 100 100
1993 142 110 119
1994 137 111 113
1995 174 153 160
1996 242 189 213
1997 341 251 252
</TABLE>

PENSION AND SUPPLEMENTAL 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 to age 65 at present salaries, the estimated annual pension benefits
of the named executive officers are as follows: Mr. Hall, $97,032, Mr. Aaronson,
$92,016, Mr. DiNardo, $64,236, Mr. McKenzie, $55,766, and Mr. Wells, $104,256.
These benefits are not subject to any deduction for Social Security benefits or
other offset amounts.

The Company's Profit Sharing Plan, described on page 12 above, also
provides retirement benefits to eligible employees including executive officers.
In addition, the Company has supplemental benefit plans which are designed to
assure payment to certain employees of benefits that would be provided under the
Pension Plan and the Profit Sharing Plan except for the dollar limits on accrued
benefits imposed by the Code.

20
<PAGE> 24

SEVERANCE AND OTHER AGREEMENTS

The Company has entered into severance agreements with certain key
employees, including all of its named executive officers, effective on or about
October 18, 1996. The agreements provide severance benefits if the officer is
involuntarily terminated under certain circumstances within two years 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 any reason
other than normal retirement, death or disability; (ii) the sale by the Company
of all or substantially all of its assets or the approval by the shareholders of
a plan of complete liquidation; (iii) a person or group becoming the beneficial
owner of 30% or more of the outstanding voting stock of the Company; or (iv) the
approval by the shareholders of a merger or consolidation other than one in
which the Company's outstanding voting securities prior thereto constitute more
than 50% of the combined voting power of the surviving entity and other than a
merger in which no person acquires more than 30% of the Company's then
outstanding securities. Such benefits are provided if, within two years
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 because of a "change of duties." A
"change of duties" 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 a
multiple of the officer's annual compensation (including base salary and cash
incentive bonus) earned at termination, plus payment of the costs for or
provision of certain welfare benefits for a specified period after involuntary
termination. In addition, all stock options or restricted stock granted to such
person and outstanding at the time of involuntary termination become immediately
exercisable and all restrictions thereon are removed. The persons who are
parties to such agreements are bound by certain noncompetition and
confidentiality provisions.

The following table summarizes Change of Control Severance Agreement terms
for the Company's five most highly compensated officers:

CHANGE OF CONTROL SEVERANCE AGREEMENTS

<TABLE>
<CAPTION>
DURATION OF
NAME SEVERANCE PAYMENT WELFARE BENEFITS
---- ----------------- ----------------
<S> <C> <C>
Larry D. Hall........................................ 3x executive compensation 36 months
Morton C. Aaronson................................... 2x executive compensation 24 months
John N. DiNardo...................................... 2x executive compensation 24 months
Clyde E. McKenzie.................................... 2x executive compensation 24 months
H. Rickey Wells...................................... 2x executive compensation 24 months
</TABLE>

The Company entered into an Employment Agreement with Morton C. Aaronson
effective January 1, 1996 for a two-year period, with renewal options for
successive one-year terms. This Employment Agreement was renewed for 1998. The
terms of this agreement include: a guaranteed base salary of at least $202,000;
provision of benefits customarily provided to the Company's executive management
employees; and provision of one year's base salary if the Agreement's term is
not renewed in exchange for Mr. Aaronson's compliance with non-competition and
confidentiality covenants.

The Company 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 which expires in
1998.

21
<PAGE> 25

PROPOSAL TO INCREASE THE AUTHORIZED COMMON STOCK (ITEM 2)

The K N Board of Directors has proposed and recommends to the K N
shareholders that they adopt an amendment to the Company's Restated Articles of
Incorporation that would increase the number of authorized shares of Common
Stock, par value $5.00 per share, from 50,000,000 shares to 150,000,000 shares.
The additional 100,000,000 shares would be a part of the existing class of
Common Stock and, if and when issued, would have the same rights and privileges
as the shares of Common Stock presently issued and outstanding.

As of February 20, 1998, 32,140,425 shares of Common Stock were outstanding
and an additional 2,810,393 shares were reserved for issuance under K N's stock
option, dividend reinvestment, employee stock purchase and employee benefit
plans (the "Plans"). Later in this Proxy Statement, the Company is asking the
shareholders to approve an increase in the number of shares available for
issuance under both the Company's Incentive Plan and Employee Stock Purchase
Plan, for a total of 2,600,000 additional shares. Also, the Company recently
borrowed money under a bank facility in order to finance the acquisition of
MidCon. In order to refinance some of the money borrowed under the bank
facility, the Company completed a public offering in March 1998 selling
10,000,000 shares of Common Stock. After taking into consideration the shares
reserved for issuance under the Company's Plans, the proposed increase of the
authorized shares under the Company's Incentive Plan and Employee Stock Purchase
Plan, and the recent public offering, the Company will have only 2,449,182
shares of Common Stock available for issuance.

The K N Board of Directors believes that the proposed increase in the
number of authorized shares of Common Stock from 50,000,000 shares to
150,000,000 shares is desirable and prudent so that additional authorized shares
of Common Stock are readily available for issuance in connection with possible
future financings, corporate mergers and acquisitions, strategic relationships
with corporate partners, employee benefit plans and for other general corporate
purposes. Increasing the authorized shares of Common Stock will also provide a
reserve of shares available for issuance in connection with possible stock
splits or stock dividends if the Board of Directors determines it is desirable
to facilitate a broader base of shareholders. Currently, K N has no plans,
agreements or arrangements in place requiring the issuance of additional shares
of Common Stock for these or other purposes, other than possible future
issuances pursuant to existing share reservations. However, having shares
available for issuance would enable K N to take timely advantage of market
conditions and other favorable opportunities for raising new capital without the
delay and expense associated with holding special meetings of shareholders as
would otherwise be required by law or stock exchange regulations.

The ability of the K N Board of Directors to issue additional Common Stock
could be considered to have an anti-takeover effect to the extent that the Board
could use such shares to dilute the percentage ownership or voting power of a
person seeking to obtain control of K N. The K N Board of Directors will be
authorized to determine whether, when and on what terms the issuance of shares
of Common Stock may be warranted in connection with any of the foregoing
purposes.

The Restated Articles of Incorporation and By-laws of the Company contain
certain provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the K N Board of Directors and in the policies
formulated by the Board and to discourage an unsolicited takeover of K N if the
Board determines that such a takeover is not in the best interests of K N and
its shareholders. However, these provisions could have the effect of
discouraging certain attempts to acquire K N or to remove incumbent management
even if some (or even a majority) of the shareholders of K N deem such an
attempt to be in their best interests.

BOARD RECOMMENDATION

The K N Board of Directors recommends a vote FOR the proposal to amend the
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock of the Company from 50,000,000 shares to 150,000,000 shares.

22
<PAGE> 26

PROPOSAL TO AMEND THE INCENTIVE PLAN (ITEM 3)

The Incentive Plan became effective when it received shareholder approval
at the 1994 Annual Meeting. On April 11, 1996, the shareholders approved an
amendment to the Incentive Plan increasing the shares subject to the Incentive
Plan from 700,000 shares to 2,200,000 shares. As of December 31, 1997, there
were only 106,715 shares left in the Incentive Plan. On February 10, 1998, the
Board of Directors voted to amend the Incentive Plan to increase the authorized
number of shares of Common Stock issuable thereunder from 2,200,000 shares to
3,800,000 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 1998 Annual Meeting. Should the amendment not be approved, the Incentive
Plan will remain in full force and effect, although the stock options and
restricted stock awarded thereunder in February 1998 will be forfeited as
explained below.

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 to the Compensation Committee on Executive
Compensation" herein, during the last four years awards of stock options under
the Incentive Plan have comprised the Company's major long-term executive
benefit. With the recent acquisition of MidCon, the number of employees of the
Company has more than doubled, making the need for an increase in the number of
shares available for issuance under the Incentive Plan more critical.

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
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.

23
<PAGE> 27

The following table presents certain information with respect to options
already granted under the Incentive Plan during the Company's fiscal year ending
December 31, 1998 to (i) the named executive officers, (ii) all executive
officers as a group, (iii) all non-executive officer directors as a group, and
(iv) all non-executive officer employees as a group. In each case, the options
have an exercise price of $ , the options will expire ten years from
the date of grant, and the options vest over three or five year periods.

1998 STOCK OPTION GRANTS

<TABLE>
<CAPTION>
1994 LONG-TERM INCENTIVE PLAN
---------------------------------------------
NUMBER OF SHARES UNDERLYING
NAME AND POSITION DOLLAR VALUE(1) OPTIONS GRANTED
----------------- --------------- ---------------------------
<S> <C> <C>
Larry D. Hall.......................................... [$ ] 90,000
Chairman/President and CEO(2)
Morton C. Aaronson..................................... [$ ] 60,000
Vice President and Chief Marketing Officer(2)
John N. DiNardo........................................ [$ ] 60,000
Vice President and General Manager(2)
Clyde E. McKenzie...................................... [$ ] 60,000
Vice President and Chief Financial Officer(2)
H. Rickey Wells........................................ [$ ] 60,000
Vice President -- Business Operations(2)
All Executive Officers as a Group(2)................... [$ ] 330,000
All Non-Executive Officer Directors as a Group......... $0 0
All Non-Executive Officer Employees as a Group(2)...... [$ ] 45,500
</TABLE>

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

(1) Based on the average of the high and low price of the Company's Common Stock
on the NYSE Composite Tape on March __, 1998 multiplied by the number of
shares underlying the option(s).

(2) Option grants to this person or group of persons for the remainder of 1998
will be made at the discretion of the Board and are not determinable at this
time. Accordingly, this table sets forth information regarding option grants
actually made to such person or group of persons on March __, 1998.

24
<PAGE> 28

The following table presents certain information with respect to restricted
stock already granted under the Incentive Plan during the Company's fiscal year
ending December 31, 1998 to (i) the named executive officers, (ii) all executive
officers as a group, (iii) all non-executive officer directors as a group, and
(iv) all non-executive officer employees as a group. In each case, the
restricted stock awards vest in equal one-third or one-fifth increments over
three or five years, respectively.

1998 RESTRICTED STOCK GRANTS

<TABLE>
<CAPTION>
1994 LONG-TERM INCENTIVE PLAN
--------------------------------------------
NUMBER OF
NAME AND POSITION DOLLAR VALUE(1) RESTRICTED SHARES GRANTED
----------------- --------------- -------------------------
<S> <C> <C>
Larry D. Hall........................................... [$ ] 10,000
Chairman/President and CEO(2)
Morton C. Aaronson...................................... [$ ] 3,500
Vice President and Chief Marketing Officer(2)
John N. DiNardo......................................... [$ ] 3,500
Vice President and General Manager(2)
Clyde E. McKenzie....................................... [$ ] 3,500
Vice President and Chief Financial Officer(2)
H. Rickey Wells......................................... [$ ] 3,500
Vice President -- Business Operations(2)
All Executive Officers as a Group(2).................... [$ ] 24,000
All Non-Executive Officer Directors as a Group.......... [$ ] 0
All Non-Executive Officer Employees as a Group(2)....... [$ ] 26,500
</TABLE>

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

(1) Market price on the date of grant, March __, 1998, multiplied by the number
of restricted shares.

(2) Restricted stock grants to this person or group of persons for the remainder
of 1998 will be made at the discretion of the Board and are not determinable
at this time. Accordingly, this table sets forth information regarding
restricted stock grants actually made to such person or group of persons on
March __, 1998.

If the shareholders do not approve the proposed increase in the number of
authorized shares under the Incentive Plan, the stock options and restricted
stock awards reflected in the above tables will be forfeited and returned to the
Company for cancellation.

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

25
<PAGE> 29

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 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" and together with ISOs, referred
to as "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 sales 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 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 ex-

26
<PAGE> 30

ercisability of any SAR and otherwise waive or amend any conditions with respect
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 non-transferability restrictions, Company
repurchase and forfeiture provisions and such other conditions (including
conditions on voting and dividends) as the Compensation Committee shall impose
at the time of grant. Shares of restricted stock may not be transferred or
otherwise disposed of by a participant except as specifically provided for in
the 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) 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
27
<PAGE> 31

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 (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.

28
<PAGE> 32

The Code 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.

BOARD RECOMMENDATION

The Board of Directors recommends a vote FOR the proposal to increase by
1,600,000 shares the number of shares authorized for issuance under the
Incentive Plan.

PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN (ITEM 4)

The Employee Stock Purchase Plan became effective when it received
shareholder approval at the 1990 Annual Meeting. As of December 31, 1997, there
were only 27,266 shares left in the Employee Stock Purchase Plan. On February
10, 1998, the Board of Directors voted to amend the Employee Stock Purchase Plan
to increase the authorized number of shares of Common Stock issuable thereunder
from 600,000 shares to 1,600,000 shares. Such amendment will become effective
upon the affirmative vote of a majority of shares present or represented by
proxy and entitled to vote at the 1998 Annual Meeting. Should the amendment not
be approved, the Employee Stock Purchase Plan will remain in full force and
effect.

The Employee Stock Purchase Plan is intended to qualify under Section 423
of the Code. The purpose of the plan is to encourage and enable eligible
employees of the Company and its participating subsidiaries to acquire
proprietary interests in the Company through the ownership of Common Stock in
order to establish a closer identification of their interests with those of the
Company. The plan provides the employees with a direct means of participating in
the Company's growth and earnings, which, in turn, will provide motivation for
participating employees to remain in the employ of, and to give greater effort
on behalf of, the Company. With the recent acquisition of MidCon, the number of
employees of the Company has more than doubled, making the need for an increase
in the number of shares available for issuance under the plan more critical.

EMPLOYEE STOCK PURCHASE PLAN SUMMARY

Under the Employee Stock Purchase Plan, the Compensation Committee of the
Board of Directors administers the plan. As of the effective date of each
offering under the plan, each eligible full-time employee of K N or a
participating subsidiary may elect to purchase shares through payroll deductions
of up to ten percent of pay during the offering, which will not exceed twelve
months. At the end of the offering, the balance in each participant's payroll
deduction account (including interest on the balance at the rate chosen by the
Compensation Committee) will be used to purchase as many whole shares as the
amount will purchase, and the balance remaining will be returned to the
participant. The purchase price per share pursuant to the plan shall be 85% of
the lesser of the market value of the Common Stock on the first or last day of
the offering, but in no event shall it be less than the par value of the Common
Stock, which is $5.00. The number of shares an employee is allowed to purchase
in any one offering is restricted by provisions of the Code, and may be further
limited by the Compensation Committee before the beginning of an offering. Any
employee who possesses 5 percent or more of the total combined voting power or
value of all classes of stock of the Company (including shares that could be
purchased pursuant to the plan) is not eligible to participate in the plan.
Directors who are not employees of the Company are not eligible to participate
in the plan.

Shares issued under the plan may be either authorized and unissued shares
or treasury shares, or shares purchased on the open market. The plan provides
for appropriate adjustments or other action by the Compensation Committee or the
Board of Directors 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 or in the Company. The Board of Directors may amend
the plan, but not in a manner which would change or impair outstanding rights to
purchase Common Stock without the participant's consent, and may not modify the
requirements as to eligibility for participation, materially

29
<PAGE> 33

increase the benefits accruing to participants under the plan, or increase the
maximum number of shares which may be purchased by all employees under the plan,
without shareholder approval.

FEDERAL INCOME TAX CONSEQUENCES

An employee who participates in the plan will not realize taxable income at
the beginning of an offering or at the purchase of shares pursuant to the plan.
If no disposition of the shares is made by the participant within two years
after the beginning of the offering and one year after the purchase of the
shares (the "required holding period"), then upon disposition of shares after
such required holding period or upon death, the participant will realize
ordinary income in an amount equal to the lesser of (i) the excess of the fair
market value of the shares at the time of disposition or death over the amount
paid for the shares or (ii) the excess of the fair market value of the shares on
the effective date of the offering over 85% of that value. Any additional gain
is treated as a capital gain. The Company will not be entitled to any deduction
in connection with the purchase of shares pursuant to the plan if the holding
period requirements are met. Upon disposition of shares before the end of the
required holding period, a participant will have ordinary income in an amount
equal to the difference between the purchase price and the fair market value of
the stock on the purchase date, and the Company will have a corresponding
deduction. The Company has the right to deduct from pay, or require any payments
necessary, to enable it to satisfy its withholding obligations.

BOARD RECOMMENDATION

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

30
<PAGE> 34

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 outstanding shares of the Common Stock of the
Company on the dates indicated in parentheses below. No other person is known by
the Company to be the beneficial owner of more than five percent of the Common
Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER AND DATE AMOUNT AND NATURE OF PERCENT OF
INFORMATION PROVIDED BENEFICIAL OWNERSHIP(1) CLASS
------------------------- ----------------------- ----------
<S> <C> <C>
Cabot Corporation..................................... 2,990,186(2) 9.30%
75 State Street
Boston, Massachusetts 02109-1806
(February 20, 1998)
Capital Group Companies, Inc.
Capital Research and Management Company............... 2,460,000(3) 7.65%
333 South Hope Street
Los Angeles, CA 90071
(February 10, 1998)

State Farm Mutual Automobile
Insurance Company..................................... 2,099,965(4) 6.53%
One State Farm Plaza
Bloomington, IL 61701
(January 22, 1998)
Employees Retirement Fund Trust
Profit Sharing Plan of K N Energy, Inc................ 1,628,922(5) 5.07%
P.O. Box 281304
Lakewood, CO 80228
(February 20, 1998)
Jurika & Voyles, Inc.................................. 1,774,764(6) 5.52%
1999 Harrison Street Suite 700
Oakland, CA 94612
(February 16, 1998)
</TABLE>

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

(1) All amounts listed in this column are for the Company's Common Stock.

(2) Cabot acquired 642,232 shares in July 1997 upon the exercise of warrants.
Cabot has sole investment and voting power of all 2,990,186 shares.

(3) As reported on Capital Group Companies, Inc. and Capital Research and
Management Company joint Schedule 13G dated February 10, 1998. Capital
Group Companies, Inc. is a parent holding company of a group of investment
management companies (including Capital Research and Management Company, a
registered investment advisor) and as such has sole voting power over
74,000 shares and sole dispositive power over 2,460,000 shares.

(4) As reported on State Farm's Schedule 13G dated January 22, 1998. State Farm
reports that it has sole investment and voting power over its shares, and
that the shares were acquired solely for investment purposes.

(5) 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.

(6) As reported on Jurika & Voyles' Schedule 13G dated February 6, 1998. Jurika
& Voyles is a registered investment advisor, and as such has shared
investment and voting power over all of its shares.

31
<PAGE> 35

Cabot, the Company's largest shareholder, and the Company were subject to a
liability sharing arrangement covering certain contingent liabilities and
potential gas contract liabilities. All matters regarding the liability sharing
arrangement were settled in 1997, and all final payments have been made. The
Company's final liability under the liability sharing arrangement with Cabot was
$5.6 million, which was previously recorded.

Pursuant to acquisition agreements involving Cabot, Cabot indemnified the
Company for certain environmental liabilities. Issues have arisen concerning
Cabot's indemnification obligations. The Company and Cabot have agreed to
binding arbitration to resolve all issues in dispute.

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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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 and executive officers, the Company believes that during the year
ended December 31, 1997, all Section 16(a) filing requirements applicable to its
directors and executive officers were satisfied except for the following: (i) a
Form 4 filed on behalf of H. Rickey Wells, Vice President -- Business
Operations, was filed one week late for the sale of 1,225 shares of Common Stock
on June 23, 1997; and (ii) Edward Randall, III a director of the Company, did
not timely disclose the termination of certain trusts for which he acted as the
trustee.

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 1997, and that recommendation was approved by the Board of
Directors. No independent public accountant has yet been recommended to perform
the audit function for 1998. 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 facsimile 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

32
<PAGE> 36

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 presently
estimated at $35,000.

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Pursuant to Securities and Exchange Commission regulations, any proposal
which a shareholder intends to present to the 1999 annual meeting must be
received by November 16, 1998, 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 provisions of the By-laws 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

MARTHA B. WYRSCH
Vice President,
General Counsel
and Secretary

33
<PAGE> 37
ATTACHMENT A

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

ARTICLE I
PURPOSE

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

ARTICLE II
DEFINITIONS

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

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

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

2.04 Code. Code shall mean the Internal Revenue Code of 1986, as amended,
unless otherwise specifically provided herein.
<PAGE> 38
2.05 Committee. Committee shall mean the Compensation Committee of the
Board. No member of the Committee, during the one year prior to such
membership or during such membership, shall be granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any
of its Subsidiaries, except as permitted by Rule 16b-3 as promulgated
under the Exchange Act.

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

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

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

2.09 Fair Market Value. Fair Market Value of the Stock shall mean the
average of the high and low sale price at which Stock is traded on any
given date, or if no Stock is traded on such date, the most recent prior
date on which Stock was traded, as reported in The Wall Street Journal
for the New York Stock Exchange- Composite Transactions.

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

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

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

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

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

2.15 Restricted Stock Awards. A Restricted Stock Award shall mean a grant
made by the Committee entitling the Participant to acquire, either at no
cost or for a purchase price determined by the Committee at the time of
grant, shares of Stock subject to such restrictions and conditions as
the Committee may determine at the time of grant ("Restricted Stock").
<PAGE> 39
2.16 Stock. Stock shall mean common stock, par value $5.00 per share, of the
Company.

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

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

ARTICLE III
PARTICIPATION

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

ARTICLE IV
SHARE SUBJECT TO THE PLAN

4.01 Limitations.

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

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

(1) issued or issuable pursuant to Options that have been or
may be exercised;
<PAGE> 40
(2) subject to Stock Appreciation Rights that have been or may
be exercised (other than Stock Appreciation Rights granted
in tandem with outstanding Options);

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

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

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

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

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

4.04 Grants and Agreements. Each grant of an Award under this Plan shall be
evidenced by a written Agreement dated as of the date of the grant and
executed by the Company and the Participant. This Agreement shall set
forth the terms and conditions of such Award, as may be determined by
the Committee consistent with this Plan, and if such Agreement related
to the grant of an Option, shall indicate whether the Option is intended
to be an Incentive Stock Option or a Nonstatutory Stock Option.
<PAGE> 41
ARTICLE V
OPTIONS

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

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

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

ARTICLE VI
INCENTIVE STOCK OPTIONS

6.01 General. All Incentive Stock Options shall comply with all the
restrictions and limitations set forth in Section 422 of the Code and
this Plan. No Incentive Stock Option shall be granted to an individual
if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of Section 422(b)(6) of the Code,
unless (i) at the time such Incentive Stock Option is granted the Option
Price is at least 110% of the Fair Market Value of the Stock subject to
the Option and (ii) such Incentive Stock Option by its terms is not
exercisable after the expiration of five years from the date of grant.
To the extent that the aggregate Fair Market Value (determined at the
time the
<PAGE> 42
respective Incentive Stock Option is granted) of stock with respect to
which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year under all incentive stock option
plans of the Company and its parent and Subsidiaries exceeds $100,000,
such excess Incentive Stock Options shall be treated as Options which do
not constitute Incentive Stock Options. The Committee shall determine,
in accordance with applicable provisions of the Code, Treasury
Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Optionee of such
determination as soon as practicable after such determination.

ARTICLE VII
STOCK APPRECIATION RIGHTS

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

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

7.02 Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee and embodied in the
Agreements and in procedures established by the Committee. The
Committee may, at any time, accelerate the exercisability of any Stock
Appreciation Right and otherwise waive or amend any conditions of the
grant of a Stock Appreciation Right; provided, however, that with
respect to any Stock
<PAGE> 43
Appreciation Right granted in tandem of an Incentive Stock Option, the
Committee shall not take any action which would constitute a
modification, extension or renewal (within the meaning of Section 424(h)
of the Code) of such Incentive Stock Option.

ARTICLE VIII
RESTRICTED STOCK AWARDS

8.01 Agreement. If the purchase of Restricted Stock is required by the
Agreement, a Participant who is granted a Restricted Stock Award shall
have rights with respect to such grant provided the Participant shall
have accepted the grant within sixty (60) days (or such shorter date as
the Committee may specify) following the date of the grant, by making
payment to the Company by certified bank check or other instrument
acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the shares covered by the grant and by executing and
delivering to the Company an Agreement in such form as the Committee
shall determine.

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

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

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

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

8.03 Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. Restrictions on shares of Restricted
Stock shall be set forth in an Agreement and may include such vesting
restrictions as the Committee shall determine, including but not limited
to, restrictions related to timing,
<PAGE> 44
profitability of the Company, and growth of the share price. In the
event of a Participant's termination of employment with the Company and
its Subsidiaries for any reason (including death) prior to the date
shares of Restricted Stock awarded to such Participant become vested,
the Company shall have the right, at the discretion of the Committee, to
repurchase such shares at their purchase price, or to require forfeiture
of such shares to the Company if acquired at no cost, from such
Participant or the Participant's legal representative.

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

ARTICLE IX
STOCK CERTIFICATES

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

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

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

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

(D) the lapse of such reasonable period of time following the
exercise of the grant as the Committee from time to time may
establish for reasons of administrative convenience.
<PAGE> 45
If these conditions are not satisfied the employee may lose his
rights to such Stock as determined by the Committee.

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

ARTICLE X
DIVIDENDS

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

ARTICLE XI
PLAN ADMINISTRATION

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

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

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

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

(E) adopt, alter, and repeal such rules, guidelines, and practices
for administration of the Plan and
<PAGE> 46
for its own acts and proceedings as it shall deem advisable; to
interpret the terms and provisions of the Plan and any grant
(including related Agreements); to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.

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

ARTICLE XII
MISCELLANEOUS PROVISIONS

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

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

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

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

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

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

(A) limit the right of the Company or any Subsidiary to discharge or
discipline any such person, or otherwise terminate or modify the
terms of his employment; or
<PAGE> 47
(B) create any contract or other right or interest under the Plan
other than as specifically provided in the Plan and an Agreement.

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

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

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

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

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

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

12.11 Securities Laws. Notwithstanding anything to the contrary expressed in
the Plan, any provisions that vary from or conflict with any applicable
Federal or state securities laws (including any regulations promulgated
thereunder) shall be deemed to be modified to conform to and comply with
such laws. Without limiting the
<PAGE> 48
generality of the foregoing, it is the intention of the Company that the
Plan shall comply in all respect with Rule 16b-3 under the Exchange Act
and, if any Plan provision is later found not to be in compliance with
Section 16 of the Exchange Act, the provision shall be deemed null and
void, and in all events the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3. Notwithstanding anything in the
Plan to the Contrary, the Board, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to Participants who are officers subject to
Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Participants.

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

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

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

ARTICLE XIII
CHANGE OF CONTROL

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

For purposes of this Section 13.01, a Change in Control of the Company
shall be deemed to have occurred if the
<PAGE> 49
conditions set forth in any one or more of the following shall have been
satisfied:

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

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

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

(D) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or
<PAGE> 50
any transaction having a similar effect).

ARTICLE XIV
EFFECTIVE DATE AND
PLAN AMENDMENTS, TERMINATION

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

14.02 Termination, Amendment and Modification of Plan. The Board of Directors
may at any time terminate or suspend, and may at any time and from time
to time and in any respect amend or modify, the Plan; provided, however,
that no such action of the Board of Directors shall be taken without
approval of the Company's shareholders if such approval is required to
comply with Rule 16b-3 under the Exchange Act or Section 422 of the
Code, or any successor provision.
<PAGE> 51
ATTACHMENT B

THIS DOCUMENT CONSTITUTES PART OF THE PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933

KN ENERGY, INC.
EMPLOYEES STOCK PURCHASE PLAN
600,000 Shares of
Common Stock, $5 Par Value

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

The shares of Common Stock, $5 par value, of KN Energy, Inc. (the
"Company") covered by this prospectus are offered pursuant to the KN Energy,
Inc. Employees Stock Purchase Plan (the "Plan"). The securities are being
offered to eligible employees of the Company and its subsidiaries that are
selected to participate in the Plan. The address of the Plan is the same as that
of the Company. The executive offices of the Company are located at 370 Van
Gordon Street, P. O. Box 281304, Lakewood, Colorado 80228-8304, telephone: (303)
989-1740.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Company or the Plan. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made through its use shall imply that there has been no change in the
affairs of the Company since the date hereof.

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

The date of this Prospectus is November 3, 1997. This Prospectus supersedes
all prior Prospectuses for the Plan, which should be discarded.

<PAGE> 52

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Employees Stock Purchase Plan..............................................3

Introduction...........................................................3

Brief Summary of the Plan..............................................3

Resales of Common Stock; Restrictions on Resale.......................10

Federal Income Tax Consequences.......................................11

Available Information.....................................................12

Securities of the Issuer..................................................13

Anti-takeover Matters.................................................15

Incorporation of Certain Documents by Reference...........................18

Legal Matters.............................................................18

Experts...................................................................18
</TABLE>

<PAGE> 53

EMPLOYEES STOCK PURCHASE PLAN

Introduction

The Plan was originally adopted by the Company's Board of Directors on
November 21, 1989, effective as of April 1, 1990, and amended and restated as of
November 1, 1996. As used in this Prospectus, the term "Employer" means,
collectively, the Company and its participating affiliates and subsidiaries as
designated by the Company's Board of Directors, unless the context requires a
different meaning.

The duration of this Plan is not limited. It is contemplated that
offerings by the Company of common stock pursuant to the Plan will be
implemented by annual offering periods ("Offerings" or "Offering Periods").
The term of any Offering under the Plan cannot exceed 12 months.

The United States Department of Labor has not yet issued definitive
regulations regarding the applicability of the Employee Retirement Income
Security Act of 1974 ("ERISA") to stock purchase plans such as the Plan. Subject
to issuance of regulations to the contrary, the Company believes that none of
the provisions of ERISA are applicable to the Plan.

No assurance can be given as to the financial outcome to participants
participating in the Plan, and the Company makes no recommendations to employees
as to whether they should or should not participate in the Plan. Participants
will obtain a direct ownership interest in Common Stock of the Company purchased
by them pursuant to the Plan, and the market value of such Common Stock may
decrease as well as increase. The adoption and maintenance of this Plan will not
be deemed to be a contract between the Company and any person and will not give
any person the right to be retained in the employ of the Company.

The summary of certain provisions of the Plan set forth in this
Prospectus does not purport to be complete and is subject in all respects, and
qualified by reference, to the provisions of the Plan. A copy of the Plan may be
obtained from the Company's Human Resources Department at the address set forth
on the cover page hereof.

Brief Summary of Plan

1. What is the Plan?

The Plan is a payroll deduction plan which permits eligible employees
to purchase shares of the Company's Common Stock ("Common Stock" or
"shares") at a discount from market price.

2. Who is eligible to participate?

You are eligible to participate in an Offering under the Plan if:

(a) You are an employee of the Employer one day prior to the first day
of the Offering; and

(b) Your customary employment is more than 20 hours of service per week
and more than 5 months of service per calendar year.

Further, if you are a highly compensated employee within the meaning of
Section 414(q) of the Internal Revenue Code of 1986, as amended (the

3
<PAGE> 54

"Code"), and you satisfy the requirements set forth under (a) and (b)
above, you are eligible to participate in the Plan if the Committee of
the Company's Board of Directors ("Committee") which is appointed to
interpret and oversee the administration of the Plan has not elected to
exclude such highly compensated employees from participation in the
Plan.

3. What is an Offering Period?

The Committee establishes Offering Periods during which payroll
deductions are accumulated to purchase shares. Each Offering Period may
last for up to 12 months. The current Offering Period runs from January
2, 1998, through December 31, 1998. No two Offering Periods may run
concurrently.

4. How do I participate?

To participate in an Offering, you must sign up during the Subscription
Period, which runs from November 3 through December 31, 1997. The
current Offering Period will last for approximately 12 months,
beginning on January 2, 1998, and ending on December 31, 1998. Later
offerings are planned for twelve-month periods beginning on or about
January 2 and ending on the following December 31. (The beginning and
ending dates will be adjusted to coincide with the first and last dates
upon which the Common Stock is traded during the Offering Period.) The
Election to Purchase Shares form must be filed with the Plan Supervisor
during the Subscription Period. The effective date of your enrollment
is the beginning of the Offering Period.

The name and address of the current Plan Supervisor is as follows:

Emily Logan
KN Energy, Inc.
P.O. Box 281304
Lakewood, Colorado 80228-8304
303-763-3292

5. If I am a participant in one Offering under the Plan, will I
automatically be included in the next Offering under the Plan?

Yes. Once you have completed and returned the appropriate forms to
participate in the 1998 Offering under the Plan, (or if you completed
and returned the appropriate forms to enroll in the 1997 Offering),
thereafter you will be automatically enrolled as a participant in all
subsequent years' Offerings under the Plan until such time as you file
with the Plan Supervisor a written notice of your election to
dis-enroll, which will be effective upon receipt by the Plan
Supervisor.

6. What is the price for shares purchased under the Plan?

The purchase price is 85% of the fair market value of a share of Common
Stock at the effective date of your enrollment (the first trading day
of the Offering Period) or on your date of purchase (the last trading
day of the Offering Period), whichever is lower; provided, however,
that in no event will the price be lower than the par value of the
Common Stock. The fair market value of a share on a given date is the
average market price determined by averaging the high and low prices of
the Common Stock reported on that day on the New York Stock Exchange,
or, if no such prices are reported on that date, on the preceding day
when such prices were reported.

4
<PAGE> 55

7. When will my shares be purchased?

Unless you withdraw from participation in the Plan or your employment
is terminated before the end of the Offering, your accumulated payroll
deductions will be applied to purchase shares automatically at the end
of the Offering Period.

8. How do I benefit from participation in the Plan when the share price is
rising?

As a hypothetical, assume that you joined the Plan, that the fair
market value of a share on the first trading day of the Offering Period
was $22, and that the fair market value of a share then rose to $25 at
the end of the last trading day of the Offering Period. Under those
assumptions, your approximate purchase price would be $18.70 ($ 22 x
85%), which is a 25.2% discount from the fair market value at the time
of the purchase.

As you can see, if the fair market value price is rising, you will
benefit from an increasing discount. Unless the price you would pay for
shares pursuant to the Plan would fall below par value (which is $5),
your price can never be more than 85% of the market price on the
effective date of your date of enrollment, no matter how high the price
rises during the Offering Period. Shares will automatically be
purchased for you at the end of the Offering Period as long as you stay
in the Plan throughout the Offering.

Of course, this is just a hypothetical example of how the Plan works;
no one knows whether the fair market value price will go up or down at
any period in time.

9. What if the share price falls?

Take the previous example, but assume instead that the fair market
value price falls to $18 at the end of the last trading day of the
Offering Period. Your approximate purchase price would be $15.30 ($18 x
85%), which would be a 15% discount from the fair market value price at
the time of purchase. Again, this too is only a hypothetical example of
how the Plan works and does not represent actual or estimated fair
market value prices.

You will purchase your shares at a discount of at least 15% unless that
price would be less than $5.

10. How much can I invest through the Plan?

Subject to Code restrictions, you may authorize payroll deductions in
any amount not less than $20 per month nor more than 15% of your pay.
Your pay includes base salary or wages, overtime pay, shift premiums,
certain commissions and contributions made on your behalf to the 401(k)
Plan, or other similar payments. The Committee may approve the
inclusion of bonuses, incentive compensation, certain other commissions
and other such payments in pay, but has not chosen to do so for the
1998 Offering. A maximum number of shares a participant may purchase in
a particular Offering Period may be established by the Committee prior
to the Offering Period. No such maximum has been set for the 1998
Offering.

5
<PAGE> 56

11. Are there any other limitations on the amount I can invest?

Under the Code, you may not accrue rights to purchase shares under the
Plan which would permit you to purchase more than $25,000 worth of
Common Stock during each year that such purchase rights are
outstanding. In no event may the total value of shares purchased or
purchasable during a calendar year under the Plan exceed $25,000,
valued as of the beginning of the applicable Offering Period. The right
to purchase Common Stock under the Plan accrues when such right first
becomes exercisable during the calendar year.

No right to purchase shares under the Plan may be acquired by an
employee if such employee would, immediately after acquisition of the
right to purchase shares, own or be deemed to own stock possessing 5%
or more of the total combined voting power or value of all classes of
stock of the Company or any of its subsidiaries.

12. May I invest other than by payroll deduction?

No. Investments may be made only by payroll deduction; you may not make
additional cash contributions to the Plan.

13. What happens to my payroll deductions?

The amount you authorize will be deducted from each paycheck.
Deductions begin with the first pay date which occurs on or after the
first day of the relevant Offering and terminate with the last pay date
which occurs on or before the last day of the Offering. The Company
keeps a record of your payroll deductions, but it is not planned that
the amounts will be segregated in a separate bank account. Each
participant will be informed of the deductions made pursuant to his or
her Election to Purchase Shares on each paycheck stub. Amounts deducted
will not accrue interest.

Amounts from all such payroll deduction will be under the control of
the Company, may be maintained or controlled as a single fund or
account, and may be used for any corporate purpose. Amounts from all
such payroll deductions for employees of subsidiaries will be remitted
to the Company from time to time. All such payroll deductions made by
or paid to the Company by its subsidiaries will be subject to the
rights of the general creditors of the Company.

At the end of each Offering, the amount of funds withheld on your
behalf will be used to purchase whole and fractional shares of Common
Stock. As soon as practicable after the end of an Offering, the Plan
Administrator (described in Section 24) will send you a statement
indicating the number of book shares held in your name by the Plan
Administrator. The Plan Administrator shall maintain a book account for
each Plan participant. After you receive your statement of shares, you
may request that the Plan Administrator issue you a stock certificate;
however, you will be responsible for all costs related to the issuance
of your certificate. Any amount previously collected during an Offering
Period in excess of the purchase price of the shares issued will be
refunded to you. The Company may sell authorized but unissued shares to
the Plan participants, or it may purchase shares on the open market or
otherwise and sell them to participants.

6
<PAGE> 57

14. May I change the level of my payroll deductions?

Yes. At any time during an Offering, you may reduce the amount of your
pay that is to be deducted (not below $20.00 per month) by submitting a
written notice to the Plan Supervisor. (See also paragraph 19 below
regarding suspension of payroll deductions.) You may also increase your
deductions (but not above 15% of your pay). All changes apply
prospectively only and will be made as soon as practicable.

15. How long will payroll deductions continue?

Payroll deductions will continue until the Offering ends unless you
suspend your participation, you withdraw from the Plan, or your
employment is terminated prior to that time.

16. May I withdraw from participating in the Plan?

Yes. You may, at any time prior to the last day of an Offering,
withdraw from the Plan by submitting a written notice to the Plan
Supervisor. Your direction to withdraw is irrevocable once received by
the Plan Supervisor. Any amounts deducted from your pay during such
Offering by reason of your participation in the Plan will be refunded,
and no further amounts will be deducted from your paycheck during the
remainder of the Offering.

17. If I cancel my existing enrollment, may I re-enroll within the same
Offering?

No. A notice of cancellation of an Election to Purchase Shares is
effective upon receipt by the Plan Supervisor and is irrevocable
during that Offering.

18. What happens if my employment terminates?

If you cease to be an employee of an Employer for any reason (including
death or retirement) during the Offering, you or your personal
representative will receive, as soon as practicable following the
termination date of your employment, a cash refund of all sums
previously deducted from your pay pursuant to the Plan during the
Offering.

19. May I discontinue my payroll deductions without withdrawing from
participating in the Plan?

Yes. At any time during an Offering, you may suspend deductions from
paychecks to be received by you during the balance of the Offering by
submitting a written notice to the Plan Supervisor. Payroll deductions
will be discontinued as soon as practicable after receipt of the notice
by the Plan Supervisor. Payroll deductions cannot be resumed during the
remainder of the Offering once they have been suspended. All amounts
deducted will be applied to purchase shares, and any balance in excess
of the purchase price of the shares purchased by you will be returned
to you after the Offering.

7
<PAGE> 58

20. May I assign or transfer my rights under the Plan?

No. You may not assign or transfer your right to purchase shares under
the Plan. When shares are purchased, a book account entry will be made
in your name (or, upon your request and at your cost, a certificate
will be issued in your name).

21. When may I sell my shares?

Unless the Committee places restrictions on the resale of the shares,
you may sell your shares at any time after your shares have been issued
to you. However, if you sell your shares without holding them for more
than one year after you have purchased them and more than two years
after the effective date of your enrollment in the Plan, you may have
adverse tax consequences. See Question 22 and the section captioned
Federal Income Tax Consequences hereto for more information regarding
tax effects incident with selling shares.

22. What are the tax consequences of participating in the Plan?

The Plan is intended to qualify as an "employee stock purchase plan"
under Code Section 423. The tax consequences of participating in the
Plan are discussed in the section captioned Federal Income Tax
Consequences herein.

23. When was the Plan created?

The Plan was approved by the Company's Board of Directors on November
21, 1989, and by the Company's stockholders on March 29, 1990. The Plan
was effective as of April 1, 1990, and was amended and restated as of
November 1, 1996.

24. How is the Plan administered?

The Plan is administered by The Bank of New York ("Plan
Administrator"). The Plan Administrator has full authority to
administer the Plan. The Committee shall retain the authority to
interpret and construe the Plan. The Committee may also delegate to an
agent or agents (which agent has been designated as the Plan
Supervisor) any of its responsibilities under the Plan except its
responsibilities to allocate available shares in the case that the
amount deducted exceeds that needed to purchase all remaining shares
reserved under the Offering, to establish the amount of compensation to
be paid by any single employee for the purchase of shares during any
Offering Period and its authority to construe and interpret the
provisions of the Plan. The Company will pay all expenses for
administering the Plan, except the costs of issuance of share
certificates. The Plan Administrator may be contacted by telephone at
1-800-847-4351.

All actions taken by the Plan Administrator or the Plan Supervisor, and
all actions taken and all interpretations and determinations made by
the Committee, in good faith are final and binding upon all
participants, the Company and all other interested persons.

The Plan Administrator was selected by a majority vote of the Company's
Board of Directors, and may likewise be removed by a majority vote of
the Board of Directors. The Bank of New York will also make its
brokerage service available to you to sell your stock at rates to be
announced.

8
<PAGE> 59

25. How many shares are available under the Plan?

Up to 600,000 shares of Common Stock may be issued under the Plan. As
of September 30, 1997, 557,684 shares have been issued or committed for
issuance; in addition, a number of additional shares which cannot be
determined until December 31, 1997, will be issued pursuant to the 1997
Offering. The balance will be available for future purchase. The
maximum number of shares which may be sold to employees during a
particular Offering is established by the Company's Board of Directors
prior to the beginning of the Offering. If the total number of shares
of Common Stock that become purchasable by virtue of the amount
accumulated through payroll deductions during an Offering Period
exceeds the number of shares available under the Offering, the
Committee may make a pro rata allocation of the available shares and
notify each participant of this allocation. All shares included in any
Offering which are not issued shall be available for inclusion in any
subsequent Offering under the Plan.

26. Can the Plan be terminated or changed?

The Company's Board of Directors may alter, amend, suspend or
discontinue the Plan but no such action may adversely affect the rights
of any participant without his or her consent, may affect options
previously granted under the Plan, or make a change in such options
which would adversely affect the rights of any participant. The Board
of Directors must obtain stockholder approval to increase the number of
shares subject to the Plan, materially increase the benefits to
participants under the Plan or change the designation of corporations
whose employees may be eligible to participate in the Plan.

27. What happens if there is a change in the capital structure of the
Company?

If any change is made to the Company's Common Stock by way of stock
split, stock consolidation, stock dividend, or the like, the Committee
will proportionately adjust the number of shares available under the
Plan, and the number of shares and price per share of Common Stock
subject to outstanding purchase rights. If the Company recapitalizes or
effects another change in its capital structure, each participant will
be afforded the right to acquire the same number and class of shares
and securities pursuant to the restructuring or recapitalization plan
as if he or she had acquired the number of shares the participant had a
right to acquire under the Plan immediately before the restructuring or
recapitalization.

28. What happens if the Company is merged or liquidated?

If (i) the Company shall merge or consolidate with another entity and
the Company is not the surviving entity;

(ii) the Company sells, leases or exchanges, or agrees to sell,
lease or exchange all or substantially all of its assets to
any other person or unaffiliated entity;

(iii) the Company is to be dissolved and liquidated;

9
<PAGE> 60

(iv) a person, entity or group acquires ownership or control
of more than 50% of the outstanding shares of the
Company's voting stock; or

(v) in connection with a contested election of directors, the
persons who were directors before such election shall
cease to constitute a majority of the Company's Board of
Directors,

(all and any of such changes listed in (i) - (v) above to be referred
to as a "Corporate Change"), then the Committee shall direct the Plan
Administrator to cause one of the following changes in the
administration of the Plan to occur:

(a) accelerate the date for purchasing the shares under
the Plan;

(b) require surrender of rights to purchase shares from
participants, paying them the difference between the
price that would have been paid had the shares been
purchased under the Plan and the value being paid
shareholders for the Company's shares by virtue of
the Corporate Change;

(c) make adjustments to the outstanding rights to
purchase shares under the Plan as the Committee deems
appropriate to reflect the Corporate Change; or

(d) provide that participants shall be entitled to
purchase the number and class of shares of stock or
other securities or property which the participant
would have been entitled to receive pursuant to the
agreement of merger, consolidation, sale of assets or
dissolution, if prior to such merger, consolidation,
sale of assets or dissolution, the participant had
been the holder of record of the number of shares he
or she was then entitled to purchase under the Plan.

29. By becoming a participant in the Plan, am I also a stockholder?

No. You do not become a Company stockholder until the entry of your
book shares in your name is made in the Plan Administrator's book
account, which is as soon as practicable after the shares are
purchased.

Resales of Common Stock; Restrictions on Resale

Shares acquired under the Plan by participants who are not affiliates
of the Company may be sold without registration under the Securities Act (and
without the need to comply with Rule 144 of the Commission thereunder). Public
resales of Common Stock by affiliates of the Company may be restricted by
federal securities laws unless (i) the Company has filed with the Commission,
and maintains on a current basis, an effective registration statement for such
purpose; (ii) the resale is made in accordance with the provisions of Rule 144
of the Securities Act; or (iii) an exemption from registration under the
Securities Act is available and the Company has received an opinion of counsel
to such effect. An affiliate of the Company is generally defined for purposes of
federal securities laws as any person who directly or indirectly controls, or is
controlled by, or is under common

10
<PAGE> 61

control with, the Company. This Prospectus is not available for resales of
Common Stock acquired hereunder by affiliates of the Company.

In addition to the foregoing restrictions, the directors and officers
of the Company and any holder of more than 10% of the Common Stock may be liable
to the Company pursuant to Section 16(b) of the Exchange Act for certain amounts
realized upon the purchase and sale or sale and purchase of any shares of Common
Stock within any period of less than six months. The persons referred to above
should consult counsel for additional information regarding impediments with
respect to their purchase and sale of Common Stock.

Federal Income Tax Consequences

The Company understands that under present federal income tax law the
following rules, among others, will apply generally to the Company and the
participants in the Plan. Provided that you were at all times an employee of the
Company for the period beginning with the beginning of the Offering Period and
ending on the date that is three months before the purchase of the Common Stock
offered in such Offering Period, you will recognize no taxable income at the
time the Common Stock is offered for purchase or at the time you purchase shares
of Common Stock thereunder. Rather, income or loss is recognized only when you
sell the shares you acquire under the Plan. The tax treatment depends on how
long you hold the shares after the date of purchase and the beginning of the
Offering Period.

Shares held more than one year from purchase date and more than two
years from beginning of Offering Period. If you hold your shares for more than
one year after you purchase them and for more than two years after the beginning
of the Offering Period, you will recognize ordinary income on disposition of the
stock (or upon your death while owning the stock) to the extent of the lesser
of: (i) the excess of the Common Stock's fair market value at the time of such
disposition or death over your purchase price, or (ii) the excess of the Common
Stock's fair market value at the beginning of the Offering Period over 85% of
that value. Any remaining gain is treated as either a mid-term or long-term
capital gain, depending on the holding period of the shares. If the Common Stock
is sold for less than your purchase price, you will recognize no ordinary
income, but instead you will have a long-term capital loss for the difference
between the sales price and your purchase price.

Shares held for one year or less from date of purchase or two years or
less from the beginning of the Offering Period. If the Common Stock is held for
one year or less from the date of purchase or two years or less from the
beginning of the Offering Period, the difference between your purchase price and
the fair market value on the purchase date will be ordinary income in the year
of sale or other disposition, even if no gain is realized on the sale or if a
gift is made. If the shares are sold within one year of the date of purchase,
the difference between the price at which the shares are sold and their fair
market value on the date of purchase will be short-term capital gain or loss.
Otherwise, such difference will be either a mid-term or long-term capital gain,
depending on the holding period of the shares, or loss.

As to its own income tax liability, the Company receives no tax
deduction for the value of the shares purchased under the Plan that were held
for at least one year from the date of purchase and at least two years from the
beginning of the Offering Period. If the foregoing holding period requirements
are not satisfied, the Company will be able to deduct an amount equal to the
difference between the employee's purchase price and the fair market value of
the Common Stock on the date of purchase. Further, if shares

11
<PAGE> 62

acquired through the Plan are sold in a "disqualifying disposition," that is,
held for less than the one-year or two-year holding periods described above and
so creating a tax liability for the employee, the Company may require
reimbursement of the amount the Company is required to withhold for applicable
federal and state taxes. In the absence of such reimbursement, the Company may
withhold such amounts from the participant's pay.

Since the tax effects of participating in the Plan may vary according
to individual circumstances, participants should seek professional tax advice
from their own advisers concerning the tax consequences of purchasing shares
under the Plan and the disposition of any shares purchased thereunder.

The Plan is not intended to be qualified under Code Section 401(a).

AVAILABLE INFORMATION

The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission are
available at the Internet web site that the Commission maintains
(http://www.sec.gov) and they can be inspected and copied at the offices of the
Commission at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at the
following locations: New York Regional Office, Seven World Trade Center,
Thirteenth Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza Building, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
also listed on the New York Stock Exchange, and the reports, proxy statements
and other information concerning the Company also may be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005. Additional updating information with respect to the Company's Common
Stock and plans covered thereby may be provided in the future to Plan
participants by means of amendments to this Prospectus.

This Prospectus does not contain all of the information set forth in
the Registration Statement (the "Registration Statement"), of which this
Prospectus is a part, and exhibits relating thereto, which the Company has filed
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). Reference is made to such Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.

A copy of any document or part thereof which is incorporated by
reference into this Prospectus but not delivered herewith will be provided
without charge, upon written or oral request, to any person, including any
beneficial owner, to whom this Prospectus is delivered; however, exhibits to the
information incorporated by reference shall not so be provided unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates. A copy of the Company's annual report to
shareholders, annual report on Form 10-K, Proxy Statement and other reports

12
<PAGE> 63

and communications distributed to its shareholders generally will be furnished,
without charge, upon written or oral request of an employee. Requests may be
directed to: E. Wayne Lundhagen, Treasurer, KN Energy, Inc., 370 Van Gordon
Street, P.O. Box 281304, Lakewood, Colorado 80228-8304, telephone: 303-989-1740.

SECURITIES OF THE ISSUER

The following statements are brief summaries of certain provisions
relating to the Common Stock offered hereby and the preferred stock of the
Company and are qualified in their entirety by the provisions of the Company's
Restated Articles of Incorporation, as amended, By-laws and the Certificates of
Designation for the Class B $8.30 Series Cumulative Preferred Stock, which are
exhibits to or are incorporated by reference in the Registration Statement of
which this Prospectus is a part.

The Company is currently authorized by its Restated Articles of
Incorporation to issue 50,000,000 shares of Common Stock of which 31,446,326
were outstanding on September 30, 1997; 200,000 shares of Class A Preferred
Stock, no par value ("Class A Preferred Stock"), of which 70,000 shares were
outstanding as Class A $5.00 Cumulative Preferred Stock on such date; and
2,000,000 shares of Class B Preferred Stock, no par value ("Class B Preferred
Stock"), of which no shares were outstanding on such date.

The Company's Board of Directors is authorized by the Restated Articles
of Incorporation to provide, without further stockholder action, for the
issuance of one or more series of Class A Preferred Stock and Class B Preferred
Stock. The Board of Directors has the power to fix various terms with respect to
each such series, including voting power, designations, preferences, dividend
rates, conversion and exchange provisions, redemption provisions and, in the
case of the Class B Preferred Stock, the amounts which holders are entitled to
receive upon any liquidation, dissolution or winding up of the Company. The
Class A Preferred Stock and Class B Preferred Stock will rank prior to the
Common Stock with respect to both dividends and distribution of assets on
liquidation, dissolution or winding up of the Company.

In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of shares of Class A
Preferred Stock of each series shall be entitled to receive in full out of the
assets of the Company the sum of $100 per share of Class A Preferred Stock, plus
any arrearages in dividends thereon to the date fixed for the payment in
liquidation, before any distribution shall be made to the holders of shares of
any stock junior to the Class A Preferred Stock. The Company may, at the option
of the Board of Directors, redeem the whole or any part of the Class A Preferred
Stock, or of any series thereof at any time or from time to time within the
period during which such stock is, according to the Company's Articles of
Incorporation, or the resolutions of the Board of Directors providing for the
issue thereof, redeemable, by paying the redemption price thereof, including any
arrearages in dividends thereon to the date fixed for redemption. The Class A
$5.00 Cumulative Preferred Stock is redeemable, in whole or in part, at the
option of the Company, at any time or from time to time, at the price of $105
per share plus accrued and unpaid dividends. This series has no shrinking fund
requirements. Holders of shares of Class A $5.00 Cumulative Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, cumulative preferential cash dividends at the annual rate of $5.00 per
share prior to the payment of any dividends or

13
<PAGE> 64

other distributions on (or purchase or redemption of) the Class B Preferred
Stock or the Common Stock.

In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of shares of Class B
Preferred Stock of each series shall be entitled to receive, subject to the
prior rights of the holders of shares of Class A Preferred Stock, the full
preferential amount fixed by the Company's Articles of Incorporation, or the
resolutions of the Board of Directors providing for the issue thereof, including
any arrearages in dividends thereon to the date fixed for the payment in
liquidation, before any distribution shall be made to the holders of shares of
any stock junior to the Class B Preferred Stock. Dividends may not be declared
or paid or set apart for payment on any series of Class B Preferred Stock,
unless there shall be no arrearages in dividends on any series of Class A
Preferred Stock entitled to cumulative dividends for any past dividend period
and dividends in full for the current dividend period have been paid or declared
or set aside for payment on all Class A Preferred Stock.

In addition, the holders of the Class A Preferred Stock then
outstanding have the right to vote separately as a class with respect to (i)
certain amendments to the Company's Articles of Incorporation or the By-laws of
the Company which adversely affect the voting powers, rights or preferences of
the holders of shares of Class A Preferred Stock, (ii) the creation of any class
of stock or any security convertible into or exchangeable for or evidencing the
right to purchase any stock ranking prior to or on a parity with, either as to
dividends or upon liquidation, the Class A Preferred Stock, or (iii) certain
mergers or consolidations of the Company with or into any other corporation. For
such actions to be taken by the Company, including increasing the authorized
amount of any class of stock ranking prior to the Class A Preferred Stock, the
affirmative vote of the holders of at least 50% of the shares of the Class A
Preferred Stock then outstanding would be required. The affirmative vote of at
least 50% of the shares of any series of Class A Preferred Stock then
outstanding is required for the Company to amend the Company's Articles of
Incorporation or resolutions of the Board of Directors of the Company providing
for the issue of such series of Class A Preferred Stock so as to affect
adversely the powers, preferences or rights of holders of Class A Preferred
Stock of such series. The holders of Class B Preferred Stock then outstanding
also have the right to a separate vote regarding (a) the events described in the
first sentence of this paragraph with regard to such Class B Preferred Stock,
requiring the affirmative vote of at least 50% of the shares of Class B
Preferred Stock then outstanding, and (b) amendments to the Company's Articles
of Incorporation, or to resolutions of the Company's Board of Directors
providing for the issue of any series of Class B Preferred Stock so as to affect
adversely the powers, preferences or rights of the holders of such series,
requiring the affirmative vote of at least 50% of the shares of such series then
outstanding.

If dividends are in arrears on the shares of any series of Class A
Preferred Stock to which the following provisions are made applicable pursuant
to the Company's Articles of Incorporation or resolutions of the Company's Board
of Directors providing for the issue of any such series (i) in an aggregate
amount equal to three but less than six full quarterly dividends, then the
holders of the shares of all such series of Class A Preferred Stock have the
exclusive right, voting separately as a class and without regard to series, to
elect directors constituting one third of the Company's Board of Directors or
(ii) in an aggregate amount equal to six full quarterly dividends, then such
holders have the exclusive right, voting separately as a class and without
regard to series, to elect directors constituting one-half

14
<PAGE> 65

of the Company's Board of Directors plus one additional director, in each case
until all arrearages in dividends and dividends in full for the current
quarterly period have been paid on or declared and set aside for payment on the
shares of such series. These provisions are applicable to the Class A $5.00
Cumulative Preferred Stock. The holders of the outstanding Class B Preferred
Stock have the right to elect directors of the Company similar to the Class A
$5.00 Cumulative Preferred Stock in the event of non-declaration of dividends,
for the periods described above, on the Class B Preferred Stock if the holders
of the Class A $5.00 Cumulative Preferred Stock are not then entitled to elect
directors as described above.

All outstanding shares of Common and Preferred Stock are, and
shares of Common Stock sold pursuant to the Plan will be, fully paid and
nonassessable. Holders of Common Stock or Class A $5.00 Cumulative Preferred
Stock are entitled to one vote for each share on all matters voted on by
stockholders. Holders of Common Stock or Class A Preferred Stock and Class B
Preferred Stock have no preemptive rights to subscribe for or purchase any
additional securities issued by the Company. Subject to the preferential rights
of the holders of the Class A Preferred Stock and Class B Preferred Stock, the
holders of Common Stock are entitled to receive any dividends which may be
declared by the Board of Directors out of funds legally available therefor and
to share pro rata in the net assets of the Company upon liquidation, dissolution
or winding up. Shares of Common Stock have no cumulative voting rights or
redemption, sinking fund or conversion privileges.

Anti-takeover Matters

Articles of Incorporation and By-laws. Certain provisions of the
Company's Articles of Incorporation and the By-laws of the Company could have
the effect of preventing a change in control of the Company in certain
situations. These provisions generally provide for (a) the classification of the
Board of Directors of the Company into three classes of as nearly an equal
number as possible, having staggered terms of three years each; (b) the removal
of directors only for cause or by unanimous vote of the remaining members of the
Board of Directors; (c) the filing of any vacancy on the Board of Directors by
the remaining directors then in office; (d) the limitation of the number of
directors to a minimum of nine and a maximum of 15, with the exact number to be
determined by the Board of Directors; (e) increasing the stockholder vote
required to amend, repeal or adopt any provision in a manner inconsistent with
the foregoing provisions under (a), (b) and (d) above to two-thirds of the
outstanding voting securities of the Company; (f) the requirement that certain
business combinations or transactions involving the Company and any beneficial
owner of more than 5% of the outstanding voting securities of the Company be
approved by holders of at least two-thirds of the outstanding voting securities
of the Company, including those held by such beneficial owner, unless the
business combination or transaction is (I) approved by the Board of Directors
before such beneficial owner became a holder of more than 5% of the Company's
outstanding voting securities or (II) approved by sufficient members of the
Board of Directors to constitute a majority of the members of the full Board of
Directors in office prior to the time such beneficial owner became a holder of
more than 5% of the Company's voting securities, or (III) with an entity of
which a majority of the outstanding shares of voting securities is owned by the
Company and its subsidiaries; (g) increasing the stockholder vote required to
amend, repeal or adopt any provision in a manner inconsistent with the foregoing
provision under (f) above to two-thirds or more of then outstanding shares of
voting securities of the Company; (h) the requirement that certain business
combinations or transactions involving the Company and any beneficial owner of

15
<PAGE> 66

10% or more of the outstanding voting securities of the Company be approved by
holders of at least 80% of the outstanding voting securities of the Company,
including those held by such beneficial owner, unless (I) the business
combination or transaction is approved by three-fourths of the Board of
Directors then in office who are not associated with or related to anyone who
beneficially owns, and do not themselves own, 10 percent or more of the
Company's voting securities or (II) certain conditions relating generally to the
fairness of the price to be received by stockholders of the Company in such
business combination or transaction are satisfied; (i) increasing the
stockholder vote required to amend, repeal or adopt any provision in a manner
inconsistent with the foregoing provision under (h) above to 80% or more of the
outstanding voting securities of the Company unless approved by an affirmative
vote of three-fourths of the Board of Directors then in office who are not
associated with or related to anyone who beneficially owns, and do not
themselves own, 10% or more of the Company's voting securities; (j) certain
procedural requirements for stockholder nominations to the Board of Directors;
and (k) the requirement that special meetings of stockholders may only be called
by stockholders owning 51% or more of the outstanding voting securities of the
Company, by a majority of the Board of Directors, the Chairman of the Board of
Directors or the President of the Company.

Shareholder Rights Plan. On August 17, 1995, the Board of Directors of
the Company declared a dividend of one preferred share purchase right (a
"Right") with respect to each outstanding share of Common Stock held of record
on September 15, 1995 or issued thereafter and prior to the date the Rights
become exercisable. Until the Rights become exercisable, they will be evidenced
by certificates for shares of Common Stock and will automatically trade with the
Common Stock. If and when the Rights become exercisable, Rights certificates
will be distributed and the Rights will become separately tradable. The full
terms of the Rights are set forth in the Rights Agreement dated as of August 21,
1995, between the Company and The Bank of New York, as Rights Agent, a copy of
which is filed as an exhibit to the Registration Statement.

Each Right entitles the holder thereof to purchase from the Company one
one-thousandth of a share of Class B Junior Participating Series Preferred
Stock, without par value (the "Preferred Shares"), for a price of $80 per one
one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The Rights become exercisable upon the earlier of (i) ten business
days following a public announcement that a person or group of affiliated or
associated persons has acquired beneficial ownership of 20% or more of the
outstanding voting shares of the Company or (ii) ten business days following the
commencement or announcement of an intention to commence a tender or exchange
offer the consummation of which would result in the beneficial ownership by a
person or group of 20% or more of the outstanding voting shares of the Company.
The Rights will expire on the later of September 15, 2005 or the third
anniversary of the date on which the Rights became exercisable (the "Final
Expiration Date"), unless the Final Expiration Date is extended or the Rights
are earlier redeemed or exchanged by the Company as described below.

If a person or group were to acquire 20% or more of the voting shares
of the Company, each Right then outstanding (other than Rights beneficially
owned by the acquiring person, which would become null and void) would become a
right to buy that number of shares of Common Stock (or, under certain
circumstances, the equivalent number of one one-thousandths of a Preferred
Share) that at the time of such acquisition would have a market value of two
times the Purchase Price of the Right. If the Company were acquired in a merger
or other business combination transaction or more than 50% of its

16
<PAGE> 67

consolidated assets or earning power were sold, proper provision will be made so
that each holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the Purchase Price of the
Right.

At any time after the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding voting shares of the Company and
before the acquisition by a person or group of 50% or more of the outstanding
voting shares of the Company, the Board of Directors may, at its option, issue
shares of Common Stock (or Preferred Shares) in mandatory redemption of, and in
exchange for, all or part of the then outstanding and exercisable Rights (other
than Rights owned by such person or group, which would become null and void) at
an exchange ratio of one share of Common Stock (or one one-thousandth of a
Preferred Share) for each Right, subject to adjustment. In addition, the Company
is entitled to redeem all of the outstanding Rights at a price of $0.01 per
Right at any time prior to the first pubic announcement that a person or group
has become a beneficial owner of 20% or more of the outstanding voting shares of
the Company.

Until a Right is exercised, the holder thereof, as such, has no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.

Kansas Business Combination Act. The Company is subject to Sections
17-12,100 et seq. of the Kansas Statutes Annotated (the "K.S.A."), which imposes
a three-year moratorium on business combinations between a Kansas corporation
and an "interested stockholder" (in general, a stockholder owning 15% or more of
a corporation's outstanding voting stock) or an affiliate or associate thereof
unless (a) prior to an interested stockholder becoming such, the board of
directors of the corporation has approved either the business combination or the
transaction by which the interested stockholder became such; (b) upon
consummation of the transaction resulting in an interested stockholder becoming
such, the interested stockholder owns 85% of the voting stock that was
outstanding at the time the transaction commenced (excluding, from the
calculation of outstanding shares, shares beneficially owned by management,
directors and certain employees stock plans); or (c) on or after the date an
interested stockholder becomes such, the business combination is approved by (i)
the Board of Directors and (ii) the affirmative vote of the holders of at least
66 2/3% of the outstanding shares (other than those shares beneficially owned by
the interested stockholder) at a meeting of stockholders.

Kansas Control Share Acquisition Act. The Company is also subject to
Sections 17-1286 et seq. of the K.S.A. (the "Kansas Control Share Acquisitions
Act"), which applies to public corporations incorporated in Kansas that have
certain other connections with the state. The Kansas Control Share Acquisitions
Act relates principally to the acquisition of "control shares" in such a
corporation. Under the Kansas Control Share Acquisitions Act, a control share
acquisition is one that, except for the operation of the Act, would raise the
acquiring person's voting power in the election of directors of the subject
corporation to or above any of the following thresholds: one-fifth or more but
less than one-third of all voting power; one-third of all voting power;
one-third or more but less than a majority of all voting power; and at least a
majority of all voting power. Whenever a control share acquisition occurs, the
acquiring person has no voting rights with respect to those shares unless both a
majority of all outstanding shares and a majority of all such shares excluding
all "interested shares" (in general, shares

17
<PAGE> 68

beneficially controlled by the acquiring person or any officer or inside
director of the subject corporation) approve the acquisition. If the control
shares are accorded voting rights, then dissenters' rights are available under
the Kansas Control Share Acquisitions Act to stockholders who did not vote in
favor of the control share acquisition and who comply with certain prescribed
procedures. If the stockholders vote not to accord voting rights to the control
shares, however, then the issuing corporation has a 60-day option to redeem all
such shares at market value.

Other Matters. The Bank of New York serves as registrar and transfer
agent for the Common Stock and for the Class A $5.00 Cumulative Preferred Stock.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated herein by reference and made a part hereof:

(a) The Company's annual report on Form 10-K for the year
ended December 31, 1996 as amended by Amendment No. 1
thereto;

(b) Current Reports on Form 8-K filed January 23, January 28,
and October 27, 1997;

All documents subsequently filed by the Company and the Plan pursuant
to Sections 13, 14 and 15(d) of the Exchange Act prior to the filing of a
post-effective amendment to the Registration Statement of which this Prospectus
is a part which indicates that all of the Common Stock offered hereby has been
sold or which deregisters all of such Common Stock then remaining unsold shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded, shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby and subject
to purchase under the Plan has been passed upon for the Company by the Law
Offices of Polsinelli, White, Vardeman & Shalton, Kansas City, Missouri.

EXPERTS

The consolidated financial statements and schedules, included or
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, which is incorporated by reference herein, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in its report with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.

18
<PAGE> 69
[FORM OF PROXY CARD]

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 16, 1998

The undersigned appoints Larry D. Hall and Martha B. Wyrsch, both of
them, with full power of substitution in both, 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 16, 1998, 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, 3 and 4.

(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

<PAGE> 70

[FORM OF PROXY CARD]

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

Nominees: Charles W. Battey, Larry D. Hall, Richard D. Kinder, John F. Riordan,
H.A. True, III

(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 amendment to the Restated Articles of Incorporation of the
Company to increase the authorized Common Stock, par value $5.00 per
share, from 50,000,000 shares to 150,000,000 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 1994 K N Energy, Inc. Long-Term
Incentive Plan by 1,600,000 shares.

FOR |_| AGAINST |_| ABSTAIN |_|

4. To approve an increase in the number of shares of K N Energy, Inc. Common
Stock authorized for issuance under the 1990 Employee Stock Purchase Plan
by 1,000,000 shares.

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: , 1998
-----------------------------------------

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

-----------------------------------------
Please sign here.

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

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