K N ENERGY INC, 424B2, 1998-03-06

K N ENERGY INC
424B2, 1998-03-06
NATURAL GAS TRANSMISISON & DISTRIBUTION

Previous: MAYS J W INC, 10-Q, 1998-03-06

Next: K N ENERGY INC, 8-K, 1998-03-06

<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-44421

PROSPECTUS SUPPLEMENT

(To Prospectus dated January 30, 1998)

11,000,000 Shares

K N Energy, Inc.
LOGO
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 11,000,000 SHARES OF COMMON STOCK BEING OFFERED, 9,500,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 1,500,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." THE COMPANY'S
COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "KNE." ON
MARCH 4, 1998 THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE WAS $52 PER SHARE.
------------------------

On January 30, 1998, the Company acquired all of the outstanding capital
stock of MidCon Corp. from Occidental Petroleum Corporation for $2.1 billion in
cash and a short-term note in the aggregate principal amount of $1.39 billion.
The Company will use the net proceeds from the sale of the Common Stock offered
hereby to repay a portion of the indebtedness incurred in connection with such
acquisition. Concurrently with this offering, the Company is offering $2.35
billion aggregate principal amount of senior notes of varying maturities. The
closings of this offering and the debt offerings are not conditioned upon each
other.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------

PRICE $52 A SHARE
------------------------

<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------------- ------------------------- -------------------------
Per Share............................. $52.00 $2.03 $49.97
Total (3)............................. $572,000,000 $22,330,000 $549,670,000
</TABLE>

- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting offering expenses payable by the Company estimated at
$750,000.

(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,650,000 additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to company will be $657,800,000, $25,679,500
and $632,120,500, respectively. See "Underwriters."
------------------------

The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the shares of Common Stock will be made on or about March 10, 1998
at the office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
PETRIE PARKMAN & CO.
SALOMON SMITH BARNEY
March 4, 1998
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THE EQUITY OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE EQUITY OFFERING, AND MAY BID FOR, AND PURCHASE THE SHARES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITERS."
<PAGE> 3

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, AGENT OR DEALER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT WITH THE
ACCOMPANYING PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-4
Risk Factors................................................ S-11
Use of Proceeds............................................. S-15
The Acquisition and the Financing Plan...................... S-16
Common Stock Price Range and Dividends...................... S-19
Capitalization.............................................. S-20
Unaudited Pro Forma Consolidated Financial Statements....... S-22
Selected Historical Financial Information for K N Energy.... S-28
Selected Historical Financial Information for MidCon........ S-30
The Combined Company........................................ S-32
K N Energy, Inc............................................. S-36
MidCon Corp................................................. S-40
Regulation.................................................. S-44
Certain United States Tax Consequences to Non-U.S.
Holders................................................... S-49
Underwriters................................................ S-51
Experts..................................................... S-54
Legal Matters............................................... S-54

PROSPECTUS
Available Information....................................... 3
Incorporation of Certain Documents by Reference............. 4
K N Energy, Inc. ........................................... 4
The Trust................................................... 4
Use of Proceeds............................................. 6
Ratios of Earnings to Fixed Charges......................... 6
Description of the Preferred Securities..................... 7
Description of the Trust Debentures......................... 7
Description of the Guarantee................................ 13
Relationship Among the Preferred Securities, the Trust
Debentures and the Guarantee.............................. 15
Description of the Debt Securities.......................... 16
Description of Capital Stock................................ 28
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 31
Book-Entry Issuance......................................... 32
Plan of Distribution........................................ 33
Legal Matters............................................... 35
Experts..................................................... 35
</TABLE>

S-3
<PAGE> 4

PROSPECTUS SUPPLEMENT SUMMARY

The following information does not purport to be complete and is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated by
reference herein or therein. As used in this Prospectus Supplement and the
accompanying Prospectus "the Company," "K N" and "K N Energy" refer to K N
Energy, Inc., together with its consolidated subsidiaries (including MidCon),
unless the context otherwise requires. As used in this Prospectus Supplement,
"MidCon" refers to MidCon Corp., together with its consolidated subsidiaries,
unless the context otherwise requires. All volumes of natural gas referred to
herein are stated at a pressure base of 14.73 pounds per square inch absolute
and at 60 degrees Fahrenheit and, in most instances, are rounded to the nearest
major multiple. The term "Mcf" means thousand cubic feet, the term "MMcf" means
million cubic feet, the term "Bcf" means billion cubic feet and the term "Tcf"
means trillion cubic feet. The term "MMBtus" means million British thermal units
("Btus"). "NGLs" refers to natural gas liquids, which consist of ethane,
propane, butane, iso-butane and natural gasoline. The term "Bbls" means barrels.
Unless otherwise indicated, all information in this Prospectus Supplement
assumes no exercise of the U.S. Underwriters' over-allotment option. Prospective
investors should carefully consider the matters discussed under the caption
"Risk Factors."

INTRODUCTION

On January 30, 1998, K N Energy acquired all of the outstanding capital
stock of MidCon from Occidental Petroleum Corporation ("Occidental") (the
"Acquisition") for $2.1 billion in cash and a short-term note in the aggregate
principal amount of $1.39 billion (the "Substitute Note"), which was
collateralized at the closing by letters of credit issued under a $4.5 billion
Bank Facility (as defined herein). As a result of the Acquisition, MidCon became
a wholly-owned subsidiary of K N Energy. The total amount of funds required by K
N to complete the Acquisition, pay related fees and expenses and repay
borrowings under the Company's existing credit facility was approximately $2,543
million and was financed with borrowings made under the Bank Facility. The
Company will use the net proceeds from this offering of shares of Common Stock
(the "Equity Offering") and its proposed concurrent offering of senior notes of
varying maturities in an aggregate principal amount of $2.35 billion (the "Debt
Offerings" and, together with the Equity Offering, the "Offerings") to refinance
borrowings under the Bank Facility incurred in connection with the Acquisition
and to purchase U.S. government securities to replace a portion of the letters
of credit that collateralize the Substitute Note. The Company intends to
purchase additional U.S. government securities to replace the letters of credit
and to further refinance borrowings under the Bank Facility in the first half of
1998 through the sale of preferred capital trust securities and mandatorily
convertible preferred capital trust securities of subsidiary trusts (the
"Additional Offerings," and together with the Offerings and the Company's
borrowings under the Bank Facility in connection with the Acquisition, the
"Financing Plan"). The closings of the Equity Offering and the Debt Offerings
are not conditioned upon each other.

THE COMPANIES

K N ENERGY

K N Energy is an integrated energy services provider whose operations
include the gathering, processing, transportation and storage of natural gas and
the marketing of natural gas and NGLs. As of December 31, 1997, the Company
operated over 12,300 miles of interstate and intrastate pipelines and over 8,800
miles of gathering and processing pipeline that connect major supply areas with
major consuming areas in the Western and Mid-Continent United States. The
Company also owned or operated at such date 19 natural gas processing plants
with total processing capacity of approximately 1.7 Bcf per day, including the
Bushton complex in the Hugoton Basin, one of the largest natural gas extraction
facilities in the United States, and 7 storage facilities with 827 MMcf per day
of withdrawal capacity. As of December 31, 1997, the Company's regulated retail
natural gas business served over 210,000 customers in Colorado, Nebraska and
Wyoming (excluding customers served by the Company's Kansas natural gas
distribution assets). The Company also markets innovative products and services,
such as the Simple Choice(sm) ("Simple Choice") menu of products and call center
services designed for residential consumers, utilities, and small businesses
through its 50% owned EN-able(sm), LLC ("EN-able") affiliate.

S-4
<PAGE> 5

The Company's principal offices are located at 370 Van Gordon Street,
Lakewood, CO 80228, and its telephone number is (303) 989-1740.

MIDCON CORP.

MidCon is engaged in the purchase, gathering, processing, transmission,
storage and sale of natural gas to utilities, municipalities and industrial and
commercial users. MidCon operates over 14,000 miles of natural gas pipelines
which are strategically located in the center of the North American pipeline
grid. These pipeline assets include two major interconnected transmission
pipelines terminating in the Chicago area: one originating in West Texas and the
other in the Gulf Coast areas of Texas and Louisiana, as well as a major
intrastate pipeline located in Texas. In 1997, MidCon delivered an average of
over 6.1 Bcf per day of natural gas. MidCon is one of the largest and lowest
cost transporters of natural gas to the Chicago market and in 1997 delivered an
average of 2.6 Bcf per day of natural gas to the Chicago metropolitan area,
representing 60% of the total natural gas delivered to that market during the
same period. MidCon is also one of the nation's largest storage operators with
approximately 600 Bcf of total natural gas storage capacity near its major
markets, over 200 Bcf of working gas and up to 4.4 Bcf per day of peak
deliverability from its facilities as of December 31, 1997. MidCon also
purchases electricity from electric utilities and other electric power producers
and marketers and resells the electricity to wholesale and end-use customers.

THE COMBINED COMPANY

As a result of the Acquisition, K N Energy is one of the largest integrated
natural gas companies in the United States. On a pro forma basis as of December
31, 1997, the Company owned and/or operated over 26,000 miles of interstate,
intrastate and offshore natural gas transmission pipeline, approximately 10,000
miles of gathering pipeline, approximately 7,200 miles of local distribution
pipeline (excluding K N's Kansas natural gas distribution assets) and 16 storage
facilities with storage capacity of more than 250 Bcf of working gas. On a pro
forma basis, the Company also is one of the largest transporters and marketers
of natural gas in the United States with average sales volumes of approximately
3.7 Bcf of natural gas per day and average transportation volumes of
approximately 5.2 Bcf of natural gas per day. On a pro forma basis as of
December 31, 1997, the Company had $8.6 billion in assets, and pro forma for the
year ended December 31, 1997, the Company had operating revenues of $5.2
billion, operating income of $359.7 million and net income of $97.1 million.

In addition to significantly increasing the Company's size and scope of
operations as well as its geographic presence, management believes the
Acquisition also provides K N with a strong platform for future growth. The
Company now has pipeline assets in 16 states and access to several of the
largest natural gas markets in the United States, including Chicago, Houston,
Kansas City and Denver. In addition, the Company has access to natural gas
supplies in the major natural gas supply basins in the United States, including
those in the Mid-Continent, West Texas, Rocky Mountain and Gulf Coast regions.
As a result of the Acquisition, the Company is also one of the nation's largest
owners and operators of natural gas storage assets in both supply and market
areas. Management believes these assets are strategically located and will allow
the Company to become a major supplier of storage service, particularly in the
Chicago market. Management believes that the Acquisition also significantly
broadens the Company's retail presence in both the residential and small
business market segments.

BUSINESS STRATEGY

The Company's objective is to enhance its assets and operations along all
segments of the natural gas "value stream" by increasing access to supplies of
natural gas for the Company's upstream gathering and processing facilities,
delivering that supply through K N's midstream transmission pipelines and
marketing that supply to a broad range of downstream end users, including
utility, residential, commercial, agricultural and industrial customers. The
Company believes that it has developed several competitive strengths that will
enable it to continue to successfully implement this strategy, including: (i)
extensive natural gas infrastructure from the wellhead to the burner tip, (ii)
access to natural gas supplies in several of the largest domestic natural gas
producing areas, (iii) access to natural gas markets in some of the largest
natural gas consuming

S-5
<PAGE> 6

areas in the Midwest, Texas and the Rocky Mountains, (iv) a management team
which combines an entrepreneurial spirit with significant experience in the
natural gas industry, (v) a strong track record of quickly and successfully
integrating acquisitions and (vi) a commitment to providing superior customer
service. Management believes the Acquisition is consistent with the Company's
strategy. The key elements of the Company's strategy include the following:

Optimize operation of the Company's assets. Over the past several years, K
N has been able to generate significant value through the improved operation of
its assets. With the Acquisition, the Company has identified several
opportunities for the optimization of operations through the integration and
consolidation of MidCon's assets with those of K N. By connecting pipelines to
proximate gathering facilities, relocating processing facilities and
reconfiguring certain operations, the Company believes it can increase
throughputs, lower costs and thereby significantly improve the operating results
of these assets. Specifically, K N plans to integrate and consolidate its
gathering, processing and intrastate pipelines in West Texas with MidCon's
assets in the region. K N also plans to build an interconnect between the
Amarillo Line of MidCon's Natural Gas Pipeline Company of America ("NGPL")
pipeline and K N's Bushton natural gas processing plant. In addition, the
Company believes that the combination of K N's supply area storage with MidCon's
market area storage provides additional opportunities for the Company to
arbitrage regional and seasonal natural gas price differentials.

Aggressively pursue new markets. K N will continue to pursue opportunities
to gain additional market share along the MidCon and K N pipeline systems. K N
is currently executing this strategy by expanding its marketing presence in the
Denver metropolitan area through construction of the Front Runner Pipeline, and
in Kansas City through the construction of an additional lateral pipeline. Both
of these cities represent markets that the Company believes have been
historically underserved by gas pipelines and that are easily reached through
extensions of K N's current pipelines. The Company believes that, given MidCon's
pipeline system and its low-cost position, the Acquisition also provides
significant additional opportunities to continue to access new markets and
significantly increase the Company's market share.

Leverage regulated assets by developing complementary unregulated
businesses. K N seeks to build or acquire unregulated businesses that
complement its core regulated assets. A key component of K N's growth has been
its ability to evolve from a 99% regulated entity in 1990 to a 48% regulated
entity at December 31, 1997 based on operating income. As an example of this
strategy, K N has successfully taken advantage of several unregulated gathering,
processing and marketing opportunities in the Rocky Mountains and Midwest in
conjunction with the development and operation of its regulated Pony Express
Pipeline. Management believes that MidCon's assets, which are largely regulated,
present additional opportunities for K N to continue to pursue this strategy.
For the year ended December 31, 1997, approximately 70% of the Company's pro
forma operating income was derived from regulated assets, compared with
approximately 48% for K N's historical business on a stand-alone basis. The
Company's goal is to increase the operating income derived from unregulated
assets to approximately 50% over time. The Company also believes it can improve
the profitability of certain of MidCon's gathering assets through a spin-down of
such assets from a regulated affiliate to unregulated affiliates. By
transferring these assets to unregulated affiliates, the Company believes it
will be able to achieve increased operational flexibility, lower costs and take
advantage of opportunities to increase system throughput.

Pursue strategic acquisitions, alliances, joint ventures and
partnerships. K N will continue to pursue acquisitions and strategic alliances
that create new business opportunities and enhance its existing operations. The
Company maintains a highly disciplined approach to acquisitions in order to
identify investments that logically expand K N's business into contiguous
markets, help increase economies of scale and provide opportunities to leverage
regulated businesses by developing complementary unregulated businesses. The
Company has established a number of strategic alliances, joint ventures and
partnerships to reach its goals. For example, the Wildhorse Energy Partners, LLC
("Wildhorse") gathering and marketing joint venture with Tom Brown, Inc.
("TBI"), pursuant to which TBI has dedicated all of its uncommitted Rocky
Mountain gas production, has enhanced the Company's access to gas supply. The
Company also formed a partnership to develop the TransColorado pipeline and
provide increased market access for isolated Rocky Mountain gas. In 1997, the
Company and PacifiCorp Holdings, Inc. formed EN-able, a joint venture to exploit
retail

S-6
<PAGE> 7

opportunities presented by deregulation of the retail electric and gas utility
industries. The Company believes that the Acquisition provides not only a
significant platform from which to pursue additional complementary acquisitions,
but also greatly enhances the value of K N as a potential partner.

Maintain and enhance the Company's position as a low-cost provider. The
Company is a low-cost provider of natural gas gathering, processing and
transportation services and is constantly seeking opportunities to reduce costs
further without compromising safety or sacrificing customer service. Recent
operational changes consistent with this strategy include re-routing gas from
high cost plants into the more efficient Bushton system and the exchange of
underperforming assets in Texas for transmission assets needed to transport new
gathering volumes and which enhanced the performance of other K N assets. NGPL
is currently one of the lowest cost transporters of gas in the Mid-Continent
region and as a result, management believes that the Company is now in an even
stronger position to preserve or increase market share than its higher-cost
competitors, particularly in the event that additional gas comes into the
Chicago market from Canada. In addition, the increased access to additional
supply sources from MidCon's pipelines should support K N's low-cost position.
The Company also expects to realize annual operating and administrative savings
beginning in 1998 primarily due to the consolidation of operations and
activities that are duplicative with those of MidCon and improved utilization of
assets.

Expand the Company's retail presence. In order to take advantage of the
rapidly changing competitive landscape in the utility industry, the Company has
developed value-added products and services to offer to its customers beyond the
traditional energy commodity. As part of this strategy, K N developed Simple
Choice which offers consumers, through their local utilities, a bundled package
of energy, communications and entertainment products serviced through one call
and itemized on one bill. The Simple Choice package of services is marketed to
other utilities through the Company's EN-able joint venture with PacifiCorp
Holdings, Inc. By licensing Simple Choice to other gas, electric and water
utilities, EN-able creates partnerships that allow utility partners to play a
broader role in providing a range of products and services to the home, and
allows EN-able to build a larger retail presence in the marketplace more quickly
than it could on its own. EN-able also provides back-office support to its
utility partners, including infrastructure support for customer care and billing
functions and marketing channels. Management believes MidCon's retail marketing
operations, which are conducted through mc(2) Inc. ("mc(2)") and which market
gas and electricity principally to commercial and industrial customers,
complement the operations of EN-able.

S-7
<PAGE> 8

THE EQUITY OFFERING

<TABLE>
<S> <C>
Common Stock offered:
United States offering................... 9,500,000 shares
International offering................... 1,500,000 shares
-------------
Total............................... 11,000,000 shares(1)
Common Stock outstanding after the Equity
Offering.................................... 43,154,512 shares(1)(2)
NYSE Symbol................................... KNE
Use of Proceeds............................... The net proceeds from the Equity Offering will be
used to refinance borrowings under the Bank
Facility incurred in connection with the
Acquisition and to purchase U.S. government
securities to collateralize the Substitute Note and
replace a portion of the letters of credit
currently collateralizing the Substitute Note. See
"The Acquisition and the Financing Plan" and "Use
of Proceeds."
Dividend Policy............................... The Company currently pays a regular quarterly cash
dividend of $.28 per share or $1.12 per year. See
"Common Stock Price Range and Dividends."
Debt Offerings................................ The Company is concurrently offering to the public
$2.35 billion aggregate principal amount of senior
notes, the proceeds of which will be used to
refinance borrowings under the Bank Facility
incurred in connection with the Acquisition and to
purchase U.S. government securities to
collateralize the Substitute Note and replace a
portion of the letters of credit currently
collateralizing the Substitute Note. The closings
of the Equity Offering and the Debt Offerings are
not conditioned upon each other.
</TABLE>

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

(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."

(2) Based on 32,154,512 shares of Common Stock outstanding as of February 4,
1998. Excludes, at February 4, 1998, approximately 928,700 shares of Common
Stock issuable pursuant to immediately exercisable stock options.

RISK FACTORS

Prospective investors should carefully consider all the information set
forth and incorporated by reference herein and in the accompanying Prospectus
and, in particular, should evaluate the specific factors set forth under "Risk
Factors" before purchasing any of the shares of Common Stock offered hereby.

S-8
<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following table presents summary historical statement of operations
data for each of K N Energy and MidCon for the year ended December 31, 1997 and
pro forma summary financial information for K N Energy for the year ended
December 31, 1997 assuming that the Acquisition and the Offerings occurred at
January 1, 1997. The historical information for both K N and MidCon has been
derived from audited financial statements. The unaudited pro forma balance sheet
information at December 31, 1997 is presented as if the Acquisition and the
Offerings had occurred on that date. The unaudited pro forma statement of
operations data are not necessarily indicative of the financial results that
would have occurred had the Acquisition and the Offerings been consummated on
the date indicated, nor are they necessarily indicative of future financial
results. The information set forth below should be read in conjunction with the
historical financial statements of each of K N Energy and MidCon and the notes
thereto incorporated by reference herein and the "Unaudited Pro Forma
Consolidated Financial Statements" included elsewhere in this Prospectus
Supplement.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
HISTORICAL
---------------------------
K N MIDCON PRO FORMA
---------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...................................... $2,145,118 $3,045,081 $5,190,199
Operating costs and expenses............................ 2,002,869 2,832,648 4,830,530
---------- ---------- ----------
Operating income........................................ 142,249 212,433 359,669
Other income and (deductions):
Interest expense...................................... (43,495) (241,838) (256,638)
Minority interests.................................... (8,706) -- (8,706)
Other, net............................................ 23,110 23,469 50,531
---------- ---------- ----------
Income (loss) before income taxes....................... 113,158 (5,936) 144,856
Income taxes............................................ 35,661 (1,426) 47,716
---------- ---------- ----------
Net income (loss)....................................... 77,497 (4,510) 97,140
Preferred stock dividends............................... 350 -- 350
---------- ---------- ----------
Earnings available for common shares.................... $ 77,147 $ (4,510) $ 96,790
========== ========== ==========
Diluted earnings per common share....................... $ 2.45 -- $ 2.28
Number of shares used in computing diluted earnings per
common share.......................................... 31,538 -- 42,538
Dividends per common share.............................. $ 1.09 -- $ 1.09
OTHER FINANCIAL DATA:
EBITDA(1)............................................... $ 212,647 $ 385,501 $ 606,900
Capital expenditures and acquisitions................... 429,683 95,598 --
Depreciation and amortization........................... 55,994 149,599 205,406
</TABLE>

S-9
<PAGE> 10
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
HISTORICAL
------------------------
K N MIDCON PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
(UNAUDITED)

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 22,471 $ 14,122 $ 22,471
Current assets......................... 576,530 977,155 1,598,083
Investments in U.S. government
securities........................... -- -- 360,102(3)
Total assets........................... 2,305,805 6,527,668 8,630,922
Current liabilities.................... 796,811 898,015 2,470,322
ESOP debt.............................. -- 1,372,458 --
Long-term debt......................... 553,816 1,600,000 2,903,816
K N-obligated mandatorily redeemable
preferred capital trust securities of
subsidiary trust holding solely
debentures of K N.................... 100,000 -- 100,000
Minority interests in equity of
subsidiaries......................... 47,303 7,331 54,634
Preferred stock........................ 7,000 -- 7,000
Common stockholders' equity............ 606,132 736,471 1,155,052
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
K N MIDCON COMBINED
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING DATA:
Miles of pipeline
Interstate........................... 6,970 10,527 17,497
Intrastate........................... 5,367 2,617 7,984
Offshore............................. -- 695 695
Gathering and processing............. 8,829 1,211 10,040
Distribution(2)...................... 8,724 -- 8,724
Gas processing plants
Number of plants..................... 19 4 23
Total processing capacity (MMcf per
day)............................... 1,695 750 2,445
Natural gas storage facilities
Number of storage facilities......... 7 9 16
Total withdrawal capacity (MMcf per
day)............................... 827 4,400 5,227
</TABLE>

- ---------------
(1) EBITDA represents net income plus income taxes, interest expense,
depreciation, and amortization expense. EBITDA is not presented as an
indicator of the Company's operating performance, an indicator of cash
available for discretionary spending or as a measure of liquidity. EBITDA
may not be comparable to other similarly titled measures of other companies.

(2) Includes K N's Kansas natural gas distribution assets which will be sold
upon receipt of regulatory approval.

(3) Represents the purchase of U.S. government securities which, combined with
the letters of credit issued under the Bank Facility, will satisfy K N's
obligation to collateralize the Substitute Note.

S-10
<PAGE> 11

RISK FACTORS

Prospective purchasers of the shares of Common Stock should carefully
review the information contained elsewhere in this Prospectus Supplement or in
the accompanying Prospectus or incorporated by reference herein or therein and
should particularly consider the following matters.

ACQUISITION OF MIDCON; INTEGRATION OF BUSINESSES OF K N ENERGY AND MIDCON

The Acquisition has significantly increased the size of K N's operations.
This significant increase in size substantially increases the demands placed
upon the Company's management, including demands resulting from the need to
integrate operations of MidCon with those of K N. The Company believes that a
key benefit to be realized from the Acquisition will be the integration of its
and MidCon's assets. There can be no assurance, however, that K N Energy will
not encounter difficulties in integrating MidCon's operations with its own or
that the expected benefits will be realized from such integration. The
difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations; integrating different
strategies and integrating personnel with disparate business backgrounds and
corporate cultures. There can be no assurance that K N Energy and MidCon will be
able to integrate effectively or in a timely manner. Nor can there be any
assurance that, even if integrated, the Company's product and service offerings
will be successful. Among the factors considered by K N Energy in connection
with the Acquisition were the opportunities for synergies expected to be
achieved from the Acquisition. However, there can be no assurance that K N
Energy will achieve the desired levels of synergies and related revenue growth
and cost savings when anticipated or at all. Failure to achieve the desired
levels of synergies could have a material adverse effect on the business,
results of operations, liquidity and financial condition of K N Energy.

In connection with the Acquisition, the Company became obligated with
respect to MidCon's liabilities including, without limitation, liabilities with
respect to environmental matters, liabilities (including liabilities with
respect to retiree welfare benefits) under MidCon's employee benefits plans and
the obligations of Occidental's insurance subsidiary with respect to insurance
policies previously issued to MidCon. Pursuant to the stock purchase agreement
for the Acquisition (the "Agreement"), Occidental has indemnified the Company
with respect to some of these liabilities, including all liabilities with
respect to MidCon's employee stock ownership plan. However, there can be no
assurance that any of these liabilities will not adversely affect the Company's
results of operations or financial condition. The representations and warranties
contained in the Agreement generally survive the closing of the Acquisition for
one year. There can be no assurance that liabilities will not arise that are not
covered by Occidental's indemnity of K N or that such liabilities may not arise
following such one-year period. See "The Acquisition and the Financing Plan."

EFFECT OF SUBSTANTIAL LEVERAGE

K N Energy incurred substantial additional indebtedness in connection with
the Acquisition. After giving effect to the Acquisition and the Offerings, as of
December 31, 1997, K N Energy would have had total debt of $4,329.4 million and
stockholders' equity (including the 8.56% Series B Capital Trust Securities of K
N Capital Trust I) of $1,262.1 million, resulting in a total debt to total
capital ratio of 77.4% (75.9% net of U.S. government securities held as
collateral). In addition, depending on prevailing financial, economic and market
conditions K N Energy may be unable to consummate the Additional Offerings
necessary to replace the letters of credit and refinance the remainder of the
borrowings under the Bank Facility in accordance with the Financing Plan.
Accordingly, the amount of outstanding indebtedness may be greater than
contemplated under the Financing Plan and stockholders' equity may be lower than
contemplated under the Financing Plan. Failure to refinance substantially all of
the borrowings and extensions of credit under the Bank Facility within 364 days
of the closing of the Acquisition will result in an event of default under the
Bank Facility and could result in acceleration of the indebtedness under the
Bank Facility. See "Capitalization" and "The Acquisition and the Financing
Plan -- The Financing Plan." K N Energy may also incur additional indebtedness
in the future, including in connection with other acquisitions, although its
ability to do so will be restricted by the Bank Facility. See "The Acquisition
and the Financing Plan -- Description of Bank Facility."

S-11
<PAGE> 12

K N Energy's leverage may have important consequences to holders of the
shares of Common Stock, including: (i) limiting K N Energy's ability to obtain
additional financing to fund future working capital requirements, capital
expenditures, debt service requirements, acquisitions or other general corporate
requirements; (ii) requiring a substantial portion of K N Energy's cash flow
from operations to be dedicated to payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations and future
business opportunities; (iii) placing K N Energy at a competitive disadvantage
to companies with which it competes that may be less leveraged; and (iv)
increasing K N Energy's vulnerability to adverse economic and industry
conditions. In addition, since certain of K N Energy's borrowings may be at
variable rates of interest, K N Energy will be vulnerable to increases in
interest rates, which could have a material adverse effect on K N Energy's
results of operations, liquidity and financial condition. K N Energy's ability
to make scheduled payments of the principal of, to pay interest on or to
refinance its indebtedness depends on its future performance, which to a certain
extent is subject to economic, financial, competitive and other factors beyond
its control. There can be no assurance that K N Energy's business will continue
to generate cash flow from operations in the future sufficient to service its
debt and make necessary capital expenditures. If unable to generate such cash
flow, K N Energy may be required to adopt one or more alternatives, such as
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these strategies could be effected on
satisfactory terms or without substantial additional expense to K N Energy.
These and other factors could have a material adverse effect on the results of
operations, liquidity and financial condition of K N Energy.

The Bank Facility imposes financial and other restrictions on K N Energy
and also requires K N Energy to make payments in respect of the
collateralization of the Substitute Note, interest and outstanding principal,
including from the proceeds of certain issuances of capital stock or
indebtedness. See "The Acquisition and the Financing Plan -- Description of Bank
Facility." Covenants contained in the Bank Facility and relating to certain
other indebtedness of K N limit, among other things, the incurrence of funded
indebtedness by K N and its subsidiaries and, in the event of a downgrade in the
ratings of K N's long-term senior unsecured debt, impose minimum EBITDA/interest
and net worth requirements. There can be no assurance that the requirements of
the Bank Facility or such other indebtedness will be met in the future. Failure
to comply with such covenants may result in a default with respect to the
related debt under the Bank Facility or such other indebtedness and could lead
to acceleration of such debt or any instruments evidencing indebtedness that
contain cross-acceleration or cross-default provisions. In such a case, there
can be no assurance that K N Energy would be able to refinance or otherwise
repay such indebtedness.

RISKS RELATING TO ACQUISITION STRATEGY

A substantial portion of the Company's growth over the last several years
has been attributable to acquisitions. A principal component of the Company's
strategy is to continue to acquire assets or businesses that are logical
extensions of its existing assets or businesses in order to increase the
efficiency of its existing assets. See "The Combined Company -- Business
Strategy." The Company's ability to achieve its goals will be dependent upon a
number of factors, including the Company's ability to identify acceptable
acquisition candidates, consummate acquisitions on favorable terms, successfully
integrate acquired businesses, increase its gas throughput into new markets and
obtain financing to support its growth. There can be no assurance that the
Company will be successful in implementing its acquisition strategy or that such
strategy will improve operating results.

COMPETITION

The Company competes with other pipeline companies, marketers and brokers
of varying size, resources and experience as well as with producers who are able
to market gas directly to wholesale and end-use markets. Factors influencing the
competitive environment include (i) regulatory changes that provide greater
access to markets by gas producers and marketers, (ii) the ability of certain
markets to switch to alternative fuels at favorable prices, and (iii) increased
pipeline and gas storage capacity in the United States. In addition, natural gas
competes with fuel oil, coal, propane and electricity as an energy source in the
areas served by the Company's interstate pipeline system and retail natural gas
business. The Company expects that such

S-12
<PAGE> 13

competition will increase as a result of the continued implementation of FERC
Order 636 and state retail unbundling initiatives. In addition, the Company's
gas gathering, processing and marketing operations depend in large part on the
ability of the Company to assess and respond to changing market conditions in
negotiating gas purchase and sale agreements and to obtain satisfactory margins
between the purchase price of its natural gas supply and the sales price for
such residual gas volumes and the NGLs processed.

As FERC Order 636 continues to be implemented, increased competition for
market share has led to the announcement of new pipeline projects for increased
capacity. Given the major supplies of gas in the Rocky Mountains, San Juan Basin
and Western Canada, and the relatively high natural gas prices in the Midwest
and Northeast, the major projects have focused on constructing new pipelines
which transport gas from Western Canada to the Midwest (including Northern
Border, Alliance and Transvoyageur), and new pipelines which redirect gas from
the Midwest to the Northeast and Eastern Canada (including Independence/Market
Link (in which MidCon has an interest), Millenium, Eastern Express,
Spectrum/Excelsior, Tristate and Vector). While proposals for the projects
mentioned above have been announced or filed with regulatory authorities, it is
unlikely that all of them will ultimately be completed. Nevertheless, given its
strategic location at the center of the North American pipeline grid, Chicago is
likely to develop into a major natural gas trading hub for the rapidly growing
demand markets in the Midwest and Northeast. To the extent additional pipeline
capacity into Chicago is constructed, the Company's financial position and
results of operations could be adversely affected. The Company intends to try to
mitigate any negative impact over time with additional market growth and
expansion of capacity to move volumes east of Chicago to the heavily populated
northeastern corridor of the United States.

FLUCTUATING COMMODITY PRICES

The products of K N's natural gas processing operations, including NGLs,
residue gas and related by-products, are commodities. As such, their prices are
often subject to material changes in response to relatively minor changes in
supply and demand, general economic conditions and other market conditions over
which K N has no control. Other market conditions affecting the Company's
natural gas processing business include the availability and prices of
alternative energy and feedstock sources, government regulation, industry-wide
inventory levels, the seasons, the weather and the impact of energy conservation
efforts.

A decrease in the difference between NGL and natural gas prices results in
lower unit margins on natural gas volumes processed, and may result in lower
volumes processed, or lower recoveries of certain NGLs (primarily ethane) at
certain plants. Generally, the prices contained in natural gas processing supply
contracts are tied to a current or index price and, therefore, adjust with
changes in overall market conditions. In addition, K N is contractually able to
mitigate the effect of contracting processing margins by reducing recoveries
until the margin between NGL and natural gas prices improves. A prolonged
contraction of the margin between NGLs and natural gas could materially
adversely affect the financial condition and results of K N's natural gas
processing operations.

REGULATION; PENDING REGULATORY PROCEEDINGS

K N Energy and MidCon are both regulated by the Federal Energy Regulatory
Commission (the "FERC") in accordance with the Natural Gas Act of 1938, as
amended (the "Natural Gas Act") and the Natural Gas Policy Act of 1978, as
amended (the "Natural Gas Policy Act"). The FERC regulates the interstate
transportation of natural gas, including, among other things, rates and charges
allowed natural gas companies, construction, extensions and abandonments of
facilities and service, rates of depreciation and amortization and accounting
systems. As a result of the Acquisition, approximately 70% of the operating
income of K N will be derived from regulated assets. Although the Company has in
the past successfully converted to unregulated status certain existing gathering
and processing assets and intends to take similar action with respect to certain
assets of MidCon, there can be no assurance that the Company will receive the
requisite approvals to "spin down" such assets, or once converted to unregulated
status, that the FERC will not attempt to reassert jurisdiction over such
assets. See "Regulation -- Federal and State Regulation."

S-13
<PAGE> 14

In addition, K N Energy and MidCon are currently parties to various
regulatory and rate proceedings relating to the establishment of rates for
service, terms and conditions of service, authorizations to own and construct
new facilities as well as complaints from customers relating to the
implementation of each company's tariff governing authorized services. There
have also been proceedings from time to time relating to cost recovery issues
arising out of contract expirations, gas supply realignment and other transition
issues. Both companies regularly attempt to reach comprehensive settlements with
the parties in pending cases which would resolve the issues in a given matter.
Both companies to date have been successful in resolving major rate and
certificate cases arising out of significant restructuring of the regulated
industries. It is contemplated that each company will continue to pursue a
business strategy which will pursue settlement of regulatory proceedings where
settlement is prudent. While negotiated settlement of such disputes is
encouraged by the FERC and state regulatory bodies, such settlements remain
subject to the FERC or state regulatory review and approval. Whether the FERC or
state regulators will approve such settlements in the form filed or whether a
particular regulatory proceeding will be otherwise resolved in a manner
satisfactory to the Company cannot be predicted with certainty, and the business
of the Company could be adversely affected thereby. For a description of certain
regulatory proceedings in which K N Energy and MidCon are currently involved,
see "Regulation -- Federal and State Regulation."

The Company's operations and properties, including those of MidCon acquired
in the Acquisition, are also subject to extensive and evolving Federal, state
and local laws and regulations governing the release or discharge of regulated
materials into the environment or otherwise relating to environmental or safety
protection. Numerous governmental departments issue rules and regulations to
implement and enforce such laws which are often difficult and costly to comply
with and which carry substantial penalties for failure to comply. These laws and
regulations can also impose liability for remedial costs on the owner or
operator of properties or the generators of waste materials, regardless of
fault. Moreover, the trends toward stricter standards in environmental
legislation and regulation are expected to continue. The Company expects to
incur certain costs to comply with environmental laws and regulations. See
"Regulation -- Environmental Regulation."

While the Company is not aware of any environmental liabilities or
conditions that would have a material adverse effect on the business, results of
operations or financial condition of the Company, there is an inherent risk of
the incurrence of environmental or safety costs and liabilities in the business
of the Company due to its handling of natural gas and other regulated substances
and there can be no assurances that future events, such as changes in existing
laws, the promulgation of new laws, or the development of new facts or
conditions, will not cause the Company to incur significant costs.

RISKS RELATED TO SALE OF ADDITIONAL COMMON STOCK

Cabot Specialty Chemicals, Inc. ("Cabot") owns approximately 3,000,000
shares of Common Stock. Pursuant to a registration rights agreement with K N,
Cabot has registration rights for such shares and has registered 792,232 of such
shares for resale under an effective shelf registration statement. No prediction
can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of the
Common Stock. Sales of substantial amounts of shares of Common Stock in the
public market or the perception that such sales might occur could adversely
affect the market price of the shares of Common Stock. In the event of any
future issuance of equity securities, the interests of holders of Common Stock,
including the shares of Common Stock offered hereby, could be diluted.

FORWARD-LOOKING STATEMENTS

S-14
<PAGE> 15

the timing and extent of changes in commodity prices for oil, gas, NGLs,
electricity and interest rates, the extent of the Company's success in acquiring
natural gas facilities, the ability of the Company to successfully integrate
MidCon and other acquisition candidates into its operations, the timing and
success of efforts to develop power, pipeline and other projects, political
developments in foreign countries and conditions of the capital markets and
equity markets during the periods covered by the forward-looking statements.

USE OF PROCEEDS

The net proceeds of the Equity Offering are estimated to be approximately
$548.9 million (or $631.4 million if the U.S. Underwriters' over-allotment
option is exercised). K N intends to use such net proceeds to refinance a
portion of the indebtedness incurred under the Bank Facility in connection with
the Acquisition and to purchase U.S. government securities to collateralize the
Substitute Note and replace a portion of the letters of credit issued under the
Bank Facility currently collateralizing the Substitute Note. As of February 1,
1998 the Acquisition borrowings bore interest at 6.16%. All of the borrowings
and extensions of credit under the Bank Facility mature on January 29, 1999
other than borrowings under the $400 Million Facility (as defined herein) which
matures on January 30, 2003. See "The Acquisition and the Financing Plan."

S-15
<PAGE> 16

THE ACQUISITION AND THE FINANCING PLAN

THE ACQUISITION

Pursuant to the Agreement, on January 30, 1998, the Company paid
approximately $2.1 billion in cash and issued the Substitute Note in an
aggregate principal amount of approximately $1.39 billion to Occidental to
acquire the outstanding shares of capital stock of MidCon (the "MidCon Shares")
and a note in a like aggregate principal amount issued to Occidental by MidCon's
employee stock ownership plan (the "ESOP Note"). In connection with the planned
termination of MidCon's employee stock ownership plan following the Acquisition,
the ESOP Note was cancelled. The Substitute Note is required to be paid in full
on January 4, 1999 and bears interest at a rate equal to 5.798%. The Company is
required to collateralize the Substitute Note plus an amount equal to 105 days
of accrued interest with U.S. government securities or one or more letters of
credit, or a combination thereof. Such amounts were initially collateralized
with letters of credit which the Company intends to replace with U.S. government
securities purchased with the proceeds of the Debt Offerings and the Additional
Offerings. See "Use of Proceeds" and "-- The Financing Plan."

The Agreement contains representations and warranties of each of Occidental
and the Company, which survive the closing for one year (except as to certain
tax matters, which survive for two years), and customary covenants. In
connection with its acquisition of the MidCon Shares, the Company became
obligated with respect to MidCon's liabilities, including, without limitation,
liabilities with respect to environmental matters, liabilities under MidCon's
benefit plans for active and retired employees and the obligations of
Occidental's insurance subsidiary with respect to insurance policies previously
issued to MidCon. Each party has agreed to indemnify the other party for certain
losses or liabilities incurred as a result of a breach of representation or
warranty or covenant and, in the case of Occidental, to indemnify the Company
for certain losses or liabilities arising out of MidCon's employee stock
ownership plan.

As a result of various regulatory requirements, prior to the consummation
of the Acquisition, MidCon dividended all of the issued and outstanding capital
stock of MidCon Power Services Corp. ("MidCon Power"), a wholly-owned subsidiary
of MidCon, to Occidental. K N and Occidental have entered into a separate stock
transfer agreement for the acquisition of all the issued and outstanding capital
stock of MidCon Power by K N. The acquisition of the MidCon Power capital stock
by K N was contingent on the FERC approving the transaction, which approval was
received on March 2, 1998. The closing of the MidCon Power acquisition is
expected to occur by mid-March 1998.

THE FINANCING PLAN

The total amount of funds required by K N Energy to complete the
Acquisition, including payment of related transaction costs, was approximately
$2,543 million, which was financed through borrowings under Credit Agreements,
dated as of January 30, 1998 (the "Bank Facility"), among the Company, Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") and a syndicate of other
lenders. The Bank Facility replaced the Company's Amended and Restated Credit
Agreement, dated as of March 7, 1997, among the Company, Morgan Guaranty and a
syndicate of other lenders (the "1997 Credit Agreement"). In addition, the
Company issued the Substitute Note which, pursuant to the Agreement, was
collateralized by letters of credit issued under the Bank Facility. The Company
intends to refinance borrowings under the Bank Facility and purchase U.S.
government securities to replace a portion of the letters of credit issued under
the Bank Facility through the Offerings. The Company intends to purchase
additional U.S. government securities to collateralize the Substitute Note and
replace the letters of credit and further refinance borrowings under the Bank
Facility through the issuance of approximately $400 million of mandatorily
convertible preferred capital trust securities of a subsidiary trust and
approximately $228 million of preferred capital trust securities of another
subsidiary trust during the first half of 1998. The Company is required to
refinance $4.1 billion of borrowings and the extension of credit under several
letters of credit under the Bank Facility within 364 days following the
consummation of the Acquisition.

S-16
<PAGE> 17

At the closing of the Acquisition, the financing was provided as follows:

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Borrowings under the Bank Facility........................ $2,529.0
Cash on hand at MidCon.................................... 14.1
--------
Total sources of funds............................ $2,543.1
========
USES OF FUNDS:
Cash consideration to Occidental.......................... $2,103.9
Repay borrowings under 1997 Credit Agreement.............. 329.2
Estimated transaction costs............................... 60.0
Working capital adjustment (estimate)..................... 50.0
--------
Total uses of funds............................... $2,543.1
========
</TABLE>

The Company intends to refinance indebtedness incurred under the Bank
Facility in connection with the Acquisition and to purchase U.S. government
securities to replace the letters of credit under the Bank Facility
collateralizing the Substitute Note prior to maturity with the proceeds of the
Offerings and the following Additional Offerings and other borrowings. There can
be no assurance that the Company will be able to complete any or all of the
Additional Offerings. See "Risk Factors -- Effect of Substantial Leverage."

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Proceeds from the Equity Offering......................... $ 572.0
Proceeds from the Debt Offerings.......................... 2,350.0
Additional Offerings
Proceeds from preferred capital trust securities....... 228.0
Proceeds from mandatorily convertible preferred capital
trust securities..................................... 400.0
--------
Total sources of funds............................ $3,550.0
========
USES OF FUNDS:
Repayment of borrowings under Bank Facility............... $2,108.1
Purchase of U.S. government securities as collateral for
the Substitute Note.................................... 1,394.8
Estimated fees and expenses............................... 47.1
--------
Total uses of funds............................... $3,550.0
========
</TABLE>

DESCRIPTION OF BANK FACILITY

The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms of the Bank Facility.

The Bank Facility provides for indebtedness in an aggregate principal
amount not to exceed $4.5 billion, which consists of the following credit
facilities: (a) an approximately $1.39 billion letter of credit facility
providing for the issuance of letters of credit for the benefit of Occidental to
support the Substitute Note (the "L/C Facility"); (b) a $2.1 billion revolving
credit facility providing for revolving loans to the Company in an aggregate
principal amount not to exceed $2.1 billion (the "$2.1 Billion Facility"); (c) a
$400 million revolving credit facility providing for revolving loans to the
Company and the issuance of letters of credit for the account of the Company in
an aggregate principal amount at any time not to exceed $400 million (of which
not more than $100 million may be represented by letters of credit) (the "$400
Million Facility"); and (d) a $600 million revolving credit facility providing
for revolving loans to the Company in an aggregate

S-17
<PAGE> 18

principal amount at any time not to exceed $600 million (the "$600 Million
Facility"). The L/C Facility and the $2.1 Billion Facility may be used solely in
connection with the Acquisition. The $400 Million Facility and the $600 Million
Facility may be used for general corporate purposes and replace the 1997 Credit
Agreement.

The L/C Facility, the $2.1 Billion Facility and the $600 Million Facility
have maturities of 364 days. The $400 Million Facility has a maturity of five
years. The $2.1 Billion Facility has been drawn in its entirety and all monies
borrowed thereunder were used to finance a portion of the Acquisition. The
Company intends to refinance indebtedness incurred and extensions of credit
under the Bank Facility in connection with the Acquisition through the Offerings
and the Additional Offerings. See "-- The Financing Plan" and "Capitalization."

At the Company's option, revolving credit commitments may be permanently
reduced, in whole or in part, at any time in minimum amounts of $10 million or
any larger multiples of $1 million. At the Company's option, the interest rates
per annum applicable to the Bank Facility will be either LIBOR, Adjusted CD or
Base Rate and, in the case of both the $400 Million Facility and the $600
Million Facility, Money Market Absolute and Money Market LIBOR (each as defined
in the Bank Facility) plus, in the case of LIBOR and Adjusted CD, an agreed upon
margin based on credit ratings assigned to the long-term senior unsecured debt
of the Company by Moody's Investors Service, Inc. ("Moody's") and Standard and
Poor's Ratings Services ("S&P") and, in the case of Money Market LIBOR, a margin
over or under LIBOR determined for the applicable interest period. As used
herein, the term "Base Rate" means the higher of Morgan Guaranty's prime rate or
the federal funds rate plus 0.50%.

Letter of credit fees are based on the credit ratings described in the
immediately preceding paragraph. The Company is also required to pay a per annum
utilization fee equal to 12.5 basis points on all borrowings if 50% or more of
such facility is outstanding at the time of such borrowing.

The Bank Facility covenants include, without limitation, a limit on total
consolidated subsidiary debt to 10% of the Company's total consolidated debt, a
limitation on total consolidated debt to 87% percent of total capitalization at
the closing of the Acquisition (67% after the consummation of the Offerings and
the Additional Offerings), a limitation on consolidated debt of any material
subsidiary to 65% of the consolidated total capitalization of such material
subsidiary, a restriction on liens on the assets of the Company or its
subsidiaries and a minimum consolidated net worth requirement of at least $570
million plus (i) 50% of incremental consolidated net income and (ii) 80% of any
increase in net worth resulting from the issuance of certain securities. In the
event of a downgrade by either of S&P or Moody's to below BBB- or Baa3,
respectively, financial covenants will include a minimum EBITDA to interest
requirement.

S-18
<PAGE> 19

COMMON STOCK PRICE RANGE AND DIVIDENDS

The Common Stock is traded on the NYSE under the symbol "KNE." The
following table sets forth, for each of the quarterly periods indicated, the
high and low sale prices of the Common Stock as reported on the NYSE and the
cash dividend per share paid on the Common Stock.

<TABLE>
<CAPTION>
COMMON CASH DIVIDEND
STOCK PRICE PER SHARE
------------ -------------
HIGH LOW
---- ---
<S> <C> <C> <C>
Year ended December 31, 1996
First Quarter.................................. $31 3/4 $27 $ .26
Second Quarter................................. 34 3/8 30 5/8 .26
Third Quarter.................................. 36 5/8 31 3/4 .26
Fourth Quarter................................. 41 1/4 35 .27
Year ended December 31, 1997
First Quarter.................................. $41 3/4 $36 1/8 $ .27
Second Quarter................................. 43 1/8 36 7/8 .27
Third Quarter.................................. 47 15/16 39 .27
Fourth Quarter................................. 54 41 .28
Year ended December 31, 1998
First Quarter (through March 4, 1998).......... $55 1/8 $50 $ .28*
</TABLE>

- ---------------
* Payable March 31, 1998 to holders of record on March 16, 1998.

A recently reported sale price per share for the Company's Common Stock on
the NYSE is set forth on the cover page of this Prospectus Supplement. At
February 9, 1998, there were approximately 9,404 holders of record of the
Company's Common Stock.

The Company currently pays a regular quarterly cash dividend of $.28 per
share, or $1.12 per year. The declaration of future dividends is within the
discretion of the Board of Directors of the Company and will depend upon, among
other things, business conditions, earnings and the financial condition of the
Company. Future indentures and loan facilities, if any, obtained by the Company
may prohibit or restrict the ability of the Company to pay dividends and make
distributions to its stockholders.

S-19
<PAGE> 20

CAPITALIZATION

The following table sets forth the unaudited consolidated capitalization of
K N at December 31, 1997 (i) on a historical basis, (ii) as adjusted for (a) the
Offerings and application of the proceeds therefrom and (b) the acquisition of
MidCon, including the incurrence of borrowings under the Bank Facility in
connection with the Acquisition and (iii) as adjusted for the completion of K
N's plans for refinancing the indebtedness under the Bank Facility through the
Additional Offerings. See "The Acquisition and the Financing Plan". There can be
no assurance that the Company will be able to complete any or all of the
Additional Offerings, or that the proceeds from the Additional Offerings will be
as currently contemplated. The closings of the Equity Offering and the Debt
Offerings are not conditioned upon each other. This table should be read in
conjunction with the consolidated financial statements of K N and MidCon
incorporated by reference herein and the "Unaudited Pro Forma Consolidated
Financial Statements" and the notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE ADJUSTMENTS AS ADJUSTED
OFFERINGS OFFERINGS FOR THE FOR THE
K N AND THE AND THE ADDITIONAL ADDITIONAL
HISTORICAL ACQUISITION ACQUISITION OFFERINGS OFFERINGS
------------- ----------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Securities held as collateral for
Substitute Note.......................... -- $ 360,102(1) $ 360,102 $ 421,024(5) $1,394,846
========== ========== ==========
613,720(6)
Short-term debt:
Current maturities of long-term debt..... $ 30,751 $ 30,751 $ 30,751
Borrowings under 1997 Credit Agreement... 329,200 $ (329,200)(2) -- --
Borrowings under Bank Facility........... -- 2,199,852(2) 421,024(5) 421,024
329,200(2)
(1,980,132)(1)
(548,920)(3)
Substitute Note due January 1, 1999...... -- 1,394,846(4) 1,394,846 1,394,846
---------- ---------- ----------
Total short-term debt.............. $ 359,951 $1,425,597 $1,846,621
========== ========== ==========
Long-term debt............................. $ 553,816 2,350,000(1) $2,903,816 $2,903,816

K N-obligated mandatorily redeemable
preferred capital trust securities of
subsidiary trusts holding solely
debentures of K N(7)..................... 100,000 100,000 228,000(6) 328,000

K N-obligated mandatorily convertible
preferred capital trust securities of
subsidiary trust holding solely
debentures of K N(7)..................... -- -- 388,000(6) 388,000

Stockholders' equity:
Preferred stock (200,000 Class A shares
authorized, 70,000 outstanding and
2,000,000 Class B shares authorized,
none outstanding)...................... 7,000 7,000 7,000
Common stock (50,000,000 shares
authorized, 32,024,557
outstanding)(8)........................ 160,123 55,000(3) 215,123 215,123
Additional paid-in capital............... 270,678 493,920(3) 764,598 764,598
Retained earnings........................ 185,658 185,658 185,658
Deferred compensation.................... (9,203) (9,203) (9,203)
Treasury stock........................... (1,124) (1,124) (1,124)
---------- ---------- ----------
Total stockholders' equity............. 613,132 1,162,052 1,162,052
---------- ---------- ----------
Total capitalization............... $1,266,948 $4,165,868 $4,781,868
========== ========== ==========
</TABLE>

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

(1) Gives effect to the issuance of $2.35 billion principal amount of long-term
debt securities and application of the net proceeds of $2.34 billion to (i)
the reduction of borrowings under the Bank Facility and (ii) the purchase of
U.S. government securities to collateralize in part the Substitute Note.

(2) Gives effect to acquisition debt totalling approximately $2.5 billion,
including $329.2 million which was used to repay amounts borrowed under the
1997 Credit Agreement.

S-20
<PAGE> 21

(3) Gives effect to the issuance of 11,000,000 shares of Common Stock (assuming
no exercise of the underwriters' over-allotment option) at a public offering
price of $52 per share and the application of the net proceeds of $549
million to the reduction of acquisition debt.

(4) Pursuant to the Agreement, the Company issued the Substitute Note to
Occidental for the total principal amount due on the ESOP Note of $1,386
million plus accrued interest to the date of closing, which totalled
approximately $8.8 million. The Substitute Note matures on January 1, 1999
and has been initially collateralized by letters of credit issued under the
L/C Facility. It is currently the Company's intention to collateralize the
Substitute Note with U.S. government securities. See Notes (5) and (6).

(5) Gives effect to incremental borrowings under the Bank Facility and
application of the proceeds to purchase U.S. government securities to
collateralize in part the Substitute Note.

(6) Gives effect to the issuance of $228 million of mandatorily redeemable
preferred capital trust securities and $400 million of mandatorily
convertible preferred capital trust securities and application of the net
proceeds of $226 million and $388 million, respectively, to purchase $614
million of U.S. government securities to serve as a portion of the required
collateral for the Substitute Note.

(7) The sole assets of the trusts are or will be debentures of K N. Upon
prepayment of such debentures, the related capital securities will be
mandatorily redeemable.

(8) In February 1998, K N Energy's board of directors approved an increase in
the number of authorized shares of Common Stock to 150,000,000. Such
increase is subject to shareholder approval.

S-21
<PAGE> 22

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma financial statements give effect to the
Acquisition and to the Offerings. The unaudited pro forma condensed balance
sheet as of December 31, 1997 is presented as if the Acquisition and the
Offerings had occurred on that date. The unaudited pro forma condensed statement
of income for the year ended December 31, 1997 assumes that the Acquisition and
the Offerings occurred at January 1, 1997. The Acquisition was recorded as a
purchase for accounting purposes and, accordingly, the assets acquired and
liabilities assumed have been reflected at their estimated respective fair
market values.

The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of K N and MidCon and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of K N
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus. The unaudited pro forma condensed
statement of income is not necessarily indicative of the financial results that
would have occurred had the Acquisition been consummated on the dates indicated,
nor is it necessarily indicative of future financial results.

The pro forma adjustments are based on preliminary assumptions and
estimates made by K N's management and do not reflect adjustments for
anticipated operating efficiencies and cost savings which K N expects to achieve
as a result of the Acquisition. The actual allocation of the consideration paid
by K N for MidCon may differ from that reflected in the unaudited pro forma
combined condensed financial statements after a more extensive review of the
fair market values of the assets acquired and liabilities assumed has been
completed. Amounts allocated will be based upon the estimated fair values at the
closing date of the Acquisition, which amounts could vary significantly from the
amounts at December 31, 1997.

S-22
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS
HISTORICAL PRO FORMA
------------------------- ----------------------------
K N ENERGY MIDCON ADJUSTMENTS COMBINED
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents............................... $ 22,471 $ 14,122 $ (14,122)(a) $ 22,471
U.S. Government Securities.............................. -- -- 360,102(b) 360,102
Restricted Deposits..................................... 11,339 19,074 30,413
Accounts Receivable..................................... 409,937 479,086 889,023
Materials and Supplies.................................. 13,476 16,938 30,414
Gas in Underground Storage.............................. 33,558 33,730 67,288
Prepaid Gas............................................. 5,507 -- 5,507
Other Prepaid Expenses.................................. 16,687 7,774 24,461
Net Properties to Be Dividended, Net of Tax............. -- 301,582 (301,582)(c) --
Gas Imbalances and Other................................ 63,555 104,849 168,404
---------- ----------- ------------ -----------
576,530 977,155 44,398 1,598,083
Investments............................................... 149,869 49,829 199,698
Property, Plant and Equipment, at Cost.................... 1,971,601 7,058,124 (206,370)(d) 8,823,355
Accumulated Depreciation and Amortization................. (550,626) (1,622,325) (2,172,951)
---------- ----------- ------------ -----------
Net Property, Plant and Equipment......................... 1,420,975 5,435,799 (206,370) 6,650,404
Long-Term Receivable -- Occidental Petroleum.............. -- 50,345 (50,345)(e) --
Deferred Charges and Other Assets......................... 158,431 14,540 9,766(b) 182,737
---------- ----------- ------------ -----------
Total Assets...................................... $2,305,805 $ 6,527,668 $ (202,551) $ 8,630,922
========== =========== ============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt.................... $ 30,751 -- -- $ 30,751
Notes Payable........................................... 329,200 -- $ 2,199,852(a) --
(1,980,132)(b)
(548,920)(f)
(329,200)(g)
329,200(g)
Substitute Note......................................... -- -- 1,394,846(h) 1,394,846
Accounts Payable........................................ 334,418 $ 316,756 651,174
Accrued Expenses........................................ 37,264 -- 25,000(d) 62,264
Accrued Taxes........................................... 7,445 -- 7,445
Dividend Payable........................................ -- 301,582 (301,582)(c) --
Current portion of ESOP Debt............................ -- 13,568 (13,568)(i) --
Gas Imbalances and Other................................ 57,733 266,109 -- 323,842
---------- ----------- ------------ -----------
796,811 898,015 775,496 2,470,322
Deferred Liabilities, Credits and Reserves:
Deferred Income Taxes................................... 168,583 1,684,548 (74,293)(d) 1,728,493
(50,345)(e)
Other................................................... 26,160 228,845 (43,400)(j) 211,605
---------- ----------- ------------ -----------
194,743 1,913,393 (168,038) 1,940,098
ESOP Debt................................................. -- 1,372,458 (1,372,458)(i)
Long-Term Debt............................................ 553,816 1,600,000 (1,600,000)(k) 2,903,816
2,350,000(b)
K N-Obligated Mandatorily Redeemable Preferred Capital
Trust Securities of Subsidiary Trust holding solely
debentures of K N....................................... 100,000 -- 100,000
Minority Interests in Equity of Subsidiaries.............. 47,303 7,331 54,634
Stockholders' Equity:
Preferred Stock......................................... 7,000 -- 7,000
Common Stock............................................ 160,123 14 (14)(l) 215,123
55,000(f)
Additional Paid-in Capital.............................. 270,678 2,001,938 (2,001,938)(l) 764,598
493,920(f)
Retained Earnings....................................... 185,658 81,906 (81,906)(l) 185,658
Unearned ESOP Shares.................................... -- (1,347,387) 1,347,387(l) --
Deferred Compensation................................... (9,203) -- (9,203)
Treasury Stock.......................................... (1,124) -- (1,124)
---------- ----------- ------------ -----------
Total Common Stockholders' Equity................. 606,132 736,471 (187,551) 1,155,052
---------- ----------- ------------ -----------
Total Stockholders' Equity........................ 613,132 736,471 (187,551) 1,162,052
---------- ----------- ------------ -----------
Total Liabilities and Stockholders' Equity........ $2,305,805 $ 6,527,668 $ (202,551) $ 8,630,922
========== =========== ============ ===========
</TABLE>

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

S-23
<PAGE> 24

UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------
K N ENERGY MIDCON ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Revenues...................... $2,145,118 $3,045,081 $5,190,199
---------- ---------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of
Sales.............................. 1,724,671 2,540,928 4,265,599
Operations and Maintenance............ 198,274 111,824 $ (4,800)(i) 305,298
Depreciation and Amortization......... 55,994 149,599 (187)(m) 205,406
Taxes, Other Than Income Taxes........ 23,930 30,297 54,227
---------- ---------- --------- ----------
Total Operating Costs and
Expenses.................... 2,002,869 2,832,648 (4,987) 4,830,530
---------- ---------- --------- ----------
Operating Income........................ 142,249 212,433 4,987 359,669
---------- ---------- --------- ----------
Other Income and (Deductions):
Interest Expense...................... (43,495) (241,838) 15,158 (n) (256,638)
13,537 (o)
Minority Interests.................... (8,706) -- (8,706)
Other, Net............................ 23,110 23,469 (13,507)(o) 50,531
(726)(b)
18,185 (b)
---------- ---------- --------- ----------
Total Other Income and (Deductions)..... (29,091) (218,369) 32,647 (214,813)
---------- ---------- --------- ----------
Income Before Income Taxes.............. 113,158 (5,936) 37,634 144,856
Income Taxes............................ 35,661 (1,426) 13,481 (p) 47,716
---------- ---------- --------- ----------
Net Income.............................. 77,497 (4,510) 24,153 97,140
Less -- Preferred Stock Dividends....... 350 -- 350
---------- ---------- --------- ----------
Earnings Available For Common Stock..... $ 77,147 $ (4,510) $ 24,153 $ 96,790
---------- ---------- --------- ----------
Diluted Earnings Per Common Share....... $ 2.45 $ 2.28
Number of Shares Used in Computing
Diluted Earnings Per Common Share..... 31,538 11,000(f) 42,538
Dividends Per Common Share.............. $ 1.09 $ 1.09*
</TABLE>

- ---------------
* Represents K N's historical dividends per common share

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

S-24
<PAGE> 25

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS

(a) Acquisition debt is calculated based on the following assumptions:

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Cash Consideration Paid at Closing........................ $2,103,974
Transaction Costs......................................... 60,000
Working Capital Adjustment (estimated).................... 50,000
Less:
MidCon Cash Balance at December 31, 1997.................. (14,122)
----------
Total Acquisition Debt............................ $2,199,852
==========
</TABLE>

The acquisition debt, which will mature 364 days after draw-down, is
shown as a current liability in the accompanying unaudited Pro Forma
Condensed Balance Sheet, although it is currently K N's intention to
refinance a significant portion of the acquisition debt through the
issuance of debt and equity securities.

(b) To record the Debt Offerings and application of the net proceeds of
$2,340.2 million to (i) reduce short-term borrowings, including both
borrowings under the Bank Facility utilized to effect the Acquisition
and borrowings under the 1997 Credit Agreement and (ii) purchase U.S.
government securities to serve as a portion of the required collateral
for the Substitute Note. The Debt Offerings include notes and
debentures with 6 separate maturities with varying terms and a weighted
average interest rate of approximately 6.74%. The U.S. government
securities held as collateral for the Substitute Note as provided for
in the Agreement, are assumed to earn interest at 5.05%

(c) Gives pro forma effect to the January 1, 1998 dividend by MidCon to a
subsidiary of Occidental Petroleum Corporation of MidCon's 49% interest
in a limited partnership which owns MidCon Texas Pipeline Corp.

(d) The following preliminary allocation of purchase price to assets
acquired and liabilities assumed reflects the assumption that current
assets and current liabilities are carried at historical amounts which
approximate their fair market value. The fair market value of property,
plant and equipment includes a gas plant acquisition adjustment of
approximately $3.8 billion which represents the excess of the estimated
fair market value of MidCon's interstate pipeline assets over their
recorded historical cost for regulatory purposes, which will be
amortized over 35 years (approximately the estimated remaining life of
MidCon's interstate pipeline assets).

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
CALCULATION OF PURCHASE PRICE:
Cash Consideration Paid at Closing........................ $2,103,974
Substitute Note Payable to Occidental..................... 1,394,846
Transaction Costs......................................... 60,000
Working Capital Adjustment (estimated).................... 50,000
----------
Total............................................. $3,608,820
==========
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Cash and Cash Equivalents................................. $ 14,122
Restricted Deposits....................................... 19,074
Accounts Receivable....................................... 479,086
</TABLE>

S-25
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Materials and Supplies.................................... 16,938
Gas in Underground Storage................................ 33,730
Other Prepaid Expenses.................................... 7,774
Gas Imbalances and Other.................................. 104,849
Investments............................................... 49,829
Deferred Charges and Other Assets......................... 14,540
Property, Plant and Equipment, Net(*)..................... 5,229,429
Accounts Payable.......................................... (316,756)
Gas Imbalances and Other.................................. (266,109)
Deferred Income Taxes(**)................................. (1,559,910)
Other Non-Current Liabilities............................. (185,445)
Accrued Expenses.......................................... (25,000)
Minority Interest in Unconsolidated Subsidiaries.......... (7,331)
----------
Total............................................. $3,608,820
==========
</TABLE>

- ---------------
(*) The fair market value assigned by K N, inclusive of the gas plant
acquisition adjustment, is less than MidCon's historical book value
(which included a gas plant acquisition adjustment of approximately
$3.9 billion) by approximately $206.4 million.

(**) The accumulated deferred income taxes associated with the assets
being acquired and the liabilities being assumed (after K N's
allocation of purchase price) are less than MidCon's historical
accumulated deferred income taxes by approximately $74.3 million.

(e) To eliminate the receivable and corresponding deferred taxes associated
with deferred intercompany gains which will be settled at closing.

(f) Gives effect to the issuance of the 11 million shares of Common Stock
at an assumed public offering price of $52 per share and application of
the net proceeds therefrom to the reduction of short-term borrowings.

(g) Reflects the utilization of additional borrowings under the Bank
Facility to repay the borrowings outstanding under the 1997 Credit
Agreement.

(h) In accordance with the terms of the Agreement, K N issued the
Substitute Note to Occidental for the total of the principal due on the
ESOP Note plus interest accrued to date of closing, a total of
$1,394,846,000, bearing interest at approximately 5.80% and maturing on
January 4, 1999. K N collateralized the Substitute Note with letters of
credit under the Bank Facility at the closing of the Acquisition. It is
currently K N's intention to purchase U.S. government securities with
the proceeds of the Offerings, Additional Offerings and other funds as
required to replace the L/C Facility.

(i) Gives pro forma effect to the termination of MidCon's Employee Stock
Ownership Plan instituted in November 1996, including cancellation of
the related debt and removal of the associated administrative expenses.

(j) Represents the elimination of the deferred net gain recorded in
conjunction with MidCon's postretirement benefit plan.

(k) Gives pro forma effect to the elimination of MidCon's long-term payable
to Occidental recorded in conjunction with a November 30, 1996 dividend
declaration of $1.6 billion.

S-26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)

(l) Represents the elimination of the historical equity balances of MidCon.

(m) The pro forma adjustment to depreciation and amortization consists of
the following:

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Elimination of MidCon's historical depreciation and
amortization........................................... $(149,599)
K N's recomputed depreciation and amortization, see Note
(d).................................................... 149,412
---------
Total............................................. $ (187)
=========
</TABLE>

(n) The pro forma adjustment to interest expense consists of the following:

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Elimination of MidCon's historical interest expense on its
ESOP Note.............................................. $(110,500)
Elimination of MidCon's historical interest expense on its
$1.6 billion payable to Occidental..................... (128,200)
Interest Expense on the Debt Offerings at 6.74%, see Note
(b).................................................... 158,390
Interest Expense at 5.80% on the Substitute Note, see
Note(h)................................................ 80,873
Interest savings associated with the repayment of $329.2
million outstanding under the 1997 Credit Agreement.... (22,188)
Fee for letter of credit at 0.625% used to collateralize
the Substitute Note, see Note(h)....................... 6,467
---------
Total............................................. $ (15,158)
=========
</TABLE>

(o) To eliminate facility fees and interest income associated with MidCon's
participation in a sale of receivables facility, which participation
terminated concurrently with closing of the Acquisition.

(p) Represents the tax effect at the effective rate (equal to (i) the
statutory federal income tax rate plus (ii) the statutory state income
tax rate, net of federal income tax benefit) for all pre-tax pro forma
adjustments not representing permanent book/tax differences.

S-27
<PAGE> 28

SELECTED HISTORICAL FINANCIAL INFORMATION FOR K N ENERGY

The following table sets forth selected financial data for K N for each of
the five fiscal years in the period ended December 31, 1997. This data should be
read in conjunction with the historical financial statements and related notes
of K N incorporated by reference herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues
Gathering, processing and marketing services.............. $ 730,895 $ 838,474 $ 854,462 $1,191,292 $1,866,327
Interstate transportation and storage services............ 99,838 21,044 22,217 25,352 23,757
Retail natural gas services............................... 212,905 220,431 227,282 223,838 255,034
Gas and oil production.................................... 5,321 11,328 7,437 -- --
---------- ---------- ---------- ---------- ----------
Total operating revenues............................ 1,048,959 1,091,277 1,111,398 1,440,482 2,145,118
Operating costs and expenses................................ 968,085 1,036,398 996,036 1,305,681 2,002,869
---------- ---------- ---------- ---------- ----------
Operating income............................................ 80,874 54,879 115,362 134,801 142,249
Other income and (deductions):
Interest expense.......................................... (30,513) (31,605) (34,211) (35,933) (43,495)
Minority interests........................................ 292 (659) (905) (2,946) (8,706)
Other, net................................................ (1,185) 2,206 1,326 3,794 23,110
---------- ---------- ---------- ---------- ----------
Income before income taxes.................................. 49,468 24,821 81,572 99,716 113,158
Income taxes................................................ 18,599 9,500 29,050 35,897 35,661
---------- ---------- ---------- ---------- ----------
Net income.................................................. 30,869 15,321 52,522 63,819 77,497
Preferred stock dividends................................... 853 630 492 398 350
---------- ---------- ---------- ---------- ----------
Earnings available for common stock......................... $ 30,016 $ 14,691 $ 52,030 $ 63,421 $ 77,147
========== ========== ========== ========== ==========
Number of shares used in computing diluted earnings per
common share.............................................. 27,424 28,044 28,360 29,624 31,538
Diluted earnings per common share........................... $ 1.09 $ 0.52 $ 1.83 $ 2.14 $ 2,45
Dividends per common share.................................. 0.51 0.76 1.01 1.05 1.09
OTHER FINANCIAL DATA:
Net cash flows from operating activities.................... $ 67,943 $ 91,212 $ 129,580 $ 80,829 $ 97,503
EBITDA(1)................................................... 124,625 106,704 165,674 186,861 212,647
Capital expenditures and acquisitions....................... 148,301 101,742 111,258 267,124 429,683
Depreciation, depletion and amortization.................... 44,644 50,278 49,891 51,212 55,994
Ratio of earnings to fixed charges(2)....................... 2.41x 1.69x 3.07x 3.21x 2.72x
</TABLE>

S-28
<PAGE> 29

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,353 $ 20,613 $ 14,254 $ 10,339 $ 22,471
Current assets.............................................. 312,856 279,314 306,799 454,824 576,530
Total assets................................................ 1,169,275 1,172,384 1,257,457 1,629,720 2,305,805
Current liabilities......................................... 263,331 255,770 329,838 498,616 796,811
Long-term debt.............................................. 335,190 334,644 315,564 423,676 553,816
K N-obligated mandatorily redeemable preferred capital trust
securities of subsidiary trust holding solely debentures
of K N.................................................... -- -- -- -- 100,000
Minority interests in equity of subsidiaries................ 13,775 13,231 14,277 26,333 47,303
Preferred stock............................................. 7,000 7,000 7,000 7,000 7,000
Common stockholders' equity................................. 391,462 393,686 426,760 519,794 606,132
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interstate natural gas transportation volumes (Bcf)......... 131 135 156 157 177
Gathering, processing and marketing services
Gas sales volumes (Bcf)................................... 290 353 408 430 574
Gathered volumes (Bcf).................................... 222 287 306 313 423
Natural gas liquid sales (MM Gal)......................... 241 375 388 470 717
Retail natural gas services
Gas sales volumes (Bcf)................................... 42 41 39 35 39
Transportation volumes (Bcf).............................. 15 19 27 33 35
</TABLE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
-----------------
<S> <C>
Miles of pipeline
Interstate................................................ 6,970
Intrastate................................................ 5,367
Gathering and processing.................................. 8,829
Distribution(3)........................................... 8,724
Gas processing plants
Number of plants.......................................... 19
Total processing capacity (MMcf per day).................. 1,695
Natural gas storage facilities
Number of storage facilities.............................. 7
Total withdrawal capacity (Bcf per day)................... 0.8
</TABLE>

(2) Respecting the computation of the ratio of earnings to fixed charges see
"Ratios of Earnings to Fixed Charges" in the accompanying Prospectus.

(3) Including K N's Kansas natural gas distribution assets the sale of which
will close upon receipt of regulatory approval.

S-29
<PAGE> 30

SELECTED HISTORICAL FINANCIAL INFORMATION FOR MIDCON

The following table sets forth selected financial data for MidCon for each
of the five fiscal years in the period ended December 31, 1997. This data should
be read in conjunction with the historical financial statements and related
notes of MidCon incorporated by reference herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Gas sales, transportation, storage and other operating
revenues............................................... $2,403,185 $2,109,834 $2,038,444 $2,574,211 $3,045,081
Interest and other income................................ 261,598 24,486 11,686 1,187 13,115
Earnings of pipeline ventures............................ 10,760 13,100 18,155 12,716 11,799
---------- ---------- ---------- ---------- ----------
Total revenues..................................... 2,675,543 2,147,420 2,068,285 2,588,114 3,069,995
Costs and other deductions
Cost of sales............................................ 1,787,552 1,561,331 1,473,370 1,981,235 2,540,928
Selling, general, administrative and other operating
expenses............................................... 103,883 109,556 167,235 108,347 111,824
Depreciation............................................. 274,551 191,672 193,112 177,511 149,599
Taxes other than income taxes............................ 45,470 45,585 42,357 46,226 30,297
Interest expense......................................... 2,103 8,101 23,286 79,626 241,838
Other.................................................... 1,414 1,802 1,646 2,000 1,445
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......................... $ 460,570 $ 229,373 $ 167,279 $ 193,169 $ (5,936)
========== ========== ========== ========== ==========
OTHER FINANCIAL DATA:
Net cash provided by operating activities.................. $ 306,205 $ 454,383 $ 167,305 $ 267,073 $ 175,320
EBITDA(1).................................................. 737,224 429,146 383,677 450,306 385,501
Capital expenditures....................................... 64,831 92,656 150,229 146,883 95,598
Depreciation............................................... 274,551 191,672 193,112 177,511 149,599
</TABLE>

S-30
<PAGE> 31

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 4,600 $ 8,098 $ 10,414 $ 4,258 $ 14,122
Current assets......................................... 597,471 730,683 561,748 1,033,007 977,155
Total assets........................................... 7,276,792 7,330,820 7,095,494 6,652,362 6,527,668
Current liabilities.................................... 581,902 533,622 513,620 961,614 898,015
ESOP debt.............................................. -- -- -- 1,386,026 1,372,458
Long-term debt......................................... 83,462 32,802 874,899 1,632,696 1,600,000
Minority interests in equity of subsidiaries........... 12,985 5,870 5,349 8,076 7,331
Common stockholder's equity............................ 4,228,001 4,372,210 3,328,038 692,641 736,471
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
NGPL
Transportation volumes (Bcf).............................. 1,408 1,318 1,318 1,284 1,095
MidCon Texas
Sales volumes (Bcf)....................................... 211 198 238 239 269
Transportation volumes (Bcf).............................. 201 215 215 271 302
MidCon Gas Services
Sales volumes (Bcf)....................................... 211 351 410 460 561
MidCon Gas Products
Natural gas liquids sales volumes (MM Gal)................ 179 124 160 174 136
</TABLE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
------------------
<S> <C>
Miles of pipeline(2)
Interstate................................................ 10,527
Intrastate................................................ 2,617
Offshore.................................................. 695
Gathering and processing.................................. 1,980
Gas processing plants
Number of plants.......................................... 4
Total processing capacity (MMcf per day).................. 750
Natural gas storage facilities
Number of storage facilities.............................. 9
Total withdrawal capacity (Bcf per day)................... 4.4
</TABLE>

- ---------------
(1) EBITDA represents net income plus income taxes, interest expense,
depreciation, and amortization expense. EBITDA is not presented as an
indicator of MidCon's operating performance, an indicator of cash available
for discretionary spending or as a measure of liquidity. EBITDA may not be
comparable to other similarly titled measures of other companies.

(2) Includes pipeline that is either owned or operated.

S-31
<PAGE> 32

THE COMBINED COMPANY

As a result of the Acquisition, K N Energy is one of the largest integrated
natural gas companies in the United States. On a pro forma basis as of December
31, 1997, the Company owned and/or operated over 26,000 miles of interstate,
intrastate and offshore natural gas transmission pipeline, approximately 10,000
miles of gathering pipeline, approximately 7,200 miles of local distribution
pipeline (excluding K N's Kansas natural gas distribution assets) and 16 storage
facilities with storage capacity of more than 250 Bcf of working gas. On a pro
forma basis, the Company is also one of the largest transporters and marketers
of natural gas in the United States with average sales volumes of approximately
3.7 Bcf of natural gas per day and average transportation volumes of
approximately 5.2 Bcf of natural gas per day. On a pro forma basis as of
December 31, 1997, the Company had $8.6 billion in assets, and pro forma for the
year ended December 31, 1997, the Company had operating revenues of $5.2
billion, operating income of $359.7 million and net income of $97.1 million.

In addition to significantly increasing the Company's size and scope of
operations as well as its geographic presence, management believes the
Acquisition also provides K N with a strong platform for future growth. On a pro
forma basis, the Company now has pipeline assets in 16 states and access to
several of the largest natural gas markets in the United States, including
Chicago, Houston, Kansas City and Denver. In addition, the combined company has
access to natural gas supplies in the major natural gas supply basins in the
United States, including those in the Mid-Continent, West Texas, Rocky Mountain
and Gulf Coast regions. As a result of the Acquisition, the Company is also be
one of the nation's largest owners and operators of natural gas storage assets
in both supply and market areas. Management believes these assets are
strategically located and will allow the Company to become a major supplier of
storage service, particularly in the Chicago market. Management believes the
Acquisition also significantly broadens the Company's retail presence in both
the residential and small business market segments.

BUSINESS STRATEGY

The Company's strategy is to enhance its assets and operations along all
segments of the natural gas "value stream" by increasing access to supplies of
natural gas for the Company's upstream gathering and processing facilities,
delivering that supply through K N's midstream transmission pipelines and
marketing that supply to a broad range of downstream end users, including
utility, residential, commercial, agricultural and industrial customers. The
Company believes that it has developed several competitive strengths that will
enable it to continue to successfully implement this strategy, including: (i)
extensive natural gas infrastructure from the wellhead to the burner tip, (ii)
access to natural gas supplies in several of the largest domestic natural gas
producing areas, (iii) access to natural gas markets in some of the largest
natural gas consuming areas in the Midwest, Texas and the Rocky Mountains, (iv)
a management team which combines an entrepreneurial spirit with significant
experience in the natural gas industry, (v) a strong track record of quickly and
successfully integrating acquisitions and (vi) a commitment to provide superior
customer service. Management believes the Acquisition is consistent with the
Company's strategy. The key elements of the Company's strategy include the
following:

Optimize operation of the Company's assets

Over the past several years, K N has been able to generate significant
value through the improved operation of its assets. With the Acquisition, the
Company has identified several opportunities for the optimization of operations
through the integration and consolidation of MidCon's assets with those of K N.
By connecting pipelines to proximate gathering facilities, relocating processing
facilities and reconfiguring certain operations, the Company believes it can
increase throughput, lower costs and thereby significantly improve operating
results of these assets. Specifically, K N plans to integrate and consolidate
its gathering, processing and intrastate pipelines in West Texas with MidCon's
assets in the region. K N also plans to build an interconnect between the
Amarillo Line of MidCon's NGPL pipeline and K N's Bushton natural gas processing
plant. In addition, the Company believes that the combination of K N's supply
area storage with MidCon's market area storage provides additional opportunities
for the Company to arbitrage regional and seasonal natural gas price
differentials.

S-32
<PAGE> 33

Aggressively pursue new markets

K N will continue to pursue opportunities to gain additional market share
along the MidCon and K N pipeline systems. K N is currently executing this
strategy by expanding its marketing presence in the Denver metropolitan area
through construction of the Front Runner Pipeline, and in Kansas City through
the construction of an additional lateral pipeline. Both of these cities
represent markets that the Company believes have been historically underserved
by gas pipelines and that are easily reached through extensions of K N's current
pipelines. The Company believes that, given MidCon's pipeline system and its
low-cost position, the Acquisition also provides significant additional
opportunities to continue to access new markets and significantly increases the
Company's market share.

Leverage regulated assets by developing complementary unregulated businesses

K N seeks to build or acquire unregulated businesses that complement its
core regulated assets. A key component of K N's growth has been its ability to
evolve from a 99% regulated entity in 1990 to a 48% regulated entity at December
31, 1997, based on operating income. As an example of this strategy, K N has
successfully taken advantage of several unregulated gathering, processing and
marketing opportunities in the Rocky Mountains and Midwest in conjunction with
the development and operation of its regulated Pony Express Pipeline. Management
believes that MidCon's assets, which are largely regulated, present additional
opportunities for K N to continue to pursue this strategy. For the year ended
December 31, 1997, approximately 70% of the Company's pro forma operating income
was derived from regulated assets, compared with approximately 48% for K N's
historical business on a stand-alone basis. The Company's goal is to increase
the operating income derived from unregulated assets to approximately 50% over
time. The Company also believes it can improve the profitability of certain of
MidCon's gathering assets through a spin-down of such assets from a regulated
affiliate to unregulated affiliates. By transferring these assets to unregulated
affiliates, the Company believes it will be able to increase operational
flexibility, lower costs, and take advantage of opportunities to increase system
throughput.

Pursue strategic acquisitions, alliances, joint ventures and partnerships

K N will continue to pursue acquisitions and strategic alliances that
create new business opportunities and enhance its existing operations. The
Company maintains a highly disciplined approach to acquisitions in order to
identify investments that logically expand K N's business into contiguous
markets, help increase economies of scale or provide opportunities to leverage
regulated businesses by developing complementary unregulated businesses. The
Company has established a number of strategic alliances, joint ventures and
partnerships to reach its goals. For example, the Wildhorse gathering and
marketing joint venture with TBI, pursuant to which TBI has dedicated all of its
uncommitted Rocky Mountain gas production, has enhanced the Company's access to
gas supply. The Company also formed a partnership to develop the TransColorado
pipeline and provide increased market access for isolated Rocky Mountain gas. In
1997, the Company and PacifiCorp Holdings, Inc. formed EN-able, a joint venture
to exploit retail opportunities presented by deregulation of the retail electric
and gas utility industries. The Company believes that the Acquisition provides
not only a significant platform from which to pursue additional complementary
acquisitions, but also greatly enhances the value of K N as a potential partner.

Maintain and enhance the Company's position as a low-cost provider

The Company is a low-cost provider of natural gas gathering, processing and
transportation services and is constantly seeking opportunities to further
reduce costs without compromising safety or sacrificing customer service. Recent
operational changes consistent with this strategy include re-routing gas from
high cost plants into the more efficient Bushton complex and the exchange of
underperforming assets in Texas for transmission assets needed to transport new
gathering volumes and which enhanced the performance of other K N assets. NGPL
is currently one of the lowest cost transporters of gas in the Mid-Continent
region and, as a result, management believes that the Company is now in an even
stronger position to preserve or increase market share than its higher-cost
competitors, particularly in the event that additional gas comes into the
Chicago market from Canada. In addition, the increased access to additional
supply sources from MidCon's pipelines

S-33
<PAGE> 34

should support K N's low-cost position. The Company expects to realize annual
operating and administrative savings beginning in 1998 due primarily to the
consolidation of operations and activities that are duplicative with those of
MidCon and improved utilization of assets.

Expand the Company's retail presence

In order to take advantage of the rapidly changing competitive landscape in
the utility industry, the Company has developed value-added products and
services to offer to customers beyond the traditional energy commodity. As part
of this strategy, K N developed Simple Choice which offers consumers, through
their local utilities, a bundled package of energy, communications and
entertainment products serviced through one call and itemized on one bill. The
Simple Choice package of services is marketed to other utilities through the
Company's EN-able joint venture with PacifiCorp Holdings, Inc. By licensing
Simple Choice to other gas, electric and water utilities, EN-able creates
partnerships that allow utility partners to play a broader role in providing a
range of products and services to the home, and allows EN-able to build a larger
retail presence in the marketplace more quickly than it could on its own.
EN-able also provides back-office support to its utility partners, including
infrastructure support for customer care and billing functions and marketing
channels. Management believes MidCon's retail marketing operations, which are
conducted through mc(2) and which market gas and electricity principally to
commercial and industrial customers, complement the operations of EN-able.

INDUSTRY OVERVIEW

Evolution of the Natural Gas Business

Participants in the natural gas industry in the United States generally
fall into three principal categories: production, transmission and distribution
companies. Production companies explore for and develop natural gas reserves.
Gathering, processing and transmission companies gather and process natural gas
from the field and transport the gathered and processed gas to wholesale
customers, including local distribution companies ("LDCs") and large industrial
users, around the country through interstate and intrastate pipelines. LDCs
purchase, transport, distribute and resell natural gas to end users, including
residential, commercial or industrial gas customers.

Beginning in the mid-1980's, the FERC exercised its broad regulatory
authority and undertook the process of deregulating the natural gas industry.
Traditionally, a pipeline company's numerous gas services to utilities and other
end users, such as sales, local transportation and storage, had been tied
together and offered to customers as a single "bundled" product at one price.
The final deregulation order, FERC Order 636, which became effective at the end
of 1993, required natural gas companies to "unbundle" these services and
separately price each component, thus introducing market-driven competition
within the natural gas transmission industry and allowing large volume customers
to choose a natural gas supplier. See "Regulation". As a result of deregulation,
natural gas companies have focused their efforts on increasing the quality and
scope of their products and services in order to attract and retain customers as
well as take advantage of higher margin business activities. In addition, there
has been significant consolidation in the industry involving gas gathering,
processing, transmission and marketing assets as companies have sought to
increase the size and scope of their operations to achieve economies of scale
and gain market share.

While FERC Order 636 has primarily impacted large commercial and industrial
customers, the process of deregulation has now turned toward the LDCs with state
regulators beginning to require LDCs to also unbundle charges for their various
services. In a fully deregulated environment, large and small customers will no
longer be forced to buy their natural gas products and services from a utility
and instead will be free to choose from a variety of energy suppliers based on,
among other things, service, price and variety of other product offerings. In
addition, access to wholesale and retail markets, economies of scale and product
innovation will be critical factors for success.

S-34
<PAGE> 35

Natural Gas Supply and Demand Dynamics

Since 1986, the market share for natural gas in the United States has
steadily increased as its image as an economical, reliable and clean-burning
fuel has improved. In addition, technological innovations such as 3-D seismic
imaging, improved directional drilling equipment and techniques, and new
deepwater production technologies have served to lower the cost of discovering
and developing new reserves. Based on Energy Information Administration (the
"EIA") statistics, between 1991 and 1996, consumption of natural gas in the
United States increased from 19.0 Tcf to 22.0 Tcf, representing a compound
annual growth rate of 3.0%. The EIA projects that the demand for natural gas
will increase to 24.7 Tcf by the year 2000 and to 25.5 Tcf by the year 2002.

In the United States, there are four major market sectors for the
consumption of natural gas -- residential, commercial, industrial and electric
utilities. Of these four sectors, based on EIA statistics, the industrial market
is the single largest in terms of gas consumption accounting for approximately
40% of all U.S. gas consumption in 1996 followed by the residential, commercial
and electric utility sectors with 24%, 14% and 12%, respectively, for the same
period. It is generally expected that the industrial market will continue to
remain the largest market. However, this expectation could change as a result of
the outcome of electric utility deregulation which, if it drives the
construction of additional gas-fired generating facilities, could significantly
increase the demand for natural gas. While the overall demand for natural gas is
expected to increase, given that space heating is the single largest use for gas
across all market sectors, winter weather patterns will continue to be a key
determinant of the changes in natural gas demand from year-to-year and the
market will always be subject to some degree of volatility.

Based on EIA statistics, in terms of regional demand, the Midwest and South
Central regions are the highest consuming regions accounting for an annual
average of 25.3% and 29.6%, respectively, of total annual consumption in the
country. Since 1991, however, the Northeast and Southeast have been the fastest
growing regional markets with compound annual growth rates of 4.9% and 4.5%,
respectively. Within these regions, the industrial segment in the Northeast and
the electric utility segment in the Southeast have the highest compound annual
growth rates at 10.3% and 5.8%, respectively, during this time period. These
growth rates have largely been driven by the construction of new cogeneration
facilities in the Northeast and the increased gas and electric utility load
resulting from population migration in the Southeast.

In response to the growing demand for natural gas, activities related to
the production of natural gas have also increased. Historically, the majority of
the supply of natural gas in the United States has been sourced from the Gulf
Coast, Mid-Continent, San Juan Basin and the Permian Basin and, to a lesser
extent, Western Canada. In the next few years, it is expected that the increase
in demand for natural gas will be met primarily by an increase in production
from the Rocky Mountains, Western Canada and the deepwater Gulf of Mexico.

S-35
<PAGE> 36

K N ENERGY, INC.

OVERVIEW

K N Energy is an integrated energy services provider with operations that
include the gathering, processing, transportation and storage of natural gas and
the marketing of natural gas and NGLs. The Company's operations are organized
into three segments: (i) gathering, processing and marketing services (including
intrastate transmission and storage in Texas), (ii) interstate transportation
and storage, and (iii) retail natural gas services. As described further below,
certain of the Company's operations are regulated by various federal and state
entities. For the year ended December 31, 1997, approximately 48% of the
Company's operating income was derived from regulated assets.

GATHERING, PROCESSING AND MARKETING SERVICES

The Company provides natural gas gathering, processing, storage,
transportation, marketing, field services and supply services, to a variety of
customers. Within this business segment, the Company owns and operates
approximately 12,900 miles of pipeline in nine states and operates 19 gas
processing plants in five states and natural gas storage facilities in West
Texas and on the Gulf Coast. For the year ended December 31, 1997, this business
segment accounted for approximately 52.3% of consolidated operating income.

Revenues from the Company's gathering, processing, storage, transportation,
marketing and supply activities are generated in four different ways. First, the
Company performs a merchant function whereby the Company purchases gas at the
wellhead, combines such gas with other supplies of gas, and markets the
aggregated gas to consumers. Second, the Company gathers, transports and/or
processes gas for producers or other third parties who retain title to the gas.
Third, the Company processes gas into NGLs and markets NGLs. Fourth, the Company
provides gas marketing and supply services, including certain storage services,
to producers, various natural gas resellers and end users. The Company also
arranges the purchase and transportation of producers' excess or uncommitted gas
to end users, acts as shipper or agent for the end users, administers
nominations and provides balancing assistance when needed.

In conjunction with its merchant function, the Company engages in price
risk management activities in the energy financial instruments market to hedge
its price and basis risk exposure. The Company buys and sells gas and crude oil
futures positions on the New York Mercantile Exchange and Kansas City Board of
Trade and uses over-the-counter energy swaps and options for the purpose of
reducing adverse price exposure to gas supply costs or specific market margins.
Pursuant to its Board of Directors' approved guidelines, the Company engages in
these activities only as a hedging mechanism against pre-existing or anticipated
physical gas and condensate sales, gas purchases, system use, and storage in
order to protect profit margins, and is prohibited from engaging in speculative
trading.

Gas Gathering and Processing

The Company's gathering and processing subsidiaries operate pipeline
systems in seven Mid-Continent and Rocky Mountains states. These subsidiaries
perform various services for customers including, among others, gathering gas at
the wellhead or other field aggregation points, transporting gas on an
intrastate basis at negotiated rates, processing gas to extract NGLs, and
marketing natural gas and NGLs.

Based on average throughput, the Company's largest gathering operation is
its Hugoton Basin system in Kansas which gathers approximately 530 MMcf per day,
making K N the largest gatherer in this basin. The Hugoton Basin system
interconnects with several gas processing plants in the area including K N's
Bushton plant. The Company's Wattenberg System in northeastern Colorado, which
includes gathering and transmission lines, has current throughput of
approximately 150 MMcf per day. K N's West Texas System is located primarily in
western Texas and the Texas Panhandle. This system, which includes gathering,
intrastate transmission and storage pipelines, six gas processing plants, and
one storage facility, has gathering throughput of approximately 140 MMcf per
day. The Company also owns gathering facilities in the Powder River and Wind
River Basins of Wyoming and the Piceance and Uinta Basins of western Colorado
and eastern Utah with combined throughput of approximately 130 MMcf per day.

S-36
<PAGE> 37

In addition to the above systems, K N recently acquired two gathering
systems in the Rocky Mountains which gather in aggregate approximately 460 MMcf
per day. In December 1997, K N purchased an equity interest in the Red Cedar
Gathering System in the San Juan Basin of New Mexico. The Red Cedar system
gathers approximated 440 MMcf per day of natural gas and is connected to the
Company's jointly-owned Coyote Gulch processing plant and to the TransColorado
pipeline. Also in December 1997, K N acquired Interenergy Corporation, a closely
held provider of natural gas services in the Rocky Mountain area. The
Interenergy assets include pipelines which gather approximately 20 MMcf per day,
a gas processing plant in Wyoming and an interest in a gas processing plant in
North Dakota.

In 1996, Wildhorse, a joint venture between K N and TBI, purchased
gathering and processing assets of Williams Field Services in western Colorado
and eastern Utah. The acquisition of these assets provided Wildhorse access to
existing TBI production, to approximately 240,000 acres of undeveloped leasehold
held by TBI in the Piceance Basin, and to undeveloped third-party acreage
throughout the Piceance and Uinta basins. The assets acquired included
approximately 950 miles of natural gas gathering lines, two processing plants, a
carbon dioxide treatment plant and a dew point control plant. For the year ended
December 31, 1997, these facilities processed and treated approximately 70 MMcf
of natural gas per day.

At December 31, 1997, the Company's gathering, processing and marketing
segment operated 19 natural gas processing plants, including the Bushton
complex, one of the largest NGLs extraction facilities in the United States. On
a daily basis, these plants process approximately 1.4 Bcf of natural gas (and
have capacity to process 1.7 Bcf of natural gas per day) and produce more than
2.4 million gallons of NGLs. NGLs are sold by the Company on a contractual basis
to various NGL pipelines, end users and marketers at index-based prices.

Marketing

In 1997, the Company's natural gas marketing customers included local
distribution companies, industrial, commercial and agricultural end users,
electric utilities, Company affiliates, and other marketers located both on and
off K N's pipeline systems. Natural gas is purchased by K N's gathering,
processing and marketing business from various sources, including gas producers,
gas processing plants and pipeline interconnections. For the year ended December
31, 1997, the Company's gathering, processing and marketing operations sold an
average of approximately 1.6 Bcf of natural gas per day before intersegment
eliminations.

As is customary in the industry, most of the Company's gas purchase
agreements are for periods of one year or less, and many are for periods of 60
days or less. Various agreements permit the purchaser or the supplier to
renegotiate the purchase price or discontinue the purchase under certain
circumstances. Purchase volume obligations under many of the agreements utilized
by this business segment are generally "best efforts" and do not have
traditional take-or-pay provisions. However, certain agreements require the
Company to prepay for, or to receive, minimum quantities of natural gas.

The Company owns a storage facility located in Gaines County, Texas, which
had a working storage capacity of 16.4 Bcf of natural gas at December 31, 1997
and withdrawal capacity of 525 MMcf per day. This facility has traditionally
been used to meet peak day requirements of the West Texas system. K N also has
lease rights in the Stratton Ridge facility located in Brazoria County, Texas,
including a peak day natural gas withdrawal capacity of 150 MMcf per day at
December 31, 1997.

K N Field Services

K N Field Services, Inc. ("KNFS") provides field operations services to gas
and oil industry customers who own production, gathering, processing and
transportation assets. To the extent possible, KNFS uses the existing
infrastructure and labor force employed in the Company's own systems to serve
its clients. Among the services KNFS provides are well tending, site services,
corrosion monitoring, compression operations and maintenance, safety training,
gathering and pipeline operations and maintenance, measurement, pressure and
flow monitoring, water hauling and line locating.

S-37
<PAGE> 38

INTERSTATE TRANSPORTATION AND STORAGE SERVICES

The Company's interstate pipeline system provides transportation and
storage services to affiliates, third-party natural gas distribution utilities,
and other shippers. For the year ended December 31, 1997, this business segment
accounted for approximately 24.6% of consolidated operating income. As of
December 31, 1997, the Company's interstate pipeline system consisted of
approximately 6,900 miles of transmission lines and one storage field.

The Company provides both firm and interruptible transportation and
no-notice services to its customers. Under no-notice service, customers are able
to meet their peak day requirements without making specific nominations as
required by firm and interruptible transportation service tariffs. The local
distribution companies and other shippers may release their unused firm
transportation capacity rights to other shippers. It is the Company's experience
that this released capacity has, to a large extent, replaced interruptible
transportation on the Company's interstate pipeline system. Firm transportation
customers pay a monthly reservation charge plus a commodity charge based on
actual volumes transported. Interruptible transportation is billed on the basis
of volumes shipped.

In 1996, K N purchased a crude oil pipeline (renamed the Pony Express
Pipeline) running from Lost Cabin in central Wyoming to Freeman, Missouri near
Kansas City, and converted it to natural gas transport service. The line became
operational in August 1997 and, under its current configuration, has a maximum
capacity of 255 MMcf per day. The Pony Express Pipeline provides access to
significant natural gas reserves principally from the Denver-Julesburg, Wind
River and Powder River Basins and is a catalyst for the development of the
market hub at Rockport, Colorado. As a complement to this pipeline, in November
1996 the Company acquired one 20-year contract and one 19-year contract to
provide firm transportation capacity of 230 MMcf of natural gas per day to the
Kansas City metropolitan area. This project reflects the Company's ongoing
strategy to balance regulated pipeline projects with the corresponding potential
for greater returns from other nonregulated business segments.

The Company is a one-half joint venture partner in the TransColorado Gas
Transmission Pipeline Co. ("TransColorado"). TransColorado's pipeline is
expected to provide increased flexibility in accessing multiple natural gas
basins in the Rocky Mountain region. Though only a portion of the pipeline is
currently operational, when completed, the TransColorado Pipeline will extend
290 miles, from the Piceance Basin of Colorado to Blanco, New Mexico, and will
have an initial capacity of 300 MMcf per day. The TransColorado Pipeline will
operate as an interstate pipeline regulated by the FERC.

The Company's interstate pipeline system provides storage services to its
customers through its Huntsman Storage Field in Cheyenne County, Nebraska. The
facility had a peak natural gas withdrawal capacity of 100 MMcf per day at
December 31, 1997.

RETAIL NATURAL GAS SERVICES

The Company provides retail natural gas services to residential,
commercial, agricultural and industrial customers for space heating, crop
irrigation, drying, and processing of agricultural products. The Company's
EN-able joint venture also has a 24-hour Customer Service Center in Scottsbluff,
Nebraska, which centralizes customer service calls, service start-up and billing
calls, service dispatch and remittance operations for the three-state region.
For the year ended December 31, 1997, this business segment accounted for
approximately 23.1% of consolidated operating income.

Regulated Retail Services

The Company's retail natural gas business operated approximately 1,500
miles of intrastate natural gas transmission, gathering and storage facilities
as of December 31, 1997. These intrastate pipeline systems serve industrial
customers and much of the Company's retail natural gas business in Colorado and
Wyoming. As of December 31, 1997, the Company's retail natural gas business
served over 210,000 customers in Colorado, Nebraska and Wyoming through
approximately 7,200 miles of distribution pipelines (excluding the Company's
Kansas natural gas distribution assets which the Company entered into an
agreement to sell in

S-38
<PAGE> 39

December 1997, and which sale is expected to be consummated in the second
quarter of 1998, following receipt of regulatory approval).

The Company's underground storage facilities are used to provide natural
gas for load balancing and peak system demand. Storage services for the
Company's retail natural gas services segment are provided by three facilities
owned in Wyoming, one facility in Colorado owned and operated by Wildhorse and a
storage facility located in Nebraska and owned by the Company's interstate
pipeline system. The peak day natural gas withdrawal capacity available for this
segment at December 31, 1997 was 103 MMcf per day.

The Company's retail operations in Nebraska, Wyoming and northeastern
Colorado serve areas that are primarily rural and agriculturally based. In much
of Nebraska, the winter heating load is balanced by irrigation requirements in
summer months and grain drying in the fall. The economy in the western Colorado
service territory continues to grow as a result of growth in mountain resort
communities and development of retirement communities.

Gas Purchases and Supply

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

The gas supply for the retail natural gas business segment comes primarily
from basins in Kansas, Montana, Wyoming, Colorado, New Mexico and western
Nebraska which include under-developed basins that represent significant proved
reserves. The Company's gas supplies are strategically located with respect to
existing and planned pipeline capacity, giving the Company access to gas for its
retail customer base.

Certain gas purchase contracts contain take-or-pay clauses which require
that a certain purchase level be attained each contract year, or the Company
must make a payment which is generally equal to the contract price multiplied by
the deficient volume. All such payments are fully recoupable under the terms of
the gas purchase contracts and the existing regulatory rules. To date, no
buy-out or buy-down payments relating to take-or-pay contracts have been made by
this business segment. See "-- Gathering, Processing and Marketing
Services -- Marketing."

Unregulated Retail Services

In September 1996, the Company, through its subsidiary K N Services, Inc.
("KNS"), began marketing its Simple Choice package of products and services. In
addition to natural gas service, under Simple Choice, customers can order
satellite TV, appliance protection, long-distance telephone service, wireless
Internet access and other products and services with one call, paid for with one
monthly payment, and backed by one service guarantee. Simple Choice was launched
in Scottsbluff, Nebraska, where the Company also opened its first Simple Choice
General Store.

In early 1997, K N and PacifiCorp jointly formed EN-able to market the
Simple Choice brand to K N's approximately 200,000 and PacifiCorp's
approximately 1.5 million customers as well as to other utilities. EN-able is
engaged in efforts to create Simple Choice partnerships and licensing agreements
with other utilities. An integral part of the Simple Choice package is
outsourced billing and customer service for third-party utilities. To enhance
this capability, early in 1997 KNS and PacifiCorp's subsidiary, PacifiCorp
Holdings, Inc., acquired Orcom Systems, Inc., the software development company
that designed the billing system which supports the Simple Choice brand of
products and services.

S-39
<PAGE> 40

MIDCON CORP.

OVERVIEW

MidCon is engaged in the purchase, gathering, processing, transmission,
storage and sale of natural gas to utilities, municipalities and industrial and
commercial users. MidCon also purchases electricity from electric utilities, and
other electric power producers and marketers and resells the electricity to
wholesale and end-use customers.

MidCon's operations are conducted through its principal subsidiaries: NGPL,
which owns and operates a major interstate pipeline transmission system and
related assets; MidCon Texas Pipeline Operator, Inc. ("MidCon Texas"), which
operates an intrastate pipeline system in Texas; MidCon Gas Services Corp.
("MidCon Gas"), which purchases and sells natural gas and arranges for the
transportation and storage of such gas; MidCon Power Services Corp. ("MidCon
Power"), which purchases electricity from electric utilities and other electric
power producers and marketers, resells electricity to wholesale customers and
arranges for the transmission of such power; mc(2) Inc. ("mc(2)"), which markets
natural gas and electricity at the retail level; and MidCon Gas Products Corp.
("MidCon Gas Products"), which gathers and processes natural gas. In addition,
MidCon also has equity investments in several other natural gas pipelines.

INTERSTATE AND INTRASTATE TRANSPORTATION SERVICES

MidCon's pipeline subsidiaries operate over 13,000 miles of natural gas
pipelines which are strategically located in the center of the North American
pipeline grid. This pipeline network provides access not only to the major
supply areas in the Gulf of Mexico, the Gulf Coast, the Permian Basin, the
Mid-Continent, the Rocky Mountains and Western Canada, but also to the major
consuming markets in the Midwest and along the Gulf Coast.

Transportation and Sales

NGPL owns and operates over 10,000 miles of pipeline, consisting of two
major interconnected transmission pipelines terminating in the Chicago
metropolitan area. The system is powered by 61 compressor stations in mainline
and storage service having an aggregate of approximately 1.0 million horsepower.
NGPL's system has over 1,700 points of interconnection with 31 interstate
pipelines, 24 intrastate pipelines and 54 LDCs and end-users, thereby providing
significant flexibility in the receipt and delivery of gas. One pipeline --
known as the "Amarillo Line" -- originates in the West Texas and New Mexico
producing areas and is comprised of approximately 5,200 miles of mainline and
various small-diameter pipelines. The other pipeline -- known as the "Gulf Coast
Line" -- originates in the Gulf Coast areas of Texas and Louisiana and consists
of approximately 4,900 miles of mainline and various small-diameter pipelines.
These two main pipelines are connected at points in Texas and Oklahoma by NGPL's
240-mile Amarillo/Gulf Coast ("A/G") pipeline. In addition, a 105-mile pipeline
runs from the Arkoma Basin gas producing area of eastern Oklahoma to the A/G
pipeline.

MidCon Texas operates an intrastate pipeline system, located primarily in
the Texas Gulf Coast area, which it leases from an Occidental affiliate under a
30-year lease which commenced on December 31, 1996. The system includes
approximately 2,600 miles of pipelines, supply lines, sales laterals and related
facilities and has 22 interconnects with other pipelines. A subsidiary of MidCon
Gas owns a separate Texas intrastate pipeline system (the "Palo Duro System")
that includes approximately 400 miles of pipeline and related facilities. The
Palo Duro System is leased to a nonaffiliate.

Pursuant to transportation agreements and FERC tariff provisions, NGPL
offers both firm transportation service and interruptible transportation
service. Under NGPL's tariff, firm transportation customers pay reservation
charges each month, irrespective of volumes actually transported. Interruptible
transportation customers pay a commodity charge based upon actual volumes
transported. Reservation and commodity charges are both based upon geographical
location, time of year and distance of the transportation service provided.

S-40
<PAGE> 41

NGPL's principal delivery market area encompasses the states of Illinois,
Indiana and Iowa and portions of Wisconsin, Nebraska, Kansas, Missouri and
Arkansas. NGPL is one of the largest transporters of natural gas to the Chicago
market, and its cost of service is one of the lowest in the region. In 1997,
NGPL delivered an average of 2.6 Bcf per day of natural gas, representing 60% of
the total natural gas delivered to the Chicago metropolitan area during the same
period. Given its strategic location at the center of the North American
pipeline grid, Chicago is likely to continue to be a major natural gas trading
hub for the rapidly growing demand markets in the Midwest and Northeast.
Approximately 100% of NGPL's pipeline capacity to Chicago is committed under
firm transportation services. As of November 1, 1997, approximately 22% of the
total volume committed to be transported under NGPL's firm transportation
contracts had remaining terms in excess of 3 years.

In January 1997, NGPL and a subsidiary of NIPSCO Industries, Inc.
("NIPSCO") completed construction of a 100 MMcf per day pipeline interconnection
in the Chicago metropolitan area between their respective pipeline systems, thus
providing NGPL with additional access to markets east of Chicago.

Unlike NGPL, MidCon Texas acts as a merchant provider of natural gas as
well as a transporter. Texas is the largest producer of and the largest
consuming market for natural gas in the United States. Principal customers of
MidCon Texas include the electric and natural gas utilities that serve the
Houston area and industrial customers located along the Houston Ship Channel and
in the Beaumont/Port Arthur area. For 1997, MidCon Texas delivered an average of
1.6 Bcf per day of natural gas, representing approximately 16% of the total
natural gas deliveries in Texas and about 35% of the total deliveries in the
Houston market.

Deliveries of gas by MidCon's pipelines include both volumes sold by the
pipelines and their marketing affiliates and volumes owned by others which are
transported. The following table sets forth the gas volumes sold to, or
transported for, nonaffiliates by NGPL, MidCon Texas and MidCon Gas for each of
the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996 1997
----- ----- ----- -----
(IN BCF)
<S> <C> <C> <C> <C>
NGPL
Transportation............................ 1,318 1,318 1,284 1,095
MidCon Texas
Sales..................................... 198 238 239 269
Transportation............................ 215 215 271 302
MidCon Gas Services
Sales..................................... 351 410 460 561
</TABLE>

Sales volumes shown in the foregoing table for MidCon Texas include sales
deliveries by a marketing affiliate to nonaffiliates. The table does not include
gas transported by NGPL for affiliates for sale to nonaffiliates of
approximately 220 Bcf, 221 Bcf, 220 Bcf and 256 Bcf for the years ended December
31, 1994, 1995, 1996 and 1997, respectively. The table also does not show
volumes of gas that have been auctioned by NGPL following the termination of its
traditional gas sales service on December 1, 1993.

NGPL also furnishes transportation service for others to and from many
other locations on its pipeline system and, in recent years, has increased
transportation deliveries to markets outside the Chicago metropolitan area.
Competition for such service may be provided by one or more other pipelines,
depending upon the nature of the transportation service required. Transportation
rates, service options and available pipeline capacity and, in some cases, the
availability of, and rates for, storage services are the key factors in
determining NGPL's ability to compete for particular transportation business.

S-41
<PAGE> 42

service requirements, Trailblazer installed compression to increase pipeline
capacity by approximately 104 MMcf per day. The new compression facilities went
into service during the summer of 1997. Trailblazer's system runs from eastern
Colorado to eastern Nebraska and transports gas produced in the Rocky Mountains.
NGPL is the operator of the pipeline. Trailblazer moved approximately 200 Bcf of
gas in 1997.

Subsidiaries of MidCon also own interests in several regulated natural gas
pipeline systems which are accounted for as equity investments. In the Gulf
Coast area, these subsidiaries own 20% to 50% of three pipeline ventures that
operate approximately 550 miles of pipeline in the Gulf of Mexico and NGPL owns
interests, of varying percentages, in approximately 250 miles of jointly-owned
supply laterals that also operate in the Gulf of Mexico. The joint ventures
transport gas onshore from producers in the offshore Louisiana and Texas areas
for various customers. Onshore, NGPL subsidiaries own interests of 18 and
33 1/3%, in Overthrust Pipeline Company and Trailblazer, respectively, that
operate approximately 520 miles of pipelines in Wyoming, Colorado and Nebraska.

Storage

NGPL is one of the nation's largest storage operators with approximately
600 Bcf of total natural gas storage capacity, over 200 Bcf of working gas, and
up to 4.4 Bcf per day of peak deliverability from its facilities which are
strategically located near the markets MidCon services. NGPL owns and operates
nine underground storage fields in four states to provide services to NGPL's
customers and to support pipeline deliveries during the winter when demand for
natural gas is higher.

NGPL provides firm and interruptible gas storage service pursuant to
storage agreements and FERC-approved tariffs. Firm storage customers pay a
monthly demand charge irrespective of actual volumes stored. Interruptible
storage customers pay a monthly commodity charge based upon actual volumes of
gas stored.

MidCon Texas also developed a salt dome storage facility located near
Markham, Texas with a subsidiary of NIPSCO. The facility has two salt dome
caverns and an estimated 8.3 Bcf of total capacity, 5.7 Bcf of working storage
capacity and 500 MMcf per day of withdrawal capacity. The storage facility is
leased by a partnership in which subsidiaries of MidCon and NIPSCO are equal
partners. MidCon Texas has executed a 20-year sublease with the partnership
under which it has rights to 50% of the facility's working gas capacity, 85% of
its withdrawal capacity and approximately 70% of its injection capacity.

These storage assets further complement the pipeline facilities and allow
MidCon to optimize deliveries on its pipelines and meet peak delivery
requirements in its principal markets.

GATHERING, PROCESSING AND MARKETING SERVICES

MidCon, through its subsidiaries, is engaged in the gathering and
processing of natural gas. These subsidiaries process natural gas in four
facilities and own and operate four gathering systems located in Texas and New
Mexico. During 1997, MidCon subsidiaries produced approximately 8.8 MBbls per
day of natural gas liquids and gathered 160 MMcf per day of natural gas.

MidCon Texas purchases its gas supplies from producers and, to a lesser
extent, from other pipeline companies or their subsidiaries. MidCon Gas
purchases gas supplies primarily from producers and other gas marketers. MidCon
Gas maintains inventories of gas supplies in storage facilities of its
affiliates and other pipeline companies. MidCon Gas uses futures contracts,
options and swaps to hedge the impact of natural gas price fluctuations.

MidCon Power was formed in 1995 to provide marketing services to the
electric power industry and to prepare for anticipated opportunities as the
electric power market begins to unbundle. MidCon Power began trading wholesale
power in late 1995. In 1997, MidCon Power traded over 4.4 million megawatt
hours.

RETAIL NATURAL GAS SERVICES

S-42
<PAGE> 43

These customer groups constitute over one-half of the natural gas and two-thirds
of the electricity consumed in the United States annually and MidCon believes
that substantial opportunities exist for selling natural gas supply products
that are simple, reliable and cost-competitive. In providing energy services,
mc(2) works in a coordinated effort with MidCon Gas and MidCon Power, with these
two entities acting as exclusive energy providers to mc(2).

In February 1997 mc(2) initiated its service in the market area surrounding
Chicago, an area where MidCon has a strong competitive position, and the New
York City metropolitan market, an area where unbundling efforts and utility
tariffs provide opportunities for profit. Mc(2) currently serves over 10,000
commercial natural gas customers in Illinois, Pennsylvania, New York and New
Jersey and has begun marketing in Ohio. Several thousand customers were added in
August 1997 when mc(2) acquired certain assets of Norstar Energy Limited
Partnership ("Norstar"). The former Norstar customers account for annual sales
of about 8 Bcf of natural gas.

In September 1997, mc(2) began offering electric service to commercial
customers by participating in Pennsylvania's statewide pilot program, one of the
first of its kind in the nation. The plan allows up to 5% of each customer class
at each utility to self-nominate a supplier other than the local electric
utility. By aggressively focusing on two key markets during a two-week
nomination window, mc(2) signed up over 400 businesses served by three utilities
in Pittsburgh and Philadelphia.

S-43
<PAGE> 44

REGULATION

FEDERAL AND STATE REGULATION

Both the performance of interstate transportation and storage services by
natural gas companies, including interstate pipeline companies, and the rates
charged for such services, are regulated by the FERC under the Natural Gas Act,
and, to a lesser extent, the Natural Gas Policy Act.

Legislative and regulatory changes began in 1978 with the passage of the
Natural Gas Policy Act, pursuant to which the process of deregulation of gas
sold at the wellhead was commenced. The restructuring of the natural gas
industry continued with the adoption of (i) Order 380 in 1984, which eliminated
purchasers' minimum bill obligations to the pipelines, thus making gas purchased
from third parties, particularly on the spot market, more economically
attractive relative to gas purchased from pipelines and (ii) Order 436 in 1985,
which provided that interstate transportation of gas under blanket or
self-implementing authority must be provided on an open-access,
non-discriminatory basis. After Order 436 was partially overturned in federal
court, the FERC issued Order 500 in August 1987 as an interim rule intended to
readopt the basic thrust of the regulations promulgated by Order 436. Order 500
was amended by Orders 500 A through L. The FERC's stated purpose in issuing
Orders 436 and 500, as amended, was to create a more competitive environment in
the natural gas marketplace. This purpose continued with Order 497, issued in
June 1988, which set forth new standards and guidelines imposing certain
constraints on the interaction of interstate pipelines and their marketing
affiliates and imposing certain disclosure requirements regarding that
interaction.

Order 636, issued in April 1992, as amended, was a continuation of the
FERC's efforts to improve the competitive structure of the pipeline industry and
maximize the consumer benefits of a competitive structure of the pipeline
industry and a competitive wellhead gas market. In Order 636, the FERC required
interstate pipelines that perform open access transportation under blanket
certificates to "unbundle" or separate their traditional merchant sales services
from their transportation and storage services and to provide comparable
transportation and storage services with respect to all gas supplies whether
purchased from the pipeline or from other merchants such as marketers or
producers. The pipelines must now separately state the applicable rates for each
unbundled service (i.e., for the gas commodity, transportation and storage).

Specifically, Order 636 contains the following procedures to increase
competition in the industry: (i) requiring the unbundling of sales services from
other services, meaning that only a separately identified merchant division of
the pipeline could sell gas at points of entry into the pipeline system; (ii)
permitting holders of firm capacity to release all or a part of their capacity
for resale by the pipeline either to the highest bidder or, under short-term or
maximum rate releases, to shippers in a prepackaged release, with revenues in
both instances credited to the releasing shipper; (iii) allowing shippers to use
other receipt points and delivery points on the system, subject to the rights of
other shippers to use those points as their primary receipt and delivery points;
(iv) the issuance of blanket sales certificates to interstate pipelines for
unbundled services; (v) the continuation of pregranted abandonment of previously
committed pipeline sales and transportation services, subject to certain rights
of first refusal, which should make unused pipeline capacity available to other
shippers and clear the way for excess transportation services to be reallocated
to the marketplace; (vi) requiring that firm and interruptible transportation
services be provided by the pipelines to all parties on a comparable basis; and
(vii) generally requiring that pipelines derive transportation rates using a
straight-fixed-variable rate method which places all fixed costs in a fixed
reservation fee that is payable without regard to usage, as opposed to the
previously used modified fixed-variable method that allocated a part of the
pipelines' fixed costs to the usage fee. The FERC's stated position is that the
straight-fixed-variable method promotes the goal of a competitive national gas
market by increasing the cost of unnecessarily holding firm capacity rather than
releasing it, and is consistent with its directive to unbundle the pipelines'
traditional merchant sales services. Order 636 has been affirmed in all material
respects upon judicial review and the Company's own FERC order approving its
unbundling plan is final and not subject to any pending judicial review.

NGPL has been a party to a number of contracts that required NGPL to
purchase natural gas at prices in excess of the prevailing market price. As a
result of Order 636 prohibiting interstate pipelines from using their gas
transportation and storage facilities to market gas to sales customers, NGPL no
longer had a sales market for the gas it is required to purchase under these
contracts. Order 636 went into effect on NGPL's system on

S-44
<PAGE> 45

December 1, 1993. NGPL has agreed to pay substantial transition costs to reform
these contracts with gas suppliers. Under settlement agreements reached by NGPL
and its former sales customers, NGPL recovered from those customers over a four
year period beginning December 1, 1993, a significant amount of the gas supply
realignment (GSR) costs. The FERC has also permitted NGPL to implement a tariff
mechanism to recover additional portions of its GSR costs in rates charged to
transportation customers that were not party to the settlements. In July 1996, a
Federal appellate court remanded Order 636 to the FERC for further explanation
of aspects of its decision regarding recovery of GSR costs by interstate
pipelines. Because of the settlements and FERC orders authorizing NGPL's GSR
cost recovery mechanism, the remand is not expected to have any significant
impact on NGPL. The FERC has allowed GSR rates to go into effect on December 1,
1997, subject to refund, to recover any shortfall in recoveries of GSR costs
allocated to interruptible transportation. However, the FERC rejected NGPL's
filing for rehearing that NGPL be allowed to recoup a portion of any shortfall
on title transfers and interruptible transportation to pooling points.

Gathering, Processing and Marketing Services

Under the Natural Gas Act, facilities used for and operations involving the
production and gathering of natural gas are exempt from FERC's jurisdiction,
while facilities used for and operations involving interstate transmission are
not exempt. However, the FERC's determination of what constitutes exempt
gathering facilities as opposed to jurisdictional transmission facilities has
evolved over time. Under current law, facilities which otherwise are classified
as gathering may be subject to ancillary FERC rate and service jurisdiction when
owned by an interstate pipeline company and used in connection with interstate
transportation or jurisdictional sales.

The FERC has historically distinguished between facilities owned by
noninterstate pipeline companies, such as the Company's gathering facilities, on
a fact-specific basis.

The issue of state jurisdiction over gathering activities has previously
been raised before the Colorado Public Utilities Commission, Kansas Corporation
Commission, New Mexico Public Service Commission, Texas Railroad Commission and
Wyoming Public Service Commission, as well as before state legislative bodies.
The Company is closely monitoring developments in this area.

As part of its corporate reorganization, the Company requested, was granted
authority and in 1994 transferred substantially all of its gathering facilities
to a wholly-owned subsidiary. The FERC determined that after the transfer the
gathering facilities would be nonjurisdictional, but the FERC reserved the right
to reassert jurisdiction if the Company was found to be operating the facilities
in an anti-competitive manner or contrary to open access principles. The Company
plans to transfer MidCon's gathering facilities to a wholly owned subsidiary in
order to make such facilities nonjurisdictional. See "The Combined
Company -- Business Strategy."

The operations of the Company's intrastate pipeline and marketing
subsidiaries located primarily in Texas are affected by FERC rules and
regulations issued pursuant to the Natural Gas Act and the Natural Gas Policy
Act. Of particular importance are regulations which allow increased access to
interstate transportation services, without the necessity of obtaining prior
FERC authorization for each transaction. The most important element of the
program is nondiscriminatory access, under which a regulated pipeline must
agree, under certain conditions, to transport gas for any party requesting such
service.

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

Certain of the Company's (including MidCon Texas') intrastate pipeline
services and assets are subject to regulation by the Texas Railroad Commission.

Interstate Transportation and Storage Services

Facilities for the transportation of natural gas in interstate commerce and
for storage services in interstate commerce are subject to regulation by the
FERC under the Natural Gas Act and the Natural Gas Policy Act. The acquisition
of MidCon's interstate natural gas pipeline system results in a significant
increase in the percentage of the Company's assets subject to regulation by the
FERC. See "The Combined Company --

S-45
<PAGE> 46

Business Strategy." The Company is also subject to the requirements of FERC
Order Nos. 497, et seq. and 566, et. seq., the Marketing Affiliate Rules, which
prohibit preferential treatment by an interstate pipeline of its marketing
affiliates and govern in particular the provision of information by an
interstate pipeline to its marketing affiliates.

On December 1, 1992, NGPL filed with the FERC for a general rate increase
to recover higher operating costs. The FERC permitted NGPL to put the new rates
into effect on June 1, 1993, subject to refund. In November 1994, NGPL filed a
proposed settlement of the rate case with the FERC. The settlement was approved
by the FERC in January 1995. This settlement resulted in refunds being made to
customers of approximately $128 million in 1995.

On June 1, 1995, NGPL filed a general rate case with the FERC to establish
new rates as well as new or revised services. The FERC permitted NGPL to place
new rates into effect, subject to refund, on December 1, 1995. This date
corresponded to the effective date of new transportation and storage agreements
between NGPL and its principal local distribution customers. Major issues in the
rate case included the terms and conditions of new services, throughput levels
used in the design of rates, discounting adjustments, levels of depreciation
rates and return on investment, and the levels used in the design of fuel rates.
In May 1996, NGPL filed with the FERC an offer of settlement to resolve the
remaining issues in the proceeding. On November 3, 1997, the FERC approved a
settlement of this rate case substantially consistent with what NGPL proposed.
This settlement of the rate case has had a favorable impact of approximately $9
million on operating margin for the ten months ended October 31, 1997. The
FERC's order approving the settlement is final and not subject to rehearing or
judicial review.

In January 1997, Amoco Production Company and Amoco Energy Trading
Corporation ("Amoco") filed a complaint against NGPL before the FERC contending
that NGPL had improperly provided its affiliate, MidCon Gas, transportation
service on preferential terms, seeking termination of currently effective
contracts and the imposition of civil penalties. A subsequent FERC staff audit
made proposed findings that NGPL has favored MidCon Gas, which NGPL has
challenged. In July, Amoco and NGPL agreed to a settlement of this proceeding.
Amoco has filed to withdraw its complaint subject to the FERC's procedures.
Several intervenors have opposed the withdrawal of the complaint and NGPL has
filed an answer to that opposition. By orders issued January 16, 1998, the FERC
ruled that NGPL had violated certain of the FERC's regulations regarding its
business relationships with its affiliate, MidCon Gas. Relying upon its
authority under the Natural Gas Policy Act, the FERC provided notice to NGPL
that, in addition to other remedial action, it proposes to assess civil
penalties of $8,840,000. Such orders also required NGPL to take certain other
actions, including making a new tariff filing, and imposed certain restrictions
on the sharing of employees by NGPL and MidCon Gas. The FERC is proposing to
suspend one-half of the penalty provided that for two years following the date
of the order NGPL does not violate specified sections of the FERC's regulations.
Pursuant to the provisions of the Natural Gas Policy Act and Natural Gas Act,
NGPL has thirty days to seek rehearing of the order and its findings as well as
provide the FERC with any factual or legal arguments that it believes may
justify reduction or remission by the FERC of the amount of penalty proposed in
the order. The Company is reviewing the orders and is considering whether, and
to what extent, to avail itself of its rights to further contest the provisions.
In addition, other parties to the proceeding may seek rehearing. The Company
does not believe the ultimate resolution of these issues will have a material
adverse affect on its operations and results.

In January 1998, K N Interstate Gas Transmission Co. ("KNI") filed a rate
case requesting an increase in its rates which would result in additional annual
revenues of $30.2 million. The FERC, by an order dated February 26, 1998,
accepted the filing and suspended its effective date for the full five-month
period permitted by the Natural Gas Act thus permitting the rates to go into
effect subject to refund August 1, 1998. Various parties intervened in the
proceedings. There will be additional proceedings before the FERC to resolve
differences. As indicated under "Risk Factors -- Regulation; Pending Regulatory
Proceedings," the Company will pursue a negotiated resolution of any differences
but the Company cannot predict with certainty whether the regulatory proceedings
will be resolved through a negotiated settlement or through administrative
litigation. The Company's interstate pipeline business could be adversely
affected by an unsatisfactory outcome.

S-46
<PAGE> 47

Retail Natural Gas Services

Certain of the Company's intrastate pipelines, storage, distribution and/or
retail sales in Colorado, Kansas, Texas and Wyoming are under the regulatory
authority of each state's utility commission. In Nebraska, retail gas sales
rates for residential and small commercial customers within a municipality are
regulated by each municipality served.

In certain of the incorporated communities in which the Company provides
natural gas services at retail, the Company operates under franchises granted by
the applicable municipal authorities. The duration of franchises varies. In
unincorporated areas, the Company's natural gas utility services are not subject
to municipal franchise. The Company has been issued various certificates of
public convenience and necessity by the regulatory commissions in Colorado,
Kansas and Wyoming authorizing it to provide natural gas utility services within
certain incorporated and unincorporated areas of those states.

Continuing regulatory change will provide energy consumers with increasing
choices among their suppliers. The Company emerged as a leader in providing for
customer choice by filing an application with the Wyoming Public Service
Commission in 1995 to allow 10,500 residential and commercial customers to
choose to purchase the gas from a qualified list of suppliers. The proposal
provided that the Company would continue to provide all other utility services.
In early 1996, the Wyoming Public Service Commission issued an order allowing
the Company to bring competition to these 10,500 residential and commercial
customers beginning in mid 1996. Choosing from a menu of three competing
suppliers, approximately 80% of the Company's customers chose to remain with the
Company. The experience gave the Company early and valuable experience in
competing in an unbundled environment and led to the development of new products
and services that add value to the natural gas commodity. The innovative program
was one of the first in the nation that allowed essentially all customers the
opportunity to exercise energy choice for natural gas. Similarly, the Company
has made voluntary filings with municipal authorities in Nebraska to provide its
retail customers with an opportunity to purchase gas from competing suppliers on
an unregulated basis. The Company will continue to provide all other gas utility
services. If municipal approvals are received, the program will be implemented
in 1998.

ENVIRONMENTAL REGULATION

The Company's operations and properties, including those of MidCon, are
subject to extensive and evolving Federal, state and local laws and regulations
governing the release or discharge of regulated materials into the environment
or otherwise relating to environmental protection or human health and safety.
Numerous governmental departments issue rules and regulations to implement and
enforce such laws which are often difficult and costly to comply with and which
carry substantial penalties for failure to comply. These laws and regulations
can also impose liability for remedial costs on the owner or operator of
properties or the generators of waste materials, regardless of fault. Moreover,
the recent trends toward stricter standards in environmental legislation and
regulation are likely to continue.

In May 1997, the Nebraska Department of Environmental Quality ("NDEQ")
issued a violation notice to K N Interstate Gas Transmission Company ("KNI")
regarding historical Prevention of Significant Deterioration permitting issues
related to certain engines at the Big Springs, Nebraska, facility. KNI is in the
process of obtaining the proper permits at this time, and is also engaged in
discussions with NDEQ regarding settlement of the violation notice and a
$500,000 fine currently proposed by the NDEQ. The costs associated with this
matter are not expected to have a material adverse effect on the Company's
business, financial position or results of operations.

In connection with the Acquisition of MidCon, Occidental indemnified the
Company against certain liabilities, including litigation and the failure of
MidCon to be in compliance with applicable laws, in each case which would have a
material adverse effect on MidCon, for one year following the closing date. To
the extent that an environmental liability of MidCon is not covered by
Occidental's indemnity obligation or, to the extent that matters arise following
the termination of Occidental's indemnification obligation, the Company will be
responsible for MidCon's environmental liabilities. The Company does not expect
that such costs will have a material adverse impact on its business, financial
position or results of operations.

S-47
<PAGE> 48

Based on current information and taking into account reserves established
for environmental matters, the Company does not believe that compliance with
Federal, state and local environmental laws and regulations will have a material
adverse effect on the Company's business, financial position or results of
operations. In addition, the clean-up programs in which the Company is engaged
are not expected to interrupt or diminish the Company's operational ability to
gather or transport natural gas. However, there can be no assurances that future
events, such as changes in existing laws, the promulgation of new laws, or the
development of new facts or conditions will not cause the Company to incur
significant costs. A discussion of the environmental matters involving K N
Energy can be found in the Annual Report on Form 10-K for the year ended
December 31, 1996, as amended by Amendment No. 1 thereto, and K N Energy's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.

S-48
<PAGE> 49

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is a holder
that is not (i) a citizen or resident of the United States, (ii) a corporation
or partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"). This discussion is intended only as a descriptive summary and does not
address all aspects of United States federal income and estate taxes and does
not deal with foreign, state and local consequences that may be relevant to such
Non-U.S. Holders in light of their personal circumstances. Furthermore, this
discussion is based on provisions of the Code, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof,
as of the date hereof, all of which are subject to change. EACH PROSPECTIVE
PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO
CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY UNITED STATES STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.

DIVIDENDS

Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a trade or business
by the Non-U.S. Holder within the United States and, where a tax treaty applies,
are attributable to a United States permanent establishment of the Non-U.S.
Holder, are not subject to the withholding tax, but instead are subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under such
effectively connected income exemption. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country (unless the payer has
knowledge to the contrary) for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. Under recently
finalized United States Treasury regulations (the "Final Regulations"), a
Non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate (and avoid back-up withholding as discussed below) for dividends
paid after December 31, 1998, will be required to satisfy applicable
certification and other requirements.

A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, and, where a tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes.

S-49
<PAGE> 50

An individual Non-U.S. Holder described in clause (i) above will be subject
to tax on the net gain derived from the sale under regular graduated United
States federal income tax rates. An individual Non-U.S. Holder described in
clause (ii) above will be subject to a flat 30% tax on the gain derived from the
sale, which may be offset by United States source capital losses (even though
the individual is not considered a resident of the United States). If a Non-U.S.
Holder that is a foreign corporation falls under clause (i) above, it will be
subject to tax on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Code for the taxable year, as adjusted for certain items, unless it qualifies
for a lower rate under an applicable income tax treaty.

The Company believes that it is currently a "U.S. real property holding
corporation" for United States federal income tax purposes. So long as the
Common Stock continues to be regularly traded on an established securities
market, only a Non-U.S. Holder who holds or held (at any time during the shorter
of the five year period preceding the date of disposition or the holder's
holding period) more than five percent of the Common Stock will be subject to
United States federal income tax on the disposition of the Common Stock.

FEDERAL ESTATE TAX

Common Stock owned or treated as owned by an individual who is neither a
citizen or a resident (as specifically defined for United States federal estate
purposes) of the United States at the time of death will be included in such
holder's gross estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.

Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to a Non-U.S. Holder at an address outside the United
States (unless the payer has knowledge that the payee is a U.S. person). Under
the Final Regulations, however, a Non-U.S. Holder will be subject to backup
withholding unless applicable certification requirements are met. Backup
withholding and information reporting generally will apply to dividends paid to
addresses within the United States on shares of Common Stock to beneficial
owners that are not "exempt recipients" and that fail to provide in the manner
required by regulation certain identifying information.

Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a Non-U.S. Holder or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a broker.
If, however, such broker is, for United States federal income tax purposes a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of its gross income for a certain period from the conduct of a trade
or business in the United States, or, after December 31, 1998, if such broker is
a foreign partnership, in which one or more U.S. persons, in the aggregate, own
more than 50% of the income or capital interests in the partnership or if the
partnership is engaged in a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.

S-50
<PAGE> 51

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Petrie Parkman & Co., Inc. and Smith Barney Inc.
are acting as U.S. Representatives, and the International Underwriters named
below for whom Morgan Stanley & Co. International Limited, Merrill Lynch
International, Petrie Parkman & Co., Inc. and Smith Barney Inc. are acting as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, the respective number of shares of Common
Stock set forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................... 1,835,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 1,835,000
Petrie Parkman & Co., Inc. ............................... 1,835,000
Smith Barney Inc. ........................................ 1,835,000
CIBC Oppenheimer Corp. ................................... 180,000
Credit Suisse First Boston Corporation.................... 180,000
Dain Rauscher Incorporated................................ 90,000
A.G. Edwards & Sons, Inc. ................................ 180,000
Goldman, Sachs & Co. ..................................... 180,000
Howard, Weil, Labouisse, Friedrichs Incorporated.......... 180,000
Jefferies & Company, Inc. ................................ 180,000
Edward D. Jones & Co., L.P. .............................. 90,000
Lehman Brothers Inc. ..................................... 180,000
J.P. Morgan Securities Inc. .............................. 180,000
PaineWebber Incorporated.................................. 180,000
Prudential Securities Incorporated........................ 180,000
Scotia Capital Markets (USA) Inc. ........................ 180,000
----------
Subtotal............................................... 9,500,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited ............... 325,000
Merrill Lynch International............................... 325,000
Petrie Parkman & Co., Inc. ............................... 325,000
Smith Barney Inc. ........................................ 325,000
Kleinwort Benson Limited.................................. 100,000
UBS Limited............................................... 100,000
----------
Subtotal............................................... 1,500,000
----------
Total............................................. 11,000,000
==========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken. All shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."

S-51
<PAGE> 52

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares for the account of anyone other than a United
States or Canadian Person (as defined herein) and (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any prospectus relating to the Shares outside the United States or
Canada or to anyone other than a United States or Canadian Person. Pursuant to
the Agreement between U.S. and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions: (i) it is
not purchasing any Shares for the account of any United States or Canadian
Person and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any Shares or distribute any prospectus relating to the Shares in
the United States or Canada or to any United States or Canadian Person. With
respect to any Underwriter that is a U.S. Underwriter and an International
Underwriter, the foregoing representations and agreements (i) made by it in its
capacity as a U.S. Underwriter apply only to it in its capacity as a U.S.
Underwriter and (ii) made by it in its capacity as an International Underwriter
apply only to it in its capacity as an International Underwriter. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person.

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed.
The per share price of any Shares sold shall be the public offering price set
forth on the cover page hereof, in United States dollars, less an amount not
greater than the per share amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from, or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is a kind described in Article
11(3) of the Financial Services Act 1986

S-52
<PAGE> 53

(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $1.25 a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $.10 a
share to other Underwriters or to certain other dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this Prospectus
Supplement, to purchase up to an aggregate of 1,650,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the Equity Offering by the U.S. Underwriters. To
the extent such option is exercised, each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number set forth
next to such U.S. Underwriter's name in the preceding table bears to the total
number of shares of Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.

The Company and certain of its executive officers and directors have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, it and they will not, during the period ending 90
days after the date of this Prospectus Supplement, (i) register, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (other than pursuant to (x) existing stock option, employee benefit
or dividend reinvestment plans, (y) future acquisitions, provided that, the
recipients of such shares agree to be bound by similar restrictions, or (z)
pursuant to the Additional Offerings) or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The restrictions described
in this paragraph do not apply to the sale of the Shares to the Underwriters.

In order to facilitate the Equity Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
the Equity Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock
in the open market. Finally, the underwriting syndicate may

S-53
<PAGE> 54

reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Equity Offering, if the syndicate
repurchases previously distributed Common Stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Underwriters have performed various investment banking services for the
Company in the past and may do so from time to time in the future. Morgan
Stanley & Co. Incorporated, Petrie Parkman & Co., Inc. and Salomon Brothers Inc
(an affiliate of Smith Barney Inc., one of the Underwriters) each advised K N
Energy with regard to the Acquisition for which they each received customary
compensation. Merrill Lynch, Pierce, Fenner & Smith Incorporated served as an
underwriter of the Company's public offering of debentures in October 1997.
Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner & Smith Incorporated were
initial purchasers of the 8.56% Capital Trust Securities of K N Capital Trust I
in April 1997, and received customary compensation therefor. Morgan Stanley &
Co. Incorporated is also participating as an underwriter in the Debt Offerings.
Affiliates of certain Underwriters are lenders under the Bank Facility and the
Company intends to use a portion of the net proceeds of the Equity Offering to
refinance or repay a portion of the indebtedness incurred under the Bank
Facility. Because more than 10% of the net proceeds of this Offering will be
paid to affiliates of members of The National Association of Securities Dealers
(the "NASD"), the Offering is being made pursuant to Rule 2710(c)(8) of the
Conduct Rules of the NASD.

EXPERTS

The consolidated financial statements of K N Energy, Inc. and subsidiaries
as of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, incorporated by reference herein, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
report.

The consolidated financial statements of MidCon Corp. and subsidiaries as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, incorporated by reference herein, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
report.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock will be passed upon
for K N Energy by Martha B. Wyrsch, General Counsel of the Company (who as of
January 29, 1998 owned 2,553 shares of Common Stock and held options to purchase
an additional 32,299 shares of Common Stock), Simpson Thacher & Bartlett, New
York, New York and Polsinelli, White, Vardeman & Shalton, Kansas City, Missouri.
Certain legal matters will be passed upon for the Underwriters by Davis Polk &
Wardwell, New York, New York. Martha B. Wyrsch, Simpson Thacher & Bartlett and
Davis Polk & Wardwell will rely on Polsinelli, White, Vardeman & Shalton as to
matters of Kansas law.

S-54
<PAGE> 55
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-44421

PROSPECTUS SUPPLEMENT

(To Prospectus dated January 30, 1998)

11,000,000 Shares

K N Energy, Inc.
LOGO
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 11,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,500,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 9,500,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." THE
COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"KNE." ON MARCH 4, 1998 THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE WAS $52 PER SHARE.
------------------------

PRICE $52 A SHARE
------------------------

- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."

(2) Before deducting offering expenses payable by the Company estimated at
$750,000.

The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the shares of Common Stock will be made on or about March 10, 1998
at the office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
PETRIE PARKMAN & CO.
SALOMON SMITH BARNEY INTERNATIONAL
March 4, 1998
<PAGE> 56
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-44421

PROSPECTUS SUPPLEMENT

(To Prospectus dated January 30, 1998)

$2,350,000,000

K N Energy, Inc. [KN ENERGY LOGO]
$500,000,000 6.45% SENIOR NOTES DUE 2003
$500,000,000 6.65% SENIOR NOTES DUE 2005
$300,000,000 6.80% SENIOR NOTES DUE 2008
$500,000,000 7.25% SENIOR DEBENTURES DUE 2028
$150,000,000 7.45% SENIOR DEBENTURES DUE 2098
$400,000,000 6.30% RESET PUT SECURITIES (REPS(SM)) DUE 2021*
------------------------
THE 2003 SENIOR NOTES, THE 2005 SENIOR NOTES, THE 2008 SENIOR NOTES, THE 2028
SENIOR DEBENTURES, THE 2098 SENIOR DEBENTURES (COLLECTIVELY, THE "SENIOR NOTES")
AND THE 2021 REPS (COLLECTIVELY, WITH THE SENIOR NOTES, THE "OFFERED
SECURITIES") WILL MATURE ON MARCH 1, 2003, MARCH 1, 2005, MARCH 1, 2008, MARCH
1, 2028, MARCH 1, 2098 AND MARCH 1, 2021, RESPECTIVELY. THE OFFERED SECURITIES
(OTHER THAN THE 2003 SENIOR NOTES AND THE 2005 SENIOR NOTES) WILL BE REDEEMABLE
AS SET FORTH HEREIN UNDER "DESCRIPTION OF OFFERED SECURITIES." EACH SERIES OF
OFFERED SECURITIES WILL BE REPRESENTED BY ONE OR MORE GLOBAL DEBT SECURITIES
REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR ITS
NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL DEBT SECURITIES WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE
DEPOSITARY OR ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, OFFERED SECURITIES
IN DEFINITIVE FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF THE OFFERED
SECURITIES -- BOOK ENTRY SYSTEM" HEREIN AND "DESCRIPTION OF THE DEBT
SECURITIES -- PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT
SECURITIES -- GLOBAL DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.

CONCURRENTLY WITH THESE OFFERINGS (THE "DEBT OFFERINGS"), THE COMPANY IS
OFFERING 11,000,000 SHARES OF COMMON STOCK (THE "EQUITY OFFERING" AND, TOGETHER
WITH THE DEBT OFFERINGS, THE "OFFERINGS"). THE CLOSINGS OF THE EQUITY OFFERING
AND THE DEBT OFFERINGS ARE NOT CONDITIONED UPON EACH OTHER.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE S-12 FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE SECURITIES.
------------------------

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)(4)
------------ -------------- ----------------
<S> <C> <C> <C>
Per 2003 Senior Note.................. 99.822% .600% 99.222%
Per 2005 Senior Note.................. 99.755% .625% 99.130%
Per 2008 Senior Note.................. 99.752% .650% 99.102%
Per 2028 Senior Debenture............. 99.784% .875% 98.909%
Per 2098 Senior Debenture............. 99.496% 1.125% 98.371%
Per 2021 REPS......................... 99.929% .350% 102.579%
Total....................... $2,345,021,000 $15,537,500 $2,341,483,500
</TABLE>

- ------------
(1) Plus accrued interest, if any, from March 9, 1998.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $1,250,000.
(4) Represents consideration for the 2021 REPS, which includes consideration for
the Call Option.
------------------------

* REPS is a service mark of Morgan Stanley, Dean Witter, Discover & Co.
------------------------
The Offered Securities are offered, subject to prior sale, when, as and if
accepted by the Underwriters and subject to approval of certain legal matters by
Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Offered Securities will be made in book-entry form through the
book-entry facilities of The Depository Trust Company on or about March 9, 1998,
against payment therefor in immediately available funds.
------------------------

MORGAN STANLEY DEAN WITTER
BANCAMERICA ROBERTSON STEPHENS
CHASE SECURITIES INC.
LEHMAN BROTHERS
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
March 4, 1998
<PAGE> 57

CERTAIN PERSONS PARTICIPATING IN THE DEBT OFFERINGS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE
OFFERED SECURITIES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION
WITH THE DEBT OFFERINGS, AND MAY BID FOR, AND PURCHASE THE OFFERED SECURITIES IN
THE OPEN MARKET. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 58

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, AGENT OR DEALER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE OFFERED SECURITIES
OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT WITH THE
ACCOMPANYING PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-4
Risk Factors................................................ S-12
Use of Proceeds............................................. S-16
The Acquisition and the Financing Plan...................... S-17
Capitalization.............................................. S-20
Unaudited Pro Forma Consolidated Financial Statements....... S-22
Selected Historical Financial Information for K N Energy.... S-28
Selected Historical Financial Information for MidCon........ S-30
The Combined Company........................................ S-32
K N Energy, Inc............................................. S-36
MidCon Corp................................................. S-40
Regulation.................................................. S-44
Description of Offered Securities........................... S-49
Certain United States Federal Income Tax Considerations..... S-56
Underwriters................................................ S-60
Experts..................................................... S-61
Legal Matters............................................... S-61

S-3
<PAGE> 59

PROSPECTUS SUPPLEMENT SUMMARY

The following information does not purport to be complete and is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated by
reference herein or therein. As used in this Prospectus Supplement and the
accompanying Prospectus "the Company," "K N" and "K N Energy" refer to K N
Energy, Inc., together with its consolidated subsidiaries (including MidCon),
unless the context otherwise requires. As used in this Prospectus Supplement,
"MidCon" refers to MidCon Corp., together with its consolidated subsidiaries,
unless the context otherwise requires. All volumes of natural gas referred to
herein are stated at a pressure base of 14.73 pounds per square inch absolute
and at 60 degrees Fahrenheit and, in most instances, are rounded to the nearest
major multiple. The term "Mcf" means thousand cubic feet, the term "MMcf" means
million cubic feet, the term "Bcf" means billion cubic feet and the term "Tcf"
means trillion cubic feet. The term "MMBtus" means million British thermal units
("Btus"). "NGLs" refers to natural gas liquids, which consist of ethane,
propane, butane, iso-butane and natural gasoline. The term "Bbls" means barrels.
Prospective investors should carefully consider the matters discussed under the
caption "Risk Factors."

INTRODUCTION

On January 30, 1998, K N Energy acquired all of the outstanding capital
stock of MidCon from Occidental Petroleum Corporation ("Occidental") (the
"Acquisition") for $2.1 billion in cash and a short-term note in the aggregate
principal amount of $1.39 billion (the "Substitute Note"), which was
collateralized at the closing by letters of credit issued under a $4.5 billion
Bank Facility (as defined herein). As a result of the Acquisition, MidCon became
a wholly-owned subsidiary of K N Energy. The total amount of funds required by K
N to complete the Acquisition, pay related fees and expenses and to repay
borrowings under the Company's existing credit facility was approximately $2,543
million and was financed with borrowings made under the Bank Facility. The
Company will use the net proceeds from these offerings of senior notes of
varying maturities in an aggregate principal amount of $2.35 billion and the
Equity Offering to refinance borrowings under the Bank Facility incurred in
connection with the Acquisition and to purchase U.S. government securities to
replace a portion of the letters of credit that collateralize the Substitute
Note. The Company intends to purchase additional U.S. government securities to
replace the letters of credit and to further refinance borrowings under the Bank
Facility in the first half of 1998 through the sale of preferred capital trust
securities and mandatorily convertible preferred capital trust securities of
subsidiary trusts (the "Additional Offerings," and together with the Offerings
and the Company's borrowings under the Bank Facility in connection with the
Acquisition, the "Financing Plan"). The closings of the Debt Offerings and the
Equity Offering are not conditioned upon each other.

THE COMPANIES

K N ENERGY

S-4
<PAGE> 60

The Company's principal offices are located at 370 Van Gordon Street,
Lakewood, CO 80228, and its telephone number is (303) 989-1740.

MIDCON CORP.

THE COMBINED COMPANY

As a result of the Acquisition, K N Energy is one of the largest integrated
natural gas companies in the United States. On a pro forma basis as of
December 31, 1997, the Company owned and/or operated over 26,000 miles of
interstate, intrastate and offshore natural gas transmission pipeline,
approximately 10,000 miles of gathering pipeline, approximately 7,200 miles of
local distribution pipeline (excluding K N's Kansas natural gas distribution
assets) and 16 storage facilities with storage capacity of more than 250 Bcf of
working gas. On a pro forma basis, the Company also is one of the largest
transporters and marketers of natural gas in the United States with average
sales volumes of approximately 3.7 Bcf of natural gas per day and average
transportation volumes of approximately 5.2 Bcf of natural gas per day. On a pro
forma basis as of December 31, 1997, the Company had $8.6 billion in assets, and
pro forma for the year ended December 31, 1997, the Company had operating
revenues of $5.2 billion, operating income of $359.7 million and net income of
$97.1 million.

BUSINESS STRATEGY

S-5
<PAGE> 61

S-6
<PAGE> 62

Expand the Company's retail presence. In order to take advantage of the
rapidly changing competitive landscape in the utility industry, the Company has
developed value-added products and services to offer to its customers beyond the
traditional energy commodity. As part of this strategy, K N developed Simple
Choice which offers consumers, through their local utilities, a bundled package
of energy, communications and entertainment products serviced through one call
and itemized on one bill. The Simple Choice package of services is marketed to
other utilities through the Company's EN-able joint venture with PacifiCorp
Holdings, Inc. By licensing Simple Choice to other gas, electric and water
utilities, EN-able creates partnerships that allow utility partners to play a
broader role in providing a range of products and services to the home, and
allows EN-able to build a larger retail presence in the marketplace more quickly
than it could on its own. EN-able also provides back-office support to its
utility partners, including infrastructure support for customer care and billing
functions and marketing channels. Management believes MidCon's retail marketing
operations, which are conducted through mc squared Inc. ("mc squared") and which
market gas and electricity principally to commercial and industrial customers,
complement the operations of EN-able.

S-7
<PAGE> 63

THE DEBT OFFERINGS

Offered Securities......... $500 million principal amount of 6.45% Senior Notes
due 2003
$500 million principal amount of 6.65% Senior Notes
due 2005
$300 million principal amount of 6.80% Senior Notes
due 2008
$500 million principal amount of 7.25% Senior
Debentures due 2028
$150 million principal amount of 7.45% Senior
Debentures due 2098
$400 million principal amount of 6.30% REPS due
2021

Maturity Dates............. 2003 Senior Notes -- March 1, 2003
2005 Senior Notes -- March 1, 2005
2008 Senior Notes -- March 1, 2008
2028 Senior Debentures -- March 1, 2028
2098 Senior Debentures -- March 1, 2098
2021 REPS -- March 1, 2021

Interest Payment Dates..... March 1 and September 1 of each year, commencing
September 1, 1998.

Ranking.................... The Offered Securities will be senior unsecured
obligations of the Company and will rank pari
passu in right of payment with the Company's
obligations under all its existing and future
senior unsecured indebtedness.

Redemption................. The 2003 Senior Notes and the 2005 Senior Notes
will not be redeemable prior to maturity. The
2008 Senior Notes, the 2028 Senior Debentures and
the 2098 Senior Debentures will be redeemable in
whole or in part, at the option of the Company at
any time, at redemption prices as set forth
herein under "Description of Offered
Securities -- The Senior Notes -- Redemption."

The 2021 REPS will be subject to mandatory
redemption from the then existing holders on
March 1, 2001 either (i) through the exercise of
the Call Option (as defined herein) by Morgan
Stanley & Co. International Limited (the
"Callholder"), or (ii) in the event the
Callholder does not exercise the Call Option, the
automatic exercise of the Mandatory Put (as
defined herein) by First Trust National
Association (the "Debt Trustee") on behalf of the
holders. If the Callholder elects to purchase the
2021 REPS, the 2021 REPS will be acquired by the
Callholder from the holders on March 1, 2001 (the
"Coupon Reset Date") at 100% of the principal
amount thereof. If the Callholder for any reason
does not elect to purchase the 2021 REPS on the
Coupon Reset Date, the Company will be required
to repurchase the 2021 REPS from the holders on
March 1, 2001 at 100% of the principal amount
thereof. See "Description of Offered
Securities -- The 2021 REPS -- Call Option;
Mandatory Put."

Interest Rates............. Each series of Senior Notes will bear interest at
the annual rate contained in its title.

The 2021 REPS will bear interest at the rate of
6.30% until the Coupon Reset Date. If the
Callholder has elected to exercise the Call
Option, the interest rate on the 2021 REPS will
be reset by the Calculation Agent (as defined
herein) effective on the Coupon Reset Date
pursuant to the Coupon Reset Process. See
"Description of Offered Securities -- The 2021
REPS -- Coupon Reset Process if the Notes are
Called."

S-8
<PAGE> 64

Certain Covenants.......... The Senior Debt Indenture governing the Offered
Securities contains certain covenants that, among
other things, limit the ability of the Company
and its subsidiaries to create liens, enter into
sale and lease-back transactions, and engage in
mergers and consolidations or transfer
substantially all of the Company's assets. See
"Description of the Debt Securities" in the
accompanying Prospectus.

Use of Proceeds............ The net proceeds from the Debt Offerings will be
used to refinance borrowings under the Bank
Facility and to purchase U.S. government
securities to collateralize the Substitute Note
and replace a portion of the letters of credit
currently collateralizing the Substitute Note.
See "The Acquisition and Financing Plan" and "Use
of Proceeds."

Equity Offering............ The Company is concurrently offering to the public
11,000,000 shares of common stock. The closings
of the Debt Offerings and the Equity Offering are
not conditioned upon each other.

S-9
<PAGE> 65

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

S-10
<PAGE> 66
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
HISTORICAL
------------------------
K N MIDCON PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
(UNAUDITED)

(2) Includes K N's Kansas natural gas distribution assets which will be sold
upon receipt of regulatory approval.

S-11
<PAGE> 67

RISK FACTORS

Prospective purchasers of the Offered Securities should carefully review
the information contained elsewhere in this Prospectus Supplement or in the
accompanying Prospectus or incorporated by reference herein or therein and
should particularly consider the following matters.

ACQUISITION OF MIDCON; INTEGRATION OF BUSINESSES OF K N ENERGY AND MIDCON

In connection with the Acquisition, the Company became obligated with
respect to MidCon's liabilities including, without limitation, liabilities with
respect to environmental matters, liabilities (including liabilities with
respect to retiree welfare benefits) under MidCon's employee benefits plans and
the obligations of Occidental's insurance subsidiary with respect to insurance
policies previously issued to MidCon. Pursuant to the stock purchase agreement
for the Acquisition (the "Agreement"), Occidental has indemnified the Company
with respect to some of these liabilities, including all liabilities with
respect to MidCon's employee stock ownership plan. However, there can be no
assurance that any of the liabilities will not adversely affect the Company's
results of operations or financial condition. The representations and warranties
contained in the Agreement generally survive the closing of the Acquisition for
one year. There can be no assurance that liabilities will not arise that are not
covered by Occidental's indemnity of K N or that such liabilities may not arise
following such one-year period. See "The Acquisition and the Financing Plan."

EFFECT OF SUBSTANTIAL LEVERAGE

S-12
<PAGE> 68

K N Energy's leverage may have important consequences to holders of the
Offered Securities, including: (i) limiting K N Energy's ability to obtain
additional financing to fund future working capital requirements, capital
expenditures, debt service requirements, acquisitions or other general corporate
requirements; (ii) requiring a substantial portion of K N Energy's cash flow
from operations to be dedicated to payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations and future
business opportunities; (iii) placing K N Energy at a competitive disadvantage
to companies with which it competes that may be less leveraged; and (iv)
increasing K N Energy's vulnerability to adverse economic and industry
conditions. In addition, since certain of K N Energy's borrowings may be at
variable rates of interest, K N Energy will be vulnerable to increases in
interest rates, which could have a material adverse effect on K N Energy's
results of operations, liquidity and financial condition. K N Energy's ability
to make scheduled payments of the principal of, to pay interest on or to
refinance its indebtedness depends on its future performance, which to a certain
extent is subject to economic, financial, competitive and other factors beyond
its control. There can be no assurance that K N Energy's business will continue
to generate cash flow from operations in the future sufficient to service its
debt and make necessary capital expenditures. If unable to generate such cash
flow, K N Energy may be required to adopt one or more alternatives, such as
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these strategies could be effected on
satisfactory terms or without substantial additional expense to K N Energy.
These and other factors could have a material adverse effect on the results of
operations, liquidity and financial condition of K N Energy.

RISKS RELATING TO ACQUISITION STRATEGY

COMPETITION

S-13
<PAGE> 69

FLUCTUATING COMMODITY PRICES

REGULATION; PENDING REGULATORY PROCEEDINGS

S-14
<PAGE> 70

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed under the captions "Prospectus Supplement
Summary," "Risk Factors," "Unaudited Pro Forma Consolidated Financial
Statements," "The Combined Company," "K N Energy, Inc.," "MidCon Corp." and
elsewhere in this Prospectus Supplement include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Although the Company believes that these
statements are based upon reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results to
differ materially from those in the forward-looking statements contained herein
include, among other factors, the pace of deregulation of retail natural gas and
electricity markets in the United States, other federal and state regulatory
developments, the timing and extent of changes in commodity prices for oil, gas,
NGLs, electricity and interest rates, the extent of the Company's success in
acquiring natural gas facilities, the ability of the Company to successfully
integrate MidCon and other acquisition candidates into its operations, the
timing and success of efforts to develop power, pipeline and other projects,
political developments in foreign countries and conditions of the capital
markets and equity markets during the periods covered by the forward-looking
statements.

S-15
<PAGE> 71

USE OF PROCEEDS

The net proceeds of the Debt Offerings are estimated to be approximately
$2,340.2 million. K N intends to use such net proceeds to refinance a portion of
the indebtedness incurred under the Bank Facility in connection with the
Acquisition and to purchase U.S. government securities to collateralize the
Substitute Note and replace a portion of the letters of credit issued under the
Bank Facility currently collateralizing the Substitute Note. As of February 1,
1998 the Acquisition borrowings bore interest at 6.16%. All of the borrowings
and extensions of credit under the Bank Facility mature on January 29, 1999
other than borrowings under the $400 Million Facility (as defined herein) which
matures on January 30, 2003. See "The Acquisition and the Financing Plan."

S-16
<PAGE> 72

THE ACQUISITION AND THE FINANCING PLAN

THE ACQUISITION

Pursuant to the Agreement, on January 30, 1998, the Company paid
approximately $2.1 billion in cash and issued the Substitute Note in an
aggregate principal amount of approximately $1.39 billion to Occidental to
acquire the outstanding shares of capital stock of MidCon (the "MidCon Shares")
and a note in a like aggregate principal amount issued to Occidental by MidCon's
employee stock ownership plan (the "ESOP Note"). In connection with the planned
termination of MidCon's employee stock ownership plan following the Acquisition,
the ESOP Note was cancelled. The Substitute Note is required to be paid in full
on January 4, 1999 and bears interest at a rate equal to 5.798%. The Company is
required to collateralize the Substitute Note plus an amount equal to 105 days
of accrued interest with U.S. government securities or one or more letters of
credit, or a combination thereof. Such amounts were initially collateralized
with letters of credit which the Company intends to replace with U.S. government
securities purchased with the proceeds of the Offerings and the Additional
Offerings. See "Use of Proceeds" and "-- The Financing Plan."

THE FINANCING PLAN

The total amount of funds required by K N Energy to complete the
Acquisition, including payment of related transaction costs, was approximately
$2,543 million, which was financed through borrowings under Credit Agreements,
dated as of January 30, 1998 (the "Bank Facility"), among the Company, Morgan
Guaranty Trust Company of New York ("Morgan Guaranty"), an affiliate of J.P.
Morgan Securities Inc., and a syndicate of other lenders. The Bank Facility
replaced the Company's Amended and Restated Credit Agreement, dated as of March
7, 1997, among the Company, Morgan Guaranty and a syndicate of other lenders
(the "1997 Credit Agreement"). In addition, the Company issued the Substitute
Note which, pursuant to the Agreement, was collateralized by letters of credit
issued under the Bank Facility. The Company intends to refinance borrowings
under the Bank Facility and purchase U.S. government securities to replace a
portion of the letters of credit issued under the Bank Facility through the
Offerings. The Company intends to purchase additional U.S. government securities
to collateralize the Substitute Note and replace the letters of credit and
further refinance borrowings under the Bank Facility through the issuance of
approximately $400 million of mandatorily convertible preferred capital trust
securities of a subsidiary trust and approximately $228 million of preferred
capital trust securities of another subsidiary trust during the first half of
1998. The Company is required to refinance $4.1 billion of borrowings and the
extension of credit under several letters of credit under the Bank Facility
within 364 days following the consummation of the Acquisition.

S-17
<PAGE> 73

At the closing of the Acquisition, the financing was provided as follows:

DESCRIPTION OF BANK FACILITY

The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms of the Bank Facility.

S-18
<PAGE> 74

S-19
<PAGE> 75

CAPITALIZATION

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE ADJUSTMENTS AS ADJUSTED
OFFERINGS OFFERINGS FOR THE FOR THE
K N AND THE AND THE ADDITIONAL ADDITIONAL
HISTORICAL ACQUISITION ACQUISITION OFFERINGS OFFERINGS
------------- ----------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Securities held as collateral for
Substitute Note.......................... -- $ 360,102(1) $ 360,102(1) $ 421,024(5) $1,394,846
========== ========== ==========
613,720(6)
Short-term debt:
Current maturities of long-term debt..... $ 30,751 $ 30,751 $ 30,751
Borrowings under 1997 Credit Agreement... 329,200 $ (329,200)(2) -- --
Borrowings under Bank Facility........... -- 2,199,852(2) 421,024(5) 421,024
329,200(2)
(1,980,132)(1)
(548,920)(3)
Substitute Note due January 1, 1999...... -- 1,394,846(4) 1,394,846 1,394,846
---------- ---------- ----------
Total short-term debt.............. $ 359,951 $1,425,597 $1,846,621
========== ========== ==========
Long-term debt............................. $ 553,816 2,350,000(1) $2,903,816 $2,903,816

K N-obligated mandatorily redeemable
preferred capital trust securities of
subsidiary trusts holding solely
debentures of K N(7)..................... 100,000 100,000 228,000(6) 328,000

K N-obligated mandatorily convertible
preferred capital trust securities of
subsidiary trust holding solely
debentures of K N(7)..................... -- -- 388,000(6) 388,000

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

(2) Gives effect to acquisition debt totalling approximately $2.5 billion,
including $329.2 million which was used to repay amounts borrowed under the
1997 Credit Agreement.

S-20
<PAGE> 76

(5) Gives effect to incremental borrowings under the Bank Facility and
application of the proceeds to purchase U.S. government securities to
collateralize in part the Substitute Note.

(7) The sole assets of the trusts are or will be debentures of K N. Upon
prepayment of such debentures, the related capital securities will be
mandatorily redeemable.

(8) In February 1998, K N Energy's board of directors approved an increase in
the number of authorized shares of Common Stock to 150,000,000. Such
increase is subject to shareholder approval.

S-21
<PAGE> 77

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

S-22
<PAGE> 78

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

S-23
<PAGE> 79

UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------
K N ENERGY MIDCON ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Revenues...................... $2,145,118 $3,045,081 $5,190,199
---------- ---------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of
Sales.............................. 1,724,671 2,540,928 4,265,599
Operations and Maintenance............ 198,274 111,824 $ (4,800)(i) 305,298
Depreciation and Amortization......... 55,994 149,599 (187)(m) 205,406
Taxes, Other Than Income Taxes........ 23,930 30,297 54,227
---------- ---------- --------- ----------
Total Operating Costs and
Expenses.................... 2,002,869 2,832,648 (4,987) 4,830,530
---------- ---------- --------- ----------
Operating Income........................ 142,249 212,433 4,987 359,669
---------- ---------- --------- ----------
Other Income and (Deductions):
Interest Expense...................... (43,495) (241,838) 15,158(n) (256,638)
13,537(o)
Minority Interests.................... (8,706) -- (8,706)
Other, Net............................ 23,110 23,469 (13,507)(o) 50,531
(726)(b)
18,185(b)
---------- ---------- --------- ----------
Total Other Income and (Deductions)..... (29,091) (218,369) 32,647 (214,813)
---------- ---------- --------- ----------
Income Before Income Taxes.............. 113,158 (5,936) 37,634 144,856
Income Taxes............................ 35,661 (1,426) 13,481(p) 47,716
---------- ---------- --------- ----------
Net Income.............................. 77,497 (4,510) 24,153 97,140
Less -- Preferred Stock Dividends....... 350 -- 350
---------- ---------- --------- ----------
Earnings Available For Common Stock..... $ 77,147 $ (4,510) $ 24,153 $ 96,790
---------- ---------- --------- ----------
Diluted Earnings Per Common Share....... $ 2.45 $ 2.28
Number of Shares Used in Computing
Diluted Earnings Per Common Share..... 31,538 11,000(f) 42,538
Dividends Per Common Share.............. $ 1.09 $ 1.09*
</TABLE>

- ---------------
* Represents K N's historical dividends per common share

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

S-24
<PAGE> 80

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS

(a) Acquisition debt is calculated based on the following assumptions:

S-25
<PAGE> 81
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Investments............................................... 49,829
Deferred Charges and Other Assets......................... 14,540
Property, Plant and Equipment, Net(*)..................... 5,229,429
Accounts Payable.......................................... (316,756)
Gas Imbalances and Other.................................. (266,109)
Deferred Income Taxes(**)................................. (1,559,910)
Other Non-Current Liabilities............................. (185,445)
Accrued Expenses.......................................... (25,000)
Minority Interest in Unconsolidated Subsidiaries.......... (7,331)
----------
Total............................................. $3,608,820
==========
</TABLE>

(e) To eliminate the receivable and corresponding deferred taxes associated
with deferred intercompany gains which will be settled at closing.

(g) Reflects the utilization of additional borrowings under the Bank
Facility to repay the borrowings outstanding under the 1997 Credit
Agreement.

(j) Represents the elimination of the deferred net gain recorded in
conjunction with MidCon's postretirement benefit plan.

(k) Gives pro forma effect to the elimination of MidCon's long-term payable
to Occidental recorded in conjunction with a November 30, 1996 dividend
declaration of $1.6 billion.

(l) Represents the elimination of the historical equity balances of MidCon.

S-26
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)

(m) The pro forma adjustment to depreciation and amortization consists of
the following:

(n) The pro forma adjustment to interest expense consists of the following:

S-27
<PAGE> 83

SELECTED HISTORICAL FINANCIAL INFORMATION FOR K N ENERGY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues
Gathering, processing and marketing services.............. $ 730,895 $ 838,474 $ 854,462 $1,191,292 $1,866,327
Interstate transportation and storage services............ 99,838 21,044 22,217 25,352 23,757
Retail natural gas services............................... 212,905 220,431 227,282 223,838 255,034
Gas and oil production.................................... 5,321 11,328 7,437 -- --
---------- ---------- ---------- ---------- ----------
Total operating revenues............................ 1,048,959 1,091,277 1,111,398 1,440,482 2,145,118
Operating costs and expenses................................ 968,085 1,036,398 996,036 1,305,681 2,002,869
---------- ---------- ---------- ---------- ----------
Operating income............................................ 80,874 54,879 115,362 134,801 142,249
Other income and (deductions):
Interest expense.......................................... (30,513) (31,605) (34,211) (35,933) (43,495)
Minority interests........................................ 292 (659) (905) (2,946) (8,706)
Other, net................................................ (1,185) 2,206 1,326 3,794 23,110
---------- ---------- ---------- ---------- ----------
Income before income taxes.................................. 49,468 24,821 81,572 99,716 113,158
Income taxes................................................ 18,599 9,500 29,050 35,897 35,661
---------- ---------- ---------- ---------- ----------
Net income.................................................. 30,869 15,321 52,522 63,819 77,497
Preferred stock dividends................................... 853 630 492 398 350
---------- ---------- ---------- ---------- ----------
Earnings available for common stock......................... $ 30,016 $ 14,691 $ 52,030 $ 63,421 $ 77,147
========== ========== ========== ========== ==========
Number of shares used in computing diluted earnings
per common share.......................................... 27,424 28,044 28,360 29,624 31,538
Diluted earnings per common share........................... $ 1.09 $ 0.52 $ 1.83 $ 2.14 $ 2,45
Dividends per common share.................................. 0.51 0.76 1.01 1.05 1.09
OTHER FINANCIAL DATA:
Net cash flows from operating activities.................... $ 67,943 $ 91,212 $ 129,580 $ 80,829 $ 97,503
EBITDA(1)................................................... 124,625 106,704 165,674 186,861 212,647
Capital expenditures and acquisitions....................... 148,301 101,742 111,258 267,124 429,683
Depreciation, depletion and amortization.................... 44,644 50,278 49,891 51,212 55,994
Ratio of earnings to fixed charges(2)....................... 2.41x 1.69x 3.07x 3.21x 2.72x
</TABLE>

S-28
<PAGE> 84

(2) Respecting the computation of the ratio of earnings to fixed charges see
"Ratios of Earnings to Fixed Charges" in the accompanying Prospectus.

(3) Including K N's Kansas natural gas distribution assets the sale of which
will close upon receipt of regulatory approval.

S-29
<PAGE> 85

SELECTED HISTORICAL FINANCIAL INFORMATION FOR MIDCON

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Gas sales, transportation, storage and other operating
revenues............................................... $2,403,185 $2,109,834 $2,038,444 $2,574,211 $3,045,081
Interest and other income................................ 261,598 24,486 11,686 1,187 13,115
Earnings of pipeline ventures............................ 10,760 13,100 18,155 12,716 11,799
---------- ---------- ---------- ---------- ----------
Total revenues..................................... 2,675,543 2,147,420 2,068,285 2,588,114 3,069,995
Costs and other deductions
Cost of sales............................................ 1,787,552 1,561,331 1,473,370 1,981,235 2,540,928
Selling, general, administrative and other operating
expenses............................................... 103,883 109,556 167,235 108,347 111,824
Depreciation............................................. 274,551 191,672 193,112 177,511 149,599
Taxes other than income taxes............................ 45,470 45,585 42,357 46,226 30,297
Interest expense......................................... 2,103 8,101 23,286 79,626 241,838
Other.................................................... 1,414 1,802 1,646 2,000 1,445
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......................... $ 460,570 $ 229,373 $ 167,279 $ 193,169 $ (5,936)
========== ========== ========== ========== ==========
OTHER FINANCIAL DATA:
Net cash provided by operating activities.................. $ 306,205 $ 454,383 $ 167,305 $ 267,073 $ 175,320
EBITDA(1).................................................. 737,224 429,146 383,677 450,306 385,501
Capital expenditures....................................... 64,831 92,656 150,229 146,883 95,598
Depreciation............................................... 274,551 191,672 193,112 177,511 149,599
</TABLE>

S-30
<PAGE> 86

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 4,600 $ 8,098 $ 10,414 $ 4,258 $ 14,122
Current assets............................................. 597,471 730,683 561,748 1,033,007 977,155
Total assets............................................... 7,276,792 7,330,820 7,095,494 6,652,362 6,527,668
Current liabilities........................................ 581,902 533,622 513,620 961,614 898,015
ESOP debt.................................................. -- -- -- 1,386,026 1,372,458
Long-term debt............................................. 83,462 32,802 874,899 1,632,696 1,600,000
Minority interests in equity of subsidiaries............... 12,985 5,870 5,349 8,076 7,331
Common stockholder's equity................................ 4,228,001 4,372,210 3,328,038 692,641 736,471
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
NGPL
Transportation volumes (Bcf).............................. 1,408 1,318 1,318 1,284 1,095
MidCon Texas
Sales volumes (Bcf)....................................... 211 198 238 239 269
Transportation volumes (Bcf).............................. 201 215 215 271 302
MidCon Gas Services
Sales volumes (Bcf)....................................... 211 351 410 460 561
MidCon Gas Products
Natural gas liquids sales volumes (MM Gal)................ 179 124 160 174 136
</TABLE>

(2) Includes pipeline that is either owned or operated.

S-31
<PAGE> 87

THE COMBINED COMPANY

As a result of the Acquisition, K N Energy is one of the largest integrated
natural gas companies in the United States. On a pro forma basis as of December
31, 1997, the Company owned and/or operated over 26,000 miles of interstate,
intrastate and offshore natural gas transmission pipeline, approximately 10,000
miles of gathering pipeline, approximately 7,200 miles of local distribution
pipeline (excluding K N's Kansas natural gas distribution assets) and 16 storage
facilities with storage capacity of more than 250 Bcf of working gas. On a pro
forma basis, the Company is also one of the largest transporters and marketers
of natural gas in the United States with average sales volumes of approximately
3.7 Bcf of natural gas per day and average transportation volumes of
approximately 5.2 Bcf of natural gas per day. On a pro forma basis as of
December 31, 1997, the Company had $8.6 billion in assets, and pro forma for the
year ended December 31, 1997, the Company had operating revenues of $5.2
billion, operating income of $359.7 million and net income of $97.1 million.

In addition to significantly increasing the Company's size and scope of
operations as well as its geographic presence, management believes the
Acquisition also provides K N with a strong platform for future growth. On a pro
forma basis, the Company now has pipeline assets in 16 states and access to
several of the largest natural gas markets in the United States, including
Chicago, Houston, Kansas City and Denver. In addition, the combined company has
access to natural gas supplies in the major natural gas supply basins in the
United States, including those in the Mid-Continent, West Texas, Rocky Mountain
and Gulf Coast regions. As a result of the Acquisition, the Company is also be
one of the nation's largest owners and operators of natural gas storage assets
in both supply and market areas. Management believes these assets are
strategically located and will allow the Company to become a major supplier of
storage service, particularly in the Chicago market. Management believes the
Acquisition also significantly broadens the Company's retail presence in both
the residential and small business market segments.

BUSINESS STRATEGY

Optimize operation of the Company's assets

S-32
<PAGE> 88

Aggressively pursue new markets

Leverage regulated assets by developing complementary unregulated businesses

Pursue strategic acquisitions, alliances, joint ventures and partnerships

Maintain and enhance the Company's position as a low-cost provider

S-33
<PAGE> 89

Expand the Company's retail presence

In order to take advantage of the rapidly changing competitive landscape in
the utility industry, the Company has developed value-added products and
services to offer to customers beyond the traditional energy commodity. As part
of this strategy, K N developed Simple Choice which offers consumers, through
their local utilities, a bundled package of energy, communications and
entertainment products serviced through one call and itemized on one bill. The
Simple Choice package of services is marketed to other utilities through the
Company's EN-able joint venture with PacifiCorp Holdings, Inc. By licensing
Simple Choice to other gas, electric and water utilities, EN-able creates
partnerships that allow utility partners to play a broader role in providing a
range of products and services to the home, and allows EN-able to build a larger
retail presence in the marketplace more quickly than it could on its own.
EN-able also provides back-office support to its utility partners, including
infrastructure support for customer care and billing functions and marketing
channels. Management believes MidCon's retail marketing operations, which are
conducted through mc squared and which market gas and electricity principally to
commercial and industrial customers, complement the operations of EN-able.

INDUSTRY OVERVIEW

Evolution of the Natural Gas Business

Beginning in the mid-1980's, the FERC exercised its broad regulatory
authority and undertook the process of deregulating the natural gas industry.
Traditionally, a pipeline company's numerous gas services to utilities and other
end users, such as sales, local transportation and storage, had been tied
together and offered to customers as a single "bundled" product at one price.
The final deregulation order, FERC Order 636, which became effective at the end
of 1993, required natural gas companies to "unbundle" these services and
separately price each component, thus introducing market-driven competition
within the natural gas transmission industry and allowing large volume customers
to choose a natural gas supplier. See "Regulation." As a result of deregulation,
natural gas companies have focused their efforts on increasing the quality and
scope of their products and services in order to attract and retain customers as
well as take advantage of higher margin business activities. In addition, there
has been significant consolidation in the industry involving gas gathering,
processing, transmission and marketing assets as companies have sought to
increase the size and scope of their operations to achieve economies of scale
and gain market share.

S-34
<PAGE> 90

Natural Gas Supply and Demand Dynamics

S-35
<PAGE> 91

K N ENERGY, INC.

OVERVIEW

GATHERING, PROCESSING AND MARKETING SERVICES

Gas Gathering and Processing

S-36
<PAGE> 92

Marketing

K N Field Services

S-37
<PAGE> 93

INTERSTATE TRANSPORTATION AND STORAGE SERVICES

RETAIL NATURAL GAS SERVICES

Regulated Retail Services

S-38
<PAGE> 94

December 1997, and which sale is expected to be consummated in the second
quarter of 1998, following receipt of regulatory approval).

Gas Purchases and Supply

Unregulated Retail Services

S-39
<PAGE> 95

MIDCON CORP.

OVERVIEW

MidCon is engaged in the purchase, gathering, processing, transmission,
storage and sale of natural gas to utilities, municipalities and industrial and
commercial users. MidCon also purchases electricity from electric utilities, and
other electric power producers and marketers and resells the electricity to
wholesale and end-use customers.

MidCon's operations are conducted through its principal subsidiaries: NGPL,
which owns and operates a major interstate pipeline transmission system and
related assets; MidCon Texas Pipeline Operator, Inc. ("MidCon Texas"), which
operates an intrastate pipeline system in Texas; MidCon Gas Services Corp.
("MidCon Gas"), which purchases and sells natural gas and arranges for the
transportation and storage of such gas; MidCon Power Services Corp. ("MidCon
Power"), which purchases electricity from electric utilities and other electric
power producers and marketers, resells electricity to wholesale customers and
arranges for the transmission of such power; mc squared Inc. ("mc squared"),
which markets natural gas and electricity at the retail level; and MidCon Gas
Products Corp. ("MidCon Gas Products"), which gathers and processes natural gas.
In addition, MidCon also has equity investments in several other natural gas
pipelines.

INTERSTATE AND INTRASTATE TRANSPORTATION SERVICES

Transportation and Sales

S-40
<PAGE> 96

In 1996, Trailblazer Pipeline Company ("Trailblazer"), a regulated natural
gas transmission business funded by a general partnership in which a subsidiary
of NGPL owns a one-third interest, signed 10-year agreements with six shippers
for additional firm transportation service. To accommodate these additional
service requirements, Trailblazer installed compression to increase pipeline
capacity by approximately 104 MMcf per day. The new compression facilities went
into service during the summer of 1997. Trailblazer's

S-41
<PAGE> 97

system runs from eastern Colorado to eastern Nebraska and transports gas
produced in the Rocky Mountains. NGPL is the operator of the pipeline.
Trailblazer moved approximately 200 Bcf of gas in 1997.

Storage

These storage assets further complement the pipeline facilities and allow
MidCon to optimize deliveries on its pipelines and meet peak delivery
requirements in its principal markets.

GATHERING, PROCESSING AND MARKETING SERVICES

RETAIL NATURAL GAS SERVICES

MidCon formed mc(2) in February 1997 to extend its skills in marketing
natural gas and electricity to retail customers including small industrial,
commercial and, as regulation ultimately allows, residential end-users. These
customer groups constitute over one-half of the natural gas and two-thirds of
the electricity consumed in the United States annually and MidCon believes that
substantial opportunities exist for selling natural gas

S-42
<PAGE> 98
supply products that are simple, reliable and cost-competitive. In providing
energy services, mc squared works in a coordinated effort with MidCon Gas and
MidCon Power, with these two entities acting as exclusive energy providers to mc
mc squared.

In February 1997 mc squared initiated its service in the market area
surrounding Chicago, an area where MidCon has a strong competitive position, and
the New York City metropolitan market, an area where unbundling efforts and
utility tariffs provide opportunities for profit. Mc squared currently serves
over 10,000 commercial natural gas customers in Illinois, Pennsylvania, New York
and New Jersey and has begun marketing in Ohio. Several thousand customers were
added in August 1997 when mc squared acquired certain assets of Norstar Energy
Limited Partnership ("Norstar"). The former Norstar customers account for annual
sales of about 8 Bcf of natural gas.

In September 1997, mc squared began offering electric service to commercial
customers by participating in Pennsylvania's statewide pilot program, one of the
first of its kind in the nation. The plan allows up to 5% of each customer class
at each utility to self-nominate a supplier other than the local electric
utility. By aggressively focusing on two key markets during a two-week
nomination window, mc squared signed up over 400 businesses served by three
utilities in Pittsburgh and Philadelphia.

S-43
<PAGE> 99

REGULATION

FEDERAL AND STATE REGULATION

S-44
<PAGE> 100

suppliers. Under settlement agreements reached by NGPL and its former sales
customers, NGPL recovered from those customers over a four year period beginning
December 1, 1993, a significant amount of the gas supply realignment (GSR)
costs. The FERC has also permitted NGPL to implement a tariff mechanism to
recover additional portions of its GSR costs in rates charged to transportation
customers that were not party to the settlements. In July 1996, a Federal
appellate court remanded Order 636 to the FERC for further explanation of
aspects of its decision regarding recovery of GSR costs by interstate pipelines.
Because of the settlements and FERC orders authorizing NGPL's GSR cost recovery
mechanism, the remand is not expected to have any significant impact on NGPL.
The FERC has allowed GSR rates to go into effect on December 1, 1997, subject to
refund, to recover any shortfall in recoveries of GSR costs allocated to
interruptible transportation. However, the FERC rejected NGPL's filing for
rehearing that NGPL be allowed to recoup a portion of any shortfall on title
transfers and interruptible transportation to pooling points.

Gathering, Processing and Marketing Services

The FERC has historically distinguished between facilities owned by
noninterstate pipeline companies, such as the Company's gathering facilities, on
a fact-specific basis.

Certain of the Company's (including MidCon Texas') intrastate pipeline
services and assets are subject to regulation by the Texas Railroad Commission.

Interstate Transportation and Storage Services

S-45
<PAGE> 101

566, et. seq., the Marketing Affiliate Rules, which prohibit preferential
treatment by an interstate pipeline of its marketing affiliates and govern in
particular the provision of information by an interstate pipeline to its
marketing affiliates.

In January 1998, the Company's subsidiary, K N Interstate Gas Transmission
Co. ("KNI") filed a rate case requesting an increase in its rates which would
result in additional annual revenues of $30.2 million. The FERC, by an order
dated February 26, 1998, accepted the filing and suspended its effective date
for the full five-month period permitted by the Natural Gas Act thus permitting
the rates to go into effect subject to refund August 1, 1998. Various parties
intervened in the proceedings. There will be interventions by interested parties
including its customers and that there will be additional proceedings before the
FERC to resolve differences. As indicated under "Risk Factors -- Regulation;
Pending Regulatory Proceedings," the Company will pursue a negotiated resolution
of any differences but the Company cannot predict with certainty whether the
regulatory proceedings will be resolved through a negotiated settlement or
through administrative litigation. The Company's interstate pipeline business
could be adversely affected by an unsatisfactory outcome.

S-46
<PAGE> 102

Retail Natural Gas Services

ENVIRONMENTAL REGULATION

In May 1997, the Nebraska Department of Environmental Quality ("NDEQ")
issued a violation notice to K N Interstate Gas Transmission Company ("KNI")
regarding historical Prevention of Significant Deterioration permitting issues
related to certain engines at the Big Springs, Nebraska, facility. KNI is in the
process of obtaining the proper permits at this time, and is also engaged in
discussions with NDEQ regarding settlement of the violation notice and a
$500,000 fine currently proposed by NDEQ. The costs associated with this matter
are not expected to have a material adverse effect on the Company's business,
financial position or results of operations.

S-47
<PAGE> 103

S-48
<PAGE> 104

DESCRIPTION OF OFFERED SECURITIES

The following description of the particular terms of the Offered Securities
offered hereby supplements and, to the extent inconsistent therewith, replaces
the description of the general terms and provisions of the Offered Securities
set forth in the accompanying Prospectus under the caption "Description of the
Debt Securities," to which description reference is hereby made. The following
summary is qualified in its entirety by reference to the Senior Debt Indenture
referred to in the accompanying Prospectus. Capitalized terms defined in the
Prospectus have the same meanings when used herein.

GENERAL

The Senior Notes and the 2021 REPS offered hereby constitute six separate
series of Senior Debt Securities, limited to (i) $500 million aggregate
principal amount, with respect to the 2003 Senior Note series, (ii) $500 million
aggregate principal amount, with respect to the 2005 Senior Note series, (iii)
$300 million aggregate principal amount, with respect to the 2008 Senior Notes
series, (iv) $500 million aggregate principal amount, with respect to the 2028
Senior Debentures, (v) $150 million aggregate principal amount with respect to
the 2098 Senior Debentures and (vi) $400 million aggregate principal amount with
respect to the 2021 REPS. Upon issuance, each series of the Offered Securities
will be represented by one or more registered Global Debt Securities that will
be deposited with, or on behalf of, the Depositary and will be registered in the
name of the Depositary or its nominee. For so long as the Offered Securities are
registered in the name of the Depositary, or its nominee, the principal and
interest due on the Offered Securities will be payable by the Company or its
agent to the Depositary for payment to its participants for subsequent
disbursement to the beneficial owners. See "--Book-Entry System" below and
"Description of the Debt Securities--Provisions Applicable to Both Senior and
Subordinated Debt Securities--Global Debt Securities" in the accompanying
Prospectus.

The defeasance and covenant defeasance provisions of the Senior Debt
Indenture described under the caption "Description of the Debt
Securities--Provisions Applicable to Both Senior and Subordinated Debt
Securities--Defeasance and Discharge" and "--Covenant Defeasance" in the
accompanying Prospectus will apply to the Offered Securities.

THE SENIOR NOTES

The 2003 Senior Notes will mature on March 1, 2003, the 2005 Senior Notes
will mature on March 1, 2005, the 2008 Senior Notes will mature on March 1,
2008, the 2028 Senior Debentures will mature on March 1, 2028, and the 2098
Senior Debentures will mature on March 1, 2098. Each series of the Senior Notes
will bear interest from March 9, 1998 at the rate shown in the title of such
series as shown on the cover page hereof, payable semi-annually (to holders of
record at the close of business on the fifteenth calendar day (whether or not a
Business Day (as defined herein)) immediately preceeding the relevant interest
payment date) on March 1 and September 1 of each year beginning September 1,
1998.

Redemption

The 2003 Senior Notes and 2005 Senior Notes will not be redeemable prior to
maturity.

The 2008 Senior Notes, 2028 Senior Debentures and 2098 Senior Debentures
will be redeemable as a whole or in part, at the option of the Company at any
time, at a redemption price equal to the greater of (i) 100% of their principal
amount or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate plus twelve and one-half (12 1/2) basis points for the 2008
Senior Notes, fifteen (15) basis points for the 2028 Senior Debentures and
twenty (20) basis points for the 2098 Senior Debentures, plus in the case of
each of clause (i) and (ii) accrued interest to the date of redemption.

"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the series of Senior Notes to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of such Senior Notes.

S-49
<PAGE> 105

\"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or, if
such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by the
Debt Trustee.

"Comparable Treasury Price" means (A) the average of four Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (B) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.

"Reference Treasury Dealer" means Morgan Stanley & Co. Incorporated,
BancAmerica Robertson Stephens, Chase Securities Inc., Lehman Brothers Inc.,
J.P. Morgan Securities Inc. and NationsBanc Montgomery Securities LLC and their
respective successors, provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.

"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at 5:00
p.m., New York City time, on the third Business Day preceding such redemption
date.

"Treasury Rate" means, with respect to any redemption date, (i) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life,
yields for the two published maturities most closely corresponding to the
Comparable Treasury Issue shall be determined and the Treasury Rate shall be
interpolated or extrapolated from such yields on a straight line basis, rounding
to the nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date. The Treasury
Rate shall be calculated on the third Business Day preceding the redemption
date.

Holders of Senior Notes to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 45 days prior to the date fixed
for redemption.

Shortening Maturity

The Company intends to deduct interest paid on the 2098 Senior Debentures
for federal income tax purposes. However, there have been proposed tax law
changes in the past that, among other things, would have prohibited an issuer
from deducting interest payments on debt instruments with a maturity of more
than 40 years. While none of these proposals are currently pending before the
United States Congress, there can be no assurance that similar legislation
affecting the Company's ability to deduct interest paid on the 2098 Senior
Debentures will not be enacted in the future or that any such legislation would
not have a retroactive effective date.

Upon the occurrence of a Tax Event, as defined below, the Company will have
the right to shorten the maturity on the 2098 Senior Debentures to the extent
required, in the opinion of a nationally recognized independent tax counsel
experienced in such matters, to substantially reduce the risk that interest paid
on the 2098 Senior Debentures will not be deductible for federal income tax
purposes.

If the maturity of the 2098 Senior Debentures is shortened on the
occurrence of a Tax Event, the Company will mail a notice to each holder of
record of the 2098 Senior Debentures by first-class mail not more than 60 days
after the occurrence of such Tax Event, stating the new maturity date of the
2098 Senior Debentures. Such notice will be effective immediately upon mailing.

S-50
<PAGE> 106

The Company believes that the 2098 Senior Debentures should constitute
indebtedness for United States federal income tax purposes under current law and
that the shortening of the maturity of the 2098 Senior Debentures will not be a
taxable event to holders. Prospective investors should be aware, however, that
the shortening of the maturity of the 2098 Senior Debentures will be a taxable
event to holders if the 2098 Senior Debentures are treated as equity for federal
income tax purposes before the maturity is shortened. See "Certain United States
Federal Income Tax Considerations -- 2098 Senior Debentures."

"Tax Event" means that the Company has received an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that on or after the date of the issuance of the 2098 Senior Debentures as a
result of (a) any amendment to, clarification of, or change (including any
announced proposed change) in laws, or any regulations thereunder, of the United
States; (b) any judicial decision, official administrative pronouncement,
ruling, regulatory procedure, notice or announcement, including any notice or
announcement of intent to adopt such procedures or regulations (an
"Administrative Action"); or (c) any amendment to, clarification of, or change
in the official position or the interpretation of such Administrative Action or
judicial decision that differs from the theretofore generally accepted position,
in each case, on or after the date of the issuance of the 2098 Senior
Debentures, there is more than an insubstantial risk that interest paid by the
Company on the 2098 Senior Debentures is not, or will not be, deductible in
whole or in part, by the Company for federal income tax purposes.

THE 2021 REPS

The 2021 REPS will bear interest at the rate of 6.30% from March 9, 1998 to
but excluding March 1, 2001 (the "Coupon Reset Date"). Interest on the 2021 REPS
is payable semi-annually on March 1 and September 1 of each year, commencing
September 1, 1998 (each an "Interest Payment Date"). Interest will be calculated
based on a 360-day year consisting of twelve 30-day months. On each Interest
Payment Date, interest shall be payable to the persons in whose name the 2021
REPS are registered on the fifteenth calendar day (whether or not a Business
Day) immediately preceding the related Interest Payment Date (each, a "Regular
Record Date"). "Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions in the cities of New York or Chicago are
authorized or obligated by law, executive order or governmental decree to be
closed. If Morgan Stanley & Co. International Limited as Callholder (the
"Callholder") elects to purchase the 2021 REPS pursuant to the Call Option (as
defined below) the Calculation Agent (as defined below) will reset the interest
rate effective on the Coupon Reset Date, pursuant to the Coupon Reset Process
described below. In such circumstance, (i) the 2021 REPS will be purchased from
the holders by the Callholder, in whole but not in part, at 100% of the
principal amount thereof on the Coupon Reset Date, on the terms and subject to
the conditions described herein (interest accrued to the Coupon Reset Date will
be paid by the Company on such date to holders on the immediately preceding
Regular Record Date), and (ii) on and after the Coupon Reset Date, the 2021 REPS
will bear interest at the rate determined by the Calculation Agent in accordance
with the procedures set forth under "--Coupon Reset Process if the Notes are
Called" below.

Final Maturity Date

The 2021 REPS will mature on March 1, 2021 (the "Final Maturity Date"). On
March 1, 2001, however, holders of the 2021 REPS will be entitled to receive
100% of the principal amount thereof (i) from the Callholder if it purchases the
2021 REPS pursuant to the Call Option or (ii) in the event the Callholder does
not exercise the Call Option or fails for any reason to pay the Call Price (as
defined below) to the Debt Trustee when required from the Company following the
exercise by the Debt Trustee for and on behalf of the holders of the 2021 REPS
of the Mandatory Put (as defined below). The Debt Trustee will exercise the
Mandatory Put without the consent of, or notice to, the holders of the 2021
REPS.

S-51
<PAGE> 107

Call Option; Mandatory Put

(i) Call Option. The initial Callholder will be Morgan Stanley & Co.
International Limited. Pursuant to the terms of the 2021 REPS, the Callholder
has the right to purchase the 2021 REPS, in whole but not in part, on the Coupon
Reset Date (the "Call Option"), at a price equal to 100% of the principal amount
thereof (the "Call Price"), by giving irrevocable notice to the Debt Trustee
(the "Call Notice"). If the Callholder exercises the Call Option, the Debt
Trustee will send a copy of the Call Notice to the holders as required by the
terms of the 2021 REPS. The Callholder will be required to give the Call Notice
to the Debt Trustee, in writing, prior to 4:00 p.m., New York City time, no
later than fifteen calendar days prior to the Coupon Reset Date. If the
Callholder exercises the Call Option, (i) not later than 2:00 p.m., New York
City time on the Business Day prior to the Coupon Reset Date, the Callholder
shall pay the amount of the Call Price in immediately available funds to the
Debt Trustee for payment of the Call Price to the holders of the 2021 REPS on
the Coupon Reset Date and (ii) the holders of the 2021 REPS will be required to
deliver the 2021 REPS against payment therefor on the Coupon Reset Date through
the facilities of DTC. The Callholder is not required to exercise the Call
Option, and no holder of the 2021 REPS or any interest therein shall have any
right or claim against the Callholder as a result of the Callholder's decision
whether or not to exercise the Call Option or performance or non-performance of
its obligations with respect thereto.

The Call Option provides for certain circumstances under which such Call
Option may be terminated. If the Call Option terminates or if the Callholder
fails to pay the Call Price to the Debt Trustee at or prior to the required
time, the Debt Trustee shall exercise the Mandatory Put described below. The
Debt Trustee shall notify the holders that it is exercising the Mandatory Put as
required by the terms of the Senior Debt Indenture, as supplemented.

(ii) Mandatory Put. If the Callholder fails for any reason to purchase the
2021 REPS on the Coupon Reset Date, the Debt Trustee will be obligated to
exercise on behalf of the holders the right to require the Company to purchase
the 2021 REPS, in whole but not in part (the "Mandatory Put"), on the Coupon
Reset Date at a price equal to 100% of the principal amount thereof (the "Put
Price"). By its purchase of the 2021 REPS, each holder irrevocably agrees that
the Debt Trustee shall exercise the Mandatory Put for or on behalf of the holder
of the 2021 REPS as provided herein. If the Debt Trustee exercises the Mandatory
Put then the Company shall deliver the Put Price in immediately available funds
to the Debt Trustee by no later than 12:00 noon, New York City time, on the
Coupon Reset Date and the holders will be required to deliver the 2021 REPS to
the Company against payment therefor on the Coupon Reset Date through the
facilities of DTC. No holder of the 2021 REPS or any interest therein has the
right to consent or object to the exercise of the Debt Trustee's duties under
the Mandatory Put.

Coupon Reset Process if the Notes are Called

Pursuant to the terms of a calculation agency agreement, Morgan Stanley &
Co. Incorporated has been appointed the calculation agent for the 2021 REPS (in
its capacity as calculation agent for the 2021 REPS, the "Calculation Agent").
If the Callholder exercises the Call Option as set forth above, then the
following steps (the "Coupon Reset Process") shall be taken in order to
determine the interest rate to be paid on the 2021 REPS from and including such
Coupon Reset Date to the Final Maturity Date (the "Coupon Reset Rate"). The
Company and the Calculation Agent shall use reasonable efforts to cause the
actions contemplated below to be completed in as timely a manner as possible.

(a) The Company shall provide the Calculation Agent with (i) a list
(the "Dealer List"), no later than five Business Days prior to the Coupon
Reset Date, containing the names and addresses of three dealers, one of
which shall be Morgan Stanley & Co. Incorporated, from which it desires the
Calculation Agent to obtain the Bids (as defined below) for the purchase of
the 2021 REPS and (ii) a copy of any other material reasonably requested by
the Calculation Agent to facilitate a successful Coupon Reset Process.

(b) Within one Business Day following receipt by the Calculation Agent
of the Dealer List, the Calculation Agent shall provide to each dealer
("Dealer") on the Dealer List (i) a copy of this Prospectus Supplement and
the accompanying Prospectus, (ii) a copy of the form of the 2021 REPS and
(iii) a written request that each such Dealer submit a Bid to the
Calculation Agent at 12:00 noon, New York City time, on the third Business
Day prior to the Coupon Reset Date (a "Bid Date"). The

S-52
<PAGE> 108

time on the Bid Date upon which Bids will be requested may be changed by
the Calculation Agent to as late as 3:00 p.m., New York City time. "Bid"
shall mean an irrevocable written offer given by a Dealer for the purchase
of the 2021 REPS, settling on the Coupon Reset Date, and shall be quoted by
such Dealer as a stated yield to maturity on the 2021 REPS ("Yield to
Maturity"). Each Dealer shall be provided with (i) the name of the Company,
(ii) an estimate of the Purchase Price (which shall be stated as a U.S.
dollar amount and be calculated by the Calculation Agent in accordance with
clause (c) below), (iii) the principal amount and maturity of the 2021 REPS
and (iv) the method by which interest will be calculated on the 2021 REPS.

(c) The purchase price to be paid by any Dealer for the 2021 REPS (the
"Purchase Price") shall be equal to (i) the principal amount of the 2021
REPS plus (ii) a premium (the "Notes Premium") which shall be equal to the
excess, if any, of (A) the discounted present value to the Coupon Reset
Date of a bond with a maturity of March 1, 2021, which has an interest rate
of 6.042%, semiannual interest payments on each March 1 and September 1
commencing September 1, 2001, and a principal amount equal to the principal
amount of the 2021 REPS, and assuming a discount rate equal to the Treasury
Rate over (B) the principal amount of the 2021 REPS. "Treasury Rate" for
the 2021 REPS means the per annum rate equal to the offer side yield to
maturity of the current on-the-run 20 year United States Treasury Security
per Telerate page 500 (or any successor or substitute page as may replace
such page on such service) at 11:00 a.m., New York City time on the Bid
Date (or such other date or time that may be agreed upon by the Company and
the Calculation Agent) or, if such rate does not appear on Telerate page
500 (or any successor or substitute page as may replace such page on such
service) at such time, the rates on GovPx End-of-Day Pricing at 3:00 p.m.,
New York City time on the Bid Date (or such other date or time that may be
agreed upon by the Company and the Calculation Agent).

(d) The Calculation Agent shall immediately notify the Company of (i)
the names of each of the Dealers from whom the Calculation Agent received
Bids on the Bid Date, (ii) the Bid submitted by each such Dealer and (iii)
the Purchase Price as determined pursuant to paragraph (c) hereof. Unless
the Call Option has terminated, the Calculation Agent shall thereafter
select from the Bids received the Bid with the lowest Yield to Maturity
(the "Selected Bid") and set the Coupon Reset Rate equal to the interest
rate which would amortize the Notes Premium fully over the term of the 2021
REPS at the Yield to Maturity indicated by the Selected Bid, provided,
however, that if the Calculation Agent has not received a timely Bid from a
Dealer, the Selected Bid shall be the lowest of all Bids received by such
time and provided, further that if any two or more of the lowest Bids
submitted are equivalent, the Company shall in its sole discretion select
any of such equivalent Bids (and such selected Bid shall be the Selected
Bid). In all cases, Morgan Stanley & Co. Incorporated, in its capacity as a
dealer has the right to match the Bid with the lowest Yield to Maturity,
whereby Morgan Stanley & Co. Incorporated's Bid becomes the Selected Bid.

(e) Immediately after calculating the Coupon Reset Rate, the
Calculation Agent shall provide written notice to the Company and the Debt
Trustee, setting forth the Coupon Reset Rate. At the request of the holders
of the 2021 REPS, the Calculation Agent will provide such holders the
Coupon Reset Rate. The Company shall thereafter establish the Coupon Reset
Rate as the new interest rate on the 2021 REPS, effective from and
including the Coupon Reset Date by delivery to the Debt Trustee on or
before the Coupon Reset Date of an officers' certificate.

(f) The Callholder shall sell the 2021 REPS to the Dealer that made
the Selected Bid at the Purchase Price, such sale to be settled on the
Coupon Reset Date in immediately available funds.

If the Calculation Agent determines that (i) at any time prior to the sale
of the 2021 REPS on the Bid Date an Event of Default has occurred and is
continuing under Sections 501 (1),(2),(3),(4) or (7) of the Senior Debt
Indenture or a Cross-Default (as defined below) has occurred and is continuing
(in such event, termination is at the Callholders' option) or under Sections 501
(5) or (6) of the Senior Debt Indenture (in such event, termination is
automatic), (ii) a Market Disruption Event (as defined below) has occurred and
is continuing following the exercise of the Call Option, and as a result
thereof, the Callholder fails to pay the Call Price by 2:00 p.m., New York City
time on the Business Day immediately preceding the Coupon Reset Date, or (iii)
two or more of the Dealers have failed to provide Bids in a timely manner
substantially as provided above, such Call Option will be automatically revoked,
and the Debt Trustee will exercise the

S-53
<PAGE> 109

Mandatory Put on behalf of the holders. "Cross-Default" shall mean the
occurrence or existence of (a) a default, event of default or other similar
condition or event (however described) in respect of the Company, in one or more
agreements or instruments relating to any obligation (whether present or future,
contingent or otherwise, as principal or surety or otherwise) for the payment or
repayment of any money ("Specified Indebtedness") of any of them (individually
or collectively) in an aggregate amount of not less than $150,000,000 which has
resulted in such Specified Indebtedness becoming, or becoming capable at such
time of being declared, due and payable under such agreements or instruments,
before it would otherwise have been due and payable or (b) a default by the
Company in making one or more payments on the due date thereof in an aggregate
amount of not less the $150,000,000 under such agreements or instruments (after
giving effect to any applicable notice requirement or grace period). "Market
Disruption Event" shall mean any of the following if such events occur and are
continuing on any day from and including the date of the Call Notice to and
including the Bid Date in the judgment of the Calculation Agent: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange, Inc. (the "NYSE") or the establishment of minimum prices on
such exchange; (ii) a general moratorium on commercial banking activities
declared by either federal or New York State authorities; (iii) any material
adverse change in the existing financial, political or economic conditions in
the United States of America; (iv) an outbreak or escalation of major
hostilities involving the United States of America or the declaration of a
national emergency or war by the United States; or (v) any material disruption
of the U.S. government securities market, U.S. corporate bond market or U.S.
federal wire system; provided, in each case, that in the judgment of the
Calculation Agent the effect of the foregoing makes it impractical to conduct
the Coupon Reset Process.

The calculation agency agreement provides that the Calculation Agent may
resign at any time, such resignation to be effective ten business days after the
delivery to the Company and the Debt Trustee of notice of such resignation, or
may be removed by the Company under certain circumstances. In either case, the
Company may appoint a successor Calculation Agent.

The Calculation Agent, in its individual capacity, may buy, sell, hold and
deal in the 2021 REPS and may exercise any vote or join in any action which any
holder of the 2021 REPS may be entitled to exercise or take as if it were not
the Calculation Agent. The Calculation Agent, in its individual capacity, may
also engage in any transaction with the Company and any of its affiliates as if
it were not the Calculation Agent.

BOOK-ENTRY SYSTEM

Each series of the Offered Securities will be represented by one or more
Global Debt Securities registered in the name of Cede & Co., the nominee of the
Depositary. The Depositary is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary holds securities that its participants (the "Direct
Participants") deposit with the Depositary. The Depositary also facilities the
settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Direct Participants' accounts, thereby eliminating the
need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its Direct Participants and by the NYSE, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
Depositary's system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly (the
"Indirect Participants," and together with the Direct Participants, the
"Participants"). The rules applicable to the Depositary and its Participants are
on file with the Securities and Exchange Commission.

Purchases of the Offered Securities within the Depositary's system must be
made by or through Direct Participants, which will receive a credit for the
Offered Securities on the Depositary's records. The ownership interest of each
actual purchaser of each Offered Security (a "Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' respective records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchase, but Beneficial Owners are expected to receive written confirma-

S-54
<PAGE> 110

tions providing details of the transaction, as well as periodic statements of
their holdings, from the Direct or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of ownership interests
in the Offered Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Offered
Securities except in the event that use of the book-entry system for the Offered
Securities is discontinued.

To facilitate subsequent transfers, all Offered Securities deposited by
Direct Participants with the Depositary will be registered in the name of Cede &
Co. The deposit of the Offered Securities with the Depositary and their
registration in the name of Cede & Co. effect no change in beneficial ownership.
The Depositary has no knowledge of the actual Beneficial Owners of the Offered
Securities; the Depositary's records reflect only the identity of the Direct
Participants to whose accounts such Offered Securities are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. If less than all of the
Offered Securities of an issue are being redeemed, the Depositary's practice is
to determine by lot the amount of the interest of each Direct Participant in
such series to be redeemed.

Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Offered Securities. Under its usual procedures, the Depositary mails an
omnibus proxy (an "Omnibus Proxy") to the Participants as soon as possible after
the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose accounts the Offered Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy).

Principal, redemption premium, if any, and interest payments on the Offered
Securities will be made to the Depositary. The Depositary's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
for the accounts of customers in bearer form or registered in "street-name," and
will be the responsibility of such Participant and not of the Depositary, the
Underwriters, or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
redemption premium, if any, and interest to the Depositary is the responsibility
of the Company or the Paying Agent. Disbursement of such payments to Direct
Participants is the responsibility of the Depositary, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants. Global Debt Securities will settle in immediately available funds
in the secondary trading market. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Offered Securities.

The Depositary may discontinue providing its services as securities
depository with respect to the Offered Securities at any time by giving
reasonable notice to the Company. Under such circumstances and in the event that
a successor securities depository is not obtained, Offered Securities
certificates are required to be printed and delivered. In addition, the Company
may decide to discontinue use of the system of book-entry transfers through the
Depositary (or a successor securities depository). In that event, Offered
Securities certificates will be printed and delivered.

The Company will not have any responsibility or obligation to Participants
or the persons for whom they act as nominees with respect to the accuracy of the
records of the Depositary, its nominee or any Direct or Indirect Participant
with respect to any ownership interest in the Offered Securities, or with
respect to payments to or providing of notice for the Direct Participants, the
Indirect Participants or the Beneficial Owners.

S-55
<PAGE> 111

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the Offered
Securities is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change (including changes in effective dates) or
possible differing interpretations. Unless otherwise stated, this summary deals
only with United States Holders (defined below) who are initial purchasers who
hold the Offered Securities as capital assets and does not purport to deal with
persons in special tax situations, such as financial institutions, tax-exempt
entities, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding the Offered Securities as a hedge
against currency risk or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the United States dollar. In addition,
this discussion only addresses the federal income tax consequences of the 20
REPS until the Coupon Reset Date. PERSONS CONSIDERING THE PURCHASE OF OFFERED
SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED
SECURITIES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.

As used herein, the term "United States Holder" means a beneficial owner of
Offered Securities that is for United States federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(iii) an estate whose income is subject to United States federal income tax
regardless of its source, (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or (v) any other person whose income or gain in respect
of the Offered Securities is effectively connected with the conduct of a United
States trade or business. As used herein, the term "Non-United States Holder"
means a beneficial owner of Offered Securities that is not a United States
Holder.

Except as discussed below, interest on the Offered Securities will
generally be taxable to a United States Holder as ordinary income at the time it
is paid or accrued in accordance with the United States Holder's regular method
of accounting for tax purposes.

2098 SENIOR DEBENTURES

The Company believes that the 2098 Senior Debentures should constitute
indebtedness for United States federal income tax purposes and intends to treat
them as such. Such treatment is not binding on the Internal Revenue Service
("IRS") which, because of the long maturity of the 2098 Senior Debentures, may
seek to treat them as equity. Except where indicated, the following discussion
assumes that the 2098 Senior Debentures will be classified as indebtedness for
such purposes. As a result, interest on the 2098 Senior Debentures also will
generally be taxable to a United States Holder as ordinary income at the time it
is paid or accrued in accordance with the United States Holder's regular method
of accounting for tax purposes.

If the Company shortens the maturity of the 2098 Senior Debentures on the
occurrence of a Tax Event, such shortening should not constitute a taxable event
to United States Holders, provided the 2098 Senior Debentures constitute
indebtedness for United States federal income tax purposes. If, however, the
2098 Senior Debentures were to be treated as equity, for United States federal
income tax purposes, prior to the shortening of the maturity, the shortening of
the maturity of the 2098 Senior Debentures would be a taxable event to United
States Holders and such holders would recognize gain or loss equal to the
difference between the fair market value of the 2098 Senior Debentures with the
shortened maturity and the holder's basis in the 2098 Senior Debentures. Persons
considering the purchase of the 2098 Senior Debentures should consult their own
tax advisors concerning the United States federal income tax consequences of a
possible shortening of the maturity of the 2098 Senior Debentures.

2021 REPS

The United States federal income tax treatment of debt obligations such as
the 2021 REPS is not entirely certain. Because the 2021 REPS are subject to a
mandatory put or call on the Coupon Reset Date, the Company intends to treat the
2021 REPS as maturing on the Coupon Reset Date for United States federal income
tax purposes and as being reissued on the Coupon Reset Date should the
Callholder sell the 2021 REPS pursuant to the Coupon Reset Process. Based on
such treatment, stated interest on the

S-56
<PAGE> 112

2021 REPS generally will be taxable to a United States Holder as ordinary income
at the time it is paid or accrued in accordance with the United States Holder's
regular method of tax accounting.

There can be no assurance, however, that the IRS will agree with the
Company's treatment of the 2021 REPS and it is possible that the IRS could
assert another treatment. For instance, it is possible that the IRS could seek
to treat the 2021 REPS as maturing on the Final Maturity Date and to treat the
issue price of the 2021 REPS as including the value of the Call Option. Because
of the Coupon Reset Process, if the 2021 REPS were treated as maturing on the
Final Maturity Date, Treasury regulations relating to contingent payment debt
obligations would appear to be applicable. The effect of such Treasury
regulations would be to (i) require United States Holders, regardless of their
usual method of tax accounting, to use an accrual method with respect to the
2021 REPS; (ii) result in the possibility that United States Holders would be
required to accrue income in excess of actual cash payments received; and (iii)
generally result in ordinary rather than capital treatment of any gain or loss
on the sale, exchange or retirement of the 2021 REPS.

SALE OR OTHER DISPOSITION OF OFFERED SECURITIES

Under the foregoing treatment, upon the sale, exchange or retirement of the
Offered Securities, a United States Holder generally will recognize taxable gain
or loss equal to the difference between the amount realized by such United
States Holder on the sale, exchange or retirement of the Offered Securities
(except to the extent that such amount realized represents accrued and unpaid
interest that such United States Holder has not included in gross income
previously) and such United States Holder's adjusted tax basis in the Offered
Securities. Such gain or loss will generally be long-term capital gain or loss
if the Offered Securities were held for more than one year. Capital gains of
individuals derived with respect to capital assets held for more than one year
are eligible for reduced rates of taxation depending upon the holding period of
such capital assets. United States Holders should consult their own tax advisors
regarding the capital gains rate applicable to them. The deductibility of
capital losses is subject to limitations.

NON-UNITED STATES HOLDERS

Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:

(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any paying agent of
principal or interest (which for purposes of this discussion includes any
original issue discount ("OID")) on an Offered Security owned by a
Non-United States Holder, provided (i) that the beneficial owner does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of section 871(h)(3) of the Code and the regulations thereunder,
(ii) the beneficial owner is not a controlled foreign corporation that is
related to the Company through stock ownership, (iii) the beneficial owner
is not a bank whose receipt of interest on an Offered Security is described
in section 881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies
the statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder;

(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange or retirement of an Offered Security; and

(c) an Offered Security beneficially owned by an individual who at the
time of death is a Non-United States Holder will not be subject to United
States federal estate tax as a result of such individual's death, provided
that such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code and
provided that the interest payments with respect to such Offered Security
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or business
by such individual.

To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Offered Securities or a financial institution holding the Offered
Securities on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a United States person. Currently, these
requirements will be met if (1) the beneficial owner provides his

S-57
<PAGE> 113

name and address, and certifies, under penalties of perjury, that he is not a
United States person (which certification may be made on an IRS Form W-8 (or
successor form)) or (2) a financial institution holding the Offered Securities
on behalf of the beneficial owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes a paying agent with a copy
thereof. Under recently finalized Treasury regulations (the "Final
Regulations"), the statement requirement referred to in (a)(iv) above may also
be satisfied with other documentary evidence for interest paid after December
31, 1998 with respect to an offshore account or through certain foreign
intermediaries.

If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest made to such Non-United States Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Offered Securities provides
the Company or its paying agent, as the case may be, with a properly executed
(1) IRS Form 1001 (or successor form) claiming an exemption from withholding
under the benefit of a tax treaty or (2) IRS Form 4224 (or successor form)
stating that interest paid on the Offered Securities is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States. Under the Final
Regulations, Non-United States Holders will generally be required to provide IRS
Form W-8 in lieu of IRS Form 1001 and IRS Form 4224, although alternative
documentation may be applicable in certain situations.

If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest on the Offered Securities is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest on a net income
basis in the same manner as if it were a United States Holder. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% of its effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, such premium, if any, and
interest on the Offered Securities will be included in such foreign
corporation's earnings and profits.

Any gain or income realized upon the sale, exchange or retirement of an
Offered Security generally will not be subject to United States federal income
tax unless (i) such gain or income is effectively connected with a trade or
business in the United States of the Non-United States Holder, or (ii) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange or retirement, and certain other conditions are met.

As discussed above, the Company believes that the 2098 Senior Debentures
should constitute indebtedness for United States federal income tax purposes and
intends to treat them as such. If, however, the 2098 Senior Debentures were to
be recharacterized as equity, the interest thereon generally would be subject to
30% withholding tax when paid to a Non-United States Holder and under certain
circumstances, gain, if any, on the disposition of the 2098 Senior Debentures
could be subject to United States federal income tax under the rules relating to
"United States real property holding corporations". As a result, Non-United
States Holders should consult with their tax advisors prior to purchasing the
2098 Senior Debentures.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Offered Securities and to
the proceeds of sale of an Offered Security made to United States Holders other
than certain exempt recipients (such as corporations). A 31 percent backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.

No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described above in (a)(iv) has been received and the
payor does not have actual knowledge that the beneficial owner is a United
States person.

In addition, backup withholding and information reporting will not apply if
payments of the principal, interest or premium on an Offered Security are paid
or collected by a foreign office of a custodian, nominee or other foreign agent
on behalf of the beneficial owner of such Offered Security, or if a foreign
office of a broker (as defined in applicable Treasury regulations) pays the
proceeds of the sale of an Offered Security to the

S-58
<PAGE> 114

owner thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a United States person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or, after December 31, 1998, if such nominee, custodian, agent or broker
is a foreign partnership, in which one or more United States persons, in the
aggregate, own more than 50% of the income or capital interests in the
partnership or if the partnership is engaged in a trade or business in the
United States, such payments will not be subject to backup withholding but will
be subject to information reporting, unless (1) such custodian, nominee, agent
or broker has documentary evidence in its records that the beneficial owner is
not a United States person and certain other conditions are met or (2) the
beneficial owner otherwise establishes an exemption.

Payments of principal, interest and premium on an Offered Security paid to
the beneficial owner of a Offered Security by a Untied States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of an Offered Security, will be subject to both
backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.

S-59
<PAGE> 115

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of the Offered Securities set forth opposite their
respective names below:

<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
PRINCIPAL PRINCIPAL PRINCIPAL AMOUNT AMOUNT
AMOUNT AMOUNT AMOUNT OF 2028 OF 2098 PRINCIPAL
OF 2003 OF 2005 OF 2008 SENIOR SENIOR AMOUNT
NAME SENIOR NOTES SENIOR NOTES SENIOR NOTES DEBENTURES DEBENTURES OF 2021 REPS
---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley & Co.
Incorporated........ $100,000,000 $100,000,000 $ 60,000,000 $100,000,000 $ 30,000,000 $ 80,000,000
BancAmerica Robertson
Stephens............ 80,000,000 80,000,000 48,000,000 80,000,000 24,000,000 64,000,000
Chase Securities
Inc................. 80,000,000 80,000,000 48,000,000 80,000,000 24,000,000 64,000,000
Lehman Brothers
Inc................. 80,000,000 80,000,000 48,000,000 80,000,000 24,000,000 64,000,000
J.P. Morgan Securities
Inc................. 80,000,000 80,000,000 48,000,000 80,000,000 24,000,000 64,000,000
NationsBanc Montgomery
Securities LLC...... 80,000,000 80,000,000 48,000,000 80,000,000 24,000,000 64,000,000
------------ ------------ ------------ ------------ ------------ ------------

Total............... $500,000,000 $500,000,000 $300,000,000 $500,000,000 $150,000,000 $400,000,000
============ ============ ============ ============ ============ ============
</TABLE>

The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the Offered Securities is subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Offered Securities if any are taken.

The Underwriters initially propose to offer part of the Offered Securities
directly to the public at the public offering prices set forth on the cover page
hereof and part to certain dealers at prices that represent a concession not to
exceed .375% of the principal amount in the case of the 2003 Senior Notes, .375%
of the principal amount in the case of the 2005 Senior Notes, .400% of the
principal amount in the case of the 2008 Senior Notes, .500% of the principal
amount in the case of the 2028 Senior Debentures, .675% of the principal amount
in the case of the 2098 Senior Debentures and .200% of the principal amount in
the case of the 2021 REPS. Any Underwriter may allow, and any such dealers may
reallow, a concession to certain other dealers not to exceed .250% of the
principal amount in the case of the 2003 Senior Notes, the 2005 Senior Notes,
the 2008 Senior Notes, the 2028 Senior Debentures and the 2098 Senior Debentures
and .150% of the principal amount in the case of the 2021 REPS. After the
initial offering of the Offered Securities, the respective offering prices and
other selling terms may from time to time be varied by the Underwriters.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.

The Company does not intend to apply for listing of any of the Offered
Securities on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Offered
Securities, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Offered Securities and any
such market-making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of or
trading markets for, the Offered Securities.

In order to facilitate the offering of the Offered Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the prices of the Offered Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Offered Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Offered Securities, the

S-60