<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
K N Energy, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
[K N ENERGY, INC. LOGO] K N Energy, Inc.
370 Van Gordon Street
P.O. Box 281304
Lakewood, CO 80228-8304
(303) 989-1740
</TABLE>
March 15, 1999
Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Westin Tabor Center located at 1672 Lawrence Street, Denver,
Colorado 80202, on Thursday, April 15, 1999, at 10:00 A.M., Mountain Daylight
Time.
Please read carefully the accompanying Notice of Annual Meeting and Proxy
Statement which contain details concerning the business to come before the
meeting. You will note that the Board of Directors of the Company recommends a
vote "FOR" the reelection of six directors, five Class III directors for a term
of three years each and one Class II director for a term of two years.
As in the past, in the election of directors, you may vote either for or
against all persons nominated by the Board by checking the appropriate box. If
you wish to vote for some but not all of the persons nominated, write the name
of the nominees for whom you do not wish to vote in the space provided.
To be sure that your shares will be voted, whether or not you plan to
attend the meeting in person, please complete, sign, date and mail the
accompanying Proxy in the enclosed return envelope promptly. If you then do
attend the meeting, your Proxy will be returned to you if you wish to vote in
person.
As you know, the Company has entered into an agreement with Sempra Energy
providing for a stock-and-cash merger of the Company into a subsidiary of Sempra
Energy. No action will be taken at the Annual Meeting of Shareholders with
respect to this merger. The Company expects to call a special meeting of
shareholders to consider and vote on the merger agreement sometime during the
second quarter of this year.
Very truly yours,
/s/ LARRY D. HALL
LARRY D. HALL
Chairman of the Board
<PAGE> 3
K N ENERGY, INC.
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, CO 80228-8304
(303) 989-1740
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of K N Energy, Inc. will be held at the
Westin Tabor Center located at 1672 Lawrence Street, Denver, Colorado 80202, on
Thursday, April 15, 1999, at 10:00 A.M., Mountain Daylight Time, for the
following purposes:
1. To elect five Class III Directors to terms of three years each, and
to elect one Class II Director to a term of two years.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting of Shareholders is a form of
Proxy, a Proxy Statement, and a copy of the Company's 1998 Annual Report to
Shareholders. The 1998 Annual Report to Shareholders is not to be considered
part of the proxy soliciting material.
Only shareholders of record at the close of business on February 22, 1999,
are entitled to vote at the meeting. A complete list of the shareholders
entitled to vote at the annual meeting will be available for examination by any
shareholder, for purposes germane to the meeting, during ordinary business hours
for a period of at least 10 days prior to the meeting at the Company's offices
at 370 Van Gordon Street, Lakewood, Colorado 80228.
IMPORTANT:
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. EVEN IF
YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL READ THE ENCLOSED PROXY
STATEMENT AND THE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, AND THEN VOTE
(1) BY COMPLETING, SIGNING, DATING AND MAILING THE PROXY CARD IN THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE, OR (2) BY CALLING THE 800 TOLL-FREE NUMBER LISTED ON
THE PROXY CARD, OR (3) VIA THE INTERNET AS INDICATED ON THE PROXY CARD. THIS
WILL NOT LIMIT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
MARTHA B. WYRSCH
Vice President, General Counsel
and Secretary
Lakewood, Colorado
March 15, 1999
<PAGE> 4
K N ENERGY, INC.
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, CO 80228-8304
(303) 989-1740
March 15, 1999
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of K N Energy, Inc. (the "Company" or "K N") of proxies
for use at the Annual Meeting of Shareholders of the Company to be held at 10:00
A.M. Mountain Daylight Time on April 15, 1999, at the Westin Tabor Center, 1672
Lawrence Street, Denver, Colorado 80202 and at any adjournment of such meeting.
Proxies may be revoked at any time before they are voted. Revocation may be
effected in any of the following ways: (i) by instruction to the Secretary
reasonably indicating the shareholder's desire to revoke an existing proxy; (ii)
by appropriately signing and returning to the Company a proxy with a more recent
date than that of the proxy first given; or (iii) by signing and returning a
floor ballot at the annual meeting of shareholders.
The Proxy Statement and form of Proxy will be first mailed to the
shareholders on or about March 15, 1999.
SHARES OUTSTANDING
Only shareholders of record at the close of business on February 22, 1999,
are entitled to vote at the meeting. On that date the Company had outstanding
the following shares of capital stock: 70,000 shares of Class A $5.00 Cumulative
Preferred Stock, and 69,651,991 shares of Common Stock. Each share of Preferred
and Common Stock has one vote and all shares vote as one class for all matters
to come before the meeting.
The holders of a majority of the issued and outstanding shares of the
Company who are entitled to vote at the meeting must be present at the meeting,
in person or represented by proxy, so that a quorum may be present for the
transaction of business. If a quorum is present at the meeting, the six nominees
for election as directors who receive the greatest number of votes cast for the
election of directors at the meeting by the shares present in person or by proxy
and entitled to vote shall be elected directors. Any other matters submitted to
a vote of the shareholders must be approved by the affirmative vote of the
holders of a majority of shares present in person or by proxy and entitled to
vote on the matter. In the election of directors, abstentions will have no
effect on the vote. However, an abstention will have the practical effect of
voting against any other matters since it is one less vote for approval. Broker
nonvotes on one or more matters will have no impact on such matters since they
are not considered "shares present" for voting purposes. The By-laws of the
Company require that directors be elected by written ballot.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual shareholders are kept private by the Company. Such documents
are available for examination only by the inspectors of election and certain
personnel associated with processing proxy cards and tabulating the vote. The
vote of any shareholder is not disclosed except as may be necessary to meet
legal requirements.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the meeting in accordance with the directions
given. If no specific instructions are given with respect to the matters to be
voted upon, the Proxyholders, who are Larry D. Hall and Martha B. Wyrsch, will
vote the shares covered by proxies received by them for the election of the
nominees to the Board of Directors, and in accordance with the directors'
recommendations on any other matters that may come before the meeting.
<PAGE> 5
ELECTION OF DIRECTORS (ITEM 1)
The Restated Articles of Incorporation of the Company provide for a Board
of Directors of no fewer than nine nor more than fifteen members (exclusive of
any advisory director), divided into three classes of as nearly an equal number
as possible, the directors in each class being elected for three years. In 1999,
the Board amended the Company's By-laws to provide that from and after the
annual meeting of shareholders held in the year 2000, any director who is not an
employee of the Company must retire as a director at the annual meeting of
shareholders next occurring after such director attains the age of 72. In
addition, in 1999, the Board amended the By-laws to provide for fifteen members.
Messrs. Stewart A. Bliss, Robert H. Chitwood, Howard P. Coghlan, Edward
Randall, III and James C. Taylor have been nominated for reelection as Class III
directors for a period of three years each, and Mr. Charles W. Battey has been
nominated for reelection as a Class II director for a period of two years. Mr.
Battey was elected to a one-year term as a Class II director at the 1998 annual
meeting of shareholders. He is now being renominated to serve for the remainder
of his term as a Class II director. Proxies will be voted, unless authority to
vote is withheld by the shareholder, for the election of Messrs. Bliss,
Chitwood, Coghlan, Randall and Taylor to serve until the 2002 Annual Meeting of
Shareholders and for the election of Mr. Battey to serve until the 2001 Annual
Meeting of Shareholders, in each case until the election and qualification of
his successor. If any such nominee shall be unable or shall fail to accept
nomination or election by virtue of an unexpected occurrence, proxies may be
voted for such other person or persons as shall be determined by the
Proxyholders in their discretion. Proxies cannot be voted by the Proxyholders
for more than the number of nominees named, which is six persons.
2
<PAGE> 6
The name of each nominee for election as a director at this meeting and of
each director whose term of office will continue after the meeting, and each
individual's business experience, year first elected as director, beneficial
ownership of Company Common Stock, age and relationship to the Company are as
follows:
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 1, WITH THE DURING PAST
NAME DIRECTOR 1999(1)(2) AGE COMPANY(3) 5 YEARS(3)
---- -------- ------------ --- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION FOR TERM OF THREE YEARS EXPIRING IN 2002 (CLASS III)
- ------------------------------------------------------------------------------------------------------------
Stewart A. Bliss 1993 23,175 65 Director Financial Consultant
and Senior Business
Advisor, Denver,
Colorado (1993-
Present); Board Member
of Colorado State
Board of Agriculture
(1993-Present);
Director of MACTEC;
Director of Dominion
Capital Industrial
Bank.
Robert H. Chitwood 1990 46,050 68 Director President, R.H.
Chitwood Company (oil
and gas production,
investments and
petroleum consulting),
Tulsa, Oklahoma.
Howard P. Coghlan 1981 43,674 71 Director Senior Partner,
Coghlan, Crowson,
Fitzpatrick &
Westbrook, Attorneys
at Law, Longview,
Texas.
Edward Randall, III 1994 404,622(4) 72 Director Private investor;
Director of Paine
Webber Group, Inc.;
Director of Enron Oil
& Gas Company.
James C. Taylor 1994 160,679(5) 61 Director Owner and Operator,
Wytana Livestock
Company, Bozeman,
Montana; Private
investor.
NOMINEE FOR ELECTION FOR TERM OF TWO YEARS EXPIRING IN 2001 (CLASS II)
- ------------------------------------------------------------------------------------------------------------
Charles W. Battey 1971 108,435 67 Director; Chairman
(1989-1996); and Chief
Executive Officer
(1989-1994)
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 1, WITH THE DURING PAST
NAME DIRECTOR 1999(1)(2) AGE COMPANY(3) 5 YEARS(3)
---- -------- ------------ --- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CLASS II)
- ------------------------------------------------------------------------------------------------------------
Larry D. Hall 1984 617,950(6) 56 Chairman and Chief
Executive Officer(7)
(April 1996-Present);
President and Chief
Executive Officer
(1994-1998); President
and Chief Operating
Officer (1988-1994);
Director
Richard D. Kinder 1998 13,800 54 Director Chairman and Chief
Executive Officer of
Kinder Morgan Energy
Partners, L.P. (1997
to Present); President
and Chief Operating
Officer of Enron Corp.
(1990 to 1996);
Director of Baker
Hughes, Inc.,
Transocean Offshore
Inc., Waste
Management, Inc. and
Kinder Morgan Energy
Partners, L.P.
John F. Riordan 1998 40,899 63 Vice Chairman Chief Executive
(February 1998 - Officer and President
February 1999); of MidCon Corp. (1990-
Director January 1998);
Director and Executive
Vice President of
Occidental Petroleum
Corporation
(1991-January 1998).
H.A. True, III 1991 30,900(8) 56 Director Partner, True
Companies (energy,
agriculture and
financing), Casper,
Wyoming.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
COMPANY
YEAR SHARES OTHER
FIRST BENEFICIALLY POSITIONS BUSINESS
ELECTED OWNED AS OF HELD EXPERIENCE
AS FEBRUARY 1, WITH THE DURING PAST
NAME DIRECTOR 1999(1)(2) AGE COMPANY(3) 5 YEARS(3)
---- -------- ------------ --- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS I)
- ------------------------------------------------------------------------------------------------------------
Edward H. Austin, Jr. 1994 302,526(9) 57 Director Principal of Austin,
Calvert & Flavin,
Inc., an investment
advisory firm, San
Antonio, Texas.
David W. Burkholder 1984 37,741(10) 56 Director President of Will
Feed, Inc. (cattle
feeding), Willow
Island, Nebraska;
President of Island
Dehy Company, Inc.
(alfalfa dehydration),
Cozad, Nebraska; and
President of
Consolidated Blenders,
Inc. (alfalfa
dehydration),
Hastings, Nebraska.
David M. Carmichael 1994 264,810 60 Director; Vice Director of Tom Brown,
Chairman (July Inc. (1996-Present);
1994-1996) Chairman of the Board
and Chief Executive
Officer of American
Oil and Gas
Corporation
(1983-1994).
Jordan L. Haines 1983 42,115 71 Director Director of Forest Oil
Corporation; Director
of Qwest
Communications
International Inc.
William J. Hybl 1988 31,068(11) 56 Director Chairman and Chief
Executive Officer and
Trustee of El Pomar
Foundation (charitable
foundation), Colorado
Springs, Colorado;
Vice Chairman and
Director of Broadmoor
Hotel, Inc., Colorado
Springs, Colorado;
Director of USAA, San
Antonio, Texas
(insurance company);
Director of FirstBank
Holding Co. of
Colorado.
</TABLE>
5
<PAGE> 9
- ---------------
(1) No Director owns any Preferred Stock of the Company. No director owned
beneficially more than one percent of the outstanding shares of Common
Stock of the Company as of February 1, 1999. In determining the number of
shares of Common Stock beneficially owned as of February 1, 1999, with
respect to any director who held options to purchase shares of Common Stock
exercisable within 60 days of February 1, 1999, it was assumed that such
options had been exercised. The following number of shares representing
such unexercised options were added to the holdings of each of the
following directors: Mr. Austin, 22,500 shares; Mr. Battey, 18,000 shares;
Mr. Bliss, 22,500 shares; Mr. Burkholder, 18,000 shares; Mr. Carmichael,
18,000 shares; Mr. Chitwood, 28,125 shares; Mr. Coghlan, 18,000 shares; Mr.
Haines, 25,875 shares; Mr. Hall, 388,125 shares; Mr. Hybl, 18,000 shares;
Mr. Kinder, 9,000 shares; Mr. Randall, 21,000 shares; Mr. Riordan, 24,500
shares; Mr. Taylor, 21,000 shares; and Mr. True, 9,000 shares.
(2) Unless otherwise indicated, the directors have sole voting and investment
power over the shares listed above, other than shared rights created under
joint tenancy or marital property laws as between the directors and their
respective spouses, if any, and shares underlying unexercised options.
(3) All of these persons have held such positions for at least five years
unless otherwise indicated.
(4) Includes 274,122 shares of Common Stock owned by various family trusts. Mr.
Randall has shared voting and investment power over 95,535 shares and sole
voting and investment power over 288,087 shares.
(5) Mr. Taylor has sole voting and investment power over 112,604 shares and
shared investment and voting power over 27,075 shares.
(6) Includes 208 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power. Also includes 139,500 restricted shares that
Mr. Hall has the right to vote. Does not include any of the shares
attributable to the K N Energy, Inc. Profit Sharing Plan of which Mr. Hall
is a beneficiary. The cumulative number of shares attributable thereto and
held by the Trustee thereof as of December 31, 1998 is 3,402.
(7) Mr. Hall assumed the position of Chairman of the Board after the 1996
Annual Meeting.
(8) Mr. True has sole voting and investment power over 21,900 shares.
(9) Includes shares of Common Stock owned by various family members or their
estates, over which Mr. Austin either has power of attorney or with respect
to which Mr. Austin is executor; family trusts; a family partnership and a
hedge fund partnership, for both of which Mr. Austin is general partner.
Mr. Austin has sole voting power over 62,452 shares; shared voting power
over 115,873.5 shares; and shared investment power over 101,700.5 shares.
(10) Includes 375 shares of Common Stock owned by the Ervin Burkholder
foundation as to which Mr. Burkholder disclaims beneficial ownership.
(11) Includes 600 shares of Common Stock owned by Mr. Hybl's wife, as to which
Mr. Hybl disclaims beneficial ownership and over which he has neither
investment nor voting power. Excludes 3,300 8.25% Premium Equity
Participating Security Units -- PEPS Units ("PEPS").
Mr. Edward H. Austin, Jr. is married to the niece of Mr. James C. Taylor.
No other family relationships exist between any director, executive officer, or
person nominated or chosen by the Company to become a director or executive
officer.
RELATIONSHIP BETWEEN CERTAIN DIRECTORS AND THE COMPANY
Mr. Stewart A. Bliss, a Director of the Company, shared office space with
and provided business development consulting services to the law firm of Parcel,
Mauro & Spaanstra in 1998, which firm was retained by the Company in 1998, and
provided in excess of $60,000 in services to the Company. Mr. Bliss is neither a
member of, nor counsel to, the above named law firm and did not provide legal
services to the Company.
6
<PAGE> 10
DIRECTOR AND COMMITTEE MEETINGS
The Board of Directors met nine times during 1998, seven of the meetings
being regularly-scheduled and two being special meetings. During 1998, all
directors attended at least 96% percent of the aggregate meetings of the Board
of Directors and committees thereof on which they served.
During 1998, the Audit Committee was composed of Messrs. Bliss (Chairman,
May to December), Burkholder, Battey, Riordan, and Taylor, and it met four times
in 1998. Mr. Chitwood was a member of this Committee from January to April,
1998. The duties of the Audit Committee include recommendation of the
independent auditor for selection by the Board of Directors, review of the
arrangements and scope of the independent auditor's audit, review of the
findings and recommendations of the independent auditor and internal auditors
concerning internal accounting procedures and controls, review of professional
services rendered by the independent auditor, review of the independence of the
auditor in regard to the Company and its management and review of the Company's
risk management policies and procedures.
The Compensation Committee during 1998 was composed of Messrs. Kinder
(Chairman, May to December), Austin, Chitwood (May to December), Coghlan and
Randall. Mr. Bliss was Chairman of this Committee from January through April,
1998. It met six times in 1998. The duties of the Compensation Committee are set
forth in the Report of the Compensation Committee on Executive Compensation
which follows.
The Executive Committee, composed of Messrs. Hall (Chairman), Carmichael,
Haines, Hybl, and True, met ten times in 1998. The duties of the Executive
Committee consist of oversight and direction of management decisions with
respect to the day-to-day operations of K N and its subsidiaries, and
nominations for Directors of the Board of the Company. The Executive Committee
replaced the Management Committee on April 11, 1996 pursuant to an amendment to
the Company's By-laws.
The Board of Directors does not presently have a separate Nominating
Committee; rather, the Executive Committee serves as the Nominating Committee
for the Board. Pursuant to the Company's By-laws, shareholders may nominate
candidates for the Board of Directors by notifying the Company at its principal
executive offices of the name of such candidate and by furnishing other required
information at least forty days before the shareholders' meeting at which such
election will be held. See also "Date for Receipt of Shareholder Proposals" on
page 23.
DIRECTOR COMPENSATION
A director (except a current employee) receives a retainer of $20,000 per
year, which may be taken in the form of Common Stock or cash, plus a fee of
$1,500 per day for each meeting attended. In addition, in 1998 each non-employee
director received 300 shares of Common Stock on February 10, 1998. Members of
the Audit, Compensation and Executive Committees also receive a fee of $1,500
per day for each committee meeting attended on a day other than that of a Board
meeting. Directors who are full-time employees of the Company receive no
additional compensation in their capacity as director. All directors are
reimbursed for reasonable travel and other expenses incurred in attending all
meetings. Directors who are not also employees or officers may elect to defer
until age 65, and/or until retirement from the Board, all or any portion of
their compensation pursuant to the Directors and Executives Deferred
Compensation Plan (the "Deferred Compensation Plan"), which was adopted by the
Company effective January 1, 1998. The Deferred Compensation Plan permits
Directors to defer their retainer and/or meeting fees into six different
Measurement Fund options including a Measurement Fund that matches the
performance of the Company's Common Stock.
Directors who are not also employees participate in the 1992 Stock Option
Plan for Non-Employee Directors ("Directors' Option Plan"), which was amended in
1996 and 1998. Under the Directors' Option Plan, on the first business day of
each calendar year, each Director who is not a salaried employee of the Company
is granted an option to purchase up to 4,500 shares of the Company's Common
Stock. Options, which vest on the date of grant, may be granted at not less than
100 percent of the fair market value of the Common Stock on the date of grant,
but must be at least the par value of the shares subject to the option, and
7
<PAGE> 11
expire 10 years from the date of grant. Options granted pursuant to the
Directors' Option Plan are not intended to qualify as incentive stock options,
but rather are intended to constitute "nonqualified stock options" as defined by
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
The options become exercisable commencing on the date of the grant.
On January 4, 1999, options to purchase 4,500 shares each were granted to
Messrs. Austin, Battey, Bliss, Burkholder, Carmichael, Chitwood, Coghlan,
Haines, Hybl, Kinder, Randall, Riordan, Taylor and True at an exercise price of
$23.7188 per share, the average sales price of the Common Stock on that date.
Non-employee Directors who were elected prior to 1992 received grants under
the 1982 Stock Option Plan for Non-Employee Directors (the "1982 Plan"). Grants
are no longer being made from the 1982 Plan. Under the terms of the 1982 Plan,
each participant was granted options to purchase the number of shares equal to
500 times the number of years or partial years in the term to which he was
elected, which were exercisable in one-third increments annually over the
succeeding three-year period.
At the request of the Company, Mr. David M. Carmichael is a Director of Tom
Brown, Inc. The Company pays Mr. Carmichael the annual Tom Brown, Inc. Board
fees. In 1998, those fees totaled $48,000.
BOARD RECOMMENDATION
The Board of Directors recommends a vote FOR the five Class III director
nominees, and the one Class II director nominee.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's employees are its most important and valued asset. Its senior
executives are responsible for developing and driving a business strategy for
sustained growth and enhanced rates of return that results in maximum value to
the shareholders of the Company. Fiscal year 1998 was a unique year for the
Company. The Board of Directors and the Company's senior executives targeted as
a primary objective the completion of the acquisition of MidCon Corp. and the
integration of MidCon into the Company and a number of other strategic goals.
The Company's acquisition of MidCon in January 1998 resulted in a combined
company with $9.6 billion in assets and $4.3 billion in operating revenues.
The Company's success in completing this acquisition and successfully
integrating the two companies is reflected in the bonuses paid to senior
executives for 1997 performance. Over the course of 1998, the Company achieved
cost savings of more than $80 million from the integration of MidCon as well as
a number of other strategic goals for 1998. However, the Company did not achieve
its targeted financial goals for 1998 primarily due to external environmental
and economic factors outside of the control of the Company and that result is
reflected in the decision by the Compensation Committee and the Board of
Directors not to pay incentive bonuses to the senior executives for 1998
performance.
It is the goal and obligation of the Compensation Committee and the Board
of Directors to attract and retain highly qualified people with the skills to
manage opportunities and create shareholder value, and the compensation
philosophy discussed in this Report is aimed at creating shareholder value by
tying the compensation of the senior executives of the Company to increases in
that value.
COMPENSATION COMMITTEE MEMBERSHIPS AND RESPONSIBILITY
The Compensation Committee of the Board of Directors is presently composed
entirely of five independent non-employee directors: Mr. Austin, Mr. Chitwood,
Mr. Coghlan, Mr. Kinder and Mr. Randall. The Compensation Committee is
responsible for setting and administering the policies which govern both annual
compensation and long-term compensation of executive officers. Following review
and approval by the Compensation Committee, all issues pertaining to executive
compensation are submitted to the full Board of Directors for approval.
8
<PAGE> 12
COMPENSATION COMPONENTS AND PHILOSOPHY
Annual executive compensation is principally comprised of salary and
incentive cash and stock awards. It is the philosophy of the Company that annual
compensation of its executive officers and other key employees should be
directly and materially tied to corporate operating and financial performance.
To achieve this objective, annual executive compensation decisions are weighted
towards cash incentives payable on the basis of such performance. The Company
also believes that long-term executive compensation should be tied to corporate
operating and financial performance. Grants of stock options, and, more
recently, restricted stock awards, have been the principal component of
long-term executive compensation.
The Company's executive compensation components are reviewed periodically
and were reviewed in 1998 by outside compensation consultants to ensure that the
Company's compensation package operates effectively and remains both reasonable
and competitive with the energy industry, and is comparable to the compensation
offered by companies of the size and scope of the new combined company.
The Company's 1994 Long-Term Incentive Plan (the "1994 Incentive Plan")
gives the Compensation Committee the flexibility to recommend that the Board
grant both non-qualified and incentive stock options, restricted stock awards,
stock appreciation rights and other stock-based awards. The 1994 Incentive Plan
has permitted the Company to keep pace with changing developments in
compensation and benefit programs, making the Company competitive with those
companies that offer creative incentives to attract and keep employees. The
ability to grant both incentive and non-qualified stock awards enhances the
Compensation Committee's ability to meet the Company's objectives of attracting
and retaining well-qualified individuals to serve as executive officers and key
employees.
Section 162(m) of the Code limits the deductibility of certain compensation
for the Chief Executive Officer and the additional four highest paid executive
officers of the Company to $1 million per year. If certain conditions are met,
including the removal of discretion in determining individual rewards,
compensation may be excluded from consideration of the $1 million limit. Annual
compensation of the Company's individual executive officers has historically
been below $1 million. However, principally due to the acquisition of MidCon, it
is expected that compensation may exceed this limit. The policy of the
Compensation Committee to date is to establish and maintain a compensation
program which maximizes the creation of long-term shareholder value by
recognizing and rewarding performance which increases the value of the Company.
The Compensation Committee approved a resolution at its November 30, 1998
meeting instructing certain officers of the Company to take necessary actions
regarding the Company's cash and stock incentive plans to match the Company's
philosophy regarding Section 162(m).
BASE SALARY
Salary decisions are based on achievement of both personal and company-wide
performance objectives as well as recommendations for salary ranges developed by
outside consultants from data obtained through surveys of comparable companies.
The types of performance objectives considered when making salary decisions are
the same as those described in the discussion on page 11 entitled "Executive
Incentive Plan." Salary comparisons are prepared periodically by outside
compensation consultants, and are done to ensure that Company salaries remain
competitive and reasonable in its industry. Such salary comparisons are
currently being developed to ensure competitiveness with companies of comparable
size and scope.
STOCK OPTIONS
In 1998, stock options granted under the 1994 Incentive Plan comprised part
of the Company's major long-term executive benefit.
Stock options are granted to meet certain corporate objectives, including
to encourage contributions by executive officers to key corporate, operating and
financial goals, to show confidence and high expectations that the judgment,
initiative and efforts of executive officers will result in the Company's
success and to align the interests of executive officers with shareholder
interests. Decisions concerning the granting of stock options
9
<PAGE> 13
are directly related to performance-based objectives. In 1998, the Company
awarded options to purchase 1,497,399 shares of Common Stock to a total of 176
employees.
The following table shows the stock option grants made in 1998, to the five
most highly compensated executive officers of the Company and the portion of
those grants which vest in 1999.
1998 STOCK OPTIONS
<TABLE>
<CAPTION>
SHARES
UNDERLYING SHARES UNDERLYING
OPTIONS GRANTED PURCHASE OPTIONS WHICH
NAME IN 1998 PRICE WILL VEST IN 1999
---- --------------- -------- -----------------
<S> <C> <C> <C>
Larry D. Hall...................................... 135,001(1) $34.6667 27,000
Morton C. Aaronson................................. 90,001(1) $34.6667 18,000
Clyde E. McKenzie.................................. 90,001(1) $34.6667 18,000
John F. Riordan.................................... 30,000(2) $33.7709 10,000
H. Rickey Wells.................................... 90,001(1) $34.6667 18,000
</TABLE>
- ---------------
(1) Granted on March 4, 1998.
(2) Granted on February 10, 1998.
The following table shows the stock option grants made during fiscal year
1998 to all employees other than the five most highly compensated executive
officers of the Company.
1998 STOCK OPTIONS
<TABLE>
<CAPTION>
SHARES
UNDERLYING
OPTIONS GRANTED PURCHASE
IN 1998 PRICE VESTING SCHEDULE
--------------- -------- --------------------
<S> <C> <C> <C>
All employees as a group excluding the five most
highly compensated executive officers (171 one-third increments
persons)....................................... 1,062,395 varies over three years
</TABLE>
RESTRICTED STOCK AWARDS
In 1998, restricted stock awards were granted to the five most highly
compensated executives under the 1994 Incentive Plan as a component of long-term
executive compensation. These grants are intended to reward executive officers
for their contributions to key corporate operating and financial results, and to
align the interests of these officers with the interests of the Company's
shareholders.
The following table shows the restricted stock grants which were made in
1998, and the portion of those grants with respect to which restrictions will be
lifted in 1999. Holders of the restricted stock identified below are entitled to
receive dividends on this stock and to exercise all voting rights with respect
thereto.
1998 RESTRICTED STOCK
<TABLE>
<CAPTION>
RESTRICTED STOCK GRANTED
IN 1998 FOR WHICH
RESTRICTED STOCK RESTRICTIONS WILL BE LIFTED
NAME GRANTED IN 1998 IN 1999
---- ---------------- ---------------------------
<S> <C> <C>
Larry D. Hall............................................ 15,000(1) 3,000
Morton C. Aaronson....................................... 5,250(1) 1,050
Clyde E. McKenzie........................................ 5,250(1) 1,050
John F. Riordan.......................................... 4,500(2) 1,500
H. Rickey Wells.......................................... 5,250(1) 1,050
</TABLE>
10
<PAGE> 14
- ---------------
(1) Granted on March 4, 1998.
(2) Granted on February 10, 1998.
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
The Board of Directors adopted the Deferred Compensation Plan effective
January 1, 1998. Under the terms of the Deferred Compensation Plan, directors
and executive officers, along with all other key employees who meet certain
requirements as highly compensated employees of the Company, are eligible to
participate in the plan. The Deferred Compensation Plan permits plan
participants the option of deferring for each plan year base annual salary,
incentive payments, director's fees, qualifying gains on stock options and
restricted stock awards. One benefit of participating in the plan includes the
opportunity for executive officers to earn a matching contribution of up to 15%
of their annual base salary, based on the Company's annual attainment of
performance objectives announced prior to the plan year during which the match
will be earned. Because 1998 performance objectives were not met, no matching
contribution will be made for 1998 deferrals.
PROFIT SHARING PLAN
Executive officers, along with all other employees who meet certain
requirements regarding length of employment and full-time status, are eligible
to participate in the Company's Profit Sharing and Savings Plan ("Profit Sharing
Plan"). Effective with the 1996 plan year, the profit sharing contribution was
revised to relate directly to the attainment by the Company of specific earnings
targets which were approved by the Board of Directors. The Profit Sharing Plan
distribution opportunities range from 0% to 10% depending on successful
achievement of these specific earnings targets. Since the Company did not meet
the designated earnings targets for 1998, there was no payout under the Profit
Sharing Plan for 1998.
EXECUTIVE INCENTIVE PLAN
The Compensation Committee annually approves an Executive Incentive Plan,
which provides the means for determining and paying annual executive cash
awards.
The Executive Incentive Plan contains detailed criteria for the evaluation
of performance by executive officers. Particular emphasis is placed on
performance-oriented objectives, financial measures, cost control measures and
other measures linked to strategic objectives designed to improve existing
performance, development of business growth opportunities, management
effectiveness, productivity, safety, cost control, service levels and
efficiencies to clearly benefit customers and, thereby, shareholders. Target
objectives are set for corporate performance and for division and personal
objectives in January of each year. Examples of operating objectives for the
1998 Executive Incentive Plan included: the successful acquisition and
integration of MidCon; the successful acquisition and integration of the Thermo
companies; completion of Phase II of the TransColorado Pipeline and achievement
of safety goals. Examples of financial goals in the 1997 Executive Incentive
Plan included acquisition of MidCon; acquisition and integration of the Bushton
Plant; completion of the Pony Express Pipeline including achievement of full
operational capability; and achievement of safety goals.
Despite meeting its operational goals in 1998, the Company did not meet its
financial goals and therefore there was no payout under the Executive Incentive
Plan.
Prior to April 15 of each year, the Compensation Committee designates
executive participants in the Executive Incentive Plan for that year.
Participation in one year does not guarantee participation in following years.
Participants are assigned to levels of eligibility, based on their degree of
responsibility for corporate-wide results. In 1998, the five most highly
compensated executives had bonus opportunities with a target range of 75% to
100%. The Compensation Committee has the discretionary authority to exceed these
ranges.
The Executive Incentive Plan is designed to keep individuals focused on
their specific tasks while working as a team. In all cases, at least 50% of each
participant's incentive compensation opportunity is based upon the Company's
overall results. Depending upon the individual's position, the mix of corporate
and division/
11
<PAGE> 15
personal performance objectives can range from 50% corporate and 50%
division/personal to 90% corporate and 10% division/personal.
The mix of corporate and division/personal goals for each of the five most
highly compensated executives, and the 1998 payout, is as follows:
INCENTIVE COMPENSATION PERFORMANCE CRITERIA
<TABLE>
<CAPTION>
EXECUTIVE CORPORATE GOAL DIVISION/PERSONAL GOAL 1998 PAYOUT
--------- -------------- ---------------------- -----------
<S> <C> <C> <C>
Larry D. Hall......................... 90% 0%/10% 0
Morton C. Aaronson.................... 80% 10%/10% 0
Clyde E. McKenzie..................... 80% 10%/10% 0
John F. Riordan....................... 80% 10%/10% 0
H. Rickey Wells....................... 80% 10%/10% 0
</TABLE>
The Company's 1997 financial and operating results exceeded its 1997
financial and operating objectives and this success is reflected in the
individual incentive pay-outs reported in the 1997 portions of the bonus column
of the Summary Compensation Table on page 13.
CHIEF EXECUTIVE OFFICER COMPENSATION
As indicated above, the Company's executive compensation program, both
annual and long-term, is based in large part upon the Company's business
performance. Annual incentive compensation for the Chief Executive Officer under
the Executive Incentive Plan depends primarily upon the overall performance of
the Company. His long-term compensation from both performance-based and
nonperformance-based stock options and restricted stock awards, and his salary
level, also depends primarily upon Company performance.
The Compensation Committee closely monitors the performance of the Chief
Executive Officer, meeting without his presence to evaluate his success in
achieving the corporate objectives in each year. As reported above, in 1998, Mr.
Hall was awarded stock options to acquire 135,001 shares of the Company's stock
and restricted stock of 15,000 shares, pursuant to the performance criteria
described above.
The Compensation Committee determined that in 1998 that despite meeting its
operational goals, the Company had not met its performance goals and determined
not to pay any incentive compensation to Mr. Hall. The 1997 financial and
operating results did exceed the Company's expectations, and the Chief Executive
Officer's cash incentive compensation under the Executive Incentive Plan in 1997
reflects this achievement.
Compensation Committee of
the Board of Directors
Mr. Richard D. Kinder (Chairman)
Mr. Edward H. Austin
Mr. Robert H. Chitwood
Mr. Howard P. Coghlan
Mr. Edward Randall, III
12
<PAGE> 16
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation during
the last three fiscal years of the Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company (collectively,
the "named executive officers"). In August 1998, the Board of Directors
appointed John H. Weber to the position of President and Chief Operating Officer
of the Company. Mr. Weber is not listed among the four most highly compensated
executive officers of the Company because he was only with the Company for a
portion of 1998. Mr. Hall held the position of President of the Company until
Mr. Weber's appointment in August 1998. All share amounts have been adjusted to
reflect the 3-for-2 stock split effected December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
NAME AND ------------------------------ STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS($)(2) (#)(3) ($)(4)
------------------ ---- --------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall 1998 623,247 0 416,000(5) 135,001(6) 9,983(7)
Chairman/CEO 1997 499,999 450,000 2,662,656(5) 120,000(6) 11,220(7)
1996 434,006 375,000 1,081,875(5) 450,000(6) 16,299(7)
Morton C. Aaronson(8) 1998 242,703 0 145,600(10) 90,001(6) 2,703(11)
Vice President & 1997 210,000 180,000 1,487,703(10) 30,000(6) 10,280(11)
Chief Marketing 1996 204,000 162,500(9) 761,719(10) 106,500(6) 87,269(11)
Officer
Clyde E. McKenzie 1998 245,268 0 145,600(13) 90,001(6) 5,716(14)
Vice President & 1997 214,000 200,000 1,487,703(13) 30,000(6) 10,293(14)
Chief Financial 1996(12) 164,615 112,500 769,688(13) 106,500(6) 50,462(14)
Officer
John F. Riordan(15) 1998 565,961 0 151,969(16) 30,000(6) 1,273(17)
Vice Chairman 1997 -- -- -- -- --
1996 -- -- -- -- --
H. Rickey Wells 1998 249,141 0 145,600(18) 90,001(6) 3,510(19)
Executive Vice President 1997 199,999 210,000 1,487,703(18) 30,000(6) 10,248(19)
1996 180,252 112,500 540,938(18) 76,500(6) 15,473(19)
</TABLE>
- ---------------
(1) The Company has no permanent long-term cash incentive plans. Instead, the
Compensation Committee of the Board of Directors reviews the advisability
of an executive cash incentive plan on an annual basis as discussed in the
Report of the Compensation Committee on Executive Compensation contained
herein. Amounts earned under such annual cash incentive plans are actually
paid in the year following the year in which they were earned; however such
amounts are reflected in the table in the year in which such amounts were
earned.
(2) The amounts disclosed in this column represent the dollar values of the
restricted shares of Common Stock granted to the named executive officers
in 1998, 1997 and 1996.
(3) The amounts listed in this column have been adjusted to reflect the 3-for-2
stock split effective December 31, 1998.
(4) Amounts earned under the Profit Sharing Plan are actually credited under
the plan in the year following the year in which they were earned. For
1998, the Company did not make any contributions under the provisions of
the Company's Profit Sharing Plan (a defined contribution plan). For 1997,
the Company contributed 7 percent and for 1996 the Company contributed 10
percent of eligible employee compensation (determined by comparing 1997 and
1996 actual results to a predetermined graduated scale of annual operating
income goals) to the Profit Sharing Plan. All employees who have completed
13
<PAGE> 17
1,000 hours of service in a plan year are participants. Amounts allocated
to an employee's Profit Sharing Plan account vest immediately. Benefits are
generally only payable on termination or retirement.
(5) Mr. Hall was awarded 45,000 shares of performance-based restricted stock on
August 19, 1996, 82,500 shares of restricted stock on February 10, 1997,
22,500 shares of restricted stock on August 8, 1997 and 15,000 shares of
restricted stock on March 4, 1998, having a per share market value (based
on the grant date average of the high and low prices of the Common Stock)
of $24.0417, $24.6667, $27.8959 and $34.6667, respectively. As of December
31, 1998, Mr. Hall owned 139,500 shares of restricted stock, having an
aggregate market value of $3,313,125, which were still subject to
restriction, and with respect to which Mr. Hall receives dividends and may
exercise all voting rights. Restrictions on the 1996 performance-based
restricted stock award of 45,000 shares, the August 8, 1997 award of 22,500
shares and the 1998 award of 15,000 shares are eligible for lapsing over a
five-year period in equal annual portions. Since the Company did not meet
its financial objectives in 1998, the 1996 performance-based restricted
stock due to vest in 1999 will not vest until 2006. The restrictions on the
February 10, 1997 restricted stock award of 82,500 shares are eligible for
lapsing over a five-year period, with 40% of such shares eligible for
lapsing in 1999 and 20% of such shares eligible for lapsing in 2000, 2001
and 2002, respectively.
(6) These options were granted under the 1994 Incentive Plan, and were granted
at an exercise price of 100% of the fair market value of the Common Stock
as of the date of grant, are exercisable within 10 years from the
respective dates of grant, and vest over a three, four or five-year period.
See "Stock Options" on page 17 below.
(7) Mr. Hall's 1998 earnings under the All Other Compensation Column include
$8,521 paid by the Company for executive disability insurance and $1,462 in
term life and accidental death and dismemberment insurance premiums paid on
behalf of Mr. Hall. Mr. Hall's 1997 earnings under the All Other
Compensation column include $9,600 earned for 1997 under the Company's
Profit Sharing Plan (see discussion in footnote (4) above). The Company
also paid $1,620 in term life and accidental death and dismemberment
insurance premiums in 1997 on behalf of Mr. Hall. Mr. Hall's earnings for
1996 under the Profit Sharing Plan were $15,000 and insurance premiums paid
on behalf of Mr. Hall for 1996 were $1,299, which amounts are reflected in
the 1996 All Other Compensation column.
(8) Mr. Aaronson and the Company entered into an Employment Agreement effective
January 1, 1996 which ended December 31, 1998. Mr. Aaronson has continued
working for the Company without an agreement.
(9) Mr. Aaronson was awarded a signing bonus of $50,000 on January 4, 1996, and
received an Executive Incentive Payout of $112,500 for the 1996 year.
(10) Mr. Aaronson was awarded 11,250 shares of performance-based restricted
stock on January 4, 1996, 22,500 shares of performance-based restricted
stock on August 19, 1996, 54,375 shares of restricted stock on February 10,
1997, 5,250 shares of restricted stock on August 8, 1997, and 5,250 shares
of restricted stock on March 4, 1998, having a per share market value
(based on the grant date average of the high and low prices of the Common
Stock) of $19.6250, $24.0417, $24.6667, $27.8959 and $34.6667,
respectively. As of December 31, 1998, Mr. Aaronson owned 70,275 shares of
restricted stock, having an aggregate market value of $1,669,031, which
were still subject to restriction, and with respect to which Mr. Aaronson
receives dividends and may exercise all voting rights. Restrictions on the
1996 performance-based restricted stock awards of 11,250 and 22,500, the
August 8, 1997 restricted stock award of 5,250 shares and the 1998
restricted stock award of 5,250 shares, are eligible for lapsing in equal
annual portions over a three-year, five-year and five-year period,
respectively. Since the Company did not meet its financial objectives in
1998, the 1996 performance-based restricted stock due to vest in 1999 will
not vest until 2006. The restrictions on the February 10, 1997 restricted
stock award of 54,375 shares are eligible for lapsing over a five-year
period, with 40% of such shares eligible for lapsing in 1999 and 20% of
such shares eligible for lapsing in 2000, 2001 and 2002, respectively.
(11) Mr. Aaronson's 1998 earnings under the All Other Compensation Column
include $2,120 paid by the Company for executive disability insurance and
$583 in term life and accidental death and dismemberment insurance premiums
paid on behalf of Mr. Aaronson. Mr. Aaronson's 1997 earnings under the All
14
<PAGE> 18
Other Compensation column include $9,600 earned for 1997 under the
Company's Profit Sharing Plan (see discussion in footnote (4) above), and
$680 in term life and accidental death and dismemberment insurance premiums
paid in 1998 on behalf of Mr. Aaronson. Mr. Aaronson's 1996 Profit Sharing
Plan distribution was $15,000 and insurance premiums paid on behalf of Mr.
Aaronson for 1996 totaled $655. The All Other Compensation column for 1996
also reflects $71,614 in relocation and moving allowances.
(12) Mr. McKenzie's employment by the Company began on March 25, 1996.
(13) Mr. McKenzie was awarded 11,250 shares of performance-based restricted
stock on March 25, 1996, 22,500 shares of performance-based restricted
stock on August 19, 1996, 54,375 shares of restricted stock on February 10,
1997, 5,250 shares of restricted stock on August 8, 1997, and 5,250 shares
of restricted stock on March 4, 1998, having a per share market value
(based on the grant date average of the high and low prices of the Common
Stock) of $20.3333, $24.0417, $24.6667, $27.8959 and $34.6667,
respectively. As of December 31, 1998, Mr. McKenzie owned 74,025 shares of
restricted stock, having an aggregate market value of $1,758,094, which
were still subject to restriction, and with respect to which Mr. McKenzie
receives dividends and may exercise all voting rights. Restrictions on the
1996 performance-based restricted stock awards of 11,250 and 22,500 shares,
the August 8, 1997 restricted stock award of 5,250 shares and the 1998
restricted stock award of 5,250 shares are eligible for lapsing in equal
annual portions over a three-year, five-year and five-year period,
respectively. Since the Company did not meet its financial objectives in
1998, the 1996 performance-based restricted stock due to vest in 1999 will
not vest until 2006. The restrictions on the February 10, 1997 restricted
stock award of 54,375 shares are eligible for lapsing over a five-year
period, with 40% of such shares eligible for lapsing in 1999 and 20% of
such shares eligible for lapsing in 2000, 2001 and 2002, respectively.
(14) Mr. McKenzie's 1998 earnings under the All Other Compensation Column
include $5,129 paid by the Company for executive disability insurance and
$587 in term life and accidental death and dismemberment insurance premiums
paid on behalf of Mr. McKenzie. Mr. McKenzie's 1997 earnings under the All
Other Compensation column include $9,600 earned for 1997 under the
Company's Profit Sharing Plan (see discussion in footnote (4) above), and
$693 in term life and accidental death and dismemberment insurance premiums
paid in 1997 on behalf of Mr. McKenzie. Mr. McKenzie's 1996 Profit Sharing
Plan distribution was $15,000 and insurance premiums paid on behalf of Mr.
McKenzie for 1997 totaled $462. The All Other Compensation column for 1996
also reflects $35,000 in relocation allowance granted to Mr. McKenzie.
(15) Mr. Riordan is no longer an employee of the Company, but he does remain as
a director of the Company.
(16) Mr. Riordan was previously the Chairman of MidCon Corp. Mr. Riordan began
working for the Company on February 1, 1998. Mr. Riordan was awarded 4,500
shares of restricted stock on February 10, 1998, having a per share market
value (based on the grant date average of the high and low prices of the
Common Stock) of $33.7709. As of December 31, 1998, Mr. Riordan owned 4,250
shares of restricted stock, having a market value of $100,938, which were
still subject to restriction, and with respect to which Mr. Riordan
receives dividends and may exercise all voting rights. Restrictions on
these restricted shares are eligible for lapsing in equal annual portions
over a three-year period.
(17) Mr. Riordan's 1998 earnings under the All Other Compensation Column
includes $1,273 in term life and accidental death and dismemberment
insurance premiums paid on behalf of Mr. Riordan.
(18) Mr. Wells was awarded 22,500 shares of performance-based restricted stock
on August 19, 1996, 54,375 shares of restricted stock on February 10, 1997,
5,250 shares of restricted stock on August 8, 1997, and 5,250 shares of
restricted stock on March 4, 1998, having a per share market value (based
on the grant date average of the high and low prices of the Common Stock)
of $24.0417, $24.6667, $27.8959, and $34.6667, respectively. As of December
31, 1998, Mr. Wells owned 70,275 shares of restricted stock, having an
aggregate market value of $1,669,031, which were still subject to
restriction, and with respect to which Mr. Wells receives dividends and may
exercise all voting rights. Restrictions on the 1996 performance-based
restricted stock award of 22,500 shares, the August 8, 1997 restricted
stock award of 5,250 shares and the March 4, 1998 restricted stock award of
5,250 shares are eligible for
15
<PAGE> 19
lapsing in equal annual portions over a three-year, five-year and five-year
period, respectively. Since the Company did not meet its financial
objectives in 1998, the 1996 performance-based restricted stock due to vest
in 1999 will not vest until 2006. The restrictions on the February 10, 1997
restricted stock award of 54,375 shares are eligible for lapsing over a
five-year period, with 40% of such shares eligible for lapsing in 1999 and
20% of such shares eligible for lapsing in 2000, 2001 and 2002,
respectively.
(19) Mr. Wells' 1998 earnings under the All Other Compensation Column include
$2,917 paid by the Company for executive disability insurance and $593 in
term life and accidental death and dismemberment insurance premiums paid on
behalf of Mr. Wells. Mr. Wells' 1997 earnings under the All Other
Compensation column include $9,600 earned for 1997 under the Company's
Profit Sharing Plan (see discussion in footnote (4) above). The Company
also paid $648 in term life and accidental death and dismemberment
insurance premiums in 1997 on behalf of Mr. Wells. Mr. Wells' 1996 Profit
Sharing Plan distribution was $15,000 and insurance premiums paid on behalf
of Mr. Wells for 1996 totaled $473.
16
<PAGE> 20
STOCK OPTIONS
Information concerning 1998 grants of options to purchase the Company's
Common Stock to the named executive officers follows:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR OPTION TERM(3)
GRANTED FISCAL BASE PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR(2) ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Hall........... 135,001(4) 9.0% 34.6667 3/4/08 2,934,082 7,444,176
Morton C. Aaronson...... 90,001(4) 6.0% 34.6667 3/4/08 1,956,062 4,962,802
Clyde E. McKenzie....... 90,001(4) 6.0% 34.6667 3/4/08 1,956,062 4,962,802
John F. Riordan......... 30,000(4) 2.0% 33.7709 2/10/08 637,145 1,614,656
H. Rickey Wells......... 90,001(4) 6.0% 34.6667 3/4/08 1,956,062 4,962,802
</TABLE>
- ---------------
(1) Each option granted in 1998 has an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant and expires ten
years from the date of grant, subject to earlier termination in certain
events related to termination of employment of the optionee. The exercise
price and tax withholding obligations related to exercise may be paid by
delivery of already owned shares or by offset of the underlying shares,
subject to certain conditions. Under the terms of the 1994 Incentive Plan,
the Compensation Committee retains discretion, subject to plan limits, to
accelerate exercise dates and otherwise waive or amend any conditions of
options granted thereunder.
(2) The total number of options granted to Company employees in 1998 was
1,497,399.
(3) The values set forth in this column assume annual rates of stock
appreciation of 5% and 10%. The Company has no ability to predict whether
such appreciation rates will be achieved, and, therefore, cannot predict
whether the potential realizable values set forth in these columns
realistically indicate the value of the options granted to the named
executive officers in 1998.
(4) These options vest over five years, subject to automatic acceleration of
full exercisability upon a Change of Control of the Company (as defined in
the Change of Control Severance Agreement which is described under
"Severance and Other Agreements" herein).
The following table sets forth information about option exercises in 1998
by the named executive officers and the value of the remaining options held by
each such officer at year-end.
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT YEAR-END(#) YEAR-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
Larry D. Hall.................... 96,000 1,673,933 365,625/468,751 819,330/130,468
Morton C. Aaronson............... 37,817 437,176 50,997/127,503 0/ 49,508
Clyde E. McKenzie................ 0 0 98,999/127,503 61,497/ 41,007
John F. Riordan.................. 0 0 10,000/ 20,000 0/ 0
H. Rickey Wells.................. 0 0 118,125/121,126 367,546/ 39,140
</TABLE>
17
<PAGE> 21
- ---------------
(1) Based on the average of the high and low price of the Company's Common Stock
on the NYSE Composite Tape on December 31, 1998, which was $23.75, after
giving effect to the 3-for-2 stock split.
EXECUTIVE STOCK OWNERSHIP
The following table sets forth information about beneficial stock ownership
of the named executive officers, as well as all executive officers and directors
as a group.
EXECUTIVE OFFICER BENEFICIAL STOCK OWNERSHIP
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
COMMON STOCK
BENEFICIALLY
OWNED AS OF FEBRUARY 1,
NAME 1999(1)(2)
---- -----------------------
<S> <C>
Larry D. Hall............................................... 617,950(3)
Morton C. Aaronson.......................................... 206,286
Clyde E. McKenzie........................................... 252,419
John F. Riordan............................................. 40,899
H. Rickey Wells............................................. 248,795
All executive officers and directors as a group............. 3,241,101
</TABLE>
- ---------------
(1) No executive officer or director beneficially owns any preferred stock of
the Company, and only Mr. Hybl, who owns 3,300 PEPS, owned any PEPS as of
February 1, 1999. No named executive officer beneficially owned more than
one percent of the Company's outstanding Common Stock as of February 1,
1999. All executive officers and directors as a group beneficially owned
approximately 4.65% percent of the outstanding Common Stock on February 1,
1999. Respecting share ownership by directors, see "Election of Directors"
beginning on page 2. In making the computations required in connection with
the preceding statement, with respect to any executive officer who held
options to purchase shares of the Common Stock exercisable within 60 days of
February 1, 1999, it was assumed that such options had been exercised. The
following number of shares representing such unexercised options were added
to the holdings of each of the following executive officers: Mr. Hall,
388,125 shares; Mr. Aaronson, 100,498 shares; Mr. McKenzie, 148,500 shares;
Mr. Riordan, 24,500 shares; and Mr. Wells, 161,625 shares. A total of
1,283,521 shares representing such unexercised options were added to the
holdings of all executive officers and directors as a group.
(2) Unless otherwise indicated, the executive officers have sole voting and
investment power over the shares listed above, other than shared rights
created under joint tenancy or marital property laws as between the
Company's executive officers and their respective spouses, if any.
(3) Includes 208 shares of Common Stock owned by Mr. Hall's wife, as to which
Mr. Hall disclaims beneficial ownership and over which he has neither
investment nor voting power. Also includes 139,500 restricted shares that
Mr. Hall has the right to vote. Does not include any of the shares
attributable to the K N Energy, Inc. Profit Sharing Plan of which Mr. Hall
is a beneficiary. The cumulative number of shares attributable thereto and
held by the Trustee thereof as of December 31, 1998 is 3,402.
On February 20, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Sempra Energy and Cardinal Acquisition
Corp., a wholly-owned subsidiary of Sempra Energy. The Merger Agreement provides
that upon consummation of the merger of the Company into Cardinal Acquisition
Corp. (the "Merger"), K N Common Stock will be exchanged for Sempra Common
Stock, cash, or a combination of the two, subject to proration, as further
described in the Merger Agreement. Completion of the Merger is subject to
several conditions, including approval of the shareholders of both K N and
Sempra Energy at special meetings to be held later this year and certain
regulatory approvals and clearance.
18
<PAGE> 22
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company's
Common Stock to the Standard & Poor's 500 Stock Index and to the Standard &
Poor's Natural Gas Index for the Company's last five fiscal years. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 31, 1993, and that all dividends were reinvested.
Total net return to the Company's shareholders in 1998 was a negative (30.91%),
as compared to an average return of 28.58% for the Standard & Poor's 500 Stock
Index and of 9.58% for the Standard & Poor's Natural Gas Index for the same
period.
[PERFORMANCE GRAPH]'
<TABLE>
<CAPTION>
Measurement Period S&P Natural
(Fiscal Year Covered) KN S&P 500 Gas
<S> <C> <C> <C>
1993 100 100 100
1994 96 101 95
1995 122 139 134
1996 170 171 179
1997 239 228 211
1998 165 293 231
</TABLE>
PENSION AND SUPPLEMENTAL BENEFITS
The Company's employees and officers participate in its Retirement Plan and
Trust Agreement for Non-Bargaining Employees (the "Pension Plan"). This is a
defined benefit plan which is not based upon a participant's final years'
compensation. Annual pension benefits at the normal retirement age of 65 are
equal to the total of the yearly accrued annuity credits. Prior to January 1,
1989, the yearly annuity credit equaled 1.1 percent of the first $8,400 of
compensation and 2.1 percent of compensation in excess of $8,400. Effective
January 1, 1989, the yearly annuity credit equals 1.75 percent of the first
$19,200 of compensation and 2.1 percent of compensation in excess of $19,200.
For purposes of the Pension Plan, compensation excludes bonuses and commissions,
and includes overtime and special duty compensation. Assuming continued
employment to age 65 at present salaries, the estimated annual pension benefits
of the named executive officers are as follows: Mr. Hall, $97,032, Mr. Aaronson,
$92,016, Mr. McKenzie, $55,766, Mr. Riordan, $3,836 and Mr. Wells, $104,256.
These benefits are not subject to any deduction for Social Security benefits or
other offset amounts.
The Company's Profit Sharing Plan, described on page 11 above, also
provides retirement benefits to eligible employees including executive officers.
In addition, the Company has supplemental benefit plans which are designed to
assure payment to certain employees of benefits that would be provided under the
Pension Plan and the Profit Sharing Plan except for the dollar limits on accrued
benefits imposed by the Code.
19
<PAGE> 23
SEVERANCE AND OTHER AGREEMENTS
The Company has entered into severance agreements with certain key
employees, including all of its named executive officers except John F. Riordan,
effective on or about October 18, 1996. The agreements provide severance
benefits if the officer is involuntarily terminated under certain circumstances
within two years following a change in control of the Company. A "change in
control" means (i) a change in the majority of the Board of Directors of the
Company as a result of any reason other than normal retirement, death or
disability; (ii) the sale by the Company of all or substantially all of its
assets or the approval by the shareholders of a plan of complete liquidation;
(iii) a person or group becoming the beneficial owner of 30% or more of the
outstanding voting stock of the Company; or (iv) the approval by the
shareholders of a merger or consolidation other than one in which the Company's
outstanding voting securities prior thereto constitute more than 50% of the
combined voting power of the surviving entity and other than a merger in which
no person acquires more than 30% of the Company's then outstanding securities.
Such benefits are provided if, within two years following a change in control,
the officer is involuntarily terminated (other than for willful misconduct,
gross negligence, death, disability or retirement), or the officer terminates
his employment because of a "change of duties." A "change of duties" means
generally a reduction in compensation, downgrading of position or authority, or
the requirement to relocate. Upon such termination, the officer would be
entitled to receive in a lump sum an amount, subject to withholding tax and
employee benefit premiums or similar adjustments, equal to a multiple of the
officer's annual compensation (including base salary and cash incentive bonus)
earned at termination, plus payment of the costs for or provision of certain
welfare benefits for a specified period after involuntary termination. In
addition, all stock options or restricted stock granted to such person and
outstanding at the time of involuntary termination become immediately
exercisable and all restrictions thereon are removed. The persons who are
parties to such agreements are bound by certain noncompetition and
confidentiality provisions.
The following table summarizes Change of Control Severance Agreement terms
for the Company's named executive officers:
CHANGE OF CONTROL SEVERANCE AGREEMENTS
<TABLE>
<CAPTION>
DURATION OF
NAME SEVERANCE PAYMENT WELFARE BENEFITS
---- ----------------- ----------------
<S> <C> <C>
Larry D. Hall........................................ 3x executive compensation 36 months
Morton C. Aaronson................................... 2x executive compensation 24 months
Clyde E. McKenzie.................................... 2x executive compensation 24 months
John F. Riordan...................................... None 0 months
H. Rickey Wells...................................... 2x executive compensation 24 months
</TABLE>
In connection with the Merger Agreement with Sempra Energy, the Company and
Mr. Hall have entered into an Employment Agreement, effective only if the Merger
is consummated, pursuant to which Sempra Energy will employ Mr. Hall as an
executive consultant for two years following the Merger and will nominate him to
serve on the Sempra Energy Board of Directors. In consideration, Mr. Hall will
receive base compensation of $800,000 per year, will be eligible to participate
in certain executive benefit programs provided by Sempra Energy and will receive
certain retirement benefits. Additionally, at the effective time of the Merger
and on the first anniversary of the Merger, Mr. Hall will receive options to
purchase an amount of Sempra Energy Common Stock valued at $200,000 under Sempra
Energy's 1998 Long Term Incentive Plan. The Employment Agreement also provides
for certain payments to Mr. Hall in the event of his termination under
circumstances specified in the agreement.
20
<PAGE> 24
PRINCIPAL SHAREHOLDERS
COMMON STOCK
According to information supplied to the Company by the beneficial owners
listed below, the following entities each owned beneficially, as indicated on
the dates shown, more than five percent of the outstanding shares of the Common
Stock of the Company on the dates indicated in parentheses below. No other
person is known by the Company to be the beneficial owner of more than five
percent of the Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER AND DATE AMOUNT AND NATURE OF PERCENT OF
INFORMATION PROVIDED BENEFICIAL OWNERSHIP(1) CLASS
------------------------- ----------------------- ----------
<S> <C> <C>
Massachusetts Financial Services Company.................... 5,170,126(2) 7.5%
500 Boylston Street
Boston, MA 02116
(February 11, 1999)
Capital Guardian Trust Company.............................. 4,285,305(3) 6.2%
11100 Santa Monica Boulevard
Los Angeles, CA 90025
(February 8, 1999)
State Farm Mutual Automobile
Insurance Company......................................... 3,899,947(4) 5.68%
One State Farm Plaza
Bloomington, IL 61701
(February 4, 1999)
The Prudential Insurance Company of America................. 3,579,781(6) 5.15%
751 Broad Street
Newark, NJ 07102
(February 2, 1999)
</TABLE>
- ---------------
(1) All amounts listed in this column are for the Company's Common Stock and
have been adjusted to reflect the 3-for-2 stock split effected December 31,
1998.
(2) As reported on Massachusetts Financial Services Company Schedule 13G dated
February 11, 1999. Massachusetts Financial reports that it has sole
investment and voting power over its shares, and that the shares were
acquired solely for investment purposes.
(3) As reported on Capital Guardian Trust Company's Schedule 13G for the period
ended December 31, 1998. Capital Guardian, a bank, reports that it has sole
voting power of 2,929,380 shares and sole dispositive power over all of the
shares listed.
(4) As reported on State Farm's Schedule 13G for the period ended December 31,
1998. State Farm reports that it has sole investment and voting power over
its shares, and that the shares were acquired solely for investment
purposes.
(5) As reported on Prudential's Schedule 13G for the period ended December 31,
1998. Prudential reports that it may have direct or indirect voting and/or
investment discretion over the shares which are held for the benefit of its
clients by its separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates.
CLASS A PREFERRED STOCK
No person is known to be the owner of five percent or more of the 70,000
outstanding shares of Class A $5.00 Preferred Stock of the Company.
21
<PAGE> 25
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's Common Stock to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange, and to provide
copies of such reports to the Company.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and written representations of
its directors, executive officers and ten percent holders, the Company believes
that during the year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its directors, executive officers and ten percent
holders were satisfied except that Edward Randall, III, a director of the
Company, did not timely disclose the acquisition of 1,000 shares of Common Stock
that were purchased on March 10, 1998. A Form 4 for this transaction was filed
with the SEC on May 12, 1998.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has acted as independent public accountants for the
Company continuously since 1940. A representative of Arthur Andersen LLP will be
present at the annual meeting and will have the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
Arthur Andersen LLP was recommended by the Audit Committee to perform the
audit function for 1998, and that recommendation was approved by the Board of
Directors. No independent public accountant has yet been recommended to perform
the audit function for 1999. The Audit Committee normally makes such a
recommendation at the regular Board of Directors' meeting in November.
COST AND METHOD OF PROXY SOLICITATION
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting, the enclosed form of Proxy, the Chairman's Letter, and any
additional material relating to the meeting which may be furnished to
shareholders by the Board of Directors subsequent to the furnishing of this
Proxy Statement, has been or is to be borne by the Company.
In addition to the solicitation of Proxies by use of the mails, the Company
may utilize the services of some of its directors and administrative office
personnel (who will receive no compensation therefor in addition to their
regular salaries) to solicit Proxies personally, by telephone or facsimile from
brokerage houses and other shareholders. The Company will reimburse banks and
brokers who hold shares of the Company's stock in their name or custody, or in
the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the Proxy materials to those persons for whom they hold
such shares. The Company has also retained D. F. King & Company, Inc. to aid in
the solicitation at an estimated cost of $8,000 plus reasonable out-of-pocket
expenses presently estimated at $35,000.
22
<PAGE> 26
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Pursuant to SEC regulations, any proposal which a shareholder intends to
present to the 2000 annual meeting must be received by November 16, 1999, at the
Company's principal executive offices in order to be included in the Proxy
Statement and the form of Proxy for that meeting.
The Company's By-Laws establish an advance notice procedure with regard to
certain matters to be brought before the Annual Meeting of Shareholders. In
general, written notice must be received by the Secretary of the Company at its
principal executive offices not less than forty days prior to the meeting and
must contain certain specified information concerning the matters to be brought
before the meeting as well as the shareholder submitting the proposal. A copy of
the applicable provisions of the By-laws may be obtained, without charge, upon
request to the Secretary of the Company at the address set forth on page one of
this Proxy Statement. The annual shareholders meeting is customarily held in
early April.
OTHER MATTERS
The Board of Directors does not intend to present, and does not have any
reason to believe that others will present, any other items of business at the
annual meeting. However, if other matters are properly presented for a vote,
Proxies will be voted upon such matters in accordance with the judgment of the
Proxyholders.
By Order of the Board of Directors
MARTHA B. WYRSCH
Vice President, General
Counsel
and Secretary
23
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
[X] Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR.
FOR WITHHELD
1. Election of [ ] [ ] Nominees: 1. Charles W. Battey Check this box if you have
Directors. 2. Stewart A. Bliss comments or a change of [ ]
3. Robert H. Chitwood address and use the back
For, exempt vote withheld from the following nominee(s); 4. Howard P. Coghlan of this card.
5. Edward Randall III
6. James C. Taylor Check this box if you want to [ ]
- ------------------------------------------------------- attend and vote at the meeting.
SIGNATURE(S) DATE
------------------------------------------------------------------ -------------------------------------------
Note: Your Signature should conform with your name as printed above. Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
- -----------------------------------------------------------------------------------------------------------------------------------
Detach Proxy Card here if you are voting by mail and return in enclosed envelope.
KN ENERGY, INC. - ANNUAL MEETING - APRIL 15, 1999
KN ENERGY NOW OFFERS PHONE OR INTERNET VOTING
24 hours a day, 7 days a week
On a touch-tone phone call toll-free 1-800 OK2 VOTE (outside the US and
Canada, call 201-324-0377). You will hear these instructions.
- - Enter the last four digits from your social security number.
- - Enter the control number from the box above, just below the perforation.
- - You will then have two options:
OPTION 1: To vote as the Board of Directors recommends on the proposal; or
OPTION 2: To vote on he proposal separately.
- - Your vote will be repeated to you and you will be asked to confirm it.
Log onto the internet and type http://www.vote-by-net.com
- - Have your proxy card ready and follow the instructions.
- - You will be able to elect to receive future mailings via the Internet.
Your electronic vote authorizes the proxies named on the reverse of this card
to vote your shares to the same extent as if you marked, signed, dated and
returned the proxy card.
If you have voted by phone or internet, please do not return the Proxy Card.
</TABLE>
<PAGE> 28
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF KN
ENERGY, INC.
The undersigned, whose signature appears on the reverse, hereby
appoints LARRY D. HALL and MARTHA B. WYRSCH and each of them, proxies
with full power of substitution for and in the name of the
P undersigned to vote all the shares of Common Stock and Preferred Stock
of KN Energy, Inc. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders to be held on
R April 15, 1999, and at any and all adjournments thereof, on all
matters that may properly come before the meeting.
O Your shares will be voted as directed on this card. If signed and no
direction is given for any item, it will be voted in favor of Item 1.
X To vote by telephone or internet, please see the reverse of this card.
To vote by mail, please sign and date this card on the reverse, tear
off at the perforation, and mail promptly in the enclosed postage-paid
Y envelope.
If you have any comments or a change of address, mark the appropriate
box on the reverse side and use the following space:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
YOUR VOTE IS IMPORTANT, BY RETURNING YOUR VOTING INSTRUCTIONS PROMPTLY,
YOU CAN AVOID THE INCONVENIENCE OF RECEIVING FOLLOW-UP
MAILINGS PLUS HELP THE COMPANY AVOID
ADDITIONAL EXPENSES.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
Detach Proxy Card Here if You Are Voting by Mail and Return in Enclosed Envelope
Log onto our web site at http://www.kne.com
for more comprehensive information!
