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))
/ / Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Kansas City Power & Light Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/X/ 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:
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3) Filing Party:
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4) Date Filed:
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
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KANSAS CITY POWER & LIGHT COMPANY
(Name of Subject Company)
KANSAS CITY POWER & LIGHT COMPANY
(Name of Person Filing Statement)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
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485134100
(CUSIP Number of Class of Securities)
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JEANIE SELL LATZ, ESQ.
SENIOR VICE PRESIDENT, CORPORATE SECRETARY
AND CHIEF LEGAL OFFICER
KANSAS CITY POWER & LIGHT COMPANY
1201 WALNUT
KANSAS CITY, MISSOURI 64106-2124
(816) 556-2200
(Name, address and telephone number of person authorized
to receive notice and communications on behalf
of the person filing statement)
------------------------
COPY TO:
NANCY A. LIEBERMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Kansas City Power & Light Company, a
Missouri corporation ("KCPL"), and the principal executive offices of KCPL are
located at 1201 Walnut, Kansas City, Missouri 64106-2124. The title of the class
of equity securities to which this Statement relates is the common stock, no par
value, of KCPL ("KCPL Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to an exchange offer disclosed in a Registration
Statement on Form S-4 initially filed with the Securities and Exchange
Commission on April 22, 1996 and amended on June 19, 1996 and July 3, 1996 (as
amended, the "Western Resources Form S-4") by Western Resources, Inc., a Kansas
corporation ("Western Resources"), to exchange Western Resources common stock,
par value $5.00 per share ("Western Resources Common Stock"), for all of the
outstanding shares of KCPL Common Stock. According to a prospectus included in
the Western Resources Form S-4 (the "Western Resources Prospectus"), Western
Resources is offering, upon the terms and subject to the conditions set forth in
the Western Resources Prospectus and in a related Letter of Transmittal
(together, the "Western Resources Offer"), to exchange shares of Western
Resources Common Stock for each outstanding share of KCPL Common Stock validly
tendered on or prior to the Expiration Date (as defined in the Western Resources
Prospectus) of the Western Resources Offer and not properly withdrawn. Each such
share of KCPL Common Stock would be entitled to receive shares of Western
Resources Common Stock equal to the Exchange Ratio, defined as the quotient
(rounded to the nearest 1/100,000) determined by dividing $31.00 by the average
of the high and low sales prices of the Western Resources Common Stock (as
reported on the New York Stock Exchange Composite Transactions reporting system
as published in THE WALL STREET JOURNAL or, if not published therein, in another
authoritative source) on each of the twenty consecutive trading days ending with
the third trading day immediately preceding the Expiration Date. The Exchange
Ratio is fixed at a minimum value of 0.933 shares and a maximum value of 1.1
shares.
According to the Western Resources Prospectus, Western Resources intends, as
soon as practicable after consummation of the Western Resources Offer, to seek
to merge KCPL with and into itself pursuant to applicable law (the "Proposed
Western Resources Merger").
According to the Western Resources Prospectus, the principal executive
offices of Western Resources are located at 818 Kansas Avenue, Topeka, Kansas
66612.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of KCPL, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
KCPL or its affiliates and certain of KCPL's directors and executive officers
("Compensation Arrangements") are described under the headings "THE MERGERS --
Conflicts of Interest," "-- Certain Arrangements Regarding the Directors and
Management of Maxim," "-- Employment Agreements," "-- Employee Plans and
Severance Arrangements," "-- Maxim Plans," "-- Dividend Reinvestment Plan," "THE
MERGER AGREEMENT -- Certain Covenants," "-- Maxim Board of Directors," "--
Directors' and Officers' Indemnification," "-- Benefit Plans," "-- Certain
Employment Agreements and Workforce Matters," "APPROVAL OF MAXIM PLANS" and
"MAXIM FOLLOWING THE MERGERS -- Board of Directors of Maxim" and "-- Management
of Maxim" at pages 73-78, 85-90, 102-109 and 120 in the Joint Proxy
Statement/Prospectus of KCPL, dated June 26, 1996, sent by KCPL to its
shareholders in connection with KCPL's special meeting of shareholders scheduled
to be held on August 7, 1996 (the "Joint Proxy Statement/Prospectus"). A copy of
such portions of the Joint Proxy Statement/Prospectus is filed as Exhibit 1
hereto and is incorporated herein by reference. Certain other Compensation
Arrangements are described under the headings "COMPENSATION OF EXECUTIVE
OFFICERS," "OPTIONS AND STOCK APPRECIATION RIGHTS," "BENEFIT PLANS" and
"COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" at pages 112-117 in
the joint proxy statement/prospectus of KCPL, dated April 4, 1996, sent by KCPL
to its shareholders in
1
connection with the annual meeting of KCPL shareholders held on May 22, 1996
(the "Original Joint Proxy Statement/Prospectus"). A copy of such portions of
the Original Joint Proxy Statement/ Prospectus is filed as Exhibit 2 hereto and
is incorporated herein by reference.
KCPL and Western Resources are involved in various ventures and agreements
on an arm's-length basis, including (i) the ownership and operation of the Wolf
Creek Generating Station (a nuclear powered generating station) ("Wolf Creek");
(ii) the ownership and operation of the LaCygne Station (a coal-fired station
consisting of two generating units); (iii) the lease by KCPL from a subsidiary
of Western Resources of a 345 kv transmission line from Wolf Creek to LaCygne
Station; (iv) the MOKAN Power Pool, pursuant to which KCPL and Western
Resources, along with Utilicorp United Inc. ("UCU"), operate a
Wichita-Topeka-Kansas City-Sibley interconnection; and (v) the Southwest Power
Pool pursuant to which KCPL and Western Resources engage in joint transmission
planning.
In the normal course of business, KCPL and Western Resources buy and sell
electric power from and to each other in arm's-length transactions pursuant to
filed rate schedules.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) AND (B) AS MORE FULLY DESCRIBED BELOW, THE KCPL BOARD HAS RECOMMENDED
THAT KCPL SHAREHOLDERS REJECT THE WESTERN RESOURCES OFFER AND NOT TENDER THEIR
SHARES OF KCPL COMMON STOCK PURSUANT TO THE WESTERN RESOURCES OFFER. THE KCPL
BOARD HAS ALSO REAFFIRMED ITS DETERMINATION THAT THE TERMS OF THE MERGER
AGREEMENT BETWEEN KCPL AND UCU ARE FAIR TO, AND IN THE BEST INTERESTS OF, KCPL
AND ITS SHAREHOLDERS.
BACKGROUND. KCPL, UCU and KC United Corp. ("KCU") entered into an Agreement
and Plan of Merger (the "Original Merger Agreement") dated as of January 19,
1996. In accordance with the terms and conditions of the Original Merger
Agreement, KCPL and UCU would have been merged into KCU (the "Original Merger"),
with each outstanding share of KCPL Common Stock being converted into one share
of KCU common stock, and each outstanding share of UCU common stock being
converted into 1.096 shares of KCU common stock.
On April 14, 1996, Mr. A. Drue Jennings, Chairman of the Board, President
and Chief Executive Officer of KCPL, received a telephone call from Mr. John E.
Hayes, Jr., Chairman of the Board and Chief Executive Officer of Western
Resources, in which Mr. Hayes informed Mr. Jennings that he was delivering to
Mr. Jennings an unsolicited proposal to the board of directors of KCPL (the
"KCPL Board") pursuant to which Western Resources would acquire all of the
outstanding KCPL Common Stock in exchange for shares of Western Resources Common
Stock valued at $28.00 per share of KCPL Common Stock, subject to a "collar"
limiting the amount of Western Resources Common Stock that holders of KCPL
Common Stock would receive to no more than 0.985 shares, and no less than 0.833
shares, of Western Resources Common Stock for each share of KCPL Common Stock.
Following such telephone conversation, on April 14, 1996, Mr. Jennings received
from Western Resources a letter (the "April 14 Letter") setting forth further
details of Western Resources' unsolicited merger proposal.
A meeting of the KCPL Board was held on April 19, 1996 and April 21, 1996 to
consider Western Resources' proposal. At this meeting, the KCPL Board received
presentations from KCPL's management and its financial and legal advisors. On
April 21, the KCPL Board, based upon the presentations given, the advice
received, and the considerations discussed at such meeting of the KCPL Board,
determined that further exploration of the Western Resources proposal was not in
the best interests of KCPL, its shareholders, customers, employees and other
constituencies. Also on such date, the KCPL Board reaffirmed its approval of the
Original Merger with UCU.
On April 22, 1996, Western Resources announced that it intended to commence
an unsolicited exchange offer for all outstanding shares of KCPL Common Stock.
2
On May 6, 1996, KCPL and UCU announced that they would recommend an annual
dividend of $1.85 per common share for KCU. Also on May 6, 1996, Western
Resources announced that it had increased the lower limit of the "collar" in the
Western Resources Offer. According to Western Resources, the minimum number of
shares of Western Resources Common Stock that KCPL shareholders would receive
for each share of KCPL Common Stock if the Western Resources Offer was
consummated would be changed from 0.833 to 0.91. The maximum number was not
changed.
On May 9, 1996 the KCPL Board met in order to review the status of the
Original Merger and the proposed Western Resources exchange offer. During the
period beginning on May 10, 1996 and ending on May 19, 1996, various meetings
were held between executives of KCPL and UCU to discuss a possible change in the
exchange ratios in the Original Merger, certain changes in the structure of the
Original Merger and other possible changes to the terms of the Original Merger.
On May 20, 1996, KCPL, KC Merger Sub, Inc. ("Sub"), KCU and UCU entered into the
Amended and Restated Agreement and Plan of Merger, dated as of January 19, 1996,
as amended and restated as of May 20, 1996 (as amended and restated, the "Merger
Agreement"). Pursuant to the Merger Agreement, (i) Sub will merge with and into
UCU, with UCU surviving (the "UCU Merger"), and (ii) immediately thereafter, the
surviving corporation in the UCU Merger will merge with and into KCPL, with KCPL
surviving (together with the UCU Merger, the "Mergers"). As part of the Mergers,
KCPL will be renamed Maxim Energies, Inc. ("Maxim"). Pursuant to the Merger
Agreement, shareholders of UCU will receive one share of KCPL common stock for
each share of common stock, par value $1.00 per share, of UCU ("UCU Common
Stock"), and KCPL shareholders will retain their existing shares. The Merger
Agreement is filed as Exhibit 3 hereto and is incorporated herein by reference.
Also on May 20, 1996, KCPL announced that it was cancelling the vote on the
Original Merger scheduled to be held at the annual meeting of KCPL shareholders
on May 22, 1996.
On May 22, 1996, the Citizens' Utility Ratepayers Board (the "CURB"), an
organization created by Kansas statute whose purpose is to represent the
interests of residential and small commercial ratepayers in public utility
matters, and the staff of the Kansas State Corporation Commission (the "Kansas
Commission") filed testimony and exhibits with the Kansas Commission
recommending that rate reductions be imposed on Western Resources. The CURB
recommended an $87 million annual reduction, and the Kansas Commission staff
recommended a $105 million annual reduction.
On June 17, 1996, Western Resources commenced a solicitation of proxies from
KCPL shareholders in opposition to the issuance of KCPL Common Stock in
connection with the Mergers and announced (the "June 17 Announcement") that it
was increasing the price in its offer to merge with KCPL to $31 of Western
Resources Common Stock for each share of KCPL Common Stock, subject to a
"collar" pursuant to which each share of KCPL Common Stock would be exchanged
for no more than 1.1 and no less than 0.933 shares of Western Resources Common
Stock. On June 19, 1996, Western Resources amended the terms of its proposed
exchange offer to reflect the terms of the June 17 Announcement. On June 24,
1996, the KCPL Board met and determined that further exploration of the proposal
of Western Resources contained in the June 17 Announcement was not in the best
interests of KCPL, its shareholders, customers, employees and other
constituencies. The KCPL Board also reaffirmed its approval of the Mergers and
the Merger Agreement.
On July 8, 1996, Western Resources filed a tender offer statement on
Schedule 14D-1 with the Securities and Exchange Commission. At a meeting held on
July 9, 1996, the KCPL Board reviewed and deliberated the terms of the Western
Resources Offer with its legal and financial advisors. At its meeting held on
July 9, 1996, the KCPL Board determined by a unanimous vote of those directors
present that the Western Resources Offer is not in the best interests of KCPL
and its shareholders, customers, employees and other constituencies.
Accordingly, the KCPL Board recommended that KCPL shareholders reject the
Western Resources Offer and not tender their shares. KCPL's press release and
letter to shareholders with respect to the KCPL Board's recommendation are
attached hereto as Exhibits 4 and 5, respectively, and are incorporated herein
by reference.
3
THE RECOMMENDATION. The KCPL Board resolved to recommend against the
Western Resources Offer because the KCPL Board did not find the Western
Resources Offer to be in the best interests of KCPL and its shareholders,
customers, employees and other constituencies. In making this determination, the
KCPL Board considered the following factors, among others:
- WESTERN RESOURCES FACES SIGNIFICANT RATE REDUCTIONS.
In connection with Western Resources' acquisition of Kansas Gas and Electric
Company ("KGE") in 1991, the Kansas Commission ordered that all merger savings
(over and above an acquisition adjustment that is inapplicable here) should be
shared equally between ratepayers and shareholders. However, Western Resources
has not yet adjusted its rate levels to reflect the savings achieved in the KGE
merger. As a result, Western Resources is currently embroiled in rate reduction
proceedings before the Kansas Commission.
The KCPL Board believes that the Kansas Commission will impose rate
reductions on Western Resources far in excess of the $8.7 million per year over
seven years that Western Resources has proposed. Western Resources has
implicitly admitted that it can afford to reduce its earnings by at least an
additional $50 million per year by requesting the Kansas Commission's permission
to accelerate depreciation on the Wolf Creek plant by that annual amount.
Indeed, the staff of the Kansas Commission has recommended an immediate annual
rate reduction of $105 million, an amount twelve times greater than Western
Resources' proposal in the first year of reduction. The KCPL Board believes that
the Kansas Commission will address Western Resources' overearnings by ordering
significant rate reductions and will not permit Western Resources to keep such
overearnings.
- ANTICIPATED RATE REDUCTIONS COULD IMPERIL WESTERN RESOURCES' ABILITY TO
DELIVER PROMISED DIVIDENDS TO KCPL SHAREHOLDERS.
The implementation of the Kansas Commission staff's recommended $105 million
annual rate reduction would have a significant negative impact on Western
Resources' cash flow and earnings. If the $105 million annual rate reduction is
implemented, then virtually all of Western Resources' projected earnings for
1998 would be required to pay the dividends promised to KCPL shareholders (based
on (i) Western Resources' own projection of earnings for 1998 assuming a
KCPL/Western Resources combination, as reported in the Western Resources
Prospectus, and (ii) a reduction of such projections, calculated by KCPL, to
reflect the full rate decrease recommended by the staff of the Kansas
Commission). Even if the Kansas Commission orders a rate decrease of only $80
million annually, a figure amounting to approximately three-fourths of its
staff's recommendation, over 90% of Western Resources' projected earnings for
1998 could be required to make the promised dividend payments. EVEN WITHOUT SUCH
RATE REDUCTIONS, THE WESTERN RESOURCES PROSPECTUS ADMITS THAT WESTERN RESOURCES'
PROJECTED DIVIDENDS DECLARED PER SHARE FOR 1998 EXCEED PROJECTED EARNING PER
SHARE FOR 1998. In light of these facts, the KCPL Board questions the
reliability of Western Resources' dividend promises.
- WESTERN RESOURCES' SYNERGIES CLAIMS ARE UNREALISTIC AND WESTERN RESOURCES
WILL NOT BE ALLOWED TO RETAIN 70% OF THE SAVINGS RESULTING FROM A MERGER
WITH KCPL.
The KCPL Board believes, based on a review of Western Resources' synergies
analysis, that Western Resources has significantly overestimated the amount of
savings that would result from a KCPL/Western Resources combination.
Furthermore, Western Resources' assumption that it will be allowed to retain 70%
of the savings resulting from a merger with KCPL is inconsistent with applicable
precedent. The Kansas Commission, in its order authorizing the merger of KGE and
Western Resources' predecessor, Kansas Power and Light Co. ("KPL"), required
merger savings (over and above an acquisition adjustment that is inapplicable
here) to be shared equally (50-50) between shareholders and customers. In
addition, the staff of the Missouri Public Service Commission, in the pending
Union Electric/CIPSCO merger, is recommending an equal (50-50) sharing of merger
savings
4
between shareholders and customers. Western Resources will need the approval of
both of these regulatory agencies for any merger with KCPL. In light of these
precedents, it appears unrealistic to assume that Western Resources will be able
to keep 70% of merger savings.
As a result of the KCPL Board's conclusion that Western Resources will not
realize its forecasted amount of savings, and the KCPL Board's belief that
Western Resources will not be able to retain its expected portion of whatever
savings it does realize, the KCPL Board does not believe that Western Resources'
financial forecasts, including future dividend forecasts, are credible.
- THE COMBINED EFFECT OF THE POTENTIAL $105 MILLION ANNUAL RATE REDUCTION
AND OTHER FACTORS DISCUSSED ABOVE, AS WELL AS A MORE REALISTIC SYNERGIES
SAVINGS ESTIMATE, WOULD HAVE A NEGATIVE IMPACT ON THE VALUE OF WESTERN
RESOURCES' STOCK. IN THIS CONNECTION AND AS ILLUSTRATED BELOW, THE KCPL
BOARD CONSIDERED AS ONE EXAMPLE OF THE FOREGOING THE IMPACT ON WESTERN
RESOURCES' 1998 STOCK PRICE ASSUMING (I) THAT WESTERN RESOURCES' RATES
WERE REDUCED BY $105 MILLION ANNUALLY IN ACCORDANCE WITH THE KANSAS
COMMISSION'S STAFF'S RECOMMENDATIONS AND (II) WHAT THE KCPL BOARD BELIEVED
TO BE A MORE REALISTIC SYNERGIES ESTIMATE.
If Western Resources' earnings are overstated by $0.33 as shown in the chart
below, then multiplying such $0.33 overstatement by an assumed price/earnings
ratio of 11.5 indicates that there could be a negative impact on the value of
Western Resources' common stock in 1998 equalling approximately $3.80 per share.
Western Resources Forecast of 1998 Earnings Per Share for Western Resources/
KCPL Combination 1 $ 2.52
Adjustment to Reflect $105 Million Rate Reduction Recommended by Kansas
Corporation Commission Staff 2 (0.22)
Adjustment to Reflect Overstatement of Merger-Related Savings by Western
Resources 3 (0.11)
Revised Estimate of Western Resources' 1998 Earnings per Share for Western
Resources/KCPL Combination $ 2.19
Implied Reduction in Western Resources Common Stock value in 1998 based on
assumed price/earnings ratio of 11.5 4 $ 3.80
1 As reported in the Western Resources Prospectus and excluding costs to
achieve savings and transaction costs. In the Western Resources Prospectus,
Western Resources estimated earnings per share for 1998 based on Western
Resources' closing stock price on July 2, 1996 resulting in an exchange ratio
of 1.01224.
2 Assumes that Western Resources underestimated the rate reduction by $46.3
million, derived by subtracting from Kansas Commission staff's recommended
$105 million annual rate reduction both (i) Western Resources' proposal for
an $8.7 million rate reduction and (ii) Western Resources' proposal for $50
million accelerated depreciation of its investment in the Wolf Creek nuclear
plant. The $46.3 million adjustment as reduced by 40% to reflect the effect
of taxes results in an after-tax adjustment of $27.78 million, which results
in a reduction to earnings per share of approximately $0.22 based upon
128,136,000 shares outstanding.
3 Assumes that $70.421 million in first year savings claimed by Western
Resources in its prospectus dated July 3, 1996 are overstated by $23.474
million. KCPL's analysis of Western Resources' claimed merger-related savings
indicated that Western Resources overestimated total purchasing savings by
62.7% and overestimated total administrative savings by 48.5%. Applying such
percentages to the first year purchasing and administrative savings in
Western's prospectus dated July 3, 1996 indicates that first year
merger-related savings are overstated by slightly more than one-third.
One-third of Western Resources' estimate of $70.421 million equals $23.474
million. The $23.474 million adjustment as reduced by 40% to reflect the
effect of taxes results in an after-tax adjustment of $14.084 million, which
results in a reduction to earnings per share of approximately $0.11 based
upon 128,136,000 shares outstanding.
4 Utility industry estimated average for 1996 as calculated in Merrill Lynch
report dated June 26, 1996.
5
The foregoing contains certain statements of opinion and belief of KCPL. The
foregoing information is provided to facilitate an analysis of the potential
value of the Western Resources Offer. The implied reduction, if any, in Western
Resources' common stock value may be greater or less than indicated above.
- THE WESTERN RESOURCES OFFER IS SUBJECT TO CONDITIONS THAT THE KCPL BOARD
BELIEVES CANNOT BE SATISFIED.
The Western Resources Offer is conditioned on the availability of the
pooling of interests method of accounting. The KCPL Board does not believe that
a pooling of interests will be permissible. KCPL has granted certain of its
officers stock options in tandem with limited stock appreciation rights through
a nonqualified stock option agreement in conjunction with the Long-Term
Incentive Plan established on May 5, 1992. Under the terms of the Long-Term
Incentive Plan, the limited stock appreciation rights will be automatically
exercised one day after an event of change in control. The Western Resources
Offer, if consummated, would be considered a change in control. The resulting
exercise of the stock appreciation rights will cancel any related stock option
and allow the holder to receive in cash an amount equal to the excess of the
fair market value on the date of exercise of one share of common stock over the
option price multiplied by the number of shares of common stock covered by the
related stock option. Such cash payments for securities that are essentially the
same as common stock would violate paragraph 47b of APB Opinion No. 16 of the
Accounting Principles Board and prohibit the pooling of interests method of
accounting.
- THE RATE DISPARITY BETWEEN KGE AND KPL CUSTOMERS AMOUNTS TO AT LEAST $171
MILLION ANNUALLY.
There is a significant disparity among the rates charged to Western
Resources customers. The rates charged to KGE customers were to have been
reduced in connection with the acquisition of KGE by KPL. However, testimony
before the Kansas Commission indicates that if the rates charged to Western
Resources' KGE customers were reduced to equal the rates charged to customers of
Western Resources' KPL subsidiary, Western Resources would suffer a $171 million
annual revenue reduction. Thus, even if the Kansas Commission follows the
suggestion of its staff and the entire $105 million annual rate reduction is
applied to KGE customers, Western Resources would still face a rate disparity of
approximately $65 million per year. Given these facts, the KCPL Board questions
Western Resources' commitment to sharing prospective merger savings with KCPL
customers. In an increasingly deregulated utility environment, the KCPL Board
believes that Western Resources will have to address the rate disparity issue
because Western Resources' customers may otherwise choose to purchase cheaper
power from Western Resources' competitors, and the KCPL Board does not believe
that revenues from KCPL customers should be used to subsidize a rate reduction
for KGE customers.
- RECENTLY, WESTERN RESOURCES BEGAN THE 40-YEAR AMORTIZATION OF THE
ACQUISITION PREMIUM FOR KGE OF APPROXIMATELY $20 MILLION ANNUALLY.
As a result of the KGE acquisition, Western Resources must amortize an $801
million acquisition premium at the rate of approximately $20 million per year
over a period of forty years, only a portion of which will be recovered in
rates. This significant, ongoing and long-term burden is a liability that the
KCPL Board does not believe KCPL shareholders and ratepayers should be forced to
share.
- A COMBINATION OF KCPL AND WESTERN RESOURCES WOULD CONCENTRATE RISK.
A combined KCPL/Western Resources entity would own 94% of the Wolf Creek
nuclear plant, concentrating a significant amount of capital and risk in a
single asset. The KCPL Board believes that it would be preferable to avoid
concentration of additional risk in Wolf Creek. In contrast, a KCPL/UCU entity
would own only 47% of Wolf Creek. Moreover, a KCPL/Western Resources combined
company would operate in relatively uniform climatic, geographic and regulatory
markets, further concentrating risk while a KCPL/UCU entity would operate in
eight geographically diverse states and six foreign countries.
6
- A COMBINED KCPL/UCU ENTITY WOULD BE BETTER POSITIONED TO COMPETE IN A
DEREGULATED MARKET.
A merger with UCU provides KCPL with access to new markets in several states
and foreign countries, diversifies KCPL's risks by providing entry into
nonregulated energy related businesses, and provides KCPL with the competitive
advantages of UCU's successful brand name, EnergyOne. A merger with Western
Resources would provide KCPL with none of these immediate advantages. The KCPL
Board believes that UCU is much better positioned than Western Resources to
compete in a deregulated utility market.
- WESTERN RESOURCES' "NO LAYOFFS" PROMISE IS NOT CREDIBLE.
Western Resources has stated that no layoffs would result from its proposal.
However, the synergy analysis filed by Western Resources with the Kansas
Commission stated that 531 employee positions would be eliminated and assumed
that all resulting savings would be available by January 1, 1998. In light of
Western Resources' admission in its proxy materials that a hostile transaction
could not be completed until the end of 1997, the KCPL Board does not believe
that Western Resources could achieve those 531 "reductions" without laying off
KCPL employees.
- THE KCPL BOARD QUESTIONS WESTERN RESOURCES' COMMITMENT TO KANSAS CITY.
Based on historical contributions of Western Resources, the KCPL Board
doubts Western Resources' commitment to Kansas City charities and Kansas City
community development efforts.
- THE WESTERN RESOURCES OFFER MAY BE TAXABLE TO KCPL SHAREHOLDERS.
In Western Resources' prospectus dated July 3, 1996, it is disclosed that
Western Resources' tax counsel will render opinions that the effects of Western
Resources' proposal will be tax-free to KCPL shareholders. It is also disclosed
that such opinions will be based upon certain assumptions made with the consent
of Western Resources. The KCPL Board cannot evaluate whether the Western
Resources Offer will be tax-free to KCPL shareholders without knowing the nature
of such assumptions. However, if these assumptions are identical to the
assumptions set forth in the Western Resources preliminary prospectus dated
April 22, 1996, the KCPL Board believes that many of the assumptions described
as underlying such opinions are questionable, and if any of such assumptions
prove invalid, the Western Resources Offer may constitute a taxable transaction.
In a taxable transaction, the value received by KCPL shareholders would be
significantly less than Western Resources' offer of $31 per KCPL share.
- A KCPL/UCU COMBINATION OFFERS SUPERIOR BENEFITS TO KCPL AND ITS
SHAREHOLDERS.
At its meeting held on July 9, 1996, the KCPL Board also reaffirmed its
determination that the terms of the Merger Agreement are fair to, and in the
best interests of, KCPL and its shareholders, customers, employees and other
constituencies. In making its recommendation in favor of the Mergers and against
the Western Resources Offer, the KCPL Board considered Western Resources'
proposal but determined to proceed with the UCU transaction because of the
benefits of the UCU transaction. The KCPL Board believes that the electric
utility industry will undergo tremendous upheaval in the wake of deregulation.
As barriers to the mergers of utilities come down, the utility industry will
come to more closely resemble other industries where competition is intense and
only the strongest companies succeed. The KCPL Board is convinced that in order
to succeed in such a market, KCPL must be a customer focused, low-cost energy
supplier with diversified assets and the financial resources to leverage its
strengths. The KCPL Board believes that the Mergers will allow KCPL to achieve
these goals, and that this unique opportunity for KCPL and UCU to merge provides
unusual opportunities for KCPL shareholders to participate in the growth of the
combined company. This growth will derive from operating efficiencies obtained
from economies of scale; the more efficient use of the current investments in
generating and transmission capacity and advanced information systems; improved
opportunities for cost reductions; revenue enhancements made possible by the
combination of KCPL and UCU (SEE "THE MERGERS -- Enhancement of Financial
Performance" at pages 55-58 of the Joint Proxy Statement/Prospectus, which pages
are incorporated by reference
7
herein and attached hereto as part of Exhibit 6); domestic market
diversification, due to UCU's presence in eight different states, leading to
reduced risk; international market diversification, due to UCU's presence in
five foreign countries, both reducing risk and affording unusual growth
opportunities; the addition of natural gas to the products and services offered
to customers and the potential for attracting new customers through the offering
of such additional service; and the long-term financial capability of a larger
company. In the judgment of the KCPL Board, these factors combine to offer
shareholders improved opportunities for earnings and dividend growth and an
enhanced ability to manage risk in an uncertain environment created by the
changing utility market.
In reaching the conclusion to reaffirm the Merger Agreement and the
transactions contemplated therein, the KCPL Board considered: (i) the
prospective financial strength of each company individually and the benefits of
combination discussed above, particularly in light of the KCPL Board's
familiarity with and review of KCPL's business, operations, financial condition
and earnings on both an historical and prospective basis, and the KCPL Board's
belief that the strategic alliance with UCU will provide opportunities to
achieve benefits for KCPL's shareholders and customers that would not be
available if KCPL and UCU remained as separate enterprises; (ii) current
industry, economic and market conditions which encourage consolidation to reduce
risk and create new avenues for earnings growth as discussed under "THE MERGERS
- -- Background of the Mergers" at pages 32-46 of the Joint Proxy
Statement/Prospectus, which pages are incorporated by reference herein and
attached hereto as Exhibit 7; (iii) KCPL's estimated cost savings resulting from
the Mergers, which the KCPL Board believes to be credible and achievable, and
the effect of such savings on the competitive position of Maxim; (iv) the
enhanced access to capital that Maxim would enjoy due to the size of the
combined company; (v) UCU's experience in energy related non-regulated
businesses; (vi) the proposed structure of the transaction with UCU and the
terms of the Merger Agreement and other documents to be executed in connection
with the Mergers which provide for reciprocal representations and warranties,
conditions to closing and rights to termination, and balanced rights and
obligations; (vii) that the Mergers are expected to be treated as a tax-free
reorganization and to be accounted for as a pooling of interests transaction
(which avoids the reduction in earnings which would result from the creation and
amortization of goodwill under purchase accounting); (viii) the expected
benefits of the Mergers discussed below; (ix) the Exchange Ratio in the Mergers
as compared to the exchange ratios in the Original Merger and the increase in
value to KCPL shareholders in the Mergers as compared to the Original Merger,
which increase in value is due to an increase in the percentage interest held in
the combined company by KCPL shareholders from approximately 55% to
approximately 57%; (x) that approval of the issuance of shares of KCPL Common
Stock in connection with the Mergers requires the affirmative vote of the
holders of a majority of the shares of KCPL Common Stock voting thereon as
compared to the Original Merger which required the favorable vote of two-thirds
of the outstanding shares of KCPL Common Stock, that this change increased the
likelihood of consummation of the combination by eliminating the power of a
minority of KCPL shareholders to effectively veto what the majority approve, and
that Western Resources would likely commence litigation challenging this aspect
of the Merger Agreement (which latter consideration led the KCPL Board to deem
it advisable to commence litigation seeking declaratory judgments concerning the
legality of the Merger Agreement and its adoption (SEE Item 8 hereto)); and (xi)
the written opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") dated as of June 26, 1996 to the effect that the Exchange
Ratio is fair to holders of KCPL Common Stock (other than UCU and its
affiliates) from a financial point of view. The written opinion of Merrill Lynch
dated as of June 26, 1996 is filed as Exhibit 8 hereto and is incorporated
herein by reference. In that regard, management of KCPL has advised Merrill
Lynch that it believes there are significant contingencies and uncertainties
associated with the proposal of Western Resources to acquire the outstanding
shares of KCPL Common Stock by means of an exchange offer and merger (as set
forth in the Registration Statement on Form S-4 filed by Western Resources with
the Securities and Exchange Commission on April 22, 1996, as amended to reflect
the terms contained in the June 17 Announcement (the "Western Resources
Proposal")) due to the speculative nature of certain assumptions made by Western
Resources in the Western Resources Proposal relating to Western Resources'
ability to achieve and retain certain estimated aggregate cost
8
savings, and the likelihood of substantially greater rate reductions affecting
Western Resources in a pending rate proceeding than those assumed by Western
Resources. Management of KCPL has also advised Merrill Lynch that it believes
that the Western Resources Proposal is not consistent with the strategic
objectives of KCPL. In view of the foregoing, Merrill Lynch was not asked by the
KCPL Board to consider, and Merrill Lynch did not consider, the Western
Resources Proposal in arriving at its opinion. In determining that the Mergers
are fair to and in the best interests of its shareholders, the KCPL Board
considered the above facts as a whole and did not assign specific or relative
weights to them.
The KCPL Board believes that the benefits of the Mergers will include the
following:
(i) DIVERSIFICATION. The Mergers will result in the increased ability of
KCPL and UCU to diversify their existing operations through acquisitions
of primarily energy related, non-regulated assets or entities, development and
marketing of new products and use of new technology, thereby assisting Maxim in
counteracting potential decreases in revenue caused by increased competition in
the utility industry.
(ii) CUSTOMER SERVICE. Maxim will rapidly be able to develop and deploy
innovative customer services, especially those using advanced information
technology. These services will reach a wider customer base than would be
possible with each company operating alone.
(iii) STRATEGIC ACQUISITIONS. The Mergers will provide a larger and more
stable platform from which to acquire properties that mesh with the
strategic intent of the combined enterprise.
(iv)COORDINATION OF DISPATCH. The coordination of the dispatch of Maxim's
electric generating units and transmission facilities should permit more
efficient utilization of Maxim's resources to meet the combined system's
requirements and provide continued low-cost energy to Maxim's customers.
(v) INCREASED PURCHASING COORDINATION. The oordination of purchases of
products including fuel, electric energy and natural gas should enable
Maxim to lower costs of such items through economies of scale and increased
bargaining strength and should contribute to more efficient inventory
management.
(vi) MANAGEMENT OF PRICE INCREASES. The operating cost savings resulting
from the Mergers will allow Maxim to hold future electric rate increases below
what would otherwise be necessary for the individual utilities, thus maintaining
the cost advantage currently enjoyed by customers of KCPL and UCU.
(viii) GENERATION PLANNING BENEFITS. Due to the greater size and diversity
of electric generating units which will result from combining the KCPL and
UCU systems, Maxim can achieve the same level of reliability for the combined
system with a lower reserve margin than that currently employed by either KCPL
or UCU. Future generation planning should benefit Maxim by improving the
existing ability of KCPL and UCU to satisfy customer demand load by lowering
reserve requirements, diversifying periods of peak customer demands and
optimizing base-load plant usage. In addition, the Mergers will permit the two
utilities to reduce the consequences of the loss of a major base-load power
plant. Major extended outages can be very costly both to utilities and to their
customers. Protection against such costs include backup capacity and provisions
for alternative base-load sources. The risk to any one utility of having
problems at any one facility may also be mitigated through coordinated system
planning and scheduling of power plant maintenance in a large pool of base-load
generating units.
(viii) PEAK DEMAND REDUCTION EFFORTS. As members of a coordinated system,
KCPL and UCU will be able to share their expertise in demand-side
management techniques. Demand-side management includes the reduction of
peak loads of customers through pricing, energy efficiency programs and
other load management programs.
9
(ix) DEFERRAL OF CAPITAL INVESTMENTS. It is anticipated that Maxim will be
able to eliminate or defer certain capital investments that KCPL and UCU
otherwise would have to make as separate entities. These include the deferral or
elimination of planned peaking capacity additions and the deferral of planned
base-load capacity additions in the early 2000s.
(x) OPERATIONS AND MAINTENANCE ACTIVITIES. The coordinated allocation of
manpower, equipment, technology and other resources should result in
benefits to customers of the two utilities. Sharing of stored inventory and
other materials should be attainable and may result in reduced costs to both
utilities.
(xi) EXPANDED MANAGEMENT RESOURCES. In combination, KCPL and UCU will be able
to draw on a larger and more diverse mid- and senior-level management
pool to lead the combined Maxim forward in an increasingly competitive
environment for the delivery of energy.
(xii)INCREASED SIZE AND STABILITY. As a larger entity, Maxim will have a more
diverse generating, transmission and customer base. In addition, Maxim
will have a larger asset base than either KCPL or UCU, enhancing its access to
capital markets.
(xiii) ECONOMIC DEVELOPMENT EFFORTS. A larger, more diverse service territory
and competitive rates should broaden the range of opportunities KCPL and
UCU can offer existing and potential customers, making the combined service area
more attractive to business and helping to stimulate economic growth in the
region.
(xiv) REDUCED ADMINISTRATIVE COSTS. It is anticipated that as a result of
combining staff functions, within several years, Maxim will need
approximately 200 fewer employees than KCPL and UCU would need without the
Mergers. These work force reductions will be accomplished, as much as possible,
through restrictions on hirings (which are currently in effect at both
companies), attrition and voluntary early retirement. In addition, some savings
in areas such as insurance, regulatory costs and auditing and consulting fees
should be realizable.
(xv) COMMUNITY INVOLVEMENT. Maxim will be a stronger partner in the economic
development efforts of the communities KCPL and UCU now serve. The
philanthropic and volunteer programs currently maintained by the two companies
will be continued with the enhanced resources of the combined entity. Moreover,
Maxim's substantial customer base will give it a stronger voice in national
policy debates on issues affecting the region.
Several of the benefits discussed above result from synergies associated
with the merger of KCPL and UCU. KCPL and UCU retained Ernst & Young LLP ("Ernst
& Young") to assist in identifying and quantifying the synergies that would
result from the Mergers. Ernst & Young identified potential synergies of $636
million. Utilizing the methodologies developed by Ernst & Young's synergies
study, KCPL and UCU identified additional operational benefits totalling $56.5
million (before taxes) over four years. The Palmer Bellevue practice of Coopers
& Lybrand Consulting assisted KCPL and UCU in their development of additional
information relating to Maxim's ability to enhance its financial performance;
such financial enhancement is expected to equal $244 million (before taxes) over
four years. The development of such figures was based on assumptions that KCPL
believes to be reasonable, but there can be no assurances that such assumptions
will approximate actual experience and, in such event, actual results could
differ materially from such figures. Shareholders are urged to review the
detailed analysis of such synergies, operational efficiencies and financial
enhancements, and the assumptions underlying them, set forth under "THE MERGERS
- -- Certain Forward Looking Information," "-- Synergies from the Mergers," "--
Additional Operational Benefits" and "-- Enhancement of Financial Performance"
at pages 51-58 of the Joint Proxy Statement/Prospectus, which pages are attached
hereto as Exhibit 6 and are incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
KCPL has retained Merrill Lynch to render financial advisory services to
KCPL in connection with the Mergers and the Western Resources Offer. Pursuant to
the terms of an engagement letter
10
dated November 14, 1995, KCPL has agreed to pay Merrill Lynch (i) a $150,000
retainer fee and (ii) a transaction fee equal to $7,000,000 (the "Transaction
Fee") against which the retainer fee will be credited. The Transaction Fee is
payable in three installments: One-third upon the execution of the definitive
agreement to effect the Original Merger, one-third upon shareholder approval of
the Mergers, and any remaining unpaid portion upon closing of the Mergers. KCPL
has also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses and to indemnify Merrill Lynch and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
Pursuant to the terms of an engagement letter dated March 4, 1995, KCPL has
retained Merrill Lynch as its exclusive financial advisor with respect to
certain events, including, among other things, (a) any acquisition by a person
or group of persons of 5% or more of any class of KCPL's equity securities, (b)
any solicitation of proxies or shareholder consents in opposition to, or without
the support of the KCPL Board, (c) any oral or written proposal to KCPL or any
of its shareholders relating to an acquisition of, or a business combination
involving KCPL (by merger, tender offer or otherwise) or relating to the
acquisition of any of its capital stock or all or a substantial portion of its
revenues or income by way of a joint venture, negotiated purchase, lease,
license, exchange or other means or (d) any other extraordinary transactions
involving KCPL. Pursuant to such engagement letter, KCPL has agreed to retain
Merrill Lynch on terms and conditions customarily established by major
investment banking firms for similar services in similar circumstances at such
time. KCPL has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses and to indemnify Merrill Lynch and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws.
KCPL has retained D.F. King & Co., Inc. to assist KCPL in its solicitation
of proxies in connection with the Mergers and to assist KCPL in connection with
its communications with its shareholders with respect to, and to provide other
services to KCPL in connection with, the Mergers and the Western Resources
Offer. Such firm will receive reasonable and customary compensation for its
services and will be reimbursed for its out-of-pocket expenses in connection
therewith. KCPL has agreed to indemnify such firm against certain liabilities
arising out of or in connection with its engagement.
KCPL has retained Abernathy MacGregor Scanlon and Burson-Marsteller as
public relations advisors in connection with the Mergers and the Western
Resources Offer. Such firms will receive reasonable and customary compensation
for their services and will be reimbursed for their out-of-pocket expenses in
connection therewith. KCPL has agreed to indemnify such firms against certain
liabilities arising out of or in connection with their engagement.
Except as set forth above, neither KCPL nor any person acting on its behalf
has employed, retained or compensated any person to make solicitations or
recommendations to shareholders with respect to the Mergers or the Western
Resources Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as described below, there have been no transactions in shares of
KCPL Common Stock which were effected during the past 60 days by KCPL, or, to
the best knowledge of KCPL, any executive officer, director, affiliate or
subsidiary of KCPL.
The following officers of KCPL have made purchases of KCPL Common Stock in
the last 60 days pursuant to KCPL's employee savings plan in the amounts set
forth beside their names: B. J. Beaudoin (74 shares); F. L. Branca (69 shares);
S. W. Cattron (50 shares); C. R. Cole (108 shares); J. J. DeStefano (141
shares); M. Jackson (96 shares); A. D. Jennings (295 shares); J. S. Latz (52
shares); D. M. Morgan (126 shares); N. A. Roadman (70 shares); M. C. Sholander
(47 shares); R. A. Spring (68 shares); B. M. Tate (80 shares); R. G. Wasson (74
shares) and J. T. White (111 shares).
11
The following directors of KCPL have made purchases of KCPL Common Stock in
the last 60 days pursuant to KCPL's dividend reinvestment plan in the amounts
set forth beside their names: D. L. Bodde (12 shares); W. H. Clark (4 shares);
R. J. Dineen (4 shares); A. J. Doyle (4 shares); W. T. Grant (4 shares); G. E.
Nettels (4 shares); L. H. Talbot (4 shares) and R. H. West (4 shares).
(b) To the best knowledge of KCPL, none of its executive officers,
directors, affiliates or subsidiaries presently intends to tender shares of KCPL
Common Stock to Western Resources pursuant to the Western Resources Offer or to
sell any shares of KCPL Common Stock that are owned beneficially or held of
record by such persons, in each case, subject to and consistent with any
fiduciary obligations in the case of shares of KCPL Common Stock held by a
fiduciary.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) and (b). As described under Item 3(b) above, KCPL, UCU and KCU entered
into the Original Merger Agreement as of January 19, 1996, and on May 20, 1996,
KCPL, Sub, KCU and UCU entered into the Merger Agreement. The terms of the
Merger Agreement are more fully set forth in the Merger Agreement, which is
incorporated herein by reference and filed as Exhibit 3, and in the Summary of
the Joint Proxy Statement/Prospectus, which is incorporated herein by reference
and is attached hereto as Exhibit 9. A description of the background of the
Mergers is contained in Item 3(b) above and under the heading "THE MERGERS --
Background of the Mergers" at pages 32-46 of the Joint Proxy
Statement/Prospectus. A copy of these pages is attached as Exhibit 7 hereto and
is incorporated herein by reference.
Except as described in this Item 7, KCPL is not engaged in any negotiation
in response to the Western Resources Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
KCPL or any of its subsidiaries, (ii) a purchase, sale or transfer of a material
amount of assets of KCPL or any of its subsidiaries, (iii) a tender offer for or
other acquisition of securities by or of KCPL or (iv) a material change in the
present capitalization or dividend policy of KCPL.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
On May 20, 1996, KCPL commenced litigation captioned KANSAS CITY POWER &
LIGHT CO. V. WESTERN RESOURCES, INC., ET AL., C.A. No. 96-552-CV-W-5 in the
United States District Court for the Western District of Missouri, Western
Division, against Western Resources and Robert L. Rives. In this litigation,
KCPL is seeking a declaratory judgment that the Merger Agreement and the
transactions contemplated thereby were adopted and may be completed in
accordance with Missouri law and are not void, voidable, subject to injunction
or rescission based upon any claim that KCPL's directors, officers or agents
acted illegally or inequitably in adopting the Merger Agreement. KCPL also seeks
a declaratory judgment that Western Resources lacks standing to challenge the
Merger Agreement, the transaction contemplated thereby, or the acts leading to
its adoption.
On May 24, 1996, Jack R. Manson ("Manson"), a shareholder of KCPL, filed a
motion to intervene in the above action as a representative of a class
consisting of similarly situated KCPL shareholders. Manson also requested leave
to file an answer to the complaint, in which he would assert counterclaims
against KCPL and each of its directors, who would be joined as counterclaim
defendants. The proposed counterclaims would allege that KCPL and its directors
breached fiduciary duties of care, loyalty and disclosure in responding to
Western Resources' acquisition overtures, including their adoption of the Merger
Agreement; that their actions in adopting the Merger Agreement were illegal and
ULTRA VIRES; that the adoption of the Merger Agreement illegally deprived KCPL
shareholders of voting and appraisal rights under Missouri law; and that the
adoption of the Merger Agreement was a disproportionate response to Western
Resources' acquisition offer. On June 7, 1996, this motion to intervene was
granted. KCPL believes that the proposed counterclaims are without merit and
will vigorously defend.
On June 7, 1996, Western Resources and Rives answered the complaint in the
above action and made two counterclaims against KCPL, alleging that the Merger
Agreement is illegal under Missouri
12
law because it does not require approval of two-thirds of all outstanding KCPL
shares and does not provide dissenters' rights to KCPL shareholders, and that
the directors of KCPL breached their fiduciary duties by adopting the Merger
Agreement. KCPL believes that these counterclaims are without merit and will
vigorously defend.
During a June 13, 1996 telephone conference concerning scheduling the
proceedings in the above litigation, the court indicated that the issues of the
legality of the Merger Agreement and its adoption would be heard by the court on
July 25, 1996.
On June 27, 1996, KCPL and its directors filed a reply to Mr. Manson's
counterclaims and denied any liability on the counterclaims.
Also on June 27, 1996, KCPL filed a reply to the counterclaim of Western
Resources and Mr. Rives and denied any liability on the their counterclaim. In
the reply to the counterclaim of Western Resources and Mr. Rives, KCPL asserted
a counterclaim against Western Resources (the "KCPL counterclaim"). The KCPL
counterclaim alleges that Western has violated Section 14 of the Securities
Exchange Act of 1934, as amended and Rule 14a-9 thereunder by conducting a
campaign of intentionally misleading statements and omissions designed to induce
KCPL shareholders to vote against the Original Merger Agreement and intended to
disrupt the vote on the Merger Agreement.
In a July 3, 1996 telephone conference, the District Court ordered KCPL to
produce the documents KCPL had listed on the privilege log it had served upon
the opposing parties. The District Court ordered the documents claimed as
privileged be produced to Mr. Manson, Mr. Rives and Counsel for Western
Resources. On July 5, 1996, KCPL filed with the District Court a motion to stay
the order to produce documents in anticipation of filing with the United States
Court of Appeals for the Eighth Circuit a petition for writ of mandamus
directing the District Court to vacate its order.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1: Pages 73-78, 85-90, 102-109 and 120 from the Joint Proxy Statement/Prospectus.
Exhibit 2: Pages 112-117 from the Original Joint Proxy Statement/Prospectus.
Exhibit 3: Agreement and Plan of Merger, dated as of January 19, 1996, amended and restated
as of May 20, 1996, by and among KCPL, Sub, UCU and KCU (incorporated herein by
reference to Annex A to the Joint Proxy Statement/Prospectus included in
Amendment No.2 to KCPL's Registration Statement on Form S-4 (File No. 333-5637)
dated June 25, 1996).
Exhibit 4: Press Release of KCPL issued on July 9, 1996.
Exhibit 5: Letter to KCPL Shareholders dated July 9, 1996.
Exhibit 6: Pages 51-58 of the Joint Proxy Statement/Prospectus.
Exhibit 7: Pages 32-46 of the Joint Proxy Statement/Prospectus.
Exhibit 8: Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated as of June
26, 1996 (incorporated herein by reference to Annex B to the Joint Proxy
Statement/Prospectus).
Exhibit 9: Summary of the Joint Proxy Statement/Prospectus.
Exhibit 10: Press Release of KCPL dated April 15, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on April 15, 1996).
Exhibit 11: Press Release of KCPL dated April 18, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on April 18, 1996).
Exhibit 12: Letter to KCPL Shareholders dated April 21, 1996 (incorporated herein by
reference to KCPL's Definitive Additional Materials on Schedule 14A filed on
April 22, 1996).
13
Exhibit 13: Press Release of KCPL dated April 22, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on April 23, 1996).
Exhibit 14: Press Release of KCPL dated April 24, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on April 24, 1996).
Exhibit 15: Letter to KCPL shareholders dated April 29, 1996 (incorporated herein by
reference to KCPL's Definitive Additional Materials on Schedule 14A filed on
April 30, 1996).
Exhibit 16: Press Release of KCPL dated April 30, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on April 30, 1996).
Exhibit 17: Press Release of KCPL dated May 6, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on May 6, 1996).
Exhibit 18: Press Release of KCPL dated May 6, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on May 6, 1996).
Exhibit 19: Letter to KCPL shareholders dated May 6, 1996 (incorporated herein by reference
to KCPL's Definitive Additional Materials on Schedule 14A filed on May 6, 1996).
Exhibit 20: Article in May 6, 1996 Employee Newsletter (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on May 6, 1996).
Exhibit 21: Press Release of KCPL dated May 16, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on May 16, 1996).
Exhibit 22: Press Release of KCPL dated May 17, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on May 17, 1996).
Exhibit 23: Press Release of KCPL dated May 20, 1996 (incorporated herein by reference to
KCPL's Form 8-K filed on May 22, 1996).
Exhibit 24: Letter to KCPL shareholders dated May 31, 1996 (incorporated herein by reference
to KCPL's Soliciting Material Pursuant to Rule 240.14a-12 filed on May 30,
1996).
Exhibit 25: Letter to KCPL shareholders dated June 19, 1996 (incorporated herein by
reference to KCPL's Soliciting Material Pursuant to Rule 240.14a-12 filed on
June 20, 1996).
Exhibit 26: Press Release of KCPL dated June 25, 1996 (incorporated herein by reference to
KCPL's Soliciting Material Pursuant to Rule 240.14a-12 filed on June 25, 1996).
Exhibit 27: Press Release of KCPL dated July 1, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on July 1, 1996).
Exhibit 28: Letter to KCPL shareholders dated July 5, 1996 (incorporated herein by reference
to KCPL's Definitive Additional Materials on Schedule 14A filed on July 5,
1996).
Exhibit 29: Press Release of KCPL dated July 8, 1996 (incorporated herein by reference to
KCPL's Definitive Additional Materials on Schedule 14A filed on July 8, 1996).
Exhibit 30: Complaint of Kansas City Power & Light Company against Western Resources, Inc.
and Robert L. Rives (dated May 20, 1996, C.A. No. 96-552-CV-W-5, U.S. District
Court for the Western District of Missouri, Western Division).
Exhibit 31: Answer of Defendants Western Resources, Inc. and Robert L. Rives (dated June 7,
1996, C.A. No. 96-552-CV-W-5, U.S. District Court for the Western District of
Missouri, Western Division).
Exhibit 32: Counterclaim of Western Resources, Inc. and Robert L. Rives against Kansas City
Power & Light Company (dated June 7, 1996, C.A. No. 96-552-CV-W-5, U.S. District
Court for the Western District of Missouri, Western Division).
14
Exhibit 33: Order Granting Jack R. Manson's Motion to Intervene (dated June 7, 1996, C.A.
No. 96-552-CV-W-5, U.S. District Court for the Western District of Missouri,
Western Division).
Exhibit 34: Answer and Counterclaim in Intervention by Jack Manson, individually and on
behalf of all individual and/or entities similarly situated, as Intervenor
Defendant and Counterclaim Plaintiff, the answer being to the Complaint (Exhibit
30) and the Counterclaim being against Kansas City Power & Light Co. and third
party Counterclaim Defendants A. Drue Jennings, Dr. David L. Bodde, William H.
Clark, Robert J. Dineen, Arthur J. Doyle, W. Thomas Grant, II, George E.
Nettels, Jr., Linda Hood Talbott, Ph.D., and Robert H. West (order allowing
intervention granted June 7, 1996, C.A. No. 96-552-CV-W-5, U.S. District Court
for the Western District of Missouri, Western Division).
Exhibit 35 Plaintiff's Reply to the Counterclaim of Western Resources, Inc. and Robert L.
Rives and Counterclaim of Kansas City Power and Light Company against Western
Resources, Inc. (dated June 27, 1996, C.A. No. 96-552-CV-W-5, U.S. District
Court for the Western District of Missouri, Western Division).
Exhibit 36: Plaintiff's and Counterclaim Defendants' Reply to Intervenor Mason's
Counterclaim (dated June 27, 1996, C.A. No. 96-552-CV-W-5, U.S. District Court
for the Western District of Missouri, Western Division).
Exhibit 37: Kansas City Power & Light Company's Motion for Stay Pending Disposition of a
Petition for Writ of Mandamus (dated July 5, 1996, C.A. No. 96-552-CV-W-5, U.S.
District Court for the Western District of Missouri, Western Division).
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
KANSAS CITY POWER & LIGHT COMPANY
By:
/s/ JEANIE SELL LATZ
-----------------------------------
Jeanie Sell Latz
SENIOR VICE PRESIDENT, CORPORATE
SECRETARY AND CHIEF LEGAL OFFICER
Dated: July 9, 1996
15
CONFLICTS OF INTEREST
In considering the recommendations of the KCPL Board and the UCU Board with
respect to the Mergers, stockholders should be aware that certain members of
KCPL's and UCU's management and Boards of Directors have certain interests in
the Mergers that are in addition to the interests of stockholders of KCPL and
UCU generally. The Boards of Directors of each of KCPL and UCU were aware of
these interests and considered them, among other matters, in approving the
Merger Agreement, the Mergers and the transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. The Employment Agreements with each of Messrs.
Jennings and Green will become effective upon the consummation of the Mergers.
The term of each Employment Agreement shall last until the fifth anniversary of
the Effective Time. Pursuant to Mr. Jennings' Employment Agreement, from the
Effective Time until the date of the annual meeting of shareholders of Maxim
that occurs in 2002, Mr. Jennings will serve as Chairman of Maxim, and
thereafter until the expiration of his Employment Agreement will serve as Vice
Chairman of Maxim. From the Effective Time until the earlier of the annual
meeting of shareholders of Maxim that occurs in 2002 or the date Mr. Jennings
ceases to serve as Chairman, Mr. Green will serve as Vice Chairman and Chief
Executive Officer of Maxim, and thereafter until the expiration of his
Employment Agreement will serve as Chairman and Chief Executive Officer. See "--
Employment Agreements." The Employment Agreements with Messrs. Jennings and
Green provide that each will receive an annual base salary, short-term and
long-term incentive compensation and supplemental retirement benefits no less
than they received before the Effective Time and no less than any other senior
executive officer of Maxim. Such compensation continues to be set in the
discretion of the KCPL Board and the UCU Board, respectively. Based upon current
compensation levels, Messrs. Jennings and Green would each receive an annual
base salary of $630,000 and be eligible for annual bonuses of between $0 and
approximately $1,040,000, depending upon performance. Under the Employment
Agreements, Mr. Jennings and Mr. Green may become entitled to certain severance
benefits upon termination of their employment
73
under specified circumstances. The amount of such benefits is based on, among
other things, the remaining term of the Employment Agreement and their
compensation in effect at the time of such termination of employment. Based upon
the salary levels currently in effect, if the employment of Mr. Jennings or Mr.
Green is terminated immediately following the consummation of the Mergers under
circumstances entitling them to receive severance benefits, they would each be
entitled to a severance payment ranging from approximately $1.9 million to
approximately $3.1 million, plus certain amounts in respect of bonuses and other
benefits. Because the maximum severance would be payable only if the employment
of Mr. Jennings or Mr. Green is terminated immediately following consummation of
the Mergers, and because the KCPL Board and the UCU Board have determined that
it is in the best interest of Maxim to continue to employ both Mr. Jennings and
Mr. Green, the Boards believe that it is highly unlikely that the maximum
severence will actually become payable.
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS. Under certain severance
arrangements entered into by KCPL and UCU, certain payments may become payable
in connection with the Mergers. In addition, stock options outstanding under the
UCU Plan and the UCU 1986 Plan vested upon execution of the Original Merger
Agreement. Restricted stock outstanding under the UCU 1986 Plan will vest upon
consummation of the Mergers. See "-- Employee Plans and Severance Arrangements."
Each of KCPL's five most highly compensated executive officers have entered
into a KCPL Severance Agreement. Payments which could be made under certain
circumstances to such individuals in the event of their termination of
employment after the Mergers are as follows: Mr. A. Drue Jennings -- $2,275,384;
Mr. Bernard J. Beaudoin -- $1,129,949; Mr. Marcus Jackson -- $861,161; Mr.
Ronald G. Wasson -- $1,045,065; Mr. J. Turner White -- $780,736. In addition,
each of these individuals, if they receive the severance payments described
above, would also receive the following amounts in deferred compensation: Mr.
Jennings -- $282,196; Mr. Beaudoin -- $54,025; Mr. Jackson -- $0; Mr. Wasson --
$113,493; and Mr. White -- $0.
Except for Mr. Charles Dempster, each of the five most highly compensated
executive officers of UCU entered into a UCU Severance Agreement. Payments which
could be made under certain circumstances to such individuals upon termination
of their employment after the Mergers are as follows: Mr. Richard Green --
$1,890,000, Mr. Robert Green -- $1,440,000; Mr. Burgess -- $722,304; and Mr.
Miller -- $841,548.
Stock options vested for the five most highly compensated executive officers
of UCU are as follows: Mr. Richard Green -- 120,565 shares; Mr. Robert Green --
74,194; Mr. Burgess -- 21,744; Mr. Dempster -- 41,582; and Mr. Miller -- 32,022.
Restricted stock which will vest for such officers is as follows: Mr. Richard
Green -- 44,536 shares; Mr. Robert Green -- 19,601; Mr. Burgess -- none; Mr.
Dempster -- 4,132; and Mr. Miller -- 3,493.
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time, the Maxim Board will consist of 18 directors, nine of whom will be the
then existing directors of KCPL immediately prior to the Effective Time,
including Mr. Jennings, and nine of whom will be designated by UCU. To date, UCU
has not determined which individuals, in addition to Richard C. Green, Jr., will
be its designees to serve as directors of Maxim as of the Effective Time.
However, it is currently anticipated that the directors of UCU immediately prior
to the Effective Time will serve as UCU's designees to the Maxim Board. See
"MAXIM FOLLOWING THE MERGERS -- Maxim Board of Directors."
INDEMNIFICATION. The parties have agreed in the Merger Agreement that Maxim
will indemnify, to the fullest extent permitted by applicable law, the present
and former officers, directors and employees of each of the parties to the
Merger Agreement or any of their Subsidiaries against certain liabilities (i)
arising out of actions or omissions occurring at or prior to the Effective Time
that arise from or are based on such service as an officer, director or employee
or (ii) that are based on or arise out of or pertain to the transactions
contemplated by the Merger Agreement, and to maintain policies of directors' and
officers' liability insurance for a period of not less than six years after the
Effective Time, provided that Maxim shall not be required to expend in any year
an amount in excess of 200% of the annual aggregate premium currently paid by
KCPL and UCU for such insurance. To the fullest
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extent permitted by law, from and after the Effective Time, all rights to
indemnification existing in favor of the employees, agents, directors or
officers of KCPL, UCU and their respective Subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their respective
articles of incorporation and bylaws in effect on January 19, 1996, or otherwise
in effect on January 19, 1996, shall survive the Mergers and shall continue in
full force and effect for a period of not less than six years from the Effective
Time. See "THE MERGER AGREEMENT -- Directors' and Officers' Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF MAXIM
In connection with the Mergers, the Maxim Board, at the Effective Time, will
consist of 18 persons, nine of whom will be the then existing directors of KCPL
immediately prior to the Effective Time, and nine of whom will be designated by
UCU. To date, UCU has not determined which individuals, in addition to Richard
C. Green, Jr., will be its designees to serve as directors of Maxim as of the
Effective Time. However, it is currently anticipated that the directors of UCU
immediately prior to the Effective Time will serve as the initial directors of
Maxim. Robert K. Green, brother of Richard C. Green, Jr., will be the president
of Maxim and Marcus Jackson will serve as Maxim's executive vice president and
chief operating officer. Robert K. Green is currently president of UCU and
Marcus Jackson is senior vice president and chief operating officer of KCPL. See
"MAXIM FOLLOWING THE MERGERS -- Maxim Board of Directors" and "-- Management of
Maxim."
The Merger Agreement provides that during the three-year period commencing
at the Effective Time, certain provisions thereof (including provisions relating
to existing employee agreements, workforce matters, benefit plans, stock option
and other plans and certain officer positions of Maxim) may be enforced on
behalf of the officers, directors and employees of KCPL and UCU, as the case may
be, by the directors of Maxim designated by KCPL and UCU, respectively (or their
successors).
EMPLOYMENT AGREEMENTS
Forms of the Employment Agreements of Messrs. Jennings and Green are
attached hereto as Annexes F and G, respectively. Messrs. Jennings and Green are
sometimes hereinafter individually referred to as the "Executive." The
Employment Agreements will become effective only at the Effective Time. The
provisions of the Employment Agreements which relate to the Executive serving as
a director on the Maxim Board assume that the Executive is elected to the Maxim
Board by Maxim shareholders.
The term of each Employment Agreement shall last until the fifth anniversary
of the Effective Time. Pursuant to Mr. Jennings' Employment Agreement, from the
Effective Time until the date of the annual meeting of shareholders of Maxim
that occurs in 2002, Mr. Jennings will serve as Chairman of Maxim, and
thereafter until the expiration of his Employment Agreement will serve as Vice
Chairman of Maxim. From the Effective Time until the earlier of the annual
meeting of shareholders of Maxim that occurs in 2002 or the date Mr. Jennings
ceases to serve as Chairman, Mr. Green will serve as Vice Chairman and Chief
Executive Officer of Maxim, and thereafter until the expiration of his
Employment Agreement will serve as Chairman and Chief Executive Officer.
Each Employment Agreement provides that the Executive will receive an annual
base salary, short-term and long-term incentive compensation (including stock
options and restricted stock) and supplemental retirement benefits no less than
they received before the Effective Time, as well as life insurance providing a
death benefit of three times their annual base salaries. The Executive is also
entitled to retirement and welfare benefits on the same basis as other
executives, and certain fringe benefits and to an unreduced early retirement
benefit under certain circumstances.
CERTAIN OBLIGATIONS OF MAXIM UPON TERMINATION OF EMPLOYMENT AGREEMENT. If
Maxim terminates the employment of the Executive without "cause" (as defined in
the Employment Agreements) or the Executive terminates his employment for "good
reason" (as defined in the Employment Agreements, and which term includes a
termination by the Executive for any reason during the 30-day period commencing
on the third anniversary of the UCU Effective Time), (i) Maxim shall pay
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to the Executive in a lump sum, a cash amount equal to (a) the present value of
the Executive's annual base salary and incentive compensation (assuming targets
have been met) payable through the end of the term of the Employment Agreement
or, if longer, for a period of three years (the "Continuation Period"), each at
the rate in effect at the time of termination of the Executive's employment, (b)
except with respect to benefits described in clause (ii) below, the value of all
insurance, expenses and fringe benefits to which he would have been entitled
through the Continuation Period and (c) the value of all deferred compensation
amounts (together with accrued interest or earnings thereon), and all executive
life insurance benefits whether or not then vested or payable, and (ii) Maxim
shall continue medical and welfare benefits to the Executive and/or his family
at least equal to those which would have been provided had he remained employed
by Maxim through the end of the Continuation Period. If the Executive dies
during the term of the Employment Agreement, Maxim will pay to the Executive or
his beneficiaries or estate all compensation earned through the date of death
(including previously deferred compensation and pro rata incentive compensation
based upon the maximum potential awards). If the Executive is terminated by
Maxim for cause or if the Executive terminates his employment without good
reason, Maxim will pay his base salary through the date of termination plus any
previously deferred compensation. Any amounts paid to the Executive pursuant to
his severance agreement will be netted against amounts due under his Employment
Agreement. See "-- Employee Plans and Severance Arrangements."
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS
UCU has entered into Severance Compensation Agreements with 36 of its
officers (each, a "UCU Severance Agreement"). The UCU Severance Agreements are
intended to provide for continuity of management in the event of a "change of
control" of UCU or a "spin-off" of a business unit of UCU. Under such
agreements, executives are entitled to certain severance benefits if, following
a (a) "change of control," the executive's employment with UCU is terminated
within the three-year period following the "change of control," (b) "spin-off"
affecting the executive, the executive is terminated and does not become
employed by the "spin-off purchaser" or (c) "spin-off " affecting the executive,
the executive's employment with the "spin-off purchaser" is terminated within
the one-year period following the "spin-off," unless such termination is a
result of the executive's (i) "disability," (ii) "retirement," (iii) termination
for "cause," or (iv) decision to terminate employment other than for "good
reason" (each as defined in the UCU Severance Agreements). Severance benefits
include (A) a lump-sum cash amount equal to 2.99 times the executive's "average
annual compensation" in the event of a "change in control," or (B) 1.0 times the
executive's "average annual compensation" in the event of a "spin-off." In
addition, each UCU Severance Agreement provides for (1) acceleration of stock
options granted to the executive pursuant to UCC's stock incentive plan, (2)
lapsing of any restrictions relating to stock awards under such plan, (3) a
lump-sum cash payment of any deferred compensation, (4) immediate vesting in any
long-term incentive compensation under UCU's long-term incentive plan, (5)
payment of a percentage of the cost of insurance continuation benefits on behalf
of the executive pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1986 and any other benefits relating to health or medical care that are
available under UCU policy to the executive following termination of employment,
and (6) a lump-sum cash amount equal to the annual incentive paid to the
executive in each of the immediately preceding two calendar years, in the event
of a "change in control," other than a "spinoff," or in the immediately
preceding calendar year in the event of a "spin-off." Severance benefits to
executives are effectively limited by Section 280G of the Code, and are
therefore subject to adjustment in the event it is determined that such benefits
exceed or fall below the maximum amount permitted under the Code. The Mergers
will, at the Effective Time, constitute a "change in control." If benefits
become payable under all of the UCU Severance Agreements, the aggregate amount
that Maxim would be required to pay thereunder would be approximately $20.5
million.
KCPL has entered into severance agreements with a number of its executives,
including its seven most senior executives (each agreement with such senior
executives, a "KCPL Severance Agreement"). Each of the KCPL Severance Agreements
provides for the payment of severance benefits
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upon termination of employment with KCPL (a) during the three-year period
beginning with a "change in control" of KCPL (or, if later, beginning with the
consummation of the transaction the approval of which by KCPL's shareholders
constitutes a change in control), unless such termination of employment is (i)
by KCPL for "cause," (ii) by the senior executive for any reason other than
"good reason" (each as defined in the KCPL Severance Agreements) or (iii) as a
result of the senior executive's death or disability or (b) during the 30-day
period commencing one year after change in control (or, if later, beginning with
the consummation of the transaction the approval of which by KCPL's shareholders
constitutes a change in control).
If a senior executive's employment is terminated under the circumstances
described in the immediately preceding paragraph, KCPL is obligated to pay or
provide to such executive the following benefits: (A) a lump-sum cash amount in
an amount equal to (i) three times the senior executive's highest annual base
salary as in effect during the 12-month period immediately prior to the date of
termination, plus (ii) three times the senior executive's average annualized
incentive compensation awards paid or payable pursuant to the KCPL Incentive
Compensation Plan during the five fiscal years immediately preceding the fiscal
year in which the Mergers occur; (B) a lump-sum cash amount equal to the value
of three additional years of credit service under the KCPL Management Pension
Plan and any related agreement, and (C) a lump-sum cash amount equal to the
value of the unvested portion (if any) of such senior executive's employer
matching contributions under the KCPL Cash or Deferred Arrangement. In addition,
each KCPL Severance Agreement provides for three years' continuation of all
medical, accident, disability and life insurance plans with respect to the
senior executive. The KCPL Severance Agreements provide for an additional
payment to be made to the senior executive in order to indemnify the senior
executive for any excise tax imposed by Section 4999 of the Code on any payment
or distribution by KCPL or its affiliated companies to or for the benefit of the
senior executive. If benefits become payable under the KCPL Severance
Agreements, the aggregate amount that Maxim would be required to pay thereunder
to the five most highly compensated officers of KCPL would be approximately $6.1
million.
MAXIM PLANS
Pursuant to the terms of the Merger Agreement, Maxim will implement the
Maxim Plans described below, subject to shareholder approval thereof at the KCPL
Meeting. Each of the Maxim Plans will become effective as of the Effective Time.
MAXIM STOCK INCENTIVE PLAN. This plan is a comprehensive stock compensation
plan designed to provide Maxim with the ability to provide incentives linked to
the profitability of its businesses and increases in stockholder value. The
Maxim Stock Incentive Plan provides for the grant of stock options, including
incentive stock options ("ISOs"), stock appreciation rights ("SARs"), restricted
stock and performance units. The maximum number of shares of Maxim Common Stock
available for issuance under the plan is 9,000,000 shares, but not more than
3,000,000 shares may be issued as restricted stock, no participant may be
granted awards covering in excess of 600,000 shares of Maxim Common Stock in any
one year and no participant may be granted performance units in any one calendar
year payable in cash in an amount that would exceed $2,000,000. The Nominating
and Compensation Committee of the Maxim Board (the "Maxim Compensation
Committee") will administer the plan and make awards thereunder, and will have
broad authority to fix the terms and conditions of individual agreements with
participants. This plan is being submitted to shareholders of KCPL for approval,
and is described in greater detail under "APPROVAL OF MAXIM PLANS -- Maxim Stock
Incentive Plan" elsewhere in this Joint Proxy Statement/Prospectus; a copy of
the plan is attached as Annex D. Following implementation of the Maxim Stock
Incentive Plan, no further obligations will be incurred under the existing stock
incentive plans of KCPL and UCU.
MAXIM MIC PLAN. This plan is a short-term incentive compensation plan
designed to benefit eligible employees of Maxim and its subsidiaries. The Maxim
MIC Plan rewards key management personnel for meeting established individual,
group and corporate goals. Employees who participate in this plan will be
granted awards payable in cash, shares of Maxim Common Stock or such other
77
form as may be determined by the Maxim Compensation Committee to the extent
predetermined goals are attained within the performance period. Awards are based
on a percentage of a participant's annual base salary. This plan is being
submitted to shareholders of KCPL for approval, and is described in greater
detail under "APPROVAL OF MAXIM PLANS -- Maxim MIC Plan" elsewhere in this Joint
Proxy Statement/Prospectus; a copy of the plan is attached as Annex E. Following
implementation of the Maxim MIC Plan, no further obligations will be incurred
under the existing short-term incentive plans of KCPL and UCU.
ACTIONS WITH RESPECT TO EXISTING STOCK OPTIONS AND CERTAIN OTHER EXISTING
ARRANGEMENTS. All stock options to acquire UCU Common Stock under the UCU
Employee Stock Option Plan and UCU 1986 Stock Incentive Plan that are
outstanding at the Effective Time will be converted into options to buy Maxim
Common Stock, and the number of shares and exercise price under such options
will be adjusted so as to preserve both the same aggregate gain or loss
immediately after the Effective Time as existed immediately before the Effective
Time and the ratio of the exercise price per share subject to such stock option
to the fair market value per underlying share, provided, however, that in the
case of any stock option which is intended to be an ISO, the conversion shall be
adjusted, if necessary, to comply with Section 424(a) of the Code. Maxim will
assume the obligation to honor such options and any other outstanding awards
under the existing stock incentive plans of UCU, and the terms and conditions of
such options and awards will otherwise remain the same as before the Effective
Time after giving effect to the conversion ratio of the UCU Common Stock. See
"THE MERGER AGREEMENT -- Benefit Plans."
DIVIDEND REINVESTMENT PLAN
It is anticipated that, after the Effective Time, Maxim will have a dividend
reinvestment and stock purchase plan. Participants in the KCPL Dividend
Reinvestment Plan immediately prior to the Effective Time will continue to
participate in the Maxim dividend reinvestment and stock purchase plan after the
Effective Time. Following the Effective Time, former common stockholders of UCU
will be able to participate in the Maxim dividend reinvestment and stock
purchase plan with respect to the shares of Maxim Common Stock that they receive
in the UCU Merger, and to have their accounts under the UCU Dividend
Reinvestment and Common Stock Purchase Plan transferred to the Maxim dividend
reinvestment and stock purchase plan. Stockholders of KCPL and UCU will be
notified as to the terms of the Maxim dividend reinvestment and stock purchase
plan as soon as practicable after such terms have been finalized.
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CERTAIN COVENANTS
Pursuant to the Merger Agreement, each of KCPL and UCU has agreed that
during the period from the Original Execution Date until the UCU Effective Time
or earlier termination of the Merger Agreement, except as permitted by the
Merger Agreement (including the disclosure schedules thereto) or as the other
party otherwise consents in writing, it will (and each of its Subsidiaries
will), subject to certain exceptions specified therein, among other things: (a)
carry on its business in the ordinary course consistent with prior practice; (b)
not declare or pay any dividends on or make other distributions in respect of
any of its capital stock, other than (i) to such party or its wholly-owned
Subsidiaries, (ii) dividends required to be paid on any UCU Preferred Stock or
KCPL Preferred Stock, (iii) regular quarterly dividends to be paid on KCPL
Common Stock and UCU Common Stock not to exceed 105% of the dividends for the
comparable period of the prior fiscal year, and (iv) dividends by AGP, UtiliCorp
U.K., Inc., UtiliCorp U.K. Limited, West Kootenay Power Ltd., UtiliCorp N.Z.,
Inc., and any Subsidiaries of such entities; (c) not effect certain other
changes in its capitalization other than redeeming all series and classes of
KCPL Preferred Stock and the UCU Preferred Stock, or funding employee stock
ownership plans in accordance with past practice; (d) not issue, sell or dispose
of any capital stock or securities convertible into capital stock other than (i)
intercompany issuances of capital stock and (ii) up to 2,000,000 shares of KCPL
Common Stock or UCU Common Stock, as the case may be, to be issued during any
fiscal year pursuant to employee benefit plans, stock option and other incentive
compensation plans, directors' plans and stock purchase and dividend
reinvestment plans, except that, as set forth in the disclosure schedules, UCU
may issue approximately 5.3 million additional shares of UCU Common Stock; (e)
not incur indebtedness (or guarantees thereof), other than (i) indebtedness or
guarantees or "keep well" or other agreements either in the ordinary course of
business consistent with past practice, or not aggregating more than $250
million, (ii) arrangements between such party and its Subsidiaries or among its
Subsidiaries, (iii) in connection with the refunding of existing indebtedness,
(iv) in connection with any permitted redemption of any series or class of KCPL
Preferred Stock or of UCU Preferred Stock, or (v) as may be necessary in
connection with certain permitted acquisitions or capital expenditures; (f) not
engage in material acquisitions, except individual acquisitions not exceeding
$25 million in equity invested and not requiring board of directors' approval,
provided that the total amount invested in any fiscal year does not exceed $150
million; (g) not make any capital expenditures during any fiscal year exceeding
125% of the amounts budgeted; (h) not sell or dispose of assets during any
fiscal year singularly or in an aggregate amount equalling or exceeding $25
million, other than dispositions in the ordinary course of
85
business consistent with past practice; (i) not enter into, adopt or amend or
increase the amount or accelerate the payment or vesting of any benefit or
amount payable under any employee benefit plan or other contract, agreement,
commitment, arrangement, plan, trust, fund or policy, except for normal
increases in the ordinary course of business consistent with past practice that,
in the aggregate, do not result in a material increase in benefits or
compensatory expenses; (j) not enter into or amend any employee severance
agreement other than in the ordinary course of business consistent with past
practice; (k) not deposit into any trust (including any "rabbi trust") amounts
in respect of any employee benefit obligations or obligations to directors,
provided that transfers into any trust, other than a rabbi or other trust with
respect to any non-qualified deferred compensation, may be made in accordance
with past practice; (l) not engage in any activity which would cause a change in
its status under the 1935 Act; (m) not make any changes in its accounting
methods other than as required by law or in accordance with generally accepted
accounting principles; (n) not take any action to prevent Maxim from accounting
for the Mergers as a pooling of interests; (o) not take any action that would
adversely affect the status of the Mergers as a tax-free reorganization under
the Code; (p) not enter into any material agreements with affiliates (other than
wholly-owned subsidiaries) or the parties' respective Joint Ventures, other than
on an arm's-length basis; (q) cooperate with the other party, provide reasonable
access to its books and records and notify the other party of any significant
changes; (r) subject to applicable law, discuss with the other party any
proposed changes in its rates or charges (other than pass-through fuel and gas
rates or charges) or standards of service or accounting; consult with the other
prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment, arrangement or consent with governmental regulators; and
not make any filing to change its rates on file with the FERC that would have a
material adverse effect on the benefits associated with the Mergers; (s) use all
commercially reasonable efforts to obtain certain third-party consents to the
Mergers; (t) not take any action reasonably likely to materially breach the
Merger Agreement or any of its representations and warranties; (u) not take any
action that is likely to jeopardize the qualification of KCPL's or UCU's
outstanding revenue bonds as "exempt facility bonds" or as tax-exempt industrial
development bonds; (v) create a joint transition management task force to
examine alternatives to effect the integration of the parties after the
Effective Time; (w) refrain from taking specified actions relating to tax
matters; (x) maintain customary and adequate insurance and existing governmental
permits; and (y) not discharge or satisfy any material claims, liabilities or
obligations, other than discharges (in the ordinary course of business or in
accordance with their terms) of liabilities reflected in the most recent
consolidated financial statements.
The Merger Agreement provides that the parties will execute such further
documents and instruments and take such actions as are necessary and reasonably
requested by the other party to consummate the Mergers in accordance with the
terms of the Merger Agreement.
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MAXIM BOARD OF DIRECTORS
The Merger Agreement provides that at the Effective Time, the Maxim Board
will consist of 18 persons, nine of whom will be the then existing directors of
KCPL prior to the Effective Time and nine of whom will be designated by UCU
prior to the Effective Time. If, prior to the Effective Time, any of such
designees declines or is unable to serve, the party that designated such person
will designate another person to serve in such person's stead. As of the date of
this Joint Proxy Statement/Prospectus, UCU has not decided who, in addition to
Mr. Green, will be designated to serve on the Maxim Board after the Effective
Time.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the Effective Time, Maxim will, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is on, or
who has been at any time prior to, January 19, 1996, or who becomes prior to the
Effective Time, an officer, director or employee of any of the parties thereto
or any Subsidiary (each an "Indemnified Party," and collectively, "Indemnified
Parties") against all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer or employee of such party, and all such indemnified liabilities to the
extent they are based on or arise out of or pertain to the transactions
contemplated by the Merger Agreement. In the event of any such loss, expense,
claim, damage or liability (whether or not arising before the Effective Time),
(i) Maxim will pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties,
87
which counsel must be reasonably satisfactory to Maxim, promptly after
statements therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the MGCL, (ii) Maxim will cooperate in the
defense of any such matter and (iii) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the MGCL, the Restated Articles of Consolidation or Bylaws of
Maxim will be made by independent counsel mutually acceptable to Maxim and the
Indemnified Party; provided, however, that Maxim will not be liable for any
settlement effected without its written consent (which consent must not be
unreasonably withheld). The Merger Agreement further provides that the
Indemnified Parties as a group may retain only one law firm with respect to each
related matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of such Indemnified Party
and any other Indemnified Party or Indemnified Parties.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, Maxim will cause to be maintained in effect policies
of directors' and officers' liability insurance maintained by KCPL and UCU for
the benefit of those persons who were covered by such policies on January 19,
1996, on terms no less favorable than the terms of such insurance coverage,
provided that Maxim will not be required to expend in any year an amount
exceeding 200% of the annual aggregate premiums currently paid by KCPL and UCU
for such insurance. If the annual premiums of such insurance coverage exceed
such amount, Maxim will be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Maxim Board, for a cost not
exceeding such amount. The Merger Agreement also provides that to the fullest
extent permitted by law, from and after the Effective Time, all rights to
indemnification existing in favor of the employees, agents, directors and
officers of KCPL, UCU and their respective Subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their respective
articles of incorporation and by-laws in effect on January 19, 1996, or
otherwise in effect on January 19, 1996, will survive the Mergers and will
continue in full force and effect for a period of not less than six years from
the Effective Time.
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BENEFIT PLANS
The Merger Agreement provides that KCPL and UCU have agreed to cooperate and
agree upon the employee benefit plans and programs to be provided by Maxim, and
that each participant of any KCPL benefit plan or UCU benefit plan shall receive
credit for purposes of eligibility to participate, vesting and eligibility to
receive benefits under any benefit plan of Maxim or any of its subsidiaries or
affiliates that replaces a KCPL benefit plan or UCU benefit plan; provided,
however, that such crediting of service shall not operate to duplicate any
benefit to any such participant or the funding for any such benefit. In
addition, the UCU Supplemental Contributory Retirement Plan shall be revised to
provide that references to UCU Common Stock shall instead refer to Maxim Common
Stock.
Upon the consummation of the Mergers, no additional obligations will be
incurred under the existing short-term incentive compensation plans of KCPL and
UCU. Subject to shareholder approval thereof at the KCPL Meeting, the Maxim MIC
Plan will become effective at the Effective Time. The Maxim MIC Plan provides
for annual bonuses, based on percentages of base salaries, to be awarded based
upon the achievement of performance goals determined in advance by the Maxim
Compensation Committee. With respect to those participants in the new plan who
are, or who the Maxim Compensation Committee determines are likely to be,
"covered individuals" within the meaning of Section 162(m) of the Code with
compensation in excess of the limitations set forth in Section 162(m), the
performance goals are to be objective standards that are approved by
shareholders in accordance with the requirements for exclusion from the limits
of Section 162(m) of the Code as performance-based compensation. See "APPROVAL
OF MAXIM PLANS -- Maxim MIC Plan" and Annex E.
Following the implementation of the Maxim Stock Incentive Plan, no
additional awards will be made under the existing stock incentive plans of KCPL
and UCU. Subject to shareholder approval thereof at the KCPL Meeting, the Maxim
Stock Incentive Plan will become effective at the Effective Time. The Maxim
Stock Incentive Plan provides for the grant of stock options, SARs, restricted
stock and such other awards based upon Maxim Common Stock as the Maxim
Compensation Committee may determine, subject to shareholder approval of the
Maxim Stock Incentive Plan. Maxim intends to reserve 9,000,000 shares of Maxim
Common Stock for issuance under this plan. Accordingly, the Maxim Stock
Incentive Plan is being submitted to shareholders for approval. See "APPROVAL OF
MAXIM PLANS -- Maxim Stock Incentive Plan" and Annex D.
At the Effective Time, (i) an option to purchase shares of UCU Common Stock
under the existing stock incentive plans of UCU (each, a "UCU Stock Option")
will constitute an option to acquire, on the same terms and conditions (subject
to the adjustments necessary to give effect to the Mergers), shares of Maxim
Common Stock based on the same number of shares of Maxim Common Stock as the
holder of such UCU Stock Option would have been entitled to receive pursuant to
the Mergers had such holder exercised such option in full immediately prior to
the Effective Time and (ii) each other outstanding award under the existing
stock incentive plans of UCU (each, a "UCU Stock Award") will
89
constitute an award based upon the same number of shares of Maxim Common Stock
as the holder of such UCU Stock Award would have been entitled to receive
pursuant to the Mergers had such holder been the owner, immediately before the
Effective Time, of the shares of UCU Common Stock on which such UCU Stock Award
is based, and otherwise on the same terms and conditions as governed such UCU
Stock Award immediately before the Effective Time. See "THE MERGERS -- Maxim
Plans."
CERTAIN EMPLOYMENT AGREEMENTS AND WORKFORCE MATTERS
Subject to certain provisions in the Merger Agreement, Maxim and its
Subsidiaries have agreed to honor, without modification, all contracts,
agreements, collective bargaining agreements and commitments of KCPL and UCU
prior to the date of the Merger Agreement that apply to any current or former
employee or current or former director of the parties hereto. Subject to
applicable collective bargaining agreements, for a period of three years
following the Effective Time, any reductions in workforce in respect of
employees of Maxim shall be made on a fair and equitable basis, without regard
to whether employment was with KCPL or the KCPL Subsidiaries or UCU or the UCU
Subsidiaries, and any employee whose employment is terminated or job is
eliminated by Maxim or any of its Subsidiaries during such period shall be
entitled to participate on a fair and equitable basis in the job opportunity and
employment placement programs offered by Maxim or any of its Subsidiaries. Any
workforce reductions carried out following the Effective Time by Maxim and its
Subsidiaries shall be done in accordance with all applicable collective
bargaining agreements and all laws and regulations governing the Worker
Adjustment and Retraining Notification Act and regulations promulgated
thereunder, and any comparable state or local law.
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APPROVAL OF MAXIM PLANS
MAXIM STOCK INCENTIVE PLAN
Pursuant to the Merger Agreement, it was agreed that Maxim would adopt a
stock compensation plan to replace the existing stock incentive plans of KCPL
and UCU (except with respect to obligations incurred or attributable to
employment prior to the Effective Time) subject to approval by stockholders.
Accordingly, the Maxim Stock Incentive Plan is submitted to the shareholders of
KCPL for approval, as more fully described below. The Maxim Stock Incentive Plan
will become effective only if approved by stockholders as described below, in
which event it will become effective at the Effective Time and will terminate
ten years thereafter.
The purpose of the Maxim Stock Incentive Plan is to enable Maxim and its
Affiliates (as defined in the Maxim Stock Incentive Plan) to attract, retain and
motivate officers and employees and to provide Maxim and its Affiliates with the
ability to provide incentives linked to the profitability of Maxim's businesses,
increases in stockholder value and the enhancement of performance relating to
customers.
The Maxim Stock Incentive Plan has been designed to comply with the
provisions of Section 162(m) of the Code which imposes limits on the ability of
a public company to claim tax deductions for compensation paid to certain highly
compensated executives. Section 162(m) of the Code generally denies a corporate
tax deduction for annual compensation in excess of $1,000,000 paid to the chief
executive officer and the four other most highly compensated officers of a
public company. Certain types of compensation, including performance-based
compensation, are generally excluded from this deduction limit. In an effort to
ensure that stock awards under the Maxim Stock Incentive
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Plan will qualify as performance-based compensation, which is generally
deductible, the Maxim Stock Incentive Plan is being submitted to stockholders of
KCPL for approval at the KCPL Meeting. KCPL believes compensation payable
pursuant to the Maxim Stock Incentive Plan will be deductible for federal income
tax purposes under most circumstances. However, under certain circumstances such
as death, disability and change in control (all as defined in the Maxim Stock
Incentive Plan), compensation not qualified under Section 162(m) of the Code may
be payable. By approving the Maxim Stock Incentive Plan, the stockholders will
be approving, among other things, the performance measures, eligibility
requirements and limits on various stock awards contained therein. The
affirmative vote of a majority of the votes entitled to be cast by the holders
of the shares of KCPL Common Stock represented at the KCPL Meeting and entitled
to vote thereon is required to approve the Maxim Stock Incentive Plan with
respect to Section 162(m) of the Code. Such vote will also satisfy the
stockholder approval requirements of Section 422 of the Code with respect to the
grant of ISOs and Rule 16b-3 under the Exchange Act ("Rule 16b-3"). THE BOARD OF
DIRECTORS OF KCPL, BY A UNANIMOUS VOTE, RECOMMENDS A VOTE FOR APPROVAL OF THE
MAXIM STOCK INCENTIVE PLAN.
Set forth below is a summary of certain material features of the Maxim Stock
Incentive Plan, which summary is qualified in its entirety by reference to the
actual plan attached as Annex F to this Joint Proxy Statement/Prospectus:
ADMINISTRATION. The Maxim Stock Incentive Plan will be administered by the
Maxim Compensation Committee or such other committee of the Maxim Board as the
Maxim Board may from time to time designate, which will be composed solely of
not less than two directors who qualify as "disinterested persons" for purposes
of Rule 16b-3 and as "outside directors" for purposes of Section 162(m) of the
Code. Among other things, the Maxim Compensation Committee will have the
authority, subject to the terms of the Maxim Stock Incentive Plan, to select
officers and employees to whom awards may be granted, to determine the type of
award as well as the number of shares of Maxim Common Stock to be covered by
each award, and to determine the terms and conditions of any such awards. The
Maxim Compensation Committee also will have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Maxim
Stock Incentive Plan as it shall deem advisable, to interpret the terms and
provisions of the Maxim Stock Incentive Plan and any awards issued thereunder
and to otherwise supervise the administration of the Maxim Stock Incentive Plan.
All decisions made by the Maxim Compensation Committee pursuant to the Maxim
Stock Incentive Plan will be final and binding.
ELIGIBILITY. Officers and salaried employees of Maxim and its Affiliates
designated by the Maxim Compensation Committee who are responsible for or
contribute to the management, growth and profitability of Maxim are eligible to
be granted awards under the Maxim Stock Incentive Plan. No grant will be made
under the Maxim Stock Incentive Plan to a director who is not an officer or a
salaried employee. The initial determination of persons eligible to participate
in the Maxim Stock Incentive Plan will not be made until after the Effective
Time by the Maxim Compensation Committee as then constituted. Accordingly, it is
not possible to estimate at this time the number of persons who will be eligible
to participate in the Maxim Stock Incentive Plan.
PLAN FEATURES. The Maxim Stock Incentive Plan authorizes the issuance of up
to 9,000,000 shares of Maxim Common Stock pursuant to the grant or exercise of
stock options (including ISOs), SARs, restricted stock and performance units,
but not more than 3,000,000 shares may be issued as restricted stock. No single
participant may be granted awards pursuant to the Maxim Stock Incentive Plan
covering in excess of 600,000 shares of Maxim Common Stock in any one calendar
year and no participant may be granted performance units in any one calendar
year payable in cash in an amount that would exceed $2,000,000. Subject to the
foregoing limits, the shares available under the Maxim Stock Incentive Plan can
be allocated among the various types of awards and among the participants as the
Maxim Compensation Committee deems appropriate. The shares subject to grant
under the Maxim Stock Incentive Plan are to be made available from authorized
but unissued shares or from treasury shares as determined from time to time by
the Maxim Board. Awards may be granted for such terms as the Maxim Compensation
Committee may determine, except that the term of an ISO may not
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exceed ten years from its date of grant. No awards outstanding on the
termination date of the Maxim Stock Incentive Plan shall be affected or impaired
by such termination. Awards will not be transferable, except by will and the
laws of descent and distribution and, in the case of nonqualified stock options
and any related SARs, as a gift to an optionee's children. The Maxim
Compensation Committee will have broad authority to fix the terms and conditions
of individual agreements with participants.
As indicated above, several types of stock-related grants can be made under
the Maxim Stock Incentive Plan. A summary of these grants is set forth below:
STOCK OPTIONS. The Maxim Stock Incentive Plan authorizes the Maxim
Compensation Committee to grant options to purchase Maxim Common Stock at an
exercise price (the "option price") to be determined by the Committee. The Maxim
Stock Incentive Plan permits optionees, with the approval of the Maxim
Compensation Committee, to pay the exercise price of options in cash, stock
(valued at its fair market value on the date of exercise) or a combination
thereof. As noted above, options may be granted either as ISOs or nonqualified
options. The principal difference between ISOs and nonqualified options is their
tax treatment. See "-- Certain Federal Income Tax Consequences."
SARS. The Maxim Stock Incentive Plan authorizes the Maxim Compensation
Committee to grant SARs in conjunction with all or part of any stock option
granted under the Maxim Stock Incentive Plan. An SAR entitles the holder to
receive upon exercise the excess of the fair market value of a specified number
of shares of Maxim Common Stock at the time of exercise over the option price
per share specified in the related stock option. Such amount will be paid to the
holder in shares of Maxim Common Stock (valued at its fair market value on the
date of exercise), cash or combination thereof, as the Maxim Compensation
Committee may determine. An SAR may be granted in conjunction with a
contemporaneously granted ISO or a previously or contemporaneously granted
nonqualified option. The option will be cancelled to the extent that the related
SAR is exercised and the SAR will be cancelled to the extent the related option
is exercised.
RESTRICTED STOCK. The Maxim Stock Incentive Plan authorizes the Maxim
Compensation Committee to grant restricted stock to individuals with such
restriction periods as the Maxim Compensation Committee may designate. The Maxim
Compensation Committee may, prior to granting shares of restricted stock,
designate certain participants as "Covered Employees" upon determining that such
participants are or are expected to be "covered employees" (within the meaning
of Section 162(m)(3) of the Code), with compensation in excess of the limitation
provided in Section 162(m) of the Code, and will provide that restricted stock
awards to these Covered Employees cannot vest unless applicable performance
goals established by the Maxim Compensation Committee within the time period
prescribed by Section 162(m) of the Code are satisfied. These performance goals
must be based on the attainment of specified levels of earnings per share,
market share, stock price, sales, costs, net operating income, cash flow,
retained earnings, return on equity, return on assets, economic value added,
results of customer satisfaction surveys, aggregate product price and other
product price measures, safety record, service reliability, demand-side
management (including conservation and load management), operating and
maintenance cost management, energy production availability and individual
performance measures. Such performance goals also may be based on the attainment
of specified levels of Maxim's performance under one or more of the measures
described above relative to the performance of other corporations. Performance
goals based on the foregoing factors are hereinafter referred to as "Performance
Goals." With respect to Covered Employees, all Performance Goals must be
objective performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m)(4) of the Code.
Notwithstanding the foregoing, the Maxim Compensation Committee shall have the
discretion to grant to an employee who has become entitled to an award under the
Maxim MIC Plan (see "-- Maxim MIC Plan"), in payment of all or any part of such
award, shares of restricted stock that shall vest without regard to the
attainment of Performance Goals. The Maxim Compensation Committee also may
condition the vesting of restricted stock awards to participants who are not
Covered Employees upon the satisfaction of these or other applicable performance
goals. The provisions of restricted stock awards (including any applicable
Performance
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Goals) need not be the same with respect to each participant. During the
restriction period, the Maxim Compensation Committee may require that the stock
certificates evidencing restricted shares be held by Maxim. Restricted stock may
not be sold, assigned, transferred, pledged or otherwise encumbered. Other than
these restrictions on transfer and any other restrictions the Maxim Compensation
Committee may impose, the participant will have all the rights of a holder of
stock holding the class or series of stock that is the subject of the restricted
stock award.
PERFORMANCE UNITS. The Maxim Stock Incentive Plan authorizes the Maxim
Compensation Committee to grant performance units. Performance units may be
denominated in shares of Maxim Common Stock or cash, or may represent the right
to receive dividend equivalents with respect to shares of Maxim Common Stock, as
determined by the Maxim Compensation Committee. Performance units will be
payable in cash or shares of Maxim Common Stock if applicable Performance Goals
(based on one or more of the measures described in the section entitled "--
Restricted Stock" above) determined by such committee are achieved during an
award cycle. An award cycle will consist of a period of consecutive fiscal years
or portions thereof designated by the Maxim Compensation Committee over which
performance units are to be earned. At the conclusion of a particular award
cycle, the Maxim Compensation Committee will determine the number of performance
units granted to a participant which have been earned in view of applicable
Performance Goals and shall deliver to such participant (i) the number of shares
of Maxim Common Stock equal to the value of performance units determined by the
Maxim Compensation Committee to have been earned and/or (ii) cash equal to the
value of such earned performance units. The Maxim Compensation Committee may, in
its discretion, permit participants to defer the receipt of performance units on
terms and conditions established by the Maxim Compensation Committee.
The Maxim Compensation Committee will have the authority to determine the
officers and employees to whom and the time or times at which performance units
shall be awarded, the number of performance units to be awarded to any
participant, the duration of the award cycle and any other terms and conditions
of an award. In the event that a participant's employment is involuntarily
terminated or in the event of the participant's retirement, the Maxim
Compensation Committee may waive in whole or in part any or all remaining
payment limitations, provided, however, that the satisfaction of applicable
Performance Goals by a designated Covered Employee cannot be waived unless such
Covered Employee's employment is terminated by death, disability or change of
control.
AMENDMENT AND DISCONTINUANCE. The Maxim Stock Incentive Plan may be
amended, altered or discontinued by the Maxim Board, but no amendment,
alteration or discontinuance may be made which would (i) impair the rights of an
optionee under an option or a recipient of an SAR, restricted stock award or
performance unit award previously granted without the optionee's or recipient's
consent, except such an amendment made to qualify the Maxim Stock Incentive Plan
for the exemption provided by Rule 16b-3 or (ii) disqualify the Maxim Stock
Incentive Plan from the exemption provided by Rule 16b-3. Except as expressly
provided in the Maxim Stock Incentive Plan, the Maxim Stock Incentive Plan may
not be amended without stockholder approval to the extent such approval is
required by law or agreement.
CHANGES IN CAPITALIZATION; CHANGE IN CONTROL. The Maxim Stock Incentive
Plan provides that, in the event of any change in corporate capitalization, such
as a stock split, or a corporate transaction, such as any merger, consolidation,
share exchange, separation, spin-off or other distribution of stock or property
of Maxim or any reorganization or partial or complete liquidation of Maxim, the
Maxim Compensation Committee or the Maxim Board may make such substitutions or
adjustments in the aggregate number and kind of shares reserved for issuance
under the Maxim Stock Incentive Plan, in the number, kind and option price of
shares subject to outstanding stock options and SARs, and in the number and kind
of shares subject to other outstanding awards granted under the Maxim Stock
Incentive Plan as may be determined to be appropriate by the Maxim Compensation
Committee or the Maxim Board, in its sole discretion. The Maxim Stock Incentive
Plan also provides that in the event of a change in control (as defined in the
Maxim Stock Incentive Plan) of Maxim (i) any SARs and stock options outstanding
as of the date of the change of control which are not then exercisable and
vested
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will become fully exercisable and vested, (ii) the restrictions applicable to
restricted stock will lapse and such restricted stock shall become free of all
restrictions and fully vested and (iii) all performance units will be considered
to be earned and payable in full and any restrictions will lapse and such
performance units will be settled in cash as promptly as practicable. The
holders of options (other than options of holders subject to Section 16(b) of
the Exchange Act that were granted not more than six months before the change in
control) will have the right, for a period of 60 days after such date, to
surrender such options in exchange for a cash payment based on the change in
control price (as defined in the Maxim Stock Incentive Plan). However, if
settlement in cash would disqualify a transaction from pooling-of-interests
accounting treatment, the Maxim Compensation Committee may substitute stock.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion is intended only
as a brief summary of the federal income tax rules relevant to stock options,
SARs, restricted stock and performance units. The laws governing the tax aspects
of awards are highly technical and such laws are subject to change.
- NONQUALIFIED OPTIONS AND SARS. Upon the grant of a nonqualified option
(with or without an SAR), the optionee will not recognize any taxable income
and Maxim will not be entitled to a deduction. Upon the exercise of such an
option or an SAR, the excess of the fair market value of the shares acquired
on the exercise of the option over the option price (the "spread"), or the
consideration paid to the optionee upon exercise of the SAR, will constitute
compensation taxable to the optionee as ordinary income. In determining the
amount of the spread or the amount of consideration paid to the optionee,
the fair market value of the stock on the date of exercise is used, except
that in the case of an optionee subject to the six month short-swing profit
recovery provisions of Section 16(b) of the Exchange Act (generally officers
and directors of Maxim), the fair market value will be determined six months
after the date on which the option was granted (if such date is later than
the exercise date) unless such optionee elects to be taxed based on the fair
market value at the date of exercise. Any such election (a "Section 83(b)
election") must be made and filed with the IRS within 30 days after exercise
in accordance with the regulations under Section 83(b) of the Code. Maxim,
in computing its federal income tax, will generally be entitled to a
deduction in an amount equal to the compensation taxable to the optionee.
- ISOS. An optionee will not recognize taxable income on the grant or
exercise of an ISO. However, the spread at exercise will constitute an item
includable in alternative minimum taxable income, and thereby may subject
the optionee to the alternative minimum tax. Such alternative minimum tax
may be payable even though the optionee receives no cash upon the exercise
of his ISO with which to pay such tax.
Upon the disposition of shares of stock acquired pursuant to the
exercise of an ISO after (i) two years from the date of grant of the ISO and
(ii) one year after the transfer of the shares to the optionee (the "ISO
Holding Period"), the optionee will recognize long-term capital gain or
loss, as the case may be, measured by the difference between the stock's
selling price and the exercise price. Maxim is not entitled to any tax
deduction by reason of the grant or exercise of an ISO, or by reason of a
disposition of stock received upon exercise of an ISO if the ISO Holding
Period is satisfied. Different rules apply if the optionee disposes of the
shares of stock acquired pursuant to the exercise of an ISO before the
expiration of the ISO Holding Period.
- RESTRICTED STOCK. A participant who is granted restricted stock may make a
Section 83(b) election to have the grant taxed as compensation income at the
date of receipt, with the result that any future appreciation (or
depreciation) in the value of the shares of stock granted shall be taxed as
capital gain (or loss) upon a subsequent sale of the shares. However, if the
participant does not make a Section 83(b) election, then the grant will be
taxed as compensation income at the full fair market value on the date that
the restrictions imposed on the shares expire. Unless a participant makes a
Section 83(b) election, any dividends paid on stock subject to the
restrictions
106
are compensation income to the participant and compensation expense to
Maxim. Maxim is generally entitled to an income tax deduction for any
compensation income taxed to the participant, subject to the provisions of
Section 162(m) of the Code.
- PERFORMANCE UNITS. A participant who has been granted a performance unit
award will not realize taxable income until the applicable award cycle
expires and the participant is in receipt of the stock distributed in
payment of the award or an equivalent amount of cash, at which time such
participant will realize ordinary income equal to the full fair market value
of the shares delivered or the amount of cash paid. At that time, Maxim
generally will be allowed a corresponding tax deduction equal to the
compensation taxable to the award recipient, subject to the provisions of
Section 162(m) of the Code.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits or
amounts, if any, will be received by or allocated to any person or group of
persons under the Maxim Stock Incentive Plan if such plan is adopted or what
benefits or amounts would have been received by or allocated to any person or
group of persons for the last fiscal year if the plan had been in effect. These
determinations will be made by the Maxim Compensation Committee.
MAXIM MIC PLAN
Pursuant to the Merger Agreement, it was agreed that Maxim would adopt,
subject to shareholder approval, an annual incentive plan to replace the
existing short-term incentive compensation plans of KCPL and UCU (except with
respect to obligations incurred or attributable to employment prior to the
Effective Time), effective as of the Effective Time. The Maxim MIC Plan will not
become effective with respect to individuals who are subject to Section 162(m)
of the Code unless the shareholder approval described below is obtained.
The purpose of the Maxim MIC Plan is to provide a significant and flexible
economic opportunity to selected officers and salaried employees of Maxim and
its Affiliates (as defined in the Maxim MIC Plan) in an effort to reward their
individual and group contributions to Maxim and to more closely link the
financial interests of management, shareholders and customers.
The Maxim MIC Plan is designed to take into account Section 162(m) of the
Code, which generally denies a corporate tax deduction for annual compensation
exceeding $1,000,000 paid to the chief executive officer and the four other most
highly compensated officers of a public company. Certain types of compensation,
including performance-based compensation, are excluded from this deduction
limit. In an effort to ensure that compensation payable under the Maxim MIC Plan
to certain executives will qualify as performance-based compensation that is
generally tax-deductible, the Maxim MIC Plan is being submitted to shareholders
of KCPL for approval at the KCPL Meeting. KCPL believes that compensation
payable pursuant to the Maxim MIC Plan will be deductible for federal income tax
purposes under most circumstances. However, under certain circumstances such as
death, disability and change in control (all as defined in the Maxim MIC Plan),
compensation not qualified under Section 162(m) of the Code may be payable. By
approving the Maxim MIC Plan, KCPL's shareholders will be approving, among other
things, the performance measures, eligibility requirements and annual incentive
award limits contained therein. The affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of KCPL Common Stock
represented at the KCPL Meeting and entitled to vote thereon is required to
approve the Maxim MIC Plan. THE BOARD OF DIRECTORS OF KCPL, BY A UNANIMOUS VOTE,
RECOMMENDS A VOTE FOR APPROVAL OF THE MAXIM MIC PLAN.
Set forth below is a summary of certain material features of the Maxim MIC
Plan, which summary is qualified in its entirety by reference to the actual plan
attached as Annex G to this Joint Proxy Statement/Prospectus:
ADMINISTRATION. The Maxim MIC Plan will be administered by the Maxim
Compensation Committee, or such other committee of the Maxim Board as the Maxim
Board may from time to time designate, which, unless the Maxim Board determines
otherwise, will be composed solely of not less than two "disinterested persons"
who qualify as "outside directors" for purposes of Section 162(m) of
107
the Code. The Maxim Compensation Committee will have sole authority to make
rules and regulations relating to the administration of the Maxim MIC Plan, and
any interpretations and decisions of the Maxim Compensation Committee with
respect to the Maxim MIC Plan will be final and binding.
ELIGIBILITY. The Maxim Compensation Committee will, in its sole discretion,
determine those officers and salaried employees of Maxim who shall be eligible
to participate in the Maxim MIC Plan for a given period (an "Incentive Period").
These participants will be selected based upon their opportunity to have a
substantial impact on Maxim's results. Participation in the Maxim MIC Plan by a
participant during a given Incentive Period does not require continued
participation by such participant in any subsequent Incentive Period. The
initial determination of persons eligible to participate in the Maxim MIC Plan
will not be made until after the Effective Time by the Maxim Compensation
Committee as then constituted. Accordingly, it is not possible to estimate at
this time the number of persons who will be eligible to participate in the Maxim
MIC Plan.
PLAN FEATURES. The Maxim MIC Plan provides for the payment of incentive
awards to participants designated by the Maxim Compensation Committee, which
payments may be conditioned upon the attainment of pre-established performance
goals or upon such other factors or criteria as the Maxim Compensation Committee
shall determine. Such performance goals may be different for each participant.
Bonus amounts are determined by multiplying a participant's "Target Incentive
Award" by a percentage which varies depending on the extent to which the
performance goals or other factors or criteria are satisfied. A participant's
Target Incentive Award, in turn, is determined by multiplying such participant's
base salary as of the last day of the applicable Incentive Period by a
percentage designated by the Maxim Compensation Committee, in its sole
discretion, which percentage need not be the same for each participant (and
which may exceed 100%). The Maxim Compensation Committee may, in its sole
discretion, increase or decrease the amount of any incentive awards payable to a
participant and may, in recognition of special circumstances, pay incentive
awards even if not earned, provided that the Maxim Compensation Committee cannot
increase the amount of any incentive awards payable to certain designated
"Covered Employees." Incentive awards payable under the Maxim MIC Plan to
certain designated "Covered Employees" are subject to special restrictions
described in the following section. Incentive awards are payable in cash, shares
of Maxim Common Stock or in such other form as the Maxim Compensation Committee
may determine.
DESIGNATED COVERED EMPLOYEES. The Maxim Compensation Committee will have
the authority, in its sole discretion, to designate certain participants as
"Covered Employees" for a specified Incentive Period upon determining that such
participants are or are expected to be "covered employees" (within the meaning
of Section 162(m) of the Code) for such Incentive Period with compensation in
excess of the limitation provided in Section 162(m) of the Code. Not more than
90 days after the beginning of the Incentive Period, and, in any event, before
25% or more of the Incentive Period has elapsed, the Maxim Compensation
Committee will establish the performance goals for the bonus award opportunities
of these Covered Employees. Such performance goals are to be comprised of one or
more of the following measures: earnings per share, market share, stock price,
sales, costs, net operating income, cash flow, retained earnings, return on
equity, economic value added, results of customer satisfaction surveys,
aggregate product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, energy production
availability and individual performance measures. Such performance goals also
may be based on the attainment of specified levels of performance by Maxim under
one or more of the measures described above relative to the performance of other
corporations. With respect to Covered Employees, all Performance Goals must be
objective performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m) of the Code. Incentive awards
payable to Covered Employees are to be calculated in the same manner described
in the "-- Plan Features" section above, except that subjective individual
performance ratings cannot be used to increase the amount of incentive awards
payable to Covered Employees. No incentive awards will be paid to Covered
Employees if the minimum applicable pre-established Performance Goals are not
satisfied, unless the Covered Employee's
108
employment is terminated because of death, disability or a change of control.
Furthermore, the Maxim Compensation Committee will have the authority to
decrease, but not to increase, the amount of incentive awards otherwise payable
to Covered Employees pursuant to pre-established performance goals and payment
formulas. The maximum amount payable to any Covered Employee for any fiscal year
of Maxim will be $3,000,000.
AMENDMENT AND DISCONTINUANCE. The Maxim Board may amend, alter, discontinue
or otherwise modify the Maxim MIC Plan from time to time, but no amendment will,
without the consent of the participant affected, impair any award made prior to
the effective date of the modification.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits or
amounts, if any, will be received by or allocated to any person or group of
persons under the Maxim MIC Plan if the Maxim MIC Plan is adopted or what
benefits or amounts would have been received by or allocated to any person or
group of persons for the last fiscal year if the Maxim MIC Plan had been in
effect.
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MAXIM FOLLOWING THE MERGERS
BOARD OF DIRECTORS OF MAXIM
In connection with the Mergers, the Maxim Board, at the Effective Time, will
consist of 18 persons, nine of whom will be the then existing directors of KCPL
immediately prior to the Effective Time, and nine of whom will be designated by
UCU. To date, UCU has not determined which individuals, in addition to Richard
C. Green, Jr., will be its designees to serve as directors of Maxim as of the
Effective Time. However, it is currently anticipated that the directors of UCU
immediately prior to the Effective Time will serve as the initial directors of
Maxim. See "THE MERGER AGREEMENT -- Maxim Board of Directors."
KCPL and UCU have agreed that the Maxim Board will have the following
committees: an Executive Committee, a Nominating and Compensation Committee, an
Audit Committee and a Nuclear Oversight Committee. The Executive Committee will
consist of six members, three of whom (including the chair of such committee)
will be designated by KCPL and three of whom will be designated by UCU. The
remaining committees will each consist of five members with KCPL and UCU each
selecting two members and the fifth member, being in each case the chair of the
committee, selected, in the case of the Nuclear Oversight Committee, by KCPL
and, in the case of the Nominating and Compensation Committee and the Audit
Committee, by UCU.
Descriptions of the present composition of the KCPL Board and the UCU Board
are included in the KCPL Proxy Statement and the UCU Proxy Statement,
respectively, and are incorporated herein by reference. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
MANAGEMENT OF MAXIM
A. Drue Jennings will be Chairman of Maxim and Richard C. Green, Jr. will be
Vice Chairman and Chief Executive Officer of Maxim. Each of Mr. Jennings and Mr.
Green will have an employment agreement with Maxim following the Merger. See
"THE MERGERS -- Employment Agreements." Robert K. Green, brother of Richard C.
Green, Jr., will be the president of Maxim and Marcus Jackson will serve as
Maxim's executive vice president and chief operating officer. Robert K. Green is
currently president of UCU and Marcus Jackson is senior vice president and chief
operating officer of KCPL.
For a description of certain compensation arrangements after the Effective
Time concerning Messrs. Jennings and Green, see "THE MERGERS -- Employment
Agreements." Subject to the approval of the shareholders of KCPL, Maxim will
adopt at the Effective Time the Maxim Stock Incentive Plan and the Maxim MIC
Plan. See "APPROVAL OF MAXIM PLANS."
120
COMPENSATION OF EXECUTIVE OFFICERS
The following KCPL Summary Compensation Table sets forth the compensation of
the five highest-paid executive officers of KCPL for the last three fiscal
years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (#) ($)(2)
- ------------------------------------------------ --------- --------- --------- ---------------- -------------
A. Drue Jennings................................ 1995 403,000 132,062 13,750 shares 57,307
Chairman of the Board, 1994 390,000 120,710 13,750 shares 36,657
President and Chief 1993 375,000 113,750 13,750 shares 26,151
Executive Officer
Bernard J. Beaudoin............................. 1995 200,000 45,800 6,875 shares 19,221
President, KLT Inc. 1994 185,000 57,965 6,875 shares 17,023
1993 178,000 57,380 6,875 shares 15,793
Marcus Jackson.................................. 1995 155,000 38,870 6,000 shares 10,458
Senior Vice President- 1994 145,000 49,405 6,000 shares 9,612
Power Supply 1993 130,000 47,300 5,500 shares 8,808
Ronald G. Wasson................................ 1995 190,000 29,260 6,875 shares 21,321
Executive Vice 1994 185,000 57,965 6,875 shares 17,182
President, KLT Inc. 1993 178,000 57,380 6,875 shares 15,305
J. Turner White................................. 1995 139,000 46,406 6,000 shares 5,543
Senior Vice President- 1994 127,500 26,098 6,000 shares 5,308
Retail Services 1993 115,000 34,150 2,750 shares 4,103
112
- ------------------------
(1) These amounts were paid under the KCPL Incentive Compensation Plan.
(2) For 1995, amounts include: Flex dollars under the Flexible Benefits Plan:
Jennings -- $14,961, Beaudoin -- $10,596, Jackson -- $5,958, Wasson --
$10,458, White -- $2,763. Deferred Flex dollars: Jennings -- $18,417,
Beaudoin -- $1,142, Wasson -- $1,280. Above-market interest paid on deferred
compensation: Jennings -- $11,839, Beaudoin -- $1,483, Wasson -- $3,883.
KCPL contribution under the KCPL Employee Savings Plus Plan: Jennings --
$4,500, Beaudoin -- $4,500, Jackson -- $4,500, Wasson -- $4,500, White --
$2,780. KCPL contribution to the KCPL Deferred Compensation and Supplemental
Retirement Plan: Jennings -- $7,590, Beaudoin -- $1,500, Wasson -- $1,200.
OPTIONS AND STOCK APPRECIATION RIGHTS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE GRANT DATE
OPTIONS/SARS GRANTED TO OR BASE PRESENT
INDIVIDUAL GRANTS GRANTED EMPLOYEES IN PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR ($/SH) DATE ($)(2)
- ----------------------------------------------- ------------- ----------------- --------- ---------- -----------
A. Drue Jennings............................... 13,750 20% 23.0625 6/7/05 38,638
Bernard J. Beaudoin............................ 6,875 10% 23.0625 6/7/05 19,319
Marcus Jackson................................. 6,000 9% 23.0625 6/7/05 16,860
Ronald G. Wasson............................... 6,875 10% 23.0625 6/7/05 19,319
J. Turner White................................ 6,000 9% 23.0625 6/7/05 16,860
- ------------------------
(1) One-half of the options granted in 1995 are exercisable on or after June 8,
1996, and the remaining one-half are exercisable on or after June 8, 1997.
Each option is granted in tandem with a limited stock appreciation right
exercisable automatically in the event of a Change in Control, as defined
below. Options may be exercised with cash or previously-owned shares of KCPL
Common Stock. Dividends accrue on the options as though reinvested at the
regular dividend rate. Such accrued dividends will be paid if the options
are exercised and if the exercise price is equal to or above the grant
price.
A "Change in Control" shall be deemed to have occurred if (i) any person
other than a trustee or other fiduciary holding securities under an employee
benefit plan of KCPL, and other than KCPL or a corporation owned, directly
or indirectly, by the shareholders of KCPL in substantially the same
proportions as their ownership of stock of KCPL, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of KCPL representing 20% or more of
the KCPL Common Stock then outstanding; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the KCPL Board and any new director (other than a director
designated by a person who has entered into an agreement with KCPL to effect
a transaction described in (i) above) whose election by the KCPL Board or
nomination for election by KCPL's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof.
113
(2) The grant date valuation was calculated by using the binomial option pricing
formula, a derivative of the Black-Scholes model. The underlying assumptions
used to determine the present value of the options were as follows:
Annualized stock volatility: 0.154
Time of exercise (option term): 10 years
Risk free interest rate: 6.5%
Stock price at grant: $23.0625
Exercise price: $23.0625
Average dividend yield: 6.5%
Vesting restrictions discount: 3% per year
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
VALUE OF
IN-THE-MONEY
OPTIONS/SARS
NUMBER OF UNEXERCISED AT FISCAL
OPTIONS/SARS AT FISCAL YEAR-END
YEAR-END (#) ($)
SHARES ACQUIRED VALUE -------------------------- -----------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------------------------- --------------- ------------- ----------- ------------- -----------
A. Drue Jennings.............................. 0 0 40,625 20,625 163,997
Bernard J. Beaudoin........................... 0 0 20,313 10,312 81,999
Marcus Jackson................................ 0 0 16,500 9,000 67,005
Ronald G. Wasson.............................. 0 0 20,313 10,312 81,999
J. Turner White............................... 0 0 9,750 9,000 41,940
NAME UNEXERCISABLE
- ---------------------------------------------- -------------
A. Drue Jennings.............................. 82,500
Bernard J. Beaudoin........................... 41,250
Marcus Jackson................................ 36,000
Ronald G. Wasson.............................. 41,250
J. Turner White............................... 36,000
BENEFIT PLANS
PENSION PLANS
KCPL has a non-contributory pension plan (the "KCPL Pension Plan") for its
management employees, including executive officers, providing for benefits upon
retirement, normally at age 65. In addition, an unfunded deferred compensation
plan provides a supplemental retirement benefit for executive officers. The
following table shows examples of single life option pension benefits (including
unfunded supplemental retirement benefits) payable upon retirement at age 65 to
the named executive officers:
ANNUAL PENSION FOR YEARS OF SERVICE
AVERAGE ANNUAL BASE INDICATED
SALARY FOR HIGHEST --------------------------------------------
36 MONTHS 15 20 25 30 OR MORE
- ------------------- --------- --------- --------- -----------
150,000 45,000 60,000 75,000 90,000
200,000 60,000 80,000 100,000 120,000
250,000 75,000 100,000 125,000 150,000
300,000 90,000 120,000 150,000 180,000
350,000 105,000 140,000 175,000 210,000
400,000 120,000 160,000 200,000 240,000
450,000 135,000 180,000 225,000 270,000
500,000 150,000 200,000 250,000 300,000
Each eligible employee with 30 or more years of credited service in the KCPL
Pension Plan is entitled to a total monthly annuity at his normal retirement
date equal to 50% of his average base monthly salary for the period of 36
consecutive months in which his earnings were highest. The monthly annuity will
be proportionately reduced if his years of credited service are less than 30.
The compensation covered by the KCPL Pension Plan -- base monthly salary --
excludes any bonuses and other compensation. The KCPL Pension Plan provides that
pension amounts are not reduced by Social Security benefits. The estimated
credited years of service for each of the named executive officers in the
Summary Compensation Table are as follows: Jennings, 21; Beaudoin, 15; Jackson,
18; Wasson, 28; White, 13.
114
Eligibility for supplemental retirement benefits is limited to officers
selected by the Nominating & Compensation Committee of the KCPL Board; all the
named executive officers are participants. The annual target retirement benefit
payable at the normal retirement date is equal to 2% of highest average
earnings, as defined, for each year of credited service up to 30 (maximum of 60%
of highest average earnings). The actual retirement benefit paid equals the
target retirement benefit less retirement benefits payable under the management
pension plan. A liability accrues each year to cover the estimated cost of
future supplemental benefits.
Section 415 of the Code imposes certain limitations on pensions which may be
paid under tax qualified pension plans. In addition to the supplemental
retirement benefits, the amount by which pension benefits under the Pension Plan
computed without regard to Section 415 of the Code exceed such limitations will
be paid outside the qualified plan and accounted for by KCPL as an operating
expense.
SEVERANCE AGREEMENTS
KCPL has entered into Severance Agreements with certain of its senior
executive officers, including the named executives, to ensure their continued
service and dedication to KCPL and their objectivity in considering on behalf of
KCPL any transaction which would change the control of KCPL. Under the KCPL
Severance Agreements, during the three-year period after a Change in Control
(or, if later, the three-year period following the consummation of the
transaction which, if approved by KCPL's shareholders, constitutes a Change in
Control), the named executive officers would be entitled to receive a lump-sum
cash payment and certain insurance benefits if such officer's employment were
terminated (i) by KCPL other than for cause or upon death or disability, (ii) by
such executive officer for "Good Reason" (as defined therein), or (iii) by such
senior executive officer for any reason during a 30-day period commencing one
year after such Change in Control (a "Qualifying Termination"). A Change in
Control is defined as (i) an acquisition by a person or group of 20% or more of
the KCPL Common Stock (other than an acquisition from or by KCPL or by a KCPL
benefit plan), (ii) a change in a majority of the KCPL Board, or (iii) approval
by the shareholders of a reorganization, merger, consolidation (unless
shareholders receive 60% or more of the stock of the surviving company),
liquidation, dissolution or sale of substantially all of KCPL's assets.
Upon a Qualifying Termination, KCPL must make a lump-sum cash payment to the
senior executive officers of (i) such senior executive officer's base salary
through the date of termination, (ii) a pro-rated bonus based upon the average
of the bonuses paid to such senior executive officer for the last five fiscal
years, (iii) any accrued vacation pay, (iv) three times such senior executive
officer's highest base salary during the prior 12 months, (v) three times the
average of the bonuses paid to such senior executive officer for the last five
fiscal years, (vi) the actuarial equivalent of the excess of the senior
executive officer's accrued pension benefits, computed as if the senior
executive officer had three additional years of benefit accrual service, over
the senior executive officer's vested accrued pension benefits, and (vii) the
value of any unvested KCPL contributions for the benefit of the senior executive
officer under the KCPL Employee Savings Plus Plan. In addition, KCPL must offer
health, disability and life insurance plan coverage to the senior executive
officer and his dependents on the same terms and conditions that existed
immediately prior to the Qualifying Termination for three years, or, if earlier,
until such senior executive officer is covered by equivalent plan benefits. KCPL
is also obligated to make certain "gross-up" payments in connection with tax
obligations arising pursuant to payments under the KCPL Severance Agreements as
well as to provide reimbursement of certain expenses relating to disputes
arising thereunder.
Payments and other benefits under the KCPL Severance Agreements are in
addition to benefits accruing under the KCPL Long-Term Incentive Plan. Upon a
Change in Control (as defined in the KCPL Long-Term Incentive Plan), all stock
options granted in tandem with limited stock appreciation rights will be
automatically exercised.
115
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Nominating & Compensation Committee of KCPL (the "KCPL Compensation
Committee") is composed of independent outside directors. All decisions by the
Compensation Committee relating to executive compensation are reviewed by the
full KCPL Board, except decisions about awards under the KCPL Long-Term
Incentive Plan which must be made solely by the Compensation Committee in order
for the grants or awards to satisfy Exchange Act Rule 16b-3. Given KCPL's
current level of executive compensation, the KCPL Compensation Committee has not
yet adopted a policy with respect to Section 162(m) of the Code pertaining to
the deduction of compensation in excess of $1,000,000.
Executive compensation for KCPL's executive officers consists of base
salary, incentive pay, and long-term compensation. The package is designed to
attract and retain talented, key executives critical to the long-term success
of KCPL and to support a performance-oriented environment. Base salaries for
individual executives are established on the basis of (i) job responsibilities
and complexity, (ii) individual performance under established criteria and
(iii) competitiveness with similar jobs in comparable companies. The base
salaries are targeted at the median level for comparable positions in companies
of similar size in the industry. The base salaries and complete compensation
packages for the executives are compared annually with national compensation
survey data collected by the Edison Electric Institute ("EEI").
Annual executive incentive pay consists of both formula and discretionary
awards. The formula awards are linked to the achievement of specific performance
objectives set by the KCPL Board each year. In 1995 the performance objective
designated by the KCPL Board was a minimum and maximum EPS subject to the
modification described below. Awards were determined on a scale beginning with
0% for the minimum EPS increasing to 20% of annual executive salaries at the
maximum EPS. Actual EPS for 1995 resulted in incentive awards equal to 14.7% of
base salary, which was further modified by an additional 0.7% to reflect a
decline in the real price of electricity within KCPL's service territory. The
resulting 1995 formula awards equalled 15.4% of base salaries.
Discretionary awards under the incentive pay program are possible for
outstanding individual contributions as determined by the KCPL Compensation
Committee. The sum of such discretionary awards, other than to the Chief
Executive Officer, cannot exceed 10% of the total participating salaries. No
discretionary awards are paid unless the performance objective set by the KCPL
Board for the formula award is reached. Discretionary awards were paid for 1995
to four of the named executive officers based on their significant and direct
contributions to the profits of KCPL, and/or extraordinary division leadership.
To further link total compensation to corporate performance, the executive
officers received in 1995 non-qualified stock options granted at fair market
value under the KCPL Long-Term Incentive Plan. The amounts of the grants were
influenced by the following: (i) executive's influence and contribution to
KCPL's financial condition, (ii) amount of the total compensation package for
each executive which the Compensation Committee believed should be tied to the
performance of KCPL's stock price, and (iii) amount of options previously
granted to participants. The KCPL Compensation Committee did not apply any
specific formula to determine the weight of each factor.
CHIEF EXECUTIVE OFFICER COMPENSATION
In setting the base salary for the Chief Executive Officer ("CEO"), the
Compensation Committee considers primarily KCPL's financial performance and the
low cost and quality service provided by KCPL as compared with other utilities.
As shown in the Performance Graph, KCPL's financial performance substantially
exceeded that of the EEI Index for 1995. The Committee also took into account
relevant salary information from the EEI survey data. The formula portion of Mr.
Jennings' annual incentive pay was determined in the same manner discussed above
for the other executive
116
officers. His discretionary award of $70,000 under the incentive pay program was
granted in recognition of his extraordinary leadership during a critical period
in the utility industry. Mr. Jennings also received stock option grants under
the KCPL Long-Term Incentive Plan based on the same criteria as the other
executive officers.
COMPENSATION COMMITTEE
Robert H. West
George E. Nettels, Jr.
Robert J. Dineen
117
KANSAS CITY POWER & LIGHT COMPANY BOARD REJECTS
WESTERN RESOURCES' "HOSTILE" EXCHANGE OFFER
KANSAS CITY, MO., July 9, 1996 -- The members of the board of directors of
Kansas City Power & Light Company (NYSE:KLT), by a unanimous vote of those
directors present, recommended that KCPL shareholders reject Western Resources,
Inc.'s hostile exchange offer. At the same time, the KCPL Board reaffirmed its
decision to merge with UtiliCorp United Inc. (NYSE: UCU) to form Maxim Energies,
Inc.
In rejecting Western's unsolicited hostile offer, the KCPL Board reviewed
KCPL's long-term strategic plan and the benefits of a merger with UtiliCorp, and
determined that Western's offer is NOT in the best interests of KCPL, its
shareholders, customers, employees and other constituencies.
"There are many reasons why we think that Western is an unattractive
partner. Of paramount concern is our belief that Western's hostile offer is
based on a number of faulty assumptions that raise serious questions as to
Western's financial prospects and its ability to sustain dividends at its
promised dividend rate," said Drue Jennings, chairman, president and chief
executive officer of KCPL. Mr. Jennings cited the following:
- - Western faces significant rate reductions which KCPL believes will imperil
its ability to sustain promised dividends. The staff of the Kansas
Corporation Commission has recommended that Western reduce its rates by $105
million annually, which is twelve times greater (in the first year of
reductions) than the $8.7 million per year over seven years that Western has
proposed. If the $105 million annual rate reduction is implemented, then
virtually all of Western's projected earnings for a combined KCPL/Western
entity in 1998 (as reported in Western's own prospectus dated July 3, 1996,
and as adjusted by KCPL to reflect the full impact of the Kansas Corporation
Commission staff's recommended $105 million annual rate reduction) would be
required to pay dividends at the rate promised to KCPL shareholders.
- - KCPL believes that reductions in merger-related savings realized and/or
retained will further hamper Western's
ability to make its promised dividend payments. Based on a review of
Western's claimed merger-related savings, KCPL believes that Western has
significantly overestimated the amount of savings that would result from a
combination of KCPL and Western. In addition, both the Kansas Corporation
Commission (in its order regarding the merger of Kansas Gas and Electric
Company (KGE) and Western's predecessor, Kansas Power and Light Company
(KPL)) and the Missouri Public Service Commission (in the pending Union
Electric/CIPSCO merger) have advocated an equal (50-50) sharing of savings
between shareholders and customers. In contrast, Western's proposal to
acquire KCPL contemplates that Western be allowed to keep 70% of merger-
related savings.
- - KCPL believes that Western will be under pressure to reduce rates for its KGE
customers, and any reduction to Western's revenue base would further threaten
Western's ability to make its promised dividend payments. Testimony before
the Kansas Corporation Commission indicates that if the rates charged to
Western's KGE customers were reduced to equal the rates charged to Western's
KPL customers, Western would suffer a $171 million annual revenue reduction.
Even if the Kansas Corporation Commission follows its own staff's
recommendation and the entire $105 million annual rate reduction is applied
to KGE customers, Western would still face a rate disparity of approximately
$65 million per year. In an increasingly deregulated utility environment,
KCPL believes that Western must address the rate disparity issue because
Western's customers may otherwise choose to purchase cheaper power from
Western's competitors.
- - A KCPL/Western combination would concentrate risk in a single asset and a
single geographic market. A combined KCPL/Western entity would own 94% of
the Wolf Creek nuclear plant, concentrating a significant amount of capital
and risk in a single asset. In contrast, a combined KCPL/UtiliCorp company
will own only 47% of Wolf Creek. In addition, a combined KCPL/Western entity
would conduct a substantial portion of its business in two states, Missouri
and Kansas. KCPL believes that a combined KCPL/UtiliCorp entity would be
much better prepared for the deregulated utility environment because it would
have operations in eight states and five foreign countries, thereby achieving
geographic, regulatory and climatic diversity.
2
- - The KCPL Board questions Western's commitment to KCPL employees. Western has
stated that no layoffs would result from its proposal, but Western's filings
with the Kansas Corporation Commission state that 531 employee positions will
be eliminated and assume that all resulting savings will be available by
January 1, 1998. The KCPL Board does not believe that Western can reduce 531
positions in such a short time without laying off KCPL employees.
- - Western's hostile offer is conditioned on its transaction being accounted for
as a "pooling of interests", and KCPL does not believe that such accounting
treatment will be available.
The KCPL Board also reaffirmed its support for a merger with UtiliCorp to
form Maxim Energies, Inc. The KCPL Board believes that Maxim will be a
customer-focused, low-cost energy supplier with diversified assets and the
financial resources to grow and thrive in the electric utility industry which is
on the verge of deregulation. The KCPL Board believes that Maxim will allow
KCPL shareholders improved opportunities for long-term earnings and dividend
growth which are superior to that offered by Western's hostile offer.
A shareholder vote to consider the UtiliCorp transaction has been scheduled
for Wednesday, August 7, 1996.
Kansas City Power & Light Company provides electric power to a growing and
diversified service territory encompassing metropolitan Kansas City and parts of
eastern Kansas and western Missouri. KCPL is a low-cost producer and leader in
fuel procurement and plant technology. KLT Inc., a wholly owned subsidiary of
KCPL, pursues opportunities in non-regulated, primarily energy-related ventures.
* * *
MEDIA CONTACTS
Pam Levetzow--816-556-2926
Phyllis Desbien--816-556-2903
INVESTOR CONTACTS
3
David Myers--816-556-2312
Joele Frank/Daniel Katcher
Abernathy MacGregor Scanlon
212-371-5999
4
[KCPL Letterhead]
July 9, 1996
Dear KCPL Shareholder:
Western Resources has formally commenced a "hostile" exchange offer
in which holders of KCPL common stock are being asked to exchange each of their
KCPL shares for shares of Western Resources common stock. The terms of the
hostile offer are substantially the same as those contained in Western's
previous proposal that your Board of Directors has rejected. We know that you
have received many communications over the last few months, and we sincerely
regret that Western's commencement of its hostile offer will continue this
process. However, now that Western has formally commenced its hostile offer,
your Board of Directors, in accordance with applicable federal securities laws,
has again considered Western's unsolicited offer and is making a formal
recommendation to you.
Your Board of Directors has reviewed Western's hostile exchange offer
and continues to believe that a transaction with Western is NOT in the best
interests of KCPL and its shareholders. Your Board of Directors continues to
believe that KCPL's pending merger with UtiliCorp United Inc. is in the best
interests of KCPL and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU REJECT WESTERN RESOURCES' HOSTILE EXCHANGE OFFER AND NOT
TENDER ANY OF YOUR SHARES TO WESTERN RESOURCES.
In reaching its determination to reaffirm the pending UtiliCorp merger
and recommend rejection of Western Resources' revised offer, your Board
considered a number of factors, a detailed description of which is contained in
the enclosed Schedule 14D-9. We urge you to read it carefully and in its
entirety so that you will be fully informed as to your Board of Directors'
recommendation.
Your Board of Directors and management are convinced that the pending
UtiliCorp merger is a winning combination for the long-term benefit of our
shareholders. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
KCPL/UTILICORP TRANSACTION ON THE WHITE PROXY CARD PREVIOUSLY SENT TO YOU AND
THAT YOU DO NOT RETURN WESTERN'S GOLD PROXY CARD WHICH MAY HAVE BEEN
PREVIOUSLY SENT TO YOU BY WESTERN. It is unfortunate that Western Resources is
ignoring your Board of Directors' carefully considered decision and choosing
instead to recklessly pursue its hostile takeover proposal. We will not be
deterred or distracted from completing our pending merger with UtiliCorp on your
behalf.
On behalf of KCPL, I thank you for your continued trust and support.
Sincerely,
Drue Jennings
Chairman of the Board, President
and Chief Executive Officer
2
CERTAIN FORWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus contains certain forward-looking
information including information provided under the captions "-- Synergies from
the Mergers," "-- Additional Operational Benefits," and "-- Enhancement of
Financial Performance." The Private Securities Litigation Reform Act of 1995
provides a new "safe harbor" for forward-looking information to encourage
companies to provide prospective information about their companies without fear
of litigation so long as such information is identified as forward-looking and
is accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those projected in the
information. KCPL and UCU identify the following important factors which could
cause KCPL's, UCU's and Maxim's actual results to differ materially from any
such results which might be projected, forecast, estimated or budgeted by KCPL,
UCU or Maxim in forward-looking information. All of such factors are difficult
to predict and many of which are beyond the control of KCPL and UCU.
Accordingly, while KCPL and UCU believe that the assumptions underlying the
forward-looking information are reasonable for purposes of the development of
estimates of revenue enhancements and cost savings, there can be no assurances
that such assumptions will approximate actual experience or that all such
revenue enhancements and cost savings will be realized, and in such event,
actual results could differ materially from the predictions herein. These
important factors include: (a) future economic conditions in the regional,
national and international markets in which KCPL and UCU compete; (b) state,
federal and foreign regulation, including limitations on the amount of synergies
Maxim will be able to keep and possible additional reductions in regulated gas
and electric rates; (c) weather conditions; (d) financial market conditions,
including, but not limited to, changes in interest rates; (e) inflation rates;
(f) changing competition, including, but not limited to, the deregulation of the
United States electric utility industry, and the entry of new competitors; (g)
the ability to carry out marketing and sales plans; (h) the ability to eliminate
duplicative administrative functions; (i) the ability to achieve generation
planning goals and the occurrence of unplanned generation outages; (j) the
ability to defer or eliminate certain capital investments which KCPL and UCU
would have to make as separate companies; (k) the ability to enter new markets
successfully and capitalize on growth opportunities in non-regulated businesses;
and (l) adverse changes in applicable laws, regulations or rules governing
environmental, tax or accounting matters.
SYNERGIES FROM THE MERGERS
KCPL and UCU have jointly identified a number of synergies related to the
Mergers which their managements believe can be achieved. KCPL and UCU anticipate
that a portion of these savings from regulated operations will be allocated to
their ratepayers by state regulatory authorities in the various states in which
Maxim will conduct business. The companies retained Ernst & Young in 1995 to
assist in identifying, for their regulatory filings, the synergies relating to
combining the regulated utility operations pursuant to the Original Merger. The
Ernst & Young report, dated March 29, 1996, which identified potential synergies
of $636 million, was filed with the FERC on March 29, 1996 and complies with the
filing requirements of the FERC. The Ernst & Young synergies amount is
consistent with the Joint Proxy Statement/Prospectus, dated April 4, 1996,
relating to the Original Merger. In addition, the companies have identified
other operational efficiencies in both regulated and
51
non-regulated segments which are discussed below under the captions "--
Additional Operational Benefits" and "-- Enhancement of Financial Performance."
This section and the sections captioned "-- Additional Operational Benefits" and
"-- Enhancement of Financial Performance" include certain forward-looking
information and should be read in conjunction with the "Certain Forward-Looking
Information" section above.
SUMMARY OF KCPL/UCU SYNERGIES BY AREA
SAVINGS IN MILLIONS OF DOLLARS FOR EACH YEAR FOLLOWING THE
MERGERS
FTES
MEGA PROCESS PROCESS/FUNCTION REDUCTIONS 1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH 9TH 10TH TOTAL
ALL YEARS (1)(3)
(2)
Generate Energy Fuel Procurement 1 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 3.8
System Generation -- 4.0 5.2 6.8 12.7 28.1 42.5 43.8 39.9 43.3 42.2 268.5
Generation Processes 41 2.2 3.7 4.0 4.3 4.5 4.6 4.7 4.8 5.0 5.1 42.9
Distribute and
Transport Energy Transmission 11 0.3 0.4 1.9 2.0 2.2 2.0 1.8 1.3 1.7 1.8 15.4
Distribution 22 0.4 0.3 1.3 1.6 1.8 2.0 2.1 2.3 2.4 2.5 16.7
Serve Customers Customer Service 8 (0.5) (0.2) 0.2 0.5 0.7 0.7 0.7 0.7 0.8 0.8 4.4
Purchasing/
Materials and Purchasing & Materials
Facilities Management 35 0.9 3.5 4.1 4.5 5.0 5.5 6.0 6.5 7.1 7.7 50.8
Fleet & Facilities -- 1.8 2.6 3.1 2.5 3.1 3.1 3.2 3.3 3.5 3.6 29.8
Information
Technology Enterprise Support 4 4.8 5.9 5.5 5.3 5.0 4.1 4.4 4.1 3.8 3.5 46.4
CIS 10 2.0 2.7 3.3 1.6 1.5 1.3 1.2 1.0 0.9 0.7 16.2
Data Center
Consolidation 19 0.0 1.4 3.3 3.6 3.8 3.9 4.0 4.2 4.3 4.5 33.0
Other IT Issues 12 0.5 0.9 0.7 1.2 1.4 1.5 1.7 1.8 1.8 1.8 13.3
Executive and
Administrative Support Function
Support Financial Labor 50 0.1 1.1 2.7 3.8 4.1 4.3 4.5 4.8 4.9 5.2 35.4
Support Function
Nonfinancial Labor 25 0.1 0.6 1.0 1.5 1.8 2.0 2.2 2.3 2.5 2.6 16.4
Support-Related
Financial Expenditures -- 1.7 2.0 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3.0 24.9
Support-Related
Nonfinancial
Expenditures -- 0.7 1.0 1.7 1.7 1.8 2.1 2.2 2.3 2.4 2.4 18.3
Total Synergies(1)(3) 238 19.2 31.3 42.3 49.6 67.7 82.6 85.6 82.4 87.7 87.9 636.3
(1) Numbers may not add due to rounding
(2) FTEs mean Full-Time Equivalent employees
(3) Excludes transaction costs
MATERIAL ASSUMPTIONS UNDERLYING COST SAVINGS FROM SYNERGIES
The material assumptions for the cost savings which are anticipated to be
realized from the Mergers are as follows:
- All synergies discussed below are estimated for a 10-year period.
- In calculating synergies by year, an inflation rate of 3.5% was assumed
for the 10-year period.
- All synergies outlined below represent approximate amounts.
- No synergies were evaluated which relate to non-regulated businesses.
- Labor cost estimates are based on an analysis of nine labor categories:
executive, management, professional, clerk, plant operator, supervisors,
craft labor, customer service supervisors and associates.
52
- Position reductions (which, together with avoided hires, are shown on the
above chart as reductions in Full-Time Equivalent employees ("FTEs")) are
expected to occur over a 10-year period. The managements of KCPL and UCU
believe, based on historical attrition patterns at KCPL and UCU, that such
reductions should be attained entirely through attrition and avoided
hires.
- All existing cost savings initiatives are excluded from the synergies
report.
- In the discussion below, fixed charges represent the annual carrying costs
of avoided capital projects. Carrying costs include depreciation, taxes
other than income taxes, and interest.
- Avoided capital costs are incurred on June 30, while FTE reductions are
implemented on January 1.
The discussion below provides a brief description of the synergy savings by
category as detailed in the table above which is derived from the Ernst & Young
report and is limited to the material synergy areas with smaller synergies
aggregated in a category total. The major captions below correspond to the above
chart.
GENERATE ENERGY
FUEL PROCUREMENT -- Expected savings of $3.8 million result from reductions
in fuel procurement, labor and reduced inventory balances.
SYSTEM GENERATION -- Combined dispatch of system generation results in fuel
and variable operation and maintenance costs ("O&M") savings which are
anticipated to be $107.4 million. Construction of less expensive generation
capacity enabled by the Mergers could result in reductions of plant capital and
O&M charges. These reductions are expected to include $88.6 million of fixed
charges and $72.5 million of O&M savings.
GENERATION PROCESS -- Consolidation of the system operations should result
in estimated labor savings of $30.5 million. Operation of one energy management
system should reduce costs by an estimated $3.8 million. Avoiding maintenance
contract costs by using KCPL crews at UCU's Sibley plant is anticipated to save
$6.0 million. Other synergies were estimated that total $2.6 million.
DISTRIBUTE AND TRANSPORT ENERGY
TRANSMISSION -- Delay or avoidance of the construction of redundant
transmission lines and substations and the avoided purchase of parts and
equipment resulting from the Mergers is anticipated to save $8.7 million in
fixed charges. Consolidation of transmission staffing is anticipated to save
$6.7 million.
DISTRIBUTION -- Delay or elimination of redundant distribution system
capital projects should reduce fixed charges by $3.1 million. Merging of
distribution, engineering, planning, and design functions should save an
estimated $3.4 million in staffing costs. Combining dispatching efforts should
reduce labor costs by $5.9 million and fixed charges by an estimated $3.2
million, the latter related to the avoidance of certain systems. Other potential
synergies were identified that total $1.1 million.
SERVE CUSTOMERS
CUSTOMER SERVICE -- Anticipated savings of $3.1 million should result from
consolidating customer call centers. Other potential synergies were identified
that total $1.3 million.
PURCHASING/MATERIALS MANAGEMENT
PURCHASING AND MATERIALS MANAGEMENT -- Based on a sample of vendors'
materials and services, discounts are expected to be obtained through supplier
consolidation and leveraging the larger scale of purchases. These savings are
estimated at $34.5 million. Labor savings of $14.6 million are anticipated from
consolidating procurement and warehouse functions. Other synergies were
estimated that total $1.7 million.
53
FLEET AND FACILITIES -- Consolidation of headquarters' buildings, call
centers and other facilities should result in estimated savings of $21.9
million. Estimated fleet maintenance savings of $5.5 million should be achieved
by consolidating functions into existing internal functions. Other synergies
were estimated that total $2.4 million.
INFORMATION TECHNOLOGY ("IT")
ENTERPRISE SUPPORT -- Avoidance of the purchase of duplicate systems for
financial support and certain transmission and distribution functions should
result in anticipated savings for fixed charges of $36.0 million and $10.4
million of labor based O&M costs.
CUSTOMER INFORMATION SYSTEM ("CIS") -- Both companies had plans to replace
their CIS systems. Developing one system for both companies should save an
estimated $15.2 million of fixed charges. Other synergies were estimated that
total $1.0 million.
DATA CENTER CONSOLIDATION -- The consolidation of computer data centers and
the elimination of duplicate functions should save an estimated $33.0 million in
labor and other costs.
OTHER IT ISSUES -- Consolidating the telecommunication and technology
activities of the two companies should save an anticipated $13.3 million of
labor and other costs.
EXECUTIVE AND ADMINISTRATIVE SUPPORT
SUPPORT FUNCTION FINANCIAL LABOR -- Labor reductions anticipated from the
elimination of duplication in accounting, planning and budgeting, cash
management, investor relations and internal audit should result in savings of
$35.4 million.
SUPPORT FUNCTION NONFINANCIAL LABOR -- Labor reductions anticipated from the
elimination of duplication in human resources, rates and regulations,
environmental, governmental relations, communications, and legal should result
in savings of $16.4 million.
SUPPORT-RELATED FINANCIAL EXPENDITURES -- Estimated synergies of $11.1
million should be achieved by combining activities such as lockbox processing
and disbursements, lines of credit, transfer agents and meetings with analysts
and large stockholders. Risk management expense is estimated to decrease by $7.3
million because of the elimination of duplicate coverage and reduced premiums
for the combined companies. Other synergies related to accounting and tax
advisory services are anticipated to save $6.5 million.
SUPPORT-RELATED NONFINANCIAL EXPENDITURES -- Anticipated savings resulting
from the elimination of duplicate legal and communication efforts should be
$11.6 million and $3.4 million, respectively. Other synergies were estimated
that total $3.3 million.
SUMMARY OF SYNERGY SAVINGS
AFTER THE MERGERS
-------------------------------------------
1ST YR. 2ND YR. 3RD YR. 4TH YR.
--------- ---------- --------- ---------
(In millions, except per share amounts)
-------------------------------------------
Synergies savings............................................................. $19.2 $31.3 $42.3 $49.6
Income taxes.................................................................. (7.5) (12.2) (16.5) (19.3)
--------- ---------- --------- ---------
Net synergies................................................................. $11.7 $19.1 $25.8 $30.3
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Synergies per share........................................................... $.10 $.16 $.22 $.25
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Average common shares outstanding............................................. 116.0 118.0 120.0 122.0
--------- ---------- --------- ---------
--------- ---------- --------- ---------
- ------------------------------
(1) The combined effective tax rate used is 39%.
(2) Weighted average shares reflect an anticipated issuance of 5.3 million
shares of UCU Common Stock in 1996 and periodic issuances of Maxim Common
Stock under various stock plans.
54
ADDITIONAL OPERATIONAL BENEFITS
Subsequent to the announcement of the Original Merger, UCU and KCPL
identified additional savings related to the Mergers utilizing the methodologies
used by Ernst & Young's report. The additional savings are shown in the table
below.
SUMMARY OF ADDITIONAL OPERATIONAL BENEFITS
AFTER THE MERGERS
-------------------------------------------
1ST YR. 2ND YR. 3RD YR. 4TH YR.
--------- ---------- --------- ---------
(In millions, except per share amounts)
-------------------------------------------
Benefits before taxes......................................................... $15.7 $15.4 $13.6 $11.8
Income taxes.................................................................. (6.1) (6.0) (5.3) (4.6)
--------- ---------- --------- ---------
Total......................................................................... $9.6 $9.4 $8.3 $7.2
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Benefits per share............................................................ $.08 $.08 $.07 $.06
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Average common shares outstanding............................................. 116.0 118.0 120.0 122.0
--------- ---------- --------- ---------
--------- ---------- --------- ---------
- ------------------------------
(1) The combined effective tax rate used is 39%.
(2) Weighted average shares reflect an anticipated issuance of 5.3 million
shares of UCU Common Stock in 1996 and periodic issuances of Maxim Common
Stock under various stock plans.
The combination of the Missouri and Kansas operations of KCPL and UCU is
expected to produce benefits of approximately $8.5 million, declining to $4.6
million by the fourth year, in dispatch related pre-tax savings due to the
substitution of low variable cost KCPL generated power for UCU supplies
currently generated by UCU or purchased by UCU. In addition, benefits of
approximately $1.3 million per year in production pre-tax savings at UCU's
Sibley power station were identified from the introduction of KCPL low cost coal
purchases as part of the fuel mix.
A review of procurement savings related to the Mergers yields an expected
pre-tax savings increment of $2.1 million per year in non-generating small item
stock purchases and related carrying costs and in contractual services. This
review also found approximately $1.3 million per year in pre-tax savings from
combined purchases of technical information and an additional $2.5 million per
year in pre-tax savings from the internalization of certain legal and regulatory
services.
ENHANCEMENT OF FINANCIAL PERFORMANCE
The Palmer Bellevue practice of Coopers & Lybrand Consulting assisted the
managements of KCPL and UCU in their development of additional information
relating to Maxim's ability to enhance its financial performance subsequent to
the Mergers by facilitating discussions between KCPL and UCU and by reviewing
the methodologies utilized in the development of the additional information.
KCPL and UCU believe that their combination offers a substantial alignment
of complementary capabilities for growth in a competitive energy and service
market. There are valuable benefits identified below that arise from the
combination of KCPL and UCU that stem from the rapidly developing international
energy markets, the expansion of gas and electric marketing in an open access
environment and the offering of new products and services to a combined customer
base.
UCU believes that it brings entrepreneurial experience as illustrated by
carrying out a ten-fold expansion of revenues over the past ten years through
foreign and domestic utility acquisitions, independent power investment and
energy marketing ventures. KCPL believes that it is recognized for its financial
strength and management practices which have resulted in low cost generation and
superior performance. The combination of these capabilities should position
Maxim for sustained expansion in a competitive energy market. The table below
shows the expected benefits of the enhancements broken into three categories
with a discussion of each category following the table.
55
SUMMARY OF FINANCIAL PERFORMANCE ENHANCEMENT
AFTER THE MERGERS
------------------------------------------
1ST YR. 2ND YR. 3RD YR. 4TH YR.
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
International........................................................... $22.0 $16.4 $30.2 $29.5
Energy marketing........................................................ 7.2 10.9 7.7 9.7
New products............................................................ 9.3 20.8 31.5 48.8
--------- --------- --------- ---------
Benefits before taxes................................................... 38.5 48.1 69.4 88.0
Income taxes............................................................ (15.0) (18.8) (27.1) (34.3)
--------- --------- --------- ---------
Total................................................................. $23.5 $29.3 $42.3 $53.7
--------- --------- --------- ---------
Benefits per share...................................................... $0.20 $0.25 $0.35 $0.44
--------- --------- --------- ---------
Average common shares outstanding....................................... 116.0 118.0 120.0 122.0
--------- --------- --------- ---------
--------- --------- --------- ---------
- ------------------------------
(1) The combined effective tax rate used is 39%.
(2) Weighted average shares reflects an anticipated issuance of 5.3 million
shares of UCU Common Stock in 1996 and periodic issuances of Maxim Common
Stock under various stock plans.
INTERNATIONAL
Rapidly developing overseas opportunities in utility acquisitions and
privatizations as well as in power plant development will be a strategic focal
point for Maxim. Maxim will be well positioned to compete for these projects
because of the financial foundation and operating capabilities resulting from
the Mergers. It is anticipated that Maxim will be able to combine UCU's
investment and operating experience in existing English-speaking utility markets
with KCPL's involvement in the small power production market in China and KCPL's
in-depth technical and operational expertise and financial strength.
UCU has begun to refocus its gas marketing business in the United Kingdom to
reduce gas supply costs in anticipation of a fully open retail market in 1997.
The financial strength of KCPL should allow the United Kingdom gas marketing and
trading operation to take expanded positions and grow in the de-regulating
United Kingdom gas market.
UCU currently has investments in electric distribution businesses in
Australia and New Zealand. KCPL and UCU intend to apply their operational and
technical skills and ability to access markets to these businesses. This is
expected to result in greater efficiencies and market share.
Anticipated improvements in operational efficiencies from these investments
are expected to produce incremental pre-tax income which ranges between
approximately $16.4 million and $30.2 million over the four-year period after
the Mergers.
ENERGY MARKETING
The combination of KCPL's low variable cost regional wholesale position and
financial strength coupled with UCU's pioneer status in gas and electric
marketing is expected to provide growth opportunities in the power market. This
plan is consistent with the new conditions represented by the April 24, 1996
issuance by the FERC of the electric open access Orders 888 and 889 and with the
potential for gas marketing within the KCPL electric service territory.
AGP, a subsidiary of Aquila and an indirect subsidiary of UCU, recently
reported to stockholders that in 1995 it set company records for natural gas
throughput, volumes of extracted natural gas liquids, total operating wells
connected and operated miles of pipeline. AGP built two new strategic pipelines
in 1995 to facilitate the company's processing plants on the Southeast Texas
Pipeline System. This investment effectively doubles the capacity of AGP's
system.
The increased focus on gas and electric trading opportunities is expected to
produce pre-tax income which ranges between approximately $3.3 million and $6.6
million over the four-year period.
56
In addition, an investment in increased throughput capacity for AGP's Texas
intra-state pipeline system is anticipated to produce pre-tax earnings which
range between $3.9 million and $4.7 million over the four-year period.
NEW PRODUCTS
Both KCPL and UCU are focusing on expanding the relationship with the
customer by offering value added services beyond the traditional delivery of
electric and gas service. UCU's EnergyOne, the first nationally branded line of
products and services for the electric and gas utility industry, seeks to
provide a portfolio of value-added services and customer energy solutions. The
EnergyOne concept and UCU's partnership with Novell, Inc., a national provider
of network software, can be complemented by KCPL's experience in the widespread
deployment of the CellNet wireless communication and customer premise
communication technologies.
UCU, in cooperation with KCPL, is currently developing an EnergyOne
partnership program that leverages the complementary strengths of each company
and the national brand recognition of EnergyOne. The financial strength and
urban presence of KCPL coupled with the marketing acumen and rural market
coverage by UCU provides an excellent foundation for achieving Maxim's goal of
becoming an energy leader worldwide. The partnership will expand to include
other energy companies as well as supply partners.
The combination of these companies is expected to create enhanced
opportunities and capabilities to provide customers with energy information and
communications services, to better manage operational expenses, and to generate
additional revenues from new products and services. These new products and
services include electronic home security, appliance warranty service and
leasing of utility fiber optic capacity for telecommunications.
Pre-tax income from new products and services is expected to total
approximately $7.0 million to $19.2 million over the four-year period while the
EnergyOne partnership program is expected to contribute approximately $2.3
million in pre-tax earnings in the first year, growing to $29.6 million by year
four.
CORPORATE GROWTH
HISTORICAL -- Both UCU and KCPL have independently pursued strategies
committed to continuing growth in earnings and stockholder value in both
regulated and non-regulated business segments.
UCU began its aggressive growth in 1983 with the formation of UtiliCorp
United Inc. from its predecessor company Missouri Public Service Corporation.
Since 1983 UCU has:
- Acquired and merged with ten domestic electric and gas utilities,
investing a total of $858 million;
- Purchased interests in four international electric utilities, investing a
total of $426 million;
- Established UtilCo Group and invested $206 million in 17 independent power
projects;
- Established Aquila and invested $303 million in natural gas gathering and
transportation assets.
Over the period from 1985 to 1995, UCU has increased its Assets and Earnings
Before Interest, Taxes, Depreciation and Amortization by 431% and 425%
respectively while also delivering to its stockholders a total return (stock
appreciation plus dividends) in excess of both the average for the S&P 500 and
the utility industry peer group average.*
UCU has also been an industry innovator in marketing and commodity trading.
In 1995, UCU introduced the first national brand in the electric and gas utility
industry. UCU's brand, EnergyOne,
- ------------------------
* Source for the S&P 500 and utility industry peer group averages: WALL
STREET JOURNAL Shareholder Scoreboard, February 29, 1996.
57
has been nationally recognized and has quickly achieved a high level of consumer
awareness. UCU has built one of the industry's first national sales forces.
Because of the success of the EnergyOne brand strategy, UCU now provides energy
solutions to over 125 of the Fortune 500 companies in the United States.
UCU has also been an industry innovator in the application of technology to
the energy industry and to the solution of customer problems. UCU believes that
its alliance with Novell, Inc. holds the promise of a new generation of
information, comfort and security customer solutions. The two companies are
actively working towards product introductions in 1997.
KCPL has also delivered above market and peer-group average total returns to
its shareholders* as a result of its focus on economic value added in its core
business and carefully planned growth through investment in non-regulated
segments.
Over the past ten years, KCPL has significantly reduced its financial risk
and increased its financial strength as indicated by its current A1 bond rating
by Moody's Investors Service, its A+ bond rating by Duff & Phelps Credit Rating
Company and its A bond rating by Standard & Poor's Corporation. Strong cash flow
and interest rate management have allowed KCPL to reduce debt and reduce
interest rates on existing debt which has resulted in one of the lowest average
costs of debt in the electric utility industry.
KCPL has focused its growth activities principally in non-regulated segments
of the energy industry. In 1992, KCPL formed KLT, a non-regulated subsidiary.
KLT invests in independent power projects, oil and gas reserves, utility-related
technologies and services, and tax-advantaged investment opportunities. KLT has
invested approximately $150 million since its inception in 1992.
MAXIM GROWTH STRATEGY
The managements of both KCPL and UCU are committed to a strategy of
continuing growth through investment in both the regulated and non-regulated
segments of the energy business. Overall the goals of the growth strategy are to
provide stockholders:
- total returns above both peer group and broad market averages consistently
and over an extended period of time;
- an investment which carries below market-average risk (beta); and
- an investment in a company which has a diversified base of energy-related
businesses, without undue concentration in (i) fuel source, (ii) customer
mix, or (iii) regulatory jurisdiction.
In order to achieve these objectives the managements of KCPL and UCU intend
for Maxim to continue to emphasize aggressive yet carefully planned growth
through investment, acquisition and merger.
58
s
THE MERGERS
BACKGROUND OF THE MERGERS
KCPL and UCU share the view that the energy industry has entered an era of
inevitable, accelerating change that will have a significant impact on the
future competitive position of utility based energy companies and their ability
to maintain and increase earnings. More than ever, the industry is being
transformed by technological advances, consumer demand and legislative and
regulatory reforms which are leading to greater competition in a once
monopolistic industry.
32
Both KCPL and UCU believe that these changes are leading to fundamental
changes in the nature of energy related businesses. As a result, public utility
companies face increased business risks and limits to their ability to grow
earnings through rate base increases and are, therefore, pursuing various
business combinations in order to reduce risk and create new avenues and
opportunities for earnings growth. Accordingly, public utilities have invested
and, KCPL and UCU believe, will continue to invest in non-regulated businesses
within the energy sector and in businesses complementary to their traditional
business. In response to intensified competition, public utilities have sought
and, KCPL and UCU believe, will continue to seek opportunities to create
efficiencies and control future costs through consolidation. Efficiency and the
ability to respond quickly to the needs of the market will be rewarded. KCPL and
UCU each share the view that only efficient, low-cost suppliers of energy that
pursue reforms in the regulatory and legislative arenas will be able to compete
successfully in a changing marketplace.
Recognizing this trend, KCPL and UCU each have separately studied strategic
options and opportunities and have from time to time over the last several years
participated in preliminary discussions with other utility and energy companies
regarding possible strategic business combinations. In October 1993, KCPL and
UCU executives and their respective advisors participated in a number of
meetings regarding a business combination involving the two companies. After an
exchange and review of confidential data, the two companies mutually agreed to
cease consideration of a business combination at that time.
In June 1994, KCPL and Western Resources also exchanged confidential
information in connection with preliminary discussions regarding a possible
business combination. Upon review of such confidential information, in August
1994, KCPL advised Western Resources that KCPL was not interested in pursuing a
business combination with Western Resources. Although Western Resources
indicated a continuing interest in pursuing a business combination with KCPL
from late 1994 through early 1996, KCPL reaffirmed to Western Resources the
conclusion of its analysis that a combination with Western Resources was not in
the best interest of KCPL's shareholders.
On May 25, 1995 and again on June 6, 1995, A. Drue Jennings, Chairman of the
Board, President and Chief Executive Officer of KCPL, Richard C. Green, Jr.,
Chairman of the Board, President and Chief Executive Officer of UCU, and a
representative of DLJ, financial advisor to UCU, met to discuss a new potential
joint venture between the two companies involving power operations and
maintenance. Further discussions were held by senior operations executives of
KCPL and UCU on June 10, 1995.
KCPL and UCU subsequently each formed teams, which met throughout the summer
of 1995, to explore new joint alliances in areas including operations,
information technology, marketing and procurement. Pursuant to a confidentiality
agreement, dated September 1, 1995, the two companies exchanged confidential
information in order to facilitate such discussions and related investigations
of each other's business operations in connection therewith.
The KCPL and UCU teams continued to meet through September, October and
November of 1995 and periodically updated their respective Chief Executive
Officers regarding their progress in exploring additional potential joint
ventures and strategic alliances. The meetings between the respective teams of
the two companies as well as discussions between the members of the teams and
their respective Chief Executive Officers revealed that the two companies had
similar visions and strategic outlooks in a number of areas. As a result of
these meetings, both companies continued to discuss the possibility of joint
ventures.
Because of their shared views regarding the accelerating pace of the changes
facing the energy industry and, in particular, the convergence of electric and
gas supplies into a single energy source giving customers the ability to choose
between the two, as well as the unique advantages a combined company would have
to expand into additional opportunities in the unregulated sector and additional
acquisition opportunities, on October 30, 1995, A. Drue Jennings, Richard C.
Green, Jr., Turner White, KCPL Senior Vice President of Retail Services, and
Michael D. Bruhn, UCU Vice President of
33
Corporate Development, met to discuss the general terms of a possible merger of
equals transaction. The parties recognized that unique opportunities for growth
and certain synergies would be available in a combined company and that
additional discussions and due diligence were warranted. At the conclusion of
the meeting, each Chief Executive Officer agreed to discuss with his respective
Board of Directors at their upcoming regularly scheduled meetings, the concept
of such a combination.
The KCPL Board met on November 7, 1995 and agreed that Mr. Jennings should
continue exploratory discussions with UCU. Thereafter, KCPL consulted with
Skadden Arps, a law firm that had previously been engaged by KCPL in connection
with other matters, and on November 14, 1995, KCPL engaged Merrill Lynch as its
financial advisor to advise KCPL with respect to a potential transaction
involving KCPL and UCU.
The UCU Board met on November 9, 1995 and also agreed that Mr. Green should
continue preliminary discussions with KCPL. In addition to its regular outside
legal counsel of Blackwell Sanders, UCU engaged the law firm of Weil, Gotshal &
Manges LLP ("Weil Gotshal") and also retained DLJ as its financial adviser to
advise with respect to the potential transaction involving KCPL and UCU.
On November 10, 1995, Messrs. Jennings, Green, White and Bruhn met with
representatives of Skadden Arps and Weil Gotshal to conduct preliminary
discussions regarding a merger of equals involving the two companies. On
November 18, 1995, the Strategic Planning Committee of the KCPL Board met to
discuss the merits of such a business combination between KCPL and UCU in light
of KCPL's long-term strategic plans. The committee concluded that the discussion
and analysis should continue.
A meeting of representatives of both companies and their respective
financial advisors was held on November 22, 1995 to discuss business, financial
and other issues. At that meeting, the companies determined that unique
opportunities were present in the proposed business combination and that
additional discussions and due diligence should proceed.
A meeting of representatives of both companies and their respective legal
and financial advisors was also held on November 28, 1995 to commence a more
detailed examination of the numerous structural, corporate governance,
regulatory and other issues relating to the proposed transaction. Also, on
November 28, 1995, KCPL and UCU entered into a confidentiality agreement
pursuant to which the companies and their representatives provided confidential
information to each other in connection with the proposed transaction. Senior
management of both companies analyzed financial, operational, regulatory and
other legal issues relating to such a possible business combination.
During December 1995, the chief executive officers of KCPL and UCU met on
several occasions to discuss key issues relating to the possible business
combination. On December 6, 1995, Ernst & Young was retained by KCPL and UCU to
identify and quantify the potential cost savings from synergies available from a
merger of KCPL and UCU.
Through mid-January 1996, representatives of both KCPL and UCU, their
counsels and financial advisors held numerous meetings and participated in a
number of conference calls to conduct due diligence and discuss and negotiate
the terms of a possible business combination pursuant to which the businesses of
KCPL and UCU would be merged. These ongoing discussions focused on the structure
of the transaction, the conditions to the transaction, the covenants regarding
the operations of each company during the period between signing of an agreement
and consummation of the transactions contemplated thereby, regulatory matters
impacting the combination and possible termination fees.
At a meeting of the KCPL Board on December 8, 1995, Merrill Lynch
representatives reviewed for the KCPL Board preliminary financial data regarding
the two companies. Skadden Arps attorneys also described to the KCPL Board its
legal responsibilities and fiduciary duties to shareholders in evaluating the
proposed transaction. The KCPL Board discussed the rationale for the proposed
transaction and authorized management to continue its analysis and discussion.
34
At a meeting of the UCU Board on December 9, 1995, DLJ's representatives and
officers of UCU described the status of the proposed transaction with KCPL and
analyzed preliminary financial data. The UCU Board authorized the executive
officers of UCU to continue discussions with representatives of KCPL.
At a meeting of the KCPL Board on January 5, 1996, the KCPL Board was
updated regarding the proposed business combination, including potential
strategic benefits of the transaction and the status of negotiations. These
potential strategic benefits included the ability of a stronger combined company
to operate in a dynamic environment; enhanced opportunities for earnings growth
that would create value for shareholders; diversification and, hence, reduction
of regulatory risks that would result from the combination; and production and
operation cost savings. Merrill Lynch representatives presented a general
overview of the various UCU businesses and the methodologies that might be
relevant to a financial analysis of a business combination, and Skadden Arps
attorneys provided advice regarding relevant regulatory issues, explained the
mechanics of the proposed transaction and outlined the terms of the then current
draft of the Original Merger Agreement. Pursuant to such agreement, KCPL and UCU
would each merge with and into KCU, with KCU surviving in each case (the
"Original Merger") and stockholders of KCPL and UCU would each receive common
stock of KCU ("KCU Common Stock") in exchange for their shares of KCPL Common
Stock and UCU Common Stock, respectively. The KCPL Board concluded unanimously
that management and its advisors should continue to pursue, negotiate and
evaluate the proposed combination.
At a meeting of the UCU Board on January 12, 1996, the UCU Board was updated
on the merger discussions.
During their discussion regarding the parties' synergies analysis at the
January 5, 1996 meeting of the KCPL Board and the January 19, 1996 meeting of
the UCU Board, Ernst & Young emphasized that the estimated net cost savings of
approximately $619 million over a 10-year period were all created by or
attributable to the proposed merger and did not include other types of savings
that might be achieved without a merger. Ernst & Young explained that the
projected cost savings reflected the creation of cost reductions or cost
avoidance opportunities through the ability to consolidate separate stand-alone
operations into a single entity. This consolidation would thus enable
duplicative functions and positions to be eliminated, similar corporate
activities to be combined, avoided or reduced in scope, external purchases of
goods and services to be aggregated, technical skills and capabilities to be
optimized and shared and capital expenditures to be avoided. Ernst & Young
informed the KCPL Board and the UCU Board that the report was preliminary and
that while components of the analysis might change, the joint synergies analysis
had indicated estimated savings opportunities in the regulated utility business
totalling approximately $619 million net of all anticipated costs to achieve
those savings and costs expected to be incurred to consummate the proposed
merger. The approximately $619 million of net cost savings were composed of
approximately $232 million in labor related cost savings, approximately $128
million of avoidable capital requirements and reductions of approximately $259
million in other non-capital related expenses. The cost savings estimates were
developed and quantified by the parties based on the individual facts regarding
existing and planned costs for each company, the current mode of operation of
each company, the potential organization and operational framework post-merger,
the estimated timing to achieve the savings and the interrelationship of these
factors and the costs and complexity of savings attainment. See "THE MERGERS --
Synergies from the Mergers," "-- Additional Operational Benefits" and "--
Enhancement of Financial Performance."
During the week of January 15, 1996, the financial advisors of KCPL and UCU
discussed the methodology for determining the appropriate exchange ratios for
the Original Merger and negotiated with respect thereto, and late in the evening
on January 18, 1996, together with senior officers of KCPL and UCU, agreed to
recommend to each company's Board of Directors that each share of KCPL Common
Stock would be converted into the right to receive 1.0 share of KCU Common Stock
and each share of UCU Common Stock would be converted into the right to receive
1.096 shares of KCU Common Stock.
35
Meetings of the KCPL Board and the UCU Board were held on January 19, 1996
to consider and approve the Original Merger. At each company's meeting, its
senior management and financial and legal advisors discussed material aspects of
the Original Merger and related transactions. At the KCPL Board meeting, Merrill
Lynch representatives reviewed for the KCPL Board various financial and other
information and delivered its oral opinion to the KCPL Board, which opinion was
subsequently confirmed in a written opinion dated as of January 19, 1996, that,
as of such date and based upon the assumptions made, matters considered and the
limits of review as set forth in such opinion, the exchange ratio of 1.0 share
of KCU Common Stock for each share of KCPL Common Stock (the "Original KCPL
Exchange Ratio") was fair to the holders of KCPL Common Stock (other than UCU
and its affiliates) from a financial point of view. Skadden Arps attorneys
summarized recently negotiated terms of the Original Merger Agreement relating
to employee benefit issues and the proposed organizational documents of KCU. In
addition, the KCPL Board was advised as to the reasonableness of the proposed
employment agreements to be entered into at the Effective Time by KCU and each
of Messrs. Jennings and Green based on a review of similar agreements entered
into in connection with similar transactions in the electric utility industry.
After considering and discussing the various presentations at such meeting and
at prior meetings as well as the recommendation of KCPL's management, the KCPL
Board approved, by a unanimous vote of those directors present, the Original
Merger Agreement, the Original Merger and the transactions contemplated thereby
and authorized the execution of the Original Merger Agreement.
At a meeting of the UCU Board on January 19, 1996, the UCU Board was
presented with a discussion of the status of the negotiations with KCPL and
various details relating to the proposed Original Merger. Representatives of DLJ
reviewed for the UCU Board various financial and other information and delivered
oral and written opinions that as of such date and subject to the assumptions
made, matters considered and limits of the review undertaken, as set forth in
such opinions and assuming the Original KCPL Exchange Ratio, the exchange ratio
of 1.096 shares of KCU Common Stock for each share of UCU Common Stock (the
"Original UCU Exchange Ratio") was fair, from a financial point of view, to
holders of UCU Common Stock. Representatives from Blackwell Sanders and Weil
Gotshal outlined the terms of the Original Merger Agreement for the UCU Board
and advised as to the fiduciary duties of the directors. After considering and
discussing the various presentations, the UCU Board approved, by a unanimous
vote, the Original Merger Agreement, the Original Merger and the transactions
contemplated thereby and authorized the execution of the Original Merger
Agreement.
The Original Merger Agreement and certain related documents were executed on
January 19, 1996 following such approval by the KCPL Board and the UCU Board.
On April 9, 1996, a joint proxy statement/prospectus of KCPL, UCU and KCU
relating to the Original Merger was mailed to stockholders of KCPL and UCU.
Included in such joint proxy statement/prospectus were notices of annual
meetings of stockholders of KCPL and UCU, as the case may be, establishing May
22, 1996 as the date on which both KCPL and UCU would have their annual meetings
to consider and vote upon, among other things, the Original Merger and related
matters, the election of directors and the ratification of independent auditors.
On April 14, 1996, Mr. Jennings received a telephone call from Mr. John E.
Hayes, Jr., Chairman of the Board and Chief Executive Officer of Western
Resources, in which Mr. Hayes informed Mr. Jennings that he was delivering to
Mr. Jennings an unsolicited proposal to the KCPL Board pursuant to which Western
Resources would acquire all of the outstanding KCPL Common Stock in exchange for
shares of common stock, par value $5.00 per share, of Western Resources
("Western Resources Common Stock") valued at $28.00 per share of KCPL Common
Stock, subject to adjustment.
36
Following such telephone conversation, on April 14, 1996, Mr. Jennings
received from Western Resources a letter (the "April 14 Letter") setting forth
Western Resources' unsolicited merger proposal. In the letter, Western Resources
proposed that KCPL and Western Resources merge in a transaction in which each
holder of KCPL Common Stock would receive $28.00 worth of Western Resources
Common Stock, subject to a "collar" limiting the amount of Western Resources
Common Stock that holders of KCPL Common Stock would receive to no more than
0.985 shares and no less than 0.833 shares of Western Resources Common Stock for
each share of KCPL Common Stock. Shortly after delivery of the April 14 Letter,
Western Resources publicly announced its unsolicited merger proposal.
On April 15, 1996, Western Resources filed an application with the State
Corporation Commission of the State of Kansas seeking approval of Western
Resources' proposed business combination with KCPL and a Petition to Intervene
in the Original Merger.
A meeting of the KCPL Board was held on April 19, 1996 and reconvened on
April 21, 1996 to consider Western Resources' proposal. At this meeting, the
KCPL Board received presentations concerning Western Resources' proposal from
KCPL's management and its financial and legal advisors. Representatives from
Skadden Arps advised the KCPL Board with respect to certain legal matters in
connection with its consideration of Western Resources' proposal.
Representatives from Ernst & Young provided information to the KCPL Board in
three areas. First, Ernst & Young provided a summary of the differences in
assumptions included in the Ernst & Young synergies report and the synergies
study conducted for Western Resources by Deloitte & Touche LLP ("Deloitte &
Touche"). Second, Ernst & Young identified the following areas where Western
Resources and Deloitte & Touche appeared to have made inaccurate assumptions:
(i) that KCPL employed more persons than they actually do; (ii) that KCPL
budgeted more for customer information systems than KCPL actually has; (iii)
that the costs of operating KCPL's data center were higher than they actually
are; and (iv) that KCPL's level of benefits loading was higher than it actually
was. Finally, Ernst & Young noted for the KCPL Board the fact that the group of
comparable companies reviewed to develop benchmarks demonstrated wide variances
in projected synergies thereby bringing into question whether an average of the
group's projected synergies provided an appropriate benchmark from which
conclusions could be drawn.
On April 19, 1996, Merrill Lynch made a presentation to the KCPL Board
summarizing Western Resources' business and its proposal contained in the April
14 Letter. The purpose of Merrill Lynch's presentation was to provide
information to the KCPL Board regarding Western Resources and its proposal, and
accordingly, Merrill Lynch drew no conclusions from its presentation regarding
such proposal. The following is a summary of such presentation.
Merrill Lynch summarized the key financial terms of Western Resources'
proposal contained in the April 14 Letter, including the announced price per
share of KCPL Common Stock, the operation of the proposed "collar" over a range
of prices of the Western Resources Common Stock, the proposed accounting
treatment, the synergies claimed by Western Resources, the proposed composition
of the board of directors of the combined company, the pro forma share ownership
of the combined company, and the implied 1996 annual dividend rate per share of
the KCPL Common Stock.
Using publicly available information, Merrill Lynch presented a profile of
Western Resources, including a description of Western Resources' lines of
business, a summary of recent financial and operating results, a chronology of
significant recent corporate events, and a comparison of the stock price
performance of the Western Resources Common Stock to the stock price performance
of the KCPL Common Stock, the UCU Common Stock and the S&P Electric Companies
Index for the three year and twelve month periods preceding the April 14 Letter.
Merrill Lynch also presented excerpts from recent commentaries by research
analysts regarding Western Resources, a comparison of research analysts'
earnings estimates for Western Resources complied by First Call, Institutional
Brokers Estimating Service and Nelsons, respectively, and a comparison of
certain financial and
37
operating information and ratios for Western Resources with the corresponding
financial and operating information and ratios for a group of publicly traded
companies that Merrill Lynch deemed to be reasonably similar to Western
Resources.
Using publicly available research analysts' earnings estimates for Western
Resources and KCPL, Merrill Lynch reviewed certain pro forma effects resulting
from Western Resources' proposal, including the potential impact to KCPL's
projected stand-alone earnings per share, dividends per share and dividend
payout ratios, both including and excluding synergies claimed by Western
Resources. In addition, Merrill Lynch reviewed certain pro forma effects
resulting from Western Resources' proposal and the potential impact to KCPL's
projected stand-alone earnings per share and dividend payout ratios, assuming a
range of synergies claimed by Western Resources that would be retained by
shareholders, a range of potential rate reductions affecting Western Resources
on a stand-alone basis, and a range of aggregate synergies.
Using publicly available information, Merrill Lynch reviewed certain
financial information and ratios claimed or implied by Western Resources'
proposal and compared such information and ratios with the corresponding
financial information and ratios for a number of recent combinations of utility
companies, including the terms of the Original Merger with UCU. Since the
analyses described above were prepared by Merrill Lynch prior to the
recommendation made by the Citizens Utility Ratepayer Board to reduce Western
Resources' rates by $87 million per year and the recommendation made by the
staff of the Kansas Commission (as defined herein) to reduce Western Resources'
rates by $105 million per year, such analyses did not include an evaluation of
the significant negative cash flow impact of such rate reductions on Western
Resources and the negative effect such rate reductions would have on Western
Resources' ability to maintain its proposed dividend levels and credit quality.
In view of the foregoing, the KCPL Board is no longer relying on such Merrill
Lynch analyses presented at the KCPL Board's April 19, 1996 meeting.
On April 21, the KCPL Board, based upon the presentations given, the advice
received and the considerations discussed at such meeting of the KCPL Board,
determined that further exploration of the Western Resources proposal was not in
the best interests of KCPL, its shareholders, its employees and its customers.
Also on such date, the KCPL Board reaffirmed its approval of the Original Merger
with UCU.
On April 22, 1996, Mr. Jennings delivered to Mr. Hayes a letter stating that
the KCPL Board had rejected Western Resources' proposal. Mr. Jennings also
telephoned Mr. Hayes to inform him of the decision of the KCPL Board.
On April 22, 1996, Western Resources announced that it intended to commence
an unsolicited exchange offer, and that it had filed preliminary proxy materials
for use in soliciting proxies from holders of KCPL Common Stock in opposition to
the approval and adoption of the Original Merger, the Original Merger Agreement
and the transactions contemplated thereby. On the same day, Western Resources
filed a Registration Statement on Form S-4 (the "Western Resources Form S-4")
with the SEC which described a proposed offer to exchange Western Resources
Common Stock for all of the outstanding shares of KCPL Common Stock. Pursuant to
a preliminary prospectus included in the Western Resources Form S-4 (the
"Western Resources Preliminary Prospectus"), Western Resources proposed to
offer, upon the terms and subject to the conditions set forth in the Western
Resources Preliminary Prospectus and in a related Letter of Transmittal
(together, the "Proposed Western Resources Offer"), to exchange less than a full
share of Western Resources Common Stock for each outstanding share of KCPL
Common Stock validly tendered on or prior to the "Expiration Date" (as defined
in the Western Resources Preliminary Prospectus) of the Proposed Western
Resources Offer and not properly withdrawn. As initially filed with the SEC,
each such share would be entitled to receive a fraction of a share of Western
Resources Common Stock equal to the "Western Resources Exchange Ratio," defined
as the quotient (rounded to the nearest 1/100,000) determined by dividing $28.00
by the average of the high and low sales prices of the Western Resources Common
Stock (as reported on the NYSE Composite Transactions reporting system as
published in the Wall Street Journal or, if not published therein, in another
authoritative source) on each of the twenty consecutive trading days ending with
the second trading day immediately preceding the Expiration Date; provided, that
the Western Resources Exchange Ratio would not be less than 0.833 nor greater
than 0.985.
38
According to the Western Resources Preliminary Prospectus, Western Resources
intends, as soon as practicable after consummation of the Proposed Western
Resources Offer, to seek to merge KCPL with and into itself pursuant to
applicable law (the "Proposed Western Resources Merger").
The Proposed Western Resources Offer is subject to numerous conditions. The
Proposed Western Resources Offer is conditioned upon, among other things, (i)
there being validly tendered and not withdrawn prior to the Expiration Date a
number of shares of KCPL Common Stock which will constitute at least ninety
percent of the total number of outstanding shares of KCPL Common Stock on a
fully diluted basis (as though all options or other securities convertible into
or exchangeable for shares had been so converted, exercised or exchanged) as of
the date the shares are accepted for exchange by Western Resources pursuant to
the Proposed Western Resources Offer, (ii) approval of the issuance of shares of
Western Resources Common Stock pursuant to the Proposed Western Resources Offer
and the Proposed Western Resources Merger and approval of an amendment to the
Western Resources articles of incorporation to increase the number of shares of
Western Resources Common Stock authorized for issuance by the holders, voting as
a single class, of a majority of the shares of Western Resources Common Stock
and Western Resources preferred stock outstanding on the applicable record date
and approval of the Proposed Western Resources Merger by the holders, voting as
a single class, of a majority of the Western Resources preferred stock, (iii)
Western Resources being satisfied, in its sole discretion, that the provisions
of Section 351.407 of the MGBCL are inapplicable to Western Resources and the
transactions contemplated by the Proposed Western Resources Offer or full voting
rights for all shares to be acquired by Western Resources pursuant to the
Proposed Western Resources Offer having been approved by the shareholders of
KCPL pursuant to such statute, (iv) Western Resources being satisfied, in its
sole discretion, that the provisions of Section 351.459 of the MGBCL will not
prohibit for any period of time the consummation of the Proposed Western
Resources Merger or any other "Business Combination" (as defined in such
statute) involving KCPL and Western Resources or any subsidiary of Western
Resources, (v) the shareholders of KCPL not having approved the Original Merger
Agreement, (vi) all regulatory approvals required to consummate the Proposed
Western Resources Offer and the Proposed Western Resources Merger having been
obtained and remaining in full force and effect, all statutory waiting periods
in respect thereof having expired and no such approval containing any conditions
or restrictions which the Western Resources board of directors reasonably
determines in good faith will have or reasonably could be expected to have a
material adverse effect on Western Resources, KCPL and their respective
subsidiaries taken as a whole, (vii) the receipt by Western Resources of a
letter from its independent public accountants stating that the Proposed Western
Resources Merger will qualify as a pooling of interests transaction under
generally accepted accounting principles and applicable SEC regulations, (viii)
Western Resources being satisfied, in its sole discretion, that it will be able
to consummate the Proposed Western Resources Merger as a "short-form" merger
pursuant to the provisions of Section 351.447 of the MGBCL and Section 17-6703
of the Kansas General Corporation Code immediately after consummation of the
Proposed Western Resources Offer and (ix) all outstanding shares of KCPL
Preferred Stock having been redeemed.
On May 3, 1996, Western Resources commenced soliciting proxies of KCPL
shareholders in opposition to the Original Merger.
On May 6, 1996, KCPL and UCU announced that they would recommend an annual
dividend of $1.85 per common share for KCU. Also on May 6, 1996, Western
Resources announced that it had increased the lower limit of the "collar" in the
Proposed Western Resources Offer. According to Western Resources, the minimum
number of shares of Western Resources Common Stock that KCPL shareholders would
receive for each share of KCPL Common Stock if the Proposed Western Resources
Offer is consummated would be changed from 0.833 to 0.91. The maximum number was
not changed.
On May 9, 1996, the KCPL Board met in order to review the status of the
Original Merger and the Proposed Western Resources Offer. At such meeting, the
KCPL Board received presentations from its management and financial and legal
advisors regarding recent developments and the financial and legal terms of the
Proposed Western Resources Offer, including the May 6, 1996 change in the
"collar." In addition, representatives from the Palmer Bellevue practice of
Coopers & Lybrand Consulting ("CLC"), which had been retained by KCPL shortly
after the announcement of the Proposed Western Resources
39
Offer, were present. CLC reviewed with the KCPL Board the synergies analysis
undertaken on behalf of Western Resources in connection with the Proposed
Western Resources Offer. This review was based on publicly available
information. Their review concluded that the study conducted on behalf of
Western Resources by Deloitte & Touche appeared to contain certain flaws which
result in overestimates of the savings expected to be realized. Such flaws
identified were: (a) the application of a discount on materials procurement that
assumes similarities and commonalities in plant that do not exist; (b) the use
of a labor benefits loading of 34% rather than the actual KCPL benefits loading
which averages 26%; (c) the assumption that layoffs will not be required for
headcount reductions estimated to be 36% greater in the proposed combination of
KCPL and Western Resources than in other recent utility mergers; (d) the
assumption that 100% of headcount reductions will be available as of January 1,
1998, a time virtually at the anticipated time of closing a business combination
with Western Resources; and (e) the use of a 4.3% labor inflation rate in
contrast to relatively contemporaneous Deloitte & Touche utility synergy studies
which assumes a 3.5% labor inflation rate. Additionally, they reviewed the study
conducted by Ernst & Young relative to likely savings related to synergies
resulting from the proposed Original Merger. They concluded that the study was
conservative in its assumptions, well documented and professional in its
methodology. There was no report issued by CLC related to these conclusions.
During the period beginning on May 10, 1996 and ending on May 19, 1996,
various meetings were held between executives of KCPL and UCU to discuss a
possible change in the exchange ratios in the Original Merger, certain changes
in the structure of the Original Merger and other possible changes to the terms
of the Original Merger. During the course of such meetings, representatives of
UCU indicated that UCU would consider a change in the Original UCU Exchange
Ratio, but any such change would be conditioned upon a change in the structure
of the transaction to the form set forth in the Merger Agreement. On May 18,
1996, representatives of KCPL and UCU agreed to recommend to their respective
Boards of Directors the Exchange Ratio of one share of KCPL Common Stock for
each share of UCU Common Stock and the structure set forth in the Merger
Agreement and described in this Joint Proxy Statement/Prospectus, subject to the
approvals of the KCPL Board and the UCU Board.
On May 19, 1996, the UCU Board met to consider and approve the Merger
Agreement. At such meeting, UCU's senior management and financial and legal
advisors summarized the proposed merger. Also at such meeting, representatives
of DLJ reviewed for the UCU Board various financial and other information and
delivered an oral opinion that as of such date and subject to the assumptions
made, matters considered and limits of the review undertaken, as set forth in
such opinion, the Exchange Ratio was fair, from a financial point of view, to
holders of UCU Common Stock. UCU's legal advisors noted that the structure of
the merger had been modified to provide for the merger of UCU with a
wholly-owned subsidiary of KCPL following which UCU stockholders would receive
one share of KCPL Common Stock for each share of UCU Common Stock. Thereafter,
UCU would be merged into KCPL and the surviving corporation would be a Missouri
corporation to be renamed. It was noted by the legal advisors that the revised
structure would require only a majority vote of KCPL's shareholders voting at
the meeting, rather than two-thirds vote of the outstanding shares, and that the
vote required by UCU would remain the same. The legal advisors further discussed
with the UCU Board the differences between Missouri and Delaware law and the
articles of incorporation and bylaws proposed for Maxim as compared to those
contemplated for the surviving corporation pursuant to the Original Merger
Agreement. The UCU Board also discussed the fact that the change in the Original
UCU Exchange Ratio was conditioned upon a change in the structure of the
transaction to the form set forth in the Merger Agreement. After considering and
discussing the various presentations at such meeting, the UCU Board approved the
Merger Agreement, the UCU Merger and the transactions contemplated thereby,
authorized the execution and delivery of the Merger Agreement and granted the
Chairman and Chief Executive Officer of UCU the authority to direct the
Secretary of UCU to remove from the agenda of the UCU annual meeting to be held
on May 22, 1996 the proposal to approve the Original Merger Agreement. See "THE
MERGERS -- Opinion of UCU's Financial Advisor" for a discussion of parts of the
presentation made by DLJ to the UCU Board at such meeting.
On May 20, 1996, the KCPL Board met to consider and approve the Merger
Agreement. At such meeting, KCPL's senior management and financial and legal
advisors discussed the material aspects
40
of the Mergers. Also at such meeting, Merrill Lynch representatives reviewed for
the KCPL Board various financial and other information and delivered its oral
opinion to the KCPL Board, which opinion was subsequently confirmed in a written
opinion dated as of May 20, 1996, that, as of such date and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinion, the Exchange Ratio was fair to the holders of KCPL Common Stock (other
than UCU and its affiliates) from a financial point of view. Skadden Arps
attorneys summarized and discussed (i) the revised deal structure, (ii) the
reduction in the percentage of KCPL shareholders required to approve the
transaction from two-thirds of the outstanding shares to a majority of a quorum,
(iii) the tax-free structure of the transaction, (iv) the removal of dissenters'
right of appraisal and (v) the fact that Maxim would be a Missouri corporation.
See "THE MERGERS -- Opinion of KCPL's Financial Advisor" for a discussion of
parts of the presentation made by Merrill Lynch to the KCPL Board at such
meeting. After considering and discussing the various presentations at such
meeting and at prior meetings as well as the recommendation of KCPL's
management, the KCPL Board approved the Merger Agreement and the transactions
contemplated thereby and directed that the proposals to approve the Original
Merger Agreement and related transactions be removed from the agenda of the KCPL
annual meeting of shareholders to be held on May 22, 1996.
The Merger Agreement and certain related documents were executed on May 20,
1996 following such approval by the KCPL Board and the UCU Board, and KCPL and
UCU issued the following joint press release:
KCPL AND UTILICORP AMEND TERMS
OF MERGER AGREEMENT
MAY 22 VOTE ON PREVIOUS ACCORD CANCELLED
KANSAS CITY, Missouri, May 20, 1996 -- Kansas City Power & Light Company
(NYSE: KLT) and UtiliCorp United Inc. (NYSE: UCU) announced today that they
have entered into an Amended and Restated Agreement and Plan of Merger.
Under the revised terms of the merger, a new KCPL subsidiary would be
created, and it would be merged into UtiliCorp. UtiliCorp would then be
merged with KCPL to form the combined company. Shareholders of UtiliCorp
would receive one share in the merged company for each UtiliCorp share held.
KCPL shareholders would continue to hold their existing KCPL shares. Other
substantive terms of the merger will remain the same. Previously, KCPL
holders would have received one share of stock in a new company for each
share held, while UtiliCorp shareholders would have received 1.096 shares
for each share held.
The transaction is anticipated to be tax-free for both UtiliCorp and
KCPL shareholders and will be accounted for as a pooling of interests. The
revised merger agreement was unanimously approved by the boards of directors
of both companies.
The merger of equals will create a diversified energy company with total
assets of approximately $6.4 billion and about 2.2 million customers in
domestic and international markets.
The boards of KCPL and UtiliCorp recommend that the initial annualized
dividend rate upon completion of the merger be set at $1.85 per share. This
compares to UtiliCorp's current dividend of $1.76 per share and KCPL's
current divided of $1.56 per share. Each company will continue its current
dividend policy until completion of the merger.
Drue Jennings, Chairman and Chief Executive Officer of KCPL, said, "This
revised agreement preserves the significant benefits of the KCPL/UtiliCorp
strategic merger for shareholders of both companies and provides
shareholders with even greater value. The merger combines the strengths of
both companies to form a diversified growth company, fully prepared to
compete effectively in the deregulated utility industry. The merger is a
friendly combination designed to distribute benefits equitably between
shareholders and customers. We are confident it will receive all required
regulatory approvals."
"As we have stated since our first announcement, we believe that our
merger will create a truly unique company with a winning growth strategy for
the future," said Richard C. Green, Jr., Chairman and Chief Executive
Officer of UtiliCorp United. "Both KCPL and UtiliCorp want the
41
opportunity to make that happen. Business is about choices. And, in order to
facilitate this merger, we have chosen another tack to ensure the delivery
of benefits and value to our key constituents."
Upon completion of the transaction, the board of KCPL will consist of 18
members: nine from KCPL and nine from UtiliCorp.
KCPL and UtiliCorp shareholders will vote on the proposed transaction at
separate special meetings expected to be held this summer. The Amended
Merger Agreement requires an affirmative vote by owners of a majority of the
outstanding shares of UtiliCorp. The Agreement also calls for KCPL to issue
new shares to complete the merger which will require, under New York Stock
Exchange rules, approval by owners of a majority of the KCPL shares voting
at a duly called meeting.
The companies do not expect any interruption in the previously disclosed
regulatory-approval process. The two companies plan in the near future to
file revised proxy soliciting materials pertaining to the amended agreement
with the Securities and Exchange Commission.
As a result of the revised merger, both KCPL and UtiliCorp have
cancelled the shareholder votes on the original merger proposal which were
scheduled to be held at each company's annual meeting on May 22, 1996. Both
annual meetings will still be held on May 22, 1996 in Kansas City to conduct
all non-merger-related business on the agendas.
* * *
Also on May 20, 1996, KCPL commenced litigation against Western Resources
and others seeking certain declaratory judgments in connection with the Merger
Agreement and the transactions contemplated thereby. See "-- Certain
Litigation."
KCPL's and UCU's directors were elected, and the other matters considered
were approved, by each company's respective stockholders at their respective
annual meetings on May 22, 1996.
On June 17, 1996, Western Resources commenced a solicitation of proxies from
KCPL shareholders in opposition to the Share Issuance and announced that it was
increasing the price in its offer to merge with KCPL to $31.00 of Western
Resources Common Stock for each share of KCPL Common Stock, subject to a
"collar" pursuant to which each share of KCPL Common Stock would be exchanged
for no more than 1.1 and no less than 0.933 shares of Western Resources Common
Stock (the "June 17 Announcement").
Also on June 17, 1996, KCPL issued a press release stating that the KCPL
Board will review Western Resources' proposal in due course and advise
shareholders of developments as they occur.
On June 19, 1996, Western Resources amended the terms of the Proposed
Western Resources Offer to reflect the increase in price and change in the
"collar" announced in the June 17 Announcement.
Subsequent to June 17, KCPL management contacted individual members of the
KCPL Board to review and discuss the June 17 Announcement. A meeting of the KCPL
Board was held on June 24, 1996 to consider Western Resources' proposal set
forth in the June 17 Announcement. Members of KCPL management provided a
background update for the KCPL Board, including a summary of the June 17
Announcement, the terms of which had been discussed with the KCPL Board prior to
the meeting. Representatives from Skadden Arps advised the KCPL Board and
answered questions with respect to certain legal matters in connection with its
consideration of Western Resources' proposal contained in the June 17
Announcement. It was noted that the bases upon which the KCPL Board had
previously determined to proceed with the transaction with UCU in light of the
Proposed Western Resources Offer had not changed and remained applicable to the
Western Resources proposal set forth in the June 17 Announcement. In this
connection, KCPL management reviewed and discussed the text of a letter to be
sent to Mr. Hayes which would set forth many of the bases for the KCPL Board's
conclusions regarding Western Resources' proposal set forth in the June 17
Announcement and which had served as the basis for prior KCPL Board decisions
regarding the Proposed Western Resources Offer and the Mergers. A prior draft of
such letter had been previously supplied to members of the
42
KCPL Board for their review. After discussion, the KCPL Board determined that
further exploration of the proposal of Western Resources contained in the June
17 Announcement was not in the best interests of KCPL, its shareholders, its
employees and its customers and unanimously rejected such proposal. The KCPL
Board also reaffirmed its approval of the Mergers and the Merger Agreement. See
"-- Background of the Mergers" and "--Reasons for the Mergers; Recommendations
of the Board of Directors -- KCPL" for a detailed summary of the bases for all
conclusions reached by the KCPL Board with respect to Western Resources'
proposal contained in the June 17 Announcement.
Subsequent to the KCPL Board's decision to reject Western Resources'
proposal as set forth in the June 17 Announcement, representatives of KCPL's
proxy solicitor and Merrill Lynch joined the meeting of the KCPL Board. The KCPL
Board discussed with KCPL management, Merrill Lynch and KCPL's proxy solicitor
the conduct of the proxy solicitation on a going forward basis, including
potential market reaction to Western Resources' proposal set forth in the June
17 Announcement. KCPL's chief legal officer updated the KCPL Board on pending
litigation with Western Resources. At the KCPL Board meeting, Merrill Lynch was
not asked by the KCPL Board to consider Western Resources' proposal as set forth
in the June 17 Announcement due to the contingencies and uncertainties which the
KCPL Board believes are associated with such proposal, the speculative nature of
certain assumptions made by Western Resources in such proposal relating to
Western Resources' ability to achieve and retain certain estimated aggregate
cost savings, the likelihood of substantially greater rate reductions affecting
Western Resources in a pending rate proceeding than those assumed by Western
Resources and the belief held by the KCPL Board that Western Resources' proposal
is not consistent with the strategic objectives of KCPL. See "THE MERGERS --
Reasons for the Mergers; Recommendations of the Board of Directors -- KCPL."
On June 24, 1996, Mr. Jennings delivered to Mr. Hayes the following letter
which contains certain statements of opinion and belief:
June 24, 1996
Mr. John E. Hayes, Jr.
Chairman of the Board and
Chief Executive Officer
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Dear John:
The Board of Directors (the "Board") of Kansas City Power & Light
Company ("KCPL") has carefully considered the revised proposal of Western
Resources, Inc. ("Western") as set forth in your letter of June 17, 1996,
and has unanimously voted to reject Western's unsolicited proposal to
acquire KCPL. We continue to believe strongly that Western is not an
appropriate strategic partner for KCPL and that Western's unsolicited
proposal is not in the best interests of our shareholders, nor is it in
the best interests of our customers, employees and other constituencies
served by KCPL, and we reaffirm our commitment to our business
combination with UtiliCorp United Inc. ("UtiliCorp").
I also want you to understand clearly that our Board has not been,
and will not be, influenced by your unsubtle efforts at corporate
intimidation. KCPL shareholders will vote on the issuance of KCPL shares
required to accomplish the UtiliCorp merger, and the vote will be decided
by a majority of all shares present and entitled to vote at the meeting.
This is democracy in its purest form. We are fully aware that you would
prefer that the UtiliCorp merger be subject to a two-thirds supermajority
voting requirement, where a minority of shares could thwart the wishes of
a substantial majority. We also fully recognize that your position is
designed to further the interests of your own shareholders -- not KCPL's
--and any protestations to the contrary will fool no one.
43
The following are some of the more significant factors considered by
the Board in rejecting Western's revised proposal (including some points
which I discussed with you as early as March 1995).
-WESTERN FACES SIGNIFICANT RATE REDUCTIONS.
In connection with Western's acquisition of Kansas Gas and Electric
Company ("KGE") in 1991, the Kansas Corporation Commission (the "KCC")
ordered that all merger savings (over and above an acquisition adjustment
that is inapplicable here) should be shared equally between ratepayers
and shareholders. But, as you well know, Western has not yet adjusted its
rate levels to reflect the savings achieved in the KGE merger. As a
result, Western is currently embroiled in rate reduction proceedings
before the KCC.
We believe that the KCC will impose rate reductions on Western far in
excess of the $8.7 million per year over seven years that Western has
proposed. Western has implicitly admitted that it can afford to reduce
its earnings by at least an additional $50 million per year by requesting
the KCC's permission to accelerate depreciation on the Wolf Creek plant
by that annual amount. Indeed, the staff of the KCC has recommended an
immediate rate reduction of $105 million. We believe that the KCC will
address Western's overearnings by ordering significant rate reductions
and will not permit Western to keep such overearnings.
-RATE REDUCTIONS IMPERIL WESTERN'S ABILITY TO DELIVER PROMISED DIVIDENDS.
The implementation of the KCC staff's recommended $105 million rate
reduction would have a significant negative impact on Western's cash flow
and earnings. If the $105 million rate reduction is implemented, then
virtually all of Western's projected earnings for 1998 (as reported in
the Western materials distributed to analysts on June 17, 1996, but as
adjusted for the rate decrease recommended by the KCC staff) will be
required to pay the dividends promised to KCPL shareholders. Even if the
KCC orders a rate decrease of only $80 million, approximately
three-fourths of the staff's recommendation, over 90% of Western's
projected earnings for 1998 could be required to make the promised
dividend payments. In light of these facts, the Board does not believe
that Western's dividend promises are credible.
-WESTERN'S RATE DISPARITY BETWEEN KGE AND KPL ELECTRIC CUSTOMERS AMOUNTS
TO AT LEAST $171.3 MILLION ANNUALLY.
There is a significant disparity among the rates charged to your
customers. The rates charged to KGE customers were to have been reduced
in connection with your acquisition of KGE. However, testimony before the
KCC indicates that if the rates charged to KGE customers were reduced to
equal the rates charged to KPL customers, Western would suffer a $171
million revenue reduction. Thus, even if the KCC follows the suggestion
of its staff and the entire $105 million annual rate reduction is applied
to KGE customers, Western would still face a rate disparity of
approximately $65 million per year. Given these facts, the Board
questions Western's commitment to sharing prospective merger savings with
KCPL customers. In addition, the Board believes that Western will have to
address the rate disparity by lowering rates for its KGE customers, and
the Board does not believe that revenues from KCPL customers should be
used to subsidize a rate reduction for KGE customers.
-RECENTLY, WESTERN BEGAN THE 40-YEAR AMORTIZATION OF THE ACQUISITION
PREMIUM FOR KGE OF APPROXIMATELY $20 MILLION ANNUALLY.
As a result of the KGE acquisition, Western must amortize the $801
million acquisition premium at the rate of approximately $20 million per
year over a period of forty years, only a portion of which will be
recovered in rates. This significant, ongoing and long-term burden is a
liability that the Board does not believe KCPL shareholders and
ratepayers should be forced to share.
44
-A COMBINATION OF KCPL AND WESTERN WOULD CONCENTRATE RISK.
A combined KCPL/Western entity would own 94% of the Wolf Creek
nuclear plant, concentrating a significant amount of capital and risk in
a single asset. The Board believes that it would be preferable to avoid
additional concentration of risk in Wolf Creek. In contrast, a
KCPL/UtiliCorp entity would own only 47% of Wolf Creek.
-A COMBINED KCPL/UTILICORP ENTITY WOULD BE BETTER POSITIONED TO COMPETE
IN A DEREGULATED MARKET.
A merger with UtiliCorp provides KCPL with access to new markets in
several states and foreign countries, diversifies KCPL's risks by
providing entry into nonregulated energy related businesses, and provides
KCPL with the competitive advantages of UtiliCorp's successful brand
name, EnergyOne. A merger with Western would provide KCPL with none of
these immediate advantages. UtiliCorp is much better positioned than
Western to compete in a deregulated utility market.
-WESTERN'S SYNERGIES CLAIMS ARE UNREALISTIC AND WESTERN WILL NOT BE
ALLOWED TO RETAIN 70% OF THE SAVINGS RESULTING FROM A MERGER WITH KCPL.
The Board believes, based on a review of Western's synergies
analysis, that Western has significantly overestimated the amount of
savings that would result from a KCPL/Western combination. Furthermore,
Western's assumption in its KCC filings that it will be allowed to retain
70% of the savings resulting from a merger with KCPL is inconsistent with
applicable precedent. The KCC, in its order authorizing the merger of KGE
and Western's predecessor, Kansas Power and Light Co., required merger
savings (over and above an acquisition adjustment that is inapplicable
here) to be shared equally between shareholders and customers. In
addition, the staff of the Missouri Public Service Commission, in the
pending Union Electric/ CIPSCO merger, is recommending an equal sharing
of merger savings between shareholders and customers. As you know,
Western will need the approval of both of these regulatory agencies for
any merger with KCPL. In light of these precedents, it appears
unrealistic to assume that Western will be able to keep 70% of merger
savings.
As a result of the Board's conclusion that Western will not realize
its forecasted amount of savings, and the Board's belief that Western
will not be able to retain its expected portion of whatever savings it
does realize, the Board does not believe that Western's financial
forecasts are credible.
-WESTERN'S "NO LAYOFFS" PROMISE IS NOT CREDIBLE.
Western has stated that no layoffs would result from its proposal.
However, the synergy analysis filed by Western with the KCC stated that
531 employee positions would be eliminated and assumed that all resulting
savings would be available by January 1, 1998. In light of Western's
admission in its proxy materials that a hostile transaction could not be
completed until the end of 1997, the Board does not believe that Western
could achieve those 531 "reductions" without laying off KCPL employees.
* * *
The proposed Western transaction would require our shareholders to
exchange their KCPL stock, not for cash, but for Western stock. The value
of such Western shares is therefore very much at issue. For the reasons
stated in this letter, among others, we have significant doubts about
Western's business prospects and believe that Western's earnings will not
be sufficient to sustain, let alone grow, dividends. Accordingly, we
firmly believe that the proposed Western transaction, in which KCPL
shareholders would receive shares of Western stock, is not in the best
interests of our shareholders and we reject it. Moreover, we have
concluded in view of the factors enumerated in this letter and our
conclusions regarding the Western proposal and the value of the Western
shares, that it would serve no purpose to meet with you.
45
You have made many promises that we do not believe Western will be
able to keep. Your dividend promises are contingent on unrealistic
earnings forecasts that are undermined by inflated merger savings and the
likelihood that the KCC will impose significant rate reductions on
Western. Your rate reduction promises ring hollow, because your customers
are still waiting for tens of millions of dollars of rate reductions that
should have resulted from the acquisition of KGE. Your promise that no
employees will be laid off is in conflict with your KCC filings. We do
not intend to risk the future of our company and its customers,
employees, shareholders and other constituencies on your hollow promises.
Western faces serious problems relating to the impending rate
reduction and rate disparity issues discussed above. These problems need
to be resolved by Western's management and Board of Directors, and the
consequences of your actions should be borne by your customers and your
shareholders alone. Our Board will not permit Western to solve its
internal business problems by merging with KCPL.
Sincerely,
/s/ A. Drue Jennings
A. Drue Jennings
46
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF CERTAIN IMPORTANT TERMS AND CONDITIONS OF THE
MERGERS AND RELATED INFORMATION. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE ANNEXES AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR ENTIRETY.
THE PARTIES
KCPL. KCPL is a low-cost electric power producer providing energy-related
products and services to customers in its service territory and worldwide.
Headquartered in Kansas City, Missouri, KCPL serves the electric power needs of
over 430,000 customers in and around the metropolitan Kansas City area. Included
in a diverse customer base are about 379,000 residences, 50,000 commercial firms
and 3,000 industrial firms, municipalities and other electric utilities. Low
fuel costs and superior plant performance enable KCPL to serve its customers
well while maintaining a leadership position in the bulk power market. KLT Inc.,
a wholly-owned unregulated subsidiary of KCPL ("KLT"), pursues opportunities in
primarily energy-related ventures throughout the nation and world. KCPL's
commitment to KLT and its holdings reflect KCPL's plans to enhance shareholder
value by capturing growth opportunities in energy-related and other markets
outside KCPL's regulated core utility business. The principal executive offices
of KCPL are located at 1201 Walnut, Kansas City, Missouri 64106-2124 and KCPL's
telephone number is (816) 556-2200. See "SELECTED INFORMATION CONCERNING KCPL
AND UCU -- Business of KCPL."
Upon consummation of the Mergers, KCPL will be renamed Maxim Energies, Inc.
See "MAXIM FOLLOWING THE MERGERS."
UCU. UCU is an energy company which consists of electric and natural gas
utility operations, natural gas gathering, marketing and processing and
independent power projects managed through four business groups. UCU operates
electric and gas utilities in eight states and one Canadian province. In
addition, UCU has ownership interests in 17 independent power projects in
various locations in the United States and Jamaica. UCU also markets natural gas
in the United Kingdom through several joint ventures, and owns an interest in
and operates energy joint venture interests in New Zealand and Australia. UCU
serves approximately 434,000 electric customers in four states and British
Columbia and approximately 800,000 gas customers in eight states. The Australian
joint venture serves approximately 520,000 electric customers. The principal
executive offices of UCU are located at 911 Main Street, Suite 3000, Kansas
City, Missouri 64105 and UCU's telephone number is (816) 421-6600. See "SELECTED
INFORMATION CONCERNING KCPL AND UCU -- Business of UCU."
THE KCPL MEETING
PURPOSE. At the KCPL Meeting, the holders of KCPL Common Stock will
consider and vote upon (i) a proposal to approve the Share Issuance pursuant to
which up to a maximum of 54,000,000 shares of KCPL Common Stock (such stock on
or after the Mergers is referred to herein as Maxim Common Stock) will be issued
in the UCU Merger, (ii) a proposal to approve the Maxim Stock Incentive Plan and
(iii) a proposal to approve the Maxim MIC Plan. Pursuant to the Merger
Agreement, the consummation of the Mergers is conditioned upon approval of
proposal (i) above, but is not conditioned upon approval by the shareholders of
KCPL of any other of the above proposals. If approved by the shareholders of
KCPL, each of the Maxim Plans will be implemented only if the transactions
contemplated by the Merger Agreement are consummated.
Under the MGBCL, no separate vote of KCPL shareholders is required to
approve the Mergers. However, as it is a condition to the closing of the Mergers
that KCPL shareholders approve of the Share Issuance, a vote for the Share
Issuance is, in essence, a vote for the Mergers.
12
THE KCPL BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER AGREEMENT, THE
MERGERS AND THE TRANSACTIONS CONTEMPLATED THEREBY, AUTHORIZED THE EXECUTION AND
DELIVERY OF THE MERGER AGREEMENT, AND RECOMMENDS THAT KCPL SHAREHOLDERS VOTE FOR
APPROVAL OF THE SHARE ISSUANCE, FOR APPROVAL OF THE MAXIM STOCK INCENTIVE PLAN
AND FOR APPROVAL OF THE MAXIM MIC PLAN.
See "MEETINGS, VOTING AND PROXIES -- The KCPL Meeting."
DATE, PLACE AND TIME; RECORD DATE. The KCPL Meeting is scheduled to be held
at the Hyatt Regency Crown Center Hotel, 2345 McGee, Kansas City, Missouri, on
Wednesday, August 7, 1996, commencing at 10:00 a.m., local time. Holders of
record of shares of KCPL Common Stock at the close of business on June 26, 1996
(the "KCPL Record Date") will be entitled to notice and to vote at the KCPL
Meeting. At the close of business on the KCPL Record Date, 61,902,083 shares of
KCPL Common Stock were issued and outstanding and entitled to vote.
VOTING RIGHTS; QUORUM; REQUIRED VOTE. Each outstanding share of KCPL Common
Stock is entitled to one vote upon each matter presented at the KCPL Meeting. A
majority of the voting power of the shares issued, outstanding and entitled to
vote, present in person or by proxy, shall constitute a quorum for the
transaction of business at the KCPL Meeting.
Under the rules of the NYSE, the affirmative vote of the holders of a
majority of the shares of KCPL Common Stock voting on the Share Issuance where
the total number of votes cast represents over 50 percent of all outstanding
shares of KCPL Common Stock outstanding on the KCPL Record Date is required to
approve the Share Issuance. Abstentions will have the same effect as votes cast
against the Share Issuance, but broker non-votes, if any, will be disregarded
and will have no effect on the vote on the Share Issuance. The affirmative vote
of a majority of the shares of KCPL Common Stock present and entitled to vote is
required to approve the Maxim Stock Incentive Plan and the Maxim MIC Plan.
As of the KCPL Record Date, the directors and executive officers of KCPL,
together with their affiliates as a group, beneficially own less than 1% of the
issued and outstanding shares of KCPL Common Stock.
Direct KCPL shareholder approval of the Mergers is not required under state
law for the following reasons. The UCU Merger is between Sub, a wholly-owned
subsidiary of KCPL, and UCU, both Delaware corporations. Under Section 251 of
the DGCL, only stockholders of the corporations which are parties to the merger
are required to vote. Because KCPL is not a party to the UCU Merger, no vote of
KCPL's shareholders is required under Delaware law. Further, no provision of
Missouri law requires that KCPL shareholders vote to approve the UCU Merger. The
Consolidating Merger contemplated by the Merger Agreement is a "short-form"
merger between KCPL and UCU which will be KCPL's wholly-owned subsidiary as a
result of the UCU Merger. Missouri law permits a corporation owning at least
ninety percent of the outstanding stock of another corporation to complete a
merger of such corporations without any shareholder vote. In currently pending
litigation, Western Resources, Robert L. Rives and an intervening shareholder of
KCPL contend that the Merger Agreement requires approval of two-thirds of all
outstanding KCPL shares.
See "MEETINGS, VOTING AND PROXIES -- The KCPL Meeting" and "THE MERGERS --
Certain Litigations."
THE UCU MEETING
PURPOSE. At the UCU Meeting, the holders of UCU Common Stock will be asked
to consider and vote upon a proposal to approve the Merger Agreement and the UCU
Merger.
THE UCU BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER AGREEMENT AND
THE UCU MERGER, AUTHORIZED THE EXECUTION AND DELIVERY OF THE MERGER AGREEMENT,
AND RECOMMENDS THAT UCU STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT
AND THE UCU MERGER.
See "MEETINGS, VOTING AND PROXIES -- The UCU Meeting."
13
DATE, PLACE AND TIME; RECORD DATE. The UCU Meeting is scheduled to be held
at the Conference Center at the Kansas City Convention Center, 14th Street
between Wyandotte and Central, Kansas City, Missouri 64105, on Wednesday, August
14, 1996, commencing at 2:00 p.m., local time. Holders of record of shares of
UCU Common Stock at the close of business on June 26, 1996 (the "UCU Record
Date") will be entitled to notice and to vote at the UCU Meeting. At the close
of business on the UCU Record Date, approximately 46,776,000 shares of UCU
Common Stock were issued and outstanding and entitled to vote.
VOTING RIGHTS; QUORUM; REQUIRED VOTE. Each outstanding share of UCU Common
Stock is entitled to one vote upon the Merger Agreement and the UCU Merger. A
majority of the voting power of the shares issued and outstanding and entitled
to vote, present in person or by proxy, shall constitute a quorum for the
transaction of business at the UCU Meeting.
As provided under the DGCL, the Certificate of Incorporation of UCU, as
amended (the "UCU Charter") and the bylaws of UCU (the "UCU Bylaws"), the
affirmative vote of a majority of the outstanding shares of the UCU Common Stock
entitled to vote at the UCU Meeting is required for the approval of the Merger
Agreement and the UCU Merger. Abstentions and broker non-votes will have the
same effect as votes cast against approval of the Merger Agreement and the UCU
Merger.
As of the UCU Record Date, the directors and executive officers of UCU,
together with their affiliates as a group, beneficially own 2.2% of the issued
and outstanding shares of UCU Common Stock entitled to vote at the UCU Meeting.
See "MEETINGS, VOTING AND PROXIES -- The UCU Meeting."
THE MERGERS
The Mergers will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement, as a result of which (i) as of the UCU
Effective Time, Sub will be merged with and into UCU, with UCU surviving in the
UCU Merger and (ii) immediately thereafter at the Effective Time, the UCU
Surviving Corporation will be merged with and into KCPL, with KCPL surviving
(and renamed as Maxim) in the Consolidating Merger. In addition, as of the UCU
Effective Time, (i) each issued and outstanding share of UCU Common Stock (other
than shares of UCU Common Stock owned by KCPL or UCU either directly or through
a wholly-owned Subsidiary (as defined herein)) will be converted into and become
one fully paid and nonassessable share of Maxim Common Stock and (ii) each
issued and outstanding share of common stock, $1.00 par value per share, of Sub
("Sub Common Stock") will be converted into and become one fully paid and
nonassessable share of common stock, $0.01 par value per share, of the UCU
Surviving Corporation. Each issued and outstanding share of KCPL Common Stock
held by KCPL shareholders will remain outstanding after the Mergers, unchanged,
as one share of Maxim Common Stock. Based on the number of shares of KCPL Common
Stock and UCU Common Stock outstanding as of the date of the Merger Agreement,
the holders of KCPL Common Stock and the holders of UCU Common Stock will hold
in the aggregate approximately 57% and 43%, respectively, of the total number of
shares of Maxim Common Stock outstanding immediately after the Effective Time.
KCPL has agreed under the Merger Agreement to call for redemption before the
UCU Effective Time all of the outstanding shares of each series and class of
KCPL Preferred Stock at the applicable redemption prices therefor, together with
all dividends accrued and unpaid through the applicable redemption dates. UCU
has agreed under the Merger Agreement to call for redemption all of the
outstanding shares of UCU Preferred Stock, which is the only outstanding series
or class of preferred stock of UCU, on March 3, 1997 or on such later date as
KCPL and UCU shall mutually agree. The redemption price therefor will be $25.00
per share of UCU Preferred Stock plus all accrued and unpaid dividends through
the redemption date. It is a condition to the closing of the Mergers that the
UCU Preferred Stock and KCPL Preferred Stock be redeemed before the UCU
Effective Time.
See "THE MERGER AGREEMENT -- The Mergers."
14
CERTAIN LITIGATION
The litigation summarized below concerns the legality of the Merger
Agreement and its adoption, and particularly relate to the requirement that the
Mergers in effect be approved by a vote of a majority of shares of KCPL Common
Stock voting (provided a quorum is present) rather than two-thirds of all
outstanding shares of KCPL Common Stock.
On May 20, 1996, KCPL commenced litigation captioned KANSAS CITY POWER &
LIGHT CO. V. WESTERN RESOURCES, INC, ET AL., C.A. No. 96-0552-CV-W-5 in the
United States District Court for the Western District of Missouri, Western
Division, against Western Resources, Inc. ("Western Resources") and Robert L.
Rives, a KCPL shareholder. The purpose for which the litigation was commenced
was to obtain, prior to consummation of the Mergers, declaratory judgments that
the Merger Agreement is legally valid and its adoption did not constitute a
breach of duty by KCPL's directors. On May 24, 1996, a shareholder of KCPL filed
a motion to intervene in the action as a representative of a class consisting of
similarly situated KCPL shareholders. This shareholder also requested leave to
file an answer to the complaint, in which he would assert counterclaims against
KCPL and each of its directors, who would be joined as counterclaim defendants.
The proposed counterclaims would allege that KCPL and its directors breached
fiduciary duties of care, loyalty and disclosure in responding to Western
Resources' acquisition overtures, including their adoption of the Merger
Agreement; that their actions in adopting the Merger Agreement were illegal and
ULTRA VIRES; that the adoption of the Merger Agreement illegally deprived KCPL
shareholders of voting and appraisal rights under Missouri law; and that the
adoption of the Merger Agreement was a disproportionate response to Western
Resources' acquisition offer. On June 7, 1996, this motion to intervene was
granted. KCPL believes that the counterclaims of the intervenor are without
merit and will vigorously defend.
Also on June 7, 1996, Western Resources and Rives filed counterclaims
contending, INTER ALIA, that the Merger Agreement is illegal because it does not
require approval of two-thirds of all outstanding KCPL shares and because it
does not provide KCPL shareholders with dissenters' rights. KCPL believes these
counterclaims to be without merit and will vigorously defend. The court has
scheduled a hearing on these issues for July 25, 1995. If Western Resources,
Rives, and the intervenor prevail on these issues, the Merger Agreement will
require approval of two-thirds of all outstanding KCPL shares and dissenters'
rights will be available to KCPL shareholders. See "THE MERGERS -- Certain
Litigation."
An outcome favorable to KCPL in the above described litigation is not a
condition to the consummation of the Mergers. However, it is a condition to the
consummation of the Mergers that no temporary restraining order or preliminary
or permanent injunction or other order by any federal or state court preventing
consummation of the Mergers shall have been issued and be continuing in effect
immediately before the Effective Time. An adverse outcome to the above described
litigation which results in any such order or injunction may prevent the
consummation of the Mergers.
CONDITIONS TO THE MERGERS
The respective obligations of KCPL and UCU to consummate the Mergers are
subject to the satisfaction of certain conditions, including the approval of the
Share Issuance by the shareholders of KCPL and the approval of the UCU Merger by
the stockholders of UCU; the absence of any injunction that prevents the
consummation of the Mergers; the effectiveness of the Registration Statement;
the listing on the NYSE of the shares of Maxim Common Stock to be issued in the
UCU Merger; the receipt of all material governmental approvals; the
qualification of the Mergers as a pooling of interests for accounting purposes;
obtaining necessary permits; the performance by the other party in all material
respects, or waiver, of all obligations required to be performed under the
Merger Agreement; the accuracy of the representations and warranties of the
other party set forth in the Merger Agreement as of the Closing Date (as defined
herein) (except for inaccuracies which would not reasonably be likely to result
in a material adverse effect to such other party); the receipt of an officer's
certificate from the other party stating that certain conditions set forth in
the Merger Agreement have been satisfied; there having been no material adverse
effect on the other party; the
15
receipt of opinions of counsel to the effect that the Mergers will qualify as a
tax-free reorganization; the receipt of certain material third-party consents;
and the receipt of letters from affiliates of UCU with respect to transactions
in securities of KCPL or UCU. See "THE MERGER AGREEMENT -- Conditions to Each
Party's Obligation to Effect the Mergers" and "THE MERGERS -- Certain
Litigation."
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, an exchange agent mutually
agreeable to KCPL and UCU (the "Exchange Agent") will mail transmittal
instructions to each holder of record of shares of UCU Common Stock outstanding
at the UCU Effective Time, advising such holder of the procedure for
surrendering such holder's certificates (each, an "Old Certificate") which
immediately prior to the UCU Effective Time represented certificates for shares
of UCU Common Stock that were cancelled in the UCU Merger and became instead the
right to receive shares of Maxim Common Stock. Holders of Old Certificates will
not be entitled to receive any payment of dividends or other distributions on
their Old Certificates until such certificates have been surrendered for
certificates representing shares of Maxim Common Stock. Holders of shares of UCU
Common Stock should not submit their stock certificates for exchange until a
letter of transmittal and instructions therefor are received. Holders of KCPL
Common Stock will not need to surrender their share certificates. Issued and
outstanding shares of KCPL Common Stock held by KCPL shareholders will remain
outstanding and unchanged after the Mergers but are referred to herein as Maxim
Common Stock to reflect the combined company's name change to Maxim at the
Effective Time. See "THE MERGER AGREEMENT -- The Mergers."
MAXIM PLANS
Pursuant to the Merger Agreement, Maxim will adopt the Maxim Stock Incentive
Plan and the Maxim MIC Plan to replace comparable plans of KCPL and UCU. The
Maxim Stock Incentive Plan is a comprehensive stock compensation plan providing
for the grant of stock options, stock appreciation rights, restricted stock and
performance units. The Maxim MIC Plan is a short-term incentive compensation
plan providing for awards based upon the achievement of individual, group and
corporate performance goals during periods of up to 12 months. The Maxim Plans
will only be implemented if they are approved by KCPL shareholders at the KCPL
Meeting and if the Mergers are consummated. For descriptions of the Maxim Plans,
see "THE MERGERS -- Maxim Plans" and "APPROVAL OF MAXIM PLANS."
BACKGROUND OF THE MERGERS
For a description of the background of the Mergers, see "THE MERGERS --
Background of the Mergers."
REASONS FOR THE MERGERS
KCPL and UCU believe that the Mergers offer significant strategic and
financial benefits to each company and to their respective stockholders, as well
as to their employees and customers and the communities in which they transact
business. These benefits include, among others: increased ability to diversify
into non-regulated areas; greater efficiency; increased purchasing power; lower
future rates due to cost savings resulting from the Mergers; greater
coordination of operations; expanded management resources and the ability to
select leadership from a larger and more diverse management pool; increased size
and financial stability; enhanced access to new customers and to capital
markets; stimulation of local economic growth and development; reduced
administrative costs; cost savings in a variety of other categories, which are
estimated to result in net savings of approximately $636 million over a 10-year
period following the Mergers as identified in a report prepared by Ernst & Young
LLP ("Ernst & Young"); additional operational savings identified by the
managements of KCPL and UCU after the announcement of the Original Merger; and
opportunities to enhance revenue growth. See "THE MERGERS -- Reasons for the
Mergers; Recommendations of the Boards of Directors," "-- Synergies from the
Mergers," "-- Additional Operational Benefits" and "-- Enhancement of Financial
Performance."
16
The estimated $636 million in net cost savings are not anticipated to be
realized evenly over the 10-year period following the consummation of the
Mergers. The estimated net cost savings, for each of the first 10 years
following the Mergers are (in millions): $19.2, $31.3, $42.3, $49.6, $67.7,
$82.6, $85.6, $82.4, $87.7 and $87.9, respectively. See "THE MERGERS --
Synergies from the Mergers." There can be no assurance that the combined company
will realize the cost savings estimated to occur as a result of the Mergers. In
addition, the cost savings are subject to material assumptions. See "THE MERGERS
- -- Synergies from the Mergers -- Material Assumptions Underlying Cost Savings
from Synergies."
Stockholders of KCPL and UCU may receive a copy of the Ernst & Young report
free of charge by calling 1-800-714-3312.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
In considering the recommendations of the KCPL Board and the UCU Board with
respect to the Mergers, stockholders should be aware that certain members of
KCPL's and UCU's management and Boards of Directors have certain interests in
the Mergers that are in addition to the interests of stockholders of KCPL and
UCU generally. See "THE MERGERS -- Conflicts of Interest."
KCPL. The KCPL Board, by a unanimous vote, has approved and adopted the
Merger Agreement, the Mergers and the transactions contemplated thereby,
believes that the terms of the Mergers are fair to, and in the best interests
of, KCPL's shareholders and recommends that the shareholders of KCPL vote FOR
approval of the Share Issuance and FOR approval of each of the Maxim Plans. The
KCPL Board approved and adopted the Merger Agreement after consideration of a
number of factors described under the heading "THE MERGERS -- Reasons for the
Mergers; Recommendations of the Boards of Directors" including the Proposed
Western Resources Offer and the June 17 Announcement (each as defined herein).
In addition, on June 24, 1996, the KCPL Board, after careful consideration,
rejected the Western Resources offer contained in the June 17 Announcement. See
"THE MERGERS -- Background of the Mergers" and "-- Reasons for the Mergers;
Recommendations of the Board of Directors."
UCU. The UCU Board, by a unanimous vote, has approved and adopted the
Merger Agreement and the transactions contemplated thereby, believes that the
terms of the UCU Merger are fair to, and in the best interests of, UCU's
stockholders and recommends that the stockholders of UCU vote FOR approval of
the Merger Agreement and the UCU Merger. The UCU Board approved and adopted the
Merger Agreement after consideration of a number of factors described under the
heading "THE MERGERS -- Reasons for the Mergers; Recommendations of the Boards
of Directors."
OPINIONS OF FINANCIAL ADVISORS
KCPL. On May 20, 1996, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") delivered its oral opinion, which opinion was subsequently
confirmed in written opinions dated as of May 20, 1996 and as of the date of
this Joint Proxy Statement/Prospectus, to the KCPL Board to the effect that, as
of such dates and based upon the assumptions made, matters considered and limits
of review as set forth in such opinions, the proposed Exchange Ratio of one
share of Maxim Common Stock for each share of UCU Common Stock pursuant to the
UCU Merger is fair to the holders of shares of KCPL Common Stock (other than UCU
and its affiliates) from a financial point of view. In arriving at its opinions
dated as of May 20, 1996 and as of the date of this Joint Proxy
Statement/Prospectus, the KCPL Board did not ask Merrill Lynch to consider the
WR Proposal (as defined herein) or the Proposed Western Resources Offer as
amended to reflect the terms contained in the June 17 Announcement,
respectively, and Merrill Lynch did not do so. For a discussion of why the KCPL
Board did not ask Merrill Lynch to consider such offers, see "THE MERGERS --
Reasons for the Mergers; Recommendations of the Boards of Directors -- KCPL."
The full text of the written opinion of Merrill Lynch, dated as of the date of
this Joint Proxy Statement/Prospectus, which sets forth the assumptions made,
matters considered and limits of the review undertaken in connection
17
with the opinion, is attached hereto as Annex B and is incorporated herein by
reference. HOLDERS OF SHARES OF KCPL COMMON STOCK ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. See "THE MERGERS -- Opinion of KCPL's Financial
Advisor" and Annex B.
UCU. On May 19, 1996, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") delivered its oral opinion, which opinion was subsequently confirmed in
a written opinion dated as of May 19, 1996 and a further written opinion dated
the date of this Joint Proxy Statement/Prospectus, to the effect that, as of
such dates, and subject to the assumptions made, matters considered and limits
of the review undertaken, as set forth in such opinions, the Exchange Ratio is
fair, from a financial point of view, to holders of UCU Common Stock. A copy of
the written opinion of DLJ, dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, matters considered
and limits of the review undertaken in connection with the opinion, is attached
hereto as Annex C and is incorporated herein by reference. HOLDERS OF SHARES OF
UCU ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "THE
MERGERS -- Opinion of UCU's Financial Advisor" and Annex C.
WESTERN RESOURCES' PROPOSALS
On April 14, 1996 Western Resources delivered an unsolicited proposal to the
KCPL Board pursuant to which Western Resources would acquire all of the
outstanding shares of KCPL Common Stock in exchange for Western Resources Common
Stock (as defined herein) valued at $28.00 per share of KCPL Common Stock,
subject to a "collar" limiting the amount of Western Resources Common Stock that
holders of KCPL Common Stock would receive for each share of KCPL Common Stock
to no more than 0.985 shares and no less than 0.833 shares. On April 21, 1996,
the KCPL Board, after careful consideration, rejected such proposal. On April
22, 1996, Western Resources filed preliminary materials with the SEC relating to
the Proposed Western Resources Offer pursuant to which Western Resources would
acquire the outstanding shares of KCPL Common Stock for $28.00 per share of
Western Resources Common Stock, subject to the "collar" described above and
numerous other conditions. On May 6, 1996, Western Resources announced that it
was changing the minimum number of shares of Western Resources Common Stock that
KCPL shareholders would receive for each share of KCPL Common Stock from 0.833
to 0.91 shares. On June 17, 1996, Western Resources made the June 17
Announcement (as defined herein) pursuant to which it increased the price in its
offer to merger with KCPL to $31.00 of Western Resources Common Stock for each
share of KCPL Common Stock, subject to a "collar" pursuant to which each share
of KCPL Common Stock would be exchanged for no more than 1.1 and no less than
0.933 shares of Western Resources Common Stock. On June 19, 1996, Western
Resources amended the Proposed Western Resources Offer to reflect the increase
in price and change in the "collar" announced in the June 17 Announcement. On
June 24, 1996, the KCPL Board, after careful consideration, rejected the Western
Resources offer contained in the June 17 Announcement.
As of the date of this Joint Proxy Statement/Prospectus, Western Resources
has not formally commenced the Proposed Western Resources Offer.
See "THE MERGERS -- Background of the Mergers."
CONFLICTS OF INTEREST
In considering the recommendations of the KCPL Board and the UCU Board with
respect to the Mergers, stockholders should be aware that certain members of
KCPL's and UCU's management and Boards of Directors have certain interests in
the Mergers that are in addition to the interests of stockholders of KCPL and
UCU generally.
BOARD OF DIRECTORS. The Merger Agreement provides that the board of
directors of Maxim (the "Maxim Board") will consist of 18 directors, nine of
whom will be the then existing directors of KCPL immediately prior to the
Effective Time and nine of whom will be designated by UCU. To date, UCU has not
determined which individuals, in addition to Richard C. Green, Jr., the Chairman
of the Board and Chief Executive Officer of UCU, will be its designees to serve
as directors of Maxim as of the
18
Effective Time. However, it is currently anticipated that the directors of UCU
immediately prior to the Effective Time will serve as UCU's designees to the
Maxim Board. See "THE MERGERS -- Conflicts of Interest -- Board of Directors."
EMPLOYMENT AGREEMENTS. Each of A. Drue Jennings, the Chairman of the Board,
President and Chief Executive Officer of KCPL, and Mr. Green will enter into an
employment agreement with Maxim to become effective upon the consummation of the
Mergers (each, an "Employment Agreement"). The term of each Employment Agreement
shall last until the fifth anniversary of the Effective Time. Pursuant to Mr.
Jennings' Employment Agreement, from the Effective Time until the date of the
annual meeting of shareholders of Maxim that occurs in 2002, Mr. Jennings will
serve as Chairman of Maxim, and thereafter until the expiration of his
Employment Agreement will serve as Vice Chairman of Maxim. From the Effective
Time until the earlier of the annual meeting of shareholders of Maxim that
occurs in 2002 or the date Mr. Jennings ceases to serve as Chairman, Mr. Green
will serve as Vice Chairman and Chief Executive Officer of Maxim, and thereafter
until the expiration of his Employment Agreement will serve as Chairman and
Chief Executive Officer. Pursuant to the Employment Agreements, Messrs. Jennings
and Green will receive salary, bonus and other compensation as shall be
determined by the Maxim Board, but not less than either received before the
Effective Time. Based upon current compensation levels, Messrs. Jennings and
Green would each receive an annual base salary of $630,000 and be eligible for
annual bonuses of between $0 and approximately $1,040,000, depending upon
performance. The Employment Agreements provide for the payment by Maxim of
severance benefits in the event of the termination of employment by the
Executive under specified circumstances. Based upon the salary levels currently
in effect, if the employment of Mr. Jennings or Mr. Green is terminated
immediately following the consummation of the Mergers under circumstances
entitling them to receive severance benefits, they would be entitled to a
severance payment ranging from approximately $1.9 million to $3.1 million, plus
certain other amounts in respect of bonuses and benefits. No other officers or
directors of KCPL or UCU have entered into employment or other agreements with
Maxim. See "THE MERGERS -- Conflicts of Interest -- Employment Agreements."
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS. Under certain agreements entered
into by KCPL and UCU, certain officers of KCPL and UCU may be entitled to
payment of certain severance benefits upon termination of employment following
consummation of the Mergers. In addition, stock options outstanding under UCU's
Amended and Restated 1986 Stock Incentive Plan (the "UCU Plan") and the UCU 1986
Stock Incentive Plan (the "UCU 1986 Plan") vested upon execution of the Original
Merger Agreement. Restricted stock outstanding under the UCU 1986 Plan will vest
upon consummation of the UCU Merger. The aggregate amount which could be payable
under certain circumstances upon termination of employment after the Mergers to
the five most highly compensated executive officers of KCPL who have entered
into the "KCPL Severance Agreements" (as defined herein) is approximately $6.1
million. In addition, an aggregate of approximately $450,000 in deferred
compensation would be payable to these individuals upon termination of
employment after the Mergers. The aggregate amount which could be payable under
certain circumstances upon termination of employment after the Mergers to the
five most highly compensated executive officers of UCU who have entered into the
"UCU Severance Agreements" (as defined herein) is approximately $4.9 million.
Approximately 290,000 options vested for such officers upon execution of the
Merger Agreement. Approximately 71,800 shares of restricted stock will vest upon
consummation of the UCU Merger. See "THE MERGERS -- Conflicts of Interest --
Employee Plans and Severance Arrangements."
INDEMNIFICATION. The parties have agreed in the Merger Agreement that Maxim
will indemnify, to the fullest extent permitted by applicable law, the present
and former officers, directors and employees of each of the parties to the
Merger Agreement or any of their Subsidiaries (as defined herein) against
certain liabilities (i) arising out of actions or omissions occurring at or
prior to the Effective Time that arise from or are based on such service as an
officer, director or employee or (ii) that are based on or arise out of or
pertain to the transactions contemplated by the Merger Agreement, and to
maintain policies of directors' and officers' liability insurance for a period
of not
19
less than six years after the Effective Time, provided that Maxim shall not be
required to expend in any year an amount in excess of 200% of the annual
aggregate premium currently paid by KCPL and UCU for such insurance. To the
fullest extent permitted by law, from and after the Effective Time, all rights
to indemnification existing in favor of the employees, agents, directors or
officers of KCPL, UCU and their respective Subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their respective
articles of incorporation and bylaws in effect on January 19, 1996, or otherwise
in effect on January 19, 1996, shall survive the Mergers and shall continue in
full force and effect for a period of not less than six years from the Effective
Time. See "THE MERGERS -- Conflicts of Interest -- Indemnification" and "THE
MERGER AGREEMENT -- Directors' and Officers' Indemnification."
EMPLOYEE STOCK OPTIONS
All stock options to acquire UCU Common Stock under the existing employee
stock incentive plans of UCU that are outstanding at the UCU Effective Time will
be converted into options to buy Maxim Common Stock, and the number of shares
and exercise price under such options will, in most cases, be adjusted to
reflect the Exchange Ratio. See "THE MERGERS -- Maxim Plans" and "THE MERGER
AGREEMENT -- Benefit Plans."
MANAGEMENT OF MAXIM
In connection with the Mergers, the Maxim Board, at the Effective Time, will
consist of 18 persons, nine of whom will be the then existing directors of KCPL
immediately prior to the Effective Time, and nine of whom will be designated by
UCU. At the Effective Time, A. Drue Jennings will become the Chairman of Maxim
and Richard C. Green, Jr., will become Vice Chairman and Chief Executive Officer
of Maxim. Robert K. Green, brother of Richard C. Green, Jr., will be the
president of Maxim and Marcus Jackson will serve as Maxim's executive vice
president and chief operating officer. Robert K. Green is currently president of
UCU and Marcus Jackson is senior vice president and chief operating officer of
KCPL. See "THE MERGERS -- Employment Agreements" and "MAXIM FOLLOWING THE
MERGERS -- Management of Maxim."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual consent of KCPL and UCU; by any party if the Mergers are
not consummated by December 31, 1997 (which date may be extended to December 31,
1998 under certain circumstances); by any party if the requisite stockholder
approvals are not obtained or if any state or federal law or court order
prohibits consummation of the Mergers; by a non-breaching party if there occurs
a material breach of the Merger Agreement which is not cured within 20 days; or
by either party, under certain circumstances, as a result of a more favorable
third-party tender offer or business combination proposal with respect to such
party. The Merger Agreement requires that termination fees be paid under certain
circumstances, including if there is a material, willful breach of the Merger
Agreement or if, under certain circumstances, a business combination with a
third party is entered into or consummated within two and one-half years of the
termination of the Merger Agreement. The aggregate termination fees under these
provisions may not exceed $58,000,000. See "THE MERGER AGREEMENT -- Termination
Fees."
The Merger Agreement may be amended by the Boards of Directors of the
parties at any time before or after the approval of the Share Issuance by the
shareholders of KCPL and the approval of the UCU Merger by the stockholders of
UCU, but after such approvals, no amendment may be made which alters or changes
(i) the amount or kind of shares, rights or the manner of conversion of such
shares, or (ii) the terms or conditions of the Merger Agreement, if such
alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the KCPL shareholders or UCU stockholders, except for
alterations or changes that could otherwise be adopted by the Maxim Board
without the further approval of such stockholders. See "THE MERGER AGREEMENT --
Amendment and Waiver."
20
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to KCPL's or UCU's obligations to consummate the
Mergers may be waived by the other party. Any determination to waive a condition
would depend upon the facts and circumstances existing at the time of such
waiver and would be made by the waiving party's Board of Directors, exercising
its fiduciary duties to such party and its stockholders. See "THE MERGER
AGREEMENT -- Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Mergers is conditioned upon the receipt by KCPL of
an opinion from Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps") and the
receipt by UCU of an opinion from Blackwell Sanders Matheny Weary & Lombardi
L.C. ("Blackwell Sanders") substantially to the effect that (i) the Mergers will
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) no gain or loss will be recognized by
stockholders of UCU who exchange their shares of UCU Common Stock for shares of
Maxim Common Stock as a result of the Mergers, and (iii) no gain or loss will be
recognized by shareholders of KCPL as a result of the Mergers. See "THE MERGERS
- -- Certain Federal Income Tax Consequences."
STOCKHOLDERS OF KCPL AND UCU ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGERS, INCLUDING
THE APPLICATION TO THEM AND POSSIBLE EFFECT UPON THEM OF ANY PENDING
LEGISLATION, THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX LAWS.
MAXIM FOLLOWING THE MERGERS
At the Effective Time, KCPL will change its name to Maxim or such other name
as KCPL and UCU shall mutually agree. The headquarters of Maxim will be in
Kansas City, Missouri. The utility businesses of Maxim will serve approximately
860,000 electric customers and 800,000 gas customers in portions of Missouri,
Kansas, Colorado, Iowa, Michigan, Minnesota, Nebraska, West Virginia and British
Columbia. A joint venture in Australia will serve approximately 520,000 electric
customers. The business of Maxim will primarily consist of owning and operating
electric and gas utilities, including interests in several international joint
ventures, and also owning and operating various non-utility subsidiaries.
Pursuant to the Merger Agreement, Maxim shall provide charitable
contributions and community support within the service areas of KCPL and UCU at
levels substantially comparable to the levels of charitable contributions and
community support provided by such parties within their service areas within the
two-year period immediately prior to the Effective Time.
See "MAXIM FOLLOWING THE MERGERS."
REGULATORY MATTERS
The approval of the Nuclear Regulatory Commission under the Atomic Energy
Act of 1954, as amended (the "Atomic Energy Act"), the Federal Energy Regulatory
Commission (the "FERC") under the Federal Power Act, as well as the approval of
the utility regulators in Missouri, Kansas, Colorado, Iowa, Michigan, Minnesota,
West Virginia and British Columbia under applicable state and provincial laws
and the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), are required in order to consummate the Mergers. In addition, the
approval of governmental authorities in Australia and New Zealand are required.
The receipt of all of these approvals is presently anticipated to occur by the
second quarter of 1997.
KCPL and UCU intend to request a "no-action" letter from the staff of the
SEC, confirming their view that (i) the Mergers will not require the prior
approval of the SEC pursuant to Section 9(a)(2) of the Public Utility Holding
Company Act of 1935 (the "1935 Act") and (ii) following consummation of the
Mergers, Maxim will be a holding company entitled to claim exemption pursuant to
Rule 10 from
21
all provisions of the 1935 Act. In the event that the staff of the SEC does not
concur with this view, KCPL and UCU will file an application with the SEC for
the necessary approvals and exemptions in connection with the Mergers.
KCPL and UCU possess municipal franchises and environmental permits and
licenses that require the consent of the licensor to the Mergers or may need to
be renewed or replaced as a result of the Mergers. Neither KCPL nor UCU
anticipate any difficulties at the present time in obtaining such consents,
renewals, replacements or transfers.
Assuming the requisite regulatory approvals are obtained, Maxim's utility
operations will be subject to regulation by state and provincial utility
regulators in Missouri, Kansas, Colorado, Iowa, Michigan, Minnesota, West
Virginia and British Columbia and certain non-utility operations will be subject
to regulation in Oklahoma, South Dakota and Texas. In addition, certain
investment activities of Maxim will be subject to the jurisdiction of regulatory
authorities in Australia and New Zealand.
Under the Merger Agreement, KCPL and UCU have agreed to use all commercially
reasonable efforts to obtain all governmental authorizations necessary or
advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek intervention in these proceedings to oppose
the Mergers or to have conditions imposed upon the receipt of necessary
approvals. While KCPL and UCU believe that they will receive the requisite
regulatory approvals for the Mergers, there can be no assurance as to the timing
of such approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Mergers that final orders approving the Mergers be obtained from the various
federal and state regulators described above on terms and conditions which would
not have, or foreseeably could not have, a material adverse effect on the
business, assets, financial condition or results of operations of Maxim and its
prospective subsidiaries taken as a whole, or which would be materially
inconsistent with the agreements of the parties contained in the Merger
Agreement. There can be no assurance that any such approvals will not contain
terms or conditions that cause such approvals to fail to satisfy such condition
to the consummation of the Mergers.
See "THE MERGERS -- Regulatory Matters."
ACCOUNTING TREATMENT
KCPL and UCU believe that the Mergers will be treated as a pooling of
interests for accounting purposes. See "THE MERGERS -- Accounting Treatment."
The receipt by each of KCPL and UCU of a letter from their respective
independent accountants, stating that the transaction will qualify as a pooling
of interests, is a condition to the consummation of the Mergers. This condition
may be waived, but KCPL and UCU presently have no intention to do so. See "THE
MERGER AGREEMENT -- Conditions to Each Party's Obligation to Effect the
Mergers."
DISSENTERS' RIGHTS
Holders of KCPL Common Stock and UCU Common Stock will not have dissenters'
rights of appraisal with respect to the Mergers. See "THE MERGERS -- Dissenters'
Rights."
Under the Original Merger Agreement, dissenters' rights of appraisal were
available to shareholders of KCPL. In currently pending litigation, Western
Resources, Mr. Rives, and an intervening KCPL shareholder contend that by
adopting the Merger Agreement, KCPL has illegally deprived KCPL shareholders of
dissenters' rights. See "THE MERGERS -- Certain Litigation."
DIVIDENDS
KCPL AND UCU. Pursuant to the Merger Agreement, each of KCPL and UCU have
agreed not to, and have agreed not to permit any of their Subsidiaries to,
declare or pay any dividends on, or make other distributions in respect of, any
of its capital stock, other than (i) to such party or any of its wholly-owned
Subsidiaries, (ii) dividends required to be paid on the UCU Preferred Stock or
series or class of KCPL Preferred Stock, (iii) regular quarterly dividends to be
paid on KCPL Common Stock and UCU Common Stock not to exceed 105% of the
dividends for the comparable period of the prior
22
fiscal year, and (iv) dividends by Aquila Gas Pipeline Corporation ("AGP"),
UtiliCorp U.K., Inc., UtiliCorp U.K. Limited, West Kootenay Power Ltd.,
UtiliCorp N.Z., Inc. and any Subsidiaries of such entities. KCPL currently pays
an annual dividend of $1.56 per share, and UCU currently pays an annual dividend
of $1.76 per share. See "THE MERGER AGREEMENT -- Certain Covenants."
MAXIM. The dividend policy of Maxim will be determined upon periodic
evaluation by the Maxim Board of Maxim's results of operations, financial
condition, capital requirements and such other considerations as the Maxim Board
considers relevant in accordance with applicable laws. Although there can be no
assurance, it is the intention of KCPL and UCU, subject to the fiduciary
obligations of the Maxim Board, that the initial annual dividend per share of
Maxim Common Stock following the Effective Time will be at least $1.85 per
share. See "MAXIM FOLLOWING THE MERGERS -- Dividends" and "DESCRIPTION OF MAXIM
COMMON STOCK."
COMPARISON OF STOCKHOLDERS' RIGHTS
As a result of the UCU Merger, holders of UCU Common Stock will become
shareholders of KCPL (to be renamed Maxim upon consummation of the Consolidating
Merger), a Missouri corporation. Such holders will have certain rights as Maxim
shareholders that are different than they had as stockholders of UCU, both
because of the differences between KCPL's Restated Articles of Consolidation
(the "KCPL Charter" or, after the name change, the "Maxim Charter") and KCPL's
Bylaws (the "KCPL Bylaws" or, after the name change, the "Maxim Bylaws"), on the
one hand, and the UCU Charter and the UCU Bylaws, on the other hand, and because
of differences between Missouri and Delaware corporation law. For a comparison
of the charter and bylaw provisions of KCPL and UCU and of Missouri and Delaware
law, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
23
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
v. ) Civil Action No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT L. RIVES, )
)
Defendants. )
ANSWER OF DEFENDANTS
WESTERN RESOURCES, INC. AND ROBERT L. RIVES
Defendants Western Resources, Inc. ("Western Resources") and Robert L.
Rives ("Rives"), by their undersigned attorneys, answer the complaint of
plaintiff Kansas City Power & Light Company ("KCPL") as follows:
1. Defendants admit the allegations of Paragraph 1.
2. Defendants admit the allegations of Paragraph 2.
3. Defendants deny the allegations of Paragraph 3, except defendants admit
that plaintiff has filed this action, purporting to seek declaratory relief
concerning the legality, validity and enforceability of the merger agreement
between KCPL and UtiliCorp United Inc. ("UtiliCorp"), dated May 20, 1996, (the
"Revised Merger Agreement"). Defendants further admit that (a) the Revised
Merger Agreement purports to supersede the merger agreement, dated January 19,
1996 (the "Original Merger Agreement"); (b) the ultimate objective of the
Revised Merger Agreement purports to be the same as that of the Original Merger
Agreement and that is
a business combination of KCPL and UtiliCorp; and (c) the Revised Merger
Agreement purports to eliminate the requirement for approval by the holders of
two-thirds of KCPL's outstanding shares as was required by the Original Merger
Agreement.
4. Defendants deny the allegations of Paragraph 4, except defendants admit
that (a) on or about May 3, 1996, Western Resources filed a Definitive Proxy
Statement with the Securities and Exchange Commission ("the Western Resources
Proxy Statement") which was disseminated to KCPL shareholders shortly
thereafter, (b) the Western Resources Proxy statement sought proxies from KCPL
shareholders to vote against the UtiliCorp merger, and (c) Rives, among others,
was identified in the Western resources Proxy Statement as an individual who
might solicit proxies. Defendants lack sufficient knowledge or information to
form a belief as to what KCPL "reasonably apprehends," and therefore deny those
allegations.
5. Defendants lack sufficient knowledge or information to form a belief as
to the truth of the allegations of Paragraph 5, and therefore deny them.
6. Defendants admit that KCPL is a Missouri corporation whose
headquarters and principal place of business are located in Kansas City,
Missouri. Defendants further admit that KCPL is a medium-sized public utility
engaged in the generation, transmission, distribution and sale of electricity
to over 430,000 customers in a 4,700 square mile area located in all or
portions of 23 counties in western Missouri and eastern Kansas. Defendants lack
sufficient knowledge or information to form a belief as to the truth of the
remaining allegations of Paragraph 6 and therefore deny them.
7. Defendants deny the allegations of Paragraph 7, except defendants admit
that (a) Western Resources is a Kansas corporation whose headquarters and
principal place of business
-2-
are located in Topeka, Kansas; (b) Western Resources is engaged principally in
the production, purchase, transmission, distribution and sale of electricity and
the delivery and sale of natural gas, and (c) that Western Resources has
transacted business in Missouri.
8. Defendants deny the allegations contained in Paragraph 8, except
defendants admit that on or about April 22, 1996, Rives, a citizen of Kansas,
and a record and beneficial owner of KCPL shares, sent a letter to Jeannie Sell
Latz, KCPL's Chief Legal Officer ("April 22 Rives Letter"), requesting that KCPL
make available for inspection and review, among other things, KCPL's stock
ledger and list of shareholders. Defendants further state that the April 22
Rives Letter speaks for itself and deny any allegations inconsistent with the
April 22 Rives Letter.
9. Defendants admit that on January 19, 1996, KCPL entered into the
Original Merger Agreement with UtiliCorp and that UtiliCorp is a Delaware
corporation with its principal place of business in Kansas City, Missouri.
Defendants lack sufficient knowledge or information to form a belief as to the
truth of the remaining allegations of Paragraph 9 and therefore deny them.
10. Defendants deny the allegations of Paragraph 10 and further state that
the Original Merger Agreement speaks for itself.
11. Defendants admit that on or about April 4, 1996, KCPL and UtiliCorp
filed a Joint Proxy Statement/Prospectus with the Securities and Exchange
Commission ("KCPL/UtiliCorp Joint Proxy Statement") which purported to describe
the benefits of the UtiliCorp merger and the opinions rendered by financial
advisors to KCPL and UtiliCorp. Defendants further state that the KCPL/UtiliCorp
Joint Proxy Statement speaks for itself.
-3-
Defendants lack sufficient knowledge or information to form a belief as to the
truth of the remaining allegations of Paragraph 11 and therefore deny them.
12. Defendants admit the allegations of Paragraph 12.
13. Defendants deny the allegations of Paragraph 13, except defendants
admit that on April 14, 1996 John E. Hayes, Jr. wrote a letter to Drue Jennings
("April 14 Letter") in which Western Resources made a written merger proposal to
the KCPL board of directors pursuant to which KCPL would merge with Western
Resources in a transaction where each KCPL common shareholder would receive,
subject to certain limitations, $28 worth of Western common stock in exchange
for each KCPL share of stock. Defendants further state the April 14 Letter
speaks for itself and deny any allegations inconsistent with the April 14
Letter.
14. Defendants deny the allegations of Paragraph 14, except that defendants
admit that the April 14 Letter was publicly disseminated.
15. Defendants deny the allegations of Paragraph 15, except defendants
admit that on April 22, 1996, KCPL issued a press release ("April 22 Press
Release"), and defendants further state that the April 22 Press Release speaks
for itself.
16. Defendants deny the allegations of Paragraph 16, except that defendants
admit that on or about April 22, 1996, Western Resources filed a Preliminary
Proxy Statement with the SEC ("Western Resources Preliminary Proxy Statement")
and a Preliminary Prospectus for an Offer to Exchange Each Outstanding Share of
Common Stock of Kansas City Power & Light Company for Western Resources Common
Stock ("Western Resources Preliminary Prospectus" and "Western Resources Offer"
respectively). Defendants further state that the Western
-4-
Resources Preliminary Prospectus and Western Resources Offer speak for
themselves and deny any allegation inconsistent with their terms.
17. Defendants lack sufficient knowledge or information to form a belief as
to the truth of the allegations of Paragraph 17 and therefore deny them.
18. Defendants admit that the action contemplated by the Revised Merger
Agreement purports to have the same ultimate effect as the transaction
contemplated by the Original Merger Agreement. Defendants further state that the
Revised Merger Agreement speaks for itself.
19. Defendants lack sufficient knowledge or information to form a belief as
to the truth of the allegations of Paragraph 19 and therefore deny them.
Defendants further state that the Revised Merger Agreement speaks for itself.
20. Defendants admit that the Revised Merger Agreement contemplates KCPL
creating a new wholly owned subsidiary which will then merge with UtiliCorp, and
almost instantaneously, KCPL will merge with this subsidiary in a short form
merger. Defendants lack sufficient knowledge or information to form a belief as
to the truth of the remaining allegations of Paragraph 20, and therefore deny
them.
21. Defendants deny the allegations of Paragraph 21, except that defendants
admit that Rule 312.00 et seq. of the New York Stock Exchange ("NYSE") Listed
Company Manual contains a "Shareholder Approval Policy." Defendants further
state that the Shareholder Approval Policy speaks for itself.
22. Defendants deny the allegations of Paragraph 22, except that defendants
admit that Western Resources and Rives maintain, as more fully set forth in the
Counterclaim filed herewith, that adoption of the Revised Merger Agreement
violates Missouri law and constitutes
-5-
breaches of fiduciary duty to KCPL's shareholders. Defendants lack sufficient
knowledge or information to form a belief as to what plaintiff "anticipates" or
"apprehends," and therefore deny those allegations.
23. Defendants lack sufficient knowledge or information to form a belief as
to the truth of the allegations of Paragraph 23, and therefore deny them.
24. Defendants admit that Rives has standing in any capacity and deny the
remaining allegations of Paragraph 24.
25. Defendants admit the allegations of Paragraph 25.
COUNT I
(Declaratory Judgment Against Western Resources)
26. Defendants incorporate their responses to Paragraphs 1 through 25 as if
fully set forth herein.
27. Defendant Western Resources admits the allegations of Paragraph 27. No
response is required from defendant Rives because Paragraph 27 is directed
solely to Western Resources.
28. Paragraph 28 purports to state a legal conclusion to which no answer is
required. To the extent an answer is required, defendant Western Resources
denies the allegations of Paragraph 28. No response is required from defendant
Rives because Paragraph 28 is directed solely to defendant Western Resources.
29. Paragraph 29 contains legal conclusions and argument to which no answer
is required. To the extent an answer is required, defendant Western Resources
admits the
-6-
allegations of Paragraph 29. No response is required from defendant Rives
because Paragraph 29 is directed solely to defendant Western Resources.
30. Paragraph 30 states a legal conclusion to which no answer is required.
To the extent an answer is required, defendant Western admits that plaintiff
requests a declaratory judgment that Western Resources lacks standing to
challenge the Revised Merger Agreement, the transaction contemplated thereby, or
the events or acts leading to its adoption, but denies that KCPL is entitled to
any such relief. No response is required from defendant Rives because Paragraph
30 is directed solely to defendant Western Resources.
31. Defendant Western Resources denies the allegations of Paragraph 31. No
response is required from defendant Rives because Paragraph 31 is directed
solely to defendant Western Resources.
COUNT II
(Declaratory Judgment Against Western Resources and Rives)
32. Defendants incorporate their responses to Paragraphs 1 through 31 as if
fully set forth herein.
33. Defendants deny the allegations of Paragraph 33.
34. Defendants deny the allegations of Paragraph 34.
35. Paragraph 35 purports to state a legal conclusion to which no answer is
required. To the extent an answer is required, defendants admit that plaintiff
seeks a declaratory judgment in Paragraph 35 but deny that plaintiff is entitled
to any such relief.
36. Defendants deny the allegations of Paragraph 36.
-7-
COUNT III
(Declaratory Judgment Against Western Resources and Rives)
37. Defendants incorporate their responses to Paragraphs 1 through 36 as if
fully set forth herein.
38. Defendants deny the allegations of Paragraph 38.
39. Defendants deny the allegations of Paragraph 39.
40. Paragraph 40 purports to state a legal conclusion to which no answer is
required. To the extent an answer is required, defendants admit that plaintiff
seeks a declaratory judgment in Paragraph 40, but deny that plaintiff is
entitled to any such relief.
41. Defendants deny the allegations of Paragraph 41.
FIRST AFFIRMATIVE DEFENSE
42. The Complaint fails to state a claim upon which relief may be granted.
WHEREFORE, having fully answered, defendants pray for entry of judgment in
their favor on each and every count, that the Court find the Revised Merger
Agreement and its proposed transaction to be invalid, illegal and unenforceable
as a violation of Missouri law, that plaintiff's Complaint be dismissed with
prejudice, that defendants be awarded their attorney's fees and disbursements,
and that the court award defendants such other and further relief as the Court
deems just.
-8-
STINSON, MAG & FIZZELL, P.C.
By /s/ Lawrence M. Berkowitz
----------------------------------------
Lawrence M. Berkowitz, MO 20752
Kurt D. Williams, MO 36957
1201 Walnut Street
Kansas City, Missouri 64106
816-842-8600
Attorneys for Defendants Western Resources, Inc.
and Robert L. Rives
John L. Hardiman, Esq.
Tario Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004-2498
Attorneys for Western Resources, Inc. and
Robert L. Rives
John Rosenberg, Esq.
Richard D. Terrill, Esq.
WESTERN RESOURCES, INC.
818 Kansas Avenue
P.O. BOX 889
Topeka, Kansas 66601
Attorneys for Western Resources.
-9-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a copy of the foregoing was sent via facsimile
and first class mail this 7th day of June 1996, to:
David F. Oliver
Bryan Cave LLP
3500 One Kansas City Place
1200 Main
Kansas City, Missouri 64105
and
Steven J. Rothschild
R. Michael Lindsey
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
P.O. BOX 636
Wilmington, Delaware 19899
Attorneys for Plaintiff
Michael E. Waldeck
Niewald, Waldeck & Brown
4100 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Attorney for Intervenor Defendant
/s/ Lawrence M. Berkowitz
------------------------------------
Attorneys for Defendants
-10-
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff/ )
Counterclaim Defendant, )
)
v. ) Civil Action No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT L. RIVES, )
)
)
Defendants/ )
Counterclaim Plaintiffs. )
COUNTERCLAIM OF
WESTERN RESOURCES, INC. AND ROBERT L. RIVES
Counterclaim Plaintiffs Western Resources, Inc. ("Western Resources") and
Robert L. Rives ("Rives"), by their attorneys, and for their Counterclaims for
Declaratory Judgment and Injunctive Relief, allege as follows:
NATURE OF THE COUNTERCLAIM
1. This counterclaim is for a declaratory judgment and injunction to enjoin
Counterclaim Defendant Kansas City Power & Light Company ("KCPL") and its
directors from continuing to violate Missouri General and Business Corporation
Law ("Missouri BCL") and from breaching fiduciary duties owned to KCLP
shareholders.
2. On the eve of a rejection by KCPL shareholders of a proposed merger with
UtiliCorp United Inc. ("UtiliCorp") (the "Merger"), KCLP "restructured" the
transaction, canceled the vote on the original transaction, and announced that
it plans to consummate the new
transaction - which it concedes is the same merger in another form - without the
two-thirds vote of all outstanding KCPL shares required by Missouri law.
3. KCPL claims to be able to accomplish the new transaction by issuing
authorized shares to UtiliCorp, creating a new wholly-owned subsidiary, and
merging that subsidiary first with UtiliCorp and then with KCPL. KCPL contends
that this transaction does not require a "merger vote" under Missouri law but
rather only a plurality vote of shareholders mandated by the New York Stock
Exchange to approve the issuance of shares to UtiliCorp shareholders. Thus, KCPL
purports to accomplish its merger with only minority support of shareholders
rather than the two-thirds vote of all outstanding shares contemplated by ss.
351.425 of the Missouri BCL. In the process, KCPL's plan will frustrate the
acquisition efforts of Western Resources, a competing bidder for KCPL, and the
legitimate voting expectations of KCPL shareholders such as Rives.
THE PARTIES
4. Counterclaim Plaintiff Western Resources is a Kansas corporation with
its principal place of business in Topeka, Kansas. Western Resources is a public
utility principally engaged in the generation, transmission, distribution and
sale of electricity in Kansas and the transmission, distribution and sale of
natural gas in Kansas and Oklahoma.
5. Counterclaim Plaintiff Rives is a record and beneficial owner of shares
of common stock of KCPL and a citizen of Kansas.
6. Counterclaim Defendant KCPL is a Missouri corporation with its principal
place of business in Kansas City, Missouri. KCPL is a public utility engaged in
the generation, transmission, distribution and sale of electricity in western
Missouri and eastern Kansas.
-2-
7. Pursuant to 28 U.S.C. ss. 1367 and Rule 13 of the Federal Rules of Civil
Procedure, this Court has supplemental jurisdiction over Western Resources and
Rives' counterclaims because they form part of the same case or controversy.
FACTS COMMON TO ALL COUNTS
The Competing Offers to KCPL Shareholders
8. On January 19, 1996, KCPL and UtiliCorp announced that they had entered
into an Agreement and Plan of Merger (the "Original Merger Agreement") pursuant
to which the shareholders of KCPL would receive one share of stock in a new
company for each of their KCPL shares, while UtiliCorp's shareholders would
receive 1.096 new shares for every UtiliCorp share. KCPL entered into the
Original Merger Agreement despite the fact that KCPL was aware of Western
Resources' continuing interest in pursuing a combination with KCPL.
9. Consummation of the Original Merger Agreement was conditioned on, among
other things, the approval of KCPL's shareholders. KCPL recognized - indeed, it
informed its shareholders - that applicable Missouri law required two-thirds of
KCPL's outstanding shares to approve a merger.
KCPL Schedules a Shareholder Vote on the Merger
10. On April 4, 1996, KCPL sent notice to its shareholders of record as of
April 3, 1996 that a vote on the proposed KCPL/UtiliCorp merger would be held at
KCPL's annual shareholder meeting (the "Annual Meeting"), and it scheduled that
meeting for 10:00 a.m. on May 22, 1996 at the Nelson-Atkins Museum in Kansas
City in compliance with KCPL's amended by-laws.
-3-
11. KCPL's "Notice of Annual Meeting" expressly provided that shareholders
would have the opportunity to vote on the proposed merger at that time and place
and that "Holders of KCPL Common stock are entitled to dissenters' rights...."
12. On April 14, 1996, after undertaking a further detailed review of the
benefits from a combination of Western and KCPL, Western proposed a merger to
KCPL. Pursuant to this proposal, Western Resources would acquire all of the
outstanding shares of KCPL common stock in return for $28 worth of Western
Resources common stock for each KCPL share. The exchange ratio was subject to a
collar so that KCPL shareholders would receive no less than .833 and no more
than .985 shares of Western Resources common stock for each share of KCPL common
stock. (The bottom of the collar was subsequently raised by Western Resources
from .833 to .91 on May 6, 1996.)
13. On April 22, 1996, KCPL rejected the Western Resources proposal and
refused even to meet with Western Resources' representatives to discuss the
offer. Later on that date, Western Resources subsequently announced its
intention to take its offer directly to KCPL's shareholders by commencing an
exchange offer for KCPL's shares and soliciting proxies against the Merger.
14. In response, KCPL, upon information and belief, spent millions of
dollars on advertising and soliciting proxies in an effort to persuade its
shareholders to support the Merger.
15. The manner in which KCPL and UtiliCorp conducted the proxy campaign
demonstrated a determination to obtain approval for the merger virtually at all
costs and by whatever means possible. KCPL's representatives publicly stated
that even if the shareholders failed to approve the Merger, KCPL would not
consider a merger with Western Resources.
-4-
KCPL's and UtiliCorp's methods exceeded the bounds of a normal hard-fought proxy
contest and included disseminating false and misleading statements in an attempt
to persuade KCPL's shareholders to vote for the Merger.
16. For example, KCPL did not disclose the actual compensation that could
be provided to Mr. Drue Jennings, President, Chairman and Chief Executive
Officer of KCPL, if the Merger was consummated. Although the KCPL/UtiliCorp
Joint Proxy Statement summarized in the abstract terms and conditions of
proposed employment and severance agreements between Mr. Jennings and the new
post-Merger company, the proxy materials failed to disclose the actual dollar
amounts that Mr. Jennings could be paid and the fact that Mr. Jennings could
resign his employment for any reason after three years and still receive a full
three years worth of severance benefits totaling over $3 million.
17. Thus, a May 10, 1996 Wichita Business Journal report titled "Question
of Motivation: Jennings' Payout at Issue in Merger," claimed that, based upon
past salary, bonus and benefit levels for Mr. Jennings and his UtiliCorp
counterpart (Richard Green), Mr. Jennings could leave the newly-merged company
relatively soon after the Merger and "could receive more than $6 million, by
some estimates." That report, which used KCPL's and UtiliCorp's public filings
for its calculations and assumptions, stated that "[i]f the range [of Mr.
Jennings' salary] is anywhere near what Green made last year, Jennings could be
looking at a $6 million reason to leave the new company within a few years of a
completed KCPL/UtiliCorp merger."
18. Rives, along with thousands of other KCPL shareholders, voted his
shares against the UtiliCorp/KCPL merger with the expectation that his vote
- -along with the millions of votes cast by other KCPL shareholders - would be
counted. It became clear that the Merger was in
-5-
jeopardy of not receiving the necessary vote under the Missouri BCL. For
example, in a May 20, 1996 headline, The Wall Street Journal reported that
"UtiliCorp Merger Could be on the Rocks," and "Western Resource's Bid for Kansas
City Power is Gaining Supporters." The Journal article quoted investors and
influential financial analysts who recommended KCPL shareholders vote against
the Merger.
19. On May 15, 1996, the widely-respected Institutional Shareholder Service
("ISS") recommended that investors vote against the Merger due to "the economic
value of the two offers." Observing that "Western has a proven track record of
successfully working through utility mergers in a way that creates value for
shareholders and savings for customers," the ISS stated that "[u]nder a Western
offer, shareholders would receive a higher premium for their shares and an
implied dividend increase ranging from 20 percent to 30 percent, and they would
retain an interest in a combined company with a stronger balance sheet and
better access to capital markets."
KCPL and UtiliCorp Respond to Imminent Defeat
20. Representatives of KCPL have conceded publicly that KCPL knew that it
would not obtain the required two-thirds approval for the Merger if the
shareholder vote had been permitted to proceed as scheduled on May 22, 1996. As
a result, on May 20, 1996, in order to avoid a negative vote, the KCPL board of
directors unilaterally postponed the shareholder vote on the Merger.
21. KCPL and UtiliCorp then disclosed a plan intended to achieve precisely
the same objective as the Original Merger Agreement - the merger of KCPL and
UtiliCorp - while contending that the two-thirds voting requirements in ss.
351.425 of the Missouri BCL was
-6-
inapplicable (the "Revised Merger Agreement"). The Revised Merger Agreement
provides for KCPL to issue to UtiliCorp shareholders KCPL shares that were
authorized at the 1992 KCPL annual meeting (pursuant to a proxy statement which
made no reference to the dilution or elimination of voting rights or the
possible future use of authorized shares to accomplish a merger and circumvent
the two-third shareholder vote under Missouri law.) KCPL will then create a new
wholly-owned subsidiary which will then merge with UtiliCorp and, almost
instantaneously, KCPL will merge with the subsidiary in a short-form merger.
22. KCPL has stated in press releases that despite the change in form, the
transaction remains intended to achieve a merger of UtiliCorp and KCPL and,
other than modification of the exchange ratio (one-to-one instead of
one-to-1.096), the other substantive terms of the merger remain the same.
23. KCPL contends that the only vote that the newly-structured transaction
is subject to is the New York Stock Exchange requirement of a plurality vote
(50% of those shares voting at the meeting - perhaps as little as 25% of the
total outstanding shares plus one) approving the issuance of KCPL shares.
24. KCPL's intention to merge with only a plurality vote, besides evading
Missouri law, will deprive KCPL shareholders of the legitimate and expected
fruits of their exercise of the corporate suffrage. KCPL's efforts to
"restructure" its proposed merger with UtiliCorp will also deny its shareholders
other rights provided by Missouri law, including "dissenter's rights" as
provided by Mo. Rev. Stat. ss. 351.405, which requires those shareholders who
object to a merger to be paid fair value in cash for their stock.
-7-
Western Resources, Rives and Other KCPL Shareholders
Will Suffer Irreparable Injury Absent Injunctive Relief
25. Western Resources and Rives have no adequate remedy at law and will
suffer irreparable harm if KCPL is permitted to proceed with a special meeting
and consummate a merger with UtiliCorp without subjecting the transaction to a
two-thirds vote. Rives and the other shareholders will be harmed because their
voting rights under Missouri statute are being altered, undermined and diluted.
Western Resources, as a competing offeror, will be forced to the expense and
distraction of conducting a proxy contest in which the ultimate vote is illegal,
and frustrated in its efforts to acquire KCPL by a merger approved by an illegal
vote.
26. KCPL will not be harmed in any way by the issuance of a preliminary and
permanent injunction to prohibit KCPL from proceeding with the transaction
proposed by the Revised Merger Agreement because KCPL will merely be required to
comply with Missouri law. Further, KCPL and UtiliCorp cannot consummate the
merger pending regulatory approval which, if granted, would occur sometime in
mid-1997.
27. The public interest will be served by the issuance of the requested
injunctive relief in that the relief would protect, among other things, the
rights of KCPL's shareholders from being wrongfully denied by KCPL.
28. KCPL's purpose in entering into the Revised Merger Agreement was to
avoid having to obtain approval of the proposed business combination with
UtiliCorp from the holders of two-thirds of its outstanding shares.
29. There exists a present case or controversy between KCPL, on the one
had, and Western and Rives, on the other hand, regarding the Revised Merger
Agreement, the acts by
-8-
KCPL lending to its execution and the transaction contemplated by the Revised
Merger Agreement.
30. On information and belief, KCPL's board of directors has unanimously
approved both the Revised Merger Agreement and the proposed transaction which
renders futile any demand by Rives upon KCPL's board of directors to rescind the
Revised Merger Agreement and desist from the contemplated transaction.
COUNT I (Violation of Missouri Law)
31. Western Resources and Rives repeat and reallege paragraphs 1 through 30
as if fully stated herein.
32. The transaction contemplated by the Revised Merger Agreement would
accomplish a merger without being subject to the two-thirds vote of outstanding
shares contemplated by ss. 351.425 of the Missouri BCL.
33. KCPL adopted the revised merger structure merely to avoid compliance
with Missouri law.
34. The transaction contemplated by the Revised Merger Agreement violates
Missouri law.
COUNT II (Breach of Fiduciary Duty)
35. Western Resources and Rives repeat and reallege paragraphs 1 through 34
as if fully stated herein.
36. KCPL acts through its board of directors, which in turn, owes fiduciary
duties to Rives and KCPL's other shareholders.
-9-
37. As set forth above, KCPL's board abrogated their fiduciary duties to
shareholders when it became apparent in the days leading up to May 22 that the
Original Merger Agreement with UtiliCorp would not obtain the required
two-thirds approval of KCPL shares.
38. In an effort to save its preferred deal with UtiliCorp, KCPL sacrificed
its shareholders' voting rights by entering into the Revised Merger Agreement
and purporting to accomplish the Merger with approval of a minority of
outstanding shares rather than the two-thirds vote required by Missouri law.
39. These actions by KCPL constitute an unlawful and inequitable
manipulation of KCPL's corporate machinery in order to interfere with
shareholder voting rights and Western Resources' efforts to defeat the Merger
and acquire KCPL.
40. By reason of the foregoing conduct, KCPL has breached its fiduciary
duties to KCPL's shareholders, including defendant Rives. KCPL has no lawful
motive or justification for the conduct heretofore alleged.
PRAYER FOR RELIEF
WHEREFORE, Western Resources and Rives request judgment as follows:
(a) Dismissing the Complaint with prejudice;
(b) Declaring that the Revised Merger Agreement is a "plan of merger or
consolidation" under Missouri General and Business Corporation Law ss. 351.425
and, thus, requires "the affirmative vote of the holders of at least two-thirds
of the outstanding shares entitled to vote;"
-10-
(c) Declaring that KCPL, through its directors' actions, breached
fiduciary duties to KCPL shareholders by proceeding with a plan designed to
consummate the Revised Merger Agreement based on less than a two-thirds
shareholder vote;
(d) Enjoining KCPL, preliminary and permanently, from proceeding with a
special meeting at which a vote would be held on the issuance of shares in
connection with the Revised Merger Agreement until this Court determines the
number of votes necessary for approval of that issuance of shares;
(e) Enjoining KCPL preliminary and permanently, from consummating the
Merger with UtiliCorp unless KCPL receives a vote in accord with the
requirements of Missouri BCL ss. 351.425; and
(f) Awarding Western Resources and Rives costs and disbursements of
this action and such other and further relief as the Court deems just and
proper.
-11-
STINSON, MAG & FIZZELL, P.C.
By /s/ Lawrence M. Berkowitz
-------------------------------------
Lawrence M. Berkowitz MO 20752
Kurt D. Williams MO 36957
1201 Walnut Street
Kansas City, Missouri 64106
816-842-8600
Attorneys for Defendants Western Resources, Inc.
and Robert L. Rives
John L. Hardiman, Esq.
Tariq Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004-2498
Attorneys for Western Resources, Inc. and
Robert L. Rives
John Rosenberg, Esq.
Richard D. Terrill, Esq.
WESTERN RESOURCES, INC.
818 Kansas Avenue
P.O. Box 889
Topeka, Kansas 66601
Attorneys for Western Resources, Inc.
-12-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a copy of the foregoing was sent via facsimile
and first class mail this 20th day of June, 1996, to:
David F. Oliver
Bryan Cave LLP
3500 One Kansas City Place
1200 Main
Kansas City, Missouri 64105
and
Steven J. Rothschild
R. Michael Lindsey
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Attorneys for Plaintiff.
Michael E. Waldeck
Niewald, Waldeck & Brown
4100 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Attorneys for Intervenor Defendant
/s/ Lawrence M. Berkowitz
-------------------------------
Attorneys for Defendants
-13-
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
FILED 11:45
JUN 17 1996
R. F. CONNOR, CLK.
U. S. DISTRICT COURT
WEST DISTRICT
OF MISSOURI
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
vs. ) No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
Defendants. )
ORDER
It is hereby
ORDERED that pursuant to Federal Rule of Civil Procedure 24, Jack R.
Manson's Motion to Intervene (doc. #5) is granted.
/s/ Scott O. Wright
-----------------------------------
SCOTT O. WRIGHT
Senior United Stated District Judge
June 7, 1996.
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
v. ) Civil Action No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
Defendants )
- ------------------------------------------)
JACK R. MANSON )
3010 W 84th Terrace )
Leawood, Kansas, 66206, )
INDIVIDUALLY AND ON BEHALF OF )
ALL INDIVIDUAL AND/OR )
ENTITITES SIMILARLY SITUATED, )
)
Intervenor Defendant and )
Counterclaim Plaintiff, )
)
v. )
)
A. DRUE JENNINGS, )
DR. DAVID L. BODDE, )
WILLIAM H. CLARK, )
ROBERT J. DINEEN, )
ARTHUR J. DOYLE, )
W. THOMAS GRANT II, )
GEORGE E. NETTLES, JR., )
LINDA HOOD TALBOTT, PH.D., )
ROBERT H. WEST, and )
KANSAS CITY POWER & LIGHT COMPANY )
a Missouri corporation )
)
Counterclaim Defendants. )
ANSWER AND COUNTERCLAIM IN INTERVENTION
ANSWER
Intervenor Defendant, Jack R. Manson, for his Answer alleges as follows:
EXHIBIT B
1. Intervenor admits PARAS 1-2 of the complaint.
2. Intervenor admits PARA 3 of the complaint, except for the averments
concerning the "objective of the Revised Merger Agreement," and the "superior
economic terms" thereof which are denied.
3. Intervenor admits the averments of PARA 4 that Western Resources has
commenced an exchange offer for KCP&L stock, and has solicited votes against the
approval of the Original Merger Agreement. Intervenor is without knowledge or
information sufficient to form a belief as to the other averments of P. 4 of the
complaint.
4. Intervenor is without knowledge or information sufficient to form a
belief as to the averments of PARAS 5-8 of the complaint.
5. Intervenor admits PARAS 9-10 of the complaint.
6. Intervenor admits the averments of PARA 11 to the extent that on January
19, 1996, KCP&L entered into a merger agreement with UtiliCorp United Inc.
Intervenor is without knowledge or information sufficient to form a belief as to
the remaining averments of PARA 11.
7. Intervenor admits PARA 12 of the complaint.
8. Intervenor admits the averments of PARA 13 to the extent that on
April 14, 1996, Western Resources made an unsolicited merger proposal whereby
KCP&L shareholders would receive $28 worth of Western Resources common stock
for each KCP&L share. Intervenor is without knowledge or information
sufficient to form a belief as to the remaining averments of PARA 13.
-2-
9. Intervenor admits the PARA 14 of the complaint to the extent that WRI
public announced its delivery. Intervenor is without knowledge or information
sufficient to form a belief as to the remaining averments of PARA 14.
10. Intervenor admits the averments of PARA 15 to the extent that
Western Resources issued a press release on April 22, 1996, the contents of
which speaks for itself and denies the remainder.
11. Intervenor admits the PARA 16 of the complaint.
12. Intervenor admits the first sentence of PARA 17 of the complaint,
and is without knowledge or information sufficient to form a belief as to the
remaining averments of PARA 17.
13. Intervenor is without knowledge or information sufficient to form a
belief as to the averments of PARAS 18 and 19 because all the terms of the
Revised Merger Agreement have not been made public to the best of
intervenor's knowledge.
14. Intervenor admits that PARAS 20-21 of the complaint purportedly
described the Revised Merger Agreement, as announced on May 20, 1996.
Intervenor is without knowledge or information sufficient to form a belief
with respect to the remaining averments of PARAS 20-21.
15. Intervenor is without knowledge or information sufficient to form a
belief with respect to the allegations of PARAS 22-23.
16. Intervenor admits the averments of PARA 24 that defendant, Rives has
standing to challenge the Revised Merger Agreement but, in light of his
purported alignment with Western Resources, Intervenor denies that Rives is
adequate to represent the interest
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of the other KCP&L stockholders who will necessarily be bound and affected by
the terms of any declaratory judgment issued by the Court.
17. Intervenor admits the averment in PARA 25 that Rives has standing to
challenge the Revised Merger Agreement, and is without knowledge or
information sufficient to form a belief with respect to the remaining
allegations.
18. Intervenor is without knowledge or information sufficient to form a
belief as to the averments in PARA 27.
19. The allegations of PARA 28 of the complaint calls for a legal
conclusion and therefore are neither admitted or denied.
20. Intervenor is without knowledge or information sufficient to form a
belief with respect to the allegations of PARA 29 of the complaint.
21. The allegations of PARAS 30-31 of the complaint call for a legal
conclusion and therefore are neither admitted or denied.
22. Intervenor denies PARAS 33-34 of the complaint.
23. The allegations of PARAS 35-36 of the complaint call for a legal
conclusion and, therefore are neither admitted or denied.
24. Intervenor denies PARAS 38-39 of the complaint.
25. The allegations of PARAS 40-41 of the complaint call for a legal
conclusion and therefore are neither admitted or denied.
AFFIRMATIVE DEFENSES
1. Plaintiff's claims are barred by fraud and inequitable conduct.
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2. Plaintiff's claims are barred by doctrines of estoppel and unclean
hands.
3. Plaintiff's claims are barred because its conduct in connection with the
subject matter of the complaint is illegal and ultra vires.
4. Plaintiff's claims are barred because Plaintiff fails to state a claim
upon which relief can be granted.
COUNTERCLAIM
Counterclaim Plaintiff alleges upon personal knowledge as to his own acts
and upon information and belief as to all other matters as follows:
I. PARTIES
1. Intervenor Defendant and Counterclaim Plaintiff Jack R. Manson
("Intervenor") is, and was at all relevant times, a resident and citizen of the
State of Kansas. Mr. Mason is, and was at all relevant times, a Kansas City
Power & Light Company shareholder.
2. Counterclaim defendant (hereinafter "Defendant") Kansas City Power &
Light Company is, and was at all relevant times, a Missouri corporation, doing
business in the State of Missouri whose executive offices are located at 1201
Walnut Street, Kansas City, Missouri 64106. KCPL has approximately 61,900,000
shares issued and outstanding which are listed and traded on the New York Stock
Exchange.
-5-
3. The following individual counterclaim defendants (hereinafter
"Defendants" or "Director Defendants") were at all relevant times directors
and/or executive officers of KCPL: Drue Jennings, Dr. David L. Bodde, William
H. Clark, Robert J. Dineen, Arthur J. Doyle, W. Thomas Grant II, George E.
Nettels, Jr., Dr. Linda Hood Talbott and Robert H. West.
4. By reason of their positions as officers and/or directors of KCPL and
their ability to control the business and corporate affairs of KCPL, the
Director Defendants owe KCPL shareholders fiduciary obligations of due care,
entire fairness, candor, trust and loyalty, and are required to manage the
affairs of the corporation in a fair, just and equitable manner and act in
furtherance of the best interests of KCPL and its shareholders.
II. JURISDICTION AND VENUE
5. Jurisdiction is proper pursuant to 28 U.S.C. ss. 1367 because intervenor
seeks to intervene as a defendant in the case concerning the conduct of a
Missouri corporation, Kansas City Power & Light Company.
6. Venue is proper pursuant to 28 U.S.C. ss. 1391(a)(2) because a
substantial portion of the events or omissions giving rise to the claims in this
lawsuit arose in the judicial district.
-6-
III. BACKGROUND TO COUNTERCLAIM
A. The Changing Climate in the Energy Industry
7. KCPL is an energy company whose primary business function is to produce
low-cost electric power for its customers and to provide energy-related products
and services. As of January 1996, KCPL served over 430,000 customers including
379,000 residences, 50,000 commercial firms, and 3,000 industrials,
municipalities and other electric utilities.
8. Two other local and regional companies are significant players in the
energy industry: UtiliCorp Inc., ("UCU") a Delaware corporation with its
principal place of business in Kansas City, Missouri and Western Resources Inc.,
("WRI") a Kansas corporation with its principal place of business in Topeka,
Kansas.
9. As noted by KCPL in a recent communication to its shareholders, the
energy industry has entered a time of "accelerating change that will have a
significant impact on the future competitive position of utility based energy
companies and their ability to maintain and increase earnings."
10. As a result of these perceived fundamental changes facing the industry,
KCPL embarked upon a plan to explore various business strategies and
combinations.
B. The Initial Proposed KCPL/UtiliCorp Merger
11. On January 22, 1996, KCPL announces that KCPL and UCU had entered into
an Agreement and Plan of Merger dated as of January
-7-
19, 1996 (the "Initial Merger Agreement"), which, when effectuated, would create
the twelfth largest gas and electric company in the United States. Pursuant to
the Initial Merger Agreement, KCPL and UCU would merge with and into K.C. United
Corp. ("KCU"), a corporation formed to effectuate the proposed merger. Under the
Initial Merger Agreement, each share of KCPL common stock would be exchanged for
one KCU common share and each share of UCU stock would be exchanged for 1.096
KCU shares.
12. On April 4, 1996, KCPL sent proxy materials (the "Proxy") to its
shareholders seeking shareholder approval for such a merger. Missouri law, which
governs the conduct of KCPL, requires the affirmative vote of two-thirds of the
shares outstanding for a merger. The proxy sent to the KCPL shareholders
regarding the UCU merger were to be voted at the annual meeting of KCPL
shareholders held on May 22, 1996.
13. The Proxy expressly identified the fundamental changes facing the
utility industry, underscoring the need for action like the proposed merger:
public utility companies face increased business risks and limits
to their ability to grow earnings through rate base increases and
are, therefore, pursuing various business combinations in order
to reduce risk and create new avenues and opportunities for
earnings growth.... In response to intensified competition,
public utilities have sought and, KCPL and UCU believe, will
continue to seek opportunities to create efficiencies and control
future costs through consolidation.
14. At a shareholder's meeting on Tuesday, April 23, 1996, KCPL's Chairman
of the Board and President, Drue Jennings, explained that the KCPL Board has
chosen some time ago to move from
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the position of a monopoly-based utility model. Jennings explained at this
meeting that the KCPL Board has considered many options, including various
combinations and break-up(s), and found a "good friend" and "outstanding
company" in UCU.
15. Certain members of the KCPL's and UCU's management and Board of
Directors have interests in the Merger that are in addition to the interests of
stockholders of KCPL and UCU generally and may conflict with the interests of
the shareholders. These conflicting interests were considered, among other
matters, when KCPL recommended and approved the Initial Merger Agreement. These
conflicts include certain payments which will become payable in connection with
the Merger, including a potential six million dollar payment to Jennings. Each
of KCPL's five most highly compensated executive officers have entered into
lucrative KCPL Severance Agreements.
C. The Misdisclosures In The Proxy Information To Date
16. At all times relevant hereto, KCPL has represented to its shareholders
that it has evaluated its options in the changing utility market and believes
that "the terms of the merger with UCU are fair to and in the best interests of,
KCPL's shareholders." Such a representation implies a careful and studied
analysis of the options available to the company, leading to the company's
recommendation that the UCU merger is appropriate.
17. The Proxy did not disclose, and the shareholders may not be properly
advised, that all options were not considered and the
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company's evaluation of options was incomplete because WRI - a significant force
and presence in the energy industry - has been consistently rebuffed on all
occasions by KCPL and was not given the opportunity to meaningfully explore a
business relationship with KCPL. In contrast, KCPL has given full access to
information to UCU and entered into board-based merger discussions with UCU.
18. Further, the Proxy did not disclose and the shareholders may not be
properly advised that:
a. the KCPL Board failed to give WRI the opportunity to make a
presentation to the KCPL Board prior to entering into the UCU merger
agreement even though WRI reportedly requested this opportunity;
b. a "long-simmering" rivalry reportedly exists between Defendant
Jennings and WRI's C.E.O., John E. Hayes, Jr.;
c. substantial synergies of approximately one billion dollars would
result from any merger with WRI which were superior to the UCU synergistic
benefits.
19. In addition, subsequent materials sent to shareholders in the proxy
contest are misleading. Specifically, in a letter to the shareholders of April
21, 1996 from KCP&L's Jennings, shareholders are told, "you should know that,
less than a year ago, Western estimated savings of less than half [of one
billion dollars]. It is clear to us that Western manipulated its proposal to
create the illusion of value."
a. This statement is, and was at the time made, incorrect because KCPL
merely compared the savings numbers to
-10-
the preliminary estimates discussed in the past. The earlier estimated were
intended only to determine whether the minimum level of savings required
for the financial success of a no premium merger between WRI and KCPL could
be achieved.
b. In addition, WRI's one billion dollar savings estimate has been
supported by a detailed analysis conducted by WRI management and assisted
by Deloitte Touche which KCPL knew, or should have known, from the Kansas
Corporation Commission filing of April 15, 1996.
D. WRI's Tender Offer
20. Having been rebuffed at every turn by management and directors of KCPL,
WRI was left with only one alternative: to make its superior offer directly to
KCPL stockholders. On or about April 14, 1996, WRI announced its offer which
included, inter alia, the following salient features:
a. WRI and KCPL would merge in a stock-for-stock transaction valued at
approximately $1.7 billion, or $28 per KCPL common share, as compared to
$26.77 per KCPL share in the initial UCU merger proposal.
b. WRI would pay an initial dividend of $1.92 per share as compared to
a dividend of $1.56 per share in the UCU merger.
c. All constituents - shareholders, customers, employees and the
community - would benefit from the merger because of the natural synergies
arising from, for example,
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overlapping service territories. Further, WRI identified more than $1
billion in aggregate cost savings during the first 10 years which would
reportedly be achieved without layoffs, and with lower electric rates for
both KGE and KCPL customers. WRI also proposed a five-year moratorium on
electric rate increases for KCPL, KPL and KGE retail customers.
d. WRI's stronger bond rating (A-), compared to UCU's bond rating
(BBB).
e. WRI's national marketing reach through its Westar products.
21. On April 22, 1996, KCPL advised WRI that its Board of Directors
unanimously rejected WRI's proposal, stating that KCPL intended to complete the
merger with UCU.
22. Following KCPL's rejection of WRI's offer, WRI and certain KCPL
shareholders with whom it was aligned, including Robert L. Rives, solicited KCPL
shareholders to vote against the approval of the original merger agreement at
the May 22, 1996 meeting. WRI also publicly announced its intention to commence
an exchange offer for any and all KCPL shares.
23. UCU originally took the position prior to the time that KCPL was
required to respond to WRI, that it would not better its proposal in any
respect, in light of the WRI proposal. Finally, -- days before the voting
deadline - KCPL and UCU announced a modest dividend increase. In response, WRI
increased its dividend projection as well.
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E. The Possibility Of Defeat For The KCPL/UCU Proposed Merger
24. Many analysts following KCPL stock have consistently held the view that
the WRI bid is superior to the UCU proposal.
25. In the days immediately preceding the annual meeting, analyst
Mary-Ellen Robinson of Institutional Shareholder Services recommended that large
institutional investors reject the proposed merger.
F. The Revised Merger Agreement Disenfranchised KCPL Shareholders
26. On Monday, May 20, 1996, faced with a possible loss at the shareholders
meeting scheduled for May 22, KCPL and Utilicorp announced a Revised Merger
Agreement and cancelled the vote on the Original Merger Agreement. The Revised
Merger Agreement, if culminated, would not require approval of two-thirds of the
KCPL Shareholders.
27. The Revised Merger Agreement is structured as a "reverse triangular"
merger, meaning that KCPL will establish a nominal subsidiary to act as a
conduit through which Utilicorp could be merged into KCPL.
28. By crafting the Revised Merger Agreement in this way, the KCPL Board
has eliminated the shareholders' statutory right to select its merger candidate
by two-thirds affirmative vote of all outstanding shares or to seek appraisal of
the value of their shares if they dissent from the merger. In its place, KCPL
has substituted the statutory "short form" merger device under which
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KCPL shareholders have no statutory right to vote and no appraisal rights if
they vote against the merger. Under New York Stock Exchange rules, only a quorum
of shareholders present at a special meeting need vote.
29. Apparently recognizing the questionable nature of their recent
restructuring, KCPL has sought to preempt WRI and all affected shareholders by
filing a declaratory judgment in this Court seeking a judgment that the Revised
Merger Agreement was adopted in accordance with Missouri law and that KCPL and
its directors, officers and agents (who are not even named parties in the
declaratory judgment proceeding) acted "lawfully and in compliance with all
legal and equitable duties in connection with the abandonment of the original
Merger Agreement and the adoption of the Revised Merger Agreement."
30. By rejecting WRI's offer out of hand, and, when faced with the
possibility of a losing vote on the UCU merger, putting off the vote and
restructuring the Initial Merger Agreement in order to deprive shareholders of
their statutory rights to select a merger candidate by two-thirds of the
outstanding shares and to seek appraisal rights if they dissent, KCPL has
foreclosed fundamental shareholders rights without legitimate justification. The
delay in the vote and Revised Merger Agreement is an unreasonable and
disproportionate response to any threat to KCPL's corporate strategy which was
presented by WRI's superior offer.
31. KCPL has also represented in its pleading in this case the Initial
Merger Agreement was revised to assuage UCU's
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"demands." The plain impetus for restructuring the transaction was to obviate
the two-thirds shareholder vote requirement found in Missouri law.
IV. CLASS ACTION ALLEGATIONS
32. Intervenor brings this action on behalf of himself and, under Federal
Rule of Civil Procedure 23 as a representative of a class (referred to herein as
the "Class" or the "Plaintiff Class"), defined as follows:
All persons or entities who owned KCPL stock on the
record date, April 3, 1996 or their successors in
interest. Excluded from the Class are all Defendants,
officers and directors of UCU, and the respective
subsidiaries and affiliates of either KCPL or UCU.
33. Members of the Class number in excess of 5,000 and joinder is,
therefore, impracticable. Because the Class is limited to stockholders during
the relevant time period, the Class is readily identifiable from information and
records in the possession of the defendants.
34. Intervenor's claims are typical of the members of the Class.
Counterclaim Plaintiff and all members of the Class were damaged by the same
wrongful conduct by the defendants.
35. Intervenor will fairly and adequately protect and represent the
interests of the Class. The interests of
-15-
Counterclaim Plaintiff are coincident with, and not antagonistic to, those of
the Class.
36. Intervenor is represented by counsel who are experienced and competent
in the prosecution of class action litigation.
37. The prosecution of separate actions by or against KCPL shareholders
would create a risk of
a. inconsistent or varying adjudication with respect to individual
members of the class which would establish incompatible standards of
conduct for the party opposing the class, or
b. adjudications with respect to individual members of the class which
would as a practical matter be dispositive of the interest of the other
members not parties to the adjudications or substantially impair or impede
their ability to protect their interests.
38. KCPL has acted or refused to act on grounds generally applicable to the
class, thereby making appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole.
39. Questions of law and fact common to the members of the Class also
predominate over questions, if any, that may affect only individual members
because defendants have acted on grounds generally applicable to the entire
class.
40. Questions of law and fact common to the Class include:
-16-
a. whether the defendants breached their fiduciary duties to the
shareholders at any time during the review of the WRI recent proposal;
b. whether the defendants exercise their duty of care in appropriately
reviewing all of the relevant data necessary to understand and act upon the
WRI proposal;
c. whether the long-standing rivalry between Messrs. Hayes and
Jennings motivated, affected or impacted, in any way, the KCPL rejection of
the WRI proposal;
d. whether the Board, or certain members thereof, in preferring the
lower UCU transaction over the higher Western offer were motivated by
conflicts of interest;
e. whether the UCU proposal is substantially inferior to the WRI
proposal;
f. whether the Revised Merger Agreement was unreasonable and
disproportionate with respect to WRI's higher offer;
g. whether the Revised Merger Agreement complies with Missouri law;
and
h. whether appraisal rights must be recognized by KCPL under the
Revised Merger Agreement and/or applicable law.
41. Class action treatment is the superior method for the fair and
efficient adjudication of this controversy, in that, among other things, such
treatment will permit a large number of similarly situated persons to prosecute
their common claims in a single forum simultaneously, efficiently and without
the
-17-
unnecessary duplication of evidence, effort, and expense that numerous
individual actions would engender. The benefits of proceeding through the class
mechanism, including providing injured persons or entities with a method for
obtaining redress on claims that it might not be practicable to pursue
individually, substantially outweigh any difficulties that may arise in
management of this class action.
42. Intervenor knows of no difficulty to be encountered in the maintenance
of this action that would preclude its maintenance as a class action.
V. CLAIMS FOR RELIEF
COUNT I
BREACH OF FIDUCIARY DUTY
43. Counterclaim Plaintiff incorporates by reference, as though fully set
forth herein, the allegations contained in the paragraphs above.
44. Under Missouri law, directors of a corporation owe fiduciary duties to
shareholders and must act in the best interests of the shareholders.
45. By reason of the foregoing, the defendants have violated their
fiduciary duties to Counterclaim Plaintiff and the Class by, inter alia, failing
to adequately inform themselves of and to consider the WRI offers, in preferring
a transaction with UCU for reasons unrelated to the best interests of the KCPL
shareholders and other constituent groups, in making material misstatements and
-18-
omissions of material fact as set forth herein, in delaying the vote on the
merger, and in adopting the Revised Merger Agreement to circumvent statutory
voting and appraisal rights of Counterclaim Plaintiff and members of the
putative class which is a disproportionate and unreasonable response to any
threat posed by WRI's superior offer.
46. As a result of the actions of defendants, Counterclaim Plaintiff and
the other members of the Class have been and will be irreparably damaged in that
they have not and will not receive their fair proportion of the value of KCPL's
assets and businesses nor a fair price for the investment in KCPL, and are being
deprived of appropriate safeguards and statutory rights designed to ensure that
they will receive a fair price.
47. Unless enjoined by this Court, defendants will continue to breach their
fiduciary duties owed to Counterclaim Plaintiff and the other members of the
Class, including depriving shareholders of their statutory voting rights and
appraisal rights, thereby irreparably harming the members of the Class.
48. Unless enjoined by the Court, the Director Defendants will continue to
breach their fiduciary duties owed to Counterclaim Plaintiff and the other
members of the Class.
49. Counterclaim Plaintiff and the Class have no adequate remedy of law.
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VI. PRAYER FOR RELIEF
WHEREFORE, Counterclaim Plaintiff demands that judgment and preliminary and
permanent relief, including injunctive relief, in their favor and in favor of
the Class and against counterclaim defendants as follows:
a. an order certifying this Class as a class action and designating
Counterclaim Plaintiff and the undersigned counsel as representative and
class counsel, respectively;
b. declaring and decreeing that defendants' conduct constituted a
breach of fiduciary duties of the Director Defendants to the Class and is
therefore unlawful;
c. enjoining the defendants from proceeding with the Revised Merger
Agreement as structured and enjoining the defendants from taking any
action, including the implementation of any anti-takeover device, with the
effect of impeding or eliminating (i) KCPL's shareholders voting rights or
(ii) WRI or other interested bidder from presenting its offer to KCPL
stockholders;
d. requiring the Director Defendants to fulfill their fiduciary duties
to shareholders by exploring appropriate offer(s) and accepting the most
reasonable offer obtainable for all constituents including specifically,
the public shareholders and by permitting the shareholders to make a merger
decision in accordance with statutory rights and with full information;
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e. rescinding, to the extent already implemented, any merger agreement
or any of the terms thereof;
f. awarding Counterclaim Plaintiff and the Class appropriate
compensatory damages;
g. awarding Counterclaim Plaintiff and the costs and disbursements of
this action, including reasonable attorneys' and experts' fees and, if
applicable, pre and post-judgment interest; and
h. such other equitable and declaratory relief as this Court deems
just and proper.
VII. DEMAND FOR JURY TRIAL
50. Intervenor and Counterclaim Plaintiff hereby makes demand for jury
trial on all issues which may be properly tried to a jury.
Respectfully submitted,
NIEWALD, WALDECK & BROWN
/s/ Angela K. Green
----------------------------------
Michael E. Waldeck MO #18977
William J. DeBauche MO #32674
Angela K. Green MO #35237
Michael E. Griffin MO #32986
1200 Main Street, Suite 4100
Kansas City, Missouri 64105
Telephone: (816) 471-7000
Facsimile: (816) 474-0872
OF COUNSEL:
LOWEY, DANNENBERG, BEMPEROD
& SELINGER, P.C.
David Harrison
747 Third Avenue, 30th Floor
New York, New York 10017
Telephone: (212) 759-2504
Facsimile: (212) 593-0201
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
FILED 5:00
JUN 27 1996
R. F. CONNOR, CLK.
U. S. DISTRICT COURT
WEST DISTRICT
OF MISSOURI
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
vs. ) Civil Action No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
Defendants. )
)
- ------------------------------------------
)
JACK MANSON, individually and on )
behalf of all individual and/or )
entities similarly situated, )
)
Intervenor Defendant and )
Counterclaim Plaintiff, )
)
vs. )
)
A. DRUE JENNINGS, DR. DAVID L. BODDE, )
WILLIAM H. CLARK, ROBERT J. DINEEN, )
ARTHUR J. DOYLE, W. THOMAS GRANT II, )
GEORGE E. NETTELS, JR., LINDA HOOD )
TALBOTT, Ph.D., ROBERT H. WEST, and )
KANSAS CITY POWER & LIGHT CO., a )
Missouri corporation. )
)
Counterclaim Defendants.)
PLAINTIFF'S REPLY TO THE COUNTERCLAIM OF
WESTERN RESOURCES, INC. AND ROBERT L. RIVES
AND COUNTERCLAIM OF KANSAS CITY POWER & LIGHT COMPANY
Plaintiff and Counterclaim Defendant, Kansas City Power & Light Company
("KCPL"), by its attorneys, as and for its Reply to the Counterclaim of Western
Resources, Inc. ("Western Resources") and Robert L. Rives, states and alleges as
follows:
NATURE OF THE COUNTERCLAIM
1. Denied, except KCPL admits that the Counterclaim purports to seek a
declaratory judgment and injunction to enjoin KCPL from continuing to violate
Missouri General and Business Corporation Law ("Missouri BCL") and from
breaching fiduciary duties owed to KCPL shareholders. It is specifically denied
that KCPL and its directors have violated, or will violate, the Missouri General
and Business Corporation law and/or fiduciary duties owed to KCPL shareholders.
2. Denied, except KCPL admits that KCPL restructured a proposed business
combination with UtiliCorp United Inc. ("UtiliCorp") (the "Merger"), cancelled
the vote on the Merger and the announced plans to consummate a restructured
business combination with UtiliCorp.
3. Denied. For further answer, KCPL avers that the Revised Merger Agreement
speaks for itself.
4. Admitted.
5. Admitted.
6. Admitted.
7. The allegations of PARA 7 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
8. Admitted.
9. KCPL admits the first sentence of PARA 9 and denies the second sentence
of PARA 9.
10. Admitted.
11. Denied, except admitted that KCPL's Notice of Annual Meeting speaks for
itself.
2
12. KCPL denies the first sentence of PARA 12, except KCPL admits that on
April 14, 1996, Western proposed a merger to KCPL. KCPL denies the second
sentence of PARA 12 and admits the third and fourth sentence of PARA 12.
13. The first sentence of paragraph 13 is denied, except it is admitted
that KCPL issued a press release on April 22, 1996, which speaks for itself. The
second sentence of PARA 13 is admitted.
14. Denied, except that KCPL admits that its proxy solicitation expenses
exceeded $1 million.
15. KCPL denies the first sentence of PARA 15, is without knowledge or
information sufficient to form a belief as to the truth of the allegations of
the second sentence of PARA 15, and denies the third sentence of PARA 15.
16. Denied, except KCPL admits that the KCPL/UtiliCorp Joint Proxy
Statement did not disclose the actual dollar amounts that Mr. Jennings could be
paid if the Merger were consummated. It is specifically denied that KCPL had any
duty to state any matter that P. 16 alleges that KCPL failed to disclose.
17. Denied, except KCPL admits that on May 10, 1996, the Wichita Business
Journal published an article entitled "Question of Motivation: Jennings' Payout
at Issue in Merger," which article speaks for itself.
18. KCPL is without knowledge or information sufficient to form a belief as
to the truth of the allegations of the first sentence of PARA 18 of the
Counterclaim. KCPL admits the second sentence of PARA 18. KCPL denies the
allegations of the third and fourth sentences of PARA 18, except it admits that
on May 20, 1996, The Wall Street Journal published an article entitled
"UtiliCorp Merger Could Be On The Rocks," which article speaks for itself.
3
19. Denied, except admitted that Institutional Shareholder Services issued
a report on May 15, 1996, which report speaks for itself.
20. Denied, except admitted that on or about May 20, 1996, KCPL disclosed
that the shareholder vote on the Original Merger would not be held.
21. Denied, except admitted that KCPL and UtiliCorp entered into a Revised
Merger Agreement which speaks for itself, that KCPL and UtiliCorp disclosed that
they had done so, and that the Revised Merger Agreement provides for KCPL to
issue to UtiliCorp shareholders KCPL shares that were authorized at the 1992
KCPL Annual Meeting.
22. Denied, except KCPL admits that from time to time it has issued press
releases, which speak for themselves.
23. Denied.
24. Denied.
25. Denied.
26. Denied, except KCPL admits that KCPL and UtiliCorp cannot consummate
the Merger pending regulatory approval which, if granted, would occur sometime
in mid-1997.
27. Denied.
28. Denied.
29. The allegations of PARA 29 of the Counterclaim state conclusions of
law to which no responsive pleading is required.
30. Denied, except KCPL admits that KCPL's Board of Directors has
unanimously approved the Revised Merger Agreement and the proposed transaction.
31. KCPL repeats and realleges paragraphs 1 through 30 as though fully
stated herein.
4
32. Denied.
33. Denied.
34. The allegations of PARA 34 of the Counterclaim state conclusions of law
to which no responsive pleading is required. To the extent a responsive pleading
is required, the allegations of PARA 34 are denied.
35. KCPL repeats and realleges paragraphs 1 through 34 as if fully stated
herein.
36. The allegations of PARA 36 of the Counterclaim state conclusions of law
to which no responsive pleading is required. To the extent a responsive pleading
is required, KCPL admits the allegations of PARA 36.
37. Denied.
38. Denied.
39. Denied.
40. Denied.
FIRST AFFIRMATIVE DEFENSE
41. Western Resources lacks standing to assert the Counterclaim of Western
Resources, Inc. and Robert L. Rives.
SECOND AFFIRMATIVE DEFENSE
42. Western Resources and Rives both failed to comply with the requirements
of Federal Rule of Civil Procedure 23.1.
5
THIRD AFFIRMATIVE DEFENSE
43. Western Resources and Rives both failed to demand of the directors of
KCPL that they cause the corporation to bring the claims alleged in the
Counterclaim of Western Resources, Inc. and Robert L. Rives.
FOURTH AFFIRMATIVE DEFENSE
44. Western Resources and Rives both failed to demand of the stockholders
of KCPL that they cause the corporation to bring the claims alleged in the
Counterclaim of Western Resources, Inc. and Robert L. Rives.
FIFTH AFFIRMATIVE DEFENSE
45. Western Resources comes to equity with unclean hands.
SIXTH AFFIRMATIVE DEFENSE
46. Rives comes to equity with unclean hands.
SEVENTH AFFIRMATIVE DEFENSE
47. Western Resources and Rives have an adequate remedy at law.
WHEREFORE, KCPL respectfully requests judgment:
(a) Dismissing the Counterclaim of Western Resources, Inc. and Robert L.
Rives in its entirety;
(b) Awarding KCPL its costs and disbursements; and
(c) Awarding KCPL such other and further relief as the Court deems just and
proper.
6
COUNTERCLAIM
Plaintiff Kansas City Power & Light Company ("KCPL"), by its undersigned
attorneys, for its counterclaim to the counterclaims of defendants Western
Resources and Robert L. Rives, alleges as follows:
1. Plaintiff incorporates the allegations of its Complaint as if fully set
forth herein.
Nature of Counterclaim
2. Plaintiff brings this Counterclaim against defendant Western Resources,
Inc. ("Western Resources") in response to its violations of the Securities
Exchange Act of 1934 and rules and regulations promulgated thereunder. In
furtherance of its effort to prevent the creation of a formidable competitor
through consummation of the contemplated strategic combination between KCPL and
UtiliCorp United, Inc. ("UtiliCorp"), Western Resources has orchestrated and is
attempting to execute a campaign of intentionally misleading statements and
omissions originally designed to induce KCPL shareholders to vote against the
original KCPL/UtiliCorp merger agreement (the "Original Merger Agreement") at
the May 22, 1996 Annual Meeting of KCPL shareholders and now intended to disrupt
the vote on the Revised Merger Agreement scheduled for August 14, 1996.
3. Specifically, Western Resources has intentionally disseminated public
statements designed to create the false impression that its proposal to merge
with KCPL, and its yet-to-be-commenced exchange offer, represent a concrete,
viable, definitely available, and financially superior alternative to the
KCPL/UtiliCorp combination. In fact, both Western Resources' merger proposal and
its yet-to-be-commenced exchange offer are highly conditional and subject to
substantial risk of non-consummation. None of these conditions and risks have
7
been adequately disclosed in Western Resources' public statements or proxy
materials. Additionally, the purported value of its proposal is dependent upon
intentionally inflated merger savings estimates and unreasonable regulatory
assumptions, which is a material fact that Western has failed to disclose.
4. Western's illegal actions have caused KCPL to sustain damages in the
form of proxy solicitation expenses and other costs, and its continuing illegal
conduct will continue to cause such damages.
Jurisdiction and Venue
5. This Court has jurisdiction of the subject matter of this action
pursuant to 28 U.S.C. ss.1331 and Section 27 of the Securities Exchange Act of
1994 (the "Exchange Act"), 15 U.S.C. ss.78 aa.
6. Venue is proper in this judicial district pursuant to 28 U.S.C. ss.1391
and 15 U.S.C. ss.78 aa.
Western Resources' Campaign of Misinformation and Manipulation
7. On April 14, 1996, Western Resources sent to Mr. Drue Jennings, KCPL's
Chairman and CEO, a letter proposing a merger in which each KCPL shareholder
would purportedly receive $28 worth of Western Resources common stock for each
KCPL share. The proposal was unsolicited and represented a hostile attempt to
frustrate KCPL's and UtiliCorp's previously announced efforts to consummate the
strategic combination contemplated by the Original Merger Agreement.
8. Shortly after delivery of the letter, Western Resources made a public
announcement regarding the delivery of the April 14 letter and released the
letter to the Dow Jones News Service and certain other media outlets. As
expected and intended by Western
8
Resources, the text of the April 14 letter was published and disseminated by the
news services to which it was released.
9. The public announcement and dissemination of the Western Resources
letter was the first step in a campaign of false and misleading public
statements intended by Western Resources as a last-minute attempt to derail the
formation of a formidable competitor, i.e., to prevent the combination of KCPL
and UtiliCorp. Western Resources' strategy has been to create the false
impression among KCPL stockholders that the Western Resources proposal offers a
financially superior, viable, and available alternative to the KCPL/UtiliCorp
combination. This false impression was originally intended to induce KCPL
stockholders to vote against the combination at the May 22, 1996 Annual Meeting
of KCPL's stockholders.
10. Further, Western's campaign of misinformation was intended to
manipulate the market for KCPL shares by inducing arbitrageurs to purchase KCPL
shares from relatively risk-averse KCPL shareholders who wished to realize the
cash market value of their shares rather than invest for the long term. Western
acted on the belief that arbitrageurs would purchase KCPL shares in response to
an offer by Western and would be likely to favor Western's offer.
11. In furtherance of Western's fraudulent and manipulative scheme, the
April 14 letter contained, inter alia, the following false and misleading
statements:
o The Western Resources proposal represented a 17% premium. In fact, the
value of Western Resources stock to be received in the proposed
Western Resources merger is dependent upon Western Resources' ability
to achieve highly inflated merger cost savings estimates of over $1
billion over ten years and upon its unprecedented assumption that
regulators will permit it to retain 70% of such savings. Not
surprisingly, the fact that its savings estimates are overstated and
that its regulatory allocation assumptions are unprecedented are not
mentioned in Western Resources' April 14 letter.
o The Western Resources proposal represented a 27% increase in the
dividend rate currently paid to KCPL shareholders. This statement is
misleading in that if Western Resources cannot achieve its inflated
cost
9
savings estimates, keep most of them, and avoid adverse
regulatory treatment, it will not maintain its dividend at the
proposed level. Again, the fact that its savings estimates are
inflated and that its proposed regulatory treatment is
unprecedented is nowhere mentioned in its April 24, 1996
letter.
Moreover, while the April 14, 1996 letter obliquely referred to "conditions" to
the proposal, it nowhere disclosed the unprecedented nature of its proposed
regulatory treatment, which is obviously a central condition to the proposal's
viability and to its value.
KCPL's Board Rejects Western Resources' Proposal
As Not In The Best Interests of Its Shareholders
12. On April 22, 1996, KCPL issued a press release announcing that its
board of directors had unanimously rejected the merger proposal received from
Western Resources as not in the best interests of KCPL shareholders. The press
release noted that the KCPL board had also reaffirmed its support for KCPL's
strategic merger with UtiliCorp.
Western Resources Continues Its
Campaign of Misinformation and Manipulation
13. Shortly after KCPL announced its board's decision on April 22, 1996,
Western Resources filed with the SEC preliminary proxy materials with which it
would solicit KCPL shareholders to grant proxies to vote against approval of the
Original Merger Agreement at the May 22, 1996 Annual Meeting of KCPL's
shareholders. At the same time, Western Resources announced its intention to
commence an exchange offer for any and all shares of KCPL stock. In such
exchange offer, KCPL shareholders would purportedly receive $28 worth of Western
Resources stock for each KCPL share.
14. Western Resources' preliminary (and subsequent) proxy materials are
materially misleading for numerous reasons, including, inter alia, that they
fail adequately to disclose the highly conditional nature of the yet-to-be
commenced Western Resources exchange
10
offer, creating the false impression in the minds of KCPL shareholders who read
such proxy materials that the Western Resources exchange offer represents a
concrete, viable, and available alternative to the KCPL/UtiliCorp combination.
15. Indeed, this false impression is central to Western Resources proxy
solicitation strategy. It is essentially the same strategy initiated by Western
Resources through the intentional public dissemination of its April 14 letter:
create the false impression that Western Resources is offering a concrete,
viable, available, and financially superior alternative to the KCPL/UtiliCorp
merger. Thus, the Western Resources preliminary proxy materials made the
following false and misleading statements:
"[T]he KCPL directors . . . have rejected the Western Resources
offer, thereby refusing to let you realize the benefits of that offer."
"In order to preserve your opportunity to consider the best
available offer, we urge you to vote against the proposed UtiliCorp
transaction."
"If you want to accept the financially superior Western Resources
offer, I urge you to vote the [color] proxy card against the
proposed transaction with UtiliCorp."
"The purpose of the solicitation made by this proxy statement is to
enable the KCPL shareholders to decide for themselves which proposal
is financially superior and to act accordingly."
"Western Resources urges you to vote against the approval and
adoption of the UtiliCorp/KCPL merger agreement and the proposed
UtiliCorp/KCPL transaction to preserve your opportunity to accept
the financial superior Western Resources offer."
"If you want to accept the offer, vote against the approval and
adoption of the UtiliCorp/KCPL merger agreement and the proposed
UtiliCorp/KCPL transaction by signing, dating and returning the
enclosed [color] proxy card today."
Each of these statements was designed to create the impression that, if the
shareholders of KCPL were to reject the proposed UtiliCorp/KCPL combination, the
Western Resources exchange offer
11
would in fact be available to them. This false impression, coupled with Western
Resources' repetition of its earlier misleading claims that its offer is
financially superior to the UtiliCorp/KCPL transaction, was designed to create
pressure on KCPL's shareholders to vote against the UtiliCorp/KCPL combination.
16. The fact that the Western Resources offer is highly conditional was not
adequately disclosed in Western Resources' preliminary proxy materials. At most,
such materials contain an oblique reference to conditions of the exchange offer,
which such materials say are set forth in the preliminary prospectus filed by
Western Resources with the SEC.
17. In fact, the Western Resources exchange offer is subject to, inter
alia, the following conditions:
90 Percent Minimum Tender Condition. The Western Resources exchange
offer is conditioned upon the tender of 90% of the outstanding
shares of KCPL common stock on a fully diluted basis, compared to a
shareholder vote requirement of 2/3 of KCPL's outstanding shares for
the original merger and a simple majority of a quorum for the
Revised Merger Agreement.
Western Resources Shareholder Approval Condition. The issuance of
Western Resources common stock pursuant to the exchange offer and
follow-up merger requires approval of Western Resources stockholders
who will face the risk of substantial earnings and dividend dilution
if the Western Resources offer is approved.
Regulatory Approval Condition. The Western Resources exchange offer
is conditioned upon the approval of numerous federal and state
regulatory agencies, including the KCC, the Corporation Commission
of the State of Oklahoma, the MPSC, the FERC and the NRC.
Significantly, Western Resources has further conditioned its
exchange offer on having received such regulatory approvals without
the imposition of "terms and conditions which, in the aggregate,
would have or, insofar as reasonably can be foreseen, could have a
material adverse affect on the business assets, financial condition
or results of operations of Western Resources, KCPL and their
respective subsidiaries taken as a whole." This condition is
particularly significant in view of the unprecedented nature of
Western Resources' regulatory plan for the combined
12
Western Resources/KCPL, which is based upon the assumption that
stockholders will retain 70% of the estimated merger savings.
Each of these conditions presents a substantial risk of non-consummation of the
exchange offer. None of these conditions are disclosed in Western Resources'
preliminary proxy materials. Western Resources intended that shareholders of
KCPL, when considering whether to sign and return the Western Resources proxy
card, would be misled into believing that the Western Resources exchange offer
represents a concrete, viable, definitely available, and financially superior
alternative to the KCPL/UtiliCorp combination and would therefore be induced to
vote against the KCPL/UtiliCorp combination.
18. The preliminary solicitation materials and registration statement of
Western Resources also contained, inter alia, the following material
misrepresentations and omissions:
Letter to KCPL Stockholders
o Western claimed in its letter to shareholders that its offer provides
higher value than the original KCPL/UtiliCorp transaction. This claim
is false and misleading because Western fails to disclose that the
value of its offer depends upon its inflated savings estimates and
unreasonable regulatory assumptions.
o Western claims that its proposed exchange offer will be a tax-free
transaction but fails to disclose that this assertion is based on
significant assumptions which may not be true. Nor does Western
disclose the consequences of failing to receive tax-free treatment.
Preliminary Proxy Statement
o Western's preliminary proxy statement stated that if KCPL shareholders
do not approve the UtiliCorp transaction, then Western believes that
the directors of KCPL will respect the vote of the shareholders and
take all necessary action in accordance with their fiduciary duties to
allow Western's offer to proceed. This statement is misleading in that
Western has no reasonable basis to suggest that the fiduciary duties
of KCPL's directors would require them to "allow Western's offer to
proceed," particularly in the event that the UtiliCorp transaction
received the support of a majority of KCPL shareholders but not the
support of 2/3 of its
13
outstanding shares. The statement created the false impression
that an alternative transaction would be available to KCPL
shareholders.
o The Western Preliminary Proxy Statement was materially misleading in
that it failed to disclose material developments in Western's business
that could adversely impact its forecasts and stock price and its
ability to make dividend payments. Western currently has a rate case
before the Kansas Corporation Commission ("KCC") in which the KCC
staff has stated that Western's current electric rates "are unjust and
unreasonable" and has recommended substantial cuts in such rates. See
also paragraphs 26-28.
o Western Resources repeats in its proxy materials its purported savings
estimate or $1 billion over 10 years. As noted above, this estimate is
intentionally inflated by Western. To create the illusion of
reliability, Western details certain components of its purported
savings estimate in its preliminary proxy statement. Western's
purported estimate rests on numerous analytical flaws. For example:
-- Western has estimated labor savings not based on actually
achieved labor savings in other utility mergers but rather on
savings projections made prior to consummation of such
transactions. Western failed to disclose the speculative nature
of this methodology.
-- Western estimates that all labor savings will be achieved by
January 1, 1998, yet at the same time, Western represents that
there will be no employee layoffs. It is false and misleading to
assert savings on this basis in conjunction with a no layoff
policy.
-- Western has inflated its labor savings by assuming an inflated
level of KCPL benefit costs.
-- Western has included in its merger savings analysis savings
amounts attributable to best practices, ongoing initiatives and
skill transfers. This inclusion is inappropriate because such
savings are not causally dependent on a business combination but
rather can be achieved on a stand-alone basis. This flawed
inclusion contributes to Western's inflated and misleading cost
savings estimate.
-- Western's procurement savings are overstated both because the
universe of materials upon which savings are calculated is too
large and the discount rate applied is too large.
-- Western's regulatory plan allocates only 30% of its estimated
cost savings to consumers and retains the remainder for the
combined company and its shareholders. This allocation is
unprecedented and
14
Western's assumption is highly unrealistic, as Western
knows or should know. If Western does not achieve its
proposed regulatory treatment, its earnings, stock
price, and dividends would be materially adversely
affected.
Registration Statement
o Without basis, Western claimed that its offer could be completed by
the second quarter of 1997 but that the UtiliCorp/KCPL transaction
could not be completed prior to year-end 1997. This representation is
misleading because there exists no basis for it and it is material in
that it creates the impression that KCPL stockholders can receive the
purported benefits of the Western offer earlier than they would
receive the benefits of the KCPL/UtiliCorp merger.
o Western stated that its proposed transaction would qualify for pooling
of interests accounting treatment but fails to disclose that cash
payments for cancellation of KCPL stock appreciation rights upon a
change in control would prohibit such accounting treatment.
o Western's representation that its proposed transaction should be tax
free is based upon numerous questionable assumptions, none of which
are disclosed. Nor did Western disclose the effect on the proposed
combination if tax-free treatment was not available.
These examples are representative of the numerous mistreatments and omissions
contained in Western Resources' preliminary proxy materials.
As Western Presses Forward With Its Campaign Of Misinformation
And Manipulation, Western President David Wittig Falsely Claims
KCPL Is For Sale AndAdmits Western's Strategy Is To Disrupt The KCPL Vote
19. On May 2, 1996, the Kansas City Star quoted Western president David
Wittig as claiming that KCPL "already stated to shareholders that they would
sell their company to (UtiliCorp chairman) Rick Green." This statement was
intended by Western and Wittig to be widely disseminated and reach KCPL
shareholders. It was intended to create the false impression that KCPL is
conducting an auction for sale of control of KCPL, which impression was intended
to manipulate the market for KCPL stock and create pressure on KCPL's board to
sell the company. In fact, KCPL is not for sale.
15
20. On May 3, 1996, Western filed with the SEC definitive proxy
solicitation materials, which it thereafter caused to be disseminated widely to
KCPL shareholders. Western's May 3 definitive solicitation materials continued
the misrepresentations and omissions detailed above with respect to its
preliminary materials with insignificant changes in wording in some cases. The
Western May 3 definitive solicitation materials continued Western's campaign of
misinformation and manipulation by creating the false impression that the
Western offer constitutes a real, actually available, and economically superior
alternative to a KCPL/UtiliCorp combination when in fact it is highly
conditional and is based, intentionally, on inflated cost savings estimates and
unreasonable regulatory assumptions.
21. On May 7, 1996, Western issued a press release in which it claimed that
it had raised the minimum dividend level in the offer for KCPL shares, stating
that KCPL shareholders would receive $2.01 per year in dividends for KCPL shares
if the Western offer were to be completed. Western failed to disclose that this
dividend claim is based upon Western's inflated savings estimates and
unreasonable regulatory assumptions and therefore is illusory. This particular
aspect of Western's campaign of misinformation and manipulation -- the dividend
promise -- is intended to influence retail investors, who typically invest in
utility stocks for dividend income.
22. In addition to these public statements, Western's representatives made
numerous additional statements concerning the purported superior value and
benefits of the Western offer, which statements were false and misleading due to
Western's inflated savings estimates and unreasonable regulatory assumptions.
16
23. A Kansas City Star article dated May 18, 1996, apparently based upon an
interview of Western's Wittig, states that Western's strategy was, in fact, to
disrupt the KCPL shareholders' vote and that Wittig was its mastermind:
Although Western Resources Chairman John E. Hayes sees why his
company must snare KCP&L, he counts on Wittig . . . to tell him
how. And it's not pretty.
First, bust up the proposed union of KCP&L and UtiliCorp United,
Inc. -- a plan to be voted on Wednesday by KCP&L shareholders.
KCPL And UtiliCorp Determine To Improve The
Terms of Their Strategic Combination To KCPL
Shareholders And Adopt The Revised Merger Agreement
24. By May 20, 1996 -- two days prior to the scheduled vote of KCPL's
shareholders -- KCPL turned over to the inspectors of election proxies
representing a majority of KCPL's outstanding shares voting in favor of the
strategic combination of KCPL and UtiliCorp. However, Western Resources had
apparently succeeded in assembling, through its campaign of misinformation and
manipulation, a minority coalition of financial institutions and takeover
arbitrage speculators sufficient to block approval by an absolute 2/3 of KCPL's
outstanding shares, as required by Missouri statute for the transaction
structure contemplated by the Original Merger Agreement.
25. On May 20, KCPL and UtiliCorp entered into the Revised Merger Agreement
and cancelled the vote on the Original Merger Agreement. The Revised Merger
Agreement contemplates improved terms for KCPL's stockholders and a revised
transactional structure. The Revised Merger Agreement will be put to a vote of
KCPL's and UtiliCorp's shareholders in August, 1996.
17
Meanwhile, Western Strives To Postpone And Conceal The
Impact Of A Likely Adverse Ruling In Its Pending Rate Case
26. Western Resources' revenues, earnings, dividends, and ultimately, its
stock price, are dependent in large part upon the electricity rates that it is
permitted by state regulators to charge to its utility customers. Western
Resources currently has a rate case pending before the Kansas Corporation
Commission. Western, recognizing that its rates in Kansas are too high, has
proposed rate cuts of $8.7 million a year over seven years.
27. However, the staff of the Kansas Corporation Commission has recommended
that Western's rates be reduced by $105 million a year. A Western spokesman,
George Norton, has admitted publicly that "[t]he staff's recommendation would
eliminate more than 34 percent of Western Resources' and Kansas Gas and
Electric's 1995 net income when adjusted for appropriate taxes."
28. Hearings in this rate case were set to begin on July 8, 1996. However,
Western requested [and obtained] a 30-day extension "so it can review the KCC
staff recommendations." The real purpose of the delay sought by Western is to
postpone announcement of a likely adverse ruling until August so that it can
continue to claim that its offer would provide superior value to KCPL's
shareholders. Its failure to disclose the likely material adverse ruling in its
rate case is materially misleading, and its delay tactics are manipulative.
Western Purports To Increase The Value Of Its Offer
And Mails False and Misleading Supplemental Proxy Materials
29. On June 17, 1996, Western announced that it would increase the
purported value of its offer to $31 worth of Western stock for each KCPL share.
As was true with its earlier offer, the purported value of Western's new offer
is illusory in that it is dependent upon the same inflated savings estimates and
unreasonable regulatory assumptions.
18
30. On or about June 17, 1996, Western mailed to KCPL shareholders a "Proxy
Statement Supplement" in which it touts its new offer and urges KCPL
shareholders to vote against the Revised Merger Agreement. Western's Proxy
Statement Supplement is a continuation of its campaign of misinformation and
manipulation. While it sets forth a minimal description of the conditions to its
offer (a disclosure it saw fit to omit prior to its apparent success in
disrupting the KCPL shareholder vote on the Original Merger Agreement),
Western's Proxy Statement Supplement contains virtually all of the material
misstatements and omissions detailed above with respect to Western's preliminary
proxy statement and its May 3 definitive proxy statement. It is intended to
create the false impression in the minds of KCPL stockholders that Western's
offer is real, actually available, and economically superior to the proposed
KCPL/UtiliCorp combination. It fails to disclose that Western's offer is, as
noted above, based upon inflated savings estimates and unreasonable regulatory
assumptions.
31. Section 14(a) of the Exchange Act provides that it is unlawful to use
the mails or any means or instrumentality of interstate commerce to solicit
proxies in contravention of any rule promulgated by the SEC. 15 U.S.C.
ss.78n(a).
32. Rule 14a-9 provides in pertinent part:
"No solicitation subject to this regulation shall be made by means of any
. . . communication, written or oral, containing any statement which, at
the time, and in light of the circumstances under which it is made, is
false and misleading with respect to any material fact, or which omits to
state any material fact necessary in order to make the statements therein
not false or misleading. . . ." 17 C.F.R. ss.240.14a-9.
33. Each of the false and misleading statements by Western Resources
detailed above must be viewed as statements made under circumstances reasonably
calculated to result in
19
the procurement of proxies and/or votes from KCPL stockholders. As such, those
statements are subject to the strictures of Rule 14a-9.
34. Each of the false and misleading statements detailed above were and are
material to the decisions of KCPL shareholders concerning whether to vote for or
against the KCPL/UtiliCorp combination, since such false and misleading
statements are intended to suggest, and do suggest, that if KCPL shareholders
vote against the KCPL/UtiliCorp combination, a financially superior alternative
will be available.
35. Each of the false and misleading statements detailed above were made
intentionally and with knowledge of their falsity and misleading nature for the
purpose of inducing KCPL shareholders to vote against the KCPL/UtiliCorp
combination.
36. Western's illegal conduct has caused damages to KCPL in the form of
proxy solicitation expenses and other costs and will continue to cause
additional damages.
37. The defendant's false and misleading statements described above are
essential links in defendant's efforts to defeat the KCPL/UtiliCorp combination.
38. KCPL has no adequate remedy at law.
WHEREFORE, plaintiff respectfully requests that this Court:
(a) Declare and decree that Western Resources has violated Section 14a of
the Exchange Act and Rule 14a-9 promulgated thereunder;
(b) Award KCPL damages for the losses and costs it has sustained and will
sustain as a result of the illegal conduct of Western Resources;
(c) Award KCPL the costs and disbursements of this action together with
reasonable attorneys' fees; and
20
(d) Award KCPL such other and further relief as the Court may deem just and
proper.
Respectfully submitted,
/S/ David F. Oliver
-------------------------------------------
John M. Edgar MO #20524
David F. Oliver MO #28065
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main
Kansas City, Missouri 64105
Telephone: (816) 374-3200
Facsimile: (816) 374-3300
and
Steven J. Rothschild
R. Michael Lindsey
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Telephone: (302) 651-3000
Facsimile: (302) 651-3001
ATTORNEYS FOR PLAINTIFF KANSAS CITY
POWER & LIGHT COMPANY and
COUNTERCLAIM DEFENDANTS
Certificate of Service
I hereby certify that a copy of the foregoing was mailed, postage prepaid,
on this 27th day of June, 1996, to:
Lawrence M. Berkowitz, Esq.
Kurt D. Williams, Esq.
STINSON, MAG & FIZZELL, P.C.
1201 Walnut Street
Kansas City, MO 64106
21
and
John L. Hardiman, Esq.
Tariq Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, NY 10004
ATTORNEYS FOR DEFENDANTS WESTERN
RESOURCES, INC. and ROBERT L. RIVES
Michael E. Waldeck, Esq.
William J. DeBauche, Esq.
Angela K. Green, Esq.
Michael E. Griffin, Esq.
NIEWALD, WALDECK & BROWN
1200 Main Street, Suite 4100
Kansas City, MO 64105
and
OF COUNSEL:
David Harrison, Esq.
LOWEY, DANNENBERG, BEMPEROD
& SELINGER, P.C.
747 Third Avenue, 30th Floor
New York, NY 10017
ATTORNEYS FOR INTERVENOR
/S/ David F. Oliver
------------------------------------------------
Attorney for Plaintiff Kansas City Power & Light
and Counterclaim Defendants
22
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
FILED 5:00
JUN 27 1996
R. F. CONNOR, CLK.
U.S. DISTRICT COURT
WEST DISTRICT
OF MISSOURI
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
)
vs. ) Civil Action No. 96-552-CV-W-5
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
)
Defendants. )
)
- -------------------------------------------
)
JACK MANSON, individually and on )
behalf of all individual and/or )
entities similarly situated, )
)
Intervenor Defendant and )
Counterclaim Plaintiff, )
)
)
vs. )
)
)
)
A. DRUE JENNINGS, DR. DAVID L. BODDE, )
WILLIAM H. CLARK, ROBERT J. DINEEN, )
ARTHUR J. DOYLE, W. THOMAS GRANT II, )
GEORGE E. NETTELS, JR., LINDA HOOD )
TALBOTT, Ph.D., ROBERT H. WEST, and )
KANSAS CITY POWER & LIGHT CO., a )
Missouri corporation. )
)
Counterclaim Defendants. )
PLAINTIFF'S AND COUNTERCLAIM DEFENDANTS'
REPLY TO INTERVENOR MASON'S COUNTERCLAIM
Plaintiff and Counterclaim Defendant Kansas City Power & Light Company
("KCPL"), and additional counterclaim defendants A. Drue Jennings, Dr. David L.
Bodde,
William H. Clark, Robert J. Dineen, Arthur J. Doyle, W. Thomas Grant II, George
E. Nettels, Jr., Linda Hood Talbott, Ph.D., and Robert H. West (collectively
"Counterclaim Defendants"), by their attorneys, as and for their Reply to
Intervenor Manson's Counterclaim in Intervention, state and allege as follows:
1. Counterclaim Defendants are without knowledge or information sufficient
to form a belief as to the truth of the allegations of PARA 1 of the
Counterclaim, except that Counterclaim Defendants admit that Intervenor is now a
KCPL stockholder.
2. Admitted.
3. Admitted.
4. The allegations of PARA 4 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
5. The allegations of PARA 5 state conclusions of law to which no
responsive pleading is required.
6. Admitted.
7. Admitted.
8. Denied, except admitted that UtiliCorp is a Delaware corporation with
its principal place of business in Kansas City, that UtiliCorp operates in the
energy industry, that Western Resources is a Kansas corporation with its
principal place of business in Topeka, and that Western Resources operates in
the energy industry.
9. Admitted.
10. Admitted.
11. Admitted.
2
12. Denied, except (a) admitted that KCPL sent proxy materials seeking
approval of the original merger agreement on April 4, 1996, and that KCPL
stockholders were originally scheduled to vote on the issue at the annual
meeting of KCPL stockholders held on May 22, 1996 and (b) the allegations
concerning the requirements of Missouri law state conclusions of law to which
responsive pleading is required.
13. Counterclaim Defendants admit PARA 13 to the extent that KCPL sent a
proxy statement (the "Proxy Statement") to its shareholders, the content of
which speaks for itself and denies the remainder. Specifically, Counterclaim
Defendants deny that PARA 13 accurately reflects the Proxy Statement.
14. Admitted, except denied that Mr. Jennings stated that the KCPL board
had considered any "break-up" of KCPL.
15. Denied, except Counterclaim Defendants admit that certain members of
KCPL's and UtiliCorp United, Inc.'s ("UCU") management and Board of Directors
have interests in the Initial Merger Agreement that are in addition to the
interests of stockholders of KCPL and UCU generally, which interests were
considered, among other matters, when KCPL recommended and approved the Initial
Merger Agreement. Counterclaim Defendants further admit that each of KCPL's five
most highly compensated executive officers have entered into severance
agreements. Counterclaim Defendants specifically deny that such executive
officers entered these agreements in connection with the transactions challenged
in this action and further specifically deny the suggestion that any KCPL
director faced a material conflict of interest in connection with any such
transaction.
16. Denied, except admitted that KCPL has publicly stated that it has
evaluated its strategic options, that its board of directors believes that the
proposed merger with UtiliCorp
3
is fair to and in the best interests of KCPL's stockholders and admitted that
KCPL's board of directors undertook a careful analysis of the options available
to the company.
17. Denied, except admitted that KCPL sent the Proxy Statement to its
stockholders, the content of which speaks for itself.
18. Denied, except admitted that KCPL sent the Proxy Statement to its
stockholders, the content of which speaks for itself.
19. Denied, except admitted that KCPL's letter to shareholders dated April
21, 1996, speaks for itself.
(a) Denied.
(b) Denied, except Counterclaim Defendants admit that KCPL knew
from the Kansas Corporation Commission filing of April 15, 1996, the purported
basis of WRI's savings claims.
20. Denied, except admitted that on April 14, 1996, Western Resources
proposed a merger with KCPL that the contents of such proposal spoke for
themselves, and that Western Resources caused news of its proposal to be widely
disseminated.
21. Admitted.
22. Admitted.
23. Admitted, except Counterclaim Defendants deny (i) the characterization
of the KCPL and UCU dividend increase and (ii) that there was a time when KCPL
"was required to respond to WRI."
24. Denied, except Counterclaim Defendants admit that some analysts
expressed the view that the WRI bid was superior to the Initial Merger
Agreement.
25. Admitted.
4
26. Admitted.
27. Denied, except admitted that the terms of the Revised Merger Agreement
speak for themselves.
28. Denied, except Counterclaim Defendants admit that the Revised Merger
Agreement does not require approval from two-thirds of the KCPL shareholders and
does not provide appraisal rights to KCPL stockholders. It is further
specifically admitted that the Revised Merger Agreement contemplates action
explicitly authorized by the "short form" merger provisions of the Missouri
Business & General Corporation Law.
29. Denied, except Counterclaim Defendants admit that KCPL filed a
declaratory judgment complaint in this Court, which complaint speaks for itself.
30. Denied.
31. Counterclaim Defendants deny the second sentence of PARA 31 and, with
respect to its first sentence, respond that KCPL's complaint speaks for itself.
32. Counterclaim Defendants deny knowledge and information sufficient to
form a belief as to the truth in the allegations contained in PARA 32.
33. Counterclaim Defendants admit the allegation of the first sentence of
PARA 33 and deny the remainder of the allegations of PARA 33.
34. Counterclaim Defendants lack knowledge and information sufficient to
form a belief as to the truth or falsity of the allegations contained in
PARA 34, except that Counterclaim Defendants specifically deny that any class
merger was damaged by their conduct and that such conduct was in any way
wrongful.
35. Counterclaim Defendants lack knowledge and information sufficient to
form a belief as to the truth or falsity of the allegations in PARA 35.
5
36. Admitted.
37. (a) Admitted.
(b) Denied.
38. Paragraph 38 states a conclusion of law to which no responsive pleading
is required.
39. Paragraph 39 states a conclusion of law to which no responsive pleading
is required.
40. Paragraph 40 states a conclusion of law to which no responsive
pleading is required.
41. The allegations of PARA 41 state conclusions of law to which no
responsive pleading is required.
42. Counterclaim Defendants deny knowledge or information sufficient to
form a belief as to the truth of the allegations contained in PARA 42.
43. Counterclaim Defendants incorporate by reference, as though fully set
forth herein, the responses contained in the paragraphs above.
44. The allegations of PARA 44 state conclusions of law to which no
responsive pleading is required.
45. Denied.
46. Denied.
47. Denied.
48. Denied.
49. Denied.
6
FIRST AFFIRMATIVE DEFENSE
50. Counterclaim Plaintiff fails to state a claim upon which relief can
be granted.
SECOND AFFIRMATIVE DEFENSE
51. Counterclaim Plaintiff failed to comply with the requirements of
Federal Rule of Civil Procedure 23.1.
THIRD AFFIRMATIVE DEFENSE
52. Plaintiff failed to demand of the directors of KCPL that they cause
the corporation bring the action against the individual defendants.
FOURTH AFFIRMATIVE DEFENSE
53. Plaintiff failed to demand of the stockholders of KCPL that they
cause the corporation bring this action against the individual defendants.
WHEREFORE, Counterclaim Defendants respectfully request judgment:
(a) Dismissing the Counterclaim in its entirety;
(b) Awarding Counterclaim Defendants their costs and disbursements; and
(c) Awarding Counterclaim Defendants such other and further relief as
the Court deems just and proper.
7
Respectfully submitted,
David F. Oliver
-------------------------------------------------
John M. Edgar MO #20524
David F. Oliver MO #28065
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main
Kansas CIty, Missouri 64105
Telephone: (816) 374-3200
Facsimile: (816) 374-3300
and
Steven J. Rothschild
R. Michael Lindsey
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Telephone: (302) 651-3000
Facsimile: (302) 651-3001
ATTORNEYS FOR PLAINTIFF KANSAS CITY
POWER & LIGHT COMPANY and
COUNTERCLAIM DEFENDANTS
8
Certificate of Service
I hereby certify that a copy of the foregoing was mailed, postage prepaid,
on this 27 day of June, 1996, to:
Lawrence M. Berkowitz, Esq.
Kurt D. Williams, Esq.
STINSON, MAG & FIZZELL, P.C.
1201 Walnut Street
Kansas City, MO 64106
and
John L. Hardiman, Esq.
Tariq Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, NY 10004
ATTORNEYS FOR DEFENDANTS WESTERN
RESOURCES, INC. and ROBERT L. RIVES
Michael E. Waldeck, Esq.
William J. DeBauche, Esq.
Angela K. Green, Esq.
Michael E. Griffin, Esq.
NIEWALD, WALDECK & BROWN
1200 Main Street, Suite 4100
Kansas City, MO 64105
and
OF COUNSEL:
David Harrison, Esq.
LOWEY, DANNENBURG, BEMPEROD
& SELINGER, P.C.
747 Third Avenue, 30th floor
New York, NY 10017
ATTORNEYS FOR INTERVENOR
David F. Oliver
------------------------------
Attorney for Plaintiff
9
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
vs. ) Civil Action No. 96-552-CV-W-5
)
)
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
Defendants, )
____________________________________ )
)
JACK MANSON, individally and on )
behalf of all individual and/or )
entities similarly situated, )
)
Intervenor Defendant and )
Counterclaim Plaintiff, )
)
)
vs. )
)
A. DRUE JENNINGS, DR. DAVID L. BODDE, )
WILLIAM H. CLARK, ROBERT J. DINEEN, )
ARTHUR J. DOYLE, W. THOMAS GRANT II, )
GEORGE E. NETTELS, JR., LINDA HOOD )
TALBOTT, Ph.D., ROBERT H. WEST, and )
KANSAS CITY POWER & LIGHT CO., a )
Missouri corporation. )
)
Counterclaim Defendants. )
KANSAS CITY POWER & LIGHT COMPANY'S MOTION FOR STAY
PENDING DISPOSITION OF A PETITION FOR WRIT OF MANDAMUS
-----------------------------------------------------
Kansas City Power & Light Company ("KCPL") respectfully moves for a
stay, pending disposition of a Petition for Writ of Mandamus from the United
States Court of Appeals
for the Eighth Circuit, of this Court's order compelling production by KCPL of
KCPL's privileged documents. Suggestions in support are filed with this motion.
Respectfully submitted,
/s/ David F. Oliver
----------------------------------------
John M. Edgar MO #20524
David F. Oliver MO #28065
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main
Kansas City, Missouri 64105
Telephone: (816) 374-3200
Facsimile: (816) 374-3300
and
Steven J. Rothschild
R. Michael Lindsey
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Telephone: (302) 651-3000
Facsimile: (302) 651-3001
ATTORNEYS FOR PLAINTIFF KANSAS CITY
POWER & LIGHT COMPANY and
COUNTERCLAIM DEFENDANTS
2
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing was transmitted via
facsimile and mailed, postage prepaid, on this 5th day of July, 1996, to:
Lawrence M. Berkowitz, Esq.
Kurt D. Williams, Esq.
STINSON, MAG & PIZZELL, P.C.
1201 Walnut Street
Kansas City, MO 64106
and
John L. Hardiman, Esq.
Tariq Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, NY 10004
ATTORNEYS FOR DEFENDANTS WESTERN
RESOURCES, INC. and ROBERT L. RIVES
Michael E. Waldeck, Esq.
William J. DeBauche, Esq.
Angela K. Green, Esq.
Michael E. Griffin, Esq.
NIEWALD, WALDECK & BROWN
1200 Main Street, Suite 4100
Kansas City, MO 64105
and
OF COUNSEL:
David Harrison, Esq.
LOWEY, DANNENBERG, BEMPEROD
& SELINGER, P.C.
747 Third Avenue, 30th Floor
New York, NY 10017
ATTORNEYS FOR INTERVENOR
/s/ David F. Oliver
----------------------------------------
Attorney for Plaintiff
3
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY POWER & LIGHT )
COMPANY, )
)
Plaintiff, )
)
vs. ) Civil Action No. 96-552-CV-W-5
)
)
)
WESTERN RESOURCES, INC. and )
ROBERT T. RIVES, )
)
Defendants, )
____________________________________ )
)
JACK MANSON, individally and on )
behalf of all individual and/or )
entities similarly situated, )
)
Intervenor Defendant and )
Counterclaim Plaintiff, )
)
)
vs. )
)
A. DRUE JENNINGS, DR. DAVID L. BODDE, )
WILLIAM H. CLARK, ROBERT J. DINEEN, )
ARTHUR J. DOYLE, W. THOMAS GRANT II, )
GEORGE E. NETTELS, JR., LINDA HOOD )
TALBOTT, Ph.D., ROBERT H. WEST, and )
KANSAS CITY POWER & LIGHT CO., a )
Missouri corporation. )
)
Counterclaim Defendants. )
KANSAS CITY POWER & LIGHT COMPANY'S MOTION FOR STAY
PENDING DISPOSITION OF A PETITION FOR WRIT OF MANDAMUS
-----------------------------------------------------
Kansas City Power & Light Company ("KCPL") respectfully moves for a
stay, pending disposition of a Petition for Writ of Mandamus from the United
States Court of Appeals
for the Eighth Circuit, of this Court's order compelling production by KCPL of
KCPL's privileged documents. Suggestions in support are filed with this motion.
Respectfully submitted,
/s/ David F. Oliver
----------------------------------------
John M. Edgar MO #20524
David F. Oliver MO #28065
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main
Kansas City, Missouri 64105
Telephone: (816) 374-3200
Facsimile: (816) 374-3300
and
Steven J. Rothschild
R. Michael Lindsey
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Telephone: (302) 651-3000
Facsimile: (302) 651-3001
ATTORNEYS FOR PLAINTIFF KANSAS CITY
POWER & LIGHT COMPANY and
COUNTERCLAIM DEFENDANTS
2
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing was transmitted via
facsimile and mailed, postage prepaid, on this 5th day of July, 1996, to:
Lawrence M. Berkowitz, Esq.
Kurt D. Williams, Esq.
STINSON, MAG & PIZZELL, P.C.
1201 Walnut Street
Kansas City, MO 64106
and
John L. Hardiman, Esq.
Tariq Mundiya, Esq.
SULLIVAN & CROMWELL
125 Broad Street
New York, NY 10004
ATTORNEYS FOR DEFENDANTS WESTERN
RESOURCES, INC. and ROBERT L. RIVES
Michael E. Waldeck, Esq.
William J. DeBauche, Esq.
Angela K. Green, Esq.
Michael E. Griffin, Esq.
NIEWALD, WALDECK & BROWN
1200 Main Street, Suite 4100
Kansas City, MO 64105
and
OF COUNSEL:
David Harrison, Esq.
LOWEY, DANNENBERG, BEMPEROD
& SELINGER, P.C.
747 Third Avenue, 30th Floor
New York, NY 10017
ATTORNEYS FOR INTERVENOR
/s/ David F. Oliver
----------------------------------------
Attorney for Plaintiff
3
