AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WESTERN RESOURCES, INC.
NKC, INC.
(EXACT NAME OF THE REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
KANSAS 4911 48-0290150
KANSAS 4911 48-1201698
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION) 818 KANSAS AVENUE
TOPEKA, KANSAS 66612
(785) 575-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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RICHARD D. TERRILL
WESTERN RESOURCES, INC.
818 KANSAS AVENUE
TOPEKA, KANSAS 66612
(785) 575-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
FRANCIS J. AQUILA RICHARD D. TERRILL JEANIE SELL LATZ NANCY A. LIEBERMAN
SULLIVAN & CROMWELL WESTERN RESOURCES, INC. KANSAS CITY POWER & SKADDEN, ARPS, SLATE,
125 BROAD STREET 818 KANSAS AVENUE LIGHT COMPANY MEAGHER & FLOM LLP
NEW YORK, NEW YORK 10004 TOPEKA, KANSAS 66612 1201 WALNUT 919 THIRD AVENUE
KANSAS CITY, MISSOURI 64106 NEW YORK, NEW YORK 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE MAXIMUM
SECURITIES TO BE PER SHARE OF AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) COMMON STOCK OFFERING PRICE(2) REGISTRATION FEE(3)
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Western Resources, Inc.
Common Stock, par value
$5.00 per share....... 44,698,100 N.A. $1,805,041,770 $532,487.32
NKC, Inc. Common Stock,
without par value..... 61,908,726
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(1) The maximum number of shares of common stock, par value $5.00 per share
("Western Resources Common Stock"), of Western Resources, Inc. ("Western
Resources") that may be issued and contributed to Kansas Gas and Electric
Company ("KGE") and subsequently distributed to shareholders of Kansas
City Power & Light Company ("KCPL"), and shares of common stock, without
par value ("Westar Energy Common Stock"), of NKC, Inc. (to be renamed
Westar Energy, Inc.) to be issued, pursuant to the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") to which this
Registration Statement relates, based on a total number of outstanding
shares of common stock, without par value, of KCPL ("KCPL Common Stock")
of 61,908,726 on June 8, 1998 multiplied by the maximum conversion ratio
of 0.722 shares of Western Resources Common Stock for each share of KCPL
Common Stock and assuming the exchange of one share of Westar Energy
Common Stock for each share of KCPL Common Stock.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price is equal to the market value of the KCPL Common
Stock to be canceled pursuant to the Merger Agreement and is based upon
$29.1565, the average of the high and low sale prices of KCPL Common Stock
on the New York Stock Exchange Composite Tape on June 2, 1998.
(3) Computed in accordance with Rule 457(f) under the Securities Act to be
$532,487.32, which is .000295 multiplied by the proposed maximum aggregate
offering price $1,805,041,770. In accordance with Rule 429, the fee of
$555,076.70 previously paid by Western Resources upon the filing of its
Registration Statement on Form S-4 (Reg. No. 333-02711) on April 22, 1996
and Amendment No. 1 to such Registration Statement on June 19, 1996 has
been credited against the registration fee payable in connection with this
filing.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
FILES A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT BECOMES
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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LOGO WESTERN RESOURCES/R/
June 9, 1998
Dear Western Resources Shareowner:
We are pleased to invite you to join us at the Special Meeting of
Shareowners of Western Resources, Inc. (the "Special Meeting"). This meeting
will be held on July 30, 1998 at the Bradbury Thompson Center located at 1700
SW Jewell on the Washburn University Campus, Topeka, Kansas, commencing at
10:00 a.m., local time.
At this meeting, you will be asked to vote on proposals relating to the
business combination (the "Combination") between your company and Kansas City
Power & Light Company ("KCPL"). As a result of the proposed Combination,
Western Resources will own (i) approximately 80.1% of the outstanding common
stock of a newly formed company to be named Westar Energy, Inc. ("Westar
Energy") consisting of KCPL, Kansas Gas and Electric Company, a wholly owned
subsidiary of Western Resources ("KGE"), and the electric utility business
conducted by Western Resources through its KPL division ("KPL") and (ii) all
of the outstanding shares of KLT, Inc., a wholly owned subsidiary of KCPL
consisting of KCPL's unregulated businesses. In the proposed Combination, KCPL
shareholders will receive approximately 19.9% of the outstanding common stock
of Westar Energy and approximately 35% of the outstanding common stock of
Western Resources. You will continue to hold your Western Resources shares
after the proposed Combination which, in the aggregate, will represent
approximately 65% of the outstanding common stock of Western Resources.
Your Board of Directors believes that the proposed Combination will enable
Western Resources to remain competitive in a rapidly changing energy
marketplace. Adding KCPL to the Western Resources corporate structure will
result in an enterprise with more than 2 million energy and security
customers, $11 billion in assets and more than 8,000 megawatts of electric
generation resources.
I will serve as chairman of the Westar Energy Board of Directors and Drue
Jennings, KCPL's chairman, president and chief executive officer, will become
chief executive officer of Westar Energy. After the proposed Combination, the
Board of Directors of Westar Energy will consist of six persons designated by
Western Resources, and four persons selected from the KCPL Board of Directors
by KCPL. In addition, Western Resources will nominate three current KCPL
directors to its Board of Directors. The executive headquarters of Westar
Energy will be in Kansas City, Missouri, the customer services headquarters
will be in Wichita, Kansas and the field operations headquarters will be in
Topeka, Kansas.
In connection with the proposed Combination, you will be asked to (A)
approve and adopt an Amended and Restated Agreement and Plan of Merger among
your company, KGE, Westar Energy and KCPL (the "Merger Agreement"), (B)
approve an amendment to Western Resources Restated Articles of Incorporation
to increase the number of authorized shares from 85,000,000 to 300,000,000 in
order to effect the proposed Combination and for general corporate purposes,
(C) approve the issuance of a number of shares of Western Resources common
stock equal to the Issuance Number, which will be contributed by Western
Resources to KGE, and subsequently distributed to KCPL shareholders pursuant
to the Merger Agreement, and (D) approve the transfer by Western Resources to
KGE of (i) KPL and (ii) shares of Western Resources common stock equal to the
Issuance Number. The term "Issuance Number" means the product of (x) that
number of shares of KCPL common stock (other than shares of KCPL Common Stock
beneficially owned by Western Resources or KCPL, Dissenting Shares (as defined
in the accompanying Joint Proxy Statement/Prospectus) and shares (or any
portion thereof) of KCPL Common Stock in respect of which cash is to be paid
in lieu of fractional shares) outstanding immediately before such contribution
multiplied by (y) a conversion ratio equal to $23.50 divided by the average
price of Western Resources common stock over a 20-day averaging period
described in the Merger Agreement, subject to a collar ranging from a low of
$29.78 to a high of $58.47 (or a maximum of 0.722 and a minimum equal to that
fraction of a share of Western Resources common stock equal to $30.00 in value
for each KCPL
1
share). Assuming that the average price of Western Resources common stock for
the 20-day averaging period is equal to the closing price of Western Resources
on June 8 1998, the conversion ratio would be 0.60743, the implied per share
value of the Western Resources Common Stock for each share of KCPL Common
Stock would be $23.50 and the Issuance Number would be 37,583,465. The
transfer of KPL and KGE to Westar Energy constitutes the transfer of
substantially all of the assets of Western Resources.
Your Board of Directors has received the written opinion of its financial
advisor, Salomon Smith Barney, that the Aggregate Consideration (as defined in
the accompanying Joint Proxy Statement/Prospectus) is fair from a financial
point of view to Western Resources.
Western Resources, in its capacity as sole shareowner of KGE and Westar
Energy, has approved the merger of KCPL with and into Westar Energy (the "KCPL
Merger") and the merger of KGE with and into Westar Energy (the "KGE Merger")
pursuant to the Merger Agreement. However, these mergers will not be
consummated unless the shareowners of Western Resources approve all of the
items listed above. Accordingly, a vote in favor of such items will in effect
be a vote in favor of the KCPL Merger and the KGE Merger. The proposed
Combination is also subject to regulatory approvals and other conditions,
including approval of the Merger Agreement and the KCPL Merger by the KCPL
shareholders. It is presently anticipated that all required approvals will be
received and that the proposed Combination will be effective within the first
half of 1999.
Each of the proposals for your consideration is more fully described in the
accompanying Notice of Special Meeting and Joint Proxy Statement/Prospectus
and its various attachments. I encourage you to read these materials
carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MATTERS TO BE VOTED UPON AND BELIEVES THAT THEY ARE IN THE
BEST INTERESTS OF WESTERN RESOURCES AND ITS SHAREOWNERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS DESCRIBED IN THE ATTACHED
NOTICE OF SPECIAL MEETING AND JOINT PROXY STATEMENT/PROSPECTUS.
Since the proposals to be voted on at the Special Meeting require the
affirmative vote of a majority of the outstanding shares of Western Resources
common stock, it is very important that all Western Resources shareowners vote
their shares at the Special Meeting. Please keep in mind that the failure to
vote, abstentions and broker non-votes will have the same effect as votes cast
against the proposals to be voted on.
Pursuant to the Merger Agreement, Western Resources has agreed to call for
redemption, prior to the effective time of the KGE Merger, all outstanding
shares of 4 1/2% Series Preferred Stock, par value $100 per share, 4 1/4%
Series Preferred Stock, par value $100 per share and 5% Series Preferred
Stock, par value $100 per share (together, the "Western Resources Preferred
Stock") at a redemption price equal to the amount set forth in the Articles of
Incorporation of Western Resources, together with all dividends accrued and
unpaid to the date of such redemption.
Shareowners of Western Resources Common Stock do not have dissenters' rights
with respect to the proposed Combination.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, I URGE YOU TO
COMPLETE PROMPTLY AND MAIL YOUR PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. A PROMPT REPLY WILL
AVOID EXPENSES ASSOCIATED WITH FOLLOW-UP LETTERS TO SHAREOWNERS WHO HAVE NOT
RESPONDED. IF YOU DO ATTEND AND WISH TO VOTE IN PERSON, YOU CAN REVOKE YOUR
PROXY BY GIVING WRITTEN NOTICE TO THE SECRETARY OF WESTERN RESOURCES OR BY
CASTING YOUR BALLOT IN PERSON.
I look forward to seeing you at the Special Meeting. In the meantime, please
review the Joint Proxy Statement/Prospectus and exercise your right to vote.
Sincerely,
/s/ John E. Hayes, Jr.
John E. Hayes, Jr.
Chairman of the Board and
Chief Executive Officer
2
WESTERN RESOURCES, INC.
818 KANSAS AVENUE
TOPEKA, KANSAS 66612
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NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON JULY 30, 1998
Notice is hereby given that a Special Meeting of Shareowners of Western
Resources, Inc. ("Western Resources") will be held at the Bradbury Thompson
Center located at 1700 SW Jewell on the Washburn University Campus, Topeka,
Kansas on July 30, 1998, commencing at 10:00 a.m., local time (the "Meeting").
At the Meeting, shareowners will be asked to consider and vote upon the
following proposals, which are more fully described in the accompanying Joint
Proxy Statement/Prospectus:
1. A proposal to approve and adopt the Amended and Restated Agreement and
Plan of Merger, dated as of March 18, 1998 (the "Merger Agreement"), by and
among Western Resources, Kansas Gas and Electric Company, a wholly owned
subsidiary of Western Resources ("KGE"), NKC, Inc. (to be renamed Westar
Energy, Inc.), currently a wholly owned subsidiary of Western Resources
("Westar Energy"), and Kansas City Power & Light Company ("KCPL") and the
transactions contemplated thereby providing, among other things, for the
merger of KCPL with and into Westar Energy and the merger of KGE with and
into Westar Energy, in each case with Westar Energy as the surviving
corporation (the "KCPL Merger" and the "KGE Merger," respectively); the
issuance of a number of shares of common stock, par value $5.00 per share,
of Western Resources (the "Western Resources Common Stock" and such
issuance the "Western Resources Share Issuance") pursuant to the Merger
Agreement equal to the product of (x) the number of shares of common stock,
without par value, of KCPL ("KCPL Common Stock") (other than shares of KCPL
Common Stock beneficially owned by Western Resources, KCPL, Dissenting
Shares (as defined in the accompanying Joint Proxy Statement/Prospectus)
and shares (or any portion thereof) of KCPL Common Stock in respect of
which cash is to be paid in lieu of fractional shares) issued and
outstanding immediately prior to the Western Resources Share Issuance
multiplied by (y) a conversion ratio providing for a maximum of 0.722 and a
minimum equal to that fraction of a share of Western Resources Common Stock
equal to $30.00 in value, determined as set forth in the Merger Agreement
(the "Issuance Number"); and the transfer by Western Resources to KGE of
(i) all of the right, title and interest of Western Resources in the assets
of its KPL division and the assumption by KGE of all liabilities relating
to the KPL division and an additional principal amount of debt of Western
Resources so that aggregate total indebtedness for borrowed money
(including preferred stock) of KGE equals $1.9 billion and (ii) Western
Resources Common Stock equal to the Issuance Number (collectively, the
"Contributions" and, together with the KCPL Merger and the KGE Merger and
certain other related transactions, the "Combination"). The transfer of KPL
and KGE to Westar Energy constitutes the transfer of substantially all of
the assets of Western Resources.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus. As a result of the transactions
contemplated by the Merger Agreement, Western Resources will own, assuming
there are no Dissenting Shares, 80.1%, on a diluted basis, of the
outstanding Common Stock of Westar Energy and 100% of the outstanding
Common Stock of KLT, Inc., a subsidiary of KCPL. KCPL shareholders will
own, assuming there are no Dissenting Shares, 19.9%, on a diluted basis, of
the outstanding Common Stock of Westar Energy and approximately 35% of the
outstanding Common Stock of Western Resources.
2. A proposal to approve an amendment to the Restated Articles of
Incorporation of Western Resources to increase, immediately prior to the
Western Resources Share Issuance, the number of authorized shares of
Western Resources Common Stock from 85,000,000 shares to 300,000,000 shares
(the "Articles Amendment");
3. A proposal to grant discretionary power to the proxies to adjourn or
postpone the Meeting in order to solicit additional votes for proposals 1
and 2; and
4. Such other matters, if any, as may properly come before the Meeting or
any adjournment or postponement thereof.
1
Holders of Western Resources Common Stock of record at the close of business
on June 11, 1998 (the "Record Date") will be entitled to notice of and to vote
at the Meeting or at any adjournment or postponement thereof. Approval of the
Merger Agreement and the transactions contemplated thereby, including the
Western Resources Share Issuance, the Contributions, and the transfer of
substantially all of the Western Resources assets to Westar Energy, and the
Articles Amendment requires the affirmative vote of a majority of the
outstanding shares of Western Resources Common Stock. Each share of Western
Resources Common Stock entitles the holder of record thereof at the close of
business on the Record Date to one vote at the Meeting. Holders of Western
Resources Common Stock are not entitled to dissenters' rights with respect to
any of the proposals to be voted on at the Meeting.
Approval of the Merger Agreement and the transactions contemplated thereby,
including the Western Resources Share Issuance, the Contributions, and the
transfer of substantially all of the Western Resources assets to Westar
Energy, and the Articles Amendment is required in order to effect the
Combination and certain other related transactions. Consummation of the
Combination is also subject to the approval of the holders of KCPL Common
Stock, certain required regulatory approvals and satisfaction of other
conditions.
YOUR BOARD OF DIRECTORS, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING AMONG OTHERS
THE WESTERN RESOURCES SHARE ISSUANCE, THE CONTRIBUTIONS AND THE ARTICLES
AMENDMENT AND RECOMMENDS THAT SHAREOWNERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
WESTERN RESOURCES SHARE ISSUANCE, THE CONTRIBUTIONS, AND THE TRANSFER OF
SUBSTANTIALLY ALL OF THE WESTERN RESOURCES ASSETS TO WESTAR ENERGY, AND THE
ARTICLES AMENDMENT.
By Order of the Board of Directors,
/s/ Richard D. Terrill
Richard D. Terrill
Secretary
TOPEKA, KANSAS
June 9, 1998
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY USING THE ENCLOSED, SELF-ADDRESSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. FAILURE TO VOTE,
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES CAST
AGAINST THE PROPOSALS TO BE VOTED ON. A PROMPT REPLY WILL AVOID EXPENSES
ASSOCIATED WITH FOLLOW-UP LETTERS TO SHAREOWNERS WHO HAVE NOT RESPONDED. IF
FOR ANY REASON YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY
TIME BEFORE IT IS VOTED AT THE MEETING.
2
LOGO KCPL/SM/
June 9, 1998
Dear Shareholder:
We are pleased to invite you to join us at a Special Meeting of Shareholders
of Kansas City Power & Light Company (the "Special Meeting"). The Special
Meeting will be held at 10:00 a.m., local time on July 30, 1998, at the Gem
Theater, 1615 E. 18th Street, Kansas City, Missouri.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement"), dated as of March 18, 1998, by and among your Company,
Western Resources, Inc. ("Western Resources"), NKC, Inc. (to be renamed Westar
Energy, Inc.) ("Westar Energy") and Kansas Gas and Electric Company, a wholly
owned subsidiary of Western Resources ("KGE").
Pursuant to the Merger Agreement, and as more fully described in the
attached proxy statement, Western Resources will contribute shares of Western
Resources Common Stock and substantially all of the assets and liabilities of
its KPL division ("KPL") to KGE, which along with KCPL will then be merged
into Westar Energy (the "KCPL Merger" and collectively, the "Transactions").
In the Transactions, for each share of KCPL Common Stock you presently own,
you will receive a fractional share of Western Resources common stock worth
not less than $21.50 and not more than $26.50 pursuant to a collar adjustment
mechanism which is described in greater detail on page 73 of the enclosed
Joint Proxy Statement/Prospectus, and one share of the common stock of Westar
Energy with an estimated trading value of between approximately $10 and $11
based on current market conditions as further described in the enclosed Joint
Proxy Statement/Prospectus. Based on the closing price of Western Resources
Common Stock on June 8, 1998, the latest practicable date prior to the date of
this letter and the accompanying Joint Proxy Statement/Prospectus, you would
receive 0.60743 shares of Western Resources Common Stock which would have a
value of $23.50 per share and one share of Westar Energy Common Stock for each
share of KCPL Common Stock you own. Following the Transactions, current KCPL
shareholders will own approximately 19.9% of the outstanding Common Stock of
Westar Energy (which will own all of the electric utility businesses of KCPL,
KGE and KPL) and approximately 35% of the outstanding Common Stock of Western
Resources. Western Resources will own approximately 80.1% of the outstanding
Common Stock of Westar Energy and substantially all of KCPL's unregulated
businesses.
Details of the proposed Transactions and other important information are set
forth in the accompanying Joint Proxy Statement/Prospectus, which you are
urged to read carefully. Your Board of Directors has carefully reviewed and
considered the terms and conditions of the proposed Transactions. Your Board
believes that the Transactions enable your Company to remain competitive in a
rapidly changing energy marketplace and are very important steps in realizing
KCPL's vision of becoming a premier regional utility. More importantly, your
Board of Directors believes that the Transactions are in your best interest
because as stockholders of Western Resources and Westar Energy, you will have
the opportunity to participate in the growth potential and the long-term
financial capability of a larger and more diversified corporate structure,
while retaining a separate equity interest in your Company's successor. In
summary, your Board of Directors believes that these factors combine to offer
opportunities for increased earnings and diversification of risk.
I will serve as Chief Executive Officer of Westar Energy and John E. Hayes,
Jr., Western Resources' Chairman of the Board and Chief Executive Officer,
will become Chairman of the Westar Energy Board of Directors. After the
Transactions, the Board of Directors of Westar Energy will consist of six
persons designated by Western Resources and four persons selected from the
KCPL Board. In addition, Western Resources will nominate three current KCPL
Directors, William H. Clark, Robert J. Dineen and Robert H. West, to its Board
of Directors. Westar Energy's executive headquarters will be in Kansas City,
Missouri, customer service headquarters will be in Wichita, Kansas, and field
operation headquarters will be in Topeka, Kansas.
1
Your Board of Directors has received the written opinion of its financial
advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, to the effect
that the aggregate consideration KCPL shareholders will receive in the
Transactions is fair from a financial point of view to KCPL shareholders. You
should note that because the Transaction will occur at a future date, the
value of the Western Resources common stock you will receive cannot be
guaranteed. In addition, since there will be no trading history for Westar
Energy Common Stock and the Transactions will occur at a future date, the
value of the Westar Energy Common Stock you will receive cannot be guaranteed.
Consummation of the Transactions is also subject to certain regulatory
approvals and satisfaction of other conditions, including approval of Western
Resources stockholders at a Special Meeting of Western Resources stockholders
to be held on July 30, 1998. It is presently anticipated that all required
approvals will be received and the Transactions will be effective during the
first half of 1999.
The enclosed Notice of Special Meeting and Joint Proxy Statement/Prospectus
provide specific information regarding the proposed Transactions and the
Special Meeting. I encourage you to study these materials carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND BELIEVES THAT THEY ARE IN THE BEST INTERESTS OF KCPL
AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE MERGER AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED
THEREBY, AS DESCRIBED IN THE ATTACHED NOTICE OF SPECIAL MEETING AND JOINT
PROXY STATEMENT/PROSPECTUS.
BECAUSE A TWO-THIRDS SUPERMAJORITY VOTE OF ALL OUTSTANDING SHARES OF KCPL
COMMON STOCK ENTITLED TO VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT, THE
KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, YOUR VOTE IS VERY
IMPORTANT. PLEASE KEEP IN MIND THAT UNDER MISSOURI LAW, THE FAILURE TO VOTE,
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES CAST
AGAINST APPROVAL OF THE MERGER AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY. THEREFORE, TO ENSURE YOUR SHARES WILL BE REPRESENTED AT
THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND, I URGE YOU TO VOTE
YOUR SHARES BY FOLLOWING THE INSTRUCTIONS FOR CONVENIENT VOTING BY TELEPHONE
AS SET FORTH ON THE ENCLOSED PROXY CARD, OR BY MAILING IN YOUR PROXY IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU DO ATTEND AND WISH TO VOTE IN PERSON, YOU CAN REVOKE
YOUR PROXY BY GIVING WRITTEN NOTICE TO THE SECRETARY OF KCPL OR BY CASTING
YOUR BALLOT.
Holders of KCPL common stock are entitled to appraisal rights, as described
in the accompanying Joint Proxy Statement/Prospectus. A shareholder who wishes
to exercise appraisal rights with respect to the KCPL Merger must not vote
"FOR" the Merger Agreement, the KCPL Merger and the transactions contemplated
thereby and must comply with the other procedural requirements described in
the accompanying Joint Proxy Statement/Prospectus. If no instructions are
indicated on a signed proxy, such proxy (unless revoked) will be voted "FOR"
the Merger Agreement, the KCPL Merger and the transactions contemplated
thereby.
The other directors and I look forward to meeting you at the Special
Meeting. In the meantime, please review the Joint Proxy Statement/Prospectus
and take advantage of your right to vote.
Sincerely,
/s/ Drue Jennings
Drue Jennings
Chairman of the Board, President and
Chief Executive Officer
2
KANSAS CITY POWER & LIGHT COMPANY
1201 WALNUT
KANSAS CITY, MISSOURI 64106
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1998
Notice is hereby given that a Special Meeting of Shareholders of Kansas City
Power & Light Company ("KCPL") will be held at the Gem Theater, 1615 E. 18th
Street, Kansas City, Missouri, on July 30, 1998, commencing at 10:00 a.m.,
local time (the "Meeting"). At the Meeting, shareholders will be asked to
consider and vote upon the following proposal, which is more fully described
in the accompanying Joint Proxy Statement/Prospectus:
1. A proposal to approve and adopt the Amended and Restated Agreement and
Plan of Merger, dated as of March 18, 1998 (the "Merger Agreement"), by and
among Western Resources, Inc. ("Western Resources"), Kansas Gas and
Electric Company, a wholly owned subsidiary of Western Resources ("KGE"),
NKC, Inc. (to be renamed Westar Energy, Inc.), a wholly owned subsidiary of
Western Resources ("Westar Energy") and KCPL, providing, among other
things, for (i) the transfer by Western Resources to KGE of all of the
right, title and interest of Western Resources in the assets of its KPL
division ("KPL") and the assumption by KGE of all liabilities relating to
the KPL division and an additional principal amount of debt of Western
Resources so that aggregate total indebtedness for borrowed money
(including preferred stock) of KGE equals $1.9 billion, (ii) the
contribution by Western Resources to KGE of that number of shares of
Western Resources common stock, par value $5.00 per share ("Western
Resources Common Stock"), equal to the product of (x) the number of shares
of common stock, without par value, of KCPL ("KCPL Common Stock") (other
than shares of KCPL Common Stock beneficially owned by Western Resources,
KCPL, Dissenting Shares (as defined in the accompanying Joint Proxy
Statement/Prospectus) and shares (or any portion thereof) of KCPL Common
Stock in respect of which cash is to be paid in lieu of fractional shares)
issued and outstanding immediately prior to the contribution multiplied by
(y) a conversion ratio with a maximum of 0.722 and a minimum equal to that
fraction of a share of Western Resources Common Stock equal to $30.00 in
value, determined as set forth in the Merger Agreement, (iii) the merger of
KCPL with and into Westar Energy, with Westar Energy as the surviving
corporation (the "KCPL Merger") (as described below), (iv) the merger of
KGE with and into Westar Energy, with Westar Energy as the surviving
corporation (the "KGE Merger") and (v) the distribution to KCPL's
shareholders of the Western Resources Common Stock contributed to KGE, in
accordance with the Merger Agreement. A copy of the Merger Agreement is
attached as Annex A to the accompanying Joint Proxy Statement/Prospectus.
As a result of the transactions contemplated by the Merger Agreement, KCPL
shareholders will own, assuming there are no Dissenting Shares, 19.9%, on a
diluted basis, of the outstanding Common Stock of Westar Energy and
approximately 35% of the outstanding Common Stock of Western Resources.
Western Resources will own, assuming there are no Dissenting Shares, 80.1%,
on a diluted basis, of the outstanding Common Stock of Westar Energy and
100% of the outstanding Common Stock of KLT, Inc., a subsidiary of KCPL. In
connection with the foregoing, shareholders are also voting to approve the
KCPL Merger, pursuant to which each outstanding share of KCPL Common Stock
(other than shares beneficially owned by KCPL or any of its subsidiaries
and Dissenting Shares), will be converted into one share of Series A Common
Stock, without par value, of Westar Energy; and
2. Such other matters, if any, as may properly come before the Meeting or
any adjournment or postponement thereof.
Shareholders of record at the close of business on June 11, 1998, will be
entitled to notice of and to vote at the Meeting or at any adjournment or
postponement thereof. Approval of the Merger Agreement and the KCPL Merger
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of KCPL Common Stock entitled to vote.
1
KCPL shareholders' approval of the Merger Agreement and the KCPL Merger is a
condition to the consummation of the KGE Merger and the other transactions
contemplated by the Merger Agreement. The consummation of the KGE Merger and
the related transactions is also subject to the affirmative vote of a majority
of the outstanding shares of Western Resources Common Stock, certain required
regulatory approvals and the satisfaction of other conditions.
Holders of KCPL Common Stock are entitled to appraisal rights with respect
to the KCPL Merger, as described in the accompanying Joint Proxy
Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE
KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY.
By Order of the Board of Directors,
/s/ Jeanie Sell Latz
Jeanie Sell Latz
Secretary
Kansas City, Missouri
June 9, 1998
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE PROMPTLY VOTE YOUR SHARES BY
TELEPHONE OR BY MARKING, SIGNING, DATING AND PROMPTLY RETURNING THE
ACCOMPANYING PROXY USING THE ENCLOSED, SELF-ADDRESSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. A PROMPT REPLY WILL AVOID EXPENSES
ASSOCIATED WITH FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED. IF
FOR ANY REASON YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY
TIME BEFORE IT IS VOTED AT THE MEETING.
2
LOGO WESTERN RESOURCES/R/ LOGO KCPL/SM/
JOINT PROXY STATEMENT
----------------
WESTERN RESOURCES, INC.
AND
WESTAR ENERGY, INC.
PROSPECTUS
----------------
This Joint Proxy Statement/Prospectus relates to, among other things, the
proposed mergers and certain related transactions contemplated by the Amended
and Restated Agreement and Plan of Merger, dated as of March 18, 1998 (the
"Merger Agreement"), by and among Western Resources, Inc., a Kansas corporation
("Western Resources"), Kansas Gas and Electric Company, a Kansas corporation
and a wholly owned subsidiary of Western Resources ("KGE"), and NKC, Inc. (to
be renamed Westar Energy, Inc.), a Kansas corporation and a wholly owned
subsidiary of Western Resources ("Westar Energy"), on the one hand, and Kansas
City Power & Light Company, a Missouri corporation ("KCPL"), on the other hand.
Pursuant to the Merger Agreement, among other things, (i) Western Resources
will transfer to KGE (x) all of the assets and related liabilities of its rate-
regulated electric business, the KPL Division ("KPL") and (y) shares of common
stock of Western Resources, par value $5.00 per share ("Western Resources
Common Stock" and the issuance in connection with such contribution of Western
Resources Common Stock by Western Resources, the "Western Resources Share
Issuance"), as described below (the "Contributions") and (ii) KCPL will be
merged with and into Westar Energy and KGE will be merged with and into Westar
Energy, in each case with Westar Energy as the surviving corporation (the "KCPL
Merger" and the "KGE Merger," respectively, and together, the "Mergers"). As a
result of the Contributions and the Mergers, Westar Energy will conduct the
business of KCPL, KGE and KPL and Western Resources will own, assuming there
are no Dissenting Shares (as defined below), 80.1% of the diluted outstanding
shares of Westar Energy Common Stock (as defined below) and Western Resources
shareowners will own approximately 65% of the outstanding Western Resources
Common Stock and KCPL shareholders will own, assuming there are no Dissenting
Shares, 19.9% of the diluted outstanding shares of Westar Energy Common Stock
and approximately 35% of the outstanding Western Resources Common Stock.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 26 FOR A DESCRIPTION OF CERTAIN FACTORS
RELATING TO WESTERN RESOURCES, KCPL AND WESTAR ENERGY THAT SHOULD BE CONSIDERED
BY SHAREOWNERS OF WESTERN RESOURCES AND KCPL IN EVALUATING THE TRANSACTIONS
CONTEMPLATED HEREIN.
--------
This Joint Proxy Statement/Prospectus also constitutes (i) the prospectus of
Western Resources with respect to up to approximately 44.7 million shares of
Western Resources Common Stock to be issued and contributed to KGE pursuant to
the Stock Contribution (as defined below) and subsequently distributed upon
consummation of the KGE Merger to the holders of Westar Energy Series A Common
Stock, and (ii) the prospectus of Westar Energy with respect to approximately
61.9 million shares of Westar Energy Series A Common Stock to be issued upon
consummation of the KCPL Merger to the holders of KCPL Common Stock.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------
The date of this Joint Proxy Statement/Prospectus is June 9, 1998. This Joint
Proxy Statement/Prospectus is first being mailed to the shareowners of Western
Resources and KCPL on or about June 12, 1998.
The Mergers and the related transactions will be consummated on the terms
and subject to the conditions set forth in the Merger Agreement. Pursuant to
the Merger Agreement, the following transactions (the "Transactions") will be
effected:
(A) initially, Western Resources will transfer, or cause to be
transferred to KGE, (i) all of the assets of KPL (the "KPL Assets" and such
contribution the "Asset Contribution") other than securities, the corporate
headquarters of Western Resources and those assets necessary for the
operation of Western Resources as a holding company after the Closing Date
(as defined below) (the "Non-KPL Assets") and (ii) a number of shares of
Western Resources Common Stock (the "Stock Contribution") equal to the
Issuance Number (as defined below). Concurrently with the Asset
Contribution, KGE will (i) assume and agree to pay, perform and discharge
when due all liabilities and obligations that arise out of, or relate to or
are generated by, the KPL Assets or the operations of KPL, whether arising
before or after the Asset Contribution and whether known or unknown, fixed
or contingent, other than certain retained liabilities, and (ii) assume an
aggregate principal amount of debt of Western Resources so that aggregate
total indebtedness for borrowed money (including preferred stock) of KGE
equals $1.9 billion immediately prior to the KGE Effective Time (as defined
below) (together, the "Assumed Liabilities"); provided, however, that the
Assumed Liabilities shall not include indebtedness for borrowed money of
Western Resources if KGE immediately prior to the KGE Effective Time (as
defined below) already has indebtedness for borrowed money (including
preferred stock) of $1.9 billion, it being understood between the parties
that in no case will the indebtedness for borrowed money (including
preferred stock) of KGE exceed $1.9 billion immediately prior to the KGE
Effective Time. The term "Issuance Number" means the product of (x) the
number of shares of common stock, without par value, of KCPL ("KCPL Common
Stock") (other than shares of KCPL Common Stock beneficially owned by
Western Resources or KCPL, Dissenting Shares and shares (or any portion
thereof) of KCPL Common Stock in respect of which cash is to be paid in
lieu of fractional shares) outstanding immediately prior to the Stock
Contribution multiplied by (y) the Conversion Ratio (as defined below);
(B) immediately after the Contributions and pursuant to the KCPL Merger,
KCPL will merge with and into Westar Energy, with Westar Energy being the
surviving corporation (the effective time of such merger, the "KCPL
Effective Time"), as a result of which each issued and outstanding share of
KCPL Common Stock (other than shares of KCPL Common Stock beneficially
owned by KCPL either directly or through a wholly owned subsidiary and
shares of KCPL Common Stock ("Dissenting Shares") that are owned by
shareholders exercising appraisal rights in the KCPL Merger pursuant to
Section 351.455 of the Missouri General and Business Corporation Law, as
amended (the "MGBCL")), will represent one fully paid and nonassessable
share of Series A common stock, without par value, of Westar Energy
("Westar Energy Series A Common Stock") representing in the aggregate,
assuming there are no Dissenting Shares, 19.9% of the diluted outstanding
shares of Westar Energy Common Stock after consummation of the
Transactions;
(C) immediately after consummation of the Contributions and the KCPL
Merger, KGE will, pursuant to the KGE Merger, merge with and into Westar
Energy, with Westar Energy being the surviving corporation (the "Surviving
Corporation" and the effective time of such merger, the "KGE Effective
Time") (the Asset Contribution and the KGE Merger constituting the transfer
of substantially all of the assets of Western Resources), as a result of
which all of the issued and outstanding shares of common stock, without par
value, of KGE ("KGE Common Stock") will be converted into and become such
number of shares of Series B common stock, without par value, of Westar
Energy ("Westar Energy Series B Common Stock" and, together with the Westar
Energy Series A Common Stock, "Westar Energy Common Stock"), representing,
assuming there are no Dissenting Shares, 80.1% of the diluted outstanding
shares of Westar Energy Common Stock after consummation of the
Transactions. In addition to its interest in Westar Energy, Western
Resources will continue to hold, after the Transactions, its interest in
ONEOK Inc. and Protection One, Inc.;
(D) immediately after the KGE Effective Time, Westar Energy will, in
connection with the KGE Merger, distribute to holders of Westar Energy
Series A Common Stock, for each share of such stock that
(ii)
they own, a number of the shares of Western Resources Common Stock equal to
(a) the number of shares of Western Resources Common Stock contributed to
KGE pursuant to the Stock Contribution (the "Western Resources Stock
Distribution") multiplied by (b) a quotient, the numerator of which is 1
and the denominator of which is the total number of shares of Westar Energy
Series A Common Stock issued and outstanding immediately after the KCPL
Effective Time. In addition, immediately after the KGE Effective Time,
Westar Energy will distribute to Western Resources all of the outstanding
shares of capital stock of KLT, Inc., a Missouri corporation and wholly
owned subsidiary of KCPL ("KLT"); and
(E) immediately after the Western Resources Stock Distribution, each
share of Westar Energy Series B Common Stock owned by Western Resources
will automatically represent one fully paid and nonassessable share of
Westar Energy Series A Common Stock (the "Series B Conversion").
See "THE TRANSACTIONS--Graphical Presentation," and "THE MERGER AGREEMENT--The
Transactions," "--The Contributions," "--Conversion of KCPL Common Stock," "--
The KCPL Merger," "--The KGE Merger" and "--Additional Transactions."
The term "Conversion Ratio" means the quotient (rounded to the nearest
1/100,000) determined by dividing $23.50 by the Western Resources Index Price
(as defined below); provided, however, that if the Western Resources Index
Price (i) is greater than $58.46, the Conversion Ratio shall be fixed at
0.449, provided that if 0.449 multiplied by the Western Resources Index Price
exceeds $30.00, the Conversion Ratio shall mean the quotient (rounded to the
nearest 1/100,000) obtained by dividing $30.00 by the Western Resources Index
Price, (ii) is greater than $55.03 but less than or equal to $58.46, the
Conversion Ratio shall mean the quotient (rounded to the nearest 1/100,000)
obtained by dividing $26.25 by the Western Resources Index Price, (iii) is
greater than $52.41 but less than or equal to $55.03, the Conversion Ratio
shall be fixed at 0.477, (iv) is greater than $50.00 but less than or equal to
$52.41, the Conversion Ratio shall mean the quotient (rounded to the nearest
1/100,000) determined by dividing $25.00 by the Western Resources Index Price,
(v) is greater than $47.00 but less than or equal to $50.00, the Conversion
Ratio shall be fixed at 0.500, (vi) is greater than $35.01 but less than or
equal to $38.27, the Conversion Ratio shall be fixed at 0.614, (vii) is
greater than $29.78 but less than or equal to $35.01, the Conversion Ratio
shall mean the quotient (rounded to the nearest 1/100,000) obtained by
dividing $21.50 by the Western Resources Index Price or (viii) is less than or
equal to $29.78, the Conversion Ratio shall be fixed at 0.722. The term
"Western Resources Index Price" means the aggregate of the average of the high
and low sales prices of Western Resources Common Stock (as reported on the New
York Stock Exchange (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 NYSE trading days
ending the tenth NYSE trading day immediately preceding the KGE Effective
Time, divided by twenty. Because the KGE Effective Time will occur at a future
date, the value of the Western Resources Common Stock to be contributed to KGE
in the Stock Contribution and subsequently distributed to holders of KCPL
Common Stock may be significantly higher or lower than the value of the
Western Resources Common Stock that would be issued if the Western Resources
Index Price were equal to the closing price per share of Western Resources
Common Stock of $38.6875 on June 8, 1998. See "SUMMARY--Conversion of KCPL
Common Stock." KCPL shareholders may call (800) 621-0518 at any time on or
after the date hereof for the exact number of shares to be issued to them in
the Transactions based on the most recent Western Resources Index Price. No
certificates or scrip representing fractional shares of Western Resources
Common Stock will be contributed to KGE in the Stock Contribution. See "THE
MERGER AGREEMENT--The Contributions" and "--Conversion of KCPL Common Stock."
Based on the closing price of Western Resources Common Stock on June 8,
1998, the latest practicable date prior to the date of this Joint Proxy
Statement/Prospectus (and assuming that the Western Resources Index Price is
equal to that closing price and that there are no Dissenting Holders (as
defined below)), 0.60743 shares of Western Resources Common Stock would be
contributed to Westar Energy for each outstanding share of KCPL Common Stock.
At that Conversion Ratio, former KCPL shareholders would receive an aggregate
of 37,583,465 shares of Western Resources Common Stock, representing
approximately 35% of the outstanding Western Resources Common Stock. Western
Resources shareowners would, in the aggregate, hold approximately 65% of the
outstanding Western Resources Common Stock.
(iii)
KCPL has agreed under the Merger Agreement to call for redemption, before
the KCPL Effective Time, all of its outstanding shares of preferred stock at
the applicable redemption prices, together with all dividends accrued and
unpaid through the applicable redemption dates.
Western Resources has agreed under the Merger Agreement to call for
redemption before the KGE Effective Time all of its outstanding shares of
Western Resources Preferred Stock (as defined below) at the applicable
redemption prices, together with all dividends accrued and unpaid through the
applicable redemption dates.
Holders of shares of KCPL Common Stock who properly demand and perfect their
appraisal rights ("Dissenting Holders") will not have their shares of KCPL
Common Stock converted into shares of Westar Energy Common Stock in the KCPL
Merger and after the KCPL Effective Time such shares of KCPL Common Stock will
represent only the right to receive such consideration as is determined to be
due such Dissenting Holders pursuant to the MGBCL. KCPL Common Stock
outstanding immediately prior to the KCPL Effective Time and held by a
shareholder who withdraws his demand for appraisal rights or fails to perfect
such rights will be deemed to be converted at the KCPL Effective Time into the
right to receive shares of Westar Energy Common Stock, without interest.
Holders of Western Resources Common Stock and Western Resources Preferred
Stock will not have dissenters' rights under the Kansas General Corporation
Code (the "KGCC") with respect to the Transactions. See "THE TRANSACTIONS--
Dissenters' Rights."
There is currently no public trading market for the shares of Westar Energy
Common Stock; however, it is expected that a "when-issued" trading market will
develop for the Westar Energy Common Stock prior to the KGE Merger. Westar
Energy will apply for listing of the Westar Energy Common Stock on the NYSE.
See "RISK FACTORS--Uncertainty Regarding Trading Prices of Westar Energy
Common Stock Following the Transactions."
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Western Resources Common Stock in connection with the solicitation of proxies
by the board of directors of Western Resources (the "Western Resources Board")
for use at a special meeting of Western Resources shareowners (the "Western
Resources Meeting") to be held at the Bradbury Thompson Center, 1700 SW Jewell
on the Washburn University Campus, Topeka, Kansas on July 30, 1998, commencing
at 10:00 a.m., local time, and at any adjournment or postponement thereof. At
the Western Resources Meeting, in addition to voting upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Contributions, the Western Resources Share Issuance and
the transfer of substantially all of the assets of Western Resources to Westar
Energy, holders of Western Resources Common Stock will also consider and vote
upon a proposal with respect to an amendment of Western Resources' Restated
Articles of Incorporation (the "Western Resources Articles") to increase,
immediately prior to the Western Resources Share Issuance, the authorized
number of shares of Western Resources Common Stock.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
shares of KCPL Common Stock in connection with the solicitation of proxies by
the board of directors of KCPL (the "KCPL Board") for use at a special meeting
of KCPL shareholders (the "KCPL Meeting") to be held at the Gem Theater, 1615
E. 18th Street, Kansas City, Missouri on July 30, 1998, commencing at 10:00
a.m., local time, and at any adjournment or postponement thereof. At the KCPL
Meeting, holders of KCPL Common Stock will consider and vote upon a proposal
to approve and adopt the Merger Agreement, the KCPL Merger and the
transactions contemplated thereby.
All information contained herein with respect to KCPL has been furnished by
KCPL and all information herein with respect to Western Resources, KGE and
Westar Energy has been furnished by Western Resources.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint
Proxy
(iv)
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to
or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of KCPL, Westar Energy, Western Resources or KGE or in the information
set forth herein since the date of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareowners of KCPL, Westar Energy and Western
Resources upon consummation of the Transactions and no person is authorized to
make any use of this Joint Proxy Statement/Prospectus in connection with any
such resale.
(v)
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND ANALYSES WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). FORWARD-
LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL INFORMATION OR
STATEMENTS OF CURRENT CONDITION. SOME FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY USE OF TERMS SUCH AS "BELIEVES," "ANTICIPATES," "INTENDS,"
"ESTIMATES" OR "EXPECTS." THESE FORWARD-LOOKING STATEMENTS RELATE TO THE PLANS
AND OBJECTIVES OF WESTERN RESOURCES AND WESTAR ENERGY FOR FUTURE OPERATIONS.
IN LIGHT OF THE RISKS AND UNCERTAINTIES INHERENT IN ALL FUTURE PROJECTIONS,
THE INCLUSION OF FORWARD-LOOKING STATEMENTS IN THIS JOINT PROXY
STATEMENT/PROSPECTUS SHOULD NOT BE CONSIDERED A REPRESENTATION BY WESTERN
RESOURCES OR WESTAR ENERGY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF
WESTERN RESOURCES OR WESTAR ENERGY WILL BE ACHIEVED. NUMEROUS FACTORS COULD
CAUSE WESTERN RESOURCES' OR WESTAR ENERGY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THE
FOLLOWING: (I) THE OCCURRENCE OF CATASTROPHIC EVENTS WITH A FREQUENCY OR
SEVERITY EXCEEDING WESTERN RESOURCES' OR WESTAR ENERGY'S ESTIMATES; (II) AN
UNFORESEEABLE MATERIAL DECREASE IN THE LEVEL OF DEMAND FOR ELECTRIC SERVICES;
(III) LOSS OF SERVICES OF ANY ONE OF WESTERN RESOURCES' OR WESTAR ENERGY'S
EXECUTIVE OFFICERS; (IV) THE PASSAGE OF FEDERAL OR STATE REGULATION CURTAILING
THE PERMISSIBLE ACTIVITIES OF ELECTRIC PROVIDERS; (V) FUTURE ECONOMIC
CONDITIONS; (VI) DEVELOPMENTS IN THE LEGISLATIVE, REGULATORY AND COMPETITIVE
ENVIRONMENTS IN WHICH WESTERN RESOURCES AND WESTAR ENERGY OPERATE; (VII) THE
SUCCESS OF DIVERSIFICATION EFFORTS; OR (VIII) OTHER CIRCUMSTANCES AFFECTING
ANTICIPATED OPERATIONS, REVENUES AND COSTS, INCLUDING INVESTMENTS IN NATURAL
GAS AND SECURITY BUSINESSES. THE FOREGOING REVIEW OF FACTORS SHOULD NOT BE
CONSTRUED AS EXHAUSTIVE. WESTERN RESOURCES AND WESTAR ENERGY UNDERTAKE NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY FUTURE REVISIONS THEY MAY
MAKE TO FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER
THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF
WESTERN RESOURCES OR WESTAR ENERGY AFTER THE TRANSACTIONS IS INCLUDED IN
SECURITIES AND EXCHANGE COMMISSION ("SEC") FILINGS INCORPORATED BY REFERENCE
HEREIN.
AVAILABLE INFORMATION
Western Resources, KGE and KCPL are subject to the informational
requirements of the Exchange Act, and in accordance therewith file reports,
proxy statements and other information with the SEC. Reports, proxy statements
and other information filed by Western Resources, KGE and KCPL with the SEC
may be inspected and copied at the public reference facilities maintained by
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the public reference facilities in the SEC's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of information may be obtained from the Public Reference Room of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Because Western Resources, KGE and KCPL each files certain documents
electronically with the SEC, reports, proxy and information statements and
other information regarding Western Resources, KGE and KCPL may also be
obtained at prescribed rates from the SEC at the SEC's Web site,
http//:www.sec.gov. The Western Resources Common Stock and the KCPL Common
Stock are listed and traded on the NYSE and the KCPL Common Stock is also
listed on the Chicago Stock Exchange (the "CSE"). Reports, proxy statements
and other information filed by Western Resources and KCPL with the SEC may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005 and, concerning KCPL only, at the offices of the CSE, 440 South LaSalle
Street, Chicago, Illinois 60605.
Western Resources and Westar Energy have filed a registration statement on
Form S-4 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") with the SEC pursuant to the Securities Act, with
respect to the shares of Western Resources Common Stock and Westar Energy
Common Stock to be issued in the Transactions. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying at the SEC's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
(vi)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THOSE
DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST FROM, IN
THE CASE OF DOCUMENTS RELATING TO WESTERN RESOURCES AND KGE, MR. RICHARD D.
TERRILL, CORPORATE SECRETARY AND ASSOCIATE GENERAL COUNSEL, WESTERN RESOURCES,
INC., 818 SOUTH KANSAS AVENUE, TOPEKA, KANSAS 66612-1203, (785) 575-6322, AND
IN THE CASE OF DOCUMENTS RELATING TO KCPL, MS. JEANIE SELL LATZ, SENIOR VICE
PRESIDENT-CORPORATE SERVICES, CORPORATE SECRETARY AND CHIEF LEGAL OFFICER,
KANSAS CITY POWER & LIGHT COMPANY, 1201 WALNUT, KANSAS CITY, MISSOURI 64106-
2124, (816) 556-2200. IN ORDER TO ENSURE TIMELY DELIVERY OF WESTERN RESOURCES
AND KCPL DOCUMENTS, ALL REQUESTS FOR SUCH DOCUMENTS SHOULD BE MADE BY JULY 23,
1998.
The following documents, previously filed with the SEC by Western Resources
(SEC File No. 1-3523), KGE (SEC File No. 1-7324) and KCPL (SEC File No. 1-707)
pursuant to the Exchange Act, are hereby incorporated by reference:
1. Western Resources' Annual Report on Form 10-K/A for the year ended
December 31, 1997.
2. KCPL's Annual Report on Form 10-K for the year ended December 31,
1997.
3. KGE's Annual Report on Form 10-K for the year ended December 31, 1997.
4. Western Resources' Current Reports on Form 8-K filed January 5, 1998,
February 13, 1998 and March 23, 1998.
5. KCPL's Current Report on Form 8-K filed January 6, 1998 and March 23,
1998.
6. Western Resources' Annual Proxy Statement for the 1998 Annual Meeting
of Shareowners held on May 11, 1998.
7. KCPL's Annual Proxy Statement for the 1998 Annual Meeting of
Shareholders held on May 22, 1998.
8. Western Resources' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
9. KCPL's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
10. KGE's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
The information relating to Western Resources, KGE, Westar Energy and KCPL
contained in this Joint Proxy Statement/Prospectus does not purport to be
comprehensive and should be read together with the information in the
documents incorporated by reference herein.
All documents filed by Western Resources, KGE and KCPL pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior
to the date of the Western Resources Meeting, and any adjournment or
postponement thereof, or the KCPL Meeting, and any adjournment or postponement
thereof, respectively, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus.
(vii)
TABLE OF CONTENTS
PAGE
-----
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS............... (vi)
AVAILABLE INFORMATION................................................... (vi)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................... (viii)
TABLE OF CONTENTS....................................................... (viii)
INDEX OF SELECTED DEFINED TERMS......................................... (xi)
SUMMARY ................................................................ 1
Western Resources...................................................... 1
KCPL................................................................... 1
Westar Energy.......................................................... 2
Risk Factors........................................................... 2
The Western Resources Meeting.......................................... 2
Recent Development..................................................... 3
The KCPL Meeting....................................................... 3
Graphical Presentation................................................. 4
Background of the Transactions......................................... 4
Reasons for the Transactions........................................... 4
Recommendations of the Boards of Directors............................. 4
Opinions of Financial Advisors......................................... 5
Interests of Certain Persons in the Transactions....................... 5
Dividend Reinvestment Plan............................................. 7
Certain Federal Income Tax Consequences................................ 7
Accounting Treatment................................................... 7
Stock Exchange Listing of the Westar Energy Common Stock and Western
Resources Common Stock................................................ 7
Federal Securities Law Consequences.................................... 8
Dissenters' Rights..................................................... 8
Regulatory Matters..................................................... 8
Plans for Western Resources and Westar Energy Following the
Transactions.......................................................... 9
Control of Westar Energy Following the Transactions.................... 10
The Contributions...................................................... 10
Conversion of KCPL Common Stock........................................ 11
The KCPL Merger........................................................ 12
The KGE Merger......................................................... 12
Additional Transactions................................................ 12
Representations, Warranties and Covenants.............................. 12
Operations of Westar Energy Following the Transactions................. 13
Tax-Free Status........................................................ 13
Conditions to Each Party's Obligation to Effect the KGE Merger and the
KCPL Merger........................................................... 13
PAGE
----
Rights to Terminate, Amend or Waive Conditions........................... 15
Amendment to the Western Resources Articles.............................. 16
Comparison of Shareowner Rights.......................................... 16
Selected Historical and Pro Forma Data................................... 16
Selected Historical Financial Data of Western Resources.................. 17
Selected Historical Financial Data of KCPL............................... 18
Selected Historical Financial Data of Western Resources Electric
Business................................................................ 19
Western Resources Selected Unaudited Pro Forma Combined Financial
Information............................................................. 20
Westar Energy Selected Unaudited Pro Forma Combined Financial
Information............................................................. 21
Western Resources and KCPL Pro Forma Comparative Per Share Information... 22
KCPL and Westar Energy Pro Forma Comparative Per Share Information....... 23
Comparative Market Prices and Dividends.................................. 24
FORWARD-LOOKING STATEMENTS................................................ 25
RISK FACTORS.............................................................. 26
Uncertainty Regarding Trading Prices of Westar Energy Common Stock
Following the Transactions.............................................. 26
No Operating History as an Independent Company........................... 26
Uncertainty Regarding Volatility of Western Resources Common Stock
Price................................................................... 26
Uncertainty Regarding Western Resources' Regulatory Status............... 26
Uncertainty Regarding Future Dividend Policies........................... 27
Regulated Industry....................................................... 27
Control by the Principal Shareowner of Westar Energy..................... 27
Stranded Costs........................................................... 28
MEETINGS, VOTING AND PROXIES.............................................. 29
The Western Resources Meeting............................................ 29
The KCPL Meeting......................................................... 30
RECENT DEVELOPMENTS....................................................... 32
THE TRANSACTIONS.......................................................... 32
Graphical Presentation................................................... 33
Background of the Transactions........................................... 34
Reasons for the Transactions; Recommendations of the Boards of
Directors............................................................... 42
(viii)
PAGE
----
Operational and Structural Benefits...................................... 48
Components of Anticipated Cost Savings................................... 49
Opinion of Western Resources' Financial Advisor.......................... 51
Opinion of KCPL's Financial Advisor...................................... 56
Interests of Certain Persons in the Transactions......................... 63
Dividend Reinvestment Plan............................................... 66
Certain Federal Income Tax Consequences.................................. 66
Accounting Treatment..................................................... 67
Stock Exchange Listing of the Westar Energy Common Stock and Western
Resources Common Stock.................................................. 67
Federal Securities Law Consequences...................................... 67
Dissenters' Rights....................................................... 68
Regulatory Matters....................................................... 69
Plans for Western Resources and Westar Energy Following the
Transactions............................................................ 71
Control of Westar Energy Following the Transactions...................... 71
THE MERGER AGREEMENT...................................................... 72
The Transactions......................................................... 72
The Contributions........................................................ 72
Conversion of KCPL Common Stock.......................................... 73
The KCPL Merger.......................................................... 74
The KGE Merger........................................................... 74
Additional Transactions.................................................. 75
Subsidiaries............................................................. 75
Representations and Warranties........................................... 75
Certain Covenants........................................................ 76
Additional Agreements.................................................... 78
Directors' and Officers' Indemnification................................. 78
Certain Employment Agreements and Workforce Matters...................... 79
Employee Benefit Plans................................................... 79
Stock Options............................................................ 79
No Solicitations......................................................... 80
Operations of Westar Energy Following the Transactions................... 80
Tax-Free Status.......................................................... 81
Redemption of Western Resources Preferred Stock.......................... 81
Conditions to Each Party's Obligation to Effect the KGE Merger and the
KCPL Merger............................................................. 81
Amendment and Waiver..................................................... 83
Termination.............................................................. 84
Termination Fees......................................................... 85
Expenses................................................................. 85
PAGE
----
Standstill Arrangements.................................................. 86
AMENDMENT TO THE WESTERN RESOURCES ARTICLES............................... 87
Proposed Amendment....................................................... 87
Vote Required for Approval............................................... 87
DESCRIPTION OF WESTAR ENERGY CAPITAL STOCK................................ 88
Authorized Capital Stock................................................. 88
Westar Energy Common Stock............................................... 88
Westar Energy Preferred Stock............................................ 88
Anti-Takeover Effect of Certain Provisions of the Westar Energy Articles
and the Westar Energy Bylaws............................................ 88
Transfer Agent and Registrar............................................. 88
Stock Exchange Listing; Delisting and Deregistration of KCPL Common
Stock................................................................... 89
Other Terms.............................................................. 89
COMPARISON OF SHAREOWNER RIGHTS........................................... 90
Special Meetings of Shareowners.......................................... 90
Number of Directors...................................................... 90
Advance Notice of Shareowner Nominations of Directors.................... 91
Shareowner Proposal Procedures........................................... 92
Classification of Board of Directors..................................... 93
Voting/Cumulative Voting................................................. 93
Removal of Directors; Filling Vacancies on the Board of Directors........ 93
Shareowner Action by Written Consent..................................... 94
Preemptive Rights........................................................ 95
Amendment of Articles.................................................... 95
Amendment of Bylaws...................................................... 96
Business Combinations.................................................... 96
Voting Rights in Connection with Mergers and Consolidations.............. 98
Dissenters' Rights....................................................... 98
Missouri Control Share Acquisition Statute............................... 99
Kansas Control Share Acquisition Provision............................... 100
Missouri Business Combination Statute.................................... 101
Kansas Business Combination Statute...................................... 103
Other Constituency Statute............................................... 103
Indemnification.......................................................... 104
Dividends; Declarations and Payments..................................... 105
Shareowner Inspection.................................................... 105
EXPERTS................................................................... 107
(ix)
PAGE
----
VALIDITY OF WESTERN RESOURCES COMMON STOCK AND WESTAR ENERGY COMMON
STOCK.................................................................... 107
FUTURE SHAREOWNER PROPOSALS............................................... 107
SELECTED INFORMATION CONCERNING WESTERN RESOURCES AND KCPL................ 107
Business of Western Resources............................................ 107
Business of KCPL......................................................... 108
BUSINESS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS...................... 108
MATERIAL CONTACTS BETWEEN KCPL AND WESTERN RESOURCES...................... 108
THE WESTERN RESOURCES ELECTRIC BUSINESS................................... 109
General.................................................................. 109
Capacity................................................................. 110
Future Capacity.......................................................... 111
Fuel Mix................................................................. 111
Nuclear.................................................................. 111
Coal..................................................................... 112
Natural Gas.............................................................. 113
Oil...................................................................... 113
Other Fuel Matters....................................................... 114
Environmental Matters.................................................... 114
Regulation and Rates..................................................... 115
Employee Relations....................................................... 115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF WESTERN RESOURCES ELECTRIC BUSINESS........................ 116
Cautionary Statement Regarding Forward-Looking Statements................ 116
Overview................................................................. 116
Financial Condition...................................................... 116
Results of Operations.................................................... 117
Liquidity and Capital Resources.......................................... 120
Other Information........................................................ 121
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 124
The Transactions......................................................... 124
PAGE
----
WESTERN RESOURCES UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET... 126
WESTERN RESOURCES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME.................................................................. 127
WESTERN RESOURCES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME.................................................................. 128
WESTAR ENERGY UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET....... 129
WESTAR ENERGY UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME.................................................................. 130
WESTAR ENERGY UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME.................................................................. 131
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.... 132
INDEX TO WREB FINANCIAL STATEMENTS....................................... F-1
Annex A Amended and Restated Agreement and Plan of Merger................ A-1
Annex B Opinion of Salomon Smith Barney.................................. B-1
Annex C Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.... C-1
Annex D Section 351.455 of the Missouri General and Business Corporation
Law.............................................................. D-1
Annex E Form of Certificate of Amendment to Restated Articles of
Incorporation, as Amended, of Western Resources, Inc............. E-1
Annex F Amended and Restated Articles of Incorporation of NKC, Inc....... F-1
Annex G Bylaws of NKC, Inc............................................... G-1
(x)
INDEX OF SELECTED DEFINED TERMS
DEFINED TERM PAGE NO.
- ------------ --------
1935 Act............ 9
1995 Engagement
Letter............. 56
Acquisition
Proposal........... 80
Aggregate
Consideration...... 75
Alternate Case DCF.. 60
AMAX................ 112
Amended UtiliCorp
Agreement.......... 36
Antitrust Division.. 69
Application......... 69
Articles Amendment
................... 2
Asset Contribution.. (ii)
Assumed
Liabilities........ (ii)
Atomic Energy Act... 8
Base Case DCF....... 60
BNSF................ 112
change in control... 65
CLC................. 35
Closing............. 72
Closing Date........ 72
Code................ 13
Contributions....... (i)
Conversion Ratio.... (iii)
CSE................. (vi)
CT.................. 37
DCF................. 58
Deloitte
Consulting......... 35
Dissenting Holders.. (iv)
Dissenting Shares... (ii)
District Court...... 36
DOE................. 111
Draft Merger
Agreement.......... 41
Empire.............. 111
EPA................. 114
EPS................. 52
ERISA............... 76
Exchange Act........ (vi)
Expected Savings and
Synergies.......... 56
FERC................ 8
First Call.......... 58
Forward EPS......... 59
FTC................. 69
Hanover............. 56
HSR Act............. 9
Incumbent Board..... 66
Indemnified
Liabilities........ 78
Indemnified Party... 78
Investments......... 44
Issuance Number..... (ii)
JEC................. 112
Kansas Acquiring
Person Statement... 101
Kansas Business
Combination
Statute............ 103
Kansas Commission... 46
Kansas Control Share
Acquisition........ 100
Kansas Control Share
Acquisition
Provision.......... 100
Kansas Control
Shares............. 100
Kansas Interested
Shares............. 101
Kansas Interested
Stockholder........ 103
Kansas Issuing
Public
Corporation........ 100
KCPL................ (i)
KCPL Articles....... 4
KCPL Alternate
Case............... 61
KCPL Benefits....... 44
KCPL Board.......... (iv)
KCPL Business
Combination........ 96
KCPL Bylaws......... 4
KCPL Common Stock... (ii)
KCPL Continuing
Director........... 96
KCPL Custom Index... 52
KCPL Effective
Time............... (ii)
KCPL Employees...... 44
KCPL Fair Market
Value.............. 97
DEFINED TERM PAGE NO. DEFINED TERM PAGE NO.
- ------------ -------- ------------ --------
KCPL Interested Salomon Smith Barney
Shareholder........ 96 Opinion............ 50
KCPL Management SEC................. (vi)
Case............... 61 Securities Act...... (vi)
KCPL Material Selected Acquisition
Adverse Effect..... 14 Transactions....... 52
KCPL Meeting........ (iv) Selected Utility
KCPL Merger......... (i) Companies.......... 52
KCPL Record Date.... 3 Series B
KCPL Regulated Conversion......... (iii)
Business........... 57 Skadden Arps........ 7
KCPL Severance SPP................. 110
Agreements......... 64 Stock Contribution.. (ii)
KCPL Shareholder Subsidiary.......... 75
Approval........... 72 Surviving
KCPL Stock Options.. 6 Corporation........ (ii)
KCPL Subsidiary..... 75 Synergies Base
KCPL Substantial Case............... 61
Part............... 97 Synergies
KCPL Tax Condition.. 15 Sensitivity Case... 61
KCPL Unregulated Task Force.......... 122
Business........... 51 Termination Date.... 84
KCPL Utility Transactions........ (ii)
Segment............ 51 UP.................. 112
KDHE................ 114 UtiliCorp........... 18
KGCC ............... (iv) WCNOC............... 1
KGE................. (i) Westar Capital...... 1
KGE Common Stock.... (ii) Westar Energy....... (i)
KGE Effective Time Westar Energy
................... (ii) Articles........... 16
KGE Merger.......... (i) Westar Energy
KLT................. (iii) Bylaws............. 16
KLT Stock Westar Energy Common
Distribution....... 12 Stock.............. (ii)
KPL................. (i) Westar Energy Series
KPL Assets.......... (ii) A Common Stock..... (ii)
LeBoeuf, Lamb....... 34 Westar Energy Series
LTM EBIT............ 52 B Common Stock..... (ii)
LTM EBITA........... 52 Western Resources... (i)
Market Cap/EBITDA... 58 Western Resources
Market Value/BV..... 58 Alternate Case..... 61
Merger Agreement.... (i) Western Resources
Mergers............. (i) Articles .......... (iv)
Merrill Lynch....... 5 Western Resources
MGBCL............... (ii) Board.............. (iv)
Missouri Business Western Resources
Combination........ 102 Bylaws............. 2
Missouri Business Western Resources
Combination Business
Statute............ 101 Combination........ 97
Missouri Control Western Resources
Share Acquisition.. 99 Common Stock....... (i)
Missouri Control Western Resources
Share Acquisition Companies.......... 9
Statute............ 99 Western Resources
Missouri Interested Continuing
Shares............. 99 Director........... 97
Missouri Interested Western Resources
Shareholder........ 102 Custom Index....... 53
Missouri Issuing Western Resources
Public Fair Market Value.. 97
Corporation........ 99 Western Resources
Missouri Stock Index Price ....... (iii)
Acquisition Date... 102 Western Resources
MPSC................ 46 Interested
MWE................. 111 Shareholder........ 97
Non-KPL Assets...... (ii) Western Resources
NRC................. 70 Management Case.... 61
NRC Operating Western Resources
License............ 70 Material Adverse
NRC Possession Effect............. 14
License............ 70 Western Resources
NYSE................ (iii) Meeting............ (iv)
ONEOK............... 1 Western Resources
ONEOK Comparables... 60 Offer.............. 36
Original Merger Western Resources
Agreement.......... 40 Preferred Stock.... 3
Original Proposal... 35 Western Resources
Original UtiliCorp Record Date........ 2
Agreement.......... 34 Western Resources
Plan................ 65 Regulated
Preferred Stock..... 87 Business........... 59
Protection One...... 1 Western Resources
Qualifying Selected Utility
Termination........ 65 Companies.......... 53
Registration Western Resources
Statement.......... (vi) Severance
Regulated Business Agreements......... 65
Comparables........ 58 Western Resources
Representatives..... 80 Share Issuance..... (i)
Reserve Report...... 56 Western Resources
Reserve Engineer.... 56 Shareowner
Revised Merger Approval........... 72
Agreement.......... 41 Western Resources
S&P 500 Index....... 58 Stock
S&P Electric Utility Distribution....... (iii)
Index.............. 58 Western Resources
Salomon Brothers.... 5 Subsidiary......... 75
Salomon Smith Western Resources
Barney............. 5 Substantial Part... 97
Western Resources
Unregulated
Businesses......... 53
Western Resources
Utility Segment.... 55
Wolf Creek.......... 1
WREB................ 16
WSPP................ 110
(xi)
SUMMARY
The following is a summary of certain important terms and conditions of the
Transactions 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. Certain statements in this
Joint Proxy Statement/Prospectus constitute "forward-looking" statements under
the Securities Act and the Exchange Act. As used herein, the terms "Western
Resources" and "KCPL" refer to such entity and, unless the context otherwise
requires, its subsidiaries. SHAREOWNERS ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
WESTERN RESOURCES
Western Resources' primary business activities are providing electric
generation, transmission and distribution services to approximately 614,000
customers in Kansas; providing security alarm monitoring services to over one
million customers located throughout the United States, providing natural gas
transmission and distribution services to approximately 1.4 million customers
in Oklahoma and Kansas through its investment in ONEOK Inc. ("ONEOK") and
investing in international power projects. Rate regulated electric service is
provided by KPL and KGE. Security services are primarily provided by Protection
One, Inc. ("Protection One"), a publicly traded, approximately 82%-owned
subsidiary of Western Resources. KGE owns 47% of Wolf Creek Nuclear Operating
Corporation ("WCNOC"), the operating company for Wolf Creek Generating Station
("Wolf Creek"). Other Western Resources subsidiaries include Westar Capital,
Inc., a private investment company wholly owned by Western Resources, with
investments in energy-related and technology-oriented businesses ("Westar
Capital"), The Wing Group Ltd., an unregulated subsidiary which develops
international power projects.
Following the Transactions, Western Resources will be a holding company with
its regulated electric utility operations (KPL, KGE and KCPL) held in a
publicly traded approximately 80.1%-owned subsidiary, Westar Energy, and its
unregulated operations held in other wholly and partially owned subsidiaries.
See "--Operations of Westar Energy Following the Transactions" below and
"BUSINESS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS."
Western Resources was incorporated under the laws of the State of Kansas in
1924. Western Resources' corporate headquarters is located at 818 South Kansas
Avenue, Topeka, Kansas 66612-1203 and its telephone number is (785) 575-6300.
See "SELECTED INFORMATION CONCERNING WESTERN RESOURCES AND KCPL--Business of
Western Resources."
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 445,000
customers in and around the metropolitan Kansas City area. Included in a
diverse customer base are about 391,000 residences, 51,000 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, a wholly
owned unregulated subsidiary of KCPL, pursues opportunities in primarily
energy-related ventures. KCPL's commitment to KLT and its holdings reflect
KCPL's plans to enhance shareholder value by capturing growth opportunities in
energy-related markets outside KCPL's regulated core utility business. KCPL
owns a 47% interest in WCNOC and a 50% interest in the LaCygne generating
station. 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 WESTERN RESOURCES AND KCPL--Business of
KCPL."
1
WESTAR ENERGY
Westar Energy was initially formed as a wholly owned subsidiary of Western
Resources solely for the purpose of effecting the Transactions. Prior to the
KCPL Effective Time, Westar Energy will not engage in any activity other than
activities related to the Transactions. Following the Transactions, Westar
Energy will be the new regulated electric utility operating entity of Western
Resources, combining the operating assets of KGE, KPL and KCPL. Westar Energy
will continue to use the trade names KGE for its electric utility operations in
southeastern Kansas, including the Wichita metropolitan area, KPL in central
and northeastern Kansas and KCPL in the Kansas City metropolitan area. Westar
Energy will operate in the States of Kansas and Missouri, with more than one
million customers and more than 8,000 megawatts of electric generation
resources. Westar Energy will continue its existence under the laws of Kansas.
See "THE TRANSACTIONS--Plans for Western Resources and Westar Energy Following
the Transactions" and "BUSINESS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS."
RISK FACTORS
SHAREOWNERS OF KCPL AND WESTERN RESOURCES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" IN EVALUATING THE PROPOSED TRANSACTIONS.
THE WESTERN RESOURCES MEETING
Purpose. At the Western Resources Meeting, holders of Western Resources
Common Stock will be asked to consider and vote upon: (i) a proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby
including, among others, the Western Resources Share Issuance, the
Contributions and the transfer of substantially all of the assets of Western
Resources to Westar Energy as a result of the Asset Contribution and the KGE
Merger; (ii) a proposal to approve an amendment to the Western Resources
Articles to increase, immediately prior to the Western Resources Share
Issuance, the number of authorized shares of Western Resources Common Stock
from 85,000,000 shares to 300,000,000 shares (the "Articles Amendment"); and
(iii) such other matters, if any, as may properly come before the Western
Resources Meeting or any adjournment or postponement thereof. The consummation
of the Transactions is conditioned upon approval of proposals (i) and (ii)
above.
THE WESTERN RESOURCES BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY INCLUDING, AMONG OTHERS,
THE WESTERN RESOURCES SHARE ISSUANCE, THE CONTRIBUTIONS, AND THE TRANSFER OF
SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN RESOURCES TO WESTAR ENERGY, AND THE
ARTICLES AMENDMENT AND RECOMMENDS THAT WESTERN RESOURCES SHAREOWNERS VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE WESTERN RESOURCES SHARE ISSUANCE, THE
CONTRIBUTIONS, AND THE TRANSFER OF SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN
RESOURCES TO WESTAR ENERGY, AND THE ARTICLES AMENDMENT.
Date, Place and Time; Record Date. The Western Resources Meeting is scheduled
to be held at the Bradbury Thompson Center, 1700 SW Jewell on the Washburn
University Campus, Topeka, Kansas, at 10:00 a.m., local time, on July 30, 1998.
Holders of record of shares of Western Resources Common Stock at the close of
business on June 11, 1998 (the "Western Resources Record Date") will be
entitled to notice of and to vote at the Western Resources Meeting. At the
close of business on the Western Resources Record Date, 65,562,074 shares of
Western Resources Common Stock were issued and outstanding and entitled to
vote. The Western Resources Meeting may be adjourned or postponed to another
date and/or place for any proper purpose (including, without limitation, for
the purpose of soliciting additional proxies).
Voting Rights; Quorum; Required Vote. Each outstanding share of Western
Resources Common Stock is entitled to one vote upon each matter presented at
the Western Resources Meeting. 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 Western
Resources Meeting.
As provided under the KGCC, the Western Resources Articles, the bylaws of
Western Resources (the "Western Resources Bylaws") and the rules of the NYSE,
as applicable, approval and adoption of the Merger
2
Agreement and the transactions contemplated thereby, including the Western
Resources Share Issuance, the Contributions, and the transfer of substantially
all of the assets of Western Resources to Westar Energy, and the Articles
Amendment requires the affirmative vote of a majority of the outstanding shares
of Western Resources Common Stock. Abstentions and broker non-votes will have
the same effect as votes cast against approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Western
Resources Share Issuance, the Contributions, and the transfer of substantially
all of the assets of Western Resources to Westar Energy, and the Articles
Amendment.
Western Resources in its capacity as sole shareowner of KGE and Westar Energy
has approved the Contributions, the KGE Merger and the KCPL Merger. However,
the KGE Merger will not be consummated unless the shareowners of Western
Resources approve all of the items listed above. Accordingly, a vote in favor
of such items will in effect be a vote in favor of the KGE Merger and the
transfer of substantially all of the assets of Western Resources to Westar
Energy.
As of the Western Resources Record Date, the directors and executive officers
of Western Resources, together with their affiliates as a group, beneficially
own less than 1% of the issued and outstanding shares of Western Resources
Common Stock entitled to vote at the Western Resources Meeting.
Western Resources has agreed under the Merger Agreement to call for
redemption before the KGE Effective Time all of its outstanding shares of 5%
Series Preferred Stock, par value $100 per share, 4 1/2% Series Preferred
Stock, par value $100 per share, and 4 1/4% Series Preferred Stock, par value
$100 per share (collectively, the "Western Resources Preferred Stock"), at the
applicable redemption prices, together with all dividends accrued and unpaid
through the applicable redemption dates. Accordingly, the Western Resources
Preferred Stock shall not be entitled to vote upon any matter to be considered
at the Western Resources Meeting.
See "MEETINGS, VOTING AND PROXIES--The Western Resources Meeting."
RECENT DEVELOPMENT
At the 1998 Western Resources Annual Meeting held on May 11, 1998, Western
Resources announced that John E. Hayes, Jr. would retire from his position as
Chief Executive Officer on July 1, 1998 and David C. Wittig would become the
new Chief Executive Officer.
THE KCPL MEETING
Purpose. At the KCPL Meeting, the holders of KCPL Common Stock will be asked
to consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement, the KCPL Merger and the transactions contemplated thereby; and (ii)
such other matters, if any, as may properly come before the KCPL Meeting or any
adjournment or postponement thereof. The consummation of the KCPL Merger is
conditioned upon approval of proposal (i) above.
THE KCPL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE KCPL MERGER
AND THE TRANSACTIONS CONTEMPLATED THEREBY, HAS AUTHORIZED THE EXECUTION AND
DELIVERY OF THE MERGER AGREEMENT, AND RECOMMENDS THAT KCPL SHAREHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE KCPL MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Date, Place and Time; Record Date. The KCPL Meeting is scheduled to be held
at the Gem Theater, 1615 E. 18th Street, Kansas City, Missouri, at 10:00 a.m.,
local time, on July 30, 1998. Holders of record of shares of KCPL Common Stock
at the close of business on June 11, 1998 (the "KCPL Record Date") will be
entitled to notice of and to vote at the KCPL Meeting. At the close of business
on the KCPL Record Date, 61,872,915 shares of KCPL Common Stock were issued and
outstanding and entitled to vote. The KCPL Meeting may be adjourned or
postponed to another date and/or place for any proper purpose (including,
without limitation, for the purpose of soliciting additional proxies).
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,
3
outstanding and entitled to vote, present in person or by proxy, shall
constitute a quorum for the transaction of business at the KCPL Meeting.
As provided under the MGBCL, the Restated Articles of Consolidation of KCPL
(the "KCPL Articles"), the bylaws of KCPL (the "KCPL Bylaws") and the rules of
the NYSE, as applicable, the affirmative vote of the holders of two-thirds of
the outstanding shares of KCPL Common Stock entitled to vote is required to
approve and adopt the Merger Agreement, the KCPL Merger and the transactions
contemplated thereby.
SINCE A TWO-THIRDS SUPERMAJORITY VOTE OF ALL OUTSTANDING SHARES OF KCPL
COMMON STOCK ENTITLED TO VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, YOUR VOTE
IS IMPORTANT. UNDER MISSOURI LAW, THE FAILURE TO VOTE, ABSTENTIONS AND BROKER
NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES CAST AGAINST APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
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 entitled to
vote at the KCPL Meeting. As of the KCPL Record Date, Western Resources did not
beneficially own any shares of KCPL Common Stock.
KCPL has agreed under the Merger Agreement to call for redemption before the
KCPL Effective Time all of its outstanding shares of preferred stock at the
applicable redemption prices therefor, together with all dividends accrued and
unpaid through the applicable redemption dates. Accordingly, the shares of
preferred stock of KCPL shall not be entitled to vote upon any matter at the
KCPL Meeting.
See "MEETINGS, VOTING AND PROXIES--The KCPL Meeting."
GRAPHICAL PRESENTATION
For a graphical presentation of the Transactions, see "THE TRANSACTIONS--
Graphical Presentation."
BACKGROUND OF THE TRANSACTIONS
For a description of the background of the Transactions, see "THE
TRANSACTIONS--Background of the Transactions."
REASONS FOR THE TRANSACTIONS
Western Resources and KCPL believe that the Transactions offer significant
strategic and financial benefits to each company and to their respective
shareowners, as well as to their employees and customers and the communities
which they serve. These benefits include, among others: significant potential
synergies and cost savings as a result of the Transactions; a share price
premium for KCPL shareholders; increased opportunities for expansion into
unregulated product markets and diverse geographic markets; greater financial
strength for the combined entities and concentration of Western Resources
electric utility operations into a single entity focusing solely on that line
of business. See "THE TRANSACTIONS--Reasons for the Transactions;
Recommendations of the Boards of Directors." For information regarding
estimates of synergies and cost savings that may result from the Transactions,
see "THE TRANSACTIONS--Operational and Structural Benefits" and "--Components
of Anticipated Cost Savings."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
KCPL. The KCPL Board has unanimously approved the Merger Agreement, the KCPL
Merger and the transactions contemplated thereby, has authorized the execution
and delivery of the Merger Agreement, and recommends that KCPL shareholders
vote "FOR" approval and adoption of the Merger Agreement, the KCPL Merger and
the transactions contemplated thereby. The KCPL Board approved the Merger
Agreement, the KCPL Merger and the transactions contemplated thereby after
consideration of a number of factors described under the heading "THE
TRANSACTIONS--Reasons for the Transactions; Recommendations of the Boards of
Directors--KCPL."
4
Western Resources. The Western Resources Board, by a unanimous vote, has
approved the Merger Agreement and the transactions contemplated thereby, the
Western Resources Share Issuance, the Contributions and the Articles Amendment,
believes that the terms of the Transactions are fair to, and in the best
interests of, Western Resources' shareowners and recommends that the
shareowners of Western Resources vote "FOR" approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Western
Resources Share Issuance, the Contributions, and the transfer of substantially
all of the assets of Western Resources to Westar Energy, and the Articles
Amendment. The Western Resources Board approved and adopted the Merger
Agreement and the transactions contemplated thereby after consideration of a
number of factors described under the heading "THE TRANSACTIONS--Reasons for
the Transactions; Recommendations of the Boards of Directors--Western
Resources."
OPINIONS OF FINANCIAL ADVISORS
Western Resources. On March 18, 1998, Salomon Brothers Inc ("Salomon
Brothers") and Smith Barney Inc. (collectively doing business and referred to
herein as "Salomon Smith Barney") delivered its oral opinion, which opinion was
subsequently confirmed in a written opinion dated as of March 20, 1998 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 Aggregate Consideration (as defined below) was
fair to Western Resources from a financial point of view. A copy of the written
opinion of Salomon Smith Barney dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth assumptions made, matters considered and
limits of the review undertaken in connection with the opinion, is attached
hereto as Annex B. WESTERN RESOURCES SHAREOWNERS ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. See "THE TRANSACTIONS--Opinion of Western
Resources' Financial Advisor" and Annex B.
KCPL. On March 18, 1998, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") delivered its oral opinion, which opinion was subsequently
confirmed in written opinions dated as of such date 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 Aggregate Consideration was fair
to such holders from a financial point of view. 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 with such opinion, is
attached hereto as Annex C. HOLDERS OF SHARES OF KCPL COMMON STOCK ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "THE TRANSACTIONS--
Opinion of KCPL's Financial Advisor" and Annex C.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the boards of directors and managements
of Western Resources and KCPL, shareowners should be aware that certain members
of the Western Resources Board and the KCPL Board and certain members of the
managements of Western Resources and KCPL have certain interests in the
Transactions that are in addition to or different from those as shareowners of
Western Resources and KCPL generally. See "THE TRANSACTIONS--Interests of
Certain Persons in the Transactions."
Board of Directors. The Merger Agreement provides that, at the KGE Effective
Time, the Western Resources Board shall appoint three named members of the KCPL
Board to the Western Resources Board. In addition, each of the eleven current
members of the Western Resources Board will continue in office following the
KGE Effective Time. The Merger Agreement also provides that at the KGE
Effective Time, Western Resources will cause the initial Board of Directors of
Westar Energy to be comprised of six members designated by Western Resources
and four members selected from the KCPL Board, as of the date of the Merger
Agreement, designated by KCPL. Thereafter, directors of Westar Energy will be
nominated and elected in accordance with the procedures set forth in the Westar
Energy Articles (as defined below) and Westar Energy Bylaws (as defined below).
5
Management of Westar Energy Following the Transactions. Following the
Transactions, John E. Hayes, Jr. will be the Chairman of the Westar Energy
Board and Drue Jennings will be Chief Executive Officer of Westar Energy.
KCPL Stock Options. The Merger Agreement provides that prior to the KCPL
Effective Time, KCPL will take such actions as may be necessary such that
immediately prior to the KCPL Effective Time, each option to purchase shares of
KCPL Common Stock and any accrued dividend rights granted on such KCPL Common
Stock (collectively, the "KCPL Stock Options") which are outstanding, whether
or not then exercisable, will be canceled and the holder of any then
exercisable KCPL Stock Options will be entitled, upon surrender of all
outstanding KCPL Stock Options, to receive in consideration of such
cancellation an amount in cash from KCPL equal to the result of multiplying the
number of shares of KCPL Common Stock previously subject to such KCPL Stock
Option by the difference between (i) the sum of (x) the fair market value of
the number of shares of Western Resources Common Stock (as determined by the
average closing price of the Western Resources Common Stock for the five (5)
consecutive trading day period occurring immediately following the Western
Resources Stock Distribution) that such optionee would have received if such
optionee had exercised a KCPL Stock Option to purchase one (1) share of KCPL
Common Stock immediately prior to the KCPL Effective Time and (y) the fair
market value of the number of shares of Westar Energy Series A Common Stock (as
determined by the average closing price of the Westar Energy Series A Common
Stock for the five (5) consecutive trading day period occurring immediately
following the Western Resources Stock Distribution) that such optionee would
have received if such optionee had exercised a KCPL Stock Option to purchase
for one (1) share of KCPL Common Stock immediately prior to the KCPL Effective
Time and (ii) the per share exercise price of such KCPL Stock Options. See "THE
TRANSACTIONS--Interests of Certain Persons in the Transactions--KCPL Stock
Options" and "THE MERGER AGREEMENT--Stock Options."
The value of the outstanding KCPL Stock Options held by interested persons,
as of the last practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, is contained in the following chart:
OPTIONS TOTAL
SHAREHOLDER (1) VALUE (2)
- ----------- ---------- ----------
Drue Jennings............................................. 95,819.186 $1,718,825
Bernard Beaudoin.......................................... 31,128.381 $ 601,063
Ronald Wasson............................................. 25,873.818 $ 464,507
J. Turner White........................................... 23,106.986 $ 382,000
Marcus Jackson............................................ 21,005.160 $ 327,378
- --------
The aggregate amount of cash that KCPL would be required to pay in
consideration of cancellation of all KCPL Stock Options including those in the
above chart is $5,640,116.
(1) Total number of shares represented by unexercised KCPL Stock Options and
amounts equivalent to accrued dividends on options.
(2) Value of options is based on (a) the price of Western Resources Common
Stock as of June 8, 1998, the last practicable date prior to the date of
this Joint Proxy Statement/Prospectus which would result in distribution to
KCPL's shareholders of $23.50 worth of Western Resources Common Stock for
each share of KCPL Common Stock; and (b) a value of $12.00 per share of
Series A Westar Energy Common Stock to be distributed to KCPL's
shareholders for each share of KCPL Common Stock.
Western Resources Stock Options. The Transactions will not affect the vesting
period or exercisability of any outstanding options to purchase Western
Resources Common Stock.
KCPL Severance Agreements. Under certain agreements entered into by KCPL,
certain officers of KCPL and certain officers of subsidiaries of KCPL may be
entitled to payment of certain severance benefits upon termination of
employment following consummation of the Transactions. See "THE TRANSACTIONS--
Interests of Certain Persons in the Transactions--KCPL Severance Agreements."
6
Western Resources Severance Agreements. Under certain agreements entered into
by Western Resources, certain officers of Western Resources may be entitled to
payment of certain severance benefits upon termination of employment following
consummation of the Transactions. See "THE TRANSACTIONS--Interests of Certain
Persons in the Transactions--Western Resources Severance Agreements."
Indemnification. Pursuant to the Merger Agreement, Westar Energy has agreed
to indemnify each present and former director and officer of Western Resources,
Westar Energy, KGE and KCPL against liabilities or expenses incurred in
connection with claims relating to matters prior to the KGE Effective Time, and
to maintain in effect directors' and officers' liability insurance for the
benefit of the directors and officers of KCPL. See "THE TRANSACTIONS--Interests
of Certain Persons in the Transactions--Indemnification" and "THE MERGER
AGREEMENT--Directors' and Officers' Indemnification."
DIVIDEND REINVESTMENT PLAN
The letter of transmittal to be delivered to KCPL shareholders will provide
that KCPL shareholders who hold their shares through the KCPL dividend
reinvestment plan will have the option to place the shares of Western Resources
Common Stock they will receive in the Western Resources Stock Distribution
directly into the Western Resources direct stock purchase plan and the shares
of Westar Energy they will receive in the KCPL Merger directly into a dividend
reinvestment plan intended to be established by Westar Energy at the KCPL
Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Skadden, Arps, Slate, Meagher & Flom, LLP ("Skadden Arps")
and Sullivan & Cromwell no gain or loss will be recognized by holders of KCPL
Common Stock who exchange their KCPL Common Stock for Westar Energy Common
Stock and Western Resources Common Stock in connection with the KCPL Merger and
the KGE Merger (except to the extent that cash is received in lieu of
fractional shares of Western Resources Common Stock). See "THE TRANSACTIONS--
Certain Federal Income Tax Consequences," "THE MERGER AGREEMENT--Conditions to
Each Party's Obligation to Effect the KGE Merger and the KCPL Merger."
SHAREOWNERS OF WESTERN RESOURCES AND KCPL ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
TRANSACTIONS, 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.
ACCOUNTING TREATMENT
Westar Energy will account for the KGE Merger as a transfer of net assets
between companies under common control. The assets and liabilities transferred
would be accounted for at historical cost. Westar Energy will account for the
KCPL Merger using the purchase method of accounting. See "THE TRANSACTIONS--
Accounting Treatment."
STOCK EXCHANGE LISTING OF THE WESTAR ENERGY COMMON STOCK AND WESTERN RESOURCES
COMMON STOCK
Westar Energy and Western Resources will apply for the listing on the NYSE of
the Westar Energy Common Stock and the Western Resources Common Stock to be
issued and distributed in the KCPL Merger and the Western Resources Stock
Distribution. It is a condition to the consummation of the KGE Merger and the
KCPL Merger that the Western Resources Common Stock and the Westar Energy
Common Stock be approved for listing on the NYSE, subject to official notice of
issuance. See "THE TRANSACTIONS--Stock Exchange Listing of the Westar Energy
Common Stock and Western Resources Common Stock."
7
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Westar Energy Common Stock and Western Resources Common Stock
issued in the Transactions will be freely transferable (except shares of Westar
Energy Common Stock distributed to Western Resources), except that shares of
Westar Energy Common Stock and Western Resources Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of KCPL prior to the Mergers may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144, in the case of such persons who become
affiliates of Western Resources) or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of KCPL or Western Resources
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal shareowners of such party. The
Merger Agreement requires KCPL to use all reasonable efforts to cause each of
its affiliates to execute a written agreement to the effect that such affiliate
will not offer or sell or otherwise dispose of (i) any shares of KCPL Common
Stock during the period beginning 30 days prior to the KGE Effective Time and
continuing until such time as results covering at least 30 days of post-KGE
Effective Time operations of Western Resources have been published or (ii) any
of the shares of Westar Energy Common Stock and Western Resources Common Stock
issued to such affiliate in or pursuant to the Mergers in violation of the
Securities Act or the rules and regulations promulgated by the SEC thereunder.
See "THE TRANSACTIONS--Federal Securities Law Consequences."
This Joint Proxy Statement/Prospectus does not cover resales of Westar Energy
Common Stock or Western Resources Common Stock received in the Transactions by
any person who may be deemed to be an affiliate of KCPL or Western Resources.
DISSENTERS' RIGHTS
Holders of Western Resources Common Stock and Western Resources Preferred
Stock do not have dissenters' rights under the KGCC with respect to the
Transactions.
Under the MGBCL, each holder of KCPL Common Stock who dissents from the KCPL
Merger has the right to have the fair value of such Dissenting Holder's shares
appraised by judicial determination and paid to him or her in cash. In order to
perfect such appraisal rights, Dissenting Holders must comply with the
procedural requirements of the MGBCL, including, without limitation, filing a
written objection to the KCPL Merger with KCPL prior to the KCPL Meeting, not
voting in favor of the Merger Agreement, the KCPL Merger and the transactions
contemplated thereby and, within 20 days after the KCPL Effective Time, making
a written demand for payment of the fair value of the shares held by such
Dissenting Holder. If the Dissenting Holder and KCPL do not agree on the fair
value to be paid, the Dissenting Holder may petition an appropriate court for a
determination of such value.
Shares of KCPL Common Stock held by Dissenting Holders will not be converted
into shares of Westar Energy Common Stock in the KCPL Merger and after the KCPL
Effective Time will represent only the right to receive such consideration as
is determined to be due such Dissenting Holders pursuant to the MGBCL. KCPL
Common Stock outstanding immediately prior to the KCPL Effective Time and held
by a shareholder who withdraws his demand for appraisal rights or fails to
perfect such rights will be deemed to be converted at the KCPL Effective Time
into the right to receive shares of Westar Energy Common Stock, without
interest. Western Resources and Westar Energy have agreed to distribute shares
of Western Resources Common Stock and Westar Energy Common Stock on the same
basis as to other former KCPL shareholders to Dissenting Holders who withdraw
their demands for appraisal after the KCPL Effective Time.
See "THE TRANSACTIONS--Dissenters' Rights" and Annex D.
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 regulatory commissions in Missouri and Kansas under applicable
8
state 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 Transactions. The receipt
of all of these approvals is presently anticipated to occur within the first
half of 1999.
Public Utility Holding Company Act. Western Resources is a "holding company"
for purposes of the Public Utility Holding Company Act of 1935 (the "1935 Act")
and is currently exempt under Section 3(a)(1) of the 1935 Act pursuant to Rule
2 promulgated thereunder from all provisions of the 1935 Act except Section
9(a)(2), which generally requires approval of the SEC prior to the direct or
indirect acquisition of 5% or more of the voting securities of an electric or
gas utility company by any person that already owns, directly or indirectly, 5%
or more of the voting securities of one or more gas or electric utility
companies. KCPL is an electric utility company within the meaning of the 1935
Act, and is exempt from all provisions of the 1935 Act except Section 9(a)(2).
Western Resources and KCPL anticipate that no approval of the SEC under Section
9(a)(2) of the 1935 Act will be required for the Transactions because, upon
consummation of the Transactions, each of KCPL and KGE will be merged with and
into Westar Energy and Western Resources will own 5% or more of the voting
securities of the same number of public utility companies (Westar Energy and
ONEOK), within the meaning of the 1935 Act, as it did prior to consummation of
the Transactions. Western Resources anticipates that, following consummation of
the Transactions, it will continue to be exempt from all provisions of the 1935
Act except Section 9(a)(2). It is a condition to Western Resources' obligation
to effect the closing of the Transactions that Western Resources be reasonably
satisfied that as of the KGE Effective Time, Western Resources will be exempt
from all of the provisions of the 1935 Act other than Section 9(a)(2) thereof.
See "RISK FACTORS--Uncertainty Regarding Western Resources' Regulatory Status,"
"THE MERGER AGREEMENT--Conditions to Each Party's Obligation to Effect the KGE
Merger and the KCPL Merger--Conditions to the Obligations of Western Resources,
KGE and Westar Energy to Effect the KGE Merger" and "THE TRANSACTIONS--
Regulatory Matters."
Other. KCPL, KGE and Western Resources possess municipal franchises and
environmental and other permits and licenses that (i) require the licensor to
consent to the transfer of such franchises, permits and licenses and (ii) may
need to be renewed or replaced as a result of the Transactions. Neither Western
Resources nor KCPL anticipates any difficulties at the present time in
obtaining such consents, renewals, replacements or transfers.
General. Under the Merger Agreement, Western Resources, KGE, Westar Energy
and KCPL have agreed to use all commercially reasonable efforts to obtain all
governmental authorizations necessary or advisable to consummate or effect the
Transactions. Various parties may seek intervention in these proceedings to
oppose the Transactions or to have conditions imposed upon the receipt of
necessary approvals. While Western Resources and KCPL believe that they will
receive the requisite regulatory approvals for the Transactions, 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 Transactions that final orders approving the
Transactions be obtained from the various federal and state regulators
described above on terms and conditions which would not have, or insofar as
reasonably can be foreseen would not be likely to have, a material adverse
effect on the business, assets, financial condition or results of operations of
the combined company and its subsidiaries taken as a whole. It is a further
condition to Western Resources' obligation to effect the Transactions that such
final orders would not have, or insofar as reasonably can be foreseen would not
be likely to have, a material adverse effect on the benefits anticipated by
Western Resources in the Transactions. There can be no assurance that any such
approvals will be free from terms or conditions that cause such approvals to
fail to satisfy such conditions to the consummation of the Transactions.
See "THE TRANSACTIONS--Regulatory Matters," "THE MERGER AGREEMENT--Conditions
to Each Party's Obligation to Effect the KGE Merger and the KCPL Merger" and
"RISK FACTORS--Uncertainty Regarding Western Resources' Regulatory Status."
PLANS FOR WESTERN RESOURCES AND WESTAR ENERGY FOLLOWING THE TRANSACTIONS
Following the Transactions, Western Resources will be the holding company for
the group of Western Resources companies that includes, among others, Westar
Energy, ONEOK and Protection One (the "Western
9
Resources Companies"). Western Resources will have no operating assets and the
Western Resources Companies will be organized into regulated and unregulated
lines of business. See "--Control of Westar Energy Following the Transactions,"
"THE TRANSACTIONS--Control of Westar Energy Following the Transactions," "THE
TRANSACTIONS--Plans for Western Resources and Westar Energy Following the
Transactions" and "SELECTED INFORMATION CONCERNING WESTERN RESOURCES AND KCPL--
Business of Western Resources."
Western Resources has advised KCPL that it currently intends to maintain
ownership of not less than 80.1% of the diluted outstanding shares of Westar
Energy Common Stock immediately following the Transactions. For a description
of certain restrictions imposed by the Merger Agreement on Western Resources'
ability to purchase additional shares of Westar Energy Common Stock in the
public market, see "--Control of Westar Energy Following the Transactions" and
"THE TRANSACTIONS--Control of Westar Energy Following the Transactions."
Following the Transactions, the shares of Westar Energy Common Stock will
trade on the NYSE. There can be no assurance that an active trading market for
the shares of Westar Energy Common Stock will develop after consummation of the
Transactions. The Westar Energy Common Stock may also be subject to price
volatility following the Transactions until trading values become established.
See "RISK FACTORS--Uncertainty Regarding Trading Prices of Westar Energy Common
Stock Following the Transactions."
Following the Transactions, Westar Energy will be the new regulated
electricity utility operating entity of the Western Resources Companies,
combining the operating assets of KGE, KPL and KCPL. Westar Energy will
continue its existence under the laws of Kansas. See "BUSINESS OF WESTAR ENERGY
FOLLOWING THE TRANSACTIONS."
CONTROL OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS
Immediately following the Transactions, Western Resources will control Westar
Energy through Western Resources' ownership, assuming there are no Dissenting
Shares, of 80.1% of the diluted outstanding shares of Westar Energy Common
Stock. Although as a result of the Transactions Western Resources will have the
ability to elect the entire Board of Directors of Westar Energy and to approve
any matter requiring the approval of Westar Energy shareowners, Western
Resources has agreed to certain arrangements relating to the election of
directors of Westar Energy after the Closing. See "THE TRANSACTIONS--Interests
of Certain Persons in the Transactions." In addition, during the 10-year period
following the Closing, the Merger Agreement provides that Western Resources may
not, directly or indirectly, propose to enter into a merger or other business
combination with Westar Energy or purchase, directly or indirectly, all or
substantially all of the assets of Westar Energy. Notwithstanding the
foregoing, the Merger Agreement provides that Western Resources may in any
manner acquire up to 85% of the outstanding shares of Westar Energy Common
Stock on a diluted basis and that Western Resources may make a tender offer or
exchange offer for all the outstanding shares of Westar Energy Common Stock or
enter into any merger or other business combination with Westar Energy if, in
general, such action is at a price and on terms that are fair to the
shareowners of Westar Energy and approved by a majority of the independent
directors.
See "THE MERGER AGREEMENT--Standstill Arrangements," "THE TRANSACTIONS--
Control of Westar Energy Following the Transactions" and "RISK FACTORS--Control
by the Principal Shareowner of Westar Energy."
THE CONTRIBUTIONS
The Contributions and the other Transactions will be consummated on the terms
and subject to the conditions set forth in the Merger Agreement (which is
attached hereto as Annex A and incorporated herein by reference). Pursuant to
the Merger Agreement, immediately prior to the KCPL Effective Time and as a
condition precedent to the Mergers, Western Resources will effect the
Contributions.
See "THE TRANSACTIONS" and "THE MERGER AGREEMENT--The Contributions."
10
CONVERSION OF KCPL COMMON STOCK
The chart below sets forth a range of Western Resources Index Prices, the
corresponding Conversion Ratio, the corresponding value of Western Resources
Common Stock to be issued for each share of KCPL Common Stock in the Western
Resources Stock Distribution and the estimated range of value for each share of
Westar Energy Common Stock to be issued in the KCPL Merger. KCPL shareholders
may call (800) 621-0518 for the exact number of shares to be issued to them
based on the most recent Western Resources Index Price. As shown in the chart
and as discussed in "THE TRANSACTIONS," the total consideration to be received
by KCPL shareholders will include shares of Westar Energy Common Stock;
however, there can be no assurance as to the prices at which such Westar Energy
Common Stock will trade once listed on the NYSE. See "RISK FACTORS--Uncertainty
Regarding Trading Prices of Westar Energy Common Stock Following the
Transactions."
VALUE OF
WESTERN RESOURCES ESTIMATED
WESTERN COMMON STOCK VALUE PER SHARE OF
RESOURCES CONVERSION PER SHARE OF KCPL WESTAR ENERGY
INDEX PRICE RATIO(1) COMMON STOCK COMMON STOCK(2)
- ----------- ---------- ----------------- ------------------
$58.47 0.449 $26.25 $10.00 - 12.00
- -------------------------------------------------------------------------------------
58.46 0.449 26.25 10.00 - 12.00
58.00 0.453 26.25 10.00 - 12.00
57.00 0.461 26.25 10.00 - 12.00
56.00 0.469 26.25 10.00 - 12.00
55.04 0.477 26.25 10.00 - 12.00
- -------------------------------------------------------------------------------------
55.03 0.477 26.25 10.00 - 12.00
54.00 0.477 25.76 10.00 - 12.00
53.00 0.477 25.28 10.00 - 12.00
52.42 0.477 25.00 10.00 - 12.00
- -------------------------------------------------------------------------------------
52.41 0.477 25.00 10.00 - 12.00
52.00 0.481 25.00 10.00 - 12.00
51.00 0.490 25.00 10.00 - 12.00
50.01 0.500 25.00 10.00 - 12.00
- -------------------------------------------------------------------------------------
50.00 0.500 25.00 10.00 - 12.00
49.00 0.500 24.50 10.00 - 12.00
48.00 0.500 24.00 10.00 - 12.00
47.01 0.500 23.51 10.00 - 12.00
- -------------------------------------------------------------------------------------
47.00 0.500 23.50 10.00 - 12.00
46.00 0.511 23.50 10.00 - 12.00
45.00 0.522 23.50 10.00 - 12.00
44.00 0.534 23.50 10.00 - 12.00
43.00 0.547 23.50 10.00 - 12.00
42.00 0.560 23.50 10.00 - 12.00
41.00 0.573 23.50 10.00 - 12.00
40.00 0.588 23.50 10.00 - 12.00
39.00 0.603 23.50 10.00 - 12.00
38.28 0.614 23.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
38.27 0.614 23.50 10.00 - 12.00
38.00 0.614 23.33 10.00 - 12.00
37.00 0.614 22.72 10.00 - 12.00
36.00 0.614 22.10 10.00 - 12.00
35.02 0.614 21.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
35.01 0.614 21.50 10.00 - 12.00
34.00 0.632 21.50 10.00 - 12.00
33.00 0.652 21.50 10.00 - 12.00
32.00 0.672 21.50 10.00 - 12.00
31.00 0.694 21.50 10.00 - 12.00
29.79 0.722 21.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
29.78 0.722 21.50 10.00 - 12.00
- --------
(1) If the Western Resources Index Price is greater than $58.46, the Conversion
Ratio will be fixed at 0.449 provided that if 0.449 multiplied by the
Western Resources Index Price exceeds $30.00, the Conversion Ratio will
mean the quotient (rounded to the nearest 1/100,000) obtained by dividing
$30.00 by the Western Resources Index Price.
(2) Estimated based on analysis by KCPL and Western Resources assuming an
expected initial dividend for the first year of operation of Westar Energy
of $0.72 and a normal electric utility payout ratio of approximately 85%.
The actual dividend policy of Westar Energy will be dependent upon numerous
factors including current economic conditions, earnings and profitability.
Based on current market conditions and comparable publicly traded electric
utilities' dividend yields and price-to-earnings ratios, KCPL and Western
Resources calculated an estimated value range of $10.00 to $12.00 per share
of Westar Energy Common Stock based on a range of dividend yields above and
below 6.5%, and a range of price-to-earnings ratios above and below 13.0x
earnings. The estimated value per share of Westar Energy Common Stock is
based upon an estimated aggregate enterprise valuation range for Westar
Energy. There can be no assurance, however, as to the actual prices at
which such Westar Energy Common Stock will trade once listed on the NYSE.
Actual prices could be significantly higher or lower than the estimated
range.
11
THE KCPL MERGER
Pursuant to the Merger Agreement, at the KCPL Effective Time and as a
condition precedent to the KGE Merger, the KCPL Merger will be consummated
pursuant to which each outstanding share of KCPL Common Stock (other than
shares of KCPL Common Stock beneficially owned by KCPL either directly or
through a wholly owned subsidiary and Dissenting Shares), will represent one
share of Westar Energy Series A Common Stock. Immediately after consummation of
the KCPL Merger and the KGE Merger, former KCPL shareholders will also receive
shares of Western Resources Common Stock in the Western Resources Stock
Distribution. The consummation of the KCPL Merger is subject to the
satisfaction or waiver of all conditions to the KGE Merger and consummation of
the Contributions.
See "THE TRANSACTIONS" and "THE MERGER AGREEMENT--The KCPL Merger."
THE KGE MERGER
Pursuant to the Merger Agreement, at the KGE Effective Time, the KGE Merger
will be consummated pursuant to which each outstanding share of KGE Common
Stock will be converted into and become such number of shares of Westar Energy
Series B Common Stock representing, assuming there are no Dissenting Shares,
80.1% of the diluted outstanding shares of Westar Energy. The consummation of
the KGE Merger is subject to consummation of the KCPL Merger. See "THE
TRANSACTIONS" and "THE MERGER AGREEMENT--The KGE Merger."
ADDITIONAL TRANSACTIONS
Immediately after the KGE Effective Time, Westar Energy will, in connection
with the KGE Merger, effect the Western Resources Stock Distribution pursuant
to which the holder of each share of Westar Energy Series A Common Stock (i.e.,
each former KCPL shareholder) will be entitled to receive a distribution of
that number of shares of Western Resources Common Stock equal to (a) the number
of shares of Western Resources Common Stock contributed to KGE pursuant to the
Stock Contribution multiplied by (b) a quotient, the numerator of which is 1
and the denominator of which is the total number of shares of Westar Energy
Series A Common Stock issued and outstanding immediately after the KCPL
Effective Time. No certificates or scrip representing fractional shares of
Western Resources Common Stock will be distributed. A holder of Westar Energy
Series A Common Stock who would otherwise have been entitled to a fractional
share of Western Resources Common Stock will be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to the product of
such fraction multiplied by the Western Resources Index Price, without any
interest thereon.
Immediately after the KGE Effective Time, Westar Energy will distribute to
Western Resources all of the outstanding shares of capital stock of KLT (the
"KLT Stock Distribution").
Immediately after the Western Resources Stock Distribution, without any
action on the part of Western Resources, each share of Westar Energy Series B
Common Stock owned by Western Resources will automatically represent one fully
paid and nonassessable share of Westar Energy Series A Common Stock.
See "THE MERGER AGREEMENT--Additional Transactions."
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of KCPL, on the one hand, and Western Resources, KGE and Westar Energy,
on the other hand, has made a number of representations and warranties in the
Merger Agreement regarding, among other things and subject to certain
qualifications, its respective business, operations, financial condition and
capital structure. Western Resources has also made representations as to the
title and condition of the KPL Assets. The Merger
12
Agreement also provides for certain covenants including, among other things,
KCPL's covenant to carry on its business in the ordinary course consistent with
prior practice, KCPL's covenant (subject to certain conditions) not to declare
dividends other than regular quarterly dividends (except to the extent
consistent with good business judgment and KCPL's past dividend practice) and
not to make any capital expenditures in excess of certain budgeted amounts and
covenants of KCPL, on the one hand, and Western Resources, KGE and Westar
Energy, on the other hand, (subject to certain conditions) to refrain from
taking any action reasonably likely to materially breach the Merger Agreement
or any of its representations and warranties. See "THE MERGER AGREEMENT--
Representations and Warranties" and "--Certain Covenants."
OPERATIONS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS
The Merger Agreement provides as follows with respect to certain operational
matters of Westar Energy following the Transactions.
Principal Corporate Offices. At the KGE Effective Time, (i) the executive
headquarters of Westar Energy shall be in Kansas City, Missouri, (ii) the
customer service headquarters of Westar Energy shall be in Wichita, Kansas, and
(iii) the field operation headquarters of Westar Energy shall be in Topeka,
Kansas.
Charities. After the KGE Effective Time, Westar Energy currently intends to
provide charitable contributions and community support within the service areas
of KCPL and Western Resources at annual levels substantially comparable to the
annual levels of charitable contributions and community support provided by
KCPL and Western Resources within their service areas during 1994 and 1995.
Dividends. Upon the KGE Effective Time, the dividend policy of Westar Energy
shall be set by the Board of Directors of Westar Energy so as to achieve a
payout ratio that is consistent with comparable electric utility companies.
See "THE MERGER AGREEMENT--Operations of Westar Energy Following the
Transactions."
TAX-FREE STATUS
The Merger Agreement provides that none of the parties will take any actions
which would, or would be reasonably likely to, adversely affect the ability of
the KCPL Merger or the KGE Merger to qualify for tax-free treatment under the
Internal Revenue Code of 1986, as amended (the "Code"), both to the parties and
to their respective shareholders (except for cash received in lieu of
fractional shares), and each party shall use reasonable efforts to achieve such
result.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE KGE MERGER AND THE KCPL
MERGER
Mutual Conditions. The respective obligations of each party to effect the KGE
Merger or the KCPL Merger, as the case may be, are subject to, among other
things, the following mutual conditions: (a) the necessary approvals by the
shareowners of KCPL and of Western Resources will have been obtained; (b) no
temporary restraining order, preliminary or permanent injunction or other order
will be in effect that prevents consummation of the KGE Merger or the KCPL
Merger; (c) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part will have become effective and will not be
the subject of a stop order; (d) the shares of Western Resources Common Stock
issuable in the Stock Contribution and the Western Resources Stock Distribution
and the shares of Westar Energy Common Stock issuable in the KCPL Merger and
the KGE Merger will have been approved for listing on the NYSE upon official
notice of issuance; (e) all material governmental authorizations, permits,
consents, orders or approvals will have been obtained; (f) all required
licenses, permits
13
or other authorizations will have been transferred or reissued to the Surviving
Corporation on or before the Closing Date and (g) Western Resources will have
received confirmation from the Kansas tax authorities that no sales or use tax
is payable in connection with the Asset Contribution.
Conditions to the Obligations of Western Resources, KGE and Westar Energy to
Effect the KGE Merger. The obligations of Western Resources, KGE and Westar
Energy to effect the KGE Merger are subject to the following additional
conditions, among others, specified in the Merger Agreement: (a) KCPL will have
performed in all material respects its agreements and covenants required to be
performed at or prior to the KGE Effective Time; (b) KCPL's representations and
warranties set forth in the Merger Agreement shall be true and correct as of
the date of execution of the Merger Agreement and as of the Closing Date
(except for those that expressly speak only as of a specific date or time,
which need only be true and correct as of such date or time), except as would
not reasonably be likely to result in a material adverse effect on the
business, assets, financial condition, results of operations or prospects of
KCPL and its subsidiaries taken as a whole ("KCPL Material Adverse Effect");
(c) Western Resources shall have received from KCPL a certificate dated the
Closing Date to the effect that the foregoing two conditions have been
satisfied; (d) no KCPL Material Adverse Effect shall have occurred; (e) KCPL
will have obtained certain third-party consents the lack of which would cause a
KCPL Material Adverse Effect; (f) Western Resources will be reasonably
satisfied that, following the KGE Effective Time, it will be exempt from all
provisions of the 1935 Act other than Section 9(a)(2) thereof; (g) Western
Resources will be reasonably satisfied that Final Orders relating to certain
government approvals of the transactions contemplated by the Merger Agreement
do not impose terms or conditions that would have or are reasonably likely to
have a material adverse effect on the Surviving Corporation or the benefits
anticipated by Western Resources as a result of the consummation of the
transactions contemplated by the Merger Agreement; (h) Western Resources shall
have received an opinion from Sullivan & Cromwell to the effect that the KCPL
Merger and the KGE Merger will each qualify as a reorganization within the
meaning of Section 368 of the Code and that no gain or loss will be recognized
by the shareowners of KGE or Western Resources as a result of the KGE Merger;
(i) the aggregate number of Dissenting Shares shall be no greater than 5.5% of
the outstanding shares of KCPL Common Stock as of the KCPL Effective Time; (j)
the KCPL Merger shall have been consummated; and (k) Western Resources shall
have received agreements from the affiliates of KCPL with respect to
transactions in securities of KCPL and Western Resources. For a detailed
discussion of certain conditions, see "THE MERGER AGREEMENT--Mutual
Conditions--Kansas Sales and Use Tax Condition," "--Conditions to the
Obligations of Western Resources, KGE and Westar Energy to Effect the KGE
Merger--Exemption from the 1935 Act" and "--Obtaining Statutory Approval
Satisfactory to Western Resources."
Conditions to the Obligations of KCPL to Effect the KCPL Merger. The
obligation of KCPL to effect the KCPL Merger is subject to the following
additional conditions, among others, specified in the Merger Agreement: (a)
Western Resources, KGE and Westar Energy will have performed in all material
respects its agreements and covenants required to be performed at or prior to
the KGE Effective Time; (b) the representations and warranties of Western
Resources, KGE and Westar Energy set forth in the Merger Agreement shall be
true and correct as of the date of execution of the Merger Agreement and as of
the Closing Date (except for those that expressly speak only as of a specific
date or time, which need only be true and correct as of such date or time),
except as would not reasonably be likely to result in a material adverse effect
on the business, assets, financial condition, results of operations or
prospects of Western Resources, KGE and Western Resources' subsidiaries taken
as a whole ("Western Resources Material Adverse Effect"); (c) KCPL shall have
received from Western Resources a certificate dated the Closing Date to the
effect that the foregoing two conditions have been satisfied; (d) no Western
Resources Material Adverse Effect shall have occurred; (e) Western Resources,
KGE and Westar Energy will have obtained certain third-party consents the lack
of which would cause a Western Resources Material Adverse Effect; (f) KCPL
shall be reasonably satisfied that Final Orders relating to certain government
approvals of the transactions contemplated by the Merger Agreement do not
impose terms or conditions that would have or are reasonably likely to have a
material adverse effect on the Surviving Corporation; (g) KCPL shall have
received an opinion from Skadden Arps to the effect that the KCPL Merger
14
and KGE Merger will each qualify as a reorganization under Section 368(a) of
the Code and that, other than in respect of cash paid in lieu of fractional
shares, no gain or loss will be recognized by the shareowners of KCPL or Westar
Energy as a result of either the KCPL Merger or the KGE Merger; and (h) the
Asset Contribution and the Stock Contribution will have been consummated and
all conditions to Western Resources' and Westar Energy's obligations to effect
the KGE Merger have been satisfied or waived.
See "THE MERGER AGREEMENT--Conditions to Each Party's Obligation to Effect
the KGE Merger and the KCPL Merger."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual consent of Western Resources and KCPL; by any party if the
KCPL Merger is not consummated by the Termination Date (as defined below); by
any party if the requisite shareowner approvals are not obtained on or before
August 31, 1998 or if any state or federal law or court order prohibits
consummation of the KGE Merger; by either party if the KCPL Board withdraws its
support for the Merger Agreement or recommends the acquisition of KCPL by a
party other than Western Resources; by a non-breaching party if there occurs a
material breach of the Merger Agreement which is not cured within 20 days; by
KCPL, under certain circumstances, as a result of a more favorable third-party
tender offer or business combination proposal with respect to KCPL; or by
either party, under certain circumstances relating to a decline in the price of
Western Resources Common Stock. See "THE MERGER AGREEMENT--Termination." The
Merger Agreement requires that termination fees be paid (i) in the amount of
either $50 million by KCPL to Western Resources if, under certain
circumstances, KCPL enters into or consummates a business combination with a
third party within two and one-half years of the termination of the Merger
Agreement or expenses of up to $5 million by KCPL to Western Resources if the
condition relating to no gain or loss being recognized by holders of KCPL
Common Stock who exchange such stock for Westar Energy Common Stock and Western
Resources Common Stock in connection with the KCPL Merger and the KGE Merger
(except to the extent that cash is received in lieu of fractional shares of
Western Resources Common Stock) (the "KCPL Tax Condition") is not satisfied and
KCPL declines to waive such condition and (ii) in amounts ranging from $5
million to $35 million by Western Resources to KCPL, if certain conditions to
Western Resources' obligation to consummate the KGE Merger are not satisfied as
of the Termination Date and Western Resources declines to waive such
conditions. See "THE MERGER AGREEMENT--Termination" and "--Termination Fees."
Except as set forth above, all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring the expense, except that those expenses incurred in
connection with the printing and filing of the Registration Statement of which
this Joint Proxy Statement/Prospectus forms a part, as well as the filing fee
relating thereto, will be shared equally by KCPL and Western Resources. See
"THE MERGER AGREEMENT--Expenses."
The Merger Agreement may be amended by the boards of directors of the parties
thereto at any time before or after approval thereof by the shareowners of KCPL
and Western Resources and prior to the KGE Effective Time, but after such
approvals no such amendment will alter or change the amount or kind of shares,
rights or manner of exchange of shares as provided in the Merger Agreement, or
alter or change any of the terms and conditions of the Merger Agreement if any
of the alterations or changes, alone or in the aggregate, would have a material
adverse effect on the rights of holders of KCPL Common Stock or Western
Resources Common Stock, except for alterations or changes that could otherwise
be adopted by the board of directors of the Surviving Corporation without the
further approval of such shareowners. See "THE MERGER AGREEMENT--Amendment and
Waiver."
At any time prior to the KGE Effective Time, to the extent permitted by
applicable law, Western Resources and KCPL may, with respect to the other
party, (i) extend the time for the performance of any obligations or other
acts, (ii) waive any inaccuracies in the representations and warranties, and
(iii) waive compliance with any
15
of the agreements or conditions. Either party's agreement to such an extension
or waiver is valid only if set forth in a written instrument signed on behalf
of such party. See "THE MERGER AGREEMENT--Amendment and Waiver."
AMENDMENT TO THE WESTERN RESOURCES ARTICLES
At the Western Resources Meeting, the holders of Western Resources Common
Stock will be asked to consider and vote upon the Articles Amendment, which
would increase, immediately prior to the Western Resources Share Issuance, the
number of authorized shares of Western Resources Common Stock from 85,000,000
shares to 300,000,000 shares. Depending on the Conversion Ratio, a maximum of
44,698,100 shares may be used to consummate the Stock Contribution, and the
remaining shares will be available, if and when needed, for issuance for any
proper corporate purpose approved by the Western Resources Board, subject to
the shareholder voting requirements. Approval of the Articles Amendment is
required in order to consummate the Merger Agreement and the transactions
contemplated thereby. The Western Resources Board believes that the Articles
Amendment is in the best interests of the Western Resources shareowners and by
a unanimous vote recommends that the shareowners vote "FOR" the approval and
adoption of the Articles Amendment. See "AMENDMENT TO THE WESTERN RESOURCES
ARTICLES."
COMPARISON OF SHAREOWNER RIGHTS
As a result of the Transactions, holders of the common stock of KCPL, a
Missouri corporation (other than Dissenting Holders), will become shareowners
of Western Resources, a Kansas corporation, and Westar Energy, also a Kansas
corporation. Such shareowners will have certain rights as Western Resources
shareowners and Westar Energy shareowners that are different from those they
had as shareholders of KCPL, both because of the differences between the KCPL
Articles and the KCPL Bylaws, on the one hand, and the Western Resources
Articles, the Western Resources Bylaws, the articles of incorporation of Westar
Energy (the "Westar Energy Articles") and the bylaws of Westar Energy (the
"Westar Energy Bylaws"), on the other hand, and because of differences between
Missouri and Kansas corporation law. For a comparison of Missouri and Kansas
law and the articles of incorporation and bylaw provisions of KCPL, Western
Resources and Westar Energy, see "COMPARISON OF SHAREOWNER RIGHTS."
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. This information should be
read in conjunction with the historical consolidated financial statements and
notes thereto contained in Western Resources' Quarterly Reports on Form 10-Q
for the three months ended March 31, 1998 and 1997, and Annual Reports on Form
10-K for each of the five fiscal years in the period ended December 31, 1997
and KCPL's Quarterly Reports on Form 10-Q for the three months ended March 31,
1998 and 1997, and Annual Reports on Form 10-K for each of the five fiscal
years in the period ended December 31, 1997, the historical financial
statements of Western Resources Electric Business ("WREB") and notes thereto as
of and for the three months ended March 31, 1998 and for the three months ended
March 31, 1997 and for each of the three fiscal years in the period ended
December 31, 1997, included elsewhere in this Joint Proxy Statement/Prospectus,
and the unaudited pro forma combined condensed financial statements and notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus. WREB is
comprised of KPL, a rate regulated electric utility division of Western
Resources, KGE, a rate regulated electric utility and wholly owned subsidiary
of Western Resources, and certain debt obligations of Western Resources
identifiable to the KPL division. See "THE WESTERN RESOURCES ELECTRIC BUSINESS"
and "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION."
16
SELECTED HISTORICAL FINANCIAL DATA OF WESTERN RESOURCES
The selected historical financial data of Western Resources set forth below
has been derived from the consolidated financial statements of Western
Resources as they appeared in Western Resources' Quarterly Reports on Form 10-Q
for the three months ended March 31, 1998 and 1997 and Annual Reports on Form
10-K for each of the five fiscal years in the period ended December 31, 1997.
The results of operations for the three months ended March 31, 1998 and 1997
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997(1),(2),(3) 1996 1995 1994(4) 1993
---------- ---------- --------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
WESTERN RESOURCES
Income Statement Data:
Sales................... $ 382,343 $ 626,198 $2,151,765 $2,046,827 $1,744,274 $1,764,769 $2,028,411
Income from operations.. 66,586 103,297 142,925 388,553 373,721 370,672 370,338
Net income.............. 30,468 41,033 494,094 168,950 181,676 187,447 177,370
Earnings available for
common stock........... 29,238 39,803 489,175 154,111 168,257 174,029 163,864
Basic earnings per
common share........... $ 0.45 $ 0.61 $ 7.51 $ 2.41 $ 2.71 $ 2.82 $ 2.76
Dividends declared per
common share........... $ 0.535 $ 0.525 $ 2.10 $ 2.06 $ 2.02 $ 1.98 $ 1.94
Ratio of earnings to
fixed charges(5)....... 4.17x(7) 2.06x(7) 4.31x 2.16x 2.41x 2.65x 2.36x
Ratio of earnings to
fixed charges plus
preferred dividend
requirements(6)........ 4.04x(7) 1.90x(7) 4.17x 1.96x 2.18x 2.37x 2.14x
Balance Sheet Data (end
of period):
Total assets............ $7,206,889 $6,588,670 $6,976,960 $6,647,781 $5,490,677 $5,371,029 $5,412,048
Long-term debt (net).... 2,162,470 1,407,450 2,181,855 1,681,583 1,391,263 1,357,028 1,523,988
Company-obligated
mandatorily redeemable
preferred securities... 220,000 220,000 220,000 220,000 100,000 -- --
Preferred and preference
stock.................. 74,858 74,858 74,858 74,858 174,858 174,858 174,858
Common stock equity..... 2,017,161 1,637,827 2,014,207 1,624,680 1,553,110 1,474,455 1,422,175
Book value per common
share.................. $ 30.84 $ 25.25 $ 30.79 $ 25.14 $ 24.71 $ 23.93 $ 23.08
- --------
(1) In November 1997, Western Resources acquired an approximate 82.4% equity
interest in Protection One. Western Resources paid approximately $258
million in cash and contributed the majority of its existing security alarm
monitoring business net assets to Protection One in connection with this
acquisition.
(2) In November 1997, Western Resources acquired a 45% ownership interest in
ONEOK, Inc. in exchange for contributing substantially all of its regulated
and unregulated natural gas business to ONEOK, Inc.
(3) During the third quarter of 1997, Western Resources sold its investment in
Tyco International Ltd. and recorded a gain of approximately $519 million
net of tax.
(4) Information reflects the sale of the Missouri natural gas properties on
January 31, 1994.
(5) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of net income plus interest charges, income taxes, and
the estimated interest component of rents. "Fixed charges" consists of
interest charges and the estimated interest component of rents.
(6) For purposes of computing the ratio of earnings to fixed charges plus
preferred dividend requirements, "earnings" consists of net income plus
interest charges, income taxes, and the estimated interest component of
rents. "Fixed charges" consists of interest charges and the estimated
interest component of rents. "Preferred dividend requirements" consists of
the calculated pre-tax preferred dividend requirements.
(7) Represents ratios for the 12-month periods ended March 31.
17
SELECTED HISTORICAL FINANCIAL DATA OF KCPL
The selected historical financial data of KCPL set forth below has been
derived from the consolidated financial statements of KCPL as they appeared in
KCPL's Quarterly Reports on Form 10-Q for the three months ended March 31, 1998
and 1997 and Annual Reports on Form 10-K for each of the five fiscal years in
the period ended December 31, 1997. The results of operations for the three
months ended March 31, 1998 and 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year or any other interim period.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------
1998 1997(1) 1997(1) 1996(2) 1995 1994(3) 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
KCPL
Income Statement Data:
Sales.................. $ 195,635 $ 194,744 $ 895,943 $ 903,919 $ 885,955 $ 868,272 $ 857,450
Income from operations
before income taxes... 38,167 36,619 233,835 245,968 244,110 220,640 225,804
Net income............. 14,366 (15,132) 76,560 108,171 122,586 104,775 105,772
Earnings available for
common stock.......... 13,376 (16,087) 72,771 104,381 118,575 101,318 102,619
Basic earnings per
common share.......... $ 0.22 $ (0.26) $ 1.18 $ 1.69 $ 1.92 $ 1.64 $ 1.66
Dividends declared per
common share.......... $ 0.405 $ 0.405 $ 1.62 $ 1.59 $ 1.54 $ 1.50 $ 1.46
Ratio of earnings to
fixed charges(4)...... 2.58x(6) 2.03x(6) 2.03x 3.06x 3.94x 4.07x 3.80x
Ratio of earnings to
fixed charges plus
preferred dividend
requirements(5)....... 2.44x(6) 1.92x(6) 1.93x 2.85x 3.59x 3.69x 3.51x
Balance Sheet Data (end
of period):
Total assets........... $3,006,252 $2,973,586 $3,058,033 $2,914,512 $2,882,506 $2,770,397 $2,755,068
Long-term debt (net)... 941,412 1,018,136 934,007 944,136 835,713 798,470 733,664
Company-obligated
mandatorily
redeemable preferred
securities............ 150,000 -- 150,000 -- -- -- --
Preferred stock........ 89,062 89,062 89,062 89,062 90,436 90,596 90,756
Common stock equity.... 868,833 864,486 878,420 910,449 897,938 874,699 866,151
Book value per common
share................. $ 14.03 $ 13.96 $ 14.19 $ 14.71 $ 14.50 $ 14.13 $ 13.99
- --------
(1) On September 18, 1996, KCPL announced that it had terminated its agreement
to merge with UtiliCorp United, Inc. ("UtiliCorp") due to the failure of
KCPL shareholders to approve the transaction. See "THE TRANSACTIONS--
Background of the Transactions." In February 1997, KCPL paid UtiliCorp $53
million for agreeing to combine with Western Resources within two and one-
half years from the termination of KCPL's agreement to merge with
UtiliCorp. After taxes, the payment reduced 1997 net income by $32 million
and earnings per common share by $0.52.
(2) During 1996, costs of $18 million associated with the unsuccessful merger
with UtiliCorp and $13 million incurred to defend against Western
Resources' unsolicited exchange offer were expensed.
(3) In 1994, KCPL recorded a $22.5 million expense for a voluntary early
retirement program.
(4) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of net income plus interest charges, income taxes, and
the estimated interest component of rents. "Fixed charges" consists of
interest charges and the estimated interest component of rents.
(5) For purposes of computing the ratio of earnings to fixed charges plus
preferred dividend requirements, "earnings" consists of net income plus
interest charges, income taxes, and the estimated interest component of
rents. "Fixed charges" consists of interest charges and the estimated
interest component of rents. "Preferred dividend requirements" consists of
the calculated pre-tax preferred dividend requirements.
(6) Represents ratios for the 12-month periods ended March 31.
18
SELECTED HISTORICAL FINANCIAL DATA OF WESTERN RESOURCES ELECTRIC BUSINESS
The selected historical financial data of WREB set forth below has been
derived from the records of WREB for the three months ended March 31, 1998 and
1997 and for each of the five fiscal years in the period ended December 31,
1997. The results of operations for the three months ended March 31, 1998 and
1997 are not necessarily indicative of the results to be expected for the
entire fiscal year or any other interim period.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
WESTERN RESOURCES ELEC-
TRIC BUSINESS
Statements of Operations
Data:
Sales................... $ 305,235 $ 268,308 $1,229,984 $1,197,441 $1,146,869 $1,121,781 $1,104,537
Income from operations.. 59,307 59,075 211,084 352,715 356,577 390,216 354,549
Net income.............. 29,228 21,872 76,976 169,660 176,604 197,892 184,028
Ratio of earnings to
fixed charges(1)....... 1.69x(2) 2.44x(2) 1.66x 2.45x 2.60x 2.93x 2.61x
Statements of Financial Position
Data (end of period):
Total assets............ $4,535,448 $4,554,568 $4,537,168 $4,568,876 $4,611,108 $4,459,627 $4,474,444
Long-term debt (net).... 1,340,892 1,341,395 1,340,898 1,341,393 1,341,262 1,357,109 1,409,479
Equity in net assets.... 1,462,110 1,500,027 1,363,455 1,331,838 1,473,395 1,395,840 1,080,478
- --------
(1) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of net income plus interest charges, income taxes, and
the estimated interest component of rents. "Fixed charges" consists of
interest charges and the estimated interest component of rents.
(2) Represents ratios for the 12-month periods ended March 31.
19
WESTERN RESOURCES SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated balance sheets and income statements of Western
Resources and KCPL as if the transactions had occurred for the period presented
and were accounted for under the purchase method of accounting. The selected
pro forma information does not reflect any estimated cost savings or revenue
enhancements that may result from the Transactions. The selected pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operations that might have
occurred had the Transactions actually taken place on the dates indicated, nor
is it necessarily indicative of future results of operations or financial
position. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION."
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997(2)
------------------ --------------------
(DOLLARS IN THOUSANDS,
EXCEPT RATIO AND PER SHARE DATA)
WESTERN RESOURCES PRO FORMA COMBINED
Income Statement Data:
Sales................................. $ 577,978 $3,047,708
Income from operations................ 98,039 349,904
Net income............................ 30,368 516,535
Earnings available for common stock... 29,420 512,745
Basic earnings per common share....... $ 0.29 $ 4.99
Ratio of earnings to fixed charges.... 3.54(1) 3.53x
Ratio of earnings to fixed charges
plus preferred dividend
requirements......................... 3.48(1) 3.46x
Balance Sheet Data (end of period):
Total assets.......................... $11,281,471
Long-term debt (net).................. 3,219,101
Preference stock...................... 50,000
Company-obligated mandatorily
redeemable preferred securities...... 370,000
Common stock equity................... 3,408,960
Book value per common share........... $ 33.10
- --------
(1) Represents ratios for the 12-month period ended March 31, 1998.
(2) It should also be noted that the selected pro forma income statement data
for the year ended December 31, 1997 includes special non-recurring charges
totaling approximately $108 million.
20
WESTAR ENERGY SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated balance sheet and income statement of KCPL and the
statement of financial position and statement of operations of WREB as if the
transactions had occurred for the period presented and were accounted for under
the purchase method of accounting. The selected pro forma information does not
reflect any estimated cost savings or revenue enhancements that may result from
the Transactions. The selected pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that might have occurred had the Transactions
actually taken place on the dates indicated, nor is it necessarily indicative
of future results of operations or financial position. See "UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION."
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997(2)
------------------ --------------------
(DOLLARS IN THOUSANDS,
EXCEPT RATIO AND PER SHARE DATA)
WESTAR ENERGY PRO FORMA COMBINED
Income Statement Data:
Sales................................. $ 500,870 $2,125,927
Income from operations................ 91,938 422,776
Net income............................ 28,892 109,592
Earnings available for common stock... 28,892 109,592
Basic earnings per common share....... $ 0.09 $ 0.35
Ratio of earnings to fixed charges.... 1.82x(1) 1.67x
Balance Sheet Data (end of period):
Total assets.......................... $8,070,761
Other debt............................ 12,000
Long-term debt (net).................. 2,318,000
Company-obligated mandatorily
redeemable preferred securities...... 370,000
Common stock equity................... 2,733,995
Book value per common share........... $ 8.79
- --------
(1) Represents the ratio for the 12-month period ended March 31, 1998.
(2) It should also be noted that the selected pro forma income statement data
for the year ended December 31, 1997 includes special non-recurring charges
totaling approximately $108 million.
21
WESTERN RESOURCES AND KCPL PRO FORMA COMPARATIVE PER SHARE INFORMATION
The following table sets forth per share information of Western Resources and
KCPL on a historical basis and Western Resources on a pro forma combined basis.
This table should be read in conjunction with the historical consolidated
financial statements and notes thereto contained in Western Resources'
Quarterly Report on Form 10-Q for the three months ended March 31, 1998 and
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and
KCPL's Quarterly Report on Form 10-Q for the three months ended March 31, 1998
and Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and
in conjunction with the Western Resources unaudited pro forma combined
condensed financial information and notes thereto appearing elsewhere in this
Joint Proxy Statement/Prospectus. The comparative per share information does
not reflect any estimated cost savings or revenue enhancements that may result
from the Transactions. The comparative per share information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that might have occurred had the Transactions
actually taken place on the dates indicated, nor is it necessarily indicative
of future results of operations or financial position of the stand-alone or
combined entities. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION."
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
WESTERN RESOURCES
Book value per common share.............. $30.84 $30.79
Basic earnings per common share.......... 0.45 7.51
Dividends declared per common share...... 0.535 2.10
KCPL
Book value per common share.............. $14.03 $14.19
Basic earnings per common share.......... 0.22 1.18
Dividends declared per common share...... 0.405 1.62
WESTERN RESOURCES PRO FORMA COMBINED
(UNAUDITED)
Book value per common share(1)........... $33.10 $33.15
Basic earnings per common share(1)....... 0.29 4.99
Dividends per common share(2)............ 0.535 2.14
WESTERN RESOURCES EQUIVALENT PRO FORMA
COMBINED (UNAUDITED)(3)
Book value per equivalent common share... $20.11 $20.14
Basic earnings per equivalent common
share................................... 0.18 3.03
Dividends per equivalent common share.... 0.32 1.30
- --------
(1) Calculated assuming a Conversion Ratio of 0.60743 based on the closing
price per share of Western Resources Common Stock on June 8, 1998 (the most
recent date for which it is practicable to obtain market price data prior
to printing this Joint Proxy Statement/Prospectus). The actual Conversion
Ratio will be based on a 20-day average of the high and low prices of
Western Resources Common Stock ending on the tenth NYSE trading day
immediately preceding the KGE Effective Time.
(2) The pro forma dividends are based on Western Resources' current indicated
annual dividend for 1998 of $2.14.
(3) Equates pro forma combined per share amounts to the respective values for
one share of KCPL Common Stock by applying the Conversion Ratio of 0.60743
to pro forma combined per share amounts.
22
KCPL AND WESTAR ENERGY PRO FORMA COMPARATIVE PER SHARE INFORMATION
The following table sets forth per share information of KCPL on a historical
basis and Westar Energy on a pro forma combined basis. This table should be
read in conjunction with the historical consolidated financial statements and
the notes thereto contained in KCPL's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 and Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, the statement of financial position and the
statement of operations of WREB for the three months ended March 31, 1998 and
the year ended December 31, 1997, and in conjunction with the Westar Energy
unaudited pro forma combined condensed financial information and notes thereto
appearing elsewhere in this Joint Proxy Statement/Prospectus. The comparative
per share information does not reflect any estimated cost savings or revenue
enhancements that may result from the Transactions. The comparative per share
information is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operations that might have
occurred had the Transactions actually taken place on the dates indicated, nor
is it necessarily indicative of future results of operations or financial
position of the stand-alone or combined entities. See "UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION."
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
KCPL
Book value per common share.............. $14.03 $14.19
Basic earnings per common share.......... 0.22 1.18
Dividends per common share............... 0.405 1.62
WESTAR ENERGY PRO FORMA COMBINED
(UNAUDITED)
Book value per common share(1)........... $ 8.79 $ 8.83
Basic earnings per average common
share(1)................................ 0.09 0.35
Dividends per common share(2)............ N/A N/A
WESTAR ENERGY EQUIVALENT PRO FORMA
COMBINED (UNAUDITED)(3)
Book value per equivalent common share... $ 8.79 $ 8.83
Basic earnings per average equivalent
common share............................ 0.09 0.35
Dividends per equivalent common
share(2)................................ N/A N/A
- --------
(1) Calculated assuming current KCPL shareholders receive one share of Westar
Energy Common Stock for each share of KCPL Common Stock currently held for
an aggregate interest of 19.9% in Westar Energy. Based on current KCPL
Common Shares outstanding, Westar Energy will have approximately 311
million shares of common stock outstanding immediately following the
Transactions.
(2) Westar Energy anticipates an initial annual dividend of $0.72 per common
share. The actual dividend policy of Westar Energy will be dependent upon
economic conditions, profitability and other factors.
(3) Equates pro forma combined per share amounts to the respective values for
one share of KCPL Common Stock.
23
COMPARATIVE MARKET PRICES AND DIVIDENDS
Western Resources Common Stock is traded on the NYSE under the symbol "WR."
KCPL Common Stock is traded on the NYSE under the symbol "KLT." The following
table sets forth, for the periods indicated, the high and low sales prices of
KCPL Common Stock and Western Resources Common Stock as reported on the NYSE
Composite Tape and dividends declared on such stock.
KCPL WESTERN RESOURCES
------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- ---------
1995
First Quarter............ $24.500 $22.125 $0.380 $33.375 $28.625 $0.505
Second Quarter........... 24.125 22.125 0.380 32.500 30.250 0.505
Third Quarter............ 24.375 21.125 0.390 32.875 29.750 0.505
Fourth Quarter........... 26.625 23.500 0.390 34.000 31.000 0.505
1996
First Quarter............ $27.250 $24.000 $0.390 $34.875 $29.250 $0.515
Second Quarter........... 27.750 23.625 0.390 30.750 28.000 0.515
Third Quarter............ 28.375 26.250 0.405 30.750 28.250 0.515
Fourth Quarter........... 29.375 26.500 0.405 31.750 28.625 0.515
1997
First Quarter............ $29.750 $28.000 $0.405 $31.500 $30.000 $0.525
Second Quarter........... 29.125 27.375 0.405 32.750 29.750 0.525
Third Quarter............ 29.813 28.438 0.405 35.000 32.250 0.525
Fourth Quarter........... 29.938 27.375 0.405 43.438 33.625 0.525
1998
First Quarter............ $31.625 $28.313 $0.405 $44.188 $40.000 $0.535
Second Quarter (through
June 8, 1998)........... 31.500 28.063 0.405 42.688 36.875 0.535
The following table sets forth the closing prices per share of Western
Resources Common Stock and KCPL Common Stock as reported on the NYSE composite
transactions tape on March 18, 1998, the last full NYSE trading day before
public announcement of the Merger Agreement, and on June 8, 1998, the most
recent date for which it was practicable to obtain market price data prior to
printing this Joint Proxy Statement/Prospectus.
WESTERN RESOURCES KCPL
COMMON STOCK COMMON STOCK
----------------- ------------
March 18, 1998................................ $43.125 $30.688
June 8, 1998.................................. 38.688 29.625
The market prices of the KCPL Common Stock and the Western Resources Common
Stock are subject to fluctuation. KCPL shareholders and Western Resources
shareowners are urged to obtain current market quotations for the KCPL Common
Stock and the Western Resources Common Stock.
24
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Joint Proxy Statement/Prospectus,
including any forecasts, projections, descriptions of anticipated synergies,
evaluations of trading values of newly issued securities referred to herein,
any statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "estimates," "projects," and similar
expressions, and other statements contained or incorporated by reference
herein regarding matters that are not historical facts, are or may constitute
forward-looking statements (as such term is defined in the Securities Act and
the Exchange Act). Because such statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. All subsequent written and oral
forward-looking statements attributable to Western Resources, Westar Energy or
KCPL (or persons acting on their respective behalfs) are expressly qualified
in their entirety by the cautionary statements set forth in this paragraph.
Investors are cautioned not to place undue reliance on such statements, which
speak only as of the date hereof. Neither Western Resources nor Westar Energy
undertakes any obligation to release publicly any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. See also "CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS."
25
RISK FACTORS
The following are certain factors that should be considered, in conjunction
with the other information included in this Joint Proxy Statement/Prospectus,
by the holders of KCPL Common Stock and Western Resources Common Stock in
evaluating the Transactions.
UNCERTAINTY REGARDING TRADING PRICES OF WESTAR ENERGY COMMON STOCK FOLLOWING
THE TRANSACTIONS
Upon consummation of the Transactions, holders of KCPL Common Stock as of
the KCPL Effective Time will receive, among other things, shares of Westar
Energy Common Stock in exchange for shares of KCPL Common Stock. There has
been no public trading market for the shares of Westar Energy Common Stock.
Westar Energy and Western Resources will apply for listing of the Westar
Energy Common Stock on the NYSE. However, there can be no assurance that an
active trading market will develop or, if a trading market develops, that such
market will be maintained, nor can there be any assurance of the prices at
which the Westar Energy Common Stock will trade and such trading prices may be
higher or lower than those indicated by a public market valuation analysis or
a discounted cash flow valuation analysis. The trading price of the Westar
Energy Common Stock will be determined in the marketplace and may be
influenced by many factors, including, among others, Westar Energy's
performance, investor expectations for Westar Energy, investor expectations of
the dividend payout of comparable electric utility companies, the trading
volume in Westar Energy Common Stock, interest rates and general economic and
market conditions. The fact that Westar Energy is controlled by a significant
shareholder may cause Westar Energy to trade at a discount to its valuation.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Westar Energy does not have an operating history as a unified entity. Westar
Energy also will have a new management team comprised primarily of members of
management of KPL, KCPL and KGE, in place at the commencement of its operation
as a public company. KPL and KGE have historically relied on Western Resources
for various financial and administrative services. After the Transactions,
Westar Energy will require its own lines of credit, banking relationships and
administrative functions. Although Western Resources and KCPL each believe
that Westar Energy will operate efficiently as a public corporation following
consummation of the Transactions, there can be no such assurance.
UNCERTAINTY REGARDING VOLATILITY OF WESTERN RESOURCES COMMON STOCK PRICE
There may be a significant time delay between the date on which the
shareowners of Western Resources and KCPL vote for approval of the matters
presented at their respective special meetings and the date of the Western
Resources Stock Distribution. During this time delay, the Western Resources
Common Stock price may be affected by general market conditions and other
economic and business factors causing the Conversion Ratio and the related
value of the Western Resources Common Stock per share of KCPL Common Stock to
fluctuate. Assuming that the Western Resources Index Price ranges from $29.78
to $58.47, the Conversion Ratio per share could range from 0.722 to 0.449 and
the implied value per share of the Western Resources Common Stock to holders
of KCPL Common Stock could range from $21.50 to $26.25.
UNCERTAINTY REGARDING WESTERN RESOURCES' REGULATORY STATUS
It is a condition to Western Resources' obligation to consummate the KGE
Merger that Western Resources be reasonably satisfied that following the KGE
Effective Time, it will be exempt from all of the provisions of the 1935 Act
other than Section 9(a)(2). Western Resources anticipates that, following
consummation of the Transactions, it will be exempt under Section 3(a)(1) of
the 1935 Act pursuant to Rule 2 thereunder from all provisions of the 1935 Act
except Section 9(a)(2). To qualify for an exemption under Section 3(a)(1) of
the 1935 Act, Westar Energy must be predominantly intrastate in character and
carry on its utility business substantially in the state in which both Westar
Energy and Western Resources are incorporated, Kansas. As a result of the
Transactions, Westar Energy will derive utility revenues from outside of the
state of Kansas in an amount at the high-end of the range of out-of-state
utility revenues of utility subsidiaries of holding companies that have
claimed exemption from the 1935 Act under Section 3(a)(1) pursuant to Rule 2,
which permits a company to
26
claim exemption by making an annual filing with the Commission. Although
Western Resources anticipates that after the Transactions it will qualify for
an exemption under Section 3(a)(1) of the 1935 Act pursuant to Rule 2, there
can be no assurance that the SEC will not challenge Western Resources' filing
pursuant to Rule 2. Nothing in the Merger Agreement would prevent Western
Resources from becoming a registered holding company following the
consummation of the Transactions. If Western Resources were to become a
registered holding company, Western Resources and its subsidiary companies
would be subject, in whole or in part, to extensive regulatory and reporting
requirements under the 1935 Act, relating to, among other things, the issue
and sale of securities, various charter amendments, the acquisition of any
securities or utility assets or any interest in another business, the
disposition of utility assets, certain proxy solicitations, intrasystem
financings and other affiliated transactions. See "THE MERGER AGREEMENT--
Conditions to Each Party's Obligation to Effect the KGE Merger and the KCPL
Merger--Conditions to the Obligations of Western Resources, KGE and Westar
Energy to Effect the KGE Merger."
UNCERTAINTY REGARDING FUTURE DIVIDEND POLICIES
Pursuant to the Merger Agreement, the dividend policy of Westar Energy will
initially be set by the Westar Energy Board so as to achieve a payout ratio
that is consistent with comparable electric utility companies. There can be no
assurance, however, as to the level of Westar Energy dividend following the
Transactions. The dividend policy of Westar Energy will also be dependent upon
economic conditions, profitability and other factors which will be considered
by the Westar Energy Board from time to time. Moreover, the Western Resources
Board will set that company's dividend policy and there can be no assurance as
to the level of Western Resources' dividend following the Transactions.
REGULATED INDUSTRY
Electric utilities have historically operated in a rate-regulated
environment. Federal and state regulatory agencies having jurisdiction over
the rates and services of Western Resources, KCPL and other utilities are
initiating steps that are expected to result in a more competitive environment
for utilities services. Increased competition may create greater risks to the
stability of utility earnings. In a deregulated environment, formerly
regulated utility companies that are not responsive to a competitive energy
marketplace may suffer erosion in market share, revenues and profits as
competitors gain access to their service territories. This anticipated
increased competition for retail electricity sales may in the future reduce
Westar Energy's earnings. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF WESTERN RESOURCES ELECTRIC
BUSINESS--Other Information--Competition and Enhanced Business Opportunities."
In addition, consummation of the Transactions requires the approval of
certain regulatory authorities, including the FERC. Western Resources and KCPL
currently contemplate that the Transactions could be completed in the first
half of 1999; however, there can be no assurance that they will have received
all requisite regulatory approvals prior to such time. Nor can there be any
assurance that the Transactions will be consummated or, if consummated, that
they will occur by the first half of 1999. See "THE TRANSACTIONS--Regulatory
Matters."
CONTROL BY THE PRINCIPAL SHAREOWNER OF WESTAR ENERGY
Upon consummation of the Transactions, Western Resources will own, assuming
there are no Dissenting Shares, 80.1% of the diluted outstanding shares of
Westar Energy Common Stock. As a result of the Transactions, Western Resources
will generally be able to control the vote on all matters submitted to a vote
of the holders of shares of outstanding Westar Energy Common Stock, including
the election of Westar Energy's directors, amendments to the Westar Energy
Articles and Westar Energy Bylaws and approval of significant corporate
transactions and other actions pertaining to Westar Energy which require
approval of Westar Energy's shareowners. Notwithstanding this fact, Western
Resources has agreed to certain arrangements relating to the election of
directors of Westar Energy after the Closing. See "THE MERGER AGREEMENT--
Standstill
27
Arrangements." Additionally, Western Resources will be in a position to
prevent a takeover of Westar Energy by one or more third parties, which could
deprive Westar Energy's shareowners of a control premium that might otherwise
be realized by them in connection with an acquisition of Westar Energy.
STRANDED COSTS
The definition of stranded costs for a utility business is the investment in
and carrying costs on property, plant and equipment and other regulatory
assets which exceed the amount that can be recovered in a competitive market.
Western Resources and KCPL currently apply accounting standards that recognize
the economic effects of rate regulation and record regulatory assets and
liabilities related to their electric generation, transmission and
distribution operations. It is presently expected that Westar Energy will
apply these same accounting standards. If Western Resources, Westar Energy, or
KCPL, determine that they no longer meet the criteria of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71), they may have a material extraordinary non-
cash charge to operations. Reasons for discontinuing SFAS 71 accounting
treatment include increasing competition that restricts a company's ability to
charge prices needed to recover costs already incurred and a significant
change by regulators from a cost-based rate regulation to another form of rate
regulation. Western Resources and KCPL periodically review SFAS 71 criteria
and believe their net regulatory assets, including those related to
generation, are probable for future recovery. If Western Resources, Westar
Energy or KCPL discontinue SFAS 71 accounting treatment based upon competitive
or other events, it may significantly impact the value of Western Resources',
Westar Energy's and KCPL's net regulatory assets and Western Resources',
Westar Energy's and KCPL's utility plant investments, particularly the Wolf
Creek facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF WESTERN RESOURCES ELECTRIC BUSINESS--
Other Information--Competition and Enhanced Business Opportunities" for
initiatives taken to restructure the electric industry in Kansas and KCPL's
1998 Annual Report on Form 10-K for further discussion.
Regulatory changes, including competition, could adversely impact Western
Resources', Westar Energy's and KCPL's ability to recover their investment in
these assets. As of December 31, 1997, Western Resources and KCPL have
recorded regulatory assets of approximately $380 million and $153 million,
respectively, which are currently subject to recovery in future rates. Of this
amount, approximately $213 million and $123 million, respectively, are
receivables for future income tax benefits previously passed on to customers.
The remainder of the regulatory assets are items that may give rise to
stranded costs including coal contract settlement costs, deferred plant costs
and debt issuance costs.
In a competitive environment, Western Resources, Westar Energy and KCPL may
not be able to fully recover their entire investment in Wolf Creek. Western
Resources and KCPL each presently owns 47% of Wolf Creek, and following the
Transactions, Westar Energy will own 94% of Wolf Creek. Western Resources may
also have stranded costs from an inability to recover its environmental
remediation costs and long-term fuel contract costs in a competitive
environment. If Western Resources, KCPL or Westar Energy determines that it
has stranded costs and cannot recover its investment in these assets, its
future net utility income may be lower than its historical net utility income
unless it can compensate for the loss of such income with other measures.
28
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of KCPL Common Stock in connection with the solicitation of proxies by the
KCPL Board from the holders of KCPL Common Stock for use at the KCPL Meeting
and (ii) the holders of Western Resources Common Stock in connection with the
solicitation of proxies by the Western Resources Board from the holders of
Western Resources Common Stock for use at the Western Resources Meeting. This
Joint Proxy Statement/Prospectus is also being furnished to the holders of
KCPL Common Stock in connection with the issuance of the Western Resources
Common Stock and the Westar Energy Common Stock in the Transactions.
THE WESTERN RESOURCES MEETING
Purpose. At the Western Resources Meeting, holders of Western Resources
Common Stock will be asked to consider and vote upon: (i) a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby including, among others, the Western Resources Share Issuance, the
Contributions and the transfer of substantially all of the assets of Western
Resources to Westar Energy as a result of the Asset Contribution and the KGE
Merger; (ii) a proposal to approve the Articles Amendment; and (iii) such
other matters, if any, as may properly come before the Western Resources
Meeting or any adjournment or postponement thereof. The Western Resources
Board does not know, as of the date of mailing of this Joint Proxy
Statement/Prospectus, of any other business to be brought before the Western
Resources Meeting. The enclosed proxy card authorizes the voting of shares
represented by the proxy on all other matters that may properly come before
the Western Resources Meeting, and any adjournment or postponement thereof,
and it is the intention of the proxy holders to take such action in connection
therewith as shall be in accordance with their best judgment. Pursuant to the
Merger Agreement, the consummation of the Transactions is conditioned upon
approval of proposals (i) through (ii) above.
THE WESTERN RESOURCES BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY INCLUDING, AMONG OTHERS,
THE WESTERN RESOURCES SHARE ISSUANCE, THE CONTRIBUTIONS, AND THE TRANSFER OF
SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN RESOURCES TO WESTAR ENERGY, AND THE
ARTICLES AMENDMENT AND RECOMMENDS THAT WESTERN RESOURCES SHAREOWNERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE WESTERN RESOURCES SHARE ISSUANCE, THE
CONTRIBUTIONS, AND THE TRANSFER OF SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN
RESOURCES TO WESTAR ENERGY, AND THE ARTICLES AMENDMENT.
In considering the recommendation of the Western Resources Board with
respect to the Transactions, shareowners should be aware that certain members
of Western Resources' management and the Western Resources Board have certain
interests in the Transactions that are in addition to those of shareowners of
Western Resources generally. See "THE TRANSACTIONS--Interests of Certain
Persons in the Transactions."
Date, Place and Time; Record Date. The Western Resources Meeting is
scheduled to be held at the Bradbury Thompson Theater, 1700 SW Jewell on the
Washburn University Campus, Topeka, Kansas, at 10:00 a.m., local time, on July
30, 1998. Holders of record of shares of Western Resources Common Stock at the
close of business on the Western Resources Record Date will be entitled to
notice of and to vote at the Western Resources Meeting. At the close of
business on the Western Resources Record Date, 65,562,074 shares of Western
Resources Common Stock were issued and outstanding and entitled to vote. The
Western Resources Meeting may be adjourned or postponed to another date and/or
place for any proper purpose (including, without limitation, for the purpose
of soliciting additional proxies).
Voting Rights; Quorum; Required Vote. Each outstanding share of Western
Resources Common Stock is entitled to one vote upon each matter presented at
the Western Resources Meeting. 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 Western
Resources Meeting.
As provided under the KGCC, the Western Resources Articles, the Western
Resources Bylaws and the rules of the NYSE, as applicable, approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Western Resources Share Issuance, the Contributions, and the
transfer of substantially all of the assets of Western Resources to Westar
Energy, and the Articles Amendment requires the affirmative vote
29
of a majority of the outstanding shares of Western Resources Common Stock.
Abstentions and broker non-votes will have the same effect as votes cast
against approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Western Resources Share Issuance, the
Contributions, and the transfer of substantially all of the assets of Western
Resources to Westar Energy, and the Articles Amendment.
Western Resources in its capacity as sole shareowner of KGE and Westar
Energy has approved the Contributions, the KGE Merger and the KCPL Merger.
However, the KGE Merger will not be consummated unless the shareowners of
Western Resources approve all of the items listed above. Accordingly, a vote
in favor of such items will in effect be a vote in favor of the KGE Merger.
As of the Western Resources Record Date, the directors and executive
officers of Western Resources, together with their affiliates as a group,
beneficially owned less than 1% of the issued and outstanding shares of
Western Resources Common Stock entitled to vote at the Western Resources
Meeting.
Western Resources has agreed under the Merger Agreement to call for
redemption before the KGE Effective Time all of the outstanding shares of
Western Resources Preferred Stock at the applicable redemption price therefor,
together with all dividends accrued and unpaid through the applicable
redemption dates. Accordingly, the Western Resources Preferred Stock shall not
be entitled to vote upon any matter to be considered at the Western Resources
Meeting.
Proxies. Holders of Western Resources Common Stock may vote either in person
or by properly executed proxy. By completing and returning the form of proxy,
the Western Resources shareowner authorizes the persons named therein to vote
all the Western Resources shareowner's shares on his or her behalf. All
properly executed Western Resources proxies returned will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are given, the Western Resources proxies will be voted "FOR" approval and
adoption of the Merger Agreement, the Western Resources Share Issuance, the
Contributions and the Articles Amendment. A Western Resources proxy may be
revoked by voting in person at the Western Resources Meeting, by written
notice to Western Resources' Corporate Secretary or by delivery of a later-
dated proxy, in each case prior to the closing of the polls for voting at the
Western Resources Meeting. Attendance at the Western Resources Meeting will
not in itself constitute revocation of a proxy.
Western Resources will bear the cost of the solicitation of proxies for the
Western Resources Meeting, except that KCPL and Western Resources shall share
equally expenses incurred in connection with printing and filing this Joint
Proxy Statement/Prospectus. See "THE MERGER AGREEMENT--Expenses." Proxies may
be solicited by certain officers and employees of Western Resources or its
subsidiaries by mail, by telephone, personally or by other communication,
without compensation apart from their normal salaries. Western Resources has
retained Georgeson & Company Inc. to assist in the solicitation of proxies
from Western Resources shareowners, including brokers' accounts, at a fee for
such services of approximately $11,500 plus reasonable out-of-pocket expenses.
THE KCPL MEETING
Purpose. At the KCPL Meeting, the holders of KCPL Common Stock will be asked
to consider and vote upon: (i) a proposal to approve and adopt the Merger
Agreement, the KCPL Merger and the transactions contemplated thereby; and (ii)
such other matters, if any, as may properly come before the KCPL Meeting or
any adjournment or postponement thereof. The KCPL Board does not know, as of
the date of mailing of this Joint Proxy Statement/Prospectus, of any other
business to be brought before the KCPL Meeting. The enclosed proxy card
authorizes the voting of shares represented by the proxy on all other matters
that may properly come before the KCPL Meeting, and any adjournment or
postponement thereof, and it is the intention of the proxy holders to take
such action in connection therewith as shall be in accordance with their best
judgment. Pursuant to the Merger Agreement, the consummation of the KGE Merger
is conditioned upon approval of proposal (i) above.
THE KCPL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE KCPL
MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, HAS AUTHORIZED THE EXECUTION
AND DELIVERY OF THE MERGER AGREEMENT, AND RECOMMENDS THAT KCPL SHAREHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE KCPL MERGER AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
30
In considering the recommendation of the KCPL Board with respect to the
Transactions, shareholders should be aware that certain members of KCPL's
management and the KCPL Board have certain interests in the Transactions that
are in addition to or different from those of shareholders of KCPL generally.
See "THE TRANSACTIONS--Interests of Certain Persons in the Transactions."
Date, Place and Time; Record Date. The KCPL Meeting is scheduled to be held
at the Gem Theater, 1615 E. 18th Street, Kansas City, Missouri, at 10:00 a.m.,
local time, on July 30, 1998. Holders of record of shares of KCPL Common Stock
at the close of business on 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, 61,872,915 shares of KCPL Common Stock were issued and outstanding and
entitled to vote. The KCPL Meeting may be adjourned or postponed to another
date and/or place for any proper purpose (including, without limitation, for
the purpose of soliciting additional proxies).
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.
As provided under the MGBCL, the KCPL Articles, the KCPL Bylaws and the
rules of the NYSE, as applicable, the affirmative vote of the holders of two-
thirds of the outstanding shares of KCPL Common Stock entitled to vote is
required to approve and adopt the Merger Agreement and the KCPL Merger.
SINCE A TWO-THIRDS SUPERMAJORITY VOTE OF ALL OUTSTANDING SHARES OF KCPL
COMMON STOCK ENTITLED TO VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT, THE KCPL MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, YOUR
VOTE IS IMPORTANT. UNDER MISSOURI LAW, THE FAILURE TO VOTE, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES CAST AGAINST APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE KCPL MERGER.
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 entitled to vote at the
KCPL Meeting. As of the KCPL Record Date, Western Resources did not
beneficially own any shares of KCPL Common Stock.
KCPL has agreed under the Merger Agreement to call for redemption before the
KCPL Effective Time all of its outstanding shares of preferred stock at the
applicable redemption prices, together with all dividends accrued and unpaid
through the applicable redemption dates. Accordingly, the holders of shares of
preferred stock of KCPL (who do not also own shares of KCPL Common Stock)
shall not be entitled to vote upon any matter at the KCPL Meeting.
Proxies. Holders of KCPL Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the
KCPL shareholder authorizes the persons named therein to vote all of the KCPL
shareholder's shares on his or her behalf. Issued and outstanding shares of
KCPL Common Stock, which are represented by properly executed proxies, will,
unless such proxies have been revoked, be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
shares will be voted "FOR" approval and adoption of the Merger Agreement and
the KCPL Merger. A KCPL shareholder may revoke a proxy at any time prior to
the KCPL Meeting by delivering to the Secretary of KCPL a notice of revocation
or a duly executed proxy bearing a later date or by attending the KCPL Meeting
and voting in person. Attendance at the KCPL Meeting will not in itself
constitute revocation of a proxy.
KCPL will bear the cost of soliciting proxies for the KCPL Meeting, except
that KCPL and Western Resources shall share equally expenses incurred in
connection with printing and filing this Joint Proxy Statement/Prospectus and
the Registration Statement. See "THE MERGER AGREEMENT--Expenses." In addition
to soliciting proxies by mail, officers and employees of KCPL, without
receiving additional compensation therefor, may solicit proxies by telephone,
by telecopy, by telegram or in person. KCPL has retained Morrow & Company to
aid in the solicitation of proxies from the KCPL shareholders. The fee for
such services will be approximately $50,000 plus an additional fee for each
shareholder contact and reimbursement for reasonable out-of-pocket expenses.
31
RECENT DEVELOPMENT
At the 1998 Western Resources Annual Meeting held on May 11, 1998, Western
Resources announced that John E. Hayes, Jr. would retire from his position as
Chief Executive Officer on July 1, 1998 and David C. Wittig would become the
new Chief Executive Officer.
THE TRANSACTIONS
Pursuant to the Merger Agreement, immediately prior to the KCPL Effective
Time and as a condition precedent to the Mergers, Western Resources will
transfer, or cause to be transferred, to KGE, (i) all of the right, title and
interest of Western Resources in, to and under the KPL Assets other than the
Non-KPL Assets, and (ii) an amount of Western Resources Common Stock equal to
the Issuance Number. No certificates or scrip representing fractional shares
of Western Resources Common Stock shall be contributed to KGE in the
Contributions. Concurrently with the Contributions, KGE will assume the
Assumed Liabilities; provided, however, that the Assumed Liabilities shall not
include indebtedness for borrowed money of Western Resources if KGE
immediately prior to the KGE Effective Time already has indebtedness for
borrowed money (including preferred stock) of $1.9 billion, it being
understood by the parties that in no case shall the indebtedness for borrowed
money (including preferred stock) of KGE exceed $1.9 billion immediately prior
to the KGE Effective Time.
As of the KCPL Effective Time and as a condition precedent to the KGE
Merger, KCPL will be merged with and into Westar Energy, the separate
corporate existence of KCPL will cease, Westar Energy will be the surviving
corporation and Westar Energy will continue its corporate existence under the
laws of Kansas. As of the KCPL Effective Time, each outstanding share of KCPL
Common Stock (other than shares of KCPL Common Stock beneficially owned by
KCPL either directly or through a wholly owned subsidiary and Dissenting
Shares) will represent one share of Westar Energy Series A Common Stock.
Immediately after consummation of the Mergers, the outstanding shares of
Westar Energy Series A Common Stock to be issued in the KCPL Merger will
constitute, assuming there are no Dissenting Shares, 19.9% of the diluted
outstanding shares of Westar Energy Common Stock.
As of the KGE Effective Time which will occur immediately after the KCPL
Effective Time, KGE will be merged with and into Westar Energy, the separate
corporate existence of KGE will cease, Westar Energy will be the surviving
corporation and Westar Energy will continue its corporate existence under the
laws of Kansas. Each outstanding share of KGE Common Stock will be converted
into and become such number of shares of Westar Energy Series B Common Stock
representing, assuming there are no Dissenting Shares, 80.1% of the diluted
outstanding shares of Westar Energy.
Immediately after the KGE Effective Time, Westar Energy will, in connection
with the KGE Merger, distribute to holders of Westar Energy Series A Common
Stock (i.e., the former KCPL shareholders) shares of the Western Resources
Common Stock previously contributed to KGE in the Stock Contribution pursuant
to the Western Resources Stock Distribution. No certificates or scrip
representing fractional shares of Western Resources Common Stock will be
distributed and a holder of Westar Energy Series A Common Stock who would
otherwise have been entitled to a fractional share of Western Resources Common
Stock will be entitled to receive a cash payment in lieu of such fractional
share. In addition, immediately after the KGE Effective Time, Westar Energy
will distribute to Western Resources all of the outstanding shares of capital
stock of KLT. Immediately after the Western Resources Stock Distribution, each
share of Westar Energy Series B Common Stock owned by Western Resources will
automatically represent one fully paid and nonassessable share of Westar
Energy Series A Common Stock.
32
The graphical presentation of the Transaction which appears on page 33
depicts the following events:
1. Western Resources will transfer shares of Western Resources Common Stock
equal to the issuance number and its entire interest in the KPL assets other
than the non-KPL assets to KGE in exchange for KGE Common Stock.
2. KCPL will be merged with and into Westar Energy, the separate corporate
existence of KCPL will cease, Westar Energy will be the surviving corporation
and Westar Energy will continue its existence under the laws of Kansas. As a
result of the Transactions, each outstanding share of KCPL Common Stock will
represent one share of Westar Energy Series A Common Stock, giving former KCPL
shareholders ownership of 19.9% of the diluted outstanding shares of Westar
Energy Common Stock.
3. KGE will be merged with and into Westar Energy, the separate corporate
existence of KGE will cease, Westar Energy will be the surviving corporation and
Westar Energy will continue its corporate existence under the laws of Kansas.
Each outstanding share of KGE Common Stock will be converted into shares of
Westar Energy Series B Common Stock representing 80.1% of the diluted
outstanding shares of Westar Energy. Immediately after the Western Resources
Stock Distribution, each share of Westar Energy Series B Common Stock owned by
Western Resources will automatically represent one fully paid and nonassessable
share of Westar Energy Series A Common Stock.
4. Westar Energy will, in connection with the KGE Merger, distribute to holders
of Westar Energy Series A Common Stock (i.e., the former KCPL shareholders)
shares of the Western Resources Common Stock previously contributed to KGE in
the Stock Contribution pursuant to the Western Resources Stock Distribution.
5. Immediately after the KGE Effective Time, Westar Energy will distribute to
Western Resources all of the outstanding shares of capital stock of KLT.
Immediately following the Transactions, current KCPL shareholders will
own, assuming there are no Dissenting Shares, 19.9% of the diluted outstanding
shares of Westar Energy Common Stock and approximately 35% of the outstanding
Western Resources Common Stock. Current Western Resources shareowners will own,
assuming there are no Dissenting Shares, 80.1% of the diluted outstanding shares
of Westar Energy Common Stock and retain ownership of approximately 65% of the
outstanding Western Resources Common Stock.
BACKGROUND OF THE TRANSACTIONS
In October 1993, executives of KCPL and UtiliCorp 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.
KCPL and Western Resources had discussed the possibility of a merger at
various times over the last four years. In June 1994, KCPL and Western
Resources exchanged confidential information in connection with preliminary
discussions regarding a possible business combination. Upon review of such
confidential information, KCPL advised Western Resources that it was not
interested in pursuing a business combination with Western Resources. However,
Western Resources continued to believe that a combination with KCPL would
yield substantial benefits for the shareowners, employees and ratepayers of
both companies. In February 1995 and again in May 1995, John Hayes, Chairman
and Chief Executive Officer of Western Resources, wrote to Drue Jennings,
Chairman, President and Chief Executive Officer of KCPL, expressing Western
Resources' continued interest in a combination with KCPL. In each case, Mr.
Jennings responded that KCPL was not interested in pursuing discussions with
Western Resources.
During 1995, KCPL and UtiliCorp executives had several meetings to discuss
the formation of joint ventures. In October 1995, the discussions between KCPL
and UtiliCorp led the two companies to consider a possible business
combination. In November 1995, the boards of directors of each of KCPL and
UtiliCorp authorized the continuation of discussions relating to a business
combination and the companies retained legal and financial advisors, executed
a mutual confidentiality agreement and began conducting due diligence and
detailed negotiations.
During December 1995, UtiliCorp and KCPL continued their negotiations and
due diligence investigations. During this process KCPL was assisted by its
financial advisor, Merrill Lynch, its legal advisor, Skadden Arps, and its
synergies consultant, Ernst & Young, in evaluating and structuring a merger
with UtiliCorp. On December 14, 1995, Mr. Hayes sent letters to each of Mr.
Jennings and Mr. Richard C. Green, Jr., Chairman, President and Chief
Executive Officer of UtiliCorp, stating that Western Resources believed that
KCPL and UtiliCorp were in discussions concerning a possible combination and
requesting an opportunity to meet with Mr. Jennings and Mr. Green regarding a
possible combination.
On January 19, 1996, the boards of each of KCPL and UtiliCorp met and,
following discussions with their respective legal, financial and synergies
advisors, approved a merger agreement (the "Original UtiliCorp Agreement")
providing for the merger of KCPL and UtiliCorp into a newly formed holding
company. In the merger, KCPL shareholders would receive one share and
UtiliCorp shareholders would receive 1.096 shares in the new company in
exchange for each share held in KCPL and UtiliCorp, respectively.
On the day of announcement of the KCPL/UtiliCorp Merger, Mr. Jennings
telephoned Mr. Hayes to inform him of this development. Mr. Hayes offered to
meet with Mr. Jennings and discuss the possibility of a combination with
Western Resources, but such offer was declined by Mr. Jennings.
On April 9, 1996, KCPL and UtiliCorp mailed a joint proxy
statement/prospectus relating to their proposed merger to the shareholders of
both companies. Included in such joint proxy statement/prospectus were notices
of annual meetings of stockholders of KCPL and UtiliCorp establishing May 22,
1996 as the date on which both KCPL and UtiliCorp would have their respective
annual meetings to consider and vote upon, among other things, the merger of
KCPL and UtiliCorp and related matters. Such joint proxy statement/prospectus
disclosed that, pursuant to the MGCBL, the affirmative vote of two-thirds of
the outstanding shares of KCPL Common Stock was required to approve the
KCPL/UtiliCorp merger.
In early 1996, Western Resources, with the assistance of its financial
advisor, Salomon Brothers, and its legal advisors, Sullivan & Cromwell and
LeBoeuf, Lamb, Greene & MacRae, L.L.P. ("LeBoeuf, Lamb"), continued to explore
the benefits of a combination with KCPL. In January 1996, Western Resources
had engaged
34
Deloitte & Touche Consulting Group LLC ("Deloitte Consulting") to assist its
management in the identification and quantification of potential synergies
that might result from a merger between Western Resources and KCPL.
At an April 13, 1996 meeting of the Western Resources Board, following
discussions by Western Resources management, Salomon Brothers, Sullivan &
Cromwell and LeBoeuf, Lamb, after which a representative of Deloitte
Consulting made brief comments regarding management's synergies analysis, the
Western Resources Board approved making a merger proposal (the "Original
Proposal") to the KCPL Board pursuant to which each outstanding share of KCPL
Common Stock would be exchanged for $28.00 of Western Resources Common Stock,
subject to a collar fixing a minimum of 0.833 and a maximum of 0.985 shares of
Western Resources Common Stock to be exchanged for each share of KCPL Common
Stock.
On April 14, 1996, Mr. Hayes telephoned Mr. Jennings to inform him that he
was having delivered to Mr. Jennings that afternoon a letter to the KCPL Board
setting forth the terms of the Original Proposal and outlining the benefits
which Western Resources believed would be realized by a merger of KCPL and
Western Resources. Western Resources also publicly announced that it had made
the Original Proposal to KCPL.
A meeting of the KCPL Board was held on April 19, 1996 and reconvened on
April 21, 1996 to consider the Original Proposal. At this meeting, the KCPL
Board received presentations concerning such proposal and background
information concerning Western Resources' business and operations from KCPL's
management and its financial, legal and synergies advisors. On April 21, 1996,
the KCPL Board, based upon the presentations given, the advice received and
the considerations discussed at the 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 UtiliCorp
Agreement.
On April 22, 1996, Mr. Jennings delivered to Mr. Hayes a letter stating that
the KCPL Board had considered and rejected Western Resources' proposal. Mr.
Jennings also telephoned Mr. Hayes to inform him of the decision of the KCPL
Board. On that same day, Western Resources announced its intention to commence
an offer to exchange shares of Western Resources Common Stock for shares of
KCPL Common Stock on the terms set forth in the Original Proposal. As part of
such announcement, Western Resources also stated that it had filed a proxy
statement with the SEC for use in soliciting proxies from KCPL shareholders
against the approval and adoption of the merger agreement between KCPL and
UtiliCorp. On May 3, 1996, Western Resources' proxy statement became final and
Western Resources began soliciting proxies against the KCPL/UtiliCorp merger.
On May 6, 1996, the Western Resources Board met and, after discussions with
management, Salomon Brothers, Sullivan & Cromwell and LeBoeuf, Lamb, approved
a proposal to provide greater price protection to KCPL shareholders in the
event that the price of Western Resources Common Stock increased. As amended,
the Western Resources offer provided that KCPL shareholders would receive not
less than 0.910 nor greater than 0.985 shares of Western Resources Common
Stock in exchange for each share of KCPL Common Stock.
On May 9, 1996, the KCPL Board met in order to review the status of the
Original UtiliCorp Agreement and the revised Western Resources proposal. At
such meeting, the KCPL Board received presentations from its management and
financial and legal advisors regarding the recent developments and the
financial and legal terms of the Western Resources proposal. 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 Western Resources proposal, presented their analysis of
Western Resources' estimate of the cost savings which could be obtained in a
merger of KCPL and Western Resources and compared such savings with Ernst &
Young's analysis of the savings obtainable in a merger of KCPL and UtiliCorp.
During the period beginning on May 10, 1996 and ending on May 19, 1996,
various meetings were held between executives of KCPL and UtiliCorp to discuss
a possible revision of the exchange ratios in the KCPL/UtiliCorp merger,
certain changes to the structure of such merger and other possible changes to
the terms of such merger. On May 18, 1996, representatives of KCPL and
UtiliCorp agreed to recommend to their
35
respective Boards of Directors an amended merger agreement (the "Amended
UtiliCorp Agreement") which provided that a subsidiary of KCPL would be merged
with and into UtiliCorp, followed by a subsequent merger of UtiliCorp with and
into KCPL. In the Amended UtiliCorp Agreement, UtiliCorp shareholders would
receive one share of KCPL Common Stock in exchange for each share of UtiliCorp
common stock and KCPL shareholders would retain their shares without change.
On May 20, 1996, the KCPL Board met to consider the Amended UtiliCorp
Agreement. At this meeting, KCPL's senior management and financial and legal
advisors discussed the material aspects of the proposed merger with UtiliCorp.
After considering and discussing the various presentations that were made at
the meeting and at prior meetings as well as the recommendation of KCPL's
management, the KCPL Board approved the Amended UtiliCorp Agreement and the
transactions contemplated thereby and directed that the proposals to approve
the Original UtiliCorp Agreement and related transactions be removed from the
agenda of the KCPL annual meeting of shareholders to be held on May 22, 1996.
Also on May 20, 1996, the UtiliCorp board of directors approved the Amended
UtiliCorp Agreement and the parties announced that they had entered into such
agreement. Accordingly, on May 20, 1996, KCPL withdrew the Original UtiliCorp
Agreement from consideration at the May 22, 1996 KCPL annual meeting and
announced that KCPL shareholders would vote on the issuance of KCPL Common
Stock necessary to effect the restructured KCPL/UtiliCorp merger at a special
meeting of KCPL shareholders. In such announcement, KCPL stated that the
affirmative vote of a majority of the shares of KCPL Common Stock would be
necessary to approve the issuance of shares of KCPL Common Stock required to
effect the restructured KCPL/UtiliCorp merger.
In addition, on May 20, 1996, KCPL instituted a legal proceeding in the
United States District Court for the Western District of Missouri (the
"District Court") against Western Resources seeking, among other things, a
declaration as to the validity of the Amended UtiliCorp Agreement. On June 7,
1996, Western Resources filed an answer to KCPL's complaint as well as a
counterclaim seeking, among other things, a declaration that the MGBCL
requires the approval of the Amended UtiliCorp Agreement by the affirmative
vote of two-thirds of the outstanding shares of KCPL Common Stock.
On June 12, 1996, the Western Resources Board met and, following discussions
with Western Resources' management, Salomon Brothers, Sullivan & Cromwell and
LeBoeuf, Lamb, approved management's proposal to increase the offer to KCPL
shareholders to $31.00 of Western Resources Common Stock per share of KCPL
Common Stock, subject to a minimum of 0.933 and a maximum of 1.100 shares of
Western Resources Common Stock for each share of KCPL Common Stock (the
"Western Resources Offer").
Mr. Hayes made this revised proposal on behalf of Western Resources in a
letter to Mr. Jennings dated June 17, 1996. Also on June 17, 1996, Western
Resources released a supplement to its proxy statement soliciting the votes of
KCPL shareholders against the Amended UtiliCorp Agreement.
The KCPL Board met on June 24, 1996 to consider Western Resources' revised
proposal and, following presentations by KCPL's management and KCPL's legal
advisors, determined not to accept such proposal. Accordingly, on such date,
Mr. Jennings had delivered to Mr. Hayes a letter stating that the KCPL Board
had rejected the Western Resources Offer. After delivery of the letter, Mr.
Jennings telephoned Mr. Hayes to inform him of the decision of the KCPL Board.
On June 29, 1996 and July 1, 1996, respectively, KCPL and UtiliCorp mailed a
revised joint proxy statement/prospectus to their respective shareholders
announcing that KCPL shareholders would vote on the Amended UtiliCorp
Agreement at a meeting to be held on August 7, 1996 and UtiliCorp stockholders
would vote on such agreement at a meeting to be held on August 16, 1996.
On July 3, 1996, Western Resources' Registration Statement on Form S-4
containing the Western Resources prospectus relating to its exchange offer to
KCPL shareholders was declared effective by the SEC. On July 8, 1996, Western
Resources formally launched its exchange offer for shares of KCPL Common Stock
by filing with
36
the SEC a Tender Offer Statement on Schedule 14D-1. The Western Resources
Offer was scheduled to expire on September 20, 1996.
The KCPL Board reviewed and deliberated the terms of the Western Resources
Offer with its legal and financial advisors at its board meeting on July 9,
1996, and thereafter, by unanimous vote of those directors present, determined
that the Western Resources Offer was 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. On July 9, 1996, KCPL filed a
Solicitation/Recommendation Statement on Schedule 14D-9 setting forth KCPL's
recommendation that KCPL shareholders not tender their shares into the Western
Resources Offer and vote their shares in favor of the Amended UtiliCorp
Agreement at the KCPL special meeting.
On August 2, 1996, the District Court held that the Amended UtiliCorp
Agreement required the affirmative vote of two-thirds of the outstanding
shares of KCPL Common Stock, rather than the vote of a majority of shares of
KCPL Common Stock represented at a meeting at which a quorum is present.
In order to provide KCPL shareholders additional time to consider the
District Court's ruling, KCPL announced on August 5, 1996 that it would
postpone the scheduled August 7, 1996 special shareholder meeting for
consideration of the Amended UtiliCorp Agreement.
The KCPL Board met on August 6, 1996. At this meeting, representatives of
Skadden Arps discussed the implications of the District Court's ruling and the
SEC's requirement that the August 7, 1996 special meeting be postponed in
order to give KCPL shareholders time to consider the District Court's ruling.
In addition, representatives of D.F. King & Co., KCPL's proxy solicitor,
reported on the status of the solicitation process. The KCPL Board thereafter
decided to postpone the special shareholder meeting until August 16, 1996, at
which time the Amended UtiliCorp Agreement would be considered for adoption
and approval.
At the special meeting of UtiliCorp stockholders held on August 14, 1996,
the UtiliCorp stockholders approved the Amended UtiliCorp Agreement. The
special meeting of KCPL shareholders to vote on the Amended UtiliCorp
Agreement was duly held in Kansas City, Missouri on August 16, 1996. The
shareholder votes cast at the KCPL special meeting were tallied by The
Corporation Trust Company ("CT"), an independent inspector of corporate
elections. The results of the vote on such agreement were not immediately
known.
On August 30, 1996, Western Resources announced the extension of its
exchange offer to October 25, 1996 and disclosed that 1.2 million shares of
KCPL Common Stock had been tendered into the Western Resources Offer.
On September 10, 1996, the KCPL Board met to discuss the status of the
Western Resources Offer and the Amended UtiliCorp Agreement. At this meeting,
representatives of Skadden Arps advised the KCPL Board of its obligations
under the Amended UtiliCorp Agreement in the event that shareholder approval
of the Amended UtiliCorp Agreement was not obtained, and Merrill Lynch
discussed with the KCPL Board certain strategic alternatives which might be
available to KCPL in the event that such approval was not obtained.
On September 12, 1996, CT announced the results of its preliminary tally of
the shareholder votes at the August 16, 1996 KCPL special meeting. According
to figures provided by CT, the Amended UtiliCorp Agreement did not receive the
required shareholder approval. CT's final tabulation, released on September
17, 1996, confirmed this preliminary tally. On September 18, 1996, KCPL
announced that it had terminated the Amended UtiliCorp Agreement in accordance
with the terms thereof.
On October 27, 1996, Western Resources announced the extension of its
exchange offer to November 15, 1996, and disclosed that more than 27.1 million
shares, or 44% of the total number of outstanding shares, of KCPL Common Stock
had been tendered into the Western Resources Offer.
37
At a meeting of the KCPL Board held on November 5, 1996, the KCPL Board
discussed the Western Resources Offer and concluded that Mr. Jennings and
representatives of the KCPL Board should meet with Mr. Hayes and
representatives of the Western Resources Board. The KCPL Board discussed the
proposed meeting with representatives of Skadden Arps and Merrill Lynch.
On November 15, 1996, Mr. Jennings and representatives of the KCPL Board met
with Mr. Hayes and representatives of the Western Resources Board. Topics of
discussion included, among other things, Western Resources' business and
prospects and Western Resources' proposal to combine with KCPL. At the
conclusion of this meeting, Mr. Jennings invited Mr. Hayes to speak to the
KCPL Board regarding such matters. On November 15, 1996, subsequent to this
meeting, Western Resources and KCPL issued a joint press release stating that
their representatives had met and that they had a cordial discussion regarding
a proposed transaction between the two companies and agreed to meet again in
the near future.
On November 18, 1996, Western Resources extended the expiration date of its
exchange offer to December 6, 1996, and announced that 29.2 million shares, or
47% of the total number of outstanding shares, of KCPL Common Stock had been
tendered into the Western Resources Offer.
A meeting of the KCPL Board was held on November 25, 1996, to meet with
representatives of Western Resources. The meeting was attended by Mr. Hayes
and representatives of the Western Resources Board. Mr. Hayes discussed
certain financial and other relevant information. Thereafter, Mr. Hayes and
the other Western Resources representatives left the meeting and the KCPL
Board, after discussing the information presented, determined that additional
financial information was necessary in order to fully evaluate Western
Resources' proposal and requested Merrill Lynch's assistance in such
evaluation.
At a special meeting of the KCPL Board held on December 5, 1996, a Merrill
Lynch representative presented to the KCPL Board publicly available financial
and business information regarding Western Resources. The KCPL Board discussed
this information with its advisors and authorized Merrill Lynch to begin a due
diligence review of Western Resources' financial information. The KCPL Board
also identified certain issues that needed to be resolved prior to entering
into a confidentiality agreement with Western Resources and directed Mr.
Jennings to contact Mr. Hayes to initiate discussions regarding these issues.
Over the weekend of December 6, 1996, Mr. Jennings and Mr. Hayes began to
discuss the price that would be paid per share of KCPL Common Stock in a
negotiated merger agreement between the two companies, the collar that would
apply to such price, and KCPL's desire to secure the right to terminate any
such merger agreement in the event that Western Resources' stock price fell
below the limit of the collar. Mr. Jennings reported on these conversations at
a special meeting of the KCPL Board held on December 9, 1996. The KCPL Board,
after reviewing the information discussed by Mr. Jennings, authorized the
officers of KCPL to enter into an appropriate confidentiality agreement with
Western Resources and to begin a due diligence review of Western Resources.
On December 7, 1996, Western Resources provided to KCPL an initial draft of
a merger agreement providing for the merger of KCPL with and into Western
Resources.
On December 9, 1996, Western Resources announced the extension of its
exchange offer to December 13, 1996, and that 29.5 million shares, or 47.6% of
the total number of outstanding shares, of KCPL Common Stock had been tendered
into the Western Resources Offer. The companies also announced on December 9,
1996 that merger discussions were in progress.
On December 13, 1996, Western Resources announced the extension of the
expiration date of its exchange offer to January 15, 1997, and that 29.6
million shares, or approximately 48% of the total number of outstanding
shares, of KCPL Common Stock, had been tendered into the Western Resources
Offer. Western Resources' announcement also stated that merger discussions
between KCPL and Western Resources had continued during the prior week and
that Western Resources would refrain from actively soliciting further tenders
of KCPL shares.
38
On December 20, 1996, KCPL and Western Resources executed a reciprocal
confidentiality agreement.
On January 8, 1997, representatives of Western Resources and KCPL and their
respective legal and financial advisors met in Kansas City, Missouri to
discuss the draft merger agreement. Following this meeting, the parties
continued to negotiate the draft merger agreement.
A meeting of the KCPL Board was held on January 14, 1997, to discuss the
status of the merger negotiations with Western Resources. Mr. Jennings
reported on certain outstanding issues on which the negotiations were focused,
and representatives of Skadden Arps summarized the terms and implications of
the draft merger agreement. Representatives of Merrill Lynch reviewed for the
KCPL Board various financial and other information regarding the financial
terms of the draft merger agreement and Western Resources' business and recent
strategic transactions. The KCPL Board discussed transactions announced by
Western Resources during the preceding month and the KCPL Board requested that
Merrill Lynch continue its review and evaluation of such transactions. Mr.
Jennings pointed out that Western Resources' entry into the home security
industry was transforming Western Resources into a more diversified and
dynamic company and, therefore, a more attractive merger partner.
On January 15, 1997, Western Resources and KCPL announced that their merger
negotiations were continuing and that Western Resources would extend the
expiration date of its exchange offer to February 5, 1997. Western Resources
also disclosed that 30.2 million shares, or approximately 49% of the total
number of outstanding shares, of KCPL Common Stock had been tendered into the
Western Resources Offer.
During the period from January 27, 1997 to January 31, 1997, representatives
of Western Resources, KCPL and their respective legal and financial advisors
continued their negotiations.
On February 4, 1997, the Western Resources Board met to consider the draft
merger agreement. At this meeting Salomon Brothers reviewed the economic and
financial position of Western Resources and KCPL, the financial impact on
Western Resources of the proposed merger and certain other information and
provided its oral opinion to the Western Resources Board 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 conversion ratio was fair to Western
Resources from a financial point of view. In addition, at the meeting Sullivan
& Cromwell reviewed certain legal aspects of the draft merger agreement,
Deloitte Consulting discussed the synergy estimates for the merger of KCPL and
Western Resources made by the management of Western Resources, and the
management of Western Resources reviewed the strategic rationale for the
proposed merger and the regulatory process required to gain approval for the
proposed merger. Following such meetings, the Western Resources Board approved
the draft merger agreement in the form presented to it and authorized the
management of Western Resources to execute and deliver the merger agreement,
subject to the satisfactory resolution of certain outstanding issues.
On February 4, 1997, the KCPL Board met and reviewed the status of the
negotiations with Western Resources. Representatives of Merrill Lynch reviewed
for the KCPL Board various financial and other information and representatives
of Skadden Arps summarized the terms of the draft merger agreement and
discussed certain issues that remained unresolved.
On February 6, 1997, KCPL and Western Resources jointly announced that
merger negotiations were continuing between the two companies and that Western
Resources was extending the expiration date of its exchange offer to February
7, 1997. As of February 6, 1997, 30.3 million shares, or approximately 49% of
the total number of outstanding shares, of KCPL Common Stock had been tendered
into the Western Resources Offer. KCPL and Western Resources representatives
continued to negotiate certain unresolved issues on the evening of February 6,
1997. Ultimately, the parties reached agreement on these remaining points.
On February 7, 1997, a telephonic meeting of the KCPL Board was held. At
such meeting, Mr. Jennings described to the KCPL Board the resolution of those
issues that were still open as of the KCPL Board's February 4, 1997 meeting.
Merrill Lynch representatives delivered an oral opinion to the KCPL Board,
which opinion was
39
subsequently confirmed in a written opinion dated as of February 7, 1997, to
the effect 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
conversion ratio was fair to the holders of KCPL Common Stock (other than
Western Resources and its affiliates) from a financial point of view. After
discussing the issues raised at such meeting as well as the recommendation of
KCPL's management, the KCPL Board unanimously approved the proposed merger
agreement with Western Resources and the transactions contemplated thereby and
authorized the execution of such merger agreement. The merger agreement was
executed by both parties on February 7, 1997 (the "Original Merger
Agreement").
From April 28, 1997 through August 29, 1997, KCPL, Western Resources and
their respective legal and financial advisors met on various occasions to
discuss the possibility of restructuring the transactions contemplated by the
Original Merger Agreement to create a holding company structure. On August 29,
1997, after a telephone conversation between Messrs. Hayes and Jennings, the
parties agreed to discontinue such discussions and to proceed with the
structure set forth in the Original Merger Agreement.
In September 1997, Western Resources and KCPL prepared and filed with the
SEC preliminary proxy materials for their respective shareowner meetings
pursuant to the Original Merger Agreement. In late October 1997, Western
Resources and KCPL received written comments from the SEC on the preliminary
proxy materials. From late October until early November, Western Resources and
KCPL worked together to revise the preliminary proxy materials in response to
the SEC comments. On November 7, 1997, Western Resources and KCPL filed
revised preliminary proxy materials with the SEC. In mid-November 1997,
Western Resources and KCPL each set record dates for their respective
shareowner meetings to be held on January 21, 1998.
On December 10, 1997, representatives of Western Resources notified KCPL
that representatives of Salomon Smith Barney had indicated that they believed
it was unlikely that Salomon Smith Barney would be in a position to issue the
updated fairness opinion that was a condition to the mailing of the proxy
materials to the shareowners of Western Resources and KCPL. Consequently,
Western Resources' representatives proposed new economic terms and a new
structure for the transaction.
On December 10, 1997, the KCPL Board held a meeting to review and evaluate
the new transaction terms proposed by Western Resources. The KCPL Board
concluded that further discussions were necessary with Western Resources and
Salomon Smith Barney to evaluate more fully the reasons for the likelihood
that Salomon Smith Barney would be unable to issue an updated fairness opinion
pursuant to the Original Merger Agreement before altering the economic terms
or structure of the transactions contemplated by the Original Merger
Agreement.
During the period from December 10, 1997 to December 19, 1997,
representatives of Western Resources, KCPL, Salomon Smith Barney and Merrill
Lynch had numerous discussions and meetings, including meetings between
Salomon Smith Barney and Merrill Lynch at which representatives of Salomon
Smith Barney discussed the various analyses Salomon Smith Barney performed
that caused such representatives to indicate that they would not recommend to
the fairness committee of Salomon Smith Barney that Salomon Smith Barney
render an updated fairness opinion on the terms of the Original Merger
Agreement and that made it unlikely, in the representatives' view, that
Salomon Smith Barney would be able to render such updated fairness opinion on
the terms of the Original Merger Agreement. Such analyses included: (i)
relative valuations of Western Resources and KCPL, including relative public
market valuations, taking into account a control premium for KCPL and the
present value of identified synergies, and relative discounted cash flow
valuations considering the present value of such synergies; (ii) an analysis
of the increase in strength of Western Resources' future earnings relative to
those of KCPL; (iii) an analysis of changes in the business mix of Western
Resources since execution of the Original Merger Agreement, including the
increasing size of Western Resources' unregulated businesses and the growth
prospects and valuation of those businesses relative to the traditional
regulated businesses of Western Resources and KCPL; (iv) an analysis of the
implications for Western Resources of its investment in ONEOK, including the
increased market value; (v) an analysis of the implications for Western
Resources of its acquisition of Protection One, which resulted in Western
Resources becoming the second largest monitored security company in the United
States; (vi) an analysis of the impact on Western Resources of the liquidation
of its
40
investment in Tyco International; and (vii) an analysis of the impact of the
terms of the Original Merger Agreement on Western Resources' future earnings.
After discussing such analyses, the representatives of Salomon Smith Barney
expressed serious doubt that, based on its work to date, Salomon Smith Barney
would be able to render the necessary updated fairness opinion. Based upon
such discussions, Merrill Lynch advised KCPL of its determination that Salomon
Smith Barney would not render such an updated fairness opinion. Thereafter,
Western Resources and KCPL agreed to consider whether the transaction could be
restructured in a manner acceptable to both parties.
On December 19, 1997, Western Resources and KCPL jointly announced that
representatives of Salomon Smith Barney had indicated that they believed it
was unlikely that Salomon Smith Barney would be in a position to issue a
fairness opinion with respect to the terms of the merger contemplated by the
Original Merger Agreement if the issue of the fairness of such transaction to
Western Resources were formally submitted to the fairness committee of Salomon
Smith Barney and that they had canceled their respective January 21, 1998
shareowner meetings. Western Resources and KCPL at that time stated that they
would meet in good faith to discuss the matter and work together
constructively to resolve the matter on a basis that would be fair to
shareowners of both companies.
On December 29, 1997, the senior managements of Western Resources and KCPL
met in New York to discuss further the material aspects of possible revisions
to the Original Merger Agreement.
During the period beginning on January 10, 1998 and ending on February 19,
1998, representatives of Western Resources and KCPL met in person and
exchanged various correspondence in which they discussed possible transaction
structures which would achieve the shared strategic goals of Western Resources
and KCPL while at the same time providing terms which would be fair to Western
Resources and its shareowners on the one hand and to KCPL and its shareholders
on the other hand.
On February 19, 1998, Western Resources delivered to KCPL a draft amended
and restated merger agreement (the "Draft Merger Agreement") which addressed
most of the issues Western Resources and KCPL had decided were crucial to a
mutually beneficial transaction. On February 26, 1998, the KCPL Board met to
review the Draft Merger Agreement. At this meeting, KCPL's legal advisors from
Skadden Arps reviewed and discussed with the KCPL Board the material terms,
conditions and other legal aspects of the Draft Merger Agreement.
Additionally, Skadden Arps also reviewed and discussed with the KCPL Board the
various regulatory approvals necessary to consummate the Transactions in their
revised form and the process that could be necessary to gain such approvals.
After consultation with KCPL's management and legal and financial advisors,
the KCPL Board authorized further negotiation of the few issues the KCPL Board
identified as remaining open. During the period from February 26, 1998 to
March 17, 1998, Western Resources and KCPL and their respective legal counsel
and financial advisors negotiated the remaining open issues in the Draft
Merger Agreement and drafted a revised Draft Merger Agreement (the "Revised
Draft Merger Agreement").
On March 18, 1998, the Western Resources Board met to consider the Revised
Draft Merger Agreement and the terms of the consideration, including the
conversion ratios and collar provisions, proposed to be paid to KCPL
shareholders. The Western Resources Board considered the terms of the proposed
consideration on the whole and did not specifically identify or discuss any
particular conversion ratio, collar range or Western Resources Index Price. At
this meeting, Salomon Smith Barney reviewed the economic and financial
position of Western Resources and KCPL, the financial impact on Western
Resources and Westar Energy of the proposed Transactions and certain other
information. At such meeting, Salomon Smith Barney provided its oral opinion
to the Western Resources Board, which was confirmed in writing, 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 Aggregate Consideration was
fair to Western Resources from a financial point of view. In addition, at the
meeting Sullivan & Cromwell reviewed certain legal aspects of the Revised
Draft Merger Agreement. Western Resources management reviewed with the Western
Resources Board the strategic rationale for the proposed Transactions,
41
certain terms of the Revised Draft Merger Agreement and the regulatory process
required to gain approval for the proposed Transactions. Following such
presentations, the Western Resources Board unanimously approved the Revised
Draft Merger Agreement in substantially the form to it and authorized the
management of Western Resources to execute and deliver the Revised Draft
Merger Agreement.
On March 18, 1998, the KCPL Board met to review the Revised Draft Merger
Agreement and the terms of the consideration, including the conversion ratios
and collar provisions, proposed to be paid by Western Resources to be certain
all outstanding issues had been addressed. At the meeting, Skadden Arps
reviewed with the KCPL Board how various open issues in the Draft Merger
Agreement were resolved. Representatives of Merrill Lynch made a presentation
to the KCPL Board that included a discussion of its valuation methodologies
and analyses used in arriving at its opinion. Merrill Lynch also delivered its
oral opinion, which opinion was subsequently confirmed in a written opinion
dated as of March 18, 1998, to the KCPL Board to the effect that, as of such
date, and based upon the assumptions made, matters considered and limits of
review as set forth in such opinion, the proposed Aggregate Consideration was
fair to such holders from a financial point of view. The KCPL Board considered
the terms of the proposed consideration on the whole and did not specifically
identify or discuss any particular conversion ratio, collar range or Western
Resources Index Price. However, in making its determination, the KCPL Board
considered the analyses of Merrill Lynch summarized below under "--Opinion of
KCPL's Financial Advisor" which included, among other things, an evaluation of
the Aggregate Consideration implied by a range of trading values of the
Western Resources Common Stock, including those values implied by the high and
low end of the collar mechanism, and also considered the opinion of Merrill
Lynch to the effect that, as of the date of such opinion, the proposed
Aggregate Consideration to be received by the holders of KCPL Common Stock
(other than Western Resources and its affiliates) was fair to such holders
from a financial point of view. The KCPL Board, having concluded that the
Revised Draft Merger Agreement and the transactions contemplated thereby were
in the best interests of KCPL and its shareholders, unanimously approved the
same and decided to recommend to the KCPL shareholders that they vote "FOR"
approval and adoption of the Revised Draft Merger Agreement (which, in its
approved form, became the Merger Agreement), the KCPL Merger and the
transactions contemplated thereby.
REASONS FOR THE TRANSACTIONS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
In considering the recommendations of the Western Resources Board and the
KCPL Board with respect to the Transactions, shareowners should be aware that
certain members of Western Resources, and KCPL's respective managements and
Boards of Directors have certain interests in the Transactions that are in
addition to their interests as shareowners of Western Resources and KCPL. See
"SUMMARY--Interests of Certain Persons in the Transactions."
KCPL. The KCPL Board has unanimously concluded that the Transactions are
fair to, and in the best interests of, KCPL, its shareholders and other
constituencies, and unanimously recommends that KCPL shareholders vote "FOR"
the Merger Agreement and the KCPL Merger. The KCPL Board believes that the
transactions contemplated by the Merger Agreement will provide an opportunity
for KCPL shareholders to participate, through their ownership of Western
Resources Common Stock, in the growth of a larger, more diversified and
strategically positioned holding company. The growth at Western Resources is
expected to derive from diversification into unregulated businesses, including
Western Resources' investment in Protection One, which is the second largest
security alarm monitoring service provider in the U.S. and its investment in
ONEOK, which provides natural gas transmission and distribution services in
Oklahoma and Kansas and is the eighth-largest natural gas distribution company
in the U.S.; reduced regulatory and business risk due to such diversification;
and the long-term financial capability of a larger company. The growth at
Westar Energy is expected to derive from operating efficiencies obtained from
economies of scale resulting from the combination of KCPL's electric utility
operations with KPL and KGE. The KCPL Board believes that these factors will
combine to offer shareholders improved opportunities for earnings while
diversifying the risks to which KCPL is currently subject.
42
In reaching its decision to approve and adopt the Merger Agreement, the KCPL
Board considered a number of factors including, but not limited to, those
listed below.
. Merrill Lynch, KCPL's financial advisor, delivered to the KCPL Board its
oral opinion, which opinion was subsequently confirmed in a written opinion
dated as of March 18, 1998, to the effect that, as of such date and based
upon the assumptions made, matters considered and limits of review as set
forth in such opinion, the proposed Aggregate Consideration was fair to the
holders of KCPL Common Stock (other than Western Resources and its
affiliates) from a financial point of view. See "SUMMARY--Opinions of
Financial Advisors--KCPL" and "THE TRANSACTIONS--Opinion of KCPL's
Financial Advisor." A copy of Merrill Lynch's opinion is attached hereto as
Annex C and KCPL shareholders are urged to read such opinion in its
entirety.
. The KCPL Board believes that the electric utility industry is being
transformed by consumer demand and legislative and regulatory reforms that
are leading to greater competition. As a result, public utility companies
face increased business risks and limits to their ability to grow earnings
through rate base increases and must pursue opportunities that reduce risk
and create new avenues for earnings growth. The KCPL Board believes that
Western Resources is pursuing a diversification strategy that, if
successful, will enable Western Resources to compete effectively in the
evolving electric utility industry while developing significant market
share in various non-utility industries, and that Western Resources is
therefore an attractive merger partner. For example, Western Resources has
combined its gas distribution business with ONEOK in exchange for ONEOK
common and convertible preferred stock equal to 45% of ONEOK's outstanding
equity, which the KCPL Board believes will result in a more efficient
allocation of Western Resources' natural gas assets. In addition, Western
Resources has purchased Protection One which makes Western Resources an
important presence in the home security industry further helping Western
Resources to diversify into unregulated industries. Thus, the Transactions
will permit KCPL shareholders to participate in a more diversified holding
company (Western Resources) and a regulated electric utility company
(Westar Energy).
. The KCPL Board believes that the unique structure KCPL and Western
Resources have created for the Transactions offers KCPL shareholders a high
degree of flexibility because KCPL shareholders will have an investment in
a diversified unregulated holding company (Western Resources) and an
investment in a regulated electric utility company (Westar Energy). While
the KCPL Board believes that diversification into unregulated businesses is
crucial to the future success of utility companies, different investors may
want to balance their investments in the rate regulated and unregulated
portions of the business in different proportions. The KCPL Board believes
the structure of the Transactions allows KCPL shareholders to accomplish
this objective.
. The KCPL Board reviewed, with the assistance of Merrill Lynch, the
strategies, businesses, operations, earnings and financial conditions of
both KCPL and Western Resources, on both a historical and a prospective
basis. While the KCPL Board believes that Western Resources' investment
strategies are not without risk, the KCPL Board also believes that Western
Resources' history of enhancing shareholder value is most impressive and
that shareholder value at both Western Resources and Westar Energy could be
even more significantly enhanced if Western Resources implements its
strategies.
. The estimated valuation per share of Westar Energy Common Stock was based
on the following assumptions: (i) a dividend for the first year of
operation of Westar Energy of $0.72 and (ii) a payout ratio of
approximately 85%. Based on dividend yields ranging from 6.0% to 7.0% and
price-to-earnings ratios ranging from 12.0x to 14.0x earnings for a group
of publicly traded electric utility companies deemed comparable in certain
respects to Westar Energy, the per share valuation of Westar Energy Common
Stock was estimated ranging from approximately $10.00 to $11.00. The
estimated value range per share of Westar Energy Common Stock was based
upon an estimated aggregate enterprise valuation range for Westar Energy as
of December 31, 1997. Estimated aggregate enterprise valuation as of a
specified date means the intrinsic worth of an enterprise determined by
subtracting total debt from the fair market value of the assets
43
of such enterprise as of such specified date. Moreover, Merrill Lynch
provided the KCPL Board with a table of illustrative trading prices for
Westar Energy based on the potential trading prices per share of Westar
Energy Common Stock assuming consummation of the Transactions as of
December 31, 1998. As in the case of the estimated aggregate enterprise
valuation range for Westar Energy, the Merrill Lynch table of illustrative
trading prices for Westar Energy Common Stock indicated that such stock
could trade at $10.00 to $11.00 per share as of December 31, 1998. There
can be no assurance, however, as to the actual prices at which such Westar
Energy Common Stock will trade once listed on the NYSE. In considering the
estimated valuations set forth above, the KCPL Board did not evaluate or
attempt to quantify how or whether Western Resources' ownership of
approximately 80% of the outstanding shares of Westar Energy Common Stock
following the consummation of the Transactions would affect the trading
value of Westar Energy Common Stock. In addition, none of the publicly
traded electric utility companies deemed comparable in certain respects to
Westar Energy and reviewed by KCPL and Western Resources in arriving at a
range of estimated valuations of Westar Energy as set forth above were
controlled by a significant or a controlling shareholder. However, in order
to reflect the discount at which the Westar Energy Common Stock might trade
as a result of Western Resources' ownership of 80.1% thereof, the range of
dividend yields from 6.0% to 7.0% used in the estimated per share valuation
of the Westar Energy Common Stock set forth above was higher than the range
of dividend yields for the group of publicly traded electric utility
companies reviewed (which ranged from 4.1% to 6.7%, with a mean of 5.5% and
a median of 5.7%), and the range of price-to-earnings ratios from 12.0x to
14.0x earnings used in the estimated per share valuation of the Westar
Energy Common Stock set forth above was lower than the range of price-to-
earnings ratios for the group of publicly traded electric utility companies
reviewed (which ranged from 13.3x to 15.8x earnings, with a mean of 14.3x
earnings and a median of 14.1x earnings). Furthermore, taking into account
the foregoing information, including the range of dividend yields and
price-to-earnings ratios presented on an illustrative basis by Merrill
Lynch, the KCPL Board believed that the trading value of the shares of
Westar Energy Common Stock to be issued to KCPL shareholders in the KCPL
Merger would range from approximately $10.00 to $11.00 per share of KCPL
Common Stock and the value of the shares of Western Resources Common Stock
to be issued to KCPL shareholders would range from $21.50 to $26.50
(pursuant to a collar mechanism more fully described in "THE MERGER
AGREEMENT--Conversion of KCPL Common Stock"). Therefore, the KCPL Board did
consider a trading value which combined two types of consideration, Westar
Energy Common Stock and Western Resources Common Stock, to be issued to
KCPL shareholders in the Transactions and the combined values of such stock
ranged from $31.50 to $37.50 per share of KCPL Common Stock. It should be
emphasized that there can be no assurances as to the prices at which such
Westar Energy Common Stock will trade once listed on the NYSE. Actual
prices could be significantly higher or lower than the price range
mentioned above.
. The KCPL Board, in making its decision to approve the Merger Agreement,
considered such analyses and estimated valuations along with the valuation
analyses performed by its financial advisor which are summarized under "--
Opinion of KCPL'S Financial Advisor".
. Because the actual prices at which Westar Energy Common Stock may trade
could be significantly higher or lower than anticipated, there can be no
assurance that shareholders of KCPL will receive the estimated value per
share of Westar Energy Common Stock. The actual dividend policy of Westar
Energy will be dependent upon numerous factors including current economic
conditions, earnings and profitability. In addition, there can be no
assurance as to the actual prices at which Westar Energy Common Stock will
trade once listed on the NYSE. Actual prices could be significantly higher
or lower than the estimated valuation per share of Westar Energy Common
Stock.
. Since the regulatory approval process for any business combination between
rate-regulated utility companies could take in excess of one year from the
date of reaching an agreement, the KCPL Board was particularly concerned
that KCPL have maximum flexibility to operate its business during the
pendency of the regulatory approval process. The KCPL Board believes that
the Merger Agreement allows KCPL sufficient flexibility for its interim
operations during this period. The Merger Agreement provides that KCPL may
make capital expenditures, acquisitions and/or incur debt ("Investments")
during any six-month period
44
in an amount equal to $75 million until the Transactions are consummated.
To the extent Investments are not made during any six-month period, the
unused portion may be carried forward for use in the future. Additionally,
the Merger Agreement allows the KCPL Board discretion to make changes
(including increases) in the KCPL dividend consistent with past practice
exercising good business judgment.
. The Merger is expected to be treated as a tax-free reorganization to KCPL
shareholders and to KCPL.
. The Merger Agreement contains various provisions intended to protect the
interests of KCPL's employees and other constituencies, including: (i) that
at the Closing Date (as defined below), the executive headquarters of
Westar Energy will be Kansas City, Missouri; (ii) the KCPL employees who
hold options to purchase KCPL Stock under employee stock option plans will
receive the full cash value of all such options; (iii) a commitment by
Western Resources to treat Westar Energy's employees after consummation of
the Mergers as a single workforce and to use its best efforts to conduct
its employee management practices on a fair and equitable basis; and (iv) a
commitment (a) to provide Westar Energy's employees who formerly were
employed by KCPL ("KCPL Employees"), for one year after the Closing Date,
with benefits that are no less favorable in the aggregate than the benefits
provided to such employees as of the execution of the Merger Agreement
("KCPL Benefits"), (b) between the first and second anniversaries of the
Closing Date, to either provide KCPL Employees with KCPL Benefits or to
provide KCPL Employees with benefits on the same terms as those applicable
to other similarly situated employees who were formerly employees of
Western Resources' subsidiary, KGE and (c) after the second anniversary of
the Closing Date, to provide KCPL Employees with benefits comparable to
benefits provided to similarly situated employees who were former KGE
employees. See "THE MERGER AGREEMENT--Employee Benefit Plans."
. The Merger Agreement provides that, if on or before the Termination Date
(as defined below), all of the conditions to closing the Transactions shall
have been satisfied other than certain conditions to Western Resources'
obligation to consummate the KGE Merger, which conditions Western Resources
shall decline to waive, then Western Resources shall reimburse KCPL for
KCPL's expenses incurred in connection with the Transactions, up to a
maximum reimbursement of (i) $35 million, if the unsatisfied condition
relates to the failure to qualify for the necessary exemption under the
1935 Act, (ii) $25 million, if the unsatisfied condition relates to the
failure to obtain satisfactory FERC approval or (iii) $5 million, if the
unsatisfied condition relates to the failure to obtain certain satisfactory
statutory approvals or an opinion of Western Resources' counsel that the
Transactions will be treated for tax purposes as a tax-free reorganization.
See "THE MERGER AGREEMENT--Termination Fees."
. Synergies resulting from the Transactions are expected to result in
significant savings for Westar Energy. See "--Operational and Structural
Benefits" and "--Components of Anticipated Cost Savings" below for a
description of the various components of such synergies.
. No third parties have contacted KCPL to express an interest in pursuing a
merger with KCPL on terms comparable or superior to those offered by
Western Resources.
. Since October 1993, KCPL has been exploring different strategies for
responding to the changing electric utility industry and enhancing KCPL
shareholder value. The KCPL Board and management have spent considerable
time considering various alternatives. The KCPL Board believes that it has
identified and reviewed those options which are reasonably available for
KCPL's future and that the Transactions constitute a superior choice among
those that have been, are or would be likely to be open to KCPL. Moreover,
further delay in implementing a strategy would be likely to have serious
negative effects on KCPL and its relationships with its customers,
suppliers, creditors, management and employees.
In determining that the transactions contemplated by the Merger Agreement
are fair to and in the best interests of KCPL and its shareholders, the KCPL
Board considered the above factors as a whole and did not assign specific or
relative weights to them.
45
THE KCPL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE KCPL
MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE TERMS OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO,
AND IN THE BEST INTERESTS OF, KCPL AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE KCPL MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Western Resources. The Western Resources Board believes that the terms of
the Transactions are fair to, and in the best interests of, Western Resources,
its shareowners, employees, customers and the communities it serves.
Accordingly, the Western Resources Board, by a unanimous vote, has adopted the
Merger Agreement and the transactions contemplated thereby and approved the
Articles Amendment and recommends their approval by the holders of Western
Resources Common Stock. Western Resources believes that the energy markets in
the U.S. and around the world are undergoing a period of dynamic change. The
impact of deregulation and new technology is reshaping the energy industry,
requiring energy companies to rethink their strategies for the new competitive
marketplace. Western Resources believes that there are four pillars of success
for utility companies in the new energy industry: reaching a critical mass of
retail customers, controlling costs to keep rates competitive, focusing on
customer service and satisfaction, and strategically expanding into new
product and geographic markets.
Western Resources believes that the combination of KCPL and Western
Resources will help both companies achieve these objectives. First, the
Transactions will help achieve critical mass, with the combined company
becoming the 33rd largest electric utility in the nation, with more than 2
million security and energy customers, $11 billion in assets and more than
8,000 megawatts of electric generation resources.
Second, based on its examination of the business and operations of the two
companies, Western Resources believes that the Transactions offer significant
synergies. See "--Operational and Structural Benefits" and "--Components of
Anticipated Cost Savings" below for a description of the various components of
such synergies.
Third, the strength of the combined company will allow it to build upon
Western Resources' and KCPL's long tradition of quality customer service, both
in retail energy distribution and in the provision of new services such as
monitored security and other energy related services.
Fourth, combining the electric utility operations of Western Resources and
KCPL into a single entity will allow the management of Westar Energy to
concentrate on that line of business while allowing Western Resources'
management to continue to explore new products and markets.
Finally, Western Resources believes that the combined company's increased
economies of scale and scope will allow it to accelerate both companies'
current activities in the provision of unregulated services.
In addition to the strategic benefits noted above, the Western Resources
Board at its March 18, 1998 meeting also weighed the following considerations
in making its decision to approve the Transactions:
. The opinion of Salomon Smith Barney to the effect that the Aggregate
Consideration is fair to Western Resources from a financial point of
view. The Western Resources Board also considered the valuation analyses
performed by Salomon Smith Barney with respect to Westar Energy, which
indicated that the value of the Westar Energy Common Stock could range
from $8.50 to $11.50 based on a discounted cash flow analysis. See "--
Opinion of Western Resources Financial Advisor." The estimated value
range per share of Westar Energy Common Stock was based upon an
estimated aggregate enterprise valuation range for Westar Energy. There
can be no assurance, however, as to the actual prices at which such
Westar Energy Common Stock will trade once listed on the NYSE.
. The terms and conditions of the proposed Merger Agreement, which contain
appropriate representations, warranties, covenants and conditions to
closing that protect the interests of Western Resources' shareowners and
allow Western Resources to pursue its business plan during the period
between the signing of the Merger Agreement and the consummation of the
Mergers.
46
. The proposed structure of the Mergers as a tax-free transaction for
Western Resources and its shareowners.
. Western Resources' belief that the State Corporation Commission of the
State of Kansas (the "Kansas Commission"), the Missouri Public Service
Commission (the "MPSC") and the FERC will approve the Transactions on
reasonable terms and conditions which will preserve the benefits which
Western Resources believes can be obtained in the Transactions.
. The potential impact of the Transactions on the earnings per share of
Western Resources Common Stock based on the historical performance of
Western Resources and WREB and cost savings anticipated from the
Transactions as described below in "--Components of Anticipated Cost
Savings."
. The potential impact of the Transactions on Western Resources' ability
to pay dividends based on the historical performance of Western
Resources and WREB and cost savings anticipated from the Transactions as
described below in "--Components of Anticipated Cost Savings."
. The potential benefits of a holding company structure in responding to
increasing competition in the electric utility industry, as more fully
described below.
. Western Resources' belief that the Transactions will provide a market
value, based on utility fundamentals, for Westar Energy, and therefore
for KPL and KGE which are not currently publicly traded.
Formation of Holding Company Structure. The principal reason to structure
Western Resources as a non-utility holding company is to respond to the
changing business environment in the electric utility industry. Western
Resources believes such a structure will be in the best interests of Western
Resources and its shareowners, and the customers of Western Resources and
KCPL. The proposed restructuring will allow Western Resources to operate its
regulated electric utility business efficiently through Westar Energy while
providing, through the structure of a holding company with other subsidiaries
of Western Resources, an organization which permits separation of the other
businesses of the company from such regulated utility business, allowing such
separate businesses to concentrate on their specialties.
Western Resources believes that it is appropriate and necessary to maintain
a separation between regulated and unregulated activities. Western Resources
believes that the costs incurred on one side should not be charged to the
other, nor should the results of operations of one affect the results of the
other. Financially, the separation should also be beneficial since Westar
Energy will have assets on which debt may be issued, while Western Resources
may wish to use other forms of financing less suitable to regulated
operations. Western Resources believes that the holding company structure will
best achieve the flexibility of the operations of Western Resources and Westar
Energy in the future.
Historically, Western Resources and KCPL have operated predominantly as
traditional utilities, responsible for constructing and operating the
generation, transmission and distribution facilities needed to serve their
customers. However, both regulation of utilities and the markets which Western
Resources and KCPL have traditionally served are continually evolving. As
elements of the traditional utility business which were once regulated, such
as electric generation, become less regulated and more competitive, the energy
options for customers, particularly large industrial users of energy, are
expanding.
Western Resources believes that the corporate separation afforded by a
holding company structure will permit Westar Energy to respond effectively to
increasing competition in the energy business. Separation will facilitate the
development of such unregulated businesses while protecting Westar Energy's
customers from the risks associated with those activities. Following the
restructuring, any liabilities of the direct subsidiaries of Western Resources
other than Westar Energy will not constitute liabilities of Westar Energy.
Accordingly, any risks, benefits or detriments of such subsidiaries will flow
to the security holders of Western Resources and not to the security holders
of Westar Energy.
47
As indicated above, Western Resources also believes that the holding company
structure will permit the use of financing techniques that are more directly
suited to the particular requirements, characteristics and risks of non-
utility operations without any impact on the capital structure or credit of
Westar Energy. Management anticipates that (i) Western Resources, in addition
to receiving dividends from Westar Energy (and other direct subsidiaries of
Western Resources), may obtain funds through debt or equity financings, (ii)
Westar Energy may obtain funds through its own financings (which may include
the issuance of bonds or preferred stock), and (iii) the non-utility
businesses may obtain funds from Western Resources, from other non-utility
affiliates or from their own outside financings. Any financings will depend
upon the financial and other conditions of the entities involved and on market
conditions.
In determining that the Transactions are fair to and in the best interests
of Western Resources and its shareowners, the Western Resources Board
considered the above factors as a whole and did not assign specific or
relative weights to them.
THE WESTERN RESOURCES BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING AMONG OTHERS
THE WESTERN RESOURCES SHARE ISSUANCE, THE CONTRIBUTIONS, AND THE TRANSFER OF
SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN RESOURCES TO WESTAR ENERGY, AND THE
ARTICLES AMENDMENT AND RECOMMENDS THAT WESTERN RESOURCES SHAREOWNERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE WESTERN RESOURCES SHARE ISSUANCE, THE
CONTRIBUTIONS, AND THE TRANSFER OF SUBSTANTIALLY ALL OF THE ASSETS OF WESTERN
RESOURCES TO WESTAR ENERGY, AND THE ARTICLES AMENDMENT.
OPERATIONAL AND STRUCTURAL BENEFITS
The analyses discussed below include forward-looking statements that involve
judgments, assumptions and other uncertainties beyond the control of Western
Resources, Westar Energy, KCPL or any other party. As such, there can be no
assurance that the operational and structural benefits will be realized at the
times or in the amounts referred to herein and actual benefits may be more or
less than those projected. Such judgments, assumptions and uncertainties are
discussed more fully below.
Western Resources and KCPL believe that the shareowners, customers,
employees and communities of Western Resources and KCPL will realize
significant benefits from the Transactions.
Operational Coordination. The geographic locations of the respective
electric utility service territories of Western Resources and KCPL, which both
operate in eastern Kansas and whose headquarters are within 60 miles of each
other, provide an opportunity to integrate efficiently all aspects of their
utility operations.
Western Resources, along with KGE, already has numerous substantial
electrical interconnections with KCPL. The combined system is expected to
benefit because it can be operated as part of a single, larger cohesive
system, with virtually no modification needed with respect to existing
generating and transmission facilities. At present, Western Resources and KCPL
maintain joint interests in approximately 2,448 megawatts of generation
capacity that is operated by either WCNOC or KCPL and accounts for more than
$2 billion in assets.
Unregulated Business Opportunities. The unregulated businesses of Western
Resources and KCPL, such as independent power development, complement each
other well. The combined customer bases of Western Resources and KCPL will
provide more opportunities for earnings growth from other consumer service-
oriented businesses, such as Western Resources' rapidly growing monitored
security services business.
A Financially Stronger Company and a Larger Service Territory. The combined
company would be financially stronger than Western Resources or KCPL as
independent entities. The larger size and financial strength of a Western
Resources/KCPL combination will enhance the combined company's flexibility to
deal with new industry developments. In addition, the combined company's
electric utility service territory would be larger than the electric utility
service territory of either Western Resources or KCPL as independent entities.
The
48
increased size of the electric utility service territory will improve the mix
of commercial, industrial, agricultural and residential customers and reduce
the exposure to changes in economic or climatic conditions in any given
segment of the combined service territory.
Economic Development Opportunities. The combined company would be able to
concentrate its economic development programs and activities which would
enhance the ability of the combined company to attract to or retain within
Kansas and Missouri potential customers or industry groups.
Capital Structure. In accordance with the Merger Agreement, Western
Resources is contributing $1.9 billion of debt and KCPL is contributing $800
million of debt to Westar Energy. The debt contributed by both companies will
consist primarily of long-term debt and company-obligated mandatorily
redeemable preferred securities. The debt contribution by Western Resources
represents approximately 79% of Western's total long-term debt and preferred
securities and equates to 26% of Western Resources' total assets. Western
Resources will assume KCPL's debt in excess of $800 million following the
Transactions.
The ability of Westar Energy to pay future dividends and obtain favorable
debt ratings will be based, in part, on Westar Energy's capital structure and
its ability to obtain competitive rates in the capital markets. The
capitalization of Westar Energy following the Transactions will be comparable
to that of both Western Resources and KCPL.
KCPL WESTAR ENERGY
WESTERN RESOURCES AS OF PRO FORMA AS
AS OF MARCH 31, MARCH 31, OF MARCH 31,
1998 1998 1998
(000'S) % (000'S) % (000'S) %
----------- ----- --------- --- --------- ---
Long-term debt, net........ 2,162,470 48 941,412 46 2,330,000 43
Company-obligated
mandatorily redeemable
preferred securities...... 220,000 5 150,000 7 370,000 7
Preferred and preference
stock..................... 74,858 2 89,062 4 0
Common stock equity........ 2,017,161 45 868,833 43 2,733,995 50
----------- --------- ---------
Total capitalization....... 4,474,489 2,049,307 5,433,995
It is expected that this capital structure will allow Westar Energy access
to the capital markets. Western Resources and KCPL anticipate that Westar
Energy's cash flows should be adequate to fund an anticipated indicated annual
dividend rate of $0.72 in the first year following the Transactions. The
actual dividend policy of Westar Energy will be dependent upon economic
conditions, profitability and other factors.
Potential Synergies and Cost Savings. Western Resources and KCPL, based upon
analyses performed by their employees with the advice of their synergies
consultants, estimate that the Transactions are likely to result in
significant cost savings and synergies for Westar Energy in the following
categories: corporate and field labor savings; facilities savings; corporate
programs savings; purchasing savings; and production savings. These savings
are estimated at $904 million over ten years. Westar Energy's anticipated
annual cost savings and synergies beginning in mid-1999 through 2009 net of
costs to achieve are as follows (in millions): $14 in 1999, $55 in 2000, $62
in 2001, $73 in 2002, $80 in 2003, $92 in 2004, $96 in 2005, $102 in 2006,
$125 in 2007, $135 in 2008, and $70 in 2009.
There can be no assurance that any of the estimated synergies and cost
savings referred to in the preceding paragraph will be achieved. If any of
such synergies and cost savings are achieved, there can be no assurance that
they will be achieved in the amounts and at the times estimated by Western
Resources and KCPL. See "FORWARD-LOOKING STATEMENTS" and "RISK FACTORS." The
major components of the anticipated cost savings are summarized below.
COMPONENTS OF ANTICIPATED COST SAVINGS
The components of anticipated cost savings discussed below include forward-
looking statements that involve judgments, assumptions and other uncertainties
beyond the control of Western Resources, Westar Energy, KCPL or any other
party. As such, there can be no assurance that the anticipated cost savings
will be
49
realized at the times or in the amounts referred to herein and actual cost
savings may be more or less than estimated. Because the accuracy of such
assumptions is inherently uncertain, being based upon numerous factors and
events beyond the control of Western Resources, KCPL, Westar Energy and their
respective advisors, none of such parties assumes responsibility if the
assumptions upon which the anticipated cost savings are based are not correct.
GENERATION
Integration of Dispatching and Production Operations. The combined company
could obtain fuel savings from joint dispatch of generating capacity that is
not available when the two companies' electric utility operations are operated
as two separate systems. Fuel savings result from an improved ability to
schedule and commit each of the base load, intermediate and peaking facilities
of the combined company in a more economically efficient manner.
Avoidance or Deferral of Future Capital Expenditures. The combined company
would have the ability to reduce future expenditures for generating capacity
by coordinating and optimizing planning for future resources. The combination
of the two companies' electric utility operations would result in system
diversity due to differences in the timing of peak demands. This system makes
available amounts of generating capacity which result in the delay or
elimination of additional capacity now planned by the two stand-alone
companies. The delay or elimination of these additional facilities also
reduces the operations and maintenance expense associated with the total
combined generation capacity.
Integration of Generation and Technical Support Functions. The combined
company would be able to eliminate redundant functions in the areas of
generation support, such as system planning and fuels management.
FIELD OPERATIONS
Integration of Distribution Operations. The combined company would have the
ability to consolidate certain electric utility customer business offices and
service centers in the eastern Kansas area where Western Resources and KCPL
have contiguous service territories. The close proximity of these operations
also enables customer service functions such as service initiation, service
scheduling, etc. to be combined. The close proximity of the two companies
would enable work to be reconfigured and resources to be shared in electric
utility operations areas and with respect to customer calls and inquiries.
Integration of Field and Technical Support Functions. The combined company
would be able to eliminate redundant functions in the area of electric utility
distribution support, such as engineering, construction, operation and
maintenance.
PURCHASING ECONOMIES
Streamlining of Inventories and Purchasing Economies. The combined company
can achieve savings through the centralization of purchasing and inventory
functions related to construction, operation and maintenance at generating
plants, service centers, warehouses and headquarters. The greater purchasing
power and the relative quantity discounts that can be obtained as a result of
the combination of the two companies would provide additional cost savings.
CORPORATE AND ADMINISTRATIVE
Integration of Facilities. The combined company would be able to consolidate
certain duplicative facilities and provide opportunities to consolidate energy
control centers, service centers and warehouses.
Integration of Corporate Management and Administrative Functions. The
combined company would be able to eliminate or reduce redundant functions in
the areas of finance, accounting, purchasing, shareowner relations, human
resources, corporate planning, public relations and administration, among
other areas. The payroll costs of such functions are relatively fixed and do
not vary directly with an increase or decrease in the number of customers
served.
50
Concentration of Corporate Programs and Expenditures. The combined company
would integrate corporate and administrative functions, thereby reducing
certain non-labor costs, including insurance, audit and consulting fees,
professional and trade association dues, stock transfer and other fees,
vehicle expenses and various license fees, among others.
There can be no assurance that any of the estimated synergies and cost
savings referred to in the preceding paragraphs will be achieved. If any of
such synergies and cost savings are achieved, there can be no assurance that
they will be achieved in the amounts and at the times estimated by Western
Resources, Westar Energy and KCPL. The major components of the anticipated
cost savings are summarized below. See "FORWARD-LOOKING STATEMENTS" and "RISK
FACTORS."
OPINION OF WESTERN RESOURCES' FINANCIAL ADVISOR
At the meeting of the Western Resources Board held on March 18, 1998,
Salomon Smith Barney delivered its oral opinion, which opinion was
subsequently confirmed in a written opinion dated as of March 20, 1998, 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 opinion,
the Aggregate Consideration was fair to Western Resources from a financial
point of view. Salomon Smith Barney has further confirmed such opinion by
delivery of a written opinion dated as of the date of this Joint Proxy
Statement/Prospectus (the "Salomon Smith Barney Opinion").
WESTERN RESOURCES SHAREOWNERS ARE URGED TO READ THE SALOMON SMITH BARNEY
OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW MADE
BY SALOMON SMITH BARNEY IN RENDERING THE SALOMON SMITH BARNEY OPINION.
REFERENCES TO THE SALOMON SMITH BARNEY OPINION HEREIN AND THE SUMMARY OF THE
SALOMON SMITH BARNEY OPINION SET FORTH BELOW ARE QUALIFIED BY REFERENCE TO THE
FULL TEXT OF THE SALOMON SMITH BARNEY OPINION, WHICH IS ATTACHED HERETO AS
ANNEX B. THE SALOMON SMITH BARNEY OPINION DOES NOT CONSTITUTE A RECOMMENDATION
CONCERNING HOW HOLDERS OF WESTERN RESOURCES COMMON STOCK OR KCPL COMMON STOCK
SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT OR ANY OTHER MATTER RELATING
TO THE TRANSACTIONS.
In connection with rendering the Salomon Smith Barney Opinion, Salomon Smith
Barney reviewed certain publicly available information concerning Western
Resources and KCPL and certain other financial information concerning Western
Resources and KCPL, including financial forecasts that were provided to
Salomon Smith Barney by Western Resources and KCPL, respectively. Salomon
Smith Barney discussed the past and current business operations, financial
condition and prospects of Western Resources and KCPL with certain officers
and employees of Western Resources and KCPL. Salomon Smith Barney also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria that it deemed relevant.
In its review and analysis and in arriving at the Salomon Smith Barney
Opinion, Salomon Smith Barney assumed the consummation of, and took into
account, the Western Resources Stock Distribution, the KLT Stock Distribution
and the Series B Conversion. Salomon Smith Barney also assumed and relied upon
the accuracy and completeness of the information reviewed by it for the
purpose of the Salomon Smith Barney Opinion and Salomon Smith Barney did not
assume any responsibility for independent verification of such information.
With respect to the financial forecasts of Western Resources and KCPL, Salomon
Smith Barney was advised by the respective managements of Western Resources or
KCPL that such forecasts were reasonably prepared on bases reflecting their
best currently available estimates and judgments, and Salomon Smith Barney
expressed no opinion with respect to such forecasts or the assumptions on
which they are based. Salomon Smith Barney did not assume any responsibility
for any independent evaluation or appraisal of any of the assets (including
properties and facilities) or liabilities of Western Resources or KCPL.
Salomon Smith Barney assumed that no gain or loss for federal income tax
purposes would be recognized by (i) Western Resources, (ii) KGE, (iii) KCPL,
(iv) Westar Energy or (v) the shareowners of KGE or Western Resources as a
result of the Transactions and that each of the KCPL Merger and the KGE Merger
would qualify as a reorganization within the meaning of Section 368(a) of the
Code.
51
The Salomon Smith Barney Opinion was necessarily based upon conditions as
they existed on the date of such opinion and can be evaluated only as of such
date. The Salomon Smith Barney Opinion did not imply any conclusion as to the
likely trading range for Western Resources Common Stock or Westar Energy
Series A Common Stock following the consummation of the Transactions, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the prices of securities. The Salomon Smith
Barney Opinion was directed only to the fairness to Western Resources, from a
financial point of view, of the Aggregate Consideration and does not address
Western Resources' underlying business decision to effect the Transactions.
At the March 18, 1998 meeting of the Western Resources Board, Salomon Smith
Barney reviewed with the members of the Western Resources Board the financial,
industry and market information with respect to Western Resources and KCPL
used by Salomon Smith Barney in its analysis as described below and the
procedures used and the analyses underlying its opinion. The preparation of a
fairness opinion is a complex process that is not purely mathematical and is
not necessarily susceptible to partial analyses or summary description. It
involves complex considerations and judgments. Western Resources shareowners
and KCPL shareholders are encouraged to read the Salomon Smith Barney Opinion
in its entirety.
KCPL VALUATION
Salomon Smith Barney obtained a valuation for KCPL by analyzing the values
of KCPL's regulated utility business (the "KCPL Utility Segment") and
unregulated businesses operated by KLT (the "KCPL Unregulated Businesses").
Salomon Smith Barney analyzed the KCPL Utility Segment by performing a public
market valuation and a discounted cash flow valuation. Salomon Smith Barney
analyzed the KCPL Unregulated Businesses by performing various discounted cash
flow analyses, public market valuations, estimated after-tax proceeds
analyses, percentage of unlevered book value analyses and multiples of net
property, plant and equipment analyses. For the consolidated KCPL, Salomon
Smith Barney analyzed stock price performance, public and private market
valuations and discounted cash flow. In performing certain of its analyses,
Salomon Smith Barney considered forecasts for KCPL prepared and provided by
the management of KCPL, which forecasts incorporated a variety of assumptions
and estimates made by KCPL reflecting its best judgments regarding its
business and were not prepared with a view to public disclosure. In general,
such forecasts included estimates for the performance of the KCPL Utility
Segment and the KCPL Unregulated Businesses. In total, revenues for KCPL were
projected to grow at a compound annual growth rate (1998 to 2002) of
approximately 2.3% and operating income including other income and deductions
(net of taxes) was projected to grow at a compound annual growth rate (1998 to
2002) of approximately 9.8%.
Stock Price Performance. Salomon Smith Barney reviewed the share price
performance of KCPL Common Stock for the period from January 1, 1997 through
March 13, 1998, as compared to the performance of the S&P Utilities Index and
an index (the "KCPL Custom Index") comprised of The Detroit Edison Company,
MidAmerican Energy Company, Ameren Corporation and Wisconsin Energy
Corporation (collectively, the "Selected Utility Companies"). Salomon Smith
Barney noted that on average the price of KCPL Common Stock for the period was
102% of its price at January 1, 1997, with a high of 108% and a low of 96%. On
March 13, 1998, the price of KCPL Common Stock was 107% of the January 1, 1997
price. In comparison, the S&P Utilities Index averaged 104% of its January 1,
1997 price, had a low of 91%, and ended the period at its high of 120% on
March 13, 1997. The KCPL Custom Index averaged 97% of its price at January 1,
1997, with a high of 112% and a low of 87%, and ended the period at 110% on
March 13, 1998.
Public Market Valuation. Salomon Smith Barney reviewed certain historical
and projected financial and operating data relating to KCPL on a stand-alone
basis and reviewed the financial and operating performance of the KCPL Utility
Segment as well as KCPL on a consolidated basis relative to the Selected
Utility Companies. The data reviewed by Salomon Smith Barney for the Selected
Utility Companies included (i) multiples of stock trading prices as of March
13, 1998 to estimated 1998 and 1999 earnings per share ("EPS") (with the mean
multiples for the Selected Utility Companies being 14.0x for 1998 and 13.3x
for 1999 and the corresponding multiples for KCPL representing a 2.7% and 1.5%
premium for 1998 and 1999, respectively, to such multiples),
52
(ii) indicated dividend payout (with the mean payout for the Selected Utility
Companies being 82% and the corresponding payout for KCPL representing a 5.9%
discount to such payout), (iii) EPS five year growth rate (with the mean rate
for the Selected Utility Companies being 3% and the corresponding rate for
KCPL representing a 33.3% discount to such rate), (iv) firm value as a
multiple of last twelve months earnings before interest and taxes ("LTM EBIT")
(with the mean LTM EBIT multiple for the Selected Utility Companies being
10.9x and the corresponding multiple for KCPL representing a 19.4% premium to
such multiple) and (v) firm value as a multiple of last twelve months earnings
before interest, taxes, depreciation and amortization ("LTM EBITDA") (with the
mean LTM EBITDA multiple for the Selected Utility Companies being 6.8x and the
corresponding multiple for KCPL representing a 30.3% premium to such
multiple). Salomon Smith Barney also valued the KCPL Unregulated Businesses
using the various analyses described herein. Based on these analyses, Salomon
Smith Barney derived a per share public market valuation range for KCPL of
$26.00 to $29.00.
Salomon Smith Barney also analyzed the separate effects on the public market
valuation range of a control premium and potential synergies from the
Transactions identified by the managements of Western Resources and KCPL.
After taking into account an analysis of the offer price to market price
multiples of the Selected Acquisition Transactions (as defined below), Salomon
Smith Barney derived a per share public market valuation range for KCPL of
$34.50 to $38.50. After analyzing the present value of the potential synergies
identified by the managements of Western Resources and KCPL over a range of
discount rates (8.75% to 9.75%) and a range of terminal EBITDA multiples
(6.25x to 7.25x), Salomon Smith Barney derived a public market valuation range
for KCPL including the impact of synergies of $32.50 to $37.00.
Private Market Valuation. Salomon Smith Barney reviewed and analyzed
selected acquisition transactions that it deemed relevant involving other
companies in the utility industry. Specifically, Salomon Smith Barney reviewed
the following publicly announced acquiror/target transactions: American
Electric Power Company, Inc./Central & South West Corporation (pending);
MidAmerican Energy Holdings Company/IES Industries, Inc. (terminated); PECO
Energy Company/PP&L Resources, Inc. (terminated); Union Electric
Company/CIPSCO, Inc. (closed 1997); Cincinnati Gas & Electric Company/PSI
Resources, Inc. (closed 1994); and KPL/KGE (closed 1992) (collectively, the
"Selected Acquisition Transactions"). Salomon Smith Barney indicated to the
Western Resources Board that the merger and acquisition transaction
environment varies over time because of macroeconomic factors such as interest
rates and equity market fluctuations and microeconomic factors such as
industry results and growth expectations. Salomon Smith Barney noted that no
transaction reviewed was identical to the Transactions. Salomon Smith Barney
advised the Western Resources Board that, in analyzing the results of the
precedent acquisition transactions, the Western Resources Board should
consider the dramatic changes in recent years in the utility industry. Based
on its review of the Selected Acquisition Transactions, Salomon Smith Barney
derived a reference private market value range for KCPL based on multiples of
the offer price to book value and offer price to LTM EPS (resulting mean
multiples of 1.83x and 15.55x for the selected acquisition transactions). This
analysis produced a private market value range for KCPL of $31.00 to $34.50.
Discounted Cash Flow Valuation. Salomon Smith Barney also considered
discounted cash flow valuations of the KCPL Utility Segment. Using a
discounted cash flow methodology, Salomon Smith Barney valued the KCPL Utility
Segment by estimating the present value of future free cash flows attributable
to the KCPL Utility Segment that would be available to KCPL's debt and equity
holders if the KCPL Utility Segment were to perform on a stand-alone basis in
accordance with management forecasts, excluding the impact of potential
synergies of the Transactions. Free cash flow represents the amount of cash
generated and available for principal, interest and dividend payments after
providing for ongoing business operations. For the KCPL Utility Segment,
Salomon Smith Barney aggregated (a) the present value of the free cash flows
over the applicable forecast period and (b) the present value of the range of
terminal values described below. The terminal values for the KCPL Utility
Segment were calculated as the product of EBITDA in the last year of the
forecast period and a range of multiples (6.25x to 7.25x) chosen by Salomon
Smith Barney for purposes of analysis. The range of terminal values is a
method for analyzing the discounted cash flow values beyond the applicable
forecast period. As part of the discounted cash flow valuation, Salomon Smith
Barney used a range of discount rates (8.75% to 9.75%). For KCPL, Salomon
Smith Barney also performed the discounted cash flow analysis using
projections provided
53
by the managements of KCPL and Western Resources that took into account the
potential synergies from the Transactions identified by the managements of
KCPL and Western Resources. Based on this analysis, and after valuing the KCPL
Unregulated Businesses using the various analyses described herein, Salomon
Smith Barney derived equity values per share, including the impact of
synergies, ranging from $28.00 to $37.50 for the consolidated KCPL.
WESTERN RESOURCES VALUATION
Salomon Smith Barney obtained a valuation for Western Resources by analyzing
the values of Western Resources' core regulated utility business (the "Western
Resources Utility Segment") and other business holdings, consisting of ONEOK,
Protection One, On-Site Energy, Hanover Compressor and certain investments
(the "Western Resources Unregulated Businesses"). Salomon Smith Barney
analyzed the Western Resources Utility Segment by performing a public market
valuation and a discounted cash flow valuation. Salomon Smith Barney analyzed
the Western Resources Unregulated Businesses by performing public market
valuations. For the consolidated Western Resources, Salomon Smith Barney also
analyzed stock price performance, a public market valuation and discounted
cash flow. In performing certain of its analyses, Salomon Smith Barney
considered forecasts for Western Resources prepared and provided by the
management of Western Resources, which forecasts incorporated a variety of
assumptions and estimates made by Western Resources reflecting its best
judgments regarding its business and were not prepared with a view to public
disclosure. In general, such forecasts included estimates for the performance
of the Western Resources Utility Segment and for ONEOK, Protection One and
Hanover Compressor. In total, revenues for Western Resources were projected to
grow at a compound annual growth rate (1998 to 2001) of approximately 2.9% and
operating income including other income and deductions (net of taxes) was
projected to grow at a compound annual growth rate (1998 to 2001) of
approximately 4.1%.
Stock Price Performance. Salomon Smith Barney reviewed the share price
performance of Western Resources Common Stock for the period from January 1,
1997 through March 13, 1998, as compared to the performance of the S&P
Utilities Index and an index comprised (the "Western Resources Custom Index"),
of Northern States Power Company, Florida Progress Corporation, TECO Energy,
Inc. and Wisconsin Energy Corporation (collectively, the "Western Resources
Selected Utility Companies"). Salomon Smith Barney noted that Western
Resources generally outperformed both the Western Resources Custom Index and
the S&P Utilities Index over the period, averaging 111% of its January 1, 1997
price, with a high of 138% and a low of 95%. Western Resources ended the
period at 136% of the January 1, 1997 price. In contrast, the Western
Resources Custom Index averaged 106% of its price at the beginning of the
period, with a high of 122% and a low of 95%, and ended the period at 121% of
the January 1, 1997 price. The S&P Utilities Index averaged 104% of its
January 1, 1997 price, had a low of 91%, and ended the period at its high of
120% on March 13, 1997.
Public Market Valuation. Salomon Smith Barney reviewed certain historical
and projected financial and operating data relating to Western Resources on a
stand-alone basis. Salomon Smith Barney also reviewed the financial and
operating performance of the Western Resources Utility Segment relative to the
Selected Utility Companies. Salomon Smith Barney reviewed the financial and
operating performance of Western Resources from a consolidated perspective
relative to the Western Resources Selected Utility Companies.
In valuing the Western Resources Utility Segment, the data reviewed by
Salomon Smith Barney for the Selected Utility Companies included (i) multiples
of stock trading prices as of March 13, 1998 to estimated 1998 and 1999 EPS
(with the mean multiples for the Selected Utility Companies being 14.0x for
1998 and 13.3x for 1999), (ii) indicated dividend payout (with the mean payout
for the Selected Utility Companies being 82%), (iii) EPS five-year growth rate
(with the mean rate for the Selected Utility Companies being 3% and the
corresponding rate for Western Resources equaling such rate), (iv) firm value
as a multiple of LTM EBIT (with the mean LTM EBIT multiple for the Selected
Utility Companies being 10.9x) and (v) firm value as a multiple of LTM EBITDA
(with the mean LTM EBITDA multiple for the Selected Utility Companies being
6.8x). Salomon Smith Barney also valued the Western Resources Unregulated
Businesses using similar public market valuation analyses.
54
In analyzing the public market valuation of Western Resources from a
consolidated perspective, the data reviewed by Salomon Smith Barney for the
Western Resources Selected Utility Companies included (i) multiples of stock
trading prices as of March 13, 1998 to estimated 1998 and 1999 EPS (with the
mean multiples for the Western Resources Selected Utility Companies being
14.5x for 1998 and 13.8x for 1999 and the corresponding multiples for Western
Resources representing a 9.7% and a 7.6% premium, respectively, to such
multiples), (ii) indicated dividend payout (with the mean payout for the
Western Resources Selected Utility Companies being 73% and the corresponding
payout for Western Resources representing an 8.1% premium to such payout) and
(iii) EPS five-year growth rate (with the mean rate for the Western Resources
Selected Utility Companies being 4% and the corresponding rate for Western
Resources representing a 14.3% discount to such rate). Based on this analysis
and the utility segment analysis described above, Salomon Smith Barney derived
a per share public market valuation range for Western Resources of $40.50 to
$45.00.
Discounted Cash Flow Valuation. Salomon Smith Barney also considered a
discounted cash flow valuation of the Western Resources Utility Segment. In a
manner similar to the discounted cash flow analysis used in valuing the KCPL
Utility Segment, Salomon Smith Barney valued the Western Resources Utility
Segment by estimating the present value of future free cash flows available to
their respective debt and equity holders if the Western Resources Utility
Segment were to perform on a stand-alone basis in accordance with management
forecasts. For the Western Resources Utility Segment, Salomon Smith Barney
aggregated (a) the present value of the free cash flows over the applicable
forecast period and (b) the present value of the range of terminal values
described below. The terminal values for the Western Resources Utility Segment
were calculated as the product of EBITDA in the last year of the forecast
period and a range of multiples (6.25x to 7.25x). As part of the discounted
cash flow valuation, Salomon Smith Barney used a range of discount rates
(8.75% to 9.75%). For the Western Resources Utility Segment, Salomon Smith
Barney performed the discounted cash flow analysis using projections provided
by the management of Western Resources. For the consolidated Western
Resources, the analysis produced equity values per share ranging from $39.00
to $46.00.
WESTAR ENERGY VALUATION
Public Market Valuation. Salomon Smith Barney reviewed certain projected
financial and operating data relating to Westar Energy on a stand-alone basis.
Salomon Smith Barney also reviewed the projected financial and operating
performance of Westar Energy relative to the Selected Utility Companies. The
data reviewed by Salomon Smith Barney for the Selected Utility Companies
included (i) multiples of stock trading prices as of March 13, 1998 to
estimated 1999 EPS (with the mean multiple for the Selected Utility Companies
being 13.3x) and (ii) indicated dividend payout (with the mean payout for the
Selected Utility Companies being 82%). Based on this analysis, Salomon Smith
Barney derived a per share public market valuation range for Westar Energy of
$10.00 to $12.00.
Discounted Cash Flow Valuation. Salomon Smith Barney also considered a
discounted cash flow valuation of Westar Energy similar to the analysis used
in valuing the KCPL Utility Segment. For Westar Energy, Salomon Smith Barney
aggregated (a) the present value of the free cash flows over the applicable
forecast period and (b) the present value of the range of terminal values
described below. The terminal values for Westar Energy were calculated as the
product of EBITDA in the last year of the forecast period and a range of
multiples (6.25x to 7.25x). As part of the discounted cash flow valuation,
Salomon Smith Barney used a range of discount rates (8.75% to 9.75%). Salomon
Smith Barney also performed the discounted cash flow analysis using
projections provided by the managements of KCPL and Western Resources that
took into account the potential synergies from the Transactions identified by
the managements of KCPL and Western Resources. Based on this analysis,
including the impact of synergies, Salomon Smith Barney derived equity values
per share ranging from $8.50 to $11.50.
COMBINATION ANALYSES
Certain Effects of the Merger. Based on potential prices per share of
Western Resources Common Stock ranging from $31 to $51, Salomon Smith Barney
noted that (a) the Conversion Ratio would range from 0.694x
55
to 0.490x, (b) the value of the shares of Western Resources Common Stock to be
distributed to the KCPL shareholders in connection with the Transactions would
range from $21.50 to $25.00 and (c) the potential effects of the Transactions,
based upon the various Conversion Ratios and projections, on Western
Resources' EPS over the next three years would range from dilution of 12.2% to
2.1% in 1999, dilution of 11.0% to 0.4% in 2000 and dilution of 10.2% to
accretion of 0.7% in 2001. Salomon Smith Barney noted that, at a price per
share of Western Resources Common Stock of $42.31 (which was the price per
share of Western Resources Common Stock on March 13, 1998), (a) the Conversion
Ratio would be 0.555x, (b) the value of the shares of Western Resources Common
Stock to be distributed to the KCPL shareholders in connection with the
Transactions would be $23.50 and (c) the potential effects of the
Transactions, based upon the Conversion Ratio and projections, on Western
Resources' EPS over the next three years would result in dilution of 5.4%,
3.9% and 3.0%, respectively.
In arriving at its opinion, Salomon Smith Barney performed a variety of
financial analyses, the material ones of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by Salomon Smith Barney. In addition, Salomon Smith Barney
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all such analyses and factors, could create a misleading view of the process
underlying the Salomon Smith Barney Opinion. The matters considered by Salomon
Smith Barney in arriving at its opinion are based upon numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business, regulatory and economic conditions and other matters, many
of which are beyond the control of Western Resources and KCPL. Any estimates
or financial projections incorporated or used in the analyses performed by
Salomon Smith Barney are not necessarily indicative of actual past or future
results or values, which may be significantly more or less favorable than such
projections or estimates. Estimated values do not purport to be appraisals and
do not necessarily reflect the prices at which businesses or companies may
trade or be sold in the future.
Western Resources selected Salomon Smith Barney as its financial advisor
with respect to the Transactions because Salomon Smith Barney is an
internationally recognized investment banking firm with substantial experience
in transactions similar to the Transactions. Salomon Smith Barney is an
investment banking firm engaged, among other things, in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of Salomon Smith Barney's
trading and brokerage activities, Salomon Smith Barney (or its affiliates) may
at any time hold long or short positions and may trade or otherwise effect
transactions for its own account or for the account of customers in debt or
equity securities of Western Resources or KCPL.
Salomon Smith Barney has acted as financial advisor to Western Resources in
connection with the Transactions and will receive a fee for its services.
Pursuant to an engagement letter dated September 5, 1995 (the "1995 Engagement
Letter"), Western Resources has paid Salomon Smith Barney total fees of
$2,000,000 in connection with the Transactions. An additional fee of
$4,000,000 will be payable to Salomon Smith Barney upon the closing of the
Transactions. With respect to the Transactions, Western Resources has agreed
to (i) reimburse Salomon Smith Barney for certain out-of-pocket expenses
incurred by Salomon Smith Barney in connection with its services and (ii)
indemnify Salomon Smith Barney and certain related persons against certain
liabilities, including liabilities under the federal securities law. Salomon
Smith Barney in the past has provided certain investment banking, financial
advisory and financial services to Western Resources and has received
customary fees and reimbursement of expenses for such services.
OPINION OF KCPL'S FINANCIAL ADVISOR
On March 18, 1998, Merrill Lynch delivered its oral opinion, which opinion
was subsequently confirmed in written opinions dated as of such date 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
Aggregate Consideration to be received by the holders of KCPL Common Stock
(other than Western Resources and its affiliates) was fair to such holders
from a financial
56
point of view. References herein to the "Merrill Lynch Opinion" refer to the
opinion of Merrill Lynch dated as of the date of this Joint Proxy
Statement/Prospectus.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN
BY MERRILL LYNCH, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. KCPL SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINIONS WERE INTENDED FOR THE USE AND BENEFIT OF
THE KCPL BOARD, WERE DIRECTED ONLY TO THE FAIRNESS OF THE AGGREGATE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF KCPL COMMON STOCK (OTHER THAN
WESTERN RESOURCES AND ITS AFFILIATES) FROM A FINANCIAL POINT OF VIEW, AND DO
NOT CONSTITUTE A RECOMMENDATION TO ANY KCPL SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT AND THE KCPL
MERGER. THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE MERRILL LYNCH OPINION ATTACHED AS ANNEX C HERETO.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things,
(i) reviewed certain publicly available business and financial information
relating to KCPL and Western Resources that Merrill Lynch deemed to be
relevant; (ii) reviewed certain publicly available business and financial
information relating to ONEOK, Protection One and Hanover Compressor Co.
("Hanover"); (iii) reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets, liabilities
and prospects of KCPL, Western Resources and Westar Energy (including, in the
case of Western Resources, certain unaudited pro forma financial information
provided by Western Resources relating to the acquisition of its interests in
ONEOK and Protection One, certain information and financial forecasts prepared
by management of Western Resources relating to ONEOK, and certain financial
information relating to KGE and KPL, as well as the cost savings and synergies
expected to result from the KCPL Merger and KGE Merger furnished to Merrill
Lynch by KCPL and Western Resources (collectively, the "Expected Savings and
Synergies"); (iv) reviewed a reserve report as of October 31, 1997 (the
"Reserve Report"), prepared by KCPL and KCPL's independent reserve engineer
(the "Reserve Engineer"); (v) conducted discussions with members of senior
management and representatives of KCPL, Western Resources and Protection One
concerning the matters described in clauses (i) through (iv) above, as well as
their respective businesses and prospects before and after giving effect to
the Mergers and the Expected Savings and Synergies; (vi) reviewed the
historical market prices, trading activity and valuation multiples for KCPL
Common Stock and Western Resources Common Stock and compared them with that of
certain publicly traded companies that Merrill Lynch deemed to be relevant;
(vii) reviewed the results of operations of KCPL and Western Resources and
compared them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant; (viii) compared the proposed financial terms of
the Transactions with the financial terms of certain other transactions that
Merrill Lynch deemed to be relevant; (ix) participated in certain discussions
and negotiations among representatives of KCPL and Western Resources and their
financial and legal advisors; (x) reviewed the potential pro forma impact of
the Mergers on Western Resources and Westar Energy; (xi) reviewed the Merger
Agreement; and (xii) reviewed such other financial studies and analyses and
took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, regulatory, market
and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch or publicly available, and Merrill Lynch did not
assume any responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of any of the assets or
liabilities of the KCPL or Western Resources, and was not furnished with any
such evaluation or appraisal other than the Reserve Report. In addition,
Merrill Lynch did not assume any obligation to conduct, nor did it conduct any
physical inspection of the properties or facilities of KCPL or Western
Resources. With respect to the financial forecast information and the Expected
Savings and Synergies furnished to or discussed with Merrill Lynch by KCPL or
Western Resources, Merrill Lynch assumed that such information had been
reasonably prepared in accordance with accepted industry practices and
reflected the best currently available estimates and judgment of KCPL's or
Western Resources' management as to the expected future financial performance
of Western Resources or Westar Energy, as the case may be, and the Expected
Savings and Synergies, and as to the expected future projected outcomes of
various legal, regulatory
57
and other contingencies. Additionally, Merrill Lynch assumed that the Reserve
Report was reasonably prepared and reflected the best currently available
estimates and judgments of KCPL and the Reserve Engineer as to KCPL's
reserves, the future natural gas production volume and associated costs.
Merrill Lynch further assumed that, for federal income tax purposes, the KCPL
Merger would qualify as a tax-free reorganization under the provisions of
Section 368(a)(1)(F) of the Code and that the KGE Merger would qualify as a
tax-free reorganization under the provisions of Sections 368(a)(1)(A) and
(a)(2)(E) of the Code.
The Merrill Lynch Opinion was necessarily based upon market, regulatory,
economic and other conditions as they existed and could be evaluated, and the
information made available to Merrill Lynch, as of the date of the Merrill
Lynch Opinion.
In addition, Merrill Lynch also assumed that in the course of obtaining the
necessary regulatory or other consents and approvals (contractual or
otherwise) for the Transactions, no restrictions, including any divestiture
requirements or other amendments or modifications, would be imposed that would
have a material adverse effect on the contemplated benefits of the
Transactions or the Expected Savings and Synergies.
The Merrill Lynch Opinion does not address the underlying decision by KCPL
to engage in the Transactions. In connection with the preparation of the
Merrill Lynch Opinion, Merrill Lynch was not authorized by KCPL or the KCPL
Board to solicit, nor did Merrill Lynch solicit, third-party indications of
interest for the acquisition of all or any part of KCPL. Further, in rendering
the Merrill Lynch Opinion, Merrill Lynch did not address the relative merits
of the Transactions and the transactions contemplated by the Original Merger
Agreement. In addition, Merrill Lynch expressed no opinion as to what the
value of the Western Resources Common Stock would be following the
announcement of or when issued upon the consummation of the Transactions or
what the value of the Westar Energy Common Stock would be following the
consummation of the Transactions.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch opinion delivered
to the KCPL Board on March 18, 1998.
KCPL Valuation
Merrill Lynch obtained estimated aggregate equity and estimated per share
equity valuation ranges for KCPL by separately analyzing and calculating the
values of KCPL's regulated utility business (the "KCPL Regulated Business")
and unregulated businesses (the "KCPL Unregulated Businesses") operated by
KLT.
Merrill Lynch analyzed the KCPL Regulated Business by performing an analysis
of publicly traded comparable companies and a discounted cash flow ("DCF")
analysis. Merrill Lynch analyzed the KCPL Unregulated Businesses by performing
comparable company trading analyses, DCF analyses, comparable acquisition
analyses and by valuing certain KLT businesses at various multiples of book
value. Merrill Lynch obtained an estimated aggregate equity valuation range of
KCPL by subtracting from the estimated aggregate enterprise valuation range
for KCPL net debt (including liquidation preference of preferred stock for
KCPL at December 31, 1997).
Based on these analyses, Merrill Lynch calculated estimated aggregate equity
and estimated per share equity valuations for KCPL ranging from approximately
$1.7 billion to $2.0 billion and $27.13 to $32.94, respectively.
KCPL Stock Price Study
Merrill Lynch reviewed the per share closing market prices of KCPL Common
Stock for the period beginning January 2, 1996 and ending on March 13, 1998,
and compared such movements to the movements during the same period of the
Standard & Poor's Electric Utility Index (the "S&P Electric Utility Index")
and the Standard & Poor's 500 Index (the "S&P 500 Index").
58
KCPL Regulated Business
Using the methodologies described below, Merrill Lynch arrived at an
estimated enterprise valuation for the KCPL Regulated Business ranging from
approximately $2.4 billion to $2.6 billion.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating
information and ratios (described below) for the KCPL Regulated Business 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 the KCPL Regulated Business. The companies included in such
analysis were: Ameren Corporation, Illinova Corporation, MidAmerican Energy
Company, New Century Energy, Inc., NIPSCO Energy Services, Northern States
Power Co., OGE Energy Corp., Utilicorp United Inc. and Wisconsin Energy
Corporation (collectively, the "Regulated Business Comparables").
Merrill Lynch derived implied enterprise valuation ranges from the KCPL
Regulated Business by selecting, from the Regulated Business Comparables,
certain multiples of 1997 EPS, 1998 EPS and 1999 EPS (which EPS estimates were
obtained from the First Call Corporation ("First Call")), multiples derived by
comparing market capitalization to EBITDA ("Market Cap/EBITDA"), multiples
derived by comparing market value to book value ("Market Value/BV"), and
dividend yields. The relevant multiple ranges for 1997 EPS, 1998 EPS and 1999
EPS, Market Cap/EBITDA and Market Value/BV and dividend yields were 14.0x to
18.1x, 13.9x to 16.5x, 13.1x to 15.3x, 6.5x to 9.3x, 1.5x to 2.7x, and 3.5% to
6.6%, respectively, compared to the corresponding multiples and dividend yield
for the KCPL Common Stock of 14.4x, 14.4x, 13.6x, 7.6x, 2.0x and 5.3%,
respectively. As used herein, "market capitalization" means market value plus
liquidation value of preferred equity plus debt minus cash.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
the KCPL Regulated Business using KCPL management's projections and calculated
an estimated enterprise valuation range. The DCF was calculated assuming
discount rates ranging from 7.5% to 8.5% and was comprised of the sum of the
present values of (i) the projected unlevered free cash flows for the years
1998 through 2002, and (ii) the 2002 terminal value based upon three
techniques: (a) a range of multiples from 6.0x to 6.5x of 2002 estimated
EBITDA, (b) a range of multiples from 8.5x to 9.5x of 2002 estimated EBIT and
(c) a range of multiples from 14.0x to 16.0x of 2002 estimated tax-effected
EBIT.
KCPL Unregulated Businesses
Merrill Lynch derived an estimated enterprise valuation for the KCPL
Unregulated Businesses using various valuation methodologies similar to those
described above, including a comparable company trading analysis, a DCF
analysis, a comparable acquisition analysis, and a multiple of book value
approach.
KCPL Comparable Transaction Analysis
Merrill Lynch reviewed certain publicly available information regarding 15
selected business combinations in the utility industry announced since May
1995. Merrill Lynch compared the "offer value" (i.e., the offer price per
share multiplied by the sum of the number of shares outstanding and the number
of exercisable options outstanding (net of option proceeds)) of each such
transaction as a percentage premium to the stock price of the acquired company
prior to the date of announcement, and as a multiple of book value of the
acquired company, the next fiscal years' estimated EPS of the acquired company
at the date of announcement ("Forward EPS") and the "transaction value" (i.e.,
the offer value plus liquidation value of preferred equity plus debt minus
cash) as a multiple of LTM EBITDA of the acquired company. The relevant
percentage premiums of offer value to stock price for such transactions ranged
from 2% to 46%, the relevant multiples of offer value to book value and
Forward EPS ranged from 0.84x to 3.14x and 11.0x to 20.6x, respectively, and
the relevant multiples of transaction value to LTM EBITDA ranged from 5.2x to
12.9x.
59
Western Resources Valuation
Based upon the valuation techniques described below, Merrill Lynch derived
estimated aggregate equity and estimated per share equity valuation ranges for
Western Resources. Merrill Lynch obtained the estimated aggregate equity
valuation range for Western Resources by subtracting from the estimated
enterprise valuation range of Western Resources net debt (including
liquidation preference of preferred stock for Western Resources at December
31, 1997).
Merrill Lynch obtained the estimated enterprise valuation range for Western
Resources by separately analyzing and calculating the values of the regulated
electric business (the "Western Resources Regulated Business"), and Western
Resources' diversified investments, including its investments in ONEOK,
Protection One, Hanover and other miscellaneous businesses (the "Western
Resources Unregulated Businesses").
Based on these analyses, Merrill Lynch calculated estimated aggregate equity
and estimated per share equity valuations for Western Resources ranging from
approximately $2.4 billion to $3.1 billion and $36.72 to $46.82, respectively.
Western Resources Stock Price Study
Merrill Lynch reviewed the per share closing market prices of Western
Resources Common Stock for the period beginning January 2, 1996 and ending on
March 13, 1998, and compared such movements to the movements during the same
period of the S&P Electric Utility Index and the S&P 500 Index.
Western Resources Regulated Business
Using the methodologies described below, Merrill Lynch arrived at an
estimated enterprise valuation for the Western Resources Regulated Business
ranging from approximately $3.0 billion to $3.3 billion.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating
information and ratios (described below) for the Western Resources Regulated
Businesses with the corresponding financial and operating information and
ratios for the Regulated Business Comparables.
Merrill Lynch derived implied enterprise valuation ranges from the Western
Resources Regulated Business by selecting, from the Regulated Business
Comparables, certain multiples of 1997 EPS, 1998 EPS and 1999 EPS (which EPS
estimates were obtained from First Call), Market Cap/EBITDA, Market Value/BV,
and dividend yields. The relevant multiple ranges for 1997 EPS, 1998 EPS and
1999 EPS, Market Cap/EBITDA and Market Value/BV and dividend yields were 14.0x
to 18.1x, 13.9x to 16.5x, 13.1x to 15.3x, 6.5x to 9.3x, 1.5x to 2.7x, and 3.5%
to 6.6%, respectively, compared to the corresponding multiples for the Western
Resources Common Stock (excluding for purposes of the Market Value/BV ratio
the after-tax gain resulting from the sale of the Tyco Stock) of 20.5x, 15.9x,
14.8x, 7.9x, 1.9x and 5.1%, respectively.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
the Western Resources Regulated Business using Western Resources' management
projections and calculated an estimated enterprise valuation range. The DCF
was calculated assuming discount rates ranging from 7.5% to 8.5% and was
comprised of the sum of the present values of (i) the projected unlevered free
cash flows for the years 1998 through 2002, and (ii) the 2002 terminal value
based upon three techniques: (a) a range of multiples from 5.75x to 6.25x of
2002 estimated EBITDA, (b) a range of multiples from 8.0x to 9.0x of 2002
estimated EBIT and (c) a range of multiples from 13.0x to 15.0x of 2002
estimated tax-effected EBIT.
Western Resources Unregulated Businesses
Based upon the valuation techniques described below, Merrill Lynch derived
an estimated valuation range for Western Resources' approximately 45% diluted
equity ownership position in ONEOK (assuming conversion of the Series A
Convertible Preferred Stock), its approximately 82% equity ownership position
in Protection One, and its approximately 11% equity ownership position in
Hanover.
60
ONEOK Stock Price Performance and Public Market Perspective. Merrill Lynch
reviewed the per share closing market prices of the common stock of ONEOK for
the period beginning January 2, 1996 and ending on March 13, 1998, and
compared the movements of such common stock to the movements during the same
period of the S&P 500 Index. Merrill Lynch also reviewed selected public
market information and research perspectives on ONEOK.
ONEOK Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating
information and ratios (described below) for ONEOK, 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 ONEOK. The
companies included in the ONEOK comparable company analysis were: AGL
Resources Inc., Atmos Energy Corporation, Indiana Energy Inc., Laclede Gas
Co., MCN Corporation, National Fuel Gas Company, New Jersey Resources Corp.,
Nicor Inc., Northwest Natural Gas Corporation and Piedmont Natural Gas
Corporation (collectively, the "ONEOK Comparables").
Merrill Lynch derived implied enterprise and aggregate common equity
valuation ranges from the ONEOK Comparables by selecting, from the ONEOK
Comparables, certain multiples of 1997 EPS, 1998 EPS and 1999 EPS (which EPS
estimates were obtained from First Call), Market Value/BV and dividend yields.
The relevant multiple ranges for 1997 EPS, 1998 EPS and 1999 EPS, Market
Value/BV and dividend yields were 14.0x to 19.6x, 14.5x to 17.5x, 13.6x to
15.3x, 1.6x to 2.7x and 2.8% to 5.5%, respectively, compared to the
corresponding multiples and dividend yield for the ONEOK common stock of
18.2x, 17.3x, 15.8x, 1.8x and 3.17%, respectively.
Protection One Stock Price Performance and Public Market
Perspective. Merrill Lynch reviewed the per share closing market prices of the
common stock of Protection One for the period beginning January 2, 1996 and
ending on March 13, 1998, and compared the movements of such common stock to
the movements during the same period of the S&P 500 Index. Merrill Lynch also
reviewed selected public market information and research perspectives on
Protection One.
Protection One Discounted Cash Flow Analysis. Merrill Lynch performed a DCF
analysis for Protection One using certain limited financial forecasts
furnished by Protection One's management ("Base Case DCF"), as well as an
alternate set of projections reflecting more conservative projected 5-year
growth rates in revenues, EBITDA, unlevered net income and capital
expenditures ("Alternate Case DCF"), and calculated estimated valuation ranges
for Protection One.
Each of the Base Case DCF and the Alternate Case DCF was calculated assuming
discount rates ranging from 11.0% to 14.0% and was comprised of the sum of the
present values of (i) the projected unlevered free cash flows for the years
1998 through 2002, and (ii) the 2002 terminal value based upon a range of
multiples from 7.5x to 8.5x of 2002 estimated EBITDA.
Hanover Stock Price Performance and Public Market Perspective. Merrill Lynch
reviewed the per share closing market prices of the common stock of Hanover
for the period beginning July 1, 1997 and ending on March 13, 1998, and
compared such movements to the movements during the same period of the S&P 500
Index. Merrill Lynch also reviewed selected public market information and
research perspectives on Hanover.
Westar Energy Valuation Analysis
Merrill Lynch obtained estimated aggregate equity and estimated per share
equity valuation ranges for Westar Energy. Merrill Lynch obtained the
estimated aggregate equity valuation for Westar Energy by adding the ranges of
estimated equity valuations for the KCPL Regulated Business and the Western
Resources Regulated Business derived using the valuation techniques described
above, including a range of estimated present values of the Expected Savings
and Synergies estimated by Western Resources. The present value of the
Expected Savings and Synergies was estimated net of taxes and costs expected
to be incurred to realize such synergies and using a discount rate of 9.0%,
and, as a sensitivity analysis, assuming that Westar Energy realizes a range
of the Expected Savings and Synergies estimated by Western Resources. Merrill
Lynch obtained the estimated aggregate equity valuation range for Westar
Energy by subtracting from the estimated enterprise valuation range
61
of Westar Energy pro forma net debt of $2.7 billion. Based on such analyses,
Merrill Lynch calculated estimated aggregate equity and estimated per share
equity valuations for Westar Energy ranging from approximately $3.0 billion to
$3.7 billion and $9.55 to $11.96, respectively.
Pro Forma Combination Analyses
Accretion/Dilution Analysis. Merrill Lynch compared certain pro forma
effects resulting from the Mergers, including the EPS of KCPL Common Stock,
using Western Resources management projections ("Western Resources Management
Case") and KCPL management projections ("KCPL Management Case"), as well as an
alternative set of projections reflecting more conservative projected growth
rates in EPS for each of Western Resources and KCPL for the projected period
(the "Western Resources Alternate Case" and the "KCPL Alternate Case,"
respectively). In performing its pro forma analysis, Merrill Lynch assumed the
level of Expected Savings and Synergies estimated by Western Resources (the
"Synergies Base Case"). As a sensitivity analysis, Merrill Lynch also
performed its pro forma analysis assuming that Westar Energy realizes fifty
percent of the Expected Savings and Synergies estimated by Western Resources
(the "Synergies Sensitivity Case"). Such analyses were performed based upon
the Conversion Ratio and assuming a Western Resources Index Price of $42.31.
Such analyses indicated that, as to the projected EPS of the Western
Resources Common Stock, the Mergers would be dilutive and then accretive for
the projected period for the KCPL Management Case (for each of the Western
Resources Management Case and the Western Resources Alternate Case using both
the Synergies Base Case and the Synergies Sensitivity Case), and dilutive
throughout the projected period for all other cases.
Western Resources Pro Forma Analysis. Merrill Lynch obtained estimated
aggregate enterprise, estimated aggregate equity, and estimated per share
equity valuation ranges for Western Resources by performing a pro forma
analysis of the Transactions. Merrill Lynch obtained the estimated aggregate
enterprise valuation for Western Resources by subtracting from the range of
estimated aggregate enterprise valuations the range of the stand-alone
valuations of the Western Resources Regulated Business to be contributed to
Westar Energy, and adding (i) the aggregate enterprise valuation for KLT,
which will be distributed to Western Resources, and (ii) the aggregate
valuation of Western Resources' pro forma 80.1% equity interest in Westar
Energy.
Based on such analyses, Merrill Lynch calculated an estimated pro forma
aggregate equity valuation for Western Resources ranging from approximately
$3.7 billion to $4.8 billion, and, based upon a range of the number of shares
of Western Resources Common Stock estimated to be outstanding based on the
Conversion Ratio and a Western Resources Index Price ranging from $38.28 to
$47.00, an estimated pro forma per share equity valuation ranging from $36.01
to $50.28.
Pro Forma Stock Ownership Analysis. Merrill Lynch reviewed the Conversion
Ratio and the number of shares of Western Resources Common Stock to be issued
to holders of KCPL Common Stock based upon a Western Resources Index Price
ranging from $26.00 to $68.00. Such analysis indicated that current
shareholders of KCPL would own a maximum of approximately 41% of the Western
Resources Common Stock at a Western Resources Index Price of $26.00 and would
own a minimum of 30% of the Western Resources Common Stock at a Western
Resources Index Price of $68.00.
Implied Transaction Value Analysis
Merrill Lynch reviewed the ranges of aggregate values implied by the
Transactions per share of the KCPL Common Stock. This analysis was based upon
ranges of estimated equity valuations for Westar Energy derived using the
valuation techniques described above, and ranges of implied values of the
Western Resources Common Stock assuming different Western Resources Index
Prices under the "collar" mechanism. Merrill Lynch also reviewed such
aggregate values on a present value basis assuming that the Transactions close
in one year or in two years.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
opinions. The preparation of a fairness opinion is a complex analytic process
not necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered
62
by it, without considering all such factors and analyses, could create a
misleading view of the process underlying its analyses set forth in the
Merrill Lynch opinions. Merrill Lynch did not assign relative weights to any
of its analyses in preparing its opinions. The matters considered by Merrill
Lynch in its analyses were based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond KCPL's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Merrill
Lynch are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily
reflect the prices at which business segments or companies may be sold in the
future, and such estimates are inherently subject to uncertainty. No public
company utilized as a comparison is identical to KCPL, and none of the
Regulated Business Comparables, the ONEOK Comparables or other business
combinations used as a comparison is identical to the proposed Mergers.
Accordingly, an analysis of publicly traded comparable companies is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Pursuant to the terms of an engagement letter dated February 26, 1998, KCPL
paid Merrill Lynch a fee of $4 million upon the execution of the Merger
Agreement and has agreed to pay Merrill Lynch an additional fee of $5 million
payable upon the approval by the shareholders of KCPL of the Merger Agreement
and the KCPL Merger, and an additional fee of $1 million upon the closing of
the Transactions. KCPL has also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of its legal counsel) and to indemnify Merrill Lynch and certain
related persons from and against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws
arising out of its engagement.
The KCPL Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Transactions and because
it is familiar with KCPL and its business. Merrill Lynch has from time to time
provided financial advisory, financing and other services to KCPL and certain
of its affiliates for which it has received fees for the rendering of such
services. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of KCPL as well as the securities of Western
Resources and its affiliates for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the KCPL Board and the Western
Resources Board with respect to the Transactions, shareowners should be aware
that certain members of the Western Resources Board and the KCPL Board and
certain members of the managements of Western Resources and KCPL have certain
interests in the Transactions that are in addition to or different from those
as shareowners of Western Resources and KCPL generally. The Boards of
Directors of each of KCPL and Western Resources were aware of these interests
and considered them, among other matters, in approving the Merger Agreement
and the Transactions.
Board of Directors. The Merger Agreement provides that, at the KGE Effective
Time, the Western Resources Board shall appoint three members of the KCPL
Board to the Western Resources Board: William H. Clark, Robert J. Dineen and
Robert H. West. In addition, each of the eleven current members of the Western
Resources Board will continue in office following the KGE Effective Time. The
Merger Agreement also provides that at the KGE Effective Time, Western
Resources will cause the initial Board of Directors of Westar Energy to be
comprised of six members designated by Western Resources and four members
selected from the KCPL Board, as of the date of the Merger Agreement,
designated by KCPL. Thereafter, directors of Westar Energy will be nominated
and elected in accordance with the procedures set forth in the Westar Energy
Articles and Westar Energy Bylaws.
63
Management of Westar Energy Following the Transactions. Following the
Transactions, John E. Hayes, Jr. will be the chairman of the Westar Energy
Board and Drue Jennings will be Chief Executive Officer of Westar Energy.
KCPL Stock Options. The Merger Agreement provides that prior to the KCPL
Effective Time, KCPL will take such actions as may be necessary such that
immediately prior to the KCPL Effective Time, each option to purchase shares
of KCPL Common Stock and any KCPL Stock Options which are outstanding, whether
or not then exercisable, will be canceled and entitle the holder of any then
exercisable KCPL Stock Options, upon surrender of all outstanding KCPL Stock
Options, to receive in consideration of such cancellation an amount in cash
from KCPL equal to the result of multiplying the number of shares of KCPL
Common Stock previously subject to such KCPL Stock Option by the difference
between (i) the sum of (x) the fair market value of the number of shares of
Western Resources Common Stock (as determined by the average closing price of
the Western Resources Common Stock for the five (5) consecutive trading day
period occurring immediately following the Western Resources Stock
Distribution) that such optionee would have received if such optionee had
exercised a KCPL Stock Option to purchase one (1) share of KCPL Common Stock
immediately prior to the KCPL Effective Time and (y) the fair market value of
the number of shares of Westar Energy Series A Common Stock (as determined by
the average closing price of the Westar Energy Series A Common Stock for the
five (5) consecutive trading day period occurring immediately following the
Western Resources Stock Distribution) that such optionee would have received
if such optionee had exercised a KCPL Stock Option to purchase one (1) share
of KCPL Common Stock immediately prior to the KCPL Effective Time and (ii) the
per share exercise price of such KCPL Stock Options. See "THE MERGER
AGREEMENT--Stock Options."
The value of the outstanding KCPL Stock Options held by interested persons,
as of the last practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, is contained in the following chart:
OPTIONS TOTAL
SHAREHOLDER (1) VALUE (2)
- ----------- ---------- ----------
Drue Jennings............................................. 95,819.186 $1,718,825
Bernard Beaudoin.......................................... 31,128.381 $ 601,063
Ronald Wasson............................................. 25,873.818 $ 464,507
J. Turner White........................................... 23,106.986 $ 382,000
Marcus Jackson............................................ 21,005.160 $ 327,378
The aggregate amount of cash that KCPL would be required to pay in
consideration of cancellation of all KCPL Stock Options, including those in
the above chart is $5,640,116.
- --------
(1) Total number of shares represented by unexercised KCPL Stock Options and
amounts equivalent to accrued dividends on options.
(2) Value of options is based on (a) the price of Western Resources Common
Stock as of May 13, 1998, the best practicable date prior to mailing the
Joint Proxy Statement/Prospectus, which would result in the distribution
to KCPL's shareholders of $23.50 worth of Western Resources Common Stock
for each share of KCPL Common Stock; and (b) a value of $12.00 per share
of Series A Westar Energy Common Stock to be distributed to KCPL's
shareholders for each share of KCPL Common Stock, and includes the value
of dividends which would be paid upon exercise on June 19, 1998 to
shareholders of record at the close of business on May 29, 1998.
Western Resources Stock Options. The Transactions will not affect the
vesting period or exercisability of any outstanding options to purchase
Western Resources Common Stock.
KCPL Severance Agreements. KCPL has entered into severance agreements (the
"KCPL Severance Agreements") with certain of its senior executive officers 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, a senior executive officer would
be entitled to receive a lump-sum cash payment and certain insurance benefits
if during the three-year period after a change in control (as defined below)
(or, if later, the three-year period following the consummation of a
transaction, the approval of which, by KCPL's shareholders constitutes a
change in control) such officer's employment was terminated (i)
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by KCPL other than for cause or upon death or disability, (ii) by such senior
executive officer for "Good Reason" (as defined in the KCPL Severance
Agreements), or (iii) by such senior executive officer for any reason during a
30-day period commencing one year after such change in control (or, if later,
commencing one year following consummation of the transaction the approval of
which by KCPL shareholders constitutes a change in control) (a "Qualifying
Termination"). In this context, 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 KCPL
shareholders of a reorganization, merger or consolidation (unless such
shareholders receive 60% or more of the stock of the surviving company) or a
liquidation, dissolution or sale of substantially all of KCPL's assets.
Upon a Qualifying Termination, KCPL must make a lump-sum cash payment to a
senior executive officer 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.
Western Resources Severance Agreements. Western Resources has entered into
severance agreements (the "Western Resources Severance Agreements") with
certain of its officers to ensure their continued service and dedication to
Western Resources and their objectivity in considering on behalf of Western
Resources any transaction which would result in a change in control of Western
Resources. Under the Western Resources Severance Agreements, during the
twelve-month period after a change in control, the covered officer would be
entitled to receive a lump sum cash payment and certain insurance benefits if
such officer's employment were terminated by Western Resources other than for
cause or upon death, disability, or retirement, or by such officer for good
reason (as described in the Western Resources Severance Agreements).
Upon such termination, Western Resources must make a lump-sum cash payment
to the covered officer, in addition to any other compensation to which the
officer is entitled, of (i) two (three in the case of certain executive
officers) times such officer's base salary, (ii) two (three in the case of
certain executive officers) times the average of the bonuses paid to such
officer for the last three fiscal years, and (iii) the actuarial equivalent of
the excess of the officer's accrued pension benefits, computed as if the
officer had two (three in the case of certain executive officers) additional
years of benefit accrual service, over the officer's vested accrued pension
benefits. In addition, Western Resources must offer health, disability and
life insurance coverage to the officer and his or her dependents on the same
terms and conditions that existed immediately prior to the termination for two
(three in the case of certain executive officers) years, or, if earlier, until
such officer is covered by equivalent benefits.
Western Resources has also provided under an Executive Salary Continuation
Plan (the "Plan") specified supplemental retirement benefits to its officers.
If a change in control of Western Resources occurs, each participant in the
Plan will as of the day next preceding such change in control be deemed to be
65 years of age as of the date of such change in control for purposes of
determining retirement benefits and vesting under the Plan.
In this context, a "change in control" is deemed to have occurred when: (i)
a person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more of the Voting Securities
(as defined below); (ii) individuals who constitute the Western Resources
Board on the
65
date hereof (the "Incumbent Board") cease to constitute a majority thereof,
provided that any person who becomes a director by approval of at least three
quarters of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement in which such person is named as a
nominee for director, without objection to such nomination) shall be
considered a member of the Incumbent Board; (iii) the approval of Western
Resources shareowners of the merger or consolidation of Western Resources
(other than a merger or consolidation immediately following which the
shareowners of Western Resources immediately prior thereto own, directly or
indirectly, more than 75% of the Voting Securities of the merged or
consolidated company) and the consummation of such transaction; (iv) the
liquidation or dissolution of Western Resources; or (v) the sale of all or
substantially all of the assets of Western Resources. "Voting Securities"
shall mean Western Resources' outstanding securities ordinarily having the
right to vote at elections of directors.
Indemnification. Pursuant to the Merger Agreement, Westar Energy has agreed
to indemnify each present and former director and officer of Western
Resources, Westar Energy, KGE and KCPL against liabilities or expenses
incurred in connection with claims relating to matters prior to the KGE
Effective Time, and to maintain in effect directors' and officers' liability
insurance for the benefit of the directors and officers of KCPL. See "THE
MERGER AGREEMENT--Directors' and Officers' Indemnification."
DIVIDEND REINVESTMENT PLAN
The letter of transmittal to be delivered to KCPL shareholders will provide
that KCPL shareholders who hold their shares through the KCPL dividend
reinvestment plan will have the option to place the shares of Western
Resources Common Stock they will receive in the Western Resources Stock
Distribution directly into the Western Resources direct stock purchase plan
and the shares of Westar Energy they will receive in the KGE Merger into a
dividend reinvestment plan intended to be established by Westar Energy at the
KCPL Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consequences to Exchanging Shareowners. In the opinion of Skadden Arps and
Sullivan & Cromwell, (i) the KCPL Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code, (ii) the KGE Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code,
(iii) no gain or loss will be recognized by holders of KCPL Common Stock who
exchange their KCPL Common Stock for Westar Energy Common Stock and Western
Resources Common Stock in connection with the KCPL Merger and the KGE Merger
(except to the extent that cash is received in lieu of fractional shares of
Western Resources Common Stock), (iv) assuming there are no Dissenting Shares,
the aggregate tax basis of a holder's KCPL Common Stock will be apportioned
approximately 19.9% to the Westar Energy Common Stock and approximately 80.1%
to the Western Resources Common Stock (including fractional shares) received
in connection with the KCPL Merger and the KGE Merger and (v) a holder's
holding period in KCPL Common Stock will carry over to the Westar Energy
Common Stock and the Western Resources Common Stock (including fractional
shares) received in connection with the KCPL Merger and the KGE Merger,
provided such KCPL Common Stock was held as a capital asset at the KCPL
Effective Time.
Cash received in lieu of a fractional share generally will be treated as
received in redemption for such fractional share, and gain or loss will be
recognized in an amount equal to the difference between the amount of cash
received and the adjusted tax basis allocated to the fractional share. Such
gain or loss generally should constitute capital gain or loss, and will be
long-term capital gain or loss if the holding period for such fractional share
was greater than one year at the KGE Effective Time. Long-term capital gain of
a non-corporate holder is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and to a maximum tax rate of
20% in respect of property held in excess of 18 months.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND
DOES NOT ADDRESS THE STATE, LOCAL, FOREIGN INCOME AND OTHER TAX CONSEQUENCES
OF THE MERGERS. FURTHER, THE DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES
OF SHAREOWNERS OF KCPL OR WESTERN RESOURCES, INCLUDING (I) SHAREOWNERS WHO
ACQUIRED SHARES OF KCPL COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION, (II) INDIVIDUALS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES, (III) FOREIGN
66
CORPORATIONS AND (IV) ENTITIES THAT ARE OTHERWISE SUBJECT TO SPECIAL TAX
TREATMENT UNDER THE CODE (SUCH AS INSURANCE COMPANIES, SECURITIES DEALERS,
FINANCIAL INSTITUTIONS, TAX-EXEMPT ENTITIES, REGULATED INVESTMENT COMPANIES
AND PERSONS THAT HOLD KCPL COMMON STOCK AS PART OF A "STRADDLE," "HEDGING
TRANSACTION," OR "CONVERSION TRANSACTION"). THE DISCUSSION IS BASED ON THE
CODE AS IN EFFECT ON THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH
MAY DIFFER AT THE CLOSING DATE. SHAREOWNERS OF KCPL AND WESTERN RESOURCES ARE
URGED TO CONSULT THEIR 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.
ACCOUNTING TREATMENT
Westar Energy will account for the KCPL Merger using the purchase method of
accounting in accordance with the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations." Accordingly, Westar Energy will
record at its cost the fair value of the acquired assets less the fair value
of the liabilities assumed, with the excess of such cost over the estimated
fair value of such net assets reflected as goodwill. Amounts allocated will be
based upon the estimated fair values at the KGE Effective Time and could vary
significantly from the amounts assumed in the Unaudited Pro Forma Combined
Condensed Financial Information of Western Resources, WREB and KCPL included
herein. Westar Energy will account for the KGE Merger as a transfer of net
assets between companies under common control. The assets and liabilities
transferred would be accounted for at historical cost.
STOCK EXCHANGE LISTING OF THE WESTAR ENERGY COMMON STOCK AND WESTERN RESOURCES
COMMON STOCK
Westar Energy and Western Resources will apply for the listing on the NYSE
of the Westar Energy Common Stock and the Western Resources Common Stock to be
issued and distributed in the KCPL Merger and the Western Resources Stock
Distribution. It is a condition to the consummation of the KGE Merger and the
KCPL Merger that the Western Resources Common Stock and the Westar Energy
Common Stock be approved for listing on the NYSE, subject to official notice
of issuance. So long as Western Resources continues to meet applicable
requirements, Western Resources Common Stock will continue to be listed on the
NYSE and each of the other securities exchanges on which any of such
securities are listed. In addition, until called for redemption, all classes
and series of preferred stock of KCPL and Western Resources will remain listed
on any securities exchange on which such preferred stock is presently listed.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Westar Energy Common Stock and Western Resources Common Stock
issued in the Transactions will be freely transferable (except shares of
Westar Energy Common Stock distributed to Western Resources), except that
shares of Westar Energy Common Stock and Western Resources Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of KCPL prior to the Mergers may be resold by them
only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144, in the case of such persons
who become affiliates of Western Resources) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of KCPL or
Western Resources generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party. The Merger Agreement requires KCPL to use all reasonable
efforts to cause each of its affiliates to execute a written agreement to the
effect that such affiliate will not offer or sell or otherwise dispose of (i)
any shares of KCPL Common Stock during the period beginning 30 days prior to
the KGE Effective Time and continuing until such time as results covering at
least 30 days of post-KGE Effective Time operations of Western Resources have
been published or (ii) any of the shares of Westar Energy Common Stock and
Western Resources Common Stock issued to such affiliate in or pursuant to the
Mergers in violation of the Securities Act or the rules and regulations
promulgated by the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of Westar
Energy Common Stock or Western Resources Common Stock received in the
Transactions by any person who may be deemed to be an affiliate of KCPL or
Western Resources.
67
DISSENTERS' RIGHTS
KCPL. Section 351.455 of the MGBCL, a copy of which is attached hereto as
Annex D, entitles each Dissenting Holder who follows the procedures set forth
in Section 351.455 to receive the fair value of the holder's shares in cash.
Under Section 351.455, a holder of KCPL Common Stock may dissent and Westar
Energy, as the surviving corporation, will pay to such Dissenting Holder upon
surrender of his or her certificate or certificates representing such shares,
the fair value of such Dissenting Holder's shares as of the day prior to the
KCPL Meeting, if such Dissenting Holder (i) files with KCPL prior to or at the
KCPL Meeting a written objection to the KCPL Merger; (ii) does not vote in
favor thereof; and (iii) within 20 days after the KCPL Effective Time makes a
written demand to Western Resources for payment of the fair value of the
shares held by such Dissenting Holder as of the day prior to the date of the
KCPL Meeting. Such demand shall state the number and class of the shares owned
by such Dissenting Holder. Written objections to the KCPL Merger and demands
for the payment of fair value should be addressed to: KCPL, 1201 Walnut,
Kansas City, Missouri 64106-2124, Attention: Ms. Jeanie Sell Latz, Senior Vice
President-Corporate Services, Corporate Secretary and Chief Legal Officer.
Shareholders who have not complied with all of these requirements shall be
conclusively presumed to have consented to the KCPL Merger and shall be bound
by the terms thereof. KCPL will provide written notice of the Effective Time
of the KCPL Merger to all shareholders who have timely filed written notice of
objection and not voted in favor of the KCPL Merger.
A proxy marked "AGAINST" the KCPL Merger will not be deemed to be a written
notice of objection to the KCPL Merger. A shareholder who wishes to dissent
from the KCPL Merger and assert appraisal rights must provide a separate
written notice of objection at or prior to the KCPL Meeting, must not vote
"FOR" the KCPL Merger and must make written demand for payment within 20 days
after the effective time of the KCPL Merger. A proxy marked "AGAINST" or
"ABSTAIN" or a shareholder's failure to vote with respect to the KCPL Merger
will suffice as not voting in favor of the KCPL Merger.
A beneficial owner of shares who is not the record owner may not assert
appraisal rights. If the shares are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee, the written
demand asserting appraisal rights must be executed by the fiduciary or
nominee. If the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be executed by all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for a shareholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in executing
the demand, he is acting as agent for the record owner.
If within 30 days after the KCPL Effective Time the value of such shares is
agreed upon between the Dissenting Holder and Western Resources, payment
therefor shall be made within 90 days after the Effective Time, upon the
surrender by such Dissenting Holder of the certificate or certificates
representing such shares. Upon payment of the agreed value, the Dissenting
Holder shall cease to have any interest in such shares, in Western Resources,
or in Westar Energy.
If within such 30-day period, a Dissenting Holder and Western Resources do
not so agree as to value, then the Dissenting Holder may, within 60 days after
the expiration of the 30-day period, file a petition in any court of competent
jurisdiction within Jackson County, Missouri, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against Western Resources for the amount of such fair value as of the
day prior to the date of the KCPL Meeting, together with interest thereon to
the date of such judgment. The judgment shall be payable only upon, and
simultaneously with, the surrender to Western Resources of the certificate or
certificates representing shares with respect to which appraisal rights have
been exercised. Upon the payment of the judgment, the Dissenting Holder shall
cease to have any interest in such shares, in Western Resources, or in Westar
Energy. Unless the Dissenting Holder shall file such petition within the 60-
day period, such shareholder and all persons claiming under such shareholder
shall be conclusively presumed to have approved and ratified the KCPL Merger
and shall be bound by the terms thereof.
The right of a Dissenting Holder to be paid the fair value of the
shareholder's shares shall cease if the shareholder fails to comply with the
procedures set forth in Section 351.455 and described above, or if the Merger
Agreement is terminated for any reason.
68
The foregoing does not purport to be a complete statement of the procedures
to be followed by shareholders desiring to exercise appraisal rights and, in
view of the fact that exercise of such rights requires strict adherence to the
relevant provisions of the MGBCL, shareholders who desire to exercise
appraisal rights are advised to review with care all applicable provisions of
law and to obtain legal counsel concerning proper compliance with applicable
provisions of the MGBCL. See Annex D.
Western Resources. Holders of Western Resources Common Stock and Western
Resources Preferred Stock do not have dissenters' rights under the KGCC with
respect to the Transactions.
REGULATORY MATTERS
As indicated below, consummation of the Transactions is subject to numerous
regulatory approvals which are presently anticipated to be received within the
first half of 1999. Set forth below is a summary of the material regulatory
requirements affecting the Transactions.
State Approvals and Related Matters. KCPL currently is subject to the
jurisdiction of the MPSC and the Kansas Commission with respect to its utility
operations in those states and the issuance and assumption of debt or equity
securities.
Western Resources currently is subject to the jurisdiction of the Kansas
Commission.
Assuming the requisite regulatory approvals are obtained, Westar Energy will
be subject to regulation by the MPSC, and the Kansas Commission.
Public Utility Holding Company Act of 1935. Western Resources is a "holding
company" for purposes of the 1935 Act and is currently exempt under Section
3(a)(1) of the 1935 Act pursuant to Rule 2 promulgated thereunder from all
provisions of the 1935 Act except Section 9(a)(2), which generally requires
approval of the SEC prior to the direct or indirect acquisition of 5% or more
of the voting securities of an electric or gas utility company by any person
that already owns, directly or indirectly, 5% or more of the voting securities
of one or more gas or electric utility companies. KCPL is an electric utility
company within the meaning of the 1935 Act, and is exempt from all provisions
of the 1935 Act except Section 9(a)(2). Western Resources and KCPL anticipate
that no approval of the SEC under Section 9(a)(2) of the 1935 Act will be
required for the Transactions because, upon consummation of the Transactions,
each of KCPL and KGE will be merged with and into Westar Energy, and Western
Resources will own 5% or more of the voting securities of the same number of
public utility companies (Westar Energy and ONEOK), within the meaning of the
1935 Act, as it did prior to consummation of the Transactions. Western
Resources anticipates that, following consummation of the Transactions, it
will continue to be exempt from all provisions of the 1935 Act except Section
9(a)(2). The Commission looks to a variety of factors in determining whether
the standards for exemption are met. The Commission has, however, taken into
account certain ratios and other numerical factors in assessing the
availability of an exemption. Historically, the Commission appears to have
placed the greatest emphasis on the ratio of in-state and out-of-state utility
revenues for purposes of determining exempt status. As a result of the
Transactions, Western Resources and Westar Energy, which are both Kansas
corporations, will derive approximately 27% of their utility revenues from
outside the state of Kansas, with approximately 24% of utility customers from
outside the state of Kansas. These ratios are at the high end of the range of
ratios of other companies that have claimed exemption from the 1935 Act under
Section 3(a)(1) pursuant to Rule 2, which permits a company to claim exemption
by making an annual filing with the Commission. While there is no Commission
order specifically approving these ratios in a case involving exemption under
Section 3(a)(1), the Commission has recently indicated its willingness to
expand on its precedent with respect to available exemptions. It is a
condition to Western Resources' obligation to effect the closing of the
Transactions that Western Resources be reasonably satisfied that as of the KGE
Effective Time, Western Resources will be exempt from all provisions of the
1935 Act except Section 9(a)(2) thereof. See "RISK FACTORS--Uncertainty
Regarding Western Resources' Regulatory Status" and "THE MERGER AGREEMENT--
Conditions to Each Party's Obligation to Effect the KGE Merger and the KCPL
Merger--Conditions to the Obligations of Western Resources, KGE and Westar
Energy to Effect the KGE Merger."
69
Federal Power Act. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional
facilities or, directly or indirectly, merge or consolidate such facilities
with those of any other person or acquire any security of any other public
utility without first having obtained authorization from the FERC. The
approval of the FERC is required in order to consummate the Transactions.
Under Section 203 of the Federal Power Act, the FERC will approve a merger if
it finds such merger "consistent with the public interest." In reviewing a
merger, the FERC generally evaluates: (i) whether the merger will adversely
affect competition, (ii) whether the merger will adversely affect customer
rates and (iii) whether the merger will impair the effectiveness of
regulation. KCPL and Western Resources will file appropriate modifications to
their combined application with the FERC requesting that the FERC approve the
Transactions under Section 203 of the Federal Power Act (the "Application").
In connection with the Application, KCPL and Western Resources will also file
a comparable transmission service tariff for the combined company under
Section 205 of the Federal Power Act, to become effective upon consummation of
the Transactions.
Furthermore, prior to the Transactions, the approval of the FERC under
Section 204 of the Federal Power Act may be required for Westar Energy to
assume the debt of KCPL.
Antitrust Considerations. The HSR Act and the rules and regulations
promulgated thereunder provide that certain transactions (including the
Mergers) may not be consummated until certain information has been submitted
to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and specified HSR Act
waiting period requirements have been satisfied. The expiration or earlier
termination of the HSR Act waiting period would not preclude the Antitrust
Division or the FTC from challenging the Transactions on antitrust grounds.
Neither KCPL nor Western Resources believes that the Transactions will violate
federal antitrust laws. If the Transactions are not consummated within 12
months after the expiration or earlier termination of the initial HSR Act
waiting period, KCPL and Western Resources would be required to submit new
information to the Antitrust Division and the FTC, and a new HSR Act waiting
period would have to expire or be earlier terminated before the Transactions
could be consummated. KCPL and Western Resources intend to file their
premerger notifications pursuant to the HSR Act at such time as they believe
will result in the expiration or termination of the waiting period thereunder
within 12 months before the anticipated consummation of the Transactions.
Atomic Energy Act. Section 184 of the Atomic Energy Act provides that no
person may transfer or assign a license or any rights thereunder, either
directly or indirectly, without first having obtained authorization from the
Nuclear Regulatory Commission ("NRC"). KCPL holds an interest in an NRC
license (the "NRC Possession License") in connection with the ownership of an
interest in Wolf Creek. KCPL is also a partial owner of WCNOC, which holds an
NRC license (the "NRC Operating License") in connection with the operation of
Wolf Creek. KGE also holds interests in the same licenses in connection with
KGE's ownership of an interest in Wolf Creek and WCNOC. The approval of the
NRC will be required prior to consummation of the Transactions. Accordingly,
Western Resources and KCPL will request the approval of the Transactions and
the transfer of the NRC Possession License under Section 184 of the Atomic
Energy Act.
Other. KCPL, KGE and Western Resources possess municipal franchises and
environmental permits and licenses that (i) require the licensor to consent to
the transfer of such franchises, permits and licenses and (ii) may need to be
renewed, replaced or transferred as a result of the Transactions. Neither
Western Resources nor KCPL anticipates any difficulties at the present time in
obtaining such consents, renewals, replacements or transfers.
General. Under the Merger Agreement, Western Resources, KGE, Westar Energy
and KCPL have agreed to use all commercially reasonable efforts to obtain all
governmental authorizations necessary or advisable to consummate or effect the
Transactions. Various parties may seek intervention in these proceedings to
oppose the Transactions or to have conditions imposed upon the receipt of
necessary approvals. While Western Resources and KCPL believe that they will
receive the requisite regulatory approvals for the Transactions, 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 Transactions that final orders approving the
70
Transactions be obtained from the various federal and state regulators
described above on terms and conditions which would not have, or insofar as
reasonably can be foreseen would not be likely to have, a material adverse
effect on the business, assets, financial condition or results of operations
of the combined company and its subsidiaries taken as a whole. It is a further
condition to Western Resources' obligation to effect the Transactions that
such final orders would not have, or insofar as reasonably can be foreseen
would not be likely to have, a material adverse effect on the benefits
anticipated by Western Resources in the Transactions. There can be no
assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such conditions to the consummation of
the Transactions. See "THE MERGER AGREEMENT--Conditions to Each Party's
Obligation to Effect the KGE Merger and the KCPL Merger."
PLANS FOR WESTERN RESOURCES AND WESTAR ENERGY FOLLOWING THE TRANSACTIONS
Western Resources. Following the Transactions, Western Resources will be the
holding company for the Western Resources Companies. Western Resources will
have no operating assets and its subsidiaries will be organized into regulated
and unregulated lines of business.
Western Resources has advised KCPL that it currently intends to maintain
ownership of not less than 80.1% of the diluted outstanding shares of Westar
Energy Common Stock immediately following the Transactions. For a description
of certain restrictions imposed by the Merger Agreement on Western Resources'
ability to purchase additional shares of Westar Energy Common Stock in the
public market, see "--Control of Westar Energy Following the Transactions."
Following the Transactions, the shares of Westar Energy Common Stock will
trade on the NYSE. There can be no assurance that an active trading market for
the shares of Westar Energy Common Stock will develop after consummation of
the Transactions. The Westar Energy Common Stock may also experience
volatility immediately following the Transactions until trading values become
established. See "RISK FACTORS--Uncertainty Regarding Trading Prices of Westar
Energy Common Stock Following the Transactions."
Westar Energy. Following the Transactions, Westar Energy will be the new
regulated electric utility operating entity of the Western Resources group,
combining the operating assets of KGE, KPL and KCPL. Westar Energy will
continue its existence under the laws of Kansas. See "BUSINESS OF WESTAR
ENERGY FOLLOWING THE TRANSACTIONS."
CONTROL OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS
Immediately following the Transactions, Western Resources will control
Westar Energy through Western Resources' ownership, assuming there are no
Dissenting Shares, of 80.1% of the diluted outstanding shares of Westar Energy
Common Stock. Although as a result of the Transactions Western Resources will
have the ability to elect the entire Board of Directors of Westar Energy and
to approve any matter requiring the approval of Westar Energy shareowners,
Western Resources has agreed to certain arrangements relating to the election
of directors of Westar Energy after the Closing. See "--Interests of Certain
Persons in the Transactions." In addition, during the 10-year period following
the Closing, the Merger Agreement provides that Western Resources may not,
directly or indirectly, propose to enter into a merger or other business
combination with Westar Energy or purchase, directly or indirectly, all or
substantially all of the assets of Westar Energy. Notwithstanding the
foregoing, the Merger Agreement provides that Western Resources may in any
manner acquire up to 85% of the outstanding shares of Westar Energy Common
Stock on a diluted basis and that Western Resources may make a tender offer or
exchange offer for all the outstanding shares of Westar Energy Common Stock or
enter into any merger or other business combination with Westar Energy if, in
general, such action is at a price and on terms that are fair to the
shareowners of Westar Energy and approved by a majority of the independent
directors. See "THE MERGER AGREEMENT--Standstill Arrangements" and "RISK
FACTORS--Control by the Principal Shareowner of Westar Energy."
71
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement. This summary is not a complete description of the Merger Agreement
and is qualified in its entirety by reference to the Merger Agreement, which
is attached as Annex A to this Joint Proxy Statement/Prospectus and is
incorporated by reference herein. All capitalized terms used in this summary
and not otherwise defined in this Joint Proxy Statement/Prospectus have the
meanings attributed to them in the Merger Agreement. SHAREOWNERS OF WESTERN
RESOURCES AND SHAREHOLDERS OF KCPL ARE URGED TO READ THE MERGER AGREEMENT IN
ITS ENTIRETY.
THE TRANSACTIONS
The Merger Agreement provides that, assuming the approval of the Merger
Agreement, the KCPL Merger and (except for the KGE Merger, the Asset
Contribution and the Stock Contribution) the other transactions contemplated
thereby by KCPL Shareholders (the "KCPL Shareholder Approval"), the approval
of the Merger Agreement, the Western Resources Share Issuance, the
Contributions and the Articles Amendment by shareowners of Western Resources
(the "Western Resources Shareowner Approval") and the satisfaction or waiver
of the other conditions to the Mergers including obtaining the requisite
regulatory approvals, the Transactions will result in the merger of KCPL with
and into Westar Energy and the merger of KGE with and into Westar Energy, in
each case with Westar Energy as the surviving corporation, Western Resources
receiving shares of Westar Energy Common Stock representing, assuming there
are no Dissenting Shares, 80.1% of the diluted outstanding shares of Westar
Energy and 100% of the outstanding stock of KLT and KCPL shareholders
receiving shares of Westar Energy Common Stock representing, assuming there
are no Dissenting Shares, 19.9% of the diluted outstanding shares of Westar
Energy.
If the KCPL Shareholder Approval and the Western Resources Shareowner
Approval are obtained and the other conditions to the Mergers are satisfied or
waived, the closing of the Mergers (the "Closing") will take place at 10:00
a.m. on the tenth NYSE trading day immediately following the date on which the
last of the conditions precedent in the Merger Agreement is fulfilled or
waived, or at such other time and date as KCPL and Western Resources mutually
agree (the "Closing Date").
Subject to the condition that the opinions of Merrill Lynch and Salomon
Smith Barney shall not have been withdrawn, KCPL and Western Resources have
agreed to call, give notice of, convene and hold meetings of their respective
shareowners as soon as reasonably practicable for the purpose of securing the
Western Resources Shareowner Approval and the KCPL Shareholder Approval.
THE CONTRIBUTIONS
Immediately prior to the KCPL Effective Time and as a condition precedent to
the KGE Merger, Western Resources will transfer, or cause to be transferred,
to KGE, and KGE will acquire, all of the right, title and interest of Western
Resources in the KPL Assets. Concurrently with the Asset Contribution, KGE
will assume and agree to pay, perform and discharge when due all the Assumed
Liabilities. The Assumed Liabilities will also include an aggregate principal
amount of indebtedness for borrowed money of Western Resources so that
aggregate total indebtedness for borrowed money (including preferred stock) of
KGE will equal $1.9 billion immediately prior to the KGE Effective Time.
Except for the Assumed Liabilities, Western Resources will retain and have
full responsibility for and obligation with respect to all claims, losses,
indebtedness for borrowed money, guaranties, liabilities, leases and
obligations of Western Resources and its Affiliates and Subsidiaries, other
than Westar Energy after the KGE Effective Time.
Immediately prior to the KGE Effective Time and as a condition precedent to
the KGE Merger, Western Resources will contribute, or cause to be contributed,
to KGE, shares of Western Resources Common Stock equal to the product of (x)
the number of shares of KCPL Common Stock (other than shares of KCPL Common
Stock beneficially owned by Western Resources or KCPL, Dissenting Shares, and
shares of KCPL Common Stock in respect of which cash is to be paid in lieu of
fractional shares) issued and outstanding immediately prior to the Stock
Contribution and (y) the Conversion Ratio. The Conversion Ratio is determined
by dividing $23.50 by the Western Resources Index Price and is subject to a
collar mechanism. See "--Conversion of KCPL Common Stock" below.
72
CONVERSION OF KCPL COMMON STOCK
The chart below sets forth a range of Western Resources Index Prices, the
corresponding Conversion Ratio, the corresponding value of Western Resources
Common Stock to be issued for each share of KCPL Common Stock in the Western
Resources Stock Distribution and the estimated range of value for each share
of Westar Energy Common Stock to be issued in the KCPL Merger. KCPL
Shareholders may call (800) 621-0518 for the exact number of shares to be
issued to them based on the most recent Western Resources Index Price. As
shown in the chart and as discussed in "THE TRANSACTIONS," the total
consideration to be received by KCPL shareholders will include shares of
Westar Energy Common Stock; however, there can be no assurance as to the
prices at which such Westar Energy Common Stock will trade once listed on the
NYSE. See "RISK FACTORS--Uncertainty Regarding Trading Prices of Westar Energy
Common Stock Following the Transactions."
VALUE OF
WESTERN RESOURCES ESTIMATED
WESTERN COMMON STOCK PER VALUE PER SHARE OF
RESOURCES CONVERSION SHARE OF KCPL WESTAR ENERGY
INDEX PRICE RATIO(1) COMMON STOCK COMMON STOCK(2)
- ----------- ---------- ----------------- ------------------
$58.47 0.449 $26.25 $10.00 - 12.00
- -------------------------------------------------------------------------------------
58.46 0.449 26.25 10.00 - 12.00
58.00 0.453 26.25 10.00 - 12.00
57.00 0.461 26.25 10.00 - 12.00
56.00 0.469 26.25 10.00 - 12.00
55.04 0.477 26.25 10.00 - 12.00
- -------------------------------------------------------------------------------------
55.03 0.477 26.25 10.00 - 12.00
54.00 0.477 25.76 10.00 - 12.00
53.00 0.477 25.28 10.00 - 12.00
52.42 0.477 25.00 10.00 - 12.00
- -------------------------------------------------------------------------------------
52.41 0.477 25.00 10.00 - 12.00
52.00 0.481 25.00 10.00 - 12.00
51.00 0.490 25.00 10.00 - 12.00
50.01 0.500 25.00 10.00 - 12.00
- -------------------------------------------------------------------------------------
50.00 0.500 25.00 10.00 - 12.00
49.00 0.500 24.50 10.00 - 12.00
48.00 0.500 24.00 10.00 - 12.00
47.01 0.500 23.51 10.00 - 12.00
- -------------------------------------------------------------------------------------
47.00 0.500 23.50 10.00 - 12.00
46.00 0.511 23.50 10.00 - 12.00
45.00 0.522 23.50 10.00 - 12.00
44.00 0.534 23.50 10.00 - 12.00
43.00 0.547 23.50 10.00 - 12.00
42.00 0.560 23.50 10.00 - 12.00
41.00 0.573 23.50 10.00 - 12.00
40.00 0.588 23.50 10.00 - 12.00
39.00 0.603 23.50 10.00 - 12.00
38.28 0.614 23.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
38.27 0.614 23.50 10.00 - 12.00
38.00 0.614 23.33 10.00 - 12.00
37.00 0.614 22.72 10.00 - 12.00
36.00 0.614 22.10 10.00 - 12.00
35.02 0.614 21.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
35.01 0.614 21.50 10.00 - 12.00
34.00 0.632 21.50 10.00 - 12.00
33.00 0.652 21.50 10.00 - 12.00
32.00 0.672 21.50 10.00 - 12.00
31.00 0.694 21.50 10.00 - 12.00
29.79 0.722 21.50 10.00 - 12.00
- -------------------------------------------------------------------------------------
29.78 0.722 21.50 10.00 - 12.00
- --------
(1)If the Western Resources Index Price is greater than $58.46, the Conversion
Ratio will be fixed at 0.449 provided that if 0.449 multiplied by the
Western Resources Index Price exceeds $30.00, the Conversion Ratio will
mean the quotient (rounded to the nearest 1/100,000) obtained by dividing
$30.00 by the Western Resources Index Price.
(2) Estimated based on analysis by KCPL and Western Resources assuming an
expected initial dividend for the first year of operation of Westar Energy
of $0.72 and a normal electric utility payout ratio of approximately 85%.
The actual dividend policy of Westar Energy will be dependent upon
numerous factors including current economic conditions, earnings and
profitability. Based on current market conditions and comparable publicly
traded electric utilities' dividend yields and price-to-earnings ratios,
KCPL and Western Resources calculated an estimated value range of $10.00
to $12.00 per share of Westar Energy Common Stock based on a range of
dividend yields above and below 6.5%, and a range of price-to-earnings
ratios above and below 13.0x earnings. The estimated value per share of
Westar Energy Common Stock is based upon an estimated aggregate enterprise
valuation range for Westar Energy. There can be no assurance, however, as
to the actual prices at which such Westar Energy Common Stock will trade
once listed on the NYSE. Actual prices could be significantly higher or
lower than the estimated range.
73
THE KCPL MERGER
At the KCPL Effective Time, KCPL will be merged with and into Westar Energy
in accordance with the laws of the States of Missouri and Kansas. Westar
Energy will be the surviving corporation in the KCPL Merger and will continue
its corporate existence under the laws of the State of Kansas. At the KCPL
Effective Time, (i) the Articles of Incorporation of Westar Energy, as in
effect immediately prior to the KCPL Effective Time, will be the articles of
incorporation of Westar Energy until thereafter amended as provided by law and
the Westar Energy Articles, and (ii) the Bylaws of Westar Energy, as in effect
immediately prior to the KCPL Effective Time, will be the Bylaws of Westar
Energy until thereafter amended as provided by law, the Westar Energy
Articles, and such Bylaws. Subject to the foregoing, the additional effects of
the KCPL Merger will be as provided in the applicable provisions of the MGBCL
and the KGCC. The KCPL Merger will become effective upon the certification by
the Secretary of State of the State of Kansas that the certificate of merger
relating to the KCPL Merger has been duly filed.
As of the KCPL Effective Time, by virtue of the KCPL Merger and upon
surrender by the KCPL shareholders of the KCPL Common Stock, each issued and
outstanding share of KCPL Common Stock (other than shares of KCPL Common Stock
beneficially owned by KCPL either directly or through a wholly owned
Subsidiary and Dissenting Shares), will represent one fully paid and
nonassessable share of Westar Energy Series A Common Stock. No Dissenting
Holder will be entitled to shares of Westar Energy Series A Common Stock or
cash in lieu of fractional shares or any distributions unless and until the
Dissenting Holder has failed to perfect or has effectively withdrawn or lost
the right to dissent from the KCPL Merger under the MGBCL, in which case
certificates representing such Dissenting KCPL Shares will be deemed to have
been converted into shares of Westar Energy Series A Common Stock, and, to the
extent such failure, withdrawal or loss occurs subsequent to the Closing Date,
Western Resources and Westar Energy will issue shares of Western Resources
Common Stock and Westar Energy Series A Common Stock in accordance with the
Merger Agreement on the same basis as such shares were issued to other former
KCPL Shareholders who participated in the Transactions. Any Dissenting Holder
will be entitled to receive only the payment provided by Section 351.455 of
the MGBCL with respect to Dissenting KCPL Shares owned by such Dissenting
Holder.
The Merger Agreement requires the KCPL Board to call for redemption before
the KCPL Effective Time all outstanding shares of KCPL Preferred Stock at a
redemption price equal to the amount set forth in the Restated Articles of
Consolidation of KCPL, together with all dividends accrued and unpaid to the
date of such redemption and take all other required actions so that all shares
of KCPL Preferred Stock will be redeemed and no such shares will be deemed to
be outstanding at the KCPL Effective Time or entitled to vote on the approval
of the Merger Agreement and the transactions contemplated hereby.
Immediately after the KCPL Effective Time but prior to the KGE Effective
Time, Westar Energy will cause KLT to assume indebtedness for borrowed money
of Westar Energy in excess of $800 million aggregate principal amount
(including preferred stock).
THE KGE MERGER
Upon the terms and subject to the conditions of the Merger Agreement, at the
KGE Effective Time, KGE will be merged with and into Westar Energy in
accordance with the laws of the State of Kansas. Westar Energy will be the
surviving corporation in the KGE Merger and will continue its corporate
existence under the laws of the State of Kansas. Westar Energy after the KGE
Effective Time is sometimes referred to herein as the "Surviving Corporation."
At the KGE Effective Time, (i) Westar Energy Articles, as in effect
immediately prior to the KGE Effective Time, will be the articles of
incorporation of the Surviving Corporation, until thereafter amended as
provided by law and the Westar Energy Articles, and (ii) the Westar Energy
Bylaws, as in effect immediately prior to the KGE Effective Time, will be the
bylaws of the Surviving Corporation until thereafter amended as provided by
law, the Westar Energy Articles, and such bylaws. Subject to the foregoing,
the additional effects of the KGE Merger will be as provided in the applicable
provisions of the KGCC. The KGE Merger will become effective upon the
certification by the Secretary of State of the State of Kansas that the
74
certificate of merger relating to the KGE Merger has been duly filed. Western
Resources will not exercise dissenters' rights under the KGCC with respect to
the KGE Merger.
As of the KGE Effective Time, by virtue of the KGE Merger and without any
action on the part of Western Resources, all of the issued and outstanding
shares of KGE Common Stock will be converted into and become such number of
shares of Westar Energy Series B Common Stock representing, assuming there are
no Dissenting Shares, 80.1% of the diluted outstanding shares of Westar Energy
and each share of the Western Resources Common Stock contributed to KGE
pursuant to the Contributions will become fully paid and nonassessable.
Immediately after consummation of the KCPL Merger and the KGE Merger, assuming
there are no Dissenting Shares, the outstanding shares of Westar Energy Series
A Common Stock will represent 19.9% of the diluted outstanding shares of
Westar Energy.
ADDITIONAL TRANSACTIONS
Immediately after the KGE Effective Time, Westar Energy will, in connection
with the KGE Merger, distribute to holders of Westar Energy Series A Common
Stock the Western Resources Common Stock contributed to KGE pursuant to the
Stock Contribution. Each share of Westar Energy Series A Common Stock will be
entitled to receive a distribution of that number of shares of Western
Resources Common Stock equal to the product of (a) the number of shares of
Western Resources Common Stock contributed to KGE pursuant to the Stock
Contribution multiplied by (b) a quotient, the numerator of which is 1 and the
denominator of which is the total number of shares of Westar Energy Series A
Common Stock issued and outstanding immediately after the KCPL Effective Time.
The term "Aggregate Consideration" means the number of shares of Westar Energy
Series A Common Stock and the number of shares of Western Resources Common
Stock, respectively, to be issued in the KCPL Merger to holders of KCPL Common
Stock and distributed in the Western Resources Stock Distribution to holders
(other than Western Resources) of Westar Energy Series A Common Stock. No
certificates or scrip representing fractional shares of Western Resources
Common Stock will be distributed. A holder of Westar Energy Series A Common
Stock who would otherwise have been entitled to a fractional share of Western
Resources Common Stock will be entitled to receive a cash payment in lieu of
such fractional share in an amount equal to the product of such fraction
multiplied by the Western Resources Index Price, without any interest thereon.
Immediately after the KGE Effective Time, Westar Energy will distribute to
Western Resources all of the outstanding shares of capital stock of KLT.
Immediately after the Western Resources Stock Distribution, without any
action on the part of Western Resources, each share of Westar Energy Series B
Common Stock owned by Western Resources will automatically represent one fully
paid and nonassessable share of Westar Energy Series A Common Stock.
SUBSIDIARIES
The Merger Agreement defines (i) the term "Subsidiary" of a person to mean
any corporation or other entity of which at least a majority of the voting
power represented by the outstanding capital stock or other voting securities
or interests having voting power under ordinary circumstances to elect a
majority of the directors (or similar members of the governing body of a
corporation or entity) will at the time be held, directly or indirectly, by
such person and (ii) the terms "KCPL Subsidiary" and "Western Resources
Subsidiary" to mean Subsidiaries of KCPL or Western Resources, as applicable,
in which KCPL or Western Resources, as applicable, has an equity investment
exceeding $25 million. The representations and warranties and covenants of
KCPL and Western Resources in the Merger Agreement apply to the parties
themselves and, where applicable, their respective Subsidiaries.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
KCPL on the one hand and Western Resources, KGE and Westar Energy on the other
hand, relating to, among other things and subject to
75
certain qualifications, (a) their respective organizations, the organization
of the KCPL Subsidiaries and of the Western Resources Subsidiaries and similar
corporate matters; (b) their respective capital structures; (c) the
authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters; (d) required regulatory approvals; (e)
their compliance with applicable laws and agreements; (f) reports and
financial statements filed with the SEC or other regulatory authorities and
the accuracy of information contained therein; (g) the absence of any material
adverse effect on their business, assets, financial condition, results of
operations or prospects; (h) the absence of any adverse material claims,
suits, actions, proceedings or investigations, and other litigation issues;
(i) the accuracy of information supplied by or on behalf of each of KCPL,
Western Resources, Westar Energy and KGE for use in this Joint Proxy
Statement/Prospectus; (j) tax matters; (k) retirement and other employee
benefit plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (l) agreements relating to certain
employment and benefits matters; (m) labor matters; (n) compliance with all
applicable material environmental laws, possession of all material
environmental, health, and safety permits and other environmental issues; (o)
the regulation of KCPL, Western Resources and KGE and their respective
subsidiaries as public utilities in specified states and the status of KCPL
and Western Resources under the 1935 Act; (p) votes required in connection
with the Merger Agreement and the transactions contemplated thereby, such
votes being the only votes required; (q) accounting for the transaction under
the purchase method of accounting; (r) the delivery of fairness opinions by
Merrill Lynch, in the case of KCPL, and Salomon Smith Barney, in the case of
Western Resources; (s) the lack of status of KCPL and its affiliates or
Western Resources and its affiliates, as the case may be, as an "Interested
Shareholder" as defined in the Western Resources Articles or the KCPL
Articles, as the case may be; (t) the adequacy of insurance; (u) the
applicability of certain provisions in the KCPL Articles and the Western
Resources Articles, as amended, relating to certain changes in control; (v)
the inapplicability of anti-takeover statutes or regulations to KCPL, Western
Resources, Western Resources Common Stock, KCPL Common Stock or the
transactions contemplated by the Merger Agreement, as the case may be; (w)
that KCPL has taken all corporate action necessary to terminate the Amended
UtiliCorp Agreement, that, with certain exceptions, KCPL has no further
obligations under such agreement or other agreements executed in connection
therewith and that the aggregate amount of all fees and expenses paid or
payable by KCPL to UtiliCorp as a result of such termination will not exceed
$58 million; (x) Westar Energy being a corporation formed solely for the
purpose of effecting the transactions contemplated by the Merger Agreement and
that prior to the Closing will not have engaged in any business or other
activity other than as contemplated by the Merger Agreement; (y) that Western
Resources has good and sufficient title to all of the KPL Assets; (z) the
condition of the KPL Assets; and (aa) the quality of the KPL Business accounts
receivable.
CERTAIN COVENANTS
KCPL agrees that during the period from March 18, 1998 until the KGE
Effective Time, except (1) as permitted by the Merger Agreement, (2) as
Western Resources otherwise consents in writing and (3) subject to regular
conferral with, and, where applicable, the prior written approval of, Western
Resources, as provided in the KCPL Business Plan, KCPL will, 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) dividends required to
be paid on any KCPL preferred stock and (ii) regular quarterly dividends on
shares of KCPL Common Stock with usual record and payment dates not, during
any period of any fiscal year, in excess (except to the extent consistent with
good business judgment and KCPL's past dividend practice) of the quarterly
dividend most recently declared on such stock as of March 18, 1998; (c) not
effect certain other changes in its capitalization other than redeeming any
series of KCPL 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) issuances in the ordinary course of
business consistent with past practice of up to 2,000,000 shares of KCPL
Common Stock 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 existing prior to March 18,
1998 and disclosed to Western Resources or pursuant to plans adopted after
March 18, 1998 which are reasonably acceptable to Western Resources; (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
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consistent with past practice or not aggregating more than $250 million, (ii)
arrangements between KCPL and its respective Subsidiaries or among their
Subsidiaries, (iii) except as set forth in KCPL's disclosure schedule to the
Merger Agreement, (iv) in connection with the refunding of existing
indebtedness, (v) in connection with the redemption of KCPL Preferred Stock as
provided for in the Merger Agreement, or (vi) as may be necessary in
connection with certain permitted acquisitions or capital expenditures.
Notwithstanding (i)-(vi) above, the aggregate total indebtedness for borrowed
money (including preferred stock) of KCPL and its Subsidiaries shall not
exceed $1.4 billion at the KCPL Effective Time; (f) not engage in certain
material acquisitions; (g) not make any capital expenditures during any fiscal
year exceeding the amounts budgeted in the KCPL Business Plan; (h) except as
set forth in KCPL's disclosure schedule, not sell or dispose of assets, other
than dispositions in the ordinary course of business consistent with past
practice; (i) not enter into, adopt, 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 employment, severance or special pay arrangement
with respect to the termination of employment, or other similar contract,
agreement or arrangement with any director or officer or other employee 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 with past practice; (l)
not engage in any activity that 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 enter into any material agreements with affiliates (other
than wholly owned subsidiaries) on terms materially less favorable than could
be reasonably expected to be obtained on an arm's-length basis; (o) confer
with Western Resources regarding ongoing operations, notify Western Resources
of any significant changes in KCPL's business and provide Western Resources
with a copy of all governmental filings; (p) subject to applicable law, (i)
discuss with Western Resources any proposed changes in its rates or charges
(other than pass-through fuel and gas rates or charges) or standards of
service or accounting, (ii) consult with Western Resources prior to making any
filing (or any amendment thereto), or effecting any agreement, commitment,
arrangement or consent with governmental regulators, and (iii) refrain from
making any filing to change its rates on file with the FERC that would have a
material adverse effect on the benefits associated with the Transactions; (q)
use all commercially reasonable efforts to obtain certain third-party
consents; (r) not take any action reasonably likely to materially breach the
Merger Agreement or to render untrue, as of the closing date, any of its
representations and warranties; (s) not take any action that is likely to
jeopardize the qualification of KCPL's or Western Resources' outstanding
revenue bonds as "exempt facility bonds" or as tax-exempt industrial
development bonds; (t) except in the ordinary course of business and
consistent with past practice, refrain from modifying, amending, terminating
or renewing any material contract or agreement and waiving any material
rights; (u) refrain from taking specified actions relating to tax matters; (v)
maintain customary and adequate insurance and existing governmental permits;
(w) refrain from discharging or satisfying 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 KCPL's most recent
consolidated financial statements or incurred in the ordinary course of
business; and (x) not amend or propose to amend its charter, bylaws or
regulations except as contemplated in the Merger Agreement.
Western Resources as to itself, KGE and Westar Energy has agreed that during
the period from March 18, 1998 until the KGE Effective Time they will, among
other things: (a) confer with KCPL regarding ongoing operations, notify KCPL
of any significant changes and provide KCPL with a copy of all governmental
filings; (b) use all commercially reasonable efforts to obtain certain third-
party consents to the KGE Merger; (c) refrain from taking any action
reasonably likely to materially breach the Merger Agreement or render untrue,
as of the closing date any of their representations and warranties; (d) not
permit Westar Energy to engage in any business or incur any liabilities or be
a party to any contract or agreement, other than as contemplated by the Merger
Agreement or as specifically agreed to in writing by KCPL; (e) that Westar
Energy, as of the KGE Effective Time, will have sufficient cash to pay for all
fractional share interests of Westar Energy Common Stock required
77
to be paid under the Merger Agreement; and (f) use reasonable efforts to
obtain for Westar Energy insurance customary for companies engaged in the
electric utility business.
ADDITIONAL AGREEMENTS
The Merger Agreement provides for certain mutual additional agreements from
March 18, 1998 through the KGE Effective Time including the following: (a)
reasonable access to information; (b) reasonable efforts in connection with
the various aspects of this Joint Proxy Statement/Prospectus and the
registration and listing of securities, including obtaining a "cold comfort"
letter from Coopers & Lybrand in the case of KCPL and Arthur Andersen LLP in
the case of Western Resources and a fairness opinion from Merrill Lynch in the
case of KCPL and Salomon Smith Barney in the case of Western Resources; (c)
making appropriate HSR filings and obtaining other regulatory approvals; and
(d) convening and holding the KCPL Meeting and the Western Resources Meeting
of the Western Resources Board of Directors and the KCPL Board of Directors
and, subject to their respective fiduciary obligations, recommending to their
respective shareowners the approval of the Merger Agreement and those
transactions therein required to be voted upon.
The parties to the Merger Agreement agree on behalf of themselves and their
Subsidiaries to execute such further documents and instruments and take such
further action as may be reasonably requested by any other party in order to
consummate the transactions contemplated by the Merger Agreement.
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 KGE Effective Time, the Surviving Corporation will, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless each
person who was on or at any time prior to March 18, 1998, or who becomes prior
to the KGE Effective Time, an officer, director or employee of KCPL, Westar
Energy, Western Resources, KGE or any of their respective Subsidiaries (each
an "Indemnified Party") against (i) all losses, expenses (including reasonable
attorneys' 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 KGE Effective
Time (whether asserted or claimed prior to, at or after the KGE 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 (the
"Indemnified Liabilities") and (ii) 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 KGE Effective
Time), (i) the Surviving Corporation will pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel must be
reasonably satisfactory to the Surviving Corporation, 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 KGCC, (ii) the Surviving
Corporation 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 KGCC and the
certificate of incorporation or bylaws of the Surviving Corporation will be
made by independent counsel mutually acceptable to the Surviving Corporation
and the Indemnified Party; provided, however, that the Surviving Corporation
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 KGE Effective Time, the Surviving Corporation will cause to be
maintained in effect policies of directors' and officers' liability insurance
maintained by KCPL and Western Resources for the benefit of those persons who
were covered by such policies on March 18, 1998, on terms no less favorable
than the terms of such insurance coverage, provided that the
78
Surviving Corporation will not be required to expend in any year an amount
exceeding 150% of the annual aggregate premiums currently paid by KCPL and
Western Resources for such insurance. If the annual premiums of such insurance
coverage exceed such amount, the Surviving Corporation will be obligated to
obtain a policy with the best coverage available, in the reasonable judgment
of the Board of Directors of the Surviving Corporation, for a cost not
exceeding such amount. The Merger Agreement also provides that to the fullest
extent permitted by law, from and after the KGE Effective Time, all rights to
indemnification existing in favor of the employees, agents, directors and
officers of KCPL, Westar Energy, Western Resources and KGE and their
respective Subsidiaries with respect to their activities as such prior to the
KGE Effective Time, as provided in their respective articles of incorporation
and bylaws in effect on March 18, 1998, or otherwise in effect on March 18,
1998, will survive the KGE Merger and will continue in full force and effect
for a period of not less than six years from the KGE Effective Time.
CERTAIN EMPLOYMENT AGREEMENTS AND WORKFORCE MATTERS
Subject to certain provisions of the Merger Agreement, the Surviving
Corporation and its Subsidiaries will honor, without modification, all
contracts, agreements, collective bargaining agreements and commitments of
KCPL prior to March 18, 1998 that have been provided to Western Resources and
disclosed in KCPL's disclosure schedule and that apply to any current or
former employee or director of KCPL. Subject to applicable collective
bargaining agreements, Western Resources will treat employees of the Surviving
Corporation as a single workforce, and will use its best efforts to conduct
its employee management practices on a fair and equitable basis, without
regard to any employee's place of employment prior to the KGE Effective Time.
EMPLOYEE BENEFIT PLANS
During the period from the KGE Effective Time to the first anniversary
thereof, Westar Energy will provide benefits to employees of the Surviving
Corporation who were employees of KCPL prior to the KGE Effective Time that
are no less favorable in the aggregate than the benefits provided to employees
of KCPL as of March 18, 1998. Between the first and second anniversaries of
the KGE Effective Time, Westar Energy will either provide benefits that are no
less favorable in the aggregate than benefits provided to KCPL employees as of
March 18, 1998 or will provide benefits on the same terms as those applicable
to other similarly situated former KGE employees. Thereafter, Westar Energy
will provide benefits on the same terms as those applicable to other similarly
situated former KGE employees unless unable to do so, in which case it will
continue to provide benefits that are no less favorable in the aggregate than
benefits provided to KCPL employees as of March 18, 1998 until such other
benefits can be provided. The foregoing commitments do not apply to certain
KCPL benefit plans which are set forth in the Merger Agreement.
The consummation of the KCPL Merger and the KGE Merger will not be treated
as a termination of employment under benefit plans of either Western Resources
or KCPL, and participants in such plans will receive credit for past service
with KCPL or Western Resources, as the case may be.
STOCK OPTIONS
The Merger Agreement provides that prior to the KCPL Effective Time, KCPL
will take such actions as may be necessary such that immediately prior to the
KCPL Effective Time, each option to purchase shares of KCPL Common Stock and
any accrued dividend rights granted on such KCPL Common Stock and any KCPL
Stock Options which are outstanding, whether or not then exercisable, will be
canceled and entitle the holder of any then exercisable KCPL Stock Options,
upon surrender of all outstanding KCPL Stock Options, to receive in
consideration of such cancellation an amount in cash from KCPL equal to the
result of multiplying the number of shares of KCPL Common Stock previously
subject to such KCPL Stock Option by the difference between (i) the sum of (x)
the fair market value of the number of shares of Western Resources Common
Stock (as determined by the average closing price of the Western Resources
Common Stock for the five (5) consecutive trading day period occurring
immediately following the Western Resources Stock Distribution) that such
optionee would have received if such optionee had exercised a KCPL Stock
Option to purchase one (1) share of KCPL Common Stock immediately prior to the
KCPL Effective Time and (y) the fair market value of the number of shares of
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Westar Energy Series A Common Stock (as determined by the average closing
price of the Westar Energy Series A Common Stock for the five (5) consecutive
trading day period occurring immediately following the Western Resources Stock
Distribution) that such optionee would have received if such optionee had
exercised a KCPL Stock Option to purchase one (1) share of KCPL Common Stock
immediately prior to the KCPL Effective Time and (ii) the per share exercise
price of such KCPL Stock Options.
NO SOLICITATIONS
The Merger Agreement provides that from and after March 18, 1998, KCPL will
not, and will not authorize or permit any of its officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, "Representatives") to, directly or
indirectly, initiate, solicit or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any inquiries or
the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) from any person, or engage
in any discussion or negotiations relating thereto or accept any Acquisition
Proposal; provided, however, that notwithstanding any other provision of the
Merger Agreement, KCPL may (i) at any time prior to the time KCPL's
shareholders will have voted to approve the Merger Agreement, engage in
discussions or negotiations with a third party who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or indirectly,
by or with KCPL or its Representatives after March 18, 1998) seeks to initiate
such discussions or negotiations and may furnish such third-party information
concerning KCPL and its business, properties and assets if, and only to the
extent that, (A)(x) the third party has first made an Acquisition Proposal
that is financially superior to the transactions contemplated by the Merger
Agreement and has demonstrated that financing for the Acquisition Proposal is
reasonably likely to be obtained (as determined in good faith by the KCPL
Board after consultation with its financial advisors) and (y) the KCPL Board
concludes in good faith, after considering applicable provisions of state law,
on the basis of oral or written advice of outside counsel that such action is
necessary for the KCPL Board to act in a manner consistent with its fiduciary
duties under applicable law and (B) prior to furnishing such information to or
entering into discussions or negotiations with such person or entity, KCPL (x)
provides prompt notice to Western Resources to the effect that it is planning
to furnish information to or enter into discussions or negotiations with such
person or entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such person or entity than the terms
contained in the Confidentiality Agreement, (ii) comply with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer,
and/or (iii) accept an Acquisition Proposal from a third party, provided KCPL
first terminates the Merger Agreement pursuant to the provisions of Section
11.1(e) thereof. KCPL has agreed to cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted previously by KCPL or its Representatives with
respect to the foregoing. KCPL has agreed to notify Western Resources orally
and in writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the person making it) within 24 hours of the receipt thereof, keep Western
Resources informed of the status and details of any such inquiry, offer or
proposal and give Western Resources five days' advance notice of any agreement
to be entered into with or any information to be supplied to any person making
such inquiry, offer or proposal. "Acquisition Proposal" is defined to mean a
proposal or offer (other than by Western Resources, KGE or Westar Energy) for
a tender or exchange offer, a merger, consolidation or other business
combination involving KCPL or any KCPL Subsidiary, or any proposal to acquire
in any manner a substantial equity interest in or a substantial portion of the
assets of KCPL or any KCPL Subsidiary.
OPERATIONS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS
The Merger Agreement provides that at the KGE Effective Time, Western
Resources will cause the initial Board of Directors of Westar Energy to be
comprised of six persons designated by Western Resources and four persons
selected from the Board of Directors of KCPL, in office as of March 18, 1998,
designated by KCPL. Thereafter, directors of Westar Energy will be nominated
and elected in accordance with the procedures set forth in the Westar Energy
Articles and Westar Energy Bylaws.
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The Merger Agreement provides that at the KGE Effective Time, Western
Resources will cause to be nominated to the Board of Directors of Western
Resources (to such class of directors as Western Resources will determine in
its sole discretion) the following persons: William H. Clark, Robert J. Dineen
and Robert H. West. No persons will be substituted for the foregoing persons
if any such person declines to serve or is not qualified as a director of
Western Resources pursuant to the Western Resources Articles or the Western
Resources Bylaws.
The Merger Agreement provides that at the KGE Effective Time, (i) the
executive headquarters of Westar Energy will be in Kansas City, Missouri, (ii)
the customer service headquarters of Westar Energy will be in Wichita, Kansas,
and (iii) the field operation headquarters of Westar Energy will be in Topeka,
Kansas.
Upon the KGE Effective Time, the dividend policy of Westar Energy will be
set by the Board of Directors of Westar Energy so as to achieve a payout ratio
that is consistent with comparable electric utility companies.
TAX-FREE STATUS
The Merger Agreement provides that no party thereto will take any action nor
permit any of its Subsidiaries or any employees, officers or directors of such
party or of any of its Subsidiaries to take any action which would, or would
be reasonably likely to, adversely affect the ability of the KCPL Merger or
the KGE Merger to qualify for tax-free treatment under the Code, both to the
parties and to their respective shareholders (except for any cash received in
lieu of fractional shares), and each party shall use reasonable efforts to
achieve such result.
REDEMPTION OF WESTERN RESOURCES PREFERRED STOCK
The Merger Agreement provides that prior to the KGE Effective Time, the
Western Resources Board will call for redemption all its outstanding shares of
Preferred Stock and no such shares will be deemed to be outstanding at the KGE
Effective Time or entitled to vote on the approval of the Merger Agreement and
the transactions contemplated thereby.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE KGE MERGER AND THE KCPL
MERGER
Mutual Conditions. The respective obligations of each party to effect the
KGE Merger or the KCPL Merger, as the case may be, are subject to, among other
things, the following mutual conditions: (a) the necessary approvals by the
shareowners of KCPL and of Western Resources will have been obtained; (b) no
temporary restraining order, preliminary or permanent injunction or other
order will be in effect that prevents consummation of the KGE Merger or the
KCPL Merger; (c) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part will have become effective and will not be
the subject of a stop order; (d) the shares of Western Resources Common Stock
issuable in the Stock Contribution and the Western Resources Stock
Distribution and the shares of Westar Energy Common Stock issuable in the KCPL
Merger and the KGE Merger will have been approved for listing on the NYSE upon
official notice of issuance; (e) all material governmental authorizations,
permits, consents, orders or approvals will have been obtained; and (f) all
required licenses, permits or other authorizations will have been transferred
or reissued to the Surviving Corporation on or before the Closing Date. There
is no assurance that the foregoing conditions will be met.
In addition to the foregoing conditions, the respective obligations of each
party to effect the KGE Merger and the KCPL Merger, as the case may be, are
subject to the following condition:
Kansas Sales and Use Tax Condition
Pursuant to the Merger Agreement, the obligation of each party to
effect the Mergers is subject to the receipt by Western Resources, on
or prior to the Closing Date, of confirmation from the Kansas tax
authorities, in form and substance reasonably satisfactory to Western
Resources, that no sales or use tax is payable in connection with the
Asset Contribution. Kansas state and local governments impose a sales
or use tax on the gross receipts from the sale of tangible personal
property. Western Resources believes that the Asset Contribution does
not constitute a "sale" for this purpose (or, alternatively, will
constitute an exempt "nonrecurring" sale). In order for a sale to
qualify as "nonrecurring," there must not be more than one sale of that
type within a 12-month period.
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As a result of (i) the lack of written authority regarding whether
the Asset Contribution constitutes a sale for purposes of the Kansas
sales or use tax, and (ii) uncertainty as to whether, if the Asset
Contribution is deemed to be a sale, Western Resources will make or
will have made, another sale of the same type within a 12-month period
(which is within Western Resources' control), there can be no assurance
that Western Resources will receive confirmation from the Kansas tax
authorities that no sales or use tax is payable. If such confirmation
is not received by Western Resources (or if the form or substance of
such confirmation is not reasonably satisfactory to Western Resources),
there can be no assurance that the Mergers will be effected.
Conditions to the Obligations of Western Resources, KGE and Westar Energy to
Effect the KGE Merger. The obligations of Western Resources, KGE and Westar
Energy to effect the KGE Merger are subject to the following additional
conditions, among others, specified in the Merger Agreement: (a) KCPL will
have performed in all material respects its agreements and covenants required
to be performed at or prior to the KGE Effective Time; (b) KCPL's
representations and warranties set forth in the Merger Agreement shall be true
and correct as of the date of execution of the Merger Agreement and as of the
Closing Date (except for those that expressly speak only as of a specific date
or time, which need only be true and correct as of such date or time), except
as would not reasonably be likely to result in a KCPL Material Adverse Effect;
(c) Western Resources shall have received from KCPL a certificate dated the
Closing Date to the effect that the foregoing two conditions have been
satisfied; (d) no KCPL Material Adverse Effect shall have occurred; (e) KCPL
will have obtained certain third-party consents the lack of which would cause
a KCPL Material Adverse Effect; (f) Western Resources will be reasonably
satisfied that Final Orders relating to certain government approvals of the
merger do not impose terms or conditions that would have or are reasonably
likely to have a material adverse effect on the Surviving Corporation; (g)
Western Resources shall have received an opinion from Sullivan & Cromwell to
the effect that the KCPL Merger and the KGE Merger will each qualify as a
reorganization within the meaning of Section 368 of the Code and that no gain
or loss will be recognized by the shareowners of KGE or Western Resources as a
result of the KGE Merger; (h) the aggregate number of Dissenting Shares shall
be no greater than 5.5% of the outstanding shares of KCPL Common Stock as of
the KCPL Effective Time; (i) the KCPL Merger shall have been consummated; and
(j) Western Resources will have received Affiliate Agreements from each
Affiliate of KCPL. There is no assurance that the foregoing conditions will be
met.
In addition to the foregoing conditions, the obligations of Western
Resources, KGE and Westar Energy to effect the KGE Merger are subject to the
following additional conditions specified in the Merger Agreement:
Exemption from the 1935 Act
It is a condition to the obligations of Western Resources, KGE and
Westar Energy to effect the Transactions that Western Resources will be
reasonably satisfied that as of the KGE Effective Time, Western
Resources will be exempt from all of the provisions of the 1935 Act
other than Section 9(a)(2) thereof. See "RISK FACTORS--Uncertainty
Regarding Western Resources' Regulatory Status" and "THE TRANSACTIONS--
Regulatory Matters--Public Utility Holding Company Act of 1935."
Western Resources anticipates that, following consummation of the
Transactions, it will be exempt under Section 3(a)(1) of the 1935 Act
pursuant to Rule 2 thereunder from all provisions of the 1935 Act
except Section 9(a)(2). To qualify for an exemption under Section
3(a)(1) of the 1935 Act, Westar Energy must be predominantly intrastate
in character and carry on its utility business substantially in the
state in which both Westar Energy and Western Resources are
incorporated, Kansas. As a result of the Transactions, Westar Energy
will derive utility revenues from outside of the state of Kansas in an
amount at the high-end of the range of out-of-state utility revenues of
utility subsidiaries of holding companies that currently are exempt
from the 1935 Act pursuant to Section 3(a)(1) and Rule 2. In the event
that Western Resources determines prior to the consummation of the
Transactions that an exemption under Section 3(a)(1) of the 1935 Act is
not available, Western Resources must either (i) waive this condition
and become a registered holding company under the 1935 Act or (ii)
determine to assert that this condition has not been satisfied and
choose not to consummate the KGE Merger.
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Although Western Resources anticipates that after the Transactions it
will qualify for an exemption under Section 3(a)(1) of the 1935 Act
pursuant to Rule 2, there is no assurance that the SEC will not
challenge Western Resources' stated intention to file for an exemption
pursuant to Rule 2 or that this condition will be satisfied.
Obtaining Statutory Approval Satisfactory to Western Resources
It is a condition to the obligations of Western Resources, KGE and
Westar Energy to effect the Transactions that the final orders
necessary to consummate the Transactions are obtained from the various
federal and state regulators on terms and conditions which would not
have, or insofar as reasonably can be foreseen would not be likely to
have, a material adverse effect on the benefits anticipated by Western
Resources in the Transactions. In many utility mergers state regulators
require a portion of savings from merger synergies to be allocated to
customers as a condition for their approval of a transaction. Western
Resources believes, and has discussed its position with KCPL, that in
light of the rate reductions associated with merger synergies that are
described below and already allocated to customers, any efforts by the
relevant state regulators to seek further rate reductions would give
Western Resources the right to trigger such condition. Western
Resources and KCPL have each already implemented rate reductions in
Kansas and Missouri. KCPL has (i) already implemented rate reductions
to share anticipated merger synergies with customers in Missouri from
its previously planned merger with UtiliCorp and (ii) entered into a
stipulation in Kansas which states that the Kansas Commission staff and
the Citizen's Utility Ratepayers Board will not request rate reductions
or rate refunds from Western Resources, KCPL or their affiliates sooner
than one year after consummation of the Mergers. Moreover, Western
Resources believes that the rate reductions it has begun to implement
in Kansas take into account synergies that are related to the
Transactions. There is no assurance that the state regulators will not
require Westar Energy to share additional merger related synergies with
customers in Missouri or Kansas as a condition to their approval of the
Transactions or that Western Resources will waive this condition and
consummate the Transactions if state regulators require additional rate
reductions. See "THE TRANSACTIONS--Regulatory Matters--General."
Conditions to the Obligations of KCPL to Effect the KCPL Merger. The
obligation of KCPL to effect the KCPL Merger is subject to the following
additional conditions, among others, specified in the Merger Agreement: (a)
Western Resources, KGE and Westar Energy will have performed in all material
respects its agreements and covenants required to be performed at or prior to
the KGE Effective Time; (b) the representations and warranties of Western
Resources, KGE and Westar Energy set forth in the Merger Agreement shall be
true and correct as of the date of execution of the Merger Agreement and as of
the Closing Date (except for those that expressly speak only as of a specific
date or time, which need only be true and correct as of such date or time),
except as would not reasonably be likely to result in a Western Resources
Material Adverse Effect; (c) KCPL shall have received from Western Resources a
certificate dated the Closing Date to the effect that the foregoing two
conditions have been satisfied; (d) no Western Resources Material Adverse
Effect shall have occurred; (e) Western Resources, KGE and Westar Energy will
have obtained certain third-party consents the lack of which would cause a
Western Resources Material Adverse Effect; (f) KCPL shall be reasonably
satisfied that Final Orders relating to certain government approvals of the
merger do not impose terms or conditions that would have or are reasonably
likely to have a material adverse effect on the Surviving Corporation; (g)
KCPL shall have received an opinion from Skadden Arps to the effect that the
KCPL Merger and KGE Merger will each qualify as a reorganization under Section
368(a) of the Code and that, other than in respect of cash paid in lieu of
fractional shares, no gain or loss will be recognized by the shareholders of
KCPL or Westar Energy as a result of either the KCPL Merger or the KGE Merger;
and (h) the Asset Contribution and the Stock Contribution will have been
consummated and all conditions to Western Resources' and Westar Energy's
obligations to effect the KGE Merger have been satisfied or waived. There is
no assurance that the foregoing conditions will be met.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the Boards of Directors of the
parties thereto, at any time before or after approval by the shareholders of
KCPL and Western Resources and prior to the KGE Effective Time, but
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after such approvals, no such amendment will (a) alter or change the amount or
kind of shares, rights or any of the proceedings of the treatment of shares
under the terms of the KCPL Merger and the KGE Merger or (b) alter or change
any of the terms and conditions of the Merger Agreement if any of the
alterations or changes, alone or in the aggregate, would materially adversely
affect the rights of holders of KCPL Common Stock or Western Resources Common
Stock, except for alterations or changes that could otherwise be adopted by
the Board of Directors of the Surviving Corporation without the further
approval of such shareholders, as applicable. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties thereto.
At any time prior to the KGE Effective Time, a party to the Merger Agreement
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party and (c) waive compliance with any of the
agreements or conditions of the other party to the extent permitted by
applicable law. Any agreement on the part of a party to any such extension or
waiver will be valid if set forth in an instrument in writing signed on behalf
of such party.
TERMINATION
The Merger Agreement provides that only Western Resources and KCPL will have
the right to terminate the Merger Agreement. (References to a party under this
section will mean Western Resources, and KGE and Westar Energy, on the one
hand, and KCPL, on the other hand.) The Merger Agreement may be terminated at
any time prior to the Closing Date, whether before or after approval by the
shareholders of the respective parties hereto contemplated by the Merger
Agreement: (a) by mutual written consent of the Boards of Directors of KCPL
and Western Resources; (b)(i) by either party if there has been any breach of
any representations, warranties, covenants or agreements on the part of the
other set forth in the Merger Agreement, which breaches individually or in the
aggregate would result in a Western Resources Material Adverse Effect or a
KCPL Material Adverse Effect, as the case may be, and, which breaches have not
been cured within 20 business days following receipt by the breaching party of
notice of such breach or adequate assurance of such cure will not have been
given by or on behalf of the breaching party within such 20-business day
period, (ii) by either party, if the KCPL Board of Directors or any committee
thereof (A) will withdraw or modify in any adverse manner its approval or
recommendation of the Merger Agreement or the transactions contemplated
hereby, (B) will fail to reaffirm such approval or recommendation upon Western
Resources' request, (C) will approve or recommend any acquisition of KCPL, or
a material portion of its assets or any tender offer for shares of capital
stock of KCPL in each case, other than by Western Resources or an Affiliate
thereof or (D) resolves, to take any of the actions specified in clause (A),
(B) or (C), or (iii) by either party, if any state or federal law, order, rule
or regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the
transactions contemplated hereby, or by any party hereto if any court of
competent jurisdiction in the United States or any state will have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, and such order, judgment or
decree will have become final and nonappealable; (c) by either party hereto,
by written notice to the other party, if the KCPL Effective Time will not have
occurred on or before December 31, 1999 (the "Termination Date"); provided,
however, that the right to terminate the Merger Agreement will not be
available to any party whose failure to fulfill any obligation under this
Merger Agreement has been the cause of, or resulted in, the failure of the
KCPL Effective Time to occur on or before this date; (d) by either party
hereto, by written notice to the other party, if (i) the Western Resources
Shareowners' Approval will not have been obtained at a duly held Western
Resources Meeting, including any adjournments thereof, or the KCPL
Shareholders' Approval will not have been obtained at a duly held KCPL
Meeting, including any adjournments thereof or (ii) the Western Resources
Shareowners' Approval and the KCPL Shareholders' Approval will not have been
obtained on or before August 31, 1998; (e) by KCPL, prior to the approval of
the Merger Agreement by the shareholders of KCPL, upon five days' prior notice
to Western Resources, if, as a result of an Acquisition Proposal by a party
other than Western Resources or any of its Affiliates, the Board of Directors
of KCPL determines in good faith, after considering applicable provisions of
state law, on the basis of oral or written advice of outside counsel that
acceptance of the Acquisition Proposal is necessary for the KCPL Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable law; provided, however, that (i) the Board of Directors of KCPL
will have concluded in good faith, after
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considering applicable provisions of state law and after giving effect to all
concessions which may be offered by Western Resources pursuant to clause (ii)
below, on the basis of oral or written advice of outside counsel that such
action is necessary for the Board of Directors to act in a manner consistent
with its fiduciary duties under applicable law and (ii) prior to any such
termination, KCPL will, and will cause its respective financial and legal
advisors to, negotiate with Western Resources to make such adjustments in the
terms and conditions of the Merger Agreement as would enable KCPL to proceed
with the transactions contemplated herein; or (f) by either party hereto, by
the delivery of written notice to the other party not later than 5:00 p.m.,
New York City time, on the fifth NYSE trading day prior to the scheduled KGE
Effective Time (the parties agreeing that each party will have at least ten
NYSE trading days' notice of the KGE Effective Time), if the Western Resources
Index Price is less than or equal to $29.78.
In the event of termination of the Merger Agreement by either KCPL or
Western Resources pursuant to one of the situations enumerated above, there
will be no liability on the part of any party hereto or their respective
officers or directors under the Merger Agreement. Certain provisions of the
Merger Agreement will, however, survive the termination.
TERMINATION FEES
If (i) the Merger Agreement (A) is terminated by Western Resources under the
circumstances described in clause (b)(i) above, (B) is terminated by KCPL
under the circumstances described in clause (e) above, (C) is terminated as a
result of KCPL's breach of its duty to perform its obligations in connection
with obtaining the KCPL Shareholder Approval, or (D) is terminated because the
shareholders of KCPL do not approve the transactions contemplated thereby,
(ii) at the time of such termination or prior to the meeting of KCPL's
shareholders there will have been made an Acquisition Proposal or any of its
Affiliates (whether or not such Acquisition Proposal will have been rejected
or will have been withdrawn prior to the time of such termination or of such
meeting) and (iii) within two and one-half years of the termination of the
Merger Agreement KCPL or any of its Affiliates becomes a Subsidiary of the
party which has made such Acquisition Proposal or a Subsidiary of an Affiliate
of such party or accepts a written offer to consummate or consummates an
Acquisition Proposal with such party or an Affiliate thereof, then KCPL
(jointly and severally with its Affiliates), upon the signing of a definitive
agreement relating to such Acquisition Proposal, or, if no such agreement is
signed, then at the closing (and as a condition to the closing) of KCPL
becoming such a Subsidiary or of such Acquisition Proposal, will pay to
Western Resources a termination fee equal to $50 million in cash. If on or
before the Termination Date all of the conditions to Closing specified in the
Merger Agreement, other than the KCPL Tax Condition, have been fulfilled, and
KCPL declines to waive the KCPL Tax Condition, then KCPL will reimburse to
Western Resources its expenses in connection with the Merger Agreement up to
$5 million.
If on or before the Termination Date all of the conditions to the Closing
set forth in the Merger Agreement (other than conditions relating to the 1935
Act, certain statutory approvals, FERC approval and Western Resources' receipt
of a tax opinion from counsel) will have been fulfilled, and Western Resources
declines to waive such conditions, then immediately following the Termination
Date Western Resources will reimburse KCPL for any and all expenses of KCPL
with respect to the Merger Agreement and the transactions contemplated
thereby, up to a maximum reimbursement of KCPL by Western Resources of $5
million in the case of conditions relating to the statutory approvals or the
tax opinion, $25 million in the case of the conditions relating to FERC
approval, and $35 million in the case of the condition relating to the 1935
Act; provided, however, that Western Resources will be required to reimburse
KCPL's expenses in respect of the failure of only one of the foregoing closing
conditions to be satisfied.
EXPENSES
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be
paid by the party incurring the expense, except that those expenses incurred
in connection with the printing and filing of the Registration Statement of
which this Joint Proxy Statement/Prospectus forms a part, as well as the
filing fee relating thereto, will be shared equally by KCPL and Western
Resources.
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STANDSTILL ARRANGEMENTS
If the Merger Agreement is terminated (i) by mutual consent of the parties,
(ii) by KCPL because of a breach by Western Resources of any of its
representations or covenants, (iii) by either party because of any law or
injunction that permanently prohibits the transactions contemplated by the
Merger Agreement, (iv) subject to certain exceptions, if the KCPL Effective
Time does not occur prior to December 31, 1999, or (v) by either party because
Western Resources' shareowners do not approve the Contributions and the
Articles Amendment, then Western Resources may not, for a period of three
years following such termination, among other things, acquire, agree to
acquire or make any proposal to acquire, directly or indirectly, any
securities or property of KCPL or any of its subsidiaries, seek or propose to
enter into a merger, tender offer, or sale of assets involving KCPL, or
otherwise act to seek to control or influence the management, Board of
Directors or policies of KCPL; provided, however, that the provisions set
forth in the preceding sentence will cease to apply in the event that a third
party, not acting in concert with Western Resources or not affiliated with
Western Resources, makes a proposal to merge with KCPL or acquire KCPL or all
or substantially all of the assets of KCPL, or acquires 10% or more of the
KCPL Common Stock or if KCPL permits such action in writing.
Except as set forth below, during the period beginning on, and ending on the
tenth anniversary of, the Closing Date (unless earlier terminated pursuant to
the provisions of the Merger Agreement), Western Resources will not, and will
cause its Subsidiaries and Affiliates or those acting on their behalf not to,
directly or indirectly, (A) in any manner acquire, agree to acquire, make any
proposal to acquire or announce or disclose any intention to make a proposal
to acquire, directly or indirectly, any Voting Securities, except pursuant to
the KGE Merger in accordance with the terms and conditions of the Merger
Agreement or (B) propose to enter into, or announce or disclose any intention
to propose to enter into, directly or indirectly, any merger or business
combination involving Westar Energy or to purchase, directly or indirectly,
all or substantially all of the assets of Westar Energy. Notwithstanding the
provisions of the previous sentence, following the Closing Date Western
Resources may (i) in any manner acquire Voting Securities representing in the
aggregate up to but not exceeding the greater of 85% of the Voting Securities
on a diluted basis or 88.5% of the Voting Securities on a primary basis, or
(ii) make a tender offer or exchange offer for all outstanding shares of
Westar Energy Common Stock or Voting Securities or propose to enter into, or
announce or disclose the intention to propose to enter into any merger or
business combination with Westar Energy or to purchase substantially all the
assets of Westar Energy, provided that any such action satisfies the following
additional requirements: (x) the offer must be a "tender offer" for purposes
of, and must be made in compliance with, Rules 14d-1 and 13e-3 under the
Exchange Act (or any successor provisions thereto), and (y) any such action
must be at a price and on terms that are fair to the stockholders of Westar
Energy (as determined by a majority of the Independent Directors after the
receipt of a fairness opinion with respect to any such proposed transaction
from a nationally recognized investment banking firm selected by a majority of
the Independent Directors and reasonably acceptable to Western Resources) and
must be approved by a majority of the Independent Directors.
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AMENDMENT TO THE WESTERN RESOURCES ARTICLES
PROPOSED AMENDMENT
The Western Resources Board has adopted a proposal to amend the Western
Resources Articles and has directed that this proposed amendment be submitted
to the Western Resources shareowners at the Western Resources Meeting. As
described below, the Articles Amendment would increase, immediately prior to
the Western Resources Share Issuance, the number of authorized shares of
Western Resources Common Stock from 85,000,000 shares to 300,000,000 shares.
Depending on the Conversion Ratio, a maximum of 44,698,100 shares may be used
to consummate the Stock Contribution, and the remaining shares will be
available, if and when needed, for issuance for any proper corporate purpose
approved by the Western Resources Board, subject to the shareowner voting
requirements.
Current Provision. The Western Resources Articles currently provide for
authorized capital stock of 95,600,000 shares, of which 85,000,000 shares are
common stock, 4,000,000 shares are preference stock without par value, 600,000
shares are preferred stock of the par value One Hundred Dollars ($100) each
and 6,000,000 shares are preferred stock without par value.
Proposed Amendment. The Authorized Stock Amendment provides that the
authorized shares of Western Resources Common Stock be increased from
85,000,000 shares to 300,000,000 shares. If the shareowners of Western
Resources approve the Authorized Stock Amendment, the first part of Article IV
of the Western Resources Articles will be amended to read in its entirety as
follows:
The amount of capital stock of this Corporation shall be 310,600,000
shares of which 300,000,000 shares is Common Stock of the par value of
Five Dollars ($5.00) each, 4,000,000 shares is Preference Stock without
par value, 600,000 shares is preferred stock of the par value of One
Hundred Dollars ($100) each and 6,000,000 shares is preferred stock
without par value, all such preferred stock being termed "Preferred
Stock."
Purpose and Effect of the Proposed Amendment. The purpose of the proposed
increase in the number of authorized shares of Western Resources Common Stock
is to ensure that sufficient shares are available, immediately prior to the
Western Resources Share Issuance, to consummate the Stock Contribution and to
ensure that additional shares will be available, if and when needed, for
issuance from time to time for any proper purpose approved by the Western
Resources Board, including issuances to raise capital or effect acquisitions,
and for other corporate purposes. Although there are no present arrangements,
agreements or understandings for issuance of such additional shares (other
than the shares reserved for issuance in the Stock Contribution), the Western
Resources Board believes that the availability of the additional authorized
shares for issuance upon approval of the Western Resources Board without the
necessity for, or the delay inherent in, a meeting of the Western Resources
shareowners will be beneficial to Western Resources and its shareowners by
providing Western Resources with the flexibility required to consider promptly
and respond to future business needs and opportunities as they arise.
If the proposed amendment is approved by the shareowners of Western
Resources, the Board does not presently intend to seek further shareowner
approval with respect to any particular issuance of shares, unless required by
applicable law, by regulatory authorities, or by the policies, rules and
regulations of the NYSE.
VOTE REQUIRED FOR APPROVAL
As provided under the KGCC, the Western Resources Articles, the Western
Resources Bylaws and the rules of the NYSE, as applicable, approval of the
Articles Amendment requires the affirmative vote of a majority of the
outstanding shares of Western Resources Common Stock entitled to vote at the
Western Resources Meeting. Abstentions and broker non-votes will have the same
effect as votes cast against approval of the Articles Amendment. Approval of
the Articles Amendment is required in order to consummate the Transactions.
THE WESTERN RESOURCES BOARD, BY A UNANIMOUS VOTE, RECOMMENDS THAT WESTERN
RESOURCES SHAREOWNERS VOTE "FOR" THE ARTICLES AMENDMENT.
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DESCRIPTION OF WESTAR ENERGY CAPITAL STOCK
The following description of Westar Energy capital stock is not complete and
is subject to and qualified in its entirety by reference to the KGCC and to
the complete text of the Westar Energy Articles and the Westar Energy Bylaws
which are attached as Annex F and G, respectively, to this Joint Proxy
Statement/Prospectus and incorporated by reference herein.
AUTHORIZED CAPITAL STOCK
Under the Westar Energy Articles, Westar Energy's authorized capital stock
consists of 500,000,000 shares, without par value, of Series A Common Stock,
300,000,000 shares, without par value, of Series B Common Stock and 50,000,000
shares, without par value, of preferred stock.
WESTAR ENERGY COMMON STOCK
The Westar Energy Bylaws provide that each outstanding share entitled to
vote under the Westar Energy Articles is entitled to one vote on each matter
submitted to a shareowner vote. The KGCC allows, but does not require,
cumulative voting for the election of directors. Under the Westar Energy
Bylaws, Westar Energy's shareowners have cumulative voting rights for the
election of directors. Accordingly, each holder of shares eligible to vote for
the election of directors may cast a number of votes in the aggregate equal to
the number of shares held by that holder multiplied by the number of directors
to be elected, and such votes may be cast for one candidate or distributed
among two or more candidates at the shareowner's discretion. Subject to
preferences that may be applicable to outstanding Westar Energy preferred
stock, holders of Westar Energy Common Stock are entitled to share equally,
share for share, when and as dividends are declared upon the Westar Energy
Common Stock, whether payable in cash, in property or in shares of stock of
Westar Energy. In the event of the distribution of assets on dissolution, the
outstanding Westar Energy preferred stock, if any, shall rank prior to the
Westar Energy Common Stock.
WESTAR ENERGY PREFERRED STOCK
The Westar Energy Board of Directors is authorized to designate any series
of Westar Energy preferred stock and the relative rights and preferences of
each series. As of the date of this Joint Proxy Statement/Prospectus, no
shares of Westar Energy preferred stock were issued or outstanding.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE WESTAR ENERGY ARTICLES AND
THE WESTAR ENERGY BYLAWS
Certain provisions of the Westar Energy Articles and the Westar Energy
Bylaws described above relating to Westar Energy's capitalization may have the
effect of impeding the acquisition of control of Westar Energy. These
provisions are designed to reduce, or have the effect of reducing, the
vulnerability of Westar Energy to unsolicited takeover attempts which are
unfair to Westar Energy shareowners. The Westar Energy Board of Directors
could create and issue a series of preferred stock with rights, privileges or
restrictions, and adopt a stockholder rights plan, having the effect of
discriminating against an existing or prospective holder of such securities as
a result of such security holder beneficially owning or commencing a tender
offer for a substantial amount of Westar Energy Common Stock. One of the
effects of authorized but unissued and unreserved shares of capital stock may
be to render more difficult or discourage an attempt by a potential acquiror
to obtain control of Westar Energy by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of Westar Energy's
management. The issuance of such shares of capital stock may have the effect
of delaying, deferring or preventing a change in control of Westar Energy
without any further action by the shareowners of Westar Energy. Westar Energy
has no present intention to adopt a stockholder rights plan, but could do so
without shareowner approval at any future time.
TRANSFER AGENT AND REGISTRAR
Western Resources will be the transfer agent and registrar for the Westar
Energy Common Stock.
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STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF KCPL COMMON STOCK
It is a condition to the KGE Merger and the KCPL Merger that the shares of
Westar Energy Common Stock issuable in the Mergers be approved for listing on
the NYSE prior to the KCPL Effective Time and the KGE Effective Time, as
applicable, subject to official notice of issuance. If the Mergers are
consummated, KCPL Common Stock will cease to be listed on the NYSE.
OTHER TERMS
Holders of Westar Energy Common Stock shall not have preemptive rights.
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COMPARISON OF SHAREOWNER RIGHTS
As a consequence of the Transactions, shareholders of KCPL, a Missouri
corporation, will become shareowners of Western Resources, a Kansas
corporation, and Westar Energy, also a Kansas corporation. The rights of KCPL
shareholders are currently governed by Missouri law (including the MGBCL), the
KCPL Articles and the KCPL Bylaws. Upon consummation of the Transactions, the
rights of KCPL shareholders who become shareowners of Western Resources and
Westar Energy will be governed by Kansas law, the Western Resources Articles,
the Western Resources Bylaws, the Westar Energy Articles and the Westar Energy
Bylaws. The following is a summary of the principal differences between the
rights of holders of KCPL Common Stock and those of Western Resources Common
Stock and Westar Energy Common Stock following the Transactions.
The following summary does not purport to be complete and is qualified by
reference to the Kansas Law, the Missouri Law, the Westar Energy Articles, the
Westar Energy Bylaws, the Western Resources Articles, the Western Resources
Bylaws, the KCPL Articles and the KCPL Bylaws. Copies of all these documents
are incorporated by reference herein and will be sent to holders of shares of
Western Resources and KCPL upon request. Copies of all such laws and
instruments may be obtained in the manner set forth above under "AVAILABLE
INFORMATION."
SPECIAL MEETINGS OF SHAREOWNERS
Section 351.225.3 of the MGBCL permits the board of directors or such other
person or persons as may be authorized in the articles of incorporation or
bylaws of a Missouri corporation to call a special meeting of shareholders.
The KCPL Bylaws provide that, in general, a special meeting of shareholders
may be called only by the Chairman of the KCPL Board, by the President, or at
the written request of a majority of the KCPL Board.
Section 17-6501(e) of the KGCC provides that special meetings of shareowners
of a Kansas corporation may be called by the board of directors or by such
person or persons as may be authorized by the articles of incorporation or
bylaws. The Western Resources Bylaws provide that a special meeting of
shareowners may be called by the Western Resources Board or the Chairman or
President of Western Resources. The Westar Energy Articles provide that a
special meeting of shareowners may be called only by the Chairman of the
Board, the President, a shareowner owning in excess of 50% of the outstanding
voting securities of Westar Energy, or the Westar Energy Board or by such
other person as may be authorized by the Bylaws. The Westar Energy Bylaws do
not authorize any others to call a special meeting of shareowners.
NUMBER OF DIRECTORS
Section 351.315.1 of the MGBCL provides that a Missouri corporation shall
have three or more directors, except that a corporation may have one or two
directors if so stated in the articles of incorporation. The KCPL Articles
provide that the number of directors shall be fixed by the KCPL Bylaws but
shall not be less than three. The KCPL Bylaws fix the number of directors to
be elected at the annual meeting of shareholders at nine (9). The number of
directors may be increased by way of amendment of such Bylaws at an annual or
special meeting of KCPL's shareholders called for such purpose by a majority
of the shareholders present and entitled to vote at such meeting, provided a
majority of the outstanding shares entitled to vote are present in person or
by proxy.
Section 17-6301(b) of the KGCC provides that the board of directors of a
Kansas corporation shall consist of one or more members and the number of
directors shall be fixed by, or in the manner provided in, the bylaws, unless
the articles of incorporation establish the number of directors, in which case
a change in the number of directors shall be made only by amendment of the
articles of incorporation. The Western Resources Articles provide that the
number of directors shall not be less than seven (7) nor more than fifteen
(15), the precise number to be set by the Western Resources Board, provided
that, unless approved by a majority of shareowners entitled to vote, the
number of directors shall not be reduced if such reduction would shorten the
term of an existing director. The Westar Energy Articles provide that the
number of directors will be fixed pursuant to the Bylaws. The Westar Energy
Bylaws provide that the number of directors will be determined by a majority
of the Westar Energy Board.
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ADVANCE NOTICE OF SHAREOWNER NOMINATIONS OF DIRECTORS
Under the KCPL Bylaws, nominations of persons for election to the KCPL Board
may be made at a meeting of shareholders by any shareholder who is a
shareholder of record on both the date notice of the meeting is given and on
the record date for the meeting, provided that the Secretary of KCPL receives
proper written notice of such nomination not less than sixty (60) days nor
more than ninety (90) days prior to the meeting. If less than seventy (70)
days' notice or prior public disclosure of the date of the meeting is given or
made by KCPL to its shareholders, the notice of nomination must be received
not later than the close of business on the tenth day following the day on
which such notice of the date of the meeting was mailed or public disclosure
was made, whichever occurs first.
To be in proper written form, a shareholder's notice to the Secretary must
set forth: (a) as to each person whom the shareholder proposes to nominate for
election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class or series and number of shares of capital stock of
KCPL that are owned beneficially or of record by such person and (iv) any
other information relating to such person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder; and (b) as to the shareholder giving the notice, (i) the name and
record address of such shareholder, (ii) the class or series and number of
shares of capital stock of KCPL that are owned beneficially or of record by
such shareholder, (iii) a description of all arrangements or understandings
between such shareholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such shareholder, (iv) a representation that such shareholder intends
to appear in person or by proxy at the meeting to nominate the persons named
in the notice and (v) any other information relating to such shareholder that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election
of directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee being named as a nominee and to serve
as a director if elected.
The Western Resources Articles contain a similar advance notice provision.
Nominations of persons for election to the Western Resources Board may be made
at a meeting of shareowners by any shareowner who is a holder of record at the
time the notice of such nomination is given and who shall be entitled to vote
at the meeting, provided that the Secretary of Western Resources receives
written notice not less than thirty-five (35) days nor more than fifty (50)
days prior to the meeting. In the event that less than forty-five (45) days'
notice or prior public disclosure of the date of the meeting is given or made
by Western Resources to its shareowners, the notice of nomination must be
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or public
disclosure was made. For notice by the shareowner to be timely, it must be
received in any event not later than the close of business on the seventh day
preceding the day on which the meeting is to be held. Such notice shall
contain (i) the names of the nominees and all other information required to be
disclosed in a proxy statement for the election of directors or otherwise
required by applicable law, (ii) the name and address of the shareowner making
the nomination as they appear on the books of Western Resources, (iii) a
representation that such shareowner is a holder of record of the stock
entitled to vote at the meeting on the date of the notice and intends to
appear in person or by proxy at the meeting to nominate the person(s)
specified in the notice and (iv) a description of all arrangements or
understandings between such shareowner and each nominee and any other person
on whose behalf such nominations are being made.
The Westar Energy Bylaws contain a similar advance notice provision. Notice
of the name of any person to be nominated by any shareowner for election as a
director must be delivered to the Secretary of Westar Energy at its principal
executive office not less than sixty (60) nor more than ninety (90) days prior
to the date of the meeting; provided, however, that if the date of the meeting
is first publicly announced or disclosed (in a public filing or otherwise)
less than seventy (70) days prior to the date of the meeting, such advance
notice need be
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given not more than ten days after such date is first so announced or
disclosed. Public notice is deemed to have been given more than seventy (70)
days in advance of the annual meeting if Westar Energy has previously
disclosed, in its bylaws or otherwise, that the annual meeting in each year is
to be held on a determinable date, unless and until the Board of Directors
determines to hold the meeting on a different date. Any shareowner desiring to
nominate any person for election as a director of the Corporation must deliver
with such notice a statement in writing setting forth the name of the person
to be nominated, the number and class of all shares of each class of stock of
Westar Energy beneficially owned by such person, the information regarding
such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation
S-K adopted by the SEC (or the corresponding provisions of any regulation
subsequently adopted by the SEC applicable to Westar Energy), such person's
signed consent to serve as a director of Westar Energy if elected, such
shareowner's name and address and the number and class of all shares of each
class of stock of Westar Energy beneficially owned by such shareowner. The
person presiding at the meeting, in addition to making any other
determinations that may be appropriate to the conduct of the meeting, will
determine whether such notice has been duly given and will direct nominees not
be considered if such notice has not been given.
SHAREOWNER PROPOSAL PROCEDURES
Pursuant to the KCPL Bylaws, business is properly brought before an annual
meeting if any shareholder of KCPL who is a shareholder of record on both the
date notice of the meeting is given and on the record date for the meeting
provides the Secretary of KCPL with proper written notice not less than sixty
(60) days nor more than ninety (90) days prior to the meeting. If less than
seventy (70) days' notice or prior public disclosure of the date of the
meeting is given or made by KCPL to its shareholders, the notice by the
shareholder must be received not later than the close of business on the tenth
day following the day on which such notice of the date of the meeting was
mailed or public disclosure was made, whichever occurs first. The KCPL Bylaws
require that a shareholder's notice include (i) a description of the proposed
business and the reasons for conducting such business, (ii) the name and
record address of such shareholder, (iii) the class or series and number of
shares that are owned beneficially or of record by such shareholder, (iv) a
description of any understanding between such shareholder and any other person
regarding the proposal and any material interests of such shareholder in the
proposal and (v) a representation that such shareholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
The Western Resources Articles permit the bringing of any business at any
meeting of the shareowners by any shareowner who is a holder of record at the
time the notice of such business is given and who shall be entitled to vote at
the meeting. The required notice must be received by the Secretary of Western
Resources not less than thirty-five (35) days nor more than fifty (50) days
prior to the meeting. In the event that less than forty-five (45) days' notice
or prior public disclosure of the date of the meeting is given or made by
Western Resources to its shareowners, the notice by the shareowner must be
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or public
disclosure was made. For notice by the shareholder to be timely, it must be
received in any event not later than the close of business on the seventh day
preceding the day on which the meeting is to be held. The notice shall contain
(i) a brief description of the business desired to be brought forth and the
reasons for considering the business, (ii) the name and address of the
shareowner as they appear on the books of Western Resources, (iii) a
representation that such shareowner is a holder of record of the stock
entitled to vote at the meeting on the date of the notice and intends to
appear in person or by proxy to present the business specified in the notice
and (iv) disclosure of any material interest of the shareowner in such
proposal.
The Westar Energy Bylaws provide that notice of any proposal to be presented
by any shareowner at any annual or special meeting shall be delivered to the
Secretary of Westar Energy at its principal executive office not less than
sixty (60) nor more than ninety (90) days prior to the date of the meeting;
provided, however, that if the date of the meeting is first publicly announced
or disclosed (in a public filing or otherwise) less than seventy (70) days
prior to the date of the meeting, such advance notice must be given not more
than ten days after such date is first so announced or disclosed. Public
notice is deemed given more than seventy (70) days in
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advance of the annual meeting if Westar Energy has previously disclosed, in
its bylaws or otherwise, that the annual meeting in each year is to be held on
a determinable date, unless and until the Westar Energy Board determines to
hold the meeting on a different date. Any shareowner who gives notice of any
such proposal shall deliver therewith the text of the proposal to be presented
and a brief written statement of the reasons why such shareowner favors the
proposal and setting forth such shareowner's name and address, the number and
class of all shares of each class of stock of the corporation beneficially
owned by such shareowner and any material interest of such shareowner in the
proposal (other than as a shareowner). The person presiding at the meeting, in
addition to making any other determinations that may be appropriate to the
conduct of the meeting, will determine whether such notice has been duly given
and will direct that proposals and nominees not be considered if such notice
has not been given.
CLASSIFICATION OF BOARD OF DIRECTORS
Section 351.315.1 of the MGBCL provides that any Missouri corporation may
elect its directors for a term of one or more years, not to exceed three
years, the time of service and mode of classification to be provided for by
the articles of incorporation or the bylaws of the corporation; but, there
shall be an annual election for such number or proportion of directors as may
be found upon dividing the entire number of directors by the number of years
composing a term. The KCPL Board has only one class of directors and the KCPL
Bylaws provide that each director will be elected annually to a one-year term.
Section 17-6301(d) of the KGCC provides that the directors of a Kansas
corporation may be divided into one, two or three classes by the articles of
incorporation or by the corporation's initial bylaws, or bylaws adopted by a
vote of the shareowners; the term of office of those of the first class to
expire at the next annual meeting; of the second class one year thereafter; of
the third class two years thereafter; and at each annual election held after
such classification and election, directors shall be chosen for a full term,
as the case may be, to succeed those whose terms expire. The Western Resources
Bylaws provide for three classes of directors as nearly equal in number as
possible with no class containing fewer than two directors and with each
holding office for a term of three years. The Westar Energy Articles do not
provide for a classified board of directors.
VOTING/CUMULATIVE VOTING
The KCPL Bylaws provide that each outstanding share entitled to vote under
the KCPL Articles is entitled to one vote on each matter submitted to a
shareholder vote. The MGBCL requires and the KGCC allows, but does not
require, cumulative voting for the election of directors. Under the KCPL
Bylaws, KCPL's shareholders have cumulative voting rights for the election of
directors. Accordingly, each holder of shares eligible to vote for the
election of directors may cast a number of votes in the aggregate equal to the
number of shares held by that holder multiplied by the number of directors to
be elected, and such votes may be cast for one candidate or distributed among
two or more candidates at the shareholder's discretion.
Subject to the voting rights of holders of Western Resources Preferred Stock
and Western Resources Preference Stock as provided in the Western Resources
Articles, each holder of Western Resources Voting Stock has one vote for each
share of such stock held by him or her on all matters requiring action by the
shareowners of Western Resources. The Western Resources Articles do not
provide for cumulative voting for the election of directors.
The Westar Energy Articles and Bylaws provide for cumulative voting of all
shares entitled to vote for the election of directors. Accordingly, in all
elections for directors, each holder of Westar Energy Common Stock shall have
the right to cast as many votes in the aggregate as shall equal the number of
shares held by him multiplied by the number of directors to be elected and may
cast all such votes for a single candidate or may distribute such votes among
two or more candidates.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
The KCPL Articles and the KCPL Bylaws are silent on the issue of removal of
directors. Section 351.315.2 of the MGBCL provides, however, that one or more
directors or the entire board of directors of a Missouri
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corporation may be removed at a duly called special meeting of shareholders
called expressly for the purpose of removing one or more directors, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors. In addition, in the case of a
corporation having cumulative voting for the election of directors, such as
KCPL, if less than the entire board of directors is to be removed, no director
may be removed if the votes cast against such removal would be sufficient to
elect the director by cumulative voting at a duly convened meeting to elect
the entire KCPL Board. Additionally, Section 351.317 of the MGBCL provides
that a majority of the entire KCPL Board may remove a director if, at the time
of removal, such director fails to meet any qualifications for election stated
in the KCPL Articles or KCPL Bylaws or if he is in breach of any agreement
between such director and KCPL relating to his services to KCPL as a director
or employee. Prior notice of such proposed removal must be given to all
directors.
The KCPL Bylaws provide that vacancies on the KCPL Board may be filled by a
majority of the remaining directors, though less than a quorum, until the
successor or successors are elected at a meeting of the KCPL shareholders.
Section 17-6301(k) of the KGCC provides that any director or the entire
board of directors of a Kansas corporation may be removed, with or without
cause, by the holders of a majority of shares then entitled to vote at an
election of directors, except that in the case of a corporation having a
classified board of directors, such as Western Resources, shareowners may
remove a director only for cause, unless the articles of incorporation provide
otherwise, and the Western Resources Articles do not so provide. This
requirement may not be modified, and no inconsistent provision may be adopted,
without the affirmative vote of the holders of at least 80% of the outstanding
shares of stock of Western Resources entitled to vote at any election. Under
the Western Resources Bylaws, no director may be removed except for cause.
Pursuant to Section 17-6301(k)(2) of the KGCC, in the case of a Kansas
corporation with cumulative voting, if less than the entire board of directors
is to be removed, no director may be removed without cause if the votes cast
against such director's removal would be sufficient to elect such director if
then cumulatively voted at an election of the entire board of directors or, in
the case of a corporation having classes of directors, such as Western
Resources, at an election of the class of directors of which such director is
a part.
Pursuant to the Western Resources Bylaws, vacancies in the Western Resources
Board caused by death, resignation or otherwise may be filled at any meeting
of the Western Resources Board and such replacement directors shall serve for
the remainder of the term applicable to the vacancy being filled.
The Westar Energy Bylaws provide that any vacancy on the Westar Energy Board
will be filled by the affirmative vote of a majority of the remaining
directors, unless otherwise provided by law and a director elected to fill a
vacancy will serve for the unexpired term of his predecessor in office. Any
vacancy to be filled because of an increase in the number of directors may be
filled by election by the Westar Energy Board for a term continuing only until
the next election of directors by the shareowners. Any director or the entire
Westar Energy Board may be removed, with or without cause, by the holders of a
majority of the shares entitled to vote at an election of directors, but if
less than the entire Westar Energy Board is to be removed, no director may be
removed without cause if the votes cast against such director's removal would
be sufficient to elect such director if then cumulatively voted at an election
of the entire Westar Energy Board.
SHAREOWNER ACTION BY WRITTEN CONSENT
Under both Section 351.273 of the MGBCL and Section 17-6518 of the KGCC
(except, with regard to the KGCC, as otherwise provided in the articles of
incorporation of a Kansas corporation), any action which may be taken by
shareowners at any annual or special meeting may be taken without a meeting by
written consent, provided that such consent is unanimous.
The Western Resources Articles are silent with respect to action by written
consent. The Westar Energy Articles provide that any action required or
permitted to be taken by shareowners may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
holders of all (or a majority if allowed by law) of the outstanding stock of
Westar Energy entitled to vote on such action.
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PREEMPTIVE RIGHTS
MGBCL Section 351.305 states that preemptive rights are limited or denied
only to the extent provided in the articles. KGCC Section 6002(b)(3) provides
that preemptive rights may be granted in the articles. No shareowner of KCPL,
Western Resources or Westar Energy has any preemptive rights with regard to
shares of common or preferred stock.
AMENDMENT OF ARTICLES
Pursuant to the KCPL Articles, the KCPL Articles may be amended in
accordance with Missouri law, provided that in no event shall any such
amendment be adopted without the affirmative vote of a majority of KCPL's
outstanding shares entitled to vote. Section 351.090 of the MGBCL provides
that the board of directors of a Missouri corporation may adopt a resolution
setting forth the proposed amendment and directing that it be submitted to a
vote at a meeting of shareholders, which may be either an annual or a special
meeting, except that the proposed amendment need not be adopted by the board
of directors and may be directly submitted to any annual or special meeting of
shareholders. Missouri law further provides that written notice setting forth
the proposed amendment or a summary of the changes to be effected shall be
given to each shareholder of record entitled to vote thereon within the time
and in the manner for the giving of notice of meetings of shareholders. If the
meeting is an annual meeting, the proposed amendment or summary shall be
included in the notice of the annual meeting. At the meeting, a vote of the
shareholders entitled to vote shall be taken on the proposed amendment.
Generally, the proposed amendment shall be adopted upon receiving the
affirmative vote of a majority of the outstanding shares entitled to vote,
unless any class of shares is entitled to vote as a class, in which event the
proposed amendment shall be adopted upon receiving the affirmative vote of a
majority of the outstanding shares of each class of shares entitled to vote as
a class and of the total shares entitled to vote. If the articles of
incorporation or bylaws provide for cumulative voting in the election of
directors, such as KCPL's, the number of directors shall not be decreased to
less than three by amendment if the number of shares voting against such
amendment would be sufficient to elect a director in an election of three
directors. However, pursuant to the KCPL Articles, the provisions in the KCPL
Articles concerning certain business combinations, may not be changed without
the affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of KCPL Common Stock entitled to vote. See "--Business
Combinations" below. No amendment to the provisions of the KCPL Articles
concerning indemnification shall adversely affect the rights of a person to
obtain indemnification for actions occurring prior to the latest of (i) the
effective date of such amendment, (ii) the expiration of such person's then
current term of office with KCPL, if any, or (iii) the effective date of such
person's resignation prior to the completion of his or her term of office, if
any.
Section 351.093 of the MGBCL provides that the holders of the outstanding
shares of a class of stock of a Missouri corporation shall be entitled to vote
as a class upon a proposed amendment, notwithstanding anything to the contrary
under the corporate charter, if such amendment would modify or impair specific
relative rights or preferences of such class of stock.
The Western Resources Articles and Westar Energy Articles each provide that
Western Resources and Westar Energy, respectively, reserves the right to
amend, alter, change, or repeal any provision contained in the Western
Resources Articles or the Westar Energy Articles, respectively, in the manner
then or thereafter prescribed by the applicable provisions of the laws of the
State of Kansas for amending the articles of incorporation of a Kansas
corporation, and all rights conferred upon shareowners are granted subject to
such reservation.
Section 17-6602 of the KGCC provides that in connection with any and every
amendment authorized by the KGCC after a corporation has received payment for
any of its capital stock, the board of directors shall adopt a resolution
setting forth the amendment proposed, declaring its advisability and either
calling a special meeting of the shareowners entitled to vote for the
consideration of such amendment or directing that the amendment proposed be
considered at the next annual meeting of the shareowners. Written notice shall
be given to each shareowner entitled to vote at the meeting within the time
and in the manner for the giving of notice of meetings of shareowners. Such
notice shall set forth such amendment in full or a brief summary of the
changes to be
95
effected. Subject to the above mentioned KGCC requirements, the Western
Resources Articles and Westar Energy Articles may be amended if a majority of
the outstanding stock entitled to vote and a majority of the outstanding stock
of each class entitled to vote on the amendment as a class have been voted in
favor of such amendment. In the case of a successful vote, a certificate
setting forth the amendment and certifying that such amendment has been duly
adopted shall be executed, acknowledged, filed and recorded. However, Article
XI of the Western Resources Articles, concerning certain business
combinations, may not be changed without the affirmative vote of 80% of the
Western Resources Voting Stock and the affirmative vote of a majority of the
Western Resources Voting Stock, other than the stock held by a Western
Resources Interested Shareholder (as defined below).
AMENDMENT OF BYLAWS
Pursuant to the KCPL Bylaws, the KCPL Board may make, alter, amend or repeal
the KCPL Bylaws by a majority vote of the whole KCPL Board at any regular or
special meeting of the KCPL Board, provided, in the case of a special meeting,
that notice of such amendment has been given in the notice of such special
meeting. The shareholders of KCPL may also amend the KCPL Bylaws at any
shareholder meeting at which a quorum is present by a majority vote of the
shareholders present and entitled to vote.
Pursuant to the Western Resources Articles, the Western Resources Board may
make and from time to time alter, amend or repeal any Western Resources Bylaw,
subject to the power of the shareowners to amend, alter or repeal such Western
Resources Bylaw, provided that notice of any such action shall be given to
each stockholder having voting rights within sixty days of such action. The
provisions of the Western Resources Bylaws regarding the classification of the
Western Resources Board, the filling of vacancies by directors and the removal
of directors may not be amended without the affirmative vote of at least
eighty percent (80%) of the outstanding shares of Western Resources stock
entitled to vote.
Pursuant to the Westar Energy Articles, the Westar Energy Board is expressly
authorized to adopt, amend or repeal the Bylaws of the corporation. Section
17-6009 of the KGCC, however, provides that the granting of such authority to
the board of directors does not divest the shareowners of the power, nor limit
their power to adopt, amend or repeal the bylaws.
BUSINESS COMBINATIONS
Article XII of the KCPL Articles provides that an affirmative vote of the
holders of at least eighty percent (80%) of the outstanding shares of KCPL
Common Stock entitled to vote shall be required for the approval or
authorization of any KCPL Business Combination (as defined below) with a KCPL
Interested Shareholder (as defined below); provided that such eighty percent
(80%) voting requirement shall not be applicable if: (a) such KCPL Business
Combination shall have been approved by a majority of the KCPL Continuing
Directors (as defined below); or (b) the cash or the KCPL Fair Market Value
(as defined below) of the property, securities or other consideration to be
received per share by the holders of KCPL Common Stock in such KCPL Business
Combination is not less than the highest per share price paid by or on behalf
of the KCPL Interested Shareholder for any shares of KCPL Common Stock during
the five-year period preceding the announcement of such KCPL Business
Combination. For purposes of the above-referenced provisions, a "KCPL
Interested Shareholder" is defined as (i) any individual, corporation,
partnership or other person or entity, which together with its "Affiliates" or
"Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act)
is the "Beneficial Owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), in the aggregate of 5% or more of the outstanding KCPL Common
Stock and (ii) any Affiliate or Associate of such KCPL Interested Shareholder;
"KCPL Continuing Director" is defined as any director who is unaffiliated with
the KCPL Interested Shareholder and was a director prior to such KCPL
Interested Shareholder becoming a KCPL Interested Shareholder, and any
successor of a KCPL Continuing Director if unaffiliated with the KCPL
Interested Shareholder and recommended to succeed such KCPL Continuing
Director by a majority of KCPL Continuing Directors; "KCPL Business
Combination" means (i) any merger or consolidation of KCPL or any of its
subsidiaries with or into a KCPL Interested Shareholder; (ii) any sale, lease,
exchange, transfer or other
96
disposition of any KCPL Substantial Part (as defined below) or a substantial
part of the assets of a subsidiary of KCPL to a KCPL Interested Shareholder;
(iii) the issuance of any securities of KCPL to a KCPL Interested Shareholder
other than an issuance on a pro rata basis to all holders of shares of the
same class pursuant to a stock split or dividend; (iv) any recapitalization or
reclassification that would increase the proportionate voting power of a KCPL
Interested Shareholder; (v) any liquidation, spinoff, split-up or other
dissolution of KCPL proposed on behalf of a KCPL Interested Shareholder; or
(vi) any agreement, contract, arrangement or understanding providing for any
of the above transactions; "KCPL Substantial Part" means 10% or more of the
KCPL Fair Market Value (as defined below) as reflected in the most recent
balance sheet existing at the time the shareholders of KCPL would be required
to approve or authorize the KCPL Business Combination involving the assets
constituting any such KCPL Substantial Part; and "KCPL Fair Market Value" is
defined as (i) in the case of stock, the highest closing sale price during the
30-day period immediately prior to the date in question of a share of such
stock; and (ii) in the case of property other than cash or stock, the KCPL
Fair Market Value of such property on the date in question as determined by a
majority of the KCPL Continuing Directors.
Article XI of the Western Resources Articles provides that an affirmative
vote of at least eighty percent (80%) of the Western Resources Voting Stock
and the affirmative vote of at least a majority of the Western Resources
Voting Stock held by shareowners other than Western Resources Interested
Shareholders (as defined below) shall be required for the approval or
authorization of any Western Resources Business Combination (as defined below)
with a Western Resources Interested Shareholder; provided that such 80% voting
requirement shall not be applicable if: (a) such Western Resources Business
Combination shall have been approved by a majority of the Western Resources
Continuing Directors (as defined below); or (b) the cash or the Western
Resources Fair Market Value (as defined below and as determined by a majority
of the Western Resources Continuing Directors) of the property, securities or
other consideration to be received per share of Western Resources stock in
such Western Resources Business Combination is not less than the highest per
share price paid by the Western Resources Interested Shareholder for any
shares of the Western Resources stock. For purposes of the above-referenced
provisions, a "Western Resources Interested Shareholder" is defined as (i) any
individual, corporation, partnership or other person or entity, which together
with its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2
under the Exchange Act) is the "Beneficial Owner" (as such term is defined in
Rule 13d-3 under the Exchange Act) in the aggregate of 10% or more of the
outstanding Western Resources Voting Stock and (ii) any Affiliate or Associate
of such entity; "Western Resources Continuing Director" is defined as any
director who was a director immediately prior to the Western Resources
Interested Shareholder becoming a Western Resources Interested Shareholder;
"Western Resources Fair Market Value" is defined as (i) in the case of stock,
the highest closing sale price during the 30-day period immediately prior to
the date in question of a share of such stock, and (ii) in the case of
property other than cash or stock, the fair market value of such property on
the date in question as determined by a majority of the Western Resources
Continuing Directors; and "Western Resources Substantial Part" means 10% or
more of the Western Resources Fair Market Value, as determined by a majority
of the Continuing Directors, of the total consolidated assets of Western
Resources and its subsidiaries taken as a whole as of the end of the most
recent fiscal year.
"Western Resources Business Combination" means: (i) any merger or
consolidation of Western Resources or any of its subsidiaries with or into any
Western Resources Interested Shareholder; (ii) any sale, lease, exchange,
transfer or other disposition of any Western Resources Substantial Part or a
substantial part of the assets of a subsidiary of Western Resources to a
Western Resources Interested Shareholder; (iii) the issuance of any securities
of Western Resources or a subsidiary thereof to a Western Resources Interested
Shareholder other than an issuance on a pro rata basis to all holders of
shares pursuant to a stock split or dividend; (iv) any recapitalization or
reclassification that would increase the proportionate voting power of a
Western Resources Interested Shareholder; (v) the adoption of any liquidation
or dissolution of Western Resources proposed by or on behalf of a Western
Resources Interested Shareholder; or (vi) any agreement, contract, arrangement
or understanding providing for any of the above transactions.
Neither the Westar Energy Articles nor the Westar Energy Bylaws contains a
"Business Combination" provision.
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VOTING RIGHTS IN CONNECTION WITH MERGERS AND CONSOLIDATIONS
Pursuant to Sections 351.410, 351.420 and 351.425 of the MGBCL, a plan of
merger or consolidation must be approved by the KCPL Board, submitted to the
shareholders of KCPL for approval at a shareholder meeting, and must obtain
the approval of the holders of at least two-thirds of the outstanding shares
entitled to vote at such meeting.
The KCPL Articles provide that the approval of a merger or consolidation
shall require the vote of a majority of the outstanding shares of KCPL
Preferred Stock, voting as a single class, except that such vote is not
required (i) with respect to any merger or consolidation ordered, approved or
permitted by the SEC under the 1935 Act or (ii) if provision for redemption of
the KCPL Preferred Stock is made prior to the effective time of such merger or
consolidation.
Pursuant to Section 17-6701 of the KGCC and the Western Resources Articles,
an agreement of merger or consolidation shall be approved by a resolution
adopted by the Western Resources Board and approved by a majority of the
outstanding shares of Western Resources Voting Stock, subject to certain
exceptions.
The Western Resources Articles provide that so long as Western Resources
Preferred Stock is outstanding, Western Resources may not merge or consolidate
with any other corporation (i) without the consent of the holders of at least
a majority of the shares of Western Resources Preferred Stock then outstanding
voting separately as a class and (ii) without the vote of the percentage or
number of shares of any and all classes required by law or the Western
Resources Articles; provided, however, that no consent of the holders of
Western Resources Preferred Stock shall be required, except as otherwise
required by law, with respect to (i) any merger ordered, approved or permitted
by the SEC under the 1935 Act or (ii) if provision for redemption of the
Western Resources Preferred Stock is made prior to the effective time of the
merger or consolidation.
Pursuant to Section 17-6701 of the KGCC and the Westar Energy Articles, an
agreement of merger or consolidation shall be approved by a resolution adopted
by the Westar Energy Board and approved by a majority of the outstanding
shares of Westar Energy Common Stock. The Westar Energy Articles authorizes
the Westar Energy Board to issue Preferred Stock with designations and powers,
preferences and rights, including designating whether or not holders of the
shares of a particular series will have voting rights, in addition to the
voting rights provided by law, and the terms of such voting rights. In the
event the Westar Energy Board designates Preferred Stock with such voting
rights, the Preferred Stock may be able to vote with the Westar Energy Common
Stock in connection with Mergers and Consolidations. No such designation
currently exists in the Westar Energy Articles.
DISSENTERS' RIGHTS
Pursuant to Section 351.455 of the MGBCL, if a shareholder of a Missouri
corporation which is a party to a merger files with the corporation a written
objection to such merger before or at the meeting at which the merger is
submitted to a shareholder vote, does not vote in favor of the merger and,
within twenty days after the merger is consummated (or, pursuant to Section
351.447, within twenty days after being notified of a short-form merger),
makes written demand for the payment of the fair value of his common equity
interest (determined as of the day prior to the date on which the vote
approving the merger was taken), the new or surviving corporation must pay the
fair value of such shares within ninety days after the date on which the
merger was effected, and if within thirty days after the date on which the
merger was effected, the dissenting shareholder and surviving corporation
agree upon the value of the shares. Any shareholder who fails to make such a
demand within twenty days after the merger is conclusively presumed to have
consented thereto and is bound by the terms thereof. If after thirty days from
the date on which such merger is effected the dissenting shareholder and the
corporation do not agree on the value of the shares, then, within sixty days
from the end of the thirty day period, the dissenting shareholder may file a
petition in any court of competent jurisdiction within the county in which the
registered office of the surviving or new corporation is situated, seeking a
determination of the fair value of the shares, and shall be entitled to a
judgment against such corporation for such fair value as of the day prior to
the date of the merger vote.
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Section 17-6712 of the KGCC provides that if a shareowner of a Kansas
corporation which is a party to any merger (including a short-form merger)
files with the corporation a written objection to such merger before the
meeting at which the merger is submitted to a shareowner vote, does not vote
in favor of such merger and, within twenty days after receiving the required
notice from the corporation regarding the effectiveness of such merger, makes
written demand for the payment of the value of such shareowner's stock, the
surviving corporation shall pay such value within thirty days after the
expiration of the twenty-day period. If during a period of thirty days from
the end of the above-referenced twenty-day period the corporation and the
dissenting shareowner fail to agree on the value of the shares, the shareowner
or the corporation may demand a determination of the value of the stock by an
appraiser to be appointed by the district court, by filing a petition with the
court within four months after expiration of the thirty days. The KGCC further
provides, however, that unless otherwise provided in the articles of
incorporation of a Kansas corporation, the above section does not apply to the
holders of any class or series of a class of stock which, on the record date
for the applicable meeting, was either registered on a national securities
exchange or was held of record by at least 2,000 shareowners, and dissenters'
rights do not apply to a merger that does not require the approval of the
shareowners of the surviving corporation. The foregoing exceptions are not
applicable in the case of certain mergers where the shareowners are required
to accept for their stock anything except (i) stock or stock and cash in lieu
of fractional shares of the corporation surviving the merger, (ii) stock or
stock and cash in lieu of fractional shares of any other corporation which at
the record date for the applicable meeting were either registered on a
national securities exchange or held of record by not less than 2,000
shareowners, or (iii) a combination of (i) and (ii) above. Under this statute,
subject to the above exceptions, Westar Energy's and Western Resources'
shareowners do not have dissenters' rights and no such rights have been
designated in Westar Energy's or Western Resources' Articles.
MISSOURI CONTROL SHARE ACQUISITION STATUTE
Section 351.407 of the MGBCL (the "Missouri Control Share Acquisition
Statute") regulates the voting rights of shares of Missouri corporations
purchased in Missouri Control Share Acquisitions (as defined below). For
purposes of this subsection, a "Missouri Control Share Acquisition" is the
direct or indirect acquisition (other than an acquisition permitted by the
Missouri Control Share Acquisition Statute, as discussed below) by any
"Missouri Acquiring Person" of ownership of, or the power to direct the
exercise of voting power with respect to, issued and outstanding shares of a
"Missouri Issuing Public Corporation" (as defined below) that, except for the
Missouri Control Share Acquisition Statute, would have voting power with
respect to shares of such corporation that, when added to all other shares of
such corporation owned by such person or in respect to which such person may
exercise or direct the exercise of voting power, would entitle such person,
immediately after acquisition of such shares, to exercise or direct the
exercise of the voting power of such corporation in the election of directors
within any of the following ranges of voting power: (i) one-fifth or more but
less than one-third of all voting power; (ii) one-third or more but less than
a majority of all voting power; or (iii) a majority or more of all voting
power. "Missouri Issuing Public Corporation" means a corporation incorporated
under the laws of the State of Missouri with 100 or more shareholders, a
principal place of business, principal office or substantial assets in
Missouri and (i) more than ten percent (10%) of its shareholders resident in
Missouri, (ii) at least ten percent (10%) of its shares owned by Missouri
residents or (iii) at least 10,000 shareholders resident in Missouri. KCPL
meets these tests and is thus a Missouri Issuing Public Corporation.
Pursuant to the Missouri Control Share Acquisition Statute, shares acquired
in a Missouri Control Share Acquisition have no voting rights unless voting
rights are granted by resolution of the shareholders of such corporation. For
such a resolution to be adopted, it must be approved by the affirmative vote
of: (i) a majority of all outstanding shares entitled to vote at a special
meeting of shareholders voting by class if required by the terms of such
shares; and (ii) a majority of all outstanding shares entitled to vote at such
meeting voting by class if required by the terms of such shares, excluding all
Missouri Interested Shares. For purposes of this Subsection, "Missouri
Interested Shares" means the shares of such corporation in respect of which
any of the following persons may exercise or direct the exercise of the voting
power of the corporation in the election of directors: (a) a Missouri
Acquiring Person or member of a group with respect to a Missouri Control Share
Acquisition; (b) any officer of such corporation elected or appointed by the
directors of such corporation; or (c) any employee of such corporation who is
also a director of such corporation.
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Any Missouri Acquiring Person who proposes to make or has made a Missouri
Control Share Acquisition may at his or her election deliver a "Missouri
Acquiring Person Statement" (as described hereinafter) to such corporation at
the corporation's principal office. The Missouri Acquiring Person Statement
must set forth, among other things, certain information regarding the identity
of the Missouri Acquiring Person, its holdings of shares of such corporation
and details of such person's Missouri Control Share Acquisition or proposed
Missouri Control Share Acquisition including the range of voting power under
which the control share acquisition falls. If such Missouri Acquiring Person
so requests at the time of delivery of a Missouri Acquiring Person Statement
and gives an undertaking to pay the corporation's expenses of a special
meeting, the directors of the corporation shall within ten days thereafter
call a special meeting of shareholders of such corporation for the purpose of
considering the voting rights to be accorded the shares acquired or to be
acquired in the Missouri Control Share Acquisition. Unless the Missouri
Acquiring Person agrees to a later date, such special meeting shall be held
within fifty days after receipt by the corporation of such request.
Under the Missouri Control Share Acquisition Statute, certain acquisitions
of shares of a Missouri Issuing Public Corporation are deemed not to
constitute Missouri Control Share Acquisitions, including among others,
acquisitions of shares (i) pursuant to a will or other testamentary
disposition, or by gift where such gift is made in good faith and not for the
purpose of circumventing the Missouri Control Share Acquisition Statute, (ii)
pursuant to a public offering, a private placement, or any other issuance of
shares by such corporation, (iii) by, on behalf of, or pursuant to any benefit
or other compensation plan or arrangement of the Missouri Issuing Public
Corporation, (iv) pursuant to the conversion of debt securities into shares of
such corporation under the terms of such debt securities, (v) pursuant to a
binding contract, other than any contract created by, pursuant to, or in
connection with a tender offer, whereby the holders of shares representing at
least two-thirds of the voting power of such corporation, such holders acting
simultaneously, agree to sell such shares to any person, (vi) pursuant to a
merger or consolidation effected in compliance with Sections 351.410 to
351.458 of the MGBCL if the Missouri Issuing Public Corporation is a party to
the agreement of merger or consolidation, (vii) pursuant to a binding contract
with any person which, at any time within one year prior to the acquisition in
question, owned shares representing more than fifty percent of the voting
power of such corporation, (viii) by or from any person whose shares have been
previously accorded voting rights pursuant to the Missouri Control Share
Acquisition Statute; provided, that such acquisition entitles the person
making the acquisition to exercise or direct the exercise of voting power of
such corporation in the election of directors within a range of the voting
power not in excess of the range of voting power associated with the shares to
which voting rights have been previously accorded or (ix) pursuant to the
satisfaction of a pledge or other security interest created in good faith and
not for the purpose of circumventing section 351.407 of the MGBCL. In
addition, a corporation may exempt itself from application of the Missouri
Control Share Acquisition Statute by inserting a provision in its articles of
incorporation or bylaws prior to the Missouri Control Share Acquisition,
expressly electing not to be covered by the statute. The KCPL Articles and the
KCPL Bylaws do not contain any such provision, thus the Missouri Control Share
Acquisition Statute applies to KCPL.
KANSAS CONTROL SHARE ACQUISITION PROVISION
Kansas law contains a substantially similar provision regarding the
acquisition of controlling interests in corporations organized under Kansas
law. Pursuant to Sections 17-1286 to 17-1298 of the Kansas Statutes Annotated
(the "Kansas Control Share Acquisition Provision"), "Kansas Control Shares"
are shares of a Kansas Issuing Public Corporation (as defined below) that
would, except for the application of such statute, entitle their holder to
exercise or direct the exercise of voting power in the election of directors
within certain specified ranges (one-fifth or more but less than one-third,
one-third or more but less than a majority and a majority or more). A "Kansas
Control Share Acquisition" is an acquisition, directly or indirectly, by any
person of ownership of or power to direct the voting of Kansas Control Shares,
either pursuant to a single transaction or various transactions within a 120-
day period, or pursuant to a plan to make a Kansas Control Share Acquisition.
"Kansas Issuing Public Corporation" means a corporation organized under the
laws of the State of Kansas with 100 or more shareowners, a principal place of
business, principal office or substantial assets in Kansas and either
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more than ten percent (10%) of its shareowners resident in Kansas, more than
ten percent (10%) of its shares owned by Kansas residents or at least 2,500
shareowners resident in Kansas. Western Resources meets these tests and is
thus a Kansas Issuing Public Corporation.
Kansas Control Shares acquired in a Kansas Control Share Acquisition shall
have the same voting rights as before the acquisition only to the extent
approved by a majority of all shares entitled to vote in the election of
directors (voting by class if required by the terms of such shares) and a
majority of all shares entitled to vote in the election of directors (voting
by class if required by the terms of such shares) excluding all "Kansas
Interested Shares" (as defined below). An acquiring person may deliver to the
Kansas Issuing Public Corporation a statement (a "Kansas Acquiring Person
Statement") regarding its acquisition of Kansas Control Shares containing the
identity and other information about the acquiring person, the number of
shares owned by the acquiring person, and the range of voting power under
which the acquisition falls. The acquiring person may also request a special
meeting of shareowners to consider the voting rights that will attach to his
or her Kansas Control Shares. "Kansas Interested Shares" are those with
respect to which (i) a person or members of a group that makes or proposes to
make a Kansas Control Share Acquisition, (ii) an officer of a Kansas Issuing
Public Corporation or (iii) an employee of a Kansas Issuing Public Corporation
who is also a director of such Kansas Issuing Public Corporation exercises
voting power.
A Kansas Issuing Public Corporation can opt out of the Kansas Control Share
Acquisition Provision with the adoption of a provision in either its articles
of incorporation or its bylaws prior to the Kansas Control Share Acquisition
stating that such provision does not apply. Any such opt-out is effective only
with regard to Kansas Control Share Acquisitions which occur after the opt-out
has become effective. The Western Resources Articles and Western Resources
Bylaws do not contain any such "opt-out" provision. However, the Westar Energy
Articles do contain such a provision. Thus, the Kansas Control Share
Acquisition Statute applies to Western Resources, but not to Westar Energy.
Unless otherwise provided in the Kansas Issuing Public Corporation's bylaws
or articles of incorporation before a Kansas Control Share Acquisition has
occurred or has been proposed, Kansas Control Shares may be redeemed only in
their entirety by the Kansas Issuing Public Corporation if a Kansas Acquiring
Person Statement has not been delivered to the Kansas Issuing Public
Corporation by the tenth day after the Kansas Control Share Acquisition, or if
such statement has been filed but the shareowners have voted not to accord
voting rights to the Kansas Control Shares. A call for redemption must occur
within thirty (30) days after the event that gives the Kansas Issuing Public
Corporation the option to redeem the shares and the shares must be redeemed
within sixty (60) days of such call.
Under the Kansas Control Share Acquisition Provision, certain acquisitions
of shares of a Kansas Issuing Public Corporation are deemed not to constitute
Kansas Control Share Acquisitions, including among others, acquisitions of
shares (i) pursuant to a will or other testamentary disposition, or by gift
where such gift is made in good faith and not for the purpose of circumventing
the Kansas Control Share Acquisition Provision, (ii) pursuant to a merger or
consolidation effected in compliance with Sections 17-6701 et seq. of the KGCC
if the Kansas Issuing Public Corporation is a party to the agreement of merger
or consolidation, (iii) by the Kansas Issuing Public Corporation or (iv) by or
from a person whose shares have been accorded voting rights in compliance with
the Kansas Control Share Acquisition Provision if the acquisition entitles the
person making the acquisition, directly or indirectly, alone or as part of a
group, to exercise or direct the exercise of voting power of the corporation
in the election of directors of the corporation within a range not in excess
of the range of voting power associated with the shares as previously held.
MISSOURI BUSINESS COMBINATION STATUTE
Section 351.459 of the MGBCL (the "Missouri Business Combination Statute")
protects Missouri corporations from certain transactions.
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The Missouri Business Combination Statute prevents a Missouri corporation
from engaging in any "Missouri Business Combination" (as defined below) with
any "Missouri Interested Shareholder" (as defined below) of such corporation
for a period of five years following such Missouri Interested Shareholder's
Missouri Stock Acquisition Date (as defined below) unless such Missouri
Business Combination or the purchase of stock made by such Missouri Interested
Shareholder on such Missouri Interested Shareholder's Missouri Stock
Acquisition Date is approved by the board of directors of such corporation on
or prior to such Missouri Stock Acquisition Date. In this context, the term
"Missouri Business Combination" includes, among other things, a merger or
consolidation, certain sales, leases, exchanges, mortgages, transfers, pledges
and similar dispositions of corporate assets or stock, the issuance or
transfer to a Missouri Interested Shareholder of Stock with an aggregate
market value equal to five percent or more of the issuer's total outstanding
stock, the adoption of any plan or proposal for liquidation or dissolution
proposed by a Missouri Interested Shareholder, and any reclassifications,
recapitalizations and reorganizations that increase the proportionate voting
power of the Missouri Interested Shareholder. A "Missouri Interested
Shareholder" is defined generally as the beneficial owner (as such term is
defined in the Missouri Business Combination Statute) of twenty percent (20%)
or more of the outstanding voting stock of such corporation or an affiliate or
associate (as such terms are defined in the Missouri Business Combination
Statute) of such corporation who at any time within the preceding five years
was the beneficial owner of twenty percent (20%) or more of the outstanding
voting stock of such corporation. The "Missouri Stock Acquisition Date," with
respect to any person and any Missouri corporation, means the date that such
person first becomes a Missouri Interested Shareholder of such corporation.
In addition, the Missouri Business Combination Statute provides that a
Missouri corporation may not engage at any time in a Missouri Business
Combination with a Missouri Interested Shareholder other than any of the
following Missouri Business Combinations: (i) a Missouri Business Combination
approved by the board of directors of such corporation prior to such Missouri
Interested Shareholder's Missouri Stock Acquisition Date, or where the
purchase of stock made by such Missouri Interested Shareholder on such
Missouri Interested Shareholder's Missouri Stock Acquisition Date had been
approved by the board of directors of such corporation prior to such Missouri
Interested Shareholder's Missouri Stock Acquisition Date; (ii) a Missouri
Business Combination approved by the affirmative vote of the holders of a
majority of the outstanding voting stock not beneficially owned by such
Missouri Interested Shareholder or any affiliate or associate of such Missouri
Interested Shareholder at a meeting called for such purpose no earlier than
five years after such Missouri Interested Shareholder's Missouri Stock
Acquisition Date; and (iii) a Missouri Business Combination that meets
detailed market value and procedural requirements as set forth in Section
351.459 of the MGBCL. Notwithstanding the foregoing, unless the board of
directors of such corporation approved such Missouri Business Combination
prior to the date on which such Missouri Interested Shareholder acquired such
status, no such Missouri Business Combination may be engaged in for a period
of five years after such date.
The Missouri Business Combination Statute does not apply to: (i)
corporations that do not have a class of voting stock registered with the SEC
under Section 12 of the Exchange Act, unless the certificate of incorporation
provides otherwise; (ii) corporations whose certificate of incorporation has
been amended to provide that such corporation shall be subject to the
provisions of such statute, which did not have a class of voting stock
registered with the SEC pursuant to Section 12 of the Exchange Act on the
effective date of such amendment, and which is a business combination with a
Missouri Interested Shareholder whose stock acquisition date is prior to the
effective date of such amendment; (iii) corporations the original certificate
of incorporation of which contains a provision expressly electing not to be
governed by such statute, or which adopted an amendment to such corporation's
bylaws prior to August 1, 1986, expressly electing not to be governed by such
statute, or which adopts an amendment to such corporation's bylaws, approved
by the affirmative vote of the shareholders, other than Missouri Interested
Shareholders and their affiliates and associates, expressly electing not to be
governed by such statute, provided that such amendment to the bylaws shall not
be effective until eighteen months after such vote of such corporation's
shareholders and shall not apply to any Missouri Business Combination of such
corporation with a Missouri Interested Shareholder whose Missouri Stock
Acquisition Date is on or prior to the effective date of such amendment; (iv)
corporations with a Missouri Interested Shareholder which became a Missouri
Interested Shareholder inadvertently, if such Missouri Interested Shareholder,
as soon as practicable,
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divests himself or herself of a sufficient amount of the voting stock of such
corporation so that he or she no longer is the beneficial owner, directly or
indirectly, of twenty percent (20%) or more of the outstanding voting stock of
such corporation, and would not at any time within the five-year period
preceding the announcement date with respect to such Missouri Business
Combination have been a Missouri Interested Shareholder but for such
inadvertent acquisition; and (v) any Missouri Business Combination with a
Missouri Interested Shareholder who was the beneficial owner, directly or
indirectly, of five percent or more of the outstanding voting stock of such
corporation on December 1, 1985, and remained so to such Missouri Interested
Shareholder's Missouri Stock Acquisition Date. KCPL has not adopted any
provision in its Articles or Bylaws that would render this statute
inapplicable to KCPL.
KANSAS BUSINESS COMBINATION STATUTE
Sections 17-12,100 to 12,104 of the Kansas Statutes Annotated contain a
statute (the "Kansas Business Combination Statute") that is substantially
similar to the Missouri Business Combination Statute summarized above. The
only material and relevant differences between the two statutes are described
below.
First, the term "interested stockholder," as defined in the Kansas Business
Combination Statute ("Kansas Interested Stockholder"), is broader than the
term "Missouri Interested Shareholder" in that it requires ownership of only
fifteen percent (15%) of the outstanding voting stock of a Kansas corporation,
as opposed to twenty percent (20%) or more under the Missouri Business
Combination Statute. On the other hand, affiliates or associates (as such
terms are defined in the Kansas Business Combination Statute) of a Kansas
corporation are considered Kansas Interested Stockholders if their stock
ownership with regard to such corporation has exceeded the above 15% threshold
at any time within the three preceding years, while the Missouri Business
Combination Statute determines such status based on a five-year period.
Further, only the Kansas Business Combination Statute expressly excludes
certain persons from the definition of "interested stockholders" under certain
circumstances.
Second, under Kansas law the prohibition of certain business combinations
applies for a period of only three years following the date on which a
stockholder became a Kansas Interested Stockholder, as opposed to a minimum
period of five years in the case of the Missouri Business Combination Statute.
Third, the two states' statutes differ in several respects regarding
exceptions from the prohibition of certain business combinations. If a
business combination within the scope of the Kansas Business Combination
Statute is to be ratified by the stockholders of a Kansas corporation, such
ratification requires the affirmative vote of at least 66 2/3% of the
outstanding voting stock of such corporation which is not owned by the Kansas
Interested Stockholder, while only a majority of the voting stock has to vote
in favor of a Missouri Business Combination. Further, the Kansas Business
Combination Statute generally exempts from its application certain business
combinations which, upon their consummation, result in a Kansas Interested
Stockholder owning at least 85% of the voting stock of the corporation in
question. There is no analogous provision under Missouri law. By contrast,
Kansas law does not contain any equivalent to Missouri's exemption from the
Missouri Business Combination Statute of certain business combinations which
meet market value and procedural requirements.
As in the Missouri statute, the Kansas statute permits a corporation to
"opt-out" of the Kansas Business Combination Statute. The Western Resources
Articles do not contain any provision effecting such an "opt-out," while the
Westar Energy Articles do contain such a provision. Thus, the Kansas Business
Combination Statute applies to Western Resources, but not Westar Energy.
OTHER CONSTITUENCY STATUTE
Section 351.347 of the MGBCL expressly authorizes directors to consider a
variety of factors when analyzing acquisition proposals. The factors that the
board of directors is authorized to consider include the adequacy of the
consideration offered, compared not only to the board's estimate of the value
of the corporation in a freely negotiated sale or the liquidation value of the
corporation, but also the future value of the corporation
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over a period of years as an independent entity, discounted to current value;
current political, economic and other factors bearing on security prices;
whether the acquisition proposals might violate federal, state or local laws;
social, legal and economic effects on employees, suppliers, customers and
others associated with the corporation and the communities in which the
corporation conducts its business; the financial conditions and earnings
prospects of the bidder; and the competence, experience and integrity of the
bidder.
Kansas does not have a similar statute.
INDEMNIFICATION
Under Section 351.355 of the MGBCL, a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A corporation may indemnify any such person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (except in certain circumstances where such
person has been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation). The indemnification described
above may cover not only expenses but also amounts paid in settlements, and is
not exclusive of any other rights to which such person seeking indemnification
may be otherwise entitled. Any indemnification accorded pursuant to the
foregoing, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set forth above.
In addition to the indemnification described above, the MGBCL permits a
corporation to grant further indemnity to such person if authorized or
provided for in the articles of incorporation (or any amendment thereof) or in
any bylaw that has been adopted by vote of the shareholders, except to the
extent that such person's conduct was finally adjudged to have been knowingly
fraudulent, deliberately dishonest, or to have constituted willful misconduct.
The KCPL Articles provide that KCPL will indemnify to the fullest extent
permitted by the MGBCL any person made or threatened to be made a party to a
legal proceeding by reason of the fact that such person is or was a director,
officer or employee of KCPL, or is or was serving at the request of KCPL as a
director, officer or employee of another enterprise, against all expense,
liability or loss (including attorneys' fees, judgments, fines and amounts to
be paid in settlement) actually and reasonably incurred by such person. The
KCPL Board has the discretion to indemnify agents of KCPL under similar terms.
These indemnification rights are not exclusive of any other rights to which
such persons are entitled by law or under any other KCPL authorizations. KCPL
may, without shareholder approval, provide its officers, directors and
employees with greater indemnification than the MGBCL offers, provided that
such further indemnity may not be offered to a person whose conduct was
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to have constituted willful misconduct.
Pursuant to Section 17-6305 of the KGCC, a corporation shall have power to
indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation; and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A corporation may indemnify any such person who was or is a party,
or is threatened to be made a party, to any threatened, pending or completed
action
104
or suit by or in the right of the corporation to procure a judgment in its
favor if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation (except in certain circumstances where such person has been
adjudged to be personally liable to the corporation). The indemnification
described above may cover expenses, judgments and amounts paid in settlement,
and is not exclusive of any other rights to which such person seeking
indemnification may be otherwise entitled. These rights afforded under Section
17-6305 of the KGCC are not exclusive of any additional rights provided for by
a corporation.
The Western Resources Articles and the Westar Energy Bylaws each
specifically reserve the corporations' rights to grant broader indemnification
in the future.
The Western Resources Articles and the Westar Energy Bylaws provide that
each person who was or is made a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of Western Resources or Westar Energy, respectively, or is or was
serving at the request of Western Resources or Westar Energy, respectively, as
a director, including service with respect to employee benefit plans, whether
the basis of such proceeding is an alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by Western Resources or Westar Energy, as applicable, to an extent equal to
that currently authorized by the KGCC. The Western Resources Articles
specifically provide for indemnification to the fullest extent authorized by
the KGCL
DIVIDENDS; DECLARATIONS AND PAYMENTS
Under Section 351.220 of the MGBCL, the board of directors of a Missouri
corporation may declare and the corporation may pay dividends on its
outstanding shares in cash, property or its own shares, subject to the
following limitations and provisions, among others: (1) no dividend shall be
declared or paid at a time when the net assets of the corporation are less
than its stated capital or when the payment thereof would reduce the net
assets of the corporation below its stated capital or if certain other
financial and accounting measures are not satisfied; and (2) no dividend shall
be declared or paid contrary to any restrictions contained in the articles of
incorporation. Under the KCPL Articles, dividends on common stock may be paid
in accordance with the MGBCL.
Under Section 17-6420 of the KGCC, the directors of a Kansas corporation,
subject to any restrictions contained in its articles of incorporation, may
declare and pay dividends upon the shares of its capital stock either (1) out
of its surplus, as defined in and computed in accordance with Sections 17-6404
and 17-6604 of the KGCC, or (2) in case there shall be no such surplus, out of
its net profits for the fiscal year in which the dividend is declared or the
preceding fiscal year. If the capital of the corporation shall have been
diminished by depreciation in the value of its property, by losses, or
otherwise, to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, the directors of such corporation
shall not declare and pay out of such net profits any dividends until the
deficiency in the amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets shall
have been repaired. Under the Western Resources Articles, payment of dividends
on common stock is subject to financial limitations if any Western Resources
Preferred Stock is outstanding. These limitations reduce the maximum dividend
Western Resources may declare or pay on common stock if the ratio of the
capital represented by common stock to the total capital of Western Resources
falls below certain levels. The Westar Energy Articles contain no restrictions
on dividends.
SHAREOWNER INSPECTION
Section 351.215 of the MGBCL permits shareholders, at all proper times, to
inspect the books and records of a corporation under such regulations as may
be prescribed by such corporation's bylaws. Neither the MGBCL nor Missouri
case law, however, provides specific guidance as to whether a shareholder may
appoint an agent for the purpose of examining books and records or the extent
to which a shareholder must have a "proper purpose."
105
The KCPL Bylaws provide that a shareholder has the right to inspect KCPL's
books only to the extent that such right is conferred by law, the KCPL
Articles, the KCPL Bylaws or a resolution of the KCPL Board. The KCPL Bylaws
further provide that a shareholder desiring to examine the KCPL books shall
present a demand to that effect in writing to KCPL, setting forth the books
desired, purpose, date, probable duration and names of who will be present.
The list of shareholders entitled to vote at any meeting will be kept on file
at KCPL's registered office for ten days before such meeting and will be
subject to inspection by KCPL's shareholders at any time during that period,
during usual business hours.
Under Section 17-6510 of the KGCC, any shareowner, in person or by attorney
or other agent, upon written demand under oath, has the right during usual
business hours to inspect for any proper purpose (as defined hereinafter),
which purpose has to be stated, the corporation's stock register, list of
shareowners or other books and records of the corporation. A "proper purpose"
is a purpose reasonably related to such person's interest as a shareowner. A
shareowner may apply to a court to compel inspection in the event the
shareowner's request to examine the books and records is denied. In general,
the corporation has the burden of proving an improper purpose where the
shareowner requests to examine only the shareowner register or the shareowner
list, whereas in all other circumstances, the shareowner has the burden of
proving proper purpose. Accordingly, under Kansas law, a shareowner has more
precise guidance as to the scope of permissible inspection, including the
right to use an agent, and the need for and definition of a proper purpose for
such an inspection.
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EXPERTS
The consolidated financial statements of Western Resources incorporated by
reference in this Joint Proxy Statement/Prospectus, the financial statements
of KGE incorporated by reference in this Joint Proxy Statement/Prospectus and
the financial statements of WREB listed in the report on page F-2 of this
Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of KCPL
for the year ended December 31, 1997 have been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
VALIDITY OF WESTERN RESOURCES COMMON STOCK AND
WESTAR ENERGY COMMON STOCK
The validity of the shares of Western Resources Common Stock and Westar
Energy Common Stock offered hereby will be passed upon for Western Resources
and Westar Energy by Sullivan & Cromwell, 125 Broad Street, New York, New York
10004 in reliance on the opinion of John K. Rosenberg, General Counsel to
Western Resources, with respect to Kansas law. As of June 9, 1998, Mr.
Rosenberg owned directly and/or beneficially 4,790 shares of Western Resources
Common Stock and 27,500 stock options under the 1996 Long Term Incentive Stock
Option Plan.
FUTURE SHAREOWNER PROPOSALS
If the Transactions are not consummated prior thereto, Western Resources and
KCPL expect to hold their next annual meeting on May 4, 1999 and May 22, 1999,
respectively. Shareowner proposals intended to be presented at such meetings
must be received by Western Resources on or before December 8, 1998 and by
KCPL on or before December 11, 1998, as applicable, and must otherwise comply
with the requirements of Rule 14a-8 of the Exchange Act to be considered for
inclusion in the proxy materials for such meetings.
SELECTED INFORMATION CONCERNING WESTERN RESOURCES AND KCPL
BUSINESS OF WESTERN RESOURCES
Western Resources' primary business activities are providing electric
generation, transmission and distribution services to approximately 614,000
customers in Kansas; providing security alarm monitoring services to over one
million customers located throughout the United States, providing natural gas
transmission and distribution services to approximately 1.4 million customers
in Oklahoma and Kansas through its investment in ONEOK and investing in
international power projects. Rate regulated electric service is provided by
KPL and KGE. Security services are provided by Protection One. KGE owns 47% of
WCNOC, the operating company for Wolf Creek. Other Western Resources
subsidiaries include Westar Capital, a private investment company, with
investments in energy-related and technology-oriented businesses, and Westar
Energy, Inc. and The Wing Group Ltd., non-utility subsidiaries.
Following the Transactions, Western Resources will be a holding company with
its rate regulated electric utility operations (KPL, KGE and KCPL) merged into
a single subsidiary, Westar Energy, and all unregulated operations held in
separate subsidiaries.
107
BUSINESS OF 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 445,000 customers in and around the metropolitan Kansas City area.
Included in a diverse customer base are about 391,000 residences, 51,000
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, a wholly owned subsidiary of KCPL, pursues opportunities in
unregulated business ventures. KCPL's commitment to KLT and its holdings
reflects KCPL's plans to enhance shareholder value by capturing growth
opportunities in markets outside KCPL's regulated core utility business. KCPL
owns a 47% interest in WCNOC and a 50% interest in LaCygne generating station.
Additional information concerning KCPL and its subsidiaries is included in
the KCPL documents filed with the SEC which are incorporated by reference
herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
BUSINESS OF WESTAR ENERGY FOLLOWING THE TRANSACTIONS
Following the Transactions, Westar Energy will be the regulated electric
utility operating entity of Western Resources, combining the operating assets
of KGE, KPL and KCPL. Westar Energy will continue to use the trade names KGE
for its electric utility operations in southeastern Kansas, including the
Wichita metropolitan area, KPL in central and northeastern Kansas and KCPL in
the Kansas City metropolitan area. Westar Energy will operate in the States of
Kansas and Missouri, with more than one million customers and more than 8,000
megawatts of electric generation resources. Westar Energy will continue its
existence under the laws of Kansas.
MATERIAL CONTACTS BETWEEN KCPL AND WESTERN RESOURCES
KGE, a wholly owned subsidiary of Western Resources, and KCPL have joint
interests in the LaCygne Station (a coal-fired station consisting of two
generating units aggregating approximately 1,350 megawatts capacity) and Wolf
Creek (a nuclear powered generating station of approximately 1,166 megawatts
capacity). Western Resources, KGE and KCPL are members of the MOKAN and
Southwest Power Pools and in the normal course of business make purchases and
sales of power to each other and enter into other agreements or arrangements
with respect to their business operations.
KCPL has been and is the operator of LaCygne Station and has billed KGE for
its share of capital additions, fuel costs and other operating expenses. KGE
and KCPL are parties to a variety of contracts relating to the operations and
maintenance of LaCygne Station. Since 1992, KGE's costs have been as follows:
1997........................................................... $64,583,000
1996........................................................... 73,005,000
1995........................................................... 65,078,000
1994........................................................... 72,620,000
1993........................................................... 80,464,000
In 1981, KCPL, KGE and Kansas Electric Power Cooperative, Inc., a group of
approximately 25 electric cooperatives, signed an Ownership Agreement with
respect to Wolf Creek providing for undivided ownership shares of 47%, 47% and
6%, respectively. Wolf Creek was completed in 1985. In 1986, the joint owners
organized WCNOC and entered into an Operating Agreement with WCNOC, which
operates, maintains, repairs, decontaminates and decommissions Wolf Creek as
provided in the Operating Agreement. The license to operate
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Wolf Creek was transferred to WCNOC effective January 1, 1987. WCNOC withdraws
necessary funds from each of the joint owners each month for their respective
shares of all expenses for the operating and maintenance of, and for capital
additions to, Wolf Creek. Total operating expenses relating to WCNOC for KGE's
share of capital additions, fuel costs and other operating and maintenance
expenses since 1992 are as follows:
1997.......................................................... $98,951,000
1996.......................................................... 78,488,000
1995.......................................................... 97,506,000
1994.......................................................... 105,054,000
1993.......................................................... 85,414,000
From time to time WCNOC may generate an "owner work order" pursuant to which
one of the three owners contracts to provide a specific service to WCNOC for
which that owner is paid by WCNOC; the amount of such billing is then
reallocated to the joint owners in accordance with their ownership shares.
Pursuant to an October 1, 1984 lease agreement, as amended, KCPL leases KGE's
345 KV transmission line from Wolf Creek to LaCygne Station. The rent paid by
KCPL to KGE since 1992 for the use of the transmission line is as follows:
1997............................................................ $1,972,000
1996............................................................ 1,989,000
1995............................................................ 1,991,000
1994............................................................ 1,984,000
1993............................................................ 1,980,000
In the normal course of their operations, Western Resources and KGE purchase
and interchange power with a number of electric utilities, including KCPL. The
following table sets forth the total cost of purchased and interchanged power
and energy purchased by Western Resources and KGE from KCPL and sold to KCPL
by Western Resources and KGE:
PURCHASED SOLD
---------- ----------
1997................................................. $2,187,000 $1,841,000
1996................................................. 764,000 1,539,000
1995................................................. 734,000 1,259,000
1994................................................. 725,000 1,178,000
1993................................................. 665,000 7,076,000
THE WESTERN RESOURCES ELECTRIC BUSINESS
GENERAL
WREB is comprised of KPL, a rate regulated electric utility division of
Western Resources, KGE, a rate regulated electric utility and wholly owned
subsidiary of Western Resources and certain debt obligations of Western
Resources identifiable to the KPL division. Western Resources takes certain
corporate actions and makes commitments on behalf of KPL and KGE. Where such
is the case, reference below is made directly to Western Resources, rather
than to WREB, KGE or KPL.
WREB supplies electric energy at retail to approximately 614,000 customers
in 462 communities in Kansas. These include Wichita, Topeka, Lawrence,
Manhattan, Salina and Hutchinson. WREB also supplies electric energy at
wholesale to the electric distribution systems of 67 communities and 5 rural
electric cooperatives. WREB has contracts for the sale, purchase or exchange
of electricity with other utilities. WREB also receives a limited amount of
electricity through parallel generation.
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WREB's electric sales volumes for the last five years were as follows:
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(THOUSANDS OF MWH)
Residential.................................. 5,310 5,265 5,088 5,003 4,960
Commercial................................... 5,803 5,667 5,453 5,368 5,100
Industrial................................... 5,714 5,622 5,619 5,410 5,301
Wholesale and Interchange.................... 5,334 5,908 4,012 3,899 4,525
Other........................................ 107 105 108 106 103
------ ------ ------ ------ ------
Total...................................... 22,268 22,567 20,280 19,786 19,989
WREB's electric sales for the last five years were as follows:
1997(1) 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Residential............. $ 392,751 $ 403,588 $ 396,025 $ 388,271 $ 384,618
Commercial.............. 339,167 351,806 340,819 334,059 319,686
Industrial.............. 254,076 262,989 268,947 265,838 261,898
Wholesale and
Interchange............ 142,506 143,380 104,992 106,243 118,401
Other................... 101,493 35,670 36,086 27,370 19,934
---------- ---------- ---------- ---------- ----------
Total................. $1,229,993 $1,197,433 $1,146,869 $1,121,781 $1,104,537
- --------
(1) The 1997 increase in other electric sales reflects power marketing sales.
CAPACITY
The aggregate net generating capacity of WREB's system is presently 5,319
megawatts (MW). The system comprises interests in 22 fossil-fueled steam
generating units, one nuclear generating unit (47% interest), seven combustion
peaking turbines and two diesel generators located at eleven generating
stations. Two units of the 22 fossil-fueled units (aggregating 100 MW of
capacity) have been "mothballed" for future use.
WREB's 1997 peak system net load occurred July 24, 1997 and amounted to
4,016 MW. WREB's net generating capacity together with power available from
firm interchange and purchase contracts provided a capacity margin of
approximately 18% above system peak responsibility at the time of the peak.
Western Resources and twelve companies in Kansas and western Missouri have
agreed to provide capacity (including margin), emergency and economy services
for each other. This arrangement is called the MOKAN Power Pool. The pool
participants also coordinate the planning of electric generating and
transmission facilities.
Western Resources is one of 54 members of the Southwest Power Pool ("SPP").
SPP's responsibility is to maintain system reliability on a regional basis.
The region encompasses areas within the eight states of Kansas, Missouri,
Oklahoma, New Mexico, Texas, Louisiana, Arkansas and Mississippi.
Western Resources is a member of the Western Systems Power Pool ("WSPP").
Under this arrangement, over 172 electric utilities marketers throughout the
western United States have agreed to market energy and to provide transmission
services. WSPP's intent is to increase the efficiency of the interconnected
power systems operations over and above existing operations. Services
available include short-term and long-term economy energy transactions, unit
commitment service, firm capacity and energy sales, energy exchanges and
transmission service by intermediate systems.
Western Resources has an agreement with Oklahoma Municipal Power Authority,
whereby WREB received a prepayment in 1994 of approximately $41 million for
capacity (42 MW) and transmission charges through the year 2013.
110
KGE has an agreement with Midwest Energy, Inc. ("MWE"), whereby KGE will
provide MWE with peaking capacity of 61 MW through the year 2008. KGE also
entered into an agreement with Empire District Electric Company ("Empire"),
whereby KGE will provide Empire with peaking and base load capacity (20 MW in
1994 increasing to 80 MW in 2000) through the year 2000. Western Resources has
another agreement with Empire whereby WREB will provide Empire with peaking
and base load capacity (10 MW in 1995 increasing to 162 MW in 2000) through
the year 2010.
FUTURE CAPACITY
WREB does not contemplate any significant expenditures in connection with
construction of any major generating facilities for the next five years.
FUEL MIX
WREB's coal-fired units comprise 3,311 MW of the total 5,319 MW of
generating capacity and WREB's nuclear unit provides an additional 547 MW of
capacity. Of the remaining 1,461 MW of generating capacity, units that can
burn either natural gas or oil account for 1,377 MW, and units which burn only
diesel fuel account for the remaining 84 MW.
During 1997, low sulfur coal was used to produce 78% of WREB's electricity.
Nuclear fuel produced 17% and the remainder was produced from natural gas, oil
or diesel fuel. During 1998, based on WREB's estimate of the availability of
fuel, coal will be used to produce approximately 77% of WREB's electricity and
nuclear fuel will be used to produce approximately 18%.
WREB's fuel mix fluctuates with the operation of nuclear-powered Wolf Creek
which has an 18-month refueling and maintenance schedule. The 18-month
schedule permits uninterrupted operation every third calendar year. Wolf Creek
was taken off line on October 4, 1997 for its ninth refueling and maintenance
outage which lasted approximately 58 days, during which time electric demand
was met primarily by WREB's coal-fired generating units.
NUCLEAR
The owners of Wolf Creek have on hand or under contract 100% of their
uranium needs for 1998 and 59% of the uranium required to operate Wolf Creek
through September 2003. The balance is expected to be obtained through spot
market and contract purchases. KGE has three active contracts with the
following companies for uranium: Cameco Corporation, Geomex Minerals, Inc. and
Power Resources, Inc.
A contractual arrangement is in place with Cameco Corporation for the
conversion of uranium to uranium hexafluoride sufficient for the operation of
Wolf Creek through the year 2001.
KGE has two active contracts for uranium enrichment performed by Urenco and
USEC. Contracted arrangements cover 80% of Wolf Creek's uranium enrichment
requirements for operation of Wolf Creek through March 2005. The balance is
expected to be obtained through spot market and term contract purchases.
KGE has entered into all of its uranium, uranium hexafluoride and uranium
enrichment arrangements during the ordinary course of business and is not
substantially dependent upon these agreements. KGE believes there are other
suppliers available at reasonable prices to replace, if necessary, these
contracts. In the event that KGE was required to replace these contracts, it
would not anticipate a substantial disruption of its business.
Nuclear fuel is amortized to cost of sales based on the quantity of heat
produced for the generation of electricity. Under the Nuclear Waste Policy Act
of 1982, the Department of Energy ("DOE") is responsible for the permanent
disposal of spent nuclear fuel. KGE pays the DOE a quarterly fee of one-tenth
of a cent for each
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kilowatt-hour of net nuclear generation delivered and sold for future disposal
of spent nuclear fuel. These disposal costs are charged to cost of sales and
are currently recovered through rates.
In 1996, a U.S. Court of Appeals issued a decision that the Nuclear Waste
Act unconditionally obligated the DOE to begin accepting spent fuel for
disposal in 1998. In late 1997, the same court issued another decision
precluding the DOE from concluding that its delay in accepting spent fuel is
"unavoidable" under its contracts with utilities due to lack of a repository
or interim storage authority. By the end of 1997, KGE and other utilities had
petitioned the DOE for authority to suspend payments of their quarterly fees
until such time as the DOE begins accepting spent fuel. In January 1998, the
DOE denied the petition of the utilities. KGE is considering its response to
the DOE's action.
A permanent disposal site may not be available for the industry until 2010
or later, although an interim facility may be available earlier. Under current
DOE policy, once a permanent site is available, the DOE will accept spent
nuclear fuel on a priority basis; the owners of the oldest spent fuel will be
given the highest priority. As a result, disposal services for Wolf Creek may
not be available prior to 2016. Wolf Creek has on-site temporary storage for
spent nuclear fuel. Under current regulatory guidelines, this facility can
provide storage space until about 2005. Wolf Creek has started plans to
increase its on-site spent fuel storage capacity. That project, expected to be
completed by 2000, should provide storage capacity for all spent fuel expected
to be generated by Wolf Creek through the end of its licensed life in 2025.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated that
the various states, individually or through interstate compacts, develop
alternative low-level radioactive waste disposal facilities. The states of
Kansas, Nebraska, Arkansas, Louisiana and Oklahoma formed the Central
Interstate Low-Level Radioactive Waste Compact and selected a site in northern
Nebraska to locate a disposal facility. The present estimate of the cost for
such a facility is about $154 million. WCNOC and the owners of the other five
nuclear units in the compact have provided most of the pre-construction
financing for this project.
There is uncertainty as to whether this project will be completed.
Significant opposition to the project has been raised by Nebraska officials
and residents in the area of the proposed facility, and attempts have been
made through litigation and proposed legislation in Nebraska to slow down or
stop development of the facility.
COAL
The three coal-fired units at Jeffrey Energy Center ("JEC") have an
aggregate capacity of 1,839 MW (WREB's 84% share). Western Resources and KGE
have a long-term coal supply contract with Amax Coal West, Inc. ("AMAX"), a
subsidiary of Cyprus Amax Coal Company, to supply low sulfur coal to JEC from
AMAX's Eagle Butte Mine or an alternative mine source at AMAX's Belle Ayr
Mine, both located in the Powder River Basin in Campbell County, Wyoming. The
contract expires December 31, 2020. The contract contains a schedule of
minimum annual delivery quantities based on MMBtu provisions. The coal to be
supplied is surface mined and has an average Btu content of approximately
8,300 Btu per pound and an average sulfur content of .43 lbs/MMBtu. The
average delivered cost of coal for JEC was approximately $1.13 per MMBtu or
$18.92 per ton during 1997.
Coal is transported from Wyoming under a long-term rail transportation
contract with Burlington Northern Santa Fe ("BNSF") and Union Pacific ("UP")
railroads to JEC through December 31, 2013. Rates are based on net load
carrying capabilities of each rail car. WREB provides 868 aluminum rail cars,
under a 20-year lease, to transport coal to JEC.
The two coal-fired units at LaCygne Station have an aggregate generating
capacity of 677 MW (KGE's 50% share). The operator, KCPL, maintains coal
contracts as summarized in the following paragraphs.
LaCygne 1 uses low sulfur Powder River Basin coal which is supplied under a
variety of spot market transactions discussed below. High Btu Kansas/Missouri
coal is blended with the Powder River Basin coal and is secured from time to
time under spot market arrangements. LaCygne 1 uses a blended fuel mix
containing approximately 85% Powder River Basin Coal.
112
LaCygne 2 and additional LaCygne 1 Powder River Basin coal is supplied
through several contracts, expiring at various times through 1999. This low
sulfur coal had an average Btu content of approximately 8,500 Btu per pound
and a maximum sulfur content of .50 lbs/MMBtu. Transportation is covered by
KCPL through its Omnibus Rail Transportation Agreement with BNSF and Kansas
City Southern Railroad through December 31, 2000.
During 1997, the average delivered cost of all local and Powder River Basin
coal procured for LaCygne 1 was approximately $0.70 per MMBtu or $12.31 per
ton and the average delivered cost of Powder River Basin coal for LaCygne 2
was approximately $0.67 per MMBtu or $11.32 per ton.
The coal-fired units located at the Tecumseh and Lawrence Energy Centers
have an aggregate generating capacity of 795 MW. Western Resources contracted
with Cyprus Amax Coal Company's Foidel Creek Mine located in Routt County,
Colorado for low sulfur coal through December 31, 1998. This coal is
transported by UP and BNSF railroads under contracts expiring December 31,
1998. WREB anticipates that the Cyprus agreement will supply the minimum
requirements of the Tecumseh and Lawrence Energy Centers and supplemental coal
requirements will continue to be supplied from coal markets in Montana,
Wyoming, Utah, Colorado and/or New Mexico. WREB is currently seeking coal
supply through 2000 to replace the expiring Cyprus coal agreement. Additional
spot market coal for 1998 has been secured from Kennecott Coal Company with
rail transportation supplied by BNSF railroad. During 1997, the average
delivered cost of coal for the Lawrence units was approximately $1.24 per
MMBtu or $26.89 per ton and the average delivered cost of coal for the
Tecumseh units was approximately $1.24 per MMBtu or $26.76 per ton. The coal
supplied in 1997 had an average Btu content of approximately 10,842 Btu per
pound and an average sulfur content of .42 lbs/MMBtu (See "--Environmental
Matters").
Western Resources and KGE have entered into all of their coal contracts
during the ordinary course of business and WREB is not substantially dependent
upon these contracts. WREB believes there are other suppliers for and
plentiful sources of coal available at reasonable prices to replace, if
necessary, fuel to be supplied pursuant to these contracts. In the event that
WREB was required to replace its coal agreements, it would not anticipate a
substantial disruption of its business.
Western Resources and KGE have entered into all of their transportation
contracts during the ordinary course of business. At the time of entering into
these contracts, WREB was not substantially dependent upon these contracts due
to the availability of competitive rail options. Due to recent rail
consolidation, there are now only two rail carriers capable of serving WREB's
original coal mines and its generating stations. In the event one of these
carriers became unable to provide reliable service, WREB could experience a
short-term disruption of its business. However, due to the obligation of the
remaining carriers to provide service under the Interstate Commerce Act, WREB
does not anticipate any substantial long-term disruption of its business.
NATURAL GAS
WREB uses natural gas as a primary fuel in its Gordon Evans, Murray Gill,
Abilene and Hutchinson Energy Centers and in the gas turbine units at its
Tecumseh generating station. Natural gas is also used as a supplemental fuel
in the coal-fired units at the Lawrence and Tecumseh generating stations.
Natural gas for all facilities is supplied by readily available gas from the
short-term economical spot market and will supply the system with the flexible
natural gas supply to meet operational needs.
OIL
WREB uses oil as an alternate fuel when economical or when interruptions to
natural gas make it necessary. Oil is also used as a supplemental fuel at JEC
and LaCygne generating stations. All oil burned by WREB during the past
several years has been obtained through spot market purchases. At December 31,
1997, WREB had approximately 3 million gallons of No. 2 oil and 17 million
gallons of No. 6 oil which it believes to be sufficient to meet emergency
requirements and protect against lack of availability of natural gas and/or
the loss of a large generating unit.
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OTHER FUEL MATTERS
Western Resources' and KGE's contracts to supply fuel for WREB's coal and
natural gas-fired generating units, with the exception of JEC, do not provide
full fuel requirements at the various stations. Supplemental fuel is procured
on the spot market to provide operational flexibility and, when the price is
favorable, to take advantage of economic opportunities.
Set forth in the table below is information relating to the weighted average
cost of fuel used by WREB.
KPL PLANTS 1997 1996 1995 1994 1993
---------- ----- ----- ----- ----- -----
Per Million Btu:
Coal...................................... $1.17 $1.14 $1.15 $1.13 $1.13
Gas....................................... 2.88 2.50 1.63 2.66 2.71
Oil....................................... 3.72 4.01 4.34 4.27 4.41
Cents per KWH Generation.................... 1.32 1.30 1.31 1.32 1.31
KGE PLANTS 1997 1996 1995 1994 1993
---------- ----- ----- ----- ----- -----
Per Million Btu:
Nuclear................................... $0.51 $0.50 $0.40 $0.36 $0.35
Coal...................................... 0.89 0.88 0.91 0.90 0.96
Gas....................................... 2.56 2.30 1.68 1.98 2.37
Oil....................................... 3.32 2.74 4.00 3.90 3.15
Cents per KWH Generation.................... 1.00 0.93 0.82 0.89 0.93
ENVIRONMENTAL MATTERS
WREB currently holds all federal and state environmental approvals required
for the operation of its generating units. WREB believes it is presently in
substantial compliance with all air quality regulations (including those
pertaining to particulate matter, sulfur dioxide and nitrogen oxides (NOx)
promulgated by the State of Kansas and the Environmental Protection Agency
("EPA")).
The federal sulfur dioxide standards, applicable to WREB's JEC and LaCygne 2
units, prohibit the emission of more than 1.2 pounds of sulfur dioxide per
million Btu of heat input. Federal particulate matter emission standards
applicable to these units prohibit: (1) the emission of more than 0.1 pounds
of particulate matter per million Btu of heat input and (2) an opacity greater
than 20%. Federal NOx emission standards applicable to these units prohibit
the emission of more than 0.7 pounds of NOx per million Btu of heat input.
The JEC and LaCygne 2 units have met: (1) the sulfur dioxide standards
through the use of low sulfur coal; (2) the particulate matter standards
through the use of electrostatic precipitators; and (3) the NOx standards
through boiler design and operating procedures. The JEC units are also
equipped with flue gas scrubbers providing additional sulfur dioxide and
particulate matter emission reduction capability when needed to meet permit
limits.
The Kansas Department of Health and Environment ("KDHE") regulations,
applicable to WREB's other generating facilities, prohibit the emission of
more than 2.5 pounds of sulfur dioxide per million Btu of heat input at two of
WREB's Lawrence generating units and 3.0 pounds at all other generating units.
There is sufficient low sulfur coal under contract to allow compliance with
such limits at Lawrence, Tecumseh and LaCygne 1 for the life of the contracts.
All facilities burning coal are equipped with flue gas scrubbers and/or
electrostatic precipitators.
WREB must comply with the provisions of The Clean Air Act Amendments of 1990
that require a two-phase reduction in certain emissions. WREB has installed
continuous monitoring and reporting equipment to meet the acid rain
requirements. WREB does not expect material capital expenditures to be
required to meet Phase II sulfur dioxide and nitrogen oxide requirements.
All of WREB's generating facilities are in substantial compliance with the
Best Practicable Technology and Best Available Technology regulations issued
by the EPA pursuant to the Clean Water Act of 1977. Most EPA regulations are
administered in Kansas by the KDHE.
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REGULATION AND RATES
WREB is subject as an operating electric utility to the jurisdiction of the
Kansas Commission which has general regulatory authority over WREB's rates,
extensions and abandonments of service and facilities, valuation of property,
the classification of accounts and various other matters. WREB is subject to
the jurisdiction of the FERC and the Kansas Commission with respect to the
issuance of securities.
Electric fuel costs are included in base rates. Therefore, if WREB wished to
recover an increase in fuel costs, it would have to file a request for
recovery in a rate filing with the Kansas Commission which could be denied in
whole or in part. Any increase in fuel costs from the projected average which
WREB did not recover through rates would reduce its earnings. The degree of
any such impact would be affected by a variety of factors, however, and thus
cannot be predicted.
Additionally, WREB is subject to the jurisdiction of the FERC, including
jurisdiction as to rates with respect to sales of electricity for resale. KGE
is also subject to the jurisdiction of the NRC as to nuclear plant operations
and safety.
EMPLOYEE RELATIONS
As of December 31, 1997, Western Resources had 2,412 employees not including
those primarily associated with Protection One, its security alarm monitoring
business. Substantially all of these employees will become employees of Westar
Energy following consummation of the Transactions. Western Resources did not
experience any strikes or work stoppages during 1997. Western Resources'
current contract with the International Brotherhood of Electrical Workers
extends through June 30, 1999. The contract covers approximately 1,483
employees.
115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF WESTERN RESOURCES ELECTRIC BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements discussed in this section are "forward-looking
statements" within the meaning of various provisions of the Securities Act and
the Exchange Act. When used in this discussion, the words "believes,"
"anticipates," "expects" "intends," "estimates," "projects," and similar
expressions are intended to identify forward-looking statements. The forward-
looking statements in this section are based on certain assumptions and
analyses of WREB in light of historical trends, current conditions and
expected future developments. These forward-looking statements, however,
involve a number of business risks and uncertainties, any of which could cause
actual results to differ materially from the forward-looking statements. These
factors include: increases or decreases in production capacity; changes in
market prices; industry cyclicality; cost of raw materials; future economic
market or business conditions; federal and state legislative developments; the
impact of electric utility deregulation on WREB's regulatory and competitive
markets; and other factors beyond the control of WREB affecting anticipated
operations, revenues and costs.
OVERVIEW
WREB includes the net assets and operations of KPL, KGE and certain debt
obligations of Western Resources identifiable to KPL. WREB provides electric
generation, transmission and distribution services to approximately 614,000
customers in Kansas.
The operations of WREB are currently subject to regulation by the Kansas
Commission and the FERC. WREB currently applies accounting standards that
recognize the economic effects of rate regulation in accordance with Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71) and, accordingly, has recorded
regulatory assets and liabilities when required by a regulatory order or when
it is probable, based on regulatory precedent, that future rates will allow
for recovery of a regulatory asset.
WREB has historically been operated as an integrated part of Western
Resources' overall business and has not been separated from Western Resources'
other operations for managerial, accounting, administrative or other purposes.
Consequently, the activities of WREB have been included in the consolidated
financial statements of Western Resources. In the normal course of business,
WREB has various transactions with Western Resources, including various
expense allocations which are material in amount. Certain accounts,
principally working capital accounts, are maintained by Western Resources on a
common basis. In certain instances, amounts applicable to Western Resources'
accounts which are not being contributed are accounted for in the same general
ledger accounts as WREB. Where it was practical, a determination of amounts
applicable to WREB was made. In other circumstances it was not possible to
make this determination and allocation methodologies were used to quantify
estimated amounts related to WREB. The allocation methodologies utilized are
reasonable in the opinion of management.
Western Resources takes certain actions and makes commitments on behalf of
KPL and KGE. Where such is the case, reference below is made directly to
Western Resources, rather than to WREB, KGE, or KPL.
See "THE WESTERN RESOURCES ELECTRIC BUSINESS."
FINANCIAL CONDITION
Three Months Ended March 31, 1998 compared to Three Months Ended March 31,
1997: Net income for WREB was $29 million in 1998 compared to $22 million in
1997. This increase was primarily attributable to increased other income.
116
1997 compared to 1996: Net income for WREB was $77 million in 1997 compared
to $170 million in 1996. The decline is primarily attributable to the
following:
. KCPL merger costs: In December 1997, WREB expensed $48 million of
deferred costs associated with the Original Merger Agreement.
. Rate reduction: A January 1997 agreement with the Kansas Commission,
among others, was implemented in February 1997 and reduced electric rates
by $46 million. During 1997, WREB also accrued future rate rebates of $10
million provided for under the agreement.
. Operating expenses: Extended outages at the Wolf Creek and LaCygne
generating stations increased power purchases by $13 million.
These items and additional factors that affected WREB's results of
operations between 1996 and 1997 are discussed in additional detail below. See
"--Results of Operations."
1996 compared to 1995: Net income for WREB was $170 million in 1996 compared
to $177 million in 1995. This decline is primarily attributable to the interim
rate reduction implemented by KGE in May 1996. This item and additional
factors that affected WREB's results of operations between 1995 and 1996 are
discussed in additional detail below. See "--Results of Operations."
RESULTS OF OPERATIONS
SALES
Revenues from sales are based on rates and sales volume. Rates charged for
the sale and delivery of electricity are authorized by the Kansas Commission
and the FERC and are designed to recover the cost of service and afford
Western Resources shareowners a fair rate of return. Factors affecting future
energy sales include the following:
. The weather
. Electric rates
. Customer conservation efforts
. Wholesale demand
. The overall economy of the service area
. Competitive forces
Three Months Ended March 31, 1998 compared to Three Months Ended March 31,
1997: Sales increased 13.8% for the three month period because of revenues of
$47 million from power marketing activity which began during the third quarter
of 1997. This increase was partially offset by a 25.7% decrease in wholesale
sales and WREB reduced electric retail rates implemented February 1, 1997.
Reduced electric rates lowered first quarter 1998 sales by an estimated $5
million.
1997 compared to 1996: 1997 sales increased three percent compared to 1996.
This increase is attributable to sales of $70 million from the expansion of
power marketing operations in 1997 which was partially offset by the rate
reduction implemented in 1997. WREB's involvement in power marketing
anticipates a deregulated electric utility industry. WREB is involved in both
the marketing of electricity and risk management services to wholesale
electric customers and the purchase of electricity for retail customers.
WREB's power marketing activity has resulted in energy purchases and sales
made in areas outside of WREB's historical marketing territory. In 1997, power
marketing activities essentially broke even and had no impact on operating
income.
In May 1996, WREB implemented an interim $8.7 million rate reduction for KGE
customers. In October 1996, Western Resources, on behalf of KPL and KGE, the
Kansas Commission staff, the City of Wichita, and
117
the Citizen's Utility Ratepayer Board agreed to further reduce WREB's retail
electric rates. In January 1997, the Kansas Commission approved the agreement.
Pursuant to the agreement with the Kansas Commission:
. The May 1996 interim $8.7 million rate reduction for KGE customers was
made permanent on February 1, 1997.
. An annual rate reduction of $36 million for KGE customers was implemented
on February 1, 1997.
. An annual rate reduction of $10 million for KPL customers was implemented
on February 1, 1997.
. A rebate of $5 million was provided to WREB's customers in January 1998.
. An annual rate reduction of $10 million for KGE customers will be
implemented on June 1, 1998.
. A rebate of $5 million will be provided to WREB's customers in January
1999.
. An annual rate reduction of $10 million for KGE customers will be
implemented on June 1, 1999.
All rate reductions are cumulative. Rebates are one-time events and do not
influence future rates.
The 1997 rate reduction decreased 1997 sales by approximately $46 million as
compared to 1996. The rate reductions will impact future sales. During 1997,
WREB also accrued $10 million for the rebates which will be paid to WREB
customers in January 1998 and January 1999.
1996 compared to 1995: 1996 sales increased four percent compared to 1995.
This increase is the result of greater demand for electricity caused primarily
by colder winter and warmer spring weather. The increased demand was offset by
the $8.7 million interim rate reduction in May 1996 (discussed above).
COST OF SALES
Cost of sales includes fuel and purchased power costs, including those
related to power marketing. Electric fuel costs are included in base rates. To
recover an increase in fuel costs, WREB is required to file a request for
recovery in a rate filing with the Kansas Commission. An increase in fuel
costs from the projected average which WREB did not recover through rates
would reduce future earnings. The degree of any such impact would be affected
by a variety of factors, however, and thus cannot be predicted.
Three Months Ended March 31, 1998 compared to Three Months Ended March 31,
1997: Cost of sales was $38 million higher in 1998 than 1997. This increase
was the result of an additional $47 million of expenses due to the expansion
of power marketing activity. This increase was partially offset by an $8
million decrease in fuel used for generation resulting from decreased
wholesale sales.
1997 compared to 1996: 1997 cost of sales of $378 million increased $84
million over 1996. This increase is attributable to three primary factors: the
expansion of power marketing in 1997, increased fuel and purchased power costs
due to outages at two generating stations and coal inventory delivery
limitations.
Power marketing operations in 1997 increased cost of sales by $70 million.
Purchased power and fuel costs increased cost of sales by $14 million. An
extended scheduled outage at Wolf Creek in the fourth quarter reduced WREB's
generation capacity and increased WREB's power purchases. An extended outage
in the spring and summer at LaCygne generating station, a coal-fired facility,
required WREB to meet customer demand by increasing power purchases and
generating additional electricity by burning natural gas, a more expensive
fuel. In addition, rail transportation limitations during 1997 required WREB
to conserve coal inventories by increasing power purchases and generating
electricity by burning natural gas.
1996 compared to 1995: Cost of sales was $46 million higher in 1996 than
1995. Wolf Creek's planned refueling outage in early 1996 increased WREB's
power purchases to meet customer demand. Higher net generation due to warmer
weather during the second quarter of 1996 also contributed to the higher fuel
and purchased power expenses.
118
OPERATING EXPENSES
Three Months Ended March 31, 1998 compared to Three Months Ended March 31,
1997: Operating expenses decreased 1.3% for the three month period primarily
due to the decrease in amortization expense as a result of phase-in revenues
being fully amortized in December 1997.
1997 compared to 1996: Operating expenses were $90 million higher in 1997
compared to 1996. The significant factors contributing to this increase
include a special charge related to the Original Merger Agreement with KCPL,
increased amortization expense, increased operating and maintenance costs and
increased employee benefit costs.
During 1996 and 1997, WREB incurred and deferred costs of $53 million in
Western Resources' efforts to acquire KCPL. WREB had planned to expense these
costs in the first period following consummation of the Original Merger
Agreement. In December 1997, representatives of Western Resources' financial
advisor indicated they believed it was unlikely they would be in a position to
issue a fairness opinion required for the Original Merger Agreement on the
basis of the previously announced terms. As a result, Western Resources
reviewed the deferred costs and determined that for accounting purposes, $48
million of the deferred costs incurred solely as a result of the Original
Merger Agreement should be expensed. As of December 31, 1997, $5 million of
costs related to the current Merger Agreement were deferred.
The increase in depreciation and amortization expense between 1996 and 1997
relates primarily to accelerated amortization of the phase-in revenue
regulatory asset of $9 million recorded in 1997. As a result of the
accelerated amortization, the phase-in revenue regulatory asset was fully
amortized as of December 31, 1997.
1996 compared to 1995: The increase in operating expenses between 1995 and
1996 relates primarily to the inclusion of a full year of amortization of the
KGE acquisition premium in 1996 compared to the partial year of amortization
recorded in 1995. Amortization of the acquisition premium commenced in August
1995 The acquisition premium will be amortized at a rate of approximately $20
million (pre-tax) per year for 40 years. For further discussion of the KGE
acquisition premium, see "--Other Information--Merger Implementation."
OTHER INCOME (EXPENSE)
Other income (expense) includes miscellaneous income and expenses not
directly related to the operations of WREB. The decrease in other income
between 1996 and 1997 is attributable to reduced income from WREB's corporate-
owned life insurance policies. The decrease in other income (expense) between
1995 and 1996 is attributable to a gain on the sale of a utility plant
recognized in the first quarter of 1995.
INTEREST EXPENSE
The decrease in interest expense between the three months ended March 31,
1998 and the three months ended March 31, 1997 relates to the retirement of
short-term debt during the first quarter of 1998. The change in interest
expense between 1996 and 1997 relates directly to the significant reduction in
short-term debt between 1996 and 1997. The increase in interest expense
between 1996 and 1995 relates directly to the significant increase in short-
term debt between the two years.
INCOME TAXES
Three Months Ended March 31, 1998 compared to Three Months Ended March 31,
1997: The decrease in the effective income tax rate is primarily related to
larger amounts of non-taxable income relative to a reduced amount of pre-tax
income.
1997 compared to 1996: The decrease in income tax expense of $49 million is
primarily related to the $142 million decrease in income before income taxes.
The decrease in the effective income tax rate is attributable to larger
amounts of non-taxable income realized in 1997 relative to a reduced amount of
pre-tax income.
119
1996 compared to 1995: The decrease in income tax expense is attributable to
the decrease in income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
WREB's liquidity is a function of its ongoing capital expenditure
requirements and maintenance costs. It is designed to maintain and improve
facilities which provide electric service and meet future customer service
requirements. The ability to provide cash or debt to fund capital expenditures
depends upon many things, including available resources, financial condition
and current market conditions.
Cash management for WREB has historically been administered by Western
Resources through a centralized treasury system that services Western
Resources' overall operations. Western Resources has provided for the
liquidity needs of WREB when capital requirements of WREB have been in excess
of internally generated funds.
Other than operations, the primary source of short-term cash is funds
provided by Western Resources and a $100 million unsecured line of credit of
KGE. Subsequent to year-end, KGE's $100 million unsecured line of credit was
converted into a Western Resources line of credit. As of December 31, 1997,
WREB had approximately $45 million of short-term debt outstanding. Additional
short-term debt was available through credit facilities of Western Resources.
As of December 31, 1997, $50 million of KGE first mortgage bonds were
registered with the SEC and were available for sale.
WREB's stand-alone capital structure was 50% equity in net assets and 50%
long-term debt at December 31, 1997 and 49% of equity in net assets and 51%
long-term debt at December 31, 1996.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operations increased substantially over 1996. This increase
is largely attributable to costs related to the acquisition of KCPL that were
incurred and deferred in 1996. The costs associated with the Original Merger
Agreement were expensed and appear as a non-cash special charge to operations
in 1997. Operating cash flow for the three months ended March 31, 1998
decreased from the three months ended March 31, 1997 primarily due to a larger
decrease in accounts payable.
CASH FLOWS USED IN INVESTING AND FINANCING ACTIVITIES
Cash used in investing activities is directly related to WREB's ongoing
construction program. Differences between 1996 and 1997 are attributable to
the timing of these capital expenditures. During 1997, KGE paid off $177
million of short-term debt.
SECURITY RATINGS
Standard & Poor's Ratings Group ("S&P"), Fitch Investors Service ("Fitch")
and Moody's Investors Service ("Moody's") are independent credit-rating
agencies. These agencies' ratings indicate an assessment of Western Resources'
and KGE's ability to pay interest and principal on debt securities. Western
Resources' mortgage bonds and KGE's mortgage bonds are secured by certain
assets of WREB.
At December 31, 1997, ratings with these agencies were as follows:
WESTERN RESOURCES
MORTGAGE BOND KGE MORTGAGE
RATING AGENCY RATING BOND RATING
------------- ----------------- ------------
S&P........................................ A- BBB+
Fitch...................................... A- A-
Moody's.................................... A3 A3
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Following the announcement of the Merger Agreement with KCPL on March 18,
1998, S&P placed its ratings of Western Resources on CreditWatch with positive
implications. Moody's changed the direction of its ongoing review of Western
Resources' debt rating from possible downgrade to possible upgrade. Fitch
reaffirmed ratings with potential positive impact.
FUTURE CASH REQUIREMENTS
Internally generated funds and new and existing credit agreements are
expected to be sufficient to meet WREB's operating and capital expenditure
requirements and debt service payments through the year 2000. Uncertainties
affecting WREB's ability to meet these requirements with internally generated
funds include the effect of competition and inflation on operating expenses,
sales volume, regulatory actions, compliance with future environmental
regulations, the availability of generating units and weather.
WREB believes it will meet the needs of its customers without adding any
major generation facilities in the next five years. The construction program
will continue to focus on providing service to new customers and maintaining
and improving present facilities. During 1997, construction expenditures for
WREB's electric system were approximately $141 million and expenditures for
nuclear fuel were approximately $19 million.
Capital expenditures for 1998 through 2000 are anticipated to be as follows:
NUCLEAR
ELECTRIC FUEL
----------- ----------
(DOLLARS IN THOUSANDS)
1998............................................. $ 119,300 $ 22,700
1999............................................. 117,400 4,000
2000............................................. 115,000 22,800
These expenditures are estimates prepared for planning purposes and may be
revised.
OTHER INFORMATION
MERGER IMPLEMENTATION
In accordance with the order by the Kansas Commission approving the
combination between Western Resources and KGE, amortization of the KGE
acquisition premium commenced in August 1995. The amortization will amount to
approximately $20 million (pre-tax) per year for 40 years. Amortization of the
acquisition premium is currently being recovered through rates via a cost
savings mechanism approved by the Kansas Commission.
In January 1997, the Kansas Commission fixed the annual savings level at $40
million which provides complete recovery of the amortization expense and a
return on the acquisition premium. WREB's management believes the savings
level provides for complete recovery of the acquisition premium.
COMPETITION AND ENHANCED BUSINESS OPPORTUNITIES
The United States electric utility industry is evolving from a regulated
monopolistic market to a competitive marketplace. The 1992 Energy Policy Act
began deregulating the electric utility industry. The Energy Policy Act
permitted the FERC to order electric utilities to allow third parties the use
of their transmission systems to sell electric power to wholesale customers. A
wholesale sale is defined as a utility selling electricity to a "middleman,"
usually a city or its utility company, for resale to the ultimate retail
customer. As part of the 1992 combination with KGE, Western Resources agreed
to open access of WREB's transmission system for wholesale transactions. The
FERC also requires WREB to provide transmission services to others. During
1997, wholesale electric revenues represented approximately 12% of WREB's
total electric sales.
121
Various states have taken steps to allow retail customers the opportunity to
purchase electric power from providers other than their local utility company.
The Kansas legislature has created a Retail Wheeling Task Force (the "Task
Force") to study the effects of a deregulated and competitive market for
electric services. Legislators, regulators, consumer advocates and
representatives from the electric industry comprise the Task Force. The Task
Force submitted a bill to the Kansas legislature without recommendation. This
bill seeks competitive retail electric service by July 1, 2001. The bill was
introduced to the Kansas legislature in the opening days of the 1998
legislative session, but is not expected to come to a vote this year. The Task
Force also is evaluating how to recover certain investments in generation and
related facilities which were approved and incurred under the existing
regulatory model. Some of these investments may not be recoverable in a
competitive marketplace and are commonly called "Stranded Costs." See "--
Stranded Costs" below for further discussion. WREB has opposed the Task
Force's bill. Until a bill is passed by the Kansas legislature, the impact on
WREB cannot be predicted, but the impact could be material.
Increased competition for retail electricity sales may reduce future
earnings as compared to historical earnings. After all electric rate
reductions associated with the agreement approved by the Kansas Commission in
January 1997 are implemented, WREB's rates will range from 73% to 91% of the
national average for retail customers. WREB expects to retain a substantial
part of its current sales volume in a deregulated environment as a result of
its competitive rates.
While WREB expects a competitive environment to create opportunities, it may
place pressure on WREB's future profit margins and credit ratings. Wholesale
and industrial customers may pursue cogeneration, self-generation, retail
wheeling, municipalization or relocation to other service territories in an
attempt to cut their energy costs. Credit rating agencies are applying more
stringent guidelines when rating utility companies due to increasing
competition.
STRANDED COSTS
The definition of stranded costs for an electric utility business is the
investment in and carrying costs on property, plant and equipment and other
regulatory assets which exceed the amount that can be recovered in a
competitive market. WREB currently applies accounting standards that recognize
the economic effects of rate regulation and records regulatory assets and
liabilities related to WREB's generation, transmission and distribution
operations. If WREB determines it no longer meets the criteria of SFAS 71,
WREB may have a material extraordinary non-cash charge to operations. Reasons
for discontinuing SFAS 71 accounting treatment include increasing competition
that restricts a company's ability to charge prices needed to recover costs
already incurred and a significant change by regulators from a cost-based rate
regulation to another form of rate regulation. WREB periodically reviews SFAS
71 criteria and believes the net regulatory assets, including those related to
generation, are probable for future recovery. If WREB discontinues SFAS 71
accounting treatment based on competitive or other events, it may
significantly impact the value of WREB's net regulatory assets and WREB's
utility plant investments, particularly the Wolf Creek facility. See "--
Competition and Enhanced Business Opportunities" above for initiatives taken
to restructure the electric industry in Kansas.
Regulatory changes, including competition, could adversely impact WREB's
ability to recover its investment in these assets. As of March 31, 1998, WREB
has recorded regulatory assets of approximately $380 million which are
currently subject to future recovery in rates. Of this amount, approximately
$213 million is a receivable for future income tax benefits previously passed
on to customers. The remainder of the regulatory assets are items that may
give rise to stranded costs including coal contract settlement costs, deferred
plant costs, debt issuance costs, and deferred employee benefit costs.
In a competitive environment, WREB may not be able to fully recover its 47%
investment in Wolf Creek. WREB may also have stranded costs from an inability
to recover its environmental remediation costs and long-term fuel contract
costs in a competitive environment. If WREB determines that it has stranded
costs and cannot recover its investment in these assets, WREB's future net
utility income may be lower than its historical net utility income unless WREB
compensates for the loss of such income with other measures.
122
DECOMMISSIONING
Decommissioning is a nuclear industry term for the permanent shut-down of a
nuclear power plant when the plant's license expires. The NRC will terminate a
plant's license and release the property for unrestricted use when a company
has reduced the residual radioactivity of a nuclear plant to a level mandated
by the NRC. The NRC requires companies with nuclear power plants to prepare
formal financial plans. These plans ensure that funds required for
decommissioning will be accumulated during the estimated remaining life of the
related nuclear power plant.
The SEC has questioned the way electric utilities recognize, measure and
classify decommissioning costs for nuclear electric generating stations in
their financial statements. In response to the SEC's questions, the Financial
Accounting Standards Board is reviewing the accounting for closure and removal
costs, including decommissioning of nuclear power plants. If current
accounting practices for nuclear power plant decommissioning are changed, the
following could occur:
--Annual decommissioning expenses could be higher than in 1997
--Estimated costs for decommissioning could be recorded as a liability
(rather than as accumulated depreciation)
--Increased costs could be recorded as an additional investment in the Wolf
Creek plant
WREB does not believe that such changes, if required, would adversely affect
its operating results due to its current ability to recover decommissioning
costs through rates.
YEAR 2000 ISSUE
Western Resources is currently addressing the effect of the Year 2000 issue
on its reporting and operating systems, which includes the reporting and
operating systems of WREB. The Year 2000 issue exists because many computer
systems and applications abbreviate dates by eliminating the first two digits
of the year, assuming that these two digits are always "19." Consequently, on
January 1, 2000, some computer programs may incorrectly recognize the date as
January 1, 1900 and may incorrectly process critical financial and operational
information, or stop processing altogether because of the incorrect date
abbreviation. Calculations using the year 2000 will affect computer
applications before January 1, 2000.
Western Resources has recognized the potential adverse effects the Year 2000
issue could have on WREB. In 1996 and 1997, Western Resources established a
formal Year 2000 remediation program to investigate, identify and correct
these problems in the computer systems of Western Resources, including WREB.
The goal of the program is to identify and assess every critical system
potentially affected by the Year 2000 date change and to repair or replace
those systems found to be incompatible with Year 2000 dates.
Western Resources plans to have the Year 2000 readiness efforts
substantially completed by the end of 1998 and expects no significant
operational impact on WREB's ability to serve customers, pay suppliers, or
operate other areas of the business.
Western Resources currently estimates that total costs to update all of
WREB's systems for Year 2000 compliance will be approximately $7 million. In
1997, Western Resources expensed approximately $3 million of these costs and,
based on current estimates, expects to incur about $4 million in 1998 to
complete these efforts. There can be no assurance that WREB's vendors and
suppliers will not be affected by the Year 2000 issue, and thereby affect
WREB.
AFFORDABLE HOUSING TAX CREDIT PROGRAM (AHTC)
Western Resources received authorization from the Kansas Commission to
invest up to $114 million in AHTC investments. An example of an AHTC project
is housing for residents who are elderly or meet certain income requirements.
At March 31, 1998, WREB had invested approximately $40 million to purchase
qualified limited partnership interests. WREB is committed to investing
approximately $40 million more in AHTC investments by January 1, 2000. These
investments are accounted for using the equity method of accounting. Based
upon a regulatory order, income generated from the AHTC investments, primarily
tax credits, will be used to offset costs associated with postretirement and
postemployment benefits offered to employees. Tax credits are recognized in
the year generated.
123
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
presents the consolidated condensed balance sheets and statements of income
for the following: (i) Western Resources and KCPL; and (ii) WREB and KCPL. The
unaudited pro forma combined condensed financial information assumes the
transactions are accounted for as a purchase. The unaudited pro forma combined
condensed balance sheets as of March 31, 1998 give effect to the Transactions
as if they had occurred on March 31, 1998. The unaudited pro forma combined
condensed statements of income for the three months ended March 31, 1998 and
for the year ended December 31, 1997 give effect to the Transactions as if
they had occurred on January 1, 1997.
The unaudited pro forma combined condensed financial information was
prepared utilizing (i) the historical audited consolidated financial
statements, including the notes thereto, of Western Resources (incorporated by
reference) and KCPL (incorporated by reference), (ii) the historical audited
financial statements, including the notes thereto, of WREB (included elsewhere
in this Joint Proxy Statement/Prospectus), (iii) the historical unaudited
interim consolidated financial statements, including the notes thereto, of
Western Resources (incorporated by reference) and KCPL (incorporated by
reference), and (iv) the historical unaudited interim financial statements,
including the notes thereto, of WREB (included elsewhere in this Joint Proxy
Statement/Prospectus). This information should be read in conjunction with the
historical audited consolidated financial statements of Western Resources and
KCPL, the historical audited financial statements of WREB, the historical
unaudited interim consolidated financial statements of Western Resources and
KCPL, and the historical unaudited interim financial statements of WREB. The
unaudited pro forma combined condensed financial information is being
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that might have occurred had
the Transactions actually taken place on the dates indicated above, nor is it
necessarily indicative of future results of operations or financial position.
It should be noted that the 1997 historical income statements for Western
Resources and KCPL included special non-recurring charges totaling
approximately $108 million. Western Resources incurred approximately $48
million related to its efforts to acquire KCPL prior to achieving a merger
agreement in February 1997 and KCPL incurred approximately $53 million related
to contractual termination fees paid by KCPL to UtiliCorp and approximately $7
million related to the Original Merger Agreement. The impact of these special
charges are included in the 1997 unaudited pro forma combined condensed
statement of income for Westar Energy and Western Resources.
There are no changes that are expected to be material in either Western
Resources' or KCPL's accounting policies as a result of the Transactions. Both
companies accrue unbilled revenue for energy delivered at the end of each
reporting period, use composite depreciation methods at group rates specified
pursuant to regulation and have certain other accounting policies which differ
due to the nature of how regulators have allowed certain costs to be recovered
from customers.
The unaudited pro forma adjustments are based on preliminary assumptions and
estimates made by management. The actual purchase price allocation and
consideration exchanged for KCPL may differ from that reflected in the
unaudited pro forma combined condensed financial statements based on fair
values at the Closing Date.
THE TRANSACTIONS
Under terms of the Merger Agreement, Western Resources and KCPL shareowners
will combine the regulated electric utility assets of both companies in a
newly formed company, Westar Energy. Upon closing the Transactions, KCPL
shareholders will receive shares of Western Resources Common Stock, with a
value of $23.50 per share, subject to a collar, and one share of Westar Energy
for each share of KCPL they currently own. For purposes of the pro formas,
total consideration is estimated at $31.00 per KCPL Common Share. This
represents the average market closing price of KCPL Common Stock a few days
before and after the announcement of the Merger Agreement. The actual
consideration will be determined at the Closing Date based on the fair value
of the consideration exchanged to acquire the KCPL Common Shares. Western
Resources shareowners will continue to hold the Western Resources Common Stock
they currently own.
124
Westar Energy will assume $1.9 billion of Western Resources debt and $800
million of KCPL debt. Immediately after the KCPL Effective Time but prior to
the KGE Effective Time, Westar Energy will cause KLT to assume indebtedness
for borrowed money of Westar Energy in excess of $800 million aggregate
principal amount (including preferred stock) and Westar Energy will transfer
KLT, KCPL's unregulated subsidiary, to Western Resources. Immediately
following the KCPL Merger, current KCPL shareholders will own, assuming there
are no Dissenting Shares, 19.9% of the diluted outstanding shares of Westar
Energy Common Stock and approximately 35% of the outstanding Western Resources
Common Stock. Western Resources will own, assuming there are no Dissenting
Shares, 80.1% of the diluted outstanding shares of Westar Energy Common Stock
and current Western Resources shareowners will retain ownership of
approximately 65% of the outstanding Western Resources Common Stock, assuming
that the average price of Western Resources Common Stock for the 20-day
averaging period is equal to the closing price of Western Resources on June 8,
1998 (the most recent date for which it was practicable to obtain market price
data prior to printing this Joint Proxy Statement/Prospectus). Western
Resources will maintain its 45% ownership of ONEOK, its 82% interest in its
security alarm monitoring subsidiary Protection One, and its ownership of The
Wing Group, an international power project developer.
Western Resources pro forma shares outstanding and related earnings per
common share information have been calculated assuming a Conversion Ratio of
0.60743 based on Western Resources' June 8, 1998 closing stock price of
$38.6875. The actual Conversion Ratio will be based on a twenty-day average of
the high and low sales prices of Western Resources Common Stock calculated for
a period ending on the tenth business day immediately prior to the KGE
Effective Time. Westar Energy pro forma shares outstanding and related
earnings per common share information have been calculated assuming an
exchange ratio of one share of Westar Energy Common Stock for each share of
KCPL Common Stock outstanding.
The Transactions are assumed to generate certain cost savings. The assumed
cost savings have not been reflected in the unaudited pro forma combined
condensed balance sheets and statements of income. Transaction costs incurred
by Western Resources associated with the Transactions, including fees for
advisors, attorneys and other consultants and incremental direct costs of
completing the Transactions, are estimated to approximate $25 million. These
costs will be included in the determination of total consideration for KCPL.
125
WESTERN RESOURCES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
WESTERN PRO FORMA
RESOURCES KCPL(L) ---------------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents................. $ 13,876 $ 19,566 $ -- $ 33,442
Accounts receivable
(net)................. 179,764 52,395 -- 232,159
Other current assets... 204,957 70,681 -- 275,638
----------- ----------- ---------- -----------
Total current as-
sets................ 398,597 142,642 -- 541,239
----------- ----------- ---------- -----------
PROPERTY, PLANT AND
EQUIPMENT:
Property, plant and
equipment............. 5,712,352 3,790,001 -- 9,502,353
Accumulated deprecia-
tion.................. (1,942,068) (1,434,468) -- (3,376,536)
----------- ----------- ---------- -----------
Property, plant and
equipment (net)..... 3,770,284 2,355,533 -- 6,125,817
----------- ----------- ---------- -----------
OTHER ASSETS:
Investment in ONEOK.... 610,318 -- -- 610,318
Regulatory assets...... 379,784 151,751 -- 531,535
Subscriber accounts.... 737,316 -- -- 737,316
Goodwill (net)......... 1,066,331 -- 1,074,230 (a) 2,140,561
Other.................. 244,259 356,326 (5,900)(a) 594,685
----------- ----------- ---------- -----------
Total other assets... 3,038,008 508,077 1,068,330 4,614,415
----------- ----------- ---------- -----------
TOTAL ASSETS......... $ 7,206,889 $ 3,006,252 $1,068,330 $11,281,471
=========== =========== ========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........ $ 462,250 $ 3,495 $ -- $ 465,745
Long-term debt due
within one year....... 8,800 23,168 -- 31,968
Accounts payable....... 96,031 40,305 -- 136,336
Other current liabili-
ties.................. 458,293 80,495 -- 538,788
----------- ----------- ---------- -----------
Total current liabil-
ities............... 1,025,374 147,463 -- 1,172,837
----------- ----------- ---------- -----------
LONG-TERM LIABILITIES:
Long-term debt (net)... 2,162,470 941,412 115,219 (f) 3,219,101
Company-obligated
mandatorily redeemable
preferred securities.. 220,000 150,000 -- 370,000
Deferred income taxes
and investment tax
credits............... 1,068,693 702,799 -- 1,771,492
Minority interests..... 167,512 -- 544,065 (j) 711,577
Other.................. 470,821 106,683 -- 577,504
----------- ----------- ---------- -----------
Total long-term lia-
bilities............ 4,089,496 1,900,894 659,284 6,649,674
----------- ----------- ---------- -----------
SHAREOWNERS' EQUITY:
Preferred and prefer-
ence stock............ 74,858 89,062 (113,920)(f) 50,000
Common stock equity.... 2,017,161 868,833 522,966 (h) 3,408,960
----------- ----------- ---------- -----------
Total shareowners'
equity.............. 2,092,019 957,895 409,046 3,458,960
----------- ----------- ---------- -----------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUI-
TY.................. $ 7,206,889 $ 3,006,252 $1,068,330 $11,281,471
=========== =========== ========== ===========
The accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information are an integral part of this statement.
126
WESTERN RESOURCES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
WESTERN PRO FORMA
RESOURCES KCPL(L) -----------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- --------
SALES:
Energy..................... $305,548 $195,635 $ -- $501,183
Security................... 76,795 -- -- 76,795
-------- -------- -------- --------
Total sales.............. 382,343 195,635 -- 577,978
-------- -------- -------- --------
COST OF SALES:
Energy..................... 106,260 43,928 -- 150,188
Security................... 23,993 -- -- 23,993
-------- -------- -------- --------
Total cost of sales...... 130,253 43,928 -- 174,181
-------- -------- -------- --------
GROSS PROFIT................. 252,090 151,707 -- 403,797
OPERATING EXPENSES:
Operating and maintenance.. 76,329 60,418 -- 136,747
Depreciation and
amortization.............. 61,637 28,631 6,714 (b) 96,982
Selling, general and
administrative............ 47,538 24,491 -- 72,029
-------- -------- -------- --------
Total operating
expenses................ 185,504 113,540 6,714 305,758
-------- -------- -------- --------
INCOME FROM OPERATIONS....... 66,586 38,167 (6,714) 98,039
OTHER INCOME (EXPENSE):
Investment earnings........ 14,552 -- -- 14,552
Minority interest.......... (213) -- (5,750)(j) (5,963)
Other...................... 9,036 (6,091) 2,945
-------- -------- -------- --------
Total other income
(expense)............... 23,375 (6,091) (5,750) 11,534
-------- -------- -------- --------
INCOME BEFORE INTEREST AND
TAXES....................... 89,961 32,076 (12,464) 109,573
INTEREST EXPENSE............. 50,400 19,220 3,325 (f) 72,945
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES... 39,561 12,856 (15,789) 36,628
INCOME TAXES................. 9,093 (1,510) (1,323)(g) 6,260
-------- -------- -------- --------
NET INCOME................... 30,468 14,366 (14,466) 30,368
PREFERRED AND PREFERENCE
DIVIDENDS................... 1,230 990 (1,272)(f) 948
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON
STOCK....................... $ 29,238 $ 13,376 $(13,194) $ 29,420
======== ======== ======== ========
AVERAGE COMMON SHARES
OUTSTANDING................. 65,410 61,873 (24,289)(i) 102,994
BASIC EARNINGS PER COMMON
SHARE....................... $ 0.45 $ 0.22 $ 0.29
The accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information are an integral part of this statement.
127
WESTERN RESOURCES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
WESTERN PRO FORMA
RESOURCES KCPL(L) -------------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------
SALES:
Energy................... $1,999,418 $895,943 $ -- $2,895,361
Security................. 152,347 -- -- 152,347
---------- -------- -------- ----------
Total sales............ 2,151,765 895,943 -- 3,047,708
---------- -------- -------- ----------
COST OF SALES:
Energy................... 928,324 193,756 -- 1,122,080
Security................. 38,800 -- -- 38,800
---------- -------- -------- ----------
Total cost of sales.... 967,124 193,756 -- 1,160,880
---------- -------- -------- ----------
GROSS PROFIT............... 1,184,641 702,187 -- 1,886,828
OPERATING EXPENSES:
Operating and
maintenance............. 383,912 252,828 -- 636,740
Depreciation and
amortization............ 256,725 112,266 26,856 (b) 395,847
Selling, general and
administrative.......... 312,927 103,258 -- 416,185
Special charges.......... 88,152 -- -- 88,152
---------- -------- -------- ----------
Total operating
expenses.............. 1,041,716 468,352 26,856 1,536,924
---------- -------- -------- ----------
INCOME FROM OPERATIONS..... 142,925 233,835 (26,856) 349,904
---------- -------- -------- ----------
OTHER INCOME (EXPENSE):
Gain on sale of Tyco
securities.............. 864,253 -- -- 864,253
Investment earnings...... 25,646 -- -- 25,646
Minority interest........ 4,737 -- (21,809)(j) (17,072)
Other.................... 28,403 (74,673) -- (46,270)
---------- -------- -------- ----------
Total other income
(expense)............. 923,039 (74,673) (21,809) 826,557
---------- -------- -------- ----------
INCOME BEFORE INTEREST AND
TAXES..................... 1,065,964 159,162 (48,665) 1,176,461
INTEREST EXPENSE........... 193,225 74,523 9,055 (f) 276,803
---------- -------- -------- ----------
INCOME BEFORE INCOME
TAXES..................... 872,739 84,639 (57,720) 899,658
INCOME TAXES............... 378,645 8,079 (3,601)(g) 383,123
---------- -------- -------- ----------
NET INCOME................. 494,094 76,560 (54,119) 516,535
PREFERRED AND PREFERENCE
DIVIDENDS................. 4,919 3,789 (4,918)(f) 3,790
---------- -------- -------- ----------
EARNINGS AVAILABLE FOR
COMMON STOCK.............. $ 489,175 $ 72,771 $(49,201) $ 512,745
========== ======== ======== ==========
AVERAGE COMMON SHARES
OUTSTANDING............... 65,128 61,895 (24,311)(i) 102,712
BASIC EARNINGS PER COMMON
SHARE .................... $ 7.51 $ 1.18 $ 4.99
The accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information are an integral part of this statement.
128
WESTAR ENERGY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
PRO FORMA
WREB KCPL(L) --------------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents................. $ 112 $ 19,566 $ (16,754)(c) $ 2,924
Accounts receivable
(net)................. 142,373 52,395 (9,939)(c) 184,829
Other current assets... 98,789 70,681 (3,400)(c) 166,070
----------- ----------- --------- -----------
Total current as-
sets................ 241,274 142,642 (30,093) 353,823
----------- ----------- --------- -----------
PROPERTY, PLANT AND
EQUIPMENT:
Property, plant and
equipment............. 5,768,599 3,790,001 (34,276)(c) 9,524,324
Accumulated deprecia-
tion.................. (2,028,717) (1,434,468) 1,574 (c) (3,461,611)
----------- ----------- --------- -----------
Property, plant and
equipment (net)..... 3,739,882 2,355,533 (32,702) 6,062,713
----------- ----------- --------- -----------
OTHER ASSETS:
Regulatory assets...... 379,784 151,751 -- 531,535
Goodwill............... -- -- 885,721 (a) 885,721
Other.................. 174,508 356,326 (5,900)(a) 236,969
(287,965)(c)
----------- ----------- --------- -----------
Total other assets... 554,292 508,077 591,856 1,654,225
----------- ----------- --------- -----------
TOTAL ASSETS......... $ 4,535,448 $ 3,006,252 $ 529,061 $ 8,070,761
=========== =========== ========= ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Other debt............. $ -- $ 26,663 $ (14,663)(c) $ 12,000
Accounts payable....... 88,617 40,305 (2,644)(c) 126,278
Other current liabili-
ties.................. 153,379 80,495 (153)(c) 233,721
----------- ----------- --------- -----------
Total current liabil-
ities............... 241,996 147,463 (17,460) 371,999
----------- ----------- --------- -----------
LONG-TERM LIABILITIES:
Long-term debt (net)... 1,340,892 941,412 (178,644)(c) 2,318,000
214,340 (d)
Company-obligated
mandatorily redeemable
preferred securities.. -- 150,000 220,000 (d) 370,000
Deferred income taxes
and investment tax
credits............... 1,083,388 702,799 (8,117)(c) 1,778,070
Other.................. 407,062 106,683 (15,048)(c) 498,697
----------- ----------- --------- -----------
Total long-term lia-
bilities............ 2,831,342 1,900,894 232,531 4,964,767
----------- ----------- --------- -----------
SHAREOWNERS' EQUITY:
Preferred and prefer-
ence stock............ -- 89,062 (89,062)(d) --
Common stock equity.... 1,462,110 868,833 403,052 (h) 2,733,995
----------- ----------- --------- -----------
Total shareowners'
equity.............. 1,462,110 957,895 313,990 2,733,995
----------- ----------- --------- -----------
TOTAL LIABILITIES AND
SHAREOWNERS'
EQUITY.............. $ 4,535,448 $ 3,006,252 $ 529,061 $ 8,070,761
=========== =========== ========= ===========
The accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information are an integral part of this statement.
129
WESTAR ENERGY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
WREB KCPL(L) -----------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- --------
SALES........................ $305,235 $195,635 $ -- $500,870
COST OF SALES................ 106,214 43,928 -- 150,142
-------- -------- -------- --------
GROSS PROFIT................. 199,021 151,707 -- 350,728
OPERATING EXPENSES:
Operating and maintenance... 72,869 60,418 -- 133,287
Depreciation and
amortization............... 40,031 28,631 5,536 (b) 74,198
Selling, general and
administrative............. 26,814 24,491 -- 51,305
-------- -------- -------- --------
Total operating
expenses................ 139,714 113,540 5,536 258,790
-------- -------- -------- --------
INCOME FROM OPERATIONS....... 59,307 38,167 (5,536) 91,938
OTHER INCOME (EXPENSE)....... 4,864 (6,091) 1,014 (c) (213)
-------- -------- -------- --------
INCOME BEFORE INTEREST AND
TAXES....................... 64,171 32,076 (4,522) 91,725
INTEREST EXPENSE............. 24,305 19,220 (3,565)(c) 48,292
8,332 (e)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES... 39,866 12,856 (9,289) 43,433
INCOME TAXES................. 10,638 (1,510) 8,727 (c) 14,541
(3,314)(g)
-------- -------- -------- --------
NET INCOME................... 29,228 14,366 (14,702) 28,892
PREFERRED AND PREFERENCE
DIVIDENDS................... -- 990 (990)(e) --
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON
STOCK....................... $ 29,228 $ 13,376 $(13,712) $ 28,892
======== ======== ======== ========
AVERAGE COMMON SHARES
OUTSTANDING................. 310,920 (i) 310,920
BASIC EARNINGS PER COMMON
SHARE....................... $ 0.09
The accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information are an integral part of this statement.
130
WESTAR ENERGY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
WREB KCPL(L) -------------------------
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------
SALES...................... $1,229,984 $895,943 $ -- $2,125,927
COST OF SALES.............. 377,547 193,756 -- 571,303
---------- -------- -------- ----------
GROSS PROFIT............... 852,437 702,187 -- 1,554,624
OPERATING EXPENSES:
Operating and
maintenance............. 296,609 252,828 -- 549,437
Depreciation and
amortization............ 183,339 112,266 22,143 (b) 317,748
Selling, general and
administrative.......... 113,397 103,258 -- 216,655
Special charges.......... 48,008 -- -- 48,008
---------- -------- -------- ----------
Total operating
expenses.............. 641,353 468,352 22,143 1,131,848
---------- -------- -------- ----------
INCOME FROM OPERATIONS..... 211,084 233,835 (22,143) 422,776
OTHER INCOME (EXPENSE)..... (4,068) (74,673) 16,177 (c) (62,564)
---------- -------- -------- ----------
INCOME BEFORE INTEREST AND
TAXES..................... 207,016 159,162 (5,966) 360,212
INTEREST EXPENSE........... 98,234 74,523 (13,541)(c) 185,392
26,176 (e)
---------- -------- -------- ----------
INCOME BEFORE INCOME TAX-
ES........................ 108,782 84,639 (18,601) 174,820
INCOME TAXES............... 31,806 8,079 35,755 (c) 65,228
(10,412)(g)
---------- -------- -------- ----------
NET INCOME................. 76,976 76,560 (43,944) 109,592
PREFERRED AND PREFERENCE
DIVIDENDS................. -- 3,789 (3,789)(e) --
---------- -------- -------- ----------
EARNINGS AVAILABLE FOR COM-
MON STOCK................. $ 76,976 $ 72,771 $(40,155) $ 109,592
========== ======== ======== ==========
AVERAGE COMMON SHARES OUT-
STANDING.................. 310,920 (i) 310,920
BASIC EARNINGS PER COMMON
SHARE..................... $ 0.35
The accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Information are an integral part of this statement.
131
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The pro forma adjustments have been made to the unaudited pro forma combined
condensed financial statements to reflect the following:
(a) To record estimated goodwill resulting from the acquisition of KCPL.
Estimated goodwill is based on the total estimated consideration in excess
of the estimated fair value of the identifiable net assets acquired. All
outstanding shares of KCPL will be acquired in the Transactions. The
estimated consideration and purchase price allocation used for pro forma
purposes are based on $31.00 per KCPL Common Share. This represents the
average market closing prices of KCPL Common Stock a few days before and
after the announcement of the Merger Agreement. The actual value of the
consideration and the purchase price allocation will be determined at the
Closing Date based on the fair value of the consideration exchanged to
acquire KCPL Common Stock. For regulated electric utility assets, net book
value is presently expected to approximate fair value. The fair value of
KLT has been estimated at $320 million. KLT has net assets of approximately
$131 million. Goodwill associated with KLT, which will be owned 100% by
Western Resources, is reflected on the Western Resources unaudited pro
forma combined condensed balance sheet and is not included on the Westar
Energy unaudited pro forma combined condensed balance sheet.
The calculation of estimated goodwill resulting from the acquisition of KCPL
is as follows:
IN THOUSANDS,
EXCEPT PRICE
PER SHARE
-------------
KCPL Common Shares issued......................... 61,909
Less: Treasury shares (shares held by a KCPL sub-
sidiary)......................................... (36)
----------
Total KCPL Common Stock outstanding............... 61,873
Average KCPL Common Stock price................... $ 31.00
----------
Estimated cost of KCPL Common Stock to be ac-
quired........................................... $1,918,063
Plus: Estimated transaction costs (1)............. 25,000
----------
Total estimated consideration..................... $1,943,063
Less: Estimated fair value of KCPL's identifiable
net assets (net book value)...................... (868,833)
----------
Total estimated goodwill recorded by Western Re-
sources for
KCPL purchase.................................... $1,074,230
Estimated goodwill allocated to KLT...............
KLT estimated fair value (2).................... $ 320,000
Less: KLT net book value (3).................... (131,491)
---------
Less: Estimated KLT goodwill recorded by Western
Resources........................................ $ 188,509 (188,509)
----------
Estimated goodwill recorded by Westar Energy...... $ 885,721
----------
--------
(1) Transaction costs of approximately $5.9 million have been incurred by
Western Resources through March 31, 1998 and are included in other
assets on the historical Western Resources balance sheet. This
adjustment reflects the reclassification of the $5.9 million of
transaction costs to goodwill. Estimated transaction costs to be
incurred subsequent to March 31, 1998 approximate $19.1 million.
(2) Represents the estimated fair value of KLT, which is transferred to
Western Resources at the time of the KGE Merger. The fair value of KLT
does not include the KCPL debt assumed by KLT as discussed in (d) below.
(3) Does not include the KCPL debt assumed by KLT as discussed in (d)
below.
132
(b) To record estimated goodwill amortization over a 40 year period.
Goodwill has been recorded in the respective unaudited pro forma combined
condensed statements of income as follows:
WESTERN WESTAR
RESOURCES ENERGY
---------- --------
(IN THOUSANDS)
Goodwill (See Note (a))................................. $1,074,230 $885,721
Years................................................... 40 40
---------- --------
Annual estimated goodwill amortization.................. $ 26,856 $ 22,143
Quarterly estimated goodwill amortization............... $ 6,714 $ 5,536
(c) To eliminate KLT balances from KCPL, which will be transferred to
Western Resources in accordance with the terms of the Merger Agreement and
will not be part of Westar Energy. The following amounts reflect the
balances of KLT which are removed from the Westar Energy unaudited pro
forma combined condensed balance sheet and statement of income.
Balance Sheet
As of March 31, 1998
(IN THOUSANDS)
Assets:
Cash and cash equivalents....................................... $ 16,754
Accounts receivable (net)....................................... 9,939
Other current assets............................................ 3,400
Property, plant and equipment................................... 34,276
Accumulated depreciation........................................ (1,574)
Other assets.................................................... 287,965
--------
Total Assets................................................... $350,760
========
Liabilities and Stockholders' Equity:
Other debt...................................................... $ 14,663
Accounts payable................................................ 2,644
Other current liabilities....................................... 153
Long-term debt (net)............................................ 178,644
Deferred income taxes and investment tax credits................ 8,117
Other long-term liabilities..................................... 15,048
Common stock equity (Included in Note (j) adjustment)........... 131,491
--------
Total Liabilities and Stockholders' Equity..................... $350,760
========
Statement of Income
For the Three Months Ended
March 31, 1998
(IN THOUSANDS)
Other income (expense)........................................... $(1,014)
Interest expense................................................. (3,565)
Income tax benefit............................................... 8,727
-------
Net Income..................................................... $ 4,148
=======
Statement of Income
For the Year Ended
December 31, 1997
(IN THOUSANDS)
Other income (expense)........................................... $(16,177)
Interest expense................................................. (13,541)
Income tax benefit............................................... 35,755
--------
Net Income..................................................... $ 6,037
========
133
(d) To record adjustments to Westar Energy debt in accordance with the
terms of the Merger Agreement. Westar Energy will assume an aggregate of
$800 million of existing KCPL debt and an aggregate of $1.9 billion of
existing KGE and Western Resources debt. Prior to the KCPL Effective Time,
KCPL has agreed to redeem its outstanding preferred stock pursuant to the
Merger Agreement. The redemption price is expected to approximate the
carrying amount of the preferred stock. Immediately after the KCPL
Effective Time but prior to the KGE Effective Time, Westar Energy will
cause KLT to assume indebtedness for borrowed money (including that amount
resulting from the redemption of KCPL preferred stock) of Westar Energy in
excess of $800 million aggregate principal amount. Accordingly, the net
adjustment to debt on the Westar Energy unaudited pro forma combined
condensed balance sheet as of March 31, 1998 reflects the following:
COMPANY-
OBLIGATED
OTHER DEBT MANDATORILY
(SHORT-TERM AND REDEEMABLE
CURRENT PORTION OF LONG-TERM PREFERRED
LONG TERM) DEBT, (NET) SECURITIES TOTAL
------------------ ----------- ----------- ----------
(IN THOUSANDS)
WREB................... $ -- $ 1,340,892 $ -- $1,340,892
KCPL................... 26,663 941,412 150,000 1,118,075
-------- ----------- -------- ----------
Total.................. $ 26,663 $ 2,282,304 $150,000 $2,458,967
-------- ----------- -------- ----------
Note (c) adjustment:
(i): To transfer KLT
debt to Western
Resources (See
Note (c))......... $(14,663) $ (178,644) $ -- $ (193,307)
-------- ----------- -------- ----------
Note (d) adjustment:
(ii): To redeem KCPL
preferred stock
with long-term
debt............. $ -- $ 89,062 $ -- $ 89,062
(iii): To reduce KCPL
debt to $800
million......... -- (213,830) -- (213,830)
(iv): To provide a
total of $1.9
billion of
Western Resources
debt to Westar
Energy........... -- 339,108 220,000 559,108
-------- ----------- -------- ----------
Total Note (d)
adjustment............ $ $ 214,340 $220,000 $ 434,340
-------- ----------- -------- ----------
Pro forma combined
balance............... $ 12,000 $ 2,318,000 $370,000 $2,700,000
(e) To record the interest expense adjustment associated with the debt of
Westar Energy as discussed in Note (d) above.
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
--------------- ------------
(IN THOUSANDS)
Note (c) adjustment:
(i): To reduce interest expense related to
transfer of KLT debt to Western Resources
(See Note (c))........................... $(3,565) $(13,541)
------- --------
Note (e) adjustment:
(ii): To reclassify dividends on KCPL
preferred stock to interest expense..... $ 990 $ 3,789
(iii): To reflect additional interest expense
on redemption of KCPL preferred stock.. 601 2,227
(iv): To reduce interest expense on KCPL debt
in excess of $800 million............... (3,742) (18,398)
(v): To increase interest expense associated
with the transfer of Western Resources
debt to Westar Energy.................... 10,483 38,558
------- --------
Total Note (e) adjustment..................... $ 8,332 $ 26,176
134
(f) To record additional long-term debt resulting from the redemption of
KCPL and Western Resources preferred stock in accordance with the Merger
Agreement as follows:
AS OF MARCH
31, 1998
--------------
(IN THOUSANDS)
Balance sheet adjustments:
Western Resources Preferred Stock.......................... $ 24,858
KCPL preferred stock....................................... 89,062
--------
Total preferred stock redeemed............................. 113,920
Call premium on Western Resources Preferred Stock.......... 1,299
--------
Long-term debt required to redeem preferred stock.......... $115,219
To reclassify preferred dividends and record additional interest expense
on the debt required to redeem Western Resources and KCPL preferred stock:
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
--------------- ------------
(IN THOUSANDS)
Statement of income adjustments:
Reclassification of preferred stock
dividends:
Western Resources preferred dividends....... $ (282) $ (1,129)
KCPL preferred dividends.................... (990) (3,789)
-------- ---------
Total dividend reclassification
adjustment............................... $ (1,272) $ (4,918)
======== =========
Additional interest expense at an annual rate
of 7%:
Western Resources Preferred Stock
redemption................................. $ 153 $ 611
KCPL preferred stock redemption............. 601 2,227
-------- ---------
Total additional interest expense......... $ 754 $ 2,838
======== =========
Interest expense adjustment summary:
Call premium on Western Resources Preferred
Stock...................................... $ 1,299 $ 1,299
Reclassification of preferred dividends..... 1,272 4,918
Additional interest expense................. 754 2,838
-------- ---------
Total interest expense adjustment......... $ 3,325 $ 9,055
======== =========
(g) To adjust income tax expense for the pro forma adjustments to taxable
income as follows:
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
--------------- ------------
(IN THOUSANDS)
Westar Energy tax adjustment:
Pro forma adjustments to taxable income..... $ (8,332) $ (26,176)
Tax rate.................................... 39.775% 39.775%
-------- ---------
Westar Energy income tax adjustment......... $ (3,314) $ (10,412)
======== =========
Western Resources tax adjustment:
Pro forma adjustments to taxable income..... $ (3,325) $ (9,055)
Tax rate.................................... 39.775% 39.775%
-------- ---------
Western Resources income tax adjustment..... $ (1,323) $ (3,601)
======== =========
135
(h) To reflect the net increase in common shareowners' equity resulting
from the aggregate impact of the pro forma adjustments as follows:
AS OF
MARCH 31, 1998
--------------
(IN THOUSANDS)
Westar Energy net increase................................ $ 403,052
Western Resources net increase............................ 522,966
(i) Terms of the Merger Agreement allow KCPL shareholders to exchange
each share of KCPL Common Stock held for $23.50 of Western Resources Common
Stock, subject to certain limitations as set forth more fully herein and
one share of Westar Energy Common Stock. Pro forma Western Resources
average common shares outstanding and related basic earnings per common
share have been calculated assuming a Conversion Ratio of 0.60743 based on
Western Resources' June 8, 1998 closing stock price of $38.6875. The
issuance of Western Resources Common Stock and Westar Energy Common Stock
necessary to effect the Transactions is determined as follows:
(i) To reflect the issuance of Western Resources Common Stock in
connection with the Transactions:
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
--------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Consideration per share in Western Resources
Common Stock................................. $ 23.500 $ 23.500
Divided by: Price per share of Western Re-
sources Common Stock as of June 8, 1998...... 38.6875 38.6875
-------- --------
Exchange Ratio................................ 0.60743 0.60743
Multiplied by: KCPL Common Stock outstanding.. 61,873 61,873
-------- --------
Estimated shares of Western Resources Common
Stock to be issued to acquire KCPL........... 37,584 37,584
-------- --------
KCPL average Common Stock outstanding......... 61,873 61,895
Less: Estimated shares of Western Resources
Common Stock to be issued to acquire KCPL.... (37,584) (37,584)
-------- --------
Adjustment to Western Resources Common Stock.. 24,289 24,311
(ii) To reflect the issuance of Westar Energy Common Stock to Western
Resources and KCPL shareowners. In accordance with the Merger
Agreement, KCPL shareholders will receive one share of Westar Energy
for each share of KCPL Common Stock currently held. Westar Energy
Common Stock outstanding is calculated as follows:
IN THOUSANDS
------------
KCPL Common Stock outstanding, March 31, 1998 and Decem-
ber 31, 1997............................................ 61,873
Divided by: Current KCPL shareholders' future interest in
Westar Energy........................................... 19.9%
-------
Adjustment to issue Westar Energy Common Stock .......... 310,920
136
(j) In accordance with the Merger Agreement, KCPL shareholders will own,
assuming there are no Dissenting Shares, 19.9% of the diluted outstanding
shares of Westar Energy Common Stock. Western Resources will own, assuming
there are no Dissenting Shares, the remaining 80.1% of the diluted
outstanding shares of Westar Energy Common Stock. Western Resources will
consolidate Westar Energy for financial reporting purposes and record a
minority interest on Western Resources' balance sheet and statement of
income. Minority interests have been calculated on the balance sheet as
follows:
MARCH 31, 1998
--------------
(IN THOUSANDS)
Westar Energy pro forma common stock equity............... $2,733,995
Minority interest percentage.............................. 19.9%
----------
Minority interest reported on Western Resources pro forma
balance sheet............................................ $ 544,065
Minority interest has been calculated on the statement of income as
follows:
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
--------------- ------------
(IN THOUSANDS)
Westar Energy pro forma earnings available
for common stock........................... $28,892 $109,592
Minority interest percentage................ 19.9% 19.9%
------- --------
Minority interest reported on Western
Resources pro forma statement of income.... $ 5,750 $ 21,809
(k) Intercompany transactions between Western Resources and KCPL are
immaterial.
(l) Amounts have been reclassified to conform to Western Resources'
commercial enterprise financial statement presentation format.
137
INDEX TO WREB FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-2
Statements of Financial Position at December 31, 1997 and 1996.......... F-3
Statements of Operations for the years ended December 31, 1997, 1996 and
1995................................................................... F-4
Statements of Equity in Net Assets for the years ended December 31,
1997, 1996 and 1995.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995................................................................... F-6
Notes to Financial Statements........................................... F-7
Statements of Financial Position (unaudited) at March 31, 1998 and
December 31, 1997...................................................... F-23
Statements of Operations (unaudited) for the three months ended March
31, 1998 and 1997...................................................... F-24
Statements of Equity in Net Assets (unaudited) for the three months
ended March 31, 1998 and 1997.......................................... F-25
Statements of Cash Flows (unaudited) for the three months ended March
31, 1998 and 1997...................................................... F-26
Notes to Interim Financial Statements (unaudited)....................... F-27
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Western Resources, Inc.:
We have audited the accompanying statements of financial position of the
Western Resources Electric Business (a business unit of Western Resources,
Inc.) as of December 31, 1997 and 1996, and the related statements of
operations, equity in net assets and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of Western Resources, Inc.'s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Western Resources
Electric Business, as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
April 1, 1998
F-2
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 114 $ 84
Accounts receivable (net)............................. 150,239 138,900
Inventories and supplies.............................. 83,457 94,778
Other current assets.................................. 19,097 20,074
---------- ----------
Total current assets................................ 252,907 253,836
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment......................... 5,740,617 5,630,883
Accumulated depreciation.............................. (1,982,114) (1,864,988)
---------- ----------
Property, plant and equipment (net)................. 3,758,503 3,765,895
---------- ----------
OTHER ASSETS:
Regulatory assets..................................... 380,421 385,712
Other................................................. 145,337 163,433
---------- ----------
Total other assets.................................. 525,758 549,145
---------- ----------
TOTAL ASSETS........................................ $4,537,168 $4,568,876
========== ==========
LIABILITIES AND EQUITY IN NET ASSETS
CURRENT LIABILITIES:
Short-term debt....................................... $ 45,000 $ 222,300
Accounts payable...................................... 139,305 60,556
Accrued taxes......................................... 47,844 45,745
Accrued interest...................................... 26,484 27,481
Other current liabilities............................. 65,184 23,135
---------- ----------
Total current liabilities........................... 323,817 379,217
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt (net).................................. 1,340,898 1,341,393
Deferred income taxes and investment tax credits...... 1,090,231 1,118,060
Other................................................. 418,767 398,368
---------- ----------
Total long-term liabilities......................... 2,849,896 2,857,821
---------- ----------
EQUITY IN NET ASSETS.................................... 1,363,455 1,331,838
---------- ----------
TOTAL LIABILITIES AND EQUITY IN NET ASSETS.......... $4,537,168 $4,568,876
========== ==========
See Accompanying Notes to Financial Statements.
F-3
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
SALES........................................ $1,229,984 $1,197,441 $1,146,869
COST OF SALES................................ 377,547 293,552 247,832
---------- ---------- ----------
GROSS PROFIT................................. 852,437 903,889 899,037
OPERATING EXPENSES:
Operating and maintenance.................. 296,609 272,828 275,894
Depreciation and amortization.............. 183,339 170,094 150,997
Selling, general and administrative........ 113,397 108,252 115,569
Special charges............................ 48,008 -- --
---------- ---------- ----------
Total operating expenses................. 641,353 551,174 542,460
---------- ---------- ----------
INCOME FROM OPERATIONS....................... 211,084 352,715 356,577
OTHER INCOME (EXPENSE)....................... (4,068) 3,663 5,184
---------- ---------- ----------
INCOME BEFORE INTEREST AND TAXES............. 207,016 356,378 361,761
INTEREST EXPENSE............................. 98,234 105,846 100,047
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... 108,782 250,532 261,714
INCOME TAXES................................. 31,806 80,872 85,110
---------- ---------- ----------
NET INCOME................................... $ 76,976 $ 169,660 $ 176,604
========== ========== ==========
See Accompanying Notes to Financial Statements.
F-4
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF EQUITY IN NET ASSETS
FOR YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
EQUITY IN NET ASSETS, BEGINNING OF YEAR.... $1,331,838 $1,473,395 $1,395,840
Net income............................... 76,976 169,660 176,604
Net change in equity..................... (45,359) (311,217) (99,049)
---------- ---------- ----------
EQUITY IN NET ASSETS, END OF YEAR.......... $1,363,455 $1,331,838 $1,473,395
========== ========== ==========
See Accompanying Notes to Financial Statements.
F-5
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 76,976 $ 169,660 $ 176,604
Depreciation and amortization............... 183,339 170,094 150,997
Special charges............................. 48,008 -- --
Changes in working capital items:
Accounts receivable (net)................. (11,339) (562) 58,861
Inventories and other current assets...... 12,298 10,159 (20,660)
Accounts payable.......................... 78,749 (21,935) 12,921
Accrued liabilities and other current
liabilities.............................. 8,908 336 (17,404)
--------- --------- ---------
Net cash flows from operating activities.. 396,939 327,752 361,319
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment
(net)...................................... (159,760) (138,475) (179,090)
--------- --------- ---------
Net cash flows used in investing
activities............................... (159,760) (138,475) (179,090)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt (repayments) borrowings (net).......... (177,300) 156,300 16,000
Change in equity in net assets and other.... (59,849) (345,586) (198,224)
--------- --------- ---------
Net cash flows used in financing
activities............................... (237,149) (189,286) (182,224)
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS........... 30 (9) 5
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.. 84 93 88
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........ $ 114 $ 84 $ 93
========= ========= =========
See Accompanying Notes to Financial Statements.
F-6
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Western Resources Electric Business (WREB) is comprised of KPL, a rate
regulated division of Western Resources, Inc. (Western Resources) and Kansas
Gas and Electric Company (KGE), a rate regulated electric utility and wholly
owned subsidiary of Western Resources. KGE owns 47% of Wolf Creek Nuclear
Operating Corporation (WCNOC), the operating company for Wolf Creek Generating
Station (Wolf Creek). KGE records its proportionate share of all transactions
of WCNOC as it does for other jointly owned facilities. WREB is engaged in
providing electric generation, transmission and distribution services to
customers in Kansas. WREB is the predecessor entity to Westar Energy. Westar
Energy expects to acquire Kansas City Power & Light (KCPL) as described in
Note 2.
WREB has historically been operated as an integrated part of Western
Resources' overall business and has not been separated from Western Resources'
other operations for managerial, accounting, administrative or other purposes.
Consequently, the activities of WREB have been included in the consolidated
financial statements of Western Resources. In the normal course of business,
WREB has various transactions with Western Resources, including various
expense allocations which are material in amount. Certain accounts,
principally working capital accounts, are maintained by Western Resources on a
common basis. In certain instances, amounts applicable to Western Resources'
accounts which are not being contributed are accounted for in the same general
ledger accounts as WREB. Where it was practical, a determination of amounts
applicable to WREB was made. In other circumstances it was not possible to
make this determination and allocation methodologies were used to quantify
estimated amounts related to WREB. The allocation methodologies utilized are
reasonable in the opinion of management.
Western Resources takes certain corporate actions and makes commitments on
behalf of KPL and KGE. Where such is the case, reference below is made
directly to Western Resources, rather than to WREB, KGE or KPL.
These financial statements have been prepared from records maintained by
Western Resources, and may not necessarily be indicative of the conditions
which would have existed if WREB had been operated as an independent entity.
2. DESCRIPTION OF TRANSACTION
On February 7, 1997, Western Resources signed the Original Merger Agreement
with KCPL. In December 1997, representatives of Western Resources' financial
advisor indicated they believed it was unlikely they would be in a position to
issue a fairness opinion required for the merger on the basis of the
previously announced terms. As a result, Western Resources reviewed WREB's
deferred costs associated with the Original Merger Agreement and determined
that for accounting purposes, $48 million of these deferred costs should be
expensed. These costs were expensed in the fourth quarter of 1997 and are
reflected as special charges in the accompanying 1997 Statement of Operations.
The current Merger Agreement entered into by Western Resources, KGE, Westar
Energy and KCPL combines the electric utility operations of Western Resources
and KCPL. WREB will be the accounting acquiror and capitalized terms used in
this note are consistent with terms as defined elsewhere in this Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, immediately prior to the KCPL Effective
Time and as a condition precedent to the KGE Merger, Western Resources will
transfer, or cause to be transferred, to KGE, (i) all of the right, title and
interest of Western Resources in, to and under the assets, property and
interests owned by Western Resources that are used in, or related to or
generated by, KPL, other than securities, the corporate headquarters of
Western Resources and those assets necessary for the operation of Western
Resources as a holding company after the Closing Date, and (ii) a number of
shares of Western Resources Common Stock equal to the Issuance Number.
Concurrently with the Contributions, KGE will assume (i) all debts arising out
of, or relating to or
F-7
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS
generated by, the KPL Assets or the operations of KPL, and (ii) an aggregate
principal amount of debt of Western Resources so that aggregate total
indebtedness of KGE equals $1.9 billion immediately prior to the KGE Effective
Time.
Concurrently, as of the KCPL Effective Time and as a condition precedent to
the KGE Merger, KCPL will be merged with and into Westar Energy, the separate
corporate existence of KCPL will cease, Westar Energy will be the surviving
corporation and Westar Energy will continue its corporate existence under the
laws of Kansas. As of the KCPL Effective Time, each outstanding share of KCPL
Common Stock (other than shares of KCPL Common Stock beneficially owned by
Westar Energy or KCPL either directly or through a wholly owned subsidiary and
Dissenting Shares) will represent one share of Westar Energy Series A Common
Stock.
As of the KGE Effective Time, KGE will be merged with and into Westar
Energy, the separate corporate existence of KGE will cease, Westar Energy will
be the surviving corporation and Westar Energy will continue its corporate
existence under the laws of Kansas. Each outstanding share of KGE Common Stock
will be converted into and become such number of shares of Westar Energy
Series B Common Stock representing, assuming there are no Dissenting Shares,
80.1% of the diluted outstanding shares of Westar Energy Common Stock.
Immediately after the KGE Effective Time, Westar Energy will, in connection
with the KGE Merger, distribute to holders of Westar Energy Series A Common
Stock the Western Resources Common Stock contributed to KGE pursuant to the
Stock Contribution. After the KGE Effective Time, Westar Energy will, in
connection with the KGE Merger, distribute to Western Resources all of the
outstanding shares of capital stock of KLT, an unregulated wholly owned
subsidiary of KCPL. Immediately after the Western Resources Stock
Distribution, each share of Westar Energy Series B Common Stock will be
converted into one share of Westar Energy Series A Common Stock. Upon closing
the Transactions, Western Resources will own, assuming there are no Dissenting
Shares, an 80.1% diluted interest in Westar Energy, KCPL shareholders will
own, assuming there are no Dissenting Shares, the remaining 19.9% on a diluted
basis and Western Resources will own 100% of KLT.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accounting policies used by WREB are in accordance with generally
accepted accounting principles. All material intercompany accounts and
transactions have been eliminated. The operations are rate regulated and
accounted for under the provisions prescribed by Statement of Financial
Accounting Standards No. 71 "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71) and are subject to regulation by the State Corporation
Commission of the State of Kansas (Kansas Commission) and the Federal Energy
Regulatory Commission (FERC). SFAS 71 sets forth the application of generally
accepted accounting principles for those companies whose rates are established
or are subject to approval by an independent third-party regulator. The
provisions of SFAS 71 require, among other things, that financial statements
of a regulated enterprise reflect the actions of regulators, where
appropriate. These actions may result in the recognition of revenues and
expenses in time periods that are different than unregulated enterprises. When
this occurs, costs are deferred as assets in the balance sheet (regulatory
assets) and recorded as expenses when those amounts are reflected in rates.
Also, regulators can impose liabilities upon a regulated company for amounts
previously collected from customers and for recovery of costs that are
expected to be incurred in the future (regulatory liabilities). The principal
accounting policies used in the preparation of the financial statements of
WREB are described below:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
WREB considers highly liquid collateralized debt instruments purchased with
a maturity of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost which includes contracted
services, direct labor and materials, indirect charges for engineering,
supervision, general and administrative costs and an allowance for funds used
during construction (AFUDC). The AFUDC rate was 5.81% for 1997, 5.71% for 1996
and 6.31% for 1995. The cost of additions to utility plant and replacement
units of property is capitalized. Maintenance costs and replacement of minor
items of property are charged to expense as incurred. When units of
depreciable property are retired, they are removed from the plant accounts and
the original cost plus removal charges less salvage value is charged to
accumulated depreciation.
In accordance with regulatory decisions made by the Kansas Commission, the
acquisition premium of approximately $801 million, resulting from Western
Resources' acquisition of KGE in 1992, is being amortized over 40 years. The
acquisition premium is classified as property, plant and equipment.
Accumulated amortization through December 31, 1997 totaled $48 million.
DEPRECIATION
Property, plant and equipment is depreciated on a straight-line basis using
group rates approved by regulatory authorities that approximated 2.87%, 2.81%
and 2.80% during 1997, 1996 and 1995, respectively. WREB periodically
evaluates its depreciation rates considering past and expected future
experience in the operation of its facilities.
FUEL COSTS
The cost of nuclear fuel in process of refinement, conversion, enrichment
and fabrication is recorded as an asset at original cost and is amortized to
expense based upon the quantity of heat produced for the generation of
electricity. The accumulated amortization of nuclear fuel at December 31, 1997
and 1996 was $20.9 and $25.3 million, respectively. Fossil fuel inventories,
consisting primarily of coal and oil, are recorded at average cost.
REGULATORY ASSETS AND LIABILITIES
Regulatory assets represent probable future sales associated with certain
costs that will be recovered from customers through the ratemaking process. If
WREB was required to terminate application of SFAS 71, the net regulatory
assets would need to be charged against income. In addition, any amounts
determined to represent stranded or uneconomic costs would need to be
reevaluated. This may include a portion of WREB's investment in the Wolf Creek
nuclear generating facility. This reevaluation may also result in an income
statement charge. Regulatory assets reflected in the financial statements are
as follows:
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
Recoverable taxes........................................ $212,996 $191,996
Debt issuance costs...................................... 75,336 78,176
Deferred employee benefit costs.......................... 37,875 28,970
Deferred plant costs..................................... 30,979 31,272
Coal contract settlement costs........................... 16,032 21,037
Other regulatory assets.................................. 7,203 7,944
Phase-in revenues........................................ -- 26,317
-------- --------
Total regulatory assets................................ $380,421 $385,712
======== ========
F-9
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Recoverable income taxes: Recoverable income taxes represent amounts due
from customers for accelerated tax benefits which have been flowed through
to customers and are expected to be recovered when the accelerated tax
benefits reverse.
Debt issuance costs: Debt reacquisition expenses are amortized over the
remaining term of the reacquired debt or, if refinanced, the term of the
new debt. Debt issuance costs are amortized over the term of the associated
debt.
Deferred employee benefit costs: Deferred employee benefit costs will be
recovered from income generated from WREB's Affordable Housing Tax Credit
investment program.
Deferred plant costs: Disallowances related to the Wolf Creek nuclear
generating facility.
Coal contract settlement costs: Deferred costs associated with the
termination of certain coal purchase contracts. These costs are being
amortized over periods ending in 2002 and 2013.
WREB expects to recover all of its regulatory assets in rates. The
regulatory assets noted above, with the exception of certain coal contract
settlement costs and debt issuance costs, other than the refinancing of the
LaCygne 2 lease (see Note 8), are not included in rate base and, therefore, do
not earn a return. Phase-in revenues were fully amortized in 1997.
INCOME TAXES
The results of operations of WREB are included in Western Resources'
consolidated federal and state income tax returns. WREB's annual provision for
income taxes included in the Statements of Operations was determined as if
WREB had filed a separate income tax return.
Deferred income tax assets and liabilities are recognized for temporary
differences in amounts recorded for financial reporting purposes and their
respective tax bases. Investment tax credits previously deferred are being
amortized to income over the life of the property which gave rise to the
credits.
SALES
Energy sales are recognized as services are rendered and include estimated
amounts for energy delivered but unbilled at the end of each year. Unbilled
sales of $37 million and $38 million are recorded as a component of accounts
receivable (net) on the Statements of Financial Position as of December 31,
1997 and 1996, respectively. WREB's allowance for doubtful accounts receivable
totaled $3.0 million and $2.5 million at December 31, 1997 and 1996,
respectively.
AFFORDABLE HOUSING TAX CREDIT PROGRAM (AHTC)
Western Resources has received authorization from the Kansas Commission to
invest up to $114 million in AHTC investments. At December 31, 1997, WREB had
invested approximately $17 million to purchase AHTC investments in limited
partnerships. WREB is committed to investing approximately $55 million more in
AHTC investments by January 1, 2000. These investments are accounted for using
the equity method. Based upon an order received from the Kansas Commission,
income generated from the AHTC investment, primarily tax credits, will be used
to offset costs associated with postretirement and postemployment benefits.
Tax credits are recognized in the year generated.
RISK MANAGEMENT
To minimize the risk from market fluctuations in the price of electricity,
WREB utilizes financial and commodity instruments (derivatives) to reduce
price risk. Gains or losses on derivatives associated with firm
F-10
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
commitments are generally recognized as adjustments to cost of sales or sales
when the associated transactions affect earnings. Gains or losses on
derivatives associated with forecasted transactions are generally recognized
when such forecasted transactions affect earnings.
NEW PRONOUNCEMENTS
Effective January 1, 1997, WREB adopted the provisions of Statement of
Position 96-1, "Environmental Remediation Liabilities." This statement
provides authoritative guidance for recognition, measurement, display and
disclosure of environmental remediation liabilities in financial statements.
Adoption of this statement did not have a material adverse effect upon WREB's
overall financial position or results of operations.
4. COMMITMENTS AND CONTINGENCIES
MANUFACTURED GAS SITES
WREB has been associated with three former manufactured gas sites which may
contain coal tar and other potentially harmful materials. Western Resources
and the Kansas Department of Health and Environment (KDHE) entered into a
consent agreement governing all future work at the three sites. The terms of
the consent agreement allow WREB to investigate these sites and set
remediation priorities based upon the results of the investigations and risk
analyses. At December 31, 1997, the costs incurred from preliminary site
investigation and risk assessment have been minimal.
CLEAN AIR ACT
WREB must comply with the provisions of The Clean Air Act Amendments of 1990
that require a two-phase reduction in certain emissions. WREB has installed
continuous monitoring and reporting equipment to meet the acid rain
requirements. WREB does not expect material capital expenditures to be
required to meet Phase II sulfur dioxide and nitrogen oxide requirements.
DECOMMISSIONING
KGE accrues decommissioning costs over the expected life of Wolf Creek. The
accrual is based on estimated unrecovered decommissioning costs which consider
inflation over the remaining estimated life of the generating station and are
net of expected earnings on amounts recovered from customers and deposited in
an external trust fund.
In February 1997, the Kansas Commission approved the 1996 Decommissioning
Cost Study. Based on the study, KGE's share of Wolf Creek's decommissioning
costs, under the immediate dismantlement method, is estimated to be
approximately $624 million during the period 2025 through 2033, or
approximately $192 million in 1996 dollars. These costs were calculated using
an assumed inflation rate of 3.6% over the remaining service life from 1996 of
29 years.
Decommissioning costs are currently being charged to operating expenses in
accordance with prior Kansas Commission orders. Electric rates charged to
customers provide for recovery of these decommissioning costs over the life of
Wolf Creek. Amounts expensed approximated $3.7 million in 1997 and will
increase annually to $5.6 million in 2024. These expenses are deposited in an
external trust fund. The average after-tax expected return on trust assets is
5.7%.
KGE's investment in the decommissioning fund, including reinvested earnings
approximated $43.5 million and $33.0 million at December 31, 1997 and 1996,
respectively. Trust fund earnings accumulate in the fund balance and increase
the recorded decommissioning liability.
F-11
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The SEC has questioned the way electric utilities recognize, measure and
classify decommissioning costs for nuclear electric generating stations in
their financial statements. In response to the SEC's questions, the Financial
Accounting Standards Board is reviewing the accounting for closure and removal
costs, including decommissioning of nuclear power plants. If current
accounting practices for nuclear power plant decommissioning are changed, the
following could occur:
--KGE's annual decommissioning expense could be higher than in 1997
--The estimated cost for decommissioning could be recorded as a liability
(rather than as accumulated depreciation)
--The increased costs could be recorded as additional investment in the
Wolf Creek plant
WREB does not believe that such changes, if required, would adversely affect
its operating results due to its current ability to recover decommissioning
costs through rates.
NUCLEAR INSURANCE
KGE carries premature decommissioning insurance which has several
restrictions. One of these is that it can only be used if Wolf Creek incurs an
accident exceeding $500 million in expenses to safely stabilize the reactor,
to decontaminate the reactor and reactor station site in accordance with a
plan approved by the NRC and to pay for on-site property damages. This
decommissioning insurance will only be available if the insurance funds are
not needed to implement the NRC-approved plan for stabilization and
decontamination.
The Price-Anderson Act limits the combined public liability of the owners of
nuclear power plants to $8.9 billion for a single nuclear incident. If this
liability limitation is insufficient, the U.S. Congress will consider taking
whatever action is necessary to compensate the public for valid claims. The
Wolf Creek owners (Owners) have purchased the maximum available private
insurance of $200 million. The remaining balance is provided by an assessment
plan mandated by the NRC. Under this plan, the Owners are jointly and
severally subject to a retrospective assessment of up to $79.3 million ($37.3
million, KGE's share) in the event there is a major nuclear incident involving
any of the nation's licensed reactors. This assessment is subject to an
inflation adjustment based on the Consumer Price Index and applicable premium
taxes. There is a limitation of $10 million ($4.7 million, KGE's share) in
retrospective assessments per incident, per year.
The Owners carry decontamination liability, premature decommissioning
liability and property damage insurance for Wolf Creek totaling approximately
$2.8 billion ($1.3 billion, KGE's share). This insurance is provided by
Nuclear Electric Insurance Limited (NEIL). In the event of an accident,
insurance proceeds must first be used for reactor stabilization and site
decontamination. KGE's share of any remaining proceeds can be used for
property damage or premature decommissioning costs. Premature decommissioning
coverage applies only if an accident at Wolf Creek exceeds $500 million in
property damage and decommissioning expenses and only after trust funds have
been exhausted.
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred at
any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves and other NEIL resources, KGE may be subject to retrospective
assessments under the current policies of approximately $9 million per year.
Although KGE maintains various insurance policies to provide coverage for
potential losses and liabilities resulting from an accident or an extended
outage, KGE's insurance coverage may not be adequate to cover the costs that
could result from a catastrophic accident or extended outage at Wolf Creek.
Any substantial losses not covered by insurance, to the extent not recoverable
through rates, would have a material adverse effect on KGE's financial
condition and results of operations.
F-12
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FUEL COMMITMENTS
To supply a portion of the fuel requirements for its generating stations,
WREB has entered into various commitments to obtain nuclear fuel and coal.
Some of these contracts contain provisions for price escalation and minimum
purchase commitments. At December 31, 1997, KGE's share of Wolf Creek's
nuclear fuel commitments approximated $9.9 million for uranium concentrates
expiring at various times through 2001, $35.1 million for enrichment expiring
at various times through 2003 and $67.4 million for fabrication expiring at
various times through 2025.
At December 31, 1997, WREB's coal contract commitments in 1997 dollars under
the remaining terms of the contracts were approximately $2.4 billion. The
largest coal contract expires in 2020, with the remaining coal contracts
expiring at various times through 2013.
ENERGY ACT
As part of the 1992 Energy Policy Act, a special assessment is being
collected from utilities for a uranium enrichment decontamination and
decommissioning fund. WREB's portion of the assessment for Wolf Creek is
approximately $7 million, payable over 15 years. Management expects such costs
to be recovered through the ratemaking process.
5. RATE MATTERS AND REGULATION
KANSAS COMMISSION RATE PROCEEDINGS
In January 1997, the Kansas Commission approved an agreement that reduced
electric rates for both KPL and KGE. Significant terms of the agreement are as
follows:
. The May 1996 interim $8.7 million rate reduction for KGE customers was
made permanent on February 1, 1997.
. An annual rate reduction of $36 million for KGE customers was implemented
on February 1, 1997.
. An annual rate reduction of $10 million for KPL customers was implemented
on February 1, 1997.
. A rebate of $5 million was provided to WREB's customers in January 1998.
. An annual rate reduction of $10 million for KGE customers will be
implemented on June 1, 1998.
. A rebate of $5 million will be provided to WREB's customers in January
1999.
. An annual rate reduction of $10 million for KGE customers will be
implemented on June 1, 1999.
All rate decreases are cumulative. Rebates are one-time events and do not
influence future rates.
F-13
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT-TERM BORROWINGS
During 1997, KGE had arrangements with certain banks to provide unsecured
short-term lines of credit on a committed basis totaling $100 million.
Information regarding WREB's short-term borrowings, comprised of borrowings
under WREB's separate credit agreements and bank loans, is as follows:
DECEMBER 31,
----------------------
1997 1996
------- --------
(IN THOUSANDS)
Borrowings outstanding at year end:
Lines of credit................................. $ -- $200,000
Bank loans...................................... 45,000 22,300
------- --------
Total......................................... $45,000 $222,300
======= ========
Weighted average interest rate on debt outstanding
at year end (including fees)..................... 6.44% 5.93%
Weighted average short-term debt outstanding
during the year.................................. $22,945 $147,556
Weighted daily average interest rates during the
year (including fees)............................ 6.46% 5.83%
Subsequent to December 31, 1997, KGE no longer maintains any separate lines
of credit. Short-term liquidity needs are provided by Western Resources.
7. LONG-TERM DEBT
The amount of Western Resources' first mortgage bonds authorized by its
Mortgage and Deed of Trust (the Western Resources Mortgage), dated July 1,
1939, as supplemented, is unlimited. The amount of KGE's first mortgage bonds
authorized by the KGE Mortgage and Deed of Trust (the KGE Mortgage) dated
April 1, 1940, as supplemented, is limited to a maximum of $2 billion. Amounts
of additional bonds which may be issued are subject to property, earnings, and
certain restrictive provisions of each Mortgage. Electric plant is subject to
the lien of the Western Resources Mortgage and KGE Mortgage except for
transportation equipment.
Debt discount and expenses are being amortized over the remaining lives of
each issue.
F-14
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt outstanding is as follows:
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(IN THOUSANDS)
WESTERN RESOURCES*
First mortgage bond series:
7 1/4% due 1999........................................ $ 125,000 $ 125,000
8 7/8% due 2000........................................ 75,000 75,000
7 1/4% due 2002........................................ 100,000 100,000
8 1/2% due 2022........................................ 125,000 125,000
7.65% due 2023......................................... 100,000 100,000
---------- ----------
525,000 525,000
---------- ----------
Pollution control bond series:
Variable due 2032(1)................................... 45,000 45,000
Variable due 2032(2)................................... 30,500 30,500
6.00% due 2033......................................... 58,420 58,420
---------- ----------
133,920 133,920
---------- ----------
KGE
First mortgage bond series:
7.60% due 2003......................................... 135,000 135,000
6 1/2% due 2005........................................ 65,000 65,000
6.20% due 2006......................................... 100,000 100,000
---------- ----------
300,000 300,000
---------- ----------
Pollution control bond series:
5.10% due 2023......................................... 13,757 13,822
Variable due 2027(3)................................... 21,940 21,940
7.00% due 2031......................................... 327,500 327,500
Variable due 2032(4)................................... 14,500 14,500
Variable due 2032(5)................................... 10,000 10,000
---------- ----------
387,697 387,762
---------- ----------
Less:
Unamortized debt discount.............................. 5,719 5,289
---------- ----------
Long-term debt (net)..................................... $1,340,898 $1,341,393
========== ==========
--------
Rates at December 31, 1997:
(1) 4.00%, (2) 4.05%, (3) 3.95%, (4) 3.85%, (5) 3.89%
* The Western Resources first mortgage bond series and pollution
control bond series are specifically identifiable to the KPL
division. Proceeds from this debt have been primarily used to finance
KPL property additions. For this reason, this debt has been reflected
in the accompanying Statements of Financial Position.
F-15
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. LEASES
At December 31, 1997, WREB had leases covering various property and
equipment. WREB currently has no significant capital leases. Rental payments
for operating leases and estimated rental commitments are as follows:
OPERATING
YEAR ENDED DECEMBER 31, LEASES
----------------------- --------------
(IN THOUSANDS)
1995.................................................... $ 60,085
1996.................................................... 61,170
1997.................................................... 59,996
Future Commitments:
1998.................................................... 56,220
1999.................................................... 52,239
2000.................................................... 47,660
2001.................................................... 45,198
2002.................................................... 45,179
Thereafter.............................................. 640,873
--------
Total................................................... $887,369
========
In 1987, KGE sold and leased back its 50% undivided interest in the LaCygne
2 generating unit. The LaCygne 2 lease has an initial term of 29 years, with
various options to renew the lease or repurchase the 50% undivided interest.
KGE remains responsible for its share of operation and maintenance costs and
other related operating costs of LaCygne 2. The lease is an operating lease
for financial reporting purposes. Future minimum annual lease payments,
included in the table above, required under the LaCygne 2 lease agreement are
approximately $34.6 million for each year through 2002 and $576.6 million over
the remainder of the lease.
The gain realized at the date of the sale of LaCygne 2 has been deferred for
financial reporting purposes, and is being amortized ($9.7 million per year)
over the initial lease term in proportion to the related lease expense. KGE's
net lease expense was approximately $27.3 million for 1997 and $22.5 million
for 1996 and 1995.
9. INCOME TAXES
Income tax expense is comprised of the following components:
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Currently Payable:
Federal............................................ $52,541 $59,818 $57,111
State.............................................. 12,039 18,449 18,450
Deferred:
Federal............................................ (22,602) 9,597 16,391
State.............................................. (4,089) (899) (680)
Amortization of Investment Tax Credits............... (6,083) (6,093) (6,162)
------- ------- -------
Total Income Tax Expense......................... $31,806 $80,872 $85,110
======= ======= =======
F-16
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and deferred tax liabilities are as follows:
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Deferred Tax Assets:
Deferred gain on sale-leaseback................... $ 97,634 $ 99,466
Other............................................. 83,033 32,914
---------- ----------
Total Deferred Tax Assets....................... $ 180,667 $ 132,380
========== ==========
Deferred Tax Liabilities:
Accelerated depreciation & other.................. $ 615,182 $ 596,311
Acquisition premium............................... 298,582 306,662
Deferred future income taxes...................... 212,996 191,996
Other............................................. 34,435 39,737
---------- ----------
Total Deferred Tax Liabilities.................. $1,161,195 $1,134,706
========== ==========
Deferred Investment Tax Credits..................... $ 109,703 $ 115,734
========== ==========
Accumulated Deferred Income Taxes, Net.............. $1,090,231 $1,118,060
========== ==========
In accordance with various rate orders, WREB has not yet collected through
rates certain accelerated tax deductions which have been passed on to
customers. As WREB believes it is probable that the net future increases in
income taxes payable will be recovered from customers, it has recorded a
deferred asset for these amounts. These assets are also a temporary difference
for which deferred income tax liabilities have been provided.
The effective income tax rates set forth below are computed by dividing
total federal and state income taxes by the sum of such taxes and net income.
The difference between the effective tax rates and the federal statutory
income tax rates are as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
Effective Income Tax Rate........................ 29% 32% 32%
Effect of:
State income taxes............................. (5) (4) (4)
Amortization of investment tax credits......... 6 2 2
Corporate-owned life insurance................. 8 4 3
Accelerated depreciation flow through and amor-
tization, net................................. (3) 1 1
Other.......................................... -- -- 1
------- ------- -------
Statutory Federal Income Tax Rate................ 35% 35% 35%
======= ======= =======
10. EMPLOYEE BENEFIT PLANS
The following pension, postretirement and postemployment data is based on
actuarial estimates of WREB employees and retirees. These estimates were
calculated based on approximately 2,300 employees and 3,070 retired WREB
employees who are expected to be transferred from Western Resources to Westar
Energy pursuant to the Merger Agreement. The amounts presented below are based
upon estimates and assumptions which
F-17
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Western Resources management believes to be reasonable. A final determination
of these amounts will be computed after all employees and retirees to be
transferred have been identified. This calculation will be made on or about
the Closing Date which is expected to occur by mid-1999.
PENSION
The employees of WREB participate in Western Resources' pension plans, which
are qualified noncontributory defined benefit pension plans covering
substantially all employees. Pension benefits are based on years of service
and the employee's compensation during the five highest paid consecutive years
out of ten before retirement. Western Resources' policy is to fund pension
costs accrued, subject to limitations set by the Employee Retirement Income
Security Act of 1974 and the Code.
SALARY CONTINUATION
Certain management employees, including executive officers of WREB,
participate in Western Resources' non-qualified Executive Salary Continuation
Program.
The following tables provide information on the components of pension and
salary continuation costs, funded status and actuarial assumptions for WREB:
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
Pension Expense:
Service cost................................. $ 7,416 $ 7,555 $ 6,862
Interest cost on projected benefit
obligation................................... 24,860 23,563 21,699
(Gain) on plan assets........................ (78,000) (45,593) (71,007)
Deferred investment gain..................... 50,878 21,006 49,011
Net amortization............................. 1,048 1,534 423
Other........................................ 3,343 10 4,375
--------- -------- --------
Net expense................................ $ 9,545 $ 8,075 $ 11,363
========= ======== ========
Reconciliation of Funded Status:
Actuarial present value of benefit
obligations:
Vested..................................... $ 254,276 $250,698 $238,517
Non-vested................................. 14,600 16,742 15,684
--------- -------- --------
Total.................................... $ 268,876 $267,440 $254,201
========= ======== ========
Plan assets (principally debt and equity secu-
rities) at fair value......................... $ 404,083 $342,394 $306,064
Projected benefit obligation................... 336,498 333,870 317,073
--------- -------- --------
Funded status.................................. 67,585 8,524 (11,009)
Unrecognized transition asset.................. 259 288 316
Unrecognized prior service costs............... 37,487 40,931 38,342
Unrecognized net (gain)........................ (132,466) (70,445) (50,452)
--------- -------- --------
Accrued liability.............................. $ (27,135) $(20,702) $(22,803)
========= ======== ========
F-18
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
Actuarial Assumptions:
Discount rate................................ 7.50% 7.50% 7.50%
Annual salary increase rate.................. 3.50-4.75% 4.75% 4.75%
Long-term rate of return..................... 9.00-9.25% 8.50-9.00% 8.50-9.00%
POSTRETIREMENT BENEFITS
WREB accrues the cost of postretirement benefits, primarily medical benefit
costs, during the years an employee provides service.
Based on actuarial projections and adoption of the transition method of
implementation which allows a 20-year amortization of the accumulated benefit
obligation, estimated postretirement benefits expense approximated $10.9
million, $10.5 million and $9.6 million for 1997, 1996 and 1995, respectively.
The following table summarizes the status of WREB's postretirement benefit
plans for financial statement purposes and the related amounts included in the
accompanying Statements of Financial Position:
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Reconciliation of Funded Status:
Actuarial present value of postretirement
benefit obligations:
Retirees..................................... $ 53,709 $ 50,698 $ 51,710
Active employees fully eligible.............. 6,792 6,660 4,860
Active employees not fully eligible.......... 22,834 24,058 21,697
-------- -------- --------
Total...................................... 83,335 81,416 78,267
Fair value of plan assets........................ 75 50 29
-------- -------- --------
Funded status.................................... (83,260) (81,366) (78,238)
Unrecognized prior service costs................. (4,696) (5,167) (5,638)
Unrecognized transition obligation............... 61,486 65,564 70,947
Unrecognized net (gain).......................... (745) (1,098) (5,100)
-------- -------- --------
Accrued postretirement benefit costs............. $(27,215) $(22,067) $(18,029)
======== ======== ========
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
Actuarial Assumptions:
Discount rate.................................. 7.50% 7.50% 7.50%
Annual salary increase rate.................... 4.75% 4.75% 4.75%
Long-term rate of return....................... 9.00% 9.00% 9.00%
For measurement purposes, an annual health care cost growth rate of 9% was
assumed for 1997, decreasing one percent per year to five percent in 2001 and
thereafter. The health care cost trend rate has a significant effect on the
accumulated projected benefit obligation. Increasing the trend rate by one
percent each year would increase the present value of the accumulated
projected benefit obligation by $2.7 million and the aggregate of the service
and interest cost components by $0.2 million.
F-19
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In accordance with an order from the Kansas Commission, WREB has deferred
postretirement and postemployment expenses in excess of actual costs paid. In
1997, Western Resources received authorization from the Kansas Commission to
invest in AHTC investments. Income from the AHTC investments will be used to
offset the deferred and incremental costs associated with postretirement and
postemployment benefits offered to WREB's employees. The income generated from
the AHTC investments replaces the income stream from corporate-owned life
insurance contracts purchased in 1992 and 1993 which was used for the same
purpose.
POSTEMPLOYMENT BENEFITS
WREB accrues postemployment benefits when the liability has been incurred.
Estimated postemployment benefits have been calculated similar to pension and
postretirement benefits. Estimated expense for WREB employees approximated
$3.3 million, $2.8 million and $3.1 million for 1997, 1996 and 1995,
respectively. At December 31, 1997 and 1996, the estimated liability for these
benefits approximated $9.1 million and $8.2 million, respectively. The
accounting and future regulatory requirements for postemployment benefits is
the same as for postretirement benefits.
SAVINGS
Western Resources maintains savings plans in which substantially all
employees of WREB participate. WREB matches employees' contributions up to
specified maximum limits. The funds of the plans are deposited with a trustee
and invested at each employee's option in one or more investment funds,
including a company stock fund. WREB's contributions were $3.4 million, $3.1
million and $3.5 million for 1997, 1996 and 1995, respectively.
11. LEGAL PROCEEDINGS
WREB is involved in various legal, environmental and regulatory proceedings.
Management believes that adequate provision has been recorded and accordingly
believes that the ultimate dispositions of these matters will not have a
material adverse effect upon WREB's overall financial position or results of
operations.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value as set forth in Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments."
Cash and cash equivalents, short-term borrowings and variable-rate debt are
carried at cost which approximates fair value. The decommissioning trust is
recorded at fair value and is based on the quoted market prices at December
31, 1997 and 1996. The fair value of fixed-rate debt is estimated based on
quoted market prices for the same or similar issues or on the current rates
offered for instruments of the same remaining maturities.
The recorded amount of accounts receivable and other current financial
instruments approximate fair value.
The fair value estimates presented herein are based on information available
at December 31, 1997 and 1996. These fair value estimates have not been
comprehensively revalued for the purpose of these financial statements since
that date and current estimates of fair value may differ significantly from
the amounts presented herein. Because WREB's operations are regulated, WREB
believes that any gains or losses related to the retirement of debt would not
have a material effect on WREB's financial position or results of operations.
F-20
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The carrying values and estimated fair values of WREB's financial instruments
at December 31 are as follows:
DECEMBER 31,
-------------------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
CARRYING VALUE FAIR VALUE
--------------------- ---------------------
(IN THOUSANDS)
Decommissioning trust............... $ 43,514 $ 33,041 $ 43,514 $ 33,041
Fixed-rate debt..................... 1,224,677 1,224,742 1,297,127 1,260,721
WREB is involved in both the marketing of electricity and risk management
services to wholesale electric customers and the purchase of electricity for
WREB's retail customers. In addition to the purchase and sale of electricity,
WREB engages in price risk management activities, including the use of forward
contracts, futures, swap agreements and put and call options. The availability
and use of these types of contracts allow WREB to manage and hedge its
contractual commitments, reduce its exposure relative to the volatility of cash
market prices and take advantage of selected arbitrage opportunities via open
positions. Such open positions during 1997 were not material to WREB's
financial position or results of operations.
In general, WREB does not seek to take significant commodity risk for the
purpose of generating margins in the ordinary course of its trading activities.
WREB has established a risk management policy designed to limit WREB's exposure
to price risk, and it continually monitors and reviews this policy to ensure
that it is responsive to changing business conditions. This policy requires
that, in general, positions taken with derivatives be offset by positions in
physical transactions or other derivatives. Due to the illiquid nature of the
emerging electric markets, net open positions in terms of price, volume and
specified delivery point can occur.
DECEMBER 31,
-------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
VOLUMES FAIR VOLUMES FAIR
(MWH'S) VALUE GAIN/(LOSS) (MWH'A) VALUE GAIN/(LOSS)
-------- --------- ----------- -------- --------- -----------
(IN THOUSANDS)
Forward contracts....... 359,200 $9,086 $202 -- -- --
Options................. 924,000 1,790 (329) -- -- --
13. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Electric plant in service................................ $5,552,673 $5,437,783
Less--Accumulated depreciation........................... 1,895,084 1,778,824
---------- ----------
3,657,589 3,658,959
Construction work in progress............................ 60,006 68,263
Nuclear fuel (net)....................................... 40,696 38,461
---------- ----------
Net Utility Plant....................................... 3,758,291 3,765,683
Non-utility plant in service (net)....................... 212 212
---------- ----------
Net Property, Plant and Equipment....................... $3,758,503 $3,765,895
========== ==========
F-21
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The carrying value of long-lived assets, including intangibles, are reviewed
for impairment whenever events or changes in circumstances indicate they may
not be recoverable.
14. JOINT OWNERSHIP OF UTILITY PLANTS
WREB'S OWNERSHIP AT DECEMBER 31, 1997
-------------------------------------------------
IN-
SERVICE ACCUMULATED
DATES INVESTMENT DEPRECIATION NET (MW) PERCENT
-------- ---------- ------------ -------- -------
(DOLLARS IN THOUSANDS)
LaCygne 1(a).................. Jun 1973 $ 162,400 $109,481 343 50
Jeffrey 1(b).................. Jul 1978 291,624 131,397 617 84
Jeffrey 2(b).................. May 1980 290,468 121,854 617 84
Jeffrey 3(b).................. May 1983 403,046 153,084 605 84
Wolf Creek(c)................. Sep 1985 1,380,660 399,551 547 47
- --------
(a) Jointly owned with KCPL
(b) Jointly owned with UtiliCorp.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
Amounts and capacity represent WREB's share. WREB's share of operating
expenses of the plants in service above, as well as such expenses for a 50%
undivided interest in LaCygne 2 (representing 334 MW capacity) sold and leased
back to WREB in 1987, are included in operating expenses in the accompanying
Statements of Operations. WREB's share of other transactions associated with
the plants is included in the appropriate classification in WREB's financial
statements.
15. RELATED PARTY TRANSACTIONS
WREB engages in various transactions with Western Resources and its
affiliates that are characteristic of a consolidated group under common
control. Western Resources has historically provided WREB with various
financial and administrative functions and services for which WREB is charged
associated direct costs and expenses. In addition, certain indirect
administrative costs are allocated to the various business divisions of
Western Resources, including WREB, principally based on formulas which
consider such proportionate variables as number of customers, number of
employees and property balances. The methods utilized, in the opinion of
Western Resources' management, are reasonable.
Direct and indirect corporate administrative costs including employee
benefits, information systems support, accounting and office services, and
other general and administrative costs charged to WREB by Western Resources
approximated $96 million, $91 million and $95 million in 1997, 1996 and 1995,
respectively. Such corporate administrative costs are included in operating
and maintenance expense in the accompanying Statements of Operations. Western
Resources provides financing and cash management for WREB through a
centralized treasury system. WRI also provides for the liquidity needs of
WREB.
F-22
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 112 $ 114
Accounts receivable (net).......................... 142,373 150,239
Inventories and supplies........................... 88,573 83,457
Other current assets............................... 10,216 19,097
----------- -----------
Total current assets............................. 241,274 252,907
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment...................... 5,768,599 5,740,617
Accumulated depreciation........................... (2,028,717) (1,982,114)
----------- -----------
Property, plant and equipment (net).............. 3,739,882 3,758,503
----------- -----------
OTHER ASSETS:
Regulatory assets.................................. 379,784 380,421
Other.............................................. 174,508 145,337
----------- -----------
Total other assets............................... 554,292 525,758
----------- -----------
TOTAL ASSETS..................................... $ 4,535,448 $ 4,537,168
=========== ===========
LIABILITIES AND EQUITY IN NET ASSETS
CURRENT LIABILITIES:
Short-term debt.................................... $ -- $ 45,000
Accounts payable................................... 88,617 139,305
Accrued taxes...................................... 56,746 47,844
Accrued interest................................... 24,073 26,484
Other current liabilities.......................... 72,560 65,184
----------- -----------
Total current liabilities........................ 241,996 323,817
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt (net)............................... 1,340,892 1,340,898
Deferred income taxes and investment tax credits... 1,083,388 1,090,231
Other.............................................. 407,062 418,767
----------- -----------
Total long-term liabilities...................... 2,831,342 2,849,896
----------- -----------
EQUITY IN NET ASSETS................................. 1,462,110 1,363,455
----------- -----------
TOTAL LIABILITIES AND EQUITY IN NET ASSETS....... $ 4,535,448 $ 4,537,168
=========== ===========
See Accompanying Notes to Financial Statements.
F-23
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1997
---------- ----------
(IN THOUSANDS)
SALES.................................................... $ 305,235 $ 268,308
COST OF SALES............................................ 106,214 67,740
---------- ----------
GROSS PROFIT............................................. 199,021 200,568
OPERATING EXPENSES:
Operations and maintenance............................. 72,869 70,816
Depreciation and amortization.......................... 40,031 43,708
Selling, General and administrative.................... 26,814 26,969
---------- ----------
Total operating expenses............................. 139,714 141,493
---------- ----------
INCOME FROM OPERATIONS................................... 59,307 59,075
OTHER INCOME (EXPENSE)................................... 4,864 (1,438)
---------- ----------
INCOME BEFORE INTEREST AND TAXES......................... 64,171 57,637
INTEREST EXPENSE......................................... 24,305 24,985
---------- ----------
INCOME BEFORE INCOME TAXES............................... 39,866 32,652
INCOME TAXES............................................. 10,638 10,780
---------- ----------
NET INCOME............................................... $ 29,228 $ 21,872
========== ==========
See Accompanying Notes to Financial Statements.
F-24
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF EQUITY IN NET ASSETS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1997
---------- ----------
(IN THOUSANDS)
EQUITY IN NET ASSETS, BEGINNING OF YEAR.................. $1,363,455 $1,331,838
Net Income............................................. 29,228 21,872
Net change in equity................................... 69,427 155,162
---------- ----------
EQUITY IN NET ASSETS, END OF YEAR........................ $1,462,110 $1,508,872
========== ==========
See Accompanying Notes to Financial Statements.
F-25
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE
MONTHS ENDED MARCH
31,
-------------------
1998 1997
-------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 29,228 $ 21,873
Depreciation and amortization............................ 40,031 43,708
Changes in working capital items:
Accounts receivable (net).............................. 7,866 25,352
Inventories and other current assets................... 3,765 8,716
Accounts payable....................................... (50,688) (4,687)
Accrued liabilities and other current liabilities...... 13,866 24,687
-------- ---------
Net cash flows from operating activities............... 44,068 119,649
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (net)......... (21,410) (27,957)
-------- ---------
Net cash flows used in investing activities............ (21,410) (27,957)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt (repayments) borrowings (net)....................... (45,000) (212,300)
Change in equity in net assets and other................. 22,340 120,605
-------- ---------
Net cash flows used in financing activities............ (22,660) (91,695)
-------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS........................ (2) (3)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 114 84
-------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 112 $ 81
======== =========
See Accompanying Notes to Financial Statements.
F-26
WESTERN RESOURCES ELECTRIC BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion of
management of the Western Resources Electric Business (WREB), reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and operations for such periods in
conformity with generally accepted accounting principles. The operations for
any interim period are not necessarily indicative of operations for the full
year. These financial statements should be read in conjunction with the
audited financial statements and notes thereto of WREB contained elsewhere in
this Registration Statement.
2. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Plant Sites
WREB has been associated with three former manufactured gas sites which may
contain coal tar and other potentially harmful materials. Western Resources
and the Kansas Department of Health and Environment (KDHE) entered into a
consent agreement governing all future work at the three sites. The terms of
the consent agreement will allow WREB to investigate these sites and set
remediation priorities based upon the results of the investigations and risk
analysis. At March 31, 1998, the costs incurred for preliminary site
investigation and risk assessment have been minimal.
Affordable Housing Tax Credit Program (AHTC)
At March 31, 1998, WREB had invested approximately $40.6 million to purchase
AHTC investments in limited partnerships. The company is committed to
investing approximately $40.5 million more in AHTC investments by January 1,
2000.
F-27
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WESTERN RESOURCES, INC.,
KANSAS GAS AND ELECTRIC COMPANY,
NKC, INC.,
AND
KANSAS CITY POWER & LIGHT COMPANY
DATED AS OF MARCH 18, 1998
TABLE OF CONTENTS
ARTICLE I
The Contributions
PAGE
----
Section 1.1 The Asset Contribution..................................... A-2
Section 1.2 Liabilities Assumed........................................ A-2
Section 1.3 Retained Liabilities....................................... A-2
Section 1.4 Instruments of Transfer.................................... A-2
Section 1.5 Assignment or Assumption of Contract Rights................ A-3
Section 1.6 The Stock Contribution..................................... A-3
Section 1.7 Certain Taxes.............................................. A-3
ARTICLE II
Merger of KCPL With and Into New KC
Section 2.1 The KCPL Merger............................................ A-4
Section 2.2 Effects of the KCPL Merger................................. A-4
Section 2.3 Effective Time of the KCPL Merger.......................... A-4
Section 2.4 Effect of the KCPL Merger on KCPL and New KC Capital
Stock...................................................... A-4
Section 2.5 Debt of New KC............................................. A-5
Section 2.6 Name of New KC............................................. A-5
ARTICLE III
Merger of KGE With and Into New KC
Section 3.1 The KGE Merger............................................. A-5
Section 3.2 Effects of the KGE Merger.................................. A-5
Section 3.3 Effective Time of the KGE Merger........................... A-6
Section 3.4 Effect of the KGE Merger on KGE Capital Stock.............. A-6
Section 3.5 Effect of the KGE Merger on Certain Western Resources
Common Stock............................................... A-6
ARTICLE IV
Additional Transactions
Section 4.1 Distribution of Western Resources Common Stock............. A-6
Section 4.2 Distribution of KLT Capital Stock to Western Resources..... A-6
Section 4.3 Conversion of New KC Series B Common Stock Owned by Western
Resources.................................................. A-6
ARTICLE V
The Closing
Section 5.1 Closing.................................................... A-7
-i-
ARTICLE VI
Representations and Warranties of KCPL
PAGE
----
Section 6.1 Organization and Qualification.............................. A-7
Section 6.2 Subsidiaries................................................ A-7
Section 6.3 Capitalization.............................................. A-7
Section 6.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................. A-8
Section 6.5 Reports and Financial Statements............................ A-9
Section 6.6 Absence of Certain Changes or Events........................ A-10
Section 6.7 Litigation.................................................. A-10
Section 6.8 Registration Statement and Proxy Statement.................. A-10
Section 6.9 Tax Matters................................................. A-10
Section 6.10 Employee Matters; ERISA..................................... A-12
Section 6.11 Environmental Protection.................................... A-13
Section 6.12 Regulation as a Utility..................................... A-14
Section 6.13 Vote Required............................................... A-14
Section 6.14 Article Twelfth of KCPL's Restated Articles of
Consolidation............................................... A-14
Section 6.15 Opinion of Financial Advisor................................ A-15
Section 6.16 Insurance................................................... A-15
Section 6.17 KCPL not a Related Person................................... A-15
Section 6.18 Takeover Statutes........................................... A-15
Section 6.19 Termination of UtiliCorp Agreement.......................... A-15
ARTICLE VII
Representations and Warranties of Western Resources, KGE and New KC
Section 7.1 Organization and Qualification.............................. A-15
Section 7.2 Subsidiaries................................................ A-16
Section 7.3 Capitalization.............................................. A-16
Section 7.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................. A-17
Section 7.5 Reports and Financial Statements............................ A-18
Section 7.6 Absence of Certain Changes or Events........................ A-18
Section 7.7 Litigation.................................................. A-19
Section 7.8 Registration Statement and Proxy Statement.................. A-19
Section 7.9 Tax Matters................................................. A-19
Section 7.10 Employee Matters; ERISA..................................... A-20
Section 7.11 Environmental Protection.................................... A-21
Section 7.12 Regulation as a Utility..................................... A-22
Section 7.13 Vote Required............................................... A-22
Section 7.14 Article XI (Business Combination with Interested
Shareholder) of Western Resources' Articles of
Incorporation.............................................. A-22
Section 7.15 Opinion of Financial Advisor................................ A-22
Section 7.16 Insurance................................................... A-23
Section 7.17 Western Resources not an Interested Shareholder............. A-23
Section 7.18 Takeover Statutes........................................... A-23
Section 7.19 No Prior Operations of New KC............................... A-23
Section 7.20 Title to Properties......................................... A-23
Section 7.21 Condition of Assets......................................... A-24
Section 7.22 Accounts Receivable......................................... A-24
-ii-
ARTICLE VIII
Conduct of Business Pending the KGE Merger
PAGE
----
Section 8.1 Covenants of KCPL......................................... A-24
Section 8.2 Covenants of Western Resources, New KC and KGE............ A-28
ARTICLE IX
Additional Agreements
Section 9.1 Access to Information..................................... A-28
Section 9.2 Joint Proxy Statement and Registration Statement.......... A-29
Section 9.3 Regulatory Matters........................................ A-30
Section 9.4 Shareholder Approval...................................... A-30
Section 9.5 Directors' and Officers' Indemnification.................. A-30
Section 9.6 Public Announcements...................................... A-31
Section 9.7 Rule 145 Affiliates....................................... A-32
Section 9.8 Employee Agreements and Workforce Matters................. A-32
Section 9.9 Employee Benefit Plans.................................... A-32
Section 9.10 Stock Options............................................. A-33
Section 9.11 No Solicitations.......................................... A-33
Section 9.12 Board of Directors of New KC.............................. A-34
Section 9.13 Post-Merger Operations.................................... A-34
Section 9.14 Expenses.................................................. A-34
Section 9.15 Transition Management..................................... A-34
Section 9.16 Purchase Accounting and Tax-Free Status................... A-35
Section 9.17 Further Assurances........................................ A-35
Section 9.18 Interim Dividends......................................... A-35
Section 9.19 Redemption of Certain Western Resources $100 Preferred.... A-35
ARTICLE X
Conditions
Section 10.1 Conditions to Each Party's Obligation to Effect the KGE
Merger and the KCPL Merger................................ A-35
Section 10.2 Conditions to Obligation of Western Resources, KGE and New
KC to Effect the
KGE Merger............................................... A-36
Section 10.3 Conditions to Obligation of KCPL to Effect the KCPL
Merger.................................................... A-37
ARTICLE XI
Termination, Amendment and Waiver
Section 11.1 Termination............................................... A-38
Section 11.2 Effect of Termination..................................... A-39
Section 11.3 Termination Fee; Expenses................................. A-39
Section 11.4 Amendment................................................. A-40
Section 11.5 Waiver.................................................... A-40
Section 11.6 Standstill Agreements..................................... A-40
-iii-
ARTICLE XII
General Provisions
PAGE
----
Section 12.1 Non-Survival; Effect of Representations and Warranties.... A-42
Section 12.2 Brokers................................................... A-42
Section 12.3 Notices................................................... A-42
Section 12.4 Miscellaneous............................................. A-43
Section 12.5 Interpretation............................................ A-43
Section 12.6 Counterparts; Effect...................................... A-43
Section 12.7 Parties' Interest......................................... A-43
Section 12.8 Waiver of Jury Trial and Certain Damages.................. A-43
Section 12.9 Enforcement............................................... A-44
Section 12.10 Severability.............................................. A-44
Section 12.11 Anti-dilution............................................. A-44
-iv-
INDEX OF PRINCIPAL TERMS
PAGE
----
1935 Act................................................................... A-7
4 1/2% Western Resources $100 Preferred.................................... A-16
4 1/4% Western Resources $100 Preferred.................................... A-16
5% Western Resources $100 Preferred........................................ A-16
Accounts Receivable........................................................ A-24
Acquisition Proposal....................................................... A-34
Affiliate.................................................................. A-15
Affiliate Agreement........................................................ A-32
Aggregate Consideration.................................................... A-6
Agreement.................................................................. A-1
Asset Contribution......................................................... A-1
Assumed Liabilities........................................................ A-2
Atomic Energy Act.......................................................... A-9
Closing.................................................................... A-7
Closing Agreement.......................................................... A-11
Closing Date............................................................... A-7
Code....................................................................... A-1
Confidentiality Agreement.................................................. A-29
Control.................................................................... A-15
Controlled By.............................................................. A-15
Conversion Ratio........................................................... A-3
Dissenting Shareholders.................................................... A-4
Dissenting Shares.......................................................... A-4
Easements.................................................................. A-24
Environmental Claim........................................................ A-14
Environmental Laws......................................................... A-14
Environmental Permits...................................................... A-13
ERISA...................................................................... A-12
Exchange Act............................................................... A-9
FERC....................................................................... A-9
Final Order................................................................ A-36
GAAP....................................................................... A-10
Governmental Authority..................................................... A-9
Hazardous Materials........................................................ A-14
HSR Act.................................................................... A-30
Indemnified Liabilities.................................................... A-31
Indemnified Parties........................................................ A-31
Indemnified Party.......................................................... A-31
Investments................................................................ A-24
IRS........................................................................ A-12
Joint Proxy/Registration Statement......................................... A-29
KCPL....................................................................... A-1
KCPL Benefit Plans......................................................... A-12
KCPL Business Plan......................................................... A-24
KCPL Common Stock.......................................................... A-3
KCPL Cumulative Preferred.................................................. A-7
KCPL Disclosure Schedule................................................... A-7
KCPL Effective Time........................................................ A-4
KCPL Employees............................................................. A-32
-v-
PAGE
----
KCPL Financial Statements.................................................. A-10
KCPL Material Adverse Effect............................................... A-10
KCPL Meeting............................................................... A-30
KCPL Merger................................................................ A-1
KCPL No Par Preferred...................................................... A-7
KCPL Preference Stock...................................................... A-7
KCPL Preferred Stock....................................................... A-7
KCPL Required Consents..................................................... A-8
KCPL Required Statutory Approvals.......................................... A-9
KCPL SEC Reports........................................................... A-9
KCPL Shareholders' Approval................................................ A-14
KCPL Stock Options......................................................... A-33
KCPL Stock Plans........................................................... A-8
KCPL Subsidiary............................................................ A-7
KGCC....................................................................... A-4
KGE........................................................................ A-1
KGE Common Stock........................................................... A-6
KGE Effective Time......................................................... A-6
KGE Merger................................................................. A-1
KLT........................................................................ A-5
KLT Stock Distribution..................................................... A-6
KPL........................................................................ A-1
KPL Assets................................................................. A-2
KPL Balance Sheet.......................................................... A-2
KPL Business............................................................... A-1
Lien....................................................................... A-23
Merrill Lynch.............................................................. A-15
MGBCL...................................................................... A-4
New KC..................................................................... A-1
New KC Articles............................................................ A-4
New KC By-Laws............................................................. A-4
New KC Common Stock........................................................ A-16
New KC Series A Common Stock............................................... A-4
New KC Series B Common Stock............................................... A-6
Non-KPL Assets............................................................. A-2
NRC........................................................................ A-9
NYSE....................................................................... A-3
Original Agreement......................................................... A-1
Original Execution Date.................................................... A-1
PBGC....................................................................... A-12
PCBs....................................................................... A-14
Permitted Liens............................................................ A-23
Power Act.................................................................. A-9
Proxy Statement............................................................ A-10
Registration Statement..................................................... A-10
Release.................................................................... A-14
Representatives............................................................ A-28
Salomon.................................................................... A-22
SEC........................................................................ A-9
Securities Act............................................................. A-9
-vi-
PAGE
----
Series B Conversion........................................................ A-6
Stock Contribution......................................................... A-1
Subsidiary................................................................. A-7
Surviving Corporation...................................................... A-5
Task Force................................................................. A-34
Tax Return................................................................. A-11
Tax Ruling................................................................. A-11
Taxes...................................................................... A-10
Termination Date........................................................... A-39
Under Common Control With.................................................. A-15
UtiliCorp.................................................................. A-1
Utilicorp Agreement........................................................ A-1
UtiliCorp Confidentiality Agreement........................................ A-15
Violation.................................................................. A-8
Voting Debt................................................................ A-8
Western Resources.......................................................... A-1
Western Resources $100 Preferred........................................... A-16
Western Resources Articles................................................. A-15
Western Resources Benefit Plans............................................ A-20
Western Resources By-Laws.................................................. A-30
Western Resources Common Stock............................................. A-3
Western Resources Disclosure Schedule...................................... A-16
Western Resources Financial Statements..................................... A-18
Western Resources Index Price.............................................. A-3
Western Resources Material Adverse Effect.................................. A-18
Western Resources Meeting.................................................. A-30
Western Resources No-Par Preferred......................................... A-16
Western Resources Preference Stock......................................... A-16
Western Resources Preferred Stock.......................................... A-16
Western Resources Required Consents........................................ A-17
Western Resources Required Statutory Approvals............................. A-17
Western Resources SEC Reports.............................................. A-18
Western Resources Shareholders' Approval................................... A-22
Western Resources Stock Distribution....................................... A-6
Western Resources Subsidiary............................................... A-16
-vii-
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
as of March 18, 1998, by and among Western Resources, Inc., a Kansas
corporation ("Western Resources"), Kansas Gas and Electric Company, a Kansas
corporation and wholly owned subsidiary of Western Resources ("KGE"), and NKC,
Inc., a newly formed Kansas corporation and wholly owned subsidiary of Western
Resources ("New KC"), on the one hand, and Kansas City Power & Light Company,
a Missouri corporation ("KCPL"), on the other hand.
WHEREAS, Western Resources and KCPL entered into an agreement and plan of
merger (the "Original Agreement"), dated as of February 7, 1997 (the "Original
Execution Date"), and wish to amend and restate the Original Agreement as
specified herein;
WHEREAS, Western Resources' rate regulated electric division ("KPL") is
engaged in the production, purchase, transmission, distribution and sale of
electricity (the "KPL Business");
WHEREAS, immediately prior to the KCPL Effective Time (as defined in Section
3.3), Western Resources will contribute to KGE all of the KPL Assets (as
defined in Section 1.1) and KGE will assume all of the Assumed Liabilities (as
defined in Section 1.2, such contribution and assumption, the "Asset
Contribution")), upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, immediately prior to the KGE Effective Time, Western Resources will
contribute to KGE shares of Western Resources Common Stock (as defined in
Section 1.6 (the "Stock Contribution")), upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the boards of directors of each of Western Resources and KGE have
approved the Asset Contribution and the Stock Contribution, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the respective boards of directors of each of KCPL and NewKC have
approved the merger of KCPL with and into New KC with New KC being the
surviving corporation (the "KCPL Merger"), upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the respective boards of directors of each of New KC, Western
Resources and KGE have approved the merger of KGE with and into New KC with
New KC being the surviving corporation (the "KGE Merger"), upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, it is intended that, for federal income tax purposes the KGE Merger
and the KCPL Merger shall qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code");
WHEREAS, for purposes of Section 354(a) of the Code, the Western Resources
Common Stock distributed pursuant to the Western Resources Stock Distribution
(as defined in Section 4.1 hereof) shall be treated as stock of Western
Resources, a party to the reorganization, distributed in pursuance of the plan
of reorganization;
WHEREAS, Western Resources, KGE, KCPL and New KC desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement; and
WHEREAS, KCPL and UtiliCorp United, Inc., a Delaware corporation
("UtiliCorp"), were parties to that certain Amended and Restated Agreement and
Plan of Merger among KCPL, KC Merger Sub, Inc., a Delaware corporation,
UtiliCorp and KC United Corp., a Delaware corporation, dated as of January 19,
1996, as amended and restated as of May 20, 1996 (the "UtiliCorp Agreement"),
which KCPL has terminated in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
A-1
ARTICLE I
The Contributions
Section 1.1 The Asset Contribution.
(a) CONTRIBUTION. Immediately prior to the KCPL Effective Time and as a
condition precedent to the KGE Merger, Western Resources shall contribute, or
cause to be contributed, to KGE, and KGE shall acquire, all of the right,
title and interest of Western Resources in, to and under the assets, property
and interests owned by Western Resources that are used in, or related to or
generated by, the KPL Business, of every type, character and description,
tangible and intangible, real, personal and mixed, accrued, contingent or
otherwise, wherever located and whether or not reflected on the books and
records of Western Resources as of the Closing Date (as defined in Section
5.1) (the "KPL Assets"), other than securities, the corporate headquarters of
Western Resources and those assets necessary for the operation of Western
Resources as a holding company after the Closing Date, the categories of which
are described in Section 1.1(b) of the Western Resources Disclosure Schedule
(as defined in Section 7.2 hereof) (the "Non-KPL Assets").
(b) KPL BALANCE SHEET; NON-KPL ASSETS. Section 1.1(b) of the Western
Resources Disclosure Schedule sets forth (i) an unaudited pro forma balance
sheet that represents in all material respects, as of December 31, 1997, the
assets and liabilities of KPL, as though the Asset Contribution had been made
on such date (the "KPL Balance Sheet"), and (ii) a list, as of the date
hereof, of the Non-KPL Assets which are not reflected in such balance sheet.
The KPL Assets shall include such assets, properties and interests as are
necessary to enable New KC to operate the KPL Business in accordance with past
practice. The Non-KPL Assets shall not include any asset, property or interest
as is necessary to operate the KPL Business in accordance with past practice.
(c) KPL BUSINESS AND KGE AT CLOSING. At the Closing, the KPL Business and
KGE will contain substantially the same assets and liabilities as they did as
of December 31, 1997, subject to modifications that reflect ordinary course
operation of the KPL Business and KGE in accordance with past practice prior
to the date hereof. Western Resources shall not make or permit to be made any
changes in the accounting methods used with respect to the KPL Business or
KGE, except as required by applicable law, rule, regulation or GAAP.
Section 1.2 Liabilities Assumed. Concurrently with the Asset Contribution
contemplated in Section 1.1, KGE shall assume and agree to pay, perform and
discharge when due all debts, claims, losses, liabilities, leases and
obligations whatsoever, including, without limitation, debts, indebtedness for
borrowed money, guaranties, liabilities, obligations, and claims with respect
to any contracts included in the KPL Business, that arise out of, or relate to
or are generated by, the KPL Assets or the operations of the KPL Business,
whether arising before or after the Asset Contribution and whether known or
unknown, fixed or contingent (the "Assumed Liabilities"). The Assumed
Liabilities shall also include an aggregate principal amount of indebtedness
for borrowed money of Western Resources so that aggregate total indebtedness
for borrowed money (including preferred stock) of KGE equals $1.9 billion
immediately prior to the KGE Effective Time; provided, however, that the
Assumed Liabilities shall not include indebtedness for borrowed money of
Western Resources if KGE immediately prior to the KGE Effective Time already
has indebtedness for borrowed money (including preferred stock) of $1.9
billion, it being understood that in no case shall the indebtedness for
borrowed money (including preferred stock) of KGE exceed $1.9 billion
immediately prior to the KGE Effective Time.
Section 1.3 Retained Liabilities. Except for the Assumed Liabilities,
Western Resources shall retain and have full responsibility for and obligation
with respect to all debts, claims, losses, indebtedness for borrowed money,
guaranties, liabilities, leases and obligations whatsoever of Western
Resources and its Affiliates (as defined in Section 6.17 hereof) and
Subsidiaries (as defined in Section 6.1 hereof) (other than New KC after the
KGE Effective Time (as defined herein)).
Section 1.4 Instruments of Transfer. The conveyance, transfer, assignment
and delivery of the KPL Assets to KGE and the assumption of the Assumed
Liabilities by KGE shall be effected by one or more assignments, assumption
agreements, regulatory orders and any other transfer documents, as may be
necessary, or as KCPL
A-2
may reasonably request. As to the real property interests held in fee included
in the KPL Assets, the conveyances shall be by special warranty deed, subject
to Permitted Liens (as defined in Section 7.20).
Section 1.5 Assignment or Assumption of Contract Rights. Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign or assume any claim, contract, lease, commitment or any
claim or right or any benefit arising thereunder or resulting therefrom if an
attempted assignment or assumption thereof, without the consent of a third
party thereto, would constitute a breach thereof. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
affect the rights of Western Resources thereunder so that KGE or New KC would
not in fact receive all such rights, Western Resources will cooperate with New
KC in arrangements reasonably designed to provide for New KC, at the expense
of New KC, the benefits under any such claims, contracts, licenses, leases or
commitments including, without limitation, enforcement for the benefit of New
KC of any and all rights of Western Resources against a third party thereto
arising out of the breach or cancellation by such third party or otherwise;
and any transfer or assignment to New KC by Western Resources of any property
or property rights or any contract or agreement which shall require the
consent or approval of any third party shall be made subject to such consent
or approval being obtained; provided, however, that any third party consents
to the assignment of such contracts shall provide that Western Resources shall
be released in full from its obligations under such contracts.
Section 1.6 The Stock Contribution.
Immediately prior to the KGE Effective Time and as a condition precedent to
the KGE Merger, Western Resources shall contribute, or cause to be
contributed, to KGE, shares of partly paid Western Resources Common Stock, par
value $5.00 per share (the "Western Resources Common Stock"). The amount of
Western Resources Common Stock to be contributed to KGE pursuant to this
Section shall be equal to the product of (x) the number of shares of Common
Stock, without par value, of KCPL ("KCPL Common Stock") (other than shares of
KCPL Common Stock beneficially owned by Western Resources or KCPL, Dissenting
Shares (as defined in Section 2.4(a)) and shares (or any portion thereof) of
KCPL Common Stock in respect of which cash is to be paid in lieu of fractional
shares pursuant to Section 4.1) issued and outstanding immediately prior to
the Stock Contribution times (y) the Conversion Ratio. The term "Conversion
Ratio" means the quotient (rounded to the nearest 1/100,000) determined by
dividing $23.50 by the Western Resources Index Price (as defined below);
provided, however, that if the Western Resources Index Price (i) is greater
than $58.46, the Conversion Ratio shall be fixed at 0.449, provided that if
0.449 multiplied by the Western Resources Index Price exceeds $30.00, the
Conversion Ratio shall mean the quotient (rounded to the nearest 1/100,000)
obtained by dividing $30.00 by the Western Resources Index Price, (ii) is
greater than $55.03 but less than or equal to $58.46, the Conversion Ratio
shall mean the quotient (rounded to the nearest 1/100,000) obtained by
dividing $26.25 by the Western Resources Index Price, (iii) is greater than
$52.41 but less than or equal to $55.03, the Conversion Ratio shall be fixed
at 0.477, (iv) is greater than $50.00 but less than or equal to $52.41, the
Conversion Ratio shall mean the quotient (rounded to the nearest 1/100,000)
determined by dividing $25.00 by the Western Resources Index Price, (v) is
greater than $47.00 but less than or equal to $50.00, the Conversion Ratio
shall be fixed at 0.500, (vi) is greater than $35.01 but less than or equal to
$38.27, the Conversion Ratio shall be fixed at 0.614, (vii) is greater than
$29.78 but less than or equal to $35.01, the Conversion Ratio shall mean the
quotient (rounded to the nearest 1/100,000 obtained by dividing $21.50 by the
Western Resources Index Price or (viii) is less than or equal to $29.78, the
Conversion Ratio shall be fixed at 0.722. The term "Western Resources Index
Price" means the aggregate of the average of the high and low sales prices of
Western Resources Common Stock (as reported on the New York Stock Exchange
(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 NYSE trading days ending the tenth NYSE
trading day immediately preceding the KGE Effective Time, divided by 20.
Notwithstanding the foregoing, no certificates or scrip representing
fractional shares of Western Resources Common Stock shall be contributed to
KGE in the Stock Contribution.
Section 1.7 Certain Taxes. Each of New KC (after the KGE Merger) and Western
Resources shall pay one half of the total of (i) all transfer, stamp, sales or
use Taxes (as defined in Section 6.9) and any filing, recording, regulatory or
similar fees or assessments payable or determined to be payable in connection
with the
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execution, delivery or performance of this Agreement or the transactions
contemplated hereby and (ii) all costs and expenses incurred by Western
Resources or KGE arising out of or relating to obtaining any third party
consents and approvals in connection with the Asset Contribution and the KGE
Merger.
ARTICLE II
Merger of KCPL With and Into New KC
Section 2.1 The KCPL Merger. Upon the terms and subject to the conditions of
this Agreement, at the KCPL Effective Time (as defined in Section 2.3), KCPL
shall be merged with and into New KC in accordance with the laws of the States
of Missouri and Kansas. New KC shall be the surviving corporation in the KCPL
Merger and shall continue its corporate existence under the laws of the State
of Kansas. The effects and the consequences of the KCPL Merger shall be as set
forth in Section 2.2.
Section 2.2 Effects of the KCPL Merger. At the KCPL Effective Time, (i) the
Articles of Incorporation of New KC, as in effect immediately prior to the
KCPL Effective Time, shall be the articles of incorporation of New KC (the
"New KC Articles") until thereafter amended as provided by law and the New KC
Articles, and (ii) the by-laws of New KC, as in effect immediately prior to
the KCPL Effective Time, shall be the by-laws of New KC (the "New KC By-Laws")
until thereafter amended as provided by law, the New KC Articles, and such by-
laws. Subject to the foregoing, the additional effects of the KCPL Merger
shall be as provided in the applicable provisions of the General and Business
Corporation Law of Missouri (the "MGBCL") and the General Corporation Code of
the State of Kansas (the "KGCC").
Section 2.3 Effective Time of the KCPL Merger. On the Closing Date, a
certificate of merger shall be executed and filed by New KC and KCPL with the
Secretary of State of the State of Kansas pursuant to the KGCC and articles of
merger shall be executed and filed with the Secretary of State of the State of
Missouri pursuant to the MGBCL. The KCPL Merger shall become effective upon
the certification by the Secretary of State of the State of Kansas that the
certificate of merger relating to the KCPL Merger has been duly filed (the
"KCPL Effective Time").
Section 2.4 Effect of the KCPL Merger on KCPL and New KC Capital Stock.
(a) CAPITAL STOCK OF KCPL. As of the KCPL Effective Time, by virtue of the
KCPL Merger and upon surrender by any holder of shares of KCPL Common Stock of
such shares, subject to Section 2.4(b) and Section 2.4(d), each issued and
outstanding share of KCPL Common Stock (other than shares of KCPL Common Stock
beneficially owned by KCPL either directly or through a wholly owned
Subsidiary and shares of KCPL Common Stock ("Dissenting Shares") that are
owned by shareholders ("Dissenting Shareholders") exercising appraisal rights
pursuant to Section 351.455 of the MGBCL), shall represent one fully paid and
nonassessable share of Series A Common Stock, without par value, of New KC
("New KC Series A Common Stock"). As of the KCPL Effective Time, by virtue of
the KCPL Merger and without any action on the part of Western Resources, each
share of New KC Series A Common Stock previously owned by Western Resources
shall be cancelled.
(b) CANCELLATION OF CERTAIN KCPL COMMON STOCK AND NEW KC COMMON STOCK. As of
the KCPL Effective Time, by virtue of the KCPL Merger and without any action
on the part of any holder of any capital stock of KCPL or New KC, any shares
of KCPL Common Stock or New KC Common Stock that are owned by KCPL as treasury
stock or otherwise or by New KC or by any wholly owned Subsidiary of New KC or
KCPL shall be canceled and retired and shall cease to exist and no stock of
New KC or other consideration shall be issued or delivered in exchange
therefor.
(c) REDEMPTION OF KCPL PREFERRED STOCK. Prior to the KCPL Effective Time,
the Board of Directors of KCPL shall call for redemption all outstanding
shares of KCPL Preferred Stock (as defined in Section 6.3) at a redemption
price equal to the amount set forth in the Restated Articles of Consolidation
of KCPL, together with all dividends accrued and unpaid to the date of such
redemption and take all other required actions so that
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all shares of KCPL Preferred Stock shall be redeemed and no such shares shall
be deemed to be outstanding at the KCPL Effective Time or entitled to vote on
the approval of this Agreement and the transactions contemplated hereby.
(d) DISSENTERS' RIGHTS. No Dissenting Shareholder shall be entitled to
shares of New KC Series A Common Stock or cash in lieu of fractional shares
thereof or any distributions pursuant to this Article II or Section 4.1 unless
and until the holder thereof shall have failed to perfect or shall have
effectively withdrawn or lost such holder's right to dissent from the KCPL
Merger under the MGBCL, and any Dissenting Shareholder shall be entitled to
receive only the payment provided by Section 351.455 of the MGBCL with respect
to shares of KCPL Common Stock owned by such Dissenting Shareholder. If any
Person who otherwise would be deemed a Dissenting Shareholder shall have
failed to perfect properly or shall have effectively withdrawn or lost the
right to dissent with respect to any shares of KCPL Common Stock, such shares
of KCPL Common Stock shall thereupon be treated as though such shares of KCPL
Common Stock had been converted into shares of New KC Series A Common Stock
pursuant to Section 2.4(a) hereof, and, to the extent such failure, withdrawal
or loss occurs subsequent to the Closing Date, Western Resources and New KC
shall issue shares of Western Resources Common Stock and New KC Series A
Common Stock in accordance with Sections 1.6 and 2.4(a), respectively, of this
Agreement. KCPL shall give Western Resources and New KC (i) prompt notice of
any written demands for appraisal, attempted withdrawals of such demands, and
any other instruments served pursuant to applicable law received by KCPL
relating to shareholders' rights of appraisal and (ii) the opportunity to
direct all negotiations and proceedings with respect to demand for appraisal
under the MGBCL. KCPL shall not, except with the prior written consent of
Western Resources and New KC, voluntarily make any payment with respect to any
demands for appraisals of Dissenting Shares, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
Section 2.5 Debt of New KC. Immediately after the KCPL Effective Time but
prior to the KGE Effective Time (as defined in Section 3.3), New KC shall
cause KLT, Inc., a wholly owned subsidiary of New KC as a result of the KCPL
Merger ("KLT"), to assume any indebtedness for borrowed money of New KC in
excess of $800 million aggregate principal amount (including preferred stock).
Section 2.6 Name of New KC. Prior to the KCPL Effective Time, Western
Resources and KCPL shall agree as to a new name for New KC and shall take all
actions necessary to change its name.
ARTICLE III
Merger of KGE With and Into New KC
Section 3.1 The KGE Merger. Upon the terms and subject to the conditions of
this Agreement, at the KGE Effective Time, KGE shall be merged with and into
New KC in accordance with the laws of the State of Kansas. New KC shall be the
surviving corporation in the KGE Merger and shall continue its corporate
existence under the laws of the State of Kansas. New KC after the KGE
Effective Time is sometimes referred to herein as the "Surviving Corporation."
The effects and the consequences of the KGE Merger shall be as set forth in
Section 3.2.
Section 3.2 Effects of the KGE Merger.
(a) NEW KC ARTICLES AND BY-LAWS. At the KGE Effective Time, (i) the articles
of incorporation of New KC, as in effect immediately prior to the KGE
Effective Time, shall be the articles of incorporation of the Surviving
Corporation, until thereafter amended as provided by law and the New KC
Articles, and (ii) the by-laws of New KC as in effect immediately prior to the
KGE Effective Time, shall be the by-laws of the Surviving Corporation, until
thereafter amended as provided by law, the New KC Articles, and such by-laws.
Subject to the foregoing, the additional effects of the KGE Merger shall be as
provided in the applicable provisions of the KGCC.
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(b) DISSENTERS' RIGHTS. Western Resources shall not exercise dissenters'
rights under the KGCC with respect to the KGE Merger.
Section 3.3 Effective Time of the KGE Merger. On the Closing Date, a
certificate of merger shall be executed and filed by New KC and KGE with the
Secretary of State of the State of Kansas pursuant to the KGCC. The KGE Merger
shall become effective upon the certification by the Secretary of State of the
State of Kansas that the certificate of merger relating to the KGE Merger has
been duly filed (the "KGE Effective Time"), provided, that, the KGE Effective
Time shall occur after the KCPL Effective Time.
Section 3.4 Effect of the KGE Merger on KGE Capital Stock. As of the KGE
Effective Time, by virtue of the KGE Merger and without any action on the part
of Western Resources all of the issued and outstanding shares of Common Stock,
without par value, of KGE ("KGE Common Stock"), shall be converted into and
become such number of shares of Series B Common Stock, without par value, of
New KC ("New KC Series B Common Stock"), representing, assuming there are no
Dissenting Shares, 80.1% of the fully diluted outstanding shares of New KC.
Immediately after consummation of the KCPL Merger and the KGE Merger, assuming
there are no Dissenting Shares, the outstanding shares of New KC Series A
Common Stock to be issued pursuant to Section 2.4(a) shall constitute 19.9% of
the fully diluted outstanding shares of New KC.
Section 3.5 Effect of the KGE Merger on Certain Western Resources Common
Stock. As of the KGE Effective Time, by virtue of the KGE Merger the Western
Resources Common Stock contributed to KGE pursuant to Section 1.6 hereof shall
become fully paid and nonassessable.
ARTICLE IV
Additional Transactions
Section 4.1 Distribution of Western Resources Common Stock. Immediately
after the KGE Effective Time, New KC shall, in connection with the KGE Merger,
distribute to holders of New KC Series A Common Stock the Western Resources
Common Stock contributed to KGE pursuant to the Stock Contribution to each
holder of New KC Series A Common Stock (including any shares of Western
Resources Common Stock issued pursuant to Section 2.4(d), the "Western
Resources Stock Distribution"). Each share of New KC Series A Common Stock
shall be entitled to receive a distribution of that number of shares of
Western Resources Common Stock equal to the product of (a) the number of
shares of Western Resources Common Stock contributed to KGE pursuant to the
Stock Contribution times (b) a quotient, the numerator of which is 1 and the
denominator of which is the total number of shares of New KC Series A Common
Stock issued and outstanding immediately after the KCPL Effective Time. The
number of shares of New KC Series A Common Stock and the number of shares of
Western Resources Common Stock, respectively, to be issued in the KCPL Merger
to holders of KCPL Common Stock and distributed in the Western Resources Stock
Distribution to holders (other than Western Resources) of New KC Series A
Common Stock are together sometimes referred to herein as the "Aggregate
Consideration." Notwithstanding the foregoing, no certificates or scrip
representing fractional shares of Western Resources Common Stock shall be
distributed pursuant to this Section 4.1. A holder of New KC Series A Common
Stock who would otherwise have been entitled to a fractional share of Western
Resources Common Stock shall be entitled to receive a cash payment in lieu of
such fractional share in an amount equal to the product of such fraction
multiplied by the Western Resources Index Price, without any interest thereon.
Section 4.2 Distribution of KLT Capital Stock to Western
Resources. Immediately after the KGE Effective Time, New KC shall distribute
to Western Resources all of the outstanding shares of capital stock of KLT
(the "KLT Stock Distribution").
Section 4.3 Conversion of New KC Series B Common Stock Owned by Western
Resources. Immediately after the Western Resources Stock Distribution, without
any action on the part of Western Resources, each share of New KC Series B
Common Stock owned by Western Resources shall automatically represent one
fully paid and nonassessable share of New KC Series A Common Stock (the
"Series B Conversion").
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ARTICLE V
The Closing
Section 5.1 Closing. The closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Sullivan & Cromwell, 125
Broad Street, New York, NewYork 10004 at 10:00 A.M., local time, on the tenth
NYSE trading day immediately following the date on which the last of the
conditions set forth in Article X hereof is fulfilled or has been waived or at
such other time, date and place as Western Resources and KCPL shall mutually
agree (the "Closing Date").
ARTICLE VI
Representations and Warranties of KCPL
KCPL makes the following representations and warranties to Western
Resources, KGE and New KC:
Section 6.1 Organization and Qualification. KCPL and each of the KCPL
Subsidiaries (as defined below) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify would not have a KCPL Material
Adverse Effect (as defined in Section 6.6). As used in this Agreement, the
term "Subsidiary" of a person shall mean any corporation or other entity
(including partnerships and other business associations) of which at least a
majority of the voting power represented by the outstanding capital stock or
other voting securities or interests having voting power under ordinary
circumstances to elect a majority of the directors or similar members of the
governing body of such corporation or entity shall at the time be held,
directly or indirectly, by such person. The term "KCPL Subsidiary" shall mean
a Subsidiary of KCPL in which KCPL's equity investment exceeds $25 million.
Section 6.2 Subsidiaries. Section 6.2 of the schedule delivered by KCPL to
Western Resources on the date hereof (the "KCPL Disclosure Schedule") sets
forth a list as of the date hereof of all the KCPL Subsidiaries. Neither KCPL
nor any of the KCPL Subsidiaries is a "holding company," a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act"), respectively, and none of the KCPL
Subsidiaries is a "public utility company" within the meaning of Section
2(a)(5) of the 1935 Act. Except as set forth in Section 6.2 of the KCPL
Disclosure Schedule all of the issued and outstanding shares of capital stock
of each KCPL Subsidiary are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned, directly or indirectly, by KCPL free and
clear of any liens, claims, encumbrances, security interests, charges and
options of any nature whatsoever and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such KCPL Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating it to grant, extend or enter into any such
agreement or commitment.
Section 6.3 Capitalization. As of the date hereof, the authorized capital
stock of KCPL consists of 150,000,000 shares of KCPL Common Stock, without par
value, 401,157 shares of Cumulative Preferred Stock, par value $100.00 per
share ("KCPL Cumulative Preferred"), 1,572,000 shares of Cumulative No Par
Preferred Stock, without par value ("KCPL No Par Preferred"), and 11,000,000
shares of Preference Stock, without par value ("KCPL Preference Stock") (KCPL
Cumulative Preferred, KCPL No Par Preferred and KCPL Preference Stock
hereinafter collectively referred to as the "KCPL Preferred Stock"). At the
close of business on March 17, 1998, (i) 61,908,726 shares of KCPL Common
Stock were issued, not more than 10,000,000 shares of KCPL
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Common Stock were reserved for issuance pursuant to KCPL's Long Term Incentive
Plan and Employee Savings Plus Plan (401(k) Plan) and Dividend Reinvestment
Plan (such Plans, collectively, the "KCPL Stock Plans"), (ii) 35,811 shares of
KCPL Common Stock were held by KCPL in its treasury or by its wholly owned
Subsidiaries, (iii) 399,557 shares of KCPL Cumulative Preferred were issued
and of such issued shares, 8,934 were held by KCPL in its treasury or by its
wholly owned Subsidiaries, (iv) 500,000 shares of KCPL No Par Preferred were
outstanding and none were held by KCPL or its Subsidiaries in its treasury,
(v) no shares of KCPL Preference Stock were outstanding, (vi) $150,000,000 of
Company-Obligated Mandatorily Redeemable Preferred Securities of a subsidiary
trust holding solely KCPL Subordinated Debentures, and (vii) no bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on which
shareholders may vote ("Voting Debt"), were issued or outstanding. All
outstanding shares of KCPL Common Stock and KCPL Preferred Stock are validly
issued, fully paid and nonassessable and are not subject to preemptive rights.
As of the date hereof, except as set forth in Section 6.3 of the KCPL
Disclosure Schedule or pursuant to this Agreement and the KCPL Stock Plans,
there are no options, warrants, calls, rights, commitments or agreements of
any character to which KCPL or any Subsidiary of KCPL is a party or by which
any of them are bound obligating KCPL or any Subsidiary of KCPL to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of capital stock or any Voting Debt securities of KCPL or any Subsidiary of
KCPL or obligating KCPL or any Subsidiary of KCPL to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. Except as
set forth in Section 6.3 of the KCPL Disclosure Schedule, or other than in
connection with the KCPL Stock Plans, after the KGE Effective Time, there will
be no option, warrant, call, right, commitment or agreement obligating KCPL or
any Subsidiary of KCPL to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or any Voting Debt of KCPL or
any Subsidiary of KCPL or obligating KCPL or any Subsidiary of KCPL to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
Section 6.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) AUTHORITY. KCPL has all requisite power and authority to enter into this
Agreement and, subject the receipt of the applicable KCPL Shareholders'
Approval (as defined in Section 6.13) and the applicable KCPL Required
Statutory Approvals (as defined in Section 6.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by KCPL of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of KCPL, subject
to obtaining the applicable KCPL Shareholders' Approval. This Agreement has
been duly and validly executed and delivered by KCPL and, assuming the due
authorization, execution and delivery hereof by Western Resources and KGE,
constitutes the valid and binding obligation of KCPL enforceable against it in
accordance with the terms of this Agreement.
(b) NON-CONTRAVENTION. Except as set forth in Section 6.4(b) of the KCPL
Disclosure Schedule, the execution and delivery of this Agreement by KCPL does
not, and the consummation of the transactions contemplated hereby will not, in
any respect, violate, conflict with or result in a material breach of any
provision of, or constitute a material default (with or without notice or
lapse of time or both) under, or result in the termination or modification of,
or accelerate the performance required by, or result in a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any material lien,
security interest, charge or encumbrance upon any of the properties or assets
of KCPL or any of the KCPL Subsidiaries (any such violation, conflict, breach,
default, right of termination, modification, cancellation or acceleration,
loss or creation, is referred to herein as a "Violation" with respect to KCPL
and such term when used in Article VII having a correlative meaning with
respect to Western Resources and KGE) pursuant to any provisions of (i) the
Restated Articles of Consolidation, by-laws or similar governing documents of
KCPL or any of the KCPL Subsidiaries, (ii) subject to obtaining the KCPL
Required Statutory Approvals and the receipt of the KCPL Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority (as
defined in Section 6.4(c)) applicable to KCPL or any of the KCPL Subsidiaries
or any of their respective properties or assets or (iii) subject to obtaining
the third-party consents set forth in Section 6.4(b) of the KCPL Disclosure
Schedule (the "KCPL
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Required Consents"), any material note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which KCPL or any of the
KCPL Subsidiaries is a party or by which it or any of its properties or assets
may be bound or affected, except in the case of clause (ii) or (iii) for any
such Violation which would not have a KCPL Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange
or other self-regulatory body) or authority (each, a "Governmental Authority")
is necessary for the execution and delivery of this Agreement by KCPL or the
consummation by KCPL of the transactions contemplated hereby except as
described in Section 6.4(c) of the KCPL Disclosure Schedule or the failure of
which to obtain would not result in a KCPL Material Adverse Effect (the "KCPL
Required Statutory Approvals," it being understood that references in this
Agreement to "obtaining" such KCPL Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving such notices;
obtaining such authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 6.7, Section 6.10, or Section
6.11 of the KCPL Disclosure Schedule, or as disclosed in the KCPL SEC Reports
(as defined in Section 6.5) filed prior to the date hereof, neither KCPL nor
any of the KCPL Subsidiaries is in violation of, is, to the knowledge of KCPL,
under investigation with respect to any violation of, or has been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for possible violations which individually or in the
aggregate would not have a KCPL Material Adverse Effect. Except as set forth
in Sections 6.7, 6.10 and 6.11 of the KCPL Disclosure Schedule or as disclosed
in the KCPL SEC Reports filed prior to the date hereof, KCPL and the KCPL
Subsidiaries have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses
as presently conducted which are material to the operation of the businesses
of KCPL and the KCPL Subsidiaries. Neither KCPL nor any of the KCPL
Subsidiaries is in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default by KCPL or
any KCPL Subsidiary under (i) its articles of incorporation or by-laws or (ii)
any contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which it is a
party or by which KCPL or any KCPL Subsidiary is bound or to which any of its
property is subject, except for possible violations, breaches or defaults
which individually or in the aggregate would not have a KCPL Material Adverse
Effect.
Section 6.5 Reports and Financial Statements. The filings required to be
made by KCPL and the KCPL Subsidiaries since January 1, 1994 under the
Securities Act of 1933, as amended (the "Securities Act"); the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); the 1935 Act; the
Federal Power Act (the "Power Act"); the Atomic Energy Act of 1954, as amended
(the "Atomic Energy Act") and applicable state public utility laws and
regulations have been filed with the Securities and Exchange Commission (the
"SEC"), the Federal Energy Regulatory Commission (the "FERC"), the Nuclear
Regulatory Commission ("NRC") or the appropriate state public utilities
commission, as the case may be, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and complied, as of their respective dates,
in all material respects with all applicable requirements of the appropriate
statutes and the rules and regulations thereunder, except for such filings the
failure of which to have been made or to so comply would not result in a KCPL
Material Adverse Effect. "KCPL SEC Reports" shall mean each report, schedule,
registration statement and definitive proxy statement filed with the SEC by
KCPL pursuant to the requirements of the Securities Act or Exchange Act since
January 1, 1994 (as such documents have since the time of their filing been
amended). As of their respective dates, the KCPL SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
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audited consolidated financial statements and unaudited interim financial
statements of KCPL included in the KCPL SEC Reports (collectively, the "KCPL
Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") (except
as may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the financial position of KCPL as of the dates thereof and the results of its
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to normal, recurring audit
adjustments. True, accurate and complete copies of the Restated Articles of
Consolidation and by-laws of KCPL, as in effect on the date hereof, are
included (or incorporated by reference) in the KCPL SEC Reports.
Section 6.6 Absence of Certain Changes or Events. Except as disclosed in
Section 6.6 of the KCPL Disclosure Schedule and in the KCPL SEC Reports filed
prior to the date hereof, since December 31, 1996, KCPL and each of the KCPL
Subsidiaries have conducted their business only in the ordinary course of
business consistent with past practice (except that the operations of KLT and
KCPL's marketing business have been conducted in the ordinary course of
business consistent with the KCPL Business Plan (as defined in Section 8.1))
and there has not been any KCPL Material Adverse Effect. For purposes of this
Agreement, a "KCPL Material Adverse Effect" shall mean the existence of any
fact or condition which has or is reasonably likely to have a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of KCPL and the KCPL Subsidiaries taken as a whole.
Section 6.7 Litigation. Except as disclosed in the KCPL SEC Reports filed
prior to the date hereof or as set forth in Sections 6.7, 6.9, 6.10 or 6.11 of
the KCPL Disclosure Schedule, (a) there are no claims, suits, actions or
proceedings by any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, pending or, to the knowledge
of KCPL, threatened, nor are there, to the knowledge of KCPL, any
investigations or reviews by any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator pending or threatened
against, relating to or affecting KCPL or any of the KCPL Subsidiaries which
would have a KCPL Material Adverse Effect, (b) there have not been any
significant developments since December 31, 1996 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews that
would have a KCPL Material Adverse Effect and (c) there are no judgments,
decrees, injunctions, rules or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator applicable
to KCPL or any of the KCPL Subsidiaries, except for such that would not have a
KCPL Material Adverse Effect.
Section 6.8 Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of KCPL for inclusion
or incorporation by reference in (a) the registration statement on Form S-4 or
any post-effective amendment to a registration statement on Form S-4 to be
filed with the SEC by Western Resources and New KC in connection with the
issuance of shares of Western Resources Common Stock and New KC Common Stock
(as defined in Section 7.3) pursuant to the transactions contemplated hereby
(the "Registration Statement") will, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (b) the joint proxy statement, in
definitive form, relating to the meetings of KCPL and Western Resources
shareholders to be held in connection with the KCPL Merger and KGE Merger and
the transactions related thereto (the "Proxy Statement") will, at the dates
mailed to shareholders and at the times of the meetings of shareholders to be
held in connection with the KCPL Merger and KGE Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The
Registration Statement and the Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder.
Section 6.9 Tax Matters. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock,
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production, business and occupation, disability, employment, payroll, license,
estimated, stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes. "Tax Return," as used
in this Agreement, means a report, return or other information required to be
supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes KCPL or any KCPL Subsidiary or Western Resources, KGE
or any Western Resources Subsidiary, as the case may be.
Except as set forth in Section 6.9 of the KCPL Disclosure Schedule and
except as would not result in a KCPL Material Adverse Effect:
(a) FILING OF TIMELY TAX RETURNS. KCPL and each of the KCPL Subsidiaries
have filed (or there has been filed on its behalf) all Tax Returns required
to be filed by each of them under applicable law. All such Tax Returns were
and are in all material respects true, complete and correct and filed on a
timely basis.
(b) PAYMENT OF TAXES. KCPL and each of the KCPL Subsidiaries have, within
the time and in the manner prescribed by law, paid all Taxes that are
currently due and payable, except for those contested in good faith and for
which adequate reserves have been taken.
(c) TAX RESERVES. KCPL and each of the KCPL Subsidiaries have established
on their books and records reserves adequate to pay all Taxes and reserves
for deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of KCPL or any of
the KCPL Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. KCPL and each of the KCPL Subsidiaries have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld and paid over to the proper governmental authorities all amounts
required.
(f) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of KCPL or any of the KCPL Subsidiaries.
(g) TAX RULINGS. Neither KCPL nor any of the KCPL Subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing
Agreement (as defined below) with any taxing authority. "Tax Ruling," as
used in this Agreement, shall mean a written ruling of a taxing authority
relating to Taxes. "Closing Agreement," as used in this Agreement, shall
mean a written and legally binding agreement with a taxing authority
relating to Taxes.
(h) TAX SHARING AGREEMENTS. Except as between affiliates of KCPL as set
forth in Sections 6.1 and 6.2 of the KCPL Disclosure Schedule, neither KCPL
nor any KCPL Subsidiary is a party to any agreement relating to allocating
or sharing of Taxes.
(i) CODE SECTION 280G. Except for the KCPL Benefit Plans, neither KCPL,
nor any of the KCPL Subsidiaries is a party to any agreement, contract or
arrangement that could result in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code or any amount that
would be non-deductible pursuant to Section 162(m) of the Code.
(j) LIABILITY FOR OTHERS. Neither KCPL nor any of the KCPL Subsidiaries
has any liability for Taxes of any person other than KCPL and the KCPL
Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law), (ii) by contract, or
(iii) otherwise.
(k) SECTION 341(F). Neither KCPL nor any of the KCPL Subsidiaries has,
with regard to any assets or property held or acquired by any of them,
filed a consent to the application of Section 341(f)(2) of the Code, or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection(f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by KCPL or any of the KCPL Subsidiaries.
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Section 6.10 Employee Matters; ERISA. Except as set forth in Section 6.10 of
the KCPL Disclosure Schedule:
(a) BENEFIT PLANS. As of the date hereof, Section 6.10(a) of the KCPL
Disclosure Schedule contains a true and complete list of each written or
oral material employee benefit plan, policy or agreement covering
employees, former employees or directors of KCPL and each of the KCPL
Subsidiaries or their beneficiaries, or providing benefits to such persons
in respect of services provided to any such entity, including, but not
limited to, any employee benefit plans within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and any severance or change in control agreement (collectively,
the "KCPL Benefit Plans"). Since January 1, 1996, there have been no new
plans adopted nor changes, additions or modification to any existing plan.
(b) CONTRIBUTIONS. All material contributions and other payments required
to be made by KCPL or any of the KCPL Subsidiaries to any KCPL Benefit Plan
(or to any person pursuant to the terms thereof) have been made or the
amount of such payment or contribution obligation has been reflected in the
KCPL Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the KCPL Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service (the "IRS") to be so qualified,
and, to the knowledge of KCPL, no circumstances exist that are reasonably
expected by KCPL to result in the revocation of any such determination.
KCPL is in compliance in all material respects with, and each of the KCPL
Benefit Plans is and has been operated in all material respects in
compliance with, all applicable laws, rules and regulations governing such
plan, including, without limitation, ERISA and the Code. Each KCPL Benefit
Plan intended to provide for the deferral of income, the reduction of
salary or other compensation, or to afford other income tax benefits,
complies with the requirements of the applicable provisions of the Code or
other laws, rules and regulations required to provide such income tax
benefits. No prohibited transactions (as defined in Section 406 or 407 of
ERISA or Section 4975 of the Code) have occurred for which a statutory
exemption is not available with respect to any KCPL Benefit Plan, and which
could give rise to liability on the part of KCPL, any KCPL Benefit Plan, or
any fiduciary, party in interest or disqualified person with respect
thereto that would be material to KCPL or would be material to KCPL if it
were KCPL's liability.
(d) LIABILITIES. With respect to the KCPL Benefit Plans, individually and
in the aggregate, no event has occurred, and, to the knowledge of KCPL,
there does not now exist any condition or set of circumstances, that could
subject KCPL or any of the KCPL Subsidiaries to any material liability
arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to any such plan or the Pension Benefit
Guaranty Corporation (the "PBGC")), or under any indemnity agreement to
which KCPL or any of the KCPL Subsidiaries is a party, excluding liability
for benefit claims and funding obligations payable in the ordinary course.
(e) WELFARE PLANS. None of the KCPL Benefit Plans that are "welfare
plans," within the meaning of Section 3(1) of ERISA, provide for any
benefits with respect to current or former employees for periods extending
beyond their retirement or other termination of service, other than
continuation coverage required to be provided under Section 4980B of the
Code or Part 6 of Title I of ERISA.
(f) PAYMENTS RESULTING FROM THE KCPL MERGER OR KGE MERGER. The
consummation or announcement of any transaction contemplated by this
Agreement will not (either alone or upon the occurrence of any additional
or further acts or events, including, without limitation, the termination
of employment of any officers, directors, employees or agents of KCPL or
any of the KCPL Subsidiaries) result in any (i) payment (whether of
severance pay or otherwise) becoming due from KCPL or any of the KCPL
Subsidiaries to any officer, employee, former employee or director thereof
or to the trustee under any "rabbi trust" or similar arrangement, or (ii)
benefit under any KCPL Benefit Plan becoming accelerated, vested or
payable.
(g) LABOR AGREEMENTS. As of the date hereof, neither KCPL nor any of the
KCPL Subsidiaries is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization.
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To the knowledge of KCPL, as of the date hereof, there is no current union
representation question involving employees of KCPL or any of the KCPL
Subsidiaries, nor does KCPL know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
such employees. Except as disclosed in the KCPL SEC Reports filed prior to
the date hereof or except to the extent such would not have a KCPL Material
Adverse Effect, (i) there is no unfair labor practice, employment
discrimination or other material complaint against KCPL, or any of the KCPL
Subsidiaries pending, or to the knowledge of KCPL, threatened, (ii) there
is no strike, lockout or material dispute, slowdown or work stoppage
pending or, to the knowledge of KCPL, threatened against or involving KCPL,
and (iii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of KCPL, threatened in respect
of which any director, officer, employee or agent of KCPL or any of the
KCPL Subsidiaries is or may be entitled to claim indemnification from KCPL,
or such KCPL Subsidiary pursuant to their respective articles of
incorporation or by-laws or as provided in any indemnification agreements
between such persons and KCPL or any KCPL Subsidiary.
Section 6.11 Environmental Protection.
(a) Except as set forth in Section 6.11 of the KCPL Disclosure Schedule or
in the KCPL SEC Reports filed prior to the date hereof:
(i) COMPLIANCE. KCPL and each of the KCPL Subsidiaries are in compliance
with all applicable Environmental Laws (as defined in Section 6.11(b)(ii))
and neither KCPL nor any of the KCPL Subsidiaries has received any
communication (written or oral), from any person or Governmental Authority
that alleges that KCPL or any of the KCPL Subsidiaries is not in such
compliance with applicable Environmental Laws except in each foregoing case
where the failure to so comply would not have a KCPL Material Adverse
Effect. To the knowledge of KCPL, compliance with all applicable
Environmental Laws, will not require KCPL or any KCPL Subsidiary to incur
costs that will be reasonably likely to result in a KCPL Material Adverse
Effect.
(ii) ENVIRONMENTAL PERMITS. KCPL and each of the KCPL Subsidiaries has
obtained or has applied for all environmental, health and safety permits
and governmental authorizations (collectively, the "Environmental Permits")
necessary for the construction of their facilities or the conduct of their
operations except where the failure to so obtain would not have a KCPL
Material Adverse Effect, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending agency approval, and KCPL and each of the KCPL Subsidiaries
is in material compliance with all terms and conditions of the
Environmental Permits.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim (as defined
in Section 6.11(b)(i)) which would have a KCPL Material Adverse Effect
pending (A) against KCPL or any of the KCPL Subsidiaries, (B) to the
knowledge of KCPL, against any person or entity whose liability for any
Environmental Claim KCPL or any of the KCPL Subsidiaries has or may have
retained or assumed either contractually or by operation of law, or (C)
against any real or personal property or operations which KCPL or any of
the KCPL Subsidiaries owns, leases or manages, in whole or in part.
(iv) RELEASES. KCPL has no knowledge of any Releases (as defined in
Section 6.11(b)(iv)) of any Hazardous Material (as defined in Section
6.11(b)(iii)) that would be reasonably likely to form the basis of any
Environmental Claim against KCPL or any of the KCPL Subsidiaries or against
any person or entity whose liability for any Environmental Claim KCPL or
any of the KCPL Subsidiaries has or may have retained or assumed either
contractually or by operation of law except for any Environmental Claim
which would not have a KCPL Material Adverse Effect.
(v) PREDECESSORS. KCPL has no knowledge, with respect to any predecessor
of KCPL or any of the KCPL Subsidiaries of any Environmental Claim which
would have a KCPL Material Adverse Effect pending or threatened, or of any
Release of Hazardous Materials that would be reasonably likely to form the
basis of any Environmental Claim which would have a KCPL Material Adverse
Effect.
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(b) DEFINITIONS. As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential responsibility for or liability for enforcement, investigatory
costs, cleanup costs, governmental response costs, removal costs, remedial
costs, natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (A) the presence,
Release or threatened Release into the environment of any Hazardous
Materials at any location, whether or not owned, operated, leased or
managed by KCPL or any of the KCPL Subsidiaries (for purposes of this
Section 6.11) or by Western Resources, KGE or any of the Western Resources
Subsidiaries (for purposes of Section 7.11); or (B) circumstances forming
the basis of any violation or alleged violation of any Environmental Law or
(C) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from the presence or Release of any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local laws, rules
and regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs"); (B) any chemicals, materials or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or
words of similar import under any Environmental Law and (C) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which KCPL or any of the KCPL Subsidiaries operates (for
purposes of this Section 6.11) or in which Western Resources, KGE or any of
the Western Resources Subsidiaries operates (for purposes of Section 7.11).
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 6.12 Regulation as a Utility. KCPL is regulated as a public utility
in the States of Kansas and Missouri and in no other state. Except as set
forth in Section 6.12 of the KCPL Disclosure Schedule, neither KCPL nor any
"subsidiary company" or "affiliate" (as each such term is defined in the 1935
Act) of KCPL is subject to regulation as a public utility or public service
company (or similar designation) by any other state in the United States or
any foreign country.
Section 6.13 Vote Required. Provided that the KCPL Preferred Stock has been
redeemed pursuant to Section 2.4(c), the affirmative vote of two-thirds of the
shares of KCPL Common Stock outstanding on the record date for the meeting at
which such vote is taken is the only vote of the holders of any class or
series of the capital stock of KCPL or any of its Subsidiaries that is
required to approve this Agreement, the KCPL Merger, and (except for the KGE
Merger, the Asset Contribution and the Stock Contribution) the other
transactions contemplated hereby ("KCPL Shareholders' Approval").
Section 6.14 Article Twelfth of KCPL's Restated Articles of
Consolidation. The provisions of Article Twelfth of KCPL's Restated Articles
of Consolidation will not, prior to the termination of this Agreement,
assuming the accuracy of the representation contained in Section 7.17 (without
giving effect to the knowledge qualification thereof), apply to this
Agreement, the Asset Contribution, the Stock Contribution, the KCPL Merger,
the KGE Merger or to the other transactions contemplated hereby.
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Section 6.15 Opinion of Financial Advisor. KCPL has received the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), dated as
of the date hereof, to the effect that, as of the date thereof, the
consideration to be received by the holders of KCPL Common Stock (other than
Western Resources and its Affiliates (as defined in Section 6.17)) in the KCPL
Merger and the Western Resources Stock Distribution, taken as a whole, is fair
to such holders from a financial point of view to the holders of KCPL Common
Stock.
Section 6.16 Insurance. KCPL and each of the KCPL Subsidiaries is, and has
been continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by
KCPL and the KCPL Subsidiaries during such time period. Except as set forth in
Section 6.16 of the KCPL Disclosure Schedule, neither KCPL nor any of the KCPL
Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of KCPL or any of the KCPL
Subsidiaries. The insurance policies of KCPL and each of the KCPL Subsidiaries
are valid and enforceable policies in all material respects.
Section 6.17 KCPL not a Related Person. As of the date hereof, none of KCPL
or, to KCPL's reasonable knowledge, any of its Affiliates (as defined below),
is an "Interested Shareholder" as such term is defined in Article XI of the
Restated Articles of Incorporation of Western Resources (the "Western
Resources Articles"). As used in this Agreement, the term "Affiliate," except
where otherwise defined herein, shall mean, as to any person, any other person
which directly or indirectly controls, or is under common control with, or is
controlled by, such person. As used in this definition, "Control" (including,
with its correlative meanings, "Controlled By" and "Under Common Control
With") shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
Section 6.18 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation
(including Sections 351.407 and 351.459 of the MGBCL or Article Twelfth of
KCPL's Restated Articles of Consolidation) is, or at the KCPL Effective Time
or the KGE Effective Time will be, applicable to KCPL, Western Resources, KGE,
New KC, the KCPL Common Stock, the Asset Contribution, the Stock Contribution,
the KCPL Merger, the KGE Merger or the other transactions contemplated by this
Agreement.
Section 6.19 Termination of UtiliCorp Agreement. KCPL (i) has taken all
corporate action necessary to terminate the UtiliCorp Agreement pursuant to
the provisions of Section 9.1(d) thereof and except for provisions which
survived the termination thereof, including the payment of any fees due to
UtiliCorp thereunder, (ii) has no further obligation under the UtiliCorp
Agreement or any other agreements executed in connection with any proposed
transaction involving KCPL and UtiliCorp, other than continuing obligations
under the Confidentiality Agreement, dated as of November 28, 1995 (the
"UtiliCorp Confidentiality Agreement"), between KCPL and UtiliCorp. The
aggregate amount of all fees and expenses paid or payable by KCPL to UtiliCorp
as a result of such termination, whether pursuant to Section 9.2 of the
UtiliCorp Agreement or otherwise, shall not exceed $58 million. At all times
KCPL has fully complied in all respects with each of its obligations under the
UtiliCorp Agreement, including without limitation Sections 7.11 and 9.1
thereof. Until the KGE Effective Time, Western Resources shall not be bound by
or subject to, in any respect, directly or indirectly, any agreement between
KCPL and UtiliCorp, including without limitation the UtiliCorp Agreement and
the UtiliCorp Confidentiality Agreement.
ARTICLE VII
Representations and Warranties of
Western Resources, KGE and New KC
Each of Western Resources, KGE and New KC makes the following
representations and warranties to KCPL:
Section 7.1 Organization and Qualification. Each of Western Resources, KGE
and New KC and each of the Western Resources Subsidiaries (as defined below)
is a corporation or other entity duly organized, validly
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existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and except for New KC which has not engaged in
any business or activity other than as contemplated by this Agreement to
effect the transactions contemplated hereby, each has all requisite power and
authority, and has been duly authorized by all necessary approvals and orders
to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify would not have a Western
Resources Material Adverse Effect (as defined in Section 7.6). As used in this
Agreement, the term "Western Resources Subsidiary" shall mean a Subsidiary of
Western Resources in which Western Resources' equity investment exceeds $25
million.
Section 7.2 Subsidiaries. Section 7.2 of the schedule delivered by Western
Resources to KCPL on the date hereof (the "Western Resources Disclosure
Schedule") sets forth a list as of the date hereof of all the Western
Resources Subsidiaries. KGE is a Western Resources Subsidiary. Except as set
forth in Section 7.2 of the Western Resources Disclosure Schedule, all of the
issued and outstanding shares of capital stock of each Western Resources
Subsidiary and New KC are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned, directly or indirectly, by Western
Resources free and clear of any liens, claims, encumbrances, security
interests, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Western Resources
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating it to grant, extend
or enter into any such agreement or commitment.
Section 7.3 Capitalization. As of the date hereof, the authorized capital
stock of Western Resources consists of (i) 85,000,000 shares of Western
Resources Common Stock, par value $5.00 per share, (ii) 600,000 shares of
Preferred Stock par value $100.00 per share (the "Western Resources $100
Preferred") and 6,000,000 shares of Preferred Stock without par value (the
"Western Resources No Par Preferred"), and (iii) 4,000,000 shares of
Preference Stock, without par value (the "Western Resources Preference Stock"
and, together with the Western Resources $100 Preferred and the Western
Resources No-Par Preferred, the "Western Resources Preferred Stock"). At the
close of business on March 17, 1998, (i) 64,773,828 shares of Western
Resources Common Stock were issued and outstanding, (ii) no shares of Western
Resources Common Stock were held by Western Resources in its treasury or by
its wholly owned Subsidiaries, (iii) 138,576 shares of 4 1/2% Series Preferred
Stock, par value $100 per share (the "4 1/2% Western Resources $100
Preferred"), 60,000 shares of 4 1/4% Series Preferred Stock, par value $100
per share (the "4 1/4% Western Resources $100 Preferred"), 50,000 shares of 5%
Series Preferred Stock, par value $100 per share (the "5% Western Resources
$100 Preferred"), and no shares of Western Resources No-Par Preferred Stock
were issued and outstanding, and of such issued shares, none were held by
Western Resources in its treasury or by its wholly owned Subsidiaries, (iv)
500,000 shares of 7.58% Series Preference Stock were issued and outstanding,
and of such issued shares, none were held by Western Resources in its treasury
or by its wholly owned Subsidiaries, (v) $220,000,000 of Company-Obligated
Manditorily Redeemable Preferred Securities of a subsidiary trust holding
solely Western Resources Subordinated Debentures and (vi) no Voting Debt was
issued or outstanding. As of the date hereof, the authorized capital stock of
KGE consists of 1,000 shares of KGE Common Stock. As of the date hereof, 1,000
shares of KGE Common Stock were issued or outstanding, all of which were owned
by Western Resources. As of the date hereof, the authorized capital stock of
New KC consists of 500,000,000 shares of New KC Series A Common Stock,
300,000,000 shares of New KC Series B Common Stock, in each case without par
value (collectively, the "New KC Common Stock"), and 50,000,000 shares of
Preferred Stock, without par value. As of the date hereof and immediately
prior to the KCPL Effective Time, 100 shares of New KC Series A Common Stock
were issued and outstanding, all of which were owned by Western Resources. All
outstanding shares of Western Resources Common Stock, New KC Common Stock,
Western Resources Preferred Stock and KGE Common Stock are validly issued,
fully paid and nonassessable and are not subject to preemptive rights and at
the Closing, upon consummation of the KGE Merger and the KCPL Merger, all
outstanding shares of
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New KC Common Stock and the Western Resources Common Stock to be included in
the Western Resources Stock Distribution will be validly issued, fully paid
and nonassessable and not subject to any preemptive rights. As of the date
hereof, except as disclosed in the Western Resources SEC Reports filed prior
to the date hereof or as set forth in Section 7.3 of the Western Resources
Disclosure Schedule or pursuant to this Agreement and the Western Resources
Benefit Plans, there are no options, warrants, calls, rights, commitments or
agreements of any character to which Western Resources, KGE, New KC or any
Subsidiary of Western Resources or KGE is a party or by which any of them are
bound obligating Western Resources, KGE, New KC or any Subsidiary of Western
Resources or KGE to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or any Voting Debt securities of
Western Resources, KGE, New KC or any Subsidiary of Western Resources or KGE
or obligating Western Resources, KGE, New KC or any Subsidiary of Western
Resources or KGE to grant, extend or enter into any such option, warrant,
call, right, commitment or agreement.
Section 7.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) AUTHORITY. Each of Western Resources, New KC and KGE has all requisite
power and authority to enter into this Agreement and, subject to the receipt
of the applicable Western Resources Shareholders' Approval (as defined in
Section 7.13) and the applicable Western Resources Required Statutory
Approvals (as defined in Section 7.4(c)), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by Western Resources, New KC and KGE of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Western Resources, KGE and New KC, subject to obtaining
the applicable Western Resources Shareholders' Approval. This Agreement has
been duly and validly executed and delivered by Western Resources, New KC and
KGE and, assuming the due authorization, execution and delivery hereof by
KCPL, constitutes the valid and binding obligation of Western Resources, New
KC and KGE enforceable against each of them in accordance with the terms of
this Agreement.
(b) NON-CONTRAVENTION. Except as set forth in Section 7.4(b) of the Western
Resources Disclosure Schedule, the execution and delivery of this Agreement by
Western Resources, KGE and New KC do not, and the consummation of the
transactions contemplated hereby will not, result in a Violation with respect
to Western Resources, New KC, KGE or any of the Western Resources Subsidiaries
pursuant to any provisions of (i) the certificate of incorporation, by-laws or
similar governing documents of Western Resources, New KC, KGE or any of the
Western Resources Subsidiaries, (ii) subject to obtaining the Western
Resources Required Statutory Approvals and the receipt of the Western
Resources Shareholders' Approval, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any Governmental Authority applicable to Western Resources, New KC, KGE or any
of the Western Resources Subsidiaries or any of their respective properties or
assets or (iii) subject to obtaining the third-party consents set forth in
Section 7.4(b) of the Western Resources Disclosure Schedule (the "Western
Resources Required Consents"), any material note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or
other instrument, obligation or agreement of any kind to which Western
Resources, KGE, New KC or any of the Western Resources Subsidiaries is a party
or by which it or any of its properties or assets may be bound or affected,
except in the case of clause (ii) or (iii) for any such Violation which would
not have a Western Resources Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by Western
Resources, New KC, KGE or the consummation by Western Resources, KGE and New
KC of the transactions contemplated hereby except as described in Section
7.4(c) of the Western Resources Disclosure Schedule or the failure of which to
obtain would not result in a Western Resources Material Adverse Effect (the
"Western Resources Required Statutory Approvals," it being understood that
references in this Agreement to "obtaining" such Western Resources Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law).
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(d) COMPLIANCE. Except as set forth in Sections 7.4(d), 7.5, 7.9 and 7.11 of
the Western Resources Disclosure Schedule or as disclosed in the Western
Resources SEC Reports (as defined in Section 7.5) filed prior to the date
hereof, none of Western Resources, KGE or any of the Western Resources
Subsidiaries is in violation of, is, to the knowledge of Western Resources,
under investigation with respect to any violation of, or has been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for possible violations which individually or in the
aggregate would not have a Western Resources Material Adverse Effect. Except
as disclosed in the Western Resources SEC Reports filed prior to the date
hereof, or in Sections 7.7, 7.10 or 7.11 of the Western Resources Disclosure
Schedule, Western Resources, KGE and the Western Resources Subsidiaries have
all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted which are material to the operation of the businesses of Western
Resources and the Western Resources Subsidiaries. None of Western Resources,
KGE or any of the Western Resources Subsidiaries is in breach or violation of
or in default in the performance or observance of any term or provision of,
and no event has occurred which, with lapse of time or action by a third
party, could result in a default by Western Resources, KGE or any Western
Resources Subsidiary under (i) its certificate of incorporation or by-laws or
(ii) any contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which it is a
party or by which Western Resources or any Western Resources Subsidiary is
bound or to which any of its property is subject, except for possible
violations, breaches or defaults which individually or in the aggregate would
not have a Western Resources Material Adverse Effect.
Section 7.5 Reports and Financial Statements. Except as set forth in Section
7.5 of the Western Resources Disclosure Schedule, the filings required to be
made by Western Resources, KGE and the Western Resources Subsidiaries since
January 1, 1994 under the Securities Act, the Exchange Act, the 1935 Act, the
Power Act, the Atomic Energy Act, and applicable state public utility laws and
regulations have been filed with the SEC, the FERC, the NRC or the appropriate
state public utilities commission, as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, and complied, as of their
respective dates, in all material respects with all applicable requirements of
the appropriate statutes and the rules and regulations thereunder, except for
such filings the failure of which to have been made or to so comply would not
result in a Western Resources Material Adverse Effect. "Western Resources SEC
Reports" shall mean each report, schedule, registration statement and
definitive proxy statement filed with the SEC by Western Resources and KGE
pursuant to the requirements of the Securities Act or Exchange Act since
January 1, 1994, as such documents have since the time of their filing been
amended. As of their respective dates, the Western Resources SEC Reports did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Western Resources included in the Western
Resources SEC Reports (collectively, the "Western Resources Financial
Statements") have been prepared in accordance with GAAP (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC) and fairly present the
financial position of Western Resources and KGE as of the dates thereof and
the results of operations and cash flows for the periods then ended, subject,
in the case of the unaudited interim financial statements, to normal,
recurring audit adjustments. True, accurate and complete copies of the Western
Resources Articles, Western Resources' By-Laws, the articles of incorporation
of KGE and the by-laws of KGE, as in effect on the date hereof, are included
(or incorporated by reference) in the Western Resources SEC Reports.
Section 7.6 Absence of Certain Changes or Events. Except as disclosed in
Section 7.6 of the Western Resources Disclosure Schedule and in the Western
Resources SEC Reports filed prior to the date hereof, since December 31, 1996,
Western Resources, KGE and each of the Western Resources Subsidiaries have
conducted their business only in the ordinary course of business (except for
acquisitions and dispositions) and there has not been any Western Resources
Material Adverse Effect. For purposes of this Agreement, a "Western Resources
Material Adverse Effect" shall mean the existence of any fact or condition
which has or is reasonably likely to
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have a material adverse effect on the business, assets, financial condition,
results of operations or prospects of Western Resources, KGE and the Western
Resources Subsidiaries taken as a whole.
Section 7.7 Litigation. Except as disclosed in the Western Resources SEC
Reports filed prior to the date hereof or as disclosed in Section 7.7, 7.9,
7.10 or 7.11 of the Western Resources Disclosure Schedule, (a) there are no
claims, suits, actions or proceedings by any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator, pending
or, to the knowledge of Western Resources, threatened, nor are there, to the
knowledge of Western Resources, any investigations or reviews by any court,
governmental department, commission, agency, instrumentality or authority or
any arbitrator pending or threatened against, relating to or affecting Western
Resources, KGE, New KC or any of the Western Resources Subsidiaries which
would have a Western Resources Material Adverse Effect, (b) there have not
been any significant developments since December 31, 1996 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews that
would have a Western Resources Material Adverse Effect and (c) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Western Resources, KGE, New KC or any of the Western Resources
Subsidiaries, except for such that would not have a Western Resources Material
Adverse Effect.
Section 7.8 Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Western Resources,
New KC or KGE for inclusion or incorporation by reference in (a) the
Registration Statement will, at the time the Registration Statement is filed
by Western Resources and New KC with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (b) the Proxy
Statement will, at the dates mailed to shareholders and at the times of the
meetings of shareholders to be held in connection with the KCPL Merger and the
KGE Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement and the Proxy Statement will
comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Section 7.9 Tax Matters. Except as set forth in Section 7.9 of the Western
Resources Disclosure Schedule and except as would not result in a Western
Resources Material Adverse Effect:
(a) FILING OF TIMELY TAX RETURNS. Western Resources, KGE and each of the
Western Resources Subsidiaries have filed (or there has been filed on its
behalf) all Tax Returns required to be filed by each of them under
applicable law. All such Tax Returns were and are in all material respects
true, complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. Western Resources, KGE and each of the Western
Resources Subsidiaries have, within the time and in the manner prescribed
by law, paid all Taxes that are currently due and payable, except for those
contested in good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. Western Resources, KGE and each of the Western
Resources Subsidiaries have established on their books and records reserves
adequate to pay all Taxes and reserves for deferred income taxes in
accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of Western
Resources, KGE or any of the Western Resources Subsidiaries except liens
for Taxes not yet due.
(e) WITHHOLDING TAXES. Western Resources, KGE and each of the Western
Resources Subsidiaries have complied in all material respects with the
provisions of the Code relating to the withholding of Taxes, as well as
similar provisions under any other laws, and have, within the time and in
the manner prescribed by law, withheld and paid over to the proper
governmental authorities all amounts required.
(f) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Western Resources, KGE or any of the
Western Resources Subsidiaries.
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(g) TAX RULINGS. None of Western Resources, KGE or any of the Western
Resources Subsidiaries has received a Tax Ruling or entered into a Closing
Agreement with any taxing authority.
(h) TAX SHARING AGREEMENTS. Except as between affiliates of Western
Resources as set forth in Sections 7.1 and 7.2 of the Western Resources
Disclosure Schedule, none of Western Resources, KGE or any Western
Resources Subsidiary is a party to any agreement relating to allocating or
sharing of Taxes.
(i) CODE SECTION 280G. Except for the Western Resources Benefit Plans,
none of Western Resources, KGE or any of the Western Resources Subsidiaries
is a party to any agreement, contract or arrangement that could result in
the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code or any amount that would be non-deductible
pursuant to Section 162(m) of the Code.
(j) LIABILITY FOR OTHERS. None of Western Resources, KGE or any of the
Western Resources Subsidiaries has any liability for Taxes of any person
other than Western Resources, KGE and the Western Resources Subsidiaries
(i) under Treasury Regulations Section 1.1502-6 (or any similar provision
of state, local or foreign law), (ii) by contract, or (iii) otherwise.
(k) SECTION 341(F). None of Western Resources, KGE or any of the Western
Resources Subsidiaries has, with regard to any assets or property held or
acquired by any of them, filed a consent to the application of Section
341(f)(2) of the Code, or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by Western Resources, KGE or any of
the Western Resources Subsidiaries.
Section 7.10 Employee Matters; ERISA. Except as set forth in Section 7.10 of
the Western Resources Disclosure Schedule:
(a) BENEFIT PLANS. Section 7.10(a) of the Western Resources Disclosure
Schedule contains a true and complete list as of the date hereof of each
written or oral material employee benefit plan, policy or agreement
covering employees, former employees or directors of Western Resources, KGE
and each of the Western Resources Subsidiaries or their beneficiaries, or
providing benefits to such persons in respect of services provided to any
such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of ERISA and any severance or change in
control agreement (collectively, the "Western Resources Benefit Plans").
(b) CONTRIBUTIONS. All material contributions and other payments required
to be made by Western Resources, KGE or any of the Western Resources
Subsidiaries to any Western Resources Benefit Plan (or to any person
pursuant to the terms thereof) have been made or the amount of such payment
or contribution obligation has been reflected in the Western Resources
Financial Statements (other than those related to Protection One, Inc.).
(c) QUALIFICATION; COMPLIANCE. Each of the Western Resources Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined by the IRS to be so qualified, or to the
knowledge of Western Resources, no circumstances exist that are reasonably
expected by Western Resources to result in the revocation of any such
determination or prevent any such plans from being qualified. Western
Resources is in compliance in all material respects with, and each of the
Western Resources Benefit Plans is and has been operated in all material
respects in compliance with, all applicable laws, rules and regulations
governing such plan, including, without limitation, ERISA and the Code.
Each Western Resources Benefit Plan intended to provide for the deferral of
income, the reduction of salary or other compensation, or to afford other
income tax benefits, complies with the requirements of the applicable
provisions of the Code or other laws, rules and regulations required to
provide such income tax benefits. No prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred for
which a statutory exemption is not available with respect to any Western
Resources Benefit Plan, and which could give rise to liability on the part
of Western Resources, KGE, any Western Resources Benefit Plan, or any
fiduciary, party in interest or disqualified person with respect thereto
that would be material to Western Resources, KGE or would be material to
Western Resources or KGE if it were Western Resources' or KGE's liability.
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(d) LIABILITIES. With respect to the Western Resources Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the
knowledge of Western Resources, there does not now exist any condition or
set of circumstances, that could subject Western Resources, KGE or any of
the Western Resources Subsidiaries to any material liability arising under
the Code, ERISA or any other applicable law (including, without limitation,
any liability to any such plan or the PBGC), or under any indemnity
agreement to which Western Resources, KGE or any of the Western Resources
Subsidiaries is a party, excluding liability for benefit claims and funding
obligations payable in the ordinary course.
(e) PAYMENTS RESULTING FROM THE KCPL MERGER OR KGE MERGER. Except as
disclosed in the Western Resources SEC Reports filed prior to the date
hereof, the consummation or announcement of any transaction contemplated by
this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events, including, without limitation, the
termination of employment of officers, directors, employees or agents of
Western Resources, KGE or any of the Western Resources Subsidiaries) result
in any (i) payment (whether of severance pay or otherwise) becoming due
from Western Resources, KGE or any of the Western Resources Subsidiaries to
any officer, employee, former employee or director thereof or to the
trustee under any "rabbi trust" or similar arrangement, or (ii) benefit
under any Western Resources Benefit Plan becoming accelerated, vested or
payable.
(f) LABOR AGREEMENTS. As of the date hereof, (i) none of Western
Resources, KGE or any of the Western Resources Subsidiaries is a party to
any collective bargaining agreement or other labor agreement with any union
or labor organization and (ii) to the knowledge of Western Resources, there
is no current union representation question involving employees of Western
Resources, KGE or any of the Western Resources Subsidiaries, nor does
Western Resources know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
such employees. Except as disclosed in the Western Resources SEC Reports
filed prior to the date hereof or except to the extent such would not have
a Western Resources Material Adverse Effect, (i) there is no unfair labor
practice, employment discrimination or other material complaint against
Western Resources, KGE or any of the Western Resources Subsidiaries
pending, or to the knowledge of Western Resources, threatened, (ii) there
is no strike, lockout or material dispute, slowdown or work stoppage
pending or, to the knowledge of Western Resources, threatened against or
involving Western Resources or KGE, and (iii) there is no proceeding,
claim, suit, action or governmental investigation pending or, to the
knowledge of Western Resources, threatened in respect of which any
director, officer, employee or agent of Western Resources, KGE or any of
the Western Resources Subsidiaries is or may be entitled to claim
indemnification from Western Resources or such Western Resources Subsidiary
pursuant to their respective articles of incorporation or by-laws or as
provided in any indemnification agreements between such persons and Western
Resources, KGE or any Western Resources Subsidiary.
Section 7.11 Environmental Protection.
(a) Except as set forth in the Western Resources SEC Reports filed prior to
the date hereof or in Section 7.11 of the Western Resources Disclosure
Schedule:
(i) COMPLIANCE. Western Resources, KGE and each of the Western Resources
Subsidiaries is in compliance with all applicable Environmental Laws and
none of Western Resources, KGE or any of the Western Resources Subsidiaries
has received any communication (written or oral) from any person or
Governmental Authority that alleges that Western Resources, KGE or any of
the Western Resources Subsidiaries is not in such compliance with
applicable Environmental Laws, except in each foregoing case where the
failure to so comply would not have a Western Resources Material Adverse
Effect. To the knowledge of Western Resources, compliance with all
applicable Environmental Laws will not require Western Resources, KGE or
any Western Resources Subsidiary to incur costs that will be reasonably
likely to result in a Western Resources Material Adverse Effect.
(ii) ENVIRONMENTAL PERMITS. Western Resources, KGE and each of the
Western Resources Subsidiaries has obtained or has applied for all the
Environmental Permits necessary for the construction of their facilities or
the conduct of their operations, except where the failure to so obtain
would not have a
A-21
Western Resources Material Adverse Effect, and all such Environmental
Permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and Western
Resources, KGE and each of the Western Resources Subsidiaries are in
material compliance with all terms and conditions of the Environmental
Permits.
(iii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim which would
have a Western Resources Material Adverse Effect pending (A) against
Western Resources, KGE or any of the Western Resources Subsidiaries (B) to
the knowledge of Western Resources, against any person or entity whose
liability for any Environmental Claim Western Resources, KGE or any of the
Western Resources Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (C) against any real or personal
property or operations which Western Resources, KGE or any of the Western
Resources Subsidiaries owns, leases or manages, in whole or in part.
(iv) RELEASES. Western Resources has no knowledge of any Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
Environmental Claim against Western Resources, KGE or any of the Western
Resources Subsidiaries or against any person or entity whose liability for
any Environmental Claim Western Resources, KGE or any of the Western
Resources Subsidiaries has or may have retained or assumed either
contractually or by operation of law except for any Environmental Claim
which would not have a Western Resources Material Adverse Effect.
(v) PREDECESSORS. Western Resources has no knowledge, with respect to any
predecessor of Western Resources, KGE or any of the Western Resources
Subsidiaries, of any Environmental Claim which would have a Western
Resources Material Adverse Effect pending or threatened, or of any Release
of Hazardous Materials that would be reasonably likely to form the basis of
any Environmental Claim which would have a Western Resources Material
Adverse Effect.
Section 7.12 Regulation as a Utility. As of the date hereof, (1) Western
Resources and KGE are each regulated as a public utility in the State of
Kansas and in no other state, and (2) Western Resources is an exempt Holding
Company under the 1935 Act. Section 7.12 of the Western Resources Disclosure
Schedule sets forth certain entities in which Western Resources has an
ownership interest that may be subject to regulation as a public utility or
public service company (or similar designation) in certain foreign countries.
Section 7.13 Vote Required. (i) Provided that the Western Resources $100
Preferred has been redeemed pursuant to Section 9.19, the approval of this
Agreement, the Asset Contribution, the Stock Contribution, and amendments to
the Western Resources Articles, including, without limitation, increasing the
number of shares of Western Resources Common Stock authorized, by a majority
of the shares of Western Resources Common Stock outstanding on the record date
for such vote is the only vote of the holders of any class or series of the
capital stock of Western Resources or any of its Subsidiaries (other than KGE
and New KC) required to approve this Agreement, the Asset Contribution, the
Stock Contribution and the issuance of shares of Western Resources Common
Stock to be contributed to KGE pursuant to the Stock Contribution and (ii)
Western Resources, in its capacity as sole stockholder of New KC and KGE, has
approved this Agreement, the Asset Contribution, the Stock Contribution and
the KCPL Merger and KGE Merger, respectively, and the other transactions
contemplated hereby (collectively, the "Western Resources Shareholders'
Approval").
Section 7.14 Article XI (Business Combination with Interested Shareholder)
of Western Resources' Articles of Incorporation. The provisions of Article XI
(business combination with interested shareholder) of the Western Resources
Articles will not, prior to the termination of this Agreement, assuming the
accuracy of the representation contained in Section 6.17 (without giving
effect to the knowledge qualification thereof), apply to this Agreement, the
Asset Contribution, the Stock Contribution, the KCPL Merger, the KGE Merger or
to the transactions contemplated hereby.
Section 7.15 Opinion of Financial Advisor. Western Resources has received
the opinion of Salomon Smith Barney ("Salomon"), dated as of the date hereof,
to the effect that, as of such date, the Aggregate Consideration is fair from
a financial point of view to Western Resources.
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Section 7.16 Insurance. Except as set forth in Section 7.16 of the Western
Resources Disclosure Schedule, Western Resources, KGE and each of the Western
Resources Subsidiaries is, and has been continuously since January 1, 1994
(and, with respect to any Western Resources Subsidiary, if later than January
1, 1994, its date of acquisition by Western Resources), and New KC at the
Closing will be, insured with financially responsible insurers in such amounts
and against such risks and losses as are customary in all material respects
for companies conducting the business as conducted by Western Resources, KGE
and the Western Resources Subsidiaries during such time period and, as
contemplated by this Agreement, the business to be conducted by New KC after
the Closing. None of Western Resources, KGE or any of the Western Resources
Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of Western Resources, KGE or any of
the Western Resources Subsidiaries or New KC. The insurance policies of
Western Resources, KGE and each of the Western Resources Subsidiaries are, and
the insurance policies of New KC at the Closing will be, valid and enforceable
policies in all material respects.
Section 7.17 Western Resources not an Interested Shareholder. As of the date
hereof, none of Western Resources, KGE or, to its reasonable knowledge, any of
its Affiliates is an "Interested Shareholder" as such term is defined in
Article Twelfth of KCPL's Restated Articles of Consolidation.
Section 7.18 Takeover Statutes. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation
(including Sections 17-1286 et seq. and 17-12,100, et seq. of the KGCC or
Article XVII of the Western Resources Articles) is, or at the KCPL Effective
Time or the KGE Effective Time will be, applicable to KCPL, New KC, Western
Resources, KGE, the New KC Common Stock, the KCPL Common Stock, the Asset
Contribution, the Stock Contribution, the KCPL Merger, the KGE Merger or the
other transactions contemplated by this Agreement.
Section 7.19 No Prior Operations of New KC. New KC is a corporation formed
solely for the purpose of effecting the transactions contemplated by this
Agreement and prior to the date hereof New KC has not and prior to the Closing
will not have engaged in any business or other activity other than as
contemplated by this Agreement.
Section 7.20 Title to Properties. (a) TITLE. Western Resources has good and
sufficient title to all of the KPL Assets, including all of the properties and
assets reflected in the KPL Balance Sheet and all properties and assets
purchased or otherwise acquired since December 31, 1997. Such assets are
sufficient to enable Western Resources to conduct the KPL Business as
currently conducted without material interference, and, as of the date hereof,
are free and clear of Liens other than Permitted Liens (in each case as
defined below). Western Resources holds under valid lease agreements certain
real and personal properties which constitute part of the KPL Assets or are
reflected in the KPL Balance Sheet, and enjoys peaceful and undisturbed
possession of such properties under such leases, other than any properties as
to which such leases will have terminated in the ordinary course of business
since the date of such filing. As of the date hereof, with respect to the KPL
Business, neither Western Resources nor any of its predecessors has received
any written notice of any adverse claim to the title to any properties owned
by them or with respect to any lease under which any properties are held by
them, other than any claims that, individually or in the aggregate, would not
have a material adverse effect on the KPL Business. For the purposes of this
Section 7.20, the term "Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien, claim, condition, equity interest, option, right
of first refusal, charge or restriction of any kind (including any agreement
to give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature thereof or the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction. For purposes of this Section 7.20, the term "Permitted Liens"
shall mean (i) Liens for taxes and assessments, general and special, not yet
due and payable, and (ii) Liens, encumbrances and other defects existing on
the properties on the date hereof or which arise in the ordinary course of the
KPL Business or which, individually or in the aggregate, do not and will not
materially interfere with or impair the continued ownership, possession, use
or operation of the KPL Assets.
(b) EASEMENTS. With respect to the KPL Business, Western Resources is not in
violation of the terms of any Easement (as defined below) except any such
violations that individually or in the aggregate, would not have
A-23
a material adverse effect on the KPL Business. Except as would not have a
material adverse effect on the KPL Business, all Easements in favor of the KPL
Business are valid and enforceable and grant the rights purported to be
granted thereby and all rights necessary thereunder for the operation of the
KPL Business. For purposes of this Section 7.20, "Easements" shall mean all
easements, rights-of-way, permits, licenses, franchises, leases, surface
leases, prescriptive rights and ways of necessity, whether or not of record.
Section 7.21 Condition of Assets. To the knowledge of Western Resources,
except as would not have a material adverse effect on the KPL Business, the
buildings, plants, structures, and equipment of Western Resources relating to
the KPL Business are structurally sound, are in good operating condition and
repair, and are adequate for the uses to which they are being put, and none of
such buildings, plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
Section 7.22 Accounts Receivable. All Accounts Receivable (as defined below)
with respect to the KPL Business, represent or will represent, as of the
Closing, obligations arising from sales actually made or services actually
performed in the ordinary course of business of Western Resources with respect
to the KPL Business, subject to customary provisions for uncollectible
accounts. To the knowledge of Western Resources, there is no contest, claim or
right of set-off, under any contract or with any obligor of an Account
Receivable relating to the KPL Business relating to the amount or validity of
such Account Receivable which would have a material adverse effect on the KPL
Business. For purposes of this Section 7.22, "Accounts Receivable" shall mean
the accounts and other receivables, including unbilled revenues, of Western
Resources to the extent arising primarily out of the KPL Business.
ARTICLE VIII
Conduct of Business Pending the KGE Merger
Section 8.1 Covenants of KCPL. KCPL agrees, as to itself and as to each of
its Subsidiaries, that after the date hereof and prior to the KGE Effective
Time or earlier termination of this Agreement, (i) except as expressly
contemplated or permitted in this Agreement, (ii) except as Western Resources
may otherwise agree in writing (which decision regarding agreement shall be
made as soon as reasonably practicable), (iii) except as otherwise provided in
the business plan of KCPL in the form previously disclosed to Western
Resources and attached hereto as Section 8.1 of the KCPL Disclosure Schedule
(the "KCPL Business Plan"); provided, however, that for purposes of the
preceding clause (iii) KCPL shall obtain Western Resources' written agreement
(which decision regarding agreement shall be made as soon as reasonably
practicable) prior to making or committing to make any acquisitions or capital
expenditures or incurring or committing to incur any indebtedness, including
guarantees but not including the cost of routine regulated utility capital
expenditures (such acquisitions, capital expenditures and indebtedness,
collectively, "Investments") subsequent to the time when the aggregate value
of the Investments made or committed to be made by KCPL as permitted by this
Section 8.1 exceeds in the aggregate $150,000,000 during the period January 1,
1997 through December 31, 1997 and which aggregate limits for each subsequent
six-month period commencing January 1, 1998 through the Closing shall be
$75,000,000 ($25,000,000 of which during each such six-month period may be
expended or committed on items not included in the KCPL Business Plan), it
being agreed that to the extent any such $150,000,000 or $75,000,000 aggregate
amount is not made, committed or incurred during such one-year or any such
six-month period, as the case may be, such amount or amounts shall be added
to, and cumulated with, the amount or amounts available during subsequent time
periods until the Closing (such aggregate limits to exclude the cost of
routine regulated utility capital expenditures); and provided further that,
KCPL shall be permitted to use the proceeds obtained from any disposition of
assets for Investments in accordance with the KCPL Business Plan; provided,
further, however, that KCPL shall confer on a regular and frequent basis with
representatives of Western Resources in the course of KCPL's implementation of
the KCPL Business Plan and any expenditures referred to in this Section 8.1:
(a) ORDINARY COURSE OF BUSINESS. KCPL shall, and shall cause its
respective Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
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heretofore conducted and use all commercially reasonable efforts to
preserve intact their present business organizations and goodwill, preserve
the goodwill and relationships with customers, suppliers and others having
business dealings with them and, subject to prudent management of work
force needs and ongoing programs currently in force, keep available the
services of their present officers and employees, provided, however, that
nothing shall prohibit KCPL or any of its Subsidiaries from transferring
operations to KCPL or any of its wholly owned Subsidiaries. KCPL shall not,
nor shall KCPL permit any of its Subsidiaries to, enter into a new line of
business involving any material investment of assets or resources or any
material exposure to liability or loss to KCPL and the KCPL Subsidiaries
taken as a whole.
(b) DIVIDENDS. KCPL shall not, nor shall it permit any of its
Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than to KCPL
or KCPL Subsidiaries and other than (A) dividends required to be paid on
any KCPL Preferred Stock in accordance with the terms thereof and (B)
regular quarterly dividends on KCPL Common Stock with usual record and
payment dates not, during any period of any fiscal year, in excess (except
to the extent consistent with good business judgment and KCPL's past
dividend practice) of the quarterly dividend most recently declared on such
stock as of the date hereof, (ii) split, combine or reclassify any of their
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for, shares of
their capital stock or (iii) except as set forth in Section 8.1(b) of the
KCPL Disclosure Schedule, redeem, repurchase or otherwise acquire any
shares of their capital stock, other than (A) redemptions, purchases or
acquisitions required by the terms of any series of KCPL Preferred Stock or
(B) for the purpose of funding employee stock ownership plans in accordance
with past practice. Notwithstanding the foregoing, KCPL may redeem the KCPL
Preferred Stock pursuant to the provisions of Section 2.4(c).
(c) ISSUANCE OF SECURITIES. Except as set forth in Section 8.1(c) of the
KCPL Disclosure Schedule, since the Original Execution Date KCPL shall not,
nor shall it permit any of its Subsidiaries to, issue, agree to issue,
deliver, sell, award, pledge, dispose of or otherwise encumber or authorize
or propose the issuance, delivery, sale, award, pledge, disposal or other
encumbrance of, any shares of their capital stock of any class or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any such shares or convertible or exchangeable
securities, other than (i) intercompany issuances of capital stock and (ii)
issuances in the ordinary course of business consistent with past practice
of up to 2,000,000 shares of KCPL Common Stock during any fiscal year to be
issued pursuant to employee benefit plans, stock option and other incentive
compensation plans, director plans and stock purchase plans and dividend
reinvestment plans existing prior to the date hereof and heretofore
disclosed to Western Resources or pursuant to plans adopted after the date
hereof which shall be reasonably acceptable to Western Resources. The
parties shall promptly furnish to each other such information as may be
reasonably requested including financial information and take such action
as may be reasonably necessary and otherwise fully cooperate with each
other in the preparation of any registration statement under the Securities
Act and other documents necessary in connection with the issuance of
securities as contemplated by this Section 8.1(c), subject to obtaining
customary indemnities.
(d) CHARTER DOCUMENTS. KCPL shall not amend or propose to amend its
charter, by-laws or regulations, or similar organic documents, except as
contemplated herein.
(e) NO ACQUISITIONS. KCPL shall not, nor shall it permit any of its
Subsidiaries to, acquire, or publicly propose to acquire, or agree to
acquire, by merger or consolidation with, or by purchase or otherwise, an
equity interest in or a substantial portion of the assets of, any business
or any corporation, partnership, association or other business organization
or division thereof, nor shall KCPL acquire or agree to acquire a material
amount of assets other than in the ordinary course of business consistent
with past practice.
(f) CAPITAL EXPENDITURES. KCPL shall not, nor shall it permit any of its
Subsidiaries to, make capital expenditures during any fiscal year in excess
of the amount budgeted for capital expenditures for such fiscal year in the
KCPL Business Plan.
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(g) NO DISPOSITIONS. Except as set forth in Section 8.1(g) of the KCPL
Disclosure Schedule, KCPL shall not, nor shall it permit any of its
Subsidiaries to, sell or dispose of any of their assets other than
dispositions in the ordinary course of business consistent with past
practice.
(h) INDEBTEDNESS. KCPL shall not, nor shall it permit any of its
Subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed including, without limitation,
the issuance of debt securities or warrants or rights to acquire debt) or
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or entity or enter into any
arrangement having the economic effect of any of the foregoing other than
(i) indebtedness or guarantees or "keep well" or other agreements in the
ordinary course of business consistent with past practice (such as the
issuance of commercial paper, the use of existing credit facilities or
hedging activities), (ii) other indebtedness or "keep well" or other
agreements not aggregating more than $250 million, (iii) arrangements
between KCPL and its Subsidiaries or among its Subsidiaries, (iv) except as
set forth in Section 8.1(h) of the KCPL Disclosure Schedule, (v) in
connection with the refunding of existing indebtedness, (vi) in connection
with the redemption of the KCPL Preferred Stock as set forth in Section
2.4(c), or (vii) as may be necessary in connection with acquisitions or
capital expenditures provided for in the KCPL Business Plan.
Notwithstanding anything contained herein to the contrary, the aggregate
total indebtedness for borrowed money (including preferred stock) of KCPL
and its Subsidiaries shall not exceed $1.4 billion at the KCPL Effective
Time.
(i) COMPENSATION, BENEFITS. Except as may be required by applicable law
or as set forth in Section 8.1(i) of the KCPL Disclosure Schedule, KCPL
shall not, nor shall it permit any of its Subsidiaries to, (i) 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
maintained by, contributed to or entered into by KCPL or any of its
Subsidiaries or increase, or enter into any contract, agreement, commitment
or arrangement to increase in any manner, the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement,
employment or any related rights, of any director, officer or other
employee of KCPL or any of its Subsidiaries, 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 compensation
expense to KCPL or any of its Subsidiaries; (ii) enter into or amend any
employment, severance or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or
arrangement with any director or officer or other employee other than in
the ordinary course of business consistent with past practice; or (iii)
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.
(j) 1935 ACT. KCPL shall not, nor shall KCPL permit any of its
Subsidiaries to, except as required or contemplated by this Agreement,
engage in any activities which would cause a change in KCPL's status, or
that of its Subsidiaries, under the 1935 Act.
(k) ACCOUNTING. KCPL shall not, nor shall it permit any of its
Subsidiaries to, make any changes in its accounting methods, except as
required by law, rule, regulation or GAAP.
(l) AFFILIATE TRANSACTIONS. Except as set forth in Section 8.1(l) of the
KCPL Disclosure Schedule, KCPL shall not, nor shall it permit any of its
Subsidiaries to, enter into any material agreement or arrangement with any
of their Affiliates (other than wholly owned Subsidiaries) on terms
materially less favorable to such party than could be reasonably expected
to have been obtained with an unaffiliated third-party on an arm's length
basis.
(m) COOPERATION, NOTIFICATION. KCPL shall (i) confer on a regular and
frequent basis with one or more representatives of Western Resources to
discuss, subject to applicable law, material operational matters and the
general status of its ongoing operations, (ii) promptly notify Western
Resources of any significant changes in its business, properties, assets,
condition (financial or other), results of operations or prospects, and
(iii) promptly provide Western Resources with copies of all filings made by
KCPL or any of
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its Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby.
(n) RATE MATTERS. Subject to applicable law, KCPL shall, and shall cause
its Subsidiaries to, discuss with Western Resources any changes in its or
its Subsidiaries' rates or the services it provides or charges (other than
pass-through fuel and gas rates or charges), standards of service or
accounting from those in effect on the date hereof and consult with Western
Resources prior to making any filing (or any amendment thereto), or
effecting any agreement, commitment, arrangement or consent with
governmental regulators, whether written or oral, formal or informal, with
respect thereto, and KCPL will not make any filing to change its rates or
the services it provides on file with the FERC that would have a material
adverse effect on the benefits associated with the business combination
provided for herein.
(o) THIRD-PARTY CONSENTS. KCPL shall, and shall cause its Subsidiaries
to, use all commercially reasonable efforts to obtain all KCPL Required
Consents. KCPL shall promptly notify Western Resources of any failure or
prospective failure to obtain any such consents and, if requested by
Western Resources, shall provide copies of all KCPL Required Consents
obtained by KCPL to Western Resources.
(p) NO BREACH, ETC. KCPL shall not, nor shall it permit any of its
Subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or
in any of its representations and warranties set forth in this Agreement
being untrue on and as of the Closing Date.
(q) TAX-EXEMPT STATUS. KCPL shall not, nor shall it permit any of its
Subsidiaries to, take any action that would likely jeopardize the
qualification of KCPL's or Western Resources' outstanding revenue bonds
which qualify on the date hereof under Section 142(a) of the Code as
"exempt facility bonds" or as tax-exempt industrial development bonds under
Section 103(b)(4) of the Internal Revenue Code of 1954, as amended, prior
to the Tax Reform Act of 1986.
(r) CONTRACTS. KCPL shall not, nor shall KCPL permit any Subsidiary of
KCPL to, except in the ordinary course of business consistent with past
practice, modify, amend, terminate, renew or fail to use reasonable
business efforts to renew any material contract or agreement to which KCPL
or any Subsidiary of KCPL is a party or waive, release or assign any
material rights or claims.
(s) INSURANCE. KCPL shall, and shall cause its Subsidiaries to, maintain
with financially responsible insurance companies insurance in such amounts
and against such risks and losses as are customary for companies engaged in
the electric utility industry and employing methods of generating electric
power and fuel sources similar to those methods employed and fuels used by
KCPL or its Subsidiaries.
(t) PERMITS. KCPL shall, and shall cause its Subsidiaries to, use
reasonable efforts to maintain in effect all existing governmental permits
which are material to the operations of KCPL or its Subsidiaries.
(u) TAX MATTERS. KCPL shall not (i) make or rescind any material express
or deemed election relating to taxes unless such election will have the
effect of minimizing the tax liabilities of KCPL or any of its
Subsidiaries, including elections for any and all joint ventures,
partnerships, limited liability companies, working interests or other
investments where KCPL has the capacity to make such binding elections,
(ii) without the written consent of Western Resources, which consent will
not be unreasonably withheld, settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes unless such settlement or compromise results
in (A) a change in taxable income or tax liability that will reverse in
future periods and is therefore, by its nature, a timing difference or (B)
a change in taxable income or tax liability that will not reverse in future
periods and is therefore, by its nature, a permanent difference unless the
tax liability resulting from the increase is less than $5 million, or (iii)
change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1996, except as may be required by applicable law or except
for such changes that would reduce consolidated federal taxable income or
alternative minimum taxable income.
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(v) DISCHARGE OF LIABILITIES. KCPL shall not, nor shall KCPL permit any
of its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice (which includes the payment of final and unappealable judgments)
or in accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of KCPL included in KCPL's reports filed
with the SEC, or incurred in the ordinary course of business consistent
with past practice.
Section 8.2 Covenants of Western Resources, New KC and KGE. Western
Resources agrees, as to itself, New KC and to each of its Subsidiaries, that
after the date hereof and prior to the KGE Effective Time or earlier
termination of this Agreement:
(a) COOPERATION, NOTIFICATION. Western Resources shall (i) confer on a
regular and frequent basis with one or more representatives of KCPL to
discuss, subject to applicable law, material operational matters and the
general status of its ongoing operations, (ii) promptly notify KCPL of any
significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects, and
(iii) promptly provide KCPL with copies of all filings made by Western
Resources or any of its Subsidiaries with any state or federal court,
administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
(b) THIRD-PARTY CONSENTS. Western Resources shall, and shall cause its
Subsidiaries and New KC to, use all commercially reasonable efforts to
obtain all Western Resources Required Consents. Western Resources shall
promptly notify KCPL of any failure or prospective failure to obtain any
such consents and, if requested by KCPL, shall provide copies of all
Western Resources Required Consents obtained by Western Resources to KCPL.
(c) NO BREACH, ETC. Each of Western Resources, KGE and New KC shall not,
nor shall they permit any of their respective Subsidiaries to, willfully
take any action that would or is reasonably likely to result in a material
breach of any provision of this Agreement or in any of its representations
and warranties set forth in this Agreement being untrue on and as of the
Closing Date.
(d) NEW KC NOT TO ENGAGE IN OPERATIONS. Prior to the KCPL and KGE
Effective Times, Western Resources shall not permit New KC to engage in any
business or incur any liabilities or be a party to any contract or
agreement, other than as contemplated by this Agreement or as specifically
agreed to in writing by KCPL.
(e) CASH FOR PAYMENT IN LIEU OF FRACTIONAL SHARES. New KC as of the KGE
Effective Time will have sufficient cash available to pay for all
fractional share interests of New KC Common Stock which would otherwise be
issued pursuant to the KCPL Merger.
(f) INSURANCE. Western Resources shall use reasonable efforts to obtain
for New KC with financially responsible insurance companies insurance
effective as of the Closing Date in such amounts and against such risks and
losses as are customary for companies engaged in the electric utility
industry and employing methods of generating electric power and fuel
sources similar to those methods to be employed and fuels to be used by New
KC.
ARTICLE IX
Additional Agreements
Section 9.1 Access to Information. Upon reasonable notice, each party shall,
and shall cause its Subsidiaries to, afford to the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives of the other parties (collectively, "Representatives")
reasonable access, during normal business hours throughout the period prior to
the KGE Effective Time, to all of its properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) and,
during such period, each party shall, and shall cause its Subsidiaries to,
furnish promptly to the other (i) access to each report, schedule
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and other document filed or received by it or any of its Subsidiaries pursuant
to the requirements of federal or state securities laws or filed with or sent
to the SEC, the FERC, the NRC, the Department of Justice, the Federal Trade
Commission, or any other federal or state regulatory agency or commission and
(ii) access to all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for
any other reason related to the transactions contemplated by this Agreement.
All documents and information supplied by one party to the other pursuant to
this Section 9.1 shall be deemed to be "Evaluation Material" as defined in the
Confidentiality Agreement, dated December 20, 1996, between KCPL and Western
Resources, as it may be amended from time to time (the "Confidentiality
Agreement"), and shall be kept confidential in accordance with the terms of
such Agreement.
Section 9.2 Joint Proxy Statement and Registration Statement.
(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "Joint Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to (i) cause
the Registration Statement to be declared effective under the Securities Act
as promptly as practicable after such filing and (ii) respond as promptly as
practicable to any comments made by the SEC. Each party hereto shall also take
such action as may be reasonably required to cause the shares of (i) Western
Resources Common Stock issuable in connection with the Stock Contribution and
the Western Resources Stock Distribution to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws and (ii) New KC Common Stock issuable in connection with the KGE Merger
and the KCPL Merger to be registered or to obtain an exemption from
registration under applicable state "blue sky" or securities laws; provided,
however, that no party shall be required to register or qualify as a foreign
corporation or to take other action which would subject it to service of
process in any jurisdiction where the Surviving Corporation will not be,
following the KGE Merger, so subject. Each of the parties hereto shall furnish
all information concerning itself which is required or customary for inclusion
in the Joint Proxy/Registration Statement. The parties shall use reasonable
efforts to cause the shares of (i) Western Resources Common Stock issuable in
the Stock Contribution and the Western Resources Stock Distribution and (ii)
New KC Common Stock issuable in the KCPL Merger and the KGE Merger, to be
approved for listing on the NYSE upon official notice of issuance. The
information provided by any party hereto for use in the Joint
Proxy/Registration Statement shall be true and correct in all material
respects without omission of any material fact which is required to make such
information not false or misleading. No representation, covenant or agreement
is made by any party hereto with respect to information supplied by any other
party for inclusion in the Joint Proxy Statement/Registration Statement.
(b) LETTER OF KCPL'S ACCOUNTANTS. KCPL shall use its best efforts to cause
to be delivered to Western Resources letters of Coopers & Lybrand, dated a
date within two business days before the date of the Joint Proxy/Registration
Statement, and addressed to Western Resources, in form and substance
reasonably satisfactory to Western Resources and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4.
(c) LETTER OF WESTERN RESOURCES' ACCOUNTANTS. Western Resources shall use
its best efforts to cause to be delivered to KCPL a letter of Arthur Andersen
LLP, dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to KCPL, in form and substance
reasonably satisfactory to KCPL and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection
with registration statements on Form S-4.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy/Registration Statement to the shareholders of KCPL and Western Resources
that (i) KCPL shall have received an opinion from Merrill Lynch, dated the
date of the Joint Proxy/Registration Statement, to the effect that, as of the
date thereof, the consideration to be received by the holders of KCPL Common
Stock (other than Western Resources and its Affiliates) in the KCPL Merger and
the Western Resources Stock Distribution, taken as a whole, is fair to such
holders from a financial point of view and (ii) Western Resources shall have
received an opinion from Salomon,
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dated the date of the Joint Proxy/Registration Statement, to the effect that,
as of the date thereof the Aggregate Consideration is fair from a financial
point of view to Western Resources.
Section 9.3 Regulatory Matters.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed by its respective "ultimate parent" company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby. Such parties will use all commercially
reasonable efforts to make such filings in a timely manner and to respond on a
timely basis to any requests for additional information made by either of such
agencies.
(b) OTHER REGULATORY APPROVALS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to obtain the KCPL Required Statutory
Approvals and the Western Resources Required Statutory Approvals.
Section 9.4 Shareholder Approval.
(a) APPROVAL OF KCPL SHAREHOLDERS. Subject to the provisions of Section
9.4(c) and Section 9.4(d), KCPL shall, as soon as reasonably practicable after
the date hereof (i) take all steps necessary to duly call, give notice of,
convene and hold a meeting of its shareholders (the "KCPL Meeting") for the
purpose of securing the KCPL Shareholders' Approval, (ii) distribute to its
shareholders the Proxy Statement in accordance with applicable federal and
state law and with its Restated Articles of Consolidation and by-laws, (iii)
subject to the fiduciary duties of its Board of Directors, recommend to its
shareholders the approval of the KCPL Merger, this Agreement and the
transactions contemplated hereby, and (iv) cooperate and consult with Western
Resources with respect to each of the foregoing matters.
(b) APPROVAL OF WESTERN RESOURCES SHAREHOLDERS. Subject to the provisions of
Section 9.4(c) and Section 9.4(d), Western Resources shall, as soon as
reasonably practicable after the date hereof (i) take all steps necessary to
duly call, give notice of, convene and hold a meeting of its shareholders (the
"Western Resources Meeting") for the purpose of securing the Western Resources
Shareholders' Approval, (ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and state law and with the
Western Resources Articles and the by-laws of Western Resources (the "Western
Resources By-Laws"), (iii) subject to the fiduciary duties of its Board of
Directors, recommend to its shareholders the approval of this Agreement and
the transactions contemplated hereby, including without limitation the Asset
Contribution, the Stock Contribution and the issuance of shares of Western
Resources Common Stock to be contributed to KGE pursuant to the Stock
Contribution, and (iv) cooperate and consult with KCPL with respect to each of
the foregoing matters.
(c) MEETING DATE. The Western Resources Meeting for the purpose of securing
the Western Resources Shareholders' Approval and the KCPL Meeting for the
purpose of securing the KCPL Shareholders' Approval shall be held as soon as
practicable, or at such other time as KCPL and Western Resources shall
mutually determine in writing.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of KCPL to hold the KCPL Meeting that the opinion of Merrill Lynch,
referred to in Section 9.2(d), shall not have been withdrawn, and it shall be
a condition to the obligation of Western Resources to hold the Western
Resources Meeting that the opinion of Salomon, referred to in Section 9.2(d),
shall not have been withdrawn.
Section 9.5 Directors' and Officers' Indemnification.
(a) INDEMNIFICATION. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the KGE
Effective Time, the Surviving Corporation shall, to the fullest extent
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permitted by applicable law, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the KGE Effective Time, an officer, director or employee of any of
the parties hereto or their respective Subsidiaries (each an "Indemnified
Party" and collectively, the "Indemnified Parties") against (i) 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 KGE Effective Time (and whether asserted or claimed prior to,
at or after the KGE 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 (the "Indemnified Liabilities"), and (ii) all
Indemnified Liabilities to the extent they are based on or arise out of or
pertain to the transactions contemplated by this Agreement. In the event of
any such loss, expense, claim, damage or liability (whether or not arising
before the KGE Effective Time), (i) the Surviving Corporation shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to the Surviving Corporation,
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 KGCC, (ii) the
Surviving Corporation 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
KGCC and the certificate of incorporation or by-laws of the Surviving
Corporation shall be made by independent counsel mutually acceptable to the
Surviving Corporation and the Indemnified Party; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld). 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.
(b) INSURANCE. For a period of six years after the KGE Effective Time, the
Surviving Corporation shall cause to be maintained in effect policies of
directors and officers' liability insurance maintained by KCPL and Western
Resources for the benefit of those persons who are currently covered by such
policies on terms no less favorable than the terms of such current insurance
coverage; provided, however, that the Surviving Corporation shall not be
required to expend in any year an amount in excess of 150% of the annual
aggregate premiums currently paid by KCPL and Western Resources for such
insurance; and provided, further, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Board of Directors of the Surviving Corporation,
for a cost not exceeding such amount.
(c) SUCCESSORS. In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in either such case,
proper provisions shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations set forth in this Section
9.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the KGE Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors and officers of KCPL,
New KC, Western Resources and KGE and their respective Subsidiaries with
respect to their activities as such prior to the KGE Effective Time, as
provided in their respective articles of incorporation and by-laws in effect
on the date thereof, or otherwise in effect on the date hereof, shall survive
the KGE Merger and shall continue in full force and effect for a period of not
less than six years from the KGE Effective Time.
(e) BENEFIT. The provisions of this Section 9.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 9.6 Public Announcements. Subject to each party's disclosure
obligations imposed by law, KCPL, New KC, Western Resources and KGE will
cooperate with each other in the development and distribution of all
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news releases and other public information disclosures with respect to this
Agreement or any of the transactions contemplated hereby and shall not issue
any public announcement or statement with respect hereto or thereto without
the consent of the other party (which consent shall not be unreasonably
withheld).
Section 9.7 Rule 145 Affiliates. KCPL shall identify in a letter to Western
Resources all persons who are, and to KCPL's knowledge who will be at the
Closing Date, "affiliates" of KCPL as such term is used in Rule 145 under the
Securities Act. KCPL shall use all reasonable efforts to cause its affiliates
(including any person who may be deemed to have become such an affiliate after
the date of the letter referred to in the prior sentence) to deliver to
Western Resources on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit 9.7 (each an "Affiliate
Agreement").
Section 9.8 Employee Agreements and Workforce Matters.
(a) CERTAIN EMPLOYEE AGREEMENTS. Subject to Section 9.9 and Section 9.10,
the Surviving Corporation and its Subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements,
severance agreements between KCPL and certain of its officers and commitments
of the parties prior to the date hereof that have previously been provided to
Western Resources and that are disclosed in Section 6.10 of the KCPL
Disclosure Schedule and that apply to any current or former employee or
current or former director of the parties hereto; provided, however, that this
undertaking is not intended to prevent the Surviving Corporation from
enforcing such contracts, agreements, collective bargaining agreements and
commitments in accordance with their terms, including, without limitation, any
reserved right to amend, modify, suspend, revoke or terminate any such
contract, agreement, collective bargaining agreement or commitment.
(b) WORKFORCE MATTERS. Subject to applicable bargaining agreements, Western
Resources shall treat the employees of the Surviving Corporation as a single
workforce, and shall use its best effort to conduct its employee management
practices on a fair and equitable basis, without regard to any employee's
place of employment prior to the KGE Effective Time.
Section 9.9 Employee Benefit Plans.
(a) COMPANY PLANS. (i) From the KGE Effective Time until the first
anniversary of the KGE Effective Time, New KC shall provide to employees of
the Surviving Corporation who were employees of KCPL prior to the KGE
Effective Time ("KCPL Employees") benefits which are no less favorable in the
aggregate than the benefits provided to employees of KCPL as of the date
hereof, (ii) between the first and second anniversaries of the KGE Effective
Time, New KC may either provide KCPL Employees benefits which are no less
favorable in the aggregate than the benefits provided to employees of KCPL as
of the date hereof or provide to KCPL Employees benefits on the same terms as
those applicable to other similarly situated former KGE employees, and (iii)
after the second anniversary of the KGE Effective Time, New KC shall provide
to KCPL Employees benefits on the same terms as those applicable to other
similarly situated former KGE employees. In the event New KC is unable to
provide benefits to KCPL Employees on the same terms applicable to other
similarly situated former KGE employees after the second anniversary of the
KGE Effective Time, it shall continue to provide benefits which are no less
favorable in the aggregate than the benefits provided to KCPL Employees as of
the date hereof until such other benefits can be provided. For purposes of
this Section 9.9(a), the term "benefits" shall not include the following plans
of KCPL: the Long Term Incentive Plan for Executives, the Auto Allowance, the
Financial/Tax Allowance, the Incentive Compensation Plan, the Executive Long-
Term and Short-Term Incentive Plan, the RESULTS Incentive Compensation Plan,
the KLT, Inc. Annual Incentive Pay Plan and Long Term Incentive Plan, the Ad
Hoc Bonus Program, the Retention/Hiring Bonus Program, the Sales and Marketing
Incentive Plans, and the Bulk Power Sales Incentive Plan.
(b) EFFECT OF THE KCPL MERGER AND THE KGE MERGER. The consummation of the
KCPL Merger or the KGE Merger shall not be treated as a termination of
employment for purposes of any Western Resources Benefit Plan or KCPL Benefit
Plan.
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(c) CREDIT FOR PAST SERVICE. Without limitation of the foregoing provisions
of this Section 9.9, each participant in any benefit plan of the Surviving
Corporation shall receive credit for service with KCPL, Western Resources or
KGE, as the case may be, for purposes of (i) eligibility to participate,
vesting and eligibility to receive benefits under any benefit plan of the
Surviving Corporation or any of its Subsidiaries or affiliates and (ii)
benefit accrual under any severance or vacation pay 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.
Section 9.10 Stock Options. Prior to the KCPL Effective Time, KCPL shall
take such actions as may be necessary such that immediately prior to the KCPL
Effective Time, each option to purchase shares of KCPL Common Stock and any
accrued dividend rights granted on such KCPL Common Stock (collectively, the
"KCPL Stock Options") which is outstanding, whether or not then exercisable,
shall be canceled and entitle the holder of any then exercisable KCPL Stock
Options, upon surrender of all outstanding KCPL Stock Options, to receive in
consideration of such cancellation an amount in cash from KCPL equal to the
result of multiplying the number of shares of KCPL Common Stock previously
subject to such KCPL Stock Option by the difference between (i) the sum of (x)
the fair market value of the number of shares of Western Resources Common
Stock (as determined by the average closing price of the Western Resources
Common Stock for the five (5) consecutive trading day period occurring
immediately following the distribution contemplated by Section 4.1) that such
optionee would have received pursuant to Section 4.1 if such optionee had
exercised a KCPL Stock Option to purchase one (1) share of KCPL Common Stock
immediately prior to the KCPL Effective Time and (y) the fair market value of
the number of shares of New KC Series A Common Stock (as determined by the
average closing price of the New KC Series A Common Stock for the five (5)
consecutive trading day period occurring immediately following the
distribution contemplated by Section 4.1) that such optionee would have
received pursuant to Section 2.4(a) if such optionee had exercised a KCPL
Stock Option to purchase one (1) share of KCPL Common Stock immediately prior
to the KCPL Effective Time and (ii) the per share exercise price of such KCPL
Stock Options.
Section 9.11 No Solicitations. From and after the date hereof, KCPL will
not, and will not authorize or permit any of its Representatives to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any inquiries or
the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined herein) from any person, or engage
in any discussion or negotiations relating thereto or accept any Acquisition
Proposal; provided, however, that notwithstanding any other provision hereof,
KCPL may (i) at any time prior to the time KCPL's shareholders shall have
voted to approve this Agreement, engage in discussions or negotiations with a
third party who (without any solicitation, initiation, encouragement,
discussion or negotiation, directly or indirectly, by or with KCPL or its
Representatives after the date hereof) seeks to initiate such discussions or
negotiations and may furnish such third party information concerning KCPL and
its business, properties and assets if, and only to the extent that, (A) (x)
the third party has first made an Acquisition Proposal that is financially
superior to the transactions contemplated herein and has demonstrated that
financing for the Acquisition Proposal is reasonably likely to be obtained (as
determined in good faith by KCPL's Board of Directors after consultation with
its financial advisors) and (y) KCPL's Board of Directors shall conclude in
good faith, after considering applicable provisions of state law, on the basis
of oral or written advice of outside counsel that such action is necessary for
the KCPL Board of Directors to act in a manner consistent with its fiduciary
duties under applicable law and (B) prior to furnishing such information to or
entering into discussions or negotiations with such person or entity, KCPL (x)
provides prompt notice to Western Resources to the effect that it is planning
to furnish information to or enter into discussions or negotiations with such
person or entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such person or entity than the terms
contained in the Confidentiality Agreement, (ii) comply with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer,
and/or (iii) accept an Acquisition Proposal from a third party, provided KCPL
first terminates this Agreement pursuant to Section 11.1(e). KCPL shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any parties conducted
heretofore by KCPL or its Representatives with respect to the foregoing. KCPL
shall notify Western Resources orally and
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in writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the person making it), within 24 hours of the receipt thereof, shall keep
Western Resources informed of the status and details of any such inquiry,
offer or proposal, and shall give Western Resources five days' advance notice
of any agreement to be entered into with or any information to be supplied to
any person making such inquiry, offer or proposal. As used herein,
"Acquisition Proposal" shall mean a proposal or offer (other than by Western
Resources, KGE or New KC) for a tender or exchange offer, merger,
consolidation or other business combination involving KCPL or any KCPL
Subsidiary or any proposal to acquire in any manner a substantial equity
interest in or a substantial portion of the assets of KCPL or any KCPL
Subsidiary.
Section 9.12 Board of Directors of New KC. At the KGE Effective Time,
Western Resources shall cause the initial Board of Directors of New KC to be
comprised of six persons designated by Western Resources, and four persons
selected from the Board of Directors of KCPL, in office as of the date hereof,
designated by KCPL. Thereafter, directors of New KC shall be nominated and
elected in accordance with the procedures set forth in the New KC Articles and
New KC By-Laws.
Section 9.13 Post-Merger Operations.
(a) PRINCIPAL CORPORATE OFFICES. At the KGE Effective Time, (i) the
executive headquarters of New KC shall be in Kansas City, Missouri, (ii) the
customer service headquarters of New KC shall be in Wichita, Kansas, and (iii)
the field operation headquarters of New KC shall be in Topeka, Kansas.
(b) CHARITIES. After the KGE Effective Time, the Surviving Corporation
currently intends to provide charitable contributions and community support
within the service areas of KCPL and Western Resources and each of their
respective Subsidiaries at annual levels substantially comparable to the
annual levels of charitable contributions and community support provided by
KCPL and Western Resources and their respective Subsidiaries within their
service areas during 1994 and 1995.
(c) BOARD OF DIRECTORS OF WESTERN RESOURCES. At the KGE Effective Time,
Western Resources shall cause to be nominated to the Board of Directors of
Western Resources (to such class of directors as Western Resources shall
determine in its sole discretion) the following persons: William H. Clark,
Robert J. Dineen and Robert H. West. No persons shall be substituted for the
foregoing persons if any such person is not qualified or declines to serve as
a director of Western Resources pursuant to the Western Resources Articles or
the Western Resources By-Laws.
(d) TERMINATION OF LITIGATION. The parties hereto shall immediately dismiss,
with each party bearing its own costs and litigation expenses, all proceedings
pending between themselves and their affiliates, including without limitation
KCPL v. Western Resources, Inc. et al., Civ. Action No. 96-552-CV-W-5 (W.D.
Mo.), and each shall thereafter sign and deliver such further instruments as
may be necessary in connection with such dismissals.
(e) DIVIDENDS. Upon the KGE Effective Time, the dividend policy of New KC
shall be set by the Board of Directors of New KC so as to achieve a payout
ratio that is consistent with comparable electric utility companies.
Section 9.14 Expenses. Subject to Section 11.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/Registration
Statement, as well as the filing fee relating thereto, shall be shared equally
by KCPL and Western Resources.
Section 9.15 Transition Management. The parties shall create a special
transition management task force (the "Task Force") which shall be jointly
headed by representatives appointed by and reasonably acceptable to the Chief
Executive Officers of Western Resources and KCPL. The Task Force shall examine
various alternatives
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regarding the manner in which to best organize and manage the business of the
Surviving Corporation after the KGE Effective Time, subject to applicable law.
Section 9.16 Purchase Accounting and Tax-Free Status. Each party hereto
agrees, as to itself and to each of its Subsidiaries, that after the date
hereof and prior to the KGE Effective Time or earlier termination of this
Agreement, except as expressly contemplated or permitted in this Agreement:
(a) PURCHASE ACCOUNTING. Western Resources and New KC shall account for
the KGE Merger and the KCPL Merger under the purchase method of accounting
in accordance with the provisions of Accounting Principles Board Opinion
No. 16, "Business Combinations."
(b) TAX-FREE STATUS. None of the parties hereto shall, nor shall any
party hereto permit any of its Subsidiaries or any employees, officers or
directors of such party or of any of its Subsidiaries to, take any actions
which would, or would be reasonably likely to, adversely affect the ability
of the KCPL Merger or the KGE Merger to qualify for tax-free treatment
under the Code, both to the parties and their respective shareholders
(except for any cash received in lieu of fractional shares), and each party
hereto shall use all reasonable efforts to achieve such result.
Section 9.17 Further Assurances. Each party will, and will cause its
Subsidiaries to, execute such further documents and instruments and take such
further actions, including the application for any necessary regulatory
approvals or exemptions, as may reasonably be requested by any other party in
order to consummate the transactions contemplated hereby in accordance with
the terms hereof.
Section 9.18 Interim Dividends. The last record date of each of KCPL and
Western Resources on or prior to the KGE Effective Time which relates to a
regular quarterly dividend on KCPL Common Stock or Western Resources Common
Stock, as the case may be, shall be the same date and shall be prior to the
KGE Effective Time.
Section 9.19 Redemption of Certain Western Resources $100 Preferred. Prior
to the KGE Effective Time, the Board of Directors of Western Resources shall
call for redemption all outstanding shares of 4 1/2% Western Resources $100
Preferred Stock, 4 1/4% Western Resources $100 Preferred Stock and 5% Western
Resources $100 Preferred Stock at a redemption price equal to the amount set
forth in the Western Resources Articles, together with all dividends accrued
and unpaid to the date of such redemption and take all other required actions
so that all shares of 4 1/2% Western Resources $100 Preferred Stock, 4 1/4%
Western Resources $100 Preferred Stock and 5% Western Resources $100 Preferred
Stock shall be redeemed and no such shares shall be deemed to be outstanding
at the KGE Effective Time or entitled to vote on the approval of this
Agreement and the transactions contemplated hereby.
ARTICLE X
Conditions
Section 10.1 Conditions to Each Party's Obligation to Effect the KGE Merger
and the KCPL Merger. The respective obligations of each party to effect the
KGE Merger or the KCPL Merger, as the case may be, shall be subject to the
satisfaction on or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such conditions may be
waived in writing pursuant to Section 11.5 by the joint action of the parties
hereto:
(a) SHAREHOLDER APPROVALS. The Western Resources Shareholders' Approval
and the KCPL Shareholders' Approval shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court
preventing consummation of the KGE Merger or the KCPL Merger shall have
been issued and be continuing in effect, and the KGE Merger, the KCPL
Merger and the other transactions contemplated hereby shall not have been
prohibited under any applicable federal or state law or regulation.
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(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no
stop order suspending such effectiveness shall have been issued and remain
in effect.
(d) LISTING OF SHARES. The shares of Western Resources Common Stock
issuable in the Stock Contribution and the Western Resources Stock
Distribution and the shares of New KC Common Stock issuable in the KCPL
Merger and the KGE Merger shall have been approved for listing on the NYSE
upon official notice of issuance.
(e) REQUIRED STATUTORY APPROVALS. The KCPL Required Statutory Approvals
and the Western Resources Required Statutory Approvals shall have been
obtained at or prior to the KCPL Effective Time and such approvals shall
have become Final Orders (as defined below). A "Final Order" means action
by the relevant regulatory authority which has not been reversed, stayed,
enjoined, set aside, annulled or suspended, with respect to which any
waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, and as to which all conditions to
the consummation of such transactions prescribed by law, regulation or
order have been satisfied.
(f) PERMITS. To the extent that the continued lawful operations of the
business of KCPL or any of its Subsidiaries after the KCPL Merger or to the
extent that the continued lawful operations of the business of Western
Resources, KGE, New KC, or any of their respective Subsidiaries after the
KGE Merger require that any license, permit or other governmental approval
be transferred to the Surviving Corporation or issued to the Surviving
Corporation, such licenses, permits or other authorizations shall have been
transferred or reissued to the Surviving Corporation at or before the
Closing Date, except where the failure to transfer or reissue such
licenses, permits or other authorizations would not have a material adverse
effect on the business, assets, financial condition, results of operations
or prospects of the Surviving Corporation and its Subsidiaries taken as a
whole immediately after the KGE Effective Time.
(g) TAX CONFIRMATION. Western Resources shall have received confirmation
in form and substance reasonably satisfactory to Western Resources from the
Kansas tax authorities that no sales or use tax is payable in connection
with the Asset Contribution.
Section 10.2 Conditions to Obligation of Western Resources, KGE and New KC
to Effect the KGE Merger. The obligation of Western Resources, KGE and New KC
to effect the KGE Merger shall be further subject to the satisfaction, on or
prior to the Closing Date, of the following conditions, except as may be
waived by Western Resources, KGE and New KC in writing pursuant to Section
11.5:
(a) PERFORMANCE OF OBLIGATIONS OF KCPL. KCPL (and/or its appropriate
Subsidiaries) will have performed in all material respects their agreements
and covenants contained in or contemplated by this Agreement which are
required to be performed by them at or prior to the KGE Effective Time
including, without limitation, agreements and covenants contained in
Section 2.4(c) hereof.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
KCPL set forth in this Agreement shall be true and correct (i) on and as of
the date hereof and (ii) on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of
the Closing Date (except for representations and warranties that expressly
speak only as of a specific date or time which need only be true and
correct as of such date or time) except in each of cases (i) and (ii) for
such failures of representations or warranties to be true and correct
(without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which, individually
or in the aggregate, would not result in a KCPL Material Adverse Effect.
(c) CLOSING CERTIFICATES. Western Resources shall have received a
certificate signed by the chief financial officer of KCPL, dated the
Closing Date, to the effect that, to the best of such officer's knowledge,
the conditions set forth in Section 10.2(a) and Section 10.2(b) have been
satisfied.
(d) KCPL MATERIAL ADVERSE EFFECT. No KCPL Material Adverse Effect shall
have occurred.
(e) KCPL REQUIRED CONSENTS. The KCPL Required Consents the failure of
which to obtain would have a KCPL Material Adverse Effect, shall have been
obtained.
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(f) AFFILIATE AGREEMENTS. Western Resources shall have received Affiliate
Agreements, duly executed by each "Affiliate" of KCPL, substantially in the
form of Exhibit 9.7, as provided in Section 9.7.
(g) 1935 ACT. Western Resources shall be reasonably satisfied that,
following the KGE Effective Time, it shall be exempt from all provisions of
the 1935 Act other than Section 9(a)(2) thereof.
(h) STATUTORY APPROVALS. Western Resources shall be reasonably satisfied
that the Final Orders, other than any Final Order issued by FERC, with
respect to the KCPL Required Statutory Approvals and the Western Resources
Required Statutory Approvals shall not impose terms or conditions which,
individually or in the aggregate, would have, or insofar as reasonably can
be foreseen, are likely to have a material adverse effect on the business,
assets, financial condition or results of operations of the Surviving
Corporation or a material adverse effect on the benefits anticipated by
Western Resources as a result of the consummation of the transactions
contemplated by this Agreement.
(i) FERC APPROVAL. Western Resources shall be reasonably satisfied that
any Final Order issued by FERC with respect to the KCPL Required Statutory
Approvals and the Western Resources Required Statutory Approvals shall not
impose terms or conditions which, individually or in the aggregate, would
have, or insofar as reasonably can be foreseen, are likely to have a
material adverse effect on the business, assets, financial condition or
results of operations of the Surviving Corporation or a material adverse
effect on the benefits anticipated by Western Resources as a result of the
consummation of the transactions contemplated by this Agreement.
(j) TAX OPINION. Western Resources shall have received an opinion from
Sullivan & Cromwell, counsel to Western Resources, in form and substance
reasonably satisfactory to Western Resources, dated as of the Closing,
substantially to the effect that (i) the KCPL Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and (ii)
the KGE Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code and (iii) no gain or loss will be recognized by
the shareholders of KGE or Western Resources as a result of the KGE Merger.
In rendering such opinion, Sullivan & Cromwell may require and rely upon
representations contained in certificates of officers of KCPL, Western
Resources and others.
(k) MAXIMUM NUMBER OF DISSENTING SHARES. The aggregate number of
Dissenting Shares shall not be greater than 5.5% of the outstanding shares
of KCPL Common Stock as of the KCPL Effective Time.
(l) KCPL MERGER. The KCPL Merger shall have been consummated in
accordance with the terms of this Agreement.
Section 10.3 Conditions to Obligation of KCPL to Effect the KCPL Merger. The
obligation of KCPL to effect the KCPL Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by KCPL in writing pursuant to Section 11.5:
(a) PERFORMANCE OF OBLIGATIONS OF WESTERN RESOURCES, KGE AND NEW
KC. Western Resources, KGE and New KC (and/or their appropriate
Subsidiaries) will have performed in all material respects their agreements
and covenants contained in or contemplated by this Agreement which are
required to be performed by them at or prior to the KGE Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Western Resources, KGE and New KC set forth in this Agreement shall be true
and correct (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time which need only be true and correct as of such date or time)
except in each of cases (i) and (ii) for such failures of representations
or warranties to be true and correct (without giving effect to any
materiality qualification or standard contained in any such representations
and warranties) which, individually or in the aggregate, would not result
in a Western Resources Material Adverse Effect.
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(c) CLOSING CERTIFICATES. KCPL shall have received a certificate signed
by the chief financial officer of Western Resources, dated the Closing
Date, to the effect that, to the best of such officer's knowledge, the
conditions set forth in Section 10.3(a) and Section 10.3(b) have been
satisfied.
(d) WESTERN RESOURCES MATERIAL ADVERSE EFFECT. No Western Resources
Material Adverse Effect shall have occurred.
(e) WESTERN RESOURCES REQUIRED CONSENTS. The Western Resources Required
Consents the failure of which to obtain would have a Western Resources
Material Adverse Effect shall have been obtained.
(f) STATUTORY APPROVALS. KCPL shall be reasonably satisfied that the
Final Orders, other than any Final Order issued by FERC, with respect to
the KCPL Required Statutory Approvals and the Western Resources Required
Statutory Approvals shall not impose terms or conditions which,
individually or in the aggregate, would have, or insofar as reasonably can
be foreseen, are likely to have a material adverse effect on the business,
assets, financial condition or results of operations of the Surviving
Corporation.
(g) FERC APPROVAL. KCPL shall be reasonably satisfied that any Final
Order issued by FERC with respect to the KCPL Required Statutory Approvals
and the Western Resources Required Statutory Approvals shall not impose
terms or conditions which, individually or in the aggregate, would have, or
insofar as reasonably can be foreseen, are likely to have a material
adverse effect on the business, assets, financial condition or results of
operations of the Surviving Corporation.
(h) TAX OPINION. KCPL shall have received an opinion from Skadden, Arps
Slate, Meagher & Flom, LLP, counsel to KCPL, in form and substance
reasonably satisfactory to KCPL, dated as of the Closing, substantially to
the effect that (i) the KCPL Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code, (ii) the KGE Merger will qualify
as a reorganization within the meaning of Section 368(a) of the Code, and
(iii) other than in respect of cash paid in lieu of fractional shares, no
gain or loss will be recognized by the shareholders of New KC or KCPL as a
result of either the KCPL Merger or the KGE Merger. In rendering such
opinion, Skadden, Arps Slate, Meagher & Flom, LLP may require and rely upon
representations contained in certificates of officers of KCPL, Western
Resources and others.
(i) ASSET AND STOCK CONTRIBUTION; KGE MERGER. The Asset Contribution and
the Stock Contribution shall have been consummated in accordance with the
terms of this Agreement and all conditions to Western Resources' and New
KC's obligations to effect the KGE Merger shall have been satisfied or
waived.
ARTICLE XI
Termination, Amendment and Waiver
Section 11.1 Termination. For purposes of this Article XI, only Western
Resources and KCPL shall have the right to terminate this Agreement.
References to a party under this Article XI shall mean Western Resources, KGE
and New KC, on the one hand, or KCPL, on the other hand. This Agreement may be
terminated at any time prior to the Closing Date, whether before or after
approval by the shareholders of the respective parties hereto contemplated by
this Agreement:
(a) by mutual written consent of the Boards of Directors of KCPL and
Western Resources;
(b)(i) by either party if there has been any breach of any
representations, warranties, covenants or agreements on the part of the
other set forth in this Agreement, which breaches individually or in the
aggregate would result in a Western Resources Material Adverse Effect or a
KCPL Material Adverse Effect, as the case may be, and, which breaches have
not been cured within 20 business days following receipt by the breaching
party of notice of such breach or adequate assurance of such cure shall not
have been given by or on behalf of the breaching party within such 20
business-day period, (ii) by either party, if the KCPL Board of Directors
or any committee thereof (A) shall withdraw or modify in any adverse manner
its approval or recommendation of this Agreement or the transactions
contemplated hereby, (B) shall fail to reaffirm such approval or
recommendation upon Western Resources' request, (C) shall approve or
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recommend any acquisition of KCPL or a material portion of its assets or
any tender offer for shares of capital stock of KCPL, in each case, other
than by Western Resources or an Affiliate thereof or (D) shall resolve to
take any of the actions specified in clause (A), (B) or (C), or (iii) by
either party, if any state or federal law, order, rule or regulation is
adopted or issued, which has the effect, as supported by the written
opinion of outside counsel for such party, of prohibiting the transactions
contemplated hereby, or by any party hereto if any court of competent
jurisdiction in the United States or any state shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, and such order, judgment
or decree shall have become final and nonappealable;
(c) by either party hereto, by written notice to the other party, if the
KCPL Effective Time shall not have occurred on or before December 31, 1999
(the "Termination Date"); provided, however, that the right to terminate
the Agreement under this Section 11.1(c) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the KCPL Effective Time to
occur on or before this date;
(d) by either party hereto, by written notice to the other party, if (i)
the Western Resources Shareholders' Approval shall not have been obtained
at a duly held Western Resources Meeting, including any adjournments
thereof, or the KCPL Shareholders' Approval shall not have been obtained at
a duly held KCPL Meeting, including any adjournments thereof or (ii) the
Western Resources Shareholders' Approval and the KCPL Shareholders'
Approval shall not have been obtained on or before August 31, 1998;
(e) by KCPL, prior to the approval of this Agreement by the shareholders
of KCPL, upon five days' prior notice to Western Resources, if, as a result
of an Acquisition Proposal by a party other than Western Resources or any
of its Affiliates, the Board of Directors of KCPL determines in good faith,
after considering applicable provisions of state law, on the basis of oral
or written advice of outside counsel that acceptance of the Acquisition
Proposal is necessary for the KCPL Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law; provided,
however, that (i) the Board of Directors of KCPL shall have concluded in
good faith, after considering applicable provisions of state law and after
giving effect to all concessions which may be offered by Western Resources
pursuant to clause (ii) below, on the basis of oral or written advice of
outside counsel that such action is necessary for the Board of Directors to
act in a manner consistent with its fiduciary duties under applicable law
and (ii) prior to any such termination, KCPL shall, and shall cause its
respective financial and legal advisors to, negotiate with Western
Resources to make such adjustments in the terms and conditions of this
Agreement as would enable KCPL to proceed with the transactions
contemplated herein; or
(f) by either party hereto, by the delivery of written notice to the
other party not later than 5:00 p.m., New York City time, on the fifth NYSE
trading day prior to the scheduled KGE Effective Time (the parties agreeing
that each party shall have at least ten NYSE trading days' notice of the
KGE Effective Time), if the Western Resources Index Price is less than or
equal to $29.78.
Section 11.2 Effect of Termination. In the event of termination of this
Agreement by either KCPL or Western Resources pursuant to Section 11.1 there
shall be no liability on the part of any party hereto or their respective
officers or directors hereunder, except that Section 9.14 and Section 11.3,
the agreement contained in the last sentence of Section 9.1, Section 12.2 and
Section 12.8 shall survive the termination.
Section 11.3 Termination Fee; Expenses.
(a) KCPL TERMINATION FEE. If (i) this Agreement (A) is terminated by Western
Resources pursuant to Section 11.1(b)(i), (B) is terminated by KCPL pursuant
to Section 11.1(e), (C) is terminated as a result of KCPL's breach of Section
9.4, or (D) is terminated because the shareholders of KCPL do not approve the
transactions contemplated hereby, (ii) at the time of such termination or
prior to the meeting of KCPL's shareholders there shall have been made an
Acquisition Proposal involving KCPL or any of its Affiliates (whether or not
such Acquisition Proposal shall have been rejected or shall have been
withdrawn prior to the time of such termination or of such meeting) and (iii)
within two and one-half years of the termination of this Agreement KCPL or any
of its Affiliates becomes a Subsidiary of the party which has made such
Acquisition
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Proposal or a Subsidiary of an Affiliate of such party or accepts a written
offer to consummate or consummates an Acquisition Proposal with such party or
an Affiliate thereof, then KCPL (jointly and severally with its Affiliates),
upon the signing of a definitive agreement relating to such Acquisition
Proposal, or, if no such agreement is signed, then at the closing (and as a
condition to the closing) of KCPL becoming such a Subsidiary or of such
Acquisition Proposal, KCPL shall pay to Western Resources a termination fee
equal to $50 million in cash. If on or before the Termination Date all of the
conditions to Closing set forth in Sections 10.1, 10.2 and 10.3 hereof other
than the condition set forth in Section 10.3(h) hereof shall have been
fulfilled, and KCPL shall decline to waive such condition, then immediately
following the Termination Date KCPL shall reimburse Western Resources for any
and all expenses of Western Resources with respect to this Agreement and the
transactions contemplated hereby, up to a maximum reimbursement of Western
Resources by KCPL of $5 million.
(b) WESTERN RESOURCES FEES. If on or before the Termination Date all of the
conditions to the Closing set forth in Sections 10.1, 10.2 and 10.3 hereof
other than any condition set forth in Sections 10.2(g), 10.2(h), 10.2(i) or
10.2(j) hereof shall have been fulfilled, and Western Resources shall decline
to waive such condition, then immediately following the Termination Date
Western Resources shall reimburse KCPL for any and all expenses of KCPL with
respect to this Agreement and the transactions contemplated hereby, up to a
maximum reimbursement of KCPL by Western Resources of $5 million in the case
of the conditions set forth in Section 10.2 (h) or 10.2 (j), $25 million in
the case of the conditions set forth in Section 10.2 (i), and $35 million in
the case of Section 10.2 (g); provided, however, that Western Resources shall
be required to reimburse KCPL's expenses in respect of the failure of only one
of the foregoing closing conditions to be satisfied.
(c) EXPENSES. The parties agree that the agreements contained in this
Section 11.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. Notwithstanding
anything to the contrary contained in this Section 11.3, if one party fails to
promptly pay to the other any fee due under Sections 11.3(a) or (b), in
addition to any amounts paid or payable pursuant to such sections, the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank,
N.A. from the date such fee was required to be paid.
Section 11.4 Amendment. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof
by the shareholders of KCPL and Western Resources and prior to the KGE
Effective Time, but after such approvals, no such amendment shall (a) alter or
change the amount or kind of shares, rights or any of the proceedings of the
treatment of shares under Article I, Article II, Article III and Article IV or
(b) alter or change any of the terms and conditions of this Agreement if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect the rights of holders of KCPL Common Stock or Western
Resources Common Stock, except for alterations or changes that could otherwise
be adopted by the Board of Directors of the Surviving Corporation, without the
further approval of such shareholders, as applicable. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.5 Waiver. At any time prior to the KGE Effective Time, a party
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions of the other party contained herein, to the extent
permitted by applicable law. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
Section 11.6 Standstill Agreements.
(a) UPON TERMINATION. If this Agreement is terminated pursuant to Section
11.1(a), 11.1(b), 11.1(c) or 11.1(d) hereof, other than for a termination (i)
by Western Resources pursuant to Section 11.1(b)(i), (ii) by either
A-40
party pursuant to Section11.1(b)(ii), (iii) by either party pursuant to
Section 11.1(d) as a result of the failure to obtain the KCPL Shareholder's
Approval, and (iv) by either party pursuant to Section 11.1(c) if one or more
of the conditions set forth in Section 10.2(a), 10.2(b), 10.2(c), 10.2(d),
10.2(e) and 10.2(f) shall not have been fulfilled or waived by Western
Resources, for a period of three years from and after the date of such
termination Western Resources shall not, and shall not permit any of its
Subsidiaries to, unless permitted in writing by KCPL (a) in any manner
acquire, agree to acquire or make any proposal to acquire, directly or
indirectly, any securities or property of KCPL or any of its Subsidiaries, (b)
seek or propose to enter into directly or indirectly, any merger, business
combination, tender offer, exchange offer, sale or purchase of assets or
securities, dissolution, liquidation, recapitalization, restructuring or
similar transaction of or involving KCPL or any of its Subsidiaries or to
purchase, directly or indirectly, a material portion of the assets of KCPL or
any of its Subsidiaries, (c) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" (as such terms are used in the
proxy rules of the SEC) or consents to vote, or seek to advise or influence
any person with respect to the voting of, any voting securities of KCPL or any
of its Subsidiaries, (d) form, join or in any way participate in a "group"
(within the meaning of Section13(d)(3) of the Exchange Act) with respect to
any voting security of KCPL or any of its Subsidiaries, (e) otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of KCPL, (f) have any discussions
or enter into any arrangements, understandings or agreements (whether written
or oral) with, or advise, finance, assist or encourage, any other persons in
connection with any of the foregoing, or make any investment in any other
person that engages, or offers or proposes to engage, in any of the foregoing
(it being understood that, without limiting the generality of the foregoing,
Western Resources shall not be permitted to act as a joint bidder or co-bidder
with any other person with respect to KCPL or any of its Subsidiaries), or (g)
make any publicly disclosed proposal regarding any of the foregoing. The
provisions of this Section 11.6 shall cease to apply in the event that a third
party, not acting in concert or affiliated with Western Resources, (i) makes a
proposal to acquire or merge with KCPL or to acquire all or substantially all
of the assets of KCPL or a KCPL Subsidiary or (ii) acquires 10% or more of the
KCPL Common Stock.
(b) NEW KC. (i) For the purposes of this Section 11.6(b), each of the
following terms shall have the following meaning:
"Western Resources Group" shall mean Western Resources, its Subsidiaries
and Affiliates, and any person acting on behalf of Western Resources or any
of such Subsidiaries or Affiliates.
"Voting Securities" shall mean the shares of New KC Common Stock and any
other issued and outstanding securities of New KC generally entitled to
vote for the election of directors of New KC and other matters for which
the holders of New KC Common Stock are entitled to vote.
"Independent Director" shall mean any New KC director that is not an
employee or director of Western Resources or an employee of New KC. Western
Resources agrees that for so long as Western Resources shall own, directly
or indirectly, more than 50 percent of the issued and outstanding Voting
Securities of New KC, and in any case for not more than ten years from the
Closing Date, Western Resources shall vote all shares of Voting Securities
beneficially owned by Western Resources to elect, and New KC shall use its
best efforts to cause to be elected, at least three Independent Directors
to the board of directors of New KC.
(ii) Except as set forth in clauses (iii) and (iv) below, during the period
beginning on, and ending on the tenth anniversary of, the Closing Date (unless
earlier terminated pursuant to the provisions of this Agreement), Western
Resources shall not, and shall cause the other members of the Western
Resources Group not to, directly or indirectly, (A) in any manner acquire,
agree to acquire, make any proposal to acquire or announce or disclose any
intention to make a proposal to acquire, directly or indirectly, any Voting
Securities, except pursuant to the KGE Merger in accordance with the terms and
conditions of this Agreement or (B) propose to enter into, or announce or
disclose any intention to propose to enter into, directly or indirectly, any
merger or business combination involving New KC or to purchase, directly or
indirectly, all or substantially all of the assets of New KC.
A-41
(iii) Notwithstanding the provisions of clause (ii) above, following the
Closing Date Western Resources may in any manner acquire Voting Securities
representing in the aggregate up to but not exceeding the greater of 85% of
the Voting Securities on a fully diluted basis or 88.5% of the Voting
Securities on a primary basis.
(iv) Notwithstanding the provisions of clause (ii) above, following the
Closing Date, Western Resources may make a tender offer or exchange offer for
all outstanding shares of New KC Common Stock or Voting Securities or take any
of the actions described in clause (ii)(B) above; provided that any such
action satisfies the following additional requirements (x) if a tender offer,
the offer must be a "tender offer" for purposes of, and must be made in
compliance with, Rules 14d-1 and 13e-3 under the Exchange Act (or any
successor provisions thereto), and (y) any such action must be at a price and
on terms that are fair to the stockholders of New KC (as determined by a
majority of the Independent Directors after the receipt of a fairness opinion
with respect to any such proposed transaction from a nationally recognized
investment banking firm selected by a majority of the Independent Directors
and reasonably acceptable to Western Resources), and must be approved by a
majority of the Independent Directors.
ARTICLE XII
General Provisions
Section 12.1 Non-Survival; Effect of Representations and Warranties. No
representations or warranties in this Agreement shall survive the KGE
Effective Time, except as otherwise provided in this Agreement.
Section 12.2 Brokers. KCPL represents and warrants that, except for Merrill
Lynch whose fees have been disclosed to Western Resources prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the KGE Merger, the
KCPL Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of KCPL. Western Resources, New KC and KGE
represent and warrant that, except for Salomon, whose fees have been disclosed
to KCPL prior to the date hereof, and except for certain soliciting dealer
arrangements the material terms and conditions of which have been publicly
disclosed by Western Resources, New KC or KGE prior to the date hereof, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the KGE Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Western Resources, New KC or KGE.
Section 12.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given (a) when delivered personally, (b)
when sent by reputable overnight courier service, or (c) when telecopied
(which is confirmed by copy sent within one business day by a reputable
overnight courier service) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(i) If to KCPL, to:
Kansas City Power & Light Company
1201 Walnut
Kansas City, Missouri 64106
Attn: Chief Executive Officer
Telecopy: (816) 556-2418
Telephone: (816) 556-2200
with a copy to:
Skadden, Arps, Slate, Meagher & Flom, LLP
919 Third Avenue
New York, New York 10022
Attn: Nancy A. Lieberman, Esq.
Telecopy: (212) 735-2000
Telephone: (212) 735-3000
A-42
(ii) If to Western Resources, New KC or KGE, to:
Western Resources, Inc.
818 Kansas Ave.
Topeka, Kansas 66612
Attn: Chief Executive Officer
with a copy to:
John K. Rosenberg
Executive Vice President and General Counsel
818 Kansas Ave.
Topeka, Kansas 66612
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attn: Francis J. Aquila, Esq.
Telecopy: (212) 558-3588
Telephone: (212) 558-4000
Section 12.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof other than the Confidentiality Agreement, (b) shall not be assigned by
either party and (c) shall be governed by and construed in accordance with the
laws of the State of Kansas applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of law
rules or principles and except to the extent the provisions of this Agreement
(including the documents or instruments referred to herein) are expressly
governed by or derive their authority from the KGCC.
Section 12.5 Interpretation. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." When a reference is made in this Agreement to the "knowledge" of
Western Resources, such reference shall also refer to the knowledge of New KC
and KGE.
Section 12.6 Counterparts; Effect. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 12.7 Parties' Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 9.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 12.8 Waiver of Jury Trial and Certain Damages. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (a) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (b) without
limitation to Section 11.3, any right it may have to receive damages from any
other party based on any theory of liability for any special, indirect,
consequential (including lost profits) or punitive damages.
A-43
Section 12.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Kansas or in Kansas state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the State of
Kansas or any Kansas state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal or state
court sitting in the State of Kansas.
Section 12.10 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or
entity or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so
far as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
Section 12.11 Anti-dilution. The Western Resources Index Price and the
Conversion Ratio and any Western Resources share price referred to in this
Agreement shall be appropriately adjusted in the case of any stock dividend,
reclassification, recapitalization, split-up, combination or subdivision with
respect to the common stock of Western Resources.
A-44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
KANSAS CITY POWER & LIGHT COMPANY
/s/ Jeanie Sell Latz /s/ A. Drue Jennings
Attest: _____________________________ By:__________________________________
Secretary A. Drue Jennings
Chairman of the Board, President
and Chief Executive Officer
/s/ Richard D. Terrill WESTERN RESOURCES, INC.
Attest:______________________________
Secretary /s/ John E. Hayes, Jr.
By:__________________________________
John E. Hayes, Jr.
/s/ Richard D. Terrill Chairman of the Board and
Attest:______________________________ Chief Executive Officer
Secretary
KANSAS GAS AND ELECTRIC COMPANY
/s/ William B. Moore
/s/ Richard D. Terrill By:__________________________________
Attest:______________________________ William B. Moore
Secretary Chairman of the Board and
President
NKC, INC.
/s/ John K. Rosenberg
By:__________________________________
John K. Rosenberg
President
A-45
ANNEX B
[LETTERHEAD OF SALOMON SMITH BARNEY]
June 9, 1998
Board of Directors
Western Resources, Inc.
818 Kansas Avenue
Topeka, KS 66612
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Western Resources, Inc. ("Parent"), of the Aggregate Consideration
(as defined below). Pursuant to the Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement") by and among Parent, Kansas Gas & Electric
Company, a wholly owned subsidiary of Parent ("KGE"), NKC, Inc., a wholly
owned subsidiary of Parent ("New KC") and Kansas City Power & Light Company
("KCPL"): (a) Parent will contribute to KGE certain assets, and KGE will
assume certain liabilities and indebtedness, relating to Parent's rate-
regulated electric division (the "Asset Contribution"); (b) Parent will
contribute to KGE that number of shares of common stock, par value $5.00 per
share ("Parent Common Stock"), of Parent (the "Parent Stock Contribution")
equal to the product of (i) the number of shares of common stock, without par
value ("KCPL Common Stock"), of KCPL issued and outstanding immediately prior
to the Parent Stock Contribution times (ii) the Conversion Ratio (as defined
below); (c) KCPL will merge (the "KCPL Merger") with and into New KC; and (d)
KGE will merge (the "KGE Merger"; together with the KCPL Merger, the
"Mergers") with and into New KC. The "Conversion Ratio" will be the quotient
(rounded to the nearest 1/100,000) determined by dividing $23.50 by the
average of the high and low sales prices of Parent Common Stock on each of the
20 consecutive trading days ending the tenth trading day immediately preceding
the effectiveness of the KGE Merger (the "Western Resources Index Price");
provided, however, that if the Western Resources Index Price (i) is greater
than $58.46, the Conversion Ratio shall be fixed at 0.449, but in no event
shall the implied value of the Parent Common Stock exceed $30.00, (ii) is
greater than $55.03 but less than or equal to $58.46, the Conversion Ratio
shall be adjusted so that the implied value of the Parent Common Stock equals
$26.25, (iii) is greater than $52.41 but less than or equal to $55.03, the
Conversion Ratio shall be fixed at 0.477, (iv) is greater than $50.00 but less
than or equal to $52.41, the Conversion Ratio shall be adjusted so that the
implied value of the Parent Common Stock equals $25.00, (v) is greater than
$47.00 but less than or equal to $50.00, the Conversion Ratio shall be fixed
at 0.500, (vi) is greater than $35.01 but less than or equal to $38.27, the
Conversion Ratio shall be fixed at 0.614, (vii) is greater than $29.78 but
less than or equal to $35.01, the Conversion Ratio shall be adjusted so that
the implied value of the Parent Common Stock equals $21.50 or (viii) is less
than or equal to $29.78, the Conversion Price shall be fixed at 0.722.
Upon the effectiveness of the KCPL Merger, each share of KCPL Common Stock
issued and outstanding immediately prior to the effectiveness of the KCPL
Merger (other than shares owned by New KCPL or KCPL either directly or through
a wholly owned subsidiary) will be converted into and represent the right to
receive one share of Series A Common Stock, without par value ("New KC Series
A Common Stock"), of New KC (the "KCPL Merger Consideration"). Upon the
effectiveness of the KGE Merger, all the shares of common stock, without par
value, of KGE issued and outstanding immediately prior to the effectiveness of
the KGE
B-1
Merger will be converted into such number of shares of Series B Common Stock,
without par value ("New KC Series B Common Stock"), of New KC as represents,
assuming there are no Dissenting Shares (as defined in the Merger Agreement),
80.1% of the fully diluted outstanding shares of New KC. Following the
effectiveness of the Mergers, (i) New KC will distribute pro rata to the
holders of the New KC Series A Common Stock the shares of Parent Common Stock
contributed to KGE pursuant to the Parent Stock Contribution (the "Parent
Stock Distribution"; together with the KCPL Merger Consideration, the
"Aggregate Consideration"), (ii) New KC shall distribute to Parent (as holder
of all the outstanding New KC Series B Common Stock) all the outstanding
shares of capital stock of KLT Inc. and (iii) the New KC Series B Common Stock
will be automatically converted into New KC Series A Common Stock
(collectively, the "Post-Merger Transactions"). The Asset Contribution, the
Parent Stock Contribution, the Mergers and the Post-Merger Transactions
collectively are referred to herein as the "Transactions".
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Parent and KCPL and certain other financial
information concerning Parent and KCPL, including financial forecasts, that
were provided to us by Parent and KCPL, respectively. We have discussed the
past and current business operations, financial condition and prospects of
Parent and KCPL with certain officers and employees of Parent and KCPL. We
have also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have assumed
the consummation of, and taken into account, the Post-Merger Transactions. We
have also assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information.
With respect to the financial forecasts of Parent and KCPL, we have been
advised by the respective managements of Parent or KCPL that such forecasts
have been reasonably prepared on bases reflecting their best currently
available estimates and judgments, and we express no opinion with respect to
such forecasts or the assumptions on which they are based. We have not assumed
any responsibility for any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of Parent or KCPL.
We have assumed that no gain or loss for federal income tax purposes will be
recognized by (i) Parent, (ii) KGE, (iii) KCPL, (iv) New KC or (v) the
shareholders of KGE or Parent as a result of the Transactions and that each
Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply
any conclusion as to the likely trading range for Parent Common Stock or New
KC Series A Common Stock following the consummation of the Transactions, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities. Our opinion does not
address Parent's underlying business decision to effect the Transactions. Our
opinion is directed only to the fairness to Parent, from a financial point of
view, of the Aggregate Consideration, and does not constitute a recommendation
concerning how holders of Parent capital stock should vote with respect to any
matter related to the Transactions.
Salomon Brothers Inc and Smith Barney Inc. (collectively doing business as
"Salomon Smith Barney") have acted as financial advisor to the Board of
Directors of Parent in connection with the Transactions and will receive a fee
for our services, a significant portion of which is contingent upon
consummation of the Transactions. In the ordinary course of business, we may
actively trade the securities of Parent and KCPL for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, we have previously rendered
certain investment banking and financial advisory services to Parent for which
we have received customary compensation.
It is understood that this letter is for the information of the Board of
Directors of Parent only and is not to be reproduced, disseminated, quoted or
referred to at any time, in any manner or used for any other purpose, nor
shall public references be made to Salomon Smith Barney, without the prior
written consent of Salomon Smith Barney.
B-2
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Aggregate Consideration is fair to Parent from a financial
point of view.
Very truly yours,
/s/ Salomon Smith Barney
B-3
ANNEX C
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED]
June 9, 1998
The Board of Directors
Kansas City Power & Light Company
1201 Walnut
Kansas City, Missouri 64106
Members of the Board of Directors:
We understand that Kansas City Power & Light Company (the "Company") and
Western Resources, Inc. ("Western") have entered into an Amended and Restated
Agreement and Plan of Merger, dated as of March 18, 1998, by and among the
Company, Western, Kansas Gas and Electric Company, a wholly owned subsidiary
of Western ("KGE"), and NKC, Inc. ("New KC") (as so amended and restated, the
"Restated Agreement"). Pursuant to the Restated Agreement, the Company will be
merged with and into New KC in a transaction (the "Company Merger") in which
each outstanding share of the Company's Common Stock, without par value (the
"Company Shares"), other than any Company shares beneficially owned by the
Company or New KC either directly or through a wholly owned subsidiary, all of
which shall be canceled and retired, and other than Dissenting Shares (as
defined in the Restated Agreement), shall be converted into one share of
Series A Common Stock, without par value, of New KC (the "New KC Series A
Common Stock"), and KGE will be merged with and into New KC in a transaction
(the "KGE Merger"), in which each outstanding share of KGE's Common Stock,
without par value (the "KGE Common Stock"), shall be converted into and become
such number of shares of Series B Common Stock, without par value, of New KC
(the "New KC Series B Common Stock"), representing, assuming there are no
Dissenting Shares, 80.1% of the fully diluted outstanding shares of New KC.
Prior to the effective time of the Company Merger and as a condition to the
KGE Merger, it is contemplated that Western will contribute to KGE all of the
KPL Assets (as defined in the Restated Agreement) and KGE shall assume all of
the Assumed Liabilities (as defined in the Restated Agreement) of KPL, which
will include a certain amount of debt of Western so that the aggregate total
indebtedness for borrowed money (including preferred stock) of KGE will not
exceed $1.9 billion (the "Asset Contribution"). It is also contemplated that
prior to the effective time of the KGE Merger, Western will contribute to KGE
that number of shares of common stock, par value $5.00 per share, of Western
(the "Western Common Stock"), equal to the product of (x) the number of
Company Shares, other than Company Shares beneficially owned by the Company or
Western and other than Dissenting Shares, outstanding immediately prior to the
effective time of the KGE Merger times (y) the Conversion Ratio, where the
term "Conversion Ratio" means the quotient determined by dividing $23.50 by
the aggregate of the average of the high and low sales prices of the Western
Common Stock on each of the twenty consecutive trading days ending the tenth
trading day immediately preceding the effective time of the KGE Merger,
divided by 20 (the "Western Index Price"). The Restated Agreement also
provides that if the Western Index Price (i) is greater than $58.46, the
Conversion Ratio shall be fixed at 0.449, provided that if 0.449 multiplied by
the Western Index Price exceeds $30.00, the Conversion Ratio shall mean the
quotient obtained by dividing $30.00 by the Western Index Price, (ii) is
greater than $55.03 but less than or equal to $58.46, the Conversion Ratio
shall mean the quotient obtained by dividing $26.25 by the Western Index
Price, (iii) is greater than $52.41 but less than or equal to $55.03, the
Conversion Ratio shall be fixed at 0.477, (iv) is greater than $50.00 but less
than or equal to $52.41, the Conversion Ratio shall mean the quotient
determined by dividing $25.00 by the Western Index Price, (v) is greater than
$47.00 but less than or equal to $50.00, the Conversion Ratio shall be fixed
at 0.500, (vi) is greater than $35.01 but less than or equal to $38.27, the
Conversion Ratio shall be fixed at 0.614, (vii) is greater that $29.78 but
less than or equal to $35.01, the Conversion Ratio shall mean the quotient
obtained by dividing $21.50 by the Western Index Price or (viii) is less than
or equal to $29.78, the Conversion Ratio shall be fixed at 0.722. Such
contribution of the Western Common Stock is hereinafter referred to as the
"Stock Contribution".
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The Restated Agreement further provides that, immediately after the
effective time of the KGE Merger, New KC shall, in connection with the KGE
Merger, distribute to the holders of the New KC Series A Common Stock the
Western Common Stock contributed to KGE pursuant to the Stock Contribution
(the "Distribution"), whereby each holder of a share of New KC Series A Common
Stock shall be entitled to receive that number of shares of Western Common
Stock equal to the product of (x) the number of shares of Western Common Stock
contributed to New KC in the Stock Contribution times (y) a quotient, the
numerator of which is one and the denominator of which is the total number of
shares of New KC Series A Common Stock outstanding immediately after the
effective time of the Company Merger. In addition to the Distribution, the
Restated Agreement also provides that immediately after the effective time of
the KGE Merger, New KC shall transfer to Western all of the outstanding shares
of capital stock of KLT, Inc., a wholly owned subsidiary of New KC that holds
all indebtedness for borrowed money (including preferred stock) of New KC in
excess of an aggregate principal amount of $800 million other than the
indebtedness assumed by New KC pursuant to the KGE Merger.
For purposes of our opinion, the Company Merger, the KGE Merger, the
Distribution and the transactions contemplated by the Restated Agreement are
collectively referred to herein as the "Transactions", and the aggregate
amount of the New KC Series A Common Stock to be received by the holders of
the Company Shares (other than Western and its affiliates) in the Company
Merger and the aggregate amount of the Western Common Stock to be received by
the holders of the New KC Series A Common Stock in the Distribution are
collectively referred to herein as the "Consideration".
You have asked us whether, in our opinion, the proposed Consideration to be
received by the holders of the Company Shares (other than Western and its
affiliates) in the Company Merger and the Distribution, taken as a whole, is
fair to such holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and Western that we deemed to be
relevant;
(2) Reviewed certain publicly available business and financial
information relating to ONEOK Inc. ("ONEOK"), Protection One, Inc.
("Protection One") and Hanover Compressor Co.;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company, Western and New KC (including, in the case of Western, certain
unaudited pro forma financial information provided by Western relating to
the acquisition of its interests in ONEOK and Protection One, certain
information and financial forecasts prepared by management of Western
relating to ONEOK, and certain financial information relating to KGE and
the KPL Business (as defined in the Restated Agreement)), as well as the
cost savings and synergies expected to result from the Company Merger and
the KGE Merger (collectively, the "Mergers") furnished to us by the Company
and Western (collectively, the "Expected Savings and Synergies");
(4) Reviewed a reserve report as of October 31, 1997 (the "Reserve
Report"), prepared by the Company and the Company's independent reserve
engineer (the "Reserve Engineer");
(5) Conducted discussions with members of senior management and
representatives of the Company, Western and Protection One concerning the
matters described in clauses (1) through (4) above, as well as their
respective businesses and prospects before and after giving effect to the
Mergers and the Expected Savings and Synergies;
C-2
(6) Reviewed the historical market prices, trading activity and valuation
multiples for the Company Shares and the shares of Western Common Stock and
compared them with that of certain publicly traded companies that we deemed
to be relevant;
(7) Reviewed the results of operations of the Company and Western and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(8) Compared the proposed financial terms of the Transactions with the
financial terms of certain others transactions that we deemed to be
relevant;
(9) Participated in certain discussions and negotiations among
representatives of the Company and Western and their financial and legal
advisors;
(10) Reviewed the potential pro forma impact of the Mergers on Western
and New KC;
(11) Reviewed the Restated Agreement; and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, regulatory, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or Western, or been furnished with any such
evaluation or appraisal other than the Reserve Report. In addition, we have
not assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company or Western. With
respect to the financial forecast information and the Expected Savings and
Synergies furnished to or discussed with us by the Company or Western, we have
assumed that they have been reasonably prepared in accordance with accepted
industry practices and reflect the best currently available estimates and
judgment of the Company's or Western's management as to the expected future
financial performance of Western or New KC, as the case may be, and the
Expected Savings and Synergies, and as to the expected future projected
outcomes of various legal, regulatory and other contingencies. Additionally,
we have assumed that the Reserve Report has been reasonably prepared and
reflects the best currently available estimates and judgments of the Company
and the Reserve Engineer as to the Company's reserves, the future natural gas
production volume and associated costs. We have further assumed that, for U.S.
federal income tax purposes, the Company Merger will qualify as a tax-free
reorganization under the provisions of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the KGE Merger will
qualify as a tax-free reorganization under the provisions of Sections
368(a)(1)(A) and (a)(2)(E) of the Code.
Our opinion is necessarily based upon market, regulatory, economic and other
conditions as they exist and can be evaluated on, and the information made
available to us, as of the date hereof. We have assumed that in the course of
obtaining the necessary regulatory or other consents and approvals
(contractual or otherwise) for the Transactions, no restrictions, including
any divestiture requirements or amendments or modifications, will be imposed
that will have a material adverse effect on the contemplated benefits of the
Transactions or the Expected Savings and Synergies.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors of the Company to solicit,
nor have we solicited, third-party indications of interest for the acquisition
of all or any part of the Company.
We are acting as financial advisor to the Company in connection with the
Transactions and will receive a fee from the Company for our services, a
significant portion of which is payable upon execution of the Restated
Agreement and a significant portion of which is contingent upon the approval
thereof by the shareholders of the Company. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement.
We have, in the past, provided financial advisory and financing services to
the Company and certain
C-3
of its affiliates and have received fees for the rendering of such services.
In addition, in the ordinary course of our business, we may actively trade the
Company Shares and other securities of the Company, as well as shares of
Western Common Stock and other securities of Western and its affiliates, for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the underlying decision by the Company
to engage in the Transactions and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed
Transactions. Further, in rendering our opinion, we did not address the
relative merits of the Transactions and the transactions contemplated by the
Agreement and Plan of Merger, dated as of February 7, 1997, by and between the
Company and Western.
We are not expressing any opinion herein as to what the value of the shares
of Western Common Stock or Company Shares will be following the announcement
of the Transactions or the value of the shares of Western Common Stock or the
shares of New KC Series A Common Stock following the consummation of the
Transactions.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the holders of the
Company Shares (other than Western and its affiliates) in the Company Merger
and the Distribution, taken as a whole, is fair from a financial point of view
to such holders.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner &
Smith Incorporated
C-4
ANNEX D
THE MISSOURI GENERAL AND BUSINESS CORPORATION LAW
351.455. SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN.--
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall
not vote in favor thereof, and such shareholder, within twenty days after the
merger or consolidation is effected, shall make written demand on the
surviving or new corporation for payment of the fair value of his shares as of
the day prior to the date on which the vote was taken approving the merger or
consolidation, the surviving or new corporation shall pay to such shareholder,
upon surrender of his certificate or certificates representing said shares,
the fair value thereof. Such demand shall state the number and class of the
shares owned by such dissenting shareholder. Any shareholder failing to make
demand within the twenty day period shall be conclusively presumed to have
consented to the merger or consolidation and shall be bound by the terms
thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in
the corporation.
3. If within such period of thirty days the shareholder and the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in
any court of competent jurisdiction within the county in which the registered
office of the surviving or new corporation is situated, asking for a finding
and determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of
such judgment. The judgment shall be payable only upon and simultaneously with
the surrender to the surviving or new corporations of the certificate or
certificates representing said shares. Upon the payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares, or in
the surviving or new corporation. Such shares may be held and disposed of by
the surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the merger or consolidation, and shall be bound
by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall
abandon the merger or consolidation.
D-1
ANNEX E
FORM OF
CERTIFICATE OF AMENDMENT TO RESTATED ARTICLES
OF INCORPORATION, AS AMENDED, OF
WESTERN RESOURCES, INC.
We, , President and , Secretary of the above named
corporation, a corporation organized and existing under the laws of the State
of Kansas, do hereby certify that at a meeting of the Board of Directors of
said corporation, the board adopted a resolution setting forth the following
amendment to the Restated Articles of Incorporation and declaring their
advisability:
The first paragraph of Article IV shall be amended in its entirety to read
as follows:
ARTICLE IV
The amount of capital stock of this Corporation shall be 310,600,000 shares
of which 300,000,000 shares is Common Stock of the par value of Five Dollars
($5.00) each, 4,000,000 shares is Preference Stock without par value, 600,000
shares is preferred stock of the par value of One Hundred Dollars ($100) each
and 6,000,000 shares is preferred stock without par value, all such preferred
stock being termed "Preferred Stock."
The remainder of such Article IV shall not be amended hereby.
We further certify that thereafter, pursuant to said resolution, and in
accordance with the bylaws of the corporation and the laws of the State of
Kansas, the Board of Directors held a meeting of shareholders for
consideration of the proposed amendments, and thereafter, pursuant to notice
in accordance with the statutes of the State of Kansas, the shareholders
convened and considered the proposed amendment.
We further certify that at the meeting a majority of the shares of common
stock entitled to vote, voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with
the provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
E-1
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
said corporation this day of , 1998.
_____________________________________
_________________________
President
_____________________________________
_________________________
Secretary
State of Kansas
County of Shawnee H ss.:
Be it remembered that before me, a Notary Public in and for the aforesaid
county and state, personally appeared , President , and , Secretary
of the corporation named in this document, who are known to me to be the same
persons who executed the foregoing certificate and duly acknowledge that
execution of the same this day of , 1998.
Notary Public
E-2
ANNEX F
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
NKC, INC.
FIRST. The name of the Corporation is:
NKC, INC.
SECOND. The address of its registered office in the State of Kansas is 7500
West 110th Street, Overland Park, County of Johnson, Kansas 66210-2329. The
name of its resident agent at such address is SMF Registered Services, Inc.
THIRD. The Corporation is organized for profit and for the purpose of
engaging in any lawful act or activity for which corporations may be organized
under the Kansas General Corporation Code.
FOURTH.
(a) The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 850,000,000, of which 500,000,000 shares
without par value shall be designated as Series A Common Stock, 300,000,000
shares without par value shall be designated as Series B Common Stock, and
50,000,000 shares without par value shall be designated as Preferred Stock.
(b) The Series B Common Stock shall be convertible into Series A Common
Stock if so provided in any merger agreement entered into by the Corporation
and approved by the Board of Directors and stockholders of the Corporation.
Except as provided in Article Seventh, each holder of Common Stock of the
Corporation shall, at every stockholders' meeting, be entitled to cast one
vote for each share of Common Stock of whatever class held by such
stockholder, and shall be entitled to cast such vote for any and all purposes.
(c) Shares of Preferred Stock may be issued in one or more series from time
to time by the Board of Directors, and the Board of Directors is expressly
authorized to fix by resolution or resolutions voting powers, full or limited,
or no voting powers, and the designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, of the shares of each series of
Preferred Stock, including without limitation the following:
(1) the distinctive serial designation of such series which shall
distinguish it from other series;
(2) the number of shares included in each series;
(3) the dividend rate (or method of determining such rate) payable to the
holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates upon which such dividends
shall be payable;
(4) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
(5) the amount or amounts which shall be payable out of the assets of the
Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of the shares of such
series;
(6) the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares may be redeemed, in whole or
in part, at the option of the Corporation or at the option of the holder or
holders thereof or upon the happening of a specified event or events;
(7) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which, the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
F-1
(8) whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation, and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto; and
(9) whether or not the holders of the shares of such series shall have
voting rights, in addition to the voting rights provided by law, and if so
the terms of such voting rights.
(d) The Kansas Control Share Acquisition Act (K.S.A. 17-1286 et seq.), as
amended, shall not apply to "control share acquisitions" (as defined therein)
of shares of this Corporation.
(e) The Kansas Business Combinations With Interested Shareholders Act
(K.S.A. 17-12,100 et seq.), as amended, shall not apply to any "business
combination" (as defined therein) of the Corporation with any "interested
stockholder" (as defined therein) of the Corporation.
FIFTH. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal bylaws of the Corporation, subject to the rights of the
stockholders to adopt, amend or repeal the bylaws.
SIXTH. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation.
SEVENTH. The number of directors of the Corporation from time to time shall
be fixed by, or in the manner described in, the bylaws of the Corporation.
At all elections of directors, each holder of Common Stock of the
Corporation shall be entitled to as many votes as shall equal the number of
votes which, except as provided by this paragraph, such holder would be
entitled to cast for the election of directors with respect to such holder's
shares of stock multiplied by the number of directors to be elected by each
holder, and that such holder may cast such votes for a single director or may
distribute them among the number to be voted for, or for any two or more of
them as such holder may see fit.
EIGHTH. Any action required or permitted to be taken by stockholders of the
Corporation, including but not limited to the election of directors, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by holders of
all of the outstanding stock of the Corporation entitled to vote on such
action (or, to the extent authorized by law, by the holders of a majority of
the outstanding stock of the Corporation entitled to vote on such action).
NINTH. Special meetings of the stockholders of the Corporation may be called
only by the Chairman of the Board, if any, the President, the Board of
Directors of the Corporation, any single stockholder holding in excess of
fifty percent of the outstanding voting securities of the Corporation, or such
other person or persons as may be authorized by the bylaws.
TENTH. A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the Kansas General Corporation Code
currently in effect or as the same may hereafter be amended. No amendment,
modification or repeal of this Article TENTH shall adversely affect any right
or protection of a director that exists at the time of such amendment,
modification or repeal.
ELEVENTH. Except as may be otherwise provided by statute, the Corporation
shall be entitled to treat the registered holder of any shares of the
Corporation as the owner of such shares and of all rights derived from such
shares for all purposes, and the Corporation shall not be obligated to
recognize any equitable or other claim to or interest in such shares or rights
on the part of any other person, including, but without limiting the
generality of the term "person" to, a purchaser, pledgee, assignee or
transferee of such shares or rights, unless and until such person becomes the
registered holder of such shares. The foregoing shall apply whether or not the
Corporation shall have either actual or constructive notice of the claim by or
the interest in such person.
F-2
TWELFTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them or between this Corporation
and its stockholders or any class of them, any court of competent jurisdiction
within the State of Kansas, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of K.S.A. 17-6901 and amendments thereto, or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation
under the provisions of K.S.A. 17-6808 and amendments thereto, may order a
meeting of the creditors or class of creditors, or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned
in such manner as such court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement and the
reorganization, if sanctioned by the court to which the application has been
made, shall be binding on all the creditors or class of creditors, or on all
the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
THIRTEENTH. The books of the Corporation may be kept (subject to any
provision contained in the statutes of the State of Kansas) outside the State
of Kansas at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
FOURTEENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
FIFTEENTH. The Corporation may agree to the terms and conditions upon which
any director, officer, employee or agent accepts his office or position and in
its bylaws, by contract or in any other manner may agree to indemnify and
protect any director, officer, employee or agent of the Corporation, or any
person who serves at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, to the fullest extent permitted by
the laws of the State of Kansas.
F-3
ANNEX G
BYLAWS
OF
NKC, INC.
(adopted on March 30, 1998)
ARTICLE I. OFFICES
The principal office of the Corporation in the State of Kansas shall be
located in the City of Topeka, County of Shawnee. The Corporation may have
such other offices either within or without the State of Kansas as the Board
of Directors may designate or as the business of the Corporation may require
from time to time.
ARTICLE II. STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the Stockholders shall be
held on the fourth Tuesday in the month of May in each year, beginning with
the year 1998, at the hour of 11 o'clock, a.m., or such other date and time as
the Board of Directors may from time to time designate, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Kansas, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the Stockholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the Stockholders as soon thereafter as
conveniently may be.
SECTION 2. Special Meetings. Special meetings of Stockholders may be called
at any time by the Chairman of the Board, if any, the President, the Board of
Directors of the Corporation, any single stockholder holding in excess of
fifty percent of the outstanding voting securities of the Corporation or by
such other person or persons as may be authorized by these bylaws.
SECTION 3. Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Kansas, unless otherwise prescribed by
statute, as the place of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of notice signed by all
Stockholders entitled to vote at a meeting may designate any place, either
within or without the State of Kansas, unless otherwise prescribed by statute,
as the place for the holding of such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation in the State of Kansas.
SECTION 4. Notice of Meeting. Except as provided in the Articles of
Incorporation, written notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall, unless otherwise prescribed by statute, be delivered
not less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons calling the meeting, to each
Stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the Stockholder at his address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid.
SECTION 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining Stockholders entitled to notice of or to vote at any
meeting of Stockholders or any adjournment thereof, or Stockholders entitled
to receive payment of any dividend, or in order to make a determination of
Stockholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining Stockholders
entitled to notice of or to vote at a meeting of Stockholders,
G-1
such books shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of Stockholders, such date in any case to be not more than sixty
(60) days and, in case of a meeting of Stockholders, not less than ten (10)
days prior to the date on which the particular action, requiring such
determination of Stockholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of Stockholders
entitled to receive payment of a dividend, the date next preceding the date on
which notice of the meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of Stockholders. When a
determination of Stockholders entitled to vote at any meeting of Stockholders
has been made as provided in this section, such determination shall apply to
any adjournment thereof, unless the Board of Directors provides a new record
date.
SECTION 6. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of Stockholders. If less than a majority of the outstanding
shares are represented at a meeting, a majority of the shares so represented
may adjourn the meeting from time to time without further notice. If the
adjournment is for more than 30 days, or if after adjournment a new record
date is fixed for the subsequent session of the adjourned meeting, a notice of
the subsequent session of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The Stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Stockholders to leave less than a quorum.
SECTION 7. Proxies. At all meetings of Stockholders, a Stockholder may vote
in person or by proxy executed in writing by the Stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after twelve (12) months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 8. Voting of Shares. Except as provided elsewhere in these bylaws or
in the Articles of Incorporation, each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a
meeting of Stockholders.
SECTION 9. Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such
provisions, as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A Stockholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 10. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided by law, any action required to be taken at a meeting of the
Stockholders, or any other action which may be taken at a meeting of
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