<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1997
REGISTRATION NO. -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
WAI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 4923
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
--------------
100 WEST FIFTH STREET
TULSA, OKLAHOMA 74103
(918) 588-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
EUGENE N. DUBAY JOHN K. ROSENBERG JOHN K. ROSENBERG
VICE PRESIDENT OF PRESIDENT EXECUTIVE VICE
CORPORATE DEVELOPMENT WAI, INC. PRESIDENT AND
ONEOK INC. C/O WESTERN RESOURCES, GENERAL COUNSEL
100 WEST FIFTH STREET INC. WESTERN RESOURCES, INC.
TULSA, OKLAHOMA 74103 818 KANSAS AVENUE 818 KANSAS AVENUE
(918) 588-7000 TOPEKA, KANSAS 66612 TOPEKA, KANSAS 66612
(913) 575-6300 (913) 575-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
Copies to:
DONALD A. KIHLE PAUL M. REINSTEIN FRANCIS J. AQUILA
GABLE GOTWALS MOCK FRIED, FRANK, HARRIS, SULLIVAN & CROMWELL
SCHWABE KIHLE GABERINO SHRIVER & JACOBSON 125 BROAD STREET
100 WEST FIFTH STREET, ONE NEW YORK PLAZA NEW YORK, NEW YORK
SUITE 1000 NEW YORK, NEW YORK 10004 10004
TULSA, OKLAHOMA 74103 (212) 859-8000 (212) 558-4000
(918) 585-8141
--------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the transactions (the "Transactions") among Western Resources,
Inc., ONEOK Inc. ("ONEOK") and WAI, Inc. pursuant to the Agreement, dated as of
December 12, 1996, as amended and restated as of May 19, 1997 (the
"Agreement"), described in the enclosed Proxy Statement/Prospectus have been
satisfied or waived.
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. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1)(2) PER SHARE(2) PRICE(2) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 27,481,337 $27.56 $757,385,648 $229,511.13
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Based upon the number of issued and outstanding shares of common stock of
ONEOK Inc. on Friday, March 14, 1997.
(2) The proposed maximum offering price per share and proposed maximum
aggregate offering price reflect the market price of the common stock of
ONEOK to be converted into common stock of the registrant in connection
with the Transactions computed in accordance with Rule 457(f) and Rule
457(c) under the Securities Act of 1933, as amended, based upon the average
of the high and low sale prices of the common stock of ONEOK as reported by
the New York Stock Exchange, Inc. on March 14, 1997. The proposed maximum
offering price per share and proposed maximum aggregate offering price are
estimated solely to determine the registration fee.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[ONEOK LOGO]
, 1997
Dear Shareholders of ONEOK Inc.:
On behalf of the Board of Directors, I am pleased to enclose the Proxy
Statement/Prospectus for the proposed combination of the local natural gas
distribution business of Western Resources, Inc. ("WRI") and the natural gas
transportation and marketing businesses conducted by Mid Continent Market
Center, Inc. and Westar Gas Marketing, Inc., direct or indirect wholly-owned
subsidiaries of WRI (collectively, with WRI's local natural gas distribution
business, the "Gas Business") with the business of ONEOK Inc. ("ONEOK"). The
proposed combination will be effected in two steps, namely (i) the
contribution (the "Asset Transaction") by WRI of the Gas Business to WAI, Inc.
("WAI"), a corporation newly formed by WRI under the laws of the State of
Oklahoma, followed by (ii) the merger of ONEOK into WAI (the "Merger" and,
together with the Asset Transaction, the "Transactions") (WAI being referred
to herein, after the Merger, as "New ONEOK"). Upon the consummation of the
Transactions, ONEOK shareholders will receive one share of common stock of New
ONEOK, par value $0.01 per share ("New ONEOK Common Stock"), for each share of
common stock of ONEOK, without par value ("ONEOK Common Stock"), that they own
and WRI will receive 2,996,702 shares of New ONEOK Common Stock and 19,317,584
shares of Series A Convertible Preferred Stock of New ONEOK, par value $0.01
per share ("Series A Convertible Preferred Stock"). On a fully diluted basis
and based on the number of shares of ONEOK Common Stock outstanding as of
December 12, 1996, (a) the holders of ONEOK Common Stock will hold shares of
New ONEOK Common Stock representing in the aggregate at least 90.1% of the New
ONEOK Common Stock to be outstanding or, assuming conversion of all Series A
Convertible Preferred Stock to be held by WRI, not less than 55.0% of the New
ONEOK Common Stock to be outstanding and (b) WRI will hold shares of New ONEOK
Common Stock and Series A Convertible Preferred Stock together representing in
the aggregate up to 9.9% of the New ONEOK Common Stock to be outstanding prior
to conversion of the Series A Convertible Preferred Stock and up to 45.0% of
the New ONEOK Common Stock outstanding thereafter, of which up to 35.1%
represents New ONEOK Common Stock issuable assuming the conversion of the
Series A Convertible Preferred Stock. As part of the Transactions, New ONEOK
will also assume $35 million (subject to adjustment) of debt of WRI.
The consummation of the Transactions, which have been approved by the Boards
of Directors of ONEOK, WRI and WAI, requires the approval of the ONEOK common
shareholders but does not require the approval of the WRI shareholders, and
will be considered by the ONEOK common shareholders at the special meeting of
shareholders to be held on , 1997. The Transactions are viewed by
management of ONEOK as an attractive opportunity to enhance both immediate and
long-term shareholder value. The Transactions constitute a significant step
forward in the evolution and growth of ONEOK by enabling ONEOK to become
stronger, healthier and more competitive as the energy industry undergoes a
period of deregulation and consolidation. Your affirmative vote in support of
the Transactions on the enclosed Proxy Card is respectfully requested.
The consummation of the Transactions furthers ONEOK's goal of pursuing
strategic alliances and acquisition opportunities in local natural gas
distribution and other energy-related businesses. The combination will
increase ONEOK's customer base from approximately 730,000 to almost 1.4
million customers, making the combined business the eighth largest natural gas
distribution company in the United States. As a result of the Transactions,
ONEOK will expand its system distribution and customer base into Kansas and
additional markets in Oklahoma. ONEOK expects to achieve significant synergies
in the combined contiguous service areas through enhanced operating
efficiencies. The combination will lower the debt-to-equity ratio of the
combined business and strengthen its balance sheet, thereby enabling the
combined business to have greater financial flexibility to pursue
opportunities through internal growth and other transactions. Although the
equity WRI will receive in the Transactions will make WRI the most significant
holder of equity in the combined enterprise, the terms of the Transactions
maintain control of the ongoing entity and its business strategy in the hands
of the public ONEOK shareholders, subject to certain provisions, including
minority Board representation, which permit WRI to protect its equity
investment. WRI's equity holdings in the surviving entity make WRI a joint
participant in the success
<PAGE>
of the combined business and are expected to lead to significant cross-
marketing opportunities for both companies. The ongoing alliance between WRI
and ONEOK contemplated by the Transactions provides the combined business with
an enhanced opportunity to deliver a variety of products, in addition to
natural gas, to ONEOK's natural gas customers in the future. Shareholders
should also review carefully the factors discussed under "Risk Factors" in the
attached Proxy Statement/Prospectus, in evaluating the proposed Transactions.
In connection with the Transactions, the Series A Convertible Preferred
Stock to be issued to WRI is convertible, at the option of the holder, in
whole or in part, at any time following the occurrence of a Regulatory Change
(as defined in the attached Proxy Statement/Prospectus), into New ONEOK Common
Stock at the rate of one share of New ONEOK Common Stock for each share of
Series A Convertible Preferred Stock (as adjusted). The holders of Series A
Convertible Preferred Stock will be entitled, with respect to each dividend
period on the New ONEOK Common Stock, to receive a dividend payment thereon
that is equal, prior to the fifth anniversary of the Closing (as defined in
the attached Proxy Statement/Prospectus), to 1.5 times the dividend amount
declared in respect of each share of New ONEOK Common Stock (as adjusted) for
such dividend period and thereafter 1.25 times the dividend amount declared in
respect of each share of New ONEOK Common Stock (as adjusted) for such
dividend period, provided that the aggregate annual dividend amount payable in
respect of each share of Series A Convertible Preferred Stock is not less than
$1.80 per share (as adjusted). In addition, WRI will be entitled, upon
conversion of its shares of Series A Convertible Preferred Stock, to receive
from New ONEOK an amount equal to $35 million if such conversion were to occur
at the Closing, which amount reduces to zero over five years or less as
dividends are paid out on shares of Series A Convertible Preferred Stock.
It is the considered opinion of your directors and management that the
proposed Transactions are fair to, and in the best interests of, ONEOK and its
shareholders.
The terms of the Transactions are described in detail in the enclosed Proxy
Statement/Prospectus. This document also contains important information
relating to the Gas Business being contributed by WRI to the combined company,
including historical financial information, pro forma financial information
relating to the combined business and the full text of the opinion of
PaineWebber Incorporated, financial advisor to ONEOK, to the effect that the
proposed Transactions are fair to ONEOK's common shareholders from a financial
point of view.
The affirmative vote of the holders of a majority of the outstanding shares
of ONEOK common stock is required to approve the proposed Transactions. In
order to expedite action upon these matters, I respectfully urge all
shareholders to execute and return the enclosed Proxy Card as soon as
possible.
I appreciate the confidence ONEOK shareholders have accorded management in
the past, and I assure you that we will put forth every effort to merit your
continued support in the future.
PLEASE SIGN, DATE, AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED
ENVELOPE.
Sincerely,
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1997
, 1997
To the Shareholders of ONEOK Inc.:
A special meeting of shareholders (the "Special Meeting") of ONEOK Inc., a
Delaware corporation ("ONEOK"), will be held on , 1997, at 10:00 a.m.,
local time, at ONEOK's offices at ONEOK Plaza, 100 West Fifth Street, Tulsa,
Oklahoma. Attendance at the Special Meeting will be limited to shareholders of
record on , 1997, or their proxies, beneficial owners having evidence of
ownership on that date, and invited guests of ONEOK.
The purpose of the Special Meeting is to consider and vote upon the
following proposal:
1. The combination of the local natural gas distribution business of
Western Resources, Inc. ("WRI"), and WRI's direct or indirect wholly-
owned natural gas transportation and marketing subsidiaries, Mid
Continent Market Center, Inc. ("MCMC") and Westar Gas Marketing, Inc.
("Westar" and, together with MCMC, their respective subsidiaries and
WRI's local natural gas distribution business, the "Gas Business") with
the business of ONEOK in accordance with the terms of the Agreement,
dated as of December 12, 1996, as amended and restated as of May 19,
1997 (the "Agreement"), among WRI, ONEOK and WAI, Inc. ("WAI"), a newly
formed Oklahoma corporation and wholly-owned subsidiary of WRI, pursuant
to which: (A) immediately prior to the effective time of the Merger (as
defined below) (the "Merger Effective Time"), WRI will contribute, or
will cause to be contributed (the "Asset Transaction" and, together with
the Merger and the other transactions contemplated by the Agreement and
the other agreements ancillary thereto, the "Transactions"), to WAI all
of the assets of WRI that are primarily used in, or primarily related to
or primarily generated by, the field operations of the Gas Business, and
all of the outstanding capital stock of Westar and MCMC (the "Assets"),
whereupon WAI will assume (i) all of the liabilities of WRI that arise
primarily out of, or relate primarily to or are primarily generated by,
the Assets and (ii) approximately $35 million (subject to adjustment)
aggregate principal amount of debt of WRI, and (B)(i) ONEOK will merge
(the "Merger") with and into WAI, with WAI as the surviving corporation,
whereupon WAI's name will be changed to "ONEOK, Inc." (WAI being
referred to herein, after the Merger Effective Time, as "New ONEOK"),
(ii) the shares of common stock of ONEOK, without par value ("ONEOK
Common Stock"), outstanding as of the Merger Effective Time will be
converted on a one-for-one basis into shares of common stock of New
ONEOK, par value $0.01 per share ("New ONEOK Common Stock"), whereupon,
on a fully diluted basis after giving effect to the Transactions and
based on the number of shares of ONEOK Common Stock outstanding as of
December 12, 1996, (a) the holders of ONEOK Common Stock will hold
shares of New ONEOK Common Stock representing in the aggregate at least
90.1% of the New ONEOK Common Stock to be outstanding or, assuming
conversion of all Series A Convertible Preferred Stock, par value $0.01
per share ("Series A Convertible Preferred Stock"), of New ONEOK to be
held by WRI pursuant to the Agreement, not less than 55.0% of the New
ONEOK Common Stock to be outstanding, and (b) WRI will hold 2,996,702
shares of New ONEOK Common Stock and 19,317,584 shares of Series A
Convertible Preferred Stock, together representing in the aggregate up
to 9.9% of the New ONEOK Common Stock to be outstanding prior to
conversion of the Series A Convertible Preferred Stock and up to 45.0%
of the New ONEOK Common Stock outstanding thereafter, and (iii) WRI will
be entitled, upon conversion of its shares of Series A Convertible
Preferred Stock at any time following a Regulatory Change (as defined in
the attached Proxy Statement/Prospectus under "The Shareholder
Agreement"), to receive from New ONEOK an amount equal to $35 million if
the conversion were to occur at the Closing (as defined in the attached
Proxy Statement/Prospectus under "Summary--The Transactions--Closing
Date; Effective Time"), which amount reduces to zero over five years or
less as dividends are paid on WRI's shares of Series A Convertible
Preferred Stock. All shares of New ONEOK Common
<PAGE>
Stock will be issued together with the corresponding number of
associated rights to purchase one one-hundredths of a share of Series C
Participating Preferred Stock, par value $0.01 per share, of New ONEOK
pursuant to a Rights Agreement to be entered into at the Closing between
WAI and Liberty Bank and Trust Company of Oklahoma City, N.A., as rights
agent.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors of ONEOK has fixed the close of business on ,
1997, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting or any adjournment or
postponement thereof. Only holders of record of ONEOK Common Stock at the
close of business on the record date will be entitled to notice of, and to
vote on, matters at the Special Meeting and any adjournment thereof. Reference
is made to the attached Proxy Statement/Prospectus for a more complete
description of the Agreement and the Transactions. Under applicable Delaware
law and relevant organizational documents of ONEOK, holders of ONEOK Common
Stock will not be entitled to dissenters' appraisal rights with respect to the
approval of the Transactions. A list of ONEOK shareholders will be available
at the Special Meeting and, during the ten-day period prior to the Special
Meeting, at the offices of ONEOK Inc., 100 West Fifth Street, Tulsa, Oklahoma
74103-0871, during ordinary business hours.
By Order of the Board of Directors,
Secretary
Tulsa, Oklahoma
, 1997
To assure your representation at the Special Meeting, please sign and mail
the enclosed proxy, which is being solicited on behalf of the Board of
Directors of ONEOK Inc. A return envelope that requires no postage if mailed
in the United States is enclosed for your convenience in returning your proxy.
If you receive more than one form of proxy, it is an indication that your
shares are registered in more than one account. All proxy forms received by
you should be signed and returned promptly to ensure that all your shares are
voted.
If your shares are held in the name of a broker, trust, bank or other
nominee and you plan to attend the Special Meeting and vote your shares in
person, you should bring with you a proxy or letter from the broker, trustee,
bank or nominee confirming your beneficial ownership of the shares.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK OF ONEOK INC. IS REQUIRED TO APPROVE
THE TRANSACTIONS. YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
VOTE IN PERSON, IF YOU WISH, AND REVOKE ANY PREVIOUSLY SUBMITTED PROXY CARD.
2
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 20, 1997
PRELIMINARY COPY
These materials constitute preliminary proxy
materials filed with respect to the forthcoming
special meeting of the shareholders of ONEOK
Inc. Certain information, including information
relating to conditions to the Transactions
described herein, is presented as it is expected
to exist when definitive proxy materials are
mailed to shareholders, and will be revised to
reflect actual facts at that time.
ONEOK INC.
PROXY STATEMENT
----------
WAI, INC.
PROSPECTUS
----------
ONEOK INC. SPECIAL MEETING OF SHAREHOLDERS
, 1997
----------
This Proxy Statement/Prospectus is being furnished to holders of shares of
common stock, without par value ("ONEOK Common Stock"), of ONEOK Inc., a
Delaware corporation ("ONEOK"), in connection with the solicitation of proxies
by the Board of Directors of ONEOK, for use at a special meeting (the "Special
Meeting") of shareholders of ONEOK to be held on , 1997, at 10:00 a.m.,
local time, at ONEOK's offices at ONEOK Plaza, 100 West Fifth Street, Tulsa,
Oklahoma, and any adjournments or postponements thereof.
At the Special Meeting, the shareholders of ONEOK will be asked to consider
and vote upon transactions contemplated by an Agreement, dated as of December
12, 1996 (the "Original Execution Date"), as amended and restated as of May 19,
1997 (the "Amendment Date") (such Agreement, as amended and restated, the
"Agreement"), among Western Resources, Inc., a Kansas corporation ("WRI"),
ONEOK and WAI, Inc. ("WAI"), a newly formed Oklahoma corporation and wholly-
owned subsidiary of WRI, pursuant to which: (A) immediately prior to the
effective time of the Merger (as defined below) (the "Merger Effective Time"),
WRI will contribute, or will cause to be contributed (the "Asset Transaction"
and, together with the Merger and the
(continued on next page)
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of ONEOK on or about , 1997.
----------
This Proxy Statement/Prospectus also constitutes a prospectus of WAI with
respect to up to 27,933,705 shares of New ONEOK Common Stock to be issued to
ONEOK shareholders pursuant to the Agreement in exchange for currently
outstanding shares of ONEOK Common Stock and any additional shares of ONEOK
Common Stock that may become outstanding prior to the Merger. Any shares of New
ONEOK Common Stock that may be issued pursuant to the Agreement will be
authorized for listing, subject to official notice of issuance, on the New York
Stock Exchange (the "NYSE") prior to the Merger Effective Time.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY SHAREHOLDERS OF ONEOK WITH RESPECT TO THE
TRANSACTIONS.
----------
THE SECURITIES TO BE ISSUED IN THE TRANSACTIONS 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------
The date of this Proxy Statement/Prospectus is , 1997.
<PAGE>
other transactions contemplated by the Agreement and other agreements
ancillary thereto, the "Transactions"), to WAI all of the assets of WRI that
are primarily used in, or primarily related to or primarily generated by, the
field operations of the local natural gas distribution business of WRI, and
all of the outstanding capital stock of WRI's direct or indirect wholly-owned
subsidiaries, Westar Gas Marketing, Inc. ("Westar") and Mid Continent Market
Center, Inc. ("MCMC" and, together with Westar, their respective subsidiaries
and WRI's local natural gas distribution business, the "Gas Business") (the
"Assets"), whereupon WAI will assume (i) all of the liabilities of WRI that
arise primarily out of, or relate primarily to or are primarily generated by,
the Assets and (ii) approximately $35 million (subject to adjustment)
aggregate principal amount of debt of WRI, and (B)(i) ONEOK will merge (the
"Merger") with and into WAI, with WAI as the surviving corporation, and
whereupon WAI's name will be changed to "ONEOK, Inc." (WAI being referred to
herein, after the Merger Effective Time, as "New ONEOK") and (ii) the shares
of ONEOK Common Stock outstanding as of the Merger Effective Time will be
converted on a one-for-one basis into shares of common stock of New ONEOK, par
value $0.01 per share ("New ONEOK Common Stock"), whereupon, on a fully
diluted basis after giving effect to the Transactions and based on the number
of shares of ONEOK Common Stock outstanding as of December 12, 1996, (a) the
holders of ONEOK Common Stock will hold shares of New ONEOK Common Stock
representing in the aggregate at least 90.1% of the New ONEOK Common Stock to
be outstanding or, assuming conversion of all Series A Convertible Preferred
Stock, par value $0.01 per share ("Series A Convertible Preferred Stock"), of
New ONEOK to be held by WRI pursuant to the Agreement, not less than 55.0% of
the New ONEOK Common Stock to be outstanding, and (b) WRI will hold 2,996,702
shares of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock, together representing in the aggregate up to 9.9% of the New
ONEOK Common Stock to be outstanding prior to conversion of the Series A
Convertible Preferred Stock and up to 45.0% of the New ONEOK Common Stock
outstanding thereafter, of which up to 35.1% represents New ONEOK Common Stock
issuable assuming conversion of the Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock is convertible, at the option of
the holder, in whole or in part, at any time following the occurrence of a
Regulatory Change (as defined below under "Summary--The Transactions--Terms of
the Series A Convertible Preferred Stock"), into New ONEOK Common Stock at the
rate of one share of New ONEOK Common Stock for each share of Series A
Convertible Preferred Stock (as adjusted). In addition, any shares of the
Series A Convertible Preferred Stock transferred by WRI to any person other
than WRI or its affiliates is required to be converted into shares of New
ONEOK Common Stock. The holders of Series A Convertible Preferred Stock will
be entitled, with respect to each dividend period on the New ONEOK Common
Stock, to receive a dividend payment thereon that is equal, prior to the fifth
anniversary of the Closing (as defined below under "The Transactions--Closing
Date; Effective Time"), to 1.5 times the dividend amount declared in respect
of each share of New ONEOK Common Stock (as adjusted) for such dividend period
and thereafter 1.25 times the dividend amount declared in respect of each
share of New ONEOK Common Stock (as adjusted) for such dividend period,
provided that the aggregate annual dividend amount payable in respect of each
share of Series A Convertible Preferred Stock is not less than $1.80 per share
(as adjusted). WRI will be entitled, upon conversion of its shares of Series A
Convertible Preferred Stock to receive from New ONEOK an amount equal to $35
million if such conversion were to occur at the Closing, which amount reduces
to zero over five years or less as dividends are paid out on shares of Series
A Convertible Preferred Stock. All shares of New ONEOK Common Stock will be
issued together with the corresponding number of associated rights, each right
("Right") entitling the holder to purchase one one-hundredths of a share of
Series C Participating Preferred Stock, par value $0.01 per share ("Series C
Preferred Stock"), of New ONEOK pursuant to a Rights Agreement to be entered
at the Closing between New ONEOK and Liberty Bank and Trust Company of
Oklahoma City, N.A., as rights agent (the "Rights Agreement").
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
<PAGE>
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ONEOK, WRI
OR WAI. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF
ONEOK, WRI OR WAI SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION.................................................... 2
SUMMARY.................................................................. 3
The Companies.......................................................... 3
The Special Meeting.................................................... 4
Date, Time and Place.................................................. 4
Purpose of the Special Meeting........................................ 4
Record Dates; Shares Entitled to Vote................................. 4
Quorum; Vote Required................................................. 4
Security Ownership of Management...................................... 4
The Transactions....................................................... 5
The Transactions; Transaction Consideration........................... 5
Ownership of New ONEOK Following the Transactions..................... 5
Terms of the Series A Convertible Preferred Stock..................... 5
Terms of the Series B Convertible Preferred Stock..................... 7
Terms of the Series C Preferred Stock................................. 7
Board of Directors and Management of New ONEOK Following the
Transactions......................................................... 7
Conditions to the Transactions........................................ 8
Termination of the Agreement.......................................... 8
Termination Fees; Expenses; Covenants................................. 9
Closing Date; Effective Time.......................................... 9
The Shareholder Agreement............................................. 10
Other Agreements...................................................... 12
Recommendation of ONEOK's Board; Background and Reasons for the
Transactions......................................................... 13
Opinion of Financial Advisor.......................................... 13
Exchange of ONEOK Common Stock Certificates........................... 13
Regulatory Approvals.................................................. 13
Accounting Treatment.................................................. 14
Tax Consequences...................................................... 14
Appraisal Rights...................................................... 14
Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock.... 14
Risk Factors.......................................................... 15
Cautionary Statement Concerning Forward-Looking Statements............ 15
Pro Forma Combined Condensed Financial Information.................... 15
MARKET PRICE DATA OF ONEOK COMMON STOCK.................................. 16
COMPARATIVE PER SHARE DATA............................................... 17
SUMMARY SELECTED FINANCIAL DATA.......................................... 18
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF ONEOK...................... 18
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF THE GAS BUSINESS........... 19
ONEOK AND THE GAS BUSINESS SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION................................................... 20
RISK FACTORS............................................................. 21
Uncertainties Related to the Transactions.............................. 21
Uncertainty Regarding Trading Prices of New ONEOK Stock Following the
Transactions.......................................................... 21
Risks Relating to Dilution of Voting Rights............................ 21
Risks Relating to the Shareholder Agreement............................ 21
Uncertainty Regarding WRI's Regulatory Status.......................... 22
Transactions with Interested Parties................................... 22
Potential Environmental Risks.......................................... 22
Uncertainty Regarding Future Dividend Policies......................... 23
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Regulated Industry...................................................... 23
Post-Retirement Benefits................................................ 24
Certain Antitakeover Features........................................... 24
THE SPECIAL MEETING....................................................... 25
Special Meeting......................................................... 25
Voting Securities and Record Date....................................... 25
Purpose of Special Meeting.............................................. 25
Proxies................................................................. 25
THE TRANSACTIONS.......................................................... 27
The Companies........................................................... 27
The Transactions........................................................ 28
Background and Reasons for the Transactions............................. 29
Recommendation of the ONEOK Board....................................... 34
Opinion of Financial Advisor............................................ 34
Interests of Certain Persons in the Transactions........................ 38
New ONEOK Board and Management Following the Transactions............... 38
Effects of the Transactions on ONEOK's Existing Shareholders............ 39
Plans for the Operation of the Gas Business Following the Transactions.. 39
Governmental and Regulatory Approvals................................... 39
Accounting Treatment of the Transactions................................ 41
Income Tax Consequences of the Transactions............................. 41
Absence of Appraisal Rights............................................. 41
Name Change............................................................. 42
Stock Exchange Listing; Delisting and Deregistration of ONEOK Common
Stock.................................................................. 42
Treatment of Stock Certificates......................................... 42
Closing Date; Effective Time............................................ 42
THE AGREEMENT............................................................. 43
The Transactions........................................................ 43
Assets Contributed...................................................... 44
Excluded Assets......................................................... 45
Assumed Liabilities..................................................... 45
Excluded Liabilities.................................................... 45
Closing................................................................. 45
Representations and Warranties.......................................... 45
Certain Covenants of WRI and WAI........................................ 47
Certain Covenants of ONEOK.............................................. 48
Certain Covenants of WRI and ONEOK...................................... 49
Certain Covenants in Respect of WAI..................................... 49
Tax Matters............................................................. 50
Conditions to Closing................................................... 50
Indemnification......................................................... 51
Termination............................................................. 52
Expenses................................................................ 53
THE SHAREHOLDER AGREEMENT................................................. 54
General................................................................. 54
Restriction of Certain Actions by WRI................................... 55
Make Whole Payment...................................................... 56
Prohibition on Senior Securities........................................ 57
Board Representation.................................................... 57
Top-Up Rights........................................................... 58
Voting.................................................................. 59
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Restrictions on Transfer and Conversion................................ 59
Agreement Not To Convert............................................... 60
Restrictions on Repurchase by New ONEOK................................ 60
Buy/Sell Option in Favor of Either Party............................... 60
Term................................................................... 61
Regulatory Matters; Other.............................................. 62
OTHER AGREEMENTS......................................................... 63
Marketing Agreement.................................................... 63
Shared Services Agreement.............................................. 63
Employee Agreement..................................................... 63
Environmental Indemnity Agreement...................................... 66
Registration Rights Agreement.......................................... 66
Rights Agreement....................................................... 67
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS.............. 69
DESCRIPTION OF CAPITAL STOCK............................................. 70
Authorized Capital Stock............................................... 70
Common Stock........................................................... 70
Preferred Stock........................................................ 71
Preemptive Rights...................................................... 71
Transfer Agent and Registrar........................................... 71
DESCRIPTION OF THE PREFERRED STOCK....................................... 72
Convertible Preferred Stock............................................ 72
Series C Preferred Stock............................................... 74
COMPARATIVE RIGHTS OF HOLDERS OF ONEOK AND NEW ONEOK CAPITAL STOCK....... 75
General................................................................ 75
Classified Board of Directors.......................................... 76
Removal of Directors................................................... 76
Business Combinations.................................................. 76
Control Share Acquisitions............................................. 76
Rights Agreement....................................................... 77
MARKET PRICES............................................................ 78
SELECTED FINANCIAL DATA.................................................. 79
SELECTED HISTORICAL FINANCIAL DATA OF ONEOK.............................. 79
SELECTED HISTORICAL FINANCIAL DATA OF THE GAS BUSINESS................... 80
THE GAS BUSINESS......................................................... 81
General................................................................ 81
Principal Products Produced and Services Rendered...................... 83
Source and Availability of Raw Material................................ 83
Seasonal Variations of Business........................................ 85
Dependence Upon a Limited Number of Customers.......................... 85
Competitive Conditions................................................. 86
Material Effects of Environmental Control Compliance................... 87
Number of Persons Employed............................................. 87
Description of Property................................................ 87
Other Information...................................................... 88
Wells and Developed Acreage............................................ 89
Legal Proceedings...................................................... 89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE WRI GAS BUSINESS................................... 90
Results of Consolidated Operations..................................... 90
</TABLE>
iii
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<TABLE>
<CAPTION>
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<S> <C>
Operating Revenues....................................................... 90
The Regulated Entities.................................................. 91
The Non-Regulated Entities.............................................. 91
Operating Expenses....................................................... 91
The Regulated Entities.................................................. 92
The Non-Regulated Entities.............................................. 92
Liquidity and Capital Resources.......................................... 92
Other Information........................................................ 93
Inflation............................................................... 93
Regulatory.............................................................. 93
Impairments............................................................. 93
Postretirement Benefits................................................. 94
Customer Bankruptcy..................................................... 94
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 95
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME................ 96
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET....................... 98
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.......................... 99
EXPERTS.................................................................... 101
LEGAL MATTERS.............................................................. 102
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 103
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
APPENDICES:
A--Amended and Restated Agreement
B--Form of Shareholder Agreement
C--Certificate of the Designations, Powers, Preferences and Relative,
Participating, Optional or Other Rights, and the Qualifications, Limitations
or Restrictions thereof, of Convertible Preferred Stock
D--Form of Rights Agreement
E--Certificate of Incorporation of WAI, Inc.
F--Form of Fairness Opinion of PaineWebber Incorporated
iv
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Acquiring Person........................................................ 67
Acquisition Proposal.................................................... 8
Adjusted Maximum Ownership Percentage................................... 58
Agreement............................................................... Cover-1
Amendment Date.......................................................... Cover-1
Amoco................................................................... 84
Antitrust Division...................................................... 13
Applicable Shares....................................................... 75
Assets.................................................................. Cover-2
Asset Transaction....................................................... Cover-1
Assumed Debt............................................................ 28
Base Contract........................................................... 84
Bishop entities......................................................... 89
Board................................................................... 7
Board of Directors...................................................... 7
Buy/Sell Notice......................................................... 61
Buy/Sell Price.......................................................... 61
Buyout Tender Offer..................................................... 61
Capital Expenditure Amount.............................................. 43
CFFO.................................................................... 36
Change in Control....................................................... 54
Clearly Credible Tender Offer........................................... 60
Closing................................................................. 9
Closing Date............................................................ 9
Code.................................................................... 8
COGR.................................................................... 89
COLI.................................................................... 94
Commission.............................................................. 2
Comparable Companies.................................................... 36
Comparable Transactions................................................. 36
Continuing Employees.................................................... 63
control share acquisition............................................... 14
Control Share Acquisition Statute....................................... 9
Convertible Preferred Stock............................................. 7
Decision Period......................................................... 61
Demand Registration..................................................... 66
DGCL.................................................................... 4
Dilutive Issuance....................................................... 58
Dilutive Issuance Right................................................. 58
Distribution Date....................................................... 68
Dividend Premium........................................................ 54
EBIT.................................................................... 37
EBITDA.................................................................. 37
EITF 92-12.............................................................. 94
Employee Agreement...................................................... 12
Environmental Indemnity Agreement....................................... 12
EPS..................................................................... 37
Exchange Act............................................................ 2
Exchange Agent.......................................................... 42
FERC.................................................................... 41
</TABLE>
v
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<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Fiscal 1997 Interim Period.............................................. 91
Fiscal 1996 Interim Period.............................................. 91
FTC..................................................................... 13
Gas Business............................................................ Cover-2
HSR Act................................................................. 13
Independent Directors................................................... 15
Indian Basin............................................................ 82
Initial Shareholder Nominees............................................ 38
Initial Termination Date................................................ 52
Interested Person....................................................... 76
K System................................................................ 83
KCC..................................................................... 9
KCC Order............................................................... 8
KDHE.................................................................... 23
KGE..................................................................... 3
KPL..................................................................... 3
KPP..................................................................... 83
Latest Balance Sheets................................................... 37
LDC..................................................................... 81
Losses.................................................................. 51
LTM..................................................................... 36
Make Whole Payment...................................................... 56
Marketing Agreement..................................................... 12
Material Adverse Change................................................. 51
Material Adverse Effect................................................. 51
Maximum Ownership Percentage............................................ 10
MCMC.................................................................... Cover-2
Merger.................................................................. Cover-2
Merger Effective Time................................................... Cover-1
Minneola................................................................ 82
Net Amount.............................................................. 43
New ONEOK............................................................... Cover-2
New ONEOK By-laws....................................................... 7
New ONEOK Certificate................................................... 9
New ONEOK Common Stock.................................................. Cover-2
New ONEOK DB Plan....................................................... 64
New ONEOK DC Plan....................................................... 64
New ONEOK Properties.................................................... 66
1935 Act................................................................ 6
1995 Fiscal Year........................................................ 90
1994 Fiscal Year........................................................ 91
1996 Fiscal Year........................................................ 90
1997 Balance Sheets..................................................... 37
Non-Regulated Entities.................................................. 90
NYSE.................................................................... Cover-1
OCC..................................................................... 9
OCC Order............................................................... 8
OGCA.................................................................... 3
ONEOK................................................................... Cover-1
ONEOK By-laws........................................................... 14
ONEOK Certificate....................................................... 14
</TABLE>
vi
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<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
ONEOK Common Stock...................................................... Cover-1
ONEOK 1996 Form 10-K.................................................... 103
ONEOK Preferred Stock................................................... 5
ONEOK Rights Agreement.................................................. 5
ONEOK Shareholder Approval.............................................. 8
Operational Efficiencies................................................ 36
opportunity gas......................................................... 90
Opt-out Amendment....................................................... 9
Orders.................................................................. 8
Original Execution Date................................................. Cover-1
PaineWebber............................................................. 13
PaineWebber Opinion..................................................... 13
Panhandle............................................................... 84
Permitted Offer......................................................... 68
PGA..................................................................... 90
Piggy-Back Registration................................................. 67
Post-Retirement Plans................................................... 65
Pro Forma Events........................................................ 95
Quarterly Reports....................................................... 103
Rate Order.............................................................. 95
Record Date............................................................. 4
Registration Rights Agreement........................................... 11
Registration Statement.................................................. 2
Regulated Entities...................................................... 90
Regulatory Change....................................................... 6
Reimbursed Expenses..................................................... 9
Related Person.......................................................... 15
Repurchase.............................................................. 60
Retained Manufactured Gas Plant Sites................................... 45
Retired Employees....................................................... 64
Right................................................................... Cover-2
Rights Agreement........................................................ Cover-2
Securities.............................................................. 10
Securities Act.......................................................... 2
Series A Convertible Preferred Stock.................................... Cover-2
Series B Convertible Preferred Stock.................................... 7
Series C Preferred Stock................................................ Cover-2
SFAS 71................................................................. 90
SFAS 121................................................................ 93
Shared Properties....................................................... 66
Shared Services Agreement............................................... 12
Shareholder Agreement................................................... 10
Shareholder Group....................................................... 10
Shareholder Nominees.................................................... 57
Shares.................................................................. 66
Southern Union.......................................................... 30
Special Meeting......................................................... Cover-1
Successor Shareholder Nominees.......................................... 57
Tariff.................................................................. 41
T System................................................................ 83
Tax Opinion............................................................. 69
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Third Party Claim....................................................... 51
Thrift Plan............................................................. 25
13D Group............................................................... 55
Total Ownership Percentage.............................................. 11
Total Per Share Pay Down Amount......................................... 56
Transaction Value....................................................... 36
Transactions............................................................ Cover-2
Transferred Subsidiaries................................................ 45
Votes................................................................... 54
Voting Ownership Percentage............................................. 11
Voting Power............................................................ 54
Voting Securities....................................................... 11
WAI..................................................................... Cover-1
Welfare Plans........................................................... 64
Westar.................................................................. Cover-2
Westar Gas Company...................................................... 81
WNG..................................................................... 83
WRI..................................................................... Cover-1
WRI DB Plan............................................................. 64
WRI DC Plan............................................................. 64
WRI Properties.......................................................... 66
</TABLE>
viii
<PAGE>
AVAILABLE INFORMATION
ONEOK is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by ONEOK can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission'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 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. ONEOK's filings with the Commission are also available to the public
from commercial document retrieval services and at the Website maintained by
the Commission at "http://www.sec.gov." The ONEOK Common Stock is listed on
the NYSE and such reports, proxy statements and other information concerning
ONEOK may be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
WAI has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to New ONEOK Common Stock which may be issued
to holders of ONEOK Common Stock, of which Registration Statement this Proxy
Statement/Prospectus constitutes a part. The information contained herein with
respect to ONEOK and its affiliates has been provided by ONEOK and the
information contained herein with respect to WRI, the Gas Business and WAI has
been provided by WRI. The unaudited pro forma combined condensed financial
statements have been prepared by ONEOK's management using historical financial
information relating to the Gas Business provided by WRI. See "Unaudited Pro
Forma Combined Condensed Financial Statements." This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by
such reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH
RESPECT TO ONEOK THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
DOCUMENTS RELATING TO ONEOK (EXCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
UPON REQUEST FROM WELDON WATSON, MANAGER OF INVESTOR RELATIONS, ONEOK INC.,
100 WEST FIFTH STREET, P.O. BOX 871, TULSA, OKLAHOMA 74103-0871, TELEPHONE
(918) 588-7000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY , 1997. SEE "INCORPORATION OF DOCUMENTS BY
REFERENCE."
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained elsewhere in this
Proxy Statement/Prospectus and in the appendices hereto. Unless otherwise
defined, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Proxy Statement/Prospectus. Shareholders of
ONEOK Inc. are urged to read carefully this Proxy Statement/Prospectus and the
appendices hereto, and the documents incorporated by reference herein, in their
entirety.
THE COMPANIES
ONEOK INC. ONEOK Inc. and its subsidiaries (collectively, "ONEOK") engage in
several aspects of the energy business. ONEOK purchases, gathers, compresses,
transports, and stores natural gas for distribution to consumers. It transports
gas for others, leases pipeline capacity to others for their use in
transporting gas, and leases a small intrastate transmission system in Texas to
others. ONEOK explores for and produces oil and gas, extracts and sells natural
gas liquids, and is engaged in the gas marketing business. In addition, it
leases and operates a headquarters office building (leasing excess space to
others) and owns and operates a related parking facility. As a regulated
natural gas utility, ONEOK distributes natural gas to approximately 730,000
customers in a geographic service area comprising approximately three-fourths
of the State of Oklahoma, thereby meeting the natural gas needs of over two
million people. ONEOK is a Delaware corporation with its principal executive
offices located at 100 West Fifth Street, Tulsa, Oklahoma 74103-0871, and its
telephone number is (918) 588-7000. See "The Transactions--The Companies."
WESTERN RESOURCES, INC. Western Resources, Inc. ("WRI") is engaged
principally in the production, purchase, transmission, distribution and sale of
electricity, the delivery and sale of natural gas and the provision of
electronic monitored security services. WRI serves approximately 601,000
electric customers in eastern and central Kansas, approximately 648,000 natural
gas customers in Kansas and northeastern Oklahoma and approximately 400,000
security customers in 44 states. WRI's non-utility subsidiaries provide
security services, market natural gas primarily to small and medium-sized
commercial and industrial customers, engage in international power project
development and provide other energy-related products and services.
WRI and its divisions and direct or indirect wholly-owned subsidiaries
include KPL, a rate-regulated electric and gas division of WRI ("KPL"), Kansas
Gas and Electric Company ("KGE"), a rate-regulated utility and wholly-owned
subsidiary of WRI, Westar, Westar Capital, Inc., Westar Security, Inc., Westar
Energy, Inc. and The Wing Group, Ltd., non-utility subsidiaries of WRI, and
MCMC, a regulated gas transmission service provider. KGE owns 47% of Wolf Creek
Nuclear Operating Corporation, the operating company for the Wolf Creek
Generating Station.
The Assets to be contributed to WAI pursuant to the Agreement consist of
(i) certain assets and liabilities of the field operations of the local natural
gas distribution business of WRI in the States of Kansas and Oklahoma and (ii)
all of the outstanding capital stock and liabilities of MCMC and Westar, direct
or indirect wholly-owned subsidiaries of WRI. MCMC offers natural gas
transportation, wheeling, parking, balancing and storage services to customers
throughout the central and midwestern regions of North America. Westar provides
natural gas marketing and sales, purchasing and supply and other marketing
related services. See "The Gas Business."
WRI is a Kansas corporation with its principal executive offices located at
818 Kansas Avenue, Topeka, Kansas 66612 and its telephone number is (913) 575-
6300. See "The Transactions--The Companies."
WAI, INC. WAI, Inc. ("WAI") is a wholly-owned subsidiary of WRI, newly formed
by WRI under the Oklahoma General Corporation Act (the "OGCA") on May 16, 1997
for the purpose of effectuating the Transactions contemplated by the Agreement.
Prior to the Merger Effective Time, WAI will not engage in
3
<PAGE>
any activity other than activities related to the Transactions. WAI is an
Oklahoma corporation with executive offices at 818 Kansas Avenue, Topeka,
Kansas 66612, and its telephone number is (913) 575-1950. Following the
consummation of the Merger, WAI will have its executive offices at 100 West
Fifth Street, Tulsa, Oklahoma 74103-0871, and its telephone number will be
(918) 588-7000. See "The Transactions--The Companies."
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting of shareholders of ONEOK will be held on , 1997, at
ONEOK Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74103-0871, commencing at
10:00 a.m. local time. See "The Special Meeting."
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to (i) consider and vote upon the
Transactions and (ii) transact such other business as may properly come before
the Special Meeting and at any and all adjournments or postponements thereof.
See "The Special Meeting--Purpose of Special Meeting."
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of ONEOK Common Stock at the close of
business on , 1997 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. On such date, there were 27,933,705 shares of
ONEOK Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon at the Special Meeting by the holders of ONEOK
Common Stock. ONEOK will have no shares of preferred stock or preference stock
outstanding as of the Record Date. See "The Special Meeting--Voting Securities
and Record Date."
QUORUM; VOTE REQUIRED
The presence, in person or by proxy, at the Special Meeting of the holders of
a majority of the shares of ONEOK Common Stock outstanding and entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. The affirmative vote of the holders of a majority of the shares of
ONEOK Common Stock outstanding and entitled to vote thereon at the Special
Meeting is required under the Delaware General Corporation Law (the "DGCL"),
the Certificate of Incorporation of ONEOK and the rules of the NYSE to approve
the Transactions. An abstention or a failure to vote with respect to the
Transactions will have the effect of a vote cast against the proposed
Transactions. Brokers who hold shares of ONEOK Common Stock as nominees will
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners thereof. Any votes which are not cast
by a nominee-broker will have the effect of votes cast against the
Transactions. See "The Special Meeting--Voting Securities and Record Date" and
"--Proxies."
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, the directors and executive officers of ONEOK
beneficially owned approximately % of the outstanding shares of ONEOK Common
Stock entitled to vote at the Special Meeting. Each of the directors and
executive officers of ONEOK has advised ONEOK that he or she plans to vote or
to direct the vote of all shares of ONEOK Common Stock beneficially owned by
him or her, and entitled to vote, in favor of the Transactions.
4
<PAGE>
THE TRANSACTIONS
THE TRANSACTIONS; TRANSACTION CONSIDERATION
The Agreement and the form of Shareholder Agreement are attached as
Appendices A and B, respectively, to this Proxy Statement/Prospectus.
The Transactions contemplate that (A) immediately prior to the Merger
Effective Time, WRI will contribute, or will cause to be contributed, to WAI
all of the Assets, whereupon WAI will assume (i) all of the liabilities of WRI
that arise primarily out of, or relate primarily to or are primarily generated
by, the Assets and (ii) approximately $35 million (subject to adjustment)
aggregate principal amount of debt of WRI, and (B)(i) ONEOK will merge with and
into WAI, with WAI as the surviving corporation, and whereupon WAI's name will
be changed to "ONEOK, Inc.," (ii) the shares of ONEOK Common Stock outstanding
at the Merger Effective Time will be converted on a one-for-one basis into
shares of New ONEOK Common Stock, and (iii) all shares of New ONEOK Common
Stock will be issued together with the corresponding number of associated Right
to purchase one one-hundredths of a share of Series C Preferred Stock pursuant
to the Rights Agreement.
Pursuant to the Agreement, ONEOK has redeemed all of its outstanding shares
of preferred stock, Series A, par value $50 per share ("ONEOK Preferred
Stock"), and will redeem at the Closing of the Merger all rights contemplated
by the Shareholder Protection Rights Agreement, dated as of March 21, 1988,
between ONEOK and The Chase Manhattan Bank (the "ONEOK Rights Agreement") at
the applicable redemption price. See "The Agreement."
OWNERSHIP OF NEW ONEOK FOLLOWING THE TRANSACTIONS
Upon the consummation of the Transactions, on a fully diluted basis after
giving effect to the Transactions and based on the number of shares of ONEOK
Common Stock outstanding as of December 12, 1996, (a) the holders of ONEOK
Common Stock will hold shares of New ONEOK Common Stock representing in the
aggregate at least 90.1% of the New ONEOK Common Stock to be outstanding or,
assuming conversion of all Series A Convertible Preferred Stock of New ONEOK to
be held by WRI pursuant to the Agreement, not less than 55.0% of the New ONEOK
Common Stock to be outstanding, and (b) WRI will hold 2,996,702 shares of New
ONEOK Common Stock and 19,317,584 shares of Series A Convertible Preferred
Stock, together representing in the aggregate up to 9.9% of the New ONEOK
Common Stock to be outstanding prior to conversion of the Series A Convertible
Preferred Stock and up to 45.0% of the New ONEOK Common Stock outstanding
thereafter, and (iii) WRI will be entitled, upon conversion of its shares of
Series A Convertible Preferred Stock at any time following a Regulatory Change,
to receive from New ONEOK an amount equal to $35 million if such conversion
were to occur at the Closing, which amount reduces to zero over five years or
less as dividends are paid out on WRI's shares of Series A Convertible
Preferred Stock. See "The Agreement--The Transactions."
In the event ONEOK issues additional shares of ONEOK Common Stock between the
Original Execution Date and the Closing, WRI has the right under the
Shareholder Agreement to purchase at the Closing additional shares of New ONEOK
Common Stock and/or Series A Convertible Preferred Stock, at a price equal to
the average market price of the ONEOK Common Stock for the 20 trading days
prior to the Closing, so as to restore WRI's percentage ownership at the
Closing to up to 9.9% of the outstanding New ONEOK Common Stock and up to 45.0%
of the outstanding New ONEOK Common Stock on a fully diluted basis. See "The
Shareholder Agreement."
TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK
The Series A Convertible Preferred Stock is convertible, at the option of the
holder, in whole or in part, at any time following the occurrence of a
Regulatory Change, into New ONEOK Common Stock at the rate of one
5
<PAGE>
share of New ONEOK Common Stock for each share of Series A Convertible
Preferred Stock (as adjusted to reflect any stock split or similar events). In
addition, any shares of the Series A Convertible Preferred Stock transferred by
WRI to any person other than WRI or its affiliates is required to be converted
into New ONEOK Common Stock. See "Description of the Preferred Stock--
Convertible Preferred Stock--Conversion Rights." In connection with the
Transactions, ONEOK and WRI have requested and expect to obtain a no-action
letter from the Commission confirming that, for purposes of the Public Utility
Holding Company Act of 1935 (the "1935 Act"), WRI's ownership interest in New
ONEOK will not cause New ONEOK to be deemed a "subsidiary" of WRI nor WRI to be
deemed a "holding company" under the 1935 Act. A "Regulatory Change" will be
deemed to have occurred upon the receipt by WRI of an opinion of WRI's counsel
(which counsel must be reasonably acceptable to New ONEOK) to the effect that
either (1) the 1935 Act has been repealed, modified, amended or otherwise
changed or (2) WRI has received an exemption, or, in the unqualified opinion of
WRI's counsel, is entitled without any regulatory approval to claim an
exemption, or has received an approval or no-action letter from the Commission
or its staff under the 1935 Act or has registered under the 1935 Act, or any
combination of the foregoing, and as a consequence of (1) and/or (2), WRI may
fully and legally exercise such rights under the Shareholder Agreement as take
effect in the period after a Regulatory Change has occurred.
The holders of Series A Convertible Preferred Stock will be entitled, with
respect to each dividend period on the New ONEOK Common Stock, to receive a
dividend payment thereon that is equal, prior to the fifth anniversary of the
Closing, to 1.5 times the dividend amount declared in respect of each share of
New ONEOK Common Stock (as adjusted to reflect any stock split or similar
events) for such dividend period and thereafter 1.25 times the dividend amount
declared in respect of each share of New ONEOK Common Stock (as adjusted to
reflect any stock split or similar events) for such dividend period. In no
event, however, will the aggregate annual dividend amount payable in respect of
each share of Series A Convertible Preferred Stock be less than $1.80 per share
(as adjusted to reflect any stock split or similar events). Presently, the
annual indicated dividend rate on the ONEOK Common Stock is $1.20 per share.
In addition, upon conversion of any shares of Series A Convertible Preferred
Stock, the holders thereof will be entitled to receive their proportionate
share of an amount equal to $35 million if such conversion were to occur at
Closing, which amount reduces to zero over five years, assuming the annual
dividend amount on the Series A Convertible Preferred Stock is maintained at
$1.80 per share (and over less than five years if the annual dividend amount on
the Series A Convertible Preferred Stock is in excess of $1.80 per share). This
conversion payment amount is formulated to ensure that WRI will receive
dividend payments for the first five years and/or a lump sum payment which in
the aggregate totals at least $35 million. See "The Shareholder Agreement--Make
Whole Payment."
Shares of Series A Convertible Preferred Stock are non-voting, except that
they vote with the New ONEOK Common Stock (and any other class or series of
stock which may be similarly entitled to vote with the holders of New ONEOK
Common Stock) as a single class with respect to (i) any proposal relating to
the Opt-out Amendment (as defined in "Summary--The Transactions--Termination
Fees; Expenses; Covenants") and any proposed amendment to the New ONEOK
Certificate or New ONEOK By-laws which would have the effect of modifying in
any way the Opt-out Amendment or would reasonably cause New ONEOK to become
subject to (a) the Control Share Acquisition Statute or (b) any other
provisions which are substantially similar to the Control Share Acquisition
Statute and (ii) any transaction which, if consummated, would constitute a
Change in Control (as defined below under "The Shareholder Agreement--General")
of New ONEOK. With respect to any such transaction, each share of Series A
Convertible Preferred Stock shall carry a number of votes equal to the number
of votes carried in the aggregate by the number of shares of New ONEOK Common
Stock issuable upon conversion of one share of Series A Convertible Preferred
Stock. See "The Shareholder Agreement--Voting," "--Restrictions on Transfer and
Conversion" and "Description of the Preferred Stock--Convertible Preferred
Stock."
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TERMS OF THE SERIES B CONVERTIBLE PREFERRED STOCK
Shares of the Series B Convertible Preferred Stock, par value $0.01 per share
("Series B Convertible Preferred Stock" and, together with the Series A
Convertible Preferred Stock, "Convertible Preferred Stock") will be issued to
WRI in exchange for shares of New ONEOK Common Stock purchased by WRI in the
open market upon WRI's exercise of the Top-Up Rights pursuant to the
Shareholder Agreement so as to enable WRI to restore its Total Ownership
Percentage to the Maximum Ownership Percentage or, in the case of any dilutive
security issuances in connection with any acquisition or other business
combination, in exchange for payment of the issue price per share of the
Dilutive Issuance, so as to restore its Total Ownership Percentage to the
Maximum Ownership Percentage minus 10% (capitalized terms are as defined below
under "The Shareholder Agreement"). See "The Shareholder Agreement--Top-Up
Rights." The terms of the Series B Convertible Preferred Stock are the same as
the Series A Convertible Preferred Stock, except that (i) the dividend amount
on each share of Series B Convertible Preferred Stock is equal to 1.25 times
the dividend amount declared in respect of each share of New ONEOK Common Stock
for each dividend period (as adjusted to reflect any stock split or similar
events) and (ii) prior to the fifth anniversary of the Closing Date, the
aggregate annual dividend amount will equal an amount not less than $1.50 per
share of Series B Convertible Preferred Stock and, thereafter, the aggregate
annual dividend amount will equal an amount not less than $1.80 per share of
Series B Convertible Preferred Stock. See "Description of the Preferred Stock--
Convertible Preferred Stock."
TERMS OF THE SERIES C PREFERRED STOCK
New ONEOK will, as of the Closing Date, adopt a Rights Agreement that is
designed to protect New ONEOK shareholders from coercive or unfair takeover
tactics. The Rights Agreement may have the effect of delaying, deterring or
preventing a takeover of New ONEOK. In connection with the Rights Agreement,
the New ONEOK Board has established a series of Preferred Stock, designated as
Series C Preferred Stock. Holders of the Series C Preferred Stock are entitled
to receive, in preference to the holders of New ONEOK Common Stock, quarterly
dividends payable in cash on the last day of each fiscal quarter of New ONEOK
in each year, or such other dates as the New ONEOK Board ("Board" or "Board of
Directors") deems appropriate, in an amount per share equal to the greater of
(a) $1 or (b) subject to adjustment, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends, other than a dividend payable in New ONEOK
Common Stock, payable with respect to New ONEOK Common Stock. The Series C
Preferred Stock dividends are cumulative but do not bear interest. Shares of
Series C Preferred Stock are not redeemable. Subject to adjustment, each share
of Series C Preferred Stock entitles the holder thereof to 100 votes on all
matters submitted to a vote of the New ONEOK shareholders and during a certain
dividend default period, holders of the Series C Preferred Stock have other
special voting rights. Upon any liquidation, dissolution or winding-up of New
ONEOK, holders of Series C Preferred Stock are entitled to priority over the
holders of shares of New ONEOK Common Stock or other junior ranking stock. No
such shares of Series C Preferred Stock are outstanding; however, each holder
of New ONEOK Common Stock will be granted the right to purchase one one-
hundredths of a share of Series C Preferred Stock upon the happening of certain
events, such as a hostile takeover attempt of New ONEOK, as described in the
Rights Agreement. See "Description of the Preferred Stock--Series C Preferred
Stock" and "Other Agreements--Rights Agreement."
BOARD OF DIRECTORS AND MANAGEMENT OF NEW ONEOK FOLLOWING THE TRANSACTIONS
Immediately following the Merger, the Board and management of New ONEOK will
be the same as that of ONEOK prior to the Merger, except for (i) the expansion
of the New ONEOK Board of Directors from 14 to 16 directors to allow the
appointment of two directors designated by WRI and (ii) the appointment of five
persons who are currently officers of WRI with respect to the Gas Business
(including officers of MCMC and Westar) as additional officers of New ONEOK,
with comparable responsibilities. Under certain circumstances, following the
occurrence of a Regulatory Change, WRI has the right to designate additional
directors providing for aggregate representation of up to one-third of the New
ONEOK Board. In addition, the By-laws of New ONEOK (the "New ONEOK By-laws")
provide that the chief executive officer of New ONEOK must be elected by the
affirmative vote of 80% of the directors of New ONEOK. See "The Shareholder
Agreement--Board Representation" and "The Transactions--New ONEOK Board and
Management Following the Transactions."
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CONDITIONS TO THE TRANSACTIONS
The consummation of the Transactions depends upon the satisfaction of a
number of conditions including, but not limited to, the following:
(a) the receipt of an opinion from WRI's legal counsel or a private
letter ruling from the Internal Revenue Service regarding the qualification
of the Asset Transaction under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code"), and the receipt of an opinion from ONEOK's
counsel regarding the applicability of Section 368 of the Code to the
Merger;
(b) the receipt of a letter from WRI's independent public accountants
regarding WRI's continued eligibility to qualify a certain other unrelated
business combination for "pooling of interests" accounting treatment
following consummation of the Transactions;
(c) the receipt of satisfactory orders from each of the Kansas
Corporation Commission (the "KCC Order") and the Oklahoma Corporation
Commission (the "OCC Order" and, together with the KCC Order, the
"Orders"), which Orders shall be reasonably satisfactory to both ONEOK and
WRI; and
(d) the receipt of an order from the Commission, under Section 9(a)(2) of
the 1935 Act, authorizing the Merger and the receipt of a no-action letter
or order from the Commission or its staff, as the case may be, to the
effect that, as a result of the Merger, WRI will not be deemed a "holding
company" under Section 2(a)(7) of the 1935 Act, and that New ONEOK will not
be deemed a "subsidiary company" under Section 2(a)(8) of the 1935 Act.
Any condition to the Transactions may be waived by the party entitled to
assert such condition. See "The Agreement--Conditions to Closing."
TERMINATION OF THE AGREEMENT
The Agreement may be terminated by either ONEOK or WRI and the Merger
abandoned at any time prior to the Merger Effective Time under certain
circumstances, including, but not limited to, the occurrence of any of the
following:
(a) any Governmental Entity having issued a permanent injunction or
restraint prohibiting the consummation of the Transactions;
(b) the requisite approval of the Transactions by a majority of the ONEOK
shareholders (the "ONEOK Shareholder Approval") is not obtained;
(c) the Merger not having been consummated by December 12, 1997, subject
to certain exceptions;
(d) a party to the Agreement fails to comply, in any material respect,
with any of its covenants or agreements contained in the Agreement and such
breach (i) not having been cured within 30 days following receipt of notice
of such breach by the breaching party and (ii) existing at the time of
termination of the Agreement;
(e) any of the representations or warranties of a party to the Agreement
contained in the Agreement not having been true, in all material respects,
and such inaccuracy (i) not having been cured within 30 days following
receipt of notice of such inaccuracy by such party and (ii) existing at the
time of termination of the Agreement (except where such inaccuracy could
not reasonably be expected to have a Material Adverse Effect on ONEOK or
the Gas Business, as applicable); or
(f) there having been a material adverse change with respect to ONEOK or
the Gas Business, as the case may be, after the Original Execution Date.
See "The Agreement--Termination."
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TERMINATION FEES; EXPENSES; COVENANTS
If, at the time of the Agreement's termination by either party because of a
failure to obtain the ONEOK Shareholder Approval, there is outstanding and
publicly announced an Acquisition Proposal (as defined below),
ONEOK will reimburse WRI for all expenses incurred by WRI and its Subsidiaries
in connection with the transactions contemplated by the Agreement and related
agreements (as specified in writing by WRI to ONEOK) ("Reimbursed Expenses") up
to $1.5 million. As defined in the Agreement, "Acquisition Proposal" means any
proposal or offer, other than the Merger, for, or that could be reasonably
expected to lead to, a tender or exchange offer, merger, consolidation or other
business combination involving ONEOK or any proposal to acquire in any manner a
substantial equity interest in, or any substantial portion of, the assets of
ONEOK. In addition, upon consummation of an Acquisition Proposal entered into
within twelve months of a termination of the Agreement in circumstances in
which ONEOK would be obligated to pay Reimbursed Expenses to WRI, ONEOK will
pay WRI $20 million less the amount of Reimbursed Expenses.
In addition, if either party terminates the Agreement for non-fulfillment of
the condition relating to the issuance of a satisfactory order by the Kansas
Corporation Commission ("KCC") or the Oklahoma Corporation Commission ("OCC"),
as the case may be, then the terminating party will reimburse the non-
terminating party promptly for expenses reasonably incurred by the non-
terminating party in connection with the Agreement, in an amount not to exceed
$1.5 million. See "The Agreement--Termination," "--Expenses" and "Other
Agreements."
In the event of the Agreement's termination, there will be no liability or
obligation under the Agreement on the part of WRI, ONEOK or WAI except with
respect to: the misuse of information obtained pursuant to the Agreement's
"Access to Information" provision; breach of the Confidentiality Agreement
between WRI and ONEOK, dated June 17, 1996; and the termination, expense and
indemnification provisions of the Agreement. See "The Agreement--Termination."
ONEOK and WRI have agreed that ONEOK will bear 55% and WRI will bear 45% of
the final cost of preparing and filing this Proxy Statement/Prospectus and
requisite financial statements filed with this Proxy Statement/Prospectus and
all other filings required to be made under the Securities Act and the Exchange
Act. Upon the consummation of the Merger, New ONEOK will reimburse WRI in full
for that portion of such expenses borne by WRI (other than fees and expenses of
counsel and fees and expenses payable to financial advisors).
ONEOK has also agreed that it will cause New ONEOK after the Merger to submit
to its shareholders for a vote at the earlier of the first annual meeting of
New ONEOK to occur after the Merger Effective Time (provided that the Merger
Effective Time shall have occurred at least 60 days prior to the annual
meeting), or at a special meeting to be held no later than 120 days after the
Merger Effective Time, a proposal for New ONEOK to amend (such Amendment, the
"Opt-out Amendment") the New ONEOK Certificate of Incorporation (the "New ONEOK
Certificate") (i) to opt out, as of a date no more than two days after the date
of such shareholders' meeting, from Sections 1145 through 1155 of Title 18 of
the Oklahoma Statutes, as it may be amended, which relates to control share
acquisitions (the "Control Share Acquisition Statute") and (ii) to provide that
this amendment may be further amended only by the affirmative vote of at least
66 2/3% of the voting power of all Securities (as defined below under "--The
Shareholder Agreement."), voting as a class.
CLOSING DATE; EFFECTIVE TIME
If the shareholders of ONEOK approve the Transactions, the Merger of ONEOK
with and into WAI will become effective upon the effective time of filing of
their respective Certificates of Merger in accordance with the DGCL and the
OGCA. It is expected that the Transactions will be consummated in the second
half of 1997, provided all conditions to the closing of the Transactions (the
"Closing") specified in the Agreement have been satisfied (or waived). The date
of the Closing is referred to herein as the "Closing Date." See "The
Agreement--The Transactions" and "--Conditions to Closing."
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THE SHAREHOLDER AGREEMENT
Pursuant to the Agreement, New ONEOK and WRI will enter into the Shareholder
Agreement between WRI and New ONEOK (the "Shareholder Agreement") on the
Closing Date which will provide for, among other matters, the matters specified
below:
Standstill; Top-Up Rights. The shareholder Agreement will provide, among
other things, that WRI and its Affiliates (as defined in the Shareholder
Agreement) will be prohibited from taking certain actions, including, without
limitation:
(a) prior to the occurrence of a Regulatory Change, the acquisition of
Voting Securities (as defined below) of New ONEOK that would cause the
Shareholder Group (as defined below) to have securities representing more
than 9.9% of the total outstanding voting power of New ONEOK and, at any
time, the acquisition of securities that would cause the Shareholder
Group's Total Ownership Percentage to exceed the Maximum Ownership
Percentage;
(b) the deposit of New ONEOK Securities in a voting trust or subjecting
of such Securities to any similar arrangement or proxy with respect to the
voting of such Securities;
(c) the commencement of a merger, acquisition or other business
combination transaction relating to New ONEOK; and
(d) engagement in any other action, either alone or in concert with
others, to seek to control or influence New ONEOK's management, Board or
policies.
In the event that the Shareholder Group's Total Ownership Percentage falls
below the Maximum Ownership Percentage, WRI has certain rights to acquire
additional Securities to restore the Total Ownership Percentage of the
Shareholder Group to the Maximum Ownership Percentage. WRI may exercise such
rights either (i) by purchasing New ONEOK Common Stock in the open market or
otherwise (and, to the extent such purchases would cause the Shareholder
Group's Voting Ownership Percentage to exceed 9.9% prior to a Regulatory
Change, exchanging such shares on a share for share basis for Series B
Convertible Preferred Stock issued by New ONEOK) or (ii) in certain events
where the reduction in the Shareholder Group's Total Ownership Percentage is
caused by a Dilutive Issuance (as defined under "The Shareholder Agreement") by
New ONEOK, by requiring New ONEOK to issue to WRI at the issue price per share
of the Dilutive Issuance, prior to a Regulatory Change, additional shares of
New ONEOK Common Stock and, to the extent such issuance would cause the
Shareholder Group's Voting Ownership Percentage to exceed 9.9%, Series B
Convertible Preferred Stock sufficient to restore the Shareholder Group's Total
Ownership Percentage to the Maximum Ownership Percentage and, after a
Regulatory Change, shares of New ONEOK Common Stock sufficient to restore the
Shareholder Group's Total Ownership Percentage to the Maximum Ownership
Percentage minus 10%. See "The Shareholder Agreement--Top-Up Rights."
"Shareholder Group" means WRI, any WRI Affiliate and any person with whom WRI
or any of its Affiliates is part of a partnership, limited partnership,
syndicate or other group of persons acquiring, holding, voting or disposing of
any voting securities which would be required under Section 13(d) of the
Exchange Act to file a statement on Schedule 13D with the Commission.
"Maximum Ownership Percentage" means, calculated at a particular point in
time, a Total Ownership Percentage of 45.0%, less the voting power represented
by all voting securities transferred by the Shareholder Group during the term
of the Shareholder Agreement (including the Voting Power (as defined under "The
Shareholder Agreement") represented by any shares of Convertible Preferred
Stock which were converted into shares of New ONEOK Common Stock
contemporaneously with such transfer pursuant to the terms of the Shareholder
Agreement).
"Securities" means any equity securities of New ONEOK.
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"Total Ownership Percentage" means, calculated at a particular point in time,
the Voting Power which would be represented by the securities beneficially
owned by the person whose Total Ownership Percentage is being determined if all
shares of Convertible Preferred Stock (or other Securities convertible into
Voting Securities) beneficially owned by such person were converted into shares
of New ONEOK Common Stock (or other Voting Security).
"Voting Ownership Percentage" means, calculated at a particular point in
time, the Voting Power represented by New ONEOK Common Stock and shares of any
other class of capital stock of New ONEOK then entitled to vote in the election
of directors (not including Convertible Preferred Stock) ("Voting Securities")
beneficially owned by the person whose voting ownership percentage is being
determined.
Restrictions on Transfer. During the term of the Shareholder Agreement, the
Shareholder Group is prohibited, without the prior written consent of a
majority of New ONEOK's independent directors, from transferring any Securities
of New ONEOK, except (a) transfers of Securities representing Voting Power of
less than 5% provided that the transferee does not have a Voting Ownership
Percentage of 5% or more immediately prior to such transfer; (b) in a bona fide
underwritten public offering pursuant to the Registration Rights Agreement
("Registration Rights Agreement") to be entered into between New ONEOK and WRI
on the Closing Date; (c) pursuant to a pro rata distribution to WRI's
shareholders; and (d) pursuant to a procedure which permits WRI to transfer
Securities representing 5% or more of New ONEOK's Voting Power, provided that
New ONEOK has been given notice thereof, and has failed, within a specified
period of time, to purchase from WRI the Securities proposed to be sold at a
cash purchase price per share equal to 98.5% of the then current market price
for New ONEOK's Common Stock. In addition, in the case of a bona fide third
party tender offer for New ONEOK, WRI may tender into such offer a
proportionate amount of its New ONEOK Securities. See "The Shareholder
Agreement--Restrictions on Transfer and Conversion" and "Description of the
Preferred Stock."
Voting. During the term of the Shareholder Agreement, WRI has agreed to vote
all Voting Securities owned by it as follows: with respect to the election of
directors, WRI will vote its Voting Securities in favor of the election of all
candidates for director nominated by the New ONEOK Board. With respect to any
proposal initiated by a shareholder of New ONEOK relating to the redemption of
the rights issued pursuant to the Rights Agreement or any modification of the
Rights Agreement (other than nonbinding precatory resolutions), WRI shall, and
shall cause each member of the Shareholder Group to, vote all Voting Securities
Beneficially Owned by WRI or any member of the Shareholder Group in accordance
with the recommendation of the New ONEOK Board. With respect to transactions
constituting a Change in Control or with respect to any proposal relating to
the Opt-out Amendment, WRI may vote any or all of the Voting Securities and
Convertible Preferred Stock (which, as described above, has the right in such
circumstance to vote together with the New ONEOK Common Stock on a one vote per
share basis, as adjusted to reflect any stock split or similar events) held by
the Shareholder Group in its sole discretion. With respect to any proposed
amendment to the New ONEOK Certificate or New ONEOK By-laws which would
reasonably have the effect of modifying in any way the Opt-out Amendment or
would reasonably cause New ONEOK to become subject to (i) the Control Share
Acquisition Statute or (ii) any other provisions which are substantially
similar to the Control Share Acquisition Statute, WRI or any member of the
Shareholder Group has the right to abstain or vote against such amendment. With
respect to all other matters, (i) prior to the occurrence of a Regulatory
Change, WRI may vote any Voting Securities of New ONEOK held by the Shareholder
Group in WRI's sole discretion, (ii) after the occurrence of a Regulatory
Change, WRI may vote in its sole discretion up to 9.9% of the New ONEOK
outstanding voting power and WRI must vote any other Voting Securities owned by
it in the same proportion as all Voting Securities voted on such other matter
are voted by the other shareholders of New ONEOK. See "The Shareholder
Agreement--Voting."
Term; Buy/Sell Option. The Shareholder Agreement terminates under certain
circumstances, including, but not limited to: (a) New ONEOK's quarterly
dividend on the New ONEOK Common Stock falling below $0.30
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per share (as adjusted to reflect any stock split or similar events) in any
five quarters or New ONEOK's failure to pay the stated quarterly dividend on
any series of Convertible Preferred Stock in any five quarters, (b) the
Shareholder Group's Total Ownership Percentage falling below 9.9% at any time
or (c) the Shareholder Group's Total Ownership Percentage falling below 30% at
any time following the 15th anniversary of the signing of the Shareholder
Agreement. In addition, on the 15th and each subsequent anniversary of the
signing of the Shareholder Agreement, each of WRI and New ONEOK, on behalf of
New ONEOK's shareholders, has the right to buy from or sell to the other, by
purchase, sale or credible tender offer, as appropriate, all outstanding shares
of New ONEOK capital stock beneficially owned by the selling party (which, in
the case of New ONEOK, means the shareholders of New ONEOK other than WRI and
the Shareholder Group). In addition, if at any time after the occurrence of a
Regulatory Change, New ONEOK believes in good faith that WRI's regulatory
status as modified by such Regulatory Change would place an unreasonable
restriction on the implementation of New ONEOK's strategic business plans, New
ONEOK may immediately initiate its buy/sell rights. See "The Shareholder
Agreement--Buy/Sell Option in Favor of Either Party" and "Risk Factors--Risks
Relating to the Shareholder Agreement."
OTHER AGREEMENTS
WRI, WAI and ONEOK have also entered into or intend to enter into the
following agreements:
Marketing Agreement. At the Closing, WRI and New ONEOK will execute a
Marketing Agreement (the "Marketing Agreement"). Under the Marketing Agreement,
New ONEOK will provide certain support services in its service area exclusively
to WRI for WRI's residential and commercial electronic monitoring security
business. The services to be provided include promotional programs by New
ONEOK's customer service employees, billing inserts, billing service and
customer information. WRI will provide all necessary training and education of
New ONEOK employees for the promotional programs. The parties will develop
mutually agreed guidelines for the promotional programs. New ONEOK will be paid
specified fees for providing the services. Any disputes relating to the
Marketing Agreement will be settled under dispute resolution provisions in the
Marketing Agreement. The Marketing Agreement will also authorize WRI to use
certain of New ONEOK's trade names, trademarks, servicemarks, etc. in
connection with the marketing of monitored security services in ONEOK's service
area. See "Other Agreements--Marketing Agreement."
Shared Services Agreement. At the Closing, WRI and New ONEOK will execute a
Shared Services Agreement (the "Shared Services Agreement"). The Shared
Services Agreement will provide for cooperation between the parties with
respect to various services and shared facilities related to New ONEOK and the
electric utility business of WRI in Kansas, such as billing, meter reading and
phone center coverage. See "Other Agreements--Shared Services Agreement."
Employee Agreement. WRI and ONEOK entered into an Employee Agreement, dated
as of December 12, 1996 (the "Employee Agreement"), which provides for certain
employment arrangements in respect of the employees of the Gas Business
following the Closing. See "Other Agreements--Employee Agreement."
Environmental Indemnity Agreement. WRI, ONEOK and New ONEOK have agreed to
enter into, on the Closing Date, an Environmental Indemnity Agreement (the
"Environmental Indemnity Agreement") whereby New ONEOK will assume
responsibility for certain environmental related liabilities related to the Gas
Business and WRI will retain certain other environmental related liabilities.
See "Other Agreements--Environmental Indemnity Agreement."
Registration Rights Agreement. WRI and New ONEOK have agreed to enter into,
on the Closing Date, the Registration Rights Agreement, which provides that WRI
will have certain rights to require New ONEOK to register under the Securities
Act WRI's shares of New ONEOK Common Stock and shares of New ONEOK Common Stock
obtainable upon conversion of the Convertible Preferred Stock, subject to
certain conditions. See "Other Agreements--Registration Rights Agreement."
Rights Agreement. Each share of New ONEOK Common Stock will be associated
with a Right to purchase one one-hundredths of a share of New ONEOK Series C
Preferred Stock. The Rights will be attached
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to certificates of shares of New ONEOK Common Stock and will not be separately
tradeable and will become exercisable only upon certain conditions. In the
event that, without the prior consent of the Board of Directors of New ONEOK,
any person or group (other than WRI with respect to shares acquired pursuant to
the Agreement and Shareholder Agreement) acquires beneficial ownership of 15%
or more of the voting power of all outstanding voting securities of New ONEOK,
each Right (other than Rights held by such acquiring person or group) will
entitle the holder to purchase, at the then-current exercise price of the
Right, a number of shares of New ONEOK Common Stock having a value of twice the
exercise price of the Right, subject to certain exceptions. See "Other
Agreements--Rights Agreement."
RECOMMENDATION OF ONEOK'S BOARD; BACKGROUND AND REASONS FOR THE TRANSACTIONS
THE BOARD OF DIRECTORS OF ONEOK HAS UNANIMOUSLY APPROVED THE TRANSACTIONS AND
RECOMMENDS THAT THE HOLDERS OF ONEOK COMMON STOCK VOTE FOR APPROVAL OF THE
TRANSACTIONS. For a discussion of the factors considered by the ONEOK Board in
reaching its decision and the background and reasons for the Transactions, see
"The Transactions--Recommendation of the ONEOK Board" and "--Background and
Reasons for the Transactions."
OPINION OF FINANCIAL ADVISOR
PaineWebber Incorporated ("PaineWebber") has delivered its written opinion to
the Board of Directors of ONEOK, dated December 11, 1996 (the "PaineWebber
Opinion"), and confirmed as of the date of this Proxy Statement/Prospectus, to
the effect that, as of such dates, the proposed Transactions were and are fair
to the shareholders of ONEOK from a financial point of view. The full text of
the PaineWebber Opinion, which sets forth the assumptions made, matters
considered and the limits of the review of PaineWebber, is attached hereto as
Appendix F and should be read carefully and in its entirety. See "The
Transactions--Opinion of Financial Advisor."
EXCHANGE OF ONEOK COMMON STOCK CERTIFICATES
As of the Merger Effective Time, New ONEOK will deposit with the Exchange
Agent (as defined under "The Transactions--Treatment of Stock Certificates")
certificates representing shares of New ONEOK Common Stock. As soon as
reasonably practicable after the Merger Effective Time, the Exchange Agent will
mail to each holder of record of certificates which, immediately prior to the
Merger Effective Time, represented outstanding shares of ONEOK Common Stock, a
letter of transmittal with instructions for use in effecting the surrender of
certificates which represent shares of ONEOK Common Stock in exchange for
certificates representing shares of New ONEOK Common Stock. Certificates should
not be surrendered by the holders of ONEOK Common Stock until they have
received the letter of transmittal from the Exchange Agent. See "The
Transactions--Treatment of Stock Certificates."
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), prohibits consummation of the Transactions until Premerger
Notification and Report Forms have been submitted by WRI and ONEOK and certain
information has been furnished to the United States Federal Trade Commission
("FTC") and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the specified waiting period requirements of the
HSR Act have expired or been terminated. The required waiting period under the
HSR Act with respect to the Transactions expired for ONEOK and WAI on May 4,
1997.
Consummation of the Transactions will also require the approval of, among
other things, the KCC and the OCC. Under the Agreement, it is a closing
condition that each of the KCC Order and the OCC Order be in such form and
substance, and cover such matters, as is reasonably satisfactory to both WRI
and ONEOK.
Consummation of the Transactions is also subject to ONEOK and WRI obtaining a
no-action letter or order from the Commission or its staff, as the case may be,
to the effect that, as a result of the Merger, WRI will not
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be deemed a "holding company" under Section 2(a)(7) of the 1935 Act, and that
New ONEOK will not be deemed a "subsidiary company" under Section 2(a)(8) of
the 1935 Act. See "The Transactions--Governmental and Regulatory Approvals" and
"The Agreement--Conditions to Closing."
On January 31, 1997, WRI received a letter from the Commission regarding
WRI's continued eligibility to qualify a certain other unrelated business
combination for "pooling of interests" treatment following consummation of the
Transactions. Consummation of the Transactions is subject to WRI's receiving a
letter from WRI's independent public accountants confirming such eligibility.
ACCOUNTING TREATMENT
The Transactions will be accounted for by New ONEOK under the purchase method
of accounting. See "The Transactions--Accounting Treatment of the
Transactions."
TAX CONSEQUENCES
The parties intend the Merger to qualify as a reorganization within the
meaning of Section 368(a) of the Code and hence that no gain or loss be
recognized by the shareholders of ONEOK upon the conversion of the outstanding
ONEOK Common Stock to New ONEOK Common Stock pursuant to the Merger. The
parties also intend the Asset Transaction to qualify as a transfer within the
meaning of Section 351 of the Code. See "Certain Federal Income Tax
Consequences of the Transactions."
APPRAISAL RIGHTS
If the Transactions are consummated, holders of ONEOK Common Stock who do not
vote in favor of the Transactions will not be entitled to appraisal rights
under Delaware law with respect to any of their shares of ONEOK Common Stock.
See "The Transactions--Absence of Appraisal Rights."
COMPARATIVE RIGHTS OF HOLDERS OF ONEOK AND NEW ONEOK CAPITAL STOCK
SHAREHOLDERS' COMPARATIVE RIGHTS. The rights of holders of ONEOK capital
stock are currently governed by Delaware law and by ONEOK's Certificate of
Incorporation (the "ONEOK Certificate") and By-laws (the "ONEOK By-laws"). If
the Merger is consummated and becomes effective pursuant to the terms of the
Agreement and related agreements, the rights of former ONEOK shareholders who
become New ONEOK shareholders pursuant to the Merger and other holders of New
ONEOK Common Stock will consequently be governed by Oklahoma law and by the New
ONEOK Certificate and the New ONEOK By-laws.
The OGCA is generally similar to the DGCL. However, the Oklahoma Statutes,
unlike those of Delaware, also contain regulations concerning control share
acquisitions. (For purposes of this Proxy Statement/Prospectus, the OGCA is
deemed to include the control share acquisition regulations.) A "control share
acquisition" is an acquisition of shares which has the result of increasing the
voting power the acquiring person is entitled to exercise above certain
thresholds. Once a control share acquisition is deemed to have occurred, the
voting power of all of the control shares is reduced to zero unless and until
the shareholders of the issuer approve a resolution restoring to the control
shares the same voting rights they would have had before the control share
acquisition was deemed to have occurred, subject to certain significant
exceptions. Pursuant to the Agreement, ONEOK has agreed to cause New ONEOK
after the Merger to submit to its shareholders for a vote at the earlier of the
first annual meeting of New ONEOK to occur after the Merger Effective Time
(provided that the Merger Effective Time shall have occurred at least 60 days
prior to the annual meeting), or at a special meeting to be held no later than
120 days after Merger Effective Time, a proposal to approve the Opt-out
Amendment.
The New ONEOK Certificate and the New ONEOK By-laws are generally identical
to the ONEOK Certificate and the ONEOK By-laws, except that, among other
things, (i) the New ONEOK By-laws now provide that the affirmative vote of 80%
of directors is required for the election of a chief executive officer and (ii)
the
14
<PAGE>
New ONEOK Certificate provides that any merger, consolidation or other business
combination with or upon a proposal by any person who is a direct or indirect
beneficial owner of more than 10% of the outstanding voting shares of New ONEOK
(a "Related Person") shall require the approval of a majority vote of all
directors who are not affiliated with or nominated by a Related Person
("Independent Directors") or by the holders of at least two-thirds (66 2/3%) of
the shares otherwise entitled to vote as a single class with the New ONEOK
Common Stock to approve such business combination, excluding shares owned by
such Related Person, subject to certain exceptions.
See "Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock."
RISK FACTORS
SHAREHOLDERS OF ONEOK SHOULD CONSIDER THE FACTORS DISCUSSED UNDER "RISK
FACTORS" IN EVALUATING THE PROPOSED TRANSACTIONS, INCLUDING, AMONG OTHERS, THE
POTENTIAL EFFECTS OF THE FOLLOWING:
. The possible failure of the management of New ONEOK to successfully
integrate the operations of the Gas Business into ONEOK's business, each
of which have previously operated independently, or the inability to
achieve the operating efficiencies contemplated by the ONEOK Board,
could have a material adverse effect on the business, results of
operations or financial condition of New ONEOK, as well as the market
value of the New ONEOK Common Stock. See "Risk Factors--Uncertainties
Related to the Transactions."
. Risk related to actions permitted to WRI under the Shareholder Agreement
and to termination of such agreement, under certain circumstances, which
could have the effect of restricting New ONEOK's activities or affecting
control of New ONEOK. See "Risk Factors--Risks Relating to the
Shareholder Agreement."
. The uncertainty that the annual dividend rate to be received by the New
ONEOK shareholders may not equal or be greater than the annual dividend
rate which such holders historically received on the ONEOK Common Stock.
In that regard, it should be noted that holders of the Convertible
Preferred Stock must receive minimum dividend payments then due before
any dividends can be paid on the New ONEOK Common Stock. See "Risk
Factors--Uncertainty Regarding Future Dividend Policies."
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of operations of
ONEOK, New ONEOK and the Gas Business set forth under "Risk Factors," "The
Transactions--Background and Reasons for the Transactions," "--Recommendation
of the ONEOK Board" and "--Opinion of Financial Advisor" and those preceded by,
followed by or that include the words "believes," "expects," "anticipates" or
similar expressions. For those statements, ONEOK and WRI claim the protection
of the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. The following important
factors, in addition to those discussed elsewhere in this Proxy
Statement/Prospectus and in the documents which are incorporated by reference
herein, could affect the future results of the energy industry in general, and
New ONEOK and/or the Gas Business in particular, and could cause such results
to differ materially from those expressed in such forward-looking statements:
future regulatory actions and conditions in the operating territories of the
business; material adverse changes in economic conditions in the markets served
by either business; a significant delay in the expected closing of the
Transactions; and competition from others in the energy industry.
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
See "Unaudited Pro Forma Combined Condensed Financial Statements."
15
<PAGE>
MARKET PRICE DATA OF ONEOK COMMON STOCK
The shares of ONEOK Common Stock are listed and traded on the NYSE. The
following sets forth the high and low trading prices per share of ONEOK Common
Stock on the NYSE for the fiscal periods indicated as reported in published
financial sources and the dividends declared per share for such fiscal periods:
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1995
First Quarter..................................... 18 15 7/8 $0.28
Second Quarter.................................... 18 3/8 16 7/8 $0.28
Third Quarter..................................... 19 5/8 17 1/4 $0.28
Fourth Quarter.................................... 23 7/8 18 3/4 $0.28
FISCAL YEAR 1996
First Quarter..................................... 24 13/16 22 $0.29
Second Quarter.................................... 23 7/8 20 $0.29
Third Quarter..................................... 27 1/2 21 1/8 $0.30
Fourth Quarter.................................... 28 7/8 24 3/8 $0.30
FISCAL YEAR 1997
First Quarter..................................... 28 5/8 25 1/4 $0.30
Second Quarter ................................... 30 7/8 26 $0.30
Third Quarter..................................... 30 7/8 26 $0.30
Fourth Quarter (through , 1997)................
</TABLE>
On December 11, 1996, the last full trading day prior to the first public
announcement of the Transactions, the reported closing price per share of ONEOK
Common Stock on the NYSE was $26 1/2. On , 1997, the reported closing price
per share of ONEOK Common Stock on the NYSE was $ . Shareholders are urged to
obtain current market quotations for shares of ONEOK Common Stock.
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following table setting forth per share data of ONEOK on a historical
basis and New ONEOK on a pro forma combined basis gives effect to the
following: (1) the business combination contemplated by the Transactions,
described elsewhere in this Proxy Statement/Prospectus; and (2) a material
increase in Gas Business revenues as a result of regulatory approval of a rate
increase in April 1996. This table should be read in conjunction with the
historical consolidated financial statements, the notes thereto contained in
the ONEOK 1996 Form 10-K (as defined under "Incorporation of Documents by
Reference") which are incorporated by reference herein, and the unaudited pro
forma combined condensed financial statements and notes thereto included
elsewhere in this Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined
Condensed Financial Statements."
Pro forma combined per share data reflects the results of New ONEOK on a
combined basis as if the Merger had occurred for all periods presented. This
information has been prepared on the basis of accounting for the Merger as a
purchase and is based on the assumptions set forth in the notes thereto. This
information does not reflect the estimated synergies ONEOK expects to achieve
as a result of the Merger. The pro forma per share data is not necessarily
indicative of actual results had the Merger occurred on such dates or of future
expected results.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
ONEOK
Book value per common share....................... $16.67 $15.21
Earnings per common share......................... 1.84 1.93
Cash dividends per common share................... .60 1.18
PRO FORMA COMBINED(1)(2)
Book value per common share....................... $17.60 --
Earnings per common share......................... 2.11 $ 1.66
Cash dividends per common share................... .54 1.06
</TABLE>
- --------
(1) The number of shares used in the calculation is adjusted for additional
shares of New ONEOK Common Stock to be issued at the Closing of the
Transactions but does not include the number of shares of New ONEOK Common
Stock issuable upon conversion of the Convertible Preferred Stock.
(2) Derived from the Unaudited Pro Forma Combined Condensed Financial
Statements.
17
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The financial data below sets forth summary selected historical financial
data. This financial data should be read in conjunction with the historical
consolidated financial statements, the notes thereto and "Management's
Discussion and Analysis and Results of Operations" contained in the ONEOK 1996
Form 10-K, incorporated by reference herein, and of the Gas Business, included
elsewhere in this Proxy Statement/Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the WRI Gas
Business" and "Selected Historical Financial Data of ONEOK."
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF ONEOK
The summary selected historical financial data presented below for each of
the years in the five-year period ended August 31, 1996 has been derived from
the consolidated financial statements of ONEOK Inc. and subsidiaries as they
appeared in the ONEOK 1996 Form 10-K incorporated by reference herein. The
summary selected historical financial data for the six months ended February
28, 1997 and February 29, 1996 is unaudited and derived from the unaudited
consolidated condensed financial statements included in the ONEOK Quarterly
Reports (as defined under "Incorporation of Documents by Reference") on Form
10-Q incorporated by reference herein; however, in the opinion of management,
all adjustments which are of a normal recurring nature necessary for a fair
presentation of the results of such periods have been made. The results of
operations for the six months ended February 28, 1997 and February 29, 1996 are
not necessarily indicative of the results to be expected for the entire fiscal
year or any other interim period.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED AUGUST 31, SIX MONTHS ENDED
-------------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- ------------ ------------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues.... $1,224.3 $ 954.2 $ 784.1 $ 789.1 $ 677.1 $ 722.4 $ 703.2
Operating income
before income taxes.. $ 121.0 $ 105.5 $ 92.0 $ 96.5 $ 83.9 $ 99.7 $ 94.3
Net Income............ $ 52.8 $ 42.8 $ 36.2 $ 38.4 $ 32.6 $ 50.4 $ 47.0
Preferred stock
dividends............ $ 0.4 $ 0.4 $ 0.4 $ 0.4 $ 0.4 $ 0.2 $ 0.2
Income available for
common stock......... $ 52.4 $ 42.4 $ 35.8 $ 38.0 $ 32.2 $ 50.2 $ 46.8
Earnings per common
share................ $ 1.93 $ 1.58 $ 1.34 $ 1.43 $ 1.21 $ 1.84 $ 1.73
Cash dividends paid
per common share..... $ 1.18 $ 1.12 $ 1.11 $ 1.06 $ 0.96 $ 0.60 $ 0.58
Ratio of earnings to
combined fixed
charges and preferred
stock dividend
requirements(a)...... 3.38x 2.77x 2.59x 2.51x 2.40x 5.50x 5.08x
Balance Sheet Data:
Total assets.......... $1,219.9 $1,181.2 $1,148.1 $1,115.1 $1,069.9 $1,333.4 $1,259.5
Long-term debt(b)..... $ 351.9 $ 363.9 $ 376.9 $ 391.9 $ 397.8 $ 361.1 $ 364.1
Preferred stock....... $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0
Total common equity... $ 414.7 $ 388.6 $ 370.5 $ 363.1 $ 353.5 $ 463.6 $ 422.7
</TABLE>
- --------
(a) For purposes of computing the ratio of earnings to combined fixed charges
and preferred dividend requirements, "earnings" consists of net income plus
interest charges, amortization of debt issue costs, and income taxes.
"Fixed charges" consists of interest charges and the amortization of debt
issue costs. "Preferred dividend requirements" consists of the pre-tax
preferred dividend requirement.
(b) Includes the current portion of long-term debt.
18
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF THE GAS BUSINESS
The summary selected historical financial data presented below for each of
the years in the five-year period ended August 31, 1996 and for the interim
six-month periods ended February 28, 1997 and February 29, 1996 have been
derived from the Gas Business' records. In the opinion of management, all
adjustments which are of a normal recurring nature necessary for a fair
presentation of the results of such periods have been made for the interim six
months ended February 28, 1997 and February 29, 1996. The results of operations
for the six months ended February 28, 1997 and February 29, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal year
or any other interim period.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED AUGUST 31, SIX MONTHS ENDED
--------------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues.... $ 720.8 $515.0 $ 598.9 $540.5 $411.9 $544.7 $418.2
Operating income
before income taxes... $ 35.9 $ 1.2 $ 27.5 $ 40.0 $ 5.2 $ 58.9 $ 37.7
Net income (loss)..... $ 19.3 $ (1.0) $ 16.3 $ 29.6 $ 8.0 $ 32.9 $ 20.8
Balance Sheet Data:
Total assets.......... $ 773.2 $707.7 $641.9 $607.9 $527.6 $884.8
Equity in net assets
acquired.............. $ 532.5 $487.8 $438.7 $404.3 $345.8 $594.3
Long-term debt........ $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0
</TABLE>
19
<PAGE>
ONEOK AND THE GAS BUSINESS SUMMARY SELECTED UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth certain unaudited pro forma combined financial
information giving effect to the Transactions accounted for as a purchase in
accordance with generally accepted accounting principles and a material
increase in Gas Business revenues as a result of regulatory approval of a rate
increase in April 1996. The summary selected pro forma financial data for the
periods indicated has been derived from the unaudited pro forma combined
condensed financial statements and related notes appearing elsewhere in this
Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined Condensed
Financial Statements." These statements do not reflect the estimated synergies
ONEOK believes will result from the Transactions. The following pro forma
information is not necessarily indicative of actual results that would have
occurred had the Transactions occurred on such dates or of expected future
results.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
YEAR ENDED SIX MONTHS ENDED
AUGUST 31, 1996 FEBRUARY 28, 1997
--------------- -----------------
(IN MILLIONS, EXCEPT RATIOS AND
PER SHARE DATA)
<S> <C> <C>
Statement of Income Data:
Operating revenues......................... $1,972.7 $1,267.1
Operating income before income taxes....... $ 182.3 $ 157.5
Net income................................. $ 84.7 $ 81.3
Preferred stock dividends.................. $ 34.8 $ 17.4
Income available for common stock.......... $ 50.0 $ 64.0
Earnings per common share(a)............... $ 1.66 $ 2.11
Cash dividends paid per common share....... $ 1.06 $ 0.54
Ratio of earnings to combined fixed charges
and preferred stock dividend
requirements(b)........................... 2.40x 4.05x
Balance Sheet Data:
Total assets............................... $2,285.0
Long-term debt(c).......................... $ 439.5
Preferred stock............................ $ 546.9
Total common equity........................ $ 542.5
</TABLE>
- --------
(a) The number of shares used in the calculation is adjusted for additional
shares of New ONEOK Common Stock to be issued at the Closing of the
Transactions but does not include the number of shares of New ONEOK Common
Stock issuable upon conversion of the Convertible Preferred Stock.
(b) For purposes of computing the ratio of earnings to combined fixed charges
and preferred dividend requirements, "earnings" consists of net income plus
interest charges, amortization of debt issue costs, and income taxes.
"Fixed charges" consists of interest charges and the amortization of debt
issue costs. "Preferred dividend requirements" consists of the pre-tax
preferred dividend requirement.
(c) Includes the current portion of long-term debt.
20
<PAGE>
RISK FACTORS
The following factors should be considered, in conjunction with the other
information included in this Proxy Statement/Prospectus, by the holders of
ONEOK Common Stock in evaluating the Transactions.
UNCERTAINTIES RELATED TO THE TRANSACTIONS
The Transactions involve the integration of the operations of ONEOK's
business and of the Gas Business, each of which previously operated
independently. There is no assurance that successful integration of the
operations of the Gas Business and of ONEOK's business or that the benefits
expected to result from such integration will be realized. Any delays or
unexpected costs that arise in connection with such integration could have a
material adverse effect on the business, results of operations or financial
condition of New ONEOK as well as the market value of New ONEOK securities. In
addition, the non-recurring costs and expenses associated with the negotiation
and consummation of the Transactions cannot be determined until the transition
plan relating to the integration of operations is completed. As of April 30,
1997, such non-recurring costs and expenses aggregated approximately
$3,475,000. New ONEOK intends to include such costs as part of the purchase,
as appropriate, or expense such costs in the quarter in which the Transactions
are consummated, which is anticipated to occur in the second half of 1997.
UNCERTAINTY REGARDING TRADING PRICES OF NEW ONEOK STOCK FOLLOWING THE
TRANSACTIONS
Upon consummation of the Transactions, holders of ONEOK Common Stock as of
the Merger Effective Time will have the right to receive shares of New ONEOK
Common Stock in exchange for shares of ONEOK Common Stock.
There is no assurance as to whether the market value of the shares of New
ONEOK Common Stock to be received by ONEOK shareholders in exchange for shares
of ONEOK Common Stock will be less than, equal to or greater than the market
value of shares of ONEOK Common Stock prior to the Merger Effective Time.
RISKS RELATING TO DILUTION OF VOTING RIGHTS
Upon completion of the Transactions, the ONEOK shareholders will own in the
aggregate at least 90.1% of the outstanding Voting Securities of New ONEOK,
and not less than 55.0% of outstanding New ONEOK Common Stock on a fully
diluted basis. Assuming conversion by WRI of all Convertible Preferred Stock
held by WRI, WRI could hold in the aggregate up to 45.0% of outstanding New
ONEOK Common Stock. The issuance of such Securities to WRI could cause a
proportional dilution of voting rights to the existing shareholders of ONEOK.
RISKS RELATING TO THE SHAREHOLDER AGREEMENT
The Shareholder Agreement imposes certain restrictions on WRI's voting,
transfer, acquisition and other rights with respect to its shares of New ONEOK
capital stock, thereby limiting its ability to control New ONEOK. The
termination of the Shareholder Agreement upon the occurrence of certain events
could affect the control of New ONEOK. Subject to certain conditions, the
Shareholder Agreement allows WRI to take actions which also have the effect of
affecting control of New ONEOK. For example, in the event WRI decides to
transfer 5.0% or more of its shares as a block to a third party and New ONEOK
does not exercise its right of first refusal to purchase such block, such
third-party transferee will not be subject to the terms of the Shareholder
Agreement nor be considered an "Acquiring Person" under the Rights Agreement
as a result of such purchase, thereby enabling such transferee to vote its
shares of New ONEOK or acquire additional shares of New ONEOK without any
restrictions. The Shareholder Agreement permits WRI to vote all shares of New
ONEOK Voting Securities held by the Shareholder Group representing both before
and after conversion of the Convertible Preferred Stock up to 45% of New
ONEOK's voting power at its sole discretion with respect to a merger or other
transaction constituting a Change in Control (as defined below under "The
Shareholder Agreement"),
21
<PAGE>
making the consummation of any such transaction, if opposed by WRI, difficult
to obtain. See "The Shareholder Agreement--Voting." At the fifteenth and at
each succeeding anniversary of the date of the Shareholder Agreement, WRI has
the right to offer to purchase all shares of New ONEOK capital stock held by
New ONEOK's shareholders (other than the Shareholder Group) by means of a
tender offer, although at such time New ONEOK also may exercise a similar
right to offer to purchase all shares of New ONEOK capital stock then held by
the Shareholder Group. The foregoing could enable WRI or its transferee to
acquire control of New ONEOK without paying a control premium to the New ONEOK
shareholders and may adversely affect the value and prices for New ONEOK
Common Stock.
See "The Shareholder Agreement--Term," "--Restrictions of Certain Actions by
WRI," "--Voting" and "--Restrictions on Transfer and Conversion."
UNCERTAINTY REGARDING WRI'S REGULATORY STATUS
Neither the Agreement nor the Shareholder Agreement prohibits WRI from
becoming a registered holding company under the 1935 Act. Were WRI to become a
registered holding company under the 1935 Act and, as a result thereof, New
ONEOK were to be deemed, under the 1935 Act, a subsidiary company of a
registered holding company, New ONEOK would be subject 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, intrasystem financings, certain
proxy solicitations and other affiliate transactions. Under the Shareholder
Agreement, if WRI's regulatory status as modified by a Regulatory Change would
place an unreasonable restriction on New ONEOK's implementation of its
strategic business plan, New ONEOK has the right to exercise the buy/sell
option to purchase WRI's New ONEOK shares at a certain price within a
specified period of time. There can be no assurance that New ONEOK would or
could so exercise this right. See "The Shareholder Agreement--Buy/Sell Option
in Favor of Either Party."
TRANSACTIONS WITH INTERESTED PARTIES
At the Closing, WRI and New ONEOK will enter into the Marketing Agreement
and the Shared Services Agreement. The interests of WRI in New ONEOK upon
consummation of the Transactions may create potential conflicts of interest in
connection with the Marketing Agreement and the Shared Services Agreement or
other transactions between New ONEOK and WRI. Under the Agreement, the
execution of the Marketing Agreement and the Shared Services Agreement is a
condition to Closing and such agreements will be negotiated prior to the
Merger. Such agreements will be reached on the basis of arm's-length
negotiations between ONEOK, on behalf of New ONEOK, and WRI. In connection
with approval of transactions with affiliates, the New ONEOK Certificate
provides that, in the absence of fraud, no contract or other transaction of
New ONEOK shall be affected or invalidated in any way by the fact that any
directors of New ONEOK are in any way interested in or connected with any
other party to such contract or transaction or are themselves parties to such
contract or transaction, provided that such interest is fully disclosed or
otherwise known to the New ONEOK Board at the meeting of the Board at which
such contract or transaction is authorized or confirmed, and provided further
that at the meeting of the Board authorizing or confirming such contract or
transaction there is present a quorum of directors not so interested or
connected and such contract or transaction shall be approved by a majority of
such quorum and no such interested director shall vote on any such contract or
transaction.
POTENTIAL ENVIRONMENTAL RISKS
The Gas Business is subject to various federal, state and local laws or
regulations relating to the protection of the environment. The Assets to be
contributed to WAI include 12 former manufactured gas plant sites which may
contain hazardous materials subject to control or remediation under various
environmental laws and regulations. These sites are currently subject to
investigation and risk assessment by the Kansas Department of
22
<PAGE>
Health and Environment ("KDHE") pursuant to a ten-year term consent agreement.
Although the costs incurred for site investigation and risk assessment has
been minimal, there can be no assurance that such costs or other environmental
remediation costs in the future will not have a material adverse effect upon
New ONEOK's financial condition and results of operations. See Note 5 to the
Audited Financial Statements of the Gas Business.
UNCERTAINTY REGARDING FUTURE DIVIDEND POLICIES
Historically, ONEOK has paid cash dividends on ONEOK Common Stock. The
future payments of dividends by New ONEOK will depend on decisions that will
be made by the New ONEOK Board of Directors from time to time based on the
results of operations and financial conditions of New ONEOK (subject to
restrictions, if any, contained in debt instruments of each entity in effect
from time to time and the terms of any preferred stock which may be issued and
the OGCA). The Convertible Preferred Stock must receive minimum dividend
payments then due before any dividends can be paid on the New ONEOK Common
Stock. While the ONEOK Board does not currently contemplate a change in its
dividend policy, there can be no assurance that the annual dividend rate
received by holders of New ONEOK Common Stock after the Transactions will be
equal to or greater than the annual dividend rate which such holders
historically received on the ONEOK Common Stock. The failure of New ONEOK to
pay quarterly dividends on its Common Stock of at least $0.30 per share or to
pay the stated quarterly dividends on the Convertible Preferred Stock in any
five quarters during the term of the Agreement will give WRI the right to
terminate the Shareholder Agreement. Assuming none of the shares of
Convertible Preferred Stock is converted and giving effect to the Transactions
as if they had occurred as of August 31, 1996, the dividend to be paid on the
Convertible Preferred Stock in the fiscal year ended August 31, 1997 would
aggregate in the amount of $34,771,651. For the twelve months ended August 31,
1996, ONEOK's historical dividend payout ratio equals 61% and after giving
effect to the Transactions assuming none of the shares of Convertible
Preferred Stock is converted, the pro forma dividend payout ratio equals 64%.
See "Description of the Preferred Stock--Convertible Preferred Stock" and "The
Shareholder Agreement--Term."
REGULATED INDUSTRY
The natural gas industry is subject to numerous legislative and regulatory
requirements, standards and restrictions, which are subject to change and
which affect ONEOK and the Gas Business to varying degrees. Significant
industry factors that have affected or may affect ONEOK and the Gas Business
from time to time include the following: (i) difficulty in obtaining rate
increases from regulatory authorities in adequate amounts and on a timely
basis, (ii) difficulty in earning an adequate return on invested capital,
(iii) attrition in earnings produced by the combination of increasing expenses
and the costs of new increments of capital, which may exceed allowed rates of
return, (iv) fluctuations, including rapid reductions, in the prices of oil
and propane, which can make those fuels less costly than natural gas in some
markets, (v) volatility in the supply and price of natural gas, (vi)
increasing competition with alternative gas sources for industrial and other
significant customers, including potential attempts to by-pass the ONEOK
system and/or the Gas Business, and (vii) uncertainty in projected energy
requirements of ONEOK's or the Gas Business' customers.
The KCC has recently initiated an informal investigation into the possible
restructuring ("unbundling") of the residential gas market in the State of
Kansas. It is anticipated that this informal investigation will become a
formal KCC docket matter and that a subsequent KCC order will be issued within
the next one to three years.
In May, 1996, the OCC commenced a Notice of Inquiry into unbundling the gas
utility industry. Numerous meetings between the industry and the OCC staff
followed, and after a public hearing in December, the OCC voted to proceed
with a rulemaking to establish the procedures for such unbundling. On February
18, 1997, the OCC issued a Notice of Intent to Solicit Proposed Rules relating
to such unbundling. The final order with respect to unbundling has not yet
been issued, nor has a notice of proposed rulemaking been filed. In addition
to the OCC action, there is also a bill pending in the Oklahoma legislature
which proposes to deregulate the transportation of natural gas under certain
competitive conditions and remove it from the OCC jurisdiction and authority.
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ONEOK is actively working with the OCC to develop a plan and schedule to
unbundle services for its Oklahoma customers. Under ONEOK's current proposal,
all of ONEOK's customers who use 150 Mcf of gas or more per year would receive
unbundled services by 1998, and all of ONEOK's remaining customers would
receive unbundled services by 1999.
POST-RETIREMENT BENEFITS
Upon the consummation of the Transactions, New ONEOK will assume certain
obligations of WRI associated with certain post-retirement benefits. See Note
7 to the Audited Financial Statements of the Gas Business for a description of
such liabilities and the risks associated therewith.
CERTAIN ANTITAKEOVER FEATURES
Upon consummation of the Transactions, certain provisions of the New ONEOK
Certificate and the New ONEOK By-laws, along with the Shareholder Agreement
and New ONEOK's Rights Agreement and Oklahoma statutory law, could discourage
potential acquisition proposals and could delay or prevent a change in control
of New ONEOK. In addition, WRI, as owner of up to 45.0% of the equity interest
of the Company, could vote its shares of New ONEOK Voting Securities at its
sole discretion with respect to a merger or other transaction constituting a
Change in Control, making the consummation of any such transaction, if opposed
by WRI, difficult to obtain. Certain provisions of the Shareholder Agreement,
such as the Buy/Sell Option, may also have the effect of discouraging or
rendering more difficult a takeover attempt involving New ONEOK or deterring a
third party from seeking to acquire control of New ONEOK. The combined effect
of the foregoing could diminish the opportunities for a shareholder to
participate in tender offers, including tender offers at a price above the
then current market value of New ONEOK Common Stock, inhibit fluctuations in
the market price of New ONEOK Common Stock that could result from takeover
attempts, and have the effect of making it more difficult for third parties to
cause the immediate removal and replacement of the members of the then current
Board of Directors of New ONEOK or the then current management of New ONEOK
without the concurrence of the Board of Directors of New ONEOK. See
"Description of the Preferred Stock--Convertible Preferred Stock" and
"Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock."
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THE SPECIAL MEETING
SPECIAL MEETING
The Special Meeting of shareholders of ONEOK will be held at 10:00 a.m.
local time, on , , 1997, at ONEOK's offices at ONEOK
Plaza, 100 West Fifth Street, Tulsa, Oklahoma 74102-0871 for the purpose set
forth in the accompanying Notice of Special Meeting and as described below.
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of ONEOK of proxies to be used at the
Special Meeting and at any and all adjournments or postponements of the
Special Meeting. Any person executing a Proxy Card may revoke it prior to its
exercise.
VOTING SECURITIES AND RECORD DATE
Holders of record of shares of ONEOK Common Stock at the close of business
on , 1997 are entitled to notice of and to vote at the Special
Meeting. On April 30, 1997, there were 27,933,705 outstanding shares of ONEOK
Common Stock. Each share of ONEOK Common Stock is entitled to one vote. ONEOK
will have no shares of preferred stock or preference stock outstanding as of
the Record Date. The affirmative vote of the holders of a majority of the
outstanding shares of ONEOK Common Stock is required under the DGCL, the ONEOK
Certificate and the rules of the NYSE to approve the Transactions at the
Special Meeting. Abstentions will be counted for the purpose of determining
the existence of a quorum.
As of August 31, 1996, Bank of Oklahoma, as trustee of the Thrift Plan for
Employees of ONEOK and Subsidiaries ("Thrift Plan"), reported on a Schedule
13G that it held 3,378,318 shares of ONEOK Common Stock (approximately % of
the ONEOK Common Stock outstanding on , 1997). Bank of Oklahoma
expressly disclaimed beneficial ownership of these shares. Each participant in
the Thrift Plan will receive an instruction card on which the participant may
direct the trustee as to the manner in which shares of ONEOK Common Stock
allocated to the participant's plan account are to be voted. If the
participant does not return a voting instruction card to the trustee in a
timely manner or returns a card without indicating any voting instructions,
the trustee will vote the shares in the same proportion as shares for which
the trustee receives voting instructions for that plan.
To the best of ONEOK's knowledge, no entity (other than as disclosed above)
owned more than 5% of any class of ONEOK's outstanding voting securities at
the close of business on , 1997.
PURPOSE OF SPECIAL MEETING
At the Special Meeting, ONEOK's shareholders will (i) consider and vote upon
the Transactions and (ii) transact such other business as may properly come
before the Special Meeting and at any and all adjournments or postponements
thereof. See "The Transactions."
PROXIES
All shares of ONEOK Common Stock that are represented at the Special Meeting
by properly executed proxies received prior to or at the Special Meeting, and
not duly and timely revoked, will be voted at the Special Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxy will be voted
FOR the approval of the Transactions. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the Special Meeting, will not be
voted. Accordingly, since the affirmative vote of a majority of
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outstanding shares is required for approval of the proposed Transactions, a
proxy marked "ABSTAIN" will have the effect of a vote against the proposed
Transactions. Shares represented by "broker non-votes" (i.e., shares held by
brokers or nominees which are represented at the Special Meeting but with
respect to which the broker or nominee is not empowered to vote) will be
counted for purposes of determining whether there is a quorum at the Special
Meeting. In accordance with NYSE rules, brokers and nominees are precluded
from exercising their voting discretion with respect to the approval and
adoption of the Transactions and thus, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares with
respect to the approval and adoption of the Transactions. Therefore, since the
affirmative vote of a majority of the aggregate voting power is required for
approval of the Transactions, a "broker non-vote" with respect to the
Transactions will have the effect of a vote against the Transactions. In
addition, the failure to vote in person or by proxy will have the same effect
as a vote against the proposed Transactions or an abstention.
The ONEOK Board is not currently aware of any business to be acted upon at
the Special Meeting other than as described herein. If, however, other matters
are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their judgment. Such adjournments or
postponements may be for the purpose of soliciting additional proxies. Shares
represented by proxies voting against the approval and adoption of the
Transactions will be voted against a proposal to adjourn the Special Meeting
for the purpose of soliciting additional proxies. ONEOK does not currently
intend to seek an adjournment of the Special Meeting.
Any proxy given pursuant to this solicitation may be revoked at any time
before the proxy is voted by filing with the Secretary of ONEOK prior to or at
the Special Meeting, at the address specified in the last paragraph on page 2,
either an instrument revoking the proxy or a duly executed proxy bearing a
later date. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy.
The cost of soliciting proxies will be borne by ONEOK. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
officers and regular employees of ONEOK. Morrow & Co., Inc., New York, New
York, will assist in solicitation of proxies. ONEOK will pay $12,500 to Morrow
& Co., Inc., for proxy solicitation services. ONEOK does not expect to pay any
additional compensation for the solicitation of proxies; however, the proxy
solicitor, brokers and other custodians, nominees, and fiduciaries will be
reimbursed for expenses incurred in forwarding proxy material to principals
and obtaining their proxies.
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR ONEOK COMMON STOCK WILL BE MAILED BY THE EXCHANGE AGENT AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
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THE TRANSACTIONS
The Transactions contemplate (i) the contribution of the Assets referred to
below, including the outstanding capital stock of Westar and MCMC, direct or
indirect wholly-owned subsidiaries of WRI, to WAI, a newly formed Oklahoma
corporation that is wholly-owned by WRI, and, immediately thereafter, (ii) the
Merger of ONEOK with and into WAI, with WAI as the surviving corporation.
THE COMPANIES
ONEOK Inc. ONEOK engages in several aspects of the energy business. ONEOK
purchases, gathers, compresses, transports, and stores natural gas for
distribution to consumers. It transports gas for others, leases pipeline
capacity to others for their use in transporting gas, and leases a small
intrastate transmission system in Texas to others. ONEOK explores for and
produces oil and gas, extracts and sells natural gas liquids, and is engaged
in the gas marketing business. In addition, it leases and operates a
headquarters office building (leasing excess space to others) and owns and
operates a related parking facility. As a regulated natural gas utility, ONEOK
distributes natural gas to approximately 730,000 customers in a geographic
service area comprising approximately three-fourths of the State of Oklahoma,
thereby meeting the natural gas needs of over two million people. ONEOK is a
Delaware corporation with principal executive offices at 100 West Fifth
Street, Tulsa, Oklahoma 74103-0871, and its telephone number is (918) 588-
7000.
Western Resources, Inc. WRI is engaged principally in the production,
purchase, transmission, distribution and sale of electricity, the delivery and
sale of natural gas and the provision of electronic monitored security
services. WRI serves approximately 601,000 electric customers in eastern and
central Kansas, approximately 648,000 natural gas customers in Kansas and
northeastern Oklahoma and approximately 400,000 security customers in 44
states. WRI's non-utility subsidiaries provide security services, market
natural gas primarily to small and medium-sized commercial and industrial
customers, engage in international power project development and provide other
energy-related products and services.
WRI and its divisions and direct or indirect wholly-owned subsidiaries
include KPL, a rate-regulated electric and gas division of WRI, KGE, a rate-
regulated utility and wholly-owned subsidiary of WRI, Westar, Westar Capital,
Inc., Westar Security, Inc., Westar Energy, Ltd. and The Wing Group, Ltd.,
non-utility subsidiaries of WRI, and MCMC, a regulated gas transmission
service provider. KGE owns 47% of Wolf Creek Nuclear Operating Corporation,
the operating company for the Wolf Creek Generating Station.
The Assets to be contributed to WAI pursuant to the Agreement consist of (i)
certain assets and liabilities of the local natural gas distribution
businesses of WRI which are operated in the States of Kansas and Oklahoma and
(ii) all of the outstanding capital stock and liabilities of MCMC and Westar,
direct or indirect wholly-owned subsidiaries of WRI. MCMC offers natural gas
transportation, wheeling, parking, balancing and storage services to customers
throughout the central and midwestern regions of North America. Westar
provides natural gas marketing and sales, purchasing and supply and other
marketing related services. See "The Gas Business."
WRI is a Kansas corporation with its principal executive offices located at
818 Kansas Avenue, Topeka, Kansas 66612 and its telephone number is (913) 575-
6300.
WAI, Inc. WAI is a wholly-owned subsidiary of WRI, newly formed by WRI under
the OGCA on May 16, 1997 for the purpose of effectuating the Transactions
contemplated by the Agreement. Prior to the Merger Effective Time, WRI will
not engage in any activity other than activities related to the Transactions.
WAI is an Oklahoma corporation with executive offices at 818 Kansas Avenue,
Topeka, Kansas 66612, and its telephone number is (913) 575-1950. Following
the Merger Effective Time, WAI will have its executive offices at 100 West
Fifth Street, Tulsa, Oklahoma 74103-0871, and its telephone number will be
(918) 588-7000.
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THE TRANSACTIONS
The Agreement is attached as Appendix A to this Proxy Statement/Prospectus.
The Agreement among WRI, WAI and ONEOK provides that WRI will contribute, or
will cause to be contributed, to WAI all of the Assets. WRI will then cause
WAI to assume all of the liabilities of WRI that arise primarily out of, or
relate primarily to or are primarily generated by, the Assets and
approximately $35 million aggregate principal amount of debt of WRI with terms
permitting prepayment with no more than 30 days' prior notice without penalty
and a maturity of no more than three years (the "Assumed Debt"). The amount of
Assumed Debt will be subject to adjustment based on changes in the working
capital of the Gas Business and the dollar amounts of capital expenditures to
be made by each of ONEOK and WRI for the period from December 1, 1996, through
the Closing Date.
Immediately after the Asset Transaction, ONEOK will merge with and into WAI,
with WAI as the surviving corporation, whereupon WAI's name will be changed to
"ONEOK, Inc." The outstanding shares of ONEOK Common Stock will be converted
on a one-for-one basis into the right to receive shares of New ONEOK Common
Stock. Each share of New ONEOK Common Stock will be issued together with the
corresponding number of associated Rights to purchase one one-hundredths of a
share of Series C Preferred Stock of New ONEOK pursuant to the Rights
Agreement.
Upon consummation of the Transactions, on a fully diluted basis, after
giving effect to the Transactions and based on the number of shares of ONEOK
Common Stock outstanding as of December 12, 1996, WRI will hold 2,996,702
shares of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock of New ONEOK, representing up to 9.9% of the New ONEOK Common
Stock outstanding before conversion of the Series A Convertible Preferred
Stock into New ONEOK Common Stock and up to 45.0% of the New ONEOK Common
Stock outstanding after such conversion. Holders of ONEOK Common Stock will
hold shares of New ONEOK Common Stock representing at least 90.1% of the New
ONEOK Common Stock outstanding and not less than 55.0% of the New ONEOK Common
Stock after conversion of the Series A Convertible Preferred Stock to be held
by WRI pursuant to the Agreement. In the event ONEOK issues additional shares
of ONEOK Common Stock between the Original Execution Date and the Closing, WRI
has the right pursuant to the Shareholder Agreement to require WAI at the
Closing to issue to it additional shares of New ONEOK Common Stock and/or
Series A Convertible Preferred Stock, at a price per share equal to the
average market price of the ONEOK Common Stock for the 20 trading days prior
to the Closing, so as to restore WRI's percentage ownership at the Closing to
up to 9.9% of the outstanding New ONEOK Common Stock and up to 45.0% of the
outstanding New ONEOK Common Stock on a fully diluted basis. See "The
Shareholder Agreement."
Pursuant to the Agreement, ONEOK has redeemed all of its outstanding shares
of ONEOK Preferred Stock and will redeem at the Closing of the Merger all
rights contemplated by the ONEOK Rights Agreement at the applicable redemption
price.
A copy of the Agreement (excluding all exhibits, attachments and schedules
thereto), the form of the Shareholder Agreement and the form of the
Certificate of Designations of the Convertible Preferred Stock are attached to
this Proxy Statement/Prospectus as Appendices A, B and C, respectively.
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The following chart illustrates the Transactions and the end result thereof.
[Chart Describing Transactions]
BACKGROUND AND REASONS FOR THE TRANSACTIONS
Background of the Transactions. The Board of Directors of ONEOK believes
that changes in the natural gas business are inevitable and that such changes
will significantly affect the manner in which natural gas and related services
are marketed. In response to this trend, commencing in 1994, senior management
of ONEOK conducted a strategic review of its business and of ongoing
developments in the natural gas distribution and energy related industry
regarding competition, regulation and consolidation. Management concluded that
the domestic natural gas business was undergoing a process of deregulation
which would lead, over the next several years, to "unbundling" of services at
the residential level. In other words, residential consumers would be able to
choose from a number of unregulated service providers to sell natural gas to
them which would be physically transported through existing distribution
systems, resulting in increased competition to sell natural gas to
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residential consumers. Management further concluded that markets for
electricity and natural gas were converging and consolidating and that these
trends and competition for customers would alter the structure and business
practices of companies serving these markets in the future.
In order to better position ONEOK competitively, the ONEOK Board and
management determined that it should seek both to expand its gas distribution
operations and become a provider of energy services not limited to natural
gas. ONEOK sought a strategy to pursue, and began to analyze, possible
acquisitions or strategic alliances with companies that would enhance and
expand its natural gas distribution, marketing and transportation business and
provide ONEOK with the opportunity to deliver to its customers, in addition to
a gas energy product, a variety of other products and services, including
electric energy and other services.
In October 1992, WRI began actively to pursue bids for the sale of its gas
operations. Financial information relating to WRI's Missouri, certain Kansas
and Oklahoma gas operations was distributed to potential purchasers, including
ONEOK. Given WRI's geographic proximity, ONEOK identified WRI's Kansas and
Oklahoma gas operations as being attractive candidates for a strategic
alliance with ONEOK. In May 1993, ONEOK and the Southern Union Company
("Southern Union") submitted a joint proposal to separately acquire certain
portions of the gas business of WRI. Southern Union's bid was for WRI's
Missouri distribution system, while ONEOK's bid was for WRI's Oklahoma and
certain of WRI's Kansas gas distribution systems. On June 22, 1993, ONEOK
publicly announced that WRI and ONEOK were conducting negotiations regarding
the possible sale to ONEOK of WRI's local natural gas distribution operations
in Oklahoma and gas only utility operations in eastern Kansas. Negotiations
between ONEOK and WRI continued through mid-July 1993. The parties were unable
to reach mutual agreement on the terms of the proposed sale, and on July 15,
1993, ONEOK publicly announced the termination of negotiations with WRI.
In February 1995, ONEOK executives, including Larry Brummett, Chairman,
President and Chief Executive Officer of ONEOK, approached John Hayes,
Chairman and Chief Executive Officer of WRI and suggested that their
respective corporations renew discussions. Throughout 1995, there were interim
discussions between executives of ONEOK and executives of WRI regarding
ONEOK's interest in purchasing WRI's Oklahoma local natural gas distribution
system. On January 29, 1996, Eugene Dubay of ONEOK and certain executives of
WRI met in Topeka, Kansas regarding the possible purchase by ONEOK of WRI's
Oklahoma and certain of its Kansas local natural gas distribution systems.
During April 1996, executives of WRI held several discussions with ONEOK
executives regarding the size and form of consideration for the transactions,
and WRI's proposal to retain a significant investment in the business through
ownership of capital equity in the combined business as full or partial
consideration for the transactions.
In June 1996, WRI and ONEOK executed a confidentiality agreement relating,
among other things, to the information to be provided by each company to the
other. Following the execution of such confidentiality agreement, the parties
began their respective due diligence reviews.
On July 16, 1996, managements of ONEOK and WRI met in Topeka, Kansas to
discuss the structure and terms of the transactions and the potential
operating synergies which might result.
On July 18, 1996, the ONEOK Board held a regularly scheduled meeting at
which it reviewed the status of the negotiations with WRI. Following
presentations by ONEOK's management regarding WRI's gas operations and ONEOK's
business and potential operating synergies, the ONEOK Board determined that it
would continue to evaluate the proposed transactions. The ONEOK Board
authorized its management to continue its discussions with WRI and to report
back to the ONEOK Board as discussions progressed. See "The Transactions--
Opinion of Financial Advisor."
On September 4, 1996, senior management of ONEOK and WRI had a meeting in
Tulsa, Oklahoma to further discuss the structure of the transactions and the
prospect of WRI's continued equity ownership in the combined business after
the closing of such proposed transactions. ONEOK management indicated its
willingness to enter into a proposed transaction structure in which WRI would
subsequently hold, subject to
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certain standstill restrictions, up to 45.0% of the common stock of the
combined entity on a fully diluted basis and receive a certain amount of cash.
On September 19, 1996, the ONEOK Board held a regularly scheduled meeting at
which it reviewed the status of ONEOK's negotiations with WRI and heard
presentations from ONEOK's management and legal advisors regarding the
proposed structure. Following such presentations, the ONEOK Board determined
that it would continue to evaluate the proposed transactions and authorized
management to continue discussions with WRI and its advisors and proceed with
due diligence.
During October 1996 through mid-November 1996, members of the respective
senior managements of each of ONEOK and WRI and their respective counsel held
several discussions relating to the terms of the Shareholder Agreement and
other matters, including, but not limited to, the number of shares of the
combined business to be received by WRI in the Transactions, WRI's board
representation in the combined business, WRI's voting rights, a standstill
provision, WRI's top-up rights, the Rights Agreement, WRI's registration
rights, transfer restrictions on WRI regarding its stock holding in New ONEOK,
and a buy/sell option for both WRI and New ONEOK. See "The Shareholder
Agreement." During this time period, WRI and ONEOK exchanged detailed
operational, financial and other business information and the respective
senior managements and legal and financial advisors of each of ONEOK and WRI
continued to conduct their due diligence reviews.
From the end of November 1996 through the beginning of December 1996,
discussions between the respective senior managements of each of ONEOK and WRI
and their counsel progressed toward finalization of the terms of the Agreement
and the Shareholder Agreement.
On December 11, 1996, the WRI Board, at its regularly scheduled meeting,
unanimously approved the Agreement, the Shareholder Agreement and the
Transactions.
On December 11, 1996, the ONEOK Board met to consider approval of the
Agreement, the Shareholder Agreement and the Transactions. At the meeting,
PaineWebber presented its oral opinion to the ONEOK Board that, as of such
date, the proposed Transactions were fair to ONEOK's shareholders from a
financial point of view. After further discussion by the ONEOK Board of the
proposed Transactions, the ONEOK Board concluded that the Transactions were in
the best interest of ONEOK's shareholders and unanimously approved the
Agreement, the Shareholder Agreement, other ancillary agreements and the
Transactions contemplated thereby.
On December 12, 1996, WRI and ONEOK executed the Agreement and publicly
announced the Transactions.
On January 31, 1997, WRI received a letter from the Commission confirming
WRI's continued eligibility to account for a certain other unrelated business
combination as a "pooling of interests." It is a condition to WRI's
obligations to close the Transactions that WRI's accountants confirm such
eligibility.
On May 19, 1997, WRI and ONEOK amended and restated the Agreement to include
New ONEOK as a party and to make several technical revisions.
On , 1997, WRI received a no-action letter from the Commission to
the effect that consummation of the Transactions would not cause WRI to be a
"holding company" nor New ONEOK to be a "subsidiary company" under the 1935
Act.
Reasons for the Transactions. In approving the Transactions, the ONEOK Board
of Directors considered the following material information and made various
evaluations thereof:
. Consummation of the Transactions would combine ONEOK's roughly $600
million rate base (the amount of investment upon which a utility is
allowed to earn a return) with WRI's roughly $500 million rate base,
nearly doubling ONEOK's gas utility franchise. The Transactions would also
nearly double ONEOK's customer base from 730,000 customers currently to
almost 1.4 million customers, making
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New ONEOK the eighth largest natural gas distribution company in the
United States, and geographically diversify ONEOK's distribution network
and customer base into the State of Kansas, enabling ONEOK, in the ONEOK
Board's view, to have greater regulatory and marketing flexibility.
. The ONEOK Board's belief that the local natural gas distribution and
transmission operations of WRI would be a good strategic fit for the ONEOK
Oklahoma properties by strengthening the earnings capability of ONEOK's
existing system, by benefiting the present customers of ONEOK and the Gas
Business over time through resulting economies of scale and system
coordination with WRI by means of the Shared Services Agreement.
. The ONEOK Board's belief that cross-marketing opportunities arising from
WRI's continued investment in the combined entity and the arrangements
contemplated by the Marketing Agreement, which would provide the
opportunity to (i) in cooperation with WRI, deliver a variety of services
to its customers that ultimately would include gas or electric energy,
home security and other services and (ii) deliver gas and gas services to
WRI's electric customers, thereby enhancing revenues.
. The ONEOK Board's belief that the acquisition of MCMC would enhance
ONEOK's gas marketing efforts.
. The ONEOK Board's belief that recent utility industry restructurings,
combinations and electric and gas company convergences resulting in the
development of energy services companies have increased the size and scale
requirements necessary for future success in the utility industry, and
that consummation of the Transactions places ONEOK in a more competitive
position.
. The Transactions would lower the debt to equity ratio of the combined
business from 45% to 30% in debt. Pro forma cash flow from operations
would increase from 22% to 28% and from 31% to 39% for the fiscal year
ended February 28, 1997 and the twelve months ended August 31, 1996,
respectively. Pro forma earnings to fixed charges would increase from
4.57x to 6.31x and from 2.42x to 3.42x for the fiscal year ended February
28, 1997 and the twelve months ended August 31, 1996, respectively. In the
ONEOK Board's view, the foregoing would strengthen its balance sheet,
enabling the combined business to have greater financial flexibility to
pursue other attractive transactions. The Transactions also create a more
competitive company because of the anticipated financial strength,
prospects and cash flow of the combined business.
. The intended federal income tax consequences of the Transactions
including the ability of the ONEOK shareholders to have a tax-free
exchange of ONEOK Common Stock for New ONEOK Common Stock. See "Certain
Federal Income Tax Consequences of the Transactions."
. The arrangements contemplated by the Shareholder Agreement for corporate
governance restrictions on WRI's significant equity holding in the
combined business, including WRI's agreement not to seek control of New
ONEOK, WRI's right to designate two directors prior to a Regulatory
Change, and additional directors comprising up to one-third of the New
ONEOK Board after a Regulatory Change, and New ONEOK's right to purchase
New ONEOK Common Stock from WRI in the event WRI wishes to sell a greater-
than-5.0% block of New ONEOK capital equity. See "The Shareholder
Agreement."
. The terms and conditions of the Agreement, including the consideration
for the Transactions, the parties' representations, warranties and
covenants, the conditions to their respective obligations, and the amount
of termination fees payable under the Agreement and the ONEOK Board's
belief that such terms and conditions were appropriate for the proposed
Transactions.
. The ONEOK Board's belief that the incorporation of New ONEOK under the
laws of the State of Oklahoma was desirable in light of the fact that
substantial portions of New ONEOK's operations will be conducted in the
State of Oklahoma.
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. The regulatory approvals required to consummate the Transactions,
including the OCC and KCC approvals, and the ONEOK Board's belief that it
was likely that such approvals would be obtained upon terms reasonably
satisfactory to the parties.
. The recommendation of the Transactions by the ONEOK management.
. The presentations made by management and PaineWebber at the December 11,
1996 ONEOK Board meeting that for fiscal 1998 through fiscal 2000 the
Transactions will improve the combined business' balance sheet and provide
greater flexibility for future transactions as well as the approximately
$26 million potential operating synergies achievable in one to three years
which might result from the combination of contiguous service territories
and resulting operating efficiencies. See "The Transactions--Opinion of
Financial Advisor."
. Additionally, the ONEOK Board relied on the PaineWebber Opinion to the
effect that the proposed Transactions are fair to the shareholders of
ONEOK from a financial point of view. (The full text of the written
opinion of PaineWebber, dated the date hereof, which sets forth the
procedures followed, the factors considered and the assumptions made by
PaineWebber, is attached as Appendix F to this Proxy Statement/Prospectus
and is incorporated by reference. You should read the opinion of
PaineWebber carefully and in its entirety.)
. The results of the due diligence review of the Gas Business conducted by
ONEOK's management and legal and financial advisors.
. The oral advice obtained from the Commission that WRI will not be a
holding company under the 1935 Act and New ONEOK will not be a subsidiary
company under the 1935 Act as a result of the Transactions. A no-action
letter to the same effect was obtained from the Commission on
, 1997.
In approving the Transactions, the ONEOK Board also considered the following
potentially negative material information and factors relating to the
Transactions which the ONEOK Board determined were outweighed by the benefits
of the Transactions:
. The lack of assurance that the combined entity would achieve the
approximately $26 million expected potential operational cost savings and
efficiencies resulting in revenue enhancements in one to three years.
. The termination and transfer provisions of the Shareholder Agreement,
which under certain circumstances could, subject to applicable law, enable
WRI or its transferee to acquire control of New ONEOK without paying a
control premium to the New ONEOK shareholders, and the fact that WRI's
aggregate voting power in New ONEOK with respect to mergers or similar
transactions involving a Change in Control may make the consummation of
such a transaction, which is opposed by WRI, difficult to obtain. See
"Risk Factors--Risks Relating to the Shareholder Agreement."
. The Board also evaluated other risk factors, including (i) the
uncertainty that New ONEOK may be subject to extensive regulatory and
reporting requirements under the 1935 Act if WRI were to become a
registered holding company under the 1935 Act and (ii) the potential
antitakeover effect of the New ONEOK Certificate, the New ONEOK By-laws,
the New ONEOK Rights Agreement, the Shareholder Agreement and Oklahoma
statutory law. The ONEOK Board determined that these negative factors did
not provide a sufficient basis for rejecting the Transactions. See "Risk
Factors" and "The Shareholder Agreement."
In analyzing the Transactions, the ONEOK Board evaluated the factors and
considerations described above and consulted with its financial and legal
advisors and with ONEOK management. The ONEOK Board did not adopt the
PaineWebber Opinion as the exclusive basis for its determination as to the
fairness of the Transactions; rather, the ONEOK Board, as indicated above,
included the PaineWebber Opinion in the total mix of information
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regarding the Transactions that was available to, and evaluated by, it. Given
the uncertain timing of the occurrence of the Regulatory Change, the ONEOK
Board, in evaluating the Convertible Preferred Stock, has considered the
conversion effect of the Convertible Preferred Stock as if it were to occur at
Closing. The ONEOK Board concluded that the combination of the factors
discussed above (including reliance on the PaineWebber Opinion that the
Transactions were fair to the shareholders of ONEOK, from a financial point of
view), together with the ONEOK Board independent evaluation, supported the
ONEOK Board's determination that the Transactions were fair to, and in the
best interests of, the ONEOK shareholders. In reaching this conclusion, the
ONEOK Board did not assign relative or specific weights to the above
information and factors or determine that any information or factor was of
particular importance. A determination of various weightings would, in the
view of the ONEOK Board, be impractical. Rather, the ONEOK Board viewed its
position and recommendations as being based on the totality of the information
and factors presented to and considered by it. In addition, individual members
of the ONEOK Board may have given different weight to different information
and factors.
For the reasons described above, the ONEOK Board, by a unanimous vote on
December 11, 1996, approved the Agreement and the Transactions and unanimously
recommends that ONEOK shareholders vote for approval and adoption of the
Transactions.
RECOMMENDATION OF THE ONEOK BOARD
THE ONEOK BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE PROPOSED TRANSACTIONS
AT A MEETING HELD ON DECEMBER 11, 1996, AND DETERMINED THAT THE TRANSACTIONS
ARE FAIR TO, AND IN THE BEST INTEREST OF, ONEOK AND ITS SHAREHOLDERS AND
RECOMMENDED THAT ONEOK'S SHAREHOLDERS VOTE FOR THE TRANSACTIONS. The
recommendations of the ONEOK Board of Directors are based upon, in addition to
the above discussed factors and in connection therewith, the PaineWebber
Opinion which is described below. See "The Transactions--Opinion of Financial
Advisor."
OPINION OF FINANCIAL ADVISOR
The full text of the opinion of PaineWebber, dated as of the date of this
Proxy Statement/Prospectus, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken, is
attached as Appendix F to this Proxy Statement/Prospectus. ONEOK shareholders
are urged to read such opinion carefully and in its entirety. The summary of
the PaineWebber Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
ONEOK retained PaineWebber as its financial advisor in connection with
rendering a fairness opinion relating to the Transactions. In connection with
such engagement, ONEOK requested PaineWebber to render an opinion as to
whether or not the proposed Transactions are fair, from a financial point of
view, to the holders of ONEOK Common Stock.
In connection with the ONEOK Board of Directors' consideration of the
Agreement, PaineWebber delivered the PaineWebber Opinion on December 11, 1996
to the effect that, as of the date of the PaineWebber Opinion, and based on
its review and assumptions and subject to the limitations summarized below,
the proposed Transactions were fair to the holders of ONEOK Common Stock from
a financial point of view. PaineWebber reaffirmed its opinion, as of the date
of this Proxy Statement/Prospectus, and PaineWebber performed certain
procedures to update certain of its analyses and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith. The PaineWebber Opinion was prepared at the request and for the
information of the Board of Directors of ONEOK and does not constitute a
recommendation to any holder of ONEOK Common Stock as to how any such
shareholder should vote with respect to the Transactions. The PaineWebber
Opinion does not address the relative merits of the Transactions and any other
transactions or business strategies discussed by the Board of Directors of
ONEOK as alternatives to the Transactions or the decision of the Board of
Directors of ONEOK to proceed with the Transactions. ONEOK did not place any
limitations upon PaineWebber with respect to the procedures followed or
factors considered in rendering the PaineWebber Opinion.
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In arriving at its opinion, PaineWebber, among other things: (i) reviewed,
among other public information, ONEOK's Annual Reports, Forms 10-K and related
financial information for the four fiscal years ended August 31, 1996; (ii)
reviewed, among other public information, WRI's Annual Reports, Forms 10-K and
related financial information for the four fiscal years ended December 31,
1995, and WRI's Form 10-Q and the related unaudited financial information for
the nine months ended September 30, 1996; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flows,
assets and prospects of ONEOK and the Gas Business, provided to PaineWebber;
(iv) conducted discussions with members of the respective senior management of
each of ONEOK and WRI concerning the respective businesses and prospects of
each of their natural gas operations; (v) reviewed the historical market
prices and trading activity for ONEOK shares and compared such prices and
trading histories with those of certain other publicly traded companies which
PaineWebber deemed to be relevant; (vi) compared the financial position and
operating results of ONEOK and the Gas Business with that of certain publicly
traded companies which PaineWebber deemed to be relevant; (vii) compared the
financial terms of the Transactions with the financial terms of certain other
business combinations which PaineWebber deemed to be relevant; (viii)
considered the potential pro forma effects of the Transactions on ONEOK; (ix)
reviewed the draft of the Agreement dated December 10, 1996 and the draft of
the Shareholder Agreement dated December 2, 1996; (x) reviewed certain
information provided to PaineWebber relating to potential stand-alone
operational efficiencies of the Gas Business; and (xi) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as PaineWebber deemed necessary,
including PaineWebber's assessment of regulatory, general economic, market and
monetary conditions.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by ONEOK and WRI and PaineWebber has not
independently verified the same. PaineWebber has assumed that the financial
forecasts provided to it were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments as to the future
performance of ONEOK and the Gas Business, respectively. PaineWebber has also
assumed, with the consent of ONEOK, that (i) the contribution of the Gas
Business will be accounted for under the purchase method of accounting and
(ii) any material liabilities (contingent or otherwise, known or unknown) of
ONEOK and the Gas Business are as set forth in the consolidated financial
statements of ONEOK and WRI, respectively. PaineWebber has not made an
independent appraisal of the assets or liabilities (contingent or otherwise)
of ONEOK or the Gas Business, nor has PaineWebber been furnished with any such
appraisals. The PaineWebber Opinion is based upon regulatory, economic,
monetary and market conditions existing on the date thereof. Furthermore,
PaineWebber expresses no opinion as to the price or trading range at which the
shares of ONEOK or New ONEOK will trade in the future.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of such analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the
PaineWebber Opinion. In its analyses, PaineWebber made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of ONEOK and WRI. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which businesses may actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty and
neither ONEOK nor PaineWebber assume responsibility for the accuracy of such
analyses and estimates.
The following paragraphs summarize the significant analyses delivered to the
ONEOK Board performed by PaineWebber in arriving at the PaineWebber Opinion,
dated as of December 11, 1996.
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In its analysis PaineWebber calculated the equity value of the Transactions
as of December 11, 1996 to be $626.3 million based on ONEOK's closing Common
Stock price on December 11, 1996 of $26.50 per share (the "Transaction
Value"). PaineWebber noted that the Transaction Value did not include the $35
million of debt of WRI to be assumed by WAI.
Selected Comparable Public Company Analysis: Using publicly available
information, PaineWebber compared selected historical and projected operating
performance data of the Gas Business to the corresponding data of a group of
comparable companies. The comparable companies included 12 gas distribution
utility companies: AGL Resources, Inc.; Bay State Gas Company; Eastern
Enterprises; Indiana Energy, Inc.; KN Energy, Inc.; Laclede Gas Company;
Northwest Natural Gas Company; NUI Corporation; Piedmont Natural Gas Company,
Inc.; Southwest Gas Corporation; Southern Union Company; and Washington Gas
Light Company (collectively, the "Comparable Companies").
PaineWebber calculated the Comparable Companies' multiples of market value
(share price multiplied by shares outstanding including in-the-money options
and warrants) to latest twelve months ("LTM") net income, LTM cash flow from
operations (net income plus depreciation and amortization) ("CFFO"), book
value of equity, and estimated 1997 and 1998 net income (adjusted to reflect a
December year end) as estimated by First Call research earnings estimates. As
of December 6, 1996, the Comparable Companies' ranges of multiples of LTM net
income, LTM CFFO, book value of equity and estimated 1997 and 1998 net income
were 11.1x--20.7x, 5.8x--11.1x, 1.3x--2.4x, 12.3x--16.9x and 10.5x--15.6x,
respectively. PaineWebber calculated comparable Transaction Value multiples of
the Gas Business LTM net income, LTM adjusted net income (LTM net income pro
forma for entire twelve months for (i) a $33.8 million rate increase received
in April 1996 and (ii) certain estimated annual stand-alone operational
efficiencies as provided to PaineWebber (the "Operational Efficiencies")), LTM
CFFO, LTM adjusted CFFO (adjusted net income plus depreciation and
amortization), book value of equity and estimated 1997 and 1998 net income
(estimated by WRI management) to be 35.6x (as compared to 11.1x--20.7x), 11.6x
(as compared to 11.1x--20.7x), 14.6x (as compared to 5.8x--11.1x), 7.9x (as
compared to 5.8x--11.1x), 1.1x (as compared to 1.3x--2.4x), 10.4x (as compared
to 12.3x--16.9x) and 9.2x (as compared to 10.5x--15.6x), respectively. Based
upon discussions with management, PaineWebber felt it instructive to calculate
LTM adjusted net income and LTM adjusted CFFO, because management considered
these calculations more representative of the performance of the Gas Business
going forward than the LTM net income and LTM CFFO. However, there cannot be
any assurances that such calculations will in the end be more representative.
Based upon the analysis of Transaction Value multiples, PaineWebber concluded
that such multiples fall within the range of fairness.
Selected Comparable Mergers and Acquisitions Analysis: PaineWebber reviewed
publicly available financial information for selected mergers and acquisitions
involving target companies in the gas distribution utility business. The
selected mergers and acquisitions PaineWebber analyzed included
(acquiror/target): Enova Corporation/Pacific Enterprises; Houston
Industries/NorAm Energy Corporation; Atmos Energy Corporation/United Cities
Gas Company; Texas Utilities Company/Enserch Corporation; Puget Sound Power &
Light Company/Washington Energy Company; Atmos Energy Corporation/Greeley Gas
Company; NIPSCO Industries, Inc./North Indiana Fuel and Light Company; Arkla,
Inc./Diversified Energies, Inc.; and Citizens Utilities Company/Louisiana
General Services, Inc. (collectively, the "Comparable Transactions").
PaineWebber noted that there are no directly comparable transactions to the
Transactions.
PaineWebber calculated the Comparable Transactions' ranges of multiples of
equity purchase prices to LTM net income, LTM CFFO and book value of equity to
be 11.7x--33.9x, 5.7x--11.7x and 2.1x--2.8x, respectively. PaineWebber
calculated comparable Transaction Value multiples of the Gas Business LTM net
income, LTM adjusted net income, LTM CFFO, LTM adjusted CFFO and book value of
equity to be 35.6x (as compared to 11.7x--33.9x), 11.6x (as compared to
11.7x--33.9x), 14.6x (as compared to 5.7x--11.7x), 7.9x (as compared to 5.7x--
11.7x) and 1.1x (as compared to 2.1x--2.8x), respectively. Based upon the
analysis of Transaction Value multiples, PaineWebber concluded that such
multiples fall within the range of fairness.
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Contribution Analysis: PaineWebber noted that based on the Agreement, WRI
will own no more than 45.0% of the fully-diluted New ONEOK Common Stock.
PaineWebber analyzed ONEOK's and the Gas Business' relative contribution to
the combined entity with respect to LTM and 1997 revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), earnings before
interest and taxes ("EBIT"), net income and CFFO. The Gas Business would have
contributed to LTM revenue, EBITDA, EBIT, net income (assuming LTM adjusted
net income for the Gas Business) and CFFO (assuming LTM adjusted CFFO for the
Gas Business), 32.0%, 37.6%, 43.1%, 50.7% and 38.7%, respectively. Assuming
the Transactions were consummated at the beginning of fiscal 1997, the Gas
Business is projected to contribute to 1997 revenue, EBITDA, EBIT, net income
and CFFO, 31.9%, 42.0%, 43.9%, 51.8% and 45.5%, respectively. PaineWebber also
analyzed the relative contribution of (i) ONEOK's and the Gas Business'
balance sheet items as of August 31, 1996 and September 30, 1996, respectively
(collectively, the "Latest Balance Sheets") and (ii) ONEOK's and the Gas
Business' projected balance sheet items provided to PaineWebber as of August
31, 1997 and September 30, 1997, respectively (collectively, the "1997 Balance
Sheets"). For both the Latest Balance Sheets and the 1997 Balance Sheets the
balance sheet items PaineWebber analyzed included: total assets, book value of
equity and total debt. Based on the Latest Balance Sheets, the Gas Business
would have contributed to total assets, book value of equity and total debt,
37.6%, 57.0% and 9.4%, respectively. Based on the 1997 Balance Sheets and
assuming the Transactions were consummated at the beginning of fiscal 1997,
the Gas Business is projected to contribute to total assets, book value of
equity and total debt, 38.9%, 57.2% and 0.0% (assumes Gas Business debt is
repaid in 1997), respectively. The results of this contribution analysis are
not necessarily indicative of the contributions that the respective businesses
may have in the future.
Discounted Cash Flow Analysis: PaineWebber analyzed the Gas Business based
on an unleveraged discounted cash flow analysis of the projected financial
performance of the Gas Business. Such projected financial performance was
based upon a five-year forecast for the Gas Business provided to PaineWebber.
The discounted cash flow analysis determined the discounted present value of
the unleveraged after-tax cash flows generated over the five-year period and
then added a terminal value based upon a range of EBITDA multiples from 6.5x
to 8.0x. The unleveraged after-tax cash flows and terminal value were
discounted using a range of discount rates from 9.0% to 10.5%. Based on this
analysis, PaineWebber derived a transaction valuation range of $725 million to
$925 million.
Pro Forma Merger Analysis: PaineWebber performed an analysis of the
potential pro forma effect of the Transactions on ONEOK's earnings per share
("EPS") for the fiscal years ending 1997 through 2001. In performing this
analysis, PaineWebber assumed (i) in exchange for the Gas Business, WRI will
hold 3.0 million shares of New ONEOK Common Stock and 19.3 million shares of
Series A Convertible Preferred Stock convertible on a one share for one share
basis into shares of New ONEOK Common Stock upon a Regulatory Change, at WRI's
option; (ii) the contribution of the Gas Business would be accounted for under
the purchase method of accounting; and (iii) no cost savings would be achieved
from the Transactions other than the Operational Efficiencies. PaineWebber
combined the projected operating results of ONEOK provided to PaineWebber with
the corresponding projected operating results of the Gas Business provided to
PaineWebber to arrive at the New ONEOK projected net income. PaineWebber
divided this by the pro forma shares outstanding to arrive at the New ONEOK
EPS. PaineWebber then compared the New ONEOK EPS to ONEOK's projected stand-
alone EPS provided to PaineWebber to determine the pro forma impact on ONEOK's
EPS. This analysis suggested that the Transactions would result in accretion
to ONEOK's EPS (assuming adjusted net income for the Gas Business) on a LTM
ended August 31, 1996 basis of approximately 10% and, assuming the
Transactions were consummated at the beginning of fiscal 1997, should result
in accretion to ONEOK's EPS in 1997 and thereafter.
ONEOK selected PaineWebber to be its financial advisor in connection with
rendering a fairness opinion relating to the Transactions because PaineWebber
is a prominent investment banking and financial advisory firm with experience
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations for corporate purposes.
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Pursuant to an engagement letter between ONEOK and PaineWebber, dated
December 2, 1996, PaineWebber has earned a fee of $875,000 for the rendering
of the PaineWebber Opinion. In addition, PaineWebber will be reimbursed for
certain of its related expenses. PaineWebber will not be entitled to any
additional fees or compensation in the event the Transactions are not approved
or otherwise consummated. ONEOK also agreed, under separate agreement, to
indemnify PaineWebber, its affiliates and each of its directors, officers,
agents and employees and each person, if any, controlling PaineWebber or any
of its affiliates against certain liabilities, including liabilities under
federal securities laws.
In the past, PaineWebber and its affiliates have provided financial advisory
services and financing services for ONEOK and have received fees for the
rendering of these services. PaineWebber may provide financial advisory
services to, and may act as underwriter or placement agent for, the combined
company in the future. In the ordinary course of PaineWebber's business,
PaineWebber may actively trade the securities of ONEOK and WRI for its own
account and for the accounts of its customers and, accordingly, may at any
time hold long or short positions in such securities.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the Transactions, the ONEOK shareholders should be aware that
WRI and New ONEOK will enter into the Marketing Agreement and the Shared
Services Agreement. The interests of WRI in New ONEOK upon consummation of the
Transactions may create potential conflicts of interest in connection with the
Marketing Agreement and the Shared Services Agreement or other transactions
between New ONEOK and WRI. Under the Agreement, the execution of the Marketing
Agreement and the Shared Services Agreement is a condition to Closing and such
agreements will be negotiated prior to the Merger. Such agreements will be
reached on the basis of arm's-length negotiations between ONEOK, on behalf of
New ONEOK, and WRI. In connection with approval of transactions with
affiliates, the New ONEOK Certificate provides that, in the absence of fraud,
no contract or other transaction of New ONEOK shall be affected or invalidated
in any way by the fact that any directors of New ONEOK are in any way
interested in or connected with any other party to such contract or
transaction or are themselves parties to such contract or transaction,
provided that such interest is fully disclosed or otherwise known to the New
ONEOK Board at the meeting of the Board at which such contract or transaction
is authorized or confirmed, and provided further that at the meeting of the
New ONEOK Board authorizing or confirming such contract or transaction there
is present a quorum of directors not so interested or connected and such
contract or transaction shall be approved by a majority of such quorum and no
such interested director shall vote on any such contract or transaction.
Mr. William M. Bell, a director and chairman of Liberty Bank and Trust
Company of Oklahoma City, N.A. and a director of ONEOK, will be a director of
New ONEOK. At the Closing Date, New ONEOK will enter into the Rights Agreement
with Liberty Bank and Trust Company of Oklahoma City, N.A., as rights agent.
ONEOK believes that the transactions with such rights agent will be conducted
on an arm's length basis and will be on terms no less favorable to New ONEOK
than can be obtained from an unrelated third party.
New ONEOK will provide indemnification and liability insurance arrangements
for officers and directors of ONEOK.
The Transactions will not trigger any severance policy or employment
agreement of ONEOK. The severance pay policy for ONEOK employees has been
amended to exclude the Transactions. In addition, termination agreements with
certain officers of ONEOK have also been amended to exclude the Transactions.
NEW ONEOK BOARD AND MANAGEMENT FOLLOWING THE TRANSACTIONS
If the proposed Transactions are approved and consummated, holders of ONEOK
Common Stock will become shareholders of New ONEOK, which will be under the
direction of the Board of Directors and management of New ONEOK. Initially,
the directors of New ONEOK are expected to consist of the persons now serving
as directors of ONEOK and two individuals designated by WRI ("Initial
Shareholder Nominees")
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pursuant to the Shareholder Agreement. WRI has designated Steven L. Kitchen
and , described below, as the Initial Shareholder Nominees. WRI shall
be entitled to representation on committees of the New ONEOK Board, except
that a director designated by WRI shall not chair a committee of the New ONEOK
Board nor serve on the Nominating Committee prior to the occurrence of a
Regulatory Change. If a Regulatory Change occurs, New ONEOK will cause
additional persons designated by WRI to be elected or recommended for election
so that the aggregate number of Shareholder Nominees (as defined below under
"The Shareholder Agreement--Board Representation") will be equal to (x) four
directors if the total size of the Board is 14 (excluding any Shareholder
Nominees) or fewer directors or (y) one-third (rounding down to the nearest
whole director) of the Board if the total size of the Board is more than 14
directors (excluding any Shareholder Nominees). See "The Shareholder
Agreement--Board Representation."
Mr. Steven L. Kitchen has been the Executive Vice President and Chief
Financial Officer of WRI during the past five years.
Upon consummation of the Merger, the directors of ONEOK will be elected and
assigned to classes of the Board of Directors of New ONEOK corresponding to
the present classes of the Board of Directors of ONEOK. In addition, Steven L.
Kitchen will be added to the New ONEOK Board class next standing for election
and will be added to the following New ONEOK Board class.
Assuming the Transactions are consummated prior thereto, the first annual
meeting of the shareholders of New ONEOK will be held on January 15, 1998. At
that meeting, shareholders of New ONEOK will, among other things, vote on the
election of directors of the class whose term of office expires at that
meeting.
The executive officers and headquarters personnel of ONEOK will hold similar
positions with New ONEOK and, based upon discussions between ONEOK and certain
persons, the provisions of the Agreement and the Employee Agreement, up to
five officers of the Gas Business will become additional officers of New
ONEOK, with comparable responsibilities, effective as of consummation of the
Transactions.
EFFECTS OF THE TRANSACTIONS ON ONEOK'S EXISTING SHAREHOLDERS
Except as described herein under "Description of Capital Stock,"
"Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock" and
"Description of Convertible Preferred Stock" and as contemplated by the
Agreement and the Shareholder Agreement, the New ONEOK Certificate and the New
ONEOK By-laws will be substantially identical to those of ONEOK. See
"Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock."
PLANS FOR THE OPERATION OF THE GAS BUSINESS FOLLOWING THE TRANSACTIONS
Immediately following the consummation of the Transactions, New ONEOK will
operate the Gas Business and the businesses of ONEOK. ONEOK does not have a
plan or intention for New ONEOK to dispose of or transfer, whether to related
or unrelated persons, any significant portion of the Assets. New ONEOK expects
to evaluate the individual and combined operations and formulate arrangements,
as appropriate, to effectively integrate the businesses.
Pursuant to the Agreement, WRI and ONEOK will agree, among other things, to
the provision of certain services and shared facilities to each other
following the Closing pursuant to the Shared Services Agreement to be entered
into by WRI and New ONEOK at the Closing. See "Other Agreements--Shared
Services Agreement."
GOVERNMENTAL AND REGULATORY APPROVALS
Antitrust Matters. Under the HSR Act, and the rules promulgated thereunder
by the FTC, the Transactions may not be consummated until the following steps
have been taken: (1) Premerger Notification and Report Forms have been
submitted and certain information has been furnished to the FTC and the
Antitrust Division; and (2) required waiting periods have expired or
terminated.
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WRI and ONEOK have agreed, pursuant to the Agreement, to file or cause to be
filed with the FTC and the Antitrust Division such notifications as are
required to be filed under the HSR Act and the rules and regulations
promulgated thereunder; to use all commercially reasonable efforts to make
such filings promptly; and to respond on a timely basis to any requests for
additional information made by either the FTC or the Antitrust Division.
Accordingly, WRI and ONEOK each filed Premerger Notification and Report Forms
with the FTC and the Antitrust Division, on April 4, 1997. The statutory
waiting period expired for ONEOK and WRI on May 4, 1997.
At any time before or after the consummation of the Transactions and
notwithstanding the expiration or termination of the HSR Act waiting period,
any federal or state antitrust authorities could take action under the
antitrust laws as they deem necessary or desirable in the public interest.
Such action could include seeking to enjoin the consummation of the
Transactions or seeking divestiture of all or part of the assets of ONEOK or
the Gas Business. Private parties may also seek to take legal action under the
antitrust laws, if circumstances permit.
If the Antitrust Division, or any other federal or state antitrust
authority, were to challenge the Transactions, the Closing of the Transactions
could be postponed beyond December 12, 1997, the first anniversary of the
original execution date of the Agreement, in which event, either WRI or ONEOK
may terminate the Agreement, pursuant to its terms, at any time after December
12, 1997. See "The Shareholder Agreement--Term."
Public Utility Holding Company Act. WRI is an exempt public utility holding
company under the 1935 Act and, as such, is exempt from all provisions of the
1935 Act except Section 9(a)(2) thereof ("acquisition of securities and
utilities assets and other interests"), which requires approval of the
Commission prior to the acquisition by any person, directly or indirectly, of
5% or more of the voting securities of a second or subsequent utility.
Consummation of the Merger is conditioned upon the receipt of an order of the
Commission under Section 9(a)(2) of the 1935 Act authorizing the Merger and
the receipt of an order or no action letter from the Commission or its staff,
as the case may be, to the effect that, as a result of the Merger, WRI will
not be deemed a "holding company" under Section 2(a)(7) of the 1935 Act and
that New ONEOK will not be deemed a "subsidiary company" under Section 2(a)(8)
of the 1935 Act, in each case, not materially impairing the economic and
strategic benefits of the Transactions and the other transactions contemplated
by the Agreement among WRI, ONEOK and WAI and agreements ancillary thereto.
See "Risk Factors--Uncertainties Regarding WRI's Regulatory Status."
Kansas Corporation Commission; Oklahoma Corporation Commission. WRI is
subject, as a gas and electric utility operating in the States of Kansas and
Oklahoma, to the jurisdiction of the KCC and the OCC, respectively. The KCC
and OCC have general regulatory and supervisory authority regarding the rates,
extensions, abandonment of service or facilities, valuation of property,
classification of accounts and various other activities of WRI and the Gas
Business. MCMC is similarly regulated by the KCC as a public utility company
in the State of Kansas. The KCC also has jurisdiction over WRI with respect to
the issuance of securities. There is, however, no state regulatory body in
Oklahoma having jurisdiction over WRI in connection with the issuance of
securities.
The KCC has recently initiated an informal investigation into the possible
unbundling of the residential gas market in the state of Kansas. It is
anticipated that this informal investigation will become a formal KCC docket
matter and that a subsequent KCC order will be issued within the next one to
three years.
In May, 1996, the OCC commenced a Notice of Inquiry into unbundling the gas
utility industry. Numerous meetings between the industry and the OCC staff
followed, and after a public hearing in December, the OCC voted to proceed
with a rulemaking to establish the procedures for such unbundling. On February
18, 1997, the OCC issued a Notice of Intent to Solicit Proposed Rules relating
to such unbundling. The final order with respect to unbundling has not yet
been issued, nor has a notice of proposed rulemaking been filed. In addition
to the OCC action, there is also a bill pending in the Oklahoma legislature
which proposes to deregulate the transportation of natural gas under certain
competitive conditions and remove it from the OCC jurisdiction and authority.
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ONEOK is actively working with the OCC to develop a plan and schedule to
unbundle services for its Oklahoma customers. Under ONEOK's current proposal,
all of ONEOK's customers who use 150 Mcf of gas or more per year would receive
unbundled services by 1998, and all of ONEOK's remaining customers would
receive unbundled services by 1999.
Under the Agreement, it is a condition precedent to the obligations of WRI,
WAI and ONEOK that the KCC and OCC each issue an order approving the
Transactions which is, in form, substance and scope, reasonably satisfactory
to WRI and ONEOK, respectively. See "The Agreement--Conditions to Closing."
As with the procedures required to be followed under the HSR Act, WRI, WAI
and ONEOK have each agreed, pursuant to the Agreement, to cooperate and use
their respective best efforts to promptly prepare and file all necessary
documentation, to obtain all requisite approvals and to allow the other an
opportunity to review and approve in advance all applications filed by the
filing party and to consult each other in obtaining all necessary orders and
approvals. See "The Agreement."
Neither WRI nor any of its Subsidiaries is engaged in the interstate
transmission or sale of natural gas and therefore is not subject to the
regulatory provisions of the Natural Gas Act.
Federal Energy Regulatory Commission. ONEOK Power Marketing Company, a
subsidiary of ONEOK, has a rate schedule for market based rates (the "Tariff")
issued by the Federal Energy Regulatory Commission (the "FERC"), which
authorizes ONEOK to sell electric power in interstate commerce. ONEOK has not
sold any electric power or capacity pursuant to the Tariff for any purpose.
Notice of cancellation of such Tariff will be filed with the FERC prior to the
Merger. Such cancellation requires FERC approval. Upon such cancellation, any
claim of jurisdiction over the Merger by the FERC should be foreclosed.
However, in the event the FERC were to claim jurisdiction, an application
would be filed under Section 203 of the Federal Power Act for approval of the
Merger, such being the most expedient method under the circumstances of
resolving the matter. Securing approval of cancellation of the Tariff and
approval of the Merger, if required, is a condition precedent to the
obligations of WRI, WAI and ONEOK to effect the Transactions under the
Agreement.
ACCOUNTING TREATMENT OF THE TRANSACTIONS
The Transactions contemplated by the Agreement will be accounted for under
the purchase method of accounting as prescribed under generally accepted
accounting principles. For purposes of applying the purchase method of
accounting, ONEOK is deemed to be the acquiring enterprise and the Gas
Business is deemed to be the acquired enterprises without regard to which
enterprise is the surviving enterprise. Accordingly, the historical financial
statements of ONEOK are presented as the historical financial statements of
New ONEOK and the assets and liabilities of the Gas Business are accounted for
as required by the purchase method of accounting. The results of operations of
the Gas Business are included in the financial statements of New ONEOK only
from the date of acquisition.
Under the purchase method of accounting, the consideration will be allocated
to the assets acquired and liabilities assumed of the Gas Business based on
their estimated fair values as of the Closing Date. Any excess of purchase
price over the estimated fair value of the net assets acquired will be
recorded as goodwill, which will be amortized on a straight-line basis over
the estimated period of benefit.
INCOME TAX CONSEQUENCES OF THE TRANSACTIONS
See "Certain Federal Income Tax Consequences of the Transactions."
ABSENCE OF APPRAISAL RIGHTS
If the Transactions are consummated, holders of ONEOK Common Stock who do
not vote in favor of the Transactions will not be entitled to appraisal rights
under Delaware law with respect to any of their shares of ONEOK Common Stock.
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NAME CHANGE
Pursuant to the Agreement under which the Merger will be consummated, the
name of WAI will be changed to "ONEOK, Inc." immediately prior to or at the
Closing.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF ONEOK COMMON STOCK
It is a condition to the Transactions that upon consummation of the
Transactions, the shares of New ONEOK Common Stock to be issued by New ONEOK
in connection with the Transactions will be authorized for listing on the NYSE
upon official notice of issuance. It is expected that the symbol under which
ONEOK Common Stock now trades will continue to be used for the shares of New
ONEOK Common Stock. If the Transactions are consummated, ONEOK Common Stock
will cease to be listed on the NYSE.
TREATMENT OF STOCK CERTIFICATES
After the Merger Effective Time, each certificate previously representing
shares of ONEOK Common Stock will automatically, with no further action by the
holder thereof, represent the right to receive an equal number of shares of
New ONEOK Common Stock. Liberty Bank & Trust Company of Oklahoma City, N.A. is
a transfer agent and registrar for ONEOK Common Stock and will act in the same
capacities for New ONEOK Common Stock. As soon as reasonably practicable after
the Merger Effective Time, a bank or trust company designated by ONEOK will,
in its capacity as exchange agent (the "Exchange Agent"), mail a letter of
transmittal with instructions to each holder of record of ONEOK Common Stock
outstanding immediately prior to the Merger Effective Time for use in
exchanging certificates formerly representing shares of ONEOK Common Stock for
certificates representing shares of New ONEOK Common Stock. Certificates
should not be surrendered by any holders of ONEOK Common Stock until they have
received the letter of transmittal from the Exchange Agent.
CLOSING DATE; EFFECTIVE TIME
If the shareholders approve the Transactions, the Merger of ONEOK with and
into WAI will become effective upon the effective time of filing of their
respective Certificates of Merger in accordance with the DGCL and the OGCA. It
is expected that the Assets will be contributed to, and substantially all of
the liabilities relating to the Assets will be assumed by WAI in the second
half of fiscal 1997, provided that all conditions to the Closing have been
satisfied (or waived). See "The Agreement--The Transactions" and "--Conditions
to Closing."
THE ONEOK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE TRANSACTIONS.
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THE AGREEMENT
The following summary of the terms of the Agreement is qualified in its
entirety by reference to the Agreement, which is incorporated by reference
herein and attached as Appendix A hereto. Certain defined terms used in the
description of the Agreement below which are not otherwise defined in the
Proxy Statement/Prospectus and which are defined in the Agreement or the
exhibits thereto shall have the respective meanings set forth therein.
THE TRANSACTIONS
Prior to the Merger Effective Time, WRI will form WAI and will then
contribute to WAI all of the Assets. In addition to such Assets, WAI will also
assume all of the liabilities of WRI that arise primarily out of, or relate
primarily to or are primarily generated by, the Assets, as well as the Assumed
Debt of $35 million (subject to adjustment). At the Closing, to occur shortly
after the Asset Transaction, ONEOK will then merge with and into WAI, with WAI
as the surviving corporation and WAI's name will be changed to "ONEOK, Inc."
Each share of ONEOK Common Stock outstanding at the Merger Effective Time will
be converted into the right to receive one share of New ONEOK Common Stock.
All shares of New ONEOK Common Stock will be issued together with a
corresponding number of associated Rights.
The amount of the Assumed Debt will be subject to adjustment to provide
either for New ONEOK's assumption of additional debt (to the extent that the
Net Amount, as defined below, exceeds $40 million), or for a reduction in the
amount of debt assumed by New ONEOK (to the extent that the Net Amount falls
short of $40 million). As defined in the Agreement, the "Net Amount" means the
Working Capital of the Gas Business as of the close of business on the Closing
Date minus the amount, if any, by which the ONEOK Capital Expenditure Amount
exceeds the WRI Capital Expenditure Amount and plus the amount, if any, by
which the WRI Capital Expenditure Amount exceeds the ONEOK Capital Expenditure
Amount, as applicable. The "Capital Expenditure Amount" means, with respect to
either party, the dollar amount anticipated to be expended by such party with
respect to capital expenditures and construction work in progress for the
period from December 1, 1996, through the Closing Date.
Pursuant to the Agreement, ONEOK has redeemed all of its outstanding shares
of ONEOK Preferred Stock and will redeem at the Closing of the Merger all
rights contemplated by the ONEOK Rights Agreement at the applicable redemption
price.
Upon the consummation of the Transactions, on a fully diluted basis after
giving effect to the Transactions and based on the number as shares of ONEOK
Common Stock outstanding as of December 12, 1996, (a) the holders of ONEOK
Common Stock will hold shares of New ONEOK Common Stock representing in the
aggregate at least 90.1% of the New ONEOK Common Stock to be outstanding or,
assuming conversion of all Series A Convertible Preferred Stock of New ONEOK
to be held by WRI pursuant to the Agreement, not less than 55.0% of the New
ONEOK Common Stock to be outstanding, and (b) WRI will hold 2,996,702 shares
of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock, together representing in the aggregate up to 9.9% of the New
ONEOK Common Stock to be outstanding prior to conversion of the Series A
Convertible Preferred Stock and up to 45.0% of the New ONEOK Common Stock
outstanding thereafter, of which up to 35.1% represents New ONEOK Common Stock
issuable assuming the conversion of the Series A Convertible Preferred Stock.
In the event ONEOK issues additional shares of ONEOK Common Stock between the
Original Execution Date and the Closing, WRI has the right under the
Shareholder Agreement to purchase at Closing additional shares of New ONEOK
Common Stock and/or Series A Convertible Preferred Stock, at a price per share
equal to the average market price of the ONEOK Common Stock for the 20 trading
days prior to the Closing, so as to restore WRI's percentage ownership at
Closing to up to 9.9% of the outstanding New ONEOK Common Stock and up to
45.0% of the outstanding New ONEOK Common Stock on a fully diluted basis. See
"The Shareholder Agreement."
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The Series A Convertible Preferred Stock is convertible, at the option of
the holder, at any time following the occurrence of a Regulatory Change, into
New ONEOK Common Stock at the rate of one share of New ONEOK Common Stock for
each share of Series A Convertible Preferred Stock, as adjusted to reflect any
stock split or similar events. In addition, the Series A Convertible Preferred
Stock is mandatorily convertible into New ONEOK Common Stock upon the transfer
by WRI to any non-affiliate.
The consummation of the Transactions is conditioned upon WRI's and ONEOK's
receipt of an order from the Commission, under Section 9(a)(2) of the 1935
Act, authorizing the Merger and a no-action letter from the staff of the
Commission or order from the Commission to the effect that, for purposes of
the 1935 Act, WRI's ownership interest in ONEOK will not cause New ONEOK to be
deemed "a subsidiary" of WRI nor WRI to be deemed a "holding company" under
the 1935 Act.
The holders of Series A Convertible Preferred Stock will be entitled, with
respect to each dividend period on the New ONEOK Common Stock, to receive a
dividend payment thereon that is equal, prior to the fifth anniversary of the
Closing, to 1.5 times the dividend amount declared in respect of each share of
New ONEOK Common Stock for such dividend period (as adjusted to reflect any
stock split or similar events) and thereafter 1.25 times the dividend amount
declared in respect of each share of New ONEOK Common Stock for such dividend
period. In no event, however, will the aggregate annual dividend amount
payable in respect of each share of Series A Convertible Preferred Stock be
less than $1.80 per share (as adjusted to reflect any stock split or similar
events). Presently, the annual indicated dividend rate on the ONEOK Common
Stock is $1.20 per share.
In addition, upon conversion of any shares of Series A Convertible Preferred
Stock, the holders thereof will be entitled to receive their proportionate
share of an amount equal to $35 million if such conversion were to occur at
Closing, which amount reduces to zero over five years, assuming the annual
dividend amount on the Series A Convertible Preferred Stock is maintained at
$1.80 per share (and over less than five years if the annual dividend amount
on the Series A Convertible Preferred Stock is in excess of $1.80 per share).
See "The Shareholder Agreement--Make Whole Payment."
Shares of Series A Convertible Preferred Stock are non-voting, except that
they vote with the New ONEOK Common Stock (and any other class or series of
stock which may be similarly entitled to vote with the holders of New ONEOK
Common Stock) as a single class with respect to any transaction which, if
consummated, would constitute a Change in Control of New ONEOK. With respect
to any such transaction, each share of Series A Convertible Preferred Stock
shall carry a number of votes equal to the number of votes carried in the
aggregate by the number of shares of New ONEOK Common Stock issuable upon
conversion of one share of Series A Convertible Preferred Stock. See "The
Shareholder Agreement--Voting," "--Restrictions on Transfer and Conversion"
and "Description of the Preferred Stock--Convertible Preferred Stock."
Shares of the Series B Convertible Preferred Stock will be issued to WRI
upon WRI's exercise of the Top-up Rights pursuant to the Shareholder Agreement
so as to enable WRI to restore its Total Ownership Percentage to the Maximum
Ownership Percentage or in the case of any Dilutive Issuances in connection
with any acquisition or other business combination, in exchange for payment of
the issue price per share of the Dilutive Issuance, so as to restore its Total
Ownership Percentage to the Maximum Ownership Percentage minus 10%. See "The
Shareholder Agreement--Top-Up Rights." The terms of the Series B Convertible
Preferred Stock are the same as those of Series A Convertible Preferred Stock,
except that (i) the dividend amount on each share of Series B Convertible
Preferred Stock is equal to 1.25 times the dividend amount declared with
respect to each share of the New ONEOK Common Stock (as adjusted to reflect
any stock split or similar events) for each dividend period and (ii) prior to
the fifth anniversary of the Closing Date, the aggregate annual dividend
amount will equal an amount not less than $1.50 per share of Series B
Convertible Preferred Stock and, thereafter, the aggregate annual dividend
amount will equal an amount not less than $1.80 per share of Series B
Convertible Preferred Stock. See "Description of the Preferred Stock--
Convertible Preferred Stock."
ASSETS CONTRIBUTED
As noted above, pursuant to the Agreement, WRI will contribute the Assets
including, but not limited to: all Gas Pipelines and Plants; all Gas and other
substances and materials located in the Gas Pipelines or at the Plants; all
tangible personal property; all rights under agreements; all leasehold
interests in tangible personal
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property; all government permits, authorizations, franchises, certificates and
licenses, to the extent transferable; all leases of real property; all
intangible personal property rights and regulatory assets; all Accounts
Receivable; all of the outstanding stock of Westar and MCMC (MCMC, together
with Westar, the "Transferred Subsidiaries"); copies of all customer and
vendor lists, files, documents, books, records and data bases relating to the
operation of the Gas Business or ownership of the Assets; all Easements; all
Inventory; and all rights and claims relating to the Assets or the Gas
Business under insurance policies.
EXCLUDED ASSETS
The Agreement excludes from the Asset Transaction those assets set forth in
a schedule thereto including, but not limited to, the retained manufactured
gas plant sites (the "Retained Manufactured Gas Plant Sites") and any
intellectual property rights relating to the names "Westar," "Western
Resources," "KPL," or "KGE."
ASSUMED LIABILITIES
As noted above, pursuant to the Agreement, New ONEOK will assume any and all
of the liabilities, debts, claims, losses, obligations, including, without
limitation, Environmental Claims and claims with respect to any contracts
included in the Assets, that arise primarily out of, or relate primarily to,
or are primarily generated by the Assets whether arising before or after the
Asset Transaction and whether known or unknown, fixed or contingent, other
than Retained Liabilities. Assumed Liabilities also include the Assumed Debt,
subject to adjustment, as outlined above under "--The Transactions."
EXCLUDED LIABILITIES
The Agreement excludes from the Assumed Liabilities all liabilities of WRI
and its Subsidiaries that do not arise primarily out of, do not relate
primarily to, or are not primarily generated by, the Assets and the field
operations of the Gas Business; liabilities of WRI and its Subsidiaries (other
than the Transferred Subsidiaries) for Income Taxes; all liabilities,
including environmental liabilities, relating to Retained Manufactured Gas
Plant Sites; all liabilities relating to or resulting from, the divestiture by
WRI of the Missouri Gas assets to Southern Union Company; and all liabilities
of WRI and its Subsidiaries, whether or not related to the Gas Business,
relating to indebtedness for borrowed money or guarantees, other than the
Assumed Debt and other than capital leases primarily related to the Gas
Business.
CLOSING
The Closing of the Merger will take place at the headquarters of WRI, as
promptly as practicable after satisfaction or waiver of all of the conditions
precedent to each party's obligation to consummate the Merger.
REPRESENTATIONS AND WARRANTIES
The Agreement contains representations and warranties by ONEOK, including
those as to: (1) ONEOK's and its Significant Subsidiaries' organization,
standing and power to carry on their respective businesses as presently being
conducted; (2) ONEOK's capital structure as of the Original Execution Date;
(3) the execution and delivery and the validity and enforceability against
ONEOK of the Agreement and the related agreements and non-contravention
thereby of the charter and by-laws of ONEOK or its Subsidiaries, or subject to
third party consents, any loan, credit agreement or other material agreement
or any applicable law, other than those contraventions which, individually or
in the aggregate, would not have a Material Adverse Effect on ONEOK; (4) the
receipt of all requisite approvals and making of all necessary filings by
ONEOK, other than those specified in the Agreement; (5) ONEOK's compliance
with the requirements of the Securities Act and the Exchange Act; (6) the
accuracy of certain information supplied by ONEOK for inclusion in the Form S-
4 and this Proxy Statement/ Prospectus and the absence of certain changes in
respect of ONEOK; (7) the absence of any undisclosed material liabilities or
any material default or violation on the part of ONEOK or any of its
Subsidiaries; (8) ONEOK and its Subsidiaries' compliance with applicable laws;
(9) the absence of any undisclosed material litigation; (10) certain tax
matters; (11) certain employee, pension benefit plan and welfare benefit plan
matters; (12) certain labor
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matters; (13) ONEOK's and its Subsidiaries' entitlement to use all intangible
property necessary for the operation of each of their respective businesses;
(14) certain environmental matters; (15) ONEOK's maintenance of insurance
coverage as is customary for the industry in which ONEOK operates and such
insurance not being adversely affected by the transactions contemplated by the
Agreement; (16) the performance of all Material Contracts and the review and
approval of such contracts, to the extent required; (17) the absence of any
regulatory proceeding pending which could result in orders having a Material
Adverse Effect on ONEOK; (18) the regulation of ONEOK as a utility; (19) the
ONEOK's Board's receipt of a fairness opinion; (20) the absence of any vote
necessary to approve the Agreement and the transactions contemplated thereby,
other than the ONEOK Shareholder Approval; (21) ONEOK and its Subsidiaries not
being beneficial owners of any shares of WRI Common Stock; (22) brokers' fees;
(23) related party transactions; (24) the absence of any applicable takeover
provisions; (25) the exclusion of WRI from the definition of an Acquiring
Person under the ONEOK Rights Agreement; (26) the condition of and title to
the properties and assets reflected in the ONEOK Balance Sheet as of August
31, 1996 and all properties and assets purchased since August 31, 1996; and
(27) the validity of those obligations represented by the Accounts Receivable
of ONEOK.
The Agreement contains representations and warranties by WRI and, solely to
the extent of representations and warranties concerning WAI, by WAI,
including, but not limited to, those as to: (1) the organization, standing and
power to carry on their respective businesses, as presently being conducted,
of WRI, Westar, MCMC, the Significant Subsidiaries of Westar and MCMC and WAI;
(2) WAI's capital structure and the sufficiency of the Assets to be
contributed pursuant to the Agreement; (3) the execution and delivery and the
validity and enforceability against WRI and WAI of the Agreement and the
Ancillary Documents to the extent WRI and/or WAI are parties and non-
contravention thereby of the certificates of incorporation and by-laws of WRI,
Westar, MCMC or WAI, any of the Subsidiaries of Westar or MCMC, any loan,
credit agreement or other material agreement or any applicable law, other than
those contraventions which, individually or in the aggregate, would not have a
Material Adverse Effect on the Gas Business (see below under "--Conditions to
Closing"); (4) the receipt of all requisite approvals and making of all
necessary filings by WRI and/or WAI relating to the Gas Business and/or the
Transferred Subsidiaries, other than those specified in the Agreement; (5)
WRI's compliance with the requirements of the Securities Act and the Exchange
Act and the due preparation and fairness of certain unaudited financial
information relating to the Gas Business, Westar and/or MCMC; (6) the accuracy
of certain information supplied by WRI or WAI for inclusion in the
Registration Statement and this Proxy Statement/Prospectus and the absence of
certain changes in respect of the Gas Business; (7) the absence of any
undisclosed material liabilities or any default or violation on the part of
WRI, with respect to the Gas Business, or any of the Transferred Subsidiaries;
(8) WRI's and the Transferred Subsidiaries' compliance with applicable laws
relating to the Gas Business; (9) the absence of any undisclosed material
litigation; (10) certain tax matters; (11) certain employee, pension benefit
plan and welfare benefit plan matters; (12) certain labor matters; (13) WRI's
and the Transferred Subsidiaries' entitlement to use all intangible property
necessary for the operation of the Gas Business; (14) certain environmental
matters; (15) the performance of all Material Contracts and the review and
approval of such contracts, to the extent required; (16) the absence of any
regulatory proceeding pending which could result in orders having a Material
Adverse Effect on the Gas Business; (17) the regulation of each of WRI, the
Gas Business and MCMC as a utility; (18) WRI's Board's receipt of a fairness
opinion; (19) the condition of and title to the properties and assets
reflected in the balance sheet as of September 30, 1996 included in the
Consolidated Financial Information of the Gas Business and all properties and
assets purchased since September 30, 1996; (20) the validity of those
obligations represented by the Accounts Receivable with respect to the Gas
Business; (21) WRI and its Subsidiaries not being beneficial owners of any
shares of ONEOK Common Stock or ONEOK Preferred Stock; (22) brokers' fees;
(23) WRI's and the Transferred Subsidiaries' maintenance of insurance coverage
as is customary for the industries in which they operate; (24) WAI's non-
engagement in any business and non-incurrence of any liabilities prior to the
Closing except as expressly contemplated by the Agreement; (25) the discharge
of all intercompany liabilities prior to the Closing; and (26) related party
transactions.
None of the representations and warranties contained in the Agreement will
survive beyond the Closing Date.
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CERTAIN COVENANTS OF WRI AND WAI
Conduct of Business Pending the Merger. From the Original Execution Date
until the Merger Effective Time, WRI has agreed, as to itself and the
Transferred Subsidiaries, to conduct the Gas Business in the usual, regular
and ordinary course in substantially the same manner as conducted through the
Original Execution Date and to endeavor to preserve intact the business
organizations and relationships of the Gas Business. In particular, except as
provided for in the Agreement or specified in a schedule thereto, WRI has
agreed: (1) not to permit Westar or MCMC to engage in any changes of stock;
(2) not to, and not to permit any of the Transferred Subsidiaries to, acquire
assets of any local natural gas distribution business conducted in the States
of Kansas, Missouri or Oklahoma with an aggregate book value of $6.5 million
or more, or to dispose of any of the Assets (except for dispositions in the
ordinary course of business consistent with past practice that are not
material to the Gas Business and other dispositions with an aggregate of
inventory and equipment book value not to exceed $6.5 million); (3) that
certain actions in respect of employee matters, leases, capital expenditures,
affiliate transactions, rate matters and Material Contracts will not be taken
by WRI, with respect to the Gas Business, or permitted by WRI to be taken by
the Transferred Subsidiaries; (4) that insurance will be maintained with
respect to the Gas Business consistent with past practice and that reasonable
efforts will be used to ensure that existing WRI permits material to the
operations of the Gas Business are maintained; (5) that certain elections,
settlements or changes regarding Taxes in respect of the Gas Business will not
be taken or permitted by WRI; (6) that certain liabilities will not be
discharged or permitted to be discharged by WRI, or other material actions
taken, or permitted to be taken by WRI, with respect to the Gas Business; (7)
that WRI will not, nor will it permit any of the Transferred Subsidiaries to,
enter into any agreement inconsistent with the foregoing; (8) that WRI and New
ONEOK will enter into the Shareholder Agreement (see "The Shareholder
Agreement"); (9) that neither WRI nor any of its Subsidiaries will use the
name "Mid Continent Market Center" or any similar name; and (10) not to take
or fail to take any action the taking or failure to take of which would
reasonably be expected to prevent, impede materially, interfere with or delay
the transactions contemplated by the Agreement and related agreements.
Non-Competition. WRI has agreed that from the Closing Date until the fifth
anniversary of the Closing Date, it will not, nor will it permit any of its
Subsidiaries, directly or indirectly, to engage in certain activities in
competition with New ONEOK in the local natural gas distribution business in
the States of Kansas, Oklahoma and Missouri. Specifically, WRI has agreed that
it will not (nor will it permit any of its Subsidiaries to): own, manage,
operate, join, control, finance; participate in the ownership, management,
operation etc.; be connected as a partner, consultant or otherwise with;
permit its name to be used in connection with; or solicit any contracts or
business relationships involving local natural gas distribution in the States
of Kansas, Oklahoma or Missouri.
The Agreement does not prohibit WRI or its Subsidiaries from acquiring or
retaining any entity which engages in any such competing business, provided
that the assets of such competing business do not constitute more than 20% of
the consolidated assets of such acquired entity, or acquiring in the aggregate
beneficial ownership of not more than 20% of any class of publicly traded
equity securities or any profit or loss interest in any publicly-held entity
which competes with New ONEOK in the business of local natural gas
distribution, in the States of Kansas, Oklahoma or Missouri.
Standstill. WRI has agreed that, from the Original Execution Date through
the Closing Date, except as expressly permitted or contemplated by the
Agreement, WRI will not, nor will it permit its Subsidiaries to: (1) directly
or indirectly acquire any securities or property of ONEOK or its Subsidiaries;
(2) except at the specific written request of ONEOK, propose to enter into,
directly or indirectly, any merger or business combination involving ONEOK or
any of its Subsidiaries or purchase, directly or indirectly, a material
portion of the assets of ONEOK or any of its Subsidiaries; (3) make or
participate, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are used in the proxy rules of the Commission) to vote or seek to
advise or influence any person in the voting of any voting securities of ONEOK
or its Subsidiaries; (4) form, join or participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
security of ONEOK or any of its Subsidiaries; (5) otherwise seek to control or
influence the management, Board of Directors, or policies of ONEOK; (6)
disclose any intention, plan or arrangement inconsistent with the foregoing;
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(7) advise, assist or encourage any other persons in connection with the
foregoing; (8) request ONEOK, directly or indirectly, to amend or waive the
provision of the Agreement regarding this standstill restriction to which WRI
is subject; or (9) take any action which might require ONEOK to make a public
announcement regarding the possibility of a business combination or merger.
CERTAIN COVENANTS OF ONEOK
Conduct of Business Pending the Merger. From the Original Execution Date of
the Agreement through the Merger Effective Time, ONEOK has agreed that it will
not, among other things: (1) (x) engage in any repurchase, recapitalization,
restructuring, redemption, other acquisition or reorganization with respect to
its capital stock, (y) split, combine or reclassify any of the outstanding
shares of capital stock of ONEOK or issue, authorize or propose the issuance
of any other securities in respect of or in substitution for shares of capital
stock of ONEOK or (z) amend any material term of the ONEOK Common Stock,
except to the extent that any redemption or repurchase by ONEOK of its
Preferred Stock is at a price not in excess of the redemption price required
to be paid under the ONEOK Certificate of Incorporation; (2) amend its
Certificate of Incorporation or By-laws as amended through the Original
Execution Date or effect any transactions which, if effected after Closing,
would constitute a Change in Control; (3) present any matter to the Board of
Directors of ONEOK, other than with respect to an Acquisition Proposal and the
enforcement or interpretation by ONEOK of its rights under the Agreement or
the Ancillary Documents, without providing written notice to WRI ten days
prior to such presentation (or, if not possible, at the same time that the
ONEOK Board of Directors will receive such notice) and delivering to WRI any
written materials to be provided to the Board of Directors of ONEOK at the
same time as they are provided to the ONEOK Board or, if not possible, prior
to the applicable meeting of the ONEOK Board; (4) take or fail to take any
action the taking or failure to take of which would reasonably be expected to
prevent, impede materially, interfere with or delay the transactions
contemplated by the Agreement and related agreements; (5) agree (nor permit
any of its Subsidiaries to agree) to take any action inconsistent with the
foregoing; or (6) issue any ONEOK options, nor issue any equity securities
except in connection with the acquisition, by merger or otherwise, of any
third party or the assets of any third party.
ONEOK agreed further that it will (1) cause the rights contemplated by the
ONEOK Rights Agreement to be redeemed prior to the Merger Effective Time; (2)
repurchase or redeem all of the outstanding shares of the ONEOK Preferred
Stock, so that the holders of ONEOK Preferred Stock will not have the right to
vote on the Merger; (3) use its best efforts to keep WRI informed of any
material business developments; and (4) use its (and ONEOK's Subsidiaries will
use their) best efforts to enter into the Shared Services Agreement and the
Marketing Agreement.
As used in the Agreement, "Acquisition Proposal" means any proposal or offer
(other than the Merger) for, or that could reasonably be expected to lead to,
a tender or exchange offer, a merger, consolidation or other business
combination involving ONEOK, or any proposal to acquire in any manner a
substantial equity interest in, or any substantial portion of, the assets of
ONEOK.
No Solicitation. ONEOK has agreed that from and after the Original Execution
Date, except as permitted by the Agreement, it will not, nor will it authorize
or permit any of its representatives or those of any of its Subsidiaries to,
directly or indirectly, (1) solicit, initiate or encourage the making of any
proposal that constitutes or may reasonably be expected to lead to, an
Acquisition Proposal from any person, including by way of providing
information to any prospective buyer; (2) engage in any negotiations or
discussions or provide any non-public information or data with respect to any
Acquisition Proposal; and (3) otherwise cooperate with or assist or
participate in, or facilitate any effort or attempt to make or implement any,
Acquisition Proposal. ONEOK has agreed, further, immediately to cease any
solicitation, initiation, encouragement, activity, discussion or negotiation
being conducted by ONEOK or any ONEOK representatives, with respect to any
Acquisition Proposal existing as of the Original Execution Date.
Notwithstanding the foregoing, ONEOK's Board of Directors will not be
prohibited by the Agreement from taking any of the following actions: taking
and disclosing to shareholders of ONEOK a position contemplated by Rule 14e-
2(a) under the Exchange Act; prior to the ONEOK Shareholder Approval and
following receipt from
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a third party of an unsolicited bona fide Acquisition Proposal, engaging in
discussions or negotiations with such third party and furnishing such third
party information concerning ONEOK and its business, properties and assets,
provided that such third party executes a confidentiality agreement in favor
of ONEOK; or prior to the ONEOK Shareholder Approval and following receipt
from a third party of an unsolicited bona fide Acquisition Proposal,
withdrawing, modifying or choosing not to make a recommendation to the
shareholders of ONEOK suggesting that they vote to approve the Transactions.
In the event that the ONEOK Board takes either or both of the last two actions
open to it, ONEOK is required by the Agreement to notify WRI contemporaneously
with the taking of such action and the provision of the Agreement imposing a
standstill obligation upon WRI will thereupon terminate. (See "--Certain
Covenants of WRI and WAI--Standstill.")
Shareholders' Meeting. ONEOK has agreed, as promptly as possible after the
Amendment Date, to call a meeting of its shareholders for the purpose of
voting upon the Agreement and the Merger and to use its best efforts to obtain
such shareholders' approval.
CERTAIN COVENANTS OF WRI AND ONEOK
The Agreement contains certain covenants and agreements of WRI and ONEOK
customary for transactions such as those contemplated by the Agreement. These
relate to, among other things: (1) the preparation of the Registration
Statement and this Proxy Statement/Prospectus; (2) each party using its best
efforts to cause the delivery to each of WAI and ONEOK, respectively, of a
letter from independent public accountants, the receipt of which is customary
in connection with registration statements; (3) each party allowing the other
access, during normal business hours, to its properties, books, contracts,
commitments and records, documents filed pursuant to requirements of the
Commission and such other information to which the other party may reasonably
request access, subject to the Confidentiality Agreement between WRI and ONEOK
dated June 17, 1996; (4) each party filing such notifications as are required
to be filed under the HSR Act, obtaining all requisite government approvals,
consents or orders and filing all necessary documentation; (5) mutual
cooperation in defense of the validity and legality of the transactions
contemplated by the Agreement and Ancillary Documents, should these be subject
to challenge; (6) consultation prior to the issuance of any press release or
other public statement; (7) avoidance of action inconsistent with the
Agreement; (8) regular consultation and reciprocal disclosure regarding
operational matters and material developments; and (9) the use of all
reasonable efforts to consummate and make effective the transactions
contemplated by the Agreement.
In addition, ONEOK and WRI have agreed that WRI will bear 45% of the final
cost of preparing and filing this Proxy Statement/Prospectus and requisite
financial statements included in this Proxy Statement/Prospectus and all other
filings required to be made under the Securities Act and the Exchange Act with
respect to the Transactions. Upon the consummation of the Merger, New ONEOK
will reimburse WRI in full for that portion of the expenses borne by WRI
(other than fees and expenses of counsel and fees and expenses payable to
financial advisors).
The Agreement also provides that at the earlier of the New ONEOK first
annual meeting of its shareholders after the Merger Effective Time (provided
that the Merger Effective Time shall have occurred at least 60 days prior to
the annual meeting), or at a special meeting to be held no later than 120 days
after the Merger Effective Time, ONEOK will cause New ONEOK to, through its
Board of Directors, propose and recommend, and use its best efforts to obtain,
approval of the Opt-out Amendment, and shall properly file such amendment, if
so approved, with the Secretary of State of the State of Oklahoma.
CERTAIN COVENANTS IN RESPECT OF WAI
Conduct of Business Pending the Merger. The Agreement provides that (i) WAI
will not issue any voting securities or securities convertible into warrants
or options to acquire such securities; (ii) WAI will not authorize or propose
its own complete or partial liquidation; (iii) WRI will not permit WAI to
engage in any business or incur any liabilities other than as contemplated by
the Agreement and Ancillary Documents thereto; and (iv) WRI and New ONEOK will
enter into the Shareholder Agreement. See "The Shareholder Agreement."
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Assumption of Stock Options. The Agreement provides that, at the Merger
Effective Time, New ONEOK will assume each outstanding vested and unvested
ONEOK stock option and, as soon as practicable after the Merger Effective
Time, will file a registration statement on Form S-8 with respect to the
shares of New ONEOK Common Stock subject to former ONEOK stock options.
Authorization for Shares and NYSE Listing. The Agreement provides that,
prior to the Merger Effective Time, WRI will have caused WAI to take all
necessary action to permit the issuance of New ONEOK Common Stock pursuant to
the Agreement and to use all reasonable efforts to have such issuances of
shares of New ONEOK Common Stock to be reserved for issuance upon exercise of
ONEOK options assumed by New ONEOK and issuances under ONEOK's stock plans,
all approved for listing on the NYSE.
TAX MATTERS
It is the intention of the parties that the Asset Transaction qualify as a
transfer under Section 351 of the Code and that the Merger qualify as a
reorganization within the meaning of Section 368(a) of the Code. Each of the
parties has agreed not to take or omit to take any action that would cause the
Merger or the Asset Transaction not to be so treated. For a discussion of WRI
and ONEOK's conditions to closing relating to such treatments, see "--
Conditions to Closing."
The Agreement provides that WRI prepare and file all Income Tax Returns of
Westar, MCMC and each of their subsidiaries, and pay all Taxes to which such
Returns relate, for any period ending on or before the Closing Date. New ONEOK
will prepare and file all Income Tax Returns of New ONEOK, Westar, MCMC and
each of their subsidiaries, and will pay all Taxes to which such Returns
relate, for any period which begins before and ends after the Closing Date.
Subject to certain exceptions, WRI will reimburse New ONEOK for Taxes paid by
New ONEOK with respect to Income Tax Returns required to be filed by New ONEOK
which relate to the portion of any period ending on the Closing Date. ONEOK
will pay all transfer, stamp, sales or use taxes and any filing, recording,
regulatory or similar fees or assessments payable in connection with the
execution, delivery or performance of the Agreement.
For a discussion of WRI's tax indemnification obligations and the conduct of
certain tax audits, see "--Indemnification."
CONDITIONS TO CLOSING
The respective obligations of WRI, WAI and ONEOK to consummate the
transactions contemplated by the Agreement are subject to the satisfaction or
waiver of certain conditions, including, without limitation, (1) the Agreement
and the Merger having been adopted and approved by the holders of a majority
of the outstanding shares of ONEOK Common Stock; (2) the shares of New ONEOK
stock required to be issued pursuant to the Agreement having been authorized
for listing on the NYSE; (3) the expiration of any applicable waiting period,
the making of all requisite regulatory filings and the receipt of all
necessary consents, approvals and authorizations in connection with the
execution and delivery of the Agreement and the consummation of the
transactions contemplated by it; (4) the declaration of effectiveness of the
Registration Statement; (5) the absence of any injunctions or restraints; (6)
entry by WRI and ONEOK, on behalf of New ONEOK, into the Shared Services
Agreement and the Marketing Agreement (see below under "Other Agreements");
(7) WRI's and WAI's execution and delivery of the Shareholder Agreement (see
below under "The Shareholder Agreement"); and (8) receipt of an order of the
Commission, under Section 9(a)(2) of the 1935 Act, authorizing the Merger and
receipt of a no-action letter or order from the Commission or its staff, as
the case may be, to the effect that, as a result of the Merger, WRI will not
be deemed a "holding company" under Section 2(a)(7) of the 1935 Act, and New
ONEOK will not be deemed a "subsidiary company" under Section 2(a)(8) of the
1935 Act.
The obligations of WRI and WAI to consummate the transactions contemplated
by the Agreement and related agreements are also subject to the satisfaction
or waiver of the following conditions: (1) certain representations and
warranties of ONEOK will be true and correct in all material respects as of
the Original Execution Date, the Amendment Date and the Closing Date as if
made on or as of each such date (except to the
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extent any such representation or warranty speaks as of a specific date),
except where such inaccuracy could not reasonably be expected to have a
Material Adverse Effect on ONEOK; (2) ONEOK will have performed, in all
material respects, all obligations required to be performed by ONEOK under the
Agreement; (3) WRI will have received either an opinion from WRI's counsel
reasonably satisfactory to WRI or a private letter ruling from the Internal
Revenue Service regarding the qualification of the Asset Transaction under
Section 351 of the Code and an opinion from ONEOK's counsel regarding the
applicability of Section 368 of the Code to the Merger; (4) all consents
required by either party will have been obtained; (5) the KCC and the OCC will
have issued orders reasonably satisfactory to WRI; and (6) WRI will have
received a letter from WRI's independent public accountants confirming WRI's
continued eligibility to account for a certain other unrelated business
combination as a "pooling of interests."
The obligations of ONEOK to consummate the transactions contemplated by the
Agreement are similarly subject to the satisfaction or waiver of the following
conditions: (1) certain representations and warranties of WRI and WAI will be
true and correct in all material respects as of the Original Execution Date,
the Amendment Date and the Closing Date as if made on or as of each such date
(except to the extent any such representation or warranty speaks as of a
specific date), except where such inaccuracy could not reasonably be expected
to have a Material Adverse Effect on the Gas Business; (2) each of WAI and WRI
will have performed, in all material respects, all obligations required to be
performed by each under the Agreement at or prior to the Closing Date; (3)
ONEOK will have received either an opinion from WRI's counsel or a private
letter ruling from the Internal Revenue Service regarding the qualification of
the Asset Transaction under Section 351 of the Code and an opinion from
ONEOK's counsel reasonably satisfactory to ONEOK regarding the applicability
of Section 368 of the Code to the Merger; (4) all consents required by the
parties will have been obtained; (5) the KCC and the OCC will have issued
orders reasonably satisfactory to ONEOK; and (6) the Asset Transaction will
have been consummated pursuant to the Agreement and related agreements.
The terms "Material Adverse Effect" and "Material Adverse Change," for the
purposes of the Agreement, are defined as any effect or change that is, or is
reasonably likely to be, materially adverse to the business, operations,
assets, condition (financial or otherwise), results of operations or prospects
of ONEOK and its Subsidiaries, New ONEOK, or the Gas Business, as applicable,
in each case taken as a whole.
INDEMNIFICATION
WRI has agreed to indemnify ONEOK and its Affiliates (including, from and
after the Closing, New ONEOK) and their respective officers, directors,
employees, shareholders, agents and representatives against, and has agreed to
hold them harmless from, any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses, collectively "Losses") incurred
for, on account of, arising from, in connection with, or otherwise with
respect to (1) any breach of any covenant of WRI contained in the Agreement or
any document delivered in connection therewith, and (2) the Retained
Liabilities. See above under "--Excluded Liabilities."
ONEOK and, from and after the Closing, New ONEOK have agreed to indemnify
WRI and its Affiliates and their respective officers, directors, employees,
shareholders, agents and representatives against, and have agreed to hold them
harmless from, any Losses incurred for, on account of, arising from, in
connection with, or otherwise with respect to (1) any breach of any covenant
of ONEOK contained in the Agreement or any document delivered in connection
therewith, and (2) the Assumed Liabilities (see above under "--Assumed
Liabilities").
In respect of either party's agreement to indemnify, the Agreement requires
that written notice be given to the indemnifying party of a claim made by any
person against the indemnified party (a "Third Party Claim") within a
reasonable time after receipt by such indemnified party of written notice of
the Third Party Claim unless the indemnifying party shall have previously
obtained actual knowledge thereof. The Agreement provides further that the
indemnifying party will be entitled to participate in and, if it so chooses to
assume, with the indemnified party's cooperation, the defense of any Third
Party Claim, provided that the indemnifying party first admits in writing to
the indemnified party its liability with respect to all material elements of
such claim.
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The Agreement provides further that, from the Closing Date, WRI will
indemnify and hold harmless New ONEOK, Westar, MCMC and each of their
subsidiaries against any liability assessed against such corporations
(including liability resulting from changes made on audit) for: (1) Income Tax
of any such entity, with respect to taxable periods ending on or before the
Closing Date; (2) Income Taxes of WRI or any of its Affiliates, pursuant to
Treasury Regulation Section 1.1502-6 or any analogous provision; and (3) with
respect to taxable periods which begin before and end after the Closing Date,
Income Taxes of New ONEOK, Westar, MCMC or any of their subsidiaries relating
to the portion of any period ending on the Closing Date, other than Taxes for
which WRI has paid New ONEOK otherwise pursuant to the Agreement and other
than liability taken into account in the calculation of Closing Working
Capital. Each party will, pursuant to the Agreement, promptly notify the other
in writing upon such party's receipt of notice of any pending or threatened
federal, state, local or foreign Tax audits or assessments, which may affect
the Tax liabilities of New ONEOK, Westar, MCMC or any of their subsidiaries
with respect to periods ending on or before the Closing Date.
WRI will generally assume responsibility for the control of any audit or
determination and the defense of any assessment, notice of deficiency or other
adjustment of Income Taxes of New ONEOK, Westar, MCMC or any of their
subsidiaries attributable to taxable periods ending on or before the Closing
Date. New ONEOK will, at its own expense, generally control all Income Tax
contests attributable to taxable periods ending after the Closing Date and
will be responsible for the timely payment of Income Taxes that relate to such
periods, subject to indemnification rights described in the preceding
paragraph. Any refunds or credits of Income Taxes of Westar, MCMC or any of
their subsidiaries received by New ONEOK, Westar, MCMC or any of their
subsidiaries attributable to periods or portions of periods ending on or
before the Closing Date will generally be paid to WRI. However, Westar, MCMC
or any of their subsidiaries (as appropriate) will be entitled to any Tax
benefit or refund of Taxes realized as a result of Westar, MCMC or any of
their subsidiaries carrying back any loss, deduction or credit arising in a
taxable period ending after the Closing Date into a taxable period beginning
before the Closing Date.
TERMINATION
The Agreement may be terminated and the Merger abandoned at any time prior
to the Merger Effective Time by the following means: (1) by mutual written
consent of ONEOK and WRI, or mutual action of their respective Boards of
Directors; and (2) by either party, if (a) any Governmental Entity issues a
permanent injunction or restraint prohibiting the consummation of the
transactions contemplated by the Agreement; or (b) the ONEOK Shareholder
Approval is not obtained; or (c) the Merger has not been consummated by the
first anniversary of the Original Execution Date of the Agreement (the
"Initial Termination Date"), provided that such a right to terminate will not
arise in favor of the party whose failure to fulfill any covenant of the
Agreement has triggered such a right and provided further that the Initial
Termination Date may be extended until June 30, 1998 if all conditions, except
the condition that the Registration Statement become effective under the
Securities Act, have been satisfied.
The Agreement provides further that it may be terminated by WRI, if (a)
ONEOK fails to call and hold a shareholder meeting by July 31, 1997 in order
to obtain the ONEOK Shareholder Approval (except if the Registration Statement
has not then been declared effective by the Commission at least 45 days prior
to the date of termination or if ONEOK would be entitled to terminate under
another provision of the Agreement); (b) ONEOK fails to comply, in any
material respect, with any of the covenants or agreements contained in the
Agreement and such breach has not been cured within 30 days following receipt
by ONEOK of notice of such breach and is existing at the time of termination
of the Agreement; (c) any of the representations or warranties of ONEOK
contained in the Agreement is not true, in all material respects, and such
inaccuracy has not been cured within 30 days following receipt by ONEOK of
notice of such breach and is existing at the time of termination of the
Agreement (except where such inaccuracy could not reasonably be expected to
have a Material Adverse Effect on ONEOK); (d) after the Original Execution
Date there has been a Material Adverse Change (see above under "--Conditions
to Closing") with respect to ONEOK; or (e) any Governmental Entity has issued
an injunction or taken other action preventing or making illegal the
consummation of the transactions contemplated by the Agreement.
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The Agreement provides further that it may be terminated by ONEOK, if (a)
WRI or WAI fails to comply, in any material respect, with any of the covenants
or agreements contained in the Agreement and such failure has not been cured
within 30 days following receipt by WRI of notice of such breach and is
existing at the time of termination of the Agreement; (b) any of the
representations or warranties of WRI and/or WAI contained in the Agreement is
not true and correct, in all material respects, and such inaccuracy has not
been cured within 30 days following receipt by WRI of notice of such
inaccuracy and is existing at the time of termination of the Agreement (except
where such inaccuracy could not reasonably be expected to have a Material
Adverse Effect on the Gas Business); (c) after the Original Execution Date
there has been a Material Adverse Change (see above under "--Conditions to
Closing") with respect to the Gas Business; or (d) any Governmental Entity has
issued an injunction or taken other action preventing or making illegal the
consummation of the transactions contemplated by the Agreement.
In the event of the Agreement's termination as provided above, there will be
no liability or obligation on the part of WRI, WAI or ONEOK except with
respect to: the misuse of information obtained pursuant to the Agreement's
"Access to Information" provision; breach of the Confidentiality Agreement
between WRI and ONEOK, dated June 17, 1996; or the termination, expense
indemnification provisions of the Agreement. A party will be liable to the
extent that such termination results from the willful breach by WRI, ONEOK or
WAI as the case may be, of any of their respective representations or
warranties or any of their respective covenants or agreements contained in the
Agreement.
If, at the time of the Agreement's termination by either party because of a
failure to obtain the ONEOK Shareholder Approval, there is outstanding and
publicly announced, an Acquisition Proposal, ONEOK will reimburse WRI for all
expenses incurred by WRI and its Subsidiaries in connection with the
transactions contemplated by the Agreement and the related agreements (as
specified in writing by WRI to ONEOK) up to $1.5 million. In addition, upon
the consummation of an Acquisition Proposal entered into within twelve months
of termination of the Agreement in circumstances in which ONEOK would be
obligated to pay Reimbursed Expenses to WRI, ONEOK will pay WRI $20 million,
less the amount of Reimbursed Expenses.
In addition, if WRI terminates the Agreement for non-fulfillment of the
condition demanding issuance of a satisfactory KCC Order, or if ONEOK
terminates for non-fulfillment of the condition requiring issuance of a
satisfactory OCC Order, then the terminating party will reimburse the non-
terminating party promptly for expenses reasonably incurred by the non-
terminating party in connection with the Agreement, in an amount not to exceed
$1.5 million.
At any time prior to the Merger Effective Time, the parties to the Agreement
may by signed, written instrument, to the extent legally permitted, extend the
time for performance of any of the obligations arising thereunder, waive any
inaccuracies in the representations and warranties of either party, or waive
compliance with any of the agreements or fulfillment of any of the conditions
contained therein.
EXPENSES
Except as otherwise provided in the Agreement, ONEOK will pay all fees and
expenses incurred by ONEOK and WRI will pay all fees and expenses incurred by
WRI or WAI, in each case, in connection with the transactions contemplated by
the Agreement and the related agreements.
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THE SHAREHOLDER AGREEMENT
Following is a summary of certain provisions of the Shareholder Agreement,
which New ONEOK and WRI have agreed to execute and deliver on the Closing
Date. The following description of the Shareholder Agreement is qualified in
its entirety by reference to the complete text of the form of Shareholder
Agreement, which is incorporated herein by reference and attached hereto as
Appendix B. Pursuant to the Agreement, WRI and New ONEOK will enter into the
Shareholder Agreement on the Closing Date in the form incorporated therein or
with such changes as will be agreed to by WRI and New ONEOK.
GENERAL
As used in this description and in the Shareholder Agreement:
"Change in Control" means the occurrence of any one of the following events:
(1) any person (other than the Shareholder Group) becoming the beneficial
owner, directly or indirectly, of Voting Securities, pursuant to the
consummation of a merger, consolidation, sale of all or substantially all
of New ONEOK's assets, share exchange or similar form of corporate
transaction involving New ONEOK or any of its subsidiaries that requires
the approval of New ONEOK's shareholders, whether for such transaction or
the issuance of securities in such transaction, so as to cause such
person's Voting Ownership Percentage to exceed a Voting Ownership
Percentage of 15% prior to a Regulatory Change and a Voting Ownership
Percentage of 35% thereafter; provided, however, that the event described
in this paragraph (1) shall not be deemed to be a Change in Control if it
occurs as the result of any of the following acquisitions: (A) by any
employee benefit plan sponsored or maintained by New ONEOK or any
affiliate, or (B) by any underwriter temporarily holding securities
pursuant to an offering of such securities;
(2) the consummation of a merger, consolidation, sale of all or
substantially all of New ONEOK's assets, share exchange or similar form of
corporate transaction involving New ONEOK or any of its subsidiaries that
requires the approval of New ONEOK's shareholders, whether for such
transaction or the issuance of securities in such transaction, unless
immediately following such transaction more than 50% of the total voting
power of (x) the corporation resulting from such transaction, or (y) if
applicable, the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to elect
directors of such resulting corporation, is represented by Voting
Securities that were outstanding immediately prior to such transaction (or,
if applicable, shares into which such Voting Securities were converted
pursuant to such transaction), and such voting power among the holders of
such Voting Securities that were outstanding immediately prior to such
transaction is in substantially the same proportion as the voting power of
such Voting Securities among the holders thereof immediately prior to such
transaction; or
(3) the consummation of a plan of complete liquidation or dissolution of
New ONEOK.
"Dividend Premium" means, with respect to any share of Series A Convertible
Preferred Stock calculated at any time, the aggregate of the present values as
of the Closing (assuming a discount rate of 9.25%) of the excess of (i) each
quarterly dividend actually paid by New ONEOK to the Shareholder Group with
respect to such share of Series A Convertible Preferred Stock over (ii) $0.45.
"Votes" means votes entitled to be cast generally in the election of
directors, not including the votes that would be able to be cast by holders of
shares of Convertible Preferred Stock upon their conversion into shares of
Common Stock, unless such conversion occurs or is deemed to have occurred.
"Voting Power" means the ratio calculated at a particular point in time and
expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which Voting Power is being determined to (b) the
aggregate Votes calculated at a particular point in time represented by all
then outstanding Voting Securities;
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"Voting Securities" means the Common Stock and shares of any other class of
capital stock of New ONEOK then entitled to vote generally in the election of
directors of New ONEOK, not including Convertible Preferred Stock (or other
Securities convertible into Voting Securities) prior to its conversion into
Common Stock or other Voting Security;
The "Maximum Ownership Percentage" means, calculated at a particular point
in time, a Total Ownership Percentage (as defined below) of 45.0%, less the
Voting Power represented by all Voting Securities transferred by the
Shareholder Group (as defined below) during the term of the Shareholder
Agreement (including the Voting Power represented by any shares of Convertible
Preferred Stock which were converted into shares of Common Stock
contemporaneously with such transfer pursuant to the terms of the Shareholder
Agreement).
The "Total Ownership Percentage" means, calculated at a particular point in
time, the Voting Power which would be represented by the Securities of New
ONEOK "Beneficially Owned" (as such term is defined under the Exchange Act) by
the person whose Total Ownership Percentage is being determined, if all shares
of Convertible Preferred Stock (or other securities convertible into Voting
Securities) Beneficially Owned by such person were converted into shares of
Common Stock (or other Voting Security).
The "Voting Ownership Percentage" means, calculated at a particular point in
time, the Voting Power represented by the Voting Securities Beneficially Owned
by the person whose Voting Ownership Percentage is being determined.
A "Regulatory Change" is deemed to have occurred upon the receipt by WRI of
an opinion of WRI's counsel (which counsel must be reasonably acceptable to
New ONEOK) to the effect that either (1) the 1935 Act has been repealed,
modified, amended or otherwise changed or (2) WRI has received an exemption,
or, in the unqualified opinion of WRI's counsel, is entitled without any
regulatory approval to claim an exemption, or has received an approval or no-
action letter from the Commission or its staff under the 1935 Act or has
registered under the 1935 Act, or any combination of the foregoing, and as a
consequence of (1) and/or (2), WRI may fully and legally exercise the rights
set forth in such provisions of the Shareholder Agreement which take effect in
the period after a Regulatory Change has occurred.
"Shareholder Group" means WRI, any WRI Affiliate and any person with whom
WRI or any of its Affiliates is part of a 13D Group (as defined below).
The foregoing definitions notwithstanding, capitalized terms are, in all
cases, used herein as defined in the Shareholder Agreement.
RESTRICTION OF CERTAIN ACTIONS BY WRI
During the term of the Shareholder Agreement, WRI has agreed that, without
the prior approval of a majority of the New ONEOK Board, it will not, and it
will cause any WRI Affiliate not to take any of the following actions:
(a) prior to the occurrence of a Regulatory Change, singly or as part of
a partnership, limited partnership, syndicate or other group of persons
acquiring, holding, voting or disposing of any Voting Security which would
be required under Section 13(d) of the Exchange Act to file a statement on
Schedule 13D with the Commission (a "13D Group"), directly or indirectly,
acquire Beneficial Ownership of any Voting Security so as to cause the
Voting Ownership Percentage of the Shareholder Group to exceed 9.9%.
(b) singly or as part of a partnership, limited partnership, syndicate or
other 13D Group, directly or indirectly, acquire, propose to acquire, or
publicly announce or otherwise disclose an intention to propose to acquire,
or offer or agree to acquire, by purchase or otherwise, Beneficial
Ownership of any security so as to cause the Shareholder Group's Total
Ownership Percentage to exceed the Maximum Ownership Percentage;
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(c) deposit (either before or after the date of the execution of the
Agreement) any Security in a voting trust or subject any security to any
similar arrangement or proxy with respect to the voting of such Security;
(d) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies", or become a "participant" in a "solicitation"
(as such terms are used in Regulation 14A under the Exchange Act) to seek
to advise or influence any person to vote against any proposal or director
nominee recommended to the shareholders of New ONEOK or any of its
subsidiaries by at least a majority of the Board of Directors;
(e) form, join or in any way participate in a 13D Group with respect to
any Security of New ONEOK or any securities of its subsidiaries;
(f) commence (including by means of proposing or publicly announcing or
otherwise disclosing an intention to propose, solicit, offer, seek to
effect or negotiate) a merger, acquisition or other business combination
transaction relating to New ONEOK;
(g) initiate a "proposal," as such term is used in Rule 14a-8 under the
Exchange Act, "propose", or otherwise solicit the approval of, one or more
shareholders for a "proposal" or induce or attempt to induce any other
person to initiate a "proposal";
(h) otherwise act, alone or in concert with others, to seek to control or
influence the management, the Board or policies of New ONEOK; or
(i) take any other action to seek or effect control of New ONEOK other
than in a manner consistent with the terms of the Shareholder Agreement.
In addition, WRI has agreed that if at any time WRI becomes aware that the
Shareholder Group's Total Ownership Percentage exceeds the Maximum Ownership
Percentage and/or, prior to the occurrence of a Regulatory Change, the
Shareholder Group's Voting Ownership Percentage exceeds 9.9%, then WRI will,
or will cause its affiliates to, promptly take all action necessary to reduce
the amount of Securities or Voting Securities Beneficially Owned by the
Shareholder Group such that the Shareholder Group's Total Ownership Percentage
is not greater than the Maximum Ownership Percentage, and that the Shareholder
Group's Voting Ownership Percentage is not greater than 9.9%, as the case may
be.
WRI's ability to vote its shares will be governed by the New ONEOK
Certificate of Incorporation, as amended by the Certificate of Designations of
the Convertible Preferred Stock, provisions of the Shareholder Agreement
summarized under "--Voting" and applicable law. The Shareholder Agreement will
not restrict WRI from engaging in private and confidential discussions with
the Board or the management of New ONEOK, nor will it restrict those persons
designated by WRI to become directors of New ONEOK from participating as Board
members in the direction of New ONEOK.
MAKE WHOLE PAYMENT
New ONEOK has agreed, immediately upon the conversion by WRI of any shares
of Series A Convertible Preferred Stock (which shares will be held by WRI at
the Closing pursuant to the Agreement) into New ONEOK Common Stock, to pay to
WRI a specified amount (a "Make Whole Payment") with respect to each share so
converted. This amount will be equal to $35 million, divided by the total
number of shares of Series A Convertible Preferred Stock issued to WRI at the
Closing (the "Total Per Share Pay Down Amount"), minus the sum of (I) the
product of (x) the Total Per Share Pay Down Amount divided by 20 and (y) the
number of quarters since the date of the Closing in which New ONEOK has paid a
dividend of at least $0.45 per share on the Series A Convertible Preferred
Stock plus (II) the Dividend Premium applicable with respect to each such
share, through such quarters. This conversion payment amount is formulated to
ensure that WRI will receive dividend payments for the first five years and/or
a lump sum payment which in the aggregate totals at least $35 million.
New ONEOK's obligation to make such a Make Whole Payment will not be
triggered by WRI's conversion of fewer than 25,000 shares of Series A
Convertible Preferred Stock. To the extent that a conversion by WRI
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does not trigger the obligation to pay a Make Whole Payment, the amount of
shares so converted will be carried forward and taken into account in
determining whether New ONEOK will be required to make any subsequent Make
Whole Payment.
PROHIBITION ON SENIOR SECURITIES
New ONEOK has agreed during the term of the Shareholder Agreement not to
create, authorize or reclassify any authorized New ONEOK stock into any class
or series of New ONEOK stock ranking prior to the Convertible Preferred Stock
as to dividends or distributions of assets upon liquidation, dissolution or
winding up, or any security convertible into shares of such a prior-ranking
class or series. New ONEOK has also agreed not to create, authorize or
reclassify any authorized New ONEOK stock into any class or series of New
ONEOK stock entitled to vote separately as a class on any matter other than an
amendment to the New ONEOK Certificate which would adversely affect such
class, or any security convertible into shares of a class or series so
entitled to vote.
BOARD REPRESENTATION
Pursuant to the Shareholder Agreement, New ONEOK's Board of Directors will
expand the size of the Board of Directors by two directors and appoint as
additional directors two persons designated by WRI.
Immediately following the occurrence of a Regulatory Change, New ONEOK's
Board of Directors will expand the size of the Board of Directors further and
will appoint additional Initial Shareholder Nominees sufficient to ensure that
WRI's nominees comprise (1) one-third (rounding down to the next whole
director) of the total number of members of the Board of Directors if the New
ONEOK Board consists of more than 14 Directors (excluding any Shareholder
Nominees (as defined below)) or (2) four Directors if the New ONEOK Board
consists of 14 or fewer Directors (excluding any Shareholder Nominees). In the
event of a vacancy caused by the disqualification, removal, resignation or
other cessation of service of any Initial Shareholder Nominee from the Board,
New ONEOK has agreed that the Board will elect as a director of New ONEOK (to
serve until New ONEOK's immediately succeeding annual meeting of shareholders)
a new Initial Shareholder Nominee who has been designated by WRI.
Following the occurrence of a Regulatory Change and until such time as the
Initial Shareholder Nominees and persons designated by WRI and nominated prior
to each annual meeting of New ONEOK's shareholders to succeed any Director of
New ONEOK ("Successor Shareholder Nominees" and, together with Initial
Shareholder Nominees, "Shareholder Nominees") together comprise one-third of
all members of the Board of Directors, New ONEOK has agreed that, at each
subsequent meeting of New ONEOK's shareholders at which (1) the term of any
director is to expire or (2) a vacancy is caused by the removal, resignation,
retirement, death, disability or disqualification or other cessation of
service of any director, New ONEOK may, at its option, either cause such
directorship to remain vacant, with the size of the Board being reduced
correspondingly, or designate as a replacement director a Successor
Shareholder Nominee to be included in the slate of nominees recommended by the
Board to New ONEOK's shareholders for election as directors.
WRI has agreed to consult with New ONEOK in connection with the identity of
any proposed Shareholder Nominee and agrees to withdraw any proposed
Shareholder Nominee (and offer a replacement) if New ONEOK is advised in
writing that such Shareholder Nominee is not qualified under applicable law,
or if New ONEOK otherwise reasonably objects within one month of WRI's
proposal, including, without limitation, an objection because the proposed
nominee is a director or officer of a direct competitor of New ONEOK or has
engaged in adverse conduct that would require disclosure under Item 7 of
Schedule 14A under the Exchange Act.
Prior to the occurrence of a Regulatory Change, no more than one Shareholder
Nominee may be a director, officer or employee of WRI and, following the
occurrence of a Regulatory Change, no more than two Shareholder Nominees may
be directors, officers or employees of WRI. In addition, no Shareholder
Nominee may chair a committee of the Board or serve on the Nominating
Committee of the Board prior to the occurrence
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of a Regulatory Change. Following the occurrence of a Regulatory Change, WRI
will be entitled to designate Shareholder Nominees to be members of each
committee of the Board and to fill any vacancies caused by the departure of
Shareholder Nominees from such committees (if no other Shareholder Nominee
remains as a member of such committee), for so long as Shareholder Nominees
are not represented pro rata (based on the number of directors who are
Shareholder Nominees) with respect to each committee of the Board.
Each Shareholder Nominee to be added to or retained on the Board pursuant to
the Shareholder Agreement will be included in the slate of nominees
recommended by the Board to New ONEOK's shareholders for election as
directors. New ONEOK has agreed to use its best efforts to cause the election
or reelection of each such Shareholder Nominee to the Board, including
soliciting proxies in favor of the election of such persons.
Unless New ONEOK agrees otherwise, WRI will cause each of the Shareholder
Nominees then serving on the Board to offer their resignations from the Board
immediately upon the earlier to occur of (1) the termination of the
Shareholder Agreement, pursuant to the provisions outlined below under "--
Term" or (2) the Shareholder Group's Total Ownership Percentage falling below
10.0%.
TOP-UP RIGHTS
Prior to the occurrence of a Regulatory Change, if the Shareholder Group's
Voting Ownership Percentage falls below 9.9%, WRI will be entitled to purchase
Voting Securities in the open market or otherwise or convert shares of
Convertible Preferred Stock in an amount sufficient to restore the Shareholder
Group's Voting Ownership Percentage to 9.9%.
If the Shareholder Group's Total Ownership Percentage falls below the
Maximum Ownership Percentage, WRI will be entitled to purchase Voting
Securities in the open market or otherwise in an amount sufficient to restore
the Shareholder Group's Total Ownership Percentage to the Maximum Ownership
Percentage, in which case New ONEOK will exchange, at no cost to WRI, New
ONEOK Common Stock purchased in exercise of such top-up rights for Series B
Convertible Preferred Stock on a one-to-one basis (as adjusted to reflect any
stock split or similar events), in an amount sufficient to ensure that the
Shareholder Group's Voting Ownership Percentage does not exceed 9.9% prior to
the occurrence of a Regulatory Change.
If dilution of the Shareholder Group's Total Ownership Percentage results
from any security issuance by New ONEOK (a "Dilutive Issuance"), WRI will have
a right, pursuant to the Shareholder Agreement (a "Dilutive Issuance Right"),
to require New ONEOK to issue to WRI, in exchange for payment of the issue
price per share of the Dilutive Issuance, additional shares of New ONEOK
Common Stock and Series B Convertible Preferred Stock up to the maximum number
of such shares necessary to restore the Shareholder Group's Total Ownership
Percentage to the Maximum Ownership Percentage and its Voting Ownership
Percentage up to 9.9% provided that in the case of any Dilutive Issuance in
connection with any acquisition or other business combination transaction, by
merger or otherwise, New ONEOK shall only be required to provide WRI with the
Dilutive Issuance Right to restore the Shareholder Group's Total Ownership
Percentage to the Maximum Ownership Percentage minus 10.0% (the "Adjusted
Maximum Ownership Percentage").
The price per share issued pursuant to WRI's exercise of its Dilutive
Issuance Right will be equal to the issue price per share of the Dilutive
Issuance, which is deemed to be the aggregate amount of cash plus the fair
market value of any other property received by New ONEOK as consideration
divided by the number of shares being issued in such Dilutive Issuance. Such
fair market value will be decided in good faith by the Board of Directors of
New ONEOK, or, if WRI objects to this valuation, by an independent,
nationally-recognized financial advisor mutually acceptable to WRI and New
ONEOK, at the sole expense of New ONEOK.
New ONEOK will not be obligated to provide WRI with a Dilutive Issuance
Right (1) in connection with issuances of securities pursuant to employee
benefit plans and programs in the ordinary course of business or (2) which
would require the issuance of fewer than 25,000 shares of Series B Convertible
Preferred Stock; provided,
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however, that any share issuances not required to be made will be carried
forward and taken into account in determining whether New ONEOK must provide
WRI with a subsequent Dilutive Issuance Right.
Following the occurrence of a Regulatory Change, WRI will be entitled to
purchase Voting Securities from time to time in the open market in an amount
sufficient to restore the Shareholder Group's Total Ownership Percentage to
the Maximum Ownership Percentage. WRI's Dilutive Issuance Right, pursuant to a
Dilutive Issuance by New ONEOK in primary or secondary offerings, mergers,
acquisitions or otherwise, will entitle WRI to require the issuance of New
ONEOK Common Stock (but not Convertible Preferred Stock), in an amount
adequate to restore the Shareholder Group's Total Ownership Percentage to the
Adjusted Maximum Ownership Percentage.
All Securities purchased or converted pursuant to the "top-up" provisions of
the Shareholder Agreement remain subject to its terms.
VOTING
During the term of the Shareholder Agreement, WRI will and will cause each
WRI Affiliate to be present, in person or by proxy, at all meetings of New
ONEOK's shareholders. Prior to the occurrence of a Regulatory Change, WRI will
ensure that all Voting Securities Beneficially Owned by the Shareholder Group
are voted as follows: (1) with respect to the election of directors, in favor
of the election of all candidates for director nominated by the New ONEOK
Board (including Shareholder Nominees); (2) with respect to any proposal
initiated by a shareholder of New ONEOK relating to the redemption of the
Rights issued pursuant to the Rights Agreement or any modification of the
Rights Agreement (other than nonbinding precatory resolutions, WRI shall, and
shall cause each member of the Shareholder Group to, vote all Voting
Securities Beneficially Owned by WRI or any member of the Shareholder Group in
accordance with the recommendation of the New ONEOK Board; and (3) with
respect to all other matters, in WRI's sole discretion.
Following the occurrence of a Regulatory Change, WRI will ensure that all
Voting Securities Beneficially Owned by the Shareholder Group are voted as
follows: (1) with respect to the election of directors, in favor of the
election of all candidates for director nominated by the New ONEOK Board
(including Shareholder Nominees); (2) with respect to any proposal initiated
by a shareholder of New ONEOK relating to the redemption of the Rights issued
pursuant to the Rights Agreement or any modification of the Rights Agreement
(other than nonbinding precatory resolutions), WRI shall, and shall cause each
member of the Shareholder Group to, vote all Voting Securities Beneficially
Owned by WRI or any member of the Shareholder Group in accordance with the
recommendation of the New ONEOK Board; and (3) with respect to all other
matters, (a) the number of Voting Securities Beneficially Owned by the
Shareholder Group representing a Voting Ownership Percentage not in excess of
9.9% will be voted in WRI's sole discretion and (b) the number of Voting
Securities Beneficially Owned by the Shareholder Group representing a Voting
Ownership Percentage in excess of 9.9% will be voted in the same proportion as
all Voting Securities voted on such other matter are voted by the other
shareholders of New ONEOK.
The foregoing notwithstanding, (1) with respect to the Opt-out Amendment and
with respect to transactions which would constitute a Change in Control if
consummated, the Shareholder Group may vote at their sole discretion any or
all of the Voting Securities Beneficially Owned by the Shareholder Group; and
(2) with respect to any proposed amendment to the New ONEOK Certificate or New
ONEOK By-laws which would reasonably have the effect of modifying in any way
the Opt-out Amendment or would reasonably cause New ONEOK to become subject to
(i) the Control Share Acquisition Statute or (ii) any other provisions which
are substantially similar to the Control Share Acquisition Statute, the
Shareholder Group has the right to abstain or vote against such amendment.
RESTRICTIONS ON TRANSFER AND CONVERSION
Without the prior written consent of a majority of those directors who are
not Shareholder Nominees and are otherwise independent of the Shareholder
Group, members of the Shareholder Group will be prohibited from
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transferring Securities, directly or indirectly, except under the following
circumstances: (1) transfers of Securities representing Voting Power of less
than 5%, provided that the transferee (or a 13D Group of which the transferee
is a member) does not have a Voting Ownership Percentage of 5% or more
immediately prior to such transfer; (2) transfers of securities representing
Voting Power of 5% or more, provided the transfer is made pursuant to a "Sale
Option" procedure set forth in the Shareholder Agreement (requiring written
notice to New ONEOK of WRI's intention to transfer such shares, whereupon New
ONEOK will have for at least 90 days the right, but not the obligation, to
purchase or cause its designee to purchase, the shares subject to such sale
notice at a cash price equal to 98.5% of the market price, as of the date of
such sale notice, and then if New ONEOK does not so purchase such shares,
permitting WRI to sell such shares within a specified period thereafter to any
transferee, such transferee taking such shares free of any restrictions under
the Shareholder Agreement and without becoming an "Acquiring Person" under the
Rights Agreement with respect to such shares); (3) transfers of Securities to
the public in a bona fide underwritten offering pursuant to the Registration
Rights Agreement, the key terms of which are described below under "Other
Agreements--Registration Rights Agreement"; (4) transfers of all or part of
the Shareholder Group's Securities pursuant to a pro rata distribution of
securities among WRI's shareholders; (5) transfers of Securities among members
of the Shareholder Group, after any member who is a transferee has agreed in
writing to be bound by the terms of the Shareholder Agreement with respect to
such Securities; or (6) transfers of Securities by means of tender into any
bona fide offer, tender offer or exchange offer that is subject to Section 14
of the Exchange Act (restricting the solicitation of proxies), other than an
offer the consummation of which would be in violation of applicable law and
other than an offer unsupported by definitive commitment letters from
reputable financial institutions in customary form with respect to the offer's
financing (a "Clearly Credible Tender Offer"), such tender by WRI being in an
amount not exceeding that proportion of the Voting Securities of which WRI is
Beneficial Owner (on the basis of total Votes and assuming the conversion of
all shares of Convertible Preferred Stock into Common Stock) equal to the
highest percentage of the aggregate of all Voting Securities (on the basis of
total Votes) Beneficially Owned by shareholders other than members of the
Shareholder Group which has ever been announced to have been tendered into
such Clearly Credible Tender Offer.
AGREEMENT NOT TO CONVERT
Prior to the occurrence of a Regulatory Change, WRI has agreed, and has
agreed to cause any WRI Affiliate, not to convert shares of Convertible
Preferred Stock Beneficially Owned by the Shareholder Group into shares of New
ONEOK Common Stock, except for conversion (1) concurrent with the transfer of
securities to any person other than a member of the Shareholder Group and (2)
pursuant to WRI's top-up rights, discussed above under "--Top-Up Rights."
RESTRICTIONS ON REPURCHASE BY NEW ONEOK
If New ONEOK purchases its own Securities from the public, whether by tender
offer, open market purchase or otherwise (a "Repurchase"), New ONEOK will
provide advance notice of such Repurchase to WRI and will contemporaneously
offer to repurchase from WRI, on the same terms and conditions (including
price) as the Repurchase, a percentage (on the basis of total votes and
assuming conversion of all shares of Convertible Preferred Stock into New
ONEOK Common Stock) of the securities Beneficially Owned by WRI equal to the
percentage (as the basis of total votes and assuming conversion of all shares
of Convertible Preferred Stock into New ONEOK Common Stock) of Securities to
be repurchased from other shareholders. WRI may accept New ONEOK's offer in
its sole discretion, except that WRI will be required to sell Securities
and/or Voting Securities which it Beneficially Owns to New ONEOK in an amount
sufficient to ensure that its Total Ownership Percentage does not exceed the
Maximum Ownership Percentage and/or, prior to the occurrence of a Regulatory
Change and not thereafter, that the Shareholder Group's Voting Ownership
Percentage does not exceed 9.9%, in each case other than as permitted pursuant
to the terms of the Shareholder Agreement.
BUY/SELL OPTION IN FAVOR OF EITHER PARTY
In addition, the Shareholder Agreement provides that a "Buy/Sell Option"
will arise on the 15th anniversary and each succeeding anniversary of the date
of the Shareholder Agreement, if at such times it
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remains in force. Pursuant to this Option, either of WRI or New ONEOK may, at
its respective option, provide notice (the "Buy/Sell Notice") to the other of
the price ("Buy/Sell Price") at which such party intends in good faith to sell
to the receiving party all of the Securities Beneficially Owned by WRI or by
shareholders of New ONEOK other than the Shareholder Group pursuant to a
Buyout Tender Offer (as defined below), as the case may be, to the other
party, or their intention to buy for cash all of the Securities Beneficially
Owned by WRI or New ONEOK, as the case may be. Upon receipt of such Buy/Sell
Notice, the recipient party will have a 90-day period (the "Decision Period")
within which: (1) in the case of WRI, to agree to sell for cash all of the
Securities beneficially owned by the Shareholder Group or make a Clearly
Credible Tender Offer (a "Buyout Tender Offer") to buy at the Buy/Sell Price
all New ONEOK Securities not owned by WRI; and (2) in the case of New ONEOK,
to agree to buy all of the Securities Beneficially Owned by the Shareholder
Group or to seek an opinion regarding the fairness to New ONEOK's shareholders
of tendering all of their shares into the Buyout Tender Offer on the terms
proposed. A non-waivable condition to the consummation of any such Buyout
Tender Offer by WRI shall be the valid tender into such offer, on or prior to
the 20th day following receipt of all regulatory approvals required for
consummation of the offer, of Voting Securities representing in the aggregate
two-thirds (2/3) of the voting power of all Voting Securities held by
shareholders of New ONEOK other than the Shareholder Group. Any purchase by
New ONEOK of the Shareholder Group's Securities pursuant to this Buy/Sell
Option will be closed within a 90-day period after the end of the applicable
Decision Period, or 30 days after the receipt of all necessary regulatory
approvals, whichever is later. If New ONEOK elects to seek a fairness opinion
within the specified period, then New ONEOK will have the right during the
Decision Period to obtain a fairness opinion and execute a merger agreement
with a member of the Shareholder Group, pursuant to which WRI will acquire all
Securities not owned by it at the price proposed by WRI. If New ONEOK fails to
take the foregoing steps within the Decision Period, then the Shareholder
Agreement will terminate.
If WRI and New ONEOK each provide a Buy/Sell Notice to the other party on
the same day, the Buy/Sell Notice containing the higher valued Buy/Sell Price
will be the effective and controlling Buy/Sell Notice.
TERM
The Shareholder Agreement will take effect immediately upon the Closing and,
unless otherwise agreed to in writing by WRI, will remain in effect until it
is terminated on the earliest of:
(1) the date on which the quarterly dividend on the New ONEOK Common
Stock has fallen below $0.30 per share (as appropriately adjusted to
reflect any stock split, stock dividend, reverse stock split,
reclassification or any other transaction with a comparable effect) in any
five quarters;
(2) the date on which New ONEOK has failed to pay the stated quarterly
dividend on any series of Convertible Preferred Stock in any five quarters;
(3) the date on which a majority of directors other than those nominated
by the Nominating Committee of the New ONEOK Board is elected to the Board;
(4) the date on which the size of New ONEOK's Board of Directors is
increased to more than 21 directors;
(5) the date on which the Total Ownership Percentage of the Shareholder
Group falls below 9.9%;
(6) the date on which, at any time following the 15th anniversary of the
date of the signing of the Shareholder Agreement, the Total Ownership
Percentage of the Shareholder Group falls below 30.0%;
(7) the date on which New ONEOK materially breaches the provisions of the
Shareholder Agreement or the Agreement, provided that such breach has
remained uncured for 30 days after New ONEOK received notice of such
breach, or if cure within 30 days is not possible, New ONEOK has not made
reasonable efforts to cure such breach within 90 days from the date of
first notice of such breach;
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(8) the date of termination provided for in a mutual written agreement
between WRI and New ONEOK;
(9) the date on which a court having jurisdiction enters a decree or
order for relief in an involuntary case or proceeding, adjudges New ONEOK
bankrupt or insolvent, approves the filing of a petition seeking
reorganization, or appoints a custodian, receiver, liquidator, assignee,
trustee or other similar official, in respect of New ONEOK, under any
Federal or State bankruptcy, insolvency, reorganization or other similar
law, and the continuance of such decree or order for a period of 60
consecutive days; and
(10) the date on which New ONEOK commences a voluntary case or
proceeding, consents to the entry of a decree or order in an involuntary
case or proceeding or the filing of a petition, files a petition, answer or
consent, makes an assignment for the benefit of creditors, or admits an
inability to pay debts as they become due, in respect of New ONEOK, under
any federal or state bankruptcy, insolvency, reorganization or other
similar law, or takes corporate action in furtherance of such action by New
ONEOK.
REGULATORY MATTERS; OTHER
During the term of the Shareholder Agreement, New ONEOK has agreed to take
all commercially reasonable steps to assist WRI (a) with respect to each
provision of the Shareholder Agreement, in causing a Regulatory Change which
would not reasonably be expected to have an adverse effect on New ONEOK to
occur as soon as reasonably practicable, and (b) in securing such regulatory
approvals as would not reasonably be expected to have a material adverse
effect on New ONEOK and as may be necessary to allow WRI to exercise its
rights under the Shareholder Agreement at all times. Following the occurrence
of a Regulatory Change, if New ONEOK believes in good faith that WRI's
regulatory status as modified by such Regulatory Change would place an
unreasonable restriction on the implementation of New ONEOK's strategic
business plan, then New ONEOK shall have a right to exercise its Buy/Sell
Option as provided above, except that New ONEOK may exercise it immediately.
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OTHER AGREEMENTS
The following summary of the key terms of agreements between WRI and ONEOK,
or between WRI, ONEOK and New ONEOK, as the case may be, is qualified in its
entirety by reference to each of the agreements, which are incorporated by
reference herein. The form of Rights Agreement is attached hereto as Appendix
D. Definitions heretofore notwithstanding, capitalized terms used in this
Section are, in all cases, used as defined in those agreements.
MARKETING AGREEMENT
WRI and New ONEOK will enter into a Marketing Agreement with a term
specified in the Marketing Agreement. Under the Marketing Agreement, New ONEOK
will provide certain support services in its service area exclusively to WRI
for WRI's residential and commercial electronic monitoring security business.
The services to be provided include promotional programs by New ONEOK's
customer service employees, billing inserts, billing service and customer
information. WRI will provide all necessary training and education of New
ONEOK employees for the promotional programs. The parties will develop
mutually agreed guidelines for the promotional programs. New ONEOK will be
paid specified fees for providing the services. Any disputes relating to the
Marketing Agreement will be settled under dispute resolution provisions in the
Marketing Agreement. The Marketing Agreement will also authorize WRI to use
certain of New ONEOK's trade names, trademarks, servicemarks, etc. in
connection with the marketing of monitored security services in ONEOK's
service area.
SHARED SERVICES AGREEMENT
The Shared Services Agreement, to be entered into by WRI and New ONEOK, will
provide for cooperation between the parties with respect to various services
and shared facilities related to New ONEOK and WRI's utility businesses, such
as billing, meter reading and phone center coverage. Gas and electric service
charges for both parties may be sent to customers under one consolidated bill
with proceeds to be returned to each of the parties as appropriate. Each
party's phone centers may provide backup service for the other party's phone
centers in case of emergencies. Other services and shared facilities may be
identified prior to or after Closing provided such is economically beneficial
to both parties. Any dispute arising from the Shared Services Agreement will
be settled under dispute resolution provisions therein.
EMPLOYEE AGREEMENT
Pursuant to the Employee Agreement, dated as of December 12, 1996, between
WRI and ONEOK, ONEOK, on behalf of New ONEOK, will make bona fide written
offers of employment to all persons determined by WRI to be working in or for
the Gas Business (such persons numbering approximately 1,320 individuals) and
all persons occupying job positions which WRI has decided in its sole
discretion to "allocate" to the transactions contemplated by the Agreement
less up to ten individuals which ONEOK may delete on behalf of New ONEOK (such
persons, after ONEOK's deletions, numbering between approximately 245 and 255
individuals). Such offers will be extended both to persons who are actively at
work and those who are absent on leave or otherwise, provided that such absent
persons are ready, willing and able to work within six months of the Closing
Date (or such longer period if required by applicable law or collective
bargaining agreement). New ONEOK will employ and enter on its employee records
all persons who accept such offers and will pay persons who accept such offers
and commence employment ("Continuing Employees") the same base salary or wage
paid by WRI immediately prior to the Closing Date, except for those employees
who are covered by a collective bargaining agreement, who will be paid wages
applicable under such agreement. New ONEOK agrees not to reduce any Continuing
Employee's salary or wage during the first twelve months following the Closing
Date, or at any time in violation of an applicable collective bargaining
agreement. New ONEOK will retain each Continuing Employee for at least twelve
months following the Closing Date unless termination is by voluntary normal or
voluntary early retirement, voluntary resignation or for "cause" (as defined
in the Separation Plan attached as an exhibit to the Employee Agreement).
The Employee Agreement provides assurance of a certain degree of continuity
in the remuneration, plans, benefits and programs enjoyed by the employees of
WRI, Westar, MCMC and their Subsidiaries immediately
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prior to and after the Closing Date. Specifically, the Employee Agreement
provides that on the Closing Date, WRI will assign to New ONEOK and New ONEOK
shall accept the assignment of all collective bargaining agreements and other
labor and employment agreements listed in a schedule to the Employee Agreement
covering Continuing Employees and vested former employees of the Gas Business
and their beneficiaries (the "Retired Employees"). Pursuant to the Employee
Agreement, New ONEOK will assume the defense of all labor arbitrations and
grievances which concern Continuing Employees and are pending on or after the
Closing Date (with the assistance of a WRI representative in respect of
arbitrations relating to grievances filed before the Closing Date). New ONEOK
will also comply with and pay any arbitration awards (with the sole exception
of back-pay and judgments for periods before the Closing Date, which WRI will
pay) that may result from grievances and arbitrations which were pending on or
after the Closing Date.
The Employee Agreement also provides, effective as of the Closing Date, for
New ONEOK's assumption of WRI's obligations to Continuing Employees and
Retired Employees and their beneficiaries arising out of any qualified defined
benefit plan of WRI and its Affiliates (the "WRI DB Plan"), New ONEOK's
establishment of an equivalent successor plan (the "New ONEOK DB Plan") and
the transfer from the WRI DB Plan to the New ONEOK DB Plan of the amount of
assets and liabilities attributable to the accrued vested benefits of the
Continuing Employees and the Retired Employees, as adjusted, if necessary, to
comply with Section 414(l) of the Code and the regulations thereunder. New
ONEOK will credit each Continuing Employee with all years of service performed
by each Continuing Employee with WRI and New ONEOK and with each predecessor
or Affiliate of WRI, to the same extent such service was credited under the
WRI DB Plan, for purposes of determining eligibility to participate, vesting
and credited service under the New ONEOK DB Plan. Each Continuing Employee
will become immediately vested in the New ONEOK DB Plan to the extent of such
employee's accrued benefit at the date of transfer. The New ONEOK DB Plan will
cover each Retired Employee who is covered immediately prior to the Closing
Date under the WRI DB Plan and each Retired Employee will receive from the New
ONEOK DB Plan an equivalent pension benefit of not less than that amount which
such Retired Employee would have received from the WRI DB Plan as presently in
effect.
All benefit payments with respect to Continuing Employees and Retired
Employees and their beneficiaries to be made up to the date on which assets
are transferred from the WRI DB Plan to the New ONEOK DB Plan will be made
from the WRI DB Plan. As of the Closing Date, Continuing Employees will begin
to accrue benefits under the New ONEOK DB Plan. The Employee Agreement
provides, further, that New ONEOK will establish or maintain qualified defined
contribution plans (the "New ONEOK DC Plan") to provide, for at least one
year, benefits equivalent to those provided under WRI's qualified defined
contribution plan (the "WRI DC Plan"). New ONEOK will credit each covered
Continuing Employee and Retired Employee with all years of service performed
with WRI and each predecessor or Affiliate of WRI to the same extent such
service was credited under the WRI DC Plan for purposes of determining
eligibility to participate and vesting under the New ONEOK DC Plan.
Pursuant to the Employee Agreement, New ONEOK will make available to
Continuing Employees and their eligible dependents all policies, programs and
plans listed on a schedule to the Employee Agreement, and worker's
compensation, unemployment compensation and all other government-mandated
plans (collectively, "Welfare Plans") and will, for at least one year after
the Closing Date, provide benefits under New ONEOK's Welfare Plans equivalent
to benefits provided by WRI to such Continuing Employees immediately prior to
the Closing Date. Thereafter, the benefits provided under New ONEOK's Welfare
Plans will be at least equivalent to those available to New ONEOK's other
active employees.
WRI will retain responsibility, under the Employee Agreement, for the
following payments with respect to Continuing Employees, subject to the terms
and conditions of WRI's Welfare Plans and in certain cases subject to WRI's
written approval (which approval will not be withheld unreasonably): (1)
medical and dental expenses incurred prior to the Closing Date; (2) payments
for sick leave taken for accidents occurring or sicknesses commencing prior to
the Closing Date; (3) long-term disability plan payments relating to
disabilities which
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commenced prior to the Closing Date; (4) benefit expenses and workers'
compensation expenses, including settlement amounts, incurred prior to the
Closing Date; and (5) expenses, including settlement amounts, incurred after
the Closing Date, for workers' compensation claims arising out of occurrences
prior to the Closing Date, to the extent that such expenses are recovered by
WRI under WRI's insurance. New ONEOK will be responsible for all benefits of
Continuing Employees which are incurred on or after the Closing Date and are
payable under the terms and conditions of New ONEOK's Welfare Plans.
The Employee Agreement also provides that, as of the Closing Date, New ONEOK
will assume responsibility for WRI obligations to Retired Employees and
Continuing Employees under any scheduled post-retirement medical, dental and
life insurance plans, programs and agreements (collectively, "Post-Retirement
Plans") and for non-scheduled, non-material WRI obligations up to $2,000 per
year per Retired Employee. New ONEOK will also establish, for all Retired
Employees, Post-Retirement Plans equivalent (as to benefits, charges and
otherwise) to WRI's Post-Retirement Plans existing as of the date of the
Employee Agreement so that such Retired Employees will receive benefits equal
to or greater than those received from WRI's and WRI's predecessors' Post-
Retirement Plans. New ONEOK will treat Continuing Employees at least as
favorably as New ONEOK's other employees with respect to Post-Retirement
Plans.
Pursuant to the Employee Agreement, New ONEOK will, effective as of the
Closing Date, establish and adopt a Separation Plan and a Relocation Plan for
the benefit of all Continuing Employees not covered by a collective bargaining
agreement and will maintain such Plans (in the form of those attached to the
Employee Agreement, except that the Relocation Advance for Miscellaneous
Expenses will be equal to one month's salary, without any amendment thereof)
for a period of at least one year from the Closing Date. The Employee
Agreement provides that New ONEOK will be responsible for the severance pay
(equal to an amount determined in accordance with the Separation Plan were
such Plan applicable) of any individual identified on the Operating Personnel
List or the Final Allocated Personnel List who is required by New ONEOK as a
condition of employment to report to work at a location more than 35 miles
from such individual's work location at the time of the offer of employment
(provided that such new work location is not actually closer to such
individual's residence) and who does not accept employment with New ONEOK and
is terminated by WRI on or within 30 days after the Closing Date (but WRI will
repay such amount to New ONEOK if WRI rehires a Continuing Employee within
twelve months of the termination of employment of such Continuing Employee).
To the extent that any officers of WRI accept employment with New ONEOK and
become Continuing Employees, New ONEOK will assume and honor all existing
employee agreements and change of control agreements between the officer and
WRI, provided that such officer agrees that certain events shall not
constitute "good reason" (as defined under such agreements) for the officer to
terminate employment with New ONEOK.
Prior to the Closing, all obligations of New ONEOK under the Employee
Agreement will be attributed to ONEOK. Upon the Closing, New ONEOK will be
deemed to have adopted and ratified all agreements, commitments and actions of
ONEOK under the Employee Agreement; provided, however, that the Employee
Agreement will be null and void if the Agreement fails to close.
In addition to the Employee Agreement, the Agreement provides that WRI will
not (nor will it permit the Transferred Subsidiaries), with respect to
employees of the Gas Business: amend or increase amounts of (or accelerate the
payment or vesting of) any benefits or amounts payable under any employee
benefit plan (or other commitment providing for compensation or benefits to
current or former officers or employees); increase (or enter into any
agreement to increase in any manner) compensation or fringe benefits; enter
into any employment agreement, severance agreement; or pay or agree to pay any
pension, retirement allowance or other benefit not required by WRI Benefit
Plans existing as of the date of the Agreement, except to the extent that such
amendments, increases or undertakings are in the ordinary course of business
and are not material to the Gas Business.
The Agreement provides further that neither the Agreement, the
Confidentiality Agreement nor any of the Ancillary Documents is intended to
confer rights or remedies upon any person, other than as expressly provided
therein.
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ENVIRONMENTAL INDEMNITY AGREEMENT
Pursuant to the Environmental Indemnity Agreement to be executed by WRI,
ONEOK and New ONEOK, New ONEOK assumes responsibility for, and will pay all
environmental costs with respect to, all environmental claims pending or
arising with respect to certain properties listed on a schedule to such
Agreement (the "New ONEOK Properties").
Notwithstanding the foregoing, in addition to the Assumed Liabilities, WRI
will retain responsibility for, and will pay all environmental costs with
respect to, all environmental claims pending as of the date of the
Environmental Indemnity Agreement with respect to properties listed on a
schedule to such Agreement (the "WRI Properties").
All other manufactured gas plants owned or controlled by WRI or any of its
predecessors prior to the date of the Environmental Indemnity Agreement and
formerly used in the operations of the Gas Business (the "Shared Properties")
will be subject to certain cost sharing provisions of the Environmental
Indemnity Agreement, except that all Environmental Claims and Environmental
Costs related to the Shared Properties which are discovered by New ONEOK more
than 15 years following the date of the Environmental Indemnity Agreement will
be the sole responsibility of New ONEOK. WRI will have conducted, as of the
date of the Environmental Indemnity Agreement, an "environmental insurance
archaeology survey" relating to the assets and properties used by or with
respect to the New ONEOK Properties and the Shared Properties and WRI will
have provided New ONEOK with the results of such surveys. WRI agrees that the
insurance coverage disclosed by such survey will constitute the first line of
recovery for environmental costs and claims relating to the Shared Properties.
The second line of recovery will be recovery from other potentially
responsible parties. The third line of recovery will be rate relief. When
recovery is protracted under any line of recovery, cost-sharing may be
accelerated with subsequent reimbursement for sums paid out.
After payment by insurance providers and other potentially responsible
parties, if any, for the costs incurred by New ONEOK or WRI in connection with
Covered Matters, up to $2.5 million of environmental costs will be paid by New
ONEOK regardless of the number of claims concerning Covered Matters. Above and
beyond that, additional liabilities of up to $7.5 million will be shared
equally by WRI and New ONEOK, of which WRI will not be responsible for more
than $3.75 million, with New ONEOK retaining responsibility for any excess
liability.
The Environmental Indemnity Agreement imposes on New ONEOK and WRI a duty to
consult with each other and reciprocal duties of disclosure with respect to
all activities and costs relating to the New ONEOK Properties and the WRI
Shared Properties and any Environmental Claims and Environmental Costs
associated therewith. In the event of a dispute arising, the Environmental
Indemnity Agreement provides for alternative dispute resolution procedures, to
be followed to the extent that it is not deemed necessary to take immediate
legal action. In addition, the Environmental Indemnity Agreement contains
notice requirements with respect to a claim made by any third party against a
party indemnified under the Environmental Indemnity Agreement.
The Environmental Indemnity Agreement is to take effect as of the Closing
Date of the Agreement, and will survive beyond that date. Its terms will not
affect or limit those warranties or representations made by WRI in the
Agreement.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement between WRI and New ONEOK to
be entered into on the Closing Date, WRI will have the right on five occasions
to require New ONEOK to register under the Securities Act (a "Demand
Registration") all and any portion of WRI's shares of New ONEOK Common Stock
including New ONEOK Common Stock obtainable upon conversion of Convertible
Preferred Stock (the "Shares"), provided that such Demand Registration covers
at least 25,000 shares. In addition, if New ONEOK proposes to register any New
ONEOK Common Stock under the Securities Act for purposes of a primary,
secondary or
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combined offering of such New ONEOK Common Stock to the public, WRI will have
the right to have such number of Shares as WRI requests included in New
ONEOK's registration statement (a "Piggy-Back Registration"). WRI has agreed
not to make any sale, transfer or other disposition of shares of New ONEOK
Common Stock except in compliance with the registration requirements of the
Securities Act and the rules and regulations thereunder or in accordance with
the Registration Rights Agreement.
Notwithstanding the foregoing, New ONEOK will be entitled to delay such
Demand Registration if the filing of such Demand Registration would: (1) in
the good faith judgment of New ONEOK's Board of Directors, unreasonably
impede, delay or otherwise interfere with any pending or contemplated
financing, acquisition, corporate reorganization or other similar transaction,
involving New ONEOK; (2) based upon advice from New ONEOK's investment banker
or financial advisor adversely affect any pending or contemplated offering or
sale of any class of securities by New ONEOK; or (3) in the good faith
judgment of New ONEOK's Board of Directors, require disclosure of material,
non-public information the disclosure of which would be materially harmful to
the interests of New ONEOK and its shareholders. Such delay will be for a
reasonable period of time not to exceed 90 days (in the case of (1) or (2)) or
thirty days (in the case of (3)). New ONEOK may not exercise the right
pursuant to clause (1) or (2) above to postpone or delay the filing of any
Demand Registration more than twice in any twelve month period. In addition,
where WRI seeks to exercise its right to a Piggy-Back Registration in
connection with an underwritten offering of shares of New ONEOK Common Stock
and the managing underwriter thereof reasonably advises New ONEOK, any holder
of New ONEOK Common Stock intending to offer such New ONEOK Common Stock in a
secondary or combined offering or WRI that (1) the inclusion in the
registration statement of some or all of the shares of New ONEOK Common Stock
requested to be registered by WRI creates a substantial risk that the price
per share of New ONEOK Common Stock that New ONEOK or any holder thereof will
derive from such registration will be materially and adversely affected or (2)
that the total number of shares of New ONEOK Common Stock requested to be
registered (including any shares of New ONEOK Common Stock sought to be
registered at the request of New ONEOK and any other holder thereof and those
sought to be registered by WRI) is greater than can be reasonably sold, New
ONEOK will include in the registration statement such number of shares of New
ONEOK Common Stock as such managing underwriter advises can be sold without
such effect.
Under the Registration Rights Agreement, New ONEOK will agree to bear all
fees and expenses incident to New ONEOK's compliance with the Registration
Rights Agreement (and to reimburse WRI, any sales or placement agent for the
Shares and the underwriters thereof for any such fees and expenses incurred)
including, without limitation, all fees and expenses: (1) in connection with
the qualification of the registered shares for offering and sale under state
securities or "blue sky" laws; (2) relating to the preparation, printing,
distribution and reproduction of the registration statement, each prospectus,
each amendment or supplement, certificates representing the Shares and all
other documents to be prepared in connection with the Registration Rights
Agreement; (3) of any escrow agent, transfer agent, registrar, custodian or
attorney-in-fact appointed to act on behalf of WRI; (4) of New ONEOK's
counsel, its independent public accountants and its other advisors and
experts; (5) in connection with the listing of the Shares on the NYSE and any
other stock exchange or national securities exchange; and (6) of counsel
retained by WRI in connection with registration pursuant to the Registration
Rights Agreement. WRI will pay all underwriting discounts and commissions and
any capital gains, income or transfer taxes, if any, attributable to the sale
of Shares.
RIGHTS AGREEMENT
New ONEOK will, as of the Closing Date, adopt a Rights Agreement that is
designed to protect New ONEOK shareholders from coercive or unfair takeover
tactics. To implement the Rights Agreement, upon consummation of the Merger,
New ONEOK's Board of Directors will declare a dividend distribution of one
Right for each share of New ONEOK Common Stock outstanding at the record date
and issued thereafter, subject to certain limitations. After the public
announcement that a person or group has become the beneficial owner of 15% or
more of all outstanding shares of New ONEOK Common Stock (other than as a
result of a Permitted Offer (as defined below)) (any such person or group, an
"Acquiring Person") or at the close of business on the tenth business day
after the date of the commencement or announcement of a tender or exchange
offer which would result in such person or group becoming an Acquiring Person
(the earlier of such dates being the
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"Distribution Date"), New ONEOK will issue separate Rights Certificates to
each holder of New ONEOK Common Stock. At any time after the Distribution
Date, each Right may be exercised to purchase from New ONEOK one one-
hundredths of a share of New ONEOK Series C Preferred Stock, at a Purchase
Price of $80 per one one-hundredths of such share, subject to adjustment.
The Rights Agreement specifically excludes from the definition of an
Acquiring Person, among other things, (i) any member of the Shareholder Group,
but only to the extent of shares of New ONEOK Common Stock held or acquired by
such Shareholder Group member in accordance with the Shareholder Agreement and
provided that this exemption shall permanently expire at such time as the
Ownership Percentage of WRI and its affiliates first falls below 10%; and (ii)
any Transferee who acquires Beneficial Ownership of shares of New ONEOK Common
Stock from the Shareholder Group pursuant to certain provisions of the
Shareholder Agreement or who acquires Beneficial Ownership of less than 5% of
the New ONEOK Common Stock in a public offering pursuant to the Shareholder
Agreement, but only to the extent of shares of New ONEOK Common Stock acquired
in accordance with the terms of the Shareholder Agreement (it being understood
that any such Transferee shall become an Acquiring Person upon the concurrent
or subsequent acquisition by such Transferee, or its Affiliates or Associates,
of any additional shares of New ONEOK Common Stock if, after giving effect to
such acquisition, and taking into account all shares beneficially owned by the
Transferee including the shares acquired from the Shareholder Group, such
Transferee would be an Acquiring Person but for the provisions of this clause
(ii)). See "The Shareholder Agreement--Restrictions on Transfer and
Conversion."
A "Permitted Offer" is (i) a tender or exchange offer for all outstanding
shares of New ONEOK Common Stock which is at a price and on terms determined,
prior to the purchase of shares under such tender or exchange offer, by at
least a majority of Disinterested Directors of New ONEOK to be adequate and
otherwise in the best interests of New ONEOK, its shareholders and its other
relevant constituencies (other than the Person or any Affiliate or Associate
thereof on whose behalf the offer is being made), taking into account all
factors that such Disinterested Directors may deem relevant and (ii) any
tender or exchange offer required or permitted to be made by the Shareholder
Group pursuant to, and in accordance with, the Shareholder Agreement.
In the event that a Person or group becomes an Acquiring Person, then each
Right not owned by the Acquiring Person will entitle its holder to purchase,
within certain time periods and at the Right's then-current Purchase Price,
shares of New ONEOK Common Stock (or, in certain circumstances, one one-
hundredths of a share of Series C Preferred Stock) as shall equal the result
obtained by (i) multiplying the then current Purchase Price by the then number
of one one-hundredths of a share of New ONEOK Series C Preferred Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Person becoming an Acquiring Person and (ii) dividing that product by 50% of
the then current per share market price (as defined in the Rights Agreement)
of New ONEOK Common Stock on the date of such first occurrence. If, after a
Person becomes an Acquiring Person, New ONEOK is involved in a merger or
consolidation with an Interested Stockholder or if in such merger or
consolidation all holders of New ONEOK Common Stock are not treated alike, any
other person, or it sells more than 50% of its assets or earning power, each
Right will entitle the holder to purchase, at the Right's then-current
Purchase Price, shares of common stock of the acquiring company as shall equal
the result obtained by (i) multiplying the then current Purchase Price by the
number of one one-hundredths of a Share of New ONEOK Series C Preferred Stock
for which a Right is then exercisable and (ii) dividing the product by 50% of
the then current per share market price of the Common Stock of such acquiring
company. The Rights, which have no voting rights, expire no later than ten
years from the date of the Rights Agreement. The New ONEOK Board may, at its
option, at any time after any person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights for New ONEOK Common
Stock (or shares of other equity securities of New ONEOK, including one one-
hundredths of a share of Series C Preferred Stock, with equivalent rights and
privileges as New ONEOK Common Stock) at an exchange ratio of one share of New
ONEOK Common Stock per Right, subject to adjustment, until such time as any
Person, together with all affiliates and associates of such Person, has become
the beneficial owner of 50% or more of the New ONEOK Common Stock then
outstanding. The Rights may be redeemed by New ONEOK under certain
circumstances at a purchase price of $0.01 per Right, subject to adjustment.
The existence of the Rights may have the effect of delaying, deterring or
preventing a takeover of New ONEOK.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS
The following summary describes the material federal income tax consequences
of the Merger to ONEOK and holders of ONEOK Common Stock who are citizens or
residents of the United States. It does not discuss all the tax consequences
that may be relevant to ONEOK shareholders in special tax situations (such as
insurance companies, financial institutions, dealers in securities, tax exempt
organizations or non-U.S. persons) or to ONEOK shareholders who acquired their
shares of ONEOK Common Stock pursuant to the exercise of employee stock
options or warrants, or otherwise as compensation. The summary also does not
discuss tax consequences to holders of outstanding ONEOK warrants or stock
options.
It is a condition to the obligation of ONEOK to consummate the Transactions
that ONEOK receive a tax opinion (the "Tax Opinion") from ONEOK's special
counsel, Fried, Frank, Harris, Shriver & Jacobson, to the effect that if the
Merger is consummated in accordance with the terms of the Agreement, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. If the Merger constitutes a
reorganization, it will have the following federal income tax consequences:
(i) no gain or loss will be recognized by ONEOK as a result of the
Merger;
(ii) no gain or loss will be recognized by the shareholders of ONEOK upon
their receipt in the Merger of New ONEOK Common Stock in exchange for their
ONEOK Common Stock;
(iii) the tax basis of New ONEOK Common Stock received in the Merger by a
shareholder of ONEOK will be the same as the basis of such shareholder in
the ONEOK Common Stock exchanged therefor; and
(iv) the holding period for New ONEOK Common Stock received by a
shareholder of ONEOK in the Merger will include the holding period of such
shareholder in the ONEOK Common Stock exchanged therefor, provided that the
ONEOK Common Stock is held as a capital asset at the Closing.
In rendering the Tax Opinion, Fried, Frank, Harris, Shriver & Jacobson may
receive and rely upon appropriate representations of fact, including facts
contained in certificates of WAI, WRI and ONEOK and certain shareholders and
members of management of ONEOK and WAI. If any such representations are, or
later become, inaccurate, the consequences of the Merger may be different than
those described above. No ruling from the Internal Revenue Service concerning
the tax consequences of the Merger has been requested, and the Tax Opinion
will not be binding upon the Internal Revenue Service or the courts. If the
Merger is consummated, and it is later determined that the Merger did not
qualify as a tax-free reorganization, the shareholders of ONEOK would
recognize taxable gain or loss in the Merger equal to the difference between
the fair market value of the New ONEOK Common Stock they received and their
basis in their ONEOK Common Stock exchanged therefor, and ONEOK would
recognize taxable gain or loss equal to the difference between the fair market
value of its assets and its basis in such assets, in each case as of the date
of the Merger.
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT
TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES, IF ANY, OF THE MERGER UNDER APPLICABLE STATE, LOCAL OR FOREIGN
LAWS. ONEOK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER APPLICABLE TAX LAWS AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the stock of New ONEOK set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the New ONEOK Certificate that became effective May 16, 1997 and
to the New ONEOK By-laws. The New ONEOK Certificate is attached hereto as
Appendix E.
AUTHORIZED CAPITAL STOCK
Under the New ONEOK Certificate, the total number of shares of all classes
of stock that New ONEOK has authority to issue is 200 million shares, of which
100 million are shares of New ONEOK Common Stock and 100 million are shares of
New ONEOK Preferred Stock. ONEOK has authority to issue 63,340,000 shares of
which 60 million are shares of ONEOK Common Stock, 340,000 are shares of
preferred stock and 3 million are shares of preference stock. As of April 30,
1997, ONEOK had outstanding 27,933,705 shares of ONEOK Common Stock, and no
shares of preferred stock and preference stock.
The additional shares of authorized stock available for issuance by New
ONEOK might be issued at such times and under such circumstances so as to have
a dilutive effect on earnings per share and on the equity ownership of the
holders of New ONEOK Common Stock. The ability of the New ONEOK Board to issue
additional shares of stock could enhance the Board's ability to negotiate on
behalf of the shareholders in a takeover situation but could also be used by
the Board to make a change in control more difficult, thereby denying
shareholders the potential to sell their shares at a premium and entrenching
current management.
COMMON STOCK
Subject to any preferential rights of any prior ranking class or series of
capital stock, holders of shares of New ONEOK Common Stock will be entitled to
receive dividends on such stock, payable either in cash, property or shares
out of assets legally available for distribution when, as and if authorized
and declared by the Board of Directors of New ONEOK and to share ratably in
the assets of New ONEOK legally available for distribution to its shareholders
in the event of its liquidation, dissolution or winding-up. Subject to certain
exceptions, New ONEOK will not be able to pay any dividend or make any
distribution of assets on shares of New ONEOK Common Stock until dividends on
any shares of preferred stock then outstanding with dividend or distribution
rights senior to the New ONEOK Common Stock have been paid. Dividends on the
Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock are not cumulative to the extent not paid in full on each dividend
payment date. See "Description of the Preferred Stock--Convertible Preferred
Stock" and "Market Prices" for information regarding ONEOK's dividend history.
Holders of New ONEOK Common Stock will be entitled to one vote per share on
all matters voted on by the shareholders, including the election of directors.
The New ONEOK Certificate does not provide for cumulative voting for the
election of directors, which means that holders of more than one half of the
outstanding shares of voting securities of New ONEOK will be able to elect all
of the directors of New ONEOK then standing for election and holders of the
remaining shares will not be able to elect any director.
Shares of New ONEOK Common Stock issued to holders of outstanding shares of
ONEOK Common Stock or to the Shareholder Group pursuant to the Transactions or
upon the conversion of shares of Convertible Preferred Stock will be fully
paid and nonassessable. As of the date of this Proxy Statement/Prospectus, no
Oklahoma state statute imposed liabilities of New ONEOK (such as New ONEOK's
liability towards its employees) upon the holders of New ONEOK Common Stock.
The Board of Directors of New ONEOK may make rules and regulations
concerning the transfer of shares of New ONEOK Common Stock from time to time,
in accordance with the New ONEOK By-laws. Except for such rules and
regulations and those restrictions to which WRI is subject under the
Shareholder Agreement (see "The Shareholder Agreement--Restrictions on
Transfer and Conversion"), there are no restrictions upon the alienability of
New ONEOK Common Stock.
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Certain provisions of the Shareholder Agreement and certain provisions of
the OGCA, the New ONEOK Certificate and the New ONEOK By-laws may discriminate
against holders of New ONEOK Common Stock who own a substantial amount of the
shares of New ONEOK Common Stock. See "The Shareholder Agreement" and
"Comparative Rights of Holders of ONEOK and New ONEOK Capital Stock."
Similarly, certain provisions of the New ONEOK Certificate and the New ONEOK
By-laws may have the effect of delaying, deferring or preventing a change in
control of New ONEOK with respect to an extraordinary corporate transaction,
such as a merger, reorganization, tender offer, sale or transfer of
substantially all of the assets of New ONEOK. See "Comparative Rights of
Holders of ONEOK and New ONEOK Capital Stock."
Holders of New ONEOK Common Stock will have no conversion, sinking fund or
redemption rights.
PREFERRED STOCK
The New ONEOK Board is authorized to issue shares of preferred stock, in one
or more series or classes, and to fix for each such series or class the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or redemption, as are
permitted by Oklahoma law and are as stated in the resolution or resolutions
adopted by the Board providing for the issuance of shares of such series or
class.
PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of New ONEOK will have any
preemptive or preferential right to acquire or subscribe for any unissued
shares of any class of stock or any authorized securities convertible into or
carrying any right, option or warrant to subscribe for or acquire shares of
any class of stock, provided, however, that under the Shareholder Agreement,
the Shareholder Group has certain top-up rights to acquire additional New
ONEOK shares under certain circumstances. See "The Shareholder Agreement--Top-
Up Rights."
TRANSFER AGENT AND REGISTRAR
The principal transfer agent and registrar for the New ONEOK Common Stock
will be Liberty Bank & Trust Company of Oklahoma City, N.A., a transfer agent
and registrar for ONEOK Common Stock.
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DESCRIPTION OF THE PREFERRED STOCK
The following summary of the terms of the Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Preferred Stock, is
qualified in its entirety by reference to the Certificate of Designations of
the Convertible Preferred Stock and the form of Certificate of Designations of
the Series C Preferred Stock of New ONEOK, which are incorporated by reference
herein and attached hereto as Appendix C and Exhibit A to Appendix E to this
Proxy Statement/Prospectus, respectively. Capitalized terms used herein are in
all cases used as defined in the Certificate of Designations of Convertible
Preferred Stock and the form of Certificate of Designations of the Series C
Preferred Stock of New ONEOK.
CONVERTIBLE PREFERRED STOCK
Designation and Amount
Twenty million shares of Series A Convertible Preferred Stock, and thirty
million shares of Series B Convertible Preferred Stock will be authorized by
the Board of Directors of New ONEOK.
Both the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock will have a par value of $0.01 per share.
Rank
Except as otherwise provided by the Certificate of Designations of the
Convertible Preferred Stock and except with respect to dividend rights (see
"--Dividends" below), the Series A Convertible Preferred Stock will rank pari
passu with the Series B Convertible Preferred Stock. With respect to dividend
rights and distribution of assets upon liquidation, dissolution or winding up
of the affairs of New ONEOK, the Convertible Preferred Stock will rank senior
to shares of New ONEOK Common Stock, or any class of equity securities of New
ONEOK which by its terms are junior to the Convertible Preferred Stock, and
will not rank junior with respect to any class or series of preferred stock
that may be issued by New ONEOK, unless the holders of 66 2/3 percent of the
outstanding shares of the Convertible Preferred Stock consent to the creation
of such class or any Security Convertible into shares of such class or series.
In addition, New ONEOK has agreed under the Shareholder Agreement not to
create, authorize or reclassify any authorized stock of New ONEOK into any
class of capital stock ranking prior to the Convertible Preferred Stock. See
"The Shareholder Agreement--Prohibition on Senior Securities."
Dividends
Preferential cash dividends will be payable or declarable quarterly on each
share of Convertible Preferred Stock and shall not be cumulative to the extent
not paid on any dividend payment date. Dividends on the Convertible Preferred
Stock unpaid as of the dividend payment date for any dividend period shall
permanently remain unpaid for such dividend period.
The dividend amount on each share of Series A Convertible Preferred Stock,
with respect to each dividend period on the New ONEOK Common Stock, will be
equal to 1.5 times the dividend amount declared in respect of each share of
New ONEOK Common Stock for such dividend period, as adjusted appropriately to
reflect any stock split, stock dividend, reverse stock split, reclassification
or any transaction with comparable effect upon New ONEOK Common Stock.
Following the fifth anniversary of the Closing Date, the dividend amount on
each share of Series A Convertible Preferred Stock will be equal to 1.25 times
the dividend amount declared in respect to each share of New ONEOK Common
Stock for such dividend period, as adjusted appropriately to reflect any stock
split, stock dividend, reverse stock split, reclassification or any
transaction with comparable effect upon New ONEOK Common Stock. In no event,
however, will the aggregate annual dividend amount payable per share of Series
A Convertible Preferred Stock at any time be less than $1.80 per share.
The dividend amount on each share of Series B Convertible Preferred Stock
will be equal to 1.25 times the dividend amount declared in respect of each
share of New ONEOK Common Stock for each dividend period, as adjusted
appropriately to reflect any stock split, stock dividend, reverse stock split,
reclassification or any
72
<PAGE>
transaction with comparable effect upon New ONEOK Common Stock. In no event,
however, will the aggregate annual dividend amount declared in respect of each
share of Series B Convertible Preferred Stock prior to the fifth anniversary
of the Closing Date, be less than $1.50 per share and in no event will the
aggregate annual dividend amount declared in respect of each share of Series B
Convertible Preferred Stock following the fifth anniversary of the Closing
Date, be less than $1.80 per share.
Liquidation Preference
The Liquidation Preference per share of Convertible Preferred Stock will be
equal to that payable per share of New ONEOK Common Stock (as adjusted to
reflect any stock split or similar events), assuming the conversion of all
outstanding shares of Convertible Preferred Stock immediately prior to the
event triggering such a Liquidation Preference, plus any dividends then due
with respect to the Convertible Preferred Stock.
Neither the merger or consolidation of New ONEOK into or with one or more
other corporations, nor the voluntary sale, conveyance, exchange or transfer
of all or substantially all of the property or assets of New ONEOK will be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, for the purposes of triggering a Liquidation Preference, unless
such voluntary sale, conveyance, exchange or transfer is in connection with a
dissolution or winding up of the business of New ONEOK.
Redemption
In no event will shares of Convertible Preferred Stock be redeemable by New
ONEOK.
Conversion Rights
After the occurrence of a Regulatory Change, holders of shares of
Convertible Preferred Stock will have the right, at their option, to convert
each such share into one fully paid and nonassessable share of New ONEOK
Common Stock, as adjusted appropriately to reflect any stock split, stock
dividend, reverse stock split, reclassification or any transaction with
comparable effect upon New ONEOK Common Stock. Conversion will, however, be
automatic and mandatory upon the transfer of the beneficial ownership of any
share of Convertible Preferred Stock to any person other than WRI or a WRI
Affiliate. Such conversion will be at the same rate of exchange as that
applicable to an optional conversion, described above.
New ONEOK has agreed that, it will have at all times reserved and kept
available, out of its authorized and unissued stock, shares of New ONEOK
Common Stock in an amount sufficient for the conversion of all shares of
Convertible Preferred Stock then outstanding.
Anti-dilution Provisions
The number of shares of New ONEOK Common Stock into which each share of
Convertible Preferred Stock is convertible, the dividend amount payable on
each share of such stock, and the Liquidation Preference attached to each
share of such stock will be subject to adjustments for stock splits, stock
dividends, reverse stock splits, or any transaction with comparable effect
upon New ONEOK Common Stock.
Voting Rights
Holders of shares of Convertible Preferred Stock will be entitled to vote
together with holders of shares of New ONEOK Common Stock, as a single class,
with respect to (i) any proposal relating to the Opt-out Amendment; (ii) any
proposed amendment to the New ONEOK Certificate or New ONEOK By-laws which
would reasonably have the effect of modifying in any way the Opt-out Amendment
or would reasonably cause New ONEOK to become subject to (a) the Control Share
Acquisition Statute or (b) any other provisions which are substantially
similar to the Control Share Acquisition Statute; and (iii) any transaction or
series thereof which, if consummated, would constitute a Change in Control.
With respect to such matters, each share of Convertible Preferred Stock will
carry a number of votes equal to the number of votes carried in the aggregate
by the number of shares of New ONEOK Common Stock issuable upon conversion of
one share of Convertible Preferred Stock, in accordance with the Certificate
of Designations of the Convertible Preferred Stock.
73
<PAGE>
Holders of Convertible Preferred Stock will not be entitled to vote in any
election of directors to the Board of New ONEOK or on any matter submitted to
New ONEOK shareholders other than the foregoing and other than as required by
law.
Certain Potential Anti-Takeover Effects of the Convertible Preferred Stock
Although the issuance of shares of Convertible Preferred Stock to WRI in
connection with the Transactions is not intended as an anti-takeover device,
it should be noted that such issuance, the issuance of New ONEOK Common Stock
into which the Convertible Preferred Stock is convertible or exchangeable
together with the provisions of the Shareholder Agreement, may have certain
anti-takeover implications. The combined effect of these issuances and the
Shareholder Agreement may be to discourage or render more difficult a merger,
tender offer or proxy contest involving New ONEOK, or to deter a third party
from seeking to acquire control of New ONEOK. See "The Shareholder Agreement--
Voting" and "Comparative Rights of the Holders of ONEOK and New ONEOK Capital
Stock."
SERIES C PREFERRED STOCK
In connection with the New ONEOK Rights Agreement, the New ONEOK Board has
established a series of Preferred Stock, designated as Series C Preferred
Stock. A Certificate of Designations will be filed with the Secretary of State
of the State of Oklahoma setting forth the determinations discussed below.
Holders of the Series C Preferred Stock are entitled to receive, in preference
to the holders of New ONEOK Common Stock, quarterly dividends payable in cash
on the last day of each fiscal quarter of New ONEOK in each year, or such
other dates as the New ONEOK Board deems appropriate, in an amount per share
equal to the greater of (a) $1 or (b) subject to adjustment, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends, other than a
dividend payable in New ONEOK Common Stock, payable with respect to New ONEOK
Common Stock. The Series C Preferred Stock dividends are cumulative but do not
bear interest. Shares of Series C Preferred Stock are not redeemable. Subject
to adjustment, each share of Series C Preferred Stock entitles the holder
thereof to 100 votes on all matters submitted to a vote of the New ONEOK
shareholders and during a certain dividend default period, holders of the
Series C Preferred Stock have other special voting rights. Upon any
liquidation, dissolution or winding-up of New ONEOK, holders of Series C
Preferred Stock are entitled to priority over the holders of shares of New
ONEOK Common Stock or other junior ranking stock. No such shares of Series C
Preferred Stock are outstanding; however, each holder of New ONEOK Common
Stock will be granted the right to purchase one one-hundredths of a share of
Series C Preferred Stock upon the happening of certain events, such as a
hostile takeover attempt of New ONEOK, as described in the Rights Agreement.
See "Other Agreements--Rights Agreement."
74
<PAGE>
COMPARATIVE RIGHTS OF HOLDERS OF ONEOK AND NEW ONEOK CAPITAL STOCK
GENERAL
The rights of holders of ONEOK capital stock are currently governed by
Delaware law and by the ONEOK Certificate and the ONEOK By-laws. If the Merger
is consummated and becomes effective pursuant to the terms of the Agreement,
the rights of former ONEOK shareholders who become New ONEOK shareholders
pursuant to the Merger and other holders of New ONEOK Common Stock will
consequently be governed by Oklahoma law and by the New ONEOK Certificate and
the New ONEOK By-laws.
The OGCA is modeled after and based on the DGCL and is generally amended
from time to time to conform to amendments in the DGCL. Accordingly, the
general corporate law applicable to holders of ONEOK capital stock and holders
of New ONEOK capital stock is similar. In particular, the OGCA and the DGCL
contain similar provisions with respect to: (1) amendments to Certificates of
Incorporation and By-laws; (2) mergers, exchanges, consolidations and
dissolutions; (3) dispositions of assets; (4) newly created directorships; (5)
the removal of directors; (6) the power to call special meetings of
shareholders; (7) the declaration of dividends; and (8) dissenters' rights.
The provisions of the New ONEOK Certificate and the New ONEOK By-laws are
based on and are generally identical to those of the ONEOK Certificate and the
ONEOK By-laws except as contemplated by the Agreement and as described below.
The Certificates of Incorporation and By-laws of ONEOK and New ONEOK contain
similar provisions with respect to: number, liability, indemnification,
election, resignation, replacement and removal of directors; board committees;
requirement of approval of holders of 80% of outstanding voting power
regarding adoption, amendment or repeal of By-laws and certain provisions of
the Certificates of Incorporation; appointment and powers of officers; board
and shareholder voting; fixing of shareholder record dates; and conduct of
meetings.
Several important distinctions exist between the New ONEOK Certificate and
the New ONEOK By-laws, on the one hand, and the ONEOK Certificate and the
ONEOK By-laws, on the other. First, the New ONEOK Certificate provides for an
increased number of authorized shares of common and preferred stock in order
to accommodate the transactions contemplated by the Agreement, the Shareholder
Agreement and the other related agreements.
Second, the New ONEOK Certificate as amended by the Certificate of
Designations of the Convertible Preferred Stock and the Certificate of
Designations of the Series C Preferred Stock provides that (a) any merger,
consolidation or other business combination with or upon a proposal by a
Related Person requires in addition to such approvals as are required by law,
the approval of either two-thirds (66 2/3%) of the Applicable Shares (as
defined below) not owned by such Related Person or a majority of New ONEOK's
Independent Directors, provided, however, that this provision will not apply
(i) to any Related Person who becomes a Related Person pursuant to a single
transaction in which such Related Person acquires 85% of the Applicable Shares
then outstanding in a single transaction and (ii) to the Shareholder Group
after the termination of the Shareholder Agreement to the extent the
Shareholder Group acquires, in a single transaction, an amount of Applicable
Shares equal to the difference between 85% of the then outstanding Applicable
Shares and the amount of Applicable Shares held by the Shareholder Group at
the time of termination of the Shareholder Agreement, provided, further, that
for the purpose of the immediately preceding proviso, Applicable Shares owned
by (i) persons who are directors and also officers of New ONEOK and (ii)
employee stock plans, shall be excluded and (b) the authorized capital stock
shall consist of the Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Preferred Stock. See "Description of
the Preferred Stock." "Applicable Shares" means shares of New ONEOK entitled
to vote as a single class with the New ONEOK Common Stock to approve the
applicable Business Combination.
Third, the New ONEOK By-laws contain a provision requiring the affirmative
vote of 80% of the directors of New ONEOK in the election of a chief executive
officer.
75
<PAGE>
Certain provisions of the New ONEOK Certificate and the New ONEOK By-laws
and the OGCA, which except where otherwise noted are similar or identical to
the ONEOK Certificate and the ONEOK By-laws and the DGCL, may have the effect
of impeding the acquisition of control of New ONEOK by means of a tender
offer, a proxy fight, open market purchases or otherwise in a transaction not
approved by the New ONEOK Board. Such provisions, as described below, are
designed to reduce the vulnerability of New ONEOK to an unsolicited proposal
for the restructuring or sale of all or substantially all of the assets of New
ONEOK or an unsolicited takeover attempt which does not provide that all New
ONEOK outstanding shares will be acquired or which is otherwise unfair to New
ONEOK shareholders.
CLASSIFIED BOARD OF DIRECTORS
The New ONEOK Certificate provides that the New ONEOK Board be divided into
three classes of directors, each comprising approximately one-third of the
directors. The directors will serve staggered terms, with the terms of the
directors initially in office expiring at the 1998, 1999 or 2000 annual
meeting of shareholders. At each annual meeting, one class of directors will
be elected for a term of three years and the directors in the other two
classes will continue in office. The classification of directors has the
effect of making it more difficult for shareholders to change the composition
of the Board in a relatively short period of time. At least two annual
meetings of shareholders, instead of one, will generally be required to effect
a change in a majority of the Board. Under the New ONEOK Certificate, this
provision may be amended or repealed only by the affirmative vote of at least
80% of the votes entitled to be cast in the election of directors.
REMOVAL OF DIRECTORS
The New ONEOK Certificate provides that a director may be removed only for
cause and only by the affirmative vote of at least 80% of the votes entitled
to be cast in the election of directors. This provision makes it more
difficult for shareholders to remove incumbent directors except upon a
substantial affirmative vote.
BUSINESS COMBINATIONS
As discussed above, the New ONEOK Certificate provides that any merger,
consolidation or other business combination with or upon a proposal by a
Related Person requires the approval of either two-thirds (66 2/3%) of the
Applicable Shares not owned by such Related Person or a majority of New
ONEOK's Independent Directors subject to certain exceptions. The OGCA, like
the DGCL, provides that any merger or other business combination of New ONEOK
with a 15% or greater shareholder or its affiliates (an "Interested Person")
requires either (a) approval of the business combination by the holders of 66
2/3% of the shares not owned by such Interested Person and a majority of New
ONEOK independent directors or (b) that, prior to becoming an Interested
Person, the board of directors of the corporation approves either the business
combination or the transaction which resulted in the person becoming an
Interested Person.
CONTROL SHARE ACQUISITIONS
Unlike the DGCL, the OGCA contains control share acquisition provisions. A
"control share acquisition" is an acquisition of shares which has the result
of increasing the voting power the acquiring person is entitled to exercise
above certain thresholds. Once a control share acquisition is deemed to have
occurred, the voting power of all of the control shares is reduced to zero
unless and until the shareholders of the issuer approve a resolution restoring
to the control shares the same voting rights they would have had before the
control share acquisition was deemed to have occurred, subject to certain
significant exceptions. Pursuant to the Agreement, ONEOK has agreed to cause
New ONEOK after the Merger to submit to its shareholders for a vote at the
earlier of the first annual meeting of New ONEOK to occur after the Merger
Effective Time (provided that the Merger Effective Time shall have occurred at
least 60 days prior to the annual meeting), or at a special meeting to be held
no later than 120 days after the Merger Effective Time, a proposal for New
ONEOK to amend the New ONEOK Certificate to provide for the Opt-out Amendment.
Holders of Common Stock and Convertible Preferred Stock have the right to vote
on such proposal.
76
<PAGE>
RIGHTS AGREEMENT
The rights under the ONEOK Rights Agreement will be redeemed pursuant to the
Agreement. The Agreement further provides that New ONEOK will adopt the Rights
Agreement and that the Transactions will not constitute a "Change of Control"
for purposes of the Rights Agreement. Subject to certain conditions, members
of the Shareholder Group and its transferees will not be considered "Acquiring
Persons" within the meaning of the Rights Agreement as a result of
acquisitions permitted under the Shareholder Agreement. The Rights Agreements
provides, among other things, that New ONEOK shareholders other than the
Acquiring Person will have the right to purchase additional shares of New
ONEOK Common Stock at a discount of 50% of its market price upon the
acquisition by a person or group of 15% or more of New ONEOK Common Stock.
Upon the announcement under certain circumstances of a tender offer for New
ONEOK Common Stock, the consummation of which would make the person or group
an Acquiring Person, New ONEOK shareholders may exercise their rights in order
to purchase one one-hundredths of a share of Series C Preferred Stock. See
"Other Agreements--Rights Agreement."
The foregoing summary does not purport to be complete or definitive and is
qualified in its entirety by reference to the form of Certificate of
Designations of the Convertible Preferred Stock, the Certificate of
Incorporation, the By-laws of New ONEOK and the form of Rights Agreement.
Copies of the form of Certificate of Designations of the Convertible Preferred
Stock, the form of Rights Agreement and the New ONEOK Certificate are attached
hereto as Appendices C, D and E, respectively.
77
<PAGE>
MARKET PRICES
The shares of ONEOK Common Stock are listed and traded on the NYSE. The
following sets forth the high and low trading prices per share of ONEOK Common
Stock on the NYSE for the fiscal periods indicated as reported in published
financial sources and the dividends paid per share for such fiscal periods:
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1995
First Quarter..................................... 18 15 7/8 $0.28
Second Quarter.................................... 18 3/8 16 7/8 $0.28
Third Quarter..................................... 19 5/8 17 1/4 $0.28
Fourth Quarter.................................... 23 7/8 18 3/4 $0.28
FISCAL YEAR 1996
First Quarter..................................... 24 13/16 22 $0.29
Second Quarter.................................... 23 7/8 20 $0.29
Third Quarter..................................... 27 1/2 21 1/8 $0.30
Fourth Quarter.................................... 28 7/8 24 3/8 $0.30
FISCAL YEAR 1997
First Quarter..................................... 28 5/8 25 1/4 $0.30
Second Quarter.................................... 30 7/8 26 $0.30
Third Quarter..................................... 30 7/8 26 $0.30
Fourth Quarter (through , 1997)................
</TABLE>
On December 11, 1996, the last full trading day prior to the first public
announcement of the Transactions, the reported closing price per share of
ONEOK Common Stock on the NYSE was $26 1/2. On , 1997, the
reported closing price per share of ONEOK Common Stock on the NYSE was $ .
Shareholders are urged to obtain current market quotations for shares of ONEOK
Common Stock.
78
<PAGE>
SELECTED FINANCIAL DATA
The financial data below sets forth selected historical financial data. This
financial data should be read in conjunction with the historical consolidated
financial statements, the notes thereto and "Management's Discussion and
Analysis and Results of Operations" contained in the ONEOK Inc. 1996 Form 10-
K, incorporated by reference herein, and of the Gas Business, included
elsewhere in this Proxy Statement/Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Gas
Business."
SELECTED HISTORICAL FINANCIAL DATA OF ONEOK
The selected historical financial data presented below for each of the years
in the five-year period ended August 31, 1996 has been derived from the
consolidated financial statements of ONEOK Inc. and subsidiaries as they
appeared in the ONEOK 1996 Form 10-K incorporated by reference herein. The
selected historical financial data for the six months ended February 28, 1997
and February 29, 1996 is unaudited and derived from the unaudited consolidated
condensed financial statements included in the ONEOK Quarterly Reports on Form
10-Q incorporated by reference herein; however, in the opinion of management,
all adjustments which are of a normal recurring nature necessary for a fair
presentation of the results of such periods have been made. The results of
operations for the six months ended February 28, 1997 and February 29, 1996
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX
AS OF AND FOR THE YEARS ENDED AUGUST 31, MONTHS ENDED
------------------------------------------------ -------------------------
FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- ------------ ------------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues.... $1,224.3 $ 954.2 $ 784.1 $ 789.1 $ 677.1 $ 722.4 $ 703.2
Operating income
before income taxes.. $ 121.0 $ 105.5 $ 92.0 $ 96.5 $ 83.9 $ 99.7 $ 94.3
Net income............ $ 52.8 $ 42.8 $ 36.2 $ 38.4 $ 32.6 $ 50.4 $ 47.0
Preferred stock
dividends............ $ 0.4 $ 0.4 $ 0.4 $ 0.4 $ 0.4 $ 0.2 $ 0.2
Income available for
common stock......... $ 52.4 $ 42.4 $ 35.8 $ 38.0 $ 32.2 $ 50.2 $ 46.8
Earnings per common
share................ $ 1.93 $ 1.58 $ 1.34 $ 1.43 $ 1.21 $ 1.84 $ 1.73
Cash dividends paid
per common share..... $ 1.18 $ 1.12 $ 1.11 $ 1.06 $ 0.96 $ 0.60 $ 0.58
Ratio of earnings to
combined fixed
charges and preferred
stock dividend
requirements (a)..... 3.38x 2.77x 2.59x 2.51x 2.40x 5.50x 5.08x
Balance Sheet Data:
Total assets.......... $1,219.9 $1,181.2 $1,148.1 $1,115.1 $1,069.9 $1,333.4 $1,259.5
Long-term debt (b).... $ 351.9 $ 363.9 $ 376.9 $ 391.9 $ 397.8 $ 361.1 $ 364.1
Preferred stock....... $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0 $ 9.0
Total common equity... $ 414.7 $ 388.6 $ 370.5 $ 363.1 $ 353.5 $ 463.6 $ 422.7
</TABLE>
- --------
(a) For purposes of computing the ratio of earnings to combined fixed charges
and preferred dividend requirements, "earnings" consists of net income plus
interest charges, amortization of debt issue costs, and income taxes. "Fixed
charges" consists of interest charges and the amortization of debt issue
costs. "Preferred dividend requirements" consists of the pre-tax preferred
dividend requirement.
(b) Includes the current portion of long-term debt.
79
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE GAS BUSINESS
The selected historical financial data presented below for each of the years
in the five-year period ended August 31, 1996 and for the interim six-month
periods ended February 28, 1997 and February 29, 1996 have been derived from
the Gas Business' records. In the opinion of management, all adjustments which
are of a normal recurring nature necessary for a fair presentation of the
results of such periods have been made for the interim six months ended
February 28, 1997 and February 29, 1996. The results of operations for the six
months ended February 28, 1997 and February 29, 1996 are not necessarily
indicative of the results to be expected for the entire fiscal year or any
other interim period.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEARS ENDED AUGUST 31, SIX MONTHS ENDED
----------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992 1997 1996
------ ------ ------ ------ ------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues.... $720.8 $515.0 $598.9 $540.5 $411.9 $544.7 $418.2
Operating income
before income taxes... $ 35.9 $ 1.2 $ 27.5 $ 40.0 $ 5.2 $ 58.9 $ 37.7
Net income (loss)..... $ 19.3 $ (1.0) $ 16.3 $ 29.6 $ 8.0 $ 32.9 $ 20.8
Balance Sheet Data:
Total assets.......... $773.2 $707.7 $641.9 $607.9 $527.6 $884.8
Equity in net assets
acquired.............. $532.5 $487.8 $438.7 $404.3 $345.8 $594.3
Long-term debt........ $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0
</TABLE>
80
<PAGE>
THE GAS BUSINESS
GENERAL
The Gas Business is comprised primarily of the following four components:
WRI's local natural gas distribution division which is subject to rate-
regulation (the "LDC"); MCMC, a Kansas subsidiary of WRI that engages
primarily in intrastate gas transmission, as well as gas wheeling, parking,
balancing and storage services, and is also subject to rate-regulation;
Westar, a Kansas non-regulated indirect subsidiary of WRI that engages
primarily in marketing and selling natural gas to small and medium-sized
commercial and industrial customers; and Westar Gas Company ("Westar Gas
Company"), a Delaware non-regulated subsidiary of Westar that engages in
extracting, processing and selling natural gas liquids.
WRI has been involved in the gas industry for more than fifty years. WRI
organized Westar, a Kansas corporation, in 1988; Westar Gas Company, a
Delaware corporation, in 1992; and MCMC, a Kansas corporation, in 1995.
Prior to the Transactions, the Gas Business has been operated as an
integrated part of WRI's overall business and had not been separated from
WRI's other operations for managerial, accounting, administrative or other
purposes. See Notes 1 and 3 of Notes to the Financial Statements of the Gas
Business.
LDC
The LDC supplies natural gas at retail to approximately 650,000 customers in
362 communities and at wholesale to eight communities and two utilities in
Kansas and Oklahoma. The natural gas systems of the LDC consist of distribution
systems in both states which purchase natural gas from various suppliers that
is transported by intrastate and interstate pipeline companies.
In compliance with orders of the KCC and OCC applicable to all natural gas
utilities, the LDC has established priority categories for service to its
natural gas customers. The highest priority is for residential and small
commercial customers and the lowest for large industrial customers.
The percentage of retail natural gas deliveries and operating revenues for
fiscal year 1996 by state were as follows:
<TABLE>
<CAPTION>
TOTAL
TOTAL NATURAL
NATURAL GAS
GAS OPERATING
DELIVERIES REVENUES
---------- ---------
<S> <C> <C>
Kansas................................................ 96.4% 95.7%
Oklahoma.............................................. 3.6% 4.3%
</TABLE>
LDC's natural gas deliveries by customer type for the last three fiscal
years were as follows:
<TABLE>
<CAPTION>
1996 1995 1994(1)
------- ------- -------
(THOUSANDS OF MCF)
<S> <C> <C> <C>
Residential................................ 60,174 54,000 85,125
Commercial................................. 22,497 20,622 35,724
Industrial................................. 504 552 819
Opportunity gas............................ 18,563 10,926 --
Other...................................... 53 24 34
Transportation............................. 46,516 49,772 60,010
------- ------- -------
Total.................................... 148,307 135,896 181,712
======= ======= =======
</TABLE>
81
<PAGE>
LDC's natural gas revenues by customer type for the last three fiscal years
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994(1)
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Residential............................ $326,366 $251,568 $449,560
Commercial............................. 113,676 86,556 174,760
Industrial............................. 3,114 3,016 4,688
Opportunity gas........................ 37,463 15,232 --
Other.................................. 2,565 2,949 17,785
Transportation......................... 22,590 21,842 25,916
-------- -------- --------
Total................................ $505,774 $381,163 $672,709
======== ======== ========
</TABLE>
- --------
(1) Information includes deliveries and revenues prior to the sales of the
Missouri Properties effective January 31, and February 28, 1994.
MCMC
MCMC provides the LDC and others with no-notice natural gas transportation,
wheeling, parking, balancing and storage services. The pricing of these
services is based, with respect to the LDC, on a long-term contract and, with
respect to third parties, on prevailing market conditions.
Under a long-term arrangement, LDC provides and manages the field operations
and various administrative and general needs of MCMC.
MCMC's natural gas revenues for the 1996 fiscal year and the 1995 fiscal
year were approximately $5,567,000 and $673,000, respectively. Commercial
operations began on July 1, 1995.
Westar
Westar was formed in 1988 to pursue natural gas marketing opportunities.
Gas marketing sales for the following fiscal years were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Volume (Bcf)......................................... 95.53 77.86 59.78
Amount (millions).................................... $ 191 $ 121 $ 123
Average price (per Mmbtu)............................ $1.999 $1.554 $2.058
</TABLE>
Westar Gas Company
Westar Gas Company owns and operates the Minneola Gas Processing Plant
("Minneola") in Ford County, Kansas. Minneola extracts liquids from natural
gas provided by outside producers and sells the residue gas to third party
marketers.
Westar Gas Company, through its participation in various joint ventures,
owns a 34.4% beneficial interest in the Indian Basin Processing Plant ("Indian
Basin") near Artesia, New Mexico. ONEOK also owns an 8.0% beneficial interest
in Indian Basin. Indian Basin is operated by Marathon Oil and extracts natural
gas liquids for third party producers.
82
<PAGE>
Westar Gas Company's share of natural gas liquid sales and residue gas sales
from Minneola and Indian Basin, including intercompany transactions, for the
last three fiscal years are as follows :
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Liquids (Mgal)......................................... 57,048 50,892 38,789
Liquids (thousands).................................... $13,895 $ 9,540 $ 8,390
Average price per gallon............................... $ 0.244 $ 0.188 $ 0.216
Average production cost per gallon..................... $ 0.149 $ 0.101 $ 0.109
Residue gas (Mmcf)..................................... 1,809 -- --
Residue gas (thousands)................................ $ 3,205 -- --
Average price per Mcf.................................. $ 1.772 -- --
</TABLE>
PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED
LDC
K System: The LDC's K System distributes natural gas at retail to
approximately 518,000 customers located in central and eastern Kansas and
northeastern Oklahoma with natural gas transported through interstate pipeline
systems. The principal market areas include Wichita, Kansas City and Topeka,
Kansas, and Bartlesville, Oklahoma.
T System: The LDC's T System serves approximately 130,000 customers in
central and north central Kansas with natural gas transported through MCMC.
The principal market areas include Salina, Manhattan, Junction City and
Hutchinson, Kansas.
MCMC
MCMC provides the LDC and others with no-notice natural gas transportation,
wheeling, parking, balancing and storage services. The pricing of these
services is based, with respect to the LDC, on a long-term contract and, with
respect to third parties, on prevailing market conditions.
Westar
Westar purchases and markets natural gas to approximately 925 customers
located in Kansas, Missouri, Nebraska, Colorado, Oklahoma, Iowa, Wyoming and
Arkansas. Westar purchases natural gas under both long-term and short-term
contracts from producers and operators in the Hugoton, Arkoma and Anadarko gas
basins. Westar engages in certain transactions to hedge natural gas prices in
its gas marketing activities.
Westar Gas Company
Westar Gas Company owns and operates Minneola which extracts gas liquids
from natural gas flows provided by third-party producers. A portion of the
residue gas is sold to Westar. Westar Gas Company also owns, through its
participation in various joint ventures, a 34.4% beneficial interest in Indian
Basin. Indian Basin extracts gas liquids from natural gas flows provided by
third-party producers.
SOURCE AND AVAILABILITY OF RAW MATERIAL
LDC
K System: The LDC has transportation agreements for delivery of gas which
have terms varying in length from one to twenty years with the following non-
affiliated pipeline transmission companies: Williams Natural Gas Company
("WNG"), Kansas Pipeline Partnership ("KPP"), Panhandle Eastern Pipeline
Company
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("Panhandle"), and various other interstate and intrastate pipelines. The
volumes reported under these agreements in fiscal years 1996, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
TRANSPORTATION
VOLUMES
(BCF'S)
--------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
WNG....................................................... 72.3 59.8 56.6
KPP....................................................... 7.2 7.3 7.2
Panhandle................................................. 1.2 1.0 0.8
Others.................................................... 3.8 1.8 3.7
</TABLE>
The LDC purchases all the natural gas it sells to K System customers
directly from producers and marketers of natural gas. The LDC purchases this
gas under contracts expiring at various times. The LDC purchased approximately
71.3 Bcf or 84.4%, 53.8 Bcf or 77.0% and 49.3 Bcf or 72.2% of its natural gas
supply from these sources in fiscal years 1996, 1995 and 1994, respectively.
Approximately 85.3 Bcf of natural gas is made available annually under these
contracts which extend to the year 2005.
The LDC purchases the remaining natural gas requirements for the K System
from intrastate pipelines and from spot market suppliers under short-term
contracts. These sources totaled 4.7 Bcf, 3.7 Bcf and 6.2 Bcf for fiscal years
1996, 1995 and 1994 representing 5.5%, 5.2% and 9.1% of the K System
requirements, respectively.
In October 1994, the LDC executed a long-term gas purchase contract ("Base
Contract") and a peaking supply contract with Amoco Production Company
("Amoco") for the purpose of meeting the requirements of the customers served
from the LDC's K System over the WNG pipeline system. The LDC anticipates that
the Base Contract will supply between 50% and 65% of the LDC's demand served
by the WNG pipeline system. Amoco is one of various suppliers over the WNG
pipeline system and if this contract were canceled, management believes gas
supplied by Amoco could be replaced with gas from other suppliers. Gas
available under the Amoco contract is also available for sale by the LDC to
other parties and sales are recorded as opportunity gas sales.
The LDC also purchases natural gas from KPP under contracts expiring at
various times. These purchases were approximately 5.1 Bcf or 6.1%, 5.3 Bcf or
7.5% and 4.4 Bcf or 6.4% of its natural gas supply in fiscal years 1996, 1995
and 1994, respectively.
During fiscal years 1996, 1995 and 1994, approximately 3.4 Bcf, 7.1 Bcf and
8.4 Bcf of natural gas, respectively, were transferred from the LDC's T System
to serve a portion of the demand for the K System. These system transfers
represented 4.0%, 10.3% and 12.3% for fiscal years 1996, 1995 and 1994,
respectively, of the K System supply.
The average wholesale cost per thousand cubic feet (Mcf) purchased for the K
System was $3.06, $2.80 and $3.23 for fiscal years 1996, 1995 and 1994,
respectively. The increase in total average cost per Mcf in 1996 over 1995
reflects increases in pricing on the spot market.
T System: Natural gas for the LDC's T System is purchased from a combination
of direct wellhead production, from the outlet of natural gas processing
plants, and from natural gas marketers and production companies. Such
purchases are transported entirely through Gas Business owned transmission
lines in Kansas.
Natural gas purchased for the LDC's T System customer requirements is
transported and/or stored by MCMC. The LDC retains a priority right to
capacity on MCMC necessary to serve the T System customers. The LDC has the
opportunity to negotiate for the purchase of natural gas with producers or
marketers utilizing MCMC services, which increases the potential supply
available to meet T System customer demands.
During the fiscal year ended August 31, 1996, the LDC purchased
approximately 9.5 Bcf of natural gas through the spot market. These purchases
represented approximately 50.6% of the LDC's T System requirements during that
period. These requirements were previously served under a long-term contract
with Mesa Operating Limited Partnership. Purchases under this agreement for
the fiscal years ended August 31, 1995 and 1994 were 13.7 Bcf and 16.6 Bcf,
respectively, constituting 57.2% and 60.1%, respectively, of the LDC's System
requirements during such periods.
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<PAGE>
The Spivey-Grabs field in south-central Kansas supplied approximately 4.2
Bcf, 4.7 Bcf, and 4.8 Bcf of natural gas for the fiscal years ended August 31,
1996, 1995 and 1994, respectively, constituting 22.4%, 19.7% and 17.4%,
respectively, of the T System's requirements during such periods. Such natural
gas is supplied pursuant to contracts with producers in the Spivey-Grabs
field, most of which are for the life of the field. Based on a reserve study
performed by an independent petroleum engineering firm in 1995, significant
quantities of gas are expected to be available from the Spivey-Grabs field
until at least 2015.
Other sources of gas included purchases from natural gas marketers which
were transported through interstate pipelines for the T System requirements.
These purchases were approximately 2.9 Bcf or 15.6%, 3.0 Bcf or 12.7%, and 3.7
Bcf or 13.2% for the fiscal years ended August 31, 1996, 1995 and 1994,
respectively. The remainder of the supply for the T System for the fiscal
years ended August 31, 1996, 1995 and 1994 of 2.1 Bcf, 2.5 Bcf and 2.6 Bcf
representing 11.4%, 10.4% and 9.3%, respectively, was purchased directly from
producers or gathering systems.
For the fiscal years ended August 31, 1996, 1995 and 1994, approximately 3.4
Bcf, 7.2 Bcf and 8.4 Bcf, respectively, of the total T System supply was
transferred to the LDC's K System. See "--Principal Products Produced and
Services Rendered--LDC--K System."
The T System's average wholesale cost per Mcf purchased for the fiscal years
ended August 31, 1996, 1995 and 1994 were as follows:
NATURAL GAS SUPPLY--T SYSTEM
(AVERAGE COST PER MCF)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Mesa-Hugoton Contract................................ $ -- $1.45(1) $1.90
Other................................................ 2.34 2.75 2.87
Total Average Cost................................. 2.34 2.00 2.29
</TABLE>
- --------
(1) The Mesa-Hugoton Contract expired in May 1995.
The load characteristics of the LDC's natural gas customers creates
relatively high volume demand on the T System during cold winter days. To meet
anticipated peak day service to high priority customers, the Gas Business owns
and operates and has under contract natural gas storage facilities.
SEASONAL VARIATIONS OF BUSINESS
Natural gas sales may be affected by changes in the following: weather
conditions, the regulatory environment, competition from alternative energy
and fuel sources, energy conservation efforts and the overall economy of the
Gas Business' service area. The LDC's gas sales are higher during the winter
peak periods as compared to other seasons of the year.
The Gas Business stores gas in underground storage for delivery to customers
during periods of higher demand. Inventories of stored gas are typically near
maximum level immediately prior to the winter months and are reduced to much
lower levels by the end of the winter season. Inventories are increased from
time to time as the needs of the Gas Business warrant.
DEPENDENCE UPON A LIMITED NUMBER OF CUSTOMERS
Revenues from no single customer accounted for more than five percent of the
Gas Business' total operating revenue in fiscal year 1996.
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<PAGE>
COMPETITIVE CONDITIONS
LDC
Of the Gas Business' consolidated revenue, revenue from the LDC represented
approximately 70.2%, 74.0% and 77.8% for the fiscal years ended August 31,
1996, 1995 and 1994, respectively.
The LDC provides natural gas sales service to its customers primarily for
heating and cooking. Competition has been experienced from other energy
marketers and suppliers. The principal means to compete against alternative
fuels is lower prices. Natural gas continues to maintain its price advantage
in residential, commercial and industrial markets. The LDC has also
experienced competition from other pipelines for the transportation of natural
gas to large commercial and industrial end-users. The LDC offers various
incentive and economic development rates to remain competitive and retain this
transportation revenue.
The KCC has recently initiated an informal investigation into the possible
unbundling of the residential gas market in the State of Kansas. It is
anticipated that this informal investigation will become a formal KCC docket
matter and that a subsequent KCC order will be issued within the next one to
three years. Residential unbundling represents the final step in a process of
transferring gas merchant activity from the utility company to the customer.
At present, only industrial and large commercial customers have participated
in gas merchant activity.
In May, 1996, the OCC commenced a Notice of Inquiry into unbundling the gas
utility industry. Numerous meetings between the industry and the OCC staff
followed, and after a public hearing in December, the OCC voted to proceed
with a rulemaking to establish the procedures for such unbundling. On February
18, 1997, the OCC issued a Notice of Intent to Solicit Proposed Rules relating
to such unbundling. The final order with respect to unbundling has not yet
been issued, nor has a notice of proposed rulemaking been filed. In addition
to the OCC action, there is also a bill pending in the Oklahoma legislature
which proposes to deregulate the transportation of natural gas under certain
competitive conditions and remove it from the OCC jurisdiction and authority.
MCMC
Of the Gas Business' consolidated revenue, revenue from MCMC, excluding
intercompany transactions, represented approximately 0.8% and 0.1% for the
fiscal years ended August 31, 1996 and 1995, respectively.
To capitalize on opportunities in the non-regulated natural gas industry,
WRI established MCMC on July 1, 1995. At MCMC's inception, WRI contributed
certain natural gas transmission assets having a net book value of
approximately $50 million to MCMC. MCMC provides no notice natural gas
transportation, wheeling, parking, balancing and storage services to the LDC
and others.
MCMC competes directly with the various interstate pipelines within Kansas
including Northern Natural Gas Company, Panhandle, WNG, ANR and Natural Gas
Pipe Line of America. In 1996, MCMC completed construction of a 55,000 Mcf per
day connection with Anadarko Petroleum Corporation gathering system located in
Morton County, Kansas.
Westar
Of the Gas Business' consolidated revenue, revenue from Westar represented
approximately 26.4%, 23.6% and 20.6% for fiscal years ended August 31, 1996,
1995 and 1994, respectively.
Westar competes with numerous other gas marketers, which vary in size and
affiliation. The gas marketing business is very competitive, although Westar's
potential market is growing because local distribution companies are further
unbundling their services. This will allow more of their customers the option
to purchase their own gas, increasing Westar's potential customer base.
Westar Gas Company
Of the Gas Business' consolidated revenue, revenue from Westar Gas Company
represented approximately 2.6%, 2.3% and 1.6% for the fiscal years ended
August 31, 1996, 1995 and 1994, respectively.
Westar Gas Company owns and operates Minneola and has, through its
participation in various joint ventures, a 34.4% beneficial interest in Indian
Basin. The natural gas liquids extracted by both plants are used as
86
<PAGE>
a petrochemical feedstock, for rural residential heating and cooking and for
motor fuel production. The industry as a whole operates substantial numbers of
such plants, many owned by large integrated oil and gas companies. The
production costs of such liquids generally depends on the market price of the
natural gas being processed and the underlying contracts.
MATERIAL EFFECTS OF ENVIRONMENTAL CONTROL COMPLIANCE
The Gas Business has been associated with 12 former manufactured gas sites
located in Kansas which may contain hazardous materials subject to control and
remediation under various environmental laws and regulations. WRI and the KDHE
entered into a consent agreement governing all future work at the 12 sites.
The terms of the consent agreement will allow the Gas Business to investigate
these sites and set remediation priorities based upon the results of the
investigations and risk analysis. The prioritized sites will be investigated
over a 10-year period. The agreement allows the Gas Business to set mutual
objectives with the KDHE in order to expedite effective response activities
and to control costs and environmental impact. The costs incurred for site
investigation and risk assessment through August 31, 1996 have been minimal.
In accordance with the terms of the Agreement, ownership of these 12 sites
will be contributed to New ONEOK. See "Other Agreements--Environmental
Indemnity Agreement" for a description of the agreement between ONEOK and WRI
relating to environmental costs and liability in connection with certain of
these sites.
NUMBER OF PERSONS EMPLOYED
The Gas Business had 1,575 employees allocated to its operations as of
August 31, 1996. The Gas Business did not experience any strikes or work
stoppages during 1996. The Gas Business has contracts with four unions
representing approximately 595 employees. Three of these contracts were
negotiated in 1996 and will expire on June 4, 1998. A replacement for the
fourth contract, which will expire on June 30, 1997, is currently being
negotiated.
DESCRIPTION OF PROPERTY
LDC
The LDC assets consist of approximately 10,000 miles of pipeline, related
gauges, meters and other measuring equipment and tangible personal property.
The LDC has contracted with MCMC for underground gas storage of a working
storage capacity of 2.08 Bcf. This contract enables the LDC to supply
customers up to 85 Mcf per day of gas supply to meet winter peaking
requirements.
The LDC has contracted with WNG for additional underground storage in the
Alden field in Kansas. The contract, expiring March 31, 1998, enables the LDC
to supply customers with up to 75 Mcf per day of gas supply during winter peak
periods.
The LDC's transmission and storage facility compressor stations, all located
in Kansas, as of August 31, 1996, are as follows:
<TABLE>
<CAPTION>
MFR RATINGS OF
MCF/HR CAPACITY
DRIVING YEAR TYPE OF MFR. HP. AT 14.65 PSIA
LOCATION UNITS INSTALLED FUEL RATINGS AT 60(degrees)F
-------- ------- --------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Bison....................... 1 1951 Gas 440 316
Hope........................ 1 1970 Electric 600 44
Manhattan................... 1 1963 Electric 250 313
Marysville.................. 1 1964 Electric 250 202
McPherson................... 1 1972 Electric 3,000 7,040
Pratt....................... 3 1963-1983 Gas 1,700 3,145
</TABLE>
MCMC
MCMC's assets consist of approximately 1,000 miles of pipeline, related
gauges, meters and other measuring equipment and tangible personal property.
The storage assets consist of 1.8 Bcf of reservoir storage and 2.2 Bcf of
imbedded salt dome storage.
87
<PAGE>
MCMC's transmission and storage facility compressor stations, all located in
Kansas, as of August 31, 1996, are as follows:
<TABLE>
<CAPTION>
MFR
RATINGS OF
MCF/HR
CAPACITY AT
14.65 PSIA
DRIVING YEAR TYPE OF MFR HP AT
LOCATION UNITS INSTALLED FUEL RATINGS 60(degrees)F
-------- ------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Abilene......................... 4 1930 Gas 4,000 5,920
Brehm Storage................... 2 1982 Gas 800 486
Calista......................... 3 1987 Gas 4,400 7,490
Hutchinson...................... 2 1989 Gas 1,600 707
Minneola........................ 5 1952-1978 Gas 9,650 14,018
Spivey.......................... 4 1957-1964 Gas 7,200 1,368
Ulysses......................... 12 1949-1981 Gas 17,430 6,667
Yaggy Storage................... 3 1993 Electric 7,500 5,000
</TABLE>
Westar
Westar purchases and markets natural gas in Kansas, Missouri, Nebraska,
Colorado, Oklahoma, Iowa, Wyoming and Arkansas. Westar engages in certain
transactions to hedge natural gas prices in its gas marketing activities.
Westar Gas Company
Westar Gas Company owns and operates Minneola with a capacity of 25 Mcf per
day and owns, through its participation in various joint ventures, a 34.4%
beneficial interest in Indian Basin, which has a 100% capacity of 217 Mcf per
day.
OTHER INFORMATION
Quantities of Oil and Gas Produced
The net quantities of oil and natural gas produced and sold by the Gas
Business, including intercompany transactions, for the last three fiscal years
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Oil (BBLS).......................................... 8,813 12,242 12,861
Gas (Mcf)........................................... 132 163 217
Average Sales Price and Production (Lifting) Costs
Average sales prices and lifting costs for the last three fiscal years are
as follows:
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Average Sales Price (1)
Per BBL of oil.................................... $18.78 $15.77 $16.84
Per Mcf of gas.................................... 2.03 1.57 1.25
Average Lifting Costs Per equivalent barrel of oil
and gas (2)......................................... 6.56 6.97 6.52
</TABLE>
- --------
(l) In determining the average sales price of oil and gas, sales to affiliated
companies were recorded on the same basis as sales to unaffiliated
customers.
(2) For the purpose of calculating the average lifting cost per equivalent
barrel of production, natural gas was converted to a liquid equivalent
using six Mcf of natural gas to one barrel of oil. Lifting costs do not
include depreciation or depletion.
88
<PAGE>
WELLS AND DEVELOPED ACREAGE
The table below illustrates gross new wells in which Westar has a working
interest at August 31, 1996 and does not include wells in which Westar has
royalty or overriding royalty interests.
<TABLE>
<CAPTION>
OIL GAS
--- -----
<S> <C> <C>
Gross wells....................... 1.0 27.00
Net wells......................... 0.3 19.45
</TABLE>
LEGAL PROCEEDINGS
Bishop Contracts
Subject to the approval of the KCC, WRI entered into five new gas supply
contracts with certain entities affiliated with The Bishop Group, Ltd. (the
"Bishop entities") which are currently regulated by the KCC. A contested
hearing was held for the approval of those contracts. While the case was under
consideration by the KCC, the FERC issued an order under which it extended
jurisdiction over the Bishop entities. On November 3, 1995, the KCC stayed its
consideration of the contracts between WRI and the Bishop entities until the
FERC takes final appealable action on its assertion of jurisdiction over the
Bishop entities.
On June 28, 1996, the KCC issued its order by dismissing WRI's application
for approval of the contracts and of recovery of the related costs from its
customers. WRI appealed this ruling and on January 24, 1997, the Kansas Court
of Appeals reversed the KCC order and upheld the contracts and WRI's recovery
of related costs from its customers was approved by operation of law.
KPP Contracts
On November 27, 1996, the KCC issued a Suspension Order and on December 3,
1996, an order which suspended, subject to refund, the Gas Business' ability
to recover costs related to purchases from KPP included in the Cost of Gas
Rider (the "COGR"). On April 4, 1997, the KCC issued its order setting a
procedural schedule in this matter. Under the schedule established by the KCC,
the Staff of the KCC filed its testimony on April 4, 1997 but did not quantify
the amount of any proposed disallowance. Hearings are scheduled for May 27-28,
1997 and June 3-6, 1997 with a decision from the KCC expected in late July
1997.
Other
On January 17, 1997, a lawsuit was filed in Wyandotte County, Kansas,
District Court (Wells & Western Resources, et al) alleging negligence on the
part of the LDC and several other parties in connection with carbon monoxide
poisoning in a residence and claiming damages in excess of $50,000. The claim
is currently under investigation, but it does not currently appear to WRI that
resolution of the claim will result in any material impact on its financial
results.
89
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE WRI GAS BUSINESS
The Gas Business is comprised primarily of the following four components:
the LDC which is subject to rate-regulation; MCMC, a Kansas subsidiary of WRI
that engages primarily in intrastate gas transmission, as well as gas
wheeling, parking, balancing and storage services, and is also subject to
rate-regulation; Westar, a Kansas non-regulated indirect subsidiary of WRI
that engages primarily in marketing and selling natural gas to small and
medium-sized commercial and industrial customers; and Westar Gas Company, a
Delaware non-regulated subsidiary of Westar that engages in extracting,
processing and selling natural gas liquids. Because the LDC and MCMC are
regulated entities (the "Regulated Entities"), and Westar and Westar Gas
Company are non-regulated entities (the "Non-Regulated Entities"), they have
been treated separately below.
The accounting policies followed for the Gas Business are in accordance with
generally accepted accounting principles. The regulated operations of the Gas
Business being contributed are 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 KCC, the OCC and the FERC. SFAS 71 sets forth the
application of generally accepted accounting principles for those companies
whose rates are established by 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 non-regulated
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).
RESULTS OF CONSOLIDATED OPERATIONS
Net income for the Gas Business for the fiscal year ended August 31, 1996
(the "1996 Fiscal Year") was $19.3 million compared to a net loss of $1.0
million for the fiscal year ended August 31, 1995 (the "1995 Fiscal Year").
The increase in net income from the 1995 Fiscal Year to the 1996 Fiscal Year
is attributable primarily to the LDC's increased sales volumes resulting from
colder winter temperatures, higher "opportunity gas" (as defined below) sales
volumes due to the inclusion of twelve months of opportunity gas sales in the
1996 Fiscal Year as opposed to seven months in the 1995 Fiscal Year, the
Fiscal Year in which opportunity gas sales began, and Westar's increased sales
volumes attributable to continuing marketing efforts.
"Opportunity gas" means gas supplied to the LDC under contract that is not
required for customer sales and that is either stored for future allocation by
the LDC or, more typically, resold by the LDC to its non-traditional customers
such as gas marketers and end-users. Seventy-five percent of profits on
opportunity gas sales are passed on to customers while the remaining twenty-
five percent is retained as revenue to the LDC. Due to the nature of
opportunity gas sales, profits on such sales are minimal.
The following is an explanation of significant variations in 1996 financial
results for the consolidated operations of the Gas Business from prior year
results broken down in terms of operating revenues, operating expenses,
liquidity and capital resources and certain other matters.
OPERATING REVENUES
The operating revenues of the Gas Business are determined in large part by
sales volumes, which fluctuate with seasonal weather conditions, and rates
which may be charged as authorized by certain regulatory commissions which
maintain jurisdiction over the Gas Business. In addition, the KCC has
established the COGR, and the OCC has established the Purchased Gas Adjustment
(the "PGA"), both of which permit the LDC to automatically increase or
decrease retail rates in response to natural gas cost changes. Future
operating revenues
90
<PAGE>
may be affected by changes in the following: weather conditions, the
regulatory environment, competition from alternative energy and fuel sources,
energy conservation efforts, and the overall economy of the Gas Business'
service area.
THE REGULATED ENTITIES
Comparison of Six Month Periods Ended February 28, 1997 and February 29,
1996: Revenues for the Regulated Entities increased 20% for the six months
ended February 28, 1997 (the "Fiscal 1997 Interim Period") as compared to the
six months ended February 29, 1996 (the "Fiscal 1996 Interim Period") as a
result of increased retail gas revenues and a 66% increase in opportunity gas
revenues. Retail revenues were affected by higher gas costs which were passed
on to customers through the COGR and the PGA. In addition, on July 11, 1996,
the KCC issued an order approving WRI's application for a rate increase,
allowing for increased natural gas revenues of $34.4 million annually for the
LDC. (For additional information on the KCC rate increase order, see Note 4 of
Notes to the Financial Statements.)
Comparison of Fiscal Years Ended August 31, 1996 and August 31,
1995: Revenues for the Regulated Entities increased 34% from the 1995 Fiscal
Year to the 1996 Fiscal Year as a result of colder winter temperatures,
increased retail gas revenues through the COGR and the PGA and opportunity gas
sales revenues that more than doubled due to the inclusion of twelve months of
opportunity gas sales revenues in the 1996 Fiscal Year as opposed to seven
months in the 1995 Fiscal Year, the Fiscal Year in which opportunity gas sales
began. In addition, natural gas revenues increased for the Regulated Entities
for the last two months of the 1996 Fiscal Year due to the KCC rate increase
order described above.
Comparison of Fiscal Years Ended August 31, 1995 and August 31,
1994: Revenues for the Regulated Entities decreased 18% from the fiscal year
ended August 31, 1994 (the "1994 Fiscal Year") to the 1995 Fiscal Year as a
result of a 16% decrease in natural gas retail sales caused by milder winter
temperatures and lower retail gas revenues through the COGR and the PGA.
THE NON-REGULATED ENTITIES
Comparison of Six Month Periods Ended February 28, 1997 and February 29,
1996: Revenues for the Non-Regulated Entities increased 62% from the Fiscal
1996 Interim Period to the Fiscal 1997 Interim Period primarily as a result of
Westar's increased sales volumes attributable to continuing marketing efforts.
Comparison of Fiscal Years Ended August 31, 1996 and August 31,
1995: Revenues for the Non-Regulated Entities increased 57% from the 1995
Fiscal Year to the 1996 Fiscal Year. This increase was a result of (i)
continuing marketing efforts, (ii) Westar Gas Company's purchase of Minneola
as of January 1995, leading to the inclusion of eight months of revenue from
Minneola in the 1995 Fiscal Year as opposed to twelve months of revenue in the
1996 Fiscal Year and (iii) higher average gas liquids prices in the 1996
Fiscal Year compared to the 1995 Fiscal Year.
Comparison of Fiscal Years Ended August 31, 1995 and August 31,
1994: Revenues for the Non-Regulated Entities were virtually unchanged from
the 1994 Fiscal Year to the 1995 Fiscal Year.
OPERATING EXPENSES
Total operating expenses for the Gas Business increased from the 1995 Fiscal
Year to 1996 Fiscal Year primarily as a result of (i) larger purchases of
natural gas by, and increased overhead and maintenance expense for, the LDC
relating to increased natural gas sales combined with higher market prices for
natural gas and (ii) increased income tax expense for the Gas Business as a
whole in the 1996 Fiscal Year resulting from positive net income in the 1996
Fiscal Year compared with a net loss in the 1995 Fiscal Year.
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<PAGE>
THE REGULATED ENTITIES
Comparison of Six Month Periods Ended February 28, 1997 and February 29,
1996: Operating expenses for the Regulated Entities increased 14% from the
Fiscal 1996 Interim Period to the Fiscal 1997 Interim Period, primarily as a
result of larger purchases of natural gas necessitated by increased natural
gas sales combined with higher market prices for natural gas.
Comparison of Fiscal Years Ended August 31, 1996 and August 31,
1995: Operating expenses for the Regulated Entities increased 26% from the
1995 Fiscal Year to the 1996 Fiscal Year due to larger purchases of natural
gas by, and increased operating overhead and maintenance expense for, the LDC
relating to increased natural gas sales combined with higher market prices for
natural gas.
Comparison of Fiscal Years Ended August 31, 1995 and August 31,
1994: Operating expenses for the Regulated Entities decreased 14% from the
1994 Fiscal Year to the 1995 Fiscal Year primarily due to the smaller natural
gas purchases necessitated by milder winter temperatures and correspondingly
lower natural gas sales.
THE NON-REGULATED ENTITIES
Comparison of Six Month Periods Ended February 28, 1997 and February 29,
1996: Operating expenses for the Non-Regulated Entities increased 67% from the
Fiscal 1996 Interim Period to the Fiscal 1997 Interim Period primarily as a
result of higher natural gas purchases resulting from increased sales volumes
of Westar due to continuing marketing efforts and increased natural gas
expense resulting from higher gas prices.
Comparison of Fiscal Years Ended August 31, 1996 and August 31,
1995: Operating expenses for the Non-Regulated Entities increased 57% from the
1995 Fiscal Year to the 1996 Fiscal Year as a result of (i) larger purchases
of natural gas by, and increased operating overhead and maintenance expense
for, Westar relating to its increased natural gas sales, (ii) Westar Gas
Company's purchase of Minneola as of January 1995, leading to the inclusion of
eight months of operating expense from Minneola in the 1995 Fiscal Year as
opposed to twelve months of operating expense in the 1996 Fiscal Year and
(iii) Westar Gas Company's increased maintenance expense relating to its 34.4%
beneficial interest in Indian Basin in the 1996 Fiscal Year.
Comparison of Fiscal Years Ended August 31, 1995 and August 31,
1994: Operating expenses for the Non-Regulated Entities increased 5% from the
1994 Fiscal Year to the 1995 Fiscal Year due to (i) Westar Gas Company's
purchase of Minneola as of January 1995, leading to the inclusion of eight
months of operating expense from Minneola in the 1995 Fiscal Year and (ii) the
capitalization by Westar Gas Company of an increase in its beneficial interest
in Indian Basin as of April 1994, leading to the inclusion of related
depreciation expense only in the latter part of the 1994 Fiscal Year as
opposed to all of the 1995 Fiscal Year.
LIQUIDITY AND CAPITAL RESOURCES
Because the Gas Business has not been treated as a separate entity by WRI
for accounting, financing and administrative purposes, financing and cash
management for the Gas Business have historically been administered by WRI
through a centralized treasury system that services WRI's overall operations.
WRI has provided for the liquidity needs of the Gas Business when capital
requirements of the Gas Business have been in excess of internally generated
funds. Long-term debt totaling $35 million has been assigned to the Gas
Business and will be assumed by ONEOK. The interest expense on this debt has
been calculated at a market-based interest rate of 7.25% for all periods
presented.
The Gas Business' capital expenditures for each of the last three fiscal
years totaled approximately $66 million, $62 million and $65 million. A
substantial portion of these capital expenditures were used to replace gas
pipes to customers' homes and cast iron mains under programs approved by the
KCC. The KCC had also issued orders that allowed the Gas Business to defer
such replacement costs. As part of the LDC rate order in July 1996 (see below
under "--Other Information--Regulatory"), the LDC stopped deferring these
costs. As a
92
<PAGE>
result of the rate order, approximately $431,000 of deferred service line
replacement costs will be amortized each month to income through June 1999. In
the future, recovery of these costs and a return thereon will occur only if
such costs are reflected in the LDC's rate base.
OTHER INFORMATION
INFLATION
Under the ratemaking procedures prescribed by the state regulatory
commissions whose jurisdictions include the service areas of the LDC, only the
original cost of plant is recoverable in rates charged to customers.
Therefore, because of inflation, present and future depreciation provisions
may be inadequate for purposes of maintaining the purchasing power invested by
common shareholders in the plant and equipment of the LDC and the related cash
flows for maintaining and replacing property. The impact of this ratemaking
process on common shareholders is mitigated to the extent depreciable property
is financed with debt that can be repaid with dollars of less purchasing
power. While the LDC has experienced relatively low inflation in the recent
past, the cumulative effect of inflation on operating costs may require the
Gas Business to seek regulatory rate relief. There can be no assurance that
any such costs may be allowed to be recovered in rates.
REGULATORY
On August 17, 1995, WRI filed a proceeding with the KCC seeking a $36
million annual increase in revenues for the LDC. On April 15, 1996, the KCC
issued an order allowing a revenue increase of $33.8 million annually. After
further proceedings, on July 11, 1996, the KCC issued a revised order allowing
revenues to be increased by $34.4 million annually.
On November 27, 1996, the KCC issued a Suspension Order and on December 3,
1996, an order which suspended, subject to refund, the LDC's ability to
recover costs related to gas purchases from KPP included in the COGR. On April
4, 1997, the KCC issued its order setting a procedural schedule in this
matter. Under the schedule established by the KCC, the Staff of the KCC filed
its testimony on April 4, 1997 but did not quantify the amount of any proposed
disallowance. Hearings are scheduled for May 27-28, 1997 and June 3-6, 1997
with a decision from the KCC expected in late July 1997.
Pursuant to FERC Order 636, interstate pipelines' services have been
"unbundled" such that gas supplies are being sold separately from interstate
transportation services. The LDC has contracted for a mix of transportation
and storage services which allows it to meet the needs of its customers.
Pipelines are recovering from their customers certain transition costs
associated with the restructuring under Order 636 regulation. Any such
recovery is subject to established review procedures of the FERC.
In November 1994, the KCC issued an order which approved the recovery of
these FERC-allowed transition costs on a volumetric basis from the LDC's sales
and transportation customers. Accordingly, regulatory assets, in amounts
corresponding to the costs incurred but not yet collected, have been recorded.
This KCC order has been appealed by consumer advocates and intervenors.
IMPAIRMENTS
In January 1996, the Gas Business adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). This Statement imposes
stricter criteria for the carrying of regulatory assets on the balance sheet
by requiring that such assets be probable candidates for future recovery as of
each balance sheet date. Based on the current regulatory structure in which
the Gas Business operates, the adoption of SFAS 121 did not have a material
impact on the financial position or results of operations of the Gas Business.
93
<PAGE>
POSTRETIREMENT BENEFITS
Postretirement benefits are provided to eligible employees of the Gas
Business. Based on actuarial projections and adoption of the transition method
of implementation which allows a 20-year amortization of the accumulated
benefit obligation, the Gas Business postretirement benefits expense
approximated $6.0 million, $5.4 million and $5.7 million for the 1996 Fiscal
Year, the 1995 Fiscal Year and the 1994 Fiscal Year, respectively. In
addition, WRI received an order from the KCC permitting the initial deferral
of postretirement benefits expense in excess of amounts recognized on a pay-
as-you-go basis. The amounts of postretirement benefits expense were deferred
under the provisions of Emerging Issues Task Force No. 92-12 ("EITF 92-12").
The amounts of expense deferred at August 31, 1996 and 1995 were $10.7 million
and $7.9 million, respectively. To mitigate the future impact the
postretirement benefits expense accruals would have on LDC rates, WRI planned
to offset this expense with income obtained from a corporate-owned life
insurance ("COLI") program with respect to employees. However, in 1996 the tax
benefits from the COLI program were significantly curtailed through federal
legislation, and such COLI contracts will not be transferred to New ONEOK.
Accordingly, in order for the Gas Business to continue to meet the provisions
of EITF 92-12 that permit rate regulated utilities to defer postretirement
benefits costs, the amortization of costs deferred from January 1, 1993
through December 31, 1997 and future accruals must either be offset by another
form of income source, or the amortization of prior deferred postretirement
benefits costs and current year postretirement benefits expense must be
included in rates effective January 1, 1998. The Gas Business has the ability
to seek recovery of postretirement costs through the ratemaking process. Based
on regulatory precedents established by the KCC, and the current order which
permits the Gas Business to seek recovery of postretirement costs upon a given
change in legislation, management believes that it is probable that accrued
postretirement benefits can be recovered in rates.
CUSTOMER BANKRUPTCY
During Fiscal Year 1996, a large customer of Westar declared bankruptcy and
Westar wrote off approximately $650,000 of accounts receivable. Westar was an
unsecured creditor and is pursuing recovery through bankruptcy court.
94
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
following: (1) the business combination contemplated by the Transactions,
described elsewhere in this Proxy Statement/Prospectus; and (2) a material
increase in the Gas Business revenues as a result of regulatory approval of a
rate increase in April 1996 (the "Rate Order") as described below. The
Transactions and the Rate Order are referred to as the "Pro Forma Events"
hereinafter. The unaudited pro forma condensed balance sheet as of February
28, 1997 is presented as if the Transactions had occurred on that date. The
unaudited pro forma condensed statements of income for the year ended August
31, 1996 and the six months ended February 28, 1997 assume that the Pro Forma
Events occurred at the beginning of the earliest period presented. The
Transactions will be treated as a purchase for accounting purposes. The assets
acquired and the liabilities assumed will be recorded at their fair values.
See "The Transactions -- Accounting Treatment of the Transactions."
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of ONEOK (incorporated by reference
herein) and the Gas Business (included elsewhere in this Proxy
Statement/Prospectus) and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of ONEOK (incorporated by reference
herein) and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Gas Business" (included elsewhere in this Proxy
Statement/Prospectus). The unaudited pro forma condensed statements of income
are not necessarily indicative of the financial results that would have
occurred had the Pro Forma Events been consummated on the indicated dates, nor
are they necessarily indicative of future financial results. The results of
operations for the six months ended February 28, 1997 are not necessarily
indicative of the results to be expected for the entire fiscal year or any
other interim period.
The pro forma adjustments are based on preliminary assumptions and estimates
made by ONEOK's management and do not reflect adjustments for anticipated
synergies ONEOK expects to achieve as a result of the Merger. The actual
allocation of the consideration paid for the Gas Business may differ from that
reflected in the unaudited pro forma combined condensed financial statements
after a more extensive review of the fair market values of the assets acquired
and liabilities assumed has been completed. Amounts allocated will be based
upon the estimated fair values at the Merger Effective Time, which could vary
from the amounts as of February 28, 1997; however, ONEOK does not expect any
differences to be material.
On August 17, 1995, the Gas Business filed a rate proceeding with the KCC
seeking a $36 million annual increase in revenues from its LDC customers in
order to provide recovery of increased operating costs. The increase in
operating costs resulted from operational changes occurring in the Gas
Business since its last general rate increase granted in December 1991 and is
believed to be indicative of costs to be incurred in the future. The rate
proceeding also sought continuation of the recovery of costs associated with
its service line replacement program including depreciation, property taxes
and carrying costs which had been deferred since January 1992. The KCC had
previously allowed for the recovery of service line costs which had been
deferred prior to January 1992 in the December 1991 rate order. On April 15,
1996, the KCC issued an order allowing a general revenue increase of $33.8
million annually, and on July 11, 1996, issued a revised order increasing the
general revenue requirement to $34.4 million. The revised rate order also
provided for the continuated recovery through rates of the costs associated
with the service line replacement program. The unaudited pro forma combined
condensed statement of income for the year ended August 31, 1996 includes the
pro forma effects of the rate increase as if it had occurred at the beginning
of the period presented.
95
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
GAS PRO FORMA COMBINED
ONEOK BUSINESS ADJUSTMENTS TOTAL
-------- -------- ----------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
DATA)
---------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues
Regulated................... $396,041 $384,138 -- $ 780,179
Nonregulated................ 326,363 160,553 -- 486,916
-------- -------- -------- ----------
Total Operating Revenues.. 722,404 544,691 -- 1,267,095
-------- -------- -------- ----------
Operating Expenses
Cost of gas................. 506,706 399,898 -- 906,604
Operations and maintenance.. 68,944 63,226 -- 132,170
Depreciation, depletion and
amortization............... 35,996 16,731 77 (d) 53,815
1,011 (e)
General taxes............... 11,023 5,958 -- 16,981
Income taxes................ 31,481 23,889 (649) (i) 54,721
-------- -------- -------- ----------
Total Operating Expenses.. 654,150 509,702 439 1,164,291
-------- -------- -------- ----------
Operating Income.............. 68,254 34,989 (439) 102,804
Interest and other............ 17,838 2,047 1,571 (c) 21,456
-------- -------- -------- ----------
Net Income.................... 50,416 32,942 (2,010) 81,348
Preferred Stock Dividends..... 214 -- (214)(f) 17,386
17,386 (g)
-------- -------- -------- ----------
Income Available for
Common Stock............. $ 50,202 $ 32,942 $(19,182) $ 63,962
======== ======== ======== ==========
Earnings Per Share of Common
Stock........................ $ 1.84 $ 2.11
Average Shares of Common Stock
Outstanding (Thousands)...... 27,378 30,375(1)
</TABLE>
- --------
(1) The number of shares is adjusted for additional shares of New ONEOK Common
Stock to be issued at the Closing of the Transactions but does not include
the number of shares of New ONEOK Common Stock issuable upon conversion of
the Convertible Preferred Stock. See Note (h) of Notes to Unaudited Pro
Forma Financial Statements.
See accompanying Notes to Unaudited Pro Forma Financial Statements.
96
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GAS PRO FORMA COMBINED
ONEOK BUSINESS ADJUSTMENTS TOTAL
---------- -------- ----------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Operating Revenues
Regulated.................. $ 538,169 $511,341 $ 27,500 (k) $1,077,010
Nonregulated............... 686,176 209,474 -- 895,650
---------- -------- -------- ----------
Total Operating
Revenues................ 1,224,345 720,815 27,500 1,972,660
---------- -------- -------- ----------
Operating Expenses
Cost of gas................ 807,694 515,938 1,323,632
Operations and
maintenance............... 201,259 130,261 331,520
Depreciation, depletion and
amortization.............. 72,868 25,515 154 (d) 100,559
2,022 (e)
General taxes.............. 21,489 13,187 34,676
Income taxes............... 33,037 13,979 9,532 (i) 56,548
---------- -------- -------- ----------
Total Operating
Expenses................ 1,136,347 698,880 11,708 1,846,935
---------- -------- -------- ----------
Operating Income............. 87,998 21,935 15,792 125,725
Interest and other........... 35,162 2,685 3,141 (c) 40,988
---------- -------- -------- ----------
Net Income................... 52,836 19,250 12,651 84,737
Preferred Stock Dividends.... 428 -- (428)(f) 34,772
34,772 (g)
---------- -------- -------- ----------
Income Available for
Common Stock............ $ 52,408 $ 19,250 $(21,693) $ 49,965
========== ======== ======== ==========
Earnings Per Share of Common
Stock....................... $ 1.93 $ 1.66
Average Shares of Common
Stock Outstanding
(Thousands)................. 27,136 30,133(1)
</TABLE>
- --------
(1) The number of shares is adjusted for additional shares of New ONEOK Common
Stock to be issued at the Closing of the Transactions but does not include
the number of shares of New ONEOK Common Stock issuable upon conversion of
the Convertible Preferred Stock. See Note (h) of Notes to Unaudited Pro
Forma Financial Statements.
See accompanying Notes to Unaudited Pro Forma Financial Statements.
97
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT FEBRUARY 28, 1997
<TABLE>
<CAPTION>
GAS PRO FORMA COMBINED
ONEOK BUSINESS ADJUSTMENTS TOTAL
---------- -------- ----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
ASSETS
Property........................ $1,386,538 $891,327 $ 2,468 (d) $2,280,333
Accumulated depreciation,
depletion & amortization....... 561,558 291,214 -- 852,772
---------- -------- --------- ----------
Net Property.................. 824,980 600,113 2,468 1,427,561
---------- -------- --------- ----------
Current Assets:
Cash and cash equivalents..... 6,095 2,622 (6,975)(e) (8,298)
(9,540)(f)
(500)(j)
Accounts and notes
receivable................... 232,948 181,270 -- 414,218
Inventories................... 50,932 23,364 -- 74,296
Other......................... 27,575 25,564 -- 53,139
---------- -------- --------- ----------
Total current assets........ 317,550 232,820 (17,015) 533,355
---------- -------- --------- ----------
Deferred charges and other
assets:
Regulatory assets, net........ 149,723 51,838 500 (j) 202,061
Goodwill...................... -- -- 80,887 (e) 80,887
Other......................... 41,161 2 -- 41,163
---------- -------- --------- ----------
Total deferred charges and
other assets............... 190,884 51,840 81,387 324,111
---------- -------- --------- ----------
Total assets.............. $1,333,414 $884,773 $ 66,840 $2,285,027
========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Common shareholders' equity... $ 463,580 $594,250 $ 79,413 (a) $ 542,453
(594,250)(e)
(540)(f)
Preferred stock............... 9,000 -- (9,000)(f) --
Convertible Preferred Stock... -- -- 546,916 (a) 546,916
---------- -------- --------- ----------
Total shareholders' equity.. 472,580 594,250 22,539 1,089,369
---------- -------- --------- ----------
Long-term debt, excluding
current portion................ 342,218 35,000 43,327 (b) 420,545
Current Liabilities:
Long-term debt................ 18,911 -- -- 18,911
Notes payable................. 35,066 -- -- 35,066
Accounts payable.............. 146,481 111,861 -- 258,342
Accrued taxes................. 20,521 -- -- 20,521
Accrued interest.............. 7,804 -- -- 7,804
Other......................... 29,052 5,010 -- 34,062
---------- -------- --------- ----------
Total current liabilities... 257,835 116,871 -- 374,706
---------- -------- --------- ----------
Deferred credits:
Deferred income taxes......... 182,104 116,920 974 (e) 299,998
Customers' advances for
construction and other
deferred credits............. 78,677 21,732 -- 100,409
---------- -------- --------- ----------
Total deferred credits and
other liabilities.......... 260,781 138,652 974 400,407
---------- -------- --------- ----------
Commitments and Contingencies... -- -- -- --
---------- -------- --------- ----------
Total liabilities and
shareholders' equity....... $1,333,414 $884,773 $ 66,840 $2,285,027
========== ======== ========= ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements.
98
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) The fair value of New ONEOK's equity securities to be issued to WRI, as
determined by ONEOK's financial advisor, is $546,916,000 and $79,413,000 for
the Series A Convertible Preferred Stock and Common Stock, respectively. The
Series A Convertible Preferred Stock is convertible, at the option of the
holder, in whole or in part, at any time following the occurrence of a
Regulatory Change, into New ONEOK Common Stock at the rate of one share of New
ONEOK Common Stock for each share of Series A Convertible Preferred Stock (as
adjusted to reflect any stock split or similar events). In addition, any
shares of the Series A Convertible Preferred Stock transferred by WRI to any
person other than WRI or its affiliates is required to be converted into New
ONEOK Common Stock. See "Summary--The Transactions--Terms of the Series A
Convertible Stock."
WRI's common stock equivalent ownership is based upon the assumption that on
a fully diluted basis after giving effect to the Transactions and based upon
the number of shares of ONEOK Common Stock outstanding at October 31, 1996,
WRI will hold 9.9% of the New ONEOK Common Stock prior to the conversion of
the Series A Convertible Preferred Stock and 45.0% thereafter.
(b) In accordance with the terms of the Agreement, New ONEOK will assume all
of the liabilities of WRI that arise primarily out of, or relate primarily to
or are generated by, the assets of the Gas Business, as well as the Assumed
Debt of $35 million. The amount of the Assumed Debt will be subject to
adjustment to provide either for New ONEOK's assumption of additional debt (to
the extent that the Net Amount, as defined, exceeds $40 million) or for a
reduction in the amount of debt assumed by New ONEOK. The Net Amount of the
adjustment to the Assumed Debt means the Working Capital of the Gas Business
as of the Closing Date minus the amount, if any, by which the ONEOK Capital
Expenditures Amount exceeds the WRI Capital Expenditures Amount and plus the
amount, if any, by which the WRI Capital Expenditures Amount exceeds the ONEOK
Capital Expenditures Amount. The pro forma adjustment to Assumed Debt is
calculated based on the following assumptions:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Adjustment for changes in working capital:
Gas Business working capital................................ $115,949
Less:
Anticipated capital expenditures to be made by ONEOK in
excess of capital expenditures made by the Gas Business
prior to Closing......................................... 32,622
Base amount of working capital............................ 40,000
--------
Total adjustment to Assumed Debt........................ $ 43,327
========
</TABLE>
(c) Interest expense adjustments to the Assumed Debt are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Adjustment to Assumed Debt--see note (b)................... $43,327
Assumed interest rate on adjustment to Assumed Debt........ 7.25%(1)
-------
Interest expense adjustment for fiscal 1996................ $ 3,141
=======
Interest expense adjustment for the six months ended Febru-
ary 28, 1997.............................................. $ 1,571
=======
</TABLE>
(d) Based upon preliminary analyses, the following adjustments have been
made to reflect the fair value of property, plant and equipment:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Revaluation of gas processing plants to fair value........... $2,468
Adjustment to fiscal 1996 depreciation expense (assumes 16-
year average depreciable life).............................. $ 154
Adjustment to depreciation expense for the six months ended
February 28, 1997 .......................................... $ 77
</TABLE>
- --------
(1) For purposes of the unaudited pro forma consolidated condensed statements
of income, the annual interest rate on the Assumed Debt as adjusted is
assumed to be 7.25% which is comparable to long-term borrowing rates
available to ONEOK. A 1% change in the interest rate on the Assumed Debt
as adjusted would change 1996 interest expense by $783,000 and interest
expense for the first six months of 1997 by $391,500.
99
<PAGE>
(e) The excess of the total purchase price over the allocation of fair value
to the net assets will be recorded as goodwill. ONEOK's calculation of
goodwill is based on the following assumptions and calculations:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
FEBRUARY 28,
1997
------------
(THOUSANDS)
<S> <C>
Fair Value of equity securities owned by WRI-- see note
(a)........................................................ $ 626,329
Transaction costs........................................... 3,475
Involuntary termination and employee relocation costs....... 3,500
---------
Total consideration..................................... $ 633,304
Net asset value of the Gas Business at February 28, 1997.... (594,250)
Adjustment to Assumed Debt -- see note (b).................. 43,327
---------
Initial purchase price in excess of historical net asset
value...................................................... 82,381
Increase (decrease) from fair value allocations: Property,
plant and equipment-- see note (d)......................... (2,468)
Deferred income tax on fair value allocation adjustments.... 974
---------
Total goodwill.......................................... $ 80,887
=========
Goodwill amortization expense (assumes 40-year life):
Adjustment to fiscal 1996 amortization expense............ $ 2,022
Adjustment to amortization expense for the six months
ended
February 28, 1997........................................ $ 1,011
</TABLE>
(f) To record the redemption of all 180,000 shares of ONEOK Preferred Stock
outstanding as of February 28, 1997, prior to the Closing at the stated
voluntary redemption price of $53 per share. Because of the assumed
redemption, $428,000 and $214,000 of preferred stock dividend payments have
been eliminated for the year ended August 31, 1996, and the six months ended
February 28, 1997, respectively.
(g) To record the payment of the minimum dividend requirements of the Series
A Convertible Preferred Stock issued in connection with the Transactions. The
adjustment is calculated as follows:
<TABLE>
<S> <C>
Series A Convertible Preferred Stock outstanding................... 19,318
Minimum annual dividend rate per share............................. $1.80
-------
Adjustment to preferred stock dividends for fiscal 1996............ $34,772
=======
Adjustment to preferred stock dividends for the six months ended
February 28, 1997................................................. $17,386
=======
</TABLE>
(h) Pro forma number of common shares outstanding represents the sum of
historical weighted average shares outstanding of ONEOK Common Stock and the
estimated number of shares of New ONEOK Common Stock assumed to be issued in
the Transactions.
(i) Represents the tax effect at the statutory rate of all pre-tax pro forma
adjustments after excluding nondeductible goodwill amortization.
(j) To record costs associated with relocating the corporate headquarters of
the Gas Business within Kansas.
(k) To record the additional income which would have been earned had the
1996 rate increase been in effect the entire twelve months ended August 31,
1996. The KCC issued a rate order authorizing an increase in annual gas
distributions revenues effective April 15. It was amended effective July 11.
The additional income is estimated to be $27,500,000 for the twelve months
ended August 31, 1996.
100
<PAGE>
EXPERTS
The consolidated financial statements of ONEOK Inc. and subsidiaries as of
August 31, 1996 and 1995 and for each of the years in the three-year period
ended August 31, 1996, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of such firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP covering the August 31, 1996 financial
statements refers to adoption of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to Be Disposed Of."
The audited financial statements of the Gas Business, a business unit of
WRI, as of August 31, 1996 and 1995 and for each of the years in the three-
year period ended August 31, 1996 included in this Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Representatives of KPMG Peat Marwick LLP will be present at the Special
Meeting with the opportunity to make a statement if they desire to do so and
to respond to appropriate questions.
101
<PAGE>
LEGAL MATTERS
The validity of the New ONEOK Common Stock to be issued by New ONEOK pursuant
to the Transactions will be passed upon by Gable Gotwals Mock Schwabe Kihle
Gaberino. Certain tax matters will be passed upon by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations).
102
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by ONEOK with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this
Proxy Statement/Prospectus and shall be deemed to be a part hereof:
1. ONEOK's Annual Report on Form 10-K/A, for the year ended August 31, 1996
("ONEOK 1996 Form 10-K").
2. ONEOK's Quarterly Reports ("Quarterly Reports") on Form 10-Q for the
fiscal quarters ended November 30, 1996 and February 28, 1997.
3.ONEOK's Current Report on Form 8-K dated December 23, 1996.
4. ONEOK's Proxy Statement dated November 7, 1996, in connection with its
Annual Meeting of Shareholders held on December 12, 1996.
All documents subsequently filed by ONEOK pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the Special Meeting shall be deemed
to be incorporated by reference herein and to be a part hereof from the date
of filing thereof. 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 Proxy Statement/Prospectus to the extent
that a statement contained herein, or in any other subsequently filed document
that 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 Proxy Statement/Prospectus.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
I. Audited Financial Statements of the Gas Business
Report of Independent Public Accountants................................ F-2
Statement of Financial Position at August 31, 1996 and 1995............. F-3
Statement of Operations for the years ended August 31, 1996, 1995 and
1994................................................................... F-4
Statement of Equity in Net Assets Acquired for the years ended August
31, 1996, 1995 and 1994................................................ F-5
Statement of Cash Flows for the years ended August 31, 1996, 1995 and
1994................................................................... F-6
Notes to Financial Statements........................................... F-7
II. Unaudited Financial Statements of the Gas Business
Statement of Financial Position at February 28, 1997 and August 31,
1996................................................................... F-19
Statement of Operations for the six months ended February 28, 1997 and
February 29, 1996...................................................... F-20
Statement of Equity in Net Assets Acquired for the six months ended
February 28, 1997 and February 29, 1996................................ F-21
Statement of Cash Flows for the six months ended February 28, 1997 and
February 29, 1996...................................................... F-22
Notes to Interim Financial Statements................................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Western Resources, Inc.:
We have audited the accompanying statement of financial position of the Gas
Business (a business unit of Western Resources, Inc.) as of August 31, 1996
and 1995, and the related statements of operations, cash flows and equity in
net assets acquired for each of the three years in the period ended August 31,
1996. 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 Gas Business as of August
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri
February 4, 1997
F-2
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Property
Distribution system................................. $ 721,762 $ 676,642
Transmission system................................. 76,166 69,437
Gas storage......................................... 25,604 24,871
Gas gathering....................................... 11,166 10,912
Gas processing...................................... 18,522 15,877
Other............................................... 6,186 5,163
----------- -----------
Total Property.................................... 859,406 802,902
Accumulated depreciation............................ (277,964) (261,613)
----------- -----------
Net Property...................................... 581,442 541,289
----------- -----------
Current Assets
Cash and cash equivalents........................... 426 405
Accounts receivable, net............................ 71,386 49,256
Materials and supplies.............................. 5,997 6,659
Gas in storage...................................... 47,495 39,538
Purchased gas cost adjustment....................... 9,816 14,066
Other current assets................................ 1,098 670
----------- -----------
Total Current Assets.............................. 136,218 110,594
----------- -----------
Deferred Charges and Other Assets
Deferred future income taxes........................ 25,280 28,911
Other regulatory assets............................. 30,183 26,159
Other............................................... 96 720
----------- -----------
Total Deferred Charges And Other Assets........... 55,559 55,790
----------- -----------
Total Assets...................................... $ 773,219 $ 707,673
=========== ===========
EQUITY AND LIABILITIES
Equity in Net Assets Acquired......................... $ 532,477 $ 487,815
Long-term debt........................................ 35,000 35,000
Current Liabilities
Accounts payable and other accrued liabilities...... 71,529 46,147
Customers' deposit.................................. 4,742 5,081
----------- -----------
Total Current Liabilities......................... 76,271 51,228
Deferred Credits And Other Liabilities
Deferred income taxes............................... 98,088 98,502
Deferred investment tax credits..................... 9,994 10,665
Customer advances for construction.................. 3,283 3,050
Other............................................... 18,106 21,413
----------- -----------
Total Deferred Credits and Other Liabilities...... 129,471 133,630
Commitments and Contingencies (Notes 4, 5 and 7)
----------- -----------
Total Equity and Liabilities...................... $ 773,219 $ 707,673
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
---------------------------
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues
Regulated........................................ $511,341 $381,836 $465,789
Nonregulated:
Marketing...................................... 190,532 120,682 122,892
Processing..................................... 18,877 11,627 9,624
Other.......................................... 65 848 556
-------- -------- --------
Total Nonregulated........................... 209,474 133,157 133,072
-------- -------- --------
Total Operating Revenues..................... 720,815 514,993 598,861
-------- -------- --------
Operating Expenses
Cost of gas...................................... 515,938 342,772 417,215
Operations and maintenance....................... 130,261 122,754 112,902
Depreciation, depletion and amortization......... 25,515 31,327 26,182
General taxes.................................... 13,187 16,915 15,034
Income taxes..................................... 13,979 634 8,767
-------- -------- --------
Total Operating Expenses....................... 698,880 514,402 580,100
-------- -------- --------
Operating Income............................... 21,935 591 18,761
-------- -------- --------
Non-operating expenses
Interest expense and other....................... 2,685 1,592 2,482
-------- -------- --------
Net Income (loss).................................. $ 19,250 $ (1,001) $ 16,279
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF EQUITY IN NET ASSETS ACQUIRED
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
---------------------------
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Equity in Net Assets Acquired, beginning of the
year............................................. $487,815 $438,696 $404,282
Net Income (Loss)............................... 19,250 (1,001) 16,279
Net Capital Contributions....................... 25,412 50,120 18,135
-------- -------- --------
Equity in Net Assets Acquired, end of the year.... $532,477 $487,815 $438,696
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
-----------------------------
1996 1995 1994
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Activities
Net income (loss).............................. $ 19,250 $ (1,001) $ 16,279
Depreciation, depletion and amortization....... 25,515 31,327 26,182
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.... (22,130) (16,018) 4,215
(Increase) decrease in gas in storage,
materials and supplies....................... (7,295) (5,222) 7,375
(Increase) decrease in other assets........... 196 (1,390) --
Decrease in deferred future income taxes...... 3,631 4,000 4,000
Increase in other regulatory assets........... (4,024) (10,463) (4,883)
(Increase) decrease in purchased gas cost
adjustment................................... 4,250 (7,817) (5,916)
Increase in accounts payable and other accrued
liabilities.................................. 25,382 4,689 6,791
Increase (decrease) in customers' deposit..... (339) 281 --
Increase (decrease) in deferred income taxes
and deferred investment tax credits.......... (1,085) 1,827 (12,561)
Increase (decrease) in other deferred credits
and other liabilities........................ (3,074) 9,821 5,382
--------- -------- --------
Cash provided by operating activities........ 40,277 10,034 46,864
--------- -------- --------
Investing Activities
Capital expenditures, net...................... (65,668) (62,421) (65,375)
--------- -------- --------
Financing Activities
Net capital contributions...................... 25,412 50,120 18,135
--------- -------- --------
Change in cash and cash equivalents............. 21 (2,267) (376)
Cash and cash equivalents--beginning of the
year........................................... 405 2,672 3,048
--------- -------- --------
Cash and cash equivalents--end of the year...... $ 426 $ 405 $ 2,672
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In December 1996, WRI and ONEOK announced the combination of the local
natural gas distribution business (the "LDC") of Western Resources, Inc.
("WRI"), and WRI's direct or indirect wholly-owned natural gas transportation
and marketing subsidiaries, Mid Continent Market Center, Inc. ("MCMC") and
Westar Gas Marketing, Inc. ("Westar" and, together with MCMC, their respective
subsidiaries and WRI's local natural gas distribution business, the "Gas
Business") with the business of ONEOK in accordance with the terms of the
Agreement, dated as of December 12, 1996 (the "Agreement"), between WRI and
ONEOK, pursuant to which: (A) immediately prior to the Merger Effective Time,
WRI will contribute, or will cause to be contributed, to WAI, Inc. ("WAI"), a
newly formed Oklahoma corporation and wholly-owned subsidiary of WRI, all of
the assets of WRI that are primarily used in, or primarily related to or
primarily generated by, the field operations of the Gas Business, including
all of the outstanding capital stock of Westar and MCMC (the "Assets"),
whereupon WAI will assume (i) all of the liabilities of WRI that arise
primarily out of, or relate primarily to or are primarily generated by, the
Assets and (ii) approximately $35 million (subject to pre-closing adjustment)
aggregate principal amount of debt of WRI and (B)(i) ONEOK will merge with and
into WAI, with WAI as the surviving corporation, whereupon WAI's name will be
changed to "ONEOK, Inc." (WAI being referred to herein, after the effective
time of the Merger, as "New ONEOK"), (ii) shares of ONEOK Common Stock
outstanding as of the Merger Effective Time will be converted on a one-for-one
basis into shares of New ONEOK Common Stock, whereupon, on a fully diluted
basis after giving effect to the Transactions and based on the number of
shares of ONEOK Common Stock outstanding as of December 12, 1996, (a) the
holders of ONEOK Common Stock will hold shares of New ONEOK Common Stock
representing at least 90.1% of the New ONEOK Common Stock to be outstanding
or, assuming conversion of all Series A Convertible Preferred Stock of New
ONEOK to be held by WRI pursuant to the Agreement, not less than 55.0% of the
New ONEOK Common Stock to be outstanding, and (b) WRI will hold 2,996,702
shares of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock, together representing in the aggregate up to 9.9% of the New
ONEOK Common Stock to be outstanding prior to conversion of the Series A
Convertible Preferred Stock and up to 45.0% of the New ONEOK Common Stock
outstanding thereafter, and (iii) WRI will be entitled, upon conversion of its
shares of Series A Convertible Preferred Stock at any time following a
Regulatory Change (as defined in the Proxy Statement/Prospectus under "The
Shareholder Agreement"), to receive from New ONEOK an amount equal to $35
million if the conversion were to occur at the Closing, which amount reduces
to zero over 5 years or less as dividends are paid on WRI's shares of Series A
Convertible Preferred Stock. Approximately 1,575 WRI employees are expected to
be reassigned to positions with WAI upon consummation of the transactions. The
transactions require the approval of ONEOK shareholders, the Oklahoma
Corporation Commission (the "OCC"), the Kansas Corporation Commission (the
"KCC") and the Securities and Exchange Commission. It is anticipated that the
transactions will close during the second half of 1997.
WRI's natural gas operations being contributed include its regulated
operations in Kansas and Northeast Oklahoma related to the LDC and MCMC (the
"Regulated Entities"). These Regulated Entities serve approximately 650,000
customers. In addition to the Regulated Entities, WRI will contribute its
wholly-owned indirect subsidiary, Westar. Westar markets and sells natural gas
primarily to small and medium-sized commercial and industrial customers and
its subsidiary Westar Gas Company processes natural gas liquids.
Prior to the Transactions, the Gas Business has been operated as an
integrated part of WRI's overall business and has not been separated from
WRI's other operations for managerial, accounting, administrative or other
purposes. Consequently, the activities of the Gas Business have been included
in the consolidated financial statements of WRI. In the normal course of
business, the Gas Business has various transactions with WRI, including
various expense allocations, which are material in amount. Certain accounts,
principally working capital accounts are maintained by WRI on a common basis.
Amounts applicable to WRI's electric business
F-7
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
which are not being contributed are accounted for in the same general ledger
accounts as WRI's Gas Business. Where it was practical, a determination of
amounts applicable to the Gas Business was made. In other circumstances it was
not possible to make this determination and allocation methodologies were used
to quantify estimated amounts related to the Gas Business. The allocation
methodologies utilized are, in the opinion of WRI, reasonable.
These financial statements have been prepared from records maintained by
WRI, and may not necessarily be indicative of the conditions which would have
existed if the Gas Business had been operated as an independent entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accounting policies followed for the Gas Business are in accordance with
generally accepted accounting principles. The regulated operations of the Gas
Business being contributed are 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 KCC, the OCC and the Federal Energy Regulatory Commission
(the "FERC"). SFAS 71 sets forth the application of generally accepted
accounting principles for those companies whose rates are established by 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 non-regulated 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 the
Gas Business 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.
Regulated Property
Regulated property, which includes distribution and transmission systems, is
stated at historical cost. For constructed property, costs include 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 5.79%, 6.05% and 3.84% in
the 1996 Fiscal Year, the 1995 Fiscal Year and the 1994 Fiscal Year,
respectively.
The cost of additions and replacements of units of property is capitalized
while 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 are charged to accumulated depreciation.
F-8
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement
imposes stricter criteria for the carrying of regulatory assets on the balance
sheet by requiring that such assets be probable candidates for future recovery
as of each balance sheet date. Based on the regulatory structure in which the
Gas Business operates, the adoption of this standard by the Gas Business in
January 1996 did not have a material impact on the Gas Business.
Depreciation
Depreciation is provided on the straight-line method over estimated useful
lives prescribed by regulators for a substantial percentage of the Gas
Business' fixed assets. The estimated useful lives for the primary components
of property are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Distribution system................................................ 25-30
Transmission system................................................ 30-35
Gas storage........................................................ 20-25
Gas gathering...................................................... 20-25
Gas processing..................................................... 15
</TABLE>
Composite provisions for book depreciation approximated 3.09%, 3.18% and
3.29% in the 1996 Fiscal Year, the 1995 Fiscal Year and the 1994 Fiscal Year
respectively.
Revenues and Gas Purchase Costs
Local gas distribution customers are billed on a monthly-cycle basis. The
related cost of gas is matched with billed revenue through the COGR. An
estimate of unbilled revenues is recognized as gas is delivered or services
are rendered which includes sales from the cycle-billing dates to the end of
the month, unbilled gas purchase costs, and revenue related taxes. The accrual
for unbilled revenues is included in revenues in the accompanying statement of
operations.
Nonregulated revenues from marketing, processing and storage are recognized
as gas is delivered or services are rendered. Credit is typically granted to
these customers on a non-collateralized basis.
Inventories
Materials and supplies are priced at average cost. Noncurrent gas in storage
is classified as property and is priced at cost. Current gas in storage is
valued using the weighted average cost of gas method.
Income Taxes
The results of operations of the Gas Business are included in WRI's
consolidated federal and state income tax returns. The Gas Business' annual
provision for income taxes included in the statement of operations was
determined as if the Gas Business had filed a separate federal and state
income tax return.
The Gas Business accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized based on temporary differences in amounts recorded for financial
reporting purposes and their respective tax bases (See Note 6).
F-9
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Risk Management
The Gas Business is exposed to price risk from fluctuating natural gas
prices associated with gas marketing activities of Westar. Westar utilizes
various financial instruments to mitigate much of this exposure. These
financial instruments are designated as hedges and as such, gains or losses
associated with these financial instruments are deferred until the commodity
being hedged is delivered.
Regulatory Assets and Liabilities
Certain gas distribution and transmission operations of the Regulated
Entities are subject to regulation. The Regulated Entities apply accounting
standards that recognize the economic effect of regulation, and accordingly
have recorded net regulatory assets related to such operations.
The KCC and OCC have authorized the recovery of take-or-pay settlement costs
through a combination of a surcharge to customers and revenues derived from
certain transportation customers. Costs associated with the settlement of
take-or-pay obligations are included in regulatory assets in the accompanying
statement of financial position.
The Regulated Entities have historically deferred certain service line
replacement costs in accordance with rate orders from the KCC. The deferral of
these costs was discontinued in July 1996 as part of the revised rate order
from the KCC discussed below. Amounts deferred are being amortized each month
to income through June 1999.
The Regulated Entities, under rate orders from the KCC and OCC, recover
increases in natural gas costs through various COGRs for natural gas
customers. The KCC and OCC require the annual difference between actual gas
cost incurred and the cost recovered through the COGR to be deferred and
amortized through rates in subsequent periods.
On August 17, 1995, the Gas Business filed a proceeding with the KCC seeking
an annual increase in revenues for the LDC. On April 15, 1996, the KCC issued
an order allowing a revenue increase which, after further proceedings, was
revised upwards pursuant to a revised order issued by the KCC on July 11,
1996.
Pursuant to FERC Order 636, interstate pipelines' services have been
"unbundled" such that gas supplies are being sold separately from interstate
transportation services. The Gas Business has contracted for a mix of
transportation and storage services which allows them to meet the needs of
their customers. Pipelines are recovering from their customers certain
transition costs associated with the restructuring under Order 636 regulation.
Any such recovery is subject to established review procedures of the FERC.
In November 1994, the KCC issued an order which approved the recovery of
these FERC-allowed transition costs on a volumetric basis from the LDC's sales
and transportation customers. Accordingly, regulatory assets, in amounts
corresponding to the costs incurred but not yet collected, have been recorded.
The commission order has been appealed by consumer advocates and intervenors.
F-10
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following regulatory assets and regulatory liabilities were reflected in
the accompanying statement of financial position as of August 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Regulatory Asset
Purchased Gas Cost Adjustment........................... $ 9,816 $14,066
------- -------
Deferred Future Income Taxes, net....................... $25,280 $28,911
------- -------
Other Regulatory Assets
Service Line Replacement Costs......................... $14,643 $11,722
Employee Benefit Obligations........................... 11,864 8,857
Other.................................................. 3,676 5,580
------- -------
$30,183 $26,159
------- -------
Regulatory Liability
Deferred investment tax credits........................ $9,994 $10,665
------- -------
</TABLE>
Nonregulated Property
All other properties are stated at cost and depreciated using the straight-
line method over their estimated useful life.
Transportation and Exchange Imbalances
Temporary differences (imbalances) between volumes of gas purchased and
nominated to customers and amounts actually delivered by the pipelines are
included in accounts receivable or accounts payable, as appropriate, and are
stated as amounts not in excess of market.
3. TRANSACTIONS WITH AFFILIATES
The Gas Business engages in various transactions with WRI and its affiliates
that are characteristic of a consolidated group under common control. WRI has
historically provided the Gas Business with various financial and
administrative functions and services for which the Gas Business is charged
associated direct costs and expenses. In addition, certain indirect
administrative costs are allocated to the various business divisions of WRI,
including the Gas Business, 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 WRI's 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 the Gas Business by WRI
approximated $39.6 million in the 1996 Fiscal Year, $40.5 million in the 1995
Fiscal Year and $34.1 million in the 1994 Fiscal Year. Such corporate
administrative costs are included in operations and maintenance expense in the
accompanying statements of operation.
Long-term debt totaling $35 million is assigned to the Gas Business and will
be assumed by New ONEOK subject to adjustment. The interest expense on this
debt has been calculated at a market-based interest rate of 7.25% for all
periods presented. WRI provides financing and cash management for the Gas
Business through a centralized treasury system. WRI also provides for the
liquidity needs of the Gas Business. Cash payments approximate interest
expense in each period.
Transactions of the Regulated Entities with the Gas Business' other
operations have not been eliminated from the accompanying financial statements
since the Regulated Entities are rate regulated. Westar had revenues
F-11
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of approximately $8.1 million, $6.5 million and $7.0 million in the 1996
Fiscal Year, in the 1995 Fiscal Year and in the 1994 Fiscal Year,
respectively, from the sale of natural gas to the LDC. In addition, Westar had
purchases of available gas from the LDC of $19.4 million and $12.4 million in
the 1996 Fiscal Year and the 1995 Fiscal Year respectively. Westar's similar
purchases for the 1994 Fiscal Year were not material.
4. RATE MATTERS AND REGULATION
The regulated operations of the Gas Business, pursuant to rate orders from
the KCC and OCC, recovers increases in natural gas costs through various
COGRs. The KCC and the OCC require that the annual difference between actual
gas cost incurred and gas cost recovered through the COGR be deferred and
amortized through rates in subsequent periods.
In July 1996, the KCC issued a rate order authorizing an increase in annual
gas distribution revenues of $34.4 million.
On June 30, 1995, the KCC granted a certificate authorizing the business
operations of MCMC. MCMC began operations on July 1, 1995. WRI contributed
certain natural gas transmission assets having a net book value of
approximately $50 million to MCMC.
In December 1991, the KCC and the OCC approved agreements authorizing WRI to
refund to customers approximately $40 million of the proceeds from the Tight
Sands antitrust litigation settlement to be collected on behalf of WRI's
customers. To secure the refund of settlement proceeds, the KCC and the OCC
authorized the establishment of an independently administered trust to collect
and maintain cash receipts received under Tight Sands settlement agreements
and provide for the refunds made. The trust has a term of ten years. At August
31, 1996, the trust owed approximately $4.3 million on a note which was used
to provide refunds to WRI customers. The trust will continue to collect
settlement proceeds and is expected to repay the note by the end of the fiscal
year ended August 31, 1998.
On November 27, 1996, the KCC issued a Suspension Order and on December 3,
1996, an order which suspended, subject to refund, the LDC's ability to
recover costs related to gas purchases from the Kansas Pipeline Partnership
("KPP") included in the COGR. On December 12, 1996, WRI filed a "Petition for
Reconsideration or For More Definite Statement by the Staff" of the issues to
be addressed in this matter. On January 2, 1997, the KCC issued an order
directing its Staff to file a Bill of Particulars within sixty days specifying
which charges from KPP it asserts are inappropriate for inclusion in the COGR.
Until such time as the amounts in question are identified, it is not possible
to determine the impact of this matter on the Gas Business. WRI believes that
its gas contract and purchasing practices have been prudent, and, therefore,
such costs should be allowed to be recovered.
5. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites
The net assets of the Gas Business to be contributed to New ONEOK include 12
former manufactured gas sites located in Kansas which may contain hazardous
materials subject to control or remediation under various environmental laws
and regulations. WRI and the Kansas Department of Health and Environment
("KDHE") entered into a consent agreement governing all future work at the 12
sites. The terms of the consent agreement allows WRI to investigate these
sites and set remediation priorities based upon the results of the
investigations and risk analysis. The prioritized sites will be investigated
over a ten year period. The agreement allows WRI to set mutual objectives with
the KDHE in order to expedite effective response activities and to control
costs and environmental impact. The costs incurred for site investigation and
risk management in the 1996 Fiscal Year, the 1995 Fiscal Year and the 1994
Fiscal Year were immaterial. Since the site investigations are preliminary, no
F-12
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
formal agreement on costs to be incurred has been reached and the minimum
potential liability would not be material to the financial statements, an
accrual for these environmental contingencies has not been reflected in the
accompanying financial statements. WRI is aware of other Midwestern utilities
which have incurred remediation costs ranging between $500,000 and $10 million
per site. The KCC has permitted another Kansas utility to recover its
remediation costs through rates. To the extent that such remediation costs are
not recovered through rates, the costs could be material to the Gas Business'
financial position or results of operations depending on the degree of
remediation required and number of years over which the remediation must be
completed. See "Other Agreements--Environmental Indemnity Agreement" in the
Proxy Statement/Prospectus for a description of the agreement between ONEOK
and WRI relating to environmental costs and liability in connection with
certain of these sites.
Legal Proceedings
Subject to the approval of the KCC, WRI entered into five new gas supply
contracts with certain entities affiliated with the Bishop Group, Ltd.
("Bishop Entities") which are currently regulated by the KCC. A contested
hearing was held for the approval of those contracts. While the case was under
consideration by the KCC, the FERC issued an order under which it asserted
jurisdiction over the Bishop Entities. On November 3, 1995, the KCC stayed its
consideration of the contracts between WRI and the Bishop Entities until such
time as the FERC takes final appealable action on its assertion of
jurisdiction over the Bishop Entities.
On June 28, 1996, the KCC issued an order dismissing WRI's application for
approval of the contracts with the Bishop Entities and of recovery of related
costs from its customers. WRI appealed this ruling and on January 24, 1997,
the Kansas Court of Appeals reversed the KCC order thereby upholding the
contracts. WRI's recovery of related costs from its customers were approved by
operation of law.
On January 17, 1997, a lawsuit was filed in Wyandotte County, Kansas,
District Court (Wells & Western Resources, et al) alleging negligence on the
part of WRI and several other parties in connection with carbon monoxide
poisoning in a residence and claiming damages in excess of $50,000. The claim
is currently under investigation, but it does not currently appear to WRI that
resolution of the claim will result in any material impact on its financial
results.
See Note 4 for rate matters on regulation.
Leases
At August 31, 1996, the Gas Business had leases covering various property
and equipment. Rental payments for operating leases and estimated rental
commitments are as follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31, AMOUNT
-------------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1996................................................ $9,630
1995................................................ 9,720
1994................................................ 7,010
Future Commitments
1997................................................ 4,760
1998................................................ 2,641
1999................................................ 678
2000................................................ 117
2001................................................ 53
Thereafter.......................................... 42
------
$8,291
======
</TABLE>
F-13
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The income tax expense attributable to the Gas Business has been estimated
as follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
----------------------------
EXPENSE (BENEFIT) 1996 1995 1994
----------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current...................................... $ 10,027 $ (6,997) $ 14,958
Deferred..................................... 2,872 8,113 (6,673)
Investment tax credit........................ (671) (649) (656)
-------- -------- --------
Total Federal income taxes................. 12,228 467 7,629
-------- -------- --------
State
Current...................................... 1,407 (919) 2,071
Deferred..................................... 344 1,086 (933)
-------- -------- --------
Total state income taxes................... 1,751 167 1,138
-------- -------- --------
Total income tax expense................. $ 13,979 $ 634 $ 8,767
======== ======== ========
</TABLE>
The difference between the income tax provision at the federal statutory
rate and income tax expense in the accompanying statement of operations is as
follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
----------------------------
1996 1995 1994
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at federal
statutory rate............................. $11,630 $(128) $8,766
Effect of:
State income taxes........................ 1,751 167 1,138
Amortization of investment tax credits.... (672) (649) (656)
Flow through and amortization, net........ 1,223 1,173 (522)
Other differences......................... 47 71 41
--------- ------- --------
Total income tax expense.................... $13,979 $ 634 $8,767
========= ======= ========
</TABLE>
Under SFAS 109, temporary differences gave rise to net deferred tax
liabilities at August 31, 1996 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated Deferred Income Taxes:
Accelerated Depreciation & Other.............. $ 62,695 $ 61,976
Deferred Future Income Taxes.................. 25,280 28,911
Purchased Gas Costs........................... 5,748 9,046
Other......................................... 4,365 (1,431)
----------- -----------
Accumulated Deferred Income Taxes, Net...... $ 98,088 $ 98,502
=========== ===========
</TABLE>
In accordance with various rate orders received from the KCC and the OCC,
the Gas Business has not yet collected through rates the amounts necessary to
pay a significant portion of the net deferred income tax
F-14
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
liabilities. As management 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. These
amounts, which represent regulatory assets, are disclosed as deferred future
income taxes.
7. EMPLOYEE BENEFIT PLANS
The following pension, postretirement and postemployment data is based on
actuarial estimates for identified and assumed transferred employees and
retirees. These estimates were calculated based on approximately 1,575
employees and 1,100 retired Gas Business' employees who will be transferred
from WRI to ONEOK pursuant to the Employee Agreement. Approximately 400
employees to be transferred are unidentified at this date. Liabilities for
unidentified employees were estimated assuming they are average age non-union
employees with an average length of service. The estimates presented below are
based upon estimates and assumptions which WRI management believes to be
reasonable. A final determination of these estimates will be computed after
all employees to be transferred have been identified. This calculation will be
made on or about the Closing Date which is expected to occur in the second
half of 1997.
Pensions
The employees of the Gas Business participate in WRI's pension plans, which
are qualified non-contributory defined benefit plans covering substantially
all employees of the Gas Business. Pension benefits are based on years of
service and the employee's compensation during the five highest paid
consecutive years of the ten years immediately preceding retirement. WRI's
policy is to fund pension costs accrued, subject to limitations set by the
Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
The following tables provide information on the estimated components of
pension cost under Statement of Financial Accounting Standards No. 87
"Employers' Accounting for Pension Plans".
Calculation of Estimated Pension Expense
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
------------------------------------
1996 1995 1994
----------- ----------- ----------
(ESTIMATED DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Pension Expense:
Service cost....................... $ 3,400 $ 3,100 $ 3,000
Interest cost on projected benefit
obligation........................ 10,200 9,400 9,100
Expected return.................... (11,300) (10,100) (9,500)
Net amortization................... 500 (100) 200
----------- ----------- ----------
Estimated net expense................ $ 2,800 $ 2,300 $ 2,800
=========== =========== ==========
</TABLE>
F-15
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Calculation of Accrued Pension Cost
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(ESTIMATED DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of Funded Status:
Actuarial present value of benefit
obligations.......................... $ 111,100 $ 108,200 $ 91,800
========== ========== ==========
Plan assets (principally debt and equity
securities) at fair value.............. $ 145,200 $ 135,500 $ 123,300
Projected benefit obligation............ 141,200 136,700 118,300
---------- ---------- ----------
Funded status........................... 4,000 (1,200) 5,000
Unrecognized transition asset........... (900) (1,000) (1,100)
Unrecognized prior service costs........ 16,800 18,200 15,200
Unrecognized net (gain)................. (24,400) (20,000) (21,700)
---------- ---------- ----------
Estimated accrued pension cost.......... $ (4,500) $ (4,000) $ (2,600)
========== ========== ==========
</TABLE>
The vested portion of the actuarial present value of the benefit obligation
is believed to represent a substantial percentage of the total present value
of the benefit obligation based on the average length of service of employees
who are expected to be transferred.
Actuarial Assumptions
<TABLE>
<CAPTION>
FOR YEARS ENDED AUGUST 31,
------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Discount rate............................... 7.50% 7.50% 8.0%
Annual salary increase rate................. 4.75% 4.75% 5.0%
Long-term rate of return.................... 9.0% 9.0% 8.5%
</TABLE>
Postretirement
Postretirement benefits are provided to eligible employees of the Gas
Business. Based on actuarial projections and adoption of the transition method
of implementation which allows a 20-year amortization of the accumulated
benefit obligation, the Gas Business' postretirement benefits expense
approximated $6.0 million, $5.4 million and $5.7 million for the 1996 Fiscal
Year, the 1995 Fiscal Year and the 1994 Fiscal Year, respectively. In
addition, WRI received an order from the KCC permitting the initial deferral
of postretirement benefits expense in excess of amounts recognized on a pay-
as-you-go basis. The amounts of postretirement benefits expense were deferred
under the provisions of Emerging Issues Task Force No. 92-12 ("EITF 92-12").
The amounts of expense deferred at August 31, 1996 and 1995 were $10.7 million
and $7.9 million, respectively. To mitigate the future impact the
postretirement benefits expense accruals would have on LDC rates charged to
customers, WRI planned to offset this expense with income obtained from a
corporate-owned life insurance ("COLI") program with respect to employees.
However, in 1996 the tax benefits from the COLI program were significantly
curtailed through federal legislation, and such COLI contracts will not be
transferred to New ONEOK. Accordingly, in order for the Gas Business to
continue to meet the provisions of EITF 92-12, that permit rate regulated
utilities to defer postretirement benefits costs, the amortization of costs
deferred from January 1, 1993 through December 31, 1997 and future accruals
must either be offset by another form of income source, or the amortization of
prior deferred postretirement benefits costs and current year postretirement
benefits expense must be included in rates effective January 1, 1998. The Gas
Business has the ability to seek recovery of postretirement costs through the
ratemaking process. Based on regulatory precedents established by the KCC, and
the current order which permits the Gas Business to seek recovery of
postretirement costs upon a given
F-16
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
change in legislation, management believes that it is probable that accrued
postretirement benefits can be recovered in rates. If these costs cannot be
recovered in rates charged to customers, the Gas Business would be required to
record a one-time charge to expense the regulatory asset established for
employee benefit plans at August 31, 1996 totaling approximately $10.7 million
for postretirement benefits and $1.2 million for postemployment benefits
discussed below. Future earnings would also be negatively impacted since the
accrual costs of employee benefits would be expensed and only cash payments
related to the employee benefit programs would be recovered from customers.
The following table summarizes the estimated status of the postretirement
benefit plans for employees and retirees expected to be transferred from WRI
to ONEOK who qualify for these benefits. Actuarial calculations are based upon
estimates similar to those described above for pension benefits because not
all employees to be transferred are identified at this date. A final
determination with respect to actual employees will be made prior to the
Closing. Amounts noted below are believed, by management, to be materially
correct.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------
1996 1995
---------------- ----------------
(ESTIMATED DOLLARS IN THOUSANDS)
<S> <C> <C>
Reconciliation of Funded Status:
Actuarial present value of
postretirement benefit obligations.. $ (44,300) $ (43,600)
Fair value of plan assets............ -- --
---------------- ----------------
Funded Status........................ (44,300) (43,600)
Unrecognized prior service cost...... 800 900
Unrecognized transition obligation... 38,200 40,500
Unrecognized net (gain).............. (5,400) (5,700)
---------------- ----------------
Estimated accrued postretirement
benefit costs......................... $ (10,700) $ (7,900)
================ ================
</TABLE>
<TABLE>
<CAPTION>
FOR YEARS
ENDED
AUGUST 31,
------------
1996 1995
----- -----
<S> <C> <C>
Actuarial Assumptions:
Discount rate................................................ 7.5% 7.5%
Annual salary increase rate.................................. 4.75% 4.75%
Expected rate of return...................................... 9.0% 9.0%
</TABLE>
The estimate assumes that postretirement benefits were accounted for on an
accrual basis beginning September 1, 1993.
For measurement purposes, an annual health care cost growth rate of 10% was
assumed for Fiscal Year 1996, decreasing one percent per year to five percent
in 2001 and thereafter. The health care cost trend rate has a significant
effect on the projected benefit obligation. Increasing the trend rate by one
percent each year would increase the present value of the accumulated
projected benefit obligation by $.6 million and the aggregate of the service
and interest cost components by $.05 million.
Postemployment:
Estimated postemployment benefits have been calculated similar to pension
and postretirement benefits. Estimated expense for eligible employees to be
transferred approximated $556,000, $355,000 and $219,000 for the 1996 Fiscal
Year, the 1995 Fiscal Year and the 1994 Fiscal Year, respectively. At August
31, 1996 and 1995 the estimated liability for these benefits approximated $1.2
million and $1.0 million, respectively. The accounting and future regulatory
requirements for postemployment benefits is the same as for postretirement
benefits. The
F-17
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amounts of postemployment benefits expense deferred at August 31, 1996 and
1995 were $1.2 million and $1.0 million, respectively.
8. DERIVATIVE FINANCIAL INSTRUMENTS
Westar uses natural gas futures contracts to reduce the effects of natural
gas commodity price volatility on operating results which include price risk
and basis risk. Price risk is the difference between the price of the physical
commodity being hedged and the price of the futures contract used for hedging.
Natural gas options held to hedge price risk provide the right, but not the
requirement, to buy or sell natural gas at a fixed price. Basis risk is the
risk that an adverse change in the futures market will not be completely
offset by an equal and opposite change in the cash price of the commodity
being hedged. Basis risk exists in natural gas primarily due to the
geographical price differentials between cash market locations and futures
contract delivery locations. In general, Westar's risk management policy
requires that positions taken with derivatives be offset by positions in
physical transactions or other derivatives. All of the financial instruments
are held for purposes other than trading.
The price of derivative instruments used to hedge commodity transactions
have historically had a high correlation with commodity prices and are
expected to continue to do so. The correlation of indices and prices is
regularly evaluated by management to ensure that the instruments continue to
be effective hedges. In the event that the correlation falls below allowable
levels, the gains or losses associated with hedging instruments are recognized
in the current period to the extent that correlation was lost. The maturity of
the derivative instruments is timed to coincide with the hedged transaction.
If the hedged transaction is terminated early or if an anticipated transaction
fails to occur, the deferred gain or loss associated with the derivative
instrument is recognized in the period and the hedge is closed.
Westar has historically used natural gas futures and options contracts
traded on the New York Mercantile Exchange and natural gas financial swaps
with various third parties to reduce exposure to price risk when gas is not
bought and sold simultaneously. At August 31, 1996, Westar had a deferred gain
of $289,335 representing unrealized gains on forward commitments that will
mature through the year 2000.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the recorded amounts and fair value of certain
financial instruments used by WRI with respect to the Gas Business.
Substantially all of the items in the table noted below pertain to the
operations of Westar. The estimated fair values have been determined using
quoted market prices of the same or similar securities.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED AUGUST 31,
----------------------------------------------------------------
1996 1995
------------------------------ --------------------------------
NOTIONAL NOTIONAL
VOLUMES ESTIMATED GAIN/ VOLUMES ESTIMATED GAIN/
(MMBTU'S) FAIR VALUE (LOSS) (MMBTU'S) FAIR VALUE (LOSS)
--------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Natural gas futures..... 3,990,000 $8,060,070 $(271,150) 10,200,000 $18,187,030 $(451,260)
Natural gas swaps....... 3,826,000 5,351,645 560,485 3,994,000 3,583,513 (123,114)
</TABLE>
The recorded amount of accounts receivable and other current financial
instruments approximate fair value.
F-18
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Property
Distribution system.................................. $ 749,524 $ 721,762
Transmission system.................................. 77,542 76,166
Gas storage.......................................... 23,360 25,604
Gas gathering........................................ 12,715 11,166
Gas processing....................................... 20,644 18,522
Other................................................ 7,542 6,186
--------- ---------
Total Property..................................... 891,327 859,406
Accumulated depreciation............................. (291,214) (277,964)
--------- ---------
Net Property....................................... 600,113 581,442
--------- ---------
Current Assets
Cash and cash equivalents............................ 2,622 426
Accounts receivable, net............................. 181,270 71,386
Materials and supplies............................... 5,608 5,997
Gas in storage....................................... 17,756 47,495
Purchased gas cost adjustment........................ 24,825 9,816
Other current assets................................. 739 1,098
--------- ---------
Total Current Assets............................... 232,820 136,218
--------- ---------
Deferred Charges And Other Assets
Deferred future income taxes......................... 25,280 25,280
Other regulatory assets.............................. 26,558 30,183
Other................................................ 2 96
--------- ---------
Total Deferred Charges And Other Assets............ 51,840 55,559
--------- ---------
Total Assets....................................... $ 884,773 $ 773,219
========= =========
EQUITY AND LIABILITIES
Equity in Net Assets Acquired.......................... $ 594,250 $ 532,477
Long-term debt......................................... 35,000 35,000
Current Liabilities
Accounts payable and other accrued liabilities....... 111,861 71,529
Customers' deposit................................... 5,010 4,742
--------- ---------
Total Current Liabilities.......................... 116,871 76,271
Deferred Credits And Other Liabilities
Deferred income taxes................................ 107,239 98,088
Deferred investment tax credit....................... 9,681 9,994
Customer advances for construction................... 3,296 3,283
Other................................................ 18,436 18,106
--------- ---------
Total Deferred Credits And Other Liabilities....... 138,652 129,471
Commitments and Contingencies (Note 2)
--------- ---------
Total Equity and Liabilities....................... $884,773 $ 773,219
========= =========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(THOUSANDS OF DOLLARS) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Operating Revenues
Regulated................ $272,143 $235,731 $384,138 $319,457
Nonregulated:
Marketing.............. 92,012 52,305 146,530 89,774
Processing............. 7,639 4,464 14,023 8,976
Other.................. -- -- -- --
-------- -------- -------- --------
Total Nonregulated... 99,651 56,769 160,553 98,750
-------- -------- -------- --------
Total Operating
Revenues............ 371,794 292,500 544,691 418,207
-------- -------- -------- --------
Operating Expenses
Cost of gas.............. 276,969 212,753 399,898 303,180
Operations and
maintenance............. 32,493 31,888 63,226 60,021
Depreciation, depletion
and amortization........ 8,600 6,374 16,731 11,167
General taxes............ 2,525 3,172 5,958 6,090
Income taxes............. 20,962 15,645 23,889 15,133
-------- -------- -------- --------
Total Operating
Expenses............ 341,549 269,832 509,702 395,591
-------- -------- -------- --------
Operating Income..... 30,245 22,668 34,989 22,616
-------- -------- -------- --------
Non-operating Expenses
Interest expense and
other................... 1,299 1,151 2,047 1,854
-------- -------- -------- --------
Net Income................. $ 28,946 $ 21,517 $ 32,942 $ 20,762
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF EQUITY IN NET ASSETS ACQUIRED
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Equity in Net Assets Acquired, beginning of period... $532,477 $487,815
Net Income......................................... 32,942 20,762
Net Capital Contributions.......................... 28,831 33,536
-------- --------
Equity in Net Assets Acquired, end of period......... $594,250 $542,113
======== ========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Operating Activities
Net income.......................................... $ 32,942 $ 20,762
Depreciation, depletion and amortization............ 16,731 11,167
Changes in assets and liabilities:
Increase in accounts receivable.................... (109,884) (97,672)
Decrease in gas in storage, materials and
supplies.......................................... 30,128 33,714
Decrease in other assets........................... 453 1,390
Decrease in other regulatory assets................ 3,625 1,797
(Increase) decrease in purchased gas cost
adjustment........................................ (15,009) 21,533
Increase in accounts payable and other accrued
liabilities....................................... 40,332 19,050
Increase (decrease) in customers' deposit.......... 268 (600)
Increase (decrease) in deferred income taxes and
deferred investment tax credits................... 8,838 (667)
Increase in other deferred credits and other
liabilities....................................... 343 6,457
--------- --------
Cash provided by operating activities.............. 8,767 16,931
Investing Activities
Capital expenditures, net........................... (35,402) (50,707)
--------- --------
Financing Activities
Net capital contributions........................... 28,831 33,536
--------- --------
Change in cash and cash equivalents.................. 2,196 (240)
Cash and cash equivalents--beginning of period....... 426 405
--------- --------
Cash and cash equivalents--end of period............. $ 2,622 $ 165
========= ========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE>
GAS 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 Gas Business, 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 the Gas Business contained elsewhere in this
Registration Statement.
2. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Plant Sites
The net assets of the Gas Business to be contributed to New ONEOK include 12
former manufactured gas plant sites located in Kansas which may contain
hazardous materials subject to control or remediation under various
environmental laws and regulations. WRI and the KDHE entered into a consent
agreement governing all future work at the 12 sites. The terms of the consent
agreement allows WRI to investigate these sites and set remediation priorities
based upon the results of the investigations and risk analysis. The
prioritized sites will be investigated over a ten year period. The agreement
allows WRI to set mutual objectives with the KDHE in order to expedite
effective response activities and to control costs and environmental impact.
The costs incurred for site investigation and risk management in the 1996
Fiscal Year, the 1995 Fiscal Year and the 1994 Fiscal Year were immaterial.
Since the site investigations are preliminary, no formal agreement on costs to
be incurred has been reached and the minimum potential liability would not be
material to the financial statements, an accrual for these environmental
contingencies has not been reflected in the accompanying financial statements.
WRI is aware of other Midwestern utilities which have incurred remediation
costs ranging between $500,000 and $10 million per site. The KCC has permitted
another Kansas utility to recover its remediation costs through rates. To the
extent that such remediation costs are not recovered through rates, the costs
could be material to the Gas Business' financial position or results of
operations depending on the degree of remediation required and number of years
over which the remediation must be completed. See "Other Agreements--
Environmental Indemnity Agreement" in the Proxy Statement/Prospectus for a
description of the agreement between ONEOK and WRI relating to environmental
costs and liability in connection with certain of these sites.
Legal Proceedings
Subject to the approval of the KCC, WRI entered into five new gas supply
contracts with certain Bishop Entities which are currently regulated by the
KCC. A contested hearing was held for the approval of those contracts. While
the case was under consideration by the KCC, the FERC issued an order under
which it asserted jurisdiction over the Bishop Entities. On November 3, 1995,
the KCC stayed its consideration of the contracts between WRI and the Bishop
Entities until such time as the FERC takes final appealable action on its
assertion of jurisdiction over the Bishop Entities.
On June 28, 1996, the KCC issued an order dismissing WRI's application for
approval of the contracts and of recovery of related costs from its customers.
WRI appealed this ruling and on January 24, 1997, the Kansas Court of Appeals
reversed the KCC order thereby upholding the contracts. WRI's recovery of
related costs from its customers was approved by operation of law.
On November 27, 1996, the KCC issued a Suspension Order and on December 3,
1996, an order which suspended, subject to refund, the Gas Business' ability
to recover costs related to purchases from KPP included in the COGR. On April
4, 1997, the KCC issued its order setting a procedural schedule in this
matter. Under the schedule established by the KCC, the Staff of the KCC filed
its testimony on April 4, 1997 but did not quantify the amount of any proposed
disallowance. Hearings are scheduled for May 27-28, 1997 and June 3-6, 1997
with a decision from the KCC expected in late July 1997.
F-23
<PAGE>
GAS BUSINESS
(A BUSINESS UNIT OF WESTERN RESOURCES, INC.)
NOTES TO INTERIM FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Until such time as the amounts in question are identified, it is not possible
to determine the impact of this matter on the Gas Business. WRI believes that
its gas contract and purchasing practices have been prudent, and therefore,
such costs should be allowed to be recovered.
On January 17, 1997, a lawsuit was filed in Wyandotte County, Kansas,
District Court (Wells & Western Resources, et al) alleging negligence on the
part of WRI and several other parties in connection with carbon monoxide
poisoning in a residence and claiming damages in excess of $50,000. The claim
is currently under investigation, but it does not appear to WRI that
resolution of the claim will result in any material impact on its financial
results.
F-24
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT
AMONG
WESTERN RESOURCES, INC.,
WAI, INC.
AND
ONEOK INC.
DATED AS OF MAY 19, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE ASSET TRANSACTION.......................................... A-2
1.1 Certain Definitions............................................... A-2
1.2 The Asset Transaction............................................. A-5
1.3 Liabilities Assumed............................................... A-5
1.4 Retained Liabilities.............................................. A-5
1.5 Instruments of Transfer........................................... A-5
1.6 Condition on Assignment or Assumption of Contracts and Rights..... A-5
1.7 Certain Adjustments............................................... A-5
1.8 Certain Taxes..................................................... A-7
ARTICLE II THE MERGER.................................................... A-7
2.1 The Merger; Effective Time of Merger.............................. A-7
2.2 Closing........................................................... A-7
2.3 Effect of the Merger.............................................. A-7
ARTICLE III CONVERSION OF SHARES AND EXCHANGE OF CERTIFICATES............ A-8
3.1 Effect of Merger on Capital Stock................................. A-8
(a)NewCorp Capital Stock Unchanged................................ A-8
(b)Cancellation of Treasury Stock................................. A-8
(c)Exchange of ONEOK Common Stock................................. A-8
3.2 Exchange of Certificates.......................................... A-8
(a)Exchange of Certificates....................................... A-8
(b)Exchange Procedures............................................ A-8
(c)Distributions with Respect to Unexchanged Shares............... A-9
(d)No Further Ownership Rights in ONEOK Common Stock.............. A-9
(e)Termination of Exchange Agent.................................. A-9
(f)No Liability................................................... A-9
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................ A-10
4.1 Representations and Warranties of ONEOK........................... A-10
(a)Organization, Standing and Power............................... A-10
(b)Capital Structure.............................................. A-10
(c)Authority; No Violations; Consents and Approvals............... A-11
(d)SEC Documents.................................................. A-12
(e)Information Supplied........................................... A-13
(f)Absence of Certain Changes or Events........................... A-13
(g)No Undisclosed Material Liabilities............................ A-14
(h)No Default..................................................... A-14
(i)Compliance with Applicable Laws................................ A-14
(j)Litigation..................................................... A-14
(k)Taxes.......................................................... A-15
(l)Employee Matters; ERISA........................................ A-16
(1)Benefit Plans.................................................. A-16
(2)Contributions.................................................. A-16
(3)Qualification; Compliance...................................... A-16
(4)Pension Benefit Plan; Liabilities.............................. A-17
(5)Welfare Plans.................................................. A-17
(6)Documents Made Available....................................... A-17
(7)Payments Resulting From Merger................................. A-18
A-i
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(8)Funded Status of Plans.......................................... A-18
(9)Multiemployer Plans............................................. A-18
(10)Modification or Termination of Plans........................... A-18
(11)Reportable Events; Claims...................................... A-18
(m)Labor Matters................................................... A-19
(n)Intangible Property............................................. A-19
(o)Environmental Matters........................................... A-19
(1)Definitions..................................................... A-19
(2)Compliance...................................................... A-20
(3)Environmental Permits........................................... A-20
(4)Environmental Claims............................................ A-21
(5)Releases........................................................ A-21
(6)Underground Storage Tanks or Surface Impoundments............... A-21
(p)Insurance....................................................... A-21
(q)Contracts....................................................... A-22
(r)Regulatory Proceedings.......................................... A-22
(s)Regulation as a Utility......................................... A-22
(t)Opinion of Financial Advisor.................................... A-22
(u)Vote Required................................................... A-23
(v)Beneficial Ownership of WRI Common Stock........................ A-23
(w)Brokers......................................................... A-23
(x)Related Party Transactions...................................... A-23
(y)Takeover Provisions............................................. A-23
(z)Rights Plan..................................................... A-23
(aa)Title to Properties............................................ A-23
(ab)Condition of Assets............................................ A-24
(ac)Accounts Receivable............................................ A-24
4.2 Representations and Warranties of WRI.............................. A-24
(a)Organization, Standing and Power................................ A-24
(b)Capital Structure............................................... A-24
(c)Sufficiency of Assets........................................... A-25
(d)Authority; No Violations; Consents and Approvals................ A-25
(e)SEC and Other Documents......................................... A-26
(f)Information Supplied............................................ A-27
(g)Absence of Certain Changes or Events............................ A-28
(h)No Undisclosed Material Liabilities............................. A-28
(i)No Default...................................................... A-28
(j)Compliance with Applicable Laws................................. A-28
(k)Litigation...................................................... A-29
(l)Taxes........................................................... A-29
(m)Employee Matters; ERISA......................................... A-30
(1)Benefit Plans................................................... A-30
(2)Contributions................................................... A-31
(3)Qualification; Compliance....................................... A-31
(4)Pension Benefit Plan; Liabilities............................... A-31
(5)Welfare Plans................................................... A-32
(6)Documents Made Available........................................ A-32
(7)Payments Resulting From Merger.................................. A-32
(8)Funded Status of Plans.......................................... A-32
(9)Multiemployer Plans............................................. A-33
(10)Modification or Termination of Plans........................... A-33
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PAGE
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(11)Reportable Events; Claims...................................... A-33
(n)Labor Matters................................................... A-33
(o)Intangible Property............................................. A-34
(p)Environmental Matters........................................... A-34
(1)Compliance...................................................... A-34
(2)Environmental Permits........................................... A-34
(3)Environmental Claims............................................ A-35
(4)Releases........................................................ A-35
(5)Underground Storage Tanks or Surface Impoundments............... A-35
(q)Contracts and Certain Obligations............................... A-35
(r)Regulatory Proceedings.......................................... A-36
(s)Regulation as a Utility......................................... A-36
(t)Opinion of Financial Advisor.................................... A-36
(u)Title to Properties............................................. A-36
(v)Condition of Assets............................................. A-37
(w)Accounts Receivable............................................. A-37
(x)Beneficial Ownership of ONEOK Common Stock...................... A-37
(y)Brokers......................................................... A-37
(z)Insurance....................................................... A-37
(aa)Business of NewCorp............................................ A-37
(ab)Intercompany Liabilities....................................... A-37
(ac)Related Party Transactions..................................... A-37
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER.......................... A-38
5.1 Conduct of Gas Business Pending the Merger......................... A-38
(a)Ordinary Course................................................. A-38
(b)Changes in Stock................................................ A-38
(c)Issuance of Securities.......................................... A-38
(d)No Acquisitions................................................. A-38
(e)No Dispositions................................................. A-38
(f)No Dissolution, Etc............................................. A-38
(g)Certain Employee Matters........................................ A-38
(h)Leases; Capital Expenditures.................................... A-39
(i)Affiliate Transactions.......................................... A-39
(j)Rate Matters.................................................... A-39
(k)Contracts....................................................... A-39
(l)Insurance....................................................... A-39
(m)Permits......................................................... A-39
(n)Tax Matters..................................................... A-39
(o)Discharge of Liabilities........................................ A-40
(p)Other Actions................................................... A-40
(q)Agreements...................................................... A-40
(r)Business of NewCorp............................................. A-40
(s)Shareholder Agreement........................................... A-40
(t)Rights Agreement................................................ A-40
(u)Material Information............................................ A-40
(v)Intercompany Liabilities........................................ A-40
5.2 Certain Restrictions in Respect of ONEOK........................... A-40
(a)Changes in Stock................................................ A-40
(b)Governing Documents; Other Material Transactions................ A-41
(c)Other Actions................................................... A-41
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PAGE
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(d)Rights; Redemption of Capital Stock.......................... A-41
(e)Material Information......................................... A-41
(f)Other Agreements............................................. A-41
(g)Agreements................................................... A-41
(h)Stock Options................................................ A-41
5.3 No Solicitation................................................. A-41
ARTICLE VI ADDITIONAL AGREEMENTS........................................ A-42
6.1 Preparation of Form S-4 and the Proxy Statement................. A-42
6.2 Letter of ONEOK's Accountants................................... A-42
6.3 Letter of WRI's Accountants..................................... A-42
6.4 Access to Information........................................... A-42
6.5 ONEOK Stockholders' Meeting..................................... A-43
6.6 Regulatory and Other Approvals.................................. A-43
(a)HSR Act...................................................... A-43
(b)Other Regulatory Approvals................................... A-43
(c)Other Approvals.............................................. A-43
6.7 Authorization for Shares and Stock Exchange Listing............. A-44
6.8 Stock Options................................................... A-44
6.9 Agreement to Defend............................................. A-44
6.10 Public Announcements............................................ A-44
6.11 Other Actions................................................... A-44
6.12 Advice of Changes; SEC Filings.................................. A-44
6.13 Reorganization.................................................. A-45
6.14 Disclosure Schedules............................................ A-45
6.15 Preparation and Filing of Returns; Payment of Taxes............. A-45
6.16 Access to Information........................................... A-46
6.17 Non-Competition................................................. A-46
6.18 Use of Name..................................................... A-47
6.19 Standstill...................................................... A-47
6.20 Control Share Acquisition Provisions............................ A-47
6.21 Further Assurances.............................................. A-48
6.22 Insurance....................................................... A-48
ARTICLE VII CONDITIONS PRECEDENT........................................ A-48
Conditions to Each Party's Obligation to Effect the
7.1 Transactions................................................... A-48
(a)ONEOK Stockholder Approval................................... A-48
(b)NYSE Listing................................................. A-48
(c)Other Approvals.............................................. A-48
(d)Form S-4..................................................... A-48
(e)No Injunctions or Restraints................................. A-48
(f)Shareholder Agreement; Other Agreements...................... A-48
(g)1935 Act..................................................... A-49
7.2 Conditions of Obligations of WRI and NewCorp.................... A-49
(a)Representations and Warranties............................... A-49
(b)Performance of Obligations of ONEOK.......................... A-49
(c)Tax Opinion.................................................. A-49
(d)Required Consents............................................ A-49
(e)KCC Order.................................................... A-49
(f)Pooling of Interests......................................... A-49
(g)OCC Order.................................................... A-50
7.3 Conditions of Obligations of ONEOK.............................. A-50
(a)Representations and Warranties............................... A-50
(b)Performance of Obligations of NewCorp and WRI................ A-50
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(c)Tax Opinion................................................... A-50
(d)Required Consents............................................. A-50
(e)Asset Transaction............................................. A-50
(f)OCC Order..................................................... A-50
(g)KCC Order..................................................... A-50
ARTICLE VIII EMPLOYEE AND EMPLOYEE MATTERS; ENVIRONMENTAL MATTERS......... A-50
ARTICLE IX TERMINATION AND AMENDMENT...................................... A-51
9.1 Termination...................................................... A-52
9.2 Effect of Termination............................................ A-52
9.3 Expenses......................................................... A-52
9.4 Amendment........................................................ A-52
9.5 Extension; Waiver................................................ A-53
ARTICLE X INDEMNIFICATION................................................. A-53
10.1 General Indemnification.......................................... A-53
10.2 Tax Indemnification and Audits................................... A-54
ARTICLE XI GENERAL PROVISIONS............................................. A-55
11.1 Confidentiality Agreement........................................ A-55
11.2 Notices.......................................................... A-55
11.3 Interpretation................................................... A-56
11.4 Counterparts..................................................... A-56
11.5 Entire Agreement; No Third Party Beneficiaries................... A-56
11.6 Governing Law.................................................... A-56
11.7 No Remedy in Certain Circumstances............................... A-56
11.8 Assignment....................................................... A-56
11.9 Bulk Sales Law................................................... A-56
11.10 Non-Survival of Representations and Warrants..................... A-57
A-v
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GLOSSARY OF TERMS
SECTION
-------
1935 Act............................................................ 4.1(c)
Accounts Receivable................................................. 1.1(b)
Accounting Firm..................................................... 1.7(a)
Acquired Subsidiaries............................................... 4.2(l)
Acquisition Proposal................................................ 5.3(c)
Affiliate........................................................... 5.1(i)
Agreement......................................................... Preamble
Amendment Date.................................................... Preamble
Ancillary Documents................................................. 4.1(c)
Assets.............................................................. 1.1(a)
Asset Transaction................................................. Recitals
Assumed Debt........................................................ 1.1(c)
Assumed Liabilities................................................. 1.1(c)
Certificates........................................................ 3.2(b)
Closing................................................................ 2.2
Closing Date........................................................... 2.2
Closing Working Capital............................................. 1.7(a)
Code.............................................................. Recitals
Confidentiality Agreements............................................. 6.4
Consolidated Financial Information of the Gas Business.............. 4.2(e)
Constituent Corporations............................................ 2.3(a)
Continuing Employees................................................ 1.1(d)
Control Share Acquisition Statute..................................... 6.20
Current Assets...................................................... 1.7(c)
Current Liabilities................................................. 1.7(c)
Deficient Amount.................................................... 1.7(b)
DGCL................................................................... 2.1
Disclosure Schedules.................................................. 6.14
Easements........................................................... 1.1(e)
Effective Date......................................................... 2.1
Effective Time......................................................... 2.1
Employee Agreement....................................................... 8
Environmental Claims................................................ 4.1(o)
Environmental Indemnity Agreement........................................ 8
Environmental Laws.................................................. 4.1(o)
Environmental Permits............................................... 4.1(o)
ERISA............................................................... 1.1(f)
Excess Amount....................................................... 1.7(b)
Exchange Act........................................................ 4.1(c)
Exchange Agent...................................................... 3.2(a)
Exchange Fund....................................................... 3.2(a)
Excluded Assets......................................................... 1.1(g)
excluded capital expenditures........................................... 1.7(a)
Expense Reimbursement Letter............................................ 9.2(b)
Financial Information Statements........................................ 4.2(e)
Form S-4................................................................ 4.1(e)
GAAP.................................................................... 4.1(d)
Gas..................................................................... 1.1(h)
Gas Business.......................................................... Recitals
A-vi
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SECTION
-------
Gas Pipelines......................................................... 1.1(i)
Governmental Entity................................................... 4.1(c)
Hazardous Materials................................................... 4.1(o)
HSR Act............................................................... 4.1(c)
Income Tax Contest................................................... 10.2(b)
Income Taxes.......................................................... 4.1(k)
Indebtedness.......................................................... 1.7(a)
indemnified party.................................................... 10.1(c)
Initial Termination Date.............................................. 9.1(c)
Injunction............................................................ 7.1(e)
Inventory............................................................. 1.1(j)
IRS................................................................... 4.1(k)
KCC................................................................... 4.1(c)
Lien................................................................. 4.1(aa)
Losses............................................................... 10.1(a)
Marketing Agreement................................................... 7.1(f)
Material Adverse Change............................................... 1.1(k)
Material Adverse Effect............................................... 1.1(k)
Material Contract..................................................... 4.1(q)
MCMC................................................................ Recitals
Merger.............................................................. Recitals
Merger Effective Date.................................................... 2.1
Merger Effective Time.................................................... 2.1
Net Amount............................................................ 1.7(c)
NewCorp............................................................. Preamble
NewCorp Bylaws........................................................ 2.3(a)
NewCorp Charter....................................................... 2.3(a)
NewCorp Common Stock.................................................. 3.1(c)
NewCorp Preferred Stock.................................................. 6.1
NewCorp Rights Agreement.............................................. 3.1(c)
NewCorp Series C Preferred Stock...................................... 3.1(c)
NewCorp Stock Purchase Rights......................................... 3.1(c)
Notice of Disagreement................................................ 1.7(a)
NYSE.................................................................. 4.2(d)
OCC................................................................... 4.1(c)
OGCA..................................................................... 2.1
ONEOK............................................................... Preamble
ONEOK Affiliate....................................................... 1.1(1)
ONEOK Balance Sheet................................................... 4.1(g)
ONEOK Benefit Plan................................................ 1.1(m)
ONEOK Capital Expenditure Amount.................................. 1.7(a)
ONEOK Common Stock................................................ 3.1(c)
ONEOK Disclosure Schedule............................................ 4.1
ONEOK Gas Contracts............................................... 4.1(q)
ONEOK Intangible Property......................................... 4.1(n)
ONEOK Litigation.................................................. 4.1(j)
ONEOK Options..................................................... 4.1(b)
ONEOK Order....................................................... 4.1(j)
ONEOK Pension Benefit Plan........................................ 1.1(n)
ONEOK Permits..................................................... 4.1(i)
ONEOK Preference Stock............................................ 4.1(b)
A-vii
<PAGE>
SECTION
-------
ONEOK Preferred Stock................................................... 4.1(b)
ONEOK Representatives................................................... 5.3(a)
ONEOK Required Consents................................................. 4.1(c)
ONEOK Rights Agreement.................................................. 4.1(b)
ONEOK SEC Documents..................................................... 4.1(d)
ONEOK Stock Plans....................................................... 4.1(b)
ONEOK Stockholder Approval.............................................. 4.1(c)
ONEOK Stockholders' Meeting................................................ 6.5
Opt-out Amendment ........................................................ 6.20
Original Agreement.................................................... Recitals
Original Execution Date............................................... Recitals
PBGC.................................................................... 1.1(o)
Permitted Liens........................................................ 4.1(aa)
Plants.................................................................. 1.1(p)
PP&E Schedules.......................................................... 4.2(e)
Pre-Closing Straddle Period Income Taxes............................... 6.15(c)
Proxy Statement......................................................... 4.1(c)
Reimbursed Expenses..................................................... 9.2(b)
Release................................................................. 4.1(o)
Reportable Event........................................................ 1.1(q)
Retained Gas Manufacturing Plants....................................... 1.1(r)
Retained Liabilities.................................................... 1.1(s)
Retired Employees....................................................... 1.1(t)
Returns................................................................. 4.1(k)
Salomon................................................................. 4.2(t)
SEC..................................................................... 1.1(u)
Securities Act.......................................................... 4.1(c)
Shared Services Agreement............................................... 7.1(f)
Shareholder Agreement................................................... 5.1(s)
Significant Subsidiary.................................................. 1.1(u)
Statement............................................................... 1.7(a)
Stock Consideration..................................................... 3.2(a)
Straddle Period........................................................ 6.15(c)
Subsidiary.............................................................. 1.1(v)
Surviving Corporation................................................. Recitals
Takeover Statute........................................................ 4.1(y)
Taxes................................................................... 4.1(k)
Third Party Claim...................................................... 10.1(c)
Transactions.......................................................... Recitals
Transfer Documents......................................................... 1.5
Transferred Stock..................................................... Recitals
Transferred Subsidiaries.............................................. Recitals
Westar................................................................ Recitals
Working Capital......................................................... 1.7(c)
WRI................................................................... Preamble
WRI Affiliate........................................................... 1.1(w)
WRI Benefit Plan........................................................ 1.1(x)
WRI Capital Expenditure Amount.......................................... 1.7(a)
WRI Disclosure Schedule.................................................... 4.2
WRI Gas Contracts....................................................... 4.2(q)
WRI Litigation.......................................................... 4.2(k)
WRI Orders.............................................................. 4.2(k)
A-viii
<PAGE>
SECTION
-------
WRI Pension Benefit Plan................................................ 1.1(y)
WRI Permits............................................................. 4.2(j)
WRI Required Consents................................................... 4.2(d)
WRI SEC Documents....................................................... 4.2(e)
WRI's Refunds.......................................................... 10.2(c)
A-ix
<PAGE>
AMENDED AND RESTATED AGREEMENT
AMENDED AND RESTATED AGREEMENT (the "Agreement"), dated as of May 19, 1997
(the "Amendment Date"), by and among ONEOK Inc., a Delaware corporation
("ONEOK"), Western Resources, Inc., a Kansas corporation ("WRI") and WAI,
Inc., an Oklahoma corporation and wholly-owned subsidiary of WRI ("NewCorp").
WHEREAS, ONEOK and WRI have entered into an Agreement (the "Original
Agreement"), dated as of December 12, 1996 (the "Original Execution Date"),
and the parties to the Original Agreement wish to amend and restate such
Original Agreement as specified herein;
WHEREAS, WRI is engaged in the business of local natural gas distribution in
the States of Kansas and Oklahoma (such business, other than the Excluded
Assets and the Retained Liabilities (as such terms are hereinafter defined)
associated therewith, and the business and operations of the Transferred
Subsidiaries (as such term is hereinafter defined), shall be referred to
herein as the "Gas Business");
WHEREAS, WRI owns, either directly or indirectly, 100% of the outstanding
capital stock of Westar Gas Marketing, Inc. ("Westar") and Mid Continent
Market Center, Inc. ("MCMC"; and, together with Westar, the "Transferred
Subsidiaries") (such stock shall be referred to herein as the "Transferred
Stock");
WHEREAS, WRI has formed NewCorp for the sole purpose of effecting the
transactions contemplated by this Agreement;
WHEREAS, ONEOK, WRI and NewCorp have determined to engage in a strategic
business combination in which the Gas Business will be combined with the
business and assets of ONEOK;
WHEREAS, in furtherance thereof, (i) immediately prior to the Merger
Effective Time (as such term is hereinafter defined), WRI will contribute or
cause to be contributed to NewCorp all of the Assets (as such term is
hereinafter defined) and WRI will cause NewCorp to assume all of the Assumed
Liabilities (as such term is hereinafter defined (such contribution and
assumption, the "Asset Transaction")), and (ii) at the Merger Effective Time,
ONEOK will be merged with and into NewCorp (the "Merger," and, together with
the Asset Transaction, the "Transactions"), with NewCorp as the surviving
corporation (NewCorp, in its capacity as such, the "Surviving Corporation");
WHEREAS, the respective Boards of Directors of ONEOK, WRI and NewCorp have
approved this Agreement and the Transactions and have determined that it is in
the best interests of their respective shareholders that the Transactions be
effected under the terms and conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that (i) the Asset
Transaction will be a transfer described in Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code;
and
WHEREAS, ONEOK, WRI and NewCorp desire to make certain representations,
warranties, covenants and agreements in connection with the Transactions and
the other transactions contemplated hereby and by the Ancillary Documents (as
hereinafter defined) and also to prescribe various conditions to the
Transactions and the other transactions contemplated hereby and thereby.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I
THE ASSET TRANSACTION
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Assets" shall mean all of the assets, property and interests owned by
WRI that are primarily used in, or primarily related to or primarily generated
by, the field operations of the Gas Business, of every type and description,
tangible and intangible, wherever located and whether or not reflected on the
books and records of WRI and its Subsidiaries (as such term is hereinafter
defined) as of the Closing Date (as such term is hereinafter defined),
including, but not limited to, the following types, categories or items of
assets, properties and interests, in each case, to the extent primarily used
in, or primarily related to, or primarily generated by the field operations of
the Gas Business:
(i) all Gas Pipelines (as such term is hereinafter defined) and Plants
(as such term is hereinafter defined) and construction work in progress on
the Gas Pipelines and Plants;
(ii) all Gas and other substances and materials located in the Gas
Pipelines or at the Plants;
(iii) all gauges, meters and other measuring equipment, telemetry
equipment, regulators, motors, compressors, storage tanks, fittings,
valves, equipment, machinery, tooling, furniture, fixtures, vehicles,
supplies, spare parts, repair parts, materials, fuel, computer hardware and
other tangible personal property;
(iv) all rights under agreements, sales and purchase orders, contracts,
product warranties, guarantees, service agreements and other commitments;
(v) all leasehold interests of equipment, machinery, furniture, and
tangible personal property;
(vi) all government permits, authorizations, franchises, certificates and
licenses to the extent transferable, in whole or in part;
(vii) all leases of real property;
(viii) all intangible personal property rights and regulatory assets as
described in Schedule 1.1(a)(viii);
(ix) all Accounts Receivable (as such term is hereinafter defined);
(x) all of the outstanding capital stock of Westar and MCMC;
(xi) copies of all customer and vendor lists relating to the operation of
the Gas Business or ownership of the Assets, copies of all files and
documents (including lists and credit information) relating to customers
and vendors related to the Gas Business, copies of all financial books and
records of the Gas Business, copies of all continuing property records for
the Plants and the Gas Pipelines, copies of all other records, files,
books, documents, and data bases, or portions thereof, including, but not
limited to, real property instruments (originals where available), rate
case files and records, system maps and operational manuals, sales
materials and correspondence;
(xii) all Easements (as such term is hereinafter defined);
(xiii) all Inventory (as such term is hereinafter defined);
(xiv) all rights and claims relating to the Assets or the Gas Business
under insurance policies (but not the policies themselves), all rights
against third parties arising out of the Assets or the Gas Business, and
the right to maintain or commence suits against such parties and the right
to carry on the Gas Business as successor to WRI and its Subsidiaries, as
applicable, in any and all respects; and
(xv) all other properties and assets of every kind and nature, real or
personal, tangible or intangible, to the extent used primarily in
connection with, or primarily related to or primarily generated by the
field operations of the Gas Business;
provided, however, that Assets shall not include Excluded Assets.
A-2
<PAGE>
(b) "Accounts Receivable" shall mean the accounts and other receivables,
including unbilled revenues, of WRI and the Transferred Subsidiaries to the
extent arising out of the Gas Business, or ONEOK, as applicable.
(c) "Assumed Liabilities" shall mean any and all debts, claims, losses,
liabilities, leases and obligations whatsoever, including, without limitation,
debts, liabilities, obligations, Environmental Claims (as such term is
hereinafter defined) and claims with respect to any contracts included in the
Assets, that arise primarily out of, or relate primarily to or are primarily
generated by, the Assets or field operations of the Gas Business, whether
arising before or after the Asset Transaction and whether known or unknown,
fixed or contingent, other than Retained Liabilities. Assumed Liabilities
shall also include $35 million aggregate principal amount of debt of WRI, with
terms which permit prepayment with no more than 30 days' prior notice without
penalty (other than breakage fees with respect to LIBOR loans) and with a
maturity of no more than 3 years (the "Assumed Debt"), subject to adjustment
pursuant to Section 1.7.
(d) "Continuing Employees" shall mean all employees who are hired by NewCorp
pursuant to the Employee Agreement (as such term is hereinafter defined).
(e) "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.
(f) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(g) "Excluded Assets" shall mean those assets of WRI and/or any of its
Subsidiaries used in the Gas Business or owned by the Transferred Subsidiaries
which are not being contributed to NewCorp as set forth on Schedule 1.1(g),
including, without limitation, the Retained Gas Manufacturing Plants, and any
intellectual property rights relating to the names "Westar", "Western
Resources", "KPL" or "KGE".
(h) "Gas" shall mean gas, gas liquids and other substances and materials
associated therewith.
(i) "Gas Pipelines" shall mean the gas gathering, distribution and
transmission system and related properties of the Gas Business, including but
not limited to the assets and properties described in Schedule 1.1(i).
(j) "Inventory" shall mean the following:
(i) Gas. The (1) Gas purchased for the Gas Business but not yet delivered
to customers of the Gas Business and unrecovered Gas costs allocable to the
Gas Business, less Gas delivered to customers but not yet purchased by
customers, in each case, limited to those amounts of FERC Account 191; and
(2) Gas in storage purchased for the Gas Business.
(ii) Other Assets. The inventory of WRI and the Transferred Subsidiaries
of materials and supplies and merchandise that are primarily used in, or
primarily relate to or are primarily generated by, the field operations of
the Gas Business.
(k) A "Material Adverse Effect" or "Material Adverse Change" shall mean, in
respect of ONEOK, the Gas Business or NewCorp, as applicable, any effect or
change that is or, is reasonably likely to be, materially adverse to the
business, operations, assets, condition (financial or otherwise), results of
operations or prospects of ONEOK and its Subsidiaries, NewCorp, or the Gas
Business, as applicable, in each case taken as a whole.
(l) "ONEOK Affiliate" means any Subsidiary of ONEOK, and any other trade or
business, whether or not incorporated, that is under control by or treated as
a single employer with ONEOK under Sections 414(b), (c), (m) or (o) of the
Code.
(m) "ONEOK Benefit Plan" means each benefit plan, program, policy, or
arrangement described in Section 4.1(l)(1) (whether or not terminated).
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(n) "ONEOK Pension Benefit Plan" means each employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) subject to Title IV of ERISA or
the minimum funding requirements of Section 302 of ERISA that is or was
maintained or contributed to by ONEOK or any ONEOK Affiliate at any time
during the six calendar years immediately preceding the Original Execution
Date.
(o) "PBGC" means the Pension Benefit Guaranty Corporation.
(p) "Plants" shall mean the real property interests of WRI, including
Easements, together with the buildings and improvements of WRI located on such
real property, in each case to the extent primarily used in or primarily
related to the Gas Business.
(q) "Reportable Event" means an event constituting a "reportable event"
within the meaning of Section 4043(c) of ERISA for which the 30-day notice
requirement or penalty has not been waived by the PBGC.
(r) "Retained Gas Manufacturing Plants" shall mean the manufactured gas
plants specified in Schedule 1.1(r).
(s) "Retained Liabilities" shall mean (i) all debts, liabilities, leases and
obligations whatsoever of WRI and its Subsidiaries that do not arise primarily
out of, do not relate primarily to, or are not primarily generated by, the
Assets and the field operations of the Gas Business, (ii) liabilities of WRI
and its Subsidiaries other than the Transferred Subsidiaries for Income Taxes
(as such term is hereinafter defined), (iii) all liabilities, including
environmental liabilities, relating to the Retained Gas Manufacturing Plants,
(iv) all liabilities relating to or resulting from, the divestiture by WRI of
the Missouri Gas assets to Southern Union Company, and (v) all liabilities of
WRI and its Subsidiaries, whether or not relating to the Gas Business,
relating to indebtedness for borrowed money or guarantees, other than the
Assumed Debt and other than capital leases primarily related to the Gas
Business.
(t) "Retired Employees" shall mean all vested former employees of the Gas
Business and the Gas Business' predecessors, such other individuals who were
independent contractors and are recharacterized as former employees, and the
surviving beneficiaries of all such former employees and other individuals all
who are entitled to pension benefits from NewCorp pursuant to the Employee
Agreement.
(u) "Significant Subsidiary" means any Subsidiary of ONEOK or WRI, as
applicable, that would constitute a Significant Subsidiary of such party
within the meaning of Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "SEC").
(v) "Subsidiary" shall mean, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which: (i) such
party or any other Subsidiary of such party is a general partner or managing
member (excluding partnerships or limited liability companies, the general
partnership or membership interests of which are held by such party or any
Subsidiary of such party that do not have a majority of the voting interest in
such partnership or limited liability company); or (ii) at least a majority of
the securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is, directly
or indirectly, owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and any one or more of its Subsidiaries.
(w) "WRI Affiliate" means any Subsidiary of WRI, or any other trade or
business, whether or not incorporated, that is under control by or treated as
a single employer with WRI under Section 414(b), (c), (m) or (o) of the Code.
(x) "WRI Benefit Plan" means each benefit plan, program, policy, or
arrangement described in Section 4.2(m)(1) (whether or not terminated).
(y) "WRI Pension Benefit Plan" means each employee pension benefit (within
the meaning of Section 3(2) of ERISA) subject to Title IV of ERISA or the
minimum funding requirements of Section 302 of ERISA that is or was maintained
or contributed to by WRI or any WRI Affiliate at any time during the six
calendar years immediately preceding the Original Execution Date.
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1.2 The Asset Transaction. Immediately prior to the Merger Effective Time
and as a condition precedent to the Merger, WRI shall contribute, or cause to
be contributed, to NewCorp, and WRI shall cause NewCorp to acquire, all of the
right, title and interest of WRI in, to and under the Assets, free and clear
of all Liens (as such term is hereinafter defined) other than Permitted Liens
(as such term is hereinafter defined).
1.3 Liabilities Assumed. Concurrently with the contribution of the Assets to
NewCorp pursuant to Section 1.2, WRI will cause NewCorp to assume and agree to
pay, perform and discharge when due the Assumed Liabilities.
1.4 Retained Liabilities. Except for the Assumed Liabilities, WRI shall or
shall cause its Subsidiaries (other than Westar and MCMC) to, retain and have
full responsibility for and obligation with respect to the Retained
Liabilities.
1.5 Instruments of Transfer. The conveyance, transfer, assignment and
delivery of the Assets to NewCorp and the assumption of Assumed Liabilities by
NewCorp shall be effected by one or more Assignments, assumption agreements,
bills of sale, and regulatory orders (collectively, the "Transfer Documents"),
as may be necessary or as ONEOK or the Surviving Corporation may reasonably
require. As to the real property interests included in the Assets, the
conveyance shall be by general warranty deed for those interests for which WRI
received a general warranty deed and the remainder shall be by special
warranty deed.
1.6 Condition on Assignment or Assumption of Contracts and 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 WRI or its Subsidiaries thereunder
so that NewCorp or the Surviving Corporation would not in fact receive all
such rights, WRI will, and will cause its Subsidiaries to, cooperate with the
Surviving Corporation in any arrangement reasonably designed to provide for
the Surviving Corporation, at the expense of the Surviving Corporation, the
benefits under any such claims, contracts, licenses, leases or commitments
including, without limitation, enforcement for the benefit of the Surviving
Corporation of any and all rights of WRI and its Subsidiaries against a third
party thereto arising out of the breach or cancellation by such third party or
otherwise; and any transfer or assignment to NewCorp or the Surviving
Corporation by WRI or its Subsidiaries 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 WRI shall be released in full from its
obligations under such contracts.
1.7 Certain Adjustments. (a) 45 days before the Closing Date, WRI shall
prepare and deliver to ONEOK a statement (the "Statement"), certified by an
officer of WRI, setting forth the anticipated Working Capital (as such term is
hereinafter defined) of the Gas Business as of the close of business on the
Closing Date (the "Closing Working Capital"), and the dollar amount
anticipated to be expended by WRI with respect to capital expenditures and
construction work in progress relating to the Gas Business for the period from
December 1, 1996, through the Closing Date (the "WRI Capital Expenditure
Amount"). ONEOK shall prepare and deliver to WRI for inclusion on the
Statement, the dollar amount anticipated to be expended by ONEOK, for the
purpose of this paragraph ONEOK shall mean only Oklahoma Natural Gas Company
Division and ONG Transmission Company, with respect to capital expenditures
and construction work in progress (excluding capital expenditures and
construction work in progress resulting from any acquisition of, whether by
merging or consolidating with, by purchasing an equity interest in or a
portion of the assets of or in any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, the "excluded capital expenditures") for the period from
December 1, 1996, through the Closing Date, less the aggregate net increase of
any Indebtedness (as defined below) incurred or assumed by, or any equity
issued by, ONEOK from December 1, 1996 to the Closing Date, to the extent the
proceeds thereof are used to finance any capital expenditure or construction
work in progress of ONEOK (the "ONEOK Capital Expenditure Amount") and, based
on the foregoing, WRI shall include on the Statement, the Net Amount (as such
term is hereinafter defined). As used in this Section, the term "Indebtedness"
shall mean the total long-term debt and short-term debt incurred under a
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revolving credit, working capital or other comparable credit facilities, but
shall exclude debt incurred to finance the "excluded capital expenditures."
During the 10-day period following ONEOK's receipt of the Statement, WRI and
ONEOK and their respective independent auditors shall be permitted to review
the working papers relating to the Statement. The Statement shall become final
and binding upon the parties on the tenth day following delivery thereof,
unless WRI or ONEOK gives written notice of its disagreement with the
Statement ("Notice of Disagreement") to the other party prior to such date.
Any Notice of Disagreement shall specify in reasonable detail the nature of
any disagreement so asserted. If a Notice of Disagreement is received in a
timely manner, then the Statement (as revised in accordance with clause (A) or
(B) below) shall become final and binding upon ONEOK and WRI on the earlier of
(A) the date ONEOK and WRI resolve in writing any differences they have with
respect to the matters specified in each Notice of Disagreement or (B) the
date any disputed matters are finally resolved in writing by the Accounting
Firm (as such term is hereinafter defined).
During the 5-day period following the delivery of a Notice of Disagreement,
ONEOK and WRI shall seek in good faith to resolve in writing any differences
which they may have with respect to the matters specified in each Notice of
Disagreement. During such period, WRI and ONEOK and their respective auditors
shall have access to the working papers of each other and its auditors
prepared in connection with the Notice of Disagreement. At the end of such 5-
day period, ONEOK and WRI shall submit to an independent accounting firm (the
"Accounting Firm") for review and resolution any and all matters which remain
in dispute and which were properly included in any Notice of Disagreement. The
Accounting Firm shall be a nationally recognized independent public accounting
firm as shall be reasonably agreed upon by ONEOK and WRI in writing. In the
event ONEOK and WRI are unable to agree upon the choice of Accounting Firm
within 2 days after the end of such 5-day period, either party may request the
American Arbitration Association to promptly choose the Accounting Firm, and
the American Arbitration Association shall promptly choose an Accounting Firm
which has not performed services for ONEOK or WRI in the two years prior to
the Original Execution Date. Promptly, but no later than 10 days after its
acceptance of its appointment as Accounting Firm hereunder, the Accounting
Firm shall determine, based solely on presentations by ONEOK and WRI, and not
by independent review, only those issues in dispute and shall render a report
as to the dispute and the resulting computation of the Statement, which shall
be conclusive and binding upon the parties. The cost of any dispute resolution
(including the fees and expenses of the Accounting Firm and reasonable
attorney fees and expenses of the parties) pursuant to this Section 1.7 shall
be borne by ONEOK and WRI in inverse proportion to the extent to which they
may prevail on matters resolved by the Accounting Firm, which proportionate
allocations shall also be determined by the Accounting Firm at the time the
determination of the Accounting Firm is rendered on the merits of the matters
submitted.
(b) To the extent that the Net Amount (as such term is hereinafter defined),
as specified in a Statement which becomes final pursuant to Section 1.7(a),
exceeds $40,000,000 (such excess shall be referred to herein as the "Excess
Amount"), the Surviving Corporation shall correspondingly assume at the
Closing additional debt of WRI with terms comparable to the terms of the
Assumed Debt in an aggregate principal amount equal to the Excess Amount. To
the extent the Net Amount as specified in a Statement which becomes final
pursuant to Section 1.7(a) is less than $40,000,000 (such deficiency being
referred to herein as the "Deficient Amount"), the aggregate principal amount
of Assumed Debt to be assumed by the Surviving Corporation shall be
correspondingly reduced by an amount equal to the lesser of (i) the Deficient
Amount and (ii) the aggregate amount of the Assumed Debt.
(c) The term "Working Capital" shall mean Current Assets minus Current
Liabilities. The terms "Current Assets" and "Current Liabilities," for the
purpose of this Section 1.7, shall mean the current assets (exclusive of cash
and cash equivalents) and current liabilities of the Gas Business, calculated
consistently with WRI's past practice based upon the books and records of WRI
and the Consolidated Financial Information of the Gas Business. The term "Net
Amount" shall mean the Working Capital of the Gas Business as of the close of
business on the Closing Date minus the amount, if any, by which the ONEOK
Capital Expenditure Amount exceeds the WRI Capital Expenditure Amount and plus
the amount, if any, by which the WRI Capital Expenditure Amount exceeds the
ONEOK Capital Expenditure Amount, as applicable.
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1.8 Certain Taxes. ONEOK shall pay all transfer, stamp, sales or use taxes
and any filing, recording, regulatory or similar fees or assessments payable
or determined to be payable in connection with the execution, delivery or
performance of this Agreement or the contribution to NewCorp of the Assets
contemplated hereby pursuant to the Transfer Documents.
ARTICLE II
THE MERGER
2.1 The Merger; Effective Time of Merger. Upon, and pursuant to the terms
and subject to the conditions of this Agreement, at the Merger Effective Time,
ONEOK will be merged into NewCorp in accordance with the Delaware General
Corporation Law ("DGCL") and the Oklahoma General Corporation Act ("OGCA"),
the separate existence of ONEOK shall thereupon cease and NewCorp shall
continue as the surviving corporation in the Merger. Subject to the terms and
conditions hereof, the Merger shall be consummated as promptly as practicable
after satisfaction or, to the extent permitted hereunder, waiver of all of the
conditions to each party's obligation to consummate the Merger specified in
Article VII, by filing appropriate certificates of merger, in such form as is
required by, and executed in accordance with, the relevant provisions of the
laws of the States of Delaware and Oklahoma, as applicable. The Merger shall
be effective at such time as the foregoing certificates of merger are duly
filed with the Secretaries of State of the States of Delaware and Oklahoma, in
accordance with Delaware or Oklahoma law, as applicable, or at such later
times as specified in the foregoing certificates of merger (the "Merger
Effective Time" or "Effective Time"). The date on which the Merger Effective
Time shall occur is referred to herein as the "Merger Effective Date" or the
"Effective Date".
2.2 Closing. The closing of the Merger (the "Closing") shall take place at
the offices of WRI as promptly as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all of the conditions to each party's
obligation to consummate the Merger contained in Article VII, or at such other
place or time as the parties hereto shall agree (the date of the Closing being
referred to herein as the "Closing Date").
2.3 Effect of the Merger. (a) At the Merger Effective Date: (i) ONEOK shall
be merged with and into NewCorp, the separate existence of ONEOK shall cease
and NewCorp shall continue as the surviving corporation (ONEOK and NewCorp
being sometimes referred to hereinafter as the "Constituent Corporations");
(ii) the Certificate of Incorporation of NewCorp in effect immediately prior
to the Merger, which shall be in a form to be reasonably mutually agreed upon
in good faith by WRI and ONEOK prior to the Merger, which shall include the
provisions summarized in Exhibit A hereto and which shall not contain other
provisions inconsistent with the terms of the Shareholder Agreement (as such
term is hereinafter defined), shall be the Certificate of Incorporation of the
Surviving Corporation (the "NewCorp Charter"), provided, however, that the
Certificate of Incorporation of NewCorp shall be amended immediately prior to
or at the Merger Effective Time to change the name of NewCorp to "ONEOK,
Inc."; and (iii) the Bylaws of NewCorp in effect immediately prior to the
Merger, which shall be in a form to be reasonably mutually agreed upon in good
faith by WRI and ONEOK prior to the Merger and which shall include the
provisions summarized in Exhibit A hereto and which shall not contain other
provisions inconsistent with the terms of the Shareholder Agreement, shall be
the Bylaws of the Surviving Corporation (the "NewCorp Bylaws").
(b) The directors and officers of the Surviving Corporation will be those of
ONEOK immediately prior to the Merger Effective Time, provided, however, that
the Surviving Corporation shall add additional directors to the Board of
Directors of the Surviving Corporation as contemplated by the Shareholder
Agreement and 5 persons who are currently officers of WRI with respect to the
Gas Business (inclusive of the officers of the Transferred Subsidiaries
referred to in the next sentence) will be appointed as officers, with
comparable responsibilities, of the Surviving Corporation. The current
officers of the Transferred Subsidiaries will either retain their positions
post-Closing as officers of the Transferred Subsidiaries or be granted
comparable positions with the Surviving Corporation.
(c) The Merger shall have the effect provided for in the DGCL and the OGCA
and the provisions of this Section 2.3.
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ARTICLE III
CONVERSION OF SHARES AND
EXCHANGE OF CERTIFICATES
3.1 Effect of Merger on Capital Stock. At the Merger Effective Time, by
virtue of the Merger and without any action on the part of the owners of the
capital stock of ONEOK or NewCorp:
(a) NewCorp Capital Stock Unchanged. Each issued and outstanding share of
the capital stock of NewCorp shall not be converted or otherwise affected by
the Merger and shall remain outstanding after the Merger.
(b) Cancellation of Treasury Stock. All shares of the capital stock of
ONEOK, if any, that are owned by ONEOK as treasury stock and any share of
capital stock of ONEOK owned by any Subsidiary of ONEOK shall be canceled and
retired and shall cease to exist and no stock of NewCorp or other
consideration shall be delivered in exchange therefor.
(c) Exchange of ONEOK Common Stock. Each share of Common Stock, without par
value, of ONEOK ("ONEOK Common Stock") issued and outstanding immediately
prior to the Merger Effective Time (other than shares canceled in accordance
with Section 3.1(b) above) shall be converted into one share of common stock,
par value $.01 per share, of the Surviving Corporation ("NewCorp Common
Stock"), together with the corresponding number of associated rights ("NewCorp
Stock Purchase Rights") to purchase one one-hundredth of a share of NewCorp
Series C Participation Preferred Stock, par value $.01 per share, of the
Surviving Corporation ("NewCorp Series C Preferred Stock") pursuant to a
Rights Agreement entered into prior to the Closing between NewCorp and Liberty
Bank and Trust Company of Oklahoma City, N.A., as Rights Agent (the "NewCorp
Rights Agreement"), in a form to be reasonably mutually agreed upon in good
faith by ONEOK and WRI prior to the Merger, which shall include the provisions
summarized in Exhibit A hereto and which shall not contain other provisions
inconsistent with the terms of the Shareholder Agreement. All references in
this Agreement to the NewCorp Common Stock shall be deemed to include the
associated NewCorp Stock Purchase Rights. All such shares of ONEOK Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive shares of NewCorp
Common Stock in accordance herewith.
3.2 Exchange of Certificates. (a) Exchange of Certificates. As of the Merger
Effective Time, WRI shall cause NewCorp to deposit with such bank or trust
company (the "Exchange Agent") to be designated by ONEOK with the consent of
WRI (such consent not to be unreasonably withheld or delayed), for the benefit
of the holders of shares of ONEOK Common Stock, for exchange in accordance
with this Article III, through the Exchange Agent, certificates representing
shares of NewCorp Common Stock (such shares representing the "Stock
Consideration", and together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to this Article III in exchange for outstanding shares of ONEOK
Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the Merger
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which, immediately prior to the Merger Effective
Time, represented outstanding shares of ONEOK Common Stock (the
"Certificates"), which holder's shares of ONEOK Common Stock were converted
into the right to receive the same number of shares of NewCorp Common Stock
(Stock Consideration): (i) a letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to the Certificates
shall pass only upon delivery of the Certificates to the Exchange Agent, and
shall be in such form and have such other provisions as ONEOK or the Surviving
Corporation may reasonably specify); and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Stock
Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
any other required documents, the holder of such
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Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of NewCorp Common Stock which such
holder has the right to receive pursuant to the provisions of this Article III
and the Certificate so surrendered shall forthwith be canceled. In the event
of a transfer of ownership of ONEOK Common Stock which is not registered in
the transfer records of ONEOK, a certificate representing the appropriate
number of shares of NewCorp Common Stock may be issued to a transferee if the
Certificate representing such shares is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at any time after the Merger Effective Time to represent only the right
to receive upon such surrender the Stock Consideration. The Exchange Agent
shall not be entitled to vote or exercise any rights of ownership with respect
to the NewCorp capital stock held by it from time to time hereunder, except
that it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of persons entitled thereto.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to NewCorp Common Stock declared or made after the
Merger Effective Time with a record date after the Merger Effective Time shall
be paid to the holder of any unsurrendered Certificate until the holder of
such Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder thereof, without interest, if such holder is entitled to
receive the Stock Consideration: (i) at the time of such surrender, the amount
of dividends or other distributions with a record date after the Merger
Effective Time theretofore paid with respect to such whole shares of such
Stock Consideration; and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Merger Effective
Time but prior to surrender and a payment date subsequent to surrender payable
with respect to such whole shares of NewCorp Common Stock.
(d) No Further Ownership Rights in ONEOK Common Stock. All shares of NewCorp
Common Stock issued upon the surrender for exchange of shares of ONEOK Common
Stock in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of ONEOK Common
Stock, subject, however, to the Surviving Corporation's right to pay any
dividends or make any other distributions with a record date on or prior to
the Merger Effective Time that may have been declared or made by ONEOK on such
shares of ONEOK Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Merger Effective Time, and after the Merger
Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of ONEOK
Common Stock that were outstanding immediately prior to the Merger Effective
Time. If, after the Merger Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article III.
(e) Termination of Exchange Agent. Any portion of the Exchange Fund that
remains undistributed to the former stockholders of ONEOK for one year after
the Merger Effective Time shall be delivered to the Surviving Corporation
which shall after the Merger Effective Time act as the Exchange Agent, and any
former stockholders of ONEOK who have not complied with this Article III prior
to the Merger Effective Time shall thereafter look only as a general creditor
to the Surviving Corporation for payment of their claim for the Stock
Consideration and any dividends or distributions with respect to NewCorp
Common Stock if such holder is entitled to receive the Stock Consideration.
(f) No Liability. None of ONEOK, WRI or the Surviving Corporation shall be
liable to any holder of shares of ONEOK Common Stock for such shares (or
dividends or distributions with respect thereto), delivered to a public
official pursuant to any applicable abandonment, escheat or similar law. Any
amounts remaining unclaimed by holders of any such shares six years after the
Merger Effective Time (or such earlier date immediately prior to the time at
which such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of ONEOK. ONEOK represents and warrants
to WRI as follows, except as set forth in the disclosure schedule signed by an
authorized officer of ONEOK and delivered to WRI by ONEOK (the "ONEOK
Disclosure Schedule") on the Amendment Date, each of which exceptions shall
specifically identify the relevant Section hereof to which it relates:
(a) Organization, Standing and Power. Each of ONEOK and its Significant
Subsidiaries is a corporation or partnership duly organized, validly existing
and in good standing under the laws of its state of incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not have a Material
Adverse Effect on ONEOK. ONEOK has heretofore delivered to WRI complete and
correct copies of ONEOK's and its Significant Subsidiaries' certificates of
incorporation and bylaws, each as amended and in full force and effect on the
Original Execution Date. All Significant Subsidiaries of ONEOK and their
respective jurisdictions of incorporation or organization are identified on
Section 4.1(a) of the ONEOK Disclosure Schedule.
(b) Capital Structure. As of the Original Execution Date, the authorized
capital stock of ONEOK consists of 60,000,000 shares of ONEOK Common Stock,
without par value, 340,000 shares of ONEOK Preferred Stock, par value of $50
per share ("ONEOK Preferred Stock"), and 3,000,000 shares of ONEOK Preference
Stock, without par value ("ONEOK Preference Stock"). As of the Original
Execution Date, (i) 27,304,870 shares of ONEOK Common Stock and 180,000 shares
of ONEOK Preferred Stock were issued and outstanding, and 4,350,000 shares of
ONEOK Common Stock were reserved for issuance as follows:
ONEOK Employee Stock Purchase Plan.............................. 350,000
ONEOK Key Employee Stock Plan................................... 1,000,000
Thrift Plan for Employees of ONEOK Inc. and Subsidiaries........ 3,000,000
(collectively, the "ONEOK Stock Plans"; the options outstanding pursuant to
the ONEOK Stock Plans being referred to herein as the "ONEOK Options"); (ii)
no shares of ONEOK Preference Stock are outstanding; (iii) 148,482 shares of
ONEOK Series A Participating Preference Stock have been reserved for issuance
pursuant to the Shareholder Protection Rights Agreement, dated as of March 21,
1988 between ONEOK and The Chase Manhattan Bank, N.A. (the "ONEOK Rights
Agreement"); (iv) no shares of ONEOK Common Stock were held by ONEOK in its
treasury; and (v) 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 ONEOK stockholders may vote were issued or outstanding. All
such issued and outstanding shares of ONEOK Common Stock and ONEOK Preferred
Stock are validly issued, fully paid and nonassessable and are not subject to
preemptive rights. Other than 148,482 shares of Preference Stock, ONEOK has no
shares of Common Stock, Preferred Stock or Preference Stock reserved for
issuance pursuant to the ONEOK Rights Agreement. Section 4.1(b) of the ONEOK
Disclosure Schedule contains a correct and complete list as of December 12,
1996 of each outstanding option to purchase shares of capital stock of ONEOK
outstanding pursuant to the ONEOK Stock Plans, including the holder, date of
grant, exercise price and number of shares subject thereto. All outstanding
shares of capital stock of the Subsidiaries of ONEOK are owned by ONEOK, or a
direct or indirect wholly owned Subsidiary of ONEOK, free and clear of all
Liens, and are validly issued, fully paid and nonassessable and are not
subject to preemptive rights. Except (i) as set forth above and as
contemplated by the ONEOK Rights Agreement, (ii) for changes since December
12, 1996 resulting from the exercise of employee stock options granted
pursuant to, or from issuance or purchases under, the ONEOK Stock Plans and
ONEOK's Direct Stock Purchase and Dividend Reinvestment Plan, (iii) as
contemplated by this Agreement, and (iv) for transactions effected by ONEOK
after the Original Execution Date without breaching the terms hereof, there
are, as of the Original Execution Date,
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outstanding: (A) no shares of capital stock; (B) no securities of ONEOK or any
Subsidiary of ONEOK convertible into or exchangeable for shares of capital
stock, or other voting securities of ONEOK or any Subsidiary of ONEOK; and (C)
no options, warrants, calls, subscriptions, convertible securities, or other
rights (including preemptive rights), commitments or agreements to which ONEOK
or any Subsidiary of ONEOK is a party or by which it is bound in any case
obligating ONEOK or any Subsidiary of ONEOK to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, additional shares of its capital stock or any securities of ONEOK
or any Subsidiary of ONEOK exercisable for, exchangeable for or convertible
into such capital stock, or obligating ONEOK or any Subsidiary of ONEOK to
grant, extend or enter into any such option, warrant, call, subscription,
convertible securities, or other right, commitment or agreement. Except with
respect to the Shareholder Agreement, there are not as of the Original
Execution Date and there will not be at the Merger Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which ONEOK is a party or by which it is bound relating to the voting of any
shares of the capital stock of ONEOK that will limit in any way the
solicitation of proxies by or on behalf of ONEOK from, or the casting of votes
by, the stockholders of ONEOK with respect to the Merger. There are no
restrictions on ONEOK to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(1) The Board of Directors of ONEOK has approved the Merger and this
Agreement, and declared the Merger and this Agreement to be in the best
interest of the stockholders of ONEOK. ONEOK has and will have all
requisite corporate power and authority to enter into this Agreement and
the other agreements contemplated hereby, including the Marketing Agreement
(as such term is hereinafter defined), the Shared Services Agreement (as
such term is hereinafter defined), the Transfer Documents, the Shareholder
Agreement, the Employee Agreement (as such term is hereinafter defined) and
the Environmental Indemnity Agreement (as such term is hereinafter defined)
(collectively, the "Ancillary Documents") to the extent it is a party
thereto, to perform its obligations hereunder and thereunder and to
consummate the Transactions and the other transactions contemplated hereby
and thereby, subject to the approval of this Agreement and the Merger by
the holders of a majority of the voting power of the ONEOK Common Stock,
assuming the redemption of the ONEOK Preferred Stock as contemplated by
Section 5.2(d), in accordance with the DGCL and ONEOK's certificate of
incorporation and bylaws, as amended (the "ONEOK Stockholder Approval").
The execution and delivery of this Agreement and each Ancillary Document to
which ONEOK is a party, the performance of obligations hereunder and
thereunder by ONEOK and the consummation of the Transactions and the other
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of ONEOK, subject to the ONEOK
Stockholder Approval. This Agreement has been duly executed and delivered
by ONEOK and, subject to the ONEOK Stockholder Approval, constitutes and
the Ancillary Documents to which ONEOK is a party, when executed and
delivered by ONEOK, will constitute, valid and binding obligations of
ONEOK, enforceable against ONEOK in accordance with their respective terms,
subject, in each case, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity (assuming
such documents constitute a valid and binding obligation on the other
parties thereto).
(2) The execution and delivery of this Agreement and the Ancillary
Documents to which ONEOK is a party do not, and the consummation of the
Transactions and the other contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time,
or both) under, or change the rights or obligations of any party under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the
creation of any Lien, upon any of the properties or assets of ONEOK or any
of its Subsidiaries under, any provision of (A) the certificate of
incorporation or bylaws of ONEOK, as amended, or any provision of the
charter or other organizational documents of any of its Subsidiaries, (B)
subject to obtaining the third-party consents set forth in Section
4.1(c)(2) of the ONEOK Disclosure Schedule (the "ONEOK Required Consents"),
any loan or credit agreement, note, bond, mortgage, indenture, lease or
other material agreement, instrument, permit, franchise or license
applicable to ONEOK or any of its Subsidiaries or (C) assuming the
consents, approvals, authorizations or permits and
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filings or notifications referred to in Section 4.1(c)(3) of the ONEOK
Disclosure Schedule are duly and timely obtained or made and the ONEOK
Stockholder Approval has been obtained, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to ONEOK or any of
its Subsidiaries or any of their respective properties or assets, other
than, in the case of clause (B) or (C), any such conflicts, violations,
defaults, rights, or Liens, that, individually or in the aggregate, would
not have a Material Adverse Effect on ONEOK, materially impair the ability
of ONEOK to perform its obligations hereunder or under any Ancillary
Document to which ONEOK is a party or prevent the consummation of any of
the Transactions and the other transactions contemplated hereby or thereby.
(3) No notice, report, consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any court,
governmental, regulatory or administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to ONEOK or any of
its Subsidiaries in connection with the execution and delivery by ONEOK of
this Agreement or any Ancillary Documents to which ONEOK is a party or the
consummation by ONEOK of the Transactions and the other transactions
contemplated hereby or thereby, as to which the failure to obtain or make
would have a Material Adverse Effect on ONEOK or prevent or materially
burden or materially impair the ability of ONEOK to consummate the
Transactions and the other transactions contemplated by this Agreement or
by the Ancillary Documents, except for: (A) the filing of a premerger
notification report by ONEOK under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the expiration or
termination of the applicable waiting period with respect thereto; (B) the
filing with the SEC of (x) a proxy statement in preliminary and definitive
form relating to the meeting of the holders of ONEOK capital stock to be
held in connection with the Merger (the "Proxy Statement") and (y) such
reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such other compliance with the Exchange
Act and the Securities Act of 1933, as amended (the "Securities Act") and
the rules and regulations thereunder, as may be required in connection with
this Agreement and the Transactions and the other transactions contemplated
hereby; (C) a filing for a determination by the SEC or its Staff in the
form of an order or a no-action letter that NewCorp will not be a
subsidiary company under Section 2(a)(8) of the Public Utility Holding
Company Act of 1935 (the "1935 Act"), for the purposes of the 1935 Act as a
result of the Merger and the obtaining of such an order or no-action letter
from the SEC or its Staff to such effect; (D) the approval of the Merger by
the SEC under Section 9(a)(2) of the 1935 Act; (E) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware;
(F) filings with, and the approval of, or notices to, the Oklahoma
Corporation Commission (the "OCC") and the Kansas Corporation Commission
(the "KCC"); (G) such filings and approvals as are set forth on Section
4.1(c)(3) of the ONEOK Disclosure Schedule in connection with the transfer
of ONEOK's municipal franchises; (H) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws;
and (I) such filings and approvals as may be required by any other
premerger notification, securities, corporate or other law, rule or
regulation.
(d) SEC Documents. ONEOK has made available to WRI a true and complete copy
of each report, schedule, registration statement and definitive proxy
statement or information statement filed by ONEOK with the SEC and/or prepared
by ONEOK since August 31, 1993 and prior to the Original Execution Date (the
"ONEOK SEC Documents") which are all the documents (other than preliminary
material) that ONEOK was required to file with the SEC since such date. As of
their respective dates, the ONEOK SEC Documents complied in all material
respects with the requirements of the Securities Act, or the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder
applicable to such ONEOK SEC Documents, and none of the ONEOK SEC Documents
contained any untrue statement of a material fact or omitted 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,
for the applicable periods, not misleading. The financial statements
(including the related notes and schedules) of ONEOK included in the ONEOK SEC
Documents complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted
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by Rule 10-01 of Regulation S-X of the SEC) and fairly present in accordance
with applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, none of which will be material)
the consolidated financial position of ONEOK and its consolidated Subsidiaries
as of their respective dates and the consolidated results of operations, the
consolidated cash flows, the retained earnings and the changes in financial
position of ONEOK and its consolidated Subsidiaries for the periods presented
therein. Except as disclosed in the ONEOK SEC Documents, there are no
agreements, arrangements or understandings between ONEOK and any party who is
as of the Original Execution Date or was at any time prior to the Original
Execution Date but after August 31, 1993 an Affiliate of ONEOK that are
required to be disclosed in the ONEOK SEC Documents.
(e) Information Supplied. None of the information supplied or to be supplied
by ONEOK for inclusion or incorporation by reference in the Registration
Statement on Form S-4 to be filed with the SEC by NewCorp in connection with
the issuance of shares of NewCorp Common Stock in the Merger (the "Form S-4")
will, at the time the Form S-4 becomes effective under the Securities Act or
at the Merger Effective Time, 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, in light of the circumstances under which they
were made, not misleading, and none of the information supplied or to be
supplied by ONEOK and included or incorporated by reference in the Proxy
Statement will, at the date mailed to stockholders of ONEOK or at the time of
the meeting of such stockholders to be held in connection with the Merger or
at the Merger Effective Time, 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. If at any time prior to the Merger
Effective Time any event with respect to ONEOK or any of its Subsidiaries, or
with respect to other information supplied by ONEOK for inclusion in the Proxy
Statement or the Form S-4, shall occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement or the Form S-4, such
event shall be so described, and such amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of ONEOK. The Proxy Statement, insofar as it relates to ONEOK or
its Subsidiaries or other information supplied by ONEOK for inclusion therein,
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
(f) Absence of Certain Changes or Events. Except (I) as disclosed in, or
reflected in the financial statements included in, the ONEOK SEC Documents
and/or Section 4.1(f) of the ONEOK Disclosure Schedule, (II) as contemplated
by this Agreement, or (III) for transactions effected or actions taken by
ONEOK or its Subsidiaries after the Original Execution Date without breaching
the terms hereof, in the case of clauses (iv) through (xi) below, since August
31, 1996, ONEOK has conducted its business in the ordinary course of such
business consistent with past practice, and since August 31, 1996, there has
not been: (i) any event or events which, individually or in the aggregate,
have had or would have a Material Adverse Effect on ONEOK; (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of ONEOK's capital
stock, except for regular quarterly cash dividends on ONEOK Common Stock or
the regular quarterly cash dividend on ONEOK Preferred Stock (or a pro rata
amount for any dividend less than a full quarter) with usual record and
payment dates for such dividends; (iii) any amendment of any material term of
any outstanding equity security of ONEOK or any Subsidiary of ONEOK; (iv) any
repurchase, redemption or other acquisition by ONEOK or any Subsidiary of
ONEOK of any outstanding shares of capital stock or other equity securities
of, or other ownership interests in, ONEOK or any Subsidiary of ONEOK, except
as contemplated by any ONEOK Benefit Plans; (v) any material change in any
method of accounting or accounting practice by ONEOK or any Significant
Subsidiary of ONEOK; (vi) any increase in the salaries or other compensation
payable to any officer or employee of ONEOK or any of its Subsidiaries (except
for normal increases in the ordinary course of business consistent with past
practice) or any increase in, or addition to, other benefits to which any
officer or employee may be entitled (except as required by the terms of plans
as in effect on the Original Execution Date or as required by law); (vii) any
incurrence of indebtedness for borrowed money (except in the ordinary course
of business consistent with past practice); (viii) any Material Adverse Change
or threat of a Material Adverse Change in ONEOK's or any of its Subsidiaries'
relations with, or any loss or, to the knowledge of ONEOK, threat of loss of,
any of ONEOK's or any of its Subsidiaries' material suppliers or
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customers, except to the extent such loss does not and would not have a
Material Adverse Effect on ONEOK; (ix) any termination, cancellation or waiver
of any contract or other right material to the operation of the business of
ONEOK and its Subsidiaries taken as a whole, except to the extent such
termination, cancellation or waiver does not and would not have a Material
Adverse Effect on ONEOK; (x) any amendment of any material term of the
respective certificates of incorporation or bylaws of ONEOK or any Subsidiary
of ONEOK; or (xi) any other transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) that does have or would have a Material Adverse
Effect on ONEOK.
(g) No Undisclosed Material Liabilities. Except as disclosed in the ONEOK
SEC Documents and/or Section 4.1(g) of the ONEOK Disclosure Schedule, to the
knowledge of ONEOK, there are no liabilities or obligations, including
Environmental Claims, of ONEOK or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and whether or not required to be disclosed, nor are there any
facts or circumstances of which ONEOK has or its Subsidiaries have knowledge
that could result in obligations or liabilities of ONEOK, its Subsidiaries or
any of their Affiliates, that have or would have a Material Adverse Effect on
ONEOK, other than: (i) liabilities adequately provided for on the balance
sheet of ONEOK dated as of August 31, 1996 (including the notes thereto)
contained in ONEOK's Annual Report on Form 10-K for the year ended August 31,
1996 (the "ONEOK Balance Sheet"); and (ii) liabilities under this Agreement or
the Ancillary Documents.
(h) No Default. Neither ONEOK nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any term, condition or
provision of (i) their respective charters, bylaws or other respective
organizational documents, (ii) any material note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which ONEOK or any of
its Subsidiaries is now a party or by which ONEOK or any of its Subsidiaries
or any of their respective properties or assets may be bound, or (iii) any
order, writ, injunction, decree, statute, rule or regulation applicable to
ONEOK or any of its Subsidiaries, except in the case of (ii) and (iii) for
defaults or violations which in the aggregate do not and would not have a
Material Adverse Effect on ONEOK.
(i) Compliance with Applicable Laws. Except as specifically addressed in
other representations in this Section 4.1 or set forth in Section 4.1(i) of
the ONEOK Disclosure Schedule, ONEOK and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "ONEOK Permits"), except where the failure so to hold does not
and would not have a Material Adverse Effect on ONEOK. Except as set forth in
Section 4.1(i) of the ONEOK Disclosure Schedule, ONEOK and its Subsidiaries
are in compliance with the terms of the ONEOK Permits, except where the
failure so to comply does not and would not have a Material Adverse Effect on
ONEOK. Except as disclosed in the ONEOK SEC Documents or set forth in Section
4.1(i) of the ONEOK Disclosure Schedule, the businesses of ONEOK and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation of any Governmental Entity, except for violations which do not and
would not have a Material Adverse Effect on ONEOK. Except as set forth in
Section 4.1(i) of the ONEOK Disclosure Schedule, neither ONEOK nor any of its
Subsidiaries has been notified of any pending investigation or review by any
Governmental Entity nor, to the knowledge of ONEOK and its Subsidiaries, is
any investigation or review by any Governmental Entity with respect to ONEOK
or any of its Subsidiaries pending or threatened, other than those the outcome
of which does not and is not reasonably likely to have a Material Adverse
Effect on ONEOK.
(j) Litigation. Except as disclosed in the ONEOK SEC Documents and/or
Section 4.1(j) of the ONEOK Disclosure Schedule or otherwise within this
Section 4.1, as of the Original Execution Date, there is no suit, action or
proceeding pending, or, to the knowledge of ONEOK and its Subsidiaries,
threatened against or affecting ONEOK or any Subsidiary of ONEOK ("ONEOK
Litigation"), at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that, individually or in
the aggregate, has had or would have a Material Adverse Effect on ONEOK, and
ONEOK and its Subsidiaries have no knowledge of any facts that are likely to
give rise to any ONEOK Litigation, that (in any case) would have a Material
Adverse Effect on ONEOK, nor is there any judgment, decree, injunction, rule
or order of any
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Governmental Entity or arbitrator outstanding against ONEOK or any Subsidiary
of ONEOK ("ONEOK Order") that has or would have a Material Adverse Effect on
ONEOK or ONEOK's ability to consummate the transactions contemplated by this
Agreement or any of the Ancillary Documents.
(k) Taxes. Except as, individually or in the aggregate, do not and would not
have a Material Adverse Effect on ONEOK:
(1) ONEOK and each of its Subsidiaries has (A) timely (taking into
account any extensions) filed all material federal, state, local and
foreign returns, declarations, reports, estimates, information returns and
statements ("Returns") required to be filed or sent by or with respect to
it in respect of any Taxes (as hereinafter defined), (B) timely paid all
Taxes that are shown to be due thereon, (C) established reserves that are
adequate for the payment of all Taxes not yet due and payable with respect
to the results of operations of ONEOK and its Subsidiaries, and (D) to the
knowledge of ONEOK or any Subsidiary of ONEOK, timely withheld from
employee wages and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over.
(2) Section 4.1(k)(2) of the ONEOK Disclosure Schedule sets forth the
last taxable period through which the federal Income Tax Returns of ONEOK
and its Subsidiaries have been examined by the Internal Revenue Service
("IRS") or otherwise closed. No material Tax audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Taxes for which ONEOK or any of its Subsidiaries could be liable, and
except as provided for in the ONEOK Balance Sheet, no material deficiency
for any such Taxes has been proposed, asserted or assessed pursuant to such
examination against ONEOK or any of its Subsidiaries by any Governmental
Entity with respect to any period.
(3) Neither ONEOK nor any of its Subsidiaries has executed or entered
into with the IRS or any taxing authority (A) any agreement or other
document extending or having the effect of extending the period for
assessments or collection of any federal Income Taxes for which ONEOK or
any of its Subsidiaries could be liable or (B) a closing agreement pursuant
to Section 7121 of the Code, or any predecessor provision thereof or any
similar provision of state or local Tax law that relates to the assets or
operations of ONEOK or any of its Subsidiaries.
(4) Neither ONEOK nor any of its Subsidiaries has made an election under
Section 341(f) 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 ONEOK or any of its
Subsidiaries.
(5) Except as set forth in the ONEOK SEC Documents or Section 4.1(k)(5)
of the ONEOK Disclosure Schedule, neither ONEOK nor any of its Subsidiaries
is a party to, is bound by or has any obligation under any tax sharing
agreement or similar agreement or arrangement which has as a party a person
other than ONEOK or any of its Subsidiaries.
(6) Section 4.1(k)(6) of the ONEOK Disclosure Schedule sets forth a list
of federal, state, local or foreign jurisdictions in which ONEOK and its
Subsidiaries have paid any Taxes or filed any Returns during the past 3
years. No jurisdiction not listed on Section 4.1(k)(6) of the ONEOK
Disclosure Schedule has made a claim, assertion or, to the knowledge of
ONEOK and its Subsidiaries, threat that ONEOK or its Subsidiaries is
subject to taxation in such jurisdiction.
(7) Except as disclosed in Section 4.1(k)(7) of the ONEOK Disclosure
Schedule, neither ONEOK nor any of its Subsidiaries maintains any
compensation plans, programs, or arrangements the payments under which
would not be expected to be deductible as a result of the limitation of
Section 162(m) of the Code and the regulations issued thereunder.
(8) Except as disclosed in Section 4.1(k)(8) of the ONEOK Disclosure
Schedule, as a result, directly or indirectly, of the Transactions or the
other transactions contemplated by this Agreement (including without
limitation, any terminations of employment prior to or following the Merger
Effective Time), none of ONEOK, its Subsidiaries or NewCorp will be
obligated to make a payment (including without limitation
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any acceleration of vesting or payment) with respect to employees of ONEOK
or its Subsidiaries who are "disqualified individuals" that would be
characterized as an "excess parachute payment" (as such terms are defined
in Section 280G of the Code).
For purposes of this Agreement, (i) "Taxes" shall mean any federal, state,
local or foreign taxes, charges, fees, levies or other assessments, without
limitation, all net income, gross income, sales and use, valorem, transfer,
gains, profits, excise, franchise, real and personal gross receipts, capital
stock, production, business and disability, employment, payroll, license,
estimated, stamp, duties, severance or withholding taxes or charges imposed by
any Governmental Entity, and (ii) "Income Taxes" shall mean any federal,
state, local or foreign income or franchise taxes, or other taxes measured in
whole or in part by income, and in each of (i) and (ii), any interest,
penalties and additions to any such taxes, charges, fees or levies and any
expenses incurred in connection with the settlement or litigation of any
liability for any of the foregoing.
(l) Employee Matters; ERISA.
(1) Benefit Plans. Section 4.1(l)(1) of the ONEOK Disclosure Schedule
contains a true and complete list, as of the Original Execution Date, of
each item described below, whether formal or informal, written or
unwritten, legally binding or not:
a. each material "employee benefit plan" within the meaning of
Section 3(3) of ERISA that is or was maintained or contributed to at
any time during the six calendar year period immediately preceding the
Original Execution Date by ONEOK or any ONEOK Affiliate and each
similar plan, program, policy or arrangement maintained for non-
employee directors or other non-employees who have provided services to
ONEOK or any ONEOK Affiliate;
b. each material plan, program, policy, payroll practice or
arrangement not listed in a. above that provides for bonuses, profit-
sharing, incentive compensation, deferred compensation, equity-based
compensation (including stock options or other stock purchases,
restricted stock, stock appreciation rights, performance units and
dividend equivalents), holiday pay, vacation pay, sick pay, dependent
care benefits, flexible benefits (including any cafeteria plan governed
by Section 125 of the Code), paid or unpaid leave (including sick
leave, parental leave, military leave and bereavement leave), tuition
assistance, relocation or any similar type of benefits, that has been
adopted or implemented by ONEOK or any ONEOK Affiliate (including any
such plan, program, policy or arrangement that has been terminated
before the Original Execution Date); and
c. each material employment contract, severance contract, parachute
agreement, option agreement, stock appreciation right agreement, bonus
or other incentive award agreement, deferred compensation agreement,
supplemental benefit agreement, split dollar agreement or other
personal service or benefit contract or arrangement with or covering a
current or former officer, director, employee or independent contractor
of ONEOK or any ONEOK Affiliate.
(2) Contributions. All material contributions and other material payments
required to have been made by ONEOK or any ONEOK Affiliate under Section
412 of the Code or pursuant to any ONEOK Benefit Plan (or to any person
pursuant to the terms thereof) have been timely made or will be timely made
in accordance with Section 404(a)(6) of the Code.
(3) Qualification; Compliance. The following representations apply to
ONEOK Benefit Plans being continued by NewCorp or for which NewCorp may
have liability.
a. Each ONEOK Benefit Plan that is intended to be "qualified" within
the meaning of Section 401(a) of the Code (1) currently meets all
qualification requirements under the Code both in form and in
operation, except any failure that can be corrected without material
liability, and (2) has received a favorable determination letter from
the IRS on its qualification or application for such a determination
has been made prior to the expiration of the applicable remedial
amendment period, and to the knowledge of ONEOK there are no
circumstances existing likely to result in revocation of any such
favorable determination letter.
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b. Each ONEOK Benefit Plan is and has been operated in compliance
with, all applicable laws, rules and regulations governing such plan,
including, without limitation, ERISA and the Code, and all filings,
disclosures and notices required have been timely made, except for
violations that would not have a Material Adverse Effect on ONEOK. All
amendments and actions required to bring each of the ONEOK Benefit
Plans into conformity with all of the applicable provisions of ERISA
and the Code and other applicable legal requirements have been made or
taken except to the extent that such amendments or actions are not
required by law to be made or taken until a date after the Merger
Effective Time and except for actions the failure of which to take
would not have a Material Adverse Effect on ONEOK.
c. To the knowledge of ONEOK, no individual or entity has engaged in
any transaction in connection with which ONEOK or any ONEOK Affiliate,
or any ONEOK Benefit Plan or any trust, trustee or administrator
thereof, could be subject to liability pursuant to Section 409 or
Section 502 of ERISA, or subject to an excise tax pursuant to Section
4975 of the Code, which could in either case have a Material Adverse
Effect on ONEOK.
d. Except for matters that would not have a Material Adverse Effect
on ONEOK:
1. To the knowledge of ONEOK, no ONEOK Benefit Plan is subject to
any ongoing audit, investigation or other administrative proceeding
of the IRS, the Department of Labor or any other Governmental Entity
or, to the knowledge of ONEOK, is scheduled to be subject to such an
audit, investigation or proceeding; and
2. No ONEOK Benefit Plan is the subject of any pending application
for administrative relief under any voluntary compliance program of
any Governmental Entity (including, without limitation, the IRS'
Voluntary Compliance Resolution Program or Walk-in Closing Agreement
Program, or the Department of Labor's Delinquent Filer Voluntary
Compliance Program).
(4) Pension Benefit Plan; Liabilities. Except as set forth in Section
4.1(l)(4) of the ONEOK Disclosure Schedule, with respect to the ONEOK
Pension Benefit Plans, individually and in the aggregate, no termination or
partial termination of any ONEOK Pension Benefit Plan has occurred and no
event has occurred that would be reasonably expected to subject ONEOK or
any ONEOK Affiliate to any liability arising under the Code, ERISA or any
other applicable law (including, without limitation, any liability to or
under any such plan or to the PBGC, or under any indemnity agreement to
which ONEOK or any ONEOK Affiliate is a party), which liability could have
a Material Adverse Effect on ONEOK (excluding liability for benefit claims
and funding obligations payable in the ordinary course and liability for
PBGC insurance premiums payable in the ordinary course).
(5) Welfare Plans. To the knowledge of ONEOK, no circumstances exist that
could subject ONEOK or any ONEOK Affiliate to an excise tax under Section
4976 of the Code that would have a Material Adverse Effect on ONEOK.
(6) Documents Made Available. ONEOK has made available to WRI a true and
correct copy of each collective bargaining agreement to which ONEOK or any
ONEOK Affiliate is a party and under which ONEOK has obligations or joint
and several liability; and, with respect to each ONEOK Benefit Plan, ONEOK
has made available to WRI a true and correct copy of each of the following,
as applicable:
a. the current plan document (including all amendments adopted since
the most recent restatement) and its most recently prepared summary
plan description and all summaries of material modifications prepared
since the most recent summary plan description;
b. annual reports or Code Section 6039D information returns (IRS Form
5500 Series), including financial statements, for the last two years;
c. the most recent IRS determination letter or other opinion letter
with respect to the qualified status under Code Section 401(a) of such
plan or under Code Section 501 of the related trust;
d. actuarial reports or valuations for the last two years; and
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e. trust instruments and insurance contracts; any Form 5310 or Form
5330 filed with the IRS during the last six years.
(7) Payments Resulting From Merger. Except as set forth on Section
4.1(l)(7) of the ONEOK Disclosure Schedule or as provided under any ONEOK
Benefit Plan or any agreement described in Section 4.1(l)(1)c. above, the
consummation or announcement of any transaction contemplated by this
Agreement will not directly or indirectly (either alone or upon the
occurrence of any additional or further acts or events) result in any:
a. payment (whether of severance pay or otherwise) becoming due from
ONEOK or any ONEOK Affiliate to any current or former officer,
director, employee or independent contractor of ONEOK or any ONEOK
Affiliate or to the trustee under any "rabbi trust" or other funding
arrangement, which would reasonably be expected to result in liability
to NewCorp; or
b. benefit under any ONEOK Benefit Plan being established or
increased or becoming accelerated, vested or payable, except for a
payment or benefit that would have been payable under the same terms
and conditions without regard to the transactions contemplated by this
Agreement, which would reasonably be expected to result in liability to
NewCorp.
(8) Funded Status of Plans. Except as disclosed in Section 4.1(l)(8) of
the ONEOK Disclosure Schedule, (A) each ONEOK Pension Benefit Plan has been
maintained in compliance with the minimum funding standards of ERISA and
the Code, (B) no ONEOK Pension Benefit Plan has incurred any "accumulated
funding deficiency" (within the meaning of Section 302 of ERISA or Section
412 of the Code) and (C) all required payments to the PBGC with respect to
each ONEOK Pension Benefit Plan have been made on or before their due
dates, in each case with respect to ONEOK Pension Benefit Plans which would
reasonably be expected to result in liability to ONEOK or any ONEOK
Subsidiary. Except as disclosed in Section 4.1(l)(8) of the ONEOK
Disclosure Schedule, neither ONEOK nor any of its Subsidiaries has
provided, or is required to provide, security to any ONEOK Pension Benefit
Plan pursuant to Section 401(a)(29) of the Code.
(9) Multiemployer Plans. Except as disclosed in Section 4.1(l)(9) of the
ONEOK Disclosure Schedule, no ONEOK Benefit Plan is a "multiemployer plan"
(within the meaning of Section 4001(a)(3) of ERISA), a multiple employer
plan described in Section 413(c) of the Code or a "multiple employer
welfare arrangement" (within the meaning of Section 3(40) of ERISA); and
none of ONEOK or any ONEOK Affiliate is obligated to contribute to, has
incurred or is expected to incur any withdrawal liability or has had any
liability under Title IV of ERISA with respect to, or any liability in
connection with the reorganization or termination of, any multiemployer
plan, multiple employer plan, or multiple employer welfare arrangement.
(10) Modification or Termination of Plans. Except as disclosed in Section
4.1(l)(10) of the ONEOK Disclosure Schedule or as required pursuant to a
collective bargaining agreement or as required to secure a favorable
determination letter from the IRS, neither ONEOK nor any ONEOK Affiliate is
subject to any legal obligation, or has any formal plan, to enter into any
form of material compensation or employment agreement or to establish any
employee benefit plan of any nature, including (without limitation) any
pension, profit sharing, welfare, post-retirement welfare, stock option,
stock or cash award, non-qualified deferred compensation or executive
compensation plan, policy or practice or to modify or change any existing
ONEOK Benefit Plan and, to the knowledge of ONEOK, there has been no
communication to employees by ONEOK or any ONEOK Affiliate that would
reasonably be expected to promise or guarantee such employees retiree
health or life insurance benefits on a permanent basis.
(11) Reportable Events; Claims. Except as disclosed in Section 4.1(l)(11)
of the ONEOK Disclosure Schedule:
a. No Reportable Event has occurred with respect to any ONEOK Pension
Benefit Plan that would reasonably be expected to result in a liability
to ONEOK, and
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b. No liability, claim, action or litigation exists, has been made,
commenced or, to the actual knowledge of ONEOK, threatened, by or
against ONEOK or any ONEOK Affiliate with respect to any ONEOK Benefit
Plan (other than for benefits or PBGC premiums payable in the ordinary
course) that would reasonably be expected to result in a liability to
ONEOK, and
c. The PBGC has not instituted proceedings to terminate any ONEOK
Pension Benefit Plan, and, to the knowledge of ONEOK, no condition
exists that presents a likely risk that such proceedings will be
instituted.
(m) Labor Matters. Except as set forth in Section 4.1(m) of the ONEOK
Disclosure Schedule or the ONEOK SEC Documents:
(1) Neither ONEOK nor any of its Subsidiaries is a party to, or bound by,
any collective bargaining agreement or other current labor agreement with
any labor union or organization, and there is no current union
representation question involving employees of ONEOK or any of its
Subsidiaries, nor does ONEOK or its Subsidiaries have knowledge of any
activity or proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof) to organize or
threaten to organize any such employees;
(2) There is no unfair labor practice charge or grievance arising out of
a collective bargaining agreement or other grievance procedure against
ONEOK or any of its Subsidiaries pending, or, to the knowledge of ONEOK or
its Subsidiaries, threatened, that would have a Material Adverse Effect on
ONEOK;
(3) There is no strike, dispute, slowdown, work stoppage or lockout
pending or, to the knowledge of ONEOK or its Subsidiaries, threatened,
against or involving ONEOK or any of its Subsidiaries that would have a
Material Adverse Effect on ONEOK; and
(4) ONEOK and each of its Subsidiaries is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that would not have a Material Adverse
Effect on ONEOK.
(n) Intangible Property. ONEOK and its Subsidiaries possess or have adequate
rights to use all trademarks, trade names, patents, service marks, brand
marks, brand names, computer programs, databases, industrial designs and
copyrights necessary for the operation of the businesses of each of ONEOK and
its Subsidiaries (collectively, the "ONEOK Intangible Property"), except where
the failure to possess or have adequate rights to use such properties would
not have a Material Adverse Effect on ONEOK.
(o) Environmental Matters.
(1) Definitions. For purposes of this Agreement:
a. "Environmental Claims" means, with respect to any person, (x) any
and all administrative, regulatory or judicial actions, suits, demands,
demand letters, directives, claims, Liens, investigations, proceedings
or notices of non-compliance or violation in writing by or from any
person or entity (including any Governmental Entity), or (y) oral
notification provided by a Governmental Entity that written action of
the type described in the foregoing clause is in process, which (in
case of either (x) or (y)) alleges potential liability (including,
without limitation, potential 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 (1)
the presence, or Release (as such term is hereinafter defined) or
threatened Release into the environment, of any Hazardous Materials (as
such term is hereinafter defined) at any location, whether or not
owned, operated, leased or managed by ONEOK or any of its Subsidiaries
(for purposes of Section 4.1(o)) or by WRI or any of its Subsidiaries
(for purposes of Section 4.2(p)), (2) pollution, protection of the
environment and human health or safety from the effects of Hazardous
Materials,
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health or safety of employees or sanitation, (3) circumstances forming
the basis of any violation, or alleged violation, of any Environmental
Law (as hereinafter defined), or (4) any and all claims by any third
party seeking damages, civil or criminal fines or penalties,
contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence, Release, manufacture,
processing, distributing, use, treatment, storage, disposal, transport
or handling of any Hazardous Materials.
b. "Environmental Laws" means all federal, state and local laws,
rules, regulations and guidances, as well as common law causes of
action or contractual obligations, relating to pollution or the
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata), 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.
c. "Hazardous Materials" means (x) 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, (y) any chemicals, materials, substances or
wastes 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" or "toxic pollutants," or words of similar import, under
any applicable Environmental Law, and (z) any other chemical, material,
substance or waste, exposure to which is now prohibited, limited or
regulated under any applicable Environmental Law in a jurisdiction in
which ONEOK or any of its Subsidiaries operates (for purposes of
Section 4.1(o)) or in which WRI or any of its Subsidiaries operates
(for purposes of Section 4.2(p)).
d. "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, subsurface, surface water, groundwater or property.
(2) Compliance.
a. To the actual knowledge of the executive officers of ONEOK and the
officer or employee of ONEOK with responsibility for environmental
matters, after due inquiry, except as set forth in the ONEOK SEC
Documents or Section 4.1(o)(2)(a) of the ONEOK Disclosure Schedule,
ONEOK and each of its Subsidiaries is in compliance with all applicable
Environmental Laws, except where the failure to be so in compliance
would not have a Material Adverse Effect on ONEOK.
b. To the actual knowledge of the executive officers of ONEOK and the
officer or employee of ONEOK with responsibility for environmental
matters, after due inquiry, except as set forth in the ONEOK SEC
Documents or Section 4.1(o)(2)(b) of the ONEOK Disclosure Schedule,
neither ONEOK nor any of its Subsidiaries has received any
Environmental Claim from any person or Governmental Entity that alleges
that ONEOK or any of its Subsidiaries is not in compliance with
applicable Environmental Laws, except where the failure to be so in
compliance would not have a Material Adverse Effect on ONEOK.
c. Except as set forth in Section 4.1(o)(2)(c) of the ONEOK
Disclosure Schedule, to the actual knowledge of the executive officers
of ONEOK and the officer or employee of ONEOK with responsibility for
environmental matters, after due inquiry, neither ONEOK nor any of its
Subsidiaries has used any waste disposal site, or otherwise disposed
of, transported, or arranged for the transportation of, any Hazardous
Materials to any place or location, in violation of any Environmental
Laws.
(3) Environmental Permits. To the actual knowledge of the executive
officers of ONEOK and the officer or employee of ONEOK with responsibility
for environmental matters, after due inquiry, except as set forth in the
ONEOK SEC Documents or Section 4.1(o)(3) of the ONEOK Disclosure Schedule,
ONEOK
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and each of its Subsidiaries has obtained or applied for all environmental,
health and safety permits and authorizations (collectively, "Environmental
Permits") necessary for the construction of their facilities and the
operation of their respective businesses, as presently conducted and for
the use, storage, treatment, transportation, release, emission and disposal
of raw materials, by-products, wastes and other substances used or produced
by or otherwise relating to its business, and all such permits are in good
standing and in all material respects in full force and effect or, where
applicable, a renewal application has been timely filed, is pending and
agency approval is expected to be obtained, and ONEOK and its Subsidiaries
are in compliance in all material respects with all terms and conditions of
all such Environmental Permits and are not required to make any expenditure
in order to obtain or renew any Environmental Permits necessary for the
operation of their respective businesses, as presently conducted, except
where the failure to obtain or be in compliance with such Environmental
Permits and the requirement to make such expenditures would not have a
Material Adverse Effect on ONEOK
(4) Environmental Claims. To the actual knowledge of the executive
officers of ONEOK and the officer or employee of ONEOK with responsibility
for environmental matters, after due inquiry, except as set forth in the
ONEOK SEC Documents or Section 4.1(o)(4) of the ONEOK Disclosure Schedule,
there is no Environmental Claim pending or, to the actual knowledge of the
executive officers of ONEOK and the officer or employee of ONEOK with
responsibility for environmental matters, threatened:
a. against ONEOK or any of its Subsidiaries,
b. against any person or entity whose liability for such
Environmental Claim ONEOK or any of its Subsidiaries has retained or
assumed, either contractually or by operation of law, or
c. against any real or personal property or operations that ONEOK or
any of its Subsidiaries owns, leases or manages, in whole or in part,
that, in the case of a, b or c, if adversely determined, would have a
Material Adverse Effect on ONEOK.
(5) Releases. To the actual knowledge of the executive officers of ONEOK
and the officer or employee of ONEOK with responsibility for environmental
matters, after due inquiry, except as set forth in the ONEOK SEC Documents
or Section 4.1(o)(5) of the ONEOK Disclosure Schedule, and except for
Releases of Hazardous Materials the liability for which would not have a
Material Adverse Effect on ONEOK, ONEOK and its Subsidiaries have not
caused any Release of any Hazardous Materials at any place or property,
including, but not limited to, properties owned, leased or occupied by
ONEOK or any Subsidiary of ONEOK or any predecessor of ONEOK or any
Subsidiary of ONEOK, nor has it transported or arranged for the
transportation of any Hazardous Materials to any place or property where a
Release has occurred or allegedly has occurred, where such transportation
or arrangement has had, or would have, a Material Adverse Effect on ONEOK.
(6) Underground Storage Tanks or Surface Impoundments. To the actual
knowledge of the executive officers of ONEOK and the officer or employee of
ONEOK with responsibility for environmental matters, after due inquiry,
except as set forth in Section 4.1(o)(6) of the ONEOK Disclosure Schedule,
there are no underground storage tanks or surface impoundments at, on,
under or within any real property owned, leased or occupied by ONEOK or any
of its Subsidiaries, or any portion thereof, other than those liabilities
which would not have a Material Adverse Effect on ONEOK.
(p) Insurance. ONEOK and its Subsidiaries maintain insurance coverage as is
customary for the industry in which ONEOK and each of its Subsidiaries
operates, respectively (taking into account the cost and availability of such
insurance), and the Transactions and the other transactions contemplated
hereby and by the Ancillary Documents will not materially adversely affect
such coverage. All such insurance policies are with reputable insurance
carriers. There are no claims pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or in respect of which such underwriters have reserved their rights,
except for claims that would not have a Material Adverse Effect on ONEOK. All
premiums payable under all such policies have been paid and ONEOK and its
Subsidiaries have otherwise complied fully with the terms and conditions of
all such policies.
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(q) Contracts.
(1) Except as set forth in Section 4.1(q)(1) of the ONEOK Disclosure
Schedule, neither ONEOK nor any of its Subsidiaries is a party to or bound
by any Material Contract. "Material Contract" shall mean any contract or
obligation pursuant to which any party thereto would be required to pay
$5,000,000 or more. Except as set forth in Section 4.1(q)(1) of the ONEOK
Disclosure Schedule, all Material Contracts are in full force and effect,
and each of ONEOK and its Subsidiaries which is a party to or bound by such
Material Contract has performed its obligations thereunder as of the
Original Execution Date and, to the knowledge of ONEOK and its
Subsidiaries, each other party thereto has performed its obligations
thereunder as of the Original Execution Date, other than any failure of a
Material Contract to be in full force and effect or any nonperformance
thereof that would not have a Material Adverse Effect on ONEOK.
(2) Neither ONEOK nor any of its Subsidiaries engages in any natural gas
or other futures or options trading or is a party to any price swaps,
hedges, futures or similar instruments, except for transactions and
agreements entered into or hedge contracts for the purchase or sale of
hydrocarbons to which ONEOK or any of its Subsidiaries is a party which are
commercially reasonable and in accordance with the general practices of
other similarly situated companies in the industry.
(3) Neither ONEOK nor any of its Subsidiaries have been given notice of
any default under, or action to alter, terminate, rescind or procure a
judicial reformation of, any material provisions of any Material Contract.
(4) (i) Section 4.1(q)(4)(i) of the ONEOK Disclosure Schedule sets forth
a list of (a) all Gas purchase contracts which are Material Contracts, (b)
all gathering, exchange and transportation contracts which are Material
Contracts, and (c) all other contracts relating to Gas supply and
transportation which are Material Contracts, in each case, to the extent
ONEOK or any of its Subsidiaries is a party thereto, (collectively, the
"ONEOK Gas Contracts").
(ii) Except as set forth in Section 4.1(q)(4)(ii) of the ONEOK Disclosure
Schedule, (a) all ONEOK Gas Contracts to which ONEOK or any of its
Subsidiaries is a party have been approved or reviewed by the OCC to the
extent such approval or review is required, (b) all costs under the ONEOK
Gas Contracts are currently being passed through to the customers and (c)
ONEOK and its Subsidiaries have no reason to believe that (a) and (b) will
not continue in the future.
(r) Regulatory Proceedings. Except as set forth in the ONEOK SEC Documents
or in Section 4.1(r) of the ONEOK Disclosure Schedule, other than purchase gas
adjustment provisions, neither ONEOK nor any of its Subsidiaries all or part
of whose rates or services are regulated by a Governmental Entity (i) has
rates which have been or are being collected subject to refund, pending final
resolution of any rate proceeding pending before a Governmental Entity or on
appeal to the courts or (ii) is a party to any rate proceeding before a
Governmental Entity or on appeal from orders of a Governmental Entity which
could result in orders having a Material Adverse Effect on ONEOK.
(s) Regulation as a Utility.
(1) Neither ONEOK nor any of its Subsidiaries is a "holding company," a
"subsidiary company" or an "affiliate" of any public utility company (other
than ONEOK) within the meaning of Section 2(a)(7), 2(a)(8) or 2(a)(11) of
the 1935 Act, respectively, and none of the Subsidiaries of ONEOK is a
"public utility company" within the meaning of Section 2(a)(5) of the 1935
Act.
(2) ONEOK and certain of its Subsidiaries are regulated as public
utilities in the State of Oklahoma and in no other state. Neither ONEOK nor
any "subsidiary company" or "affiliate" (as each such term is defined in
any relevant statute, rule or regulations) of ONEOK 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.
(t) Opinion of Financial Advisor. The Board of Directors of ONEOK has
received the opinion of PaineWebber Incorporated to the effect that, as of
December 11, 1996, the date on which the Board of Directors of ONEOK approved
the Transactions, the Transactions are fair to ONEOK and its shareholders from
a financial point of view.
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(u) Vote Required. The ONEOK Stockholder Approval is the only vote of the
holders of any class or series of capital stock of ONEOK necessary to approve
this Agreement, the Transactions and the other transactions contemplated
hereby.
(v) Beneficial Ownership of WRI Common Stock. Neither ONEOK nor any of its
Subsidiaries "beneficially owns" (as defined in Rule 13d-3 under the Exchange
Act) any outstanding shares of WRI Common Stock.
(w) Brokers. Except for the fees and expenses payable to PaineWebber
Incorporated, which fees are reflected in its agreement with ONEOK, no broker,
investment banker or other person is entitled to any broker's, finder's or
other similar fee or commission in connection with the negotiations leading to
this Agreement or the consummation of the Transactions or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of ONEOK or any of its Subsidiaries.
(x) Related Party Transactions. There are no contracts, arrangements or
transactions in effect between ONEOK or any of its Subsidiaries, on the one
hand, and any officer, director or 5% stockholder of ONEOK, or any Affiliate
or immediate family member of any of the foregoing persons, on the other hand,
except as set forth in Section 4.1(x) of the ONEOK Disclosure Schedule.
(y) Takeover Provisions. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") or any applicable anti-takeover provision in ONEOK's
certificate of incorporation or bylaws, as amended, is, or at the Merger
Effective Time will be, applicable to ONEOK, the shares of ONEOK's capital
stock, the Merger or the other transactions contemplated by this Agreement or
any of the Ancillary Documents. The Board of Directors of ONEOK has taken all
action necessary so that WRI will not become an "Interested Stockholder"
within the meaning of Section 203 of the DGCL.
(z) Rights Plan. ONEOK has taken such action as may be necessary to provide
under the ONEOK Rights Agreement that WRI shall not be deemed an Acquiring
Person (as defined therein), the Distribution Date (as defined therein) shall
not be deemed to occur, and the Rights will not separate from ONEOK's shares
of capital stock, as a result of entering into this Agreement or consummating
the Merger and/or the other transactions contemplated hereby or by any of the
Ancillary Documents.
(aa) Title to Properties.
(1) ONEOK and its Subsidiaries, individually or together, have good and
sufficient title to all of the assets that they purport to own, including
all of the properties and assets reflected in the balance sheet as of
August 31, 1996, included in the ONEOK Balance Sheet, and all properties
and assets purchased or otherwise acquired since August 31, 1996. Such
assets are sufficient to enable ONEOK and its Subsidiaries to conduct the
business of ONEOK or its Subsidiaries as currently conducted without
material interference, free and clear of Liens, other than Permitted Liens.
ONEOK and its Subsidiaries, individually or together, hold under valid
lease agreements all of their real and personal properties reflected in the
ONEOK Balance Sheet, and all real and personal property that is subject to
the operating leases to which reference is made in the notes to the ONEOK
Balance Sheet, and enjoy 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 since the date of the
ONEOK Balance Sheet. None of ONEOK, its Subsidiaries or any of their
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 ONEOK. For the purposes hereof, 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
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Commercial Code of any jurisdiction, and 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 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
assets as such assets are used in the business of ONEOK or the Gas
Business, as applicable.
(2) Neither ONEOK nor any of its Subsidiaries is in violation of the
terms of any Easement except any such violations that, individually or in
the aggregate, would not have a Material Adverse Effect on ONEOK. Except as
would not have a Material Adverse Effect on ONEOK, all Easements in favor
of ONEOK are valid and enforceable and grant the rights purported to be
granted thereby and all rights necessary thereunder for the operation of
the business of ONEOK. Except as would not have a Material Adverse Effect
on ONEOK, to the knowledge of ONEOK, there are no spatial gaps in the
Easements in favor of ONEOK that would have a Material Adverse Effect on
ONEOK and all parts of the pipeline assets which constitute a portion of
the assets of ONEOK and its Subsidiaries are located either on property
which is owned in fee by ONEOK or its Subsidiaries or on property which is
subject to an Easement in favor of ONEOK or its Subsidiary.
(ab) Condition of Assets. To the knowledge of ONEOK and its Subsidiaries,
the buildings, plants, structures, and equipment of ONEOK and its Subsidiaries
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.
(ac) Accounts Receivable. All Accounts Receivable of ONEOK represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of the business of ONEOK. Unless
paid prior to the Closing, the Accounts Receivable are or will be, as of the
Closing, collectible, subject only to allowance for doubtful accounts, and
calculated consistently with past practice. There is no contest, claim or
right of set-off, under any contract or with any obligor of an Account
Receivable relating to the amount or validity of such Accounts Receivable,
which would have a Material Adverse Effect on ONEOK.
4.2 Representations and Warranties of WRI. WRI and, solely to the extent of
representations and warranties concerning NewCorp, NewCorp represents and
warrants to ONEOK as follows, except as set forth in the disclosure schedule
signed by an authorized officer of WRI and delivered to ONEOK by WRI (the "WRI
Disclosure Schedule") on the Amendment Date, each of which exceptions shall
specifically identify the relevant Section hereof to which it relates:
(a) Organization, Standing and Power. Each of WRI, Westar, MCMC and the
Significant Subsidiaries of Westar and MCMC is, and NewCorp as of the Closing
will be, a corporation duly organized, validly existing and in good standing
under the laws of its respective state of incorporation or organization, and
has, and NewCorp as of the Closing will, subject to the satisfaction of the
closing conditions, have, all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
and is, and NewCorp as of the Closing will be, duly qualified and in good
standing to do business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect on the Gas
Business. WRI has heretofore delivered to ONEOK complete and correct copies of
its articles of incorporation and bylaws, as amended as of the Original
Execution Date. WRI has heretofore delivered to ONEOK complete and correct
copies of the certificate of incorporation and bylaws of each of Westar and
MCMC each, as amended and in full force and effect as of the Original
Execution Date.
(b) Capital Structure. Subject to the provisions of the Shareholder
Agreement, upon the consummation of the Transactions, on a fully diluted basis
after giving effect to the Transactions and based on the number of shares of
ONEOK Common Stock outstanding as of December 12, 1996, (i) 2,996,702 shares
of NewCorp Common Stock will be issued and outstanding and owned by WRI and
the remaining then outstanding shares of NewCorp Common Stock shall constitute
the Stock Consideration issued and/or issuable to the shareholders of
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ONEOK pursuant to Article III and (ii) 19,317,584 shares of Series A
Convertible Preferred Stock will be issued and outstanding and owned by WRI.
As of the Original Execution Date, the authorized capital stock of Westar
consists of 1,000 shares of common stock, without par value, of which 1,000
shares of common stock are issued and outstanding and owned by Westar Energy
Inc., a wholly-owned Subsidiary of WRI. As of the Original Execution Date, the
authorized capital stock of MCMC consists of 1,000 shares of common stock,
without par value, of which 1,000 shares of common stock are issued and
outstanding and owned by WRI. All issued and outstanding shares of the
Transferred Stock are validly issued, fully paid and nonassessable and are not
subject to preemptive rights. Upon the contribution by WRI of the Transferred
Stock to NewCorp at the Closing, pursuant to the Transfer Documents, NewCorp
will own the Transferred Stock, free and clear of all Liens.
(c) Sufficiency of Assets. Except as disclosed in Section 4.2(c) of the WRI
Disclosure Schedule, the Assets to be contributed to NewCorp pursuant to the
Asset Transaction will constitute all of the assets and properties of WRI and
its Subsidiaries (other than the Excluded Assets) that are primarily used in,
or primarily related to, or primarily generated by the field operations of the
Gas Business as conducted by WRI immediately prior to the Asset Transaction.
(d) Authority; No Violations; Consents and Approvals.
(1) The Board of Directors of WRI has approved the Merger and this
Agreement. WRI has and will have all requisite corporate power and
authority to enter into this Agreement and the Ancillary Documents to the
extent it is a party thereto, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and each Ancillary
Document to which WRI is a party, the performance of obligations hereunder
and thereunder by WRI and the consummation of the Transactions and the
other transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of WRI. This
Agreement has been duly executed and delivered by WRI and constitutes, and
the Ancillary Documents to which WRI is a party when executed and delivered
by WRI, will constitute, valid and binding obligations of WRI, enforceable
against WRI in accordance with their respective terms, subject, in each
case, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (assuming such documents
constitute a valid and binding obligation on the other parties thereto).
(2) As of the Amendment Date, (i) the Board of Directors and shareholders
of NewCorp have approved the Transactions and this Agreement, (ii) NewCorp
has all requisite corporate power and authority to enter into this
Agreement and the Ancillary Documents to the extent that it is a party
thereto, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby, (iii) the
execution and delivery of this Agreement and each Ancillary Document to
which NewCorp is a party, the performance of obligations hereunder and
thereunder by NewCorp and the consummation of the Transactions and the
other transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of NewCorp. As of
the Amendment Date, this Agreement has been duly executed and delivered by
NewCorp and constitutes, and the Ancillary Documents to which NewCorp is a
party when executed and delivered by NewCorp, will constitute, valid and
binding obligations of NewCorp, enforceable against NewCorp in accordance
with their respective terms, subject, in each case, as to enforceability,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (assuming such documents constitute a valid and
binding obligation on the other parties thereto).
(3) The execution and delivery of this Agreement and the Ancillary
Documents to which WRI and/or NewCorp is a party do not, and the
consummation of the Transactions and the other transactions contemplated
hereby and thereby and compliance with the provisions hereof and thereof
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or change the rights or
obligations of any party under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Gas Business under, any provision of (A) the
certificates of
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incorporation or bylaws of WRI, Westar and MCMC, as amended, or the
certificate of incorporation or bylaws of NewCorp as they may be amended at
the Closing, or any provision of the charters or organizational documents
of any of the respective Subsidiaries of Westar or MCMC, (B) subject to
obtaining the third-party consents set forth in Section 4.2(d)(3) of the
WRI Disclosure Schedule and the assignments of contracts, in the manner
contemplated by Section 1.6 of this Agreement (the "WRI Required
Consents"), any loan or credit agreement, note, bond, mortgage, indenture,
lease or other material agreement, instrument, permit, franchise or license
applicable to WRI with respect to the Gas Business and/or the Transferred
Subsidiaries, or (C) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 4.2(d)(4) are
duly and timely obtained or made, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to WRI or, at the Amendment
Date or the Closing, NewCorp with respect to the Gas Business and/or any of
the Transferred Subsidiaries or any of their respective properties or
assets, other than, in the case of clause (B) or (C), any such conflicts,
violations, defaults, rights or Liens, that, individually or in the
aggregate, would not have a Material Adverse Effect on the Gas Business,
materially impair the ability of WRI or NewCorp to perform its obligations
hereunder or under any Ancillary Document to which WRI and/or NewCorp is a
party or prevent the consummation of any of the Transactions and the other
transactions contemplated hereby or thereby.
(4) Except as set forth in Section 4.2(d)(4) of the WRI Disclosure
Schedule, no notice, report, consent, approval, order or authorization of,
or registration, declaration or filing with, or permit from any
Governmental Entity is required by or with respect to WRI relating to the
Gas Business and/or any of the Transferred Subsidiaries or, as of the
Closing, NewCorp in connection with the execution and delivery by WRI
and/or NewCorp of this Agreement or any Ancillary Document to which WRI
and/or NewCorp is a party, or the consummation by WRI and/or NewCorp of the
Transactions and the other transactions contemplated hereby or thereby, as
to which the failure to obtain or make would have a Material Adverse Effect
on the Gas Business or prevent or materially burden or materially impair
the ability of WRI, NewCorp or the Transferred Subsidiaries to consummate
the transactions contemplated by this Agreement, except for: (A) the filing
of a premerger notification report by WRI under the HSR Act and the
expiration or termination of the applicable waiting period with respect
thereto; (B) the filing with the SEC of the Form S-4, such reports under
Section 13(a) of the Exchange Act and such other compliance with the
Securities Act and the Exchange Act and the rules and regulations
thereunder as may be required in connection with this Agreement and the
Transactions and the other transactions contemplated hereby, and the
obtaining from the SEC of such orders as may be so required; (C) a filing
for a determination by the SEC or its Staff in the form of an order or a
no-action letter that WRI will not be a holding company under Section
2(a)(7) of the 1935 Act for the purposes of the 1935 Act as a result of the
Merger and the obtaining of such an order or no-action letter from the SEC
or its Staff to such effect; (D) the approval of the Merger by the SEC
under Section 9(a)(2) of the 1935 Act; (E) filings with, and the approvals
of, or notices to, the KCC and the OCC; (F) in the case of NewCorp, the
filing of the Certificate of Merger with the Secretary of State of the
State of Oklahoma; (G) filings with, and approval of, the New York Stock
Exchange ("NYSE") in connection with the listing of the NewCorp Common
Stock; (H) such filings and approvals as may be required by any applicable
state securities, "blue sky" or takeover laws; (I) such filings and
approvals as may be required in connection with the transfer of WRI's
municipal franchises with respect to the Gas Business; and (J) such filings
and approvals as may be required by any other premerger notification,
securities, corporate or other law, rule or regulation.
(e) SEC and Other Documents.
(1) WRI has made available to ONEOK a true and complete copy of each Form
10-K and Form 10-Q filed by WRI with the SEC since January 1, 1994 and
prior to the Original Execution Date (the "WRI SEC Documents"). As of their
respective dates, the WRI SEC Documents as they relate to the Gas Business
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC thereunder applicable to such WRI SEC Documents, and none of the
WRI SEC Documents as they relate to the Gas Business contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the
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statements therein, in light of the circumstances under which they were
made, for the applicable periods, not misleading.
(2) The audited financial statements of the Gas Business included as
Exhibit B hereto for the three years ended August 31, 1996, 1995 and 1994
and the unaudited financial statements of the Gas Business for the six-
month period ended February 28, 1997 (the "Consolidated Financial
Information of the Gas Business") were prepared, consistent with WRI's past
practices, based upon the books and records of WRI, and fairly present, in
all material respects, as they relate to the Assets of the Gas Business,
the matters indicated therein. Section 4.2(e)(2) of the WRI Disclosure
Schedule specifies all accounting principles utilized in connection with
the preparation of the Consolidated Financial Information of the Gas
Business which are not in conformity with GAAP. Except as disclosed in the
WRI SEC Documents, there are no agreements, arrangements or understandings
with respect to the Gas Business between WRI or the Transferred
Subsidiaries and any party who is at the Original Execution Date or was at
the time prior to the Original Execution Date but after January 1, 1996 an
Affiliate of WRI or the Transferred Subsidiaries that are required to be
disclosed in the WRI SEC Documents.
(3) WRI has delivered to ONEOK a true and correct copy of WRI's FERC Form
2 for the years ended December 31, 1995, December 31, 1994, and December
31, 1993, required to be filed with the OCC and KCC, which includes the
appropriate Supplement containing certain financial information related to
the gas utility business of WRI (the "Financial Information Statements").
The Financial Information Statements: (i) have been prepared, consistent
with WRI's past practices, based upon the books and records of WRI, and
(ii) fairly present, in all material respects, the matters indicated for
the periods indicated therein, in conformity with the regulations of the
OCC, KCC and the FERC (subject to normal recurring adjustments, none of
which are material). WRI has also delivered to ONEOK the unaudited PP&E
Schedules "Intangible Personal Property; Regulatory Assets; Miscellaneous
Debits," and "Gas Pipelines and Plants," in each case relating to the gas
utility business as of September 30, 1996 (together, the "PP&E Schedules").
The PP&E Schedules: (i) have been prepared consistent with WRI's past
practices based on the books and records of WRI, and (ii) fairly present,
in all material respects, the matters indicated, as of the date indicated
(subject to normal recurring adjustments, none of which are material). The
financial records, ledgers and subledgers, account books and other
accounting records of WRI relating to the Gas Business have been maintained
in accordance with good business practice and are current, complete,
accurate and correct, except for normal month end adjustments, in all
material respects.
(4) The unaudited financial information of Westar and MCMC delivered to
ONEOK were prepared consistent with WRI's past practices, based upon the
books and records of WRI and the Transferred Subsidiaries, and fairly
present, in all material respects, the matters indicated therein. Section
4.2(e)(4) of the WRI Disclosure Schedule specifies all accounting
principles utilized in connection with the preparation of the financial
information of Westar and MCMC which are not in conformity with GAAP.
(f) Information Supplied. None of the information supplied or to be supplied
by WRI or NewCorp for inclusion or incorporation by reference in the Form S-4
will, at the time the Form S-4 becomes effective under the Securities Act or
at the Merger Effective Time, 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, in light of the circumstances under which they
were made, not misleading, and none of the information supplied or to be
supplied by WRI or NewCorp and included or incorporated by reference in the
Proxy Statement will, at the date mailed to the shareholders of ONEOK or at
the time of the meeting of such shareholders to be held in connection with the
Merger or at the Merger Effective Time, 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. If at any time prior
to the Merger Effective Time any event with respect to the Gas Business, or
with respect to other information supplied by WRI or NewCorp for inclusion in
the Proxy Statement or the Form S-4, shall occur which is required to be
described in an amendment of, or a supplement to, the Proxy Statement or the
Form S-4, such event shall be so described, and such amendment or supplement
shall be promptly filed with the SEC.
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(g) Absence of Certain Changes or Events. Except (I) as disclosed in, or
reflected in the financial statements included in, the WRI SEC Documents
and/or Section 4.2(g) of the WRI Disclosure Schedule, (II) as contemplated by
this Agreement, or (III) for transactions effected or actions taken by WRI or
the Transferred Subsidiaries after the Original Execution Date without
breaching the terms hereof in the case of clauses (iii) through (viii) below,
since August 31, 1996, the Gas Business has been conducted in the ordinary
course of business consistent with past practice, and since August 31, 1996
there has not been: (i) any event or events which, individually or in the
aggregate have had or would have a Material Adverse Effect on the Gas
Business; (ii) any amendment of any material term of any outstanding equity
security or the respective certificates of incorporation or bylaws of Westar
or MCMC; (iii) any non-cash dividend or distribution by Westar or MCMC or any
repurchase, redemption or other acquisition by Westar or MCMC of any
outstanding shares of capital stock or other equity securities of, or other
ownership interests in, Westar or MCMC or any Significant Subsidiary of Westar
or MCMC; (iv) any material change in any method of accounting or accounting
practice by WRI relating to the Gas Business and the Transferred Subsidiaries;
(v) any increase in the salaries or other compensation payable to any officer
or employee of WRI relating to the Gas Business or any of the Transferred
Subsidiaries (except for normal increases in the ordinary course of business
consistent with past practice) or any increase in, or addition to, other
benefits to which any such officer or employee may be entitled (except as
required by the terms of plans as in effect on the Original Execution Date or
as required by law); (vi) any Material Adverse Change or threat of a Material
Adverse Change in the relations of WRI relating to the Gas Business or the
Transferred Subsidiaries with, or any loss or, to the knowledge of WRI, threat
of loss of, any of the material suppliers or customers of the Gas Business or
the Transferred Subsidiaries, except to the extent such loss does not and
would not have a Material Adverse Effect on the Gas Business; (vii) any
termination, cancellation or waiver of any contract or other right material to
the operation of the Gas Business taken as a whole, except to the extent such
termination, cancellation or waiver does not and would not have a Material
Adverse Effect on the Gas Business; or (viii) any other transaction,
commitment, dispute or other event or condition (financial or otherwise) of
any character (whether or not in the ordinary course of business) that does
have or would have a Material Adverse Effect on the Gas Business.
(h) No Undisclosed Material Liabilities. Except as disclosed in the WRI SEC
Documents and/or Section 4.2(h) of the WRI Disclosure Schedule, to the
knowledge of WRI, WRI with respect to the Gas Business and the Transferred
Subsidiaries do not have any liabilities or obligations, including
Environmental Claims, of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and whether or not required
to be disclosed, nor are there any facts or circumstances of which WRI has or
the Transferred Subsidiaries have knowledge that could result in obligations
or liabilities of WRI, the Transferred Subsidiaries or any of their
Affiliates, that have or would have a Material Adverse Effect on the Gas
Business, other than: (i) liabilities adequately provided for in the
Consolidated Financial Information of the Gas Business; and (ii) liabilities
under this Agreement or the Ancillary Documents.
(i) No Default. With respect to the Gas Business, neither WRI nor any of the
Transferred Subsidiaries is in default or violation (and no event has occurred
which, with notice or the lapse of time or both, would constitute a default or
violation) of any term, condition or provision of (i) their respective
charters, bylaws or other respective organizational documents, (ii) any
material note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which WRI or any of the Transferred Subsidiaries
is now a party or by which WRI or any of the Transferred Subsidiaries or any
of their respective properties or assets may be bound, or (iii) any order,
writ, injunction, decree, statute, rule or regulation applicable to WRI or any
of the Transferred Subsidiaries, except in the case of (ii) and (iii) for
defaults or violations which in the aggregate do not and would not have a
Material Adverse Effect on the Gas Business.
(j) Compliance with Applicable Laws. Except as specifically addressed in
other representations in this Section 4.2 or as disclosed in, or reflected in
the financial statements included in, the WRI SEC Documents, or as disclosed
or reflected in the Consolidated Financial Information of WRI and/or as set
forth in Section 4.2(j) of the WRI Disclosure Schedule, WRI and the
Transferred Subsidiaries hold, and subject to the terms of this Agreement and
the Ancillary Documents, will transfer, to the extent transferable, to NewCorp
on or before the Closing, all permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities necessary for
the lawful conduct of the Gas Business (the "WRI Permits"), except where the
failure so to hold does not and would not have a Material Adverse Effect on
the Gas Business. Except as disclosed in, or
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reflected in the financial statements included in, the WRI SEC Documents, or
as disclosed or reflected in the Consolidated Financial Information of WRI
and/or as set forth in Section 4.2(j) of the WRI Disclosure Schedule, WRI and
the Transferred Subsidiaries are in compliance with the terms of the WRI
Permits, except where the failure so to comply does not and would not have a
Material Adverse Effect on the Gas Business. Except as disclosed in the WRI
SEC Documents as disclosed in, or reflected in the financial statements
included in, the WRI SEC Documents, or as disclosed or reflected in the
Consolidated Financial Information of WRI and/or as set forth in Section
4.2(j) of the WRI Disclosure Schedule, the Gas Business is not being conducted
in violation of any law, ordinance or regulation of any Governmental Entity,
except for violations which do not and would not have a Material Adverse
Effect on the Gas Business. Except as disclosed in, or reflected in the
financial statements included in, the WRI SEC Documents, or as disclosed or
reflected in the Consolidated Financial Information of WRI and/or as set forth
in Section 4.2(j) of the WRI Disclosure Schedule, neither WRI nor any of the
Transferred Subsidiaries has been notified of any pending investigation or
review by any Governmental Entity nor, to the knowledge of WRI or the
Transferred Subsidiaries, is any investigation or review by any Governmental
Entity with respect to WRI and/or any of the Transferred Subsidiaries, in each
case, to the extent relating to the Gas Business, pending or, to the knowledge
of WRI, threatened, other than those the outcome of which does not and is not
reasonably likely to have a Material Adverse Effect on the Gas Business.
(k) Litigation. Except as disclosed in the WRI SEC Documents and/or Section
4.2(k) of the WRI Disclosure Schedule or otherwise within this Section 4.2, as
of the Original Execution Date, there is no suit, action or proceeding
pending, or, to the knowledge of WRI or any of the Transferred Subsidiaries,
threatened against or affecting WRI relating to the Gas Business or any of the
Transferred Subsidiaries ("WRI Litigation"), at law or in equity, or before or
by any federal or state commission board, bureau, agency or instrumentality,
that, individually or in the aggregate, has had or would have a Material
Adverse Effect on the Gas Business, and WRI and the Transferred Subsidiaries
have no knowledge of any facts that are likely to give rise to any WRI
Litigation, that (in any case) would have a Material Adverse Effect on the Gas
Business, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against WRI or any of the
Transferred Subsidiaries ("WRI Orders") that has or would have a Material
Adverse Effect on the Gas Business or the ability of WRI to consummate the
transactions contemplated by this Agreement or any of the Ancillary Documents.
(l) Taxes. Except as, individually or in the aggregate, do not and would not
have a Material Adverse Effect on the Gas Business:
(1) WRI, each of the Transferred Subsidiaries and, as of the Closing,
NewCorp has (A) timely (taking into account any extensions) filed all
material federal, state, local and foreign Returns required to be filed or
sent by or with respect to it in respect of any Taxes, (B) timely paid all
Taxes that are shown to be due thereon, (C) established reserves that are
adequate for the payment of all Taxes not yet due and payable with respect
to results of operations, and (D) to the knowledge of WRI or any of the
Transferred Subsidiaries timely withheld from employee wages and paid over
to the proper governmental authorities all amounts required to be so
withheld and paid over.
(2) Section 4.2(l)(2) of the WRI Disclosure Schedule sets forth the last
taxable period through which the Returns of WRI, NewCorp and each of the
Transferred Subsidiaries have been examined by the IRS or otherwise closed.
No material Tax audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes for which WRI,
any of the Transferred Subsidiaries or, as of the Closing, NewCorp could be
liable, and except as provided for in the Consolidated Financial
Information of the Gas Business, no material deficiency for any such Taxes
has been proposed, asserted or assessed pursuant to such examination
against WRI, any of the Transferred Subsidiaries or, as of the Closing,
NewCorp by any Governmental Entity with respect to any period.
(3) None of WRI, the Transferred Subsidiaries or, as of the Closing,
NewCorp has executed or entered into with the IRS or any taxing authority
(A) any agreement or other document extending or having the effect of
extending the period for assessments or collection of any federal Income
Taxes for which NewCorp or any of the Transferred Subsidiaries could be
liable or (B) a closing agreement pursuant to
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Section 7121 of the Code, or any predecessor provision thereof or any
similar provision of state or local Tax law that relates to the assets or
operations of NewCorp or any of the Transferred Subsidiaries or the Gas
Business.
(4) Neither the Transferred Subsidiaries nor, as of the Closing, NewCorp
has made an election under Section 341(f) 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
NewCorp or any of the Transferred Subsidiaries.
(5) As of the Closing Date, neither NewCorp nor any of the Transferred
Subsidiaries, nor any Subsidiary of the Transferred Subsidiaries (such
Subsidiaries, together with the Transferred Subsidiaries, the "Acquired
Subsidiaries") will be a party to, will be bound by or will have any
obligation under any tax sharing agreement or similar agreement or
arrangement that includes any entity other than NewCorp or the Acquired
Subsidiaries.
(6) Section 4.2(l)(6) of the WRI Disclosure Schedule sets forth a list of
federal, state, local or foreign jurisdictions in which WRI, with respect
to the Gas Business, or the Transferred Subsidiaries has paid any Taxes or
filed any Returns during the past 3 years. No jurisdiction not listed on
Section 4.2(l)(6) of the WRI Disclosure Schedule has made a claim,
assertion or, to the knowledge of WRI and the Transferred Subsidiaries,
threat that WRI, with respect to the Gas Business, or any of the
Transferred Subsidiaries is subject to taxation in such jurisdiction.
(7) For purposes of subsections (1) and (2) of Section 4.2(l), the use of
the terms "Tax" or "Taxes" in conjunction with WRI shall refer only to (i)
Taxes which are reported on a consolidated, combined or unitary basis with
respect to a group that includes NewCorp or either of the Transferred
Subsidiaries or (ii) Taxes which arise primarily out of or relate primarily
to the Gas Business.
(8) Except as disclosed in Section 4.2(l)(8) of the WRI Disclosure
Schedule, as a result, directly or indirectly, of the Transactions or the
other transactions contemplated by this Agreement (including without
limitation, any terminations of employment prior to or following the
Effective Time), as of the Closing Date, NewCorp will not be obligated to
make a payment (including without limitation any acceleration of vesting or
payment) with respect to Continuing Employees or Retired Employees who are
"disqualified individuals" that would be characterized as an "excess
parachute payment" (as such terms are defined in Section 280G of the Code).
(m) Employee Matters; ERISA.
(1) Benefit Plans. Section 4.2(m)(1) of the WRI Disclosure Schedule
contains a true and complete list, as of the Original Execution Date, of
each item described below, whether formal or informal, written or
unwritten, legally binding or not, each of which have been or will be made
available to ONEOK:
a. each material "employee benefit plan" within the meaning of
Section 3(3) of ERISA that is or was maintained or contributed to at
any time during the six calendar year period immediately preceding the
Original Execution Date by WRI or any WRI Affiliate in which Continuing
Employees or Retired Employees participate and each similar plan,
program, policy or arrangement maintained for non-employee directors or
other non-employees who have provided services to WRI or any WRI
Affiliate;
b. each material plan, program, policy, payroll practice or
arrangement not listed in a. above that provides for bonuses, profit-
sharing, incentive compensation, deferred compensation, equity-based
compensation (including stock options or other stock purchases,
restricted stock, stock appreciation rights, performance units and
dividend equivalents), holiday pay, vacation pay, sick pay, dependent
care benefits, flexible benefits (including any cafeteria plan governed
by Section 125 of the Code), paid or unpaid leave (including sick
leave, parental leave, military leave and bereavement leave), tuition
assistance, relocation or any similar type of benefits, that has been
adopted or implemented by WRI or any WRI Affiliate and in which
Continuing Employees or Retired Employees participate (including any
such plan, program, policy or arrangement that has been terminated
before the Original Execution Date); and
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c. each material employment contract, severance contract, parachute
agreement, option agreement, stock appreciation right agreement, bonus
or other incentive award agreement, deferred compensation agreement,
supplemental benefit agreement, split dollar agreement or other
personal service or benefit contract or arrangement with or covering a
Continuing Employee or Retired Employee.
(2) Contributions. All material contributions and other material payments
required to have been made by WRI or any WRI Affiliate under Section 412 of
the Code in respect of any WRI Pension Benefit Plan which covers Continuing
Employees or Retired Employees or pursuant to the terms of any WRI Pension
Benefit Plan which covers Continuing Employees or Retired Employees (or to
any person pursuant to the terms thereof) have been timely made or will be
timely made in accordance with Section 404(a)(6) of the Code.
(3) Qualification; Compliance. The following representations apply to WRI
Benefit Plans for which NewCorp may have joint and several liability or
with respect to which assets are being contributed from the WRI Benefit
Plans to plans established by NewCorp pursuant to the Employee Agreement.
a. Each WRI Benefit Plan that is intended to be "qualified" within
the meaning of Section 401(a) of the Code (1) currently meets all
qualification requirements under the Code both in form and in
operation, except any failure that can be corrected without material
liability, and (2) has received a favorable determination letter from
the IRS on its qualification or application for such a determination
has been made prior to the expiration of the applicable remedial
amendment period, and to the knowledge of WRI there are no
circumstances existing likely to result in revocation of any such
favorable determination letter.
b. Each WRI Benefit Plan is and has been operated in compliance with,
all applicable laws, rules and regulations governing such plan,
including, without limitation, ERISA and the Code, and all filings,
disclosures and notices required have been timely made, except for
violations that would not have a Material Adverse Effect on NewCorp.
All amendments and actions required to bring each of the WRI Benefit
Plans into conformity with all of the applicable provisions of ERISA
and the Code and other applicable legal requirements have been made or
taken except to the extent that such amendments or actions are not
required by law to be made or taken until a date after the Merger
Effective Time and except for actions the failure of which to take
would not have a Material Adverse Effect on NewCorp.
c. To the knowledge of WRI, no individual or entity has engaged in
any transaction in connection with which WRI or any WRI Affiliate, or
any WRI Benefit Plan or any trust, trustee or administrator thereof,
could be subject to liability pursuant to Section 409 or Section 502 of
ERISA, or subject to an excise tax pursuant to Section 4975 of the
Code, which could in either case have a Material Adverse Effect on
NewCorp.
d. Except for matters that would not have a Material Adverse Effect
on NewCorp:
1. To the knowledge of WRI, no WRI Benefit Plan is subject to any
ongoing audit, investigation or other administrative proceeding of
the IRS, the Department of Labor or any other Governmental Entity
or, to the knowledge of WRI, is scheduled to be subject to such an
audit, investigation or proceeding; and
2. No WRI Benefit Plan is the subject of any pending application
for administrative relief under any voluntary compliance program of
any Governmental Entity (including, without limitation, the IRS'
Voluntary Compliance Resolution Program or Walk-in Closing Agreement
Program, or the Department of Labor's Delinquent Filer Voluntary
Compliance Program).
(4) Pension Benefit Plan; Liabilities. Except as disclosed in Section
4.2(m)(4) of the WRI Disclosure Schedule, with respect to the WRI Pension
Benefit Plans, individually and in the aggregate, no termination or partial
termination of any WRI Pension Benefit Plan has occurred and no event has
occurred that would be reasonably expected to subject the Gas Business or
NewCorp, by reason of joint and several
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liability, to any liability arising under the Code, ERISA or any other
applicable law (including, without limitation, any liability to or under
any such plan or to the PBGC, or under any indemnity agreement to which WRI
or any WRI Affiliate is a party), which liability could have a Material
Adverse Effect on the Gas Business or NewCorp, by reason of joint and
several liability (excluding liability for benefit claims and funding
obligations payable in the ordinary course and liability for PBGC insurance
premiums payable in the ordinary course).
(5) Welfare Plans. To the knowledge of WRI, no circumstances exist that
could subject WRI or any WRI Affiliate to an excise tax under Section 4976
of the Code that would have a Material Adverse Effect on the Gas Business
or NewCorp by reason of joint and several liability.
(6) Documents Made Available. WRI has made available to ONEOK, or will
make available to ONEOK upon request, a true and correct copy of each
collective bargaining agreement to which WRI or any WRI Affiliate is a
party or under which WRI has obligations relating to the Gas Business or to
NewCorp by reason of joint and several liability; and, with respect to each
such WRI Benefit Plan relating to the Gas Business or to NewCorp by reason
of joint and several liability, WRI has made available or will make
available upon request to ONEOK a true and correct copy of each of the
following, as applicable:
a. the current plan document (including all amendments adopted since
the most recent restatement) and its most recently prepared summary
plan description and all summaries of material modifications prepared
since the most recent summary plan description;
b. annual reports or Code Section 6039D information returns (IRS Form
5500 Series), including financial statements, for the last two years;
c. the most recent IRS determination letter or other opinion letter
with respect to the qualified status under Code Section 401(a) of such
plan under Code Section 501 of the related trust;
d. actuarial reports or valuations for the last two years; and
e. trust instruments and insurance contracts; any Form 5310 or Form
5330 filed with the IRS during the last six years.
(7) Payments Resulting From Merger. Except as set forth on Section
4.2(m)(7) of the WRI Disclosure Schedule or as provided under any WRI
Benefit Plan or any agreement described in Section 4.2(m)(1)c. above, the
consummation or announcement of any transaction contemplated by this
Agreement will not directly or indirectly (either alone or upon the
occurrence of any additional or further acts or events) result in any:
a. payment (whether of severance pay or otherwise) becoming due from
WRI or any WRI Affiliate to any current or former officer, director,
employee or independent contractor of WRI or any WRI Affiliate or to
the trustee under any "rabbi trust" or other funding arrangement, which
would reasonably be expected to result in liability to NewCorp; or
b. benefit under any WRI Benefit Plan being established or increased
or becoming accelerated, vested or payable, except for a payment or
benefit that would have been payable under the same terms and
conditions without regard to the transactions contemplated by this
Agreement, which would reasonably be expected to result in liability to
NewCorp.
(8) Funded Status of Plans. Except as disclosed in Section 4.2(m)(8) of
the WRI Disclosure Schedule, (A) each WRI Pension Benefit Plan has been
maintained in compliance with the minimum funding standards of ERISA and
the Code, (B) no WRI Pension Benefit Plan has incurred any "accumulated
funding deficiency" (within the meaning of Section 302 of ERISA or Section
412 of the Code) and (C) all required payments to the PBGC with respect to
each WRI Pension Benefit Plan have been made on or before their due dates
in each case with respect to such WRI Pension Benefit Plans covering
Continuing Employees or Retired Employees or which would reasonably be
expected to result in liability to NewCorp.
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Except as disclosed in Section 4.2(m)(8) of the WRI Disclosure Schedule,
neither WRI nor any of its Subsidiaries has provided, or is required to
provide, security to any WRI Pension Benefit Plan pursuant to Section
401(a)(29) of the Code in each case with respect to such WRI Pension
Benefit Plans covering Continuing Employees or Retired Employees or which
would reasonably be expected to result in liability to NewCorp.
(9) Multiemployer Plans. Except as disclosed in Section 4.2(m)(9) of the
WRI Disclosure Schedule, no WRI Benefit Plan is a "multiemployer plan"
(within the meaning of Section 4001(a)(3) of ERISA), a multiple employer
plan described in Section 413(c) of the Code or a "multiple employer
welfare arrangement" (within the meaning of Section 3(40) of ERISA); and
none of WRI or any WRI Affiliate is obligated to contribute to, has
incurred or is expected to incur any withdrawal liability or has had any
liability under Title IV of ERISA with respect to, or any liability in
connection with the reorganization or termination of, any multiemployer
plan, multiple employer plan, or multiple employer welfare arrangement
which relates to the Gas Business or which would reasonably be expected to
result in liability to NewCorp by reason of joint and several liability.
(10) Modification or Termination of Plans. Except as disclosed in Section
4.2(m)(10) of the WRI Disclosure Schedule or as required pursuant to a
collective bargaining agreement or as required to secure a favorable
determination letter from the IRS, neither WRI nor any WRI Affiliate is
subject to any legal obligation, or has any formal plan, to enter into any
form of material compensation or employment agreement or to establish any
employee benefit plan of any nature which would reasonably be expected to
result in liability to NewCorp or in which Continuing Employees or Retired
Employees may participate, including (without limitation) any pension,
profit sharing, welfare, post-retirement welfare, stock option, stock or
cash award, non-qualified deferred compensation or executive compensation
plan, policy or practice or to modify or change any existing WRI Benefit
Plan in which Continuing Employees or Retired Employees participate and, to
the knowledge of WRI, there has been no communication to Continuing
Employees or Retired Employees by WRI or any WRI Affiliate that would
reasonably be expected to promise or guarantee such employees retiree
health or life insurance benefits on a permanent basis.
(11) Reportable Events; Claims. Except as disclosed in Section 4.2(m)(11)
of the WRI Disclosure Schedule:
a. No Reportable Event has occurred with respect to any WRI Pension
Benefit Plan that would reasonably be expected to result in liability
to NewCorp, and
b. No liability, claim, action or litigation exists, has been made,
commenced or, to the actual knowledge of WRI, threatened, by or against
WRI or any WRI Affiliate with respect to any WRI Benefit Plan (other
than for benefits or PBGC premiums payable in the ordinary course) that
would reasonably be expected to result in liability to NewCorp, and
c. The PBGC has not instituted proceedings to terminate any WRI
Pension Benefit Plan, and, to the knowledge of WRI, no condition exists
that presents a likely risk that such proceedings will be instituted.
(n) Labor Matters. Except as set forth in Section 4.2(n) of the WRI
Disclosure Schedule or the WRI SEC Documents, to the extent related to the Gas
Business:
(1) Neither WRI nor any of the Transferred Subsidiaries is a party to, or
bound by, any collective bargaining agreement or other current labor
agreement with any labor union or organization, and there is no current
union representation question involving employees of WRI relating to the
Gas Business or any of the Transferred Subsidiaries, nor does WRI or the
Transferred Subsidiaries have knowledge of any activity or proceeding of
any labor organization (or representative thereof) or employee group (or
representative thereof) to organize or threaten to organize any such
employees;
(2) There is no unfair labor practice charge or grievance arising out of
a collective bargaining agreement or other grievance procedure against WRI
relating to the Gas Business or any of the Transferred Subsidiaries
pending, or, to the knowledge of WRI or any of the Transferred
Subsidiaries, threatened, that would have a Material Adverse Effect on the
Gas Business;
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(3) There is no strike, dispute, slowdown, work stoppage or lockout
pending, or, to the knowledge of WRI or any of the Transferred
Subsidiaries, threatened, against or involving WRI with respect to the Gas
Business and/or any of the Transferred Subsidiaries that would have a
Material Adverse Effect on the Gas Business; and
(4) WRI and the Transferred Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that would not have a Material Adverse
Effect on the Gas Business.
(o) Intangible Property. WRI and the Transferred Subsidiaries possess or
have adequate rights to use all trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of the Gas Business, except
where the failure to possess or have adequate rights to use such properties
would not have a Material Adverse Effect on the Gas Business.
(p) Environmental Matters.
(1) Compliance.
To the extent related to the Gas Business,
a. To the actual knowledge of the executive officers of WRI and the
officer or employee of WRI with responsibility for environmental
matters, after due inquiry, except as set forth in the WRI SEC
Documents or Section 4.2(p)(1)(a) of the WRI Disclosure Schedule, WRI
and each of the Transferred Subsidiaries is in compliance with all
applicable Environmental Laws, except where the failure to be so in
compliance would not have a Material Adverse Effect on the Gas
Business.
b. To the actual knowledge of the executive officers of WRI and the
officer or employee of WRI with responsibility for environmental
matters, after due inquiry, except as set forth in the WRI SEC
Documents or Section 4.2(p)(1)(b) of the WRI Disclosure Schedule,
neither WRI nor any of the Transferred Subsidiaries have received any
Environmental Claim from any person or Governmental Entity that alleges
that WRI or any of the Transferred Subsidiaries is not in compliance
with applicable Environmental Laws, except where the failure to be so
in compliance would not have a Material Adverse Effect on the Gas
Business.
c. Except as set forth in Section 4.2(p)(1)(c) of the WRI Disclosure
Schedule, to the actual knowledge of the executive officers of WRI and
the officer or employee of WRI with responsibility for environmental
matters, after due inquiry, neither WRI nor any of the Transferred
Subsidiaries has used any waste disposal site, or otherwise disposed
of, transported, or arranged for the transportation of, any Hazardous
Materials to any place or location, in violation of any Environmental
Laws.
(2) Environmental Permits. To the actual knowledge of the executive
officers of WRI and the officer or employee of WRI with responsibility for
environmental matters, after due inquiry, except as set forth in the WRI
SEC Documents or Section 4.2(p)(2) of the WRI Disclosure Schedule, WRI with
respect to the Gas Business has, and the Transferred Subsidiaries have,
obtained or applied for all Environmental Permits necessary for the
construction of their facilities and the operation of their respective
businesses, as presently conducted, and for the use, storage, treatment,
transportation, release, emission and disposal of raw materials, by-
products, wastes and other substances used or produced by or otherwise
relating to the Gas Business, and all such permits are in good standing and
in all material respects in full force and effect or, where applicable, a
renewal application has been timely filed, is pending and agency approval
is expected to be obtained, and WRI, with respect to the Gas Business, is
and the Transferred Subsidiaries are in compliance in all material respects
with all terms and conditions of all such Environmental Permits and are not
required to make any expenditure in order to obtain or renew any
Environmental Permits necessary for the operation of the Gas Business, as
presently conducted, except where the failure to obtain or be in compliance
with such Environmental Permits and the requirement to make such
expenditures would not have a Material Adverse Effect on the Gas Business.
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(3) Environmental Claims. To the actual knowledge of the executive
officers of WRI and the officer or employee of WRI with responsibility for
environmental matters, after due inquiry, except as set forth in the WRI
SEC Documents or Section 4.2(p)(3) of the WRI Disclosure Schedule, there is
no Environmental Claim pending or, to the actual knowledge of the executive
officers of WRI and the officer or employee of WRI with responsibility for
environmental matters, threatened
a. against WRI relating to the Gas Business, or any of the
Transferred Subsidiaries,
b. against any person or entity whose liability for such
Environmental Claim WRI in connection with the Gas Business or any of
the Transferred Subsidiaries has retained or assumed either
contractually or by operation of law, or
c. against any real or personal property or operations that WRI,
relating to the Gas Business, or any of the Transferred Subsidiaries
owns, leases or manages, in whole or in part,
that, in the case of a, b or c, if adversely determined, would have a
Material Adverse Effect on the Gas Business.
(4) Releases. To the actual knowledge of the executive officers of WRI
and the officer or employee of WRI with responsibility for environmental
matters, after due inquiry, except as set forth in Section 4.2(p)(4) of the
WRI Disclosure Schedule or the WRI SEC Documents, and except for Releases
of Hazardous Materials the liability for which would not have a Material
Adverse Effect on the Gas Business, with respect to the Gas Business,
neither WRI, with respect to the Gas Business, nor any of the Transferred
Subsidiaries has caused any Release of any Hazardous Materials at any place
or property, including but not limited to, properties owned, leased or
occupied by WRI or any of the Transferred Subsidiaries or any predecessor
of WRI or any of the Transferred Subsidiaries, nor has it transported or
arranged for the transportation of any Hazardous Materials to any place or
property where a Release has occurred or allegedly has occurred, where such
transportation or arrangement has had, or would have, a Material Adverse
Effect on the Gas Business.
(5) Underground Storage Tanks or Surface Impoundments. To the actual
knowledge of the executive officers of WRI and the officer or employee of
WRI with responsibility for environmental matters, after due inquiry,
except as set forth in Section 4.2(p)(5) of the WRI Disclosure Schedule,
with respect to the Gas Business, there are no underground storage tanks or
surface impoundments at, on, under or within any of real property owned,
leased or occupied by WRI or any of the Transferred Subsidiaries, or any
portion thereof, other than those liabilities which would not have a
Material Adverse Effect on the Gas Business.
(q) Contracts and Certain Obligations.
(1) Except as set forth in Section 4.2(q)(1) of WRI's Disclosure
Schedule, neither WRI nor any of the Transferred Subsidiaries is a party to
or bound by any Material Contract with respect to the Gas Business. Except
as set forth in Section 4.2(q)(1) of the WRI Disclosure Schedule, all
Material Contracts relating to the Gas Business are in full force and
effect, and each of WRI and the Transferred Subsidiaries which is a party
to or bound by such Material Contract has performed its obligations
thereunder as of the Original Execution Date and, to the knowledge of WRI
and the Transferred Subsidiaries, each other party thereto has performed
its obligations thereunder as of the Original Execution Date, other than
any failure of a Material Contract to be in full force and effect or any
nonperformance thereof that would not have a Material Adverse Effect on the
Gas Business.
(2) With respect to the Gas Business, neither WRI nor any of the
Transferred Subsidiaries engages in any natural gas or other futures or
options trading or is a party to any price swaps, hedges, futures or
similar instruments, except for transactions and agreements entered into or
hedge contracts for the purchase or sale of hydrocarbons to which WRI with
respect to the Gas Business or any of the Transferred Subsidiaries is a
party which are commercially reasonable and in accordance with the general
practices of other similarly situated companies in the industry.
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(3) With respect to the Gas Business, neither WRI nor any of the
Transferred Subsidiaries have been given notice of any default under, or
action to alter, terminate, rescind or procure a judicial reformation of,
any material provisions of any Material Contract relating to the Gas
Business.
(4) (i) Section 4.2(q)(4)(i) of the WRI Disclosure Schedule sets forth a
list of (a) all gas purchase contracts which are Material Contracts (b) all
gathering, exchange and transportation contracts which are Material
Contracts, and (c) all other contracts relating to Gas supply and
transportation which are Material Contracts, in each case, to the extent
WRI or any of the Transferred Subsidiaries is a party thereto and to the
extent to which they relate to the Gas Business (collectively, the "WRI Gas
Contracts"); (ii) Except as set forth in Section 4.2(q)(4)(ii) of the WRI
Disclosure Schedule, (a) all WRI Gas Contracts which relate to the Gas
Business have been approved or reviewed by the KCC, to the extent such
approval or review is required, (b) all costs under the WRI Gas Contracts
which relate to the Gas Business are currently being passed through to the
customers and (c) neither WRI nor any of the Transferred Subsidiaries has
any reason to believe that (a) and (b) will not continue in the future.
(r) Regulatory Proceedings. Except as set forth in the WRI SEC Documents or
Section 4.2(r) of the WRI Disclosure Schedule and other than purchase gas
adjustment provisions, no portion of the Gas Business in relation to which all
or part of the rates or services are regulated by a Governmental Entity (i)
has rates which have been or are being collected subject to refund, pending
final resolution of any rate proceeding pending before a Governmental Entity
or on appeal to the courts or (ii) is a party to any rate proceeding before a
Governmental Entity or on appeal from orders of a Governmental Entity which
could result in orders having a Material Adverse Effect on the Gas Business.
(s) Regulation as a Utility .
(1) WRI is an exempt Holding Company under Section 3(a) of the 1935 Act
and as such is exempt from all provisions of the 1935 Act except Section
9(a)(2) thereof.
(2) The Gas Business of WRI is regulated as a public utility in the
States of Kansas and Oklahoma and in no other states. MCMC is a regulated
utility in the State of Kansas.
(t) Opinion of Financial Advisor. The Board of Directors of WRI has received
the opinion of Salomon Brothers Inc ("Salomon") to the effect that, as of the
date on which the Board of Directors of WRI approved the Transactions, the
Transactions are fair to WRI from a financial point of view.
(u) Title to Properties.
(1) WRI with respect to the Gas Business and the Transferred
Subsidiaries, individually or together, have good and sufficient title to
all of the Assets that they purport to own, including all of the properties
and assets reflected in the balance sheet as of September 30, 1996,
included in the Consolidated Financial Information of the Gas Business and
all properties and assets purchased or otherwise acquired since September
30, 1996. Such assets are sufficient to enable WRI with respect to the Gas
Business and the Transferred Subsidiaries to conduct the Gas Business as
currently conducted without material interference, and, at the Closing,
will be free and clear of Liens, other than Permitted Liens. WRI, with
respect to the Gas Business, and the Transferred Subsidiaries, individually
or together, hold under valid lease agreements all real and personal
properties which constitute part of the Assets or are reflected in the
Consolidated Financial Information of the Gas Business as being held under
capitalized leases and enjoy 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 financial information. Neither WRI, with respect to the Gas
Business, nor any of the Transferred Subsidiaries, nor any of their
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 Gas Business.
(2) With respect to the Gas Business, neither WRI nor any of the
Transferred Subsidiaries is in violation of the terms of any Easement
except any such violations that, individually or in the aggregate,
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would not have a Material Adverse Effect on the Gas Business. Except as
would not have a Material Adverse Effect on the Gas Business, all Easements
in favor of the Gas Business are valid and enforceable and grant the rights
purported to be granted thereby and all rights necessary thereunder for the
operation of the Gas Business. Except as would not have a Material Adverse
Effect on the Gas Business, to the knowledge of WRI, there are no spatial
gaps in the Easements in favor of the Gas Business that would have a
Material Adverse Effect on the Gas Business and all parts of the pipeline
assets which constitute a portion of the Assets are located either on
property which is owned in fee by WRI or the Transferred Subsidiaries or on
property which is subject to an Easement in favor of WRI or a Transferred
Subsidiary.
(v) Condition of Assets. To the knowledge of WRI and the Transferred
Subsidiaries, the buildings, plants, structures, and equipment of WRI relating
to the Gas Business and the Transferred Subsidiaries 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.
(w) Accounts Receivable. All Accounts Receivable with respect to the Gas
Business represent or will represent, as of the Closing, valid obligations
arising from sales actually made or services actually performed in the
ordinary course of business of WRI with respect Gas Business and of the
Transferred Subsidiaries. Unless paid prior to the Closing, the Accounts
Receivable relating to the Gas Business are or will be, as of the Closing,
collectible, subject only to allowance for doubtful accounts, and calculated
consistently with past practice. There is no contest, claim or right of set-
off, under any contract or with any obligor of an Account Receivable relating
to the Gas Business relating to the amount or validity of such Account
Receivable which would have a Material Adverse Effect on the Gas Business.
(x) Beneficial Ownership of ONEOK Common Stock. Neither WRI nor any of its
Subsidiaries "beneficially owns" (as defined in Rule 13d-3 under the Exchange
Act) any of the outstanding ONEOK Common Stock or ONEOK Preferred Stock.
(y) Brokers. Except for the fees and expenses payable to Salomon, which fees
are reflected in its agreement with WRI and will be for the account of and
paid by WRI and not by NewCorp, no broker, investment banker or other person
is entitled to any broker's, finder's or other similar fee or commission in
connection with the negotiations leading to this Agreement or the consummation
of the Transactions and the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of WRI or any of the Transferred
Subsidiaries.
(z) Insurance. With respect to the Gas Business, WRI and the Transferred
Subsidiaries maintain insurance coverage as is customary for the industry in
which the Gas Business operates (taking into account the cost and availability
of such insurance). All such insurance policies are with reputable insurance
carriers. There are no claims pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or in respect of which such underwriters have reserved their rights,
except for claims that would not have a Material Adverse Effect on the Gas
Business. All premiums payable under all such policies have been paid and WRI
and the Transferred Subsidiaries have otherwise complied fully with the terms
and conditions of all such policies.
(aa) Business of NewCorp. Prior to the Closing, NewCorp shall not have
engaged in any business or incurred any liabilities, except as expressly
contemplated by this Agreement.
(ab) Intercompany Liabilities. Prior to the Closing, all liabilities of the
Transferred Subsidiaries to WRI and its Subsidiaries shall have been
discharged.
(ac) Related Party Transactions. With respect to the Gas Business, there are
no contracts, arrangements or transactions in effect between WRI or any of the
Transferred Subsidiaries, on the one hand, and any officer, director or 5%
stockholder of WRI, or any Affiliate or immediate family member of any of the
foregoing persons, on the other hand, except as set forth in Section 4.2(ac)
of the WRI Disclosure Schedule.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Conduct of Gas Business Pending the Merger. During the period from the
Original Execution Date and continuing until the Merger Effective Time, WRI
agrees as to itself and the Transferred Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, as provided in Section 5.1 of the
WRI Disclosure Schedule (each of which exceptions shall specifically identify
the relevant subsection hereof to which it relates) or to the extent that
ONEOK shall consent in writing, which consent will not be unreasonably
withheld or delayed):
(a) Ordinary Course. WRI and each of the Transferred Subsidiaries shall
carry on the Gas Business in the usual, regular and ordinary course in
substantially the same manner as conducted on the Original Execution Date and,
to the extent consistent therewith, shall use all commercially reasonable
efforts to preserve intact the present business organizations of the Gas
Business, keep available the services of the current officers and employees of
the Gas Business, and endeavor to preserve the relationships of the Gas
Business with customers, suppliers, distributors, creditors, lessors,
employees and business associates to the end that the goodwill and ongoing
business of the Gas Business shall not be impaired in any material respect at
the Merger Effective Time.
(b) Changes in Stock. WRI shall not permit Westar or MCMC to (i) split,
combine or reclassify any of the outstanding shares of capital stock of Westar
or MCMC or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of capital stock of
Westar or MCMC or pay or declare any dividends; or (ii) repurchase, redeem or
otherwise acquire, any shares of the capital stock of Westar or MCMC.
(c) Issuance of Securities. Except for the issuance of capital stock as
contemplated by Article III hereof, NewCorp shall not issue, deliver, pledge,
dispose of, encumber or sell, or authorize or propose to issue, deliver,
pledge, dispose of, encumber or sell, any shares of its capital stock of any
class, or other voting securities of NewCorp or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, or other
voting securities or convertible securities.
(d) No Acquisitions. Except as provided for in Article I of this Agreement,
WRI shall not, and it shall not permit any of the Transferred Subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by purchasing
an equity interest in or a portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof in the local natural gas distribution
business in the States of Kansas, Missouri or Oklahoma which will form a part
of the Assets with an aggregate book value of $6,500,000 or more.
(e) No Dispositions. Other than dispositions in the ordinary course of
business consistent with past practice that are not material to the Gas
Business and other dispositions with an aggregate of inventory and equipment
book value not to exceed $6,500,000, WRI shall not, and it shall not permit
any of the Transferred Subsidiaries to, sell, lease, encumber or otherwise
dispose of, or agree to sell, lease (whether such lease is an operating or
capital lease), encumber or otherwise dispose of, any of the Assets.
(f) No Dissolution, Etc. NewCorp shall not authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of NewCorp.
(g) Certain Employee Matters. Except as specified in Section 5.1(g) of the
WRI Disclosure Schedule, as required by collective bargaining agreements, as
may be required by applicable law or as expressly contemplated by this
Agreement, including Section 5.1(c) hereof, WRI, with respect to employees of
the Gas Business, shall not, nor shall it permit any of the Transferred
Subsidiaries with respect to employees of the Gas Business, other than in the
ordinary course of business that, in the aggregate, does not result in a
material increase in benefits or compensation expense to the Gas Business, to:
(1) amend, or increase the amount of (or accelerate the payment or
vesting of) any benefit or amount payable under, any employee benefit plan
or any other contract, agreement, commitment, arrangement, plan
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or policy providing for compensation or benefits to any current or former
officer or employee, and maintained by, contributed to or entered into by,
WRI or any of the Transferred Subsidiaries with respect to employees of the
Gas Business;
(2) 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 current or former officer or employee, 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 the Gas Business;
(3) adopt, establish or implement any plan, policy or other arrangement
providing for any form of benefits or other compensation to any current or
former officer or employee;
(4) enter into or amend any employment agreement, severance agreement, or
other contract, agreement or arrangement with any current or former officer
or employee; or
(5) pay or agree to pay any pension, retirement allowance or other
benefit not required or contemplated by any of the existing WRI Benefit
Plans as in effect on the Original Execution Date to any current or former
officer or employee.
(h) Leases; Capital Expenditures. With respect to the Gas Business, WRI
shall not, nor shall WRI permit any of the Transferred Subsidiaries to, (i)
except in the ordinary course of business, enter into any lease (whether such
lease is an operating or capital lease) or (ii) incur Liens on the Assets,
other than Permitted Liens, or (iii) make or commit to make capital
expenditures outside the ordinary course of business or in excess of budgeted
amounts previously disclosed to ONEOK, except to the extent necessary to meet
applicable legal or regulatory requirements or to maintain the safety of the
operations.
(i) Affiliate Transactions. WRI shall not, nor shall it permit any of the
Transferred Subsidiaries to, enter into any agreement or arrangement with
respect to the Gas Business with any of their respective Affiliates (as such
term is defined in Rule 405 under the Securities Act, an "Affiliate"), on
terms materially less favorable to the Gas Business than could be reasonably
expected to have been obtained with an unaffiliated third party on an arm's-
length basis.
(j) Rate Matters. Except as required by statute, regulation or judicial rule
or order, with respect solely to the Gas Business, WRI shall not, and shall
not permit any of the Transferred Subsidiaries to, make any filing with any
Governmental Entity regarding any changes in rates or charges (other than
pass-through fuel and gas rates or charges under existing tariffs or rate
schedules), standards of service, accounting, or the services provided by the
Gas Business (or any amendment thereto).
(k) Contracts. With respect to the Gas Business, WRI shall not, nor shall it
permit any of the Transferred Subsidiaries 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 it or any of the Transferred Subsidiaries is a party or
waive, release or assign any material rights or claims. With respect to the
Gas Business, WRI shall not, nor shall it permit any of the Transferred
Subsidiaries to, enter into any contract involving total consideration of
$10,000,000 or more, with a term longer than one year which is not terminable
by WRI or any such Transferred Subsidiary without penalty upon no more than 90
days' prior notice.
(l) Insurance. WRI shall, and shall cause the Transferred Subsidiaries to,
maintain with financially responsible insurance companies insurance with
respect to the Gas Business, in such amounts and against such risks and losses
as are consistent with the past practices of WRI.
(m) Permits. WRI shall, and shall cause the Transferred Subsidiaries to, use
reasonable efforts to maintain in effect all existing WRI Permits which are
material to the operations of the Gas Business.
(n) Tax Matters. WRI shall not and shall not permit any of the Acquired
Subsidiaries to (i) make or rescind any material express or deemed election
relating to Taxes with respect to the Gas Business, unless it is
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reasonably expected that such action will not adversely affect the Gas
Business, including elections for any and all joint ventures, partnerships,
limited liability companies, working interests or other investments, (ii)
settle or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes with
respect to the Gas Business, except where such settlement or compromise will
not adversely affect the Gas Business, or (iii) change in any material respect
any of the methods utilized by the Gas Business in reporting income or
deductions for federal income tax purposes, except as may be required by
applicable law or except for such changes that are reasonably expected not to
adversely affect the Gas Business.
(o) Discharge of Liabilities. With respect to the Gas Business, WRI shall
not, nor shall it permit any of the Transferred 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 Consolidated
Financial Information of the Gas Business, or incurred in the ordinary course
of business consistent with past practice.
(p) Other Actions. WRI shall not, and shall not permit any of the
Transferred Subsidiaries to, take or fail to take any other action which would
reasonably be expected to prevent or materially impede, interfere with or
delay the Merger or the Transactions or the other transactions contemplated by
this Agreement, the Ancillary Documents, or the Transfer Documents.
(q) Agreements. WRI shall not, nor shall it permit any of the Transferred
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with the foregoing.
(r) Business of NewCorp. WRI shall not permit NewCorp 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 the Ancillary Documents.
(s) Shareholder Agreement. Immediately prior to the Closing, WRI and NewCorp
shall enter into the Shareholder Agreement, in the form attached hereto as
Exhibit C (the "Shareholder Agreement").
(t) Rights Agreement. WRI shall use best efforts to take or cause to be
taken, all actions and to do or cause to be done, all things necessary to
adopt the NewCorp Rights Agreement.
(u) Material Information. With respect to the Gas Business, without limiting
other obligations imposed by this Agreement, WRI will use best efforts to keep
ONEOK informed of any material business developments of WRI and the
Transferred Subsidiaries, including but not limited to significant Gas
contracts, material acquisitions and dispositions.
(v) Intercompany Liabilities. WRI will use best efforts to take or cause to
be taken, all actions and to do or cause to be done, all things necessary to
discharge any liabilities of the Transferred Subsidiaries to WRI or its other
Subsidiaries prior to Closing.
5.2 Certain Restrictions in Respect of ONEOK. During the period from the
Original Execution Date and continuing until the Merger Effective Time, ONEOK
agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, as provided in Section 5.2 of the
ONEOK Disclosure Schedule (each of which exceptions shall specifically
identify the relevant subsection hereof to which it relates) or to extent that
WRI shall otherwise consent in writing):
(a) Changes in Stock. ONEOK shall not (i) engage in any repurchase,
recapitalization, restructuring, redemption, other acquisition or
reorganization with respect to its capital stock, including, without
limitation, by way of any extraordinary dividends on or other extraordinary
distributions in respect of any of its capital stock, (ii) split, combine or
reclassify any of the outstanding shares of capital stock of ONEOK or issue,
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock
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of ONEOK, or (iii) amend any material term or provision of the ONEOK Common
Stock or ONEOK Preferred Stock. Notwithstanding the foregoing, ONEOK shall
have the right to cause the ONEOK Preferred Stock to be redeemed or
repurchased at any time prior to the Merger Effective Time pursuant to Section
5.2(d) hereof, provided that the aggregate redemption or repurchase price
shall not exceed the redemption price required to be paid under the ONEOK
Certificate of Incorporation upon such redemption.
(b) Governing Documents; Other Material Transactions. ONEOK shall not amend
or propose to amend its articles of incorporation or bylaws, as amended
through the Original Execution Date. ONEOK shall not effect any transactions
which if effected after Closing would constitute a "Change of Control" as
defined in Section 1.1 of the Shareholder Agreement. For any matter that is
being presented to the Board of Directors of ONEOK, other than with respect to
an Acquisition Proposal and the enforcement or interpretation by ONEOK of its
rights under the Agreement or the Ancillary Documents, ONEOK shall (i) provide
written notice to WRI 10 days prior to the time of such presentation or, if
not possible, at the same time that the Board of Directors will receive such
notice and (ii) deliver to WRI any written materials to be provided to the
Board of Directors of ONEOK at the same time they are provided to the members
of the Board of Directors of ONEOK relating thereto and, if not possible,
prior to the applicable meeting of the Board of Directors.
(c) Other Actions. ONEOK shall not, and shall not permit any of its
Subsidiaries to, take or fail to take any other action which would reasonably
be expected to prevent or materially impede, interfere with or delay the
Transactions or the other transactions contemplated hereby or by the Ancillary
Documents.
(d) Rights; Redemption of Capital Stock. ONEOK shall (i) cause the rights
contemplated by the ONEOK Rights Agreement to be redeemed prior to the Merger
Effective Time and (ii) repurchase or redeem all of the outstanding shares of
the ONEOK Preferred Stock with the result that the holders of the ONEOK
Preferred Stock will not have the right to vote on the Merger.
(e) Material Information. Without limiting other obligations imposed by this
Agreement, ONEOK will use its best efforts to keep WRI informed of any
material business developments, including but not limited to significant Gas
contracts, material acquisitions and dispositions.
(f) Other Agreements. Prior to Closing, ONEOK and its Subsidiaries will use
their best efforts, take or cause to be taken all actions and do or cause to
be done all things necessary, to enter into the Shared Services Agreement and
the Marketing Agreement.
(g) Agreements. ONEOK shall not agree, nor shall it permit any of its
Subsidiaries to agree, in writing or otherwise to take any action inconsistent
with the foregoing.
(h) Stock Options. ONEOK will not issue any ONEOK Options.
(i) ONEOK shall not issue any equity securities except in connection with
the acquisition, by merger or otherwise, of any third party or the assets of
any third party.
5.3 No Solicitation. (a) From and after the Original Execution Date, ONEOK
will not, and will not authorize or permit any of its officers, directors,
employees, investment bankers, attorney or agents and other representatives or
those of any of its Subsidiaries (collectively, "ONEOK Representatives") to,
directly or indirectly, solicit, initiate or encourage (including by way of
providing information to any prospective buyer) the making of any proposal
that constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal (as hereinafter defined) from any person or engage in any discussions
or negotiations or providing any non-public information or data with respect
thereto or otherwise cooperate with or assist or participate in, or facilitate
any effort or attempt to make or implement, any such proposal; provided,
however, that, notwithstanding any other provision of this Agreement, (i)
ONEOK's Board of Directors may take and disclose to ONEOK's stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act, and
(ii) prior to approval of this Agreement by ONEOK's stockholders and following
receipt from a third party (without any solicitation,
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initiation, encouragement, discussion or negotiation, directly or indirectly,
by or with ONEOK or any ONEOK Representatives) of an unsolicited bona fide
Acquisition Proposal, (x) ONEOK may engage in discussions or negotiations with
such third party and/or may furnish such third party information concerning
ONEOK and its business, properties and assets if such third party executes a
confidentiality agreement in favor of ONEOK and (y) the Board of Directors of
ONEOK may withdraw, modify or not make its recommendation referred to in
Section 6.5. In the event ONEOK or the Board of Directors of ONEOK takes any
of the actions specified in clauses (x) or (y) of the immediately preceding
sentence, WRI shall be notified of the taking of such action contemporaneously
with the taking of such action and the provisions of Section 6.19 shall
thereupon terminate without any further action on the part of WRI or ONEOK.
(b) ONEOK shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by ONEOK or any ONEOK Representatives
with respect to any Acquisition Proposal existing on the Original Execution
Date.
(c) As used in this Agreement, "Acquisition Proposal" means any proposal or
offer, other than the Merger, for, or that could be reasonably expected to
lead to, a tender or exchange offer, a merger, consolidation or other business
combination involving ONEOK or any proposal to acquire in any manner a
substantial equity interest in, or any substantial portion of, the assets of
ONEOK.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Form S-4 and the Proxy Statement. As promptly as
practicable after the Amendment Date, ONEOK shall prepare and file with the
SEC the Proxy Statement and WRI shall prepare and file with the SEC the Form
S-4, in which the Proxy Statement will be included as a prospectus. WRI shall
use its best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after filing. ONEOK shall use its
best efforts to cause the Proxy Statement to be mailed to the shareholders of
ONEOK at the earliest practicable date. WRI shall use its best efforts to
obtain all necessary state securities laws or "blue sky" permits, approvals
and registrations in connection with the issuance of NewCorp Common Stock and,
if applicable, Series A NewCorp Convertible Preferred Stock and Series B
NewCorp Convertible Preferred Stock ("NewCorp Preferred Stock"), in the Merger
and shall furnish all information concerning ONEOK and the holders of ONEOK
Common Stock as may be reasonably requested in connection with obtaining such
permits, approvals and registrations. ONEOK shall bear 55% and WRI shall bear
45% of the final cost of preparing and filing the Form S-4 and requisite
financial statements filed with the Form S-4 and all other filings required to
be made under the Securities Act and the Exchange Act, including, without
limitation, the Consolidated Financial Information of the Gas Business. Upon
the consummation of the Merger, the Surviving Corporation shall reimburse WRI
in full for that portion of the expenses borne by WRI as contemplated by this
Section 6.1 (other than the fees and expenses of counsel and fees and expenses
payable to financial advisors).
6.2 Letter of ONEOK's Accountants. ONEOK shall use its best efforts to cause
to be delivered to NewCorp a letter of KPMG Peat Marwick, L.L.P., ONEOK's
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to WRI and ONEOK, in
form and substance reasonably satisfactory to WRI and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
6.3 Letter of WRI's Accountants. WRI shall use its best efforts to cause to
be delivered to ONEOK a letter of Arthur Andersen, L.L.P., WRI's public
accountants, dated a date within two business days before the date on which
the Form S-4 shall become effective and addressed to ONEOK and WRI, in form
and substance reasonably satisfactory to ONEOK and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
6.4 Access to Information. Upon reasonable notice, and in all events to the
extent reasonably related to the Transactions and the other transactions
contemplated by this Agreement and the Ancillary Documents, WRI
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and ONEOK shall each (and WRI shall cause the Transferred Subsidiaries and
ONEOK shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the other, access, during
normal business hours during the period prior to the Merger Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, each of WRI and ONEOK shall (and WRI shall cause the Transferred
Subsidiaries and ONEOK shall cause its Subsidiaries to) furnish promptly to
the other (a) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to SEC
requirements and (b) all other information concerning its business, properties
and personnel as such other party may reasonably request. Each of WRI and
ONEOK agrees that it will not and will cause its respective representatives
not to, use any information obtained pursuant to this Section 6.4 for any
purpose unrelated to the consummation of the Transactions and the other
transactions contemplated by this Agreement and the Ancillary Documents. The
Confidentiality Agreement dated June 17, 1996 between WRI and ONEOK (the
"Confidentiality Agreement") shall apply with respect to information furnished
thereunder or hereunder and any other activities contemplated thereby.
6.5 ONEOK Stockholders' Meeting. ONEOK shall (i) call a meeting of its
common stockholders (the "ONEOK Stockholders' Meeting") to be held as promptly
as possible after the Amendment Date for the purpose of voting upon this
Agreement and the Merger, (ii) through its Board of Directors, recommend to
its stockholders approval of such matters and, subject to the provisions of
Section 5.3, not rescind such recommendation, (iii) use its best efforts to
obtain approval and adoption of this Agreement and the Merger by its common
stockholders, and (iv) use all reasonable efforts to hold such meeting as soon
as practicable after the date upon which the Form S-4 becomes effective,
provided, however, that nothing herein obligates ONEOK to take any action that
would cause its Board of Directors to act inconsistently with their fiduciary
duties as determined by the Board of Directors of ONEOK in good faith. The
ONEOK Stockholders' Meeting shall be held on such date as soon as practicable
after the date upon which the Form S-4 becomes effective as ONEOK and WRI
shall mutually determine.
6.6 Regulatory and Other Approvals. (a) HSR Act. 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 their respective
"ultimate parent entities" within the meaning of the HSR Act under the HSR Act
and the rules and regulations promulgated thereunder with respect to the
Transactions and the other transactions contemplated hereby and by the
Ancillary Documents. Such parties will use all commercially reasonable efforts
to make such filing promptly 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 (and will
cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity required to be obtained or made by ONEOK, WRI or any of
their respective Subsidiaries in connection with the Transactions and the
other transactions contemplated by the Ancillary Documents and hereby or the
taking of any action contemplated thereby or by this Agreement, including
without limitation the ONEOK Required approvals and the WRI Required
Approvals. Each party shall have the right to review and approve in advance
(such approvals not to be unreasonably withheld based upon the economic
benefits expected to be realized by such party from the Transactions and the
other transactions contemplated by the Ancillary Documents and this Agreement)
all applications for approvals to be filed by the other party. Each party
shall consult with the other with respect to the obtaining of all such
necessary or advisable permits, consents, approvals and authorizations of
Governmental Authorities.
(c) Other Approvals. Each party hereto will, and will cause its Subsidiaries
to, take all commercially reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) all ONEOK Required Consents and all
WRI Required Consents, as the case may be.
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6.7 Authorization for Shares and Stock Exchange Listing. Prior to the Merger
Effective Time, WRI shall have caused NewCorp to take all action necessary to
permit it to issue the number of shares of NewCorp Common Stock required to be
issued pursuant to Sections 3.1 and 3.2. Prior to the Closing Date, WRI shall
cause NewCorp to take all reasonable efforts to cause the shares of NewCorp
Common Stock to be issued in the Merger and the shares of NewCorp Common Stock
to be reserved for issuance upon exercise of the ONEOK Options assumed by
NewCorp pursuant to Section 6.8 and issuances under the ONEOK Stock Plans to
be approved for listing on the NYSE, subject to official notice of issuance.
6.8 Stock Options. (a) At the Merger Effective Time, each outstanding ONEOK
Option, whether vested or unvested, shall be assumed by NewCorp. Each such
option shall be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under each ONEOK Option, a number of shares
of NewCorp Common Stock equal to the number of shares of ONEOK Common Stock as
the holder of such ONEOK Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior
to the Merger Effective Time, at a price per share equal to (y) the aggregate
exercise price for ONEOK Common Stock otherwise purchasable pursuant to such
ONEOK Option, divided by (z) the number of full shares of NewCorp Common Stock
deemed purchasable pursuant to such ONEOK Option. In no event shall NewCorp be
required to issue fractional shares of NewCorp Common Stock. In the case of
any option which is an "incentive stock option" (as defined in Section 422 of
the Code), the adjustments made pursuant to this subsection shall be and are
intended to be effected in a manner which is consistent with the requirements
of Section 424(a) of the Code.
(b) As soon as practicable after the Merger Effective Time, NewCorp shall
file with the SEC a registration statement on Form S-8 (or any successor form)
or another appropriate form with respect to the shares of NewCorp Common Stock
subject to the ONEOK Options assumed in accordance with this Section 6.8 and
shall use all commercially reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so
long as the ONEOK Options remain outstanding.
6.9 Agreement to Defend. In the event any claim, action, suit, investigation
or other proceeding by any governmental body or other person or other legal or
administrative proceeding is commenced that questions the validity or legality
of the Transactions and the other transactions contemplated hereby and by the
Ancillary Documents or seeks damages in connection therewith, the parties
hereto agree to cooperate and use their reasonable efforts to defend against
and respond thereto.
6.10 Public Announcements. WRI and ONEOK will consult with each other before
issuing any press release or otherwise making any public statements with
respect to the Transactions and the other transactions contemplated by this
Agreement and the Ancillary Documents, and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange or transaction reporting
system.
6.11 Other Actions. Except as contemplated by this Agreement, neither WRI
nor ONEOK shall, and none of them shall permit any of their respective
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of its respective representations or warranties
hereunder being untrue in any material respect or in any of the conditions to
the Merger set forth in Article VII not being satisfied, in each case as of
the Closing Date.
6.12 Advice of Changes; SEC Filings. WRI and ONEOK shall confer on a regular
basis with each other, report on operational matters and promptly advise each
other orally and in writing of any change or event having, or which, insofar
as can reasonably be foreseen, could have, a Material Adverse Effect on the
Gas Business or ONEOK, as the case may be. ONEOK and WRI shall promptly
provide each other (or their respective counsel) copies of all filings made by
such party with the SEC or any other Governmental Entity in connection with
this Agreement and the Transactions and the other transactions contemplated
hereby and by the Ancillary Documents.
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6.13 Reorganization. It is the intention of the parties hereto that the
Merger will qualify as a reorganization described in Section 368(a) of the
Code (and any comparable provisions of applicable state law) and the Asset
Transaction will qualify as a transfer described in Section 351 of the Code
(and any comparable provisions of applicable state law) and the parties will
so characterize the Merger and the Asset Transaction for the purpose of all
Returns and other filings. None of WRI, ONEOK nor NewCorp (nor any of their
respective Subsidiaries) will take or omit to take any action (whether before,
on or after the Closing Date) that would cause the Merger or the Asset
Transaction not to be so treated.
6.14 Disclosure Schedules. The ONEOK Disclosure Schedule and the WRI
Disclosure Schedule (collectively, the "Disclosure Schedules") are an integral
part of this Agreement and shall modify or otherwise affect the respective
warranties, covenants or agreements of the parties hereto contained in this
Agreement.
6.15 Preparation and Filing of Returns; Payment of Taxes. (a) WRI shall
include each of the Acquired Subsidiaries for all taxable periods of each of
the Acquired Subsidiaries ending on or before the Closing Date in any
consolidated, combined or unitary Income Tax Returns for which they are
eligible to do so. WRI shall cause to be timely prepared and filed all such
consolidated, combined or unitary Returns. NewCorp agrees to cooperate with
WRI and its Affiliates in the preparation of the portions of such Returns
pertaining to each of the Acquired Subsidiaries. For purposes of this Section
6.15(a), WRI shall treat (and shall cause each of the Acquired Subsidiaries to
treat) the Closing Date as the last date of the taxable period of each of the
Acquired Subsidiaries in which they shall be included in such Returns. WRI
shall cause to be timely paid all Taxes to which such Returns relate for all
periods covered by such Returns.
(b) WRI shall cause to be timely prepared and filed all required Income Tax
Returns of each of the Acquired Subsidiaries (other than those to be filed by
WRI pursuant to paragraph (a) of this Section 6.15) for any period which ends
on or before the Closing Date for which Income Tax Returns have not been filed
as of the Closing Date. WRI shall pay all Taxes to which such Returns relate
for all periods covered by such Returns (after taking into account any
estimated Taxes paid prior to the Closing).
(c) NewCorp shall cause to be timely prepared and filed, subject to review
by WRI, all required Income Tax Returns of NewCorp and each of the Acquired
Subsidiaries for any period which begins before and ends after the Closing
Date (a "Straddle Period") and shall cause to be paid all Taxes with respect
to the Returns to be caused to be filed by NewCorp pursuant to this Section
6.15(c). Such Taxes to be caused to be paid by NewCorp, to the extent
attributable to the portion of a Straddle Period ending on the Closing Date,
shall be referred to herein as "Pre-Closing Straddle Period Income Taxes."
Except to the extent taken into account as a Current Liability in the
calculation of the Closing Working Capital, WRI shall pay to NewCorp an amount
equal to the Pre-Closing Straddle Period Income Taxes due with respect to any
such Returns caused to be filed by NewCorp (after taking into account any
estimated Taxes paid prior to the Closing). Such Pre-Closing Straddle Period
Income Taxes shall be calculated as though the taxable year of NewCorp and
each of the Acquired Subsidiaries terminated at the close of business on the
Closing Date; provided, however, that, in the case of a franchise Tax not
based on income, sales, receipts, or other transactions, Pre-Closing Straddle
Period Income Taxes shall be equal to the amount of franchise Tax for the
taxable year which would have been imposed if such Tax were determined based
on the assets and liabilities of NewCorp and each of the Acquired Subsidiaries
(as applicable) as of the Closing, multiplied by a fraction, the numerator of
which shall be the number of days from the beginning of the taxable year
through the Closing Date and the denominator of which shall be the number of
days in the taxable year. Any amounts owed by WRI to NewCorp pursuant to this
Section 6.15(c) shall be paid by WRI within five days of NewCorp's request
therefor or five days prior to the date on which NewCorp is required to cause
to be paid the related Tax liability, whichever is later.
(d) To the extent permitted by applicable Law, all Returns prepared pursuant
to this Section 6.15 shall be prepared in all material respects, and all
elections with respect to such Returns shall be made, consistent with prior
practice with respect to each of the Acquired Subsidiaries, except as may be
mutually agreed by NewCorp and WRI.
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(e) NewCorp shall, with the assistance of WRI, prepare and file or cause to
be prepared and filed all Returns with respect to Taxes described in Section
1.8.
6.16 Access to Information. From and after the Closing:
(a) WRI and each of its Affiliates shall grant to the Surviving Corporation
(or its designees) access at all reasonable times to all of the information,
books and records relating to the Surviving Corporation and its Subsidiaries
within the possession of WRI or any of its Affiliates (including work papers
and correspondence with taxing authorities), shall afford to the Surviving
Corporation (or its designees) the right (at the Surviving Corporation's
expense) to take extracts therefrom and to make copies thereof, and shall
render other reasonable assistance, to the extent reasonably necessary to
permit the Surviving Corporation or any of its Affiliates (or its designees)
to prepare Returns, to conduct negotiations with Tax authorities, to fulfill
an obligation to any Governmental Authority imposed by law, regulation or
order and to implement the provisions of, or to investigate or defend any
claims between the parties arising under, this Agreement.
(b) The Surviving Corporation shall grant or cause its Subsidiaries to grant
to WRI or any of its Affiliates (or its designees) access at all reasonable
times to all of the information, books and records relating to the Gas
Business within the possession of the Surviving Corporation, or its
Subsidiaries (including work papers and correspondence with taxing
authorities), shall afford to WRI (or its designees) the right (at WRI's
expense) to take extracts therefrom and to make copies thereof, and shall
render other reasonable assistance, to the extent reasonably necessary to
permit WRI (or its designees) to prepare Returns, to conduct negotiations with
Tax authorities, to fulfill an obligation to any Governmental Authority
imposed by law, regulation or order and to implement the provisions of, or to
investigate or defend any claims between the parties arising under, this
Agreement or otherwise.
(c) Each of the parties hereto will preserve and retain all schedules, work
papers and other documents relating to any Returns of or with respect to the
Gas Business or to any claims, audits or other proceedings affecting the Gas
Business until the expiration of the statute of limitations (including
extensions) applicable to the taxable period to which such documents relate or
until the final determination of any controversy with respect to such taxable
period, and until the final determination of any payments that may be required
with respect to such taxable period under this Agreement.
(d) Notwithstanding the foregoing provisions of this Section, neither the
Surviving Corporation nor WRI shall be required to grant or cause to be
granted to the other access to information, books and records or to furnish
extracts or copies thereof if such information, books and records also include
information regarding such party or any of its Affiliates unrelated to the Gas
Business. In such circumstances, such party shall either (i) provide
appropriately detailed summaries of the information contained therein, or (ii)
in providing extracts or copies thereof, redact the information relating to
such party or its Affiliates unrelated to the Gas Business.
(e) The information received by a party pursuant to this Section shall be
treated as if it were "Evaluation Material," and the receiving party hereunder
were the receiving party, under the Confidentiality Agreement.
6.17 Non-Competition. (a) In order to induce ONEOK to enter into this
Agreement, WRI covenants and agrees that from the Closing Date until the fifth
(5th) anniversary of the Closing Date, it shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly,
(i) own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing, of, or be connected
as a partner, principal, agent, representative, consultant or otherwise
with, or use or permit its name to be used in connection with, any local
natural gas distribution business or enterprise in the States of Kansas,
Oklahoma, or Missouri; or
(ii) solicit any contracts or business relationships involving local
natural gas distribution in the States of Kansas, Oklahoma, or Missouri.
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Notwithstanding the foregoing, nothing in this Section 6.17 shall prohibit
WRI or its Subsidiaries from: (A) acquiring and retaining any entity which
engages (at the time of such acquisition or thereafter) in one or more
business(es) which compete(s) with the Surviving Corporation in the business
of local natural gas distribution in the States of Kansas, Oklahoma and/or
Missouri, provided that the assets of such competing business(es) do not
constitute more than 20% of the consolidated assets of such acquired entity at
the time of such acquisition (or thereafter, during the term of this
Agreement); or (B) acquiring, in the aggregate, "beneficial ownership" (as
defined under the Exchange Act) of not more than 20% of any class of publicly-
traded equity securities or any profit or loss interest in any publicly-held
entity which competes with the Surviving Corporation in the business of local
natural gas distribution, in the States of Kansas, Oklahoma and/or Missouri.
(b) If any part of the restrictions set forth in Section 6.17(a) should, for
any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restriction shall not thereby be adversely affected and shall be enforced to
the full extent permitted by law. If any of such restrictions are deemed to be
unreasonable by a court of competent jurisdiction, then WRI shall submit to
the reduction or modification thereof as said court deems reasonable.
(c) The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of Section 6.17, Section 6.18, Section 6.19
or Section 6.20 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 Section
6.17, Section 6.18 or Section 6.19 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
6.18 Use of Name. From and after the Closing, neither WRI nor any of its
Subsidiaries shall use the name "Mid Continent Market Center," or any similar
name.
6.19 Standstill. WRI agrees that, for the period from the Original Execution
Date through the Closing, except as expressly contemplated by the Asset
Transaction or as permitted by this Agreement, including without limitation
Section 5.2(b) hereof, it shall not, and shall not permit any of its
Subsidiaries to, (a) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any securities or property of
ONEOK or any of its Subsidiaries, (b) except at the specific written request
of ONEOK, propose to enter into, directly or indirectly, any merger or
business combination involving ONEOK or any of its Subsidiaries or to
purchase, directly or indirectly, a material portion of the assets of ONEOK or
any of its Subsidiaries, (c) make, or in any way participate, directly or
indirectly, in any "solicitation" or "proxies" (as such terms are used in the
proxy rules of the SEC) to vote, or seek to advise or influence any person
with respect to the voting of, any voting securities of ONEOK or any of its
Subsidiaries, (d) form, join or in any way participate in a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any
voting security of ONEOK 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 ONEOK, (f) disclose any intention, plan or
arrangement inconsistent with the foregoing or (g) advise, assist or encourage
any other persons in connection with any of the foregoing. WRI also agrees
during such period not to (i) request ONEOK (or its directors, officers,
employees or agents), directly or indirectly, to amend or waive any provision
of this Section 6.19 (including this sentence), or (ii) take any action which
might require ONEOK to make a public announcement regarding the possibility of
a business combination or merger.
6.20 Control Share Acquisitions Provisions. At the earlier of NewCorp's
first annual meeting of its shareholders after the Merger Effective Time
(provided that the Merger Effective Time shall have occurred at least 60 days
prior to the annual meeting), or at a special meeting to be held no later than
120 days after the Merger Effective Time, NewCorp shall, through its Board of
Directors, propose and recommend and use its best efforts to obtain, approval
of an amendment (the "Opt-out Amendment") to the NewCorp Charter that provides
(i) that Sections 1145 through 1155 of Title 18 of the Oklahoma Statutes, as
the same may be amended (the "Control Share Acquisition Statute") shall not
apply to NewCorp as of a date no more than two days after the date of such
shareholders' meeting and (ii) that such Opt-out Amendment may be further
amended only by the affirmative vote of at least sixty-six and two-thirds per
cent (66 2/3%) of the voting power of all outstanding equity securities of New
ONEOK, voting as a class, and shall properly file the Opt-out Amendment, if so
approved, with the Secretary of State of Oklahoma pursuant to Section
1148(E)(1) of Title 18 of the Oklahoma Statutes.
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6.21 Further Assurances. Subject to the terms and conditions of this
Agreement, each of ONEOK and WRI shall use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Transactions and the other transactions
contemplated by this Agreement, including the satisfaction of the conditions
specified in Article VII of this Agreement. In case at any time after the
Merger Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all necessary actions to the extent not
inconsistent with their other duties and obligations or applicable law.
6.22 Insurance. To the extent reasonably requested by the Surviving
Corporation, at the direction and expense of the Surviving Corporation, WRI
will assist the Surviving Corporation in pursuing any claims under insurance
policies relating to the Gas Business and enforcing any claims or rights under
such policies.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Transactions. The
respective obligation of each party to consummate the Transactions and the
other transactions contemplated hereby and by the Ancillary Documents shall be
subject to satisfaction prior to the Closing Date of the following conditions:
(a) ONEOK Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a majority
of the outstanding votes of ONEOK Common Stock.
(b) NYSE Listing. The shares of NewCorp Common Stock issuable to ONEOK
shareholders pursuant to this Agreement and such other shares of NewCorp
Common Stock required to be reserved for issuance in connection with the
Merger shall have been authorized for listing on the NYSE upon official notice
of issuance.
(c) Other Approvals. The waiting period applicable to the consummation of
the Transactions and the other transactions contemplated by the Transfer
Documents, this Agreement and the Ancillary Documents shall have expired or
been terminated and all filings required to be made prior to the relevant
Merger Effective Time with, and all consents, approvals, permits and
authorizations required to be obtained prior to the relevant Merger Effective
Time from, any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the Transactions and the
other transactions contemplated hereby and by the Ancillary Documents by
ONEOK, WRI and NewCorp shall have been made or obtained (as the case may be),
except for such consents, approvals, permits and authorizations the failure of
which to be obtained would not, in the aggregate, be reasonably likely to
result in a Material Adverse Effect on ONEOK or the Gas Business or to
materially adversely affect the consummation of the Transactions and the other
transactions contemplated hereby and by the Ancillary Documents or the
economic and strategic benefits to be achieved by the party invoking these
conditions, and no such consent, approval, permit or authorization shall
impose terms or conditions that would have, or would be reasonably likely to
have, a Material Adverse Effect on ONEOK or the Gas Business.
(d) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, no order of any Governmental Entity having
jurisdiction over ONEOK, WRI or the Gas Business, and no other legal restraint
or prohibition shall be in effect (an "Injunction") preventing or making
illegal the consummation of the Transactions or the other transactions
contemplated hereby and by the Ancillary Documents; provided, however, that
prior to any party invoking this condition, such party shall have complied
fully with its obligations under Section 6.6.
(f) Shareholder Agreement; Other Agreements. The Shareholder Agreement shall
be executed and delivered by WRI and NewCorp. WRI and ONEOK, on behalf of
NewCorp, shall have entered into a Shared
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Services Agreement (the "Shared Services Agreement") relating to functions and
services where synergies can be achieved between the parties to avoid
unnecessary duplication of expenses and a Marketing Agreement (the "Marketing
Agreement") in form, scope and substance reasonably satisfactory to WRI and
ONEOK.
(g) 1935 Act. Receipt of an order of the SEC under Section 9(a)(2) of the
1935 Act authorizing the Merger and receipt of an order or no-action letter
from the SEC or its Staff that WRI will not be a holding company under Section
2(a)(7) of the 1935 Act and that NewCorp will not be a subsidiary company
under Section 2(a)(8) of the 1935 Act for the purposes of the 1935 Act as a
result of the Merger, in each case, not materially impairing the economic and
strategic benefits of the Transactions and the other transactions contemplated
by this Agreement to WRI or ONEOK.
7.2 Conditions of Obligations of WRI and NewCorp. The obligations of WRI and
NewCorp to consummate the Transactions and the other transactions contemplated
hereby and by the Ancillary Documents is subject to the of the following
conditions, any or all of which may be waived in whole or in part by WRI and
NewCorp.
(a) Representations and Warranties. Each of the representations and
warranties of ONEOK set forth in this Agreement shall be true and correct in
all material respects as of the Original Execution Date, the Amendment Date
and the Closing Date as if made on or as of each such date (except to the
extent any such representation or warranty speaks as of a specific date),
except where the failure to be so true and correct (without giving effect to
the individual materiality qualifications and thresholds otherwise contained
in Section 4.1 hereof) could not reasonably be expected to have a Material
Adverse Effect on ONEOK or as otherwise contemplated by this Agreement, and
WRI shall have received a certificate signed by the Chief Executive Officer
and the Chief Financial Officer of ONEOK to such effect.
(b) Performance of Obligations of ONEOK. ONEOK shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and WRI shall have received a
certificate signed on behalf of ONEOK by the Chief Executive Officer and the
Chief Financial Officer of ONEOK to such effect.
(c) Tax Opinion. WRI shall have received (x) either (i) an opinion of
Sullivan & Cromwell, counsel to WRI, in form and substance reasonably
satisfactory to WRI, dated the Closing Date, or (ii) a private letter ruling
from the IRS, in each case to the effect that, if the Asset Transaction is
consummated in accordance with the terms of this Agreement the Asset
Transaction will be treated for federal Income Tax purposes as a transfer
described in Section 351 of the Code and (y) the opinion of Fried, Frank,
Harris, Shriver & Jacobson delivered to ONEOK pursuant to Section 7.3(c), to
the effect that, if the Merger is consummated in accordance with the terms of
this Agreement, the Merger will be treated for federal Income Tax purposes as
a reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Sullivan & Cromwell may receive and rely upon
appropriate representations of fact, including facts contained in certificates
of WRI and ONEOK, which representations are in form and substance reasonably
satisfactory to such counsel.
(d) Required Consents. The ONEOK Required Consents and the WRI Required
Consents shall have been obtained, except for such ONEOK Required Consents or
WRI Required Consents the failure of which to be obtained would not have a
Material Adverse Effect on ONEOK or WRI, as the case may be.
(e) KCC Order. The KCC Order shall be in such form and substance and shall
cover such matters as shall be reasonably satisfactory to WRI.
(f) Pooling of Interests. WRI shall have received a letter from Arthur
Andersen, L.L.P., its independent public accountants (based on consultation
with the office of the Chief Accountant of the SEC) stating that, as a result
of the consummation of the Transactions and the other transactions
contemplated by this Agreement, WRI shall not be precluded from accounting for
any potential business combination between WRI and Kansas City Power & Light
Company as a "pooling of interests" as defined by Accounting Principles
Bulletin No. 16 (APB 16) regarding Accounting for Business Combinations and
SEC or SEC Staff interpretations thereunder.
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(g) OCC Order. The OCC Order shall be in such form and substance and shall
cover such matters as shall be reasonably satisfactory to WRI.
7.3 Conditions of Obligations of ONEOK. The obligation of ONEOK to effect
the Transactions and the other transactions contemplated hereby and by the
Ancillary Documents is subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by ONEOK:
(a) Representations and Warranties. Each of the representations and
warranties of WRI and NewCorp set forth in this Agreement shall be true and
correct in all material respects as of the Original Execution Date, the
Amendment Date and the Closing Date as if made on or as of each such date
(except to the extent any such representation or warranty speaks as of a
specific date), except where the failure to be so true and correct (without
giving effect to the individual materiality qualifications and thresholds
otherwise contained in Section 4.2 hereof) could not reasonably be expected to
have a Material Adverse Effect on the Gas Business or as otherwise
contemplated by this Agreement, and ONEOK shall have received a certificate
signed by the Chief Executive Officer and the Chief Financial Officer of WRI
to such effect.
(b) Performance of Obligations of NewCorp and WRI. Each of WRI and NewCorp
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
ONEOK shall have received a certificate signed on behalf of WRI by the Chief
Executive Officer and the Chief Financial Officer of WRI to such effect.
(c) Tax Opinion. ONEOK shall have received (x) an opinion of Fried, Frank,
Harris, Shriver & Jacobson, counsel to ONEOK, in form and substance reasonably
satisfactory to ONEOK, dated the Closing Date, to the effect that, if the
Merger is consummated in accordance with the terms of this Agreement, the
Merger will be treated for federal Income Tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and (y) either (i) the
opinion of Sullivan & Cromwell delivered to WRI pursuant to Section 7.2(c) or
(ii) a private letter ruling from the IRS, in each case to the effect that, if
the Asset Transaction is consummated in accordance with the terms of this
Agreement, the Asset Transaction will be treated for federal Income Tax
purposes as a transfer described in Section 351 of the Code, a copy of each of
which will be furnished to Donald A. Kihle of Arrington Kihle Gaberino & Dunn,
counsel to ONEOK. In rendering such opinion, Fried, Frank, Harris, Shriver &
Jacobson may receive and rely upon appropriate representations of fact,
including facts contained in certificates of NewCorp, WRI and ONEOK and
certain stockholders and members of management of ONEOK and NewCorp, which
representations are in form and substance reasonably satisfactory to such
counsel.
(d) Required Consents. The WRI Required Consents and the ONEOK Required
Consents shall have been obtained, except for such WRI Required Consents or
ONEOK Required Consents the failure of which to be obtained would not have a
Material Adverse Effect on the Gas Business or ONEOK, as the case may be.
(e) Asset Transaction. The Asset Transaction shall have been consummated
pursuant to this Agreement, the Ancillary Documents and the Transfer
Documents, which Transfer Documents shall be in form and substance reasonably
satisfactory to ONEOK.
(f) OCC Order. The OCC Order shall be in such form and substance and cover
such matters as shall be reasonably satisfactory to ONEOK.
(g) KCC Order. The KCC Order shall be in such form and substance and shall
cover such matters as shall be reasonably satisfactory to ONEOK.
ARTICLE VIII
EMPLOYEE AND EMPLOYEE MATTERS; ENVIRONMENTAL MATTERS
The terms of the Employee Agreement, in the form attached hereto as Exhibit
D (the "Employee Agreement") and the Environmental Indemnity Agreement, in the
form attached hereto as Exhibit E (the "Environmental Indemnity Agreement")
are hereby incorporated herein by reference as if fully set forth herein.
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ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Merger Effective Time, whether before or
after the matters presented in connection with the Merger have been approved
by the stockholders of ONEOK:
(a) by mutual written consent of ONEOK and WRI or by mutual action of their
respective Boards of Directors;
(b) by either ONEOK or WRI if (i) any Governmental Entity shall have issued
any Injunction or taken any other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the Transactions or the other
transactions contemplated by this Agreement and the Ancillary Documents and
such Injunction or other action shall have become final and nonappealable; or
(ii) the ONEOK Stockholders' Approval shall not have been obtained by reason
of the failure to obtain the required vote upon a vote held at the ONEOK
Stockholders' Meeting, or at any adjournment thereof;
(c) by either ONEOK or WRI if the Merger shall not have been consummated by
the first anniversary of the Original Execution Date (the "Initial Termination
Date"); provided, however, that the right to terminate this Agreement under
this Section 9.1(c) shall not be available to any party whose breach of any
representation or warranty or failure to fulfill any covenant or agreement
under this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date; and provided further, that if on the
Initial Termination Date the conditions to the Closing set forth in Section
7.1(d) shall not have been fulfilled but all other conditions to the Closing
shall have been fulfilled or shall be capable of being fulfilled, then the
Initial Termination Date shall be extended to June 30, 1998;
(d) by WRI if (i) for any reason ONEOK fails to call and hold the ONEOK
Stockholders' Meeting for the purpose of voting upon this Agreement and the
Merger by July 31, 1997 (provided that the right to terminate this Agreement
under this Section 9.1(d) shall not be available to WRI if (x) the Form S-4
shall not have been declared effective by the SEC at least 45 days prior to
the date of termination or (y) ONEOK would be entitled to terminate this
Agreement under Section 9.1(e)); (ii) ONEOK shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by ONEOK at or prior to such date
of termination (provided such breach has not been cured within 30 days
following receipt by ONEOK of notice of such breach and is existing at the
time of termination of this Agreement); (iii) any representation or warranty
of ONEOK contained in this Agreement shall not be true and correct in all
material respects when made or on or at the time of termination as if made on
such date of termination (except to the extent it relates to a particular
date) provided such breach has not been cured within 30 days following receipt
by ONEOK of notice of such breach and is existing at the time of termination
of this Agreement, except where the failure to be so true and correct (without
giving effect to the individual materiality qualifications and thresholds
otherwise contained in Section 4.1 hereof) could not reasonably be expected to
have a Material Adverse Effect on ONEOK; (iv) after the Original Execution
Date there has been any Material Adverse Change with respect to ONEOK; or (v)
any Governmental Entity shall have issued any Injunction or taken any other
action permanently imposing, prohibiting or compelling any of the limitations,
prohibitions or compulsions specified in Section 7.1(e) and such Injunction or
other action shall have become final and nonappealable;
(e) by ONEOK if (i) WRI or NewCorp shall have failed to comply in any
material respect with any of their covenants or agreements contained in this
Agreement to be complied with or performed by them at or prior to such date of
termination (provided such breach has not been cured within 30 days following
receipt by WRI and NewCorp of notice of such breach and is existing at the
time of termination of this Agreement); (ii) any representation or warranty of
WRI and/or NewCorp contained in this Agreement shall not be true and correct
in all material respects when made or on or at the time of termination as if
made on such date of termination (except
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to the extent it relates to a particular date) provided such breach has not
been cured within 30 days following receipt by WRI and NewCorp of notice of
such breach and is existing at the time of termination of this Agreement,
except where the failure to be so true and correct (without giving effect to
the individual materiality qualifications and thresholds otherwise contained
in Section 4.2 hereof) could not reasonably be expected to have a Material
Adverse Effect on the Gas Business; (iii) after the Original Execution Date
there has been any Material Adverse Change with respect to the Gas Business;
or (iv) any Governmental Entity shall have issued any Injunction or taken any
other action permanently imposing, prohibiting or compelling any of the
limitations, prohibitions or compulsions specified in Section 7.1(e) and such
Injunction or other action shall have become final and nonappealable.
9.2 Effect of Termination. (a) In the event of termination of this Agreement
by any party hereto as provided in Section 9.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of WRI,
NewCorp or ONEOK except (i) with respect to this Section 9.2, the second and
third sentences of Section 6.4, Section 9.3 and Article X, and (ii) a party
shall be liable to the extent that such termination results from the willful
breach by such party hereto of any of its representations or warranties or of
any of its covenants or agreements contained in this Agreement.
(b) If WRI or ONEOK terminates this Agreement pursuant to Section 9.1(b)(ii)
and, at the time of the ONEOK Stockholders' Meeting, there shall be
outstanding and publicly announced, an Acquisition Proposal, ONEOK shall,
within 3 days after WRI delivers to ONEOK the Expense Reimbursement Letter (as
such term is herein defined), reimburse WRI for all expenses incurred by WRI
and its Subsidiaries in connection with the Transactions and the other
transactions contemplated hereby and by the Ancillary Documents, up to
$1,500,000, as specified in writing by WRI to ONEOK (such writing shall be
referred to herein as the "Expense Reimbursement Letter"), by a payment in
cash by wire transfer of immediately available funds to an account designated
by WRI (the "Reimbursed Expenses"). In addition, upon the consummation of an
Acquisition Proposal which was entered into within 12 months after termination
of the Agreement pursuant to Section 9.1(b), whereby ONEOK shall be obligated
to reimburse WRI for expenses pursuant to this Section 9.2(b), ONEOK shall pay
WRI, by a payment in cash by wire transfer of immediately available funds to
an account designated by WRI, an amount equal to $20,000,000 less the amount
of the Reimbursed Expenses.
(c) If WRI terminates this Agreement as a result of the failure to be
satisfied of the condition specified in Section 7.2(e) or, if ONEOK terminates
this Agreement as a result of the failure to be satisfied of the condition
specified in Section 7.3(f), then the terminating party shall promptly
reimburse the non-terminating party for expenses reasonably incurred by the
non-terminating party in connection with this Agreement in an amount not to
exceed $1,500,000.
9.3 Expenses. The parties agree that the agreements contained in Section 9.2
are an integral part of the Transactions and the other the transactions
contemplated by this Agreement and by the Ancillary Documents and represent
liquidated damages and are not a penalty. Notwithstanding anything to the
contrary contained in Section 9.2, if one party fails to promptly pay to the
other any fee due under Section 9.2, in addition to any amounts paid or
payable pursuant to such Section, 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 interest rate of Citibank, N.A. from the date such
fee was required to be paid. Except as otherwise provided in this Agreement,
ONEOK shall pay its fees and expenses, and WRI shall pay its fees and expenses
and the fees and expenses of NewCorp, incurred in connection with the
Transactions and the other transactions contemplated hereby and by the
Ancillary Documents.
9.4 Amendment. This Agreement may be amended by mutual agreement of ONEOK,
WRI and NewCorp, by action taken or authorized by their respective Boards of
Directors, at any time prior to the Merger Effective Time. This Agreement may
not be amended except by an instrument in writing signed on behalf of each the
parties hereto.
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9.5 Extension; Waiver. At any time prior to the Merger Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE X
INDEMNIFICATION
10.1 General Indemnification. (a) WRI hereby agrees to indemnify ONEOK and
its Affiliates (including from and after the Closing, the Surviving
Corporation) and their respective officers, directors, employees,
stockholders, agents and representatives against, and agrees to hold them
harmless from, any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) ("Losses"), as incurred (payable quarterly
upon written request), for or on account of or arising from or in connection
with or otherwise with respect to (i) any breach of any covenant of WRI
contained in this Agreement or any document delivered in connection herewith
and (ii) the Retained Liabilities.
(b) ONEOK, and from and after the Closing, the Surviving Corporation, hereby
agrees to indemnify WRI and its Affiliates and their respective officers,
directors, employees, stockholders, agents and representatives against, and
agrees to hold them harmless from, any Losses, as incurred (payable quarterly
upon written request), for or on account of or arising from or in connection
with or otherwise with respect to (i) any breach of any covenant of ONEOK
contained in this Agreement or any document delivered in connection herewith
and (ii) the Assumed Liabilities.
(c) In order for a party (the "indemnified party"), to be entitled to any
indemnification provided for under this Agreement in respect of, arising out
of or involving a claim made by any person against the indemnified party (a
"Third Party Claim"), such indemnified party must notify the indemnifying
party in writing of the Third Party Claim within a reasonable time after
receipt by such indemnified party of written notice of the Third Party Claim
unless the indemnifying party shall have previously obtained actual knowledge
thereof. Thereafter, the indemnified party shall deliver to the indemnifying
party, within a reasonable time after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
(d) If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof and,
if is so chooses, to assume the defense thereof with counsel selected by the
indemnifying party; provided such counsel is not reasonably objected to by the
indemnified party; and provided further that the indemnifying party first
admits in writing its liability to the indemnified party with respect to all
material elements of such claim. Should the indemnifying party so elect to
assume the defense of a Third Party Claim, the indemnifying party will not be
liable to the indemnified party for any legal expenses subsequently incurred
by the indemnified party in connection with the defense thereof. If the
indemnifying party elects to assume the defense of a Third Party Claim, the
indemnified party will (i) cooperate in all reasonable respects with the
indemnifying party in connection with such defense, (ii) not admit any
liability with respect to, or settle, compromise or discharge, any Third Party
Claim without the indemnifying party's prior written consent and (iii) agree
to any settlement, compromise or discharge of a Third Party Claim which the
indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim and which would not adversely affect
the business carried on by the indemnified party. In the event the
indemnifying party shall assume the defense of any Third Party Claim, the
indemnified party shall be entitled to participate in (but not control) such
defense with its own counsel at its own expense. If the
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indemnifying party does not assume the defense of any such Third Party Claim,
the indemnified party may defend the same in such manner as it may deem
appropriate, including but not limited to settling such claim or litigation
after giving notice to the indemnifying party of such terms and the
indemnified party will promptly reimburse the indemnified party upon written
request. Anything contained in this Agreement to the contrary notwithstanding,
the indemnifying party shall not be entitled to assume the defense of any
Third Party Claim if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the
indemnified party which, if successful, would adversely affect the business of
the indemnified party.
10.2 Tax Indemnification and Audits. (a) From and after the Closing, WRI
shall indemnify and hold harmless the Surviving Corporation and each of the
Acquired Subsidiaries against (i) any and all liability assessed against the
Surviving Corporation or any of the Acquired Subsidiaries for Income Taxes
with respect to taxable periods ending on or before the Closing Date; (ii) any
liability assessed against the Surviving Corporation or any of the Acquired
Subsidiaries by reason of the Surviving Corporation or any of the Acquired
Subsidiaries being severally liable for Income Taxes of WRI or any of its
Affiliates pursuant to Treasury Regulation Section 1.1502-6 (or any analogous
provision of state, local or foreign tax law); and (iii) except to the extent
taken into account as a Current Liability in the calculation of Closing
Working Capital, any liability for Pre-Closing Straddle Period Income Taxes
assessed against the Surviving Corporation or any of the Acquired Subsidiaries
(other than Pre-Closing Straddle Period Income Taxes for which WRI has paid
the Surviving Corporation pursuant to Section 6.15(c)), including without
limitation in each of (i) through (iii) above, any liability resulting from
changes made on audit. For purposes of clauses (i) and (iii) of the preceding
sentence, the taxable year of any partnership or other pass-through entity in
which WRI, the Surviving Corporation or any of the Acquired Subsidiaries is a
partner or other beneficial interest holder shall be deemed to terminate at
the close of business on the Closing Date. Any indemnification payable by WRI
to the Surviving Corporation or any of the Acquired Subsidiaries pursuant to
this Section 10.2(a) shall be paid within the later of five days of the
Surviving Corporation's request therefor and five days prior to the date on
which the liability upon which the indemnification is based is required to be
satisfied by the Surviving Corporation or any of the Acquired Subsidiaries as
the case may be.
(b) Each party shall promptly notify the other in writing upon receipt of
notice of any pending or threatened federal, state, local or foreign Tax
audits or assessments which may affect the Tax liabilities of the Surviving
Corporation or any of the Acquired Subsidiaries with respect to periods ending
on or before the Closing Date; provided, however, that the failure of the
Surviving Corporation to give WRI prompt notice as provided herein shall not
relieve WRI of any of its obligations hereunder, except to the extent that
WRI's position is actually and materially prejudiced as a result of such
failure. WRI shall, at its own expense, control any audit or determination by
any authority, initiate any claim for refund or amended return, and contest,
resolve and defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Income Taxes of the Surviving Corporation
or any of the Acquired Subsidiaries (collectively, an "Income Tax Contest")
attributable to taxable periods ending on or before the Closing Date, and
shall be responsible for the timely payment of any liability for Income Taxes
that relate to such periods; provided, however, that to the extent such audit
or assessment relates to an Income Tax for which the Surviving Corporation or
any of the Acquired Subsidiaries could be held liable or affects the amount of
Income Taxes to be paid or caused to be paid by the Surviving Corporation, the
Surviving Corporation shall have the right to participate in any such Income
Tax Contest in the manner it deems appropriate and WRI shall be prohibited
from reaching a settlement with regard to such Income Tax Contest without the
Surviving Corporation's consent, which consent shall not be unreasonably
withheld. The Surviving Corporation shall, at its own expense, control all
Income Tax Contests attributable to taxable periods ending after the Closing
Date, and shall be responsible for the timely payment of any liability for
Income Taxes that relate to such periods; provided, however, that to the
extent such audit or assessment relates to an Income Tax for which WRI could
be held liable or affects the amount of Income Taxes to be paid or caused to
be paid by WRI, WRI shall have the right to participate in any such Income Tax
Contest in the manner it deems appropriate and the Surviving Corporation shall
be prohibited from reaching a settlement with regard to such Income Tax
Contest without WRI's consent, which consent shall not be unreasonably
withheld.
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<PAGE>
(c) Any refunds or credits of Income Taxes of any of the Acquired
Subsidiaries received by or credited to the Surviving Corporation or any of
the Acquired Subsidiaries attributable to periods ending on or before the
Closing Date or to such portions of Straddle Periods ending at the close of
business on the Closing Date, (collectively, "WRI's Refunds"), shall be for
the benefit of WRI. The Surviving Corporation shall cause any such refund (net
of any Tax liability resulting from such refund) to be paid to WRI within ten
days of the Surviving Corporation's or any of the Acquired Subsidiaries'
receipt thereof.
(d) WRI agrees that if any of the Acquired Subsidiaries carries back any
item of loss, deduction or credit which arises in any taxable period ending
after the Closing Date into any taxable period beginning before the Closing
Date, then such Acquired Subsidiary shall be entitled to any Tax benefit or
refund of Taxes realized as a result thereof (after giving priority to any
existing Tax attributes of WRI). The Surviving Corporation and WRI shall
negotiate in good faith to resolve any dispute with respect to the calculation
of any such benefit. Any unresolved disputes with respect to the calculation
of any such Tax benefits shall be submitted to a "Big Six" accounting firm for
arbitration, the costs of which shall be shared equally by the Surviving
Corporation and WRI.
ARTICLE XI
GENERAL PROVISIONS
11.1 Confidentiality Agreement. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement and the provisions of the
Confidentiality Agreement shall apply to all information and material
delivered hereunder.
11.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed
to be given, dated and received when so delivered personally, telegraphed or
telecopied, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
(a) if to WRI or NewCorp (prior to the Merger Effective Time):
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: President
with copies to:
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: John K. Rosenberg, Esq.
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Francis J. Aquila, Esq.
(b) if to ONEOK or the Surviving Corporation (after the Merger Effective
Time), to:
ONEOK Inc.
100 West Fifth Street
Tulsa, Oklahoma 74103
Attention: President
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<PAGE>
with copies to:
Gable Gotwals Mock Schwabe Kihle Gaberino
100 W. Fifth Street, Suite 1000
Tulsa, Oklahoma 74103
Attention: Donald A. Kihle, Esq.
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: F. William Reindel, Esq.
11.3 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents, glossary of defined terms 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
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Unless the
context otherwise requires, "or" is disjunctive but not necessarily exclusive,
and words in the singular include the plural and in the plural include the
singular.
11.4 Counterparts. This Agreement may be executed in two or more
counterparts all of which shall be considered one and the same agreement and
become effective when two or more counterparts have been signed by each of
parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.5 Entire Agreement; No Third Party Beneficiaries. This Agreement as
amended and restated (together with the Confidentiality Agreements, the
Ancillary Documents and any other documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto, and (b) except as expressly provided
herein, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
11.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
11.7 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or
part to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure
to take an action constitutes a material breach of this Agreement or makes
this Agreement impossible to perform, in which case this Agreement shall
terminate pursuant to Article IX hereof. Except as otherwise contemplated by
this Agreement, to the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required hereby
pursuant to an order or judgment of a court or other competent authority, such
party shall not incur any liability or obligation unless such party breached
its obligations under Section 6.6 or did not in good faith seek to resist or
object to the imposition or entering of such order or judgment.
11.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
11.9 Bulk Sales Law. The parties hereto each waive compliance by the other
with the provisions of any applicable bulk transfer law and the provisions of
any statute of any other state or jurisdiction regulating bulk sales or
transfers which may be applicable to the transfer of assets.
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<PAGE>
11.10 Non-Survival of Representations and Warranties. The representations
and warranties of the parties hereto shall not survive the Closing.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
respective officers thereunto duly authorized, all as of the Amendment Date.
ONEOK INC.
/s/ Larry W. Brummett
By: _________________________________
Name: Larry W. Brummett
Title: Chairman of the Board
WESTERN RESOURCES, INC.
/s/ David C. Wittig
By: _________________________________
Name: David C. Wittig
Title: President
WAI, INC.
/s/ Richard D. Terrill
By: _________________________________
Name: Richard D. Terrill
Title: Secretary and Treasurer
A-57
<PAGE>
APPENDIX B
SHAREHOLDER AGREEMENT
BETWEEN
WAI, INC.,
AN OKLAHOMA CORPORATION
AND
WESTERN RESOURCES, INC.,
A KANSAS CORPORATION
DATED AS OF , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
CERTAIN DEFINITIONS
<C> <S> <C>
Section 1.1. ............................................................. B-1
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company.............. B-6
Section 2.2. Representations and Warranties of the Shareholder.......... B-7
ARTICLE III
SHAREHOLDER AND COMPANY CONDUCT
Section 3.1. Standstill Provision....................................... B-7
Section 3.2. Required Reduction of Ownership Percentage................. B-8
Section 3.3. Top-Up Rights; Dilutive Issuance Right..................... B-8
Section 3.4. Restrictions on Transfer................................... B-10
Section 3.5. Buy-Back Options........................................... B-11
Section 3.6. Buy/Sell Option............................................ B-11
Section 3.7. Charter and By-Laws........................................ B-12
Section 3.8. Rights Agreement........................................... B-13
Section 3.9. Agreement Not to Convert................................... B-13
Section 3.10. Taxes Upon Conversion or Exchange.......................... B-13
Section 3.11. Make Whole Payment......................................... B-13
Section 3.12. Prohibition on Senior Securities........................... B-13
ARTICLE IV
BOARD REPRESENTATION AND VOTING
Section 4.1. Directors Designated by the Shareholder.................... B-13
Section 4.2. Resignation of Shareholder Nominees........................ B-15
Section 4.3. Voting..................................................... B-15
ARTICLE V
EFFECTIVENESS AND TERMINATION
Section 5.1. Effectiveness.............................................. B-16
Section 5.2. Termination................................................ B-16
ARTICLE VI
MISCELLANEOUS
Section 6.1. Compliance With Law........................................ B-17
Section 6.2. Regulatory Matters......................................... B-17
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 6.3. Injunctive Relief.......................................... B-18
Section 6.4. Successors and Assigns..................................... B-18
Section 6.5. Amendments; Waiver......................................... B-18
Section 6.6. Notices.................................................... B-18
Section 6.7. Applicable Law............................................. B-19
Section 6.8. Headings................................................... B-19
Section 6.9. Integration................................................ B-19
Section 6.10. Severability............................................... B-19
Section 6.11. Consent to Jurisdiction.................................... B-19
Section 6.12. Counterparts............................................... B-20
</TABLE>
B-ii
<PAGE>
SHAREHOLDER AGREEMENT, dated as of , 1997 (this "Agreement"), between
WAI, Inc., an Oklahoma corporation (the "Company"), and Western Resources,
Inc., a Kansas corporation (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Shareholder, the Company, and ONEOK, Inc., a Delaware
corporation ("ONEOK") have entered into an Agreement, dated as of December 12,
1996, amended and restated as of May 19, 1997 (the "Merger Agreement"),
pursuant to which ONEOK has been merged with and into the Company (the
"Merger") and the Shareholder has acquired pursuant to the transactions
contemplated thereby Beneficial Ownership (as defined in Article I hereof) of
2,996,702 shares of common stock of the Company, par value $.01 per share (the
"Common Stock") and 19,317,584 shares of Series A Convertible Preferred Stock
of the Company, par value $.01 per share (together with the Company's Series B
Convertible Preferred Stock, the "Convertible Preferred Stock");
WHEREAS, prior to the consummation of the Merger (the "Closing"), the
Company and the Shareholder desire to establish in this Agreement certain
terms and conditions concerning the acquisition and disposition of securities
of the Company by the Shareholder, and related provisions concerning the
Shareholder's relationship with and investment in the Company; and
WHEREAS, concurrently with the execution and delivery hereof, the Company
and the Shareholder are entering into a Registration Rights Agreement, dated
as of the date hereof (the "Registration Rights Agreement"), in the form
attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. In addition to other terms defined elsewhere in this Agreement,
as used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Adjusted Maximum Ownership Percentage" shall mean the Maximum Ownership
Percentage minus 10.0%.
"Affiliate" shall mean, with respect to any person, any other person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such person. For the purposes of
this definition, "control," when used with respect to any particular person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall have the meaning assigned to such term in the introduction
hereto.
"Beneficial Owner" (and, with correlative meanings, "Beneficially Own" and
"Beneficial Ownership") of any interest means a Person who, together with his
or its Affiliates, is or may be deemed a beneficial owner of such interest for
purposes of Rule 13d-3 or 13d-5 under the Exchange Act, or who, together with
his or its Affiliates, has the right to become such a beneficial owner of such
interest (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise, conversion or exchange of any warrant, right or other
instrument, or otherwise.
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<PAGE>
"Board" shall mean the Board of Directors of the Company in office at the
applicable time, as elected in accordance with the By-laws of the Company and
with the provisions of this Agreement.
"Buy-Back Offer" shall have the meaning assigned to such term in Section
3.5(a) hereof.
"Buyout Tender Offer" shall have the meaning assigned to such term in
Section 3.6(b) hereof.
"Buy/Sell Notice" shall have the meaning assigned to such term in Section
3.6(a) hereof.
"Buy/Sell Option" shall have the meaning assigned to such term in Section
3.6(a) hereof.
"Buy/Sell Price" shall have the meaning assigned to such term in Section
3.6(a) hereof.
"By-laws" shall mean the by-laws of the Company, in the form specified in
the Merger Agreement, as they may be amended from time to time.
"Change in Control" shall mean the occurrence of any one of the following
events:
(1) any Person (other than the Shareholder Group) becoming the Beneficial
Owner, directly or indirectly, of Voting Securities, pursuant to the
consummation of a merger, consolidation, sale of all or substantially all
of the Company's assets, share exchange or similar form of corporate
transaction involving the Company or any of its subsidiaries that requires
the approval of the Company's shareholders, whether for such transaction or
the issuance of securities in such transaction, so as to cause such
Person's Voting Ownership Percentage to exceed the Control Percentage (as
defined below); provided, however, that the event described in this
paragraph (1) shall not be deemed to be a Change in Control if it occurs as
the result of any of the following acquisitions: (A) by any employee
benefit plan sponsored or maintained by the Company or any Affiliate, or
(B) by any underwriter temporarily holding securities pursuant to an
offering of such securities;
(2) the consummation of a merger, consolidation, sale of all or
substantially all of the Company's assets, share exchange or similar form
of corporate transaction involving the Company or any of its subsidiaries
that requires the approval of the Company's shareholders, whether for such
transaction or the issuance of securities in such transaction, unless
immediately following such transaction more than 50% of the total voting
power of (x) the corporation resulting from such transaction, or (y) if
applicable, the ultimate parent corporation that directly or indirectly has
Beneficial Ownership of 100% of the voting securities eligible to elect
directors of such resulting corporation, is represented by Voting
Securities that were outstanding immediately prior to such transaction (or,
if applicable, shares into which such Voting Securities were converted
pursuant to such transaction), and such voting power among the holders of
such Voting Securities that were outstanding immediately prior to such
transaction is in substantially the same proportion as the voting power of
such Voting Securities among the holders thereof immediately prior to such
transaction; or
(3) the consummation of a plan of complete liquidation or dissolution of
the Company.
"Charter" shall mean the Certificate of Incorporation of the Company, in the
form specified in the Merger Agreement, as it may be amended from time to
time.
"Clearly Credible Tender Offer" shall mean any bona fide offer, tender offer
or exchange offer that is subject to Section 14 of the Exchange Act, other
than any such offer with respect to which (i) the Board of Directors of the
Company is advised in writing by outside counsel of recognized standing that
the consummation of such offer would be in violation of applicable law, or
(ii) the party making such offer has not obtained as of the date of the
commencement of such offer definitive commitment letters from reputable
financial institutions in customary form with respect to the financing of such
offer.
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<PAGE>
"Closing" shall have the meaning assigned in the second recital of this
Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning assigned in the first recital of this
Agreement.
"Company" shall have the meaning assigned in the introduction of this
Agreement.
"Company Decision Period" shall have the meaning assigned in Section
3.6(c)(i) hereof.
"Company Repurchase Notice" shall have the meaning assigned to such term in
Section 3.5(b) hereof.
"Control Percentage" shall mean a Voting Ownership Percentage of 15%, during
the period prior to a Regulatory Change, and a Voting Ownership Percentage of
35% thereafter.
"Conversion" shall mean the conversion of shares of Convertible Preferred
Stock into shares of Common Stock pursuant to the Charter.
"Convertible Preferred Stock" shall have the meaning assigned in the first
recital of this Agreement.
"Dilutive Issuance" shall have the meaning assigned in Section 3.3(a)(iii)
of this Agreement.
"Dilutive Issuance Right" shall have the meaning assigned in Section
3.3(a)(iii) of this Agreement.
"Director" shall mean any member of the Board of Directors of the Company in
office at the applicable time, as elected in accordance with the provisions of
the By-laws of the Company.
"Dividend Premium" with respect to any share of Series A Convertible
Preferred Stock calculated at any time, shall be equal to the aggregate of the
present values as of the date of the Closing (assuming a discount rate of
9.25%) of the excess of (x) each quarterly dividend actually paid by the
Company to the Shareholder Group with respect to such share of Series A
Convertible Preferred Stock over (y) $0.45.
"Excess Buy-Back Shares" shall have the meaning assigned to such term in
Section 3.5(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Independent Director" shall mean any person who is not a Shareholder
Nominee and is independent of and otherwise unaffiliated with any member of
the Shareholder Group, and who is not a director, officer, employee,
consultant or advisor (financial, legal or other) of any member of the
Shareholder Group and has not served in any such capacity in the previous
three (3) years.
"Initial Shareholder Nominee Notice" shall have the meaning assigned in
Section 4.1(b) of this Agreement.
"Initial Shareholder Nominees" shall have the meaning assigned in Section
4.1(b) of this Agreement.
"Market Price" for a Security of the Company shall mean the average of the
closing prices for such Security for the twenty (20) Trading Days immediately
prior to the date on which the Market Price is being
B-3
<PAGE>
determined; provided, however, that in the event that the current per share
market price of such security is determined during a period following the
announcement by the Company of (a) a dividend or distribution on such security
payable in shares of such security or securities convertible into such shares,
or (b) any subdivision, combination or reclassification of such security and
prior to the expiration of 20 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to take into account ex-dividend trading
or the effects of such subdivision, combination or reclassification. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if such security is not
listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
security is listed or admitted to trading or, if such security is not listed
or admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System or such other system then
in use, or, if on any such date such security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in such security selected by a
majority of the Board or, if on any such date no market maker is making a
market in such security, the fair value as determined in good faith by a
majority of the Board based upon the opinion of an independent investment
banking firm of recognized standing.
"Make Whole Payment" shall have the meaning assigned to such term in Section
3.11 hereof.
"Maximum Ownership Percentage" shall mean, calculated at a particular point
in time, a Total Ownership Percentage of 45.0%, less the Voting Power
represented by all Voting Securities Transferred by the Shareholder Group
during the term of this Agreement (including the Voting Power represented by
any shares of Convertible Preferred Stock which were converted into shares of
Common Stock contemporaneously with such Transfer pursuant to the terms of
this Agreement).
"Merger" shall have the meaning set forth in the first recital of this
Agreement.
"Merger Agreement" shall have the meaning set forth in the first recital of
this Agreement.
"1935 Act" shall mean the Public Utility Holding Act of 1935, as amended.
"NYSE" shall mean the New York Stock Exchange.
"ONEOK" shall have the meaning assigned in the first recital of this
Agreement.
"Opt-out Amendment" shall have the meaning assigned in Section 4.3(c)
hereof.
"Person" shall mean any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or department or agency of a
government.
"Quarterly Pay Down Amount" shall mean the Total Per Share Pay Down Amount
divided by 20.
"Registration Rights" shall mean the rights and obligations of the
Shareholder Group and the corresponding rights and obligations of the Company
set forth in the Registration Rights Agreement.
"Registration Rights Agreement" shall have the meaning assigned in the third
recital of this Agreement.
A "Regulatory Change" will be deemed to have occurred, with respect to all
or any one of the provisions of this Agreement, upon the receipt by the
Shareholder of an opinion of the Shareholder's counsel (which counsel must be
reasonably acceptable to the Company) to the effect that either (1) the 1935
Act has been repealed, modified, amended or otherwise changed or (2) the
Shareholder has received an exemption, or, in the unqualified
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<PAGE>
opinion of such counsel, is entitled without any regulatory approval to claim
an exemption, or has received an approval or no-action letter from the
Securities and Exchange Commission or its staff under the 1935 Act or has
registered under the 1935 Act, or any combination of the foregoing, and as a
consequence of (1) and/or (2) the Shareholder may fully and legally exercise
the rights set forth in such provision(s) of this Agreement which take effect
in the period after a Regulatory Change has occurred.
"Repurchase" shall have the meaning assigned in Section 3.5(a) of this
Agreement.
"Rights Agreement" means the Shareholder Protection Rights Agreement, dated
as of the date hereof, attached hereto as Exhibit B.
"Sale Notice" shall have the meaning assigned in Section 3.4(b)(i) of this
Agreement.
"Sale Option" shall have the meaning assigned in Section 3.4(b) of this
Agreement.
"Sale Period" shall have the meaning assigned in Section 3.4(b)(ii) of this
Agreement.
"Sale Securities" shall have the meaning assigned in Section 3.4(b)(i) of
this Agreement.
"Securities" shall mean any equity securities of the Company.
"Securities Act" shall mean the Securities Act of 1993, as amended.
"Seller" shall have the meaning assigned in Section 3.4 of this Agreement.
"Series A Convertible Preferred Stock" shall mean the Series A Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series B Convertible Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Shareholder" shall have the meaning assigned in the introduction to this
Agreement.
"Shareholder Affiliate" shall mean any Affiliate of the Shareholder.
"Shareholder Group" shall mean the Shareholder, any Shareholder Affiliate
and any Person with whom any Shareholder or any Affiliate of any Shareholder
is part of a 13D Group.
"Shareholder Nominees" shall have the meaning set forth in Section 4.1(d) of
this Agreement.
"Successor Shareholder Nominee Notice" shall have the meaning assigned in
Section 4.1(d) of this Agreement.
"Successor Shareholder Nominees" shall have the meaning assigned in Section
4.1(d) of this Agreement.
"13D Group" shall mean any group of Persons acquiring, holding, voting or
disposing of any Voting Security which would be required under Section 13(d)
of the Exchange Act and the rules and regulations thereunder to file a
statement on Schedule 13D with the Commission as a "person" within the meaning
of Section 13(d)(3) of the Exchange Act.
"Total Make Whole Amount" shall mean, with respect to any share of Series A
Convertible Preferred Stock calculated at any time, an amount equal to the
Total Per Share Pay Down Amount minus the sum of (I) the
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<PAGE>
product of (x) the Quarterly Pay Down Amount and (y) the number of quarters
since the date of the Closing in which the Company has paid a dividend on the
Series A Convertible Preferred Stock of at least $0.45 per share plus (II) the
Dividend Premium with respect to such share through such time.
"Total Ownership Percentage" shall mean, calculated at a particular point in
time, the Voting Power which would be represented by the Securities
Beneficially Owned by the Person whose Total Ownership Percentage is being
determined if all shares of Convertible Preferred Stock (or other Securities
convertible into Voting Securities) Beneficially Owned by such Person were
converted into shares of Common Stock (or other Voting Security).
"Total Per Share Paydown Amount" shall mean the product of (i) $35,000,000
divided by (ii) the total number of shares of Series A Convertible Preferred
Stock issued at the Closing.
"Total Voting Power" shall mean, calculated at a particular point in time,
the aggregate Votes represented by all then outstanding Voting Securities.
"Trading Day", with respect to a Voting Security, shall mean a day on which
the principal national securities exchange on which such Voting Security is
listed or admitted to trading is open for the transaction of business or, if
such security is not listed or admitted to trading on any national securities
exchange, any day other than a Saturday, Sunday or a day on which banking
institutions in the City of New York are authorized or obligated to close.
"Transfer" shall mean any sale, transfer, pledge, encumbrance or other
disposition to any Person, and to "Transfer" shall mean to sell, transfer,
pledge, encumber or otherwise dispose of to any Person.
"Unrestricted Ownership Percentage" shall mean a Voting Ownership Percentage
of 9.9%.
"Votes" shall mean votes entitled to be cast generally in the election of
Directors, not including the votes that would be able to be cast by holders of
shares of Convertible Preferred Stock upon Conversion to shares of Common
Stock unless such Conversion shall occur or be deemed to occur.
"Voting Ownership Percentage" shall mean, calculated at a particular point
in time, the Voting Power represented by the Voting Securities Beneficially
Owned by the Person whose Voting Ownership Percentage is being determined.
"Voting Power" shall mean, calculated at a particular point in time, the
ratio, expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which the Voting Power is being determined to (b)
Total Voting Power.
"Voting Securities" shall mean the Common Stock and shares of any other
class of capital stock of the Company then entitled to vote generally in the
election of Directors, and shall not include Convertible Preferred Stock (or
other Securities convertible into Voting Securities) prior to Conversion into
Common Stock (or other Voting Security).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company. The Company
represents and warrants to the Shareholder as of the date hereof as follows:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Oklahoma and
has all necessary corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder.
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(b) This Agreement has been duly and validly authorized by the Company
and all necessary and appropriate action has been taken by the Company to
execute and deliver this Agreement and to perform its obligations
hereunder.
(c) This Agreement has been duly executed and delivered by the Company
and assuming due authorization and valid execution and delivery by the
Shareholder, this Agreement is a valid and binding obligation of the
Company, enforceable in accordance with its terms.
Section 2.2. Representations and Warranties of the Shareholder. The
Shareholder represents and warrants to the Company as of the date hereof as
follows:
(a) The Shareholder has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Kansas and
has all necessary corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder.
(b) This Agreement has been duly and validly authorized by the
Shareholder and all necessary and appropriate action has been taken by the
Shareholder to execute and deliver this Agreement and to perform its
obligations hereunder.
(c) This Agreement has been duly executed and delivered by the
Shareholder and assuming due authorization and valid execution and delivery
by the Company, this Agreement is a valid and binding obligation of the
Shareholder, enforceable in accordance with its terms.
(d) As of the effectiveness of this Agreement, the Shareholder Group
Beneficially Owns 2,996,702 shares of Common Stock and 19,317,584 shares of
Series A Convertible Preferred Stock and does not Beneficially Own any
other Voting Security, warrant, option, convertible security or other
similar right to acquire Common Stock or shares of any other class of
capital stock of the Company which are entitled to vote generally in the
election of directors.
ARTICLE III
SHAREHOLDER AND COMPANY CONDUCT
Section 3.1. Standstill Provision. Subject to the provisions of this
Agreement, during the term of this Agreement, the Shareholder agrees with the
Company that, without the prior approval of a majority of the Board, the
Shareholder will not, and will cause each Shareholder Affiliate not to, take
any of the following actions:
(a) prior to the occurrence of a Regulatory Change, but not thereafter,
singly or as part of a partnership, limited partnership, syndicate or other
13D Group, directly or indirectly, acquire Beneficial Ownership of any
Voting Security so as to cause the Shareholder Group's Voting Ownership
Percentage to exceed the Unrestricted Ownership Percentage;
(b) singly or as part of a partnership, limited partnership, syndicate or
other 13D Group, directly or indirectly, acquire, propose to acquire, or
publicly announce or otherwise disclose an intention to propose to acquire,
or offer or agree to acquire, by purchase or otherwise, Beneficial
Ownership of any Security so as to cause the Shareholder Group's Total
Ownership Percentage to exceed the Maximum Ownership Percentage;
(c) deposit (either before or after the date of the execution of this
Agreement) any Security in a voting trust or subject any Security to any
similar arrangement or proxy with respect to the voting of such Security;
(d) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies", or become a "Participant" in a "solicitation"
(as such terms are used in Regulation 14A under the Exchange Act) to seek
to advise or influence any person to vote against any proposal or director
nominee recommended to the shareholders of the Company or any of its
subsidiaries by at least a majority of the Board of Directors;
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(e) form, join or in any way participate in a 13D Group with respect to
any Security of the Company or any securities of its subsidiaries;
(f) commence (including by means of proposing or publicly announcing or
otherwise disclosing an intention to propose, solicit, offer, seek to
effect or negotiate) a merger, acquisition or other business combination
transaction relating to the Company;
(g) initiate a "proposal," as such term is used in Rule 14a-8 under the
Exchange Act, "propose", or otherwise solicit the approval of, one or more
stockholders for a "proposal" or induce or attempt to induce any other
person to initiate a "proposal";
(h) otherwise act, alone or in concert with others, to seek to control or
influence the management, the Board or policies of the Company;
(i) take any other action to seek or effect control of the Company other
than in a manner consistent with the terms of this Agreement.
This Section 3.1 shall not be interpreted to restrict the Shareholder or any
Shareholder Affiliate from taking any action or exercising any right
consistent with the terms of this Agreement, including engaging in private and
confidential discussions with the Board or the management of the Company. In
addition, this section shall not be deemed to restrict the Shareholder
Nominees from participating as board members in the direction of the Company.
Section 3.2. Required Reduction of Ownership Percentage. If at any time the
Shareholder becomes aware that the Shareholder Group's Total Ownership
Percentage (excluding Excess Buy-Back Securities) exceeds the Maximum
Ownership Percentage and/or, prior to the occurrence of a Regulatory Change
and not thereafter, that the Shareholder Group's Voting Ownership Percentage
(excluding Excess Buy-Back Securities) exceeds the Unrestricted Ownership
Percentage, in each case other than as permitted pursuant to the terms of this
Agreement, then the Shareholder shall, or shall cause the Shareholder
Affiliates to, consistent with the provisions of Section 3.4 of this
Agreement, promptly take all action necessary to reduce the amount of
Securities or Voting Securities, as the case may be, Beneficially Owned by the
Shareholder Group such that the Shareholder Group's Total Ownership Percentage
(excluding Excess Buy-Back Securities) is not greater than the Maximum
Ownership Percentage and that the Shareholder Group's Voting Ownership
Percentage (excluding Excess Buy-Back Securities) is not greater than the
Unrestricted Ownership Percentage, as the case may be.
Section 3.3. Top-Up Rights; Dilutive Issuance Right. (a) During the term of
this Agreement and prior to the occurrence of a Regulatory Change, but not
thereafter:
(i) If the Shareholder Group's Voting Ownership Percentage falls below
the Unrestricted Ownership Percentage, the Shareholder may at its option
(A) purchase Voting Securities from time to time in the open market or
otherwise or (B) convert shares of Convertible Preferred Stock into shares
of Common Stock pursuant to the terms of the Charter, in each case in an
amount sufficient in order to restore the Shareholder Group's Voting
Ownership Percentage to the Unrestricted Ownership Percentage.
(ii) If the Shareholder Group's Total Ownership Percentage falls below
the Maximum Ownership Percentage, the Shareholder may at its option
purchase Voting Securities from time to time in the open market or
otherwise in an amount sufficient in order to restore the Shareholder
Group's Total Ownership Percentage to the Maximum Ownership Percentage;
provided, however that the Shareholder shall present for exchange, and the
Company shall exchange at no cost to the Shareholder, Common Stock
purchased pursuant to this paragraph for shares of Series B Convertible
Preferred Stock (at a ratio of one share of Series B Convertible Preferred
Stock in exchange for each share of Common Stock (as appropriately adjusted
to reflect any stock split, stock dividend, reverse stock split,
reclassification or any other transaction with a comparable effect)) in an
amount sufficient to ensure that the Shareholder Group is in compliance
with its obligations under Section 3.1(a) hereof.
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(iii) If the Shareholder Group's Total Ownership Percentage would fall
below the Maximum Ownership Percentage as a result of any security issuance
(a "Dilutive Issuance") by the Company, except as provided in paragraph
3.3(a)(v) below, the Shareholder shall have the right (the "Dilutive
Issuance Right") to require the Company to issue to the Shareholder (A)
additional Common Stock, up to the maximum number of such shares that would
permit the Shareholder Group to remain in compliance with Section 3.1(a)
hereof, and (B) additional shares of Series B Convertible Preferred Stock,
up to an amount of such shares of Common Stock and Series B Convertible
Preferred Stock as may be necessary to restore the Shareholder Group's
Total Ownership Percentage to the Maximum Ownership Percentage. Shares of
Common Stock or Series B Preferred Stock issued pursuant to the exercise of
a Dilutive Issuance Right shall be issued for cash concurrently with the
closing of the Dilutive Issuance. The issue price per share for shares of
Common Stock and shares of Series B Convertible Preferred Stock issued
pursuant to the Dilutive Issuance Right shall be equal to the issue price
per share of the Dilutive Issuance. Such issue price shall in turn be equal
to the aggregate amount of cash plus the fair market value of any other
property received by the Company in consideration of the Dilutive Issuance,
divided by the number of shares being issued in such Dilutive Issuance,
with such fair market value being determined in good faith by the Board of
Directors of the Company, provided that if the Shareholder shall object to
such valuation within 30 days of its receipt of notice thereof, then the
fair market value of such property shall be determined at the Company's
sole expense by an independent nationally recognized financial advisor
mutually acceptable to the Shareholder and the Company.
(iv) The Shareholder must provide the Company with notice of its
intention to exercise the Dilutive Issuance Right sixty (60) days prior to
the expected closing of the Dilutive Issuance, which expected closing date
will be provided to the Shareholder by or on behalf of the Company not less
than ninety (90) days prior to such expected closing date.
(v) The Company shall not be obligated to provide the Shareholder with a
Dilutive Issuance Right (I) in connection with issuances of securities
pursuant to employee benefit plans and programs of the Company in the
ordinary course of business or (II) which would require the issuance of
fewer than 25,000 shares of Series B Convertible Preferred Stock; provided,
however, that any share issuances not required to be made pursuant to this
clause (II) shall be carried forward and taken into account in determining
whether the Company must provide the Shareholder with a subsequent Dilutive
Issuance Right. In addition, in the case of any Dilutive Issuance in
connection with any acquisition or other business combination transaction,
by merger or otherwise, by the Company, the Company shall be required to
provide the Shareholder with a Dilutive Issuance Right only to the extent
of restoring the Shareholder Group's Total Ownership Percentage to the
Adjusted Maximum Ownership Percentage.
(vi) At the Closing, the Shareholder shall be entitled to require the
Company to issue to the Shareholder, at a price per share equal to the
Market Price as of the date of the Closing, additional Common Stock up to
the maximum number of shares that would permit the Shareholder Group to
remain in compliance with Section 3.1(a) and additional shares of Series A
Convertible Preferred Stock so as to restore the Shareholder Group's Total
Ownership Percentage to the Maximum Ownership Percentage.
(b) From time to time following a Regulatory Change and during the term of
this Agreement:
(i) If the Shareholder Group's Total Ownership Percentage falls below the
Maximum Ownership Percentage, the Shareholder may at its option purchase
Voting Securities from time to time in the open market or otherwise in an
amount sufficient in order to restore the Shareholder Group's Total
Ownership Percentage to the Maximum Ownership Percentage.
(ii) If the Shareholder Group's Total Ownership Percentage would fall
below the Adjusted Maximum Ownership Percentage as a result of a Dilutive
Issuance by the Company pursuant to primary or secondary offerings,
mergers, acquisitions or otherwise, the Shareholder shall have a Dilutive
Issuance Right (for the issuance of Common Stock only and not Series B
Convertible Preferred Stock) to the extent of restoring the Shareholder
Group's Total Ownership Percentage to the Adjusted Maximum Ownership
Percentage.
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(iii) The Shareholder must provide the Company with notice of its
intention to exercise the Dilutive Issuance Right sixty (60) days prior to
the expected closing of the Dilutive Issuance, which expected closing date
will be provided to the Shareholder by or on behalf of the Company not less
than ninety (90) days prior to such expected closing date.
(c) All Securities acquired by purchase or conversion pursuant to this
Section 3.3 shall be subject to the terms of this Agreement. In no event shall
the Shareholder Group's exercise of the Dilutive Issuance Right be interpreted
to be a waiver by the Shareholder of its right to make purchases of Securities
pursuant to this Section.
Section 3.4. Restrictions on Transfer. None of the members of the
Shareholder Group shall directly or indirectly Transfer any Securities without
the prior written consent of a majority of the Independent Directors, except
the following Transfers:
(a) Transfers of Securities representing upon Transfer Voting Power of
less than 5.0% to any Transferee, without prior notice to the Company, so
long as such Transferee and any Affiliate of such Transferee and any such
person who is a member of a 13D Group with such Transferee does not have a
Voting Ownership Percentage of 5.0% or more immediately prior to giving
effect to at the time of each such Transfer.
(b) Transfers of Securities representing upon Transfer Voting Power of
5.0% or more pursuant to the following procedure (the "Sale Option"):
(i) The Seller must provide written notice (a "Sale Notice") of its
intention to sell to the Company Securities representing, upon
Transfer, Voting Power of 5.0% or more (the "Sale Securities"). The
Sale Notice shall specify the number of Sale Securities and the cash
price per share at which the Company or its designee may purchase the
Sale Securities, which cash price shall equal 98.5% of the Market Price
of such Sale Securities determined as of the date of the Sale Notice;
provided, however, that the cash price per share at which the Company
or its designee shall purchase shares of Convertible Preferred Stock
pursuant to this subsection shall equal 98.5% of the Market Price of
the Common Stock determined as of the date of the Sale Notice.
(ii) The Company shall have a period ending on the later of ninety
(90) days after the date of the Sale Notice and thirty (30) days from
the date of receipt of all necessary regulatory approvals (the "Sale
Period") (provided, that in no event shall the Sale Period exceed one
hundred eighty (180) days) within which to effect a closing of the
Company's or its designee's purchase of all, but not less than all, of
the Sale Securities.
(iii) If the Company or its designee shall for any reason fail to
effect a closing of the purchase of all, but not less than all, of the
Sale Securities within the Sale Period, the Company shall at its option
inform the Seller in writing that it shall reimburse the Seller for the
aggregate difference between the Market Price of the Sale Securities as
of the date of the Sale Notice and the Market Price of the Sale
Securities as of the date that the Seller completes its transfer of the
Sale Securities, in which event such transfer by the Seller must be
completed within the later of 180 days from the date of the Sale Notice
or 30 days from the receipt of all necessary regulatory approvals.
Otherwise, if the Company shall not have so informed the Seller, the
Seller shall have 16 months from the date of the Sale Notice to
complete such transfer. In the event that such transfer by the Seller
is not so completed within the applicable period, the Sale Securities
shall thenceforth again be subject to this Section 3.4.
(c) Transfers of Securities to the public in a bona fide underwritten
offering pursuant to the Registration Rights Agreement; provided, however,
that the Seller and the representative or representatives of the
underwriters previously agree in writing with the Company that all
reasonable efforts will be made to achieve a wide distribution of the
Voting Securities in such offering and to ensure that no Transferee in such
offering acquires for its own account Beneficial Ownership of Securities
representing upon Transfer Voting Power of 5.0% or more.
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(d) Transfers of all or part of the Shareholder Group's Securities
pursuant to a pro rata distribution of Securities among the shareholders of
the Shareholder.
(e) Transfers of Securities among members of the Shareholder Group;
provided, however, that any such transferee shall agree with the Company in
writing prior to each such transfer to be bound by the terms of this
Agreement with respect to its Beneficial Ownership of Securities.
(f) If a Clearly Credible Tender Offer for the Company has been
commenced, at the Shareholder's option Transfers of Securities by means of
tenders into such Clearly Credible Tender Offer in an amount not exceeding
the percentage (on the basis of total Votes and assuming the conversion of
all shares of Convertible Preferred Stock into shares of Common Stock) of
the Voting Securities of which it is the Beneficial Owner equal to the
highest percentage (on the basis of total Votes) of the aggregate of all
Voting Securities not Beneficially Owned by any member of the Shareholder
Group which has ever been announced to have been tendered into such Clearly
Credible Tender Offer.
Section 3.5. Buy-Back Options. (a) During the term of this Agreement, if the
Company purchases Securities from the public, whether by tender offer, open
market purchase or otherwise (a "Repurchase"), the Company shall
contemporaneously with the Repurchase offer to repurchase from the Shareholder
on the same terms and conditions, including price, as in the Repurchase, a
percentage (on the basis of total Votes and assuming the conversion of all
shares of Convertible Preferred Stock into shares of Common Stock) of those
Securities Beneficially Owned by the Shareholder equal to the percentage (on
the basis of total Votes and assuming the conversion of all shares of
Convertible Preferred Stock into shares of Common Stock) of Securities to be
Repurchased from the Beneficial Owners of Securities other than the
Shareholder or any Shareholder Affiliate (the "Buy-Back Offer"). The
Shareholder may accept such Buy-Back Offer in its sole discretion; provided,
however, that in the event of a Repurchase the Shareholder shall be required
to sell Securities or Voting Securities of which it is the Beneficial Owner to
the Company in an amount sufficient to ensure that its Total Ownership
Percentage does not exceed the Maximum Ownership Percentage and/or, prior to
the occurrence of a Regulatory Change and not thereafter, that the Shareholder
Group's Voting Ownership Percentage does not exceed the Unrestricted Ownership
Percentage, in each case other than as permitted pursuant to the terms of this
Agreement; and provided further that the Shareholder shall not be required to
comply with the preceding mandatory sale requirement (i) during any period
when doing so would cause the Shareholder to incur any liability under Section
16(b) of the Exchange Act or the rules and regulations promulgated thereunder,
and (ii) to the extent that compliance with such mandatory sale requirement
would have an adverse effect on the availability of pooling-of-interests
accounting treatment with respect to any business combination involving the
Shareholder or any of the Shareholder's subsidiaries that has either been
announced or is under bona fide consideration by the Shareholder at the time
of such Repurchase, but the Shareholder shall be required to comply with such
mandatory sale requirement immediately upon the conditions set forth in (i)
and (ii) above no longer being applicable. Any Securities Beneficially Owned
by the Shareholder Group as permitted by the preceding sentence which cause
the Shareholder Group's Total Ownership Percentage to exceed the Maximum
Ownership Percentage and/or, prior to the occurrence of a Regulatory Change
and not thereafter, the Shareholder Group's Voting Ownership Percentage to
exceed the Unrestricted Ownership Percentage shall be referred to in this
Agreement as "Excess Buy-Back Securities."
(b) The Company shall provide notice to the Shareholder of its intention to
engage in a Repurchase not less than 30 days in advance of the date on which
the Repurchase is to begin (the "Company Repurchase Notice"). The Shareholder
must provide notice to the Company within ten (10) days of receipt of the
Company Repurchase Notice of (i) whether the Shareholder intends to accept the
Buy-Back Offer and (ii) in good faith whether the Shareholder is aware that
the Shareholder would be subject to any of the conditions set forth in (i) or
(ii) above as a result of such Repurchase.
Section 3.6. Buy/Sell Option. (a) At the fifteenth and at each succeeding
anniversary of the date hereof, if at such times this Agreement remains in
force, each of the Shareholder and the Company may at its option (the
"Buy/Sell Option") provide notice (the "Buy/Sell Notice") to the other party
of a price (the "Buy/Sell
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Price") at which such notifying party intends in good faith either to sell to
the receiving party all, but not less than all, of the Securities Beneficially
Owned by the notifying party or to buy from the receiving party all, but not
less than all, of the Securities Beneficially Owned by the receiving party;
provided, however, that the Buy/Sell Price shall apply equally to shares of
Convertible Preferred Stock and shares of Common Stock and provided, further,
that all references in this Section 3.8 to Securities Beneficially Owned by
the Company shall be deemed to refer only to outstanding Securities
Beneficially Owned by shareholders of the Company other than the Shareholder
Group.
(b) Upon receipt by the Shareholder of a Buy/Sell Notice from the Company,
the Shareholder Group shall have ninety (90) days (the "Shareholder Decision
Period") within which either to (i) agree to sell for cash all, but not less
than all, of the Securities Beneficially Owned by the Shareholder Group to the
Company at the Buy/Sell Price or (ii) make a bona fide Clearly Credible Tender
Offer (a "Buyout Tender Offer") at the Buy/Sell Price for any and all
Securities Beneficially Owned by the Company, which Buyout Tender Offer the
Company hereby agrees not to oppose. A non-waivable condition to the
consummation of the Buyout Tender Offer shall be the valid tender into such
offer, on or prior to the 20th day following the receipt of all regulatory
approvals required for the consummation of such offer, of Voting Securities
representing in the aggregate two-thirds ( 2/3) of the Voting Power
represented by all Voting Securities held by shareholders of the Company other
than the Shareholder Group.
(c) (i) Upon receipt by the Company of a Buy/Sell Notice from the
Shareholder, the Company shall have ninety (90) days (the "Company Decision
Period") within which to (A) agree to purchase for cash all but not less than
all of the Securities Beneficially Owned by the Shareholder Group at the
Buy/Sell Price or (B) agree to seek an opinion from an independent,
internationally recognized investment banking firm relating to the fairness to
the Company's shareholders of the Offer Price in the Buyout Tender Offer with
respect to the acquisition by the Shareholder of all Securities Beneficially
Owned by the Company at the Buy/Sell Price.
(ii) If the Company shall not agree to repurchase the Voting Securities
Beneficially Owned by the Shareholder Group pursuant to Section 3.6(c)(i)
above, the Company shall have the right, within ninety (90) days following
the end of the Company Decision Period, to obtain the fairness opinion and
execute a merger agreement between the Company and any member of the
Shareholder Group pursuant to which the Shareholder or a Shareholder
Affiliate shall acquire Beneficial Ownership of all remaining Securities at
the Buy/Sell Price. The terms of such merger agreement shall include
customary provisions regarding the non-solicitation of alternative
transactions by the Company and the recommendation of the Merger to the
Company's shareholders, if required.
(iii) If the Company fails to satisfy the condition pursuant to Section
3.6(c)(ii) above by the end of such ninety (90) day period, or if the
Company cannot obtain a fairness opinion by the end of such ninety (90) day
period, this Agreement shall immediately terminate.
(d) If the Shareholder and the Company each provide a Buy/Sell Notice to the
other party on the same day, the Buy/Sell Notice containing the higher valued
Buy/Sell Price shall be the effective and controlling Buy/Sell Notice. In the
event that (i) the Buy/Sell Price set forth in either or both of the Buy/Sell
Notices consists of consideration other than cash, and (ii) the parties are
unable to reach agreement as to which of the Buy/Sell Prices is higher valued
for purposes of this subsection (d), an independent, internationally
recognized investment banking firm mutually agreeable to both parties shall
conclusively make such determination.
(e) Any purchase by the Company of the Shareholder Group's Securities
pursuant to this Section shall be closed within a period ending ninety (90)
days after the end of the Shareholder Decision Period or the Company Decision
Period, as the case may be, or thirty (30) days after the date of receipt of
all necessary regulatory approvals, whichever is later.
Section 3.7 Charter and By-Laws. During the term of this Agreement the
Company shall not amend, alter or repeal, or propose the amendment, alteration
or repeal of, any provision of the Charter or the By-Laws in any manner which
is inconsistent with the terms of this Agreement and which adversely affects
the rights of the
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Shareholder Group under the terms of this Agreement. If at any time during the
term of this Agreement the provisions of this Agreement shall conflict with
the provisions of the Charter and the By-Laws, the provisions of this
Agreement shall be controlling.
Section 3.8. Rights Agreement. During the term of this Agreement, the
Company hereby agrees not to amend any provision of the Rights Agreement in
any manner which is inconsistent with the terms of this Agreement or the
Merger Agreement and which adversely affects the rights of the Shareholder
Group under the terms of this Agreement.
Section 3.9. Agreement Not to Convert. During the term of this Agreement and
prior to the occurrence of a Regulatory Change, the Shareholder agrees that it
shall not, and shall cause each Shareholder Affiliate not to, Convert shares
of Convertible Preferred Stock Beneficially Owned by the Shareholder or any
Affiliate into shares of Common Stock except to the extent any such shares of
Convertible Preferred Stock are Converted (a) concurrently with the Transfer
of such shares to any Person other than the Shareholder or any Shareholder
Affiliate or (b) pursuant to the Shareholder's top-up rights as set forth in
Section 3.3(a)(i)(B).
Section 3.10. Taxes Upon Conversion or Exchange. The Company hereby agrees
to pay any and all stock transfer and documentary stamp taxes that may be
payable in respect of any issuance or delivery of (i) any shares of
Convertible Preferred Stock, (ii) any shares of Common Stock issued in a
Conversion of shares of Convertible Preferred Stock, or (iii) any exchange of
shares of Common Stock for shares of Convertible Preferred Stock, or
certificates or instruments evidencing any of such shares or securities. The
Company shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issuance or delivery of
shares of Common Stock in a Conversion of shares of Convertible Preferred
Stock in a name other than that in which the shares of such Convertible
Preferred Stock were registered.
Section 3.11. Make Whole Payment. Immediately upon the Conversion of any
share of Series A Preferred Stock, the Company shall pay to the Shareholder an
amount (a "Make Whole Payment") with respect to such share equal to the Total
Make Whole Amount for such share as of the date of such Conversion; provided,
however, that the Company shall not be required to make a Make Whole Payment
in respect of the Conversion of fewer than 25,000 shares of Series A
Convertible Preferred Stock; provided, further, that any Make Whole Payments
not required to be made pursuant to this sentence shall be carried forward and
taken into account in determining whether the Company must provide the
Shareholder with a subsequent Make Whole Payment.
Section 3.12. Prohibition on Senior Securities. During the term of this
Agreement, the Company hereby agrees that it shall not create, authorize or
reclassify any authorized stock of the Company into (x) any class or series of
the Company's capital stock ranking prior to the Convertible Preferred Stock
as to dividends or as to distributions of assets upon liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or (y) any
class or series of the Company's capital stock entitled to vote separately as
a class on any matter whatsoever, other than an amendment to the Charter which
would have the effect of modifying the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
class or series so as to affect the holders thereof adversely, or (z) any
security convertible into shares of any class or series described in (x) or
(y) above.
ARTICLE IV
BOARD REPRESENTATION AND VOTING
Section 4.1. Directors Designated by the Shareholder. (a) Immediately
following the Closing, the Board shall expand the size of the Board by two (2)
Directors and shall appoint as additional Directors the two (2) Initial
Shareholder Nominees (as defined in Section 4.1(b) below) who have been
designated by the Shareholder in the Initial Shareholder Nominee Notice (as
defined in Section 4.1(b) below) attached as Exhibit C hereto. One Initial
Shareholder Nominee shall be placed in the class of Directors next standing
for election, and the remaining Initial Shareholder Nominee shall be placed in
the class of Directors next but one standing for election.
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Immediately following the occurrence of a Regulatory Change, the Board shall
expand the Board as may be necessary and shall appoint additional Initial
Shareholder Nominees as designated by the Shareholder in an additional Initial
Shareholder Nominee Notice in a number sufficient to ensure that Shareholder
Nominees comprise a number of Directors which is (x) 4 Directors if the total
size of the Board is 14 or fewer Directors (excluding any Shareholder
Nominees) or (y) one-third (rounding down to the nearest whole Director) of
the Board if the total size of the Board is more than 14 Directors (excluding
any Shareholder Nominees). Such additional Initial Shareholder Nominees shall
be distributed among the classes of Directors as evenly as possible. In the
event of a vacancy caused by the disqualification, removal, resignation or
other cessation of service of any Initial Shareholder Nominee from the Board,
the Board shall elect as a Director (to serve until the Company's immediately
succeeding annual meeting of shareholders) a new Initial Shareholder Nominee
who has been designated by the Shareholder in an additional Initial
Shareholder Nominee Notice that has been provided to the Company at least
seven (7) days prior to the date of a regular meeting of the Board.
(b) The Shareholder shall provide notice to the Company (the "Initial
Shareholder Nominee Notice") as required by Section 4.1(a) above, which notice
shall contain the following information: (i) the name of the person(s) it has
designated to become Director(s) (the "Initial Shareholder Nominees"), and
(ii) all information required by Regulation 14A and Schedule 14A under the
Exchange Act with respect to each such Initial Shareholder Nominee.
(c) Following the occurrence of a Regulatory Change and during the term of
this Agreement, until such time as the Initial Shareholder Nominees and the
Successor Shareholder Nominees (as defined in Section 4.1(d) below) together
comprise a number of Directors which is one-third (rounding down to the
nearest whole Director) of the Board, at the first annual meeting of
shareholders of the Company following the occurrence of a Regulatory Change
and at each subsequent annual meeting of shareholders of the Company at which
(i) the term of any Director is to expire or (ii) a vacancy is caused by the
removal, resignation, retirement, death, disability or disqualification or
other cessation of service of any Director, the Company shall at its option
(i) cause such directorship to remain vacant, with the size of the Board
correspondingly being reduced, or (ii) designate as a replacement Director a
Successor Shareholder Nominee to be included in the slate of nominees
recommended by the Board to the Company's shareholders for election as
Directors and use its best efforts to cause the election of each such
Successor Shareholder Nominee to the Board, including soliciting proxies in
favor of the election of such persons. The Successor Shareholder Nominees
shall be divided as nearly equally as possible among all the classes of
Directors, as specified in the Successor Shareholder Nominee Notice (as
defined in Section 4.1(d) below).
(d) Following the occurrence of a Regulatory Change and during the term of
this Agreement, until such time as the Initial Shareholder Nominees and the
Successor Shareholder Nominees together comprise a number of Directors which
is one-third (rounding down to the nearest whole Director) of the Board, the
Shareholder shall provide notice to the Company in writing sixty (60) days
prior to each annual meeting of the Company's shareholders ("Successor
Shareholder Nominee Notice"), indicating (i) the name of the person(s) it has
designated to become Director(s) ("Successor Shareholder Nominees" and
together with Initial Shareholder Nominees, "Shareholder Nominees"), if any,
(ii) the class of Directors to which each such Successor Shareholder Nominee
shall be assigned, and (iii) all information required by Regulation 14A and
Schedule 14A under the Exchange Act with respect to each such Successor
Shareholder Nominee.
(e) The Shareholder shall consult with the Company in connection with the
identity of any proposed Shareholder Nominee. In the event the Company is
advised in writing by its outside counsel that a proposed Shareholder Nominee
would not be qualified under the Company's Charter or By-Laws or any
applicable statutory or regulatory standards to serve as a Director, or if the
Company otherwise reasonably objects to a proposed Shareholder Nominee,
including without limitation because such Shareholder Nominee either (i) is a
director or officer of a direct competitor of the Company or (ii) has engaged
in any adverse conduct that would require disclosure under Item 7 of Schedule
14A promulgated under the Exchange Act, the Shareholder agrees to withdraw
such proposed Shareholder Nominee and nominate a replacement therefor (which
replacement
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would be subject to the requirements of this Section 4.1(e)). Any such
objection by the Company must be made no later than one (1) month after the
Shareholder first informs the Company of the identity of the proposed
Shareholder Nominee; provided, however, that the Company shall in all cases
notify the Shareholder of any such objection sufficiently in advance of the
date on which proxy materials are mailed by the Company in connection with
such election of directors to enable the Shareholder to propose an alternate
Shareholder Nominee pursuant to and in accordance with the terms of this
Agreement. Prior to the occurrence of a Regulatory Change, no more than one
Shareholder Nominee may be a director, officer or employee of the Shareholder.
Following the occurrence of a Regulatory Change, no more than two (2)
Shareholder Nominees may be directors, officers or employees of the
Shareholder.
(f) During the term of this Agreement the Company agrees to include each
Shareholder Nominee to be added to or retained on the Board pursuant to this
Agreement in the slate of nominees recommended by the Board to the Company's
shareholders for election as Directors and shall use its best efforts to cause
the election or reelection of each such Shareholder Nominee to the Board,
including soliciting proxies in favor of the election of such persons.
(g) During the term of this Agreement and prior to the occurrence of a
Regulatory Change, but not thereafter, no Shareholder Nominee shall chair a
committee of the Board and no Shareholder Nominee shall serve on the
Nominating Committee of the Board. Following the occurrence of a Regulatory
Change and during the term of this Agreement, the Shareholder shall be
entitled to designate Shareholder Nominees to be members of each committee of
the Board (including without limitation the executive committee, the audit
committee, the nominating committee and the executive compensation committee),
and to fill any vacancies caused by the departure of Shareholder Nominees from
any such committees if no other Shareholder Nominee is a member of such
committee, for so long as Shareholder Nominees are not represented pro rata,
based on the number of Directors who are Shareholder Nominees (rounding down
to the nearest whole Director), with respect to each committee of the Board.
Section 4.2. Resignation of Shareholder Nominees. Unless otherwise agreed by
the Company, the Shareholder shall cause each of the Shareholder Nominees then
serving on the Board to offer their resignations from the Board immediately
upon the earlier to occur of the following:
(a) The termination of this Agreement pursuant to and in accordance with
Section 5.2 hereof; and
(b) The Shareholder Group's Total Ownership Percentage falling below
10.0%.
Section 4.3. Voting. During the term of this Agreement, the Shareholder, as
a holder of shares of Voting Securities, agrees that:
(a) The Shareholder shall, and shall cause each Shareholder Affiliate to, be
present, in person or by proxy, at all meetings of shareholders of the Company
so that all Voting Securities having voting rights which are Beneficially
Owned by the Shareholder and the Shareholder Affiliates may be counted for the
purpose of determining the presence of a quorum at such meetings.
(b)(i) With respect to the election of Directors, the Shareholder shall, and
shall cause each Shareholder Affiliate to, vote all Voting Securities
Beneficially Owned by the Shareholder and any Shareholder Affiliate in favor
of the election of all candidates for Director nominated by the Company's
Board (including the Shareholder Nominees) and (ii) with respect to any
proposal initiated by a shareholder of the Company relating to the redemption
of the rights issued pursuant to the Rights Agreement or any modification of
the Rights Agreement (other than nonbinding precatory resolutions with respect
to which subsection (c) hereof shall apply), the Shareholder shall, and shall
cause each member of the Shareholder Group to, vote all Voting Securities
Beneficially Owned by the Shareholder or any member of the Shareholder Group
in accordance with the recommendation of the Board.
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<PAGE>
(c)(i) With respect to the Opt-out Amendment (as defined in the Merger
Agreement), the Shareholder and any member of the Shareholder Group may vote
any or all of the Securities Beneficially Owned by them in their sole
discretion; and (ii) with respect to any proposed amendment to the Charter or
By-laws which would reasonably have the effect of modifying in any way the
Opt-out Amendment or would reasonably cause the Company to become subject to
(a) the Control Share Acquisition Statute (as defined in the Merger Agreement)
or (b) any other provisions which are substantially similar to the Control
Share Acquisition Statute, the Shareholder Group shall have the right to
abstain or vote against such amendment.
(d) With respect to all other matters submitted to a vote of the Company's
shareholders, prior to the occurrence of a Regulatory Change, but not
thereafter, and during the term of this Agreement, the Shareholder and any
member of the Shareholder Group may vote any or all of the Voting Securities
Beneficially Owned by them, in their sole discretion. Following the occurrence
of a Regulatory Change and during the term of this Agreement, (i) the
Shareholder and each member of the Shareholder Group may vote in their sole
discretion a number of Voting Securities Beneficially Owned by the Shareholder
Group having voting rights with respect to such other matters representing in
the aggregate a Voting Ownership Percentage not in excess of the Unrestricted
Ownership Percentage, and (ii) the Shareholder shall, and shall cause each
member of the Shareholder Group to, vote all Voting Securities Beneficially
Owned by the Shareholder Group having voting rights with respect to such other
matters representing in the aggregate a Voting Ownership Percentage in excess
of the Unrestricted Ownership Percentage in the same proportion (based on
total Votes) as all Voting Securities voted on any such other matter are voted
by the shareholders of the Company other than the Shareholder or any member of
the Shareholder Group, provided, however, that the Shareholder and any member
of the Shareholder Group may vote any or all of the Voting Securities
Beneficially Owned by them in their sole discretion with respect to a vote of
the Company's shareholders on any transaction or series of transactions which
would, if consummated, constitute a Change in Control of the Company.
Notwithstanding the foregoing, at all times prior to or following the
occurrence of a Regulatory Change, the Shareholder shall, and shall cause each
member of the Shareholder Group to, vote all Excess Buy-Back Securities having
voting rights with respect to any matter (including the election of Directors)
in the same proportion (based on total Votes) as all Voting Securities voted
on such matter are voted by the shareholders of the Company other than the
Shareholder or any member of the Shareholder Group.
(e) At all times the Shareholder Group may exercise in its sole discretion
such voting rights as the Convertible Preferred Stock may have from time to
time pursuant to the Charter and with respect to an amendment to the Charter
which would have the effect of modifying the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
class or series so as to affect the holders thereof adversely.
ARTICLE V
EFFECTIVENESS AND TERMINATION
Section 5.1. Effectiveness. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated pursuant to
Section 5.2 hereof.
Section 5.2. Termination. Unless otherwise agreed in writing by the
Shareholder, this Agreement shall terminate upon the earliest to occur of the
following:
(a) The Company's quarterly dividend on its Common Stock falling below
$0.30 per share (as appropriately adjusted to reflect any stock split,
stock dividend, reverse stock split, reclassification or any other
transaction with a comparable effect) in any five (5) quarters during the
term of this Agreement.
(b) The Company's failure to pay the stated quarterly dividend on any
series of Convertible Preferred Stock in any five (5) quarters during the
term of this Agreement.
(c) The election to the Board of a majority of Directors other than those
nominated by the Nominating Committee of the Board.
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(d) The size of the Board being increased to more than 21 directors.
(e) The Shareholder Group's Total Ownership Percentage falling below 9.9%
at any time.
(f) The Shareholder Group's Total Ownership Percentage falling below
30.0% at any time following the fifteenth (15th) anniversary of the date
hereof.
(g) The material breach of this Agreement or the Merger Agreement by the
Company, provided that the Company has not cured the breach within thirty
(30) days after receiving notice of such breach, or if cure within such
time is not possible, the Company has not made reasonable efforts to cure
such breach, provided, further that in no event shall such cure period
extend longer than ninety (90) days from the date of first notice of such
breach.
(h) Mutual written agreement of the Company and the Shareholder at any
time to terminate this Agreement, which termination shall occur at a time
to be fixed in such mutual agreement.
(i) The entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial
part of the Company's property, or ordering the winding up or liquidation
of the Company's affairs; and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of sixty (60) consecutive days.
(j) The commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by the Company to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the filing by the Company of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State law,
or the consent by the Company to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of the Company's property, or the making by the
Company of an assignment for the benefit of creditors, or the admission by
the Company in writing of the Company's inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Compliance With Law. Notwithstanding anything to the contrary
in this Agreement, no Transfer of Securities shall be deemed to be required or
permitted pursuant to this Agreement if such Transfer would (a) result in an
adverse effect on the exemptions from the 1935 Act of the Shareholder or any
Shareholder Affiliate or the Company or any subsidiary of the Company, or (b)
require regulatory approvals which, individually or in the aggregate with
respect to such Transfer, would have a material adverse impact on the Company
or any of its subsidiaries or the Shareholder or any Shareholder Affiliate.
Section 6.2. Regulatory Matters. During the term of this Agreement, the
Company agrees to take all commercially reasonable steps to assist the
Shareholder in (a) with respect to each provision of this Agreement, causing a
Regulatory Change which would not reasonably be expected to have an adverse
effect on the Company to occur as soon as reasonably practicable, and (b)
securing such regulatory approvals as would not reasonably
B-17
<PAGE>
be expected to have a material adverse effect on the Company and as may be
necessary to allow the Shareholder to exercise its rights under the Agreement
at all times, including without limitation the right of the Shareholder to
Transfer Securities free of the restrictions and limitations imposed by
Section 6.1. Following the occurrence of a Regulatory Change, if the Company
believes in good faith that the Shareholder's regulatory status as modified by
such Regulatory Change would place an unreasonable restriction on the
Company's implementation of the Company's strategic business plan, then the
Company shall have an immediate right to exercise its Buy-Sell Option as
provided in Section 3.6 hereof, without regard to whether Section 3.6 would
otherwise then be applicable.
Section 6.3. Injunctive Relief. Each party hereto acknowledges that it would
be impossible to determine the amount of damages that would result from any
breach of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any of such provisions would likely
be inadequate and, accordingly, agrees that each other party shall, in
addition to any other rights or remedies which it may have, be entitled to
seek such equitable and injunctive relief as may be available from any court
of competent jurisdiction to compel specific performance of, or restrain any
party from violating, any of such provisions. In connection with any action or
proceeding for injunctive relief, each party hereto hereby waives the claim or
defense that a remedy at law alone is adequate and agrees, to the maximum
extent permitted by law, to have each provision of this Agreement specifically
enforced against him or it, without the necessity of posting bond or other
security against him or it, and consents to the entry of injunctive relief
against him or it enjoining or restraining any breach or threatened breach of
such provisions of this Agreement.
Section 6.4. Successors and Assigns. This Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the Company and by
the Shareholder and their respective successors and permitted assigns, and no
such term or provision is for the benefit of, or intended to create any
obligations to, any other Person.
Section 6.5. Amendments; Waiver. (a) This Agreement may be amended only by
an agreement in writing executed by the parties hereto. Any approval of an
amendment of this Agreement upon the part of the Company shall require the
approval of a majority of the Independent Directors at a duly convened meeting
thereof or all of the Company's directors by written consent thereto.
(b) Either party may waive in whole or in part any benefit or right provided
to it under this Agreement, such waiver being effective only if contained in a
writing executed by the waiving party. No failure by any party to insist upon
the strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon breach thereof
shall constitute a waiver of any such breach or of any other covenant, duty,
agreement or condition, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter. Any waiver of any benefit or right provided
to the Company under this Agreement shall require the approval of a majority
of the Board and a majority of the Independent Directors at a duly convened
meeting thereof or all of the Company's directors by written consent thereto.
Section 6.6. Notices. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by courier, three days after being
deposited in the mail (registered or certified mail, postage prepaid, return
receipt requested), or when received by facsimile transmission if promptly
confirmed by one of the foregoing means, as follows:
If to the Company:
WAI, Inc.
100 W. Fifth Street
Tulsa, Oklahoma
Attention: President
Fax: (918) 588-7960
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<PAGE>
with a copy to:
Gable Gotwals Mock Schwabe Kihle
100 W. Fifth Street
Suite 1000
Tulsa, Oklahoma 74103
Attention: Donald A. Kihle, Esq.
Fax: (918) 588-7873
If to the Shareholder:
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: President
Fax: (913) 575-8061
with a copy to:
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: General Counsel
Fax: (913) 575-1788
or to such other address or facsimile number as either party may, from time to
time, designate in a written notice given in a like manner.
Section 6.7. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF OKLAHOMA
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 6.8. Headings. The descriptive headings of the several sections in
this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement.
Section 6.9. Integration. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the
entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or undertakings
with respect to its subject matter other than those expressly set forth or
referred to herein.
Section 6.10. Severability. If any term or provision of this Agreement or
any application thereof shall be declared or held invalid, illegal or
unenforceable, in whole or in part, whether generally or in any particular
jurisdiction, such provision shall be deemed amended to the extent, but only
to the extent, necessary to cure such invalidity, illegality or
unenforceability, and the validity, legality and enforceability of the
remaining provisions, both generally and in every other jurisdiction, shall
not in any way be affected or impaired thereby.
Section 6.11. Consent to Jurisdiction. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the Shareholder and the
Company each hereby consent to the in personam jurisdiction of the United
States federal courts and state courts located in Tulsa, Oklahoma; the
Shareholder and the Company each agree that service in the manner set forth in
Section 6.5 hereof shall be valid and sufficient for all purposes; and the
Shareholder and the Company each agree to, and irrevocably waive any objection
based on forum non conveniens or venue not to, appear in any United States
federal court state court located in Tulsa, Oklahoma.
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<PAGE>
Section 6.12. Counterparts. This Agreement may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Shareholder have caused this
Agreement to be duly executed by their respective authorized officers as of the
date set forth at the head of this Agreement.
WAI, INC.
By:__________________________________
Name:
Title:
WESTERN RESOURCES, INC.
By:__________________________________
Name:
Title:
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<PAGE>
APPENDIX C
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
CONVERTIBLE PREFERRED STOCK
OF
WAI, INC.
PURSUANT TO SECTION 1032 OF THE
GENERAL CORPORATION ACT OF THE STATE OF OKLAHOMA
<PAGE>
WAI, INC., an Oklahoma corporation (the "Corporation"), does hereby certify
that the Board of Directors of the Corporation duly adopted the following
resolution, at a meeting duly convened and held on , in
respect of two series of Preferred Stock, par value $0.01 per share, of the
Corporation, pursuant to authority conferred upon the Board by Article Fourth
of the Certificate of Incorporation of the Corporation and in accordance with
Section 1032 of the General Corporation Act of the State of Oklahoma:
BE IT RESOLVED, that the issuance of two series of Preferred Stock of the
Corporation is hereby authorized, and the designation, amount, powers,
preferences and relative, participating, optional and other special rights and
qualifications, limitations and restrictions thereof, of the shares of such
series of Preferred Stock of the Corporation, are hereby fixed as follows:
1. Designation; Class and Amount; Certain Definitions. The two series of
Preferred Stock, the issuance of which is hereby authorized, shall comprise
twenty million (20,000,000) shares the distinctive serial designation of which
shall be "Preferred Stock, Series A", which is sometimes herein referred to as
"Convertible Preferred Stock, Series A" and thirty million (30,000,000) shares
the distinctive serial designation of which shall be "Preferred Stock, Series
B", which is sometimes herein referred to as "Convertible Preferred Stock,
Series B" and, together with the Convertible Preferred Stock, Series A, the
"Convertible Preferred Stock". Each share of Convertible Preferred Stock,
Series A shall be identical in all respects with all other shares of
Convertible Preferred Stock, Series A and each share of Convertible Preferred
Stock, Series B shall be identical in all respects with all other shares of
Convertible Preferred Stock, Series B. The number of shares of Convertible
Preferred Stock which are purchased or otherwise acquired by the Corporation
or converted into Common Stock shall be canceled and shall revert to
authorized but unissued shares of Convertible Preferred Stock undesignated as
to series. Certain capitalized terms used herein have the meanings specified
therefor in Section 10 below.
2. Dividends; Priority. (a)(i) Payments of Dividend; Convertible Preferred
Stock, Series A. Each Holder of shares of Convertible Preferred Stock, Series
A shall be entitled to receive, when and if declared by the Board of
Directors, in respect of each share of Convertible Preferred Stock, Series A,
out of the funds of the Corporation legally available therefor, quarterly cash
dividend payments for each Dividend Period or portion thereof during which
such share of Convertible Preferred Stock, Series A is outstanding. Such
dividend payments shall be made, (A) during the First Dividend Stage, in an
amount determined by multiplying (x) the dividend amount declared in respect
of each share of the Corporation's common stock, par value $0.01 per share
(the "Common Stock") for such Dividend Period (such amount payable being
adjusted appropriately as set forth in Section 7(d) to reflect any stock
split, stock dividend, reverse stock split, reclassification or any
transaction with a comparable effect upon the Common Stock), times (y) 1.5;
and (B) during the Second Dividend Stage, in an amount determined by
multiplying (x) the dividend amount declared in respect of each share of
Common Stock of the Corporation for such Dividend Period (such amount payable
being adjusted appropriately as set forth in Section 7(d) to reflect any stock
split, stock dividend, reverse stock split, reclassification or any
transaction with a comparable effect upon the Common Stock), times (y) 1.25,
provided, however, that in no event during either the First or the Second
Dividend Stage shall the aggregate annual dividend amount payable in respect
of each share of Convertible Preferred Stock, Series A be less than $1.80. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on shares of Convertible Preferred Stock,
Series A, which are not paid.
(ii) Payments of Dividend; Convertible Preferred Stock, Series B. Each
Holder of shares of Convertible Preferred Stock, Series B, shall be entitled
to receive, when and if declared by the Board of Directors, in respect of each
share of Convertible Preferred Stock, Series B, out of the funds of the
Corporation legally available therefor, quarterly cash dividend payments for
each Dividend Period or portion thereof during which such share of Convertible
Preferred Stock, Series B is outstanding. Such dividend payments shall be made
in an amount determined by multiplying (x) the dividend amount declared in
respect of each share of Common Stock of the Corporation for such Dividend
Period (such amount payable being adjusted appropriately as set forth in
Section 7(d) to reflect any stock split, stock dividend, reverse stock split,
reclassification or any transaction with a
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comparable effect upon the Common Stock), times (y) 1.25, provided, however,
that in no event, during the First Dividend Stage, shall the aggregate annual
dividend amount payable in respect of each share of Convertible Preferred
Stock, Series B be less than $1.50 and provided, further, that in no event,
during the Second Dividend Stage, shall the aggregate annual dividend amount
payable in respect of each share of Convertible Preferred Stock, Series B be
less than $1.80. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on shares of
Convertible Preferred Stock, Series B, which are not paid.
(b) Payment and Record Dates. Dividends accrued on the Convertible Preferred
Stock in respect of each Dividend Period shall be payable, when and if
declared by the Board of Directors, in arrears prior to or concurrently with
each date of payment (each such date, a "Dividend Payment Date") by the
Corporation of quarterly cash dividends on the Common Stock in respect of such
Dividend Period; provided, however, that if any such day is not a Business Day
the applicable Dividend Payment Date shall be the next succeeding day that is
a Business Day; and provided, further that if no quarterly cash dividends are
paid on the Common Stock in respect of any such Dividend Period, the Dividend
Payment Date shall mean such date as may be determined by the Board of
Directors within three months following the end of such Dividend Period.
Dividends on the Convertible Preferred Stock shall accrue based on the then-
current dividend amount on a daily basis from the commencement of each
Dividend Period. Dividends will cease to accrue in respect of any shares of
Convertible Preferred Stock on the Surrender Date (as defined below) in
respect of a mandatory conversion pursuant to Section 7(c) or on the Surrender
Date in respect of a voluntary conversion pursuant to Section 7(a). Dividends
payable on the Convertible Preferred Stock for any Dividend Period
constituting less than a full fiscal quarter shall be computed ratably on the
basis of a 360-day year of 12 30-day months. Dividends for any Dividend Period
shall not be cumulative to the extent not paid in full on each Dividend
Payment Date. Dividends on the Convertible Preferred Stock in respect of any
Dividend Period unpaid as of the Dividend Payment Date for such Dividend
Period shall permanently remain unpaid. The foregoing notwithstanding,
dividends on account of arrears for any past Dividend Periods may be declared
and paid at any time, without reference to any regular Dividend Payment Date.
Dividends shall be payable to the Holders as they appear on the Stock Books
not exceeding 40 days preceding the relevant Dividend Payment Date. Dividends
shall be paid in cash, by wire transfer in immediately available funds to the
accounts designated by the respective Holders in written notices given to the
Corporation at least five Business Days prior to the payment date or by such
other means as may be agreed to by the Corporation and the respective Holders,
such wire transfer to be effected for good value on or before the Dividend
Payment Date.
(c) Dividend Rate; Calculation of Dividend Rate; Notice.
(i) The First Dividend Stage shall commence upon the initial issuance of
Convertible Preferred Stock and shall cease upon the fifth anniversary of
the Closing Date.
(ii) The Second Dividend Stage shall commence upon the fifth anniversary
of the Closing Date and shall continue for so long as any shares of
Convertible Preferred Stock shall remain outstanding.
(iii) Notwithstanding anything in this Certificate of Designations to the
contrary, the holders of the Convertible Preferred Stock shall participate
in all Special Dividends on a share for share basis with the holders of
Common Stock, as if shares of the Convertible Preferred Stock were
converted into Common Stock immediately prior to the record date with
respect to each such Special Dividend, and Special Dividends shall not be
taken into account in determining the annual dividend rate of the
Convertible Preferred Stock for purposes of Section 2(a) hereof.
(d) The Corporation will cause written notice of each dividend amount on the
Convertible Preferred Stock to be given to each Holder within five Business
Days after it is determined by the Board of Directors. Notwithstanding the
foregoing, if the Corporation shall not declare quarterly cash dividends on
its Common Stock for any Dividend Period, the dividend amount on the
Convertible Preferred Stock for purposes of Section 2(a) hereof shall be
computed by reference to the dividend amount on the Common Stock for the most
recent Dividend Period in respect of which dividends (other than Special
Dividends) were paid.
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(e) Priority as to Dividends; Restriction on Dividends, Redemption, etc. The
Corporation shall not, for so long as the Convertible Preferred Stock shall
remain outstanding, directly or indirectly, declare or pay or set apart for
payment any dividends (including cumulative dividends) or make (or permit any
Subsidiary to make) any other distributions on, or payment on account of the
purchase, redemption or other retirement or acquisition for value of the
Common Stock, any other capital stock of the Corporation ranking junior to the
Convertible Preferred Stock as to dividends or as to distribution of assets
upon any liquidation, dissolution or winding up of the affairs of the
Corporation or any options, warrants or rights to purchase or acquire Common
Stock or any such capital stock or any securities convertible into or
exchangeable for shares of Common Stock or any such capital stock, except that
such payment of dividends and such other distributions and payments may be
made so long as full dividends payable on the Convertible Preferred Stock for
the Dividend Period commencing immediately prior to the date of such dividend,
distribution or other payment have been or are concurrently paid (or a sum
sufficient for the payment thereof set apart for such payment subject to
declaration thereof); provided, however, that the foregoing restrictions shall
not apply to: (i) any dividend payable solely in shares of any stock of the
Corporation ranking, as to dividends and as to distribution of assets upon any
liquidation, dissolution or winding-up of the affairs of the Corporation,
junior to the Convertible Preferred Stock (or payable solely in options,
warrants or rights to purchase or acquire any such stock) or (ii) any
distribution pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of
the Corporation or any Subsidiary heretofore or hereafter adopted; or (iii)
any distribution pursuant to a redemption, at the stated redemption price, of
any rights granted to Holders of Common Stock pursuant to a stockholder rights
plan; or (iv) any dividend approved in writing by the holders of at least 66
2/3 percent of all shares of Convertible Preferred Stock then outstanding.
Holders of shares of Convertible Preferred Stock shall be entitled to receive
dividends in accordance with the foregoing clause (a) of this Section 2 in
preference to and in priority over any dividend upon any securities junior to
the Convertible Preferred Stock.
3. Voting Rights. (a) Holders of shares of Convertible Preferred Stock,
voting together as a single class with holders of shares of Common Stock (and
with holders of any other class or series of stock which may similarly be
entitled to vote with the holders of Common Stock) shall be entitled at any
meeting of stockholders called for the purpose of voting on (or acting by
written consent without need of any advance notice) (i) the Opt-out Amendment
(as defined in the Merger Agreement) (ii) any proposed amendment to the
Certificate of Incorporation or By-Laws which would reasonably have the effect
of modifying in any way the Opt-out Amendment or would reasonably cause the
Corporation to become subject to (a) the Control Share Acquisition Statute (as
defined in the Merger Agreement) or (b) any other provisions which are
substantially similar to the Control Share Acquisition Statute or (iii) any
transaction or series of transactions submitted to a vote of the stockholders
of the Corporation which, if consummated, would constitute a Change in
Control, to vote with respect to such proposal or transaction(s). When voting
together with the holders of shares of Common Stock on any such
transaction(s), each share of Convertible Preferred Stock shall carry, as of
the record date applicable to such vote, a number of votes equal to the number
of votes carried in the aggregate by the number of shares of Common Stock
issuable upon conversion of one share of Convertible Preferred Stock into
Common Stock in accordance with Section 7 below.
(b) Except as provided by this Section 3 and Sections 4 and 8 below, or as
otherwise may be required by applicable law, the Holders of Convertible
Preferred Stock shall not be entitled, by virtue of their being Holders
thereof, to vote in any election of directors to the Board of the Corporation,
or with respect to any other matter submitted to the stockholders of the
Corporation. Where a vote of the Holders, voting as a separate class, may be
required by applicable law or by this Section 3 or Section 4 or 8, each share
of Convertible Preferred Stock, Series A and each share of Convertible
Preferred Stock, Series B, shall carry one vote.
4. Covenants. So long as any shares of Convertible Preferred Stock are
outstanding, the Corporation covenants and agrees with and for the benefit of
the Holders of such shares that without the affirmative vote or consent of
Holders of 66 2/3 percent of all shares of the Convertible Preferred Stock
then outstanding, voting as a separate class in person or by proxy or by
written consent delivered to the Secretary of the Corporation, the Corporation
shall not amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation, this Certificate of Designations, or any
amendment or supplement to any of the foregoing, so as to affect adversely the
rights, powers, preferences, qualifications, limitations or restrictions of
any Holder of Convertible Preferred Stock.
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5. Redemption. Shares of the Convertible Preferred Stock shall not be
redeemable, in whole or in part, in any event, at the option of the
Corporation.
6. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
Holders of shares of Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount per share in cash equal to the
amount that would be payable on one share of Common Stock (such amount payable
being adjusted appropriately to reflect any stock split, stock dividend,
reverse stock split, or any transaction with comparable effect upon the Common
Stock and assuming conversion of all shares of Convertible Preferred Stock
then outstanding into shares of Common Stock immediately prior to such
liquidation, dissolution or winding up), plus all dividends then due on the
Convertible Preferred Stock (the "Liquidation Preference"). This entitlement
of the Holders of shares of Convertible Preferred Stock shall be satisfied
before any similar payment shall be made or any assets distributed to the
holders of the Common Stock or any other security junior in rank to the
Convertible Preferred Stock as to distribution of assets upon such
dissolution, liquidation or winding up. If the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to all of the
Holders of the outstanding shares of Convertible Preferred Stock, then the
Holders of all such shares shall share ratably in such distribution of assets
in accordance with the respective liquidation preferences to which they are
entitled. For the purposes of this section, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, unless such voluntary sale, conveyance,
exchange or transfer shall be in connection with a dissolution or winding up
of the business of the Corporation.
7. Conversion. (a) Conversion Right. At any time after the occurrence of a
Regulatory Change, each share of Convertible Preferred Stock shall be
convertible at the option of the Holder thereof into one fully paid and
nonassessable share of Common Stock (as adjusted pursuant to Section 7(d)
hereof).
(b)(i) Conversion Procedures. Any Holder of shares of Convertible Preferred
Stock desiring to convert such shares into Common Stock shall surrender the
certificate(s) evidencing such shares of Convertible Preferred Stock of the
Holder at the office of the transfer agent appointed for the purpose of such
conversion by the Corporation. Such surrendered certificate(s), if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or
in blank, and, in the case of any conversion other than a mandatory conversion
pursuant to clause (c) of this Section 7 below, shall be accompanied by
written notice to the Corporation that the Holder elects so to convert such
shares of Convertible Preferred Stock, which notice shall specify the name or
names (with address or addresses) in which the Holder wishes the
certificate(s) evidencing shares of Common Stock to be issued, in exchange for
that certificate or those certificates so surrendered.
(ii) The Corporation shall, within five Business Days after such
surrender of certificates evidencing shares of Convertible Preferred Stock
accompanied by written notice and in compliance with any other conditions
contained herein, issue and deliver, or cause to be issued and delivered,
to the person(s) for whose account such certificate(s) evidencing shares of
Convertible Preferred Stock were so surrendered, or to the nominee(s) of
such Person(s), certificates representing the number of full shares of
Common Stock to which such Person shall be entitled pursuant to the then-
applicable conversion rate. Such conversion shall be deemed to have been
made on the date of such surrender of the certificate(s) evidencing shares
of Convertible Preferred Stock to be converted (the "Surrender Date") and
the Person(s) entitled to receive the Common Stock deliverable upon
conversion of such Convertible Preferred Stock shall be treated for all
purposes as the record holder(s) of such Common Stock on such date and
thereafter. Conversion of Preferred Stock may otherwise be achieved in
accordance with such procedures as the Corporation and a majority of the
Holders may agree.
(iii) In the event that fewer than all shares of Convertible Preferred
Stock represented by a surrendered certificate are to be converted
hereunder, a new certificate shall be issued at the Corporation's expense
representing the shares of Convertible Preferred Stock not so converted.
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(iv) Effective on the day following the Surrender Date, dividends shall
cease to accrue on any shares of Convertible Preferred Stock surrendered
for conversion, such shares of Convertible Preferred Stock shall no longer
be deemed outstanding, all rights of the Holders thereof as preferred
stockholders of the Corporation shall cease (other than the right to
receive dividends declared or otherwise payable to Holders of Convertible
Preferred Stock on a record date prior to the Surrender Date) and thereupon
the certificate(s) theretofore representing shares of Convertible Preferred
Stock shall represent only the right to receive the Common Stock
deliverable upon conversion in respect thereof.
(v) If any shares of Convertible Preferred Stock are surrendered for
conversion subsequent to the record date preceding a Dividend Payment Date
but on or prior to such Dividend Payment Date (except shares called for
redemption on a redemption date between such record date and such Dividend
Payment Date), the Holder of such shares at the close of business on such
record date shall be entitled to receive the dividend payable on such
shares on such Dividend Payment Date notwithstanding the conversion
thereof.
(c) Mandatory Conversion. Immediately upon the transfer of Beneficial
Ownership of any share of Convertible Preferred Stock to any Person other than
the Shareholder or an Affiliate of the Shareholder, such share of Convertible
Preferred Stock shall convert into one fully-paid and non-assessable share of
Common Stock (as adjusted pursuant to Section 7(d)), in accordance with the
procedures provided in clause (b) of this Section 7.
(d) The conversion rate shall be adjusted from time to time as follows:
(i) In case the Corporation shall, at any time or from time to time while
any of the shares of Convertible Preferred Stock are outstanding, (A) pay a
dividend in shares of its Common Stock, (B) subdivide its outstanding
shares of Common Stock into a smaller number of shares, or (C) combine its
outstanding shares of Common Stock into a smaller number of shares, the
conversion rate in effect immediately prior to such action shall be
adjusted so that the Holder of any shares of Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock which such Holder would have owned or have
been entitled to receive immediately following such action had such shares
of Convertible Preferred Stock been converted immediately prior thereto. An
adjustment made pursuant to this Section 7(d)(i) shall become effective
retroactively to immediately after the opening of business on the Business
Day following the record date in the case of a dividend and shall become
effective immediately after the opening of business on the Business Day
following the effective date in the case of a subdivision or combination.
If, as a result of an adjustment made pursuant to this Section 7(d)(i), the
Holder of any shares of Convertible Preferred Stock thereafter surrendered
for conversion shall become entitled to receive shares of two or more
classes of capital stock of the Corporation, the Board of Directors (whose
determination shall be conclusive) shall determine the allocation of the
adjusted conversion rate between or among shares of such classes of capital
stock.
(ii) In case the Corporation shall, at any time or from time to time
while any of the shares of Convertible Preferred Stock are outstanding,
issue rights or warrants to all holders of shares of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into or exchangeable for Common Stock) at a price
per share less than the current Market Price per share of Common Stock, at
such record date, the conversion rate shall be adjusted so that it shall
equal the rate determined by multiplying the conversion rate in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus
the number of additional shares of Common Stock offered for subscription or
purchase, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such current market price.
For the purposes of this Section 7(d)(ii), the issuance of rights or
warrants to subscribe for or purchase securities convertible into Common
Stock shall be deemed to be the issuance of rights or
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warrants to purchase the shares of Common Stock into which such securities
are convertible at an aggregate offering price equal to the aggregate
offering price of such securities plus the minimum aggregate amount (if
any) payable upon conversion of such securities into shares of Common
Stock; provided, however, that if all of the shares of Common Stock subject
to such rights or warrants have not been issued when such rights or
warrants expire, then the conversion rate shall promptly be readjusted to
the conversion rate which would then be in effect had the adjustment upon
the issuance of such rights or warrants been made on the basis of the
actual number of shares of Common Stock issued upon the exercise of such
rights or warrants. The foregoing provision shall not apply to issuances of
rights pursuant to a stockholder rights plan provided that such rights are
issued together with the Common Stock upon conversion of the Convertible
Preferred Stock. An adjustment made pursuant to this Section 7(d)(ii) shall
become effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
(iii) In case the Corporation shall, at any time or from time to time
while any of the shares of Convertible Preferred Stock are outstanding,
distribute to all holders of shares of its Common Stock evidences of its
indebtedness or securities or assets (excluding cash dividends payable out
of consolidated earnings or retained earnings or dividends payable in
shares of Common Stock) or rights or warrants to subscribe for securities
of the Corporation or any of its subsidiaries (excluding those referred to
in Section 7(d)(ii)), then in each such case the conversion rate shall be
adjusted so that it shall equal the rate determined by multiplying the
conversion rate in effect immediately prior to the date of such
distribution by a fraction, the numerator of which shall be the current
Market Price per share of the Common Stock on the record date referred to
below, and the denominator of which shall be such current market price per
share of the Common Stock less the then fair market value of the portion of
the assets or evidences of indebtedness or securities or assets so
distributed or of such subscription rights or warrants applicable to one
share of Common Stock. Such adjustment shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(iv) The Corporation shall be entitled at its option to make such
additional adjustments in the conversion rate, in addition to those
required by subsections 7(d)(i), 7(d)(ii) and 7(d)(iii), as shall be
necessary in order that any dividend or distribution in shares of stock,
subdivision or combination of shares of Common Stock, issuance of rights or
warrants, evidences of indebtedness or assets (other than cash dividends
payable out of consolidated earnings or retained earnings) referred to
above, shall not be taxable to the Holders of shares of Convertible
Preferred Stock.
(v) In any case in which this Section 7(d) shall require that an
adjustment be made retroactively immediately following a record date, the
Corporation may elect to defer (but only for five (5) Business Days
following the filing of the statement referred to in Section 7(d)(vii))
issuing to the holder of any shares of this Series converted after such
record date (A) the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion over and above (B) the shares of
Common Stock and other capital stock of the Corporation issuable upon such
conversion on the basis of the conversion rate prior to adjustment.
(vi) Notwithstanding any other provisions of this Section 7(d), the
Corporation shall not be required to make any adjustment of the conversion
rate (A) in respect of any Special Dividend in which the holders of
Convertible Preferred Stock participate as provided in Section 2(c)(iii) or
(B) unless such adjustment would require an increase or decrease of at
least 1% in such rate (any lesser adjustment shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% in such
rate).
(vii) Whenever an adjustment in the conversion rate is required, the
Corporation shall forthwith place on file with its Transfer Agent a
statement signed by its Chief Executive Officer, Chief Financial Officer or
a Vice President and by its Secretary, Assistant Secretary, Treasurer or
Assistant Treasurer, stating the adjusted conversion rate determined as
provided herein. Such statements shall set forth in reasonable detail
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such facts as shall be necessary to show the reason and the manner of
computing such adjustment. Promptly after the adjustment of the conversion
rate, the Corporation shall mail a notice thereof to each holder of shares
of Convertible Preferred Stock.
(e) Reservation of Shares; Etc. (i) The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
and unissued stock, such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of the
Convertible Preferred Stock from time to time outstanding, solely for the
purpose of effecting such conversion. The Corporation shall, from time to
time, in accordance with the laws of the State of Oklahoma, increase the
authorized number of shares of Common Stock if at any time the number of
shares of authorized and unissued Common Stock shall not be sufficient to
permit the conversion of all the then-outstanding shares of Convertible
Preferred Stock.
(ii) If any shares of Common Stock required to be reserved hereunder for
purposes of conversion require registration with or approval of any
governmental authority under any Federal or state law before such shares
may be issued upon conversion, the Corporation shall, in good faith and as
expeditiously as possible, cause such shares to be duly registered or
approved as the case may be. If the Common Stock is listed on the New York
Stock Exchange or any other national or foreign securities exchange, the
Corporation shall, if permitted by the rules of such exchange, list and
keep listed on such exchange, upon official notice of issuance, all shares
of Common Stock issuable upon conversion of Convertible Preferred Stock.
(iii) The Corporation will pay any and all taxes that may be payable in
respect of the issuance or delivery of shares of Common Stock upon
conversion of shares of Convertible Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Convertible Preferred Stock so converted were registered and no such
issuance or delivery shall be made unless and until the person requesting
such issuance has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has been
paid.
(f) Reclassifications, Consolidations, Mergers or Sales of Assets. In case
of (i) any reclassification or change of outstanding shares of Common Stock
(other than a change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or combination) or
(ii) any consolidation or merger of the Corporation with one or more other
corporations (other than a consolidation or merger in which the Corporation is
the continuing corporation and which does not result in any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of
Convertible Preferred Stock), (iii) any sale or conveyance to another
corporation or other entity of all or substantially all of the property of the
Corporation, or (iv) any other transaction which would constitute a Change in
Control of the Corporation, then the Corporation, or such successor
corporation or other entity, as the case may be, shall make appropriate
provision so that the holder of each share of Convertible Preferred Stock then
outstanding shall have the right to convert such share into the kind and
amount of shares of stock or other securities and property receivable upon
such consolidation, merger, sale, reclassification, change or conveyance by a
holder of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, reclassification, change or conveyance,
subject to adjustment which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 7(d). The provisions of
this paragraph shall apply similarly to successive consolidations, mergers,
sales or conveyances.
8. Priority. The Convertible Preferred Stock shall be senior in rank, both
as to dividends and as to distribution of assets upon any liquidation,
dissolution or winding up of the affairs of the Corporation, to the Common
Stock, or any class of equity securities of the Corporation which by its terms
are junior to the Convertible Preferred Stock, and shall not be junior in rank
with respect to any class or series of preferred stock that may be issued by
the Corporation, unless the Holders of 66 2/3 percent of the outstanding
shares of the Convertible Preferred Stock shall consent to the creation,
reclassification or authorization of any class or series of the Corporation's
capital stock ranking prior to the Convertible Preferred Stock as to dividends
or as to
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distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or any security convertible
into shares of such class or series. Except as otherwise provided in this
Certificate of Designations, the Convertible Preferred Stock, Series A shall
be deemed to rank on a parity with the Convertible Preferred Stock, Series B.
9. Notices. The Corporation shall provide notice to each Holder of any
action taken or proposed to be taken or any determination made by the
Corporation and/or the Shareholder under the terms of this Certificate of
Designations. Notice of any such action or determination by the Corporation
and/or the Shareholder and all other notices and other communications provided
for in this Certificate of Designations shall be delivered by facsimile and by
reputable overnight courier,
(a) if to the Corporation, to:
WAI, Inc.
Tulsa, Oklahoma 74103
Facsimile: (918) 588-7960
Attn: President
with a copy to:
Gable Gotwals Mock Schwabe Kihle Gaberino
100 West Fifth Street, Suite 1000
Tulsa, Oklahoma 74103
Facsimile: (918) 588-7873
Attn: Donald H. Kihle, Esq.
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile: (212) 859-4000
Attn: F. William Reindel, Esq.
or such other address as the Corporation shall have furnished to the Holders
in writing,
(b) if to a Holder and/or the Shareholder, to the address and facsimile
number of such Holder listed on the Stock Books of the Corporation.
10. Definitions. Certain capitalized terms are used herein as defined below:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such Person. For the purposes of
this definition, "control," when used with respect to any particular Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Beneficial Owner" (and, with correlative meanings, "Beneficially Own" and
"Beneficial Ownership") of any interest means a Person who, together with his,
her or its Affiliates, is or may be deemed a beneficial owner of such interest
for purposes of Rule 13d-3 or 13d-5 under the Exchange Act of 1934, or who,
together with his, her, or its Affiliates, has the right to become such a
beneficial owner of such interest (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise, conversion or exchange of
any warrant, right or other instrument, or otherwise.
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"Board" shall mean the Board of Directors of the Corporation in office at
the applicable time, as elected in accordance with the By-Laws of the
Corporation and with the Stockholder Agreement.
"Business Day" means any day other than a Saturday, a Sunday, a day on which
the New York Stock Exchange is closed or a day on which state or federally
chartered banking institutions in New York, New York are not required to be
open.
"By-Laws" shall mean the By-Laws of the Corporation, in the form specified
in the Merger Agreement, as they may be amended from time to time.
"Certificate of Designations" means this Certificate of Designations,
Powers, Preferences and Relative, Participating, Optional or other Rights, and
the Qualifications, Limitations or Restrictions Thereof, creating the
Convertible Preferred Stock, Series A and Convertible Preferred Stock, Series
B.
"Certificate of Incorporation" shall mean the Certificate of Incorporation
of the Corporation, in the form specified in the Merger Agreement, as it may
be amended from time to time.
"Change in Control" shall mean the occurrence of any one of the following
events:
(1) any Person (other than WRI and/or its Affiliates) becoming the
Beneficial Owner, directly or indirectly, of Voting Securities, pursuant to
the consummation of a merger, consolidation, sale of all or substantially
all of the Corporation's assets, share exchange or similar form of
corporate transaction involving the Corporation or any of its subsidiaries
that requires the approval of the Corporation's shareholders, whether for
such transaction or the issuance of securities in such transaction, so as
to cause such Person's Voting Ownership Percentage to exceed the Control
Percentage (as defined below); provided, however, that the event described
in this paragraph (1) shall not be deemed to be a Change in Control if it
occurs as the result of any of the following acquisitions: (A) by any
employee benefit plan sponsored or maintained by the Corporation or any
Affiliate, or (B) by any underwriter temporarily holding securities
pursuant to an offering of such securities;
(2) the consummation of a merger, consolidation, sale of all or
substantially all of the Corporation's assets, share exchange or similar
form of corporate transaction involving the Corporation or any of its
subsidiaries that requires the approval of the Corporation's shareholders,
whether for such transaction or the issuance of securities in such
transaction, unless immediately following such transaction more than 50
percent of the total voting power of (x) the corporation resulting from
such transaction, or (y) if applicable, the ultimate parent corporation
that directly or indirectly has Beneficial Ownership of 100 percent of the
voting securities eligible to elect directors of such resulting
corporation, is represented by Voting Securities that were outstanding
immediately prior to such transaction (or, if applicable, shares into which
such Voting Securities were converted pursuant to such transaction), and
such voting power among the holders of such Voting Securities that were
outstanding immediately prior to such transaction is in substantially the
same proportion as the voting power of such Voting Securities among the
holders thereof immediately prior to such transaction; or
(3) the consummation of a plan of complete liquidation or dissolution of
the Corporation.
"Closing Date" means the date of consummation of the merger of ONEOK with
and into the Corporation, as provided in the Merger Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning specified in Section 2(a)(i) above.
"Control Percentage" shall mean a Voting Ownership Percentage of 15 percent,
during the period prior to a Regulatory Change, and a Voting Ownership
Percentage of 35 percent thereafter.
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"Convertible Preferred Stock" has the meaning specified in Section 1 above.
"Dividend Period" means the applicable period from (and including) the
Closing Date to the end of the first fiscal quarter after the Closing Date,
and each fiscal quarter thereafter.
"Dividend Rate" has the meaning specified in Section 2(c) above.
"First Dividend Stage" has the meaning specified in Section 2(c)(iii) above.
"Holder" means a holder of record of a share or shares of Convertible
Preferred Stock.
"Liquidation Preference" has the meaning specified in Section 6 above.
The "Market Price" for the Common Stock shall mean the average of the
closing prices for such Common Stock for the twenty (20) Trading Days
immediately prior to the date on which the Market Price is being determined;
provided, however, that in the event that the current per share market price
of the Common Stock is determined during a period following the announcement
by the Corporation of (a) a dividend or distribution on the Common Stock
payable in shares of Common Stock or securities convertible into Common Stock,
or (b) any subdivision, combination or reclassification of the Common Stock
and prior to the expiration of 20 Trading Days after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to take into account ex-
dividend trading or the effects of such subdivision, combination or
reclassification. The closing price for each Trading Day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system of the New
York Stock Exchange or, if the Common Stock is no longer listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading or if the Common Stock is no longer listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System or such other system then in use, or, if on
any such date the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such security selected by a majority of the
Board or, if on any such date no market maker is making a market in such
security, the fair value as determined in good faith by a majority of the
Board based upon the opinion of an independent investment banking firm of
recognized standing.
"Merger Agreement" means the Agreement, dated as of December 12, 1996,
between ONEOK and WRI, as amended and/or restated from time to time.
"ONEOK" means Oneok, Inc., a Delaware corporation.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization, government or any agency or political
subdivision thereof, or any other entity.
A "Regulatory Change" will be deemed to have occurred upon the receipt by
the Shareholder of an opinion of the Shareholder's counsel (which counsel must
be reasonably acceptable to the Corporation) to the effect that either (1) the
Public Utility Holding Company Act of 1935 (the "1935 Act") has been repealed,
modified, amended or otherwise changed or (2) the Shareholder has received an
exemption, or, in the unqualified opinion of such counsel, is entitled without
any regulatory approval to claim an exemption, or has received an approval or
no-action letter from the Securities and Exchange Commission or its staff
under the 1935 Act or has registered under the 1935 Act, or any combination of
the foregoing, and as a consequence of (1) and/or (2) the Shareholder may
fully and legally exercise the rights set forth in the Shareholder Agreement
which take effect in the period after a Regulatory Change has occurred.
"Second Dividend Stage" has the meaning specified in Section 2(c)(ii) above.
C-10
<PAGE>
"Shareholder" means WRI.
"Shareholder Agreement" means the Shareholder Agreement, dated as of ,
1997 between WAI and WRI.
"Special Dividend" means a dividend declared or paid on the Common Stock in
respect of a recapitalization, spin-off, reorganization or other extraordinary
transaction of the Corporation.
"Stock Books" means the stock transfer books of the Corporation relating to
its Common Stock and Preferred Stock.
"Surrender Date" has the meaning specified in Section 7 above.
"Total Voting Power" shall mean, calculated at a particular point in time,
the aggregate Votes represented by all then outstanding Voting Securities.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open
for the transaction of business.
"Votes" shall mean votes entitled to be cast generally in the election of
any member of the Board, as elected in accordance with the provisions of the
By-Laws, not including the votes that would be able to be cast by holders of
shares of Convertible Preferred Stock upon the conversion of such shares to
shares of Common Stock, unless such conversion shall occur or be deemed to
occur.
"Voting Ownership Percentage" shall mean, calculated at a particular point
in time, the Voting Power represented by the Voting Securities Beneficially
Owned by the Person whose Voting Ownership Percentage is being determined.
"Voting Power" shall mean, calculated at a particular point in time, the
ratio, expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which the Voting Power is being determined to (b)
Total Voting Power.
"Voting Securities" shall mean the Common Stock and shares of any other
class of capital stock of the Corporation then entitled to vote generally in
the election of any member of the Board, as elected in accordance with the
provisions of the By-Laws and shall not include the Convertible Preferred
Stock (or other securities convertible into Voting Securities) prior to its
conversion into Common Stock (or other Voting Securities).
"WRI" means Western Resources, Inc., a Kansas corporation.
IN WITNESS WHEREOF, WAI, INC. has caused this Certificate to be made under
the seal of the Corporation and signed and attested by the undersigned
officers of the Corporation this day of , 1997.
WAI, INC.
By___________________________________
Name:
Title:
(Corporate Seal)
Attest:
By___________________________________
Name:
Title:
C-11
<PAGE>
APPENDIX D
WAI, INC.
AND
LIBERTY BANK AND TRUST COMPANY OF
OKLAHOMA CITY, N.A., AS
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. Certain Definitions........................................ D-1
Section 2. Appointment of Rights Agent................................ D-4
Section 3. Issue of Right Certificates................................ D-4
Section 4. Form of Right Certificate.................................. D-5
Section 5. Countersignature and Registration.......................... D-5
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificate............................................... D-6
Exercise of Rights; Purchase Price; Expiration Date of
Section 7. Rights.................................................... D-6
Section 8. Cancellation and Destruction of Right Certificates......... D-8
Section 9. Reservation and Availability of Capital Stock.............. D-8
Section 10. Preferred Shares Record Date............................... D-9
Adjustment of Purchase Price, Number and Kind of Shares or
Section 11. Number of Rights.......................................... D-9
Certificate of Adjusted Purchase Price or Number of
Section 12. Shares.................................................... D-14
Consolidation, Merger or Sale or Transfer of Assets or
Section 13. Earning Power............................................. D-14
Section 14. Fractional Rights and Fractional Shares.................... D-16
Section 15. Rights of Action........................................... D-17
Section 16. Agreement of Right Holders................................. D-17
Section 17. Right Certificate Holder Not Deemed a Stockholder.......... D-18
Section 18. Concerning the Rights Agent................................ D-18
Section 19. Merger or Consolidation or Change of Name of Rights Agent.. D-18
Section 20. Duties of Rights Agent..................................... D-19
Section 21. Change of Rights Agent..................................... D-20
Section 22. Issuance of New Right Certificates......................... D-21
Section 23. Redemption and Termination................................. D-21
Section 24. Exchange................................................... D-22
Section 25. Notice of Certain Events................................... D-23
Section 26. Notices.................................................... D-23
Section 27. Supplements and Amendments................................. D-24
Section 28. Determination and Actions by the Board of Directors, etc... D-24
Section 29. Successors................................................. D-24
Section 30. Benefits of this Agreement................................. D-24
Section 31. Severability............................................... D-24
Section 32. Governing Law.............................................. D-25
Section 33. Counterparts............................................... D-25
Section 34. Descriptive Headings....................................... D-25
Signatures ........................................................... D-26
Exhibit A --Certificate of Designation, Preferences and Rights of
Series C Participating Preferred Stock of WAI, Inc.
Exhibit B --Form of Right Certificate
Exhibit C --Summary of Rights to Purchase Preferred Shares
</TABLE>
D-i
<PAGE>
DEFINED TERM CROSS REFERENCE SHEET
<TABLE>
<S> <C>
Acquiring Person............................................. Section 1(a)
Act.......................................................... Section 1(b)
Adjusted Number of Shares.................................... Section 11(a)(iii)
Adjusted Purchase Price...................................... Section 11(a)(iii)
Adjustment Shares............................................ Section 11(a)(ii)
Affiliate.................................................... Section 1(c)
Agreement.................................................... Preface
Associate.................................................... Section 1(c)
beneficially own............................................. Section 1(d)
Beneficial Owner............................................. Section 1(d)
Business Day................................................. Section 1(e)
capital stock equivalent..................................... Section 11(a)(iii)
Close of Business............................................ Section 1(f)
Common Shares................................................ Section 1(g)
Corporation.................................................. Preface
current per share market price............................... Section 11(d)(i)
Disinterested Directors...................................... Section 1(h)
Distribution Date............................................ Section 1(i)
equivalent preferred shares.................................. Section 11(b)
Exchange Act................................................. Section 1(c)
Exchange Ratio............................................... Section 24(a)
Final Expiration Date........................................ Section 1(j)
Interested Stockholder....................................... Section 1(k)
NASDAQ....................................................... Section 11(d)(i)
Permitted Offer.............................................. Section 1(l)
Person....................................................... Section 1(m)
Preferred Shares............................................. Section 1(n)
Principal Party.............................................. Section 13(b)
Proration Factor............................................. Section 11(a)(iii)
Purchase Price............................................... Section 4(a)
Record Date.................................................. Preface
Redemption Date.............................................. Section 1(o)
Redemption Price............................................. Section 23(a)(i)
Right........................................................ Preface
Right Certificate............................................ Section 3(a)
Rights Agent................................................. Preface
Section 11(a)(ii) Event...................................... Section 1(p)
Section 13 Event............................................. Section 1(q)
Security..................................................... Section 11(d)(i)
Shareholder Agreement........................................ Section 1(r)
Shares Acquisition Date...................................... Section 1(s)
Subsidiary................................................... Section 1(t)
Summary of Rights............................................ Section 3(b)
then outstanding............................................. Section 1(d)
Trading Day.................................................. Section 11(d)(i)
Transaction.................................................. Section 1(u)
Transaction Person........................................... Section 1(v)
Triggering Event............................................. Section 1(w)
voting securities............................................ Section 13(a)
</TABLE>
D-ii
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of , 1997 (the "Agreement"), between WAI,
Inc., an Oklahoma corporation (the "Corporation"), and LIBERTY BANK AND TRUST
COMPANY OF OKLAHOMA CITY, N.A. (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common
Share (as hereinafter defined) of the Corporation outstanding at 5:00 P.M.,
Eastern Standard Time, on , 1997 (the "Record Date"), each Right
representing the right to purchase one one-hundredth (subject to adjustment as
provided herein) of a Preferred Share (as hereinafter defined), upon the terms
and subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that
shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date (as such
terms are hereinafter defined); provided, however, that Rights may be issued
with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the
Final Expiration Date in accordance with the provisions of Section 22 of this
Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of 15%
or more of the then outstanding Common Shares (other than as a result of a
Permitted Offer) or was such a Beneficial Owner at any time after the date
hereof, whether or not such person continues to be the Beneficial Owner of 15%
or more of the then outstanding Common Shares. Notwithstanding the foregoing,
(A) the term "Acquiring Person" shall not include (i) the Corporation, (ii)
any Subsidiary of the Corporation, (iii) any employee benefit plan of the
Corporation or of any Subsidiary of the Corporation, (iv) any Person or entity
organized, appointed or established by the Corporation for or pursuant to the
terms of any such plan acting in such capacity, (v) any member of the
Shareholder Group, but only to the extent of Common Shares held or acquired by
such Shareholder Group member in accordance with the terms of the Shareholder
Agreement (as hereinafter defined), and provided that the exemption provided
under this clause (v) shall permanently expire at such time as the Total
Ownership Percentage of WRI and its affiliates first falls below 10% or (vi)
any Transferee who acquires Beneficial Ownership of Common Shares from the
Shareholder Group pursuant to Sections 3.4(a) or 3.4(b) of the Shareholder
Agreement or who acquires Beneficial Ownership of less than 5% of the Common
Shares in a public offering pursuant to Section 3.4(c) of the Shareholder
Agreement, but only to the extent of Common Shares acquired in accordance with
the terms of the Shareholder Agreement (it being understood that, any such
Transferee shall become an Acquiring Person upon the concurrent or subsequent
acquisition by such Transferee, or its Affiliates or Associates, of any
additional Common Shares if, after giving effect to such acquisition, and
taking into account all shares Beneficially Owned by the Transferee including
the shares acquired from the Shareholder Group, such Transferee would be an
Acquiring Person but for the provisions of this clause (vi)) (Defined terms
used in clauses (v) and (vi) above which are defined in the Shareholder
Agreement shall have the same respective meanings as such terms have in the
Shareholder Agreement), and (B) no Person shall become an "Acquiring Person"
(i) as a result of the acquisition of Common Shares by the Corporation which,
by reducing the number of Common Shares outstanding, increases the
proportional number of shares beneficially owned by such Person together with
all Affiliates and Associates of such Person, provided, that if (1) a Person
would become an Acquiring Person (but for the operation of this subclause (i))
as a result of the acquisition of Common Shares by the Corporation, and (2)
after such share acquisition by the Corporation, such Person, or an Affiliate
or Associate of such Person, becomes the Beneficial Owner of any additional
Common Shares, then such Person shall be deemed an Acquiring Person; or (ii)
if (1) within five Business Days after such Person would otherwise have become
or, if such Person did so inadvertently, after such Person discovers that such
Person would otherwise have become, an Acquiring Person
D-1
<PAGE>
(but for the operation of this subclause (ii)), such Person notifies the Board
of Directors that such Person did so inadvertently, and (2) within two
Business Days after such notification, such Person divests itself of a
sufficient number of Common Shares so that such Person is the Beneficial Owner
of such number of Common Shares that such Person no longer would be an
Acquiring Person.
(b) "Act" shall mean the Securities Act of 1933, as amended and as in effect
on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended and as in effect on the date of
this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding, or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response
to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities) relating to the acquisition, holding, voting
(except to the extent contemplated by the proviso to Section l(d)(ii)(B))
or disposing of any securities of the Corporation.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Corporation, shall mean
the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which
such Person would be deemed to own beneficially hereunder.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
federal holiday.
(f) "Close of Business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Corporation shall mean
the shares of Common Stock, par value $0.01 per share, of the Corporation or,
in the event of a subdivision, combination or consolidation with respect to
such shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital
stock (or equity interest) with the greatest combined economic and
D-2
<PAGE>
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such first-
mentioned Person.
(h) "Disinterested Directors" shall mean the members of the Board of
Directors who are not (i) officers of the Corporation, (ii) Acquiring Persons
or their Affiliates or Associates or representatives of any of them, or (iii)
any Person who was directly or indirectly proposed or nominated as a director
of the Corporation by a Transaction Person.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(k) "Interested Stockholder" shall mean any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest which represents
in excess of 5% of the total combined economic or voting power of such person,
or any other Person acting directly or indirectly on behalf of or in concert
with any such Acquiring Person, Affiliate or Associate.
(l) "Permitted Offer" shall mean (i) a tender or exchange offer for all
outstanding Common Shares which is at a price and on terms determined, prior
to the purchase of shares under such tender or exchange offer, by at least a
majority of the Disinterested Directors, to be adequate and otherwise in the
best interests of the Corporation, its stockholders and its other relevant
constituencies (other than the Person or any Affiliate or Associate thereof on
whose behalf the offer is being made) taking into account all factors that
such Disinterested Directors may deem relevant and (ii) any tender or exchange
offer required or permitted to be made by the Shareholder Group (as defined in
the Shareholder Agreement) pursuant to, and in accordance with, the
Shareholder Agreement.
(m) "Person" shall mean any individual, firm, partnership, corporation,
limited liability company, trust, association, joint venture or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(n) "Preferred Shares" shall mean shares of Series C Participating Preferred
Stock, par value $0.01 per share, of the Corporation having the relative
rights, preferences and limitations set forth in the Form of Certificate of
Designation, Preferences and Rights attached to this Agreement as Exhibit A.
(o) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(p) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii) hereof.
(q) "Section 13 Event" shall mean any event described in clause (x), (y) or
(z) of Section 13(a) hereof.
(r) "Shareholder Agreement" shall mean the Shareholder Agreement between
WAI, Inc., an Oklahoma corporation and Western Resources, Inc. a Kansas
corporation, to be entered immediately prior to the closing of the
transactions contemplated in the Agreement among WAI, Inc., Western Resources
Inc. and ONEOK Inc., dated as of December 12, 1996, as amended and restated,
dated as of May 19, 1997.
(s) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such.
(t) "Subsidiary" of any Person shall mean any corporation or other Person of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
(u) "Transaction" shall mean any merger, consolidation or sale of assets
described in Section 13(a) hereof or any acquisition of Common Shares of the
Corporation which would result in a Person becoming a Transaction Person.
D-3
<PAGE>
(v) "Transaction Person" with respect to a Transaction shall mean (x) any
Person who (i) is or will become an Acquiring Person if the Transaction were
to be consummated and (ii) directly or indirectly proposed or nominated a
director of the Corporation which director is in office at the time of
consideration of the Transaction, or (y) an Affiliate or Associate of such a
Person.
(w) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section
13 Event.
Section 2. Appointment of Rights Agent. The Corporation hereby appoints the
Rights Agent to act as agent for the Corporation and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution
Date also be the holders of Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Corporation may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier to occur of
(i) the Shares Acquisition Date or (ii) the Close of Business on the tenth
Business Day (or such later date as may be determined by action of the
Corporation's Board of Directors) after the date of the commencement by any
Person (other than the Corporation, any Subsidiary of the Corporation, any
employee benefit plan of the Corporation or of any Subsidiary of the
Corporation or any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such plan) of, or of the first
public announcement of the intention of any Person (other than the
Corporation, any Subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any Subsidiary of the Corporation or any Person or
entity organized, appointed or established by the Corporation for or pursuant
to the terms of any such plan) to commence (which intention to commence
remains in effect for five Business Days after such announcement), a tender or
exchange offer the consummation of which would result in any Person becoming
an Acquiring Person (including, in the case of both (i) and (ii), any such
date which is after the date of this Agreement and prior to the issuance of
the Rights), the earlier of such dates being herein referred to as the
"Distribution Date," (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also
be deemed to be Right Certificates) and not by separate Right Certificates,
and (y) the right to receive Right Certificates will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Corporation); provided, however, that if the tender offer is
terminated prior to the occurrence of a Distribution Date, then no
Distribution Date shall occur as a result of such tender offer. As soon as
practicable after the Distribution Date, the Corporation will prepare and
execute, the Rights Agent will countersign, and the Corporation will send or
cause to be sent by first-class, postage-prepaid mail, to each record holder
of Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Corporation, a Right
Certificate, substantially in the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of and
after the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) As promptly as practicable following the Record Date, the Corporation
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder
shown on the records of the Corporation. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of
the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with such Common Shares.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence
of this paragraph (c)) after the Record Date but prior to the
D-4
<PAGE>
earliest of the Distribution Date, the Redemption Date or the Final Expiration
Date shall be deemed also to be certificates for Rights and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between WAI, Inc. and Liberty
Bank and Trust Company of Oklahoma City, N.A., dated as of , 1997 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of WAI, Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. WAI, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor from such holder. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held
by, any Person who is, was or becomes an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement) and certain
related persons, whether currently held by or on behalf of such Person or
by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Corporation purchases or acquires any Common Shares
after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Shares shall be deemed cancelled and retired so
that the Corporation shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificate. (a) The Right Certificates (and the
forms of election to purchase and of assignment to be printed on the reverse
thereof) shall be substantially in the form set forth in Exhibit B hereto and
may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the
Right Certificates shall entitle the holders thereof to purchase such number
of one one-hundredths of a Preferred Share as shall be set forth therein at
the price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section 7(e)
of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Right Certificate and the Rights represented
hereby are null and void.
Provisions of Section 7(e) of this Rights Agreement shall be operative whether
or not the foregoing legend is contained on any such Right Certificate.
Section 5. Countersignature and Registration. The Right Certificates shall
be executed on behalf of the Corporation by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Corporation's seal or a facsimile thereof, and shall be attested
by the Secretary or an Assistant Secretary of the Corporation, either manually
or by facsimile signature. The Right Certificates shall be countersigned by
the Rights Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Corporation who shall have signed
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<PAGE>
any of the Right Certificates shall cease to be such officer of the
Corporation before countersignature by the Rights Agent and issuance and
delivery by the Corporation, such Right Certificates may nevertheless be
countersigned by the Rights Agent and issued and delivered by the Corporation
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Corporation; and any
Right Certificate may be signed on behalf of the Corporation by any person
who, at the actual date of the execution of such Right Certificate, shall be a
proper officer of the Corporation to sign such Right Certificate, although at
the date of the execution of this Rights Agreement any such person was not
such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated as the appropriate place for surrender of such
Right Certificate for transfer, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the
certificate number and the date of each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate. Subject
to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any
time after the close of business on the Distribution Date, and at or prior to
the close of business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number
of one one-hundredths of a Preferred Share (or, following a Triggering Event,
other securities, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Right Certificate or Right Certificates to be transferred, split
up, combined or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the
Corporation shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Right Certificate until the registered
holder shall have completed and signed the certificate contained in the form
of assignment on the reverse side of such Right Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the
Corporation shall reasonably request. Thereupon the Rights Agent shall,
subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Corporation may require
payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any transfer, split-up, combination or exchange
of Right Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Corporation will make
and deliver a new Right Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price for the
total number of one one-hundredths of a Preferred Share (or other securities,
as the case may be) as to which such surrendered Rights are exercised, at or
prior to the earliest of (i) the Close of Business on , 2007 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the "Redemption Date"), (iii) the time at which the
Rights are
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exchanged as provided in Section 24 hereof, or (iv) the consummation of a
transaction contemplated by Section 13(d) hereof.
(b) The Purchase Price for each one-hundredth of a Preferred Share pursuant
to the exercise of a Right shall initially be $80.00, shall be subject to
adjustment from time to time as provided in the next sentence and in Sections
11 and 13(a) hereof and shall be payable in accordance with paragraph (c)
below. Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Corporation shall (i) declare or pay any dividend on
the Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case, each Common Share
outstanding following such subdivision, combination or consolidation shall
continue to have one Right (subject to adjustment as provided herein)
associated therewith and the Purchase Price following any such event shall be
proportionately adjusted to equal the result obtained by multiplying the
Purchase Price immediately prior to such event by a fraction the numerator of
which shall be the total number of Common Shares outstanding immediately prior
to the occurrence of the event and the denominator of which shall be the total
number of Common Shares outstanding immediately following the occurrence of
such event. The adjustment provided for in the preceding sentence shall be
made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the Preferred Shares (or
other securities, as the case may be) to be purchased and an amount equal to
any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights Agent
shall thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Corporation hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) requisition from the depositary agent
(if the Corporation, in its sole discretion, shall have elected to deposit the
Preferred Shares issuable upon exercise of the Rights hereunder into a
depositary) depositary receipts representing such number of one one-hundredths
of a Preferred Share as are to be purchased (in which case certificates for
the Preferred Shares represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Corporation will direct the
depositary agent to comply with such requests, (ii) when appropriate,
requisition from the Corporation the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to
be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt thereof, deliver such cash to
or upon the order of the registered holder of such Right Certificate. In the
event that the Corporation is obligated to issue other securities (including
Common Shares) of the Corporation pursuant to Section 11(a) hereof, the
Corporation will make all arrangements necessary so that such other securities
are available for distribution by the Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder pursuant
to Section 11(a)(ii), the Rights Agent shall return such Right Certificate to
the registered holder thereof after imprinting, stamping or otherwise
indicating thereon that the rights represented by such Right Certificate no
longer include the rights provided by Section 11(a)(ii) of the Rights
Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof, or the
Rights Agent shall place an appropriate notation on the Right Certificate with
respect to those Rights exercised.
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(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
Affiliate or Associate thereof) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
Affiliate or Associate thereof) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has a continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Corporation has determined is
part of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Corporation shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Corporation shall be obligated to undertake any action
with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall
have (i) completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Corporation shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise (other than a partial
exercise), transfer, split up, combination or exchange shall, if surrendered
to the Corporation or to any of its agents, be delivered to the Rights Agent
for cancellation or in canceled form, or, if surrendered to the Rights Agent,
shall be canceled by it, and no Right Certificates shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this Rights
Agreement. The Corporation shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other
Right Certificate purchased or acquired by the Corporation otherwise than upon
the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Corporation, or shall, at the written request of the
Corporation, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Corporation.
Section 9. Reservation and Availability of Capital Stock. The Corporation
covenants and agrees that at all times prior to the occurrence of a Section
11(a)(ii) Event it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares, or any authorized and issued
Preferred Shares held in its treasury, the number of Preferred Shares that
will be sufficient to permit the exercise in full of all outstanding Rights
and, after the occurrence of a Section 11(a)(ii) Event, shall, to the extent
reasonably practicable, so reserve and keep available a sufficient number of
Common Shares (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.
So long as the Preferred Shares (and, after the occurrence of a Section
11(a)(ii) Event, Common Shares, or any other securities, as the case may be)
issuable upon the exercise of the Rights may be listed on any national
securities exchange, the Corporation shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
The Corporation covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (or Common Shares and/or
other securities, as the case may be) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other
securities (subject to payment of
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the Purchase Price), be duly and validly authorized and issued and fully paid
and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case
may be) upon the exercise of Rights. The Corporation shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares (or Common Shares and/or other securities, as the case may be) in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise, or to issue or to deliver any
certificates or depositary receipts for Preferred Shares (or Common Shares
and/or other securities, as the case may be) upon the exercise of any Rights,
until any such tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has
been established to the Corporation's reasonable satisfaction that no such tax
is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date (or, if required by law, at
such earlier time following the Distribution Date as so required), a
registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Act and the
rules and regulations thereunder) until the date of the expiration of the
rights provided by Section 11(a)(ii). The Corporation will also take such
action as may be appropriate under the blue sky laws of the various states.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes
be deemed to have become the holder of record of the Preferred Shares (or
Common Shares and/or other securities, as the case may be) represented thereby
on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided,
however, that, if the date of such surrender and payment is a date upon which
the Preferred Shares (or Common Shares and/or other securities, as the case
may be) transfer books of the Corporation are closed, such person shall be
deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares (or Common Shares and/or other securities, as the case may
be) transfer books of the Corporation are open.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares or other
securities covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a) and
Section 7(e) hereof, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of capital
stock issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the Preferred
Shares transfer books of the Corporation were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par
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value of the shares of capital stock of the Corporation issuable upon exercise
of one Right. If an event occurs which would require an adjustment under both
Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) In the event any Person, alone or together with its Affiliates and
Associates, shall become an Acquiring Person, then proper provision shall be
made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall, for a period of 60 days after the later of (i) the
occurrence of any such event or (ii) the effective date of an appropriate
registration statement under the Act pursuant to Section 9 hereof, have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price, in accordance with the terms of this Agreement, such number of
Common Shares (or, in the discretion of the Board of Directors, one one-
hundredths of a Preferred Share) as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one one-
hundredths of a Preferred Share for which a Right was exercisable immediately
prior to the first occurrence of a Section 11(a)(ii) Event and (y) dividing
that product by 50% of the then current per share market price of the
Corporation's Common Shares (determined pursuant to Section 11(d) hereof) on
the date of such first occurrence (such number of shares being referred to as
the "Adjustment Shares"); provided, however, that if the transaction that
would otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of Section 13 hereof
shall apply and no adjustment shall be made pursuant to this Section
11(a)(ii).
(iii) In the event that there shall not be sufficient treasury shares or
authorized but unissued (and unreserved) Common Shares to permit the exercise
in full of the Rights in accordance with the foregoing subparagraph (ii) and
the Rights become so exercisable (and the Board has determined to make the
Rights exercisable into fractions of a Preferred Share), notwithstanding any
other provision of this Agreement, to the extent necessary and permitted by
applicable law, each Right shall thereafter represent the right to receive,
upon exercise thereof at the then current Purchase Price in accordance with
the terms of this Agreement, (x) a number of (or fractions of) Common Shares
(up to the maximum number of Common Shares which may permissibly be issued)
and (y) one one-hundredth of a Preferred Share or a number of (or fractions
of) other equity securities of the Corporation (or, in the discretion of the
Board of Directors, debt) which the Board of Directors of the Corporation has
determined to have the same aggregate current market value (determined
pursuant to Sections 11(d)(i) and (ii) hereof, to the extent applicable) as
one Common Share (such number of (or fractions of) Preferred Shares (or other
equity securities or debt of the Corporation) being referred to as a "capital
stock equivalent"), equal in the aggregate to the number of Adjustment Shares;
provided, however, if sufficient Common Shares and/or capital stock
equivalents are unavailable, then the Corporation shall, to the extent
permitted by applicable law, take all such action as may be necessary to
authorize additional Common Shares or capital stock equivalents for issuance
upon exercise of the Rights, including the calling of a meeting of
stockholders; and provided, further, that if the Corporation is unable to
cause sufficient Common Shares and/or capital stock equivalents to be
available for issuance upon exercise in full of the Rights, then each Right
shall thereafter represent the right to receive the Adjusted Number of Shares
upon exercise at the Adjusted Purchase Price (as such terms are hereinafter
defined). As used herein, the term "Adjusted Number of Shares" shall be equal
to that number of (or fractions of) Common Shares (and/or capital stock
equivalents) equal to the product of (x) the number of Adjustment Shares and
(y) a fraction, the numerator of which is the number of Common Shares (and/or
capital stock equivalents) available for issuance upon exercise of the Rights
and the denominator of which is the aggregate number of Adjustment Shares
otherwise issuable upon exercise in full of all Rights (assuming there were a
sufficient number of Common Shares available) (such fraction being referred to
as the "Proration Factor"). The "Adjusted Purchase Price" shall mean the
product of the Purchase Price and the Proration Factor. The Board of Directors
may, but shall not be required to, establish procedures to allocate the right
to receive Common Shares and capital stock equivalents upon exercise of the
Rights among holders of Rights.
(b) In case the Corporation shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of
Preferred Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares (or
shares having the same rights and privileges
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as the Preferred Shares ("equivalent preferred shares") or securities
convertible into Preferred Shares or equivalent preferred shares at a price
per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then current per share market price of the
Preferred Shares (as determined pursuant to Section 11(d) hereof) on such
record date, the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current per share market price, and the
denominator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of additional Preferred Shares and/or
equivalent preferred shares to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Corporation issuable upon exercise of one
Right. In case such subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such
consideration shall be determined in good faith by the Board of Directors of
the Corporation, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent. Preferred
Shares owned by or held for the account of the Corporation shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Corporation shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the then current per share market price (as
determined pursuant to Section 11(d) hereof) of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the Rights
Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Corporation to
be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per share
market price" of any security (a "Security" for the purpose of this Section
11(d)(i)) on any date shall be deemed to be the average of the daily closing
prices per share of such Security for the thirty (30) consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price
of the Security is determined during a period following the announcement by
the issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of thirty (30) Trading Days after the ex-dividend date
for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current
market price per share equivalent of such Security. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
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place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading
on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ") or such other system then in use,
or, if on any such date the Security is not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of
Directors of the Corporation. If on any such date no such market maker is
making a market in the Security, the fair value of the Security on such date
as determined in good faith by the Board of Directors of the Corporation shall
be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day. Subject to Section 11(d)(ii), if any Security is not publicly held or so
listed or traded, "current per share market price" of such Security shall mean
the fair market value per share as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights
Agent.
(ii) For the purpose of any computation hereunder, the "current per share
market price" of the Preferred Shares shall be determined in accordance with
the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the current per share market price of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Section 11(d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If neither the
Common Shares nor the Preferred Shares are publicly held or so listed or
traded, "current per share market price" shall mean the fair value per share
as determined in good faith by the Board of Directors of the Corporation,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent.
(e) Notwithstanding anything herein to the contrary, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the
nearest cent or to the nearest one one-hundredth-thousandth of a Preferred
Share or one ten-thousandth of any other share or security, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three (3) years from the date of the transaction which mandates such
adjustment or (ii) the Final Expiration Date.
(f) If, as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation
other than Preferred Shares, thereafter the number of other shares so
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Sections 11(a)
through (c), inclusive, and the provisions of Sections 7, 9, 10, 13 and 14
with respect to the Preferred Shares shall apply on like terms to any such
other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
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(h) Unless the Corporation shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one one-
hundredths of a Preferred Share (calculated to the nearest one one-hundredth
thousandths of a Preferred Share) obtained by (i) multiplying (x) the number
of Preferred Shares covered by a Right immediately prior to this adjustment of
the Purchase Price by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
(i) The Corporation may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-hundredths
of a Preferred Share for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Corporation
shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Corporation shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date
Right Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Corporation, shall cause to be distributed to such
holders of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of adjustment, and upon surrender
thereof, if required by the Corporation, new Right Certificates evidencing all
the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of
a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the number of one one-
hundredths of a Preferred Share, Common Shares or other securities issuable
upon exercise of the Rights, the Corporation shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue such number of fully paid and
nonassessable one one-hundredths of a Preferred Share, Common Shares or other
securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment in
the Purchase Price be made effective as of a record date for a specified
event, the Corporation may elect to defer until the occurrence of such event
the issuance to the holder of any Right exercised after such record date the
Preferred Shares, Common Shares or other securities of the Corporation, if
any, issuable upon such exercise over and above the Preferred Shares, Common
Shares or other securities of the Corporation, if any, issuable upon exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Corporation shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to receive
such additional shares upon the occurrence of the event requiring such
adjustment.
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(m) Notwithstanding anything in this Section 11 to the contrary, the
Corporation shall be entitled to make such reductions in the Purchase Price,
in addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be advisable
in order that any (i) consolidation or subdivision of the Preferred Shares,
(ii) issuance wholly for cash of Preferred Shares at less than the current
market price, (iii) issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred
Shares, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Corporation to holders
of its Preferred Shares shall not be taxable to such stockholders.
(n) The Corporation covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than
a Subsidiary of the Corporation in a transaction which does not violate
Section 11(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Corporation in a transaction which does not violate Section
11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11(o) hereof), if (x)
at the time of or immediately after such consolidation, merger, sale or
transfer there are any charter or by-law provisions or any rights, warrants or
other instruments or securities outstanding or agreements in effect or other
actions taken, which would materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights or (y) prior to, simultaneously
with or immediately after such consolidation, merger or sale, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates. The
Corporation shall not consummate any such consolidation, merger, sale or
transfer unless prior thereto the Corporation and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement evidencing
compliance with this Section 11(n).
(o) The Corporation covenants and agrees that, after the Distribution Date,
it will not, except as permitted by Section 23 or Section 27 hereof, take (or
permit any Subsidiary to take) any action the purpose of which is to, or if at
the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.
(p) The exercise of Rights under Section 11(a)(ii) shall only result in the
reduction of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 or 13
hereof, the Corporation shall promptly (a) prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Shares and the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 26 hereof. The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of such adjustment unless and until it
shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. (a) In the event that, on or following the Shares Acquisition Date,
directly or indirectly, (x) the Corporation shall consolidate with, or merge
with and into, any Interested Stockholder or, if in such merger or
consolidation all holders of Common Shares are not treated alike, any other
Person, (y) the Corporation shall consolidate with, or merge with, any
Interested Stockholder or, if in such merger or consolidation all holders of
Common Shares are not treated alike, any other Person, and the Corporation
shall be the continuing or surviving corporation of such consolidation or
merger (other than, in a case of any transaction described in (x) or (y), a
merger or consolidation which would result in all of the securities generally
entitled to vote in the election of directors ("voting securities") of the
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Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into securities of the
surviving entity) all of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or consolidation
and the holders (and relative percentage holdings of each such holder) of such
securities not having changed as a result of such merger or consolidation), or
(z) the Corporation shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series
of related transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Corporation and its Subsidiaries (taken as
a whole) to any Interested Stockholder or Persons or, if in such transaction
all holders of Common Shares are not treated alike, any other Person (other
than the Corporation or any Subsidiary of the Corporation in one or more
transactions each of which does not violate Section 11(o) hereof), then, and
in each such case (except as provided in Section 13(d) hereof), proper
provision shall be made so that (i) each holder of a Right, except as provided
in Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Purchase Price, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of freely tradable Common Shares of the Principal Party (as
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-
hundredths of a Preferred Share for which a Right is then exercisable (without
taking into account any adjustment previously made pursuant to Section
11(a)(ii)) and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the
Corporation pursuant to this Agreement; (iii) the term "Corporation" shall
thereafter be deemed to refer to such Principal Party; it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares) in connection with
the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to the Common Shares thereafter deliverable upon the
exercise of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of the
first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in
such merger or consolidation, and if no securities are so issued, the
Person that is the other party to such merger or consolidation (including,
if applicable, the Corporation if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the first
sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions; provided, however, that in any of the
foregoing cases, (1) if the Common Shares of such Person are not at such
time and have not been continuously over the preceding twelve (12) month
period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Shares of
which are and have been so registered, "Principal Party" shall refer to
such other Person; (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Shares of two or more of
which are and have been so registered, "Principal Party" shall refer to
whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate market value; and (3) in case such Person is owned,
directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules
set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this
Section 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) The Corporation shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
its authorized Common Shares which have not been issued or
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<PAGE>
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Corporation and
such Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable
after the date of any consolidation, merger, sale or transfer mentioned in
paragraph (a) of this Section 13, the Principal Party at its own expense
shall:
(i) prepare and file a registration statement under the Act with respect
to the Rights and the securities purchasable upon exercise of the Rights on
an appropriate form, and use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing
and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements
for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under this
Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and
(y) of Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a wholly
owned Subsidiary of any such Person or Persons); (ii) the price per Common
Share offered in such transaction is not less than the price per Common Share
paid to all holders of Common Shares whose shares were purchased pursuant to
such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by
this Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The Corporation
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights
would have been otherwise issuable. The closing price for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or,
if the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Corporation. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors
of the Corporation shall be used.
(b) The Corporation shall not be required to issue fractions of Preferred
Shares (other than fractions which are one one-hundredths or integral
multiples of one one-hundredth of a Preferred Share) upon exercise of the
Rights or to distribute certificates which evidence fractional Preferred
Shares (other than fractions which are one one-hundredths or integral
multiples of one one-hundredth of a Preferred Share). Fractions of Preferred
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the corporation, be
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evidenced by depositary receipts, pursuant to an appropriate agreement between
the Corporation and a depositary selected by it; provided that such agreement
shall provide that the holders of such depositary receipts shall have the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts. In
lieu of fractional Preferred Shares that are not one one-hundredth or integral
multiples of one one-hundredth of a Preferred Share, the Corporation shall pay
to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one Preferred Share. For the purposes of this
Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to Section
11(d)(ii) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of one of the transactions or events specified
in Section 11 giving rise to the right to receive Common Shares, capital stock
equivalents (other than Preferred Shares) or other securities upon the
exercise of a Right, the Corporation shall not be required to issue fractions
of shares or units of such Common Shares, capital stock equivalents or other
securities upon exercise of the Rights or to distribute certificates which
evidence fractions of such Common Shares, capital stock equivalents or other
securities. In lieu of fractional shares or units of such Common Shares,
capital stock equivalents or other securities, the Corporation may pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a share or unit of such Common Shares, capital stock
equivalents or other securities. For purposes of this Section 14(c), the
current market value shall be determined in the manner set forth in Section
11(d) hereof for the Trading Day immediately prior to the date of such
exercise and, if such capital stock equivalent is not traded, each such
capital stock equivalent shall have the value of one one-hundredth of a
Preferred Share.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Shares), may,
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Corporation to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and in
this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the
principal office or offices of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Corporation and the
Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common
Shares certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Corporation or the Rights Agent)
for all purposes
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whatsoever, and neither the Corporation nor the Rights Agent, subject to
the last sentence of Section 7(e) hereof, shall be required to be affected
by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Corporation nor the Rights Agent shall have any liability to any holder
of a Right or a beneficial interest in a Right or other Person as a result
of its inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, the Corporation must use its best efforts to
have any such order, decree or ruling lifted or otherwise overturned as
soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Corporation which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25
hereof), or to receive dividends or other distributions or to exercise any
preemptive or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. Concerning the Rights Agent. The Corporation agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Corporation also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for Common Shares or for other securities of the Corporation,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the proper Person
or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
all or substantially all of the corporate trust business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21 hereof. In case at the time such successor
Rights Agent shall succeed to the agency created by this Agreement, any of the
Right Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at
that time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.
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In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Corporation and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent
for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity
or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Corporation of
any covenant or condition contained in this Agreement or in any Rights
Certificate; nor shall it be responsible for any adjustment required under
the provisions of Section 11 or Section 13 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after
receipt of the certificate described in Section 12 hereof); nor shall it by
any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any Preferred Shares or Common Shares
or other securities to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares or Common Shares or other
securities will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the
Corporation, and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such
officer. Any application by the Rights Agent for written instructions from
the Corporation may, at the option of the Rights Agent, set forth
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<PAGE>
in writing any action proposed to be taken or omitted by the Rights Agent
under this Rights Agreement and the date on or after which such action
shall be taken or such omission shall be effective. The Rights Agent shall
not be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the
date specified in such application (which date shall not be less than five
Business Days after the date any officer of the Corporation actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have
received written instruction in response to such application specifying the
action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or
lend money to the Corporation or otherwise act as fully and freely as
though it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the
Corporation or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Corporation resulting
from any such act, default, neglect or misconduct, provided reasonable care
was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is
not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not
been completed, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting
with the Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
thirty (30) days' notice in writing mailed to the Corporation and to each
transfer agent of the Preferred Shares or Common Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Corporation may remove the Rights Agent or any successor Rights
Agent upon sixty (60) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares or Common Shares by registered or certified mail, and to
holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Corporation shall appoint a successor to the Rights Agent. If the Corporation
shall fail to make such appointment within a period of sixty (60) days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Corporation), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be a
corporation organized and doing business under the laws of the United States
or any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject
to supervision or examination by federal or state authority and which has at
the time of its appointment as Rights Agent a combined capital and surplus of
at least $100,000,000 (or such lower number as approved by the Corporation's
Board of Directors). After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Corporation shall
file notice thereof in
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<PAGE>
writing with the predecessor Rights Agent and each transfer agent of the
Preferred Shares or Common Shares and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Corporation
may, at its option, issue new Right Certificates evidencing Rights in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earliest of the Redemption
Date, the Final Expiration Date and the consummation of a transaction
contemplated by Section 13(d) hereof, the Corporation (a) shall with respect
to Common Shares so issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Corporation, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Corporation, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale;
provided, however, that no Right Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof.
Section 23. Redemption and Termination. (a) (i) The Board of Directors of
the Corporation may, at its option, redeem all but not less than all the then
outstanding Rights at a redemption price of $0.01 per Right, as such amount
may be appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"), at any time prior to
the earlier of (x) the occurrence of a Section 11(a)(ii) Event, or (y) the
Final Expiration Date, and the Corporation may, at its option, pay the
Redemption Price either in Common Shares (based on the current per share
market price, as defined in Section 11(d) hereof, of the Common Shares at the
time of redemption) or cash; provided, however, that if the Corporation elects
to pay the Redemption Price in Common Shares, the Corporation shall not be
required to issue any fractional Common Shares and the number of Common Shares
issuable to each holder of Rights shall be rounded down to the next whole
share.
(ii) In addition, the Board of Directors of the Corporation may, at its
option, at any time following a Shares Acquisition Date but prior to any
Section 13 Event, redeem all but not less than all of the then outstanding
Rights at the Redemption Price in connection with any Section 13 Event in
which all holders of Common Shares are treated alike and not involving (other
than as a holder of Common Shares being treated like all other such holders) a
Transaction Person.
(b) In the case of a redemption permitted under Section 23(a)(i),
immediately upon the date for redemption set forth (or determined in the
manner specified in) in a resolution of the Board of Directors of the
Corporation ordering the redemption of the Rights, evidence of which shall
have been filed with the Rights Agent, and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. In the case of a redemption permitted
only under Section 23(a)(ii), evidence of which shall have been filed with the
Rights Agent, the right to exercise the Rights will terminate and represent
only the right to receive the Redemption Price upon the later of ten Business
Days following the giving of notice or the expiration of any period during
which the rights under Section 11(a)(ii) may be exercised. The Corporation
shall promptly give public notice of any such redemption; provided, however,
that the failure to give, or any defect in, any such notice shall not affect
the validity of such redemption. Within ten (10) days after such date for
redemption set forth in a resolution of the Board of Directors ordering the
redemption of the Rights, the Corporation shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer
D-21
<PAGE>
agent for the Common Shares. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of
the Redemption Price will be made. Neither the Corporation nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights
at any time in any manner other than that specifically set forth in this
Section 23 and other than in connection with the purchase of Common Shares
prior to the Distribution Date.
(c) In the case of a redemption permitted under Section 23(a)(i), the
Corporation may, at its option, discharge all of its obligations with respect
to the Rights by (i) issuing a press release announcing the manner of
redemption of the Rights in accordance with this Agreement and (ii) mailing
payment of the Redemption Price to the registered holders of the Rights at
their last addresses as they appear on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the Transfer
Agent of the Common Shares, and upon such action, all outstanding Rights and
Right Certificates shall be null and void without any further action by the
Corporation.
Section 24. Exchange. (a) The Board of Directors of the Corporation may, at
its option, at any time after the time that any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) and Section 11(a)(ii) hereof) for Common Shares of
the Corporation at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction involving either the Common Shares or the Preferred Shares
occurring after the date hereof (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board
of Directors shall not be empowered to effect such exchange at any time after
any Person (other than the Corporation, any Subsidiary of the Corporation, any
employee benefit plan of the Corporation or any such Subsidiary, any entity
holding Common Shares for or pursuant to the terms of any such plan or any
trustee, administrator or fiduciary of such a plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Corporation
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to
exercise such rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such rights held by such holder multiplied by the Exchange Ratio.
The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice
shall not affect the validity of such exchange. The Corporation promptly shall
mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) and Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Corporation, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as
such term is defined in Section 11(b) hereof) for some or all of the Common
Shares exchangeable for Rights, at the initial rate of one-hundredth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) The Board of Directors of the Corporation shall not authorize any
exchange transaction referred to in Section 24(a) hereof unless at the time
such exchange is authorized there shall be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to
permit the exchange of Rights as contemplated in accordance with this Section
24.
D-22
<PAGE>
Section 25. Notice of Certain Events. (a) In case the Corporation shall
propose (i) to pay any dividend payable in stock of any class to the holders
of its Preferred Shares or to make any other distribution to the holders of
its Preferred Shares (other than a regularly quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe
for or to purchase any additional Preferred Shares or shares of stock of any
class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to
effect any consolidation or merger into or with any other Person (other than a
Subsidiary of the Corporation in a transaction which does not violate Section
11(o) hereof), or to effect any sale or other transfer (or to permit one or
more of its Subsidiaries to effect any sale or other transfer) in one or more
transactions, of 50% or more of the assets or earning power of the Corporation
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Corporation and/or any of its Subsidiaries in one or more
transactions each of which does not violate Section 11(o) hereof), or (v) to
effect the liquidation, dissolution or winding up of the Corporation, then, in
each such case, the Corporation shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action to the extent feasible and file a certificate with the Rights Agent to
that effect, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Preferred Shares, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date
for determining holders of the Preferred Shares for purposes of such action,
and in the case of any such other action, at least twenty (20) days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of the Preferred Shares, whichever shall be the
earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Corporation shall as
soon as practicable thereafter give to each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of the occurrence of such event,
which notice shall describe such event and the consequences of such event to
holders of Rights under Section 11(a)(ii) hereof and (ii) all references in
the preceding paragraph (a) to Preferred Shares shall be deemed thereafter to
refer also, if appropriate, to Common Shares and/or, if appropriate, other
securities of the Corporation.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Corporation shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
WAI, Inc.
100 West Fifth Street
Tulsa, Oklahoma 74103
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Corporation) as
follows:
Liberty Bank and Trust Company of Oklahoma City, N.A.
P.O. Box 25848
Oklahoma City, Oklahoma 73125-0848
Attention: John Brown
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Corporation.
D-23
<PAGE>
Section 27. Supplements and Amendments. Prior to the Distribution Date, the
Corporation and the Rights Agent shall, if the Corporation so directs,
supplement or amend any provision of this Agreement without the approval of
any holders of certificates representing Common Shares. From and after the
Distribution Date, the Corporation and the Rights Agent shall, if the
Corporation so directs, supplement or amend this Agreement without the
approval of any holders of Right Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or supplement
the provisions hereunder in any manner which the Corporation may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Right Certificates (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, however, that this
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders of
Rights. Upon the delivery of a certificate from an appropriate officer of the
Corporation which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment, provided that such supplement or amendment does
not adversely affect the rights or obligations of the Rights Agent under
Section 18 or Section 20 of this Agreement. Prior to the Distribution Date,
the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Shares.
Section 28. Determination and Actions by the Board of Directors, etc. The
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Corporation, or as may be necessary
or advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders
of Right Certificates). For all purposes of this Agreement, any calculation of
the number of Common Shares or other securities outstanding at any particular
time, including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as
in effect on the date of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y)
below, all omissions with respect to the foregoing) which are done or made by
the Board in good faith, shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Right Certificates and all
other parties, and (y) not subject the Board to any liability to the holders
of the Right Certificates.
Section 29. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Corporation or the Rights Agent shall bind and
inure to the benefit of their respective successors and assigns hereunder.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Corporation, the
Rights Agent and the registered holders of the Right Certificates (and, prior
to the Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 31. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
D-24
<PAGE>
Section 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Oklahoma and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
D-25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and attested, all as of the date and year first above written.
WAI, Inc.
By: _________________________________
Name:
Title:
Liberty Bank and Trust Company of
Oklahoma City, N.A.
By: _________________________________
Name:
Title:
D-26
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES C PARTICIPATING
PREFERRED STOCK OF WAI, INC.
(PURSUANT TO SECTION 1032 OF THE GENERAL CORPORATION ACT OF THE STATE OF
OKLAHOMA)
We, John K. Rosenberg, President, and Richard D. Terrill, Secretary of WAI,
Inc. (the "Corporation"), a corporation organized and existing under the
General Corporation Act of the State of Oklahoma, in accordance with the
provisions of Section 1007 thereof, DO HEREBY CERTIFY as follows:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, said Board of Directors
on , 1997, voted to create a series of one million shares of Preferred
Stock designated as Series C Participating Preferred Stock:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation in accordance with the provisions of the
Corporation's Certificate of Incorporation and Section 1032(g) of the General
Corporation Law of the State of Oklahoma, the Board of Directors hereby
creates a series of Preferred Stock of the Company and hereby states the
designation and number of shares, and fixes the relative rights, preferences
and limitations thereof (in addition to the provisions set forth in the
Corporation's Certificate of Incorporation which are applicable to the
Preferred Stock of all classes and series) as follows:
Section 1. Designation and Amount. There shall be a series of Preferred
Stock, par value $0.01 per share, of the Corporation which shall be designated
as "Series C Participating Preferred Stock," par value $0.01 per share, and
the number of shares constituting such series shall be one million. Such
number of shares may be increased or decreased by resolution of the Board of
Directors or by resolution of the Executive Committee of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Series C Participating Preferred Stock to a number less than that of the
shares then outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares of
any series of Preferred Stock and Preferred Stock ranking prior and superior
to the Series C Participating Preferred Stock with respect to dividends, the
holders of shares of Series C Participating Preferred Stock in preference to
the holders of shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
last day of each fiscal quarter of the Corporation in each year or such other
dates as the Board of Directors of the Corporation shall approve (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series C Participating Preferred
Stock in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series C Participating Preferred Stock. In the
event the Corporation shall at any time after , 1997 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide (by a stock split or otherwise) the
outstanding
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<PAGE>
Common Stock, or (iii) combine (by a reverse stock split or otherwise) the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series C Participating Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series C
Participating Preferred Stock as provided in paragraph (A) above at the time
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, that in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series C
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) So long as any shares of the Series C Participating Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared
on the Series C Participating Preferred Stock shall have been declared.
(D) The holders of the shares of the Series C Participating Preferred Stock
shall not be entitled to receive any dividends or other distributions except
as provided herein.
(E) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series C Participating Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Series C Participating
Preferred Stock unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series C
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series C Participating Preferred Stock in an amount less
than the total of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series C Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than sixty (60) days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series C Participating
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series C Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the
outstanding Common Stock, or (iii) combine (by a reverse stock split or
otherwise) the outstanding Common Stock into a smaller number of shares, then
in each such case the number of votes per share to which holders of shares of
Series C Participating Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
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<PAGE>
(B) Except as otherwise provided herein or by law, the holders of shares of
Series C Participating Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) (i) If at any time dividends on any Series C Participating Preferred
Stock shall be in arrears in an amount equal to at least six (6) full
quarterly dividends (whether or not declared and whether or not consecutive)
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series
C Participating Preferred Stock then outstanding shall have been declared and
paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series C Participating Preferred
Stock) with dividends in arrears in an amount equal to at least six (6) full
quarterly dividends (whether or not declared and whether or not consecutive)
thereon, voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.
(ii) During any default period, such voting right of the holders of Series C
Participating Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (C)(iii) of this Section 3 or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders;
provided, that neither such voting right nor the right of the holders of any
other series of Preferred Stock or Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless
the holders of one-third (1/3) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as may
then exist up to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or decreased
except by vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or pari
passu with the Series C Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of Preferred
Stock outstanding, irrespective of series, may request, the calling of a
special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the Chairman of the Board or the President of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this subparagraph (C)(iii)
of Section 3 shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as the same appears
on the books of the Corporation. Such meeting shall be called for a time not
earlier than ten (10) days and not later than sixty (60) days after such order
or request, or in default of the calling of such meeting within sixty (60)
days after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this subparagraph (C)(iii) of Section 3, no
such special meeting shall be called during the period within sixty (60) days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) Directors voting as a class, after
the exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have
been elected by such holders or until the expiration of the default period,
and (y) any vacancy in the
D-29
<PAGE>
Board of Directors may (except as provided in subparagraph (C)(ii) of this
Section 3) be filled by a vote of a majority of the remaining Directors
theretofore elected by the holders of the class of stock which elected the
Director whose office shall become vacant. References in this paragraph (C) to
Directors elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in clause
(y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may
be provided for in the Corporation's Certificate of Incorporation or By-laws
irrespective of any increase made pursuant to the provisions of subparagraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Corporation's Certificate
of Incorporation or By-laws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series C Participating Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions payable
on the Series C Participating Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Participating
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not:
(i) Declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Participating Preferred Stock;
(ii) Declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Participating
Preferred Stock except dividends paid ratably on the Series C Participating
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) Redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Participating Preferred Stock;
provided, however, that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series C Participating
Preferred Stock; or
(iv) Purchase or otherwise acquire for consideration any shares of Series
C Participating Preferred Stock or any shares of stock ranking on a parity
with the Series C Participating Preferred Stock except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
D-30
<PAGE>
Section 5. Reacquired Shares. Any shares of Series C Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up
of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series C Participating Preferred Stock unless, prior
thereto, the holders of shares of Series C Participating Preferred Stock shall
have received per share, the amount of $1.00, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment (the "Series C Liquidation Preference"). Following
the payment of the full amount of the Series C Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series C
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series C Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in paragraph
(C) of this Section 6 below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such number
in clause (ii), the "Adjustment Number"). Following the payment of the full
amount of the Series C Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series C Participating Preferred Stock
and Common Stock, respectively, holders of Series C Participating Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit payment
in full of the Series C Liquidation Preference and the liquidation preferences
of all other series of Preferred Stock, if any, which rank on a parity with
the Series C Participating Preferred Stock, then such remaining assets shall
be distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event there are not
sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. If the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such event the shares
of Series C Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to the Adjustment Number times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged.
Section 8. No Redemption. The shares of Series C Participating Preferred
Stock shall not be redeemable.
Section 9. Ranking. The Series C Participating Preferred Stock shall rank
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
D-31
<PAGE>
Section 10. Fractional Shares. The Series C Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series C Participating Preferred Stock.
Section 11. Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series C Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series C
Participating Preferred Stock, voting separately as a class.
Section 12. Effective Date. This Certificate of Designation, Preferences and
Rights of Series C Participating Preferred Stock of WAI, Inc. shall be
effective at 5:00 P.M., Eastern Standard Time, on , 1997.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do
affirm the foregoing as true under penalties of perjury this day of ,
1997.
By: _________________________________
Name:
Title:
Attest:
_____________________________________
Name:
Title: Secretary
D-32
<PAGE>
EXHIBIT B
FORM OF RIGHT CERTIFICATE
Certificate No. R- Rights
NOT EXERCISABLE AFTER , 2007, OR EARLIER IF REDEEMED BY THE
CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN RELATED PERSONS, WHETHER CURRENTLY HELD BY OR ON
BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND
VOID.
RIGHT CERTIFICATE
WAI, INC.
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of , 1997 (the "Rights Agreement"), between WAI, Inc.,
an Oklahoma corporation (the "Corporation"), and Liberty Bank and Trust
Company of Oklahoma City, N.A. (the "Rights Agent"), to purchase from the
Corporation at any time after the Distribution Date (as such term is defined
in the Rights Agreement) and prior to 5:00 P.M., New York City time, on ,
2007, unless the Rights evidenced hereby shall have been previously redeemed
by the Corporation, at the principal office or offices of the Rights Agent
designated for such purpose, or at the office of its successor as Rights
Agent, one one-hundredth of a fully paid non-assessable share of Series C
Participating Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of the Corporation, at a purchase price of $80.00 per one one-
hundredth of a Preferred Share (the "Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of , 1997 based on the Preferred Shares as
constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in
the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee after the Acquiring Person becomes such, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of any
such Acquiring Person, Associate or Affiliate who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number of
one one-hundredths of a Preferred Share or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain
events, including Triggering Events (as such term is defined in the Rights
Agreement).
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights,
D-33
<PAGE>
obligations, duties and immunities hereunder of the Rights Agent, the
Corporation and the holders of the Right Certificates, which limitations of
rights include the temporary suspension of the exercisability of such Rights
under the specific circumstances set forth in the Rights Agreement. Copies of
the Rights Agreement are on file at the principal executive offices of the
Corporation and the principal office or offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares or other securities as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder
to purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate
or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at a redemption price of
$.01 per Right (subject to adjustment as provided in the Rights Agreement)
payable in Common Shares or cash.
The Corporation shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right as defined in the Rights Agreement.
The Corporation will not be required to issue fractions of Preferred Shares
(other than fractions which are one one-hundredths or integral multiples of
one one-hundredth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are one one-hundredths or integral multiples of one one-
hundredth of a Preferred Share). In lieu of fractional Preferred Shares other
than fractions that are multiples of one one-hundredth of a Share, the
Corporation will pay to the registered holders of Right Certificates at the
time such Rights are exercised an amount in cash equal to the same fraction of
the current market value of one Preferred Share as defined in the Rights
Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or
of any other securities of the Corporation which may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement
or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Corporation or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
D-34
<PAGE>
WITNESS the signature of the proper officers of the Corporation and its
corporate seal. Dated as of , 1997.
[SEAL]
ATTEST: WAI, Inc.
Attest:
By __________________________________ By __________________________________
Name: Name:
Title: Title:
Countersigned:
[RIGHTS AGENT]
By __________________________________
Authorized Signatory
Name:
Title:
D-35
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: ,
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank, savings association, credit union or
trust company having an office or correspondent in the United States or other
eligible guarantor institution which is a participant in a signature guarantee
medallion program.
- -------------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by this Right
Certificate are not being sold, assigned or transferred by or on behalf of a
Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Rights Agreement) and (2) after due inquiry
and to the best knowledge of the undersigned, the undersigned did not acquire
the Rights evidenced by this Right Certificate from any Person who is or was
an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement).
_____________________________________
Signature
D-36
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE--CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise Rights
represented by the Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise Rights represented by
this Right Certificate to purchase the Preferred Shares, Common Shares or such
other securities issuable upon the exercise of such Rights at this time as
follows:
Please Insert
Number of Rights To Be Exercised
(i) Preferred Shares Exercise
__________
(ii) Section 11(a)(ii) Exercise
__________
(iii) Section 13 Exercise __________
The undersigned requests that certificates for such Preferred Shares, Common
Shares or other securities be issued in the name of:
Please insert social security
or other identifying number ___________________________________________________
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number ___________________________________________________
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
Dated: , 19
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank, savings association, credit union or
trust company having an office or correspondent in the United States or other
eligible guarantor institution which is a participant in a signature guarantee
medallion program.
D-37
<PAGE>
The undersigned hereby certifies that (1) the Rights evidenced by this Right
Certificate are not being exercised by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement) and (2) after due inquiry and to the best
knowledge of the undersigned, the undersigned did not acquire the Rights
evidenced by this Rights Certificate from any Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement).
_____________________________________
Signature
- -------------------------------------------------------------------------------
NOTICE
The signature on the foregoing Forms of Assignment and Election and
certificates must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Corporation and the Rights Agent will deem the Beneficial Owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as such terms are defined in the Rights Agreement) and
such Assignment or Election to Purchase will not be honored.
D-38
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED
TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN RELATED PERSONS, WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON
OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
On , 1997, the Board of Directors of WAI, Inc., an Oklahoma corporation
(the "Corporation"), declared a dividend distribution of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock, par
value $0.01 per share (the "Common Shares"), of the Corporation. The dividend
is payable to the stockholders of record as of 5:00 P.M., Eastern Standard
Time, on , 1997 (the "Record Date"), and with respect to Common Shares
issued thereafter until the Distribution Date (as defined below) and, in
certain circumstances, with respect to Common Shares issued after the
Distribution Date. Except as set forth below, each Right, when it becomes
exercisable, entitles the registered holder to purchase from the Corporation
one one-hundredth of a share of Series C Participating Preferred Stock, par
value $0.01 per share (the "Preferred Shares") at a price of $80.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of , 1997 (the "Rights Agreement"), between the
Corporation and Liberty Bank and Trust Company of Oklahoma City, N.A. (the
"Rights Agent").
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates (as
hereinafter defined) will be distributed. The Rights will separate from the
Common Shares on the earliest to occur of (i) the first date of public
announcement that a person or "group" has acquired beneficial ownership of 15%
or more of the outstanding Common Shares (except pursuant to a Permitted
Offer, as hereinafter defined); or (ii) 10 business days (or such later date
as the Board may determine) following the commencement of, or announcement of
an intention to commence, a tender offer or exchange offer the consummation of
which would result in a person or group becoming an Acquiring Person (as
hereinafter defined) (the earliest of such dates being called the
"Distribution Date"). A person or group whose acquisition of Common Shares
causes a Distribution Date pursuant to clause (i) above is an "Acquiring
Person." The first date of public announcement that a person or group has
become an Acquiring Person is the "Shares Acquisition Date." "Disinterested
Directors" are directors who are not officers of the Corporation and who are
not Acquiring Persons or their affiliates, associates or representatives of
any of them, or any Person who directly or indirectly proposed or nominated as
a director of the Corporation by a Transaction Person (as defined below).
Notwithstanding the foregoing, an Acquiring Person does not include (i) any
member of the Shareholder Group, but only to the extent of Common Shares held
or acquired by such Shareholder Group member in accordance with the terms of
the Shareholder Agreement (as defined in the Agreement between WAI, Inc.,
Western Resources, Inc. and ONEOK Inc., dated December 12, 1996, as restated
and amended, dated May 19, 1997), and provided that the exemption provided
under this clause (i) shall permanently expire at such time as the Total
Ownership Percentage of Western Resources, Inc. and its affiliates first falls
below 10% or (ii) any Transferee who acquires Beneficial Ownership of Common
Share from the Shareholder Group pursuant to Sections 3.4(a) or 3.4(b) of the
Shareholder Agreement or who acquires Beneficial Ownership of less than 5% of
the Common Share in a public offering pursuant to Section 3.4(c) of the
Shareholder Agreement, but only to the extent of Common Shares acquired in
accordance with the terms of the Shareholder Agreement (it being understood
that, any such Transferee shall become an Acquiring Person upon the concurrent
or subsequent acquisition by such Transferee, or its Affiliates or Associates,
of any additional Common Shares if, after giving effect to such acquisition,
and taking into account all shares Beneficially Owned by the Transferee
including the shares acquired from the Shareholder Group, such Transferee
would be an Acquiring Person but for the provisions of this clause (ii))
(Defined terms used in clauses (i) and (ii) above which are defined in the
Shareholder Agreement shall have the same respective meanings as such terms
have in the Shareholder Agreement).
D-39
<PAGE>
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or
a copy of this Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by
such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date (and to each initial record holder of certain Common
Shares issued after the Distribution Date), and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
at 5:00 P.M., New York City time, on , 2007, unless earlier redeemed by the
Corporation as described below.
In the event that any person becomes an Acquiring Person (except pursuant to
a Permitted Offer as defined below), each holder of a Right will have (subject
to the terms of the Rights Agreement) the right (the "Flip-In Right") to
receive upon exercise the number of Common Shares, or, in the discretion of
the Board of Directors, of one one-hundredth of a Preferred Share (or, in
certain circumstances, other securities of the Corporation) having a value
(immediately prior to such triggering event) equal to two times the exercise
price of the Right. Notwithstanding the foregoing, following the occurrence of
the event described above, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person or any affiliate or associate thereof will be null and
void. A "Permitted Offer" is a tender or exchange offer for all outstanding
Common Shares which is at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by a Majority of
Disinterested Directors to be adequate (taking into account all factors that
such Disinterested Directors deem relevant) and otherwise in the best
interests of the Corporation, its stockholders and its other relevant
constituencies (other than the person or any affiliate or associate thereof on
whose basis the offer is being made) taking into account all factors that such
directors may deem relevant and (ii) any tender or exchange offer required or
permitted to be made by the Shareholder Group (as defined in the Shareholder
Agreement) pursuant to, and in accordance with, the Shareholder Agreement).
In the event that, at any time following the Shares Acquisition Date, (i)
the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders
of all of the surviving corporation's voting power, or (ii) more than 50% of
the Corporation's assets or earning power is sold or transferred, in either
case with or to an Acquiring Person or any affiliate or associate or any other
person in which such Acquiring Person, affiliate or associate has an interest
or any person acting on behalf of or in concert with such Acquiring Person,
affiliate or associate, or, if in such transaction all holders of Common
Shares are not treated alike, any other person, then each holder of a Right
(except Rights which previously have been voided as set forth above) shall
thereafter have the right (the "Flip-Over Right") to receive, upon exercise,
common shares of the acquiring company having a value equal to two times the
exercise price of the Right.
The Purchase Price payable, and the number of one-hundredths of a Preferred
Share or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion
price, less than the then current market price of the Preferred Shares or
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The Purchase Price is also subject to adjustment in the event of a stock
split of the Common Shares or a stock dividend on the Common Shares payable in
Common Shares or subdivisions, consolidations or combinations of the Common
Shares occurring, in any such case, prior to the Distribution Date.
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With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional one-hundredths of a Preferred Share will be
issued and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day price to the date
of exercise.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be
entitled to an aggregate dividend per share of 100 times the dividend declared
per Common Share. In the event of liquidation, the holders of the Preferred
Shares will be entitled to a minimum preferential liquidation payment of $1.00
per share; thereafter, and after the holders of the Common Shares receive a
liquidation payment of $0.01 per share, the holders of the Preferred Shares
and the holders of the Common Shares will share the remaining assets in the
ratio of one hundred to 1 (as adjusted) for each Preferred Share and Common
Share so held, respectively. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive one hundred times the amount
received per Common Share. These rights are protected by customary
antidilution provisions. In the event that the amount of accrued and unpaid
dividends on the Preferred Shares is equivalent to at least six full quarterly
dividends, the holders of the Preferred Shares shall have the right, voting as
a class, to elect two directors in addition to the directors elected by the
holders of the Common Shares until all cumulative dividends on the Preferred
Shares have been paid through the last quarterly dividend payment date or
until non-cumulative dividends have been paid regularly for at least one year.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Corporation may
redeem the rights in whole, but not in part, at a price of $0.01 per Right
(the "Redemption Price"), which redemption shall be effective upon the action
of the Board of Directors. Additionally, the Corporation may redeem the then
outstanding Rights in whole but not in part, at the Redemption Price after the
triggering of the Flip-in Right and before the expiration of any period during
which the Flip-in Right may be exercised in connection with a merger or other
business combination transaction or series of transactions involving the
Corporation in which all holders of Common Shares are treated alike but not
involving a Transaction Person (as defined below). Upon the effective date of
the redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Corporation, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders of the Corporation, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
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APPENDIX E
CERTIFICATE OF INCORPORATION OF WAI, INC.
The undersigned, in order to form a corporation pursuant to Section 1006 of
the General Corporation Act of the State of Oklahoma (the "OGCA"), does hereby
certify as follows:
FIRST
The name of the Corporation is WAI, Inc.
SECOND
The principal office or place of business of the Corporation in the State of
Oklahoma is to be located at 100 West Fifth Street, Suite 1000, in the City of
Tulsa, County of Tulsa. The name of its resident agent is The Corporation
Company and the address of said resident agent is 735 First National Building,
Oklahoma City, Oklahoma 73102.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the OGCA.
FOURTH
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 200,000,000 shares divided into
two classes of which 100,000,000 shares, par value $0.01 per share, shall be
designated Preferred Stock and 100,000,000 shares, par value $0.01 per share,
shall be designated Common Stock.
1. Preferred Stock.
(a) Issuance. The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for issuance of shares of Preferred Stock in one
or more series, to establish the number of shares to be included in each such
series, and to fix the designations, powers, preferences, and rights of the
shares of each such series, and any qualifications, limitations, or
restrictions thereof.
2. Common Stock.
(a) Dividends. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive,
when and if declared by the Board of Directors, out of the assets of the
Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of Common Stock.
(b) Voting Rights. At every annual or special meeting of shareholders of the
Corporation, every holder of Common Stock shall be entitled to one vote, in
person or by proxy, for each share of Common Stock standing in his name on the
books of the Corporation.
(c) Liquidation, Dissolution or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.
FIFTH
The Corporation shall have perpetual existence.
SIXTH
The private property of the shareholders shall not be subject to the payment
of the corporate debts to any extent whatever.
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SEVENTH
1. The business of the Corporation shall be managed by the Board of
Directors, except as otherwise required by law. The Board of Directors may by
resolution or resolutions, passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one (1) or more of the
Directors of the Corporation, which to the extent provided in said resolution
or resolutions or in the By-Laws of the Corporation, shall have and may
exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
By-Laws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
2. Initially, the Board of Directors of the Corporation shall consist of two
persons. Upon the consummation of the Merger (such term having the meaning
specified in the Agreement, dated as of December 12, 1996, between Western
Resources, Inc. and ONEOK Inc., as the same may be further amended (the
"Agreement")), the number of Directors of the Corporation shall be not less
than nine (9) nor more than thirty-one (31) persons and shall be fixed from
time to time by the Board of Directors. Commencing concurrently with the
effective time of the Merger, the Directors shall be divided into three
classes (A, B and C), as nearly equal in number as possible. The initial term
of office for members of Class A shall expire at the annual meeting of
shareholders in January 1998; the initial term of office for members of Class
B shall expire at the next annual meeting of shareholders; and the initial
term of office for members of Class C shall expire at the following annual
meeting of shareholders. At each annual meeting of shareholders following such
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders after their election,
and shall continue to hold office until their respective successors are
elected and qualified. In the event of any increase in the number of Directors
fixed by the Board of Directors, the additional Directors shall be so
classified that all classes of Directors have as nearly equal numbers of
Directors as may be possible. In the event of any decrease in the number of
Directors of the Corporation, all classes of Directors shall be decreased
equally as nearly as may be possible.
3. Newly created directorships resulting from any increase in the authorized
number of Directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause shall be filled by the affirmative vote of a majority of the Directors
then in office, though less than a quorum, or by the sole remaining Director,
or by the shareholders at their next annual meeting or at any special meeting
of shareholders called for that purpose. Each Director so chosen shall hold
office until the expiration of the term of the Director, if any, whom he has
been chosen to succeed or if none, until the expiration of the term of the
class assigned to the additional directorship to which he has been elected, or
until his earlier death, resignation or removal. No decrease in the number of
Directors constituting the Board of Directors shall shorten the term of any
incumbent Director. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any Director or the entire Board of
Directors may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least eighty percent (80%) of the
voting power of all outstanding Voting Shares (as defined in Article Tenth).
4. The shareholders and Directors of the Corporation may hold their meetings
and have an office or offices outside of the State of Oklahoma if the By-Laws
so provide.
5. None of the Directors need be a shareholder of the Corporation or a
resident of the State of Oklahoma.
6. The By-Laws or any By-Law may be adopted, amended or repealed only by the
affirmative vote of not less than a majority of the Directors then in office
at any regular or special meeting, or by the affirmative vote of the holders
of at least eighty percent (80%) of the voting power of all outstanding Voting
Shares, voting as a single class, at any annual meeting or any special meeting
called for that purpose.
7. The Board of Directors shall have power from time to time to set apart
out of any funds of the Corporation available for dividends a reserve or
reserves for any proper purpose, and to abolish such reserve in
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the manner in which it was created and to fix and determine and to vary the
amount of the working capital of the Corporation, and to direct and determine
the use and disposition of the working capital and of any surplus or net
profits over and above the capital stock paid in.
8. The shareholders and the Board of Directors shall have power to keep the
books, documents and papers of the Corporation outside of the State of
Oklahoma, except as otherwise required by the laws of the State of Oklahoma.
9. The Board of Directors from time to time shall determine whether and to
what extent and at what times and places, and under what conditions and
regulations the accounts and books of the Corporation, or any of them, shall
be open to the inspection of the shareholders, and no shareholders shall have
any right to inspect any account, book or documents of the Corporation except
as conferred by statute or as authorized by resolution of the Board of
Directors.
10. In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated in any way by the fact that any
of the Directors of the Corporation are in any way interested in or connected
with any other party to such contract or transaction or are themselves parties
to such contract or transaction, provided that such interest shall be fully
disclosed or otherwise known to the Board of Directors at the meeting of said
Board at which such contract or transaction is authorized or confirmed, and
provided further that at the meeting of the Board of Directors authorizing or
confirming such contract or transaction there shall be present a quorum of
Directors not so interested or connected and such contract or transaction
shall be approved by a majority of such quorum, and no such interested
Director shall vote on any such contract or transaction. Any contract,
transaction or act of the Corporation or of the Board of Directors or of any
committee thereof which shall be ratified by a majority of a quorum of the
shareholders of the Corporation having voting power at any annual meeting, or
any special meeting called for such purpose, shall be as valid and as binding
as though ratified by every shareholder of the Corporation. Any Director of
the Corporation may vote upon any contract or other transaction between the
Corporation and any subsidiary corporation without regard to the fact that he
is also a Director of such subsidiary corporation. No contract or agreement
between the Corporation and any other corporation or party which owns a
majority of the capital stock of the Corporation or any subsidiary of any such
other corporation shall be made or entered into without the affirmative vote
of a majority of the whole Board of Directors at a regular meeting of the
Board.
11. Notwithstanding anything to the contrary in the foregoing paragraph 10,
in the case of contracts, transactions and acts of the Corporation, of the
Board of Directors or of committees thereof that require shareholder approval
under any provision of this Certificate or of applicable law by a higher
proportion of the voting power of the outstanding Voting Shares than a
majority of a quorum of the shareholders, ratification by the shareholders of
such contracts, transactions and acts shall require the affirmative vote of
such higher proportion of such voting power, and any contract, transaction,
act or agreement referred to in such paragraph 10 shall be subject to any such
applicable provisions of the Certificate or of applicable law.
12. All salaries and compensation paid by the Corporation to its Directors
and executive officers shall be fixed from time to time by the Board of
Directors at a meeting of the Board to be held as provided by the By-Laws, and
any payment of any character to any Director or executive officer of the
Corporation or any contract made with such Director or executive officer must
be approved by a majority of the whole Board of Directors at a regular meeting
of the Board, before such payment is made or contract executed.
13. No Director shall be personally liable to the Corporation or its
shareholders for monetary damages for any breach of fiduciary duty by such
Director as a Director, except (i) for breach of the Director's duty of
loyalty to the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 1053 of Title 18 of the OGCA, or (iv) for
any transaction from which the Director derived an improper personal benefit.
Any repeal or modification of this paragraph 13 shall not adversely affect any
right to protection of a Director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
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14. The affirmative vote of the holders of at least eighty percent (80%) of
the voting power of all outstanding Voting Shares shall be required to amend,
repeal, or adopt any provision inconsistent with paragraphs 2, 3, 6, 11 or 13
of this Article SEVENTH or this paragraph 14.
EIGHTH
Whenever compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
shareholders or any class of them, any court of equitable jurisdiction within
the State of Oklahoma may, on the application in a summary way of this
Corporation or of any creditor or shareholder thereof, or on the application
of any receiver or receivers appointed for this Corporation under the
provisions of Section 1106 of Title 18 of the OGCA, or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 1100 of Title 18 of the OGCA,
order a meeting of the creditors or class of creditors, and/or of the
shareholders or class of shareholders of this Corporation, as the case may be,
to be summoned in such manner as the said Court directs. If holders of
liabilities representing three-fourths (3/4) in value of the creditors or
class of creditors and/or if holders of shares representing three-fourths
(3/4) of the shares held by such shareholders or class of shareholders 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, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
shareholders or class of shareholders, of this Corporation, as the case may
be, and also on this Corporation.
NINTH
Other than as set forth in the Shareholder Agreement (the "Shareholder
Agreement"), to be entered into by the Corporation and Western Resources, Inc.
pursuant to the Agreement, no holder of stock of the Corporation of any class
shall have any preferential, preemptive or other right to subscribe for or to
purchase from the Corporation any stock of the Corporation of any class
whether or not now authorized, or to purchase any bonds, certificates of
indebtedness, debentures, notes, obligations or other securities which the
Corporation may at any time issue, whether or not the same shall be
convertible into stock of the Corporation of any class or shall entitle the
owner or holder to purchase stock of the Corporation of any class.
TENTH
1. Higher Vote for Certain Business Combinations. At any time after
consummation of the Merger, a Business Combination (as hereinafter defined)
with or upon a proposal by a Related Person (as hereinafter defined) shall
require, in addition to such approvals as are required by law, the approval of
the Business Combination by either (a) a majority vote of all of the
Independent Directors or (b) the holders of at least two-thirds (66 2/3%) of
the shares otherwise entitled to vote as a single class with the Common Stock
to approve such Business Combination (the "Applicable Shares"), excluding any
shares owned by such Related Person; provided, however, that the provisions of
this Article Tenth shall not apply (i) to any Related Person who becomes a
Related Person pursuant to a single transaction in which such Related Person
acquires 85% of the Applicable Shares then outstanding in a single transaction
and (ii) to the Shareholder Group (as such term is defined in the Shareholder
Agreement) after the termination of the Shareholder Agreement to the extent
the Shareholder Group acquires, in a single transaction, an amount of
Applicable Shares equal to the difference between (a) 85% of the then
outstanding Applicable Shares and (b) the amount of Applicable Shares owned by
the Shareholder Group on the date the Shareholder Agreement is terminated;
provided, further, that for the purpose of the immediately preceding proviso,
Applicable Shares owned by (i) persons who are directors and also officers of
the Corporation and (ii) employee stock plans, shall be excluded.
2. Certain Definitions. For purposes of this Article TENTH:
(a) A "person" shall mean any individual, firm, corporation or other
entity, or a group of "persons" acting or agreeing to act together in the
manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934,
as in effect on January 1, 1997 (the "1934 Act").
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(b) The term "Business Combination" shall mean any of the following
transactions, when entered into by the Corporation or a subsidiary of the
Corporation with, or upon a proposal by, a Related Person:
(1) The merger or consolidation of the Corporation or any subsidiary
of the Corporation; or
(2) The sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one or a series of transactions) of any assets of the
Corporation or any subsidiary of the Corporation having an aggregate
fair market value of Five Million Dollars ($5,000,000) or more; or
(3) The issuance or transfer by the Corporation or any subsidiary of
the Corporation (in one or a series of transactions) of securities of
the Corporation or that subsidiary having an aggregate fair market
value of Five Million Dollars ($5,000,000) or more, provided that
issuances of Common Stock pursuant to conversions of Preferred Stock
shall not be deemed a "Business Combination"; or
(4) The adoption of a plan or proposal for the liquidation or
dissolution of the Corporation; or
(5) The reclassification of securities (including a reverse stock
split), recapitalization, consolidation or any other transaction
(whether or not involving a Related Person) which has the direct or
indirect effect of increasing the voting power, whether or not then
exercisable, of a Related Person in any class or series of capital
stock of the Corporation or any subsidiary of the Corporation; or
(6) Any agreement, contract or other arrangement providing directly
or indirectly for any of the foregoing.
(c) The term "Related Person" shall mean any person (other than the
Corporation, a subsidiary of the Corporation or any profit sharing,
employee stock ownership or other employee benefit plan of the Corporation
or a subsidiary of the Corporation or any trustee of or fiduciary with
respect to any such plan acting in such capacity) that is the direct or
indirect beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under
the 1934 Act) of more than ten percent (10%) of the outstanding Voting
Shares of the Corporation and any Affiliate or Associate of any such
person.
(d) The term "Independent Director" shall mean any member of the Board of
Directors who is not affiliated with or nominated by a Related Person.
(e) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the 1934 Act.
(f) The term "Voting Shares", at any time, shall mean the Common Stock
and shares of any other class of capital stock of the Corporation then
entitled to vote generally in the election of directors.
(g) A majority of all Independent Directors shall have the power to make
all determinations with respect to this Article TENTH, including, without
limitation, the transactions that are Business Combinations, the persons
who are Related Persons, the time at which a Related Person became a
Related Person, and the fair market value of any assets, securities or
other property, and any such determinations of such directors shall be
conclusive and binding.
3. Applicability of the OGCA. Section 1090.3 of Title 18 of the OGCA shall
be applicable to this Corporation.
4. No Effect on Fiduciary Obligations of Related Persons. Nothing contained
in this Article TENTH shall be construed to relieve any Related Person from
any fiduciary obligation imposed by law.
5. Amendment, Repeal, etc. The affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all outstanding Voting Shares of
the Corporation, voting together as a single class, shall be required in order
to amend, repeal or adopt any provision inconsistent with this Article TENTH.
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ELEVENTH
1. At any time after consummation of the Merger, unless otherwise
specifically provided in this Certificate (including any Certificate of
Designation with respect to any class or series of Preferred Stock), any
action required or permitted to be taken by the shareholders of the
Corporation must be effected by a vote of the shareholders at a duly called
annual meeting or special meeting called for that purpose and may not be
effected by any consent in writing of such shareholders.
2. The affirmative vote of the holders of at least eighty percent (80%) of
the voting power of all outstanding Voting Shares, voting as a single class,
shall be required to amend, repeal, or adopt any provision inconsistent with
this Article ELEVENTH.
3. The name and mailing address of the Incorporator is as follows:
Name
Mailing Address
Richard Terrill c/o Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
4. The initial directors of the Corporation consist of John K. Rosenberg and
Richard Terrill and their mailing address is as follows:
c/o Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
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IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of May, 1997
and I affirm that the foregoing certificate is my act and deed and that the
facts stated therein are true.
/s/ Richard D. Terril
_____________________________________
Name: Richard D. Terrill,
Incorporator
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APPENDIX F
PRELIMINARY DRAFT
FOR INFORMATIONAL
PURPOSES ONLY
FORM OF FAIRNESS OPINION OF PAINEWEBBER INCORPORATED
, 1997
Board of Directors
ONEOK Inc.
100 West Fifth Street
Tulsa, OK 74103
Madames and Gentlemen:
ONEOK Inc. (the "Company") and Western Resources, Inc. ("WRI") have entered
into an Agreement and Plan of Merger (the "Agreement") pursuant to which (i)
the Company will merge with and into a newly formed company ("New Oneok") with
the stockholders of the Company receiving an aggregate of approximately 55% of
the fully diluted common stock of New Oneok in exchange for their shares and
(ii) WRI will contribute certain gas assets (the "Gas Business") to New Oneok
in exchange for (a) approximately 9.9% of the fully diluted common stock of
New Oneok, (b) New Oneok preferred stock convertible into approximately 35.1%
of the fully diluted common stock of New Oneok upon a Regulatory Change (as
defined in the Agreement) at WRI's option and (c) the assumption by New Oneok
of certain indebtedness of WRI in the aggregate amount of $35 million. In
connection with the Agreement, WRI and New Oneok propose to enter into a
Shareholder Agreement (the "Shareholder Agreement") pursuant to which, among
other things, WRI has agreed to certain standstill provisions relating to New
Oneok's securities and corporate governance. The aforementioned transactions
contemplated by the Agreement and the Shareholder Agreement are collectively
referred to herein as the "Transactions".
You have asked us whether or not, in our opinion, the proposed Transactions
are fair to the shareholders of the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual
Reports, Forms 10-K and related financial information for the four fiscal
years ended August 31, 1996;
(2) Reviewed, among other public information, WRI's Annual Reports, Forms
10-K and related financial information for the four fiscal years ended
December 31, 1995 and WRI's Form 10-Q and the related unaudited financial
information for the nine months ended September 30, 1996;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company
and the Gas Business, provided to us;
(4) Conducted discussions with members of senior management of the
Company and WRI concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Company's shares and compared such prices and trading activity with those
of certain publicly traded companies which we deemed to be relevant;
(6) Compared the financial position and operating results of the Company
and the Gas Business with that of certain publicly traded companies which
we deemed to be relevant;
(7) Compared the financial terms of the Transactions with the financial
terms of certain other business combinations which we deemed to be
relevant;
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(8) Considered the potential pro forma effects of the Transactions on the
Company;
(9) Reviewed the draft of the Agreement dated December 10, 1996 and the
draft of the Shareholder Agreement dated December 2, 1996;
(10) Reviewed certain information provided to us relating to potential
stand-alone operational efficiencies of the Gas Business; and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary including our assessment of regulatory, general economic,
market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise
communicated to us by the Company and WRI and we have not independently
verified the same. We have assumed that the financial forecasts provided to us
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments as to the future performance of the Company
and the Gas Business, respectively. We have also assumed, with your consent,
that: (i) the contribution of the Gas Business will be accounted for under the
purchase method of accounting and (ii) any material liabilities (contingent or
otherwise, known or unknown) of the Company and the Gas Business are as set
forth in the consolidated financial statements of the Company and WRI,
respectively. We have not made an independent appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Gas Business, nor
have we been furnished with any such appraisals. Our opinion is based upon
economic, monetary and market conditions existing on the date hereof.
Furthermore, we express no opinion as to the price or trading range at which
the shares of the Company or New Oneok will trade from the date hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how
any such shareholder should vote on the Transactions. This opinion does not
address the relative merits of the Transactions and other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Transactions or the decision of the Board of Directors of
the Company to proceed with the Transactions.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this
letter may be reproduced in full in a proxy statement/prospectus relating to
the Transactions.
PaineWebber Incorporated is currently acting as financial advisor in
connection with rendering a fairness opinion to the Company relating to the
Transactions and will receive a fee upon the delivery of this opinion. In the
past, PaineWebber Incorporated and its affiliates have provided investment
banking services to the Company and have received fees for rendering these
services.
In the ordinary course of our business, we may trade the securities of the
Company and WRI for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed Transactions are fair to the shareholders
of the Company from a financial point of view.
Very truly yours,
F-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant, as an Oklahoma corporation, is empowered by section 1031 of
the Oklahoma General Corporation Act of the State of Oklahoma (the "OGCA"),
subject to the procedures and limitations stated therein, to indemnify any
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding in which such person is made or threatened to be made a party by
reason of his being or having been a director, officer, employee or agent of
the Registrant. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. Article VIII of the By-laws of New
ONEOK provides that directors and officers of New ONEOK shall be indemnified
by New ONEOK to the fullest extent permitted by Oklahoma law as now or
hereafter in force, including the advance of related expenses. If any
determination is required under applicable law as to whether a director or
officer is entitled to indemnification, such determination shall be made by
the Board, by vote of a quorum of disinterested directors, or by independent
legal counsel by written opinion or by shareholders.
The Certificate of Incorporation of New ONEOK provides that a director of
the corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) acts or omissions not in good faith
or which would involve intentional misconduct or a knowing violation of law,
(iii) payment of unlawful dividends or unlawful stock purchases or
redemptions, or (iv) any transaction from which the director derived an
improper personal benefit.
In addition, Article VIII of the By-laws of New ONEOK provides for
indemnification of directors and officers, including indemnification of
directors and officers that are a party to a proceeding in whole or in part
attributable to (a) the fact that he is or was a director or officer of the
Registrant or was serving at the request of the Registrant or (b) anything
done or not done by such person in any such capacity against losses if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful.
New ONEOK and WRI will enter into a Registration Right Agreement on the
Closing Date which provides for indemnification of New ONEOK's directors,
officers, employees and controlling person, if any, in any offering or sale of
shares of Common Stock, obtainable upon conversion of the Series A Convertible
Preferred Stock or Series B Convertible Preferred Stock, against any claims
(including amounts paid in settlement), or actions or proceedings in respect
thereof, arising out of or based upon an untrue statement or alleged untrue
statement of a material fact contained in such registration statement or
prospectus contained therein, or any document incorporated by reference
therein, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to New ONEOK by WRI or such agent or underwriter expressly for use therein.
New ONEOK maintains directors and officers insurance on behalf of its
directors, officers and certain other persons against any liability asserted
against them in any such capacity.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Set forth below is a list of the exhibits included as part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement, dated as of December 12, 1996, among Western Resources,
Inc., WAI, Inc. and ONEOK Inc., as amended and restated as of May 19,
1997 (included as Appendix A to the Proxy Statement/Prospectus)
2.2 Form of Shareholder Agreement between Western Resources, Inc. and WAI,
Inc. (included as Appendix B to the Proxy Statement/Prospectus)
2.3 Form of Rights Agreement between WAI, Inc. and Liberty Bank and Trust
Company of Oklahoma City, N.A., as rights agent (included as Appendix
D to the Proxy Statement/Prospectus)
3.1 Certificate of Incorporation of WAI, Inc., as effective May 16, 1997
(included as Appendix E to the Proxy Statement/Prospectus)
3.2 By-laws of WAI, Inc., as effective May 19, 1997
3.3 Form of the Certificates of Designations of the Convertible Preferred
Stock to the Certificate of Incorporation of New ONEOK (included as
Appendix C to the Proxy Statement/Prospectus)
3.4 Form of Registration Rights Agreement between WAI, Inc. and Western
Resources, Inc.
5.1 Form of Opinion of Gable Gotwals Mock Schwabe Kihle Gaberino
5.2 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson re: tax
matters
5.3 Form of Opinion of PaineWebber Incorporated, financial advisor of
ONEOK (included as Appendix F to the Proxy Statement/Prospectus)
12.1 Computation of Ratio of Earnings to Combined Fixed Changes and
Preferred Stock Dividend Requirements
12.2 Computation of Pro Forma Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
23.1 Consent of KPMG Peat Marwick LLP, independent public accountants of
ONEOK
23.2 Consent of Arthur Andersen LLP, independent public accountants of WRI
23.3 Consent of Gable Gotwals Mock Schwabe Kihle Gaberino
23.4 Consent of PaineWebber Incorporated
23.5 Consent of Fried, Frank, Harris, Shriver & Jacobson
99.1 Proxy Card
</TABLE>
FINANCIAL STATEMENT SCHEDULES
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(ii) above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the registrants pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement;
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request;
(4) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form;
(5) That every prospectus (i) that is filed pursuant to paragraph (6)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective; and
(7) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in
the prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrants pursuant to the foregoing provisions or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer, or
controlling person of the registrants in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrants
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, WAI, INC. HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF SHAWNEE, STATE OF
KANSAS, ON THE 20TH DAY OF MAY, 1997.
WAI, Inc.
/s/ John K. Rosenberg
By: _________________________________
JOHN K. ROSENBERG PRESIDENT AND
DIRECTOR
POWER OF ATTORNEY
EACH PERSON WHOSE INDIVIDUAL SIGNATURE APPEARS BELOW HEREBY AUTHORIZES JOHN
K. ROSENBERG AND RICHARD D. TERRILL AND EACH OF THEM AS ATTORNEYS-IN-FACT,
WITH FULL POWER OF SUBSTITUTION, TO EXECUTE IN THE NAME AND ON BEHALF OF SUCH
PERSON, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, AND TO FILE, ANY AND
ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, INCLUDING ANY AND ALL POST-
EFFECTIVE AMENDMENTS.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ John K. Rosenberg President and May 20, 1997
____________________________________ Director
JOHN K. ROSENBERG
/s/ Richard D. Terrill Treasurer, Secretary May 20, 1997
____________________________________ and Director
RICHARD D. TERRILL
II-4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement, dated as of December 12, 1996, among Western Resources,
Inc., WAI, Inc. and ONEOK Inc., as amended and restated as of May 19,
1997 (included as Appendix A to the Proxy Statement/Prospectus)
2.2 Form of Shareholder Agreement between Western Resources, Inc. and WAI,
Inc. (included as Appendix B to the Proxy Statement/Prospectus)
2.3 Form of Rights Agreement between WAI, Inc. and Liberty Bank and Trust
Company of Oklahoma City, N.A., as rights agent (included as Appendix
D to the Proxy Statement/Prospectus)
3.1 Certificate of Incorporation of WAI, Inc., as effective May 16, 1997
(included as Appendix E to the Proxy Statement/Prospectus)
3.2 By-laws of WAI, Inc., as effective May 19, 1997
3.3 Form of the Certificates of Designations of the Convertible Preferred
Stock to the Certificate of Incorporation of New ONEOK (included as
Appendix C to the Proxy Statement/Prospectus)
3.4 Form of Registration Rights Agreement between WAI, Inc. and Western
Resources, Inc.
5.1 Form of Opinion of Gable Gotwals Mock Schwabe Kihle Gaberino
5.2 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson re: tax
matters
5.3 Form of Opinion of PaineWebber Incorporated, financial advisor of
ONEOK (included as Appendix F to the Proxy Statement/Prospectus)
12.1 Computation of Ratio of Earnings to Combined Fixed Changes and
Preferred Stock Dividend Requirements
12.2 Computation of Pro Forma Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
23.1 Consent of KPMG Peat Marwick LLP, independent public accountants of
ONEOK
23.2 Consent of Arthur Andersen LLP, independent public accountants of WRI
23.3 Consent of Gable Gotwals Mock Schwabe Kihle Gaberino
23.4 Consent of PaineWebber Incorporated
23.5 Consent of Fried, Frank, Harris, Shriver & Jacobson
99.1 Proxy Card
</TABLE>
<PAGE>
EXHIBIT 3.2
BY-LAWS OF WAI, INC.
(An Oklahoma Corporation)
ARTICLE I - OFFICES
SECTION 1.01 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be located at 100 West
Fifth Street, Tulsa, Oklahoma 74103. The Board of Directors (hereinafter called
the "Board") is hereby granted full power and authority to change said principal
office from one location to another.
SECTION 1.02 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Oklahoma, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II - MEETINGS OF SHAREHOLDERS
SECTION 2.01 ANNUAL MEETINGS. An annual meeting of the shareholders
for the election of directors and for the transaction of such other proper
business as may come before such meetings may be held at such date, time and
place as the Board shall determine by resolution.
SECTION 2.02 SPECIAL MEETINGS. Special meetings of the shareholders
may be called at any time by a majority of the whole Board. Shareholders may
not call special meetings. At any special meeting of the shareholders, no
business shall be transacted and no corporate action shall be taken other than
as stated in the notice of meeting.
SECTION 2.03 PLACE OF SPECIAL MEETINGS. All special meetings of the
shareholders shall be held at such places, within or without the State of
Oklahoma, as may be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
Otherwise, the meeting shall be held at the principal offices of the
Corporation.
SECTION 2.04 NOTICE OF MEETINGS. (a) Whenever shareholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date, and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
<PAGE>
(b) Unless otherwise provided for in the Oklahoma General Corporation
Act or in the Certificate of Incorporation, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each shareholder entitled to vote at such meeting. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the shareholder at such shareholder's address as it appears on the records of
the Corporation. An affidavit of the secretary or an assistant secretary or of
the stock transfer agent of the Corporation that the notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(c) Notice of any meeting of shareholders shall not be required to be
given to any shareholder who shall have waived such notice and such notice shall
be deemed waived by any shareholder who shall have submitted a written waiver of
notice or who shall have attended such meeting in person or by proxy, except a
shareholder who shall have attended such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
(d) Notice of any adjourned meeting of the shareholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken, provided, however, that when the adjournment is for more
-------- -------
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
SECTION 2.05 QUORUM. Subject to the provisions of the Oklahoma
General Corporation Act or the Certificate of Incorporation, a majority of the
shares of stock of the Corporation entitled to vote, the holders of which shall
be present in person or represented by proxy, shall constitute a quorum for, and
the votes that shall be necessary for, the transaction of any business at any
meeting of the shareholders of the Corporation or any adjournment thereof. In
the absence of a quorum at any meeting or any adjournment thereof, the holders
of a majority of the shares entitled to vote thereat who are present in person
or by proxy or, if none of the holders of any shares entitled to vote thereat
are present, any officer entitled to preside at, or to act as secretary of, such
meeting may adjourn such meeting from time to time. At any such adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally called.
SECTION 2.06 VOTING. (a) Each shareholder shall, at each meeting of
the shareholders, be entitled to vote in person, or by proxy, each share of the
stock of the Corporation having
2
<PAGE>
voting rights on the matter in question and which shall have been held by such
shareholder and registered in such shareholder's name on the books of the
Corporation:
(i) on the date fixed pursuant to 2.07 of the By-laws as the record
date for the determination of shareholders entitled to notice of and to vote at
such meeting, or
(ii) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or if notice of the meeting shall be waived, at the close
of business on the day next preceding the day on which meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
Directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless the transfer by the pledgor on the books of the
Corporation shall have expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or the pledgee's proxy, may represent such stock and vote
thereon. Shares having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the General Corporation Act of the State of
Oklahoma.
(c) Any such voting rights may be exercised by the shareholder
entitled thereto in person or by the shareholder's proxy appointed by an
instrument in writing, subscribed by such shareholder, or by such shareholder's
attorney thereunto authorized, and delivered to the secretary of the meeting;
provided, however, that no proxy shall be voted or acted upon after three years
- -------- -------
from its date unless said proxy shall provide for a longer period. The
attendance at any meeting by a shareholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless the shareholder
shall in writing so notify the secretary of the meeting prior to the voting of a
proxy.
(d) At any meeting of the shareholders, all matters, except as
otherwise provided in the Certificate of Incorporation, in these By-laws or by
law, shall be decided by the vote of the holders of shares representing a
majority of the voting power of the shareholders present in person or by proxy
and entitled to vote thereat and thereon, provided that a quorum is present.
--------
The
3
<PAGE>
vote at any meeting of the shareholders on any question need not be by written
ballot, except election of Directors, unless so directed by the Chairman of the
meeting. On a vote by ballot, each ballot shall be signed by the shareholder
voting, or by the shareholder's proxy, if there be such proxy, and it shall
state the number of shares voted.
SECTION 2.07 FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD.
In order that the Corporation may determine the shareholders entitled to notice
of, or to vote at any meeting of shareholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution, or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action, unless otherwise provided by the Certificate of
Incorporation. If, in any case involving the determination of shareholders for
any purpose other than notice of or voting at a meeting of shareholders, the
Board shall not fix a record date, the record date for determining shareholders
for such purpose shall be the close of business on the day on which the Board
shall adopt the resolution relating thereto. A determination of shareholders
entitled to notice of, or to vote at, a meeting of shareholders shall apply to
any adjournment of such meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.
SECTION 2.08 LIST OF SHAREHOLDERS. The Secretary of the Corporation
shall cause to be prepared and made, at least 10 days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at the place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the entire duration thereof, and may be inspected by any shareholder who
is present for any purpose germane to the meeting.
SECTION 2.09 CHAIRMAN AND SECRETARY OF MEETING. Meetings of the
shareholders shall be presided over by the Chairman of the Board or, in his
absence, by the next senior officer of the Corporation present. If no senior
officers are present, the meeting of shareholders shall be presided over by a
Chairman to be chosen by the shareholders. The Secretary of the
4
<PAGE>
Corporation, or in such officer's absence, an Assistant Secretary, shall act as
Secretary of the Meeting, but if none are present, the Chairman of the meeting
shall appoint a Secretary of the meeting.
SECTION 2.10 INSPECTORS. If at any meeting of the shareholders a vote
by written ballot shall be taken on any question, the Chairman of the meeting
may appoint an inspector or inspectors to act with respect to such vote. Each
inspector so appointed shall first subscribe an oath faithfully to execute the
duties of an inspector at such meeting with strict impartiality and according to
the best of such inspector's ability. Such inspectors shall decide upon the
qualification of the voters and shall report the number of shares represented at
the meeting and entitled to vote on such question, shall conduct and accept the
votes, and when the voting is completed shall ascertain and report the number of
shares voted respectively for and against the question. Reports of the
inspectors shall be in writing and subscribed and delivered by them to the
Secretary of the Corporation. The inspectors need not be shareholders of the
Corporation, and any officer of the Corporation may be an inspector on any
question other than a vote for or against a proposal in which such officer shall
have a material interest.
SECTION 2.11 CONDUCT OF MEETINGS. At any meeting of the shareholders,
only such business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before a meeting of shareholders, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c) in
the case of an annual meeting of shareholders, otherwise properly brought before
the meeting by a shareholder. For business to be properly brought before an
annual meeting of shareholders by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received by
the Secretary of the Corporation at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the date of the
annual meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 1Oth day following the earlier of (i)
the date on which such notice of the date of the annual meeting was mailed or
(ii) the date on which such public disclosure was made. A shareholder's notice
to the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting, (b) the name and address, as
5
<PAGE>
they appear on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder on the date of such shareholder's notice
and by any other shareholders known by such shareholder to be supporting such
proposal on the date of such shareholder's notice, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in the By-laws to
the contrary, no business shall be conducted at a meeting of shareholders except
in accordance with the procedures set forth in this Section 2.11. The presiding
officer of a meeting of shareholders shall, if the facts warrant, determine that
business was not properly brought before the meeting in accordance with the
provisions of this Section 2.11, and if the presiding officer should so
determine, the presiding officer shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III - BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business, and affairs of
the Corporation shall be managed by and under the direction of the Board, except
as may be otherwise provided for in the Oklahoma General Corporation Act or in
the Certificate of Incorporation.
SECTION 3.02 NUMBER. Initially, the Board shall consist of two
Directors. Upon the consummation of the Merger (such term having the meaning
specified in the Agreement, dated as of December 12, 1996, between Western
Resources Inc. and ONEOK Inc., as the same may be amended), the number of
Directors of the Corporation shall not be less than nine nor more than thirty-
one persons and shall be fixed from time to time by resolution of the Board.
SECTION 3.03 ELECTION OF DIRECTORS. (a) Commencing concurrently with
the effective time of the Merger, the Directors shall be divided into three
classes (A, B, and C), as nearly equally in number as possible. The initial
term of office for members of Class A shall expire at the annual meeting of
shareholders in January, 1998; the initial term of office for members of Class B
shall expire at the next annual meeting of shareholders; and the initial term of
office for members of Class C shall expire at the following annual meeting of
shareholders. At each annual meeting of shareholders following such initial
classification and election, Directors elected to succeed those Directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of shareholders after their election, and shall
continue to hold office until their respective successors are elected and
qualified.
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(b) In the event of any increase in the number of Directors fixed by
the Board of Directors, the additional Directors shall be so classified that all
classes of Directors have as nearly equal number of Directors as may be
possible. In the event of any decrease in the number of Directors of the
Corporation, all classes of Directors shall be decreased as nearly equally as
possible.
(c) A person shall not be elected or reelected to the Board to fill a
vacancy on the Board after such person's 70th birthday.
(d) Only persons nominated in accordance with the procedures set forth
in this Section shall be eligible for election as Directors. Nominations of
persons for election to the Board may be made at a meeting of shareholders (i)
by or at the direction of the Board or a Committee thereof, or (ii) by any
shareholder of the Corporation entitled to vote for the election of Directors at
such meeting who complies with the notice procedures set forth in this
subsection (d). Such nominations, other than those made by or at the direction
of the Board or a Committee thereof, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received by the Secretary of the
Corporation at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the date of a meeting; provided, however,
-------- -------
that if fewer than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so delivered or received not later than the close of business on the
10th day following the earlier of (i) the day on which such notice of the date
of such meeting was mailed or (ii) the day on which such public disclosure was
made.
(e) A shareholder's notice to the Secretary shall set forth (i) as to
each person whom the shareholder proposes to nominate for election as a
Director: (a) the name, age, business address, and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation which are beneficially owned by such
person on the date of such shareholder's notice, and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); and
(ii) as to the shareholder giving the notice: (a) the name and address, as they
appear on the Corporation's books, of such shareholder and any other
shareholders known by
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such shareholder to be supporting such nominees, and (b) the class and number of
shares of the Corporation which are beneficially owned by such shareholder on
the date of such shareholder's notice and by any other shareholders known by
such shareholder to be supporting such nominees on the date of such
shareholder's notice. No person shall be eligible as a Director of the
Corporation unless nominated in accordance with the procedures set forth in
subsections (d) and (e). The presiding officer of the meeting shall, if the
facts warrant, determine that a nomination was not made in accordance with the
procedures prescribed by the By-laws, and if the presiding officer should so
determine, the presiding officer shall so declare to the meeting and the
defective nomination shall be disregarded.
SECTION 3.04 RESIGNATIONS AND CHAIRMAN OF THE BOARD EMERITUS. (a) Any
Director of the Corporation may resign at any time by giving written notice to
the Board or to the Secretary of the Corporation. Any such resignation shall
take effect immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
(b) The Board of Directors of the Corporation may from time to time
designate a person as Chairman of the Board Emeritus in recognition of such
person's long and faithful service to the Corporation and its Board of
Directors. The Chairman of the Board Emeritus shall be an honorary officer of
the Board and shall serve at the pleasure of the Board of Directors.
SECTION 3.05 VACANCIES AND REMOVAL. (a) Newly created directorships
resulting from any increase in the authorized number of Directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by the affirmative vote of a majority of the Directors then in office, though
less than a quorum, or by the sole remaining Director, or by the shareholders at
their next annual meeting, or at any special meeting of shareholders called for
that purpose. Each Director so chosen shall hold office until the expiration of
such term of the Director, if any, whom such person has been chosen to succeed,
or, if none, until the expiration of the term of the class assigned to the
additional directorship to which such person has been elected, or until such
person's earlier death, resignation, retirement, or removal. No decrease in the
number of Directors constituting the Board shall shorten the term of any
incumbent Director.
(b) Any Director or the entire Board may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least eighty percent (80%) of the voting interest of all outstanding voting
stock.
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SECTION 3.06 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or without the State of Oklahoma as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting. Directors may participate in any
regular or special meeting of the Board or any meeting of a committee designated
by such Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in such meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 3.07 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of Directors and notice of such first
meeting shall not be required.
SECTION 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day not a legal holiday. Except as provided by
law, notice of regular meetings need not be given.
SECTION 3.09 SPECIAL MEETINGS. (a) Special meetings of the Board may
be called at any time by the Chairman of the Board or the President, or by any
three Directors, to be held at the principal office of the Corporation, or at
such other place or places, within or without the State of Oklahoma, as the
person or persons calling the meeting may designate. Unless otherwise indicated
in the notice thereof, any and all business, other than approval of contracts
with another corporation or party (or subsidiary thereof) owning a majority of
the stock of the Corporation and actions taken with respect to salaries,
compensation, and other payments to be paid to, or contracts made with, a
Director or executive officer, may be transacted at any special meeting. At any
meeting at which all Directors shall be present, even though without any notice,
any business may be transacted.
(b) Notice of all special meetings of the Board shall be given by the
Secretary or by the person or persons calling the meeting to each Director by
mailing a copy thereof at least four days before the meeting or by two days'
service of the same by telegram, cable, or wireless, or personally. If the
Chairman, or the President, or three of the Directors determine that a special
meeting of the Board on short notice is necessary, then notice may be given by
telephone, telegraph or facsimile transmission not less than four hours in
advance of the time when a meeting shall be held. Such notice may be waived by
any Director and any meeting shall be a legal meeting without notice having been
given if all the Directors shall be present thereat or if those not
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present shall, either before or after the meeting sign a written waiver of
notice of, or a consent to, such meeting or shall, after the meeting, sign the
approval of the minutes thereof. All such waivers, consents, or approvals shall
be filed with the corporate records or be made a part of the minutes of the
meeting.
SECTION 3.10 QUORUM AND MANNER OF ACTING. Except as otherwise
provided in the Certificate of Incorporation, the By-laws, or by law, the
presence of at least one-third of the authorized number of Directors shall be
required to constitute a quorum for the transaction of business at any meeting
of the Board, and all matters shall be decided at any such meeting, a quorum
being present, by the affirmative votes of a majority of the Directors present.
In the absence of a quorum, a majority of Directors present at any meeting may
adjourn the same from time to time until a quorum shall be present. Notice of
any adjourned meeting need not be given. The Directors shall act only as a
Board, and the individual Directors shall have no power as such.
SECTION 3.11 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or such committee, as the case may be, and such written consent is filed
with the minutes of proceedings of the Board or such committee.
SECTION 3.12 COMPENSATION. All salaries and compensation paid by the
Corporation to its Directors shall be fixed from time to time by the Board of
Directors at a regular meeting of the Board to be held as provided by the By-
laws, and any payment of any kind or character to any Director of the
Corporation or any contract made with such Director or executive officer must be
approved by a majority of the whole Board of Directors at a regular meeting of
the Board, before such payment is made or contract executed.
SECTION 3.13 COMMITTEES. (a) The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board, shall have and may
exercise all powers and authority of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
any power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the shareholders the sale, lease, or exchange of all, or substantially all, of
the Corporation's property and assets, recommending to the shareholders a
dissolution of the Corporation or a revocation of the dissolution, or amending
the
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By-laws of the Corporation; and unless the resolution of the Board expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Any such committee shall keep
written minutes of its meetings and report the same to the Board at the next
regular meeting of the Board.
(b) Except as may otherwise be ordered by the Board of Directors, the
Chairman of the Board shall appoint the members of all special or other
committees of the Board. The Chairman of the Board shall be an ex-officio
member of all standing committees, except the executive compensation committee,
and shall be the Chairman of any executive committee of the Board.
(c) In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
member of the Board to act at a meeting in the place of any such absent or
disqualified member.
SECTION 3.14 OFFICERS OF THE BOARD. The Chairman of the Board, or in
the absence of the Chairman of the Board, the President, or in the President's
absence, any other officer of the Corporation who is a Director, shall preside
at all meetings of the Board, or in the absence of any such officers, a
temporary chairman elected by the Directors present at the meeting.
SECTION 3.15 INTERESTED DIRECTORS. (a) No Director shall vote on a
question in which such Director is interested, except the election of the
Chairman of the Board of Directors, a President, or other officer or members of
any Committee of the Board, but in the absence of fraud, no contract or other
transaction of the Corporation shall be affected or invalidated in any way by
the fact that any of the Directors of the Corporation are in any way interested
in or connected with any other party to such contract or transaction, or are
themselves parties to such contract or transaction, provided that such interest
--------
or connection shall be fully disclosed or otherwise be known to the Board of
Directors at the meeting of said Board at which such contract or transaction is
authorized or confirmed, provided further that the contract or transaction is
-------- -------
fair as to the Corporation at the time authorized or confirmed by the Board, and
provided further that at the meeting of the Board at which such contract or
- -------- -------
transaction is to be authorized or confirmed, there shall be present a quorum of
Directors not so interested or connected, and such contract or transaction shall
only be approved upon the affirmative vote of a majority of such disinterested
Directors. Any Director may vote upon any contract or other transaction between
the Corporation and any subsidiary, notwithstanding that such Director may also
be a member of the board of directors of such subsidiary. The mere ownership of
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stock in another corporation by a Director shall not disqualify such Director to
vote in respect of any transaction between the Corporation and such other
corporation, provided the other provisions of this Section are complied with.
--------
(b) No contract or other transaction between the Corporation and any
other corporation shall be affected by the fact that any of the Directors of the
Corporation are interested in or are directors or officers of such other
corporation, if such contract or transaction be made, authorized, or confirmed
by the Board in the manner provided in the preceding paragraph, or by any
committee of the Corporation having the requisite authority, by vote of a
majority of the members of such committee not so interested; and any Director
individually may be a party to or may be interested in any contract or
transaction of the Corporation, provided that such contract or transaction shall
--------
be approved or ratified by the Board or by any Committee of the Corporation
having the requisite authority, in the manner herein set forth.
(c) The Board of Directors, in its discretion, may submit any contract
or act of the Corporation or of the Board for approval or ratification at any
annual meeting of the shareholders, or at any special meeting of shareholders,
the notice of which shall state that it is called for the purpose, or in part
for the purpose, of considering any such act or contract, and any such contract
or act that shall be approved or be ratified by the vote of the holders of a
majority in voting interest of the shares of stock of the Corporation entitled
to vote thereat, shall be as valid and as binding upon the Corporation and upon
all the shareholders as though it had been approved and ratified by every
shareholder of the Corporation.
(d) Any Director of the Corporation may vote upon any contract or
other transaction between the Corporation and any subsidiary corporation without
regard to the fact that such person is also a Director of such subsidiary
corporation.
(e) No contract or agreement between the Corporation and any other
corporation or party which owns a majority of the capital stock of the
Corporation or any subsidiary of any such other corporation shall be made or
entered into without the affirmative vote of a majority of the whole Board at a
regular meeting of the Board.
(f) Notwithstanding anything to the contrary in the foregoing
paragraphs of this Section, in the case of contracts, transactions, and acts of
the Corporation, of the Board of Directors, or of committees thereof that
require shareholder and/or Director approval under any provision of the
Certificate of Incorporation or of law by a higher proportion of the voting
power of the outstanding voting stock than a majority of a quorum of the
shareholders or approval by the Independent Directors as defined and required by
the Certificate of Incorporation, ratification by the shareholders and/or
approval by the
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Independent Directors of such contracts, transactions, and acts shall require
the affirmative vote of such higher proportion of such voting power and/or
approval by the Independent Directors, and any contract, transaction, act, or
agreement referred to in the foregoing paragraphs shall be subject to any such
applicable provisions of the Certificate of Incorporation or of law.
ARTICLE IV - OFFICERS
SECTION 4.01 OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer, such other officers as may be elected, from time to time, by the
Board, and such other officers as may be appointed by the Board pursuant to 4.03
of the By-laws. One of the officers of the Corporation shall be designated by
the Board of Directors as the Chief Executive Officer of the Corporation.
Officers shall have such powers and duties as are permitted or required by law
and as may be specified by or in accordance with resolutions of the Board. In
the absence of any contrary determination by the Board, the person designated as
the Chief Executive Officer, shall, subject to the power and authority of the
Board, have general supervision, direction, and control of the officers (except
the Chairman of the Board), employees, business, and affairs of the Corporation
and shall have the right to remove any officer of the Corporation. One person
may hold two or more offices, except that the Secretary may not also hold the
office of President. Except where otherwise expressly provided in a written
contract duly authorized by the Board, all officers, agents, and employees shall
be subject to removal at any time by the affirmative vote of a majority of the
Directors, and all officers, agents, and employees other than officers elected
or appointed by the Board shall also be subject to removal at any time by the
officer with supervisory responsibility over them.
SECTION 4.02 ELECTION. The officers of the Corporation, except such
officers as may be appointed pursuant to Sections 4.04 or 4.06 of the By-laws,
shall be chosen annually by the Board, and each person shall hold office until
such person shall resign or be removed or otherwise disqualified to serve, or
such person's successor shall be elected and qualified.
SECTION 4.03 ELECTION OF CHIEF EXECUTIVE OFFICER. At any time
following consummation of the Merger, the Chief Executive Officer of the
Corporation shall be designated by the affirmative vote of at least 80% of the
Directors and shall hold such designation until such person shall resign or be
removed or otherwise disqualified to serve, or such person's successor shall be
designated, in accordance with this Section 4.03.
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SECTION 4.04 SUBORDINATE OFFICERS, ETC. The Board may appoint such
other officers as the business of the Corporation may require, each of whom
shall have such authority and perform such duties as are provided in the By-laws
or as the Board may from time to time specify, and shall hold office until such
person shall resign or shall be removed or otherwise disqualified to serve.
SECTION 4.05 REMOVAL AND RESIGNATION. (a) Any officer may be removed,
either with or without cause, by a majority of the Directors in office at the
time, at any regular or special meeting of the Board, or except in case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, shall be filled in
the manner prescribed in the By-laws for the regular appointments to such
office.
SECTION 4.07 VOTING STOCK IN OTHER CORPORATIONS. Unless otherwise
ordered by the Board, the person designated as the Chief Executive Officer, or
in such officer's absence, or with such officer's consent, the next ranking
officer of the Corporation, shall have full power and authority on behalf of the
Corporation to attend and to act and to vote, or in the name of the Corporation
to execute proxies to vote, at any meetings of shareholders of any corporation
in which the Corporation may hold stock, and at any such meetings shall possess
and may exercise, in person or by proxy, any and all rights, powers, and
privileges incident to the ownership of such stock. The Board may, by
resolution, from time to time, confer like powers upon any other person or
persons.
SECTION 4.08 COMPENSATION OF EXECUTIVE OFFICERS. All salaries and
compensation paid by the Corporation to executive officers shall be fixed from
time to time by the Board of Directors at a regular meeting of the Board to be
held as provided by the By-laws, and any payment of any kind or character to any
executive officer of the Corporation or any contract made with such executive
officer must be approved by a majority of the whole Board of Directors at a
regular meeting of the Board, before such payment is made or contract executed.
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ARTICLE V - OPERATING DIVISIONS OF THE CORPORATION
SECTION 5.01 DIVISION BOARDS. The Board may appoint individuals who
may, but need not be, Directors, officers, or employees of the Corporation to
serve as members of a Division Board of Directors (the "Division Board") of one
or more Divisions of the Corporation and may fix fees or compensation for
attendance at meetings of any such Division Board. The members of any such
Division Board may adopt and from time to time may amend By-laws or other rules
and regulations for the conduct of their affairs and shall keep minutes of their
meetings. The term of office of any member of a Division Board shall be at the
pleasure of the Board and shall expire as provided for in the By-laws of the
Division. The function of any such Division Board shall be to manage and
control the ordinary business and affairs of the Divisions and to advise the
Board with respect to the business and affairs of their respective Division.
SECTION 5.02 TITLES. The Division Board may, from time to time,
confer on the employees of their Division or discontinue, the title of
President, Executive Vice President, Senior Vice President, Vice President, and
any other titles deemed appropriate. The designation of any such official
titles for employees assigned to the Divisions of the Corporation shall not be
permitted to conflict in any way with any executive or administrative authority
established from time to time by the Corporation. Any employee so designated as
an officer of a Division shall have authority, responsibilities, and duties with
respect to such employee's Division, corresponding to those normally vested in
the comparable officer of the Corporation, subject to such limitations as may be
imposed by the Board.
ARTICLE VI - CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 6.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in the By-laws, may authorize any officer or officers, agent or agents,
to enter into any contract or execute any instrument in the name and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the Board or by the By-laws, no officer,
agent, or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or in any amount.
SECTION 6.02 CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for payment of money, notes, or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be
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determined by resolution of the Board. Each such person shall give such bond, if
any, as the Board may require.
SECTION 6.03 DEPOSIT. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board may select,
or as may be selected by any officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the Chairman of the
Board, the President, or the Treasurer (or any other officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation who shall from time to time be determined by the Board) may endorse,
assign, and deliver checks, drafts, and other orders for the payment of money
which are payable to the order of the Corporation.
SECTION 6.04 GENERAL AND SPECIAL BANK ACCOUNTS. (a) The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies, or other depositories as the Board
may select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of the By-laws, as it may deem expedient.
(b) In addition to such bank accounts as may be authorized in the
usual manner by resolution of the Board, the Treasurer of the Corporation with
the approval of the Chief Executive Officer or any other officer designated by
the Chief Executive Officer may authorize such bank accounts to be opened or
maintained in the name and on behalf of the Corporation as the Treasurer or such
other designated officer may deem necessary or appropriate, payments from such
bank accounts to be made upon and according to the checks of the Corporation
which may be signed jointly or singly by either the manual or facsimile
signature or signatures of such officer or officers of the Corporation as shall
be specified in the written instructions of the Treasurer of the Corporation
with the approval of the Chief Executive Officer or such designated officer.
ARTICLE VII - SHARES AND THEIR TRANSFER
SECTION 7.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the
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Corporation owned by such shareholder. The certificates representing shares of
such stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman of the Board, or
the President and by the Secretary. Any or all of the signatures on the
certificates may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon any
such certificate shall thereafter have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent, or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms, or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in the case of cancellation the respective dates
of cancellation. Every certificate surrendered to the Corporation for exchange
or transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in 7.04 of the By-
laws.
SECTION 7.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by the registered holder's attorney thereunto authorized by
power of attorney duly executed and filed with the stock transfer agent as
provided in 7.03 of the By-laws, and upon surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes
thereon. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be stated expressly in the entry
of transfer if, when the certificate or certificates shall be presented for
transfer, both the transferor and the transferee request the Corporation to do
so.
SECTION 7.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with the By-laws,
concerning the issue, transfer, and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more stock transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 7.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or
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mutilation of any certificate of stock, another certificate may be issued in its
place upon proof of such loss, theft, destruction, or mutilation and upon the
giving of a bond of indemnity to the Corporation in such form and in such sum as
the Secretary may direct; provided, however, that a new certificate may be
issued without requiring any bond when, in the judgment of the Secretary, it is
proper to do so.
ARTICLE VIII - INDEMNIFICATION
SECTION 8.01 ACTIONS, SUITS, OR PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall 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 the 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, partnership,
joint venture, trust, or other enterprise or as a member of any committee or
similar body, against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if the person acted in good
faith and in a manner the 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 the person's conduct was
unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the 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, that the person had reasonable cause to
believe that the person's conduct was unlawful.
SECTION 8.02 ACTIONS, SUITS, OR PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any 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 by reason of the fact that the 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, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith in a manner the person
18
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Corporation except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 8.03 INDEMNITY IF SUCCESSFUL. Notwithstanding the other
provisions of this Article, to the extent that a Director, officer, employee, or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in Section 8.01 and 8.02,
or in defense of any claim, issue, or matter therein, the person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
SECTION 8.04 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under 8.01 or 8.02 of the By-laws (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 such person has met the applicable
standard of conduct set forth in Section 8.01 and 8.02 of the By-laws. Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit, or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested Directors so directs, by independent legal counsel in
a written opinion, or (iii) by the shareholders.
SECTION 8.05 ADVANCE OF EXPENSES. Expenses (including attorney fees)
incurred by an officer or Director in defending a civil or criminal action,
suit, or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding upon receipt of an undertaking
by or on behalf of such Director or officer to repay such amount if it shall
ultimately be determined that the person is not entitled to be indemnified by
the Corporation as authorized in this Article. Such expenses (including
attorney fees) incurred by other employees and agents may be so paid under such
terms and conditions, if any, as the Board may deem appropriate.
SECTION 8.06 PROVISIONS OF BY-LAWS NOT EXCLUSIVE. The indemnification
and advancement of expenses provided by, or granted pursuant to, the other
sections of this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under
19
<PAGE>
any by-law, agreement, vote of shareholders or disinterested Directors or
otherwise, both as to such person's official capacity and as to action in
another capacity while holding such office.
SECTION 8.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who 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 or as a member of any committee or similar body against any liability
asserted against the person and incurred by the person in any such capacity, or
arising out of the person's status as such, whether or not the Corporation would
have the power to indemnify the person against such liability under the
provisions of this Article.
SECTION 8.08 CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the Corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers, and employees, or agents, so that any person who is or was
a Director, officer, employee, or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a Director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise or as a member of any
committee or similar body shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its existence
had continued.
SECTION 8.09 CERTAIN DEFINITIONS. For purposes of this Section,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a Director, officer, employee,
or agent of the Corporation which imposes duties on, or involves services by,
such Director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner the person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Section.
20
<PAGE>
SECTION 8.10 CONTINUATION OF RIGHTS PROVIDED BY THIS ARTICLE. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Director, officer, employee or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
SECTION 8.11 MISCELLANEOUS. In furtherance and not in limitation of
the foregoing provisions of this Article VIII, the Corporation shall indemnify
the persons referred to hereinabove to the fullest extent permitted by Oklahoma
General Corporate Law, as the same may be amended from time to time.
ARTICLE IX - MISCELLANEOUS
SECTION 9.01 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Oklahoma and the year of incorporation.
SECTION 9.02 WAIVER OF NOTICES. Whenever notice is required to be
given by the By-laws or the Certificate of Incorporation, or by law, the person
entitled to such notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 9.03 FISCAL YEAR. The fiscal year of the Corporation shall
end on the 31st day of August of each year.
SECTION 9.04 INSPECTION OF CORPORATE BOOKS AND RECORDS. The Board
from time to time shall determine whether and to what extent and at what times
and places, and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
shareholders, and no shareholder shall have any right to inspect any account,
book, or documents of the Corporation except as conferred by statute or as
authorized by resolution of the Board.
SECTION 9.05 CERTIFICATE OF INCORPORATION. As used herein, the term
"Certificate of Incorporation" shall mean the Certificate of Incorporation of
the Corporation, as the same may be amended or restated from time to time.
SECTION 9.06 AMENDMENTS. The By-laws, or any of them, may be
rescinded, altered, amended, or repealed, and new By-laws may be made, (i) by
the Board, by vote of a majority of the number of Directors then in office as
Directors, acting at any meeting of the Board, or (ii) by the vote of the
holders of not
21
<PAGE>
less than 80% of the total voting power of all outstanding shares of voting
stock of the Corporation, entitled to vote generally on the election of
directors, at any annual meeting of shareholders, without previous notice, or at
any special meeting of shareholders, provided that notice of such proposed
--------
amendment, modification, repeal, or adoption is given in the notice of special
meeting. Any By-laws made or altered by the shareholders may be altered or
repealed by the Board or may be altered or repealed by the shareholders.
22
<PAGE>
EXHIBIT 3.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
---------
, 1997, between Western Resources, Inc., a Kansas corporation (the
"Shareholder") and NewCorp, Inc., an Oklahoma corporation (the "Company").
----------- -------
WHEREAS, the Shareholder, the Company and ONEOK Inc., a Delaware
corporation ("ONEOK"), have entered into an Agreement, dated as of December 12,
-----
1996, amended and restated as of May 19, 1997 (the "Merger Agreement"),
----------------
pursuant to which ONEOK will be merged with and into the Company (the "Merger")
------
and the Shareholder has acquired pursuant to the Agreement beneficial ownership
of 2,996,702 shares of common stock of the Company, no par value (the "Common
------
Stock") and 19,317,584 shares of a new series of convertible preferred stock of
- -----
the Company, par value $0.01 per share (the "Convertible Preferred Stock"),
----------- --------- -----
pursuant to the Merger and the transactions contemplated thereby;
WHEREAS, the parties each desire to make certain covenants and
agreements concerning, among other things, the registration from time to time of
the Shareholder's shares of Common Stock and Common Stock obtainable upon
conversion of Convertible Preferred Stock (the "Shares") under the Securities
------ ----------
Act of 1933, as amended (the "Securities Act"); and
- ---
WHEREAS, concurrently with the execution and delivery hereof, the
Shareholder and ONEOK have entered into an agreement with respect to the
Shareholder's investment in the Company (the "Shareholder Agreement").
---------------------
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
Company and the Shareholder hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. Defined Terms. In addition to other terms defined
-------------
elsewhere in this Agreement, as used in this Agreement, the following
capitalized terms have the respective meanings set forth below:
"Affiliate" shall mean, with respect to any person, any other person
---------
that directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such person. For the purposes of
this definition,
<PAGE>
"control" when used with respect to any particular person, means the power to
-------
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
----------- ----------
foregoing.
"Blackout Period" shall have the meaning assigned to such term in
---------------
Section 3.1(b).
"Claims" shall have the meaning assigned to such term in Section
------
3.6(a).
"Demand Period" shall have the meaning assigned to such term in
-------------
Section 3.1(a).
"Demand Registration" shall have the meaning assigned to such term in
-------------------
Section 3.1(a).
"Demand Request" shall have the meaning assigned to such term in
--------------
Section 3.1(a).
"Effective Period" shall have the meaning assigned to such term in
----------------
Section 3.4(a)(iii).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Holder" shall mean, with respect to any shares of Common Stock, the
------
signatory to the Agreement; and the terms "hold", "held" and "holding" shall
---- ---- -------
have meanings correlative to the foregoing.
"Inspectors" shall have the meaning assigned to such term in Section
----------
3.4(a)(iv).
"Maximum Number" shall have the meaning assigned to such term in
--------------
Section 3.2(b).
"Other Holder" shall have the meaning assigned to such term in Section
------------
3.2(b).
"person" shall mean any individual, corporation, company, partnership,
------
joint venture, trust, group (as such term is used in Rule 13d-5 under the
Exchange Act), business association, government or political subdivision
thereof, governmental body or other entity.
- 2 -
<PAGE>
"Piggy-Back Registration" shall have the meaning assigned to such term
-----------------------
in Section 3.2(a).
"Piggy-Back Request" shall have the meaning assigned to such term in
------------------
Section 3.2(a).
"Records" shall have the meaning assigned to such term in Section
-------
3.4(a)(iv).
"Registered Shares" shall have the meaning assigned to such term in
-----------------
Section 3.4(a)(xviii).
"Registration" shall have the meaning assigned to such term in Section
------------
3.2(a).
"Registration Expenses" shall have the meaning assigned to such term
---------------------
in Section 3.5.
"SEC" shall mean the United States Securities and Exchange Commission
---
or any other United States federal agency at the time administering the
Securities Act or the Exchange Act, as applicable, whichever is the relevant
statute.
Section 1.2. General. Unless the context otherwise requires,
-------
references in this Agreement to any "section" or "article" shall mean a section
------- -------
or article of this Agreement, as the case may be, and the terms "hereof,"
------
"hereunder" and "hereto" and words of similar meaning shall mean this Agreement
- ---------- ------
in its entirety and not any particular provisions of this Agreement. Unless the
context otherwise requires, the terms defined herein include the singular as
well as the plural.
Unless the context otherwise requires, each reference herein to the
Securities Act, the Exchange Act or Rule 144 (or any other rule, regulation or
form promulgated under either such statute) shall be deemed to mean, as of any
time, such statute, rule, regulation or form as then in effect, after all
amendments thereto, or, if not then in effect, any successor statute, rule,
regulation or form as then in effect, after all amendments thereto.
Section 1.3. Headings. The descriptive headings of the several
--------
Sections and paragraphs of this Agreement are inserted for convenience only, do
not constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.
- 3 -
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1. Representations and Warranties of the Shareholder. The
-------------------------------------------------
Shareholder hereby represents and warrants to the Company (i) that it has been
duly organized and is an existing corporation in good standing as a corporation
under the laws of the State of Kansas, (ii) that it has all requisite corporate
power and authority and has received all requisite approvals (including any
necessary approval of its board of directors) to complete the transactions
contemplated hereby, and (iii) that this Agreement has been duly authorized,
executed and delivered by the Shareholder and constitutes a valid and binding
agreement of the Shareholder enforceable against the Shareholder in accordance
with its terms.
Section 2.2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the Shareholder (i) that it has been
duly organized and is an existing corporation in good standing under the laws of
the State of Oklahoma, (ii) that it has all requisite corporate power and
authority, and has received all requisite approvals (including any necessary
approval of its Board of Directors) to complete the transactions contemplated
hereby and (iii) this Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement enforceable against
the Company in accordance with its terms.
ARTICLE III
REGISTRATION RIGHTS
-------------------
Section 3.1. Demand Registrations. (a) At any time following the date
--------------------
hereof and prior to the date on which the Company shall have obtained a written
opinion of legal counsel reasonably satisfactory to the Shareholder and
addressed to the Company and the Shareholder to the effect that the Shares may
be publicly offered for sale in the United States by the Shareholder without
restriction as to manner of sale and amount of securities sold and without
registration under the Securities Act (such period, the "Demand Period"), the
-------------
Shareholder shall have the right on five (5) occasions to require the Company to
file a registration statement under the Securities Act in respect of all or a
portion of the Shares (so long as such request covers at least 25,000 shares),
by delivering to the Company written notice stating that such right is being
exercised, specifying the number of the Shares to be included in such
registration and describing the intended method of distribution thereof (a
"Demand Request"). As promptly as practicable, but in no event later than thirty
- ---------------
(30) days after the Company receives a Demand Request, the Company shall file
with the SEC and thereafter use its best efforts to cause to be declared
effective promptly a registration statement (including, without limitation, by
means of a shelf registration pursuant to
- 4 -
<PAGE>
Rule 415 under the Securities Act if so requested and if the Company is then
eligible to use such a registration) (a "Demand Registration") providing for the
-------------------
registration of such number of Shares the Shareholder shall have demanded be
registered for distribution in accordance with such intended method of
distribution.
(b) Anything in this Agreement to the contrary notwithstanding, the
Company shall be entitled to postpone and delay, for a reasonable period of
time, not to exceed ninety (90) days in the case of clauses (i) and (ii) below,
or thirty (30) days in the case of clause (iii) below (each, a "Blackout
--------
Period"), the filing of any Demand Registration if the Company shall determine
- ------
that any such filing or the offering of any Shares would (i) in the good faith
judgment of the Board of Directors of the Company, unreasonably impede, delay or
otherwise interfere with any pending or contemplated financing, acquisition,
corporate reorganization or other similar transaction involving the Company,
(ii) based upon advice from the Company's investment banker or financial
advisor, adversely affect any pending or contemplated offering or sale of any
class of securities by the Company, or (iii) in good faith judgment of the Board
require disclosure of material non-public information (other than information
relating to an event described in clause (i) or (ii) of this subsection (b))
which, if disclosed at such time, would be materially harmful to the interests
of the Company and its stockholders; provided, however, that in the case of a
-------- -------
Blackout Period pursuant to clause (i) or (ii) above, the Blackout Period shall
earlier terminate upon the completion or abandonment of the relevant securities
offering or sale, financing, acquisition, corporate reorganization or other
similar transaction; and provided, further, that in the case of a Blackout
-------- -------
Period pursuant to clause (iii) above, the Company shall give written notice of
its determination to postpone or delay the filing of any Demand Registration and
in the case of clause (iii) above, the Blackout Period shall earlier terminate
upon public disclosure by the Company or public admission by the Company of such
material non-public information or such time as such material non-public
information shall be publicly disclosed without breach of the last sentence of
this subsection (b); and provided, further, that in the case of a Blackout
-------- -------
Period pursuant to clause (i), (ii) or (iii) above, the Company shall furnish to
the Shareholder a certificate of an executive officer of the Company to the
effect that an event permitting a Blackout Period has occurred. Notwithstanding
anything herein to the contrary, the Company shall not exercise pursuant to
clause (i) or (ii) of the preceding sentence the right to postpone or delay the
filing of any Demand Registration more than twice in any twelve (12) month
period. Upon notice by the Company to the Shareholder of any such
determination, the Shareholder covenants that it shall keep the fact of any such
notice strictly confidential, and, in the case of a Blackout Period pursuant to
clause (iii) above or Section 3.1(c) below, promptly halt any offer, sale,
trading or transfer by it or any of its Affiliates of any Common Stock for the
duration of the Blackout Period set forth in such notice (or until such Blackout
Period shall be earlier terminated in writing by the Company) and promptly halt
any use, publication, dissemination or distribution of the Demand Registration,
each prospectus included therein, and any amendment or supplement thereto by it
and any of its Affiliates for the duration of the Blackout Period set forth in
such notice (or
- 5 -
<PAGE>
until such Blackout Period shall be earlier terminated in writing by the
Company) and, if so directed by the Company, will deliver to the Company any
copies then in such Shareholder's possession of the prospectus covering such
Shares, that was in effect at the time of receipt of such notice. After the
expiration of any Blackout Period and without further request from the
Shareholder, the Company shall effect the filing of the relevant Demand
Registration and shall use its best efforts to cause any such Demand
Registration to be declared effective as promptly as practicable unless the
Shareholder shall have, prior to the effective date of such Demand Registration,
withdrawn in writing its initial request, in which case such withdrawn request
shall not constitute a Demand Registration for purposes of determining the
number of Demand Registrations to which the Shareholder is entitled under this
Agreement.
(c) Anything in this Agreement to the contrary notwithstanding, in
case a Demand Registration has been filed, if a transaction of the type
specified in Section 3.1(b)(i) has not resulted from actions taken by the
Company, the Company may cause such Demand Registration to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such Demand
Registration for a reasonable period of time, not to exceed the Blackout Period
applicable to Section 3.1(b)(i); provided, however, that in no event shall a
-------- -------
Demand Registration so withdrawn count as one of the five Demand Registrations
which the Shareholder is entitled to make pursuant to Section 3.1(a) hereof.
(d) The Shareholder may withdraw a Demand Request in circumstances
including, but not limited to, the following: if (i) the Company is in material
breach of its obligation hereunder and has not cured such breach after having
received notice thereof and a reasonable opportunity to do so or (ii) the
withdrawal occurs during a Blackout Period. Any Demand Request withdrawn prior
to such Demand Registration becoming effective and pursuant to this subsection
(d) shall not constitute a Demand Registration for the purposes of determining
the number of Demand Registrations to which the Shareholder is entitled.
(e) The Company may elect to include in any registration statement
filed pursuant to this Section 3.1 any Common Stock to be issued by it or held
by any of its subsidiaries or by any other shareholders only to the extent such
Common Stock is offered and sold pursuant to, and on the terms and subject to
the conditions of, any underwriting agreement or distribution arrangements
entered into or effected by the Shareholder.
(f) The managing underwriter for any Demand Registration shall be
selected by the party or parties making the demand for such registration,
provided that such underwriter shall be reasonably satisfactory to the Company.
- --------
Section 3.2. "Piggy-Back" Registrations. (a) If, at any time
--------------------------
following the effective time of the Merger, the Company proposes to register any
Common Stock under the Securities Act on a registration statement on Form S-1,
- 6 -
<PAGE>
Form S-2 or Form S-3 (or any equivalent general registration form then in effect
other than pursuant to a Demand Registration under Section 3.1) for purposes of
a primary offering, secondary offering or combined offering of such Common
Stock, the Company shall give prompt written notice to the Shareholder of its
intention to do so. Such notice shall specify, at a minimum, the number of
shares of Common Stock so proposed to be registered, the proposed date of filing
of such registration statement, any proposed means of distribution of such
Common Stock, any proposed managing underwriter or underwriters of such offering
and a good faith estimate by the Company of the proposed maximum offering price
thereof, as such price is proposed to appear on the facing page of such
registration statement. Upon the written direction of the Shareholder (a
"Piggy-Back Request"), given within fifteen (15) business days following the
- -------------------
receipt by the Shareholder of any such written notice (which direction shall
specify the number of the Shares intended to be disposed of by the Shareholder),
the Company shall include in such registration statement (a "Piggy-Back
----------
Registration" and, collectively with a Demand Registration, a "Registration"),
- ------------ ------------
subject to the provisions of Section 3.2 hereof, such numbers of the Shares as
shall be set forth in such Piggy-Back Request.
(b) In the event that the Company proposes to register Common Stock in
connection with an underwritten offering and a nationally recognized independent
investment banking firm selected by the Company to act as managing underwriter
thereof reasonably and in good faith shall have advised the Company, any holder
of Common Stock intending to offer such Common Stock in a secondary offering or
combined offering (each, an "Other Holder") or the Shareholder in writing that,
------------
in its opinion, the inclusion in the registration statement of some or all of
the Shares sought to be registered by the Shareholder creates a substantial risk
that the price per share of Common Stock that the Company or any Other Holder
will derive from such registration will be materially and adversely affected or
that the number of shares of Common Stock sought to be registered (including any
shares of Common Stock sought to be registered at the request of the Company and
any Other Holder and those sought to be registered by the Shareholder) is a
greater number than can reasonably be sold, the Company shall include in such
registration statement such number of shares of Common Stock as the Company, any
Other Holder and the Shareholder are so advised can be sold in such offering
without such an effect (the "Maximum Number") as follows and in the following
--------------
order of priority: (A) first, such number of shares of Common Stock as the
-----
Company intended to be registered and sold by the Company and (B) second, in the
------
case of a secondary offering or a combined offering and if and to the extent
that the number of shares of Common Stock to be registered under clause (A) is
less than the Maximum Number, such number of shares of Common Stock as the
Shareholder and any Other Holder shall have intended to register which, when
added to the number of shares of Common Stock to be registered under clause (A),
is less than or equal to the Maximum Number; provided that if such number
--------
exceeds the Maximum Number, the shares of Common Stock of the Shareholder and
such Other Holders will be excluded on a pro
---
- 7 -
<PAGE>
rata basis according to the total number of Shares and shares of Common Stock
- ----
requested to be registered by such persons.
(c) No Piggy-Back Registration effected under this Section 3.2 shall
be deemed to have been effected pursuant to Section 3.1 hereof or shall release
the Company of its obligations to effect any Demand Registration upon request as
provided under Section 3.1 hereof.
(d) Notwithstanding any request under this Section 3.2, a selling
Holder may elect in writing to withdraw its request for inclusion of its Shares
in any registration statement provided, however, that (i) such request must be
-------- -------
made in writing prior to the earlier of the execution of the underwriting
agreement or the execution of the custody agreement with respect to such
registration and (ii) such withdrawal shall be irrevocable and, after making
such withdrawal, a Holder shall no longer have any right to include Shares in
the registration as to which such withdrawal was made.
(e) If, at any time after giving written notice of its intention to
register any Common Stock and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such Common
Stock, the Company may, at its election, give written notice of such
determination to all Holders of record of Shares and (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Shares in connection with such abandoned registration, without prejudice,
however, to the rights of Holders under Section 3.1 and (ii) in the case of a
determination to delay such registration of the Company's Common Stock, shall be
permitted to delay the registration of such Shares for the same period as the
delay in registering such other Common Stock.
(f) If, as a result of the proration provisions of this Section 3.2,
any Holder shall not be entitled to include all Shares in a registration that
such Holder has requested to be included, such Holder may elect to withdraw his
request to include Shares in such registration or may reduce the number
requested to be included, provided that the same limitations in subsection (c)
--------
shall apply.
Section 3.3. Additional Agreements. Anything in this Agreement to
---------------------
the contrary notwithstanding, if at any time the Company shall obtain a written
opinion of legal counsel reasonably satisfactory to the Shareholder and
addressed to the Company and the Shareholder to the effect that the Shares may
be publicly offered for sale in the United States by the Shareholder without
restriction as to manner of sale and amount of securities sold and without
registration under the Securities Act, the Company shall no longer be obligated
to file or maintain a registration statement with respect to the Shares pursuant
to this Agreement. In such case, the Company shall issue to the Shareholder
certificates representing the Shares without any legend restricting transfer and
shall remove all stop transfer orders relating to the Shares.
- 8 -
<PAGE>
Section 3.4. Registration Procedures. (a) In connection with each
-----------------------
registration statement prepared pursuant to this Agreement, and in accordance
with the intended method or methods of distribution of the Shares as described
in such registration statement, the Company shall, as soon as reasonably
practicable (and, in any event, subject to the terms of this Agreement,
including, without limitation, Section 3.1(a), at or before the time required by
applicable laws and regulations):
(i) Prepare and file with the SEC a registration statement on an
appropriate registration form of the SEC, with respect to such Shares,
which form shall be selected by the Company with the Shareholder's
reasonable consent, and use its best efforts to cause such registration
statement to become and remain effective promptly; provided that before
--------
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to one counsel selected by
the Shareholder, and the sales or placement agent or agents, if any, for
the Shares and the managing underwriter or underwriters, if any, draft
copies of all such documents proposed to be filed at least seven (7) days
prior to such filing, which documents will be subject to the reasonable
review of the Shareholder, the sales or placement agent or agents, if any,
for the Shares and the managing underwriter or underwriters, if any, and
their respective agents and representatives and (x) the Company will not
include in any registration statement information concerning or relating to
the Shareholder to which the Shareholder shall reasonably object in writing
(unless the inclusion of such information is required by applicable law or
the regulations of any securities exchange to which the Company may be
subject), and (y) the Company will not file any Demand Registration or
amendment thereto or any prospectus or any supplement thereto to which the
Shareholder shall reasonably object in writing;
(ii) Furnish without charge to the Shareholder, the sales or placement
agent or agents, if any, and the managing underwriter or underwriters, if
any, such number of copies of such registration statement and of each
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the summary, preliminary, final, amended or
supplemented prospectuses included in such registration statement in
conformity with the requirements of the Securities Act and any regulations
promulgated thereunder and (upon the reasonable request by the Shareholder)
any documents incorporated therein by reference and such other documents as
the Shareholder may reasonably request in order to facilitate the public
sale or other disposition of such Shares (the Company hereby consenting to
the use in accordance with all applicable law of the prospectus or any
amendment or supplement thereto by the Shareholder in connection with the
offering and sale of the Shares covered by the prospectus or any amendment
or supplement thereto);
- 9 -
<PAGE>
(iii) Use its reasonable best efforts to keep such registration
statement effective for at least 180 days (the "Effective Period"); prepare
----------------
and file with the SEC such amendments, post-effective amendments and
supplements to the registration statement and the prospectus as may be
necessary to maintain the effectiveness of the registration for the
Effective Period and to cause the prospectus (and any amendments or
supplements thereto) to be filed pursuant to Rules 424 and 430A under the
Securities Act and/or any successor rules that may be adopted by the SEC,
as such rules may be amended from time to time; and comply with the
provisions of the Securities Act with respect to the disposition of all
Shares covered by such registration statement during the applicable period
in accordance with the intended method or methods of distribution thereof,
as specified in writing by the Shareholder;
(iv) Except during any Blackout Period, make available for inspection
by the Shareholder or by any underwriter, attorney, accountant or other
agent retained by the Shareholder (collectively, the "Inspectors")
----------
financial and other records and pertinent corporate documents of the
Company (collectively, the "Records"), provide the Inspectors with
-------
opportunities to discuss the business of the Company with its officers and
provide opportunities to discuss the business of the Company with the
independent public accountants who have certified its most recent annual
financial statements, in each case to the extent customary for transactions
of the size and type intended, as specified by the Shareholder, but only to
the extent reasonably necessary to enable the Shareholder or any
underwriter retained by the Shareholder to conduct a "reasonable
investigation" for purposes of Section 11(a) of the Securities Act.
Records which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed by
the Inspector unless (A) the disclosure of such Records is necessary to
avoid or correct a misstatement of a material fact or omission to state a
material fact in the Registration, (B) the disclosure of such Records is
required by any court or governmental body with jurisdiction over the
Shareholder or Inspector or (C) all of the information contained in such
Records has been made generally available to the public. The Shareholder
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction or by any governmental body,
promptly give prior notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of those
Records deemed confidential;
(v) If requested by the Shareholder, promptly incorporate in a
prospectus, prospectus supplement or post-effective amendment such
information as the Shareholder reasonably specifies should be included
therein, including, without limitation, information relating to the planned
distribution of Shares, the number of Shares being sold by the Shareholder,
the name and description of the Shareholder, the offering price of such
Shares and any
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<PAGE>
discount, commission or other compensation payable in respect of the Shares
being sold, the purchase price being paid therefor to the Shareholder and
information with respect to any other terms of the underwritten offering of
the Shares to be sold in such offering, except to the extent that the
Company is advised in a written opinion of outside counsel that the
inclusion of such information is reasonably likely to violate applicable
securities laws; and make all required filings of such prospectus,
prospectus supplement or post-effective amendment promptly after
notification of the matters to be incorporated in such prospectus,
prospectus supplement or post-effective amendment;
(vi) If requested by the Shareholder, use reasonable efforts to
participate in and assist with a "road show" and other customary marketing
efforts in connection with the sale of Shares pursuant to such registration
statement, at such times and in such manner as the Company and the
Shareholder mutually may determine (and as do not unreasonably interfere
with the Company's operations);
(vii) Use its best efforts to register or qualify the Shares covered
by such registration statement under such other securities or "blue sky"
laws of such jurisdictions in the United States as the Shareholder shall
reasonably request, keep such registrations or qualifications in effect for
so long as the registration statement remains in effect, and do any and all
other acts and things which may be reasonably necessary to enable the
Shareholder or any underwriter to consummate the public sale or other
disposition of the Shares in such jurisdictions; provided, however, that in
-------- -------
no event shall the Company be required to qualify to do business as a
foreign corporation in any jurisdiction where it is not so qualified; to
execute or file any general consent to service of process under the laws of
any jurisdiction; to take any action that would subject it to service of
process in suits other than those arising out of the offer and sale of the
Shares covered by the registration statement; or to subject itself to
taxation in any jurisdiction where it would not otherwise be obligated to
do so, but for this paragraph (vii);
(viii) Use its best efforts to cause the Shares to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the Shareholder to consummate the public sale or other
disposition of the Shares;
(ix) Use its best efforts to cause all Shares covered by such
registration statement to be approved for trading on a national interdealer
quotation system or listed on the securities exchanges on which similar
securities issued by the Company are then listed or traded;
(x) Promptly notify the Shareholder, at any time when a prospectus
relating to any of the Shares covered by such registration statement is
required
- 11 -
<PAGE>
to be delivered under the Securities Act, of the Company's becoming aware
that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, at the request of the Shareholder, promptly prepare and
furnish to the Shareholder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers
of such Shares, such prospectus shall not include an 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 not misleading in the
light of the circumstances then existing;
(xi) Promptly notify the Shareholder, the sales or placement agent or
agents, if any, for the Shares and the managing underwriter or
underwriters, if any, thereof, after becoming aware thereof, when the
registration statement or any related prospectus or any amendment or
supplement has been filed, and, with respect to the registration statement
or any post-effective amendment, when the same has become effective, (A) of
any request by the SEC for amendments or supplements to the registration
statement or the related prospectus or for additional information, (B) of
the issuance by the SEC of any stop order suspending the effectiveness of
the registration statement or the initiation of any proceedings for that
purpose, (C) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose or (D)
within the Effective Period of the happening of any event which makes any
statement in the registration statement or any post-effective amendment
thereto, prospectus or any amendment or supplement thereto, or any document
incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement or post-
effective amendment thereto or any prospectus or amendment or supplement
thereto so that they will not 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 (in light of the circumstances
under which they were made) not misleading;
(xii) During the Effective Period, use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement or any post-effective amendment thereto;
(xiii) Permit the Shareholder if, in its sole judgment exercised in
good faith, it believes it might be deemed to be a controlling person of
the Company, to participate in the preparation of such registration
statement and all discussions between the Company and the SEC or its staff
with respect to such registration statement, and to require the insertion
therein of material,
- 12 -
<PAGE>
furnished to the Company in writing, which in the reasonable judgement of
the Shareholder should be included;
(xiv) Deliver promptly to the Shareholder, upon the Shareholder's
request, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC
or its staff with respect to the registration statement and permit the
Shareholder to do such investigation, with respect to information contained
in or omitted from the registration statement, as it deems reasonably
necessary. The Shareholder agrees that it will use its best efforts not to
interfere unreasonably with the Company's business when conducting any such
investigation;
(xv) Provide a transfer agent and registrar for all such Shares
covered by such registration statement not later than the effective date of
such registration statement, which transfer agent and registrar may be the
Company, subject to any applicable law or regulations;
(xvi) Cooperate with the Shareholder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing such Shares to be sold under the registration
statement, which certificates shall not bear any restrictive legends except
as required by law; and, in the case of an underwritten offering, enable
such Shares to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, may request in writing at
least two (2) business days prior to any sale of the Shares to the
underwriters;
(xvii) Enter into such agreements (including, if the offering is an
underwritten offering, an underwriting agreement) as are customary in
transactions of such kind and take such other actions as are reasonably
necessary in connection therewith in order to expedite or facilitate the
disposition of such Shares; and (A) make such representations and
warranties with respect to the registration statement, post-effective
amendment or supplement thereto, prospectus or any amendment or supplement
thereto, and documents incorporated by reference, if any, to the managing
underwriter or underwriters, if any, of the Shares and, at the option of
the Shareholder, make to and for the benefit of such Shareholder the
representations, warranties and covenants of the Company which are being
made to the underwriters, in form, substance and scope as are customarily
made by the Company in connection with offerings of Shares in transactions
of such kind (representations and warranties by the participating holders
shall also be made as are customary in agreements of that type); provided
--------
that the Company shall not be required to make any representations or
warranties with respect to information specifically provided by a holder
for inclusion in the registration documents; (B) obtain an opinion of
counsel to the Company (which counsel may be internal counsel for the
Company unless the managing underwriter or underwriters shall otherwise
- 13 -
<PAGE>
reasonably request) in customary form and covering matters of the type
customarily covered by such an opinion, addressed to such managing
underwriter or underwriters, if any, and to the Shareholder and dated the
date of the closing of the sale of the Shares relating thereto; (C) obtain
a "comfort" letter or letters from the independent certified public
accountants who have certified the Company's most recent audited financial
statements that are incorporated by reference in the registration statement
which is addressed to the Shareholder and the managing underwriter or
underwriters, if any, and is dated the date of the prospectus used in
connection with the offering of such Shares and/or the date of the closing
of the sale of such Shares relating thereto, such letter or letters to be
in customary form and covering such matters of the type customarily covered
by "comfort" letters of such type; (D) deliver such documents and
certificates as may be reasonably requested by the Shareholder and the
managing underwriter or underwriters, if any, of the Shares to evidence
compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (E) undertake
such obligations relating to expense reimbursement, indemnification and
contribution as provided in Sections 3.5 and 3.6 hereof; and
(xviii) Comply with all applicable rules and regulations of the
SEC and generally make available to its security holders an earnings
statement (which need not be audited), as soon as reasonably practicable
but in no event later than ninety (90) days after the end of the period of
twelve (12) months commencing on the first day of any fiscal quarter next
succeeding each sale by the Shareholder of Shares which have been
registered pursuant to this Agreement (the "Registered Shares") after the
-----------------
date hereof, which earnings statement shall cover such twelve (12) month
period and shall satisfy the provisions of Section 11(a) of the Securities
Act and may be prepared in accordance with Rule 158 under the Securities
Act.
(b) In the event that the Company would be required, pursuant to
Section 3.4(a)(xi)(D) above, to notify the Shareholder, the sales or placement
agent or agents, if any, for the Shares and the managing underwriter or
underwriters, if any, thereof, the Company shall, subject to the provisions of
Section 3.1(b) hereof, as promptly as practicable, prepare and furnish to the
Shareholder, to each placement or sales agent, if any, and to each underwriter,
if any, a reasonable number of copies of a prospectus supplemented or amended so
that, as thereafter delivered to purchasers of Registered Shares, such
prospectus shall not contain an 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 the light of the circumstances under which they were
made, not misleading. The Shareholder agrees that, upon receipt of any notice
from the Company pursuant to Section 3.4(a)(xi)(D) hereof, the Shareholder
shall, and shall use its best efforts to cause any sales or placement agent or
agents for the Shares and the underwriters, if any, thereof, to forthwith
discontinue disposition of
- 14 -
<PAGE>
the Shares until such person shall have received copies of such amended or
supplemented prospectus and, if so directed by the Company, to destroy or to
deliver to the Company all copies, other than permanent file copies, then in its
possession of the prospectus (prior to such amendment or supplement) covering
such Shares as soon as practicable after the Shareholder's receipt of such
notice.
(c) The Shareholder shall furnish to the Company in writing such
information regarding the Shareholder and its intended method of distribution of
the Shares as the Company may from time to time reasonably request in writing,
but only to the extent that such information is required in order for the
Company to comply with its obligations under all applicable securities and other
laws and to ensure that the prospectus relating to such Shares conforms to the
applicable requirements of the Securities Act and the rules and regulations
thereunder. The Shareholder shall notify the Company as promptly as practicable
of any inaccuracy or change in information previously furnished by the
Shareholder to the Company or of the occurrence of any event, in either case as
a result of which any prospectus relating to the Shares contains or would
contain an untrue statement of a material fact regarding the Shareholder or its
intended method of distribution of such Shares or omits to state any material
fact regarding the Shareholder or its intended method of distribution of such
Shares required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and promptly furnish to the Company any additional information
required to correct and update any previously furnished information or required
so that such prospectus shall not contain, with respect to the Shareholder or
the distribution of the Shares, an 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.
(d) Each Holder agrees not to effect any public sale or distribution
of any Shares, including any sale pursuant to Rule 144 under the Securities Act,
and not to effect any such public sale or distribution of any other equity
security of the company or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than as
part of such underwritten public offering) during the ten (10) days prior to,
and during the ninety (90) day period (or such longer period as each Holder
agrees with the underwriter of such offering) beginning on, the consummation of
any underwritten public offering of the Shares covered by a registration
statement referred to in Section 3.2 to the extent such Holder's Registered
Shares are being sold thereunder.
(e) In the case of any registration under Section 3.1 pursuant to an
underwritten offering, or in the case of a registration under Section 3.2 if the
Company has determined to enter into an underwriting agreement in connection
therewith, all Shares to be included in such registration shall be subject to an
underwriting agreement and no person may participate in such registration unless
such person agrees to sell such person's securities on the basis provided
therein and
- 15 -
<PAGE>
completes and executes all questionnaires, indemnities, underwriting agreements
and other document (other than powers of attorney) which must be executed in
connection therewith, and provides such other information to the Company or the
underwriter as may be necessary to register such Holder's Shares.
Section 3.5. Registration Expenses. The Company agrees to bear and
---------------------
to pay, or cause to be paid, promptly upon request being made therefor, all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation: (a) all fees and expenses in
connection with the qualification of the Registered Shares for offering and sale
under state securities or "blue sky" laws referred to in Section 3.4(a)(vii)
hereof, including reasonable fees and disbursements of counsel for any placement
or sales agent or underwriter in connection with such qualifications, (b) all
expenses relating to the preparation, printing, distribution and reproduction of
the registration statement, each prospectus included therein or prepared for
distribution pursuant hereto, each amendment or supplement to the foregoing, the
certificates representing the Shares and all other documents relating hereto,
(c) the costs and charges of any escrow agent, transfer agent, registrar, any
custodian or attorney-in-fact appointed to act on behalf of the Shareholder
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), (d) fees,
disbursements and expenses of the Company's counsel and its other advisors and
experts and independent certified public accountants of the Company (including
the expenses of any opinions or "comfort" letters required by or incident to
such performance and compliance), (e) the fees and expenses incurred in
connection with the listing of the Shares on The New York Stock Exchange, Inc.
and any other stock exchange or national securities exchange on which Shares
shall at such time be listed, and (f) reasonable fees and disbursements of
counsel retained by the Shareholder in connection with registration pursuant to
this Agreement (collectively, the "Registration Expenses"). To the extent that
---------------------
any Registration Expenses are incurred, assumed or paid by the Shareholder, any
sales or placement agent or agents for the Shares and the underwriters, if any,
thereof, the Company shall reimburse such person for the full amount of the
Registration Expenses so incurred, assumed or paid promptly after receipt of a
request therefor. Each Holder of the Shares being registered shall pay all
underwriting discounts and commissions and any capital gains, income or transfer
taxes, if any, attributable to the sale of such Shares.
Section 3.6. Indemnification; Contribution. (a) Indemnification by
----------------------------- ------------------
the Company. The Company shall, and it hereby agrees to, indemnify and hold
- -----------
harmless the Shareholder, and each person who participates as a placement or
sales agent or as an underwriter in any offering or sale of the Shares, against
any losses, claims, damages or liabilities to which the Shareholder or such
agent or underwriter may become subject, insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) (collectively,
"Claims") arise out of or are based upon an untrue statement or alleged untrue
- -------
statement of a material fact contained in any registration statement, or any
preliminary or final prospectus contained therein, or
- 16 -
<PAGE>
any amendment or supplement thereto, or any document incorporated by reference
therein, or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, and the Company shall, and it hereby agrees to, reimburse the
Shareholder or any such agent or underwriter for any legal or other out-of-
pocket expenses reasonably incurred by them in connection with investigating or
defending any such Claims; provided, however, that the Company shall not be
-------- -------
liable to any such person in any such case to the extent that any such Claims
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, or
preliminary or final prospectus, or amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by the
Shareholder or any agent, underwriter or representative of the Shareholder
expressly for use therein, or by the Shareholder's failure to furnish the
Company, upon request, with the information with respect to the Shareholder, or
any agent, underwriter or representative of the Shareholder, or the
Shareholder's intended method of distribution, that is the subject of the untrue
statement or omission or if the Company shall sustain the burden of proving that
the Shareholder or such agent or underwriter sold securities to the person
alleging such Claims without sending or giving, at or prior to the written
confirmation of such sale, a copy of the applicable prospectus (excluding any
documents incorporated by reference therein) or of the applicable prospectus, as
then amended or supplemented (excluding any documents incorporated by reference
therein), if the Company had previously furnished copies thereof to the
Shareholder or such agent or underwriter, and such prospectus corrected such
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement.
(b) Indemnification by the Shareholder and Any Agents or Underwriters.
-----------------------------------------------------------------
The Shareholder shall, and hereby agrees, severally and not jointly, to (i)
indemnify and hold harmless the Company, its directors, officers, employees and
controlling persons, if any, and each underwriter, its partners, officers,
directors, employees and controlling persons, if any, in any offering or sale of
Shares, against any Claims to which the Company, its directors, officers,
employees and controlling persons, if any, may become subject, insofar as such
Claims (including any amounts paid in settlement as provided herein), or actions
or proceedings in respect thereof, arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, or any preliminary or final prospectus contained
therein, or any amendment or supplement thereto, or any document incorporated by
reference therein, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case only to
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Shareholder or such agent or
underwriter (as the case may be) expressly for use therein, and (ii) reimburse
the
- 17 -
<PAGE>
Company for any legal or other out-of-pocket expenses reasonably incurred by the
Company in connection with investigating or defending any such Claim.
(c) Notice of Claims, Etc. Promptly after receipt by an indemnified
----------------------
party under subsection (a) or (b) above of written notice of the commencement of
any action or proceeding for which indemnification under subsection (a) or (b)
may be requested, such indemnified party shall, without regard to whether a
claim in respect thereof is to be made against an indemnifying party pursuant to
the indemnification provisions of, or as contemplated by, this Section 3.6,
notify such indemnifying party and the underwriter in writing of the
commencement of such action or proceeding; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party in respect of such action or proceeding on account of the
indemnification provisions of or contemplated by Section 3.6(a) or 3.6(b) hereof
unless the indemnifying party was materially prejudiced by such failure of the
indemnified party to give such notice, and in no event shall such omission
relieve the indemnifying party from any other liability it may have to such
indemnified party. In case any such action or proceeding shall be brought
against any indemnified party and it shall notify an indemnifying party of the
commencement thereof, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, such indemnifying party
shall be entitled to participate therein and, to the extent that it shall
determine, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party for any legal
or any other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
(unless such indemnified party reasonably objects to such assumption on the
grounds that there may be defenses available to it which are different from or
in addition to the defenses available to such indemnifying party, in which event
the indemnified party shall have the right to control its defense and shall be
reimbursed by the indemnifying party for the expenses incurred in connection
with retaining one separate counsel). If the indemnifying party is not entitled
to, or elects not to, assume the defense of a claim, it will not be obligated to
pay the fees and expenses of more than one counsel for each indemnified party
with respect to such claim. The indemnifying party will not be subject to any
liability for any settlement made without its consent, which consent shall not
be unreasonably withheld or delayed. No indemnifying party shall, without the
prior written consent of the indemnified party, compromise or consent to entry
of any judgment or enter into any settlement agreement with respect to any
action or proceeding in respect of which indemnification is sought under Section
3.6(a) or (b) (whether or not the indemnified party is an actual or potential
party thereto), unless such compromise, consent or settlement includes an
unconditional term thereof the giving by the claimant or plaintiff to the
indemnified
- 18 -
<PAGE>
party of a release from all liability in respect of such claim or litigation and
does not subject the indemnified party to any injunctive relief or other
equitable remedy.
(d) Contribution. The Shareholder and the Company agree that if, for
------------
any reason, the indemnification provisions contemplated by Sections 3.6(a) or
3.6(b) hereof are unavailable to or are insufficient to hold harmless an
indemnified party in respect of any Claims referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such Claims in such proportion as is
appropriate to reflect the relative fault of, and benefits derived by, the
indemnifying party and the indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The relative benefit derived by the paries shall be
determined by reference to the fact that the Company entered into this Agreement
to induce the Shareholder to engage in the transaction in which the Shares were
acquired. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.6(d) were determined (i) by pro rata
allocation (even if the Shareholder or any agents for, or underwriters of, the
Shares, or all of them, were treated as one entity for such purpose); or (ii) by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 3.6(d). The amount paid or payable
by an indemnified party as a result of the Claims referred to above shall be
deemed to include (subject to the limitations set forth in Section 3.6(c)
hereof) any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
proceeding or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The indemnification and contribution required by this Section 3.6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(f) Beneficiaries of Indemnification. The obligations of the Company
--------------------------------
under this Section 3.6 shall be in addition to any liability that it may
otherwise have and shall extend, upon the same terms and conditions, to each
officer, director and partner of the Shareholder and each agent and underwriter
of the Shares and each person, if any, who controls the Shareholder or any such
agent or underwriter within the meaning of the Securities Act; and the
obligations of the Shareholder and any agents or underwriters contemplated by
this Section 3.6, shall be in addition to any liability that the Shareholder or
its respective agent or underwriter
- 19 -
<PAGE>
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
Section 3.7. Underwriters. If any of the Shares are to be sold
------------
pursuant to an underwritten offering, the investment banker or bankers and the
managing underwriter or underwriters thereof shall be selected by the Company
except in the case of a Demand Registration, in which the managing underwriter
or underwriters shall be selected by the Shareholder, provided that such
--------
managing underwriter or underwriters must be of recognized international
standing.
Section 3.8. Exchange Act Filings; Rule 144; Rule 144A. (a) The
-----------------------------------------
Company covenants to and with the Shareholder that to the extent it shall be
required to do so under the Exchange Act, the Company shall timely file the
reports required to be filed by it under the Exchange Act or the Securities Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the SEC
under the Securities Act and the rules and regulations adopted by the SEC
thereunder) and shall take such further action as the Shareholder may reasonably
request, all to the extent required from time to time to enable the Shareholder
to sell Shares without registration under the Securities Act within the
limitations of the exemption provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC. Upon the request of the Shareholder, the Company
shall deliver to the Shareholder a written statement as to whether it has
complied with such requirements.
(b) If at any time the Company is not subject to Section 13 or 15(d)
of the Exchange Act and is not exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act, the Company agrees, upon the request of the Shareholder
seeking to transfer Shares in conformity with Rule 144A under the Securities
Act, to furnish to the Shareholder or prospective purchasers of the Shares from
the Shareholder the information required by Rule 144A(d)(4)(i) under the
Securities Act in the manner and at the times contemplated by such Rule.
(c) The Company covenants to make available "adequate current public
information" concerning the Company within the meaning of Rule 144(c) under the
Securities Act.
Section 3.9. Agreement of the Shareholder. The Shareholder agrees
----------------------------
not to, and it shall cause its subsidiaries not to, make any sale, transfer or
other disposition of Shares of Company Common Share except in compliance with
the registration requirements of the Securities Act and the rules and
regulations thereunder or in accordance with the terms of this Agreement.
- 20 -
<PAGE>
Section 3.10. Legends. (a) Stop transfer restrictions will be
-------
given to the Company's transfer agent(s) with respect to the Shares and there
will be placed on the certificates or instruments representing the Shares, and
on any certificate or instrument delivered in substitution therefor, a legend
stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO SUCH
REGISTRATION OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
(b) The Company hereby agrees that it will cause stop transfer
restrictions to be released with respect to any Shares that are transferred (i)
pursuant to an effective registration statement under the Securities Act, (ii)
pursuant to Rule 144 or 145 under the Securities Act, (iii) in accordance with
the requirements of Rule 903 or 904 of Regulation S under the Securities Act, or
(iv) pursuant to another exemption from the registration requirements of the
Securities Act; provided, however, that in the case of any transfer pursuant to
-------- -------
clause (ii), (iii) or (iv) above, the request for transfer is accompanied by a
written statement signed by the Shareholder confirming compliance with the
requirements of the relevant exemption from registration; and provided, further,
-------- -------
that in the case of any transfer pursuant to clause (iv) above, other than any
transfer by the Shareholder to one or more of its direct or indirect
subsidiaries, or among such subsidiaries, or by any such subsidiary to the
Shareholder, the Company shall have received a written opinion of counsel
reasonably satisfactory to the Company. The Company further agrees that it will
cause the legend described in subsection (a) of this Section 3.10 to be removed
in the event of any transfer as provided in clause (i), (ii) or (iii) above.
Section 3.11. Treatment of Convertible Preferred Stock. Shares of
----------------------------------------
Convertible Preferred Stock owned by the Shareholder shall be treated in all
respects in the same manner as shares of Common Stock owned by the Shareholder
for the purposes of this Agreement. The Company and the Shareholder agree that
the Shareholder shall convert shares of Convertible Preferred Stock registered
and sold pursuant to this Agreement into shares of Common Stock
contemporaneously with the closing of any such sale.
- 21 -
<PAGE>
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.1. Term of Agreement; Termination. The term of this
------------------------------
Agreement shall commence on the date hereof and such term and this Agreement
shall terminate upon the expiration of the Demand Period.
Section 4.2. Recapitalizations, Exchanges, Etc. Affecting the Shares.
-------------------------------------------------------
The provisions of this Agreement shall apply to any and all shares of capital
stock of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution of the Shares, by reason of a
stock dividend, stock split, stock issuance, reverse stock split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. Upon the
occurrence of any such event, amounts hereunder shall be appropriately adjusted.
Section 4.3. Other Company Securities. The provisions of this
------------------------
Agreement shall apply mutatis mutandis to any publicly traded security of the
Company other than the Common Stock which may be owned by the Shareholder from
time to time during the Demand Period.
Section 4.4. Amendment. This Agreement may not be amended except by a
---------
written instrument, duly executed by the Company and the Shareholder.
Section 4.5. Notices. Except as otherwise provided in this Agreement,
-------
all notices, requests, claims, demands, waivers and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand, when delivered personally or by courier, three days after
being deposited in the mail (registered or certified mail, postage prepaid,
return receipt requested), or when received by facsimile transmission if
promptly confirmed by one of the foregoing means, as follows:
If to the Company:
ONEOK Inc.
100 West Fifth Street
Tulsa, Oklahoma 74103
Attention: President
with a copy to:
Gable Gotwals Mock Schwabe Kihle Gaberino
100 W. Fifth Street
Suite 1000
- 22 -
<PAGE>
Tulsa, Oklahoma 74103
Attention: Donald A. Kihle, Esq.
and:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: F. William Reindel, Esq.
If to the Shareholder:
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: President
with a copy to:
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Attention: John K. Rosenberg, Esq.
and:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Francis J. Aquila, Esq.
Section 4.6. Integration. This Agreement and the other writings
-----------
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or undertakings
with respect to its subject matter other than those expressly set forth or
referred to herein.
Section 4.7. Binding Effect; Benefit. This Agreement shall inure to
-----------------------
the benefit of and be binding upon the parties hereto, and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto, and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
- 23 -
<PAGE>
Section 4.8. Assignability. This Agreement shall not be assignable
-------------
by any party hereto.
Section 4.9. Counterparts. This Agreement may be executed by the
------------
parties hereto in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 4.10. Applicable Law. This Agreement shall be governed by
--------------
and construed in accordance with the internal laws of the state of Oklahoma
without giving effect to principles of conflicts of law.
Section 4.11. Shareholder Agreement. This Agreement shall remain in
---------------------
effect in accordance with its terms notwithstanding the termination or lapse in
effectiveness of any other agreement between the Shareholder and the Company,
including, but not limited to, the Shareholder Agreement.
Section 4.12. Severability. In the event any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired, and such
unreasonable, unlawful or unenforceable provision shall be interpreted, revised
or applied in the manner that renders it lawful and enforceable to the fullest
extent possible under law.
- 24 -
<PAGE>
IN WITNESS WHEREOF, the parties named below have hereto set their hands as
of the day and year first above written.
NEWCORP, INC.
By:
-----------------------------
Name:
Title:
WESTERN RESOURCES, INC.
By:
-----------------------------
Name:
Title:
- 25 -
<PAGE>
EXHIBIT 5.1
Date
WAI, Inc.
100 West Fifth Street
Suite 1000
Tulsa, Oklahoma 74103
Ladies and Gentlemen:
We are acting as special counsel to WAI, Inc., an Oklahoma corporation (the
"Company"), in connection with the preparation and filing of the Registration
Statement on Form S-4 (the "Registration Statement") of the Company relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), to be issued pursuant to the terms of an
agreement, dated December 12, 1996, as amended and restated as of May 19, 1997
(the "Agreement"), among the Company, ONEOK Inc. ("ONEOK") and Western
Resources, Inc. pursuant to which (i) ONEOK will merge with and into the
Company with the Company continuing as the surviving corporation, and (ii) all
shares of the common stock, no par value, of ONEOK will be converted on a one-
for-one basis into shares of the Common Stock pursuant to the provisions of
the Agreement.
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinions hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to such opinions, we have
relied upon certificates and statements of public officials and officers or
representatives of the Company and of others.
Based upon the foregoing and subject to the limitations set forth herein, it
is our opinion that the shares of the Common Stock to be issued pursuant to
the Agreement have been duly authorized and will be (when issued pursuant to
the Agreement) validly issued, fully paid and non-assessable.
This opinion is limited to the laws of the State of Oklahoma.
The opinion expressed herein is solely for your benefit and may not be
relied upon in any manner for any purpose except as specifically provided for
herein.
Very truly yours,
<PAGE>
EXHIBIT 5.2
___________, 1997
ONEOK Inc.
100 West Fifth Street
Tulsa, OK 74103
Re: Federal Income Tax Consequences of
Merger of ONEOK Inc. into WAI, Inc.
-----------------------------------
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger (the "Merger") of ONEOK Inc., a Delaware
corporation ("ONEOK"), with and into WAI, Inc., an Oklahoma corporation ("WAI"),
newly formed by Western Resources, Inc., a Kansas corporation ("WRI"), and the
surviving entity in the Merger.
In reaching the opinions expressed below, we have reviewed and relied
on (i) the Amended and Restated Agreement among Western Resources, Inc., WAI,
Inc. and ONEOK Inc., dated as of May 19, 1997 (the "Agreement"), (ii) the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 of WAI dated ____________, 1997 (the "Proxy Statement/Prospectus"),
(iii) certain representations made by ONEOK and WAI, and (iv) such other facts
and representations as we have deemed relevant to our opinion. Capitalized terms
not defined herein shall have the respective meanings set forth in the Proxy
Statement/Prospectus.
Based upon and subject to the foregoing, and assuming that the Merger
and related transactions will take place in accordance with all the terms of the
Agreement, it is our opinion that the Merger will constitute a reorganization
for federal income tax purposes within the meaning of section 368(a) of the
Internal Revenue Code of 1986, as amended.
As a reorganization, the Merger will have the following federal income
tax consequences:
(i) no gain or loss will be recognized by ONEOK as a result of the
Merger;
<PAGE>
ONEOK Inc. - 2 - _________, 1997
(ii) no gain or loss will be recognized by the shareholders of ONEOK
upon their receipt in the Merger of New ONEOK Common Stock in exchange for their
ONEOK Common Stock;
(iii) the tax basis of New ONEOK Common Stock received in the Merger
by a shareholder of ONEOK will be the same as the basis of such shareholder in
the ONEOK Common Stock exchanged therefor; and
(iv) the holding period for New ONEOK Common Stock received by a
shareholder of ONEOK in the Merger will include the holding period of such
shareholder in the ONEOK Common Stock exchanged therefor, provided that the
ONEOK Common Stock is held as a capital asset at the Closing.
The opinions expressed herein are solely for your benefit and may not
be relied on in any manner or for any purpose by any other person or entity.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By:
----------------------------------------
Jack L. Jacobson
<PAGE>
EXHIBIT 12.1
ONEOK INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, SIX MONTHS ENDED
--------------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992 1997 1996
-------- -------- ------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges, as de-
fined:
Interest on long-term
debt................. $ 31,748 $ 32,401 $32,988 $35,250 $32,445 $15,681 $15,981
Other interest........ 3,184 4,878 1,846 1,120 3,110 1,988 2,108
Amortization of debt
issue costs.......... 530 512 525 2,117 526 271 276
-------- -------- ------- ------- ------- ------- -------
Total fixed
charges............ 35,462 37,791 35,359 38,487 36,081 17,940 18,365
Preferred dividend re-
quirement.............. 428 428 428 428 428 214 214
-------- -------- ------- ------- ------- ------- -------
Total fixed charges
and preferred stock
dividend
requirements....... $ 35,890 $ 38,219 $35,787 $38,915 $36,509 $18,154 $18,579
======== ======== ======= ======= ======= ======= =======
Earnings, as defined:
Income before income
taxes................ $ 85,873 $ 68,146 $57,276 $59,230 $51,456 81,897 76,083
Total fixed charges
(as shown above)..... 35,462 37,791 35,359 38,487 36,081 17,940 18,365
-------- -------- ------- ------- ------- ------- -------
Earnings available
for fixed charges
and preferred
dividend
requirements....... $121,335 $105,937 $92,635 $97,717 $87,537 $99,837 $94,448
======== ======== ======= ======= ======= ======= =======
Ratio of earnings to
combined fixed charges
and preferred dividend
requirements........... 3.38x 2.77x 2.59x 2.51x 2.40x 5.50x 5.08x
======== ======== ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 12.2
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
AUGUST 31, 1996 FEBRUARY 28, 1997
--------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Fixed charges, as defined:
Interest on long-term debt................ $ 37,574 $ 19,299
Other interest............................ 3,184 1,988
Amortization of debt issue costs.......... 530 271
-------- --------
Total fixed charges..................... 41,288 21,558
Preferred dividend requirement............ 34,772 17,386
-------- --------
Total fixed charges and preferred stock
dividends requirements................. $ 76,060 $ 38,944
======== ========
Earnings, as defined:
Income before income taxes................ $141,285 $136,069
Total fixed charges (as shown above)...... 41,288 21,558
-------- --------
Earnings available for fixed charges and
preferred dividend requirements........ $182,573 $157,627
======== ========
Ratio of earnings to combined fixed charges
and preferred dividend requirements........ 2.40x 4.05x
======== ========
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors
ONEOK Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus. Our
report refers to the adoption of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived
Assets to be Disposed Of in 1996.
/s/ KPMG Peat Marwick LLP
Tulsa, Oklahoma
May 20, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report for the Gas Business, a business unit of Western Resources, Inc., dated
February 4, 1997, and to all references to our Firm included in or made a part
of this Registration Statement and related Prospectus.
/s/ Arthur Andersen LLP
Kansas City, Missouri
May 20, 1997
1
<PAGE>
EXHIBIT 23.3
GABLE GOTWALS MOCK SCHWABE KIHLE GABERINO
a professional corporation
Attorneys and Counselors at Law
100 WEST FIFTH STREET, SUITE 1000
TULSA, OKLAHOMA 74103-4219
TELEPHONE (918) 585-8141
FAX (918) 588-7873
May 20, 1997
We hereby consent to the filing of our opinion as an exhibit to the
Registration Statement ("Registration Statement") on Form S-4 of WAI, Inc. and
to the reference to this firm under the caption "Experts" in the Proxy
Statement/Prospectus forming part of the Registration Statement. In giving
such consent, we do not hereby admit that we are in the category of such
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended
Very truly yours.
GABLE GOTWALS MOCK SCHWABE KIHLE
GABERINO
/s/ Donald A. Kihle
By: _________________________________
Donald A. Kihle
<PAGE>
EXHIBIT 23.4
May 20, 1997
PaineWebber Incorporated ("PaineWebber") hereby consents to the inclusion in
the Proxy Statement/Prospectus of ONEOK Inc. ("ONEOK") and WAI, Inc. of its
form of opinion and to the references made to PaineWebber in the "Summary",
"The Transactions: Background and Reasons for the Transactions", "The
Transactions: Recommendation of the ONEOK, Board" and "The Transactions:
Opinion of Financial Advisor" sections of such Proxy Statement/Prospectus. In
giving such consent, we do not thereby concede that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ Thomas C. Mulry
By _________________________________
Thomas C. Mulry Advisory Director
<PAGE>
EXHIBIT 23.5
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
One New York Plaza
New York, New York 10004-1980
212-859-8000
Fax: 212-859-4000
May 20, 1997
We hereby consent to the references to this firm in the Registration
Statement (the "Registration Statement") on Form S-4 of WAI, Inc. under the
caption "Experts" and to the opinion referenced under the caption "Certain
Federal Income Tax Consequences of the Transactions" to be delivered by our
firm (in the form attached as Exhibit 5.2 to the Registration Statement) at
the closing of the Transactions (as defined in the Registration Statement). In
giving such consent, we do not hereby admit that we are in the category of
such persons whose consent is required under Section 7 of the Securities Act
of 1933 and the rules and regulation thereunder.
Very truly yours,
Fried, Frank, Harris, Shriver &
Jacobson
/s/ Paul M. Reinstein
By:
-----------------------------------
Paul M. Reinstein
<PAGE>
EXHIBIT 99.1
[Front of Proxy Card]
SOLICITED BY THE BOARD OF DIRECTORS OF
ONEOK INC.
SPECIAL MEETING OF SHAREHOLDERS
, 1997
The undersigned hereby appoints and and each or either
of them, with power of substitution, proxies for the undersigned and authorizes
them to represent and vote, as designated, all of the shares of common stock,
without par value ("Common Stock"), of ONEOK Inc. ("ONEOK") held of record by
the undersigned on , 1997, at the Special Meeting of Shareholders (the
"Special Meeting") to be held at ONEOK Plaza, 100 West Fifth Street, Tulsa,
Oklahoma 74103-0871 on , 1997 in connection with the approval of the
transactions contemplated by the Amended and Restated Agreement (the
"Agreement") dated as of May 19, 1997 among Western Resources, Inc., a Kansas
Corporation ("WRI"), WAI, Inc. ("WAI"), a newly formed Oklahoma corporation and
wholly owned subsidiary of WRI, and ONEOK as such may be further amended,
supplemented or modified from time to time, including, without limitation, the
approval of the merger (the "Merger") of ONEOK with and into WAI, with WAI
(which will change its name to ONEOK, Inc.) as the surviving corporation and at
any adjournment(s) or postponement(s) of such meeting for the purpose identified
on the reverse side of this proxy and with discretionary authority as to any
other matters that may properly come before the Special Meeting. This proxy when
properly executed will be voted in the manner directed herein by the undersigned
shareholder. If this proxy is returned without direction being given, this proxy
will be voted FOR proposal 1.
SEE
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) REVERSE
SIDE
<PAGE>
[Reverse of Proxy Card]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT, AS SUCH MAY BE
AMENDED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME INCLUDING, WITHOUT
LIMITATION, THE APPROVAL OF THE MERGER OF ONEOK WITH AND INTO WAI, WITH WAI
(WHICH WILL CHANGE ITS NAME TO ONEOK, INC.) AS THE SURVIVING CORPORATION.
[_] FOR [_] AGAINST [_] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
[_] Mark here for comments
[_] Mark here for address change and note
at left
Please mark, sign, date and return this
proxy card promptly using the enclosed
envelope. Please sign exactly as your name
appears. If acting as attorney, executor,
trustee or in other representative
capacity, sign name and title. If a
corporation, please sign in full
corporation name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person. If held jointly, both
parties must sign and date.
Signature Date
-------------------- -------
Signature Date
-------------------- -------
