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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended
AUGUST 31, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ________ to _______
Commission file number 001-13643
ONEOK, INC.
(Exact name of registrant as specified in its charter)
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OKLAHOMA 73-1520922
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
100 WEST FIFTH STREET, TULSA, OK 74103
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (918) 588-7000
(Former name if changes since last report.)
Securities registered pursuant to Section 12(b) of the Act:
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COMMON STOCK, WITH PAR VALUE OF $0.01 NEW YORK STOCK EXCHANGE
(Title of Each Class) (Name of Each Exchange on which Registered)
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Securities registered pursuant to Section 12(g) of the Act:
(Title of Each Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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Aggregate market value of registrant's voting stock held by nonaffiliates as of
August 31, 1999, was: Common stock of $959.3 million.
On August 31, 1999, the Company had 30,884,225 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENTS PART OF FORM 10-K
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ONEOK, INC.
1999 ANNUAL REPORT ON FORM 10-K
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PART I. PAGE NO.
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Item 1. Business 3 - 13
Item 2. Properties 13 - 15
Item 3. Legal Proceedings 16 - 20
Item 4. Results of Votes of Security Holders 21
PART II.
Item 5. Market Price and Dividends on the Registrant's
Common Stock and Related Shareholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23 - 36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37 - 38
Item 8. Financial Statements and Supplementary Data 39 - 65
Item 9. Changes in and Disagreements with Accountants 65
On Accounting and Financial Disclosures
PART III.
Item 10. Directors, Executive Officers, Promoters, and
Control Persons of the Registrant 66 - 68
Item 11. Executive Compensation 68 - 70
Item 12. Security Ownership of Certain Beneficial Owners and Management 71 - 73
Item 13. Certain Relationships and Related Transactions 73
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 74 - 77
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PART I.
ITEM 1. BUSINESS
GENERAL - ONEOK, Inc., an Oklahoma corporation, was organized on May 16, 1997.
On November 26, 1997, it acquired the gas business of Western Resources, Inc.
(Western) (see Acquisitions and Mergers below) and merged with ONEOK Inc., a
Delaware corporation organized in 1933. It was a successor to a company founded
in 1906 as Oklahoma Natural Gas Company.
ONEOK, Inc. and subsidiaries (collectively, the Company) engage in several
aspects of the energy business. The Company purchases, gathers, compresses,
transports, stores, and distributes natural gas. It also leases pipeline
capacity to others. The Company drills for and produces oil and gas, extracts
and sells natural gas liquids, and is engaged in the gas marketing business.
The Company has begun wholesale marketing of electricity on a limited scale and
has approval from the Company's Board of Directors for construction of a 300
megawatt electric power plant in Logan County, Oklahoma. In addition, the
Company 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, the Company distributes natural gas to
approximately 1.4 million customers in the states of Oklahoma and Kansas.
The Company's operations are reported in the following segments:
o Distribution
o Transportation and Storage
o Marketing
o Gathering and Processing
o Production
o Other
The Distribution segment provides natural gas distribution in Oklahoma and
Kansas. The Company's operations in Oklahoma are conducted through Oklahoma
Natural Gas Company Division (ONG) which serves residential, commercial, and
industrial customers and leases pipeline capacity. ONG is regulated by the
Oklahoma Corporation Commission (OCC). The Company's operations in Kansas are
conducted through Kansas Gas Service Company Division (KGS) which serves
residential, commercial, and industrial customers. KGS also conducts regulated
gas distribution operations in northeastern Oklahoma. The Distribution segment
serves 80 percent of Oklahoma and 67 percent of Kansas. KGS is regulated by the
Kansas Corporation Commission (KCC) and the OCC.
The Transportation and Storage segment provides natural gas transportation and
storage services. These operations are conducted through ONEOK Gas
Transportation, L.L.C. (OGT), ONEOK Sayre Storage Company (Sayre), Market
Center Gathering, Inc., Mid Continent Market Center, Inc. (MCMC), Mid Continent
Transportation, Inc. (MCTI), ONEOK Producer Services, Inc., and ONEOK Gas
Storage, L.L.C (OGS). Some of the business units in this segment, OGT, OGS and
Sayre, are currently regulated by the OCC, and MCMC and MCTI's operations are
regulated by the KCC. In July, 1999, the OCC approved a plan for the removal of
Oklahoma storage and gathering assets from utility regulation effective
November 1, 1999.
The Marketing segment markets natural gas to both wholesale and retail
customers in the central part of the United States and leases gas storage from
others with direct access to the west coast and the Texas intrastate market
through ONEOK Gas Marketing Company (OGMC). It also conducts wholesale trading
of electricity on a limited scale through ONEOK Power Marketing Company.
The Gathering and Processing segment conducts gas gathering and gas processing
activities in Oklahoma and New Mexico through ONEOK Gas Processing, L.L.C. and
ONEOK Field Services Company.
The Production segment produces natural gas and oil in several states including
Oklahoma, Kansas and Texas through ONEOK Resources Company.
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ONEOK Leasing Company which leases and operates a headquarters office building,
and ONEOK Parking Company, which owns and operates a parking garage, comprise
the significant operations of the Other segment.
This Form 10-K (and certain other documents that are incorporated by reference
in this Form 10-K) contains statements concerning Company expectations or
predictions of the future that are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are intended to be covered by the safe harbor provision of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking
statements are based on management's beliefs and assumptions based on
information currently available. It is important to note that actual results
could differ materially from those projected in such forward-looking
statements. Factors that may impact forward-looking statements include, but are
not limited to, the following:
o the effects of weather and other natural phenomena;
o increased competition from other energy suppliers as well as alternative
forms of energy;
o the capital intensive nature of the Company's business;
o economic climate and growth in the geographic areas in which the Company
does business;
o the uncertainty of gas and oil reserve estimates;
o the timing and extent of changes in commodity prices for natural gas,
natural gas liquids, electricity, and crude oil;
o the nature and projected profitability of potential projects and other
investments available to the Company;
o conditions of capital markets and equity markets;
o Year 2000 issues;
o the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance, authorized rates, and
deregulation or "unbundling" of natural gas;
o the pending merger with Southwest Gas Corporation (Southwest); and
o regulatory delay or conditions imposed by regulatory bodies in, and the
results of litigation involving, the Southwest merger.
Accordingly, while the Company believes these forward-looking statements to be
reasonable, there can be no assurance that they will approximate actual
experience or that the expectations derived from them will be realized. When
used in Company documents, the words "anticipate," "expect," "projection,"
"goal" or similar words are intended to identify forward-looking statements.
The Company does not have any intention or obligation to update forward-looking
statements after they distribute this Form 10-K even if new information, future
events or other circumstances have made them incorrect or misleading.
ACQUISITIONS AND MERGERS - On December 14, 1998, the Company entered into a
merger agreement with Southwest Gas Corporation subject to shareholder and
regulatory approvals. The Company agreed to pay $28.50 per share of common
stock in cash. On February 1, 1999, Southern Union Company (Southern Union)
made an unsolicited offer to purchase the Southwest shares for $32.00 in cash.
Southern Union then signed a Confidentiality and Standstill Agreement with
Southwest and completed its due diligence investigation. On April 25, 1999, the
Board of Directors of Southwest rejected Southern Union's proposal as not being
a superior proposal. Thereafter, the Company increased its price to $30.00 per
share and the merger agreement was amended. Southern Union then increased its
offer to $33.50 per share and intervened in a shareholders lawsuit in
California state court in an effort to block the holding of a meeting of the
Southwest shareholders to consider the merger with the Company. Southern Union
brought an action in Nevada federal court to block the meeting and to block
proceedings before the Arizona regulatory commission. Southern Union also
intervened in the regulatory proceedings in California and Nevada.
After Southern Union made statements in the public press that it intended to
solicit proxies in opposition to the Company/Southwest merger in breach of the
Confidentiality and Standstill Agreement, the Company (as third party
beneficiary) filed an action in the Oklahoma federal courts. The court entered
a temporary restraining order against Southern Union. It was later converted to
a preliminary injunction requiring Southern Union to abide by terms of the
Agreement. The issuance of the injunction is on appeal and efforts of Southern
Union to have it lifted have been unsuccessful.
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On July 19, 1999, Southern Union filed an action in the federal district court
of Arizona in its further effort to block regulatory approval of the merger.
Named as defendants in the case are the Company, Southwest, certain officers of
the companies (including the Company's Eugene N. Dubay and John A. Gaberino,
Jr.), a member of the Arizona Corporation Commission and a former employee of
the Commissioner's staff. Southern Union alleges a scheme of "fraud and
racketeering" by the companies and the individual defendants to block Southwest
shareholders from voting on the Southern Union proposal and ensuring that only
the merger with the Company would be considered. It also alleges a "secret
campaign of deception, corruption and misrepresentation" by the defendants to
influence the vote of the Arizona regulatory commission on the merger and to
"mislead" the Board of Directors of Southwest. Southern Union further alleged
that it was "fraudulently induced" to enter into the Confidentiality and
Standstill Agreement. The complaint asks for $750 million to be trebled for
racketeering and unlawful violations, compensatory damages of not less than
$750 million and rescission of the Confidentiality and Standstill Agreement. On
October 12, 1999, Southern Union filed an amended complaint asserting
essentially the same claims as in the earlier complaint and named additional
individual defendants (including the Company's Larry W. Brummett and James C.
Kneale). The Company intends to file a motion to dismiss.
On August 5, 1999, both the California state court and the Arizona federal
court denied Southern Union's motions for temporary restraining orders. On
August 10, 1999 the shareholders of Southwest approved the merger.
The merger has been approved by the Public Utility Commission of Nevada. In
California, a settlement document was filed with a 30-day comment period. No
comments were filed and consideration is anticipated by year end. Upon approval
by the California Commission, the only remaining regulatory commission required
to approve the merger is the Arizona Corporation Commission where Southern
Union is now directing its primary efforts to block the merger.
At the Arizona Corporation Commission, consideration of the merger is in the
procedural and discovery stage. Testimony has been filed and the staff is
reviewing materials. At staff's request, a hearing on the merger has been
delayed until February 11, 2000.
Initially operating on the theory that the Company had funneled money through
an Arizona law firm to a member of the Arizona Commission in order to influence
improperly the Arizona regulatory proceedings, Southern Union attempted through
discovery and other means to support their theory. Being unable to substantiate
such claim, it was withdrawn in the Arizona federal court case. Southern Union
has now shifted to a new theory that the Company intended to enter into an
arrangement with a large national investment banking firm to funnel money to an
individual who was formerly on the Commission's staff.
The Company has denied that it has done anything illegal or improper in its
efforts to obtain approval of the merger. It has categorically denied all
substantive allegations against the Company in the complaint filed in the
federal district court in Arizona. The Company intends to continue to defend
vigorously the Company and its good reputation and continues to pursue
regulatory approval for the merger.
It is possible that Southern Union will continue its litigation against the
Company, Southwest and the individual defendants claiming substantial damages.
The merger cannot be consummated without all regulatory approvals. If such
approvals are not obtained, or if not obtained in a timely manner, the merger
agreement could be terminated by either the Company or Southwest which could
result in further litigation. If, at the time of consummation of the merger,
there are still outstanding claims against Southwest, those claims will become
claims against the Company, as successor in the merger. If any of the plaintiffs
should be successful in any of their claims against the Company or Southwest and
substantial damages are awarded, it could have a material adverse effect on the
Company's operations, cash flow and financial position. The Company believes the
Southern Union allegations are without merit and is defending itself vigorously
against all claims.
During the 1998 fiscal year, the Company acquired from Western Resources, Inc.
(Western) all of the gas distribution assets of Western and all of the
outstanding capital stock of Western's directly or indirectly wholly-owned
subsidiaries, Westar Gas Marketing, Inc. and MCMC, and assumed all of the
liabilities of Western that arose
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primarily out of the gas business and approximately $161 million in debt of
Western. Western received 2,996,702 shares of the Company's Common Stock and
19,317,584 shares of the Company's Series A Convertible Preferred Stock. Such
shares and additional shares purchased by Western represent in the aggregate
9.9 percent of the Common Stock and 45 percent of the capital stock of the
Company. A shareholder agreement, which includes standstill provisions,
prohibits Western from increasing its position in the Company above a capital
stock interest of 45 percent and maintains control of the Company in the hands
of the public shareholders of the Company. The transaction added 660,000 new
distribution customers, 10,068 miles of pipeline, two gas processing plants
with a 200 million cubic feet per day capacity, one of which has since been
sold, and a natural gas marketing company with a retail market focus to the
Company.
The aggregate purchase price of $824 million was funded through the issuance to
Western of a combination of preferred and common stock. The excess of the
purchase price over the fair value of the net assets acquired approximated $74
million and is being amortized over 40 years.
The Company's strategy is to acquire additional gas distribution and
transmission facilities, gas producing properties, gas processing and gathering
facilities or other assets which will further enhance its existing operations
and will continue to pursue such opportunities in the future. The Company also
from time to time sells assets when deemed less strategic or as other
conditions warrant.
ENVIRONMENTAL MATTERS - In connection with the Western transaction, the Company
acquired responsibility for 12 manufactured gas sites located in Kansas which
may contain coal tar and other potentially harmful materials that are
classified as hazardous material. Hazardous materials are subject to control or
remediation under various environmental laws and regulations. A consent
agreement with the Kansas Department of Health and Environment (KDHE) presently
governs all future work at these sites. The terms of the consent agreement
allow the Company 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. At August 31, 1999, the
costs of the investigations and risk analysis have been minimal. Limited
information is available about the sites and no testing has been performed.
Management's best estimate of the cost of remediation ranges from $100 thousand
to $10 million per site based on a limited comparison of costs incurred to
remediate comparable sites. These estimates do not give effect to potential
insurance recoveries, recoveries through rates or from third parties. The KCC
has permitted others to recover their remediation costs through rates and the
Company anticipates it will be allowed to recover such costs. Additional
information and testing could result in costs significantly below or in excess
of the amounts estimated above. To the extent that such remediation costs are
not recovered, any material costs could adversely affect the Company's results
of operations and cash flows depending on the degree of remediation required
and number of years over which the remediation must be completed.
The Company's expenditures for environmental evaluation and remediation have
not been significant in relation to the results of operations of the Company.
Capital expenditures for environmental issues during the 1999 fiscal year
totaled $456,000. There have been no material effects upon earnings or the
Company's competitive position during the 1999 fiscal year related to
compliance with these regulations.
EMPLOYEES - The Company employed 3,252 persons at August 31, 1999. Nine hundred
twenty-one employees of KGS are subject to collective bargaining contracts. The
Company did not experience any strikes or work stoppages during 1999. The
Company's current contracts with the Unions are as follows:
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UNION EMPLOYEES CONTRACT EXPIRES
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United Steelworkers of America 515 June 6, 2002
International Union of Operating Engineers 19 June 6, 2002
Gas Workers Metal Trades of the United Association of
Journeymen and Apprentices of the Plumbing and Pipefitting
Industry of the United States and Canada 13 June 6, 2002
International Brotherhood of Electrical Workers 374 July 1, 2003
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FINANCIAL AND STATISTICAL INFORMATION - For financial and statistical
information regarding the Company's business units by segment, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note K of Notes to Consolidated Financial Statements.
DESCRIPTION OF BUSINESS SEGMENTS
(A) DISTRIBUTION
GENERAL - ONG distributes natural gas to wholesale and retail customers located
in the state of Oklahoma. It also leases pipeline capacity under its Pipeline
Capacity Lease (PCL) program to large volume commercial and industrial
customers for their use in transporting natural gas to their facilities.
ONG delivered natural gas to approximately 750,000 customers at August 31,
1999, located in 295 communities in Oklahoma. ONG's largest markets are the
Oklahoma City and Tulsa metropolitan areas. ONG also sells natural gas and/or
leases pipeline capacity to other local gas distributors serving 46 Oklahoma
communities. ONG serves an estimated population of over 2 million.
KGS supplies natural gas to retail customers in 389 communities in Kansas and
Oklahoma with approximately 95 percent of those gas deliveries to Kansas
customers. It also makes wholesale delivery to seventeen customers. KGS's
largest markets served include Johnson County, Wichita, and Topeka, Kansas, and
Bartlesville, Oklahoma.
Of the Company's consolidated revenues, revenues from the Distribution segment
represent approximately 49.7, 52.5, and 51.0 percent for 1999, 1998, and 1997,
respectively. Operating income from the Distribution segment is 44.7, 54.9, and
51.5 percent of the consolidated operating income for 1999, 1998, and 1997,
respectively.
GAS SUPPLY - Gas supplies available to ONG for purchase and resale include
supplies of gas under both short and long-term contracts with gas marketers,
independent producers, as well as pipeline companies, gas processors, and other
suppliers that own or control reserves. Oklahoma is the third largest gas
producing state in the nation, and ONG has direct access through the
Transportation and Storage segment's transmission system and transmission
systems belonging to third party companies to all of the major gas producing
areas in the state. The Company's transmission system intersects with
interstate pipelines, gas processing plants, and producing fields located
throughout Oklahoma, allowing natural gas to be moved where needed across the
state. Additionally, the Company's transmission system is directly connected to
five gas storage fields that are operated by the Company and one non-operated
gas storage field. ONG has awarded bids for gas supply for the 1999/2000
heating season with the majority of that supply to come from an affiliate,
OGMC. On November 1, 1999, ONG issued bids for transportation and supply for
two to five year terms beginning with the 2000/2001 heating season.
KGS 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, Panhandle Eastern Pipeline Company, and various other intrastate
and interstate pipelines. Gas transported under these agreements represents
approximately 80 percent of the total distribution system throughput.
In October 1994, KGS executed a long-term gas purchase contract ("Base
Contract") with Amoco Production Company ("Amoco") for the purpose of meeting
the requirements of the customers served over the WNG pipeline system. The
Company anticipates that the Base Contract will supply between 55 percent and
65 percent of KGS'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 Base Contract which is excess to
the needs of the Company's residential and commercial customer base is also
available for sale to other parties.
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The remaining 20 percent of KGS's total distribution throughput 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.
The ONG rate schedule's "Order of Curtailment" and the KGS rate order's
"Priority of Service" provide for first reducing or totally discontinuing gas
service to the very large industrial users and graduating down to requesting
residential and commercial customers to reduce their gas requirements to an
amount essential for public health and safety.
There is a surplus of natural gas available to its utility systems and the
Company does not anticipate problems with securing additional gas supply as
needed for its customers.
CUSTOMERS - Residential and Commercial - ONG and KGS distribute natural gas as
public utilities to approximately 80 percent of Oklahoma and 67 percent of
Kansas. Natural gas sales to residential and commercial customers, which are
used primarily for heating and cooking, account for approximately 65 and 29
percent of gas sales, respectively in Oklahoma and 74 and 25 percent of gas
sales in Kansas, respectively. Gas sales to residential and commercial
customers are seasonal, as a substantial portion of such gas is used
principally for space heating. Accordingly, the volume of gas sales is
consistently higher during the heating season (November through April) than in
other months of the year. ONG's tariff rates include a temperature
normalization adjustment clause during the heating season which mitigates the
effect of fluctuations in weather. A WeatherProof Bill program, implemented in
September, 1999, is designed to mitigate the effect of weather fluctuations in
Kansas for customers electing to use this program.
A franchise is a right to use the municipal streets, alleys, and other public
ways for utility facilities for a defined period of time for a fee. Although
the laws of the states of Oklahoma and Kansas prohibit exclusive utility
franchises, management nevertheless believes there are advantages to having
franchises in the larger municipalities in which operations are conducted. ONG
has franchises in 44 municipalities including Tulsa and Oklahoma City while KGS
holds franchises in 315 municipalities. In management's opinion, its franchises
contain no unduly burdensome restrictions and are sufficient for the
transaction of business in the manner in which it is now conducted.
Industrial - A substantial portion of the ONG system throughput is transported
for industrial customers. Under the Company's PCL program, the customer, for a
fee, can have its gas, whether purchased from ONG or a third-party supplier,
transported to its facilities utilizing lines owned by ONG or its affiliates.
PCL services are at negotiated rates which are generally below the approved PCL
tariff rates, and competition continues to drive the rates lower. Industrial
sales and rentals for PCL's tend to remain relatively constant throughout the
year. As contracts with PCL customers expire and there is increased competition
for the transportation of gas to these customers, some of the customers may be
lost to third party transporters. The Transportation and Storage segment may
gain some of this business which would result in a shift of some revenues from
the Distribution segment to the Transportation and Storage segment. No single
customer accounted for more than ten percent of consolidated operating
revenues.
KGS industrial sales account for less than one percent of natural gas
delivered. KGS transports gas for its large industrial customers through it's
End-Use Customer Transportation (ECT) program. This program allows industrial
customers to purchase gas on the spot market and have it transported by KGS.
The potential impact of the loss of a significant portion of this volume is
discussed at Management's Discussion and Analysis of Financial Conditions and
Results of Operations, Liquidity.
COMPETITION - The natural gas industry is expected to remain highly
competitive. Management believes that it must maintain a competitive advantage
in order to retain its customers and, accordingly, continues to focus on
reducing costs and pursuing unbundling opportunities.
The Company is subject to competition from electric utilities offering
electricity as a rival energy source and competing for the space heating, water
heating, and cooking markets. The principal means to compete against
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alternative fuels is lower prices, and natural gas continues to maintain its
price advantage in the residential, commercial, and both small and large
industrial markets. In residential markets, the average cost of gas is less for
ONG customers and for KGS customers than the average cost of gas nationwide and
considerably less than the cost of an equivalent amount of electricity.
The Company is subject to competition from other pipelines for its existing
industrial load. The PCL program offered by ONG, in response to such
competitive pressure, allows ONG to effectively compete in these markets and
maintain throughput and therefore, load factors which benefit all customer
classes. KGS, through the ECT program, is able to compete with other pipelines
and continue to serve its large commercial and industrial customers.
Competition, however, continues to lower rates. Unbundling is another response
to competition. A competitive bidding system, made possible by the unbundling
of services, and more customer choice provides the opportunity for lower costs
for the consumer.
GOVERNMENT REGULATIONS - Rates charged for gas services are established by the
OCC for ONG and by the KCC and OCC for KGS. Gas purchase costs are included in
the Purchased Gas Adjustment (PGA) clause. Other costs must be recovered
through periodic rate adjustments approved by the OCC and KCC.
A rate case will be heard by the OCC in early 2000 in Oklahoma. A joint
stipulation between the Company and the OCC staff and approved by the OCC
eliminated the interim rate case previously scheduled for summer of 1999 and
provided for a one-time interim rate reduction of $5 million for residential
customers in Oklahoma beginning September 1, 1999.
A July 1999 order from the OCC removed the Oklahoma gathering and storage
assets from utility regulation effective November 1, 1999. These assets are now
included in the Transportation and Storage segment where they are being
utilized in the competitive marketplace. The removal of the gathering and
storage assets from rate base will result in a net reduction of revenues of
$29.0 million on an annualized basis, based on the allocation of costs from the
1994 rate case. The Transportation and Storage and Marketing segments are
aggressively seeking new business opportunities and have replaced a substantial
portion of the revenues. Additionally, a charge to be collected through the PGA
for ONG's current working gas in storage will replace a portion of the
revenues. These revenue adjustments are subject to review in the current rate
case.
An August 1999 order from the OCC distinguished between upstream
(transportation) and downstream (distribution) assets and cleared the way for
future unbundling activities including competitive bidding for transportation
services. A temperature adjustment clause, in effect for ONG customers since
1995, reduces the effect of extremes in weather for both the Company and the
customer.
In a step toward unbundling, in April, 1999, the KCC approved the reduction in
the minimum requirement for transportation service to 3,000 Mcf annually. This
will allow KGS to expand transportation services to an additional 650
commercial and industrial customers. The Company also requested and was granted
approval to allow all school districts the choice of purchasing their gas
supplies from a third party. This affects over 1,000 schools.
Approval of the KCC has been received allowing the Company to expand the
WeatherProof Bill program to all residential and commercial customers in
Kansas. The program is designed to moderate the cost KGS customers pay for
natural gas in cold weather months. Under this program, which was in effect as
a pilot program during fiscal 1999, the Company used commodity derivative
instruments to cap the price of its anticipated winter heating season gas
purchases in order to protect customers and the Company from the upward
volatility during the winter heating months.
In connection with the Western transaction, KGS filed a stipulation which
included an agreement not to file a general rate increase for three years.
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The Company has settled all known claims arising out of long-term gas supply
contracts containing "take-or-pay" provisions which purport to require the
Company to pay for volumes of natural gas contracted for but not taken. The OCC
has authorized recovery of the accumulated settlement costs over a 20 year
period or approximately $6.7 million annually through a combination of a
surcharge from customers and revenue from transportation under Section 311(a)
of the NGPA and other intrastate transportation revenues. There are no
significant potential claims or cases pending against the Company under
remaining gas purchase contracts.
OkTex Pipeline Company transports gas in interstate commerce under Section
311(a) of the NGPA and is treated as a separate entity by FERC. The Company has
the capacity to move up to 200 million cubic feet per day into the Lone Star
Gas Company's system in Texas and the Red River Pipeline. OkTex has complied
with the requirements of Order 636.
(B) TRANSPORTATION AND STORAGE
GENERAL - Five underground storage facilities are owned in Oklahoma and
capacity is leased to third parties under various terms with capacity in the
Sayre gas storage facility leased, on a long-term basis, to and operated by the
Natural Gas Pipeline Company of America. The Company retains capacity in Sayre
for its own use. MCMC stores gas in two company-owned underground storage
facilities in Kansas. A $10 million expansion project for the Kansas
underground storage is to be completed in 2000, and is expected to increase the
storage capacity from 4.6 to 6.3 Bcf. A $3.4 million expansion is expected to
increase deliverability from the Depew storage field by spring 2000.
A $20 million expansion of the Kansas transmission system, to be completed fall
of 2000, extends the system to the Bushton processing facility operated by KN
Energy. This expansion shall provide for opportunities for increased throughput
and supply support for Kansas core and non-core businesses. No major expansions
were developed for the Oklahoma transmission system during 1999, but the
Company continues to pursue opportunities associated with power plant projects.
The transmission system transported 234.9 and 285.8 Bcf in Oklahoma for 1999
and 1998, respectively, and 72.8 and 54.2 Bcf in Kansas for 1999 and 1998,
respectively. A small amount of gathering pipelines owned by the Company and
connected to the Company's transmission pipelines are included in this segment.
The Company's transportation system provides access to all major natural gas
producing areas in the state of Oklahoma. The system intersects with ten
interstate pipelines at 26 interconnect points, 23 gas processing plants, and
approximately 130 producing fields effectively allowing gas to be moved
throughout the state. Of the Company's consolidated revenues, revenues from the
Transportation and Storage segment represent approximately 1.6, 1.0 and 0.5
percent for 1999, 1998 and 1997, respectively. Operating income from the
Transportation and Storage segment is 28.1, 24.8, and 26.5 percent of the
consolidated operating income for 1999, 1998, and 1997, respectively.
GOVERNMENT REGULATIONS - Under a July, 1999, order by the OCC, the Company's
gathering and storage assets and services in Oklahoma were removed from utility
regulation effective November 1, 1999. Assets, including current gas in
storage, of $325.0 million were removed from rate base and are now included in
this segment where they will be utilized in the competitive market place to
replace earnings. A portion of the return on rate base related to these assets
will be recovered from the distribution customers through a charge to be
collected through the PGA for maintaining current working gas in storage. In
August, 1999, the OCC approved a plan that distinguishes between upstream and
downstream assets and laid the groundwork for a bidding process for
transportation services that began November 1, 1999.
COMPETITION - The Transportation and Storage segment competes directly with the
other intrastate and interstate pipelines and storage facilities within each of
their respective states. With the unbundling of services ordered by the OCC and
the related competitive bid process, this segment will be competing with other
companies at market - based rates to provide service to the Distribution
segment and to other customers.
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<PAGE> 11
CUSTOMERS - The Transportation and Storage segment serves the affiliated
companies of the Distribution segment as well as a number of transporters in
the utilization of the transportation and storage facilities. Each of the
companies provides flexible service alternatives to serve both core and
non-core consumers.
PROPERTY ACQUISITIONS - In March, 1999, the Company acquired assets in Kansas
which consisted of 111 miles of transmission pipelines. These assets enhanced
transportation access to the Wichita, Kansas area.
(C) MARKETING
GENERAL - The Company purchases and markets natural gas, primarily in the
central part of the United States and stores gas in facilities leased from
others. Due to expanded supply and storage capabilities, the Company can now
market to the west coast. The marketing operation has evolved from an
intrastate aggregator into an interstate aggregator. Of the Company's
consolidated revenues, revenues from the Marketing segment represent
approximately 41.9, 41.0 and 39.6 percent for 1999, 1998, and 1997,
respectively. Operating income from the Marketing segment is 11.8, 6.5, and 6.3
percent of the consolidated operating income for 1999, 1998, and 1997,
respectively.
MARKET CONDITIONS - In response to a very competitive baseload marketing
environment, the Company's strategy is to concentrate its efforts toward
capitalizing on day-to-day pricing volatility through the use of gas storage
facilities leased from others, hedging, and transportation arbitraging.
Management believes that its location in the heart of the natural gas producing
area of the United States as well as the benefits derived from vertically
integrating the gas marketing operations with the Company's production,
gathering, processing, storage, and transportation businesses, will provide the
strategic advantage necessary to compete successfully.
NEW PRODUCTS AND SERVICES - The Company has received approval from its Board of
Directors for construction of a 300 megawatt electric power plant expected to
be in service in June, 2001. In 1998, the Company was granted a rate schedule
by the FERC to trade electricity at market-based wholesale rates. This has
begun on a limited scale in preparation for the plant start-up in 2001.
In 1997, the marketing operation was the successful bidder to provide firm and
interruptible gas service to four natural gas-fired electric generating plants
owned by Public Service Company of Oklahoma.
PRICE RISK MANAGEMENT - In order to mitigate the financial risks arising from
fluctuations in both the market price and transportation costs of natural gas,
the Company routinely enters into natural gas futures, swaps, and options as a
method of protecting its margins on the underlying physical transactions.
However, while not material, net open positions in terms of price, volume, and
specified delivery point do occur.
(D) GATHERING AND PROCESSING
GENERAL - The Company owns and operates nine gas processing plants and has
nonoperating interests in three gas processing plants in Oklahoma and New
Mexico. The Company also owns the related gathering systems connected to these
plants. The gas processing operation includes the extraction of natural gas
liquids (NGLs) and the separation (fractionation) of mixed NGLs into component
products (ethane, propane, iso butane, normal butane and natural gasoline). The
component products are used for petrochemical feedstock, residential heating
and cooking, and blending into motor fuels. The gathering operation consists of
the pipeline system laid to producing wells as well as compression and
dehydration services. The Company has compensated its gas suppliers for fuel
and shrinkage costs in one of two ways, either by returning a percentage of the
proceeds from the extracted NGL's to the supplier (a "percent of proceeds"
contract) or by replacing an equivalent amount of gas (a "fuel and shrink"
contract). Due to the volatility of the natural gas and NGL prices, "percent of
proceeds" contracts generally provide a more stable cash flow.
Of the Company's consolidated revenues, revenues from the Gathering and
Processing segment represent approximately 3.9, 3.5 and 6.3 percent for 1999,
1998, and 1997, respectively. Operating income from the Gathering
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<PAGE> 12
and Processing segment is 7.5, 8.2, and 10.1 percent of the consolidated
operating income for 1999, 1998, and 1997, respectively.
PROPERTY ACQUISITIONS - On April 30, 1999, the Company acquired the midstream
natural gas gathering and processing assets from Koch Midstream Enterprises for
$285 million. These assets included eight gas processing plants and
approximately 3,250 miles of gathering pipeline connected to 1,460 gas wells
located in Oklahoma. Capacity of the gas processing plants is 515 million cubic
feet per day bringing total capacity to 900 million cubic feet per day. The
Company's share of the capacity is 650 million cubic feet per day. Through the
Western transaction in 1998, the Company acquired an additional 34 percent
interest in the Indian Basin gas processing plant. An eight percent interest in
the Indian Basin plant had been acquired in fiscal 1997.
RISK MANAGEMENT - Derivative instruments are used to minimize volatility in
NGLs and natural gas prices.
(E) PRODUCTION
GENERAL - The Company's strategy is to concentrate ownership of natural gas and
oil reserves in its service territory in order to add value not only to its
existing production operations but also to integrate it into its processing,
marketing, transmission, gathering, and storage business. As a result, the
Company is focusing its efforts on acquisitions and exploitation activities.
Of the Company's consolidated revenues, revenues from the Production segment
represent approximately 2.5, 1.7 and 2.3 percent for 1999, 1998, and 1997,
respectively. Operating income from the Production segment is 7.3, 5.7, and 6.5
percent of the consolidated operating income for 1999, 1998, and 1997,
respectively.
PRODUCING RESERVES - Natural gas is the primary focus of the Company's
production activities. As of August 31, 1999, the Company had a working
interest in 1,860 gas wells and 299 oil wells located primarily in Oklahoma,
Kansas and Texas. A number of these wells produce from multiple zones.
MARKET CONDITIONS - The goal of the Company is to develop an economically
viable reserve base through acquisition and development. The Company is an
operator of the reserve base, which it controls. In doing so, the Company
competes with many large integrated oil and gas companies and numerous
independent oil and gas companies of various size. The Company, following
industry standards, monitors well head prices on a daily basis and, on
occasion, has curtailed some of its natural gas production due to low well head
prices. Most production is sold to third party marketers, including OGMC, at
spot-market prices.
PROPERTY ACQUISITIONS - During the second quarter of fiscal 1999, the Company
consummated a strategic alliance with Magnum Hunter Resources, Inc. (Magnum)
adding $10 million in producing properties and becoming a 31 percent equity
owner in Magnum at a cost of $50 million. The Company also closed on two other
acquisitions with a purchase price of $53 million adding reserves located in
Oklahoma.
Property acquisitions in fiscal 1998 included gas and oil reserves located in
Oklahoma and Kansas purchased from OXY USA, Inc. Other fiscal 1998 acquisitions
included a 40 percent equity interest in K. Stewart Petroleum Corp., an
Oklahoma City based independent oil and gas producer and Washita Production
Company (Washita), a Tulsa based independent oil and gas producer. During
fiscal 1997, the Company purchased PSEC, Inc., an independent oil and gas
company in Oklahoma.
These acquisitions contribute to the Company's long-term strategy of focusing
on natural gas reserves in Oklahoma and Kansas to add value to all of the
Company's gas-related operations.
RISK MANAGEMENT - The Company's production segment continues to utilize
derivatives in order to hedge anticipated sales of oil and natural gas
production. These anticipated transactions have been hedged with commodity
swaps agreements whereby the Company is able to set the price to be received
for the future production and thus
12
<PAGE> 13
reduce the risk of declining market prices between the origination date of the
swap and the month of production. The Company's strategy in hedging anticipated
transactions is to eliminate the variability in earnings of its production
segment as a result of market fluctuations. To the extent that management does
not terminate a hedge or enter into an opposing derivative, the current
strategy will limit the potential gains which could result from increases in
market prices above the level set by the hedge.
(F) OTHER
The Company, through two subsidiaries, owns a parking garage and leases an
office building (ONEOK Plaza) in downtown Tulsa, Oklahoma, in which the
Company's headquarters are located. The parking garage is owned and operated by
ONEOK Parking Company. ONEOK Leasing Company leases excess office space to
others. Almost all downtown Tulsa Class A office space is rented and very
little Class A office space is available city-wide. As a result, Class A rental
rates are increasing.
ITEM 2. PROPERTIES
(A) DESCRIPTION OF PROPERTY
DISTRIBUTION
The Company owned 15,152 miles of pipeline and other distribution facilities in
Oklahoma and 10,184 miles of pipeline and other distribution facilities in
Kansas at August 31, 1999. The Company owns a five-story office building in
Oklahoma City, Oklahoma, as well as a number of warehouses, garages, meter and
regulator houses, service buildings, and other buildings throughout Oklahoma
and Kansas. The Company also owns a fleet of vehicles used primarily in
Oklahoma and maintains an inventory of spare parts, equipment, and supplies. It
leases approximately 50 percent of its vehicles operated in Kansas.
TRANSMISSION AND STORAGE
The Company owned a combined total of 3,787 miles of transmission and gathering
pipeline in Oklahoma and 1,668 miles in Kansas at August 31, 1999. Compression
and dehydration facilities are located at various points throughout the
pipeline system. In addition, the Company owns five underground storage
facilities located throughout Oklahoma and two storage facilities in Kansas.
Four of the Oklahoma storage facilities are located in close proximity to its
large market areas; the other storage facility is located in western Oklahoma
and is leased to and operated by another company. However, 21.4 billion cubic
feet of storage capacity in that facility has been retained for use by the
Company.
GATHERING AND PROCESSING
The Company owns and operates nine gas processing plants in Oklahoma and has
operating interests in three gas processing plants and related gathering
systems in Oklahoma and New Mexico. The total capacity of the plants the
Company has an interest ownership in is 900 million cubic feet per day. The
Company's share of the capacity is 650 million cubic feet per day. The Company
owns approximately 3,250 miles of gathering pipeline in Oklahoma.
PRODUCTION
The Company owns varying economic interests, including working, royalty and
overriding royalty interests, in 2,010 gas wells and 315 oil wells, some of
which are multiple completions. Such interests are in wells located primarily
in Oklahoma, Kansas, and Texas. The Company owns 184,754 net onshore developed
leasehold acres and 41,466 net onshore undeveloped acres, located primarily in
Oklahoma, Kansas, and Texas. The Company owns no offshore acreage.
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<PAGE> 14
Lease acreage in producing units is held by production. Leases not held by
production are generally for a term of three years and may require payment of
annual rentals.
OTHER
The Company owns a parking garage and land, subject to a long-term ground lease
expiring in year 2039 with six five-year extensions available, upon which has
been constructed a seventeen-story office building with approximately 517,000
square feet of net rentable space. The office building is being leased to the
Company at a lease term of 25 years with six five-year renewal options. After
the primary term or any renewal period, the Company can purchase the property
at its fair market value. The Company occupies approximately 194,000 square
feet for its own use and leases the remaining space to others.
(B) OTHER INFORMATION
Oil and gas production is defined by the Securities and Exchange Commission
(SEC) to include natural gas liquids in their natural state. The Company's
processing operation produces natural gas liquids. The SEC excludes the
production of natural gas liquids resulting from the operations of gas
processing plants as an oil and gas activity. Accordingly, the following tables
exclude information concerning the production of natural gas liquids by the
Company's processing operations.
OIL AND GAS RESERVES
All of the oil and gas reserves are located in the United States.
QUANTITIES OF OIL AND GAS RESERVES - See Note Q of Notes to Consolidated
Financial Statements.
PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES - See Note R of Notes to
Consolidated Financial Statements.
RESERVE ESTIMATES FILED WITH OTHERS
None.
QUANTITIES OF OIL AND GAS PRODUCED
The net quantities of oil and natural gas produced and sold, including
intercompany transactions, were as follows:
<TABLE>
<CAPTION>
Sales 1999 1998 1997
- ----- ------ ------ ------
<S> <C> <C> <C>
Oil (MBbls) 460 330 336
Gas (MMcf) 27,773 16,818 14,565
</TABLE>
AVERAGE SALES PRICE AND PRODUCTION (LIFTING) COSTS
Average sales prices and production costs are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Average Sales Price (a)
Per Bbl of oil $ 13.56 $ 15.70 $ 19.84
Per Mcf of gas $ 2.12 $ 2.21 $ 2.16
Average Production Costs
Per Mcfe (b) $ 0.49 $ 0.50 $ 0.48
</TABLE>
(a) 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.
(b) For the purpose of calculating the average production costs per Mcf
equivalent, barrels of oil were converted to Mcf using six Mcfs of natural gas
to one barrel of oil. Production costs do not include depreciation or
depletion.
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<PAGE> 15
WELLS AND DEVELOPED ACREAGE
The table shows gross and net wells in which the Company has a working interest
at August 31, 1999.
<TABLE>
<CAPTION>
Gas Oil
----- -----
<S> <C> <C>
Gross wells 1,860 299
Net wells 542 140
</TABLE>
Gross developed acres and net developed acres by well classification are not
available. Net developed acres for both oil and gas is 184,754 acres.
UNDEVELOPED ACREAGE
The gross and net undeveloped leasehold acreage at the end of the fiscal year
is as follows:
<TABLE>
<CAPTION>
Gross Net
--------- -------
<S> <C> <C>
Alabama 26 5
Colorado 5,748 1,050
Indiana 703 50
Kansas 7,457 4,987
Mississippi 2 1
Oklahoma 358,535 33,290
Texas 51,977 2,085
</TABLE>
Of the net undeveloped acres, approximately 35.3 percent lies in the Anadarko
Basin area, 12.9 percent in the Arkoma Basin area and 4.3 percent in the
Ardmore Basin area of Oklahoma. The balance is located in major producing areas
in other states including Kansas, Texas and Colorado.
NET DEVELOPMENT WELLS DRILLED
The net interest in total development wells drilled, by well classification, is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
DEVELOPMENT
Productive 22.5 14.0 3.8
Dry 1.4 0.6 1.5
------ ------ -----
Total 23.9 14.6 5.3
====== ====== =====
</TABLE>
PRESENT DRILLING ACTIVITIES
On August 31, 1999, the Company was participating in the drilling of 20 wells.
The Company's net interest in these wells amounts to 6.4 wells.
FUTURE OBLIGATIONS TO PROVIDE OIL AND GAS
None.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
UNITED STATES EX REL. JACK J. GRYNBERG V. ONEOK, INC., ONEOK RESOURCES COMPANY,
AND OKLAHOMA NATURAL GAS COMPANY, (CTN-8), No. CIV-97-1006-R (Judge Russell),
in the United States District Court for the Western District of Oklahoma. The
complaint asserts claims to recover alleged underpayments of royalties to the
United States as a result of improper measurement of heating contents and
volumes of natural gas which was purchased from federally owned or Indian lands
by ONEOK, Inc., ONEOK Resources Company, and Oklahoma Natural Gas Company
(collectively the "Company"). This case is what is known as a qui tam action
which was brought by the plaintiff relator on behalf of the United States and
himself. The complaint asserts essentially the same claims that the same
plaintiff relator, Jack J. Grynberg ("Grynberg"), asserted in a previous action
(United States et rel. Jack J. Grynberg v. Alaska Pipeline Company, et al., No.
95-725-TFH, in the United States District Court for the District of Columbia)
against the Company and approximately sixty-five other pipeline companies. In
the case, on behalf of the United States, Grynberg seeks to receive the
proceeds for the underpayment of royalties, interest, treble damages, civil
penalties and $5,000 to $10,000 for each violation of the Act. Grynberg also
seeks to receive his expenses incurred in bringing the action, plus attorney
fees and costs. This case is one of 77 similar cases filed by Grynberg. Many of
the allegations in the complaint are virtually identical in all 77 cases. In
addition, Grynberg has asserted claims for underpayment of royalties based upon
generalized allegations of use of a portable chromatograph, affiliate
transactions, use of storage facilities to purchase gas in summer months, and
improper deduction of costs. On or about May 6, 1999, Grynberg filed a motion
with the Judicial Panel on Multidistrict Litigation asking that all 68 actions
currently pending in 8 different federal district courts be transferred and
consolidated for pretrial proceedings before a single district court in either
Colorado or Wyoming. The Judicial Panel accepted the filing. A notice of
appearance was filed with the Judicial Panel on behalf of the Company. The
Company joined with the majority of the other defendants in filing a joint
recommendation to the Panel and the defendants' brief in response to Grynberg's
motion to transfer in which it was argued that if the cases are to be
consolidated for pretrial proceedings before a single district court, it should
be transferred to the United States District Court for the District of Wyoming.
An order was obtained on July 9, 1999, staying the proceedings in the Western
District of Oklahoma until thirty days after the Judicial Panel for
Multidistrict Litigation ruled on Grynberg's motion to transfer and for
consolidation. A hearing on the motion to transfer was held on September 24,
1999 and the motion was subsequently approved transferring all the cases to the
federal district court in Wyoming for pretrial proceedings under multi-
district litigations procedures.
ONEOK, INC. V. SOUTHERN UNION COMPANY, No. 99-CV-0345-H(M), United States
District Court for the Northern District of Oklahoma, on appeal of preliminary
injunction, United States Court of Appeals for the Tenth Circuit, Case Number
99-5103. On May 5, 1999, the Company filed a complaint against Southern Union
Company ("Southern Union") for breaching the February 21, 1999 confidentiality
and standstill agreement between Southern Union and Southwest Gas Corporation
("Southwest"). The Company is a third party beneficiary. ONEOK also sought to
enjoin Southern Union from breaching the confidentiality and standstill
agreement and from taking any other wrongful actions to disrupt the proposed
merger of the Company with Southwest. On May 11, 1999, the District Court
granted a temporary restraining order enjoining Southern Union from any future
violation of its confidentiality and standstill agreement with Southwest,
including soliciting proxies from Southwest shareholders. On May 17, 1999, the
temporary restraining order became a preliminary injunction by stipulation of
the parties and was appealed to the Tenth Circuit Court of Appeals. The Tenth
Circuit received Southern Union's filing on May 18, 1999 and issued an order
staying the injunction for the sole purpose of permitting Southern Union the
opportunity to oppose Southwest's motion to transfer a related California
lawsuit to the Northern District of Oklahoma and to file a motion to remand the
same California lawsuit to the San Diego Superior Court. Southern Union
subsequently filed supplements to its motion for stay seeking the opportunity
to participate in ongoing administrative proceedings before state public
utility commissions, including proceedings in Arizona, California and Nevada.
On June 10, 1999, the Tenth Circuit Court of Appeals denied Southern Union's
request for a stay of the District Court's injunction insofar as it pertains to
state public utility commission proceedings. On June 9, 1999, Southern Union
filed a motion with the Northern District of Oklahoma to dismiss the lawsuit on
the grounds of lack of personal jurisdiction and improper venue and a motion to
transfer the Oklahoma action to the District of Nevada (where Southwest is
asserting claims against Southern Union similar to those being asserted against
Southern Union by the Company), or alternatively to stay the Oklahoma
16
<PAGE> 17
action pending the final disposition of the Nevada action. On July 19, 1999,
the defendant, Southern Union, filed with the District Court a motion to vacate
preliminary injunction and to suspend preliminary injunction based on newly
discovered evidence alleged by the defendant to show a conspiracy between the
plaintiff, ONEOK, and Southwest to corrupt the regulatory process so as to
influence the Southwest Board of Directors to approve ONEOK's proposed merger
and reject Southern Union's offer to acquire Southwest. A hearing on the issue
of jurisdiction of the District Court to hear the motion to vacate while the
order was pending on appeal to the Court of Appeals for the Tenth Circuit was
held on July 23, 1999. By order dated July 23, 1999, the District Court
determined that it lacked jurisdiction to modify the preliminary injunction as
requested by the defendant, and the motion was denied. On August 2, 1999, ONEOK
filed an amended complaint with the District Court and a motion for a contempt
citation. The amended complaint added a claim for abuse of process stating that
Southern Union's actions in filing the Arizona compliant (see Southern Union
case below) were conducted with malice and intention to oppress ONEOK and as a
result of such intentional wrongful conduct, Southern Union is liable for
exemplary damages as a means of punishment and deterrence. The motion alleges
that despite the preliminary injunction issued by the District Court against
Southern Union, Southern Union and persons acting in concert with Southern
Union have continued efforts to derail the ONEOK-Southwest merger at a critical
time in the shareholder and regulatory process. On August 3, 1999, ONEOK filed
a request for immediate hearing on its application for contempt citation and
for an order specifically enjoining Southern Union and persons acting in
concert from proceeding with the motion for temporary restraining order and
preliminary injunction before the Arizona Court. A status hearing was held on
August 11, 1999. On August 25, 1999, the Court denied Southern Union's motion
to dismiss for lack of personal jurisdiction and motion to transfer to the
District of Nevada. Southern Union was required to and did file its answer to
the complaint on September 7, 1999, withdrawing its specific allegations of
wrongdoing in its initial filing. In addition, Southern Union filed
counterclaims against ONEOK for: (1) a declaratory judgment for fraud in the
inducement and breach of the Letter Agreement; (2) a declaratory judgment for
revocation of the Letter Agreement; (3) breach of the Letter Agreement and a
declaratory judgment as to its non-enforceability; and (4) breach of the
covenant of good faith and fair dealing. Southern Union seeks to recover
damages in excess of $75,000. On August 26, 1999, ONEOK filed a motion for an
emergency hearing regarding the preliminary injunction. On August 30, 1999, the
Court held a hearing and took the matter under advisement. On August 31, 1999,
the Court issued an order requiring Southern Union to file documents with the
Court concerning its communications with the Arizona Corporation Commission.
ONEOK has filed additional briefs supporting its motion. Southern Union filed
additional briefs with the Tenth Circuit seeking a stay of the preliminary
injunction based upon events in the other pending actions, including the
subsequent remand of the Klein case. On August 23, 1999, the Tenth Circuit
denied Southern Union's motion for a stay of the preliminary injunction which
should leave it in place until final determination of the appeal. All briefs
have been filed by the parties on the appeal as of September 1, 1999, and the
appeal is awaiting decision by the Tenth Circuit. On October 12, 1999, ONEOK
filed a motion to dismiss the counterclaims asserted by Southern Union in the
District Court. On October 15, 1999, the District Court denied ONEOK's motion
to file an amended complaint. On October 27, 1999 ONEOK filed a motion to
reconsider which was denied November 4, 1999. On November 4, as a result of
ONEOK's motion to dismiss, Southern Union filed an amended answer and
counterclaims.
In a related matter, on December 15, 1998, the case of KLEIN V. SOUTHWEST GAS
CORPORATION, Superior Court of San Diego County, California, Case No. 726615,
was filed as a class action against Southwest and its directors. The amended
complaint alleges breach of fiduciary duty, duty of loyalty, due care, candor,
good faith and fair dealing seeking to enjoin the merger between the Company
and Southwest, a rescission of the merger agreement, the implementation of an
auction or similar process for sale of Southwest and the voiding of the $30
million termination fee under the merger agreement. On May 4, 1999, Southern
Union intervened seeking a decision that it was entitled to solicit Southwest's
shareholders concerning approval of its proposed merger, rescission of a
portion of the confidentiality and standstill agreement and a temporary
restraining order and preliminary injunction to prevent Southwest from
conducting a proxy solicitation in support of the merger during the pendency of
the litigation. The case was removed to the United States District Court for
the Southern District of California (Case No. 99-1004- IEG(CGA)). Southwest
filed motions to dismiss the shareholder and Southern Union cases or
alternatively to transfer the case to the Northern District of Oklahoma. The
Shareholders' motions were heard on September 7, 1999 and August 23, 1999,
respectively. Southern Union also filed a motion to remand. On June 9, 1999,
Southwest signed a Memorandum of Understanding with shareholders' plaintiff
counsel to settle the case with all plaintiffs except
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<PAGE> 18
Southern Union. The Memorandum of Understanding sets forth the parties'
agreement in principle settling all shareholders' claims and is subject to
several conditions, including consummation of the merger and entry of final
judgment of dismissal with prejudice that is binding on all shareholders from
December 11, 1998 through the date that the shareholders approve the merger. On
June 25, 1999, the Klein plaintiffs filed a third amended complaint and
withdrew the motion to remand the case back to state court. On the same day,
Southwest withdrew its motion to dismiss the Klein plaintiffs' claims and
motion to transfer the case to Oklahoma as to the Klein plaintiffs. On August
3, 1999, the United States District Court remanded the case back to state
court. Southern Union immediately filed a motion for a temporary restraining
order seeking to delay the Southwest shareholders' meeting scheduled for August
10, 1999. A hearing was held on the motion on August 5, 1999 at which time the
court denied the motion for a temporary restraining order. On September 3,
1999, the Court granted Southwest's motion to stay pending resolution of the
federal court actions in Nevada and Arizona. On September 13, 1999, Southern
Union requested an ex parte hearing on the order granting stay which was
denied. However, the Court did allow Southern Union to file a 5-page brief on
its request which appears to be a motion to reconsider the stay. Southwest was
allowed and filed a response brief on September 22, 1999. On September 24,
1999, the Court dismissed the Southern Union action and stated that Southern
Union could not refile until the federal court actions are complete.
SOUTHERN UNION COMPANY V. SOUTHWEST GAS CORPORATION, et al., No. CIV 99 1294 PHX
ROS, United States District Court for the District of Arizona. On July 19, 1999,
the plaintiff, Southern Union Gas Company ("Southern Union"), filed its
complaint against Southwest Gas Corporation ("Southwest"), ONEOK, Inc.
("ONEOK"), Michael O. Maffie, Thomas Y. Hartley and Thomas R. Sheets (jointly
"Southwest Individual Defendants") and Eugene N. Dubay and John A. Gaberino, Jr.
(jointly "ONEOK Individual Defendants"), James M. Irvin ("Irvin") and Jack D.
Rose ("Rose"). Southern Union alleges (1) that the action arises out of a fraud
and racketeering scheme by Southwest and ONEOK and the individual defendants to
block Southwest's shareholders from voting for Southern Union's offer to acquire
Southwest and ensure that only ONEOK's offer would be approved, (2) the
defendants entered into a secret campaign of deception, corruption and
misrepresentation with members of regulatory commissions in order to influence
their vote on the Southern Union proposal to acquire Southwest and to mislead
the board and shareholders of Southwest to believe falsely that such an
acquisition would face greater regulatory hurdles than the proposed
Southwest-ONEOK merger, (3) Southwest and Southwest Individual Defendants
fraudulently induced Southern Union to enter into a Confidentiality and
Standstill Agreement (the "Agreement") with Southwest, and (4) that corruption
and fraud were necessary to defeat the Southern Union offer. The complaint
alleges numerous causes of action including (1) racketeering in violation of 18
U.S.C. Section 1962(c) and 1962(d), unlawful activity in violation of Arizona
Criminal Code through a pattern of unlawful activities predicated on acts of
extortion and a scheme or artifice to defraud against all defendants and
conspiracy, (2) fraud in the inducement, breach of contracts, violation of the
Securities Exchange Act of 1934, breach of covenant of good faith and fair
dealing and rescission of the Agreement against Southwest, and (3) intentional
interference with a business relationship and tortious interference of a
contractual relationship against ONEOK, the ONEOK Individual Defendants, the
Southwest Individual Defendants, Rose and Irvin. The complaint asks for the
award of an amount of not less than $750,000,000 to be trebled for racketeering
and unlawful violations (with attorneys' fees and investigators' fees);
compensatory damages of not less than $750,000,000 for fraud in the inducement,
breach of contract, breach of covenant of good faith and fair dealings,
intentional interference with a business relationship, tortious interference
with contractual relationship and civil conspiracy (with interest and costs);
rescission of the Agreement (with costs), punitive damages, injunctive relief
under the Securities Act of 1934 and any further relief the court deems just and
proper. On August 2, 1999, Southern Union filed a motion with the district court
for a temporary restraining order and preliminary injunction requesting, among
other things, that ONEOK and Southwest be enjoined from participating in any
regulatory approval procedures before the Arizona Corporation Commission or the
California Public Utility Commission regarding approval of the pending
ONEOK-Southwest Merger and from otherwise proceeding with or consummating the
proposed merger. The motion was later modified to limit the request to the
regulatory matters. A hearing was held on the motion on August 5, 1999 at which
time the judge denied the motion for a temporary restraining order. On August
27, 1999, motions to dismiss the complaint for failure to state a cause of
action were filed on behalf of ONEOK and the other defendants who had been
served. Thomas R. Sheets with Southwest had previously been dismissed from the
action. Rather than respond to the motion, on October 12, 1999, Southern Union
filed an
18
<PAGE> 19
amended complaint asserting the same claims as the earlier complaint. Larry
Brummett and James C. Kneale were added as additional defendants. The Company
has filed a new motion to dismiss.
SOUTHWEST GAS CORPORATION MERGER. There are proceedings in process before the
Arizona Corporation Commission, Public Utility Commission of California and the
Public Utility Commission of Nevada requesting authorization to implement the
Agreement and Plan of Merger, dated December 14, 1998, as amended. On July 1,
1999, the Public Utility Commission of Nevada issued an order approving the
merger transaction. On July 30, 1000, a settlement conference was held and a
settlement document filed in the merger approval proceeding before the Public
Utility Commission of California. No comments were received during the 30-day
comment period. The Company anticipates the California settlement will be
considered for approval by year end. The Arizona Corporation Commission ("ACC")
issued a procedural schedule on October 22, 1999 setting the application for
merger approval for hearing on February 11, 2000. ONEOK, Southwest, the ACC
staff and Arizona's consumer advocate have filed a stipulation and agreement
recommending that the transaction be approved.
JOINT APPLICATION OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK, INC.,
ONEOK GAS TRANSPORTATION COMPANY, A DIVISION OF ONEOK, INC., AND KANSAS GAS
SERVICE COMPANY, A DIVISION OF ONEOK, INC., FOR APPROVAL OF THEIR UNBUNDLING
PLAN FOR NATURAL GAS SERVICES UPSTREAM OF THE CITY GATES OR AGGREGATION POINTS,
Cause PUD No. 980000177, before the Oklahoma Corporation Commission. On April
1, 1998, the Divisions filed a joint application to unbundle natural gas
services upstream of the city gate. The following parties were granted
intervention: Attorney General, Enogex, Inc., Public Service Company of
Oklahoma, Transok, LLC, Williams Gas Pipelines Central, Inc., American Central
Energy, LLC, Conoco, Inc., Oklahoma Industrial Energy Consumers, Williams
Energy Services Company. A hearing was held on the merits before a Special
Referee beginning July 6, 1998 and continuing through July 16, 1998. An Order
was entered by the Commission on July 31, 1998. On August 6, 1998, a
petition-in-error was filed with the Oklahoma Supreme Court appealing the order
of the Commission. The Commission filed a motion to dismiss with the Oklahoma
Supreme Court on August 17, 1998. The Commission issued an amended order on
August 19, 1998, which the Company alleges is invalid due to the pending
appeal. On September 1, 1998, the Company filed a response to the motion to
dismiss of the Commission. On September 8, 1998, the Company filed a
petition-in-error with the Oklahoma Supreme Court appealing the amended order.
On October 5, 1998, the Oklahoma Supreme Court determined that the interim
order was an appealable order and denied the motions to dismiss the appeal. In
respect to the amended interim order, on October 22, 1998, the Oklahoma Supreme
Court issued an order direction that the motion to dismiss the appeal filed by
the Commission be withdrawn as moot and that the Company's motion to dismiss
the petition was held in abeyance until the decision stage of the appeal. The
Company filed its brief on April 19, 1999. On June 4, 1999, the Company and the
Oklahoma Corporation Commission filed a joint motion in the Oklahoma Supreme
Court to stay further appellate proceedings and for leave to proceed before the
Commission. A joint stipulation was entered into and approved by the Oklahoma
Corporation Commission. The joint stipulation established a process pursuant to
which hearings would be conducted to identify the distribution, transmission,
storage and gathering assets of ONEOK and to deregulate gathering and storage
services if the Commission determines that competition exists for such
services. The joint stipulation provides that the Company will dismiss its
appeal upon the satisfaction of certain conditions. In light of the joint
stipulation, the Company and the Commission Staff requested that the Supreme
Court stay further appellate proceedings and allow the parties to proceed
before the Commission. A stay was granted until August 31, 1999. On September
8, 1999, the Supreme Court granted a motion to further extend the stay until
October 15, 1999, to allow the parties to work toward a resolution of the
issues. On October 21, 1999, the Supreme Court granted a stay for an additional
20 days. As settlement had not been reached by the parties, the Company filed a
motion to extend the stay until conclusion of the Commission proceeding. On
November 2, 1999, the Supreme Court directed the parties to respond to its
motion by November 17, 1999. Also on November 5, 1999, the commission staff
filed a response to the motion and a motion to dismiss the appeal as moot.
APPLICATION OF ERNEST G. JOHNSON, DIRECTOR OF THE PUBLIC UTILITY DIVISION,
OKLAHOMA CORPORATION COMMISSION, TO REVIEW THE RATES, CHARGES, SERVICES AND
SERVICE TERMS OF OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK, INC., AND
ALL AFFILIATED COMPANIES AND ANY AFFILIATE OR NONAFFILIATE TRANSACTION RELEVANT
TO SUCH INQUIRY, Cause PUD No. 980000683, Oklahoma Corporation Commission. On
December 18, 1998, the Director of
19
<PAGE> 20
the Commission's Public Utility Division filed an application on behalf of the
Commission Staff to initiate a proceeding to review Oklahoma Natural's rates,
charges, and services and any relevant affiliate and non-affiliate
transactions, and to establish rates upon completion of such review. On May 13,
1999, the Company and the Commission Staff entered into a joint stipulation,
which was orally approved by the Commission on May 26, 1999. Pursuant to the
joint stipulation, the rates to customers of Oklahoma Natural Gas Company and
Kansas Gas Service Company would be reduced by $5 million, which would be in
lieu of the interim hearing. The joint stipulation also set up a process for
the resolution of other issues presented in this case and Oklahoma Natural Gas
Company's rate case (Cause PUD No. 990000166), which is consolidated with this
case, including whether utility rate regulation for gathering and storage
services should be discontinued if competition is determined to exist. Oklahoma
Natural Gas Company will competitively bid for gas supply for the 1999-2000
heating season, and will competitively bid for upstream transportation services
this fall, with service to commence November 1, 2000. On June 16, 1999,
however, the joint stipulation was rejected by the Commission. On July 1, 1999,
the Company filed a motion to approve a new joint stipulation. The principal
difference between the new stipulation and the prior joint stipulation is that
the $5 million interim rate reduction would be credited to residential
customers only on the September, 1999 billing. The stipulation was signed by
the other parties to the proceeding except the Attorney General of the State of
Oklahoma. The Corporation Commission issued an order approving the stipulation
on July 9, 1999. The Attorney General filed for a writ of prohibition from the
Oklahoma Supreme Court. On July 12, 1999, the Oklahoma Supreme Court denied the
Attorney General's emergency motion to stay the Commission hearings pertaining
to deregulation of the Company's gathering and storage assets. The hearings
proceeded and the Commission issued an order on July 15, 1999, deregulating the
gathering and storage assets effective November 1, 1999. Hearings were held on
August 24 and 25, 1999, pursuant to the stipulation to identify and designate
the Company's distribution and transmission assets. Subsequent to the hearing,
a distribution and transmission stipulation was executed by Oklahoma Natural
Gas Company, ONEOK Gas Transportation, L.L.C., Enogex, Transok and the Attorney
General which designated assets as either upstream transmission assets or
downstream distribution assets and addressed competitive bidding. The
stipulation was approved unanimously by the Commission and an order issued
August 30, 1999. On September 20, 1999, Oklahoma Natural Gas filed updated
financial information and requested a $33.6 million rate increase.
20
<PAGE> 21
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
(A) MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of the Company's security holders, through the
solicitation of proxies or otherwise.
(B) EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers are elected at the annual meeting of directors and serve
for a period of one year or until their successors are duly elected.
<TABLE>
<CAPTION>
NAME AND POSITION AGE BUSINESS EXPERIENCE IN PAST FIVE YEARS
- ----------------- ----- --------------------------------------
<S> <C> <C>
LARRY W. BRUMMETT 49 1997 to present Chairman of the Board of Directors and Chief Executive Officer
Chairman of the Board 1994 to 1997 Chairman of the Board of Directors, President, and Chief Executive
and Chief Executive Officer Officer
- ------------------------------------------------------------------------------------------------------------------------------
DAVID L. KYLE 47 1997 to present President and Chief Operating Officer
President of ONEOK 1995 to present Member of the Board of Directors
and Chief Operating Officer 1994 to 1997 President and Chief Operating Officer of Oklahoma Natural Gas Company
- ------------------------------------------------------------------------------------------------------------------------------
JOHN A. GABERINO, JR. 58 1998 to present Senior Vice President and General Council
Senior Vice President 1994 to 1998 Stockholder, Officer and Director of Gable Gotwals Mock Schwabe Kihle
and General Council Gaberino and predecessor firms
- ------------------------------------------------------------------------------------------------------------------------------
JAMES C. KNEALE 48 1999 to present Vice President, Treasurer, and Chief Financial Officer (Principal
Vice President, Treasurer, Financial and Accounting Officer)
and Chief Financial Officer 1997 to 1999 President and Chief Operating Officer of Oklahoma Natural Gas Company
(Principal Financial and 1996 to 1997 Vice President of ONEOK Resources Company
Accounting Officer) 1995 to 1996 Vice President - Tulsa District of Oklahoma Natural Gas Company
1994 to 1995 Vice President - Accounting of Oklahoma Natural Gas Company
- ------------------------------------------------------------------------------------------------------------------------------
BARRY D. EPPERSON 54 1997 to present Vice President, Controller, and Chief Accounting Officer
Vice President, Controller, 1994 to 1997 Vice President - Accounting of Oklahoma Natural Gas Company
and Chief Accounting Officer
- ------------------------------------------------------------------------------------------------------------------------------
EUGENE N. DUBAY 50 1997 to present President and Chief Operating Officer of Kansas Gas Service Company
President and Chief Operating 1996 to 1997 Vice President of Corporate Development
Officer of Kansas Gas Service 1994 to 1995 Executive Vice President and Chief Operating Officer of Missouri Gas
Company Energy
- ------------------------------------------------------------------------------------------------------------------------------
EDMUND J. FARRELL 56 1999 to present President and Chief Operating Officer of Oklahoma Natural Gas Company
President and Chief Operating 1997 to 1999 Vice President of ONEOK Gas Marketing Company
Officer of Oklahoma Natural Gas 1996 to 1997 Vice President - Customer Services of Oklahoma Natural Gas Company
Company 1995 to 1996 Vice President - Corporate Communications and Strategic Planning
1994 to 1995 President of Oklahoma Alliance for Manufacturing Excellence, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
PART II.
ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
(A) MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange under the
trading symbol OKE. The corporate name ONEOK is used in newspaper stock
listings. The high and low market prices of the Company's common stock for each
fiscal quarter during the last two fiscal years were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
HIGH LOW High Low
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
First Quarter $37 15/16 $ 29 15/16 $ 37 5/8 $31 3/16
Second Quarter $37 3/16 $ 26 $ 40 11/16 $33 3/8
Third Quarter $30 1/2 $ 24 1/2 $ 44 1/4 $34 5/8
Fourth Quarter $33 1/8 $ 29 3/16 $ 40 15/16 $29 3/4
</TABLE>
(B) HOLDERS
There were 11,485 holders of the Company's common stock at August 31, 1999.
(C) DIVIDENDS
Quarterly dividends declared on the Company's common stock during the last two
fiscal years were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
First Quarter $0.31 $ 0.30
Second Quarter $0.31 $ 0.30
Third Quarter $0.31 $ 0.30
Fourth Quarter $0.31 $ 0.30
</TABLE>
Debt agreements pursuant to which the Company's outstanding long-term and
short-term debt has been issued limit dividends and other distributions on the
Company's common stock. Under the most restrictive of these provisions, $50.1
million of retained earnings is so restricted. On August 31, 1999, $251.4
million was available for dividends on the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Following are selected financial data for the Company for each of the last five
years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(Millions of Dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 1,842.8 $1,820.8 $1,161.9 $1,218.8 $ 954.2
Operating income $ 219.6 $ 188.8 $ 128.1 $ 115.2 $ 105.2
Net income $ 106.4 $ 101.8 $ 59.3 $ 52.8 $ 42.8
Total assets $ 3,024.9 $2,422.5 $1,237.4 $1,219.9 $1,181.2
Long-term debt $ 837.0 $ 329.3 $ 347.1 $ 351.9 $ 363.9
Diluted earnings per share $ 2.06 $ 2.23 $ 2.13 $ 1.93 $ 1.58
Dividends per common share $ 1.24 $ 1.20 $ 1.20 $ 1.18 $ 1.12
Percent of payout 60.2% 53.8% 56.2% 61.1% 70.9%
Ratio of earnings to fixed charges 4.06X 5.50x 3.51x 3.28x 2.70x
Ratio of earnings to combined fixed charges 1.93X 2.52x 3.48x 3.24x 2.67x
and preferred stock dividend requirements
</TABLE>
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-K (and certain other documents that are incorporated by reference
in this Form 10-K) contains statements concerning Company expectations or
predictions of the future that are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are intended to be covered by the safe harbor provision of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking
statements are based on management's beliefs and assumptions based on
information currently available. It is important to note that actual results
could differ materially from those projected in such forward- looking
statements. Factors that may impact forward-looking statements include, but are
not limited to, the following:
o the effects of weather and other natural phenomena;
o increased competition from other energy suppliers as well as alternative
forms of energy;
o the capital intensive nature of the Company's business;
o economic climate and growth in the geographic areas in which the Company
does business;
o the uncertainty of gas and oil reserve estimates;
o the timing and extent of changes in commodity prices for natural gas,
natural gas liquids, electricity, and crude oil;
o the nature and projected profitability of potential projects and other
investments available to the Company;
o conditions of capital markets and equity markets;
o Year 2000 issues;
o the effects of changes in governmental policies and regulatory actions,
including income taxes, environmental compliance, authorized rates, and
deregulation or "unbundling" of natural gas business;
o the pending merger with Southwest Gas Corporation (Southwest); and
o regulatory delay or conditions imposed by regulatory bodies in, and the
results of litigation involving, the Southwest merger.
Accordingly, while the Company believes these forward-looking statements to be
reasonable, there can be no assurance that they will approximate actual
experience or that the expectations derived from them will be realized. When
used in Company documents, the words "anticipate", "expect", "projection",
"goal", or similar words are intended to identify forward-looking statements.
The Company does not have any intention or obligation to update forward-looking
statements after they distribute this Form 10-K even if new information, future
events or other circumstances have made them incorrect or misleading.
OPERATING ENVIRONMENT AND OUTLOOK
Management believes changes in the natural gas business have and will continue
to significantly affect the manner in which natural gas and related services
are marketed. Through 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. 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 the Company competitively, management determined
that it should seek both to expand its current operations and to become a
provider of energy services not limited to natural gas through acquisitions or
strategic alliances with companies that would enhance and expand its natural
gas distribution, marketing, production, gathering, processing and
transportation business. In a step toward this goal, ONEOK Power Marketing has
begun construction of a $90 million electric generation plant. Gas powered and
located near one of the Company's underground gas storage facilities, the plant
will be designed to provide peaking capacity.
23
<PAGE> 24
The Company continues to take steps to strengthen its competitive edge and
position it to be a leader in the industry. The pending merger of the Company
and Southwest is another of these steps. The merger will create the largest
stand-alone gas distribution company in the United States serving 2.6 million
customers in five states.
The transaction is expected to be completed during 2000, subject to various
conditions including regulatory approvals. Southwest shareholders approved the
agreement on August 10, 1999. The Company and certain of its officers as well
as Southwest have been named as defendants in a lawsuit brought by Southern
Union Company in connection with the proposed acquisition in the total amount
of $750 million. The Southern Union allegations include, but are not limited
to, Racketeer, Influenced and Corrupt Organizations Act violations and improper
interference in a contractual relationship between Southwest and Southern
Union. The Company, as third party beneficiary, has filed a lawsuit against
Southern Union for breach of a confidentiality agreement with Southern Union
and Southwest. The parties are presently involved in discovery. The Company
believes the Southern Union allegations are without merit and is defending
itself vigorously against all claims.
As a result of the acquisition of the gas business of Western Resources, Inc.
(Western) November, 1997, the Company became the eighth largest natural gas
distributor in the country serving approximately 1.4 million customers in two
states.
The Company continues to increase its investment in hydrocarbon reserves in its
service territory, focusing on exploitation activities rather than exploratory
drilling, and has increased its ownership of gathering and processing
facilities in areas where it owns significant natural gas production and
development acreage.
The Company anticipates growth through acquisition opportunities that will add
value to all of the Company's operations. The Company also sells assets from
time to time when deemed less strategic or as other conditions warrant.
OPERATING HIGHLIGHTS
UNBUNDLING - Unbundling has the potential to enhance customer choices, provide
savings to consumers, increase throughput, and allow broader use of the
Company's assets. In January, 1998, the Oklahoma Corporation Commission (OCC)
approved rule-making for the restructuring of Oklahoma's natural gas utility
industry. Under the rules, the Company is required to unbundle its upstream
(transportation) activities. During the fourth quarter of fiscal 1999, the OCC
approved a plan distinguishing between upstream and downstream (distribution)
activities, a plan which laid the groundwork for unbundling of services. Under
a July, 1999, order by the OCC, certain of the Company's gathering and storage
assets will be removed from utility regulation effective November 1, 1999. The
Company has withdrawn its appeal to the Oklahoma Supreme Court related to the
OCC's earlier unbundling order. The Company awarded bids for gas supply in
Oklahoma for the 1999/2000 heating season. On November 1, 1999, the Company
will issue bids for transportation and supply for two to five year terms
beginning with the 2000/2001 heating season.
In Kansas, the Company received approval from the Kansas Corporation Commission
(KCC) in April, 1999 to reduce the minimum requirement for transportation
service to 3,000 Mcf annually from 6,000 Mcf annually allowing more customers
to choose their natural gas supplier. This will allow the Company to expand
transportation services to an additional 650 commercial and industrial
customers. The KCC also approved a proposal that would allow approximately
1,000 schools the opportunity to transport gas supplies.
24
<PAGE> 25
CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars)
FINANCIAL RESULTS
<S> <C> <C> <C>
Operating revenues $ 1,842,810 $ 1,820,758 $ 1,161,927
Cost of gas 1,156,024 1,220,009 725,960
----------- ----------- -----------
Net Revenue 686,786 600,749 435,967
Operating costs 337,499 310,285 233,343
Depreciation, depletion, and
amortization 129,704 101,653 74,509
----------- ----------- -----------
Operating income $ 219,583 $ 188,811 $ 128,115
=========== =========== ===========
Other income $ 6,639 $ 14,644 $ --
=========== =========== ===========
</TABLE>
RESULTS OF OPERATIONS - The Company's operations showed gains for the year,
despite weather which was warmer than normal. Operating income increased for all
segments except Distribution in fiscal 1999. These increases reflect the effect
of additional gas reserves acquired, additional gathering revenues from
acquisitions, operational changes and efficiencies, general market conditions
and an aggressive marketing campaign by the Company's gas marketing operation.
For the year, operating income increased 16.3 percent over 1998.
During 1998, the Company's operations showed strong gains for the year as a
result of the Company's acquisition strategy and operating efficiencies
achieved. Acquisition of the gas business from Western added $45 million to
operating income for the last three quarters of fiscal 1998 despite a warmer
than normal winter. The majority of this increase is reflected in the
Distribution segment which increased $37.7 million (57.2 percent) over 1997. The
Transportation and Storage segment and the Marketing segment also benefitted
from the Western transaction. Other income of $14.6 million represents the gain
on the sale of certain gas processing plants.
RISK MANAGEMENT - To minimize the risk from fluctuations in the price of natural
gas, oil, natural gas liquids (NGLs) and weather, the Company uses derivative
instruments such as future contracts, swaps, and options (collectively,
derivatives) to hedge existing physical gas inventory, purchase or sale
commitments, and degree days. None of these derivatives are held for speculative
purposes and, in general, the Company's risk management policy requires that
positions taken with derivatives be offset by positions in physical transactions
or other derivatives.
KGS uses derivatives to hedge the cost of anticipated gas purchases during the
winter heating months to protect its customers from upward volatility in the
market price of natural gas. The gain or loss resulting from such derivatives is
combined with the physical cost of gas and recovered from the customer through
the gas purchase clause in rates.
The Company's Production segment utilizes derivatives in order to hedge
anticipated sales of oil and natural gas production. With the use of
derivatives, the Company is able to set the price to be received for the future
production thus eliminating the risk of declining market prices between the
origination date of the derivative and the month of production. The Company's
strategy in hedging anticipated transactions is to eliminate the variability in
earnings of its Production segment as a result of market fluctuations. To the
extent that management does not terminate a hedge or enter into an opposing
derivative, the current strategy will limit the potential gains which could
result from increases in market prices above the level set by the hedge.
The Company adheres to policies and procedures which limit its exposure to
market risks from open positions and monitors daily its exposure to market risk.
The results of the Company's derivative trading activities continue to meet its
stated objectives. For further discussion, see Item 7A - Quantitative and
Qualitative Disclosures About Market Risk and Note C of "Notes to Consolidated
Financial Statements."
YEAR 2000. The Year 2000 (Y2K) issue arose because most computer systems,
including application software (IT applications) and computer technology
embedded in plant and equipment (Embedded Technology) were constructed using a
two digit date field that assumed the first two digits are always "19". On
January 1, 2000, these systems may
25
<PAGE> 26
incorrectly recognize the date as January 1, 1900. Some IT applications and
Embedded Technology may incorrectly process critical financial and operating
information or stop processing altogether.
Management, under the direction of the Board of Directors, has implemented a
program to proactively address the Y2K challenge. Beginning in 1996, the Company
inventoried existing programs and systems and began the conversion process that
is designed to make the Company Y2K compatible. The Company installed a new IBM
Year 2000 compatible mainframe computer in August 1997. The Company believes
that it has fully identified and remediated its critical automated business
systems and the sensitive equipment for Y2K readiness. Testing of the remediated
systems and equipment is underway and will continue throughout the remainder of
1999.
The Company has assessed its operational risks related to suppliers and vendors
with whom it conducts business. Based on this assessment, the Company has
completed the process of contacting suppliers and vendors with whom the Company
conducts business concerning their state of readiness and plans to complete Y2K
compatibility of their systems. The Company tests such third-party compliance to
the extent deemed reasonable and necessary to determine compliance.
The primary business risk associated with Y2K is the Company's ability to
continue to transport and distribute gas to its customers without significant
interruption. In the event the Company and/or its suppliers and vendors are
unable to remediate the Y2K problem prior to January 1, 2000, operations of the
Company could be significantly impacted. In order to mitigate this risk, the
Company has developed contingency plans to continue operations through January
1, 2000 and beyond. The contingency plans include strategically located backup
electric generators, alternative telecommunication systems, including cellular
phones, radios and satellite phones, key personnel meeting sites and command
centers, establishment of natural gas service curtailment and rerouting
procedures, computer record backup systems and specific staffing for manual
operation of key supply points.
In May 1999, the Company completed the asset acquisition from Koch Midstream
Enterprises. The Company contracted with an independent third party to
inventory, assess, and remediate the assets acquired to assure Y2K compliance.
This work has been completed and reviewed by the Company.
The Company believes its essential systems and equipment are ready for the Year
2000 and should be able to provide uninterrupted service provided its key
vendors and suppliers are Y2K ready.
There can be no assurance that the Company's systems will work entirely as
anticipated, or that the systems of other companies on which the Company relies,
will be converted in a timely manner or that any such failure to be Y2K ready
would not have a material adverse effect on the Company operations, liquidity
and financial conditions.
The Company's direct cost to date is approximately $1.7 million for Y2K
conversion. This does not include the cost of programs and equipment that are
being replaced in the ordinary course of business that are Y2K compatible. The
Company estimates it will spend an additional $300,000 in direct costs.
ACCOUNTING POLICIES - For the periods presented, certain operations of the
Company are subject to accounting requirements of the OCC, KCC, and the
provisions of Statement of Financial Accounting Standards No. 71 "Accounting for
the Effects of Certain Types of Regulation." Accordingly, the allocation of
costs and revenues to accounting periods for ratemaking and regulatory purposes
may differ from those generally applied by companies not regulated. Such
allocations to meet regulatory accounting requirements are considered to be
generally accepted accounting principles for regulated utilities provided that
there is a demonstrable ability to recover any deferred costs in future rates.
Pursuant to the provisions of SFAS No. 71, the regulated operations of the
Company have recognized regulatory assets of $246.7 million, of which $108.0
million is not currently being recovered in rates and has not been subject to
filing and/or approval in a rate proceeding. As the Company continues to
unbundle its services, certain of these assets will no longer meet the criteria
for following SFAS No. 71, and accordingly, a write-off of regulatory assets and
stranded costs may be required. The Company does not anticipate these costs will
be significant.
26
<PAGE> 27
SEGMENT OPERATIONS - The Company revised its presentation of business segment
information beginning with this Form 10-K. The former regulated operations are
now reported in two different segments; the Distribution segment and the
Transportation and Storage segment. ONEOK Producer services is now reported in
the Transportation and Storage segment rather than the Gathering and Processing
operation as before. Transportation operations previously reported as part of
the production operation and the marketing operation have been transferred to
the Transportation and Storage segment. Prior periods have been restated to
reflect these changes. The following segments characterize the Company's
business units:
o Distribution
o Transportation and Storage
o Marketing
o Gathering and Processing
o Production
o Other
DISTRIBUTION
The Distribution segment provides natural gas distribution services in Oklahoma
and Kansas. The Company's operations in Oklahoma are conducted through Oklahoma
Natural Gas Company Division (ONG) which serves residential, commercial, and
industrial customers and leases pipeline capacity. The Company's operations in
Kansas are conducted through Kansas Gas Service Company Division (KGS) which
serves residential, commercial, and industrial customers. KGS also conducts
regulated gas distribution operations in northeastern Oklahoma. The Distribution
segment serves about 80 percent of Oklahoma and about 67 percent of Kansas. ONG
is subject to regulatory oversight by the OCC. KGS is subject to regulatory
oversight by the KCC and the OCC.
Assets of $972.6 million were acquired through the transaction with Western in
the 1998 fiscal year.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Thousands of Dollars)
FINANCIAL RESULTS
<S> <C> <C> <C>
Gas sales $ 848,813 $ 883,786 $ 544,884
Cost of gas 519,566 585,452 369,853
--------- --------- ---------
Gross margin on gas sales 329,247 298,334 175,031
PCL and ECT revenues 58,037 60,658 38,103
Other revenues 17,100 19,384 12,118
--------- --------- ---------
Net revenues 404,384 378,376 225,252
Operating costs 230,868 208,513 116,325
Depreciation, depletion, and
amortization 75,443 66,214 42,980
--------- --------- ---------
Operating Income $ 98,073 $ 103,649 $ 65,947
========= ========= =========
1999 1998 1997
--------- --------- ---------
GROSS MARGIN PER McF
Oklahoma
Residential $ 3.04 $ 2.99 $ 2.94
Commercial $ 2.47 $ 2.40 $ 2.19
Industrial $ 1.23 $ 1.13 $ 0.95
Pipeline capacity leases $ 0.25 $ 0.24 $ 0.19
Kansas
Residential $ 2.44 $ 2.24 -
Commercial $ 1.81 $ 1.75 -
Industrial $ 2.28 $ 1.92 -
End-use customer transportation $ 0.49 $ 0.56 -
------- ------ ------
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
OPERATING INFORMATION
<S> <C> <C> <C>
Number of customers
Oklahoma 748,445 739,684 733,621
Kansas 656,761 652,330 --
---------- ---------- ----------
Total 1,405,206 1,392,014 733,621
========== ========== ==========
Capital expenditures (Thousands)
Oklahoma $ 39,631 $ 41,059 $ 39,825
Kansas 59,054 36,139 --
---------- ---------- ----------
Total $ 98,685 $ 77,198 $ 39,825
========== ========== ==========
Total assets (Thousands) $1,722,381 $1,771,999 $ 855,587
========== ========== ==========
Customers per employee
Oklahoma 546 475 477
Kansas 510 489 --
---------- ---------- ----------
</TABLE>
OPERATIONAL HIGHLIGHTS - The Company dominates the core energy service markets
in Oklahoma and Kansas with over a 90 percent market share for water heating,
cooking, and home heating. Annual cost comparisons with electricity for these
same services in Oklahoma and Kansas indicate that gas costs were at least 50
percent less, the largest difference being in home heating at 70 percent less.
On a gas to gas comparison, the Company's rates in Oklahoma and Kansas were
lower than the regional and national averages for residential, firm industrial,
and interruptible service.
The transaction with Western in the 1998 fiscal year added approximately 660,000
new distribution customers and 1,400 employees. Cost controls were strengthened
throughout the organization. Total employees were reduced through attrition
without compromising customer safety or service.
REGULATORY INITIATIVES - In August, 1999, the OCC approved a plan to distinguish
between upstream and downstream activities in Oklahoma. The Company began taking
bids for transportation services this fall with bids to be awarded in spring
2000 for service beginning November 1, 2000. As contracts with PCL customers
expire, these contracts may be renewed with the Distribution segment, the
Transportation and Storage segment of the Company or nonaffiliated service
providers. Consequently, this could result in reduced revenues in the
Distribution segment.
Two rate cases were combined in Oklahoma, eliminating an interim rate case
scheduled for the summer of 1999 and providing for a one-time interim rate
reduction beginning September 1, 1999 of $5 million for residential customers in
Oklahoma. Hearings on the consolidated rate case are scheduled for spring 2000.
In April, 1999, the Company received approval from the KCC to reduce the minimum
requirement for transportation service to 3,000 Mcf annually from 6,000 annually
allowing more customers to choose their natural gas supplier. The KCC also
approved a proposal that would allow approximately 1,000 schools the opportunity
to transport gas supplies.
Also in 1999, approval was received to expand the Company's WeatherProof Bill
program to all residential and commercial customers in Kansas. Customers
electing to use this program will receive a set bill each month based on the
customer's projected average usage.
CAPITAL EXPENDITURES - The Company's capital expenditure program includes
expenditures for extending service to new areas, increasing system capabilities,
and general replacements and betterments. It is the Company's practice to
maintain and periodically upgrade facilities to assure safe, reliable, and
efficient operations. The capital expenditure program included $19.8 million,
$15.6 million and $10.4 million for new business development in 1999, 1998 and
1997, respectively.
28
<PAGE> 29
OPERATING RESULTS - Fiscal 1999 was the first complete year of service to the
660,000 customers added in the Western acquisition. However, warmer than normal
weather, particularly in Kansas which was 16 percent warmer than normal and
where there is no temperature normalization, reduced net revenues and more than
offset the effect of having a full twelve months of gas sales volumes and
revenues. Operating costs and depreciation, depletion and amortization increased
in fiscal 1999 due to having the acquisition recorded for one full year compared
to nine months for fiscal 1998. Operating costs per customer on a weighted
average basis decreased to $164.29 in fiscal 1999 from $169.67 in fiscal 1998.
This is a decrease of $5.38 per weighted average customer or 3.2%.
Net revenues and operating expenses increased in 1998 fiscal year over 1997
fiscal year primarily due to inclusion of KGS's operations in fiscal 1998. The
statistics presented for the 1998 fiscal year include volumes attributable to
KGS since December 1, 1997.
1999 1998 1997
------- ------- ------
VOLUMES (MMcf)
Gas sales
Residential 105,566 103,700 58,241
Commercial 41,398 42,486 29,408
Industrial 5,575 7,304 11,384
PCL and ECT 212,547 241,262 173,134
------- ------- -------
Total gas sales, PCL and ECT 365,086 394,752 272,167
======= ======= =======
TRANSPORTATION AND STORAGE
OPERATIONAL HIGHLIGHTS - A $10 million project to increase the capacity of the
two storage fields in Kansas is scheduled for completion in 2000. Total storage
capacity in Kansas will be increased by almost 40 percent to 6.3 Bcf.
A $3.4 million expansion is expected to increase deliverability from the Depew
storage field in Oklahoma by spring 2000. In 1998, work was completed which
increased injection capabilities by 70 percent and increased withdrawal
capabilities by over 80 percent in one Oklahoma storage field. In another
Oklahoma storage field, the injection capabilities were increased by 50 percent
and the withdrawal capabilities were doubled.
1999 1998 1997
--------- -------- --------
(Thousands of Dollars)
FINANCIAL RESULTS
Transportation revenues $ 73,521 $ 68,759 $ 68,167
Storage revenues 27,763 14,772 --
Other revenues 8,102 7,170 2,332
--------- -------- --------
Net revenues 109,386 90,701 70,499
Operating costs 33,894 31,052 28,136
Depreciation, depletion, and
amortization 13,852 12,818 8,395
--------- -------- --------
Operating income $ 61,640 $ 46,831 $ 33,968
========= ======== ========
1999 1998 1997
--------- -------- --------
OPERATING INFORMATION
Volumes transported (MMcf) 307,726 340,059 313,074
Current gas in storage (MMcf) 1,014 804 --
Capital expenditures (Thousands) $ 32,618 $ 50,271 $ 27,922
Total assets (Thousands) $ 373,742 $ 351,692 $221,233
--------- --------- --------
REGULATORY INITIATIVES - Under a July, 1999, order by the OCC, the Company's
gathering and storage assets and services in Oklahoma will be removed from
utility regulation effective November 1, 1999. Gathering and storage assets,
including current gas in storage, of $325.0 million will be removed from rate
base. In August, 1999, the OCC approved a plan that distinguishes between
upstream and downstream assets. The Distribution segment issued bids for these
services in the fall of 1999 with bids to be awarded in the spring of 2000. With
unbundling and deregulation of gathering and storage service the Company will be
able to compete for business at market-based rates.
29
<PAGE> 30
OPERATING RESULTS - The Company's strategy to increase its storage utilization
and its injection and withdrawal capabilities has created opportunities for
increased earnings. In 1999,volumes transported decreased while prices increased
and volumes stored, along with the related prices, increased in fiscal 1999 over
fiscal 1998. Increased injection and storage capabilities led to the increase
storage revenues. In fiscal 1998, margins from gas stored for others increased
operating income by $14.8 million over fiscal 1997. In fiscal 1998, gas volumes
transported increased but were offset by decreased prices.
MARKETING
OPERATIONAL HIGHLIGHTS - The Company's marketing operation purchases, stores and
markets natural gas at both the retail and wholesale level, primarily in the
producing areas of the United States. The Company continues to develop its niche
into new market areas by arbitraging storage in the day trading market rather
than focusing on the baseload market. Gas volumes increased in 1999 primarily
from the Company's expansion into the Permian/Waha region of the United States.
The Company now leases from others more than 29 Bcf of storage capacity which
gives direct access to the west coast and Texas intrastate markets.
Construction of a 300 megawatt electric power plant has been approved by the
Company's Board of Directors. The plant, to be located in Logan County,
Oklahoma, adjacent to a Company natural gas storage facility, will be configured
to supply electric power during peak periods with four gas-powered turbine
generators manufactured by General Electric. Application has been made with the
Oklahoma Air Quality Board for a permit, and the plant is expected to be
operational June, 2001. In 1997, the Company was the successful bidder to serve
four gas-fired electric generating plants owned by Public Service Company of
Oklahoma.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Thousands of Dollars)
FINANCIAL RESULTS
<S> <C> <C> <C>
Gas sales $ 821,890 $ 774,455 $ 484,674
Cost of gas 789,955 758,687 470,878
--------- --------- ---------
Gross margin on gas sales 31,935 15,768 13,796
Other revenues 3,508 4,159 (1,475)
--------- --------- ---------
Net revenues 35,443 19,927 12,321
Operating costs 9,069 7,024 3,707
Depreciation, depletion, and
amortization 503 561 482
--------- --------- ---------
Operating income $ 25,871 $ 12,342 $ 8,132
========= ========= =========
1999 1998 1997
--------- --------- ---------
OPERATING INFORMATION
Natural gas volumes (MMcf) 389,241 334,364 205,204
Capital expenditures (Thousands) $ 4,196 $ - $ 373
Total assets (Thousands) $ 273,491 $ 130,100 $ 64,190
--------- --------- ---------
</TABLE>
PRICE RISK MANAGEMENT - In order to mitigate the financial risks arising from
fluctuations in both the market price and transportation costs of natural gas,
the Company routinely enters into natural gas futures contracts, swaps, and
options as a method of protecting its margins on the underlying physical
transactions. However, while not material, net open positions in terms of price,
volume, and specified delivery point do occur. For further discussion, see Item
7A - Quantitative and Qualitative Disclosures About Market Risk.
OPERATING RESULTS - The increase in gross margins is attributable to increased
throughput and a more extensive use of storage. Warmer than normal temperatures
across the country during this year's winter resulted in significant downward
movement in prices which allowed the Company to take advantage of volatility.
Increased sales volumes are primarily due to the expanded niche business into
Texas and the west coast. The increase in operating costs is due to the
additional expenses related to leasing storage and start-up costs for ONEOK
Power Marketing Company. The Company has been granted a rate schedule by the
Federal Energy Regulatory Commission (FERC) to trade electricity at market-based
wholesale rates and has begun trading on a limited scale.
30
<PAGE> 31
The increase in gross margins in fiscal 1998 over fiscal 1997 is primarily
attributable to increased throughput due to customers added in the Western
transaction and the addition of service to four gas-fired electric generating
plants. Gross margins per Mcf were lower due primarily to less volatility in
weather in 1998.
GATHERING AND PROCESSING
OPERATIONAL HIGHLIGHTS - On April 30, 1999, the Company acquired the midstream
natural gas gathering and processing assets from Koch Midstream Enterprises
(Koch). These assets included approximately 3,250 miles of gathering pipeline
connected to 1,460 gas wells located in Oklahoma gathering approximately 350
million cubic feet per day. Also included is a 100 percent interest in eight gas
processing plants with a total capacity of 515 million cubic feet per day. These
plants are currently processing about 280 million cubic feet per day.
The Company will add a new 25 million cubic feet per day processing plant (the
Fox Plant) which will be started up in the fall of 1999.
Through the Western transaction in fiscal 1998, the Company acquired the
Minneola Gas Processing Plant located in Kansas and an additional 34 percent
interest in the Indian Basin Gas Processing Plant. An eight percent interest in
the Indian Basin had been acquired in fiscal 1997. The Minneola Gas Processing
Plant was sold to Duke in February, 1999.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
FINANCIAL RESULTS
Natural gas liquids and condensate sales $ 51,747 $ 59,668 $ 72,803
Gas sales 23,032 15,281 14,334
Gathering revenues 4,416 -- --
Other revenues 4,595 3,608 (65)
--------- --------- --------
Total revenues 83,790 78,557 87,072
Cost of sales 52,479 53,162 63,895
--------- --------- --------
Gross margin 31,311 25,395 23,177
Operating costs 11,207 7,725 7,905
Depreciation, depletion, and
amortization 3,562 2,249 2,393
--------- --------- --------
Operating income $ 16,542 $ 15,421 $ 12,879
========= ========= ========
Other income $ 4,994 $ 14,644 $ --
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING INFORMATION
Average NGL's price ($/Gal) $ 0.263 $ 0.302 $ 0.365
Average gas price ($/MMcf) $ 2.04 $ 2.30 $ 2.38
Capital expenditures (Thousands) $ 8,557 $ 4,735 $ 10,563
Total assets (Thousands) $ 343,133 $ 86,955 $ 46,602
Total gas gathered (Mcf/D) 229,255 219,971 231,010
Total gas processed (Mcf/D) 187,036 198,172 210,286
Natural gas liquids sales (MGal) 191,462 194,580 196,840
Gas sales (MMMbtu) 10,534 5,771 6,109
Natural Gas Liquids by Component (%)
Ethane 47 42 51
Propane 26 31 25
Iso butane 5 4 5
Normal butane 9 10 9
Natural gasoline 13 13 10
Contracts %
Percent of Proceeds (average
for year) 65 54 17
Fuel and Shrink (average for
year) 35 46 83
--------- --------- ---------
</TABLE>
Note: At August 31, 1999, with Koch acquisition, Percent of Proceeds contracts
are 34%, Fuel and Shrink contracts are 66% of total gas processed.
31
<PAGE> 32
CAPITAL EXPENDITURES - In April, 1999, the Company acquired all of the Oklahoma
midstream natural gas gathering and processing assets of Koch for $285 million.
Capital expenditures for fiscal 1999 included $3 million for the Fox plant.
The 1998 fiscal year capital was required to sustain operations and projects
related to these operations. Fiscal 1997 capital expenditures included $9
million incurred to purchase an interest in the Indian Basin Gas Processing
Plant as well as sustain and improve operations.
OPERATING RESULTS - Revenues increased in fiscal 1999 due to the acquisition of
the midstream assets from Koch. Average NGL price per gallon increased in late
fiscal 1999, although the average price for fiscal 1999 was lower than fiscal
1998, as prices continued to experience an upward correction from the abnormally
low prices prevalent throughout much of fiscal 1999 and 1998. The increase in
prices corresponded in time with the increase in volumes from the Koch
acquisition. The price of NGLs moves in a direct relationship to crude prices.
Operating costs and depreciation, depletion and amortization also increased due
to the additional assets and the cost of operating those assets. At 1999 fiscal
year end, total gas gathered and total gas processed were 688 MMcf per day and
561 MMcf per day, three times the fiscal 1999 average. This increase in the
average per day is due to the Koch acquisition in April, 1999. Other income in
fiscal 1999 and 1998 consisted of the gains on sales of assets.
RISK MANAGEMENT - Derivative instruments are used to minimize risk of volatility
in NGL's and gas prices.
PRODUCTION
OPERATIONAL HIGHLIGHTS - The Company's strategy is to concentrate ownership of
hydrocarbon reserves in its service territory in order to add value not only to
its existing production operations but also to the related gathering and
processing, marketing, transportation, and storage businesses. Accordingly, the
Company focuses on exploitation activities rather than exploratory drilling. As
a result of recent acquisitions, the number of wells the Company operates has
increased. In its role as operator, the Company controls operating decisions
which impact production volumes and lifting costs.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
FINANCIAL RESULTS
Natural gas sales $ 58,776 $ 38,323 $ 33,715
Oil sales 6,169 5,192 6,663
Other revenues 4,309 367 137
-------- -------- --------
Net revenues 69,254 43,882 40,515
Operating costs 19,128 14,312 12,342
Depreciation, depletion, and
amortization 34,073 18,872 19,899
-------- -------- --------
Operating income $ 16,053 $ 10,698 $ 8,274
======== ======== ========
Other income $ 1,645 $ -- $ --
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING INFORMATION
Proved reserves
Gas (MMcf) 254,101 178,047 83,293
Oil (MBbls) 4,197 3,272 2,014
Production
Gas (MMcf) 27,773 16,818 14,565
Oil (MBbls) 460 330 336
Average price
Gas (Mcf) $ 2.12 $ 2.21 $ 2.16
Oil (Bbls) $ 13.56 $ 15.70 $ 19.84
Capital expenditures (Thousands) $ 95,431 $167,669 $ 32,911
Total assets (Thousands) $361,806 $282,765 $ 94,496
======== ======== ========
</TABLE>
32
<PAGE> 33
RISK MANAGEMENT - Since the volatility of energy prices has a significant impact
on the profitability of this segment, the Company utilizes commodity derivative
instruments in order to offset this risk. As of August 31, 1999, approximately
86 percent of anticipated gas production in 2000 has been hedged primarily with
swap agreements. This compares to 50 percent of 1999 production hedged at August
31, 1998. See Item 7A - Quantitative and Qualitative Disclosure about Market
Risk.
CAPITAL EXPENDITURES - The Company's strategy is to concentrate ownership of
natural gas and oil reserves in its service territory in order to add value not
only to its existing production operations but also to integrate it into its
processing, marketing, gathering and storage business. As a result, the Company
is focusing its efforts on acquisitions and exploitation activities. During the
second quarter of fiscal 1999, the Company consummated the strategic alliance
with Magnum Hunter Resources, Inc. (Magnum) adding $10 million in producing
properties and becoming a 31 percent equity owner in Magnum at a cost of $50
million. The Company also closed on two other properties with a purchase price
of $53 million adding reserves located in Oklahoma.
The Company purchased natural gas and oil reserves from OXY USA, Inc. (Oxy) in
fiscal 1998. The reserves are located in Oklahoma and Kansas and include more
than 400 wells. Net production is approximately 30 million cubic feet of gas per
day and 400 barrels of oil per day and includes a gas sweetening plant. The
purchase price was approximately $131 million. Based on estimated reserves, this
transaction almost doubled the Company's oil and gas reserves.
A 40 percent equity interest in the K. Stewart Petroleum Corp., was acquired on
June 2, 1998. The acquisition creates opportunities to expand ownership of oil
and gas reserves in the Anadarko Basin and for the Company to achieve its
strategic objective of growing its reserves base in areas where it has other
energy-related operations.
The acquisition of Washita Production Company (Washita) was closed in December,
1997. This acquisition, valued at approximately $20 million, was made with a
combination of cash and ONEOK, Inc. common stock. The transaction included 235
producing wells and significant behind pipe and development drilling
opportunities with proven reserves of approximately 23 billion cubic feet
equivalent. The wells are primarily located in the Anadarko and Arkoma Basin of
Oklahoma and include some properties in the Hugoton Basin of Kansas.
During 1997, the Company purchased PSEC, Inc. (PSEC), an independent oil and gas
company in Oklahoma. The transaction included 180 wells with proven reserves of
20 Bcf of natural gas and 167,000 barrels of oil. A 42 percent interest in the
Sycamore Gas Gathering System, acquired as part of this transaction, is included
in the Gathering and Processing Segment. The purchase was financed with $9.3
million in long-term debt and 334,252 shares of ONEOK Inc. common stock.
Capital expenditures primarily related to a limited developmental drilling
program were approximately $13.7 million, $16.5 million, and $6.7 million in
1999, 1998, and 1997, respectively.
OPERATING RESULTS - Increased production from a successful developmental
drilling program and properties acquired during fiscal 1999 and 1998 were the
primary reasons for the increases in volumes in those years. Gas prices for the
1999 fiscal year decreased compared to the 1998 fiscal year, an industry-wide
trend. Operating costs and depreciation, depletion, and amortization also
increased over one year ago due to the Company operating and owning an interest
in an increased number of wells. However, the Company, through efforts to
contain costs, reduced production costs per Mcf equivalent to $0.49 in 1999 from
$0.50 in 1998.
The increased gas production in 1998 over 1997 is primarily related to the
additional proved reserves acquired as a result of the OXY, PSEC and Washita
property acquisitions. Production from these properties more than offset the
natural decline in production from other fields. The increase in operating costs
in 1998 as compared to 1997 is indicative of the increase in the total number of
fields owned by the Company.
33
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
In April, 1999, the Company registered a shelf filing for $500 million in debt
securities. The filing allows the Company to sell the debt securities over a two
year period. These funds will be used in the future for general corporate
purposes including repayment and refinancing of debt, acquisitions, working
capital, capital expenditures and repurchases and redemptions of securities. In
August, 1999, the Company issued $300 million in debt securities under this
shelf filing, with the funds used primarily to fund the Koch acquisition.
In July, 1999, the Company filed a registration statement to register preferred
trust securities of $300 million. No securities have been issued under that
registration.
A $600 million short-term unsecured revolving credit facility was entered into
with several banks in July, 1999.
CASH FLOW ANALYSIS
Cash provided by operating activities continues as the primary source for
meeting operating cash requirements and dividend payout. However, due to
seasonal fluctuations and additional capital requirements, the Company
periodically accesses funds through short-term credit agreements and, if
necessary, through long-term borrowing. The Company believes that internally
generated funds and existing credit agreements will be sufficient to meet its
debt service, dividend payment, and capital expenditure requirements, excluding
significant capital acquisitions. The following discussion of cash flows should
be read in conjunction with the Company's "Consolidated Statement of Cash Flows"
and the supplemental cash flow information included in Note M of "Notes to
Consolidated Financial Statements."
OPERATING CASH FLOWS
Operating cash flows for fiscal 1999 decreased due to increased prepayments
related to hedging activities, increases in unrecovered purchased gas cost,
increased accounts receivables primarily due to increased sales and increased
regulatory assets.
Operating cash flows for 1998 as compared to 1997 are higher as a result of the
liquidation of the abnormally high net working capital acquired in the Western
acquisition, increased operating income and favorable changes in assets and
liabilities, including recovery of purchased gas costs.
Cash provided by operating activities for the years ended August 31, 1999, 1998,
and 1997 was $131.6, $346.5, and $152.1 million, respectively.
INVESTING CASH FLOWS
Cash used in investing activities totaled $549.3, $299.7, and $88.8 million in
1999, 1998, and 1997 respectively.
CAPITAL EXPENDITURES - Capital expenditures totaled $533 million in 1999. This
included $285 million for the acquisition of Oklahoma midstream assets by the
Gathering and Processing segment. In 1998, capital expenditures totaled $306
million which included $164 million for acquisition of production and processing
assets. Capital expenditures totaled $112 million in 1997. Capital expenditures
for 2000 are estimated to be $236 million excluding acquisitions.
ASSET SALES - Approximately $16.5 million of proceeds was received in fiscal
1999 from the sale of one-half interest in Sycamore and the Caddo gas processing
plant. In 1998, approximately $30 million of proceeds was received from the sale
of gas processing assets.
34
<PAGE> 35
FINANCING CASH FLOW
During fiscal 1999, the Company issued $700 million in debt securities. These
funds were used for general corporate purposes including acquisitions, repayment
of some short-term debt and refinancing certain long-term debt.
Cash provided by financing activities for 1999 was $422.0 million, cash used in
financing activities in 1998 and 1997 was $61.1, and $49.4 million,
respectively.
SHORT-TERM DEBT - At August 31, 1999, $264 million in commercial paper was
outstanding. The Company has a $600 million short-term unsecured revolving
credit facility. The short-term credit agreement primarily provides a back-up
line of credit for commercial paper in addition to providing short-term funds.
Maximum short-term debt from all sources as approved by the Company's Board of
Directors is $750 million. Fluctuations in the amount of cash provided by/used
in financing activities is primarily a factor of short-term borrowing and the
increase in preferred stock dividend requirements for 1999 and 1998 and
significant long-term borrowing in 1999.
LONG-TERM DEBT - At August 31, 1999, $837 million of long-term debt was
outstanding. As of that date, the Company could have issued $724 million of
additional long-term debt under the most restrictive provisions contained in its
various borrowing agreements.
At August 31, 1999, the equity component was 52 percent as compared to 68
percent a year ago. In December, 1997, Moody's Investors Service announced that
it had upgraded the Company's debt rating from A3 to A2 due to the benefits
expected from the acquisition of the gas business, including strengthened market
and financial positions. The debt rating by Standard and Poor's Corporation was
upgraded from A- to A. In December 1998, the Company was placed on CreditWatch
with negative implications, reflecting the Company's plan to acquire Southwest.
SOUTHWEST - Financing for the Company's proposed acquisition of Southwest is
expected to be provided through a combination of a short-term bridge loan,
long-term notes and equity. In addition, the Company will assume approximately
$900 million of Southwest long-term indebtedness.
STOCK AND DIVIDENDS - The Company had approximately 31 million shares of common
stock outstanding at August 31, 1999. The Common stock dividends were $1.24,
$1.20, and $1.20 per share in 1999, 1998, and 1997, respectively. Convertible
preferred stock dividends were $1.86 and $1.55 per share in 1999, and $1.80 and
$1.50 per share in 1998 for Series A and Series B, respectively. Preferred stock
dividends were $1.78 per share in 1997. Through the Company's Stock Purchase and
Dividend Reinvestment Program, $3.9 million, $4.1 million and $5.5 million of
dividends and optional cash payments were reinvested into common stock in 1999,
1998 and 1997, respectively.
On March 18, 1999, the Company authorized a stock buyback plan for up to 15
percent of its capital stock. The program authorizes the Company to make
purchases of its common stock on the open market with the timing and terms of
purchases and the number of shares purchased to be determined by management
based on market conditions and other factors. Purchases began May 25, 1999, with
715,080 shares purchased through August 31, 1999. The purchased shares will be
held in treasury and will be available for general corporate purposes, funding
of stock-based compensation plans, resale at a future date, or retirement.
Purchases will be financed with short-term debt or made from available funds.
LIQUIDITY
The Distribution segment continues to face competitive pressure to serve the
transportation market which includes all customers who consume 30,000 MMBtu or
more annually. The loss of a substantial portion of that load due to third party
bypass, without recoupment of the revenues from that loss, could have a
materially adverse effect on the
35
<PAGE> 36
Company's financial condition. However, since 1995, rates have been structured
to reduce the Company's risk in serving its large volume customers.
OTHER
ENVIRONMENTAL - In connection with the Western transaction, the Company acquired
responsibility for 12 manufactured gas sites located in Kansas which may contain
potentially harmful materials that are classified as hazardous material.
Hazardous materials are subject to control or remediation under various
environmental laws and regulations. A consent agreement with the Kansas
Department of Health and Environment (KDHE) presently governs all future work at
these sites. The terms of the consent agreement allow the Company 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. At August 31, 1999, the costs of the investigations and
risk analysis have been minimal. Limited information is available about the
sites and no testing has been performed. Management's best estimate of the cost
of remediation ranges from $100 thousand to $10 million per site based on a
limited comparison of costs incurred to remediate comparable sites. These
estimates do not give effect to potential insurance recoveries, recoveries
through rates or from third parties. The KCC has permitted others to recover
remediation costs through rates. It should be noted that additional information
and testing could result in costs significantly below or in excess of the
amounts estimated above. To the extent that such remediation costs are not
recovered, the costs could be material to the Company's results of operations
and cash flows depending on the remediation done and number of years over which
the remediation is completed.
NEW ACCOUNTING PRONOUNCEMENTS - Statement of Financial Accounting Standards No.
133, Accounting for Derivatives Instruments and Hedging Activities (Statement
133), was issued by the FASB in June 1998. Statement 133 standardizes the
accounting for derivatives instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the balance sheet at fair value. The accounting
for changes in the fair value of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and, if so,
on the reason for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedge exposure is a fair value
exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. Statement 133 required the
Company to adopt this statement by September 1, 1999. Statement 133 was amended
by Statement No. 137 in June, 1999 which delayed implementation until fiscal
years beginning after June 15, 2000, with early adoption permitted. The Company
has not determined the impact of adopting Statement 133.
In December 1998, the Emerging Issues Task Force reached consensus on Issue
98-10, "Accounting for Contracts involved in Energy Trading and Risk Management
Activities" (EITF 98-10). EITF 98-10 is effective for fiscal years beginning
after December 15, 1998 and requires energy trading contracts to be recorded at
fair value on the balance sheet, with the changes in fair value included in
earnings. Although the Company has not completed its assessment of the impact of
adopting EITF 98-10, it believes that its contracts are designated as and
effective as hedges of non trading activities and are not considered energy
trading contracts. Accordingly, the Company does not believe the adoption of
EITF 98-10 will have a material impact on the financial position or results of
operations of the Company.
36
<PAGE> 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT - The Company, substantially through its nonutility segments, is
exposed to market risk in the normal course of its business operations to the
impact of market fluctuations in the price of natural gas and oil. Market risk
refers to the risk of loss in cash flows and future earnings arising from
adverse changes in commodity energy prices. The Company's primary exposure
arises from fixed price purchase or sale agreements which extend for periods of
up to 48 months, gas in storage inventories utilized by the gas marketing
operation, and anticipated sales of oil and gas production. To a lesser extent,
the Company is exposed to risk of changing prices or the cost of intervening
transportation resulting from purchasing gas at one location and selling it at
another (hereinafter referred to as basis risk). To minimize the risk from
market fluctuations in the price of natural gas and oil, the Company uses
commodity derivative instruments such as future contracts, swaps and options to
hedge existing or anticipated purchase and sale agreements, existing physical
gas in storage, and basis risk. None of these derivatives are held for
speculative purposes. The Company adheres to policies and procedures which limit
its exposure to market risk from open positions and monitors its exposure to
market risk. The results of the Company's derivative hedging activities continue
to meet its stated objective.
The Company's regulated distribution operations are exposed to market risk in
the normal course of business operations due to the impact of fluctuations on
gas sales resulting from weather as measured by heating degree days (HDD).
Market risk refers to the risk of loss in cash flows and future earnings arising
from adverse fluctuation in gross margins on gas sales. Kansas Gas Service has
exposure arising from variances in gas consumption by residential and commercial
customers caused by fluctuations in HDD from normal because it does not have a
temperature adjustment clause in its rate structure. ONG has a TAC, which
partially offsets this risk. From time to time, ONEOK uses weather derivative
swaps to manage the effect of warm weather on its operations.
All of the Company's long-term debt is fixed-rate and, therefore, does not
expose the Company to the risk of earnings or cash flow loss due to changes in
market interest rates.
Kansas Gas Service uses derivative instruments to hedge the cost of some
anticipated gas purchases during the winter heating months to protect their
customers from upward volatility in the market price of natural gas. The gain or
loss resulting from such derivatives is combined with the physical cost of gas
and recovered from the customer through the gas purchase clause in rates. The
Company has no market risk associated with such activities and, accordingly,
these derivatives have been omitted from the value-at-risk disclosures below.
VALUE-AT-RISK DISCLOSURE OF MARKET RISK - The estimation of potential losses
that could arise from changes in market conditions is typically accomplished
through the use of statistical models that seek to predict risk of loss based on
historical price and volatility patterns. The value-at-risk (VAR) measurement
used by the Company is based on J.P. Morgan's RiskMetrics(TM) model, which
measures recent volatility and correlation in the price of natural gas and oil,
pulls through current price levels and net deltas, and applies estimates made by
management regarding the time required to liquidate positions and the degree of
confidence placed in the accuracy of the volatility and correlation estimates.
The Company's VAR calculation presents a comprehensive market risk disclosure by
combining its commodity derivative portfolio used to hedge price and basis risk
together with the current portfolio of firm physical purchase and sale contracts
and nonutility gas-in-storage inventory. At August 31, 1999, the Company's
estimated potential one-day favorable or unfavorable impact on future earnings,
as measured by the VAR, using a 95 percent confidence level, diversified
correlation and assuming three days to liquidate positions is immaterial.
The Company's calculated VAR exposure represents an estimate of potential losses
that would be recognized for its portfolio of derivative financial instruments
and firm physical contracts and nonutility gas-in-storage assuming hypothetical
movements in future market rates and are not necessarily indicative of actual
results that may occur. It does not represent the maximum possible loss nor any
expected loss that may occur, because actual future gains and losses will differ
from those estimated, based on actual fluctuations in the market rates,
operating exposures, and the timing thereof, and changes in the Company's
portfolio of derivative financial instruments and firm physical contracts.
Under the weather derivative swap agreements, the Company receives a fixed
payment per degree day below the
37
<PAGE> 38
contracted normal HDD and pays a fixed amount per degree day above the
contracted normal HDD. The swaps also contain a contract cap that limits the
amount either party is required to pay. The Company estimates its VAR exposure
on these swaps to be the total contract cap it would be required to pay if the
weather were significantly coder that normal. At August 31, 1999, the total VAR
for the 1999/2000 heating season is approximately $17.7 million. The Company
believes that this risk would be substantially offset by an increase in gas
sales margins resulting from additional gas sold due to the colder than normal
temperatures.
38
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of ONEOK, Inc. is responsible for all information included in the
Annual Report whether audited or unaudited. The financial statements have been
prepared in accordance with generally accepted accounting principles, applied in
a consistent manner, and necessarily included some amounts that are based on the
best estimates and judgements of management.
Management maintains a system of internal accounting policies, procedures, and
controls designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use and that the financial records are reliable for
preparing financial statements. ONEOK, Inc. maintains an internal auditing staff
responsible for evaluating the adequacy and application of financial and
operating controls and for testing compliance with management's policies and
procedures.
The accompanying consolidated financial statements of ONEOK, Inc. and
subsidiaries as of August 31, 1999 and 1998, and for each of the years in the
three-year period ended August 31, 1999, have been audited by KPMG LLP,
independent certified public accountants. Their audits include reviews of the
system of internal controls to the extent considered necessary to determine the
audit procedures required to support their opinion on the consolidated financial
statements. The Independent Auditors' Report appears herein.
The Board of Directors performs its oversight role for reviewing the accounting
and auditing procedures and financial reporting of ONEOK, Inc. through its Audit
Committee. Both KPMG LLP and the Company's internal auditors have free access to
the Audit Committee, without the presence of management, to discuss accounting,
auditing, and financial reporting matters.
39
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders ONEOK, Inc.:
We have audited the accompanying consolidated balance sheets of ONEOK, Inc. and
subsidiaries as of August 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended August 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ONEOK, Inc. and
subsidiaries as of August 31, 1999 and 1998, and the results of their operations
and cash flows for each of the years in the three-year period ended August 31,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
Tulsa, Oklahoma
October 21, 1999
40
<PAGE> 41
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars, except per share amounts)
<S> <C> <C> <C>
Operating Revenues $ 1,842,810 $ 1,820,758 $ 1,161,927
Cost of gas 1,156,024 1,220,009 725,960
----------- ----------- -----------
Net Revenues 686,786 600,749 435,967
----------- ----------- -----------
Operating Expenses
Operations and maintenance 297,784 277,068 210,852
Depreciation, depletion, and amortization 129,704 101,653 74,509
General Taxes 39,715 33,217 22,491
----------- ----------- -----------
Total Operating Expenses 467,203 411,938 307,852
----------- ----------- -----------
Operating Income 219,583 188,811 128,115
----------- ----------- -----------
Other Income 6,639 14,644 --
Interest 52,809 35,075 34,008
Income Taxes 67,056 66,585 34,839
----------- ----------- -----------
Net Income 106,357 101,795 59,268
Preferred Stock Dividends 37,247 26,979 285
----------- ----------- -----------
Income Available for Common Stock $ 69,110 $ 74,816 $ 58,983
=========== =========== ===========
Earnings Per Share of Common Stock - Basic $ 2.19 $ 2.44 $ 2.13
=========== =========== ===========
Earnings Per Share of Common Stock - Diluted $ 2.06 $ 2.23 $ 2.13
=========== =========== ===========
Dividends Per Share of Common Stock $ 1.24 $ 1.20 $ 1.20
=========== =========== ===========
Average Shares of Common Stock - Basic 31,498,002 30,674,475 27,644,181
Average Shares of Common Stock - Diluted 51,570,723 45,729,363 27,644,181
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 42
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1999 1998
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,402 $ 86
Trade accounts and notes receivable 228,336 177,649
Materials and supplies 10,792 10,046
Gas in storage 108,159 128,334
Advance payments for gas 3,600 3,619
Deferred income taxes 9,702 10,094
Purchased gas cost adjustment 4,552 --
Other current assets 69,724 8,245
---------- ----------
Total Current Assets 439,267 338,073
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Distribution 1,771,400 1,717,800
Transportation and Storage 483,983 424,489
Marketing 5,786 5,051
Gathering and Processing 358,439 68,688
Production 399,613 327,970
Other 38,405 57,932
---------- ----------
Total Property, Plant and Equipment 3,057,626 2,601,930
Accumulated depreciation, depletion, and amortization 988,797 915,769
---------- ----------
Net Property 2,068,829 1,686,161
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Investments 73,777 10,505
Regulatory assets, net 246,658 229,543
Goodwill 81,560 77,422
Other 114,854 80,783
---------- ----------
Total Deferred Charges and Other Assets 516,849 398,253
---------- ----------
Total Assets $3,024,945 $2,422,487
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 43
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1999 1998
- ---------- ----------- -----------
(Thousands of Dollars
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 22,817 $ 16,909
Notes payable 263,747 212,000
Accounts payable 183,759 136,601
Dividends payable 9,275 9,007
Accrued taxes 11,186 16,829
Accrued interest 7,042 7,814
Customers' deposits 17,139 17,042
Purchased gas cost adjustment -- 12,168
Other 28,617 32,443
----------- -----------
Total Current Liabilities 543,582 460,813
----------- -----------
LONG-TERM DEBT, excluding current maturities 810,087 312,355
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 323,624 313,955
Other deferred credits 173,193 166,493
----------- -----------
Total Deferred Credits and Other Liabilities 496,817 480,448
----------- -----------
Total Liabilities 1,850,486 1,253,616
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note I)
SHAREHOLDERS' EQUITY
Convertible Preferred Stock, $0.01 par value:
Series A authorized 20,000,000 shares; issued and outstanding
19,946,448 shares at August 31, 1999 and 1998 199 199
Series B authorized 30,000,000 shares; issued and outstanding
0 shares at August 31, 1999 and 83,826 shares at August 31, 1998 -- 1
Common stock, $0.01 par value: authorized 100,000,000 shares;
issued 31,599,305 shares and outstanding 30,884,225 shares at
August 31, 1999 and issued and outstanding 31,576,287 shares
at August 31, 1998 316 316
Paid in capital 894,978 897,547
Retained earnings 301,536 270,808
Treasury stock at cost: 715,080 shares at August 31, 1999 (22,570) --
----------- -----------
Total Shareholders' Equity 1,174,459 1,168,871
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,024,945 $ 2,422,487
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 44
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
(Thousands of Dollars
<S> <C> <C> <C>
Operating Activities
Net income $ 106,357 $ 101,795 $ 59,268
Depreciation, depletion, and amortization 129,704 101,653 74,509
Gain on sale of assets (6,639) (14,644) --
Net (income) losses from other investments (3,861) -- 257
Deferred income taxes 14,925 (7,623) (2,988)
Other -- (2,577) --
Changes in assets and liabilities
(Increase) decrease in accounts and notes receivable (50,687) 53,400 18,401
(Increase) decrease in inventories 19,429 1,232 13,226
(Increase) decrease in other assets (88,930) 13,472 (10,096)
(Increase) decrease in regulatory assets (6,261) -- 384
Increase (decrease) in accounts payable and accrued liabilities 41,320 51,957 (14,897)
Changes in purchased gas cost adjustment (16,720) 54,257 10,539
Increase (decrease) in deferred credits and other liabilities (7,034) (6,396) 3,448
--------- --------- ---------
Cash Provided by Operating Activities 131,603 346,526 152,051
--------- --------- ---------
Investing Activities
Changes in other investments, net (59,422) (3,778) 1,698
Acquisitions, net (296,287) (24,421) --
Capital expenditures, net of salvage (210,076) (301,515) (90,530)
Proceeds from sale of property 16,500 30,000 --
--------- --------- ---------
Cash Used in Investing Activities (549,285) (299,714) (88,832)
--------- --------- ---------
Financing Activities
Issuance (payment) of notes payable, net 51,747 5,302 (5,230)
Issuance of debt 695,888 -- --
Payment of debt (224,868) (17,859) (14,000)
Issuance of common stock 1,380 6,257 7,363
Acquisition of treasury stock (22,570) -- --
Dividends paid (76,281) (54,803) (28,033)
Acquisition and cancellation of preferred stock (3,298) -- (9,540)
--------- --------- ---------
Cash Provided by (Used in) Financing Activities 421,998 (61,103) (49,440)
--------- --------- ---------
Change in Cash and Cash Equivalents 4,316 (14,291) 13,779
Cash and Cash Equivalents at Beginning of Year 86 14,377 598
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 4,402 $ 86 $ 14,377
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 45
ONEOK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
----------- ----------- ----------- ----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
AUGUST 31, 1996 $ 9,000 $ 272 $ 206,812 $ 207,611 $ -- $ 423,695
Net income -- -- -- 59,268 -- 59,268
Issuance of common stock -- 9 22,710 -- -- 22,719
Preferred stock dividends -
$2.375 per share -- -- -- (321) -- (321)
Redemption of Series A
Preferred Stock (9,000) -- -- (540) -- (9,540)
Common stock dividends -
$1.20 per share -- -- -- (33,195) -- (33,195)
----------- ----------- ----------- ----------- ----------- -----------
AUGUST 31, 1997 -- 281 229,522 232,823 -- 462,626
Net income -- -- -- 101,795 -- 101,795
Issuance of common stock
Acquisitions -- 33 93,648 -- -- 93,681
Stock Purchase Plans -- 2 6,255 -- -- 6,257
Convertible preferred stock dividends -
$1.80 and $1.50 per share for
Series A and B, respectively -- -- -- (26,979) -- (26,979)
Issuance of Series A and Series B
Convertible Preferred Stock 200 -- 568,122 -- -- 568,322
Common stock dividends -
$1.20 per share -- -- -- (36,831) -- (36,831)
----------- ----------- ----------- ----------- ----------- -----------
AUGUST 31, 1998 200 316 897,547 270,808 -- 1,168,871
Net income -- -- -- 106,357 -- 106,357
Issuance of common stock
Stock Purchase Plans -- -- 1,380 -- -- 1,380
Convertible preferred stock dividends -
$1.86 and $1.55 per share for
Series A and B, respectively -- -- -- (37,247) -- (37,247)
Acquisition and Cancellation of
Series B Convertible Preferred Stock (1) -- (3,949) 652 -- (3,298)
Acquisition of Treasury Stock -- -- -- -- (22,570) (22,570)
Common stock dividends -
$1.24 per share -- -- -- (39,034) -- (39,034)
----------- ----------- ----------- ----------- ----------- -----------
AUGUST 31, 1999 $ 199 $ 316 $ 894,978 $ 301,536 $ (22,570) $ 1,174,459
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - ONEOK, Inc. acquired the gas business of Western
Resources, Inc. (Western) on November 26, 1997. The transaction was effective
November 30, 1997, for financial reporting purposes. See Note B of Notes to
Consolidated Financial Statements.
NATURE OF OPERATIONS - ONEOK, Inc. and subsidiaries (collectively, the Company)
is a diversified energy company engaged in the production, processing,
gathering, storage, transportation, distribution, and marketing of
environmentally clean fuels and products. The Company manages its business in
six segments: Distribution, Transportation and Storage, Marketing, Gathering and
Processing, Production, and Other.
The Company's Distribution segment provides natural gas distribution services in
Oklahoma and Kansas through its divisions Oklahoma Natural Gas Company and
Kansas Gas Service Company. The Transportation and Storage segment owns and
leases natural gas storage facilities and transports gas in Oklahoma and Kansas.
The Marketing segment purchases and markets natural gas, primarily in the
central area of the United States and began trading electricity on a limited
basis in 1999. The Company owns and operates gas processing plants as well as
gathering pipeline in Oklahoma through its Gathering and Processing segment. The
Production segment produces natural gas and oil and owns natural gas and oil
reserves. The Company's Other segment, whose results of operations are not
material, operates and leases the Company's headquarters building and parking
facility.
CONSOLIDATION - The consolidated financial statements include the accounts of
ONEOK, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in
twenty percent to 50 percent-owned affiliates are accounted for on the equity
method. Investments in less than twenty percent owned affiliates are accounted
for on the cost method.
REGULATION - The distribution, transportation and portions of the storage and
gathering operations of the Company are subject to the rate regulation and
accounting requirements of the Oklahoma Corporation Commission (OCC) and of the
Kansas Corporation Commission (KCC). Certain other transportation activities of
the Company are subject to regulation by the Federal Energy Regulatory
Commission (FERC). Accordingly, these operations follow the accounting and
reporting guidance contained in Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation." Allocation of
costs and revenues to accounting periods for ratemaking and regulatory purposes
may differ from bases generally applied by nonregulated companies. Such
allocations to meet regulatory accounting requirements are considered to be
generally accepted accounting principles for regulated utilities provided that
there is a demonstrable ability to recover any deferred costs in future rates.
A July, 1999 order by the OCC removed the Oklahoma gathering and storage assets
from utility regulation effective November 1, 1999. An August, 1999 order from
the OCC distinguished between upstream (transportation) and downstream
(distribution) assets and cleared the way for competitive bidding of upstream
services to begin fall, 1999.
During the rate-making process, regulatory commissions may require a utility to
defer recognition of certain costs to be recovered through rates over time as
opposed to expensing such costs as incurred. This allows the utility to
stabilize rates over time rather than passing such costs on to the customer for
immediate recovery. This causes certain expenses to be deferred as a regulatory
asset and amortized to expense as it is recovered through rates. Total
regulatory assets resulting from this deferral process are approximately $247
million and $230 million at August 31, 1999 and 1998, respectively. As the
Company continues to unbundle its services, certain of these assets will no
longer meet the criteria for following SFAS No. 71, and accordingly, a write-off
of regulatory assets and stranded costs may be required. However, the Company
does not anticipate that these costs will be significant. See Note D of Notes to
Consolidated Financial Statements.
46
<PAGE> 47
REVENUE RECOGNITION - The Company recognizes revenue when services are rendered
or product is delivered. Major industrial and commercial gas distribution
customers are invoiced as of the end of each month. Certain gas distribution
customers, primarily residential and some commercial, are invoiced on a cycle
basis throughout the month, and the Company accrues unbilled revenues at the end
of each month. Oklahoma Natural Gas Company's (ONG's) tariff rates for
residential and commercial customers contain a temperature normalization clause
that provides for billing adjustments from actual volumes to normalized volumes
during the winter heating season. Revenues from marketing, gathering and
processing, and production are recognized on the sales method. Credit is granted
to these customers under customary terms.
REGULATED PROPERTY - Regulated properties are stated at cost which includes
personnel costs, general and administrative costs, and allowance for funds used
during construction. The allowance for funds used during construction represents
the capitalization of estimated average cost of borrowed funds (7.8 percent, 8.6
percent, and 8.6 percent, in 1999, 1998, and 1997, respectively) used during the
construction of major projects and is recorded as a credit to earnings.
Depreciation is calculated using the straight-line method based upon rates
prescribed for ratemaking purposes. The average depreciation rate for property
that is regulated by the OCC approximated 3.8 percent in 1999, and 3.7 percent
in 1998 and 1997. The average depreciation rates for properties regulated by the
KCC were approximately 3.2 percent in 1999 and 3.3 percent in 1998. The average
depreciation rates for Mid Continent Market Center (MCMC) properties were 3.1
percent in 1999 and 3.4 percent in 1998.
Maintenance and repairs are charged directly to expense. Generally, the cost of
property retired or sold, plus removal costs, less salvage, is charged to
accumulated depreciation. Gains and losses from sales or transfers of operating
units or systems are recognized in income.
<TABLE>
<CAPTION>
REMAINING SERVICE
LIFE (YEARS)
--------- -------
<S> <C> <C>
Distribution property 22-25 40
Gathering property 5-33 47
Storage property 5-19 40
Transmission property 18-33 47
Other property 6-24 40
- -------------------------------------------------------------------------
</TABLE>
PRODUCTION PROPERTY - The Company uses the successful-efforts method to account
for costs incurred in the acquisition and exploration of oil and natural gas
reserves. Costs to acquire mineral interests in proved reserves and to drill and
equip development wells are capitalized. Geological and geophysical costs and
costs to drill exploratory wells which do not find proved reserves are expensed.
Unproved oil and gas properties which are individually significant are
periodically assessed for impairment. The remaining unproved oil and gas
properties are aggregated, and amortized based upon remaining lease terms and
exploratory and developmental drilling experience. Depreciation and depletion
are calculated using the unit-of-production method based upon periodic estimates
of proven oil and gas reserves.
OTHER PROPERTY - Gas processing plants and all other properties are stated at
cost. Gas processing plants are depreciated using various rates based on
estimated lives of available gas reserves. All other property and equipment is
depreciated using the straight-line method over its estimated useful life.
INVENTORIES - Materials and supplies are priced at average cost. Noncurrent gas
in storage is classified as property and is priced at cost. Cost of current gas
in storage for ONG is determined under the last-in, first-out, (lifo)
methodology. The estimated replacement cost of current gas in storage valued
under the lifo method was $23.1 million and $73.6 million at August 31, 1999 and
1998, respectively, compared to its value under the lifo method of $18.1 million
and $68.3 million at August 31, 1999 and 1998, respectively. Current gas in
storage for all other companies is determined using the weighted average cost of
gas method.
47
<PAGE> 48
INCOME TAXES - Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is deferred and amortized for operations regulated by
the OCC and for all other operations, is recognized in income in the period that
includes the enactment date. The Company continues to amortize previously
deferred investment tax credits on gas distribution and transmission properties
over the period prescribed by the OCC and KCC for ratemaking purposes.
COMMODITY PRICE RISK MANAGEMENT - To minimize the risk from market fluctuations
in the price of natural gas and oil, the Company enters into futures
transactions, swaps, and options in order to hedge certain natural gas in
storage, existing physical gas purchases or sales commitments, as well as
anticipated sales of natural gas production. In order to qualify as a hedge, the
price movements in the underlying commodity derivatives must be sufficiently
correlated with the hedged transaction. Changes in the market value of these
financial instruments utilized as hedges are (1) recognized as an adjustment of
the carrying value in the case of existing assets and liabilities, (2) included
in the measurement of the transaction that satisfies the commitment in the case
of existing commitments, and (3) included in the measurement of the subsequent
transaction in the case of anticipated transactions. In cases where anticipated
transactions do not occur, deferred gains and losses are recognized when such
transactions were scheduled to occur. Some of these financial instruments carry
off-balance sheet risks. See Note C of Notes to Consolidated Financial
Statements.
IMPAIRMENTS - The Company accounts for the impairment of long-lived assets to be
recognized when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. Fair values are based on discounted future cash flows or information
provided by sales and purchases of similar assets. The Company evaluates
impairment of production assets on the lowest possible level, (a field by field
basis) rather than using a total company basis for its proved properties.
USE OF ESTIMATES - Management has made a number of estimates and assumptions
relating to reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from these
estimates.
GOODWILL - The Company amortizes goodwill, which represents the excess of the
purchase price over the fair value of net assets acquired, over a period of 40
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
EARNINGS PER COMMON SHARE - Basic earnings per share are calculated based on the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share are calculated based on the weighted average number
of shares of common stock outstanding plus potentially dilutive securities.
ENVIRONMENTAL EXPENDITURES - The Company accrues for losses associated with
environmental remediation obligations when such losses are probable and
reasonably estimatable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Recoveries of environmental remediation costs
from other parties are recorded as assets when their receipt is deemed probable.
CASH AND CASH EQUIVALENTS - Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have original
maturities of three months or less.
COMMON STOCK OPTIONS AND AWARDS - The Company follows SFAS No. 123, "Accounting
for Stock-Based Compensation" which permits, but does not require, a fair value
based method of accounting for stock-based employee compensation. Alternatively,
SFAS No. 123 allows companies to continue applying the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), however,
48
<PAGE> 49
such companies are required to disclose pro forma net income and earnings per
share as if the fair value based method had been applied. The Company has
elected to continue to apply the provisions of APB 25 for purposes of computing
compensation expense and has provided the pro forma disclosure provisions of
SFAS No. 123 in Note N of Notes to Consolidated Financial Statements.
RECLASSIFICATION. Certain amounts in the 1997 and 1998 consolidated financial
statements have been reclassified to conform with the 1999 presentation. In
particular, the Company reclassified other income, including gains on sales of
assets from operating revenue to a separate caption, and now presents operating
income.
(B) ACQUISITION
On November 26, 1997, Old ONEOK acquired from Western all of the gas
distribution assets of Western and all of the outstanding capital stock of
Western's directly or indirectly wholly-owned subsidiaries, Westar Gas
Marketing, Inc. and MCMC, and assumed all of the liabilities of Western that
arose primarily out of the gas business and approximately $161 million in debt
of Western; and Old ONEOK merged with and into New ONEOK, with New ONEOK as the
surviving corporation. The shares of Old ONEOK common stock were converted on a
one-for-one basis into shares of stock of New ONEOK, and Western received
2,996,702 shares of the Company's Common Stock and 19,317,584 shares of the
Company's Series A Convertible Preferred Stock. Such shares and additional
shares purchased by Western at the closing of the transaction represented in the
aggregate 9.9 percent of the outstanding Common Stock or 45 percent of the
Capital Stock of the Company. A shareholder agreement, which includes standstill
provisions, prevents Western from increasing its position in the Company above a
common stock interest of 45 percent on a fully converted basis and maintains
control of the Company in the hands of the public shareholders of the Company.
The acquisition was accounted for as a purchase and, accordingly, the operating
results of the properties acquired from Western are included in the consolidated
financial statements since December 1, 1997. The aggregate purchase price was
approximately $824 million, including debt assumed and transaction costs. The
aggregate purchase price, which was funded through the issuance of a combination
of preferred and common stock, was allocated based on the estimated fair value
of the net assets. The excess of the purchase price over the fair value of the
net assets acquired approximated $74 million and is being amortized over 40
years.
(C) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FINANCIAL INSTRUMENTS - The following table presents the carrying amounts and
fair values of certain of the Company's financial instruments. Fair value is
defined as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The estimated fair value of long-term debt
and notes payable has been determined using quoted market prices of same or
similar issues, discounted cash flows, and/or rates currently available to the
Company for debt with similar terms and remaining maturities. The fair value of
natural gas and oil swaps, options, and futures contracts generally reflect the
estimated amounts that the Company would pay or receive to terminate the
contracts at the reporting date, thereby taking into account the unrealized
gains and losses on open contracts. There is no readily available market for
natural gas swaps. The items presented without a carrying value are off-balance
sheet financial instruments. All of the Company's financial instruments are held
for purposes other than trading.
<TABLE>
<CAPTION>
Approximate Fair
Book Value Value
---------- ----------------
(Thousands of Dollars)
<S> <C> <C>
AUGUST 31, 1999
CASH AND CASH EQUIVALENTS $ 4,402 $ 4,402
ACCOUNTS AND NOTES RECEIVABLE $ 228,336 $ 228,336
NATURAL GAS SWAPS -- $ 6,359
NATURAL GAS OPTIONS -- $ 6,522
NATURAL GAS FUTURES -- $ (24,421)
NOTES PAYABLE $ 263,747 $ 263,747
LONG-TERM DEBT $ 836,975 $ 790,961
- ---------------------------------------------------------------------
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
Approximate Fair
Book Value Value
---------- ----------------
(Thousands of Dollars)
<S> <C> <C>
August 31, 1998
Cash and cash equivalents $ 86 $ 86
Accounts and notes receivable $ 177,649 $ 177,649
Natural gas swaps -- $ 750
Natural gas options -- $ 3,486
Natural gas futures -- $ 9,971
Notes payable $ 212,000 $ 212,000
Long-term debt $ 329,264 $ 358,207
- ----------------------------------------------------------------------
</TABLE>
RISK MANAGEMENT - The Company's operations subject earnings to variability based
on fluctuations in the market price and transportation costs of natural gas and
oil and in the temperature during the heating season. The Company's exposure
arises from fixed price purchase or sale agreements which extend for periods of
up to 48 months, certain gas storage inventories, and anticipated sales of oil
and gas production. In order to mitigate the financial risks associated with
such activities, the Company routinely enters into natural gas and oil futures
contracts, swaps, and options, collectively referred to herein as derivatives.
Net open positions in terms of price, volume, and specified delivery point do
occur. The Company is using derivative contracts to mitigate its risk associated
with weather for the winter of 1999/2000 and reduce the impact of degree day
variances from normal.
The futures contracts are purchased and sold on the New York Mercantile Exchange
(NYMEX) or the Kansas City Board of Trade (KCBOT) and require the Company to buy
or sell natural gas at a fixed price. Swap agreements generally require one
party to make payments based on the difference between a fixed price or fixed
differential from the NYMEX or KCBOT price while the other party pays a price
based on a published index. Swaps and options allow the Company to commit to
purchase gas at one location and sell it at another location without assuming
unacceptable risk with respect to changes in the price of gas or the cost of the
intervening transportation. 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.
The Company utilizes options to limit overall price risk exposure. None of these
derivatives are held for speculative purposes and, in general, the Company's
risk management policy requires that positions taken with derivatives be offset
by positions in physical transactions or other derivatives.
The notional value of futures contracts purchased and sold is $316.2 million and
$407.2 million, respectively, at August 31, 1999. The term "notional amount"
refers to the current contract unit price times the contract volume for the
relevant derivative. In general, such amounts are not indicative of the cash
requirements associated with these derivatives. The notional amount is intended
to be indicative of the Company's level of activity in such derivatives,
although the amounts at risk are significantly smaller because, in general,
changes in market value of these derivatives are offset by changes in the value
associated with the underlying physical transaction or other derivatives.
<TABLE>
<CAPTION>
Estimated
Volumes Volumes Fair Value
Purchased Sales Gain (Loss)(A)
--------- -------- --------------
(Volumes in Mmcf, Thousands of Dollars)
<S> <C> <C> <C>
AUGUST 31, 1999
OPTIONS 238,420 38,390 $ 6,522
SWAPS 49,545 47,110 $ 6,359
FUTURES 113,730 156,140 $ (24,421)
- -----------------------------------------------------------------
August 31, 1998
Options 4,543 2,536 $ 3,486
Swaps 49,281 44,715 $ 750
Futures 5,375 35,492 $ 9,971
- -----------------------------------------------------------------
</TABLE>
(A) represents the estimated amount which would have been recognized upon
termination of the relevant derivatives as of the date indicated. The amount
which is ultimately charged or credited to earnings is affected by subsequent
changes in the fair value of these derivatives.
50
<PAGE> 51
NYMEX- and KCBOT-traded futures and option contracts are guaranteed by NYMEX and
KCBOT and have nominal credit risk. All other derivative transactions expose the
Company to off-balance sheet risk in the event of non performance by the
counterparts. In order to minimize this risk, the Company analyzes each
counterpart's financial condition prior to entering into an agreement,
establishes credit limits, and monitors the appropriateness of these limits on
an on-going basis. Swap agreements are generally settled at the expiration of
the contract term and may be subject to margin requirements with the
counterparty. NYMEX- and KCBOT-traded futures and options contracts require
daily cash settlement in margin accounts with brokers.
(D) REGULATORY ASSETS
The table presents a summary of regulatory assets, net of amortization,
outstanding at August 31, 1999 and 1998.
<TABLE>
<CAPTION>
August 31, 1999 1998
- ---------- --------- ---------
(Thousands of Dollars)
<S> <C> <C>
Recoupable take-or-pay $ 85,996 $ 90,708
Pension costs 20,881 25,061
Postretirement costs other than pension 61,830 59,963
Other 8,521 8,917
Transition costs 22,903 18,447
Reacquired debt costs 22,413 --
Income taxes 24,114 26,447
- --------------------------------------------------------------------
Regulatory assets, net $ 246,658 $ 229,543
====================================================================
</TABLE>
The remaining recovery period for these assets that the Company is not earning a
return on is set forth in the table below.
<TABLE>
<CAPTION>
REMAINING RECOVERY
PERIOD (MONTHS)
------------------
<S> <C>
Postretirement costs other than
pension - Oklahoma 169
Income taxes - Oklahoma 142 - 158
Transition costs 459
- ----------------------------------------------------
</TABLE>
The OCC has authorized recovery of the take-or-pay settlement, pension and
postretirement benefit costs over a 10 to 20 year period. Kansas Gas Service has
been deferring and recording postretirement benefits in excess of pay-as-you-go
as a regulatory asset as authorized by the KCC. See Note H of Notes to
Consolidated Financial Statements.
The KCC has allowed certain transition costs to be amortized and recovered in
rates over a forty year period with no rate of return on the unrecovered
balance. Management believes that all transition costs recorded as a regulatory
asset will be recovered through rates based on the accounting orders received
and regulatory precedents established by the KCC.
The Company amortizes reacquired debt costs, which includes unamortized debt
costs, in accordance with the accounting rules prescribed by the OCC and KCC.
These costs have been included in recent rate filings with the OCC and will be
included in future rate filings with the KCC as a component of interest.
In accordance with various rate orders received from the KCC and the OCC, Kansas
Gas Service has not yet collected through rates the amounts necessary to pay a
significant portion of the net deferred income tax 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 regulatory asset for these
amounts.
Amortization expense related to regulatory assets was approximately $13.7
million, $11.4 million, and $10.1 million in 1999, 1998, and 1997, respectively.
51
<PAGE> 52
(E) CAPITAL STOCK
The Company has approximately 68 million shares of unrestricted common stock
available for issue. The Company redeemed all of its outstanding shares of
Series A Preferred Stock, par value $50 per share, at its stated voluntary
liquidation value of $53 per share during the third quarter of fiscal 1997. The
Company issued Series A Convertible Preferred Stock, par value $0.01 per share,
at the time of the transaction with Western. The holders of Series A Convertible
Preferred Stock are entitled to receive a dividend payment, with respect to each
dividend period of the common stock, equal to 1.5 times the dividend amount
declared in respect of each share of common stock for the first five years of
the agreement. After five years, the rate will be 1.25 times the dividend amount
declared in respect of each share of common stock, and at no time, will the
dividend be less that $1.80 per share. The terms of Series B Convertible
Preferred Stock are the same as Series A Convertible Preferred Stock, except
that the dividend amount is equal to the greater of 1.25 times the common stock
dividend or $1.50 per share. In 1999, the Company acquired and canceled all of
the Series B Convertible Preferred Stock it had issued in 1998 and 1999. Series
C Preferred Stock is designed to protect ONEOK, Inc. shareholders from coercive
or unfair takeover tactics. Holders of Series C Preferred Stock are entitled to
receive, in preference to the holders of ONEOK common stock, quarterly dividends
in an amount per share equal to the greater of $1 or subject to adjustment, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount of all non-cash dividends. No Series C Preferred
Stock has been issued.
The Series A and Series B Convertible Preferred Stock is convertible, subject to
certain restrictions, at the option of the holder, into ONEOK, Inc., Common
Stock at the rate of one share for each share of Series A or Series B
Convertible Preferred Stock.
During 1999, the Company initiated a stock buyback plan for up to 15 percent of
its capital stock. The program authorizes the Company to make purchases of its
common stock on the open market with the timing and terms of purchases and the
number of shares purchased to be determined by management based on market
conditions and other factors. Through August 31, 1999, the shares purchased
totaled 715,080. The purchased shares will be held in treasury and will be
available for general corporate purposes, funding of stock-based compensation
plans, resale at a future date, or retirement. Purchases will be financed with
short-term debt or made from available funds.
The Board of Directors has reserved 3.0 million shares of ONEOK, Inc's common
stock for the Direct Stock Purchase and Dividend Reinvestment Plan of which 127
thousand shares were issued in 1999 and 142 thousand shares were issued in 1998;
and has reserved approximately 7.2 million shares for the Thrift Plan for
Employees of ONEOK, Inc. and Subsidiaries.
Under the most restrictive covenants of the Company's loan agreements, $251.4
million (83.4 percent) of retained earnings at August 31, 1999, was available to
pay dividends.
(F) LINES OF CREDIT AND SHORT-TERM NOTES PAYABLE
Commercial paper and short-term notes payable totaling $264 million and $212
million were outstanding at August 31, 1999 and 1998, respectively. The
commercial paper and notes carried average interest rates of 5.42 percent and
5.83 percent at August 31, 1999 and 1998, respectively. The Company has a $600
million short-term unsecured revolving credit facility which provides a back-up
line of credit for commercial paper in addition to providing short-term funds.
Interest rates and facility fees are based on prevailing market rates and the
Company's credit ratings. No compensating balance requirements existed at August
31, 1999. Maximum short-term debt from all sources as approved by the Company's
Board of Directors is $750 million.
(G) LONG-TERM DEBT
All long-term notes payable at August 31, 1999, are unsecured. The aggregate
current maturities of long-term debt for each of the five years ending August
31, 2004, are $22.8 million; $18.2 million; $14.7 million; $14.7 million;
52
<PAGE> 53
and $14.7 million, respectively, including $7.1 million which is callable at the
option of the holder in each of those years.
During fiscal 1999, the Company refinanced $116.2 million of the 9.7% and $59.7
million of the 9.75% long-term notes payable with new debt at a lower interest
rate. In connection therewith, the Company paid a redemption premium of $18
million. See Note D of Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
August 31, 1999 1998
- ---------- -------- --------
(Thousands of Dollars)
<S> <C> <C>
Long-term Notes Payable
6.20% due 1999 $ -- $ 8,000
6.43% due 2000 5,000 5,000
6.5% due 2001 1,534 5,393
8.44% due 2004 40,000 40,000
7.75% due 2006 300,000 -
8.32% due 2007 32,000 36,000
6.00% due 2009 100,000 -
6.40% due 2019 99,794 -
9.70% due 2019 8,826 125,000
9.75 % due 2020 15,305 75,000
8.70% due 2021 34,871 34,871
6.50% due 2028 99,645 -
6 7/8% due 2028 100,000 -
- -----------------------------------------------------------
Total Long-term Notes Payable 836,975 329,264
Unamortized debt discount 4,071 -
Current maturities 22,817 16,909
- -----------------------------------------------------------
Long-term debt $810,087 $312,355
===========================================================
</TABLE>
(H) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS - The Company has defined benefit retirement plans covering
substantially all employees. Company officers and certain key employees are also
eligible to participate in supplemental retirement plans. The Company generally
funds pension costs at a level equal to the minimum amount required under the
Employee Retirement Income Security Act of 1974.
OTHER POSTRETIREMENT BENEFIT PLANS - The Company sponsors welfare care plans
that provide postretirement medical benefits and life and accidental death and
dismemberment benefits to substantially all employees who retire under the
Retirement Plans at age 55 or older with at least five years of service. The
plans are contributory, with retiree contributions adjusted periodically, and
contain other cost-sharing features such as deductibles and coinsurance.
The Company elected to delay recognition of the accumulated postretirement
benefit obligation (APBO) of approximately $72.2 million and amortize it over 20
years as a component of net periodic postretirement benefit cost.
53
<PAGE> 54
In 1999, the Company adopted SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits," which standardized the disclosure
requirements for pensions and other postretirement benefits. SFAS No. 132 did
not change the measurement or recognition of amounts related to those plans.
Prior-year amounts were reclassified to conform to the new standard. The status
of the Company's pension and other postretirement benefit plans are summarized
in the tables below.
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
1999 1998 1999 1998
-------- --------- ---------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation, beginning of year $500,327 $ 327,127 $ 153,326 $ 76,068
Acquisition -- 128,279 -- 51,106
Service cost 9,282 7,221 4,036 2,570
Interest cost 32,832 30,875 10,055 8,223
Participant contributions -- -- 2,260 8,632
Plan amendments 7,600 -- 1,956 --
Actuarial loss (gain) (15,501) 32,404 (4,081) 13,604
Benefits paid (29,675) (25,579) (7,181) (6,877)
- ------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year $504,865 $ 500,327 $ 160,371 $ 153,326
=============================================================================================================
CHANGE IN PLAN ASSETS
Fair value of assets, beginning of year $595,308 $ 326,384 $ 14,075 $ 5,871
Acquisition -- 174,468 -- --
Actual return on assets 93,854 116,640 (111) 2,296
Employer contributions 899 3,395 3,536 5,910
Benefits paid (29,675) (25,579) -- (2)
- ------------------------------------------------------------------------------------------------------------
Fair value of assets, end of year $660,386 $ 595,308 $ 17,500 $ 14,075
============================================================================================================
Funded status - over (under) $155,521 $ 94,981 $ (142,871) $(139,251)
Unrecognized net asset (2,338) (2,805) -- --
Unrecognized transition obligation -- -- 43,048 48,522
Unrecognized prior service cost 8,030 607 4,195 --
Unrecognized net (gain) / loss (93,683) (30,388) 18,379 18,095
Activity subsequent to measurement date -- -- (1,306) (915)
- ------------------------------------------------------------------------------------------------------------
(Accrued) / prepaid pension cost $ 67,530 $ 62,395 $ (78,555) $ (73,549)
============================================================================================================
ACTUARIAL ASSUMPTIONS
Discount rate 7.00% 6.75% 7.00% 6.75%
Expected rate of return 9.00% 9.00% 8.00% 8.00%
Compensation increase rate 4.50% 4.00% 4.50% 4.00%
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 9,282 $ 7,221 $ 5,126 $ 4,036 $ 2,570 $ 1,744
Interest cost 32,832 30,875 23,766 10,055 8,224 5,599
Expected return on assets (46,846) (38,686) (25,490) (1,325) (739) (297)
Amortization of unrecognized net asset at adoption (467) (467) (467) -- -- --
Amortization of unrecognized net transition obligation
at adoption -- -- 3,235 3,235 3,608
Amortization of unrecognized prior service cost 177 177 120 -- (212) --
Amortization of net (gain) / loss 786 146 546 688 -- (108)
- ------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (4,236) $ (734) $ 3,601 $16,689 $ 13,078 $ 10,546
========================================================================================================================
</TABLE>
For measurement purposes, a 7.2 percent annual rate of increase in the per
capita cost of covered medical benefits (i.e., medical cost trend rate) was
assumed for 1999, the rate was assumed to decrease gradually to 5 percent by the
year 2003 and remain at that level thereafter. The medical cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed medical cost trend by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of August
31, 1999, by $14.6 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
54
<PAGE> 55
August 31, 1999, by $1.4 million. Decreasing the assumed medical cost trend by
one percentage point in each year would decrease the accumulated postretirement
benefit obligation as of August 31, 1999, by $11.9 million and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for the year ended August 31, 1999, by $1.1 million.
EMPLOYEE THRIFT PLANS - The Company has Thrift Plans covering substantially all
employees. Employee contributions are discretionary. Subject to certain limits,
employee contributions are matched by the Company. The annual cost of the plans
was $6.3 million in 1999; $4.7 million in 1998; and $3.4 million in 1997.
POSTEMPLOYMENT BENEFITS - The Company pays postemployment benefits to former or
inactive employees after employment but before normal retirement.
REGULATORY TREATMENT - The OCC has approved the recovery of ONG pension costs
and other postretirement benefit costs through rates. The costs recovered
through rates are based on current funding requirements and the net periodic
postretirement benefit cost for pension and postretirement costs, respectively.
Differences, if any, between the expense and the amount ordered through rates
are charged to earnings.
Prior to the acquisition of the assets regulated by the KCC in fiscal 1998,
Western had established a corporate-owned life insurance ("COLI") program which
it believed in the long term would offset the expenses of its postretirement and
postemployment benefit plans. Accordingly, the KCC issued an order permitting
the deferral of postretirement and postemployment benefit expenses in excess of
amounts recognized on a pay-as-you-go basis. The Company did not acquire the
COLI program. In connection with the KCC's approval of the acquisition, the KCC
granted the Company the benefit of all previous accounting orders issued to
Western and requested that the Company submit a plan of recovery either through
a general rate increase or through specific cost savings or revenue increases.
Based on regulatory precedents established by the KCC, and the accounting order
which permits the Company to seek recovery through rates, management believes
that it is probable that accrued postretirement and postemployment benefits can
be recovered in rates. The Company plans to file for recovery of these costs and
anticipates that recovery will be allowed over a period not to exceed 20 years.
If these costs cannot be recovered in rates charged to customers, the Company
would be required to record a one-time charge to expense the regulatory asset
established for postretirement and postemployment benefit costs totaling
approximately $52.7 million at August 31, 1999.
(I) COMMITMENTS AND CONTINGENCIES
LEASES - The initial term of the Company's headquarters building, ONEOK Plaza,
is for 25 years, expiring in 2009, with six five-year renewal options. At the
end of the initial term or any renewal period, the Company can purchase the
property at its fair market value. Rent for the lease accrues annually at $6.8
million until 2009. Rent payments were $5.8 million for 1999, 1998, and 1997.
Estimated future minimum rental payments for the lease are $7.6 million for the
year ending August 31, 2000, and $9.3 million for each of the years ending
August 31, 2001 through 2009.
The Company has the right to sublet excess office space in ONEOK Plaza. The
Company received $2.8 million, $2.8 million, and $2.7 million in rental revenue
during 1999, 1998, and 1997, respectively, for various subleases. Estimated
minimum future rental payments to be received under existing contracts for
subleases are $2.9 million in 2000, $2.9 million in 2001, $2.8 million in 2002,
$2.4 million in 2003, $1.8 million in 2004, and a total of $2.9 million
thereafter.
Other operating leases include office buildings and equipment. The total
estimated payments for these leases are $2.5 million in 2000, $1.5 million in
2001, and $1.4 million in 2002, $1.2 million in 2003 and $0.6 million in 2004.
SOUTHWEST GAS CORPORATION - During the year ended August 31, 1999, the Company
and Southwest Gas Corporation (Southwest) entered into a definitive agreement
whereby the Company agreed to acquire Southwest for $30 per share in an all cash
transaction valued at $918 million. The total transaction cost, including
assumed debt, is estimated at $1.8 billion. The transaction is expected to be
completed during 2000, subject to various conditions including regulatory
approvals. Southwest shareholders approved the agreement on August 10, 1999. The
Company and
55
<PAGE> 56
certain of its officers as well as Southwest have been named as defendants in a
lawsuit brought by Southern Union Company in connection with the proposed
acquisition in the total amount of $750 million. The Southern Union allegations
include, but are not limited to, Racketeer, Influenced and Corrupt Organizations
Act violations and improper interference in a contractual relationship between
Southwest and Southern Union. The Company, as third party beneficiary, has filed
a lawsuit against Southern Union for breach of a confidentiality agreement with
Southern Union and Southwest. The parties are presently involved in discovery.
If any of the plaintiffs should be successful in any of their claims against the
Company or Southwest and substantial damages are awarded, it could have a
material adverse effect on the Company's operations, cash flow, and financial
position. The Company believes the Southern Union allegations are without merit
and is defending itself vigorously against all claims.
ENVIRONMENTAL - In connection with the Western transaction, the Company acquired
responsibility for 12 manufactured gas sites located in Kansas which may contain
coal tar and other potentially harmful materials that are classified as
hazardous material. Hazardous materials are subject to control or remediation
under various environmental laws and regulations. A consent agreement with the
Kansas Department of Health and Environment (KDHE) presently governs all future
work at these sites. The terms of the consent agreement allow the Company 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. At August 31, 1999, the costs of the investigations and
risk analysis have been minimal. Limited information is available about the
sites and no testing has been performed. Management's best estimate of the cost
of remediation ranges from $100 thousand to $10 million per site based on a
limited comparison of costs incurred to remediate comparable sites. These
estimates do not give effect to potential insurance recoveries, recoveries
through rates or from third parties. The KCC has permitted others to recover
their remediation costs through rates. It should be noted that additional
information and testing could result in costs significantly below or in excess
of the amounts estimated above. To the extent that such remediation costs are
not recovered, the costs could be material to the Company's results of
operations and cash flows depending on the degree of remediation required and
number of years over which the remediation must be completed.
OTHER - The Company is a party to other litigation matters and claims which are
normal in the course of its operations, and while the results of litigation and
claims cannot be predicted with certainty, management believes the final outcome
of such matters will not have a materially adverse effect on consolidated
results of operations, financial position, or liquidity.
(J) INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Current income taxes
Federal $ 48,760 $62,462 $32,207
State 3,371 11,746 5,620
- ------------------------------------------------------------------------
Total current income taxes 52,131 74,208 37,827
- ------------------------------------------------------------------------
Deferred income taxes
Federal 13,671 (6,325) (2,551)
State 1,254 (1,298) (437)
- ------------------------------------------------------------------------
Total deferred income taxes 14,925 (7,623) (2,988)
- ------------------------------------------------------------------------
Total provision for income taxes $ 67,056 $66,585 $34,839
========================================================================
</TABLE>
56
<PAGE> 57
Following is a reconciliation of the provision for income taxes.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Pretax income $173,413 $168,380 $94,107
Federal statutory income tax rate 35% 35% 35%
- -----------------------------------------------------------------------------------------------
Provision for federal income taxes 60,695 58,933 32,937
Amortization of distribution property investment
tax credit (1,103) (938) (655)
State income taxes, net of federal tax benefit 5,737 6,253 2,936
Other, net 1,727 2,337 (379)
- -----------------------------------------------------------------------------------------------
Actual income tax expense $ 67,056 $ 66,585 $34,839
===============================================================================================
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and liabilities are shown in the accompanying table.
<TABLE>
<CAPTION>
August 31, 1999 1998
- ---------- -------- --------
(Thousands of Dollars)
<S> <C> <C>
Deferred tax assets
Accrued liabilities not deductible until paid $ 16,856 $ 6,089
Net operating loss carry forward 1,315 854
Regulatory assets 8,728 4,894
Other 3,444 --
- ------------------------------------------------------------------------
Total deferred tax assets 30,343 11,837
Valuation allowance for net operating loss
carryforward expected to expire prior to
utilization 880 854
- ------------------------------------------------------------------------
Net deferred tax assets 29,463 10,983
- ------------------------------------------------------------------------
Deferred tax liabilities
Excess of tax over book depreciation and
depletion 265,493 220,064
Investment in joint ventures 7,458 4,543
Regulatory assets 66,932 77,454
Other 3,502 12,783
- ------------------------------------------------------------------------
Total deferred tax liabilities 343,385 314,844
- ------------------------------------------------------------------------
Net deferred tax liabilities $313,922 $303,861
========================================================================
</TABLE>
The Company has remaining net operating loss carry-forwards for income tax
purposes of approximately $17.0 million at August 31, 1999, which expire, unless
previously utilized, at various dates through the year 2011. At August 31, 1999,
the Company had $8.5 million in deferred investment tax credits recorded in
other deferred credits which will be amortized over the next 16 years.
(K) SEGMENT INFORMATION
In 1999, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires the Company to
define and report the Company's business segments based on how management
currently evaluates its business. Management has segmented its business based on
differences in products and services and management responsibility.
The Company conducts its operations through six segments: (1) the Distribution
segment distributes natural gas to residential, commercial and industrial
customers and leases pipeline capacity to others; (2) the Transportation and
Storage segment transports and stores natural gas for others; (3) the Marketing
segment markets natural gas to wholesale and retail customers and markets
electricity to wholesale customers; (4) the Gathering and Processing segment
gathers and processes natural gas and natural gas liquids; (5) the Production
segment produces natural gas and oil; and (6) the Other segment primarily
operates and leases the Company's headquarters building and a related parking
facility.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies. Intersegment oil
and gas sales are recorded on the same basis as sales to unaffiliated customers.
57
<PAGE> 58
All corporate overhead costs relating to a reportable segment have been
allocated for the purpose of calculating operating income. The Company's equity
method investments do not represent operating segments of the Company. The
Company has no single external customer from which it receives ten percent or
more of its revenues.
<TABLE>
<CAPTION>
Gathering
Transportation and Eliminations
1999 Distribution and Storage Marketing Processing Production and Other Total
---- ------------ -------------- --------- ---------- ---------- ------------ ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 915,782 $ 29,393 $ 772,331 $ 72,277 $ 46,386 $ 6,641 $1,842,810
Intersegment sales 8,168 79,993 53,067 11,513 22,868 (175,609) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 923,950 $ 109,386 $ 825,398 $ 83,790 $ 69,254 $ (168,968) $1,842,810
- ---------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 404,384 $ 109,386 $ 35,443 $ 83,790 $ 69,254 $ (15,471) $ 686,786
Operating Expenses $ 230,868 $ 33,894 $ 9,069 $ 63,686 $ 19,128 $ (19,146) $ 337,499
Depreciation, depletion and
amortization $ 75,443 $ 13,852 $ 503 $ 3,562 $ 34,073 $ 2,271 $ 129,704
Operating Income $ 98,073 $ 61,640 $ 25,871 $ 16,542 $ 16,053 $ 1,404 $ 219,583
Income from Equity Investments $ -- $ 1,501 $ -- $ -- $ 2,360 $ -- $ 3,861
Total Assets $ 1,722,381 $ 373,742 $ 273,491 $ 343,133 $ 361,806 $ (49,608) $3,024,945
Capital Expenditures $ 98,685 $ 32,618 $ 4,196 $ 8,557 $ 95,431 $ 4,068 $ 243,555
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gathering
Transportation and Eliminations
1998 Distribution and Storage Marketing Processing Production and Other Total
---- ------------ -------------- --------- ---------- ---------- ------------ ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 956,044 $ 17,399 $ 746,744 $ 63,248 $ 31,570 $ 5,753 $1,820,758
Intersegment sales 7,784 73,302 31,870 15,309 12,312 (140,577) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 963,828 $ 90,701 $ 778,614 $ 78,557 $ 43,882 $ (134,824) $1,820,758
- ---------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 378,376 $ 90,701 $ 19,927 $ 78,557 $ 43,882 $ (10,694) $ 600,749
Operating Expenses $ 208,513 $ 31,052 $ 7,024 $ 60,887 $ 14,312 $ (11,503) $ 310,285
Depreciation, depletion and
amortization $ 66,214 $ 12,818 $ 561 $ 2,249 $ 18,872 $ 939 $ 101,653
Operating Income $ 103,650 $ 46,831 $ 12,342 $ 15,421 $ 10,698 $ (131) $ 188,811
Income from Equity Investments $ -- $ -- $ -- $ -- $ -- $ -- $ --
Total Assets $ 1,771,999 $ 351,692 $ 130,100 $ 86,955 $ 282,765 $ (201,024) $2,422,487
Capital Expenditures $ 77,198 $ 50,271 $ -- $ 4,735 $ 167,669 $ 6,533 $ 306,406
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gathering
Transportation and Eliminations
1997 Distribution and Storage Marketing Processing Production and Other Total
---- ------------ -------------- --------- ---------- ---------- ------------ ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 592,603 $ 5,229 $ 459,698 $ 72,739 $ 26,497 $ 5,161 $1,161,927
Intersegment sales 2,502 65,270 23,501 14,333 14,018 (119,624) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 595,105 $ 70,499 $ 483,199 $ 87,072 $ 40,515 $ (114,463) $1,161,927
- ---------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 225,252 $ 70,499 $ 12,321 $ 87,072 $ 40,515 $ 308 $ 435,967
Operating Expenses $ 116,325 $ 28,136 $ 3,707 $ 71,800 $ 12,342 $ 1,033 $ 233,343
Depreciation, depletion and
amortization $ 42,980 $ 8,395 $ 482 $ 2,393 $ 19,899 $ 360 $ 74,509
Operating Income $ 65,947 $ 33,968 $ 8,132 $ 12,879 $ 8,274 $ (1,085) $ 128,115
Income from Equity Investments $ -- $ -- $ -- $ -- $ -- $ -- $ --
Total Assets $ 855,587 $ 221,233 $ 64,190 $ 46,602 $ 94,496 $ (44,701) $1,237,407
Capital Expenditures $ 39,825 $ 27,922 $ 373 $ 10,563 $ 32,911 $ 413 $ 112,007
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 59
(L) QUARTERLY FINANCIAL DATA (UNAUDITED)
Total operating revenues are consistently greater from November through May due
to the large volume of natural gas sold to customers for heating. A summary of
the unaudited quarterly results of operations for 1999 and 1998 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
---- --------- --------- --------- ---------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 374,936 $ 592,664 $ 418,080 $ 457,130
Operating income $ 29,999 $ 125,137 $ 45,166 $ 19,281
Other income $ 4,993 $ -- $ -- $ 1,646
Income taxes $ 9,387 $ 44,596 $ 10,985 $ 2,089
Net Income $ 14,250 $ 68,532 $ 21,196 $ 2,379
Earnings (loss) per share of common stock
Basic $ 0.16 $ 1.87 $ 0.38 $ (0.22)
Diluted $ 0.16 $ 1.33 $ 0.38 $ (0.22)
Dividends per share of common stock $ 0.31 $ 0.31 $ 0.31 $ 0.31
Average shares of common stock outstanding (000's)
Basic 31,535 31,594 31,634 31,233
Diluted 31,578 51,687 31,640 31,233
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
---- --------- --------- --------- ---------
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 314,160 $ 707,410 $ 444,048 $ 355,140
Operating income $ 28,486 $ 116,605 $ 50,050 $ (6,330)
Other income $ -- $ 14,644 $ -- $ --
Income taxes $ 7,438 $ 46,611 $ 17,270 $ (4,734)
Net Income (loss) $ 12,520 $ 73,836 $ 26,936 $ (11,497)
Earnings (loss) per share of common stock
Basic $ 0.44 $ 2.06 $ 0.57 $ (0.65)
Diluted $ 0.44 $ 1.43 $ 0.52 $ (0.65)
Dividends per share of common stock $ 0.30 $ 0.30 $ 0.30 $ 0.30
Average shares of common stock outstanding (000's)
Basic 28,268 31,466 31,536 31,586
Diluted 28,268 51,576 51,589 31,586
- ----------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 60
(M) SUPPLEMENTAL CASH FLOW INFORMATION
The table presents supplemental information relative to the Company's cash flows
for the years ended August 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Cash paid during the year
Interest (including amounts capitalized) $ 50,498 $ 34,637 $ 39,993
Income taxes $ 59,466 $ 73,772 $ 34,618
Noncash transactions
Gas received as payment in kind $ 135 $ 280 $ 478
Issuance of common stock related to
Stock Performance Plan $ -- $ -- $ --
Dividend reinvestment plan $ -- $ -- $ 5,482
Acquisitions
Plant, property and equipment $ 289,931 $ 642,742 --
Current assets -- 232,738 --
Current liabilities -- (42,575) --
Debt assumed -- (161,698) --
Regulatory assets and goodwill 10,817 169,983 --
Deferred debits -- 62,633 --
Deferred credits -- (89,655) --
Deferred income taxes (4,461) (127,744) --
Capital stock -- (662,003) --
--------- ---------
Cash paid $ 296,287 $ 24,421 $ --
========================================================================================
</TABLE>
(N) STOCK BASED COMPENSATION
LONG-TERM INCENTIVE PLAN - The Long-term Incentive Plan (Plan) provides for the
granting of incentive stock options, fixed stock options, and stock bonus awards
to key employees. This Plan replaces the Key Employee Stock Purchase Plan. Under
the Plan, options may be granted by the Executive Compensation Committee (the
Committee) at any time within ten years expiring August 17, 2005. Options may be
granted which are not exercisable until a fixed future date or in installments.
The Plan also provides for restored options in the event that the optionee
surrenders shares of common stock which the optionee already owns in full or
partial payment of the options price under this option and/or surrenders shares
of common stock to satisfy withholding tax obligations incident to the exercise
of this option. A restored option has an option price equal to the fair market
value of the common stock on the date on which the exercise of the option
resulted in the grant of the restored option. The Company has reserved one
million shares of common stock for the Plan.
60
<PAGE> 61
Options issued to date become void upon voluntary termination of employment
other than retirement. In the event of retirement or involuntary termination,
the optionee may exercise the option within three months. In the event of death,
the option may be exercised by the personal representative of the optionee
within a period to be determined by the Committee and stated in the option.
Options issued to date can be exercised after one year from grant date and must
be exercised no more than ten years after grant date. Activity to date has been
as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding August 31, 1996 107,400 $ 23.69
Granted 100,700 $ 26.88
Exercised (20,700) $ 23.69
Expired (2,200) $ 26.69
Restored 4,147 $ 30.71
- --------------------------------------------------------------------
Outstanding August 31, 1997 189,347 $ 25.54
Granted 262,576 $ 33.39
Exercised (96,047) $ 25.55
Expired (4,900) $ 33.94
- --------------------------------------------------------------------
Outstanding August 31, 1998 350,976 $ 31.30
Granted 265,724 $ 35.22
Exercised (27,950) $ 26.88
Expired (2,500) $ 34.90
Restored 35,845 $ 35.95
- --------------------------------------------------------------------
Outstanding August 31, 1999 622,095 $ 33.09
- --------------------------------------------------------------------
Options Exercisable
August 31, 1997 88,347 $ 24.00
August 31, 1998 94,469 $ 25.78
August 31, 1999 354,995 $ 31.49
</TABLE>
At August 31, 1999, the Company had 283,524 outstanding options with exercise
prices ranging between $23.69 to $34.03 and a weighted average remaining life of
7.68 years. All of these options were exercisable at August 31, 1999 with a
weighted average exercise price of $30.26.
The Company also had 338,571 options outstanding at August 31, 1999 with
exercise prices ranging between $35.22 and $42.53 and a weighted average
remaining life of 8.78 years. Of these options, 71,471 were exercisable at
August 31, 1999 at a weighted average exercise price of $35.46.
EMPLOYEE STOCK PURCHASE PLAN - In 1995, the Company authorized the Employee
Stock Purchase Plan and reserved 350,000 shares of common stock for it. Almost
all full-time employees are eligible to participate. Under the terms of the
plan, employees can choose to have up to ten percent of their annual earnings
withheld to purchase the Company's common stock. The Committee may allow
contributions to be made by other means provided that in no event will
contributions from all means exceed ten percent of the employee's annual
earnings. The purchase price of the stock is 85 percent of the lower of its
beginning-of-year or end-of-year market price. Approximately 54 percent, 60
percent and 55 percent of eligible employees participated in the plan in fiscal
1999, 1998 and 1997, respectively. Under the plan, the Company sold 97,091
shares in December 1998, 105,923 shares in December 1997 and 107,080 shares in
December 1996.
61
<PAGE> 62
ACCOUNTING TREATMENT - The Company continues to apply APB 25 in accounting for
both plans and accordingly, no compensation has been recognized in the
consolidated financial statements. Had the Company applied the provisions of
SFAS 123 to determine the compensation cost under these plans, the Company's pro
forma net income and diluted earnings per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net Income (000's)
As reported $106,357 $101,795 $59,268
Pro forma $ 99,887 $ 98,592 $58,247
Earnings per share - Diluted
As reported $ 2.06 $ 2.23 $ 2.13
Pro forma $ 1.94 $ 2.16 $ 2.10
=============================================================
</TABLE>
The fair market value of each option granted is estimated based on the
Black-Scholes model. Based on previous stock performance, volatility is
estimated to be 0.2151 for 1999, 0.2720 for 1998 and 0.2264 for 1997. Dividend
yield is estimated to be 4.0 for 1999, 3.9 percent for 1998 and 3.7 percent for
1997, with a risk-free interest rate of 5.983 percent, 5.032 percent, and 6.590
percent in 1999, 1998, and 1997, respectively.
Expected life ranged from 1 to 10 years based upon experience to date and the
make-up of the optionees. Fair value of options granted under the Plan were
$13.86, $8.75, and $11.58 for 1999, 1998, and 1997, respectively.
(O) EARNINGS PER SHARE INFORMATION
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations.
The effect of dilutive options in fiscal 1997 is insignificant.
<TABLE>
<CAPTION>
Per Share
August 31, 1999 Income Shares Amount
- --------------- -------- -------- ---------
(Thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 69,110 31,498 $ 2.19
Effect of Dilutive Securities
Options -- 20
Convertible preferred stock 37,247 20,053
-------- --------
Diluted EPS
Income available to common stockholders
+ assumed conversions $106,357 51,571 $ 2.06
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Per Share
August 31, 1998 Income Shares Amount
- --------------- -------- -------- ---------
(Thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 74,816 30,674 $ 2.44
Effect of Dilutive Securities
Options -- 53
Convertible preferred stock 26,979 15,002
-------- --------
Diluted EPS
Income available to common stockholders
+ assumed conversions $101,795 45,729 $ 2.23
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Per Share
August 31, 1997 Income Shares Amount
- --------------- -------- -------- ---------
(Thousands, except per share amount)
<S> <C> <C> <C>
Basic and Diluted EPS
Income available to common stockholders $ 58,983 27,644 $ 2.13
===============================================================================
</TABLE>
62
<PAGE> 63
(P) OIL AND GAS PRODUCING ACTIVITIES
The following is historical revenue and cost information relating to the
Company's production operations:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Capitalized costs at end of year
Unproved properties $ 4,245 $ 3,505 $ 2,994
Proved properties 393,096 320,055 155,208
- -------------------------------------------------------------------------------------------------
Total capitalized costs 397,341 323,560 158,202
Accumulated depreciation, depletion, and amortization 120,109 100,601 83,457
- -------------------------------------------------------------------------------------------------
Net capitalized costs $277,232 $222,959 $ 74,745
=================================================================================================
Costs incurred during the year
Property acquisition costs (unproved) $ 948 $ 601 $ 174
Exploitation costs $ 17 $ 6 $ 71
Development costs $ 13,659 $ 15,315 $ 6,683
Purchase of minerals in place $ 79,385 $151,019 $ 21,489
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying schedule presents the results of operations of the Company's
oil and gas producing activities. The results exclude general office overhead
and interest expense attributable to oil and gas production.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Net revenues from production
Sales to unaffiliated customers $ 42,077 $ 30,003 $ 24,141
Gas sold to affiliates 22,868 12,312 14,018
- ------------------------------------------------------------------------------------
Net revenues from production 64,945 42,315 38,159
- ------------------------------------------------------------------------------------
Production costs 14,516 9,478 7,918
Exploitation costs 17 351 (12)
Depreciation, depletion, and amortization 33,771 18,210 19,246
Income taxes 6,359 5,522 4,258
- ------------------------------------------------------------------------------------
Total expenses 54,663 33,561 31,410
- ------------------------------------------------------------------------------------
Results of operations from producing activities $ 10,282 $ 8,754 $ 6,749
====================================================================================
</TABLE>
(Q) OIL AND GAS RESERVES (UNAUDITED)
Following are estimates of the Company's proved oil and gas reserves, net of
royalty interests and changes herein, for the 1999, 1998, and 1997 fiscal years.
63
<PAGE> 64
The Company emphasizes that the volumes of reserves shown are estimates, which,
by their nature, are subject to later revision. The estimates are made by the
Company utilizing all available geological and reservoir data as well as
production performance data. These estimates are reviewed annually and revised,
either upward or downward, as warranted by additional performance data.
<TABLE>
<CAPTION>
Oil Gas
(MBbls) (MMcf)
------- -------
<S> <C> <C>
August 31, 1996 2,010 74,068
Revisions of prior estimates 115 2,108
Extensions, discoveries, and other additions 111 3,009
Purchases of minerals in place 155 19,214
Sales of minerals in place (41) (515)
Production (336) (14,565)
- -----------------------------------------------------------------
August 31, 1997 2,014 83,319
Revisions of prior estimates (223) (1,255)
Extensions, discoveries, and other additions 167 23,251
Purchases of minerals in place 1,645 89,724
Sales of minerals in place (1) (174)
Production (330) (16,818)
- -----------------------------------------------------------------
August 31, 1998 3,272 178,047
Revisions of prior estimates 300 8,397
Extensions, discoveries, and other additions 376 37,202
Purchases of minerals in place 884 61,286
Sales of minerals in place (175) (3,057)
Production (460) (27,773)
- -----------------------------------------------------------------
August 31, 1999 4,197 254,102
=================================================================
Proved developed reserves
August 31, 1997 1,615 62,115
August 31, 1998 2,228 134,346
August 31, 1999 2,540 175,771
- -----------------------------------------------------------------
</TABLE>
(R) DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
Estimates of the standard measure of discounted future cash flows from proved
reserves of oil and natural gas shown in the accompanying table are based on
prices at the end of the year. Gas prices are escalated only for fixed and
determinable amounts under provisions of applicable regulations in some
contracts. These estimated future cash flows are reduced by estimated future
development and production costs based on year-end cost levels, assuming
continuation of existing economic conditions, and by estimated future income tax
expense. The tax expense is calculated by applying the current year-end
statutory tax rates to pretax net cash flows (net of tax depreciation,
depletion, and lease amortization allowances) applicable to oil and gas
production.
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Future cash inflows $ 639,721 $423,331 $218,708
Future production and development costs 194,077 129,128 67,962
Future income taxes 53,442 32,025 33,514
- --------------------------------------------------------------------------------------
Future net cash flows 392,202 262,178 117,232
10 percent annual discount for estimated
timing of cash flows 161,156 99,549 40,621
- --------------------------------------------------------------------------------------
Standardized measure of discounted future net cash
flows relating to oil and gas reserves $ 231,046 $162,629 $ 76,611
======================================================================================
</TABLE>
64
<PAGE> 65
The changes in standardized measure of discounted future net cash flow relating
to proved oil and gas reserves are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Beginning of year $162,629 $ 76,611 $ 67,316
Changes resulting from:
Sales of oil and gas produced, net of production costs (50,120) (32,837) (30,241)
Net changes in price, development, and production costs 13,629 (6,269) 12,478
Extensions, discoveries, additions, and improved
recovery, less related costs 37,379 26,217 5,047
Purchases of minerals in place 67,120 94,031 19,747
Sales of minerals in place (9,326) (142) (1,000)
Revisions of previous quantity estimates 10,477 (2,750) 3,159
Accretion of discount 17,317 9,865 8,084
Net change in income taxes (11,618) 3,055 (7,372)
Other, net (6,081) (5,152) (607)
- ------------------------------------------------------------------------------------------
End of year $231,406 $162,629 $ 76,611
==========================================================================================
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
65
<PAGE> 66
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
REGISTRANT
(A) DIRECTORS OF THE REGISTRANT
EDWYNA G. ANDERSON Director since 1995
Age 69
Mrs. Anderson served as General Counsel of Duquesne Light Company from September
1988 until retirement in October 1994. She also served as Special Counsel to the
President of Duquesne Light Company from October 1994 until March 1995, when she
retired from that position.
WILLIAM L. FORD Director since 1981
Age 56
Mr. Ford has served as President of Shawnee Milling Company since 1979. He
serves on the boards of numerous civic and business organizations and
not-for-profit associations.
BERT H. MACKIE Director since 1989
Age 57
Mr. Mackie has been with Security National Bank since 1962, and is currently
President and a director. Mr. Mackie serves on the Board of Governors of the
United States Postal Service.
GARY D. PARKER Director since 1991
Age 54
Mr. Parker, a certified public accountant, is also the majority shareholder of
Moffitt, Parker & Company, Inc., and has been President of the firm since 1982.
He is a director of First National Bank and Trust Company of Muskogee, Oklahoma.
LARRY W. BRUMMETT Director since 1994
Age 49
Mr. Brummett has been employed by the Company for more than 24 years. He was
employed by ONEOK's Oklahoma Natural Gas Company division as an engineer trainee
in June 1974 and, after receiving a number of promotions within the division,
was elected Vice President of Tulsa District September 1, 1986, and Executive
Vice President in May 1990. He was elected Executive Vice President of ONEOK
Inc. January 21, 1993. He was elected President and Chief Executive Officer
February 17, 1994, and was elected to the additional position of Chairman of the
Board effective June 1, 1994. Mr. Brummett is a director of the American Gas
Association; Southern Gas Association; Oklahoma State Chamber of Commerce;
Metropolitan Chamber of Commerce, Tulsa; and the Oklahoma City Branch of the
Federal Reserve Bank. He is also an officer or director of numerous civic and
business organizations and not-for-profit associations.
DOUGLAS ANN NEWSOM, PH.D. Director since 1982
Age 65
Dr. Newsom is a Professor within the Department of Journalism at Texas Christian
University, Fort Worth, Texas. In addition to her teaching position, Dr. Newsom
is a textbook author and public relations counselor. Ms. Newsom has been a
member of the Advisory Council of GRI for fifteen years.
66
<PAGE> 67
J. D. SCOTT Director since 1979
Age 67
Mr. Scott served as President, Chief Executive Officer and Chairman of the Board
of ONEOK Inc. from January 1987 until he retired in 1994.
DOUGLAS T. LAKE Director since 1998
Age 49
Mr. Lake, Executive Vice President and Chief Strategic Officer of Western
Resources, Inc., became a director of ONEOK, Inc. in October 1998. He joined
Western Resources, Inc. in September 1998, having previously served as Senior
Managing Director of the investment Banking Department of Bear Stearns & Co.
Inc. He is Chairman of the Board of Directors of Protection One, Inc., and is
currently a Director of Guardian International, Inc.
WILLIAM M. BELL Director since 1981
Age 64
Mr. Bell is President and a director of Bank One, Oklahoma, N.A. He serves on
the boards of numerous civic and business organizations and not-for-profit
associations.
DOUGLAS R. CUMMINGS Director since 1989
Age 69
Mr. Cummings has been President of Cummings Oil Company since 1972. He is an
officer or director of numerous civic and business organizations and
not-for-profit associations.
HOWARD R. FRICKE Director since 1997
Age 63
Mr. Fricke is Chairman of the Board and Chief Executive Officer of Security
Benefit Group of Companies. He joined the Security Benefit Group of Companies in
1988, having previously served as chairman and chief executive officer of the
Anchor National Company in Phoenix, Arizona. He is currently a director of
Payless ShoeSource, Inc., and UMB Financial Corp. He also serves on the board of
directors of the American Council for Life Insurance and Life Officer Management
Association.
DAVID L. KYLE Director since 1995
Age 47
Mr. Kyle is the President and Chief Operating Officer of ONEOK, Inc. He was
employed by Oklahoma Natural Gas Company, a division of ONEOK Inc., in 1974 as
an engineer trainee. He served in a number of positions prior to being elected
Vice President of Gas Supply September 1, 1986, and Executive Vice President May
17, 1990. He was elected President September 1, 1994. He was elected President
of ONEOK Inc. effective September 1, 1997.
(B) EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is included in Part
I of this Form 10-K.
(C) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ONEOK believes that during Fiscal 1999 all Securities and Exchange Commission
filings of its officers, directors and ten percent shareholders complied with
the requirements of Section 16 of the Securities Exchange Act, based on a review
of forms filed, or written notice that no annual forms were required, except for
two reports covering two purchases of stock made by Ms. Douglas Ann Newsom's
spouse, which were reported late on a Form 4 filed for April
67
<PAGE> 68
1999. Ms. Newsom disclaims ownership of these shares.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION AWARD(S) SARS(2) PAYOUTS COMPENSATION(3)
YEAR ($) ($) ($) ($) # ($) ($)
----------- ----------- ---------- ------------ ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L. W. BRUMMETT 1999 489,667 181,700 NONE NONE 31,200 NONE 20,325
Chairman of the Board, 1998 435,800 634,900 NONE NONE 44,179(4) NONE 12,800
and Chief Executive Officer 1997 400,933 500,000 NONE NONE 10,000 NONE 9,400
----------- ----------- ---------- ------------ ----------- ----------- ---------- ---------------
D. L. KYLE 1999 354,669 114,500 NONE NONE 21,000 NONE 14,412
President and 1998 317,472 400,000 NONE NONE 30,801(4) NONE 12,800
Chief Operating Officer 1997 297,600 375,000 NONE NONE 8,000 NONE 9,400
----------- ----------- ---------- ------------ ----------- ----------- ---------- ---------------
E. N. DUBAY 1999 234,667 48,100 NONE NONE 12,000 NONE 12,910
President - Kansas 1998 201,233 209,900 NONE NONE 10,000 NONE 10,000
Gas Service Company 1997 166,850 250,000 NONE NONE 2,500 NONE 3,200
----------- ----------- ---------- ------------ ----------- ----------- ----------- ---------------
J. A. GABERINO, Jr. 1999 235,000 38,500 NONE NONE 7,100 NONE 9,762
Senior Vice President 1998 131,250 78,400 NONE NONE 0 NONE 0
and General Counsel 1997 0 0 NONE NONE 0
----------- ----------- ---------- ------------ ----------- ----------- ----------- ---------------
J. C. KNEALE 1999 216,676 48,100 NONE NONE 6,500 NONE 12,300
Vice President, Treasurer, 1998 191,677 167,900 NONE NONE 9,965(4) NONE 9,234
and Chief Financial Officer 1997 143,733 105,340 NONE NONE 4,429(4) NONE 8,620
----------- ----------- ---------- ------------ ----------- ----------- ----------- ---------------
J. D. NEAL 1999 128,917 20,700 NONE NONE 4,000 NONE 7,595
RETIRED 05/31/99 1998 168,000 85,400 NONE NONE 5,900 NONE 9,600
Vice President, Treasurer,
and Chief Financial Officer 1997 166,066 102,600 NONE NONE 2,500 NONE 9,400
----------- ----------- ---------- ------------ ----------- ----------- ----------- ---------------
</TABLE>
1. Included in this column are fees received in Fiscal 1999 by Mr. Brummett
and Mr. Kyle for serving on the Board of Directors of Magnum Hunter
Resources, Inc. ONEOK Resources Company is a 10% owner of Magnum Hunter
Resources, Inc.
2. No SARs were granted in Fiscal Year 1999 to any of the named executive
officers.
3. The table below shows the components of this column for Fiscal 1999:
<TABLE>
<CAPTION>
Company Contributions Company Match to ONEOK, Inc.
to Thrift Plan Employee Non-Qualified Deferred Compensation Plan
--------------------- -------------------------------------------------
<S> <C> <C>
L. W. Brummett $10,325.00 $10,000.00
David L. Kyle 10,012.00 4,400.00
Eugene N. Dubay 12,910.00 0.00
John A. Gaberino, Jr. 9,762.00 0.00
James C. Kneale 12,300.00 0.00
Jerry D. Neal 7,595.00 0.00
</TABLE>
4. A portion of the securities underlying these grants are restored or
"reloaded" options. The stock option agreement provided that an additional
option may be granted if, and when, the optionee exercises all or part of
the option using Common Stock to pay the purchase price of the option or to
satisfy tax obligations incident to the exercise of the option. The
restored option will be exercisable for the number of shares tendered to
pay the option price or to satisfy any tax obligation, and will be
exercisable at any time after the date of grant (or at any other time as
determined by the Company) and will expire on the expiration date of the
original grant. The number of restored options included in these grants are
as follows:
<TABLE>
<S> <C> <C>
L. W. Brummett 11,662 shares at an exercise price of $35.75 Expires 11-16-05
7,517 shares at an exercise price of $35.75 Expires 10-10-06
D. L. Kyle 5,919 shares at an exercise price of $35.75 Expires 11-16-05
1,369 shares at an exercise price of $35.75 Expires 11-16-05
6,013 shares at an exercise price of $35.75 Expires 10-10-06
J. C. Kneale 1,974 shares at an exercise price of $34.03 Expires 10-10-06
1,391 shares at an exercise price of $42.53 Expires 11-16-05
1,929 shares at an exercise price of $30.69 Expires 11-16-05
</TABLE>
68
<PAGE> 69
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table shows information for the Named Executive Officers,
concerning:
o exercises of stock options and SARs(1) during Fiscal 1999; and
o the amount and values of unexercised stock options and SARs as of
August 31, 1999.
AGGREGATED OPTIONS/SAR EXERCISES IN 1999 AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END (#) FISCAL YEAR-END ($) (2)
ACQUIRED
ON EXERCISE VALUE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
L. W. BRUMMETT 0 0 44,179 31,200 $ 0.00 $ 0.00
Chairman of the Board and
Chief Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------------
D. L. KYLE 0 0 30,801 21,000 $ 0.00 $ 0.00
President and
Chief Operating Officer
- ------------------------------------------------------------------------------------------------------------------------------------
E. N. DUBAY 0 0 10,000 12,000 $ 0.00 $ 0.00
President - Kansas
Gas Service Company
- ------------------------------------------------------------------------------------------------------------------------------------
J. A. GABERINO, Jr. 0 0 0 7,100 $ 0.00 $ 0.00
Senior Vice President
and General Counsel
- -----------------------------------------------------------------------------------------------------------------------------------
J. C. KNEALE 0 0 9,965 6,500 $ 0.00 $ 0.00
Vice President, Treasurer,
and Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------------------------
J. D. NEAL
RETIRED 05/31/99 0 0 10,900 0 $ 27,650.00 $ 0.00
Vice President, Treasurer, and
Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No Stock Appreciation Rights ("SARs") were granted in Fiscal 1999.
(2) Based on per share price for ONEOK, Inc. Common Stock of $30.812 per share.
The price reflects the average of the high and low trading price on the New
York Stock Exchange on August 31, 1999.
69
<PAGE> 70
OPTION GRANT TABLE
The following table represents additional information concerning the option
awards shown in the Summary Compensation Table for Fiscal Year 1999. These
options to purchase common stock were granted to the Named Executive Officers
under the ONEOK, Inc. Long-Term Incentive Plan.
OPTION GRANTS IN FISCAL YEAR 1999(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK PRICE APPRECIATION FOR
OPTION TERM(3)
- ------------------------------------------------------------------------------------------------------------------------------
PERCENT OF
TOTAL
OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE 5% 10%
OPTIONS IN FISCAL PRICE EXPIRATION
GRANTED(2) YEAR ($/SHARE) DATE
NAME DATE NUMBER
============================== ====================== ============= =========== ============== =========== ==============
<S> <C> <C> <C> <C> <C> <C> <C>
L. W. BRUMMETT 10-15-98 31,200 10.98% $ 35.218 10-15-08 $ 691,046 $1,751,247
Chairman of the Board
and Chief Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------
D. L. KYLE 10-15-98 21,000 7.39% $ 35.218 10-15-08 $ 465,127 $1,178,724
President and
Chief Operating Officer
- ------------------------------------------------------------------------------------------------------------------------------
E. N. DUBAY 10-15-98 12,000 4.22% $ 35.218 10-15-08 $ 265,787 $ 673,556
President - Kansas
Gas Service Company
- ------------------------------------------------------------------------------------------------------------------------------
J. A. GABERINO, Jr 10-15-98 7,100 2.50% $ 35.218 10-15-08 $ 157,257 $ 398,521
Senior Vice President
and General Counsel
- ------------------------------------------------------------------------------------------------------------------------------
J. C. KNEALE 10-15-98 6,500 2.29% $ 35.218 10-15-08 $ 143,968 $ 364,843
Vice President, Treasurer, and
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------
J. D. NEAL 10-15-98 4,000 1.41% $ 35.218 10-15-08 $ 88,596 $ 224,519
RETIRED 05/31/99
Vice President, Treasurer, and
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. No Stock Appreciation Rights ("SARs") were granted in Fiscal 1999.
2. Each option was awarded with an exercise price equal to the fair market
value of a share of ONEOK, Inc. Common Stock on the date of the grant and
will become exercisable in four equal installments commencing one year from
the grant date.
3. These amounts represent assumed rates of appreciation only and are not
intended to forecast future appreciation of the Common Stock price. Actual
gains, if any, on stock option exercises depend on the future performance
of the Common Stock and overall market conditions. There can be no
assurances that the potential values reflected in this table will be
achieved.
70
<PAGE> 71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
TITLE OF CLASS AND
NAME & ADDRESS OF AMT. AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNERSHIP
----------------- -------------------- -----------------
COMMON STOCK:
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank of Oklahoma, N.A. 3,475,105 11.25%
Trustee for the Thrift Plan for Employees of ONEOK, Direct
Inc. and Subsidiaries;
P.O. Box 2300, Tulsa, OK 74192
- -------------------------------------------------------------------------------------------------------------
Western Resources, Inc.(1) 2,881,564 9.33%
818 Kansas Avenue
Topeka, KS 66612-1217
Westar Capital, Inc.(2) 45,791 0.15%
818 Kansas Avenue
Topeka, KS 66612-1217 -------------------------------
2,927,355 9.48%
- -------------------------------------------------------------------------------------------------------------
PREFERRED STOCK (SERIES A):
- -------------------------------------------------------------------------------------------------------------
Western Resources, Inc.(1) 19,946,448 100%
818 Kansas Avenue
Topeka, KS 66612-1217
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1 As of 08/31/99 Western Resources, Inc. and its affiliates owned
approximately 45% of the outstanding shares of the capital stock of the
Corporation. Holders of the outstanding convertible preferred stock are not
entitled to vote on any matters being considered at this Annual Meeting.
2 Westar Capital, Inc. is an affiliate of Western Resources, Inc.
71
<PAGE> 72
(B) SECURITY OWNERSHIP OF MANAGEMENT
The following table shows how much ONEOK, Inc. Common Stock each Named
Executive Officer and director owned as of August 31, 1999. No director or
executive officer beneficially owns more than 1% of the Common Stock, and
directors and executive officer as a group beneficially own approximately 1.89%
of the Common Stock.
DIRECTORS' & OFFICERS' STOCK OWNERSHIP
<TABLE>
<CAPTION>
TOTAL OF SHARES OF
SHARES OF COMMON STOCK
COMMON DIRECTORS' BENEFICIALLY OWNED PLUS
STOCK DEFERRED DIRECTORS' DEFERRED
BENEFICIALLY COMPENSATION COMPENSATION PLAN
NAME OWNED(1) PLAN PHANTOM STOCK(2) PHANTOM STOCK
==== ============ ===================== =======================
<S> <C> <C> <C>
Edwyna G. Anderson 382 206 588
- --------------------------------------------------------------------------------------------------------------------
William M. Bell(3) 2,813 1,389 4,202
- --------------------------------------------------------------------------------------------------------------------
Larry W. Brummett(4,5) 96,569 -- 96,569
- --------------------------------------------------------------------------------------------------------------------
Douglas R. Cummings 2,200 938 3,138
- --------------------------------------------------------------------------------------------------------------------
Eugene N. Dubay(4,5) 22,451 -- 22,451
- --------------------------------------------------------------------------------------------------------------------
William L. Ford(6) 4,101 2,241 6,342
- --------------------------------------------------------------------------------------------------------------------
Howard R. Fricke -- 2,045 2,045
- --------------------------------------------------------------------------------------------------------------------
John A. Gaberino, Jr.(4,5) 11,190 -- 11,190
- --------------------------------------------------------------------------------------------------------------------
James C. Kneale(4,5,7) 30,507 -- 30,507
- --------------------------------------------------------------------------------------------------------------------
David L. Kyle(4,5) 74,748 -- 74,748
- --------------------------------------------------------------------------------------------------------------------
Douglas T. Lake 6,289 226 6,515
- --------------------------------------------------------------------------------------------------------------------
Bert H. Mackie 2,172 938 3,110
- --------------------------------------------------------------------------------------------------------------------
Jerry D. Neal(4,5,8) 37,424 -- 37,424
- --------------------------------------------------------------------------------------------------------------------
Douglas Ann Newsom(9) 1,990 -- 1,990
- --------------------------------------------------------------------------------------------------------------------
Gary D. Parker(10) 4,663 431 5,094
- --------------------------------------------------------------------------------------------------------------------
J.D. Scott(5) 128,483 -- 128,483
- --------------------------------------------------------------------------------------------------------------------
Stanton L. Young 62,500 -- 62,500
- --------------------------------------------------------------------------------------------------------------------
All directors and executive officers as a
group including those named above 614,243 8,414 622,657
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. This column includes ONEOK, Inc. stock held by directors and officers,
or by certain members of their families for which the directors and
officers have sole or shared voting or investment power, shares of
Common Stock they hold in the ONEOK, Inc. Direct Stock Purchase and
Dividend Reinvestment Plan, and ONEOK, Inc. securities directors and
officers have the right to acquire within 60 days of August 31, 1999.
2. Phantom Stock has a value equal to shares of Common Stock, but Phantom
Stock has no voting rights or other shareholder rights. Phantom Stock
suffers all the risks, and enjoys all the rewards, of changes in the
price of Common Stock.
3. Includes 697 shares held in the Bell Family 1982 Revocable Trust.
4. The amounts shown include shares of ONEOK, Inc. Common Stock which the
following persons have the right to acquire as a result of the exercise
of stock options within 60 days after August 31, 1999 under the ONEOK,
Inc. Long-Term Incentive Plan:
<TABLE>
<S> <C>
L. W. Brummett 51,979 shares
Eugene N. Dubay 13,000 shares
John A. Gaberino, Jr. 1,775 shares
</TABLE>
72
<PAGE> 73
<TABLE>
<S> <C>
James C. Kneale 11,590 shares
David L. Kyle 36,051 shares
Jerry D. Neal 10,900 shares
All directors and executive officers as a group
including those names above 168,695 shares
5. The amounts shown include shares of ONEOK, Inc. Common Stock of the
Company in the custody of the Trustee for the Thrift Plan for
Employees of ONEOK, Inc. and Subsidiaries as of August 31, 1999:
L. W. Brummett 18,724 shares
Eugene N. Dubay 5,346 shares
John A. Gaberino, Jr. 9,308 shares
James C. Kneale 12,595 shares
David L. Kyle 27,624 shares
Jerry D. Neal 18,036 shares
J. D. Scott 76,928 shares
All directors and executive officers as a group including
those names above 244,104 shares
</TABLE>
6. Includes 1,136 shares owned by the 1979 Leslie A. Ford Trust, of which
William L. Ford is a trustee. Mr. Ford is not a beneficial owner of
these shares and disclaims ownership thereof.
7. Includes 3,475 shares owned by Mrs. James C. Kneale. Mr. Kneale
disclaims ownership of these shares. Mr. Kneale also holds 640 shares
in trust for his daughter.
8. Mr. Neal retired from the company effective 05/31/99.
9. Includes 1,000 shares owned by Ms. Newsom's spouse. Ms. Newsom
disclaims ownership of these shares.
10. Includes 470 shares owned by Mrs. Gary D. Parker. In addition, Mr.
Parker is holding 1,400 shares in trust as the Trustee of the Phillip
Wilkinson Irrevocable Trust under agreement dated 07/13/95.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
73
<PAGE> 74
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT
<TABLE>
<CAPTION>
(1) Exhibits
<S> <C> <C>
(3)(a) Certificate of Incorporation of WAI, Inc. (Now ONEOK,
Inc.), filed May 16, 1997 (Incorporated by reference
from Exhibit 3.1 to Amendment No. 3 to Registration
Statement on Form S-4filed August 6, 1997).
(3)(b) Certificate of Merger of ONEOK, Inc. (Formerly WAI,
Inc.) Filed November 26, 1997 (Incorporated by reference
from Exhibit (1)(b) to Form 10-Q dated May 31, 1998).
(3)(c) Amendment to Certificate of Incorporation of ONEOK,
Inc., filed January 16, 1998 (Incorporated by reference
from Exhibit (1)(b) to Form 10-Q dated May 31, 1998).
(3)(d) By-laws of ONEOK, Inc., as amended.
(4)(a) Article "Fourth" of the Certificate of Incorporation of
ONEOK, Inc. (Preferred Stock and Common Stock),
Incorporated by reference from Exhibit 3.1 to Amendment
No. 3 to Registration Statement on Form S-4 filed August
31, 1997)
(4)(b) Certificate of Designation for Convertible Preferred
stock of WAI, Inc. (Now ONEOK, Inc.) filed November 26,
1997 (Incorporated by reference from Exhibit 3.3 to
Amendment No. 3 to Registration Statement on Form S-4
filed August 31, 1997).
(4)(c) Certificate of Designation for Series C Participating
Preferred Stock of ONEOK, Inc., filed November 26, 1998
(Incorporated by reference from Exhibit No. 1 to Form
8-A, filed November 26, 1997).
(4)(d) Indenture, dated November 28, 1989, between ONEOK Inc.
and Security Pacific National Bank, incorporated by
reference from Form S-3 Registration Statement No.
33-31979.
(4)(e) Indenture, dated December 1, 1990, between ONEOK Inc.
and Security Pacific National Bank, incorporated by
reference from Form 10-K dated August 31, 1991.
(4)(f) First Supplemental Indenture dated December 1, 1990,
between ONEOK Inc. and Security Pacific National Bank,
incorporated by reference from Form 10-K dated August
31, 1991.
(4)(g) Second Supplemental Indenture dated October 1, 1991,
between ONEOK Inc. and Security Pacific National Bank,
incorporated by reference from Form 10-K dated August
31, 1991. NOTE: Certain instruments defining the rights
of holders of long-term debt are not being filed as
exhibits hereto pursuant to Item 601(b)(4)(iii) of
Registration S-K. The Company agrees to furnish copies
of such agreements to the SEC upon request.
(4)(h) Rights Agreement, dated November 26, 1997, between
ONEOK, Inc. and Liberty Bank and Trust Company of
Oklahoma City, N.A., as Rights Agent (Incorporated by
reference from Exhibit 2.3 to Amendment No. 3 to
Registration Statement on Form S-4 filed August 31,
1997).
(4)(i) Shareholder Agreement, dated November 26, 1997, between
Western Resources, Inc. and ONEOK, Inc. (Incorporated by
reference from Exhibit 2.2 to Amendment No. 3 to
Registration Statement on Form S-4 filed August 31,
1997).
</TABLE>
74
<PAGE> 75
<TABLE>
<S> <C> <C>
(4)(j) Indenture, dated September 24, 1998, between ONEOK, Inc.
and Chase Bank of Texas, incorporated by reference from
Exhibit 4.1 to Registration Statement on Form S-3 filed
August 26, 1998.
(4)(k) First Supplemental Indenture dated September 24, 1998,
between ONEOK, Inc. and Chase Bank of Texas,
incorporated by reference from Exhibit 5(a) to Form 8-K
filed September 24, 1998.
(4)(l) Second Supplemental Indenture dated September 25, 1998,
between ONEOK, Inc. and Chase Bank of Texas,
incorporated by reference from Exhibit 5(b) to Form 8-K
filed September 24, 1998.
(4)(m) Third Supplemental Indenture dated February 8, 1999,
between ONEOK, Inc. and Chase Bank of Texas,
incorporated by reference from Exhibit 4 to Form 8-K
filed February 8, 1999.
(4)(n) Fourth Supplemental Indenture dated February 17, 1999,
between ONEOK, Inc. and Chase Bank of Texas,
incorporated by reference from Exhibit 4.5 to
Registration Statement on Form S-3 filed April 15, 1999.
(4)(o) Fifth Supplemental Indenture dated August 17, 1999,
between ONEOK, Inc. and Chase Bank of Texas,
incorporated by reference from Exhibit 4 on Form 8-K
filed August 17, 1999.
(10)(a) ONEOK, Inc. Key Employee Annual Incentive Plan as
amended and accepted on November 26, 1997.
(10)(b) ONEOK, Inc. Long-Term Incentive Plan, incorporated by
reference from Exhibit 99 on Form 8- K dated June 18,
1999.
(10)(c) ONEOK, Inc. Supplemental Executive Retirement Plan as
amended and restated July 1, 1999.
(10)(d) Termination agreements between ONEOK, Inc., and ONEOK,
Inc. Executives dated January 1, 1999.
(10)(e) Indemnification agreement between ONEOK Inc., and ONEOK
Inc. Officers and Directors.
(10)(f) Ground Lease Between ONEOK Leasing Company and
Southwestern Associates dated May 15, 1983, incorporated
by reference from Form 10-K dated August 31, 1983.
(10)(g) First Amendment to Ground Lease between ONEOK Leasing
Company and Southwestern Associates dated October 1,
1984, incorporated by reference from Form 10-K dated
August 31, 1984.
(10)(h) Sublease Between RMZ Corp. and ONEOK Leasing Company
dated May 15, 1983, incorporated by reference from Form
10-K dated August 31, 1983.
(10)(i) First Amendment to Sublease between RMZ Corp. and ONEOK
Leasing Company dated October 1, 1984, incorporated by
reference from Form 10-K dated August 31, 1984.
(10)(j) ONEOK Leasing Company Lease Agreement with Oklahoma
Natural Gas Company dated August 31, 1984, incorporated
by reference from Form 10-K dated August 31, 1985.
(10)(k) Private Placement Agreement ONEOK Inc. and Paine Webber
Incorporated, dated April 6, 1993, (Medium-Term Notes,
Series A, up to U.S. $150,000,000), incorporated by
reference from Form 10-K dated August 31, 1993.
</TABLE>
75
<PAGE> 76
<TABLE>
<S> <C> <C>
(10)(l) Issuing and Paying Agency Agreement between Bank of
America Trust Company of New York, as Issuing and Paying
Agent, and ONEOK Inc, (Medium-Term Notes, Series A, up
to U.S. $150,000,000), incorporated by reference from
Form 10-K dated August 31, 1993.
(10)(m) $600,000,000 364-Day Credit Agreement date July 2, 1999,
among ONEOK, Inc., Bank of America National Trust and
Savings Association, as Administrative Agent and as a
Bank, Letter of Credit Issuing Bank and Swing Line Bank,
and the other financial institutions party hereto
incorporated by reference from Form 8-K filed November
8, 1999.
(12) Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirement.
(12)(a) Computation of Ratio of Earnings to Fixed Charges.
(21) Required information concerning the registrant's subsidiaries.
(23) Independent Auditors' Consent, filed herewith on page 66.
(27)(a) Financial Data Schedule for year ended August 31, 1999.
(27)(b) Financial Data Schedule for year ended August 31, 1998.
(27)(c) Financial Data Schedule for year ended August 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
(2) Financial Statements Page No.
<S> <C>
(a) Independent Auditors' Report. 40
(b) Consolidated Statements of Income for the years ended
August 31, 1999, 1998, and 1997. 41
(c) Consolidated Balance Sheets at August 31, 1999 and
1998. 42 - 43
(d) Consolidated Statements of Cash Flows for the years
ended August 31, 1999, 1998, and 1997. 44
(e) Consolidated Statements of Shareholder's Equity for the
years ended August 31, 1998, 1997, and 1996. 45
(f) Notes to Consolidated Financial Statements. 46 - 65
(3) Financial Statement Schedules
None.
</TABLE>
(B) REPORTS ON FORM 8-K
June 22, 1999 - announced the Public Utility Commission of Nevada
has approved the proposed merger between the Company and Southwest
Gas.
July 12, 1999 - updated financial information relating to the
Southwest Gas and required pro forma financial information.
July 28, 1999 - announced plans for moving into the electric
generation and power marketing business.
August 6, 1999 - information relating to legal matters on the
pending Southwest Gas merger.
76
<PAGE> 77
August 9, 1999 - announced Southern Union Company's failure in two
separate court actions to delay shareholder vote and the regulatory
approval process for the pending Southwest Gas merger.
August 11, 1999 - announced the approval of the pending Southwest
Gas merger by the shareholders of Southwest Gas.
August 17, 1999 - announced public offering for $300 million 7 3/4%
notes.
October 14, 1999 - Chairman and CEO Larry Brummett addressed
Oklahoma Corporation Commission to say the false allegations about a
1993 gas purchase contract may jeopardize the planned merger with
Southwest Gas.
October 21, 1999 - announced fiscal year change.
November 8, 1999 - short-term credit agreement signed.
OTHER MATTERS
None.
77
<PAGE> 78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 18th day of
November 1999.
ONEOK, Inc.
Registrant
By: Jim Kneale
------------------------------------
Jim Kneale
Vice President, Chief Financial
Officer, and Treasurer (Principal
Financial Officer)
78
<PAGE> 79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on this 18th day of
November 1999.
<TABLE>
<S> <C>
Larry W. Brummett David L. Kyle
- ------------------------------------ -----------------------------------
Larry W. Brummett David L. Kyle
Chairman of the Board, President, Chief Operating
Chief Executive Officer Officer and Director
and Director
Edwyna G. Anderson Bert H. Mackie
- ------------------------------------ -----------------------------------
Edwyna G. Anderson Bert H. Mackie
Director Director
William M. Bell Douglas A. Newsom
- ------------------------------------ -----------------------------------
William M. Bell Douglas A. Newsom
Director Director
Douglas R. Cummings Gary D. Parker
- ------------------------------------ -----------------------------------
Douglas R. Cummings Gary D. Parker
Director Director
William L. Ford
- ------------------------------------ -----------------------------------
William L. Ford J. D. Scott
Director Director
Stanton L. Young
- ------------------------------------ -----------------------------------
Howard R. Fricke Stanton L. Young
Director Director
Douglas T. Lake
- ------------------------------------
Douglas T. Lake
Director
</TABLE>
79
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
(3)(a) Certificate of Incorporation of WAI, Inc. (Now ONEOK, Inc.),
filed May 16, 1997 (Incorporated by reference from Exhibit 3.1 to
Amendment No. 3 to Registration Statement on Form S-4filed August
6, 1997).
(3)(b) Certificate of Merger of ONEOK, Inc. (Formerly WAI, Inc.) Filed
November 26, 1997 (Incorporated by reference from Exhibit (1)(b)
to Form 10-Q dated May 31, 1998).
(3)(c) Amendment to Certificate of Incorporation of ONEOK, Inc., filed
January 16, 1998 (Incorporated by reference from Exhibit (1)(b)
to Form 10-Q dated May 31, 1998).
(3)(d) By-laws of ONEOK, Inc., as amended.
(4)(a) Article "Fourth" of the Certificate of Incorporation of ONEOK,
Inc. (Preferred Stock and Common Stock), Incorporated by
reference from Exhibit 3.1 to Amendment No. 3 to Registration
Statement on Form S-4 filed August 31, 1997)
(4)(b) Certificate of Designation for Convertible Preferred stock of
WAI, Inc. (Now ONEOK, Inc.) filed November 26, 1997 (Incorporated
by reference from Exhibit 3.3 to Amendment No. 3 to Registration
Statement on Form S-4 filed August 31, 1997).
(4)(c) Certificate of Designation for Series C Participating Preferred
Stock of ONEOK, Inc., filed November 26, 1998 (Incorporated by
reference from Exhibit No. 1 to Form 8-A, filed November 26,
1997).
(4)(d) Indenture, dated November 28, 1989, between ONEOK Inc. and
Security Pacific National Bank, incorporated by reference from
Form S-3 Registration Statement No. 33-31979.
(4)(e) Indenture, dated December 1, 1990, between ONEOK Inc. and
Security Pacific National Bank, incorporated by reference from
Form 10-K dated August 31, 1991.
(4)(f) First Supplemental Indenture dated December 1, 1990, between
ONEOK Inc. and Security Pacific National Bank, incorporated by
reference from Form 10-K dated August 31, 1991.
(4)(g) Second Supplemental Indenture dated October 1, 1991, between
ONEOK Inc. and Security Pacific National Bank, incorporated by
reference from Form 10-K dated August 31, 1991.
NOTE: Certain instruments defining the rights of holders of
long-term debt are not being filed as exhibits hereto pursuant to
Item 601(b)(4)(iii) of Registration S-K. The Company agrees to
furnish copies of such agreements to the SEC upon request.
(4)(h) Rights Agreement, dated November 26, 1997, between ONEOK, Inc.
and Liberty Bank and Trust Company of Oklahoma City, N.A., as
Rights Agent (Incorporated by reference from Exhibit 2.3 to
Amendment No. 3 to Registration Statement on Form S-4 filed
August 31, 1997).
(4)(i) Shareholder Agreement, dated November 26, 1997, between Western
Resources, Inc. and ONEOK, Inc. (Incorporated by reference from
Exhibit 2.2 to Amendment No. 3 to Registration Statement on Form
S-4 filed August 31, 1997).
(4)(j) Indenture, dated September 24, 1998, between ONEOK, Inc. and
Chase Bank of Texas, incorporated by reference from Exhibit 4.1
to Registration Statement on Form S-3 filed August 26, 1998.
(4)(k) First Supplemental Indenture dated September 24, 1998, between
ONEOK, Inc. and Chase Bank of Texas, incorporated by reference
from Exhibit 5(a) to Form 8-K filed September 24, 1998.
(4)(l) Second Supplemental Indenture dated September 25, 1998, between
ONEOK, Inc. and Chase Bank of Texas, incorporated by reference
from Exhibit 5(b) to Form 8-K filed September 24, 1998.
(4)(m) Third Supplemental Indenture dated February 8, 1999, between
ONEOK, Inc. and Chase Bank of Texas, incorporated by reference
from Exhibit 4 to Form 8-K filed February 8, 1999.
(4)(n) Fourth Supplemental Indenture dated February 17, 1999, between
ONEOK, Inc. and Chase Bank of Texas, incorporated by reference
from Exhibit 4.5 to Registration Statement on Form S-3 filed
April 15, 1999.
(4)(o) Fifth Supplemental Indenture dated August 17, 1999, between
ONEOK, Inc. and Chase Bank of Texas, incorporated by reference
from Exhibit 4 on Form 8-K filed August 17, 1999.
(10)(a) ONEOK, Inc. Key Employee Annual Incentive Plan as amended and
accepted on November 26, 1997.
(10)(b) ONEOK, Inc. Long-Term Incentive Plan, incorporated by reference
from Exhibit 99 on Form 8- K dated June 18, 1999.
(10)(c) ONEOK, Inc. Supplemental Executive Retirement Plan as amended and
restated July 1, 1999.
(10)(d) Termination agreements between ONEOK, Inc., and ONEOK, Inc.
Executives dated January 1, 1999.
(10)(e) Indemnification agreement between ONEOK Inc., and ONEOK Inc.
Officers and Directors.
(10)(f) Ground Lease Between ONEOK Leasing Company and Southwestern
Associates dated May 15, 1983, incorporated by reference from
Form 10-K dated August 31, 1983.
(10)(g) First Amendment to Ground Lease between ONEOK Leasing Company and
Southwestern Associates dated October 1, 1984, incorporated by
reference from Form 10-K dated August 31, 1984.
(10)(h) Sublease Between RMZ Corp. and ONEOK Leasing Company dated May
15, 1983, incorporated by reference from Form 10-K dated August
31, 1983.
(10)(i) First Amendment to Sublease between RMZ Corp. and ONEOK Leasing
Company dated October 1, 1984, incorporated by reference from
Form 10-K dated August 31, 1984.
(10)(j) ONEOK Leasing Company Lease Agreement with Oklahoma Natural Gas
Company dated August 31, 1984, incorporated by reference from
Form 10-K dated August 31, 1985.
(10)(k) Private Placement Agreement ONEOK Inc. and Paine Webber
Incorporated, dated April 6, 1993, (Medium-Term Notes, Series A,
up to U.S. $150,000,000), incorporated by reference from Form
10-K dated August 31, 1993.
(10)(l) Issuing and Paying Agency Agreement between Bank of America Trust
Company of New York, as Issuing and Paying Agent, and ONEOK Inc,
(Medium-Term Notes, Series A, up to U.S. $150,000,000),
incorporated by reference from Form 10-K dated August 31, 1993.
(10)(m) $600,000,000 364-Day Credit Agreement date July 2, 1999, among
ONEOK, Inc., Bank of America National Trust and Savings
Association, as Administrative Agent and as a Bank, Letter of
Credit Issuing Bank and Swing Line Bank, and the other financial
institutions party hereto incorporated by reference from Form 8-K
filed November 8, 1999.
(12) Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirement.
(12)(a) Computation of Ratio of Earnings to Fixed Charges.
(21) Required information concerning the registrant's subsidiaries.
(23) Independent Auditors' Consent, filed herewith on page 66.
(27)(a) Financial Data Schedule for year ended August 31, 1999.
(27)(b) Financial Data Schedule for year ended August 31, 1998.
(27)(c) Financial Data Schedule for year ended August 31, 1997.
</TABLE>
<PAGE> 1
EXHIBIT (3)(d)
BY-LAWS OF ONEOK, 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.
(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.
<PAGE> 2
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 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 pledgees 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) A shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for the shareholder by proxy, but no
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. The following shall constitute a valid
means by which a shareholder may grant such authority:
(i) by executing a writing authorizing another person or
persons to act for him or her as proxy. Execution may be accomplished by the
shareholder or the shareholder's authorized officer, director, employee, or
agent signing the writing or causing his or her signature to be affixed to the
writing by any reasonable means including, but not limited to, by facsimile
signature; or
(ii) by authorizing another person or persons to act for him
or her as proxy by transmitting or authorizing transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization, or like agent duly authorized by the person who will be the holder
of the proxy to receive the transmission; provided, that any telegram,
cablegram, or other means of electronic transmission must either set forth, or
be submitted with information from which it can be determined, that the
telegram, cablegram, or other electronic transmission was authorized by the
shareholder. If it is determined that telegrams, cablegrams, or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, any
other person making that determination shall specify the information upon which
they relied.
Any copy, facsimile telecommunication, or other reliable reproduction of the
writing or transmission created pursuant
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<PAGE> 3
to this subsection may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided, that the copy, facsimile
telecommunication, or other reproduction shall be a complete reproduction of the
entire original writing transmission.
(d) 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.
(e) 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
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 a 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, the
Board may fix, in advance, a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted, and which
record date shall not be more than 60 nor less than 10 days before the date of
such meeting. If no record date is fixed by the Directors, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. 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. In order that the
Corporation may determine shareholders 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 record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall not be
more than 60 days prior such 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.
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 THE 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 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.
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<PAGE> 4
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. (a) At a meeting of the shareholders,
only such business shall be proper as shall be brought before the meeting: (i)
pursuant to the Corporation's notice of meeting; (ii) by or at the discretion of
the Board of Directors of the Corporation; or (iii) by any shareholder of the
Corporation who is a shareholder of record at the time of giving the notice
provided for herein, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth herein.
(b) For business to be properly brought before a meeting by a
shareholder pursuant to clause (iii) above, the shareholder must have given
timely notice thereof in writing to the Secretary. To be timely as to an annual
meeting of shareholders, a shareholder's notice must be received at the
principal executive office of the Corporation not less than 120 calendar days
before the date of the Corporation's proxy statement released to shareholders in
connection with the previous year's annual meeting; provided however, that if
the date of the meeting is changed by more than 30 days from the date of the
previous year's meeting, notice by shareholder to be timely must be received no
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed to shareholders or
public disclosure of such date was made. To be timely as to a special meeting of
shareholders, a shareholder notice must be received not later than the call of
the meeting as provided for in Section 2 of this Article II. Such shareholder
notice shall be set forth as to each matter the shareholder proposed to bring
before the meeting: (1) a brief description of and the reasons for proposing
such matter at the meeting; (2) the name and address, as they appear on the
Corporation's books, and the name and address of the beneficial owner, if any,
on whose behalf the proposal is made; (3) the class and number of shares of the
Corporation which are owned beneficially and of record by such shareholder of
record and by the beneficial owner, if any, on whose behalf the proposal is
made; and (4) any material interest of such shareholder of record and the
beneficial owner, if any, on whose behalf the proposal is made, in such
proposal.
(c) Notwithstanding anything in these By-laws to the contrary, no
business shall be proper at a meeting unless brought before it in accordance
with the procedures set forth herein. Further, a shareholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth herein.
(d) The Chairman of the Board of the Corporation or the individual
designated as chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the procedures proscribed herein, and if the chairman
should so determine, that any such business not properly brought before the
meeting shall not be transacted.
(e) Notwithstanding anything provided herein to the contrary, the
procedures for submission of shareholder proposals have not expended, altered or
affected in any manner, whatever rights or limitations may exist regarding the
ability of a shareholder of the Corporation to submit a proposal for
consideration by shareholders of the Corporation under Oklahoma or federal law.
ARTICLE III - BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business, and affairs of the
Corporation shall be managed by and
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<PAGE> 5
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. 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) 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.
(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 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.
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SECTION 3.04 RESIGNATIONS. 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.
SECTION 3.05 CHAIRMAN OF THE BOARD EMERITUS. 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 3.06 ADVISORY DIRECTORS. (a) The Chairman of the Board may from
time to time designate persons as Advisory Directors who shall be available to
advise and consult with the Chairman of the Board and the Board of Directors and
shall serve in such capacity at the pleasure of the Chairman of the Board. Any
person so designated as an Advisory Director may be invited to attend any
meeting of the Board or any meeting of a Committee of the Board by the Chairman
of the Board without further action of the Board.
(b) The compensation to be received by Advisory Directors shall be
established from time to time by the Board of Directors.
(c) The business of the Corporation shall remain solely under the
direction of the Board and any person designated as an Advisory Director SHALL
BE A NON-VOTING MEMBER, and shall not by virtue of their designation as Advisory
Directors or by virtue of their providing advise or consultation to the
Corporation be deemed to have undertaken any duty to the Corporation or its
shareholders.
(d) Any person designated as an Advisory Director by the Board shall
not have any liability to the Corporation and its shareholders. If,
notwithstanding the foregoing, a claim should ever be asserted against any such
Advisory Director by or on behalf of the Corporation or any shareholders or
otherwise, the Advisory Director shall be entitled to the protection of Article
VIII of the By-laws of this Corporation, and to the protection of any other
indemnification or limitation of liability provisions that may exist from time
to time with respect to members of the Board, either in the Certificate of
Incorporation, By-laws, minutes, agreements or other documents of the
Corporation or applicable law.
(e) The Chairman of the Board or the Board of Directors may terminate
the status of a person as an Advisory Director at any time without any liability
or obligation to such person except that any indemnification provided to such
person at the time of such termination shall continue for the benefit of such
person.
(f) The Corporation may enter into a contract with any person who is
designated as an Advisory Director with such terms and condition as may be
approved by the Chairman of the Board.
SECTION 3.07 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.
SECTION 3.08 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or
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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 3.09 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 3.10 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 3.11 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 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 3.12 QUORUM AND MANNER OF ACTING. Except as otherwise provided
in the Certificate of Incorporation, the By-laws, or by law, the presence of
seven (7) or one-third, whichever is greater, 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 3.13 ACTION BY CONSENT. Any action required or permitted to he
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 3.14 COMPENSATION. All salaries and compensation paid by the
Corporation to its Directors shall be fixed from tire 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.
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SECTION 3.15 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 to:
(i) approve, adopt, or recommend to the shareholders any
action or matter expressly required by the Oklahoma General Corporation Act to
be submitted to shareholders for approval; or
(ii) adopt, amend, or repeal any bylaw of the Corporation.
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 3.16 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 3.17 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, a quorum be present which may
include common or interested Directors for purposes of determining the presence
of a quorum, and the Board in good faith authorizes or confirms such contract or
transaction by the affirmative votes of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum. 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 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
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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 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.
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SECTION 4.03 ELECTION OF CHIEF EXECUTIVE OFFICER. 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.
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, AND INTERESTS IN
PARTNERSHIPS, LIMITED LIABILITY COMPANIES AND OTHER ENTITIES. 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: (i) at any meeting of shareholders of any
corporation in which the Corporation may hold stock, (ii) at any meeting of
partners of any partnerships (general or limited) in which the Corporation may
hold a partnership interest, (iii) at any meeting of members of a limited
liability company in which the Corporation may hold a capital interest, and (iv)
at any meeting of any other entities in which the Corporation may hold an
ownership interest 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, partnership, capital, or other interest, or in lieu of
a meeting to act or vote by written consent on behalf of the Corporation,
without a meeting. 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.
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
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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 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.
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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 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 canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in 7.04 of the By-laws. Notwithstanding the above, the Board may provide by
resolution or resolutions that some or all of any and all classes or series of
stock of the Corporation may be uncertificated shares provided the shares
represented by a certificate shall not become uncertificated shares until such
time as the certificate for such shares is surrendered to the Corporation and
shall have been canceled and provided further that any holder of uncertificated
shares who makes written request to the Corporation shall be entitled to receive
a certificate representing such holder's shares of the stock in the Corporation.
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 except for uncertificated shares 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 and uncertificated
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 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
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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 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 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 shall deem proper.
SECTION 8.03 INDEMNITY IF SUCCESSFUL. Notwithstanding the other
provisions of this Article, to the extent that a present or former 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 present or former 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
the Directors who were not parties to such action, suit, or proceeding, even
though less than a quorum; (ii) by a committee of Directors designated by a
majority vote of Directors, even though less than a quorum; (iii) if there are
no such Directors, or if such Directors so direct, by independent legal counsel
in a written opinion; or (iv) 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 former Directors or officers or 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 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.
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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 Article,
references to "other enterprises" shall include, but are not limited to,
employee benefit plans; references to "fines" shall include, but are not limited
to, 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, but are not limited to, 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 Article.
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 December of each year commencing with 1999; provided, that in
respect to the election of Directors at the next annual meeting after the
commencement of the new fiscal year, a person who would have been eligible for
election as a Director at the normal time for a meeting of shareholders for the
prior fiscal year shall remain eligible notwithstanding the provision of Section
3.03 above.
14
<PAGE> 15
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
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.
15
<PAGE> 1
EXHIBIT (10)(a)
ONEOK, INC.
KEY EMPLOYEE ANNUAL INCENTIVE PLAN
AS ACCEPTED AND ASSUMED ON NOVEMBER 26, 1997
1. Name and Effective Date. The plan hereby created shall be known as
the ONEOK, Inc. Key Employee Annual Incentive Plan ("Plan"). The Plan shall be
effective as of September 1, 1995, and shall first apply with respect to the
fiscal year ending August 31, 1996. The Plan shall remain in effect until
terminated by the Board of Directors of ONEOK, Inc. ("Board of Directors")
pursuant to paragraph 8, below.
2. Purpose. The purpose of this Plan is to provide officers and other
key employees of ONEOK, Inc., its divisions and subsidiaries ("Company"),
selected for participation in the Plan under paragraph 3, below, with a direct
financial interest in the performance and profitability of the Company, and
particular business units thereof, and to reward performance in employment with
the Company. It is the intention (but not the obligation) of the Company that
cash payment of incentive awards ("Awards") will be made annually in accordance
with the terms of this Plan.
3. Eligibility; Plan Participation. The Executive Compensation
Committee ("Committee") of the Board of Directors, in its sole discretion, after
taking into consideration any recommendations of the Chief Executive Officer of
the Company, shall be authorized to determine and select the officers and other
key employees of the Company eligible to participate ("Participants") in the
Plan for a fiscal year. No member of the Committee shall be eligible to
participate in the Plan.
4. Administration. The Plan shall be administered by the Committee
which shall be composed of at least three members of the Board of Directors. The
Committee is hereby vested with full powers of administration of the Plan,
subject only to the provisions herein set forth. Members of the Committee shall
not be eligible to receive Awards or any other financial benefit under the Plan.
The Committee shall act by a vote of a majority of a quorum or by unanimous
written consent. A majority of its members shall constitute a quorum. The Board
may, from time to time, remove members from or add members to the Committee.
Vacancies on the Committee, arising for any reason, shall be filled only by the
Board of Directors. The Committee shall have the authority to define, prescribe,
amend and rescind rules, regulations, procedures, terms and conditions relating
to the Plan. The Committee shall also have the authority to make all
determinations necessary or advisable, in its sole discretion, for the
administration of the Plan, including but not limited to interpreting the Plan,
correcting defects, reconciling inconsistencies and resolving ambiguities. The
interpretation by the Committee of the terms and provisions of the Plan, and its
administration of the Plan, and all actions taken by the Committee, shall be
final, binding and conclusive on the Company, its stockholders, subsidiaries,
all Participants in the Plan and employees, and upon their respective successors
and assigns, and upon all other persons claiming under or through any of them.
<PAGE> 2
5. Determination of Awards. The determination of incentive criteria and
actual incentive Awards for Participants, and timing and terms of payment of
such Awards shall be made pursuant to determinations, actions, rules,
regulations and procedures adopted and established from time to time by the
Committee. It is anticipated, subject in all cases to the determinations to be
made by the Committee, in its sole discretion (which may differ in any way the
Committee determines from the following), that Awards will be made payable to
Participants subject to achievement of certain corporate and unit performance
goals established and approved by the Committee before the start of a fiscal
year of the Company; the measurement period for such achievement of such goals
will correspond to the Company's fiscal year; payment of Awards approved by the
Committee under the Plan will be made as soon as reasonably possible after the
end of the fiscal year for which they are approved after the audited financial
results are made available to the Committee; the Committee will be assisted in
administering the Plan by the Chief Executive Officer, and the officers,
employees and departments of the Company designated by the Chief Executive
Officer; the committee will monitor the Plan and make adjustments and
interpretations, from time to time as it determines, in its sole discretion, to
be appropriate; goals established pursuant to the Plan can be modified by the
Committee during the fiscal year of the Company for which such goals were
established if conditions outside the control of the Company or unit arise that
make such goals obsolete or unreasonable (including increasing or decreasing the
standards involved or replacing them in their entirety); and periodic and
frequent communication will be made by the Committee to Participants in the Plan
of the Plan's provisions, the goals and standards established pursuant to the
Plan, and the relevant operating and financial information of the Company, its
divisions, subsidiaries, and business units thereof.
6. Payment of Awards. Any Award to a Participant in the Plan determined
and approved by the Committee for performance in a fiscal year or other
measurement period, in accordance with paragraph 5, above, shall be paid to such
Participant in a cash lump sum payment as soon as is practicable after the
Committee has approved the amount for that period. Said payments shall be deemed
additional compensation to the Participant, and payroll taxes shall be withheld
from said payments in accordance with all applicable federal, state and local
laws.
7. Termination of Employment. This Plan does not create a contract of
employment between the Company and any Participant. This Plan does not limit the
right of the Company to discharge or terminate a Participant for any reason, or
for no reason. The payment of any Award under this Plan is completely
discretionary with the Committee and Board of Directors, and no person shall
have any claim to be granted or to receive any Award or other amount, benefit or
payment, and no Participant or other person shall have authority to assign or
transfer any Award or other rights, benefits or payments hereunder, or to enter
into any agreement with any person for the payment of any Award, or to make any
representation or warranty with respect thereto. Upon a Participant's
termination of employment with the Company for any reason, including but not
limited to the death or disability of the Participant, the Participant's rights,
if any, to an Award hereunder shall terminate. A Participant must be employed on
September 30 of a fiscal year or the last day of any other applicable
measurement period in order to receive an Award with respect to the fiscal year
or measurement period, respectively.
8. Amendment or Termination. The Company reserves the right to amend or
terminate the Plan at any time by action of its Board of Directors. Such
amendment or termination may be made at any time during the year, and no such
amendment or termination shall entitle any Participant to any claim for an
Award, or for any other benefit or payment, under this Plan.
2
<PAGE> 1
EXHIBIT (10)(c)
ONEOK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated July 1, 1999)
<PAGE> 2
AMENDED AND RESTATED 7/1/99
ONEOK, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PURPOSE
The purpose of the ONEOK, Inc. Supplemental Executive Retirement Plan is to
provide the specified benefits to a select group of management and highly
compensated employees who contribute materially to the continued growth,
development and future business success of ONEOK, Inc., and its subsidiaries.
It is the intention of ONEOK, Inc. that the Plan and the particular benefits
provided to individuals hereunder be administered as an unfunded deferred
compensation and excess benefit plans established and maintained for a select
group of management or highly compensated employees.
This Plan is an amendment, restatement, and continuation of the Supplemental
Executive Retirement Plan for Employees of ONEOK, Inc. This amended and
restated Plan replaces all prior documents and amendments and is effective as
of the date determined by the Board of Directors.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. For purposes of the Plan, the following phrases or terms
shall have the indicated meanings unless otherwise clearly apparent
from the context:
A. "Base Cash Compensation" shall mean the
regular monthly salary paid to a
Participant by the Company before any
deductions or exclusions for taxes or other
purposes, and excluding any vehicle
allowance, incentives, commissions and any
other special pay.
B. "Beneficiary" shall mean the person or
persons or the estate of a Participant
entitled to receive any benefits under a
Plan Agreement entered into in accordance
with the terms of the Plan.
C. "Board of Directors" shall mean the Board
of Directors of ONEOK, Inc., unless
otherwise indicated or the context
otherwise requires.
D. "Change of Control" shall mean a Change of
Control as defined in the ONEOK, Inc.
Severance Pay Plan.
E. "Code" shall mean the Internal Revenue Code
of 1986, as amended.
F. "Committee" shall mean the Executive
Compensation Committee of the Board of
Directors or such other Committee appointed
to manage and administer the Plan and
individual Plan Agreements in accordance
with the provisions of Article XIII hereof.
G. "Company" shall mean ONEOK, Inc., an
Oklahoma corporation, and its subsidiaries
and predecessor entities.
2
<PAGE> 3
AMENDED AND RESTATED 7/1/99
H. "Compensation" shall mean the Base and
Short-Term Incentive Cash Compensation from
the Company paid to or deferred by a
Participant during a calendar year.
I. "Death Benefit" shall mean the amount paid
to a Participant's Beneficiary in
accordance with the provisions of Article
III hereof.
J. "Disability Benefit" shall mean the amount
paid to a Participant's Beneficiary in
accordance with the provisions of Section
4.2 hereof.
K. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
L. "Employee" shall mean any person who is in
the regular full-time employment of the
Company or is on authorized leave of
absence therefrom, as determined by the
personnel rules and practices of the
Company. The term does not include persons
who are retained by the Company solely as
consultants or under contract.
M. "KGS Supplemental Executive Retirement
Plan" shall mean the ONEOK, Inc.
Supplemental Retirement Plan for KGS
Employees, merged and consolidated into
this Plan effective July 1, 1999.
N. "KGS SERP Participant" shall mean any
person who was a participant in the KGS
Supplemental Executive Retirement Plan on
July 1, 1999, whose accrued benefits
thereunder are, after June 30, 1999, to be
paid pursuant to this Plan in accordance
with Section 2.3 hereof.
O. "Participant" shall mean an Employee who is
selected and elects to participate in the
Plan through the execution of a Plan
Agreement in accordance with the provisions
of Article II hereof.
P. "Person" shall mean and include an
individual, a trust, estate, partnership,
limited liability company, association,
company or corporation.
Q. "Plan Agreement" shall mean the form of
written agreement which is entered into by
and between the Company and an Employee
selected to become a Participant as a
condition to participation in the Plan. The
form of Plan Agreement to be used shall be
substantially the same as the form attached
hereto as Appendix I.
R. "Plan" shall mean the ONEOK, Inc.
Supplemental Executive Retirement Plan as
embodied herein and as amended from time to
time.
S. "Rabbi Trust" shall mean the trust created
to hold assets which will be used to pay
the benefits provided hereunder, as
provided in Section 7.4 hereof.
3
<PAGE> 4
AMENDED AND RESTATED 7/1/99
T. "Retirement" and "Retire" shall mean
termination of employment with the Company,
other than as the result of death or Total
and Permanent Disability.
U. "Retirement Benefit" shall mean the monthly
amount to be paid to a Participant under
Sections 4.1, 4.2, or 4.3 hereof, and the
Participant's Plan Agreement.
V. "Retirement Plan" shall mean the Retirement
Plan for Employees of ONEOK, Inc. and
Subsidiaries, or the ONEOK, Inc. KGS
Retirement Plan, whichever is applicable to
the Participant.
W. "Service" shall mean employment of a
Participant by the Company as a regular
full-time employee.
X. "Short-Term Incentive Cash Compensation"
shall mean any payment by the Company under
the Key Employee Incentive Plan for
Employees of ONEOK, Inc. and Subsidiaries
or any other incentive or commission plan
established by the Company to pay employees
additional cash compensation to reward
performance.
Y. "Totally and Permanently Disabled" means
when, on the basis of medical evidence, it
is determined that a Participant:
a) is totally disabled so as to be
prevented from any comparable
employment with the Company,
including a disability resulting
from an occupational cause; and
b) will be disabled permanently.
Z. "Years of Service" shall include each full
year, but not any portion of a year, during
which the Participant has been employed by
the Company or any division or subsidiary
thereof.
1.2 CONSTRUCTION. The singular when used herein may include the plural
unless the context clearly indicates to the contrary. The words
"hereof", "herein", "hereunder", and other similar compounds of the
word "here" shall mean and refer to the entire Plan and not to any
particular provision or section. Whenever the words "Article" or
"Section" are used in the Plan, or a cross reference to an "Article"
or "Section" is made, the Article or Section referred to shall be an
Article or Section of the Plan unless otherwise specified.
The Plan is intended to be an unfunded deferred compensation and
excess benefit plan established and maintained for a select group of
management and highly compensated employees of the Company within the
meaning of Sections 201(2) and (7), 301(a)(3), (9) and 401(a)(1) of
ERISA, and shall be construed, interpreted and administered in
accordance with such intended purpose.
4
<PAGE> 5
AMENDED AND RESTATED 7/1/99
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. In order to be eligible for participation in the Plan, an
Employee must be selected by the Chief Executive Officer, or in the
case of the Chief Executive Officer by the Board of Directors, which,
in the CEO\its sole and absolute discretion, shall determine
eligibility for participation in accordance with the purposes of the
Plan.
2.2 PARTICIPATION. An Employee, having been selected to participate in the
Plan by the Chief Executive Officer/Board of Directors, shall, as a
condition to participate, complete and return to the Committee a duly
executed Plan Agreement electing to participate in the Plan and
agreeing to the terms and conditions thereof.
2.3 KGS SERP PARTICIPANT PARTICIPATION. Any KGS SERP participant shall be
eligible to receive payment by the Company under this Plan of his/her
accrued benefits as of June 30, 1999, under the KGS Supplemental
Executive Retirement Plan. The amount and form of such benefits shall
be determined in accordance with the terms and provisions of the KGS
Supplemental Executive Retirement Plan, which are incorporated herein
by reference and made a part hereof; provided, that payment of such
benefits and all related matters otherwise shall hereafter be
administered by the Company in accordance with the terms and
provisions of this Plan. A KGS SERP participant shall not otherwise be
eligible for participation in or accrual of any other benefits under
this Plan, unless expressly provided for in accordance with the
provisions of the Plan.
ARTICLE III
DEATH BENEFIT
3.1 AMOUNT AND PAYMENT OF DEATH BENEFIT. In the event a Participant dies
prior to Retirement from the Company, the Company will pay or cause to
be paid a Death Benefit to such Participant's Beneficiary in the
amount or amounts set forth in such Participant's Plan Agreement and
as therein specified, commencing on the first day of the month
following the date of such Participant's death, or as otherwise
specified in such Participant's Plan Agreement.
3.2 PARTIAL DISTRIBUTION PRIOR TO DEATH. If a Participant shall die after
becoming entitled to a Retirement Benefit, but before the total amount
payable to such Participant as a Retirement Benefit has been paid, the
Retirement Benefit payments then remaining unpaid to such Participant
shall be paid to such Participant's Beneficiary, in accordance with
the payment schedule pursuant to which payments are made under
Sections 4.1, 4.2, or 4.3.
ARTICLE IV
RETIREMENT BENEFIT
4.1 RETIREMENT. If a Participant remains an Employee until attaining age
sixty-five (65) and shall then retire, the Company will pay or cause
to be paid to such Participant as a Retirement Benefit (as herein
defined), the amount per month specified herein and in such
Participant's Plan Agreement, commencing on the first day of the month
following such Participant's Retirement, or as otherwise specified in
such Participant's Plan Agreement. If a Participant Retires prior to
attaining age sixty-five (65), the Company will pay or cause to be
paid to such Participant as a Retirement Benefit, the amount (if any)
per month specified herein and in such Participant's Plan
5
<PAGE> 6
AMENDED AND RESTATED 7/1/99
Agreement, commencing on the first day of the month following such
Participant's Retirement, or as otherwise specified by such
Participant and as permitted by such Participant's Plan Agreement.
Provided however, Retirement Benefit payments shall not commence until
the later of (i) the Participant attaining the age of fifty (50), and
(ii) the commencement of retirement benefit payments to the
Participant under the Retirement Plan.
<TABLE>
<CAPTION>
Retirement Benefit
Retirement Age Percentage
-------------- ----------
<S> <C>
50 & under 50.00%
51 51.20%
52 52.40%
53 53.60%
54 54.80%
55 56.00%
56 56.57%
57 57.14%
58 57.71%
59 58.28%
60 58.85%
61 59.42%
62 60.00%
63 60.56%
64 61.13%
65 & over 61.70%
</TABLE>
4.2 DISABILITY. If a Participant shall become Totally and Permanently
Disabled prior to Retirement and such total disability continues for
more than six (6) months, such Participant shall be entitled to the
same Retirement Benefit such Participant would have received had such
Participant attained the age of sixty-five (65) at the time of such
disability.
4.3 VESTING OF RETIREMENT BENEFIT. Notwithstanding any provision to the
contrary expressed or implied herein, a Participant's Retirement
Benefit shall unconditionally vest in such Participant and become
nonforfeitable according to the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage of
with the Company Retirement Benefit
----------------- --------------------
<S> <C>
0 to 5 0%
6 10%
7 20%
8 30%
9 40%
10 50%
11 60%
12 70%
13 80%
14 90%
15 or more 100%
</TABLE>
6
<PAGE> 7
AMENDED AND RESTATED 7/1/99
If a Participant attains age sixty-five (65) prior to Retirement, such
Participant shall be 100% vested regardless of the above schedule.
Retirement Benefits hereunder offsetting the limitations of Internal
Revenue Code Sections 401(a)(17) and 415(b) shall be immediately fully
vested for all purposes.
4.4 FORFEITABILITY OF RETIREMENT BENEFIT. Notwithstanding any provision to
the contrary expressed or implied herein, a Participant's right to
receive a Retirement Benefit under the Plan and such Participant's
Plan Agreement shall be forfeitable to the extent that such Retirement
Benefit has not vested as described in Section 4.3.
ARTICLE V
BENEFICIARY
A Participant shall designate a Beneficiary to receive benefits under
the Plan and the Participant's Plan Agreement by completing the
appropriate space in such Plan Agreement. If more than one Beneficiary
is named, the shares and/or precedence of each Beneficiary shall be
indicated. As a condition to any married Participant designating a
Beneficiary other than such Participant's spouse, the Committee may
require the spouse's consent. A Participant shall have the right to
change the Beneficiary by submitting to the Committee a Change of
Beneficiary in the form attached as Appendix II hereof; provided,
however, that no change of Beneficiary shall be effective until
acknowledged in writing by the Committee. If the Company has any doubt
as to the proper Beneficiary to receive payments hereunder, the
Company shall have the right to withhold such payments until the
matter is finally adjudicated. Any payment made or caused to be made
by the Company in good faith and in accordance with the provisions of
the Plan and a Participant's Plan Agreement shall fully discharge the
Company from all further obligations with respect to such payment.
ARTICLE VI
LEAVE OF ABSENCE
If a Participant is authorized by the Company for any reason,
including military, medical, or other, to take a leave of absence from
employment, such Participant's Plan Agreement shall remain in effect.
ARTICLE VII
SOURCE OF BENEFITS
7.1 BENEFITS PAYABLE. Retirement Benefits and any other amounts payable
hereunder shall be paid exclusively from the general assets of the
Company or the Rabbi Trust to be established pursuant to Section 7.4;
provided, that no person entitled to payment hereunder shall have any
claim, right, security interest, or other interest in any fund, trust,
account, insurance contract, or asset of the Company which may be
looked to for such payment. The Company's liability for the payment of
benefits hereunder shall be evidenced only by the Plan and each Plan
Agreement entered into between the Company and a Participant.
7.2 INVESTMENTS TO FACILITATE PAYMENT OF BENEFITS. Although the Company is
not obligated to invest in any specific asset or fund, or purchase any
insurance contract, in order to provide the means for the payment of
any Retirement Benefits under the Plan, the Company may elect to do
so, and, in such event, no Participant shall have any interest
whatever in such asset, fund, or
7
<PAGE> 8
AMENDED AND RESTATED 7/1/99
insurance contract. In the event the Company elects to purchase or
causes to be purchased insurance contracts on the life of a
Participant as a means for making, offsetting, or contributing to any
payment, in full or in part, which may become due and payable by the
Company under the Plan or a Participant's Plan Agreement, such
Participant agrees to cooperate in the securing of life insurance on
such Participant's life by furnishing such information as the Company
and the insurance carrier may require, including the results and
reports of previous Company and other insurance carrier physical
examinations as may be requested, and taking any other action which
may be requested by the Company and the insurance carrier to obtain
such insurance coverage. If a Participant does not cooperate in the
securing of such life insurance, the Company shall have no further
obligation to such Participant under the Plan, and such Participant's
Plan Agreement shall terminate.
7.3 OWNERSHIP OF INSURANCE CONTRACTS. The Company shall be the sole owner
of any insurance contracts acquired on the life of a Participant with
all incidents of ownership therein, including, but not limited to, the
right to cash and loan values, dividends, if any, death benefits, and
the right to termination thereof, and a Participant shall have no
interest whatsoever in such contracts, if any, and shall exercise none
of the incidents of ownership thereof. Provided however, the Company
may assign any such insurance contracts to the trustee of the Rabbi
Trust.
7.4 TRUST FOR PAYMENT OF RETIREMENT BENEFITS. The Company shall create a
Rabbi Trust for the purpose of facilitating any retirement benefits
payable hereunder. Such trust will be funded to provide the applicable
vested Retirement Benefits payable under the Plan and Plan Agreements
upon the occurrence of any of the following events:
a) At the Retirement of, and commencement of payment of
Retirement Benefits to a Plan Participant;
b) Upon a decision by the Committee, or by the Board of
Directors;
c) If the shareholders of the Company approve the merger or
consolidation of the Company with or into any other
corporation (other than a corporation wholly-owned by the
Company immediately prior to such event) or the acquisition
of substantially all of the business or assets of the Company
by any other person or entity (other than a corporation
wholly-owned by the Company immediately prior to such event);
d) If a change occurs in the Board of Directors of the Company
whereby Directors comprising a majority of the Board of
Directors immediately prior to such change do not continue to
comprise such a majority immediately after such change,
provided that incremental and/or related changes (including
but not limited to resignations from the Board of Directors)
which occur within an eighteen (18) month period of time
shall be considered to be but a single change for purposes of
this subparagraph; or
e) If, as a result of any tender offer or otherwise, any person
or entity or affiliated group becomes the beneficial or
record owner (directly or indirectly) of more than 10% of the
outstanding voting securities of the Company.
Such funding may be in the form of single premium annuities, or an
amount sufficient for the trustee to purchase single premium
annuities, or life insurance policies or contracts insuring
8
<PAGE> 9
AMENDED AND RESTATED 7/1/99
the lives of Plan Participants, from qualified and financially sound
insurance companies, and such other forms or types of investments the
Company may select from time to time to provide the applicable vested
Retirement Benefits payable under the Plan and Plan Agreements. Such
funding and the purchase of insurance, if any, will not relieve the
Company of its obligations to pay or cause to be paid the benefits
hereunder.
In lieu of such funding of such Rabbi Trust with respect to a
Participant, the Participant may elect prior to such funding by the
Company to receive the present value of such Participant's Retirement
Benefit in a lump sum payment, less six percent (6%) of the amount
thereof as a substantial penalty, which penalty will be forfeited by
the Participant. Upon such lump sum payment the Company shall have no
further obligation to the Participant.
The Rabbi Trust may be maintained and administered to also provide for
the funding of payment of amounts payable to participants in other
deferred compensation and benefit plans of the Company. The funding,
investments and administration of the Rabbi Trust in connection with
such other separate plan or plans shall be separately administered and
accounted for as determined to be necessary and appropriate by the
Company and trustee pursuant to the terms of the Rabbi Trust. It shall
be permissible for the trustee to invest funds of the Rabbi Trust in
one or more forms of investment that is common to plans being funded
thereunder.
The Rabbi Trust shall be a grantor trust of which the Company is the
grantor within the meaning of the Code. The principal of the Rabbi
Trust and any earnings thereon shall be held separate and apart from
other funds of the Company and shall be used exclusively for the uses
and purposes of Participants in the Plan and general creditors of the
Company as specified hereinbelow and in the trust instrument.
Participants in the Plan and their Beneficiaries shall have no
preferred claim on, or any beneficial ownership in any assets of the
Rabbi Trust; and any rights created under the Plan or Participant Plan
Agreements, and the Rabbi Trust are to be made unsecured contractual
rights of Participants and their Beneficiaries against the Company; and
assets held by the Rabbi Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
insolvency of the Company.
ARTICLE VIII
TERMINATION OF EMPLOYMENT
Neither the Plan nor a Participant's Plan Agreement, either singly or
collectively, in any way obligate the Company, or any subsidiary of
the Company, to continue the employment of a Participant with the
Company, or any subsidiary of the Company, nor does either limit the
right of the Company or any subsidiary of the Company at any time and
for any reason to terminate the Participant's employment. Termination
of a Participant's employment with the Company, or any subsidiary of
the Company, for any reason, whether by action of the Company,
subsidiary, or Participant, shall immediately terminate the
Participant's participation in the Plan and such Participant's Plan
Agreement, and all further obligations of either party thereunder,
except as may be provided in Article X and the Participant's Plan
Agreement. In no event shall the Plan or a Plan Agreement, either
singly or collectively, by their terms or implications constitute an
employment contract of any nature whatsoever between the Company, or
any subsidiary, and a Participant.
9
<PAGE> 10
AMENDED AND RESTATED 7/1/99
ARTICLE IX
TERMINATION OF PARTICIPATION
A Participant reserves the right to terminate participation in the
Plan and such Participant's Plan Agreement at any time by giving the
Company written notice of such termination not less than 30 days (i)
prior to the anniversary date of any contract or contracts of
insurance on the life of such Participant which may be in force and
utilized by the Company in connection with the Plan, or (ii) prior to
the date a Participant selects for termination if no insurance
contract is in effect.
ARTICLE X
TERMINATION, AMENDMENT, MODIFICATION,
OR SUPPLEMENT OF THE PLAN
10.1 TERMINATION. The Company reserves the right to terminate, amend,
modify, or supplement the Plan, wholly or partially, from time to
time, and at any time. The Company likewise reserves the right to
amend, modify, or supplement any Plan Agreement, wholly or partially,
from time to time. Such right to terminate, amend, modify, or
supplement the Plan or any Plan Agreement shall be exercised for the
Company by the Board of Directors; provided, however, that the Board
of Directors shall take no action to terminate the Plan or a Plan
Agreement or to reduce Retirement Benefits, with respect to any person
who is a Participant (or a Beneficiary) at the time of the termination
or reduction. This prohibition against the reduction of Participants'
Retirement Benefits shall apply as well to Retirement Benefits
Participants may earn (under the Plan and their Plan Agreement) by
their future service and future increases in compensation. Any
termination of the Plan shall be limited to Employees who at the time
of such termination are not Participants. Provided however, in the
event of a Change of Control of the Company, the surviving
corporation, if other than the Company, may terminate the Plan and the
Plan Agreements upon substitution by such corporation of a plan or
program providing benefits no less favorable to the Participants.
10.2 RIGHTS AND OBLIGATIONS UPON TERMINATION. Upon the termination of the
Plan by the Board of Directors, or the termination of any Plan
Agreement by a Participant, in accordance with the provisions for such
termination, neither the Plan nor the Plan Agreement shall be of any
further force or effect, and no party shall have any further
obligation under either the Plan or any Plan Agreement so terminated,
except as provided in Sections 4.3, 10.1 or as elsewhere provided in
the Plan.
ARTICLE XI
OTHER BENEFITS AND AGREEMENTS
The Retirement Benefits provided for a Participant and such
Participant's Beneficiary under the Plan and under such Participant's
Plan Agreement are in addition to any other benefits available to such
Participant under any other Plan, plan or agreement of the Company for
its Employees and the Participants, and, except as may be otherwise
expressly provided for, the Plan and Plan Agreements entered into
hereunder shall supplement and shall not supersede, modify, or amend
any other Plan, plan or agreement of the Company or a Participant.
Moreover, Retirement Benefits under the Plan and Plan Agreements
entered into hereunder shall not be considered compensation for the
purpose of computing contributions or benefits
10
<PAGE> 11
AMENDED AND RESTATED 7/1/99
under any plan maintained by the Company, or any of its subsidiaries,
which is qualified under Section 401(a) of the Code.
ARTICLE XII
RESTRICTIONS ON ALIENATION OF BENEFITS
No Retirement Benefit, or other right or benefit under the Plan or a
Plan Agreement shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge the
same shall be void. No Retirement Benefit, or right or benefit under
the Plan or under any Plan Agreement shall in any manner be liable for
or subject to the debts, contracts, liabilities, or torts of the
person entitled to such thereto. If any Participant or Beneficiary
under the Plan or a Plan Agreement should become bankrupt or attempt
to anticipate, alienate, sell, assign, pledge, encumber, or charge any
right to a benefit under the Plan or under any Plan Agreement, then
such right or benefit shall, in the discretion of the Committee,
cease, and in such event, the Committee may hold or apply the same or
any part thereof for the benefit of such Participant or Beneficiary,
his or her spouse, children, or other dependents, or any of them, in
such portion as the Committee, in its sole and absolute discretion,
may deem proper.
ARTICLE XIII
ADMINISTRATION OF THE PLAN
13.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan, and
any Plan Agreements executed hereunder, as well as construction and
interpretation thereof, shall be vested in the Committee, the number
and members of which shall be designated and appointed from time to
time by, and shall serve at the pleasure of, the Board of Directors.
Any such member of the Committee may resign by notice in writing filed
with the Board of Directors. Vacancies shall be filled promptly by the
Board of Directors.
13.2 COMMITTEE OFFICIALS. The Board of Directors may designate one of the
members of the Committee as Chairman and may appoint a secretary who
need not be a member of the Committee. The secretary shall keep
minutes of the Committee's proceedings and all data, records, and
documents relating to the Committee's administration of the Plan and
any Plan Agreements executed hereunder. The Committee may appoint from
its number such subcommittees with such powers as the Committee shall
determine and may authorize one or more of its members or any agent to
execute or deliver any instrument or make any payment on behalf of the
Committee.
13.3 COMMITTEE ACTION. All resolutions or other actions taken by the
Committee shall be by the vote of a majority of those present at a
meeting at which a majority of the members are present, or in writing
by all the members at the time in office if they act without a
meeting.
13.4 COMMITTEE RULES AND POWERS - GENERAL. Subject to the provisions of the
Plan, the Committee may from time to time establish rules, forms, and
procedures for the administration of the Plan, including Plan
Agreements. Except as herein otherwise expressly provided, the
Committee shall have the exclusive right to interpret the Plan and any
Plan Agreements, and to decide any and all matters arising thereunder
or in connection with the administration of the Plan and any Plan
Agreements, and it shall endeavor to act, whether by general rules or
by particular decisions, so as not to discriminate in favor of or
against any
11
<PAGE> 12
AMENDED AND RESTATED 7/1/99
person. The Committee shall have the exclusive right to determine
Total and Permanent Disability with respect to a Participant
(consistent with the Plan's definition of the term), such
determinations to be made on the basis of such medical and/or other
evidence that the Committee, in its sole and absolute discretion, may
require. Such decisions, actions, and records of the Committee shall
be conclusive and binding upon the Company, the Participants, and all
persons having or claiming to have rights or interests in or under the
Plan.
13.5 RELIANCE ON CERTIFICATES, ETC. The members of the Committee and the
Officers and Directors of the Company shall be entitled to rely on all
certificates and reports made by any duly appointed
accountants, and on all opinions given by any duly appointed legal
counsel. Such legal counsel may be counsel for the Company.
13.6 LIABILITY OF COMMITTEE. No member of the Committee shall be liable for
any act or omission of any other member of the Committee, or for any
act or omission on his part, excepting only his own willful
misconduct. The Company shall indemnify and save harmless each member
of the Committee against any and all expenses and liabilities arising
out of membership on the Committee, excepting only expenses and
liabilities arising out of a Committee member's own willful
misconduct. Expenses against which a member of the Committee shall be
indemnified hereunder shall include, without limitation, the amount of
any settlement or judgment, costs, counsel fees, and related charges
reasonably incurred in connection with a claim asserted, or a
proceeding brought, or settlement thereof. The foregoing right of
indemnification shall be in addition to any other rights to which any
such member may be entitled.
13.7 DETERMINATION OF BENEFITS. In addition to the powers hereinabove
specified, the Committee shall have the power to compute and certify,
under the Plan and any Plan Agreement, the amount and kind of benefits
from time to time payable to Participants and their Beneficiaries, and
to authorize all disbursements for such purposes.
13.8 INFORMATION TO COMMITTEE. To enable the Committee to perform its
functions, the Company shall supply full and timely information to the
Committee on all matters relating to the compensation of all
Participants, their retirement, death, or other cause for termination
of employment, and such other pertinent facts as the Committee may
require.
13.9 MANNER AND TIME OF PAYMENT OF BENEFITS. The Committee shall have the
power, in its sole and absolute discretion, to change the manner and
time of payment of Retirement Benefits to be made to a Participant or
the Participant's Beneficiary from that set forth in the Participant's
Plan Agreement if requested to do so by such Participant or
Beneficiary.
ARTICLE XIV
ADOPTION OF PLAN BY SUBSIDIARY,
AFFILIATED OR ASSOCIATED COMPANIES
Any corporation which is a subsidiary of the Company may, with the
approval of the Board of Directors, adopt the Plan and thereby come
within the definition of Company in Article I hereof.
12
<PAGE> 13
AMENDED AND RESTATED 7/1/99
ARTICLE XV
EXCESS RETIREMENT BENEFIT PAYMENTS
COMMENCED BEFORE SEPTEMBER 1, 1998
Notwithstanding anything expressed or implied to the contrary herein,
the payment of excess retirement benefits to a retired Plan
Participant that commenced under the Plan prior to September 1, 1998,
shall be paid in accordance with, and to the extent provided by the
applicable terms and provisions of the Plan in effect prior to
September 1, 1998.
ARTICLE XVI
MISCELLANEOUS
16.1 EXECUTION OF RECEIPTS AND RELEASES. Any payment to a Participant, a
Participant's legal representative, or Beneficiary in accordance with
the provisions of the Plan or any Plan Agreement executed hereunder
shall, to the extent thereof, be in full satisfaction of all claims
hereunder against the Company. The Company may require such
Participant, legal representative, or Beneficiary, as a condition
precedent to such payment, to execute a receipt and release therefor
in such form as it may determine.
16.2 NO GUARANTEE OF INTERESTS. Neither the Committee nor any of its
members guarantees the payment of any amounts which may be or becomes
due to any person or entity under the Plan or any Plan Agreement
executed hereunder. The liability of the Company to make any payment
under the Plan or any Plan Agreement executed hereunder is limited to
the then available assets of the Company and the Rabbi Trust
established under Section 7.4 hereof.
16.3 COMPANY RECORDS. Records of the Company as to a Participant's
employment, termination of employment and the reason therefor,
reemployment, authorized leaves of absence, and compensation shall be
conclusive on all persons and entities, unless determined to be
incorrect.
16.4 EVIDENCE. Evidence required of anyone under the Plan and any Plan
Agreement executed hereunder may be by certificate, affidavit,
document, or other information which the person or entity acting on it
considers pertinent and reliable, and signed, made, or presented by
the proper party or parties.
16.5 NOTICE. Any notice which shall be or may be given under the Plan or a
Plan Agreement executed hereunder shall be in writing and shall be
mailed by United States mail, postage prepaid. If notice is to be
given to the Company, such notice shall be addressed to the Company
at:
100 West Fifth Street
Tulsa, Oklahoma 74102
and marked to the attention of the Secretary, Supplemental Executive
Retirement Plan Administrative Committee; or, if notice to a
Participant, addressed to the address shown on such Participant's most
recent employment file with the Company.
13
<PAGE> 14
AMENDED AND RESTATED 7/1/99
16.6 CHANGE OF ADDRESS. Any party may, from time to time, change the
address to which notices shall be mailed by giving written notice of
such new address.
16.7 EFFECT OF PROVISIONS. The provisions of the Plan and of any Plan
Agreement executed hereunder shall be binding upon the Company and its
successors and assigns, and upon a Participant, the Participant's
Beneficiary, assigns, heirs, executors, and administrators.
16.8 HEADINGS. The titles and headings of Articles and Sections are
included for convenience of reference only and are not to be
considered in the construction of the provisions hereof or any Plan
Agreement executed hereunder.
16.9 GOVERNING LAW. All questions arising with respect to the Plan and any
Plan Agreement executed hereunder shall be determined by reference to
the laws of the State of Oklahoma in effect at the time of their
adopting and execution, respectively.
16.10 EFFECTIVE DATE. Except to the extent explicitly stated otherwise
herein, the terms and provisions of this amended and restated Plan
shall be effective as to excess retirement benefits for Participants
with respect to whom no Retirement, Disability, or Death Benefit
payments have commenced as of September 1, 1998, and their
Beneficiaries. The excess retirement benefits payable to any
Participant or Beneficiary which have commenced prior to September 1,
1998, shall not be increased or decreased by amendment of the Plan.
ONEOK, Inc.
By
-----------------------------------
Larry W. Brummett
Chairman of the Board and
Chief Executive Officer
Attested by:
- -----------------------------
(Secretary)
(SEAL)
14
<PAGE> 15
AMENDED AND RESTATED 7/1/99
- --------------------------------------------------------------------------------
APPENDIX I
ONEOK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
- --------------------------------------------------------------------------------
15
<PAGE> 16
AMENDED AND RESTATED 7/1/99
ONEOK, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
I acknowledge that, as an Employee of ONEOK, Inc., I have been offered an
opportunity to participate in the ONEOK, Inc. Supplemental Executive Retirement
Plan (Plan) described in the attached document (which is incorporated herein by
reference), and that I have elected one of the alternatives set forth as
indicated by the space which I have checked:
To participate in the Plan
- ---------
Not to participate in the Plan
- ---------
My Retirement Benefit, Disability Benefit, Death Benefit, and commencement of
such payments, and designated Beneficiary(ies) are agreed to be as follows:
1.A Retirement Benefit (Article IV of Plan). Subject to the vesting
schedule in Section 4.3 of the Plan, and Paragraph 2, below, a monthly amount
which, when combined with existing pension benefits payable to me under the
Retirement Plan and any retirement plans (other than 401(k) plans) of any of my
former employers, will provide the percentage of the highest thirty-six (36)
consecutive months average Compensation (or average of all months of
Compensation if employed less than thirty-six (36) months) of the last sixty
(60) months of Service, for life (15 years minimum) as illustrated below.
<TABLE>
<CAPTION>
Retirement Benefit
Retirement Age Percentage
-------------- ------------------
<S> <C>
50 & under 50.00%
51 51.20%
52 52.40%
53 53.60%
54 54.80%
55 56.00%
56 56.57%
57 57.14%
58 57.71%
59 58.28%
60 58.85%
61 59.42%
62 60.00%
63 60.56%
64 61.13%
65 & over 61.70%
</TABLE>
16
<PAGE> 17
AMENDED AND RESTATED 7/1/99
1.B Commencement of Retirement Benefit Payments. The amount of my
Retirement Benefit payments will be based on the following table depending upon
the Participant's age when Retirement Benefit payments to such Participant
commence:
<TABLE>
<CAPTION>
Age At Payout Percentage Factor
Commencement of Of Retirement Benefit
Retirement Benefit Payments Percentage
-----------
<S> <C>
50 50%
51 55%
52 60%
53 65%
54 70%
55 75%
56 80%
57 85%
58 90%
59 95%
60 & older 100%
</TABLE>
2. Code Sections 401(a)(17) and 415(b) Limitations. Notwithstanding
Paragraphs 1A and 1B above, the Plan and this Plan Agreement shall provide a
Retirement Benefit attributable to my annual eligible compensation under the
Retirement Plan that is in excess of the limitations on my Retirement Plan
benefits contained in Code Sections 401(a)(17) and 415(b). This portion of the
Retirement Benefit will be computed by applying the same benefit formula,
vesting provisions, and early retirement provisions as are in the Retirement
Plan. Any part of the Retirement Benefit provided under this Paragraph 2 will
offset and reduce that part of the Retirement Benefit provided under Paragraphs
1A and 1B above.
3. Disability Benefit (Article IV of Plan). If I should suffer a Total
and Permanent Disability prior to my Retirement, an amount which, when combined
with then existing pension benefits under the Retirement Plan and any
retirement plans (other than 401(k) plans) of any of my former employers, will
provide sixty-one and 7/10 percent (61.7%) of my highest thirty-six (36)
consecutive months average Compensation (or average of all months of
Compensation if employed less than thirty-six (36) months) of my last sixty
(60) months of Service, for life (15 years minimum).
4. Death Benefit. (Article III of Plan). If my death should occur
before my Retirement, an amount which, when combined with then existing pension
benefits under the Retirement Plan and any retirement plans (other than 401(k)
plans) of any of my former employers, will provide fifty percent (50%) (or the
vested Retirement Benefit, whichever is greater) of my highest thirty-six (36)
consecutive months average Compensation (or average of all months of
Compensation if employed less than thirty-six (36) months) of my last sixty
(60) months of Service, payable to the Beneficiary for one hundred eighty (180)
months following death.
5. I hereby designate as my Primary Beneficiary under the Plan and the
Plan Agreement:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
17
<PAGE> 18
AMENDED AND RESTATED 7/1/99
and, I hereby designate as my Secondary Beneficiary under the Plan and the Plan
Agreement:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The term "Beneficiary" as used herein shall mean the Primary Beneficiary if
such Primary Beneficiary shall survive me by at least thirty (30) days, and
shall mean the Secondary Beneficiary if Primary Beneficiary does not survive me
by at least thirty (30) days, and shall mean my Estate, if neither Primary nor
Secondary Beneficiary survives me by at least thirty (30) days. I shall have
the right to change my designation of my Primary and/or Secondary Beneficiary
from time to time, in such manner as shall be required by the Company, it being
agreed that no change in Beneficiary shall be effective until acknowledged in
writing by the Committee. (If designation of a Beneficiary is to be
irrevocable, strike and initial previous sentence.)
I further acknowledge that neither the Company nor any of its subsidiaries,
affiliated companies, officers, employees, or agents has any responsibility
whatsoever for the changes which I may make in other personal plans or programs
as a result of my decision regarding the Plan and they are fully released to
such extent. The Company agrees that although the Plan may be terminated or
modified at any time, in the sole discretion of the Company, I shall have those
rights provided for in Article X of the Plan to the extent such may be
applicable to me at the time of such termination.
IN WITNESS WHEREOF, ONEOK, Inc. and Plan Participant have executed the Plan
Agreement as of , 1998.
---------
ONEOK, Inc.
By:
-------------------------------
PARTICIPANT:
-----------------------------------
(Signature)
(Type or Print Name)
18
<PAGE> 19
AMENDED AND RESTATED 7/1/99
- --------------------------------------------------------------------------------
APPENDIX II
CHANGE OF BENEFICIARY FORM FOR
ONEOK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
- --------------------------------------------------------------------------------
19
<PAGE> 20
AMENDED AND RESTATED 7/1/99
CHANGE OF BENEFICIARY FORM FOR
ONEOK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
I, ___________________, as a Participant in the above Plan, hereby request to
change the Beneficiary Designation dated as follows:
--------------
Primary Beneficiary:
----------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Secondary Beneficiary:
----------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The term "Beneficiary" as used herein shall mean the Primary Beneficiary if
such Primary Beneficiary shall survive me by at least thirty (30) days, and
shall mean the Secondary Beneficiary if Primary Beneficiary does not survive me
by at least thirty (30) days, and shall mean my Estate, if neither the Primary
nor Secondary Beneficiary survives me by at least thirty (30) days. I shall
have the right to change my designation of a Primary Beneficiary and/or
Secondary Beneficiary from time to time in such manner as shall be required by
the Company, it being agreed that no change in beneficiary shall be effective
until acknowledged in writing by the Committee. (If designation of a
Beneficiary is to be irrevocable, strike and initial previous sentence.)
<TABLE>
<S> <C>
DATE: PARTICIPANT:
- ------------------------- ------------------------------------
(Signature)
------------------------------------
(Type or Print Name)
------------------------------------
(Authorized Plan Representative)
</TABLE>
20
<PAGE> 1
EXHIBIT (10)(d)
TERMINATION AGREEMENT
THIS AGREEMENT, dated this 1st day of January, 1999, between ONEOK,
Inc., an Oklahoma corporation, or any division or subsidiary thereof, having its
principal office in Tulsa, Oklahoma (the "Corporation"), and Larry W.
Brummett (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive, as an employee of the Corporation, has rendered
valuable service to the Corporation, and the Corporation wishes to retain the
Executive's services, assuring both itself and the Executive of the continuity
of management in the event of any actual or threatened change in control of the
Corporation; and
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Termination Payments. In the event of a Termination (as hereinafter
defined) the Executive shall:
a. Be paid a lump sum termination payment by the Corporation in an
amount equivalent to three (3) times the Executive's Annual Compensation, and
b. Be deemed to have attained the age of sixty-five (65) as of the date
of the Change in Control for purposes of determining the Retirement Benefit
Percentage under Section 4.1 of the ONEOK, Inc. Supplemental Executive
Retirement Plan, and
c. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of commencing the Retirement Benefit
Payments as provided under Section 1.B of the Executive's Plan Agreement under
the ONEOK, Inc. Supplemental Executive Retirement Plan, and
d. Be paid a lump sum payment by the Corporation equal to the
Executive's short-term incentive compensation "target percentage" under the
Corporation's incentive compensation plan times the midpoint of the Executive's
Pay Grade, prorated for the length of employment during the current performance
period, and
e. Be paid by, or receive from the Corporation the employee benefits
(including, but not limited to, car allowances and coverage under any medical or
insurance arrangements or programs) to which the Executive would have been
entitled under all employee welfare plans, programs, or arrangements maintained
by the Corporation if the Executive had remained in the employ of the
Corporation for the three (3) year period following Termination. Such employee
benefits shall be provided under plans sponsored by the Corporation on the
Occurrence Date or the Termination Date, whichever produces the higher benefits,
but if such benefits are not available under Corporation sponsored plans in
effect during each of the three (3) years, the Corporation shall provide such
benefits to the Executive under plans covering the Executive individually, or
otherwise provide or pay such benefits to the Executive.
f. The lump sum payments described above shall be calculated and paid
not later than thirty (30) calendar days after the Termination Date. Any payment
not made within the thirty (30) days shall thereafter bear interest at two
percent (2%) over the "prime rate" as published in The Wall Street Journal from
time to time, which is the base rate on corporate loans posted by at least
seventy-five percent (75%) of the nation's thirty (30) largest banks.
2. Non-Disclosure. The Executive agrees that the Executive shall not,
during the three (3) years after the date of any such Termination, directly or
indirectly, divulge, disclose, or communicate to any other person any trade
secrets that the Corporation may use in its business operations.
<PAGE> 2
3. Definitions. As used in this Agreement,
a. A "Change in Control" will be deemed to have occurred if, within
three years of the original execution date hereof (subject to automatic
extension and renewal for additional one (1)-year periods, unless the
Corporation provides notice to the Executive of its election not to renew this
Agreement at least ninety (90) days prior to the January 1 next preceding a
Termination Date),
(i) Any "person" (as that term is defined in Section 3(a)(9)
and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) shall acquire beneficial ownership (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
fifteen percent (15%) or more of Corporation's then outstanding
securities entitled to vote for the election of directors; or
(ii) As a result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets,
or contested election or any combination of such transactions, the
individuals who were directors of the Corporation immediately before
such transaction (or before the first in any combination of such
transactions) cease to constitute a majority of the Board of Directors
of the Corporation or any successor to the Corporation;
(iii) provided, however, that the acquisition by any "person"
(as defined in Subsection 3(a)(i) above) of beneficial ownership of
fifteen percent (15%) or more of the Company's outstanding securities
entitled to vote for the election of directors, pursuant to a certain
Amended and Restated Agreement among ONEOK Inc., WAI, and Western
Resources, Inc., dated May 19, 1997, (the "Transaction Agreement"),
which securities are held under and subject to a Shareholder Agreement
("Shareholder Agreement") attached as an exhibit to the Transaction
Agreement (which Transaction Agreement and Shareholder Agreement are
hereby referred to and incorporated herein by reference), shall not be
considered to be a Change in Control for the purposes of this
Termination Agreement until either (1) the termination of the
Shareholder Agreement, or (2) the successful consummation of a Buyout
Tender Offer as defined in Section 3.6(b) of the Shareholder Agreement,
in either of which events either the acquisition or existence of such
percentage of beneficial ownership by any person (as so defined) shall
constitute a Change in Control for the purposes hereof.
b. The "Occurrence Date" shall be the date on which a Change in Control
of the Corporation occurs.
c. The term "Termination" shall mean termination of the Executive's
employment with the Corporation, within three (3) years after the Occurrence
Date and prior to such Executive's Normal Retirement Date,
(i) By the Corporation for any reason other than death or
Permanent and Total Disability of the Executive, or for "Just Cause".
The following circumstances shall constitute "Just Cause":
The Executive's conviction in a court of law of a felony, or
any crime or offense in a court of law of a felony, or any
crime or offense involving misuse or misappropriation of money
or property, the Executive's violation of any covenant,
agreement or obligation not to disclose confidential
information regarding the business of the Corporation (or a
division or subsidiary); any violation by the Executive of any
covenant not to compete with the Corporation (or a division or
subsidiary); any act of dishonesty by the Executive which
adversely affects the business of the Corporation (or a
division or subsidiary); any willful or intentional act of the
Executive which adversely affects the business of, or reflects
unfavorably on the reputation of the Corporation (or a
division or subsidiary); the Executive's use of alcohol or
drugs which interferes with the Optionee's performance of
duties as an employee of the Corporation (or a division or
subsidiary); or the Executive's failure or refusal to perform
the specific directives of the Corporation's Board of
Directors, or its officers which directives are consistent
with the scope and nature of the Optionee's duties and
responsibilities with the existence and occurrence of all of
such causes to be determined by the Corporation, in its sole
2
<PAGE> 3
discretion; provided, that nothing contained in the foregoing
provisions of this paragraph shall be deemed to interfere in
any way with the right of the Corporation (or a division or
subsidiary), which is hereby acknowledged, to terminate the
Optionee's employment at any time without cause.
(ii) By the Executive with the consent of the Board of
Directors, or for "Good Reason." The following circumstances shall
constitute "Good Reason":
Any reason by the Executive within twelve (12) months after
the first year following the Occurrence Date, or
A demotion, loss of title or significant authority or
responsibility of the Executive with respect to the
Executive's employment with the Corporation from those in
effect on the Occurrence Date, a reduction in salary of the
Executive from that received from the Corporation immediately
prior to the Occurrence Date, a reduction in short-term and/or
long-term incentive targets from those applicable to the
Executive immediately prior to the Occurrence Date, or the
relocation of the Corporation's principal executive offices to
a location outside the metropolitan area of Tulsa, Oklahoma,
or the Corporation's requiring a Relocation of principal place
of employment of the Executive; provided, however, the
Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of
the Executive under this Section 3(c)(ii) shall be strictly
limited to the terms specified in such written consent. The
Executive shall give notice of any Termination of the
Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof
to the Corporation within one hundred twenty (120) days after
the first occurrence of the event giving rise to such Good
Reason.
d. The term "Termination Date" shall mean the date of the Executive's
Termination.
e. "Annual Compensation" shall mean the greater of (A) the sum of (i)
fifty-two (52) times the Executive's Weekly Basic Salary for the week last
preceding the Occurrence Date, plus (ii) the Executive's bonus for the year last
preceding the Occurrence Date, or (B)(i) fifty-two (52) times the Executive's
Weekly Basic Salary for the week last preceding the Executive's Termination,
plus (ii) the Executive's bonus for the year last preceding the Executive's
Termination.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Weekly Basic Salary" shall mean the base salary paid to the
Executive by the Corporation in the last payroll period of the Corporation
ending prior to the Executive's Termination divided by the number of weeks
included within such payroll period.
h. "Normal Retirement Date" shall mean the Normal Retirement Date of
the Executive under the Retirement Plan for Employees of ONEOK, Inc. and
Subsidiaries.
i. "Permanent and Total Disability" shall mean a condition of
disability of the Executive that comes within the meaning of such term under
Section 22(e) of the Code.
j. "Relocation" shall mean the Corporation requiring the Executive to
move and relocate to a new principal place of the Executive's employment by the
Corporation, which is more than thirty-five (35) miles further from the
Executive's principal place of residence than the Executive's principal place of
employment was prior to such change.
3
<PAGE> 4
4. Section 280G Limitation on Payments.
The Company shall make the payment and provide the benefits under
Section 1 of this Agreement; provided, however, that if all or any portion of
the payments and benefits provided under Section 1 of this Agreement, either
alone or together with other payments and benefits which the Executive receives
or is then entitled to receive from the Corporation, would constitute a
"parachute payment" within the meaning of Section 280G of the Code, the
Corporation shall pay to the Executive a Tax Gross-up Payment to the extent
necessary so that the net after-tax benefit to the Executive shall be equal to
the net after-tax benefit if the excise tax associated with the "parachute
payment" were not imposed. The "net after-tax benefit" for these purposes shall
mean the sum of (i) the total amount payable to the Executive under Section 1 of
this Agreement, plus (ii) all other payments and benefits which the Executive
receives or is then entitled to receive from the Corporation that would
constitute a "parachute payment" within the meaning of Section 280G of the Code,
less (iii) the amount of federal income taxes payable with respect to the
foregoing calculated at the maximum marginal income tax rate for each year in
which the foregoing shall be paid to the Executive (based upon the rate in
effect for such year as set forth in the Code at the time of the payment under
Section 1), less (iv) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) and (ii) above by Section 4999 of the
Code.
5. Fees and Expenses. The Corporation shall reimburse the Executive on
a current basis, for all legal fees, arbitration fees and related expenses
incurred by the Executive in connection with this Agreement following a Change
in Control, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting any termination of employment or incurred by the
Executive in seeking advice with respect to the matters set forth in Section 1
hereof, or (b) Executive seeking to enforce any benefit provided by this
Agreement, in each case, regardless of whether or not the claim is upheld by a
court of competent jurisdiction; provided, however, Executive shall be required
to repay any such amounts to the extent that the arbitrator under Section 13
issues a final and non-appealable order determining that the Executive's
position was frivolous. The Corporation shall reimburse the Executive for all
reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 4(a) is appropriate.
6. Consideration. As consideration for the benefits to be provided by
the Corporation under this Agreement, prior to the occurrence of a Change in
Control the Executive agrees to deliver to the Corporation thirty (30) calendar
days' prior written notice of any voluntary termination by the Executive of the
Executive's employment with the Corporation.
7. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address the Executive
has filed in writing with the Corporation or, in the case of the Corporation, at
its principal executive offices.
8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Oklahoma.
9. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing and so long as the Executive lives, no
person, other than the parties hereto, shall have any rights under or interest
in this Agreement or the subject matter hereof.
10. Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company shall have the right to
assign this Agreement to a parent, affiliate or subsidiary corporation or to any
corporation with which it may merge or consolidate.
11. Severability. In the event that all or any part of any provision of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement or such
4
<PAGE> 5
provision shall be unaffected thereby and shall remain in full force and effect.
If any provision of this Agreement or portion thereof is so broad as to be
unenforceable it shall be interpreted to be only so broad as is enforceable.
Nothing in this Agreement is intended to or shall be construed to violate any
Federal or State law or regulation.
12. Related Agreements. This Agreement shall supersede and terminate
all prior individual agreements between the Corporation and the Executive
relating to the matters contained herein.
13. Arbitration.
a. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, shall be settled by
binding arbitration in accordance with the CPR NON-ADMINISTERED ARBITRATION
RULES in effect on the date of this Agreement, by a sole arbitrator.
b. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof.
c. The place of arbitration shall be Tulsa, Oklahoma.
d. The statute of limitations of the State of Oklahoma applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------------
"Executive"
ONEOK, Inc.
By
---------------------------------
David L. Kyle, President and
Chief Operating Officer
"Corporation"
5
<PAGE> 6
TERMINATION AGREEMENT
THIS AGREEMENT, dated this 1st day of January, 1999, between ONEOK,
Inc., an Oklahoma corporation, or any division or subsidiary thereof, having its
principal office in Tulsa, Oklahoma (the "Corporation"), and David L.
Kyle (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive, as an employee of the Corporation, has rendered
valuable service to the Corporation, and the Corporation wishes to retain the
Executive's services, assuring both itself and the Executive of the continuity
of management in the event of any actual or threatened change in control of the
Corporation; and
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Termination Payments. In the event of a Termination (as hereinafter
defined) the Executive shall:
a. Be paid a lump sum termination payment by the Corporation in an
amount equivalent to three (3) times the Executive's Annual Compensation, and
b. Be deemed to have attained the age of sixty-five (65) as of the date
of the Change in Control for purposes of determining the Retirement Benefit
Percentage under Section 4.1 of the ONEOK, Inc. Supplemental Executive
Retirement Plan, and
c. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of commencing the Retirement Benefit
Payments as provided under Section 1.B of the Executive's Plan Agreement under
the ONEOK, Inc. Supplemental Executive Retirement Plan, and
d. Be paid a lump sum payment by the Corporation equal to the
Executive's short-term incentive compensation "target percentage" under the
Corporation's incentive compensation plan times the midpoint of the Executive's
Pay Grade, prorated for the length of employment during the current performance
period, and
e. Be paid by, or receive from the Corporation the employee benefits
(including, but not limited to, car allowances and coverage under any medical or
insurance arrangements or programs) to which the Executive would have been
entitled under all employee welfare plans, programs, or arrangements maintained
by the Corporation if the Executive had remained in the employ of the
Corporation for the three (3) year period following Termination. Such employee
benefits shall be provided under plans sponsored by the Corporation on the
Occurrence Date or the Termination Date, whichever produces the higher benefits,
but if such benefits are not available under Corporation sponsored plans in
effect during each of the three (3) years, the Corporation shall provide such
benefits to the Executive under plans covering the Executive individually, or
otherwise provide or pay such benefits to the Executive.
f. The lump sum payments described above shall be calculated and paid
not later than thirty (30) calendar days after the Termination Date. Any payment
not made within the thirty (30) days shall thereafter bear interest at two
percent (2%) over the "prime rate" as published in The Wall Street Journal from
time to time, which is the base rate on corporate loans posted by at least
seventy-five percent (75%) of the nation's thirty (30) largest banks.
2. Non-Disclosure. The Executive agrees that the Executive shall not,
during the three (3) years after the date of any such Termination, directly or
indirectly, divulge, disclose, or communicate to any other person any trade
secrets that the Corporation may use in its business operations.
6
<PAGE> 7
3. Definitions. As used in this Agreement,
a. A "Change in Control" will be deemed to have occurred if, within
three years of the original execution date hereof (subject to automatic
extension and renewal for additional one (1)-year periods, unless the
Corporation provides notice to the Executive of its election not to renew this
Agreement at least ninety (90) days prior to the January 1 next preceding a
Termination Date),
(i) Any "person" (as that term is defined in Section 3(a)(9)
and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) shall acquire beneficial ownership (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
fifteen percent (15%) or more of Corporation's then outstanding
securities entitled to vote for the election of directors; or
(ii) As a result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets,
or contested election or any combination of such transactions, the
individuals who were directors of the Corporation immediately before
such transaction (or before the first in any combination of such
transactions) cease to constitute a majority of the Board of Directors
of the Corporation or any successor to the Corporation;
(iii) provided, however, that the acquisition by any "person"
(as defined in Subsection 3(a)(i) above) of beneficial ownership of
fifteen percent (15%) or more of the Company's outstanding securities
entitled to vote for the election of directors, pursuant to a certain
Amended and Restated Agreement among ONEOK Inc., WAI, and Western
Resources, Inc., dated May 19, 1997, (the "Transaction Agreement"),
which securities are held under and subject to a Shareholder Agreement
("Shareholder Agreement") attached as an exhibit to the Transaction
Agreement (which Transaction Agreement and Shareholder Agreement are
hereby referred to and incorporated herein by reference), shall not be
considered to be a Change in Control for the purposes of this
Termination Agreement until either (1) the termination of the
Shareholder Agreement, or (2) the successful consummation of a Buyout
Tender Offer as defined in Section 3.6(b) of the Shareholder Agreement,
in either of which events either the acquisition or existence of such
percentage of beneficial ownership by any person (as so defined) shall
constitute a Change in Control for the purposes hereof.
b. The "Occurrence Date" shall be the date on which a Change in Control
of the Corporation occurs.
c. The term "Termination" shall mean termination of the Executive's
employment with the Corporation, within three (3) years after the Occurrence
Date and prior to such Executive's Normal Retirement Date,
(i) By the Corporation for any reason other than death or
Permanent and Total Disability of the Executive, or for "Just Cause".
The following circumstances shall constitute "Just Cause":
The Executive's conviction in a court of law of a felony, or
any crime or offense in a court of law of a felony, or any
crime or offense involving misuse or misappropriation of money
or property, the Executive's violation of any covenant,
agreement or obligation not to disclose confidential
information regarding the business of the Corporation (or a
division or subsidiary); any violation by the Executive of any
covenant not to compete with the Corporation (or a division or
subsidiary); any act of dishonesty by the Executive which
adversely affects the business of the Corporation (or a
division or subsidiary); any willful or intentional act of the
Executive which adversely affects the business of, or reflects
unfavorably on the reputation of the Corporation (or a
division or subsidiary); the Executive's use of alcohol or
drugs which interferes with the Optionee's performance of
duties as an employee of the Corporation (or a division or
subsidiary); or the Executive's failure or refusal to perform
the specific directives of the Corporation's Board of
Directors, or its officers which directives are consistent
with the scope and nature of the Optionee's duties and
responsibilities with the existence and occurrence of all of
such causes to be determined by the Corporation, in its sole
discretion; provided, that nothing contained in the foregoing
provisions of this paragraph shall be
7
<PAGE> 8
deemed to interfere in any way with the right of the
Corporation (or a division or subsidiary), which is hereby
acknowledged, to terminate the Optionee's employment at any
time without cause.
(ii) By the Executive with the consent of the Board of
Directors, or for "Good Reason." The following circumstances shall
constitute "Good Reason":
Any reason by the Executive within twelve (12) months after
the first year following the Occurrence Date, or
A demotion, loss of title or significant authority or
responsibility of the Executive with respect to the
Executive's employment with the Corporation from those in
effect on the Occurrence Date, a reduction in salary of the
Executive from that received from the Corporation immediately
prior to the Occurrence Date, a reduction in short-term and/or
long-term incentive targets from those applicable to the
Executive immediately prior to the Occurrence Date, or the
relocation of the Corporation's principal executive offices to
a location outside the metropolitan area of Tulsa, Oklahoma,
or the Corporation's requiring a Relocation of principal place
of employment of the Executive; provided, however, the
Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of
the Executive under this Section 3(c)(ii) shall be strictly
limited to the terms specified in such written consent. The
Executive shall give notice of any Termination of the
Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof
to the Corporation within one hundred twenty (120) days after
the first occurrence of the event giving rise to such Good
Reason.
d. The term "Termination Date" shall mean the date of the Executive's
Termination.
e. "Annual Compensation" shall mean the greater of (A) the sum of (i)
fifty-two (52) times the Executive's Weekly Basic Salary for the week last
preceding the Occurrence Date, plus (ii) the Executive's bonus for the year last
preceding the Occurrence Date, or (B)(i) fifty-two (52) times the Executive's
Weekly Basic Salary for the week last preceding the Executive's Termination,
plus (ii) the Executive's bonus for the year last preceding the Executive's
Termination.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Weekly Basic Salary" shall mean the base salary paid to the
Executive by the Corporation in the last payroll period of the Corporation
ending prior to the Executive's Termination divided by the number of weeks
included within such payroll period.
h. "Normal Retirement Date" shall mean the Normal Retirement Date of
the Executive under the Retirement Plan for Employees of ONEOK, Inc. and
Subsidiaries.
i. "Permanent and Total Disability" shall mean a condition of
disability of the Executive that comes within the meaning of such term under
Section 22(e) of the Code.
j. "Relocation" shall mean the Corporation requiring the Executive to
move and relocate to a new principal place of the Executive's employment by the
Corporation, which is more than thirty-five (35) miles further from the
Executive's principal place of residence than the Executive's principal place of
employment was prior to such change.
4. Section 280G Limitation on Payments.
The Company shall make the payment and provide the benefits under
Section 1 of this Agreement; provided, however, that if all or any portion of
the payments and benefits provided under Section 1 of this Agreement, either
8
<PAGE> 9
alone or together with other payments and benefits which the Executive receives
or is then entitled to receive from the Corporation, would constitute a
"parachute payment" within the meaning of Section 280G of the Code, the
Corporation shall pay to the Executive a Tax Gross-up Payment to the extent
necessary so that the net after-tax benefit to the Executive shall be equal to
the net after-tax benefit if the excise tax associated with the "parachute
payment" were not imposed. The "net after-tax benefit" for these purposes shall
mean the sum of (i) the total amount payable to the Executive under Section 1 of
this Agreement, plus (ii) all other payments and benefits which the Executive
receives or is then entitled to receive from the Corporation that would
constitute a "parachute payment" within the meaning of Section 280G of the Code,
less (iii) the amount of federal income taxes payable with respect to the
foregoing calculated at the maximum marginal income tax rate for each year in
which the foregoing shall be paid to the Executive (based upon the rate in
effect for such year as set forth in the Code at the time of the payment under
Section 1), less (iv) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) and (ii) above by Section 4999 of the
Code.
5. Fees and Expenses. The Corporation shall reimburse the Executive on
a current basis, for all legal fees, arbitration fees and related expenses
incurred by the Executive in connection with this Agreement following a Change
in Control, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting any termination of employment or incurred by the
Executive in seeking advice with respect to the matters set forth in Section 1
hereof, or (b) Executive seeking to enforce any benefit provided by this
Agreement, in each case, regardless of whether or not the claim is upheld by a
court of competent jurisdiction; provided, however, Executive shall be required
to repay any such amounts to the extent that the arbitrator under Section 13
issues a final and non-appealable order determining that the Executive's
position was frivolous. The Corporation shall reimburse the Executive for all
reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 4(a) is appropriate.
6. Consideration. As consideration for the benefits to be provided by
the Corporation under this Agreement, prior to the occurrence of a Change in
Control the Executive agrees to deliver to the Corporation thirty (30) calendar
days' prior written notice of any voluntary termination by the Executive of the
Executive's employment with the Corporation.
7. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address the Executive
has filed in writing with the Corporation or, in the case of the Corporation, at
its principal executive offices.
8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Oklahoma.
9. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing and so long as the Executive lives, no
person, other than the parties hereto, shall have any rights under or interest
in this Agreement or the subject matter hereof.
10. Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company shall have the right to
assign this Agreement to a parent, affiliate or subsidiary corporation or to any
corporation with which it may merge or consolidate.
11. Severability. In the event that all or any part of any provision of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement or such provision shall be
unaffected thereby and shall remain in full force and effect. If any provision
of this Agreement or portion thereof is so broad as to be unenforceable it shall
be interpreted to be only so broad as is enforceable. Nothing in this Agreement
is intended to or shall be construed to violate any Federal or State law or
regulation.
9
<PAGE> 10
12. Related Agreements. This Agreement shall supersede and terminate
all prior individual agreements between the Corporation and the Executive
relating to the matters contained herein.
13. Arbitration.
a. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, shall be settled by
binding arbitration in accordance with the CPR NON-ADMINISTERED ARBITRATION
RULES in effect on the date of this Agreement, by a sole arbitrator.
b. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof.
c. The place of arbitration shall be Tulsa, Oklahoma.
d. The statute of limitations of the State of Oklahoma applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------------------------
"Executive"
ONEOK, Inc.
By
-------------------------------------
Larry W. Brummett, Chairman and
Chief Executive Officer
"Corporation"
10
<PAGE> 11
TERMINATION AGREEMENT
THIS AGREEMENT, dated this 1st day of January, 1999, between ONEOK,
Inc., an Oklahoma corporation, or any division or subsidiary thereof, having its
principal office in Tulsa, Oklahoma (the "Corporation"), and James C.
Kneale (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive, as an employee of the Corporation, has rendered
valuable service to the Corporation, and the Corporation wishes to retain the
Executive's services, assuring both itself and the Executive of the continuity
of management in the event of any actual or threatened change in control of the
Corporation; and
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Termination Payments. In the event of a Termination (as hereinafter
defined) the Executive shall:
a. Be paid a lump sum termination payment by the Corporation in an
amount equivalent to three (3) times the Executive's Annual Compensation, and
b. Be deemed to have attained the age of sixty-five (65) as of the date
of the Change in Control for purposes of determining the Retirement Benefit
Percentage under Section 4.1 of the ONEOK, Inc. Supplemental Executive
Retirement Plan, and
c. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of commencing the Retirement Benefit
Payments as provided under Section 1.B of the Executive's Plan Agreement under
the ONEOK, Inc. Supplemental Executive Retirement Plan, and
d. Be paid a lump sum payment by the Corporation equal to the
Executive's short-term incentive compensation "target percentage" under the
Corporation's incentive compensation plan times the midpoint of the Executive's
Pay Grade, prorated for the length of employment during the current performance
period, and
e. Be paid by, or receive from the Corporation the employee benefits
(including, but not limited to, car allowances and coverage under any medical or
insurance arrangements or programs) to which the Executive would have been
entitled under all employee welfare plans, programs, or arrangements maintained
by the Corporation if the Executive had remained in the employ of the
Corporation for the three (3) year period following Termination. Such employee
benefits shall be provided under plans sponsored by the Corporation on the
Occurrence Date or the Termination Date, whichever produces the higher benefits,
but if such benefits are not available under Corporation sponsored plans in
effect during each of the three (3) years, the Corporation shall provide such
benefits to the Executive under plans covering the Executive individually, or
otherwise provide or pay such benefits to the Executive.
f. The lump sum payments described above shall be calculated and paid
not later than thirty (30) calendar days after the Termination Date. Any payment
not made within the thirty (30) days shall thereafter bear interest at two
percent (2%) over the "prime rate" as published in The Wall Street Journal from
time to time, which is the base rate on corporate loans posted by at least
seventy-five percent (75%) of the nation's thirty (30) largest banks.
2. Non-Disclosure. The Executive agrees that the Executive shall not,
during the three (3) years after the date of any such Termination, directly or
indirectly, divulge, disclose, or communicate to any other person any trade
secrets that the Corporation may use in its business operations.
11
<PAGE> 12
3. Definitions. As used in this Agreement,
a. A "Change in Control" will be deemed to have occurred if, within
three years of the original execution date hereof (subject to automatic
extension and renewal for additional one (1)-year periods, unless the
Corporation provides notice to the Executive of its election not to renew this
Agreement at least ninety (90) days prior to the January 1 next preceding a
Termination Date),
(i) Any "person" (as that term is defined in Section 3(a)(9)
and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) shall acquire beneficial ownership (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
fifteen percent (15%) or more of Corporation's then outstanding
securities entitled to vote for the election of directors; or
(ii) As a result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets,
or contested election or any combination of such transactions, the
individuals who were directors of the Corporation immediately before
such transaction (or before the first in any combination of such
transactions) cease to constitute a majority of the Board of Directors
of the Corporation or any successor to the Corporation;
(iii) provided, however, that the acquisition by any "person"
(as defined in Subsection 3(a)(i) above) of beneficial ownership of
fifteen percent (15%) or more of the Company's outstanding securities
entitled to vote for the election of directors, pursuant to a certain
Amended and Restated Agreement among ONEOK Inc., WAI, and Western
Resources, Inc., dated May 19, 1997, (the "Transaction Agreement"),
which securities are held under and subject to a Shareholder Agreement
("Shareholder Agreement") attached as an exhibit to the Transaction
Agreement (which Transaction Agreement and Shareholder Agreement are
hereby referred to and incorporated herein by reference), shall not be
considered to be a Change in Control for the purposes of this
Termination Agreement until either (1) the termination of the
Shareholder Agreement, or (2) the successful consummation of a Buyout
Tender Offer as defined in Section 3.6(b) of the Shareholder Agreement,
in either of which events either the acquisition or existence of such
percentage of beneficial ownership by any person (as so defined) shall
constitute a Change in Control for the purposes hereof.
b. The "Occurrence Date" shall be the date on which a Change in Control
of the Corporation occurs.
c. The term "Termination" shall mean termination of the Executive's
employment with the Corporation, within three (3) years after the Occurrence
Date and prior to such Executive's Normal Retirement Date,
(i) By the Corporation for any reason other than death or
Permanent and Total Disability of the Executive, or for "Just Cause".
The following circumstances shall constitute "Just Cause":
The Executive's conviction in a court of law of a felony, or
any crime or offense in a court of law of a felony, or any
crime or offense involving misuse or misappropriation of money
or property, the Executive's violation of any covenant,
agreement or obligation not to disclose confidential
information regarding the business of the Corporation (or a
division or subsidiary); any violation by the Executive of any
covenant not to compete with the Corporation (or a division or
subsidiary); any act of dishonesty by the Executive which
adversely affects the business of the Corporation (or a
division or subsidiary); any willful or intentional act of the
Executive which adversely affects the business of, or reflects
unfavorably on the reputation of the Corporation (or a
division or subsidiary); the Executive's use of alcohol or
drugs which interferes with the Optionee's performance of
duties as an employee of the Corporation (or a division or
subsidiary); or the Executive's failure or refusal to perform
the specific directives of the Corporation's Board of
Directors, or its officers which directives are consistent
with the scope and nature of the Optionee's duties and
responsibilities with the existence and occurrence of all of
such causes to be determined by the Corporation, in its sole
12
<PAGE> 13
discretion; provided, that nothing contained in the foregoing
provisions of this paragraph shall be deemed to interfere in
any way with the right of the Corporation (or a division or
subsidiary), which is hereby acknowledged, to terminate the
Optionee's employment at any time without cause.
(ii) By the Executive with the consent of the Board of
Directors, or for "Good Reason." The following circumstances shall
constitute "Good Reason":
A demotion, loss of title or significant authority or
responsibility of the Executive with respect to the
Executive's employment with the Corporation from those in
effect on the Occurrence Date, a reduction in salary of the
Executive from that received from the Corporation immediately
prior to the Occurrence Date, a reduction in short-term and/or
long-term incentive targets from those applicable to the
Executive immediately prior to the Occurrence Date, or the
relocation of the Corporation's principal executive offices to
a location outside the metropolitan area of Tulsa, Oklahoma,
or the Corporation's requiring a Relocation of principal place
of employment of the Executive; provided, however, the
Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of
the Executive under this Section 3(c)(ii) shall be strictly
limited to the terms specified in such written consent. The
Executive shall give notice of any Termination of the
Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof
to the Corporation within one hundred twenty (120) days after
the first occurrence of the event giving rise to such Good
Reason.
d. The term "Termination Date" shall mean the date of the Executive's
Termination.
e. "Annual Compensation" shall mean the greater of (A) the sum of (i)
fifty-two (52) times the Executive's Weekly Basic Salary for the week last
preceding the Occurrence Date, plus (ii) the Executive's bonus for the year last
preceding the Occurrence Date, or (B)(i) fifty-two (52) times the Executive's
Weekly Basic Salary for the week last preceding the Executive's Termination,
plus (ii) the Executive's bonus for the year last preceding the Executive's
Termination.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Weekly Basic Salary" shall mean the base salary paid to the
Executive by the Corporation in the last payroll period of the Corporation
ending prior to the Executive's Termination divided by the number of weeks
included within such payroll period.
h. "Normal Retirement Date" shall mean the Normal Retirement Date of
the Executive under the Retirement Plan for Employees of ONEOK, Inc. and
Subsidiaries.
i. "Permanent and Total Disability" shall mean a condition of
disability of the Executive that comes within the meaning of such term under
Section 22(e) of the Code.
j. "Relocation" shall mean the Corporation requiring the Executive to
move and relocate to a new principal place of the Executive's employment by the
Corporation, which is more than thirty-five (35) miles further from the
Executive's principal place of residence than the Executive's principal place of
employment was prior to such change.
4. Section 280G Limitation on Payments.
a. The Company shall make the payment and provide the payments and
benefits under Section 1 of this Agreement; provided, however, that if all or
any portion of the payments and benefits provided under Section 1 of this
Agreement, either alone or together with other payments and benefits which the
Executive receives or is then entitled to receive from the Corporation, would
constitute a "parachute payment" within the meaning of Section 280G
13
<PAGE> 14
of the Code, the Corporation shall reduce such payments and benefits provided to
the Executive under Section 1 of this Agreement to the extent necessary so that
no portion thereof shall be subject to the excise tax imposed by Section 4999 of
the Code; but only if, by reason of such reduction, the net after-tax benefit to
the Executive shall exceed the net after-tax benefit if such reduction were not
made. "Net after-tax benefit" for these purposes shall mean the sum of (i) the
total amount payable to the Executive under Section 1 of this Agreement, plus
(ii) all other payments and benefits which the Executive receives or is then
entitled to receive from the Corporation that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (iii) the amount
of federal income taxes payable with respect to the foregoing calculated at the
maximum marginal income tax rate for each year in which the foregoing shall be
paid to the Executive (based upon the rate in effect for such year as set forth
in the Code at the time of the payment under Section 1), less (iv) the amount of
excise taxes imposed with respect to the payments and benefits described in (i)
and (ii) above by Section 4999 of the Code. The amount of any reduction made
under this Section 4(a) in the payment to which the Executive is entitled under
Section 1 of this Agreement is hereinafter referred to as the "Relinquished
Amount."
b. If the Executive's payment under Section 1 of this Agreement is
reduced under Section 4(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any portion of any payment or benefit the Executive receives
(whether pursuant to this Agreement or otherwise) in connection with the event
giving rise to the Executive's right to receive payments and benefits under
Section 1 of this Agreement, the Company shall pay to the Executive an amount
equal to the Relinquished Amount, together with interest thereon at the rate set
forth in Section 1(g) of this Agreement from the date of the payment to the
Executive pursuant to Section 1 of this Agreement to and including the date of
payment of the Relinquished Amount, and an amount ("Special Reimbursement")
which, after payment by the Executive of any federal, state and local taxes,
including any further excise tax under Section 4999 of the Code resulting from
all payments and benefits received (whether pursuant to this Agreement or
otherwise, and including the Relinquished Amount and this Special
Reimbursement), equals the total excise tax paid or payable.
5. Fees and Expenses. The Corporation shall reimburse the Executive on
a current basis, for all legal fees, arbitration fees and related expenses
incurred by the Executive in connection with this Agreement following a Change
in Control, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting any termination of employment or incurred by the
Executive in seeking advice with respect to the matters set forth in Section 1
hereof, or (b) Executive seeking to enforce any benefit provided by this
Agreement, in each case, regardless of whether or not the claim is upheld by a
court of competent jurisdiction; provided, however, Executive shall be required
to repay any such amounts to the extent that the arbitrator under Section 13
issues a final and non-appealable order determining that the Executive's
position was frivolous. The Corporation shall reimburse the Executive for all
reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 4(a) is appropriate.
6. Consideration. As consideration for the benefits to be provided by
the Corporation under this Agreement, prior to the occurrence of a Change in
Control the Executive agrees to deliver to the Corporation thirty (30) calendar
days' prior written notice of any voluntary termination by the Executive of the
Executive's employment with the Corporation.
7. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address the Executive
has filed in writing with the Corporation or, in the case of the Corporation, at
its principal executive offices.
8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Oklahoma.
14
<PAGE> 15
9. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing and so long as the Executive lives, no
person, other than the parties hereto, shall have any rights under or interest
in this Agreement or the subject matter hereof.
10. Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company shall have the right to
assign this Agreement to a parent, affiliate or subsidiary corporation or to any
corporation with which it may merge or consolidate.
11. Severability. In the event that all or any part of any provision of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement or such provision shall be
unaffected thereby and shall remain in full force and effect. If any provision
of this Agreement or portion thereof is so broad as to be unenforceable it shall
be interpreted to be only so broad as is enforceable. Nothing in this Agreement
is intended to or shall be construed to violate any Federal or State law or
regulation.
12. Related Agreements. This Agreement shall supersede and terminate
all prior individual agreements between the Corporation and the Executive
relating to the matters contained herein.
13. Arbitration.
a. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, shall be settled by
binding arbitration in accordance with the CPR NON-ADMINISTERED ARBITRATION
RULES in effect on the date of this Agreement, by a sole arbitrator.
b. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof.
c. The place of arbitration shall be Tulsa, Oklahoma.
d. The statute of limitations of the State of Oklahoma applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------------------
"Executive"
ONEOK, Inc.
By
---------------------------------------
Larry W. Brummett, Chairman and
Chief Executive Officer
"Corporation"
15
<PAGE> 16
TERMINATION AGREEMENT
THIS AGREEMENT, dated this 1st day of January, 1999, between ONEOK,
Inc., an Oklahoma corporation, or any division or subsidiary thereof, having its
principal office in Tulsa, Oklahoma (the "Corporation"), and Eugene N.
Dubay (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive, as an employee of the Corporation, has rendered
valuable service to the Corporation, and the Corporation wishes to retain the
Executive's services, assuring both itself and the Executive of the continuity
of management in the event of any actual or threatened change in control of the
Corporation; and
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Termination Payments. In the event of a Termination (as hereinafter
defined) the Executive shall:
a. Be paid a lump sum termination payment by the Corporation in an
amount equivalent to three (3) times the Executive's Annual Compensation, and
b. Be deemed to have the additional years of service with the
Corporation for purposes of Vesting under Section 4.3 of the ONEOK, Inc.
Supplemental Executive Retirement Plan, if any, that are necessary to cause the
Executive to be at least thirty percent (30%) vested under such Plan as of the
date of the Change in Control, and
c. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of determining the Retirement Benefit
Percentage under Section 4.1 of the ONEOK, Inc. Supplemental Executive
Retirement Plan, and
d. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of commencing the Retirement Benefit
Payments as provided under Section 1.B of the Executive's Plan Agreement under
the ONEOK, Inc. Supplemental Executive Retirement Plan, and
e. Be paid a lump sum payment by the Corporation equal to the
Executive's short-term incentive compensation "target percentage" under the
Corporation's incentive compensation plan times the midpoint of the Executive's
Pay Grade, prorated for the length of employment during the current performance
period, and
f. Be paid by, or receive from the Corporation the employee benefits
(including, but not limited to, car allowances and coverage under any medical or
insurance arrangements or programs) to which the Executive would have been
entitled under all employee welfare plans, programs, or arrangements maintained
by the Corporation if the Executive had remained in the employ of the
Corporation for the three (3) year period following Termination. Such employee
benefits shall be provided under plans sponsored by the Corporation on the
Occurrence Date or the Termination Date, whichever produces the higher benefits,
but if such benefits are not available under Corporation sponsored plans in
effect during each of the three (3) years, the Corporation shall provide such
benefits to the Executive under plans covering the Executive individually, or
otherwise provide or pay such benefits to the Executive.
g. The lump sum payments described above shall be calculated and paid
not later than thirty (30) calendar days after the Termination Date. Any payment
not made within the thirty (30) days shall thereafter bear interest at two
percent (2%) over the "prime rate" as published in The Wall Street Journal from
time to time, which is the base rate on corporate loans posted by at least
seventy-five percent (75%) of the nation's thirty (30) largest banks.
16
<PAGE> 17
2. Non-Disclosure. The Executive agrees that the Executive shall not,
during the three (3) years after the date of any such Termination, directly or
indirectly, divulge, disclose, or communicate to any other person any trade
secrets that the Corporation may use in its business operations.
3. Definitions. As used in this Agreement,
a. A "Change in Control" will be deemed to have occurred if, within
three years of the original execution date hereof (subject to automatic
extension and renewal for additional one (1)-year periods, unless the
Corporation provides notice to the Executive of its election not to renew this
Agreement at least ninety (90) days prior to the January 1 next preceding a
Termination Date),
(i) Any "person" (as that term is defined in Section 3(a)(9)
and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) shall acquire beneficial ownership (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
fifteen percent (15%) or more of Corporation's then outstanding
securities entitled to vote for the election of directors; or
(ii) As a result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets,
or contested election or any combination of such transactions, the
individuals who were directors of the Corporation immediately before
such transaction (or before the first in any combination of such
transactions) cease to constitute a majority of the Board of Directors
of the Corporation or any successor to the Corporation;
(iii) provided, however, that the acquisition by any "person"
(as defined in Subsection 3(a)(i) above) of beneficial ownership of
fifteen percent (15%) or more of the Company's outstanding securities
entitled to vote for the election of directors, pursuant to a certain
Amended and Restated Agreement among ONEOK Inc., WAI, and Western
Resources, Inc., dated May 19, 1997, (the "Transaction Agreement"),
which securities are held under and subject to a Shareholder Agreement
("Shareholder Agreement") attached as an exhibit to the Transaction
Agreement (which Transaction Agreement and Shareholder Agreement are
hereby referred to and incorporated herein by reference), shall not be
considered to be a Change in Control for the purposes of this
Termination Agreement until either (1) the termination of the
Shareholder Agreement, or (2) the successful consummation of a Buyout
Tender Offer as defined in Section 3.6(b) of the Shareholder Agreement,
in either of which events either the acquisition or existence of such
percentage of beneficial ownership by any person (as so defined) shall
constitute a Change in Control for the purposes hereof.
b. The "Occurrence Date" shall be the date on which a Change in Control
of the Corporation occurs.
c. The term "Termination" shall mean termination of the Executive's
employment with the Corporation, within three (3) years after the Occurrence
Date and prior to such Executive's Normal Retirement Date,
(i) By the Corporation for any reason other than death or
Permanent and Total Disability of the Executive, or for "Just Cause".
The following circumstances shall constitute "Just Cause":
The Executive's conviction in a court of law of a felony, or
any crime or offense in a court of law of a felony, or any
crime or offense involving misuse or misappropriation of money
or property, the Executive's violation of any covenant,
agreement or obligation not to disclose confidential
information regarding the business of the Corporation (or a
division or subsidiary); any violation by the Executive of any
covenant not to compete with the Corporation (or a division or
subsidiary); any act of dishonesty by the Executive which
adversely affects the business of the Corporation (or a
division or subsidiary); any willful or intentional act of the
Executive which adversely affects the business of, or reflects
unfavorably on the reputation of the Corporation (or a
division or subsidiary); the Executive's use of alcohol or
drugs which interferes with the Optionee's performance of
duties
17
<PAGE> 18
as an employee of the Corporation (or a division or
subsidiary); or the Executive's failure or refusal to perform
the specific directives of the Corporation's Board of
Directors, or its officers which directives are consistent
with the scope and nature of the Optionee's duties and
responsibilities with the existence and occurrence of all of
such causes to be determined by the Corporation, in its sole
discretion; provided, that nothing contained in the foregoing
provisions of this paragraph shall be deemed to interfere in
any way with the right of the Corporation (or a division or
subsidiary), which is hereby acknowledged, to terminate the
Optionee's employment at any time without cause.
(ii) By the Executive with the consent of the Board of
Directors, or for "Good Reason." The following circumstances shall
constitute "Good Reason":
A demotion, loss of title or significant authority or
responsibility of the Executive with respect to the
Executive's employment with the Corporation from those in
effect on the Occurrence Date, a reduction in salary of the
Executive from that received from the Corporation immediately
prior to the Occurrence Date, a reduction in short-term and/or
long-term incentive targets from those applicable to the
Executive immediately prior to the Occurrence Date, or the
relocation of the Corporation's principal executive offices to
a location outside the metropolitan area of Tulsa, Oklahoma,
or the Corporation's requiring a Relocation of principal place
of employment of the Executive; provided, however, the
Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of
the Executive under this Section 3(c)(ii) shall be strictly
limited to the terms specified in such written consent. The
Executive shall give notice of any Termination of the
Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof
to the Corporation within one hundred twenty (120) days after
the first occurrence of the event giving rise to such Good
Reason.
d. The term "Termination Date" shall mean the date of the Executive's
Termination.
e. "Annual Compensation" shall mean the greater of (A) the sum of (i)
fifty-two (52) times the Executive's Weekly Basic Salary for the week last
preceding the Occurrence Date, plus (ii) the Executive's bonus for the year last
preceding the Occurrence Date, or (B)(i) fifty-two (52) times the Executive's
Weekly Basic Salary for the week last preceding the Executive's Termination,
plus (ii) the Executive's bonus for the year last preceding the Executive's
Termination.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Weekly Basic Salary" shall mean the base salary paid to the
Executive by the Corporation in the last payroll period of the Corporation
ending prior to the Executive's Termination divided by the number of weeks
included within such payroll period.
h. "Normal Retirement Date" shall mean the Normal Retirement Date of
the Executive under the Retirement Plan for Employees of ONEOK, Inc. and
Subsidiaries.
i. "Permanent and Total Disability" shall mean a condition of
disability of the Executive that comes within the meaning of such term under
Section 22(e) of the Code.
j. "Relocation" shall mean the Corporation requiring the Executive to
move and relocate to a new principal place of the Executive's employment by the
Corporation, which is more than thirty-five (35) miles further from the
Executive's principal place of residence than the Executive's principal place of
employment was prior to such change.
18
<PAGE> 19
4. Section 280G Limitation on Payments.
a. The Company shall make the payment and provide the payments and
benefits under Section 1 of this Agreement; provided, however, that if all or
any portion of the payments and benefits provided under Section 1 of this
Agreement, either alone or together with other payments and benefits which the
Executive receives or is then entitled to receive from the Corporation, would
constitute a "parachute payment" within the meaning of Section 280G of the Code,
the Corporation shall reduce such payments and benefits provided to the
Executive under Section 1 of this Agreement to the extent necessary so that no
portion thereof shall be subject to the excise tax imposed by Section 4999 of
the Code; but only if, by reason of such reduction, the net after-tax benefit to
the Executive shall exceed the net after-tax benefit if such reduction were not
made. "Net after-tax benefit" for these purposes shall mean the sum of (i) the
total amount payable to the Executive under Section 1 of this Agreement, plus
(ii) all other payments and benefits which the Executive receives or is then
entitled to receive from the Corporation that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (iii) the amount
of federal income taxes payable with respect to the foregoing calculated at the
maximum marginal income tax rate for each year in which the foregoing shall be
paid to the Executive (based upon the rate in effect for such year as set forth
in the Code at the time of the payment under Section 1), less (iv) the amount of
excise taxes imposed with respect to the payments and benefits described in (i)
and (ii) above by Section 4999 of the Code. The amount of any reduction made
under this Section 4(a) in the payment to which the Executive is entitled under
Section 1 of this Agreement is hereinafter referred to as the "Relinquished
Amount."
b. If the Executive's payment under Section 1 of this Agreement is
reduced under Section 4(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any portion of any payment or benefit the Executive receives
(whether pursuant to this Agreement or otherwise) in connection with the event
giving rise to the Executive's right to receive payments and benefits under
Section 1 of this Agreement, the Company shall pay to the Executive an amount
equal to the Relinquished Amount, together with interest thereon at the rate set
forth in Section 1(g) of this Agreement from the date of the payment to the
Executive pursuant to Section 1 of this Agreement to and including the date of
payment of the Relinquished Amount, and an amount ("Special Reimbursement")
which, after payment by the Executive of any federal, state and local taxes,
including any further excise tax under Section 4999 of the Code resulting from
all payments and benefits received (whether pursuant to this Agreement or
otherwise, and including the Relinquished Amount and this Special
Reimbursement), equals the total excise tax paid or payable.
5. Fees and Expenses. The Corporation shall reimburse the Executive on
a current basis, for all legal fees, arbitration fees and related expenses
incurred by the Executive in connection with this Agreement following a Change
in Control, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting any termination of employment or incurred by the
Executive in seeking advice with respect to the matters set forth in Section 1
hereof, or (b) Executive seeking to enforce any benefit provided by this
Agreement, in each case, regardless of whether or not the claim is upheld by a
court of competent jurisdiction; provided, however, Executive shall be required
to repay any such amounts to the extent that the arbitrator under Section 13
issues a final and non-appealable order determining that the Executive's
position was frivolous. The Corporation shall reimburse the Executive for all
reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 4(a) is appropriate.
6. Consideration.
a. As consideration for the benefits to be provided by the Corporation
under this Agreement, prior to the occurrence of a Change in Control the
Executive agrees to deliver to the Corporation thirty (30) calendar days' prior
written notice of any voluntary termination by the Executive of the Executive's
employment with the Corporation.
b. As further consideration, the Corporation waives and forfeits its
right to offset Retirement Benefits under the ONEOK, Inc. Supplemental Executive
Retirement Plan by any existing pension benefits payable to the Executive under
any retirement plans of any of the Executive's former employers. Notwithstanding
the terms of the Executive's Plan Agreement under the ONEOK, Inc. Supplemental
Executive Retirement Plan, the Executive shall
19
<PAGE> 20
have the right to receive Retirement Benefits under the ONEOK, Inc. Supplemental
Executive Retirement Plan which are not offset by any existing pension benefits
payable to the Executive under any retirement plans of any of the Executive's
former employers. Any offsets as a result of benefits payable to the Executive
from the Retirement Plan of the Corporation shall still be applicable.
7. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address the Executive
has filed in writing with the Corporation or, in the case of the Corporation, at
its principal executive offices.
8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Oklahoma.
9. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing and so long as the Executive lives, no
person, other than the parties hereto, shall have any rights under or interest
in this Agreement or the subject matter hereof.
10. Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company shall have the right to
assign this Agreement to a parent, affiliate or subsidiary corporation or to any
corporation with which it may merge or consolidate.
11. Severability. In the event that all or any part of any provision of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement or such provision shall be
unaffected thereby and shall remain in full force and effect. If any provision
of this Agreement or portion thereof is so broad as to be unenforceable it shall
be interpreted to be only so broad as is enforceable. Nothing in this Agreement
is intended to or shall be construed to violate any Federal or State law or
regulation.
12. Related Agreements. This Agreement shall supersede and terminate
all prior individual agreements between the Corporation and the Executive
relating to the matters contained herein.
13. Arbitration.
a. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, shall be settled by
binding arbitration in accordance with the CPR NON-ADMINISTERED ARBITRATION
RULES in effect on the date of this Agreement, by a sole arbitrator.
b. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof.
c. The place of arbitration shall be Tulsa, Oklahoma.
d. The statute of limitations of the State of Oklahoma applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder.
20
<PAGE> 21
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
------------------------------------
"Executive"
ONEOK, Inc.
By
----------------------------------
Larry W. Brummett, Chairman and
Chief Executive Officer
"Corporation"
21
<PAGE> 22
TERMINATION AGREEMENT
THIS AGREEMENT, dated this 1st day of January, 1999, between ONEOK,
Inc., an Oklahoma corporation, or any division or subsidiary thereof, having its
principal office in Tulsa, Oklahoma (the "Corporation"), and John A.
Gaberino (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive, as an employee of the Corporation, has rendered
valuable service to the Corporation, and the Corporation wishes to retain the
Executive's services, assuring both itself and the Executive of the continuity
of management in the event of any actual or threatened change in control of the
Corporation; and
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Termination Payments. In the event of a Termination (as hereinafter
defined) the Executive shall:
a. Be paid a lump sum termination payment by the Corporation in an
amount equivalent to three (3) times the Executive's Annual Compensation, and
b. Be deemed to have the additional years of service with the
Corporation for purposes of Vesting under Section 4.3 of the ONEOK, Inc.
Supplemental Executive Retirement Plan, if any, that are necessary to cause the
Executive to be at least thirty percent (30%) vested under such Plan as of the
date of the Change in Control, and
c. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of determining the Retirement Benefit
Percentage under Section 4.1 of the ONEOK, Inc. Supplemental Executive
Retirement Plan, and
d. Be deemed to have attained an age equal to the Executive's actual
age plus five (5) years, for purposes of commencing the Retirement Benefit
Payments as provided under Section 1.B of the Executive's Plan Agreement under
the ONEOK, Inc. Supplemental Executive Retirement Plan, and
e. Be paid a lump sum payment by the Corporation equal to the
Executive's short-term incentive compensation "target percentage" under the
Corporation's incentive compensation plan times the midpoint of the Executive's
Pay Grade, prorated for the length of employment during the current performance
period, and
f. Be paid by, or receive from the Corporation the employee benefits
(including, but not limited to, car allowances and coverage under any medical or
insurance arrangements or programs) to which the Executive would have been
entitled under all employee welfare plans, programs, or arrangements maintained
by the Corporation if the Executive had remained in the employ of the
Corporation for the three (3) year period following Termination. Such employee
benefits shall be provided under plans sponsored by the Corporation on the
Occurrence Date or the Termination Date, whichever produces the higher benefits,
but if such benefits are not available under Corporation sponsored plans in
effect during each of the three (3) years, the Corporation shall provide such
benefits to the Executive under plans covering the Executive individually, or
otherwise provide or pay such benefits to the Executive.
g. The lump sum payments described above shall be calculated and paid
not later than thirty (30) calendar days after the Termination Date. Any payment
not made within the thirty (30) days shall thereafter bear interest at two
percent (2%) over the "prime rate" as published in The Wall Street Journal from
time to time, which is the base rate on corporate loans posted by at least
seventy-five percent (75%) of the nation's thirty (30) largest banks.
22
<PAGE> 23
2. Non-Disclosure. The Executive agrees that the Executive shall not,
during the three (3) years after the date of any such Termination, directly or
indirectly, divulge, disclose, or communicate to any other person any trade
secrets that the Corporation may use in its business operations.
3. Definitions. As used in this Agreement,
a. A "Change in Control" will be deemed to have occurred if, within
three years of the original execution date hereof (subject to automatic
extension and renewal for additional one (1)-year periods, unless the
Corporation provides notice to the Executive of its election not to renew this
Agreement at least ninety (90) days prior to the January 1 next preceding a
Termination Date),
(i) Any "person" (as that term is defined in Section 3(a)(9)
and used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) shall acquire beneficial ownership (as
defined in Rule 13d-3 under the Act), directly or indirectly, of
fifteen percent (15%) or more of Corporation's then outstanding
securities entitled to vote for the election of directors; or
(ii) As a result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale of assets,
or contested election or any combination of such transactions, the
individuals who were directors of the Corporation immediately before
such transaction (or before the first in any combination of such
transactions) cease to constitute a majority of the Board of Directors
of the Corporation or any successor to the Corporation;
(iii) provided, however, that the acquisition by any "person"
(as defined in Subsection 3(a)(i) above) of beneficial ownership of
fifteen percent (15%) or more of the Company's outstanding securities
entitled to vote for the election of directors, pursuant to a certain
Amended and Restated Agreement among ONEOK Inc., WAI, and Western
Resources, Inc., dated May 19, 1997, (the "Transaction Agreement"),
which securities are held under and subject to a Shareholder Agreement
("Shareholder Agreement") attached as an exhibit to the Transaction
Agreement (which Transaction Agreement and Shareholder Agreement are
hereby referred to and incorporated herein by reference), shall not be
considered to be a Change in Control for the purposes of this
Termination Agreement until either (1) the termination of the
Shareholder Agreement, or (2) the successful consummation of a Buyout
Tender Offer as defined in Section 3.6(b) of the Shareholder Agreement,
in either of which events either the acquisition or existence of such
percentage of beneficial ownership by any person (as so defined) shall
constitute a Change in Control for the purposes hereof.
b. The "Occurrence Date" shall be the date on which a Change in Control
of the Corporation occurs.
c. The term "Termination" shall mean termination of the Executive's
employment with the Corporation, within three (3) years after the Occurrence
Date and prior to such Executive's Normal Retirement Date,
(i) By the Corporation for any reason other than death or
Permanent and Total Disability of the Executive, or for "Just Cause".
The following circumstances shall constitute "Just Cause":
The Executive's conviction in a court of law of a felony, or
any crime or offense in a court of law of a felony, or any
crime or offense involving misuse or misappropriation of money
or property, the Executive's violation of any covenant,
agreement or obligation not to disclose confidential
information regarding the business of the Corporation (or a
division or subsidiary); any violation by the Executive of any
covenant not to compete with the Corporation (or a division or
subsidiary); any act of dishonesty by the Executive which
adversely affects the business of the Corporation (or a
division or subsidiary); any willful or intentional act of the
Executive which adversely affects the business of, or reflects
unfavorably on the reputation of the Corporation (or a
division or subsidiary); the Executive's use of alcohol or
drugs which interferes with the Optionee's performance of
duties
23
<PAGE> 24
as an employee of the Corporation (or a division or
subsidiary); or the Executive's failure or refusal to perform
the specific directives of the Corporation's Board of
Directors, or its officers which directives are consistent
with the scope and nature of the Optionee's duties and
responsibilities with the existence and occurrence of all of
such causes to be determined by the Corporation, in its sole
discretion; provided, that nothing contained in the foregoing
provisions of this paragraph shall be deemed to interfere in
any way with the right of the Corporation (or a division or
subsidiary), which is hereby acknowledged, to terminate the
Optionee's employment at any time without cause.
(ii) By the Executive with the consent of the Board of
Directors, or for "Good Reason." The following circumstances shall
constitute "Good Reason":
A demotion, loss of title or significant authority or
responsibility of the Executive with respect to the
Executive's employment with the Corporation from those in
effect on the Occurrence Date, a reduction in salary of the
Executive from that received from the Corporation immediately
prior to the Occurrence Date, a reduction in short-term and/or
long-term incentive targets from those applicable to the
Executive immediately prior to the Occurrence Date, or the
relocation of the Corporation's principal executive offices to
a location outside the metropolitan area of Tulsa, Oklahoma,
or the Corporation's requiring a Relocation of principal place
of employment of the Executive; provided, however, the
Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of
the Executive under this Section 3(c)(ii) shall be strictly
limited to the terms specified in such written consent. The
Executive shall give notice of any Termination of the
Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof
to the Corporation within one hundred twenty (120) days after
the first occurrence of the event giving rise to such Good
Reason.
d. The term "Termination Date" shall mean the date of the Executive's
Termination.
e. "Annual Compensation" shall mean the greater of (A) the sum of (i)
fifty-two (52) times the Executive's Weekly Basic Salary for the week last
preceding the Occurrence Date, plus (ii) the Executive's bonus for the year last
preceding the Occurrence Date, or (B)(i) fifty-two (52) times the Executive's
Weekly Basic Salary for the week last preceding the Executive's Termination,
plus (ii) the Executive's bonus for the year last preceding the Executive's
Termination.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Weekly Basic Salary" shall mean the base salary paid to the
Executive by the Corporation in the last payroll period of the Corporation
ending prior to the Executive's Termination divided by the number of weeks
included within such payroll period.
h. "Normal Retirement Date" shall mean the Normal Retirement Date of
the Executive under the Retirement Plan for Employees of ONEOK, Inc. and
Subsidiaries.
i. "Permanent and Total Disability" shall mean a condition of
disability of the Executive that comes within the meaning of such term under
Section 22(e) of the Code.
j. "Relocation" shall mean the Corporation requiring the Executive to
move and relocate to a new principal place of the Executive's employment by the
Corporation, which is more than thirty-five (35) miles further from the
Executive's principal place of residence than the Executive's principal place of
employment was prior to such change.
24
<PAGE> 25
4. Section 280G Limitation on Payments.
a. The Company shall make the payment and provide the payments and
benefits under Section 1 of this Agreement; provided, however, that if all or
any portion of the payments and benefits provided under Section 1 of this
Agreement, either alone or together with other payments and benefits which the
Executive receives or is then entitled to receive from the Corporation, would
constitute a "parachute payment" within the meaning of Section 280G of the Code,
the Corporation shall reduce such payments and benefits provided to the
Executive under Section 1 of this Agreement to the extent necessary so that no
portion thereof shall be subject to the excise tax imposed by Section 4999 of
the Code; but only if, by reason of such reduction, the net after-tax benefit to
the Executive shall exceed the net after-tax benefit if such reduction were not
made. "Net after-tax benefit" for these purposes shall mean the sum of (i) the
total amount payable to the Executive under Section 1 of this Agreement, plus
(ii) all other payments and benefits which the Executive receives or is then
entitled to receive from the Corporation that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (iii) the amount
of federal income taxes payable with respect to the foregoing calculated at the
maximum marginal income tax rate for each year in which the foregoing shall be
paid to the Executive (based upon the rate in effect for such year as set forth
in the Code at the time of the payment under Section 1), less (iv) the amount of
excise taxes imposed with respect to the payments and benefits described in (i)
and (ii) above by Section 4999 of the Code. The amount of any reduction made
under this Section 4(a) in the payment to which the Executive is entitled under
Section 1 of this Agreement is hereinafter referred to as the "Relinquished
Amount."
b. If the Executive's payment under Section 1 of this Agreement is
reduced under Section 4(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any portion of any payment or benefit the Executive receives
(whether pursuant to this Agreement or otherwise) in connection with the event
giving rise to the Executive's right to receive payments and benefits under
Section 1 of this Agreement, the Company shall pay to the Executive an amount
equal to the Relinquished Amount, together with interest thereon at the rate set
forth in Section 1(g) of this Agreement from the date of the payment to the
Executive pursuant to Section 1 of this Agreement to and including the date of
payment of the Relinquished Amount, and an amount ("Special Reimbursement")
which, after payment by the Executive of any federal, state and local taxes,
including any further excise tax under Section 4999 of the Code resulting from
all payments and benefits received (whether pursuant to this Agreement or
otherwise, and including the Relinquished Amount and this Special
Reimbursement), equals the total excise tax paid or payable.
5. Fees and Expenses. The Corporation shall reimburse the Executive on
a current basis, for all legal fees, arbitration fees and related expenses
incurred by the Executive in connection with this Agreement following a Change
in Control, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting any termination of employment or incurred by the
Executive in seeking advice with respect to the matters set forth in Section 1
hereof, or (b) Executive seeking to enforce any benefit provided by this
Agreement, in each case, regardless of whether or not the claim is upheld by a
court of competent jurisdiction; provided, however, Executive shall be required
to repay any such amounts to the extent that the arbitrator under Section 13
issues a final and non-appealable order determining that the Executive's
position was frivolous. The Corporation shall reimburse the Executive for all
reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 4(a) is appropriate.
6. Consideration.
a. As consideration for the benefits to be provided by the Corporation
under this Agreement, prior to the occurrence of a Change in Control the
Executive agrees to deliver to the Corporation thirty (30) calendar days' prior
written notice of any voluntary termination by the Executive of the Executive's
employment with the Corporation.
b. As further consideration, the Corporation waives and forfeits its
right to offset Retirement Benefits under the ONEOK, Inc. Supplemental Executive
Retirement Plan by any existing pension benefits payable to the
25
<PAGE> 26
Executive under any retirement plans of any of the Executive's former employers.
Notwithstanding the terms of the Executive's Plan Agreement under the ONEOK,
Inc. Supplemental Executive Retirement Plan, the Executive shall have the right
to receive Retirement Benefits under the ONEOK, Inc. Supplemental Executive
Retirement Plan which are not offset by any existing pension benefits payable to
the Executive under any retirement plans of any of the Executive's former
employers. Any offsets as a result of benefits payable to the Executive from the
Retirement Plan of the Corporation shall still be applicable.
7. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address the Executive
has filed in writing with the Corporation or, in the case of the Corporation, at
its principal executive offices.
8. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Oklahoma.
9. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing and so long as the Executive lives, no
person, other than the parties hereto, shall have any rights under or interest
in this Agreement or the subject matter hereof.
10. Succession. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company shall have the right to
assign this Agreement to a parent, affiliate or subsidiary corporation or to any
corporation with which it may merge or consolidate.
11. Severability. In the event that all or any part of any provision of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement or such provision shall be
unaffected thereby and shall remain in full force and effect. If any provision
of this Agreement or portion thereof is so broad as to be unenforceable it shall
be interpreted to be only so broad as is enforceable. Nothing in this Agreement
is intended to or shall be construed to violate any Federal or State law or
regulation.
12. Related Agreements. This Agreement shall supersede and terminate
all prior individual agreements between the Corporation and the Executive
relating to the matters contained herein.
13. Arbitration.
a. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or validity thereof, shall be settled by
binding arbitration in accordance with the CPR NON-ADMINISTERED ARBITRATION
RULES in effect on the date of this Agreement, by a sole arbitrator.
b. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof.
c. The place of arbitration shall be Tulsa, Oklahoma.
d. The statute of limitations of the State of Oklahoma applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder.
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<PAGE> 27
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Corporation has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
------------------------------------
"Executive"
ONEOK, Inc.
By
----------------------------------
Larry W. Brummett, Chairman and
Chief Executive Officer
"Corporation"
27
<PAGE> 1
EXHIBIT (10)(e)
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of [date], between ONEOK, Inc., an Oklahoma
corporation (the "Corporation"), and [name] (the "Indemnitee").
WHEREAS, it is essential to the Corporation to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Corporation;
WHEREAS, both the Corporation and Indemnitee recognize the increased
risk of litigation and other claims being asserted against directors and
officers of public companies in today's environment;
WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, and Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it has become increasingly more difficult to
obtain such insurance on terms providing reasonable protection at reasonable
cost;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Corporation in an effective manner, the Corporation wishes to provide in
this Agreement for the indemnification of and the advancing of expenses to
Indemnitee to the full extent (whether partial or complete) permitted by law and
as set forth in this Agreement, and, to the extent insurance is maintained, for
the continued coverage of Indemnitee under the Corporation's directors' and
officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Corporation directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Certain Definitions:
(a) Change in Control: Shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Corporation or a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions
as their ownership of stock of the Corporation, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Corporation representing 20 percent
(20%) or more of the total voting power represented by the
Corporation's then outstanding Voting Securities, or (ii) during any
period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation and
any new director whose election by the Board of Directors or nomination
for election by the Corporation's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of
the Corporation approve a merger or consolidation of the Corporation
with any other corporation, other than a merger or consolidation which
would result in the Voting Securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the
surviving entity) at least 80 percent (80%) of the total voting power
represented by the Voting Securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Corporation approve a plan of
complete liquidation of the
<PAGE> 2
Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all the Corporation's assets.
(b) Claim: Any threatened, pending or completed action, suit
or proceeding, or any inquiry or investigation, whether conducted by
the Corporation or any other party, that Indemnitee in good faith
believes might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or
other.
(c) Expenses: Include attorney's fees and all other costs,
expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: Any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent
or fiduciary of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership joint venture, employee
benefit plan, trust or other enterprise, or by reason of anything done
or not done by Indemnitee in any such capacity.
(e) Potential Change in Control: Shall be deemed to have
occurred if (i) the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control; (ii) any person (including the Corporation) publicly announces
an intention to take or to consider taking actions which if consummated
would constitute a Change in Control; (iii) any person, other than a
trustee or other fiduciary holding securities under an employee benefit
plan of the corporation or a corporation owned, directly or indirectly,
by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock in the Corporation, who is or
becomes the beneficial owner, directly or indirectly, of securities of
the Corporation representing 9.5 percent (9.5%) or more of the combined
voting power of the Corporation's then outstanding Voting Securities,
increases his beneficial ownership of such securities by
5 percent (5%) or more over the percentage so owned by such person on
the date hereof; or (iv) the Board adopts a resolution to the effect
that, for the purposes of this Agreement, a Potential Change in Control
has occurred.
(f) Reviewing Party: Any appropriate person or body consisting
of a member or members of the Corporation's Board of Directors or any
other person or body appointed by the Board (including the special,
independent counsel referred to in Section 3) who is not a party to the
particular Claim for which Indemnitee is seeking indemnification.
(g) Voting Securities: Any securities of the Corporation which
vote generally in the election of directors.
2. Basic Indemnification Arrangement.
(a) In the event Indemnitee was, is or becomes a party to or
witness or other participant in, a Claim by reason of (or arising in
part out of) an Indemnifiable Event, the Corporation shall indemnify
Indemnitee to the fullest extent permitted by law as soon as
practicable but in any event no later than thirty (30) days after
written demand is presented to the Corporation, against any and all
expenses, judgments, fines, penalties, and amounts paid in settlement
(including all interest, assessments and other charges paid or payable
in connection or in respect of such expenses, judgments, fines,
penalties or amounts paid in settlement) of such claim. If so requested
by Indemnitee, the Corporation shall advance (within two (2) business
days of such request) any and all Expenses to Indemnitee (an "Expense
2
<PAGE> 3
Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the
Corporation under Section 2(a) shall be subject to the condition that
the Reviewing Party shall not have determined (in a written opinion, in
any case in which the special, independent counsel referred to in
Section 3 hereof is involved) that Indemnitee would not be permitted to
be indemnified under applicable law, and (ii) the obligation of the
Corporation to make an Expense Advance pursuant to Section 2(a) shall
be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Corporation shall be entitled
to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Corporation) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the
Reviewing party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee
shall not be required to reimburse the Corporation for any Expense
Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed). If there has not been a Change in Control, the Reviewing
Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, the Reviewing Party shall be the
special, independent counsel referred to in Section 3 hereof. If there
has been no determination by the Reviewing Party or if the Reviewing
Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation in any court in the state
or domicile of Oklahoma having subject matter jurisdiction thereof and
in which venue is proper seeking an initial determination by the court
or challenging any such determination by the Reviewing Party or any
aspect thereof, and the Corporation hereby consents to service of
process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the
Corporation and Indemnitee.
3. Change in Control. The Corporation agrees that if there is a Change
in Control of the Corporation (other than a Change in Control which has
been approved by a majority of the Corporation's Board of Directors who
were directors immediately prior to such Change in Control) then with
respect to all matters thereafter arising concerning the rights of
Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or Corporate By-law now or hereafter
in effect relating to Claims for Indemnifiable Events, the Corporation
shall seek legal advice only from special, independent counsel selected
by Indemnitee and approved by the Corporation (which approval shall not
be unreasonably withheld), and who has not otherwise performed services
for the Corporation or Indemnitee within the last five (5) years (other
than in connection with such matters). Such counsel, among other
things, shall render its written opinion to the Corporation and
Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Corporation
agrees to pay the reaonable fees of the special, independent counsel
referred to above and fully indemnify such counsel against any and all
expense (including attorneys' fees), claims, liabilities, and damages
arising out of or relating to this Agreement or its engagement pursuant
hereto.
4. Establishment of Trust. In the event of a Potential Change in
Control, the Corporation shall, upon written request by Indemnitee,
create a Trust for the benefit of the Indemnitee and from time to time
upon written request of Indemnitee shall fund such Trust in an amount
sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with
investigating, preparing for and defending any Claim relating to an
Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable
Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be
deposited in the Trust pursuant to the foregoing funding obligation
shall be determined by the Reviewing Party, in any case in which the
special, independent counsel referred to above is involved. The terms
of the Trust shall provide that upon a Change in Control (i) the Trust
shall
3
<PAGE> 4
not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within two
(2) business days of a request by the Indemnitee, any and all Expenses
to the Indemnitee (and the Indemnitee hereby agrees to reimburse the
Trust under the circumstances under which the Indemnitee would be
required to reimburse the Corporation under Section 2(b) of this
Agreement), (iii) the Trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth above,
(iv) the Trustee shall promptly pay to the Indemnitee all amounts for
which the Indemnitee shall be entitled to indemnification pursuant to
this Agreement or otherwise, and (v) all unexpended funds in such Trust
shall revert to the Corporation upon a final determination by the
Reviewing Party or a court of competent jurisdiction, as the case may
be, that the Indemnitee has been fully indemnified under the terms of
this Agreement, or that it is no longer anticipated that expenses will
be incurred or amounts will be paid in connection with the
Indemnifiable Event. The Trustee shall be chosen by the Indemnitee.
Nothing in this Section 4 shall relieve the Corporation of any of its
obligations under this Agreement.
5. Indemnification for Additional Expenses. The Corporation shall
indemnify Indemnitee against any and all expenses (including attorneys'
fees) and, if requested by Indemnitee, shall within two (2) business
days of such request advance such expenses to Indemnitee which are
incurred by Indemnitee in connection with any claim asserted against or
action brought by Indemnitee for (i) indemnification or advance payment
of Expenses by the Corporation under this Agreement or any other
agreement or Corporate Bylaw now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the
Corporation, regardless of whether Indemnitee ultimately is determined
to be entitled to such indemnification, advance expense payment or
insurance recovery as the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, penalties and
amounts paid in settlement of a Claim but not, however, for all of the
total amount thereof, the Corporation shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise
in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection
with any determination by the Reviewing Party or otherwise as to
whether Indemnitee is entitled to be indemnified hereunder the burden
of proof shall be on the Corporation to establish that Indemnitee is
not so entitled.
7. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly
notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other
document relating to any matter, whether civil, criminal,
administrative, or investigative, but the omission so to notify the
Corporation will not relieve it from any liability which it may have to
Indemnitee if such omission does not prejudice the Corporation's
rights. If such omission does prejudice the Corporation's rights, the
Corporation will be relieved from any liability only to the extent of
such prejudice; nor will such omission relieve the Corporation from any
liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any Indemnifiable Event as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense; and
(b) The Corporation jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Indemnitee; provided, however, that
the Corporation shall not be entitled to assume the defense of any
Indemnifiable event if there has been a Change in Control or if
Indemnitee shall have reasonably concluded that there may be a conflict
of
4
<PAGE> 5
interest between the Corporation and Indemnitee with respect to such
Indemnifiable Event. After notice from the Corporation to Indemnitee of
its election to assume the defense thereof, the Corporation will not be
liable to Indemnitee under this Agreement for any Expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ its own counsel in such
Indemnifiable Event but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Indemnitee unless:
(i) The employment of counsel by Indemnitee has been
authorized by the Corporation;
(ii) The Indemnitee shall have reasonably concluded that
counsel employed by the Corporation may not adequately
represent Indemnitee;
(iii) The Corporation shall not in fact have employed counsel
to assume the defense in such Indemnifiable Event or shall not
in fact have assumed such defense and be acting in connection
therewith with reasonable diligence; in each of which cases
the fees and expenses of such counsel shall be at the expense
of the Corporation.
(c) The Corporation shall not settle any Indemnifiable Event
in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent; provided, however,
that Indemnitee will not unreasonably withhold his consent to any
proposed settlement.
8. No Presumption. For purposes of this Agreement, the termination of
any claim, action, suit, or proceeding, by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea
of nolo contendere, or its equivalent, shall not create a presumption
that Indemnitee did not meet any particular standard of conduct or have
any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
9. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the
Corporation's Bylaws or the Oklahoma General Corporation Act or
otherwise. To the extent that a change in the Oklahoma General
Corporation Act (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently
under the Corporation's Bylaws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy this Agreement or the
greater benefits so afforded by such change.
10. Liability Insurance. To the extent the Corporation maintains an
insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms to the maximum extent
of the coverage under such policy or policies in effect for any other
Corporation director or officer.
11. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
12. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of
the rights of recover of Indemnitee, who shall execute all papers
required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable
the Corporation effectively to bring suit to enforce such rights.
13. No Duplication of Payments. The Corporation shall not be liable
under this Agreement to make any
5
<PAGE> 6
payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any
insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. Binding Effect, Etc. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect
successor by purchase, merger, consolidation, or otherwise to all or
substantially all of the business and/or assets of the Corporation,
spouses, heirs, and personal and legal representatives. This Agreement
shall continue in effect regardless of whether Indemnitee continues to
serve as an officer or director of the Corporation or of any other
enterprise at the Corporation's request.
15. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void, or otherwise unenforceable,
and the remaining provisions shall remain enforceable to the fullest
extent permitted by law.
16. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Oklahoma
applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.
ONEOK, Inc.
By
--------------------------------
Larry W. Brummett, Chairman and
Chief Executive Officer
-----------------------------------
(Indemnitee)
6
<PAGE> 1
EXHIBIT (12)
ONEOK, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
AUGUST 31, 1999
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Fixed Charges, as defined
Interest on long-term debt $ 37,087 $ 30,846 $ 31,354 $ 31,748 $ 32,345
Other interest 14,440 3,723 3,376 3,184 4,934
Amortization of debt discount and expense 1,282 506 518 530 512
Interest on lease agreements 2,604 2,325 2,266 2,266 2,266
-------- -------- -------- -------- --------
Total Fixed Charges 55,413 37,400 37,514 37,728 40,057
Preferred dividend requirements 61,061 44,228 285 428 428
-------- -------- -------- -------- --------
Total fixed charges and
preferred dividend requirements $116,474 $ 81,628 $ 37,799 $ 38,156 $ 40,485
======== ======== ======== ======== ========
Earnings before income taxes and income from
equity investees $169,552 $168,380 $ 94,107 $ 85,873 $ 68,146
Total fixed charges 55,413 37,400 37,514 37,728 40,057
-------- -------- -------- -------- --------
Earnings available for combined fixed
charges and preferred dividend requirements $224,965 $205,780 $131,621 $123,601 $108,203
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges and
preferred dividend requirements 1.93x 2.52x 3.48x 3.24x 2.67x
======== ======== ======== ======== ========
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred dividend requirements, "earnings" consists of net income plus fixed
charges and income taxes, less undistributed income from equity investees.
"Fixed charges" consists of interest charges, the amortization of debt discounts
and issue costs and the representative interest portion of operating leases.
"Preferred dividend requirements" consists of the pre-tax preferred dividend
requirement.
<PAGE> 1
EXHIBIT (12)(a)
ONEOK, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AUGUST 31, 1999
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Fixed Charges, as defined
Interest on long-term debt $ 37,087 $ 30,846 $ 31,354 $ 31,748 $ 32,345
Other interest 14,440 3,723 3,376 3,184 4,934
Amortization of debt discount and expense 1,282 506 518 530 512
Interest on lease agreements 2,604 2,325 2,266 2,266 2,266
-------- -------- -------- -------- --------
Total Fixed Charges 55,413 37,400 37,514 37,728 40,057
-------- -------- -------- -------- --------
Earnings before income taxes and income from
equity investees 169,552 168,380 94,107 85,873 68,146
-------- -------- -------- -------- --------
Earnings available for fixed charges $224,965 $205,780 $131,621 $123,601 $108,203
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges 4.06x 5.50x 3.51x 3.28x 2.70x
======== ======== ======== ======== ========
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, "earnings"
consists of net income plus fixed charges and income taxes, less undistributed
income from equity investees. "Fixed charges" consists of interest charges, the
amortization of debt discounts and issue costs and the representative interest
portion of operating leases.
<PAGE> 1
EXHIBIT (21)
Following are ONEOK, Inc.'s wholly-owned subsidiaries:
<TABLE>
<CAPTION>
Year of
State of Establishment or
Incorporation Incorporation
<S> <C> <C>
ONEOK, Inc. Oklahoma May 16, 1997
Kansas Gas Marketing Company Kansas December 2, 1997
Kansas Gas Service Company Kansas June 30, 1997
ONEOK Sayre Storage Company Delaware March 9, 1964
ONEOK Technology Company Delaware August 31, 1992
Oklahoma Natural Energy Service Company Oklahoma February 17, 1998
OkTex Pipeline Company Delaware September 18, 1990
ONEOK Resources Company Delaware October 5, 1970
ONEOK Services Company Oklahoma June 19, 1998
ONEOK Gas Processing, L.L.C. Oklahoma August 24, 1998
ONEOK Gas Transportation, L.L.C. Oklahoma August 25, 1998
ONEOK International, Inc. Delaware February 6, 1997
ONEOK Producer Services, L.L.C. Oklahoma August 25, 1998
ONEOK Gas Marketing Company Delaware September 10, 1992
Mid Continent Market Center Gathering, Inc.
(A subsidiary of Mid Continent Market Center, Inc.) Kansas December 13, 1994
Mid Continent Market Center, Inc. Kansas December 13, 1994
ONEOK Power Marketing Company Delaware September 6, 1996
ONEOK Leasing Company Delaware March 18, 1983
ONEOK Parking Company Delaware March 18, 1983
ONEOK Financing Company Kansas August 31, 1998
ALPHA Transmission Company Oklahoma September 16, 1997
Mid Continent Transportation, Inc. Delaware May 12, 1976
ONEOK Field Service Company Oklahoma April 7, 1999
ONEOK Field Services Processing, L. L. C. Oklahoma April 23, 1999
ONEOK Field Services Gathering, L. L. C. Oklahoma April 23, 1999
ONEOK Field Services Transmission, L. L. C. Oklahoma April 23, 1999
ONEOK Gas Storage, L.L.C. Oklahoma July 21, 1999
</TABLE>
<PAGE> 1
EXHIBIT (23)
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
ONEOK, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
333-41263, 333-41265, 333-41267, 333-41269, and 333-81043 on Form S-8 and nos
333-44915, 333-57433, 333-65059, 333-76375, and 333-82717 on Form S-3 of ONEOK,
Inc. of our report dated October 21, 1999, relating to the consolidated balance
sheets of ONEOK, Inc. and subsidiaries as of August 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended August 31, 1999, which
report appears in the August 31, 1999, annual report on Form 10-K of ONEOK, Inc.
KPMG LLP
Tulsa, Oklahoma
November 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ONEOK, INC. FOR THE PERIOD ENDED AUGUST 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 4,402
<SECURITIES> 0
<RECEIVABLES> 228,336
<ALLOWANCES> 0
<INVENTORY> 118,951
<CURRENT-ASSETS> 439,267
<PP&E> 3,057,626
<DEPRECIATION> 988,797
<TOTAL-ASSETS> 3,024,945
<CURRENT-LIABILITIES> 543,582
<BONDS> 810,087
0
199
<COMMON> 316
<OTHER-SE> 1,173,944
<TOTAL-LIABILITY-AND-EQUITY> 3,024,945
<SALES> 1,842,810
<TOTAL-REVENUES> 1,842,810
<CGS> 0
<TOTAL-COSTS> 1,156,024
<OTHER-EXPENSES> 467,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,809
<INCOME-PRETAX> 173,413
<INCOME-TAX> 67,056
<INCOME-CONTINUING> 106,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,357
<EPS-BASIC> 2.19
<EPS-DILUTED> 2.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ONEOK, INC. FOR THE PERIOD ENDED AUGUST 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 177,649
<ALLOWANCES> 0
<INVENTORY> 138,380
<CURRENT-ASSETS> 338,073
<PP&E> 2,601,930
<DEPRECIATION> 915,769
<TOTAL-ASSETS> 2,422,487
<CURRENT-LIABILITIES> 460,813
<BONDS> 312,355
0
200
<COMMON> 316
<OTHER-SE> 1,168,355
<TOTAL-LIABILITY-AND-EQUITY> 2,422,487
<SALES> 1,820,758
<TOTAL-REVENUES> 1,820,758
<CGS> 0
<TOTAL-COSTS> 1,220,009
<OTHER-EXPENSES> 411,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,075
<INCOME-PRETAX> 168,380
<INCOME-TAX> 66,585
<INCOME-CONTINUING> 101,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,795
<EPS-BASIC> 2.44
<EPS-DILUTED> 2.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ONEOK, INC. FOR THE PERIOD ENDED AUGUST 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 14,377
<SECURITIES> 0
<RECEIVABLES> 100,937
<ALLOWANCES> 0
<INVENTORY> 78,330
<CURRENT-ASSETS> 207,277
<PP&E> 1,429,493
<DEPRECIATION> 586,156
<TOTAL-ASSETS> 1,237,407
<CURRENT-LIABILITIES> 189,047
<BONDS> 328,214
0
0
<COMMON> 281
<OTHER-SE> 462,345
<TOTAL-LIABILITY-AND-EQUITY> 1,237,407
<SALES> 1,161,927
<TOTAL-REVENUES> 1,161,927
<CGS> 0
<TOTAL-COSTS> 725,960
<OTHER-EXPENSES> 307,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,008
<INCOME-PRETAX> 94,107
<INCOME-TAX> 34,839
<INCOME-CONTINUING> 59,268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,268
<EPS-BASIC> 2.13
<EPS-DILUTED> 2.13
</TABLE>
