SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Kansas City Power & Light Company
(Name of Registrant as Specified in Its Charter)
ADT Investments II, Inc.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY PROXY STATEMENT (SUBJECT TO COMPLETION)
ADT INVESTMENTS II, INC.
This proxy statement is being furnished by ADT Investments II, Inc.
("ADT Investments II"), a Delaware corporation and a wholly owned
subsidiary of ADT Limited ("ADT"), a Bermuda corporation (ADT, together
with its subsidiaries, the "ADT Group"), to our fellow shareholders of
Kansas City Power & Light Company (together with its subsidiaries, "KCPL").
ADT Investments II is a holder of record of 100 shares of the common stock
of KCPL, $___ par value (the "KCPL Common Stock").
As you are probably aware, KCPL has entered into a merger agreement with
Western Resources, Inc. ("Western"). The proposed stock-for-stock merger (the
"Western Merger") of KCPL with Western has been approved by the respective
boards of directors of KCPL and Western. The Western Merger is subject to a
number of conditions, including among other things, regulatory approvals and
the approval of the shareholders of each of KCPL and Western. As of the date
hereof, neither KCPL nor Western has scheduled a special meeting of
shareholders to seek the requisite shareholder approvals for the Western
Merger.
As described in more detail below, Western has launched a hostile offer
to acquire the shares of ADT for a combination of cash and Western common
stock with a maximum stated value of $22.50 per ADT common share (the "Western
Hostile Offer"). ADT Investments II believes that the Western Hostile Offer
poses significant risks for Western shareholders. ADT Investments II believes
that these issues are also of importance to you because, assuming consummation
of the Western Merger, you would become a Western shareholder. Accordingly,
ADT Investments is filing this proxy statement in order to assure that it will
be free to communicate directly with you during the pendency of the Western
Hostile Offer.
Depending upon the actions taken by Western in connection with the
Western Hostile Offer, ADT Investments II reserves the right to solicit
proxies at any special meeting of KCPL shareholders to consider the Western
Merger and any adjournment or postponements thereof. Alternatively, ADT
Investments II may determine not to solicit proxies and may withdraw this
proxy statement.
This proxy statement is first being mailed to KCPL shareholders on or
about ______, 1997. If ADT Investments II determines to solicit proxies for
use at a special meeting of KCPL shareholders to consider the Western Merger,
ADT Investments II intends to amend this proxy statement and to furnish such
amended proxy statement in definitive form, together with a form of proxy, to
KCPL shareholders on or about _____, 1997. Any such proxy solicited may be
revoked as to all matters at any time prior to the time a vote is taken by
filing a later dated written revocation, by submitting a duly executed proxy
bearing a later date, or by attending and voting at any such special meeting
of KCPL shareholders in person.
IMPORTANT: ADT Investments is not currently asking you for a proxy and
you are requested not to send us a proxy.
Background
According to Amendment No. 9 to Western's Schedule 13D with respect to
ADT filed with the Securities and Exchange Commission (the "SEC") on December
18, 1996, Western is currently the beneficial owner of 38,287,111 Common
Shares (including 14,115 shares issuable upon exchange of 500 Liquid Yield
Option[Trademark] Notes. As of April 18, 1997, this constituted approximately
24.9% of the total number of ADT common shares then issued and outstanding.
On December 18, 1996, Western notified ADT of its intention to file with
the SEC a preliminary prospectus for the Western Hostile Offer. On December
18, 1996, Western also filed a notice with ADT to requisition a special
general meeting of ADT's shareholders (the "ADT Special Meeting") to consider
proposals of Western Resources to remove the entire ADT board of directors
(the "ADT Board") and replace it with two of Western's own employee nominees
(the "Western Proposals"). On January 6, 1997, the ADT Board met to consider
the Western Proposals and the Western Hostile Offer and set the date for the
ADT Special Meeting for July 8, 1997.
On March 3, 1997, the ADT Board unanimously determined that the Western
Hostile Offer was inadequate.
On March 17, 1997, ADT announced that it had entered into a business
combination (the "Tyco Transaction") with Tyco International Ltd. ("Tyco")
that initially valued each ADT common share at $29 per share. Based on the
closing price per share of Tyco common stock of $63.75 as of May 16, 1997, the
current value per ADT common share in the Tyco Transaction is approximately
$30.70.
On March 17, 1997, Western commenced the Western Offer and stated that
it had mailed a prospectus regarding the Western Hostile Offer and a proxy
statement regarding the Western Proposals to holders of ADT Common Shares.
Why We Believe You Should Be Concerned About the Western Hostile Offer as
a Possible Future Shareholder of Western
* * * WESTERN HOSTILE OFFER POSES SIGNIFICANT * * *
RISKS FOR WESTERN SHAREHOLDERS
* We believe that the Western Hostile Offer poses significant risks
for Western and for shareholders of Western. Western has
described these significant risks in some detail in a Prospectus
dated March 14, 1997 (the "Western Prospectus") relating to the
Western Hostile Offer, which was distributed to ADT shareholders
on or about March 17, 1997. However, you may not be fully aware
of the significant risks to Western shareholders posed by the
Western Hostile Offer. An excerpt from the Western Prospectus
describing these significant risks to Western and Western
shareholders is attached hereto as Schedule A.
* Among the significant risks described in the Western Prospectus in
connection with the Western Hostile Offer are:
* the uncertainty of Western's ability to maintain its past
practice with respect to the payment of dividends;
* the dilutive effect of the Western Hostile Offer on
Western's reported earnings per share in the short term;
* the fact that the Western Hostile Offer may have a negative
effect on Western's financial strength and debt rating; and
* the uncertainty of deregulation in the electric utility
industry (including, among other things, stranded costs) and
Western's ability to market together energy and security
services on a national basis.
* While Western has disclosed in the Western Prospectus that it
believes that any legislative or regulatory plan adopted in
connection with deregulation of the electric utility industry
would include a plan for recovery of stranded costs, this may not,
in fact, be the case. Western cites several state proposals that
would permit varying degrees of recovery of stranded costs. You
should be aware, however, that at least one electric utility
announced earlier this year that it had suspended its dividends
because of financial pressures resulting from, in part, the
uncertainties caused by an order by New Hampshire utility
regulators to deregulate the electric utility industry.
* * * CONTINUED PURSUIT OF ADT BY WESTERN * * *
MANAGEMENT ONLY CREATES GREATER
RISKS FOR WESTERN SHAREHOLDERS
* The current maximum stated value of the Western Hostile Offer is
only $22.50 per ADT common share. This is significantly below the
current value per ADT common share in the Tyco Transaction.
Based on the closing price per share of Tyco common stock of
$63.75 as of May 16, 1997, the current value per ADT common share
in the Tyco Transaction is approximately $30.70 -- and Western is
offering a maximum of $22.50 per ADT common share.
* The Board of Directors of ADT has unanimously determined that the
maximum stated value of the Western Hostile Offer is inadequate.
At the current value per ADT common share in the Tyco Transaction,
the aggregate difference to ADT shareholders between the actual
value of the Tyco Transaction and the maximum stated value of the
Western Hostile Offer exceeds $1,400,000,000 -- or more than 70%
of the total market value of Western's outstanding common stock.
* We believe that, even at the current maximum stated value of
$22.50, the Western Hostile Offer poses significant risks for
Western and for Western shareholders. If Western's management
continues to pursue the Western Hostile Offer, in order to be
competitive with the Tyco Transaction, Western would have to
substantially increase the consideration being offered to ADT
shareholders. This would necessarily involve Western's either
issuing substantially more shares of Western common stock (further
diluting current Western shareholders) or incurring substantially
more debt (further weakening Western's financial condition and its
debt rating), or some combination of the two.
* * * SHOULDN'T WESTERN PROTECT ITS PROFIT * * *
AND PROTECT YOUR INTERESTS AS A
FUTURE WESTERN SHAREHOLDER?
* Western currently owns 38,287,111 ADT common shares, which it
acquired at an average price of $15.40. At current trading levels
of ADT common shares, Western has already realized a profit on
paper on its investment in ADT in excess of $580 million.
* If Western's management continues to pursue the Western Hostile
Offer instead of supporting the Tyco Transaction, Western not only
risks losing the ability to realize paper profits in excess of
$580 million on its investment in ADT, but also risks creating
greater uncertainty concerning Western's financial condition and
its ability to continue to pay dividends at current levels.
* In our view, rather than running this risk, Western's management
should be supporting the Tyco Transaction and protecting Western's
profits -- which are ultimately the profits of Western
shareholders. These funds could be used by Western to pay down
debt, increase Western's dividend or grow Western's businesses.
Western's support for the Tyco Transaction would also eliminate
concerns in the marketplace about the substantial earnings
dilution that would likely occur from an acquisition of ADT by
Western.
* * * IS WESTERN MANAGEMENT WORKING TO INCREASE * * *
VALUE FOR FUTURE WESTERN SHAREHOLDERS?
* You should be aware that KCPL's management has tried to
prevent ADT Investments II from communicating with you
by repeatedly resisting ADT Investments II's demand for a
complete list of KCPL shareholders. See "Miscellaneous --
Certain Litigation". Ultimately, ADT Investments II had to get
a court order compelling KCPL to provide this information in
order to be able to communicate with you and to apprise you of
the significant risks that we believe are likely to result from
the present course of action being pursued by Western's
management.
* We believe that any attempt by Western's management to continue to
pursue the Western Hostile Offer instead of supporting the Tyco
Transaction, will only create greater uncertainty and risks as to
the value of Western's shareholders' investment in Western and
Western's ability to continue to pay the dividends which Western
shareholders presently receive.
* Under present management, Western's share price has languished
during a period of sustained growth in the U.S. equity markets.
The following chart compares the three-year relative total
shareholder return among ADT, Tyco, Western, the S&P 400 and the
S&P Utilities for the period March 31, 1994 through March 31,
1997:(1)
Chart comparing three-year relative total shareholder return with
the following data points:
3/31/94 3/31/97
--------- ----------
ADT 100 243.9
Tyco 100 224.5
S&P 400 100 181.0
S&P Utilities 100 140.4
Western 100 128.0
_______________
(1) Source: Lotus OneSource. Total shareholder return is based
on a stock price which has been adjusted for stock splits,
stock dividends, cash dividends and cash equivalents and is
calculated assuming reinvestment of the dividend at the
closing price on the date before the ex-dividend trading
date.
* Western's management, in its recently issued 1996 annual report to
stockholders, proclaims that its "vision" for Western will be
attained "by adding value." Over the past three years, however,
this same team has failed to add much value to Western
shareholders' investment in Western -- achieving lackluster
shareholder returns relative to the U.S. equity markets,
increasing borrowings and suffering a downgrade in debt rating.
* * * DEREGULATION ALREADY CREATES DIVIDEND * * *
UNCERTAINTY -- DO YOU AS A FUTURE WESTERN
SHAREHOLDER REALLY NEED MORE?
* Western already faces substantial uncertainty in its core utility
business as a result of the possibility of deregulation of the
electric utility industry and the threat of increased competition
to the stability of its utility earnings. Western acknowledges
that this anticipated increased competition may in the future
reduce its earnings in its core utility business. Given all of
the uncertainty surrounding deregulation, we do not believe it is
in the interest of Western shareholders to have Western's
management pursuing transactions such as the Western Hostile Offer
that are likely to only create greater uncertainty and additional
risks for Western shareholders.
WE BELIEVE WESTERN'S CURRENT LEVEL OF DIVIDENDS IS AT RISK IF IT
CONTINUES TO PURSUE THE WESTERN HOSTILE OFFER.
IF, AS A FUTURE WESTERN SHAREHOLDER, YOU ARE ALSO CONCERNED, YOU SHOULD
EXPRESS YOUR CONCERNS TO THE MANAGEMENT AND BOARD OF KCPL AND LET THEM KNOW
THAT YOU WANT THEM TO ACT IN A MANNER TO PROTECT YOUR BEST INTERESTS.
Security Ownership of Certain Beneficial Owners and KCPL Management
The following table sets forth certain information, as of April 11,
1997, with respect to beneficial ownership of KCPL Common Stock (determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of each of KCPL's directors, the named executive
officers, and all directors and officers at such time as a group. This
information has been taken from KCPL's proxy statement dated April 11, 1997
for its 1997 Annual Meeting of Shareholders. ADT Investments II takes no
responsibility for the accuracy or completeness of this information.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1)
- ------------------------ -----------------------
Bernard J. Beaudoin 30,130(2)
David L. Bodde 1,655
William H. Clark 1,390
Robert J. Dineen 1,968
Arthur J. Doyle 17,938(3)
W. Thomas Grant II 968
Marcus Jackson 21,611(2)
A. Drue Jennings 74,430(2)
George E. Nettels, Jr. 8,852(4)
Linda Hood Talbott 4,250
Ronald G. Wasson 21,393(2)
Robert H. West 2,860(5)
J. Turner White 17,620(2)
All officers and
directors as a group
(24 persons) 309,494(2)
_________________
(1) Shares of the KCPL Common Stock owned by any director or officer and
by the directors and officers as a group is less than 1% of such
stock. Unless otherwise specified, each director and named executive
officer has sole voting and sole investment power with respect to the
shares indicated.
(2) Includes shares held pursuant to KCPL's Employee Savings Plus Plan.
Also includes exercisable non-qualified stock options granted under
the Long-Term Incentive Plan in the following amounts: Jennings,
54,375; Beaudoin, 27,188; Jackson, 18,500; Wasson, 17,188; and White,
15,750.
(3) The nominee disclaims beneficial ownership of 200 shares reported
which are owned by nominee's wife.
(4) The nominee disclaims beneficial ownership of 3,400 shares reported
which are owned by nominee's wife.
(5) The nominee disclaims beneficial ownership of 1,200 shares reported
which are held by nominee's wife as custodian for minor children.
Miscellaneous
Outstanding Voting Shares
Based on KCPL's filings with the SEC, as of the close of
business on April 8, 1997, there were outstanding and entitled to vote
61,895,819 shares of KCPL Common Stock.
Voting Procedures
Each share of outstanding KCPL Common Stock is entitled to one
vote with respect to each matter to be voted upon.
Solicitation
If ADT Investments II determines to solicit proxies at a special
meeting of KCPL shareholders, such proxies may be solicited by mail,
advertisement, telephone or facsimile and in person. ADT Investments II would
bear the costs of this solicitation. Solicitations may also be made by
certain directors, officers or employees of ADT Investments II and its
affiliates by telephone, telecopy or personal contact. These individuals
would receive no additional compensation for these solicitation services.
ADT Investments II has retained _______ at estimated fees of not more
than $______, plus reasonable out-of-pocket expenses, to participate in this
solicitation. ADT Investments II also has agreed to indemnify _______against
certain liabilities and expenses. ADT Investments II has been informed that,
if ADT Investments II determines to solicit proxies, approximately ___
employees of _______would be involved in the solicitation of KCPL's
shareholders on behalf of ADT Investments II. ADT Investments II will also
reimburse brokers, fiduciaries, custodians and other nominees, as well as
persons holding stock for others who have the right to give voting
instructions, for reasonable out-of-pocket expenses incurred in forwarding
this proxy statement and related materials to beneficial owners of the KCPL
Common Stock.
Shareholder Proposals for 1998 Annual Meeting of Shareholders
Proposals of shareholders intended to be presented at KCPL's 1998 Annual
Meeting of Shareholders be received by KCPL's Corporate Secretary's Office on
or before December 12, 1997, for consideration for inclusion in the proxy
statement and form of proxy relating to that meeting.
Certain Information Regarding the ADT Group
ADT Investments II is a holder of record of 100 shares of KCPL Common
Stock. No other entity that is a part of the ADT Group holds any shares of
KCPL Common Stock.
In addition to ADT Investments II's status as a KCPL shareholder, the
ADT Group has an interest in the outcome of the Western Hostile Offer. The
ADT Board has rejected the Western Hostile Offer as inadequate and not in the
best interests of either ADT or its shareholders. After the announcement of
the Western Hostile Offer, ADT entered into the Tyco Transaction on terms that
were approved by the ADT Board. The ADT Board believes that the Tyco
Transaction represents a superior alternative for the shareholders of ADT than
the Western Hostile Offer.
Notwithstanding the interest of the ADT Group in the outcome of the
Western Hostile Offer, we believe that the views we have expressed in this
proxy statement are those that would be of concern to, and should be
considered by, any reasonable KCPL shareholder in such shareholder's capacity
as a possible future Western shareholder.
Certain Litigation
On April 10, 1997, ADT Investments II, Inc. served a demand on KCPL,
pursuant to Section 351.215 of the Missouri General and Business Corporation
Law and Article VIII of KCPL's By-Laws, that certain corporate books and
records, including, inter alia, a complete record or list of shareholders of
KCPL as of a recent date, be made available for inspection by ADT Investments
II, or that copies be delivered to ADT Investments II's agents for inspection.
By letter dated April 14, 1997, KCPL refused ADT Investments II's demand.
On May 9, 1997, ADT Investments II filed a petition for a writ of
mandamus in the Circuit Court of Jackson County, Missouri (the "Missouri
Court") seeking an order that KCPL comply with ADT Investments II's demand.
On May 12, 1997, ADT Investments II filed an amended petition with the
Missouri Court naming an additional defendant. On May 13, 1997, the Missouri
Court conducted a hearing and, on May 14, 1997, the Missouri Court issued an
order directing KCPL to produce to ADT Investments II's attorneys on May 14,
1997 a complete list of the record holders of KCPL Common Stock.
SCHEDULE A
WESTERN RISK FACTORS
The following information, which was prepared by Western, is
taken directly from the Prospectus dated March 14, 1997 (the "Western
Prospectus") forming part of Amendment No. 4 to the Registration Statement
on Form S-4 dated March 14, 1997 (the "Western S-4"). No authority has
been sought or received to quote from, or refer to, the Western S-4. While
ADT Investments II has reproduced all of the risk factors from the Western
Prospectus in this Schedule A, neither ADT nor ADT Investments II is
affiliated with either Western or KCPL. Information concerning Western and
KCPL which has not been made public is not available to ADT Investments II.
Although neither ADT nor ADT Investments II has any knowledge that would
indicate that statements relating to Western or KCPL in the following risk
factors discussion are inaccurate or incomplete, ADT Investments II was not
involved in the preparation of such information and statements and, for the
foregoing reasons, is not in a position to verify any such information or
statements.
"RISK FACTORS
"In addition to the other information in this Prospectus, the
following are certain factors that should be considered by ADT Shareholders
in evaluating the Offer and an investment in Western Resources Common
Stock. This Prospectus contains forward-looking statements that involve
risks and uncertainties. Western Resources' actual results may differ
significantly from the results discussed in the forward looking statements.
Factors that might cause such differences are discussed below.
"Regulatory Uncertainties; Changing Regulatory Environment;
Approval of the KCPL Merger
"Electric and natural gas utilities have historically operated in a
rate-regulated environment. Federal and state regulatory agencies having
jurisdiction over the rates and services of Western Resources and other
utilities are in the process of initiating steps that are expected to result
in a more competitive environment for utilities services. Increased
competition may create greater risks to the stability of utility earnings. In
a deregulated environment, formerly regulated utility companies that are not
responsive to a competitive energy marketplace may suffer erosion in market
share, revenues and profits as competitors gain access to their service
territories. This anticipated increased competition for retail electricity
sales may in the future reduce Western Resources' earnings in its formerly
regulated businesses.
"In addition, Western Resources' plan to market together energy and
security services is dependent upon the pace of deregulation. While it is
impossible to predict with certainty the time period in which such
deregulation will occur, if at all, Western Resources presently anticipates
that such deregulation will occur prior to the end of 1999. However, if
deregulation fails to occur or does not occur as quickly as may be expected,
Western Resources may be hindered in its ability to market energy and security
services and such hindrance may negatively impact Western Resources' future
earnings and cash flows.
"ADT Shareholders should consider that through ownership of Western
Resources Common Stock they will participate in the vicissitudes of the
evolving electric and natural gas utility industries and the deregulation
thereof. There can be no assurance that future regulatory and legislative
initiatives will not constrain Western Resources' efforts to market together
energy and security services.
"In addition, consummation by Western Resources of the KCPL Merger
requires the approval of certain regulatory authorities, including the FERC.
Western Resources currently contemplates that the KCPL Merger could be
completed in the first half of 1998; however, there can be no assurance that
it will have received all requisite regulatory approvals prior to such time.
Nor can there be any assurance that the KCPL Merger will be consummated or, if
consummated, that it will occur by the first half of 1998.
"Stranded Costs
"The term "stranded costs" as it relates to capital intensive utilities
has been defined as the carrying costs associated with property, plant and
equipment and other regulatory assets in excess of the level which can be
recovered in the competitive market in which the utility operates. Regulatory
changes, including the introduction of competition, could adversely impact
Western Resources' ability to recover its costs in these assets. Based upon
its current evaluation of the various factors and conditions that are expected
to impact future cost recovery, Western Resources believes that recovery of
these costs is probable. However, there can be no assurance that such
recovery will occur as the effect of competition and the amount of regulatory
assets which could be recovered in a competitive environment cannot be
predicted with any certainty at this time.
"The staff of the KCC has testified in Western Resources' electric rate
proceeding in 1996 that "stranded costs" are not presently quantifiable.
Western Resources, KCPL and ONEOK, collectively, have assets of approximately
$10.7 billion, including regulatory assets aggregating approximately $1.1
billion (10.3% of total combined assets). Of this amount, $166 million is
attributable to ONEOK, primarily related to take-or-pay settlements entered
into with natural gas suppliers. ONEOK has disclosed that this regulatory
asset is being recovered, pursuant to an order from the OCC, from a
combination of a customer surcharge and transportation revenues. ADT
Shareholders should note, however, that Western Resources will acquire only a
9.9% common equity ownership interest in ONEOK as a result of Western
Resources' proposed strategic alliance with ONEOK. Western Resources'
potential risk with respect to ONEOK's exposure would therefore be limited to
its equity ownership in ONEOK. Finally, unlike the electric utility industry
which is in the infant stages of deregulation, the natural gas distribution
industry, in which ONEOK is a participant, has already experienced significant
deregulation, thereby reducing the risk that stranded costs will occur.
"Regulatory assets of Western Resources include approximately $300
million relating to the acquisition premium paid in Western Resources'
acquisition of KGE in 1992, which is currently being recovered pursuant to an
order from the KCC, as well as a receivable for income tax benefits flowed
through to Western Resources' customers, debt issuance costs, deferred post
employment/retirement benefits and deferred contract settlement costs.
Regulatory assets of KCPL include approximately $126 million at December 31,
1996 for recoverable future income taxes and a receivable from customers for
income tax benefits which have been flowed-through to customers.
"Finally, Western Resources' ability to fully recover its utility plant
investments in, and decommissioning costs for, generating facilities,
particularly its 47% ownership interest in Wolf Creek, may be at risk in a
competitive environment. This risk will increase as a result of the KCPL
Merger as KCPL also presently owns a 47% undivided interest in Wolf Creek.
Amounts associated with Western Resources' recovery of environmental
remediation costs and long-term fuel contract costs cannot be estimated with
any certainty, but also represent items that could give rise to "stranded
costs" in a competitive environment. In the event that Western Resources was
not allowed to recover any of its "stranded costs," the accounting impact
would be a charge to its results of operations that would be material.
"Certain states, including California, have either adopted rules or are
considering rules to address stranded costs, most of which provide for the
opportunity to recover stranded costs. Proposals in Connecticut, Illinois,
Maine, Massachusetts, Michigan and other states have been introduced that all
permit varying degrees of recovery of stranded costs, most allowing for
recovery during defined interim periods for all prudently incurred costs. The
Kansas legislature is presently reviewing potential proposals, but has not
advanced any specific plan. Western Resources believes any legislative or
regulatory plan adopted would, consistent with other state plans and the rules
adopted by the FERC, include a plan for recovering stranded costs.
"Business Plan; Difficulty of Integrating Energy and Security Business
"As deregulation in the electric and natural gas utilities industries
continues, Western Resources believes that a provider that can market
additional services with energy-related services to provide customer
convenience will have a market advantage. Western Resources has developed its
strategy to expand its business in the deregulated marketplace and has
identified the security business as a high growth industry with a product that
can be marketed with energy. There can, however, be no assurance that Western
Resources' business plan to market together energy and security services will
be successful. The fact that Western Resources' business plan involves a
market that is as yet undeveloped makes uncertain the extent to which a viable
market for marketing energy and security will develop at all.
"To date, Western Resources has committed substantial capital and human
resources to the security industry through Westar Security and the recent
acquisition of Westinghouse Security. However, obtaining control of ADT would
significantly increase the relative amount of management time and resources
that Western Resources allocates to its security business. There can be no
assurance that this added commitment will result in continued growth or
profitability in Western Resources' security business. There can also be no
assurance that Western Resources will be able to integrate successfully the
operations of its existing security business with ADT. Difficulties of such
assimilation will include the coordination of security operations and the
integration of personnel.
"Comparatively Slower Growth than ADT
"Western Resources' growth has historically been slower than ADT's as
such growth has been limited to the growth of Western Resources' customer base
within its franchised service territory. During the past few years Western
Resources' electric sales have grown at an annual rate of approximately 4%.
Prior to deregulation, the only opportunity for utilities to experience
significant growth was through business combinations with other regulated
utilities. Such combinations presented growth opportunities within a finite
market. As the energy industry deregulates, Western Resources believes that
its combination of security with energy will provide Western Resources with an
opportunity to achieve higher growth than could be expected in the
historically regulated energy market. However, there can be no assurance that
such growth will occur.
"The Exchange Ratio
"In considering whether to tender their Shares to Western Resources
pursuant to the Offer, ADT Shareholders should consider that, depending on the
price of Western Resources Common Stock prior to the Expiration Date, there
may be certain circumstances in which the Stock Consideration paid to ADT
Shareholders may be less than $12.50 in Western Resources Common Stock.
Pursuant to the Offer, each Share will be exchanged for $10.00 net in cash and
$12.50 of Western Resources Common Stock as long as the Western Resources
Average Price is $29.75 or higher. If the Western Resources Average Price is
less than $29.75, each Share will be exchanged for $10.00 net in cash and less
than $12.50 in Western Resources Common Stock. ADT Shareholders should be
aware that depending upon the Western Resources Average Price, the Offer
Consideration paid per Share may be less than $22.50 and, depending upon the
per Share price immediately prior to the Expiration Date, may represent a
discount to the price per Share at the Expiration Date.
"Effect of the Offer and the Amalgamation on Western Resources' Financial
Status
"Expansion into the high growth security business presents financial
risks to Western Resources. Western Resources' earnings and cash flow may
experience increased volatility due to additional business risks. Such risks
include possible slower than expected growth in the security business,
competitive pressures on prices and changes in technology.
"The Offer and the Amalgamation are expected to have a dilutive effect
on Western Resources' reported earnings per share in the short term due to the
amortization of goodwill. There can also be no assurance that the Offer and
Amalgamation will not have a negative impact on Western Resources' financial
strength or debt rating, including its ability to raise capital in the future.
Following public announcement of Western Resources' proposal to merge with
KCPL, debt of Western Resources was placed on CreditWatch with negative
implications, a practice that Western Resources believes is standard with
respect to companies involved in an announced merger proposal. Since public
announcement of the Offer, Standard and Poors has downgraded the credit rating
on Western Resources' senior secured debt from A- to BBB+. Moody's has placed
Western Resources' debt on review for possible downgrade following public
announcement of the Offer, but continues to rate Western Resources First
Mortgage Bonds A3. Western Resources does not believe that these changes in
its credit rating will materially and adversely impact the business and
operations of Western Resources following the Offer and the Amalgamation.
However, such changes may increase Western Resources' cost of capital on
additional borrowings.
"Certain Debt Instruments of ADT Operations
"It is Western Resources' current view that satisfaction of the ADT
Shareholder Approval Condition and the consummation of the Offer will (i)
enable the holders of certain debt instruments of ADT Operations to require
repurchase of the securities outstanding thereunder by ADT Operations and (ii)
result in the acceleration of certain credit facilities currently available to
ADT Operations. See "The Offer -- Source and Amount of Funds." According to
ADT's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
the total amount of outstanding debt of ADT Operations under which
satisfaction of the ADT Shareholder Approval Condition could constitute a
change of control was approximately $1 billion. Since it does not presently
appear to be financially attractive for the holders of such debt to require
the repurchase of their securities, or to accelerate credit facilities of ADT
Operations, Western Resources does not currently believe that these
obligations present a material risk to the liquidity of Western Resources
following consummation of the Offer and the Amalgamation. Should interest
rates increase, however, it may become more financially attractive for certain
debt holders of ADT Operations to require the repurchase of their securities,
or to accelerate credit facilities of ADT Operations. LYONS are exchangeable
for Shares and such exchange could thereby potentially have a dilutive impact
on, among other things, earnings per share. See "Notes to Unaudited Pro Forma
Combined Financial Information."
"Financing of the Offer and the Amalgamation
"Western Resources has received a letter from Chase Manhattan Bank
and Chase in which they state that they are highly confident that they can
arrange credit facilities in the amount necessary to fund payment of the
Cash Consideration with Chase Manhattan Bank and other lenders. Their view
is based, among other things, upon their review of the terms of the Offer,
their understanding of Western Resources and public information regarding
ADT, and current conditions in the banking and syndicated loan markets, and
such view is subject to certain customary conditions. See "The Offer--
Source and Amount of Funds." There can be no assurance, however, that Chase
Manhattan Bank and Chase will be able to arrange the credit facilities
necessary to fund payment of the Cash Consideration. Definitive
documentation with respect to such credit facilities has not yet been
negotiated. There can be no assurance that such documentation, if
definitively negotiated, will not contain restrictions on Western
Resources' ability to pay dividends.
"Future Dividends on Western Resources Common Stock
"Although Western Resources does not currently anticipate any
significant change with respect to its dividend practice as a result of the
Offer or the Amalgamation, assuming that Western Resources' dividend remains
at or above the level of its current annual indicated dividend, Western
Resources presently expects that its dividend pay-out ratio will increase to
approximately 100% in the first full year following consummation of the
Amalgamation and will decline to approximately 75% by the third year following
the Amalgamation. Assuming consummation of the Amalgamation and the KCPL
Merger, Western Resources' forecasted dividend pay-out ration will be
approximately 120%, including transaction costs of the KCPL Merger charged to
income following consummation of the KCPL Merger, or 100%, excluding such
transaction costs, in the first full year following the Amalgamation and will
decline to approximately 80% by the third year following the Amalgamation.
Over the past five years, Western Resources' dividend pay-out ratio has
averaged approximately 77%.
"On a pro forma combined basis assuming completion of the Offer, the
Amalgamation and the KCPL Merger, pro forma combined earnings plus
depreciation, amortization and restructuring and non-recurring charges for the
year ended December 31, 1995 and the nine months ended September 30, 1996
would have been approximately $691,000,000 and $609,000,000, respectively. On
a pro forma combined basis assuming completion of the Offer, the Amalgamation
and the KCPL Merger, approximately 190,000,000 shares of Western Resources
Common Stock would have been outstanding during the year ended December 31,
1995 and the nine months ended September 30, 1996, in which case the total
amount of cash required to pay Western Resources' annual indicated dividend of
$2.10 would have been approximately $400,000,000 and $300,000,000 for the
twelve and nine months, respectively. Based on publicly available
information, on a pro forma combined basis assuming completion of the Offer,
the Amalgamation and KCPL Merger, pro forma combined capital expenditures for
the year ended September 30, 1996, respectively, would have been approximately
$636,000,000 and $462,000,000. Historical pro forma combined earnings plus
depreciation, amortization and restructuring and non-
recurring charges and historical pro forma combined capital expenditures do not
necessarily reflect future pro forma combined operating cash flows and future
pro forma combined capital expenditures. If, however, future pro forma
combined operating cash flows and future pro forma combined capital
expenditures are similar to historical pro forma combined earnings plus
deprecation, amortization and restructuring and non-
recurring charges and historical pro forma combined capital expenditures,
there can be no assurance that Western Resources will be able, after paying
dividends consistent with historical levels, to maintain capital expenditures
at historical levels without moderating their timing or amount, or from time
to time funding such capital expenditures through external financing. See
"Reasons for the Offer--Offer Premium and Dividend Impact."
"In the future, the Western Resources Board will set annual dividend
payments at amounts which are determined to be reasonable and consistent with
Western Resources' long-term strategy. However, there can be no assurance
that Western Resources will maintain its past practice with respect to the
payment of dividends since the declaration of future dividends will depend
upon Western Resources' future earnings, the financial condition of Western
Resources and other factors.
"Certain Tax Consequences of the Offer and the Amalgamation
"The exchange of Shares for cash and Western Resources Common Stock
pursuant to the Offer and the Amalgamation will be a taxable transaction for
U.S. federal income tax purposes and may also be taxable under applicable
state, local and foreign tax laws. See "The Offer--Certain Federal Income Tax
Consequences." ADT Shareholders should be aware that depending upon, among
other things, their particular facts and circumstances, including their basis
in Shares and tax status, the value of the after-tax proceeds that they
receive in the Offer and the Amalgamation may be less than $22.50. Each ADT
Shareholder is urged to, and should, consult such holder's own tax advisor
with respect to the specific tax consequences of the Offer and the
Amalgamation to such holder."
