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:
[ADT Investments II, Inc. Letterhead]
June 12, 1997
Dear Fellow Shareholders:
Your support is urgently needed to protect the investment you
have in Kansas City Power & Light Company ("KCPL"). Your investment may be in
danger because if and when KCPL merges with Western Resources, Inc. (together
with its subsidiaries, "Western"), you will be a shareholder of Western.
Certain actions being taken by Western may endanger the dividend you may
receive as a holder of shares of Western common stock, $5.00 par value (the
"Western Common Stock"). For this reason, we are communicating with you
concerning Western's hostile offer (the "Western Hostile Offer") to acquire
the outstanding shares of ADT Limited ("ADT") in exchange for cash and shares
of Western Common Stock. ADT is the parent company of ADT Investments II,
Inc. ("ADT Investments II"). ADT Investments II is a holder of record of 100
shares of KCPL common stock that it acquired on or about April 9, 1997.
As you are probably aware, KCPL has entered into a merger
agreement with 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.
ADT Investments II believes that the Western Hostile Offer
poses significant risks. ADT Investments II believes that these issues are
also of importance to you because, if the Western Merger is consummated, you
would become a Western shareholder. Western has described these risks in some
detail in a Prospectus dated March 14, 1997 relating to the Western Hostile
Offer, which was sent to ADT shareholders on or about March 17, 1997.
However, we do not believe that similar materials have been provided to you
and, accordingly, you may not be fully aware of the significant risks that the
Western Hostile Offer may create for you, as a possible future Western
shareholder. Accordingly, ADT Investments II is sending you the enclosed
proxy statement before the announcement of the special meeting for you to
consider the Western Merger. In support of the Western Hostile Offer, Western
has commenced litigation against ADT. Because Western has filed such
litigation against ADT and commenced the Western Hostile Offer, ADT
Investments II has interests which may conflict with the interests of other
KCPL shareholders.
WE ARE CIRCULATING THE ATTACHED PROXY STATEMENT TO YOU IN A
PRELIMINARY FORM EVEN THOUGH KCPL HAS YET TO ANNOUNCE THE DATE OF THE SPECIAL
MEETING TO CONSIDER THE WESTERN MERGER BECAUSE WE ARE CONCERNED ABOUT CERTAIN
ACTIONS BEING TAKEN BY WESTERN. When KCPL announces the date of the special
meeting to consider the Western Merger and the proposals to be considered at
such special meeting, we may send you a revised proxy statement discussing
these proposals in more detail and a proxy card to vote on these proposals.
Enclosed you will find a preliminary proxy statement of ADT
Investments II which describes the considered views of ADT Investments II on
the Western Hostile Offer. We urge you to read this carefully. If you
have any questions, please feel free to call our proxy solicitor,
Kissel-Blake Inc., at 1-800-554-7733 (toll-free in the United States).
Very truly yours,
J. William Grant
President
PRELIMINARY PROXY STATEMENT (SUBJECT TO COMPLETION)
ADT INVESTMENTS II, INC.
NOTICE TO KCPL SHAREHOLDERS:
ADT INVESTMENTS II, INC. IS SENDING THIS PROXY
STATEMENT TO YOU IN A PRELIMINARY FORM EVEN THOUGH KCPL
HAS YET TO ANNOUNCE THE DATE OF THE SPECIAL MEETING TO
CONSIDER THE WESTERN/KCPL MERGER BECAUSE WE ARE
CONCERNED ABOUT CERTAIN ACTIONS BEING TAKEN BY WESTERN
RESOURCES, INC. WHEN KCPL ANNOUNCES THE DATE OF THE
SPECIAL MEETING TO CONSIDER THE WESTERN/KCPL MERGER AND
THE PROPOSALS TO BE CONSIDERED AT THAT SPECIAL MEETING, ADT
INVESTMENTS II, INC. MAY SEND YOU A REVISED PROXY STATEMENT
DISCUSSING THESE PROPOSALS IN MORE DETAIL AND A PROXY CARD
TO VOTE ON THESE PROPOSALS.
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, without par value
(the "KCPL Common Stock") that it acquired on or about April 9, 1997.
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 II 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. In support of the Western Hostile Offer, Western has
commenced litigation against ADT. Because Western has filed such litigation
against ADT and commenced the Western Hostile Offer, ADT Investments II has
interests which may conflict with the interests of other KCPL shareholders.
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 June 12, 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. 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 II 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 $63.25 as of June 10, 1997,
the current value per ADT common share in the Tyco Transaction is
approximately $30.44.
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
* * * CONTINUED INTERFERENCE BY WESTERN * * *
MANAGEMENT WITH THE ADT/TYCO MERGER MAY COST
WESTERN HUNDREDS OF MILLIONS IN LOST PROFITS
* 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
$63.25 as of June 10, 1997, the current value per ADT common share
in the Tyco Transaction is approximately $30.44 -- 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.
* 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.
* Rather than supporting the Tyco Transaction and realizing a profit
for Western's shareholders, Western's management has embarked on a
misguided and expensive campaign opposing the Tyco Transaction.
Western's management has:
* commenced lawsuits challenging the Tyco Transaction; and
* made statements to participants in the securities markets
concerning supposed problems with the Tyco Transaction.
We do not believe for one minute that Western will be successful
in its effort to interfere with the Tyco Transaction. Yet, if
these actions were somehow successful in stopping the Tyco
Transaction, Western's management would have prevented Western
from receiving profits in excess of $580 million. We find it
difficult to fathom why the management of Western would
deliberately spend Western's shareholders' money to oppose the
Tyco Transaction when this appears to us to be so contrary to the
interests of Western and its shareholders.
* By allowing management to pursue this baffling course of conduct,
Western's Board of Directors is jeopardizing an opportunity to
realize a substantial profit that should be welcome news for
Western. We believe that in order to fulfill its duty to
Western's shareholders, the Board of Directors of Western should
realize this profit opportunity. We fail to understand why
Western's Board would allow Western to run up expenses opposing
the Tyco Transaction when the transaction offers huge profits to
Western.
* In our view, rather than opposing the Tyco Transaction and running
the risk of losing a large profit, Western's management should be
supporting the Tyco Transaction and protecting Western's profits
-- which are ultimately Western's shareholders' profits. These
funds could be used by Western to pay down debt, increase
Western's dividend or perhaps even reduce utility rates. Western's
support for the Tyco Transaction would also eliminate concerns in
the marketplace about the substantial earnings dilution to
Western's shareholders that would likely result from an
acquisition of ADT by 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 facing Western described in the
Western Prospectus are:
* the uncertainty of Western's ability to maintain its past
practice with respect to the payment of dividends if the
Western Hostile Offer were successful;
* 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, in connection with the Western Hostile offer, Western's
ability to market together energy and security services on a
national basis.
* * * IF WESTERN WERE TO OPPOSE THE ADT/TYCO * * *
MERGER BY INCREASING ITS HOSTILE OFFER, THE CONSEQUENCES
COULD BE EVEN WORSE FOR WESTERN SHAREHOLDERS
* 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 Western's shareholders' investment in Western) or
incurring substantially more debt (further weakening Western's
financial condition and its debt rating), or some combination of
the two.
* * * 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 relying
on state law to refuse 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.
* Under present management, Western's share price has languished
during a period of sustained growth in the U.S. equity markets,
including the S&P Utilities Index. 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 May 30,
1994 through May 30, 1997:(1)
Chart comparing three-year relative total shareholder return with
the following data points:
5/30/94 5/30/97
--------- ----------
ADT 100 298.7
Tyco 100 277.6
S&P 400 100 199.8
S&P Utilities 100 145.9
Western 100 138.0
_______________
(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's shareholders'
investment in Western -- achieving lackluster shareholder returns
relative to the U.S. equity markets, increasing borrowings and
suffering a downgrade in debt rating. Indeed, the consummation of
Western's announced merger with KCPL is still uncertain since, among
other things, it requires regulatory approval as well as approval of
the shareholders of each of Western and KCPL. We note that, on May
16, 1997, two midwestern utilities, Northern States Power Co. and
Wisconsin Energy Corp., announced the termination of their planned
merger citing unexpected regulatory complications which they had
encountered. Although we have no knowledge that any regulators have
raised issues concerning the Western/KCPL merger, such merger is
subject to review by the Federal Energy Regulatory Commission and
Western itself has stated that there can be no assurance that such
approval will be obtained.
* We note that Western has announced that special meetings of Western
and KCPL shareholders to consider the Western/KCPL merger will not be
held until late summer or early fall of this year. We question why
it is taking so long to hold the shareholder meetings if the
Western/KCPL merger will create value for KCPL shareholders as KCPL's
management has stated. Under Missouri law as it currently stands, a
two-thirds vote of KCPL shareholders would be required to approve the
Western/KCPL merger. However, a bill recently passed by the Missouri
legislature, which becomes effective on August 28th of this year, may
reduce this requirement to a simple majority. Perhaps you should ask
your Board of Directors and management if they have delayed the
shareholder vote to take advantage of this change in Missouri law.
* * * DEREGULATION ALREADY CREATES DIVIDEND * * *
UNCERTAINTY -- DO YOU AS A FUTURE WESTERN SHAREHOLDER
REALLY NEED MORE?
* 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.
* 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's 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's 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 Kissel-Blake Inc. ("Kissel-Blake")
at estimated fees of not more than $360,000, plus reasonable out-of-pocket
expenses, to participate in this solicitation. ADT Investments II also has
agreed to indemnify Kissel-Blake against certain liabilities and expenses.
ADT Investments II has been informed that, if ADT Investments II determines
to solicit proxies, approximately 35 employees of Kissel-Blake 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 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 the information sought in the amended petition, including a complete list
of the record holders of KCPL Common Stock. On May 14, 1997 KCPL furnished
this information to ADT Investments II.
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."
