File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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WESTERN RESOURCES, INC.
818 Kansas Avenue
Topeka, Kansas 66612
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(Name of companies filing this statement and
address of principal executive offices)
None
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(Name of top registered holding company
parent of each applicant or declarant)
John K. Rosenberg, Esq.
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
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(Name and address of agents for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
William S. Lamb, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-4513
TABLE OF CONTENTS
Page
Item 1 DESCRIPTION OF PROPOSED TRANSACTIONS.............................4
A. Description of the Parties...............................4
1. WRI ................................................4
2. ONEOK...............................................11
B. Description of the Transactions.........................14
1. Background of the Transactions......................14
2. The Transactions....................................17
3. The Shareholder Agreement...........................20
4. Other Agreements....................................27
5. New ONEOK...........................................29
Item 2 FEES, COMMISSIONS AND EXPENSES...................................37
Item 3 APPLICABLE STATUTORY PROVISIONS..................................37
A. Section 10(b)...........................................38
1. Section 10(b)(1)...............................39
2. Section 10(b)(2) -- Fairness of
Consideration..................................43
3. Section 10(b)(2) -- Reasonableness of Fees.....46
4. Section 10(b)(3)...............................48
B. Section 10(c)...........................................50
1. Section 10(c)(1)...............................50
2. Section 10(c)(2)...............................57
C. Section 3(a)(1).........................................60
Item 4 REGULATORY APPROVALS.............................................61
A. State Public Utility Regulation.........................61
1. State Corporation Commission of the State of
Kansas.........................................61
2. Corporation Commission of the State of
Oklahoma.......................................61
B. Other Federal Regulations...............................62
Item 5 PROCEDURES.......................................................62
Item 6 EXHIBITS AND FINANCIAL STATEMENTS................................63
A. Exhibits................................................63
B. Financial Statements....................................65
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS..........................66
Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding Company
Act of 1935 (the "Act"), Western Resources, Inc., a Kansas corporation having
its principal office in Topeka, Kansas (the "Company" or "WRI"), hereby requests
that the Securities and Exchange Commission (the "Commission" or "SEC")
authorize the acquisition by the Company of 9.9% of the outstanding voting
securities of a newly-formed company, WAI, Inc., an Oklahoma Corporation ("WAI")
that will become a public utility company as a result of the transactions for
which approval is requested in this application. WRI has formed WAI initially as
a wholly-owned subsidiary of the Company and will contribute all of the assets
(the "Assets") of the Company's local natural gas distribution business (the
"WRI LDC Business") and all of the outstanding capital stock of Mid Continent
Market Center, Inc. ("MCMC") and Westar Gas Marketing, Inc. (Westar Gas
Marketing, Inc. together with MCMC and the WRI LDC Business, the "Gas Business")
to WAI (the "Asset Transaction"). ONEOK, Inc., a Delaware corporation ("ONEOK"),
which, among other things, operates as a gas utility company as defined in
Section 2(a)(4) of the Act, pursuant to an Agreement among WRI, ONEOK and WAI
(the Agreement, as amended and restated, the "Agreement"), will then merge with
and into WAI (the "Merger", and together with the Asset Transaction, the
"Transactions"), with the Company owning up to 9.9% of the outstanding common
stock of WAI and shares of non-voting convertible preferred stock. In total, the
Company will own no more than 45% of the capital stock of WAI and the present
shareholders of ONEOK will own at least 55% of the capital stock of WAI (the
"Ownership Percentages") after the Merger. Upon consummation of the Merger, WAI
will be renamed ONEOK, Inc. ("New ONEOK"). The Transactions, as described
herein, meet all of the statutory requirements for approval under Section
9(a)(2) of the Act.
In connection with the Transactions, ONEOK and WRI will obtain a No-Action
Letter that represents the SEC Staff's concurrence that New ONEOK will not be
deemed to be a subsidiary of WRI within the meaning of Section 2(a)(8) of the
Act and WRI will not be deemed to be a holding company over New ONEOK under
Section 2(a)(7) of the Act.
Item 1 DESCRIPTION OF PROPOSED TRANSACTIONS
A. Description of the Parties
1. WRI
WRI is a public utility holding company exempt from all provisions of the
Act except Section 9(a)(2) under Section 3(a)(1) pursuant to Rule 2. WRI is
itself a public utility company engaged in the production, purchase,
transmission, distribution and sale of electric energy in the state of Kansas
and the transportation and sale of natural gas predominantly in the state of
Kansas, with some small operations in Oklahoma. WRI provides retail electric
service to approximately 329,000 industrial, commercial, and residential
customers in Kansas. WRI also provides wholesale electric generation and
transmission services to numerous municipal customers located in Kansas and,
through interchange agreements, to surrounding integrated systems. As a natural
gas utility, WRI distributes gas in Kansas and northeastern Oklahoma. WRI
provides natural gas service to approximately 648,000 retail customers. WRI is
subject to regulation as a public utility with respect to retail electric and
gas rates and other matters by the State Corporation Commission of the State of
Kansas (the "KCC") and with respect to retail gas rates and other matters by the
Corporation Commission of the State of Oklahoma (the "OCC").
WRI currently has one utility subsidiary, Kansas Gas and Electric Company
("KGE") which provides electric services to customers in the southeastern
portion of Kansas, including the Wichita metropolitan area. At December 31,
1996, it rendered electric services at retail to approximately 277,000
residential, commercial and industrial customers and provided wholesale electric
generation and transmission services to numerous municipal customers located in
Kansas and, through interchange agreements, to surrounding integrated systems.
KGE does not own or operate any gas properties. KGE has one active subsidiary,
Wolf Creek Nuclear Operating Corporation ("WCNOC"), a Delaware Corporation,
which is owned 47% by KGE and operates the Wolf Creek Generating Station on
behalf of the plant's owners, including KGE.1/ KGE is also subject to regulation
as a public utility with respect to retail electric rates and other matters by
the KCC. In addition, KGE is subject to regulation by the Nuclear Regulatory
Commission under the Atomic Energy Act of 1954, as amended, in connection with
its ownership of the Wolf Creek nuclear generating facility.
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1/ KGE has obtained a No-Action letter regarding Wolf Creek Nuclear
Operating Corporation not being deemed an electric utility company under
section 2(a)(3) of the Act. SEC No- Action Letter (June 26, 1995)
WRI's non-utility subsidiaries are as follows:
(a) Westar Capital, Inc. ("Westar Capital"), a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612. Westar Capital is
a holding company for certain non-regulated activities of the Company. Westar
Capital's subsidiaries and affiliates (as defined in the Act) are:
Hanover Compressor Company, a Delaware corporation, with
principal offices at 12001 N. Houston Rosslyn, Houston, Texas,
77086. Hanover Compressor Company offers compression services to
the natural gas industry. Westar Capital owns approximately 10%
of Hanover's common stock.
Westar Financial Services, Inc., a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Westar Financial Services, Inc. is engaged in the funding of
activities of other subsidiaries of Western Resources, Inc.
Wing Columbia, L.L.C., a limited liability company organized
under laws of Delaware, with principal offices at 1610 Woodstead
Court, The Woodlands, Texas 77380. Wing Columbia, L.L.C. invests
in power generation projects in Columbia, South America. Westar
Capital, Inc. owns 99% and The Wing Group, Limited Co. owns 1% of
Wing Columbia, L.L.C.
WestSec, Inc., a Kansas corporation, with principal offices
at 4221 West John Carpenter Freeway, Irving, Texas 75063.
WestSec, Inc. is engaged in the business of monitored home and
business security systems.
Westar Limited Partners, Inc., a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Westar Limited Partners, Inc. participates in limited
partnerships and investments related to the business of WRI.
Valence, L.L.C., a Kansas limited liability company, with
principal offices at 7001 Oxford Street, Minneapolis, Minnesota
55426. Valence, L.L.C., in which Westar Limited has a 40%
interest, develops, manufactures, produces and distributes
electronic parts, equipment and products.
Thunderbird Limited, III, L.P., a Kansas limited
partnership, is a low income housing project in which Westar
Limited is a 82% limited partner.
Thunderbird Montery, L.P., a Kansas limited partnership, is
a low income housing project in which Westar Limited is a 99%
limited partner.
Oakwood Manor, L.P., a Kansas limited partnership, is a low
income housing project, in which Westar Limited is a 99% limited
partner.
(b) Westar Energy, Inc. ("Westar Energy"), a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612. Westar Energy
provides services to large commercial and industrial customers. Westar Energy's
subsidiaries are:
Westar Energy Investments, Inc., a Kansas corporation with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Westar Energy Investments, Inc. holds investments of Westar
Energy, Inc.
Westar Gas Marketing, Inc., a Kansas corporation, with
principal offices at 1100 SW Wanamaker Road, Ste. 101, Topeka,
Kansas 66604. Westar Gas Marketing, Inc., arranges natural gas
purchasing, transportation, and delivery for natural gas users.
Westar Gas Company, a Delaware corporation, with principal
offices at 1100 SW Wanamaker Road, Ste. 1001, Topeka, Kansas
66604. Westar Gas Company gathers and processes natural gas in
Oklahoma and Kansas.
Indian Basin Venture I & II, New Mexico joint ventures, with
principal offices at 1100 SW Wanamaker Road, Ste. 101, Topeka,
Kansas 66604. Indian Basin Ventures operates a gas processing
plant in New Mexico.
Westar Electric Marketing, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas 66612.
Westar Electric Marketing, Inc. arranges electric marketing and
brokering to commercial and industrial customers on a wholesale
level.
Westar Business Services, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas 66612.
Westar Business Services, Inc. is a provider of energy related
services to commercial and industrial customers.
(c) Westar Security, Inc. ("Westar Security"), a Kansas corporation, with
principal offices at 4221 West John Carpenter Freeway, Irving, Texas 75063.
Westar Security identifies and develops consumer products and services related
to the energy business. Westar Security's subsidiaries are:
Secure America Alarm Systems, Inc., a Kansas corporation,
with principal offices at 14227 W. 95th Street, Lenexa, Kansas
66215. Secure America is engaged in the business of monitored
home and business security systems.
Sentry Protective Alarms, Inc., a Kansas corporation with
principal offices at 14227 W. 95th Street, Lenexa, Kansas 66215.
Sentry Protective Alarms, Inc. is engaged in the business of
monitored home and business security systems.
Sentry Protective Alarms, Inc., a California corporation
with principal offices at 14227 W. 95th Street, Lenexa, Kansas
66215. Sentry Protective Alarms, Inc. is engaged in the business
of monitored home and business security systems.
Security Monitoring Services, Inc., a Florida corporation,
with principal offices at 725 South State Road 434, Longwood,
Florida 32752. Security Monitoring Services, Inc. is engaged in
the business of monitored home and business security systems.
Nexstar, Inc., a Florida corporation, with principal offices
at 725 South State Road 434, Longwood, Florida 32752. Nexstar,
Inc. is engaged in the business of monitored home and business
security systems.
Safeguard Alarms, Inc., a Missouri corporation, with
principal offices at 14227 W. 95th Street, Lenexa, Kansas 66215.
Safeguard Alarms, Inc. is engaged in the business of monitored
home and business security systems.
Westar Communications, Inc., a Kansas corporation, with
principal offices at 1324 S. Kansas Avenue, Topeka, Kansas 66612.
Westar Communications, Inc. operates a paging system in Kansas.
Westar Security Services, Inc., a Kansas corporation, with
principal offices at 1324 S. Kansas Avenue, Topeka, Kansas 66612.
Westar Security Services, Inc. is engaged in the business of
monitored home and business security systems.
(d) MCMC, a Kansas corporation, with principal offices at 818 Kansas Ave.,
Topeka, Kansas 66612. MCMC offers natural gas transportation, wheeling, parking,
balancing and storage services to natural gas producers. MCMC's subsidiaries
are:
Market Center Gathering, Inc., a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Market Center Gathering, Inc. facilitates the operation of gas
gathering systems.
(e) Western Resources Capital I and II, Delaware business trusts, were
established for the purpose of issuing securities.
(f) The Wing Group, Limited Co., a Delaware corporation, with principal
offices at 1610 Woodstead Court, The Woodlands, Texas 77380. The Wing Group,
Limited Co. is a developer of international power generation projects. The Wing
Group, Limited Co.'s subsidiaries are:
Wing Capital, L.L.C., a Delaware Limited Liability Company,
with principal offices at 1610 Woodstead Court, The Woodlands,
Texas 77380. Wing Capital invests in projects of The Wing Group.
Wing Thailand, Inc., a Delaware Corporation, with principal
offices at 1610 Woodstead Court, The Woodlands, Texas 77380. Wing
Thailand invests in projects in Thailand.
The Wing Group International, Inc., a Cayman Islands
Company, with principal offices at 1610 Woodstead Court, The
Woodlands, Texas 77380.
(g) CPI-Western Power Holdings, Ltd., a Bermuda Limited Liability Company.
WRI owns 50% of CPI-Western Power Holdings, Ltd, a master joint venture which
invests in power generation projects in China.
(h) Western Resources (Bermuda) Ltd., a Bermuda Limited Liability Company
is a holding company to hold the interest of WRI in CPI-Western Power Holdings,
Ltd.
(i) Wing Turkey, Inc., is a corporation organized under the laws of
Delaware, with principal offices at 1610 Woodstead Court, The Woodlands, Texas
77380. Wing Turkey, Inc. invests in power generation projects in Turkey. Wing
Turkey, Inc.'s subsidiaries are:
Wing International, Ltd., a Texas Limited Liability Company,
with principal offices at 1610 Woodstead Court, The Woodlands,
Texas 77380. Wing International, Ltd. invests in power generation
projects in Turkey. Wing Turkey, Inc. owns 99% and The Wing
Group, Limited Co. owns 1%.
The common stock, $5.00 par value, of the Company ("Company Common Stock")
is listed on the New York Stock Exchange ("NYSE"). As of July 30, 1997, there
were 65,220,373 shares of Company Common Stock outstanding.
For the year ended December 31, 1996, the Company's operating revenues on a
consolidated basis were approximately $2.05 billion, of which approximately $849
million was derived from the Company's natural gas operations. Consolidated
assets of the Company and its subsidiaries at December 31, 1996 were
approximately $6.65 billion, of which approximately $4.36 billion consists of
identifiable utility property, plant and equipment.
A more detailed summary of information concerning the Company and its
subsidiaries is contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, the Company's Form U-3A-2 for the year ended
December 31, 1996 and the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, which are incorporated herein
by reference as Exhibits H-1, H-2, H-3 and H-4, respectively.
WRI has entered into an Agreement and Plan of Merger, dated as of February
17, 1997, with Kansas City Power & Light Company ("KCPL"), a public utility
company which operates as an electric utility company in the states of Kansas
and Missouri. WRI intends to undertake a merger such that KCPL would be acquired
by WRI. KCPL conducts approximately one-third of its utility operations in
Kansas and approximately two-thirds in Missouri. In connection with the KCPL
transaction, the Company would claim an exemption, or seek an order from the
Commission declaring an exemption, from all provisions of the Act except Section
9(a)(2).
2. ONEOK
ONEOK, is a Delaware corporation having its principal office in Tulsa,
Oklahoma. It engages through its divisions and subsidiaries in several aspects
of the energy business. ONEOK purchases, gathers, compresses, transports, and
stores natural gas for distribution to consumers. It transports gas for others,
leases pipeline capacity to others for their use in transporting gas, and leases
a small intrastate transmission system in Texas to others. ONEOK explores for
and produces oil and gas, extracts and sells natural gas liquids, and is engaged
in the gas marketing business. In addition, it leases and operates a
headquarters office building (leasing excess space to others) and owns and
operates a related parking facility. ONEOK is presently neither an associate nor
an affiliate of a public-utility holding company.
ONEOK's business is conducted in two general environments, a rate regulated
environment ("Regulated business") and a non-regulated environment
("Non-Regulated business") as follows: Regulated Business. Oklahoma Natural Gas
Company, a division, and two subsidiaries, ONG Transmission Company ("ONG
Transmission") and ONG Sayre Storage Company ("Sayre") comprise a fully
integrated intrastate natural gas gathering, storage, transmission and
distribution operation which provides natural gas service to wholesale and
retail customers, primarily in the state of Oklahoma. The operations of the
division and two subsidiaries are consolidated for ratemaking purposes by the
OCC. Pipeline capacity is leased to industrial customers to transport natural
gas to their facilities and ONG Transmission transports gas for others under
Section 311(a) of the Natural Gas Policy Act of 1989 ("NGPA"). Natural gas is
purchased from gas processing plants, producing gas wells, and pipeline
suppliers, and, utilizing five underground storage facilities as necessary, is
delivered to approximately 730,000 customers located in 294 communities in
Oklahoma. The largest markets are the Oklahoma City and Tulsa metropolitan
areas. An estimated population of over 2 million is served. Natural gas is also
sold and/or pipeline capacity leased to other local gas distributors serving 44
Oklahoma communities. Sayre's gas storage facility is leased, on a long-term
basis, to and operated by the Natural Gas Pipeline Company of America with some
of the capacity retained for use as part of the regulated operation. Storage
capacity is leased to third parties from time to time. OkTex Pipeline Company
transports gas from ONEOK's Oklahoma system to pipelines in Texas and is
regulated by the Federal Energy Regulatory Commission.
Non-Regulated Business. The non-regulated business includes natural gas
marketing by ONEOK Gas Marketing Company, gas processing by ONEOK Products
Company and oil and gas exploration and production by ONEOK Resources Company.
Other business includes leasing and operating (and leasing excess space) a
headquarters building by ONEOK Leasing Company and owning and operating a
parking garage by ONEOK Parking Company.
The marketing business consists of purchasing and marketing natural gas
primarily in the mid-continent area of the United States. An affiliate, ONEOK
Producer Services Company, also provides marketing and related services to small
producers in Oklahoma. The gas processing business includes non-operating
interests in 15 gas processing plants primarily in Oklahoma which extract
natural gas liquids, which are fractionated and sold to others as individual
products. The oil and gas business is concentrated in Oklahoma where crude oil
and natural gas is explored for and produced. The Company has working interests
in 821 gas wells and 737 oil wells located principally in Oklahoma and
Louisiana. Of these, 234 are operated properties.
The common stock, without par value, of ONEOK ("ONEOK Common Stock") is
listed on the NYSE. As of May 31, 1997, there were 27,997,925 shares of ONEOK
Common Stock outstanding.
For the year ended August 31, 1996, ONEOK's operating revenues on a
consolidated basis were approximately $1.22 billion, of which approximately $538
million was attributable to regulated natural gas distribution activities and
approximately $686 million to gas marketing, processing, gas exploration and
production and other operations. Consolidated assets of ONEOK and its
subsidiaries at May 31, 1997 were $1.40 billion, of which approximately $678
million consists of its gas distribution property, plant and equipment.
A more detailed summary of information concerning ONEOK and its
subsidiaries is contained in ONEOK's Annual Report on Form 10-K for the year
ended August 31, 1996, ONEOK's Quarterly Reports on Form 10-Q for the quarters
ended November 30, 1996, February 28, 1997 and May 31, 1997, which are
incorporated herein by reference as Exhibits H-5, H-6, H-7 and H-8,
respectively.
B. Description of the Transactions
1. Background of the Transactions
In October 1992, WRI began actively to pursue bids for the sale of its gas
operations. In May 1993, ONEOK and the Southern Union Company ("Southern Union")
submitted a joint proposal to separately acquire certain portions of the gas
business of WRI. Southern Union's bid was for WRI's Missouri distribution
system, while ONEOK's bid was for WRI's Oklahoma and certain of WRI's Kansas gas
distribution systems. On June 22, 1993, ONEOK publicly announced that WRI and
ONEOK were conducting negotiations regarding the possible sale to ONEOK of WRI's
local natural gas distribution operations in Oklahoma and gas-only utility
operations in eastern Kansas. Negotiations between ONEOK and WRI continued
through mid-July 1993. The parties were unable to reach mutual agreement on the
terms of the proposed sale, and on July 15, 1993, ONEOK publicly announced the
termination of negotiations with WRI.
On January 29, 1996, Eugene Dubay of ONEOK and certain executives of WRI
met in Topeka, Kansas regarding the possible purchase by ONEOK of WRI's Oklahoma
and certain of its Kansas local natural gas distribution systems. During April
1996, executives of WRI held several discussions with ONEOK executives regarding
the size and form of consideration for the transactions and WRI's proposal to
retain a significant investment in the business through ownership of capital
equity in the combined business as full or partial consideration for the
transactions.
In June 1996, WRI and ONEOK executed a confidentiality agreement relating,
among other things, to the information to be provided by each company to the
other. Following the execution of such confidentiality agreement, the parties
began their respective due diligence reviews.
On July 16, 1996, managements of ONEOK and WRI met in Topeka, Kansas to
discuss the structure and terms of the transactions and the potential operating
synergies which might result.
On September 4, 1996, senior management of ONEOK and WRI had a meeting in
Tulsa, Oklahoma to further discuss the structure of the transactions and the
prospect of WRI's continued equity ownership in the combined business after the
closing of such proposed transactions. ONEOK management indicated its
willingness to enter into a proposed transaction structure in which WRI would
subsequently hold, subject to certain standstill restrictions, up to 45.0% of
the common stock of the combined entity on a fully diluted basis and receive a
certain amount of cash.
During October 1996 through mid-November 1996, members of the respective
senior managements of each of ONEOK and WRI and their respective counsel held
several discussions relating to the terms of the Shareholder Agreement (as
defined below under "The Shareholder Agreement") and other matters, including,
but not limited to, the number of shares of the combined business to be received
by WRI in the Transactions, WRI's board representation in the combined business,
WRI's voting rights, a standstill provision, WRI's top-up rights, the Rights
Agreement (as defined below under "New ONEOK"), WRI's registration rights,
transfer restrictions on WRI regarding its stock holding in New ONEOK, and a
buy/sell option for both WRI and New ONEOK. During this time period, WRI and
ONEOK exchanged detailed operational, financial and other business information
and the respective senior managements and legal and financial advisors of each
of ONEOK and WRI continued to conduct their due diligence reviews.
From the end of November 1996 through the beginning of December 1996,
discussions between the respective senior managements of each of ONEOK and WRI
and their counsel progressed toward finalization of the terms of the Agreement
and the Shareholder Agreement.
On December 11, 1996, the WRI Board, at its regularly scheduled meeting,
unanimously approved the Agreement, the Shareholder Agreement and the
Transactions.
On December 11, 1996, the ONEOK Board met to consider approval of the
Agreement, the Shareholder Agreement and the Transactions. At the meeting,
PaineWebber Incorporated ("PaineWebber") presented its oral opinion to the ONEOK
Board that, as of such date, the proposed Transactions were fair to ONEOK's
shareholders from a financial point of view. After further discussion by the
ONEOK Board of the proposed Transactions, the ONEOK Board concluded that the
Transactions were in the best interest of ONEOK's shareholders and unanimously
approved the Agreement, the Shareholder Agreement, other ancillary agreements
and the Transactions contemplated thereby.
On December 12, 1996, WRI and ONEOK executed the Agreement and publicly
announced the Transactions.
On January 31, 1997, WRI received a letter from the Commission confirming
WRI's continued eligibility to account for a certain other unrelated business
combination as a "pooling of interests." It is a condition to WRI's obligations
to close the Transactions that WRI's accountants confirm such eligibility.
On May 19, 1997, WRI and ONEOK amended and restated the Agreement to
include New ONEOK as a party and to make several technical revisions.
2. The Transactions
The Agreement among WRI, WAI and ONEOK provides that WRI will contribute,
or will cause to be contributed, to WAI all of the Assets. WRI will then cause
WAI to assume all of the liabilities of WRI that arise primarily out of, or
relate primarily to or are primarily generated by, the Assets and approximately
$35 million aggregate principal amount of debt of WRI with terms permitting
prepayment with no more than 30 days' prior notice without penalty and a
maturity of no more than three years (the "Assumed Debt"). The amount of Assumed
Debt will be subject to adjustment based on changes in the working capital of
the Gas Business and the dollar amounts of certain gas business capital
expenditures to be made by each of ONEOK and WRI for the period from December 1,
1996 through the closing date of the Transactions (the "Closing Date").
Immediately after the Asset Transaction, ONEOK will merge with and into
WAI, with WAI as the surviving corporation, whereupon WAI's name will be changed
to "ONEOK, Inc." The outstanding shares of ONEOK Common Stock will be converted
on a one-for-one basis into the right to receive shares of New ONEOK Common
Stock. Each share of New ONEOK Common Stock will be issued together with the
corresponding number of associated rights to purchase one one-hundredths of a
share of Series C Preferred Stock of New ONEOK pursuant to the Rights Agreement.
Upon consummation of the Transactions, on a fully diluted basis, after
giving effect to the Transactions and based on the number of shares of ONEOK
Common Stock outstanding as of December 12, 1996, WRI will hold 2,996,702 shares
of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock of New ONEOK, representing up to 9.9% of the New ONEOK Common
Stock outstanding before conversion of the Series A Convertible Preferred Stock
into New ONEOK Common Stock and up to 45.0% of the New ONEOK Common Stock
outstanding after such conversion. Holders of ONEOK Common Stock will hold
shares of New ONEOK Common Stock representing at least 90.1% of the New ONEOK
Common Stock outstanding and not less than 55.0% of the New ONEOK Common Stock
after conversion of the Series A Convertible Preferred Stock to be held by WRI
pursuant to the Agreement. In the event ONEOK issues additional shares of ONEOK
Common Stock between December 12, 1996 and the closing of the transactions (the
"Closing"), WRI has the right pursuant to the Shareholder Agreement to require
WAI at the Closing to issue to it additional shares of New ONEOK Common Stock
and/or Series A Convertible Preferred Stock, at a price per share equal to the
average market price of the ONEOK Common Stock for the 20 trading days prior to
the Closing, so as to restore WRI's percentage ownership at the Closing to up to
9.9% of the outstanding New ONEOK Common Stock and up to 45.0% of the
outstanding New ONEOK Common Stock on a fully diluted basis.
Pursuant to the Agreement, ONEOK has redeemed all of its outstanding shares
of ONEOK Preferred Stock and will redeem at the Closing of the Merger all rights
contemplated by the ONEOK Rights Agreement at the applicable redemption price.
The Agreement is incorporated herein by reference as Exhibit B-1.
The Merger is subject to customary closing conditions, including the
receipt of the requisite approval of the holders of ONEOK Common Stock and all
necessary governmental approvals, including approval of the Commission.
The Merger is designed to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "IRC"). The
Company will account for its common stock holdings in New ONEOK by the equity
method and for its preferred stock holdings as an investment.
ONEOK has also agreed that it will cause New ONEOK after the Merger to
submit to its shareholders for a vote at the earlier of the first annual meeting
of New ONEOK to occur after the effective time of the Merger (the "Merger
Effective Time") (provided that the Merger Effective Time shall have occurred at
least 60 days prior to the annual meeting), or at a special meeting to be held
no later than 120 days after the Merger Effective Time, a proposal for New ONEOK
to amend (such Amendment, the "Opt-out Amendment") the New ONEOK Certificate of
Incorporation (the "New ONEOK Certificate") (i) to opt out, as of a date no more
than two days after the date of such shareholders' meeting, from Section 1145
through 1155 of Title 18 of the Oklahoma Statutes, as it may be amended, which
relates to control share acquisitions (the "Control Share Acquisition Statute")
and (ii) to provide that this amendment may be further amended only by the
affirmative vote of at least 662/3% of the voting power of all Securities (as
defined below), voting as a class.
3. The Shareholder Agreement
Pursuant to the Agreement, New ONEOK and WRI will enter into the
Shareholder Agreement between WRI and New ONEOK (the "Shareholder Agreement") on
the Closing Date which will provide for, among other matters, the matters
specified below:
The Shareholder Agreement will provide, among other things, that WRI and
its Affiliates (as defined in the Shareholder Agreement) will be prohibited from
taking certain actions, including, without limitation:
(a) prior to the occurrence of a Regulatory Change (as
defined below), the acquisition of Voting Securities (as defined
below) of New ONEOK that would cause the Shareholder Group (as
defined below) to have securities representing more than 9.9% of
the total outstanding voting power of New ONEOK and, at any time,
the acquisition of securities that would cause the Shareholder
Group's Total Ownership Percentage to exceed the Maximum
Ownership Percentage (as defined below);
(b) the deposit of New ONEOK Securities in a voting trust or
subjecting of such Securities to any similar arrangement or proxy
with respect to the voting of such Securities;
(c) the commencement of a merger, acquisition or other
business combination transaction relating to New ONEOK; and
(d) engagement in any other action, either alone or in
concert with others, to seek to control or influence New ONEOK's
management, Board or policies.
In the event that the Shareholder Group's Total Ownership Percentage falls
below the Maximum Ownership Percentage, WRI has certain rights to acquire
additional Securities to restore the Total Ownership Percentage of the
Shareholder Group to the Maximum Ownership Percentage. WRI may exercise such
rights either (i) by purchasing New ONEOK Common Stock in the open market or
otherwise (and, to the extent such purchases would cause the Shareholder Group's
Voting Ownership Percentage to exceed 9.9% prior to a Regulatory Change,
exchanging such shares on a share for share basis for Series B Convertible
Preferred Stock issued by New ONEOK) or (ii) in certain events where the
reduction in the Shareholder Group's Total Ownership Percentage is caused by a
Dilutive Issuance (as defined under "The Shareholder Agreement") by New ONEOK,
by requiring New ONEOK to issue to WRI at the issue price per share of the
Dilutive Issuance, prior to a Regulatory Change, additional shares of New ONEOK
Common Stock and, to the extent such issuance would cause the Shareholder
Group's Voting Ownership Percentage to exceed 9.9%, Series B Convertible
Preferred Stock sufficient to restore the Shareholder Group's Total Ownership
Percentage to the Maximum Ownership Percentage and, after a Regulatory Change,
shares of New ONEOK Common Stock sufficient to restore the Shareholder Group's
Total Ownership Percentage to the Maximum Ownership Percentage minus 10%.
For purposes of the Shareholder Agreement, "Shareholder Group" means WRI,
any WRI Affiliate and any person with whom WRI or any of its Affiliates is part
of a partnership, limited partnership, syndicate or other group of persons
acquiring, holding, voting or disposing of any voting securities which would be
required under Section 13(d) of the Exchange Act to file a statement on Schedule
13D with the Commission.
"Maximum Ownership Percentage" means, calculated at a particular point in
time, a Total Ownership Percentage of 45%, less the voting power represented by
all Voting Securities transferred by the Shareholder Group during the term of
the Shareholder Agreement (including the Voting Power (as defined under "The
Shareholder Agreement") represented by any shares of Convertible Preferred Stock
which were converted into shares of New ONEOK Common Stock contemporaneously
with such transfer pursuant to the terms of the Shareholder Agreement).
A "Regulatory Change" will be deemed to have occurred upon the receipt by
WRI of an opinion of WRI's counsel (which counsel must be reasonably acceptable
to New ONEOK) to the effect that either (1) the 1935 Act has been repealed,
modified, amended or otherwise changed or (2) WRI has received an exemption, or,
in the unqualified opinion of WRI's counsel, is entitled without any regulatory
approval to claim an exemption, or has received an approval or no-action letter
from the Commission or its staff under the 1935 Act or has registered under the
1935 Act, or any combination of the foregoing, and as a consequence of (1)
and/or (2), WRI may fully and legally exercise such rights under the Shareholder
Agreement as take effect in the period after a Regulatory Change has occurred.
"Securities" means any equity securities of New ONEOK.
"Total Ownership Percentage" means, calculated at a particular point in
time, the Voting Power which would be represented by the securities beneficially
owned by the person whose Total Ownership Percentage is being determined if all
shares of Convertible Preferred Stock (or other Securities convertible into
Voting Securities) beneficially owned by such person were converted into shares
of New ONEOK Common Stock (or other Voting Security).
"Voting Ownership Percentage" means, calculated at a particular point in
time, the Voting Power represented by New ONEOK Common Stock and shares of any
other class of capital stock of New ONEOK then entitled to vote in the election
of directors (not including Convertible Preferred Stock) ("Voting Securities")
beneficially owned by the person whose voting ownership percentage is being
determined.
During the term of the Shareholder Agreement, the Shareholder Group is
prohibited, without the prior written consent of a majority of New ONEOK's
independent directors, from transferring any Securities of New ONEOK, except (a)
transfers of Securities representing Voting Power of less than 5% provided that
the transferee does not have a Voting Ownership Percentage of 5% or more
immediately prior to such transfer; (b) in a bona fide underwritten public
offering pursuant to the Registration Rights Agreement ("Registration Rights
Agreement") to be entered into between New ONEOK and WRI on the Closing Date;
(c) pursuant to a pro rata distribution to WRI's shareholders; and (d) pursuant
to a procedure which permits WRI to transfer Securities representing 5% or more
of New ONEOK's Voting Power, provided that New ONEOK has been given notice
thereof, and has failed, within a specified period of time, to purchase from WRI
the Securities proposed to be sold at a cash purchase price per share equal to
98.5% of the then current market price for New ONEOK's Common Stock. In
addition, in the case of a bona fide third party tender offer for New ONEOK, WRI
may tender into such offer a proportionate amount of its New ONEOK Securities.
During the term of the Shareholder Agreement, WRI has agreed to vote all
Voting Securities owned by it as follows: with respect to the election of
directors, WRI will vote its Voting Securities in favor of the election of all
candidates for director nominated by the New ONEOK Board of Directors ("New
ONEOK Board"). With respect to any proposal initiated by a shareholder of New
ONEOK relating to the redemption of the rights issued pursuant to the Rights
Agreement or any modification of the Rights Agreement (other than nonbinding
precatory resolutions), WRI shall, and shall cause each member of the
Shareholder Group to, vote all Voting Securities Beneficially Owned by WRI or
any member of the Shareholder Group in accordance with the recommendation of the
New ONEOK Board. With respect to transactions constituting a Change in Control
(as defined below under "New ONEOK") or with respect to any proposal relating to
the Opt-out Amendment, WRI may vote any or all of the Voting Securities and
Convertible Preferred Stock (which, as described above, has the right in such
circumstance to vote together with the New ONEOK Common Stock on a one vote per
share basis, as adjusted to reflect any stock split or similar events) held by
the Shareholder Group in its sole discretion. With respect to any proposed
amendment to the New ONEOK Certificate or the Bylaws of New ONEOK (the "New
ONEOK By-laws") which would reasonably have the effect of modifying in any way
the Opt-out Amendment or would reasonably cause New ONEOK to become subject to
(i) the Control Share Acquisition Statute or (ii) any other provisions which are
substantially similar to the Control Share Acquisition Statute, WRI or any
member of the Shareholder Group has the right to abstain or vote against such
amendment. With respect to all other matters, (i) prior to the occurrence of a
Regulatory Change, WRI may vote any Voting Securities of New ONEOK held by the
Shareholder Group in WRI's sole discretion, (ii) after the occurrence of a
Regulatory Change, WRI may vote in its sole discretion up to 9.9% of the New
ONEOK outstanding Voting Power and WRI must vote any other Voting Securities
owned by it in the same proportion as all Voting Securities voted on such other
matter are voted by the other shareholders of New ONEOK.
The Shareholder Agreement terminates under certain circumstances,
including, but not limited to: (a) New ONEOK's quarterly dividend on the New
ONEOK Common Stock falling below $0.30 per share (as adjusted to reflect any
stock split or similar events) in any five quarters or New ONEOK's failure to
pay the stated quarterly dividend on any series of Convertible Preferred Stock
in any five quarters, (b) the Shareholder Group's Total Ownership Percentage
falling below 9.9% at any time or (c) the Shareholder Group's Total Ownership
Percentage falling below 30% at any time following the 15th anniversary of the
signing of the Shareholder Agreement. In addition, on the 15th and each
subsequent anniversary of the signing of the Shareholder Agreement, each of WRI
and New ONEOK, on behalf of New ONEOK's shareholders, has the right to buy from
or sell to the other, by purchase, sale or credible tender offer, as
appropriate, all outstanding shares of New ONEOK capital stock beneficially
owned by the selling party (which, in the case of New ONEOK, means the
shareholders of New ONEOK other than WRI and the Shareholder Group). In
addition, if at any time after the occurrence of a Regulatory Change, New ONEOK
believes in good faith that WRI's regulatory status as modified by such
Regulatory Change would place an unreasonable restriction on the implementation
of New ONEOK's strategic business plans, New ONEOK may immediately initiate its
buy/sell rights.
The Shareholder Agreement is incorporated herein by reference as Exhibit
B-2.
4. Other Agreements
At the Closing, WRI and New ONEOK will execute a Marketing Agreement (the
"Marketing Agreement"). Under the Marketing Agreement, New ONEOK will provide
certain support services in its service area exclusively to WRI for WRI's
residential and commercial electronic monitoring security business. The services
to be provided include promotional programs by New ONEOK's customer service
employees, billing inserts, billing service and customer information. WRI will
provide all necessary training and education of New ONEOK employees for the
promotional programs. The parties will develop mutually agreed guidelines for
the promotional programs. New ONEOK will be paid specified fees for providing
the services. Any disputes relating to the Marketing Agreement will be settled
under dispute resolution provisions in the Marketing Agreement. The Marketing
Agreement will also authorize WRI to use certain of New ONEOK's trade names,
trademarks, servicemarks, etc. in connection with the marketing of monitored
security services in ONEOK's service area.
At the Closing, WRI and New ONEOK will execute a Shared Services Agreement
(the "Shared Services Agreement"). The Shared Services Agreement will provide
for cooperation between the parties with respect to various services, facilities
and shared facilities related to New ONEOK and the electric utility business of
WRI in Kansas, such as billing, meter reading and phone center coverage.
WRI and ONEOK entered into an Employee Agreement, dated as of December 12,
1996, which provides for certain employment arrangements in respect of the
employees of the Gas Business following the Closing.
WRI, ONEOK and New ONEOK have agreed to enter into, on the Closing Date, an
Environmental Indemnity Agreement whereby New ONEOK will assume responsibility
for certain environmental related liabilities related to the Gas Business and
WRI will retain certain other environmental related liabilities.
WRI and New ONEOK have agreed to enter into, on the Closing Date, the
Registration Rights Agreement, which provides that WRI will have certain rights
to require New ONEOK to register under the Securities Act of 1933, as amended,
WRI's shares of New ONEOK Common Stock and shares of New ONEOK Common Stock
obtainable upon conversion of the Convertible Preferred Stock, subject to
certain conditions.
Each share of New ONEOK Common Stock will be associated with a Right to
Purchase one one-hundredths of a share of New ONEOK Series C Preferred Stock.
The Rights will be attached to certificates of shares of New ONEOK Common Stock
and will not be separately tradeable and will become exercisable only upon
certain conditions. In the event that, without the prior consent of the Board of
Directors of New ONEOK, any person or group (other than WRI with respect to
shares acquired pursuant to the Agreement and Shareholder Agreement) acquires
beneficial ownership of 15% or more of the Voting Power of all outstanding
voting securities of New ONEOK, each Right (other than Rights held by such
acquiring person or group) will entitle the holder to purchase, at the
then-current exercise price of the Right, a number of shares of New ONEOK Common
Stock having a value of twice the exercise price of the Right, subject to
certain exceptions.
5. New ONEOK
New ONEOK, a corporation formed under the laws of Oklahoma as WAI, will
change its name to ONEOK, Inc. upon consummation of the Merger. New ONEOK's
authorized capital stock will consist of 100 million shares of New ONEOK Common
Stock, and 100 million shares of Preferred Stock which the New ONEOK Board is
authorized to issue in one or more series or classes, and to fix for each such
series or class the preferences, conversion or other rights, Voting Powers,
restrictions, limitations as to dividends, qualifications, or terms or
redemption, as are permitted by Oklahoma law and are as stated in the resolution
or resolutions adopted by the Board providing for the issuance of shares of such
series or class. New ONEOK will have no operations prior to the Asset
Transaction and the Merger other than those contemplated by the Agreement in
connection with accomplishing the Transactions.
All shares of New ONEOK Common Stock will be issued, together with the
corresponding number of associated rights to purchase one-one-hundredth of a
share of New ONEOK Series C Preferred Stock, par value $0.01 per share, pursuant
to a Rights Agreement, to be entered at the Closing, between WAI and Liberty
Bank and Trust Company of Oklahoma, N.A., as rights agent (the "Rights
Agreement").
The Series A Convertible Preferred Stock is convertible, at the option of
the holder, in whole or in part, at any time following the occurrence of a
Regulatory Change, into New ONEOK Common Stock at the rate of one share of New
ONEOK Common Stock for each share of Series A Convertible Preferred Stock (as
adjusted to reflect any stock split or similar events). In addition, any shares
of the Series A Convertible Preferred Stock transferred by WRI to any person
other than WRI or its affiliates is required to be converted into New ONEOK
Common Stock. In connection with the Transactions, ONEOK and WRI have requested
and expect to obtain a no-action letter from the Commission confirming that, for
purposes of the Act, WRI's ownership interest in New ONEOK will not cause New
ONEOK to be deemed a "subsidiary" of WRI nor WRI to be deemed a "holding
company" under the Act.
The holders of Series A Convertible Preferred Stock will be entitled, with
respect to each dividend period on the New ONEOK Common Stock (as adjusted to
reflect any stock split or similar events), to receive a dividend payment
thereon that is equal, prior to the fifth anniversary of the Closing, to 1.5
times the dividend amount declared in respect of each share of New ONEOK Common
Stock (as adjusted to reflect any stock split or similar events) for such
dividend period (as adjusted to reflect any stock split or similar events) and
thereafter 1.25 times the dividend amount declared in respect of each share of
New ONEOK Common Stock for such dividend period. In no event, however, will the
aggregate annual dividend amount payable in respect of each share of Series A
Convertible Preferred Stock be less than $1.80 per share (as adjusted to reflect
any stock split or similar events). Presently, the annual indicated dividend
rate on the ONEOK Common Stock is $1.20 per share.
In addition, upon conversion of any shares of Series A Convertible
Preferred Stock, the holders thereof will be entitled to receive their
proportionate share of an amount equal to $35 million if such conversion were to
occur at Closing, which amount reduces to zero over five years, assuming the
annual dividend amount on the Series A Convertible Preferred Stock is maintained
at $1.80 per share (and over less than five years if the annual dividend amount
on the Series A Convertible Preferred Stock is in excess of $1.80 per share).
This conversion payment amount is formulated to ensure that WRI will receive
dividend payments for the first five years and/or a lump sum payment which in
the aggregate totals at least $35 million.
Shares of Series A Convertible Preferred Stock are non-voting, except that
they vote with the New ONEOK Common Stock (and any other class or series of
stock which may be similarly entitled to vote with the holders of New ONEOK
Common Stock) as a single class with respect to (i) any proposal relating to the
Opt-out Amendment and any proposed amendment to the New ONEOK Certificate or New
ONEOK By-laws which would have the effect of modifying in any way the Opt-out
Amendment or would reasonably cause New ONEOK to become subject to (a) the
Control Share Acquisition Statute or (b) any other provisions which are
substantially similar to the Control Share Acquisition Statute and (ii) any
transaction which, if consummated, would constitute a Change in Control of New
ONEOK. With respect to any such transaction, each share of Series A Convertible
Preferred Stock shall carry a number of votes equal to the number of votes
carried in the aggregate by the number of shares of New ONEOK Common Stock
issuable upon conversion of one share of Series A Convertible Preferred Stock.
As used herein, "Change in Control" means the occurrence of any one of the
following events:
(1) any person (other than the Shareholder Group) becoming the beneficial
owner, directly or indirectly, of Voting Securities, pursuant to the
consummation of a merger, consolidation, sale of all or substantially all of New
ONEOK's assets, share exchange or similar form of corporate transaction
involving New ONEOK or any of its subsidiaries that requires the approval of New
ONEOK's shareholders, whether for such transaction or the issuance of securities
in such transaction, so as to cause such person's Voting Ownership Percentage to
exceed a Voting Ownership Percentage of 15% prior to a Regulatory Change and a
Voting Ownership Percentage of 35% thereafter, provided, however, that the event
described in this paragraph (1) shall not be deemed to be a Change in Control if
it occurs as the result of any of the following acquisitions: (A) by any
employee benefit plan sponsored or maintained by New ONEOK or any affiliate, or
(B) by any underwriter temporarily holding securities pursuant to an offering of
such securities;
(2) the consummation of a merger, consolidation, sale of all or
substantially all of New ONEOK's assets, share exchange or similar form of
corporate transaction involving New ONEOK or any of its subsidiaries that
requires the approval of New ONEOK's shareholders, whether for such transaction
or the issuance of securities in such transaction, unless immediately following
such transaction more than 50% of the total Voting Power of (x) the corporation
resulting from such transaction, or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of 100% of the
Voting Securities eligible to elect directors of such resulting corporation, is
represented by Voting Securities that were outstanding immediately prior to such
transaction (or, if applicable, shares into which such Voting Securities were
converted pursuant to such transaction), and such Voting Power among the holders
of such Voting Securities that were outstanding immediately prior to such
transaction is in substantially the same proportion as the Voting Power of such
Voting Securities among the holders thereof immediately prior to such
transaction; or
(3) the consummation of a plan of complete liquidation or dissolution of
New ONEOK.
Shares of the Series B Convertible Preferred Stock, par value $0.01 per
share ("Series B Convertible Preferred Stock" and, together with the Series A
Convertible Preferred Stock, "Convertible Preferred Stock") will be issued to
WRI in exchange for shares of New ONEOK Common Stock purchased by WRI in the
open market upon WRI's exercise of the Top-Up Rights pursuant to the Shareholder
Agreement so as to enable WRI to restore its Total Ownership Percentage to the
Maximum Ownership Percentage or, in the case of any dilutive security issuances
in connection with any acquisition or other business combination, in exchange
for payment of the issue price per share of the Dilutive Issuance, so as to
restore its Total Ownership Percentage to the Maximum Ownership Percentage minus
10%. The terms of the Series B Convertible Preferred Stock are the same as the
Series A Convertible Preferred Stock, except that (i) the dividend amount on
each share of Series B Convertible Preferred Stock is equal to 1.25 times the
dividend amount declared in respect of each share of New ONEOK Common Stock for
each dividend period (as adjusted to reflect any stock split or similar events)
and (ii) prior to the fifth anniversary of the Closing Date, the aggregate
annual dividend amount will equal an amount not less than $1.50 per share of
Series B Convertible Preferred Stock and, thereafter, the aggregate annual
dividend amount will equal an amount not less than $1.80 per share of Series B
Convertible Preferred Stock.
New ONEOK will, as of the Closing Date, adopt a Rights Agreement that is
designed to protect New ONEOK shareholders from coercive or unfair takeover
tactics. The Rights Agreement may have the effect of delaying, deterring or
preventing a takeover of New ONEOK. In connection with the Rights Agreement, the
New ONEOK Board has established a series of Preferred Stock, designated as
Series C Preferred Stock. Holders of the Series C Preferred Stock are entitled
to receive, in preference to the holders of New ONEOK Common Stock, quarterly
dividends payable in cash on the last day of each fiscal quarter of New ONEOK in
each year, or such other dates as the New ONEOK Board deems appropriate, in an
amount per share equal to the greater of (a) $1 or (b) subject to adjustment,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends,
other than a dividend payable in New ONEOK Common Stock, payable with respect to
New ONEOK Common Stock. The Series C Preferred Stock dividends are cumulative
but do not bear interest. Shares of Series C Preferred Stock are not redeemable.
Subject to adjustment, each share of Series C Preferred Stock entitles the
holder thereof to 100 votes on all matters submitted to a vote of the New ONEOK
shareholders and during a certain dividend default period, holders of the Series
C Preferred Stock have other special voting rights. Upon any liquidation,
dissolution or winding-up of New ONEOK, holders of Series C Preferred Stock are
entitled to priority over the holders of shares of New ONEOK Common Stock or
other junior ranking stock. No such shares of Series C Preferred Stock are
outstanding; however, each holder of New ONEOK Common Stock will be granted the
right to purchase one one-hundredths of a share of Series C Preferred Stock upon
the happening of certain events, such as a hostile takeover attempt of New
ONEOK, as described in the Rights Agreement.
Immediately following the Merger, the Board and New ONEOK Management will
be the same as that of ONEOK prior to the Merger, except for (i) the expansion
of the New ONEOK Board from 14 to 16 directors to allow the appointment of two
directors designated by WRI and (ii) the appointment of five persons who are
currently officers of WRI with respect to the Gas Business (including officers
of MCMC and Westar) as additional officers of New ONEOK, with comparable
responsibilities. Under certain circumstances, following the occurrence of a
Regulatory Change, WRI has the right to designate additional directors providing
for aggregate representation of up to one-third of the New ONEOK Board. In
addition, the New ONEOK By-laws provide that the chief executive officer of New
ONEOK must be elected by the affirmative vote of 80% of the directors of New
ONEOK.
Item 2 FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses of the Company expected to be paid or
incurred, directly or indirectly, in connection with the transactions described
above are estimated as follows:
Auditors' Fees..................................................*
Legal Fees.............................................$2,000,000
Investment Bankers' Fees and Expenses..................$2,800,000
Miscellaneous...................................................*
Total.........................................*
*To be filed by amendment.
Item 3 APPLICABLE STATUTORY PROVISIONS
The following sections of the Act are directly or indirectly applicable to
the proposed Asset Transaction and Merger: Sections 9(a)(2) and 10. To the
extent other sections of the Act or the Commission's rules thereunder are deemed
applicable to the Asset Transaction and the Merger, such sections and rules
should be considered to be set forth in this Item 3.
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person ... to acquire, directly or indirectly, any security
of any public utility company, if such person is an affiliate ... of such
company and of any other public utility or holding company, or will by virtue of
such acquisition become such an affiliate." Because the Company will, by virtue
of the Transactions, become an affiliate of New ONEOK2/, Section 9(a)(2)
requires approval by the Commission of the Transactions under Section 10. The
Company believes that the Transactions meet the requirements of Sections 9(a)(2)
and 10.
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2/ ONEOK and WRI will obtain a No-Action letter that represents the SEC
Staff's concurrence that New ONEOK will not be deemed to be a subsidiary of
WRI within the meaning of Section 2(a)(8) of the Act and WRI will not be
deemed to be a holding company over New ONEOK under Section 2(a)(7) of the
Act.
A. Section 10(b)
Section 10(b) provides that if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a)
unless:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public
interest or the interests of investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or will
be detrimental to the public interest or the interests of
investors or consumers or the proper functioning of such holding
company system.
1. Section 10(b)(1)
This is not a typical merger in which one company acquires 100% of the
voting securities of another. Rather, the Transactions represent a strategic
alliance between two strong companies. As the no-action letter correspondence
makes clear, ONEOK post-merger will continue to operate under the control of
current management. WRI will be limited to the rights that would otherwise be
associated with the ownership of 9.9% of the voting securities of a
publicly-held company. Furthermore, the Company believes that the Transactions
will not tend towards interlocking relationships or concentrations of control
that would be detrimental to the public interest or the interest of investors or
consumers for several reasons.
First, WRI and New ONEOK will enter into a Shareholder Agreement in
connection with the Merger. The terms of the Shareholder Agreement, which are
discussed above in Item 1.B.3, prevent WRI from exercising a controlling
influence over New ONEOK. In addition, New ONEOK will be subject to regulation
with respect to rates and other corporate matters by regulatory bodies in Kansas
and Oklahoma, which function to protect the interest of consumers and the public
interest. The Company is currently, and following the Transactions will remain,
subject to the jurisdiction of the KCC and the FERC.
The Transactions are also not detrimental to the public interest or the
interest of investors or consumers, as they will result in a decrease in the
size of the WRI holding company system. Even if the transaction is analyzed on
the basis of the combined WRI-ONEOK systems, there is no impermissible
concentration of control. The Commission has recognized that there is no limit
on size per se. In this case, even viewed as a combined system, WRI and ONEOK
would create a system that is comparable to other utility systems. On a pro
forma basis, giving effect to the Transactions, as of May 31, 1997, WRI and New
ONEOK would have combined assets of $7.8 billion and total operating revenue for
the twelve months ended May 31, 1997 of $3.0 billion and approximately 1.6
million utility customers. The Commission has approved acquisitions involving
much larger operating utilities (see Entergy Corp., HCAR No. 25952 (Dec. 17,
1993) approving the acquisition of Gulf States Utilities, with combined assets
at time of acquisition in excess of $21 billion; The Southern Company, HCAR No.
24579 (Feb. 12, 1988) approving the acquisition of Savannah Electric and Power
Company to create a system with assets of $20 billion and 3.25 million
customers) and has not found the size of other existing holding companies of
similar size to be problematic.3/
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3/ The Southern Company System, for example, has assets of approximately
$27 billion and revenues of approximately $8.3 billion, while American
Electric Power has assets of approximately $15.7 billion, revenues of
approximately $5.5 billion and approximately 2.9 million utility customers.
Entergy, which as a result of its acquisition of Gulf States Utilities
Company provides service in the State of Texas, currently has approximately
2.4 million utility customers.
Furthermore, the Transactions will not have a detrimental effect on
competition in Kansas and Oklahoma. After the Transactions, the Company and New
ONEOK will operate in the same competitive environments in which they operate
today. ONEOK intends to compete actively with WRI for customers. Kansas
communities which now receive both their electric and natural gas service from
WRI will be receiving their gas service from New ONEOK and their electric
service from WRI after the merger. As competition between gas and electric
companies increases with the transition of both industries from a bundled to an
unbundled and competitive environment, customers will have more choices
available to them as a result of having separate gas and electric companies to
provide them with service.
In addition, there will be competition in the retail market for industrial
and commercial customers for natural gas in Oklahoma and Kansas, both because
natural gas utilities do not have exclusive territories and because gas is
transported to large customers in Kansas on an open-access basis and in Oklahoma
pursuant to tariffs approved by the OCC. There are approximately 40 gas delivery
systems or marketers in ONG's and the WRI LDC Business's service areas,
including Transok, Enogex and Williams. ONEOK is actively working with the OCC
to develop a plan and schedule to unbundle services for all of its Oklahoma
customers. Under ONEOK's original proposal, all of ONEOK's customers who use 150
Mcf of gas or more per year would receive unbundled services by 1998, and all of
ONEOK's remaining customers would receive unbundled services by 1999. ONEOK
hopes to work with the KCC and its staff to develop a similar schedule for
unbundling of services in Kansas. Suppliers of natural gas in Oklahoma and
Kansas must also compete with other fossil fuels, including oil, propane, coal,
and petroleum coke, which can be employed in some of the thermal applications
for which natural gas is used.
The Commission has watchfully deferred to the work of other regulators with
respect to competition. The Company and ONEOK filed Pre-merger Notification and
Report Forms with the Antitrust Division of the Department of Justice (the
"DOJ") and the Federal Trade Commission pursuant to the Hart-Scott-Rodino Act
(the "HSR Act"). The applicable waiting period under the HSR Act expired on May
4, 1997. As part of their review of the Transactions and future oversight of WRI
and New ONEOK, the state regulators will continue to have jurisdiction over the
utility functions of WRI and New ONEOK, including competitive issues arising in
the unbundling of the services of WRI and ONEOK.
Finally, with regard to interlocking relations, the Shareholder Agreement
provides that, with respect to the election of directors to New ONEOK's board of
directors, WRI will vote all Common Stock held by it in accordance with the
recommendation of New ONEOK's nominating committee.4/ WRI will be allowed only
two members on a board of 16 directors, only one of whom may be an officer,
director or employee of WRI or its subsidiaries. No board member designated by
WRI will serve on the New ONEOK board nominating committee, or chair any other
committee of New ONEOK's board.5/ Whatever potential for minority control might
exist by reason of WRI's equity interest is therefore effectively countered by
the management control New ONEOK will exercise through its control of the board
of directors and the nominating process.
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4/ The New ONEOK nominating committee recommends nominees to fill
vacancies on the board, establishes procedures to identify potential
nominees, recommends criteria for membership on the board, and recommends
the successor chief executive officer when a vacancy occurs. The by-laws of
New ONEOK provide that any successor chief executive officer must be
elected by the affirmative vote of 80% of the directors of New ONEOK.
5/ The two directors to be designated by WRI approximate the number of
directors it could elect in ordinary circumstances, based on its 9.9%
common equity interest, if cumulative voting applied.
For these reasons, the Transactions will not "tend toward interlocking
relations or the concentration of control" of public utility companies, of a
kind or to the extent detrimental to the public interest or the interests of
investors or customers within the meaning of Section 10(b)(1).
2. Section 10(b)(2) -- Fairness of Consideration
Section 10(b)(2) requires the Commission to determine whether the
consideration to be given to the holders of ONEOK Common Stock in connection
with the Merger is reasonable and whether it bears a fair relation to the
investment in and the earning capacity of the utility assets underlying the
securities being acquired. In its determinations as to whether or not a price
meets such standard, the Commission has considered whether the price was decided
as the result of arms length negotiations,6/ whether each party's Board of
Directors has approved the purchase price,7/ the opinions of investment
bankers8/ and the earnings, dividends, book and market value of the shares of
the company to be acquired.9/
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6/ In the Matter of American Natural Gas Company, HCAR No.
15620 (Dec. 12, 1966).
7/ Consolidated Natural Gas Company, HCAR No. 25040
(Feb. 14, 1990).
8/ Id.
9/ In the Matter of Northeast Utilities, HCAR No. 15448
(Apr. 13, 1966).
The fairness of the consideration involved in the Merger is evidenced by
the fact that the Ownership Percentages are the product of extensive and
vigorous arms-length negotiations between the Company and ONEOK, and the
Agreement was approved by the Boards of Directors of the Company and ONEOK
acting in accordance with their fiduciary duties to shareholders. These
negotiations were preceded by thoughtful analysis and evaluation of the assets,
liabilities and business prospects of each of the companies and involved careful
due diligence by both parties. See WAI Registration Statement on Form S-4
(incorporated by reference as Exhibit C-1 hereto).
In addition, nationally-recognized investment bankers for each of the
Company and ONEOK have reviewed extensive information concerning the companies,
analyzed the Ownership Percentages employing a variety of valuation
methodologies, and opined that the Ownership Percentages are fair, from a
financial point of view, to WRI and fair, from a financial point of view, to the
holders of ONEOK Common Stock. The Company investment bankers' opinion is
attached hereto as Exhibit G-1. The ONEOK investment bankers' opinion is
attached as Appendix F to WAI's Registration Statement on Form S-4 and is
described on pages 31 to 38 of the Form S-4 (incorporated by reference as
Exhibit G-2 hereto).
The Commission has previously assessed the reasonableness of exchange
ratios under Section 10 (b)(2) by considering the companies' respective
earnings, market values and book values. Traditionally, the Commission's
analysis has emphasized market values as a measure of the sums "invested in"
utility assets and earnings as a measure of the "earning capacity" of the
utility. See Northeast Utilities, 42 S.E.C. 963, 968-974 (1966); National Fuel
Gas Company, 36 S.E.C. 489, 496 (1955). Because the Gas Business is not a
separate, publicly traded company, the financial data below do not include a
market value for the Gas Business:
PRO FORMA COMPARISONS OF THE GAS BUSINESS AND ONEOK
(in millions of dollars)
Fiscal
Year10/ Gas Business ONEOK Ratio
Operating 1996 721 1,224 0.589
Revenues 1995 515 954 0.540
1994 599 784 0.764
Shareholders' 1996 532 424 1.255
Equity 1995 488 398 1.226
1994 439 380 1.155
Net Income 1996 19 53 0.358
1995 (1) 43 <0.023>
1994 16 36 0.444
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10/ Based on a fiscal year ending August 31.
In light of the aforesaid opinions, and an analysis of all other relevant
factors, the Company believes that the Ownership Percentages fall within the
range of reasonableness, and that the consideration for the Merger bears a fair
relation to the sums invested in, and the earning capacity of, the Company's Gas
Business and ONEOK, respectively.
3. Section 10(b)(2) -- Reasonableness of Fees
The Company believes that the overall fees, commissions and expenses
incurred and to be incurred in connection with the Transactions are reasonable
and fair in light of the size and complexity of the Transactions relative to
other transactions, that they are consistent with recent precedent, and that
they meet the standards of Section 10(b)(2).
The Company's expected expenses in connection with the transactions will be
set forth in Item 2 of this Application.
With respect to financial advisory fees, the Company and ONEOK believe that
the fees payable to their investment bankers are fair and reasonable for similar
reasons.
Pursuant to the engagement letter between the Company and Salomon Brothers
Inc ("Salomon") dated September 5, 1995, Salomon will earn a fee of
approximately $2.8 million for the rendering of the opinion on the fairness of
the Transactions to the Company from a financial point of view. In addition,
Salomon will be reimbursed for certain of its related expenses. Salomon will not
be entitled to any additional fees or compensation in the event the Transaction
is not approved or otherwise not consummated. The Company also agreed to
indemnify Salomon, its affiliates and each of its directors, officers, agents
and employees and each person, if any, controlling Salomon or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws.
Pursuant to the engagement letter between ONEOK and PaineWebber dated
December 2, 1996, PaineWebber has earned a fee of $875,000 for the rendering of
the an opinion on the fairness of the Transactions to the shareholders of ONEOK
from a financial point of view. In addition, PaineWebber will be reimbursed for
certain of its related expenses. PaineWebber will not be entitled to any
additional fees or compensation in the event the Transaction is not approved or
otherwise consummated. ONEOK also agreed, under separate agreement, to indemnify
PaineWebber, its affiliates and each of its directors, officers, agents and
employees and each person, if any, controlling PaineWebber or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws.
The investment banking fees of the Company and ONEOK reflect the
competition of the marketplace, in which investment banking firms actively
compete with each other to act as financial advisors to merger partners.
4. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether the
Transactions will unduly complicate the Company's capital structure or will be
detrimental to the public interest, the interests of investors or consumers or
the proper functioning of the Company's system. The novel aspect of the
Transactions is the creation of a large minority interest in New ONEOK. As
explained below, the minority interest is not a problem because of the limited
amount of Voting Securities to be held by WRI and the limitations on WRI's
ability to influence and direct New ONEOK's affairs, as outlined in the
Shareholder Agreement. Given that (a) there is no minority control concern, (b)
the quality of state regulation today and (c) the stringent disclosure
requirements under the federal securities laws, the capital structure of the
Company and of New ONEOK will not be unduly complicated.
In the Merger, the shareholders of ONEOK will receive New ONEOK Common
Stock. There will be no minority common stock interest remaining in ONEOK or its
subsidiaries. The only voting securities of New ONEOK's direct and indirect
non-utility subsidiaries will be common stock and, in all cases, all issued and
outstanding shares of such common stock will be held by New ONEOK or a
subsidiary of New ONEOK.
Set forth below are summaries of the historical and pro forma capital
structure of the Company and ONEOK as of September 30, 1996 and November 30,
1996, respectively:
WRI and ONEOK Historical Capital Structures
(In Millions)
WRI ONEOK
Common Stock Equity $1,615 $420
Cumulative Preferred, Convertible
Preferred and Preference Stock 75 9
WRI obligated mandatorily
redeemable preferred securities
of subsidiary trust holding
solely subordinated debentures 220 -
Long Term Debt (net) 1431 337
----- -----
Total $3,341 $766
Pro Forma Capital Structures
(In Millions)
WRI 11/ ONEOK
Common Stock Equity $1,615 $499
Cumulative Preferred, Convertible
Preferred and Preference Stock 75 547
WRI obligated mandatorily
redeemable preferred securities
of subsidiary trust holding
solely subordinated debentures 220 -
Long Term Debt (net) 1466 395
----- ----
Total $3376 $1441
The Company and New ONEOK will have pro forma common equity to total
capitalization ratios of approximately 48% and 73%, respectively, which
comfortably exceed the "traditionally acceptable 30% level." Northeast
Utilities, 47 SEC Docket at 1279, 1284 (1990).
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11/ The Company will account for its ownership of the common stock in New
ONEOK using the equity method and will account for the preferred stock as
an investment. This investment will be reflected on the Company's balance
sheet at an amount equal to the net assets being acquired. There will be no
change to the Company's capital structure as a result of the Transactions.
As set forth more fully in Item 3.B.2 and elsewhere in this Application,
the Transactions will improve the efficiency of the Company's gas utility
system. The Transactions will therefore be in the public interest and the
interests of investors and consumers, and will not be detrimental to the proper
functioning of the resulting holding company system.
B. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the provisions of
Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system . . . .
1. Section 10(c)(1)
Section 10(c)(1) requires that the proposed acquisition not be "unlawful
under the provisions of Section 8" or "detrimental to the carrying out of the
provisions of Section 11." Section 8, by its terms, only applies to registered
holding companies and thus the Transactions cannot be unlawful under Section 8
of the Act. However, even if applied to exempt holding companies, the
Transactions would not be unlawful as there is no state law, regulation or
policy against combination companies. Section 11 of the Act relates to the
simplification of holding company systems, and, as discussed in further detail
below, by its terms also only applies to registered holding companies. Section
11(b)(1), which contains the principal elements of Section 11's simplification
standard, specifically mandates that the Commission require each registered
holding company to limit the operations of the holding company system to a
single integrated public utility system.
The term "integrated public-utility system" is defined in Section 2(a)(29)
to mean:
As applied to electric utility companies, a system consisting of one
or more units of generating plants and/or transmission lines
and/or distributing facilities, whose utility companies are physically
interconnected or capable of physical interconnection and which under
normal conditions may be economically operated as a single
interconnected and coordinated system confined in its operations to a
single area or region, in one or more states, not so large as to
impair (considering the state of the art and the area or region
affected) the advantage of localized management, efficient operation,
and the effectiveness of regulation;
and
As applied to gas utility companies, a system consisting of one or
more gas utility companies which are so located and related that
substantial economies may be effectuated by being operated as a single
coordinated system confined in its operations to a single area or
region, in one or more states, not so large as to impair (considering
the state of the art and the area or region affected) the advantages
of localized management, efficient operation, and the effectiveness of
regulation: Provided, that gas utility companies deriving natural gas
from a common source of supply may be deemed to be included in a
single area or region.
As the Commission and its staff have previously noted, in connection with
an acquisition by an exempt holding company, Section 10(c)(1) mandates that such
acquisition not be detrimental to the carrying out of the provisions of Section
11, but does not require that the acquisition meet the strict integration
standards of Section 11(b)(1) as would be required of a registered holding
company. Thus, the principal issue under Section 10(c)(1) with regard to the
Transactions is whether the transfer of the gas utility assets of a combination
exempt holding company to a separate gas utility subsidiary and the subsequent
merger of that subsidiary with another gas utility company is detrimental under
Section 11.
First, the Company is not becoming a combination exempt holding company
system through the Transactions. Rather, the Company presently is a combination
exempt holding company. The Asset Transactions and the subsequent Merger will
simply separate the electric and gas utility assets of the Company into separate
companies and create a larger gas utility through the combination with ONEOK.
Second, on its face the Act does not prohibit ownership by an exempt holding
company of both electric and gas utility properties. Rather, the Commission in
recent years has routinely approved transactions involving the formation of new
combination exempt holding companies12/ and involving acquisitions of gas or
electric utility companies by existing combination exempt holding companies.13/
In Dominion Resources, for example, an exempt combination holding company
was permitted to acquire a gas utility.14/ Pursuant to section 10, the
Commission expressly held that "the provisions of section 11 are not applicable
to exempt holding companies such as DRI." The holding was not merely that
section 11 by its terms applies only to registered holding companies, but in
that context, the meaning of the holding was that such an acquisition did not
violate section 10(c). Moreover, since Dominion Resources did not acquire any
new electric properties, there was no direct effect upon its electric system, as
is also the case in the Transactions.
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12/ See e.g., CIPSCO Incorporated, HCAR No., 25152 (Sept. 18, 1990)
(authorizing acquisition and granting exemption for the formation of new
holding company over existing combination utility and electric utility);
Illinova Corporation, HCAR No. 26054 (May 18, 1994) (authorizing formation
of holding company and granting exemption for holding company over existing
combination utility and electric utility); WPS Resources Corporation, HCAR
No. 26101 (Aug. 10, 1994) (authorizing formation and exemption for holding
company over existing combination and electric utility); SIGCORP, Inc.,
HCAR No. 26431 (Dec. 14, 1995) (authorizing formation and granting
exemption for holding company over existing combination utility and two gas
utilities).
13/ See e.g., IE Industries, Inc., HCAR No. 25325 (June 3, 1991)
(authorizing acquisition of large electric utility by a holding company
with a combination utility subsidiary); NIPSCO Industries, Inc., HCAR No.
25470 (Feb. 2, 1992) (authorizing acquisition of gas utility by holding
company with existing combination utility subsidiary); NIPSCO Industries,
Inc., HCAR No. 25766 (March 25, 1993) (authorizing acquisition of gas
utility by holding company with existing combination and gas utility
subsidiaries); Southern Indiana Gas and Electric Company, HCAR No. 26075
(June 30, 1994) (authorizing acquisition of gas utility by combination
utility company with a gas utility subsidiary).
14/ Dominion Resources, Inc., HCAR No. 24618 (April 5, 1988).
No distinction should be made between decisions of the Commission under
Section 10 of the Act, approving the formation of combination exempt holding
companies, approving acquisitions by an existing combination exempt holding
company, and the present Transactions involving the separation of gas and
electric businesses into separate companies within the same holding company,
followed by a merger of the gas business with another gas utility company.
Turning to the facts of the Transactions, it is clear that the Company and
ONEOK currently operate as integrated utility systems and the combined system,
even if it were deemed such, will not be detrimental to the carrying out of
Section 11. The Company's electric system meets the standards of Section
2(a)(29)(A) as WRI and KGE are physically interconnected and operate as a
coordinated system in the State of Kansas, as the Commission held in 1992 when
the Company obtained authorization from the Commission to acquire KGE pursuant
to the standards of Section 9(a)(2) and 10 of the Act and both are subject to
the jurisdiction of the KCC and the FERC.15/ Further, the Company has not
acquired any utility operations since that time which would affect the analysis
made in that order. The ONEOK system meets the standards of Section 2(a)(29)(B)
as itoperates exclusively in the State of Oklahoma and is regulated by the OCC.
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15/ The Kansas Power and Light Company, HCAR No. 25465 (February 5, 1992).
Thus, following consummation of the Transactions, the Company system will
consist of a large integrated electric utility system. ONEOK will also be a
large integrated gas utility system operating in the same region, with some
overlapping service areas. (See Exhibit E-1 hereto for a map depicting the
service territories of the Company and New ONEOK.)
The Company system following the Transactions will, in fact, be quite
similar to the combination exempt holding companies whose formation or expansion
the Commission has approved in the past under Section 10.16/ The only difference
between the instant case and the prior decisions of the Commission with respect
to acquisitions is the fact that the electric system (WRI and KGE) and the gas
system (New ONEOK) will be in separate companies. However, it would be a strange
result indeed if such an acquisition could not meet the standards of Section
10(c) when an acquisition of a combination system or a pure gas or electric
system by an existing combination system, as well as the acquisition of an
existing combination system (which might include separate combination and gas
and electric utility subsidiaries) by a newly formed holding company, would
result in the same structure and would meet the test. As noted above with
respect to Dominion Resources, when a combination company combines with either
an electric or a gas utility, the effect with respect to one of the two systems
created is the same as with separating gas and electric operations. Neither the
language of the Act nor any policy reason supports such a distinction,
especially when it is clear that the Transactions will not be detrimental to the
carrying out of the provisions of Section 11, inasmuch as the Company will carry
out its utility operations in two contiguous states, will be subject to adequate
regulatory authority in those states and will not be the type of nationwide,
complex system that Section 11 was designed to prevent. Moreover, the Company
will remain an exempt holding company and, once again, "exempt holding companies
have generally been permitted to retain or acquire combination systems so long
as combined ownership of gas and electric operations is permitted by state
law"17/ and Kansas and Oklahoma law do not prohibit combination gas and electric
utility companies. The fact that the Company will be an exempt holding company
and that the transaction is subject to the Act's more lenient standard with
regard to electric and gas combinations, coupled with the fact that the
Company's utility operations will be located in the same geographic region,
leads to the conclusion that the Transactions should be authorized under the
Act.
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16/ See supra note 13 and 14.
17/ Division Report at 74. See also In the Matter of Northern States Power
Company, HCAR No. 12655 (Sept. 16, 1954); Delmarva Power & Light Co., 46
SEC. 710 (1976); WPL Holdings, HCAR No. 24590 (Feb. 26, 1988).
Finally, the Transactions will not be detrimental to the carrying out of
Section 11(b)(1)'s provision that registered holding companies be limited to an
integrated public utility system and "such other [non-utility] businesses as are
reasonably incidental or economically necessary or appropriate thereto." The
Commission has not applied "the prohibitions of Section 11(b)(1) against
retention of unregulated non-utility businesses by exempt holding companies to
the same extent as registered holding companies,"18/ and has generally only
tried to ensure that the resulting holding company system will be predominantly
a utility company.19/ Given that the Company's utility operations after the
Transactions will account for approximately $1.2 billion of its $1.3 billion in
operating revenues and $5.2 billion of its $6.4 billion in assets, it is clear
the Company system will be primarily an operating utility company.
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18/ Wisconsin Energy Corporation, HCAR 24267 (Dec. 18, 1986).
19/ Id.
2. Section 10(c)(2)
The other component to Section 10 analysis requires that the acquisition
tend "towards the economical and efficient development of an integrated
public-utility system." The Commission has stated in several cases, including in
the Gaz Metropolitan case, the most recent decision in this area, that under
Section 10(c)(2) an exempt holding company may consist of more than one
integrated system.20/ In essence, Section 10(c)(2) requires that (i) each
utility system within the exempt holding company system be an integrated system
and (ii) the acquisition tend toward the economical and efficient development of
an integrated system. The economies and efficiencies expected to accrue to the
Company and New ONEOK systems as a result of the Transactions are sufficient to
satisfy the standards of Section 10(c)(2).21/
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20/ The United Gas Improvement Company, 9 SEC 52 (1941), Union Electric
Company, 45 SEC 489 (1974) and In the Matter of Gaz Metropolitan et al.,
HCAR No. 26170 (November 23, 1994). In Gaz Metropolitan, the Commission has
explicitly stated "[W]e have indicated in the past that acquisitions may be
approved even if the combined system will not be a single integrated
system. Section 10(c)(2) requires only that the acquisition tend 'towards
the economical and the efficient development of an integrated
public-utility system' (emphasis added)."
21/ Centerior Energy Corp., HCAR No. 24073 (April 29, 1986) ("specific
dollar forecasts of future savings are not necessarily required; a
demonstrated potential for economies will suffice even when these are not
precisely quantifiable.").
WPL Holdings, Inc., HCAR No. 25377 (Sept. 18, 1991) ("Thus, in
reviewing an application under this Section [10(c)(2)], the Commission may
recognize not only benefits resulting from combination utility assets, but
also financial and organizational economies and efficiencies.").
New ONEOK will also be an "integrated public utility system" as defined in
Section 2(a)(29)(B) of the Act. The New ONEOK system will be operated in Kansas
and Oklahoma, satisfying the requirement that the system be confined in its
operation to a single area or region not so large as to impair the advantages of
localized management, efficient operation and the effectiveness of regulation.
In addition, the Gas Business and ONEOK both interconnect directly with four
interstate pipelines: Panhandle Eastern Pipeline, Williams Natural Gas, Northern
National Gas and Natural Gas Pipeline of America.
Section 10(c)(2) also requires that a proposed transaction promote
economies and efficiencies. The Commission has held that in order to demonstrate
the required economies and efficiencies it is permissible to:
... depend less on specific dollar forecasts of future
savings and more on the potential for economies
presented by the acquisition even where these are not
precisely quantifiable.22/
The Company and ONEOK expect that there will be economies and efficiencies
resulting from the Transactions. Cost reductions are expected to be achieved by
combining Kansas and Oklahoma operations in certain areas such as gas supply,
inventories and corporate overhead. As a larger company, New ONEOK may also have
the ability to negotiate more favorable contracts with vendors and suppliers.
WRI also expects that the performance of the Gas Business will be enhanced by
being operated by ONEOK's management team, which is devoted exclusively to the
natural gas business. In addition, the Marketing and Shared Services Agreements
discussed above in Item 1.B.4 are also expected to produce operational
synergies. These savings are consistent with the savings that the Commission has
found sufficient in connection with other examinations under Section 10(c)(2).
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22/ American Electric Power, HCAR No. 20633 (July 21, 1978)(authorizing
acquisition by registered holding company of electric utility company) See
also, Illinova Corporation, HCAR No. 26054 (May 18, 1994) (authorizing
formation of an exempt holding company based on non-quantified economies
and efficiencies such as permitting unregulated affiliates to respond to
competitive opportunities and increasing general financial flexibility) and
WPL Holdings, Inc., HCAR No. 25096 (May 25, 1990) (authorizing formation of
an exempt holding company based on non-quantified economies and
efficiencies such as deployment of earnings not needed for reinvestment in
utility business, additional flexibility in maintaining appropriate capital
ratios and positioning the system to respond to the developing competitive
environment).
It should be noted also that the Transactions are consistent with Section
10(f) of the Act, which states that the Commission may not approve an
acquisition unless it appears to the Commission that such state laws as may
apply in respect of such acquisition have been complied with. Section 10(f),
unlike Section 8, applies directly to exempt holding companies and involves the
issue of complying with all aspects of state regulation that apply to the
transaction, not just whether or not state regulators have adequate regulatory
authority over a combination system, and is satisfied in this case.23/ Indeed,
it is a condition to consummation of the Transactions that all applicable state
laws and regulations be complied with.
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23/ It should be noted that the terms of Section 10(f) reinforce the fact
that the policy of the Act is to supplement, not supplant, state and
local regulation.
C. Section 3(a)(1)
The Company is currently exempt from all provisions of the Act except
Section 9(a)(2) under Section 3(a)(1) pursuant to Rule 2. ONEOK is currently a
gas-utility company but not a public utility holding company or a subsidiary
company or affiliate of a public utility holding company within the meaning of
the Act. In a companion no-action letter request, the staff of the Division of
Investment Management have been asked to agree that the proposed Transactions
will not result in a holding company relationship between WRI and ONEOK. ONEOK
will be an affiliate, but not a subsidiary company, of WRI. Thus, the
Transactions will not affect the Company's claim of exemption under the Act. If
the KCPL transaction is consummated, the Company will claim anexemption, or seek
an order from the Commission declaring an exemption, under Section 3(a)(2) from
all provisions of the Act except Section 9(a)(2).
Item 4 REGULATORY APPROVALS
Set forth below is a summary of the regulatory approvals that the Company
and ONEOK have obtained or expect to obtain in connection with the Transactions.
A. State Public Utility Regulation
1. State Corporation Commission of the State of Kansas
The Company, ONEOK and WAI have filed a joint application with the KCC for
an order authorizing the Transactions, including: (i) the Asset Transaction,
including the contribution of the Gas Business' certificate of convenience to
New ONEOK; (ii) the Merger; (iii) the acquisition by the Company of shares of
capital stock of WAI; and (iv) the issuance of securities by New ONEOK. In
granting the requested authorizations, the KCC will need to make a finding that
the Transactions promote the public interest.
A copy of the application filed with the KCC is attached hereto as Exhibit
D-1 and a copy of the order approving the application will be filed by amendment
as Exhibit D-2.
2. Corporation Commission of the State of Oklahoma
The Company, ONEOK and WAI have filed a joint application with the OCC for
an order authorizing the Transactions, including: (i) the Asset Transaction,
with respect to assets in the state of Oklahoma; and (ii) the Merger. In
approving the Transactions, the OCC will need to determine, among other things,
that the effect of the Transaction will not be to substantially lessen
competition for public utility services in Oklahoma or jeopardize the financial
stability of ONEOK and will be in the public interest and in the interest of WRI
customers in Oklahoma.
A copy of the application filed with the OCC is attached hereto as Exhibit
D-3 and a copy of the order approving the application will be filed by amendment
as Exhibit D-4.
B. Other Federal Regulations
Other than the approval of the Commission under the Act, no federal
regulatory entity must approve the Transactions.
Item 5 PROCEDURES
The Company hereby requests that there be no hearing on this Application
and that the Commission issue its order as soon as practicable after the filing
hereof. The Commission is respectfully requested to issue and publish the
requisite notice under Rule 23 with respect to the filing of this Application
not later than September 19, 1997, such notice to specify a date not later than
October 14, 1997, by which comments may be entered and a date not later than
October 24, 1997, as the date after which an order of the Commission granting
and permitting the Application to become effective may be entered by the
Commission. A form of Notice is filed herewith as Exhibit I-1.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
Transactions. The Division of Investment Management may assist in the
preparation of the Commission's decision. There should be no waiting period
between the issuance of the Commission's order and the date on which it is to
become effective.
Item 6 EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Restated Articles of Incorporation of the Company, as
amended May 25, 1988 (filed as Exhibit 4 to the
Registration Statement No. 333-23022 and incorporated
herein by reference).
A-2 Certificate of Correction to Restated Articles of
Incorporation (filed as Exhibit 3(b) to the December
1991 Form 10-K and incorporated herein by reference).
A-3 Amendment to the Restated Articles of Incorporation,
as amended May 5, 1992 (filed as Exhibit 3(c) to the
December 1995 Form 10-K and incorporated herein by
reference).
A-4 Amendments to the Restated Articles of Incorporation
of the Company (filed as Exhibit 3 to the June 1994
Form 10-Q and incorporated herein by reference).
A-5 By-laws of the Company (filed as Exhibit 3 to the
March 1997 Form 10-Q and incorporated herein by
reference).
A-6 Amendment to the Restated Articles of Incorporation
of the Company, as amended May 14, 1996 (filed as
Exhibit 3(a) to the June 1996 Form 10-Q and
incorporated herein by reference).
A-7 Certificate of Incorporation of New ONEOK (filed as
Appendix E to the Proxy/Prospectus in the
Registration Statement on Form S-4 on May 20, 1997
(Registration No. 333-27467), and incorporated herein
by reference).
A-8 By-laws of New ONEOK (filed as Exhibit 3.2 to the
Registration Statement on Form S-4 on May 20, 1997
(Registration No. 333-27467), and incorporated herein
by reference).
B-1 Amended and Restated Agreement between WRI, WAI and
ONEOK, dated as of May 19, 1997 (filed as Appendix A
to the Proxy/Prospectus in the Registration Statement
on Form S-4 on May 20, 1997 (Registration No.
333-27467) and incorporated herein by reference).
B-2 Form of Shareholder Agreement between New ONEOK and
WRI (filed as Appendix B to the Proxy/Prospectus in
the Registration Statement on Form S-4 on May 20,
1997 (Registration No.333- 27467), and incorporated
herein by reference).
C-1 Registration Statement of WAI on Form S-4 (filed on
May 20, 1997, Registration No. 333-27467 and
incorporated herein by reference).
C-2 Proxy Statement and Prospectus of ONEOK (included in
Exhibit C-1).
D-1 Joint application to KCC.
D-2 KCC Order (to be filed by amendment).
D-3 Joint application to OCC.
D-4 OCC Order (to be filed by amendment).
E-1 Map of service areas of WRI, KGE and ONEOK (to be
filed by amendment on Form SE).
F-1 Opinion of counsel (to be filed by amendment).
F-2 Past-tense opinion of counsel (to be filed by
amendment).
G-1 Opinion of Salomon Brothers Inc to the Company
G-2 Opinion of PaineWebber Incorporated to ONEOK (filed
as Appendix F to the Proxy/Prospectus in the
Registration Statement on Form S-4 on May 20, 1997
(Registration No.333-27467), and incorporated herein
by reference).
H-1 Annual Report of WRI on Form 10-K for the year ended
December 31, 1996 (filed on March 20, 1997) (File No.
1-3523) and incorporated herein by reference.
H-2 WRI Statement Claiming Exemption on Form U-3A-2 for
the year ended December 31, 1996 (filed on February
28, 1997) and incorporated herein by reference.
H-3 WRI Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (filed on May 15, 1997)(File No.
1-3523) and incorporated herein by reference.
H-4 WRI Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 (filed on July 30, 1997) (File
No. 1-3523) and incorporated herein by reference.
H-5 Annual Report of ONEOK on Form 10-K for the year
ended August 31, 1996 (filed on October 18, 1996)
(File No. 1-2572) and incorporated herein by
reference.
H-6 ONEOK Quarterly Report on Form 10-Q for the
quarter ended November 30, 1996 (filed on December
27, 1997) (File No. 1-2572) and incorporated
herein by reference.
H-7 ONEOK Quarterly Report on Form 10-Q for the quarter
ended February 28, 1997 (filed on March 31, 1997)
(File No. 1-2572) and incorporated herein by reference.
H-8 ONEOK Quarterly Report on Form 10-Q for the quarter
ended May 31, 1997 (filed on June 24, 1997) (File No.
1-2572) and incorporated herein by reference.
I-1 Proposed Form of Notice.
B. Financial Statements
FS-1 WRI Unaudited Pro Forma Condensed Consolidated Balance
Sheets as of May 31, 1997.
FS-2 WRI Unaudited Pro Forma Condensed Consolidated Statements of
Income for the year ended May 31, 1997.
FS-3 WRI Consolidated Statements of Income for its last
three fiscal years (see Annual Report of WRI on Form
10-K for the year ended December 31, 1996 (Exhibit
H-1 hereto)).
FS-4 ONEOK Consolidated Balance Sheet as of August 31,
1996 (see Annual Report of ONEOK on Form 10-K for the
year ended August 31, 1996 (Exhibit H-5 hereto)).
FS-5 ONEOK Consolidated Statement of Income for its last
three fiscal years (see Annual Report of ONEOK on
Form 10-K for the year ended August 31, 1996 (Exhibit
H-5 hereto)).
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Transactions involve neither a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4321 et seq. The Commission's declaration of the effectiveness of New
ONEOK's Registration Statement on Form S-4, the expiration of the applicable
waiting period under the HSR Act, KCC approval, OCC approval, Commission
approval of this Application and the consummation of the Transactions will not
result in changes in the operations of the Company or ONEOK that would have any
impact on the environment. No federal agency is preparing an environmental
impact statement with respect to this matter.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Application to be signed on
its behalf by the undersigned thereunto duly authorized.
WESTERN RESOURCES, INC.
By: /s/ John K. Rosenberg
Name: John K. Rosenberg
Title: Executive Vice President
and General Counsel
Date: August 27, 1997
BEFORE THE STATE CORPORATION COMMISSION
OF THE STATE OF KANSAS
In the Matter of the Joint Application of )
Western Resources, Inc., ONEOK Inc., and )
WAI, Inc. for Approval of the Contribution )
from Western Resources, Inc. to WAI, Inc. of ) Docket No.
all of the Natural Gas Transportation and )
Distribution Assets, Subsidiaries and ) ------------
Certificates of Western Resources, Inc.; for )
the Merger of WAI, Inc., with ONEOK Inc.; )
for the acquisition by Western Resources, )
Inc. of Shares of Capital Stock of WAI, )
Inc.; for Authority for WAI, Inc. to Issue )
Stock and Instruments of Debt; and for )
Related Relief
Joint Application
COME NOW Western Resources, Inc. (WRI), ONEOK Inc.(ONEOK), and WAI, Inc.
(WAI), and make this joint application to the State Corporation Commission of
the State of Kansas (KCC) for an order authorizing WRI to contribute to WAI all
of its natural gas transportation and distribution properties in the State of
Kansas, including its certificates and the capital stock of certain
subsidiaries; authorizing ONEOK to merge with WAI; authorizing WRI to acquire
shares of the capital stock of WAI; authorizing WAI to issue capital stock and
instruments of debt; and for all other related relief that may be required to
fulfill the intents and purposes of the parties to the transactions described
below, and in support thereof, state as follows:
The Applicants
1. WRI is a Kansas corporation, in good standing in all respects, with its
principal offices and place of business located at 818 Kansas Avenue, Topeka,
Kansas 66612. WRI presently owns and operates a gas distribution system in
portions of Kansas pursuant to certificates of public convenience and necessity
issued by the KCC and subject to the jurisdiction of the KCC. There is already
on file with the KCC restated Articles of Incorporation and Bylaws which are
incorporated herein by reference.
2. ONEOK is a Delaware corporation with its principal offices and place of
business located at 100 West Fifth Street, Tulsa, Oklahoma 74103. As more fully
described below, ONEOK is a diversified energy company engaged in the
production, gathering, storage, transportation, distribution and marketing of
natural gas. Through its division, Oklahoma Natural Gas (ONG), ONEOK serves
approximately 730,000 natural gas utility customers in Oklahoma. A certified
copy of the Certificate of Incorporation and Bylaws of ONEOK are attached
hereto, marked as Schedule 1, and incorporated herein for all purposes.
3. WAI will be an Oklahoma corporation incorporated for the purposes of
this transaction. At the conclusion of the transaction, ONEOK will be merged
with and into WAI, the separate existence of ONEOK will cease, and WAI will
continue as the surviving corporation. WAI plans to change its name to ONEOK,
Inc. at the time the transaction is completed. A certified copy of WAI's
Articles of Incorporation and Bylaws will be a late filed schedule, marked as
Schedule 2, and incorporated herein for all purposes. A certified copy of WAI's
authority to do business in Kansas will be a late filed schedule marked as
Schedule 3, and incorporated herein for all purposes.
4. Pleadings, notices, orders and other correspondence and communications
concerning this application and proceeding held thereon should be addressed to
the undersigned counsel as well as to:
James Ludwig, Executive Director, Regulatory Affairs
J. Michael Peters, Associate General Counsel
Western Resources, Inc.
P. O. Box 889, 818 Kansas Avenue
Topeka, Kansas 66601
Barry D. Epperson, Vice President, Accounting
John L. Arrington, Jr., General Counsel
ONEOK Inc.
100 W. 5th Street, P. O. Box 871
Tulsa, Oklahoma 74102-0871
James G. Flaherty
Anderson, Byrd, Richeson & Flaherty
216 S. Hickory, P. O. Box 17
Ottawa, Kansas 66067
ONEOK Inc.'s Qualifications
General Information about ONEOK
5. ONEOK is a successor to a company founded in 1906 as Oklahoma Natural
Gas Company. The corporation's name was changed to ONEOK Inc. in 1981. ONEOK is
a diversified energy company engaged in the production, gathering, storage,
transportation, distribution and marketing of natural gas. ONEOK provides
natural gas distribution and transmission services to about 75 percent of
Oklahoma. These services are primarily conducted by Oklahoma Natural Gas Company
(ONG) and three ONEOK subsidiaries, ONG Gathering Company, ONG Transmission
Company and ONG Sayre Storage Company. ONG and the three subsidiaries are
consolidated for ratemaking purposes and are regulated by the Oklahoma
Corporation Commission (OCC).
6. ONEOK purchases natural gas from gas processing plants, producing gas
wells, and pipeline suppliers, and utilizes five underground storage facilities
as necessary to deliver natural gas to approximately 730,000 customers, located
in 294 communities in Oklahoma. The company's largest markets are the Oklahoma
City and Tulsa metropolitan areas. ONEOK also sells natural gas and/or leases
pipeline capacity to other local distributors serving 44 Oklahoma communities.
ONEOK serves an estimated population of over 2 million.
Description of ONEOK's Utility Operations in Oklahoma
Utility Plant
7. ONEOK owns over 14,680 miles of pipeline and other distribution
facilities in Oklahoma. ONEOK owns a combined total of 3,840 miles of
transmission and gathering pipelines in Oklahoma. Compression and dehydration
facilities are located at various points throughout the pipeline system. In
addition, ONEOK owns five underground storage facilities located throughout
Oklahoma. Four of the five storage facilities operated by ONEOK are located in
close proximity to its largest market areas. These four storage facilities have
a combined storage capacity of 124.5 Bcf. The other storage facility is located
in western Oklahoma and is leased to and operated by another company. However,
21.5 Bcf of storage capacity in this facility has been retained for use by
ONEOK.
Customers
8. ONEOK distributes natural gas as a public utility to approximately 75
percent of Oklahoma. Natural gas sales to residential and commercial customers,
which is used primarily for heating and cooking, account for approximately 85
percent of ONEOK's gas sales. Gas sales to residential and commercial customers
are seasonal, as a substantial portion of such sales are used principally for
space heating. ONEOK holds franchises in the major municipalities in which it
operates. Seventeen municipalities in which franchises are held serve individual
populations of over 10,000 and an aggregate population representing
approximately 1.2 million. Overall, ONEOK provides natural gas service to 294
communities in Oklahoma.
9. A substantial portion of the gas delivered through ONEOK's utility
system is delivered to industrial customers, in particular, several large
fertilizer plants which use the gas as feed stock. ONEOK has been able to retain
industrial customers, and minimize the negative impact of bypass through its
Pipeline Capacity Lease and Special Industrial Sales programs which have been
approved by the OCC.
Management and Employees
10. ONEOK has a management team in place which has substantial experience
in providing natural gas utility service to customers. The company currently
employs approximately 1,770 employees in its utility operations and a total of
1,850 in all of its operations. Schedule 4 to the Application shows ONEOK's
management and organiza-tional chart.
Financial Strength of ONEOK
11. ONEOK's financial balance sheet, income statement and statement of
capitalization are attached as Schedules 14, 15 and 16 to this application.
Included in said schedules is the proforma financial information of the company
after the merger. ONEOK's bond rating is A- by Standard and Poors and A3 by
Moody's. The financial community has recently placed ONEOK on review for a
possible upgrade. Gas Supply
12. ONEOK has a diversified gas supply portfolio which it uses to serve its
gas utility customers. Oklahoma, like Kansas, is a large producer of natural
gas. ONEOK has direct access through its transmission system to all of the major
gas producing areas in the state. Its system interconnects with nine interstate
pipelines at 25 interconnect points, 38 gas processing plants and 129 producing
fields located in Oklahoma. As mentioned above, ONEOK also owns and operates
storage facilities located in Oklahoma. On February 2, 1996, ONEOK set an
all-time peak day for gas deliveries through the system. It delivered 1.83 Bcf
on that day. Attached to this Application as Schedule 5 is a map showing the
location of ONEOK's facilities in Oklahoma.
Regulation of Utility Rates and Services
13. Rates charged for gas services, including distribution, transmission
and storage, are regulated and approved by the OCC and include a purchased gas
adjustment clause that allows changes in gas purchase costs to be passed on to
various classes of customers. Other costs are recovered through periodic rate
adjustments approved by the OCC.
Environmental Matters
14. ONEOK is actively promoting the environmental advantages of natural gas
in comparison to other fuels, including promoting the use of natural gas in
automobiles. ONEOK has led the way in Oklahoma by owning and operating its own
fleet of 338 vehicles powered by natural gas. ONEOK believes that the increasing
concerns about the environment will result in an increased use of natural gas.
The Transaction Between ONEOK Inc.
And WRI, Inc.
15. Pursuant to the terms and conditions of an Agreement dated December 12,
1996 between WRI and ONEOK ("the Agreement"), WRI will incorporate WAI as an
Oklahoma corporation. Immediately prior to the merger between WRI and ONEOK, WRI
will contribute all assets of the field operations of its regulated natural gas
local distribution business in Kansas and Oklahoma, including its stock in Mid
Continent Market Center, Inc., and its stock in Westar Gas Marketing, Inc., a
wholly owned unregulated gas marketing subsidiary (hereinafter collectively
referred to as the "Gas Business"), to WAI in exchange for 2,996,702 shares of
voting common stock of WAI, 19,317,584 shares of cumulative convertible
preferred stock, Series A (WAI Cumulative Convertible Preferred Stock) of WAI,
and the assumption by WAI of approximately Thirty-Five Million Dollars
($35,000,000) of WRI's unsecured debt. Immediately following the merger with
ONEOK, WRI will own up to 9.9% of the outstanding common stock of WAI. Together
with the preferred stock, WRI will own up to 45% of the WAI outstanding equity.
The number of shares discussed herein is subject to change pursuant to WRI's
"top-up" rights included in the agreement permitting WRI to maintain its
targeted percentage ownership. A true copy of the Agreement is attached to this
Application as Schedule 6 and is incorporated herein by reference.
16. Under the Agreement ONEOK will merge into WAI which will result in the
conversion of all of the outstanding common shares of ONEOK into common shares
of WAI on a one-for-one basis such that ONEOK shareholders will own not less
than 55% of the WAI outstanding equity. WAI will assume all debt of ONEOK as
part of the merger. WAI will change its name to ONEOK, Inc.
17. Upon the consummation of the merger, ONEOK shareholders will hold not
less than 27,304,870 shares of WAI common stock representing not less than 90.1%
of the voting power of WAI. WRI will hold 2,996,702 shares of WAI common stock
representing up to 9.9% of the voting shares of WAI. WRI will also hold
19,317,584 shares of WAI Convertible Preferred Stock.
18. Upon the occurrence of a "regulatory change" (which relates to the
Public Utility Holding Company Act of 1934) (Regulatory Change), as defined in
the Shareholder Agreement (Shareholder Agreement) to be entered into between WRI
and WAI, each share of WAI Convertible Preferred Stock may be converted into one
share of WAI Common Stock. The Shareholder Agreement will also impose certain
standstill, transfer and voting restrictions on WRI in respect to its stock
ownership in WAI. A true copy of the Shareholder Agreement which has been agreed
to by WRI and ONEOK as to form, and which will be executed at the time of
closing, is attached hereto as Schedule 7, and is incorporated herein by
reference.
19. Prior to the occurrence of a Regulatory Change, WRI will have the right
to designate two members on the WAI board of directors (one of whom may be an
employee). Following the occurrence of a Regulatory Change, WRI will designate 4
out of 18 board members, increasing to 1/3 of the board as board members leave
as a result of resignation, death, etc.
20. Prior to a Regulatory Change, WRI agrees to vote its common stock for
directors in accordance with the recommendation of the Nominating Committee of
the WAI Board. In all other matters, WRI may vote its own interest. The WAI
Convertible Preferred Stock, Series A, does not have a vote on the selection of
directors or other ordinary shareholder matters and votes with the common
stockholders on a Change of Control, as defined in the Shareholder Agreement.
21. Following a Regulatory Change, WRI may vote not more than 9.9% of WAI
common stock in its own interest and will vote its other WAI common stock with
respect to the election of directors in accordance with the recommendation of
said Nominating Committee and in all other matters in the same proportion as
voted by the other common shareholders of WAI, except it will be free to vote
all of its shares in its own interest in respect to any Change of Control.
22. The Shareholder Agreement has a basic term of fifteen (15) years. WRI
will be an investor in ONEOK. ONEOK will be responsible for the day to day
operations of the "Gas Business". ONEOK and WRI are negotiating into joint
operation agreements in those areas where such would be beneficial to the
companies and their respective customers.
23. ONEOK management will become the management of WAI. WRI will contribute
to WAI those employees directly employed in the transferred "Gas Business", as
well as a proportional number of administrative personnel. Those employees will
be protected by an employee agreement, a copy of which is attached to the
December 12, 1996, Agreement between WRI and ONEOK. In addition, WAI will assume
responsibility for a proportional number of retirees, and will receive from WRI
a pro rata share of pension plan assets to fund projected pension benefits
liabilities for those employees and retirees. As part of this application, ONEOK
is requesting that the accounting orders issued by the KCC to WRI in Docket No.
190,352-U (May 3, 1994) relating to the deferral of SFAS 112 costs
(post-retirement benefits consisting of worker's compensation, long term
disability, accumulated sick leave paid at retirement and unfunded pensions),
and in KCC Docket 184,735-U (June 28, 1993) relating to SFAS 106 costs
(post-retirement benefits other than pensions (PBOP)), in so far as they apply
to the "Gas Business", be transferred and assigned to ONEOK as proper regulatory
assets of the merged company; and that ONEOK be allowed to recover in rates
those SFAS 112 and SFAS 106 costs which will not have been offset by WRI's
Company Owned Life Insurance (COLI) program. Said COLI contracts are not
transferable to ONEOK. Furthermore, current tax laws and the financial aspects
of COLIs make the feasibility of such a funding mechanism very low on a
going-forward basis.
24. To meet the requirements of the Financial Accounting Standards Board
for recognition of regulatory assets, a funding mechanism must be addressed and
provided for by January, 1998, which is five years from the initial adoption by
WRI of SFAS 106. While complete funding for these costs are not part of this
application for approval, it is an issue that must be addressed by WRI, ONEOK
and the KCC, and disposed of in a timely fashion in early 1998. ONEOK commits to
providing separate trusts for any funds collected from customers in a VEBA or
other trust instrument.
25. In addition to the authorization required from the KCC, the transaction
will require approval from the Oklahoma Corporation Commission. It will also be
subject to the waiting period provided under the Hart Scott Rodino Antitrust
Improvements Act. Action will also be required of the Securities Exchange
Commission or its staff under the Public Utilities Holding Company Act. The FERC
certificates currently held by WRI in regards to its "Gas Business" will also be
transferred to ONEOK under the Agreement.
26. A certified copy of the resolution of the board of directors of WRI
authorizing the consummation of the transactions contemplated by the Agreement
and this application is attached hereto as Schedule 8, and is incorporated
herein by reference. A certified copy of the resolution of the board of
directors of ONEOK authorizing the consummation of the transactions contemplated
by the Agreement and this application is attached hereto as Schedule 9, and is
incorporated herein by reference.
ONEOK's Plan of Operation
27. Upon the consummation of the proposed transaction, ONEOK will continue
to provide natural gas local distribution service to the public located in WRI's
certificated territory in accordance with WRI's approved tariffs and the rules
and regulations presently on file with the KCC, and which from time to time may
be changed with approval from the KCC, which ONEOK will adopt. ONEOK proposes no
significant changes in WRI's current tariffs and rules, and the overwhelming
majority of WRI's customers will see no change in their rates.
28. In order to better serve existing WRI customers, and in an attempt to
assign costs to those new and existing customers which directly cause the
utility to incur either additional investment in plant or additional expenses,
ONEOK, in conjunction with this filing, proposes to make two modifications to
WRI's current tariffs and rules. These modifications will better position the
utility, and the overwhelming majority of its customers, to meet the challenges
of the transition of the gas distribution business to a more competitive
environment. The two modifications will also better position the utility to
reduce the need for a general rate increase in the near future.
29. The first modification relates to a modification of WRI's current line
extension policy. The proposed modification will allow the utility, the
developers and new customers more flexibility in structuring their line
extension agreements in the more competitive and unbundled environment. The
proposed modification to the existing WRI line extension tariff is attached
hereto and incorporated herein by reference as Schedule 10. This modification
creates no additional revenue for the utility.
30. The second modification relates to a modification of some of the
charges for miscellaneous services provided by WRI to customers. These charges
are currently below the cost to provide those services. The proposed
modifications will assure that those customers provided such services pay for
them at a rate which is not being subsidized by the other customers. The revenue
resulting from the modifications to the charges for miscellaneous services will
be used by ONEOK to partially offset on an interim basis the deferred SFAS 106
and SFAS 112 costs under the KCC's accounting order which is referenced in
paragraph 23 of this Application. The proposed modifications to the existing WRI
charges for miscellaneous services are attached hereto and incorporated herein
by reference as Schedule 11.
31. ONEOK also plans to go forward with the unbundling of services provided
to Kansas customers. ONEOK is currently working with the OCC to explore the
feasibility and in developing a timetable for unbundling of services for its
Oklahoma operations. ONEOK hopes to work with the KCC and its Staff to develop a
similar schedule for unbundling of services in Kansas. Mr. David L. Kyle, a
corporate officer of ONEOK and President and Chief Operating Officer for ONG,
details in his prefiled testimony, which is attached hereto and incorporated
herein by reference, ONEOK's plan and schedule in regards to the unbundling of
its services to customers in Oklahoma.
The Proposed Transaction Will
Promote the Public Interest
32. The proposed transaction will promote the public interest in that ONEOK
is qualified by its experience and financial strength to meet all of the demands
associated with operating WRI's "Gas Business".
33. Consummation of the transaction will allow the existing high quality of
service provided to WRI's customers to be maintained and improved. ONEOK is an
experienced low cost provider of safe and reliable natural gas service. To
demonstrate this fact, attached to Mr. Kyle's prefiled testimony is an exhibit
showing the operational efficiencies achieved by ONEOK in its utility operations
over the last four years. Included is information showing a decline in
operations and maintenance cost per customer, an increase in customers served
per employee and other pertinent information. Mr. Kyle has also included as an
exhibit to his testimony, the most recent Consumer Attitude Survey conducted by
Render and Associates dated April 2, 1996. ONEOK prides itself on identifying
and addressing the concerns of its customers to assure customer satisfaction.
Mr. Kyle also testifies as to ONEOK's exceptionally low percentage of lost and
unaccounted for gas on its Oklahoma system. The average percentage of lost and
unaccounted for gas on ONEOK's system for the past five years is only about one
percent (1%) of the total system throughput.
34. ONEOK is clearly qualified to operate the "Gas Business" of WRI. ONEOK
has substantial experience in operating an integrated system consisting of gas
gathering, storage, transmission and distribution facilities. ONEOK's experience
and familiarity with operating an integrated system, makes it best suited to
operate WRI's integrated gas distribution system and market center.
35. ONEOK has experience in obtaining and managing wellhead gas supply
contracts directly with producers. Mr. Kyle's prefiled testimony identifies the
number of producers, contracts and connections which are negotiated and managed
by ONEOK. This type of expertise allows the utility to maximize the use of the
state's energy resources. WRI is responsible for managing many wellhead gas
supply contracts with producers in Kansas. ONEOK's experience with managing
wellhead gas supply contracts in Oklahoma will be beneficial to WRI's customers
and will continue to maximize the use of Kansas energy resources.
36. The proximity of ONEOK's current natural gas operations also makes it
an ideal company to operate the "Gas Business" of WRI. ONEOK and WRI operate in
adjacent states. Attached hereto as Schedule 12 is a map showing the location
and close proximity of the two natural gas operations. The close proximity of
the two operations should provide for a smoother and less expensive transition
of operations. ONEOK, like WRI, has experience operating in a state which is one
of the country's largest suppliers of natural gas.
37. The markets served by WRI and ONEOK are similar, thereby giving ONEOK
the experience to successfully operate the "Gas Business" of WRI. The size of
the major metropolitan areas served by WRI and ONEOK are similar. The
metropolitan areas of Wichita, Topeka, Overland Park and Kansas City, Kansas are
not unlike the metropolitan areas of Oklahoma City and Tulsa in both size and in
population. Like WRI, ONEOK also has experience in serving many rural
communities. ONEOK provides retail service to 294 communities in Oklahoma, and
has experience in providing intrastate wholesale services to 44 other smaller
gas distributors along its system. Like WRI, the utility customer base of
ONEOK's Oklahoma operations are mainly residential and commercial heat sensitive
customers. The load factors of the two utilities are very similar, and ONEOK has
been able to successfully manage gas supply and storage to meet the peak day
needs of its residential and commercial customers. Schedule 13 compares the load
factors and peak day needs of WRI and ONEOK. ONEOK has also been able to
minimize the negative impact of bypass by large industrial customers by creating
programs to maintain the benefits to the utility and its customers provided by
having large industrial customers.
38. The fact that ONEOK's emphasis is in the natural gas business also
makes it best suited to operate the "Gas Business" of WRI. WRI's customers will
gain added benefits from having a company whose expertise and main focus is in
the natural gas business. With the current changes in the natural gas business,
it is important for the operator of the "Gas Business" of WRI to have a
management team which concentrates all of its efforts on the natural gas
industry. ONEOK provides that type of management expertise.
39. One of the factors that the KCC weighs and considers in determining
whether the proposed transaction promotes the public interest is the effect of
the proposed transaction on the existing competition. The proposed transaction
between ONEOK and WRI is expected to have a positive effect on the existing
competition. Kansas communities, which now receive both their electric and
natural gas service from WRI, will be receiving their gas service from ONEOK and
their electric service from WRI after the merger. ONEOK's management will
actively compete to increase natural gas's share of the energy market. ONEOK
expects to participate and be competitive in any solicitation for bids for
natural gas in Kansas. As indicated in Mr. Kyle's testimony, ONEOK is actively
competing to increase natural gas's share of the Oklahoma energy market.
40. Both companies and their shareholders should be financially stronger as
a result of the proposed transaction. Schedule 14 which is attached to the
application provides balance sheets for ONEOK and WRI's "Gas Business", and a
proforma balance sheet of the combined company. Schedule 15 which is attached to
the application provides twelve month ended income statements for ONEOK and
WRI's "Gas Business", and a proforma income statement for the combined company.
Schedule 16 which is attached to the application provides statements of
capitalization for ONEOK and WRI's "Gas Business", and a proforma consolidated
statement of capitalization for the combined company. The S-4 filing made with
the Securities and Exchange Commission (SEC) will be filed as a late filed
schedule to this application as Schedule 17, and shall be incorporated herein by
reference.
41. In addition to considering the strong financial position of the
combined company as depicted on the above mentioned schedules, under the
alliance between WRI and ONEOK, WRI and its shareholders have obtained an
experienced and qualified company to operate its "Gas Business". As indicated in
the prefiled testimony of Mr. James A. Martin, Vice President, Finance for WRI,
which is attached to this Application and included herein by reference, WRI's
gas utility business is currently earning below its authorized rate of return.
As indicated by Mr. Martin, WRI believes that the proposed alliance will allow
it to better maximize the return on its investment in the "Gas Business".
Moreover, as indicated by Mr. Martin and Mr. Kyle, the proposed alliance between
WRI and ONEOK will reduce WRI's current need to file for a general increase in
its rates for natural gas service. Under the alliance with WRI, ONEOK also
benefits by obtaining additional markets to serve. The alliance allows ONEOK to
capitalize on its experience and expertise in operating natural gas utilities.
42. The determination as to the amount of common stock and preferred stock
WRI is to receive in the combined company was accomplished through extensive
negotiations and was based upon comparing the value of the total plant of the
combined company with the percentage of the value of the total plant contributed
by WRI and by comparing projected earnings before interest, taxes, and
depreciation (EBITDA). WRI will own 45 percent of the combined company because
it contributed approximately 45 percent of the value of the combined company.
ONEOK's shareholders will own 55 percent of the combined company because they
contributed approximately 55 percent of the total value of the combined company.
Based upon said arrangement, there will be an equitable sharing of risk and
return between WRI and ONEOK's shareholders.
43. ONEOK will record a merger premium for accounting purposes in this
transaction. Schedule 18 shows the calculation of the estimated premium and
merger related expenses and amortization of those costs using a 40 year
amortization period. Because the premium paid by ONEOK and the transaction costs
incurred to consummate the merger may be costs that result in benefits to both
ratepayers and shareholders, ONEOK requests that the regulatory treatment of the
merger costs and premium be deferred. ONEOK requests that the KCC allow for an
amortization of the premium and merger related expenses over the remaining life
of the properties or over 40 years as the KCC deems appropriate.
44. ONEOK will seek recovery in the future of any merger related expenses
or premium only to the extent it can demonstrate and quantify either savings in
the cost of service or revenue enhancement resulting from ONEOK's operations
after the merger. After this joint application is approved by the KCC, ONEOK and
the Staff of the KCC can establish a merger savings index for KCC approval that
would include as a base the pre-merger costs of the Kansas gas operations
adjusted for inflation, customer growth and productivity. This index could then
be compared to the actual costs of the post-merger company as an indication of
merger savings. The KCC approved a similar merger savings index to determine
merger savings in the KPL/KG&E merger case.
45. ONEOK and WRI structured the proposed transaction to avoid any adverse
consequences to customers or the employees of the utility. The tax free nature
of the transaction preserves deferred tax balances for the benefit of the
customers. The merger agreement assures employees, and the customers that they
serve, that there will be no disruptive workforce reductions. Under the
Agreement between ONEOK and WRI, those WRI employees whose expertise and work
experience has been in the natural gas business, will be offered employment with
ONEOK. In addition to retaining experienced employees, ONEOK plans to maintain a
Kansas management team who will concentrate on and be responsible for operating
the Kansas gas properties as a division of ONEOK.
46. There are operational synergies which ONEOK and WRI will pursue which
may prove to be beneficial to customers. ONEOK and WRI plan to analyze and enter
into joint operation agreements covering such things as meter reading and
billing service. The purpose for entering into the joint operation agreements
would be to retain the synergies possible from serving a larger number of
customers through common resources. ONEOK and WRI intend to maintain such
synergies while exploring ways to promote the advantage customers will derive
from having competition in the energy market. In the final analysis, ONEOK plans
to provide gas service in the most efficient and cost effective manner possible.
This will be the controlling factor in any joint operation agreement which will
be entered into between WRI and ONEOK.
47. ONEOK and WRI have established a transition team of employees from both
companies. The primary purpose of this team is to provide for a smooth
transition of operations. ONEOK plans to adopt the best practices of each
company so it will be able to offer a more efficient and cost effective service
to customers in both Oklahoma and Kansas. The work of the transition team is
being documented and will be provided to the KCC. A summary of the transition
team's work will be filed as a late filed exhibit and shall be incorporated
herein by reference.
48. The proposed transaction should be beneficial on an overall basis to
state and local economies and to communities in the area served by the resulting
public utility operations in the state. Among the most noticeable benefits, will
be the fact that communities will receive the benefits of having a new corporate
citizen in their community. ONEOK, like WRI, believes very strongly in
supporting the communities in which it provides natural gas service and is
actively involved in the chambers of commerce and other organizations in the
communities in which it serves and is a significant contributor to non-profit
organizations such as the United Way, higher education, hospitals and charitable
causes. ONEOK actively encourages its employees to become involved in community
volunteer work. A significant number of employees have participated in these
activities. ONEOK, like WRI, has worked with state and local officials to
attract new business to Oklahoma and to assist existing businesses to expand
their plants and facilities located in the local communities. ONEOK plans to
continue such efforts to assist the local communities which it will serve in
Kansas.
49. Where WRI provides both gas and electric services, those communities
will receive the benefit of having two major public utilities as strong
corporate citizens. Schedule 19 lists those cities and communities in Kansas and
their population which currently receive both electric and gas service from WRI
and who, subsequent to the transaction, will receive electric service from WRI
and gas service from ONEOK.
50. The proposed transaction will also preserve the jurisdiction of the KCC
and the capacity of the KCC to effectively regulate and audit the public utility
operations in the state. ONEOK's natural gas system is currently regulated by
the Oklahoma Corporation Commission. ONEOK is very familiar with the regulatory
requirements and responsibilities which are placed upon a natural gas public
utility.
51. As proven by its track record in operating its natural gas public
utility operations in Oklahoma, ONEOK is dedicated to providing safe and
reliable service to its utility customers. ONEOK has not been penalized by the
OCC for any pipeline safety violations. ONEOK is familiar with the pipeline
safety programs which have been implemented by WRI, and will commit to complying
with and fulfilling all pipeline safety rules, regulations and orders concerning
the operation of WRI's "Gas Business".
52. In support of their application, ONEOK and WRI have prepared the
prefiled testimony of Mr. David L. Kyle, Mr. Eugene N. Dubay, Dr. Donald A.
Murry and Mr. James A. Martin. Their prefiled testimony describes the
transaction and alliance between ONEOK and WRI. It also explains how the
transaction and alliance will promote the public interest based upon the factors
adopted by the KCC in the KPL/KG&E merger case, Docket No. 174,155-U (1991),
which are applicable to the present transaction.
53. Mr. Kyle is a corporate officer of ONEOK and President and Chief
Operating Officer of Oklahoma Natural Gas Company. He provides a general
background of ONEOK. He describes how ONEOK is qualified to operate WRI's gas
properties. He uses the list of relevant factors set forth by the KCC in its
1991 KPL/KG&E merger order to show how the transaction and alliance between
ONEOK and WRI will promote the public interest.
54. Mr. Dubay is Vice President Corporate Development for ONEOK. He
presents testimony describing the transaction between ONEOK and WRI. Mr. Dubay
presents testimony relating to ONEOK's request to modify two provisions in WRI's
tariffs in conjunction with this application and ONEOK's proposal to partially
offset SFAS 106 and SFAS 112 costs on an interim basis. Mr. Dubay directs
ONEOK's activities of the transition team which ONEOK and WRI have created to
provide for a smooth transition of operations and to adopt the best practices of
each company so the gas utility can provide a more efficient and cost effective
service to customers in Oklahoma and Kansas. He will testify as to the status of
the transition team's work. He will also plan to supplement his testimony to
provide an update on the transition team's work and to sponsor a late filed
exhibit which will provide a summary of the work conducted by the transition
team.
55. Dr. Donald A. Murry is an Economist with C. H. Guernsey & Company and a
Professor of Economics at the University of Oklahoma. Dr. Murry has previously
testified before the KCC. Dr. Murry will present late-filed testimony and
exhibits which analyze the potential effects of the merger from an empirical
standpoint.
56. Mr. James A. Martin is employed by WRI as Vice President, Finance. Mr.
Martin describes the alliance with ONEOK, the structure of the proposed
transaction, the assets contributed to the transaction, the accounting and tax
treatment of the transaction, the impact of the transaction on WRI's dividends,
and the impact of the transaction on customers.
WHEREFORE, pursuant to K.S.A. 66-101, 66-104, 66-125, 66-127, 66-136 and
66-1,200, et. seq., WRI, ONEOK and WAI respectfully request that the KCC issue
an appropriate Certificate and Order:
A. Authorizing, consenting to and approving the transactions
contemplated by WRI, ONEOK, and WAI as described herein, including (1)
WRI's contribution of assets, certificates and debt to WAI; (2) the
issuance of the capital stock of WAI by WRI; (3) the merger of ONEOK and
WAI; and (4) the issuance by WAI of its capital stock to shareholders of
ONEOK and assumption by WAI of ONEOK's debt;
B. Authorizing WRI, effective upon consummation of the merger, to
discontinue all gas service now furnished by it;
C. Consenting to and approving the assignment and contribute to WAI
(ONEOK, Inc.) upon consummation of the merger, of all certificates of
public convenience and authority issued to WRI, in regards to its "Gas
Business" as that term is defined herein;
D. Authorizing WAI (ONEOK, Inc.) to succeed to all of WRI's rights,
title and interests in its natural gas utility plant and facilities as more
fully described herein, and to all franchises, certificates, consents and
permits relating to the operation of such plant and facilities;
E. Authorizing WAI (ONEOK, Inc.) to file as its initial rates, rules,
regulations and conditions of service for gas service in the areas now
served by the "Gas Business" of WRI, the rates, rules regulations and
conditions of service of WRI, applicable thereto and presently in effect,
as well as those proposed modifications requested by this application, and
which may be changed from time to time with approval of the KCC, also
authorizing the transfer and assignment from WRI to WAI (ONEOK, Inc.) all
of WRI's purchased gas adjustment (PGA) tariffs and adjustments, including
but not limited to, the Actual Cost Adjustment (ACA), Take-or-Pay Cost
Factor (TOP), Transition Cost Recovery Factor (TCR) and remaining
unrecovered/over recovered balances, if any, relating to those PGA tariffs
and adjustments;
F. Authorizing the modification of WRI's tariffs, as adopted by WAI
(ONEOK, Inc.) upon consummation of the merger, to reflect the changes to
the utility's line extension policy and miscellaneous service charges, as
set forth in this application;
G. Authorizing, reaffirming, consenting to and approving the transfer
and assignment to WAI (ONEOK, Inc.) from WRI of the accounting orders
issued by this Commission to WRI, in KCC Docket No. 190,352-U (May 3, 1994)
relating to SFAS 112 costs, and in KCC Docket 184,735-U (June 28, 1993)
relating to SFAS 106 costs, insofar as they apply to the "Gas Business",
and allowing the recovery in rates of those SFAS 112 and SFAS 106; and
H. Granting such other relief deemed by the KCC just and proper to
accomplish the purpose of this application and to consummate the
transaction described herein. DATED this ___ day of____________, 1997.
--------------------------------------
James G. Flaherty, #11177
ANDERSON, BYRD, RICHESON & FLAHERTY
216 S. Hickory, P. O. Box 17
Ottawa, Kansas 66067
(913) 242-1234
John L. Arrington, Jr., General
Counsel
ONEOK Inc.
100 W. 5th Street, P. O. Box 871
Tulsa, Oklahoma 74102-0871
(918) 588-8141
Attorneys for ONEOK Inc.
--------------------------------------
James G. Flaherty, #11177
ANDERSON, BYRD, RICHESON & FLAHERTY
216 S. Hickory, P. O. Box 17
Ottawa, Kansas 66067
(913) 242-1234
John L. Arrington, Jr.
General Counsel
ONEOK Inc.
100 W. 5th Street, P. O. Box 871
Tulsa, Oklahoma 74102-0871
(918) 588-8141
Attorneys for WAI
--------------------------------------
J. Michael Peters
Associate General Counsel
Western Resources, Inc.
818 Kansas Avenue, P. O. Box 889
Topeka, Kansas 66601
Attorneys for Western Resources, Inc.
Verification
STATE OF OKLAHOMA )
)ss:
COUNTY OF TULSA )
David L. Kyle, of lawful age, being first duly sworn on oath, states:
That he is a Corporate Officer of ONEOK Inc., and President and Chief
Operating Officer of Oklahoma Natural Gas Company, named in the foregoing Joint
Application, and is duly authorized to make this affidavit; that he has read the
foregoing Joint Application, and knows the contents thereof; and that the facts
set forth therein are true and correct to the best of his knowledge, information
and belief.
-------------------------------------
David L. Kyle
SUBSCRIBED AND SWORN to before me this _____ day of ____________, 1997.
-------------------------------------
Notary Public
My Commission Expires:
Verification
STATE OF KANSAS )
)ss:
COUNTY OF SHAWNEE )
Kenneth T. Wymore, of lawful age, being first duly sworn on oath, states:
That he is the President, Gas Service for Western Resources, Inc. named in
the foregoing Joint Application, and is duly authorized to make this affidavit;
that he has read the foregoing Joint Application, and knows the contents
thereof; and that the facts set forth therein are true and correct to the best
of his knowledge, information and belief.
----------------------------------
Kenneth T. Wymore
SUBSCRIBED AND SWORN to before me this _____ day of ____________, 1997.
----------------------------------
Notary Public
My Commission Expires:
===============================================================================
BEFORE THE STATE CORPORATION COMMISSION
OF THE STATE OF KANSAS
In the Matter of the Joint )
Application of Western Resources, )
Inc., ONEOK Inc., and WAI, Inc. for )
Approval of the Transfer from )
Western Resources, Inc. to WAI, Inc. )
of all of the Natural Gas ) Docket No. 97-WSRG-486-MER
Transportation and Distribution )
Assets, Subsidiaries and )
Certificates of Western Resources, )
Inc.; for the Merger of WAI, Inc., )
with ONEOK Inc.; for the acquisition )
by Western Resources, Inc. of Shares )
of Capital Stock of WAI, Inc.; for )
Authority for WAI, Inc. to Issue )
Stock and Instruments of Debt; and )
for Related Relief )
MOTION TO AMEND JOINT APPLICATION
COME NOW Western Resources, Inc. (WRI), ONEOK Inc. (ONEOK), and WAI, INC.
(WAI) and request permission from the Kansas Corporation Commission (KCC) to
amend their Joint Application filed in above captioned matter on February 24,
1997. In support of their motion WRI, ONEOK and WAI state as follows:
1. On February 24, 1997, WRI, ONEOK and WAI filed a Joint Application
seeking KCC approval of their merger and related relief. As part of their Joint
Application WRI, ONEOK and WAI included nineteen schedules and the prefiled
testimony and exhibits of D.L. Kyle, E.N. Dubay and J.A. Martin. The Joint
Application indicated that the testimony and exhibits of Dr. D.A. Murry would be
filed at a later date, as well as certain financial information which had not
been completed at the time the Joint Application was filed.
2. On March 3, 1997, the KCC Staff requested that the Joint Applicants
address several additional issues in their direct prefiled testimony.
3. The Joint Applicants request permission to amend their Joint Application
to include the following schedules, testimony and exhibits which were identified
in the original Joint Application as late-filed exhibits1:
a. Schedule 14, ONEOK/WAI Merger Balance Sheet;
b. Schedule 15, ONEOK/WAI Merger Income Statement;
c. Schedule 16, ONEOK/WAI Merger Statement of Capitalization;
d. Revised Schedule 18, Estimated Acquisition Premium and Transaction
Costs; and
e. Prefiled Testimony and Exhibits of Dr. Donald A. Murry.
4. The Joint Applicants also request permission to amend their Joint
Application to include the supplemental testimony of E.N. Dubay. Mr. Dubay's
supplemental testimony addresses the issues set forth in the KCC Staff's letter
of March 3, 1997.2
5. To the extent that this Joint Application is subject to the provisions
of K.S.A. 66-117, the Joint Applicants submit and agree that their Motion to
Amend their Joint Application shall be "deemed a new application and the 240-day
period shall begin again from the date of the filing of this amendment."
- --------
1The S-4 has been filed by ONEOK at the SEC as a preliminary proxy
statement and has been filed as confidential, for use of the SEC only as
permitted by Rule 14a-6(e)(2). The Joint Applicants will file the public
definitive proxy statement once the definitive proxy statement has been filed
and approved with the SEC.
2One of the issues raised by the KCC Staff in its March 3, 1997, letter
requested a detailed discussion about the impact this merger will have on WRI's
electric customers. WRI has retained the services of an independent consultant
to address this issue. The consultant's report will be provided to the KCC Staff
when it is completed.
WHEREFORE, for the reasons set forth herein, the Joint Applicants
respectfully request that their Motion to Amend their Joint Application be
granted.
Respectfully submitted,
James G. Flaherty, #11177
ANDERSON, BYRD, RICHESON & FLAHERTY
216 S. Hickory, P. O. Box 17
Ottawa, Kansas 66067
(913) 242-1234
Attorneys for ONEOK and WAI
J. Michael Peters
WESTERN RESOURCES, INC.
818 Kansas Avenue, P. O. Box 889
Topeka, Kansas 66601
(913) 575-8214
Attorneys for WRI
CERTIFICATE OF SERVICE
I hereby certify that a copy of the above and foregoing was mailed, postage
prepaid, this ______ day of March, 1997, addressed to:
Mr. J. Michael Peters Blake & Uhlig, P.A.
Western Resources, Inc. 475 New Brotherhood Bldg.
818 Kansas Avenue 753 State Avenue
P. O. Box 889 Kansas City, Kansas 66101
Topeka, Kansas 66601 Attorneys for United
Attorney for Western Resources, Association of Journeyman and
Inc. Apprentices of the Plumbing and
Pipe Fitting Industry of the
Mr. Larry Cowger United States and Canada
Assistant General Counsel
Kansas Corporation Commission
1500 S. W. Arrowhead Road
Topeka, Kansas 66604
Attorney for Staff
Mr. Walker A. Hendrix
Consumer Counsel
Citizens Utility Ratepayers
Board
1500 S. W. Arrowhead Road
Topeka, Kansas 66604
Attorney for CURB
Mr. James R. Waers /
Mr. Charles R. Schwartz
Mr. James R. Waers /
Mr. Charles R. Schwartz
Blake & Uhlig, P.A.
475 New Brotherhood Bldg.
753 State Avenue
Kansas City, Kansas 66101
Attorneys for United
Steelworkers of America,
AFL-CIO
Mr. James R. Waers /
Mr. Charles R. Schwartz
Blake & Uhlig, P.A.
475 New Brotherhood Bldg.
753 State Avenue
Kansas City, Kansas 66101
Attorneys for Local Union 304
of the International
Brotherhood of Electrical
Workers, AFL-CIO
Mr. Richard W. Stavely
257 N. Broadway, Suite 200
Wichita, Kansas 67202
Attorney for Mountain Iron &
Supply Company
------------------------------------------
James G. Flaherty
BEFORE THE OKLAHOMA CORPORATION COMMISSION
OF THE STATE OF OKLAHOMA
IN THE MATTER OF THE JOINT )
APPLICATION OF ONEOK INC., WESTERN )
RESOURCES, INC., AND WAI, Inc. )
FOR APPROVAL OF AN AGREEMENT ) CAUSE NO.
PROVIDING FOR THE MERGER OF )
ONEOK Inc. WITH WAI, Inc. )
JOINT APPLICATION
COME NOW, ONEOK Inc. ("ONEOK"), Western Resources, Inc. ("WRI"), and WAI,
Inc. ("WAI") a wholly owned subsidiary of WRI, collectively referred to as
"Applicants", and pursuant to the provisions of 17 O.S. 1991, ss.191.1 et. seq.,
make this joint application to the Oklahoma Corporation Commission ("OCC") for
an order authorizing WRI to transfer all of its natural gas distribution and
related properties in the state of Oklahoma to WAI; authorizing ONEOK to merge
with WAI in accordance with that certain Agreement between ONEOK and WRI (the
"Agreement") which is attached hereto; and for all other related relief that may
be required to fulfil the intents and purposes of the parties to the
transactions described below; and in support thereof state as follows:
THE APPLICANTS
1. (a) ONEOK, incorporated in the State of Delaware on November 10, 1933,
is a company operating principally in the natural gas utility business through
its regulated division, Oklahoma Natural Gas Company ("ONG") and its regulated
subsidiaries. ONEOK currently has one affiliated company:
ONEOK Foundation, Inc.
The utility business founded in 1906, includes a natural gas distribution and
integrated intrastate transmission business. ONG provides natural gas service to
about 730,000 residential, commercial and industrial customers in Oklahoma.
Transmission and gathering operations include 3,840 miles of pipeline and five
underground storage facilities. ONG and the regulated subsidiaries are regulated
by the OCC pursuant to 17 O.S. 1991, ss.ss.151-55, but are not regulated by the
Federal Energy Regulatory Commission ("FERC") under the Natural Gas Act, except
as to Section 311 transportation and sales. 15 U.S.C. ss. 717. ONG Transmission
Company, ONG Sayre Storage Company and ONG Gas Gathering Company, are regulated
subsidiary companies which are engaged in the gathering, storage, and
transportation of gas.
(b) The full name and address of Applicant ONEOK is as follows:
ONEOK Inc.
100 West 5th Street
Post Office Box 871
Tulsa, OK 74102-0871
(918) 588-7925
Attn: Barry Epperson, Vice President - Accounting
John L. Arrington, Jr., General Counsel
(c) The names, addresses and telephone numbers of the attorneys for ONEOK
are:
John A. Gaberino, Jr., Esq.
Arrington Kihle Gaberino & Dunn
100 West 5th Street, Suite 1000
Tulsa, OK 74103-4219
(918) 585-8141
(d) A certified copy of the Third Restated Certificate of Incorporation of
ONEOK is attached hereto as Exhibit A-1.
(e) Copies of ONEOK's 1996 Annual Report to Shareholders and ONEOK's 1994,
1995 and 1996 Form 10-K's, Annual Report to the SEC, are attached hereto as
Exhibits B-1, B-2, B-3 and B-4, respectively. Attached as Exhibit B-5 is ONEOK's
Form 10-Q, Quarterly Report to the SEC, for the quarter ending November 30,
1996.
2. (a) WRI presently owns and operates a natural gas distribution system
serving about 624,000 customers encompassing two-thirds of Kansas and 36,000
customers in the northeastern corner of Oklahoma and a natural gas transmission
and gathering system with 976 miles of pipeline in Kansas. That portion of its
gas distribution operations located in Oklahoma is regulated by the OCC pursuant
to 17 0.S. 1991, ss.ss. 151-55; that portion of its gas distribution,
transmission and gathering operations located in Kansas is regulated by the
Kansas Corporation Commission pursuant to K.S.A. 66-101, 66-104, 66-125, 66-127,
66-136 and 66- 1,200, et. seq.; WRI's principal place of business and
headquarters is located in Topeka, Kansas.
(b) The full name and address of Applicant WRI is as
follows:
Western Resources, Inc.
P.O. Box 889
818 Kansas Avenue
Topeka, Kansas 66612
(913) 575-1915, 575-8214
Attn: James Ludwig, Executive Director,
Regulatory Affairs
J. Michael Peters, Associate General
Counsel, Regulation
(c) The names, addresses and telephone numbers of WRI's attorneys are:
Ronald Comingdeer, Esq.
Comingdeer & Lee
6011 N. Robinson
Oklahoma City, OK 73116-7425
(405) 848-5534
(d) WRI's 1995 Annual Report to Shareholders and WRI's 1995 Form 10-K,
Annual Report to the SEC, are attached hereto as Exhibits C-1 and C-2,
respectively. Also attached are Exhibits C-3, C-4 and C-5, WRI's Form 10-Q's to
the SEC for the quarters ending March 31, 1996, June 30, 1996 and September 30,
1996.
3. (a) WAI will be formed as an Oklahoma corporation which will be a
wholly-owned subsidiary of WRI. It is the corporate entity into which WRI will
contribute all of its Gas Business (as that term is defined in the Agreement)
and into which ONEOK will be merged in accordance with the Agreement. (b) A
certified copy of the Certificate of Incorporation of WAI, Inc. will be filed as
a late filed exhibit and marked as Exhibit D. (c) The full name and address of
Applicant WAI is as follows: WAI, Inc. P. O. Box 889 818 Kansas Avenue Topeka,
KS 66612 (913) 575-1915
(d) The names, addresses and telephone numbers of WAI's attorneys are:
John A. Gaberino, Jr., Esq.
Arrington Kihle Gaberino & Dunn
100 West Fifth Street, Suite 1000
Tulsa, OK 74103
(918) 585-8141
ALLEGATION OF FACTS
4. WAI will file a Form S-4 registration statement (which is the combined
proxy statement of ONEOK and prospectus of WAI) under the Securities Exchange
Act of 1933, with the United States Securities and Exchange Commission. The
Agreement will be attached as an Exhibit to the Form S-4 and the Form S-4 will
be filed as a late filed exhibit and marked as Exhibit E.
5. Subject to the terms and conditions of the Agreement, WRI will
incorporate WAI as an Oklahoma corporation and immediately prior to the Merger,
will contribute its regulated gas business in Kansas and Oklahoma, including its
stock in Mid Continent Market Center, Inc., and its stock in Westar Gas
Marketing, Inc., a wholly owned unregulated gas marketing subsidiary (the "Gas
Business"), to WAI in exchange for 2,996,702 shares of voting Common Stock of
WAI, 19,317,584 shares of cumulative convertible Preferred Stock, Series A ("WAI
Cumulative Convertible Preferred Stock") of WAI, and the assumption by WAI of
approximately Thirty-five Million ($35,000,000) of WRI's unsecured debt. ONEOK
will then merge into WAI which will result in the conversion of all of the
outstanding common shares of ONEOK into common shares of WAI on a one-for-one
basis such that ONEOK shareholders will own not less than 55% of the WAI
outstanding equity. Immediately following the merger, WRI will own up to 9.9% of
the outstanding Common Stock of WAI. Together with the Preferred Stock, WRI will
own up to 45% of the WAI outstanding equity. WAI will assume all the debt of
ONEOK as part of the merger. WAI will change its name to ONEOK, Inc. after the
merger. ONEOK, WRI and WAI seek an order authorizing, among other things, the
transfer of all of WRI's natural gas distribution and related properties in the
state of Oklahoma to WAI and the merger of WAI and ONEOK and the resultant
acquisition by WRI of shares of the capital stock of WAI.
6. Upon the consummation of the Merger: (i) ONEOK Shareholders will hold
not less than 27,304,870 shares of WAI Common Stock representing not less than
90.1% of the voting power of WAI, (ii) WRI will hold 2,996,702 shares of WAI
Common Stock representing up to 9.9% of the voting power of WAI, and (iii) WRI
will hold 19,317,584 shares of WAI Convertible Preferred Stock. Upon the
occurrence of a regulatory change, which change relates to the Public Utility
Holding Company Act of 1935 ("PUHCA") ("Regulatory Change"), as defined in the
Shareholder Agreement ("Shareholder Agreement") to be entered into between WRI
and WAI, each share of WAI Convertible Preferred Stock may be converted into one
share of WAI Common Stock. The Shareholder Agreement will impose certain
standstill, transfer and voting restrictions on WRI in respect to its stock
ownership in WAI. Prior to the occurrence of the Regulatory Change, WRI will
have the right to designate two members of the ONEOK Board of Directors (one of
whom may be an employee of WRI). Following the occurrence of the Regulatory
Change, WRI will have the right to designate 4 out of 18 of the Board members,
increasing to 1/3 of the Board as Board Members leave as a result of
resignation, death, etc. (or if the ONEOK Board is larger than 14 independent
(non-WRI Directors) at the time, 1/3 of the WAI Board Members). WRI agrees to
vote its Common Stock for directors in accordance with the recommendation of the
Nominating Committee of the WAI Board, prior to the Regulatory Change. In all
other matters, WRI may vote its own interest. The WAI Convertible Preferred
Stock, Series A, does not have a vote on the selection of directors or other
ordinary shareholder matters and votes with the common stockholders on a Change
of Control, as defined in the Shareholder Agreement. Following the Regulatory
Change, WRI may vote not more than 9.9% of WAI Common Stock in its own interest
and except for the election of directors (see above) will vote its other WAI
Common Stock in all matters in the same proportion as voted by the other common
shareholders of WAI, except it will be free to vote all of its shares in its own
interest in respect to any Change of Control. The Shareholder Agreement has a
basic term of fifteen (15) years. One of the fundamental principles of the
transaction is that WRI will be an investor in ONEOK, but will not exercise
day-to-day influence over management functions. There will be no Change of
Control, nor any joint management arrangement concerning controlling gas
operations in connection with the proposed transaction.
7. ONEOK management will become the management of WAI. Applicants state
that their managers are competent and qualified persons in the utility industry
and they intend for ONG to continue to provide gas distribution service in
Oklahoma in accordance with the rules and regulations of the OCC and in an
effective and efficient manner. WRI will allocate to WAI those employees
directly employed in the Gas Businesses, plus a proportional number of
administrative personnel. Those employees will be protected by an Employee
Agreement, a copy of which is attached as Exhibit F. In addition, WAI will
assume responsibility for a proportional number of retirees, and will receive
from WRI a pro-rata share of pension plan assets to fund projected pension
benefit liabilities for those employees and retirees.
8. In addition to the authorization required by the OCC, this
transaction will require limited approval of the Federal Energy Regulatory
Commission ("FERC") to secure transfer of 7(c) certification, the State
Corporation Commission of the State of Kansas ("KCC"), and will be subject to
the waiting period provided under the Hart Scott Rodino Antitrust Improvements
Act ("HSR"). Action will also be required of the Securities & Exchange
Commission ("SEC") or its staff under the Public Utility Holding Company Act.
9. The proposed merger does not seek any changes in the rates currently
charged by ONG and WRI to its Oklahoma customers, or in any of its policies with
respect to service, employees, operations, financing, accounting,
capitalization, depreciation, or other matters affecting the public interest or
utility operations. ONG and WAI will continue to maintain their books in
accordance with all requirements of the OCC.
10. WAI, with existing ONEOK management, will be fully qualified to own and
operate the transferred Gas Business assets of WRI and the existing assets of
ONEOK. ONEOK's management and employees are committed to the success of WAI and
to customer satisfaction. The parties are committed to achieving the combination
of the gas business of WRI and ONEOK in a manner that is transparent to the
customers of both companies and to the benefit of all customers, and the public
generally.
11. The Oklahoma gas business assets of WRI are not parallel to, nor do
they constitute a competing line or system with, the gas utility transmission
and distribution systems of ONG, and neither WRI nor ONEOK is engaged in a pubic
service business competitive with the other party; therefore, this merger will
not adversely affect competition.
12. ONEOK will record a merger premium for accounting purposes of
approximately ten percent (10%) in this transaction. Schedule 1 shows the
calculation of the estimated premium and merger related expenses and
amortization of those costs using a 40 year amortization period. Because the
premium paid by ONEOK and the transaction costs incurred to consummate the
merger may be costs that result in benefits to both ratepayers and shareholders,
ONEOK requests that the regulatory treatment of the merger costs and premium be
deferred to future rate cases. ONEOK also requests that the OCC allow for an
amortization of the premium and merger related expenses over the remaining life
of the properties or over 40 years, as the OCC deems appropriate.
13. ONEOK will seek recovery in the future of any merger related expenses
or premium only to the extent it can demonstrate and quantify either savings in
the cost of service or revenue enhancement resulting from ONEOK's operations
after the merger. After this joint application is approved by the OCC, ONEOK and
the Staff of the OCC can establish a merger savings index for OCC approval that
would include as a base the pre-merger costs of the Oklahoma gas operations
adjusted for inflation, customer growth and productivity. This index could then
be compared to the actual costs of the post-merger company as an indication of
merger savings.
14. ONEOK and WRI structured the proposed transaction to avoid any adverse
consequences to ratepayers or the employees of the utility. The tax free nature
of the transaction preserves deferred tax balances for the benefit of the
ratepayers. The merger agreement assures employees, and the customers they
serve, that there will be no disruptive workforce reductions. Under the
Agreement between ONEOK and WRI, those WRI employees whose expertise and work
experience has been in the natural gas business, will be offered employment with
ONEOK.
15. WRI has not received authority from the OCC to collect from its
Oklahoma customers funding for post-retirement benefits in excess of pay as you
go amounts. SFAS 106 requires recognition of the liability for these costs in
the financial statements of the company. Accordingly, WRI has been recording the
accrual for these expenses in its financial statements in Oklahoma, but has not
received funding from customers through an increase in its rates, and has not
set up a trust for the purpose of funding this liability. In Kansas, WRI had
implemented a corporate owned life insurance (COLI) program for offsetting its
Other Post-retirement Employee Benefits (OPEB) costs, but changes in the tax
laws and a decline in interest rates have rendered that method of funding
ineffective. In any case, the COLI contracts were not applicable to its Oklahoma
operations and are not transferrable to ONEOK in the merger.
16. ONEOK plans to continue the accounting and non-funding approach in
use by WRI for its Oklahoma customers for the immediate future. However, ONEOK
plans to propose to the OCC a funding mechanism for the WRI Oklahoma operations
in the future that would be similar to that currently approved for ONG utility
operations. This may be addressed as a singular issue in a separate cause or
made part of a subsequent rate case filing.
LEGAL AUTHORITY
17. In order to consummate the merger, ONEOK, ONG, and WRI are, or may be,
required to obtain consents, approvals and authorizations from the OCC pursuant
to 17 O.S. 1991, ss. 191.1 et. seq. and the OCC's rules and regulations
promulgated thereunder, specifically OAC 165-7-57.
18. Attached hereto as Exhibit G and made a part hereof is a "Statement" as
required by 17 O.S. 1991, ss. 191.2 and containing all of the applicable
information required by 17 O.S. 1991, ss. 191.3.
19. WAI states that, as supported in the Statement attached hereto as
Exhibit G, it is a proper and appropriate entity to own the Gas Business assets
of WRI, and all of the assets of ONEOK Inc., and that the transaction proposed
in the Merger Agreement will not adversely affect ONG's utility operations or
ONG's customers in Oklahoma and will not result in any of the potentially
adverse effects described in 17 O.S. 1991, ss.191.5.A.
20. Applicants further state that both ONEOK and WRI wish to consummate
the proposed transaction at the earliest possible time and that review by the
OCC is requested on an expedited basis to be concluded as soon as possible, but,
in any event, within the time frames provided for in 17 O.S. 1991, ss.191.5.B.
Certified copies of the resolutions of the Boards of Directors of ONEOK and WRI,
approving the merger, are attached hereto as Exhibit H and I, respectively.
21. ONG and WRI are required under 17 O.S. 1991, ss.191.6 to provide notice
of the hearing to their customers, in a form to be specified by the OCC, by mail
or in such other manner as may be determined by the OCC, within ten (10)
business days after Applicants have received notice of the hearing from the OCC.
Applicants hereby seek an order of the OCC which directs that, in lieu of notice
by mail, the required notice be published one time in a newspaper of general
circulation in each county in Oklahoma where ONG or WRI has a district office.
Attached as Exhibit J is a copy of a Notice of Hearing that Applicants would
propose, subject to OCC approval, to publish.
RELIEF SOUGHT
Wherefore, Applicants ONEOK, WRI, and WAI respectfully request that the OCC
review this Application and issue an order approving the transfer of assets and
merger as provided for in the aforementioned Agreement; that, in lieu of notice
by mail, notice of the hearing be published one time in a newspaper of general
circulation at least ten (10) days prior to the hearing date set by this
Commission in each county in Oklahoma where ONG and WRI have a district office;
and for all other proper relief.
Respectfully submitted,
-----------------------------------
John A. Gaberino, Jr. OBA #3188
Vivian C. Hale, OBA #14241
ARRINGTON KIHLE GABERINO & DUNN
100 West Fifth Street, Suite 1000
Tulsa, OK 74103-4219
(918) 585-8141
John L. Arrington, Jr., OBA #342
General Counsel
ONEOK Inc.
100 West 5th Street, P. O. Box 871
Tulsa, Oklahoma 74102-0871
(918) 588-7906
Attorneys for ONEOK Inc.
-----------------------------------
J. Michael Peters, Esq. KBA #7457
Associate General Counsel,
Regulation
Western Resources, Inc.
818 Kansas Avenue, P. O. Box 889
Topeka, Kansas 66601
(913) 575-8214
Ronald Comingdeer OBA #1835
COMINGDEER AND LEE
6011 N. Robinson
Oklahoma City, Oklahoma 73118-7425
(405) 848-5534
Attorneys for Western Resources,
Inc.
----------------------------------
John A. Gaberino, Jr. OBA #3188
Vivian C. Hale, OBA #14241
ARRINGTON KIHLE GABERINO & DUNN
100 West Fifth Street, Suite 1000
Tulsa, OK 74103-4219
(918) 585-8141
John L. Arrington, Jr., OBA #342
General Counsel
ONEOK Inc.
100 West 5th Street, P. O. Box 871
Tulsa, Oklahoma 74102-0871
(918) 588-7906
Attorneys for WAI, Inc.
Certificate of Service
I, Vivian C. Hale hereby certify that a true, correct and exact copy of
the foregoing Joint Application has been served by personal delivery or by
United States mail, first class, postage prepaid, on the following persons this
______ day of February, 1997.
Mr. Ernest Johnson, Director
Oklahoma Corporation Commission
P. O. Box 52000-2000
Oklahoma City, OK 73152-2000
Ms. Maribeth Snapp
Deputy General Counsel
Oklahoma Corporation Commission
P. O. Box 52000-2000
Oklahoma City, OK 73152-2000
Mr. Drew Edmonson
Attorney General of Oklahoma
2300 N. Lincoln Blvd., Suite 112
Oklahoma City, OK 73105-4894
-------------------------------
Vivian C. Hale
SCHEDULE OF EXHIBITS
Exhibit A-1 Certified copy of Third Restated Certificate of
Incorporation of ONEOK Inc.
Exhibit B-1 ONEOK's 1996 Annual Report to Shareholders
Exhibit B-2 ONEOK's 1994 Form 10-K, Annual Report to the SEC
Exhibit B-3 ONEOK's 1995 Form 10-K, Annual Report to the SEC
Exhibit B-4 ONEOK's 1996 Form 10-K, Annual Report to the SEC
Exhibit B-5 ONEOK's Form 10-Q, Quarterly Report to the SEC
for the period ending November 30, 1996.
Exhibit C-1 WRI's 1995 Annual Report to Shareholders
Exhibit C-2 WRI's 1995 Form 10-K, Annual Report to the SEC
Exhibit C-3 WRI's 1996 Form 10-Q, Quarterly Report to the SEC,
for the Quarter Ending March 31, 1996
Exhibit C-4 WRI's 1996 Form 10-Q, Quarterly Report to the SEC,
for the Quarter Ending June 30, 1996
Exhibit C-5 WRI's 1996 Form 10-Q, Quarterly Report to the SEC,
for the Quarter Ending September 30, 1996
Exhibit D Certified copy of the Certificate of Incorporation
of WAI, Inc.
Exhibit E WAI's Form S-4 Registration Statement
Exhibit F Employee Agreement
Exhibit G Statement of ONEOK Pursuant to A.C.A. 23-3-307
Exhibit H Certified copy of the ONEOK Board of Director's
Resolution Approving Agreement and Transactions,
including Merger
Exhibit I Certified copy of the WRI Board of Director's
Resolution Approving Agreement and Transactions,
including Merger
Exhibit J Notice to Customers of ONG
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
212-783-7000
December 12, 1996
Board of Directors
Western Resources, Inc.
818 Kansas Avenue
Topeka, KS 66612
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Western Resources, Inc. ("Western"), of the consideration to be
received by Western in connection with (a) the proposed transfer by Western of
its natural gas distribution and storage assets, its Mid-Continent Market Center
and selected other gas-related assets (the "Gas Businesses") to a newly formed
subsidiary ("Newco") of Western in consideration for approximately 3 million
shares of common stock of Newco ("Newco Common Stock"), approximately 19.3
million shares of convertible preferred stock of Newco ("Newco Preferred Stock")
and the assumption by Newco of $35 million of indebtedness of Western
(collectively, the "Asset Transfer") and (b) the merger of ONEOK Inc. ("Oneok")
with and into Newco and the conversion of each outstanding share of Oneok common
stock into one share of Newco Common Stock (the "Merger" and, together with the
Asset Transfer, the "Transactions"). The Transactions will be consummated
pursuant to an Agreement (the "Agreement") dated as of December 12, 1996,
between Western and Oneok. The Newco Preferred Stock will be convertible into
shares of Newco Common Stock in certain circumstances and will have the other
terms specified in the Agreement and the annexes thereto.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Gas Businesses and Oneok and certain other
financial information concerning the Gas Businesses and Oneok, including
financial forecasts, that was provided to us by Western and Oneok, respectively.
We have discussed the past and current business operations, financial condition
and prospects of the Gas Businesses and Oneok with certain officers and
employees of Western and Oneok, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market matters as we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of the information reviewed by us, and
we have not assumed any responsibility for independent verification of such
information.
With respect to the financial forecasts of the Gas Businesses and Oneok, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
Western and Oneok, and we express no opinion with respect to such forecasts or
the assumptions on which they are based. We have not made or obtained or assumed
any responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of the Gas Businesses and Oneok.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address Western's underlying
business decision to effect the Transactions and is directed only to the
fairness, from a financial point of view, to Western of the consideration to be
received by Western in connection with the Transactions, taken as a whole. We do
not express any view as to the likely trading range for the Newco Common Stock
or the Newco Preferred Stock following the consummation of the Transactions,
which will depend on, among other factors, market conditions and other matters
that generally affect the prices of securities.
We have acted as financial advisor to the Board of Directors of Western in
connection with the Transactions and will receive a fee for our services which
is contingent upon consummation of the Transactions. In the ordinary course of
business, we may actively trade the securities of Western and Oneok for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities. In addition, we have previously
rendered certain investment banking and financial advisory services to Western
for which we have received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by Western in connection with the
Transactions, taken as a whole, is fair to Western from a financial point of
view.
Very truly yours,
SALOMON BROTHERS INC
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filing under the Public Utility Holding Company Act of 1935
September 19, 1997
Western Resources, Inc. (70-____)
Western Resources, Inc., a Kansas corporation having its principal office
in Topeka, Kansas ("WRI") and an exempt public utility holding company under the
Act, has filed an application under sections 9(a)(2) and 10 of the Act.
The application seeks approval for the acquisition by WRI of 9.9% of the
outstanding voting securities of a newly-formed company, WAI, Inc., an Oklahoma
Corporation ("WAI"), that will become a public utility company as a result of
the transactions for which approval is requested in this application. WRI has
formed WAI initially as a wholly-owned subsidiary and will contribute all of the
assets (the "Assets") of the Company's local natural gas distribution business
(the "WRI LDC Business") and all of the outstanding capital stock of Mid
Continent Market Center, Inc. ("MCMC") and Westar Gas Marketing, Inc. (Westar
Gas Marketing, Inc. together with MCMC and the WRI LDC Business, the "Gas
Business") to WAI (the "Asset Transaction"). ONEOK, Inc., a Delaware corporation
("ONEOK"), which, among other things, operates as a gas utility company,
pursuant to an Agreement among WRI, ONEOK and WAI (the Agreement, as amended and
restated, the "Agreement"), will then merge with and into WAI (the "Merger", and
together with the Asset Transaction, the "Transactions"), with WRI owning up to
9.9% of the outstanding common stock of WAI and shares of non-voting convertible
preferred stock. In total, WRI will own no more than 45% of the capital stock of
WAI and the present shareholders of ONEOK will own at least 55% of the capital
stock of WAI after the Merger. Upon consummation of the Merger, WAI will be
renamed ONEOK, Inc. ("New ONEOK"). Pursuant to the Agreement, New ONEOK and WRI
will enter into the Shareholder Agreement on the closing date that will place
certain restrictions on WRI's actions as a shareholder during the 15-year term
of the Shareholder Agreement.
In connection with the Transactions, ONEOK and WRI are seeking a no-action
letter that represents the Commission Staff's concurrence that New ONEOK will
not be deemed to be a subsidiary of WRI within the meaning of Section 2(a)(8) of
the Act and WRI will not be deemed to be a holding company over New ONEOK under
Section 2(a)(7) of the Act.
WRI is a public utility holding company exempt from all provisions of the
Act except Section 9(a)(2) under Section 3(a)(1) pursuant to Rule 2. WRI is
itself a public utility company that provides electric service to approximately
329,000 customers in Kansas and natural gas service to approximately 648,000
customers in Kansas and northeastern Oklahoma. WRI currently has one utility
subsidiary, Kansas Gas and Electric Company that provides electric services to
approximately 277,000 customers. As of July 30, 1997, there were 65,220,373
shares of WRI Common Stock outstanding. For the year ended December 31, 1996,
WRI's operating revenues on a consolidated basis were approximately $2.05
billion, of which approximately $849 million was derived from natural gas
operations. Consolidated assets of the Company and its subsidiaries at December
31, 1996 were approximately $6.65 billion, of which approximately $4.36 billion
consisted of identifiable utility property, plant and equipment.
ONEOK, is a Delaware corporation having its principal office in Tulsa,
Oklahoma. It engages through its divisions and subsidiaries in several aspects
of the energy business, including local distribution of natural gas. ONEOK is a
gas utility company as defined in Section 2(a)(4) of the Act and is presently
neither an associate nor an affiliate of a public-utility holding company.
Oklahoma Natural Gas Company, a division of ONEOK, and two subsidiaries, ONG
Transmission Company and ONG Sayre Storage Company comprise a fully integrated
intrastate natural gas gathering, storage, transmission and distribution
operation that provides natural gas service to approximately 730,000 customers,
primarily in the state of Oklahoma. As of May 31, 1997, there were 27,997,925
shares of ONEOK Common Stock outstanding. For the year ended August 31, 1996,
ONEOK's operating revenues on a consolidated basis were approximately $1.22
billion, of which approximately $538 million was attributable to regulated
natural gas distribution activities and approximately $686 million to gas
marketing, processing, gas exploration and production and other operations.
Consolidated assets of ONEOK and its subsidiaries at May 31, 1997 were $1.40
billion, of which approximately $678 million consists of its gas distribution
property, plant and equipment.
Upon consummation of the Transactions, on a fully diluted basis, after
giving effect to the Transactions and based on the number of shares of ONEOK
Common Stock outstanding as of December 12, 1996, WRI will hold 2,996,702 shares
of New ONEOK Common Stock and 19,317,584 shares of Series A Convertible
Preferred Stock of New ONEOK, representing up to 9.9% of the New ONEOK Common
Stock outstanding before conversion of the Series A Convertible Preferred Stock
into New ONEOK Common Stock and up to 45.0% of the New ONEOK Common Stock
outstanding after such conversion. Holders of ONEOK Common Stock will hold
shares of New ONEOK Common Stock representing at least 90.1% of the New ONEOK
Common Stock outstanding and not less than 55.0% of the New ONEOK Common Stock
after conversion of the Series A Convertible Preferred Stock to be held by WRI
pursuant to the Agreement. In the event ONEOK issues additional shares of ONEOK
Common Stock between December 12, 1996 and the closing of the Transactions, WRI
has the right pursuant to the shareholder agreement to require WAI at the
closing to issue to it additional shares of New ONEOK Common Stock and/or Series
A Convertible Preferred Stock, at a price per share equal to the average market
price of the ONEOK Common Stock for the 20 trading days prior to the closing, so
as to restore WRI's percentage ownership at the closing to up to 9.9% of the
outstanding New ONEOK Common Stock and up to 45.0% of the outstanding New ONEOK
Common Stock on a fully diluted basis.
The Merger is designed to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. WRI will
account for its common stock holdings in New ONEOK by the equity method and for
its preferred stock holdings as an investment.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Exhibit FS-1
Western Resources, Inc.
Unaudited Pro Forma Combined Condensed Balance Sheet
At May 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Pro Forma
Western Resources, Inc. Western Resources, Inc.
Consolidated Pro Forma Adjustments Consolidated
<S> <C> <C> <C>
Assets
Utility Plant:
Electric plant in service $5,489,046 $5,489,046
Natural gas plant in service 907,085 ($907,085) 0
--------------------------------------------------------------------------
6,396,131 (907,085) 5,489,046
Less - Accumulated depreciation 2,121,870 (295,182) 1,826,688
--------------------------------------------------------------------------
4,274,261 (611,903) 3,662,358
Construction work in progress 92,325 0 92,325
Nuclear Fuel (net) 33,638 33,638
--------------------------------------------------------------------------
Net Utility Plant 4,400,224 (611,903) 3,788,321
Investments and Other Property:
Investment in ONEOK, Inc. 531,103 531,103
Investment in ADT (net) 602,692 602,692
Security business and other property 564,757 564,757
Decommissioning trust 34,638 34,638
--------------------------------------------------------------------------
1,202,087 531,103 1,733,190
Current Assets:
Cash and cash equivalents 2,888 (722) 2,166
Accounts receivable and unbilled revenues (net) 227,656 (97,455) 130,201
Fossil fuel, at average cost 41,533 41,533
Gas stored underground, at average cost 20,522 (20,522) 0
Materials and supplies, at average cost 60,897 (5,101) 55,796
Prepayments and other current assets 26,045 (10,436) 15,609
--------------------------------------------------------------------------
379,541 (134,296) 245,305
Deferred Charges and Other Assets:
Deferred future income taxes 217,257 (25,280) 191,977
Corporate-owned life insurance (net) 84,910 0 84,910
Regulatory assets 223,312 (24,641) 196,671
Other 46,514 (2) 46,512
--------------------------------------------------------------------------
571,993 (49,923) 522,070
--------------------------------------------------------------------------
Total Assets $6,553,845 ($264,959) $6,288,886
==========================================================================
Capitalization and Liabilities
Capitalization:
Common stock equity $1,605,853 $1,605,853
Cumulative preferred and preference stock 74,858 74,858
Western Resources obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely company subordinated
debentures 220,000 220,000
Long-term debt (net) 1,406,709 ($35,000) 1,371,709
--------------------------------------------------------------------------
3,307,420 (35,000) 3,272,420
Current Liabilities:
Short-term debt 1,189,150 (74,106) 1,115,044
Accounts payable 186,853 (7,478) 179,375
Accrued taxes 62,540 62,540
Accrued interest and dividends 75,724 75,724
Other 57,401 (14,716) 42,685
--------------------------------------------------------------------------
1,571,668 (96,300) 1,475,368
Deferred Credits and Other Liabilities:
Deferred Income taxes 1,102,592 (101,233) 1,001,359
Deferred Investment tax credits 122,729 (9,522) 113,207
Deferred Gain from sale-leaseback 228,679 228,679
Other 220,757 (22,904) 197,853
--------------------------------------------------------------------------
1,674,757 (133,659) 1,541,098
--------------------------------------------------------------------------
Total capitalization and liabilities $6,553,845 ($264,959) $6,288,886
==========================================================================
</TABLE>
Exhibit FS-2
Western Resources, Inc.
Unaudited Pro Forma Combined Condensed Statement of Income
Twelve Months Ended May 31, 1997
(Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Western Resources, Inc. Western Resources, Inc.
Consolidated Pro Forma Adjustments Consolidated
<S> <C> <C> <C>
OPERATING REVENUES
Electric $1,180,296 $1,180,296
Natural Gas 845,838 ($845,838) 0
Other 103,255 103,255
--------------------------------------------------------------------------
Total Operating Revenues 2,129,389 (845,838) 1,283,551
OPERATING EXPENSES
Natural gas purchases 611,505 (611,505) 0
Fuel used for generation 263,142 263,142
Power purchased 26,301 26,301
Operations and maintenance 516,652 (134,016) 382,636
Depreciation and amortization 221,807 (33,042) 188,765
Income taxes 92,099 (20,207) 71,892
Other taxes 97,201 (13,311) 83,890
--------------------------------------------------------------------------
Total Operating Expenses 1,828,707 (812,081) 1,016,626
OPERATING INCOME 300,682 (33,757) 266,925
OTHER INCOME AND EXPENSE 23,029 3,109 26,138
INCOME FROM INVESTMENT IN ONEOK,
INC. (NET OF TAX) 33,514 33,514
INCOME BEFORE INTEREST EXPENSE 323,711 2,866 326,577
INTEREST CHARGES 173,245 (2,685) 170,560
NET INCOME 150,466 5,551 156,017
PREFERRED AND PREFERENCE DIVIDENDS 11,297 11,297
EARNINGS FOR COMMON STOCK $139,169 $5,551 $144,720
WEIGHTED AVERAGE SHARES (Thousands) 64,503 64,503
EARNINGS PER SHARE - COMMON STOCK $2.16 $2.24
</TABLE>
WESTERN RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
I. Basis of Presentation
In December 1996, Western Resources, Inc. ("WRI") and ONEOK, Inc. ("ONEOK")
announced the combination of the local natural gas distribution business (the
"LDC") of WRI, and WRI's direct or indirect wholly-owned natural gas
transportation and marketing subsidiaries, Mid Continent Market Center, Inc.
("MCMC") and Westar Gas Marketing, Inc. ("Westar" and, together with MCMC, their
respective subsidiaries and WRI's local natural gas distribution business, the
"Gas Business") with the business of ONEOK in accordance with the terms of the
Agreement, dated as of December 12, 1996 (the "Agreement"), between WRI and
ONEOK, pursuant to which: (A) immediately prior to the Merger Effective Time,
WRI will contribute or will cause to be contributed, to WAI, Inc. ("WAI"), a
newly formed Oklahoma corporation and wholly-owned subsidiary of WRI, all of the
assets of WRI that are primarily used in, or primarily related to or primarily
generated by, the field operations of the Gas Business, including all of the
outstanding capital stock of Westar and MCMC (the "Assets"), whereupon WAI will
assume (i) all of the liabilities of WRI that arise primarily out of, or relate
primarily to or are primarily generated by, the Assets and (ii) approximately
$35 million (subject to pre-closing adjustment) aggregate principal amount of
debt of WRI and (B) (i) ONEOK will merge with and into WAI, with WAI as the
surviving corporation, whereupon WAI's name will be changed to "ONEOK, Inc."
(WAI being referred to herein, after the effective time of the Merger, as "New
ONEOK"), (ii) shares of ONEOK Common Stock outstanding as of the merger
Effective Time will be converted on a one-for-one basis into shares of New ONEOK
Common Stock, whereupon, on a fully diluted basis after giving effect to the
Transactions and based on the number of shares of ONEOK Common Stock outstanding
as of December 12, 1996, (a) the holders of ONEOK Common Stock will hold shares
of New ONEOK Common Stock representing at least 90.1% of the New ONEOK Common
Stock to be outstanding or, assuming conversion of all Series A Convertible
Preferred Stock of New ONEOK to be held by WRI pursuant to the Agreement, not
less than 55.0% of the New ONEOK Common Stock to be outstanding, and (b) WRI
will hold 2,996,702 shares of New ONEOK Common Stock and 19,317,584 shares of
Series A Convertible Preferred Stock, together representing in the aggregate up
to 9.9% of the New ONEOK Common Stock to be outstanding prior to conversion of
the Series A Convertible Preferred Stock and up to 45.0% of the New ONEOK Common
Stock outstanding thereafter, and (iii) WRI will be entitled, upon conversion of
its shares of Series A Convertible Preferred Stock at any time following a
Regulatory Change (as defined in the Proxy Statement/Prospectus under "The
Shareholder Agreement"), to receive from New ONEOK an amount equal to $35
million if the conversion were to occur at the Closing, which amount reduces to
zero over 5 years or less as dividends are paid on WRI's shares of Series A
Convertible Preferred Stock. Approximately 1,575 WRI employees are expected to
be reassigned to positions with WAI upon consummation of the transactions. The
transactions require the approval of ONEOK shareholders, the Oklahoma
Corporation Commission (the "OCC"), the Kansas Corporation Commission (the
"KCC") and the Securities and Exchange Commission. It is anticipated that the
transactions will close during the second half of 1997.
WRI's natural gas operations being contributed include its regulated
operations in Kansas and Northeast Oklahoma related to the LDC and MCMC (the
"Regulated Entities"). These Regulated Entities serve approximately 650,000
customers. In addition to the Regulated Entities, WRI will contribute its
wholly-owned indirect subsidiary, Westar. Westar markets and sells natural gas
primarily to small and medium-sized commercial and industrial customers and its
subsidiary Westar Gas Company processes natural gas liquids.
Prior to the Transactions, the Gas Business has been operated as an
integrated part of WRI's overall business and has not been separated from WRI's
other operations for managerial, accounting, administrative or other purposes.
Consequently, the activities of the Gas Business have been included in the
consolidated financial statements of WRI. In the normal course of business, the
Gas Business has various transactions with WRI, including various expense
allocations, which are material in amount. Certain accounts, principally working
capital accounts are maintained by WRI on a common basis. Amounts applicable to
WRI's electric business which are not being contributed are accounted for in the
same general ledger accounts as WRI's Gas Business. Where it was practical, a
determination of amounts applicable to the Gas Business was made. In other
circumstances it was not possible to make this determination and allocation
methodologies were used to quantify estimated amounts related to the Gas
Business. The allocation methodologies utilized are, in the opinion of WRI,
reasonable.
These financial statements have been prepared from records maintained by
WRI, and may not necessarily be indicative of the conditions which would have
existed if the Gas Business had been operated as an independent entity.
2. Pro Forma Adjustments
Pro forma adjustments were made to eliminate the net gas assets contributed
to ONEOK, Inc. and to record the investment in ONEOK, Inc. securities on the
Unaudited Pro Forma Combined Condensed Balance Sheet as of May 31, 1997. Pro
Forma adjustments were made to eliminate revenue and expenses related to the gas
operations being transferred to ONEOK, Inc. and to record the income from the
investment in ONEOK, Inc. on the Unaudited Pro Forma Combined Condensed
Statements of Income for the Twelve Months Ended May 31, 1997.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAY-31-1997 MAY-31-1997
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 4,400,224 3,788,321
<OTHER-PROPERTY-AND-INVEST> 1,202,087 1,733,190
<TOTAL-CURRENT-ASSETS> 379,541 245,305
<TOTAL-DEFERRED-CHARGES> 571,993 522,070
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 6,553,845 6,288,886
<COMMON> 325,293 325,293
<CAPITAL-SURPLUS-PAID-IN> 750,512 750,512
<RETAINED-EARNINGS> 530,048 530,048
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,605,853 1,605,853
270,000 270,000
24,858 24,858
<LONG-TERM-DEBT-NET> 1,406,709 1,371,709
<SHORT-TERM-NOTES> 365,008 290,902
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 824,142 824,142
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,057,275 1,901,422
<TOT-CAPITALIZATION-AND-LIAB> 6,553,845 6,288,886
<GROSS-OPERATING-REVENUE> 2,129,389 1,283,551
<INCOME-TAX-EXPENSE> 92,099 71,892
<OTHER-OPERATING-EXPENSES> 1,736,608 944,734
<TOTAL-OPERATING-EXPENSES> 1,828,707 1,016,626
<OPERATING-INCOME-LOSS> 300,682 266,925
<OTHER-INCOME-NET> 23,029 26,138
<INCOME-BEFORE-INTEREST-EXPEN> 323,711 326,577
<TOTAL-INTEREST-EXPENSE> 173,245 170,560
<NET-INCOME> 150,466 156,017
11,297 11,297
<EARNINGS-AVAILABLE-FOR-COMM> 139,169 144,720
<COMMON-STOCK-DIVIDENDS> 140,133 140,133
<TOTAL-INTEREST-ON-BONDS> 100,289 100,289
<CASH-FLOW-OPERATIONS> 0<F1> 0<F1>
<EPS-PRIMARY> 2.16 2.24
<EPS-DILUTED> 2.16 2.24
<FN>
<F1>NOT AVAILABLE FOR THIS PERIOD.
</FN>
</TABLE>
