SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9187
IES INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1271452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IES Tower, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (319) 398-4411
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 30, 1995
Common Stock, no par value 29,089,755 shares
IES INDUSTRIES INC.
INDEX
Page No.
Part I. Financial Information.
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 3 - 4
Consolidated Statements of Income -
Three and Twelve Months Ended
March 31, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Three and Twelve Months Ended
March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7 - 16
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition. 17 - 35
Part II. Other Information. 36 - 38
Signatures. 39
<PAGE>
PART 1. - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31,
1995 December 31,
ASSETS (Unaudited) 1994
(in thousands)
Property, plant and equipment, at original cost:
Utility -
Plant in service -
Electric $ 1,809,917 $ 1,798,059
Gas 158,512 158,115
Other 86,382 86,005
2,054,811 2,042,179
Less - Accumulated depreciation 903,302 880,888
1,151,509 1,161,291
Leased nuclear fuel, net of amortization 48,292 49,731
Construction work in progress 87,847 73,339
1,287,648 1,284,361
Other, net of accumulated depreciation and
amortization of $38,894,000 and $34,490,000,
respectively 153,126 153,795
1,440,774 1,438,156
Current assets:
Cash and temporary cash investments 4,842 4,993
Accounts receivable -
Customer, less reserve 16,500 26,098
Other 12,152 10,388
Income tax refunds receivable 6,522 6,434
Production fuel, at average cost 14,132 13,988
Materials and supplies, at average cost 28,700 30,216
Adjustment clause balances 0 1,433
Regulatory assets 20,702 20,145
Prepayments and other 26,872 34,607
130,422 148,302
Investments:
Nuclear decommissioning trust funds 36,783 33,779
Cash surrender value of life insurance policies 9,193 8,867
Investment in McLeod, Inc. 7,500 7,500
Other 5,603 5,609
59,079 55,755
Other assets:
Regulatory assets 194,199 192,955
Deferred charges and other 13,915 13,925
208,114 206,880
$ 1,838,389 $ 1,849,093
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
1995 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1994
(in thousands)
Capitalization:
Common stock - no par value - authorized
48,000,000 shares; outstanding 28,997,544
and 28,777,046 shares, respectively $ 379,124 $ 373,490
Retained earnings ($18,209,000 restricted as
to payment of cash dividends) 209,851 218,293
Total common equity 588,975 591,783
Cumulative preferred stock of IES Utilities Inc. 18,320 18,320
Long-term debt 513,209 473,206
1,120,504 1,083,309
Current liabilities:
Short-term borrowings 28,000 37,000
Capital lease obligations 16,175 14,385
Maturities and sinking funds 50,422 100,422
Accounts payable 72,217 78,582
Dividends payable 15,927 15,839
Accrued interest 10,890 9,494
Accrued taxes 55,445 50,001
Accumulated refueling outage provision 6,668 15,196
Adjustment clause balances 2,802 0
Provision for rate refund liability 8,000 0
Environmental liabilities 5,303 5,428
Other 23,195 21,844
295,044 348,191
Long-term liabilities:
Capital lease obligations 32,117 35,346
Environmental liabilities 38,266 38,288
Other 59,579 58,793
129,962 132,427
Deferred credits:
Accumulated deferred income taxes 253,751 245,365
Accumulated deferred investment tax credits 39,128 39,801
292,879 285,166
Commitments and contingencies (Note 6)
$ 1,838,389 $ 1,849,093
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Twelve
Months Ended Months Ended
March 31 March 31
1995 1994 1995 1994
(in thousands, except per share amounts)
Operating revenues:
Electric $ 116,577 $ 123,918 $ 529,987 $ 547,812
Gas 64,982 69,830 160,720 179,466
Other 24,833 17,873 89,889 72,572
206,392 211,621 780,596 799,850
Operating expenses:
Fuel for production 19,443 22,344 83,051 85,506
Purchased power 16,314 13,602 71,506 84,944
Gas purchased for resale 49,289 53,553 116,531 133,399
Other operating expenses 48,090 40,813 184,103 168,403
Maintenance 12,163 11,576 53,429 49,589
Depreciation and amortization 25,538 21,304 90,613 79,405
Taxes other than income taxes 13,440 12,735 47,009 46,153
184,277 175,927 646,242 647,399
Operating income 22,115 35,694 134,354 152,451
Interest expense and other:
Interest expense 11,969 11,446 46,528 44,254
Allowance for funds used during
construction -1,115 -877 -4,148 -2,444
Preferred dividend requirements
of IES Utilities Inc. 229 229 914 914
Miscellaneous, net -360 -451 -3,378 1,800
10,723 10,347 39,916 44,524
Income before income taxes 11,392 25,347 94,438 107,927
Income taxes:
Current -2,664 10,182 24,677 29,585
Deferred 7,988 688 14,009 14,043
Amortization of investment
tax credits -672 -667 -2,663 -4,848
4,652 10,203 36,023 38,780
Net income $ 6,740 $ 15,144 $ 58,415 $ 69,147
Average number of common
shares outstanding 28,889 28,349 28,695 28,226
Earnings per average
common share $ 0.23 $ 0.53 $ 2.04 $ 2.45
Dividends declared per
common share $ 0.525 $ 0.525 $ 2.10 $ 2.10
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Three For the Twelve
Months Ended Months Ended
March 31 March 31
1995 1994 1995 1994
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,740 $ 15,144 $ 58,415 $ 69,147
Adjustments to reconcile net income to
net cash flows from operating activities -
Depreciation and amortization 25,538 21,304 90,613 79,405
Principal payments under capital
lease obligations 2,556 4,427 14,375 12,439
Deferred taxes and investment tax credits 7,316 21 11,346 9,195
Refueling outage provision -8,528 3,137 871 -4,747
Allowance for equity funds used during
construction -282 -540 -2,040 -1,250
Other 2,039 2,861 4,052 8,556
Other changes in assets and liabilities -
Accounts receivable -2,167 4,705 983 4,318
Production fuel, materials and supplies 1,186 2,695 -2,693 2,845
Accounts payable -1,653 -2,526 22,744 6,330
Accrued taxes 5,356 2,740 7,190 11,139
Provision for rate refunds 8,000 415 -1,085 -1,536
Adjustment clause balances 4,235 4,724 -7,071 -405
Gas in storage 8,191 10,013 -687 -4,273
Other 6,098 -3,201 17,591 199
Net cash flows from operating activities 64,625 65,919 214,604 191,362
Cash flows from financing activities:
Dividends declared on common stock -15,183 -14,931 -60,317 -59,353
Proceeds from issuance of common stock 4,636 6,947 14,271 16,592
Purchase of treasury stock 0 -4,608 -1,625 -4,608
Proceeds from issuance of long-term debt 50,000 13,423 87,165 130,267
Reductions in long-term debt and preferred
stock -60,047 -47 -60,237 -81,909
Net change in short-term borrowings -9,000 -24,000 28,000 -37,021
Principal payments under capital
lease obligations -3,662 -3,720 -16,246 -11,429
Sale of utility accounts receivable 10,000 0 10,800 17,700
Other 89 415 139 -188
Net cash flows from financing activities -23,167 -26,521 1,950 -29,949
Cash flows from investing activities:
Construction and acquisition expenditures -
Utility -28,025 -18,992 -149,726 -115,328
Other -7,910 -16,319 -56,285 -58,214
Nuclear decommissioning trust funds -1,383 -1,383 -5,532 -5,532
Deferred energy efficiency costs -3,537 -3,399 -16,295 -11,961
Proceeds from disposition of assets 2,891 1,927 9,762 30,678
Other -3,645 -1,652 -681 -128
Net cash flows from investing activities -41,609 -39,818 -218,757 -160,485
Net increase (decrease) in cash and
temporary cash investments -151 -420 -2,203 928
Cash and temporary cash investments
at beginning of period 4,993 7,465 7,045 6,117
Cash and temporary cash investments
at end of period $ 4,842 $ 7,045 $ 4,842 $ 7,045
Supplemental cash flow information:
Cash paid during the period for -
Interest $ 9,806 $ 8,853 $ 45,367 $ 40,930
Income taxes $ 2,734 $ -13 $ 38,843 $ 19,936
Noncash investing and financing activities -
Capital lease obligations incurred $ 1,116 $ 196 $ 15,217 $ 4,308
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
(1) GENERAL:
The interim Consolidated Financial Statements have been
prepared by IES Industries Inc. (Industries) and its
consolidated subsidiaries (collectively the Company), without
audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Industries' wholly-owned
subsidiaries are IES Utilities Inc. (Utilities) and IES
Diversified Inc. (Diversified). Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of the Company, the Consolidated
Financial Statements include all adjustments, which are normal
and recurring in nature, necessary for the fair presentation
of the results of operations and financial position. Certain
prior period amounts have been reclassified on a basis
consistent with the 1995 presentation.
It is suggested that these Consolidated Financial
Statements be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1994. The
accounting and financial policies relative to the following
items have been described in those notes and have been omitted
herein because they have not changed materially through the
date of this report:
Summary of significant accounting policies
Acquisition of Iowa service territory of Union Electric Company (UE)
Leases
Utility accounts receivable (other than discussed in Note 3)
Income taxes
Benefit plans
Common stock (other than discussed in Note 4)
Preferred and preference stock
Debt (other than discussed in Note 5)
Estimated fair value of financial instruments
Commitments and contingencies (other than discussed in Note 6)
Jointly-owned electric utility plant
Segments of business
(2) RATE MATTERS:
(a) 1994 Electric Rate Case -
In 1994, Utilities applied to the Iowa Utilities Board
(IUB) for an increase in retail electric rates of
approximately $26 million annually, or 5.2%. Utilities'
proposal included approximately $12 million in annual revenue
requirement related to increased recovery levels of
depreciation expense and nuclear decommissioning expense at
the Duane Arnold Energy Center (DAEC), Utilities' nuclear
generating facility. To the extent these proposals are
approved by the IUB, corresponding increases in expense would
be recorded and there would be no effect on net income.
The Office of Consumer Advocate (OCA) filed a petition in
connection with this proceeding to reduce the rates for retail
electric service by approximately $27 million or 5.5%. The
primary differences between the amount of the increase
requested by Utilities and the decrease proposed by the OCA
are: 1) a 13.9% return on common equity requested by Utilities
compared to 11.1% proposed by the OCA; 2) OCA's objection to
Utilities' proposal to increase collections for
decommissioning the DAEC; 3) OCA's objection to Utilities'
proposal to increase depreciation rates; 4) OCA's proposal to
reject most of Utilities' request to recover an acquisition
adjustment associated with its acquisition of the Iowa service
territory of UE; and 5) an adjustment to test year sales
levels proposed by the OCA. Intervenors, which primarily
represent individual or groups of customers, also submitted
filings in October 1994, generally objecting to particular
elements of the price increase and Utilities' price design
proposals.
In April 1995, the IUB held a public agenda meeting to
discuss the issues in the proceeding. While minor movement
toward pricing consistency would result, the proposals to
increase recovery levels of depreciation expense and nuclear
decommissioning expense were apparently rejected. The Board's
agenda discussion also ruled against Utilities on issues such
as recovery for the full purchase prices of the UE Iowa
service territory and smaller, low-cost, used generating
plants, even though customers are currently benefiting from
the acquisitions.
The IUB's discussion apparently would require an annual
reduction in electric revenues of $15 million to $20 million,
or $0.30 to $0.40 per share. The IUB's final decision in the
proceeding is not expected until mid-May and the IUB indicated
the agenda meeting discussion was non-binding and may change.
As a result of the IUB's agenda meeting discussion, Utilities
recorded a pretax reserve for refund of $8 million ($0.16 per
share) in the first quarter of 1995, including $3.5 million
related to revenues collected in the fourth quarter of 1994.
Any refund ultimately required would be calculated from
October 22, 1994, the date of the OCA revenue reduction
filing.
(b) 1994 Energy Efficiency Cost Recovery Filing -
The IUB has adopted rules that mandate Utilities to spend
2% of electric and 1.5% of gas gross retail operating revenues
for energy efficiency programs. Under provisions of the IUB
rules, Utilities applied in August 1994 to the IUB for
recovery of approximately $23 million and $13 million for the
electric and gas programs, respectively, related to costs
incurred through 1993 for such programs. The $36 million
total for the electric and gas programs is comprised of
$21 million of direct expenditures and carrying costs
(recorded as a "Regulatory asset" in the Consolidated Balance
Sheets, including $4.5 million as current), $7 million for a
return on the expenditures over the recovery period and
$8 million for a reward based on a sharing of the benefits of
such programs.
In April 1995, the IUB issued its Final Decision and
Order concerning Utilities' energy efficiency expenditures,
which allows Utilities to recover its direct expenditures,
carrying costs, and a return on its expenditures, as well as a
reward of approximately $4 million for a total allowed
recovery of approximately $32 million. Recovery will be over
a four-year period and will begin in the second quarter of
1995.
In May 1995, the OCA and an intervenor filed applications
for rehearing with the IUB concerning the amount of the reward
granted by the IUB. Since the identical issue is pending
before the court in another utility's proceeding, the OCA, the
intervenor and Utilities have agreed to be bound by the
ultimate decision in the other utility's court proceeding.
Utilities believes that the chances of the reward amount being
materially reduced are remote.
(3) UTILITY ACCOUNTS RECEIVABLE:
Utilities has entered into an agreement, which expires in
1999, with a financial institution to sell, with limited
recourse, an undivided fractional interest of up to
$65 million in its pool of utility accounts receivable. At
March 31, 1995, $64 million was sold under the agreement.
(4) COMMON STOCK:
In March 1995, Industries issued 75,638 shares of its
common stock for the purchase of certain oil and gas companies
which are now wholly-owned subsidiaries of Whiting Petroleum
Corporation (Whiting), a wholly-owned subsidiary of
Diversified.
(5) DEBT:
(a) Long-Term Debt -
In March 1995, Utilities repaid at maturity $50 million
of Series W, 9.75% First Mortgage Bonds and, in a separate
transaction, issued $50 million of Collateral Trust Bonds,
7.65%, due 2000.
Diversified has a variable rate credit facility that
extends through November 9, 1997, with two one-year extensions
available to Diversified. The facility also serves as a stand-
by agreement for Diversified's commercial paper program. The
agreement provides for a combined maximum of $150 million of
borrowings under the agreement and commercial paper to be
outstanding at any one time. Interest rates and maturities are
set at the time of borrowing for direct borrowings under the
agreement and for issuances of commercial paper. The interest
rate options are based upon quoted market rates and the
maturities are less than one year. At March 31, 1995, there
were no borrowings outstanding under this facility.
Diversified had $70.5 million of commercial paper outstanding
at March 31, 1995, with interest rates ranging from 6.19% to
6.29% and maturity dates in the second quarter of 1995, which
was also supported by the facility. Diversified intends to
continue borrowing under the renewal options of the facility
and no conditions exist at March 31, 1995, that would prevent
such borrowings. Accordingly, this debt is classified as
long-term in the Consolidated Balance Sheets.
(b) Long-Term Debt of McLeod, Inc. -
At March 31, 1995, Diversified had a $7.5 million
investment in Class B Common Stock of McLeod, Inc. (McLeod),
which represents a voting interest of less than 20%. McLeod
provides local and long-distance telecommunication services to
business customers and other services related to fiber optics.
In 1994, Diversified entered into an agreement whereby it will
guarantee $6 million under a credit facility between McLeod
and its bankers. Diversified is paid an annual commitment fee
and receives options to purchase additional shares of Class B
Common Stock for as long as the guarantee remains outstanding.
At March 31, 1995, McLeod had $6.4 million outstanding under
its facility of which Diversified has guaranteed $6.0 million.
(c) Short-Term Debt -
At March 31, 1995, the Company had bank lines of credit
aggregating $97.7 million (Industries - $1.5 million,
Utilities - $87.7 million, Diversified - $7.5 million and
Whiting - $1.0 million). Utilities was using $28 million to
support commercial paper (weighted average interest rate of
6.20%) and $7.7 million to support certain pollution control
obligations. Commitment fees are paid to maintain these lines
and there are no conditions which restrict the unused lines of
credit. In addition to the above, Utilities has an
uncommitted credit facility with a financial institution
whereby it can borrow up to $40 million. Rates are set at the
time of borrowing and no fees are paid to maintain this
facility. At March 31, 1995, there were no borrowings under
this facility. Utilities also has a letter of credit in the
amount of $3.4 million supporting two of its variable rate
pollution control obligations.
(6) CONTINGENCIES:
(a) Environmental Liabilities -
The Company has recorded environmental liabilities of
approximately $44 million, including $5.3 million as current
liabilities, in its Consolidated Balance Sheets at March 31,
1995. The significant items are discussed below.
Former Manufactured Gas Plant (FMGP) Sites
Utilities has been named as a Potentially Responsible
Party (PRP) by various federal and state environmental
agencies for 28 FMGP sites. Utilities believes that it is not
responsible for two of the above sites and there are three
other sites for which it may be designated as a PRP in the
future. Utilities is working pursuant to the requirements of
the various agencies to investigate, mitigate, prevent and
remediate, where necessary, damage to property, including
damage to natural resources, at and around the sites in order
to protect public health and the environment. Utilities has
completed the remediation of three sites and is in various
stages of the investigation and/or remediation processes for
22 sites. Utilities expects to begin the investigation
process in 1995 or 1996 for the other sites.
Utilities has recorded environmental liabilities related
to the FMGP sites of approximately $31 million (including
$4.5 million as current liabilities) at March 31, 1995. These
amounts are based upon Utilities' best current estimate of the
amount to be incurred for investigation and remediation costs
for those sites where the investigation process has been or is
substantially completed, and the minimum of the estimated cost
range for those sites where the investigation is in its
earlier stages or has not started. It is possible that future
cost estimates will be greater than the current estimates as
the investigation process proceeds and as additional facts
become known. Utilities may be required to monitor these
sites for a number of years upon completion of remediation, as
is the case with the three sites for which remediation has
been completed.
Utilities has begun pursuing coverage for investigation,
mitigation, prevention, remediation, and monitoring costs from
its insurance carriers and is investigating the potential for
third party cost sharing for FMGP investigation and clean-up
costs. The amount of shared costs, if any, cannot be
reasonably determined and, accordingly, no potential sharing
has been recorded at March 31, 1995. Regulatory assets of
approximately $31 million, which reflect the future recovery
that is being provided through Utilities' rates, have been
recorded in the Consolidated Balance Sheets. Considering the
rate treatment allowed by the IUB, management believes that
the clean-up costs incurred by Utilities for these FMGP sites
will not have a material adverse effect on its financial
position or results of operations.
Oil and Gas Properties Dismantlement and Abandonment
Costs
Whiting is responsible for certain dismantlement and
abandonment costs related to various off-shore oil and gas
properties, the most significant of which is located off the
coast of California. Whiting accrues these costs as reserves
are extracted and such costs are included in "Depreciation and
amortization" in the Consolidated Statements of Income. A
corresponding environmental liability, $0.6 million at March
31, 1995, has been recognized in the Consolidated Balance
Sheets for the cumulative amount expensed.
(b) Clean Air Act -
The Clean Air Act Amendments of 1990 (Act) requires
emission reductions of sulfur dioxide and nitrogen oxides to
achieve reductions of atmospheric chemicals believed to cause
acid rain. The provisions of the Act will be implemented in
two phases with Phase I affecting two of Utilities' units
beginning in 1995 and Phase II affecting all units beginning
in the year 2000. Utilities is in the process of completing
the modifications necessary to meet the Phase I requirements
and has installed continuous emission monitors on all affected
units as required by the Act.
Utilities expects to meet the requirements of Phase II by
switching to lower sulfur fuels and through capital
expenditures primarily related to fuel burning equipment and
boiler modifications. Utilities estimates capital
expenditures at approximately $22.5 million, including
$4.4 million in 1995, in order to meet the requirements of the
Act.
(c) Federal Energy Regulatory Commission (FERC) Order
No. 636 -
The FERC issued Order No. 636 (Order 636) in 1992, which
substantially changed how Utilities manages its gas supply.
As a result of Order 636, Utilities has enhanced access to
competitively priced gas supply and more flexible
transportation services, however, Utilities is required to pay
certain transition costs incurred and billed by its pipeline
suppliers.
Utilities' three pipeline suppliers have made filings
with the FERC to collect their respective known transition
costs, and additional filings are expected. At March 31,
1995, Utilities has recorded a liability of $6.2 million for
those transition costs that have been incurred by the
pipelines to date, including $2.1 million expected to be
billed through March 1996. Utilities is currently recovering
the transition costs from its customers through its Purchased
Gas Adjustment Clauses as such costs are billed by the
pipelines. The ultimate level of costs to be billed to
Utilities depends on the pipelines' filings with the FERC and
other future events, including the market price of natural
gas, and could approximate $10 million more than the amount
recorded. However, Utilities believes any transition costs
billed by its pipeline suppliers would be recovered from its
customers, based upon regulatory treatment of these costs
currently and similar past costs by the IUB. Accordingly,
regulatory assets, in amounts corresponding to the recorded
liabilities, have been recorded to reflect the anticipated
recovery.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion analyzes significant changes in
the components of net income and financial condition from the
prior periods for IES Industries Inc. (Industries) and its
consolidated subsidiaries (collectively the Company).
Industries' wholly-owned subsidiaries are IES Utilities Inc.
(Utilities) and IES Diversified Inc. (Diversified).
RESULTS OF OPERATIONS
The Company's net income decreased $8.4 million and
$10.7 million during the three and twelve month periods,
respectively, ended March 31, 1995. Earnings per average
common share decreased $0.30 and $0.41 for the respective
periods. The lower earnings are largely due to the recording
of a pretax reserve for rate refund of $8.0 million by
Utilities in the first quarter of 1995 and milder than normal
weather in Utilities' service territory.
The Company's operating income decreased $13.6 million
and $18.1 million during the three and twelve month periods,
respectively. Reasons for the changes in the results of
operations are explained further in the following discussion.
ELECTRIC REVENUES
Electric revenues and Kwh sales for Utilities increased
or (decreased) for the periods ended March 31, 1995, as
compared with the prior periods, as follows:
Three Twelve
Months Months
($ in millions)
Electric revenues $ (7.3) $ (17.8)
Electric sales (excluding off-system sales):
Residential and Rural (5.5%) (3.6%)
Commercial 0.2 2.2
Industrial 3.3 8.0
Total (1.1%) 2.7%
The Kwh sales for both periods were adversely affected by
milder than normal weather. The largest effect of weather was
on sales to residential and rural customers. Under normal
weather conditions, total sales (excluding off-system sales)
would have increased 1.6% and 3.6% for the three and twelve
month periods, respectively. The growth in industrial sales
continues to reflect the underlying strength of the economy as
several major industrial expansions in Utilities' service
territory were announced during the twelve months ended March
31, 1995.
Utilities' electric tariffs include energy adjustment
clauses (EAC) that are designed to currently recover the costs
of fuel and the energy portion of purchased power billings to
customers.
The revenue decrease for both periods includes a pretax
reserve for rate refund of $8.0 million that was recorded by
Utilities in the first quarter of 1995 as a result of the
Company's interpretation of how the Iowa Utilities Board (IUB)
may decide Utilities' pending electric price case. See Note
2(a) of the Notes to Consolidated Financial Statements for a
further discussion.
The effect of the mix of sales between lower margin
industrial customers and higher margin residential and rural
customers, lower off-system sales and lower fuel costs
collected through the EAC also contributed to the decreased
revenues for the twelve month period. Such items were
partially offset by the increased total sales, excluding off-
system sales.
GAS REVENUES
Gas revenues increased or (decreased) for the periods
ended March 31, 1995, as compared with the prior periods, as
follows:
Three Twelve
Months Months
(in millions)
Gas revenues:
Utilities $ (12.0) $ (28.0)
Industrial Energy Applications, Inc. (IEA) 7.2 9.3
$ (4.8) $ (18.7)
Utilities' gas sales in therms increased or (decreased)
for the periods ended March 31, 1995, as compared with the
prior periods, as follows:
Three Twelve
Months Months
Residential (9.1%) (10.8%)
Commercial (7.6) (9.1)
Industrial (24.1) (14.9)
Sales to consumers (9.9) (10.9)
Transported volumes 45.7 33.0
Total (3.0%) (2.5%)
The sales volumes for both periods were adversely
affected by milder than normal weather. Under normal weather
conditions, gas sales (including transported volumes) would
have increased 5.8% and 4.9% during the three and twelve month
periods, respectively.
Utilities' gas tariffs include purchased gas adjustment
clauses (PGA) that are designed to currently recover the cost
of gas sold. Utilities' gas revenues decreased in both
periods primarily because of lower gas costs recovered
through the PGA and, to a lesser extent, the effect of the
lower sales. The decreased gas cost recoveries are due to
lower gas prices as well as a shift in the sales mix between
industrial sales and transported volumes; Utilities does not
purchase the gas for the transported volumes. The increase in
IEA's gas revenues for both periods is primarily due to
increased gas volumes, partially offset by lower gas costs.
OTHER REVENUES
Other revenues increased $7.0 million and $17.3 million
during the three and twelve month periods, respectively,
largely because of increased revenues at Whiting Petroleum
Company (Whiting) and Diversified's other subsidiaries,
primarily in the energy and transportation industries.
OPERATING EXPENSES
Fuel for production decreased $2.9 million and
$2.5 million during the three and twelve month periods,
respectively. The three month decrease is primarily due to a
decrease in the amount of Kwh generation as the Duane Arnold
Energy Center (DAEC), Utilities' nuclear generating facility,
was down during March 1995 for a scheduled refueling outage.
There was no such refueling outage in 1994. Lower fuel cost
recoveries through the EAC, which are included in fuel for
production, also contributed to the decrease. The twelve
month decrease is due to lower fuel cost recoveries through
the EAC, a lower average fuel cost during the period and
decreased generation at the DAEC. Increased generation at
Utilities' fossil-fueled generating stations partially offset
these items for both periods.
Purchased power increased $2.7 million during the three
month period and decreased $13.4 million during the twelve
month period. The three month increase is due to increased
energy purchases, resulting from the decrease in generation,
which were partially offset by lower capacity costs. The
twelve month decrease is primarily due to lower energy
purchases and lower capacity costs.
Gas purchased for resale decreased $4.3 million and
$16.9 million during the three and twelve month periods,
respectively, primarily due to lower sales to consumers at
Utilities and lower natural gas prices. The increased sales
volumes at IEA partially offset these decreases.
Other operating expenses increased $7.3 million and
$15.7 million during the three and twelve month periods,
respectively. Increases in labor and benefits costs, nuclear
operating costs, former manufactured gas plant (FMGP) clean-up
costs and information technology costs at Utilities
contributed to the increases. In addition, increased
operating activities at Whiting resulted in higher operating
expenses during both periods.
Maintenance expenses increased $0.6 million and
$3.8 million during the three and twelve month periods,
respectively. The twelve month increase was due to increased
labor costs and higher maintenance costs at the DAEC.
Depreciation and amortization increased during both
periods primarily because of increases in utility plant in
service and amortization and depreciation of oil and gas
properties. Depreciation and amortization expenses for all
periods reflect an annual amount of $5.5 million for the DAEC
decommissioning provision, which is collected through rates.
The staff of the Securities and Exchange Commission (SEC)
has questioned certain of the current accounting practices of
the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for
nuclear generating stations in the financial statements of
electric utilities. In response to these questions, the
Financial Accounting Standards Board (FASB) has agreed to
review the accounting for removal costs, including
decommissioning. If current electric utility industry
accounting practices for such decommissioning are changed:
(1) annual provisions for decommissioning could increase, (2)
the estimated cost for decommissioning could be recorded as a
liability rather than as accumulated depreciation, and (3)
trust fund income from the external decommissioning trusts
could be reported as investment income rather than as a
reduction to decommissioning expense. If such changes are
required, Utilities believes that there would not be an
adverse effect on its financial position or results of
operations based on current rate making practices; the Company
cannot predict future rate making practices.
INTEREST EXPENSE AND OTHER
Interest expense increased $0.5 million and $2.3 million
during the three and twelve month periods, respectively,
primarily because of an increase in the average amount of
lower cost short-term debt and variable rate long-term debt
outstanding.
Miscellaneous, net reflects a $5.2 million increase in
income during the twelve month period. The current twelve
month period includes a gain on the sale of an investment by
one of Diversified's subsidiaries. Certain property write-
downs at Diversified and a contribution to the IES Industries
Charitable Foundation were recorded in the prior twelve month
period, which were partially offset by gains on the sale of
assets at Whiting and IEA.
Income taxes decreased $5.6 million and $2.8 million
during the three and twelve month periods, respectively. A
decrease in taxable income contributed to the decreases for
both periods. The twelve month decrease is partially offset
by the effect of property related temporary differences for
which deferred taxes had not been provided that are now
becoming payable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily
attributable to Utilities' construction programs, its debt
maturities and sinking fund requirements and the level of
Diversified's business opportunities. The Company's pretax
ratio of earnings to fixed charges was 3.05 and 3.46 for the
twelve months ended March 31, 1995 and March 31, 1994,
respectively. Cash flows from operating activities for the
twelve months ending March 31, 1995, were $215 million. These
funds were primarily used for construction and acquisition
expenditures.
The Company anticipates that future capital requirements
will be met by cash generated from operations and external
financing. The level of cash generated from operations is
partially dependent upon economic conditions, legislative
activities, environmental matters and timely rate relief for
Utilities. (See Notes 2 and 6 of the Notes to Consolidated
Financial Statements).
Access to the long-term and short-term capital and credit
markets is necessary for obtaining funds externally. The
Company's debt ratings are as follows:
Moody's Standard & Poor's
Utilities - Long-term debt A1 A
- Short-term debt P1 A1
Diversified - Short- term debt P2 A2
As a result of the IUB's recent public agenda meeting to
discuss Utilities' electric price case, Utilities could
realize an annual revenue reduction of approximately
$15 million to $20 million. (See Note 2(a) of the Notes to
Consolidated Financial Statements for a further discussion).
In reaction to the IUB's agenda meeting, Moody's has placed
Utilities long-term debt rating on credit watch pending a
final decision by the IUB. Standard & Poor's has not reacted
to the IUB's agenda meeting.
The Company's liquidity and capital resources will be
affected by environmental and legislative issues, including
the ultimate disposition of remediation issues surrounding the
Company's environmental liabilities, the Clean Air Act as
amended and FERC Order 636, as discussed in Note 6 of the
Notes to Consolidated Financial Statements. Consistent with
rate making principles of the IUB, management believes that
the costs incurred for the above matters will not have a
material adverse effect on the financial position or results
of operations of the Company.
The IUB has adopted rules which require Utilities to
spend 2% of electric and 1.5% of gas gross retail operating
revenues annually for energy efficiency programs. Energy
efficiency costs in excess of the amount in the most recent
electric and gas rate cases are being recorded as regulatory
assets by Utilities. At March 31, 1995, Utilities had
$38 million of such costs recorded as regulatory assets.
Utilities will begin its recovery of a portion of these costs
in the second quarter of 1995. See Note 2(b) of the Notes to
Consolidated Financial Statements for a further discussion.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program
anticipates expenditures of approximately $202 million for
1995, of which approximately $163 million represents
expenditures at Utilities and approximately $39 million
represents expenditures at Diversified. Of the $163 million
of Utilities' expenditures, 32% represents expenditures for
electric transmission and distribution facilities, 23%
represents fossil-fueled generation expenditures, 15%
represents expenditures for steam distribution plant and 9%
represents nuclear generation expenditures. The remaining 21%
represents miscellaneous electric, gas and general
expenditures. Diversified's anticipated expenditures include
approximately $26 million at Whiting. In addition to the
$163 million, Utilities anticipates expenditures of
$13 million in connection with mandated energy efficiency
programs. Substantial commitments have been made in
connection with all such expenditures. The Company had
construction and acquisition expenditures of approximately
$36 million for the three months ended March 31, 1995,
including approximately $28 million at Utilities and
approximately $8 million at Diversified.
The Company's levels of construction and acquisition
expenditures are projected to be $230 million in 1996,
$209 million in 1997, $235 million in 1998 and $227 million in
1999. It is estimated that approximately 70% of construction
expenditures will be provided by cash from operating
activities (after payment of dividends) for the five-year
period 1995-1999.
Capital expenditure and investment and financing plans
are subject to continual review and change. The capital
expenditure and investment programs may be revised
significantly as a result of many considerations including
changes in economic conditions, variations in actual sales and
load growth compared to forecasts, requirements of
environmental, nuclear and other regulatory authorities,
acquisition opportunities, the availability of alternate
energy and purchased power sources, the ability to obtain
adequate and timely rate relief, escalations in construction
costs and conservation and energy efficiency programs.
LONG-TERM FINANCING
Other than Utilities' periodic sinking fund requirements,
which Utilities intends to meet by pledging additional
property, the following long-term debt will mature prior to
December 31, 1999:
(in millions)
Issue:
Utilities $ 123.7
Diversified's variable rate credit facility 70.5
Other subsidiaries' debt 11.6
$ 205.8
The Company intends to refinance the majority of the debt
maturities with long-term securities.
In March 1995, Utilities repaid at maturity $50 million
of Series W, 9.75% First Mortgage Bonds and, in a separate
transaction, issued $50 million of Collateral Trust Bonds,
7.65%, due 2000.
Utilities has entered into an Indenture of Mortgage and
Deed of Trust dated September 1, 1993 (New Mortgage). The New
Mortgage provides for, among other things, the issuance of
Collateral Trust Bonds upon the basis of First Mortgage Bonds
being issued by Utilities. The lien of the New Mortgage is
subordinate to the lien of Utilities' first mortgages until
such time as all bonds issued under the first mortgages have
been retired and such mortgages satisfied. Accordingly, to the
extent that Utilities issues Collateral Trust Bonds on the
basis of First Mortgage Bonds, it must comply with the
requirements for the issuance of First Mortgage Bonds under
Utilities' first mortgages. Under the terms of the New
Mortgage, Utilities has covenanted not to issue any additional
First Mortgage Bonds under its first mortgages except to
provide the basis for issuance of Collateral Trust Bonds.
The Indentures pursuant to which Utilities issues First
Mortgage Bonds constitute direct first mortgage liens upon
substantially all tangible public utility property and contain
covenants which restrict the amount of additional bonds which
may be issued. At March 31, 1995, such restrictions would
have allowed Utilities to issue $323 million of additional
First Mortgage Bonds. Utilities has received authority from
the FERC to issue $250 million of long-term debt, of which
$50 million was used in March 1995 to issue Collateral Trust
Bonds. Utilities expects to replace First Mortgage Bonds
Series X that matures in September 1995 with other long-term
securities.
Diversified has a variable rate credit facility that
extends through November 9, 1997, with two one-year extensions
available to Diversified. The facility also serves as a stand-
by agreement for Diversified's commercial paper program. The
agreement provides for a combined maximum of $150 million of
borrowings under the agreement and commercial paper to be
outstanding at any one time. Interest rates and maturities
are set at the time of borrowing for direct borrowings under
the agreement and for issuances of commercial paper. The
interest rate options are based upon quoted market rates and
the maturities are less than one year. At March 31, 1995,
there were no borrowings outstanding under this facility.
Diversified had $70.5 million of commercial paper outstanding
at March 31, 1995, with interest rates ranging from 6.19% to
6.29% and maturity dates in the second quarter of 1995, which
was also supported by the facility. Diversified intends to
continue borrowing under the renewal options of the facility
and no conditions exist at March 31, 1995, that would prevent
such borrowings. Accordingly, this debt is classified as long-
term in the Consolidated Balance Sheets.
The Articles of Incorporation of Utilities authorize and
limit the aggregate amount of additional shares of Cumulative
Preferred Stock and Cumulative Preference Stock that may be
issued. At March 31, 1995, Utilities could have issued an
additional 700,000 shares of Cumulative Preference Stock but
no additional shares of Cumulative Preferred Stock. In
addition, Industries had 5,000,000 shares of Cumulative
Preferred Stock, no par value, authorized for issuance, none
of which were outstanding at March 31, 1995.
The Company's capitalization ratios at March 31, were as
follows:
1995 1994
Long-term debt 48% 47%
Preferred stock 2 2
Common equity 50 51
100% 100%
The 1995 and 1994 ratios include
$50 million and $58 million, respectively, of
long-term debt due in less than one year because
it was the Company's intention to refinance the
debt with long-term securities.
SHORT-TERM FINANCING
For interim financing, Utilities is authorized by the
FERC to issue, through 1996, up to $200 million of short-term
notes. In addition to providing for ongoing working capital
needs, this availability of short-term financing provides
Utilities flexibility in the issuance of long-term securities.
At March 31, 1995, Utilities had outstanding short-term
borrowings of $43.5 million, including $15.5 million of notes
payable to associated companies.
Utilities has an agreement, which expires in 1999, with a
financial institution to sell, with limited recourse, an
undivided fractional interest of up to $65 million in its pool
of utility accounts receivable. At March 31, 1995, Utilities
had sold $64 million under the agreement.
At March 31, 1995, the Company had bank lines of credit
aggregating $97.7 million (Industries - $1.5 million,
Utilities - $87.7 million, Diversified - $7.5 million and
Whiting - $1.0 million). Utilities was using $28 million of
its lines to support commercial paper (weighted average
interest rate of 6.20%) and $7.7 million to support certain
pollution control obligations. Commitment fees are paid to
maintain these lines and there are no conditions which
restrict the unused lines of credit. In addition to the
above, Utilities has an uncommitted credit facility with a
financial institution whereby it can borrow up to $40 million.
Rates are set at the time of borrowing and no fees are paid to
maintain this facility. At March 31, 1995, there were no
borrowings under this facility. Utilities also has a letter
of credit in the amount of $3.4 million supporting two of its
variable rate pollution control obligations.
ENVIRONMENTAL MATTERS
Utilities has been named as a Potentially Responsible
Party (PRP) by various federal and state environmental
agencies for 28 FMGP sites. Utilities believes that it is not
responsible for two of the above sites and there are three
other sites for which it may be designated as a PRP in the
future. Utilities is working pursuant to the requirements of
the various agencies to investigate, mitigate, prevent and
remediate, where necessary, damage to property, including
damage to natural resources, at and around the sites in order
to protect public health and the environment. Utilities has
completed the remediation of three sites and is in various
stages of the investigation and/or remediation processes for
22 sites. Utilities expects to begin the investigation
process in 1995 or 1996 for the other sites.
Utilities has recorded environmental liabilities related
to the FMGP sites of approximately $31 million (including
$4.5 million as current liabilities) at March 31, 1995. These
amounts are based upon Utilities' best current estimate of the
amount to be incurred for investigation and remediation costs
for those sites where the investigation process has been or is
substantially completed, and the minimum of the estimated cost
range for those sites where the investigation is in its
earlier stages or has not started. It is possible that future
cost estimates will be greater than the current estimates as
the investigation process proceeds and as additional facts
become known. Utilities may be required to monitor these
sites for a number of years upon completion of remediation, as
is the case with the three sites for which remediation has
been completed.
Utilities has begun pursuing coverage for investigation,
mitigation, prevention, remediation and monitoring costs from
its insurance carriers and is investigating the potential for
third party cost sharing for FMGP investigation and clean-up
costs. The amount of shared costs, if any, cannot be
reasonably determined and, accordingly, no potential sharing
has been recorded at March 31, 1995. Regulatory assets of
approximately $31 million, which reflect the future recovery
that is being provided through Utilities' rates, have been
recorded in the Consolidated Balance Sheets. Considering the
rate treatment allowed by the IUB, management believes that
the clean-up costs incurred by Utilities for these FMGP sites
will not have a material adverse effect on its financial
position or results of operations.
The Clean Air Act Amendments of 1990 (Act) requires
emission reductions of sulfur dioxide and nitrogen oxides to
achieve reductions of atmospheric chemicals believed to cause
acid rain. The provisions of the Act will be implemented in
two phases with Phase I affecting two of Utilities' units
beginning in 1995 and Phase II affecting all units beginning
in the year 2000. Utilities is in the process of completing
the modifications necessary to meet the Phase I requirements
and has installed continuous emission monitors on all affected
units as required by the Act.
Utilities expects to meet the requirements of Phase II by
switching to lower sulfur fuels and through capital
expenditures primarily related to fuel burning equipment and
boiler modifications. Utilities estimates capital
expenditures at approximately $22.5 million, including $4.4
million in 1995, in order to meet the requirements of the Act.
The National Energy Policy Act of 1992 requires owners of
nuclear power plants to pay a special assessment into a
"Uranium Enrichment Decontamination and Decommissioning Fund."
The assessment is based upon prior nuclear fuel purchases and,
for the DAEC, averages $1.4 million annually through 2007, of
which Utilities' 70% share is $1.0 million. Utilities is
recovering the costs associated with this assessment through
its electric fuel adjustment clauses over the period the costs
are assessed. Utilities' 70% share of the future assessment,
$12.0 million payable through 2007, has been recorded as a
liability in the Consolidated Balance Sheets, including
$0.8 million included in "Current liabilities - Environmental
liabilities," with a related regulatory asset for the
unrecovered amount.
The Nuclear Waste Policy Act of 1982 assigned
responsibility to the U.S. Department of Energy (DOE) to
establish a facility for the ultimate disposition of high
level waste and spent nuclear fuel and authorized the DOE to
enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into
such a contract and has made the agreed payments to DOE. The
DOE, however, has experienced significant delays in its
efforts and material acceptance is now expected to occur no
earlier than 2010. Utilities has been storing spent nuclear
fuel on-site since plant operations began in 1974 and has
current on-site capability to store spent fuel until 2002.
Utilities is aggressively reviewing options for additional
spent nuclear fuel storage capability, including expanding on-
site storage, pursuing other off-site storage and supporting
legislation to resolve the lack of progress by the DOE.
The Low-Level Radioactive Waste Policy Amendments Act of
1985 mandated that each state must take responsibility for the
storage of low-level radioactive waste produced within its
borders. The State of Iowa has joined the Midwest Interstate
Low-Level Radioactive Waste Compact Commission (Compact),
which is planning a storage facility to be located in Ohio to
store waste generated by the Compact's six member states. At
March 31, 1995, Utilities has prepaid costs of approximately
$1 million to the Compact for the building of such a
facility. Currently, Utilities is storing its low-level
radioactive waste generated at the DAEC on-site until new
disposal arrangements are finalized among the Compact members.
A Compact disposal facility is anticipated to be in operation
in approximately ten years. On-site storage capability
currently exists for low-level radioactive waste expected to
be generated until the Compact facility is able to accept
waste materials.
The possibility that exposure to electric and magnetic
fields (EMF) emanating from power lines, household appliances
and other electric sources may result in adverse health
effects has been the subject of increased public,
governmental, industry and media attention. A considerable
amount of scientific research has been conducted on this topic
without definitive results. Research is continuing in order
to resolve scientific uncertainties.
Whiting is responsible for certain dismantlement and
abandonment costs related to various off-shore oil and gas
properties, the most significant of which is located off the
coast of California. Whiting accrues these costs as reserves
are extracted and such costs are included in "Depreciation and
amortization" in the Consolidated Statements of Income. A
corresponding environmental liability, $0.6 million at March
31, 1995, has been recognized in the Consolidated Balance
Sheets for the cumulative amount expensed.
OTHER MATTERS
The National Energy Policy Act of 1992 addresses several
matters designed to promote competition in the electric
wholesale power generation market, including mandated open
access to the electric transmission system and greater
encouragement of independent power production and
cogeneration. On March 29, 1995, the Federal Energy
Regulatory Commission (FERC) issued a Notice of Proposed
Rulemaking that makes specific recommendations related to non-
discriminatory pricing for open access transmission services
and would allow for recovery of certain stranded costs. These
are two of the most critical issues relating to the electric
utility industry's transition toward fully competitive
markets. The Company cannot predict the final regulations
that may be adopted.
The IUB recently initiated a Notice of Inquiry (Docket
No. NOI-95-1) on the subject of "Emerging Competition in the
Electric Utility Industry." A one-day roundtable discussion
was held to address all forms of competition in the electric
utility industry and to assist the IUB in gathering
information and perspectives on electric competition from all
persons or entities with an interest or stake in the issues.
Such discussions are not expected to produce any specific
action by the IUB at this time.
The Company cannot predict the long-term consequences of
these competitive issues on its results of operations or
financial condition. The Company's strategy for dealing with
these emerging issues includes seeking growth opportunities,
continuing to offer quality customer service, on-going cost
reductions and productivity enhancements. The Company
recently initiated a major project to review and redesign its
business processes with the primary goals being reduced
operating costs, increased efficiency and enhanced customer
service.
In March 1995, the FASB issued SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of. This Statement defines the criteria for
valuing regulatory assets. The Company does not expect the
amount of regulatory assets recorded in the Consolidated
Balance Sheets to be affected. The Company expects to adopt
this standard on January 1, 1996 and does not expect that
adoption will have a material impact on the financial position
or results of operations of the Company.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
Industries, Diversified, IES Energy Inc. (a wholly-owned
subsidiary of Diversified), MicroFuel Corporation (the
Corporation) now known as Ely, Inc. in which IES Energy has a
69.40% equity ownership, and other parties have been sued in
Linn County District Court in Cedar Rapids, Iowa, by Allen C.
Wiley. Mr. Wiley claims money damages on various tort and
contract theories arising out of the 1992 sale of the assets
of the Corporation, of which Mr. Wiley was a director and
shareholder. All of the defendants in Mr. Wiley's suit
answered the complaint and denied liability. All of the
defendants believe that the claims are without merit and are
vigorously contesting them. On April 13, 1995, Industries and
Diversified were dismissed from this action when their motions
for summary judgment were granted. The trial for the
remaining defendants has been continued to an unspecified
date, pending a decision in the appeal related to a separate
suit discussed below.
The Corporation commenced a separate suit to determine
the fair value of Mr. Wiley's shares under Iowa Code section
490. A decision was issued on August 31, 1994, by the Linn
County District Court ruling that the value of Mr. Wiley's
shares was $377,600 based on a 40 cent per share valuation.
The Corporation contended that the value of Mr. Wiley's shares
was 2.5 cents per share. The Decision has been appealed to
the Iowa Supreme Court by the Corporation on a number of
issues, including the Corporation's position that the trial
court erred as a matter of law in discounting the testimony of
the Corporation's expert witness. A decision on the appeal is
not expected before the fourth quarter of 1995.
Reference is made to Notes 2 and 6 of the Notes to
Consolidated Financial Statements for a discussion of rate
matters and environmental matters, respectively.
Item 2. Changes in the Rights of the Company's Security
Holders.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Results of Votes of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
4(a) Sixty-first Supplemental
Indenture, dated as of March 1, 1995,
supplementing Utilities' Indenture of Mortgage
and Deed of Trust, dated August 1, 1940.
(Filed as Exhibit 4(a) to Utilities' Form 10-Q
for the quarter ended March 31, 1995 (File No.
0-4117-1)).
4(b) Third Supplemental Indenture,
dated as of March 1, 1995, supplementing
Utilities' Indenture of Mortgage and Deed of
Trust, dated September 1, 1993. (Filed as
Exhibit 4(b) to Utilities' Form 10-Q for the
quarter ended March 31, 1995 (File No. 0-4117-
1)).
*10(a) Agreement and Plan of Merger
among IES Industries Inc., WOK Acquisition
Company, Okie Energy Company, Keener Energy
Company, Thomas M. Atkinson and Joan B.
Atkinson, dated as of March 15, 1995.
*27 Financial Data Schedule.
* Exhibits designated by an asterisk are filed herewith.
(b) Reports on Form 8-K -
Items Financial Date of
Reported Statements Report
5, 7 None April 27, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
IES INDUSTRIES INC.
(Registrant)
Date May 12, 1995 By /s/ Dr. Robert J. Latham
(Signature)
Dr. Robert J. Latham
Senior Vice President, Finance
By /s/ Richard A. Gabbianelli
(Signature)
Richard A. Gabbianelli
Controller & Chief Accounting Officer
Exhibit 10(a)
AGREEMENT AND PLAN OF MERGER
among
IES INDUSTRIES INC.,
WOK ACQUISITION COMPANY,
OKIE ENERGY COMPANY,
KEENER ENERGY COMPANY,
THOMAS M. ATKINSON
and
JOAN B. ATKINSON
Dated March 15, 1995
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated March 15, 1995
(together with the Schedules, Lists and Exhibits attached
hereto, hereinafter referred to as the "Agreement"), among IES
INDUSTRIES INC., an Iowa corporation ("Parent"), WOK
ACQUISITION COMPANY, a Delaware corporation and a wholly-owned
subsidiary of Parent ("WOK"), OKIE ENERGY COMPANY, an Oklahoma
corporation ("OKIE"), KEENER ENERGY COMPANY, an Oklahoma
corporation ("Keener") and THOMAS M. ATKINSON and JOAN B.
ATKINSON (together, the "Sellers").
WHEREAS, the Sellers are the record and beneficial
owners of (i) all of the issued and outstanding shares of
capital stock of OKIE (the "OKIE Shares") and (ii) all of the
issued and outstanding shares of capital stock of Keener (the
"Keener Shares");
WHEREAS, (i) OKIE and Keener are hereinafter
collectively referred to as the "OKIE Companies" and
individually as an "OKIE Company" and (ii) the OKIE Shares and
the Keener Shares are hereinafter collectively referred to as
the "Shares";
WHEREAS, the respective Boards of Directors of
Parent, WOK, OKIE and Keener (and in the case of the OKIE
Companies, the Sellers) deem it advisable and in the best
interests of their respective shareholders to consummate the
business combination transaction provided for herein in which
OKIE and Keener would merge with and into WOK (the "Merger")
(OKIE, Keener and WOK sometimes referred to herein as the
"Constituent Corporations") with WOK continuing as the
surviving corporation (the resultant corporation, as so
merged, sometimes referred to herein as the "Surviving
Corporation"), whereby the Shares will be converted into a
right to receive common stock, without par value, of Parent
("Parent Common Stock") and any associated right (a "Parent
Right") that may be issued pursuant to the Rights Agreement
dated as of November 6, 1991. All references in this
Agreement to the Parent Common Stock to be received pursuant
to the Merger shall be deemed to include the Parent Rights;
WHEREAS, for Federal income tax purposes, it is
intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, WOK, each of the OKIE Companies and
the Sellers desire to make certain representations, warranties
and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and
the respective representations, warranties, covenants and
agreements set forth in this Agreement, the parties hereto
agree as follows:
I
THE MERGER
.1 Closing. The closing of the Merger (the "Closing")
will take place at the offices of Whiting Petroleum
Corporation, Mile High Center, 1700 Broadway, Suite 2300,
Denver, Colorado at 10:00 a.m. (local time) on March 31, 1995
or on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction of the
latest to occur of the conditions set forth in Sections
9.1(a), 9.2(b) (other than the delivery of the officer's
certificate referred to therein) and 9.3(b) (other than the
delivery of the officer's certificate referred to therein)
provided, that other closing conditions set forth in Article
IX have been met or waived as provided in Article IX at or
prior to the Closing (the "Closing Date") unless another date
or place is agreed to in writing by the parties hereto.
.2 Effective Time of the Merger. Subject to the
provisions of this Agreement, a certificate/articles of merger
shall be duly prepared, executed and acknowledged by an
appropriate officer or officers of each of the Constituent
Corporations (the "Articles of Merger") and thereafter
delivered on the Closing Date to the Secretary of State of
each of the States of Delaware and Oklahoma for filing, as
provided in the Delaware General Corporation Law (the
"Delaware GCL") and the Oklahoma General Corporation Act (the
"Oklahoma GCA"), respectively, as soon as practicable on or
after the Closing Date. The Merger shall become effective
upon the filing of the Articles of Merger with each such
Secretary of State or at such time thereafter as is provided
in the Articles of Merger (the "Effective Time").
.3 Effects of the Merger. (a) At the Effective Time,
(i) the separate existence of each of OKIE and Keener shall
cease and each of OKIE and Keener shall be merged with and
into WOK with WOK continuing as the Surviving Corporation,
(ii) the Certificate of Incorporation of WOK shall be the
Certificate of Incorporation of the Surviving Corporation,
(iii) the By-Laws of WOK as in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving
Corporation and (iv) the Merger shall have all the effects
provided by applicable law.
(a) At and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private
nature, and be subject to all the restrictions, disabilities
and duties of each of the Constituent Corporations; and all
and singular rights, privileges, immunities and franchises of
each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, including
subscriptions to shares and all other choses in action, and
all and every other interest of or belonging to or due to each
of the Constituent Corporations, shall be taken and deemed to
be transferred to and vested in the Surviving Corporation, and
all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise, in any of the
Constituent Corporations, shall not revert or be in any way
impaired, but all rights of creditors and all liens upon any
property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of
the Constituent Corporations shall thenceforth attach to the
Surviving Corporation, and may be enforced against it to the
extent as if said debts, liabilities and duties had been
incurred by it.
.4 Directors and Officers of the Surviving Corporation.
The directors and officers of WOK, from and after the
Effective Time, shall be the directors and officers,
respectively, of the Surviving Corporation until their
successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws.
II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
.1 Manner of Converting Shares. As of the Effective
Time, by virtue of the Merger and without any action on the
part of the holder of any shares of capital stock of the
Constituent Corporations or the Parent:
(a) Capital Stock of WOK. The shares of common stock of
WOK, $1.00 par value (the "WOK Common Stock"), which are
issued and outstanding immediately prior to the Effective
Time, shall be unaffected by the Merger, and WOK shall remain
a wholly-owned subsidiary of Parent.
(b) Capital Stock of the OKIE Companies. Subject to the
provisions of Section 2.2, (i) the OKIE shares shall be
converted into the right to receive that number of fully paid
and nonassessable shares of Parent Common Stock (the "OKIE
Purchase Shares") equal to One Million Three Hundred Thirty
Five Thousand Nine Hundred Fifty Dollars ($1,335,950.00) (the
"OKIE Purchase Price") divided by the average closing price of
Parent Common Stock on the New York Stock Exchange (the
"NYSE") for the first ten (10) of the last fifteen (15)
trading days ending March 31, 1995 (the "Average Closing
Price") and (ii) the Keener Shares shall be converted into the
right to receive that number of fully paid and nonassessable
shares of Parent Common Stock equal to Five Hundred Eighty
Nine Thousand Fifty Dollars ($589,050.00) (the "Keener
Purchase Price") divided by the average Closing Price (the
"Keener Purchase Shares"). (The OKIE Purchase Shares and the
Keener Purchase Shares are hereinafter collectively referred
to as the "Purchase Shares"). As of the Effective Time, all
OKIE Shares and all Keener Shares shall no longer be
outstanding and shall automatically be canceled and retired
and shall cease to exist, and the Sellers shall cease to have
any right with respect to the Shares except the right to
receive the Purchase Shares to be issued in consideration
therefor upon the surrender of the Shares in accordance with,
and subject to the provisions of, Section 2.2, without
interest.
.2 Exchange of Certificates.
(a) Delivery of the Shares. At the Effective Time, the
Sellers shall deliver to Parent certificates representing all
of the Shares, and upon delivery of such certificates the
certificates and the Shares represented thereby shall
forthwith be canceled.
(b) Payment of Purchase Price. Upon delivery of
the Shares pursuant to Section 2.2(a),
Parent shall (A) deliver to the Escrow Agent (as hereinafter
defined) a certificate or certificates registered in the name
of the Sellers representing that number of shares of Parent
Common Stock equal to twenty-five percent of (i) the OKIE
Purchase Shares (the "OKIE Escrow Shares") and (ii) the Keener
Purchase Shares (the "Keener Escrow Shares") (in each case
rounded to the nearest whole share) (the OKIE Escrow Shares
and the Keener Escrow Share are hereinafter collectively
referred to as the "Escrow Shares") and (B) deliver to the
Sellers (i) a certificate or certificates representing that
number of whole shares of Parent Common Stock equal to the
number of Purchase Shares less the number of Escrow Shares,
(ii) a check representing any cash payable in lieu of
fractional shares of Parent Common Stock included in the
Purchase Shares and (iii) a check payable to Sellers in an
amount equal to the cash dividends, if any, which would have
been payable with relation to the Purchase Shares if they had
been issued and delivered February 28, 1995.
(c) Escrow. The OKIE Escrow Shares and the Keener
Escrow Shares shall be deposited with the escrow agent (the
"Escrow Agent") designated in and subject to the OKIE Escrow
Agreement and the Keener Escrow Agreement, respectively, to be
executed on or before the Closing Date substantially in the
form of Exhibit A-1 and Exhibit A-2, respectively, (the
"Escrow Agreements"). The Escrow Agent shall hold the Escrow
Shares as collateral agent for Parent, WOK, and any of their
affiliates to secure the obligations of the Sellers hereunder.
The disposition of the Escrow Shares will be governed by the
terms and conditions of the Escrow Agreements.
(d) Restricted Securities. The Sellers understand that
the shares of Parent Common Stock to be delivered by Parent
pursuant to Sections 2.1(b) and 2.1(c) are characterized as
"restricted securities" under the Federal securities laws
inasmuch as they are being acquired in a transaction not
involving a public offering and that under such laws and
applicable rules and regulations such securities may be resold
without registration under the Securities Act of 1933, as
amended (the "Securities Act") only in certain limited
circumstances. In this connection, the Sellers represent that
they are familiar with Securities and Exchange Commission
("SEC") Rules 144 and 145, as presently in effect, and
understand the resale limitations imposed thereby and by the
Securities Act.
(e) Legends. It is understood that the certificates
evidencing the Purchase Shares shall bear the following
legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
Notwithstanding the foregoing, Parent shall remove
the legend referred to in this Section 2.2(e) upon the
earliest of (1) a transfer of the Purchase Shares evidenced by
such certificate pursuant to Rules 144 and 145 under the
Securities Act, (2) the transfer of the Purchase Shares
pursuant to an effective registration statement of Parent
under the Securities Act and (3) the receipt by Parent or an
opinion of counsel reasonably acceptable to Parent, of a "no-
action" letter from the staff of the SEC, to the effect that
the Purchase Shares are no longer restricted.
(f) No Further Ownership Rights in the Shares. All
shares of Parent Common Stock issued in the Merger upon
conversion of the Shares in accordance with the terms hereof
(including any cash paid in lieu of fractional shares) shall
be deemed to have been issued in full satisfaction of all
rights pertaining to the Shares. There shall be no further
registration of transfers on the stock transfer books of any
OKIE Company of the shares of each such OKIE Company which
were outstanding immediately prior to the Effective Time.
(g) No Fractional Shares. As provided in Section
2.2(b), no certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the
surrender for exchange of the Shares, and such fractional
share interests will not entitle the owner thereof to vote or
to any rights of a shareholder of Parent. The value of any
fractional shares of Parent computed above shall be paid by
check.
.3 Post-Closing Adjustment.
(a) Preparation of the Closing Statement. As soon as
reasonably practicable after June 30, 1995 (but not later than
July 31, 1995), Parent will prepare a statement of the
aggregate current assets (the "Current Assets") and aggregate
current liabilities (the "Current Liabilities") of the
combined OKIE Companies as of February 28, 1995 (the "Closing
Statement") and shall deliver the Closing Statement to the
Sellers. The Closing Statement (including any and all Taxes,
other than income taxes, included therein) shall be prepared
in accordance with principles of accrual basis accounting.
(b) Review of Preliminary Closing Statement. The
Closing Statement shall be binding and conclusive upon, and
deemed accepted by, the Sellers unless the Sellers shall have
notified Parent in writing of any objections thereto
consistent with the provisions of this Section 2.3 within
thirty (30) days after receipt thereof. The written notice
under this Section 2.3(b) shall specify in reasonable detail
each item on the Closing Statement that the Sellers dispute,
and a summary of the Sellers' reasons for such dispute.
(c) Disputes. Disputes between Parent and the Sellers
relating to the Closing Statement that cannot be resolved by
them within thirty (30) days after receipt by Parent of the
notice referred to in Section 2.3(b) may be referred
thereafter for decision at the insistence of either party to
Arthur Andersen & Co. If Arthur Andersen & Co. is
unavailable, then parent and the Sellers shall select an
independent nationally recognized accounting firm to decide
the matter (Arthur Andersen & Co. or such other firm being
referred to herein as the "Auditor"). Prior to referring the
matter to the Auditor, the parties shall agree on the
procedures to be followed by the Auditor (including procedures
with regard to presentation of evidence). Such procedures
shall not alter the accounting practices, principles and
policies to be applied to the Closing Statement which will be
those required by this Agreement. If the parties are unable
to agree upon procedures before the end of thirty (30) days
after referral of the dispute to the Auditor, the Auditor
shall establish such procedures giving due regard to the
intention of the parties to resolve disputes as quickly,
efficiently and inexpensively as possible, which procedures
may be, but need not be, those proposed by either party. The
parties shall then submit evidence in accordance with the
procedures established, and the Auditor shall decide the
dispute in accordance therewith. The Auditor's decision on
any matter referred to it shall be final and binding on the
Sellers and Parent. The fee of the auditor shall be borne by
the Sellers and Parent in equal portions, unless the Auditor
decides, based on its determination with respect to the
reasonableness of the respective positions of the parties,
that the fee shall be borne in unequal proportions.
(d) Final Closing Statement. The Closing Statement
shall become final and binding upon the parties upon the
earlier of (i) the failure by the Sellers to object thereto
within the period permitted under Section 2.3(b), (ii) the
agreement between Parent and the Sellers with respect thereto
or (iii) the decision by the Auditor with respect to any
disputes under Section 2.3(c). The Closing Statement, as
adjusted pursuant to the agreement of the parties or the
decision of the Auditor, when final and binding is referred to
herein as the "Final Closing Statement".
(e) Purchase Price Adjustment. As soon as practicable
(but not more than five business days) after the Final Closing
Statement becomes final and binding as provided in Section
2.3(d) (the "Adjustment Date"), the OKIE Purchase Price shall
be increased by (i) the excess, if any, of the Current Assets
over the sum of Current Liabilities to the extent such excess
does not exceed $100,000.00 and (ii) eighty percent (80%) of
the excess, if any, of the amount by which the Current Assets
exceed the Current Liabilities by more than $100,000.00 (the
"Purchase Price Increase") or decreased by the excess, if any,
of the sum of the Current Liabilities over the Current Assets
(the "Purchase Price Decrease"), as the case may be (each a
"Purchase Price Adjustment"). The Purchase Price Increase, if
any, shall be paid by parent to the Sellers on the Adjustment
Date by (A) delivering to the Escrow Agent (pursuant to the
terms of the OKIE Escrow Agreement) a certificate or
certificates registered in the name of the Sellers
representing that number of fully paid and nonassessable
shares (rounded to the nearest whole share) of Parent Common
Stock equal to twenty-five percent of the Purchase Price
Increase divided by the Average Closing Price (the "Adjustment
Escrow Shares") and (B) by delivering to Sellers (i) a
certificate or certificates representing that number of fully
paid and nonassessable shares (rounded to the nearest whole
share) of Parent Common Stock equal to seventy-five percent of
the Purchase Price Increase divided by the Average Closing
Price and (ii) a check representing any cash payable in lieu
of fractional shares of parent Common Stock resulting from the
payment by Parent of the Purchase Price Increase. The
Purchase Price Decrease, if any, plus an amount equal to any
dividends or other distributions received by the Sellers on
that number of Purchase Shares equal to the Purchase Price
Decrease divided by the Average Closing Price shall be paid by
the Sellers to Parent on the Adjustment Date in immediately
available funds by wire transfer to an account designated by
Parent at such time.
(f) Distributions on Adjustment Shares. In addition to
the Purchase Price Increase, if any, to be paid by parent to
the Sellers pursuant to Section 2.3(e), the Parent shall pay
to the Sellers by check an amount equal to the per share
dividends, if any, paid or payable by Parent on Parent Common
Stock, the record date for which was after February 28, 1995
but prior to the Adjustment Date, multiplied by that number of
shares to be delivered by Parent pursuant to Section 2.3(e).
III
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers and the OKIE Companies represent and
warrant to Parent and WOK as follows:
.1 Organization, Standing and Power. Each of the OKIE
Companies is a corporation duly organized, validly existing
and in good standing under the laws of the State of Oklahoma
and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now
being conducted, and is duly qualified and in good standing to
transact business in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties
makes such qualification necessary other than in such
jurisdictions where the failure so to qualify would not have a
Material Adverse Effect on such company. In this Agreement, a
reference to any event having a "Material Adverse Effect" on
any entity shall mean, any event, change or effect related to
the condition (financial or otherwise), properties, assets,
liabilities, operations, businesses or business prospects of
such entity.
.2 Capital Structure. (a) As of the date hereof, the
authorized capital stock of (i) OKIE consists of 5,000 shares
of common stock, $0.10 par value, of which, as of March 31,
1995, 5,000 shares will be issued and outstanding; and (ii)
Keener consists of 5,000 shares of common stock, $0.10 par
value, of which, as of March 31, 1995, 5,000 shares will be
issued and outstanding.
(a) With respect to each of the OKIE Companies, (i) no
shares of preferred stock, and (ii) no bonds, debentures,
notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any
matters on which shareholders may vote ("Voting Debt") are
outstanding. All outstanding shares of each of the OKIE
Companies' capital stock are validly issued, fully paid and
nonassessable and are not subject to preemptive rights. As of
the date of this Agreement (except pursuant to this
Agreement), there are no options, warrants, calls, rights,
commitments or agreements of any character to which any of the
OKIE Companies is a party or by which they are bound
obligating any such company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of
capital stock or any Voting Debt of, or other equity interest
in, such company or securities convertible or exchangeable for
such shares, Voting Debt or other equity interests, or
obligating such company to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
(b) All of the shares of each of the OKIE Companies are
owned of record and beneficially by the Sellers. The Sellers
have good and valid title to such shares, free and clear of
any and all liens, encumbrances, restrictions, claims,
security interests or options. The Sellers have full legal
right, power and authority to sell, transfer, convey and
deliver the Shares to Parent in connection with the Merger.
.3 No Subsidiaries or Equity Investments. Except as
disclosed on Schedule 3.3, none of the OKIE Companies owns,
directly or indirectly, any capital stock or other equity
securities of any corporation or has any direct or indirect
equity or ownership interest, including interests in
partnerships and joint ventures, in any other entity or
business.
.4 Authority of OKIE Companies and Sellers.
(a) Each of the OKIE Companies has all requisite
corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part
of each of the OKIE Companies. This Agreement has been duly
executed and delivered by each of the OKIE Companies and
assuming this Agreement constitutes a valid and binding
obligation of each Parent and WOK, constitutes a valid and
binding obligation of each of the OKIE Companies enforceable
in accordance with its terms.
(b) The Sellers have all requisite power and authority
to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Sellers and assuming this
Agreement constitutes a valid and binding obligation of Parent
and WOK, constitutes a valid and binding obligation of the
Sellers enforceable in accordance with its terms.
.5 No Violation. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of
a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such
conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a
"Violation"), pursuant to (i) any provision of the Articles of
Incorporation or By-laws or other constituent documents of any
of the OKIE Companies, (ii) any provision of any loan or
credit agreement, note, mortgage, indenture, lease, Employee
Benefit Plans (as defined in Section 3.12) or other agreement,
obligation, instrument, permit, concession, franchise, license
to which the Sellers or any of the OKIE Companies is a party,
or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Sellers or any of the
OKIE Companies or their respective properties or assets, which
Violation, in the case of each of clauses (ii) and (iii),
would have a Material Adverse Effect on any of the OKIE
Companies.
.6 Consents and Approvals. No consent, approval, order
or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign
(a "Governmental Entity"), is required by or with respect to
the Sellers or any of the OKIE Companies in connection with
the execution and delivery of this Agreement by the Sellers
and each of the OKIE Companies or the consummation by the
Sellers and each of the OKIE Companies of the transactions
contemplated hereby, the failure to obtain which would have a
Material Adverse Effect on any of the OKIE Companies except
for:
(i) the filing of the Articles of Merger with the
Secretary of State of each of the States of Delaware and
Oklahoma as provided in Section 1.2; and
(ii) such filings, authorization orders and approvals as
may be required of other state and local governmental
authorities including, but not limited to, the Oklahoma Tax
Commission.
.7 Financial Statements. (a) The Sellers have
furnished Parent with copies of the following unaudited
financial statements: (i) balance sheets of OKIE as of
December 31, 1993 and 1994; (ii) statements of income and
statements of cash flows for OKIE for each of the fiscal years
ended December 31, 1993 and December 31, 1994, (iii) balance
sheet for Keener as of December 31, 1994 and (iv) statement of
income and statement of cash flows for Keener for the fiscal
year ended December 31, 1994 (the "Financial Statements").
The Financial Statements are complete and correct, were
prepared in accordance with principles of cash basis
accounting consistently applied throughout the periods
indicated, and present fairly the financial position of the
respective OKIE Company. The Financial Statements are
attached hereto as Schedule 3.7. Since the date of its
incorporation, neither of the OKIE Companies has made any
material change in its methods of accounting for financial
reporting purposes.
.8 No Undisclosed Liabilities. Except as and to the
extent set forth in the Financial Statements, Schedule 3.8,
or, with respect to current liabilities incurred by any of the
OKIE Companies after the date hereof, taken into account in
calculating the Purchase Price Adjustment, none of the OKIE
Companies has any liabilities or obligations of any nature,
whether or not accrued, absolute, contingent or otherwise (the
"Undisclosed Liabilities").
.9 Books and Records. The Sellers will make available
for inspection by Parent all the books of account relating to
the business of each of the OKIE Companies. Such books of
account of each of the OKIE Companies reflect all the
transactions and other matters required to be set forth under
principles of cash basis accounting applied on a consistent
basis. All books and records of each of the OKIE Companies
relating to the business and operations of each such OKIE
Company shall be delivered by the Sellers to Parent at the
Effective Time.
.10 Litigation. As of the date of this Agreement,
except as disclosed on Schedule 3.10, there is no suit, action
or proceeding pending, or, to the knowledge of the Sellers,
threatened against or affecting the Sellers or any of the OKIE
Companies which could have a Material Adverse Effect on any of
the OKIE Companies, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Sellers or any of the OKIE
Companies which has or could have a Material Adverse Effect on
any of the OKIE Companies.
.11 Taxes. (a) Each of the OKIE Companies has timely
filed when due all Tax returns required to be filed by either
of them and has paid all Taxes required to be paid in respect
of all periods for which returns have been filed or are due
(whether or not shown as being due on any Tax returns). The
most recent financial statements heretofore delivered to
Parent reflect that such financial statements were prepared in
accordance with the principles of cash basis accounting. The
Sellers have paid all income Taxes required to be paid
relating to ownership of stock in the OKIE Companies. No
material deficiencies for any Taxes have been proposed,
asserted or assessed against the Sellers relating to their
ownership of stock in the OKIE Companies, or any of the OKIE
Companies, and no audit of the Tax returns of the Sellers or
any of the OKIE Companies is currently being conducted by any
Taxing authority. Copies of all Federal Tax returns required
to be filed by the Sellers and each of the OKIE Companies
since their respective dates of incorporation, together with
all schedules and attachments thereto, have been delivered by
the Sellers to Parent. None of the OKIE Companies is a party
to, is bound by, or has any obligation under any Tax sharing
or similar Agreement. For the purpose of this Agreement, the
term "Tax" including, with correlative meaning, the terms
"Taxes", "Taxing", and "Taxable") shall include all Federal,
state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, gains,
transfer, recording, license, value-added, withholding, excise
and other taxes, duties or assessments of any nature
whatsoever (whether payable directly or by withholding),
together with any and all estimated Tax interest, penalties
and additions to Tax imposed with respect to such amounts and
any obligations in respect thereof under any Tax sharing, Tax
allocation, Tax indemnity or similar agreement.
(a) As provided on Schedule 3.11(b), each of the OKIE
Companies made a valid election under the Code Section 1362 on
the date indicated thereon to be treated as an "S corporation"
as defined in Code Section 1361(a)(1), which election has been
in effect since the date indicated thereon without revocation,
cessation or termination. As provided on Schedule 3.11(b),
each of the OKIE Companies made valid elections under
applicable state and local law on the date indicated thereon
to be treated as an "S corporation" or the equivalent, which
elections, if any, have been in effect since the dates
indicated thereon without revocation, cessation or
termination.
(b) None of the Sellers or any of the OKIE Companies
have taken or will take any action, nor failed to take or will
nor have failed to take any action, that would result in the
failure of the Merger to qualify as a tax-free reorganization
within the meaning of Code Section 368(a).
.12 Employee Benefit Matters. (a) At the Effective
Time, none of the OKIE Companies will have any employees.
Except as set forth in Schedule 3.12(a), none of the OKIE
Companies, nor any other organization which is a member of a
controlled group of organizations (within the meaning of
Sections 414(b), (c), (m) or (o) of the Code) of which any of
the OKIE Companies is a member ("Controlled Group") has at any
time maintained or contributed to any employee benefit plan,
as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any bonus,
deferred compensation, incentive compensation, stock purchase,
stock option, phantom stock, vacation, severance, or other
plan, arrangement or understanding (whether or not in writing
or legally binding) (all the foregoing being herein called the
"Employee Benefit Plans").
(a) Except as set forth in Schedule 3.12(b), (i) the
consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the
occurrence of any additional or further acts or events) result
in any (A) payment (whether of severance pay or otherwise)
becoming due from any of the OKIE Companies to any officer,
employee, former employee or director thereof or to the
trustee under any "rabbi trust" or similar arrangement, or (B)
benefit under any Employee Benefit Plan being established or
becoming accelerated, vested or payable and (ii) none of the
OKIE Companies is a party to (A) any management, employment,
deferred compensation, severance (including any payment, right
or benefit resulting from a change in control), bonus or other
contract for personal services with any officer, director or
employee, (B) any consulting contract with any person who
prior to entering into such contract was a director or officer
of any of the OKIE Companies or (C) any plan, agreement,
arrangement or understanding similar to any other foregoing.
.13 Labor Matters. With respect to each of the OKIE
Companies, except as disclosed in Schedule 3.13, each of the
following is true:
(a) None of the OKIE Companies is a party to any
collective bargaining agreement.
(b) during the last five years, none of the OKIE
Companies has been subject to a labor strike, National Labor
Relations Board dispute, slowdown or stoppage and to the
Sellers' best knowledge, none are threatened against any of
the OKIE Companies;
(c) there are no employees who are members of or
represented by any labor union and, to the Sellers' best
knowledge, there are no attempts of whatever kind and nature
being made to organize any such employees;
(d) no agreement (including any collective bargaining
agreement), arbitration or court decision, decree or order or
governmental order which is binding on any of the OKIE
Companies which in any way limits or restricts any such
company from relocating or closing any of its operations;
(e) there are no charges, administrative proceedings or
formal complaints of discrimination (including but not limited
to discrimination based upon sex, age, marital status, race,
national origin, sexual preference, handicap or veteran
status) pending or, to the Sellers' knowledge, threatened, or
to the Sellers' knowledge, any investigation pending or
threatened before the Equal Employment Opportunity Commission
or any Federal, state or local agency or court;
(f) no employee, including officers, has been paid
compensation in excess of $43,500 during the year ended
December 31, 1994, or at an annual rate in excess of $50,000
during the year that will end December 31, 1995.
.14 Contracts and Commitments. (a) Except with respect
to Oil and Gas Properties, Mineral Estates and Oil and Gas
Leases (each as defined in Section 4.1), Schedule 3.14(a)
sets forth each contract, agreement, or course of dealings,
and any subcontracts thereto (written or unwritten)
outstanding as of the date hereof to which any of the OKIE
Companies is a party (other than any contract or agreement
required to be disclosed on any other Schedule) and which:
(i) involves future payment or receipt of cash or future
performance or receipt of services or delivery or receipt of
goods and materials, in each case with an aggregate value in
excess of $10,000, including but not limited to sale and
purchase agreements, distributorship and sales representative
agreements and loan agreements, notes, and other financing
documents or commitments to enter into any of the foregoing
agreements;
(ii) is a guarantee of indemnity in respect to
indebtedness of any person (including any of the OKIE
Companies, the Sellers, or any other Affiliate) which may
involve a future payment or payments, in the aggregate, by any
of the OKIE Companies in excess of $10,000 or is a mortgage,
security agreement, or other arrangement intended to secure
indebtedness of any person (including any of the OKIE
Companies, the Sellers or any other Affiliate) in excess of
$10,000 or creating an Encumbrance (as defined in Section
3.15) on any asset of any of the OKIE Companies; For purposes
of this Agreement, the term
"Affiliate" shall mean with respect to any
party to this Agreement, any other individual, corporation,
partnership, trust or unincorporated organization directly or
indirectly controlling, controlled by, or under common control
with such party. For purposes of this Agreement, the term
"Affiliate" shall include, but not be limited to, the Sellers
and directors and executive officers of any of the OKIE
Companies.
(iii) is a lease with respect to personal property;
(iv) is an agreement, indenture, or other instrument
which contains restrictions with respect to the payment of
dividends or any other distribution in respect of the capital
stock of any of the OKIE Companies;
(v) imposes a right of first refusal, option, or other
restriction with respect to any assets of any of the OKIE
Companies;
(vi) is a loan or advance to, or investment in, any
person or an agreement, contract, or commitment relating to
the making of any such loan, advance, or investment;
(vii) is an agreement, contract, or commitment limiting
the freedom of any of the OKIE Companies to engage in any line
of business or to complete with any person; or
(viii) is a shareholders agreement or voting agreement.
(b) Except as set forth in Schedule 3.14(b), each of the
agreements set forth in Schedule 3.14(a) and the agreements or
contracts of any of the OKIE Companies disclosed in any other
Schedule (the "Contracts") was entered into in a bona fide
transaction in the ordinary course of business and is in full
force and effect. The Sellers have heretofore delivered to
parent complete and correct copies or descriptions (in the
case of unwritten contracts) of the Contracts. There is not
under any Contract: (i) any existing default by any of the
OKIE Companies or, to the Sellers' best knowledge, by any
other party thereto, or (ii) any event which, after notice or
lapse of time or both, would constitute a default by any of
the OKIE Companies, or to the Sellers' best knowledge, by any
other party, or result in a right to accelerate or terminate
or result in a loss of rights of any of the OKIE Companies;
.15 Personal Property. Schedule 3.15 sets forth a complete
list of all the personal property owned by each of the OKIE
Companies with an original cost of more than $1,000. Each of
the OKIE Companies has good and valid title to all of its
personal property, free and clear of all pledges, liens,
charges, encumbrances, easements, defects, security interests,
claims, options, and restrictions of every kind
("Encumbrances"). Each of the OKIE Companies owns or has
valid rights to use all of the assets currently used by such
OKIE Company. The machinery, tools, equipment, field
vehicles, field assets and other physical assets of each of
the OKIE Companies are in good working order, normal wear and
tear excepted, are being used or are useful in the business of
such OKIE Company at its present level of activity and are in
an operating condition sufficient to conduct the business of
such OKIE Company as now being conducted.
.16 Real Property and Leases. Except with respect to Oil
and Gas Properties, Mineral Estates and Oil and Gas Leases
(each as defined in Section 4.1), Schedule 3.16 sets forth
each and every parcel of real property, leasehold interest
held by each of the OKIE Companies. In addition,
documentation with respect to easements granted in favor of
each of the OKIE Companies is available for inspection at such
OKIE Company's offices. Except as disclosed on Schedule 3.16,
each of the OKIE Companies has good and marketable title in
fee simple, free of any Encumbrances to the real property
listed in Schedule 3.16, other than such Encumbrances
disclosed in the respective Financial Statements or such
Encumbrances which individually or in the aggregate would not
have a Material Adverse Effect on any of the OKIE Companies.
Each of the OKIE Companies is in peaceful and undisturbed
possession of each leasehold estate. There are no material
defaults by any of the OKIE Companies as tenant under the
leasehold estates. Except as disclosed in Schedule 3.16 all
of the buildings, structures, improvements and fixtures used
by or useful in the business of each of the OKIE Companies,
owned or leased, are in a good state of repair, maintenance
and operating condition and, except as so disclosed and,
except for normal wear and tear, there are no defects with
respect thereto which would impair the day-to-day use of any
such buildings, structures, improvements or fixtures or which
would subject any of the OKIE Companies to liability under
applicable law.
.17 Compliance With Law.
(a) Except as set forth in Schedule 3.17(a), the
operations and activities of each of the OKIE Companies have
complied and are in compliance in all respects with all
applicable Federal, state and local laws, including, without
limitation, health and safety statutes and regulations and all
Environmental Laws (as defined in Section 3.17(n)), including,
without limitation, all restrictions, conditions, standards,
limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws
or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(b) Schedule 3.17(b) sets forth all Federal, state and
local governmental licenses, permits and other authorizations
("Permits") of the business of each of the OKIE Companies and
all reports of inspection of each of the OKIE Companies and
their respective properties from January 1, 1989 to the date
hereof under all applicable Federal, state and local health
and safety laws and regulations; each of the OKIE Companies
has heretofore delivered to parent complete and correct copies
of all of the foregoing and applications relating thereto.
(c) Except as set forth in Schedule 3.17(c), each of the
OKIE Companies has obtained all Permits that are (i) required
under all Federal, state and local laws, including the
Environmental Laws, for the ownership, use and operation of
each location owned, operated or leased by such OKIE Company
(the "Property") or (ii) otherwise necessary in the conduct of
the business of such OKIE Company. Except as set forth in
Schedule 3.17(c), all such Permits are in effect, no appeal
nor any other action is pending to revoke any such permit, and
each of the respective OKIE Companies is in full compliance
with all terms and conditions of all such Permits.
(d) There have been no environmental studies made in the
last five years relating to the Property or any other property
or facility previously owned, operated or leased by any of the
OKIE Companies. The Sellers have heretofore delivered to
Parent copies of any and all environmental studies previously
conducted relating to the Property or any other property or
facility previously owned, operated or leased by any of the
OKIE Companies.
(e) Except as set forth in Schedule 3.17(e), there is no
civil, criminal or administrative action, suit, demand, claim,
hearing, notice of violation, investigation, proceeding,
notice or demand letter pending relating to any of the OKIE
Companies or the Property (or any other property or facility
formerly owned, operated or leased by any of the OKIE
Companies), or, to the Sellers' best knowledge, threatened
relating to any of the OKIE Companies or the Property (or any
other such property or facility formerly owned, operated or
leased by any of the OKIE Companies) and relating in any way
to the Environmental Laws or any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated or approved thereunder.
(f) Except as set forth in Schedule 3.17(f), none of
OKIE Companies has and to the Sellers' best knowledge, no
other Person has, Released, placed, stored, buried or dumped
any Hazardous Substances, Oils, Pollutants or Contaminants or
any other wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property (or any
other property or facility formerly owned, operated or leased
by any of the OKIE Companies) except for inventories of such
substances to be used, and wastes generated therefrom, in the
ordinary course of business of any of the OKIE Companies
(which inventories and wastes, if any, were and are stored or
disposed of in accordance with applicable laws and regulations
and in a manner such that there has been no Release of any
such substances into the environment).
(g) Except as set forth in Schedule 3.17(g), no Release
or Cleanup occurred at the Property (or any other property or
facility formerly owned, operated or leased by any of the OKIE
Companies) which could result in the assertion or creation of
a lien on the Property by any Governmental Entity with respect
thereto, nor has any such assertion of a lien been made by any
Governmental Entity with respect thereto.
(h) Except as set forth in Schedule 3.17(h), no employee
of any of the OKIE Companies in the course of his or her
employment with any such OKIE Company has been exposed to any
Hazardous Substances, Oils, Pollutants, Contaminants or other
substance, generated, produced or used by any such OKIE
Company which could give rise to any claim against any of the
OKIE Companies.
(i) Except as set forth in Schedule 3.17(i), none of the
OKIE Companies has received any notice or order from any
Governmental Entity advising it that any of the OKIE Companies
is responsible for or potentially responsible for Cleanup or
paying for the cost of Cleanup of any Hazardous Substances,
Oils, Pollutants or Contaminants or any other waste or
substance, and none of the OKIE Companies has entered into any
agreements concerning such Cleanup, nor are the Sellers aware
of any facts which might reasonably give rise to such notice,
order or agreement.
(j) Except as set forth in Schedule 3.17(j), the
Property does not contain any: (a) underground storage tanks;
(b) asbestos; (c) equipment using PCBs; (d) underground
injection wells; or (e) septic tanks in which process
wastewater or any Hazardous Substances, Oils, Pollutants or
Contaminants have been disposed;
(k) Except as set forth in Schedule 3.17(k), with regard
to the OKIE Companies and the Property (or any other property
or facility formerly owned, operated or leased by any of the
OKIE Companies), there are no past or present (or, to the
Sellers' best knowledge, future) events, conditions,
circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent compliance or
continued compliance with the Environmental Laws as in effect
on the date hereof or with any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, or which may give
rise to any common law or legal liability under the
Environmental Laws, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of
violation, study or investigation, based on or related to the
manufacture, generation, processing, distribution, use,
treatment, storage, place of disposal, transport or handling,
or the Release or threatened Release into the indoor or
outdoor environment by any of the OKIE Companies or a present
or former facility of any of the OKIE Companies of any
Hazardous Substances, Oils, Pollutants or Contaminants.
(l) There are no former manufactured gas plant sites
which were owned, operated or leased by any of the OKIE
Companies.
(m) None of the OKIE Companies has entered into any
agreement that may require it to pay to, reimburse, guaranty,
pledge, defend indemnify or hold harmless any person for or
against Environmental Liabilities and Costs.
(n) The following terms shall be defined as follows:
(A) Cleanup - means all actions required to: (1)
cleanup, remove, treat or remediate Hazardous Substances,
Oils, Pollutants or Contaminants in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Substances,
Oils, Pollutants or Contaminants so that they do not migrate,
endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment; (3) perform pre-remedial
studies and investigations and post-remedial monitoring and
care; or (4) respond to any government requests for
information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup,
removal, treatment or remediation of Hazardous Substances,
Oils, Pollutants or Contaminants in the indoor or outdoor
environment.
(B) Environmental Laws - means all foreign, Federal,
state and local laws, regulations, rules and ordinances
relating to pollution or protection of the environment,
including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances, Oils, Pollutants
or Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, Release, transport or handling of
Hazardous Substances, Oils, Pollutants or Contaminants, and
all laws and regulations with regard to recordkeeping,
notification, disclosure and reporting requirements respecting
Hazardous Substances, Oils, Pollutants or Contaminants.
(C) Environmental Liabilities and Costs - means all
liabilities, obligations, responsibilities, obligations to
conduct Cleanup, losses, damages, deficiencies, punitive
damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all fees,
disbursements and expenses of counsel, expert and consulting
fees and costs of investigations and feasibility studies and
responding to government requests for information or
documents), fines, penalties, restitution and monetary
sanctions, interest, direct or indirect, known or unknown,
absolute or contingent, past, present or future, resulting
from any claim or demand, by any Person, whether based in
contract, tort, implied or express warranty, strict liability,
joint and several liability, criminal or civil statute,
including any Environmental Law, or arising from
environmental, health or safety conditions, the Release or
threatened Release of Hazardous Substances, Oils, Pollutants
or Contaminants into the environment, as a result of past or
present ownership, leasing or operation of any properties,
owned, leased or operated by any of the OKIE Companies
including, without limitation, any of the foregoing incurred
in connection with the conduct of any Cleanup.
(D) Hazardous Substances, Oils, Pollutants or
Contaminants - means all substances defined as such in the
National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. 300.5, or defined as such by, or regulated
as such under, any Environmental Law.
(E) Release - means, when used as a noun, any release,
spill, emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration
into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, and
surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Substances, Oils,
Pollutants or Contaminants through or in the air, soil,
surface water, groundwater or property, and when used as a
verb, the occurrence of any Release.
.18 Insurance. (a) Schedule 3.18 sets forth (i) each of
the OKIE Companies' policies of insurance presently in force
and, including without limitation, those covering such
company's public and product liability and its personnel,
properties, buildings, machinery, equipment, furniture,
fixtures, and operations, specifying with respect to each such
policy, the name of the insurer, type of coverage, term of
policy, limits of liability and annual premium; (ii) each of
the OKIE Companies' premiums, by year, by type of coverage,
for the period since the respective dates of incorporation of
each of the OKIE Companies based on information received from
such company's insurance carrier(s); (iii) all outstanding
insurance claims by each of the OKIE Companies for damage to
or loss of property or income which have been referred to
insurers or which such company believes to be covered by
commercial insurance, together with the present status of
each; (iv) general comprehensive liability policies carried by
each of the OKIE Companies since 1989, including excess
liability policies; and (v) any agreements, arrangements, or
commitments by or relating to any of the OKIE Companies under
which any such company indemnifies any other Person or is
required to carry insurance for the benefit of any other
Person.
(a) The insurance policies set forth in Schedule 3.18
are in full force and effect, all premiums with respect
thereto covering all periods up to and including the Closing
Date shall be paid when due, and no notice of cancellation or
termination has been received with respect to any such policy.
Such policies are sufficient for compliance with all
requirements of law and all agreements to which the respective
OKIE Company is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage for
the assets and operations of such company; will remain in full
force and effect through the respective dates set forth in
Schedule 3.18 without the payment of additional premiums; and
will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement.
.19 Suppliers and Customers. Except as disclosed on
Schedule 3.19, no supplier, customer, distributor or sales
representative of any of the OKIE Companies has canceled or
otherwise terminated, or made any written threat to such
company or to any of its Affiliates to cancel or otherwise
terminate, for any reason, including the consummation of the
transactions contemplated hereby, its relationship with such
company, or has at anytime after February 28, 1995, materially
decreased its services or supplies provided to such company or
its usage of the services or products of such company. Except
as disclosed on Schedule 3.19, to the Sellers' best knowledge,
no supplier, customer, distributor or sales representative of
any of the OKIE Companies intends to cancel or otherwise
terminate its relationship with such company or to materially
decrease its services or supplies provided to such company or
its usage of the services or products of such company.
.20 Absence of Questionable Payments. Except as disclosed
on Schedule 3.20, none of the OKIE Companies nor any director,
officer, agent, employee, attorney-in-fact or other Person
acting on behalf of any of the OKIE Companies, has used any
corporate or other funds for unlawful contributions, payments,
gifts, or entertainment, or made any unlawful expenditures
relating to political activity to government officials or
others or established or maintained any unlawful or unrecorded
funds in violation of applicable law. Except as disclosed on
Schedule 3.20, none of the OKIE Companies nor any current
director, officer, agent, employee, attorney-in-fact or other
Person acting on behalf of any of the OKIE Companies, has
accepted or received any unlawful contributions, payments,
gifts, or expenditures.
.21 Absence of Certain Changes or Events. Except as
disclosed on Schedule 3.21, since the date of the most recent
Financial Statements, each of the OKIE Companies has conducted
its business only in the ordinary and usual course, and, as of
the date of this Agreement, there has not been (i) any damage,
destruction or loss, whether covered by insurance or not,
which has, or insofar as reasonably can be foreseen in the
future is reasonably likely to have, a Material Adverse Effect
on any of the OKIE Companies; (ii) any declaration, setting
aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of
the OKIE Companies' capital stock; or (iii) any transaction,
commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate having or
which, insofar as reasonably can be foreseen, in the future is
reasonably likely to have, a Material Adverse Effect on any of
the OKIE Companies.
.22 Disclosure. (a) No representations or warranties by
the Sellers in this Agreement, including the Schedules hereto,
and no statement contained in any document (including, without
limitation, the Financial Statements, Certificates, or other
writings furnished or to be furnished by the Sellers or any of
the OKIE Companies to parent or any of its representatives
pursuant to the provisions hereof or in connection with the
transactions contemplated hereby), contains or will contain
any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the
circumstances under which it was made, in order to make the
statements herein or therein not misleading. There is no fact
known to the Sellers which has or could have a Material
Adverse Effect on any of the OKIE Companies and which has not
been set forth in this Agreement, the Financial Statements, or
any Schedule, Exhibit, or certificate delivered, or to be
delivered, in accordance with the terms hereof.
(a) The Sellers have furnished or will cause to be
furnished to Parent complete and correct copies of all
agreements, certificates of compliance, instruments and
documents set forth on a Schedule, or to be set forth on a
Schedule, or underlying a disclosure set forth on a Schedule.
Each of the Schedules will be complete and correct when
delivered to Parent in accordance with the terms of this
Agreement.
.23 Sellers' Best Knowledge. For the purposes of this
Article III, the term "Sellers' best knowledge", shall mean
the best knowledge of the Sellers, collectively and each of
them individually, after due inquiry.
IV
OIL AND GAS PROVISIONS
.1 Definitions.
(a) Oil and Gas Properties. The term "Oil and Gas
Properties" shall mean all of the right, title and interest of
any of the OKIE Companies in the following:
(i) All oil, gas and mineral estates; all leases,
working interests, operating rights, royalties, overriding
royalties, production payments, net profit interests, fee
interests, and other estates and interests; as well as all
Hydrocarbons and other minerals in place (the foregoing items
are sometimes hereinafter referred to as the "Mineral
Estates");
(ii) All property rights in and to other lands and
properties by virtue of any pooling, unitization or
communitization of the Mineral Estates;
(iii) All oil and gas wells and wellhead equipment,
together with all improvements, personal property, and
equipment located on the Mineral Estates including, without
being limited to, all wells presently drilled, currently
drilling, temporarily abandoned, or plugged and abandoned, and
all casing, machinery, tanks, reservoirs, pipes, tubing,
gauges, pumping plants, pumps, compression facilities,
gathering systems, injection facilities, salt water disposal
facilities, and any and all machinery and equipment of any
kind or character whatsoever appurtenant to or used in
connection with the production of Hydrocarbons or other
minerals;
(iv) All severed and extracted Hydrocarbons and other
minerals;
(v) All leases, agreements, unit agreements, operating
agreements, easements, surface-use agreements, franchises,
licenses, servitudes, and rights of every character which are
useful or appropriate in exploring for, developing, operating,
treating, storing, marketing, or transporting Hydrocarbons or
other minerals (the foregoing items referred to in this
Section 4.1(a)(v) are sometimes hereinafter referred to as to
the "Oil and Gas Leases");
(vi) All governmental permits and approvals, whether
federal, tribal, state, county, or local, which are useful or
appropriate in exploring for, developing, operating, treating,
storing, marketing, or transporting Hydrocarbons or other
minerals (the foregoing items are sometimes hereinafter
referred to as the "Oil and Gas Permits");
(vii) All accounts, contract rights, and general
intangibles now or hereafter arising in connection with the
production, treatment, storage, transportation, manufacture,
or sale of Hydrocarbons or other minerals.
(b) Hydrocarbons. The term "Hydrocarbons" shall mean
all oil, gas, casinghead gas, and other solid, liquid, or
gaseous hydrocarbons and associated and related minerals and
substances.
.2 Additional Lists. The Sellers shall deliver to
Parent true and complete Lists, as of the date of this
Agreement specifying with respect to the businesses,
properties and assets of each of the OKIE Companies and
obligations of each of the OKIE Companies with respect to the
following:
List A. Each and every oil and/or gas well
included in the Oil and Gas Properties (identified
by well name, number or other convenient means of
identification) producing or capable of producing
oil, gas or other hydrocarbons (hereinafter
sometimes referred to as the "Wells"), and as to
each such Well (i) the state and county in which the
same is located, (ii) whether or not any of the OKIE
Companies is the operator of such well, and if so,
designating which OKIE Company (iii) the working,
royalty, overriding royalty, or other interests of
such company therein, (iv) the net revenue interests
of such company therein, and (v) any production
payments, net profits interests or like interests
with respect thereto. (Inaccuracies as to these
items shall not be deemed a breach of the
obligations to deliver a true and complete list,
provided such inaccuracies are not material to the
business of such company.)
List B. Each report of independent petroleum
consultants in the possession of any of the OKIE
Companies, as to the proved or probably reserves of
such company as of December 31, 1990 or thereafter.
List C. Each and every non-producing oil
and/or gas property included in the Oil and Gas
Properties identified by property number, lease
number or other convenient means of identification,
(except for oil and/or gas properties that, singly
or in the aggregate, are not material to the
business of any of the OKIE Companies taken as a
whole) and as to each such property (i) the state
and county in which the same is located, and (ii)
the working, royalty, overriding royalty or other
interests of such company therein.
List D. Each current or proposed Authorization
for Expenditure or document of similar character
which is for an amount yet to be paid at the time of
delivery of the List in excess of Ten Thousand
Dollars ($10,000).
List E. Each and every current or proposed
contract or agreement for the sale of the share of
any of the OKIE Companies of production from the
Mineral Estates which involves or may involve the
payment to such company of an aggregate amount in
excess of Ten Thousand Dollars ($10,000) and which
permits the sale of production at a price lower than
the market price from time to time prevailing in the
area in which such production occurs.
.3 Representations and Warranties as to Oil and Gas
Properties.
(a) Title. The OKIE Companies in the aggregate have
Defensible Title (as hereinafter defined) to all material Oil
and Gas Properties, subject to and except for the Permitted
Encumbrances (as hereinafter defined) and as would be
acceptable to a reasonably prudent operator of oil and gas
properties.
(1) As used herein, the term "Defensible Title" shall
mean (a) as to the Wells and Oil and Gas Leases, such title as
will enable the OKIE Companies to receive not less than the
net revenue interests set forth on List A of all Hydrocarbons
and other minerals produced from the Wells, and which will
obligate the OKIE Companies to bear costs and expenses
relating to the maintenance, development, and operations of
the Wells not greater than the working interests set forth on
List A; and (B) as to the Oil and Gas Properties other than
the Wells and Oil and Gas Leases, such title as will enable
the OKIE Companies to use, possession, and enjoyment of such
other Oil and Gas Properties as presently used, possessed and
enjoyed.
(2) As used herein, the term "Permitted Encumbrances"
shall mean:
(A) lessors' royalties, overriding royalties,
division orders, reversionary interests and net profits
interests and similar burdens which do not operate to reduce
the net revenue interests in the Wells below those set forth
on List A;
(B) the terms and conditions of the Oil and Gas
Leases and all agreements, orders, instruments and
declarations to which the Mineral Estates are subject and that
are customary and acceptable in the oil and gas industry in
the area of the particular property;
(C) liens arising under operating agreements,
pooling, unitization or communitization agreements, and
similar agreements of a type and nature customary in the oil
and gas industry and securing payment of amounts not yet
delinquent;
(D) liens securing payments to mechanics and
materialmen, and liens securing payment of taxes or
assessments, which liens are not yet delinquent or, if
delinquent, are being contested in good faith in the normal
course of business;
(E) conventional rights of reassignment obligating
the OKIE companies to reassign their interests in a portion of
the Mineral Estates to a third party in the event the OKIE
Companies intend to release or abandon such interest;
(F) calls on or preferential rights to purchase
production at not less than prevailing prices;
(G) rights reserved to or vested in any
Governmental Entity to control or regulate any of the Mineral
Estates in any manner, and all applicable laws, rules,
regulations and orders of any such Governmental Entity;
(H) easements, rights-of-way, servitudes, permits,
surface leases, and other surface uses on, over or in respect
of any of the Mineral Estates that are not such as to
materially interfere with the operation, value or use thereof;
and
(I) all other liens, charges, encumbrances,
limitations, obligations, defects and irregularities affecting
any portion of the Mineral Estates which would not have a
material adverse effect on the operation, value, use and
enjoyment thereof.
(b) Oil and Gas Leases. As to each of the Oil and Gas
Leases material to the operation of the businesses of the OKIE
Companies taken as a whole:
(1) such Oil and Gas Lease has been maintained according
to its terms in all material respects and is in full force and
effect;
(2) the OKIE Companies are not in material breach or
default with respect to any of their material obligations
under such Oil and Gas Lease;
(3) all material payments, including any and all
royalties, required to be made under such Oil and Gas Lease by
OKIE Companies have been paid; and
(4) no third party to any such Oil and Gas Lease is in
breach or default with respect to its obligations thereunder,
which default would have a material adverse effect on the
operation, value, use or enjoyment of the Mineral Estates.
(c) Oil and Gas Permits; Compliance with Applicable
Laws. As to the OKIE Companies:
(1) except for permits, licenses, variances, exemptions,
orders and approvals which, individually or in the aggregate,
would not adversely affect the operation, value, use and
enjoyment of the Mineral Estates, all necessary governmental
permits, licenses, variances, exemptions, orders and approvals
have been obtained for the conduct of the oil and gas business
of each of the OKIE Companies;
(2) all of the Oil and Gas Permits are in good standing
and full force and effect, except for Permits which are not
material to the operation of the business of any of the OKIE
Companies, taken as a whole;
(3) the OKIE Companies are in compliance with the terms
of the Oil and Gas Permits, except where the failure so to
comply would not have a material adverse effect on any of the
OKIE Companies;
(4) the oil and gas businesses of the OKIE Companies are
not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible
violations which individually or in the aggregate do not, and
insofar as reasonably can be foreseen, in the future will not,
have a material effect on any of the OKIE Companies;
(d) Prepayment for Production. The OKIE Companies are
not obligated by virtue of any prepayment arrangement under
any contract for the sale of Hydrocarbons and containing a
"take or pay" or similar provision, a production payment,
"make-up" or any other arrangement to deliver Hydrocarbons
produced from the Minerals Estates at some future time without
then or thereafter receiving full payment therefor. Except as
set forth on Schedule 4.3(d), there are no Mineral Properties
as to which any of the OKIE Companies is either "over-
produced" or "under-produced" which, singly or in the
aggregate, would have a material adverse effect on the
business of any of the OKIE Companies.
V
REPRESENTATIONS AND WARRANTIES OF PARENT AND WOK
Each of Parent and WOK represents and warrants to
the Sellers and each of the OKIE Companies as follows:
.1 Organization, Standing and Power. Each of Parent
and WOK is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation
and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now
being conducted.
.2 Capital Structure. As of the date hereof, the
authorized capital stock of Parent consists of 48,000,000
shares of Parent Common Stock and 5,000,000 shares of
cumulative preferred stock, no par value, of Parent ("Parent
Cumulative Preferred Stock"). At the close of business on
January 31, 1995, (i) 28,865,168 shares of parent Common Stock
were outstanding, (ii) no shares of Parent Cumulative
Preferred Stock were outstanding, (iii) no shares of parent
Common Stock were held by parent in its treasury or by its
wholly-owned Subsidiaries, and (iv) there were no Voting Debt
securities of parent issued or outstanding. As of the date
hereof, the authorized capital stock of WOK consists of 1,000
shares of WOK Common Stock, 100 of which are issued and
outstanding and are owned by Parent. All outstanding shares
of Parent Common Stock and WOK Common Stock are validly
issued, fully paid and nonassessable and are not subject to
preemptive rights. As of the date of this Agreement, except
pursuant to this Agreement and the Parent Shareholder Rights
Plan dated as of November 6, 1991, and except for shares of
Parent Common Stock reserved for issuance pursuant to the
Parent's Dividend Reinvestment and Stock Purchase Plan,
Employee Stock Purchase Plans, Long-Term Incentive Plan of
1987, Employee Savings Plan, Parent bonus Stock Ownership Plan
and Whiting Stock Option Plan (2,319,467 shares at January 31,
1995) (the "Parent Stock Plans"), there are no options,
warrants, calls,rights, commitments or agreements of any
character to which parent or any Subsidiary of Parent is a
party or by which it is bound obligating Parent or any
Subsidiary of Parent to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock
or any Voting Debt, securities of Parent or any Subsidiary of
Parent, or obligating parent or any Subsidiary of Parent to
grant, extend or enter into any such option, warrant, call,
right or agreement.
.3 Corporate Authority. Parent and WOK have all
requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and WOK. This
Agreement has been duly executed and delivered by parent and
WOK, as the case may be, and assuming this Agreement
constitutes a valid and binding obligation of the Sellers and
each of the OKIE Companies, constitutes a valid and binding
obligation of Parent and WOK enforceable in accordance with
its terms.
.4 No Violation. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated hereby will not result in any Violation pursuant
to (i) any provision of the Articles of Incorporation or By-
Laws of Parent or WOK, or (ii) any provision of any loan or
credit agreement, note, mortgage, indenture, lease, or other
agreement, obligation, instrument, permit, concession,
franchise, license or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to
Parent or WOK or their respective properties or assets, which
Violation, in the case of each of clauses (ii) and (iii),
would have a Material Adverse Effect on Parent, WOK and
Parent's subsidiaries taken as a whole.
.5 Consents and Approvals. No consent, approval, order
or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect
to parent, WOK or any of Parent's Subsidiaries in connection
with the execution and delivery of this Agreement by Parent
and WOK or the consummation by Parent and WOK of the
transactions contemplated hereby, the failure to obtain which
would have a Material Adverse Effect on Parent, WOK and
Parent's Subsidiaries, taken as a whole, except for (i) the
filing of such documents with, and the obtaining of such
orders from the various state authorities that are required in
connection with the transactions contemplated by this
Agreement and (ii) other such filings, authorizations, orders,
and approvals of state and local government authorities.
.6 Parent SEC Documents. Parent has made available to
the Sellers a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by
Parent with the SEC since January 1, 1991 (as such documents
have since the time of their filing been amended, the "Parent
SEC Documents") which are all the documents (other than
preliminary material) that Parent was required to file with
the SEC since such date under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Documents, and none of the
Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made,
not misleading. The financial statements of Parent included
in the Parent SEC Documents comply as to form in all material
respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the
notes thereto, or in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial
position of Parent and its consolidated subsidiaries as at the
dates thereof and the consolidated results of their operations
and cash flows for the periods then ended.
.7 Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Documents filed prior to the date
of this Agreement or in the unaudited consolidated balance
sheet of Parent and its subsidiaries as at September 30, 1993,
and the related consolidated statements of income, cash flows
and changes in shareholders' equity (the "Parent 1993
Financials"), true and correct copies of which have been
delivered to the Sellers, or as otherwise contemplated by this
Agreement, since the date of the Parent 1993 Financials,
Parent and its subsidiaries have conducted their respective
businesses only in the ordinary and usual course, and, as of
the date of this Agreement, there has not been (i) any damage,
destruction or loss, whether covered by insurance or not,
which has, or insofar as reasonably can be foreseen in the
future is reasonably likely to have, a Material Adverse Effect
on Parent and its subsidiaries taken as a whole; (ii) any
declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect
to any of parent's or its subsidiaries' capital stock, except
for regular cash dividends on Parent Common Stock and Parent
Cumulative Preferred Stock; or (iii) any transaction,
commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate having of
which, insofar as reasonably can be foreseen, in the future is
reasonably likely to have, a Material Adverse Effect on parent
and its subsidiaries taken as a whole.
.8 Interim Operations of WOK. WOK was formed solely
for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement
and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement, or to the extent
that the parties shall otherwise consent in writing), the
Sellers, each of the OKIE Companies, Parent and WOK each agree
that:
.1 Ordinary Course. Except as contemplated by Sections
8.10, 8.11 and 8.12, each of the OKIE Companies shall carry on
its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use
all reasonable efforts to preserve intact its present business
organization, and preserve its relationships with customers,
suppliers and others having business dealings with it to the
end that its goodwill and ongoing business shall not be
impaired in any material respect at the Effective Time.
.2 Dividends; Changes in Stock. Neither of the OKIE
Companies shall (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock,
(ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock or (iii) repurchase or otherwise
acquire any shares of its capital stock.
.3 No Issuance of Securities. Neither of the OKIE
Companies shall issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its
capital stock or any securities convertible into, or any
rights, warrants or options to acquire, any such shares.
.4 Constituent Documents. Neither of the OKIE
Companies shall amend or propose to amend its Articles of
Incorporation or its By-Laws.
.5 No Acquisitions. Neither of the OKIE Companies
shall acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any manner, any
business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire
or agree to acquire any assets not in the ordinary course of
business.
.6 No Dispositions. Neither of the OKIE Companies
shall sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise
dispose of,any of its assets, which are material, individually
or in the aggregate.
.7 No Indebtedness. Neither of the OKIE Companies
shall incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such
company or guarantee any debt securities of others other than
in each case in the ordinary course of business consistent
with prior practice.
.8 No Solicitations. The Sellers shall not, nor shall
they permit any of the OKIE Companies or any of their
respective officers, directors or employees or any investment
banker, financial advisor, attorney, accountant or other
representative to solicit or encourage (including by way of
furnishing information) or take any other action to
facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any
Alternate Proposal, or agree to or endorse any Alternate
Proposal. "Alternate Proposal" shall mean any offer or
proposal for a merger, consolidation or other business
combination involving any of the OKIE Companies or any offer
or proposal to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of any of
the OKIE Companies other than the transactions contemplated by
this Agreement. The Sellers shall promptly orally, and within
five (5) business days in writing, advise Parent of any such
inquiries or Alternate Proposals.
.9 No Actions. Except as may be required by law, no
party shall take any action that would or is reasonably likely
to result in any of its representations and warranties set
forth in this Agreement being untrue as of the date made or in
any of the conditions to the Merger set forth in Article IX
not being satisfied.
.10 Advice of Changes; Filings with Governmental Entities.
Each party shall confer on a regular and frequent basis with
the other, report on operational matters and promptly advise
the other of any change or event having, or which, insofar as
reasonably can be foreseen, could have, a Material Adverse
Effect on such party and its subsidiaries taken as a whole.
Each party shall promptly provide the other party (or the
other party's counsel) copies of all filings made by such
party with any state or Federal Governmental Entity in
connection with this Agreement and the transactions
contemplated hereby.
.11 Employee Benefit Covenant. Except as contemplated by
Section 8.12, during the period from the date of this
Agreement and continuing until the Effective Time, the Sellers
and each of the OKIE Companies agree that they will not,
without the prior written consent of Parent, (i) enter into,
adopt, amend (except as may be required by law) or terminate
any agreement, arrangement, benefit plan or policy between any
of the OKIE Companies and one or more of their respective
directors, officers or employees or (ii) increase in any
manner the compensation or fringe benefits of any director,
officer or employee or (iii) pay any benefit not required by
any arrangement as in effect as of the date hereof or (iv)
enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
.12 Tax Covenant. (a) During the period from the date of
this Agreement and continuing until the Effective Time the
Sellers agree, and agree to cause each of the OKIE Companies,
(i) to file all tax returns required to be filed by them and
to pay all Taxes required to be paid, whether or not shown on
such returns, (ii) not, except in the ordinary course of
business consistent with prior practice, to make any Tax
election or settle or compromise any Tax liability, (iii) not
to take any action, or not to fail to take any action, that
may result in the termination, revocation or cessation of any
elections described in Schedule 3.11(b), and (iv) not to take
any action, or not to fail to take any action, that would
result in the failure of the Merger to qualify as a tax-free
reorganization within the meaning of Code Section 368(a).
During the period from the date of this Agreement and
continuing until the Effective Time, the Sellers and each of
the OKIE Companies agree not to take any action, or fail to
take any action, that may result in any of the consequences
described in the preceding sentence.
(a) From and after the Effective Time, Sellers agree to
pay any and all Taxes (other than income taxes relating to net
cash received from and after the Effective Time which relates
to production and expenses for any period ending on or prior
to the Effective Time) imposed on or relating to any of the
OKIE Companies for, or relating to, any period ending on or
prior to the Effective Time or, with respect to any period
that does not end on or prior to the Effective Time, the
portion of such period through the Effective Time.
VII
REMEDIES
.1 Survival of Representations and Warranties. All of
the representations and warranties of parent, WOK, the Sellers
and each of the OKIE Companies contained in this Agreement
shall survive the Effective Time and continue in full force
and effect for a period of two (2) years thereafter provided,
however, that the representations and warranties of the
Sellers and each of the OKIE Companies set forth in Section
3.11 with respect to any Taxes shall survive until the
expiration of the statute of limitations for the assessment or
collection of any such Tax. Parent's claim for
indemnification under Section 7.2 hereof for a breach of any
representation or warranty shall be made prior to the date on
which such survival period expires, it being understood that
claims made by Parent or any Parent Indemnitee (as defined
below) in writing on or prior to such expiration date shall
survive such expiration date.
.2 Indemnification Provisions for Benefit of Parent.
(a) Indemnification by Sellers. With respect to each of
OKIE and Keener, the Sellers agree to indemnify Parent, any of
its affiliates, their respective officers and directors and
their successors and permitted assigns (collectively, the
"Parent Indemnitees") from and against the entirety of any
Adverse Consequences (as hereinafter defined and in the case
of OKIE (the "OKIE Adverse Consequences") and in the case of
Keener (the "Keener Adverse Consequences")) any of the Parent
Indemnitees may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences any of
the Parent Indemnitees may suffer after the end of any
applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by:
(i) a breach by the Sellers or any such OKIE Company of
any of their representations, warranties, or covenants (other
than those contained in Section 3.17 hereof) contained herein
(other than a misrepresentation or breach of warranty that (A)
Parent or Parent Indemnittee knew of at the Effective Time or
(B) was waived in writing by Parent) or failure to perform or
otherwise fulfill any undertaking or other agreement or
obligation hereunder;
(ii) each and every item set forth in Schedules 3.17(a)
through (k); (A) the actual, alleged or threatened Release,
storage, transportation, treatment or generation of Hazardous
Substances, Oil, Pollutants or Contaminants generated, stored,
used, disposed of, treated, handled or shipped by any such
OKIE Company or any prior owner of the Property on or before
the Effective Time; (B) any Cleanup of Hazardous Substances,
Oils, Pollutants or Contaminants Released, disposed of or
discharged (x) on, beneath or adjacent to the Property prior
to or on the Effective Time or (y) at any other location if
such substances were generated, used, stored, disposed of,
treated, transported or Released by any of the OKIE Companies
or any prior owner of the Property prior to or on the
Effective Time; (C) the installation of any pollution control
equipment or other equipment to bring the facility into
compliance with any Environmental Law if such equipment is
installed because the facility was not in compliance with any
Environmental Laws as of the Effective Time; and (D) a breach
by the Sellers or any such OKIE Company of any of their
representations, warranties, or covenants contained in Section
3.17 hereof;
(iii) any and all Taxes imposed on or relating to any
such OKIE Company (other than income taxes relating to net
cash received from and after the Effective Time which relates
to production and expenses for any period ending on or prior
to the Effective Time) (whether directly or as a result of any
failure on the part of the Sellers to pay any income Taxes
relating to ownership of stock in such OKIE Company) for, or
relating to, any taxable period ending on or prior to the
Effective Time or, with respect to a taxable period that does
not end on or prior to the Effective Time, the portion of such
period through the Effective Time;
(2) any and all actions, suits, proceedings, claims or
demands, incident to any of the foregoing or such
indemnification;
provided that the Merger occurs and that Parent or other
Parent Indemnitee makes a written claim for indemnification
against the Sellers pursuant to Section 7.4 below within the
survival period provided for in Section 7.1 above. For
purposes of this Agreement, "Adverse Consequences" means all
actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines,
reasonable amounts paid in settlement, liabilities,
obligations, Taxes, liens, losses, expenses, and fees,
including, without limitation, Environmental Liabilities and
Costs, any and all expenses incurred in enforcing or seeking
to enforce a claim under Article VII, out-of-pocket costs,
reasonable court costs and all reasonable attorneys' and
accountants' fees and expenses.
(b) Certain Limitations. Notwithstanding the foregoing,
the Parent Indemnitees must (i) with respect to OKIE Adverse
Consequences, first proceed against the Adjusted OKIE Escrow
Shares (pursuant to the terms of the OKIE Escrow Agreement)
and (ii) with respect to Keener Adverse Consequences, first
proceed against the Keener Escrow Shares (pursuant to the
terms of the Keener Escrow Account), and in each case can
proceed against the respective Escrow Assets only, before
having recourse against the Sellers.
.3 Indemnification Provisions for Benefit of Sellers.
In the event the Parent or WOK breaches any of its
representations, warranties or covenants contained herein
(whether or not the Merger occurs), then Parent shall
indemnify each of the Sellers from and against the entirety of
any Adverse Consequences the Sellers may suffer resulting
from, arising out of, relating to, in the nature of, or caused
by the breach.
.4 Matters Involving Third Parties Other Than Cleanup.
(a) If any third party shall notify Parent, WOK or the
Sellers (the "Indemnified Party") with respect to any matter
(a "Third Party Claim") which may give rise to a claim for
indemnification against any other party (the "Indemnifying
Party") under this Article VII, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder
unless the Indemnifying Party is thereby prejudiced (and then
solely to the extent the Indemnifying Party thereby is
prejudiced).
(b) Except in claims seeking equitable relief from the
Indemnified Party and except as set forth in Section 7.5
below, any Indemnifying Party will have the right to assume
the defense of the Third Party Claim with counsel of their or
its choice reasonably satisfactory to the Indemnified Party at
any time within fifteen (15) days after the Indemnifying Party
has given notice of the Third Party Claim; provided, however
that the Indemnifying Party must acknowledge in writing their
or its obligation to indemnify the Indemnified Party with
respect to such Third Party Claim and must conduct the defense
of the Third Party Claim actively and diligently thereafter in
order to preserve their or its rights in this regard; and
provided further that the Indemnified Party may retain
separate co-counsel at their or its sole cost and expense and
participate in the defense of the Third Party Claim.
(c) So long as the Indemnifying Party has assumed and is
conducting the defense of the Third Party Claim in accordance
with Section 7.4(b) above, (i) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (which shall
not be unreasonably withheld) unless, in the case of any Third
Party Claim other than one regarding Taxes, the judgment or
proposed settlement involves only the payment of money damages
by one or more of the Indemnifying Parties and does not impose
an injunction or other equitable relief upon the Indemnified
Party, and (ii) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which shall not be
unreasonably withheld).
(d) In the event none of the Indemnifying Parties
assumes and conducts the defense of the Third Party Claim in
accordance with Section 7.4(b) above, however, (i) the
Indemnified Party may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to,
the Third Party Claim in any manner they or it reasonably may
deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in
connection therewith), and (ii) the Indemnifying Parties will
remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Article VII.
.5 Claims Involving Cleanup. If any Third Party Claim
relating to Cleanup, including but not limited to a claim by
any government or governmental agency, shall be made or
threatened against any Parent Indemnitee or if any claim shall
be made by any Parent Indemnitee against the Sellers relating
to Cleanup, then notice thereof shall be given as provided in
Section 7.4(a) hereof. Subject to the provisions of this
Section 7.5, Parent shall have the right to manage and control
any such Cleanup, to negotiate with respect to Cleanup with
any government or governmental agency and such third party
claimants, and to conduct any such Cleanup, subject to the
following:
(a) The Sellers shall have the right to participate
fully in any negotiations between Parent and any third party
regarding the scope and nature of such Cleanup. The Sellers
shall have the right to review and comment upon any report,
workplan or any other document that Parent proposes to submit
to any third party regarding any Cleanup prior to Parent's
submittal and Parent shall use commercially reasonable efforts
to provide the Sellers with a draft of such report, workplan
or other document at least five (5) business days prior to the
date on which such report, workplan or document must be
finalized or submitted. Parent agrees to consider all
comments of Sellers with regard to said report, workplan or
document in good faith. Notwithstanding the foregoing,
nothing herein shall limit Parent's right to conduct any such
Cleanup.
(b) Parent shall promptly and at its own expense provide
the Sellers with final copies of all reports, workplans and
any other documents received from or provided to any third
party, including but not limited to, any government or
governmental agency.
.6 Determination of Adverse Consequences. The parties
shall make appropriate adjustments for insurance coverage and
take into account the time cost of money (using the Applicable
Rate (as hereinafter defined) as the discount rate) in
determining Adverse Consequences for purposes of this Article
VII. All claims hereunder shall be computed with regard to
the present value of all future tax benefits and detriments
associated therewith but only to the extent such tax benefits
or detriments are actually received and the future value of
the same can be computed with reasonable accuracy. No claims
shall be made for matters adequately covered by insurance (or
matters which would have been covered if the insurance
referred to in Section 3.18 had been maintained) or other
indemnification. The Parties waive subrogation rights against
each other with respect to all matters as to which an
insurance recovery shall have been actually received after the
Effective Time. For purposes of this Agreement, "Applicable
Rate" means the corporate base rate of interest announced from
time to time by Norwest Bank Colorado, N.A. plus one percent
(1%) per annum.
VIII
ADDITIONAL AGREEMENTS
.1 Access to Information; Confidentiality. Upon
reasonable notice, the Sellers shall afford to the officers,
employees, accountants, counsel and other representatives of
Parent, reasonable access, during normal business hours during
the period prior to the Effective Time, to all properties,
books, contracts, commitments and records of each of the OKIE
Companies and, during such period, the Sellers shall furnish
promptly to Parent all information concerning the business,
properties and personnel as Parent may reasonably request.
Unless otherwise required by law, Parent shall hold any such
information delivered by the Sellers to Parent which is non-
public in confidence until such time as such information
otherwise becomes publicly available through no wrongful act
of Parent, and in the event of termination of this Agreement
for any reason, Parent shall promptly return all non-public
documents obtained from the Sellers, and all copies of such
documents, to the Sellers.
.2 Legal Conditions to Merger. Each of the Sellers,
the OKIE Companies, Parent and WOK will take all reasonable
actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to
this Agreement, including furnishing all information required
under applicable law to any Governmental Entity, and will
promptly cooperate with and furnish information to each other
in connection with any such requirements imposed upon any of
them or any of their subsidiaries in connection with the
Merger. Each of the Sellers, the OKIE Companies, Parent and
WOK will take all reasonable actions necessary to obtain (and
will cooperate with each other in obtaining) any consent,
authorizations, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party,
required to be obtained or made by Parent, WOK, the Sellers,
any of the OKIE Companies or any of their subsidiaries in
connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
.3 Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense, and, in connection
therewith, each of Parent, WOK, the Sellers and each of the
OKIE Companies shall pay, with its own funds and not with
funds provided by the other party, any and all property or
transfer taxes imposed on such party resulting from the
Merger.
.4 Brokers or Finders. Except for the fee to be paid
by the Sellers to Swearingen Petroleum Management, Inc., each
of Parent, WOK, the Sellers and each of the OKIE Companies
represents, as to itself, and its Affiliates, that no agent,
broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any
of the transactions contemplated by this Agreement. Parent or
WOK and the Sellers agree to indemnify and hold the other
harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or
expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its
Affiliate.
.5 Best Efforts. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use
best efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate
and make effective the transactions contemplated by this
Agreement and the Escrow Agreements.
.6 Tax Treatment. Parent, WOK, the Sellers and each of
the OKIE Companies each agree to treat the Merger as a
reorganization within Section 368(a) of the Code.
.7 Accounting Treatment. Parent, WOK, the Sellers and
each of the OKIE Companies each agree to account for the
Merger as a "purchase" within the meaning of Opinion 16 of the
Accounting Principles Board.
.8 Parent Registration. (a) For a period of two years
after the Effective Time, if (but without any obligation to do
so) Parent proposes to register (including for this purpose,
subject to the provisions of any agreement granting such
registration rights, a registration effected by the Parent for
shareholders other than the Parent) any shares of Parent
Common Stock under the Securities Act in connection with the
public offering of such securities (other than a registration
relating solely to the sale of securities to participants in a
Parent stock plan), Parent shall, at such time, promptly give
the Sellers written notice of such registration. Upon the
written request of the Sellers given to Parent within twenty
(20) days after the giving of the notice referred to in the
preceding sentence by Parent, Parent shall, subject to the
provisions of Section 8.8(b), cause to be registered under the
Securities Act all of the Purchase Shares that the Sellers
have requested be registered.
(a) In connection with any offering involving an
underwriting of shares of Parent Common Stock being issued by
Parent or sold pursuant to demand rights of another person,
Parent shall not be required under Section 8.8(a) to include
any of the Purchase Shares in such underwriting unless the
Sellers accept the terms of the underwriting as agreed upon
between Parent and such other person, if applicable, and the
underwriters, and then only in such quantity as will not, in
the opinion of the underwriters, jeopardize the ability to
effectuate such underwriting or adversely affect the price of
securities to be sold thereunder by more than five percent, it
being understood that if the number of securities that the
Sellers and other stockholders of Parent, other than those
exercising a demand right, seek to sell in an underwriting
pursuant this Section 8.8 are not to be included in such
underwriting, then the number of securities of the Sellers and
each such other stockholder to be included in such
underwriting shall be determined pro rata in proportion to the
respective quantities of securities specified in the
respective requests of the Sellers and such other
stockholders.
.9 Corporate Name. From and after the Effective Time,
Parent will not, and will cause its affiliates not to, adopt,
use, register or attempt to obtain rights to the corporate
name "OKIE Energy Company", or any corporate, company, trade
name, trademark, trade dress, brand mark, brand name, service
mark or copyright which is similar in sound or appearance to
such name.
.10 Transfer of Partnership Assets. Prior to the
Effective Time, all assets held by OKIE Operating Company,
Ltd., an Oklahoma limited partnership ("OKIE Limited"), in
which OKIE holds a 99% limited partnership interest and in
which OKIE Energy Company, an Oklahoma corporation, all of the
issued and outstanding shares of which are owned by the
Sellers, holds a 1% general partnership interest, shall be
transferred to OKIE, such transfer to be duly authorized by
all necessary corporate action on the part of each of OKIE and
OKIE Energy, and all necessary action on the part of OKIE
Limited, and validly carried out in compliance with all
applicable laws, and shall provide OKIE with good, legal and
valid title to all such assets. Prior to the Effective Time,
OKIE Limited shall be dissolved, its affairs wound up and its
existence terminated in compliance with all applicable laws,
and as of such date OKIE shall have no further interest in or
obligations with respect to OKIE Limited.
.11 Termination of Benefit Plans. Prior to the
Effective Time, any and all Employee Benefit Plans set forth
in Schedule 3.12(a) shall be terminated, such termination to
be duly authorized by all necessary corporate action on the
part of OKIE and validly carried out in compliance with all
applicable laws. Any and all consents necessary in connection
with such termination, including the consent of any plan
administrator, shall have been obtained, and all employees
covered by any such plan shall be notified of such
termination. As of the effective date of such termination,
OKIE shall have no further interest in or obligations with
respect to any such Employee Benefit Plans.
IX
CONDITIONS PRECEDENT
.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the
Merger shall be subject to the satisfaction prior to the
Closing Date of each of the following conditions:
(a) Regulatory Approvals. Other than the filings
provided for by Section 1.2, all authorizations, consents,
orders or approvals of , or declarations or filings with, or
expirations of waiting periods imposed by, any Governmental
Entity the failure to obtain which would have a Material
Adverse Effect on the Parent or the Surviving Corporation,
shall have been filed, occurred or been obtained, and all
applicable waiting periods, if any, including extensions
thereof, under any applicable law, statute, regulation or
rule, shall have expired or been terminated.
(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger, or materially
changing the transactions contemplated hereby, shall be in
effect.
(c) Tax Free Reorganization. Parent shall have received
a certificate, in form and substance satisfactory to Parent,
as the case may be, from the Sellers, representing that the
Sellers have no plan or intention to sell, exchange, or
otherwise dispose of (i) shares of Parent Common Stock
received in the Merger or (ii) shares of Parent Common Stock
held by such shareholder prior to the Effective Time, if any.
(d) Escrow Agreements. Parent, the Sellers and the
Escrow Agent shall have executed and delivered to each other
each of the OKIE Escrow Agreement and the Keener Escrow
Agreement, substantially in the form attached hereto as
Exhibit A-1 and Exhibit A-2, respectively, and each of the
OKIE Escrow Agreement and the Keener Escrow Agreement shall
remain in full force and effect.
.2 Conditions to Obligations of Parent and WOK. The
obligation of Parent and WOK to effect the Merger is subject
to the satisfaction of each of the following conditions unless
waived by Parent and WOK:
(a) Representations and Warranties. Except as otherwise
contemplated by this Agreement, the representations and
warranties of the Sellers and each of the OKIE Companies set
forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement (except to
the extent such representations and warranties speak as of an
earlier date) and as of the Closing Date as though made on and
as of the Closing Date, and Parent and WOK shall have received
a certificate signed by the Sellers to such effect.
(b) Performance of Obligations of Sellers and OKIE
Companies. The Sellers and each of the OKIE Companies shall
have performed in all material respects all obligations
required to be performed by them under this Agreement at or
prior to the Closing Date, and Parent and WOK shall have
received a certificate signed by the Sellers and each of the
OKIE Companies to such effect.
(c) Board Approval. The Board of Directors of Parent
shall have approved this Agreement by March 31, 1995.
(d) Consents Under Agreements. The Sellers and each of
the OKIE Companies shall have obtained the consent or approval
of each person (other than the Government Entities), whose
consent or approval shall be required in order to permit the
Sellers and each of the OKIE Companies to consummate the
transactions contemplated hereby (including, without
limitation, consents or approvals incident to contracts,
franchises, deeds, easements, intangibles and other rights and
entitlements necessary for the continued operation of the
business of each of the OKIE Companies), except those for
which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse
Effect (i) on the Parent or the Surviving Corporation or (ii)
upon the consummation of the transactions contemplated hereby.
(e) Material Adverse Change. Since December 31, 1993,
there shall not have been any material adverse change, or
changes which in the aggregate are materially adverse, in the
financial condition, assets, liabilities (contingent or
otherwise) results of operations, business or business
prospects of either of the OKIE Companies.
(f) Satisfactory Investigation. Parent shall have
satisfactorily completed its investigation, including a review
by Parent's independent public accountants, of the assets,
equipment, facilities, liabilities (contingent or otherwise)
financial condition, business and business prospects of each
of the OKIE Companies in connection with the transactions
contemplated hereby and shall have been satisfied with such
results. Parent shall have satisfactorily completed its
investigation of any event or condition arising or discovered
after the date of this Agreement that, could reasonably be
expected to result in a Material Adverse Effect on any of the
OKIE Companies.
(g) Environmental Investigation. Parent shall have
completed, to its satisfaction, an environmental inspection of
the facilities of each of the OKIE Companies, and Parent shall
not have discovered, either in the course of the environmental
inspection or at any time prior to the Closing Date, any
actual or potential liabilities (contingent or otherwise)
relating to environmental matters which could reasonably be
expected to result in a Material Adverse Effect on any of the
OKIE Companies.
(h) Schedules. The Sellers shall have provided to
Parent the detailed Schedules and other information required
by this Agreement by March 15, 1995 and the information in
such Schedules shall not disclose any material adverse change,
or changes since December 31, 1994 which in the aggregate are
materially adverse, in the assets, liabilities (contingent or
otherwise), financial condition, results of operations,
business or business prospects of any of the OKIE Companies.
(i) Corporate Records. The Sellers shall have provided
to Parent:
(1) A copy of the certificate or articles of
incorporation of each of the OKIE Companies, each certified by
the Secretary of State or comparable public official of
Oklahoma as of a date as near as practicable to the Closing
Date;
(2) for each of the OKIE Companies (A) a certificate
from the Secretary of State or comparable public official of
Oklahoma certifying that such company is duly incorporated,
validly existing and in good standing as of a date as near as
practicable to the Closing Date and (B) a certificate from the
Secretary of State or comparable public official of all other
jurisdictions in which each such company transacts business
certifying that such company is qualified to do business and
in good standing as a foreign corporation as of a date as near
as practicable to the Closing Date.
(3) a copy of the by-laws of each of the OKIE Companies
as in effect on the Closing Date, each certified by an officer
of such company;
(4) the original minute and stock books and corporate
seals of, and all books and records relating to the business
and operations of, each of the OKIE Companies; and
(5) executed resignations of each officer, director and
employee of each of the OKIE Companies effective as of the
Effective Time.
.3 Conditions to Obligations of Sellers. The
obligation of the Sellers and each of the OKIE Companies to
effect the Merger is subject to the satisfaction of each of
the following conditions unless waived by the Sellers:
(a) Representations and Warranties. Except as otherwise
contemplated by this Agreement, the representations and
warranties of Parent and WOK set forth in this Agreement shall
be true and correct in all material respects as of the date of
this Agreement (except to the extent such representations
speak as of an earlier date) and as of the Closing Date as
though made on and as of the Closing Date, and the Sellers
shall have received a certificate signed on behalf of Parent
and WOK by an executive officer of Parent and WOK to such
effect.
(b) Performance of Obligations of Parent and WOK.
Parent and WOK shall have performed in all material respects
all obligations required to be performed by them under this
Agreement at or prior to the Closing Date, and the Sellers
shall have received a certificate signed on behalf of Parent
by an executive officer of Parent to such effect.
(c) Material Adverse Change. Since September 30, 1993,
there shall not have been any material adverse change, or
changes which in the aggregate are materially adverse, in the
financial condition, assets, liabilities (contingent or
otherwise) results of operations, business or business
prospects of Parent, WOK and subsidiaries of Parent taken as a
whole.
X
TERMINATION AND AMENDMENT
.1 Termination. At any time prior to the Effective
Time this Agreement may be terminated:
(a) by mutual consent of Parent and the Sellers;
(b) by either Parent or the Sellers if the Merger shall
not have been consummated before April 30, 1995, or such later
date as may be agreed upon in writing by the parties hereto
(the "Final Termination Date");
(c) by Parent or WOK, if the Sellers shall breach in any
respect any of their representations, warranties, undertakings
or agreements hereunder and such breach shall not have been
cured in all material respects or waived and the Sellers shall
not have provided reasonable assurance that such breach will
be cured promptly in all material respects on or before the
Final Termination Date, but only if such breach, singly or
together with all other such breaches, constitutes a failure
of the condition contained in Section 9.2(a) or 9.2(b), as
applicable, as of the date of such termination;
(d) by the Sellers, if Parent or WOK shall breach in any
respect any of its representations, warranties, undertakings
or agreements hereunder and such breach shall not have been
cured in all material respects or waived and Parent or WOK
shall not have provided reasonable assurance that such breach
will be cured promptly in all material respects on or before
the Final Termination Date, but only if such breach, singly or
together with all other such breaches, constitutes a failure
of the condition contained in Section 9.3(a) or 9.3(b), as
applicable, as of the date of such termination; or
(e) by either Parent or the Sellers if any permanent
Injunction or other order of a court or other competent
authority preventing the consummation of the Merger shall have
become final and nonappealable.
.2 Effect of Termination. In the event of termination
of this Agreement by either the Sellers or Parent as provided
in Section 10.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of
Parent, WOK, the Sellers or any of the OKIE Companies or their
respective officers or directors, except to the extent that
such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or
agreements set forth in this Agreement.
.3 Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their
respective Boards of Directors (except with respect to the
Sellers), at any time. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties hereto.
.4 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action duly taken, may,
to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
XI
GENERAL PROVISIONS
.1 Further Assurances. Each party will execute and deliver
all such further documents and instruments and take all such
further action as may be necessary in order to consummate the
transactions contemplated hereby.
.2 Notices. Any notice or communication required or
permitted hereunder shall be in writing and either delivered
personally or telecopied (with confirmation of receipt) or
sent by certified or registered mail, postage prepaid, or, if
sent by Federal Express or another nationally recognized
overnight courier and shall be deemed to be given, dated and
received when so delivered personally or telecopied (with
confirmation of receipt) if mailed, five business days after
the date of mailing or, if sent by Federal Express or another
nationally recognized overnight courier, one business day
after delivered to said courier and in any such case addressed
to the proposed recipient at the following address or telecopy
number, or to such other address or addresses as such person
may subsequently designate to the other parties hereto by
notice given hereunder.
(a) if to Parent or WOK, to:
IES Industries Inc.
200 First Street SE
Cedar Rapids, Iowa 52401
Telecopy: (319) 398-4483
Telephone: (319) 348-8125
Attention: Blake O. Fisher, Jr.
with a copy to:
Whiting Petroleum Corporation
Mile High Center
1700 Broadway, Suite 2300
Denver, Colorado 80209-2301
Telecopy: (303) 861-4023
Telephone: (303) 837-1661
Attention: John R. Hazlett
with a copy to:
Van Cott, Bagley, Cornwall & McCarthy
P. O. Box 45340
50 South Main Street, Suite 1600
Salt Lake City, Utah 84145
Telecopy: (801) 534-0058
Telephone: (801) 532-3333
Attention: Gregory P. Williams, Esq.
(b) if to the Sellers, to:
Thomas M. Atkinson
715 Mid-Continent Tower
Tulsa, Oklahoma 74103
Telecopy: (918) 582-4499
Telephone: (918) 582-2594
with a copy to:
Wayne E. Swearingen
Swearingen Petroleum Management, Inc.
2219 Skelly Drive
Tulsa, Oklahoma 74105-5913
Telecopy: (918) 743-2332
Telephone: (918) 743-3112
.3 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of
this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation". The phrase "made available" in this
Agreement shall mean that the information referred to has been
made available if requested by the party to whom such
information is to be made available.
.4 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or
interpretation of this Agreement.
.5 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when such
counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
.6 Entire Agreement. This Agreement (including the
documents and the instruments referred to herein, including
without limitation, the Escrow Agreement) constitutes the
entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter hereof.
.7 No Third Party Beneficiaries. this Agreement
(including the documents and the instruments referred to
herein) is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
.8 Governing Law. This Agreement shall be governed and
construed in accordance with the internal substantive laws of
the State of Iowa without regard to any applicable conflicts
of law principles.
.9 Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity
or enforceability of the other provisions of this Agreement,
which shall remain in full force and effect. In the event any
court or other competent authority holds any provision of this
Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and
delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law,
the intent of the parties hereto with respect to such
provision.
.10 Publicity. Except as otherwise required by law
or the rules of the NYSE, so long as this
Agreement is in effect, neither the Sellers, Parent, nor WOK
shall, nor shall permit any of its Affiliates to, issue or
cause the publication of any press release or other public
announcement with respect to the transactions contemplated by
this Agreement without the consent of the other parties, which
consent shall not be unreasonably withheld.
.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned
by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other
parties, except that Parent may assign, in its sole
discretion, any or all rights, interests and obligations
hereunder to any direct or indirect wholly owned subsidiary of
Parent. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors,
heirs and assigns.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first above
written.
IES INDUSTRIES INC.
By:
Name: Blake O. Fisher, Jr.
Title: Executive Vice
President and Chief
Financial Officer
WOK ACQUISITION COMPANY
By:
Name: David A. Frawley
Title: President
OKIE ENERGY COMPANY
By:
Name: Thomas M. Atkinson
Title: President
KEENER ENERGY COMPANY
By:
Name: Joan B. Atkinson
Title: President
THOMAS M. ATKINSON
JOAN B. ATKINSON
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1995 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the three months
ended March 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,287,648
<OTHER-PROPERTY-AND-INVEST> 212,205
<TOTAL-CURRENT-ASSETS> 130,422
<TOTAL-DEFERRED-CHARGES> 13,915
<OTHER-ASSETS> 194,199
<TOTAL-ASSETS> 1,838,389
<COMMON> 379,124
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 209,851
<TOTAL-COMMON-STOCKHOLDERS-EQ> 588,975
0
18,320
<LONG-TERM-DEBT-NET> 513,209
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 28,000
<LONG-TERM-DEBT-CURRENT-PORT> 50,422
0
<CAPITAL-LEASE-OBLIGATIONS> 32,117
<LEASES-CURRENT> 16,175
<OTHER-ITEMS-CAPITAL-AND-LIAB> 591,171
<TOT-CAPITALIZATION-AND-LIAB> 1,838,389
<GROSS-OPERATING-REVENUE> 206,392
<INCOME-TAX-EXPENSE> 4,652<F1>
<OTHER-OPERATING-EXPENSES> 184,277
<TOTAL-OPERATING-EXPENSES> 184,277<F1>
<OPERATING-INCOME-LOSS> 22,115
<OTHER-INCOME-NET> 1,475
<INCOME-BEFORE-INTEREST-EXPEN> 23,590
<TOTAL-INTEREST-EXPENSE> 11,969
<NET-INCOME> 6,740<F2>
229<F2>
<EARNINGS-AVAILABLE-FOR-COMM> 6,740
<COMMON-STOCK-DIVIDENDS> 15,183
<TOTAL-INTEREST-ON-BONDS> 36,070
<CASH-FLOW-OPERATIONS> 64,625
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
<FN>
<F1>Income tax expense is not included in Operating Expense in the Consolidated
Statements of Income for IES Industries Inc. (Industries).
<F2> Since the preferred dividends are for a subsidiary of Industries, they are
considered a fixed charge on Industries' Consolidated Statement of Income.
</FN>
</TABLE>
