10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

or

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

1-12181-01	1-12181
(Commission File Number)	(Commission File Number)
PROTECTION ONE, INC.	PROTECTION ONE ALARM MONITORING, INC.
(Exact Name of Registrant	(Exact Name of Registrant
As Specified In its Charter)	As Specified In its Charter)
Delaware	Delaware
(State or Other Jurisdiction	(State of Other Jurisdiction
Of Incorporation or Organization)	Of Incorporation or Organization)
93-1063818	93-1064579
(I.R.S. Employer Identification No.)	(I.R.S. Employer Identification No.)
818 S. Kansas Avenue	818 S. Kansas Avenue
Topeka, Kansas 66612	Topeka, Kansas 66612
(Address of Principal Executive Offices,	(Address of Principal Executive Offices,
Including Zip Code)	Including Zip Code)
(785) 575-1707	(785) 575-1707
(Registrant’s Telephone Number,	(Registrant’s Telephone Number,
Including Area Code)	Including Area Code)

Indicate by check mark whether each of the registrants (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 such registrants were required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o

As of August 8, 2002, Protection One, Inc. had outstanding 97,943,440 shares of Common Stock, par value $0.01 per share. As of such date, Protection One Alarm Monitoring, Inc. had outstanding 110 shares of Common Stock, par value $0.10 per share, all of which shares were owned by Protection One, Inc. Protection One Alarm Monitoring, Inc. meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with the reduced disclosure format set forth therein.

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Form 10-Q are forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward–looking statements generally can be identified as such because the context of the statement includes words such as we “believe,” “expect,” “anticipate” or other words of similar import. Similarly, statements herein that describe our objectives, plans or goals also are forward–looking statements. Such statements include those made on matters such as our earnings and financial condition, litigation, accounting matters, our business, our efforts to consolidate and reduce costs, our customer account acquisition strategy and attrition, our liquidity and sources of funding and our capital expenditures. All such forward–looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward–looking statements. Please refer to “Risk Factors” in our Form 10-K for the year ended December 31, 2001 with respect to such risks and uncertainties as well as certain important factors, among others, that could cause actual results to differ materially from our expectations.

Unless the context otherwise indicates, all references in this Report on Form 10-Q (this “Report”) to the “Company,” “Protection One,” “we,” “us” or “our” or similar words are to Protection One, Inc., its direct wholly owned subsidiaries, Protection One Alarm Monitoring, Inc. (“Monitoring”) including Monitoring’s wholly owned subsidiaries and AV ONE, Inc.  Protection One’s sole assets are Monitoring and AV ONE, Inc.  Both Protection One and Monitoring are Delaware corporations organized in September 1991.

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PART I

FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

	June 30, 2002			December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	1,320		$	3,671
Restricted cash	2,597			—
Receivables, net	28,172			35,972
Inventories	7,726			8,043
Prepaid expenses	1,619			2,487
Related party tax receivable	12,671			1,655
Deferred tax assets	12,911			8,783
Other	5,693			4,744
Total current assets	72,709			65,355
Property and equipment, net	52,242			54,341
Customer accounts, net	386,593			746,574
Goodwill	262,811			763,449
Deferred tax assets, net of current portion	246,639			79,612
Other	20,584			18,082
Assets of discontinued operations	19,410			22,938
Total assets	$	1,060,988		$	1,750,351
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	197,054		$	688
Accounts payable	8,842			5,617
Accrued liabilities	34,903			40,543
Due to related parties	4,748			1,875
Deferred revenue	38,776			41,370
Total current liabilities	284,323			90,093
Long-term debt, net of current portion	368,667			584,115
Other liabilities	17,583			11,590
Liabilities of discontinued operations	1,333			1,364
Total liabilities	671,906			687,162
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.10 par value, 5,000,000 authorized	—			—
Common stock, $0.01 par value, 150,000,000 shares authorized, 127,779,286 shares and 127,245,891 issued at June 30, 2002 and December 31, 2001 respectively	1,278			1,272
Additional paid-in capital	1,381,923			1,381,450
Accumulated other comprehensive loss	—			(2,361		)
Deficit	(946,483		)	(284,741		)
Investment in parent stock – held in treasury	(13,027		)	—
Treasury Stock, at cost, 29,840,405 and 28,840,405 shares at June 30,2002 and December 31, 2001 respectively	(34,609		)	(32,431		)
Total stockholders’ equity	389,082			1,063,189
Total liabilities and stockholders’ equity	$	1,060,988		$	1,750,351

The accompanying notes are an integral part of these consolidated financial statements.

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PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except for per share amounts)

(Unaudited)

	Six Months Ended June 30,
	2002			2001
Revenues:
Monitoring and related services	$	138,204		$	168,263
Other	8,784			7,551
Total revenues	146,988			175,814
Cost of revenues (exclusive of depreciation and amortization shown below):
Monitoring and related services	40,468			54,115
Other	8,387			6,692
Total cost of revenues	48,855			60,807
Gross profit (exclusive of depreciation and amortization shown below)	98,133			115,007
Operating expenses:
Selling	10,803			9,333
General and administrative	42,673			53,497
Amortization and depreciation	44,849			99,834
Loss on impairment	332,194			—
Severance and other	550			4,695
Total operating expenses	431,069			167,359
Operating loss	(332,936		)	(52,352		)
Other (income) expense:
Interest expense	16,822			22,418
Related party interest	4,815			5,480
Other	117			478
Loss from continuing operations before income taxes & extraordinary item	(354,690		)	(80,728		)
Income tax benefit	126,622			17,202
Loss from continuing operations before extraordinary item & accounting change	(228,068		)	(63,526		)
Loss from discontinued operations, net of taxes	(3,012		)	(236		)
Extraordinary gain, net of tax effect of $(5,857) and $(13,015)	10,877			24,171
Cumulative effect of accounting change, net of taxes
Continuing operations	(439,257		)	—
Discontinued operations	(2,283		)	—
Net loss	(661,743		)	(39,591		)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	863			(675		)
Reclassification adjustment for foreign currency translation loss included in discontinued operations	1,499			—
Total other comprehensive income (loss)	2,362			(675		)
Comprehensive loss	$	(659,381	)	$	(40,266	)
Basic and diluted per share information:
Loss from continuing operations per common share	$	(2.32	)	$	(0.57	)
Loss from discontinued operations per common share	$	(0.03	)	—
Extraordinary gain per common share	$	0.11		$	0.21
Cumulative effect of accounting change on continuing operations per common share	$	(4.48	)	—
Cumulative effect of accounting change on discontinued operations per common share	$	(0.02	)	—
Net loss per common share	$	(6.74	)	$	(0.36	)
Weighted average common shares outstanding (in thousands)	98,194			111,065

The accompanying notes are an integral part of these consolidated financial statements.

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PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except for per share amounts)

(Unaudited)

	Three Months Ended June 30,_
	2002			2001
Revenues:
Monitoring and related services	$	68,198		$	82,365
Other	4,745			3,685
Total revenues	72,943			86,050
Cost of revenues (exclusive of depreciation and amortization shown below):
Monitoring and related services	19,892			26,973
Other	3,917			2,847
Total cost of revenues	23,809			29,820
Gross profit (exclusive of depreciation and amortization shown below)	49,134			56,230
Operating expenses:
Selling	5,617			4,630
General and administrative	21,240			27,328
Amortization and depreciation	22,384			50,124
Severance and other	39			4,276
Total operating expenses	49,280			86,358
Operating loss	(146		)	(30,128		)
Other (income) expense:
Interest expense	7,990			10,523
Related party interest	2,652			3,079
Other	24			498
Loss from continuing operations before income taxes & extraordinary item	(10,812		)	(44,228		)
Income tax benefit	6,826			7,341
Loss from continuing operations before extraordinary item & accounting change	(3,986		)	(36,887		)
Loss from discontinued operations net of tax	(1,343		)	(54		)
Extraordinary gain, net of tax effect of $(4,756) and $(3,137)	8,830			5,826
Net income (loss)	3,501			(31,115		)
Other comprehensive income:
Foreign currency translation gain	900			934
Reclassification adjustment for foreign currency translation loss included in discontinued operations	1,499			—
Total other comprehensive income	2,399			934
Comprehensive income (loss)	$	5,900		$	(30,181	)
Basic and diluted per share information:
Loss from continuing operations per common share	$	(0.04	)	$	(0.35	)
Loss from discontinued operations per common share	$	(0.01	)	—
Extraordinary gain per common share	$	0.09		$	0.06
Net income (loss) per common share	$	0.04		$	(0.29	)
Weighted average common shares outstanding (in thousands)	97,935			105,907

The accompanying notes are an integral part of these consolidated financial statements.

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PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2002			2001
Cash flow from operating activities:
Net loss	$	(661,743	)	$	(39,591	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Extraordinary gain, net of taxes	(10,877		)	(24,171		)
Loss on discontinued operations, net of taxes	3,012			236
Cumulative effect of accounting change, net of taxes	441,540			—
Loss on impairment of subscriber accounts	332,194			—
Loss on sale of certain customer accounts	—			428
Amortization and depreciation	44,849			99,834
Amortization of debt costs and premium	597			661
Deferred income taxes	(114,856		)	(11,116		)
Provision for doubtful accounts	2,983			3,425
Other	79			310
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Receivables, net	4,818			1,488
Deferred costs	(8,636		)	(4,466		)
Other assets	(10,575		)	(12,011		)
Accounts payable	3,155			(2,766		)
Deferred revenue	3,610			995
Other liabilities	(4,733		)	11,919
Net cash provided by operating activities	25,417			25,175
Cash flows from investing activities:
Installations and purchases of new accounts	(11,003		)	(12,807		)
Purchase of property and equipment	(3,328		)	(3,743		)
Purchase of AV ONE	(1,378		)	—
Proceeds from sale of certain customer accounts	—			19,164
Net cash provided by (used in) investing activities	(15,709		)	2,614
Cash flows from financing activities:
Payments on long-term debt	(60,220		)	(67,622		)
Proceeds from long term-debt	44			495
Borrowings from Senior Credit Facility	59,000			66,000
Purchase of parent company stock — held as treasury	(11,615		)	—
Purchase of Treasury Stock	(2,178		)	(22,804		)
Issuance costs and other	432			(1,049		)
Funding from parent	2,148			(536		)
Net cash used in financing activities	(12,389		)	(25,516		)
Net cash provided by (used in) discontinued operations	330			(308		)
Net increase (decrease) in cash and cash equivalents	(2,351		)	1,965
Cash and cash equivalents:
Beginning of period	3,671			2,610
End of period	$	1,320		$	4,575
Cash paid for interest	$	24,119		$	31,040
Cash paid for taxes	$	134		$	92

The accompanying notes are an integral part of these consolidated financial statements.

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PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.             Basis of Consolidation and Interim Financial Information:

Protection One, Inc., a Delaware corporation (“Protection One” or the “Company”) is a publicly traded security alarm monitoring company.  Protection One is principally engaged in the business of providing security alarm monitoring services, which include sales, installation and related servicing of security alarm systems for residential and small business customers. Westar Industries, Inc. (“Westar Industries”), a wholly owned subsidiary of Westar Energy, Inc. (“Westar Energy”), owns approximately 87% of the Company’s common stock.

The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q.  Accordingly, certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

In the opinion of management of the Company, all adjustments considered necessary for a fair presentation of the financial statements have been included. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

Restricted cash on the accompanying balance sheet represents a trust account established as collateral for the benefit of the insurer of the Company’s workers’ compensation claims.  The Company receives interest income earned by the trust.

The Company has issued stock options of which approximately 1.3 million represent dilutive potential common shares.  These securities were not included in the computation of diluted earnings per share since to do so would have been antidilutive for all periods presented.

Certain reclassifications have been made to prior year information to conform with the current year presentation.

2.             Impairment Charge Pursuant to New Accounting Rules:

Effective January 1, 2002, the Company adopted the new accounting standards SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets,” and SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.”  SFAS No. 142 establishes new standards for accounting for goodwill.  SFAS No. 142 continues to require the recognition of goodwill as an asset, but discontinues amortization of goodwill.  In addition, annual impairment tests must be performed using a fair-value based approach as opposed to an undiscounted cash flow approach required under prior standards.

SFAS No. 144 establishes a new approach to determining whether the Company’s customer account asset is impaired.  The approach no longer permits the Company to evaluate its customer account asset for impairment based on the net undiscounted cash flow stream obtained over the remaining life of goodwill associated with the customer accounts being evaluated.  Rather, the cash flow stream to be used under SFAS No. 144, is limited to future estimated undiscounted cash flows from existing customer accounts.  Additionally, the new rule no longer permits the Company to include estimated cash flows from forecasted customer additions.  If the undiscounted cash flow stream from existing customer accounts is less than the combined book value of customer accounts and goodwill, an impairment charge would be required.

The new rule substantially reduces the net undiscounted cash flows used for impairment evaluation purposes as compared to the previous accounting rules.  The undiscounted cash flow stream has been reduced from the 16 year remaining life of the

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goodwill to the remaining life of customer accounts for impairment evaluation purposes and does not include estimated cash flows from forecasted customer additions.

To implement the new standards, the Company engaged an appraisal firm to help management estimate the fair values of goodwill and customer accounts.  Based on this analysis, the Company recorded a non-cash net charge of approximately $659.3 million in the first quarter of 2002.  The charge is detailed as follows:

	Goodwill			Customer Accounts			Total
	(in millions)
Impairment charge on continuing operations	$	496.6		$	332.2		$	828.8
Impairment charge on discontinued operations	2.3			1.9			4.2
Estimated income tax benefit	(57.4		)	(116.3		)	(173.7		)
Net charge	$	441.5		$	217.8		$	659.3

The impairment charge for goodwill is reflected in the consolidated statement of operations as a cumulative effect of a change in accounting principle.  The impairment charge for customer accounts is reflected in the consolidated statement of operations as an operating cost.  These impairment charges reduce the recorded value of these assets to their estimated fair values at January 1, 2002.

A deferred tax asset in the amount of $173.7 million was recorded in the first quarter of 2002 for the tax benefit shown above.  The  total net deferred tax asset was $259.6 million at June 30, 2002.  If Westar Energy were to own less than 80% of Westar Industries voting stock, or if Westar Industries were to own less than 80% of the Company’s voting stock, the Company would no longer file its tax return on a consolidated basis with Westar Energy.  As a result, the Company would be required to record a non-cash charge against income to establish a valuation allowance for the portion of its net deferred tax assets determined not to be realizable. This charge could be material.

Because the Company adopted the new rule for goodwill, it is no longer amortizing goodwill to income.  The following tables reflect the Company’s results for the three and six months ended June 30, 2001, calculated using the new accounting treatment discussed above, as compared to the Company’s results for the three and six months ended June 30, 2002.

	Six Months ended June 30,
	2002			2001
	(in thousands, except per share amounts)
Reported net loss	$	(661,743	)	$	(39,591	)
Add back: Goodwill amortization	—			21,616
Adjusted net loss	$	(661,743	)	$	(17,975	)
Basic earnings per share:
Reported net loss	$	(6.74	)	$	(0.36	)
Add back:  Goodwill amortization	—			0.19
Adjusted net loss	$	(6.74	)	$	(0.17	)

	Three Months ended June 30,
	2002		2001
	(in thousands, except per share amounts)
Reported net income (loss)	$	3,501	$	(31,115	)
Add back: Goodwill amortization	—		10,960
Adjusted net income (loss)	$	3,501	$	(20,155	)
Basic earnings per share:
Reported net loss	$	0.04	$	(0.29	)
Add back:  Goodwill amortization	—		0.10
Adjusted net income (loss)	$	0.04	$	(0.19	)

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The Company will be required to perform impairment tests for long-lived assets prospectively as long as it continues to incur recurring losses or for other matters that may negatively impact its business.  Goodwill will be required to be tested each year for impairment.  Declines in market values of the Company’s business or the value of its customer accounts that may occur hereafter may require additional impairment charges in the future, which could be material.

3.             Change in Estimate of Customer Life:

The results of a lifing study performed by a third party appraisal firm in the first quarter of 2002 showed a deterioration in the average remaining life of customer accounts.  The report showed the Company’s North America customer pool can expect a declining revenue stream over the next 30 years with an estimated average remaining life of 9 years.  The Company’s Multifamily pool can expect a declining revenue stream over the next 30 years with an estimated average remaining life of 10 years.  Taking into account the results of the lifing study, the Company adjusted the amortization of customer accounts for its North America and Multifamily customer pools to better match the rate and period of amortization expense with the expected decline in revenues.  In the first quarter of 2002, the Company changed its amortization rate for its North America pool to a 10-year 135% declining balance method from a 10-year 130% declining balance method.  For the Multifamily pool the Company reduced its estimated customer life from 10 to 9 years and will continue to amortize on a straight-line basis.  The Company accounts for these amortization changes prospectively as a change in estimate.  These changes in estimates increased amortization expense for the three and six months ended June 30, 2002 on a pre-tax basis by approximately $0.3 million and $0.7 million, respectively and on an after tax basis by approximately $0.2 million and $0.4 million, respectively.  The change in estimate had no significant impact on reported earnings per share.

4.             Discontinued Operations – Sale of Canadian Operations:

During the second quarter of 2002 the Company entered into negotiations for the sale of its Canadian business which is included in its North American segment.  The sale was consummated on July 9, 2002.  The Company recorded a pretax impairment loss of approximately $2.0 million and an after tax loss of approximately $1.3 million in the second quarter of 2002 as evidenced by the sale.

The net operating losses of these operations are included in the consolidated statements of operations under “discontinued operations.”  The net operating loss for the six months ended June 30, 2002 of $1.7 million includes an impairment loss on customer accounts of approximately $1.9 million.   An impairment charge of $2.3 million relating to the Canadian operations’ goodwill is reflected in the consolidated statement of operations as a cumulative effect of accounting change on discontinued operations.  Revenues from these operations were $2.1 million and $4.2 million for the three and six months ended June 30, 2002, compared to $2.1 million and $4.1 million for the three and six months ended June 30, 2001.

The major classes of assets and liabilities of the Canadian operations are as follows (in thousands):

	June 30, 2002		December 31, 2001
Assets:
Current	$	948	$	478
Property and equipment	608		571
Customer accounts, net	15,649		16,992
Goodwill	2,147		4,842
Other	58		55
Total assets	$	19,410	$	22,938
Current liabilities	$	1,333	$	1,364

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5.             Customer Accounts:

The following reflects the changes in the Company’s investment in customer accounts (at cost) for the following periods (in thousands):

	Six Months Ended June 30, 2002			Three Months Ended June 30, 2002			Year Ended December 31, 2001
Beginning customer accounts, net	$	746,574		$	403,625		$	881,726
Acquisition of customer accounts	3,755			1,781			11,556
Amortization of customer accounts	(37,447		)	(18,749		)	(135,197		)
Sale of accounts	(48		)	(48		)	(8,769		)
Purchase holdbacks and other	(186		)	(16		)	(2,742		)
Impairment	(326,055		)	—			—
Total customer accounts, net	$	386,593		$	386,593		$	746,574

The investment at cost in customer accounts at June 30, 2002 and December 31, 2001 was $994.9 million and $1,317.5 million respectively. Accumulated amortization of the investment in customer accounts at June 30, 2002 and December 31, 2001 was $608.3 million and $570.9 million respectively.  The table below reflects the estimated aggregate customer account amortization expense for 2002 and each of the four succeeding fiscal years on the existing customer account base as of June 30, 2002.

	2002		2003		2004		2005		2006
	(Dollars in thousands)
Estimated amortization expense	$	74,951	$	74,661	$	74,559	$	57,778	$	57,416

6.             Debt:

During the first six months of 2002, the Company’s borrowings under the Senior Credit Facility increased by $59.0 million and the Company’s other outstanding long-term debt decreased by $77.9 million.  Extraordinary gain from extinguishment of debt securities was $10.9 million, net of tax of $5.9 million, and $24.2 million, net of tax of $13.0 million, for the first six months of 2002 and 2001, respectively.

As of June 30, 2002, and December 31, 2001, total borrowings under the Senior Credit Facility were $196.5 million and $137.5 million, respectively.  The remaining availability under this facility as of June 30, 2002 and December 31, 2001 was $33.5 million and $17.5 million, respectively. The Senior Credit Facility currently expires on January 3, 2003.  The Company expects to renew the facility with Westar Industries unless efforts to replace the facility with financing from an unaffiliated third party lender are successful. The success of these efforts will depend on improvements in the Company’s financial performance. The Kansas Corporation Commission has issued an order prohibiting Westar Energy from borrowing to make loans or capital contributions to Westar Industries.  This order limits the resources available to Westar Industries for funding its obligations under the Senior Credit Facility. The Company would face significant liquidity issues if it were unable to renew the Senior Credit Facility with Westar Industries or if Westar Industries was unable to fund its obligations under the Senior Credit Facility.

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The Company’s ability to borrow under the facility is subject to compliance with certain financial covenants including a leverage ratio of 5.75 to 1.0 and an interest coverage ratio of 2.10 to 1.0.  At June 30, 2002, the ratios were approximately 4.9 to 1.0 and 2.6 to 1.0, respectively.

The indentures governing the Company’s outstanding senior and subordinated notes contain similar covenants with different calculations relating to the Company’s ability to incur indebtedness.  The Company is in compliance with all covenants contained in these indentures.

7.             Related Party Transactions

The Company had outstanding borrowings under the Senior Credit Facility with Westar Industries of $196.5 million and $137.5 million at June 30, 2002 and December 31, 2001, respectively.  The Company entered into three separate amendments to the Senior Credit facility in the first six months of 2002.  Each of the amendments increased the capacity of the Senior Credit facility by $25 million resulting in a total capacity of $230 million as of June 30, 2002.  For each amendment the Company incurred an amendment fee of $250,000 for a total of $750,000 which was paid to Westar Industries in the third quarter of 2002.  On July 25, 2002, the Company and Westar Industries entered into a further amendment to the Senior Credit Facility which increased the amount of the facility to $255 million.  The Company will pay an amendment fee of $250,000 for the amendment in the third quarter of 2002.

The Company accrued interest expense of $2.3 million and $4.3 million and made interest payments of $2.3 million and $4.2 million on borrowings under the facility for the three and six months ended June 30, 2002, compared to interest expense of $2.8 million and $4.5 million for the three and six months ended June 30, 2001.

In the first six months of 2002 and 2001, the Company purchased from Westar Industries $60.7 million and $66.1 million face value of the Company’s bonds for $46.0 million and $45.2 million, respectively.  As a result of these transactions, an extraordinary gain of $9.2 million, net of tax and $13.4 million, net of tax was recognized in the first six months of 2002 and 2001, respectively.

During the first six months in 2002 the Company acquired in open market purchases approximately $41.2 million of Westar Energy 6.25% notes, approximately $21.6 million of Westar Energy 6.875% notes and approximately $4.6 million of Westar Energy 7.125% notes.  All of these notes were subsequently sold at cost to Westar Energy prior to June 30, 2002.  During the first six months in 2002 the Company acquired in open market purchases approximately $10.1 million of Westar Energy common stock and approximately $1.8 million in Westar Energy preferred stock. At June 30, 2002, the Company held approximately $11.0 million in Westar Energy common stock and approximately $2.0 million in Westar Energy preferred stock for a combined $13.0 million investment which is reflected in the equity section of the Company’s balance sheet.  The Company’s board of directors has authorized the purchase of up to an additional  $100 million in Westar Energy  debt and equity securities.

In the second quarter of 2002, the Company exercised its option to buy an office building located in downtown Wichita, Kansas, from Kansas Gas and Electric Company, a wholly owned subsidiary of Westar Energy, for approximately $0.5 million.

On June 21, 2001, the Company entered into an amendment to the Contribution Agreement dated as of July 30, 1997 between the Company and Westar Energy.  This amendment permitted Westar Energy’s beneficial ownership of the Company’s outstanding common stock to exceed 85% provided that its beneficial ownership on a fully diluted basis does not exceed 81% of the outstanding shares. In March, 2002 the Company and Westar Energy entered into a Consent and Limited Waiver Agreement whereby the Company consented to Westar’s ownership interest in the Company exceeding the ceiling set forth in the amended Contribution Agreement for the period commencing on March 11, 2002 and ending on July 1, 2002. On July 1, 2002, the Company and Westar entered into a second Consent and Limited Waiver Agreement whereby the Company consented to Westar’s ownership interest in the Company exceeding the said ceiling for the period commencing on July 1, 2002 and ending on March 31, 2003. The amendment to the Contribution Agreement and the Consent and Limited Waiver Agreements were each approved by the Company’s continuing directors as required by the terms of the Contribution Agreement.

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The Company had a receivable balance of $12.7 million and $1.7 million at June 30, 2002 and December 31, 2001, respectively, relating to a tax sharing agreement with Westar Energy.   In February 2002, the Company received $1.7 million from Westar Energy for payment of the tax receivable at December 31, 2001. See Note 10 for further discussion relating to income taxes.

Westar Energy provides administrative services to the Company pursuant to services agreements, including accounting, tax, audit, human resources, legal, facilities and technology services.  Charges of approximately $1.5 million and $3.1 million were incurred for the three and six months ended June 30, 2002, compared to charges of approximately $2.8 million and $5.2 million for the three and six months ended June 30, 2001.  The Company had a net intercompany balance due to Westar Energy primarily for these services of $1.5 million and $1.7 million at June 30, 2002 and December 31, 2001, respectively.

In November 2001, the Company entered into an agreement pursuant to which it pays to Westar Industries, beginning with the quarter ended March 31, 2002, a financial advisory fee, payable quarterly, equal to 0.125% of the Company’s consolidated total assets at the end of each quarter.  The Company incurred $1.3 million and $2.6 million of expense for the three months and six months ended June 30, 2002, respectively for the financial advisory fee which is included in general and administrative expenses on the income statement.  The Company paid the first quarter fee of $1.3 million to Westar Industries in the second quarter and the second quarter fee of $1.3 million in the third quarter.

On June 5, 2002, the Company acquired the stock of a wholly owned subsidiary of Westar Industries named Westar Aviation, Inc. for approximately $1.4 million.  The Company subsequently changed the name of the newly acquired corporation to AV ONE, Inc. (“AV ONE”) and entered into an Aircraft Reimbursement Agreement with Westar Industries.  Under this agreement, AV ONE agrees to reimburse Westar Industries for lease payments and Westar Industries agrees to reimburse AV ONE for certain costs and expenses relating to its operations.

In June 2002, the Company formed a wholly owned subsidiary named Protection One Data Services, Inc. (“PODS”) and on July 1, 2002 transferred to it approximately 42 of its Information Technology employees.   Effective July 1, 2002, PODS entered into an outsourcing agreement with Westar Energy pursuant to which PODS will provide Westar Energy information technology services.  As a condition of the agreement, PODS offered employment to approximately 100 Westar Energy Information Technology employees.  PODS will perform the information technology services and functions for a fixed annual fee of $20.9 million, subject to adjustment.  No assets were transferred to PODS, but PODS will have access to Westar Energy’s equipment, software and facilities to provide the information technology services.  The term of the outsourcing agreement expires December 31, 2005, subject to the right of either party to terminate the agreement on six months prior written notice, provided that notice of termination may not be given prior to June 30, 2003.

8.             Commitments and Contingencies:

During the three months ended June 30, 2002 the Company entered into settlement arrangements with respect to several litigation matters as discussed below.

The Company, its subsidiary Protection One Alarm Monitoring, Inc. (“Monitoring”) and certain present and former officers and directors of Protection One were defendants in a purported class action litigation pending in the United States District Court for the Central District of California, Alec Garbini, et al. v. Protection One, Inc., et al., No CV 99-3755 DT (RCx).  A settlement of this action was reached on June 12, 2002.  A Memorandum of Understanding provides for no finding of wrongdoing on the part of any of the defendants, or any other finding that the claims alleged had merit, and a $7.5 million payment to the plaintiffs, which will be fully funded by the Company’s existing insurance.  Finalization of the settlement is subject to the execution of definitive documentation and approval by the district court and is expected to take several months.The history of thismatter is summarized as follows:  Pursuant to an Order dated August 2, 1999, four pending purported class actions were consolidated into a single action.  On February 27, 2001, plaintiffs filed a Third Consolidated Amended Class Action Complaint (“Third Amended Complaint”).  Plaintiffs purported to bring the action on behalf of a class consisting of all purchasers of publicly traded securities of Protection One, including common stock and note, during the period of February 10, 1998 through February 2, 2001.  The Third Amended Complaint asserted claims under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 against Protection One, Monitoring, and certain present and former officers and directors of Protection One based on allegations that various statements concerning Protection One’s financial results and operations for 1997, 1998, 1999 and the first three quarters of 2000 were false and misleading and not in compliance with generally accepted accounting principles.  Plaintiffs alleged, among other things, that former employees of Protection One have reported that Protection One lacked adequate internal accounting controls and that certain accounting information was unsupported or manipulated by management in order to avoid disclosure of accurate information.  The Third Amended Complaint further asserted claims against Westar Energy and Westar Industries as controlling persons under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  A claim was also asserted under Section 11 of the Securities Act of 1933 against Protection One’s auditor, Arthur Andersen LLP.  The Third Amended Complaint sought an unspecified amount of compensatory damages and an award of fees and expenses,

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including attorneys’ fees. On June 4, 2001, the District Court dismissed plaintiffs’ claims under Sections 10(b) and 20(a) of the Securities Exchange Act.  The Court granted plaintiffs leave to replead such claims.  The Court also dismissed all claims brought on behalf of bondholders with prejudice.  The Court also dismissed plaintiffs’ claims against Arthur Andersen, and plaintiffs have appealed that dismissal. On February 22, 2002, plaintiffs filed a Fourth Consolidated Amended Class Action Complaint.  The fourth amended complaint realleged claims on behalf of purchasers of common stock under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  The fourth amended complaint did not assert any claims against Monitoring.  On April 5, 2002, the Company and the other defendants filed a motion to dismiss the Fourth Consolidated Amended Class Action Complaint.

On May 29, 2002, the claims of Ralph Apa and Apa Security against the Company were settled by the mutual agreement of the parties.  This matter involved an arbitration that was commenced against Protection One and Protection One Alarm Monitoring by Apa in December, 2000, that alleged common law fraud, negligent misrepresentation and Oregon Blue Sky law claims based on the allegedly inflated stock price of the shares of Protection One stock received in connection with Protection One’s acquisition of his alarm monitoring business on October 1, 1998.  Mr. Apa also alleged breach of contract, breach of the covenant of good faith and fair dealing and conversion arising from the transaction.  The statement of claim sought undisclosed compensatory and punitive damages, interest and attorneys fees and costs.

On May 15, 2002 the proceedings styled Protection One Alarm Monitoring, Inc. v Crimebusters, Inc., First Federal Security Systems, Inc. and Anthony Perrotti, Jr., Civil Action No. 300CV-1932DJS and related disputes, were settled by the mutual agreement of the parties.The history of these proceedings is summarized as follows:  On October 2, 2000, the Company, as successor-in-interest to Centennial Security, Inc., was served with a demand for arbitration by Crimebusters, Inc. before the AAA wherein Crimebusters sought in excess of $7.0 million in damages due to alleged defaults by the Company under an asset purchase agreement between Crimebusters, et al., and Centennial Security, Inc.  On October 6, 2000, the Company filed claims alleging fraud, willful misconduct and breach of contract against Crimebusters, et al., in the United States District Court for the District of Connecticut. All of these claims and counterclaims were resolved by the settlement.

In 1999, six former Protection One dealers filed a class action lawsuit against Monitoring in the U. S. District Court for the Western District of Kentucky alleging breach of contract arising out of a disagreement over the interpretation of certain provisions of their dealer contracts.  The action is styled Total Security Solutions, Inc., et al. v. Protection One Alarm Monitoring, Inc., Civil Action No. 3:99CV-326-H (filed May 21, 1999).  In September 1999, the Court granted Monitoring’s motion to stay the proceeding pending the individual plaintiffs’ pursuit of arbitration as required by the terms of their agreements.  On June 23, 2000, the Court denied plaintiffs’ motion for collective arbitration. On or about October 4, 2000, notwithstanding the Court’s denial of plaintiffs’ motion for collective arbitration, the six former dealers filed a Motion to Compel Consolidation Arbitration with the American Arbitration Association (“AAA”).  On November 21, 2000, the AAA denied the dealers’ motion and advised they would proceed on only one matter at a time. Initially, only Masterguard Alarms proceeded with arbitration. On March 8, 2002, Masterguard’s claims against the Company were settled by the mutual agreement of the parties. On July 25, 2002, Complete Security, Inc., a dealer which was among the original plaintiffs in the Total Security Solutions court proceeding, initiated arbitration proceedings against Monitoring, alleging breach of contract, misrepresentation, consumer fraud and franchise law violations. Three other dealers, not plaintiffs in the original Total Security Solutions litigation — Sentralarms, Inc., Security Response Network, Inc. and Homesafe Security, Inc. (the latter two of which are associated with Ira R. Beer), have similar claims in arbitration pending against the Company. The Company believes it has complied with the terms of its contracts with these former dealers, and intends to aggressively defend against these claims. In the opinion of management, none of these pending dealer claims, either alone or in the aggregate, will have a material adverse effect upon the Company’s consolidated financial position or results of operations.

Other Protection One dealers have threatened, and may bring, claims against the Company based upon a variety of theories surrounding calculations of holdback and other payments, or based on other theories of liability.  The Company believes it has materially complied with the terms of its contracts with dealers.  The Company cannot predict the aggregate impact of these potential disputes with dealers which could be material.

On August 2, 2002, Protection One Alarm Monitoring, Inc. (“Monitoring”), Westar Energy, Inc. and certain former employees of Monitoring, as well as certain third parties, were sued in the District Court of Jefferson County, Texas, by Regina Rogers, a resident of Beaumont, Texas (Cause No. D167654). Ms. Rogers has asserted various claims due to casualty losses and property damage she allegedly suffered as a result of a fire to her residence. In her complaint, Ms. Rogers alleges that Protection One and certain of its employees were negligent, grossly negligent and malicious in allegedly failing to

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properly service and monitor the alarm system at the residence. The complaint also alleges various violations of the Texas Deceptive Trade Practices Act (“DTPA”), fraud and breach of contract. Relief sought under the complaint includes actual, exemplary and treble damages under the DTPA, plus attorneys’ fees. Although the complaint does not specify the amount of damages sought, counsel for the plaintiff has previously alleged actual damages of approximately $7.5 million. The matter has been referred to the Company’s insurance carrier. In the opinion of management the outcome will not have a material adverse effect upon the Company's consolidated financial position or results of operations.

The Company is a party to claims and matters of litigation incidental to the normal course of its business. Additionally, the Company receives notices of consumer complaints filed with various state agencies.  The Company has developed a dispute resolution process for addressing these administrative complaints.  The ultimate outcome of such matters cannot presently be determined; however, in the opinion of management of the Company, the resolution of such matters will not have a material adverse effect upon the Company’s consolidated financial position or results of operations.

9.             Segment Reporting:

The Company’s reportable segments include North America and Multifamily.  North America provides residential, commercial and wholesale security alarm monitoring services, which include sales, installation and related servicing of security alarm systems in the United States.  Multifamily provides security alarm services to apartments, condominiums and other multi-family dwellings.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the Company’s Form 10-K for the year ended December 31, 2001.  The Company manages its business segments based on earnings before interest, income taxes, depreciation and amortization (“EBITDA”) which we derive by adjusting income (loss) from continuing operations before income taxes and extraordinary gain by adding:  (i) interest expense, net  (ii) amortization of intangibles and depreciation expense, (iii) loss on impairment, (iv) other charges and (v) other non-recurring expenses as set forth in the table below.

EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, should not be construed as an alternative to operating income and is indicative neither of operating performance nor cash flows available to fund the cash needs of Protection One. Items excluded from EBITDA are significant components in understanding and assessing the financial performance of Protection One. Protection One believes presentation of EBITDA enhances an understanding of financial condition, results of operations and cash flows because EBITDA is used by Protection One to satisfy its debt service obligations and its capital expenditure and other operational needs, as well as to provide funds for growth. In addition, EBITDA is used by senior lenders and subordinated creditors and the investment community to determine the current borrowing capacity and to estimate the long–term value of companies with recurring cash flows from operations. Protection One’s computation of EBITDA may not be comparable to other similarly titled measures of other companies.

The following tables provide a calculation of EBITDA for each of the periods presented in the segment tables:

	Six Months Ended June 30, 2002								Six Months Ended June 30, 2001
	(Dollars in thousands)								(Dollars in thousands)
	North America			Multifamily		Consolidated			North America			Multifamily			Consolidated
Income (loss) from continuing operations before income taxes and extraordinary gain	$	(354,737	)	$	47	$	(354,690	)	$	(77,308	)	$	(3,420	)	$	(80,728	)
Plus:
Interest expense, net	18,937			2,700		21,637			23,935			3,963			27,898
Loss on impairment	332,194			—		332,194			—			—			—
Amortization of intangibles and depreciation expense	40,759			4,090		44,849			91,798			8,036			99,834
Other charges (a)	550			—		550			4,695			—			4,695
Other non-recurring expense (b)	117			—		117			478			—			478
EBITDA	$	37,820		$	6,837	$	44,657		$	43,598		$	8,579		$	52,177

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	Three Months Ended June 30, 2002									Three Months Ended June 30, 2001
	(Dollars in thousands)									(Dollars in thousands)
	North America			Multifamily			Consolidated			North America			Multifamily			Consolidated
Income (loss) from continuing operations before income taxes and extraordinary gain	$	(10,619	)	$	(193	)	$	(10,812	)	$	(42,522	)	$	(1,706	)	$	(44,228	)
Plus:
Interest expense, net	9,415			1,227			10,642			11,682			1,920			13,602
Amortization of intangibles and depreciation expense	20,317			2,067			22,384			46,089			4,035			50,124
Other charges (a)	39			—			39			4,276			—			4,276
Other non-recurring expense (b)	24			—			24			498			—			498
EBITDA	$	19,176		$	3,101		$	22,277		$	20,023		$	4,249		$	24,272

(a)Other charges in 2002 and 2001 consist of severance, relocation and facility closure costs incurred in connection with our efforts to consolidate and improve efficiency of our monitoring facilities and branch operations and to reduce costs.

(b)Other non-recurring expense in 2002 and 2001 are for losses on sales of assets.

Six Months Ended June 30, 2002

(Dollars in thousands)

	North America(1)			Multifamily(2)		Consolidated
Revenues	$	128,563		$	18,425	$	146,988
EBITDA	37,820			6,837		44,657
Amortization and depreciation expense	40,759			4,090		44,849
Loss on impairment	332,194			—		332,194
Severance and other expense	550			—		550
Operating income (loss)	(335,683		)	2,747		(332,936		)
Segment assets	964,290			96,698		1,060,988
Capital expenditures for new accounts	7,922			3,081		11,003

Six Months Ended June 30, 2001

(Dollars in thousands)

	North America(1)			Multifamily		Consolidated
Revenues	$	157,934		$	17,880	$	175,814
EBITDA	43,598			8,579		52,177
Amortization and depreciation expense	91,798			8,036		99,834
Severance and other expense	4,695			—		4,695
Operating income (loss)	(52,895		)	543		(52,352		)
Segment assets	1,638,078			197,412		1,835,490
Capital expenditures for new accounts	10,234			2,573		12,807

Three Months Ended June 30, 2002

(Dollars in thousands)

	North America(3)			Multifamily(2)		Consolidated
Revenues	$	63,740		$	9,203	$	72,943
EBITDA	19,176			3,101		22,277
Amortization and depreciation expense	20,317			2,067		22,384
Severance and other expense	39			—		39
Operating income (loss)	(1,180		)	1,034		(146		)
Capital expenditures for new accounts	3,012			1,509		4,521

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Three Months Ended June 30, 2001

(Dollars in thousands)

	North America(3)			Multifamily		Consolidated
Revenues	$	77,002		$	9,048	$	86,050
EBITDA	20,023			4,249		24,272
Amortization and depreciation expense	46,089			4,035		50,124
Severance and other expense	4,276			—		4,276
Operating income (loss)	(30,342		)	214		(30,128		)
Capital expenditures for new accounts	5,890			1,207		7,097

(1)Includes allocation of holding company expenses reducing EBITDA and operating income (loss) by $3.8 million and $2.7 million for the six months ended June 30, 2002 and 2001, respectively.

(2)Includes allocation of holding company expenses reducing EBITDA and operating income (loss) by $0.4 million and $0.8 million for the three and six months ended June 30, 2002, respectively.

(3)Includes allocation of holding company expenses reducing EBITDA and operating income (loss) by $1.9 million and $1.2 million for the three months ended June 30, 2002 and 2001, respectively.

10.          Income Taxes:

The difference between the expected annual effective rate and the federal statutory rate of 35% is primarily attributable to a tax benefit of approximately $2.7 million associated with the sale of the Canadian operations. The Company has a tax sharing agreement with Westar Energy which allows it to be reimbursed for tax deductions utilized by Westar Energy in its consolidated tax return.  If Westar Energy were to own less than 80% of Westar Industries voting stock, or if Westar Industries were to own less than 80% of the Company’s voting stock, the Company would no longer file its tax return on a consolidated basis with Westar Energy.  As a result, a substantial portion of the Company’s net deferred tax assets of $259.6 million at June 30, 2002 would likely not be realizable and the Company would likely not be in a position to record a tax benefit for losses incurred. Accordingly, the Company would not be in a position to utilize the deferred tax asset and it would record a charge to earnings to establish a valuation allowance.  This charge could be material.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations updates the information provided in and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

Protection One is a leading provider of property monitoring services, providing electronic monitoring and maintenance of alarm systems to approximately 1.1 million customers as of June 30, 2002.  Our revenues are generated primarily from recurring monthly payments for monitoring and maintaining the alarm systems that are installed in our customers’ homes and businesses.  We provide our services to residential (both single family and multifamily residences), commercial and wholesale customers.

Summary of Significant Matters

Net Loss.  We incurred a net loss of $86.0 million for the year ended December 31, 2001 and  a net loss of $661.7 million in the first six months of 2002. The net loss in 2001 reflects a decline in revenues and substantial charges incurred by us for amortization of customer accounts and goodwill and interest incurred on indebtedness.  Approximately $659.3 million of the net loss in the first six months of 2002 is related to an impairment charge as discussed below.  In addition to the impairment

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charge in 2002, this net loss reflects a decline in revenue, substantial charges incurred by us for amortization of customer accounts, and interest incurred on indebtedness.  We do not expect to have earnings in the foreseeable future.

Impairment Charge Pursuant to New Accounting Rules.Effective January 1, 2002, we adopted the new accounting standards SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets,” and SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.”  SFAS No. 142 establishes new standards for accounting for goodwill.  SFAS No. 142 continues to require the recognition of goodwill as an asset, but discontinues amortization of goodwill.  In addition, annual impairment tests must be performed using a fair-value based approach as opposed to an undiscounted cash flow approach required under prior standards.

SFAS No. 144 establishes a new approach to determining whether our customer account asset is impaired.  The approach no longer permits us to evaluate our customer account asset for impairment based on the net undiscounted cash flow stream obtained over the remaining life of goodwill associated with the customer accounts being evaluated.  Rather, the cash flow stream to be used under SFAS No. 144, is limited to future estimated undiscounted cash flows from existing customer accounts.  Additionally, the new rule no longer permits us to include estimated cash flows from forecasted customer additions.  If the undiscounted cash flow stream from existing customer accounts is less than the combined book value of customer accounts and goodwill, an impairment charge would be required.

The new rule substantially reduces the net undiscounted cash flows used for impairment evaluation purposes as compared to the previous accounting rules.  The undiscounted cash flow stream has been reduced from the 16 year remaining life of the goodwill to the remaining life of customer accounts for impairment evaluation purposes and does not include estimated cash flows from forecasted customer additions.

To implement the new standards, we engaged an appraisal firm to help us estimate the fair values of goodwill and customer accounts.  Based on this analysis, we recorded a non-cash net charge of approximately $659.3 million in the first quarter of 2002.  The charge is detailed as follows:

	Goodwill			Customer Accounts			Total
	(in millions)
Impairment charge on continuing operations	$	496.6		$	332.2		$	828.8
Impairment charge on discontinued operations	2.3			1.9			4.2
Estimated income tax benefit	(57.4		)	(116.3		)	(173.7		)
Net charge	$	441.5		$	217.8		$	659.3

The impairment charge for goodwill is reflected in the consolidated statement of operations as a cumulative effect of a change in accounting principle.  The impairment charge for customer accounts is reflected in the consolidated statement of operations as an operating cost.  These impairment charges reduced the recorded value of these assets to their estimated fair values at January 1, 2002.

We are no longer permitted to amortize goodwill to income because of the adoption of SFAS No. 142.  The following table reflects our results for the three and six months ended June 30, 2001, calculated using the new accounting standard for goodwill, compared to our results for the three and six months ended June 30, 2002.

	Six Months ended June 30,
	2002			2001
	(in thousands, except per share amounts)
Reported net loss	$	(661,743	)	$	(39,591	)
Add back: Goodwill amortization	—			21,616
Adjusted net loss	$	(661,743	)	$	(17,975	)
Basic earnings per share:
Reported net loss	$	(6.74	)	$	(0.36	)
Add back:  Goodwill amortization	—			0.19
Adjusted net loss	$	(6.74	)	$	(0.17	)

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	Three Months ended June 30,
	2002		2001
	(in thousands, except per share amounts)
Reported net income (loss)	$	3,501	$	(31,115	)
Add back: Goodwill amortization	—		10,960
Adjusted net income (loss)	$	3,501	$	(20,155	)
Basic earnings per share:
Reported net loss	$	0.04	$	(0.29	)
Add back:  Goodwill amortization	—		0.10
Adjusted net income (loss)	$	0.04	$	(0.19	)

The Company will be required to perform impairment tests for long-lived assets prospectively as long as it continues to incur recurring losses or for other matters that may negatively impact our business.  Goodwill will be required to be tested each year for impairment.  Declines in market values of our business or the value of our customer accounts that may be incurred prospectively may require additional impairment charges in the future, which could be material.

Estimated Lives of Customer Accounts Changed Based on Customer Account Lifing Study Results.  The results of a lifing study performed by a third party appraisal firm in the first quarter of 2002 showed a deterioration in the average remaining life of customer accounts.  The report showed our North America customer pool can expect a declining revenue stream over the next 30 years with an estimated average remaining life of 9 years.  Our Multifamily pool can expect a declining revenue stream over the next 30 years with an estimated average remaining life of 10 years.  Taking into account the results of the lifing study, we adjusted the amortization of customer accounts for our North America and Multifamily customer pools to better match the rate and period of amortization expense with the expected decline in revenues.  In the first quarter of 2002, we changed our amortization rate for our North America pool to a 10-year 135% declining balance method from a 10-year 130% declining balance method.  For the Multifamily pool we reduced our estimated customer life from 10 to 9 years and will continue to amortize on a straight-line basis.  We account for these amortization changes prospectively as a change in estimate.  These changes in estimates increased amortization expense for the three and six months ended June 30, 2002 on a pre-tax basis by approximately $0.3 million and $0.7 million, respectively and on an after tax basis by approximately $0.2 million and $0.4 million, respectively.  The change in estimate had no significant impact on reported earnings per share.

Discontinued Operations – Sale of Canadian Operations.  During the second quarter of 2002 we entered into negotiations for the sale of our Canadian business which is included in our North American segment.  The sale was consummated on July 9, 2002.  We recorded a pretax impairment loss of approximately $2.0 million and an after tax loss of approximately $1.3 million in the second quarter of 2002 as evidenced by the sale.

The net operating losses of these operations are included in the consolidated statements of operations under “discontinued operations.”  The net operating loss for the six months ended June 30, 2002 of $1.7 million includes an impairment loss on customer accounts of approximately $1.9 million.   An impairment charge of $2.3 million relating to the Canadian operations’ goodwill is reflected in the consolidated statement of operations as a cumulative effect of accounting change on discontinued

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operations.  Revenues from these operations were $2.1 million and $4.2 million for the three and six months ended June 30, 2002, compared to $2.1 million and $4.1 million for the three and six months ended June 30, 2001.

The major classes of assets and liabilities of the Canadian operations are as follows (in thousands):

	June 30, 2002		December 31, 2001
Assets:
Current	$	948	$	478
Property and equipment	608		571
Customer accounts, net	15,649		16,992
Goodwill	2,147		4,842
Other	58		55
Total assets	$	19,410	$	22,938
Current liabilities	$	1,333	$	1,364

Potential write down of deferred tax assets. We have a tax sharing agreement with Westar Energy which allows us to be reimbursed for tax deductions utilized by Westar Energy in its consolidated tax return.  If Westar Energy were to own less than 80% of Westar Industries voting stock, or if Westar Industries were to own less than 80% of our voting stock, we would no longer file our tax return on a consolidated basis with Westar Energy.  As a result, a substantial portion of our net deferred tax assets of $259.6 million at June 30, 2002 would likely not be realizable and we would likely not be in a position to record a tax benefit for losses incurred. Accordingly, we would be required to record a non-cash charge against income for the portion of our net deferred tax assets we determine not to be realizable. This charge could be material and could have a material adverse effect on our business, financial condition and results of operations.

Increase in Senior Credit Facility.  We entered into three separate amendments to the Senior Credit facility in the first six months of 2002.  Each of the amendments increased the capacity of the Senior Credit facility by $25 million resulting in a total capacity of $230 million as of June 30.  For each amendment we incurred an amendment fee of $250,000 for a total of $750,000 which was paid to Westar Industries in the third quarter of 2002. On July 25, 2002, the Company and Westar Industries entered into a further amendment to the Senior Credit Facility which increased the amount of the facility to $255 million.  The Company will pay an amendment fee of $250,000 for the amendment in the third quarter of 2002.  At August 8, 2002, we had outstanding borrowings of $189.7 million and $65.3 million of remaining capacity.

Retirement of Additional Debt.   In the first quarter of 2002, we purchased from Westar Industries $14.8 million face value of our bonds for $12.0 million.  As a result of these transactions, we recognized an extraordinary gain of $2.0 million, net of tax. In the second quarter of 2002, we purchased $16.4 million face value of our bonds in the open market and $45.9 million face value of our bonds from Westar Industries for $47.8 million resulting in an extraordinary gain of $8.8 million, net of tax.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”  This standard limits the income statement classification of gains and losses from extinguishment of debt as extraordinary to those transactions meeting the criteria of Accounting Principles Board (APB) Opinion No. 30, “Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  Under SFAS No. 145, extinguishments resulting from a company’s risk management strategy do not meet the criteria for classification as extraordinary transactions.  This standard is effective for fiscal years beginning after May 15, 2002 with early adoption encouraged.  We expect to adopt this standard in the third quarter of 2002.  Gains or losses in prior periods that were classified as extraordinary that do not meet the APB Opinion No. 30 criteria will be required to be reclassified.

Share Repurchase. In the first quarter of 2002, we purchased 1,000,000 shares of our common stock in the open market for $2.2 million. As of August 8, 2002, we had authority from our board of directors to purchase an additional approximately 8.2 million shares of our common stock.

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Customer Creation and Marketing.   For the three and six months ended June 30, 2002, our North America segment added 11,296 and 20,946 accounts, respectively, although our net number of accounts decreased by 12,887 and 33,683 accounts, respectively. For the three and six months ended June 30, 2001, our North America segment added 12,827 and 26,297 accounts, respectively, and our net number of accounts decreased by 54,434 and 85,023 accounts, respectively.  Multifamily added 5,523 and 12,382 accounts for the three and six-months ended June 30, 2002, respectively, with its net number of accounts decreasing by 741 accounts for the three months ended June 30, 2002 and increasing by 1,999 accounts for the six months ended June 30, 2002.  For the three and six months ended June 30, 2001, Multifamily added 6,810 and 20,087 accounts, respectively, and its net number of accounts increasing by 2,966 accounts and 11,358 accounts, respectively.

Our current customer acquisition strategy for our North America segment relies primarily on internally generated sales.  Our internal sales program was started in February 2000 on a commission only basis with a goal of creating accounts at a cost lower than our external programs. In 2001, we revised and enhanced our internal sales program and, in early 2002, we introduced modest base compensation.  This program utilizes our existing branch infrastructure in approximately 60 markets.  The internal sales program generated 20,430 accounts and 23,865 accounts in the six months ended June 30, 2002 and 2001, respectively.  Our Multifamily segment also utilizes a salaried and commissioned sales force to produce new accounts.

In late 2001, we entered into a marketing alliance with BellSouth Telecommunications, Inc. (“BellSouth”) to offer monitored security services to the residential, single family market in the nine-state BellSouth region.  Under this agreement, we operate as “BellSouth Security Systems from Protection One” from all of our branches in the nine-state BellSouth region.  BellSouth provides us with leads of new owners of single family residences in its territory and of transfers of existing BellSouth customers within its territory.  We follow up on the leads and attempt to persuade them to become customers of our monitored security services.  We pay BellSouth an upfront royalty for each new contract and a recurring royalty based on a percentage of recurring revenues.

We continually evaluate our customer creation and marketing strategy, including evaluating each respective channel for economic returns, volume and other factors and may shift our strategy or focus, including the elimination of a particular channel.

Attrition.  Subscriber attrition has a direct impact on our results of operations since it affects our revenues, amortization expense and cash flow.  We define attrition as a ratio, the numerator of which is the gross number of lost customer accounts for a given period, net of certain adjustments, and the denominator of which is the average number of accounts for a given period.  In some instances, we use estimates to derive attrition data.  We make adjustments to lost accounts primarily for the net change, either positive or negative, in our wholesale base and for accounts which are covered under a purchase price holdback and are “put” back to the seller.  We reduce the gross accounts lost during a period by the amount of the guarantee provided for in the purchase agreements with sellers.  In some cases, the amount of the purchase holdback may be less than actual attrition experience.  For the quarter ended June 30, 2001 we further reduced gross accounts lost for account dispositions and for adjustments resulting from the conversion of accounts to MAS® that relate to how a customer is defined and the transition of that definition from one system to another.

We do not reduce the gross accounts lost during a period by “move in” accounts, which are accounts where a new customer moves into a home installed with our security system and vacated by a prior customer, or “competitive takeover” accounts, which are accounts where the owner of a residence monitored by a competitor requests that we provide monitoring services.

Our actual attrition experience shows that the relationship period with any individual customer can vary significantly.  Customers discontinue service with us for a variety of reasons, including relocation, service issues and cost.  A portion of the acquired customer base can be expected to discontinue service every year.   Any significant change in the pattern of our historical attrition experience would have a material effect on our results of operations.

We monitor attrition each quarter based on a quarterly annualized and trailing twelve-month basis. This method utilizes each segment’s average customer account base for the applicable period in measuring attrition.  Therefore, in periods of customer account growth, customer attrition may be understated and in periods of customer account decline, customer attrition may be overstated.

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Customer attrition by business segment for the three months ended June 30, 2002 and 2001 is summarized below:

	Customer Account Attrition
	June 30, 2002				June 30, 2001
	Annualized Second Quarter		Trailing Twelve Month		Annualized Second Quarter		Trailing Twelve Month
North America(1)	12.2	%	17.1	%	14.7	%	16.8	%
Multifamily	7.6	%	6.7	%	4.8	%	5.8	%
Total Company	10.8	%	14.3	%	12.3	%	14.3	%

(1)  Excludes Canadian operations which were sold in July 2002.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to bad debts, inventories, customer accounts, goodwill, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Note 2 of the “Notes to Consolidated Financial Statements” of our 2001 Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements.  The following is a brief description of the more significant accounting policies and methods we use.

Revenue Recognition. Revenues are recognized when security services are provided.  Installation revenue, sales revenues on equipment upgrades and direct costs of installations and sales are deferred for residential customers with service contracts.  For commercial customers and national account customers, revenue recognition is dependent upon each specific customer contract.  In instances when the company sells the equipment outright, revenues and costs are recognized in the period incurred.  In cases where there is no outright sale, revenues and direct costs are deferred and amortized.

Deferred installation revenues and system sales revenues will be recognized over the expected useful life of the customer.  Deferred costs in excess of deferred revenues will be recognized over the contract life.  To the extent deferred costs are less than deferred revenues, such costs are recognized over the customers’ estimated useful life.

Deferred revenues also result from customers who are billed for monitoring, extended service protection and patrol and response services in advance of the period in which such services are provided, on a monthly, quarterly or annual basis.

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Valuation of Customer Account Intangible Assets. Customer accounts are stated at cost.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired by us.  These assets are tested for impairment on a periodic basis or as circumstances warrant.  For purposes of this impairment testing, goodwill is considered to be directly related to the acquired customer accounts.  Factors we consider important that could trigger an impairment review include the following:

•high levels of customer attrition;

•continuing recurring losses in excess of expectations; and

•declines in the market value of our publicly traded equity and debt securities.

An impairment would be recognized when the undiscounted expected future operating cash flows by customer pool derived from customer accounts is less than the carrying value of capitalized customer accounts and related goodwill.  We performed impairment tests on our customer account assets and goodwill as of December 31, 2001.  These tests have indicated that future estimated undiscounted cash flows exceeded the sum of the recorded balances for customer accounts and goodwill.  See “Impairment Charge Pursuant to New Accounting Rules” for a discussion of the impairment recorded on these assets in the first quarter of 2002 pursuant to the adoption of new accounting rules.

Our amortization rates consider the average estimated remaining life and historical and projected attrition rates.  The amortization method for each customer pool is as follows:

Pool	Method
North America
-Acquired Westinghouse Customers	Eight-year 120% declining balance
-Other Customers	Ten-year 135% declining balance
Multifamily	Nine-year straight-line

Income Taxes.  As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate.  Significant management judgment is required in determining our provision for income taxes and our deferred tax assets and liabilities.  This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation and amortization, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered.  To the extent we believe that recovery is not likely, we must establish a valuation allowance.

Operating Results

We separate our business into two reportable segments: North America and Multifamily.  North America provides security alarm monitoring services, which include sales, installation and related servicing of security alarm systems.  As discussed above, we sold our Canadian operations in July 2002 which previously had been included in our North America segment.  We are therefore excluding the impact of the Canadian operations in the following analyses.  Multifamily provides security alarm services to apartments, condominiums and other multi-family dwellings.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Protection One Consolidated

Revenues decreased approximately $28.8 million primarily due to the decline in our customer base.  Cost of revenues decreased approximately $12.0 million and general and administrative costs decreased approximately $10.8 million primarily due to the consolidation of our call centers, downsizing efforts and other cost reduction initiatives.  Selling costs increased approximately $1.5 million primarily due to increased efforts to generate new customers through our internal sales force. Interest expense decreased by approximately $6.3 million primarily due to a reduction in debt.

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North America Segment

We present the table below for comparison of our North America operating results for the periods presented. Next to each period’s results of operations, we provide the relevant percentage of total revenues so you can make comparisons about the relative change in revenues and expenses.

	Six Months Ended June 30,
	2002					2001
	(dollars in thousands)
Revenues:
Monitoring and related services	$	119,922		93.3	%	$	150,705		95.4	%
Other	8,641			6.7		7,229			4.6
Total revenues	128,563			100.0		157,934			100.0
Cost of revenues:
Monitoring and related services	36,140			28.1		50,147			31.7
Other	8,221			6.4		6,309			4.0
Total cost of revenues	44,361			34.5		56,456			35.7
Gross profit	84,202			65.5		101,478			64.3
Selling expense	9,765			7.6		8,381			5.3
General and administrative expense	36,617			28.5		49,499			31.4
Amortization and depreciation expense	40,759			31.7		91,798			58.1
Loss on impairment	332,194			258.4		—			—
Severance and other expense	550			0.4		4,695			3.0
Operating (loss)	$	(335,683	)	(261.1	)%	$	(52,895	)	(33.5	)%

2002 Compared to 2001.  We had a net decrease of 33,683 customers in the first half of 2002 as compared to a net decrease of 85,023 customers in the first half of 2001. Further analysis of the change in the North American account base between the two periods is shown in the table below.  The “Conversion adjustments” line item reflects the impact on the calculation of our customer base from the conversion of our Wichita, Hagerstown and Beaverton monitoring and billing systems to our new technology platform, MAS®. These conversion adjustments relate to how a customer is defined and the transition of that definition from one system to another.

We expect that our customer base will continue to decline until the efforts we are making to acquire or create new accounts and to reduce attrition become more successful than they have been to date.  Until we achieve equilibrium between additions and attrition, net losses of customer accounts will materially and adversely affect our business, financial condition and results of operations. We are currently focused on reducing attrition, developing cost effective marketing programs, and generating positive cash flow.

	Six Months Ended June 30,
	2002		2001
Beginning Balance, January 1	806,774		1,023,023
Additions	20,946		26,297
Conversion adjustments	—		(12,212	)
Customer losses from dispositions	—		(9,440	)
Customer losses not guaranteed with holdback put backs	(52,828	)	(77,004	)
Customer losses guaranteed with holdback put backs and other	(1,801	)	(12,664	)
Ending Balance, June 30	773,091		938,000

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Monitoring and related service revenues decreased approximately $30.8 million in the first six months of 2002 as compared to the first six months of 2001 primarily due to the decline in our customer base. These revenues consist primarily of contractual revenue derived from providing monitoring and maintenance service.

Other revenues increased by $1.4 million or 19.5% to $8.6 million in 2002 from $7.2 million in 2001. These revenues consist primarily of sales of burglar alarms, closed circuit televisions, fire alarms and card access control systems to commercial customers.

Cost of monitoring and related services revenues for the first six months of 2002 decreased by $14.0 million, or 27.9%, to $36.1 million from $50.1 million for the first six months of 2001. These costs generally relate to the cost of providing monitoring service and include the costs of monitoring, billing, customer service and field operations.  The decrease is primarily due to a reduction of telecommunication costs and wage expense associated with the consolidation of our call centers and other cost reduction initiatives.  Costs of monitoring and related services revenues as a percentage of the related revenues decreased to 30.1% in the first six months of 2002 from 33.3% in the first six months of 2001.  This improvement arises from the percentage reduction in monitoring and related costs exceeding the percentage reduction in related revenues.

Cost of other revenues increased by $1.9 million from $6.3 million in the first six months of 2001 to $8.2 million in the first six months of 2002. These costs consist primarily of equipment and labor charges to install alarm systems, closed circuit televisions, fire alarms and card access control systems sold to our customers.  These costs as a percentage of other revenues increased to approximately 95.1% for the first six months of 2002 as compared to approximately 87.3% for the first six months of 2001.

Selling expenses increased $1.4 million or 16.5% to $9.8 million in the first six months of 2002 from $8.4 million in 2001.  The increase is due to our increased efforts to generate new customers through an internal sales force.

General and administrative expenses decreased $12.9 million or 26.0% from $49.5 million to $36.6 million in the first half of 2002.  The decrease is generally comprised of reductions in outside services primarily due to completion of special software projects and a reduction in wages and related benefits due to a reduction in workforce.  Other decreases include a reduction in professional fees, collection agency expense and travel expense.  These decreases are partially offset by a $2.7 million expense for a management fee to Westar Industries beginning in 2002.  As a percentage of total revenues, general and administrative expenses decreased to 28.5% for the first six months of 2002 from 31.4% for the first six months of 2001 because the percentage reduction in these costs exceeded the percentage decline in revenues.

Amortization and depreciation expense for the first six months of 2002 decreased by $51.0 million, or 55.6%, to $40.8 million from $91.8 million. This decrease reflects a reduction in subscriber amortization of $31.0 million primarily related to the impairment charge and a decrease in goodwill amortization of $19.7 million due to implementation of SFAS No. 142.  The remaining $0.3 million decrease is from depreciation expense.

Severance and other expense decreased $4.1 million, from $4.7 million to $0.6 million in the first half of 2001 and 2002, respectively. This expense for 2002 consisted primarily of severance and relocation costs related to the consolidation of our monitoring operations.  This expense for 2001 is primarily for severance charges incurred in the closing of our Beaverton and Hagerstown customer service centers, the reduction of 180 positions, the discontinuation of the National Accounts and Patrol divisions and the relocation of certain departments.  Also included are certain other costs incurred with the closure of facilities.

Multifamily Segment

The following table provides information for comparison of the Multifamily operating results for the periods presented. Next to each period’s results of operations, we provide the relevant percentage of total revenues so that you can make comparisons about the relative change in revenues and expenses.

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	Six Months Ended June 30,
	2002				2001
	(dollars in thousands)
Revenues:
Monitoring and related services	$	18,282	99.2	%	$	17,558	98.2	%
Other	143		0.8		322		1.8
Total revenues	18,425		100.0		17,880		100.0
Cost of revenues:
Monitoring and related services	4,328		23.5		3,967		22.2
Other	167		0.9		384		2.1
Total cost of revenues	4,495		24.4		4,351		24.3
Gross profit	13,930		75.6		13,529		75.7
Selling expense	1,037		5.6		953		5.3
General and administrative expenses	6,056		32.9		3,997		22.4
Amortization and depreciation expense	4,090		22.2		8,036		45.0
Operating income	$	2,747	14.9	%	$	543	3.0	%

2002 Compared to 2001.  We had a net increase of 1,999 customers in the first six months of 2002 as compared to a net increase of 11,358 customers in 2001.  The average customer base was 327,549 for the first six months of 2002 compared to 313,636 for the first six months of 2001.  The change in Multifamily’s customer base for the period is shown below.

	Six Months Ended June 30,
	2002		2001
Beginning Balance, January 1,	326,549		307,957
Additions, net of holdback put backs	12,382		20,087
Customer losses, net of holdback put backs	(10,383	)	(8,729	)
Ending Balance	328,548		319,315
Annualized Attrition	6.3	%	5.6	%

Monitoring and related services revenues was $18.3 million in 2002 compared to $17.6 million in 2001.  This 4.1% increase was primarily the result of an increase in the average customer base of 4.4%.

Other revenues decreased slightly to $0.1 million in 2002 from $0.3 million in 2001 primarily due to a decrease in outright sales of access control systems.

Cost of monitoring and related revenues for the first six months of 2002 increased $0.3 million to $4.3 million in 2002 from $4.0 million in 2001.  This 9.1% increase is primarily the result of the increase in the subscriber base and increased field service costs.   Costs of monitoring and related services revenues as a percentage of the related revenues increased to 23.7% in the first six months of 2002 from 22.6% in the first six months of 2001 primarily as a result of the increase in field service costs.

Cost of other revenues decreased by $0.2 million, or 56.5% to $0.2 million in 2002 from $0.4 million in 2001 due to the decline in outright sales of access control systems.

Selling expense in 2002 remained consistent with 2001 at $1.0 million.

General and administrative expenses for 2002 increased $2.1 million to $6.1 million in 2002 from $4.0 million in 2001.  This 51.5% increase is primarily due to the allocation of holding company expenses which were not allocated in 2001 until the

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fourth quarter and to increased insurance costs. As a percentage of total revenues, general and administrative expenses increased to 32.9% for the first six months of 2002 from 22.4% for the first six months of 2001 due to the allocation of holding company expenses in 2002.

Amortization and depreciation expensefor 2002 decreased by $3.9 million, or 49.1% to $4.1 million from $8.0 million in 2001.  This decrease is due to the elimination of goodwill amortization totaling $4.8 million resulting from a change in accounting principle offset by an increase in subscriber amortization resulting from a change in estimate of the subscriber life from 10 years to 9 years and the increasing customer base being amortized.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Protection One Consolidated

Revenues decreased approximately $13.1 million primarily due to the decline in our customer base.  Cost of revenues decreased approximately $6.0 million and general and administrative costs decreased approximately $6.1 million primarily due to the consolidation of our call centers, downsizing efforts and other cost reduction initiatives.  Selling costs increased approximately $1.0 million primarily due to increased efforts to generate new customers through our internal sales force. Interest expense decreased by approximately $3.0 million primarily due to a reduction in debt.

North America Segment

We present the table below for comparison of our North America operating results for the periods presented. Next to each period’s results of operations, we provide the relevant percentage of total revenues so you can make comparisons about the relative change in revenues and expenses.

	Three Months Ended June 30,
	2002						2001
	(dollars in thousands)
Revenues:
Monitoring and related services	$	59,070		92.7	%	$		73,496		95.4	%
Other	4,670			7.3		3,506				4.6
Total revenues	63,740			100.0		77,002				100.0
Cost of revenues:
Monitoring and related services	17,645			27.7		24,930				32.4
Other	3,813			6.0		2,624				3.4
Total cost of revenues	21,458			33.7		27,554				35.8
Gross profit	42,282			66.3		49,448				64.2
Selling expense	5,068			7.9		4,153				5.4
General and administrative expense	18,038			28.3		25,272				32.8
Amortization and depreciation expense	20,317			31.9		46,089				59.8
Severance and other expense	39			0.1		4,276				5.6
Operating loss	$	(1,180	)	(1.9	)%	$		(30,342	)	(39.4	)%

2002 Compared to 2001.   We had a net decrease of 12,887 customers in the second quarter of 2002 as compared to a net decrease of 54,434 customers in the second quarter of 2001. Further analysis of the change in the North American account base between the two periods is shown in the table below.  The “Conversion adjustments” line item reflects the impact on the calculation of our customer base from the conversion of our Beaverton monitoring and billing system to MAS®. These conversion adjustments relate to how a customer is defined and the transition of that definition from one system to another.

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We expect that our customer base will continue to decline until the efforts we are making to acquire or create new accounts and to reduce attrition become more successful than they have been to date.  Until we achieve equilibrium between additions and attrition, net losses of customer accounts will materially and adversely affect our business, financial condition and results of operations. We are currently focused on reducing attrition, developing cost effective marketing programs, and generating positive cash flow.

	Three Months Ended June 30,
	2002		2001
Beginning Balance, April 1	785,978		992,434
Additions	11,296		12,827
Conversion adjustments	—		(15,532	)
Customer losses from dispositions	—		(9,440	)
Customer losses not guaranteed with holdback put backs	(23,785	)	(35,509	)
Customer losses guaranteed with holdback put backs and other	(398	)	(6,780	)
Ending Balance, June 30	773,091		938,000
Annualized quarterly attrition	12.2	%	14.7	%

Monitoring and related service revenues decreased approximately $14.4 million or 19.6% in the second quarter of 2002 compared to the second quarter of 2001.  This is primarily due to the decline in our customer base.

Other revenues consist primarily of revenues generated from our internal installations of new alarm systems. These revenues increased approximately $1.2 million, or 33.2% in the second quarter of 2002 compared to the second quarter of 2001.

Cost of monitoring and related services revenues for the second quarter of 2002 decreased by $7.3 million, or 29.2%, to $17.6 million from $24.9 million for the second quarter of 2001. The decrease is primarily due to a reduction of telecommunication costs, rent expense and wage expense associated with the consolidation of our call centers and other cost reduction initiatives.  Costs of monitoring and related services as a percentage of the related revenues decreased to 29.9% in the second quarter of 2002 from 33.9% in the second quarter of 2001. This improvement arises from the percentage reduction in monitoring and related costs exceeding the percentage reduction in related revenues.

Cost of other revenues increased approximately $1.2 million to $3.8 million for the second quarter of 2002 from $2.6 million in the second quarter of 2001.  This increase is related to the increase in other revenues.  Cost of other revenues as a percentage of the related revenues increased to 81.6% in the second quarter of 2002 from  74.8% in the second quarter of 2001.

Selling expenses increased $0.9 million from $4.2 million in the second quarter of 2001 to $5.1 million in the second quarter of 2002.  The increase is generally due to an increase in the internal sales force and the resulting increase in sales commissions, wages and benefits and support costs.

General and administrative expenses decreased $7.3 million from $25.3 million in the second quarter of 2001 to $18.0 million in the second quarter of 2002. The decrease in 2002 is comprised generally of a $3.0 million decrease in wages and related benefits resulting from downsizing our workforce, a $3.6 million decrease in outside services and shared services subcontract labor primarily relating to the completion of software projects, a $1.1 million decrease in professional fees, and a $0.3 million decrease in travel and entertainment expenses. These decreases are partially offset by a $1.3 million expense for the second quarter of 2002 related to a financial advisory fee to Westar Industries.  As a percentage of total revenues, general and administrative expenses decreased to 28.3% for the second quarter of 2002 from 32.8% for the second quarter of 2001 because the percentage reduction in these costs exceeded the percentage decline in revenues.

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Amortization and depreciation expense for the second quarter of 2002 decreased by $25.8 million, or 55.9%, to $20.3 million from $46.1 million in the second quarter of 2001. This decrease reflects a reduction in subscriber amortization of $15.6 million related to the impairment charge and a decrease in goodwill amortization of $9.8 million due to implementation of SFAS No. 142.

Severance and other expense of $39 thousand in the second quarter of 2002 consisted primarily of severance and relocation costs related to the consolidation of our monitoring operations.  Severance and other expense of $4.3 million in the second quarter of 2001 consisted primarily of severance charges incurred in the closing of our Beaverton customer service center, the reduction of 180 positions, the discontinuation of the National Accounts and Patrol divisions and the relocation of certain departments.

Multifamily Segment

The following table provides information for comparison of the Multifamily operating results for the periods presented. Next to each period’s results of operations, we provide the relevant percentage of total revenues so that you can make comparisons about the relative change in revenues and expenses.

	Three Months Ended June 30,
	2002				2001
	(dollars in thousands)
Revenues:
Monitoring and related services	$	9,128	99.2	%	$	8,869	98.0	%
Other	75		0.8		179		2.0
Total revenues	9,203		100.0		9,048		100.0
Cost of revenues:
Monitoring and related services	2,247		24.4		2,043		22.6
Other	103		1.1		223		2.4
Total cost of revenues	2,350		25.5		2,266		25.0
Gross profit	6,853		74.5		6,782		75.0
Selling expense	549		6.0		478		5.3
General and administrative expenses	3,203		34.8		2,055		22.7
Amortization and depreciation expense	2,067		22.5		4,035		44.6
Operating income	$	1,034	11.2	%	$	214	2.4	%

2002 Compared to 2001.  We had a net decrease of 741 customers in the second quarter of 2002 as compared to a net increase of 2,966 customers in 2001.  The average customer base was 328,919 for the second quarter of 2002 compared to 317,832 for the second quarter of 2001.  The change in Multifamily’s customer base for the period is shown below.

	Three Months Ended June 30,
	2002		2001
Beginning Balance, April 1	329,289		316,349
Additions, net of holdback put backs	5,523		6,810
Customer losses, net of holdback put backs	(6,264	)	(3,844	)
Ending Balance, June 30	328,548		319,315
Annualized quarterly attrition	7.6	%	4.8	%

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Monitoring and related services revenueswere $9.1 million in the second quarter 2002 compared to $8.9 million in 2001. The increase was the result of the 3.5% increase in the subscriber base.

Other revenues decreased slightly to $0.1 million in the second quarter of 2002 from $0.2 million in 2001 primarily due to a decrease in outright sales of access control systems.

Cost of monitoring and related revenues for the second quarter of 2002 increased $0.2 million to $2.2 million in 2002 from $2.0 million in 2001.  This 10.0% increase is primarily the result of the increase in the subscriber base and increased field service costs. Costs of monitoring and related services revenues as a percentage of the related revenues increased to 24.6% in the second quarter of 2002 from 23.0% in the second quarter of 2001 primarily as a result of the increase in field service costs.

Cost of other revenues decreased slightly to $0.1 million in the second quarter of 2002 from $0.2 million in 2001 primarily due to a decrease in outright sales of access control systems.

Selling expense in the second quarter of 2002 remained consistent with 2001 second quarter at $0.5 million.

General and administrative expenses for the second quarter of 2002 increased $1.1 million to $3.2 million in 2002 from $2.1 million in 2001.  This 55.9% increase is primarily due to the allocation of holding company expenses which were not allocated in 2001 until the fourth quarter and to increased insurance costs. As a percentage of total revenues, general and administrative expenses increased to 34.8% for the second quarter of 2002 from 22.7% for the second quarter of 2001 due to the allocation of holding company expenses in 2002.

Amortization of intangibles and depreciation expensefor the second quarter of 2002 decreased by $1.9 million, or 48.8% to $2.1 million from $4.0 million in 2001.  This decrease is due to the elimination of goodwill amortization totaling $2.4 million resulting from a change in accounting principle offset by an increase in subscriber amortization resulting from a change in estimate of the subscriber life from 10 years to 9 years and the increasing customer base being amortized.

Liquidity and Capital Resources

We believe we will have sufficient cash to fund future operations of our business through July 1, 2003 from a combination of cash flow from our security monitoring customer base which generated $25.4 million of positive cash flow from operations in the first six months of 2002, the sale of our Canadian operations, possible other asset sales and borrowings under our existing Senior Credit Facility with Westar Industries, which had approximately $65.3 million of availability at August 8, 2002.  We have sought to obtain a third party source of funds to replace those provided by Westar Industries under our Senior Credit Facility.  We have not been able to obtain another lender or lenders on terms or at a cost acceptable to us or Westar Industries.  We can give no assurance that we would be able to obtain adequate financing from third party sources should that become necessary.

The Senior Credit Facility currently expires on January 2, 2003.  We expect to renew the facility with Westar Industries unless efforts to replace the facility with financing from an unaffiliated third party lender are successful. The success of these efforts will depend on improvements in our operating and financial performance.  The Kansas Corporation Commission has issued an order prohibiting Westar Energy from borrowing to make loans or capital contributions to Westar Industries.  This order limits the resources available to Westar Industries for funding its obligations under the Senior Credit Facility. The Kansas Corporation Commission is also conducting a proceeding to consider a financial plan proposed by Westar Energy which includes the separation of its electric utility and non-electric utility businesses. We would face significant liquidity issues if we were unable to renew the Senior Credit Facility with Westar Industries or if Westar Industries were unable to fund its obligations under the Senior Credit Facility.

Our ability to borrow under the facility is subject to compliance with certain financial covenants including a leverage ratio of 5.75 to 1.0 and an interest coverage ratio of 2.10 to 1.0.  At June 30, 2002, the ratios were approximately 4.9 to 1.0 and 2.6 to 1.0, respectively.

Operating Cash Flows for the Six Months Ended June 30, 2002.  Our operating activities provided net cash flows of $25.4 million for the first six months of 2002 compared to $25.2 million for the first six months of 2001.

29

Investing Cash Flows for the Six Months Ended June 30, 2002. We used $15.7 million in cash for investing activities in the first six months of 2002.  We used $11.0 million in cash to install and acquire new accounts, $3.3 million to acquire fixed assets and $1.4 million to acquire AV ONE, Inc. from Westar Industries.

Financing Cash Flows for the Six Months Ended June 30, 2002.  We used a net $12.4 million in cash for financing activities in the first six months of 2002. We used $11.6 million in cash to purchase stock of Westar Energy.  We increased our borrowings under the Senior Credit Facility by $59.0 million.  We used cash to purchase $77.0 million in face value of our outstanding debt for $59.8 million and to acquire 1,000,000 shares of our outstanding stock for $2.2 million.  At June 30, 2002, the Senior Credit Facility had a weighted average interest rate of 5.6% and an outstanding balance of $196.5 million.

Debt and Equity Repurchase Plans.  We may from time to time purchase our debt and equity securities as well as Westar Energy’s debt and equity securities in the open market or through negotiated transactions.  The timing and terms of purchases, and the amount of debt or equity actually purchased will be determined based on market conditions and other factors.  As of August 8, 2002, we had authority from our board of directors to purchase an additional approximately 8.2 million shares of our common stock.  Our board of directors has also authorized the purchase of up to an additional $100 million in Westar Energy debt and equity securities.

Material Commitments.  We have future, material, long–term commitments made in the past several years in connection with our growth. We believe these commitments will be met through a combination of borrowings under our Senior Credit Facility, refinancings and positive operating cash flows. The following reflects our commitments as of June 30, 2002:

	Payment Due by Period
At June 30, 2002:	2002		2003 – 2004		2005 – 2006		Thereafter		Total
	(Dollars in thousands)
Contractual Cash Obligations
Long-term debt (a)	$	—	$	23,785	$	223,672	$	119,540	$	366,997
Capital lease obligations	248		552		—		—		800
Operating leases	4,292		9,501		2,614		1,790		18,197
Unconditional purchase obligations (b)	2,030		6,090		—		—		8,120
Other long-term obligations	—		—		—		—		—
Total contractual cash obligations	$	6,570	$	39,928	$	226,286	$	121,330	$	394,114

(a)   Excludes $1.4 million premium which is being amortized to income.

(b)   Contract tariff for telecommunication services.

The table below shows our total commercial commitments and the expected expiration per period:

	Amount of Commitment Expiration Per Period
At June 30, 2002:	2002		2003 – 2004		2005 – 2006		Thereafter		Total
	(Dollars in thousands)
Other Commercial Commitments
Line of credit	$	—	$	196,500	$	—	$	—	$	196,500
Standby letters of credit	—		2,000		—		—		2,000
Guarantees	—		—		—		—		—
Standby repurchase obligations	—		—		—		—		—
Other commercial commitments	—		—		—		—		—
Total commercial commitments	$	—	$	198,500	$	—	$	—	$	198,500

Most of the long-term debt instruments contain restrictions based on “EBITDA”. The definition of EBITDA varies among the various indentures and the Senior Credit Facility.  EBITDA is generally derived by adding to income (loss) before income taxes, interest expense and depreciation and amortization expense. However, under the varying definitions of the indentures, various and numerous additional adjustments are sometimes required.

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Our Senior Credit Facility and the indentures relating to our other indebtedness contain the financial covenants summarized below:

Debt Instrument	Financial Covenant
Senior Credit Facility	Total consolidated debt/annualized most recent quarter EBITDA less than 5.75 to 1.0
	Consolidated annualized most recent quarter EBITDA/latest four fiscal quarters interest expense greater than 2.10 to 1.0
Senior Subordinated Notes	Current fiscal quarter EBITDA/current fiscal quarter interest expense greater than 2.25 to 1.0
Senior Subordinated Discount Notes	Total debt/annualized current quarter EBITDA less than 6.0 to 1.0
	Senior debt/annualized current quarter EBITDA less than 4.0 to 1.0

At June 30, 2002, we were in compliance with the covenants under these debt instruments and we expect to remain in compliance for the remainder of the year.

These debt instruments also restrict our ability to pay dividends to stockholders, but do not otherwise restrict our ability to fund cash obligations.

Credit Ratings.   Standard & Poor’s (S&P), Fitch Ratings, and Moody’s Investors Service (Moody’s) are independent credit-rating agencies that rate our debt securities.  On April 2, 2002, Moody’s downgraded its ratings on our outstanding securities due to concerns regarding our leveraged financial condition, the cash investment required to obtain new customers, our attrition experience and our commitment to debt and equity repurchases. Moody’s outlook remained negative citing unresolved operations problems and uncertainty surrounding long-term resolution of our liquidity issues. As of August 8, 2002, our public debt was rated as follows:

	Senior Unsecured Debt	Senior Subordinated Unsecured Debt	Outlook
S & P	B	CCC+	Negative
Moody’s	Caa1	Caa3	Negative
Fitch	B	CCC+	Negative

In general, declines in our credit ratings make debt financing more costly and more difficult to obtain on terms which are economically favorable to us.

Capital Expenditures. We anticipate making capital expenditures of approximately $40 million in 2002. Of such amount, we plan to invest approximately $30 million to acquire customer accounts and $10 million for fixed assets. Capital expenditures for 2003 and 2004 are expected to be approximately $45 million and $50 million, respectively.  Of these amounts approximately $35 million and $40 million would be to acquire accounts with the balance for fixed assets. These estimates are prepared for planning purposes and are revised from time to time.  Actual expenditures for these and possibly other items not presently anticipated will vary from these estimates during the course of the years presented.  We believe that our capital requirements will be met through the use of internally generated funds, asset sales, the Senior Credit Facility or external financings. See “Liquidity and Capital Resources” above.

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Tax Matters

We have a tax sharing agreement with Westar Energy which allows us to be reimbursed for tax deductions utilized by Westar Energy in its consolidated tax return.  If Westar Energy were to own less than 80% of Westar Industries voting stock, or if Westar Industries were to own less than 80% of our voting stock, we would no longer file our tax return on a consolidated basis with Westar Energy.  As a result, a substantial portion of our net deferred tax assets of $259.6 million at June 30, 2002 would likely not be realizable and we would likely not be in a position to record a tax benefit for losses incurred. Accordingly, we would be required to record a non-cash charge against income for the portion of our net deferred tax assets we determine not to be realizable. This charge could be material and could have a material adverse effect on our business, financial condition and results of operations.  In addition, as a result of a separation, we would no longer receive payments from Westar Energy for current tax benefits utilized by Westar Energy.  In February 2002 we received a payment of approximately $1.7 million and in 2001 and 2000, we received aggregate payments from Westar Energy of $19.1 million and $48.9 million, respectively.  We do not expect to receive any payments from Westar Energy for our 2002 tax benefit prior to the first quarter of 2003.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not experienced any significant changes in its exposure to market risk since December 31, 2001.  For additional information on the Company’s market risk, see Item 7A of the Form 10-K for the year ended December 31, 2001.

PART II

OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

Information relating to legal proceedings is set forth in Note 8 of the Notes to Consolidated Financial Statements included in Part I of this report, which information is incorporated herein by reference.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

None.

32

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

Our Annual Meeting of Shareholders was held on May 23, 2002.  At the meeting, the holders of 97,033,219 shares voted either in person or by proxy to elect directors and to consider and act upon an increase in the number of shares authorized for issuance under our Employee Stock Purchase Plan.

All directors nominated were elected at the Annual Meeting.  For the election of directors, the results were as follows:

Nominee	Votes For	Votes Withheld
Gene A. Budig	97,011,734	21,485
Maria de Lourdes Duke	97,015,034	18,185
Ben M. Enis	97,000,999	32,220
Richard Ginsburg	97,009,878	23,341
Donald A. Johnston	97,015,159	18,060
Douglas T. Lake	96,978,309	54,910
Steven V. Williams	97,001,799	31,420
James Q. Wilson	97,014,959	18,260
David C. Wittig	96,978,606	54,613

The proposal to increase the number of shares authorized for issuance under the Employee Stock Purchase Plan was approved.  The result of the vote taken was as follows:

For	Against	Abstain
96,251,937	756,226	25,056

ITEM 5.   OTHER INFORMATION.

None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits. The following exhibits are filed with this Quarterly Report on Form 10-Q or incorporated by reference.

Exhibit Number	Exhibit Description
10.1	Seventh Amendment of Credit Agreement effective as of March 25, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.2	Eighth Amendment of Credit Agreement effective as of June 3, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.3	Ninth Amendment of Credit Agreement effective as of June 26, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.4	Outsourcing Agreement between Westar Energy, Inc. and Protection One Data Services, Inc. dated July 1, 2002.
10.5	Westar Aviation, Inc. Stock Purchase Agreement dated as of June 5, 2002 by and between Westar Industries, Inc. and Protection One, Inc.
10.6	Aircraft Reimbursement Agreement dated as of June 5, 2002 between AV ONE, Inc. (f/k/a Westar Aviation, Inc.) and Westar Industries.
99.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

33

(b)  During the quarter ended June 30, 2002, the Company filed one Current Report on Form 8-K dated May 30, 2002, reporting that our Audit and Finance Committees of the Board of Directors dismissed Arthur Andersen, LLP as our public accountants and engaged Deloitte & Touche LLP to serve as our principal accountants for fiscal year 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

Date:	August 13, 2002	PROTECTION ONE, INC.
		PROTECTION ONE ALARM MONITORING, INC.
		By:	/s/  Darius G. Nevin
			Darius G. Nevin
			Executive Vice President and Chief Financial Officer

35

Exhibit List

Exhibit Number	Exhibit Description
10.1	Seventh Amendment of Credit Agreement effective as of March 25, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.2	Eighth Amendment of Credit Agreement effective as of June 3, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.3	Ninth Amendment of Credit Agreement effective as of June 26, 2002 between Protection One Alarm Monitoring, Inc. and Westar Industries, Inc.
10.4	Outsourcing Agreement between Westar Energy, Inc. and Protection One Data Services, Inc. dated July 1, 2002.
10.5	Westar Aviation, Inc. Stock Purchase Agreement dated as of June 5, 2002 by and between Westar Industries, Inc. and Protection One, Inc.
10.6	Aircraft Reimbursement Agreement dated as of June 5, 2002 between AV ONE, Inc. (f/k/a Westar Aviation, Inc.) and Westar Industries.
99.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

36

EX-10.1

Exhibit 10.1

SEVENTH AMENDMENT OF CREDIT AGREEMENT

THIS SEVENTH AMENDMENT OF CREDIT AGREEMENT (this “Amendment”) is entered into, effective as of March 25, 2002, between PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation (“Borrower”), each of the Persons which is a signatory to this Amendment (collectively, “Lenders”),and WESTAR INDUSTRIES, INC., as Administrative Agent for the Lenders (in such capacity, together with its successors in such capacity, “Administrative Agent”).

R E C I T A L S

A.            Borrower, Lenders and Administrative Agent entered into the Credit Agreement dated as of December 21, 1998 (as renewed, extended, modified, and amended from time to time, the “Credit Agreement”; capitalized terms used herein shall, unless otherwise indicated, have the respective meanings set forth in the Credit Agreement), providing for a revolving credit facility in the original maximum principal amount of $500,000,000.

B.            Pursuant to a letter agreement dated as of September 30, 1999, Borrower reduced the Total Commitment to $250,000,000.

C.            The Lenders and the Administrative Agent entered into that certain Assignment and Acceptance dated December 17, 1999 wherein the Administrative Agent and the Lenders assigned all of their rights and obligations under the Credit Agreement to Westar Industries, Inc. (f/k/a Westar Capital, Inc.).

D.            Borrower, Lender and Administrative Agent entered into a Second Amendment of Credit Agreement effective as of February 29, 2000, a Third Amendment of Credit Agreement effective as of January 2, 2001, a Fourth Amendment of Credit Agreement effective as of March 2, 2001, a Fifth Amendment to Credit Agreement effective as of June 30, 2001, and a Sixth Amendment of Credit Agreement effective as of November 1, 2001, pursuant to which certain provisions of the Credit Agreement were amended.

E.             Borrower, Lender, and Administrative Agent desire to further modify certain provisions contained in the Credit Agreement to increase the amount of the Committed Sum (as defined herein), subject to the terms and conditions set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Lender, and Administrative Agent agree as follows:

1.             Amendments to the Credit Agreement.  Schedule 2.1 is hereby deleted and replaced with Schedule 2.1 attached hereto.

2.             Amendment of Credit Agreement and Other Loan Documents. All references in the Loan Documents to the Credit Agreement shall henceforth include references to the Credit Agreement as modified and amended by this Amendment, and as

may, from time to time, be further modified, amended, restated, extended, renewed, and/or increased.

3.             Ratifications. Borrower (a) ratifies and confirms all provisions of the Loan Documents as amended by this Amendment, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, reduced, or otherwise adversely affected by this Amendment and continue to guarantee, assure, and secure full payment and performance of the present and future Obligation, and (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents, and certificates as the Credit Parties may reasonably request in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens.

4.             Representations. Borrower represents and warrants to the Credit Parties that as of the date of this Amendment: (a) this Amendment has been duly authorized, executed, and delivered by Borrower and each of the other Obligors that are parties to this Amendment; (b) no action of, or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by Borrower or any other Obligor of this Amendment; (c) the Loan Documents, as amended by this Amendment, are valid and binding upon Borrower and the other Obligors and are enforceable against Borrower and the other Obligors in accordance with their respective terms, except as limited by Debtor Relief Laws and general principles of equity; (d) the execution, delivery, and performance by Borrower and the other Obligors of this Amendment do not require the consent of any other Person and do not and will not constitute a violation of any Governmental Requirement, order of any Governmental Authority, or material agreements to which Borrower or any other Obligor is a party thereto or by which Borrower or any other Obligor is bound; (e) all representations and warranties in the Loan Documents are true and correct in all material respects on and as of the date of this Amendment, except to the extent that (i) any of them speak to a different specific date, or (ii) the facts on which any of them were based have been changed by transactions contemplated or permitted by the Credit Agreement; and (f) both before and after giving effect to this Amendment, no Potential Default or Default exists.

5.             Conditions. This Amendment shall not be effective unless and until:

(a)           this Amendment has been executed by Borrower, the other Obligors, Administrative Agent, and the Required Lenders;

(b)           Borrower shall have delivered to Administrative Agent such documents satisfactory to Administrative Agent as it may request evidencing the authorization and execution of this Agreement, and any other documents executed and delivered in connection herewith (collectively, the “Amendment Documents”; and

(c)           Borrower shall have paid to the Administrative Agent, for the account of the Credit Parties as Administrative Agent shall determine, an amendment fee in an

2

amount equal to 1% of the increase in the Total Commitment made effective on the effective date of this Amendment ($250,000).

6.             Continued Effect. Except to the extent amended hereby or by any documents executed in connection herewith, all terms, provisions, and conditions of the Credit Agreement and the other Loan Documents, and all documents executed in connection therewith, shall continue in full force and effect and shall remain enforceable and binding in accordance with their respective terms.

7.             Miscellaneous. Unless stated otherwise (a) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (b) headings and captions may not be construed in interpreting provisions, (c) this Amendment shall be construed and its performance enforced, under Texas law, (d) if any part of this Amendment is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable, and (e) this Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document.

8.             Parties. This Amendment binds and inures to Borrower and the Credit Parties and their respective successors and permitted assigns.

9.             Entireties. The Credit Agreement and the other loan documents, as amended by this amendment and the other amendment documents, represent the final agreement between the parties about the subject matter of the credit agreement and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.  there are no unwritten oral agreements between the parties.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

3

SIGNATURE PAGE TO SEVENTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation, as Borrower
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer

4

SIGNATURE PAGE TO SEVENTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT,

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

WESTAR INDUSTRIES, INC., as Administrative Agent and a Lender
By:	/s/ Paul R. Geist
	Name: Paul R. Geist
	Title: President

5

To induce the Credit Parties to enter into this Amendment, each of the undersigned (a) consents and agrees to the Amendment Documents’ execution and delivery, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, diminished, impaired, reduced, or otherwise adversely affected by the Amendment Documents and continue to guarantee, assure, and secure the full payment and performance of all present and future Obligations (except to the extent specifically limited by the terms of such guaranties, assurances, or Liens), (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional guaranties, assignments, security agreements, deeds of trust, mortgages, and other agreements, documents, instruments, and certificates as the Credit Parties may reasonably deem necessary or appropriate in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens, and (d) waives notice of acceptance of this consent and agreement, which consent and agreement binds the undersigned and its successors and permitted assigns and inures to the Credit Parties and their respective successors and permitted assigns.

EXECUTED on and effective as of the date first above written.

PROTECTION ONE, INC., a Delaware corporation
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer
NETWORK MULTI-FAMILY SECURITY CORPORATION, a Delaware corporation
By:	/s/ Anthony D. Somma
	Name: Anthony D. Somma
	Title: Assistant Treasurer

6

EX-10.2

Exhibit 10.2

EIGHTH AMENDMENT OF CREDIT AGREEMENT

THIS EIGHTH AMENDMENT OF CREDIT AGREEMENT (this “Amendment”) is entered into, effective as of June 3, 2002, between PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation (“Borrower”), each of the Persons which is a signatory to this Amendment (collectively, “Lenders”),and WESTAR INDUSTRIES, INC., as Administrative Agent for the Lenders (in such capacity, together with its successors in such capacity, “Administrative Agent”).

R E C I T A L S

A.            Borrower, Lenders and Administrative Agent entered into the Credit Agreement dated as of December 21, 1998 (as renewed, extended, modified, and amended from time to time, the “Credit Agreement”; capitalized terms used herein shall, unless otherwise indicated, have the respective meanings set forth in the Credit Agreement), providing for a revolving credit facility in the original maximum principal amount of $500,000,000.

B.            Pursuant to a letter agreement dated as of September 30, 1999, Borrower reduced the Total Commitment to $250,000,000.

C.            The Lenders and the Administrative Agent entered into that certain Assignment and Acceptance dated December 17, 1999 wherein the Administrative Agent and the Lenders assigned all of their rights and obligations under the Credit Agreement to Westar Industries, Inc. (f/k/a Westar Capital, Inc.).

D.            Borrower, Lender and Administrative Agent entered into a Second Amendment of Credit Agreement effective as of February 29, 2000, a Third Amendment of Credit Agreement effective as of January 2, 2001, a Fourth Amendment of Credit Agreement effective as of March 2, 2001, a Fifth Amendment to Credit Agreement effective as of June 30, 2001, a Sixth Amendment of Credit Agreement effective as of November 1, 2001, and a Seventh Amendment of Credit Agreement effective as of March 25, 2002, pursuant to which certain provisions of the Credit Agreement were amended.

E.             Borrower, Lender, and Administrative Agent desire to further modify certain provisions contained in the Credit Agreement to increase the amount of the Committed Sum (as defined herein), subject to the terms and conditions set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Lender, and Administrative Agent agree as follows:

1.             Amendments to the Credit Agreement.  Schedule 2.1 is hereby deleted and replaced with Schedule 2.1 attached hereto.

2.             Amendment of Credit Agreement and Other Loan Documents. All references in the Loan Documents to the Credit Agreement shall henceforth include

references to the Credit Agreement as modified and amended by this Amendment, and as may, from time to time, be further modified, amended, restated, extended, renewed, and/or increased.

3.             Ratifications. Borrower (a) ratifies and confirms all provisions of the Loan Documents as amended by this Amendment, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, reduced, or otherwise adversely affected by this Amendment and continue to guarantee, assure, and secure full payment and performance of the present and future Obligation, and (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents, and certificates as the Credit Parties may reasonably request in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens.

4.             Representations. Borrower represents and warrants to the Credit Parties that as of the date of this Amendment: (a) this Amendment has been duly authorized, executed, and delivered by Borrower and each of the other Obligors that are parties to this Amendment; (b) no action of, or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by Borrower or any other Obligor of this Amendment; (c) the Loan Documents, as amended by this Amendment, are valid and binding upon Borrower and the other Obligors and are enforceable against Borrower and the other Obligors in accordance with their respective terms, except as limited by Debtor Relief Laws and general principles of equity; (d) the execution, delivery, and performance by Borrower and the other Obligors of this Amendment do not require the consent of any other Person and do not and will not constitute a violation of any Governmental Requirement, order of any Governmental Authority, or material agreements to which Borrower or any other Obligor is a party thereto or by which Borrower or any other Obligor is bound; (e) all representations and warranties in the Loan Documents are true and correct in all material respects on and as of the date of this Amendment, except to the extent that (i) any of them speak to a different specific date, or (ii) the facts on which any of them were based have been changed by transactions contemplated or permitted by the Credit Agreement; and (f) both before and after giving effect to this Amendment, no Potential Default or Default exists.

5.             Conditions. This Amendment shall not be effective unless and until:

(a)           this Amendment has been executed by Borrower, the other Obligors, Administrative Agent, and the Required Lenders;

(b)           Borrower shall have delivered to Administrative Agent such documents satisfactory to Administrative Agent as it may request evidencing the authorization and execution of this Agreement, and any other documents executed and delivered in connection herewith (collectively, the “Amendment Documents”; and

(c)           Borrower shall have paid to the Administrative Agent, for the account of the Credit Parties as Administrative Agent shall determine, an amendment fee in an

2

amount equal to 1% of the increase in the Total Commitment made effective on the effective date of this Amendment ($250,000).

6.             Continued Effect. Except to the extent amended hereby or by any documents executed in connection herewith, all terms, provisions, and conditions of the Credit Agreement and the other Loan Documents, and all documents executed in connection therewith, shall continue in full force and effect and shall remain enforceable and binding in accordance with their respective terms.

7.             Miscellaneous. Unless stated otherwise (a) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (b) headings and captions may not be construed in interpreting provisions, (c) this Amendment shall be construed and its performance enforced, under Texas law, (d) if any part of this Amendment is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable, and (e) this Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document.

8.             Parties. This Amendment binds and inures to Borrower and the Credit Parties and their respective successors and permitted assigns.

9.             Entireties. The Credit Agreement and the other loan documents, as amended by this amendment and the other amendment documents, represent the final agreement between the parties about the subject matter of the credit agreement and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.  there are no unwritten oral agreements between the parties.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

3

SIGNATURE PAGE TO EIGHTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation, as Borrower
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer

4

SIGNATURE PAGE TO EIGHTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT,

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

WESTAR INDUSTRIES, INC., as Administrative Agent and a Lender
By:	/s/ Paul R. Geist
	Name: Paul R. Geist
	Title: President

5

To induce the Credit Parties to enter into this Amendment, each of the undersigned (a) consents and agrees to the Amendment Documents’ execution and delivery, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, diminished, impaired, reduced, or otherwise adversely affected by the Amendment Documents and continue to guarantee, assure, and secure the full payment and performance of all present and future Obligations (except to the extent specifically limited by the terms of such guaranties, assurances, or Liens), (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional guaranties, assignments, security agreements, deeds of trust, mortgages, and other agreements, documents, instruments, and certificates as the Credit Parties may reasonably deem necessary or appropriate in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens, and (d) waives notice of acceptance of this consent and agreement, which consent and agreement binds the undersigned and its successors and permitted assigns and inures to the Credit Parties and their respective successors and permitted assigns.

EXECUTED on and effective as of the date first above written.

PROTECTION ONE, INC., a Delaware corporation
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer
NETWORK MULTI-FAMILY SECURITY CORPORATION, a Delaware corporation
By:	/s/ Anthony D. Somma
	Name: Anthony D. Somma
	Title: Assistant Treasurer

6

EX-10.3

Exhibit 10.3

NINTH AMENDMENT OF CREDIT AGREEMENT

THIS NINTH AMENDMENT OF CREDIT AGREEMENT (this “Amendment”) is entered into, effective as of June 26, 2002, between PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation (“Borrower”), each of the Persons which is a signatory to this Amendment (collectively, “Lenders”),and WESTAR INDUSTRIES, INC., as Administrative Agent for the Lenders (in such capacity, together with its successors in such capacity, “Administrative Agent”).

R E C I T A L S

A.            Borrower, Lenders and Administrative Agent entered into the Credit Agreement dated as of December 21, 1998 (as renewed, extended, modified, and amended from time to time, the “Credit Agreement”; capitalized terms used herein shall, unless otherwise indicated, have the respective meanings set forth in the Credit Agreement), providing for a revolving credit facility in the original maximum principal amount of $500,000,000.

B.            Pursuant to a letter agreement dated as of September 30, 1999, Borrower reduced the Total Commitment to $250,000,000.

C.            The Lenders and the Administrative Agent entered into that certain Assignment and Acceptance dated December 17, 1999 wherein the Administrative Agent and the Lenders assigned all of their rights and obligations under the Credit Agreement to Westar Industries, Inc. (f/k/a Westar Capital, Inc.).

D.            Borrower, Lender and Administrative Agent entered into a Second Amendment of Credit Agreement effective as of February 29, 2000, a Third Amendment of Credit Agreement effective as of January 2, 2001, a Fourth Amendment of Credit Agreement effective as of March 2, 2001, a Fifth Amendment to Credit Agreement effective as of June 30, 2001, a Sixth Amendment of Credit Agreement effective as of November 1, 2001, a Seventh Amendment of Credit Agreement effective as of March 25, 2002, and an Eighth Amendment of Credit Agreement effective as of June 3, 2002, pursuant to which certain provisions of the Credit Agreement were amended.

E.             Borrower, Lender, and Administrative Agent desire to further modify certain provisions contained in the Credit Agreement to increase the amount of the Committed Sum (as defined herein), subject to the terms and conditions set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Lender, and Administrative Agent agree as follows:

1.             Amendments to the Credit Agreement.  Schedule 2.1 is hereby deleted and replaced with Schedule 2.1 attached hereto.

2.             Amendment of Credit Agreement and Other Loan Documents. All references in the Loan Documents to the Credit Agreement shall henceforth include

references to the Credit Agreement as modified and amended by this Amendment, and as may, from time to time, be further modified, amended, restated, extended, renewed, and/or increased.

3.             Ratifications. Borrower (a) ratifies and confirms all provisions of the Loan Documents as amended by this Amendment, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, reduced, or otherwise adversely affected by this Amendment and continue to guarantee, assure, and secure full payment and performance of the present and future Obligation, and (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents, and certificates as the Credit Parties may reasonably request in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens.

4.             Representations. Borrower represents and warrants to the Credit Parties that as of the date of this Amendment: (a) this Amendment has been duly authorized, executed, and delivered by Borrower and each of the other Obligors that are parties to this Amendment; (b) no action of, or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution, delivery, and performance by Borrower or any other Obligor of this Amendment; (c) the Loan Documents, as amended by this Amendment, are valid and binding upon Borrower and the other Obligors and are enforceable against Borrower and the other Obligors in accordance with their respective terms, except as limited by Debtor Relief Laws and general principles of equity; (d) the execution, delivery, and performance by Borrower and the other Obligors of this Amendment do not require the consent of any other Person and do not and will not constitute a violation of any Governmental Requirement, order of any Governmental Authority, or material agreements to which Borrower or any other Obligor is a party thereto or by which Borrower or any other Obligor is bound; (e) all representations and warranties in the Loan Documents are true and correct in all material respects on and as of the date of this Amendment, except to the extent that (i) any of them speak to a different specific date, or (ii) the facts on which any of them were based have been changed by transactions contemplated or permitted by the Credit Agreement; and (f) both before and after giving effect to this Amendment, no Potential Default or Default exists.

5.             Conditions. This Amendment shall not be effective unless and until:

(a)           this Amendment has been executed by Borrower, the other Obligors, Administrative Agent, and the Required Lenders;

(b)           Borrower shall have delivered to Administrative Agent such documents satisfactory to Administrative Agent as it may request evidencing the authorization and execution of this Agreement, and any other documents executed and delivered in connection herewith (collectively, the “Amendment Documents”; and

(c)           Borrower shall have paid to the Administrative Agent, for the account of the Credit Parties as Administrative Agent shall determine, an amendment fee in an

2

amount equal to 1% of the increase in the Total Commitment made effective on the effective date of this Amendment ($250,000).

6.             Continued Effect. Except to the extent amended hereby or by any documents executed in connection herewith, all terms, provisions, and conditions of the Credit Agreement and the other Loan Documents, and all documents executed in connection therewith, shall continue in full force and effect and shall remain enforceable and binding in accordance with their respective terms.

7.             Miscellaneous. Unless stated otherwise (a) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (b) headings and captions may not be construed in interpreting provisions, (c) this Amendment shall be construed and its performance enforced, under Texas law, (d) if any part of this Amendment is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable, and (e) this Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document.

8.             Parties. This Amendment binds and inures to Borrower and the Credit Parties and their respective successors and permitted assigns.

9.             Entireties. The Credit Agreement and the other loan documents, as amended by this amendment and the other amendment documents, represent the final agreement between the parties about the subject matter of the credit agreement and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.  there are no unwritten oral agreements between the parties.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

3

SIGNATURE PAGE TO NINTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation, as Borrower
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer

4

SIGNATURE PAGE TO NINTH AMENDMENT OF

CREDIT AGREEMENT AMONG

PROTECTION ONE ALARM MONITORING, INC., AS BORROWER,

WESTAR INDUSTRIES, INC., AS ADMINISTRATIVE AGENT,

AND

THE LENDERS NAMED HEREIN

EXECUTED on and effective as of the date first above written.

WESTAR INDUSTRIES, INC., as Administrative Agent and a Lender
By:	/s/ Paul R. Geist
	Name: Paul R. Geist
	Title: President

5

To induce the Credit Parties to enter into this Amendment, each of the undersigned (a) consents and agrees to the Amendment Documents’ execution and delivery, (b) ratifies and confirms that all guaranties, assurances, and Liens, if any, granted, conveyed, or assigned to the Credit Parties under the Loan Documents are not released, diminished, impaired, reduced, or otherwise adversely affected by the Amendment Documents and continue to guarantee, assure, and secure the full payment and performance of all present and future Obligations (except to the extent specifically limited by the terms of such guaranties, assurances, or Liens), (c) agrees to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional guaranties, assignments, security agreements, deeds of trust, mortgages, and other agreements, documents, instruments, and certificates as the Credit Parties may reasonably deem necessary or appropriate in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens, and (d) waives notice of acceptance of this consent and agreement, which consent and agreement binds the undersigned and its successors and permitted assigns and inures to the Credit Parties and their respective successors and permitted assigns.

EXECUTED on and effective as of the date first above written.

PROTECTION ONE, INC., a Delaware corporation
By:	/s/ Darius Nevin
	Name: Darius Nevin
	Title: Executive Vice President and Chief Financial Officer
NETWORK MULTI–FAMILY SECURITY CORPORATION, a Delaware corporation
By:	/s/ Anthony D. Somma
	Name: Anthony D. Somma
	Title: Assistant Treasurer

6

EX-10.4

Exhibit 10.4

Outsourcing Agreement

THIS OUTSOURCING AGREEMENT (this “Agreement”), dated as of July 1, 2002, is by and between Westar Energy, Inc. (“Westar”), with offices at 818 S. Kansas Avenue, Topeka, Kansas 66612, and Protection One Data Services, Inc. (“PODS”) with offices at 818 S. Kansas Avenue, Topeka, Kansas 66612.

W I T N E S S E T H:

WHEREAS, Westar desires to outsource certain services and functions currently performed by Westar to PODS as more fully described herein;

WHEREAS, PODS is willing to assume responsibility for such outsourced services and functions, all in accordance with the terms and conditions of this Agreement;

NOW, THEREFORE, Westar and PODS hereby agree as follows:

1.             AGREEMENT AND TERM

1.1          Agreement.  Upon the terms and conditions of this Agreement, PODS shall provide to Westar certain information technology (“IT”) services currently performed by Westar described in the IT Services Addendum attached hereto as Schedule 1.1 and such additional addenda that may from time to time be executed by the parties, each of which shall be attached hereto as consecutively numbered amendments to Schedule 1.1 (the “IT Services”).

1.2          Term.  The term of this Agreement will commence on July 1, 2002 (the “Effective Date”) and will end on December 31, 2005.  Either party may terminate this Agreement on six (6) months prior written notice, provided, however, that such notice may not be given prior to June 30, 2003.  This Agreement may also be terminated as provided in Sections 7.1-7.4.  Unless terminated as provided herein, the term of this agreement will be automatically extended for successive additional periods of one year each.  Each successive year commencing on the first day of January following the Effective Date shall be referred to as an “Agreement Year”.

2.             RESPONSIBILITY FOR RESOURCES

2.1          Employees.

(a)           With the consent of Westar, PODS has offered employment to Westar employees previously identified by PODS and listed on Schedule 2.1 (the “Employees”) effective as of July 1, 2002, in accordance with PODS’ normal employment policies, upon the terms and conditions set forth in said Schedule 2.1.  Westar will provide all payroll, employment tax, and other information relating to the Employees as may be reasonably requested by PODS consistent with any applicable confidentiality restrictions.  As to any Employees not accepting employment offers from PODS, Westar shall have the option to retain such employees or terminate their

employment in accordance with Westar’s standard employment policies.  Responsibility for severance and any related liability for those Employees not accepting employment offers from PODS shall be the sole responsibility of Westar.

(b)           During the period commencing on the Effective Date and ending (i) September 30, 2002, as it relates to terminations and (ii) December 31, 2002, as it relates to relocations, PODS may identify certain hired Employees that it does not believe to be appropriate for providing the IT Services and terminate the employment of such Employees, or may relocate positions and as a result trigger the right of Employees under employment policies applicable to them to terminate their employment and receive severance benefits.  As to each such Employee, Westar agrees to reimburse PODS for severance payments and related costs made or incurred by PODS to or for such Employee; provided, that such severance payments will not exceed the amount of severance pay that Westar would have owed such Employee had the Employee remained a Westar employee up to the date of termination of employment.

(c)           With respect to the hired Employees whose employment is not terminated pursuant to Section 2.1(b) above, PODS will maintain such Employees at a salary and benefits comparable to those provided by PODS as of the Effective Date as provided in Schedule 2.1 until July 1, 2003; provided, however, that any Employee hired by PODS may be terminated for good cause as defined in PODS’ existing personnel policies or as part of a general reduction in force adopted by PODS.  Severance and related liabilities for any Employee hired by PODS and terminated after September 30, 2002 except as set forth in Section 2.1(b) shall be the responsibility of PODS.  Nothing in this Agreement is intended to create any obligation of any party hereto to any employees of any party, nor to make any employee of any party hereto a third party beneficiary of this Agreement.

2.2          Facilities.  Commencing on the Effective Date and for the term hereof, Westar will provide to PODS the use of the space specified in the Facilities Schedule attached hereto as Schedule 2.2(a) which space is currently occupied by Westar in performing the services and functions to be performed by PODS hereunder (the “Facilities”), pursuant to the Facilities License attached hereto as Schedule 2.2(b).  Westar shall obtain the necessary consents and approvals from Westar’s landlord, if applicable, with respect to PODS’ use and occupancy of the Facilities.  PODS will have the right to vacate any portion of the space comprising the Facilities that PODS no longer desires to use.  Any such space that PODS vacates will be returned to Westar.

2.3          Relocation.  With Westar’s prior written consent, PODS shall have the right to relocate the site of its services hereunder to an alternate site at its expense; provided that such relocation shall not affect either party’s obligation to provide access to the Westar Systems and Third Party Services as described herein, and shall not result in a material degradation of service to Westar or any party to whom Westar is contracted to provide service.

2.4          Westar Equipment.  Commencing on the Effective Date and for the term hereof, Westar will provide to PODS, in their then-existing working condition, the use of all furnishings, fixtures, computers, computer-related equipment, data communication lines and all

2

other equipment in use by Westar as of the Effective Date in performing the functions to be performed by PODS for Westar hereunder, including those items listed on Schedules 2.4(a) and 2.4(b) (the “Westar Equipment”) in accordance with the following:

(a)           Commencing on the Effective Date and for the term hereof, Westar will provide PODS with access to all Westar Equipment that is owned by Westar or leased by Westar pursuant to capital leases or similar financing arrangements and used by Westar in performing the functions to be performed by PODS hereunder (collectively, the “Westar Owned Equipment”), including, without limitation, the Westar Equipment listed in Schedule 2.4(a).  From time to time as determined by the parties after the Effective Date, the parties will conduct an inventory of the Westar Owned Equipment and, based on the results of such inventory, modify Schedule 2.4(a).  Westar will continue to insure the Westar Owned Equipment and shall retain liability for any loss or damage to the Westar Owned Equipment unless caused by the negligence or willful misconduct of PODS, including any of its employees, agents or contractors.

(b)           Commencing on the Effective Date and for the term hereof, Westar will provide to PODS the use of all Westar Equipment that is leased by Westar other than pursuant to capital leases or similar financing arrangements and used by Westar in performing the functions to be performed by PODS hereunder (collectively, the “Westar Leased Equipment”), including without limitation the Westar Equipment listed in Schedule 2.4(b).  From time to time after the Effective Date as determined by the parties, the parties will conduct an inventory of Westar Leased Equipment and, based on the results of such inventory, modify Schedule 2.4(b).  There shall not be any adjustment to the fee schedule as leases are canceled or added except as set forth in Section 5.2.

2.5          Westar Systems.  Commencing on the Effective Date and for the term hereof, Westar will and hereby does provide to PODS a limited, non-transferable license to use and access the systems currently used by Westar in performing the functions to be performed by PODS hereunder and any successor systems (the “Westar Systems”) for use in performing the services hereunder for Westar and for third parties as provided for herein.  Westar shall also provide all necessary support for PODS’ continued use and access to the Westar Systems.  The Westar Systems include all software described in Schedule 2.5, which includes all programs and documentation therefor and the tangible media on which such programs are recorded.  Westar shall be responsible for obtaining any necessary consents or assignments from any third party licensors of the Westar Systems prior to the Effective Date to enable PODS to use the Westar Systems in accordance with this Section.  Notwithstanding the above, Westar shall not be responsible for any cost associated with support, consents, or assignments to the extent the support, consents or assignments are needed for use of the Westar Systems by PODS in performing services for parties other than Westar, ONEOK, and Wolf Creek.

2.6          Upgrades to Westar Systems.  From time to time during the term of this Agreement, Westar may elect, at its own expense, to upgrade or change the Westar Systems, provided that such upgrade or change provides substantially the same functionality.  IT Services related to routine upgrades are covered under the agreement.  IT Services related to major upgrades will be negotiated separately.

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2.7          Third Party Services.  Commencing on the Effective Date and for the term hereof, Westar will make available to PODS other than as specified below, all third party services used by Westar in performing the functions to be performed by PODS hereunder, including those described on Schedule 2.7 (the “Third Party Services”).  If requested by PODS and agreed to by Westar, Westar will, to the extent permitted by such agreement, terminate or assign to PODS any agreement pursuant to which any Third Party Services are provided.  PODS will pay, or reimburse Westar, for any penalties or charges incurred by Westar as a result of any termination or assignment requested by PODS.

2.8          Upgrades/Additions to Westar Equipment and Westar Systems.  From time to time during the term hereof, PODS will identify to Westar changes and upgrades to Westar Equipment or Westar Systems (“New Equipment”) that PODS believes will result in enhanced performance or reduced costs in providing the IT Services hereunder.  PODS will provide Westar with a reasonably detailed summary of (a) the anticipated expense associated with the New Equipment, (b) the anticipated benefits and savings to be derived from the acquisition of the New Equipment and (c) the proposed adjustment, if any, to the fees to be paid hereunder.  Westar will not unreasonably refuse to acquire New Equipment so long as the net impact on Westar is either to maintain or to reduce fees hereunder, or to materially enhance the performance of the IT Services.  In the event the acquisition of the New Equipment will result in reduced expense to PODS and maintain fees at an equivalent level to Westar (after adjusting the Fees for the depreciated costs of the New Equipment), PODS will be allowed to retain the benefit of all such savings.

2.9          The Shared Services Agreement.  Westar and PODS acknowledge that they are parties to a Shared Services Agreement dated April 1, 1999 (the “Shared Services Agreement”).  The Shared Services Agreement is amended, as of the Effective Date, to delete the “Information Technology Services” described in Exhibit 3 thereof.

2.10        Westar Financing Changes.  In the event Westar elects to change any of the finance arrangements it presently has in place with respect to Westar Equipment or Westar Systems, and such financing change adversely affects PODS’ costs in providing the IT Services, the fees due hereunder shall be equitably adjusted so that PODS does not incur any additional costs as a result of such a financing change.

2.12        Obligations assumed by PODS.  As of the Effective Date, PODS shall assume the payment obligations of Westar related to the Westar Leased Equipment, the Westar Systems and the Third Party  Services.  PODS will make the payments directly to the applicable lessor, licensor or other third party when due unless otherwise agreed by the parties.

3.             IT SERVICES

3.1          IT Services for WESTAR.  PODS will provide to Westar the IT Services as set forth in the IT Services Addendum.

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3.2          IT Services for ONEOK and Wolf Creek.

(a)           The parties acknowledge that Westar is a party to that certain Shared Services Agreement with ONEOK Inc. (“ONEOK”) dated November 26, 1997, as renewed and amended.  As part of the IT Services to be provided hereunder, PODS will provide to ONEOK those services specifically set forth on Schedule 3.2(a)(1) (the “ONEOK Services”).  The ONEOK services will be provided as part of the IT Services and Westar will remain the party in contract with ONEOK.  PODS will not separately bill ONEOK.  In the event ONEOK initiates a change request with Westar with regard to the ONEOK services, Westar will promptly communicate such request to PODS and the parties will cooperate as reasonably necessary to accommodate such change request in accordance with the procedures set forth in 3.3 below.  Westar represents and warrants to PODS that ONEOK is presently paying Westar the fees set forth on Schedule 3.2(a)(2) (the “ONEOK Fees”), and during the term of this agreement Westar will pay PODS an amount equal to the ONEOK Fees collected by Westar from ONEOK. Westar is under no obligation to PODS by virtue of this Section 3.2(a) to keep the Shared Services Agreement with ONEOK in force and effect.  In the event the Shared Services Agreement is terminated, Westar shall have no further obligations to make any payments to PODS under this Section 3.2(a) other than payment of any ONEOK Fees received by Westar attributable to the period prior to such termination and, with respect to the period after such termination, the payment of the fixed costs previously associated with the ONEOK Services as agreed to by the parties, provided that PODS makes reasonable efforts to re-allocate or dispose of the assets to which such fixed costs are attributable such that Westar’s obligations to make payments will be reduced. During the initial eighteen months of the term of this agreement, PODS will be entitled to recoup any direct expenses incurred by PODS as a result of a termination of the work order relating to ONEOK prior to reducing fees to Westar.

(b)           The parties acknowledge that Westar is a party to that certain Owner Work Order with Wolf Creek Nuclear Operating Corporation. (“Wolf Creek”) dated February 5, 1999.  As part of the IT Services to be provided hereunder, PODS will provide to Wolf Creek those services specifically set forth on Schedule 3.2(b)(1) (the “Wolf Creek Services”).  The Wolf Creek Services will be provided as part of the IT Services and Westar will remain the party in contract with Wolf Creek.  PODS will not separately bill Wolf Creek.  In the event Wolf Creek initiates a change request with Westar with regard to the Wolf Creek services, Westar will promptly communicate such request to PODS and the parties will cooperate as reasonably necessary to accommodate such change request in accordance with the procedures set forth in 3.3 below.  Westar represents and warrants to PODS that Wolf Creek is presently paying Westar the fees set forth on Schedule 3.2(b)(2) (the “Wolf Creek Fees”), and during the term of this agreement Westar will pay PODS an amount equal to the Wolf Creek Fees collected by Westar from Wolf Creek. Westar is under no obligation to PODS by virtue of this Section 3.2(b) to keep the Owner Work Order with Wolf Creek in force and effect.  In the event the Owner Work Order is terminated, Westar shall have no further obligations to make any payments to PODS under this Section 3.2(b) other than payment of any Wolf Creek Fees received by Westar attributable to the period prior to such termination and, with respect to the period after such termination, the payment of the fixed costs previously associated with the Wolf Creek as agreed to by the parties, provided that PODS makes reasonable efforts to re-allocate or dispose of the assets to which

5

such fixed costs are attributable such that Westar’s obligations to make payments will be reduced. During the initial eighteen months of the term of this agreement, PODS will be entitled to recoup any direct expenses incurred by PODS as a result of a termination of the work order relating to Wolf Creek prior to reducing fees to Westar.

3.3          Change Control Procedures.  Westar may from time to time during the term of this Agreement request changes in the scope or priority of IT Services being performed by PODS hereunder.  Upon receipt of each such request from Westar (a “Change Request”), PODS will evaluate the impact that the Change Request will have on the resources required by PODS to perform services hereunder, the addendum on which such services are then being performed, and the charges then payable to PODS hereunder.  PODS will notify Westar as to the results of such evaluation (the “Change Proposal”) as soon as reasonably feasible following receipt of that Change Request, which notice will be submitted in writing.  To the extent that the changes set forth in the Change Request increase the scope or priority of IT Services but can reasonably be performed within the service levels then established for the applicable IT Services without an increase in the resources then being utilized by PODS therefor, there will be no adjustment to PODS’ charges hereunder.  In the event the changes set forth in the Change Request increase the scope or priority of IT Services and such increase cannot reasonably be performed without an increase in the resources then being utilized by PODS for the performance of the IT Services and Westar so requests, PODS and Westar will work together in good faith to adjust the service levels and priorities with respect to the other services being performed by PODS hereunder so as to permit such Change Request to be implemented without an increase in PODS’ charges.  If the Change Request cannot be implemented without an increase in PODS’ charges, and Westar agrees to implement the Change Request, resources utilized by PODS in providing services pursuant to any such approved Change Request will be charged to Westar at the applicable PODS Rates unless expressly agreed to otherwise in writing.  Each Change Proposal will require the written approval of Westar.  The same procedure will apply in the event the Change Request relates to ONEOK Services or Wolf Creek Services.  As used herein, “PODS Rates” means PODS’ fully-loaded cost of providing a service.

3.4          Additional IT Services.  In the event Westar requests PODS to provide additional services or functions which are not changes in scope or priority of IT Services as set forth in Section 3.3, or are services not covered in the IT Services Addendum, PODS and Westar may execute an additional addendum or addenda referencing this Agreement to provide for such additional services or functions, which shall be provided at PODS Rates.  Any such additional addendum or addenda shall be incorporated herein by reference and shall be subject to the terms and conditions hereof.  The same procedure will apply in the event the request for additional services relates to ONEOK Services or Wolf Creek Services.

3.5          Acceptance of Work Product.  For work product that is not part of the day-to-day delivery of IT Services hereunder, including specifically-requested Derivative Systems (as defined in Section 6.3(c)), following delivery of that work product by PODS to Westar, Westar shall, within thirty (30) days of delivery by PODS, review the delivered work product and approve it or notify PODS in writing of non-approval, documenting in reasonable detail any and

6

all material defects in that delivered work product. PODS shall, within thirty (30) days of receipt of such notice, correct any such material failures and resubmit the work product to Westar.

3.6          Systems Operations.  During the term of this Agreement, PODS will assume operational responsibility for the Westar Equipment and Westar Systems and will operate all Westar Equipment and each Westar System, all at the service levels established therefor from time to time pursuant to the IT Services Addendum.  In connection with the operation of such Westar Equipment and Westar Systems and to the extent so required to meet the service levels so established with respect thereto, PODS will perform the various systems operation activities being performed by Westar immediately prior to the Effective Date, which activities are listed in the IT Services Addendum.

3.7          Systems Support Services.  During the term of this Agreement, PODS will perform maintenance and development support services for the Westar Systems and PODS Systems as described herein (collectively, the “Systems”) being operated by PODS hereunder in accordance with the following:

(a)           PODS will perform such maintenance and development support services for the Westar Equipment and the Westar Systems as needed to maintain the Westar Equipment and the Westar Systems as fully functional and operational with up-times consistent with industry standards for outsourced IT services, as set forth in the Westar Systems Schedule attached hereto.  Westar shall have the responsibility for contracting for any additional maintenance services required for the Westar Equipment and the Westar Systems, but the fees for such services will be paid by PODS without any increase in the fees charged by PODS to Westar.

(b)           All maintenance and development support services performed by PODS hereunder will be so performed in accordance with industry standards, but not less, taken as a whole, than the standard of the services currently being performed by Westar.  Any expenses required to perform such maintenance and development support services or implement or operate any modification, enhancement, or development shall be the responsibility of PODS.  Any additional maintenance or development support services requested or required by Westar that exceeds the levels set forth in this Section 3.7 will be performed by PODS as an Additional Service in accordance with Section 3.4 hereof.

3.8          Status Reports.  PODS shall submit a detailed written progress report to Westar every month during the term of this Agreement.  Such progress reports will detail the current status of PODS activities, progress of the work being performed and resources expended since the last report, as well as a cumulative total to date, and identification of actual and anticipated problem areas, the impact thereof on the work effort, and action being taken or alternative actions to be taken to remedy such problems.

3.9          Status Meetings.  Either party may request a status meeting be held at any time and a status meeting shall be held at least once per calendar quarter, to review the status of activities performed by PODS hereunder.

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3.10        IT Services for Third Parties.  PODS shall be entitled to utilize the Westar Equipment, Westar Systems and Third-Party Services for its internal purposes or to provide services to third parties without accounting to Westar provided, that (a) such services do not conflict with or impair the IT Services provided to Westar or any other Westar activities or operations, and (b) PODS is solely responsible for acquiring any additional licenses or license upgrades as necessary to utilize the Westar Equipment, Westar Systems and Third-Party Service for internal or third party services.

4.             WESTAR RESPONSIBILITIES

4.1          WESTAR Obligations.  In addition to its other obligations hereunder, Westar will, on a timely basis:

(a)           Establish appropriate priorities for Westar that relate to IT Services and communicate the same to PODS.

(b)           Cooperate with PODS by, among other things, making available, as reasonably requested by PODS, timely management decisions, information, approvals, and acceptance in order that PODS may properly accomplish its obligations and responsibilities hereunder.

(c)           Pay all costs of acquisition, installation and use of equipment and services not included in the fee shown on Schedule 5.1(a), as required for the performance of the IT Services as requested and approved by Westar.

4.2          Westar Liaison; PODS Liaison; Management Committee.  (a) During the term of this Agreement, Westar and PODS will each designate an employee with sufficient knowledge and background to act as the primary liaison between Westar and PODS (the “Westar Liaison” or “PODS Liaison” as the case may be).  The Westar Liaison will have primary operational responsibility for Westar’s responsibilities hereunder and will serve as Westar’s primary liaison with PODS.  The respective liaisons will be responsible for coordinating a joint meeting, not less than quarterly and alternating between a Westar and a PODS facility to review the status of all operations under this agreement.  The Westar Liaison will have primary responsibility for establishing the agenda and keeping notes of such meetings.

5.             PAYMENTS TO PODS

5.1          Charges.

(a)           For the IT Services provided hereunder from and after the Effective Date, Westar will pay to PODS the charges set forth in the Payment Schedule attached hereto as Schedule 5.1(a).  The fees are based on the receipt by PODS of payments from Westar equal to the ONEOK Fees and the Wolf Creek Fees for the time from and after the Effective Date.

(b)           For any additional IT Services provided hereunder, Westar will pay to PODS the charges as provided in Section 3.4 hereof.

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5.2          Adjustments to Payment Schedule.  The Payment Schedule attached hereto as Schedule 5.1(a) shall be adjusted not less frequently than quarterly to reflect removal of Westar Leased Equipment that is replaced by Westar Owned Equipment purchased after the Effective Date.

5.3          Out-of-Pocket Expenses.  Westar will pay, or reimburse PODS for, any out-of-pocket expenses, including without limitation, travel and travel-related expenses, incurred by PODS at the request or with the approval of Westar other than in the ordinary course of providing IT Services pursuant to this Agreement.

5.4          Taxes.  Westar will pay, or reimburse PODS, for all sales, use, transfer, privilege, excise or other taxes, whether national, state or local, however designated, which are levied or imposed by reason of the services provided to Westar hereunder; excluding, however, income and franchise taxes on profits which may be levied against PODS.  PODS will issue invoices that itemize the fees charged for IT Services in a manner deemed appropriate by the parties for proper identification of taxable and non-taxable services.

5.5          Time of Payment.  Regular monthly service fees hereunder shall be due no later than the 10^th day of each month during the term of this agreement. All other undisputed sums due PODS hereunder for which a time for payment is not otherwise specified will be due and payable within thirty (30) days after the due date of an invoice therefor from PODS or as mutually agreed upon by the parties in a specific work order. If Westar fails to pay any amount due within thirty (30) days from the date of the invoice or other agreed due date, late charges of the lesser of 1-1/2% per month or the maximum amount allowable by law shall also become payable by Westar to PODS.

6.             PROPRIETARY AND RELATED RIGHTS

6.1          Westar Data.  All Intellectual Property, including without limitation, documents, files or client and customer data, provided to PODS hereunder by Westar (“Westar Data”) are and shall remain Westar’s property and, upon the termination of this Agreement for any reason, such Westar Data will be returned to Westar by PODS.  Westar Data will not be utilized by PODS for any purpose other than those purposes related to rendering services to Westar under this Agreement, nor will Westar Data or any part thereof be disclosed to third parties by PODS, its employees or agents except for purposes related to PODS’ rendering of services to Westar under this Agreement or as required by law, regulation, or order of a court or regulatory agency or other authority having jurisdiction thereover.  PODS will establish and maintain reasonable safeguards against the destruction, loss or alteration of Westar Data in the possession of PODS which safeguards will be no less comprehensive than those presently employed by Westar.  In the event that additional safeguards for Westar Data are reasonably requested by Westar, PODS will provide such additional safeguards and Westar will reimburse PODS for any additional costs thereby incurred by PODS.  Westar shall have the right to establish backup security for data and to keep backup data and data files in its possession if it so chooses; provided, however, that PODS will have access to such backup data and data files as is reasonably required by PODS.  Notwithstanding the foregoing, PODS shall have the right to retain in its possession all

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workpapers and files prepared by it in performance of its services hereunder which may include necessary copies of Westar Data.  PODS shall have access to Westar Data, at reasonable times, during the term of this Agreement and thereafter for purposes related to PODS’ rendering of services to Westar under this Agreement, or as required by law, regulation or order of a court or regulatory agency or other authority having jurisdiction thereover. The term “Intellectual Property” means trademarks, service marks, trade dress, inventions, discoveries, patents and applications for patents, trade secrets, confidential information, copyrights, know-how, software, data and any other intellectual property or proprietary rights or interests.

6.2          Confidentiality.  Each party agrees that it shall not disclose to any third party or use any information proprietary to the other including information concerning the clients, trade secrets, methods, processes or procedures or any other confidential information of the other party which it learns during the course of its performance of this Agreement, and the terms and conditions of this Agreement, without the prior written consent of the other party, except for purposes related to PODS’ rendering of services to Westar under this Agreement or as required by law, regulation, or order of a court or regulatory agency or other authority having jurisdiction thereover.  Notwithstanding the foregoing, the confidentiality obligations set forth in this Section 6.2 will not apply to any information which the recipient party can establish to have (i) become publicly available without breach of this Agreement, (ii) been independently developed by the recipient party outside the scope of this Agreement and without reference to the confidential information received under this Agreement, or (iii) been rightfully obtained by the recipient party from third parties which are not known by the recipient to be obligated to protect its confidentiality.

6.3          System Rights.

(a)           Each Westar System in existence as of the Effective Date is and will remain the property and confidential information of Westar or the third party licensor of that Westar System, and PODS will have no rights or interests therein, except as provided in this Agreement.

(b)           All software owned, developed or otherwise provided by PODS or used by PODS in the performance of the IT Services that are not derived from or based upon a Westar System, including all programs and documentation therefor and the tangible media on which such programs are recorded, are “PODS Systems.”  Each PODS System in existence as of the Effective Date is and will remain the property and confidential information of PODS.

(c)           All software owned, developed or otherwise provided by PODS or used by PODS in the performance of the IT Services, including all programs and documentation therefor and the tangible media on which such programs are recorded which are derived from or based upon a Westar System (“Derivative Systems”) shall be created as works made for hire for Westar.  PODS hereby assigns all right, title and interest in and to all Derivative Systems (including any Derivative Systems that are deemed by a court not to be works made for hire) to Westar and agrees that PODS shall take any action necessary to effectuate such assignment. PODS shall have a royalty-free license to use Derivative Systems in the performance of IT Services for Westar and third parties as contemplated by this agreement.

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(d)           All software owned, developed or otherwise provided by PODS or used by PODS in the performance of the IT Services that are derived from or based upon a PODS System or are independently developed by PODS and used in providing IT Services, including all programs and documentation therefor and the tangible media on which such programs are recorded, are “Developed Systems.”  Each Developed System is and will remain the property and confidential information of PODS; provided, however, that to the extent a Developed System is used by PODS in providing IT Services hereunder, upon termination of this agreement Westar shall have a non-exclusive, royalty-free license to use the Developed Systems, which license shall be non-sublicenseable except to direct or indirect majority-owned subsidiaries of Westar.

7.             TERMINATION

7.1          Termination for Cause.  In the event that either party hereto materially or repeatedly defaults in the performance of any of its duties or obligations hereunder and does not cure such default within thirty (30) days after being given written notice specifying the default, or, with respect to those defaults which cannot reasonably be cured within thirty (30) days, if the defaulting party fails to proceed promptly after being given such notice to commence curing the default and thereafter to proceed to cure the same, then the party not in default may, by giving notice thereof to the defaulting party, terminate this Agreement as of a date specified in such notice of termination.

7.2          Termination in the Event of Separation.  In the event Westar ceases to own, directly or indirectly, at least 50% of the voting common stock of Protection One, Inc., the parent of PODS, either party may terminate this Agreement by giving notice thereof to the other party, such termination to be effective as of a date specified in such notice of termination.

7.3          Termination to Comply with Regulatory Order.  Westar may terminate this Agreement at any time upon written notice in the event such termination is deemed necessary by Westar to comply with an order of the Kansas Corporation Commission, such termination to be effective as of the date specified in such notice of termination.

7.4          Termination for Insolvency.  In the event that either party hereto becomes or is declared insolvent or bankrupt, is the subject of any proceedings relating to its liquidation, insolvency or for the appointment of a receiver or similar officer for it, makes an assignment for the benefit of all or substantially all of its creditors, or enters into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, then the other party hereto may, by giving written notice thereof to such party, terminate this Agreement as of a date specified in such notice of termination.

7.5          Termination Assistance.  Upon the termination of this Agreement for any reason, PODS will provide to Westar such termination assistance relating to IT Services provided pursuant hereto, as may be reasonably requested by Westar.

7.6          Continuation of Services.  Either party shall have the option, exercisable upon termination, to request that the IT Services and this Agreement continue on a month to month

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basis after the termination date or the expiration date, as applicable, for the then-applicable fees set forth in the Payment Schedule attached to the IT Services Addendum.  Each party shall have the right to have this Agreement continue on a monthly basis pursuant to this Section 7.6 for up to ninety (90) days.  If this Agreement is terminated by PODS for breach by Westar, then Westar will continue to pay PODS in accordance with the payment schedule.

8.             INDEMNITIES AND LIABILITY LIMITATION

8.1          Westar Indemnity.  Westar agrees to indemnify, defend and hold PODS harmless from any and all claims, actions, damages, liabilities, costs and expenses, including reasonable attorneys’ fees and expenses arising out of or relating to any claim by ONEOK or Wolf with respect to the IT Services as provided by Westar prior to or after the Effective Date hereof unless such claim results from the negligence or willful misconduct of PODS.

8.2          Intellectual Property Rights Indemnity.  PODS and Westar each agree to indemnify, defend and hold the other harmless from any and all claims, actions, damages, liabilities, costs and expenses, including reasonable attorneys’ fees and expenses, arising out of any third party claims of infringement of any Intellectual Property rights alleged to have occurred related to property provided, or work performed, by the indemnitor.

8.3          Rent and Utility Indemnity.  Westar agrees to indemnify, defend and hold harmless PODS from any and all claims, actions, damages, liabilities, costs and expenses, including reasonable attorneys’ fees and expenses, arising out of any claims for rent or utilities at any location where Westar is required to furnish space and/or utilities to PODS pursuant to this Agreement.

8.4          Personal Injury and Property Damage Indemnity.  PODS and Westar each agree to indemnify, defend and hold harmless the other from any and all claims, actions, damages, liabilities, costs and expenses, including reasonable attorneys’ fees and expenses, arising out of third party claims for bodily injury or damage to physical property, to the extent caused directly and proximately by the negligence or willful misconduct of the indemnitor, its employees or agents.

8.5          Indemnification Procedures.  For purposes of this Section 8, the term PODS shall include PODS, its employees and agents.  The indemnities set forth in Sections 8.1, 8.2, 8.3 and 8.4 hereof will not apply to the extent the party claiming the indemnification was responsible for giving rise to the matter upon which the claim for indemnification is based and will not apply unless the party claiming indemnification promptly notifies the other of any matters in respect of which the indemnity may apply and of which the notifying party has knowledge and gives the other full opportunity to control the response thereto and the defense thereof, including without limitation any agreement relating to the settlement thereof, provided that neither party shall settle any claim without the prior written consent of the indemnified party.  The indemnified party’s failure to promptly give notice shall affect the indemnifying party’s obligation to indemnify the indemnified party only to the extent the indemnifying party’s rights are materially prejudiced by such failure.  The indemnified party may participate, at its

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own expense, in such defense and in any settlement discussions directly or through counsel of its choice.

8.6          Limitation of Liability.  NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR PUNITIVE DAMAGES.

8.7           Further Limitation of Liability and Warranty Disclaimer.  In the event PODS is no longer a direct or indirect majority-owned subsidiary of Westar, the following further limitation on the liability of the parties and disclaimer of warranties shall apply:

(a)           PODS warrants only that all services shall be performed in a workmanlike manner and in accordance with the specifications and description of such services as set forth in the IT Services Addendum.  EXCEPT AS SET FORTH IN THIS SECTION 8.7(a), PODS MAKES NO WARRANTIES WITH RESPECT TO ITS SERVICES OR WORK PRODUCT HEREUNDER, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NON-INFRINGEMENT.

(b)           PODS SHALL HAVE NO LIABILITY WITH RESPECT TO ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, INDIRECT, OR INCIDENTAL DAMAGES, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  IN ANY EVENT, THE LIABILITY OF PODS TO WESTAR FOR ANY REASON AND UPON ANY CAUSE OF ACTION OR CLAIM IN CONTRACT, TORT OR OTHERWISE, SHALL BE LIMITED TO THE AMOUNT PAID BY WESTAR TO PODS IN THE SIX (6) MONTH PERIOD BEFORE THE ACCRUAL OF THE ACTION OR CLAIM FOR THE SPECIFIC SERVICE THAT IS THE SUBJECT OF THE ACTION OR CLAIM.  THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION OR CLAIMS IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER TORTS.  FURTHER, NO CAUSE OF ACTION THAT ACCRUED MORE THAN TWO (2) YEARS BEFORE THE FILING OF A SUIT ALLEGING SUCH CAUSE OF ACTION MAY BE ASSERTED AGAINST PODS.  CLIENT AND PODS EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE LIMITATIONS AND EXCLUSIONS CONTAINED HEREIN REPRESENT THE PARTIES’ AGREEMENT AS TO THE ALLOCATION OF RISK BETWEEN THE PARTIES IN CONNECTION WITH PODS’S OBLIGATIONS UNDER THIS AGREEMENT.  THE PAYMENTS PAYABLE TO PODS HEREUNDER REFLECT THIS ALLOCATION OF RISK AND THE EXCLUSION OF CONSEQUENTIAL DAMAGES IN THIS AGREEMENT.

9.             MISCELLANEOUS

9.1          Assignment.  Neither party hereto shall assign, subcontract, or otherwise convey or delegate its rights or duties hereunder to any third party without the prior written consent of the other party to this Agreement, and shall require that the assignee agrees to be subject to all the terms and conditions of this Agreement.  This Agreement shall apply to, inure to the benefit

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of, and be binding upon the parties hereto and upon their permitted successors in interest and permitted assigns.

9.2          Notices.  Any notice provided pursuant to this Agreement, if specified to be in writing, shall be in writing and shall be deemed given (i) if by hand delivery, upon receipt thereof, (ii) if mailed, three (3) days after deposit in the United States mails, postage prepaid, certified mail return receipt requested, (iii) if by next day delivery service, upon such delivery and (iv) if by e-mail, upon electronic confirmation that such notice has been received.  All notices shall be addressed as follows (or such other address as either party may in the future specify in writing to the other):

In the case of PODS:
	Protection One Data Services, Inc.
	800 East Waterman
	Wichita, KS 67207
	Attention: Mack Sands
	Tel:  316-352-2501
	Fax:  316-352-2435
In the case of Westar:
	Westar Energy, Inc.
	818 S. Kansas Avenue
	Topeka, Kansas  66612
	Attention: Bruce A. Akin, Vice President
	Tel:  785-575-6354
	Fax:  785-575-1936

9.3          Counterparts.  This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the parties hereto.

9.4          Headings.  The section headings used herein are for reference and convenience only and shall not enter into the interpretation hereof.

9.5          Independent Contractor.  PODS, and any and all PODS personnel, in performance of this Agreement, are acting as independent contractors and are not employees or agents of Westar.  Except as contemplated by Section 2 hereof, PODS shall be solely responsible for the payment of compensation of PODS personnel assigned to perform services hereunder and such personnel are not entitled to the provisions of any Westar employee benefits.  Westar shall not be responsible for payment of worker’s compensation, disability benefits and unemployment insurance or for withholding and paying employment taxes for any PODS personnel performing services hereunder, but such responsibility shall be that of PODS.

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9.6          Services for Others.  Westar understands and agrees that PODS may perform for third parties similar services using the same personnel, subject to PODS’ confidentiality obligations hereunder, that PODS may utilize such personnel for rendering services for Westar hereunder.

9.7          Approvals and Similar Actions.  Where agreement, approval, acceptance, consent or similar action by either party hereto is required by any provision of this Agreement, such action shall not be unreasonably delayed or withheld.

9.8          Force Majeure.  Neither party shall be liable to the other for any delay or failure to perform any of the services or obligations set forth in this Agreement due to causes beyond its reasonable control.  Performance times shall be considered extended for a period of time equivalent to the time lost because of such delay.  Without limiting the foregoing, PODS’ time of performance shall be enlarged, if and to the extent reasonably necessary, in the event that: (a) Westar fails to submit data or information in the prescribed form or in accordance with the agreed upon schedules; (b) special requests by Westar or any governmental agency authorized to regulate or supervise Westar or any authority having jurisdiction over Westar impact PODS’ normal schedule; or (c) Westar fails to provide any equipment, software, facility or performance called for by this Agreement, and the same is necessary for PODS’ performance hereunder.  PODS will notify Westar of the estimated impact on its performance schedule, if any.

9.9          Severability.  If any provision of this Agreement is invalid under any applicable statute or rule of law, it is to that extent to be deemed omitted, and replaced with an acceptable provision that most closely states the intent of the parties.

9.10        Waiver.  The waiver or failure of either party to exercise any right in any respect provided for herein shall not be deemed a waiver of any further right hereunder.

9.7          Amendments.  No amendment, change, waiver, or discharge hereof shall be valid unless in writing and signed by an authorized representative of the party against which such amendment, change, waiver, or discharge is sought to be enforced.

9.8          Westar Identification.  WithWestar’s prior written consent, PODS may use of the name of Westar in identifying Westar as a client, in advertising, publicity, or similar materials distributed to prospective clients.

9.9          Kansas Law.  This Agreement and performance hereunder shall be governed by the laws of the State of Kansas without regard to conflict of laws.  PODS and Westar hereby agree on behalf of themselves and any person claiming by or through them that the sole jurisdiction and venue for any litigation arising from or relating to this Agreement that is not subject to arbitration or contests the arbitrability of any dispute shall be an appropriate federal or state court located in Kansas.

9.10        Survival.  All provisions of this Agreement relating to confidentiality, indemnity, non-disclosure and non-solicitation shall survive the termination of this Agreement.

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9.11        Entire Agreement.  This Agreement, including any Addenda or Schedules referred to herein and attached hereto, each of which is incorporated herein for all purposes, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, understandings or agreements relative hereto which are not fully expressed herein.

IN WITNESS WHEREOF, PODS and Westar have each caused this Agreement to be signed and delivered by its duly authorized officer, all as of the date first set forth above.

Protection One Data Services, Inc.			Westar Energy, Inc.
By:	/s/ Anthony D. Somma		By:	Bruce A. Akin
Name:  Anthony D. Somma			Name:  Bruce A. Akin
Title:  Treasurer			Title:    Vice President
Date:		July 8, 2002	Date:		July 8, 2002

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EX-10.5

Exhibit 10.5

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT, dated as of June 5 2002 (the “Agreement”), by and between Westar Industries, Inc., a Delaware corporation (“Westar”) and Protection One, Inc. , a Delaware corporation (“POI”).

WHEREAS, Westar owns of record and beneficially 100% of the outstanding capital stock, no par value (the “Shares”), of Westar Aviation, Inc. (“Westar Aviation”);

WHEREAS, Westar desires to sell the Shares to POI and POI desires to purchase such Shares;

WHEREAS, after the aforementioned sale of the Shares, POI will own all of the issued and outstanding capital stock of the Westar Aviation;

NOW THEREFORE, in consideration of the representations, warranties and agreements herein contained, and for other good and valuable consideration, the parties hereto agree as follows:

1.Sale and Transfer

                Westar shall sell the Shares to POI, deliver any and all certificates representing the Shares to POI and execute a stock power in the name of POI for each certificate or otherwise properly endorse such certificates to POI.  Westar shall further cause the name of holder of the Shares to be transferred on the books of Westar Aviation from its name to the name of POI.

2.Purchase Price

                POI shall pay to Westar the purchase price of $1,518,672.13 for the Shares in immediately available funds.

3.Representations and Warranties by Westar

Westar hereby represents and warrants to POI:

(a)           that Westar is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware with full power and authority to conduct its business;

(b)           that Westar has full corporate power and authority to enter into and perform this Agreement and consummate the transactions contemplated herein in accordance with the terms and conditions hereof; and

(c)           that compliance with the terms and conditions hereof and the transactions contemplated hereby will not violate or conflict with any provision of the Certificate of Incorporation of Westar or result in the breach or termination of any provision of or constitute a default under any agreement or other instrument of which Westar is a party or by which any other assets of Westar may be bound or affected.

4.Representations and Warranties by POI

POI hereby represents and warrants to Westar:

(a)           that POI is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware with full power and authority to conduct its business;

(b)           that POI has full corporate power and authority to enter into and perform this Agreement and consummate the transactions contemplated herein in accordance with the terms and conditions hereof;

(c)           that POI understands that any subsequent transfer of the Shares is subject to certain restrictions and conditions and agrees to be bound by, and not to resell, pledge or otherwise transfer the Shares except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the “Securities Act”); and

(d)           that POI is not acquiring the Shares with a view toward the distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction.

5.Triggering Event and Indemnity

(a)           In the event (i) Western Resources, Inc. (“Western Resources”), a Kansas corporation, and its affiliates cease to own more than 50% of Westar’s voting

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stock and, at the direction of POI’s board of directors, POI requests Westar in writing to repurchase the Shares from POI or (ii) Westar ceases to own more than 50% of POI’s voting stock (each of clause (i) and (ii) being a “Triggering Event”), Westar and POI agree to promptly take such steps as are necessary or appropriate to rescind this Agreement ab initio.

(b)           To effect such rescission, Westar shall repurchase the Shares from POI and POI shall deliver to Westar, against payment therefor of the amount referred to in the next sentence, any and all certificates representing the Shares to Westar and execute a stock power in the name at Westar for each certificate or otherwise properly endorse such certificates to Westar.  Westar shall, no later than 10 days from the Triggering Event, pay to POI upon receipt of the Shares the greater of (i) net book value of the Shares and (ii) the purchase price of $1,518,672.13 plus interest on such amount at a per annum rate equal to LIBOR plus 375 basis points calculated from the date of this Agreement.

(c)           Westar agrees to indemnify and hold POI, its directors and officers harmless against any and all losses, damages liabilities or claims that arise out of or based on POI’s ownership of the Shares and performance under this Agreement.  Westar also agrees to reimburse POI for expenses incurred in connection with the recission transaction contemplated by this Section 5.

6.Entire Agreement

This Agreement constitutes the entire agreement between the parties hereto relating to the subject matter hereof. There are no terms, obligations, covenants, representations, statements or conditions other than those contained herein or in exhibits or other instruments delivered or to be delivered pursuant to the terms hereof. No variation or modification of this Agreement nor waiver of any of the terms and provisions hereof shall be deemed valid unless in writing and signed by the parties hereto.

7.No Third Party Beneficiary

Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto.

8.Successors and Assigns

All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and the respective successors and assigns; provided,

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however, that this Agreement may not be assigned by either party hereto without the written consent of the other party.

9.Governing Law

The construction, performance, execution and enforcement of this Agreement and any dispute, whether in contract or tort, of whatsoever nature arising out of or in connection with this Agreement or performance under it, including any remedy thereof, shall be governed exclusively by the laws of Delaware.

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute and deliver this Agreement on the day and year first above written.

WESTAR INDUSTRIES, INC.
By:	/s/ Paul R. Geist
	Name:  Paul R. Geist
	Title:  President
PROTECTION ONE, INC.
By:	/s/ Anthony D. Somma
	Name:  Anthony D. Somma
	Title:  Senior Vice President

EX-10.6

Exhibit 10.6

AIRCRAFT REIMBURSEMENT AGREEMENT

This Aircraft Reimbursement Agreement (this “Agreement”) is entered into as of June 5, 2002 between AV ONE, Inc. (f/k/a Westar Aviation, Inc.), a Kansas corporation (“AV ONE”), and Westar Industries, Inc. (f/k/a Westar Capital, Inc.), a Delaware corporation (“Westar”).

WHEREAS, Westar has entered into that certain Aircraft Lease Agreement dated as of August 1, 2000 (as amended, supplemented or modified from time to time, the “Fleet Lease”) with Fleet National Bank (“Fleet Lessor”) providing for the lease by Westar from the Fleet Lessor of a certain Cessna Model 750 Citation X aircraft, FAA Registration Mark N800W and Manufacturer’s Serial Number 750-0122, together with two Rolls-Royce Allison Model AE 3007C engines and related accessories and optional equipment (the “Fleet Aircraft”);

WHEREAS, AV ONE will provide certain administrative and accounting services to Westar in connection with the Fleet Aircraft in accordance with the provisions of the Fleet Lease;

WHEREAS, Protection One, Inc., a Delaware corporation, (“POI”), has purchased from Westar all of the outstanding capital stock of AV ONE under a certain Stock Purchase Agreement dated June 4, 2002;

WHEREAS, AV ONE has entered into that certain Lease Agreement dated as of June 1, 1998 (as amended, supplemented or modified from time to time, the “Connell Lease”) with First Security Bank, National Association (“Connell Lessor”) providing for the lease by AV ONE from the Connell Lessor of a certain Cessna Model 650 Citation VII aircraft, FAA Registration Mark N860W and Manufacturer’s Serial Number 650-7086, together with two Garrett TFE-731-4R-25 engines and related accessories and optional equipment (the “Connell Aircraft” and, together with the Fleet Aircraft, the “Aircraft”);

WHEREAS, AV ONE desires under this Agreement to provide for the reimbursement of Westar for the lease payments (the “Lease Payments”) under the Fleet Lease and Westar desires under this Agreement to provide for the reimbursement of AV ONE for certain costs and expenses relating to the Aircraft;

NOW THEREFORE, in consideration of the agreements herein contained, and for other good and valuable consideration, the parties hereto agree as follows:

1.             The following terms when used in this Agreement shall have the meanings indicated below:

“Contract User” shall mean Westar and any other affiliate of AV ONE which has entered into a reimbursement agreement with AV ONE on substantially the same terms and conditions as are contained in this Agreement, provided that, in such other agreement, POI may limit its reimbursement to AV ONE to the Variable Costs only for up to 140 hours of the Usage Share.

“Cost” shall mean the sum of Fixed Costs and Variable Costs.

“Fixed Costs” shall mean, with respect to any year, those costs and expenses associated with the possession and use of the Aircraft for such year of the type which are reflected as “Fixed Costs” on Exhibit A hereto.

“Hourly Rate” shall mean, with respect to each Aircraft, the estimated Fixed Costs and Variable Costs as determined by AV ONE.  The Hourly Rate may be adjusted annually as of each January 1.

“Triggering Event” shall mean each of the following: (i) Western Resources, Inc. (“Western Resources”), a Kansas corporation, and its affiliates cease to own more than 50% of Westar’s voting stock and, at the direction of POI’s board of directors, POI requests in writing Westar to repurchase 100% of the outstanding capital stock of AV ONE from POI or (ii) Westar ceases to own more than 50% of POI’s voting stock.

“Usage Amount” shall mean the amount reimbursed by Contract User, which is the lesser of (i) the product of Usage Share multiplied by Hourly Rate or (ii) the actual amount payable by such Contract User under the relevant reimbursement agreement.

“Usage Share” shall mean, with respect to each Contract User, such Contract User’s share of the usage of the Aircraft during the preceding month, which share shall be determined by the number of hours of use of the Aircraft by such Contract User during such month.

“Variable Costs” shall mean, with respect to any year, all costs and expenses incurred in connection with the possession and use of the Aircraft during such year other than Fixed Costs, and shall include, without limitation, those costs and expenses of the type which are reflected as “Variable Costs” on Exhibit A.

2.             (a)  AV ONE shall reimburse Westar for the Lease Payments under the Fleet Lease no later than 10 days after the date each Lease Payment is due.  It is understood and agreed, however, that Westar shall be responsible to Fleet Lessor for the Lease Payments and performance of Westar’s obligations under the Fleet Lease.

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(b)  AV ONE shall pay directly, on Westar’s behalf, all other Costs other than Lease Payments associated with the Fleet Aircraft.   It is understood and agreed, however, that Westar shall be responsible for all Costs associated with the Aircraft.

3.             This Agreement shall be for a term commencing on June 4, 2002 and continuing to and until the earlier of (a) the occurrence of the Triggering Event and (b)(i) the expiration of the Fleet Lease with respect to the Fleet Aircraft and (ii) the expiration of the Connell Lease with respect to the Connell Aircraft.

4.             (a)           AV ONE shall bill, and Westar shall, with respect to each Aircraft, reimburse AV ONE, on a monthly basis an amount equal to Westar’s Usage Amount for the preceding month, which will be due and payable within 10 days.

(b)           For the purposes of this Agreement, the Costs shall be AV ONE’s fully allocated costs, as determined by AV ONE in accordance with generally accepted accounting principles.

(c)           Within 10 days of the end of each fiscal year, AV ONE shall determine the difference between the Costs and the Usage Amount of all Contract Users for the preceding year for each Aircraft.  Any excess of the Usage Amount paid by all Contract Users for each Aircraft over the Costs for each Aircraft shall be payable to Westar by AV ONE, and any excess of the Costs for each Aircraft over the Usage Amount paid by all Contract Users for each Aircraft shall be payable to AV ONE by Westar, within 10 days of such determination.

(d)           All determinations by AV ONE pursuant to this Section shall be made available to Westar in accordance with its books and records.

(e)           Upon termination of this Agreement, each party hereto agrees to pay the other any and all amounts owed to each other which are accrued and unpaid as the date of termination within 10 days of such termination.

5.             AV ONE, if requested by Westar, shall permit Westar to audit its books and records relating to the Costs being reimbursed hereunder.

6.             This Agreement constitutes the entire agreement between the parties hereto relating to the subject matter hereof. There are no terms, obligations, covenants, representations, statements or conditions other than those contained herein or in exhibits or other instruments delivered or to be delivered pursuant to the terms hereof. No variation or modification of this Agreement nor waiver of any of the terms and provisions hereof shall be deemed valid unless in writing and signed by the parties hereto.

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7.             Nothing herein contained shall be construed as constituting a partnership, joint venture or agency between Westar and AV ONE or as an assignment of the Fleet Lease.

8.             Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto.

9.             All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and the respective successors and assigns; provided, however, that this Agreement may not be assigned by either party hereto without the written consent of the other party.

10.           The construction, performance, execution and enforcement of this Agreement and any dispute, whether in contract or tort, of whatsoever nature arising out of or in connection with this Agreement or performance under it, including any remedy thereof, shall be governed exclusively by the laws of Delaware.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first above written.

WESTAR INDUSTRIES, INC.
By:	/s/ Paul R. Geist
	Name:  Paul R. Geist
	Title:  President
AV ONE, INC.
By:	/s/ Richard Ginsburg
	Name:  Richard Ginsburg
	Title:  President

EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002

In connection with the Quarterly Report of Protection One, Inc. and Protection One Alarm Monitoring, Inc. (the “Companies”) on Form 10-Q for the quarterly period ended June 30, 2002  (the “Report”) which this certification accompanies, Richard Ginsburg, in my capacity as President and Chief Executive Officer of the Companies, and Darius G. Nevin, in my capacity as Executive Vice President and Chief Financial Officer of the Companies, certify that the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.

Date: August 13, 2002	/s/ Richard Ginsburg
	Richard Ginsburg
	President and Chief Executive Officer, Protection One, Inc. and Protection One Alarm Monitoring, Inc.
Date: August 13, 2002	/s/ Darius G. Nevin
	Darius G. Nevin
	Executive Vice President and Chief Financial Officer Protection One, Inc. and Protection One Alarm Monitoring. Inc.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes - - Oxley Act of 2002 and shall not be deemed filed by the Company as part of the Report or as a separate disclosure document for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.