THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Westar Energy, Inc. (WR)

4/3/2006 Proxy Information

During 2005, we obtained legal services from the law firm of Stinson Morrison Hecker LLP, where John C. Nettels, Jr. is a partner.

Certain present and former members of our board of directors and officers were defendants in a shareholder derivative complaint filed April 18, 2003, “Mark Epstein vs David C. Wittig, Douglas T. Lake, Charles Q. Chandler IV, Frank J. Becker, Gene A. Budig, John C. Nettels, Jr., Roy A. Edwards, John C. Dicus, Carl M. Koupal, Jr., Larry D. Irick and Cleco Corporation, defendants, and Westar Energy, Inc., nominal defendant, Case No. 03-4081-JAR.” Plaintiffs filed an amended shareholder derivative complaint on July 30, 2003.

Among other things, the lawsuit claimed that the defendants (i) breached fiduciary duties owed to us because of the actions and omissions described in the report of the special committee of our board of directors, (ii) caused or permitted our assets to be wasted on perquisites for certain insiders and (iii) caused or permitted our May 6, 2002 proxy statement to be issued with materially false and misleading statements. The plaintiffs sought unspecified monetary damages and other equitable relief. As discussed in this proxy statement, in April 2005, the Litigation Evaluation Committee of our board of directors approved an agreement in principle to settle this lawsuit for $12.5 million to be paid to us by our insurance carriers. The full terms of the proposed settlement are set forth in a Stipulation and Agreement of Compromise, Settlement and Release dated May 31, 2005 filed with the court. On September 1, 2005, the court approved the proposed settlement and directed the parties to consummate the settlement in accordance with the stipulation. Pursuant to the stipulation, the recovery from our insurance carriers, less attorney’s fees of $2.5 million, was paid into the settlement fund for the settlement of a securities class action lawsuit involving our company and certain of our present and former officers and directors as defendants in United States District Court in Topeka, Kansas, “In Re Westar Energy, Inc. Securities Litigation,” Master File No. 5:03-CV-4003 and related cases. On September 16, 2005, one shareholder filed a motion asking the court to reconsider its order approving the settlement. The court denied this motion and the shareholder subsequently filed an appeal with the 10th Circuit Court of Appeals, where this matter is now pending.

4/4/2005 Proxy Information

Certain present and former members of our board of directors and officers are defendants in a shareholder derivative complaint filed April 18, 2003, "Mark Epstein vs David C. Wittig, Douglas T. Lake, Charles Q. Chandler IV, Frank J. Becker, Gene A. Budig, John C. Nettels, Jr., Roy A. Edwards, John C. Dicus, Carl M. Koupal, Jr., Larry D. Irick and Cleco Corporation, defendants, and Westar Energy, Inc., nominal defendant, Case No. 03-4081-JAR." Plaintiffs filed an amended shareholder derivative complaint on July 30, 2003. Among other things, the lawsuit claims that the defendants (i) breached fiduciary duties owed to us because of the actions and omissions described in the report of the special committee of our board of directors, (ii) caused or permitted our assets to be wasted on perquisites for certain insiders and (iii) caused or permitted our May 6, 2002 proxy statement to be issued with materially false and misleading statements. The plaintiffs seek unspecified monetary damages and other equitable relief. As discussed on pages 9-10 of this proxy statement, the Litigation Evaluation Committee of our board of directors is responsible for evaluating this derivative complaint. On August 26, 2004, the court issued an order granting a joint motion of all parties requesting a stay of the lawsuit, pending efforts to settle the lawsuit through mediation. Plaintiffs have informed us they intend to file a motion seeking leave to amend the amended consolidated complaint if the mediation efforts are unsuccessful. The court would then set a date for us, and other defendants who have not already filed a response to the complaint, to respond to the amended complaint.

4/12/2004 Proxy Information

During 2003, we obtained legal services from the law firm of Stinson Morrison Hecker LLP, where John C. Nettels, Jr. is a partner. We believe these services were provided on terms typical for firms not affiliated with any director.

During 2001 and 2002, we extended loans to our officers for the purpose of purchasing shares of our common stock. We eliminated this program and no additional loans have been made since the enactment of federal legislation that became effective July 30, 2002. During 2003, two of our named executive officers had balances in excess of $60,000 (Mr. Sterbenz, $200,000 and Mr. Irick, $150,000). The interest rate charged on the loans varied on a quarterly basis. In 2003 the rates were: (a) first quarter, 4.42%; (b) second quarter, 4.37%; (c) third quarter, 4.18%; and (d) fourth quarter, 4.19%. The principal amount of these loans was repaid by each officer in 2003. The balance outstanding at December 31, 2003 was approximately $1,850 which consisted of accrued interest. As of January 31, 2004, these interest amounts were paid. For the year ended December 31, 2003, we recorded approximately $35,178 in interest income on all loans made under the program.

4/30/2003 Proxy Information

Transactions with Protection One

Contribution Agreement

Pursuant to the Contribution Agreement between Protection One and us dated July 30, 1997, we contributed our monitored security businesses to Protection One and acquired an ownership interest in Protection One. As a result, we owned, through Westar Industries, Inc. ("Westar Industries"), our wholly owned subsidiary, approximately 85% of Protection One's common stock at December 31, 1997.

The Contribution Agreement provides that during the 10-year period following November 24, 1997, a merger or a sale of all or substantially all of Protection One's assets involving us or any affiliate of us generally will require the prior approval of a majority of the "Independent Directors" (as defined in the Contribution Agreement), and we may not acquire beneficial ownership of more than 85% of Protection One's outstanding shares of common stock or other voting securities except under specified circumstances and subject to specified limitations. In March, 2002 we and Protection One entered into a Consent and Limited Waiver Agreement whereby Protection One consented to our ownership interest in Protection One 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, we and Protection One entered into a second Consent and Limited Waiver Agreement whereby Protection One consented to our ownership interest in Protection One exceeding the ceiling for the period commencing on July 1, 2002 and ending on March 31, 2003. The Consent and Limited Waiver Agreements were each approved by Protection One's "Continuing Directors" as required by the terms of (and as defined in) the amended Contribution Agreement. As of February 6, 2003, the shares of Protection One common stock owned by us and Westar Industries represented approximately 88% of the outstanding shares on a non-diluted basis. We believe we are currently in compliance with the terms of the amended Contribution Agreement.

On October 18, 2001, Protection One's "Continuing Directors" approved an amendment to the amended Contribution Agreement that decreased the size of its Board of Directors and modified the persons for whom we have agreed to vote our shares in the election of directors. As a result of the amendment, so long as we directly or indirectly own more than 50% of the outstanding shares of Protection One's common stock, Protection One's Board of Directors will have not less than nine nor more than twelve directors, and we will vote all such shares we own to elect as directors one individual selected by us from Protection One's executive officers, at least three "Independent Directors" (as defined in the Contribution Agreement) and the number of additional individuals nominated by us to fill the remaining positions on the Board of Directors.

By letter dated March 12, 2003, we advised Protection One of our request, pursuant to the amended Contribution Agreement, that Mr. Gene A. Budig, Mr. Bruce A. Akin, Mr. Larry D. Irick and Mr. William B. Moore be appointed as our designees on the Protection One Board of Directors, and that Mr. Moore be appointed Chairman of the Board. On March 26, 2003, pursuant to the terms of the amended Contribution Agreement and our request, Mr. Akin, Mr. Irick and Mr. Moore were appointed to the Protection One Board of Directors, and Mr. Moore was appointed Chairman. Mr. Budig was already a member of the Protection One Board of Directors, having joined the Board of Directors in 2001.

KCC Orders

On November 8, 2002, the Kansas Corporation Commission, or KCC, issued Order No. 51 which required us to initiate a corporate and financial restructuring, reverse specified accounting transactions described in the order, review, improve and/or develop, where necessary, methods and procedures for allocating costs between utility and non-utility businesses for KCC approval, refrain from any action that would result in our electric utility businesses subsidizing non-utility businesses, reduce outstanding debt giving priority to reducing utility debt and, pending the corporate and financial restructuring, imposed standstill limitations on our ability to finance non-utility businesses such as Protection One. These standstill protections require that we seek KCC approval before we take actions such as making any loan to, investment in or transfer of cash in excess of $100,000 to Protection One or another non-utility affiliate, entering into any agreement with Protection One or another non-utility affiliate where the value of goods or services exchanged exceeds $100,000, investing, by us or any affiliate, of more than $100,000 in an existing or new non-utility business and transferring any non-cash assets or intellectual property to Protection One or another non-utility affiliate. In addition, we must charge interest to Protection One and other non-utility affiliates at the incremental cost of our debt on outstanding balances of any existing or future inter-affiliate loans, receivables or other cash advances due us. The order also suggested that the sale of our investment in Protection One stock should be explored, along with other alternatives, as a possible source of cash to be used to reduce our debt. An additional provision affecting Protection One includes a requirement that Protection One cannot sell assets having a value of $100,000 or more without prior KCC approval.

On December 23, 2002, the KCC issued Order No. 55 clarifying and modifying the November 8, 2002 order. One such clarification was that we and Westar Industries would be prohibited from making payments to Protection One under the Tax Sharing Agreement among the three companies (see "—Tax Sharing Agreement" below) until certain requirements were met by us regarding our debt.

On January 10, 2003, Protection One filed a petition seeking reconsideration of certain aspects of Order No. 55. Specifically, Protection One requested that the KCC reconsider and revise Order No. 55 so that it clearly does not interfere with Protection One's contractual arrangements with us and Westar Industries, including, but not limited to the Tax Sharing Agreement and the senior credit facility provided by Westar Industries to Protection One (the "Protection One Credit Facility").

On February 11, 2003, the parties to the KCC proceeding filed a Limited Stipulation and Agreement, which sought the KCC's approval for Protection One to sell to us all of our stock it owned. The KCC approved the Limited Stipulation and Agreement on February 14, 2003 and Protection One sold to us all of our stock it owned on February 14, 2003 for $11.6 million.

On February 25, 2003, we entered into a Partial Stipulation and Agreement, which we will refer to as the Reconsideration Agreement, with the staff of the KCC, Protection One, Westar Industries and an intervenor. The Reconsideration Agreement requested that the KCC issue an order granting limited reconsideration and clarification to its order issued December 23, 2002. The Reconsideration Agreement also requested that the KCC authorize us and Westar Industries to perform our respective obligations to Protection One under the Tax Sharing Agreement and the Protection One Credit Facility. Additionally, the Reconsideration Agreement provided that, among other things: (a) the maximum borrowing capacity under the Protection One Credit Facility will be reduced to $228.4 million and the maturity date may be extended one year to January 5, 2005; (b) we may provide funds to Westar Industries to the extent necessary to perform its obligations to Protection One under the Protection One Credit Facility; (c) we will reimburse Protection One approximately $4.4 million for expenses incurred in connection with services provided by Protection One Data Services, Inc. and AV One, Inc. to us and Westar Industries, and for the sale of AV One, Inc. to us; and (d) the financial advisory services agreement between Protection One and Westar Industries is cancelled.

On March 11, 2003, the KCC issued Order No. 65 conditionally approving the Reconsideration Agreement. The KCC imposed the following limitations on the terms of the Reconsideration Agreement: (a) the Protection One Credit Facility must be paid off upon the sale of all or a majority of the Protection One common stock held by Westar Industries, and this pay-off must be a condition of any sale by Westar Industries of Protection One's stock; (b) we must provide advance notice to the KCC if the payment to Protection One under the Tax Sharing Agreement exceeds approximately $20 million; (c) Protection One must receive KCC approval prior to selling any assets exceeding $100,000 and we and Westar Industries must receive KCC approval prior to selling our stock in Protection One; and (d) Protection One must waive potential claims against us and Westar Industries relating to certain inter-company agreements. In addition, the KCC reserved the right to impose a deadline for the sale by Westar Industries of its Protection One stock. We are precluded from extending any credit to Protection One except for borrowings Protection One may make under the Protection One Credit Facility.

We, Westar Industries and Protection One also agreed to provide the KCC with periodic reports on the progress of efforts to sell our equity investment in Protection One.

Proposed Disposition of Protection One Stock

On November 8, 2002 the KCC issued an order, that among many findings and directives, requested we consider selling our investment in Protection One. We subsequently announced that we intend to dispose of our investment in Protection One and that we had retained an investment banking firm to assist us in this process.

Protection One Shared Services Agreement

We provide administrative services to Protection One pursuant to services agreements, including accounting, tax, audit, human resources, legal, purchasing, facilities and technology services. Fees for these services are based upon various hourly charges, negotiated fees and out-of-pocket expenses. Protection One incurred charges of $3.9 million in 2002, $8.1 million in 2001 and $7.3 million in 2000. We had a receivable balance from Protection One of $1.0 million at December 31, 2002 primarily for these services.

We and Protection One have entered into an amended service agreement that stipulates that if we sell our interest in Protection One, we and Protection One will negotiate, in good faith, the terms and conditions for continuation of the services during an agreed-upon transition period. This agreement is subject to KCC approval, which has not yet been received.

Tax Sharing Agreement

We have a tax sharing agreement with Protection One which allows Protection One to be reimbursed for current tax benefits utilized in our consolidated tax return. We and Protection One are eligible to file on a consolidated basis for tax purposes so long as we maintain an 80% ownership interest in Protection One. We had a payable balance to Protection One of $20.7 million at December 31, 2002 for tax year 2002. We reimbursed Protection One $13.5 million for tax year 2001 and $7.4 million for tax year 2000. On March 11, 2003, the KCC issued an order that allows us to make a cash payment to Protection One of approximately $20 million for tax year 2002.

Office Space Lease

During the fourth quarter of 2001, Kansas Gas and Electric Company ("KGE"), our wholly owned subsidiary, entered into an option agreement to sell an office building located in downtown Wichita, Kansas, to Protection One for approximately $0.5 million. The sales price was determined by management based on three independent appraisers' findings. This transaction was completed during June 2002. We recognized a loss of $2.6 million on this transaction, and we expected to realize annual operating cost savings of approximately $0.9 million. The cost savings will be treated as a regulatory liability in accordance with a March 26, 2002, KCC order. For the year ended December 31, 2002, we recorded $0.5 million in cost savings as a regulatory liability.

Information Technology Services

Effective July 1, 2002, we entered into an outsourcing agreement with a newly formed subsidiary of Protection One named Protection One Data Service, Inc. ("PODS"), pursuant to which we outsourced to PODS a significant portion of the services and functions previously performed by our internal information technology services department. Approximately 100 of our information technology employees became employees of PODS. Operation of PODS and the provision of such services were discontinued as of December 31, 2002. Our information technology employees that had accepted employment with PODS were transferred back to us as of the end of the year. We had a payable to PODS of $1.1 million as of December 31, 2002, which we repaid on March 21, 2003, in accordance with the Reconsideration Agreement.

Transactions Between Westar Industries and Subsidiaries

Protection One Credit Facility

Westar Industries is the lender under the Protection One Credit Facility. The Protection One Credit Facility was amended to increase the capacity from $155 million to $280 million during the year ended December 31, 2002. On August 26, 2002, the Protection One Credit Facility was further amended to extend the maturity date to January 5, 2004. On March 11, 2003, the KCC limited the amount of the facility to $228.4 million, authorized us to fund the facility and extend the term of the facility to January 5, 2005 and required the facility to be paid in full and terminated upon the disposition of all or part of our investment in Protection One. We are in discussions with Protection One about the extension of the facility and we intend to renew the facility through January 5, 2005, should such renewal be necessary to provide Protection One with continued liquidity.

As of December 31, 2002, $215.5 million was drawn under the facility. The remaining availability under this facility as of December 31, 2002 was $64.5 million. At March 14, 2003, Protection One had outstanding borrowings of $215.5 million and $12.9 million of remaining capacity.

Aviation Matters

On June 5, 2002, Westar Industries sold to Protection One the stock of a wholly owned subsidiary named Westar Aviation, Inc. for approximately $1.4 million. Protection One subsequently changed the name of the newly acquired subsidiary to AV One, Inc. and entered into an Aircraft Reimbursement Agreement with Westar Industries. Under this agreement, Westar Industries agreed to reimburse AV One, Inc. for certain costs and expenses relating to services provided to us and Westar Industries. Through September 30, 2002, AV One, Inc. incurred approximately $1.4 million in expenses for which Westar Industries reimbursed Protection One in October 2002. On March 21, 2003, we paid Protection One approximately $3.6 million in accordance with the Reconsideration Agreement to repurchase the stock of AV One, Inc. at book value on such date and to reimburse Protection One for all costs incurred relating to the services provided to us and Westar Industries.

Financial Advisory Services

In November 2001, Protection One entered into an agreement pursuant to which it paid a quarterly fee to Westar Industries for financial advisory services equal to 0.125% of its consolidated total assets at the end of each quarter. This agreement was approved by the independent members of Protection One's Board of Directors. Protection One incurred approximately $3.6 million of such fees during the year ended December 31, 2002. During the fourth quarter of 2002, the management fee was suspended and no additional cost was incurred in the fourth quarter. This agreement was subsequently terminated effective September 30, 2002 in accordance with the Reconsideration Agreement. There was no balance due under this agreement at December 31, 2002.

Protection One Europe

On February 29, 2000, Westar Industries purchased the European operations of Protection One, and certain investments held by a subsidiary of Protection One, for an aggregate purchase price of $244 million. Westar Industries paid approximately $183 million in cash and transferred Protection One debt securities with a market value of approximately $61 million to Protection One. Cash proceeds from the transaction were used to reduce the outstanding balance owed to Westar Industries on Protection One's revolving credit facility. No gain or loss was recorded on this intercompany transaction, and the net book value of the assets was unaffected.

Transactions with KGE

We perform KGE's cash management function, including cash receipts and disbursements. An intercompany account is used to record net receipts and disbursements between us and KGE. KGE's net amount payable from affiliates approximated $24.1 million at December 31, 2002, and the net amount receivable from affiliates approximated $17.3 million at December 31, 2001.

We provide all employees utilized by KGE. We allocate certain operating expenses to KGE. These expenses are allocated, depending on the nature of the expense, based on allocation studies, net investment, number of customers, and/or other appropriate factors. We believe such allocation procedures are reasonable.

Purchases and Sales of Securities

During 2002, Protection One acquired in open market purchases approximately $12.6 million of our common stock and approximately $1.8 million of our preferred stock. Protection One received dividends of approximately $0.5 million and $0.1 million on our common stock and preferred stock, respectively. At December 31, 2002, Protection One held 850,000 shares of our common stock acquired at a cost of approximately $13.0 million and 34,213 shares of our preferred stock acquired at a cost of approximately $2.0 million. We purchased these securities from Protection One on February 14, 2003 for approximately $11.6 million.

During 2002, Protection One acquired approximately $41.2 million ($42 million principal amount) of our 6.25% notes, approximately $21.6 million ($22.4 million principal amount) of our 6.875% notes, approximately $4.6 million ($4.9 million principal amount) of our 7.125% notes and $0.1 million of ONEOK, Inc. common stock. We purchased all of these investments from Protection One at its cost prior to September 30, 2002.

During 2002, Westar Industries purchased $100.3 million aggregate principal amount of Protection One bonds for $82.1 million. Westar Industries sold $73.6 million aggregate principal amount of those bonds to Protection One for $58.0 million.

Loans to Officers

In 2001, our Board of Directors approved stock ownership target levels for officers and other members of senior management. In December 2001, our Board of Directors also approved a loan program to assist officers in meeting their target levels. Pursuant to the program, each officer could borrow from us an amount up to one to three times the maximum base salary for his or her respective pay grade to purchase shares of our common stock in the market. During 2001 and 2002, we extended loans to our officers pursuant to this loan program. No loans were made after the adoption of the Sarbanes-Oxley Act of 2002 on July 30, 2002. Officers are personally liable for the repayment of the loans, which are unsecured, bear interest at a variable interest rate equal to our short term borrowing rate, require quarterly interest payments and require payment in full at maturity on December 4, 2004. In 2002, the following named executive officers had loans outstanding under the program with the indicated highest amount outstanding during the year: Mr. Lake, $1,000,000; Mr. Sterbenz, $300,000; and Mr. Geist, $400,000. At April 30, 2003, the loans to Mr. Lake and Mr. Sterbenz had the same outstanding balances stated above, and the loan to Mr. Geist had been repaid