SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
WESTERN RESOURCES, INC.
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(Name of Registrant as Specified In Its Charter)
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[LOGO] Western Resources
June 12, 2001
Dear Shareholder:
I cordially invite you to the 2001 Annual Meeting of Shareholders of
Western Resources, Inc. The meeting this year is at 11:00 a.m., Central
Daylight Saving Time, on Tuesday, July 10, 2001 at the State Line Power Plant
at 2299 South State Line Road, near Joplin, Missouri. In addition to the formal
business of the meeting, we will commemorate the start up of the new State Line
combined cycle unit that we jointly own with The Empire District Electric
Company.
As you know, we have invested over $100 million in the new State Line
combined cycle unit. Our investment in new power generating facilities over the
last couple of years--including State Line--is the largest construction of new
generation by the Company since the mid-1980s. We think the annual meeting
provides an appropriate opportunity to commemorate the new unit. The meeting
and the commemoration will be held outside, so please dress casually. We hope
you will be able to join us at this event.
The Board of Directors has nominated the three present directors whose
terms of office expire this year to continue to serve as directors. The Board
of Directors recommends that you vote for the nominees.
The enclosed notice of the meeting and proxy statement contain detailed
information about the business to be transacted at the meeting, and a map with
directions to the facility.
We urge you to read the proxy statement carefully. Whether or not you plan
to attend the annual meeting, please take time to vote as soon as possible by
completing and mailing the enclosed proxy card or by using the telephone or
Internet voting procedures.
I extend my thanks for your continued investment in the Company.
Sincerely,
/s/ David C. Wittig
DAVID C. WITTIG
Chairman of the Board, President,
and Chief Executive Officer
DIRECTIONS TO STATE LINE POWER PLANT:
From the North (Kansas City):
South on U.S. Highway 69 to Riverton, Kansas, then east on U.S. Highway 66
through Galena, Kansas, to State Line Road, then south to the power plant.
From the South (Oklahoma or Arkansas):
North on Interstate 44 to U.S. Highway 66 exit, then west to State Line
Road, then south to the power plant.
From the West (Wichita):
East on U.S. Highway 400 to U.S. Highway 66, then east to State Line Road,
then south to the power plant.
From the East (Springfield):
West on Interstate 44 to U.S. Highway 66 exit, than west to State Line
Road, then south to the power plant.
[MAP OF streets of Kansas-Missouri]
WESTERN RESOURCES, INC.
818 South Kansas Avenue
Topeka, Kansas 66612
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Time: 11:00 a.m. (Central Daylight Saving Time) on Tuesday, July 10, 2001
Place: State Line Power Plant
2299 South State Line Road
Near Joplin, Missouri 64804
Purpose: .To elect three Class II directors to serve for a term of three years
.To conduct other business properly raised before the meeting and any
adjournment or postponement of the meeting
Record Date: You may vote if you were a shareholder of record on June 5, 2001
Proxy Voting: Your vote is important. You may vote in person at the meeting or by proxy in
one of three ways:
.by signing, dating and returning your proxy card in the enclosed envelope
.by calling the toll-free number on the enclosed proxy card
.via the Internet using instructions on the proxy card
On behalf of the Board of Directors,
/s/ Larry Irick
LARRY D. IRICK
Corporate Secretary
Topeka, Kansas
June 12, 2001
PROXY STATEMENT
The Board of Directors of Western Resources, Inc. (the "Company") is
soliciting proxies for the 2001 Annual Meeting of Shareholders. This proxy
statement and the accompanying proxy card contain information about the items
you will vote on at the annual meeting. We began mailing these documents to
shareholders on or about June 12, 2001.
VOTING PROCEDURES--QUESTIONS AND ANSWERS
Who may vote and how many votes do I have?
Common and preferred shareholders of record at the close of business on
June 5, 2001 may vote. For each matter presented for vote, you have one vote
for each share you own.
On that date there were outstanding and entitled to vote 70,477,088 shares
of Common Stock, 138,576 shares of Preferred Stock, 4 1/2% Series, 60,000
shares of Preferred Stock, 4 1/4% Series, and 50,000 shares of Preferred Stock,
5% Series. Shares of our common stock owned by Westar Industries, Inc.
("Westar"), our wholly owned subsidiary, are not entitled to vote and do not
count for quorum purposes.
How do proxies work?
The Board of Directors is asking for your proxy. Giving the persons named
as proxies your proxy means you authorize them to vote your shares at the
meeting in the manner you direct. You may vote for all, some or none of our
director nominees. If you sign and return the enclosed proxy card but do not
specify how to vote, the persons named as proxies will vote your shares for our
director nominees.
How do I vote?
You may vote in person by attending the meeting or by proxy. If you are a
shareholder of record, you may vote by proxy through the Internet, by telephone
or by mail. Please follow the instructions on the proxy card for voting by one
of these methods. Please help us save time and postage costs by voting through
the Internet or by telephone. If your shares are held in "street name" by a
broker or other nominee, you will receive instructions from the holder of
record that you must follow in order to vote your shares. If you hold your
shares in "street name" and want to vote in person at the annual meeting, you
must obtain a legal proxy from your broker or nominee and bring it to the
meeting. Whether you plan to attend the meeting or not, we encourage you to
vote by proxy as soon as possible.
What does it mean if I receive more than one proxy card?
You may receive more than one proxy card depending on how you hold your
shares. You will receive a proxy card for shares registered in your name. If
you hold shares through someone else, such as a bank or broker, you may also
receive material from them asking how you want to vote. If you participate in
our Direct Stock Purchase Plan or one of our employee stock plans, you will
receive one proxy card for all shares of common stock held in or credited to
your accounts as of the record date, if the account names are exactly the same.
If your shares are registered differently and are in more than one account, you
will receive more than one proxy card. We encourage you to have all accounts
registered in the same name and address whenever possible. You can do this by
contacting our shareholder services department at 800-527-2495 or 785-575-6394
(in the Topeka area) or by e-mail at sharsvcs@wr.com.
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You will also receive a proxy card if you hold shares in our Employees'
401(k) Savings Plan. The plan trustee will vote these shares in accordance with
your proxy. If you do not vote, the plan trustee will vote your shares in
proportion to the way the other plan participants voted.
Can I change my vote?
You can revoke your proxy before the time of voting at the meeting in
several ways (the revocation has to be received before the meeting to be
counted):
. by mailing a revised proxy dated later than the prior proxy
. by voting again at the Internet Web site
. by notifying our Corporate Secretary in writing that you are revoking
your proxy
You can also revoke your proxy by voting in person at the meeting. Please
keep in mind that while telephone and Internet votes are recorded immediately,
mailed proxy cards will be recorded upon receipt and could override a vote
submitted electronically. The last vote received by the tabulator by telephone,
Internet or mail will be the vote counted.
Who can attend the annual meeting?
Only shareholders on June 5, 2001 and our guests may attend the meeting. If
you hold your shares in the name of a bank, broker or other holder, please
bring proof of ownership with you to the meeting. A bank or brokerage account
statement showing you owned common or preferred stock on June 5, 2001 would be
acceptable proof. No proof is required if you are a registered holder.
What constitutes a "quorum" for the meeting?
A quorum is necessary to conduct business at the meeting. A quorum requires
the presence of majority of the outstanding shares entitled to vote, in person
or represented by proxy. You are part of the quorum if you have voted by proxy.
Abstentions, broker non-votes and votes withheld from director nominees
count as "shares present" at the meeting for purposes of determining a quorum.
However, abstentions and broker non-votes do not count in the voting results. A
broker non-vote occurs when a broker or other nominee who holds shares for
another does not vote on a particular item because the nominee does not have
discretionary voting authority for that item and has not received instructions
from the owner of the shares.
How many votes are needed?
Director nominees receiving the most votes will be elected. Approval of any
other item being considered requires a majority of the votes cast.
Corporate Election Services, Inc., the independent proxy tabulator we use,
counts the votes and acts as the inspector of election for the meeting.
Who pays for the solicitation of proxies?
We pay the cost of soliciting proxies. We retained Georgeson Shareholder
Communications Inc. to assist with the solicitation for an estimated fee of
$9,500 plus reasonable out-of-pocket expenses. We will reimburse brokerage
firms and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for sending proxy materials to shareholders and
obtaining their votes. In addition to the use of the mails, proxies may be
solicited personally, or by telephone or electronic media by our regular
employees.
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ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
Directors and Nominees for Directors
Our Board of Directors currently consists of eight directors divided into
three classes (Class I, Class II and Class III). At each annual meeting of
shareholders, the directors constituting one class are elected for a three-year
term. The terms of the directors of Class II expire with this meeting. Our
bylaws require each class to be as nearly equal in number as possible, with no
class to include fewer than two directors. The size of the Board of Directors
will be decreased to seven directors concurrently with the annual meeting as a
result of the retirement at that time of Louis W. Smith, who currently serves
as a Class III director.
Each nominee has consented to being named as a nominee and to serve, if
elected. While it is not expected that any of the nominees will be unable to
qualify or accept office, if for any reason one or more are unable to do so,
the proxies will be voted for substitute nominees selected by our Board of
Directors.
Nominees (Class II)--Term Expiring in 2004
Gene A. Budig (age 62)
Dr. Budig is Senior Advisor to the Commissioner of Baseball in New York,
New York (since March 2000) and a professor at Princeton University (since July
2000). Prior to that time, Dr. Budig was President of the American League of
Professional Baseball Clubs. Dr. Budig is a director of the Harry S. Truman
Library Institute, the Ewing Marion Kaufman Foundation, the Major League
Baseball Hall of Fame and the Media Studies Center-Freedom Forum. Dr. Budig is
also a director of Protection One, Inc. ("Protection One"), our indirect
subsidiary. He has served as our director since July 1999. He also served as
our director from January 1987 to May 1998.
John C. Nettels, Jr. (age 45)
Mr. Nettels is a Partner with the law firm of Morrison & Hecker, L.L.P. in
Overland Park, Kansas. He has served as our director since March 2000.
David C. Wittig (age 45)
Mr. Wittig is our Chairman of the Board, President and Chief Executive
Officer (since January 1999, March 1996 and July 1998, respectively). Prior to
that time, Mr. Wittig was our Executive Vice President of Corporate
Development. Mr. Wittig is a director of Waco Instruments, Inc. Mr. Wittig is a
trustee of the Kansas University Endowment Association and Boys Harbor, Inc. He
has served as our director since February 1996.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF ALL OF
THE ABOVE NOMINEES.
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Continuing Directors
(Class III)--Term Expiring in 2002
Frank J. Becker (age 65)
Mr. Becker is President of Becker Investments, Inc. in Lawrence, Kansas.
Mr. Becker is a director of the Douglas County Bank, Martin K. Eby Construction
Company and IMA Insurance, Inc., and a trustee of the Kansas University
Endowment Association. He has served as our director since 1992.
Douglas T. Lake (age 51)
Mr. Lake is our Executive Vice President and Chief Strategic Officer (since
September 1998). Prior to that, Mr. Lake was Senior Managing Director at Bear,
Stearns & Co. Inc., an investment banking firm. Mr. Lake is also Chairman of
the Board of Protection One and a director of ONEOK, Inc. and Guardian
International, Inc. He has served as our director since October 2000.
(Class I)--Term Expiring in 2003
Charles Q. Chandler, IV (age 47)
Mr. Chandler is Chairman of the Board, President and Chief Executive
Officer of INTRUST Bank, N.A. and President of INTRUST Financial Corporation.
Both companies are located in Wichita, Kansas. Mr. Chandler is a director of
INTRUST Financial Corporation, the First National Bank of Pratt, Kansas, the
Will Rogers Bank in Oklahoma City, Oklahoma and the Wesley Medical Center in
Wichita, Kansas. He is also a trustee of the Kansas State University Endowment
Foundation. Mr. Chandler has served as our director since January 2000.
John C. Dicus (age 67)
Mr. Dicus is Chairman of the Board and Chief Executive Officer of Capitol
Federal Savings Bank. Mr. Dicus is also Chairman of the Board and Chief
Executive Officer of Capitol Federal Financial and Capitol Federal Savings Bank
MHC (since March 1999). These companies are located in Topeka, Kansas. Mr.
Dicus is a director of Security Benefit Life Insurance Company and Columbian
National Title Company, and a trustee of the Menninger Foundation,
Stormont-Vail Health Care, Inc. and the Kansas University Endowment
Association. He has served as our director since May 1990.
Compensation of Directors
Directors who are our employees do not receive additional compensation for
their services as directors. Directors who are not our employees receive an
annual cash retainer fee of $25,000, paid quarterly, an annual stock award of
$18,500, and an annual restricted share unit award of $19,000. The restricted
share unit award vests ratably over three years from the date of grant.
Directors who are not our employees are also paid a fee of $1,200 for each
meeting of the Board of Directors and a fee of $1,000 for each committee
meeting they attend ($600 if they participate by telephone). Directors are also
reimbursed for expenses incurred by them which are incidental to attending
meetings.
Pursuant to our Outside Directors' Deferred Compensation Plan (the
"Deferred Compensation Plan"), an outside director may elect to defer all or a
portion of any fee received for services. The Deferred Compensation Plan is a
voluntary participation plan administered by the Human Resources
4
Committee of our Board of Directors. In addition, an outside director may elect
to have all or a portion of any cash fees paid in stock pursuant to our Long
Term Incentive and Share Award Plan.
Board Meetings and Committees of the Board of Directors
Our Board of Directors met seventeen times during 2000. All directors
attended at least 75% of the total number of board and committee meetings held
while they served as a director or member of a committee. We have an Audit and
Finance Committee, a Human Resources Committee, a Nominating Committee and a
Corporate Public Policy Committee.
The Audit and Finance Committee is currently composed of Dr. Budig,
Chairman, Mr. Chandler and Mr. Dicus. Each of these persons is an independent
director as required by the rules of the New York Stock Exchange. The principal
responsibilities of the committee are described in the Audit Committee Charter
that was approved by our Board of Directors and is attached as Appendix A to
this proxy statement. The committee reviews the nature of services performed by
the external auditors, including the scope and general extent of their audit
examination and the basis for their compensation. It also recommends the
independent auditor for approval by the full Board. This committee held nine
meetings during 2000.
The Human Resources Committee is currently composed of Mr. Becker,
Chairman, Dr. Budig and Mr. Dicus. This committee reviews the performance of
corporate officers and changes in officer compensation and benefits. This
committee held seven meetings during 2000.
The Nominating Committee is currently composed of Mr. Nettels, Chairman,
Mr. Becker and Mr. Wittig. This committee reviews and recommends nominees for
election to our Board of Directors including nominees recommended by
shareholders if nominations are submitted in accordance with the procedures for
shareholder proposals discussed later in this proxy statement. This committee
held two meetings in 2000.
The Corporate Public Policy Committee is currently composed of Mr. Dicus,
Chairman, Mr. Chandler, and Mr. Lake. This committee reviews major programs of
the Company relating to community relations, customer relations, corporate
contributions and other public affairs issues. This committee held one meeting
during 2000.
Audit and Finance Committee Report
Pursuant to a written charter adopted by the Board of Directors, the Audit
and Finance Committee is responsible for overseeing the Company's financial
reporting process on behalf of the Board of Directors. A copy of the charter is
included as Appendix A to this proxy statement.
Management has the primary responsibility for the system of internal
controls and the financial reporting process. The independent accountants have
the responsibility to express an opinion on the financial statements based on
an audit conducted in accordance with generally accepted auditing standards.
The Audit and Finance Committee has the responsibility to monitor and oversee
these processes.
In fulfilling its responsibilities, the Audit and Finance Committee
recommended to the Board of Directors the selection of the Company's
independent accountants, Arthur Andersen LLP. That firm has discussed with the
Audit and Finance Committee and provided written disclosures and a letter to
the Audit and Finance Committee on that firm's independence as required by
Independence Standards
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Board Standard No. 1, Independence Discussions with Audit Committees, as
currently in effect. That firm has also discussed with the Audit and Finance
Committee matters required to be communicated under Statement of Accounting
Standards 61, Communication with Audit Committees, as currently in effect.
The Audit and Finance Committee reviewed and discussed with management and
the independent accountants the Company's audited financial statements and the
overall quality of the Company's accounting and financial reporting.
Based on the actions detailed in this report, the Audit and Finance
Committee authorized that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 and
filed with the Securities and Exchange Commission.
The Audit and Finance Committee
Gene A. Budig, Chairman
Charles Q. Chandler, IV
John C. Dicus
Human Resources Committee Report
The executive compensation programs of the Company are administered by the
Human Resources Committee of the Board of Directors (the "Committee"), which is
composed of three non-employee directors. The Committee reviews and approves
all issues pertaining to executive compensation. The objective of the Company's
three compensation programs (base salary, short term incentive and long term
incentive) is to provide compensation which enables the Company to attract,
motivate and retain talented and dedicated executives, foster a team
orientation toward the achievement of business objectives, and directly link
the success of our executives with that of our shareholders.
The Company extends participation in its long term and short term incentive
programs to certain key employees in addition to executive officers based on
their potential to contribute to increasing shareholder value.
In structuring the Company's compensation plans, the Committee takes into
consideration Section 162(m) of the Internal Revenue Code (which disallows the
deduction of compensation in excess of $1,000,000 except for certain payments
based upon performance goals) and other factors the Committee deems
appropriate. As a result, some of the compensation under the Company's
compensation plans may not be deductible under Section 162(m).
Base Salary Compensation
A base salary range is established for each executive position to reflect
the potential contribution of each position to the achievement of the Company's
business objectives and to be competitive with the base salaries paid for
comparable positions in the national market by diversified consumer services
companies, with emphasis on electric energy and monitored security services
with annual total revenues comparable to ours. Some, but not all, of such
companies are included in the Standard & Poor's Electric Companies Index. The
Company utilized industry information for compensation purposes. Not all
companies comprising such index participate in making available such industry
6
information. In addition, the Company considers information about other
companies with which the Committee believes the Company competes for
executives, but which are not part of such industry information. The mid-point
for each base salary range is intended to approximate the average base salary
for the relevant position in the national market. Industry surveys by national
industry associations are one source of this market information. The Committee
also utilizes the services of an independent compensation consultant to provide
national market data for executive positions and to evaluate the
appropriateness of the Company's executive compensation and benefit programs.
Within the established base salary ranges, actual base salary is determined
by the Company's financial performance in relation to attainment of specific
goals, such as earnings-per-share and total return to shareholders, and a
subjective assessment of each executive's achievement of individual objectives
and managerial effectiveness. The Committee annually reviews the performance of
the Chairman of the Board, President and Chief Executive Officer and other
executive officers. The Committee, after consideration of the Company's
financial performance, and such other subjective factors as the Committee
deemed appropriate for the period being reviewed, established the base
compensation of such officers.
In reviewing the annual achievement of each executive and setting the new
base annual salary levels for 2000, the Committee considered each individual's
contribution toward meeting the board-approved budgeted financial plan for the
previous year, total return to shareholders, earnings per share, customer
satisfaction, compliance with the Company's capital financial plan, the
Company's budgets, the individual's management effectiveness and the
individual's base compensation compared to the national market.
Annual Incentive Compensation
All executive officers are eligible for annual incentive compensation.
The primary form of short term incentive compensation is the Company's
Short Term Incentive Plan for employees selected by the Committee, including
the named executive officers, who have an opportunity to directly and
substantially contribute to the Company's achievement of short term objectives.
Short term incentives are structured so that potential compensation is
comparable with short term compensation granted to comparable positions in the
national market. Short term incentives are targeted to approximate the median
in the national market. Some, but not all, of such companies are included in
the Standard & Poor's Electric Companies Index.
Mr. Wittig is eligible for an annual short term incentive target of 90% of
base salary. Other participants are eligible for annual short term incentive
targets ranging from 15% to 80% of base salary. For executive officers, 20% of
the annual incentive is tied to the attainment of individual goals and
management skills. The balance is based upon the Company's achievement of
financial goals established annually by the Committee. Awards in excess of the
targets may be payable if the financial goals set by the Committee are
exceeded. The Committee may grant performance based awards to the Chief
Executive Officer and the other four most highly compensated officers of the
Company who are or may be subject to Section 162(m) of the Code without being
subject to the $1 million limitation on deductibility for federal income tax
purposes.
7
Changes in annual incentive compensation to the named executive officers in
2000 compared to 1999 resulted from an individual's relative attainment of his
or her goals and the Company substantially exceeding its earnings per share and
shareholder value goals.
Long Term Incentives
Long term incentive compensation is offered to employees who are in
positions which can affect the Company's long term success through the
formation and execution of its business strategies. The Long Term Incentive and
Share Award Plan (the "Plan") is the principal method for long term incentive
compensation, and compensation thereunder currently takes the form of dividend
equivalents and restricted share unit grants. The purposes of long term
incentive compensation are to: (1) focus key employees' efforts on performance
which will increase the value of the Company to its shareholders; (2) align the
interests of management with those of the Company's shareholders; (3) provide a
competitive long term incentive opportunity; and (4) provide a retention
incentive for key employees.
The Plan has been established to advance the interests of the Company and
its shareholders by providing a means to attract, retain, and motivate
employees and directors upon whose judgment, initiative and effort the
Company's continued success, growth and development is dependent.
All non-union employees are eligible for grants under the Plan. Under the
Plan, stock based awards are provided to such participants and in such amounts
as the Committee deems appropriate. The number and form of awards vary on the
basis of position and pay grade. The level of total compensation for similar
executive positions in companies considered comparable by the Committee was
used as a reference in establishing the level of dividend equivalents and
restricted share units for the Company's executives.
The use of restricted share units and stock grants as a significant
component of compensation creates a strong and direct linkage between the
financial outcomes of the employees and the shareholders. Dividend equivalents
are also granted. The value of a single dividend equivalent is equal to the
dividends that would have been paid or payable on a share from the date of
grant. Restricted share units require the continued employment of the executive
for four years unless the executive's employment terminates due to retirement,
death, disability, termination without cause by us, for good reason by the
executive or a change in control of the Company. Dividends are paid on the
restricted share units from the date of grant.
In April 1999, the Committee adopted a Stock for Compensation Program which
allows the Company's executive officers and other key employees to receive up
to a specified percentage of base compensation in the form of restricted share
units. The percentage of base compensation allowed to be paid in restricted
share units ranges from approximately 5% to approximately 60% depending on the
salary of the individual. Restricted share units are valued based upon 85% of
the closing price for the Company's common stock on the date of grant. Dividend
equivalents are paid on such share units. In 2000, Mr. Wittig elected to
receive approximately 60% of his base compensation in restricted share units
under the program.
In addition, during 2000 the Committee allowed all current employees to
exchange outstanding stock options and dividend equivalents for restricted
share units with approximately equal economic value as determined by an
independent compensation consultant. The named executive officers exchanged
605,625 stock options with dividend equivalents for 161,398 restricted share
units. Of these, Mr. Wittig exchanged 360,500 stock options for 96,895
restricted share units. These restricted share units vest ratably over a three
year period.
8
In the event of a change in control, stock options, dividend equivalents
and restricted shares units may accelerate and vest with performance criteria
deemed satisfied.
Chief Executive Officer
Mr. Wittig's base salary and his annual short term incentive compensation
are established annually. In recommending the base salary to be effective July
1, 2000, while not utilizing any specific performance formula and without
ranking the relative importance of each factor, the Committee took into account
relevant salary information in the national market and the Committee's
subjective evaluation of Mr. Wittig's overall management effectiveness in his
position as Chairman of the Board, President and Chief Executive Officer of the
Company and his achievement of individual goals. Factors considered included
his continuing leadership of the Company and his contribution to strategic
direction, management of change in an increasingly competitive environment,
management of operations, and the overall productivity of the Company. The
Committee also took into account the recommendations made by an independent
compensation consultant. Mr. Wittig's base salary, including compensation
received under the Stock for Compensation Program, was not changed in 2000.
With respect to Mr. Wittig's 2000 short term incentive compensation, the
Committee took into account the above performance factors and the Company
substantially exceeding its earnings per share and shareholder value goals. The
long term incentive compensation of Mr. Wittig included stock options, dividend
equivalents and restricted share units granted based upon the factors described
under Long Term Incentives above.
Western Resources, Inc. Human Resources
Committee
Frank J. Becker, Chairman
Gene A . Budig
John C. Dicus
9
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
Certain Beneficial Owners
Other than as set forth in the following table for our common stock, we
know of no other beneficial owner of more than five percent of any class of our
outstanding voting stock.
Amount and Nature
Name and Address of Beneficial Owner of Beneficial Ownership Percent of Class
------------------------------------ ----------------------- ----------------
Westar Industries, Inc.(1) 14,556,034 20.7%(2)
818 S. Kansas Avenue
Topeka, KS 66612
OZ Management, LLC(3) 7,678,000 9.1%
9 West 57th Street, 39th Floor
New York, NY 10019
Wallace R. Weitz and Company(4) 5,174,300 7.4%
1125 S. 103rd Street, Suite 600
Omaha, NE 68124-6008
--------
(1) Westar is our wholly owned subsidiary. We have shared investment power with
respect to, and are deemed to beneficially own these shares under Rule
13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under Kansas law, the shares held by Westar are not entitled to vote
as long as Westar remains our majority owned subsidiary. The information is
provided as of May 31, 2001.
(2) The percent is calculated pursuant to Section 13(d)(4) of the Exchange Act
which excludes from outstanding shares any shares held by us or any of our
subsidiaries. The percent is 17.12% if the shares held by Westar are
included in outstanding shares.
(3) As reported in a Schedule 13G filing with the Securities and Exchange
Commission on April 25, 2001.
(4) As reported in a Schedule 13G/A filing with the Securities and Exchange
Commission on February 2, 2001.
Change in Control
Pursuant to an agreement between Public Service Company of New Mexico
("PNM") and us dated as of November 8, 2000, PNM will acquire our electric
utility businesses in a stock for stock transaction. Under the terms of the
agreement, both we and PNM will become subsidiaries of a new holding company.
The agreement is subject to shareholder and regulatory approvals and other
conditions to closing.
10
Security Ownership of Management
The following information is furnished with respect to each of our current
directors and named executive officers individually, and with respect to our
current directors and executive officers as a group, as to ownership of shares
of our common stock and the common stock of Protection One. The information
provided is as of May 31, 2001.
Amount and Nature of Amount and Nature of
Beneficial Ownership of Percentage of Beneficial Ownership of
Name of Beneficial Owner Western Resources Stock (1) Ownership (2) Protection One Stock (3)
------------------------ --------------------------- ------------- ------------------------
Frank J. Becker 32,125(4) -- 26,500(5)
Gene A. Budig 9,080 -- --
Charles Q. Chandler, IV 2,695 -- 2,222(6)
John C. Dicus 6,255(7) -- --
Thomas L. Grennan 98,435(8) -- --
Carl M. Koupal, Jr. 175,679(8) -- --
Douglas T. Lake 275,023(8) -- --
John C. Nettels, Jr. 4,196(9) -- 10,500(6)(9)
Louis W. Smith 15,031 -- --
Richard D. Terrill 110,085(8)(10) -- --
David C. Wittig 760,094(8)(11) 1.08% --
All directors and executive officers
as a group
(13 individuals) 1,577,845(12) 2.24% 39,222(13)
--------
(1) No director or executive officer owns any of our equity securities other
than our common stock. Includes beneficially owned shares held in employee
savings plans and shares deferred under the Long Term Incentive and Share
Award Plan, the Stock for Compensation Program and the Outside Directors'
Deferred Compensation Plan.
(2) Percentages are omitted if a person owns less than one percent of the
outstanding shares of our common stock.
(3) Each individual and the group owns less than one percent of the
outstanding shares of Protection One's common stock. No director or
executive officer owns any equity securities of Protection One other than
Protection One's common stock.
(4) Includes 3,400 shares held in trusts, of which Mr. Becker is a co-trustee
with shared voting and investment power and excludes shares held in trust
by Douglas County Bank, of which Mr. Becker is a director.
(5) Includes 5,000 shares held in a trust in which Mr. Becker has shared
voting and investment power.
(6) Includes stock options exercisable currently or within sixty days: Mr.
Chandler, 2,222 shares, and Mr. Nettels, 7,500 shares.
(7) Includes 500 shares held by Mr. Dicus' spouse, not subject to his voting
or investment power.
(8) Includes restricted share units as follows: Mr. Grennan, 79,295; Mr.
Koupal, 151,724; Mr. Lake, 201,476; Mr. Terrill, 98,618; Mr. Wittig,
412,022; and 72,404 restricted share units granted to other executive
officers in the group.
(9) Includes 500 shares held in a trust in which Mr. Nettels has shared
investment and voting power.
(10) Includes 17 shares held by Mr. Terrill's son, not subject to his voting or
investment power.
(11) Includes 31,484 shares held by Mr. Wittig's spouse, not subject to his
voting or investment power.
(12) Includes shares referred to in items (1), (4) and (7) through (11) above.
(13) Includes shares referred to in items (3), (5), (6) and (9) above.
11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of our named executive
officers for the last three completed fiscal years:
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------------------------ ---------------------
Other Restricted
Annual Stock Securities All Other
Compensation Awards Underlying Compensation
Name and Principal Position Year Salary $ Bonus $ $(1) $(2) Options # $(3)
--------------------------- ---- ------- --------- ------- --------- ------- ---------
David C. Wittig 2000 303,400 1,171,170 134,794 2,155,781 58,500 486,969
Chairman of the Board, President 1999 408,683 -- 105,909 1,738,625 114,000 5,756,753
and Chief Executive Officer 1998 635,542 114,400 31,312 1,622,250 113,000 79,217
Douglas T. Lake 2000 224,476 642,706 57,417 1,317,813 9,000 700,999
Executive Vice President, 1999 266,849 -- 31,494 948,219 40,000 429,664
Chief Strategic Officer 1998 108,333 15,080 3,348 521,438 30,000 354,839
Carl M. Koupal, Jr. 2000 290,740 427,078 9,847 930,000 9,000 48,318
Executive Vice President, 1999 307,020 -- 13,045 612,313 28,000 42,327
Chief Administrative Officer 1998 250,125 36,720 4,258 502,125 28,000 31,610
Thomas L. Grennan 2000 175,750 299,702 56,375 496,875 6,000 69,953
Executive Vice President, 1999 187,708 -- 35,965 445,000 20,000 64,292
Electric Operations 1998 163,000 47,481 31,840 -- 12,000 17,761
Richard D. Terrill 2000 188,849 299,750 8,311 740,219 2,700 36,576
Executive Vice President, 1999 180,000 28,400 12,448 361,563 16,000 36,224
General Counsel 1998 130,667 17,160 3,919 -- 9,000 17,177
--------
(1) Other Annual Compensation for 2000 includes the following items: (a)
payments for federal and state taxes associated with personal benefits and
financial and tax planning (Mr. Wittig, $19,038, Mr. Lake, $18,095, Mr.
Koupal, $2,036, Mr. Grennan, $7,446, and Mr. Terrill, $904); (b) interest
(in excess of the applicable federal long term interest rate) on deferred
compensation (Mr. Wittig, $30,665, Mr. Koupal, $2,705, Mr. Grennan,
$36,249, and Mr. Terrill, $1,566); and (c) value of discounts received on
stock compensation (Mr. Wittig, $85,091, Mr. Lake, $39,322, Mr. Koupal,
$5,106, Mr. Grennan, $12,680, and Mr. Terrill, $5,841).
(2) The reported dollar value of restricted stock awards is equal to the
closing price of our common stock on the date of grant, multiplied by the
total number of restricted share units granted to the named executive
officer. The aggregate restricted share units held by each of the named
executive officers as of December 31, 2000 were as follows: Mr. Wittig,
335,095; Mr. Lake, 149,548; Mr. Koupal, 118,282; Mr. Grennan, 60,515; and
Mr. Terrill, 69,858. Based on the closing price of our common stock on
December 29, 2000 ($24.8125 per share), the restricted share units had an
aggregate value on that date of $8,314,545, $3,710,660, $2,934,872,
$1,501,528, and $1,733,352, respectively. This value may not represent the
ultimate value of the restricted share units to the employee or us.
Dividend equivalents are paid on the restricted share units from the date
of grant. See the Human Resources Committee Report for a discussion of
vesting of these restricted share units.
(3) All Other Compensation for 2000 includes the following items: (a) company
contributions under our 401(k) savings plan, a defined contribution plan
(Mr. Wittig, $5,044, Mr. Lake, $3,380, Mr. Koupal, $4,505, Mr. Grennan,
$3,515, and Mr. Terrill, $5,100); (b) premiums paid on term life insurance
policies (Mr. Wittig, Mr. Lake and Mr. Koupal, $853, Mr. Grennan, $688, and
Mr. Terrill, $575); (c) imputed income on split dollar life insurance
policies (Mr. Wittig, $40,852 and Mr. Koupal, $15,460); (d) value of shares
received under our Stock for Compensation Program in lieu of cash
compensation (Mr. Wittig, $440,220, Mr. Lake, $203,424, Mr. Koupal,
$27,500, Mr. Grennan, $65,750, and Mr. Terrill, $30,901); and (e) $493,342
paid to Mr. Lake under the terms of a letter agreement entered into when he
joined us.
12
OPTIONS GRANTED IN LAST FISCAL YEAR
Number of Securities % of Total Options Exercise or
Underlying Granted to Employees Base Price Grant Date
Name Options Granted # (1) in Fiscal Year $/share Expiration Date (1) Present Value (2)
---- --------------------- -------------- -------- ---------------- --------
David C. Wittig 58,500 9.31% $15.3125 January 26, 2010 $125,190
Douglas T. Lake 9,000 1.43% $15.3125 January 26, 2010 $19,260
Carl M. Koupal, Jr. 9,000 1.43% $15.3125 January 26, 2010 $19,260
Thomas L. Grennan 6,000 0.96% $15.3125 January 26, 2010 $12,840
Richard D. Terrill 2,700 0.43% $15.3125 January 26, 2010 $5,778
--------
(1) In 2000, current employees were offered the opportunity to exchange their
stock options for restricted share units of approximately equal economic
value as determined by an independent compensation consultant. On September
1, 2000, each of the named executive officers elected to exchange the
above-listed stock options for restricted share units.
(2) The grant date valuation was calculated using the Black-Scholes option
pricing model, and assumptions called for by paragraph 19 and Appendix B of
Financial Accounting Standard 123. This calculation does not necessarily
follow the same method and assumptions that we use in valuing long term
incentives for other purposes. Please refer to the Human Resources
Committee Report for a description of the Long Term Incentive and Share
Award Plan.
Expiration Date: January 26, 2010
Annualized stock volatility: 26.45%
Time of exercise (option term): 10 years
Risk free interest rate: 4.88%
Stock price at grant date and exercise price: $15.3125
Average dividend yield: 6.87%
Vesting restrictions: 3 years *
* One third of options were to become exercisable at each anniversary
date for three years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Number of Securities Underlying
Unexercised Options at Fiscal Year-End (#) (1)
-------------------------
Name Exercisable Unexercisable
---- ----------- -------------
David C. Wittig 0 0
Douglas T. Lake 0 0
Carl M. Koupal, Jr. 0 0
Thomas L. Grennan 0 0
Richard D. Terrill 0 0
--------
(1) The number of exercisable and unexercisable stock options held by each of
the named executive officers is as of December 31, 2000. All stock options
previously held by the named executive officers were exchanged during 2000
for restricted share units of approximately equal economic value as
determined by an independent compensation consultant.
Retirement Plans
We maintain a qualified non-contributory defined benefit pension plan and a
non-qualified supplemental retirement plan for certain of our management
employees, including executive officers, who are selected by the Human
Resources Committee of our Board of Directors. Benefits payable from the
qualified pension plan are limited by provisions of the Internal Revenue Code.
The non-
13
qualified supplemental retirement plan provides for the payment of retirement
benefits in addition to those provided under the qualified pension plan.
The following table sets forth the estimated annual benefits payable to the
named executive officers upon specified remuneration based on age 65 as of
January 1, 2001. The amounts presented do not take into account any reduction
for joint and survivorship payments.
ANNUAL PENSION BENEFIT FROM QUALIFIED AND NON-QUALIFIED PLANS
Average Applicable Average Applicable
Compensation Pension Benefit Compensation Pension Benefit
---------- -------- ---------- ----------
$150,000 $ 92,550 $1,150,000 $ 709,550
$200,000 $123,400 $1,200,000 $ 740,400
$250,000 $154,250 $1,250,000 $ 771,250
$300,000 $185,100 $1,300,000 $ 802,100
$350,000 $215,950 $1,350,000 $ 832,950
$400,000 $246,800 $1,400,000 $ 863,800
$450,000 $277,650 $1,450,000 $ 894,650
$500,000 $308,500 $1,500,000 $ 925,500
$550,000 $339,350 $1,550,000 $ 956,350
$600,000 $370,200 $1,600,000 $ 987,200
$650,000 $401,050 $1,650,000 $1,018,050
$700,000 $431,900 $1,700,000 $1,048,900
$750,000 $462,750 $1,750,000 $1,079,750
$800,000 $493,600 $1,800,000 $1,110,600
$850,000 $524,450 $1,850,000 $1,141,450
$900,000 $555,300 $1,900,000 $1,172,300
$950,000 $586,150 $1,950,000 $1,203,150
$1,000,000 $617,000 $2,000,000 $1,234,000
$1,050,000 $647,850 $2,050,000 $1,264,850
$1,100,000 $678,700 $2,100,000 $1,295,700
The supplemental retirement plan provides a retirement benefit at or after
age 65, or upon disability prior to age 65, in an amount equal to 61.7% of
final three-year average cash compensation (including share awards under the
Stock for Compensation Program) and annual incentive bonuses, reduced by the
benefits under the qualified pension plan (but not social security benefits),
such amount to be paid to the employee or his designated beneficiaries for the
employee's life with a 15-year term certain. The percentage of final three-year
average compensation to be paid commencing at age 65, before reduction for
qualified pension plan benefits, is 50% for a person retiring at age 50
increasing to 61.7% at age 65. An employee retiring at or after age 50, but
before age 65, may receive a reduced benefit, payable in the same form
commencing prior to age 65. The age 65 benefits are reduced by 5% per year if
commenced prior to age 60, but no earlier than age 50. The supplemental plan
vests 10% per year after five years of service until fully vested with 15 years
of service or at age 65. Under the qualified plan, full vesting occurs after 5
years of service. The supplemental plan also pays a death benefit if death
occurs before retirement equal to 50% of the employee's previous three year
average compensation (or the vested retirement benefit percentage, whichever is
higher) to his or her beneficiary for fifteen years following his or her death.
All of the named executive officers are covered by the qualified and
supplemental retirement plans. In the event of a change in control of us,
participants may be deemed to be 65 years of age as of the date of such change
in control for purposes of vesting and benefits.
14
The years of service as of January 1, 2001 for the named executive officers
are as follows: Mr. Wittig, six years; Mr. Lake, two years; Mr. Koupal, nine
years; Mr. Grennan, twenty-seven years; and Mr. Terrill, twenty-one years.
Split Dollar Life Insurance Program
We established a split dollar life insurance program for the benefit of us
and certain of our officers, including executive officers. Under the split
dollar life insurance program, we purchase a life insurance policy on the
insured's life and, upon termination of the policy or the insured's death, the
insured's beneficiary is entitled to a death benefit in an amount equal to the
face amount of the policy reduced by the greater of (i) all premiums paid by us
and (ii) the cash surrender value of the policy, which amount, at the death of
the insured or termination of the policy, as the case may be, will be returned
to us. We retain an equity interest in the death benefit and cash value of the
policy to secure this repayment obligation.
Subject to certain conditions, beginning on the earlier of (i) three years
from the date of the policy or (ii) the first day of the calendar year next
following the date of the insured's retirement, the insured is allowed to
transfer to us from time to time, in whole or in part, his interest in the
death benefit under the policy at a discount equal to $1 for each $1.50 of the
portion of the death benefit for which the insured may designate the
beneficiary, subject to adjustment if the participant does not retire within
six months of the date of agreement based on the total return to shareowners
from the date of the policy. Any adjustment would result in an exchange of no
more than $1 for each $1 of death benefit nor less than $1 for each $2 of death
benefit. At March 31, 2001, our liability under this program was approximately
$19 million. The program has been designed such that upon the insured's death
we will recover our premium payments from the policy and any amounts paid by us
to the insured for the transfer of his interest in the death benefit.
Employment and Change in Control Agreements
We have entered into employment agreements with the named executive
officers and one other officer, each of which contains change in control
provisions, and we have entered into change in control agreements with other of
our officers and key employees. The agreements have three year terms with an
automatic extension of one year on each anniversary, unless prior notice is
given by the officer or by us. The agreements are intended to insure the
officers' continued service and dedication to us and to ensure their
objectivity in considering on our behalf any transaction which would result in
a change in control of us.
Under the employment agreements, an officer is entitled to benefits, if his
or her employment is terminated by us other than for Cause or upon death,
disability or retirement, or by the officer for Good Reason, each as defined in
the agreements. Under the change in control agreements, benefits are provided
for such terminations only if they occur within two years of a change in
control. Under the employment agreements, benefits would also be provided if
the officer were to terminate his or her employment, regardless of the reason,
within 90 days of a change in control or if, in connection with a change in
control, the officer were to leave our employ and become an employee of a
former subsidiary which is then a separate, publicly traded company. A
termination that would result in payments becoming payable is referred to as
"Qualifying Termination."
The employment agreements provide for annual salaries at the executive's
base salary on September 19, 2000, the date of the agreements, with annual
reviews by the Board of Directors, and
15
participation in all employee benefit and incentive plans, programs and
perquisites offered to our senior executives and reimbursement of business
expenses. In addition to performing their duties, the executives have also
agreed to keep certain company information confidential, not to solicit certain
employees to leave our employ, and not to disparage us or our representatives.
Upon a Qualifying Termination, we, or our successor, must make a lump-sum
cash payment to the officer, in addition to any other compensation to which the
officer is entitled, of two (2.99 in the case of certain officers, including
the named executive officers) times the higher of such officer's base salary
and 90% of the position's job value ("Adjusted Salary"); two (2.99 in the case
of certain officers, including the named executive officers) times the higher
of the highest bonus paid to such officer for the last three fiscal years and
the officer's target bonus ("Bonus Amount"); and for officers not participating
in our executive salary continuation plan, the actuarial equivalent of the
excess of the officer's accrued pension benefits, computed as if the officer
had two additional years of benefit accrual service, over the officer's vested
accrued pension benefits utilizing the officer's current salary without regard
for any salary limits imposed for qualified pension plans.
In addition, we must offer health, disability and life insurance coverage
to the officer and his or her dependents on the same terms and conditions that
existed immediately prior to the termination for two (three in the case of
certain officers, including the named executive officers) years, or, if
earlier, until such officer is covered by equivalent benefits, continuation of
financial and legal counseling services, participation in our matching gift
program for two (three in the case of certain officers, including the named
executive officers) additional years, and outplacement services. The employment
agreements also provide for additional payments, if required, to make the
individuals whole for any excise tax imposed under Section 4999 of the Internal
Revenue Code, payment of certain relocation costs within eighteen months of the
officer's termination of employment, and provision of retiree medical benefits.
In the event of a Qualifying Termination, dividend equivalents, restricted
share units and other stock based incentives or compensation accelerate and
vest and restrictions or performance criteria lapse.
Our supplemental retirement plan described under "Annual Pension Benefit
from Qualified and Non-Qualified Plans" provides supplemental retirement
benefits to designated participants, including the named executive officers.
The plan provides in the event of a change in control, all active participants
in the plan will be deemed to be 65 years of age for purposes of determining
the maximum percentage of retirement benefits and 100% vesting of such benefits
with benefits commencing not earlier than age 50. In addition, the plan
provides for the funding of the plan benefits through our contributions into a
rabbi trust under certain circumstances, including a change in control. The
employment agreements for six executive officers, including the named executive
officers, provide that full benefits under the plan shall commence immediately
upon a Qualifying Termination and shall be calculated using the officer's
Adjusted Salary and Bonus Amount.
Under the employment agreements, if the officer is entitled to benefits
under any split dollar life insurance agreement, a Qualifying Termination will
result in the vesting of the base amount benefit (as defined in the split
dollar agreement) under the program. Upon a Qualifying Termination, benefits
payable under the split dollar life insurance program are required to be
deposited into a rabbi trust. In addition, any unvested deferred compensation
will be fully vested and with respect to Mr. Terrill's benefits under deferred
compensation agreements with our Kansas Gas and Electric Company subsidiary,
the benefits are payable upon a Qualifying Termination.
16
"Cause" is defined as the willful and continued failure to perform
substantially his or her duties or the willful engaging in illegal conduct
demonstrably and materially injurious to us. "Good Reason" is defined as any
material and adverse change in the executive's position or responsibilities; a
reduction in base salary, annual target bonus opportunity or targeted long term
incentive value; relocation; reduction in benefits; or termination of the
agreement.
Mr. Lake's agreement with us relating to his initial employment provides
for a payment of $1 million on September 15, 2002 if he remains in our employ
or is terminated by us without Cause or by Mr. Lake for Good Reason. Upon a
Qualifying Termination, this payment will become due on the date of
termination.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Between Westar and Us
In connection with the proposed transaction with PNM, Westar has entered
into an asset allocation and separation agreement (the "allocation agreement")
with us that provides for the allocation of assets and liabilities between
Westar and us and provides for a proposed rights offering in which Westar
proposes to issue a portion of its common stock to our shareholders. The
allocation agreement divides non-tax assets and liabilities substantially on a
corporate organizational basis such that the assets and liabilities of Westar
and its subsidiaries (as reflected on its balance sheet) will remain assets and
liabilities of Westar and its subsidiaries and our assets and liabilities and
those of our subsidiaries (other than Westar and its subsidiaries) will remain
assets and liabilities of ours. Tax assets and liabilities are not treated in
the allocation agreement, but rather are addressed in a separate tax
disaffiliation agreement (which is described below). Certain additional assets
and liabilities relating to the unregulated business will be transferred from
us to Westar, including certain smaller companies, certain legal claims, and
certain interests in leased facilities. Westar will also assume liability for
any discontinued non-utility operations from and after January 1, 1995. We will
retain all liabilities associated with our former gas business and electric
utility business, including any marketing and other related service businesses.
The Kansas Corporation Commission has opened a docket to review these and other
agreements between Westar and us and has issued an order suspending certain
actions.
The allocation agreement also provides the terms for repayment of a
receivable in the amount of approximately $116.4 million at May 31, 2001 we
owed to Westar. The receivable will be increased by additional cash advances by
Westar to us, including the advance of the net proceeds of the proposed rights
offering. Immediately prior to the closing of the PNM merger, Westar will elect
to convert the then outstanding balance of the receivable into: (1) our
convertible preference stock; (2) shares of Westar's common stock currently
held by us at a price based on the average market prices for the twenty trading
days preceding conversion, but not less than the subscription price for the
rights offering or (3) shares of our common stock at a price based on the
average market prices for the twenty trading days preceding conversion. On
February 28, 2001, Westar converted $350 million of the then outstanding
balance of the receivable into approximately 14.4 million shares of our common
stock, representing approximately 17% of our outstanding common stock.
Under the allocation agreement and proposed transaction with PNM,
immediately prior to the closing of the proposed PNM merger, we will split-off
our then interest in Westar to our shareholders. Prior to the split-off, we and
Westar will enter into a tax disaffiliation agreement, which will set forth
each party's rights and obligations with respect to payments and refunds, if
any, of federal taxes for periods before and after the split-off and related
matters such as the filing of federal tax returns and the
17
conduct of audits or other proceedings involving claims made by the Internal
Revenue Service. This agreement will remain in force for the full period of any
statute of limitations. Under the tax disaffiliation agreement, Westar will
assume sole responsibility of any (i) tax liability assessed to the extent
attributable to Westar or any corporation that will be a member of the
consolidated group of which Westar is the common parent immediately after the
distribution (the "Westar Group") and (ii) tax liability resulting from the
breach by Westar or any member of the Westar Group of certain representations
and covenants that Westar has provided to us relating to the distribution. An
indemnity arises under the tax disaffiliation agreement only to the extent that
the tax liability results in a cash payment to a tax authority.
We plan to provide administrative services to Westar under a shared
services agreement which will be entered into immediately following the closing
of the proposed rights offering. This agreement may be terminated by giving one
year's notice, which following the closing of the PNM merger may not be given
prior to the first anniversary of the closing of the PNM merger. The services
to be provided by us through our employees will include financial reporting,
accounting, legal, auditing, tax, office services, payroll and human resources,
as well as consulting services. Westar will pay us for these services at
various hourly charges and negotiated fees and will reimburse us for
out-of-pocket expenses.
Westar has entered into a stock purchase option agreement with us that
grants Westar an option to purchase our interest in an electric power plant
near Joplin, Missouri under joint development with the Empire District Electric
Company. Our interest in the power plant is held by Westar Generating, Inc.,
our subsidiary. The purchase option granted is for a period of three years from
execution, subject to two optional one-year extension periods.
Westar may extend loans, or guarantee payment of loans being extended by a
bank or other lender, in an aggregate amount not to exceed $20 million for the
purchase of shares of its common stock upon the exercise of rights by its
officers and directors and certain of our officers and directors.
Transactions Between Protection One and Us
Pursuant to a contribution agreement between Protection One and us, we have
agreed to certain arrangements relating to the election of directors of
Protection One. In addition, during the 10-year period following November 24,
1997, a merger or a sale of all or substantially all of the assets of
Protection One involving our or any of our affiliates generally will require
the prior approval of a majority of the "Independent Directors" (as defined in
the contribution agreement), and we may not acquire more than 85% of the
outstanding shares of common stock or other voting securities of Protection One
except under specified circumstances and subject to specified limitations.
A tax sharing agreement between Protection One and us provides for our
payment to Protection One for tax benefits utilized by us. Accordingly, a
receivable balance of $3.2 million at December 31, 2000 from us reflects a
portion of the tax benefit that will be utilized by us on our 2000 consolidated
income tax return. During 2000, Protection One received $20.3 million and $28.6
million from us under the tax sharing agreement for the tax years 1998 and
1999, respectively. The $20.3 million payment, together with a payment for an
intercompany receivable of $8.9 million, was comprised of certain of
Monitoring's debt securities that Westar had acquired with a market value of
approximately $15 million and a promissory note in the principal amount of
approximately $14.2 million, payable in cash or the delivery of certain of
Monitoring's debt securities. Protection One received from Westar certain of
Monitoring's debt securities with a market value of approximately $13.8 million
as payment against the promissory note and the balance of the note was repaid
in cash in 2000.
Protection One is a party to a service agreement with us. Pursuant to this
agreement, we provide administrative services including accounting, human
resources, legal, facilities and technology
18
services. Protection One incurred charges of approximately $7.3 million for the
year ended December 31, 2000, which were based upon various hourly charges,
negotiated fees and out-of-pocket expenses. At December 31, 2000, Protection
One had a net intercompany balance due to us of $1.2 million for these
services.
Protection One has entered into a lease agreement with us for the use of
office space owned or leased by us. During 2000, we billed Protection One
approximately $325,000 for office space under this agreement.
Transactions Between Westar and Our Subsidiaries
On February 29, 2000, Protection One sold its European operations and
certain investments to Westar. The consideration received was approximately
$244 million, comprised of approximately $183 million in cash and certain
outstanding debt securities of Protection One Alarm Monitoring, Inc.
("Monitoring"), a wholly owned subsidiary of Protection One, with a market
value of approximately $61 million. Westar paid approximately $102 million for
the aggregate of approximately $76 million of Monitoring's debt securities paid
to Protection One. During 1998, Protection One paid an aggregate of
approximately $228.5 million for the European operations and other investments
subsequently sold to Westar. Westar agreed to pay Protection One a portion of
the net gain, if any, on a subsequent sale of the business on a declining basis
over the four years following the date of the purchase agreement. Based on the
recommendation of a special committee of the board of directors, the sale of
Protection One's European operations was approved by the Protection One board
of directors, excluding Carl M. Koupal, Jr. and Douglas T. Lake. The special
committee, comprised of Maria de Lourdes Duke, Ben M. Enis and James Q. Wilson,
received a fairness opinion from an investment banker with regard to the sale
of the European operations.
Protection One had outstanding borrowings under its Senior Credit Facility
with Westar of $44 million on December 31, 2000. Protection One used the $183
million in cash proceeds from the sale of its European operations to reduce
outstanding borrowings under the facility. For the year ended December 31,
2000, interest expense of $7.6 million was accrued on borrowings under the
facility and total interest payments of $8.1 million were made. In December
2000, the Senior Credit Facility was amended to extend the maturity date from
January 2, 2001 to March 2, 2001 and to increase the interest rate to reflect
current market conditions. On February 28, 2001, the Senior Credit Facility was
further amended, among other things, to further extend the maturity date to
January 2, 2002. In connection with the amendments, Protection One paid Westar
a $1.15 million amendment fee.
Protection One acquired 5,152,113 shares of its common stock from Westar in
2000 for a combined cost of $3.4 million, which maintained Westar'
proportionate ownership interest of the Protection One's common stock after
Protection One acquired 1,674,700 shares of its common stock in open market
transactions. During the first quarter of 2001, Protection One purchased
11,532,104 shares of its common stock from Westar for $12.6 million after
Protection One acquired 2,180,600 shares of its common stock for $2.4 million
in open market transactions.
Protection One purchased from Westar $37.6 million face value of
Monitoring's debt securities for $25 million during 2000. The original cost of
the debt securities to Westar was $21.5 million. During the first quarter of
2001, Protection One purchased from Westar $66.1 million face value of
Monitoring's debt securities for $45.2 million. The original cost of the debt
securities to Westar was $45.6 million. The prices paid by Protection One for
the debt securities were established by the board of directors of Protection
One so as not to exceed the ten day average of the market price for such
19
securities as quoted by a reputable New York broker who makes a market in the
debt securities. Protection One relied on these quotes in order to meet the
guidelines set by the Protection One board of directors in establishing the
purchase prices.
From January 1, 2001 through March 31, 2001, Protection One purchased
13,712,704 million shares of its outstanding common stock pursuant to its share
repurchase program. Concurrently with these open market purchases, Protection
One purchased 11,532,104 million shares from Westar for $12.6 million, at the
same prices as the market purchases.
Protection One was a party to a marketing agreement with Paradigm Direct
LLC ("Paradigm") which was terminated as of September 30, 2000. Westar had a
40% ownership interest in Paradigm. Protection One expensed $4.3 million for
the year ended December 31, 2000 for marketing services provided by Paradigm
pursuant to the marketing agreement.
Protection One compensates Westar Aviation, Inc. ("Westar Aviation"), a
wholly owned subsidiary of Westar, for the use of corporate aircraft. During
2000, Westar Aviation billed Protection One approximately $110,000 for aircraft
use.
PERFORMANCE GRAPH
[GRAPHIC]
[Performance Graph]
Western Resources S&P 500 S&P Electrics
12/31/95 100 100 100
12/31/96 98.98 122.96 99.67
12/31/97 146.76 163.98 125.9
12/31/98 119.95 210.84 145.46
12/31/99 66.87 255.21 117.19
12/31/2000 105.9 231.98 179.9
* Assumes $100 invested on December 31, 1995. Total return assumes
reinvestment of dividends.
20
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange Commission require our directors
and executive officers to file reports of their holdings and transactions in
our common stock. Based solely on our review of the copies of reports filed for
the year and written representations that no other reports were required, we
believe that all required filings were made on a timely basis in 2000.
Shareholder Proposals
The 2002 Annual Meeting of Shareholders is tentatively scheduled to be held
on July 9, 2002. We will not hold an annual meeting in 2002 if the closing of
the PNM transaction occurs prior to the annual meeting. Specific proposals of
shareholders intended to be presented at the 2002 meeting must comply with the
requirements of the Exchange Act and our amended Restated Articles of
Incorporation. In order to be included in our 2002 proxy materials mailed to
shareholders, shareholder proposals must be received by our Corporate Secretary
by February 12, 2002. If a shareholder intends to present a proposal at the
2002 annual meeting other than pursuant to Rule 14a-8 under the Exchange Act,
the proposal must be received by our Corporate Secretary between May 20, 2002
and June 4, 2002 assuming the annual meeting is held on July 9, 2002. If the
proposal is not received during such period, the proxies designated by our
Board of Directors for the 2002 annual meeting may vote in their discretion on
any such proposal any shares for which they have been appointed proxies without
mention of such matter in the proxy statement for such meeting or on the proxy
card for such meeting.
Independent Public Accountants
Arthur Andersen LLP has acted as our independent auditors since 1958, and
has been recommended by the Audit and Finance Committee, approved by the Board
of Directors and engaged by us as our independent public accountants for 2001.
Representatives of Arthur Andersen LLP will be in attendance at the annual
meeting, will be available to respond to appropriate questions from
shareholders, and will be permitted to make a statement at the meeting if they
desire to do so.
In addition to performing the audit of our consolidated financial
statements, Arthur Andersen LLP provided various other services during 2000.
The aggregate fees billed for 2000 for each of the following categories of
services are set forth below:
Audit fees............................................. $1,351,074
Financial information systems design and implementation 0
All other fees......................................... 2,689,380
----------
Total fees............................................. $4,040,454
"All other fees" includes consultation and audit work performed with
respect to strategic restructuring and business transactions, general and
subsidiary accounting matters, compensation matters and benefit plans of us and
our subsidiaries, and tax-related matters.
The Audit and Finance Committee reviews the services provided by Arthur
Andersen LLP and the related fees and has considered whether the provision of
non-audit services is compatible with maintaining the independence of Arthur
Andersen LLP.
21
Annual Report to Shareholders
Our Annual Report for the year ended December 31, 2000 was mailed to
shareholders on or about April 30, 2001. The Annual Report contains financial
statements audited by Arthur Andersen LLP, independent public accountants.
Other Business
Under the laws of Kansas, where we are incorporated, no business other than
procedural matters may be raised at the annual meeting unless proper notice to
the shareholders has been given. We do not expect any business to come up for
shareholder vote at the meeting other than the election of directors. If,
however, any other matters properly come before the meeting, your proxy card
authorizes the persons named as proxies to vote in accordance with their
judgment on such other matters.
Questions
If you have any questions or need more information about the annual
meeting, write to:
Shareholder Services
Western Resources, Inc.
P.O. Box 750320
Topeka, Kansas 66675-0320
or call us at (800) 527-2495 or (785) 575-6394 in the Topeka area.
By Order of the Board of Directors,
/s/ Larry Irick
Larry D. Irick
Corporate Secretary
Topeka, Kansas
June 12, 2001
22
Appendix A
AUDIT AND FINANCE COMMITTEE CHARTER
WESTERN RESOURCES, INC.
BOARD OF DIRECTORS
PURPOSE:
The Audit and Finance Committee (the Committee) will assist the Board of
Directors in fulfilling their responsibilities to the shareholders, potential
shareholders, government entities, and investment community, relating to
corporate accounting, reporting practices, and the quality and integrity of the
Company's financial reports. To achieve this mission, it is essential that the
Committee maintain free, independent, and candid communication among the
directors, independent auditors, internal auditors, and financial management of
the Company.
ORGANIZATION:
The Committee will be composed of a minimum of three outside directors who are
independent of management and are free of any relationship that would interfere
with their exercise of independent judgment as a Committee member. Members are
appointed to the Committee by the Chairman of the Board and confirmed by
majority vote of the Board of Directors. All members of the Committee shall
have a basic understanding of finance and accounting practices and be able to
read and understand fundamental financial statements. At least one member of
the Committee shall have accounting or related financial management expertise.
The Committee shall meet a minimum of three times a year or more frequently as
circumstances dictate. The agenda, operating methods, and any other business of
the Committee shall be determined by the Committee members, in harmony with the
requirements of the Board of Directors, reflecting current needs and
requirements. The Committee will receive staff support from the Company as
needed with the Internal Audit Director as primary operating liaison. The
Committee should meet privately in executive session at least annually with
management, the Internal Audit Director, the independent auditors, and as a
committee to discuss any matters that the Committee or each of these groups
believe should be discussed.
AUTHORITY:
The Committee is granted the authority to have full and independent access to
any information relating to any activity within the scope of its duties and
responsibilities. All employees are directed to cooperate with members of the
Committee. The Committee is empowered to direct the Internal Audit function,
management, or retain persons having special competence as necessary to assist
the Committee in fulfilling its responsibility.
RESPONSIBILITIES:
In acting on its charter, the Committee believes that its policies and
procedures should remain flexible, adapting to changing needs and conditions
and thus allowing the Committee to inform the Board of Directors about
significant accounting and reporting practices of the Company. In its oversight
capacity, though, the Committee is neither intended or equipped to guarantee
with certainty the
A-1
accuracy and quality of the Company's financial statements and accounting
practices. It remains the responsibility first of management, internal
auditors, external auditors and other financial and accounting professionals to
provide information that is appropriate, accurate, and complete.
To carry out its responsibilities, the Committee will:
Recommend to the Board of Directors the independent auditors to conduct the
annual audit of the financial statements of the Company and its subsidiaries.
The independent auditors are ultimately accountable to the Audit Committee and
the Board of Directors.
In consultation with management, the independent auditors, and the internal
auditors, consider the integrity of the Company's financial reporting processes
and controls.
Review the annual audited financial statements contained in the annual report
with management and the independent auditors to determine that the independent
auditors are satisfied with the disclosure and content of the financial
statements to be presented to the shareholders.
Review and discuss with the independent auditors all significant relationships
they have with the Company. The independent auditors will submit a formal
written statement each year regarding relationships and services which may
affect independence and objectivity.
Review the independent auditors' annual audit plan.
Discuss significant matters addressed at each Committee meeting with the Board
of Directors.
Examine any matter brought to its attention, and within the scope of its
duties, with the power to retain counsel and/or other particular expertise for
this purpose if, in its judgment, it is appropriate.
Annually review this charter. Submit the charter to the Board of Directors for
approval and amend this document as needed for changes in regulations or
applicable stock exchange requirements.
Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board of Directors deems
necessary or appropriate.
FINANCING DUTIES AND RESPONSIBILITIES:
-- Review management's financing strategy and plans including:
-- Projected levels of short-term borrowing and credit line requirements.
-- Projected need for amounts and types of permanent financing.
-- Short- and long-term investment activities.
-- Review financial transactions requiring Board approval and recommend
approval to the Board.
A-2
WESTERN RESOURCES, INC.
Solicited by the Board of Directors for use at the Annual Meeting of
Shareholders of Western Resources, Inc. - July 10, 2001 at 11:00 A.M. at the
State Line Power Plant near Joplin, Missouri.
The undersigned hereby appoints Larry D. Irick, Richard D. Terrill and
David C. Wittig, and any one or more of them, attorneys and proxies, with the
full power of substitution and revocation in each, for and on behalf of the
undersigned, and with all the powers the undersigned would possess if personally
present, including discretionary power upon other matters properly coming before
the meeting, to vote at the above Annual Meeting and any adjournment(s) thereof
all shares of Common and Preferred Stock of Western Resources, Inc. that the
undersigned would be entitled to vote at such meeting. This proxy also provides
voting instructions for shares held by the undersigned in the Western Resources,
Inc. 401(k) Employees' Savings Plan and the Employee Stock Purchase Plan. The
undersigned acknowledges receipt of the Notice and Proxy Statement dated June
12, 2001.
The shares represented by this proxy will be voted as directed by the
shareholder. If no direction is given when the duly executed proxy is returned,
such shares will be voted FOR all proposals.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
Forward this card to Corporate Election Services:
P.O. Box 3230, Pittsburgh, PA 15230
- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------
"E" IS FOR EASY...AND ELECTRONIC
We encourage you to vote electronically, either by touch tone telephone or
through the Internet. Electronic methods cut down on your paperwork and also
reduces our printing and postage costs which achieves greater shareholder value.
If you would like electronic access to the Annual Report and Proxy Statement
next year and not receive them by mail, be sure to indicate this when you vote.
Remember, whether or not you are attending the meeting, we encourage you to vote
your shares. Thank you for being a Western Resources, Inc. Shareholder.
--------------------------------------------------------------------------------
WHERE AND WHEN
[Western Resources logo]
Annual Meeting of Shareholders
Tuesday, July 10, 2001
11:00 a.m.
State Line Power Plant
2299 South State Line Road
Near Joplin, Missouri
Please mark
your votes as
indicated in
this example X
ELECTION OF DIRECTORS: Nominees for terms ending in 2004:
01 Gene A. Budig [_] I (WE) WILL ATTEND THE ANNUAL MEETING.
02 John C. Nettels, Jr. [_] I (WE) HAVE INTERNET ACCESS AND CONSENT TO
ACCESS FUTURE NOTICES OF ANNUAL MEETINGS,
PROXY STATEMENTS, AND ANNUAL REPORTS
ELECTRONICALLY ON THE INTERNET INSTEAD OF BY
MAIL.
03 David C. Wittig [_] ANOTHER COPY OF THE ANNUAL REPORT IS
DELIVERED TO THIS ADDRESS SO I (WE) CONSENT
TO DISCONTINUE RECEIVING THE ANNUAL REPORT
FOR THIS ACCOUNT.
FOR WITHHOLD FOR ALL
ALL FOR ALL EXCEPT(*)
[_] [_] [_]
(*) TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK AN (X) IN THE
"For All Except" BOX AND WRITE NUMBER(S) OF NOMINEE(S) BELOW.
USE NUMBER ONLY
--------------------------------
Dated: , 2001
-----------------------------------
------------------------------------------------
SIGNATURE
------------------------------------------------
SIGNATURE
Please mark, date and sign as your name(s) appear hereon
and return in the enclosed envelope. Give full title if
signing for a corporation or as attorney, executor,
administrator, guardian or in any other capacity.
- FOLD AND DETACH HERE -
[Western Resources logo]
Thank you for being a Western Resources, Inc. Shareholder.
Please take a moment now to vote your shares for the upcoming Annual Meeting of
Shareholders. You can vote in one of three ways:
OPTION #1: Vote by Telephone: Call toll free 1-800-250-9081 using a touch tone
telephone 24 hours a day, 7 days a week, and follow the simple
prompts. You will be asked to enter the Control Number below.
If you wish to vote "For All Directors" as recommended by the Board
of Directors, simply press 1. Please wait for your confirmation.
If you do not wish to vote as the Board recommends, you need only
respond to a few simple prompts. There is no charge for this call in
the United States.
Your Control Number is
-------------------
For Telephone/Internet Voting
Your telephone or Internet vote authorizes the named proxies
to vote your shares in the same manner as if you had marked,
signed and returned your proxy card.
OPTION #2: Vote by Internet: Access http://www.votefast.com and respond to a
few simple prompts after entering the Control Number above.
OPTION #3: Vote by Mail: If you do not desire to vote by touch tone telephone
or the Internet, please mark, sign, date and return the proxy card
above.
Your telephone or Internet vote must be received by 10:59 p.m.
CDT on July 9, 2001 to be counted in the final tabulation.
If you vote by telephone or Internet, please do not mail this card.