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EXHIBIT 99.1
BEFORE THE
STATE CORPORATION COMMISSION
OF THE STATE OF KANSAS
In the Matter of the Investigation of Actions )
of Western Resources, Inc. to Separate its ) Docket No. 01-WSRE-949-GIE
Jurisdictional Electric Public Utility Business )
from its Unregulated Businesses )
LIMITED STIPULATION AND AGREEMENT
The Kansas Corporation Commission Staff ("Staff"), Protection One, Inc.
("Protection One"), Westar Energy, Inc., formerly known as Western Resources,
Inc. ("Westar Energy"), Westar Industries, Inc., a wholly-owned subsidiary of
Westar Energy ("Westar Industries"), the Citizens' Utility Ratepayer Board
("CURB"), MBIA Insurance Corporation ("MBIA"), and the Kansas Industrial
Consumers ("KIC"), (collectively, the "Parties") have reached the following
stipulations and agreements. This limited Stipulation and Agreement is submitted
to the Kansas Corporation Commission ("Commission") by the above-mentioned
Parties for approval pursuant to the terms set forth herein.
I. DESCRIPTION OF THE PROCEEDINGS
1. Westar Energy, and its wholly-owned subsidiary, Kansas Gas and
Electric Company ("KGE"), doing business as Westar Energy, provide retail
electric service to approximately 647,000 customers in the state of Kansas.
Westar Energy and KGE are certificated electric public utilities subject to the
jurisdiction of the Commission pursuant to K.S.A. Sections 66-104 and 66-131.
2. On May 8, 2001, the Commission entered its Order Initiating
Investigation that established:
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an investigation into whether the participation by WRI and its
affiliates in the transactions and relationships described herein,
and any other transactions or relationships which may emerge from
the investigation, is consistent with Kansas law, including WRI's
and KG&E's statutory obligations to provide efficient and reliable
service to Kansas customers at just and reasonable rates.
May 8, 2001 Order at paragraph 18.
3. On July 20, 2001, the Commission entered an Order that determined
that Westar Energy's participation in certain restructuring transactions
described in that Order was not consistent with the public interest and was
contrary to Kansas law. The Commission made permanent the prohibition on
consummating those transactions set forth in the Commission's July 20, 2001
Order at paragraphs 13-20 and specifically declared that the Asset Allocation
and Separation Agreement between Westar Energy and Westar Industries was null
and void. July 20, 2001 Order at ordering paragraphs (B)-(F).
4. The Commission's July 20, 2001 Order further required Westar
Energy to submit a financial plan to restore Westar Energy to financial health,
to achieve a balanced capital structure, and to protect ratepayers from the
risks of nonutility investments. SEE July 20, 2001 Order at ordering paragraph
(G). On October 17, 2001, the Commission issued a further Order requiring that
Westar Energy file its financial plan by November 6, 2001. On November 6, 2001,
Westar Energy submitted its financial plan. On January 29, 2002, Westar Energy
filed an amended financial plan.
5. On May 23, 2002, Staff, CURB, KIC, and MBIA filed direct testimony
pursuant to the Commission's procedural order in response to Westar Energy's
Amended Financial Plan and/or to propose other alternatives. A consistent
element in the testimony filed by Staff, CURB, KIC and MBIA was a recommendation
that Westar Energy and Westar Industries, among other
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things, sell its Protection One stock, and to use such sale proceeds to retire
or repurchase the debt of Westar Energy's electric utility business.
6. On November 8, 2002 the Commission issued Order No. 51 in which it
stated at paragraph 98 that "the public interest requires that the Commission
order WRI to reduce its consolidated debt." The Commission further stated that,
as requested by Westar Energy, it would "allow management" the "discretion to
select the appropriate mix of debt-reducing actions," subject to Commission
review, "so as to assure a combination of actions that is consistent with the
principles and prohibitions in this Order." Order No. 51 at paragraph 100. Order
No. 51 also made clear that "the sale of some or all of WRI's Protection One
stock can play a significant role in the reduction of WRI's consolidated debt"
and therefore should be considered as "part of the debt reduction mix." ID. at
paragraph 104.
7. On December 23, 2002, the Commission issued Order No. 55, Order on
Petitions for Reconsideration and Clarification, in which it established certain
additional conditions and requirements. Specifically, the Commission made clear
that Westar Energy was obligated to reduce debt and that it expected that the
Company would "consider all its options, including the obvious option of selling
Protection One, a company which is not essential to Westar Energy's utility
business." ID. at paragraph 38.
8. U.S.D 259, KIC, MBIA and Staff filed Responses to the Petitions
for Reconsideration filed by Westar Energy and Protection One.
9. On January 10, 2003, Protection One filed its PETITION FOR PARTIAL
STAY AND LIMITED RECONSIDERATION OF COMMISSION ORDER NO. 55 ("Reconsideration
Request"), seeking reconsideration of certain aspects of Order No. 55.
Specifically, Protection One requested that "the Commission reconsider and
revise Order No. 55 so that it clearly does not interfere with
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Protection One's contractual arrangements" with Westar Energy and Westar
Industries. Reconsideration Request at 1. Protection One discussed several such
arrangements in detail, including but not limited to its tax-sharing agreement
with Westar Energy ("Tax Sharing Agreement") and its senior credit facility with
Westar Industries ("Credit Facility").
10. Since the filing of Protection One's Reconsideration Request, the
Protection One Board of Directors has appointed a special committee of
independent directors ("Special Committee"). On February 5, 2003, in a joint
announcement with Westar Energy, Protection One announced that the Special
Committee hired Bear, Stearns & Co. Inc., an investment banking firm, to help
the Board of Directors explore Protection One's strategic alternatives,
including the possible sale of the company. Westar Energy has separately
retained Lehman Brothers Inc. to advise Westar Energy as to its investment in
Protection One.
11. Also since the January 10 filing of Protection One's
Reconsideration Request, the Parties have engaged in extensive discussions in an
attempt to reach a partial resolution of the issues raised in Protection One's
Reconsideration Request.
12. As a result of those discussions, together with the actions taken
by Protection One's Board of Directors, and the joint announcement with Westar
Energy, the signatories to this Agreement have agreed to the terms and
conditions contained in this Partial Stipulation and Agreement. This limited
Stipulation and Agreement concerns only Westar Energy's repurchase at market
prices of all of the common and preferred stock of Westar Energy owned by
Protection One ("Repurchase"). All other issues in this proceeding, except as
otherwise provided herein, shall remain subject to further Commission
proceedings as may be established by future Commission orders. The parties note
that other issues in this proceeding may be resolved by the continuing
discussions of the parties. If any or all of the parties reach consensus on
other issues
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to this proceeding, the parties will file such further partial stipulations and
agreements as necessary.
II. TERMS OF THE LIMITED STIPULATION AND AGREEMENT
13. The Parties, including specifically Protection One, Westar Energy
and Westar Industries, agree that Westar Energy will repurchase at market prices
all of the common stock and preferred stock of Westar Energy owned by Protection
One, no later than February 14, 2003. As interpreted by the Commission Staff and
other intervening parties, the interim standstill provisions established in
paragraph 113 of the Commission's November 8, 2002 Order No. 51 in this
proceeding, and affirmed and clarified in paragraphs 70-77 of the Commission's
Order No. 55, Westar Energy must seek Commission approval before entering into
an affiliate transaction with any Westar Energy affiliate, where the value of
goods or services exchanged exceeds $100,000. All of the signatories to this
Agreement request that the Commission issue an order as soon as practicable
approving the repurchase by Westar Energy of its common and preferred stock
owned by Protection One.
14. All Parties agree that there are tangible benefits resulting from
the sale by Protection One and the repurchase by Westar Energy of Protecton
One's interest in the common and preferred stock of Westar Energy, as
contemplated by this Limited Stipulation and Agreement. First, Westar Energy has
the opportunity to re-acquire its common and preferred stock at a market price.
Second, this transaction represents a purchase of assets by Westar Energy from
Protection One, rather than a simple transfer of funds from Westar Energy to
Protection One. Finally, Protection One, through the sale of these non-core
assets, will gain an immediate liquidity improvement while continuing to engage
in good faith discussions with the other Parties to this agreement on issues
related to Protection One. The Parties agree that this stipulation is entered
into for the sole purpose of allowing Protection One such liquidity
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improvements while maintaining the opportunity for all Parties to engage in
further good faith negotiations regarding issues related to the Protection One
Credit Facility, the Protection One Tax Sharing Agreement, and other issues that
are the subject of further proceedings before the Commission. In that the
Parties were unable to reach a global agreement at this time related to
Protection One, but desire to continue negotiations, the Parties agree that the
limited transaction represented in this Limited Stipulation and Agreement
provides tangible benefits to Westar Energy and Protection One, while allowing
additional time for negotiations between the Parties to continue. As such, the
Parties agree that the Commission can find that the terms and conditions set
forth in this Limited Stipulation and Agreement are in the public interest and
that the Limited Stipulation and Agreements should be approved.
III. RESERVATIONS
15. Except for authorization and approval of the above-mentioned
actions, all issues and proposals in this docket and the positions taken by the
Parties regarding those issues and proposals have not been settled by this
Limited Stipulation and Agreement and are still subject to Commission review. By
entering into this Limited Stipulation and Agreement, none of the signatories to
this Agreement have waived any of their arguments or positions in this case, or
in any other case, nor have they acquiesced in any of the arguments or positions
raised by any of the other Parties. The fact that the Parties to this Limited
Stipulation and Agreement have all agreed to the above-mentioned actions shall
not be used as evidence regarding any remaining issue or contested matter in
this proceeding.
16. This Partial Stipulation and Agreement represents a negotiated
settlement for the sole purpose of disposing of one of the issues in this case,
I.E., the repurchase of Westar Energy stock from Protection One, and none of the
signatories of this Limited Stipulation and
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Agreement shall be prejudiced or bound in any manner by the terms of the Limited
Stipulation and Agreement in any other proceeding or in this proceeding should
the Limited Stipulation and Agreement not be accepted by the Commission in its
entirety.
17. Except for authorization and approval of the action described
above, Protection One, Westar Energy, Westar Industries, Staff, CURB, MBIA, and
KIC specifically reserve the right to raise all issues pertaining to Westar
Energy's proposed restructuring plan and other issues in this case.
18. Except as otherwise specifically provided herein, the Parties to
this Limited Stipulation and Agreement shall not be deemed to have approved or
acquiesced to any principle, underlying or allegedly underlying, this Limited
Stipulation and Agreement. Further, this Limited Stipulation and Agreement does
not foreclose any of the Parties from challenging the appropriateness of any of
the other provisions contained in Westar Energy's proposed restructuring plan.
19. The signatories to this Limited Stipulation and Agreement reserve
their right to present witnesses, cross-examine witnesses, and present oral
argument or written briefs to the Commission in support of this Limited
Stipulation and Agreement in the event a hearing on the Joint Motion to approve
this Limited Stipulation and Agreement is conducted. In the event the Commission
accepts the specific terms of this Limited Stipulation and Agreement, the
signatories to this Limited Stipulation and Agreement waive their rights to
request reconsideration of a Commission order approving this Limited Stipulation
and Agreement and waive their rights to seek judicial review of any such order.
The signatories to this Limited Stipulation and Agreement acknowledge that an
order issued by the Commission approving this
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Limited Stipulation and Agreement would constitute a final, non-appealable order
as to the issues agreed upon herein.
20. The terms set forth in this Limited Stipulation and Agreement are
the result of negotiations among the signatory Parties. Because the terms are
interdependent, if the Commission does not approve and adopt all of the terms of
this Limited Stipulation and Agreement, this Limited Stipulation and Agreement
shall be voidable and no signatory shall be bound by any of the agreements or
provisions hereof.
21. This Limited Stipulation and Agreement may be executed in several
counterparts and all so executed shall constitute but one and the same
instrument binding all Parties hereto, notwithstanding that all of the Parties
are not signatory to the same counterpart, each of which shall be fully
effective as an original.
WHEREFORE, on behalf of their respective clients, the undersigned
attorneys respectfully request that the Commission approve this Limited
Stipulation and Agreement in its entirety and that the Commission issue an Order
in this matter approving the sale and repurchase of the common and preferred
Westar Energy stock currently held by Protection One, as described above.
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Kansas Corporation Commission Staff
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Protection One, Inc.
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Westar Energy, Inc.
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Westar Industries, Inc.
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Citizens' Utility Ratepayer Board
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MBIA Insurance Corporation
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Kansas Industrial Consumers
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