PROTECTION ONE INC, 424B2, 1998-06-04

PROTECTION ONE INC
424B2, 1998-06-04
MISCELLANEOUS BUSINESS SERVICES

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<PAGE> 1

Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-50383

PROSPECTUS SUPPLEMENT
(To Prospectus dated May 11, 1998)

6,850,000 Shares

[PROTECTION ONE LOGO]
COMMON STOCK

------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
THE COMMON STOCK IS QUOTED ON THE NASDAQ STOCK MARKET UNDER THE SYMBOL "ALRM."
ON JUNE 2, 1998 THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NASDAQ
STOCK MARKET WAS $9 5/8 PER SHARE.
CONCURRENTLY WITH THIS OFFERING, THE COMPANY IS OFFERING TO WESTAR CAPITAL,
INC., A WHOLLY OWNED SUBSIDIARY OF WESTERN RESOURCES, INC., IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
30,650,000 SHARES OF COMMON STOCK AT A PRICE PER SHARE EQUAL TO THE PRICE TO
PUBLIC FOR THE SHARES OFFERED HEREBY. THE CONSUMMATION OF THIS OFFERING IS
CONDITIONED UPON THE CONSUMMATION OF SUCH OFFERING TO WESTAR CAPITAL. IN
ADDITION, WESTAR CAPITAL HAS INDICATED THAT IT WILL PURCHASE FROM THE
UNDERWRITERS APPROXIMATELY 2,350,000 SHARES OF THE COMMON STOCK OFFERED HEREBY.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $9 1/2 A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1)(2) COMPANY(3)
--------- ----------------- -----------
<S> <C> <C> <C>
Per Share......................... $9.50 $.50 $9.00
Total(4).......................... $65,075,000 $3,425,000 $61,650,000
</TABLE>

- ---------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Commissions will be paid from cash on hand. The Underwriters have agreed
that the underwriting commission payable with respect to shares of
Common Stock offered hereby that are purchased by Westar Capital shall
be $.285 a share, resulting in proceeds to Company of $9.215 a share.
(3) Before deducting offering expenses payable by the Company estimated at
$800,000.
(4) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,027,500 additional shares of Common Stock at the price to public for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such option in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $74,836,250,
$3,938,750 and $70,897,500, respectively. See "Underwriters." The
Company has also granted to Westar Capital an option, exercisable within
30 days of the date hereof and only upon exercise of the Underwriters'
over-allotment option, to purchase, in a transaction exempt from
registration under the Securities Act of 1933, as amended, up to an
aggregate of 4,597,500 additional shares of Common Stock at the price to
public.
------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Shearman & Sterling, counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made on or about
June 8, 1998 at the offices of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
WHEAT FIRST UNION
June 2, 1998
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 3

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, AGENT OR DEALER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT WITH THE
ACCOMPANYING PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Certain Definitions......................................... S-4
Prospectus Supplement Summary............................... S-5
Risk Factors................................................ S-11
Use of Proceeds............................................. S-17
Capitalization.............................................. S-18
Common Stock Price Range and Dividends...................... S-19
Unaudited Pro Forma Consolidated Financial Information...... S-20
Selected Consolidated Financial Information................. S-24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-27
The Company................................................. S-36
Management.................................................. S-46
Security Ownership of Certain Beneficial Owners and
Management................................................ S-48
Certain United States Tax Consequences to Non-U.S.
Holders................................................... S-49
Underwriters................................................ S-51
Experts..................................................... S-52
Legal Matters............................................... S-52
Index to Financial Statements............................... F-1
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
Forward-Looking Statements.................................. 3
Protection One.............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Use of Proceeds............................................. 4
Description of the Debt Securities.......................... 4
Description of Capital Stock................................ 14
Plan of Distribution........................................ 16
Legal Matters............................................... 17
Experts..................................................... 17
</TABLE>

FORWARD-LOOKING STATEMENTS

This Prospectus Supplement, the accompanying Prospectus and the materials
incorporated by reference herein and therein include "forward-looking
statements" intended to qualify for the safe harbor from liability established
by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements generally can be identified by phrases such as the Company or its
management "believes," "expects," "anticipates," "foresees" or other words or
phrases of similar import. Similarly, statements herein that describe the
Company's business strategy, objectives, plans, intentions or goals also are
forward-looking statements. All such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Important factors that
could cause actual results to differ materially from the expectations of
Protection One include, among others: (i) the impact of the Company's
acquisition strategy on its operations; (ii) the Company's need for additional
capital and history of losses; (iii) subscriber account attrition; (iv) the
risks and uncertainties related to the Company's dealer program; (v) the impact
of accounting differences for account purchases and new installations; (vi) the
possible adverse effect of false alarm ordinances and future government
regulations; (vii) risks of liability from operations; (viii) the Company's
leverage and capital structure; and (ix) competition in the security alarm
industry. For information with respect to these and other factors, see "Risk
Factors." Stockholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking statements.
The forward-looking statements included herein, in the Prospectus and the
materials incorporated herein and therein by reference are made only as of the
date of this Prospectus Supplement and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.

S-3
<PAGE> 4

CERTAIN DEFINITIONS

Unless otherwise indicated or the context otherwise requires, the following
terms have the meanings indicated. "Protection One" or "the Company" means
Protection One, Inc., a Delaware corporation, and its direct and indirect,
wholly owned subsidiaries. "POI" means solely Protection One, Inc., excluding
its subsidiaries. "Monitoring" means Protection One Alarm Monitoring, Inc., a
Delaware corporation and a direct, wholly owned subsidiary of POI. "Westar"
means Westar Security, Inc., a Kansas corporation and direct, wholly owned
subsidiary of POI. "Western Resources" means Western Resources, Inc., a Kansas
corporation. "Westar Capital" means Westar Capital, Inc., a wholly owned
subsidiary of Western Resources and the majority stockholder of POI.

"Combination" means the transaction consummated on November 24, 1997 in
which the Company combined with Westar and WestSec, Inc., a Kansas corporation.
"Western Resources Security Business" or "WRSB" means the security alarm
monitoring business acquired by Protection One from Western Resources in the
Combination. "Centennial Acquisition" means the acquisition of all of the
outstanding capital stock of Centennial Security Holdings, Inc. ("Centennial")
on November 24, 1997. "Network Acquisition" means the acquisition by Protection
One of all of the outstanding capital stock of Network Multi-Family Security
Corporation ("Network") effective January 1, 1998. "Multimedia Acquisition"
means the acquisition by Protection One of all of the outstanding capital stock
of Multimedia Security Services, Inc. ("Multimedia") on March 2, 1998. "Comsec
Acquisition" means the acquisition by Protection One of all of the outstanding
capital stock of Comsec Narragansett Security, Inc. ("Comsec") on March 17,
1998. "1998 Acquisitions" means, collectively, the Network Acquisition, the
Multimedia Acquisition and the Comsec Acquisition.

"WR Placement" means the concurrent offering of approximately 30,650,000 of
Common Stock to Westar Capital by POI in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"). "WR Option"
means the option to be granted to Westar Capital by POI in the purchase
agreement relating to the WR Placement pursuant to which Westar Capital may,
within 30 days of the date of such purchase agreement and only upon exercise of
the Underwriters' over-allotment option, purchase an additional approximately
4,597,500 shares of Common Stock. "Offerings" means, collectively, this Offering
and the WR Placement.

MRR, EBITDA and Adjusted EBITDA. As used in this Prospectus Supplement,
"MRR" means monthly recurring revenue that the Company is entitled to receive
under contracts in effect at the end of the referenced period, "EBITDA" means
earnings before interest, taxes, depreciation and amortization (excluding non-
recurring charges) and "Adjusted EBITDA" means EBITDA adjusted by adding
installation-related expenses and deducting installation revenues. MRR is a term
commonly used in the security alarm industry as a measure of the size of a
company, but not as a measure of profitability or performance, and does not
include any allowance for future attrition or allowance for doubtful accounts.
EBITDA is derived by adding to income (loss) before income taxes the sum of (i)
interest expense, net, (ii) nonrecurring charges, and (iii) amortization of
intangibles and depreciation expense and deducting other (income) expense.
EBITDA and Adjusted EBITDA do not represent cash flow from operations as defined
by generally accepted accounting principles, should not be construed as an
alternative to net income and are indicative neither of the Company's operating
performance nor of cash flows available to fund the Company's cash needs. Items
excluded from EBITDA and Adjusted EBITDA are significant components in
understanding and assessing the Company's financial performance. Management
believes presentation of EBITDA and Adjusted EBITDA enhances an understanding of
the Company's financial condition, results of operations and cash flows because
EBITDA and Adjusted EBITDA are used by the Company to satisfy its debt service
obligations and its capital expenditure and other operational needs, as well as
to provide funds for growth. In addition, EBITDA and Adjusted EBITDA have been
used by senior lenders and subordinated creditors and the investment community
to determine the current borrowing capacity and to estimate the long-term value
of businesses with recurring cash flows from operations and net losses. The
Company also presents Adjusted EBITDA as a measure that the Company believes
provides a more appropriate comparison to EBITDA presented by companies that
grow through a dealer program or acquisitions.

S-4
<PAGE> 5

PROSPECTUS SUPPLEMENT SUMMARY

The following information does not purport to be complete and is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus or incorporated by
reference herein or therein. Unless otherwise indicated, all information in this
Prospectus Supplement assumes (i) no exercise of the Underwriters'
over-allotment option, (ii) that the WR Placement is consummated, (iii) no
exercise of the WR Option and (iv) that Westar Capital purchases 2,350,000
shares of Common Stock in this Offering. Prospective investors should carefully
consider the matters discussed under the caption "Risk Factors."

THE COMPANY

Protection One is a leading provider of security alarm monitoring and
related services in the United States, with approximately 1.2 million
subscribers as of May 1998. The Company has grown rapidly by participating in
both the expansion and the consolidation of the security alarm monitoring
industry.

Protection One's revenues consist primarily of recurring payments for
monitoring and related services. Protection One monitors digital signals
communicated by security systems installed at subscribers' premises. Security
systems are designed to detect burglaries, fires and other events. Through a
network of approximately 60 service branches, the Company provides repair of
security systems and, in select markets, armed response to verify that an actual
emergency, rather than a false alarm, has occurred.

The Company provides its services to the residential, commercial and
wholesale segments of the alarm monitoring market. The Company believes the
residential segment, which represents in excess of 80% of its customer base, is
the most attractive because of its growth prospects, gross margins and size. Of
the Company's customer base, approximately 62% reside in single-family
households and approximately 19% reside in multi-family complexes such as
apartments and condominiums. Commercial subscribers represent 12% of the
customer base and subscribers served by independent alarm dealers that
subcontract monitoring services to the Company represent 7% of the customer
base. Protection One intends to grow its presence in each of these key market
segments, although the residential market remains the most important for the
Company's growth strategy.

RECENT TRANSACTIONS

Since November 1997, Protection One has transformed itself from a regional
company into a nationwide provider of security alarm services through a series
of significant acquisitions, including:

- November 1997 combination with the Western Resources Security Business,
which included approximately 440,000 subscribers;

- November 1997 acquisition of Centennial, which included approximately
50,000 subscribers;

- January 1998 acquisition of Network, the nation's largest provider of
security alarm monitoring services to multi-family dwellings, which
included approximately 200,000 subscribers;

- March 1998 acquisition of Multimedia, which included approximately
147,000 subscribers;

- March 1998 acquisition of Comsec, which included approximately 30,000
subscribers.

Management believes that these transactions accomplished a number of
important objectives, including: (i) expanding the Company's geographic reach,
thereby opening sizable new markets for growth, (ii) increasing the Company's
customer concentration in a number of key markets, (iii) increasing the
Company's size, which allows it to pursue larger acquisitions and affinity
relationships with other national companies and (iv) strengthening the Company's
balance sheet and enhancing its access to capital to fund its growth strategy.

S-5
<PAGE> 6

STRATEGY

Protection One's primary objective is to be the national leader in the
security alarm monitoring market. The Company intends to achieve its objective
by continuing its rapid growth in revenues and EBITDA by adding significant
numbers of new subscribers through its Dealer Program, acquisitions and
strategic alliances. In addition, as subscriber growth continues, the Company
intends to: (i) increase scale and density in key markets to acquire new
subscribers at lower costs and to expand margins through operating efficiencies,
(ii) enhance revenues and margins by offering additional services to new and
existing customers, and (iii) build the preeminent brand name in the security
industry. The principal components of the Company's strategy are as follows:

GENERATE SUBSCRIBER GROWTH THROUGH ACQUISITIONS. The security alarm
monitoring industry is highly fragmented and consolidating. Since its inception,
the Company has completed in excess of 130 acquisitions and, since November
1997, the Company has completed eleven transactions, thereby adding
approximately 885,000 subscribers. In addition, the Company's national presence
has expanded the available acquisition market from approximately 3,000 security
companies in the western United States to approximately 16,000 security
companies nationwide. Acquisitions, in conjunction with the Dealer Program,
enable Protection One to increase subscriber density, which results in
significant operating synergies.

SELL ADDITIONAL SERVICES TO INCREASE REVENUES AND MARGINS. As a means to
increase revenues and margins, Protection One offers new and existing customers
a wide range of additional security services, including extended service
protection, several different types of alarm verification, wireless backup and a
medical identification card. These enhanced services also position Protection
One as a full service provider and give dealers more features to sell in their
solicitation of new customers.

WESTERN RESOURCES

Western Resources, through Westar Capital, owns an approximate 82% equity
interest in Protection One. Western Resources' primary business activities,
which generated $2.2 billion in revenues in 1997, are providing (i) electric
generation, transmission and distribution services to approximately 614,000
customers in Kansas, (ii) natural gas and transmission and distribution services
to approximately 1.4 million customers in Oklahoma and Kansas through its
ownership of a 45% equity interest in ONEOK Inc., and (iii) through Protection
One, security alarm services to 1.2 million subscribers. Western Resources' rate
regulated electric service is provided by KPL, a division of the company, and
Kansas Gas and Electric Company ("KGE"), a wholly owned subsidiary. On March 18,
1998, Western Resources and Kansas City Power & Light ("KCPL") announced a
restructuring of their February 7, 1997 merger agreement, which will result in
the formation of

S-6
<PAGE> 7

Westar Energy, an electric company with more than one million customers. As part
of this combination, Westar Energy will assume all of the electric utility
related assets and liabilities of Western Resources, KCPL and KGE, and Western
Resources will own approximately 80.1% of the outstanding equity of Westar
Energy. See "Risk Factors -- Control by Western Resources."

THE OFFERINGS

Common Stock offered hereby........ 6,850,000 shares

Nasdaq Stock Market Symbol......... ALRM

Use of Proceeds.................... The net proceeds of the Offering are
estimated to be approximately $62.2
million (or $71.4 million if the
Underwriter's over-allotment option is
exercised in full), based on the price to
public of $9.50 per share. The Company
intends to use such net proceeds to
finance the partial redemption of the
Discount Notes (as defined) and, to the
extent there are additional proceeds, to
repay a portion of the Senior Credit
Facility (as defined) and for general
corporate purposes and working capital.

Common Stock offered in the WR
Placement........................ 30,650,000 shares

Use of Proceeds from WR
Placement.......................... The net proceeds from the WR Placement
are estimated to be approximately $290.4
million (or $334.1 million if Westar
Capital exercises the WR Option in full).
The Company intends to use such net
proceeds to repay and permanently reduce
amounts outstanding under the Senior
Credit Facility.

Common Stock to be outstanding
after the Offerings................ 121,331,678 shares(1)
- ---------------

(1) Assumes the Underwriters' over-allotment option and the WR Option are not
exercised. See "Underwriters." Based on 83,831,678 shares of Common Stock
outstanding as of May 27, 1998, excluding (i) 991,044 shares issuable upon
exercise of outstanding employee stock options, (ii) 2,750,238 shares
issuable upon exercise of an option held by Western Resources granted in
connection with the Combination (the "Combination Option"), (iii) 1,286,750
shares issuable upon exercise of outstanding warrants, (iv) 9,245,510 shares
issuable upon conversion of the Convertible Notes (as defined) and (v)
83,998 shares issuable in connection with certain acquisitions.

RISK FACTORS

Prospective investors should carefully consider all the information set
forth and incorporated by reference herein and in the accompanying Prospectus
and, in particular, should evaluate the specific factors set forth under "Risk
Factors" before purchasing any of the shares of Common Stock offered hereby.

S-7
<PAGE> 8

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The summary financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto of the Company and of its accounting predecessor, Westinghouse
Security, set forth elsewhere in this Prospectus Supplement. The summary pro
forma financial information for the year ended December 31, 1997, reflects the
pro forma effects of the Combination, the Centennial Acquisition, the 1998
Acquisitions and the Offerings. The summary pro forma financial information for
the quarter ended March 31, 1998 reflects the pro forma effects of the 1998
Acquisitions and the Offerings. The unaudited pro forma statements of operations
for the year ended December 31, 1997 and the quarter ended March 31, 1998 have
been presented as if the Combination, the Centennial Acquisition, the 1998
Acquisitions and the Offerings were consummated on January 1, 1997. The
unaudited pro forma balance sheet as of March 31, 1998, is presented as if the
Offerings were consummated as of that date.

The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the consolidated financial
position or results of operations for future periods or the results that
actually would have been realized had the Combination, the Centennial
Acquisition, the 1998 Acquisitions and the Offerings been consummated on the
dates specified above. The unaudited pro forma financial information is derived
from the unaudited pro forma condensed financial statements included elsewhere
herein and should be read in conjunction with those statements and the notes
thereto. All amounts are in thousands, except per share and subscriber data,
unless otherwise noted.

<TABLE>
<CAPTION>
WESTINGHOUSE SECURITY
THE COMPANY(A) (PREDECESSOR)(B)
-------------------------------------------------------------- ----------------------
PRO FORMA QUARTER ENDED PRO FORMA 53 52
QUARTER MARCH 31, YEAR YEAR WEEKS WEEKS
ENDED --------------------- ENDED ENDED ENDED ENDED
3/31/98 1998 1997 12/31/97 12/31/97 12/30/96 12/20/95
---------- ---------- -------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 91,869 $ 76,795 $ 32,576 $ 348,719 $ 144,773 $110,881 $ 88,710
Gross profit....................... 61,533 52,802 23,981 241,082 109,104 84,921 71,430
Selling, general and administrative
expense.......................... 23,161 19,435 14,996 132,156 77,203 60,166 50,919
Acquisition and transition
expense.......................... 2,044 2,044 -- 6,464 1,308 101 101
Amortization of intangibles and
depreciation expense............. 26,398 21,429 7,850 100,181 39,822 21,613 17,804
Nonrecurring charges(c)............ -- -- -- -- 40,144 -- --
---------- ---------- -------- ---------- ---------- -------- --------
Operating income (loss)............ 9,930 9,894 1,135 2,281 (49,373) 3,041 2,606
Interest expense, net.............. 8,475 11,135 8,087 36,510 32,900 10,879 12,159
Net income (loss).................. $ 1,112 $ 1,193 $ (4,269) $ (27,884) $ (49,303) $ (4,860) $ (5,923)
Net income (loss) per share........ $ 0.01 $ 0.01 $ (0.06) $ (0.26) $ (0.70) (b) (b)
========== ========== ======== ========== ==========
OTHER OPERATING DATA:
MRR(d)............................. $ 26,128 $ 26,128 $ 9,079 $ 25,824 $ 18,978 $ 7,870 $ 6,437
Subscribers, net at end of
period........................... 1,159,528 1,159,528 403,560 1,145,192 756,818 313,784 265,839
Adjusted EBITDA(e)................. $ 42,232 $ 36,777 $ 11,806 $ 132,607 $ 50,462 $ 37,327 $ 31,918
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------- AS OF
PRO FORMA ACTUAL DECEMBER 31, AS OF AS OF
1998 1998 1997 12/30/96 12/20/95
---------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)(f)....... $ (90,995) $ (90,995) $ 33,632 $(19,515) $(13,035)
Subscriber accounts, net........... 737,316 737,316 538,318 157,969 138,620
Goodwill and trademarks............ 1,053,136 1,053,136 682,180 11,102 11,397
Total assets....................... 1,984,538 1,984,538 1,446,644 187,456 170,907
Total debt, including capital
leases(g)(h)..................... 450,379 806,106 359,470 47,931 57,617
Total stockholders'
equity(g)(h)..................... 1,295,036 940,553 933,975 106,140 89,120
</TABLE>

S-8
<PAGE> 9

- ------------

(a) Prior to November 24, 1997, Protection One was a standalone security
business. Upon consummation of the Combination, Protection One acquired
WRSB and Centennial. As a result of the Combination, Westar Capital
acquired ownership of approximately 82% of Protection One. The Combination
was accounted for as a reverse purchase acquisition which treats WRSB as
the accounting acquirer. Accordingly, the results of operations of
Protection One and Centennial have been included in the consolidated
financial statements only since November 24, 1997.

(b) On December 30, 1996, Western Resources, through its indirect wholly owned
subsidiary, WestSec, purchased the assets and assumed certain liabilities
comprising the security business of Westinghouse Security Systems
("Westinghouse Security") from Westinghouse Electric Corporation ("WEC").
Westinghouse Security is deemed to be a predecessor of Protection One for
accounting purposes.

Summary financial data for 1995 and 1996 were derived from the financial
statements of Westinghouse Security for those years. Per share data is
omitted because Westinghouse Security was wholly owned by WEC.

(c) In connection with the Combination, the Company incurred nonrecurring
charges of $40.1 million in order to reflect business activities of the
accounting acquirer, WRSB, that are no longer of continuing value to the
combined entity and that will be phased out in the integration of
operations. These charges have been separately identified as a component of
operating income in the accompanying statements of operations. Charges for
the year ended December 31, 1997, are as follows:

<TABLE>
<S> <C>
Inventory and other asset losses............... $17,697
Customer account transition.................... 12,337
Disposition of excess fixed assets............. 4,128
Closure of duplicate facilities................ 1,991
Severance compensation and benefits............ 1,865
Other.......................................... 2,126
-------
$40,144
=======
</TABLE>

(d) MRR is monthly recurring revenue that the Company is entitled to receive
under contracts in effect at the end of the period. MRR is a term commonly
used in the security alarm industry as a measure of the size of a company,
but not as a measure of profitability or performance, and does not include
any allowance for future attrition or allowance for doubtful accounts. The
Company does not have sufficient information as to the attrition of
acquired subscriber accounts to predict the amount of acquired MRR that
will be realized in future periods or the impact of the attrition of
acquired accounts on the Company's overall rate of attrition.

(e) EBITDA is derived by adding to income (loss) before income taxes, the sum
of (i) interest expense, net, (ii) nonrecurring charges, and (iii)
amortization of intangibles and depreciation expense and deducting other
(income) expense. Adjusted EBITDA is derived by adding to EBITDA
installation-related expenses, and deducting from EBITDA installation
revenues during the period. EBITDA and Adjusted EBITDA do not represent
cash flow from operations as defined by generally accepted accounting
principles, should not be construed as an alternative to net income and are
indicative neither of the Company's operating performance nor of cash flows
available to fund the Company's cash needs. Items excluded from EBITDA and
Adjusted EBITDA are significant components in understanding and assessing
the Company's financial performance. Management believes presentation of
Adjusted EBITDA enhances an understanding of the Company's financial
condition, results of operations and cash flows because EBITDA and Adjusted
EBITDA are used by the Company to satisfy its debt service obligations and
its capital expenditure and other operational needs, as well as to provide
funds for growth. In addition, EBITDA and Adjusted EBITDA have been used by
senior lenders and subordinated creditors and the investment community to
determine the current borrowing capacity and to estimate the long-term
value of companies with recurring cash flows from operations and net
losses. The Company also

S-9
<PAGE> 10

presents Adjusted EBITDA as a measure that the Company believes provides a
more appropriate comparison to EBITDA presented by companies that grow
through a dealer program or acquisitions.

The following table provides a calculation of EBITDA and Adjusted EBITDA
for each of the periods presented above:

<TABLE>
<CAPTION>
WESTINGHOUSE SECURITY
THE COMPANY (PREDECESSOR)
---------------------------------------------------- ---------------------
PRO FORMA QUARTER ENDED PRO FORMA
QUARTER MARCH 31, YEAR YEAR 53 WEEKS 52 WEEKS
ENDED ----------------- ENDED ENDED ENDED ENDED
3/31/98 1998 1997 12/31/97 12/31/97 12/30/96 12/20/95
--------- ------- ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes............ $ 4,625 $ 1,988 $(7,115) $(34,505) $(82,273) $(7,838) $ (9,553)
Plus:
Interest expense, net............... 8,475 11,135 8,087 36,510 32,900 10,879 12,159
Nonrecurring charges................ -- -- -- -- 40,144 -- --
Amortization of intangibles and
depreciation expense.............. 26,398 21,429 7,850 100,181 39,822 21,613 17,804
Less:
Other (income) expense.............. (3,170) (3,229) 163 276 -- -- --
------- ------- ------- -------- -------- ------- --------
EBITDA............................ 36,328 31,323 8,985 102,462 30,593 24,654 20,410
------- ------- ------- -------- -------- ------- --------
Plus:
Installation-related expenses....... 10,574 9,137 6,499 61,444 34,998 29,074 24,633
Less:
Installation revenues............... (4,670) (3,683) (3,678) (31,299) (15,129) (16,401) (13,125)
------- ------- ------- -------- -------- ------- --------
Adjusted EBITDA................... $42,232 $36,777 $11,806 $132,607 $50,462 $37,327 $ 31,918
======= ======= ======= ======== ======== ======= ========
</TABLE>

(f) Excluding short term borrowings due to parent and the current portion of
long term debt and capital leases.

(g) Reflects the assumption that the Offerings will generate approximately
$352.6 million in net proceeds, approximately $65.1 million of which will
be used to redeem 35% of the Discount Notes and approximately $287.5
million of which will be used to repay borrowings under the Senior Credit
Facility.

(h) The redemption of the Discount Notes is assumed to occur at June 30, 1998.
At such date, the Company estimates the redemption price will be calculated
as outlined below:

<TABLE>
<S> <C>
Accreted value.................................... $166,000
Multiplied by portion redeemed.................... 35%
Multiplied by redemption price expressed as a
percentage of accreted value.................... 112%
--------
Aggregate redemption price........................ $ 65,072
========
</TABLE>

At March 31, 1998, the Company recorded the Discount Notes at a value of
$195.0 million. As a result, the Company's redemption, assuming that it had
occurred at March 31, 1998, would have reduced the recorded Discount Notes
balance by $68.3 million. For pro forma purposes, the difference between the
recorded amount and the aggregate redemption price was reflected as an
extraordinary gain on redemption, net of the provision for income taxes
using an estimated tax rate of 39%.

S-10
<PAGE> 11

RISK FACTORS

Prospective purchasers of shares of Common Stock offered hereby should
carefully review the information contained elsewhere in this Prospectus
Supplement, in the accompanying Prospectus and incorporated by reference herein
or therein and should carefully consider the following matters.

IMPACT OF ACQUISITION STRATEGY ON OPERATIONS

A principal element of the Company's business strategy is to grow rapidly
by acquiring portfolios of alarm monitoring accounts. During the 1992-1997
period, acquisitions were the primary source of the Company's growth; however,
the Dealer Program has become an increasingly important component of the
Company's growth. Since November 1997, Protection One has completed 11
transactions, thereby adding approximately 885,000 subscribers. The Combination,
the Centennial Acquisition and the 1998 Acquisitions have placed and will
continue to place substantial demands on the Company's management, operational
resources and financial and internal control systems. The Company's future
operating results will depend in part on the Company's ability to continue to
implement and improve the Company's operating and financial controls and to
expand, train and manage the Company's employee base. Significant changes in
quarterly revenues and costs may result from the Company's execution of its
business strategy, resulting in fluctuating financial results. Additionally,
management of growth may limit the time available to the Company's management to
attend to other operational, financial and strategic issues. Moreover, due to
the continuing consolidation of the security alarm monitoring industry and the
acquisition by the Company and other alarm companies of a number of large
portfolios of subscriber accounts, there may in the future be fewer large
portfolios of subscriber accounts available for acquisition. The Company faces
competition for the acquisition of portfolios of subscriber accounts, and may be
required to offer higher prices for subscriber accounts it acquires in the
future than the Company has in the past. See "-- Competition." There can be no
assurance that the Company will be able to find acceptable acquisition
candidates or, if such candidates are identified, that acquisitions can be
consummated on terms acceptable to the Company.

Acquisitions of portfolios of subscriber accounts involve a number of
risks, including the possibility of unanticipated problems not discovered prior
to the acquisition, higher than expected account attrition and the diversion of
management's attention from other business activities in order to focus on the
integration of accounts. For acquisitions that are structured as stock purchases
of other companies, the Company may assume unexpected liabilities and must
dispose of unnecessary or undesirable assets of the acquired companies. Because
the Company's primary consideration in acquiring a portfolio of subscriber
accounts is the amount of cash flow that can be derived from the MRR associated
with the purchased accounts, the price paid by the Company is customarily
directly tied to such MRR. The price paid varies based on the number and quality
of accounts being purchased from the seller, the historical activity of such
accounts and other factors. The seller typically does not have audited
historical financial information with respect to the acquired accounts. In
making acquisition decisions, the Company generally has relied on management's
knowledge of the industry, due diligence procedures and representations and
warranties of the sellers. There can be no assurance that such representations
and warranties are true and complete or, if such representations and warranties
are inaccurate, that the Company will be able to uncover such inaccuracies in
the course of its due diligence or recover damages from the seller in an amount
sufficient to fully compensate the Company for any resulting losses. The Company
expects that future acquisitions will present at least the same risks to the
Company as its prior acquisitions.

An important aspect of the Company's acquisition program is the integration
of subscriber accounts into the Company's operations after purchase. Depending
on the size, frequency and location of acquisitions, the integration of
subscribers may adversely affect the provision of field repair services to
existing subscribers, which may cause subscriber attrition to increase. In
addition, if the Company's corporate or branch operations fail to integrate a
substantial portion of or do not adequately service acquired subscriber
accounts, the Company may experience higher attrition in the future.

S-11
<PAGE> 12

HISTORY OF LOSSES

The Company incurred a net loss of $49.3 million in 1997 and a net loss of
$0.7 million in 1996, and Westinghouse Security (a predecessor of the Company
for accounting purposes) reported net losses of $4.9 million, $5.9 million, $1.8
million and $9.2 million in fiscal 1996, 1995, 1994 and 1993, respectively.
These losses reflect, among other factors, substantial charges incurred by the
Company and Westinghouse Security for amortization of purchased subscriber
accounts, interest incurred on indebtedness and non-recurring charges. Such
charges, with the exception of the non-recurring charges, will increase as the
Company continues to purchase subscriber accounts, if the Company's indebtedness
increases, or if interest rates increase. The Company's earnings have been
insufficient to cover its fixed charges since the Company was formed, and there
can be no assurance that the Company will attain profitable operations on an
annual basis or at all.

CONTROL BY WESTERN RESOURCES

Western Resources, through Westar Capital, currently owns in excess of 80%
of the outstanding Common Stock of POI. Upon completion of the Offerings, Westar
Capital will continue to own in excess of 80% of the outstanding Common Stock of
POI. In addition, if the Underwriters' over-allotment option is exercised in
full, Westar Capital will likely exercise its rights under the WR Option to
maintain ownership in excess of 80% of the outstanding Common Stock of POI. As
long as Westar Capital continues to beneficially own in excess of 50% of the
shares of Common Stock outstanding, Westar Capital will be able to direct the
election of all directors of POI and exercise a controlling influence over the
business and affairs of POI, including any determinations with respect to
mergers or other business combinations involving POI, the acquisition or
disposition of assets by POI, future issuances of Common Stock or other equity
securities of POI, the incurrence of indebtedness by POI and the payment of
dividends with respect to the Common Stock. Similarly, Westar Capital will have
the power to determine matters submitted to a vote of POI's stockholders without
the consent of POI's other stockholders, will have the power to prevent or cause
a change in control of POI and could take other actions that might be favorable
to Western Resources and Westar Capital, whether or not such actions would be
favorable to Protection One or its stockholders generally.

NEED FOR ADDITIONAL CAPITAL

The Company's purchases of subscriber accounts through the Dealer Program
and acquisitions of portfolios of subscriber accounts have generated cash needs
that exceed the Company's net cash provided by operating activities. The Company
intends to continue to pursue subscriber account growth through the Dealer
Program and acquisitions. As a result, the Company will be required to seek
additional funding from additional borrowings under the Senior Credit Facility
and the sale of additional securities in the future, which may lead to higher
leverage or the dilution of then existing holders' investment in the Common
Stock. See "-- Leverage." Any inability of the Company to obtain funding through
external financing is likely to adversely affect the Company's ability to
increase its subscribers, revenues and cash flows from operations. There can be
no assurance that external funding will be available to the Company on terms
considered favorable by the Company or at all.

ATTRITION OF SUBSCRIBER ACCOUNTS

The Company experiences attrition of subscriber accounts as a result of,
among other factors, relocation of subscribers, adverse financial and economic
conditions, and competition from other alarm service companies. In addition, the
Company experiences attrition of newly acquired accounts to the extent the
Company does not integrate such accounts or does not adequately service those
accounts. An increase in attrition rates could have a material adverse effect on
the Company's revenues and earnings.

When acquiring accounts, the Company seeks to withhold a portion of the
purchase price as a partial reserve against excess subscriber attrition. If the
actual attrition rate for the accounts acquired is greater than the rate assumed
by the Company at the time of the acquisition, and the Company is unable to
recoup its damages from the portion of the purchase price held back from the
seller, such attrition could have a material

S-12
<PAGE> 13

adverse effect on the Company's financial condition or results of operations.
There can be no assurance that the Company will be able to obtain purchase price
holdbacks in future acquisitions, particularly acquisitions of large portfolios.
The Company has no assurance that actual account attrition for acquired accounts
will not be greater than the attrition rate assumed or historically incurred by
the Company. In addition, because some acquired accounts are prepaid on an
annual, semiannual or quarterly basis, attrition may not become evident for some
time after an acquisition is consummated.

As of March 31, 1998, the cost of subscriber accounts, net of goodwill and
trademarks, net of previously accumulated amortization, was $1.8 billion, which
constituted approximately 90.2% of the book value of the Company's total assets.
The Company's purchased subscriber accounts are amortized on a straight-line
basis over the estimated life of the related revenues (generally ten years) and
goodwill is amortized over a 40 year life. The effects of gross subscriber
attrition has historically been offset by adding new accounts from subscribers
who move into premises previously occupied by prior subscribers and in which
security alarm systems are installed, conversions of accounts that were
previously monitored by other alarm companies to the Company's monitoring
services and accounts for which the Company obtains a guarantee from the seller
that provides for the Company to "put" back to the seller canceled accounts. The
resulting figure is used as a guideline to determine the estimated life of
subscriber revenues. It is the Company's policy to review periodically actual
account attrition and, when necessary, adjust the remaining estimated lives of
the Company's purchased accounts to reflect assumed future attrition. There
could be a material adverse effect on the Company's results of operations and
financial condition if actual account attrition significantly exceeds assumed
attrition and the Company has to shorten the period over which it amortizes the
cost of purchased subscriber accounts.

RISKS RELATED TO THE DEALER PROGRAM

During 1995-1997, the Company's Dealer Program became an increasingly
important source of growth for the Company. The Company expects that this
emphasis will continue. During the twelve months ended December 31, 1997, Westar
and WestSec installed approximately 50,000 new security systems through an
internal sales force. Protection One has converted this previously internal
sales force into independent dealers participating in the Dealer Program.
Several of the Company's competitors also have or are initiating dealer
programs, and there can be no assurance that the Company will be able to retain
or expand its current dealer base or that competitive offers to the Company's
dealers will not require the Company to pay higher prices to the Company's
dealers for subscriber accounts than previously paid.

POSSIBLE ADVERSE EFFECT OF "FALSE ALARM" ORDINANCES

According to the Company's experience and industry data, substantially all
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false alarms." Significant concern
has arisen in certain municipalities about this high incidence of false alarms.
This concern could cause a decrease in the likelihood or timeliness of police
response to alarm activations and thereby decrease the propensity of consumers
to purchase or maintain alarm monitoring services.

A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.

POSSIBLE ADVERSE EFFECT OF FUTURE GOVERNMENT REGULATIONS, RISKS OF LITIGATION

The Company's operations are subject to a variety of laws, regulations and
licensing requirements of federal, state and local authorities. In certain
jurisdictions, the Company is required to obtain licenses or

S-13
<PAGE> 14

permits, to comply with standards governing employee selection and training, and
to meet certain standards in the conduct of the Company's business. The loss of
such licenses, or the imposition of conditions to the granting or retention of
such licenses, could have a material adverse effect on the Company.

The Company's advertising and sales practices are regulated by both the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner in which the Company promotes the sale of
security alarm systems and the obligation of the Company to provide purchasers
of alarm systems with certain rescission rights. While the Company believes that
it has complied with these regulations in all material respects, there can be no
assurance that none of these regulations was violated in connection with the
solicitation of the Company's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violation will
occur in the future.

LIABILITY FROM OPERATIONS

The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts or omissions or system failure
than may be inherent in other businesses. Most of the Company's alarm monitoring
agreements and other agreements pursuant to which the Company sells its products
and services contain provisions limiting liability to subscribers in an attempt
to reduce this risk. However, in the event of litigation with respect to such
matters, there can be no assurance that these limitations will be enforced, and
the costs of such litigation could have an adverse effect on the Company.

The Company's alarm response and patrol services require Company personnel
to respond to emergencies that may entail risk of harm to such employees and to
others. In most cities in which the Company provides such services, the
Company's patrol officers carry firearms, which may increase such risk. Although
the Company screens and trains its employees, the provision of alarm response
service subjects the Company to greater risks related to accidents or employee
behavior than other types of businesses. Reduction of police participation in
the handling of emergencies could expose the Company's patrol officers to
greater hazards and further increase the Company's risk of liability.

The Company carries insurance of various types, including general liability
and errors and omissions insurance. The loss experience of the Company and other
security service companies may affect the availability and cost of such
insurance. Certain of the Company's insurance policies and the laws of some
states may limit or prohibit insurance coverage for punitive or certain other
types of damages, or liability arising from gross negligence.

LEVERAGE

The Company has substantial indebtedness. As of March 31, 1998, on a pro
forma basis after giving effect to the 1998 Acquisitions and the Offerings (and
the use of the proceeds therefrom), as though all such events had occurred at
such date, the Company would have had approximately $450.4 million of
indebtedness outstanding, and there would have been approximately $115.1 million
available for future borrowings under the Senior Credit Facility. See
"Capitalization." The Company may incur additional indebtedness in the future,
subject to certain limitations contained and to be contained in the various
indentures and credit agreements governing the Company's outstanding
indebtedness, and expects to do so in order to fund future additions of
subscriber accounts through purchases in connection with the Dealer Program and
future acquisitions of subscriber account portfolios as part of its business
strategy. To the extent the Company will need to rely on funds under the Senior
Credit Facility beyond its current maturity of March 30, 1999, the Company
believes that it will be able to obtain further extensions of the maturity date
of the Senior Credit Facility from time to time, or will be able to refinance
the Senior Credit Facility prior to its present maturity date, although there
can be no assurance that the Company will be able to do so. A portion of the
consolidated debt of the Company bears interest at floating rates; therefore,
the financial results of the Company are and will continue to be affected by
changes in prevailing interest rates. As of April 1, 1998, the Company had
approximately $458.9 million of debt outstanding bearing interest at floating
interest rates.

The Company's degree of leverage may have important consequences to holders
of the Common Stock, including the following: (i) a substantial portion of the
Company's cash flow from operations is, and will

S-14
<PAGE> 15

continue to be, dedicated to the payment of the principal of and interest on the
Company's indebtedness, thereby reducing the funds available to the Company for
its operations and future growth or other business opportunities; (ii) the
Company's ability to obtain additional financing in the future for working
capital, the Dealer Program, acquisitions of portfolios of subscriber accounts,
capital expenditures, general corporate purposes or other purposes may be
impaired; (iii) the indenture under which Monitoring's 13 5/8% Senior
Subordinated Discount Notes (the "Discount Notes") were issued (the "Discount
Notes Indenture") and the Senior Credit Facility contain, and are expected to
continue to contain, certain restrictive covenants, including covenants under
the Senior Credit Facility that require the Company to obtain the consent of the
lenders under the Senior Credit Facility to certain actions by the Company and
to maintain certain financial ratios in order to undertake significant
acquisitions of portfolios of subscriber accounts, all of which impose
limitations on the Company's ability to execute its business strategy; (iv)
Monitoring's borrowings under the Senior Credit Facility are at floating rates
of interest, causing the Company to be vulnerable to increases in interest
rates; (v) the Company may be more vulnerable to a downturn in the Company's
business or the economy generally; and (vi) the Company's ability to compete
against other less leveraged companies may be adversely affected.

IMPACT OF ACCOUNTING DIFFERENCES FOR ACCOUNT PURCHASES AND NEW INSTALLATIONS

A difference between the accounting treatment of the purchase of subscriber
accounts (including both purchases of subscriber account portfolios and
purchases under ongoing agreements with independent alarm dealers) and the
accounting treatment of the generation of subscriber accounts through direct
sales by the Company's sales force has a significant impact on the Company's
results of operations. All direct external costs associated with purchases of
subscriber accounts are capitalized and amortized over 10 years on a
straight-line basis. Also included in capitalized costs are certain acquisition
transition costs that reflect the Company's estimate of costs associated with
incorporating the purchased subscriber accounts into the Company's operations.
Such costs include costs incurred by the Company in fulfilling the seller's pre-
acquisition obligations to the acquired subscribers, such as providing warranty
repair services. In contrast, the Company's costs related to the sales and
marketing of new alarm monitoring systems generated by the Company's sales
force, as well as indirect overhead incurred in support of such activities, are
expensed in the period in which such activities occur. The Company's sales,
marketing and indirect overhead expenses for new systems generally exceed
installation revenues. The Company has recently converted the internal sales
force of WestSec and Westar into independent dealers participating in the Dealer
Program.

There can be no assurance that the Company will not increase its emphasis
on the marketing and sales of new alarm system installations in the future,
however, particularly in connection with a joint venture or other strategic
alliance. Any such increase could adversely affect reported results.

COMPETITION

The security alarm industry is highly competitive and highly fragmented.
The Company competes with major firms with substantial financial resources,
including: ADT Operations Inc., a subsidiary of Tyco International, Inc.; the
security subsidiaries of the Ameritech Corporation; and Brinks Home Security
Inc., a subsidiary of The Pittston Services Group. Other alarm service companies
have adopted a strategy similar to the Company's that entails the aggressive
purchase of alarm monitoring accounts both through acquisitions of account
portfolios and through dealer programs. Some competitors have greater financial
resources than the Company, or may be willing to offer higher prices than the
Company is prepared to offer, to purchase subscriber accounts. The effect of
such competition may be to reduce the purchase opportunities available to the
Company, thus reducing the Company's rate of growth, or to increase the price
paid by the Company for subscriber accounts, which would adversely affect the
Company's return on investment in such accounts and the Company's results of
operations.

IMPACT OF DECLINES IN NEW CONSTRUCTION OF MULTI-FAMILY DWELLINGS

Demand for alarm monitoring services in the multi-family alarm monitoring
market is tied to the construction of new multi-family structures. The Company
believes that developers of multi-family dwellings

S-15
<PAGE> 16

view the provision of alarm monitoring services as an added feature that can be
used in marketing newly developed condominiums, apartments and other
multi-family structures. Accordingly, the Company anticipates that the growth in
the multi-family alarm monitoring market will continue so long as there is a
demand for new multi-family dwellings. However, the real estate market in
general is cyclical and, in the event of a decline in the market for new
multi-family dwellings, it is likely that demand for the Company's alarm
monitoring services to multi-family dwellings would also decline, which could
negatively impact the Company's results of operations.

ANTITAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws, together with certain provisions of Delaware law and certain
provisions in the indentures for the Convertible Notes and the Discount Notes,
may render more difficult or have the effect of discouraging unsolicited
takeover bids from third parties or the removal of incumbent management of the
Company. See "Description of Capital Stock" in the Prospectus. Although such
provisions do not have a substantial practical significance to investors while
Western Resources, through Westar Capital, controls the Company, such provisions
could have the effect of depriving stockholders of an opportunity to sell their
shares at a premium over prevailing market prices should Westar Capital's voting
power decrease to less than 50%.

SHARES ELIGIBLE FOR FUTURE SALE

Of the 83,831,678 shares of Common Stock outstanding at May 27, 1998,
13,807,174 shares were freely tradeable in the public market without any
restriction and an additional 70,024,504 shares were eligible for sale subject
to the volume limitations of Rule 144 under the Securities Act. In addition, as
of May 27, 1998, (i) an aggregate of 9,245,510 shares of Common Stock were
issuable upon conversion of Monitoring's 6 3/4% Convertible Senior Subordinated
Notes due 2003 (the "Convertible Notes") at a conversion price of approximately
$11.19 per share, (ii) an aggregate of 1,286,750 shares of Common Stock were
issuable upon the exercise of outstanding warrants with a weighted average
exercise price of $2.72 per share, (iii) an aggregate of 991,044 shares of
Common Stock were issuable upon the exercise of outstanding options with a
weighted average exercise price of $9.84 per share, and (iv) an aggregate of
83,998 shares were issuable in connection with certain acquisitions of
portfolios of alarm accounts, all of which shares are currently registered for
sale or resale under the Securities Act. The Company expects that the exercise
prices for the Company's outstanding warrants will be adjusted under the terms
of the agreements pursuant to which they were issued to account for the
Offerings, which may result in additional shares of Common Stock being issuable.
Also, as of May 27, 1998, an aggregate of 2,750,238 shares of Common Stock were
issuable upon exercise by Western Resources of the Combination Option, which
shares are not registered under the Securities Act. Sales and potential sales of
substantial amounts of Common Stock in the public market could adversely affect
the prevailing market price of the Common Stock. The shares held by Westar
Capital are restricted securities. Pursuant to certain registration rights,
however, and because of its ownership position, Westar Capital is able to cause
the Company to register such shares.

DIVIDEND POLICY, RESTRICTIONS ON DIVIDENDS

Other than the cash distribution paid to holders of record of Common Stock
as of November 24, 1997, holders of outstanding options to purchase Common Stock
and holders of certain warrants exercisable for Common Stock, all in connection
with the Combination, POI has never paid any cash dividends on the Common Stock
and does not intend to pay any cash dividends in the foreseeable future. POI is
dependent upon the receipt of dividends or other distributions from Monitoring
to fund its operations, and the Senior Credit Facility and the Discount Notes
Indenture restrict POI's ability to declare or pay any dividend on, or make any
other distribution in respect of, the Common Stock and do not permit
distributions from Monitoring to POI other than for certain specified purposes.

S-16
<PAGE> 17

POSSIBLE VOLATILITY OF PRICES OF THE COMMON STOCK

The stock market has from time to time experienced extreme price and volume
fluctuations that have been unrelated to the operating performance of particular
companies. The market prices of the Common Stock may be significantly affected
by quarterly variations in the Company's operating results, litigation involving
the Company, general trends in the security alarm industry, actions by
governmental agencies, national economic and stock market conditions, industry
reports and other factors, many of which are beyond the control of the Company.
Due to all of the foregoing factors, it is likely that the Company's operating
results will fall below the expectations of the Company, securities analysts or
investors in some future quarter. In such event, the trading price of the Common
Stock would likely be materially and adversely affected.

USE OF PROCEEDS

The net proceeds of the Offering are estimated to be approximately $62.2
million (or $71.4 million if the Underwriter's over-allotment option is
exercised in full), based on the price to public of $9.50 per share. The Company
intends to use such net proceeds to finance the partial redemption of the
Discount Notes and, to the extent there are additional proceeds, to repay a
portion of the Senior Credit Facility and for general corporate purposes and
working capital. The Discount Notes bear interest at 13 5/8% and mature on June
30, 2005. The Senior Credit Facility bears interest at a floating rate equal to
LIBOR plus 1.125% (currently a rate of approximately 6.8%). Borrowings under the
Senior Credit Facility were incurred to refinance promissory notes used to fund
the 1998 Acquisitions. The net proceeds from the WR Placement are estimated to
be approximately $290.4 million (or $334.1 million if Westar Capital exercises
the WR Option in full). The Company intends to use the net proceeds from the WR
Placement to repay and permanently reduce amounts outstanding under the Senior
Credit Facility.

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<PAGE> 18

CAPITALIZATION

The following table sets forth the unaudited short-term debt, long-term
debt and the consolidated capitalization of the Company at March 31, 1998, as
adjusted for the Offerings. The consummation of the Offering is conditioned upon
the concurrent consummation of the WR Placement. This table should be read in
conjunction with the consolidated financial statements of the Company and the
"Unaudited Pro Forma Consolidated Financial Statements" and the notes thereto
included elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERINGS(1)
---------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt......................... $ 9,374 $ 9,374
Senior Credit Facility.................................... 458,886 171,422
---------- ----------
Total short-term debt:............................ $ 468,260 $ 180,796
========== ==========
Long-term debt (net of current portion):
Discount Notes............................................ $ 195,038 $ 126,775
Convertible Notes......................................... 103,500 103,500
Other long-term debt...................................... 39,308 39,308
---------- ----------
Total long-term debt:............................. 337,846 269,583
Stockholders' equity:
Common Stock, $.01 par value, 150,000,000 shares
authorized, 83,800,808 shares issued and outstanding at
March 31, 1998; 121,300,808 shares issued and
outstanding, as adjusted for the Offerings (excluding
shares issuable upon exercise of the Underwriters'
over-allotment option and WR Option)................... 838 1,213
Additional paid-in capital................................ 988,464 1,340,625
Retained losses........................................... (48,749) (46,802)
---------- ----------
Total stockholders' equity........................ 940,553 1,295,036
---------- ----------
Total capitalization......................... $1,278,399 $1,564,619
========== ==========
</TABLE>

- ---------------

(1) Reflects the capitalization of the Company as adjusted to reflect (i) the
repayment of approximately $287.5 million of borrowings under the Senior
Credit Facility, (ii) the redemption of approximately $68.3 million (35% of
principal amount) book value of the Discount Notes, (iii) the recognition of
an after-tax extraordinary gain of approximately $1.9 million upon the
redemption of the Discount Notes, and (iv) the issuance of 37.5 million
shares of Common Stock in the Offering and the WR Placement at the price of
$9.50 per share, net of underwriting discounts and additional offering
expenses.

S-18
<PAGE> 19

COMMON STOCK PRICE RANGE AND DIVIDENDS

The Common Stock is traded on the Nasdaq Stock Market under the symbol
"ALRM." The following table sets forth, for each of the quarterly periods
indicated, the high and low sale prices of the Common Stock as reported on the
Nasdaq Stock Market.

<TABLE>
<CAPTION>
COMMON STOCK
PRICE(1)
---------------
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1996
First Quarter............................................. $14 3/4 $ 9
Second Quarter............................................ 17 7/8 13 1/4
Third Quarter............................................. 16 7/8 11 3/4
Fourth Quarter............................................ 15 8 3/4
Year ended December 31, 1997
First Quarter............................................. $11 1/8 $ 7 3/8
Second Quarter............................................ 14 1/8 9 1/4
Third Quarter(1).......................................... 21 3/4 13 3/8
Fourth Quarter(1)......................................... 20 1/8 10 3/4
Year ending December 31, 1998
First Quarter............................................. $13 1/2 $10 1/16
Second Quarter (through June 2, 1998)..................... 13 7/8 9 1/2
</TABLE>

- ------------

(1) On July 30, 1997, the Company declared a cash distribution of $7.00 per
share to all holders of record of Common Stock, which was subsequently paid
on November 24, 1997.

A recently reported sale price per share for the Company's Common Stock on
the Nasdaq Stock Market is set forth on the cover page of this Prospectus
Supplement. At June 2, 1998, there were approximately 78 holders of record of
the Company's Common Stock. The Company believes there are in excess of 400
beneficial owners of the Common Stock.

Other than the cash distribution paid to holders of record of Common Stock
as of November 24, 1997, to holders of outstanding options to purchase Common
Stock and to holders of certain warrants exercisable for Common Stock, all in
connection with the Combination, POI has never paid any cash dividends on the
Common Stock and does not intend to pay any cash dividends in the foreseeable
future. The Company intends to retain its cash flows for the operation and
expansion of its business. The Discount Notes Indenture and the Senior Credit
Facility restrict POI's ability to declare or pay any dividend on, or make any
other distribution in respect of, POI's capital stock. During 1995, Monitoring
paid dividends to POI of approximately $0.2 million. No dividends were paid by
Monitoring to POI in 1996 or 1997.

S-19
<PAGE> 20

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following pro forma financial information for the year ended December
31, 1997 reflects the pro forma effects of the Combination, the Centennial
Acquisition, the 1998 Acquisitions and the Offerings. The pro forma financial
information for the quarter ended March 31, 1998 reflects the pro forma effects
of the 1998 Acquisitions and the Offerings. The Combination was accounted for as
a reverse purchase acquisition which treats WRSB as the accounting acquirer. The
1998 Acquisitions were accounted for under the purchase method of accounting.
Accordingly, the unaudited pro forma combined balance sheet at March 31, 1998
includes the accounts of Protection One on a historical basis and the assets and
liabilities of Comsec, Multimedia and Network at acquisition cost, allocated by
relative estimated fair value as of the date of acquisition. The estimated
purchase price allocations have been made on a preliminary basis and may change
as additional information becomes known. The unaudited pro forma combined
statements of operations for the year ended December 31, 1997 and the quarter
ended March 31, 1998, have been presented as if the Combination, the Centennial
Acquisition, the 1998 Acquisitions and the Offerings occurred at January 1,
1997. The unaudited pro forma condensed balance sheet as of March 31, 1998 is
presented as if the Offerings were consummated on that date.

The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
financial position or results of operations for future periods or the results
that actually would have been realized had the Combination, the Centennial
Acquisition, the 1998 Acquisitions and the Offerings occurred on the dates
specified above. The unaudited pro forma combined financial information should
be read in conjunction with the separate audited historical financial statements
of Protection One and the notes thereto and the separate audited historical
financial statements of Westinghouse Security and the notes thereto, each of
which is included elsewhere in this Prospectus Supplement.

PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
AT AS ADJUSTED
MARCH 31, PRO FORMA MARCH 31,
1998 ADJUSTMENTS 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 11,876 $ 11,876
Other current assets............................. 121,047 121,047
Subscriber accounts, net......................... 737,316 737,316
Goodwill and trademarks.......................... 1,053,136 1,053,136
Other assets..................................... 61,163 61,163
---------- ----------
$1,984,538 $1,984,538
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................. $ 223,918 $ 223,918
Current portion of long-term debt................ 468,260 (287,464)(a) 180,796
Long-term debt, net of current................... 337,846 (68,263)(a)(b) 269,583
Other liabilities................................ 13,961 1,244(b) 15,205
---------- ----------
1,043,985 689,502
Stockholders' equity............................. 940,553 354,483(a)(b) 1,295,036
---------- ----------
$1,984,538 $1,984,538
========== ==========
</TABLE>

- ------------

(a) Reflects the assumption that the Offerings will generate approximately
$352.6 million in net proceeds, approximately $65.1 million of which will
be used to redeem 35% of the Discount Notes and approximately $287.5
million of which will be used to repay borrowings under the Senior Credit
Facility.

S-20
<PAGE> 21

(b) The redemption of the Discount Notes is assumed to occur at June 30, 1998.
At such date, the Company estimates the redemption price will be calculated
as outlined below:

S-21
<PAGE> 22

PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
COMPANY COMSEC MULTIMEDIA PRO FORMA AS ADJUSTED
3 MONTHS PERIOD PERIOD ADJUSTMENTS PRO FORMA 3 MONTHS
ENDED 1/1/98 TO 1/1/98 TO FOR 1998 OFFERINGS ENDED
3/31/98 3/16/98 3/1/98 ACQUISITIONS ADJUSTMENTS 3/31/98
-------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $76,795 $ 6,834 $8,240 $ 91,869
Cost of revenues........... 23,993 3,464 2,879 30,336
------- ------- ------ --------
Gross profit............. 52,802 3,370 5,361 61,533
Selling, general and
administrative expense... 19,435 1,867 1,859 23,161
Acquisition and transition
expense.................. 2,044 -- -- 2,044
Amortization of intangibles
and depreciation
expense.................. 21,429 442 2,709 1,818(a) 26,398
------- ------- ------ --------
Operating income......... 9,894 1,061 793 9,930
Other (income) expenses:
Interest expense......... 11,135 244 2,991(b) (5,895)(c) 8,475
Other.................... (3,229) 5,075 59 (5,075)(d) (3,170)
------- ------- ------ --------
Income (loss) before
income taxes........ 1,988 (4,258) 734 4,625
Income tax expense
(benefit)................ 795 (23) -- (1,267)(e) 4,008(e) 3,513
------- ------- ------ --------
Net income
(loss)......... $ 1,193 $(4,235) $ 734 $ 1,112
======= ======= ====== ========
Net income per
share.......... $ 0.01 $ 0.01
======= ========
Weighted average shares
outstanding.............. 83,460 37,500 120,960
EBITDA..................... $31,323 $ 36,328
Adjusted EBITDA............ $36,777 $ 42,232
</TABLE>

S-22
<PAGE> 23

PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FORMER FOR THE
PROTECTION COMBINATION, PRO FORMA
WRSB ONE CENTENNIAL THE CENTENNIAL AS ADJUSTED
12 MONTHS 12 MONTHS 12 MONTHS 1998 ACQUISITION, PRO FORMA 12 MONTHS
ENDED ENDED ENDED ACQUISI- AND THE 1998 OFFERINGS ENDED
12/31/97 9/30/97 12/31/97 TIONS(F) ACQUISITIONS ADJUSTMENTS 12/31/97
--------- ---------- ---------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $131,310 $ 98,493 $21,981 $96,935 $348,719
Cost of revenues.................. 31,375 27,944 9,518 38,800 107,637
-------- -------- ------- ------- --------
Gross profit.................... 99,935 70,549 12,463 58,135 241,082
Selling, general and
administrative expense.......... 74,131 19,978 14,194 23,853 132,156
Acquisition and
transition expense.............. 544 5,920 -- -- 6,464
Amortization of intangibles
and depreciation expense........ 35,472 38,227 5,816 20,778 (112)(g) 100,181
Nonrecurring charges.............. 40,144 -- -- -- (40,144)(h) --
-------- -------- ------- ------- --------
Operating income (loss)......... (50,356) 6,424 (7,547) 13,504 2,281
Other (income) expenses:
Interest expense................ 31,005 29,842 2,271 1,996 (4,976)(i) (23,628)(c) 36,510
Other........................... -- 239 -- 37 276
-------- -------- ------- ------- --------
Income (loss) before income
taxes......................... (81,361) (23,657) (9,818) 11,471 (34,505)
Income tax expense (benefit)...... (33,000) (1,744) -- 3,101 8,971(e) 16,051(e) (6,621)
-------- -------- ------- ------- --------
Net income (loss)......... $(48,361) $(21,913) $(9,818) $ 8,370 $(27,884)
======== ======== ======= ======= ========
Net income (loss)
per share............... $ (0.26)
========
Weighted average shares
outstanding................... 37,500 107,703
EBITDA............................ $102,462
Adjusted EBITDA................... $132,607
</TABLE>

- ------------

(a) Reflects the allocation of the acquisition cost of each of the Comsec
Acquisition and the Multimedia Acquisition, as if each acquisition had
occurred on January 1, 1998. The Company completed the Multimedia
Acquisition on March 2, 1998 and the Comsec Acquisition on March 17, 1998.
In aggregate, the Company allocated $150.3 million of the purchase cost to
subscriber intangibles and $193.6 million to goodwill. Subscriber
intangibles are amortized over 10 years; goodwill is amortized over 40
years; and property and equipment, net is estimated to have an average life
of 3.5 years. An adjustment for the acquisition of Network was not required
as it was added effective January 1, 1998.

(b) Reflects additional interest expense arising from each of the Comsec
Acquisition and the Multimedia Acquisition, as if each acquisition had
occurred at January 1, 1998. The Company funded the acquisitions with
$274.0 million of promissory note financing provided by Westar Capital.

(c) Reflects the redemption of $65.1 million, or 35%, of the outstanding
Discount Notes and the repayment of $287.5 million of borrowings under the
Senior Credit Facility.

(d) Reflects the removal of a nonrecurring charge taken by Comsec in connection
with certain employee payments arising from the acquisition.

(e) Reflects a 39% income tax rate, adjusted for non-deductible goodwill
amortization.

(f) Includes results for the year ended September 30, 1997 for Comsec and the
year ended December 31, 1997 for each of Multimedia and Network.

(g) Reflects the allocation of the acquisition cost of the Combination, the
Centennial Acquisition and the 1998 Acquisitions. At December 31, 1997,
Protection One carried balances of $538.3 million, $682.1 million and $14.9
million in subscriber intangibles, goodwill and property and equipment,
net, respectively. The Company added $161.1 million to subscriber
intangibles, $352.2 million to goodwill and $0.4 million to property and
equipment, net in its allocation of the aggregate acquisition cost of the
1998 Acquisitions.

(h) Reflects the removal of a nonrecurring charge taken by the Company in
connection with the Combination. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

(i) Reflects additional interest expense arising from the 1998 Acquisitions,
offset by repayment of debt in the Combination, as if each had occurred on
January 1, 1997.

S-23
<PAGE> 24

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
thereto of the Company and the financial statements and the related notes
thereto of Westinghouse Security, included elsewhere in this document. All
amounts are in thousands, except per share and subscriber data, unless otherwise
noted.

<TABLE>
<CAPTION>
THE COMPANY(A) WESTINGHOUSE SECURITY (PREDECESSOR)(B)
---------------------------------------- ---------------------------------------------------------
QUARTER 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 30, DECEMBER 20, DECEMBER 20, DECEMBER 16,
1998 1997 1996 1996 1995 1994 1993
---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 76,795 $ 144,773 $ 8,097 $110,881 $ 88,710 $ 67,253 $ 47,985
Cost of revenues........... 23,993 35,669 3,348 25,960 17,280 15,224 11,615
---------- ---------- -------- -------- -------- -------- --------
Gross profit............... 52,802 109,104 4,749 84,921 71,430 52,029 36,370
Selling, general and
administrative expense... 19,435 77,203 5,091 60,166 50,919 27,448 30,674
Acquisition and transition
expense.................. 2,044 1,308 -- 101 101 -- --
Amortization of intangibles
and depreciation
expense.................. 21,429 39,822 609 21,613 17,804 13,959 13,009
Nonrecurring charges(c).... -- 40,144 -- -- -- -- --
---------- ---------- -------- -------- -------- -------- --------
Operating income (loss).... 9,894 (49,373) (951) 3,041 2,606 10,622 (7,313)
Interest expense, net and
other.................... 7,906 32,900 15 10,879 12,159 13,467 7,511
---------- ---------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 1,988 (82,273) (966) (7,838) (9,553) (2,845) (14,824)
Income tax (expense)
benefit.................. (795) 32,970 310 2,978 3,630 1,081 5,633
---------- ---------- -------- -------- -------- -------- --------
Net income (loss)...... $ 1,193 $ (49,303) $ (656) $ (4,860) $ (5,923) $ (1,764) $ (9,191)
========== ========== ======== ======== ======== ======== ========
Net income (loss) per
share................ $ 0.01 $ (0.70) $ (0.01) (b) (b) (b) (b)
OTHER OPERATING DATA:
MRR(d)..................... $ 26,128 $ 18,978 $ 8,974 $ 7,870 $ 6,437 $ 5,231 $ 4,288
Subscribers, net at end of
period................... 1,159,528 756,818 424,100 313,784 265,839 214,785 224,960
EBITDA(e).................. 31,323 30,593 (342) 24,654 20,410 24,581 5,696
Adjusted EBITDA (e)........ 36,777 50,462 (22) 37,327 31,918 27,559 4,228
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31, AS OF AS OF AS OF AS OF
MARCH 31, --------------------------- DECEMBER 30, DECEMBER 20, DECEMBER 20, DECEMBER 16,
1998 1997 1996 1996 1995 1994 1993
---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital
(deficit)(f)............. $ (90,995) $ 33,632 $(14,899) $(19,515) $(13,035) $(11,551) $ (2,550)
Subscriber accounts, net... 737,316 538,318 265,530 157,969 138,620 114,236 94,148
Goodwill and trademarks,
net...................... 1,053,136 682,180 218,991 11,102 11,397 11,691 --
Total assets............... 1,984,538 1,446,644 506,647 187,456 170,907 145,062 109,593
Total debt, including
capital leases........... 806,106 359,470 65,053 47,931 57,617 58,475 35,883
Total stockholders'
equity................... 940,553 933,975 410,430 106,140 89,120 60,108 55,803
</TABLE>

S-24
<PAGE> 25

- ------------

The operating results of WRSB for the year ended December 31, 1995, can be
considered nominal in relation to the accompanying consolidated statements
of operations. The 1995 results are comprised of only two months of
start-up activity. Summarized operating results are as follows:

<TABLE>
<S> <C>
Revenue........................................... $344
Gross Profit...................................... 189
Net Income........................................ 18
</TABLE>

(b) On December 30, 1996, Western Resources, through its indirect wholly owned
subsidiary, WestSec, purchased the assets and assumed certain liabilities
comprising the security business of Westinghouse Security from WEC.
Westinghouse Security is deemed to be a predecessor of Protection One for
accounting purposes.

Selected financial data for 1993 through 1996 were derived from the
financial statements of Westinghouse Security for those years. Per share
data is omitted because Westinghouse Security was wholly owned by WEC.

<TABLE>
<S> <C>
Inventory and other asset losses................. $17,697
Customer account transition...................... 12,337
Disposition of excess fixed assets............... 4,128
Closure of duplicate facilities.................. 1,991
Severance compensation and benefits.............. 1,865
Other............................................ 2,126
-------
$40,144
=======
</TABLE>

S-25
<PAGE> 26

enhances an understanding of the Company's financial condition, results of
operations and cash flows because EBITDA and Adjusted EBITDA are used by
the Company to satisfy its debt service obligations, and its capital
expenditure and other operational needs, as well as to provide funds for
growth. In addition, EBITDA and Adjusted EBITDA are used by senior lenders
and subordinated creditors and the investment community to determine the
current borrowing capacity and to estimate the long-term value of companies
with recurring cash flows from operations and net losses. The Company also
presents Adjusted EBITDA as a measure which the Company believes provides a
more appropriate comparison to EBITDA presented by companies that grow
through a dealer program or acquisitions.

The following table provides a calculation of EBITDA and Adjusted EBITDA
for each of the periods presented above:

<TABLE>
<CAPTION>
THE COMPANY WESTINGHOUSE SECURITY (PREDECESSOR)
------------------------------ ------------------------------------------------
QUARTER YEAR ENDED 53 WEEKS 52 WEEKS ENDED 52 WEEKS
ENDED DECEMBER 31, ENDED DECEMBER 20, ENDED
MARCH 31, ------------------ DECEMBER 30, ------------------ DECEMBER 16,
1998 1997 1996 1996 1995 1994 1993
--------- -------- ------- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes.......... $ 1,988 $(82,273) $ (966) $(7,838) $ (9,553) $(2,845) $(14,824)
Plus:
Interest expense, net.................... 11,135 32,900 15 10,879 12,159 13,467 7,511
Nonrecurring charges..................... -- 40,144 -- -- -- -- --
Amortization of intangibles and
depreciation expense................... 21,429 39,822 609 21,613 17,804 13,959 13,009
Less:
Other (income) expense................... (3,229) -- -- -- -- -- --
------- -------- ------- ------- -------- ------- --------
EBITDA................................. 31,323 30,593 (342) 24,654 20,410 24,581 5,696
------- -------- ------- ------- -------- ------- --------
Plus:
Installation related expenses............ 9,137 34,998 2,156 29,074 24,633 9,493 324
Less:
Installation revenues.................... (3,683) (15,129) (1,836) (16,401) (13,125) (6,515) (1,792)
------- -------- ------- ------- -------- ------- --------
Adjusted EBITDA.......................... $36,777 $ 50,462 $ (22) $37,327 $ 31,918 $27,559 $ 4,228
======= ======== ======= ======= ======== ======= ========
</TABLE>

- ---------------

(f) Excluding short term borrowings due to parent and the current portion of
long term debt and capital leases.

S-26
<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Except where the context indicates otherwise, the information presented
below is based on the Company's business, operations and financial condition as
of and for the period ended March 31, 1998. For the reasons discussed below, the
financial statements of the Company prior to November 24, 1997, are those of
WRSB and its predecessor, Westinghouse Security.

BACKGROUND

The Company is principally engaged in the business of monitoring and
servicing security systems.

On November 24, 1997, pursuant to a Contribution Agreement dated July 30,
1997, between Protection One and Western Resources (as amended, the
"Contribution Agreement"), Protection One acquired WRSB, and certain cash and
securities. Under the terms of the Contribution Agreement, Western Resources,
through Westar Capital, was issued an aggregate of 68,673,402 shares of Common
Stock of Protection One, which represented approximately 82.4% of the shares of
Common Stock outstanding immediately after such issuance.

Accordingly, although Protection One is the legal parent of WRSB, the
transaction was accounted for as a recapitalization of WRSB and a purchase by
WRSB of Protection One (a reverse acquisition in which WRSB is considered the
acquirer for accounting purposes). The Company recorded approximately $464
million of goodwill related to this transaction. The financial statements of the
Company for the periods prior to November 24, 1997, therefore, are those of WRSB
and its predecessor, Westinghouse Security. The assets and liabilities of
Protection One are recorded at their estimated fair values and the accounts of
Protection One are included in the consolidated financial statements from the
date of acquisition.

On December 30, 1996, WestSec purchased 310,000 subscribers and assets, and
assumed certain liabilities and obligations, of Westinghouse Security from WEC
for $358 million in cash, subject to adjustments. WRSB initially recorded
approximately $275 million of goodwill as a result of this transaction. Westar,
formed in 1995, acquired six security businesses and/or portfolios of subscriber
accounts from November 1995 through September 1996. In aggregate, such
acquisitions represented approximately 100,000 subscribers, and a purchase price
of $25 million paid in cash and Western Resources stock. Goodwill recorded by
WRSB related to these acquisitions totaled approximately $23 million.

OVERVIEW

A majority of the Company's revenues are derived from recurring payments
for the monitoring and servicing of security systems and additional security
services, pursuant to contracts with an initial noncancellable term. Service
revenues are derived from payments under extended service contracts and for
service calls performed on a time and materials basis. The remainder of the
Company's revenues are derived primarily from revenues from the sale and
installation by Company personnel of security systems, add-ons and upgrades.
Payment for monitoring services is typically required in advance. Monitoring and
service revenues are recognized as the service is provided. Installation, add-on
and upgrade revenue is recognized in the period of installation.

Alarm monitoring services generate a significantly higher gross margin than
do the other services provided by the Company. In fact, the cost of providing
patrol and alarm response services exceeds revenues generated by such services,
and although sales and installation services contribute to the Company's gross
profits, the total expenses associated with alarm system installations also
exceed the revenues generated by such services. The Company's strategy, however,
is to provide patrol and alarm response services and to invest in system sales
and installation because the Company believes that such services and products
contribute to the generation and retention of alarm monitoring subscribers. The
Company expects that system sales and installation activity will decline in
1998, as a result of converting substantially all of WRSB's internal sale force
to independent dealers participating in the Dealer Program.

S-27
<PAGE> 28

Accounting Differences for New Installations and Account Purchases. In the
past, Protection One, which sold systems outright, and WRSB, which has primarily
leased systems, have accounted for expenses associated with alarm system
installations differently. Protection One's direct installation costs, which
include materials, labor and installation overhead, and related selling and
marketing costs were expensed in the period incurred. WRSB's direct installation
costs were capitalized while selling and marketing costs and indirect overhead
were expensed in the period incurred. Such capitalized costs were amortized over
the average estimated subscriber life of ten years. Upon consummation of the
Combination, Protection One adopted WRSB's policy with respect to installations.
Due to the Company's strategy to rely primarily on the Dealer Program and
acquisitions to meet its growth objectives, the Company anticipates a
substantial reduction in installation activities in 1998.

A difference between accounting treatment of the purchase of subscriber
accounts and the accounting treatment of the generation of subscriber accounts
through direct sales by the Company's sales force impacts the Company's results
of operations. All direct external costs associated with purchases of subscriber
accounts (either through the Dealer Program or through acquisitions of
subscriber account portfolios) are capitalized and amortized over ten years on a
straight-line basis. Company personnel and related support and duplicate costs
incurred solely in connection with subscriber account acquisitions and
transitions are expensed as incurred. Other acquisition transition costs that
reflect the Company's estimate of costs associated with incorporating the
purchased subscriber accounts into its operations, including costs incurred by
the Company in fulfilling the seller's pre-acquisition warranty repair service
and other obligations to the acquired subscribers are also capitalized and
amortized over a ten year period as described above. Direct costs related to
alarm system installations are capitalized and amortized over a ten year period.
Indirect costs related to alarm system installations are expensed in the period
incurred.

Subscriber Attrition. Subscriber attrition has a direct impact on the
Company's results of operations, since it affects both the Company's revenues
and its amortization of intangibles expense. Attrition can be measured in terms
of canceled subscriber accounts and in terms of decreased MRR resulting from
canceled subscriber accounts. Gross subscriber attrition is defined by the
Company for a particular period as a quotient, the numerator of which is equal
to the number of subscribers who disconnect service during such period and the
denominator of which is the average of the number of subscribers at each
month-end during such period. Net MRR attrition is defined by the Company for a
particular period as a quotient, the numerator of which is an amount equal to
gross MRR lost as the result of canceled subscriber accounts or services during
such period, net of (i) MRR generated during such period by the sale of
additional services and increases in rates to existing subscribers, (ii) MRR
generated during such period from the connection of subscribers who move into
premises previously occupied by subscribers and in which existing systems are
installed and from conversion of accounts that were previously monitored by
other companies to the Company's monitoring service (i.e., "reconnects" and
"conversions") and (iii) MRR attributable to canceled accounts that, by virtue
of a purchase holdback, are "put" back to the seller of such accounts during
such period (i.e., "guaranteed accounts"); and the denominator of which is the
average month-end MRR in effect during such period. While the Company reduces
the gross MRR lost during a period by the amount of guaranteed accounts provided
for in purchase agreements with sellers, in some cases the Company may not
collect all or any of the reimbursement due it from the seller. During 1997, the
Company experienced gross subscriber attrition of 15.4% and net MRR attrition of
13.0%. As the Company has no economic investment in wholesale accounts, these
accounts are excluded from the calculation.

Management has established target ranges for gross subscriber attrition and
net MRR attrition of 16%-18% and 7%-9%, respectively. Fluctuations in gross
subscriber attrition reflect changes in levels of acquisition activity, the rate
at which subscribers move, the number of subscribers that the Company
disconnects for non-payment and customer satisfaction with Protection One's
customer service and field repair functions. Changes in net MRR attrition are
caused by the factors impacting gross subscriber attrition, as well as by
changes in Protection One's ability to generate reconnects and conversions, to
create MRR through the sale of additional services and price increases and to
obtain purchase holdbacks covering the loss of acquired subscribers.

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<PAGE> 29

Because the Company determines payments to sellers under purchase price
holdbacks subsequent to the periods to which such holdbacks apply, and because
holdbacks are not allocated to specific guaranteed accounts or specific fiscal
periods, the Company reduces gross MRR lost during a period by the amount of
guaranteed accounts provided for in purchase agreements with sellers. However,
in some cases, the Company has not retained the full amount of such holdback to
which the Company is contractually entitled. If guaranteed accounts for which
the Company was not compensated by the seller were taken into account in
calculating net MRR attrition, net MRR attrition would have been higher in each
period presented above.

MRR represents the monthly recurring revenue Protection One is entitled to
receive under subscriber contracts in effect at the end of the period. Included
in MRR and the number of subscribers are amounts associated with subscribers
with past due balances. It is the policy and practice of Protection One that
every effort be made to preserve the revenue stream associated with these
contractual obligations. To this end, Protection One actively works to both
collect amounts owed and to retain the subscriber. In certain instances, this
collection and evaluation period may exceed six months in length. When, in the
judgment of Protection One's collection personnel, all reasonable efforts have
been made to collect balances due, subscribers are disconnected from Protection
One's service centers and are included in the calculation of gross subscriber
and net MRR attrition.

Generally, net MRR attrition is less than actual "net account attrition,"
which the Company defines as canceled subscriber accounts net of reconnects,
conversions and guaranteed accounts. Estimated net account attrition is the
basis upon which the Company determines the period over which it amortizes its
investment in subscriber accounts. The Company amortizes such investment over
ten years based on current estimates. If actual subscriber account attrition
were to exceed such estimated attrition, the Company could be required to
amortize its investment in subscriber accounts over a shorter period, thus
increasing amortization expense in the period in which such adjustment is made
and future periods. Since the majority of the subscriber accounts acquired by
the Company since its formation were purchased recently, there can be no
assurance that the actual attrition rates for such accounts will not be greater
than the rate assumed by the Company. See "-- Results of Operations -- 1997
Compared to 1996 -- Amortization of intangibles and depreciation expense" below
and "Risk Factors -- Attrition of Subscriber Accounts."

The table below sets forth the change in the Company's subscriber base over
the 1995-1997 period. The changes for 1995 and 1996 are changes for Westinghouse
Security as predecessor of WestSec. The results for Westinghouse Security and
WRSB are combined in the 1996 column. The changes for 1997 reflect changes for
WRSB through November 24, 1997, and the Company for the remainder of 1997. The
figures below reflect all residential, commercial, and wholesale accounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Beginning of period................................... 424,100 265,839 214,785
Internal installations................................ 61,765 75,232 69,866
Account acquisitions.................................. 25,072 9,129 10,264
WRSB.................................................. -- 110,316 --
Protection One and Centennial......................... 303,783 -- --
Account attrition..................................... (57,902) (36,416) (29,076)
------- ------- -------
End of period......................................... 756,818 424,100 265,839
======= ======= =======
</TABLE>

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<PAGE> 30

RESULTS OF OPERATIONS

The following table sets forth certain operating data as dollar amounts and
as a percentage of total revenues for the periods indicated. The amounts and
percentages for 1997 represent WRSB operations through November 24, 1997 and the
operations of the Company from November 24, 1997 through December 31, 1997.
Amounts and percentages are presented for WRSB's operations in 1996. Amounts and
percentages are also presented for 1995 and 1996 related to Westinghouse
Security, as predecessor of Protection One.
<TABLE>
<CAPTION>

THE COMPANY
----------------------------------------------------------------------
QUARTER ENDED MARCH 31, FISCAL YEAR
--------------------------------- ----------------------------------
1998 1997 1997 1996
--------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Monitoring and related
services..................... $70,774 92.2% $28,184 86.5% $126,630 87.5% $6,382 78.8%
Other.......................... 6,021 7.8 4,392 13.5 18,143 12.5 1,715 21.2
------- ----- ------- ----- -------- ----- ------ -----
Total revenues............... $76,795 100.0% $32,576 100.0% $144,773 100.0% $8,097 100.0%
Cost of revenues:
Monitoring and related
services..................... $20,073 26.1% $ 7,653 23.5% $ 32,656 22.5% $1,761 21.7%
Other.......................... 3,920 5.1 942 2.9 3,013 2.1 1,587 19.6
------- ----- ------- ----- -------- ----- ------ -----
Total cost of revenues....... 23,993 31.2 8,595 26.4 35,669 24.6 3,348 41.3
Gross profit................. 52,802 68.8 23,981 73.6 109,104 75.4 4,749 58.7
Selling, general and
administrative expense....... 19,435 25.3 14,996 46.0 77,203 53.3 5,091 62.9
Acquisition and transition
expense...................... 2,044 2.7 -- -- 1,308 0.9 -- --
Amortization of intangibles and
depreciation expense......... 21,429 27.9 7,850 24.1 39,822 27.5 609 7.5
Nonrecurring charges........... -- -- -- -- 40,144 27.8 -- --
------- ----- ------- ----- -------- ----- ------ -----
Operating income (loss)...... $ 9,894 12.9% $ 1,135 3.5% $(49,373) (34.1)% $ (951) (11.7)%
======= ===== ======= ===== ======== ===== ====== =====

<CAPTION>
WESTINGHOUSE SECURITY
(PREDECESSOR)
----------------------------------
FISCAL YEAR
----------------------------------
1996 1995
---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Monitoring and related
services..................... $ 93,765 84.6% $74,911 84.4%
Other.......................... 17,116 15.4 13,799 15.6
-------- ----- ------- -----
Total revenues............... $110,881 100.0% $88,710 100.0%
Cost of revenues:
Monitoring and related
services..................... $ 24,987 22.5% $16,843 19.0%
Other.......................... 973 0.9 437 0.5
-------- ----- ------- -----
Total cost of revenues....... 25,960 23.4 17,280 19.5
Gross profit................. 84,921 76.6 71,430 80.5
Selling, general and
administrative expense....... 60,166 54.3 50,919 57.4
Acquisition and transition
expense...................... 101 0.1 101 0.1
Amortization of intangibles and
depreciation expense......... 21,613 19.5 17,804 20.1
Nonrecurring charges........... -- -- -- --
-------- ----- ------- -----
Operating income (loss)...... $ 3,041 2.7% $ 2,606 2.9%
======== ===== ======= =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

General. Results for the three months ended March 31, 1998 (the "first
quarter of 1998") reflect the operations of Protection One following the
Combination and the Centennial Acquisition, while results for the comparable
period in 1997 reflect only the operations of WRSB. In addition, in accordance
with applicable purchase accounting rules, results for the first quarter of 1998
include the financial results of Network for the entire period, Multimedia since
March 2, 1998 and Comsec since March 17, 1998. Increases in revenues and expense
items discussed below are attributable to three factors, as appropriate: (i)
changes in the financial results of WRSB; (ii) the Combination; and (iii) the
1998 Acquisitions. Discussion of results in future periods may not include
specific discussion of contributions from the 1998 Acquisitions or the
Combination due to the integration of financial reporting.

Revenues for the first quarter of fiscal 1998 increased by approximately
$44.2 million, or 135.7%, to $76.8 million from $32.6 million for the comparable
period in 1997 (the "first quarter of fiscal 1997"). Monitoring and related
services revenues increased by approximately $42.6 million, or 151.1%.
Substantially all of the increase is due to the Combination and approximately
10% of such increase is due to the 1998 Acquisitions. Installation and other
revenues increased by $1.6 million, or 37.1% to $6.0 million from $4.4 million,
reflecting a decrease in WRSB installation revenues, offset by additional
installation revenues from the 1998 Acquisitions. The decline in WRSB
installation revenues reflects the Company's conversion of substantially all
sales and installation activities previously conducted by an internal sales
force to the Dealer Program.

Cost of revenues for the first quarter of fiscal 1998 increased by
approximately $15.4 million, or 179.1%, to $24.0 million from $8.6 million. Cost
of revenues as a percentage of total revenue increased to 31.2% for the first
quarter of fiscal 1998 from 26.4% for the comparable period in 1997. Monitoring
and related services expenses increased by approximately $12.4 million, or
162.3%, primarily due to the Combination. Monitoring and related services
expenses as a percentage of monitoring and related services revenues increased
to 28.4% for the first quarter of fiscal 1998 from 27.2% in the comparable
period in 1997, due to the addition of several

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<PAGE> 31

service centers resulting from acquisition activity, as well as a decline in MRR
per subscriber. The decline in MRR per subscriber reflects the addition of
multi-family subscribers from the Network Acquisition, which subscribers carry
an average MRR of approximately $10.00. Other cost of revenues increased by $3.0
million, or 316%, reflecting primarily additional installation activities from
the 1998 Acquisitions.

Gross profit for the first quarter of fiscal 1998 was approximately $52.8
million, representing an increase of $28.8 million, or 120.2%, over the $24.0
million of gross profit recognized in the comparable period in fiscal 1997. Such
increase is primarily due to the Combination and the 1998 Acquisitions. Gross
profit as a percentage of total revenues was 68.8% for the first quarter of
fiscal 1998 compared to 73.6% for the comparable period in 1997. The decline in
gross profit as a percentage of revenues is due to the cost of revenues factors
noted above.

Selling, general and administrative expense ("S,G&A") rose to $19.4 million
in the first quarter of fiscal 1998, an increase of approximately $4.4 million,
or 29.6%, over S,G&A in the comparable period in 1997. Substantially all of the
increase is due to the Combination and the 1998 Acquisitions. Such figure as a
percentage of total revenues decreased from 46.0% in the first quarter of fiscal
1997 to 25.3% in the first quarter of fiscal 1998. The substantial decline in
S,G&A as a percentage of total revenues reflects the significant reduction in
WRSB installation activities, as well as the integration of branch operations
and corporate administrative functions pursuant to the Combination.

Acquisition and transition expense for the first quarter of fiscal 1998
totaled $2.0 million, as compared to no expenses in the comparable period in
1997. The Company expects acquisition and transition expenses to increase in
future periods due to the Company's efforts to integrate the 1998 Acquisitions
and to support the national expansion of its Dealer Program.

Amortization of intangibles and depreciation expense was $21.4 million for
the first quarter of fiscal 1998, an increase of $13.6 million, or 173.0% over
$7.9 million in the comparable period in 1997. The increase is due primarily to
the Combination and the 1998 Acquisitions, which transactions caused the Company
to record acquired assets at fair value and the excess purchase price, if any,
over book value as goodwill. As a result of the Combination, Protection One
recorded approximately $464.0 million of goodwill and the Company added
approximately $161.1 million to subscriber intangibles and $352.2 million to
goodwill in connection with the 1998 Acquisitions. The Company anticipates
amortization of intangibles and depreciation expense to increase substantially
in the second quarter of 1998, reflecting the impact of the Multimedia
Acquisition and the Comsec Acquisition for the entire quarter.

Other income (expense) totaled $(7.9) million of expense in the first
quarter of 1998, as compared to $(8.3) million of expense in the comparable
period in 1997. Interest expense increased to $11.1 million during the period,
reflecting additional borrowings to complete the 1998 Acquisitions, offset by
repayment of borrowings in connection with the Combination. Interest expense was
reduced by other income of $3.2 million during the first quarter of 1998,
reflecting a gain on repurchase of certain contracts.

1997 COMPARED TO 1996

Revenues for 1997 were $144.8 million with $131.3 million related to the
WRSB entities, $2.7 million related to Centennial, and $10.8 million related to
Protection One. WRSB's revenues for 1996 were $8.1 million and Westinghouse
Security revenues for 1996 were $110.9 million for a total of $119.0 million.
Monitoring and related services revenues for the WRSB entities increased by
$14.0 million, or 14.0%, substantially all of which resulted from average
account base growth. Other revenues related to the WRSB entities decreased by
$1.7 million, or 9.0%. The decrease is related primarily to a reduction of 25%
in total internally placed accounts added, offset partially by an increase in
average placement revenue per account of 14%. The significant decrease in
internally placed accounts added is due to a sales force transition related to
the transactions involving Westinghouse Security and WRSB and WRSB and
Protection One.

Cost of revenues for 1997 was $35.7 million with $31.4 million related to
the WRSB entities, $1.0 million related to Centennial, and $3.3 million related
to Protection One. Cost of revenues for 1996 was $3.3 million for WRSB and $26.0
million for Westinghouse Security for a total of $29.3 million. Monitoring and
related

S-31
<PAGE> 32

services expenses for the WRSB entities increased by $2.2 million, or 8.2%,
primarily due to the additional personnel required to provide service to the
larger account base.

Gross profit for 1997 was $109.1 million with $99.9 million related to the
WRSB entities, $1.6 million related to Centennial, and $7.5 million related to
Protection One. Gross profit for 1996 was $4.7 million for WRSB and $84.9
million for Westinghouse Security for a total of $89.6 million. Gross profit for
the WRSB entities increased $10.3 million, or 11.5%, reflecting the growth in
the average account base.

Selling, general and administrative expense for 1997 was $77.2 million with
$74.1 million related to the WRSB entities, $0.8 million related to Centennial,
and $2.3 million related to Protection One. SG&A for 1996 was $5.1 million for
WRSB and $60.2 million for Westinghouse Security for a total of $65.3 million.
SG&A increased $8.8 million, or 13.5%, for the WRSB entities primarily because
of the new advertising efforts required to establish market awareness of the
"Westar Security Services" business name in support of placement activities.

Amortization of intangibles and depreciation expense for 1997 were $39.8
million with $35.5 million related to the WRSB entities, $0.6 million related to
Centennial, and $3.7 million related to Protection One. Amortization and
depreciation expenses for 1996 were $0.6 million for WRSB and $21.6 million for
Westinghouse Security for a total of $22.2 million. Depreciation and
amortization increased $13.3 million, or 59.9% for the WRSB entities. The
increase is due to the amortization of the $196 million of goodwill arising from
WestSec's acquisition of the Westinghouse Security business from WEC. The
goodwill is being amortized over a 40 year life. Related to the acquisition of
Westinghouse Security by WRSB on December 30, 1996, the subscriber accounts
purchased were written up to fair market value. These amounts are being
amortized over 10 years and have consequently increased amortization expense in
1997 compared to 1996.

The non-recurring charges were taken in connection with the Combination.
The Company incurred nonrecurring charges of $40.1 million, in order to reflect
business activities of the accounting acquirer, WRSB, that are no longer of
continuing value to the combined entity and that will be phased out in
conjunction with the merger. These charges have been separately identified as a
component of operating income in the accompanying statements of operations.

Generally, management intends to bring all security operations under the
Protection One brand and to eliminate redundant facilities, systems and
activities in specific locations where such exist. Additionally, costs will be
incurred to transition individual customer accounts from the former service
providers with respect to operations, billing and network systems, and to close
down these redundant operations. Management intends to complete these exit
activities by the fourth quarter of 1998.

1996 COMPARED TO 1995 - WESTINGHOUSE SECURITY (PREDECESSOR TO PROTECTION
ONE)

Westinghouse Security revenues for 1996 increased by $22.2 million, or
25.0%, to $110.9 million from $88.7 million for 1995. Monitoring and related
services revenues increased by $18.9 million, or 25.2%, substantially all of
which resulted from the addition of approximately 75,000 subscribers from
internal sales and installations of subscriber accounts and approximately 7,000
subscribers purchased from dealers. Other revenues increased by 24.0% to $17.1
million in 1996 from $13.8 million in 1995. The increase in other revenues
reflects an increase in installation revenues as a result of additional
installed accounts and the sale of equipment upgrades.

Costs of revenues for 1996 increased by $8.7 million, or 50.3%, to $26.0
million. Costs and expenses as a percentage of total revenues increased to 23.4%
during 1996 from 19.5% during 1995. Monitoring and related services expenses
increased by $8.1 million, or 48.4% from 1995 to 1996, primarily due to
increased activity at Westinghouse Security's central monitoring station and an
expansion in service activities in the field branches. Monitoring and related
services expenses as a percentage of monitoring and related services revenues
increased to 26.6% in 1996 from 22.5% during 1995. Such increase reflects a high
level of staffing at Westinghouse Security's central monitoring station.

Gross profit for 1996 was $84.9 million, which represents an increase of
$13.5 million, or 18.9%, over the $71.4 million of gross profit recognized in
1995. Such increase was due primarily to an increase in monitoring
S-32
<PAGE> 33

activities, which reflected the increase in Westinghouse Security's subscriber
base from approximately 265,000 at December 20, 1995 to 314,000 at December 30,
1996.

Selling, general and administrative expense rose to $60.3 million in 1996,
an increase of $9.2 million, or 18.1%, over such expenses in 1995, but declined
as a percentage of total revenues from 57.5% in 1995 to 54.4% in 1996. The
increase in general and administrative expenses was caused by increases in
corporate and branch overhead expenses associated with a larger customer base
and higher numbers of installations. Advertising and marketing expenses
comprised approximately 2% of revenues in both 1995 and 1996.

Amortization of intangibles and depreciation expense for 1996 increased by
$3.8 million, or 21.4%, to $21.6 million. This increase was partially due to the
75,000 new internally placed accounts and 7,000 dealer program accounts
purchased during 1996. Westinghouse Security amortized subscriber accounts over
10 years.

Operating income for 1996 was $3.0 million, compared to operating income of
$2.6 million in 1995. Operating income as a percentage of revenue was 2.7% in
1996 compared to 2.9% in 1995.

The effective income tax benefit for 1996, 1995, and 1994 has been
estimated at 38%. The historical net operating income or losses prior to the
WestSec purchase were included in WEC's consolidated federal income tax return.

LIQUIDITY AND CAPITAL RESOURCES

In general, the Company has financed its operations and growth primarily
from operating cash flows, supplemented by advances from its parent, Western
Resources.

Recent Developments. On November 24, 1997, pursuant to the Contribution
Agreement, Protection One received $367.4 million of cash and securities from
Western Resources, and made the following disbursements, either concurrently
with or within several days of the closing of the Combination: (i) $114.1
million to make a cash distribution to holders of record of Common Stock as of
November 24, 1997, holders of outstanding options to purchase Common Stock and
holders of certain warrants exercisable for Common Stock; (ii) $94.4 million to
pay the cash purchase price of Centennial; and (iii) $61.6 million to repay
borrowings under its revolving credit facility. The remaining $97.3 million
included $14.8 million of marketable securities, which amount included common
and preferred shares in Guardian International, Inc., and $82.5 million of cash.

The amounts contributed by Western Resources have substantially enhanced
the Company's liquidity. In addition, the Company believes the issuance of 68.7
million shares of Common Stock to Western Resources has improved its access to
the public equity markets. The Company intends to use cash flow provided by
operations, cash on hand, funding by Western Resources, and capital raised in
debt and equity offerings, as needed, to fund its ongoing operations and growth
activities. The Company believes that cash required to fund its growth
activities will continue to exceed cash flow provided by operations for the
foreseeable future.

On February 4, 1998, Protection One announced its decision to exercise its
option to purchase Network, the leading provider of security alarm monitoring to
multi-family dwellings, with approximately 200,000 subscribers. Pursuant to the
terms of the option, Protection One purchased Network, effective January 1,
1998, for a purchase price of approximately $180 million. On March 2, 1998,
Protection One completed the acquisition of 147,000 subscribers and related
assets of Multimedia for a purchase price of approximately $233 million. On
March 17, 1998, Protection One completed the acquisition of Comsec for a cash
purchase price of approximately $45 million and the assumption of $15 million of
debt. The Company funded these acquisitions with promissory note financing
provided by Westar Capital.

Material Commitments. The Company has several long-term commitments. The
Convertible Notes, which total $103.5 million in aggregate principal amount,
mature on September 15, 2003, and the Company must make a payment of $166.0
million on June 30, 2005 (or $107.9 million after giving effect to the
Offerings) at the maturity of the Discount Notes. Cash interest payable on the
Convertible Notes and Discount Notes will total $18.3 million in 1998 and $29.6
million (or $14.3 million and $21.7 million,

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<PAGE> 34

respectively, after giving effect to the Offerings) annually thereafter until
maturity. (See Note 6 of Protection One, Inc. Notes to Consolidated Financial
Statements, for further information regarding the Convertible Notes and Discount
Notes.) In addition, Protection One has assumed, as part of the Western
Resources transaction, approximately $60 million of the WestSec indebtedness
from agreements entered into by Westinghouse Security, of which approximately
$26 million is payable in 1998 and $34 million in 1999. Under the agreements,
Protection One monitors and services subscriber accounts for which certain
rights were transferred to a third party. Protection One has the right, but not
the obligation, to purchase the rights in the contracts as the underlying third
party notes mature. The Company made payments of approximately $15.2 million in
February 1998 to repurchase a portion of such contracts.

As discussed above, Westar Capital extended two promissory notes to the
Company to enable it to fund the 1998 Acquisitions. The 6 11/16% promissory
notes had an aggregate principal amount of $458.9 million at March 31, 1998, and
were due on June 1, 1998. As of April 1, 1998, the Company converted its
promissory notes into a $600 million senior credit facility with Westar Capital
(the "Senior Credit Facility"). The Company may borrow, subject to certain
financial covenants and restrictions, at varying interest rates ranging from
LIBOR plus 1.125% to the Prime Rate plus 1.125%. The Senior Credit Facility
matures on March 30, 1999, and will be permanently reduced by the amount of the
WR Placement and the WR Option.

The Company generated $22.0 million of net cash provided by operating
activities for the three months ended March 31, 1998, compared to the $4.2
million net cash provided by operating activities in the three months ended
March 31, 1997. The increase in net cash provided by operating activities
reflects the Company's substantial growth due to the Combination and, to a
lesser extent, the 1998 Acquisitions.

The Company used $348.2 million of net cash in investing activities for the
three months ended March 31, 1998 compared to the use of $3.7 million for the
comparable period in 1997. Investing activities during the three months ended
March 31, 1998 included the acquisition of Comsec and Multimedia as well as
Dealer Program purchases.

The Company generated $262.5 million of net cash through financing
activities for the three months ended March 31, 1998 compared to generating $0.6
million for the three months ended March 31, 1997. The Company received funding
of approximately $277.2 million from Westar Capital and reduced other
indebtedness by approximately $15.2 million.

1997 results. For 1997, the Company's net cash flows used in operating
activities was $4.9 million, compared to $0.1 million used by WRSB and $23.7
million provided by Westinghouse Security for 1996. This shift from a net cash
inflow in 1996 to a net cash outflow in 1997 is primarily due to the timing of
tax payments.

Net cash flows used in investing activities of the Company in 1997 were
$156.7 million, compared to $369.5 million used by WRSB and $40.5 million used
by Westinghouse Security in 1996. The Company paid $107.7 million in special
distributions to equityholders related to the Contribution. WRSB paid WEC $357.3
million in cash in 1996 to purchase Westinghouse Security. The remaining cash
used for account acquisitions and placements for WRSB in 1996 was $11.3 million
and $39.2 million for Westinghouse Security. This total is comparable to the
$46.5 million spent by the Company in 1997 for account acquisitions and
placements.

The Company generated $237.0 million of net cash through financing
activities in 1997. The Company received $300.7 million in funding from Westar
Capital in 1997, approximately $258.0 million of which was related to the
Contribution Agreement. All of the borrowings ($61.6 million) under the
Company's previous credit facility were paid off with proceeds received under
the Contribution Agreement. In 1996, WRSB generated $369.7 million through
financing activities while Westinghouse Security generated $16.7 million.
Substantially all of WRSB's financing came from Westar Capital in 1996.
Westinghouse Security received $21.9 in proceeds from WEC in 1996. Westinghouse
Security also made payments of $5.1 million related to repayments of amounts
owed under the agreements discussed in Footnote 6 of Notes to Consolidated
Financial Statements.

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<PAGE> 35

The indentures governing the Discount Notes and Convertible Notes contain
certain restrictions on the transfer of Company funds, including dividends,
loans and advances made by the Company. The Company believes such restrictions
have not had and will not have a significant impact on the Company's ability to
meet its cash obligations.

Capital Expenditures. The Company anticipates making capital expenditures
in 1998 of approximately $22.5 million, including $5.0 million to upgrade branch
operations, $12.5 million for integration activities, and $5.0 million for
service center improvements and other capital items.

Tax Matters. As a result of the Combination, Protection One will be
consolidated into future tax returns filed by its majority stockholder, Western
Resources. The two parties have entered into a tax sharing agreement in
principle whereby Western Resources will make cash payments to the Company for
current tax benefits utilized and will require cash payments from the Company
for current tax expenses incurred for income tax return purposes. This
arrangement has allowed Protection One to provide a current tax benefit for the
year ended December 31, 1997, as well as the quarter ended March 31, 1998.

If and when the Company generates income for tax return purposes, it will
proportionately utilize existing net operating loss carryforwards in amounts up
to approximately $50 million. Currently, the deferred tax assets related to the
net operating loss carryforwards are fully reserved due to uncertainty as to
their future realizability. However, when net operating loss carryforwards are
utilized, the relief of the corresponding reserve will not create a tax benefit
but, as required by generally accepted accounting principles, will reduce the
Company's goodwill balances. The net financial statement impact of this
treatment will cause the Company to recognize deferred tax expense it might not
otherwise recognize.

YEAR 2000 ISSUE

The Company is reviewing its computer and signal processing to identify and
correct any components that could be affected by the change of the date to
January 1, 2000 (the "Year 2000 Issue"). Results of the review thus far indicate
that key infrastructure components including processing systems, application
software and telecommunications systems are unaffected by the Year 2000 Issue.
The Company will continue its review until January 1, 2000, particularly with
respect to acquisitions of security businesses that include additional computer
systems and equipment. In addition, changes in the state of compliance or
preparedness within companies that provide services or equipment to the Company
will require the Company to continue its evaluation. Based on its ongoing
review, Management believes the Year 2000 Issue does not pose material
operational problems and the costs associated with the assessment of risk and
the execution of corrective action will not be material.

S-35
<PAGE> 36

THE COMPANY

OVERVIEW

RECENT TRANSACTIONS

Since November 1997, Protection One has transformed itself from a regional
company into a nationwide provider of security alarm services through a series
of significant acquisitions, including:

- November 1997 combination with the Western Resources Security Business,
which included approximately 440,000 subscribers;

- November 1997 acquisition of Centennial, which included approximately
50,000 subscribers;

- January 1998 acquisition of Network, the nation's largest provider of
security alarm monitoring services to multi-family dwellings, which
included approximately 200,000 subscribers;

- March 1998 acquisition of Multimedia, which included approximately
147,000 subscribers;

- March 1998 acquisition of Comsec, which included approximately 30,000
subscribers.

Management believes that these transactions accomplished a number of
important objectives, including: (i) expanding the Company's geographic reach,
thereby opening sizable new markets for growth, (ii) increasing the Company's
customer concentration in a number of key markets, (iii) increasing the
Company's size, which allows it to pursue larger acquisitions and affinity
relationships with other national companies, and (iv) strengthening the
Company's balance sheet and enhancing its access to capital to fund its growth
strategy.

BUSINESS

STRATEGY

(iii) build the preeminent brand name in the security industry. The principal
components of the Company's strategy are as follows:

GENERATE SUBSCRIBER GROWTH THROUGH THE DEALER PROGRAM. Protection One has
developed a Dealer Program rather than an internal sales force to generate a
consistent stream of new subscribers. Participants are typically independent
companies with residential and small commercial sales, marketing and
installation skills that enter into exclusive contracts with Protection One to
provide it with new monitoring customers for purchase on an ongoing basis. The
Company anticipates a significant increase in the number of new subscribers
generated by the Dealer Program 1998 due to the Company's increased size and
scope of operation from the Combination in 1997. During the twelve months ended
December 31, 1997, Westar and WestSec installed approximately 50,000 new
security systems through an internal sales force. Protection One has converted
this internal sales force to Dealer Program participants. Protection One
believes the Dealer Program is an advantageous distribution channel because it
generates higher sales productivity, lower acquisition prices, lower subscriber
attrition and lower fixed rates.

GENERATE SUBSCRIBER GROWTH THROUGH ACQUISITIONS. The security alarm
monitoring industry is highly fragmented consolidating. Since its inception, the
Company has completed in excess of 130 acquisitions and, since November 1997,
the Company has completed 11 transactions, thereby adding approximately 885,000
subscribers. In addition, the Company's national presence has expanded. The
available acquisition may let approximately 3,000 security companies in the
Western United States to approximately 16,000 security companies nationwide.
Acquisitions, in conjunction with the Dealer Program, allow Protection One to
increase subscriber density, which results in significant operating synergies.

GENERATE GROWTH THROUGH STRATEGIC ALLIANCES. Strategic alliances provide
the Dealer Program with a proprietary source of prospective customers and offer
the Company creative opportunities to advertise its brand. Protection One has
aggressively pursued alliances with companies in other industries that have
significant residential customer bases. In particular, Protection One has
targeted major metropolitan electric and gas utilities and telephone companies,
all of which receive a significant volume of inbound phone calls from
prospective customers. Protection One has entered into marketing alliances with
PacifiCorp, Salt River Project, KCPL, and Oklahoma Natural Gas, as well as the
electric operating businesses of Western Resources, KPL and KGE, and is pursuing
additional utility alliances. In addition, Southwestern Bell Corporation serves
as a sales agent for Protection One in its markets.

SELL ADDITIONAL SERVICES TO INCREASE REVENUES AND MARGINS. As a means to
increase revenues and margins, Protection One offers new and existing customers
an array of additional security services, including extended service protection,
several different types of alarm verification, wireless backup and a medical
identification card. These enhanced services also position Protection One as a
full service provider and give dealers more features to sell in their
solicitation of new customers.

ESTABLISH PREEMINENT BRAND NAME. Based on primary market research,
Protection One believes there is an opportunity to build the preeminent consumer
brand in the security industry thereby enabling the Company to add subscribers
at a lower cost than its competitors. The Company's service and response
vehicles, yard signs, window decals, dealer marketing efforts and affinity
relationships serve as a base from which to launch further brand development
efforts. The Company believes a nationally recognized brand supports its goals
of becoming an industry leader and broadening its customer relationships.

THE SECURITY ALARM INDUSTRY

The U.S. security alarm industry is large and growing rapidly, is
characterized by a high degree of fragmentation, low residential penetration and
a continuing trend towards consolidation.

LARGE AND GROWING MARKET

SDM Magazine (formerly Security Distributing and Marketing) reports that
the U.S. security alarm industry grew 5.2% in 1997, reaching total revenues of
approximately $14 billion. Of the industry total, SDM Magazine estimates that
alarm monitoring revenue comprised 20%, or approximately $2.8 billion, an

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<PAGE> 38

increase of 7.7% from $2.6 billion in 1996. In addition, SDM Magazine reports
that the largest 100 companies in the industry experienced growth of 14.8% in
1997, compared to the industry growth rate of 5.2%. This disparity reflects a
continuing consolidation of the security alarm industry as larger firms are
actively acquiring smaller ones. The Company believes that several factors,
including increased concern about crime, favorable demographic trends for
residential customers and a strong economy for commercial customers, have
contributed to the increased demand for security alarm services.

HIGH DEGREE OF FRAGMENTATION

The security alarm industry currently comprises a large number of small
providers of alarm systems and services. For instance, SDM Magazine estimates
that there are 16,000 businesses in the security alarm industry. In addition,
the most recent ranking of security alarm companies indicates that only 25
security companies generated revenues in excess of $20 million in 1996.

TREND TOWARDS CONSOLIDATION

Since the most recent SDM Magazine survey, eight of the 25 largest
companies in the sector have been acquired. Protection One believes that larger
more efficient alarm companies with access to capital will continue to grow
faster than the industry average. In most cases, the installation of security
systems requires alarm companies to fund the excess of installation-related
costs over installation revenues, a trend that continues to be prevalent in both
the residential and commercial segments. In addition, the Company believes the
growth in false alarms is causing some municipalities to consider alternatives
to response by municipal police. To the extent that municipalities elect to
require some form of private verification of an alarm prior to police dispatch,
such policies could impose additional expenses on alarm monitoring companies and
thereby provide additional impetus for consolidation. Due to Protection One's
size, density in key markets and access to capital, the Company believes it is
well positioned to take advantage of consolidation opportunities in the
industry.

OPERATIONS

Protection One's operations consist principally of alarm monitoring and
customer service functions and branch operations.

CENTRALIZED MONITORING, CUSTOMER SERVICE AND CUSTOMER SOLICITATION

Subscriber Security Alarm Systems. Security alarm systems include devices
installed at subscribers' premises designed to detect or react to various
occurrences or conditions, such as intrusion or the presence of fire or smoke.
The Company's subscribers have many different types and sizes of security alarm
systems. In general, systems for multi-family and residential applications tend
to be smaller in size than those used by commercial subscribers, and also tend
to generate a lower level of alarm signals than in commercial applications.
These devices are connected to a computerized control panel that communicates
through telephone lines to a service center. In most systems, control panels can
identify the nature of the alarm and the areas within a building where the
sensor was activated, and can transmit that information to the central
monitoring station.

The basic system sold by the Company's dealers includes protection of the
front and back doors of a home, one interior motion detection device, a central
processing unit with the ability to communicate signals to the Company's central
monitoring station, a panic button, a siren, window decals and a lawn sign. This
basic system often will be offered for little or no up-front price, but will be
sold to a subscriber with additional equipment customized to a subscriber's
specific needs. Such equipment add-ons include additional perimeter and interior
protection, fire protection devices (heat and smoke detectors), environmental
protection devices (freeze sensors and water detectors), additional panic
buttons and home automation devices (lighting or appliance controls).

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<PAGE> 39

Subscriber Contracts. The Company's alarm monitoring subscriber contracts
generally have initial terms ranging from one to five years in duration, and
provide for automatic renewal for a fixed period (typically one year) unless the
Company or the subscriber elects to cancel the contract at the end of its term.

Typically, dealers sign subscribers to alarm monitoring contracts that
include a bundled monthly charge for monitoring and extended service protection.
Extended service protection covers the normal costs of repair of the security
system after the expiration of the security system's initial warranty period.
Although a customer may elect to sign an alarm monitoring contract that excludes
extended service protection, few customers choose to do so, and the Company
believes the bundling of monitoring and extended service protection provides
additional value to subscribers and allows the Company to provide more efficient
field repair services.

Service Centers. The Company maintains five state-of-the-art service
centers to provide monitoring services to its customer base. The table below
provides additional detail about each service center:

<TABLE>
<CAPTION>
NUMBER OF
SUBSCRIBERS CURRENT SUBSCRIBER
LOCATION MONITORED CAPACITY PRIMARY MARKETS
-------- ----------- ------------------ ----------------------
<S> <C> <C> <C>
Beaverton, OR................... 250,000 500,000 Residential/Commercial
Dallas, TX...................... 200,000 500,000 Multi-Family
Irving, TX...................... 340,000 1,000,000 Residential/Commercial
Orlando, FL..................... 100,000 500,000 Wholesale
Wichita, KS..................... 147,000 200,000 Residential/Commercial
</TABLE>

Each service center incorporates the use of advanced communications and
computer systems that route incoming alarm signals and telephone calls to
operators. Each service center currently monitors signals largely on a
geographic basis. The Company is currently standardizing its operating platforms
so that the centers will be effectively integrated with signals routed to the
centers on a capacity basis, rather than on a geographic basis. The Company
expects that the use of a single operating platform will enable it to realize
overall operating efficiencies through the ability to more efficiently monitor
alarm signal patterns and adjust service center staffing levels.

Depending upon the type of service for which the subscriber has contracted,
service center personnel respond to alarms by relaying information to the local
fire or police departments, notifying the subscriber, or taking other
appropriate action, such as dispatching alarm response personnel to the
subscriber's premises where this service is available. The Company also provides
a substantial number of subscribers with remote audio verification capability
that enables the central monitoring station to listen and speak directly into
the subscriber's premises in the event of an alarm activation. This feature
allows the Company's personnel to verify that an emergency exists, to reassure
the subscriber, and to expedite emergency response, even if the subscriber is
unable to reach a telephone. Remote audio verification capability also assists
the Company in quickly determining if the alarm was activated inadvertently, and
thus whether a response is required.

The Company's service centers operate 24 hours per day, seven days a week,
including all holidays. Each operator within a service center monitors a
computer screen that presents real-time information concerning the nature of the
alarm signal, the subscriber whose alarm has been activated, and the premises on
which such alarm is located. Each operator receives training that includes
familiarization with substantially every type of alarm system in the Company's
subscriber base. This enables the operator to tell subscribers how to turn off
their systems in the event of a false alarm, thus reducing the instances in
which a field service person must be dispatched. All telephone conversations are
automatically recorded. Other non-emergency administrative signals are generated
by low battery status, deactivation and reactivation of the alarm monitoring
system, and test signals, and are processed automatically by computer.

All of the Company's primary service centers are listed by Underwriters
Laboratories, Inc. ("UL") as protective signaling services stations. UL
specifications for service centers include building integrity, back-up computer
and power systems, staffing and standard operating procedures. In many
jurisdictions, applicable law requires that security alarms for certain
buildings be monitored by UL listed facilities. In addition, such listing is
required by certain commercial subscribers' insurance companies as a condition
to insurance coverage.

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<PAGE> 40

Wholesale Monitoring. The Company, through its service center in Orlando,
Florida, is a leading provider of wholesale monitoring services to independent
dealers. The Orlando service center is one of only a few wholesale monitoring
facilities to offer two-way voice communication on a widespread basis. Under the
typical arrangement, dealers subcontract monitoring services to the Company,
primarily because such dealers do not have their own monitoring capabilities.
The Company may also provide billing and other services. Dealers retain
ownership of monitoring contracts and are responsible for every other aspect of
the relationship with customers, including field repair service.

The Company's presence in the wholesale monitoring segment provides it with
another source of prospective acquisition targets. Independent dealers who
subcontract monitoring services to the Company are familiar with the Company's
high quality monitoring and related capabilities, an important consideration for
a prospective seller of a portfolio of security alarm subscribers.

Customer Care Services. The Company's customer care centers process
non-emergency communications. Operators receive inbound customer calls and the
customer service group addresses customer questions and concerns about billing,
service, credit and alarm activation issues. The help desk staff assists
customers in understanding and resolving mechanical and operating issues related
to security systems. A centralized field repair scheduling function sets up
technician appointments.

Enhanced Services. As a means to increase revenues and enhance customer
satisfaction, Protection One offers customers an array of enhanced security
services, including extended service protection and several different types of
alarm verification. These services position Protection One as a full service
provider and give dealers more features to sell in their solicitation of new
customers. The Company actively solicits its customers for interest in these
services. The following provides additional detail on enhanced services:

Extended Service Protection, which covers the normal costs of repair
of the system during normal business hours, after the expiration of the
initial warranty period.

Two-Way Voice Communication (Remote Audio Verification), which
consists of the ability, in the event of an alarm activation, to listen and
talk to persons at the monitored premises from the service center through
speakers and microphones located within the premises. Among other things,
such remote audio verification helps the Company to determine whether an
alarm activation is a false alarm.

Supervised Monitoring Service, which allows the alarm system to send
various types of signals containing information on the use of the system,
such as which users armed or disarmed the system and at what time of the
day. This information is supplied to subscribers for use in connection with
the management of their households or businesses. Supervised monitoring
service can also include a daily automatic test feature.

Pager Service, which provides the subscriber with standard pager
services that also enable the Company to reach the subscriber in the event
of an alarm activation.

Medical Identification Card, which enables medical personnel in the
event of a medical emergency to access a subscriber's medical information
(e.g., allergies, medications and family medical history), emergency
contacts and doctors by calling Protection One's service center.

Wireless Back-Up, which permits the alarm system to send signals over
a cellular telephone or dedicated radio system, in the event that regular
telephone service is interrupted.

Alarm Response and Patrol Service, which provides subscribers in
selected markets with rapid, on-premises response to and verification of
alarms by armed officers.

Mobile Services, which provides leading edge technology and
professional response for the delivery of emergency, navigation and
information services in mobile applications. The Company became a pioneer
in the mobile security industry when it teamed with Ford Motor Company and
Motorola in 1995 to develop Lincoln RESCU. This program offered the first
vehicle safety system to integrate cellular phone and global positioning
technology to assist motorists when they need emergency help, roadside or
routing assistance. The Company recently contracted with Nissan to provide
similar services in connection with

S-40
<PAGE> 41

equipment built into its Infiniti line of cars. The Company is actively
pursuing similar contracts with other car manufacturers.

BRANCH OPERATIONS

The Company maintains approximately 60 branches nationwide from which it
provides field repair, customer care, alarm response and sales services. The
Company's branch infrastructure plays an important role in enhancing customer
satisfaction, reducing attrition and building the Company's brand awareness.

Field Repair. Field repair personnel are trained by Protection One to
provide repair services for the various types of security systems utilized by
the Company's subscribers. The Company strives to execute prompt service
scheduling and first call repair for customers. Field personnel also provide
quality and related compliance inspections for new installations performed by
the Company's dealers.

Repair services generate revenues primarily through billable field service
calls and recurring payments under the Company's extended service protection
program. The increasing density of the Company's subscriber base, the result of
continuing efforts to acquire new subscribers in areas surrounding branch
operations, permits more effective scheduling and routing of field service
technicians and results in economies of scale at the branch level. Increased
efficiency in scheduling and routing also allows Protection One to provide
faster field service response and support, which leads to a higher level of
customer satisfaction. The Company continually reviews available automated work
management and scheduling programs to maximize employee resources in the field
repair function.

Alarm Response and Patrol. Protection One offers its subscribers in
southern California and Las Vegas alarm response and patrol enhanced services in
addition to the Company's other services. These armed officers supplement
Protection One's alarm monitoring service by providing "alarm response service"
to alarm system activations, "patrol service" consisting of routine patrol of
subscribers' premises and neighborhoods and, in a few cases, "special watch"
services, such as picking up mail and newspapers and increased surveillance when
the subscriber is travelling. Alarm response service requires Protection One's
patrol officers to observe and report any potential criminal activity at a
subscriber's home.

The Company believes that demand for alarm response and patrol services is
likely to increase as a result of a trend on the part of local police
departments to limit their response to alarm activations and other factors that
may lead to a decrease of police presence. The Private Sector Liaison Committee
of the International Association of Chiefs of Police has established Non-Sworn
Alarm Responder Guidelines to provide standards for private alarm response
officers. Although the Company currently incurs a loss in its patrol and alarm
response operations, the Company believes further demand for such services will
enable the Company to increase subscriber density in its routes, thereby
reducing losses. In addition, the Company's offer of patrol and alarm response
services is a sales method used to attract subscribers of other alarm monitoring
companies that do not provide such services. To the extent that further demand
develops for patrol and alarm response services, the Company believes its
current presence will enable it to increase its conversions of subscribers to
the Company's services. Additionally, the Company believes such services are an
effective impediment to subscriber attrition.

Acquisitions are integrated at the branch level through a specific program
developed in conjunction with each seller. Integration efforts typically include
a letter from the seller to its subscribers, explaining the sale and transition,
followed by one or more letters and packages that include the Company's
subscriber service brochures, field service and monitoring phone number
stickers, yard signs and window decals. Thereafter, each new subscriber is
contacted individually by telephone by a member of the Company's customer
service group for the purpose of addressing the subscriber's questions or
concerns and soliciting certain information. Finally, the subscriber receives a
follow-up telephone call after six months and periodically thereafter.
Management's goal is to enhance new subscriber identification with Protection
One as the service provider and to maintain subscriber satisfaction.

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<PAGE> 42

SALES AND MARKETING

Protection One's sales and marketing activities consist of a corporate
advertising and marketing function, centralized inbound and outbound sales
functions, a branch sales function and dealer and prospective acquisition
marketing efforts.

The Company believes that the increasing density of the Company's
subscriber base (i.e., increasing concentration of subscribers in certain areas)
has increased the overall presence and visibility of the Company. All new
subscribers are provided with highly visible reflective yard signs placed
prominently in front of their homes or businesses. The presence of these signs
develops greater awareness in a neighborhood and leads to more inbound and
referral business. The Company encourages referrals from existing subscribers
through an incentive program promoted through newsletters, billing inserts and
employee contacts. Alarm response and service vehicles, which display the
Protection One logo, also increase the Company's visibility.

CORPORATE ADVERTISING AND MARKETING

In the last two years, Protection One has substantially increased its
advertising and marketing efforts to support the Dealer Program. The Company
uses television, radio, newspaper and direct mail with promotional messages to
create sales leads and increase awareness of the Protection One brand. Such
sales leads are distributed to dealers based on their financial contribution to
support cooperative advertising efforts. The Company also has specifically
tailored regional advertising and promotional programs to utilize marketing
alliances where appropriate.

Protection One has marketing alliances with PacifiCorp, Salt River Project,
KCPL, Oklahoma Natural Gas, KPL and KGE. Southwestern Bell Corporation serves as
a sales agent on behalf of Protection One in its markets. Protection One is
seeking to develop numerous additional utility alliances and has established
arrangements with other leading companies in the insurance, banking, credit
card, mortgage and retail industries. Protection One also has a number of
exclusive arrangements with homebuilders, which agreements enable the Company to
market home security systems to new home buyers through the builders.

Based on primary market research, Protection One believes there is an
opportunity to build a preeminent consumer brand in the security industry.
Currently, consumers are unable to name any security industry competitor on an
unaided basis to a significant degree. The Company has established a coordinated
branding strategy to assist it in achieving its other strategic objectives by
positioning it as an industry leader and to build a platform for the sale of
additional services. The Company believes a nationally recognized brand supports
its goals of becoming the industry leader and broadening its customer
relationships. The Company has recently completed the first phase of a
significant research effort to define a unique selling proposition for the
Protection One brand. The Company will create sales and marketing materials that
reflect this positioning and will coordinate internal and external communication
vehicles to offer a single focused message about the Protection One brand. In
addition, the Company will evaluate all future opportunities for marketing
alliances and joint ventures in the context of the brand strategy, selecting
those that enhance its positioning and that accelerate the growth in public
awareness of the brand. Finally, the Company intends to test the use of brand
awareness advertising in conjunction with direct response marketing, in an
effort to quantify the extent to which increased consumer awareness of the brand
enhances direct marketing activities. The Company expects to invest gradually in
brand advertising over time as the security market matures.

BRANCH SALES

The most common reason for customer attrition is customers moving out of
their homes and businesses. Sales professionals at the Company's branch offices
are responsible for tracking previous Protection One subscribers' homes to sign
up new owners when they move into such homes. The branch sales function also
generates revenue from selling equipment upgrades and add-ons to existing
subscribers, and by attracting competitors' subscribers to the Company's
services.

Through acquisitions, the Company now owns and operates a significant
commercial sales and installation effort for security and related monitored
services. At present, the primary commercial sales effort

S-42
<PAGE> 43

occurs in the midwestern and northeastern United States. The Company's
commercial products range from basic intrusion and fire detection equipment to
fully integrated systems with card access, closed circuit television and
voice/video monitoring. The Company intends to grow its presence in the
commercial markets in the future and will seek opportunities to expand its
commercial presence in other market areas. The Company also is organizing a
national accounts sales and customer service function to address the special
needs of chain customers, such as restaurants and retailers.

DEALER MARKETING

The Company's dealers employ a variety of marketing methods to identify and
create sales leads, including telemarketing, direct mail, local networking and
door-to-door solicitation.

The Dealer Program offers dealers a wide variety of support services to
assist dealers as they grow their businesses. On behalf of Dealer Program
participants, Protection One obtains purchase discounts on security systems,
coordinates cooperative dealer advertising and provides administrative,
marketing and employee training support services. The Company believes these
cost savings and services would not be available to Dealer Program participants
on an individual basis. In addition, Protection One supplies its dealers with a
proprietary flow of prospective customers, supplementing the dealers' own
efforts and increasing their chances for success. See " -- Sales and Marketing."

Dealer contracts provide for the purchase by the Company of the dealers'
subscriber accounts on an ongoing basis. The dealers install Company specified
alarm systems (which have a Protection One logo on the keypad), arrange for
subscribers to enter into Protection One alarm monitoring agreements, and
install Protection One yard signs and window decals. In addition, the Company
requires dealers to qualify prospective subscribers by meeting a minimum credit
standard.

ACQUISITION SOLICITATION

The Company also actively seeks to identify prospective acquisitions of
companies and dealers with targeted direct mail, trade magazine advertising,
trade show participation, membership in key alarm industry trade organizations,
and contacts through various prominent vendors and other industry participants.
Management's extensive experience in identifying and negotiating previous
acquisitions helps to facilitate the successful negotiation and execution of
acquisitions in a timely manner.

COMPETITION

Competition in the security alarm industry is based primarily on
reliability of equipment, market visibility, services offered, reputation for
quality of service, price and the ability to identify and solicit prospective
subscribers as they move into homes. The Company believes it competes
effectively with other national, regional and local security alarm companies due
to the Company's reputation for reliable equipment and services, its prominent
presence in the areas surrounding its branch offices, its ability to offer
combined monitoring, repair and enhanced services, its low cost structure and
its marketing alliances.

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<PAGE> 44

INTELLECTUAL PROPERTY

The Company owns trademarks related to the name and logo for Protection One
and for Network Multi-Family Security, as well as a variety of trade and service
marks related to individual services the Company provides. The Company owns
certain proprietary software applications which the Company uses to provide
services to its customers.

REGULATORY MATTERS

A number of local governmental authorities have adopted or are considering
various measures aimed at reducing the number of false alarms. Such measures
include: (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) permitting of individual alarm systems and the
revocation of such permits following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms, and (v) requiring further
verification of an alarm signal before the police will respond.

The Company's operations are subject to a variety of other laws,
regulations and licensing requirements of federal, state, and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or permits,
to comply with standards governing employee selection and training, and to meet
certain standards in the conduct of its business. Many jurisdictions also
require certain of the Company's employees to obtain licenses or permits. Those
employees who serve as patrol officers are often subject to additional licensing
requirements, including firearm licensing and training requirements in
jurisdictions in which they carry firearms.

The alarm industry is also subject to requirements imposed by various
insurance, approval, listing, and standards organizations. Depending upon the
type of subscriber served, the type of security service provided, and the
requirements of the applicable local governmental jurisdiction, adherence to the
requirements and standards of such organizations is mandatory in some instances
and voluntary in others.

The Company's advertising and sales practices are regulated by both the
Federal Trade Commission and state consumer protection laws. Such laws and
regulations include restrictions on the manner in which the Company promotes the
sale of its security alarm systems and the obligation of the Company to provide
purchasers of its alarm systems with certain recision rights.

The Company's alarm monitoring business utilizes telephone lines and radio
frequencies to transmit alarm signals. The cost of telephone lines, and the type
of equipment which may be used in telephone line transmission, are currently
regulated by both federal and state governments. The operation and utilization
of radio frequencies are regulated by the Federal Communications Commission and
state public utilities commissions.

RISK MANAGEMENT

The nature of the services provided by the Company potentially exposes it
to greater risks of liability for employee acts or omissions, or system failure,
than may be inherent in other businesses. Substantially all of the Company's
alarm monitoring agreements, and other agreements pursuant to which it sells its
products and services, contain provisions limiting liability to subscribers in
an attempt to reduce this risk.

The Company's alarm response and patrol services require Company personnel
to respond to emergencies that may entail risk of harm to such employees and to
others. The Company employs over 100 patrol and alarm response officers who are
subject to extensive pre-employment screening and training. Officers are subject
to local and federal background checks and drug screening before being hired,
and are required to have gun and baton permits and state and city guard
licenses. Officers also must be licensed by states to carry firearms and to
provide patrol services. Protection One is one of a few companies to have an
in-house training academy which prepares officer candidates for employment. The
Company's training program includes arrest procedures, criminal law, weaponless
defense, firearms and baton usage, patrol tactics, and first-aid and CPR. After
graduating from the Protection One patrol academy, a new officer rides along
with a field training officer
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<PAGE> 45

for two weeks to gain experience. In total, an officer candidate undergoes five
weeks of specific training, which amount exceeds all state requirements.
Although the Company conducts extensive screening and training of its employees,
the provision of patrol and alarm response service subjects it to greater risks
related to accidents or employee behavior than other types of businesses.

The Company carries insurance of various types, including general liability
and errors and omissions insurance. The loss experience of the Company, and
other security service companies, may affect the availability and cost of such
insurance. Certain of the Company's insurance policies, and the laws of some
states, may limit or prohibit insurance coverage for punitive or certain other
types of damages, or liability arising from gross negligence.

EMPLOYEES

At March 31, 1998, the Company employed 3,136 individuals on a full-time
basis. Currently, none of the Company's employees is represented by a labor
union or covered by a collective bargaining agreement. The Company believes it
has good relations with its employees.

FACILITIES

The Company operates primarily from the following facilities, although it
leases office space for its approximately 60 branch offices.

<TABLE>
<CAPTION>
LOCATION SIZE LEASE/OWN PRINCIPAL PURPOSE
-------- ------ --------- -----------------
<S> <C> <C> <C>
Beaverton, OR........................... 44,600 Lease Service Center
Chatsworth, CA.......................... 43,472 Lease Service Center
Culver City, CA......................... 16,059 Lease Corporate Headquarters
Irving, TX.............................. 54,394 Lease Financial/Administrative
Headquarters
Irving, TX.............................. 53,750 Lease Service Center
Longwood, FL............................ 11,020 Lease Wholesale Service Center
Wichita, KS............................. 50,000 Own Service Center
</TABLE>

LEGAL MATTERS

On January 8, 1997, Innovative Business Systems, Ltd. ("IBS") filed suit
against Western Resources, WEC, Westinghouse Security and WestSec in Dallas
County, Texas district court (Cause No. 97-00184) alleging, among other things,
breach of contract against WEC and interference with contract against Western
Resources and WestSec in connection with the sale by WEC of the assets of
Westinghouse Security to Western Resources and WestSec. IBS claims that WEC
improperly transferred software owned by IBS to Western Resources and WestSec
and that Western Resources and WestSec are not entitled to its use. Western
Resources and WestSec have demanded that WEC defend and indemnify them. WEC,
Western Resources and WestSec have denied IBS' allegations and are vigorously
defending against them. Management does not believe the ultimate disposition of
the matter will have a material adverse effect upon the Company's overall
financial condition or results of operations.

The Company is a party to claims and matters of litigation incidental to
the normal course of its business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect on the
Company's overall financial condition or results of operations.

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<PAGE> 46

MANAGEMENT
DIRECTORS

The Board of Directors of Protection One presently consists of 12 persons,
all of whom are elected annually. The Board of Directors of Protection One were
elected at the most recent stockholders meeting on April 23, 1998. The directors
nominated by Western Resources and elected at the Special Meeting are Peter C.
Brown, Howard A. Christensen, Joseph J. Gardner, William J. Gremp, Steven L.
Kitchen, Carl M. Koupal, Jr., John C. Nettels, Jr. and Jane Dresner Sadaka.

Certain information concerning the current directors of Protection One is
set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. Mackenzie, Jr............ 50 President, Chief Executive Officer and Director
Robert M. Chefitz................. 38 Director
Ben M. Enis....................... 56 Director
James Q. Wilson................... 66 Director
Peter C. Brown.................... 39 Director
Howard A. Christensen............. 64 Director
Joseph J. Gardner................. 60 Director
William J. Gremp.................. 55 Director
Steven L. Kitchen................. 52 Director
Carl M. Koupal, Jr................ 44 Director
John C. Nettels, Jr............... 41 Director
Jane Dresner Sadaka............... 44 Director
</TABLE>

James M. Mackenzie, Jr. has been President, Chief Executive Officer and a
director of the Company since 1991.

Robert M. Chefitz has been a director of Protection One since September
1991. Mr. Chefitz joined Patricof & Co. Ventures, Inc., an investment management
firm ("Patricof"), in 1987, where he currently serves as a Managing Director.
Mr. Chefitz also serves as a general partner to various venture capital
partnerships managed by Patricof. Mr. Chefitz currently serves on the Board of
Directors of Xpedite Systems, Inc. and is also a director of several private
companies.

Ben M. Enis has been a director of Protection One since October 1994. He
has been a Professor of Marketing at the University of Southern California since
1982. Mr. Enis currently serves on the Board of Directors of Countrywide Credit
Industries, Inc.

James Q. Wilson has been a director of Protection One since June 1996. Mr.
Wilson has recently retired from his position as a Professor of Management at
the University of California at Los Angeles. Mr. Wilson is currently a director
of New England Electric System and State Farm Mutual Life Insurance Company.

Peter C. Brown has been a director of Protection One since November 1997.
He has served as Co-Chairman of AMC Entertainment, Inc., an entertainment
company ("AMCE"), since May 1998 and as President of AMCE since January 1997. He
served as Executive Vice President of AMCE from August 1994 to January 1997, and
has served as AMCE's Chief Financial Officer since November 1991. Mr. Brown
currently serves as director of AMCE and is Chairman of the Board of Trustees of
Entertainment Properties Trust, a recently formed real estate investment trust.

Howard A. Christensen has been a director of Protection One since November
1997. During the past five years, he has served as President and Chief Executive
Officer of Christensen & Associates, an investor relations and strategic
planning firm.

Joseph J. Gardner has been a director of Protection One since November
1997. During the past five years, he has served as the President of Condev
Properties, a real estate development company.

William A. Gremp has been a director of Protection One since November 1997.
He has been Senior Vice President and Managing Director of the Utilities and
Strategic Finance Group of First Union Capital Markets
S-46
<PAGE> 47

Group, a banking firm, since April 1996. From 1989 to April 1996, he was a
Managing Director in the Global Power Group at Chase Manhattan Bank. Mr. Gremp
is also a director of St. Joseph Light & Power Company.

Steven L. Kitchen has been a director of Protection One since November
1997. During the past five years, he has served as an Executive Vice President
and the Chief Financial Officer of Western Resources. He is also a director of
Central National Bank.

Carl M. Koupal, Jr. has been a director since November 1997 and has been
Executive Vice President and the Chief Administrative Officer for Western
Resources since July 1995. From January 1995 to July 1995, Mr. Koupal was
Executive Vice President of Corporate Communications, Marketing and Economic
Development for Western Resources. Prior to that time, he served as Western
Resources' Vice President, Corporate Marketing, and Economic Development. Mr.
Koupal also currently serves as a director of Hanover Compressor Co.

John C. Nettels, Jr. has been a director of Protection One since November
1997. During the last five years, he has been a partner in the law firm of
Morrison & Hecker L.L.P.

Jane Dresner Sadaka has been a director of Protection One since November
1997. She is an Advisory Board Member of DLJ Merchant Banking Fund II. She
served as a Special Limited Partner of Kellner, DiLeo & Co. from 1992 until
1997, and prior to that time was a General Partner, Head of Research, for
Kellner, DiLeo & Co. Ms. Sadaka is also Executive Vice President of the New York
University of School of Business Alumni Association.

EXECUTIVE OFFICERS

The name, age and current position(s) with POI of each executive officer of
Protection One are as set forth below. Each individual other than Mr. Weinstock
also serves in the same capacities for Monitoring.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. Mackenzie, Jr............... 50 President and Chief Executive Officer
and Director
John W. Hesse........................ 48 Executive Vice President, Chief
Financial Officer and Secretary
John E. Mack, III.................... 38 Executive Vice President -- Business
Development
Thomas K. Rankin..................... 39 Executive Vice President -- Business
Operations
George A. Weinstock.................. 60 Executive Vice President
Steven Millstein..................... 44 Executive Vice President -- New
Market Development
</TABLE>

For information with respect to the business experience of Mr. Mackenzie,
see "-- Directors."

John W. Hesse has been Executive Vice President, Chief Financial Officer
and Secretary of the Company since 1991.

John E. Mack, III was Vice President -- Business Development of Protection
One from 1991 until August 1996, and has been Protection One's Executive Vice
President -- Business Development since August 1996 and Assistant Secretary of
Protection One since October 1994.

Thomas K. Rankin was Vice President -- Branch Management of Protection One
from September 1991 to August 1996, and has been Protection One's Executive Vice
President -- Branch Management since August 1996 and Assistant Secretary since
October 1994.

George A. Weinstock has been Executive Vice President of Monitoring since
November 1993 and Executive Vice President of Protection One since June 1994,
and was a director of Protection One from November 1993 to May 1994. Prior to
November 1993, Mr. Weinstock served as President of American Home Security, Inc.

S-47
<PAGE> 48

Steven A. Millstein has been Executive Vice President -- New Market
Development of the Company since November 1997. Prior to November 1997, Mr.
Millstein served as President of WestSec since its formation in December 1996
and President of Westar Security since May 1995. Prior to that time, he was Vice
President, Marketing and Sales for Acoustics Development Corporation, a
manufacturer of telephone booths and interactive media enclosures.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of May 8, 1998 by each person known
to Protection One to beneficially own more than 5% of the outstanding Common
Stock.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------- -------------------------
NAME AND ADDRESS NUMBER PERCENT(1) NUMBER(2) PERCENT(2)
- ---------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Western Resources, Inc.(3).................. 73,522,873 83.1% 106,522,873 84.6%
818 S. Kansas Avenue
Topeka, KS 66612
James M. Mackenzie, Jr.(4).................. 431,381 * 431,381 *
John W. Hesse(4)............................ 349,273 * 349,273 *
John E. Mack, III(4)........................ 271,840 * 271,840 *
Thomas K. Rankin(4)......................... 274,589 * 274,589 *
Steven A. Millstein......................... -- * -- *
George M. Weinstock......................... 45,752 * 45,752 *
Peter C. Brown.............................. -- * -- *
Robert M. Chefitz(4)(5)..................... 46,452 * 46,452 *
Howard A. Christensen....................... -- * -- *
Ben Enis(4)................................. 30,000 * 30,000 *
Joseph J. Gardner........................... -- * -- *
William J. Gremp............................ -- * -- *
Steven L. Kitchen........................... 300 * 300 *
Carl M. Koupal, Jr.......................... -- * -- *
John C. Nettels, Jr......................... 1,000 * 1,000 *
Jane Dresner Sadaka......................... -- * -- *
James Q. Wilson(4).......................... 20,100 * 20,100 *
All directors and executive officers of
Protection One as a group (17 persons).... 1,471,087 1.8 1,471,087 1.2
</TABLE>

- ------------

* Represents less than one percent.

(1) Based upon 83,831,678 shares of Common Stock outstanding at May 27, 1998,
plus shares underlying options that are currently exercisable or that become
exercisable within 60 days after May 27, 1998.

(2) Based upon 121,331,678 shares of Common Stock outstanding as adjusted for
the Offerings, excluding shares issuable upon exercise of the Underwriters'
over-allotment option and the WR Option.

(3) Western Resources, through its wholly owned subsidiary, Westar Capital, has
sole voting power and sole investment power with respect to these shares.
Includes 2,750,238 shares issuable upon the exercise of an option to
purchase additional shares of Common Stock at a price of $15.50 per share
and 1,898,233 shares issuable upon conversion of $21,250,000 aggregate
principal amount of Convertible Notes held by Westar Capital.

(4) Includes shares subject to options that are currently exercisable as
follows: Mr. Mackenzie, 143,000 shares; Mr. Hesse, 155,000 shares; Mr. Mack,
161,000 shares; Mr. Rankin, 161,000 shares; Mr. Weinstock, 12,000 shares;
Mr. Chefitz, 30,000 shares; Mr. Enis, 30,000 shares and Mr. Wilson, 20,000
shares.

(5) Mr. Chefitz disclaims beneficial ownership to all but 16,452 shares listed
in the table as owned by him. The remaining 30,000 shares are subject to an
option held by Patricof.

S-48
<PAGE> 49

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock who acquire and own such
Common Stock as a capital asset within the meaning of section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). A "Non-U.S. Holder" is
any person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state, (iii) an estate whose income is
includable in gross income for United States federal income tax purposes
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions
of the trust. For purposes of the withholding tax on dividends discussed below,
a non-resident fiduciary of an estate or trust will be considered a Non-U.S.
Holder.

This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of Common Stock may be affected
by certain determinations made at the partner level) and does not consider U.S.
state and local or non-U.S. tax consequences. Further it does not consider
Non-U.S. Holders subject to special tax treatment under the federal income tax
laws (including banks and insurance companies, dealers in securities, and
holders of securities held as part of a "straddle," "hedge," or "conversion
transaction"). The following discussion is based on provisions of the Code and
administrative and judicial interpretations as of the date hereof, all of which
are subject to change, possibly on a retroactive basis, and any change could
affect the continuing validity of this discussion.

THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT A TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF HOLDING AND DISPOSING
OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS
OF ANY U.S. STATE, LOCAL OR OTHER NON-U.S. TRADING JURISDICTION.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such rate
is reduced by an applicable income tax treaty. Dividends that are effectively
connected with such holder's conduct of a trade or business in the United
States, or, if a tax treaty applies, attributable to a permanent establishment
or in the case of an individual a "fixed base," in the United States ("U.S.
trade or business income") are generally subject to U.S. federal income tax at
regular rates and are not generally subject to withholding if the Non-U.S.
Holder files the appropriate form with the payor. Any U.S. trade or business
income received by a non-U.S. corporation may also, under certain circumstances,
be subject to an additional "branch profits tax" at a 30% rate, or such lower
rate as may be applicable under an income tax treaty.

Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding discussed above, and under the current
interpretation of U.S. Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed U.S. Treasury regulations
(generally effective January 1, 2000), however, a Non-U.S. Holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements, which would
include the requirement that the Non-U.S. Holder file a form which contains the
holder's name and address and may require the Non-U.S. Holder to provide certain
documentary evidence used by foreign governmental authorities as proof of
residence in a foreign country.

A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for a refund
with the U.S. Internal Revenue Service.

S-49
<PAGE> 50

DISPOSITION OF COMMON STOCK

Except as described below, a Non-U.S. Holder generally will not be subject
to U.S. federal income tax in respect of gain recognized on a disposition of
Common Stock provided that (i) the gain is not U.S. trade or business income;
(ii) the Non-U.S. Holder is not an individual who is present in the United
States for 183 or more days in the taxable year of the disposition and who meets
certain other requirements; (iii) the Non-U.S. Holder is not subject to tax
pursuant to the provisions of U.S. tax law applicable to certain United States
expatriates; and (iv) the Company has not been and does not become a "United
States real property holding corporation" for U.S. federal income tax purposes.
The Company believes that it has not been, is not currently, and is not likely
to become, a United States real property holding corporation. However, no
assurance can be given that the Company will not be a United States real
property holding corporation when a Non-U.S. Holder sells its shares of Common
Stock. If the Company were or were to become a United States real property
holding corporation, gains realized by a Non-U.S. Holder which did not directly
or indirectly own more than 5% of the Common Stock during a five-year testing
period generally would not be subject to U.S. federal income tax, provided that
the Common Stock has been regularly traded on an established securities market.

FEDERAL ESTATE TAXES

In general, an individual who is a Non-U.S. Holder for U.S. estate tax
purposes will incur liability for U.S. federal estate tax if the fair market
value of property included in the individual's taxable estate for U.S. federal
estate tax purposes exceeds the statutory threshold amount. For these purposes,
Common Stock owned, or treated as owned, by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply even if
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in which the
Non-U.S. Holder resides. Under existing U.S. Treasury regulations, the United
States backup withholding tax (which generally is a withholding tax imposed at
the rate of 31% on certain payments to persons that fail to furnish the
information required under the United States information reporting requirements)
will generally not apply to dividends paid on the Common Stock to a Non-U.S.
Holder at an address outside the United States. Under proposed U.S. Treasury
regulations, generally effective January 1, 2000, a Non-U.S. Holder could be
subject to backup withholding unless they provide certification of foreign
status.

Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Common Stock effected by a foreign office of a foreign broker, provided however
that if the broker is a U.S. person or a "U.S. related person," information
reporting (but not backup holding) would apply unless the broker receives a
statement from the owner, signed under penalties of perjury, certifying its
foreign status or otherwise establishing an exemption or the broker has
documentary evidence in its files as to the Non-U.S. Holder's foreign status and
the broker has no actual knowledge to the contrary. For this purpose, a "U.S.
related person" is a foreign person with one or more of certain enumerated
relationships with the United States.

Non-U.S. Holders will be subject to information reporting and backup
withholding at a rate of 31% with respect to the payment of proceeds from the
disposition of Common Stock effected by, to or through the United States office
of a broker, U.S. or foreign, unless the Non-U.S. Holder certifies as to its
foreign status under penalties of perjury or otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's U.S.
federal income tax, and any amounts withheld in excess of such Non-U.S. Holder's
federal income tax liability will be refunded, provided that the required
information is furnished to the Internal Revenue Service.

S-50
<PAGE> 51

UNDERWRITERS

Under the terms and subject to the conditions set forth in the Underwriting
Agreement dated the date of this Prospectus Supplement (the "Underwriting
Agreement"), the Company has agreed to sell 6,850,000 shares of the Company's
Common Stock, and Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.,
Lehman Brothers Inc., BancAmerica Robertson Stephens LLC and Wheat First Union,
a division of Wheat First Securities, Inc., have severally agreed to purchase
the respective number of shares of Common Stock set forth opposite their names
below:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................... 1,370,000
Bear, Stearns & Co. Inc..................................... 1,370,000
Lehman Brothers Inc......................................... 1,370,000
BancAmerica Robertson Stephens LLC.......................... 1,370,000
Wheat First Securities, Inc................................. 1,370,000
---------
Total............................................. 6,850,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered (other than those covered
by the Underwriters over-allotment option described below) if any such shares
are taken.

The Underwriters initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $.28 a share under the public offering price. The Underwriters have
agreed that the underwriting commission payable with respect to shares of Common
Stock offered hereby that are purchased by Westar Capital shall be $.285 a
share, resulting in proceeds to the Company of $9.215 a share. After the initial
offering of the Common Stock, the offering price and other selling terms may
from time to time be varied by the Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted the
Underwriters an option, exercisable for 30 days from the date this Prospectus
Supplement, to purchase up to 1,027,500 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, made in connection with the
Offering. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the Underwriters hereby. See "Use of Proceeds."

The Company, certain directors and officers of the Company and Westar
Capital have agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, they will not during the period
ending 90 days after the date of this Prospectus Supplement (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer, or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of the Common Stock or such other
securities, in cash otherwise, except under certain limited circumstances.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own

S-51
<PAGE> 52

account. In addition, to cover overallotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing shares of
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.

Certain of the Underwriters have engaged in transactions with and performed
various investment banking and other services for the Company in the past, and
may do so from time to time in the future. The Underwriters have agreed to
reimburse the Company up to $675,000 for certain expenses incurred by it in
connection with the Offering.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

EXPERTS

The consolidated financial statements and schedules of Protection One, Inc.
and its accounting predecessor, Westinghouse Security, appearing in its Annual
Report (Form 10-K) for the year ended December 31, 1997, have been audited by
Arthur Andersen LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for the
Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.
Certain legal matters will be passed upon for the Underwriters by Shearman &
Sterling, San Francisco, California.

S-52
<PAGE> 53

PROTECTION ONE, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROTECTION ONE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997...................................... F-2
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997.......................... F-3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997.......................... F-4
Notes to Consolidated Financial Statements................ F-5
Report of Independent Public Accountants.................. F-10
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-11
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996............................. F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996............................. F-13
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1996......... F-14
Notes to Consolidated Financial Statements................ F-15
WESTINGHOUSE SECURITY
Report of Independent Public Accountants.................. F-30
Statements of Operations for the 53-week period ended
December 30, 1996, and the 52-week period ended
December 20, 1995...................................... F-31
Statements of Cash Flows for the 53-week period ended
December 30, 1996, and the 52-week period ended
December 20, 1995...................................... F-32
Notes to Financial Statements............................. F-33
</TABLE>

F-1
<PAGE> 54

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 11,876 $ 75,556
Marketable securities..................................... 7,221 5,701
Receivables, net.......................................... 29,254 20,302
Inventories............................................... 3,555 556
Prepaid expenses.......................................... 556 367
Deferred tax assets, current.............................. 45,078 45,078
Other..................................................... 35,383 28,320
---------- ----------
Total current assets.............................. 132,923 175,880
Property and equipment, net................................. 18,187 14,934
Subscriber accounts and intangibles, net.................... 737,316 538,318
Goodwill and trademarks, net................................ 1,053,136 682,180
Deferred tax assets......................................... 29,568 26,158
Other....................................................... 13,408 9,174
---------- ----------
$1,984,538 $1,446,644
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 7,109 $ 6,235
Accrued liabilities....................................... 110,062 83,200
Purchase holdbacks........................................ 48,136 11,444
Acquisition transition costs.............................. 15,529 7,469
Current portion of long-term debt......................... 8,800 21,217
Borrowing from parent..................................... 458,886 --
Capital leases............................................ 574 490
Customer deposits......................................... 790 --
Deferred revenue.......................................... 42,292 33,900
---------- ----------
Total current liabilities......................... 692,178 163,955
Long-term debt, net of current portion...................... 337,444 337,159
Capital leases, net of current portion...................... 402 604
Deferred tax liability...................................... 10,788 10,325
Other....................................................... 3,173 626
Commitments and contingencies (See Note 7)
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 authorized,
none outstanding....................................... -- --
Common Stock, $.01 par value, 150,000,000 shares
authorized, 83,800,808 and 83,362,938 shares issued and
outstanding, respectively.............................. 838 834
Additional paid-in capital................................ 988,464 983,082
Accumulated deficit....................................... (48,749) (49,941)
---------- ----------
Total stockholders' equity........................ 940,553 933,975
---------- ----------
$1,984,538 $1,446,644
========== ==========
</TABLE>

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

F-2
<PAGE> 55

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues:
Monitoring and related services........................... $70,774 $28,184
Installation and other.................................... 6,021 4,392
------- -------
Total revenues.................................... 76,795 32,576
Cost of revenues:
Monitoring and related services........................... 20,073 7,653
Installation and other.................................... 3,920 942
------- -------
Total cost of revenues............................ 23,993 8,595
------- -------
Gross profit...................................... 52,802 23,981
Selling, general and administrative expense................. 19,435 14,996
Acquisition and transition expenses......................... 2,044 --
Amortization of intangibles and depreciation expense........ 21,429 7,850
------- -------
Operating income.................................. 9,894 1,135
Other income/expense:
Interest expense, net..................................... 6,555 8,087
Interest expense to parent, net........................... 4,580 --
Other..................................................... (3,229) 163
------- -------
Income (loss) before income taxes................. 1,988 (7,115)
Income tax (expense) benefit................................ (795) 2,846
------- -------
Net income (loss)......................................... $ 1,193 $(4,269)
======= =======
Net income (loss) per common share........................ $ 0.01 $ (0.06)
======= =======
Weighted average shares................................... 83,460 68,673
</TABLE>

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

F-3
<PAGE> 56

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 1,193 $(4,269)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization and depreciation............................. 21,429 8,382
Accretion of discount note interest....................... 3,111 --
Deferred income taxes..................................... 1,196 --
Provision for doubtful accounts........................... 562 521
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables............................................... (4,162) 3,512
Inventories............................................... (574) (707)
Prepaid expenses and deposits............................. (802) 215
Accounts payable.......................................... (2,776) (163)
Accrued liabilities....................................... 1,382 (2,682)
Deferred revenue.......................................... (422) (627)
Other liabilities......................................... 1,911 --
--------- -------
Net cash provided by operating activities......... 22,048 4,182
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/Placement of Installed Security Systems.......... (64,703) (3,356)
Purchases of property and equipment....................... (3,896) (352)
Purchase of marketable securities......................... (1,519) --
Purchase of Comsec........................................ (64,670) --
Purchase of Multimedia.................................... (209,360) --
Investment in Guardian.................................... (4,040) --
--------- -------
Net cash used in investing activities............. (348,188) (3,708)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ (15,243) (897)
Funding from Parent....................................... 277,198 1,501
Stock options and warrants exercised...................... 505 --
--------- -------
Net cash provided by financing activities......... 262,460 604
--------- -------
Net (decrease) increase in cash and cash
equivalents..................................... (63,680) 1,078
Cash and cash equivalents:
Beginning of period....................................... 75,556 262
--------- -------
End of period............................................. $ 11,876 $ 1,340
========= =======
Interest paid during the period............................. $ 3,181 $ --
========= =======
Taxes paid during the period................................ $ -- $ --
========= =======
</TABLE>

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

F-4
<PAGE> 57

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. BASIS OF CONSOLIDATION AND INTERIM FINANCIAL INFORMATION:

Protection One, Inc., a Delaware corporation (Protection One or the
Company) is principally engaged in the business of providing security alarm
monitoring services, which include sales, installation and related servicing of
security alarm systems for residential and small business subscribers in the
United States. The accompanying unaudited consolidated financial statements
include the accounts of Protection One and its wholly owned subsidiaries. As a
result of the November 24, 1997 reverse purchase merger (the "Combination")
between Protection One and the former Western Resources Security Business
(WRSB), the historical operating results presented for the quarter ended March
31, 1997 are those of WRSB.

As of March 31, 1998, Protection One is an 82.2% owned subsidiary of Westar
Capital, Inc. (Westar Capital), a wholly owned subsidiary of Western Resources,
Inc. (WRI).

The Company's unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q.
Accordingly, certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with audited financial statements and notes thereto for the
year ended December 31, 1997 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 25, 1998.

In the opinion of management of the Company, all adjustments, consisting
only of normal recurring adjustments considered necessary for a fair
presentation, have been included. The results of operations for the three month
period ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.

2. PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Office equipment...................................... $ 8,313 $ 5,690
Furniture and fixtures................................ 4,596 4,009
Data processing and telecommunication................. 5,931 4,634
Other................................................. 3,599 3,777
------- -------
22,439 18,110
Less accumulated depreciation and amortization........ 4,252 3,176
------- -------
$18,187 $14,934
======= =======
</TABLE>

Included in furniture and fixtures at March 31, 1998 and December 31, 1997,
are $980 and $452, respectively, of assets under capital leases. Virtually all
property and equipment are depreciated over estimated useful lives ranging from
five to ten years.

3. SUBSCRIBER ACCOUNTS:

Subscriber accounts (at cost) consist of the following:

<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Acquired subscriber accounts.......................... $781,812 $566,811
Less accumulated amortization......................... 44,496 28,493
-------- --------
$737,316 $538,318
======== ========
</TABLE>

F-5
<PAGE> 58
PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of activity for acquired subscriber accounts is as follows:

<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Balance, beginning of period........................... $566,811 $270,038
Acquisition of subscriber accounts..................... 216,101 296,822
Charges against acquisition holdbacks.................. (1,100) (49)
-------- --------
Balance, end of period................................. $781,812 $566,811
======== ========
</TABLE>

In conjunction with certain purchases of subscriber accounts, the Company
withholds a portion of the purchase price as a reserve to offset qualifying
attrition of the acquired subscriber accounts for a specified period as provided
for in the purchase agreements, and as a reserve for purchase price settlements
of assets acquired and liabilities assumed. As of March 31, 1998 and December
31, 1997, purchase holdbacks were $48,136 and $11,444 respectively.

4. FINANCING:

LONG TERM FINANCING:

Long-term debt is comprised of the following:

<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Senior Subordinated Discount Notes..................... $195,038 $191,926
Convertible Senior Subordinated Notes.................. 103,500 103,500
Samco Financing........................................ 47,706 62,950
Less current portion................................... (8,800) (21,217)
-------- --------
$337,444 $337,159
======== ========
</TABLE>

SENIOR SUBORDINATED DISCOUNT NOTES

The Senior Subordinated Discount Notes are unsecured subordinated
obligations of the Company's wholly owned subsidiary, Protection One Alarm
Monitoring, Inc. ("Monitoring") limited to $166 million aggregate principal
amount at maturity, and will mature on June 30, 2005. In connection with the
Combination, the notes were restated to fair market value for book purposes
reflecting a current market yield of approximately 6.4%. This resulted in bond
premium being recorded to reflect the increase in value of the notes as a result
of the decline in interest rates since the note issuance. The revaluation has no
impact on the expected cash flow to existing noteholders.

Although for federal income tax purposes a significant amount of original
issue discount, taxable as ordinary income, will be recognized by a holder as
such discount accrues from the issue date, no interest will be payable prior to
December 31, 1998. From and after June 30, 1998, cash interest on the notes will
accrue at the rate of 13 5/8% per annum, payable in cash semiannually on June 30
and December 31, of each year, commencing December 31, 1998.

CONVERTIBLE SENIOR SUBORDINATED NOTES

The Convertible Senior Subordinated Notes are unsecured subordinated
obligations of Monitoring and rank equal to the Senior Subordinated Discount
Notes. The Convertible Notes mature on September 15, 2003, and previously were
convertible, at any time, into Common Stock at a price of $17.95 per share,
subject to adjustment. Subsequent to the Combination, the Convertible Notes
maintain a conversion price of $11.19 per share.

F-6
<PAGE> 59
PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest on the Convertible Notes accrues at the rate of 6 3/4% per annum,
payable in cash semiannually on March 15 and September 15 of each year, and
commenced on March 15, 1997. The Convertible Notes are redeemable, at the
Company's option, in whole or in part, at any time or from time to time, on or
after September 19, 1999, and prior to maturity, upon not less than 30 days
prior notice at certain specified redemption prices plus accrued and unpaid
interest.

SAMCO FINANCING

Rights to certain of the Company's security alarm monitoring contracts (the
"Contracts") were previously sold to investors by Westinghouse Security (a
predecessor to the Company for accounting purposes). For financial reporting
purposes, the transaction was treated as a financing arrangement and the
proceeds received were recorded as long-term debt. Generally, principal and
interest payments on the debt consist of 65% of the monitoring revenue under the
contracts. Subject to minimum requirements, the Company has the right but not
the obligation to repurchase the Contracts at a fair market value price. During
February 1998, the Company exercised its rights and retired one of the three
outstanding tranches at a purchase price of approximately $15.2 million.

SHORT TERM FINANCING:

REVOLVING CREDIT FACILITY

At December 31, 1997, Protection One had a $100 million revolving credit
facility (the "Revolving Credit Facility") which was to mature in January 2000.
Borrowings under the Revolving Credit Facility bear interest at the lesser of
the bank's prime rate plus 1.00% or LIBOR plus 2.5%. Borrowings made under the
Revolving Credit Facility were collateralized by substantially all of the
Company's assets. The outstanding balance of the Revolving Credit Facility was
paid on November 25, 1997, with proceeds from the Combination. The facility was
terminated in February 1998.

BORROWING FROM PARENT

As of March 31, 1998, Protection One had $458,886 in short-term debt
payable to Westar Capital, which bears interest at 6 11/16% and is due June 1,
1998. The borrowings were composed of a $274,000 working capital loan, which was
used for the purchase of Multimedia and Comsec (each as defined), as well as a
$184,886 note, which was used for the purchase of Network (as defined). On April
1, 1998, the Company entered into a $600 million senior credit facility with
Westar Capital to refinance such promissory note and to replace a previous
credit facility ("the "Senior Credit Facility.")

5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARY:

At March 31, 1998, Protection One owned common stock and preferred stock
representing a 43% ownership in Guardian International, Inc. ("Guardian") at an
aggregate cost of $13 million. Since Protection One does not exercise control
over Guardian's operations, Protection One accounts for the investment under the
equity method of accounting, recognizing the proportionate share of income or
losses of Guardian. For the three months ended, March 31, 1998, Protection One's
equity in the loss of Guardian was $95. For the three months ended March 31,
1998, Protection One received $135 of preferred dividends in the form of
additional preferred stock.

6. MERGERS AND ACQUISITIONS:

During the first quarter of 1998, on February 4, 1998, Protection One
announced its decision to exercise its option to purchase Network Multi-Family
Security Corporation ("Network"), the leading provider of security alarm
monitoring to multi-family dwellings with approximately 200,000 subscribers.
Pursuant to the

F-7
<PAGE> 60
PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

terms of the option, Protection One purchased Network, effective January 1,
1998, for a purchase price of approximately $180 million. On March 2, 1998,
Protection One completed the acquisition of 147,000 subscribers and related
assets of Multimedia Security Services, Inc. ("Multimedia") for a purchase price
of approximately $233 million. On March 17, 1998, Protection One completed the
acquisition of Comsec Narragansett Security, Inc. ("Comsec") for a cash purchase
price of approximately $45 million and the assumption of $15 million of debt.
The Company funded these acquisitions with promissory note financing provided by
Westar Capital.

The following table shows the net cash paid for the above acquisitions:

<TABLE>
<CAPTION>
NETWORK
COMSEC MULTI-FAMILY MULTIMEDIA TOTAL
-------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Assets acquired........................ $ 92,092 $ 185,961 $270,254 $ 548,307
Liabilities assumed.................... (26,443) (185,961) (60,894) (273,298)
-------- --------- -------- ---------
Cash paid.............................. 65,649 -- 209,360 275,009
Less: cash acquired.................... (979) -- -- (979)
-------- --------- -------- ---------
Net cash paid.......................... $ 64,670 $ -- $209,360 $ 274,030
======== ========= ======== =========
</TABLE>

The following unaudited pro forma consolidated results of operations for
the quarters ended March 31, 1998 and 1997, assume these material acquisitions
occurred as of the beginning of the respective years:

<TABLE>
<CAPTION>
PRO FORMA
QUARTER ENDED
MARCH 31,
-------------------
1998 1997
------- --------
<S> <C> <C>
Revenue..................................................... $91,868 $ 88,745
Net loss before tax......................................... (1,269) (16,796)
Per share................................................. (.02) (.24)
Net loss.................................................... (774) (10,246)
Per share................................................. (.01) (.15)
</TABLE>

The pro forma financial information is not necessarily indicative of the
results of operations had the entities been combined for the entire period nor
do they purport to be indicative of results which will be obtained in the
future. The acquisitions have been accounted for under the purchase accounting
method and asset and liabilities have been recorded as estimates of fair market
values based on preliminary purchase price allocations.

7. COMMITMENTS AND CONTINGENCIES:

The Company lease offices facilities for lease terms maturing through 2012.
Future minimum lease payments under noncancelable operating leases are as
follows:

<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1998........................................... $ 6,592
1999........................................... 4,874
2000........................................... 3,452
2001........................................... 2,794
2002........................................... 2,504
Thereafter..................................... 6,438
-------
$26,654
=======
</TABLE>

F-8
<PAGE> 61
PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On January 8, 1997, Innovative Business Systems, Ltd. ("IBS") filed suit
against Western Resources, Westinghouse Electric Corporation ("WEC"),
Westinghouse Security Systems, Inc. ("WSS") and WestSec in Dallas County, Texas
district court. (Cause No. 97-00184) alleging, among other things, breach of
contract against WEC and interference with contract against Western Resources
and WestSec in connection with the sale by WEC of the assets of WSS to Western
Resources and WestSec. IBS claims that WEC improperly transferred software owned
by IBS to Western Resources and WestSec and that Western Resources and WestSec
are not entitled to its use. Western Resources and WestSec have demanded that
WEC defend and indemnify them. WEC, Western Resources and WestSec have denied
IBS' allegations and are vigorously defending them. Management does not believe
the ultimate disposition of the matter will have a material adverse impact on
the Company's overall financial condition or results of operations.

The Company is a party to claims and matters of litigation incidental to
the normal course of its business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect upon the
Company's combines financial position or results of operations.

8. SUBSEQUENT EVENTS:

On April 17, 1998, Protection One filed with the Securities and Exchange
Commission a shelf registration on Form S-3 related to $400 million of equity
and/or debt securities to be issued by the Company from time to time as
determined by market conditions.

F-9
<PAGE> 62

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Protection One, Inc.:

We have audited the consolidated financial statements of Protection One,
Inc. and subsidiaries as of and for the year ended December 31, 1997 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Protection One, Inc. and
subsidiaries as of December 31, 1997 and 1996, and its consolidated results of
operations and cash flows for each of the periods presented in conformity with
generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the Securities
and Exchange Commission rules and are not part of the basic financial
statements. The schedules have been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas,
January 29, 1998

F-10
<PAGE> 63

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 75,556 $ 168
Restricted cash........................................... -- 94
Marketable securities..................................... 5,701 --
Receivables, net.......................................... 20,302 12,572
Inventories............................................... 556 2,892
Prepaid expenses.......................................... 367 407
Deferred tax asset, current............................... 45,078 --
Other..................................................... 28,320 132
---------- --------
Total current assets.............................. 175,880 16,265
Property and equipment, net................................. 14,934 5,446
Subscriber accounts, net.................................... 538,318 265,530
Goodwill and trademarks..................................... 682,180 218,991
Deferred tax asset.......................................... 26,158 --
Other....................................................... 9,174 415
---------- --------
$1,446,644 $506,647
========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 6,235 $ 1,585
Accrued liabilities....................................... 83,200 16,579
Purchase holdbacks........................................ 11,444 --
Acquisition transition costs.............................. 7,469 --
Current portion of long-term debt......................... 21,217 4,548
Capital leases............................................ 490 --
Deferred revenue.......................................... 33,900 13,000
---------- --------
Total current liabilities......................... 163,955 35,712
Long-term debt, net of current portion...................... 337,159 60,505
Capital leases, net of current portion...................... 604 --
Deferred tax liability...................................... 10,325 --
Other liabilities........................................... 626 --
Commitments and contingencies (Note 11)
Stockholders' equity:
Contributed Capital....................................... -- 411,068
Preferred stock, $.10 par value, 5,000,000 shares
authorized............................................. -- --
Common Stock, $.01 par value, 150,000,000 shares
authorized, 83,362,938 shares issued and outstanding at
December 31, 1997 (Note 1)............................. 834 --
Additional paid-in capital................................ 983,082 --
Retained losses........................................... (49,941) (638)
---------- --------
Total stockholders' equity........................ 933,975 410,430
---------- --------
$1,446,644 $506,647
========== ========
</TABLE>

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

F-11
<PAGE> 64

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(NOTE 14)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Monitoring and related services........................... $126,630 $6,382
Installation and other.................................... 18,143 1,715
-------- ------
Total revenues.................................... 144,773 8,097
Costs and expenses:
Monitoring and related services........................... 32,656 1,761
Other..................................................... 3,013 1,587
-------- ------
Total costs and expenses.......................... 35,669 3,348
-------- ------
Gross profit...................................... 109,104 4,749
Selling, general and administrative expenses................ 77,203 5,091
Acquisition and transition expense.......................... 1,308 --
Amortization of intangibles and depreciation expense........ 39,822 609
Nonrecurring charges........................................ 40,144 --
-------- ------
Operating loss.................................... (49,373) (951)
Other income/expenses:
Interest expense, net..................................... 32,900 15
-------- ------
Loss before income taxes.......................... (82,273) (966)
-------- ------
Income tax benefit.......................................... 32,970 310
-------- ------
Net loss.......................................... $(49,303) $ (656)
======== ======
Net loss per share.......................................... $ (.70) $ (.01)
======== ======
</TABLE>

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

F-12
<PAGE> 65

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(49,303) $ (656)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of intangibles and depreciation.............. 39,822 609
Accretion of debt premium................................. 1,026 --
Net deferred taxes........................................ (8,230) --
Provision for doubtful accounts........................... 3,657 184
Non-recurring charges..................................... 40,144 --
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables............................................... (2,467) (1,424)
Inventories............................................... 940 (540)
Prepaid expenses and deposits............................. 294 (32)
Other current assets...................................... (28,988) (200)
Accounts payable.......................................... 492 41
Accrued liabilities....................................... (2,985) 1,749
Deferred revenue.......................................... 670 178
-------- ---------
Net cash used in operating activities............. (4,928) (91)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (3,826) (977)
Placement of installed security systems..................... (29,043) (1,392)
Cash acquired in acquisition transaction.................... 1,374 --
Distribution to equityholders in acquisition transaction.... (107,695) --
WSS acquisition, net of cash received....................... -- (357,269)
Account acquisitions, net of cash received.................. (17,494) (9,898)
-------- ---------
Net cash used in investing activities............. (156,684) (369,536)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................................. (63,749) --
Proceeds from long-term debt................................ -- 53
Funding from Parent......................................... 300,749 369,629
-------- ---------
Net cash provided by financing activities......... 237,000 369,682
-------- ---------
Net increase in cash and cash equivalents................... 75,388 55
Cash and cash equivalents:
Beginning of period....................................... $ 168 $ 113
======== =========
End of period............................................. $ 75,556 $ 168
======== =========
Cash paid for interest.................................... $ 10,202 $ --
======== =========
Cash paid for taxes....................................... $ -- $ --
======== =========
Non-cash financing:
Contribution of net assets from Parent.................... $109,219 $ --
======== =========
</TABLE>

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

F-13
<PAGE> 66

PROTECTION ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL
PREFERRED ------------------ CONTRIBUTED PAID-IN EARNINGS STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL CAPITAL (LOSSES) EQUITY
--------- ---------- ------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995............... $ -- -- $ -- $ 5,373 $ -- $ 18 $ 5,391
Net investment and advances
from WRI................... -- -- -- 379,229 -- -- 379,229
Contribution by WRI of Small
Subs....................... -- -- -- 26,466 -- -- 26,466
Net loss...................... -- -- -- -- (656) (656)
---- ---------- ---- --------- -------- -------- --------
December 31, 1996............... -- -- -- 411,068 -- (638) 410,430
Net investment and advances
from WRI................... -- -- -- 43,827 -- -- 43,827
Recapitalization.............. -- 68,673,402 687 (454,895) 454,208 -- --
Issuance of shares in reverse
purchase acquisition....... -- 14,689,230 147 -- 528,874 -- 529,021
Exercise of options........... -- 306 -- -- -- -- --
Net loss...................... -- -- -- -- -- (49,303) (49,303)
---- ---------- ---- --------- -------- -------- --------
December 31, 1997............... $ -- 83,362,938 $834 $ -- $983,082 $(49,941) $933,975
==== ========== ==== ========= ======== ======== ========
</TABLE>

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

F-14
<PAGE> 67

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF CONSOLIDATION AND BUSINESS

Protection One, Inc. ("Protection One", a Delaware corporation; the
"Company") is principally engaged in the business of providing security alarm
monitoring services, which include sales, installation and related servicing of
security alarm systems for residential and small business subscribers in the
United States.

Prior to November 24, 1997, Protection One was a standalone security
business based in Culver City, California. On November 24, 1997, pursuant to the
Contribution Agreement dated July 30, 1997, between Protection One and Western
Resources, Inc. (a publicly traded utility company based in Topeka, Kansas;
"WRI"), Protection One acquired Centennial Security Holdings, Inc.
("Centennial"), WestSec, Inc., and Westar Security, Inc. ("WestSec" and
"Westar", respectively; together the "Western Resources Security Business" or
"WRSB"). (See Note 2 for discussion of consideration exchanged.) As a result of
the transaction, WRI owns approximately 82.4% of Protection One at December 31,
1997.

The transaction has been accounted for as a reverse purchase acquisition
which treats WRSB as the accounting acquirer. Accordingly, the results of
operation of Protection One and Centennial have been included in the
consolidated financial statements since November 24, 1997 following principles
of purchase accounting. Furthermore, the 1996 and 1995 (see Note 14) historical
financial statements of Protection One are those of the accounting acquirer,
WRSB.

On December 30, 1996, WRI, through its indirect wholly owned subsidiary,
WestSec, purchased the assets and assumed certain liabilities comprising the
security business of Westinghouse Security Systems ("Westinghouse Security")
from Westinghouse Electric Corporation ("WEC"). Westinghouse Security is deemed
to be a predecessor entity of Protection One. As such, Westinghouse Security's
1996 and 1995 results of operations are presented separately from Protection
One's consolidated financial statements elsewhere in this document.

All significant intercompany balances and transactions have been eliminated
in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUES

Revenues are recognized when installation of security alarm systems occurs
and when monitoring, extended service protection, patrol, repair and other
services are provided. The Company does not receive separate connection fees in
any aspect of its business. Deferred revenues result from subscribers who are
billed for monitoring, extended service protection and patrol and alarm response
services in advance of the period in which such services are provided, on a
monthly, quarterly or annual basis. Deferred revenues relating to subscriber
accounts acquired are recorded as part of the allocation of the purchase price
and are amortized to income during the period in which service is provided.
Costs of providing service and installations, including inventory, are charged
to income in the period incurred and when the installation occurs. Losses on
contracts for which future costs are anticipated to exceed revenues are accrued
in the period such losses are identified. Costs of services provided to dealers
are expensed as incurred and are included in acquisition and transition

F-15
<PAGE> 68

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expenses. Contracts for services are generally for an initial noncancelable term
of one to five years with automatic renewal on an annual basis thereafter unless
terminated by either party.

INVENTORIES

Inventories, comprised of alarm systems and parts, are stated at the lower
of average cost or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives. Costs of property and
equipment of purchased businesses are based on fair market value at the date of
acquisition. When property and equipment are retired or sold, the cost and the
related allowance for depreciation are eliminated from the property and
allowance accounts. Gains or losses from retirements and dispositions of
property and equipment are recognized in income in the period realized. Repair
and maintenance costs are expensed as incurred.

INCOME TAXES

Deferred tax assets and liabilities reflect the tax effect of temporary
differences between the financial statement and tax basis of assets and
liabilities and the availability of net operating losses and tax credits.

SUBSCRIBER ACCOUNTS AND INTANGIBLES

Subscriber accounts acquired and intangible assets are stated at cost. The
cost of acquired subscriber accounts includes the cost of accounts purchased and
the estimated fair value of accounts acquired in business acquisitions at the
date of acquisition, including an accrual for estimated acquisition transition
costs. The Company's personnel and related support costs incurred solely in
support of acquiring and transitioning subscriber accounts are expensed as
incurred. Direct and incremental external costs associated with the acquisition
of subscriber accounts are capitalized. If the acquisition is terminated prior
to completion of the purchase transaction the costs are recorded as a loss in
the period of termination. The accrual for transition costs includes liabilities
assumed and incremental external costs related to customer changeover and
transition, warranty obligations costs, employee and lease termination costs and
other related costs. Costs related to sales and marketing of systems for
accounts internally generated are expensed as incurred.

The cost of subscriber accounts is amortized on a straight-line basis over
a 10-year period. It is the Company's policy to evaluate acquired subscriber
account attrition on a quarterly basis utilizing historical attrition rates for
the subscriber accounts in total and, when necessary, adjust the remaining
useful lives.

Intangible assets include goodwill, which is amortized on a straight-line
basis over 40 years and debt issuance costs, which are amortized over the
respective lives of associated debt using the interest method.

CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with a remaining maturity of three
months or less at the date acquired are cash equivalents. These investments,
consisting of money market funds, are stated at cost, which approximates market.

RECEIVABLES

Receivables, which consist primarily of trade accounts receivable, of
$25,509 at December 31, 1997 and $16,985 at December 31, 1996, have been reduced
by allowances for doubtful accounts of $5,207 and $4,413, respectively.

F-16
<PAGE> 69

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MARKETABLE SECURITIES

Management has determined that the Company's marketable securities are
considered held-for-sale securities. As of December 31, 1997, no material
difference existed between the cost and market value of the portfolio, and as
such, no mark-to-market adjustment has been recorded.

RESTRICTED CASH

Restricted cash as of December 31, 1996, was held in escrow to guarantee
payment to certain third parties for licensing and insurance related matters.

ADVERTISING COSTS

The Company expenses advertising costs based on the timing of the release
of the advertising materials. Printed materials, due to the short lead time
between incurrence of cost and the release, are generally expensed as incurred,
whereas broadcast advertising costs are generally recognized upon the first
broadcast of the respective advertisement. Total advertising expense was $9,906
and $2,320 during the years ended December 31, 1997 and 1996, respectively.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial, dispersed
across a wide geographic base. The Company extends credit to its customers in
the normal course of business, performs periodic credit evaluations and
maintains allowances for potential credit losses.

ACCOUNTING PRONOUNCEMENT

The Financial Accounting Standards Board (FASB) has issued several
accounting pronouncements that the Company will be required to adopt in future
fiscal reporting periods.

FASB Statement No. 130, "Reporting Comprehensive Income," which the Company
will adopt for periods beginning after December 15, 1997, establishes standards
for reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all changes in
shareholders' equity except those resulting from investments by or distributions
to shareholders. Such changes are generally not significant to the Company; and
the adoption of Statement No. 130, including the required comparative
presentation for prior periods, is not expected to have a material impact on its
financial statements.

FASB Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes standards for the way that public business
enterprises report information about operating segments in interim and annual
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company will adopt the
provisions of SFAS 131 for financial statements for periods beginning after
December 15, 1997. Management does not expect that the adoption of the
disclosure requirements of this pronouncement will be materially different than
that of its current presentation.

RECLASSIFICATIONS

Certain prior period amounts were reclassified to conform to the December
31, 1997, presentation. Such reclassifications did not affect previously
reported net losses.

F-17
<PAGE> 70

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOSS PER SHARE

Loss per share has been computed and presented in accordance with SFAS 128
"Earnings Per Share." The incremental shares that would have been outstanding
upon the assumed exercise of dilutive convertible securities, stock options and
warrants do not result in a change to net loss per share for the year ended
December 31, 1997. As such, no presentation of diluted earnings per share has
been included in the consolidated statements of operations. The weighted average
shares outstanding used in the computation of net loss attributable to common
shares was 70,202,716 for the year ended December 31, 1997, and, while there
were no actual shares issued or outstanding for prior fiscal years, for purposes
of calculating loss per share there were deemed to be 68,673,402 shares (number
of new shares issued to effect the Acquisition Transaction, see Note 2) for all
prior fiscal years.

2. COMBINATION:

Pursuant to the Contribution Agreement, on November 24, 1997, the Company
issued to WRI an aggregate of 68,673,402 Shares (the "Shares") of Common Stock,
which shares constituted 82.4% of the shares of Common Stock (the only voting
securities of the Company) outstanding immediately after such acquisition (the
"Combination"). In consideration of the issuance of the Shares to WRI (the
"Share Issuance"), WRI transferred to the Company all of the outstanding capital
stock of WestSec, and Westar, and an aggregate of $367.4 million in cash and
securities.

As provided in the Contribution Agreement, the Company paid (i) to the
holders of record of shares of Protection One Common Stock as of the close of
business on November 24, 1997 (other than WRI), a cash dividend of $7.00 per
share (the Special Dividend); (ii) to the holders of options to purchase shares
of Protection One Common Stock (other than WRI) $7.00 in cash with respect to
each share of Common Stock issuable upon exercise of such options; and (iii) to
a bank as the holder of record of a warrant issued by the Company in 1991 and to
the holders of record of warrants issued by the Company in 1993, $7.00 in cash
with respect to each share of Common Stock issuable upon exercise of such
warrants. As a result of the payment of the Special Dividend, each warrant
issued by the Company in 1995 has become exercisable for 1.629 shares of
Protection One Common Stock at an exercise price of $4.05, and the 6 3/4%
Convertible Senior Subordinated Notes due 2003 issued by Protection One Alarm
Monitoring, Inc., a Delaware corporation, will be convertible into shares of
Common Stock at a conversion price of $11.19 per share.

Included in the marketable securities the Company received from WRI was (i)
all of the outstanding capital stock of Centennial,and (ii) 2,885,000 shares of
the Class A Voting Common Stock of Guardian International Inc., a Nevada
corporation (Guardian), par value $.001 per shares, and 1,875,000 shares (the
Guardian Preferred Shares) of the Series A 9 3/4% Convertible Cumulative
Preferred Stock of Guardian. The Guardian Preferred Shares are convertible into
an aggregate of 1,500,000 additional shares of Guardian common stock.

The Combination has been accounted for as a reverse purchase acquisition
and, accordingly, the operating results of Protection One and Centennial have
been included in the consolidated financial statements since November 24, 1997.
The excess of the aggregate purchase price over the fair market value of net
assets acquired of approximately $410 million related to Protection One and
approximately $50 million related to Centennial is being amortized over 40
years.

F-18
<PAGE> 71

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1997 and 1996, assume the Protection One,
Centennial, and Westinghouse Security acquisitions occurred as of the beginning
of the respective years:

<TABLE>
<CAPTION>
1997(A) 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $256,063 $216,861
Net loss.................................................... (49,274) (28,910)
Loss per common share....................................... (.59) (0.35)
</TABLE>

- ------------

(A) Excludes nonrecurring charges from 1997 presentation.

In conjunction with the acquisition of Protection One by WRSB on November
24, 1997, and the acquisition of Westinghouse Security by WRSB on December 30,
1996, net cash paid was as follows:

<TABLE>
<CAPTION>
PROTECTION ONE WESTINGHOUSE SECURITY
-------------- ---------------------
<S> <C> <C>
Assets acquired.................................... $ 998,758 $451,344
Liabilities assumed................................ (362,042) (93,844)
Shares issued...................................... (529,021) --
--------- --------
Cash paid.......................................... 107,695 357,500
Less -- cash acquired.............................. (1,374) (231)
--------- --------
Net cash paid............................ $ 106,321 $357,269
========= ========
</TABLE>

3. NONRECURRING CHARGES:

In connection with the Combination, the Company incurred nonrecurring
charges of $40.1 million, in order to reflect business activities of the
accounting acquirer, WRSB, that are no longer of continuing value to the
combined entity and that will be phased out in the integration of operations.
These charges have been separately identified as a component of operating income
in the accompanying consolidated statement of operations.

Generally, management intends to bring all security operations under the
Protection One brand and to eliminate redundant facilities, systems and
activities in specific locations where such exist. Additionally, costs must be
incurred to transition individual customer accounts from the former service
providers with respect to operations, billing and network systems, and to close
down these operations. Management intends to complete these exit activities by
the fourth quarter of 1998.

Charges for the year ended December 31, 1997, are as follows:

<TABLE>
<S> <C>
Inventory and other asset losses............................ $17,697
Customer account transition................................. 12,337
Disposition of excess fixed assets.......................... 4,128
Closure of duplicate facilities............................. 1,991
Severance compensation and benefits......................... 1,865
Other....................................................... 2,126
-------
$40,144
=======
</TABLE>

F-19
<PAGE> 72

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- ------
<S> <C> <C>
Office equipment............................................ $ 5,690 $3,285
Furniture and fixtures...................................... 4,009 986
Data processing and telecommunication....................... 4,634 1,413
Other....................................................... 3,777 --
------- ------
18,110 5,684
Less accumulated depreciation and amortization.............. 3,176 238
------- ------
$14,934 $5,446
======= ======
</TABLE>

Included in furniture and fixtures at December 31, 1997, are $452 of assets
under capital leases. Virtually all property and equipment is depreciated over
estimated useful lives ranging from five to ten years.

5. SUBSCRIBER ACCOUNTS:

Subscriber accounts (at cost) consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Acquired subscriber accounts................................ $566,811 $270,038
Less accumulated amortization............................... 28,493 4,508
-------- --------
$538,318 $265,530
======== ========
</TABLE>

Reconciliation of activity for acquired subscriber accounts is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $270,038 $ --
Acquisition of subscriber accounts.......................... 296,822 270,038
Charges against acquisition holdbacks....................... (49) --
-------- --------
Balance, end of year........................................ $566,811 $270,038
======== ========
</TABLE>

In conjunction with certain purchases of subscriber accounts the Company
withholds a portion of the purchase price as a reserve to offset qualifying
attrition of the acquired subscriber accounts for a specified period as provided
for in the purchase agreements, and as a reserve for purchase price settlements
of assets acquired and liabilities assumed. As of December 31, 1997, purchase
holdbacks were $11,444. Virtually all of this amount was brought forward in the
Combination. Also in connection with the Combination, the Company took a
nonrecurring charge for excess subscriber attrition as the Company integrated
the operations of Westinghouse Security (see Note 2).

F-20
<PAGE> 73

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT:

Long-term debt is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Senior Subordinated Discount Notes.......................... $191,926 $ --
Convertible Senior Subordinated Notes....................... 103,500 --
SAMCO financing............................................. 62,950 65,053
Less current portion........................................ (21,217) (4,548)
-------- -------
$337,159 $60,505
======== =======
</TABLE>

SENIOR SUBORDINATED DISCOUNT NOTES

The Senior Subordinated Discount Notes are unsecured subordinated
obligations of the Company's wholly owned Protection One Alarm Monitoring
subsidiary ("Monitoring") (see Note 13), limited to $166 million aggregate
principal amount at maturity, and will mature on June 30, 2005. In connection
with the Combination, the notes were restated to fair market value for book
purposes reflecting a current market yield of approximately 6.4%. This resulted
in bond premium being recorded to reflect the increase in value of the notes as
a result of the decline in interest rates since the note issuance. The
revaluation has no impact on the expected cash flow to existing noteholders.

The Senior Subordinated Discount Notes are fully, unconditionally and
jointly and severally guaranteed on a senior subordinated basis by Protection
One.

The Senior Subordinated Discount Notes contain covenants which, among other
matters, limit the Company and its Subsidiaries' ability to incur indebtedness,
pay dividends, sell assets, make stock distributions or sell shares of certain
subsidiaries.

CONVERTIBLE SENIOR SUBORDINATED NOTES

The Convertible Notes are unsecured subordinated obligations of Monitoring
and rank equal to the Senior Subordinated Discount Notes. The Convertible Notes
mature on September 15, 2003, and previously were convertible, at any time, into
Common Stock at a price of $17.95 per shares, subject to adjustment. Subsequent
to the Acquisition Transaction, the Convertible Notes maintain a conversion
price of $11.19 per share.

Interest on the Convertible Notes accrues at the rate of 6 3/4% per annum,
payable in cash semiannually on March 15 and September 15 of each year,
commencing March 15, 1997. The Convertible Notes are redeemable, at the
Company's option, in whole or in part, at any time or from time to time, on or
after September 19, 1999, and prior to maturity, upon not less than 30 days
prior notice at certain specified redemption prices plus accrued and unpaid
interest.

The Convertible Notes are fully, unconditionally and jointly and severally
guaranteed on a senior subordinated basis by Protection One.

F-21
<PAGE> 74

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The indenture under which the Convertible Notes were issued contains
covenants which limit the Company and its subsidiaries' ability to incur certain
indebtedness.

REVOLVING CREDIT FACILITY

At December 31, 1997, Protection One had a $100 million revolving credit
facility (the "Senior Credit Facility") which matures in January 2000.
Borrowings under the Senior Credit Facility bear interest at the lesser of the
bank's prime rate plus 1.00% or LIBOR plus 2.50%. Borrowings made under the
Senior Credit Facility are collateralized by substantially all of the Company's
assets. The outstanding balance of the Senior Credit Facility was paid on
November 25, 1997, with proceeds from the Combination. The facility was
terminated in February of 1998.

SAMCO

During 1992 and through 1994, Westinghouse Security entered into a series
of agreements (the "SAMCO Agreements") to sell certain rights in security alarm
monitoring contracts (the "Contracts") to an investor for approximately $76.9
million in cash. The investor financed the transactions through the issuance of
three series of secured five-year notes (the "Investor Notes"). For financial
reporting purposes, WEC accounted for the transactions as a financing
arrangement and recorded the proceeds received from the investor as long-term
debt. The amounts recorded as debt were amortized using the interest method.
Generally, principal and interest payments on the debt consist of 65% of the
monitoring revenues collected under the Contracts. In addition, as part of the
SAMCO Agreements, WEC provided the investor with certain guarantees with respect
to accounts which terminate prior to the completion of the contract period.

Under the SAMCO Agreements, WEC had the right but not the obligation,
exercisable not more than 15 months or less than 12 months prior to the stated
maturity of any series of Investor Notes to repurchase the Contracts or cause
the disposition of Contracts securing a particular series of Investor Notes, for
an amount equal to the then fair market value of such Contracts, provided such
fair market value will not be less than the amount necessary to satisfy all
obligations of the investor related to such series of Investor Notes plus
certain taxes, if any (the "Minimum Purchase Price"). In the event of an
unsolicited third party offer in excess of the then Minimum Purchase Price to
purchase such Contracts prior to 12 months before the stated maturity of any
series of Investor Notes, the SAMCO Agreements provided WEC a right of first
refusal to buy such Contracts. In addition, the SAMCO Agreements provided that
WEC would receive 60% of the excess of the fair market value over the Minimum
Purchase Price, if any, if WEC repurchases or arranges the sale of such
Contracts.

On December 30, 1996, WEC assigned to WestSec all of WEC's rights, title
and interest, and WestSec agreed to assume all of WEC liabilities and
obligations under the SAMCO Agreements in connection with WestSec's purchase of
Westinghouse Security. This assumption of liabilities requires WestSec to
purchase the Contracts on the respective stated maturity date of the Investor
Notes. The purchase price payable by WestSec is equal to the greater of a)
Minimum Purchase Price plus 40% of the excess of the fair market value over the
minimum purchase price or b) 30 times total monthly recurring revenue related to
the Contracts. As a condition of assuming the debt obligation, WestSec issued a
letter of credit for $85 million to ensure the debt holder the obligation would
be repaid. Protection One pays interest on this obligation on a monthly basis
and amounts of interest actually paid approximated interest expense for the
years ended December 31, 1997 and 1996.

The effective interest rate related to the SAMCO Agreements approximates
15%. The estimated minimum principal payment for each of the years subsequent to
December 31, 1997, based upon current estimates of fair value are as follows:
1998 - $21.2 million and 1999 - $41.7 million.

F-22
<PAGE> 75

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARY:

At December 31, 1997, Protection One owned common stock and preferred stock
representing a 41% ownership interest in Guardian at an aggregate cost of $9.2
million. Such securities were contributed by WRI to Protection One pursuant to
the Contribution Agreement. Since Protection One does not exercise control over
Guardian's operations, Protection One accounts for the investment under the
equity method of accounting, recognizing the proportionate share of income or
losses of Guardian. For the 36 days ended December 31, 1997, Protection One's
equity in income of the unconsolidated subsidiary, Guardian, was $25.

8. STOCK WARRANTS AND OPTIONS:

The following is a detail of previously issued options and warrants of
Protection One:

In January 1993, Protection One issued 103,697 warrants ("KOP Warrants") to
purchase shares of Common Stock at an exercise price of $3.633 per share. The
outstanding warrants expire in January 2001.

On November 3, 1993, Protection One issued 1,400,000 warrants to purchase
840,000 shares of Common Stock as part of a Units offering. Each warrant, when
exercised, will entitle the holder to receive six-tenths (0.6) of one share of
Common Stock at an exercise price of $0.167 per share, subject to adjustment.
The outstanding warrants expire on November 1, 2003.

The 1994 Stock Option Plan (the Plan), approved by the Protection One
stockholders in June 1994, provides for the award of incentive stock options to
directors, officers and key employees. One million three hundred thousand
(1,300,000) shares are reserved for issuance under the Plan, subject to such
adjustment as may be necessary to reflect changes in the number or kinds of
shares of Common Stock or other securities of Protection One. The Option Plan
provides for the granting of options that qualify as incentive stock options
under the Internal Revenue Code and options that do not so qualify.

During fiscal year 1995, Protection One granted options to purchase an
aggregate of 266,000 shares of Common Stock including 132,000 shares to officers
of Protection One. Each option has a term of 10 years and vests 20% on each of
the third through seventh anniversaries of the commencement of the participant's
employment with the Protection One. The purchase price of the shares issuable
pursuant to the options is equal to fair market value of Common Stock at the
date of option grant. Pursuant to the Combination, the vesting of these options
accelerated on November 24, 1997 and all remaining options are currently
exercisable.

In connection with the issuance of the Senior Subordinated Discount Notes
in May 1995, Protection One issued warrants to purchase 531,200 shares of common
stock at an exercise price of $6.60 per share. The outstanding warrants expire
in May 2005.

During fiscal year 1996, Protection One granted options to purchase an
aggregate of 638,800 shares of Common Stock including 400,000 shares granted to
officers of Protection One. Each option has a term of 10 years and vests 20% on
each of the first through fifth anniversaries of the later of November 15, 1995,
or the commencement of the participant's employment with Protection One. The
purchase price of the shares issuable pursuant to the options is equal to (or
greater than) the fair market value of the Common Stock at the date of the
option grant. Pursuant to the Combination, the vesting of these options
accelerated on November 24, 1997 and all remaining options are currently
exercisable.

On July 9, 1997, Protection One granted options to purchase an aggregate of
50,000 shares of common stock. Each option has a term of four years. The
purchase price of the shares issuable pursuant to the options is greater than
the fair market value of the Common Stock at the date of the option grant.

During fiscal year 1997, Protection One granted options to purchase an
aggregate of 375,444 shares of Common Stock to employees including 100,000
shares granted to officers of Protection One. Each option has

F-23
<PAGE> 76

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a term of 10 years and vests 20% on each of the first through fifth
anniversaries of the later of December 6, 1996, or the commencement of the
participant's employment with Protection One. The purchase price of the shares
issuable pursuant to the options is equal to (or greater than) the fair market
value of the Common Stock at the date of the option grant. Pursuant to the
Combination, the vesting of these options accelerated on November 24, 1997 and
all remaining options are currently exercisable.

A summary of warrant and option activity for Protection One from the date
of the Acquisition Transaction is as follows:

<TABLE>
<CAPTION>
WARRANTS
AND OPTIONS PRICE RANGE
----------- ----------------
<S> <C> <C>
Outstanding and exercisable at November 24, 1997....... 2,198,389 $0.05 to $16.375
Granted................................................ -- --
Exercised.............................................. (306) $0.05
Surrendered............................................ -- --
--------- ----------------
Outstanding and exercisable at December 31, 1997....... 2,198,083 $0.05 - $16.375
=========
</TABLE>

As WRSB had no outstanding stock at or prior to November 24, 1997 there were no
related options.

The table summarizes stock options outstanding as of December 31, 1997:

<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED-
RANGE OF AND REMAINING AVERAGE
DESCRIPTION EXERCISE PRICE EXERCISABLE CONTRACTUAL LIFE EXERCISE PRICE
----------- ----------------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
Fiscal 1995 Options...... $5.875 - $9.125 159,360 8 years $ 6.602
Fiscal 1996 Options...... $8.00 - $10.313 384,300 8 years $ 8.088
Fiscal 1996 Options...... $12.125 - $16.375 148,000 8 years $14.857
Fiscal 1997 Options...... $9.50 253,000 9 years $ 9.50
Fiscal 1997 Options...... $15.00 50,000 9 years $ 15.00
1997 Options............. $14.268 50,000 4 years $14.268
Phillips Options......... $0.05 1,425 9 years $ 0.05
KOP Warrants............. $3.633 103,697 4 years $ 3.633
November 1993 Warrants... $0.167 462,001 6 years $ 0.167
May 1995 Note Warrants... $6.60 466,400 8 years $ 6.60
</TABLE>

In connection with the acquisition transaction, Protection One issued to
Western Resources a call option on an additional 2,750,238 shares of common
stock at a price of $15.50 per share. The option expires on the earlier of a) 45
days following the last date on which any Protection One convertible notes are
still outstanding, or b) October 31, 1999.

F-24
<PAGE> 77

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES:

Components of the income tax benefit are as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Federal --
Current.................................................. $21,640 $265
Deferred................................................. 7,210 --
State --
Current.................................................. 3,090 45
Deferred................................................. 1,030 --
------- ----
Total............................................ $32,970 $310
======= ====
</TABLE>

The difference between the income tax benefit at the federal statutory rate
and income tax benefit in the accompanying statements of operations is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Federal statutory tax rate................................. (35)% (35)%
State income taxes, net of Federal benefit................. (6)% (6)%
Non-deductible goodwill.................................... 1% 9%
---- ----
(40)% (32)%
==== ====
</TABLE>

PROTECTION ONE

Components of the income tax benefit from losses recorded for the year
ended December 31, 1997, include Protection One from the date of the Combination
and WRSB for the calendar year then ended. Protection One and subsidiaries will
be included in the tax returns filed by WRI for calendar year 1997. A tax
sharing agreement between Protection One and WRI provides for the payment to
Protection One by WRI for tax benefits utilized by WRI and accordingly, the
receivable of $24.7 million related to the current tax benefit for the year
ended December 31, 1997, has been included in other current assets in the
accompanying consolidated balance sheet.

At December 31, 1997, consolidated Protection One had approximately $50
million in net operating loss carryforwards for income tax return purposes.
Current tax regulations limit the use of these NOL carryforwards to 1) the
extent Protection One earns taxable income subsequent to November 24, 1997, and
2) certain annual use levels, even if taxable income is generated. As a result,
management has determined that a valuation allowance is appropriate in
accordance with SFAS 109 "Accounting for Income Taxes."

F-25
<PAGE> 78

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, deferred income tax assets and liabilities were
composed of the following:

<TABLE>
<S> <C>
Deferred tax asset (liability) current --
Accrued liabilities....................................... $ 24,305
Accounts receivable, due to allowance..................... 2,083
Acquisition reserves and holdbacks........................ 6,684
Prepaids.................................................. 1,501
Other..................................................... 10,505
--------
$ 45,078
========
Deferred tax asset (liability) noncurrent --
Net operating loss carryforwards.......................... $ 16,943
Valuation allowance....................................... (16,943)
Subscriber accounts....................................... 1,348
Property, plant & equipment............................... 3,429
Noncompete agreements..................................... 1,101
Capitalized Direct installation costs..................... (10,200)
OID amortization.......................................... 16,824
Debt offering costs....................................... 3,331
--------
$ 15,833
========
</TABLE>

WRSB

The income tax attributes of WRSB were consolidated into the tax returns
filed by WRI for calendar year 1996. As a result, the cumulative tax losses were
utilized by WRI. No cash was paid for income taxes for the year ended December
31, 1996. The resulting net deferred tax asset was contributed to WRI and was
recorded as a reduction of additional paid-in capital in the accompanying
balance sheet. Therefore, there were no deferred tax assets and liabilities
recorded at December 31, 1996.

10. EMPLOYEE BENEFIT PLANS:

401(K) PLAN

The Company maintains a tax-qualified, defined contribution plan that meets
the requirements of Section 401(k) of the Internal Revenue Code (the "401(k)
Plan"). The Company at its election also may make contributions to the 401(k)
Plan, which contributions will be allocated among participants based upon the
respective contributions made by the participants through salary reductions
during the applicable plan year. The Company's matching contribution may be made
in Common Stock, in cash or in a combination of both stock and cash. As of
year-end, Protection One made a matching contribution to the plan of $34.

WRSB also maintained a savings plan which qualified under Section 401(k).
The savings plan allowed eligible employees to contribute up to 15% of their
income on a pretax basis, with a discretionary employer match of 50% of the
employee's contribution up to the first 6% of the employee's compensation.
During the year ended December 31, 1997, WRSB made matching contributions equal
to $721. Management intends to merge the two 401(k) employee benefit plans as
soon as practically possible.

EMPLOYEE STOCK PURCHASE PLAN

The Employee Stock Purchase Plan is designed to qualify as an "Employee
Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue
Code, and will allow eligible employees to acquire shares of Common Stock at
periodic intervals through their accumulated payroll deductions. A total of

F-26
<PAGE> 79

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

650,000 shares of Common Stock have been reserved for issuance under the
Employee Stock Purchase Plan, which is administered by the Compensation
Committee.

The purchase price of shares of Common Stock purchased under the Employee
Stock Purchase Plan during any purchase period will be the lower of (i) 85% of
the fair market value of the Common Stock on the first day of that purchase
period or (ii) 85% of the fair market value of the Common Stock on the purchase
date.

Termination of a participant's employment for any reason (including death,
disability or retirement) cancels participation in the Employee Stock Purchase
Plan immediately. The Employee Stock Purchase Plan will in all events terminate
upon the earliest to occur of (i) the last business day in September 2005, (ii)
the date on which all shares available for issuance under the plan have been
sold or (ii) the date on which all purchase rights are exercised in connection
with an acquisition of the Company or all or substantially all of its assets.

11. COMMITMENTS AND CONTINGENCIES:

The Company leases office facilities for lease terms maturing through 2012.
Future minimum lease payments under noncancelable operating leases are as
follows:

<TABLE>
<S> <C>
Year ended December 31
1998...................................................... $ 6,592
1999...................................................... 4,874
2000...................................................... 3,452
2001...................................................... 2,794
2002...................................................... 2,504
Thereafter................................................ 6,438
-------
$26,654
=======
</TABLE>

Total rent expense for the years ended December 31, 1997, and 1996, was
$4,654 and $3,409, respectively.

On January 8, 1997, Innovative Business Systems, Ltd. ("IBS") filed suit
against WRI, WEC, WSS and WestSec in Dallas County, Texas district court (Case
No. 97-00184) alleging, among other things, breach of contract against WEC and
interference with contract against WRI and WestSec in connection with the sale
by WEC of the assets of WSS to WRI and WestSec. IBS claims that WEC improperly
transferred software owned by IBS to WRI and WestSec and that WRI and WestSec
are not entitled to its use. WRI and WestSec have demanded that WEC defend and
indemnify them. WEC, WRI and WestSec have denied IBS' allegations and are
vigorously defending against them. Management does not believe the ultimate
disposition of the matter will have a material adverse effect upon the Company's
overall financial condition or results of operations.

The Company is a party to claims and matters of litigation incidental to
the normal course of its business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect on the
Company's combined financial position or results of operations.

F-27
<PAGE> 80

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS:

For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and other accrued
liabilities, the carrying amounts approximate fair market value due to their
short maturities.

Due to the adjustments recorded in purchase accounting, as of December 31,
1997, Protection One debt is believed to be reflected in the financial
statements as an amount approximating fair market value.

The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized at year-end or may be
realized in the future.

13. SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION

Protection One is a guarantor of all outstanding debt of Monitoring.
Protection One has no other assets or operation outside the investments in its
subsidiaries. Separate audited financial statements for Monitoring as debt
issuer have not been provided because Monitoring is wholly-owned and the
guarantee is full and unconditional.

The summarized financial information of Monitoring from the date of the
Acquisition Transaction through December 31, 1997, is presented below:

<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEET DECEMBER 31, 1997
------------------------ -----------------
<S> <C>
Assets
Current assets............................................ $110,350
Subscriber accounts and intangibles, net.................. 229,366
Goodwill and patents...................................... 408,295
Other noncurrent assets................................... 46,418
Liabilities and Stockholders' Equity Deferred revenue....... 16,457
Other current liabilities................................. 55,216
Long-term debt, net of current position................... 295,426
Other long-term liabilities............................... 703
Stockholders' equity...................................... 457,511
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NOVEMBER 24, 1997, TO
SUMMARIZED STATEMENT OF OPERATIONS DECEMBER 31, 1997
---------------------------------- ---------------------
<S> <C>
Revenues.................................................... $10,812
Gross profit.............................................. 7,527
Net loss.................................................. (1,124)
</TABLE>

14. 1995 OPERATING RESULTS OF PROTECTION ONE

Operating results for the year ended December 31, 1995, can be considered
nominal in relation to the accompanying consolidated statements of operations.
The 1995 results are comprised of only two months of start-up activity.
Summarized operating results are as follows:

<TABLE>
<S> <C>
Revenue............................................... $344
Gross Profit.......................................... 189
Net Income............................................ 18
</TABLE>

F-28
<PAGE> 81

PROTECTION ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. SUBSEQUENT EVENTS -- MERGERS AND 1998 ACQUISITIONS (UNAUDITED):

Subsequent to the end of fiscal year 1997, on February 4, 1998, Protection
One announced its decision to exercise its option to purchase Network
Multi-Family Security Corporation ("Network"), the leading provider of security
alarm monitoring to multi-family dwellings with approximately 200,000
subscribers. Pursuant to the terms of the option, Protection One will give WRI
cash consideration of approximately $180 million.

On March 2, 1998, Protection One completed the acquisition of 147,000
subscribers and related assets of Multimedia Security Services, Inc.
("Multimedia") for a purchase price of approximately $233 million. The
Multimedia purchase added to the Company's market positions in California,
Florida and Texas and added substantial numbers of subscribers in Kansas and
Oklahoma. In addition, Protection One will maintain Multimedia's monitoring and
customer service center in Wichita, Kansas.

On March 17, 1998, Protection One completed the acquisition of Comsec
Narragansett Security, Inc. ("Comsec") for a cash purchase price of
approximately $45 million and the assumption of $15 million of debt. Comsec's
30,000 subscribers are located primarily in Connecticut, Maine, Massachusetts
and New Hampshire.

F-29
<PAGE> 82

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Protection One, Inc.

We have audited the accompanying statements of operations and cash flows of
Westinghouse Security (a predecessor of Protection One, Inc.) for the 52 weeks
ended December 20, 1995, and the 53 weeks ended December 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Westinghouse Security (a predecessor of Protection One, Inc.) for the 52 weeks
ended December 20, 1995, and the 53 weeks ended December 30, 1996, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Kansas City, Missouri
August 22, 1997

F-30
<PAGE> 83

WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FOR THE
53 WEEKS ENDED 52 WEEKS ENDED
DECEMBER 30, DECEMBER 20,
1996 1995
-------------- --------------
<S> <C> <C>
Revenues:
Monitoring and related services........................... $ 93,765 $74,911
Installation and other.................................... 17,116 13,799
-------- -------
Total revenues.................................... 110,881 88,710
Costs and expenses:
Monitoring and related services........................... 24,987 16,843
Other..................................................... 973 437
-------- -------
Total costs and expenses.......................... 25,960 17,280
-------- -------
Gross profit...................................... 84,921 71,430
Selling, general and administrative expenses................ 60,166 50,919
Acquisition and transition expense.......................... 101 101
Amortization of intangibles and depreciation expense........ 21,613 17,804
-------- -------
Operating income.................................. 3,041 2,606
Other income/expense:
Interest expense, net..................................... 10,879 12,159
-------- -------
Loss before income taxes.......................... (7,838) (9,553)
-------- -------
Income tax benefit.......................................... 2,978 3,630
-------- -------
Net loss.......................................... $ (4,860) $(5,923)
======== =======
</TABLE>

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

F-31
<PAGE> 84

WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FOR THE
53 WEEKS ENDED 52 WEEKS ENDED
DECEMBER 30, DECEMBER 20,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (4,860) $ (5,923)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 1,052 975
Amortization of intangibles............................... 20,562 16,829
Provision for doubtful accounts........................... 3,108 2,542
Changes in assets and liabilities, net of effects of
acquisitions:
Restricted cash........................................... 119 (5)
Receivables............................................... (2,170) (3,449)
Inventories............................................... 1,491 (755)
Prepaid expenses and deposits............................. (182) 311
Other current assets...................................... (65) 909
Accounts payable.......................................... (1,835) 385
Accrued liabilities....................................... 5,876 922
Deferred revenue.......................................... 633 2,332
-------- --------
Net cash provided by operating activities......... 23,729 15,073
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (1,219) (2,794)
Subscriber account installations and purchases.............. (39,241) (40,300)
-------- --------
Net cash used in investing activities............. (40,460) (43,094)
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding from Westinghouse................................... 21,880 34,935
Repayments of long-term debt................................ (5,146) (6,806)
-------- --------
Net cash provided by financing activities......... 16,734 28,129
-------- --------
Net increase in cash and cash equivalents................... $ 3 $ 108
======== ========
Cash and cash equivalents:
Beginning of period....................................... $ 134 $ 26
======== ========
End of period............................................. $ 137 $ 134
======== ========
</TABLE>

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

F-32
<PAGE> 85

WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)

1. BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

On December 30, 1996, Western Resources, Inc. ("Western Resources"),
through its indirect wholly owned subsidiary, WestSec, Inc. ("WestSec"),
purchased the assets and assumed certain liabilities comprising the security
business of Westinghouse Security Systems ("WSS") (the "Company"), from
Westinghouse Electric Corporation ("Westinghouse"). Presented herein are the
historical results of operations of WSS (as predecessor of Protection One, Inc.)
and do not reflect the adjustments related to the Western Resources' purchase at
December 30, 1996. Prior to 1996, WSS closed its fiscal year on December 20.

WSS provided alarm monitoring services and sold, installed and serviced
security alarm systems principally for residential and small business
subscribers. Most of the WSS customers were in the southern portion of the
United States.

REVENUES

Monitoring revenues, generally derived from contracts for an initial
noncancelable term, are recognized monthly as services are provided. Amounts
billed in advance are deferred and are recognized in the month service occurs.
Installation revenues are recognized in the period of installation of the alarm
system. Service revenues are recognized in the period that the services are
provided.

INVENTORIES

Inventories, comprised of alarm systems and parts, held for installation
and service, are stated at the lower of average cost or market. For the 53 weeks
ended December 30, 1996 and the 52 weeks ended December 20, 1995, approximately
$1,634 and $650, respectively, was charged to expense resulting from the
writedown of inventory to its respective market values.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated using the
straight-line method over its estimated useful life (five to ten years for
furniture and other equipment). When property and equipment is retired or sold,
the cost and the related accumulated depreciation is eliminated from their
respective accounts. Gains or losses from retirements and dispositions of
property and equipment are recognized in the period realized. Repair and
maintenance costs are expensed as incurred.

INCOME TAXES

WSS historically has been included in the consolidated federal income tax
return filed by Westinghouse. Income taxes have been allocated to WSS as if they
were filing a separate tax return. WSS accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 which requires that
deferred tax assets and liabilities be established for the basis differences
between the reported amounts of assets and liabilities for financial reporting
purposes and income tax purposes.

ADVERTISING COSTS

WSS generally expensed broadcast and print advertising costs based on the
timing of the release of the advertising materials. Advertising costs are
generally recognized upon the first broadcast of the respective advertisement.

F-33
<PAGE> 86
WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SUBSCRIBER ACCOUNTS

Subscriber accounts installed are stated at cost. Direct costs of installed
accounts are capitalized. These direct costs include materials and equipment on
subscriber premises, direct installation labor, and other direct installation
costs. Accounts purchased are capitalized at amounts paid to acquire these
accounts. Such capitalized costs are amortized on a straight-line basis over the
average subscriber life estimated to be ten years.

GOODWILL

Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over 40 years.

CASH AND CASH EQUIVALENTS

Westinghouse historically performed cash management functions for WSS.
Disbursements were funded and deposits were swept centrally by Westinghouse and
intercompany accounts were used to accumulate net amounts owed or borrowed. WSS
maintained certain bank accounts primarily related to payroll, permit fees and
customer referral payments. The balances of such accounts are included in cash
and cash equivalents in the accompanying balance sheet.

For purposes of the statement of cash flows, WSS considered all highly
liquid investments purchased with a remaining maturity of three months or less
at the date acquired to be cash equivalents.

RELATED PARTY TRANSACTIONS

WSS received a number of administrative and support services from
Westinghouse, participated in certain Westinghouse employee benefit plans, and
its results of operations were included in certain of Westinghouse's
consolidated income tax returns. Further information about such relationships
and transactions is included in Notes 2, 3, and 4.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject WSS to concentrations of
credit risk consist principally of trade receivables from a large number of
customers, including both residential and commercial, dispersed across a wide
geographic base. WSS extended credit to its customers in the normal course of
business, performs periodic credit evaluations and maintains allowances for
potential credit losses.

USE OF ESTIMATES

F-34
<PAGE> 87
WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. INCOME TAXES:

Components of the income tax benefit are as follows:

<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
DECEMBER 20, DECEMBER 30,
1995 1996
-------------- --------------
<S> <C> <C>
Federal --
Current............................................. $11,650 $ 9,462
Deferred............................................ (8,865) (7,172)
State --
Current............................................. 1,605 1,303
Deferred............................................ (760) (615)
------- -------
Total....................................... $ 3,630 $ 2,978
======= =======
</TABLE>

The difference between the income tax benefit at the federal statutory rate
and income tax benefit in the accompanying statements of operations is as
follows:

<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
DECEMBER 20, DECEMBER 30,
1995 1996
-------------- --------------
<S> <C> <C>
Federal statutory tax rate............................ (35)% (35)%
State income taxes, net of Federal benefit............ (3)% (3)%
---- ----
(38)% (38)%
==== ====
</TABLE>

No cash was paid for income taxes for the 52 weeks ended December 20, 1995,
and the 53 weeks ended December 30, 1996.

3. RELATED PARTY TRANSACTIONS

During 1995 and 1996, WSS purchased products from and sold products to
other Westinghouse operations on a limited basis. WSS was charged directly for
the costs of certain services that Westinghouse provided. These services
included information system support, certain accounting functions, such as
transaction processing, legal services, human resources and telecommunications.
Westinghouse also provided WSS with other services, as needed, including
printing, productivity and other consulting services. For the 52 weeks ended
December 20, 1995, amounts charged for these services were not significant. For
the 53 weeks ended December 30, 1996, approximately $1.1 million was charged to
WSS for these services, primarily for telecommunications. Historically, these
transactions were not settled in cash, but instead recorded in intercompany
payable accounts. Since this obligation was not repaid by WSS to Westinghouse,
amounts accrued were recorded as contributed capital.

Westinghouse allocated a portion of its corporate expenses to its business
units and subsidiaries. These allocated costs include certain corporate
overhead, including among others, corporate legal, environmental and insurance.
These corporate expenses were allocated primarily based on payroll costs and
revenue. Such allocations were not necessarily indicative of actual results and
it is not practical for management to estimate the level of expenses that might
have been incurred had WSS operated as a standalone entity. Amounts allocated to
WSS by Westinghouse approximated $660 and $802 in 1995 and 1996, respectively.

F-35
<PAGE> 88
WESTINGHOUSE SECURITY
(PREDECESSOR OF PROTECTION ONE, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. EMPLOYEE BENEFIT PLANS

WRSB maintained savings plans which qualify under Section 401(k) of the
Internal Revenue Code. The savings plans allowed eligible employees to
contribute up to 15% of their income on a pretax basis to such savings plans.
WSS, at its discretion, may have elected to match 50% of the employee's
contribution up to the first 6% of the employee's compensation. The charge to
operations for WSS' matching contribution approximated $376 and $449 in 1995 and
1996, respectively.

5. COMMITMENTS AND CONTINGENCIES

WSS leased office space and other equipment under noncancellable operating
leases that require aggregate minimum future rentals of:

<TABLE>
<S> <C>
Year ending December 31
1997...................................................... $2,206
1998...................................................... 1,739
1999...................................................... 1,248
2000...................................................... 882
2001...................................................... 642
Thereafter................................................ 1,701
------
$8,418
======
</TABLE>

Total rental expense recognized for the 52 weeks ended December 20, 1995,
and the 53 weeks ended December 30, 1996, for operating leases was approximately
$3,356 and $3,409, respectively.

During the 52 weeks ended December 31, 1995, WSS recognized losses related
to a remaining purchase commitment of $650 based upon management's estimate of
the current market value of certain equipment inventory which was substantially
less than the remaining contractual commitment.

WSS was a party to claims and matters of litigation incidental to the
normal course of its business. The resolution of these matters is not expected
to have a material adverse effect on WSS's financial position or results of
operations.

F-36
<PAGE> 89

PROTECTION ONE, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING CHARGED TO COSTS OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS(A) DEDUCTIONS(B) END OF PERIOD
----------- ---------- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets
for doubtful accounts........ $ 50 $ 184 $4,179 $ -- $4,413
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from assets
for doubtful accounts........ 4,413 3,657 4,578 (7,441) 5,207
</TABLE>

- ------------

(a) Allowances recorded on receivables purchased in conjunction with
acquisition of customer accounts.

(b) Results from write-offs of accounts receivable.

F-37
<PAGE> 90

WESTINGHOUSE SECURITY (PREDECESSOR ENTITY)

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING CHARGED TO COSTS OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS(A) DEDUCTIONS(B) END OF PERIOD
- ----------- ---------- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
52 WEEKS ENDED DECEMBER 20, 1995
Allowances deducted from assets
for doubtful accounts......... $ 454 $2,542 $ -- $ (340) $2,656
53 WEEKS ENDED DECEMBER 30, 1996
Allowances deducted from assets
for doubtful accounts......... 2,656 3,108 -- (1,585) 4,179
</TABLE>

- ---------------

(a) Allowances recorded on receivables purchased in conjunction with acquisition
of customer accounts.

(b) Results from write-offs of accounts receivable.

F-38
<PAGE> 91

PROSPECTUS

$400,000,000

logo
COMMON STOCK
GUARANTEES OF DEBT SECURITIES

Protection One Alarm Monitoring, Inc.
DEBT SECURITIES

GUARANTEED AS SET FORTH HEREIN BY PROTECTION ONE, INC.

Protection One, Inc., a Delaware corporation ("POI"), may offer from time
to time, in one or more series, shares of common stock, $0.01 par value per
share ("Common Stock"), in amounts, at prices and on terms to be determined by
market conditions at the time of offering. Protection One Alarm Monitoring,
Inc., a Delaware corporation and wholly owned subsidiary of POI ("Monitoring"),
may offer from time to time, in one or more series, debt securities (the "Debt
Securities"), in amounts, at prices and on terms to be determined by market
conditions at the time of offering, such Debt Securities to be fully and
unconditionally guaranteed by POI (the "Guarantees"). The Debt Securities,
Common Stock and Guarantees are referred to herein collectively as the
"Securities." Unless otherwise indicated or the context otherwise requires,
references to "Protection One" or the "Company" are to POI and its direct and
indirect, wholly owned subsidiaries; "POI" means solely POI, excluding its
subsidiaries; "Monitoring" means solely Monitoring, excluding its direct and
indirect subsidiaries; "WestSec" means WestSec, Inc., a Kansas corporation and
wholly owned subsidiary of Monitoring; "Westar" means Westar Security, Inc., a
Kansas corporation and wholly owned subsidiary of POI; and "Western Resources"
means Western Resources, Inc., POI's majority stockholder.

The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, and sinking fund terms, if any, voting or other rights,
if any, exercise price and detachability, if any, and other specific terms will
be set forth in a Prospectus Supplement (the "Prospectus Supplement"), together
with the terms of the offering of such Securities. Any such Prospectus
Supplement will also contain information, as applicable, about material United
States Federal income tax considerations relating to the particular Securities
offered thereby.

The Securities will be issued in bearer or registered form, including in
the form of Global Securities (as defined), unless otherwise set forth in the
Prospectus Supplement.

POI's Common Stock is listed on the Nasdaq Stock Market under the symbol
"ALRM." On April 15, 1998, the last reported sale price of the Common Stock on
the Nasdaq Stock Market was $12 13/16 per share. Any Prospectus Supplement will
also contain information, where applicable, as to any other listing on a
securities exchange of the Securities covered by such Prospectus Supplement.

------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------------------------

The Securities may be sold directly by POI or Monitoring, as applicable,
through agents designated from time to time or to or through underwriters or
dealers. Each of POI and Monitoring, together with its agents or underwriters,
if any, reserves the right to accept or reject in whole or in part any proposed
purchase of Securities to be made directly or through agents or underwriters. If
any agents or underwriters are involved in the sale of any Securities, the names
of such agents or underwriters and any applicable fees, commissions or discounts
and the net proceeds to POI and/or Monitoring will be set forth in the
applicable Prospectus Supplement. See "Plan of Distribution." This Prospectus
may not be used to consummate any sale of Securities unless accompanied by a
Prospectus Supplement.

------------------------

May 11, 1998.
<PAGE> 92

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY POI, MONITORING OR ANY OF THEIR UNDERWRITERS, DEALERS OR AGENTS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.

------------------------

AVAILABLE INFORMATION

POI and Monitoring are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549, as well as at the following regional offices of the Commission: The
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Such reports, proxy statements and other information
concerning Monitoring are also filed with the National Association of Securities
Dealers, Inc., as a result of the listing of Common Stock of POI on the Nasdaq
Stock Market, and may be inspected at its offices at 1735 K Street, N.W.,
Washington, D.C. 20006.

POI and Monitoring have filed with the Commission a registration statement
on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities. This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. For further information with respect to POI and
Monitoring, reference is made to the Registration Statement.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents have been filed with the Commission and are
incorporated herein by reference:

(a) The Annual Report on Form 10-K of POI and Monitoring for the
fiscal year ended December 31, 1997;

(b) The Current Reports on Form 8-K of POI and Monitoring dated
January 21, 1998, January 26, 1998 (as amended February 6, 1998), February
12, 1998 and March 17, 1998; and

All documents filed by POI and Monitoring pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the initial filing with the Commission of
the Registration Statement of which this

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Prospectus is a part and prior to the termination of the offering of the
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing such documents.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. Subject to the
foregoing, all information appearing in this Prospectus is qualified in its
entirety by the information appearing in the documents incorporated by
reference.

POI and Monitoring will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
the documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such documents should be directed to Montgomery W.
Cornell, Treasurer and Director of Investor Relations, Protection One, Inc.,
4221 West John Carpenter Freeway, Irving, Texas 75063, telephone number (972)
916-6044.

------------------------

FORWARD-LOOKING STATEMENTS

This Prospectus and accompanying Prospectus Supplement (including the
documents incorporated by reference herein or therein) may contain certain
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements generally can be identified by use of
statements that include phrases such as Protection One or its management
"believes," "expects," anticipates," "intends," "plans," "foresees" or other
words or phrases of similar import. Similarly, statements that describe
Protection One's objectives, plans or goals also are forward-looking statements.
All such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
contemplated by the relevant forward-looking statement. Important factors that
could cause actual results to differ materially from the expectations of
Protection One include, among others: (i) Protection One's need for additional
capital and history of losses; (ii) the risks and uncertainties related to
acquisitions of subscriber accounts and alarm account portfolios and the
Protection One dealer program; (iii) subscriber account attrition; (iv) the
impact of accounting differences for account purchases and new installations;
(v) Protection One's high degree of leverage; (vi) the possible adverse effect
of false alarm ordinances and future government regulations; (vii) risks of
liability from operations; (viii) competition in the security alarm industry and
(ix) general economic conditions, including adverse changes in inflation and
prevailing interest rates. For further discussion of such risks, uncertainties
and assumptions, see "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the applicable Prospectus
Supplement pertaining to any Securities offered hereunder and/or in the periodic
reports of POI and Monitoring. Stockholders, potential investors and other
readers are urged to consider these factors carefully in evaluating the
forward-looking statements. The forward-looking statements included herein are
made only as of the date of this Prospectus and POI and Monitoring undertake no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.

------------------------

"Protection One" is a registered trademark of Monitoring. All rights are
fully reserved. This Prospectus also contains other trademarks of Protection One
and refers to trademarks of other companies.

------------------------

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PROTECTION ONE

Protection One(R) is a leading provider of security alarm monitoring and
related services in the United States with approximately 1.1 million subscribers
as of March 1998. The Company has grown rapidly since its inception by
participating in both the growth and consolidation of the security alarm
monitoring industry. Protection One has focused its customer growth in major
metropolitan areas demonstrating strong demand for security alarms.
Approximately 50% of the Company's direct subscribers are located in the states
of California, Florida and Texas. The Company also has significant numbers of
direct subscribers in the states of Arizona, Georgia, Kansas, Missouri, Nevada,
New York, North Carolina, Oregon, Tennessee and Washington.

POI and Monitoring were incorporated under the laws of the State of
Delaware in September 1991. Protection One's principal executive offices are
located at 6011 Bristol Parkway, Culver City, California 90230 and its telephone
number at that address is (310) 342-6300.

RATIO OF EARNINGS TO FIXED CHARGES

In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings were insufficient to
cover fixed charges by approximately $82.3 million and $1.0 million for the
Company during the years ended December 31, 1997 and 1996, respectively. For the
Company's predecessor, earnings were insufficient to cover fixed charges by
approximately $7.8 million for the 53 weeks ended December 30, 1996, $9.6
million for the 52 weeks ended December 20, 1995, $2.8 million for the 52 weeks
ended December 20, 1994, and $14.8 million for the 52 weeks ended December 16,
1993.

USE OF PROCEEDS

Unless otherwise set forth in a Prospectus Supplement, the net proceeds
from the offering of the Securities will be used for general corporate purposes,
which may include acquisitions, repayment of debt, working capital and capital
expenditures. When a particular series of Securities is offered, the Prospectus
Supplement relating thereto will set forth Protection One's intended use for the
net proceeds received from the sale of such Securities. Pending application for
specific purposes, the net proceeds of any offering of Securities may be
invested in short-term investments and marketable securities.

DESCRIPTION OF THE DEBT SECURITIES

The Debt Securities may be offered from time to time by Monitoring as
either senior or subordinated debt of Monitoring and will be issued, in the case
of Debt Securities that will be senior debt securities ("Senior Debt
Securities"), under an Indenture (the "Senior Debt Indenture") to be entered
into between Monitoring and the party to be named in a Prospectus Supplement as
trustee under the Senior Indenture (the "Senior Trustee"). In the case of Debt
Securities that will be subordinated debt securities ("Subordinated Debt
Securities"), the Debt Securities will be issued under an Indenture (the
"Subordinated Debt Indenture") to be entered into between Monitoring and the
party to be named in a Prospectus Supplement as trustee under the Subordinated
Debt Indenture (the "Subordinated Trustee"). The Senior Debt Indenture and
Subordinated Debt Indenture are sometimes hereinafter referred to individually
as an "Indenture" and collectively as the "Indentures." The Debt Securities
offered by this Prospectus and the accompanying Prospectus Supplement are
referred to herein as the "Debt Securities." "Trustee," as used herein, refers
to either the Senior Trustee or the Subordinated Trustee, as appropriate. The
Senior Trustee and the Subordinated Trustee may be the same institution or
affiliated institutions, except to the extent prohibited by Trust Indenture Act
of 1939, as amended (the "TIA"). The forms of the Senior Debt Indenture and the
Subordinated Debt Indenture are filed as exhibits to the Registration Statement.
See "Available Information." The terms of the Indentures are also governed by
certain provisions of the TIA. The following summary of certain material
provisions of the Debt Securities does not purport to be complete and is
qualified in its

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entirety by reference to the Indentures. All capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in the
Indentures. For a summary of certain definitions used in this section, see
"Certain Definitions" below.

GENERAL

The Indentures will provide for the issuance of Debt Securities in series
up to the aggregate amount from time to time authorized by Monitoring for each
series. A Prospectus Supplement will set forth the following terms of and
information relating to the Debt Securities (to the extent such terms are
applicable to such Debt Securities) in respect of which this Prospectus is
delivered: (1) the designation of such Debt Securities; (2) the classification
of such Securities as Senior or Subordinated Debt Securities; (3) the aggregate
principal amount (or principal amount at maturity) of such Debt Securities; (4)
the percentage of their principal amount (or principal amount at maturity) at
which such Debt Securities will be issued; (5) the date or dates on which such
Debt Securities will mature; (6) the rate or rates, if any (which may be fixed
or variable), per annum, at which such Debt Securities will bear or accrete
interest, or the method of determination of such rate or rates; (7) the times
and places at which such interest, if any, will be payable; (8) provisions for
sinking, purchase or other analogous funds, if any; (9) the date or dates, if
any, after which such Debt Securities may be redeemed at the option of
Monitoring or of the holder and the redemption price or prices; (10) the date or
the dates, if any, after which such Debt Securities may be converted or
exchanged at the option of the holder into or for shares of Common Stock or
other securities of POI or Monitoring and the terms for any such conversion or
exchange; and (11) any other specific terms of (including covenants, if any,
applicable to) a series of Debt Securities. Principal, premium, if any, and
interest, if any, will be payable and the Debt Securities offered hereby will be
transferable, at the corporate trust office of the Trustee's agent, provided
that payment of interest, if any, may be made at the option of Monitoring by
check mailed to the address of the person entitled thereto as it appears in the
Security Register.

If a Prospectus Supplement specifies that a series of Debt Securities is
denominated in a currency or currency unit other than United States dollars,
such Prospectus Supplement shall also specify the denomination in which such
Debt Securities will be issued and the coin or currency in which the principal,
premium, if any, and interest, if any, on such Debt Securities will be payable,
which may be United States dollars based upon the exchange rate for such other
currency or currency unit existing on or about the time a payment is due.
Special United States federal income tax considerations applicable to any Debt
Securities so denominated will be described in the Prospectus Supplement
relating to any such Debt Securities.

The Debt Securities may be issued in registered or bearer form and, unless
otherwise specified in a Prospectus Supplement, in denominations of $1,000 and
integral multiples thereof. Debt Securities may be issued in book-entry form,
without certificates. Any such issue will be described in the Prospectus
Supplement relating to such Debt Securities. No service charge will be made for
any transfer or exchange of the Debt Securities, but Monitoring or the Trustee
may require payment of a sum sufficient to cover any tax or other government
charge payable in connection therewith.

Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount from their stated
principal amount at maturity. United States federal income tax consequences and
other considerations applicable thereto will be described in the Prospectus
Supplement relating to such Debt Securities.

MERGER, CONSOLIDATION AND SALE OF ASSETS

The Indentures will provide that neither Monitoring nor any Guarantor shall
consolidate with or merge into any other corporation or sell, convey, transfer
or lease its properties and assets substantially as an entirety to any Person,
unless: (1) the corporation formed by such consolidation or into which
Monitoring or a Guarantor, as applicable, is merged or the Person which acquires
by sale, conveyance or transfer, or which leases, the properties and assets of
Monitoring or a Guarantor, substantially as an entirety (A) shall be a
corporation, partnership, limited liability company or trust organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and (B) shall expressly assume, by an

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indenture supplemental thereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, the obligations of Monitoring and/or any
Guarantor, as applicable, for the due and punctual payment of the principal of,
premium, if any, and interest on all the Debt Securities and the performance and
observance of every covenant of the Indentures on the part of Monitoring or the
Guarantees on the part of any Guarantor to be performed or observed; (2)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (3) Monitoring or a
Guarantor, as applicable, or such Person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such supplemental
indenture comply with the "Merger, Consolidation and Sale of Assets" provisions
of the Indentures and that all conditions precedent provided for relating to
such transaction have been satisfied. These provisions apply only to a merger or
consolidation in which Monitoring or a Guarantor, as applicable, is not the
surviving corporation and to sales, conveyances, leases and transfers by
Monitoring and any Guarantor as transferor or lessor.

The Indentures will further provide that upon consolidation by Monitoring
or any Guarantor, as applicable, with any other Person or merger by Monitoring
or a Guarantor, as applicable, into any other Person or any sale, conveyance,
transfer or lease of the properties and assets of Monitoring or any Guarantor,
as applicable, substantially as an entirety to any Person in accordance with the
preceding paragraph, the successor Person formed by such consolidation or into
which Monitoring or any Guarantor, as applicable, is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, Monitoring under the Indentures and
any Guarantor under the Guarantees, as applicable, with the same effect as if
such successor Person had been named as Monitoring or any Guarantor therein,
respectively, and in the event of any such conveyance or transfer, Monitoring
and the Guarantor, as applicable, except in the case of a lease, shall be
discharged of all obligations and covenants under the Indentures and the Debt
Securities and the coupons, if any.

EVENTS OF DEFAULT

The following will be "Events of Default" under the Indentures with respect
to Debt Securities of any series:

(1) default in the payment of interest on any Debt Securities of that
series or any related coupon, when such interest or coupon becomes due and
payable, and continuance of such default for a period of 60 days; or

(2) default in the payment of the principal of (or premium, if any,
on) any Debt Securities of that series at its Maturity or upon any
redemption and such default shall continue for five or more days; or

(3) default in the deposit of any sinking fund payment when and as due
pursuant to the terms of the Debt Securities of that series and the
Indentures and such default shall continue for a period of 60 days; or

(4) default in the performance, or breach, of any covenant or warranty
in the Indentures (other than a default in the performance, or breach, of a
covenant or warranty which is specifically dealt with elsewhere under this
"Events of Default" section), and continuance of such default or breach for
a period of 90 days after there has been given, by registered or certified
mail, to Monitoring and any Guarantors by the Trustee or to Monitoring, any
Guarantors and the Trustee by the Holders of at least 33 1/3% in principal
amount (or principal amount at maturity, as the case may be) of all
Outstanding Debt Securities of the affected series, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" thereunder; or

(5) the entry of a decree or order by a court having jurisdiction in
the premises adjudging Monitoring or any Guarantor bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of Monitoring under
the Federal Bankruptcy Code or any other applicable federal or state law,
or appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of Monitoring or any Guarantor, or of any
substantial part of the property of Monitoring or any Guarantor, or
ordering the winding up or liquidation

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of the affairs of Monitoring or any Guarantor, and the continuance of any
such decree or order unstayed and in effect for a period of 90 consecutive
days; or

(6) the institution by Monitoring or any Guarantor of proceedings to
be adjudicated bankrupt or insolvent, or the consent by Monitoring or any
Guarantor to the institution of bankruptcy or insolvency proceedings
against either of them, or the filing by either of them of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable federal or state law, or the
consent by either of them, to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of Monitoring or any Guarantor, or of any
substantial part of the property of Monitoring or any Guarantor, or the
making by either of them of an assignment for the benefit of creditors; or

(7) any other Event of Default provided with respect to Debt
Securities of that series.

The failure to redeem any Security subject to a Conditional Redemption is
not an Event of Default if any event on which such redemption is so conditioned
does not occur and is not waived before the scheduled redemption date.

If an Event of Default described in clause (1), (2), (3), (4) or (7) above
with respect to Debt Securities of any series at the time Outstanding occurs and
is continuing, then in every such case the Trustee or the Holders of not less
than 33 1/3% in principal amount (or principal amount at maturity, as
applicable) of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms of that series) of all of the Debt Securities
of that series to be due and payable immediately, by a notice in writing to
Monitoring and any Guarantors (and to the Trustee if given by Holders), and upon
any such declaration such principal amount (or specified portion thereof) shall
become immediately due and payable. If an Event of Default described in clause
(5) or (6) above occurs and is continuing, then the principal amount of all the
Debt Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.

At any time after a declaration of acceleration with respect to Debt
Securities of any series (or of all series, as the case may be) has been made,
the Holders of a majority in principal amount (or principal at maturity, as the
case may be) of the Outstanding Debt Securities of that series (or of all
series, as the case may be), by written notice to Monitoring or any Guarantors
and the Trustee, may rescind and annul such declaration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of acceleration. No
such rescission shall affect any subsequent default or impair any right
consequent thereto.

Except as otherwise provided in each Indenture, or any supplement thereto,
the Holders of not less than a majority in principal amount (or principal amount
at maturity, as the case may be) of the Outstanding Debt Securities of any
series may on behalf of the Holders of all the Debt Securities of such series
waive any past default described in clause (1), (2), (3), (4) or (7) of the
first paragraph of this section (or, in the case of a default described in
clause (5) or (6) of the first paragraph of this section, the Holders of not
less than a majority in principal amount of all Outstanding Debt Securities may
waive any such past default), and its consequences, except a default (i) in
respect of the payment of the principal of (or premium, if any, on) or interest
on any Debt Security or any related coupon, or (ii) in respect of a covenant or
provision which under the Indentures cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of such series affected.

Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Indentures; but no such waiver shall extend to any subsequent or
other default or Event of Default.

Except to enforce the right to receive payment of principal, premium, if
any, or interest on any Debt Security, no Holder of any Debt Security of any
series or any related coupons shall have any right to institute

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any proceeding, judicial or otherwise, with respect to the Indentures, or for
the appointment of a receiver or trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Debt Securities of that series;
(ii) the Holders of not less than 33 1/3% in principal amount (or the principal
amount at maturity, as the case may be) of the Outstanding Debt Securities of
that series in the case of any Event of Default under clause (1), (2), (3), (4)
or (7) of the first paragraph of this section, or, in the case of any Event of
Default described in clause (5) or (6) of the first paragraph of this section,
the Holders of not less than 33 1/3% in principal amount (or the principal
amount at maturity, as the case may be) of all Outstanding Debt Securities,
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee under each of the
Indentures; (iii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request; (iv) the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute any such
proceeding; and (v) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount (or the principal amount at maturity, as the case may
be) of the Outstanding Debt Securities of that series in the case of any Event
of Default described in clause (1), (2), (3), (4) or (7) of the first paragraph
of this section, or, in the case of any Event of Default described in clause (5)
or (6) of the first paragraph of this section, by the Holders of a majority or
more in principal amount (or the principal amount at maturity, as the case may
be) of all Outstanding Debt Securities.

During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under either Indenture in good
faith. Subject to the provisions of the Indentures relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indentures is not under any obligation to exercise any of its rights
or powers under the Indentures at the request or direction of any of the Holders
unless such Holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
with respect to the Debt Securities of any series, the Holders of not less than
a majority in principal amount (or the principal amount at maturity, as the case
may be) of the Outstanding Debt Securities of such series shall have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee under the Indentures.

Within 90 days after the occurrence of any Default with respect to Debt
Securities of any series, the Trustee shall transmit in the manner and to the
extent provided in TIA Section 313(c), notice of such Default known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of (or
premium, if any, on) or interest on any Debt Securities of such series, or in
the payment of any sinking fund installment with respect to Debt Securities of
such series, the Trustee shall be protected in withholding such notice if and so
long as the Trustee in good faith determines that the withholding of such notice
is in the interest of the Holders of Debt Securities of such series and any
related coupons.

Monitoring is required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a brief certificate of its compliance with all of the
conditions and covenants under the Indentures.

DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURES

The Indentures will provide that Monitoring may, at its option and at any
time, terminate its obligations with respect to the Outstanding Debt Securities
of any series ("defeasance"). Such defeasance means that Monitoring shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Debt Securities and any related coupons, except for the following
which shall survive until otherwise terminated or discharged under the
Indentures: (A) the rights of Holders of such Outstanding Debt Securities and
any related coupons (i) to receive, solely from the trust fund described in the
Indentures, payments in respect of the principal of (and premium, if any, on)
and interest on such Debt Securities and any related coupons when such payments
are due, and (ii) to receive shares of common stock or other Securities from POI
or Monitoring, as applicable, upon conversion of any convertible Debt Securities
issued thereunder, (B) obligations of Monitoring to issue temporary Debt
Securities, register the transfer or exchange of any

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Debt Securities, replace mutilated, destroyed, lost or stolen Debt Securities,
maintain an office or agency for payments in respect of the Debt Securities and,
if Monitoring acts as its own Paying Agent, hold in trust, money to be paid to
such Persons entitled to payment, and with respect to "additional amounts," as
contemplated by the Indentures, if any, on such Debt Securities as contemplated
in the Indentures, (C) the rights, powers, trusts, duties and immunities of the
Trustee under the Indentures and (D) the defeasance provisions of the
Indentures. With respect to Subordinated Debt Securities, money and securities
held in trust pursuant to the Defeasance and Covenant Defeasance provisions
described herein, shall not be subject to the subordination provisions of the
Subordinated Indenture. In addition, Monitoring may, at its option and at any
time, elect to terminate the obligations of Monitoring with respect to certain
covenants that are set forth in the Indentures and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Debt Securities ("covenant defeasance").

In order to exercise either defeasance or covenant defeasance:

(1) Monitoring shall irrevocably have deposited or caused to be
deposited with the Trustee, in trust, for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Debt Securities and any
related coupons, (A) money in an amount (in such currency in which such
Debt Securities and any related coupons are then specified as payable at
Stated Maturity), or (B) Government Obligations applicable to such Debt
Securities (determined on the basis of the currency in which such Debt
Securities are then specified as payable at Stated Maturity) which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment of principal (including any premium) and interest,
if any, under such Debt Securities and any related coupons, money in an
amount or (C) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants to pay and
discharge (i) the principal of (and premium, if any, on) and interest on
the Outstanding Debt Securities and any related coupons on the Stated
Maturity (or any Redemption Date selected by the issuer, if applicable) of
such principal (and premium, if any) or installment or interest and (ii)
any mandatory sinking fund payments or analogous payments applicable to the
Outstanding Debt Securities and any related coupons on the day on which
such payments are due and payable in accordance with the terms of the
Indentures and of such Debt Securities and any related coupons; provided
that the Trustee shall have been irrevocably instructed to apply such money
or the proceeds of such Government Obligations to said payments with
respect to such Debt Securities and any related coupons. Before such a
deposit, Monitoring may give to the Trustee, in accordance with the
redemption provisions in the Indentures, a notice of its election to redeem
all or any portion of such Outstanding Debt Securities at a future date in
accordance with the terms of the Debt Securities of such series and the
redemption provisions of the Indentures, which notice shall be irrevocable.
Such irrevocable redemption notice, if given, shall be given effect in
applying the foregoing;

(2) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the Indentures or
any other material agreement or instrument to which Monitoring is a party
or by which it is bound;

(3) in the case of a covenant defeasance, Monitoring shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Debt Securities and any related coupons will not
recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred;

(4) such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or
limitations in connection therewith pursuant to the Indentures; and

(5) Monitoring shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent under the Indentures to either defeasance or covenant defeasance,
as the case may be, have been satisfied.

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SATISFACTION AND DISCHARGE

The Indentures shall upon Company Request cease to be of further effect
with respect to any series of Debt Securities (except as to any surviving rights
of registration of transfer or exchange of Debt Securities of such series herein
expressly provided for and the obligation of Monitoring to pay any "additional
amounts," as contemplated by each Indenture) and the Trustee shall execute
proper instruments acknowledging satisfaction and discharge of such Indenture as
to such series when (1) either (A) all Debt Securities of such series
theretofore authenticated and delivered and all coupons, if any, appertaining
thereto (other than (i) coupons appertaining to Securities in bearer form
surrendered for exchange for "registered securities" and maturing after such
exchange, whose surrender is not required or has been waived, as provided in the
Indentures, (ii) Debt Securities and coupons of such series which have been
destroyed, lost or stolen and which have been replaced or paid, as provided in
the Indentures, (iii) coupons appertaining to Debt Securities called for
redemption and maturing after the relevant redemption date, whose surrender has
been waived, as provided in the Indentures, and (iv) Debt Securities and coupons
of such series for whose payment money has theretofore been deposited in trust
with the Trustee or any Paying Agent or segregated and held in trust by
Monitoring and thereafter repaid to Monitoring, as provided in the Indentures)
have been delivered to the Trustee for cancellation; or (B) all Debt Securities
of such series and, in the case of (i) or (ii) below, any coupons appertaining
thereto not theretofore delivered to the Trustee for cancellation (i) have
become due and payable, or (ii) will become due and payable at their Stated
Maturity within one year, or (iii) if redeemable at the option of Monitoring,
are to be called for redemption within one year under arrangements reasonably
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of Monitoring, and Monitoring, in the
case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose an amount, in
the currency in which the Debt Securities of such series are payable or in U.S.
Government Obligations, sufficient to pay and discharge the entire indebtedness
on such Debt Securities not theretofore delivered to the Trustee for
cancellation, for principal, premium, if any, and interest to the date of such
deposit (in the case of Debt Securities which have become due and payable) or to
the Stated Maturity or redemption date, as the case may be; (2) Monitoring has
paid or caused to be paid all other sums payable hereunder by Monitoring; and
(3) Monitoring has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to the satisfaction and discharge of the Indentures as to such series
have been satisfied.

AMENDMENTS AND WAIVERS

The Indentures will provide that at any time and from time to time,
Monitoring and the Trustee may, without the consent of any holder of Debt
Securities, enter into one or more indentures supplemental thereto for certain
specified purposes, including, among other things, to (i) cure ambiguities,
defects or inconsistencies, or to make any other provisions with respect to
questions or matters arising under the Indentures; (ii) effect or maintain the
qualification of the Indentures under the TIA; (iii) secure any Debt Securities;
(iv) add covenants for the protection of the holders of Debt Securities; (vi) to
establish the forms or terms of Debt Securities of any series; (vii) make any
other change that does not adversely affect in all material respects the rights
under such Indenture of the holders of Debt Securities thereunder; (viii) add
any Guarantee; (ix) evidence the acceptance of appointment by a successor
trustee and (x) to evidence the succession of another person to Monitoring and
the assumption by any such successor of the obligations of Monitoring in
accordance with the Indentures and the Debt Securities. Other amendments and
modifications of the Indentures or the Debt Securities may be made by Monitoring
and the Trustee with the consent of the holders of not less than a majority of
the aggregate principal amount of all of the then Outstanding Debt Securities of
any series; provided, however, that no such modification or amendment may,
without the consent of the holder of each Outstanding Debt Security affected
thereby, (1) change the Stated Maturity of the principal of, or any installment
of interest on, any Debt Security or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption thereof, or
change any obligation of Monitoring to pay any "additional amounts" contemplated
by each Indenture (except as contemplated and permitted by certain provisions of
the Indentures), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof

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<PAGE> 101

pursuant to the Indentures or the amount thereof provable in bankruptcy pursuant
to the Indentures, or adversely affect, after the event giving rise to any right
of repayment shall have occurred, any right of repayment at the option of any
Holder of any Debt Security, or change any place of payment described in the
Indentures where, or the currency in which, any Debt Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption or repayment at the option of the Holder, on or after the
redemption date or repayment date, as the case may be), or adversely affect any
right to convert or exchange any Debt Securities as may be provided pursuant to
the Indentures, or (2) reduce the percentage in principal amount of the
Outstanding Debt Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, for any waiver of compliance with
certain provisions of the Indentures or certain defaults thereunder and their
consequences provided for in the Indentures.

SENIOR DEBT

The Debt Securities and coupons appertaining thereto, if any, that will be
Senior Debt Securities will be issued under the Senior Debt Indenture and will
rank pari passu with all other unsecured and unsubordinated Debt of Monitoring.

SUBORDINATED DEBT

The Debt Securities and coupons appertaining thereto, if any, that will be
Subordinated Debt Securities will be issued under the Subordinated Debt
Indenture and will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Subordinated Debt Indenture, to all "Senior
Indebtedness" of Monitoring. The Subordinated Debt Indenture defines "Senior
Indebtedness" as obligations (other than nonrecourse obligations, the
Subordinated Debt Securities or any other obligations specifically designated as
not constituting, or as being subordinate in right of payment to, Senior
Indebtedness) of, or guaranteed or assumed by, Monitoring for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments, and
amendments, renewals, extensions, modifications and refundings of any such
indebtedness or obligations.

In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of Monitoring or a substantial part of its property, or (b) that (i) a
default shall have occurred with respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable on
any Senior Indebtedness or (ii) there shall have occurred an event of default
(other than a default in the payment of principal, premium, if any, or interest,
or other monetary amounts due and payable) with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding, permitting the holder or holders thereof to accelerate the maturity
thereof (with notice or lapse of time, or both), and such event of default shall
have continued beyond the period of grace, if any, in respect thereof, and such
default or event of default shall not have been cured or waived or shall not
have ceased to exist, or (c) that the principal of and accrued interest on the
Subordinated Debt Securities shall have been declared due and payable upon an
Event of Default of the Subordinated Debt Indenture and such declaration shall
not have been rescinded and annulled as provided therein, then the holders of
all Senior Indebtedness shall first be entitled to receive payment of the full
amount unpaid thereon, or provision shall be made for such payment in money or
money's worth, before the holders of any of the Subordinated Debt Securities or
coupons, if any, are entitled to receive a payment on account of the principal
of (and premium, if any) or any interest on the indebtedness evidenced by such
Subordinated Debt Securities or such coupons. If this Prospectus is being
delivered in connection with a series of Subordinated Debt Securities, the
accompanying Prospectus Supplement or the information incorporated herein by
reference will set forth the approximate amount of Senior Indebtedness
outstanding as of the end of the most recent fiscal quarter.

GUARANTEES

The obligations of Monitoring under the Debt Securities will be fully and
unconditionally guaranteed by POI (the "Guarantor"). Each guarantee
("Guarantee") of Monitoring's obligations under Senior Debt

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<PAGE> 102

Securities will constitute part of the senior debt of the Guarantor and will
rank pari passu with all other unsecured and unsubordinated debt of the
Guarantor. Each Guarantee with respect to Subordinated Debt Securities will be
subordinated to Guarantor Senior Indebtedness on the same basis as provided
above with respect to the subordination of the relevant Subordinated Debt
Securities to Senior Indebtedness of Monitoring.

POI is a holding company with no operations of its own and no significant
assets other than its ownership of the capital stock of Monitoring and its other
wholly owned subsidiaries. POI, therefore, will be dependent upon the receipt of
dividends or other distributions from Monitoring, Westar and their respective
subsidiaries to fund any obligations that it incurs, including obligations under
the Guarantee. If Monitoring should at any time be unable to pay interest on or
principal of the Notes, it is unlikely that POI will be able to meet its
obligations under the Guarantee.

GOVERNING LAW

The Indentures and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York. The Indentures are subject to
the provisions of the TIA that are required to be a part thereof and shall, to
the extent applicable, be governed by such provisions.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indentures.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.

"Company Request" means a written request or order signed in the name of
Monitoring by its Chief Executive Officer, its President, its Chief Financial
Officer, any Vice President, its Treasurer or any Assistant Treasurer, its
Secretary or any Assistant Secretary and delivered to the Trustee.

"Conditional Redemption" means a redemption pursuant to a notice of
redemption that provides that it is subject to the occurrence of any event
before the date fixed for such redemption as described in such notice of
redemption.

"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Guarantor" means Protection One, Inc. and its successors.

"Holder" means a Person in whose name a Debt Security is registered in the
Security Register.

"Indexed Securities" means Debt Securities issued, from time to time, with
the principal amount payable on any principal payment date, or the amount of
interest payable on any interest payment date, to be determined by reference to
one or more currency exchange rates, securities or baskets of securities,
commodity prices or indices.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debt Securities.

"Issue Date" means the date of first issuance of the Debt Securities under
either Indenture.

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"Maturity," when used with respect to any Debt Securities, means the date
on which the principal of such Debt Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment or otherwise.

"Officers' Certificate" means a certificate signed by the Chief Executive
Officer, the President, the Chief Financial Officer, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
Monitoring, and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for Monitoring, including an employee of Monitoring.

"Original Issue Discount Security" means any Debt Security which provides
for an amount less than the principal amount at maturity thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
the Indentures.

"Outstanding," when used with respect to Debt Securities, means, as of the
date of determination, all Debt Securities theretofore authenticated and
delivered under the Indentures, except:

(i) Debt Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;

(ii) Debt Securities, or portions thereof, for whose payment, money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than Monitoring) in trust or set aside and segregated
in trust by Monitoring (if Monitoring shall act as its own Paying Agent)
for the Holders of such Debt Securities;

(iii) Debt Securities with respect to which Monitoring has effected
defeasance and/or covenant defeasance as provided in the Indenture; and

(iv) Mutilated, destroyed, lost or stolen Debt Securities which have
become or are about to become due and payable which have been paid pursuant
to the Indentures or in exchange for or in lieu of which other Debt
Securities have been authenticated and delivered pursuant to the Indenture,
other than any such Debt Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such Debt
Securities are held by a bona fide purchaser in whose hands the Debt
Securities are valid obligations of Monitoring;

provided, however, that in determining whether the Holders of the requisite
principal amount (or principal amount at maturity) of Outstanding Debt
Securities have given any request, demand, authorization, direction, notice,
consent or waiver under the Indentures, and for the purpose of making the
calculations required by TIA Section 313, Debt Securities owned by Monitoring or
any other obligor upon the Debt Securities or any Affiliate of Monitoring or
such other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Debt Securities which the Trustee
knows to be so owned shall be so disregarded. Debt Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debt Securities and that the pledgee is not Monitoring or
any other obligor upon the Debt Securities or any Affiliate of Monitoring or
such other obligor.

"Paying Agent" means any Person (including Monitoring acting as Paying
Agent) authorized by Monitoring to pay the principal of (and premium, if any,
on) or interest on any Debt Securities on behalf of Monitoring.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.

"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of

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<PAGE> 104

directors, the chairman of the trust committee, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.

"Security Register" and "Security Registrar" have the respective meanings
specified in the Indentures.

"Senior Credit Facility" means Debt provided for in accordance with that
certain Senior Indebtedness evidenced by a written agreement between Monitoring
and lender parties thereto providing for term loan borrowings, revolving credit
borrowings, leveraged lease borrowings, letters of credit or other indebtedness
or obligations, and including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, in each
case, as amended, extended, renewed, restated, supplemented or otherwise
modified (in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time, and any agreement
(and related document) governing Debt incurred to refinance, in whole or in
part, the borrowings and commitments then outstanding or permitted to be
outstanding under such Senior Credit Facility or a successor Senior Credit
Facility, whether by the same or any other lender or group of lenders.

"Stated Maturity," when used with respect to any Debt Security or any
installment of principal thereof or interest thereon, means the date specified
in such Debt Security as the fixed date on which the principal of such Debt
Security or such installment of principal or interest is due and payable.

"Subsidiary" means any corporation of which at the time of determination a
Person, directly and/or indirectly through one or more Subsidiaries, owns more
than 50% of the Voting Stock.

"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which the Indentures were executed, except that any
supplemental indenture executed pursuant to the Indentures shall conform to the
requirements of the Trust Indenture Act as in effect on the date of execution
thereof.

"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.

"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers, trustees or individuals performing similar functions of a
Person (irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of POI consists of 150,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock,
$.10 par value per share. As of April 15, 1998, there were 83,826,465 shares of
Common Stock and no shares of Preferred Stock outstanding.

On July 30, 1997, POI and Western Resources entered into a Contribution
Agreement (as amended, the "Contribution Agreement"). Pursuant to the
Contribution Agreement, on November 24, 1997 (the "Acquisition Date"), POI
issued to Western Resources an aggregate of 68,673,402 shares of Common Stock,
which shares represented 82.4% of the shares of Common Stock outstanding
immediately after such issuance. In consideration for the issuance of such
shares to Western Resources, Western Resources transferred to POI all of the
outstanding stock of WestSec and Westar, which companies conducted the security
alarm monitoring

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<PAGE> 105

business of Western Resources, and an aggregate of $367.4 million in cash and
securities. Subsequently, POI contributed the capital stock of WestSec to
Monitoring.

Pursuant to the Contribution Agreement, POI also granted to Western
Resources the option to purchase up to 2,750,238 additional shares of Common
Stock at a price of $15.50 per share (the "Western Option"). Western Resources'
right to exercise the Western Option will terminate on the earlier of (a)
October 31, 1999 or (b) the 45th day after the last day on which any of the
6 3/4% Convertible Senior Subordinated Notes due 2003 ("Convertible Notes")
issued by Monitoring remain outstanding.

As of March 31, 1998, Western Resources through its wholly owned
subsidiary, Westar Capital, Inc., beneficially owned 73,166,195 shares of Common
Stock, which represented approximately 83.0% of the issued and outstanding
shares of Common Stock as of that date, as adjusted for the exercise of the
Western option and the conversion of the Convertible Notes held by Western
Resources. The 73,166,195 shares include 2,750,238 shares issuable upon exercise
of the Western Option and 1,541,555 shares issuable upon conversion of
$17,250,000 aggregate principal amount of Convertible Notes held by Western
Resources.

Each of POI and Monitoring is a Delaware corporation and as such is subject
to Section 203 of the Delaware General Corporation Law. Section 203 of the DGCL
("Section 203") prohibits certain persons ("Interested Stockholders") from
engaging in a "business combination" with a Delaware corporation for three years
following the date such persons become Interested Stockholders. Interested
Stockholders generally include (i) persons who are the beneficial owners of 15%
or more of the outstanding voting stock of the corporation and (ii) persons who
are affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before the
date on which such person's status as an Interested Stockholder is determined.
Subject to certain exceptions, a "business combination" includes, among other
things (i) mergers and consolidations, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) transactions that result in
the issuance or transfer by the corporation of any stock of the corporation to
the Interested Stockholder, except pursuant to certain exercises, exchanges,
conversions, distributions, or offers to purchase with respect to securities
outstanding prior to the time that the Interested Stockholder became such and
that generally, do not increase the Interested Stockholder's proportionate share
of the stock of any class or series of the corporation, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the Interested Stockholder, or (v) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

Because the November 1997 transaction in which Western Resources became the
majority stockholder of POI was approved by POI's Board of Directors, the
provisions of Section 203 requiring a "supermajority" vote to approve certain
corporate transactions are not applicable to transactions between Western
Resources and POI. The Contribution Agreement governing the November 1997
transaction, however, provides that during the 10-year period following the
consummation of the transaction, a merger or a sale of all or substantially all
of the assets of POI involving Western Resources or any affiliate of Western
Resources generally will, under the terms of the Contribution Agreement, require
the prior approval of a majority of the independent directors of POI, and
Western Resources may acquire more than 85% of the outstanding shares of Common
Stock or other voting securities of POI only under specified circumstances and
subject to specified limitations. In addition, certain fiduciary obligations are
imposed under Delaware law on Western Resources in its capacity as majority
stockholder of POI.

The foregoing could have the effect of discouraging others from attempting
takeovers of POI and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the Common Stock that often result from
actual or rumored takeover attempts. Western Resources' controlling ownership
position may also have the effect of preventing changes in the management of
Protection One. It is possible that such

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<PAGE> 106

controlling ownership position could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.

Western Resources has indicated that in the event of any offering of Common
Stock or Securities convertible into Common Stock offered by POI or Monitoring
from time to time, it may purchase a sufficient number of securities such that
Western Resources continues to beneficially own in excess of 80% of POI's Common
Stock, although Western Resources has no obligation to do so.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. The holders of Common
Stock do not possess cumulative voting rights, and members of the Board of
Directors of POI are elected by a plurality vote. The holders of Common Stock
are entitled to receive ratably such dividends as may be declared from time to
time by the Board of Directors out of funds legally available therefor, subject
to the rights of the holders of any series of Preferred Stock then outstanding.
In the event of the liquidation, dissolution or winding up of POI, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities to creditors, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive
rights, conversion rights or other subscription rights. There are no redemption
or sinking funds provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and the shares of Common Stock issued upon
conversion of any Debt Securities will be, duly authorized, validly issued,
fully paid and non-assessable.

As a result of Western Resources' ownership of a majority of POI's Common
Stock, it has the ability to elect directors and otherwise approve matters to be
presented to stockholders.

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.

PREFERRED STOCK

The Amended and Restated Certificate of Incorporation of POI authorizes
5,000,000 shares of Preferred Stock. The Board of Directors has the authority to
issue the Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders of POI. Although the issuance of Preferred Stock may, in
certain circumstances, have the effect of delaying, deferring or preventing a
change in control of POI without further action by the stockholders of POI and
may adversely affect the voting and other rights of the holders of Common Stock,
including the loss of voting control to others, any change of control will
require the approval of Western Resources, which controls POI through its
ownership of in excess of 80% of the issued and outstanding shares of Common
Stock of POI.

PLAN OF DISTRIBUTION

POI and Monitoring may sell the Securities being offered hereby through
agents, underwriters, dealers or remarketing firms.

Offers to purchase Securities may be solicited by agents designated by POI
or Monitoring from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by Monitoring to such agent will be set
forth, in a Prospectus Supplement. Any such agent will be acting on a reasonable
efforts basis for the period of its appointment or, if indicated in the
applicable Prospectus Supplement, on a firm commitment basis. Agents may be
entitled under agreements which may be entered into with POI or Monitoring to
indemnification by POI or Monitoring, as the case may be, against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for POI or
Monitoring in the ordinary course of business.

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If any underwriters are utilized in any sale of the Securities in respect
of which this Prospectus is delivered, POI or Monitoring will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales of the Securities in respect of which this Prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by POI or Monitoring against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for POI or
Monitoring in the ordinary course of business.

If a dealer is utilized in any sale of the Securities in respect of which
the Prospectus is delivered, POI or Monitoring will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Dealers
may be entitled to indemnification by POI or Monitoring against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for POI or
Monitoring in the ordinary course of business.

Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with their terms, by one or more firms ("remarketing firms"), acting as
principals for their own accounts or as agents for POI or Monitoring. Any
remarketing firm will be identified and the terms of its agreement, if any, with
POI or Monitoring, as the case may be, and its compensation will be described in
the Prospectus Supplement. Remarketing firms may be entitled under agreements
which may be entered into with POI or Monitoring to indemnification by POI or
Monitoring, as the case may be, against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions with or perform services for POI or Monitoring in the ordinary
course of business.

If so indicated in the applicable Prospectus Supplement, POI or Monitoring
will authorize agents, underwriters or dealers to solicit offers by certain
purchasers to purchase Debt Securities from POI or Monitoring, as the case may
be, at the public offering price set forth in the Prospectus Supplement pursuant
to delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject to only those conditions set
forth in the Prospectus Supplement, and the Prospectus Supplement will set forth
the commission payable for solicitation of such offers.

LEGAL MATTERS

The validity of the Securities offered hereby has been passed upon for POI
and Monitoring by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New
York. Certain legal matters in connection with offerings made by this Prospectus
may be passed upon for any underwriters, dealers or agents by counsel named in
the applicable Prospectus Supplement.

EXPERTS

The consolidated financial statements and schedule of POI appearing in its
Annual Report (Form 10-K) for the year ended December 31, 1997, have been
audited by Arthur Anderson LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference.

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