Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement” is entered into as of the 23rd day of
July, 2004 by and between Protection One, Inc., a Delaware corporation (the
“Company”), Protection One Alarm Monitoring, Inc., a Delaware corporation, and
Peter J. Pefanis (“Executive”).

 

W I T N E S S E T H :

 

WHEREAS, POAMI and Executive agreed to employment terms pursuant to an offer
letter effective June 4, 2001 and superseded the offer letter with an Employment
Agreement dated as of March 18, 2003 (such agreement hereinafter referred to as
the “Prior Employment Agreement”); and

 

WHEREAS, the Board (as defined in Section 1) has determined that it is in the
best interest of the Company, its creditors and its stockholders to assure that
the Company will have the continued dedication of Executive during and after the
period of the Company’s and POAMI’s (as defined in Section 1) anticipated
Restructuring (as defined in Section 1) of its indebtedness and capital stock
notwithstanding the possibility or occurrence of a Change in Control (as defined
in Section 1), to provide Executive with assurance of continued employment
beyond the expiration of the Prior Employment Agreement and to provide
compensation and benefits arrangements which are competitive with those of other
comparable and similarly situated corporations; and

 

WHEREAS, during the period of the Company’s anticipated Restructuring,
Executive’s continued high performance and retention is critical to ensure that
the Company maintains its value; and

 

WHEREAS, Executive has agreed to enter into this Agreement because the Company
has satisfied all of its obligations under the Prior Employment Agreement,
including without limitation, the making of payments upon the change in control
of the Company on February 17, 2004; and

 

WHEREAS, POAMI is a direct and wholly owned subsidiary of the Company and will
receive substantial direct and indirect value from Executive; and

 

WHEREAS, each of the board of directors of the Company and of POAMI has
authorized the Company and POAMI, respectively, to enter into this Agreement.

 

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company, POAMI and Executive
hereby agree as follows:

 

1.                   DEFINITIONS.  AS USED IN THIS AGREEMENT, THE FOLLOWING
TERMS SHALL HAVE THE RESPECTIVE MEANINGS SET FORTH BELOW:

 

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

 

(A)  “BOARD” MEANS THE BOARD OF DIRECTORS OF THE COMPANY, AS THE CASE MAY BE,
WHETHER PRIOR TO OR AFTER THE RESTRUCTURING.

 

(B)  “BONUS AMOUNT” MEANS:

 

(A)  FOR A DATE OF TERMINATION OCCURRING IN FISCAL YEAR 2004, THE AVERAGE OF THE
ANNUAL INCENTIVE BONUSES PAYABLE BY THE COMPANY TO OR FOR THE BENEFIT OF OR
DEFERRED BY EXECUTIVE FOR THE 2002 AND 2003 FISCAL YEARS OF THE COMPANY; AND

 

(B)  FOR A DATE OF TERMINATION OCCURRING AFTER FISCAL YEAR 2004, THE AVERAGE OF
THE ANNUAL INCENTIVE BONUSES PAYABLE BY THE COMPANY TO OR FOR THE BENEFIT OF OR
DEFERRED BY EXECUTIVE FOR THE LAST THREE (3) COMPLETED FISCAL YEARS OF THE
COMPANY IMMEDIATELY PRECEDING THE DATE OF TERMINATION OR CHANGE IN CONTROL.

 

(C)  “CAUSE” MEANS:

 

(A)  THE WILLFUL AND CONTINUED FAILURE OF EXECUTIVE TO PERFORM SUBSTANTIALLY HIS
DUTIES WITH THE COMPANY (OTHER THAN ANY SUCH FAILURE RESULTING FROM EXECUTIVE’S
INCAPACITY DUE TO PHYSICAL OR MENTAL ILLNESS OR ANY SUCH FAILURE SUBSEQUENT TO
EXECUTIVE BEING DELIVERED A NOTICE OF TERMINATION WITHOUT CAUSE BY THE COMPANY
OR EXECUTIVE DELIVERING A NOTICE OF TERMINATION FOR GOOD REASON TO THE COMPANY)
THAT IS NOT REMEDIED WITHIN 30 DAYS AFTER A WRITTEN DEMAND FOR SUBSTANTIAL
PERFORMANCE IS DELIVERED TO EXECUTIVE BY THE CHAIRMAN OF THE BOARD, THE CHAIRMAN
OF THE COMPENSATION COMMITTEE OR THE CHIEF EXECUTIVE OFFICER WHICH SPECIFICALLY
IDENTIFIES THE MANNER IN WHICH EXECUTIVE HAS NOT SUBSTANTIALLY PERFORMED
EXECUTIVE’S DUTIES AND THAT SUCH FAILURE IF NOT REMEDIED CONSTITUTES “CAUSE”
UNDER THIS AGREEMENT, OR

 

(B)  EXECUTIVE’S CONVICTION BY A COURT OF LAW, EXECUTIVE’S ADMISSION IN A LEGAL
PROCEEDING THAT HE IS GUILTY OR EXECUTIVE’S PLEA OF NOLO CONTENDRE, IN EACH
CASE, WITH RESPECT TO A FELONY.

 

For purposes of this subsection (c), no act or failure to act by Executive shall
be considered “willful” unless done or omitted to be done by Executive in bad
faith and without reasonable belief that Executive’s action or omission was in,
or not opposed to, the best interests of the Company.

 

(D)  “CHANGE IN CONTROL” MEANS

 

(I) THE OCCURRENCE OF ANY ONE OF THE FOLLOWING EVENTS AFTER THE EARLIER OF THE
DATE THE RESTRUCTURING IS CONSUMMATED OR DECEMBER 31, 2005:

 

(A)  INDIVIDUALS WHO, AS OF THE DATE THE RESTRUCTURING IS CONSUMMATED,
CONSTITUTE THE BOARD (OR, IN THE CASE NO RESTRUCTURING IS CONSUMMATED BY
DECEMBER 31, 2005, THE INDIVIDUALS WHO CONSTITUTE THE BOARD AS OF SUCH DATE)
(THE “INCUMBENT DIRECTORS”) CEASE FOR ANY REASON TO CONSTITUTE AT LEAST A
MAJORITY OF THE BOARD, PROVIDED THAT ANY PERSON BECOMING A DIRECTOR SUBSEQUENT
TO

 

2

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

 

THE DATE THE RESTRUCTURING IS CONSUMMATED (OR, IN THE CASE NO RESTRUCTURING IS
CONSUMMATED BY DECEMBER 31, 2005, DECEMBER 31, 2005), WHOSE ELECTION OR
NOMINATION FOR ELECTION WAS APPROVED BY A VOTE OF AT LEAST TWO-THIRDS OF THE
INCUMBENT DIRECTORS THEN ON THE BOARD (EITHER BY A SPECIFIC VOTE OR BY APPROVAL
OF THE PROXY STATEMENT OF THE COMPANY IN WHICH SUCH PERSON IS NAMED AS A NOMINEE
FOR DIRECTOR, WITHOUT WRITTEN OBJECTION TO SUCH NOMINATION) OR, PRIOR TO THE
DATE THAT A RESTRUCTURING IS CONSUMMATED, AS ELECTED AT ANY TIME BY QUADRANGLE
GROUP SHALL BE AN INCUMBENT DIRECTOR.

 

(B)  ANY “PERSON” (AS SUCH TERM IS DEFINED IN SECTION 3(A)(9) OF THE SECURITIES
EXCHANGE ACT OF 1934 (THE “EXCHANGE ACT”) AND AS USED IN SECTIONS 13(D)(3) AND
14(D)(2) OF THE EXCHANGE ACT) IS OR BECOMES A “BENEFICIAL OWNER” (AS DEFINED IN
RULE 13D-3 UNDER THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE
COMPANY REPRESENTING MORE THAN THIRTY-THREE AND ONE-THIRD PERCENT (33 1/3%) OF
THE COMBINED VOTING POWER OF THE COMPANY’S THEN OUTSTANDING SECURITIES ELIGIBLE
TO VOTE FOR THE ELECTION OF THE BOARD (THE “COMPANY VOTING SECURITIES”);
PROVIDED, HOWEVER, THAT THE EVENT DESCRIBED IN THIS PARAGRAPH (B) SHALL NOT BE
DEEMED TO BE A CHANGE IN CONTROL IF SUCH BENEFICIAL OWNER IS ANY OF THE
FOLLOWING OR BECOMES A BENEFICIAL OWNER AS A RESULT OF ANY OF THE FOLLOWING:

 

(I)                                    ONE OR MORE CURRENT DEBT HOLDER OR A
SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT DEBT HOLDERS, COLLECTIVELY,
BENEFICIALLY OWN A MAJORITY OF THE COMPANY VOTING SECURITIES BENEFICIALLY OWNED
BY SUCH SYNDICATE OR GROUP;

 

(II)  ANY EMPLOYEE BENEFIT PLAN (OR RELATED TRUST) SPONSORED OR MAINTAINED BY
THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ONE OR MORE CURRENT DEBT HOLDER;

 

(III)  ANY UNDERWRITER TEMPORARILY HOLDING SECURITIES PURSUANT TO AN OFFERING OF
SUCH SECURITIES;

 

(IV)                            A PERSON INVOLVED IN A NON-QUALIFYING
TRANSACTION (AS DEFINED IN PARAGRAPH (C));

 

(V)                                AN ENTITY (X) CONTROLLED BY EXECUTIVE OR A
GROUP OF PERSONS CONSISTING, AT THE TIME OF SUCH ACQUISITIONS, OF EXECUTIVE AND
OTHER EMPLOYEES OF THE COMPANY OR (Y) OF WHICH THE MAJORITY OF COMMON EQUITY
SECURITIES, AT THE TIME OF SUCH ACQUISITIONS, IS OWNED BY EXECUTIVE OR A GROUP
OF PERSONS CONSISTING OF EXECUTIVE AND OTHER EMPLOYEES OF THE COMPANY; OR

 

(VI)                            ANY EVENT IN WHICH A CURRENT DEBT HOLDER
CONTINUES TO BE DIRECTLY OR INDIRECTLY THE BENEFICIAL OWNER OF A GREATER NUMBER
OF SHARES OF THE COMPANY THAN THAT HELD BY ANY OTHER PERSON AS A RESULT OF THE
EVENT DESCRIBED IN THIS PARAGRAPH (B) OR HAS THE RIGHT TO DIRECT THE VOTE OF A
GREATER NUMBER OF VOTING SECURITIES FOR DIRECTORS (OR THE EQUIVALENT) OF THE
COMPANY THAN ANY OTHER PERSON AS A RESULT OF THE EVENT DESCRIBED IN THIS
PARAGRAPH (B);

 

3

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

 

(C)  THE CONSUMMATION OF A MERGER, CONSOLIDATION, STATUTORY SHARE EXCHANGE, SALE
OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY OR SIMILAR FORM OF
CORPORATE TRANSACTION (WHETHER IN ONE TRANSACTION OR A SERIES OF TRANSACTIONS)
INVOLVING THE COMPANY (A “BUSINESS COMBINATION”), UNLESS IMMEDIATELY FOLLOWING
SUCH BUSINESS COMBINATION:

 

(I)                                    MORE THAN 50% OF THE TOTAL VOTING POWER
OF (X) THE CORPORATION THAT OWNS, LEASES OR CONTROLS ALL OR SUBSTANTIALLY ALL OF
THE ASSETS OF THE COMPANY RESULTING FROM SUCH BUSINESS COMBINATION (THE
“SURVIVING CORPORATION”), OR (Y) IF APPLICABLE, THE ULTIMATE PARENT CORPORATION
THAT DIRECTLY OR INDIRECTLY HAS BENEFICIAL OWNERSHIP OF 100% OF THE VOTING
SECURITIES ELIGIBLE TO ELECT DIRECTORS (OR THE EQUIVALENT) OF THE SURVIVING
CORPORATION (THE “PARENT CORPORATION”), IS REPRESENTED BY COMPANY VOTING
SECURITIES THAT WERE OUTSTANDING IMMEDIATELY PRIOR TO SUCH BUSINESS COMBINATION
(OR, IF APPLICABLE, IS REPRESENTED BY SHARES INTO WHICH SUCH COMPANY VOTING
SECURITIES WERE CONVERTED PURSUANT TO SUCH BUSINESS COMBINATION);

 

(II)                                NO PERSON (OTHER THAN (A) ONE OR MORE
CURRENT DEBT HOLDER, (B) ANY EMPLOYEE BENEFIT PLAN (OR RELATED TRUST) SPONSORED
OR MAINTAINED BY ONE OR MORE CURRENT DEBT HOLDER, THE SURVIVING CORPORATION OR
THE PARENT CORPORATION OR (C) A SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT
DEBT HOLDERS, COLLECTIVELY, BENEFICIALLY OWN A MAJORITY OF THE TOTAL VOTING
POWER OF THE SUBJECT VOTING SECURITIES BENEFICIALLY OWNED BY SUCH SYNDICATE OR
GROUP) IS OR BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY, OF MORE THAN
THIRTY-THREE AND ONE-THIRD PERCENT (33 1/3%) OF THE TOTAL VOTING POWER OF THE
OUTSTANDING VOTING SECURITIES ELIGIBLE TO ELECT DIRECTORS (OR THE EQUIVALENT) OF
THE PARENT CORPORATION (OR, IF THERE IS NO PARENT CORPORATION, THE SURVIVING
CORPORATION); AND

 

(III)                            AT LEAST A MAJORITY OF THE MEMBERS OF THE BOARD
OF DIRECTORS OF THE PARENT CORPORATION (OR, IF THERE IS NO PARENT CORPORATION,
THE SURVIVING CORPORATION) FOLLOWING THE CONSUMMATION OF THE BUSINESS
COMBINATION WERE INCUMBENT DIRECTORS AT THE TIME OF THE BOARD’S APPROVAL OF THE
EXECUTION OF THE INITIAL AGREEMENT PROVIDING FOR SUCH BUSINESS COMBINATION (ANY
BUSINESS COMBINATION WHICH SATISFIES ALL OF THE CRITERIA SPECIFIED IN (I), (II)
AND (III) ABOVE SHALL BE DEEMED TO BE A “NON-QUALIFYING TRANSACTION”); OR

 

(D)  THE COMPANY SUBSTANTIALLY COMPLETES A PLAN OF COMPLETE LIQUIDATION OR
DISSOLUTION WHETHER IN ONE TRANSACTION OR A SERIES OF TRANSACTIONS;

 

(II)  IN CONNECTION WITH THE RESTRUCTURING, THE OCCURRENCE OF ANY ONE OF THE
FOLLOWING EVENTS:

 

(A)  ON THE DATE THE RESTRUCTURING IS CONSUMMATED, ANY “PERSON” (AS SUCH TERM IS
DEFINED IN SECTION 3(A)(9) OF THE EXCHANGE ACT AND AS USED IN SECTIONS 13(D)(3)
AND 14(D)(2) OF THE EXCHANGE ACT) OTHER THAN A CURRENT DEBT HOLDER (OR A
SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT DEBT HOLDERS, COLLECTIVELY,
BENEFICIALLY OWN A MAJORITY OF THE TOTAL VOTING POWER OF THE COMPANY

 

4

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

 

VOTING SECURITIES BENEFICIALLY OWNED BY SUCH SYNDICATE OR GROUP) IS OR BECOMES A
“BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER THE EXCHANGE ACT), DIRECTLY
OR INDIRECTLY, OF SECURITIES OF THE COMPANY REPRESENTING MORE THAN THIRTY-THREE
AND ONE-THIRD PERCENT (33 1/3%) OF THE COMPANY VOTING SECURITIES AND IS THE
LARGEST HOLDER OF COMPANY VOTING SECURITIES ISSUED IN CONNECTION WITH THE
RESTRUCTURING;

 

(B)  THE CONSUMMATION OF A BUSINESS COMBINATION, UNLESS IMMEDIATELY FOLLOWING
SUCH BUSINESS COMBINATION:

 

(I)                                    MORE THAN 50% OF THE TOTAL VOTING POWER
OF (X) THE CORPORATION THAT OWNS, LEASES OR CONTROLS ALL OR SUBSTANTIALLY ALL OF
THE ASSETS OF THE SURVIVING CORPORATION, OR (Y) IF APPLICABLE, THE PARENT
CORPORATION, IS REPRESENTED BY COMPANY VOTING SECURITIES THAT WERE OUTSTANDING
IMMEDIATELY PRIOR TO SUCH BUSINESS COMBINATION (OR, IF APPLICABLE, IS
REPRESENTED BY SHARES INTO WHICH SUCH COMPANY VOTING SECURITIES WERE CONVERTED
PURSUANT TO SUCH BUSINESS COMBINATION);

 

(II)                                NO PERSON (OTHER THAN (A) ONE OR MORE
CURRENT DEBT HOLDER, (B) ANY EMPLOYEE BENEFIT PLAN (OR RELATED TRUST) SPONSORED
OR MAINTAINED BY ONE OR MORE CURRENT DEBT HOLDER, THE SURVIVING CORPORATION OR
THE PARENT CORPORATION OR (C) A SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT
DEBT HOLDERS, COLLECTIVELY, BENEFICIALLY OWN A MAJORITY OF THE TOTAL VOTING
POWER OF THE SUBJECT VOTING SECURITIES BENEFICIALLY OWNED BY SUCH SYNDICATE OR
GROUP) IS OR BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY, OF MORE THAN
THIRTY-THREE AND ONE-THIRD PERCENT (33 1/3%) OF THE TOTAL VOTING POWER OF THE
OUTSTANDING VOTING SECURITIES ELIGIBLE TO ELECT DIRECTORS (OR THE EQUIVALENT) OF
THE PARENT CORPORATION (OR, IF THERE IS NO PARENT CORPORATION, THE SURVIVING
CORPORATION); AND

 

(III)                            AT LEAST A MAJORITY OF THE MEMBERS OF THE BOARD
OF DIRECTORS OF THE PARENT CORPORATION (OR, IF THERE IS NO PARENT CORPORATION,
THE SURVIVING CORPORATION) FOLLOWING THE CONSUMMATION OF THE BUSINESS
COMBINATION WERE INCUMBENT DIRECTORS AT THE TIME OF THE BOARD’S APPROVAL OF THE
EXECUTION OF THE INITIAL AGREEMENT PROVIDING FOR SUCH BUSINESS COMBINATION; OR

 

(C)  THE COMPANY SUBSTANTIALLY COMPLETES A PLAN OF COMPLETE LIQUIDATION OR
DISSOLUTION WHETHER IN ONE TRANSACTION OR A SERIES OF TRANSACTIONS.

 

(III)  THE OCCURRENCE OF ANY ONE OF THE FOLLOWING EVENTS PRIOR TO THE EARLIER OF
THE DATE THE RESTRUCTURING IS CONSUMMATED OR DECEMBER 31, 2005:

 

(A)  INDIVIDUALS WHO, AS OF THE DATE HEREOF OR AS OTHERWISE ELECTED BY
QUADRANGLE GROUP, CONSTITUTE THE BOARD (THE “INCUMBENT DIRECTORS”) CEASE FOR ANY
REASON TO CONSTITUTE AT LEAST A MAJORITY OF THE BOARD, PROVIDED THAT ANY PERSON
BECOMING A DIRECTOR SUBSEQUENT TO THE DATE HEREOF, WHOSE ELECTION OR NOMINATION
FOR ELECTION WAS APPROVED BY A VOTE OF AT LEAST TWO-THIRDS OF THE INCUMBENT
DIRECTORS THEN ON THE BOARD (EITHER BY A SPECIFIC VOTE OR BY APPROVAL OF THE
PROXY STATEMENT OF

 

5

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

 

THE COMPANY IN WHICH SUCH PERSON IS NAMED AS A NOMINEE FOR DIRECTOR, WITHOUT
WRITTEN OBJECTION TO SUCH NOMINATION) SHALL BE AN INCUMBENT DIRECTOR.

 

(B)  ANY “PERSON” (AS SUCH TERM IS DEFINED IN SECTION 3(A)(9) OF THE EXCHANGE
ACT AND AS USED IN SECTIONS 13(D)(3) AND 14(D)(2) OF THE EXCHANGE ACT) OTHER
THAN A CURRENT DEBT HOLDER (OR A SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT
DEBT HOLDERS BENEFICIALLY OWN A MAJORITY OF THE DEBT OF THE COMPANY AND POAMI
BENEFICIALLY OWNED BY SUCH SYNDICATE OR GROUP) IS OR BECOMES A “BENEFICIAL
OWNER” (AS DEFINED IN RULE 13D-3 UNDER THE EXCHANGE ACT AS IF SUCH RULE APPLIED
TO OWNERSHIP OF DEBT), DIRECTLY OR INDIRECTLY, OF MORE THAN THIRTY-THREE AND
ONE-THIRD (33 1/3%) OF THE TOTAL DEBT OF THE COMPANY AND POAMI;

 

(C)  ANY “PERSON” (AS SUCH TERM IS DEFINED IN SECTION 3(A)(9) OF THE EXCHANGE
ACT AND AS USED IN SECTIONS 13(D)(3) AND 14(D)(2) OF THE EXCHANGE ACT) OTHER
THAN A CURRENT DEBT HOLDER (OR A SYNDICATE OR GROUP IN WHICH ONE OR MORE CURRENT
DEBT HOLDERS, COLLECTIVELY, BENEFICIALLY OWN A MAJORITY OF THE TOTAL VOTING
POWER OF THE COMPANY VOTING SECURITIES BENEFICIALLY OWNED BY SUCH SYNDICATE OR
GROUP) IS OR BECOMES A “BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER THE
EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE COMPANY REPRESENTING
MORE THAN FIFTY PERCENT (50%) OF THE COMPANY VOTING SECURITIES; OR

 

(D)  THE CONSUMMATION OF A BUSINESS COMBINATION, UNLESS IMMEDIATELY FOLLOWING
SUCH BUSINESS COMBINATION:

 

(I)                                    MORE THAN 50% OF THE TOTAL VOTING POWER
OF (X) THE CORPORATION THAT OWNS, LEASES OR CONTROLS ALL OR SUBSTANTIALLY ALL OF
THE ASSETS OF THE SURVIVING CORPORATION, OR (Y) IF APPLICABLE, THE PARENT
CORPORATION, IS REPRESENTED BY COMPANY VOTING SECURITIES THAT WERE OUTSTANDING
IMMEDIATELY PRIOR TO SUCH BUSINESS COMBINATION (OR, IF APPLICABLE, IS
REPRESENTED BY SHARES INTO WHICH SUCH COMPANY VOTING SECURITIES WERE CONVERTED
PURSUANT TO SUCH BUSINESS COMBINATION);

 

(II)                                NO PERSON (OTHER THAN ONE OR MORE CURRENT
DEBT HOLDER OR ANY EMPLOYEE BENEFIT PLAN (OR RELATED TRUST) SPONSORED OR
MAINTAINED BY ONE OR MORE CURRENT DEBT HOLDER (OR A SYNDICATE OR GROUP IN WHICH
ONE OR MORE OF SUCH PERSONS, COLLECTIVELY, BENEFICIALLY OWN A MAJORITY OF THE
TOTAL VOTING POWER OF THE SUBJECT VOTING SECURITIES BENEFICIALLY OWNED BY SUCH
SYNDICATE OR GROUP), THE SURVIVING CORPORATION OR THE PARENT CORPORATION) IS OR
BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY, OF MORE THAN THIRTY-THREE
AND ONE-THIRD PERCENT (33 1/3%) OF THE TOTAL VOTING POWER OF THE OUTSTANDING
VOTING SECURITIES ELIGIBLE TO ELECT DIRECTORS (OR THE EQUIVALENT) OF THE PARENT
CORPORATION (OR, IF THERE IS NO PARENT CORPORATION, THE SURVIVING CORPORATION);
AND

 

(III)                            AT LEAST A MAJORITY OF THE MEMBERS OF THE BOARD
OF DIRECTORS OF THE PARENT CORPORATION (OR, IF THERE IS NO PARENT CORPORATION,
THE SURVIVING CORPORATION) FOLLOWING THE CONSUMMATION OF THE BUSINESS
COMBINATION WERE

 

6

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

 

INCUMBENT DIRECTORS AT THE TIME OF THE BOARD’S APPROVAL OF THE EXECUTION OF THE
INITIAL AGREEMENT PROVIDING FOR SUCH BUSINESS COMBINATION.

 

It is the intent of the parties that if an event that would constitute a “Change
in Control” under this Agreement occurs at POAMI, a “Change in Control” shall
have occurred for the purpose of this Agreement.  Upon the occurrence of an
event described in the preceding sentence, unless the context otherwise
requires, for purposes of this Agreement, POAMI shall be substituted for the
defined term “the Company” in the definition of “Change in Control” together
with appropriate changes to other references in the definition of “Change in
Control” to give effect to the parties’ intent;

 

(E)  “CITICORP GROUP” MEANS CITIBANK INTERNATIONAL PLC, ANY FUND THAT IS
CONTROLLED BY THE FOREGOING AND, AS APPLICABLE, THEIR RESPECTIVE PARTNERS,
MEMBERS, SUBSIDIARIES AND AFFILIATES (INCLUDING WITHOUT LIMITATION, ANY OTHER
ENTITIES CONTROLLED BY OR UNDER COMMON CONTROL WITH SUCH ENTITIES), WHERE THE
ASSETS OF EACH SUCH PARTNER, MEMBER, SUBSIDIARY OR AFFILIATE PRIMARILY CONSIST
OF COMPANY VOTING SECURITIES AND/OR DEBT OF THE COMPANY OR POAMI.

 

(F)  “CURRENT DEBT HOLDERS” MEANS QUADRANGLE GROUP, CITICORP GROUP AND MACKAY
SHIELDS GROUP.

 

(G)  “DATE OF TERMINATION” MEANS:

 

(A)  IF EXECUTIVE’S EMPLOYMENT IS TO BE TERMINATED FOR DISABILITY, 30 DAYS AFTER
NOTICE OF TERMINATION IS GIVEN (PROVIDED THAT EXECUTIVE SHALL NOT HAVE RETURNED
TO THE PERFORMANCE OF EXECUTIVE’S DUTIES ON A FULL-TIME BASIS DURING SUCH 30 DAY
PERIOD);

 

(B)  IF EXECUTIVE’S EMPLOYMENT IS TO BE TERMINATED BY THE COMPANY FOR CAUSE OR
BY EXECUTIVE FOR GOOD REASON, THE DATE SPECIFIED IN THE NOTICE OF TERMINATION;

 

(C)  IF EXECUTIVE’S EMPLOYMENT IS TO BE TERMINATED BY THE COMPANY FOR ANY REASON
OTHER THAN CAUSE, THE DATE SPECIFIED IN THE NOTICE OF TERMINATION, WHICH SHALL
BE 90 DAYS AFTER THE NOTICE OF TERMINATION IS GIVEN, UNLESS AN EARLIER DATE HAS
BEEN EXPRESSLY AGREED TO BY EXECUTIVE IN WRITING;

 

(D)  IF EXECUTIVE’S EMPLOYMENT TERMINATES BY REASON OF DEATH, THE DATE OF DEATH
OF EXECUTIVE; OR

 

(E)  IF EXECUTIVE’S EMPLOYMENT IS TERMINATED BY EXECUTIVE IN A NON-QUALIFYING
TERMINATION, THE DATE SPECIFIED IN EXECUTIVE’S NOTICE OF TERMINATION, BUT NOT
MORE THAN 30 DAYS AFTER THE NOTICE OF TERMINATION IS GIVEN, UNLESS EXPRESSLY
AGREED TO BY THE COMPANY IN WRITING.

 

(H)  “DISABILITY” MEANS TERMINATION OF EXECUTIVE’S EMPLOYMENT BY THE COMPANY DUE
TO EXECUTIVE’S ABSENCE FROM EXECUTIVE’S DUTIES WITH THE COMPANY ON A FULL-TIME
BASIS FOR AT LEAST ONE-HUNDRED-EIGHTY (180) CONSECUTIVE DAYS AS A RESULT OF
EXECUTIVE’S INCAPACITY DUE TO PHYSICAL OR MENTAL ILLNESS, UNLESS WITHIN 30 DAYS
AFTER NOTICE OF TERMINATION IS GIVEN TO

 

7

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

 

EXECUTIVE FOLLOWING SUCH ABSENCE EXECUTIVE SHALL HAVE RETURNED TO THE FULL-TIME
PERFORMANCE OF EXECUTIVE’S DUTIES.

 

(I)  “GOOD REASON” SHALL MEAN TERMINATION OF EXECUTIVE’S EMPLOYMENT BY EXECUTIVE
BASED ON ANY OF THE FOLLOWING EVENTS:

 

(A)  ANY CHANGE IN THE DUTIES OR RESPONSIBILITIES (INCLUDING REPORTING
RESPONSIBILITIES) OF EXECUTIVE THAT IS INCONSISTENT IN ANY MATERIAL AND ADVERSE
RESPECT (WHICH MAY BE CUMULATIVE) WITH EXECUTIVE’S POSITION(S), DUTIES,
RESPONSIBILITIES OR STATUS WITH THE COMPANY (INCLUDING ANY ADVERSE DIMINUTION OF
SUCH DUTIES OR RESPONSIBILITIES), PROVIDED, HOWEVER, THAT GOOD REASON SHALL NOT
BE DEEMED TO OCCUR UPON A CHANGE IN DUTIES OR RESPONSIBILITIES (OTHER THAN
REPORTING RESPONSIBILITIES) THAT IS SOLELY AND DIRECTLY DUE TO THE COMPANY NO
LONGER BEING A PUBLICLY TRADED ENTITY.

 

(B)  THE FAILURE TO REAPPOINT OR REELECT EXECUTIVE TO ANY POSITION HELD BY
EXECUTIVE WITHOUT EXECUTIVE’S CONSENT;

 

(C)  A MATERIAL BREACH OF THIS AGREEMENT BY THE COMPANY OR POAMI INCLUDING BUT
NOT LIMITED TO REDUCTION IN EXECUTIVE’S ANNUAL BASE SALARY (AS DEFINED IN
SECTION 4(A)) OR OTHER REDUCTION IN MEDICAL, DENTAL, LIFE OR DISABILITY BENEFITS
(EXCEPT TO THE EXTENT SUCH REDUCTIONS APPLY CONSISTENTLY TO ALL OTHER SENIOR
EXECUTIVES),

 

(D)  FAILURE TO OFFER A SHORT-TERM INCENTIVE PLAN EACH YEAR WITH A TARGET BONUS
OF NOT LESS THAN 60% OF ANNUAL BASE SALARY AND A POTENTIAL TO EARN AT LEAST 100%
OF ANNUAL BASE SALARY (UNLESS EXECUTIVE CONSENTS OTHERWISE, TO BE PAID NO LATER
THAN THE END OF THE FIRST CALENDAR QUARTER AFTER THE YEAR WITH RESPECT TO WHICH
SUCH BONUS RELATES);

 

(E)  THE RESIGNATION BY EXECUTIVE FOR ANY REASON DURING THE 30 DAY PERIOD
BEGINNING SIX MONTHS AFTER (I) THE OCCURRENCE OF A CHANGE IN CONTROL DESCRIBED
IN SECTION 1(D)(II) OR (II) THE OCCURRENCE OF A CHANGE IN CONTROL DESCRIBED IN
SECTION 1(D)(III)

 

(F)  THE RESIGNATION BY EXECUTIVE FOR ANY REASON DURING THE 30 DAY PERIOD
BEGINNING ON DECEMBER 31, 2005, IF A RESTRUCTURING IS NOT CONSUMMATED BY SUCH
DATE;

 

(G)  THE RELOCATION BY THE COMPANY OF EXECUTIVE’S PRINCIPAL WORKPLACE LOCATION
MORE THAN 35 MILES FROM EXECUTIVE’S RESIDENCE AS OF THE DATE HEREOF;

 

(H)  FAILURE BY THE COMPANY TO COMPLY WITH SECTION 25 (INDEMNIFICATION OF PRIOR
PAYMENTS) WITHIN 60 DAYS OF EXECUTIVE’S WRITTEN REQUEST FOR THE COMPANY’S
COMPLIANCE WITH SECTION 25.

 

Executive must provide Notice of Termination of employment within
one-hundred-eighty (180) days following Executive’s knowledge of an event or
facts constituting Good Reason (or the last

 

8

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

 

of such events or facts if cumulative) (other than under Sections (i)(E) and
(i)(F) in which case such notice must be provided within the 30 day period after
(x) December 31, 2005 or (y) six months after a Change in Control, as
applicable) or such event or facts shall not constitute Good Reason under this
Agreement.

 

(J)  “MACKAY GROUP” MEANS MACKAY SHIELDS, LLC AND ANY FUND THAT IS CONTROLLED BY
THE FOREGOING AND, AS APPLICABLE, THEIR RESPECTIVE PARTNERS, MEMBERS,
SUBSIDIARIES AND AFFILIATES (INCLUDING WITHOUT LIMITATION, ANY OTHER ENTITIES
CONTROLLED BY OR UNDER COMMON CONTROL WITH SUCH ENTITIES), WHERE THE ASSETS OF
EACH SUCH PARTNER, MEMBER, SUBSIDIARY OR AFFILIATE PRIMARILY CONSIST OF COMPANY
VOTING SECURITIES AND/OR DEBT OF THE COMPANY OR POAMI.

 

(K)  “NON-QUALIFYING TERMINATION” MEANS A TERMINATION OF EXECUTIVE’S EMPLOYMENT
UNDER ANY CIRCUMSTANCES NOT QUALIFYING AS A QUALIFYING TERMINATION, INCLUDING
WITHOUT LIMITATION ANY TERMINATION BY THE COMPANY FOR CAUSE, ANY TERMINATION BY
EXECUTIVE WITHOUT GOOD REASON OR FOR NO REASON AT ALL OR ANY TERMINATION ON
ACCOUNT OF DEATH, DISABILITY OR RETIREMENT.

 

(L)  “NOTICE OF TERMINATION” MEANS A WRITTEN NOTICE OF TERMINATION OF EMPLOYMENT
GIVEN BY ONE PARTY TO THE OTHER PARTY PURSUANT TO SECTION 16(B).

 

(M)  “POAMI” MEANS PROTECTION ONE ALARM MONITORING, INC., A DELAWARE
CORPORATION, AND ITS SUCCESSORS AND ASSIGNEES.

 

(N)  “QUADRANGLE GROUP” MEANS QUADRANGLE GROUP LLC, POI ACQUISITION I, INC., POI
ACQUISITION, LLC, QUADRANGLE MASTER FUNDING LTD., ANY FUND THAT IS CONTROLLED BY
THE FOREGOING AND, AS APPLICABLE, THEIR RESPECTIVE PARTNERS, MEMBERS,
SUBSIDIARIES AND AFFILIATES (INCLUDING WITHOUT LIMITATION, ANY OTHER ENTITIES
CONTROLLED BY OR UNDER COMMON CONTROL WITH SUCH ENTITIES), WHERE THE ASSETS OF
EACH SUCH PARTNER, MEMBER, SUBSIDIARY OR AFFILIATE PRIMARILY CONSIST OF COMPANY
VOTING SECURITIES AND/OR DEBT OF THE COMPANY OR POAMI.

 

(O)  “QUALIFYING TERMINATION” MEANS A TERMINATION OF EXECUTIVE’S EMPLOYMENT
(I) BY THE COMPANY OTHER THAN FOR CAUSE, INCLUDING BY THE COMPANY PROVIDING
NOTICE OF NONRENEWAL OF THIS AGREEMENT OR (II) BY EXECUTIVE FOR GOOD REASON. 
TERMINATION OF EXECUTIVE’S EMPLOYMENT ON ACCOUNT OF DEATH, DISABILITY,
RETIREMENT SHALL NOT BE TREATED AS A QUALIFYING TERMINATION.

 

(P)  “RESTRUCTURING” MEANS SHALL MEAN ANY TRANSACTION OR SERIES OF TRANSACTIONS
THAT EFFECTUATES ANY REORGANIZATION, RECAPITALIZATION, CONSOLIDATION, BUSINESS
COMBINATION, MERGER, OR OTHER SIMILAR TRANSACTION OR ANY TRANSACTION THAT
EFFECTUATES ANY MATERIAL AMENDMENT TO, OR OTHER MATERIAL CHANGE IN, THE
COMPANY’S OR POAMI’S OBLIGATIONS OR INDEBTEDNESS FOR BORROWED MONEY AS OF THE
DATE HEREOF (INCLUDING ACCRUED OR ACCRETED INTEREST THEREON) EXCLUDING CHANGES
IN BENEFICIAL OWNERSHIP OF SUCH INDEBTEDNESS, BUT INCLUDING, WITHOUT LIMITATION,
(I) ANY AMENDMENT OR MODIFICATION TO THE COMPANY’S REVOLVING CREDIT FACILITY,
7.375% SENIOR UNSECURED NOTES DUE 2005 OR 8.125% SENIOR SUBORDINATED NOTES DUE
2009 OR THAT MODIFIES ANY MATERIAL PAYMENT TERM OR ANY MATERIAL FINANCIAL OR
OPERATING COVENANT OR THAT PROVIDES FOR A FORBEARANCE OF ANY MATERIAL PAYMENT
OBLIGATION OR MATERIAL COVENANT, IN EACH CASE, SUCH THAT AN AMOUNT THAT
OTHERWISE WOULD BE DUE AND PAYABLE (ACCORDING TO ITS TERMS, BY PUT, UPON DEFAULT
AND ACCELERATION OR OTHERWISE) IS

 

9

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

 

DELAYED OR OTHERWISE EXTENDED FOR AT LEAST TWELVE MONTHS OR THAT CONVERTS A
MATERIAL AMOUNT OF THE COMPANY’S OR POAMI’S OBLIGATIONS OR INDEBTEDNESS FOR
BORROWED MONEY AS OF THE DATE HEREOF (INCLUDING ACCRUED OR ACCRETED INTEREST
THEREON) TO EQUITY AND/OR TO A SECURITY JUNIOR TO THE CLAIM’S EXISTING PRIORITY
OR IS OTHERWISE COMPROMISED, OR ANY CASH TENDER OFFER OR ANY COMBINATION
THEREOF; OR (II) (A) ANY MERGER, CONSOLIDATION, REORGANIZATION,
RECAPITALIZATION, BUSINESS COMBINATION OR OTHER TRANSACTION PURSUANT TO WHICH
THE COMPANY IS ACQUIRED BY, OR COMBINED WITH, ANY PERSON, GROUP OF PERSONS,
PARTNERSHIP, CORPORATION OR OTHER ENTITY OTHER THAN A CURRENT DEBT HOLDER (AN
“ACQUIROR”) OR (B) THE ACQUISITION, DIRECTLY OR INDIRECTLY BY AN ACQUIROR (OR BY
ONE OR MORE PERSONS ACTING TOGETHER WITH AN ACQUIROR PURSUANT TO A WRITTEN
AGREEMENT OR OTHERWISE), IN A SINGLE TRANSACTION OR A SERIES OF TRANSACTIONS, OF
(X) ALL OR A PREPONDERANCE OF THE ASSETS OR OPERATIONS OF THE COMPANY, OR ALL OR
ANY MATERIAL PORTION OF ANY OPERATING DIVISION OF THE COMPANY OR (Y) ALL,
SUBSTANTIALLY ALL, OR A MAJORITY OF THE OUTSTANDING OR NEWLY ISSUED SHARES OF
THE COMPANY’S (OR ANY OF ITS SUBSIDIARY’S) CAPITAL STOCK (OR ANY SECURITIES
CONVERTIBLE INTO, OR OPTIONS, WARRANTS OR OTHER RIGHTS TO ACQUIRE SUCH CAPITAL
STOCK); IN EACH CASE, WHETHER ACCOMPLISHED OUT-OF-COURT OR THROUGH THE
CONFIRMATION OF ANY PLAN OF REORGANIZATION PURSUANT TO SECTION 1129 OF THE
UNITED STATES BANKRUPTCY CODE, WHETHER THE REQUISITE CONSENTS WERE OBTAINED
IN-COURT OR OUT-OF-COURT.

 

(Q)  “RETIREMENT” MEANS EXECUTIVE’S TERMINATION OF HIS EMPLOYMENT ON OR AFTER
HIS ATTAINMENT OF AGE 65.

 

(R)  “SUBSIDIARY” MEANS ANY CORPORATION OR OTHER ENTITY IN WHICH THE COMPANY HAS
A DIRECT OR INDIRECT OWNERSHIP INTEREST OF 50% OR MORE OF THE TOTAL COMBINED
VOTING POWER OF THE THEN OUTSTANDING SECURITIES OR INTERESTS OF SUCH CORPORATION
OR OTHER ENTITY ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS OR IN
WHICH THE COMPANY HAS THE RIGHT TO RECEIVE 50% OR MORE OF THE DISTRIBUTION OF
PROFITS OR 50% OR MORE OF THE ASSETS UPON LIQUIDATION OR DISSOLUTION.

 

2.                   EMPLOYMENT AND DUTIES.

 

(A)     TERM OF EMPLOYMENT.  THE COMPANY AGREES TO EMPLOY EXECUTIVE, AND
EXECUTIVE AGREES TO ENTER INTO EMPLOYMENT WITH THE COMPANY, IN ACCORDANCE WITH
THE TERMS AND PROVISIONS OF THIS AGREEMENT, FOR THE TERM OF THIS AGREEMENT.  THE
EXECUTION OF THIS AGREEMENT SHALL CONSTITUTE ACCEPTANCE BY EXECUTIVE AND THE
COMPANY THAT EXECUTIVE’S EMPLOYMENT SHALL NOT TERMINATE AS A RESULT OF ANY
CHANGE IN CONTROL PRIOR TO THE DATE HEREOF.  UPON TERMINATION OF EXECUTIVE’S
EMPLOYMENT (REGARDLESS OF WHETHER SUCH TERMINATION CONSTITUTES A QUALIFYING
TERMINATION OR NON-QUALIFYING TERMINATION), EXECUTIVE SHALL BE RELIEVED OF ANY
OBLIGATION TO CONTINUE TO PERFORM THE DUTIES DESCRIBED IN SECTION 2(B) EFFECTIVE
AS OF THE DATE OF TERMINATION.  THE TERMINATION OF THE EMPLOYMENT RELATIONSHIP
BY EITHER PARTY FOR ANY REASON OR FOR NO REASON AT ALL SHALL NOT CONSTITUTE A
BREACH OF THIS AGREEMENT, BUT CERTAIN OBLIGATIONS AND BENEFITS SHALL SURVIVE
SUCH TERMINATION OF EMPLOYMENT AS SET FORTH IN SECTION 19.

 

(B)    DUTIES.  DURING THE PERIOD OF EXECUTIVE’S EMPLOYMENT UNDER THIS
AGREEMENT, EXECUTIVE SHALL SERVE AS EXECUTIVE VICE PRESIDENT OPERATIONS OF THE
COMPANY, IN WHICH CAPACITY EXECUTIVE’S PRINCIPAL RESPONSIBILITY WILL BE MANAGING
THE FIELD OPERATIONS OF POAMI.  EXECUTIVE SHALL DEVOTE EXECUTIVE’S FULL BUSINESS
TIME AND ATTENTION TO THE AFFAIRS OF THE COMPANY AND HIS DUTIES AS ITS EXECUTIVE
VICE PRESIDENT OPERATIONS.  EXECUTIVE SHALL HAVE SUCH DUTIES AS ARE APPROPRIATE
TO EXECUTIVE’S POSITION AS EXECUTIVE VICE PRESIDENT OPERATIONS, AND SHALL HAVE
SUCH

 

10

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

 

AUTHORITY AS REQUIRED TO ENABLE EXECUTIVE TO PERFORM THESE DUTIES.  CONSISTENT
WITH THE FOREGOING, EXECUTIVE SHALL COMPLY WITH ALL REASONABLE INSTRUCTIONS OF
THE CHIEF EXECUTIVE OFFICER AND BOARD OF DIRECTORS OF THE COMPANY.  EXECUTIVE
SHALL REPORT TO THE CHIEF EXECUTIVE OFFICER.  EXECUTIVE MAY CONTINUE TO RESIDE
IN THE STATE OF NEW JERSEY OR IN ANY LOCATION THAT HE WISHES AS LONG AS HE IS
ABLE TO EFFECTIVELY CARRY OUT THE DUTIES CONTEMPLATED BY THIS AGREEMENT.  IN
ADDITION, DURING THE PERIOD OF EXECUTIVE’S EMPLOYMENT UNDER THIS AGREEMENT,
EXECUTIVE MAY SERVE AS AN OFFICER AND/OR DIRECTOR OF A SUBSIDIARY OR
SUBSIDIARIES IF REQUESTED TO DO SO BY THE BOARD.  EXECUTIVE MAY RESIGN FROM THE
BOARD OF DIRECTORS OF ANY SUBSIDIARIES AT ANY TIME IN HIS SOLE AND ABSOLUTE
DISCRETION.

 

3.                   TERM OF AGREEMENT.  THE TERM OF THIS AGREEMENT SHALL
COMMENCE ON THE DATE OF THIS AGREEMENT AND SHALL CONTINUE UNTIL THE EARLIER OF
(I) THE SECOND ANNIVERSARY OF THE DATE OF THIS AGREEMENT OR (II) THE DATE OF
TERMINATION THAT RESULTS FROM A QUALIFYING TERMINATION OR NON-QUALIFYING
TERMINATION.  IF THIS AGREEMENT REMAINS IN EFFECT THROUGH THE SECOND ANNIVERSARY
OF THE DATE OF THIS AGREEMENT, IT SHALL THEREAFTER BE AUTOMATICALLY EXTENDED FOR
AN INDEFINITE NUMBER OF ONE (1) YEAR PERIODS UNLESS EITHER PARTY SENDS WRITTEN
NOTICE TO THE OTHER PARTY OF ITS INTENTION NOT TO RENEW AT LEAST THIRTY (30)
DAYS PRIOR TO EXPIRATION OF SAID TERM.  IF THE ELECTION NOT TO RENEW IS MADE,
THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT FOR THE REMAINING ORIGINAL
TERM AND ANY EXTENSION PERIODS THEREAFTER IF THE ORIGINAL TERM HAS BEEN
RENEWED.  THE ORIGINAL TERM AND ANY RENEWAL PERIODS THEREAFTER ARE HEREINAFTER
COLLECTIVELY REFERRED TO AS THE “TERM.”  CERTAIN OBLIGATIONS AND BENEFITS SHALL
SURVIVE THE EXPIRATION OF THE TERM AS SET FORTH IN SECTION 19.

 

4.                   BASE SALARY AND BENEFITS.

 

(A)     BASE SALARY.  DURING THE PERIOD OF EXECUTIVE’S EMPLOYMENT UNDER THIS
AGREEMENT, THE COMPANY SHALL PAY EXECUTIVE AN ANNUAL BASE SALARY (“ANNUAL BASE
SALARY”) AT AN ANNUAL RATE EQUAL TO NOT LESS THAN TWO HUNDRED SIXTY SEVEN
THOUSAND AND NO/100 DOLLARS ($267,000.00), WHICH SHALL BE REVIEWED ANNUALLY BY
THE BOARD OR THE COMPENSATION COMMITTEE OF THE BOARD.  EXECUTIVE’S ANNUAL BASE
SALARY SHALL BE PAID IN ACCORDANCE WITH THE STANDARD PRACTICES FOR OTHER SENIOR
CORPORATE EXECUTIVES OF THE COMPANY.

 

(B)    BONUSES.  EXECUTIVE SHALL BE ELIGIBLE TO RECEIVE ANNUALLY OR OTHERWISE
ANY BONUS AWARDS, WHETHER PAYABLE IN CASH, SHARES OF COMMON STOCK OF THE COMPANY
OR OTHERWISE, WHICH THE COMPANY, THE BOARD, THE COMPENSATION COMMITTEE OF THE
BOARD OR SUCH OTHER AUTHORIZED COMMITTEE OF THE BOARD DETERMINES TO AWARD OR
GRANT; PROVIDED, HOWEVER, THAT EXECUTIVE SHALL PARTICIPATE UNDER A SHORT-TERM
INCENTIVE PLAN (SUBJECT TO ITS TERMS WHICH SHALL BE REASONABLY DETERMINED BY THE
BOARD AND BASED ON TARGETS THAT ARE REASONABLY ATTAINABLE) EACH YEAR WITH A
TARGET BONUS OF NOT LESS THAN 60% OF BASE SALARY AND A POTENTIAL TO EARN AT
LEAST 100% OF BASE SALARY.  EXECUTIVE ACKNOWLEDGES THAT HE RECEIVED A PRO-RATA
PORTION OF THE 2004 ANNUAL BONUS FOR THE PERIOD OF JANUARY 1, 2004 THROUGH
FEBRUARY 17, 2004.  THE BONUS PAYABLE TO EXECUTIVE, IF ANY, UNDER THE SHORT-TERM
INCENTIVE PLAN WITH RESPECT TO 2004 SHALL BE CALCULATED IN ACCORDANCE WITH THE
RESPECTIVE PLAN AND SHALL TAKE INTO ACCOUNT A PRO-RATION BASED ON THE NUMBER OF
DAYS FROM FEBRUARY 17, 2004 THROUGH DECEMBER 31, 2004 (I.E., 318/366)  COMPANY
SHALL PROVIDE EXECUTIVE WITH PARTICIPATION UNDER A LONG-TERM EQUITY INCENTIVE
PLAN (WITH TERMS THAT ARE COMPETITIVE WITH COMPANIES OF SIMILAR SIZE AND SIMILAR
CIRCUMSTANCES AND REASONABLY ACCEPTABLE TO EXECUTIVE) UPON CONSUMMATION OF THE
RESTRUCTURING.

 

11

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

 

(C)     BENEFIT PROGRAMS.  DURING THE PERIOD OF EXECUTIVE’S EMPLOYMENT UNDER
THIS AGREEMENT, EXECUTIVE SHALL BE ELIGIBLE TO PARTICIPATE IN ALL EMPLOYEE
BENEFIT PLANS AND PROGRAMS OF THE COMPANY FROM TIME TO TIME IN EFFECT FOR THE
BENEFIT OF SENIOR EXECUTIVES OF THE COMPANY (SUBJECT TO MEETING GENERALLY
APPLICABLE PARTICIPATION REQUIREMENTS UNDER THE APPLICABLE PLAN OR PROGRAM),
INCLUDING, BUT NOT LIMITED TO, RETENTION PLANS, STOCK OPTION PLANS, RESTRICTED
STOCK GRANTS, 401(K) PLANS, GROUP LIFE INSURANCE, HOSPITALIZATION AND SURGICAL
AND MAJOR MEDICAL COVERAGES, SICK LEAVE, EMPLOYEE STOCK PURCHASE PLANS, CAR
ALLOWANCES, VACATIONS AND HOLIDAYS, LONG-TERM DISABILITY, AND SUCH OTHER
BENEFITS AS ARE OR MAY BE MADE AVAILABLE FROM TIME TO TIME TO SENIOR EXECUTIVES
OF THE COMPANY.  FOR PURPOSES OF THIS SECTION 4(C), THE TERM “THE COMPANY” SHALL
ALSO INCLUDE POAMI.  IF THERE IS A SALE IN AN UNDERWRITTEN PUBLIC OFFERING
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF COMPANY VOTING
SECURITIES HAVING AN AGGREGATE OFFERING VALUE OF AT LEAST $40 MILLION, ALL OF
EXECUTIVE’S AWARDS (AS DEFINED BELOW) WILL FULLY VEST, ALL RESTRICTIONS ON SUCH
AWARDS SHALL LAPSE AND THE MAXIMUM LEVEL OF ACHIEVEMENT OF ALL PERFORMANCE
CRITERIA WITH RESPECT TO SUCH AWARDS SHALL BE DEEMED FULLY SATISFIED.  IN THE
CASE OF STOCK OPTIONS OR ANY OTHER EQUITY BASED AWARDS IN THE NATURE OF A RIGHT
THAT MAY BE EXERCISED, SUCH STOCK OPTIONS AND OTHER EQUITY BASED AWARDS SHALL
REMAIN EXERCISABLE FOR THREE YEARS AFTER THE DATE OF TERMINATION.

 

(D)    BUSINESS EXPENSES AND PERQUISITES.  EXECUTIVE SHALL BE REIMBURSED FOR ALL
REASONABLE EXPENSES INCURRED BY EXECUTIVE IN CONNECTION WITH THE CONDUCT OF THE
BUSINESS OF THE COMPANY, PROVIDED EXECUTIVE PROPERLY ACCOUNTS THEREFOR IN
ACCORDANCE WITH THE COMPANY’S POLICIES. DURING THE PERIOD OF EXECUTIVE’S
EMPLOYMENT UNDER THIS AGREEMENT, EXECUTIVE SHALL ALSO BE ENTITLED TO SUCH OTHER
PERQUISITES AS ARE CUSTOMARY FOR SENIOR EXECUTIVES OF THE COMPANY.  THE PARTIES
HERETO ACKNOWLEDGE THAT EXECUTIVE’S EMPLOYMENT WILL ENTAIL SUBSTANTIAL TRAVEL
AWAY FROM EXECUTIVE’S RESIDENCE AND THAT EXECUTIVE’S REIMBURSABLE BUSINESS
EXPENSES WILL INCLUDE REASONABLE TRAVEL EXPENSES, INCLUDING WITHOUT LIMITATION,
REASONABLE COSTS OF AIR TRAVEL (INCLUDING USE OF AMERICAN AIRLINES AAIRPASS OR
EQUIVALENT) AND OTHER TRANSPORTATION, FREQUENT TRAVEL TO AND FROM NEW JERSEY,
PARKING, RENTAL CARS, HOTEL ACCOMMODATIONS AND MEALS INCURRED WITH RESPECT TO
TRAVEL TO AND FROM HIS RESIDENCE AND ANY OF THE COMPANY’S FACILITIES OUTSIDE OF
MORRIS COUNTY, NEW JERSEY AND OTHER TRAVEL ASSOCIATED WITH THE PERFORMANCE OF
HIS DUTIES HEREUNDER.  IF IT IS DETERMINED BY THE COMPANY THAT ANY PORTION OF
THE COMPANY’S REIMBURSEMENT OF THE TRAVEL EXPENSES DESCRIBED IN THE PRECEDING
SENTENCE CONSTITUTES TAXABLE WAGES FOR FEDERAL INCOME AND/OR EMPLOYMENT TAX
PURPOSES, THE COMPANY AGREES TO PAY EXECUTIVE AN ADDITIONAL AMOUNT (THE
“GROSS-UP PAYMENT”) SUCH THAT THE NET AMOUNT RETAINED BY EXECUTIVE FROM THE
AMOUNT OF THE TRAVEL EXPENSES REIMBURSED PURSUANT TO THE PRECEDING SENTENCE (THE
“TRAVEL REIMBURSEMENT”) AND THE GROSS-UP PAYMENT, AFTER REDUCTION FOR ANY
FEDERAL, STATE AND LOCAL INCOME AND EMPLOYMENT TAXES ON THE TRAVEL REIMBURSEMENT
AND THE GROSS-UP PAYMENT, SHALL EQUAL THE TRAVEL REIMBURSEMENT.  FOR PURPOSES OF
DETERMINING THE GROSS-UP PAYMENT, EXECUTIVE SHALL BE DEEMED TO PAY FEDERAL
INCOME TAXES AT THE HIGHEST MARGINAL RATE OF FEDERAL INCOME TAXATION IN THE
CALENDAR YEAR IN WHICH THE GROSS-UP PAYMENT IS TO BE MADE AND STATE AND LOCAL
INCOME TAXES AT THE HIGHEST MARGINAL RATE OF TAXATION TO WHICH SUCH PAYMENT
COULD BE SUBJECT BASED UPON THE STATE AND LOCALITY OF EXECUTIVE’S RESIDENT OR
EMPLOYMENT, NET OF THE MAXIMUM DEDUCTION IN FEDERAL INCOME TAXES WHICH COULD BE
OBTAINED FROM DEDUCTING SUCH STATE AND LOCAL TAXES. THE COMPANY SHALL MAKE A
DETERMINATION OF THE AMOUNT OF ANY EMPLOYMENT TAXES REQUIRED ON THE GROSS-UP
PAYMENT.

 

12

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

 

(E)     OFFICE AND SERVICES FURNISHED.  DURING THE PERIOD OF EXECUTIVE’S
EMPLOYMENT UNDER THIS AGREEMENT, THE COMPANY SHALL MAKE AVAILABLE TO EXECUTIVE
OFFICE SPACE AT THE COMPANY’S BRANCH LOCATED CLOSEST TO EXECUTIVE’S RESIDENCE,
TO THE EXTENT NEEDED WHILE HE IS AT SUCH BRANCH, SECRETARIAL ASSISTANCE AND SUCH
OTHER FACILITIES AND SERVICES AS SHALL BE SUITABLE TO EXECUTIVE’S POSITION AND
ADEQUATE FOR THE PERFORMANCE OF EXECUTIVE’S DUTIES HEREUNDER.  DURING THE PERIOD
OF EXECUTIVE’S EMPLOYMENT UNDER THIS AGREEMENT, THE COMPANY SHALL INSTALL AND
MAINTAIN, AT ITS EXPENSE, A BROADBAND (CABLE MODEM OR DSL) CONNECTION AT HIS
HOME FOR THE USE OF EXECUTIVE IN CONNECTION WITH THE PERFORMANCE OF HIS DUTIES
HEREUNDER.  EXECUTIVE SHALL NOT BE REQUIRED TO BE IN THE COMPANY’S HEADQUARTERS
EXCEPT AS HE MAY DETERMINE NECESSARY FOR HIM TO EFFECTIVELY CARRY OUT THE DUTIES
CONTEMPLATED BY THIS AGREEMENT.

 

(F)     RETENTION BONUS.  EXECUTIVE WILL RECEIVE TWO RETENTION BONUSES EACH IN
AN AMOUNT EQUAL TO 67.5% OF EXECUTIVE’S ANNUAL BASE SALARY (WITH SUCH ANNUAL
BASE SALARY TO BE DETERMINED AS OF THE DATE SUCH BONUS IS PAID) (“RETENTION
BONUS”).  THE FIRST RETENTION BONUS SHALL BE PAYABLE IF HE REMAINS CONTINUOUSLY
EMPLOYED BY THE COMPANY FROM THE DATE HEREOF THROUGH THE EARLIER OF THE DATE OF
THE CONSUMMATION OF THE RESTRUCTURING OR DECEMBER 31, 2004 OR, IF PRIOR TO THE
CONSUMMATION OF THE RESTRUCTURING OR SUCH DATE, AS APPLICABLE, (I) HE IS
TERMINATED BY THE COMPANY OTHER THAN FOR CAUSE, (II) HE RESIGNS HIS EMPLOYMENT
BECAUSE OF GOOD REASON OR (III) THE COMPANY DOES NOT RENEW THE AGREEMENT UPON
EXPIRATION OF THE TERM.  THE SECOND RETENTION BONUS SHALL BE PAYABLE IF HE
REMAINS CONTINUOUSLY EMPLOYED BY THE COMPANY FROM THE DATE HEREOF THROUGH THE
EARLIER OF THE DATE OF THE CONSUMMATION OF THE RESTRUCTURING OR DECEMBER 31,
2005 OR, IF PRIOR TO THE CONSUMMATION OF THE RESTRUCTURING OR SUCH DATE, AS
APPLICABLE, (I) HE IS TERMINATED BY THE COMPANY OTHER THAN FOR CAUSE, (II) HE
RESIGNS HIS EMPLOYMENT BECAUSE OF GOOD REASON OR (III) THE COMPANY DOES NOT
RENEW THE AGREEMENT UPON EXPIRATION OF THE TERM.  PAYMENT OF ANY AMOUNT PURSUANT
TO THIS PARAGRAPH SHALL NOT REDUCE ANY OTHER PAYMENTS OR BENEFITS TO WHICH
EXECUTIVE IS ENTITLED UNDER THIS AGREEMENT.  SHOULD THE CHIEF EXECUTIVE OFFICER
OF THE COMPANY AGREE TO FORGO ANY PORTION OF HIS RETENTION BONUS FOR ANY REASON
AT ANY TIME, EXECUTIVE AGREES TO FORGO THE SAME PERCENTAGE OF HIS RETENTION
BONUS.

 

5.                   PAYMENTS UPON TERMINATION OF EMPLOYMENT.

 

(A)     QUALIFYING TERMINATION.  IF THE EMPLOYMENT OF EXECUTIVE TERMINATES
PURSUANT TO A QUALIFYING TERMINATION, THEN:

 

(A)  WITHIN FIVE (5) BUSINESS DAYS FOLLOWING THE DATE OF TERMINATION, THE
COMPANY SHALL PAY TO EXECUTIVE A LUMP-SUM CASH PAYMENT EQUAL TO THE SUM OF

 

(I)                                    EXECUTIVE’S ANNUAL BASE SALARY PAYABLE
THROUGH THE DATE OF TERMINATION;

 

(II)                                BONUS AMOUNTS PAYABLE TO EXECUTIVE FOR PRIOR
FISCAL YEARS (TO THE EXTENT NOT PREVIOUSLY PAID);

 

(III)                            BONUS AMOUNTS NOT PAID TO EXECUTIVE AS A RESULT
OF EXECUTIVE’S ELECTION TO DEFER PAYMENT;

 

(IV)                            A PRO RATA PORTION OF EXECUTIVE’S ANNUAL BONUS
FOR THE FISCAL YEAR IN WHICH THE DATE OF TERMINATION OCCURS (TO THE EXTENT NOT
PREVIOUSLY PAID)

 

13

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

 

IN AN AMOUNT AT LEAST EQUAL TO (1) EXECUTIVE’S BONUS AMOUNT MULTIPLIED BY A
FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF DAYS IN A FISCAL YEAR IN WHICH
THE DATE OF TERMINATION OCCURS THROUGH THE DATE OF TERMINATION AND THE
DENOMINATOR OF WHICH IS THREE HUNDRED SIXTY-FIVE (365), AND REDUCED BY (2) ANY
AMOUNTS PAID TO EXECUTIVE FROM THE COMPANY’S ANNUAL INCENTIVE PLAN FOR THE
FISCAL YEAR IN WHICH THE DATE OF TERMINATION OCCURS; AND

 

(V)                                THE CASH EQUIVALENT OF ANY ACCRUED PAID TIME
OFF; IN EACH CASE TO THE EXTENT NOT ALREADY PAID.

 

(B)  WITHIN FIVE (5) BUSINESS DAYS FOLLOWING THE DATE OF TERMINATION, THE
COMPANY SHALL PAY TO EXECUTIVE A CASH LUMP-SUM EQUAL TO THE SUM OF 2.0 TIMES
EXECUTIVE’S HIGHEST ANNUAL BASE SALARY DURING THE 12-MONTH PERIOD IMMEDIATELY
PRIOR TO THE DATE OF TERMINATION, PLUS 2.0 TIMES EXECUTIVE’S BONUS AMOUNT;
PROVIDED, HOWEVER, IF A NOTICE OF TERMINATION IS GIVEN BY THE COMPANY OR
EXECUTIVE WITHIN FOUR MONTHS PRIOR TO A CHANGE IN CONTROL OR ONE YEAR FOLLOWING
A CHANGE OF CONTROL, THE COMPANY SHALL PAY EXECUTIVE AN ADDITIONAL LUMP-SUM CASH
PAYMENT EQUAL TO (X) .99 TIMES EXECUTIVE’S HIGHEST ANNUAL BASE SALARY DURING THE
12-MONTH PERIOD IMMEDIATELY PRIOR TO THE DATE OF TERMINATION PLUS (Y) .99 TIMES
EXECUTIVE’S BONUS AMOUNT;

 

(C)  THE COMPANY SHALL CONTINUE, FOR A PERIOD OF THREE (3) YEARS FOLLOWING
EXECUTIVE’S DATE OF TERMINATION, TO PROVIDE EXECUTIVE (AND EXECUTIVE’S
DEPENDENTS, IF APPLICABLE) WITH SUBSTANTIALLY SIMILAR LEVELS OF MEDICAL, DENTAL,
AND LIFE INSURANCE BENEFITS UPON SUBSTANTIALLY SIMILAR TERMS AND CONDITIONS AS
EXECUTIVE WOULD HAVE BEEN ENTITLED TO RECEIVE IF HE HAD CONTINUED IN EMPLOYMENT;
PROVIDED, THAT, IF EXECUTIVE CANNOT CONTINUE TO PARTICIPATE IN THE COMPANY
BENEFIT PLANS PROVIDING SUCH BENEFITS, THE COMPANY SHALL OTHERWISE PROVIDE, AT
THE COMPANY’S OPTION, (I) SUCH BENEFITS ON A SUBSTANTIALLY SIMILAR BASIS AS IF
CONTINUED PARTICIPATION HAD BEEN PERMITTED THROUGH THE COMPANY’S BENEFIT PLANS
(THE “CONTINUED BENEFIT PLANS”) OR (II) A LUMP-SUM CASH PAYMENT BASED ON THE
COST OF PREMIUMS COMPARABLE TO THOSE THAT WOULD BE REQUIRED TO RECEIVE SUCH
BENEFITS ON A SUBSTANTIALLY SIMILAR BASIS PLUS THE AMOUNT OF ANY CONVERSION FEES
REQUIRED TO CONVERT FROM GROUP COVERAGE TO INDIVIDUAL COVERAGE UNDER THE
COMPANY’S EXISTING BENEFIT PLANS (THE “BENEFITS LUMP-SUM PAYMENT”).  IF THE
COMPANY ELECTS TO PROVIDE EXECUTIVE WITH CONTINUED BENEFIT PLANS, EXECUTIVE
SHALL COOPERATE WITH THE COMPANY AND EACH PROVIDER OF ANY SUCH CONTINUED BENEFIT
PLAN IN ORDER FOR THE COMPANY TO OBTAIN SUCH CONTINUED BENEFIT PLANS FOR
EXECUTIVE, WHICH COOPERATION SHALL INCLUDE BUT NOT BE LIMITED TO PROVIDING
COPIES OF MEDICAL RECORDS AND OTHER INFORMATION REQUIRED BY ANY PROVIDER OF SUCH
CONTINUED BENEFIT PLAN AND UNDERGOING ONE OR MORE PHYSICAL EXAMINATIONS.  IF THE
COMPANY ELECTS TO PROVIDE EXECUTIVE WITH THE BENEFITS LUMP-SUM PAYMENT, THE
COMPANY SHALL NOTIFY EXECUTIVE OF ITS INTENTION TO MAKE THIS ELECTION NOT LATER
THAN 90 DAYS PRIOR TO THE DATE ON WHICH EXECUTIVE’S COVERAGE UNDER EXISTING
BENEFIT PLANS WILL EXPIRE, AND IF, WITHIN 60 DAYS AFTER EXECUTIVE RECEIVES SUCH
NOTIFICATION FROM THE COMPANY, EXECUTIVE PRESENTS THE COMPANY WITH ONE OR MORE
BENEFIT PLANS THAT EXECUTIVE HAS OBTAINED OR INTENDS TO OBTAIN THAT PROVIDE
BENEFITS ON A SUBSTANTIALLY SIMILAR BASIS AS THE BENEFITS PROVIDED

 

14

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

 

TO EXECUTIVE PRIOR TO THE DATE OF TERMINATION (AND ACKNOWLEDGMENT FROM THE
PROVIDER OF SUCH BENEFIT PLANS THAT SUCH BENEFIT PLANS HAVE BEEN OR CAN BE
OBTAINED BY EXECUTIVE ON THOSE TERMS, INCLUDING, WITHOUT LIMITATION, AT LEAST
SUBSTANTIALLY SIMILAR SCOPE OF COVERAGE, SUBSTANTIALLY SIMILAR DEDUCTIBLES AND
SUBSTANTIALLY SIMILAR CO-PAYMENTS), THEN THE BENEFITS LUMP-SUM PAYMENT SHALL BE
MADE BASED ON THE PREMIUMS PLUS ANY OTHER ADMINISTRATIVE FEES (EXCEPT
CO-PAYMENTS) CHARGED BY THE COMPANY OFFERING SUCH PLANS.  IF THE COMPANY ELECTS
TO PROVIDE EXECUTIVE WITH THE BENEFITS LUMP-SUM PAYMENT AND IT IS DETERMINED BY
THE COMPANY THAT ANY PORTION OF THE BENEFITS LUMP-SUM PAYMENT CONSTITUTES
TAXABLE WAGES FOR FEDERAL INCOME AND/OR EMPLOYMENT TAX PURPOSES, THE COMPANY
AGREES TO PAY EXECUTIVE AN ADDITIONAL AMOUNT (THE “BENEFITS GROSS-UP PAYMENT”)
SUCH THAT THE NET AMOUNT RETAINED BY EXECUTIVE FROM THE BENEFIT LUMP-SUM PAYMENT
AND THE BENEFITS GROSS-UP PAYMENT, AFTER REDUCTION FOR ANY FEDERAL, STATE AND
LOCAL INCOME AND EMPLOYMENT TAXES ON THE BENEFITS LUMP-SUM PAYMENT AND THE
BENEFITS GROSS-UP PAYMENT, SHALL EQUAL THE BENEFITS LUMP-SUM PAYMENT. 
NOTWITHSTANDING THE FOREGOING, IN THE EVENT EXECUTIVE BECOMES REEMPLOYED WITH
ANOTHER EMPLOYER AND BECOMES ELIGIBLE TO RECEIVE BENEFITS FROM SUCH EMPLOYER,
THE BENEFITS DESCRIBED HEREIN SHALL BE SECONDARY TO SUCH BENEFITS DURING THE
PERIOD OF EXECUTIVE’S ELIGIBILITY, BUT ONLY TO THE EXTENT THAT THE COMPANY
REIMBURSES EXECUTIVE FOR ANY INCREASED COST AND PROVIDES ANY ADDITIONAL BENEFITS
NECESSARY TO GIVE EXECUTIVE THE BENEFITS PROVIDED HEREUNDER; AND

 

(D)  ALL OUTSTANDING STOCK OPTIONS, RESTRICTED STOCK AND OTHER EQUITY BASED
AWARDS (COLLECTIVELY, “AWARDS”) SHALL FULLY VEST, ALL RESTRICTIONS ON SUCH
AWARDS SHALL LAPSE AND THE MAXIMUM LEVEL OF ACHIEVEMENT OF ALL PERFORMANCE
CRITERIA WITH RESPECT TO SUCH AWARDS SHALL BE DEEMED FULLY SATISFIED.  IN THE
CASE OF STOCK OPTIONS OR ANY OTHER EQUITY BASED AWARDS IN THE NATURE OF A RIGHT
THAT MAY BE EXERCISED, SUCH STOCK OPTIONS AND OTHER EQUITY BASED AWARDS SHALL
REMAIN EXERCISABLE FOR THREE YEARS AFTER THE DATE OF TERMINATION.

 

(B)    NON-QUALIFYING TERMINATION.  IF THE EMPLOYMENT OF EXECUTIVE TERMINATES
PURSUANT TO A NON-QUALIFYING TERMINATION, THEN THE COMPANY SHALL PAY TO
EXECUTIVE WITHIN FIVE (5) BUSINESS DAYS FOLLOWING THE DATE OF TERMINATION, A
LUMP-SUM CASH PAYMENT EQUAL TO THE SUM OF (I) EXECUTIVE’S ANNUAL BASE SALARY
PAYABLE THROUGH THE DATE OF TERMINATION; (II) BONUS AMOUNTS EARNED BY EXECUTIVE
AND DECLARED AND APPROVED BY THE BOARD; AND (III) THE CASH EQUIVALENT OF ANY
ACCRUED PAID TIME OFF; IN EACH CASE TO THE EXTENT NOT ALREADY PAID.  THE COMPANY
MAY MAKE SUCH ADDITIONAL PAYMENTS AND PROVIDE SUCH ADDITIONAL BENEFITS TO
EXECUTIVE AS THE COMPANY AND EXECUTIVE MAY AGREE IN WRITING.

 

15

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

 

6.                   EXCISE TAX GROSS UP.

 

(A)     ANYTHING IN THIS AGREEMENT TO THE CONTRARY NOTWITHSTANDING, IN THE EVENT
THAT IT SHALL BE DETERMINED THAT THE VESTING OF AWARDS, AGGREGATE PAYMENTS OR
DISTRIBUTIONS BY THE COMPANY OR ITS AFFILIATED COMPANIES TO OR FOR THE BENEFIT
OF EXECUTIVE, WHETHER PAID OR PAYABLE OR DISTRIBUTED OR DISTRIBUTABLE PURSUANT
TO THE TERMS OF THIS AGREEMENT OR OTHERWISE BUT DETERMINED WITHOUT REGARD TO ANY
ADDITIONAL PAYMENTS REQUIRED UNDER THIS SECTION 6 (A “PAYMENT”), CONSTITUTE
“PARACHUTE PAYMENTS” (AS SUCH TERM IS DEFINED UNDER SECTION 280G OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR ANY SUCCESSOR PROVISION, AND
THE REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, “SECTION 280G”)) THE
AGGREGATE PRESENT VALUE OF WHICH EQUALS OR EXCEEDS THREE TIMES EXECUTIVE’S “BASE
AMOUNT” (AS SUCH TERM IS DEFINED UNDER SECTION 280G) AND ARE THEREFORE SUBJECT
TO THE EXCISE TAX IMPOSED BY SECTION 4999 OF THE CODE OR ANY SUCCESSOR PROVISION
(COLLECTIVELY, “SECTION 4999”) OR ANY INTEREST, PENALTIES OR ADDITIONS TO TAX
WITH RESPECT TO SUCH EXCISE TAX (THE TOTAL EXCISE TAX, TOGETHER WITH ANY
INTEREST, PENALTIES OR ADDITIONS TO TAX, ARE HEREINAFTER COLLECTIVELY REFERRED
TO AS THE “EXCISE TAX”)), THEN EXECUTIVE SHALL BE ENTITLED TO RECEIVE AN
ADDITIONAL PAYMENT (A “GROSS-UP PAYMENT”) IN AN AMOUNT SUCH THAT AFTER PAYMENT
BY EXECUTIVE OF ALL TAXES (INCLUDING ANY INTEREST OR PENALTIES IMPOSED WITH
RESPECT TO SUCH TAXES), INCLUDING, WITHOUT LIMITATION, ANY FEDERAL, STATE OR
LOCAL INCOME AND EMPLOYMENT TAXES AND EXCISE TAX (AND ANY INTEREST AND PENALTIES
IMPOSED WITH RESPECT TO ANY SUCH TAXES) IMPOSED UPON THE GROSS-UP PAYMENT,
EXECUTIVE RETAINS AN AMOUNT OF THE GROSS-UP PAYMENT EQUAL TO THE EXCISE TAX
IMPOSED UPON THE PAYMENTS.  NOTWITHSTANDING THE FOREGOING, EXECUTIVE AGREES TO
REDUCE THE AGGREGATE AMOUNT OF ANY PAYMENTS THAT CONSTITUTE “PARACHUTE PAYMENTS”
TO THE EXTENT NECESSARY SO THAT SUCH PAYMENTS DO NOT EQUAL OR EXCEED THREE TIMES
EXECUTIVE ‘ S “BASE AMOUNT”  (AND THEREFORE ARE NOT SUBJECT TO THE EXCISE TAX
IMPOSED BY SECTION 4999); PROVIDED, HOWEVER, THAT EXECUTIVE SHALL NOT BE
REQUIRED TO MAKE ANY SUCH REDUCTION IF THE REDUCTION NECESSARY TO CAUSE SUCH
PAYMENTS NOT TO EQUAL OR EXCEED THREE TIMES EXECUTIVE’S “BASE AMOUNT” IS MORE
THAN $100,000.

 

(B)    SUBJECT TO THE PROVISIONS OF SECTION 6(C) HEREOF, ALL DETERMINATIONS
REQUIRED TO BE MADE UNDER THIS SECTION 6, INCLUDING WHETHER AND WHEN A GROSS-UP
PAYMENT IS REQUIRED AND THE AMOUNT OF SUCH GROSS-UP PAYMENT AND THE ASSUMPTIONS
TO BE UTILIZED IN ARRIVING AT SUCH DETERMINATION, SHALL BE MADE BY THE COMPANY’S
PUBLIC ACCOUNTING FIRM (THE “ACCOUNTING FIRM”) WHICH SHALL PROVIDE DETAILED
SUPPORTING CALCULATIONS BOTH TO THE COMPANY AND EXECUTIVE WITHIN FIFTEEN (15)
BUSINESS DAYS OF THE RECEIPT OF NOTICE FROM EXECUTIVE THAT THERE HAS BEEN A
PAYMENT, OR SUCH EARLIER TIME AS IS REQUESTED BY THE COMPANY.  IN THE EVENT THAT
THE ACCOUNTING FIRM IS SERVING AS ACCOUNTANT OR AUDITOR FOR THE INDIVIDUAL,
ENTITY OR GROUP EFFECTING THE CHANGE IN CONTROL, EXECUTIVE MAY APPOINT ANOTHER
NATIONALLY RECOGNIZED PUBLIC ACCOUNTING FIRM TO MAKE THE DETERMINATIONS REQUIRED
HEREUNDER (WHICH ACCOUNTING FIRM SHALL THEN BE DEEMED TO BE THE ACCOUNTING FIRM
HEREUNDER).  ALL FEES AND EXPENSES OF THE ACCOUNTING FIRM SHALL BE BORNE SOLELY
BY THE COMPANY. ANY GROSS-UP PAYMENT, AS DETERMINED PURSUANT TO THIS SECTION 6,
SHALL BE PAID BY THE COMPANY TO EXECUTIVE WITHIN FIVE (5) DAYS OF THE RECEIPT OF
THE ACCOUNTING FIRM’S DETERMINATION (IT BEING UNDERSTOOD, HOWEVER, THAT THE
GROSS UP PAYMENT MAY, IF PERMITTED BY LAW, BE PAID DIRECTLY TO THE APPLICABLE
TAXING AUTHORITIES).  IF THE ACCOUNTING FIRM DETERMINES THAT NO EXCISE TAX IS
PAYABLE BY EXECUTIVE, IT SHALL FURNISH EXECUTIVE WITH A WRITTEN OPINION THAT
FAILURE TO REPORT THE EXCISE TAX ON EXECUTIVE’S APPLICABLE FEDERAL INCOME TAX
RETURN WOULD NOT RESULT IN THE IMPOSITION OF A NEGLIGENCE OR SIMILAR PENALTY. 
ANY DETERMINATION BY THE ACCOUNTING FIRM SHALL BE BINDING UPON THE COMPANY AND
EXECUTIVE.  AS A RESULT OF THE

 

16

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

 

UNCERTAINTY IN THE APPLICATION OF SECTION 4999 AT THE TIME OF THE INITIAL
DETERMINATION BY THE ACCOUNTING FIRM HEREUNDER, IT IS POSSIBLE THAT GROSS-UP
PAYMENTS WHICH WILL NOT HAVE BEEN MADE BY THE COMPANY SHOULD HAVE BEEN MADE BY
THE COMPANY (“UNDERPAYMENT”), OR THAT GROSS-UP PAYMENTS WILL HAVE BEEN MADE BY
THE COMPANY WHICH SHOULD NOT HAVE BEEN MADE (“OVERPAYMENT”), CONSISTENT WITH THE
CALCULATIONS REQUIRED TO BE MADE HEREUNDER.  IN EITHER SUCH EVENT, THE
ACCOUNTING FIRM SHALL DETERMINE THE AMOUNT OF THE UNDERPAYMENT OR OVERPAYMENT
THAT HAS OCCURRED.  IN THE EVENT THAT THE COMPANY EXHAUSTS ITS REMEDIES PURSUANT
TO SECTION 6(C) AND EXECUTIVE THEREAFTER IS REQUIRED TO MAKE A PAYMENT OF ANY
EXCISE TAX, THE ACCOUNTING FIRM SHALL DETERMINE THE AMOUNT OF THE UNDERPAYMENT
THAT HAS OCCURRED AND ANY SUCH UNDERPAYMENT SHALL BE PROMPTLY PAID BY THE
COMPANY TO OR FOR THE BENEFIT OF EXECUTIVE.  IN THE CASE OF AN OVERPAYMENT,
EXECUTIVE SHALL, AT THE DIRECTION AND EXPENSE OF THE COMPANY, TAKE SUCH STEPS AS
ARE REASONABLY NECESSARY (INCLUDING, IF REASONABLE, THE FILING OF RETURNS AND
CLAIMS FOR REFUND), AND OTHERWISE REASONABLY COOPERATE WITH THE COMPANY TO
CORRECT SUCH OVERPAYMENT; PROVIDED, HOWEVER, THAT (I) EXECUTIVE SHALL NOT IN ANY
EVENT BE OBLIGATED TO RETURN TO THE COMPANY AN AMOUNT GREATER THAN THE NET
AFTER-TAX PORTION OF THE OVERPAYMENT THAT HE HAS RETAINED OR HAS RECOVERED AS A
REFUND FROM THE APPLICABLE TAXING AUTHORITIES AND (II) THIS PROVISION SHALL BE
INTERPRETED IN A MANNER CONSISTENT WITH THE INTENT OF SECTION 6(A) HEREOF TO
MAKE EXECUTIVE WHOLE, ON AN AFTER-TAX BASIS, FROM THE APPLICATION OF
SECTION 4999.

 

(C)     EXECUTIVE SHALL NOTIFY THE COMPANY IN WRITING OF ANY CLAIM BY THE
INTERNAL REVENUE SERVICE THAT, IF SUCCESSFUL, WOULD REQUIRE A PAYMENT BY THE
COMPANY, OR A CHANGE IN THE AMOUNT OF THE PAYMENT BY THE COMPANY OF, THE
GROSS-UP PAYMENT.  SUCH NOTIFICATION SHALL BE GIVEN AS SOON AS PRACTICABLE AFTER
EXECUTIVE IS INFORMED IN WRITING OF SUCH CLAIM AND SHALL APPRISE THE COMPANY OF
THE NATURE OF SUCH CLAIM AND THE DATE ON WHICH SUCH CLAIM IS REQUESTED TO BE
PAID; PROVIDED THAT THE FAILURE TO GIVE ANY NOTICE PURSUANT TO THIS SECTION 6(C)
SHALL NOT IMPAIR EXECUTIVE’S RIGHTS UNDER THIS SECTION 6 EXCEPT TO THE EXTENT
THE COMPANY IS MATERIALLY PREJUDICED THEREBY.  EXECUTIVE SHALL NOT PAY SUCH
CLAIM PRIOR TO THE EXPIRATION OF THE 30-DAY PERIOD FOLLOWING THE DATE ON WHICH
EXECUTIVE GIVES SUCH NOTICE TO THE COMPANY (OR SUCH SHORTER PERIOD ENDING ON THE
DATE THAT ANY PAYMENT OF TAXES WITH RESPECT TO SUCH CLAIM IS DUE).  IF THE
COMPANY NOTIFIES EXECUTIVE IN WRITING PRIOR TO THE EXPIRATION OF SUCH PERIOD
THAT IT DESIRES TO CONTEST SUCH CLAIM, EXECUTIVE SHALL:

 

(I)                 GIVE THE COMPANY ANY INFORMATION REASONABLY REQUESTED BY THE
COMPANY RELATING TO SUCH CLAIM,

 

(II)              TAKE SUCH ACTION IN CONNECTION WITH CONTESTING SUCH CLAIM AS
THE COMPANY SHALL REASONABLY REQUEST IN WRITING FROM TIME TO TIME, INCLUDING,
WITHOUT LIMITATION, ACCEPTING LEGAL REPRESENTATION WITH RESPECT TO SUCH CLAIM BY
AN ATTORNEY REASONABLY SELECTED BY THE COMPANY,

 

(III)           COOPERATE WITH THE COMPANY IN GOOD FAITH IN ORDER EFFECTIVELY TO
CONTEST SUCH CLAIM, AND

 

(IV)          PERMIT THE COMPANY TO PARTICIPATE IN ANY PROCEEDINGS RELATING TO
SUCH CLAIM; PROVIDED, HOWEVER, THAT THE COMPANY SHALL BEAR AND PAY DIRECTLY ALL
COSTS AND EXPENSES (INCLUDING ADDITIONAL INTEREST, PENALTIES OR ADDITIONS TO
TAX) INCURRED IN CONNECTION WITH SUCH CONTEST AND SHALL INDEMNIFY AND HOLD
EXECUTIVE HARMLESS,

 

17

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

 

ON AN AFTER-TAX BASIS, FOR ANY EXCISE TAX OR INCOME, EMPLOYMENT OR OTHER TAX
(INCLUDING INTEREST, PENALTIES OR ADDITIONS TO TAX WITH RESPECT THERETO) IMPOSED
AS A RESULT OF SUCH REPRESENTATION AND PAYMENT OF COSTS AND EXPENSES.  WITHOUT
LIMITATION ON THE FOREGOING PROVISIONS OF THIS SECTION 6(C) HEREOF, THE COMPANY
SHALL CONTROL ALL PROCEEDINGS TAKEN IN CONNECTION WITH SUCH CONTEST AND, AT ITS
SOLE OPTION, MAY PURSUE OR FORGO ANY AND ALL ADMINISTRATIVE APPEALS,
PROCEEDINGS, HEARINGS AND CONFERENCES WITH THE TAXING AUTHORITY IN RESPECT OF
SUCH CLAIM AND MAY, AT ITS SOLE OPTION, EITHER DIRECT EXECUTIVE TO PAY THE TAX
CLAIMED AND SUE FOR A REFUND OR CONTEST THE CLAIM IN ANY PERMISSIBLE MANNER, AND
EXECUTIVE AGREES TO PROSECUTE SUCH CONTEST TO A DETERMINATION BEFORE ANY
ADMINISTRATIVE TRIBUNAL, IN A COURT OF INITIAL JURISDICTION AND IN ONE OR MORE
APPELLATE COURTS, AS THE COMPANY SHALL DETERMINE; PROVIDED FURTHER, THAT IF THE
COMPANY DIRECTS EXECUTIVE TO PAY SUCH CLAIM AND SUE FOR A REFUND, THE COMPANY
SHALL ADVANCE THE AMOUNT OF SUCH PAYMENT TO EXECUTIVE ON AN INTEREST-FREE BASIS
AND SHALL INDEMNIFY AND HOLD EXECUTIVE HARMLESS, ON AN AFTER-TAX BASIS, FROM ANY
EXCISE TAX OR INCOME, EMPLOYMENT OR OTHER TAX (INCLUDING INTEREST, PENALTIES OR
ADDITIONS TO TAX WITH RESPECT TO ANY SUCH TAXES) IMPOSED WITH RESPECT TO SUCH
ADVANCE OR WITH RESPECT TO ANY IMPUTED INCOME WITH RESPECT TO SUCH ADVANCE; AND
PROVIDED FURTHER, THAT ANY EXTENSION OF THE STATUTE OF LIMITATIONS RELATING TO
PAYMENT OF TAXES FOR THE TAXABLE YEAR OF EXECUTIVE WITH RESPECT TO WHICH SUCH
CONTESTED AMOUNT IS CLAIMED TO BE DUE IS LIMITED SOLELY TO SUCH CONTESTED
AMOUNT.  FURTHERMORE, THE COMPANY’S CONTROL OF THE CONTEST SHALL BE LIMITED TO
ISSUES WITH RESPECT TO WHICH A GROSS-UP PAYMENT WOULD BE PAYABLE HEREUNDER AND
EXECUTIVE SHALL BE ENTITLED TO SETTLE OR CONTEST, AS THE CASE MAY BE, ANY OTHER
ISSUE RAISED BY THE INTERNAL REVENUE SERVICE OR ANY OTHER TAXING AUTHORITY.

 

(D)    IF, AFTER THE RECEIPT BY EXECUTIVE OF AN AMOUNT ADVANCED BY THE COMPANY
PURSUANT TO SECTION 6(C) HEREOF, EXECUTIVE BECOMES ENTITLED TO RECEIVE, AND
RECEIVES, ANY REFUND WITH RESPECT TO SUCH CLAIM, EXECUTIVE SHALL (SUBJECT TO THE
COMPANY’S COMPLYING WITH THE REQUIREMENTS OF SECTION 6(C) HEREOF) PROMPTLY PAY
TO THE COMPANY THE AMOUNT OF SUCH REFUND (TOGETHER WITH ANY INTEREST PAID OR
CREDITED THEREON AFTER TAXES APPLICABLE THERETO).  IF, AFTER THE RECEIPT BY
EXECUTIVE OF AN AMOUNT ADVANCED BY THE COMPANY PURSUANT TO SECTION 6(C), A
DETERMINATION IS MADE THAT EXECUTIVE SHALL NOT BE ENTITLED TO ANY REFUND WITH
RESPECT TO SUCH CLAIM AND THE COMPANY DOES NOT NOTIFY EXECUTIVE IN WRITING OF
ITS INTENT TO CONTEST SUCH DENIAL OF REFUND PRIOR TO THE EXPIRATION OF THIRTY
(30) DAYS AFTER SUCH DETERMINATION, THEN SUCH ADVANCE SHALL BE FORGIVEN AND
SHALL NOT BE REQUIRED TO BE REPAID AND THE AMOUNT OF SUCH ADVANCE SHALL OFFSET,
TO THE EXTENT THEREOF, THE AMOUNT OF GROSS-UP PAYMENT REQUIRED TO BE PAID.

 

7.                   NON-COMPETITION.  EXECUTIVE HEREBY ACKNOWLEDGES THAT THE
SERVICES WHICH HE WILL PERFORM FOR THE COMPANY ARE OF A SPECIAL AND UNIQUE
NATURE, AND THAT THE COMPANY WOULD FIND IT EXTREMELY DIFFICULT OR IMPOSSIBLE TO
REPLACE EXECUTIVE.  ACCORDINGLY, EXECUTIVE AGREES THAT, IN CONSIDERATION OF THIS
AGREEMENT AND THE PAYMENTS TO BE RECEIVED BY HIM HEREUNDER, FROM AND AFTER THE
DATE HEREOF THROUGH THE PERIOD DURING WHICH EXECUTIVE CONTINUES TO BE EMPLOYED
BY THE COMPANY AND FOLLOWING TERMINATION OF EXECUTIVE’S EMPLOYMENT FOR ANY
REASON UNTIL THE SECOND ANNIVERSARY OF SUCH TERMINATION OF EMPLOYMENT (THE
“NON-COMPETITION PERIOD”), EXECUTIVE SHALL NOT, DIRECTLY OR INDIRECTLY, OWN,
MANAGE, OPERATE, JOIN, CONTROL OR PARTICIPATE IN THE OWNERSHIP, MANAGEMENT,
OPERATION OR CONTROL OF, OR BE CONNECTED AS A DIRECTOR, OFFICER,

 

18

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

 

EMPLOYEE, PARTNER, LENDER, CONSULTANT OR OTHERWISE (“PARTICIPATE” OR A
“PARTICIPATION”) WITH ANY COMPETITOR (AS HEREINAFTER DEFINED), EXCEPT WITH THE
COMPANY’S PRIOR WRITTEN CONSENT.  FOR PURPOSES OF THIS AGREEMENT, THE TERM
“COMPETITOR” SHALL MEAN ANY ENTITY ENGAGED IN THE BUSINESS OF PROVIDING PROPERTY
MONITORING SERVICES WITH REVENUE IN EXCESS OF ONE HUNDRED SIXTY MILLION DOLLARS
($160,000,000) DURING THE MOST RECENT TWELVE (12) MONTH PERIOD FOR WHICH
FINANCIAL STATEMENTS ARE AVAILABLE, INCLUDING WITHOUT LIMITATION, ADT SECURITY
SERVICES, BRINK’S HOME SECURITY, INC., HONEYWELL INC. AND THEIR RESPECTIVE
SUBSIDIARIES, AFFILIATES AND SUCCESSORS.  NOTHING IN THIS SECTION SHALL PROHIBIT
EXECUTIVE FROM OWNING FOR INVESTMENT PURPOSES AN AGGREGATE OF UP TO 3% OF THE
PUBLICLY TRADED SECURITIES OF ANY CORPORATION LISTED ON THE NEW YORK STOCK
EXCHANGE OR AMERICAN STOCK EXCHANGE OR WHOSE SECURITIES ARE QUOTED ON THE NASDAQ
NATIONAL MARKET.  NOTWITHSTANDING ANYTHING WHICH MAY BE TO THE CONTRARY HEREIN,
EXECUTIVE SHALL NOT BE REQUIRED TO CEASE PARTICIPATION IN ANY BUSINESS OR
ORGANIZATION WHICH BEGINS TO COMPETE WITH THE COMPANY SUBSEQUENT TO THE TIME
EXECUTIVE COMMENCES SUCH PARTICIPATION, PROVIDED THAT SUCH BUSINESS OR
ORGANIZATION BEGAN TO COMPETE WITH THE COMPANY THROUGH NO ACTION, ASSISTANCE, OR
PLAN OF EXECUTIVE.

 

It is the desire and intent of the parties that the provisions of this Section 7
shall be enforced under the laws and public policies applied in each
jurisdiction in which enforcement is sought.  Accordingly, if any particular
provision of this Section 7 is adjudicated to be invalid or unenforceable or
shall for any reason be held to be excessively broad as to duration, geographic
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with applicable law and such
provision shall be deemed modified and amended to the extent necessary to render
such provision enforceable in such jurisdiction.

 

If Executive challenges the enforceability of the provisions of this Section 7
in whole or in part as to any Competitors, Executive shall, immediately upon
such challenge, forfeit any right to any payments and benefits under
Section 5(a) or 5(b) that he has not already received.

 

8.                   CONFIDENTIAL INFORMATION.  EXECUTIVE ACKNOWLEDGES THAT:

 

(A)     THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES IS
INTENSELY COMPETITIVE AND THAT EXECUTIVE’S ENGAGEMENT BY THE COMPANY REQUIRES
THAT EXECUTIVE HAVE ACCESS TO AND KNOWLEDGE OF CONFIDENTIAL INFORMATION OF THE
COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, INCLUDING, BUT NOT LIMITED TO, THE
IDENTITY OF CUSTOMERS, THE IDENTITY OF THE REPRESENTATIVES OF CUSTOMERS WITH
WHOM THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES HAVE DEALT, THE KINDS OF
SERVICES PROVIDED BY THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES TO
CUSTOMERS AND OFFERED TO BE PERFORMED FOR POTENTIAL CUSTOMERS, THE MANNER IN
WHICH SUCH SERVICES ARE PERFORMED OR OFFERED TO BE PERFORMED, THE SERVICE NEEDS
OF ACTUAL OR PROSPECTIVE CUSTOMERS, PRICING INFORMATION, INFORMATION CONCERNING
THE CREATION, ACQUISITION OR DISPOSITION OF PRODUCTS AND SERVICES, CUSTOMER
MAINTENANCE LISTINGS, COMPUTER SOFTWARE APPLICATIONS AND OTHER PROGRAMS,
PERSONNEL INFORMATION AND OTHER TRADE SECRETS (THE “CONFIDENTIAL INFORMATION”);

 

(B)    THE DIRECT OR INDIRECT DISCLOSURE OF SUCH CONFIDENTIAL INFORMATION TO
EXISTING OR POTENTIAL COMPETITORS OF THE COMPANY AND ITS SUBSIDIARIES AND
AFFILIATES WOULD PLACE THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES AT A
COMPETITIVE DISADVANTAGE AND WOULD DO DAMAGE, MONETARY OR OTHERWISE, TO THE
BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES; AND

 

19

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

 

(C)     THE ENGAGING BY EXECUTIVE IN ANY OF THE ACTIVITIES PROHIBITED BY THIS
SECTION 8 MAY CONSTITUTE IMPROPER APPROPRIATION AND/OR USE OF SUCH INFORMATION
AND TRADE SECRETS.

 

Notwithstanding the foregoing, Confidential Information shall not include
information which (x) is or becomes part of the public domain through a source
other than Executive, (y) is or becomes available to Executive from a source
independent of the Company and its Subsidiaries and affiliates, or
(z) constitutes general industry knowledge possessed by Executive by virtue of
Executive’s employment with the Company.  Executive expressly acknowledges the
trade secret status of the Confidential Information and that the Confidential
Information constitutes a protectable business interest of the Company and its
Subsidiaries and affiliates.  Accordingly, the Company and Executive agree as
follows:

 

(A)  DURING THE NON-COMPETITION PERIOD, EXECUTIVE SHALL NOT, DIRECTLY OR
INDIRECTLY, WHETHER INDIVIDUALLY, AS A DIRECTOR, STOCKHOLDER, OWNER, PARTNER,
EMPLOYEE, PRINCIPAL OR AGENT OF ANY BUSINESS, OR IN ANY OTHER CAPACITY, MAKE
KNOWN, DISCLOSE, FURNISH, MAKE AVAILABLE, OR USE ANY OF THE CONFIDENTIAL
INFORMATION, OTHER THAN IN THE PROPER PERFORMANCE OF THE DUTIES CONTEMPLATED
HEREIN OR REQUESTED BY THE COMPANY, OR AS REQUIRED BY LAW OR BY A COURT OF
COMPETENT JURISDICTION OR OTHER ADMINISTRATIVE OR LEGISLATIVE BODY; PROVIDED,
HOWEVER, THAT PRIOR TO DISCLOSING ANY OF THE CONFIDENTIAL INFORMATION TO A COURT
OR OTHER ADMINISTRATIVE OR LEGISLATIVE BODY, EXECUTIVE SHALL PROMPTLY NOTIFY THE
COMPANY SO THAT THE COMPANY MAY SEEK A PROTECTIVE ORDER OR OTHER APPROPRIATE
REMEDY.

 

(B)  EXECUTIVE AGREES TO RETURN ALL COMPUTER HARDWARE AND ALL CONFIDENTIAL
INFORMATION, INCLUDING ALL PHOTOCOPIES, EXTRACTS AND SUMMARIES THEREOF, AND ANY
SUCH INFORMATION STORED ELECTRONICALLY ON TAPES, COMPUTER DISKS OR IN ANY OTHER
MANNER TO THE COMPANY AT ANY TIME UPON REQUEST OF THE CHAIRMAN OF THE BOARD OR
THE CHIEF EXECUTIVE OFFICER OF THE COMPANY AND UPON THE TERMINATION OF
EXECUTIVE’S EMPLOYMENT FOR ANY REASON.

 

9.                   NONSOLICITATION.  DURING THE NON-COMPETITION PERIOD,
EXECUTIVE SHALL NOT, DIRECTLY OR INDIRECTLY, SOLICIT, INTERFERE WITH, HIRE,
OFFER TO HIRE OR INDUCE ANY PERSON WHO IS AN EMPLOYEE OF THE COMPANY OR ANY OF
ITS SUBSIDIARIES OR AFFILIATES AND WHOSE SALARY IS IN EXCESS OF $50,000 TO
DISCONTINUE HIS OR HER RELATIONSHIP WITH THE COMPANY OR ANY OF ITS SUBSIDIARIES
OR AFFILIATES AND ACCEPT EMPLOYMENT BY, OR ENTER INTO A BUSINESS RELATIONSHIP
WITH, EXECUTIVE OR ANY OTHER PERSON OR ENTITY; PROVIDED, HOWEVER, THAT THIS
PROVISION SHALL NOT APPLY TO SOLICITATION BY GENERAL ADVERTISING.

 

10.             ANTIDISPARAGEMENT.

 

(A)  UNLESS OTHERWISE REQUIRED BY A COURT OF COMPETENT JURISDICTION, PURSUANT TO
ANY RECOGNIZED SUBPOENA POWER OR BY ANY APPLICABLE LAW, RULE OR REGULATION,
EXECUTIVE AGREES AND PROMISES THAT EXECUTIVE SHALL NOT MAKE ANY ORAL OR WRITTEN
STATEMENTS OR REVEAL ANY INFORMATION TO ANY PERSON, COMPANY OR AGENCY WHICH
(I) IS MATERIALLY NEGATIVE, DISPARAGING OR DAMAGING TO THE NAME, REPUTATION OR
BUSINESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES, OR ANY OF
THEIR SHAREHOLDERS, DIRECTORS, OFFICERS OR EMPLOYEES, OR (II) HAS OR WOULD HAVE
A MATERIALLY NEGATIVE FINANCIAL IMPACT, WHETHER DIRECTLY OR INDIRECTLY, ON THE
COMPANY OR ANY OF

 

20

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

 

ITS SUBSIDIARIES AND AFFILIATES, OR ANY OF THEIR SHAREHOLDERS, DIRECTORS,
OFFICERS OR EMPLOYEES; PROVIDED THAT THIS SUBSECTION (II) SHALL NOT BE DEEMED TO
HAVE BEEN VIOLATED BY STATEMENTS OR RELEASES OF INFORMATION BY EXECUTIVE DURING
THE PERIOD OF HIS EMPLOYMENT UNDER THIS AGREEMENT WHICH EXECUTIVE BELIEVES TO BE
TRUTHFUL AND WHICH ARE MADE IN THE PERFORMANCE OF HIS DUTIES UNDER THIS
AGREEMENT.

 

(B)    UNLESS OTHERWISE REQUIRED BY A COURT OF COMPETENT JURISDICTION, PURSUANT
TO ANY RECOGNIZED SUBPOENA POWER OR BY ANY APPLICABLE LAW, RULE OR REGULATION,
THE COMPANY AGREES AND PROMISES THAT NEITHER IT NOR ANY OF ITS SUBSIDIARIES AND
AFFILIATES SHALL MAKE ANY ORAL OR WRITTEN STATEMENTS OR REVEAL ANY INFORMATION
TO ANY PERSON, COMPANY OR AGENCY WHICH (I) IS MATERIALLY NEGATIVE, DISPARAGING
OR DAMAGING TO THE NAME, REPUTATION OR BUSINESS OF EXECUTIVE OR (II) HAS OR
WOULD HAVE A NEGATIVE FINANCIAL IMPACT WHETHER DIRECTLY OR INDIRECTLY, ON
EXECUTIVE.

 

11.             INJUNCTIVE RELIEF.

 

(A)     EXECUTIVE ACKNOWLEDGES THAT A BREACH OF THE UNDERTAKINGS IN SECTIONS 7,
8, 9 OR 10(A) OF THIS AGREEMENT WOULD CAUSE IRREPARABLE DAMAGE TO THE COMPANY
AND ITS SUBSIDIARIES AND AFFILIATES, THE EXACT AMOUNT OF WHICH SHALL BE
DIFFICULT TO ASCERTAIN, AND THAT REMEDIES AT LAW FOR ANY SUCH BREACH WOULD BE
INADEQUATE.  EXECUTIVE AGREES THAT, IF EXECUTIVE BREACHES OR ATTEMPTS OR
THREATENS TO BREACH ANY OF THE UNDERTAKINGS IN SECTIONS 7, 8, 9 OR 10(A) OF THIS
AGREEMENT, THEN THE COMPANY SHALL BE ENTITLED TO INJUNCTIVE RELIEF WITHOUT
POSTING BOND OR OTHER SECURITY, IN ADDITION TO ANY OTHER REMEDY OR REMEDIES
AVAILABLE TO THE COMPANY AT LAW OR IN EQUITY.

 

(B)    THE COMPANY ACKNOWLEDGES THAT A BREACH OF THE UNDERTAKINGS IN
SECTION 10(B) OF THIS AGREEMENT WOULD CAUSE IRREPARABLE DAMAGE TO EXECUTIVE, THE
EXACT AMOUNT OF WHICH SHALL BE DIFFICULT TO ASCERTAIN, AND THAT REMEDIES AT LAW
FOR ANY SUCH BREACH WOULD BE INADEQUATE.  THE COMPANY AGREES THAT, IF THE
COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES BREACHES OR ATTEMPTS OR
THREATENS TO BREACH ANY OF THE UNDERTAKINGS IN SECTION 10(B) OF THIS AGREEMENT,
THEN EXECUTIVE SHALL BE ENTITLED TO INJUNCTIVE RELIEF, WITHOUT POSTING BOND OR
OTHER SECURITY, IN ADDITION TO ANY OTHER REMEDY OR REMEDIES AVAILABLE TO
EXECUTIVE AT LAW OR IN EQUITY.

 

12.             WITHHOLDING TAXES.  THE COMPANY MAY WITHHOLD FROM ALL PAYMENTS
DUE TO EXECUTIVE (OR HIS BENEFICIARY OR ESTATE) HEREUNDER ALL TAXES WHICH, BY
APPLICABLE FEDERAL, STATE, LOCAL OR OTHER LAW, THE COMPANY IS REQUIRED TO
WITHHOLD THEREFROM.  EXECUTIVE HAS REPRESENTED THAT HE IS AND WILL CONTINUE TO
BE A RESIDENT OF THE STATE OF NEW JERSEY FOR ALL PURPOSES.

 

13.             DIRECTORS AND OFFICERS INSURANCE; INDEMNITY.  THE COMPANY SHALL
TAKE ALL STEPS NECESSARY TO ENSURE THAT EXECUTIVE IS COVERED UNDER ANY DIRECTORS
AND OFFICERS LIABILITY INSURANCE POLICY IN EFFECT FROM TIME TO TIME FOR CURRENT
AND FORMER DIRECTORS AND OFFICERS OF THE COMPANY.  IN ADDITION, THE COMPANY
SHALL HOLD HARMLESS AND INDEMNIFY EXECUTIVE AGAINST ANY AND ALL EXPENSES
(INCLUDING ATTORNEYS’ FEES), JUDGMENTS, FINES AND AMOUNTS PAID IN SETTLEMENT
ACTUALLY AND REASONABLY INCURRED BY EXECUTIVE IN CONNECTION WITH ANY THREATENED,
PENDING, OR COMPLETED ACTION, SUIT, OR PROCEEDING WHETHER CIVIL, CRIMINAL,
ADMINISTRATIVE, OR INVESTIGATIVE (INCLUDING AN ACTION BY OR IN THE RIGHT OF THE
CORPORATION) TO WHICH EXECUTIVE IS, WAS, OR AT ANY TIME BECOMES A PARTY, OR IS
THREATENED TO BE MADE A PARTY, BY REASON OF THE FACT THAT EXECUTIVE IS, WAS, OR
AT ANY TIME BECOMES A DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF THE COMPANY, OR IS
OR WAS

 

21

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

 

SERVING, OR AT ANY TIME SERVES AT THE REQUEST OF THE COMPANY AS A DIRECTOR,
OFFICER, EMPLOYEE, OR AGENT OF ANOTHER CORPORATION, PARTNERSHIP, JOINT VENTURE,
TRUST, OR OTHER ENTERPRISE; OR OTHERWISE TO THE FULLEST EXTENT AS MAY BE
PROVIDED TO EXECUTIVE BY THE COMPANY UNDER THE PROVISIONS OF THE BYLAWS AND THE
ARTICLES OF INCORPORATION OF THE COMPANY AND DELAWARE LAW.

 

14.             SCOPE OF AGREEMENT.  NOTHING IN THIS AGREEMENT SHALL BE DEEMED
TO ENTITLE EXECUTIVE TO CONTINUED EMPLOYMENT WITH THE COMPANY OR ITS
SUBSIDIARIES OR SHALL REQUIRE EXECUTIVE TO CONTINUE THE EMPLOYMENT RELATIONSHIP
AGAINST HIS WISHES; PROVIDED, HOWEVER, THAT ANY TERMINATION OF EXECUTIVE’S
EMPLOYMENT DURING THE TERM OF THIS AGREEMENT SHALL BE SUBJECT TO ALL OF THE
PROVISIONS OF THIS AGREEMENT AS PROVIDED IN SECTION 19.

 

15.             SUCCESSORS; BINDING AGREEMENT.

 

(A)     THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE LEGALLY BINDING UPON
ALL SUCCESSORS AND ASSIGNS OF THE COMPANY AND POAMI.  THE COMPANY AND POAMI WILL
REQUIRE A SUCCESSOR (WHETHER DIRECT OR INDIRECT, BY PURCHASE, MERGER,
CONSOLIDATION OR OTHERWISE) TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS AND/OR
ASSETS OF THE COMPANY AND/OR POAMI, BY AGREEMENT IN FORM AND SUBSTANCE
SATISFACTORY TO EXECUTIVE, TO EXPRESSLY ASSUME AND AGREE TO PERFORM THIS
AGREEMENT IN THE SAME MANNER AND TO THE SAME EXTENT THAT THE COMPANY AND POAMI
WOULD BE REQUIRED TO PERFORM IT IF NO SUCH SUCCESSION HAD TAKEN PLACE.  FOR
PURPOSES OF THIS SECTION 15(A), “COMPANY” SHALL MEAN THE COMPANY AS DEFINED
ABOVE AND ALL SUCCESSORS TO ITS BUSINESS OR ASSETS THAT EXECUTE AND DELIVER THE
AGREEMENT PROVIDED FOR IN THIS SECTION 15(A) OR THAT OTHERWISE BECOME BOUND BY
THE TERMS AND PROVISIONS OF THIS AGREEMENT BY OPERATION OF LAW.  FOR PURPOSES OF
THIS SECTION 15(A), “POAMI” SHALL MEAN POAMI AS DEFINED ABOVE AND ALL SUCCESSORS
TO ITS BUSINESS OR ASSETS THAT EXECUTE AND DELIVER THE AGREEMENT PROVIDED FOR IN
THIS SECTION 15(A) OR THAT OTHERWISE BECOME BOUND BY THE TERMS AND PROVISIONS OF
THIS AGREEMENT BY OPERATION OF LAW

 

(B)    THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY
EXECUTIVE’S PERSONAL OR LEGAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS,
SUCCESSORS, HEIRS, DISTRIBUTES, DEVISEES AND LEGATEES.  IF EXECUTIVE SHALL DIE
WHILE ANY AMOUNTS WOULD BE PAYABLE TO EXECUTIVE HEREUNDER HAD EXECUTIVE
CONTINUED TO LIVE, ALL SUCH AMOUNTS, UNLESS OTHERWISE PROVIDED HEREIN, SHALL BE
PAID IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT TO SUCH PERSON OR PERSONS
APPOINTED IN WRITING BY EXECUTIVE TO RECEIVE SUCH AMOUNTS OR, IF NO PERSON IS SO
APPOINTED, TO EXECUTIVE’S ESTATE.

 

16.             NOTICE.

 

(A)     FOR PURPOSES OF THIS AGREEMENT, ALL NOTICES AND OTHER COMMUNICATIONS
REQUIRED OR PERMITTED HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE
BEEN DULY GIVEN WHEN DELIVERED OR FIVE (5) DAYS AFTER DEPOSIT IN THE UNITED
STATES MAIL, CERTIFIED AND RETURN RECEIPT REQUESTED, POSTAGE PREPAID, ADDRESSED
AS FOLLOWS:

 

If to Executive:

Peter J. Pefanis

 

141 Forest Drive

 

Stirling, NJ 07980

 

22

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

 

If to the Company:

Protection One, Inc.

 

818 S. Kansas Avenue

 

Topeka, KS 66612

 

Attention:  General Counsel

 

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

 

(B)    A WRITTEN NOTICE OF EXECUTIVE’S DATE OF TERMINATION BY THE COMPANY OR
EXECUTIVE, AS THE CASE MAY BE, TO THE OTHER, SHALL (I) INDICATE THE SPECIFIC
TERMINATION PROVISION IN THIS AGREEMENT RELIED UPON, (II) TO THE EXTENT
APPLICABLE, SET FORTH IN REASONABLE DETAIL THE FACTS AND CIRCUMSTANCES CLAIMED
TO PROVIDE A BASIS FOR TERMINATION OF EXECUTIVE’S EMPLOYMENT UNDER THE PROVISION
SO INDICATED, AND (III) SPECIFY THE DATE OF TERMINATION.  THE FAILURE BY
EXECUTIVE OR THE COMPANY TO SET FORTH IN SUCH NOTICE ANY FACT OR CIRCUMSTANCE
WHICH CONTRIBUTES TO A SHOWING OF GOOD REASON OR CAUSE SHALL NOT WAIVE ANY RIGHT
OF EXECUTIVE OR THE COMPANY HEREUNDER OR PRECLUDE EXECUTIVE OR THE COMPANY FROM
ASSERTING SUCH FACT OR CIRCUMSTANCE IN ENFORCING EXECUTIVE’S OR THE COMPANY’S
RIGHTS HEREUNDER.

 

17.             FULL SETTLEMENT; RESOLUTION OF DISPUTES.  SUBJECT TO SECTION 25,
THE COMPANY’S OBLIGATION TO MAKE ANY PAYMENTS PROVIDED FOR IN THIS AGREEMENT AND
OTHERWISE TO PERFORM ITS OBLIGATIONS HEREUNDER SHALL BE IN LIEU AND IN FULL
SETTLEMENT OF ALL OTHER SEVERANCE PAYMENTS TO EXECUTIVE UNDER ANY OTHER
SEVERANCE OR EMPLOYMENT AGREEMENT BETWEEN EXECUTIVE AND THE COMPANY, AND ANY
SEVERANCE PLAN OF THE COMPANY.  IN NO EVENT SHALL EXECUTIVE BE OBLIGATED TO SEEK
OTHER EMPLOYMENT OR TAKE OTHER ACTION BY WAY OF MITIGATION OF THE AMOUNTS
PAYABLE TO EXECUTIVE UNDER ANY OF THE PROVISIONS OF THIS AGREEMENT AND EXCEPT AS
OTHERWISE PROVIDED IN SECTION 5 (A)(III), SUCH AMOUNTS SHALL NOT BE REDUCED
WHETHER OR NOT EXECUTIVE OBTAINS OTHER EMPLOYMENT. ANY DISPUTE OR CONTROVERSY
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT SHALL BE SETTLED EXCLUSIVELY
BY ARBITRATION IN WILMINGTON, DELAWARE BY THREE ARBITRATORS IN ACCORDANCE WITH
THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT.  JUDGMENT MAY
BE ENTERED ON THE ARBITRATORS’ AWARD IN ANY COURT HAVING JURISDICTION.  THE
ARBITRATORS SHALL DETERMINE THE ALLOCATION OF THE COSTS AND EXPENSES ARISING IN
CONNECTION WITH ANY ARBITRATION PROCEEDING PURSUANT TO THIS SECTION BASED ON THE
ARBITRATOR’S ASSESSMENT OF THE MERITS OF THE POSITIONS OF THE PARTIES.

 

18.             EMPLOYMENT WITH SUBSIDIARIES.  EMPLOYMENT WITH THE COMPANY FOR
PURPOSES OF THIS AGREEMENT SHALL INCLUDE EMPLOYMENT WITH ANY SUBSIDIARY.

 

19.             SURVIVAL.  THE RESPECTIVE OBLIGATIONS AND BENEFITS AFFORDED TO
THE COMPANY AND EXECUTIVE AS PROVIDED IN SECTIONS 1, 5, 6, 7, 8, 9, 10, 11, 12,
13, 15, 17, 19, 20, 22, 23, 24, 25, 26 AND 27 SHALL SURVIVE THE TERMINATION OF
THIS AGREEMENT.

 

20.             GOVERNING LAW; VALIDITY.  THE INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE
PRINCIPLE OF CONFLICTS OF LAWS.  THE INVALIDITY OR

 

23

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

 

UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE
VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH OTHER
PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.

 

21.             COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN COUNTERPARTS,
EACH OF WHICH SHALL BE DEEMED TO BE AN ORIGINAL AND ALL OF WHICH TOGETHER SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT.

 

22.             MISCELLANEOUS.  NO PROVISION OF THIS AGREEMENT MAY BE MODIFIED
OR WAIVED UNLESS SUCH MODIFICATION OR WAIVER IS AGREED TO IN WRITING AND SIGNED
BY EXECUTIVE AND BY A DULY AUTHORIZED OFFICER OF THE COMPANY.  NO WAIVER BY
EITHER PARTY HERETO AT ANY TIME OF ANY BREACH BY THE OTHER PARTY HERETO OF, OR
COMPLIANCE WITH, ANY CONDITION OR PROVISION OF THIS AGREEMENT TO BE PERFORMED BY
SUCH OTHER PARTY SHALL BE DEEMED A WAIVER OF SIMILAR OR DISSIMILAR PROVISIONS OR
CONDITIONS AT THE SAME OR AT ANY PRIOR TO SUBSEQUENT TIME.  FAILURE BY EXECUTIVE
OR THE COMPANY TO INSIST UPON STRICT COMPLIANCE WITH ANY PROVISION OF THIS
AGREEMENT OR TO ASSERT ANY RIGHT EXECUTIVE OR THE COMPANY MAY HAVE HEREUNDER,
INCLUDING WITHOUT LIMITATION, THE RIGHT OF EXECUTIVE TO TERMINATE EMPLOYMENT FOR
GOOD REASON, SHALL NOT BE DEEMED TO BE A WAIVER OF SUCH PROVISION OR RIGHT OR
ANY OTHER PROVISION OR RIGHT OF THIS AGREEMENT.  EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED HEREIN, THE RIGHTS OF, AND BENEFITS PAYABLE TO, EXECUTIVE,
HIS ESTATE OR HIS BENEFICIARIES PURSUANT TO THIS AGREEMENT ARE IN ADDITION TO
ANY RIGHTS OF, OR BENEFITS PAYABLE TO, EXECUTIVE, HIS ESTATE OR HIS
BENEFICIARIES UNDER ANY OTHER EMPLOYEE BENEFIT PLAN OR COMPENSATION PROGRAM OF
THE COMPANY.

 

23.             NO MITIGATION.  SUBJECT TO SECTION 25, THE AMOUNTS PAYABLE TO
EXECUTIVE UPON ANY TERMINATION OF HIS EMPLOYMENT SHALL BE CONSIDERED SEVERANCE
PAY IN CONSIDERATION OF PAST SERVICES RENDERED ON BEHALF OF THE COMPANY AND HIS
CONTINUED SERVICE FROM THE DATE HEREOF TO THE DATE HE BECOMES ENTITLED TO SUCH
PAYMENTS AND SHALL BE THE SOLE AMOUNT OF SEVERANCE PAY TO WHICH EXECUTIVE IS
ENTITLED FROM THE COMPANY AND ITS AFFILIATES UPON TERMINATION OF HIS
EMPLOYMENT.  EXECUTIVE SHALL HAVE NO DUTY TO MITIGATE HIS DAMAGES BY SEEKING
OTHER EMPLOYMENT AND, SHOULD EXECUTIVE ACTUALLY RECEIVE COMPENSATION FROM ANY
SUCH OTHER EMPLOYMENT, THE PAYMENTS REQUIRED HEREUNDER SHALL NOT BE REDUCED OR
OFFSET BY ANY SUCH OTHER COMPENSATION.

 

24.             LEGAL FEES.  ALL LEGAL FEES OF PAUL HASTINGS INCURRED BY
EXECUTIVE IN CONNECTION WITH NEGOTIATING THIS EMPLOYMENT AGREEMENT AND IN
CONNECTION WITH THE RESTRUCTURING WITHIN THE SCOPE OF ENGAGEMENT SET FORTH IN
THE LETTER OF ENGAGEMENT BETWEEN EXECUTIVE AND PAUL HASTINGS DATED JULY 6, 2004
SHALL BE PAID BY THE COMPANY.

 

25.             INDEMNIFICATION OF PRIOR PAYMENTS.  THE COMPANY HEREBY AGREES TO
DEFEND (OR REIMBURSE EXECUTIVE FOR REASONABLE COSTS OF DEFENSE), PROTECT AND
INDEMNIFY EXECUTIVE FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
DAMAGES, JUDGMENTS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER ASSERTED AGAINST EXECUTIVE IN ANY MANNER RELATING TO OR
ARISING OUT OF OR IN CONNECTION WITH ANY PAYMENTS (“PRIOR PAYMENTS”) PREVIOUSLY
PAID TO EXECUTIVE, INCLUDING, WITHOUT LIMITATION, THOSE PAYMENTS RESULTING AS OF
THE CHANGE IN CONTROL THAT OCCURRED ON FEBRUARY 17, 2004, AND ANY OBLIGATION OF
THE COMPANY TO MAKE SUCH PRIOR PAYMENTS CONTAINED IN ANY EMPLOYMENT AGREEMENT OR
OTHER AGREEMENT SHALL CONTINUE TO BE EFFECTIVE OR BE REINSTATED, AS THE CASE MAY
BE, IF AT ANY TIME PAYMENT AND PERFORMANCE OF SUCH PRIOR PAYMENTS OR ANY PART
THEREOF IS RESCINDED OR REDUCED IN AMOUNTS OR MUST OTHERWISE BE

 

24

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

 

RESTORED OR RETURNED TO THE COMPANY OR ITS SUCCESSORS BY EXECUTIVE, WHETHER AS A
“VOIDABLE PREFERENCE,” “FRAUDULENT CONVEYANCE” OR OTHERWISE, ALL AS THOUGH SUCH
PAYMENT OR PERFORMANCE HAD NOT BEEN MADE (IN WHOLE OR IN PART, AS APPLICABLE). 
IF ANY SUCH PRIOR PAYMENT, OR ANY PART THEREOF IS RESCINDED, REDUCED, RESTORED
OR RETURNED, THE AGREEMENT AND OBLIGATION TO MAKE SUCH PRIOR PAYMENTS SHALL BE
REINSTATED AND THE OBLIGATION TO MAKE SUCH PRIOR PAYMENT SHALL BE REDUCED ONLY
BY SUCH AMOUNT PAID AND NOT SO RESCINDED, REDUCED, RESTORED OR RETURNED.  ALL
OBLIGATIONS AND AMOUNTS PAYABLE PURSUANT TO THIS AGREEMENT, INCLUDING THOSE SET
FORTH IN THIS SECTION 25, SHALL, TO THE MAXIMUM EXTENT PERMITTED UNDER LAW,
CONSTITUTE ADMINISTRATIVE PRIORITY EXPENSES PURSUANT TO BANKRUPTCY CODE SECTIONS
503(B) AND 507(A)(1) OF THE COMPANY’S ESTATE IN THE EVENT OF A BANKRUPTCY FILING
BY OR AGAINST THE COMPANY.

 

26.             POAMI’S OBLIGATIONS.  ALL OF THE OBLIGATIONS OF THE COMPANY
HEREUNDER SHALL ALSO BE DIRECT OBLIGATIONS OF POAMI WITHOUT THE NEED FOR
EXECUTIVE TO SEEK OR EXHAUST REMEDIES AGAINST THE COMPANY.

 

27.             ENTIRE AGREEMENT.  THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT OF THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND SUPERSEDES AND
REPLACES ALL PREVIOUS VERBAL OR WRITTEN AGREEMENTS THAT THE PARTIES MAY HAVE
MADE, INCLUDING THE PRIOR EMPLOYMENT AGREEMENT.

 

*   *   *   *   *

 

[Remainder of page intentionally left blank.  Signatures on next page.]

 

25

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

 

IN WITNESS WHEREOF, each of the Company and POAMI has caused this Agreement to
be executed by a duly authorized representative of the Company and POAMI and
Executive has executed this Agreement as of the day and year first above
written.

 

 

 

PROTECTION ONE, INC.

 

 

 

 

 

By:

/s/ Richard Ginsburg

 

Its:

President and CEO

 

 

 

 

 

PROTECTION ONE ALARM MONITORING, INC.

 

 

 

 

 

By:

/s/ Richard Ginsburg

 

Its:

President and CEO

 

 

 

 

 

 

 

By:

/s/ Peter J. Pefanis

 

 

  Peter J. Pefanis

 

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