Exhibit 10.28

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 18th day
of March, 2003 by and between Protection One Alarm Monitoring, Inc., a Delaware
corporation (the “Company”), and Mack Sands (“Executive”).

 

W I T N E S S E T H

 

WHEREAS, the Company and Executive entered into an Employment Agreement dated as
of August 27, 2001 (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 and its stockholders to assure that the Company
will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined below), and
to encourage the Executive’s full attention and dedication to the Company
currently and in the event of a threat or occurrence of a Change in Control and
to provide the Executive with compensation and benefits arrangements which are
competitive with those of other comparable corporations; and

 

WHEREAS, the Board has authorized the Company to enter into this Agreement.

 

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

 

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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.

 

b.              “Bonus Amount” means: (i) for a Date of Termination or Change in
Control occurring in fiscal year 2003, the annual incentive bonuses payable by
the Company to or for the benefit of or deferred by Executive for the 2002
fiscal year of the Company; (ii) for a Date of Termination or a Change in
Control 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 (iii) for a Date of
Termination or Change in Control 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 (i) 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

 

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is delivered to Executive by the Chief Executive Officer of the Company which
specifically identifies the manner in which Executive has not substantially
performed Executive’s duties, or (ii) the willful engaging by Executive in
illegal conduct which is demonstrably and materially injurious to the Company. 
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 the occurrence of any one of the
following events:

 

i.                                          individuals who, on March 18, 2003,
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 March 18, 2003, 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) shall be an Incumbent Director; provided,
however, that no individual initially elected or nominated as a director of the
Company as a result of an actual election contest with respect to directors or
as a result of any

 

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other actual solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director; provided,
further, that if any individual is appointed to the Board with the consent of
Protection One (or Westar, if the event at issue would otherwise constitute a
Change in Control of Protection One) at such time as Protection One (or Westar,
if the event at issue would otherwise constitute a Change in Control of
Protection One) is the direct or indirect beneficial owner or has direct or
indirect control over the voting power of 40% or more of the Company Voting
Securities (as defined below), that individual shall be deemed to be an
Incumbent Director;

 

ii.                                       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 40% 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 (ii) 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,

 

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except as provided in paragraph (v):  (A) Westar, Protection One or any of their
subsidiaries, (B) any employee benefit plan (or related trust) sponsored or
maintained by the Company, Protection One, Westar or any of their subsidiaries,
(C) any underwriter temporarily holding securities pursuant to an offering of
such securities, (D) a person involved in a Non-Qualifying Transaction (as
defined in paragraph (iii)), (E) an entity (x) controlled by the Executive or a
group of persons consisting, at the time of such acquisitions, of the 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 the Executive or a
group of persons consisting of the Executive and other employees of the Company
or (F) any event in which Protection One (or Westar, if the event at issue would
otherwise constitute a Change in Control of Protection One) 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 (ii) 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 (ii);

 

iii.                                    the consummation of a merger,
consolidation, statutory share exchange, sale of all or substantially all of the
assets of the Company or

 

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Protection One, or similar form of corporate transaction (whether in one
transaction or a series of transactions) involving the Company or Protection One
(a “Business Combination”), unless immediately following such Business
Combination:  (A) 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 and of Protection One 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); (B) no person
(other than Protection One, Westar or any employee benefit plan (or related
trust) sponsored or maintained by Protection One, Westar, the Surviving
Corporation or the Parent Corporation) is or becomes the beneficial owner,
directly or indirectly, of more than 40% 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 (C) at least a majority of the

 

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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 (A), (B) and (C) above shall be deemed to be a “Non-Qualifying
Transaction”);

 

iv.                                   the Company substantially completes a plan
of complete liquidation or dissolution whether in one transaction or a series of
transactions; or

 

v.                                      Westar becomes the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Protection One representing 100% of the securities eligible to
vote for the election of the Board of Directors of Protection One.

 

vi.                                   It is the intent of the parties that if an
event that would constitute a “Change in Control” under this Agreement occurs at
Westar or Protection One, a “Change in Control” shall have occurred for purposes
of this Agreement.  Upon the occurrence of an event described in the preceding
sentence, unless the context otherwise requires, for purposes of this Agreement,
Westar or Protection One shall be substituted for the defined term

 

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“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.               “Date of Termination” means (i) 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); (ii) 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;
(iii) 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; (iv) if Executive’s
employment terminates by reason of death, the date of death of Executive; (v) 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; or (vi) in the event of a Change in
Control, 180 days after the date of the Change in Control, unless otherwise
expressly agreed to by the Executive and the Company in writing not later than
120 days after the date of the Change in Control.

 

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f.                 “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 Executive following such
absence Executive shall have returned to the full-time performance of
Executive’s duties.

 

g.              “Good Reason” shall mean termination based on any of the
following events:

 

i.                                          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);

 

ii.                                       the failure to reappoint or reelect
Executive to any position held by Executive without Executive’s consent; or

 

iii.                                    a material breach of this Agreement by
the Company including but not limited to reduction of Executive’s Annual Base
Salary (as defined in Section 4(a)) or other employment benefits.

 

Executive must provide notice of termination of employment within one hundred
eighty (180) days following Executive’s knowledge of an event or

 

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facts constituting Good Reason (or the last of such events or facts if
cumulative) or such event or facts shall not constitute Good Reason under this
Agreement.

 

h.              “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.

 

i.                  “Notice of Termination” means a written notice of
termination of employment given by one party to the other party pursuant to
Section 17(b).

 

j.                  “Protection One” means Protection One, Inc., a Delaware
corporation.

 

k.               “Qualifying Termination” means a termination of Executive’s
employment (i) by the Company other than for Cause or (ii) by Executive for Good
Reason.  Termination of Executive’s employment on account of death, Disability
or Retirement shall not be treated as a Qualifying Termination.

 

l.                  “Retirement” means Executive’s termination of his employment
on or after his attainment of age 65.

 

m.            “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

 

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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.

 

n.              “Westar” means Westar Industries, Inc., a Kansas corporation, or
any parent entity.

 

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.  In the event that there is a Change in Control prior to a Qualifying
Termination or Non-Qualifying Termination of Executive’s employment, Executive’s
employment under this Agreement shall terminate 180 days after the date of such
Change in Control, unless otherwise expressly agreed to in writing by the
Executive and the Company not later than 120 days after the date of the Change
in Control.  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

 

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Agreement, but certain obligations and benefits shall survive such termination
of employment as set forth in Section 20.

 

b.              Duties.  During the period of Executive’s employment under this
Agreement, Executive shall serve as Chief Operating Officer and Executive Vice
President of the Company.  Executive shall devote Executive’s full business time
and attention to the affairs of the Company and his duties as its Chief
Operating Officer and Executive Vice President.  Executive shall have such
duties as are appropriate to Executive’s position as Chief Operating Officer and
Executive Vice President, and shall have such authority as required to enable
Executive to perform these duties.  Consistent with the foregoing, Executive
shall comply with all reasonable instructions of the Board of Directors and
Chief Executive Officer of the Company.  Executive shall report to the Chief
Executive Officer.  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 date on which Executive’s employment is terminated by the
Company or Executive in a Qualifying Termination or Non-Qualifying Termination
or (ii) 180 days after the occurrence of a Change in Control, unless

 

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otherwise expressly agreed to by the Executive and the Company in writing not
later than 120 days after the date of the Change in Control.  Certain
obligations and benefits shall survive the expiration of the Term as set forth
in Section 20.

 

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 Three Hundred Thirty
Thousand and No/100 Dollars ($330,000.00), which shall be reviewed annually by
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
Protection One or otherwise, which the Company, the Board or such authorized
committee of the Board determines to award or grant.

 

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, stock option plans, restricted stock grants,
401(k) plans, group life insurance,

 

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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.

 

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.

 

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 monitoring facility (which is currently
located in Wichita, Kansas, but which may be relocated at the discretion of the
Company), 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.

 

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5.                                       Change in Control.  Upon the occurrence
of a Change in Control:

 

a.               the Company shall pay to Executive a lump-sum cash payment
equal to the sum of (A) Executive’s Annual Base Salary payable through the date
of the Change in Control; (B) bonus amounts payable to Executive for prior
fiscal years; (C) bonus amounts not paid to Executive as a result of Executive’s
election to defer payment; (D) a pro rata portion of Executive’s annual bonus
for the fiscal year in which the Change in Control occurs 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 the fiscal year in which the Change in Control
occurs through the date of the Change in Control 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 Change
in Control occurs; and (E) the cash equivalent of any accrued Paid Time Off; in
each case to the extent not already paid;

 

b.              the Company shall pay to Executive a lump-sum cash payment equal
to the sum of (i) 2.99 times the Executive’s highest Annual Base Salary during
the 12-month period immediately prior to the date of the Change in Control, plus
(ii) 2.99 times Executive’s Bonus Amount;

 

c.               the Company shall continue, for a period of three (3) years
following the earlier of Executive’s Date of Termination and the date that is
180 days after the date of the Change in Control  (the “Change in Control
Termination Date”), to provide

 

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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 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 one or
more new 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 the Executive with Continued Benefit Plans, the
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 the Executive with the Benefits
Lump-Sum Payment, the Company shall notify the Executive of its intention to
make this election not later than 90 days prior to the date on which Executive’s
coverage

 

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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 the Executive has obtained or intends to obtain
that provide benefits on a substantially similar basis as the benefits provided
to Executive prior to the Change in Control Termination Date (and
acknowledgement from the provider of such benefit plans that such benefit plans
have been or can be obtained by the 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 the 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 Benefits 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

 

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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 the Change in Control.

 

6.                                       Payments Upon Termination of
Employment.

 

a.               Qualifying Termination.  If the employment of Executive
terminates pursuant to a Qualifying Termination, then:

 

i.                                          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 (A) Executive’s Annual Base Salary payable
through the Date of Termination; (B) bonus amounts payable to Executive for
prior fiscal years; (C) bonus amounts not paid to Executive as a result of
Executive’s election to defer payment; (D) a pro rata portion of Executive’s
annual bonus for the

 

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fiscal year in which the Date of Termination occurs 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 the 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 (E) the cash equivalent of any accrued Paid Time Off; in
each case to the extent not already paid;

 

ii.                                       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) 2.0 times the Executive’s highest Annual
Base Salary during the 12-month period immediately prior to the Date of
Termination, plus (ii) 2.0 times Executive’s Bonus Amount; provided, however, if
on or prior to the date that a Notice of Termination is given to Executive
pursuant to a Qualifying Termination there has been stockholder approval of a
Change in Control and if such Change in Control is consummated within 100 days
after the date such Notice of Termination is given, the Company shall pay the
Executive an additional lump-sum cash payment equal to (x) .99 times the
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;

 

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iii.                                    the Company shall continue, for a period
of two (2) years following Executive’s Date of Termination (or a period of three
(3) years if on or prior to the date that a Notice of Termination is given to
Executive pursuant to a Qualifying Termination there has been stockholder
approval of a Change in Control and if such Change in Control is consummated
within 100 days after the date such Notice of Termination is given), 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 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 Continued
Benefit Plans or (ii) a Benefits Lump-Sum Payment.  If the Company elects to
provide the Executive with Continued Benefit Plans, the 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

 

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examinations.  If the Company elects to provide the Executive with the Benefits
Lump-Sum Payment, the Company shall notify the 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 the Executive has obtained or
intends to obtain that provide benefits on a substantially similar basis as the
benefits provided to Executive prior to the Date of Termination (and
acknowledgement from the provider of such benefit plans that such benefit plans
have been or can be obtained by the 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 the 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 a Benefits Gross-Up
Payment such that the net amount retained by Executive from the Benefits
Lump-Sum Payment and the Benefits Gross-Up

 

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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

 

iv.                                   all outstanding 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; provided, however, that Executive shall not be entitled to receive
payments or benefits under Section 6(a)(i)(D), 6(a)(ii) or 6(a)(iii) to the
extent Executive has received or is entitled to receive payments or benefits
under Section 5 of this Agreement.

 

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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 (1) Executive’s Annual Base Salary
payable through the Date of Termination; (2)  bonus amounts earned by Executive
and declared and approved by the Board; and (3) 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.

 

7.                                       Excise Tax.  In the event that any
amount or benefit paid or distributed to Executive pursuant to this Agreement,
taken together with any amounts or benefits otherwise paid or distributed to
Executive (collectively, the “Covered Payments”), are or become subject to the
excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), or any similar tax that may hereafter by imposed (“Excise
Tax”), then the Company agrees to pay the Executive an additional amount (the
“Termination Gross Up Amount”) such that the amount retained by the Executive
pursuant to Section 5, 6(a) or 6(b), as applicable, shall equal or exceed the
amount of the Covered Payments.

 

8.                                       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

 

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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 later of (i) the second
anniversary of such termination of employment or (ii) the last day through which
Annual Base Salary is payable to Executive pursuant to Section 5(a), 6(a)(i) or
6(b)(i), whichever is applicable (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, 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 Two Hundred
Million Dollars ($200,000,000) during the most recent twelve (12) month period
for which financial statements are available, including without limitation ADT
Security Services, Brinks 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

 

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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 8
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 8 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 8
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
or 6(a) that he has not already received.

 

9.                                       Confidential Information.  Executive
acknowledges that:  (i) 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

 

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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”);
(ii) 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 (iii) the
engaging by Executive in any of the activities prohibited by this Section 9 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:

 

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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 of the Company and upon the termination of Executive’s employment
for any reason.

 

10.                                 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

 

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any other person or entity; provided, however, that this provision shall not
apply to solicitation by general advertising.

 

11.                                 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 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,

 

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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.

 

12.                                 Injunctive Relief.

 

a.               Executive acknowledges that a breach of the undertakings in
Sections 8, 9, 10, or 11(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 8, 9, 10, or 11(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 11(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 11(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.

 

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13.                                 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 Kansas for all purposes.

 

14.                                 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 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.

 

15.                                 Scope of Agreement.  Nothing in this
Agreement shall be deemed to permit or entitle the Executive to receive any
payments or benefits under Section 5 or Section 6 of this

 

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Agreement on more than one occasion.  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 20.

 

16.                                 Successors; Binding Agreement.

 

a.               This Agreement shall inure to the benefit of and be legally
binding upon all successors and assigns of the Company.  The Company 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, by agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.  For purposes of this Section 16(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 16(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, distributees, devisees and
legatees.  If Executive shall die while any amounts

 

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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.

 

17.                                 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 the Executive:

 

Mack Sands

9143 Winrow Court

Highlands Ranch, CO 80126

 

If to the Company:

 

Protection One Alarm Monitoring, Inc.

818 South 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.

 

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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.

 

18.                                 Full Settlement; Resolution of Disputes. 
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 6(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

 

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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 arbitrators’ assessment of the merits of the positions of
the parties.

 

19.                                 Employment with Subsidiaries.  Employment
with the Company for purposes of this Agreement shall include employment with
any Subsidiary.

 

20.                                 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, 14, 18, 21 and 23 shall survive the termination of this
Agreement.

 

21.                                 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 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.

 

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22.                                 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.

 

23.                                 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 or
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.

 

24.                                 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

 

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written agreements that the parties may have made, including the Prior
Employment Agreement.

 

 

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

 

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

 

 

 

PROTECTION ONE ALARM MONITORING,
INC.

 

 

 

 

 

 

 

By:

/s/ Donald Johnston

 

 

 

 

 

 

 

 

 

 

 

/s/ Mack Sands

 

 

Mack Sands

 

GUARANTY BY PROTECTION ONE, INC.

 

In consideration of the assurance that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change in Control, and to encourage the Executive’s full
attention and dedication to the Company currently and in the event of a threat
or occurrence of a Change in Control, Protection One hereby unconditionally and
irrevocably guarantees the performance of all of the obligations and commitments
of the Company set forth in this Agreement including, without limitation, the
obligations of the Company to make payments and provide benefits to the
Executive. Protection One 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 Protection One, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Guaranty in the same manner and to the same extent that Protection One would be
required to perform it if no such succession had taken place.

 

 

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IN WITNESS WHEREOF, Protection One has caused this Guaranty to be executed by a
duly authorized officer of Protection One as of the day and year first above
written.

 

 

PROTECTION ONE, INC.

 

 

 

 

 

 

 

By:

/s/ Donald A. Johnston

 

 

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