Exhibit
10.2


 


AMENDED
AND RESTATED EMPLOYMENT AGREEMENT


 


THIS AMENDED AND RESTATED
EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 22nd day of
February, 2010 by and between Protection One, Inc., a Delaware corporation
(the “Company”), Protection One Alarm Monitoring, Inc., a Delaware
corporation, and Darius G. Nevin (“Executive”).


 


W I T N E S S E T
H :


 


WHEREAS, the Company and
Executive entered into an Employment Agreement dated as of July 23, 2004
(the “Initial Employment Agreement”), as amended by the First Amendment to
Employment Agreement dated as of February 8, 2005 and as amended by the
Second Amendment to Employment Agreement dated as of December 3, 2008
(such agreement as so amended being 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 and to provide compensation and
benefits arrangements which are competitive and provide incentives to achieve
the Company’s financial and strategic goals; and


 


WHEREAS, the Prior
Employment Agreement contained provisions applicable to a corporate
restructuring that occurred in 2005 that are no longer relevant to the Company
or the Executive; 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.


 


(b)           “Bonus Amount” means 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)  individuals, as of the date of this
Agreement, who 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 of this Agreement 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;


 


(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 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 (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:


 


(I)            Quadrangle/Monarch Group or a syndicate
or group in which Quadrangle/Monarch Group, 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
Quadrangle/Monarch Group;


 


(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 (iii));


 


(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 any of its Subsidiaries 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 any of its Subsidiaries; or


 


(VI)         any event in which Quadrangle/Monarch
Group 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 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) Quadrangle/Monarch
Group, (b) any employee benefit plan (or related trust) sponsored or
maintained by Quadrangle/Monarch Group, the Surviving Corporation or the Parent
Corporation or (c) a syndicate or group in which one or more
Quadrangle/Monarch Group, 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


 


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


 


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)           “CPI Increase” means an increase to Executive’s
Annual Base Salary based on the consumer price index that was approved by the
Compensation Committee of the Board on April 1, 2008.


 


(f)            “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;


 


(E)  if Executive’s employment is terminated due
to a nonrenewal of this Agreement by either party, the expiration date of the
Term; or


 

















 


(F)  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.


 


(g)           “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.


 


(h)           “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
be deemed to occur due to the Company’s common stock ceasing to be traded on an
established national stock exchange (such as the Nasdaq Global Market, the New
York Stock Exchange or the Nasdaq Global Select Market) in connection with or
following a Change of Control that occurs in connection with or following a Qualified
Sale;


 


(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 March 15 of the calendar year
immediately following the calendar year to which such bonus relates);


 


(E)  the relocation by the Company of Executive’s
principal workplace location more than 25 miles from Executive’s current
workplace location at the Company’s Miami branch; or


 


(F)  failure by the Company to comply with Section 26
(Indemnification of Prior Payments) within 60 days of Executive’s written
request for the Company’s compliance with Section 26.


 


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


 


(i)            “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.


 


(j)            “Notice of Termination” means a written notice
of termination of employment given by one party to the other party pursuant to Section 16(b).


 


(k)           “POAMI” means Protection One Alarm Monitoring, Inc.,
a Delaware corporation, and its successors and assignees.


 

















 


(l)            “Quadrangle/Monarch Group” means POI
Acquisition, L.L.C., Monarch Alternative Capital LP, any fund that is
controlled by it, including Monarch Master Funding Ltd., Monarch Debt Recovery
Master Fund Ltd, Monarch Opportunities Master Fund Ltd, Monarch Income Fund
Ltd, Monarch Capital Master Partners LP, 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.


 


(m)          “Qualified
Sale” means the first transaction that results in the Quadrangle Group and/or
the Monarch Group having sold, assigned or otherwise transferred, directly or
indirectly, (including, without limitation, by merger, consolidation or
distribution) in one or more transactions, to one or more parties that are not
entities affiliated with the Quadrangle Group (with respect to a sale,
assignment or other transfer by the Quadrangle Group) or the Monarch Group
(with respect to a sale, assignment or other transfer by the Monarch Group), an
aggregate of at least 51% of the aggregate number of shares of common stock of
the Company owned by the Quadrangle Group and the Monarch Group, as a group, as
of the date of this Agreement. For purposes of this definition only,
“Quadrangle Group” means POI Acquisition L.L.C. and its affiliated entities,
and “Monarch Group” means Monarch Alternative Capital LP, any fund that is
controlled by it, including Monarch Master Funding Ltd., Monarch Debt Recovery
Master Fund Ltd, Monarch Opportunities Master Fund Ltd, Monarch Income Fund
Ltd, Monarch Capital Master Partners LP, and, as applicable, their affiliated
entities; provided, for the avoidance of doubt, that the Monarch Group and the
Quadrangle Group shall not be deemed to be affiliated with each other for
purposes of this definition.


 


(n)           “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.


 


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


 


(p)           “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.  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 Chief Financial 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 Financial Officer and Executive Vice President. 
Executive shall have such duties as are appropriate to Executive’s position as
Chief Financial 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 Chief Executive Officer and the Board of Directors of the
Company.  Executive shall report to the Chief Executive Officer.
 Executive may continue to reside in the State of Florida 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
sixth anniversary of the date of the Initial Employment 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 sixth anniversary of the date of the Initial Employment 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 Three Hundred
and Thirty Thousand and No/100 Dollars ($330,000.00), which shall be reviewed
annually by the Board or the Compensation Committee of the Board.


 


Consistent
with the Executive’s arrangement prior to the date of this Agreement, Executive
is hereby waiving and voluntarily relinquishing the right to receive payments
under Section 4(a) of this Agreement to the extent resulting from the
CPI Increase to Executive’s Annual Base Salary (the “Salary Relinquishment”),
until such date as Executive, in his discretion, requests that such
relinquishment ceases and that current payments under Section 4(a) of
this Agreement reflecting the CPI Increase be given effect on a going-forward
basis (the time period during which the Salary Relinquishment occurs is the
“Salary Relinquishment Period”). 
Notwithstanding the immediately preceding sentence, the CPI Increase in
Executive’s Annual Base Salary will be given effect (by treatment as if it had
been paid as part of the Annual Base Salary from and after April 1, 2008)
for purposes of determining (i) any payments to Executive in connection
with a Qualifying Termination within four months prior to a Change in Control
or one year following a Change in Control pursuant to Section 5(a)(B) of
this Agreement (in such case, Annual Base Salary shall be deemed to include the
CPI Increase for all purposes of Section 5(a)(B)), and (ii) base
salary as used in the calculation of annual short term incentive plan target
bonus, and minimum potential bonus, pursuant to Section 4(b) of this
Agreement.   Executive 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 calendar year with a target bonus of not less than 60% of base
salary and a potential to earn at least 100% of base salary.  Such bonus
shall be paid, if earned, no later than March 15 of the calendar year
immediately following the calendar year to which such bonus relates.


 


(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.


 


(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, weekly travel to and from
Florida, 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 Miami-Dade County and Broward County, Florida 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.


 


(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 headquarters (which is currently located in
Lawrence, Kansas, but which may be relocated at the discretion of the Company)
or the Company’s Miami branch, to the extent needed while he is at the
Company’s headquarters or Miami 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)            Equity Grants.  In
consideration of, among other matters, Executive’s obligations following
termination of employment with the Company under Section 7, the Company
shall, on the date of this Agreement, grant the Executive an option to purchase
130,284 shares of common stock of the Company and 25,000 restricted shares of
common stock of the Company pursuant to the Company’s 2008 Long-Term Incentive
Plan, and grant the Executive 130,284 stock appreciation rights pursuant to the
Company’s 2010 Stock Appreciation Rights Plan (collectively, the “2010 Equity
Grants”).


 


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)         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) 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


 


(IV)         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 provide a monthly cash payment over the same three (3) year
period to reimburse Executive for 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
Monthly Payments”).  In the event
Executive cannot continue to participate in the Company benefit plans providing
such benefits, Executive shall present 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 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 Monthly Payment shall be made based on the
premiums plus any other administrative fees (except co-payments) charged by the
company offering such plans.  If it is
determined by the Company that any portion of the Benefits Monthly 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 Monthly Payment and the Benefits Gross-Up Payment, after reduction for
any federal, state and local income and employment taxes on the Benefits
Monthly Payment and the Benefits Gross-Up Payment, shall equal the Benefits
Monthly 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)  Executive’s rights with respect to all
outstanding stock options, stock appreciation rights and other equity based
awards (“Awards”) in connection with any termination of employment, including a
Qualifying Termination, shall be governed exclusively by the terms of the
Protection One, Inc. 2008 Long-Term Incentive Plan, the Protection One, Inc.
2004 Stock Option Plan, the Protection One, Inc. Stock Appreciation Rights
Plan, the Protection One, Inc. 2010 Stock Appreciation Rights Plan and the
grant and option agreements provided thereunder (provided, for the avoidance of
doubt, that this Section 5(a)(D) shall not be construed to affect or
modify the application of Section 6 of this Agreement); provided that in
no circumstance shall such Award be exercisable later than the earlier of the
latest date such award could have expired by its original terms under any
circumstances or the 10th anniversary of the original date of grant of
such Award.


 


(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.


 






 












 


(c)           Section 409A. 
Notwithstanding the timing of any payments pursuant to Section 5
of this Agreement, if the Employee is deemed on the date of termination to be a
“specified employee” within the meaning of that term under Code Section 409A(a)(2)(B),
then each of the following shall apply:


 


(A)          With regard to any payment that is considered deferred
compensation under Code Section 409A payable on account of a “separation
from service,” such payment shall be made on the date which is the earlier of (A) the
expiration of the six (6)-month period measured from the date of such “separation
from service” of the Employee, and (B) the date of the Employee’s death
(the “Delay Period”) to the extent required under Code Section 409A.  Upon the expiration of the Delay Period, all
payments delayed pursuant to this Section (whether they would have
otherwise been payable in a single sum or in installments in the absence of
such delay) shall be paid to the Executive in a lump sum, and any remaining
payments and benefits due under this Agreement shall be paid or provided in
accordance with the normal payment dates specified for them herein; and


 


(B)           To the extent any benefits provided during the first
six months after Executive’s termination are considered deferred compensation
under Code Section 409A provided on account of a “separation from service,”
and such benefits are not otherwise exempt from Code Section 409A,
Executive shall pay the costs of such benefits during the first six months
following termination and shall be reimbursed, to the extent such costs would
otherwise have been paid by the Company or to the extent such benefits would
otherwise have been provided by the Company at no cost to the Executive, the
cost of such coverage six months after Executive’s termination.


 


6.             Excise Tax Gross Up.


 


(a)           In the event that it shall be determined that the
vesting of Awards and 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”) but disregarding for
this purpose Code Section 280G(b)(2)(A)(ii)), the aggregate “present value”
of which (calculated in accordance with Section 280G) equals or exceeds
three times Executive’s “base amount” (as such term is defined under Section 280G)
and are 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 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) imposed upon the Gross-Up
Payment, 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), 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 the “present
value” of such Payments does not equal or exceed three times Executive’s “base
amount” (and such Payments are therefore not subject to the excise tax imposed
by Section 4999) (the maximum “present value” of the “parachute payments”
that could be paid to Executive without giving rise to such excise tax, the “Safe
Harbor Cap”); provided, however, that Executive shall not be required to make
any such reduction (a “Reduction”) if the reduction necessary to cause such
Payments not to exceed the Safe Harbor Cap is more than the sum of $100,000
plus the “present value” of any Payments made pursuant to the 2010 Equity
Grants that are considered part of the “parachute payments” (such sum, the “Maximum
Potential Reduction”); provided further that:


 


(x) if
after giving effect to the Maximum Potential Reduction the aggregate “present
value” of the remaining Payments that constitute “parachute payments” would
still exceed the Safe Harbor Cap, then Executive will be entitled to receive: (i) the
full amount of the Payments (without any Reduction), provided that in the case
that this clause (i) is applied Executive shall be obligated to pay the
incremental portion of the Excise Tax to the extent, if any, resulting from any
Payments made pursuant to the 2010 Equity Grants that constitute “parachute
payments” 


 

















 


(and shall not receive
any Gross-Up Payments to offset such portion of the Excise Tax) (the parties
understanding that, as of the date of this Agreement, such incremental Excise
Tax would be equal to 20% of the Payments made pursuant to the 2010 Equity
Grants that constitute “parachute payments” plus any interest, penalties or
additions to tax with respect to such amount), and Executive shall be entitled
to a Gross-Up Payment with respect to the remainder of the Excise Tax resulting
from the Payments, or (ii) the full amount of the Payments, less any
Payments pursuant to the 2010 Equity Grants that constitute “parachute payments”,
(and for the avoidance of doubt, Executive shall be entitled to a Gross-Up
Payment with respect to Payments made pursuant to this clause (ii)), whichever
of the immediately foregoing clauses (i) and (ii) would provide
Executive with a greater after-tax amount (taking into account applicable
federal, state, and local income taxes and the excise tax imposed by Section 4999);
and provided further that:


 


(y) if
after giving effect to the Maximum Potential Reduction the aggregate “present
value” of the remaining Payments that constitute “parachute payments” would be
less than or equal to the Safe Harbor Cap, then Executive will be entitled to
receive: (i) the full amount of the Payments (without any Reduction),
provided that in the case that this clause (i) is applied Executive shall
be obligated to pay the full amount of the Excise Tax (and shall not receive
any Gross-Up Payments to offset such Excise Tax) resulting from any Payments,
or (ii) a portion of the full amount of the Payments having a “present
value” equal to the Safe Harbor Cap, whichever of the immediately foregoing
clauses (i) and (ii) would provide Executive with a greater after-tax
amount (taking into account applicable federal, state, and local income taxes
and the excise tax imposed by Section 4999).


 


In the
event the Firm (as described below) determines that a Reduction is required,
the Firm shall determine which Payments are to be reduced.  Executive shall be entitled to elect by
written notice to the Company to make a further Reduction beyond what is
required and to elect which Payments will be so reduced; provided, however,
that Executive must make such election within ten days after the Firm makes its
determination and after making such election, if applicable, Executive
irrevocably waives his right to receive such amounts being further reduced. The
parties agree that, solely for the purposes of this Section 6, 85% of the
Non-Compete Value (as defined below) shall be allocated to Payments made
pursuant to the 2010 Equity Grants to the extent that such allocation does not
exceed the value of the 2010 Equity Grants, and the remainder of the
Non-Compete Value not allocated to the 2010 Equity Grants shall be allocated to
Payments made pursuant to Section 5.


 


(b)           Subject to the provisions of Section 6(c) hereof,
all determinations required to be made under this Section 6 (including,
without limitation, whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment, the Payments to be made to Executive under
Sections 6(a)(x) or (y), and the assumptions to be utilized in arriving at
such determinations) shall be made by the Company’s tax counsel as of the date
of this Agreement or such other tax counsel or public accounting firm as may be
agreed upon in writing by the Company and Executive (the “Firm”) which shall
provide detailed supporting calculations both to the Company and Executive
within twenty (20) 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
or the Executive.  All determinations required to be made by the Firm, and
the Firm’s interpretation of this Section 6, shall be binding upon the
Company and Executive.  All fees and
expenses of the Firm shall be borne solely by the Company.   As part of the assumptions to be utilized by
the Firm in arriving at its determinations under this Section 6, the
Company shall furnish to the Firm a valuation, provided by  WTAS LLC, or such other third-party valuation
expert as may be agreed upon in writing by the Company and Executive of the
Executive’s obligations under Section 7 (Non-Competition) following
termination of employment (the “Non-Compete Value”).   The Firm shall be entitled to rely on this
valuation in making its determinations under this Section 6.  Any Gross-Up Payment, as determined pursuant
to this Section 6, shall be paid by the Company to Executive within five (5) business
days of the receipt of the 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 Firm determines that there are no “excess
parachute payments” (as such term is defined under Section 280G) subject
to the excise tax imposed by Section 4999, the Company or Executive may
request that the Firm furnish to the Company a written opinion addressed to the
Company, a copy of which the Company shall provide to Executive upon Executive’s
request, that it is more likely than not that there are no “excess parachute
payments” subject to the excise tax imposed by Section 4999; provided that
if such a request is made, the Company and Executive shall cooperate in
providing relevant factual representations reasonably requested by the
Firm.  As a result of the uncertainty in
the application of Sections 280G and 4999 at the time of the initial
determination by the Firm hereunder, it is possible that Payments or Gross-Up
Payments which will not have been made by the Company 


 

















 


should have been made by
the Company (“Underpayment”), or that Payments or 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 by the Firm
hereunder.  In either such event, the Firm shall determine the amount of
the Underpayment or Overpayment that has occurred, taking into account the
provisions of this Section 6, and the Company or Executive, as applicable,
shall promptly pay the amount owed, unless otherwise provided herein.  In
the event that the Company exhausts its remedies pursuant to Section 6(c) and
Executive thereafter is required to make a payment of Excise Tax, or Executive
is required to repay to the Company all or a portion of the Payments made
pursuant to the 2010 Equity Grants, the Firm shall determine the amount of the
Underpayment of Gross-Up Payments or the Overpayment of Payments and any such
Underpayment or Overpayment shall be promptly paid by the Company or Executive,
as applicable.  In the case of any Overpayment of Gross-Up Payments,
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 such 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,
except to the extent otherwise expressly set forth in this Section 6.


 


(c)           Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require a
change in the amount of the Payments, or a change in the amount of the Gross-Up
Payments by the Company.  Such notification shall be given within five (5) business
days 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 and executing any powers of attorney or similar documents
authorizing such attorney to act on behalf of Executive,


 


(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, 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; provided that if any Payments
that were not determined by the Firm to constitute “parachute payments” subject
to an Excise Tax are finally and conclusively determined to constitute “parachute
payments” subject to the Excise Tax, then the Company shall make a Gross-Up
Payment to Executive with respect to the Excise Tax attributable to any
Payments; provided, however, that if the Company takes, and uses its
commercially reasonable efforts to advocate in favor of, tax positions
consistent with the determination made by the Firm pursuant to Section 6(b) and
the Company exhausts its remedies and appeals with respect thereto (or enters
into a settlement agreement with respect thereto with the prior written consent
of Executive (which consent may not be unreasonably delayed, withheld or
conditioned)), then (x) if Executive’s repayment to the Company of part or
all of the Maximum Potential Reduction (for the avoidance of doubt, less any
previous Reduction) together with 


 

















 


interest thereon at a rate equal to 120 percent of the
applicable federal rate determined under Section 1274(d) of the Code
compounded semi-annually (the “Maximum Returned Payments”) would cause the
Excise Tax not to apply to any Payments, then Executive shall repay to the
Company the minimum amount of such Maximum Returned Payments necessary in order
to cause the Excise Tax not to apply to any Payments, or (y) if repayment
of the Maximum Returned Payments would not cause the Excise Tax not to apply to
any Payments, then Executive shall retain all Payments received and shall be
obligated to pay (in the aggregate, including any excise tax that Executive is
obligated to pay pursuant to Section 6(a)(x)(i)) an amount equal to the
product of the excise tax rate imposed by Section 4999 multiplied by the
amount of the Payments made pursuant to the 2010 Equity Grants that are finally
and conclusively determined to constitute “parachute payments” (and shall not
receive any Gross-Up Payments to offset such excise tax payments) (the parties understanding that, as of the
date of this Agreement, such incremental excise tax would be equal to 20% of
the Payments made pursuant to the 2010 Equity Grants that constitute “parachute
payments”) and the Company shall be obligated to make a Gross-Up Payment to Executive
with respect to the remainder of the Excise Tax resulting from the Payments. 
Without limitation on the foregoing provisions of this Section 6(c) hereof,
if such contest is limited to issues with respect to which a Gross-Up Payment
would be payable hereunder (assuming for these purposes that the potential
repayment contemplated by the proviso in the first sentence of this Section 6(c)(iv) would
not be effective to cause the Excise Tax to not apply to the Payments repaid),
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 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. 
If such contest is not limited to issues with respect to which a
Gross-Up Payment would be payable hereunder (assuming for these purposes that
the potential repayment contemplated by the proviso in the first sentence of
this Section 6(c)(iv) would not be effective to cause the Excise Tax
to not apply to the Payments repaid), the Company’s control of the contest
shall be limited to such issues and Executive shall be entitled to settle or
contest, as the case may be, any other issues raised by the Internal Revenue
Service or any other taxing authority, provided that the Company and Executive
shall reasonably cooperate in defending such contest.


 


This Section 6(c) shall not apply in the
event that Executive received the full amount of the Payments pursuant to Section 6(a)(y)(i) (without any Reduction).  In such case, Executive shall be solely
responsible for defending any claim asserted by the Internal Revenue Service
and shall be solely responsible for any Excise Tax resulting therefrom.


 


(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, provided,
however, that to the extent the amount of the advance exceeds the Gross-Up
Payment required to be paid, Executive shall promptly pay such excess to the
Company.


 

















 


(e)  In the event of any claim by the Internal
Revenue Service against the Company for any Excise Tax attributable to the
Payments, the Company and Executive shall reasonably cooperate to carry out the
intent of Section 6(c) hereof, and the provisions of Section 6(c),
to the extent applicable, shall apply as though the Internal Revenue Service
had asserted a claim against Executive for the Excise Tax; provided that, for
the avoidance of doubt, Executive shall indemnify the Company for any excise
tax imposed by Section 4999 for which Executive would otherwise be
responsible pursuant to Section 6(c) as if the Internal Revenue
Service had instead asserted a claim against Executive for any Excise Tax
attributable to the Payments; provided further that the Company shall control
any proceedings relating to such claim.


 


(f)  Nothing in this Section 6 is intended
to violate the Sarbanes-Oxley Act of 2002, as amended, and to the extent that
any advance or repayment obligation hereunder would do so, such obligation
shall be modified so as to make the advance a nonrefundable payment to Executive
and the repayment obligation null and void.


 


(g)  For the avoidance of doubt, Exhibit A,
attached hereto and incorporated as part of this Agreement, provides an
illustration of the mechanics of this Section 6.


 


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 “ Original Non-Competition Period”), Executive
shall not, any where within the continental United States or Canada, 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 Large Competitor (as hereinafter defined), except
with the Company’s prior written consent (the “Original Non-Compete”). 
For purposes of this
Agreement, the term “Large Competitor” shall mean any entity engaged in the
business of providing security 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 Holdings, Inc.,
d/b/a Broadview Security, The Stanley Works and their respective subsidiaries,
affiliates and successors.  Provided,
however, that if fifty percent (50%) or more of Executive’s 2010 Equity Grants
vest (the “Vesting Condition”), Executive shall not be subject to the Original
Non-Compete, and instead 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 during the Vested
Non-Compete Period (as defined below), Executive shall not, any where within the continental United States
or Canada, Participate with any Company Competitor (as hereinafter defined),
except with the Company’s prior written consent (the “Vested Non-Compete”).  For purposes of this Agreement, the
term “Company Competitor” shall mean any entity engaged in the business of
providing security monitoring services, including without limitation, ADT
Security Services, Brink’s Home Security, Inc. d/b/a Broadview Security,
The Stanley Works 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.  While the Executive is subject to the Original Non-Compete, then
during the Original Non-Competition Period, 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 (the “Original
Non-Compete Carve Out”).  Provided,
however, if Executive is subject to the Vested Non-Compete, the Original
Non-Compete Carve Out shall not apply to the Vested Non-Compete and, during the
Vested Non-Compete Period, 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 and Executive does not assist or
otherwise participate in such competitive activity.  For purposes of this Agreement, the term “Vested
Non-Compete Period” means the period beginning upon the later of (x) the
termination of Executive’s employment for any reason or (y) the 


 

















 


date that the Vesting
Condition has been satisfied (such later date being the “Broader Non-Compete
Start Date”), and ending eighteen (18) months after the Broader Non-Compete
Start Date.


 


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 Large Competitors or Company Competitors, Executive shall,
immediately upon such challenge, forfeit any right to any payments and benefits
under Section 5(a) or 5(b) or the 2010 Equity Grants that he has
not already received.  This provision in
no way limits the right of the Company to pursue any and all remedies available
to the Company at law or in equity for a breach by the Executive of this Section 7.


 


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


 


(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.   Executive further
acknowledges that any Confidential Information of the Company that constitutes
a trade secret shall be protected from unauthorized use or disclosure by the
Executive beyond the Non-Competition Period by operation of law.


 

















 


(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 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 Florida 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 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:

  	
  Darius G. Nevin

  
	
   

  	
  1410 Palancia Avenue

  
	
   

  	
  Coral Gables, FL 33146

  
	
   

  	
   

  
	
  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.  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 (provided that the parties understand and agree
that the equity-based arrangements contemplated by Section 5(a)(D) of
this Agreement do not constitute severance agreements or severance plans).
 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)(C) and Section 7, 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 29 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 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.           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.


 


24.           Legal Fees.  All reasonable legal
fees of Greenberg Traurig, P.A. incurred by Executive in connection with
negotiating this Agreement and the 2010 Equity Grants shall be paid by the
Company; provided, however, that the total amount of such legal fees paid by
the Company in connection with negotiating this Agreement, the 2010 Equity
Grants and other employment agreements with other executives in connection
herewith shall not exceed $15,000.


 


25.           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.


 


26.           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
paid to Executive prior to July 23, 2004 (“Prior Payments”), 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 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 26, 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.


 


27.           Section 409A.  Notwithstanding anything to the contrary in
this Agreement,


 


(a)     to the extent Executive is
entitled to the reimbursement of any expenses or in-kind benefits under this
Agreement that the Company determines constitutes taxable income to the
Executive, (X) the amount of expenses eligible for reimbursement, or the
in-kind benefits provided, during a calendar year may not affect the expenses
eligible for reimbursement, or in-kind benefits to be provided, in any other
taxable year, (Y) such reimbursement will be made on or before the last
day of the calendar year immediately following the calendar year in which such
expense was incurred, and (Z) the right to reimbursement or in-kind
benefits shall not be subject to liquidation or exchange for another benefit.


 


(b)     to the extent any provision of
this Agreement provides Executive with a tax gross-up payment for any taxes
that Executive may incur as a result of such benefits provided hereunder (a “Tax
Gross-Up Payment”), such Tax Gross-Up Payment will be made by the end of
the calendar year next following the calendar year in which the Executive
remits the related taxes.


 


(c)     the right to any additional
Tax Gross-Up Payment that Executive may be entitled to under this Agreement due
to a tax audit or litigation addressing the existence or amount of the tax
liability underlying the Tax Gross-Up Payment will be made by the end of the
calendar year following the calendar year in which the taxes that are the
subject of the audit or litigation are remitted to the taxing authority, or,
where as a result


 

















 


of
such audit or litigation no taxes are remitted, the end of the calendar year
following the calendar year in which the audit is completed or there is a final
and nonappealable settlement or other resolution of the litigation.


 


(d)     For purposes of Code Section 409A,
the Employee’s right to receive any installment payments pursuant to this
Agreement shall be treated as a right to receive a series of separate and
distinct payments.


 


(e)     Whenever a payment under this
Agreement specifies a payment period with reference to a number of days (e.g., “payment
shall be made within thirty (60) days [sic] following the date of termination”),
the actual date of payment within the specified period shall be within the sole
discretion of the Company.


 


(f)      In no event shall any payments
under this Agreement that constitute “deferred compensation” for purposes of
Code Section 409A be offset by any other payment, pursuant to this
Agreement or otherwise.


 


28.           Saving Clause.  The
provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof. 
If any provision or clause of this Agreement, or portion thereof, shall
be held by any court or other tribunal of competent jurisdiction to be illegal,
void, or unenforceable in such jurisdiction, the remainder of such provision
shall not be thereby affected and shall be given full effect, without regard to
the invalid portion.  It is the intention
of the parties that, if any court construes any provision or clause of this
Agreement, or any portion thereof, to be illegal, void, or unenforceable
because of the duration of such provision or the area or matter covered
thereby, such court shall reduce the duration, area, or matter of such
provision, and, in its reduced form, such provision shall then be enforceable
and shall be enforced to the fullest extent permitted by law.  Executive further agrees that the covenants
in Sections 7, 8, 9 and 10(a) hereof shall each be construed as separate
agreements independent of any other provisions of this Agreement, and the
existence of any claim or cause of action by Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a defense
to the enforcement by the Company of any of these covenants.


 


29.           Extension of Periods.  The
Non-Competition Period referenced in Section 7, 8 and 9 of this Agreement
shall be automatically extended by any length of time during which the
Executive is in breach of the corresponding covenant contained in that Section and
the obligations of the Executive thereunder shall continue in full force and
effect throughout the duration of the extended periods.


 


*  
*   *   *   *


 


[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/ Eric Griffin

  
	
   

  	
  Its:

  	
  Vice President and General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE ALARM MONITORING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric Griffin

  
	
   

  	
  Its:

  	
  Vice President and General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darius G. Nevin

  
	
   

  	
   

  	
  Darius G. Nevin

  



 

















 


Exhibit A


 


For
Illustration Purposes Only


 


I.                                         Relevant rules and assumptions


 


A.                                   Section 280G 20% excise tax applies only
if the “present value” of Executive’s “parachute payments” equals or exceed
three times Executive’s “base amount”


 


B.                                     The term “parachute payment” does not include
any payment (or portion thereof) which the taxpayer establishes by clear and
convincing evidence is reasonable compensation for services rendered on or
after the change of control (Q&A 9)


 


C.                                     Reasonable compensation for services includes
reasonable compensation for refraining from performing services (such as under
a covenant not to compete) (Q&A 40)


 


D.                                    For purposes of the discussion below, Payments
allocable to the value of the covenant not to compete (as determined by the
valuation firm) are not considered “parachute payments”


 


E.                                      For purposes of the discussion below, as
stated in the employment agreement, 85% of the value of the covenant not to
compete will be allocated to Payments made pursuant to the 2010 Equity Grants
(but not to exceed the amount of such Payments) and the remaining value will be
allocated to Payments made pursuant to Section 5 of the employment
agreement


 


II.                                     At the time of closing, does the “present value” of the “parachute
payments” equal or exceed three times Executive’s “base amount”?


 


A.                                   If no, then Executive receives the full amount of the
Payments and there is no excise tax


 


B.                                     If yes, then “Reduction” of the Payments may
be required
(maximum reduction cannot exceed the sum of (i) $100,000 and (ii) the
“present value” of any Payments made pursuant to the 2010 Equity Grants that
constitute “parachute payments”)


 


1.                                      Can the excise tax be eliminated by reducing the “parachute payments”? (i.e., after applying the maximum reduction, are the “parachute payments”
less than three times Executive’s “base amount”?)


 


a.                                       If no (i.e., maximum reduction would not eliminate the excise tax), then Executive receives either (i) or (ii) below, whichever
results in greater after-tax benefit:


 

















 


i.                                          Full amount of the Payments, with no reduction
(Section 6(a)(x)(i))


 


(A)                              In this case, Executive pays the excise tax (plus any associated interest
and penalties) on the amount of the Payments made pursuant to the 2010 Equity
Grants that constitute “parachute payments” (with no offset against the “base
amount”) and Executive receives a gross-up payment for any remaining excise tax
(plus any associated interest and penalties)


 


ii.                                       Full amount of the Payments, less any Payments
made pursuant to the 2010 Equity Grants that constitute “parachute payments” (Section 6(a)(x)(ii))


 


(A)                              In this case, Executive receives a full gross-up payment for any excise
tax (plus any interest and penalties)


 


b.                                      If yes (i.e., full or partial reduction would eliminate the excise tax), then Executive receives either (i) or (ii) below, whichever
results in greater after-tax benefit:


 


i.                                          Full amount of the Payments, with no reduction
(Section 6(a)(y)(i))


 


(A)                              In this case, Executive is responsible for all excise taxes (plus any
interest and penalties), including on audit


 


ii.                                       The maximum amount of the Payments that would
not trigger the excise tax (Section 6(a)(y)(ii))


 


(A)                              In this case, there is no excise tax


 


C.                                     Notwithstanding the above, Executive may
choose to irrevocably waive his right to any portion of the Payments in his
sole discretion


 


III.                                 Upon IRS audit, IRS asserts that Section 280G excise tax is due


 


A.                                   Company controls the audit — does Company advocate in favor of positions consistent
with Firm’s determination?


 

















 


1.                                       If no, Executive receives a full
gross-up payment for any excise tax (plus any interest and penalties)


 


2.                                       If yes, would “repayment” of a portion of the Payments by Executive
eliminate the excise tax proposed by the IRS?
(i.e., would the IRS respect a repayment by Executive?)


 


a.                                       If yes, Executive is required to
repay to the Company with interest the amount required to eliminate the excise
tax proposed by the IRS (but not to exceed the sum of $100,000 and the “present
value” of any Payments made pursuant to the 2010 Equity Grants that the IRS
determines constitute “parachute payments,” less any amounts previously
forfeited)


 


b.                                      If no, Executive is responsible
for that portion of the excise tax (but not interest and penalties)
attributable to the portion of the Payments made pursuant to the 2010 Equity
Grants that the IRS determines constitute “parachute payments” (with no offset
against the “base amount”), and Executive receives a gross-up payment for any
remaining excise tax (plus any interest and penalties)