Exhibit 10.4


 


STOCK OPTION AGREEMENT


 


THIS
STOCK OPTION AGREEMENT (this “Agreement”) is entered into effective as of
                                ,
2010, by and between PROTECTION ONE, INC, a Delaware corporation (the “Company”),
and
                
(“Optionee”).


 


1.             Grant of Option.


 


1.1          Number of Option Shares and
exercise price. The Company, desiring to provide Optionee an opportunity to
purchase shares of the Company’s Common Stock, and to provide Optionee with an
added incentive to remain an employee of the Company, has awarded to Optionee,
effective as of the date of this Agreement (the “Grant Date”), pursuant to the
Company’s 2008 Long-Term Incentive Plan (the “Plan”), and Optionee hereby
accepts, an option to purchase            
shares of Common Stock (the “Option Shares”) at a price (the “exercise price”)
of $        per
share (the “Option”). The Option is, and is intended to be, a nonqualified
stock option, and is not intended to qualify as an “incentive stock option”
within the meaning of Section 422(b) of the Code.


 


1.2          The Plan. The
Option and this Agreement shall be governed by, and shall be subject to the
terms and conditions of, the Plan, the provisions of which are hereby
incorporated into this Agreement by this reference and a copy of which has been
separately provided to Optionee. Capitalized terms used and not otherwise
defined herein shall have the respective meanings given them in the Plan.


 


1.3          Vesting/Exercisability
of Option. The Option shall become exercisable (vest) as follows: (i) options
covering one-half of the Option Shares shall become exercisable on the second
anniversary of the Grant Date, and (ii) options covering the remaining
one-half of the Option Shares shall become exercisable on the third anniversary
of the Grant Date; provided that
upon the occurrence of a Change of Control, any outstanding and unvested
portion of the Option will become vested and shall be treated in accordance
with Section 1.4 below.  Subject to
the provisions of the Plan and this Agreement, shares not purchased on the
above dates shall accumulate and may be purchased at any time on or before the
Expiration Date (as defined in Section 1.5 below), subject to earlier
termination due to termination of Optionee’s employment with the Company as
provided in Section 1.6, 1.7, 1.8 or 1.9 below. Provided, however, no
option shall be exercisable and no shares shall be issued hereunder unless the
registration or qualification of such shares or other required action under any
state or Federal law, rules or regulation has been made and is effective
at the time of such issuance.


 


1.4          Cash-Out of
Options. Upon the occurrence of a Change of Control, the Company shall
cancel the outstanding Option as of the time of the Change of Control and make
a payment of cash to the Optionee upon the consummation of the Change of
Control that is equal to (a) the excess (if any) of the Change of Control
Price over the exercise price per Option Share covered by the Option,
multiplied by (b) the number of Option Shares covered by the outstanding
portion of the Option. If the Change of Control Price is less than or equal to
the exercise price per Option Share covered by the Option, then the Option
shall be deemed to have 


 

















 


been
paid in full and shall be canceled with no payment due in respect thereof to
the Optionee.


 


1.5          Term of Option. The Option
shall continue in effect until the tenth anniversary of the Grant Date (the “Expiration
Date’’), subject to earlier termination due to termination of Optionee’s
employment with the Company, its Subsidiaries and Affiliates (collectively, the
“Employer”) as provided in Section 1.6, 1.7, 1.8 or 1.9 below.


 


1.6          Voluntary
Termination of Employment. If prior to the Expiration Date, Optionee
voluntarily terminates employment with the Employer other than for Good Reason:
(a) all vesting with respect to the Option shall cease, (b) any
unvested portion of the Option shall expire as of the date of such termination,
and (c) any vested portion of the Option shall remain exercisable until
the earlier of the Expiration Date or three (3) months after the date of
such termination.


 


1.7          Termination
Without Cause or For Good Reason.  If
prior to the Expiration Date, Optionee’s employment is terminated pursuant to a
Qualifying Termination: (a) all vesting with respect to the Options shall
cease, except that any unvested portion of the Option shall vest upon a Change
of Control (and for avoidance of doubt, be subject to Section 1.4) if a
Change of Control occurs prior to the earlier of (x) the second
anniversary of the Grant Date or (y) 90 days after the date of such
termination (or the date of such termination, if such date is after the second
anniversary of the Grant Date), (b) any unvested portion of the Option
shall expire upon the earlier of (x) the second anniversary of the Grant
Date or (y) 90 days after the date of such termination (or the date of
such termination, if such date is after the second anniversary of the Grant
Date) and (c) any vested portion of the Option shall be and remain
exercisable until the earlier of the Expiration Date or the first anniversary
of such termination.


 


1.8          Termination of
Employment — Death, Disability or Retirement. If prior to the Expiration
Date, Optionee’s employment with the Employer terminates by reason of Optionee’s
death, Disability, or Retirement (a) all vesting with respect to the
Option shall cease, (b) any unvested portion of the Option shall
immediately expire as of the date of such termination and (c) any vested
portion of the Option shall expire on the earlier of the Expiration Date or the
first anniversary of the date of such termination.  In the event of Optionee’s death, the Option
shall remain exercisable by the person or persons to whom Optionee’s rights
under the Option pass by will or the applicable laws of descent and
distribution.


 


1.9          Termination for
Cause. If prior to the Expiration Date, Optionee’s employment with the
Employer is terminated by the Employer for Cause, the Option (including any
vested portion of the Option) shall immediately expire as of the date of such
termination.


 


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2.             Exercise of Option.


 


2.1          Mechanics of Exercise. This Option, to the extent
vested, may be exercised by Optionee, in whole or in part, by giving written
notice of exercise to the Company specifying the number of whole Option Shares
to be purchased, which notice must be accompanied by payment to the Company of
the full amount of the purchase price of such Option Shares. Payment for such
Option Shares to be acquired upon exercise of this Option shall be made, at the
election of Optionee: (i) in immediately available funds in United States
dollars, by certified or bank cashier’ s check or by wire transfer; (ii) by
surrender to the Company of outstanding shares of Common Stock already owned by
Optionee, with a Fair Market Value on the date of exercise equal to the
exercise price; (iii) by the Company withholding Option Shares with a Fair
Market Value on the date of exercise equal to the exercise price, (iv) by
a combination of (i), (ii) and (iii); or (iv) by any other means
approved by the Committee, consistent with applicable law, rules and
regulations.  Anything herein to the
contrary notwithstanding, the Company shall not directly or indirectly extend
or maintain credit, or arrange for the extension of credit, in the form of a
personal loan to or for any director or executive officer of the Company in
violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402
of SOX”), and to the extent that any form of payment would, in the opinion of
the Company’s counsel, result in a violation of Section 402 of SOX, such
form of payment shall not be available.


 


2.2          Withholding Taxes.  (a) At the time the Optionee exercises
this Option, in whole or in part, or at any time thereafter as requested by the
Employer, the Optionee hereby authorizes withholding from payroll and any other
amounts payable to the Optionee, and otherwise agrees to make adequate
provision for (including by means of exercise under a Regulation T Program),
any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Employer, if any, which arise in connection with
the exercise of this Option.


 


(b) Upon
the Optionee’s request and subject to approval by the Employer, in its sole
discretion, and compliance with any applicable legal conditions or
restrictions, the Employer may withhold from fully vested Option Shares
otherwise issuable to the Optionee upon the exercise of this Option a number of
Option Shares having a Fair Market Value, determined by the Employer as of the
date of exercise, not to exceed the amount determined by the applicable minimum
statutory withholding rates. Notwithstanding the filing of such election,
shares of Common Stock shall be withheld solely from fully vested Option Shares
determined as of the date of exercise of this Option that are otherwise
issuable to the Optionee upon such exercise. Any adverse consequences to the
Optionee arising in connection with such share withholding procedure shall be
the Optionee’s sole responsibility.


 


(c) The
Optionee may not exercise this Option unless the tax withholding obligations of
the Employer are satisfied. Accordingly, the Optionee may not be able to
exercise this Option when desired even though this Option is vested, and the
Company shall have no obligation to issue a certificate for such Option Shares
until such tax withholding obligations are satisfied.


 


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2.3          Exercise by Executor or
Administrator. If any portion of the Option remains exercisable pursuant to
the terms of this Agreement following the death of Optionee, such portion may
be exercised by the executor or administrator of Optionee’s estate or any
person who has acquired the Option directly from Optionee by bequest or
inheritance for so long as such portion remains exercisable pursuant to the
terms of this Agreement.


 


2.4          Rules and Regulations. Any
arrangements with respect to the payment of (i) the purchase price of
Option Shares and (ii) any withholding or other taxes, shall be subject to
such rules and regulations as the Committee may adopt in connection
therewith.


 


3.             Delivery of Certificates Upon
Exercise of Option. Delivery of a certificate or certificates (or a book
entry or book entries, if applicable, in the Company’s discretion) representing
the purchased Option Shares shall be made as promptly as practicable after
receipt by the Company of notice of exercise and payment in full of the
purchase price and, if required, the amount of any withholding or other taxes.


 


4.             Non-Transferability. The
Option shall not be transferable except by will or the laws of descent and
distribution and shall be exercisable during the lifetime of Optionee only by
Optionee or his or her guardian or legal representative.


 


5.             Notices. Any notice or other
communication to be given to the Company shall be in writing and addressed to
the Company (to the attention of its General Counsel) at the Company’s
principal executive offices, and any notice or other communication to be given
to Optionee shall be in writing and addressed to him or her at the address of
Optionee then maintained by the Company. All such notices and other
communications shall be personally delivered or sent by mail. Any such notice
or other communication shall be deemed to be delivered on the date on which it
is personally delivered or, if sent by mail, on the third business day after it
is deposited in the United States mail, certified or registered, postage
prepaid, addressed to the person who is to receive it at the address of such
person as specified above. The Company or Optionee may change, at any time and
from time to time, by written notice to the other, the address that it or he or
she had therefore specified for receiving notices.


 


6.             Relation to Other Benefits.  Any economic or other benefit to you under
this Plan shall not be taken into account in determining any benefits to which
you may be entitled under any retirement or other benefit or compensation plan
maintained by the Company or any subsidiary. 
Provided, however, for the avoidance of doubt, that this section shall
not be construed to affect or modify the application of Section 6 of the
Employment Agreement.


 


7.             Certain Defined Terms.  For purposes of this Agreement, the following
terms shall be defined as set forth below:


 


“Cause”
shall have the meaning provided in the Amended and Restated Employment
Agreement dated as of the date hereof by and between the Company and Optionee
(the “Employment Agreement”).


 


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“Change
of Control” shall have the meaning provided in the Plan that occurs in
connection with or following a Qualified Sale (as defined in the Employment
Agreement).


 


“Change
of Control Price” shall have the meaning provided in the Plan.


 


“Disability”
means the permanent and total disability of a person within the meaning of Section 22(e)(3) of
the Code.


 


“Qualifying
Termination” shall have the meaning provided in the Employment Agreement.


 


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


 


“Good
Reason” shall have the meaning provided in the Employment Agreement.


 


*  *  *


 


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IN WITNESS WHEREOF, the
parties have entered into this Stock Option Agreement as of the day and year
first written above.


 


	
  OPTIONEE:

  	
   

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  [Insert Name]

  	
   

  	
   

  	
  [Insert Name]

  
	
   

  	
   

  	
   

  	
  [Title]

  



 


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