Exhibit 10.1


 


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 Richard Ginsburg (“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 or the Chairman of the Compensation
Committee 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 or not
being nominated, elected or continuing as a director of the Board;


 


(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 appointment by the Board of a Chief
Operating Officer, Chief Financial Officer or President of the Company over
Executive’s written objection;


 


(F)  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;


 


(G)  causing or permitting (without the consent
of Executive) any person other than Executive to present and recommend the
business plan to the Board;


 


(H)          subject to restrictions under the bylaws
of the Company as of the date hereof, reducing the hiring or firing authority
of Executive as in effect as of the date hereof (it being understood, however,
that Executive’s shall consult and collaborate with the Board prior to the
hiring or firing of any senior manager of the Company or any Subsidiary);


 


(I)            the appointment of a Chairman of the
Board (other than a Chairman who is not an executive or an officer of the
Company) without Executive’s consent; or


 


(J)            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 Executive Officer and
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 Executive Officer and President.  Executive shall have such duties
as are appropriate to Executive’s position as Chief Executive Officer and
President, and shall have such authority as required to enable Executive to
perform these duties.  Consistent with the foregoing, Executive shall
comply with all reasonable instructions of the Board of Directors of the
Company.  Executive shall report to the Board of Directors.
 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.  During the period of 


 

















 


Executive’s employment
under this Agreement, the Board shall cause Executive to be nominated for
election as a member of the Board of Directors of the Company.  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 and 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 Five
Hundred Thousand and No/100 Dollars ($500,000.00), 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 195,182 shares of common stock of the Company and 50,000 restricted
shares of common stock of the Company pursuant to the Company’s 2008 Long-Term
Incentive Plan, and grant the Executive 195,182 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, 80% 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 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:

  	
  Richard Ginsburg

  
	
   

  	
  P.O. Box 800207

  
	
   

  	
  Miami, FL 33280

  
	
   

  	
   

  
	
  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/ Richard Ginsburg

  
	
   

  	
   

  	
  Richard
  Ginsburg

  



 

















 


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, 80% 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)