Exhibit 10.27


 


EMPLOYMENT AGREEMENT


 


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


 


W I T N E S S E T H


 


WHEREAS, the Company and Executive agreed to
employment terms pursuant to an Offer Letter effective June 4, 2001 (the “Prior
Employment Agreement”); and


 


WHEREAS, the Board (as defined in Section 1)
has determined that it is in the best interest of the Company and its
stockholders to assure that the Company will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a
Change in Control (as defined below), and to encourage the Executive’s full
attention and dedication to the Company currently and in the event of a threat
or occurrence of a Change in Control and to provide the Executive with
compensation and benefits arrangements which are competitive with those of
other comparable corporations; and


 


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


 


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


 


1.                                       Definitions.  As used in this Agreement, the following
terms shall have the respective meanings set forth below:


 

















 


a.               “Board”
means the Board of Directors of the Company.


 


b.              “Bonus
Amount” means: (i) for a Date of Termination or Change in Control occurring in
fiscal year 2003, the annual incentive bonuses payable by the Company to or for
the benefit of or deferred by Executive for the 2002 fiscal year of the
Company; (ii) for a Date of Termination or a Change in Control occurring in
fiscal year 2004, the average of the annual incentive bonuses payable by the
Company to or for the benefit of or deferred by Executive for the 2002 and 2003
fiscal years of the Company; and (iii) for a Date of Termination or Change in
Control occurring after fiscal year 2004, the average of the annual incentive
bonuses payable by the Company to or for the benefit of or deferred by Executive
for the last three (3) completed fiscal years of the Company immediately preceding
the Date of Termination or Change in Control.


 


c.               “Cause”
means (i) the willful and continued failure of Executive to perform
substantially his duties with the Company (other than any such failure
resulting from Executive’s incapacity due to physical or mental illness or any
such failure subsequent to Executive being delivered a Notice of Termination
without Cause by the Company or Executive delivering a Notice of Termination
for Good Reason to the Company) that is not remedied within 30 days after a
written demand for substantial performance is delivered to Executive by the
Chief Executive Officer of the Company which specifically identifies the manner
in which Executive has not substantially performed


 


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


 


d.              “Change
in Control” means the occurrence of any one of the following events:


 


i.                                          individuals
who, on March 18, 2003, constitute the Board (the “Incumbent Directors”) cease
for any reason to constitute at least a majority of the Board, provided that
any person becoming a director subsequent to March 18, 2003, whose election or
nomination for election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or by approval
of the proxy statement of the Company in which such person is named as a
nominee for director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual
initially elected or nominated as a director of the Company as a result of an
actual election contest with respect to directors or as a result of any other
actual solicitation of proxies or consents by or on behalf of any person other
than the Board shall be deemed to be an Incumbent Director; provided,


 


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


 


ii.                                       any
“person” (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing more than 40% of the combined voting power of the
Company’s then outstanding securities eligible to vote for the election of the
Board (the “Company Voting Securities”); provided, however, that the event
described in this paragraph (ii) shall not be deemed to be a Change in
Control if such beneficial owner is any of the following or becomes a
beneficial owner as a result of any of the following, except as provided in
paragraph (v):  (A) Westar, Protection
One or any of their subsidiaries, (B) any employee benefit plan (or
related trust) sponsored or


 


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maintained by the Company, Protection One, Westar or any of their
subsidiaries, (C) any underwriter temporarily holding securities pursuant
to an offering of such securities, (D) a person involved in a
Non-Qualifying Transaction (as defined in paragraph (iii)), (E) an entity
(x) controlled by the Executive or a group of persons consisting, at the time
of such acquisitions, of the Executive and other employees of the Company or
(y) of which the majority of common equity securities, at the time of such
acquisitions, is owned by the Executive or a group of persons consisting of the
Executive and other employees of the Company or (F) any event in which
Protection One (or Westar, if the event at issue would otherwise constitute a
Change in Control of Protection One) continues to be directly or indirectly the
beneficial owner of a greater number of shares of the Company than that held by
any other person as a result of the event described in this paragraph (ii) or
has the right to direct the vote of a greater number of voting securities for
directors (or the equivalent) of the Company than any other person as a result
of the event described in this paragraph (ii);


 


iii.                                    the
consummation of a merger, consolidation, statutory share exchange, sale of all
or substantially all of the assets of the Company or Protection One, or similar
form of corporate transaction (whether in one transaction or a series of
transactions) involving the Company or Protection


 


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One (a “Business Combination”), unless immediately following such Business
Combination:  (A) more than 50% of
the total voting power of (x) the corporation that owns, leases or
controls all or substantially all of the assets of the Company and of
Protection One resulting from such Business Combination (the “Surviving
Corporation”), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors (or the equivalent) of the Surviving
Corporation (the “Parent Corporation”), is represented by Company Voting Securities
that were outstanding immediately prior to such Business Combination (or, if
applicable, is represented by shares into which such Company Voting Securities
were converted pursuant to such Business Combination); (B) no person
(other than Protection One, Westar or any employee benefit plan (or related
trust) sponsored or maintained by Protection One, Westar, the Surviving
Corporation or the Parent Corporation) is or becomes the beneficial owner,
directly or indirectly, of more than 40% of the total voting power of the
outstanding voting securities eligible to elect directors (or the equivalent)
of the Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation); and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of


 


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the Business Combination were Incumbent Directors at the time of the
Board’s approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of the criteria
specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying
Transaction”);


 


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


 


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


 


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


 


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appropriate changes to other references in the definition of “Change in
Control” to give effect to the parties’ intent.


 


e.               “Date
of Termination” means (i) if Executive’s employment is to be terminated
for Disability, 30 days after Notice of Termination is given (provided that
Executive shall not have returned to the performance of Executive’s duties on a
full-time basis during such 30 day period); (ii) if Executive’s employment
is to be terminated by the Company for Cause or by Executive for Good Reason,
the date specified in the Notice of Termination; (iii) if Executive’s
employment is to be terminated by the Company for any reason other than Cause,
the date specified in the Notice of Termination, which shall be 90 days after
the Notice of Termination is given, unless an earlier date has been expressly
agreed to by Executive in writing; (iv) if Executive’s employment
terminates by reason of death, the date of death of Executive; (v) if
Executive’s employment is terminated by Executive in a Non-Qualifying
Termination, the date specified in Executive’s Notice of Termination, but not
more than 30 days after the Notice of Termination is given, unless expressly
agreed to by the Company in writing; or (vi) in the event of a Change in
Control, 180 days after the date of the Change in Control, unless otherwise
expressly agreed to by the Executive and the Company in writing not later than
120 days after the date of the Change in Control.


 


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f.                 “Disability”
means termination of Executive’s employment by the Company due to Executive’s
absence from Executive’s duties with the Company on a full-time basis for at
least one hundred eighty (180) consecutive days as a result of Executive’s
incapacity due to physical or mental illness, unless within 30 days after
Notice of Termination is given to Executive following such absence Executive
shall have returned to the full-time performance of Executive’s duties.


 


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


 


i.                                          any
change in the duties or responsibilities (including reporting responsibilities)
of Executive that is inconsistent in any material and adverse respect (which
may be cumulative) with Executive’s position(s), duties, responsibilities or
status with the Company (including any adverse diminution of such duties or
responsibilities);


 


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


 


iii.                                    any
requirement that Executive’s place of employment be located more than 50 miles
from the present location of the Company’s Cranford, New Jersey office; or


 


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


 


Executive must provide notice of termination of employment within one
hundred eighty (180) days following Executive’s knowledge of an event or facts
constituting Good Reason (or the last of such events or facts if cumulative) or
such event or facts shall not constitute Good Reason under this Agreement.


 


h.              “Non-Qualifying
Termination” means a termination of Executive’s employment under any
circumstances not qualifying as a Qualifying Termination, including without
limitation any termination by the Company for Cause, any termination by
Executive without Good Reason or for no reason at all or any termination on
account of death, Disability or Retirement.


 


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


 


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


 


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


 


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


 


m.            “Subsidiary”
means any corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined voting power
of the then outstanding securities or interests of such corporation or other
entity entitled to vote generally in the election of directors or in which the
Company has the right to receive 50% or more of the distribution of profits or
50% or more of the assets upon liquidation or dissolution.


 


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


 


2.                                       Employment
and Duties.


 


a.               Term of
Employment.  The Company
agrees to employ Executive, and Executive agrees to enter into employment with
the Company, in accordance with the terms and provisions of this Agreement, for
the Term of this Agreement.  In the
event that there is a Change in Control prior to a Qualifying Termination or
Non-Qualifying Termination of Executive’s employment, Executive’s employment
under this Agreement shall terminate 180 days after the date of such Change in
Control, unless otherwise expressly agreed to in writing by the Executive and
the Company not later than 120 days after the date of the Change in Control.  Upon termination of Executive’s employment
(regardless of whether such termination constitutes a


 


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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 20.


 


b.              Duties.  During the period of Executive’s employment
under this Agreement, Executive shall serve as Executive Vice President of
Operations of the Company.  Executive
shall devote Executive’s full business time and attention to the affairs of the
Company and his duties as Executive Vice President of Operations.  Executive shall have such duties as are
appropriate to Executive’s position as Executive Vice President of Operations,
and shall have such authority as required to enable Executive to perform these
duties.  Consistent with the foregoing,
Executive shall comply with all reasonable instructions of the Board of
Directors and Chief Executive Officer of the Company.  Executive shall report to the Chief Executive Officer of the
Company.  The parties acknowledge and
agree that Executive’s place of employment with the Company as of the date of
this Agreement is Cranford, New Jersey. 
Executive may continue to reside in the State of New Jersey or in any location
that he wishes as long as he is able to effectively carry out the duties
contemplated by this Agreement.  In addition,
during the period of Executive’s employment under this


 


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Agreement, Executive may serve as an officer and/or director of a
Subsidiary or Subsidiaries if requested to do so by the Board.  Executive may resign from the board of
directors of any Subsidiaries at any time in his sole and absolute discretion.


 


3.                                       Term of
Agreement.  The Term of this
Agreement shall commence on the date of this Agreement and shall continue until
the earlier of (i) the date on which Executive’s employment is terminated by
the Company or Executive in a Qualifying Termination or Non-Qualifying
Termination or (ii) 180 days after the occurrence of a Change in Control,
unless otherwise expressly agreed to by the Executive and the Company in
writing not later than 120 days after the date of the Change in Control.  Certain obligations and benefits shall
survive the expiration of the Term as set forth in Section 20.


 


4.                                       Base Salary
and Benefits.


 


a.               Base Salary.  During the period of Executive’s employment
under this Agreement, the Company shall pay Executive an annual base salary
(“Annual Base Salary”) at an annual rate equal to not less than Two Hundred
Sixty Seven Thousand Dollars and No/100 Dollars ($267,000.00), which shall be
reviewed annually by the Board. 
Executive’s Annual Base Salary shall be paid in accordance with the standard
practices for other senior corporate executives of the Company.


 


b.              Bonuses.  Executive shall be eligible to receive
annually or otherwise any bonus awards, whether payable in cash, shares of
common stock of Protection One or


 


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otherwise, which the Company, the Board or such authorized committee of
the Board determines to award or grant.


 


c.               Benefit
Programs.  During the period
of Executive’s employment under this Agreement, Executive shall be eligible to
participate in all employee benefit plans and programs of the Company from time
to time in effect for the benefit of senior executives of the Company (subject
to meeting generally applicable participation requirements under the applicable
plan or program), including, but not limited to, stock option plans, restricted
stock grants, 401(k) plans, group life insurance, hospitalization and surgical
and major medical coverages, sick leave, employee stock purchase plans, car
allowances, vacations and holidays, long-term disability, and such other
benefits as are or may be made available from time to time to senior executives
of the Company.


 


d.              Business
Expenses and Perquisites. 
Executive shall be reimbursed for all reasonable expenses incurred by
Executive in connection with the conduct of the business of the Company,
provided Executive properly accounts therefor in accordance with the Company’s
policies.  During the period of Executive’s
employment under this Agreement, Executive shall also be entitled to such other
perquisites as are customary for senior executives of the Company.


 


e.               Office and
Services Furnished.  During
the period of Executive’s employment under this Agreement, the Company shall
make available to Executive


 


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office space at the Company’s Cranford, New Jersey office (which may be
relocated at the discretion of the Company), secretarial assistance and such
other facilities and services as shall be suitable to Executive’s position and
adequate for the performance of Executive’s duties hereunder.  During the period of Executive’s employment
under this Agreement, the Company shall install and maintain, at its expense, a
broadband (cable modem or DSL) connection at his home for the use of Executive
in connection with the performance of his duties hereunder.


 


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


 


a.               the
Company shall pay to Executive a lump-sum cash payment equal to the sum of (A)
Executive’s Annual Base Salary payable through the date of the Change in
Control; (B) bonus amounts payable to Executive for prior fiscal years; (C)
bonus amounts not paid to Executive as a result of Executive’s election to
defer payment; (D) a pro rata portion of Executive’s annual
bonus for the fiscal year in which the Change in Control occurs in an amount at
least equal to (1) Executive’s Bonus Amount multiplied by a fraction, the numerator
of which is the number of days in the fiscal year in which the Change in
Control occurs through the date of the Change in Control and the denominator of
which is three hundred sixty-five (365), and reduced by (2) any amounts paid to
Executive from the Company’s annual incentive plan for the fiscal year in which
the Change in Control occurs; and (E) the cash equivalent of any accrued Paid
Time Off; in each case to the extent not already paid;


 


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


 


c.               the
Company shall continue, for a period of three (3) years following the earlier
of Executive’s Date of Termination and the date that is 180 days after the date
of the Change in Control  (the “Change
in Control Termination Date”), to provide Executive (and Executive’s
dependents, if applicable) with substantially similar levels of medical,
dental, and life insurance benefits upon substantially similar terms and
conditions as Executive would have been entitled to receive if he had continued
in employment; provided, that, if Executive cannot continue to
participate in the Company plans providing such benefits, the Company shall
otherwise provide, at the Company’s option, (i) such benefits on a
substantially similar basis as if continued participation had been permitted
through one or more new plans (the “Continued Benefit Plans”) or (ii) a
lump-sum cash payment based on the cost of premiums comparable to those that
would be required to receive such benefits on a substantially similar basis
plus the amount of any conversion fees required to convert from group coverage
to individual coverage under the Company’s existing benefit plans (the
“Benefits Lump-Sum Payment”).  If the
Company elects to provide the Executive with Continued Benefit Plans, the
Executive shall cooperate with the Company and each


 


16

















 


provider of any such Continued Benefit Plan in order for the Company to
obtain such Continued Benefit Plans for Executive, which cooperation shall
include but not be limited to providing copies of medical records and other
information required by any provider of such Continued Benefit Plan and
undergoing one or more physical examinations. 
If the Company elects to provide the Executive with the Benefits
Lump-Sum Payment, the Company shall notify the Executive of its intention to make
this election not later than 90 days prior to the date on which Executive’s
coverage under existing benefit plans will expire, and if, within 60 days after
Executive receives such notification from the Company, Executive presents the
Company with one or more benefit plans that the Executive has obtained or
intends to obtain that provide benefits on a substantially similar basis as the
benefits provided to Executive prior to the Change in Control Termination Date
(and acknowledgement from the provider of such benefit plans that such benefit
plans have been or can be obtained by the Executive on those terms, including
without limitation, at least substantially similar scope of coverage,
substantially similar deductibles and substantially similar co-payments), then
the Benefits Lump-Sum Payment shall be made based on the premiums plus any
other administrative fees (except co-payments) charged by the company offering
such plans.  If the Company elects to
provide the Executive with the Benefits Lump-Sum Payment and it is determined
by the Company that any portion of the Benefits Lump-Sum Payment constitutes
taxable wages for federal income and/or


 


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employment tax purposes, the Company agrees to pay Executive an
additional amount (the “Benefits Gross-Up Payment”) such that the net amount
retained by Executive from the Benefits Lump-Sum Payment and the Benefits
Gross-Up Payment, after reduction for any federal, state and local income and employment
taxes on the Benefits Lump-Sum Payment and the Benefits Gross-Up Payment, shall
equal the Benefits Lump-Sum Payment.  Notwithstanding
the foregoing, in the event Executive becomes reemployed with another employer
and becomes eligible to receive benefits from such employer, the benefits
described herein shall be secondary to such benefits during the period of
Executive’s eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder; and


 


d.              all
outstanding stock options, restricted stock and other equity based awards
(collectively, “Awards”) shall fully vest, all restrictions on such Awards
shall lapse and the maximum level of achievement of all performance criteria
with respect to such Awards shall be deemed fully satisfied.  In the case of stock options or any other
equity based Awards in the nature of a right that may be exercised, such stock
options and other equity based Awards shall remain exercisable for three years
after the date of the Change in Control.


 


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6.                                       Payments
Upon Termination of Employment.


 


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


 


i.                                          within
five (5) business days following the Date of Termination, the Company shall pay
to Executive a lump-sum cash payment equal to the sum of (A) Executive’s Annual
Base Salary payable through the Date of Termination; (B) bonus amounts payable
to Executive for prior fiscal years; (C) bonus amounts not paid to Executive as
a result of Executive’s election to defer payment; (D) a pro rata portion of
Executive’s annual bonus for the fiscal year in which the Date of Termination
occurs in an amount at least equal to (1) Executive’s Bonus Amount multiplied
by a fraction, the numerator of which is the number of days in the fiscal year
in which the Date of Termination occurs through the Date of Termination and the
denominator of which is three hundred sixty-five (365), and reduced by (2) any
amounts paid to Executive from the Company’s annual incentive plan for the
fiscal year in which the Date of Termination occurs; and (E) the cash
equivalent of any accrued Paid Time Off; in each case to the extent not already
paid;


 


ii.                                       within
five (5) business days following the Date of Termination, the Company shall pay
to Executive a lump-sum cash payment equal to the sum of (i) 2.0 times the
Executive’s highest Annual Base Salary during the 12-


 


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


 


iii.                                    the
Company shall continue, for a period of two (2) years following Executive’s Date
of Termination (or a period of three (3) years if on or prior to the date that
a Notice of Termination is given to Executive pursuant to a Qualifying
Termination there has been stockholder approval of a Change in Control and if
such Change in Control is consummated within 100 days after the date such
Notice of Termination is given), to provide Executive (and Executive’s
dependents, if applicable) with substantially similar levels of medical,
dental, and life insurance benefits upon substantially similar terms and
conditions as Executive would have been entitled to receive if he had continued
in employment; provided, that, if Executive cannot continue to
participate in the Company plans providing such benefits, the Company shall


 


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otherwise provide, at the Company’s option, (i) such benefits on a
substantially similar basis as if continued participation had been permitted
through Continued Benefit Plans or (ii) a Benefits Lump-Sum Payment.  If the Company elects to provide the
Executive with Continued Benefit Plans, the Executive shall cooperate with the
Company and each provider of any such Continued Benefit Plan in order for the
Company to obtain such Continued Benefit Plans for Executive, which cooperation
shall include but not be limited to providing copies of medical records and
other information required by any provider of such Continued Benefit Plan and
undergoing one or more physical examinations. 
If the Company elects to provide the Executive with the Benefits
Lump-Sum Payment, the Company shall notify the Executive of its intention to
make this election not later than 90 days prior to the date on which
Executive’s coverage under existing benefit plans will expire, and if, within
60 days after Executive receives such notification from the Company, Executive
presents the Company with one or more benefit plans that the Executive has
obtained or intends to obtain that provide benefits on a substantially similar
basis as the benefits provided to Executive prior to the Date of Termination
(and acknowledgement from the provider of such benefit plans that such benefit
plans have been or can be obtained by the Executive on those terms, including
without limitation, at least substantially similar scope of coverage,


 


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substantially similar deductibles and substantially similar
co-payments), then the Benefits Lump-Sum Payment shall be made based on the
premiums plus any other administrative fees (except co-payments) charged by the
company offering such plans.  If the
Company elects to provide the Executive with the Benefits Lump-Sum Payment and
it is determined by the Company that any portion of the Benefits Lump-Sum
Payment constitutes taxable wages for federal income and/or employment tax purposes,
the Company agrees to pay Executive a Benefits Gross-Up Payment such that the
net amount retained by Executive from the Benefits Lump-Sum Payment and the
Benefits Gross-Up Payment, after reduction for any federal, state and local
income and employment taxes on the Benefits Lump-Sum Payment and the Benefits
Gross-Up Payment, shall equal the Benefits Lump-Sum Payment.  Notwithstanding the foregoing, in the event
Executive becomes reemployed with another employer and becomes eligible to
receive benefits from such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive’s eligibility, but
only to the extent that the Company reimburses Executive for any increased cost
and provides any additional benefits necessary to give Executive the benefits
provided hereunder; and


 


iv.                                   all
outstanding Awards shall fully vest, all restrictions on such Awards shall
lapse and the maximum level of achievement of all performance


 


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criteria with
respect to such Awards shall be deemed fully satisfied.  In the case of stock options or any other
equity based Awards in the nature of a right that may be exercised, such stock
options and other equity based Awards shall remain exercisable for three years
after the Date of Termination; provided, however, that Executive shall not
be entitled to receive payments or benefits under Section 6(a)(i)(D), 6(a)(ii)
or 6(a)(iii) to the extent Executive has received or is entitled to receive
payments or benefits under Section 5 of this Agreement.


 


b.              Non-Qualifying
Termination.  If the
employment of Executive terminates pursuant to a Non-Qualifying Termination,
then the Company shall pay to Executive within five (5) business days following
the Date of Termination, a lump-sum cash payment equal to the sum of
(1) Executive’s Annual Base Salary payable through the Date of
Termination; (2) bonus amounts earned by Executive and declared and approved by
the Board; and (3) the cash equivalent of any accrued Paid Time Off; in
each case to the extent not already paid. 
The Company may make such additional payments and provide such additional
benefits to Executive as the Company and Executive may agree in writing.


 


7.                                       Excise Tax.  In the event that any amount or
benefit paid or distributed to Executive pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed to
Executive (collectively, the “Covered Payments”), are or become subject


 


23

















 


to the excise tax imposed under Section 4999
of the Internal Revenue Code of 1986, as amended (the “Code”), or any similar
tax that may hereafter by imposed (“Excise Tax”), then the Company agrees to
pay the Executive an additional amount (the “Termination Gross Up Amount”) such
that the amount retained by the Executive pursuant to Section 5, 6(a) or 6(b),
as applicable, shall equal or exceed the amount of the Covered Payments.


 


8.                                       Non-Competition.  Executive hereby acknowledges that the services
which he will perform for the Company are of a special and unique nature, and
that the Company would find it extremely difficult or impossible to replace
Executive.  Accordingly, Executive
agrees that, in consideration of this Agreement and the payments to be received
by him hereunder, from and after the date hereof through the period during
which Executive continues to be employed by the Company and following
termination of Executive’s employment for any reason until the later of (i) the
second anniversary of such termination of employment or (ii) the last day
through which Annual Base Salary is payable to Executive pursuant to Section
5(a), 6(a)(i) or 6(b)(i), whichever is applicable (the “Non-Competition
Period”), Executive shall not, directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of, or be connected as a director, officer, employee, partner, lender,
consultant or otherwise (“Participate” or a “Participation”) with any Competitor
(as hereinafter defined), except with the Company’s prior written consent.  For purposes of this Agreement, the term
“Competitor” shall mean any entity engaged in the business of providing
property monitoring services with revenue in excess of Two Hundred


 


24

















 


Million Dollars ($200,000,000) during the
most recent twelve (12) month period for which financial statements are
available, including without limitation ADT Security Services, Brinks Home
Security, Inc., Honeywell Inc. and their respective subsidiaries, affiliates
and successors. Nothing in this section shall prohibit Executive from owning
for investment purposes an aggregate of up to 3% of the publicly traded securities
of any corporation listed on the New York Stock Exchange or American Stock
Exchange or whose securities are quoted on the NASDAQ National Market.  Notwithstanding anything which may be to the
contrary herein, Executive shall not be required to cease Participation in any
business or organization which begins to compete with the Company subsequent to
the time Executive commences such Participation, provided that such business or
organization began to compete with the Company through no action, assistance,
or plan of Executive.


 


It is the desire and intent of the parties
that the provisions of this Section 8 shall be enforced under the laws and
public policies applied in each jurisdiction in which enforcement is
sought.  Accordingly, if any particular
provision of this Section 8 is adjudicated to be invalid or unenforceable or
shall for any reason be held to be excessively broad as to duration, geographic
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with applicable law and such
provision shall be deemed modified and amended to the extent necessary to
render such provision enforceable in such jurisdiction.


 


25

















 


If Executive challenges the enforceability of
the provisions of this Section 8 in whole or in part as to any Competitors,
Executive shall, immediately upon such challenge, forfeit any right to any
payments and benefits under Section 5 or 6(a) that he has not already received.


 


9.                                       Confidential
Information.  Executive
acknowledges that:  (i) the
business of the Company and its Subsidiaries and affiliates is intensely competitive
and that Executive’s engagement by the Company requires that Executive have
access to and knowledge of confidential information of the Company and its
Subsidiaries and affiliates, including, but not limited to, the identity of
customers, the identity of the representatives of customers with whom the
Company and its Subsidiaries and affiliates have dealt, the kinds of services
provided by the Company and its Subsidiaries and affiliates to customers and
offered to be performed for potential customers, the manner in which such services
are performed or offered to be performed, the service needs of actual or
prospective customers, pricing information, information concerning the creation,
acquisition or disposition of products and services, customer maintenance
listings, computer software applications and other programs, personnel information
and other trade secrets (the “Confidential Information”); (ii) the direct
or indirect disclosure of such Confidential Information to existing or
potential competitors of the Company and its Subsidiaries and affiliates would
place the Company and its Subsidiaries and affiliates at a competitive
disadvantage and would do damage, monetary or otherwise, to the business of the
Company and its Subsidiaries and affiliates; and (iii) the engaging by
Executive in any of the activities prohibited by this Section 9 may
constitute improper


 


26

















 


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.


 


27

















 


b.              Executive
agrees to return all computer hardware and all Confidential Information, including
all photocopies, extracts and summaries thereof, and any such information
stored electronically on tapes, computer disks or in any other manner to the Company
at any time upon request of the Chairman of the Board of the Company and upon
the termination of Executive’s employment for any reason.


 


10.                                 Nonsolicitation.  During the Non-Competition Period, Executive
shall not, directly or indirectly, solicit, interfere with, hire, offer to hire
or induce any person who is an employee of the Company or any of its Subsidiaries
or affiliates and whose salary is in excess of $50,000 to discontinue his or
her relationship with the Company or any of its Subsidiaries or affiliates and
accept employment by, or enter into a business relationship with, Executive or
any other person or entity; provided, however, that this provision
shall not apply to solicitation by general advertising.


 


11.                                 Antidisparagement.


 


a.               Unless
otherwise required by a court of competent jurisdiction, pursuant to any
recognized subpoena power or by any applicable law, rule or regulation,
Executive agrees and promises that Executive shall not make any oral or written
statements or reveal any information to any person, company or agency which
(i) is materially negative, disparaging or damaging to the name,
reputation or business of the Company or any of its Subsidiaries or affiliates,
or any of their shareholders, directors, officers or employees, or
(ii) has or would have a materially negative financial impact, whether


 


28

















 


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.


 


12.                                 Injunctive Relief.


 


a.               Executive
acknowledges that a breach of the undertakings in Sections 8, 9, 10, or
11(a) of this Agreement would cause irreparable damage to the Company and its
Subsidiaries and affiliates, the exact amount of which shall be difficult to
ascertain, and that remedies at law for any such breach would be
inadequate.  Executive agrees that, if Executive
breaches or attempts or threatens to breach any of the undertakings in
Sections 8, 9, 10, or 11(a) of this Agreement, then the Company shall be
entitled to


 


29

















 


injunctive relief without posting bond or other security, in addition
to any other remedy or remedies available to the Company at law or in equity.


 


b.              The
Company acknowledges that a breach of the undertakings in Section 11(b) of
this Agreement would cause irreparable damage to Executive, the exact amount of
which shall be difficult to ascertain, and that remedies at law for any such
breach would be inadequate.  The Company
agrees that, if the Company or any of its Subsidiaries or affiliates breaches
or attempts or threatens to breach any of the undertakings in
Section 11(b) of this Agreement, then Executive shall be entitled to
injunctive relief, without posting bond or other security, in addition to any
other remedy or remedies available to Executive at law or in equity.


 


13.                                 Withholding Taxes.  The Company may withhold from all payments
due to Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.  Executive has represented
that he is and will continue to be a resident of the State of New Jersey for
all purposes.


 


14.                                 Directors and Officers Insurance;
Indemnity.  The Company shall
take all steps necessary to ensure that Executive is covered under any directors
and officers liability insurance policy in effect from time to time for current
and former directors and officers of the Company.  In addition, the Company shall hold harmless and indemnify
Executive against any and all expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Executive in connection with any threatened, pending, or


 


30

















 


completed action, suit, or proceeding whether
civil, criminal, administrative, or investigative (including an action by or in
the right of the corporation) to which Executive is, was, or at any time
becomes a party, or is threatened to be made a party, by reason of the fact
that Executive is, was, or at any time becomes a director, officer, employee,
or agent of the Company, or is, or was serving, or at any time serves at the
request of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise; or
otherwise to the fullest extent as may be provided to Executive by the Company
under the provisions of the Bylaws and the Articles of Incorporation of the
Company and Delaware law.


 


15.                                 Scope of Agreement.  Nothing in this Agreement shall be deemed to
permit or entitle the Executive to receive any payments or benefits under
Section 5 or Section 6 of this Agreement on more than one occasion.  Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its Subsidiaries
or shall require Executive to continue the employment relationship against his
wishes; provided,
however,
that any termination of Executive’s employment during the Term of this
Agreement shall be subject to all of the provisions of this Agreement as
provided in Section 20.


 


16.                                 Successors; Binding Agreement.


 


a.               This
Agreement shall inure to the benefit of and be legally binding upon all
successors and assigns of the Company. 
The Company will require a successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form


 


31

















 


and substance satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place.  For purposes of this Section 16(a),
“Company” shall mean the Company as defined above and all successors to its
business or assets that execute and deliver the agreement provided for in this
Section 16(a) or that otherwise become bound by the terms and provisions of
this Agreement by operation of law.


 


b.                                      This
Agreement shall inure to the benefit of and be enforceable by Executive’s personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.  If
Executive shall die while any amounts would be payable to Executive hereunder
had Executive continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to such
person or persons appointed in writing by Executive to receive such amounts or,
if no person is so appointed, to Executive’s estate.


 


17.                                 Notice.


 


a.               For
purposes of this Agreement, all notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered or five (5) days after deposit in the United States mail,
certified and return receipt requested, postage prepaid, addressed as follows:


 


32

















 


If to the Executive:


 


Peter J. Pefanis


141 Forest Drive


Stirling, New Jersey 07980


 


If to the Company:


 


Protection One Alarm Monitoring, Inc.


818 South Kansas Avenue


Topeka, KS 66612


Attention: General Counsel


 


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


 


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.


 


33

















 


18.                                 Full Settlement; Resolution of Disputes.  The Company’s obligation to make any payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall be in lieu and in full settlement of all other severance
payments to Executive under any other severance or employment agreement between
Executive and the Company, and any severance plan of the Company.  In no event shall Executive be obligated to
seek other employment or take other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement and except
as otherwise provided in Section 6(a)(iii), such amounts shall not be reduced
whether or not Executive obtains other employment.  Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Wilmington, Delaware
by three arbitrators in accordance with the rules of the American Arbitration
Association then in effect.  Judgment
may be entered on the arbitrators’ award in any court having jurisdiction.  The arbitrators shall determine the
allocation of the costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section based on the arbitrators’ assessment of the
merits of the positions of the parties.


 


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


 


20.                                 Survival.  The respective obligations and benefits
afforded to the Company and Executive as provided in Sections 1, 5, 6, 7,
8, 9, 10, 11, 12, 13, 14, 18, 21 and 23 shall survive the termination of this
Agreement.


 


34

















 


21.                                 GOVERNING LAW; VALIDITY.  THE INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
THE PRINCIPLE OF CONFLICTS OF LAWS.  THE
INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT,
WHICH OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.


 


22.                                 Counterparts.  This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.


 


23.                                 Miscellaneous.  No provision of this Agreement may be modified
or waived unless such modification or waiver is agreed to in writing and signed
by Executive and by a duly authorized officer of the Company.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.  Failure
by Executive or the Company to insist upon strict compliance with any provision
of this Agreement or to assert any right Executive or the Company may have
hereunder, including without limitation, the right of Executive to terminate
employment for Good Reason, shall not


 


35

















 


be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.  Except as otherwise specifically provided
herein, the rights of, and benefits payable to, Executive, his estate or his
beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, Executive, his estate or his beneficiaries under any other
employee benefit plan or compensation program of the Company.


 


24.                                 Entire Agreement.  This Agreement constitutes the entire
agreement of the parties with respect to its subject matter and supersedes and
replaces all previous verbal or written agreements that the parties may have
made, including the Prior Employment Agreement.


 


 


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


 


36

















 


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


 


 


	
   

  	
  PROTECTION ONE ALARM MONITORING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald
  A. Johnston

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Peter J.
  Pefanis

  	
   

  
	
   

  	
  Peter J. Pefanis

  



 


GUARANTY BY PROTECTION ONE, INC.


 


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


 


37

















 


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


 


	
   

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald
  A. Johnston

  	
   

  



 


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