Exhibit
10.12


EMPLOYMENT
AGREEMENT


THIS EMPLOYMENT AGREEMENT (the “Agreement” is entered
into as of the 23rd day of July, 2004 by and between Protection One, Inc., a
Delaware corporation (the “Company”), Protection One Alarm Monitoring, Inc., a
Delaware corporation, and Joseph R. Sanchez (“Executive”).


W I T N E S S E T H :


WHEREAS, POAMI and Executive agreed to employment
terms pursuant to a Change in Control Agreement dated December 13, 2000 and
amended such agreement under an Amendment to Change in Control Agreement dated
June 20, 2003 and a retention bonus letter dated June 20, 2003 (such Change in
Control Agreement, as amended, together with the retention bonus letter,
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 during and after the period of the Company’s and POAMI’s (as
defined in Section 1) anticipated Restructuring (as defined in Section 1) of
its indebtedness and capital stock notwithstanding the possibility or
occurrence of a Change in Control (as defined in Section 1), to provide
Executive with assurance of continued employment beyond the expiration of the
Prior Employment Agreement and to provide compensation and benefits
arrangements which are competitive with those of other comparable  and similarly situated corporations; and


WHEREAS, during the period of the Company’s
anticipated Restructuring, Executive’s continued high performance and retention
is critical to ensure that the Company maintains its value; and


WHEREAS, Executive has agreed to enter into this
Agreement because the Company has satisfied all of its obligations under the
Prior Employment Agreement; 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:



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


(a)           “Board” means the Board of Directors of the
Company, as the case may be, whether prior to or after the Restructuring.


(b)           “Bonus Amount” means:


(A)          for
a Date of Termination 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


(B)           for
a Date of Termination 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:


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


(B)           Executive’s
conviction by a court of law, Executive’s admission in a legal proceeding that
he is guilty or Executive’s plea of nolo
contendre, in each case, with respect to a felony.


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


(d)           “Change in Control” means


(i)   the occurrence of any one
of the following events after the earlier of the date the Restructuring is
consummated or December 31, 2005:


(A)          individuals
who, as of the date the Restructuring is consummated, constitute the Board (or,
in the case no Restructuring is consummated by December 31, 2005, the
individuals who constitute the Board as of such date) (the “Incumbent Directors”)
cease for any reason to constitute at least a majority of the Board, provided



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that any person becoming a director
subsequent to the date the Restructuring is consummated (or, in the case no
Restructuring is consummated by December 31, 2005, December 31, 2005), 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) or, prior
to the date that a Restructuring is consummated, as elected at any time by
Quadrangle Group shall be an Incumbent Director.


(B)           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 (331/3%) 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 (B) 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)            one or more Current Debt Holder or a
syndicate or group in which one or more Current Debt Holders, 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 one or
more Current Debt Holder;


(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 (C));


(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 a Current Debt Holder
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 (B) or has the right to direct the vote
of a greater number of voting



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securities for directors (or the equivalent) of the Company than any
other person as a result of the event described in this paragraph (B);


(C)           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) one or more
Current Debt Holder, (b) any employee benefit plan (or related trust) sponsored
or maintained by one or more Current Debt Holder, the Surviving Corporation or
the Parent Corporation or (c) a syndicate or group in which one or more Current
Debt Holders, 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 (331/3%) 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


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


(ii)  in connection with the
Restructuring, the occurrence of any one of the following events:


(A)          on
the date the Restructuring is consummated, any “person” (as such term is
defined in Section 3(a)(9) of the Exchange Act and as used in



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Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than a Current Debt Holder (or a
syndicate or group in which one or more Current Debt Holders, collectively,
beneficially own a majority of the total voting power of the Company Voting
Securities beneficially owned by such syndicate or group) 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 (331/3%)
of the Company Voting Securities and is the largest holder of Company Voting
Securities issued in connection with the Restructuring;


(B)           the
consummation of 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 Surviving Corporation, or (y) if applicable, 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) one or more
Current Debt Holder, (b) any employee benefit plan (or related trust) sponsored
or maintained by one or more Current Debt Holder, the Surviving Corporation or
the Parent Corporation or (c) a syndicate or group in which one or more Current
Debt Holders, 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 (331/3%) 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; or


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


(iii)   the occurrence of any one
of the following events prior to the earlier of the date the Restructuring is
consummated or December 31, 2005:


(A)          individuals who, as of the date hereof or as
otherwise elected by Quadrangle Group, 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
hereof, whose election or nomination for election was



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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.


(B)           any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than a Current Debt Holder (or a
syndicate or group in which one or more Current Debt Holders beneficially own a
majority of the debt of the Company and POAMI beneficially owned by such
syndicate or group) is or becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act as if such rule applied to ownership of
debt), directly or indirectly, of more than thirty-three and one-third (331/3%) of the total debt of the Company and
POAMI;


(C)            any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than a Current Debt Holder (or a
syndicate or group in which one or more Current Debt Holders, collectively,
beneficially own a majority of the total voting power of the Company Voting
Securities beneficially owned by such syndicate or group) 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 fifty percent
(50%) of the Company Voting Securities; or


(D)          the
consummation of 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 Surviving Corporation, or (y) if applicable, 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 one or more Current
Debt Holder or any employee benefit plan (or related trust) sponsored or
maintained by one or more Current Debt Holder (or a syndicate or group in which
one or more of such persons, collectively, beneficially own a majority of the
total voting power of the subject voting securities beneficially owned by such
syndicate or group), the Surviving Corporation or the Parent Corporation) is or
becomes the beneficial owner, directly or indirectly, of more than thirty-three
and one-third percent (331/3%) 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



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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.


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)           “Citicorp Group” means Citibank
International plc, any fund that is controlled by the foregoing 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.


(f)            “Current Debt Holders” means
Quadrangle Group, Citicorp Group and MacKay Shields Group.


(g)           “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; or


(E)           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.


(h)           “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



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


(i)            “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 not be deemed to occur upon a change
in duties or responsibilities (other than reporting responsibilities) that is
solely and directly due to the Company no longer being a publicly traded
entity;


(B)           
the failure to reappoint or reelect Executive to any position held by Executive
without Executive’s consent;


(C)           
a material breach of this Agreement by the Company or POAMI including but not
limited to reduction in Executive’s Annual Base Salary (as defined in
Section 4(a)) or other reduction in medical, dental, life or disability
benefits (except to the extent such reductions apply consistently to all other
senior executives); or


(D)          the
relocation by the Company of Executive’s principal workplace location more than
50 miles from the workplace location principally used by Executive as of the
date hereof.


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.


(j)            “MacKay Group” means MacKay Shields,
LLC and any fund that is controlled by the foregoing 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.


(k)           “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.


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


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



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(n)           “Quadrangle Group” means Quadrangle
Group LLC, POI Acquisition I, Inc., POI Acquisition, LLC, Quadrangle Master
Funding Ltd., any fund that is controlled by the foregoing 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.


(o)           “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.


(p)           “Restructuring” means shall mean any
transaction or series of transactions that effectuates any reorganization, recapitalization,
consolidation, business combination, merger, or other similar transaction or
any transaction that effectuates any material amendment to, or other material
change in, the Company’s or POAMI’s obligations or indebtedness for borrowed
money as of the date hereof (including accrued or accreted interest thereon)
excluding changes in beneficial ownership of such indebtedness, but including,
without limitation, (i) any amendment or modification to the Company’s
revolving credit facility, 7.375% Senior Unsecured Notes due 2005 or 8.125%
Senior Subordinated Notes due 2009 or that modifies any material payment term
or any material financial or operating covenant or that provides for a
forbearance of any material payment obligation or material covenant, in each
case, such that an amount that otherwise would be due and payable (according to
its terms, by put, upon default and acceleration or otherwise) is delayed or
otherwise extended for at least twelve months or that converts a material
amount of the Company’s or POAMI’s obligations or indebtedness for borrowed
money as of the date hereof (including accrued or accreted interest thereon) to
equity and/or to a security junior to the claim’s existing priority or is
otherwise compromised, or any cash tender offer or any combination thereof; or
(ii) (A) any merger, consolidation, reorganization, recapitalization, business
combination or other transaction pursuant to which the Company is acquired by,
or combined with, any person, group of persons, partnership, corporation or
other entity other than a Current Debt Holder (an “Acquiror”) or (B) the
acquisition, directly or indirectly by an Acquiror (or by one or more persons
acting together with an Acquiror pursuant to a written agreement or otherwise),
in a single transaction or a series of transactions, of (x) all or a
preponderance of the assets or operations of the Company, or all or any
material portion of any operating division of the Company or (y) all,
substantially all, or a majority of the outstanding or newly issued shares of
the Company’s (or any of its Subsidiary’s) capital stock (or any securities
convertible into, or options, warrants or other rights to acquire such capital
stock); in each case, whether accomplished out-of-court or through the
confirmation of any plan of reorganization pursuant to Section 1129 of the
United States Bankruptcy Code, whether the requisite consents were obtained
in-court or out-of-court.


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


(r)            “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



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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.  The execution of this Agreement shall
constitute acceptance by Executive and the Company that Executive’s employment
shall not terminate as a result of any Change in Control prior to the date
hereof.  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 Sr. Vice President Customer
Operations of the Company.  Executive
shall devote Executive’s full business time and attention to the affairs of the
Company and his duties as its Sr. Vice President Customer Operations.  Executive shall have such duties as are
appropriate to Executive’s position as Sr. Vice President Customer Operations,
will be responsible for planning, organizing, monitoring and directing customer
operations, ensuring that service levels, quality, productivity and financial
goals are achieved in a 24-hour environment, developing management staff to
oversee day to day 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 Chief Executive Officer and Board of Directors
of the Company.  Executive shall report
to the Chief Executive Officer.  In
addition, during the period of Executive’s employment under this Agreement,
Executive may serve as an officer and/or director of a Subsidiary or
Subsidiaries if requested to do so by the Board.  Executive may resign from the board of
directors of any Subsidiaries at any time in his sole and absolute discretion.


3.             Term of Agreement.  The Term of this Agreement shall commence on
the date of this Agreement and shall continue until the earlier of (i) the
first anniversary of the date of this 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 first anniversary of the date of this 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.



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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 One Hundred Seventy Five
Thousand and No/100 Dollars ($175,000.00), which shall be reviewed annually by
the Board or the Compensation Committee of 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 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 year.


(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.   If there is a sale in an
underwritten public offering registered under the Securities Act of 1933, as
amended, of Company Voting Securities having an aggregate offering value of at
least $40 million, all of Executive’s Awards (as defined below) will fully
vest, all restrictions on such Awards shall lapse and the maximum level of
achievement of all performance criteria with respect to such Awards shall be
deemed fully satisfied.  In the case of
stock options or any other equity based Awards in the nature of a right that
may be exercised, such stock options and other equity based Awards shall remain
exercisable for three years after the Date of Termination.


(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 (including reasonable travel expenses), provided
Executive properly accounts therefor in accordance with the Company’s policies.
During the period of Executive’s employment under this Agreement, Executive
shall also be entitled to such other perquisites as are customary for senior
executives of the Company.


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



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(f)            Retention Bonus.  Executive will receive two retention bonuses
each in an amount equal to 50% of Executive’s Annual Base Salary (with such
Annual Base Salary to be determined as of the date such bonus is paid) (“Retention
Bonus”).  The first retention bonus shall
be payable if he remains continuously employed by the Company from the date
hereof through the earlier of the date of the consummation of the Restructuring
or December 31, 2004 or, if prior to the consummation of the Restructuring or
such date, as applicable, (i) he is terminated by the Company other than for
Cause, (ii) he resigns his employment because of Good Reason or (iii) the
Company does not renew the Agreement upon expiration of the Term.  The second retention bonus shall be payable
if he remains continuously employed by the Company from the date hereof through
the earlier of the date of the consummation of the Restructuring or December 31,
2005 or, if prior to the consummation of the Restructuring or such date, as
applicable, (i) he is terminated by the Company other than for Cause, (ii) he
resigns his employment because of Good Reason or (iii) the Company does not
renew the Agreement upon expiration of the Term.  Payment of any amount pursuant to this
paragraph shall not reduce any other payments or benefits to which Executive is
entitled under this Agreement.  Should
the Chief Executive Officer of the Company agree to forgo any portion of his
Retention Bonus for any reason at any time, Executive agrees to forgo the same
percentage of his Retention Bonus.


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)         bonus amounts not paid to Executive as a
result of Executive’s election to defer payment;


(IV)         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


(V)           the cash equivalent of any accrued Paid Time
Off; in each case to the extent not already paid.



 12
 








(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 Executive’s highest Annual
Base Salary during the 12-month period immediately prior to the Date of
Termination, plus 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 one (1) year (or two (2) years in the
event Executive is entitled to payments under Sections 5(a)(B)(x) and (y))
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 otherwise provide, at the Company’s option,
(i) such benefits on a substantially similar basis as if continued participation
had been permitted through the Company’s benefit 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 Executive
with Continued Benefit Plans, 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 Executive with the Benefits Lump-Sum
Payment, the Company shall notify 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 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
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
Executive with the Benefits Lump-Sum Payment and it is determined by the
Company that any portion of the Benefits Lump-Sum Payment constitutes taxable
wages for federal income and/or employment tax purposes, the Company agrees to
pay Executive an additional amount (the “Benefits Gross-Up Payment”) such that
the net amount retained by Executive from the Benefit Lump-Sum Payment and the
Benefits



 13
 








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 Termination.


(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.


6.     Excise Tax
Gross Up.


(a)           Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that the vesting of
Awards, 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”)) the aggregate present
value of which equals or exceeds three times Executive’s “base amount” (as such
term is defined under Section 280G) and are therefore 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 total 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),
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) imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.  Notwithstanding the foregoing,



 14
 








Executive agrees to reduce the aggregate amount of any Payments that
constitute “parachute payments” to the extent necessary so that such Payments
do not equal or exceed three times Executive ‘ s “base amount”  (and therefore  are not 
subject to the excise tax imposed by Section 4999); provided, however,
that Executive shall not be required to make any such reduction if the
reduction necessary to cause such Payments not to equal or exceed three times
Executive’s “base amount” is more than $100,000.


(b)           Subject to the provisions of Section 6(c)
hereof, all determinations required to be made under this Section 6, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Company’s public accounting firm (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and
Executive within fifteen (15) 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.  In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the change in control, Executive may appoint another
nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be deemed to be the
Accounting Firm hereunder).  All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the
Company to Executive within five (5) days of the receipt of the Accounting 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 Accounting Firm determines that no
Excise Tax is payable by Executive, it shall furnish Executive with a written
opinion that failure to report the Excise Tax on Executive’s applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty.  Any determination by the
Accounting Firm shall be binding upon the Company and Executive.  As a result of the uncertainty in the
application of Section 4999 at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made by the Company (“Underpayment”),
or that 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 hereunder.  In either such event,
the Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred.  In the
event that the Company exhausts its remedies pursuant to Section 6(c) and Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.  In the case of an
Overpayment, 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 the 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.


(c)           Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require a payment by the Company, or a change in the



 15
 








amount of the payment by the Company of, the Gross-Up Payment.  Such notification shall be given as soon as practicable
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,


(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.  Without limitation on the foregoing provisions
of this Section 6(c) hereof, 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 further, 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; and provided further, that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.  Furthermore, the Company’s control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or



 16
 








contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.


(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.


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 first
anniversary (or the second anniversary in the event Executive is entitled to
payments under Sections 5(a)(B)(x) and (y)) of such termination of employment
(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 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, Inc., Honeywell
Security Monitoring, 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 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



 17
 








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 Competitors,
Executive shall, immediately upon such challenge, forfeit any right to any payments
and benefits under Section 5(a) or 5(b) that he has not already received.


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



 18
 








legislative
body; provided, however, that
prior to disclosing any of the Confidential Information to a court or other
administrative or legislative body, Executive shall promptly notify the Company
so that the Company may seek a protective order or other appropriate remedy.


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


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


10.           Antidisparagement.


(a)           Unless otherwise required by a court of
competent jurisdiction, pursuant to any recognized subpoena power or by any
applicable law, rule or regulation, Executive agrees and promises that
Executive shall not make any oral or written statements or reveal any
information to any person, company or agency which (i) is materially
negative, disparaging or damaging to the name, reputation or business of the
Company or any of its Subsidiaries or affiliates, or any of their shareholders,
directors, officers or employees, or (ii) has or would have a materially
negative financial impact, whether directly or indirectly, on the Company or
any of its Subsidiaries and affiliates, or any of their shareholders,
directors, officers or employees; provided that
this subsection (ii) shall not be deemed to have been violated by
statements or releases of information by Executive during the period of his
employment under this Agreement which Executive believes to be truthful and
which are made in the performance of his duties under this Agreement.


(b)           Unless otherwise required by a court of
competent jurisdiction, pursuant to any recognized subpoena power or by any
applicable law, rule or regulation, the Company agrees and promises that
neither it nor any of its Subsidiaries and affiliates shall make any oral or
written statements or reveal any information to any person, company or agency
which (i) is materially negative, disparaging or damaging to the name,
reputation or business of Executive or (ii) has or would have a negative
financial impact whether directly or indirectly, on Executive.


11.           Injunctive Relief.


(a)           Executive acknowledges that a breach of the
undertakings in Sections 7, 8, 9 or 10(a) of this Agreement would cause
irreparable damage to the Company and its Subsidiaries and affiliates, the
exact amount of which shall be difficult to ascertain, and that



 19
 








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 Texas
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



 20
 








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:                                  Joseph R. Sanchez

3115 Pepper Ridge

Wichita, KS  67025


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.



 21
 








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.  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)(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 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 and 25 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,



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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.           No Mitigation.  The amounts payable to Executive upon any
termination of his employment shall be considered severance pay in
consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments and shall be the sole amount of severance pay to which Executive is
entitled from the Company and its affiliates upon termination of his
employment.  Executive shall have no duty
to mitigate his damages by seeking other employment and, should Executive
actually receive compensation from any such other employment, the payments
required hereunder shall not be reduced or offset by any such other
compensation.


24.             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.


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.


*   *  
*   *   *


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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/ Richard
  Ginsburg

  	
   

  	
   

  
	
   

  	
  Its:

  	
  President and
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PROTECTION ONE ALARM

  
	
   

  	
  MONITORING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard
  Ginsburg

  	
   

  	
   

  
	
   

  	
  Its:

  	
  President and
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph R.
  Sanchez

  	
   

  	
   

  
	
   

  	
   

  	
  Joseph R.
  Sanchez