Exhibit
10.4 


Execution
Copy 


REORGANIZATION AGREEMENT


REORGANIZATION AGREEMENT, dated as of December 18,
2006 (this “Agreement”), by and among PROTECTION ONE, INC., a Delaware
corporation (the “Company”), POI ACQUISITION I, INC., a Delaware
corporation and minority stockholder of the Company and its successors (“Parent”),
QUADRANGLE CAPITAL PARTNERS LP, a Delaware limited partnership (“QCP”), QUADRANGLE
SELECT PARTNERS LP, a Delaware limited partnership (“QSP”), QUADRANGLE
CAPITAL PARTNERS-A LP, a Delaware limited partnership (“QCP-A” and,
together with QCP and QSP, the “Quadrangle Investors”, who are
collectively indirect owners of Parent), QUADRANGLE MASTER FUNDING LTD, a
Cayman Islands exempted company incorporated with limited liability (“QMFL”),
QDRF MASTER LTD, a Cayman Islands exempted company incorporated with limited
liability and an owner of QMFL (“QDRF”), QUADRANGLE DEBT OPPORTUNITIES
FUND MASTER LTD, a Cayman Islands exempted company incorporated with limited
liability and an owner of QMFL (“QDOF” and, together with QMFL, QDRF and
the Quadrangle Investors, collectively, the “Parent Stockholders”).


WHEREAS, Parent Stockholders, Parent and the Company
desire to restructure the ownership of the Company by Parent and Parent
Stockholders;


WHEREAS, Parent will be converted to a Delaware
limited liability company immediately after and pursuant to a plan including
the Reorganization (as defined below) (the “Conversion”); and


WHEREAS, the parties intend for the transactions
contemplated by this Agreement (including the Conversion) to constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the “Code”), and that this Agreement will
constitute a “plan of reorganization” for such purposes.


NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and agreements set forth
in this Agreement, and intending to be legally bound hereby, the Company,
Parent and the Parent Stockholders agree as follows:


ARTICLE I


THE REORGANIZATION


2.1.          The
Reorganization.  Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing Parent
shall transfer to the Company all of the Company common stock, par value $0.01
per share (the “Company Common Stock”), owned by it immediately prior to
the Closing (as defined below) in exchange for an equal number of shares of
newly-issued Company Common Stock or Company Common Stock held by the Company
as treasury shares (the “Reorganization”).


1.2.          Tax Treatment. 
Parent, the Company and the Parent Stockholders intend that the
Reorganization and the Conversion be treated as a reorganization within the
meaning of Section 368(a) of the Code. 
Neither the Company, Parent nor any Parent Stockholder will (i) 











take any position with the Internal Revenue Service or
any other federal, state or local taxing authority with respect to the
Reorganization or Conversion that is inconsistent with the intended tax
treatment described in this Section 1.2 or (ii) take any action that would
cause the Reorganization and Conversion to fail to qualify as a reorganization
within the meaning of Section 368(a) of the Code.


1.3           Closing. 
Subject to the satisfaction or waiver of the conditions set forth in
Article IV hereto, the closing of the Reorganization and the transactions
contemplated by this Agreement (the “Closing”) will take place at a date
and time to be determined by Parent and the Company (the “Closing Date”).  The Closing shall be held at the offices of
Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York,
10017, unless another place is agreed to in writing by the parties hereto.  At the Closing or promptly thereafter, (i)
Parent will deliver and surrender, or will cause to be delivered and
surrendered with the assistance of the Company, to the Company the stock
certificate or stock certificates representing the Company Common Stock, in
each case duly endorsed for transfer to the Company or accompanied by stock or
other appropriate powers duly endorsed in blank, (ii) the Company will deliver,
or cause to be delivered, to Parent a stock certificate or stock certificates
representing the Company Common Stock, and (iii) Parent shall file, or cause to
be filed, a certificate of conversion with the Secretary of State of the State
of Delaware in accordance with the requirements of the DGCL.


ARTICLE II


REPRESENTATIONS AND WARRANTIES OF THE PARTIES


2.1.          Representations
of Parent.  Parent represents and
warrants to the Company as of the date hereof that:


(a)           The
delivery to the Company of the certificate or certificates representing the
Company Common Stock (with respect to which Parent has good and marketable
title) in accordance with Article I hereto will transfer to the Company  record and beneficial ownership of the Company
Common Stock owned by it free and clear of any charge, claim, community
property interest, condition, equitable interest, lien, option, pledge security
interest, right of first refusal or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise of any
other attribute of ownership (the foregoing, collectively, “Encumbrances”)
(other the Encumbrances created or placed thereon by the Company).


(b)           The
execution, delivery and performance by Parent of this Agreement and
consummation of the Reorganization by Parent has been duly authorized by all
necessary corporate, partnership or limited liability company action, if
applicable, and this Agreement constitutes, and upon execution and delivery by
the Company, will constitute, a valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms.


2.2.          Representations of the Parent Stockholders.  Each Parent Stockholder, severally as to
itself and not jointly or as to the other Parent Stockholders, represents and
warrants to the Company as of the date hereof that the execution, delivery and
performance by 



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such Parent Stockholder of this Agreement and the
consummation of the Reorganization by such Parent Stockholder has been duly
authorized by all necessary corporate, partnership or limited liability company
action, if applicable, and this Agreement constitutes, and upon execution and
delivery by the Company, will constitute, a valid and binding obligation of
such Parent Stockholder, enforceable against such Parent Stockholder in
accordance with its terms.


2.3.          Representations of the Company.  The Company represents and warrants to Parent
and the Parent Stockholders, as of the date hereof:


(a)           The delivery to
Parent of the certificate or certificates representing the Company Common Stock
in accordance with Article I hereto will transfer to Parent record and
beneficial ownership of the Company Common Stock free and clear of any
Encumbrances (other than Encumbrances created or placed thereon by Parent).


(b)           The execution,
delivery and performance by the Company of this Agreement and the consummation
of the Reorganization by the Company has been duly authorized by all necessary
corporate action, and this Agreement constitutes, and upon execution and
delivery by Parent, will constitute, a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.


(c)           The newly-issued
Company Common Stock, if applicable, will be, upon delivery of the Company
Common Stock owned by Parent in accordance with the terms of this Agreement,
and payment of the par value thereof, duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights.


ARTICLE III


TAX MATTERS


3.1.          Tax Indemnification.


(a)           Parent and
each Parent Stockholder shall jointly and severally indemnify and hold harmless
the Company and its affiliates and each of their respective officers,
directors, employees, stockholders, agents and other representatives from and
against any loss, claim, liability, expense, or other damage attributable to
(i) all Taxes (as defined below) of Parent (other than any consolidated income
Taxes arising from the consolidated group including the Company for which
Parent was the common parent and attributable to the income of a member of such
consolidated group other than Parent) with respect to any taxable period of
Parent ending on or before the Closing Date (“Pre-Closing Tax Period”),
(ii) all Taxes (as defined below) of the Company attributable to its status as
a withholding agent with respect to the payment of $6,592,346.75 the Company or
its agents made on behalf of Parent to the Parent’s stockholders on May 12,
2006 and (iii) all Taxes (as defined below) resulting from the
Reorganization.  For purposes of this
Agreement, “Tax” or “Taxes” shall mean taxes and governmental
impositions of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority, including those on or
measured by or referred to as income, franchise, profits, gross receipts,
capital ad valorem, custom
duties, alternative or add-on minimum taxes, 



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estimated, environmental, disability, registration,
value added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, employment, social security, workers’
compensation, unemployment compensation, utility, severance, production,
excise, stamp, occupation, premiums, windfall profits, transfer and gains
taxes, and  interest, penalties and
additions to tax imposed with respect thereto.


(b)           The Company
shall, and shall cause its subsidiaries to, indemnify and hold harmless the
Parent and Parent Stockholders and their affiliates and each of their
respective officers, directors, employees, stockholders, agents and other
representatives from and against any loss, claim, liability, expense, or other
damage relating to any consolidated income Taxes arising from the consolidated
group including the Company for which Parent was the common parent and
attributable to the income of a member of such consolidated group other than
Parent.


(c)           Notwithstanding
any provision in this Agreement to the contrary, the obligations to indemnify
and hold harmless another party pursuant to this Section 3.1(a) and (b)
shall terminate at the close of business on the thirtieth (30th) day following
the expiration of the applicable statute of limitations with respect to the Tax
liabilities in question (giving effect to any waiver, mitigation or extension
thereof).


3.2.          Tax Claims.


(a)           If
a claim shall be made by any taxing authority, which, if successful, might
result in an indemnity payment to an indemnified party pursuant to Section 3.1,
then such indemnified party shall give prompt notice to the indemnifying party
in writing of such claim and of any counterclaim the indemnified party proposes
to assert (a “Tax Claim”); provided, however, the failure to give such notice
shall not affect the indemnification provided hereunder except to the extent
the indemnifying party has been materially prejudiced as a result of such
failure.


(b)           With
respect to any Tax Claim relating to a Tax for which the Parent and Parent
Stockholders, on the one hand, or the Company and its subsidiaries on the
other, is required to indemnify the other parties pursuant to Section 3.1
hereof, the indemnifying party shall, solely at its own cost and expense, be
entitled to assume and control all proceedings and may make all decisions taken
in connection with such Tax Claim (including selection of counsel) and, without
limiting the foregoing, may in its sole discretion pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any taxing
authority with respect thereto, and may, in its sole discretion, either pay the
Tax claimed and sue for a refund where applicable law permits such refund suits
or contest the Tax Claim in any permissible manner.  The indemnified party shall have the right to
employ counsel separate from counsel employed by the indemnifying party in any
action involving a Tax Claim described above and to participate in the defense
thereof, but the fees and expenses of such counsel employed by the indemnified
party shall be at the expense of the indemnified party unless the employment
thereof has been specifically authorized by the indemnifying party in writing.


(c)           Notwithstanding
anything to the contrary herein, if the indemnifying party assumes or controls
the defense of any Tax Claim pursuant to Section 3.2(b), the indemnifying party
shall obtain the prior written consent of the indemnified party (which shall
not be 



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unreasonably withheld or delayed) before entering into
any settlement of a Tax Claim or ceasing to defend a Tax Claim, if pursuant to
or as a result of such settlement or cessation, injunctive or other equitable relief
will be imposed against the indemnified party.


3.3.          Cooperation.  The Parent Stockholders, the Company, each of
Company’s subsidiaries and Parent shall reasonably cooperate, and shall cause
their respective affiliates, officers, employees, agents, auditors and other
representatives to reasonably cooperate, in preparing and filing all Tax
returns and in resolving all disputes and audits with respect to all taxable
periods relating to Taxes, including by maintaining and making available to
each other all records reasonably necessary in connection with Taxes and making
employees available on a mutually convenient basis to provide additional
information or explanation of any material provided hereunder or to testify at
proceedings relating to such matters.


3.4.          Refunds.
The amount or economic benefit of any refunds of Taxes of Parent (other than
refunds of Taxes attributable to a member of Parent’s consolidated group for a
Pre-Closing Tax Period when Parent was the parent company of a consolidated
group that included Company) or Taxes with respect to which Parent and the
Parent Stockholders have provided an indemnity hereunder shall be for the
account of Parent and the Parent Stockholders. 
The amount or economic benefit of any refunds of Taxes with respect to
which the Company or its subsidiaries have provided an indemnity hereunder
shall be for the account of the Company and its subsidiaries.  The Parent Stockholders or the Company, as
the case may be, shall forward, and shall cause its affiliates to forward, to
the other party the amount or economic benefit of any such refund within ten
(10) days after such benefit or refund is received.


3.5.          Calculation
of Indemnity Payments.  The amount of
any Tax for which indemnification is provided under this Article III shall be
reduced to take account of any net Tax Benefit (as defined below) realized by
the indemnified party arising from the incurrence or payment of any such Tax;
provided, any such Tax Benefit shall be reduced by any net Tax cost
incurred by the indemnified
party as a result of or related to the indemnification payment (including, without limitation, any Tax
related to the inclusion in gross income of the indemnification payment).  For
purposes of this Agreement, “Tax Benefit” shall mean any refund of Taxes paid
or actual reduction in the amount of Taxes which otherwise would have been
paid, with the amount and timing of a Tax Benefit determined assuming the indemnified party has recognized
and/or utilized all other items of income, gain, loss, deduction and credit
available to such indemnified party before
recognizing any item associated with such Tax Benefit.


ARTICLE IV


CONDITIONS TO THE SHARE EXCHANGE


4.1.          Conditions to Each Party’s Obligations.  The respective obligations of each party
hereto to consummate the transactions contemplated by this Agreement will be
subject to the satisfaction of the condition, which may be waived by such
party, that no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the 



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consummation of the Reorganization, shall be in
effect, and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered or enforced which makes the consummation
of the Reorganization illegal.


4.2.          Conditions to Parent’s Obligations.  The obligations of Parent and the Parent
Stockholders to consummate the transactions contemplated by this Agreement will
be subject to the satisfaction of the condition, which may be waived by Parent
or the Parent Stockholders, that the representations and warranties of the
Company shall be true in all respects as of the Closing Date.


4.3.          Conditions to the Company’s Obligations.  The obligations of the Company to consummate
the transactions contemplated by this Agreement will be subject to the
satisfaction of the following conditions, which may be waived by the Company:


(a)           The representations
and warranties of Parent and the Parent Stockholders shall be true in all
respects as of the Closing Date;


(b)           All certificates and
other documents to be delivered by Parent or the Parent Stockholders and all
other matters to be accomplished by Parent or the Parent Stockholders prior to
or at the Closing shall be satisfactory in the reasonable judgment of the
Company and its counsel;


(c)           The dissolution and
liquidation of Parent shall have been approved by Parent’s board of directors
and approved and adopted by the affirmative vote (or written consent in lieu of
such vote) of the Parent Stockholders in accordance with the requirements of
the DGCL.


ARTICLE V


TERMINATION


5.1.          Termination.  This Agreement may be terminated and the
transactions contemplated hereby may be abandoned prior to Closing at any time
by the written consent of each of the parties hereto.  Notwithstanding anything to the contrary
herein, this Agreement shall terminate without the taking of any action by any
party hereto if the Closing shall not have occurred by December 31, 2006.


ARTICLE VI


AMENDMENT


This Agreement may be amended by the parties hereto at
any time by an instrument in writing signed on behalf of each of the parties
hereto.



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ARTICLE VII


MISCELLANEOUS


Section 7.1.            Indemnification
Agreement.  For the
avoidance of doubt and notwithstanding anything to the contrary in this
Agreement, this Agreement shall not affect any rights or obligations with
respect to Taxes and any Tax matters that are the subject of the indemnity
provided in the Tax Indemnification Agreement, dated as of May 11, 2006,
by and among the Company, QMFL, QDRF and QDOF.


Section 7.2.            Notices.  All notices, demands, or other communications
to be given or delivered under or by reason of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one (1) day after being sent to the recipient by reputable overnight
courier service (charges prepaid), upon machine-generated acknowledgment of
receipt after transmittal by facsimile, or five (5) business days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid.  Such
notices, demands, and other communications shall be sent to the address
indicated below, or to such other address or addresses or to the attention of
such other person or persons as the recipient party has specified by prior
written notice to the sending party:


	
  If to the Company, at:

  	
  Protection One, Inc.

  
	
   

  	
  1035 N. 3rd Street, Suite 101

  
	
   

  	
  Lawrence, Kansas 66112

  
	
   

  	
  Attention: Darius Nevin

  
	
   

  	
  Facsimile No.: (785) 575-6511

  
	
   

  	
   

  
	
  with a copy to:

  	
  Kirkland & Ellis LLP

  
	
   

  	
  200 East
  Randolph Drive

  
	
   

  	
  Chicago, Illinois 60601

  
	
   

  	
  Attention: R. Scott Falk, P.C.

  
	
   

  	
  Facsimile No.: (312) 861-2200

  
	
   

  	
   

  
	
  If to Parent or
  the:

  	
  Quadrangle Group LLC

  
	
  Parent
  Stockholders, at:

  	
  375 Park Avenue

  
	
   

  	
  New York, New
  York 10152

  
	
   

  	
  Attention: Henry Ormond

  
	
   

  	
  Facsimile No. (212) 418-1740

  
	
   

  	
   

  
	
  with a copy to:

  	
  Simpson Thacher & Bartlett LLP

  
	
   

  	
  425 Lexington
  Avenue

  
	
   

  	
  New York, New York 10017

  
	
   

  	
  Attention: Joseph H. Kaufman, Esq.

  
	
   

  	
  Facsimile No.: (212) 455-2502

  



 


Section 7.3.            Counterparts.        This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall 



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together constitute one and the same instrument.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.


[Remainder of this
page intentionally left blank.]



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IN WITNESS WHEREOF, the Company, Parent and the Parent
Stockholders have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.


	
  

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darius G. Nevin

  
	
   

  	
   

  	
  Name:

  	
  Darius G. Nevin

  
	
   

  	
   

  	
  Title:

  	
  Executive VP and CFO

  



 


	
  

  	
  POI ACQUISITION I, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  
	
   

  	
   

  	
  Name:

  	
  Michael Weinstock

  
	
   

  	
   

  	
  Title:

  	
  Director

  



 


	
  

  	
  QUADRANGLE CAPITAL PARTNERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle GP Investors LP, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  QCP GP Investors LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Rattner

  
	
   

  	
   

  	
  Name:

  	
  Steven Rattner

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  



 


	
  

  	
  QUADRANGLE SELECT PARTNERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle GP Investors LP, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  QCP GP Investors LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Rattner

  
	
   

  	
   

  	
  Name:

  	
  Steven Rattner

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  



 


	
  

  	
  QUADRANGLE CAPITAL PARTNERS-A LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle GP Investors LP, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  QCP GP Investors LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Rattner

  
	
   

  	
   

  	
  Name:

  	
  Steven Rattner

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  



 


	
  

  	
  QUADRANGLE MASTER FUNDING LTD

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle Debt Recovery Advisors LP, 

  
	
   

  	
   

  	
  its investment advisor

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  
	
   

  	
   

  	
  Name:

  	
  Michael Weinstock

  
	
   

  	
   

  	
  Title:

  	
  Managing Principal

  



 



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  QDRF MASTER LTD

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle Debt Recovery Advisors LP, 

  
	
   

  	
   

  	
  its investment advisor

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  
	
   

  	
   

  	
  Name:

  	
  Michael Weinstock

  
	
   

  	
   

  	
  Title:

  	
  Managing Principal

  



 


	
  

  	
  QUADRANGLE DEBT OPPORTUNITIES FUND MASTER LTD

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Quadrangle Debt Recovery Advisors LP, 

  
	
   

  	
   

  	
  its investment advisor

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Weinstock

  
	
   

  	
   

  	
  Name:

  	
  Michael Weinstock

  
	
   

  	
   

  	
  Title:

  	
  Managing Principal

  



 



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