Exhibit
10.3



Execution Copy


 


	
  BEAR, STEARNS & CO. INC.

  	
   

  	
  BEAR STEARNS CORPORATE

  
	
  383 Madison Avenue

  	
   

  	
  LENDING INC.

  
	
  New York, New York 10179

  	
   

  	
  383 Madison Avenue

  
	
   

  	
   

  	
  New York, New York 10179

  



 December 17, 2006


Credit Facilities

Commitment Letter


Protection
One, Inc.

Protection One Alarm Monitoring, Inc.

818 S. Kansas Avenue

Topeka, KS 66612

Attention:  Mr. Darius Nevin,
Chief Financial Officer


Ladies and Gentlemen:


You have advised Bear, Stearns & Co. Inc. (“Bear Stearns”)
and Bear Stearns Corporate Lending Inc. (“BSCL” and, together with Bear
Stearns, the “Commitment Parties”) that Protection One, Inc. (“Holdings”)
intends to acquire (the “Acquisition”) through Tara Acquisition Corp., a
direct wholly-owned subsidiary formed for the purpose of accomplishing the
Acquisition (“Merger Co.”), all of the issued and outstanding capital stock of
Integrated Alarm Services Group Inc., a Delaware corporation (the “Target”)
through an issuance of equity issued by Holdings to the shareholders of the
Target on the terms set forth in the Merger Agreement, as defined below (the “Equity”).  You have further advised us that in order to
consummate the Acquisition, the Target intends to seek the consent of the
requisite holders of its existing 12% Senior Secured Notes due 2011 (the “Target
Notes”) to the consummation of the Acquisition and the exchange of the
Target Notes for a new issuance of 12% second lien notes of the Borrower (the “Second
Lien Notes”) with maturity after the maturity of the Term Loans (the “Noteholder
Consent”) and that, upon consummation of the Acquisition, the Target will
be a wholly-owned subsidiary of Holdings, and Protection One Alarm Monitoring,
Inc. (the “Borrower”) will have received the consent of the requisite lenders
under its existing credit agreement, dated as of April 26, 2006 (the “Existing
Credit Agreement”), to (a) the consummation of the Acquisition, (b) the
assumption by the Borrower of any Target Notes not exchanged for Second Lien
Notes (which remaining Target Notes, if any, shall have been amended to remove
all restrictive covenants and security interests required therein), (c) the
issuance by the Borrower of the Second Lien Notes in exchange for the Target
Notes, (d) include the right to solicit commitments for a pre-approved
incremental term loan facility in an amount not to exceed $10 million on the
terms and conditions described in the Term Sheet (as defined below)  under the caption “Incremental Credit
Facility” (the “Incremental Term Loan Facility”), and (e) certain other
changes to be mutually agreed (including, but not limited to the guarantee of
the facilities and the granting of security in favor of the facilities by the
Target and each of its domestic subsidiaries, and the adjustment of financial
and negative covenants in order to reflect the increased size of the Borrower,
pro forma projections and activities of the Target) ((the “Credit Agreement
Amendment” and the 









 



Credit Agreement, after such amendment, the “Amended
Credit Agreement”).  We understand
that the Acquisition will be effected pursuant to an Agreement and Plan of
Merger among Holdings, MergerCo, a wholly owned subsidiary of Holdings, and the
Target (the “Merger Agreement”). 
References herein to the “Transaction” shall include the
Acquisition, the Noteholder Consent, the Credit Agreement Amendment, the
payment of expenses on the Closing Date, the payment of related premiums, fees
and expenses and all other transactions entered into and consummated in
connection with the foregoing.


Bear Stearns is
pleased to advise you that it is willing to act as exclusive advisor, sole lead
arranger and sole bookrunner for the Facilities (as defined below) and, as
such, Bear Stearns will use its commercially reasonable efforts to solicit the
consents (the “Required Consents”) of the lenders under the Existing
Credit Agreement (the “Existing Lenders”) required in connection with
the approval of the Credit Agreement Amendment (it being understood that the
payments of any fees or other amounts in connection therewith shall be for the
account of the Borrower).  BSCL also is
pleased to advise you that it is willing to act as administrative agent for the
Facilities.  In addition, in the
event that one or more Existing Lenders is not willing to approve the Credit
Agreement Amendment (each, a “Non-Consenting Lender”), BSCL is pleased
to advise you of its commitment (a) to (x) offer to acquire (and, if such offer
is accepted, to acquire) by assignment on the Closing Date (as defined in the
Term Sheet) at par (or at a premium to be agreed upon between you and the
Commitment Parties; it being understood and agreed that any premium payable
with respect to the Acquired Facilities (as defined below) will be for the
account of the Borrower), and pursuant to customary documentation, commitments
and/or loans of Non-Consenting Lenders, in each case to the extent necessary to
obtain the Required Consents (any such commitments and/or loans so acquired by
assignment, the “Acquired Facilities”) and to approve the Credit
Agreement Amendment, and (y) subject to the terms and conditions set forth or
referred to in this  commitment letter (the “Commitment Letter”) and
in the Summary of Terms and Conditions attached hereto as Exhibit A (the “Term
Sheet”), to provide the full amount of the term loans comprising the
Incremental Term Loan Facility concurrently with the closing of the
Acquisition, or (b) if the Required Consents have not been obtained, to
refinance 100.0% of the term and revolving facilities under the Existing Credit
Agreement (the “Existing Credit Facilities”) and to provide the full
amount of the term loans comprising the Incremental Term Loan Facility
concurrently with the closing of such refinancing and the Acqusition, in each
case substantially upon the terms and subject to the conditions set forth or
referred to in this Commitment
Letter and in the Term Sheet (the “Replacement Facilities”, such
Replacement Facilities, or the Acquired Facilities and the term loans
comprising the Incremental Term Loan Facility, as the case may be, the “Facilities”),
which commitment is up to 100.0% of the Acquired Facilities and the Incremental
Term Loan Facility (in the case of clause (a)) or 100% of the Replacement
Facilities (in the case of clause (b)).


It is agreed that (i)
Bear Stearns will act as exclusive advisor, sole lead arranger and sole
bookrunner in respect of the Facilities, (ii) BSCL will act as sole and
exclusive administrative agent in respect of the Facilities, and (iii) Bear
Stearns and BSCL will, in their respective capacities, perform the duties and
exercise the authority customarily performed and exercised by them in such
roles.  You and we agree that, except as
set forth above, no other agents, co-agents, lead arrangers or bookrunners will
be appointed, no other titles will be awarded and no compensation (other than
that expressly contemplated by the Term Sheet and 



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the Fee Letter
referred to below) will be paid in connection with the Facilities, unless you
and the Lead Arranger shall so agree.


Bear Stearns intends
to syndicate the term loans comprising the Incremental Term Loan Facility, and,
to the extent the Required Consents are not obtained, the Replacement
Facilities or Acquired Facilities, as the case may be, to a group of financial
institutions, commercial banks and non-bank entities (together with BSCL, the “Lenders”)
identified by Bear Stearns in consultation with you.  You agree actively to assist Bear Stearns in completing
a syndication reasonably satisfactory to it. 
Such assistance shall include (a) your using commercially reasonable
efforts to ensure that the syndication efforts benefit materially from your
existing lending and investment banking relationships and the existing lending
and investment banking relationships of the Target, (b) direct contact by the
proposed Lenders with senior management and advisors of Holdings and the
Borrower, to the extent practicable, and your using commercially reasonable efforts
to cause direct contact with senior management and advisors of the Target, (c)
assistance in the preparation of a confidential information memorandum and
other marketing materials to be used in connection with the syndication,
including assistance in causing such marketing materials to conform to market
standards as reasonably determined by Bear Stearns in good faith, and (d) the
hosting, with Bear Stearns, of one or more meetings of prospective Lenders and
with rating agencies and, in connection with any such meeting, consulting with
Bear Stearns with respect to the presentations to be made at such meeting, and
making available appropriate officers and representatives of the Borrower to
rehearse such presentations prior to such meetings, and your using commercially
reasonable efforts to make available appropriate officers and representatives
of the Target to rehearse such presentations prior to such meetings, as
reasonably requested by Bear Stearns.  At
the reasonable request of Bear Stearns, the Borrower agrees to assist in the
preparation of a version of the information memorandum and other marketing
materials referred to in clause (c) of the preceding sentence that do not
contain material non-public information concerning the Borrower, the Target, their
respective affiliates or their respective securities.


Bear Stearns will
manage, in consultation with you, all aspects of the syndication of the
Facilities, including decisions as to the selection of potential new Lenders to
be approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the new Lenders and the amount and distribution of fees among
the Lenders; provided that all new Lenders
shall be subject to the approval of the Borrower, not to be unreasonably
withheld.


You agree that, at
your expense, you will work with Bear Stearns to confirm ratings for the
Facilities by Moody’s Investors Service, Inc. (“Moody’s”) and Standard
& Poor’s Ratings Group (“S&P”) prior to the commencement of the
syndication efforts in respect of the Facilities.


To assist Bear Stearns
in its syndication efforts, you agree promptly to provide to Bear Stearns all
information in your and your advisors’ possession with respect to Holdings, the
Borrower, the Target and the Transaction, including all financial
information and projections (the “Projections”), as we may reasonably
request in connection with the arrangement and syndication of the
Facilities.  As a condition to each Commitment
Party’s commitments and agreements hereunder, you hereby represent and covenant
that (a) all factual information other than the Projections (the “Information”)
that has been or will be made available to the Lead 



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Arranger by you or any
of your representatives, taken as a whole, is or will be, when furnished,
complete and correct in all material respects and does not or will not, when
furnished, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such statements
are made and (b) the Projections that have been or will be made available to
Bear Stearns by you or any of your representatives have been or will be
prepared in good faith based upon assumptions believed to be reasonable at the
time made, it being understood that projections are inherently uncertain and
that actual results may vary from such Projections and such variations may be
material.  You understand that in
arranging and syndicating the Facilities we may use and rely on the Information
and the Projections without independent verification thereof.


As consideration for
the commitments and agreements of the Commitment Parties hereunder you agree to
pay the nonrefundable fees set forth in the Term Sheet and in the fee letter
dated the date hereof and delivered herewith (the “Fee Letter”), as and
when indicated therein, and to perform the obligations set forth in the Fee
Letter, including those relating to changes in the pricing, amounts, terms and
structure of the Facilities.


Each Commitment Party’s
commitments and agreements hereunder are subject to (a) our satisfaction
that there shall not have occurred or become known to us any fact, event,
occurrence, change, development or circumstance since January 1, 2006 that has
had or could reasonably be expected to have a material adverse effect on the
business, financial condition, continuing results of operations, assets,
rights, liabilities or properties of the Target and its subsidiaries, taken as
a whole; provided, however,
that any fact, event, occurrence, change, development or circumstance
involving, arising out of, relating to or resulting from any of the following
will be excluded for purposes of this clause (a):  (1) public announcements prior to the
date hereof by the Target or any of its stockholders regarding the potential
sale of or other potential strategic transactions involving the Target;
(2) the existence or terms of the Merger Agreement, the transactions
contemplated thereby or the announcement thereof; (3) changes or
conditions affecting generally the industries in which the Target operates;
(4) changes in U.S. or global economic, regulatory or political conditions
generally; (5) changes in GAAP or in any laws or orders that apply
generally to similarly situated persons; (6) any acts of terrorism,
sabotage, military action or war, except, in the case of clauses (2), (3), (4), (5) and (6)
above, to the extent such facts, events, occurrences, changes,
developments or circumstances have a disproportionate adverse effect on the Target and its
subsidiaries as compared to other persons engaged in the same industry, (b) our satisfaction that prior to
and during the syndication of the Facilities there has been no offering,
placement or arrangement of any debt securities or bank financing by Holdings,
the Borrower, the Target or any of their respective subsidiaries that could
disrupt or otherwise interfere with the orderly syndication of the Facilities,
(c) the negotiation, execution and delivery on or before May 31, 2007 of definitive documentation with
respect to the Facilities consistent with the Term Sheet or otherwise in form
and substance reasonably satisfactory to such Commitment Party and its counsel,
(d) there being a period of at least 25 days (which 25-day period shall in
any event begin on or before May 5, 2007 so long as you have, prior to such
time, complied with your agreements to assist us in syndication) between the commencement
of the syndication process (the date of the meeting of the invited lenders) and
the occurrence of the closing date of the Transaction, (e) your compliance
in all material respects with your covenants and agreements contained in this
Commitment Letter 



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and the Fee Letter,
and (f) the reasonable satisfaction or waiver by the Arranger of the other
conditions set forth or referred to in the Term Sheet and the Fee Letter.


You agree (a) to
indemnify and hold harmless each Commitment Party, its affiliates and its
respective officers, directors, employees, attorneys, advisors, and agents
(each, an “Indemnified Person”) as set forth in Annex A hereto and (b)
to reimburse each Commitment Party and its affiliates on demand (but which
reimbursement may be up to 10 business days following the termination of the
Merger Agreement in the event the Closing Date does not occur and such demand
is made following such termination) for all reasonable out-of-pocket expenses
(including due diligence expenses, syndication expenses, consultant’s fees and
expenses (provided, that all consultants are
subject to prior approval of Borrower), travel expenses, and reasonable fees,
charges and disbursements of one counsel (together with any special or local
counsel as the Commitment Parties deem appropriate), and all rating agency fees
and expenses) incurred in connection with the Facilities and any related
documentation (including this Commitment Letter, the Term Sheet, the Fee Letter
and the definitive financing documentation). 
No party to this Commitment Letter shall be liable to any other party to
this Commitment Letter for any damages arising from the use by unauthorized
persons of Information or other materials sent through electronic,
telecommunications or other information transmission systems that are
intercepted by such persons or for any special, indirect, consequential or
punitive damages on any theory of liability in connection with any act,
omission, breach, occurrence or event relating in any respect to the Facilities or the Transaction.


You acknowledge that
Bear Stearns and its affiliates (the term “Bear Stearns” as used in this
paragraph being understood to include such affiliates) may be providing debt
financing, equity capital or other services to other companies in respect of
which you or the Target may have conflicting interests regarding the
Transaction and otherwise.  Bear Stearns
will not use confidential information obtained from you by virtue of the
Transaction or its other relationships with you in connection with the
performance by Bear Stearns of services for other companies, and Bear Stearns
will not furnish any such information to other companies.  You also acknowledge that Bear Stearns has no
obligation to use in connection with the Transaction, or to furnish to you,
confidential information obtained from other companies.


This Commitment Letter
shall not be assignable by you without the prior written consent of each
Commitment Party (and any purported assignment without such consent shall be
null and void), is intended to be solely for the benefit of the signatory
parties hereto and their permitted assigns and is not intended to confer any
benefits upon, or create any rights in favor of the Target, any existing
stockholder of the Target or any other person except the signatory parties
hereto and the Indemnified Persons.  This
Commitment Letter may not be amended or waived except by an instrument in
writing signed by you and each Commitment Party.  This Commitment Letter may be executed in any
number of counterparts, each of which shall be an original, and all of which,
when taken together, shall constitute one agreement.  Delivery of an executed signature page of
this Commitment Letter by facsimile transmission or electronic photocopy (i.e. “pdf”)
shall be effective as delivery of a manually executed counterpart hereof.  This Commitment Letter and the Fee Letter are
the only agreements that have been entered into among us with respect to the
Facilities and set forth the entire understanding of the parties with respect
thereto.


 



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This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, by you to
any other person except (a) to Quadrangle Group
LLC (the “Sponsor”), rating agencies (as to the Term Sheet only), the
Target (as to
the Commitment Letter only) and your and their respective affiliates,
directors, officers, employees, agents, attorneys, accountants and advisors who
are directly involved in the consideration of this matter, (b) as may be
compelled in a judicial or administrative proceeding or as otherwise required
by law, rule or regulation (including filings with the SEC and other regulatory
authorities) (in which case you agree to inform us promptly thereof) or (c)
with our consent, not to be unreasonably withheld; provided,
that the Term Sheet and/or any of the terms or substance thereof may be
disclosed to prospective Lenders in connection with the Facilities.


BSCL hereby notifies the Sponsor, the Borrower
and the Target that, pursuant to the requirements of the USA PATRIOT Act (Title
III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”),
it, and each Lender, may be required to obtain, verify and record information
that identifies the Sponsor, the Borrower and the Target, which information
includes the name and address of the Sponsor, the Borrower and the Target and
other information that will allow BSCL and each Lender to identify the Sponsor,
the Borrower and the Target in accordance with the Act.  This notice is given in accordance with the
requirements of the Act and is effective for BSCL and each Lender.


The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and all the provisions contained in the Fee Letter
shall remain in full force and effect regardless of whether definitive
financing documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or BSCL’s commitment hereunder; provided, that your obligations under this
Commitment Letter, other than those arising under the fourth, fifth, ninth and
fourteenth paragraphs hereof and those arising under the provisions of the Fee
Letter, shall automatically terminate and be superseded by the provisions of
the definitive documentation relating to the Facilities upon the initial
funding thereunder, and you shall automatically be released from all liability
in connection therewith at such time.


This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.  You hereby irrevocably submit to the
exclusive jurisdiction of any court of the State of New York located in the
County of New York or the United States District Court for the Southern
District of the State of New York, or any appellate courts from any thereof,
for the purpose of any suit, action or other proceeding arising out of this
Commitment Letter, the Fee Letter, or any of the agreements or transactions
contemplated hereby, which is brought by or against you and you (i) hereby
irrevocably agree that all claims in respect of any such suit, action or
proceeding may be heard and determined in any such court and (ii) hereby agree
not to commence any action, suit or proceeding relating to this Commitment
Letter, the Fee Letter, or any such other agreements or transactions other than
in such court except to the extent mandated by applicable law.  You hereby waive any objection that you may
now or hereafter have to the venue of any such suit, action or proceeding in
any such court or that such suit, action or proceeding was brought in an
inconvenient court and agree not to plead or claim the same.  You hereby acknowledge that you have been
advised by counsel in the negotiation, execution and delivery of this Commitment
Letter, the Fee Letter,



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and the other agreements and transactions contemplated hereby, that no
Commitment Party has any fiduciary relationship with or fiduciary duty to you
or any other person arising out of or in connection with this Commitment
Letter, the Fee Letter or any of the other agreements or transactions
contemplated hereby and that no Commitment Party has been retained to advise or
has advised you or any other person regarding the wisdom, prudence or advisability
of entering into or consummating the Transaction.  EACH OF YOU AND WE HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS COMMITMENT LETTER, THE FEE LETTER OR ANY OF THE OTHER AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM RELATING THERETO.


Each of BSCL and Bear Stearns may have economic interests that
conflict with those of Holdings, the Borrower and the Target.  You acknowledge that the transactions
contemplated by this Commitment Letter and the Fee Letter are arms-length
commercial transactions and that each of BSCL and Bear Stearns is acting as
principal and in its own best interests. 
Holdings and the Borrower are relying on their own experts and advisors
to determine whether the transactions contemplated by this Commitment Letter
and the Fee Letter are in their best interests. 
You agree that each of BSCL and Bear Stearns will act under this
Commitment Letter and the Fee Letter as an independent contractor and that
nothing in this Commitment Letter, the Fee Letter, the nature of our services,
or in any prior relationship will be deemed to create an advisory, fiduciary or
agency relationship between BSCL and Bear Stearns on the one hand and Holdings,
the Borrower and the Target, their shareholders or their affiliates on the
other hand.


If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Fee Letter by returning to us
executed counterparts hereof and of the Term Sheet and Fee Letter not later
than 11:59 p.m., New York City time, on December 18, 2006.  The commitments and agreements of the
Commitment Parties herein will automatically expire upon the earlier to occur
of (i) December 18, 2006 in the event we have not received such executed
counterparts in accordance with the immediately preceding sentence, (ii) upon
termination of the Merger Agreement or (iii) at 12:00 noon, New York City time,
on May 31, 2007 (the “Closing Deadline”) if the Closing Date has not yet
occurred.



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We are pleased to have been given the opportunity to assist you in
connection with this important financing.


Very truly yours,


 


	
  BEAR, STEARNS & CO. INC.

  	
   

  	
  BEAR STEARNS
  CORPORATE LENDING INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Keith C. Barnish

  	
   

  	
  By:

  	
  /s/ Keith C. Barnish

  
	
   

  	
  Name: Keith C. Barnish

  	
   

  	
   

  	
  Name: Keith C.
  Barnish

  
	
   

  	
  Title: Senior MD

  	
   

  	
   

  	
  Title: Executive VP

  



 


 



    
 






 



Accepted and agreed to


as of the date first


written above by:


 


 


 


 


	
  PROTECTION ONE ALARM
  MONITORING, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard Ginsburg

  	
   

  	
   

  
	
   

  	
  Name: Richard Ginsburg

  	
   

  	
   

  
	
   

  	
  Title: President and CEO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PROTECTION ONE, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Richard Ginsburg

  	
   

  	
   

  
	
   

  	
  Name: Richard Ginsburg

  	
   

  	
   

  
	
   

  	
  Title: President and CEO

  	
   

  	
   

  



 



    














 


 


Annex A


Indemnification Provisions


Capitalized terms used and not otherwise defined herein are used with
the meanings attributed thereto in the Commitment Letter dated December 17,
2006 (the “Commitment Letter”) from Bear, Stearns & Co. Inc. and Bear
Stearns Corporate Lending Inc. to Protection One Alarm Monitoring, Inc. and
Protection One, Inc. (each, an “Indemnifying Party”), of which these
Indemnification Provisions form an integral part.


To the fullest extent permitted by applicable law, each Indemnifying
Party agrees that it will indemnify and hold harmless each of the Indemnified
Persons from and against any and all losses, claims, damages, obligations,
penalties, judgments, awards and liabilities relating to any and all actions,
suits, proceedings and investigations in respect thereof and any and all legal
or other costs, expenses and disbursements in giving testimony or furnishing
documents in response to a subpoena or otherwise (including, without
limitation, the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, proceeding or
investigation (whether or not in connection with litigation in which any of the
Indemnified Persons is a party) and including, without limitation, any and all
losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, and costs, expenses and disbursements, resulting from any
negligent act or omission of any of the Indemnified Persons), directly or
indirectly, caused by, relating to, based upon, arising out of or in connection
with (i) the Transaction, (ii) the Commitment Letter, the Fee Letter or the
Facilities, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in, or omissions or alleged omissions in, any
information memorandum or any other information furnished by any Indemnifying
Party or any of its subsidiaries or affiliates to any of the Indemnified
Persons or any other person in connection with the Transaction, the Commitment
Letter, the Fee Letter or the Facilities; provided,
however, that as to any
Indemnified Person, such indemnity agreement and expense reimbursement
obligation shall not apply to any portion of any such loss, claim, damage,
obligation, penalty, judgment, award, liability, cost, expense or disbursement
to the extent it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) to have resulted from (A) the
gross negligence or willful misconduct of such Indemnified Person (or its
officers, directors or employees acting within the scope of their duties)
or  (B) claims brought solely by one
Indemnified Person  against another.


These Indemnification Provisions shall be in addition to any liability
which any Indemnifying Party may have to the Indemnified Persons.


If any action, suit, proceeding or investigation is commenced, as to
which any of the Indemnified Persons proposes to demand indemnification, it
shall notify the Indemnifying Parties with reasonable promptness, provided, however,
that any failure by any of the Indemnified Persons to so notify the
Indemnifying Parties shall not relieve any Indemnifying Party from its
obligations hereunder.  Bear Stearns, on
behalf of the Indemnified Persons, shall have the right to retain counsel of
its choice to represent the Indemnified Persons, and each Indemnifying Party
agrees to pay the fees, expenses and disbursement of such counsel, and such
counsel shall, to the extent consistent with its professional responsibilities,
cooperate with the Indemnifying Parties and any counsel designated by the
Indemnifying Parties; provided, that


Annex A-1









 



the Indemnifying Parties shall only be responsible for the fees and
expenses of one such counsel (in addition to any local and special counsel
deemed appropriate by the Indemnified Persons) except to the extent that there
is any actual or perceived conflict among the Indemnified Persons.  Each Indemnifying Party shall be liable for
any settlement of any claim against any of the Indemnified Persons made with
its written consent, which consent shall not be unreasonably withheld.  Without the prior written consent of Bear
Stearns, no Indemnifying Party shall settle or compromise any such claim, or
permit a default or consent to the entry of any judgment in respect thereof.


In order to provide for just and equitable contribution, if a claim
for indemnification pursuant to these Indemnification Provisions is made but is
found by a judgment of a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case,
even though the express provisions hereof provided for indemnification in such
case, then the Indemnifying Parties, on the one hand, and the Indemnified
Persons, on the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements to which the Indemnified Persons may be subject in accordance
with the relative benefits received by the Indemnifying Parties, on the one
hand, and the Indemnified Persons, on the other hand, and also the relative
fault of the Indemnifying Parties, on the one hand, and the Indemnified
Persons, on the other hand, in connection with the statements, acts or
omissions which resulted in such losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements
and the relevant equitable considerations shall also be considered.  No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any other person who
is not also found liable for such fraudulent misrepresentation.  Notwithstanding the foregoing, none of the
Indemnified Persons shall be obligated to contribute any amount hereunder that
exceeds the amount of fees previously received by such Indemnified Person
pursuant to the Commitment Letter and the Fee Letter.


Neither the expiration or termination of BSCL’s commitments under the
Commitment Letter nor the funding or repayment of the loans under the
Facilities shall affect these Indemnification Provisions which shall remain
operative and in full force and effect. 
All obligations and liabilities of the Indemnifying Parties under these
Indemnification Provisions shall be in all respects joint and several.


Annex A-2


 















 


Exhibit A


CREDIT FACILITIES


Summary of Terms and Conditions


December 17, 2006


Capitalized terms used
and not otherwise defined herein are used with the meanings attributed thereto
in the Commitment Letter dated December 17, 2006 (the “Commitment
Letter”) from Bear, Stearns & Co. Inc. and Bear Stearns Corporate
Lending Inc. to Protection One Alarm Monitoring, Inc. and Protection One, Inc.,
of which this Summary of Terms and Conditions forms an integral part.


 


	
  I.     Parties

  	
   

  
	
  Borrower:

  	
  Protection One Alarm Monitoring, Inc. (the “Borrower”).  

  
	
  Guarantors:

  	
  Protection One, Inc. (“Holdings”) and each of Holdings’
  direct and indirect present and future domestic subsidiaries (other than the
  Borrower) (the “Guarantors”; the Borrower and the Guarantors
  collectively, the “Credit Parties”). 

  
	
  Advisor, Sole Lead Arranger and Sole Bookrunner:

  	
  Bear, Stearns & Co. Inc. (in such capacity, the “Lead
  Arranger”).

  
	
  Administrative Agent:

  	
  Bear Stearns Corporate Lending Inc. (in such capacity, the “Administrative
  Agent”).

  
	
  Lenders:

  	
  A syndicate of financial institutions, commercial banks and other
  non-banking entities arranged by the Lead Arranger (collectively, the “Lenders”).

  
	
  II.   Types
  and Amounts of Facilities

  	
   

  
	
  1.     Term Loan B Facility

  	
   

  
	
  Type and Amount of Facility:

  	
  A  $298.5 million(1) term loan
  B facility maturing on March 31, 2012 (the “Term Loan Facility” and
  the loans thereunder, the “Term Loans”) repayable in quarterly
  installments equal to 0.25% of the original principal amount of the Term
  Loans through December 31, 2011, with the balance payable on the

   

  







(1) Note that this
amount will be reduced on a dollar-for-dollar basis for any prepayments under
the Existing Credit Facilities made prior to the Closing Date.


 



 Exhibit A-1
 






 



 


	
   

  	
  maturity date.  In the event
  that the Borrower’s outstanding 8.125% Senior Subordinated Notes due 2009
  (the “Senior Subordinated Notes”) are not repaid in full or refinanced
  on the terms permitted by the Existing Credit Agreement prior to June
  30, 2008 (the “Notes Refinancing Date”), the Term Loans shall automatically mature and all amounts
  outstanding thereunder shall be deemed immediately due and payable on such
  date. 

  
	
  Availability:

  	
  The Term Loans shall be made in a single drawing on the Closing Date
  (as defined below).  

  
	
  Purpose:

  	
  The proceeds of the Term Loans shall be used to finance the
  Transaction and to pay related fees and expenses.

  
	
  2.     Incremental Credit Facility:

  	
   

  
	
  Type and Amount of
  Facility:

  	
  The Borrower will have the right to solicit
  commitments for a pre-approved incremental term loan facility (the “Incremental
  Term Loan Facility” and the loans thereunder, the “Incremental Term
  Loans”) in an aggregate principal amount of up to $10 million on
  terms substantially the same as those applicable to the Term Loan B
  Facility.  Such Incremental Term Loans
  may be provided by existing Senior Lenders or other persons who become Senior
  Lenders in connection therewith and will be subject to customary price
  protection.  No Senior Lender will be
  obligated to provide any  Incremental Term Loan unless and until it has separately
  committed to do so and the conditions to such commitment have been satisfied
  (it being understood that BSCL has so committed on the terms and subject to
  the conditions set forth in the Commitment Letter). The pricing, maturity date, amortization and
  other terms and conditions of the Incremental Term Loans shall be the same as
  those with respect to the Term Loans. 
  The Incremental Term Loan Facility may be accessed only in connection
  with the consummation of the Acquisition, and the proceeds thereof shall be
  used only in connection with the consummation of the Transaction.

  
	
  3.     Revolving Credit Facility

  	
   

  
	
  Type and Amount of
  Facility:

  	
  A $25.0 million revolving credit facility with a commitment
  termination date of December 31, 2011 (the “Revolving Credit Facility”
  and, together with the Term Loan Facility, the “Facilities”) (the
  loans thereunder, the “Revolving Credit 

  




 Exhibit A-2
 






 



 


	
   

  	
  Loans” and, together with the Term Loans,
  the “Loans”).

  
	
  Availability:

  	
  The Revolving Credit Facility shall be available on a revolving
  basis during the period commencing on the Closing Date and ending on December
  31, 2011 (the “Revolving Credit Termination Date”); provided that in the event the Senior Subordinated Notes
  are not repaid in full or refinanced on the terms permitted by the Existing
  Credit Agreement prior to the Notes Refinancing Date, the Revolving Credit
  Termination Date shall be deemed to be the Notes Refinancing Date.  No more than $5.0 million of Revolving
  Loans, in addition to any Letters of Credit requested or outstanding, may be
  outstanding on the Closing Date.

  
	
  Letters of Credit:

  	
  A portion of the Revolving Credit Facility not in excess of $10.0
  million shall be available for the issuance of letters of credit (the “Letters
  of Credit”) by a Lender to be selected in the syndication process (in
  such capacity, the “Issuing Lender”). 
  No Letter of Credit shall have an expiration date after the earlier of
  (a) one year after the date of issuance and (b) five business days prior
  to the Revolving Credit Termination Date, provided
  that any Letter of Credit with a one-year tenor may provide for the renewal
  thereof for additional one-year periods (which shall in no event extend
  beyond the date referred to in clause (b) above).

  
	
   

  	
  Drawings under any Letter of Credit shall be reimbursed by the
  Borrower (whether with its own funds or with the proceeds of Revolving Credit
  Loans) within one business day.  To the
  extent that the Borrower does not so reimburse the Issuing Lender, the
  Lenders under the Revolving Credit Facility shall be irrevocably and
  unconditionally obligated to reimburse the Issuing Lender on a pro rata
  basis.

  
	
  Swing Line Loans:

  	
  A portion of the
  Revolving Credit Facility not in excess of $2.5 million shall be available
  for swing line loans (the “Swing Line Loans”) from a Lender to be
  selected in the syndication process (in such capacity, the “Swing Line
  Lender”) on same-day notice.  Any
  such Swing Line Loans will reduce availability under the Revolving Credit
  Facility on a dollar-for-dollar basis. 
  Each Lender under the Revolving Credit Facility shall acquire, under
  certain circumstances, an irrevocable and unconditional pro rata
  participation in each Swing Line Loan.

  
	
  Maturity:

  	
  The Revolving Credit Termination Date.

  
	
  Purpose:

  	
  The proceeds of the Revolving Credit Loans shall be used for working
  capital and general corporate purposes (including 

  




 Exhibit A-3
 






 



 


	
   

  	
  capital expenditures and permitted acquisitions) of the Borrower and
  its subsidiaries.

  
	
  III.  Certain Payment Provisions

  	
   

  
	
  Fees and Interest
  Rates:

  	
  As set forth on Annex I.

  
	
  Optional Prepayments
  and Commitment Reductions:

  	
  Loans may be prepaid and commitments may be reduced by the Borrower
  in minimum amounts to be agreed upon, without premium or penalty (other than
  customary interest period breakage costs). 
  Each optional prepayment of the Term Loans shall be credited to the
  remaining installments thereof on a pro rata basis and may not be reborrowed.

  
	
  Mandatory
  Prepayments and Commitment Reductions:

  	
  The following amounts shall be applied to prepay the Term Loans and
  to reduce the Revolving Credit Facility, subject to agreed upon exceptions:

  (a)   50.0% of
  the net proceeds of any sale or issuance of equity of Holdings (other than
  (i) issuances to the Sponsor, (ii) certain issuances to management, and (iii)
  the proceeds of which are reinvested in capital assets useful in the business
  or used to repay the Senior Subordinated Notes within 270 days following the
  receipt of such net proceeds), reducing to zero percent of such net proceeds
  if, at the time of such sale or issuance, the consolidated total leverage
  ratio of the Borrower and its subsidiaries is less than 2.50:1.00, and 100.0% of the net proceeds of any
  incurrence of certain indebtedness after the Closing Date by the Borrower or
  any of its subsidiaries;

  
	
   

  	
  (b)   100.0%
  of the net proceeds of any sale or other disposition (including as a result
  of casualty or condemnation or issuance or sale of equity interests in the
  Borrower or any subsidiary) by Holdings, the Borrower or any of its
  subsidiaries of any assets (except for the sale of inventory in the ordinary
  course of business and certain other dispositions to be agreed on, including
  sales of customer contracts or alarm monitoring operations for cash proceeds
  not to exceed (i) $25.0 million in any year and (ii) $50.0 million in the aggregate
  since the Closing Date), subject to customary reinvestment provisions, which,
  in the case of proceeds of such sales of customer contracts or alarm
  monitoring operations, shall allow for the reinvestment within 270 days of
  such proceeds in customer contracts or alarm monitoring operations; and

  




 Exhibit A-4
 






 



 


	
   

  	
  (c)   75%
  of excess cash flow (to be defined in a mutually satisfactory manner) for
  each fiscal year of the Borrower (commencing with fiscal year 2008) less all
  voluntary prepayments of the Term Loans and, solely to the extent accompanied
  by a permanent reduction in commitments, the Revolving Loans during such
  fiscal year, with a step-down to 50% if the consolidated total
  leverage ratio of the Borrower and its subsidiaries is less than 3.00:1.00,
  and a further stepdown to 25% if the consolidated total leverage ratio of the
  Borrower and its subsidiaries is less than 2.00:1.00.

  
	
   

  	
  All such amounts
  shall be applied first, to the prepayment of the Term Loans and second, to
  the permanent reduction of the Revolving Credit Facility.  Each such prepayment of the Term Loans
  shall be applied to the remaining installments thereof on a pro rata basis
  and may not be reborrowed.

  
	
  IV.  Collateral

  	
  The obligations of each Credit Party in respect of the Facilities
  and in respect of interest rate hedging agreements with the Lenders and their
  affiliates shall be secured by a perfected first priority security interest
  in favor of the Administrative Agent in substantially all of each Credit
  Party’s present and future tangible and intangible assets (the “Collateral”)
  (including, without limitation, goods, payment receivables, deposit accounts,
  general intangibles, intellectual property, real property and all of the
  capital stock of the Borrower, each of its direct and indirect domestic subsidiaries
  and 65% of first-tier foreign subsidiaries, subject to permitted liens and
  except for assets which are not assignable by their terms, except for those
  assets as to which the Administrative Agent shall determine in its reasonable
  discretion that the costs of obtaining such a security interest are excessive
  in relation to the value of the security to be afforded thereby, and other
  exceptions to be agreed upon.

  
	
  V.   Certain Conditions

  	
   

  
	
  Initial Conditions:

  	
  The availability of the Facilities shall be conditioned upon the
  continuing satisfaction on or before the Closing Deadline of (a) the
  conditions set forth in Exhibit B, and (b) customary corporate and document
  delivery requirements, accuracy of representations and warranties (subject to
  materiality qualifiers where appropriate), and compliance with applicable
  laws and regulations in all material respects (including, but not limited to,
  margin regulations and environmental laws) 

  




 Exhibit A-5
 






 



 


	
   

  	
  (the date upon which all such conditions precedent shall be satisfied,
  the “Closing Date”).

  
	
  On-Going Conditions:

  	
  The making of each extension of credit shall be conditioned upon (a)
  the accuracy in all material respects of all representations and warranties
  in the documentation with respect to the Facilities (the “Credit
  Documentation”) (b) the absence of a material adverse change and (c)
  there being no default or event of default in existence at the time of, or
  after giving effect to the making of, such extension of credit.  As used herein and in the Credit
  Documentation, a “material adverse change” shall mean any event, development
  or circumstance that has had or would reasonably be expected to have a
  material adverse effect on (a) the business, assets, property, financial
  condition, or results of operations of the Borrower and its subsidiaries,
  taken as a whole, or (b) the validity or enforceability of the Credit
  Documentation or the rights and remedies of the Agents and the Lenders
  thereunder or the validity, perfection, or priority of the Administrative
  Agent’s liens upon any of the Collateral.

  Notwithstanding
  the foregoing, the only representations relating to the Target and its
  subsidiaries and their businesses the accuracy of which shall be a condition
  to availability of the Facilities on the Closing Date shall be (a) such
  representations made by the Borrower and the Target in the Merger Agreement
  and (b) the Specified Representations. 
  For purposes hereof, “Specified Representations” shall mean the
  representations and warranties set forth in the Credit Documentation relating
  to corporate power and authority, enforceability of Credit Documentation,
  Federal Reserve regulations, Investment Company Act, security interests and,
  as they relate to the Facilities and the performance of the Credit Parties’
  obligations under the Credit Documentation, no conflicts with law and
  contractual obligations and no material litigation.

  
	
  VI.   Certain Documentation Matters

  	
  The Credit Documentation shall contain representations, warranties,
  covenants and events of default customary for financings of this type with
  materiality thresholds to be agreed upon but substantially similar to those
  contained in the Existing Credit Agreement (including, but not limited to the
  adjustment of financial and negative covenants in order to reflect the increased
  size of the Borrower, pro forma projections and activities of the Target
  (including lending to wholesale dealers and acquisition of accounts from
  wholesale 

  




 Exhibit A-6
 






 



 


	
   

  	
  dealers and otherwise)), including, without limitation:

  
	
  Representations and
  Warranties:

  	
  Financial statements (including pro forma financial statements but
  excluding Projections); absence of undisclosed liabilities; no material
  adverse change since the date of the last audit prior to the Closing Date;
  corporate existence; compliance with law; corporate power and authority;
  enforceability of Credit Documentation; no conflict with law or contractual
  obligations; no material litigation; no default; ownership of property;
  liens; intellectual property; no burdensome restrictions; taxes; Federal Reserve
  regulations; ERISA; Investment Company Act; subsidiaries; environmental
  matters; solvency; labor matters; accuracy of disclosure (including
  Projections); creation and perfection of security interests; status as senior
  debt; and no other designated senior debt.

  
	
  Affirmative
  Covenants:

  	
  Delivery of financial statements, reports, accountants’ letters,
  projections, officers’ certificates and other information reasonably
  requested by any Lender; payment of other 
  contractual obligations; continuation of business and maintenance of
  existence and material rights and privileges; compliance with laws and
  material contractual obligations; maintenance of property and insurance;
  maintenance of books and records; right of each of the Lenders to inspect
  property and books and records; notices of defaults, litigation and other
  material events; compliance with environmental laws; regulatory and legal
  matters; and further assurances (including, without limitation, with respect
  to security interests in after-acquired property).

  
	
  Financial Covenants:

  	
  Financial covenants consisting of minimum interest coverage and
  maximum total leverage (including adjustments in order to reflect the
  increased size of the Borrower, pro forma projections and activities of the
  Target which preserve cushions over projections consistent with the Existing
  Credit Agreement).  

  



 


 



 Exhibit A-7














 


	
  Negative Covenants:

  	
   

  	
  Limitations (subject
  to exceptions to be agreed) on: indebtedness (including preferred stock and
  stock redemption or purchase obligations); liens; guarantee obligations;
  mergers, acquisitions, consolidations, liquidations and dissolutions; sales
  of assets (with certain exceptions to be agreed upon); capital leases;
  dividends and other payments in respect of capital stock; capital
  expenditures (including customer acquisition costs); investments (with
  permitted acquisitions to be agreed upon, and allowing for lending activities
  of Target to wholesale dealers up to limits to be agreed), loans and
  advances; optional payments and modifications of subordinated debt
  instruments; transactions with affiliates (with certain exceptions to be
  agreed upon, including monitoring and transaction fees payable to the Sponsor
  up to an amount to be agreed upon); sale and leasebacks; changes in fiscal
  year; negative pledge clauses; restrictions on subsidiary dividends; changes
  in lines of business; issuances and sales of equity interests in
  subsidiaries; designated senior debt; and changes in passive holding company
  status of Holdings.

  
	
  Events of Default:

  	
   

  	
  Nonpayment of principal when due; nonpayment of interest, fees or
  other amounts after a grace period to be agreed upon; material inaccuracy of
  representations and warranties; violation of covenants (subject, in the case
  of certain affirmative covenants, to a grace period to be agreed upon); cross-default;
  bankruptcy and other insolvency events; certain ERISA events; material
  judgments; actual or asserted (solely in the case of Borrower, Holdings or
  any subsidiary) invalidity or repudiation of any guarantee or security
  document, subordination provisions or security interest; lack of perfection
  or priority of security interests (other than with respect to any immaterial
  portion of collateral); and a change of control (the definition of which is
  to be agreed but in any event including any change of control in respect of
  the Senior Subordinated Notes).

  
	
  Voting:

  	
   

  	
  Amendments and waivers with respect to the Credit Documentation
  shall require the approval of Lenders holding not less than a majority of the
  aggregate amount of the Term Loans, Revolving Credit Loans, participations in
  Letters of Credit and Swing Line Loans and unused commitments under the
  Revolving Credit Facility (the “Required Lenders”), except that (a)
  the consent of each Lender directly affected thereby shall be required with
  respect to (i) reductions in the amount or extensions of the scheduled date
  of amortization or maturity of any Loan, (ii) reductions in the rate of
  interest 

   

  



 



 Exhibit A-8
 






 



 


	
  

  	
   

  	
  (other than the default rate) or any fee or extensions of any due
  date thereof, (iii) increases in the amount or extensions of the expiry date
  of such Lender’s commitment and (iv) modifications to the pro rata
  provisions of the Credit Documentation and (b) the consent of 100% of the
  Lenders shall be required with respect to (i) modifications to any of the
  voting percentages and (ii) releases of any Guarantor not otherwise permitted
  to be released by the terms of the Credit Documentation or all or
  substantially all of the Collateral.

  
	
  Assignments and Participations:

  	
   

  	
  The Lenders shall be permitted to assign and sell participations in
  their Loans and commitments, subject, in the case of an assignment (other
  than an assignment (i) to another Lender or to an affiliate of a Lender or
  (ii) of funded Term Loans), to the consent of the Administrative Agent (which
  consent shall not be unreasonably withheld) and subject to payment to the
  Administrative Agent of a recordation and processing fee in the amount of
  $3,500 and, so long as no event of default is continuing, the Borrower (and,
  in the case of any assignment relating to the Revolving Credit Facility, the
  Issuing Lender) which consent, in each case, shall not be unreasonably
  withheld; provided, that in no event shall any
  assignment be made, or participation sold to, any competitor of Borrower.
  Non-pro rata assignments shall be permitted. In the case of partial
  assignments (other than to another Lender or to an affiliate of a Lender),
  the minimum assignment amount shall be $1.0 million unless otherwise agreed
  by the Borrower and the Administrative Agent. Participants shall have the same
  benefits as the Lenders with respect to yield protection and increased cost
  provisions so long as the Lender from which it purchased its participation
  would have such benefits. Voting rights of participants shall be limited to
  those matters with respect to which the affirmative vote of the Lender from
  which it purchased its participation would be required as described under
  “Voting” above. Pledges of Loans in accordance with applicable law shall be
  permitted without restriction. Promissory notes shall be issued under the
  Facilities only upon request.

  
	
  Yield Protection:

  	
   

  	
  The Credit Documentation shall contain customary provisions (subject
  to a cap on the recovery period to be agreed upon) (a) protecting the
  Lenders against increased costs or loss of yield resulting from changes in
  reserve, tax, capital adequacy and other requirements of law and from the
  imposition of or changes in withholding or other taxes and
  (b) indemnifying the Lenders for “breakage costs” incurred in connection
  with, 

   

  



 



 Exhibit A-9
 






 



 


	
  

  	
   

  	
  among other things, any prepayment by the Borrower of a Eurodollar
  Loan (as defined in Annex I) on a day other than the last day of an interest
  period with respect thereto.

  
	
  Expenses and Indemnification:

  	
   

  	
  The Credit Documentation will provide that the Borrower shall pay
  (a) all reasonable out-of-pocket expenses of the Agents associated with the
  syndication of the Facilities and the preparation, execution, delivery and
  administration of the Credit Documentation and any amendment or waiver with
  respect thereto (including the reasonable fees, disbursements and other
  charges of one counsel, together with such other special or local counsel as
  the Agents may deem appropriate) and (b) all out-of-pocket expenses of the
  Agents and the Lenders (including the fees, disbursements and other charges
  of counsel) in connection with the enforcement of the Credit Documentation.

  
	
   

  	
   

  	
  The Credit Documentation will provide that the Agents and the
  Lenders (and their affiliates and their respective officers, directors,
  employees, attorneys, advisors and agents) will have no liability for, and
  will be indemnified and held harmless against, any loss, liability, cost or
  expense incurred in respect of the financing contemplated hereby or the use
  or the proposed use of proceeds thereof (except to the extent found in a
  final judgment by a court of competent jurisdiction (not subject to further
  appeal) to have resulted from the gross negligence or willful misconduct of
  the indemnified party (or its officers, directors or employees acting within
  the scope of their duties) or claims brought solely by one indemnified party
  against another)).

  
	
  Governing Law and Forum:

  	
   

  	
  State of New York.

  
	
  Counsel to the Lead Arranger:

  	
   

  	
  Latham & Watkins LLP.

  



 


 



 Exhibit A-10














 


Annex I


Interest and Certain Fees


 


	
  Interest Rate Options:

  	
  The Borrower may
  elect that the Loans comprising each borrowing bear interest at a rate per
  annum equal to: (a) the Base Rate plus the Applicable Margin; or (b) the
  Eurodollar Rate plus the Applicable Margin.

  
	
   

  	
  As used herein:

  
	
   

  	
  “Base Rate”
  means the higher of (i) the rate of interest publicly announced by the
  commercial bank selected by the Administrative Agent as its prime rate in
  effect at its principal office in New York City (the “Prime Rate”), and
  (ii) the federal funds effective rate from time to time plus 0.5% per
  annum.

  
	
   

  	
  “Eurodollar Rate”
  means the rate (adjusted for statutory reserve requirements for eurocurrency
  liabilities) at which eurodollar deposits for one, two, three or six (or, if
  available to all Lenders, nine or twelve) months, as selected by the
  Borrower, are offered in the interbank eurodollar market.

  
	
   

  	
  The initial per annum interest rate for Revolving Credit Loans and
  Term Loans (the “Applicable Margin”) that are Eurodollar Loans (as
  defined below) will be LIBOR plus 250 bps.

  The Applicable Margins for the Revolving Credit Facility shall be
  subject to adjustment downward after the delivery of financial reports for
  the Borrower’s first two full fiscal quarters following the Closing Date
  pursuant to a pricing grid setting forth the same terms as reflected in the
  Existing Credit Agreement (the “Pricing Grid”).  In any event, the highest margin set forth
  in the Pricing Grid shall apply whenever any default or event of default has
  occurred and is continuing.

  
	
   

  	
  The
  Applicable Margin with respect to Base Rate Loans (as defined below) in each
  case will be 100 basis points lower than the Applicable Margin with respect
  to Eurodollar Loans (as defined below).

  
	
  Interest Payment Dates:

  	
  In the case of Loans bearing
  interest based upon the Base Rate (“Base Rate Loans”), quarterly in
  arrears.

  
	
   

  	
  In the case of Loans bearing
  interest based upon the Eurodollar Rate (“Eurodollar Loans”), on the
  last day of each relevant interest 

  



 


Annex I-1









 



 


	
   

  	
  period and, in the case of
  any interest period longer than three months, on each successive date three
  months after the first day of such interest period.

  
	
  Commitment Fees:

  	
  The Borrower shall pay a
  commitment fee calculated at the rate per annum of 0.5% on the average daily
  unused portion of the Revolving Credit Facility payable quarterly in
  arrears.  

  
	
  Letter of Credit Fees:

  	
  The Borrower shall pay a
  commission on all outstanding Letters of Credit at a per annum rate equal to
  the Applicable Margin then in effect with respect to Eurodollar Loans which
  are Revolving Credit Loans on the face amount of each such Letter of
  Credit.  Such commission shall be
  shared ratably among the Lenders participating in the Revolving Credit Facility
  and shall be payable quarterly in arrears.

  
	
   

  	
  In addition to the letter of
  credit commission, a fronting fee calculated at a rate per annum to be agreed
  upon by the Borrower and the Issuing Lender on the face amount of each Letter
  of Credit shall be payable quarterly in arrears to the Issuing Lender for its
  own account.  In addition, customary
  administrative, issuance, amendment, payment and negotiation charges shall be
  payable to the Issuing Lender for its own account.

  
	
  Default Rate:

  	
  At any time when the Borrower
  is in default in the payment of any amount of principal due under the
  Facilities, the overdue principal payments shall bear interest at 2.0% per
  annum above the rate otherwise applicable thereto.  Overdue interest and fees shall bear
  interest at 2.0% per annum above the rate applicable to Base Rate Loans.

  
	
  Rate and Fee Basis:

  	
  All per annum rates shall be
  calculated on the basis of a year of 360 days (or 365/366 days, in the case
  of Base Rate Loans the interest rate payable on which is then based on the
  Prime Rate) for actual days elapsed.

  



 


Annex I-2















 


Exhibit B


The availability of the Facilities and the effectiveness of the
Amended Credit Agreement shall be subject to the satisfaction of the following
conditions.  Capitalized terms used but
not defined herein have the meanings given in the Commitment Letter dated
December 17, 2006 (the “Commitment Letter”) from Bear, Stearns
& Co. Inc. and Bear Stearns Corporate Lending Inc. to Protection One Alarm
Monitoring, Inc. and Protection One, Inc.


(a)           A lock-up agreement
(the “Lock-Up Agreement”) in form and substance satisfactory to the Lead
Arranger (it being understood and agreed that the draft Lock-Up Agreement dated
December 17, 2006 is acceptable to the Lead Arranger) shall have been
executed by the holders of not less than 85% of the outstanding Target Notes
and no material provision thereof shall have been amended, waived, withdrawn,
rescinded or otherwise modified in a manner materially adverse to the Lenders
without the prior written consent of the Lead Arranger, not to be unreasonably
withheld, and the Noteholder Consent (together with the consent of the
requisite holders of Target Notes to remove all restrictive covenants contained
in any remaining Target Notes) and the note exchange contemplated thereby shall
have been consummated prior to or concurrently with the consummation of the
Acquisition, and the Acquisition shall be consummated concurrently with the
effectiveness of the Amended Credit Agreement or documentation governing the
Replacement Facilities, as the case may be, pursuant to the Merger Agreement
and the Amended Credit Agreement or documentation governing the Replacement
Facilities, as the case may be, in form and substance reasonably satisfactory
to the Lead Arranger (the “Transaction Documentation”) (it being
understood and agreed that the draft Merger Agreement dated December 17,
2006 is acceptable to the Lead Arranger), and no material provision thereof
shall have been amended, waived or otherwise modified in a manner materially
adverse to the Lenders without the prior written consent of the Lead Arranger,
not to be unreasonably withheld.


(b)           The capital and
ownership structure of Holdings, the Borrower, the Target and their respective
subsidiaries after giving effect to the Transaction shall be as described in
the Commitment Letter or otherwise reasonably satisfactory to the Lead
Arranger.


(c)           All governmental
and third party approvals (i) required in the Merger Agreement, and (ii)
necessary in connection with the financing contemplated hereby (including
stockholder approvals, if any) shall have been obtained and be in full force
and effect or (in the case of clause (i)) waived in accordance with the Merger
Agreement; provided no such waiver that would be materially adverse to the
Lenders shall be permitted without the prior written consent of the Lead
Arranger, not to be unreasonably withheld.


(d)           The priority
of the security interests and related creditor rights between the Facilities
and the Second Lien Notes shall be as set forth in an intercreditor agreement
(the
 
Exhibit B-1
 






 

“Intercreditor Agreement”) on terms and conditions reasonably
satisfactory to the Lead Arranger.

(e)           The Lead Arranger
shall have received all documentation and other information required by bank
regulatory authorities under applicable “know-your-customer” and anti-money
laundering rules and regulations, including the U.S.A. Patriot Act.


(f)            The Lead Arranger
shall have received (1) (i) audited consolidated financial statements of each
of Holdings, the Target and their respective subsidiaries for the 2003, 2004
and 2005 fiscal years and, if available, the 2006 fiscal year, including
balance sheets and income and cash flow statements and related notes thereto,
and (ii) unaudited interim consolidated financial statements of each of
Holdings, the Target and their respective subsidiaries for each quarterly
period ended subsequent to the date of the latest financial statements
delivered pursuant to clause (i) of this paragraph as to which such financial
statements are available, and (2) consolidating pro forma balance sheets (as of
the date of the most recent consolidated quarterly balance sheet delivered
pursuant to clause (1)(ii) of this paragraph) and income statements (for the
most recent twelve-month period for which quarterly income statements have been
delivered pursuant to clause (1)(ii) of this paragraph) of Holdings and its
subsidiaries, giving effect to the Transaction and the financings contemplated
hereby as if such transaction had occurred (x) on such date, in the case of the
balance sheets, and (y) at the beginning of such period, in the case of the
income statements.


(g)           The Administrative
Agent shall have received the results of a recent lien search in each relevant
jurisdiction with respect to each of Holdings, the Borrower, the Target and
each of their respective subsidiaries, and such search shall reveal no liens on
any of the assets of Holdings, the Borrower, the Target or their respective
subsidiaries, except for liens in favor of the Lenders, liens permitted by the
Amended Credit Agreement or documentation governing the Replacement Facilities,
as the case may be (it being understood that certain liens that are not
material will be permitted), or liens to be discharged on or prior to the
Closing Date pursuant to documentation satisfactory to the Administrative
Agent.


(h)           The Lead Arranger
shall have received a solvency certificate of the chief financial officer of
Holdings which shall document the solvency of Holdings and its subsidiaries,
including the Target, taken as a whole, after giving effect to the Refinancing
and the other transactions contemplated hereby.


(i)            The Lead Arrangers
shall have received such legal opinions (including opinions (i) from counsel to
the Borrower and its subsidiaries and (ii) from such special and local counsel
as may be reasonably required by the Administrative Agent), documents and other
instruments as are customary for transactions of this type or as they may
reasonably request.


(j)            All documents and
instruments required to perfect the first priority security interest (subject
to permitted liens), or desirable in the reasonable discretion of the
Administrative Agent to reaffirm such first priority security interest, of the
Administrative Agent in the Collateral (including delivery of capital stock
certificates and undated stock powers executed in blank) shall have been
executed (if applicable) and be in proper form for filing, and, in connection
with the real estate Collateral for which a mortgage is being executed, the
Administrative Agent shall have received satisfactory title insurance policies,
surveys and 



 Exhibit B-2
 






 



other customary documentation; provided that this condition shall be
deemed to have been satisfied to the extent that the Borrower has used
commercially reasonable efforts to deliver the foregoing and has succeeded in
doing so with regard to assets of the Borrower and the Target other than
certain assets that are not material.



 Exhibit B-3