Exhibit
10.4


 


EMPLOYMENT
AGREEMENT


 


THIS EMPLOYMENT
AGREEMENT (the “Agreement”) is entered into as of the 23rd day of July, 2004 by
and between Protection One, Inc., a Delaware corporation, Protection One Alarm
Monitoring, Inc., a Delaware corporation, Network Multi-Family Security
Corporation (“Company”) and Steve V. Williams (“Executive”).


 


W I T N E S S E T
H :


 


WHEREAS, the
Company and Executive entered into an Employment Agreement dated as of
September 22, 1997 and superseded that agreement by an agreement dated
March 18, 2003 (such agreement as so amended being hereinafter referred to
as the “Prior Employment Agreement”); and


 


WHEREAS, the Board
(as defined in Section 1) has determined that it is in the best interest
of the Company, its creditors and its stockholders to assure that the Company
will have the continued dedication of Executive during and after the period of
the Company’s, POAMI’s (as defined in Section 1) and POI’s (as defined in
Section 1) anticipated Restructuring (as such term is defined in
Section 1) of their indebtedness and capital stock notwithstanding the
possibility or occurrence of a Change in Control (as defined in
Section 1), to provide Executive with assurance of continued employment
beyond the expiration of the Prior Employment Agreement and to provide
compensation and benefits arrangements which are competitive with those of
other comparable and similarly situated corporations; and


 


WHEREAS, the
Company is a direct and wholly owned subsidiary of POAMI, which is, in turn, a
direct and wholly owned subsidiary of POI, and each entity will receive
substantial direct or indirect value from Executive; and


 


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


 


WHEREAS, Executive
has agreed to enter into this Agreement because the Company has satisfied all
of its obligations under the Prior Employment Agreement, including without
limitation, the making of payments upon the change in control of POI on
February 17, 2004; and


 


WHEREAS, each of
the board of directors of the Company, of POAMI, and of POI has authorized the
Company, POAMI, and POI respectively, to enter into this Agreement.


 


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


 


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


 

















 


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


 


(b)             “Bonus
Amount” means:


 


(A)  for a Date of Termination
occurring in fiscal year 2004, the average of the annual incentive bonuses
payable by the Company to or for the benefit of or deferred by Executive for
the 2002 and 2003 fiscal years of the Company; and


 


(B)  for a Date of Termination
occurring after fiscal year 2004, the average of the annual incentive bonuses
payable by the Company to or for the benefit of or deferred by Executive for
the last three (3) completed fiscal years of the Company immediately preceding
the Date of Termination or Change in Control.


 


(c)              “Cause”
means:


 


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


 


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


 


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


 


(d)             “Change
in Control” means


 


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


 


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


 


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the date the
Restructuring is consummated (or, in the case no Restructuring is consummated
by December 31, 2005, December 31, 2005), whose election or nomination
for election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of POI in which such person is named as a nominee for director,
without written objection to such nomination) or, prior to the date that a
Restructuring is consummated, as elected at any time by Quadrangle Group shall
be an Incumbent Director.


 


(B)  any “person” (as such term
is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the
“Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of POI
representing more than thirty-three and one-third percent (33 1/3%) of the
combined voting power of POI’s then outstanding securities eligible to vote for
the election of the Board (the “POI Voting Securities”); provided, however, that the event
described in this paragraph (B) shall not be deemed to be a Change in
Control if such beneficial owner is any of the following or becomes a
beneficial owner as a result of any of the following:


 


(I)                                    one
or more Current Debt Holder or a syndicate or group in which one or more
Current Debt Holders, collectively, beneficially own a majority of POI Voting
Securities beneficially owned by such syndicate or group;


 


(II)                                any
employee benefit plan (or related trust) sponsored or maintained by POI or any
of its Subsidiaries or one or more Current Debt Holder;


 


(III)                            any
underwriter temporarily holding securities pursuant to an offering of such
securities;


 


(IV)                            a
person involved in a Non-Qualifying Transaction (as defined in
paragraph (C));


 


(V)                                an
entity (x) controlled by Executive or a group of persons consisting, at
the time of such acquisitions, of Executive and other employees of POI or any
of its Subsidiaries or (y) of which the majority of common equity
securities, at the time of such acquisitions, is owned by Executive or a group
of persons consisting of Executive and other employees of POI or any of its
Subsidiaries; or


 


(VI)                            any
event in which a Current Debt Holder continues to be directly or indirectly the
beneficial owner of a greater number of shares of POI than that held by any
other person as a result of the event described in this paragraph (B) or
has the right to direct the vote of a greater number of voting securities for
directors (or the equivalent) of POI than any other person as a result of the
event described in this paragraph (B);


 


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(C)  the consummation of a
merger, consolidation, statutory share exchange, sale of all or substantially
all of the assets of the Company or POI, sale of all or substantially all of
the voting securities of the Company or similar form of corporate transaction
(whether in one transaction or a series of transactions) involving the Company
or POI (a “Business Combination”), unless immediately following such Business
Combination:


 


(I)                                    more
than 50% of the total voting power of (x) the corporation that owns,
leases or controls all or substantially all of the assets of the Company or POI
resulting from such Business Combination (the “Surviving Corporation”), or
(y) if applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting securities eligible
to elect directors (or the equivalent) of the Surviving Corporation (the
“Parent Corporation”), is represented by POI Voting Securities that were
outstanding immediately prior to such Business Combination (or, if applicable,
is represented by shares into which such POI Voting Securities were converted
pursuant to such Business Combination);


 


(II)                                no
person (other than (a) one or more Current Debt Holder, (b) any employee
benefit plan (or related trust) sponsored or maintained by one or more Current
Debt Holder, the Surviving Corporation or the Parent Corporation or (c) a
syndicate or group in which one or more Current Debt Holders, collectively,
beneficially own a majority of the total voting power of the subject voting
securities beneficially owned by such syndicate or group) is or becomes the
beneficial owner, directly or indirectly, of more than thirty-three and
one-third percent (33 1/3%) of the total voting power of the outstanding voting
securities eligible to elect directors (or the equivalent) of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation);
and


 


(III)                            at
least a majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were Incumbent Directors
at the time of the Board’s approval of the execution of the initial agreement
providing for such Business Combination (any Business Combination which
satisfies all of the criteria specified in (I), (II) and (III) above shall be
deemed to be a “Non-Qualifying Transaction”); or


 


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


 


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


 


(A)  on the date the
Restructuring is consummated, any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than a Current Debt Holder (or a
syndicate or group in which one or more Current Debt Holders, 


 


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collectively,
beneficially own a majority of the total voting power of POI Voting Securities
beneficially owned by such syndicate or group) is or becomes a “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of POI representing more than thirty-three and one-third percent
(33 1/3%) of POI Voting Securities and is the largest holder of POI Voting
Securities issued in connection with the Restructuring;


 


(B)  the consummation of a
Business Combination, unless immediately following such Business Combination:


 


(I)                                    more
than 50% of the total voting power of (x) the corporation that owns,
leases or controls all or substantially all of the assets of the Surviving
Corporation, or (y) if applicable, the Parent Corporation, is represented
by POI Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which
such POI Voting Securities were converted pursuant to such Business
Combination);


 


(II)                                no
person (other than (a) one or more Current Debt Holder, (b) any employee
benefit plan (or related trust) sponsored or maintained by one or more Current
Debt Holder, the Surviving Corporation or the Parent Corporation or (c) a syndicate
or group in which one or more Current Debt Holders, collectively, beneficially
own a majority of the total voting power of the subject voting securities
beneficially owned by such syndicate or group) is or becomes the beneficial
owner, directly or indirectly, of more than thirty-three and one-third percent
(33 1/3%) of the total voting power of the outstanding voting securities
eligible to elect directors (or the equivalent) of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation); and


 


(III)                            at
least a majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were Incumbent Directors
at the time of the Board’s approval of the execution of the initial agreement
providing for such Business Combination; or


 


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


 


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


 


(A)  individuals who, as of the
date hereof or as otherwise elected by Quadrangle Group, constitute the Board
(the “Incumbent Directors”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof, whose election or nomination for election was approved by a
vote of at least two-thirds of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement of 


 


5

















 


POI in which such
person is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director.


 


(B)  any “person” (as such term
is defined in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than a Current
Debt Holder (or a syndicate or group in which one or more Current Debt Holders
beneficially own a majority of the debt of POI and POAMI beneficially owned by
such syndicate or group) is or becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act as if such rule applied to ownership of
debt), directly or indirectly, of more than thirty-three and one-third (33
1/3%) of the total debt of POI and POAMI;


 


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


 


(D)  the consummation of a
Business Combination, unless immediately following such Business Combination:


 


(I)                                    more
than 50% of the total voting power of (x) the corporation that owns,
leases or controls all or substantially all of the assets of the Surviving Corporation,
or (y) if applicable, the Parent Corporation, is represented by POI Voting
Securities that were outstanding immediately prior to such Business Combination
(or, if applicable, is represented by shares into which such POI Voting
Securities were converted pursuant to such Business Combination);


 


(II)                                no
person (other than one or more Current Debt Holder or any employee benefit plan
(or related trust) sponsored or maintained by one or more Current Debt Holder
(or a syndicate or group in which one or more of such persons, collectively,
beneficially own a majority of the total voting power of the subject voting
securities beneficially owned by such syndicate or group), the Surviving
Corporation or the Parent Corporation) is or becomes the beneficial owner,
directly or indirectly, of more than thirty-three and one-third percent (33
1/3%) of the total voting power of the outstanding voting securities eligible
to elect directors (or the equivalent) of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation); and


 


(III)                            at
least a majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were Incumbent Directors
at the time of the Board’s approval of the execution of the initial agreement
providing for such Business Combination.


 


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It is the intent of the
parties that if an event that would constitute a “Change in Control” under this
Agreement occurs at POAMI, a “Change in Control” shall have occurred for the
purpose of this Agreement.  Upon the
occurrence of an event described in the preceding sentence, unless the context
otherwise requires, for purposes of this Agreement, POAMI shall be substituted
for the defined term “POI” in the definition of “Change in Control” together
with appropriate changes to other references in the definition of “Change in
Control” to give effect to the parties’ intent;


 


(e)              “Citicorp
Group” means Citibank International plc, any fund that is controlled by the
foregoing and, as applicable, their respective partners, members, subsidiaries
and affiliates (including without limitation, any other entities controlled by
or under common control with such entities), where the assets of each such
partner, member, subsidiary or affiliate primarily consist of POI Voting
Securities and/or debt of POI or POAMI.


 


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


 


(g)             “Date
of Termination” means:


 


(A)  if Executive’s employment
is to be terminated for Disability, 30 days after Notice of Termination is
given (provided that Executive shall not have returned to the performance of
Executive’s duties on a full-time basis during such 30 day period);


 


(B)  if Executive’s employment
is to be terminated by the Company for Cause or by Executive for Good Reason,
the date specified in the Notice of Termination;


 


(C)  if Executive’s employment
is to be terminated by the Company for any reason other than Cause, the date
specified in the Notice of Termination, which shall be 90 days after the
Notice of Termination is given, unless an earlier date has been expressly
agreed to by Executive in writing;


 


(D)  if Executive’s employment
terminates by reason of death, the date of death of Executive; or


 


(E)  if Executive’s employment
is terminated by Executive in a Non-Qualifying Termination, the date specified
in Executive’s Notice of Termination, but not more than 30 days after the
Notice of Termination is given, unless expressly agreed to by the Company in
writing.


 


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


 


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(i)                 “Good
Reason” shall mean termination of Executive’s employment by Executive based
on any of the following events:


 


(A)  any change in the duties or
responsibilities (including reporting responsibilities) of Executive that is
inconsistent in any material and adverse respect (which may be cumulative) with
Executive’s position(s), duties, responsibilities or status with the Company
(including any adverse diminution of such duties or responsibilities), provided, however, that Good Reason shall
not be deemed to occur upon a change in duties or responsibilities (other than
reporting responsibilities) that is solely and directly due to POI no longer
being a publicly traded entity.


 


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


 


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


 


(D)  failure to offer a short-term
incentive plan each year with a target bonus of not less than 60% of Annual Base Salary and a
potential to earn at least 100% of Annual Base Salary (unless Executive
consents otherwise, to be paid no later than the end of the first calendar
quarter after the year with respect to which such bonus relates);


 


(E)  the resignation by
Executive for any reason during the 30 day period beginning six months after
(i) the occurrence of a Change in Control described in Section 1(d)(ii) or
(ii) the occurrence of a Change in Control described in Section 1(d)(iii)


 


(F)  the resignation by
Executive for any reason during the 30 day period beginning on
December 31, 2005, if a Restructuring is not consummated by such date;


 


(G)  the relocation by the
Company of Executive’s principal workplace location more than 35 miles from the
workplace location principally used by Executive as of the date hereof;


 


(H)  failure by the Company to
comply with Section 25 (Indemnification of Prior Payments) within 60 days
of Executive’s written request for the Company’s compliance with
Section 25.


 


Executive must
provide Notice of Termination of employment within one-hundred-eighty (180)
days following Executive’s knowledge of an event or facts constituting Good
Reason (or the last of such events or facts if cumulative) (other than under
Sections (i)(E) and (i)(F) in which case such notice must be provided within
the 30 day period after (x) December 31, 2005 or (y) six 


 


8

















 


months after a
Change in Control, as applicable) or such event or facts shall not constitute
Good Reason under this Agreement.


 


(j)                 “MacKay
Group” means MacKay Shields, LLC and any fund that is controlled by the
foregoing and, as applicable, their respective partners, members, subsidiaries
and affiliates (including without limitation, any other entities controlled by
or under common control with such entities), where the assets of each such
partner, member, subsidiary or affiliate primarily consist of POI Voting
Securities and/or debt of POI or POAMI.


 


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


 


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


 


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


 


(n)             “POI”
means Protection One, Inc., a Delaware corporation, and its successors and
assignees.


 


(o)             “Quadrangle
Group” means Quadrangle Group LLC, POI Acquisition I, Inc., POI
Acquisition, LLC, Quadrangle Master Funding Ltd., any fund that is controlled
by the foregoing and, as applicable, their respective partners, members,
subsidiaries and affiliates (including without limitation, any other entities
controlled by or under common control with such entities), where the assets of
each such partner, member, subsidiary or affiliate primarily consist of POI
Voting Securities and/or debt of POAMI, or POI.


 


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


 


(q)             “Restructuring”
means shall mean any transaction or series of transactions that effectuates any
reorganization, recapitalization, consolidation, business combination, merger,
or other similar transaction or any transaction that effectuates any material
amendment to, or other material change in, POAMI’s or POI’s obligations or
indebtedness for borrowed money as of the date hereof (including accrued or
accreted interest thereon) excluding changes in beneficial ownership of such
indebtedness, but including, without limitation, (i) any amendment or
modification to POI’s revolving credit facility, 7.375% Senior Unsecured Notes
due 2005 or 8.125% Senior Subordinated Notes due 2009 or that modifies any
material payment term or any material financial or operating covenant or that
provides for a forbearance of any material payment obligation or material
covenant, in each case, such that an amount that otherwise would be due and payable
(according to its terms, by put, upon default and acceleration or otherwise) is



 


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delayed or
otherwise extended for at least twelve months or that converts a material
amount of POI’s or POAMI’s obligations or indebtedness for borrowed money as of
the date hereof (including accrued or accreted interest thereon) to equity
and/or to a security junior to the claim’s existing priority or is otherwise
compromised, or any cash tender offer or any combination thereof; or (ii) (A)
any merger, consolidation, reorganization, recapitalization, business
combination or other transaction pursuant to which POI is acquired by, or
combined with, any person, group of persons, partnership, corporation or other
entity other than a Current Debt Holder (an “Acquiror”) or (B) the acquisition,
directly or indirectly by an Acquiror (or by one or more persons acting
together with an Acquiror pursuant to a written agreement or otherwise), in a
single transaction or a series of transactions, of (x) all or a preponderance
of the assets or operations of POI, or all or any material portion of any
operating division of POI or (y) all, substantially all, or a majority of the
outstanding or newly issued shares of POI’s (or any of its Subsidiary’s)
capital stock (or any securities convertible into, or options, warrants or
other rights to acquire such capital stock); in each case, whether accomplished
out-of-court or through the confirmation of any plan of reorganization pursuant
to Section 1129 of the United States Bankruptcy Code, whether the
requisite consents were obtained in-court or out-of-court.


 


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


 


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


 


2.                   Employment
and Duties.


 


(a)              Term
of Employment.  The Company agrees
to employ Executive, and Executive agrees to enter into employment with the
Company, in accordance with the terms and provisions of this Agreement, for the
Term of this Agreement.  The execution
of this Agreement shall constitute acceptance by Executive and the Company that
Executive’s employment shall not terminate as a result of any Change in Control
prior to the date hereof.  Upon
termination of Executive’s employment (regardless of whether such termination
constitutes a Qualifying Termination or Non-Qualifying Termination), Executive
shall be relieved of any obligation to continue to perform the duties described
in Section 2(b) effective as of the Date of Termination.  The termination of the employment
relationship by either party for any reason or for no reason at all shall not
constitute a breach of this Agreement, but certain obligations and benefits
shall survive such termination of employment as set forth in Section 19.


 


(b)             Duties.  During the period of Executive’s employment
under this Agreement, Executive shall serve as President of Company and as
Executive Vice President of POI. 
Executive shall devote Executive’s full business time and attention to
the affairs of the Company and his duties as President of Company and as
Executive Vice President of POI. 
Executive shall have such duties as are appropriate to Executive’s
position as President of Company and as Executive Vice President of POI, and
shall have such authority as required to enable Executive to perform these
duties.  Consistent with the foregoing,
Executive shall comply with all 


 


10

















 


reasonable
instructions of the Chief Executive Officer and boards of directors of the
Company, POAMI and POI.  Executive shall
report to the Chief Executive Officer of POI and POAMI and the Chairman of the
Company.  In addition, during the period
of Executive’s employment under this Agreement, Executive may serve as an
officer and/or director of a Subsidiary or Subsidiaries if requested to do so
by the Board.  Executive may resign from
the board of directors of any Subsidiaries at any time in his sole and absolute
discretion.


 


3.                   Term
of Agreement.  The Term of this
Agreement shall commence on the date of this Agreement and shall continue until
the earlier of (i) the second anniversary of the date of this Agreement or
(ii) the Date of Termination that results from a Qualifying Termination or
Non-Qualifying Termination.  If this
Agreement remains in effect through the second anniversary of the date of this
Agreement, it shall thereafter be automatically extended for an indefinite
number of one (1) year periods unless either party sends written notice to the
other party of its intention not to renew at least thirty (30) days prior to
expiration of said Term.  If the election
not to renew is made, this Agreement shall remain in full force and effect for
the remaining original term and any extension periods thereafter if the
original term has been renewed.  The
original term and any renewal periods thereafter are hereinafter collectively
referred to as the “Term.”  Certain
obligations and benefits shall survive the expiration of the Term as set forth
in Section 19.


 


4.                   Base
Salary and Benefits.


 


(a)              Base
Salary.  During the period of
Executive’s employment under this Agreement, the Company shall pay Executive an
annual base salary (“Annual Base Salary”) at an annual rate equal to not less
than Two Hundred Seventy Seven Thousand and No/100 Dollars ($277,000.00), which
shall be reviewed annually by the Board or the Compensation Committee of the
Board.  Executive’s Annual Base Salary
shall be paid in accordance with the standard practices for other senior
corporate executives of the Company.


 


(b)             Bonuses.  Executive shall be eligible to receive
annually or otherwise any bonus awards, whether payable in cash, shares of
common stock of the Company or otherwise, which the Company, the Board, the
Compensation Committee of the Board or such other authorized committee of the
Board determines to award or grant; provided, however, that Executive shall
participate under a short-term incentive plan (subject to its terms which shall
be reasonably determined by the Board and based on targets that are reasonably
attainable) each year with a target bonus of not less than 60% of base salary and a potential to
earn at least 100% of base
salary.  Executive acknowledges that he
received a pro-rata portion of the 2004 annual bonus for the period of
January 1, 2004 through February 17, 2004.  The bonus payable to Executive, if any, under the short-term
incentive plan with respect to 2004 shall be calculated in accordance with the
respective plan and shall take into account a pro-ration based on the number of
days from February 17, 2004 through December 31, 2004 (i.e., 318/366)  Company shall provide Executive with
participation under a long-term equity incentive plan (with terms that are
competitive with companies of similar size and similar circumstances and
reasonably acceptable to Executive) upon consummation of the Restructuring.


 


(c)              Benefit
Programs.  During the period of
Executive’s employment under this Agreement, Executive shall be eligible to
participate in all employee benefit plans and programs 


 


11

















 


of the Company
from time to time in effect for the benefit of senior executives of the Company
(subject to meeting generally applicable participation requirements under the
applicable plan or program), including, but not limited to, retention plans,
stock option plans, restricted stock grants, 401(k) plans, group life
insurance, hospitalization and surgical and major medical coverages, sick
leave, employee stock purchase plans, car allowances, vacations and holidays,
long-term disability, and such other benefits as are or may be made available
from time to time to senior executives of the Company.  For purposes of this Section 4(c), the
term “the Company” shall also include POAMI. 
If there is a sale in an underwritten public offering registered under
the Securities Act of 1933, as amended, of POI Voting Securities having an
aggregate offering value of at least $40 million, all of Executive’s Awards (as
defined below) will fully vest, all restrictions on such Awards shall lapse and
the maximum level of achievement of all performance criteria with respect to
such Awards shall be deemed fully satisfied. 
In the case of stock options or any other equity based Awards in the
nature of a right that may be exercised, such stock options and other equity
based Awards shall remain exercisable for three years after the Date of
Termination.


 


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


 


(e)              Office
and Services Furnished.  During the
period of Executive’s employment under this Agreement, the Company shall make
available to Executive office space at the Company’s headquarters (which is
currently located in Irving, Texas, but which may be relocated at the
discretion of the Company), secretarial assistance and such other facilities
and services as shall be suitable to Executive’s position and adequate for the
performance of Executive’s duties hereunder. 
During the period of Executive’s employment under this Agreement, the Company
shall install and maintain, at its expense, a broadband (cable modem or DSL)
connection at his home for the use of Executive in connection with the
performance of his duties hereunder.


 


(f)                Retention
Bonus.  Executive will receive two
retention bonuses each in an amount equal to 67.5% of Executive’s Annual Base
Salary (with such Annual Base Salary to be determined as of the date such bonus
is paid) (“Retention Bonus”).  The first
retention bonus shall be payable if he remains continuously employed by the
Company from the date hereof through the earlier of the date of the
consummation of the Restructuring or December 31, 2004 or, if prior to the
consummation of the Restructuring or such date, as applicable, (i) he is
terminated by the Company other than for Cause, (ii) he resigns his employment
because of Good Reason or (iii) the Company does not renew the Agreement upon
expiration of the Term.  The second
retention bonus shall be payable if he remains continuously employed by the
Company from the date hereof through the earlier of the date of the
consummation of the Restructuring or December 31, 2005 or, if prior to the
consummation of the Restructuring or such date, as applicable, (i) he is
terminated by the Company other than for Cause, (ii) he resigns his employment
because of Good Reason or (iii) the Company does not renew the Agreement upon
expiration of the Term.  Payment of any
amount pursuant to this paragraph shall not reduce any other payments or
benefits to which Executive is entitled under this Agreement.  Should the Chief Executive Officer of POAMI
and/or POI agree to forgo any portion of his Retention Bonus 


 


12

















 


for any reason at
any time, Executive agrees to forgo the same percentage of his Retention Bonus.


 


5.                   Payments
Upon Termination of Employment.


 


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


 


(A)  within five (5) business
days following the Date of Termination, the Company shall pay to Executive a
lump-sum cash payment equal to the sum of


 


(I)                                    Executive’s
Annual Base Salary payable through the Date of Termination;


 


(II)                                bonus
amounts payable to Executive for prior fiscal years (to the extent not
previously paid);


 


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


 


(IV)                            a
pro rata portion of Executive’s annual bonus for the fiscal year in which
the Date of Termination occurs (to the extent not previously paid) in an amount
at least equal to (1) Executive’s Bonus Amount multiplied by a fraction,
the numerator of which is the number of days in a fiscal year in which the Date
of Termination occurs through the Date of Termination and the denominator of
which is three hundred sixty-five (365), and reduced by (2) any amounts
paid to Executive from the Company’s annual incentive plan for the fiscal year
in which the Date of Termination occurs; and


 


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


 


(B)  within five (5) business
days following the Date of Termination, the Company shall pay to Executive a
cash lump-sum equal to the sum of 2.0 times Executive’s highest Annual Base
Salary during the 12-month period immediately prior to the Date of Termination,
plus 2.0 times Executive’s Bonus
Amount; provided, however, if a Notice of Termination is given by the Company
or Executive within four months prior to a Change in Control or one year
following a Change of Control, the Company shall pay Executive an additional
lump-sum cash payment equal to (x) .99 times Executive’s highest Annual
Base Salary during the 12-month period immediately prior to the Date of
Termination plus (y) .99
times Executive’s Bonus Amount;


 


(C)  the Company shall continue,
for a period of three (3) years following Executive’s Date of Termination, to
provide Executive (and Executive’s dependents, if applicable) with
substantially similar levels of medical, dental, and life insurance benefits
upon substantially similar terms and conditions as Executive would have been
entitled to receive if he had continued in employment; provided, 


 


13

















 


that,
if Executive cannot continue to participate in the Company benefit plans
providing such benefits, the Company shall otherwise provide, at the Company’s
option, (i) such benefits on a substantially similar basis as if continued
participation had been permitted through the Company’s benefit plans (the
“Continued Benefit Plans”) or (ii) a lump-sum cash payment based on the cost of
premiums comparable to those that would be required to receive such benefits on
a substantially similar basis plus the amount of any conversion fees required
to convert from group coverage to individual coverage under the Company’s
existing benefit plans (the “Benefits Lump-Sum Payment”).  If the Company elects to provide Executive
with Continued Benefit Plans, Executive shall cooperate with the Company and
each provider of any such Continued Benefit Plan in order for the Company to
obtain such Continued Benefit Plans for Executive, which cooperation shall
include but not be limited to providing copies of medical records and other
information required by any provider of such Continued Benefit Plan and
undergoing one or more physical examinations. 
If the Company elects to provide Executive with the Benefits Lump-Sum
Payment, the Company shall notify Executive of its intention to make this
election not later than 90 days prior to the date on which Executive’s
coverage under existing benefit plans will expire, and if, within 60 days
after Executive receives such notification from the Company, Executive presents
the Company with one or more benefit plans that Executive has obtained or
intends to obtain that provide benefits on a substantially similar basis as the
benefits provided to Executive prior to the Date of Termination (and
acknowledgment from the provider of such benefit plans that such benefit plans
have been or can be obtained by Executive on those terms, including, without
limitation, at least substantially similar scope of coverage, substantially
similar deductibles and substantially similar co-payments), then the Benefits
Lump-Sum Payment shall be made based on the premiums plus any other
administrative fees (except co-payments) charged by the Company offering such
plans.  If the Company elects to provide
Executive with the Benefits Lump-Sum Payment and it is determined by the
Company that any portion of the Benefits Lump-Sum Payment constitutes taxable
wages for federal income and/or employment tax purposes, the Company agrees to
pay Executive an additional amount (the “Benefits Gross-Up Payment”) such that
the net amount retained by Executive from the Benefit Lump-Sum Payment and the
Benefits Gross-Up Payment, after reduction for any federal, state and local
income and employment taxes on the Benefits Lump-Sum Payment and the Benefits
Gross-Up Payment, shall equal the Benefits Lump-Sum Payment.  Notwithstanding the foregoing, in the event
Executive becomes reemployed with another employer and becomes eligible to
receive benefits from such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive’s eligibility, but
only to the extent that the Company reimburses Executive for any increased cost
and provides any additional benefits necessary to give Executive the benefits
provided hereunder; and


 


(D)  all outstanding stock
options, restricted stock and other equity based awards (collectively,
“Awards”) shall fully vest, all restrictions on such Awards shall lapse and the
maximum level of achievement of all performance criteria with respect to such
Awards shall be deemed fully satisfied. 
In the case of 


 


14

















 


stock options or
any other equity based Awards in the nature of a right that may be exercised,
such stock options and other equity based Awards shall remain exercisable for
three years after the Date of Termination.


 


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


 


6.                   Excise
Tax Gross Up.


 


(a)              Anything
in this Agreement to the contrary notwithstanding, in the event that it shall
be determined that the vesting of Awards, aggregate payments or distributions
by the Company or its affiliated companies to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise but determined without regard to any additional
payments required under this Section 6 (a “Payment”), constitute
“parachute payments” (as such term is defined under Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”) or any successor provision,
and the regulations promulgated thereunder (collectively, “Section 280G”))
the aggregate present value of which equals or exceeds three times Executive’s
“base amount” (as such term is defined under Section 280G) and are
therefore subject to the excise tax imposed by Section 4999 of the Code or
any successor provision (collectively, “Section 4999”) or any interest,
penalties or additions to tax with respect to such excise tax (the total excise
tax, together with any interest, penalties or additions to tax, are hereinafter
collectively referred to as the “Excise Tax”)), then Executive shall be
entitled to receive an additional payment (a “Gross-Up Payment”) in an amount
such that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any Federal, state or local income and employment taxes and Excise Tax (and any
interest and penalties imposed with respect to any such taxes) imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. 
Notwithstanding the foregoing, Executive agrees to reduce the aggregate
amount of any Payments that constitute “parachute payments” to the extent
necessary so that such Payments do not equal or exceed three times Executive ‘
s “base amount”  (and therefore are not
subject to the excise tax imposed by Section 4999); provided, however,
that Executive shall not be required to make any such reduction if the
reduction necessary to cause such Payments not to equal or exceed three times
Executive’s “base amount” is more than $100,000.


 


(b)             Subject
to the provisions of Section 6(c) hereof, all determinations required to
be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the
Company’s public accounting firm (the “Accounting Firm”) which shall provide
detailed supporting calculations both to the Company and Executive within
fifteen (15) business days of the receipt of notice from Executive that there
has been a Payment, 


 


15

















 


or such earlier
time as is requested by the Company.  In
the event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change in control, Executive may
appoint another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall then be deemed
to be the Accounting Firm hereunder). 
All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this
Section 6, shall be paid by the Company to Executive within five (5) days
of the receipt of the Accounting Firm’s determination (it being understood,
however, that the Gross Up Payment may, if permitted by law, be paid directly
to the applicable taxing authorities). 
If the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with a written opinion that failure to
report the Excise Tax on Executive’s applicable federal income tax return would
not result in the imposition of a negligence or similar penalty.  Any determination by the Accounting Firm
shall be binding upon the Company and Executive.  As a result of the uncertainty in the application of
Section 4999 at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made by the Company (“Underpayment”), or
that Gross-Up Payments will have been made by the Company which should not have
been made (“Overpayment”), consistent with the calculations required to be made
hereunder.  In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred.  In the event that
the Company exhausts its remedies pursuant to Section 6(c) and Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.  In the case of an
Overpayment, Executive shall, at the direction and expense of the Company, take
such steps as are reasonably necessary (including, if reasonable, the filing of
returns and claims for refund), and otherwise reasonably cooperate with the Company
to correct such Overpayment; provided, however, that (i) Executive shall not in
any event be obligated to return to the Company an amount greater than the net
after-tax portion of the Overpayment that he has retained or has recovered as a
refund from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of Section 6(a) hereof
to make Executive whole, on an after-tax basis, from the application of
Section 4999.


 


(c)              Executive
shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require a payment by the Company, or a
change in the amount of the payment by the Company of, the Gross-Up
Payment.  Such notification shall be
given as soon as practicable after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid; provided that the failure to give any
notice pursuant to this Section 6(c) shall not impair Executive’s rights
under this Section 6 except to the extent the Company is materially
prejudiced thereby.  Executive shall not
pay such claim prior to the expiration of the 30-day period following the date
on which Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due).  If the Company notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:


 


(i)                                     give
the Company any information reasonably requested by the Company relating to
such claim,


 


16

















 


(ii)                                  take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company,


 


(iii)                               cooperate
with the Company in good faith in order effectively to contest such claim, and


 


(iv)                              permit
the Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest, penalties or additions to tax) incurred in
connection with such contest and shall indemnify and hold Executive harmless,
on an after-tax basis, for any Excise Tax or income, employment or other tax
(including interest, penalties or additions to tax with respect thereto)
imposed as a result of such representation and payment of costs and
expenses.  Without limitation on the
foregoing provisions of this Section 6(c) hereof, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided further, that if the Company
directs Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to Executive on an interest-free basis and
shall indemnify and hold Executive harmless, on an after-tax basis, from any
Excise Tax or income, employment or other tax (including interest, penalties or
additions to tax with respect to any such taxes) imposed with respect to such
advance or with respect to any imputed income with respect to such advance; and
provided further, that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.


 


(d)             If,
after the receipt by Executive of an amount advanced by the Company pursuant to
Section 6(c) hereof, Executive becomes entitled to receive, and receives,
any refund with respect to such claim, Executive shall (subject to the
Company’s complying with the requirements of Section 6(c) hereof) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto).  If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 6(c), a determination is made that Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such determination,
then such advance 


 


17

















 


shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.


 


7.                   Non-Competition.  Executive hereby acknowledges that the
services which he will perform for the Company are of a special and unique
nature, and that the Company would find it extremely difficult or impossible to
replace Executive.  Accordingly,
Executive agrees that, in consideration of this Agreement and the payments to
be received by him hereunder, from and after the date hereof through the period
during which Executive continues to be employed by the Company and following
termination of Executive’s employment for any reason until the second
anniversary of such termination of employment (the “Non-Competition Period”),
Executive shall not, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
or be connected as a director, officer, employee, partner, lender, consultant
or otherwise (“Participate” or a “Participation”) with any Competitor (as
hereinafter defined), except with the Company’s prior written consent.  For purposes of this Agreement, the term
“Competitor” shall mean any entity engaged in the business of providing
property monitoring services with revenue in excess of Ten Million Dollars
($10,000,000) during the most recent twelve (12) month period for which
financial statements are available, including without limitation, ADT Security
Services, Brink’s Home Security, Inc., Honeywell Inc. and their respective
subsidiaries, affiliates and successors. 
Nothing in this section shall prohibit Executive from owning for
investment purposes an aggregate of up to 3% of the publicly traded securities
of any corporation listed on the New York Stock Exchange or American Stock
Exchange or whose securities are quoted on the NASDAQ National Market.  Notwithstanding anything which may be to the
contrary herein, Executive shall not be required to cease Participation in any
business or organization which begins to compete with the Company subsequent to
the time Executive commences such Participation, provided that such business or organization began to compete
with the Company through no action, assistance, or plan of Executive.


 


It is the desire
and intent of the parties that the provisions of this Section 7 shall be
enforced under the laws and public policies applied in each jurisdiction in
which enforcement is sought. 
Accordingly, if any particular provision of this Section 7 is
adjudicated to be invalid or unenforceable or shall for any reason be held to
be excessively broad as to duration, geographic scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with applicable law and such provision shall be deemed
modified and amended to the extent necessary to render such provision enforceable
in such jurisdiction.


 


If Executive
challenges the enforceability of the provisions of this Section 7 in whole
or in part as to any Competitors, Executive shall, immediately upon such
challenge, forfeit any right to any payments and benefits under Section 5(a)
or 5(b) that he has not already received.


 


8.                   Confidential
Information.  Executive acknowledges
that:


 


(a)              the
business of the Company and its Subsidiaries and affiliates is intensely
competitive and that Executive’s engagement by the Company requires that
Executive have access to and knowledge of confidential information of the
Company and its Subsidiaries and affiliates, including, but not limited to, the
identity of customers, the identity of the representatives of customers with
whom the Company and its Subsidiaries and affiliates have 


 


18

















 


dealt, the kinds
of services provided by the Company and its Subsidiaries and affiliates to
customers and offered to be performed for potential customers, the manner in
which such services are performed or offered to be performed, the service needs
of actual or prospective customers, pricing information, information concerning
the creation, acquisition or disposition of products and services, customer
maintenance listings, computer software applications and other programs,
personnel information and other trade secrets (the “Confidential Information”);


 


(b)             the
direct or indirect disclosure of such Confidential Information to existing or
potential competitors of the Company and its Subsidiaries and affiliates would
place the Company and its Subsidiaries and affiliates at a competitive
disadvantage and would do damage, monetary or otherwise, to the business of the
Company and its Subsidiaries and affiliates; and


 


(c)              the
engaging by Executive in any of the activities prohibited by this
Section 8 may constitute improper appropriation and/or use of such
information and trade secrets.


 


Notwithstanding
the foregoing, Confidential Information shall not include information which (x)
is or becomes part of the public domain through a source other than Executive,
(y) is or becomes available to Executive from a source independent of the
Company and its Subsidiaries and affiliates, or (z) constitutes general
industry knowledge possessed by Executive by virtue of Executive’s employment
with the Company.  Executive expressly
acknowledges the trade secret status of the Confidential Information and that
the Confidential Information constitutes a protectable business interest of the
Company and its Subsidiaries and affiliates. 
Accordingly, the Company and Executive agree as follows:


 


(A)  During the Non-Competition
Period, Executive shall not, directly or indirectly, whether individually, as a
director, stockholder, owner, partner, employee, principal or agent of any
business, or in any other capacity, make known, disclose, furnish, make
available, or use any of the Confidential Information, other than in the proper
performance of the duties contemplated herein or requested by the Company, or
as required by law or by a court of competent jurisdiction or other
administrative or legislative body; provided,
however, that prior to disclosing any of the Confidential
Information to a court or other administrative or legislative body, Executive
shall promptly notify the Company so that the Company may seek a protective
order or other appropriate remedy.


 


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


 


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


 


19

















 


other person or
entity; provided, however, that
this provision shall not apply to solicitation by general advertising.


 


10.             Antidisparagement.


 


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


 


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


 


11.             Injunctive
Relief.


 


(a)              Executive
acknowledges that a breach of the undertakings in Sections 7, 8, 9 or
10(a) of this Agreement would cause irreparable damage to the Company and its
Subsidiaries and affiliates, the exact amount of which shall be difficult to
ascertain, and that remedies at law for any such breach would be
inadequate.  Executive agrees that, if
Executive breaches or attempts or threatens to breach any of the undertakings
in Sections 7, 8, 9 or 10(a) of this Agreement, then the Company shall be
entitled to injunctive relief without posting bond or other security, in
addition to any other remedy or remedies available to the Company at law or in
equity.


 


(b)             The
Company acknowledges that a breach of the undertakings in Section 10(b) of
this Agreement would cause irreparable damage to Executive, the exact amount of
which shall be difficult to ascertain, and that remedies at law for any such
breach would be inadequate.  The Company
agrees that, if the Company or any of its Subsidiaries or affiliates breaches
or attempts or threatens to breach any of the undertakings in
Section 10(b) of this Agreement, then Executive shall be entitled to
injunctive relief, without posting bond or other security, in addition to any
other remedy or remedies available to Executive at law or in equity.


 


12.             Withholding
Taxes.  The Company may withhold
from all payments due to Executive (or his beneficiary or estate) hereunder all
taxes which, by applicable federal, state,


 


20

















 


local or other
law, the Company is required to withhold therefrom.  Executive has represented that he is and will continue to be a
resident of the State of Texas for all purposes.


 


13.             Directors
and Officers Insurance; Indemnity. 
The Company, POAMI, and POI shall take all steps necessary to ensure
that Executive is covered under any directors and officers liability insurance
policy in effect from time to time for current and former directors and
officers of the Company, POAMI, and POI. 
In addition, the Company, POAMI, and POI shall hold harmless and
indemnify Executive against any and all expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Executive in connection with any threatened, pending, or completed
action, suit, or proceeding whether civil, criminal, administrative, or
investigative (including an action by or in the right of the corporation) to
which Executive is, was, or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Executive is, was, or at any time
becomes a director, officer, employee or agent of the Company, or is or was
serving, or at any time serves at the request of the Company as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise; or otherwise to the fullest extent as may be
provided to Executive by the Company under the provisions of the Bylaws and the
Articles of Incorporation of the Company and Delaware law.


 


14.             Scope
of Agreement.  Nothing in this
Agreement shall be deemed to entitle Executive to continued employment with the
Company, POAMI, or POI or their Subsidiaries or shall require Executive to
continue the employment relationship against his wishes; provided, however, that any termination of
Executive’s employment during the Term of this Agreement shall be subject to
all of the provisions of this Agreement as provided in Section 19.


 


15.             Successors;
Binding Agreement.


 


(a)              This
Agreement shall inure to the benefit of and be legally binding upon all
successors and assigns of the Company, POAMI, and POI.  The Company, POAMI, and POI will require a
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company and/or POAMI and/or POI, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company, POAMI,
and POI would be required to perform it if no such succession had taken
place.  For purposes of this
Section 15(a), references to Company, POI or POAMI shall mean the Company,
POI or POAMI, respectively, as defined above and all successors to its business
or assets that execute and deliver the agreement provided for in this
Section 15(a) or that otherwise become bound by the terms and provisions
of this Agreement by operation of law


 


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


 


21

















 


16.             Notice.


 


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


 


	
  If to Executive:

  	
  Steve V.
  Williams

  
	
   

  	
  3809 Shady
  Meadow

  
	
   

  	
  Grapevine,
  TX  76051

  
	
   

  	
   

  
	
  If to the
  Company:

  	
  Protection One,
  Inc.

  
	
   

  	
  818 S. Kansas Avenue

  
	
   

  	
  Topeka, KS  66612

  
	
   

  	
  Attention:  General Counsel

  



 


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


 


(b)             A written
notice of Executive’s Date of Termination by the Company or Executive, as the
case may be, to the other, shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable,
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive’s employment under the provision so
indicated, and (iii) specify the Date of Termination.  The failure by Executive or the Company to
set forth in such notice any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company hereunder or preclude Executive or the Company from asserting such fact
or circumstance in enforcing Executive’s or the Company’s rights hereunder.


 


17.             Full
Settlement; Resolution of Disputes. 
Subject to Section 25, the Company’s obligation to make any
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall be in lieu and in full settlement of all other
severance payments to Executive under any other severance or employment
agreement between Executive and the Company, and any severance plan of the
Company.  In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and except as otherwise provided in Section 5 (a)(iii), such amounts shall
not be reduced whether or not Executive obtains other employment. Any dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Wilmington, Delaware by three arbitrators
in accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the
arbitrators’ award in any court having jurisdiction.  The arbitrators shall determine the allocation of the costs and
expenses arising in connection with any arbitration proceeding pursuant to this
section based on the arbitrator’s assessment of the merits of the
positions of the parties.


 


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


 


22

















 


19.             Survival.
 The respective obligations and benefits
afforded to the Company and Executive as provided in Sections 1, 5, 6, 7, 8, 9,
10, 11, 12, 13, 15, 17, 19, 20, 22, 23, 24, 25, 26 and 27 shall survive the
termination of this Agreement.


 


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


 


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


 


22.             Miscellaneous.  No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by Executive and by a duly authorized officer of the Company.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior to subsequent time. 
Failure by Executive or the Company to insist upon strict compliance with
any provision of this Agreement or to assert any right Executive or the Company
may have hereunder, including without limitation, the right of Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.  Except as otherwise specifically provided
herein, the rights of, and benefits payable to, Executive, his estate or his
beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, Executive, his estate or his beneficiaries under any other
employee benefit plan or compensation program of the Company.


 


23.             No
Mitigation.  Subject to
Section 25, the amounts payable to Executive upon any termination of his
employment shall be considered severance pay in consideration of past services
rendered on behalf of the Company and his continued service from the date
hereof to the date he becomes entitled to such payments and shall be the sole
amount of severance pay to which Executive is entitled from the Company and its
affiliates upon termination of his employment. 
Executive shall have no duty to mitigate his damages by seeking other
employment and, should Executive actually receive compensation from any such
other employment, the payments required hereunder shall not be reduced or
offset by any such other compensation.


 


24.             Legal
Fees.  All legal fees of Paul
Hastings incurred by Executive in connection with negotiating this employment
agreement and in connection with the Restructuring within the scope of
engagement set forth in the letter of engagement between Executive and Paul
Hastings dated July 6, 2004 shall be paid by the Company.  


 


23

















 


25.             Indemnification
of Prior Payments.  The Company
hereby agrees to defend (or reimburse Executive for reasonable costs of
defense), protect and indemnify Executive from and against any and all
liabilities, obligations, damages, judgments, claims, costs, expenses and
disbursements of any kind or nature whatsoever asserted against Executive in
any manner relating to or arising out of or in connection with any payments
(“Prior Payments”) previously paid to Executive, including, without limitation,
those payments resulting as of the change in control that occurred on
February 17, 2004, and any obligation of the Company to make such Prior
Payments contained in any employment agreement or other agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of such Prior Payments or any part thereof is rescinded
or reduced in amounts or must otherwise be restored or returned to the Company
or its successors by Executive, whether as a “voidable preference,” “fraudulent
conveyance” or otherwise, all as though such payment or performance had not
been made (in whole or in part, as applicable).  If any such Prior Payment, or any part thereof is rescinded,
reduced, restored or returned, the agreement and obligation to make such Prior
Payments shall be reinstated and the obligation to make such Prior Payment
shall be reduced only by such amount paid and not so rescinded, reduced,
restored or returned.  All obligations
and amounts payable pursuant to this Agreement, including those set forth in
this Section 25, shall, to the maximum extent permitted under law,
constitute administrative priority expenses pursuant to Bankruptcy Code
Sections 503(b) and 507(a)(1) of the Company’s estate in the event of a
bankruptcy filing by or against the Company.


 


26.             POAMI’s
and POI’s Obligations.  All of the
obligations of the Company hereunder shall also be direct obligations of POAMI
and POI without the need for Executive to seek or exhaust remedies against the
Company.


 


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


 


*   *  
*   *   *


 


 


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


 


24

















 


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


 


	
   

  	
  PROTECTION
  ONE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  
	
   

  	
  Its:

  	
  President
  and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTION
  ONE ALARM MONITORING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  
	
   

  	
  Its:

  	
  President
  and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NETWORK
  MULTI-FAMILY

  SECURITY CORPORATION.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Richard Ginsburg

  
	
   

  	
  Its:

  	
  Chairman
  of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steven V. Williams

  
	
   

  	
   

  	
    Steven V. Williams