Exhibit 10.1


 


PROTECTION ONE, INC.

SENIOR MANAGEMENT

SHORT-TERM INCENTIVE PLAN


 


Effective
January 1, 2009


 


The
Protection One, Inc. Senior Management Short-Term Incentive Plan (“Plan”)
is intended to motivate officers and other members of senior management of
Protection One, Inc. and certain of its designated business segments to
achieve the highest level of performance and to further the achievement of
Protection One’s goals, objectives, and strategies.  The Plan is designed to reward exceptional
performance using financial incentives to supplement base compensation.  Also, the Plan is intended to enhance
Protection One’s ability to attract and retain talented employees.  Finally, the Plan is intended to benefit
Protection One in the pursuit of its goals and objectives by stimulating and
motivating the participants, which will in turn enhance productivity.


 


1.                     Definitions.  As used herein, the following words and
phrases shall have the following meanings unless the context clearly indicates
otherwise:


 


(a)          Award:  The total incentive award made
to a Participant under the terms of the Plan.


 


(b)         Award Criteria: 
Consists of the Performance Component and Discretionary Component as
approved by the Board from time to time, and as same may be amended from time
to time in accordance with the terms hereof.


 


(c)          Base Compensation: 
Annualized salary during the last half-month pay period of 2009 paid to
an employee, excluding overtime, bonuses, commissions, or any pay element other
than the base rate of compensation.  Base
Compensation will be pro-rated based on months of employment as a Participant,
e.g., Base Compensation for an eligible employee whose employment with
Protection One as a Participant commenced on July 1, 2009 will be
calculated as the product of (i) annualized salary in the last half-month
pay period and (ii) 50%.


 


(d)         Board:  The Board of Directors of the Company.


 


(e)          CMS Segment: The Company’s Wholesale segment.


 


(f)            CMS Senior Management: The individual employed by CMS who holds
the title of President and those individuals who are: (i) employed in the CMS
Segment in pay grades A, B or C of the wage and salary administration plan, and
(ii) employed in the CMS Segment not in pay grades A, B or C but designated as
a member of Senior Management by the CEO.


 


(g)         Company:  Protection One, Inc., a
Delaware corporation, and its successors and assigns.


 


(h)         Company Senior Management: Those individuals who are: (i) employed
by the Company in pay grades A, B or C of the wage and salary administration
plan, and (ii) employed by the Company not in pay grades A, B or C but
designated as a member of Senior Management by the CEO.


 


(i)             Designated Segments: The CMS Segment and the NMF Segment.


 

















 


(j)             Discretionary Component: 
Portion of the Award Criteria based on financial or non-financial
criteria or both as described in Section 6 and applied in the discretion
of the appropriate managerial decision-maker to evaluate the performance of
Participants, in accordance with pay grade and management level as set forth in
Section 2.


 


(k)          Executive Officers: 
Those individuals who hold the following officer positions: (i) President/Chief
Executive Officer (“CEO”) of the Company or POAMI; (ii) any Executive Vice
President (“EVP”) of the Company or POAMI, including without limitation the
Executive Vice President and Chief Financial Officer (“CFO”) and the Executive
Vice President and Chief Operating Officer (“COO”).


 


(l)             Incentive Period:  The
twelve month period measured in the final publication of the year-end
consolidated Financial Statements of the Company.


 


(m)       NMF Segment: The
Company’s Multifamily segment.


 


(n)         NMF Senior Management: Those individuals who are: (i) employed
in the NMF Segment in pay grades A, B or C of the wage and salary
administration plan, and (ii) employed in the NMF Segment not in pay
grades A, B or C but designated as a member of Senior Management by the CEO.


 


(o)         Officers:  Those individuals employed by
the Company or POAMI who hold the following officer positions: (i) Vice
President and Treasurer, (ii) Vice President, General Counsel and
Secretary, and (iii) Senior Vice President of Customer Operations.


 


(p)         Participant:  Each (i) Executive
Officer, Officer and member of Senior Management, other than those Executive Officers, Officers and members of Senior
Management who are participants in a separate non-equity incentive plan (other
than retention programs), and (ii) employee who is designated for
participation in the Plan by the Board or the CEO pursuant to Section 3,
regardless of his or her participation in a separate non-equity incentive plan.


 


(q)         Performance Component. 
Portion of the Award Criteria based on performance of the Company or
Designated Segment as described in Section 5.


 


(r)            Plan:  The Plan herein set forth, and
as from time to time amended.


 


(s)          POAMI Segment: The Company’s Retail segment.


 


(t)            POAMI Senior Management: Those individuals who are: (i) employed
in the POAMI Segment in pay grades A, B or C of the wage and salary
administration plan, and (ii) employed in the POAMI Segment not in pay
grades A, B or C but designated as a member of Senior Management by the CEO.


 


(u)         Senior Management: The Company Senior Management, POAMI Senior
Management, NMF Senior Management and CMS Senior Management.


 


(v)         Target Award Percentage:  That
percentage of a Participant’s Base Compensation which the Board (or the CEO
pursuant to Section 3) shall from time to time determine 


 


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to be available to a Participant under the
Plan, or which is specified in any employment agreement with Participant, which
employment agreement is approved by the Board. As an example, a member of
Senior Management may be targeted to earn up to 25% of his/her Base
Compensation as an Award if all applicable criteria are achieved.  The Target Award may apply to a class of
employees or to individual employees, at the discretion of the Board (or the
CEO pursuant to Section 3).


 


2.               Administration.
The Board shall have authority for establishing the overall Plan, administering
the Plan, determining whether actual individual compensation awards will be
paid, and approving the amount of the actual individual compensation
awards.  The Board may delegate any or
all of such authority with respect to the Plan to a committee of the Board or,
with respect to decisions or determinations affecting Plan Participants other
than the CEO or CFO, to the CEO or CFO of the Company. Unless subsequently
modified by a resolution of the Board, approval of the payment of individual
awards under the Plan are and shall be delegated to the Compensation Committee.


 


Neither a member of the Board, nor any agent, officer, fiduciary, or
employee of the Company shall be liable for any act, omission, interpretation,
construction, or determination made in good faith in connection with their
responsibilities with respect to the Plan; and the Company hereby agrees to
indemnify the members of the Board and all agents, officers, fiduciaries, and
employees of the Company in respect to any claim, loss, damage, or expense (including
counsel fees) arising from any such act, omission, interpretation,
construction, or determination to the full extent permitted by law.


 


The day-to-day administration of the Plan with regard to specific
classes of Participants shall be as follows:


 


(a)          Executive Officers:  The
Board has authority for the day-to-day supervision of the Plan, including
designation of the Executive Officers’ goals, determination of the achievement
of such goals, determination of the award size relating to the goals, and the
determination of the amount of the discretionary award.


 


(b)         Officers:  The Board has authority for
the day-to-day supervision of the Plan including the designation of the
Officers’ goals, determination of the achievement of such goals, determination
of the award size relating to the goals, and the determination of the amount of
the discretionary award.


 


(c)          Senior Management:  The
Executive Officers have authority for the day-to-day supervision of the Plan,
including the designation of goals, determination of the achievement of such
goals, determination of the award size relating to the goals, and the
determination of the amount of the discretionary award.


 


3.               Eligibility
to Participate. 
Only those employees who are Participants, as that term is defined in Section 1(p) above,
are Participants in the Plan.  The CEO
shall determine, from time-to-time, whether the Plan should be extended to
other individuals or groups of employees of the Company or its Designated
Segments; provided, however, that the CEO shall not have authority to extend
the Plan to additional executive officers.


 


4.               Award
Criteria. Awards under the Plan will be
based on a Performance Component, on which 70% of the Award will be based, and
a Discretionary Component, on which 30% of the Award will be based.


 


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5.               Performance
Component. 
The Performance Component shall be calculated utilizing the following
criteria for each Participant: (i) the Adjusted EBITDA Criterion, from
which 45% of the Target Award (the “Adjusted EBITDA Criterion Percentage”) is
derived, and (ii) the Recurring Monthly Revenue (“RMR”) Criterion, from
which 25% of the Target Award (the “RMR Criterion Percentage”) is derived.
These criteria are further described below.


 


(a)          Adjusted EBITDA and RMR Criterion:  The
purposes of these measures are to foster a team orientation and to directly tie
a Participant’s incentive to the Adjusted EBITDA and RMR of the Company and the
Designated Segments, which the Company believes are key operating metrics and
directly affect shareholder value.


 


                        Adjusted EBITDA and RMR
shall be calculated in a manner consistent with the method used in the Company’s
annual financial plan and approved by the Board.  Adjusted EBITDA and RMR shall be calculated
both on a consolidated basis for the Company and also calculated separately for
each Designated Segment. The RMR Criterion is based on RMR in force at the end
of the fiscal year.  Each of the Adjusted
EBITDA and RMR Criterion shall be applied to Participants as follows:


 


·                  For all Participants except those employed in
the Designated Segments, and certain other key corporate employees (as
designated by the CEO), the applicable Adjusted EBITDA Criterion and RMR
Criterion shall be based one hundred percent (100%) on the consolidated
Adjusted EBITDA or RMR of the Company.


 


·                  For CMS Senior Management, the applicable
Adjusted EBITDA Criterion and RMR Criterion shall be based eighty percent (80%)
on the Adjusted EBITDA or RMR of CMS and twenty percent (20%) on the
consolidated Adjusted EBITDA or RMR of the Company.


 


·                  For NMF Senior Management, the applicable
Adjusted EBITDA and RMR Criterion shall be based eighty percent (80%) on the
Adjusted EBITDA or RMR of NMF and twenty percent (20%) on the consolidated
Adjusted EBITDA or RMR of the Company.


 


The foregoing calculations shall be adjusted to exclude the
impact of the following:


 


·                  Unbudgeted expenses, to the extent such
expenses reduce Adjusted EBITDA related to (i) legal costs and
settlements, with respect to the Company, arising from matters that preceded
the tenure of current management (i.e., prior to April 2001, including the
Phoenix lease dispute); (ii) legal costs and settlements, with respect to
Integrated Alarm Services Group (“IASG”), arising from matters that preceded
Protection One’s merger with IASG (i.e., prior to April 2007); and (iii) raising
debt or equity;


 


·                  RMR related to wholesale relationships with
Protect America and APX;


 


·                  Unbudgeted increases or reductions in RMR
that result from (i) a billing system conversion; (ii) a change in
estimate; and (iii) dispositions of RMR (whether by selling assets or subsidiaries);
and


 


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·                  Unbudgeted increases in RMR that result from
acquisitions of RMR (whether by purchasing assets or companies, herein “Unbudgeted
Acquired RMR”), provided, however, that Unbudgeted Acquired RMR shall be
excluded only to the extent such Unbudgeted Acquired RMR causes Actual RMR to
exceed Budgeted RMR, unless otherwise approved by the Board.


 


The Participants’ Performance Component will be the sum of the amounts
calculated for each performance criterion which will include a multiplier of 0%
to 200% (the “Financial Multiplier”) that will depend on the respective
criterion performance against plan.


 


Adjusted EBITDA Performance
Criterion Component:


 


The calculation for determining the Adjusted EBITDA Criterion component
of the Award under the plan is as follows:


 


Adjusted EBITDA Financial Multiplier X Target Award
Percentage X Adjusted EBITDA Criterion Percentage.


 


For all Participants other than those in the CMS and
NMF Segments:  The outcome
desired from the Financial Multiplier for Adjusted EBITDA performance is to
yield a Financial Multiplier within a range of 0.0 if Actual consolidated
Adjusted EBITDA is less than Budgeted consolidated Adjusted EBITDA by 10% or
more up to maximum of 2.0 if Actual consolidated Adjusted EBITDA is greater
than Budgeted consolidated Adjusted EBITDA by 10% or more.


 


For these Participants, the formula for calculating the Financial
Multiplier for Adjusted EBITDA performance when Actual Consolidated Adjusted
EBITDA is within 10% of Budget is as follows:


 


(Actual Consolidated Adjusted EBITDA divided by
Budgeted Consolidated Adjusted EBITDA - 90%) divided by 10% = Adjusted EBITDA
Financial Multiplier


 


For Participants in the CMS and NMF Segments:  For CMS and NMF Segment Participants, the
formula for calculating the Financial Multiplier for Adjusted EBITDA
performance is based 80% on their respective segment results and 20% on
consolidated results.  The outcome
desired from the portion of the Financial Multiplier for the respective segment
Adjusted EBITDA performance is to yield a Financial Multiplier within a range
of 0.0 if Actual respective segment Adjusted EBITDA is less than Budgeted
respective segment Adjusted EBITDA by 20% or more up to maximum of 2.0 (times
80%) if Actual respective segment Adjusted EBITDA is greater than Budgeted
respective segment Adjusted EBITDA by 20% or more.  The Financial Multiplier for CMS and NMF
Segment Participants when Actual Respective Segment Adjusted EBITDA is within
20% of Budget and Actual Consolidated Adjusted EBITDA is within 10% of Budget
is determined as follows:


 


80% X (Actual Respective Segment Adjusted EBITDA
divided by Budgeted Respective Segment Adjusted EBITDA — 80%) divided by 20% +
20% X (Actual Consolidated Adjusted EBITDA divided Budgeted Consolidated
Adjusted EBITDA — 90%) divided by 10% = Adjusted EBITDA Financial Multiplier


 


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RMR Performance Criterion Component:


 


The calculation for determining the RMR Criterion component of the
Award under the plan is as follows:


 


RMR Financial Multiplier X Target Award Percentage X
RMR Criterion Percentage.


 


For all Participants other than those in the CMS and
NMF Segments:  The outcome
desired from the Financial Multiplier for Actual consolidated RMR performance
is to yield (i) a Financial Multiplier of 1.0 if Actual consolidated RMR
is within a range defined as 1.0% less than Budgeted consolidated RMR to 1.0%
greater than consolidated Budgeted RMR; (b) a Financial Multiplier in the
range of 0.0 to 1.0 if the ratio of consolidated Budgeted RMR to Actual
consolidated RMR is in the range of 97.0% to 99.0% of Budgeted consolidated
RMR; and (iii) a Financial Multiplier in the range of 1.0 to 2.0 if the
ratio of consolidated Budgeted RMR to Actual consolidated RMR is in the range
of 101.0% to 103.0% of Budgeted consolidated RMR.


 


The formula for calculating the Financial Multiplier for consolidated
RMR performance is as follows:


 


If the ratio of Actual Consolidated RMR to Budgeted
Consolidated RMR is 103.0% or greater, the Financial Multiplier = 2.00


If the ratio of Actual Consolidated RMR to Budgeted
Consolidated RMR is 97.0% or less, the Financial Multiplier = 0.00


If the ratio of Actual Consolidated RMR to Budgeted
Consolidated RMR is between 99.0% and 101.0%, the Financial Multiplier = 1.00


For each 0.1% above 101.0% up to 103.0%, the Financial
Multiplier increases by 0.05


For each 0.1% below 99.0% down to 97.0%, the Financial
Multiplier decreases by 0.05


 


For Participants in the CMS and NMF Segments:  For CMS and NMF Segment
Participants, the formula for calculating the Financial Multiplier for RMR
performance is based 80% on their respective segment results and 20% on
consolidated results.


 


The outcome desired from the portion of the Financial Multiplier for
Actual respective segment RMR performance is to yield (i) a Financial
Multiplier of 1.0 (times 80%) if Actual respective segment RMR is within a
range defined as 1.0% less than Budgeted respective segment RMR to 1.0% greater
than respective segment Budgeted RMR; (b) a Financial Multiplier in the
range of 0.0 to 1.0 (times 80%) if the ratio of respective segment Budgeted RMR
to Actual respective segment RMR is in the range of 97.0% to 99.0% of Budgeted
respective segment RMR; and (iii) a Financial Multiplier in the range of
1.0 to 2.0 (times 80%) if the ratio of respective segment Budgeted RMR to
Actual respective segment RMR is in the range of 101.0% to 103.0% of Budgeted
respective segment RMR.


 


The formula for calculating the portion of the Financial Multiplier for
the Respective Segment RMR performance is as follows:


 


If the ratio of Actual Respective Segment RMR to Budgeted
Respective Segment RMR is 103.0% or greater, the Financial Multiplier = 2.00 *
80%


 


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If the ratio of Actual Respective Segment RMR to Budgeted
Respective Segment RMR is 97.0% or less, the Financial Multiplier = 0.00


If the ratio of Actual Respective Segment RMR to Budgeted
Respective Segment RMR is between 99.0% and 101.0%, the Financial Multiplier =
1.00 * 80%


For each 0.1% above 101.0% up to 103.0%, the Financial
Multiplier increases by 0.04


For each 0.1% below 99.0% down to 97.0%, the Financial
Multiplier decreases by 0.04


 


The
CMS and NMF participant’s Financial Multiplier for the RMR Performance
Component is then determined by multiplying the Financial Multiplier for the
consolidated RMR performance by 20% and adding that product to the portion of
the Financial Multiplier determined for the respective segment RMR performance
determined above.


 


Performance Criterion Example:


 


An
Executive Officer with the maximum Multiplier for each of the Adjusted EBITDA
Criterion and the RMR Criterion, the calculation would be the sum of:


 


(a) 200%
(Multiplier) x 60% (Target Award Percentage) x 45% (Adjusted EBITDA Criterion
Percentage) = 54% of Base Compensation for the Adjusted EBITDA Criterion award,
and


 


(b) 200%
(Multiplier) x 60% (Target Award Percentage) x 25% (RMR Criterion Percentage) =
30% of Base Compensation for the RMR Criterion award.


 


In
this example, the total of (a) and (b) equals 84% of Base
Compensation.


 


For
all Participants, the portion of Awards derived from the Adjusted EBITDA and
RMR Criteria is capped at 200% of 70% of Target Award
Percentage of Base Compensation (e.g., 84% of base salary for CEO, 56% of Base
Compensation for Officer, etc.).


 


6.                                       Discretionary Component:  This
Component is based on individual achievement and is intended (i) to
provide a judgmental rating of a Participant’s managerial effectiveness, and (ii) to
recognize the importance of intangible qualities of corporate performance. The
rating (determined in accordance with Section 2 above) is based on an
assessment of qualitative issues such as:


 


(i)                                     providing strategic direction


 


(ii)                                  providing leadership


 


(iii)                               proactively managing change


 


(iv)                              organizing developing, and utilizing the
management team


 


(v)                                 creating an appropriate organizational
environment


 


(vi)                              providing effective external representation


 


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(vii)                           monitoring and evaluating performance and
taking corrective actions.


 


Depending on individual achievement of these factors, the discretionary
component of Participants’ Awards may range from 0% to 30% (“Discretionary
Component Percentage”) of the Target Award Percentage. For example, for an
Executive Officer awarded a Discretionary Component Percentage of 30%, the
calculation would be: 60% (Target Award Percentage) x 30% (Discretionary
Component Percentage) = 18% of Base Compensation.


 


7.               Payment of
Awards.


 


(a)          Generally:  Awards under the Plan are
payable annually.  Payment of Awards
shall be made within two and one-half months of the end of the fiscal year for
which such Awards are attributable; provided, however, that if all or any portion
of Awards are paid prior to completion of the Company’s audited financial
statements for the Incentive Period, Participants will be required to repay the
Company the amount received in excess of what would have been paid based on the
Company’s audited results and conversely the Company will pay any additional
amount due.


 


(b)         Termination of Employment: 
Except as may be provided in a written employment agreement between a
Participant and the Company or a Designated Segment, a Participant who ceases to
be continually employed by the Company or a Designated Segment during the
Incentive Period shall not be eligible for and shall forfeit all rights to an
Award for such Incentive Period. Except as may be specifically authorized by
the Board, a participant must be an employee of the Company at the time the
incentive is paid to be eligible.


 


8.               Withholding
for Taxes. 
Awards under the Plan are subject to withholding for applicable taxes
and other charges.


 


9.               No Rights
to Corporate Assets. 
Nothing contained herein creates any equity, property, lien, security or
other interest of any kind in any assets of the Company or its subsidiaries, or
creates a trust or fiduciary relationship of any kind between the Company and
its subsidiaries, or the Board or any member thereof, and any Plan
Participant.  Any claims for unpaid
amounts under the Plan, are and shall be unsecured.


 


10.         No Right to Acceleration or Deferral of
Awards. It is the intent of
the Board that the Plan meet the requirements of Section 409A of the Internal
Revenue Code, be operated in accordance with such requirements, and that
amounts payable pursuant to the Plan not be included in the wages or income of
a Participant until such time as the Award is actually paid to the Participant.
Accordingly, Participants have no right to elect to accelerate or to defer, nor
shall any amounts payable pursuant to the Plan be accelerated or deferred,
except as permitted under Section 409A of the Internal Revenue Code.


 


11.         Non-Assignability.
Participants’ rights and interests under the Plan may not be transferred,
assigned, mortgaged, or otherwise encumbered (an “assignment”); nor shall such
rights and interests be subject to seizure for the payment of a Participant’s
debts, judgments, alimony, or separate maintenance or be transferable by
operation of law in the event of a Participant’s bankruptcy or insolvency. Any
purported assignment by Participant of Participant’s rights and interests under
the Plan shall be void.


 


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12.         Amendment
and Termination. 
Other than with respect to the 2009 Plan year, the Board may from time
to time and at any time alter, amend, suspend, discontinue, or terminate the
Plan. Amendments to the Plan will not operate retroactively unless the
amendment expressly so provides and is expressly agreed to by the CEO.


 


13.         No Right
of Employment. 
Nothing contained in the Plan shall be construed as conferring upon a
Participant the right to continued employment with the Company.


 


14.         Governing
Law.  All rights
and obligations under the Plan shall be governed by, and the Plan shall be
construed in accordance with the laws of the State of Delaware.


 


15.         Titles and
Headings. 
Titles and headings to sections herein are for purposes of reference only
and shall in no way limit, define, or otherwise affect the meaning or
interpretation of any provisions of the Plan.


 


16.         Effective
Date.  This Plan is
made effective as of January 1, 2009 and supersedes all other existing
short-term incentive plans of the Company and its Designated Segments.


 


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