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**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K/A**

 

**(Amendment No. 1)**

 

**(MarkOne)**

 

| **x** | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|------------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2009**

 

**OR**

 

| **o** | ** ** | **TRANSITION  REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |
|-------|------------|-------------------------------------------------------------------------------------------------------|

 

**For the transition period from            to             **

 

**Commission File Number: 1-12181-01**

 

**PROTECTION ONE, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**(State or other jurisdiction  of incorporation or organization)                               | ** ** | **93-1063818**(I.R.S. Employer  Identification No.) |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|
|                                                                                                      |       |                                                |
| **1035 N. 3****rd**** Street, Suite 101  Lawrence, KS**(Address of principal executive offices) | ** ** | **66044**(Zip Code)                                 |

 

**785-856-5500**

(Registrant’s Telephone Number, Including AreaCode)

 

Securities registered under Section 12(b) ofthe Exchange Act:

 
| **Title of each class**                | ** ** | **Name of each exchange on which registered** |
|----------------------------------------|------------|-----------------------------------------------|
| Common Stock, par value $.01 per share |       | The NASDAQ Global Market                      |

 

Securities registered under Section 12(g) ofthe Exchange Act: **None**

 

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Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes   ̈  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.  Yes  o  No  x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act of 1934 duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o  No  o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).  Yes  o  No  x

 

Asof June 30, 2009, the aggregate market value of the registrant’s commonstock held by non-affiliates of the registrant was $31,226,063 based on theclosing sale price as reported on the NASDAQ Global Market.

 

The number of shares outstanding of the registrant’scommon stock, $0.01 par value per share, as of March 5, 2010 was 25,433,371.

 

**DOCUMENTS INCORPORATED BYREFERENCE:**None.

** **

 

** **

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**EXPLANATORYSTATEMENT TO FORM 10-K AMENDMENT**

 

This Amendment No. 1on Form 10-K/A (“Amendment No. 1”) amends the Protection One, Inc.Annual Report on Form 10-K for the fiscal year ended December 31,2009, previously filed with the Securities and Exchange Commission (“SEC”) on March 24,2010 (“Original Form 10-K”). This Amendment No. 1 is being filed forthe purpose of (i) including information in Part III, Items 10 through 14,because an information statement for the election of directors will not befiled with the SEC within 120 days after the end of our 2009 fiscal year and(ii) correcting the number of shares outstanding of the registrant’s commonstock, $0.01 par value per share, as of March 5, 2010 to 25,433,371 from theoriginally reported 25,333,371 shares as reflected on the cover of the OriginalForm 10-K.

 

The reference on thecover of the Original Form 10-K to the incorporation by reference ofportions of our information statement into Part III of the Original Form 10-Kis hereby deleted. In addition, Part III, Items 10 through 14 of theOriginal Form 10-K have been amended and restated in their entirety and Part IV,Item 15 “Exhibits” of the Original Form 10-K has been amended and restatedsolely to include as exhibits the new certifications required by Rule 12b-15under the Securities Exchange Act of 1934, as amended.

 

Theincrease in outstanding shares reflects the 100,000 restricted shares issued toour senior executive officers on February 22, 2010.

 

There are no otherchanges to the Original Form 10-K other than those outlined above. ThisAmendment No. 1 does not reflect events occurring after the filing of theOriginal Form 10-K, nor does it modify or update disclosures therein inany way other than as described above. Among other things, forward-lookingstatements made in the Original Form 10-K have not been revised to reflectevents that occurred or facts that became known to us after the filing of theOriginal Form 10-K, and such forward looking statements should be read intheir historical context.

 

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**PROTECTIONONE, INC.**

 

**ANNUALREPORT ON FORM 10-K/A**

 

**For theFiscal Year Ended December 31, 2009**

 
| PART III     | 1                                                                                                        |
|-------------------|----------------------------------------------------------------------------------------------------------|
|              |                                                                                                     |   |
|              | Item 10. Directors,  Executive Officers and Corporate Governance                                         | 1 |
|              |                                                                                                     |   |
|              | Item 11. Executive Compensation                                                                          | 6 |
|              |                                                                                                     |   |
|              | Item 12. Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters | 29 |
|              |                                                                                                     |   |
|              | Item 13. Certain Relationships and Related  Transactions and Director Independence                       | 31 |
|              |                                                                                                     |   |
|              | Item 14. Principal Accountant Fees and Services                                                          | 33 |
|              |                                                                                                     |   |
| PART IV      | 34                                                                                                       |
|              |                                                                                                     |   |
|              | Item 15. Exhibits and Financial Statement Schedules                                                      | 34 |
|              |                                                                                                     |
| Exhibit 31.1 |                                                                                                     |
| Exhibit 31.2 |                                                                                                     |
| Exhibit 32.1 |                                                                                                     |
| Exhibit 32.2 |                                                                                                     |

 

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**PART III**

 

**ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

**Directors**

 

In connection with ourrestructuring in 2005, we entered into a stockholders agreement with affiliatesof Quadrangle Group LLC (the “Quadrangle Stockholders”) and affiliates ofMonarch Alternative Capital LP (the “Monarch Stockholders” and, together withthe Quadrangle Stockholders, the “Principal Stockholders”).  The stockholders agreement was amended andrestated on April 2, 2007, in connection with the merger of IntegratedAlarm Services Group, Inc., which we refer to as IASG, into one of ourwholly-owned subsidiaries (which we refer to as the IASG merger). Raymond C.Kubacki and Arlene M. Yocum or their successors were required to be nominatedand appointed to our Board of Directors in accordance with the IASG mergeragreement for a period of not less than two years from April 2, 2007.  The amended and restated stockholdersagreement provides that the parties thereto and Protection One, Inc., which werefer to as the Company or the company, will use their reasonable best effortsto cause our Board of Directors to consist of nine members, which shall includethe following:

 

·                  three members designated by POIAcquisition, L.L.C. (“POIA”), an affiliate of Quadrangle Group LLC, subject toPOIA’s maintenance of a certain threshold of ownership in us  (and provided that for so long as POIA ownsat least 40% of our Common Stock, it shall have the right to cause our Board ofDirectors to be increased by two directors and designate such directors);

 

·                  two members designated by MonarchAlternative Capital LP (“Monarch”), subject to Monarch’s maintenance of acertain threshold of ownership in us;

 

·                  our President and Chief ExecutiveOfficer, Richard Ginsburg; and

 

·                  one other independent director selectedby a majority of the other directors.

 

The following table setsforth biographical information as of April 26, 2010, regarding our currentdirectors, as well as information regarding experience, qualifications,attributes or skills that contribute to such person’s ability to serve as adirector.  Each director’s term expiresat our 2010 annual meeting of stockholders.

** **
| **Name**           | ** ** | **Age** | ** ** | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------------|------------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Richard Ginsburg   |       | 41      |       | Mr. Ginsburg has  served as our director and Chief Executive Officer since April 2001 and  President since July 2001. Mr. Ginsburg holds a BS in  communications from the University of Miami. He was a founder of Guardian  International, a security monitoring company, and served as its President and  Chief Executive Officer from August 1996 to April 2001.  Mr. Ginsburg brings to the Board in-depth knowledge of, and experience  in, the security monitoring industry, as well as substantial leadership  ability and management experience.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|               |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Raymond C. Kubacki |       | 65      |       | Mr. Kubacki has  served as our director since the IASG merger in April 2007.  Mr. Kubacki served as a director of IASG from June 2004 until the  IASG merger and was a member of IASG’s audit, independent, compensation and  governance and nominating committees. Since July 1991, Mr. Kubacki  has served as President and Chief Executive Officer of Psychemedics  Corporation, a public biotechnology company with a proprietary drug test  product. He has also served as Chairman of the Board of Directors of  Psychemedics since November 2003. Prior to joining Psychemedics, he held  senior management positions in marketing and operations with Reliance  Electric Company and ACME Cleveland Corporation and was an investment officer  for Massachusetts Investors Trust, a major mutual fund investment management  company. He is also a trustee for the Center for Excellence in Education  based in Washington, D.C. Mr. Kubacki received his BA and MBA from  Harvard University. Mr. Kubacki’s years of experience as a director and  member of executive management of public companies, as well as his experience  in marketing and operations, provides useful knowledge and insight to the  Board as a whole. |

 

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| Robert J. McGuire |   | 73     |   | Mr. McGuire has  served as our director since March 2005. Mr. McGuire holds an LL.M.  from New York University Law School, a JD from Saint John’s University Law  School and a BA from Iona College. Mr. McGuire is an attorney and  consultant with offices in New York City. Mr. McGuire is a former  Assistant United States Attorney and a former New York City Police  Commissioner. He is a former Chairman and Chief Executive of Pinkerton’s Inc.  and former President of Kroll Associates, Inc. Mr. McGuire serves  on the Boards of Artio Global Funds, Mutual of America Life Insurance  Company, and Six Flags, Inc. Mr. McGuire’s years of directorial,  executive management and legal experience makes him a valuable member of the  Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Peter R. Ezersky  |   | 49     |   | Mr. Ezersky was appointed  to our Board as a Quadrangle Group LLC designee in October 2009. He  joined Quadrangle upon its formation in 2000 and is a Managing Principal  focused on the firm’s private equity business. Mr. Ezersky also  currently serves on the Boards of Directors of Cinemark, Dice Holdings, Get  AS, MGM and Hargray Holdings as well as on the Advisory Board of Bresnan  Broadband. Among other activities, Mr. Ezersky has been actively  involved in implementing the growth and acquisition strategies of both Cinemark  and Dice, enhancing the management teams at several of Quadrangle’s portfolio  companies and executing a variety of financings to fund acquisitions and  realizations. Prior to joining Quadrangle, Mr. Ezersky ran the Worldwide  Media and Communications group at Lazard Frères & Co., which he  joined after starting his investment banking career at First Boston. He  received a B.A., summa cum laude, in political science from Amherst College,  where he was a member of Phi Beta Kappa, and a J.D. from the Yale Law School,  where he was an editor of the Yale Law Journal. Following law school, he was  a Law Clerk for Judge Ralph K. Winter, Jr. of the United States Court of  Appeals for the Second Judicial Circuit. Mr. Ezersky’s experience with  executive management of various Quadrangle-portfolio companies as well as his  strategic business planning expertise adds value to the Board. |
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Alex Hocherman    |   | 32     |   | Mr. Hocherman was appointed to our Board as a Quadrangle Group LLC  designee in April 2009. Mr. Hocherman joined Quadrangle Group LLC, an affiliate of POIA,  in 2006 and is a Vice President focused on the firm’s media and  communications private equity business. Prior to joining Quadrangle Group  LLC, Mr. Hocherman was an Associate at Bain Capital where he focused on  private equity investments. He also worked as an Associate Consultant at  Bain & Company. He received an MBA from the Wharton School at the  University of Pennsylvania where he was the Ford Fellow and a Palmer Scholar,  and graduated with a BA, magna cum laude, in economics from Dartmouth  College, where he was a member of Phi Beta Kappa. He has served on the board  of Alpha Media Group, a privately-held media company.Mr. Hocherman’s  business and educational experience enhances his ability to contribute as a  director of the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Thomas J. Russo   |   | 68     |   | Mr. Russo has  served as our director since April 2007 as a Monarch designee.   Mr. Russo has served as a partner and president of StepStone  Hospitality, a hotel and restaurant management company, since 2007.   Mr. Russo has 40 years of management experience in domestic and  international operations of foodservice, lodging and consumer goods  companies.  Mr. Russo holds a BS degree from Fordham University and  a degree of Doctor of Business Administration in Foodservice Management from  Johnson and Wales University.  Mr. Russo is Vice Chairman of  Leadership Roundtable and past Chairman of the Massachusetts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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|              |   |   |   | Restaurant Association.   He serves on the boards of the National Restaurant Association, Oneida  Ltd and Margarita, Inc. Mr. Russo’s leadership experience,  including his management and directorial experience, adds value to the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Edward Sippel     |   | 37     |   | Mr. Sippel was  appointed to our Board as a Quadrangle Group LLC designee in April 2008.  Mr. Sippel is a Managing Principal of Quadrangle Group LLC, an affiliate  of POIA. Mr. Sippel currently serves on the Board of Tower Vision Mauritius  Limited and Tower Vision India Private Limited on behalf of Quadrangle Group  LLC.  In his past roles, Mr. Sippel has served on the Board of  Directors of several companies in Asia, including the public companies  PowerTel Limited and Neighbourhood Cable Limited, both in Australia, together  with many private businesses. Mr. Sippel holds a BA degree from  Georgetown University. Prior to joining Quadrangle Group LLC in 2007,  Mr. Sippel was a Managing Director and Partner at TVG Capital Partners,  a private equity firm based in Hong Kong, from its inception in 1998 to 2007.  Prior to joining TVG Capital Partners, Mr. Sippel was with the Asian  Infrastructure Fund in Hong Kong and Morgan Stanley’s Global Communications  Group in New York. Mr. Sippel’s management and directorial experience  enhances his ability to serve as a director of the Board.                                                                                                                        |
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Michael Weinstock |   | 49     |   | Mr. Weinstock has  served as our director since February 2005 as a Monarch designee. He is  Managing Principal of Monarch Alternative Capital LP, an affiliate of the  Monarch Stockholders. Mr. Weinstock graduated from the Wharton School of  the University of Pennsylvania, summa cum laude, with a B.S. in Economics and  from Harvard Business School with an M.B.A. Prior to joining Monarch’s predecessor  in 2002, Mr. Weinstock was a Managing Director of Lazard  Frères & Co., where he built a distressed debt research effort.  Prior to that, he was an investment banker with Salomon Brothers and Goldman  Sachs working on corporate finance, securitization, and mergers and  acquisitions transactions. Mr. Weinstock’s vast experience in the  financial sector as well as his educational background enhances his ability  to contribute as a director on the Board.                                                                                                                                                                                                                                                                                                                                                                                 |
|              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Arlene M. Yocum   |   | 52     |   | Ms. Yocum has  served as our director since the IASG merger in April 2007.  Ms. Yocum served as director of IASG from October 2005 until the  IASG merger and was the chairperson of both the governance and nominating  committee and the independent director committee. Ms. Yocum has served  as Executive Vice President, Managing Executive of Client Services and  Distribution for PNC’s Asset Management Group since 2003. From 2000 to 2003  Ms. Yocum was an Executive Vice President of the Institutional  Investment Group of PNC Wealth Management. From 1993 to 2000, Ms. Yocum  held various management and executive positions within PNC. Ms. Yocum  also serves as a director of Key Energy Services, Inc., which is  headquartered in Houston, TX. Ms. Yocum is a Trustee and Treasurer of  the Philadelphia Community College foundation and a member of the American  Bankers Association Wealth Management and Trust Conference Board. She holds a  JD from Villanova School of Law and a BA from Dickinson College.  Ms. Yocum’s extensive business experience, including her directorial  experience with public companies, as well as her legal and financial  expertise enhances her ability to serve as a director of the Board. |

 

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**Executive Officers**

 

The following table setsforth the name, age and position of each person who serves as an executiveofficer as of April 26, 2010.  Allof our executive officers are appointed by the Board and hold their respectiveoffices until their respective successors have been appointed, or their earlierdeath, resignation or removal by the Board.

 
| **Name**          | ** ** | **Age** | ** ** | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------|------------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Richard Ginsburg  |       | 41      |       | Mr. Ginsburg has  served as our director and Chief Executive Officer since April 2001 and  President since July 2001. He was a founder of Guardian  International, Inc., a security monitoring company, and served as its  President and Chief Executive Officer from August 1996 to  April 2001.                                                                                                                                                                                                                      |
| Darius G. Nevin   |       | 52      |       | Mr. Nevin has  served as our Executive Vice President and Chief Financial Officer since  August 2001.  He served as our director from November 2002 to  May 2003.  From October 1997 to August 2001, he was the  Chief Financial Officer of Guardian International, Inc.  For most  of the ten years prior to October 1997, Mr. Nevin served in senior  executive positions for a provider of commercial electronic security systems  and services.                                      |
| Peter J. Pefanis  |       | 63      |       | Mr. Pefanis has  served as our Executive Vice President and Chief Operating Officer since  March of 2007.  He was Executive Vice President of Protection One  Alarm Monitoring, Inc., our wholly-owned subsidiary, from  September 2002 to March 2007, and was Senior Vice President from  June 2001 to September 2002.  Prior to his role at Protection  One, during a span of 27 years, Mr. Pefanis held senior positions at  SecurityLink, Honeywell, National Guardian Corp., and Wells Fargo. |
| J. Eric Griffin   |       | 51      |       | Mr. Griffin has  served as our Vice President, General Counsel and Secretary since  December 2001. He served as Executive Director of Legal Services from  May 2000 to December 2001.                                                                                                                                                                                                                                                                                                                                            |
| Joseph R. Sanchez |       | 49      |       | Mr. Sanchez has  served as our Senior Vice President Customer Operations since June 2004.  He served as Vice President Customer Operations from August 1999 to  June 2004. Mr. Sanchez has been with us since 1990 and has held  various manager and director level positions within the organization.                                                                                                                                                                                                                      |
| E. Andy Devin     |       | 47      |       | Mr. Devin has  served as our Treasurer since September 2004 and our Vice  President-Finance since August 2007. He has served as Vice President  since 2001 and was our Controller from 1999 to July 2007. Prior to  joining us, Mr. Devin held various positions with Westar Energy, our  former majority owner, and prior to that spent seven years in public  accounting.                                                                                                                                                 |
| Tony Wilson       |       | 42      |       | Mr. Wilson has  served as President of Security Monitoring Services, Inc. (d/b/a CMS),  our wholly owned subsidiary, since 1991. Mr. Wilson was one of the  original founders of CMS and has served in various roles with the company  since 1984.                                                                                                                                                                                                                                                                                    |
| Sarah Strahm      |       | 35      |       | Ms. Strahm has  served as Chief Accounting Officer since August of 2007. Prior to  joining us, Ms. Strahm spent nine years in public accounting with  PricewaterhouseCoopers LLP where she most recently served as a senior  manager.                                                                                                                                                                                                                                                                                                 |

 

**Code of Ethics**

 

We have adopted a code ofethics that applies to all employees, including executive officers and seniorfinancial and accounting employees.  Itis our policy to comply strictly with the letter and spirit of all laws affectingour business and the conduct of our officers, directors and employees inbusiness matters.  We make available thecode of ethics, free of charge, on our website at www.protectionone.com and byresponding to requests addressed to our investor relations department.  The investor relations department can becontacted by mail at Protection One, Inc., Attn:  Investor Relations, 1035 N. 3rd Street, Suite 101,Lawrence, KS 66044 or by calling (785) 856-9368.

 

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**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Pursuant to Section 16(a) ofthe Securities Exchange Act of 1934 and the rules issued thereunder (the “ExchangeAct”), our executive officers and directors are required to file certainreports with the Securities and Exchange Commission.  These reports disclose the amount of ourCommon Stock that is held by our executive officers and directors, in additionto changes in their ownership of stock. Copies of these reports are required to be furnished to us.  We believe that all of our current executiveofficers, directors and beneficial owners of more than 10% of our Common Stockfiled all reports required for 2009 by Section 16(a) of the ExchangeAct on a timely basis.  Our belief thatall required filings were made is based solely on our review of the copies ofreports furnished to us, or on written representations to us that no suchreports were required.

 

**Family Relationships**

 

There are no familyrelationships between any of our directors or executive officers.

 

**Audit Committee; Financial Expert**

 

The Audit Committee hasresponsibility for the appointment, compensation, termination and oversight ofthe work of our independent registered public accountants.  The Audit Committee oversees the integrity ofour financial statements, our compliance with legal and regulatoryrequirements, the independent registered public accountants’ qualifications andindependence and the performance of our internal audit function.

 

Management has theprimary responsibility for the system of internal controls and the financialreporting process.  The independentregistered public accountants have the responsibility to express an opinion onthe financial statements and internal control over financial reporting based onan audit conducted in accordance with generally accepted auditingstandards.  The Audit Committee has theresponsibility to monitor and oversee these processes.

 

During 2009, members ofthe Audit Committee were Mr. McGuire (chairman), Mr. Kubacki, and Ms. Yocum.  Since joining the Board in March 2005, Mr. McGuirehas served as the Audit Committee Chairman. The Board of Directors has determined that Mr. Kubacki meets theSecurities and Exchange Commission criteria for an “audit committee financialexpert.”  Mr. Kubacki’squalifications include experience in evaluating financial information in hiscurrent position as President and Chief Executive Officer of PsychemedicsCorporation, which is a public company whose common stock is listed on theNasdaq, and in his former position as an investment officer with MassachusettsInvestors Trust, a mutual fund investment management company.

 

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**ITEM11.  EXECUTIVE COMPENSATION**

 

The followingCompensation and Discussion Analysis describes material elements ofcompensation for our Chief Executive Officer, our Chief Financial Officer, andour three other most highly compensated executive officers as of December 31,2009, as well as for our former Chief Marketing Officer, whom we refer to as our“named executive officers.”  The namedexecutive officers were Richard Ginsburg, Darius G. Nevin, Peter Pefanis, J.Eric Griffin, Tony Wilson, and Kim Lessner and are listed in the SummaryCompensation Table below.  The followingCompensation Discussion and Analysis, executive compensation tables and relatednarrative describe the compensation awarded to, earned by or paid to the namedexecutive officers for services provided to us in 2009, their outstandingequity awards at the end of 2009 and their compensation arrangements with us.

 

**Compensation Discussion andAnalysis**

 

***Overview,Philosophy and Objectives of Executive Compensation***

 

The CompensationCommittee of our Board of Directors has authority to establish the salaries,bonuses and equity plan participation levels for the named executive officers.The Compensation Committee also has authority to review and approve employmentagreements, severance arrangements and retirement plans for the named executiveofficers, to oversee the design and administration of equity-based andincentive compensation plans and otherwise to review and approve ourcompensation plans. Together with the full Board of Directors, the CompensationCommittee evaluates the performance of our Chief Executive Officer and, withinput from the Chief Executive Officer, evaluates the performance of our othernamed executive officers.  Our Board ofDirectors also has the authority to perform the responsibilities and duties ofthe Compensation Committee.

 

We compensate our namedexecutive officers primarily through a combination of base salary, annual bonusand equity compensation. The primary objectives of the Compensation Committeewith respect to the compensation of our named executive officers are toattract, motivate and retain talented and dedicated executives, to foster ateam orientation toward the achievement of company-wide business objectives andto link the interests of the named executive officers with those of ourstockholders. The Compensation Committee’s compensation philosophy with respectto the named executive officers includes the following general elements:providing competitive base salaries and annual bonus targets; rewardingachievement of company financial performance objectives as well as individualmanagerial effectiveness; and emphasizing equity incentives for named executiveofficers. Participation in our stock option programs has also been extended tocertain employees, in addition to certain executive officers, based on theirperceived potential to contribute to increasing stockholder value.

 

***CompensationCommittee***

 

The CompensationCommittee establishes the salaries and bonuses for our executive officers andreviews and makes recommendations to the Board regarding our compensation andbenefit plans.  Current members of theCompensation Committee are Mr. McGuire (chairman) and Mr. Hocherman.  Mr. Nordhaus was a member of theCompensation Committee from December 16, 2008 through his resignation fromthe Board on September 28, 2009.   Mr. Hochermanreplaced Mr. Nordhaus on the Compensation Committee effective September 28,2009.  As described under “DirectorIndependence” in Item 13 of this Form 10-K/A, because we are a “controlledcompany” under the marketplace rules of The Nasdaq Stock Market, we arenot required to have a compensation committee comprised entirely of independentmembers.  The Compensation Committee maydelegate its responsibilities to a subcommittee of the Compensation Committee,including to a subcommittee consisting entirely of directors who are deemed tobe non-employee directors and outside directors for purposes of potentiallyapplicable securities regulations and tax regulations, respectively.

 

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***2009Executive Compensation Components***

 

*Base Salary*

 

The minimum basecompensation for Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson wasestablished in 2004.  At that time, ourBoard of Directors, which was then performing the functions of the CompensationCommittee, considered

 

·                  our historical operating performance andtrends;

·                  the need to maintain the continuity andfocus of our management team through an impending financial restructuring;

·                  our goal of delivering competitivecompensation to our management team;

·                  the recommendations of a compensationconsultant and the competitive compensation data and analyses developed by thecompensation consultant; and

·                  with respect to those executives otherthan the Chief Executive Officer, the recommendations of the Chief ExecutiveOfficer.

 

To assist our Board ofDirectors in evaluating base salaries and bonus opportunities in June 2004,a compensation consultant was selected by our Board and was instructed toensure that our compensation programs were appropriate to motivate, retain andcompensate senior management through an impending financial restructuring.  The compensation consultant developedcompensation data obtained from surveys of compensation practices for a broadcross-section of companies representing diverse industries, performance,capital structure and competitive challenges. Where possible, the compensationconsultant used regression analysis to adjust the data to our revenue size. The compensation data provided by thecompensation consultant was based on data obtained from the following surveysources: Towers Perrin Executive Compensation Database — Single RegressionReport (March 2003), Towers Perrin Executive Compensation Data Base --Descriptive Statistics Report (March 2003), Towers Perrin Long-TermIncentive Plan Report (March 2003) and Watson Wyatt Top ManagementCompensation Survey (April 2003).  Thesalaries of Messrs. Ginsburg, Nevin, Griffin and Pefanis as of June 2004were found to range from the 46th survey percentile to the 61st percentile forcompetitive base salary for their position, and these base salary levels wereleft unchanged in the employment agreements that the Company subsequentlyentered into with each of the named executive officers.  Mr. Wilson was our lowest paid executiveofficer in 2004 and the compensation consultant did not find sufficientcomparable data to provide an equivalent range for his salary.

 

Each of Messrs. Ginsburg,Nevin, Pefanis, Griffin and Wilson entered into an employment agreement in 2004which provides that the executive officer will receive a base salary of notless than the amount specified in the employment agreement, and that the basesalary is subject to review annually by the Compensation Committee or our Boardof Directors. The base salaries of Messrs. Ginsburg, Nevin, Pefanis,Griffin and Wilson remained at the minimum amount required in their respective2004 employment agreements until the Compensation Committee approvedcost-of-living influenced increases to the base salaries of the named executiveofficers in 2007.  Additionalcost-of-living increases were approved in 2008 for each named executive officerother than Mr. Wilson.  Mr. Ginsburgand Mr. Nevin chose to defer the commencement of their respectivecost-of-living increases in 2008, though such increases are to be included inthe definition of base salary for annual bonus and change in controlcompensation purposes.  In approvingthese increases, the Compensation Committee considered consumer price indexincreases since the month in which each named executive officer’s base salaryhad last been increased and, in the case of Mr. Pefanis, Mr. Nevin, Mr. Griffin,Mr. Wilson and Ms. Lessner, the recommendation of the Chief ExecutiveOfficer.

 

After completion of theIASG merger on April 2, 2007, the Compensation Committee agreed toincrease Mr. Wilson’s base salary from $154,200 to $235,000 to reflect theincrease in his responsibilities as President of the Wholesale Segment of theCompany which nearly quadrupled in terms of monthly recurring revenue with theIASG merger.  The Compensation Committeealso considered the compensation of other executive officers in establishinghis base pay.

 

Ms. Lessner washired as our executive vice president and chief marketing officer in March 2007.  We engaged a nationally recognized executivesearch firm to assist us in identifying candidates and in negotiatingemployment terms consistent with market requirements for a chief marketingofficer for a company with our characteristics following the IASG merger.  Ms. Lessner’s employment agreementprovided an annual base salary of not less than $265,000.  As of April 15, 2009, Ms. Lessnerresigned as executive vice president and chief marketing officer of theCompany.

 

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The base salary of ournamed executive officers is intended to provide a competitive base level of payfor the services they provide. We believe that the fixed base annual salarylevels for the named executive officers helps us to retain qualified executivesand provides a measure of income stability that may lessen potential pressuresfor the named executive officers to take possibly excessive risks to achieveperformance measures under incentive compensation arrangements. The SummaryCompensation Table provided below reflects the base salary of each of our namedexecutive officers for 2009.

 

*Annual Bonus*

 

On June 3, 2009, weadopted the 2009 Senior Management Short-Term Incentive Plan (the “2009 STIP”).  Through the 2009 STIP, certain of our seniormanagers and officers who have the opportunity to directly and substantiallycontribute to our achievement of short-term objectives are eligible to receiveshort-term incentive compensation.  Theannual incentive target awards for our senior managers and officers range from15% to 60% of base salary.

 

Under the 2009 STIP, Mr. Ginsburg,Mr. Nevin, and Mr. Pefanis had an incentive target of 60% of theirbase salaries.  The respective employmentagreements of Mr. Ginsburg, Mr. Nevin, and Mr. Pefanis requirethat they participate in a short-term incentive plan each year with a targetbonus of not less than 60% of base salary and a potential to earn at least 100%of base salary.

 

All of our namedexecutive officers are eligible for an annual bonus under our STIP.  Through the STIP, certain employees who areviewed as having an opportunity to directly and substantially contribute toachievement of our short-term objectives are selected to participate in theSTIP.  Approximately forty employees,including the named executive officers, participated in the STIP during 2009.

 

Our annual STIP rewardsthe named executive officers for achieving annual company financial performanceobjectives and for demonstrating individual leadership. We believe that byproviding a positive incentive and annual cash rewards, the STIP plays anintegral role in motivating and retaining qualified executives. We also believethe allocation of base salary and annual incentive compensation opportunity fornamed executive officers generally represents a reasonable combination of fixedsalary compared to variable incentive pay opportunity and reflects our goal ofretaining and motivating our named executive officers.

 

The 2009 STIP targetbonus levels for Messrs. Ginsburg, Nevin, and Pefanis were equal to theminimum target bonus levels required by their respective employmentagreements.  These employment agreementswere entered into in 2004, following a compensation review by our Board ofDirectors with the assistance of a compensation consultant with a view towardmaintaining competitive target annual cash compensation levels (base salaryplus target annual bonuses) that included an adequate combination of fixed andvariable pay.  These employmentagreements require minimum target bonus levels that are equal to the respectiveexecutive’s target bonus level in 2004. In 2004, the target annual cash bonus as a percentage of base salary forMr. Ginsburg was determined to be between the 25th percentile and the 50thpercentile for competitive target bonus and the target annual cash bonus as apercentage of base salary for Mr. Griffin and Mr. Pefanis was equalto the 50th percentile and the 75th percentile,respectively, for competitive target bonus. Mr. Nevin’s target bonus as a percentage of salary was 60% comparedto a 75th percentile target bonus as a percentage of salary of 50% for chieffinancial officers.  We believe that theresponsibilities of chief financial officers vary. Mr. Nevin had animportant role in our successful financial restructuring in 2005, oursubsequent financings, and also contributes significantly to strategydevelopment and implementation.  As aresult of these and other considerations, we believe that the target bonus as apercentage of salary for our Chief Financial Officer is appropriate.  Mr. Wilson’s target bonus as apercentage of salary was 28% compared to a 25th percentile target bonus as a percentage ofsalary of 30% prior to the IASG merger.  Mr. Wilson’starget bonus was increased in 2007, after completion of the IASG merger, to 40%which, according to the 2004 report, is equal to the 75th percentile forcompetitive target bonuses.  We believethis is appropriate since our Wholesale Segment is thought to be the largest inthe industry based on monthly recurring revenue.

 

The compensationconsultant’s 2004 report indicated that total cash compensation, consisting ofbase salary plus target bonus, of our named executive officers who were employedwith us at that time, other than Mr. Wilson whose position had no match inthe study, ranged from the 46th percentile to the 73rd percentile ofcompetitive target total

 

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cash compensation.  Our STIP bonus targets for the applicablenamed executive officers were viewed as being generally competitive in2004.  The STIP bonus targets as apercentage of base salaries for Mr. Ginsburg, Mr. Nevin, Mr. Pefanis,and Mr. Griffin have not been changed from the target percentages in our2004 STIP.  Mr. Wilson’s STIP bonustarget increased from 28% to 40% after the IASG merger as discussed above.

 

Actual earned paymentsunder the 2009 STIP as a percentage of salary can be greater or less than thetarget percentage depending on our actual performance measured against thebudgeted performance criteria approved by the Compensation Committee and setforth in the 2009 STIP.  Accordingly, ifour performance exceeds budgeted criteria, actual incentive compensation paidunder the 2009 STIP may exceed the targeted percentage of basecompensation.  Actual payments pursuantto the portion of the 2009 STIP based on the budgeted performance criteria werecapped at twice the targeted amount, regardless of actual performance.

 

All of the namedexecutive officers’ performance criteria other than Mr. Wilson’s areevaluated based on the consolidated Company results.  Mr. Wilson’s performance criteria arebased on a blend of 80% of the Wholesale Segment results and 20% of theconsolidated Company results.

 

Under the 2009 STIP:

 

·                  45% of each annual incentive target awardfor the named executive officers was based upon Adjusted EBITDA, as defined inthe 2009 STIP, which we refer to as the Adjusted EBITDA criterion;

·                  25% of each target award was based onrecurring monthly revenue (“RMR”), as defined in the 2009 STIP, which we referto as the RMR criterion; and

·                  30% of each target award was based ondiscretionary qualitative criteria, including managerial effectiveness, each asdescribed in the 2009 STIP.

 

There would have been no paymentunder the Adjusted EBITDA criterion portion of the 2009 STIP unless wegenerated Adjusted EBITDA equal to at least 90% of the budgeted figure approvedby our Board of Directors. The maximum payment under the Adjusted EBITDAcriterion portion of the 2009 STIP was two times the amount targeted under theAdjusted EBITDA criterion portion of the 2009 STIP.  This maximum amount payable under theAdjusted EBITDA criterion would have been earned if we generated AdjustedEBITDA equal to at least 110% of the budgeted figure.  If Adjusted EBITDA was between 90% and 110%of the budgeted figure, then the payment based on the Adjusted EBITDA criterionwould have been prorated between zero and twice the target amount of bonusbased on Adjusted EBITDA.

 

Earning a payment underthe RMR criterion of the 2009 STIP commenced when actual ending RMR equaled atleast 97% of the budgeted figure approved by the Board of Directors.  The maximum payment under the RMR criterionportion of the 2009 STIP was two times the amount targeted under the RMRcriterion portion of the 2009 STIP.  Thismaximum amount payable under the RMR criterion would have been earned if we hadended 2009 with recurring monthly revenue equal to at least 103% of thebudgeted figure.  If recurring monthly revenuewas between 99% and 101% of the budgeted figure, then the payment based on theRMR criterion would have been equal to the target amount under the RMRcriterion portion of the 2009 STIP.  Ifthe recurring monthly revenue was between 97% and 99% of the budgeted figure,then the payment based on the RMR criterion would have been decreased by 5% ofthe targeted amount for each 0.10% below 99% of the budgeted figure (down to97% of the budgeted figure).  If therecurring monthly revenue was between 101% and 103% of the budgeted figure,then the payment based on the RMR criterion would have been increased by 5% ofthe targeted amount for each 0.10% above 101% of the budgeted figure (up to103% of the budgeted figure).

 

The Adjusted EBITDAperformance target under the 2009 STIP was $116,508,000 and $15,165,000 for theconsolidated Company and Wholesale Segment, respectively.  The RMR performance target under the 2009STIP was $25,207,000 and $2,762,000 for the consolidated Company and WholesaleSegment, respectively.  Payments underthe consolidated Company Adjusted EBITDA criterion of the 2009 STIP were equalto 154.28% of the target amount and payments made under the consolidatedCompany RMR criterion of the 2009 STIP were equal to 80% of the target amount.  Payments to Mr. Wilson under the blendedCompany Adjusted EBITDA criterion of the 2009 STIP were equal to 200% of thetarget amount and payments made under the blended Company RMR criterion of the2009 STIP were equal to 175% of the target amount.  We believe actual consolidated CompanyAdjusted EBITDA was better than plan due to improvements in our monitoring andrelated services margins as well as from

 

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reduced sellingexpenses.  We ended the year withconsolidated RMR at less than plan as actual RMR additions were less than planprimarily due to the difficult economic conditions which persisted throughout2009.   Actual Wholesale segment Adjusted EBITDA was better than planprimarily due to that segment’s ability to retain some of its largest customersfor an extended period beyond expectations as well as cost reductions in excessof plan from a more efficient operating structure from consolidating monitoringcenters onto a common monitoring and billing platform.

 

Payments under thediscretionary portion of the 2009 STIP to the named executive officers rangedfrom 60% to 95% of the target amount.  Indetermining the discretionary portion of payments, the Compensation Committeefocused on the fact that our named executive officers were able to generatesignificant cash flow in a difficult economic environment by operating thebusiness more efficiently, successfully negotiating a settlement agreement withour former parent company and strengthening the balance sheet including asuccessful refinancing of a portion of our debt.  The Summary Compensation Table below reflectspayments under the objective financial portion of the 2009 STIP in the “Non-EquityIncentive Plan Compensation” column and reflects payments under thediscretionary portion of the 2009 STIP in the “Bonus” column.

 

Under the 2009 STIP,Adjusted EBITDA for purposes of the Adjusted EBITDA criterion was determined inthe same manner as the reported Adjusted EBITDA in our 2009 Annual Report filedon Form 10-K with the following adjustments:

 

·                  Unbudgeted expenses, to the extent suchexpenses reduce Adjusted EBITDA related to (i) legal costs andsettlements, with respect to the Company, arising from matters that precededthe tenure of current management (i.e., prior to April 2001, including thePhoenix lease dispute); (ii) legal costs and settlements, with respect toIntegrated Alarm Services Group (“IASG”), arising from matters that precededProtection One’s merger with IASG (i.e., prior to April 2007); and (iii) raisingdebt or equity.

 

Under the 2009 STIP, RMRfor purposes of the RMR criterion was determined as follows:

 

·                  RMR is a measure of all the monthlyrevenue we are entitled to receive under contracts with customers in effect atthe end of the period.  RMR includesamounts billable to customers with past due balances that we believe arecollectible.

 

·                  Pursuant to the terms of the 2009 STIP,unbudgeted increases or reductions in RMR that resulted from the followingitems were excluded from the calculations under the 2009 STIP:

 

·                  RMR related to wholesale relationshipswith certain large dealers;

 

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

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

 

*Equity Compensation*

 

Equity compensation hashistorically been offered to our employees who are in positions to affect ourlong-term success through the formation and execution of our businessstrategies.

 

In 2005 in connectionwith our financial restructuring, we adopted the Protection One 2004 StockOption Plan and a stock appreciation rights plan, which we refer to as the 2005SAR Plan, and granted to certain named executive officers (i) options withsix-year terms that are fully vested and exercisable and expire in either 2011or 2012 and (ii) stock appreciation rights that will vest no later than2011.

 

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In preparation for theapproaching expiration of the equity awards granted in 2005, our CompensationCommittee retained a compensation consultant, Frederic W. Cook & Co., Inc.,in 2009 to conduct a competitive review of our equity compensation programswith a focus on long-term incentive programs for our three most seniorexecutive officers, Messrs. Ginsburg, Nevin and Pefanis, whom we refer toas the senior executive officers.   Thecompensation consultant created a peer group comprised of the following 13companies that were selected based on relatively similar size and businessmodel to us, referred to as the “proxy data”: Brink’s Home Security, Consol.Communications, GeoEye, Intersections, Iowa Telecom Services, Knology, McGrathRentCorp, Mobile Mini, NTELOS Holdings, Standard Parking, TAL InternationalGrp, TiVo, and Waste Services.  BecauseBrink’s Home Security had not yet disclosed its executive compensationinformation as an independent entity, the values attributed to Brink’s wereused for informational purposes only and were excluded from comparativepercentiles.  Based primarily on therevenues and incomes of the peer group companies, the market rate of cashcompensation was viewed as between the 25th percentile and the median of the proxy data.  Compensation was considered to be within thecompetitive range if it was within 15% of the market rate.

 

In order to triangulatethe results of the competitive analysis, the compensation consultant alsoutilized pre-IPO survey data of companies that were similar in size fromrevenue and market capitalization perspectives, referred to as “survey data.”  The component companies included in thecompensation consultant’s pre-IPO survey data were not listed by thecompensation consultant.  The survey datawas considered in the Company’s analysis because private equity firms, ourPrincipal Stockholders, own approximately 70% of our outstanding common stockand the pre-IPO survey provides an indication of practices of companies ownedby private equity firms.

 

The compensationconsultant advised the Compensation Committee that a carried interest analysis,which is a measure of the executive’s actual and potential stock ownershiplevels, is a useful measure of the competitive positioning of long-termincentive awards and the resulting retention power for companies with largeprivate equity ownership.  Thecompensation consultant found that the senior executive officers’ then-currentcarried interest, on a value basis, was below the peer 25th percentile atstock prices of $4 and $8, at the median at a stock price of $12 when stockappreciation rights were excluded and at the 75th percentile when stock appreciation rights wereincluded.   On September 9, 2009,the date of the report, the price per share of company common stock was $3.61.

 

With respect to carriedinterest on a percentage of shares outstanding basis, the senior executiveofficers’ carried interest approximated the survey data median and was abovethe 75th percentile of the proxy data, when the outstanding stock appreciationrights (“SARs”) were excluded.  Webelieve that this difference reflects that private companies, includingcompanies owned by private equity firms, often have greater concentration ofownership among their senior executives than public companies.   When the outstanding SARs were included, thesenior executive officers’ carried interest was above the 75th percentile ofthe proxy and survey data on a percentage of shares outstanding basis.  Due to the limited potential value associatedwith each SAR, the Company believes that including the SARs in a carriedinterest as a percentage of shares outstanding calculation produces asignificantly overstated indication of potential stock ownership levels.

 

The compensationconsultant was engaged to advise the Compensation Committee and the Board withrespect to long-term equity incentives for the senior executive officers. Inorder to provide context for that analysis, the compensation consultantreviewed the Company’s compensation programs and compared the base salary,target total cash compensation (base salary plus annual incentive bonus) andtarget total direct compensation (target total cash compensation plus thepresent value of long-term incentives) for each of Messrs. Ginsburg,Nevin, Pefanis, Wilson, and Griffin, whom we refer to as the surveyedexecutives.   In the aggregate, thesurveyed executives’ 2009 salaries were 101% of the proxy data median and 113%of the survey data median.   In theaggregate, the surveyed executives’ 2009 target cash compensation was 101% ofboth the proxy and survey data median. In the aggregate, the surveyed executives’ target total directcompensation was substantially below the 25th percentile of the proxy data,because at the time of the compensation consultant’s report, the Company hadnot granted equity awards to the surveyed executives since 2005, except for the2006 reallocation of outstanding SARs forfeited by a former executive officerto the other 2005 SAR Plan participants, Mr. Ginsburg, Mr. Nevin and Mr. Pefanisand the 2006 grant of 5,000 options to Mr. Griffin.

 

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The compensationconsultant advised the Compensation Committee that the recent economicconditions and associated decline in the Company’s stock price had reduced theaggregate value of the senior executive officers’ outstanding stock option andstock appreciation rights awards.  As aresult of this reduction in value, the retentive value of the Company’s seniorexecutive officer compensation program had diminished.  This circumstance, together with the absenceof new equity grants to the senior executive officers for several years, madeconsideration of new equity compensation arrangements appropriate.  The Compensation Committee took thecompensation consultant’s information under advisement and utilized thisinformation and other information to recommend the appropriate levels of grantsin early 2010 in order to further align the interests of the senior executiveofficers with those of the shareholders. See the section below entitled “2010 Employment Agreement Amendments andEquity Incentive Awards” for additional information regarding equity grants in February of2010.

 

*StockOptions*

 

We believe that long-termperformance is enhanced through an ownership culture that rewards our namedexecutive officers for stock price appreciation through the use of stockoptions.  We believe that stock options encourageexecutive retention and provide incentive for our named executive officers toincrease value for our stockholders.

 

Options were granted toour named executive officers who were employed with us and to other employeesin February 2005 under the 2004 Stock Option Plan upon the completion ofour financial restructuring.  In view ofthe incentives already provided to the named executive officers by the optionsgranted in February 2005, the Compensation Committee did not grant stockoptions to the named executive officers in 2006, 2007, 2008, or 2009, exceptfor 5,000 options issued to Mr. Griffin in 2006 and 100,000 options issued inconnection with the hiring of Ms. Lessner as chief marketing officer in2007.   Stock options were granted inearly 2010 as further described below under “2010 Employment AgreementAmendments and Equity Incentive Awards.”

 

*StockAppreciation Rights*

 

SARs were granted to Mr. Ginsburg,Mr. Nevin and Mr. Pefanis in February 2005 as a result of ourfinancial restructuring.  Under the 2005SAR Plan, these SARs vest and become payable upon the earlier of (1) aqualified sale as defined in the SAR Plan, which generally means our PrincipalStockholders’ sale of at least 60% of their equity interest in Protection One,provided that if the qualified sale is not a permissible distribution event (asdefined in the 2005 SAR Plan) the payment will be made, with interest, inconnection with a subsequent permissible distribution event, and (2) February8, 2011.  The exercise price of the SARswas $4.50 on the grant date and increase by 9% per annum.  If our Principal Stockholders sell less than60% of their equity interest in Protection One, the exercise price applicableto an equivalent percentage of management’s SARs would be based on the fixedreturn through the date of such sale.  Each SAR that vests and becomes payable inconnection with a qualified sale would entitle the holder to receive thedifference between (x) the exercise price and (y) the lesser of (i) thevalue of the consideration paid for one share of common stock in such qualifiedsale, or (ii) $7.50.  In May 2006,a portion of the outstanding SARs were modified to fix the exercise price at$5.02.  In November 2006, our Boardof Directors approved the reallocation of SARs forfeited by a former executiveofficer to the other 2005 SAR Plan participants, Mr. Ginsburg, Mr. Nevinand Mr. Pefanis.  The forfeited SARswere reallocated to the applicable named executive officers in proportion tothe number of SARs that they held immediately before the reallocation. Exceptfor a reallocation upon any forfeiture by a former executive officer, the 2005 SARPlan does not allow for any grant of additional SARs.

 

No SARs were granted in2007, 2008 or 2009.   In early 2010, theCompany granted SARs under a new SAR plan as further described below under “2010Employment Agreement Amendments and Equity Incentive Awards.”

 

*All Other Compensation*

 

As described in footnote2 to the Summary Compensation Table, other compensation to our named executiveofficers included: commuter travel expenses and related taxes; car allowances;company contributions under our 401(k) plan, which are available toemployees generally; and payment of life insurance premiums. These payments andother benefits, the amounts of which are not material to us, provide additionalcompensation and benefits to the applicable named executive officers and, inthe case of travel expenses and car allowances, in part defray certain personalexpenses related to the applicable named executive officer’s employment.  We believe that these payments and otherbenefits are reasonable and appropriate components of a compensation programthat is designed to attract and retain talented executives.

 

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***2010Employment Agreement Amendments and Equity Incentive Awards***

 

*Amended and Restated EmploymentAgreements*

 

On February 22,2010, we, along with our wholly-owned subsidiary, Protection One AlarmMonitoring, Inc., entered into amended and restated employment agreements(the “Amended Agreements”) with Messrs. Ginsburg, Nevin, and Pefanis.

 

Among other things, theamendments contained in the Amended Agreements (i) broaden thenon-competition provisions to prohibit employment with any competitor for 18months,  if 50% or more of the executive’sequity awards granted on February 22, 2010 (discussed below) vest, (ii) modifythe change of control tax gross-up provisions to provide that either (x) payoutsunder the new 2010 equity awards would be reduced to avoid any excise tax or (y) theexecutive would keep the equity award payouts and pay the related excise tax,and (iii) modify the definition of “good reason” so that the Company’scommon stock ceasing to be publicly traded on an established national stockexchange in connection with or following a change of control would allow theexecutive to terminate his employment with good reason.

 

*Grant of Equity Awards*

 

On February 22,2010, we granted to Messrs. Ginsburg, Nevin and Pefanis (i) stockappreciation rights under the Company’s 2010 Stock Appreciation Rights Plan(the “2010 SAR Plan”), which was adopted by the Company on February 22,2010; (ii) stock options under the company’s 2008 Long-Term Incentive Plan(the “2008 LTIP”); and (iii) restricted share awards under the 2008LTIP.  We refer to these grantscollectively as the “2010 equity awards.”  The grant of restricted stockwas as follows: 50,000 restricted shares to Mr. Ginsburg, 25,000restricted shares to Mr. Nevin, and 25,000 restricted shares to Mr. Pefanis. The grant of stock options was as follows: 195,182 stock options to Mr. Ginsburg,130,284 stock options to Mr. Nevin, and 113,694 stock options to Mr. Pefanis. The grant of stock appreciation rights (“SARs”) was as follows: 195,182 SARs toMr. Ginsburg, 130,284 SARs to Mr. Nevin, and 113,694 SARs to Mr. Pefanis.

 

The exercise price foreach stock option is $9.50, the closing price of the Company’s common stock onthe date of grant.  The payout for each SAR is equal to the differencebetween (x) $7.50, and (y) the lesser of: (i) $9.50, the closingprice of the company’s common stock on the date of grant, and (ii) thevalue of a share of company common stock on the date of exercise.

 

The 2010 equity awardsvest in one-half increments on each of the second and third anniversary of thegrant date so long as the executive is employed with the company.  Vestingof the 2010 equity awards will accelerate upon a change of control of thecompany if (x) the executive is employed with the company at the time ofthe change of control or (y) the change of control occurs within two yearsof the date of grant and within 90 days of the executive’s termination that isa qualifying termination (as defined in the Amended Agreements).  Both thestock options and the restricted shares are subject to all the terms andconditions of the 2008 LTIP as well as the individual award agreements. The SARs are subject to all of the terms and conditions of the 2010 SAR Plan aswell as the individual grant agreements.

 

***TaxTreatment Under Section 162(m), 280G and 409A of the Code***

 

*Section 162(m) of theCode*

 

In structuring ourcompensation plans, we take into consideration Section 162(m) of theInternal Revenue Code of 1986, as amended, which is referred to as the Code,and other factors the Compensation Committee deems appropriate.  Section 162(m) of the Codedisallows the deduction of compensation for each of the named executiveofficers in excess of $1,000,000 per person, except for certain payments basedupon performance goals. Nevertheless, in order to accomplish the objectivesdescribed above with respect to our compensation programs, some of thecompensation under our compensation programs is not deductible by reason of Section 162(m).  The stock options granted to our namedexecutive officers were designed so that any expense we recognize under theCode resulting from them would be deductible under Section 162(m).  Base salary, bonuses paid under the STIP, andperquisites and personal benefits paid in 2009, to the extent in the aggregatethey were in excess of $1,000,000 per named executive officer, were notdeductible by reason of Section 162(m).

 

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We do not believe thatpayments that may be made in the future to any named executive officerspursuant to SARs or restricted stock agreements would meet theperformance-based compensation exception, and therefore those payments would besubject to the Section 162(m) limitation.  In addition, any payments made to the namedexecutive officers pursuant to their respective employment agreements followinga change in control may also not be deductible due to the Section 162(m) limitation.

 

*Section 280G of the Code*

 

As discussed below under “PotentialPayments Upon Termination or Change in Control,” under the employmentagreements with Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson, inthe event that any amounts or benefits paid to a named executive officerpursuant to his current employment agreement are subject to the excise taximposed under Section 4999 of the Code, we will pay the named executiveofficer an additional amount to compensate him for that tax liability, subjectto certain potential reductions in payments and exceptions in certaincircumstances with respect to the 2010 equity awards.  In general, if the total amount of paymentsto an individual that are contingent upon a “change in control” (as defined in Section 280Gof the Code) of the Company, excluding payments for reasonable compensation forservices rendered after the change of control, including a covenant not tocompete, equals or exceeds three times the individual’s “base amount”(generally, the individual’s average annual compensation for the five calendaryears preceding the change in control), the payments may be treated as “parachutepayments” under the Code.  The portion ofsuch payments that exceeds the individual’s “base amount” is non-deductible tous under Section 280G of the Code, and the individual is subject to a 20%excise tax on such amount under Section 4999 of the Code.  Under the employment agreements of each of Messrs. Ginsburg,Nevin, Pefanis, Griffin and Wilson, we are obligated to make additional cashpayments to the named executive officers to compensate them for the 20% excisetax so that they receive the same benefit from their awards as if such excisetax did not apply (subject to certain potential reductions in payments andexceptions in certain circumstances with respect to the 2010 equityawards).  These additional payments arenon-deductible by us and constitute income to the executives, which requiresfurther payment under the employment agreements to compensate the executivesfor the income tax incurred with respect to such payments.  Non-deductible parachute payments generallyreduce the $1 million deduction limitation under Section 162(m) ofthe Code, discussed above.

 

The employment agreementsof each of Messrs. Ginsburg, Nevin, Pefanis, Griffin and Wilson providethat they agree to reduce the aggregate amount of any payments or benefits thatconstitute “parachute payments” under Section 280G of the Code to theextent necessary so that such payments and benefits do not equal or exceedthree times the named executive officer’s “base amount” (and therefore are notsubject to the excise tax imposed by Section 4999); provided, however,that they are not required to make any such reduction if the reductionnecessary to cause such payments and benefits not to equal or exceed threetimes his “base amount” is more than $100,000 and further provided that the2010 equity awards to the senior executive officers are treated asfollows.   In the event of a change incontrol, the Company’s tax counsel, or such other tax counsel or publicaccounting firm as may be agreed upon by a senior executive officer and theCompany, will determine whether the excise tax imposed by Section 4999would be owed in connection with a full payout under the senior executiveofficer’s employment agreement and equity grants.  While the Company generally has an obligationto pay the executives a “gross up” related to any such excise tax, each seniorexecutive officer’s employment agreement generally provides that either payoutsunder the 2010 equity awards would be reduced to avoid any excise tax, or thesenior executive officer would keep the 2010 equity award payouts and pay therelated excise tax.

 

As discussed under “PotentialPayments Upon Termination or Change in Control,” each of the employmentagreements of the named executive officers provides benefits in connection witha change in control.  The change incontrol benefit has a “double trigger” for severance payments in the event of achange in control.  This means that theremust be both a change in control and a qualifying termination before theexecutive is entitled to such payment.

 

*Section 409A of the Code*

 

Section 409A of theCode sets forth specific requirements relating to the payment of deferredcompensation to employees and other service providers.  Deferred compensation payments that do notmeet these requirements are generally taxed to the employee or service providerwhen they vest, and may also be subject to a 20% penalty tax, payable by theemployee or service provider.  We havestructured payments under our executive compensation programs in a manner thatis intended to meet the requirements of Code Section 409A.

 

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***Changein Control and Severance Arrangements***

 

Our change in control andseverance arrangements with our named executive officers are described belowunder “Potential Payments Upon Termination or Change in Control.”

 

We believe that we shouldprovide severance benefits to the named executive officers.  Our severance benefits for the namedexecutive officers reflect, among other things, the fact that it may be difficultfor a named executive officer to find comparable employment within a shortperiod of time.  We believe that ourseverance arrangements are an important element in the retention of the namedexecutive officers.

 

We provide Mr. Ginsburg,Mr. Nevin, Mr. Pefanis, Mr. Griffin and Mr. Wilson withadditional benefits in the event of a qualifying termination in connection witha change in control.  The employmentagreement provisions regarding payment upon termination in connection with achange in control were established prior to our 2005 financial restructuringand were intended to, among other things, encourage the named executiveofficers to enter into the new employment agreements and focus on ourperformance rather than other employment alternatives.  We believe that the interest of stockholdersis served by aligning the interests of the named executive officers with themand that providing change in control benefits reduces the potential for namedexecutive officers to be reluctant toward pursuing a change in controltransaction that may be in the best interest of stockholders.  We believe that our change in control andseverance arrangements with the named executive officers are an importantelement in the retention and incentive of the named executive officers.

 

**Summary Compensation Table**

 

The following table setsforth information regarding compensation earned by our Chief Executive Officer,our Chief Financial Officer, and our three other most highly compensatedexecutive officers as of December 31, 2009, as well as for our formerChief Marketing Officer, during the years 2009, 2008, and 2007:

** **
| **Name and Principal** | ** ** | ** ** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Option  Awards (1)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **All Other  Compensation** | ** ** | ** **         | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|-----------|------------|-----------------------------|------------|---------------------------------------------------|------------|----------------------------------|------------|--------------------|------------|
| **Position**                     | ** ** | **Year**   | ** ** | **($)**    | ** ** | **($)**   | ** ** | **($)**                     | ** ** | **($)**                                           | ** ** | **($)(2)**                       | ** ** | **Total ($)** | ** ** |
| Richard  Ginsburg,               |       | 2009       |       | 500,000    |       | 88,493    |       | —                      |       | 277,665                                           |       | 30,137                           |       | 896,295            |       |
| Chief  Executive Officer         |       | 2008       |       | 500,000    |       | 83,835    |       | —                      |       | 70,639                                            |       | 31,780                           |       | 686,254            |       |
|                             |       | 2007       |       | 500,000    |       | 81,000    |       | —                      |       | 257,600                                           |       | 24,668                           |       | 863,268            |       |
| Darius  G. Nevin,                |       | 2009       |       | 330,000    |       | 58,405    |       | —                      |       | 183,259                                           |       | 57,349                           |       | 629,013            |       |
| Chief  Financial Officer         |       | 2008       |       | 330,000    |       | 55,331    |       | —                      |       | 46,622                                            |       | 68,161                           |       | 500,114            |       |
|                             |       | 2007       |       | 330,000    |       | 53,460    |       | —                      |       | 170,016                                           |       | 31,750                           |       | 585,226            |       |
| Peter  Pefanis,                  |       | 2009       |       | 310,500    |       | 44,712    |       | —                      |       | 166,599                                           |       | 26,472                           |       | 548,283            |       |
| Executive  VP Operations         |       | 2008       |       | 307,875    |       | 50,301    |       | —                      |       | 42,383                                            |       | 21,140                           |       | 421,699            |       |
|                             |       | 2007       |       | 294,121    |       | 54,000    |       | —                      |       | 154,560                                           |       | 21,166                           |       | 523,847            |       |
| Tony  Wilson,                    |       | 2009       |       | 235,000    |       | 16,920    |       | —                      |       | 117,392                                           |       | 20,866                           |       | 390,178            |       |
| President  – CMS            |       | 2008       |       | 235,000    |       | 22,560    |       | —                      |       | 59,257                                            |       | 20,240                           |       | 337,057            |       |
| J.  Eric Griffin,                |       | 2009       |       | 225,630    |       | 24,368    |       | —                      |       | 80,708                                            |       | 21,411                           |       | 352,117            |       |
| VP  and General Counsel          |       | 2008       |       | 223,722    |       | 21,660    |       | —                      |       | 20,532                                            |       | 20,877                           |       | 286,791            |       |
|                             |       | 2007       |       | 215,000    |       | 20,928    |       | —                      |       | 74,876                                            |       | 20,914                           |       | 331,718            |       |

 

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| Kim  Lessner, former     |   | 2009 |   | 111,754 |   | — |   | —  |   | 115,282 |   | 281,729 |   | 508,765   |   |
|--------------------------|--------|------|--------|---------|--------|--------|--------|---------|--------|---------|--------|---------|--------|-----------|--------|
| Chief  Marketing Officer |   | 2008 |   | 271,956 |   | 44,433 |   | —  |   | 37,439  |   | 20,877  |   | 374,705   |   |
|                     |   | 2007 |   | 215,814 |   | 38,944 |   | 988,000 |   | 111,467 |   | 15,233  |   | 1,369,458 |   |

 

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| (1)    |   | The amount in “Option  Awards” represents the aggregate grant date fair value computed in accordance  with ASC Topic 718. Options were granted in 2007 to our former Chief  Marketing Officer. Assumptions used in the valuation of option awards are  discussed in Note 7, “Share-Based Employee Compensation” in our Annual Report  on Form 10-K for the year ended December 31, 2009. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (2)    |   | “All Other  Compensation” for the periods presented includes the following items:                                                                                                                                                                                                                                                                                                                            |

 
| ** **                                                                                                                             | ** ** | **Mr.  Ginsburg** | ** ** | **Mr. Nevin** | ** ** | **Mr. Pefanis** | ** ** | **Mr.********Griffin** | ** ** | **Mr.  Wilson** | ** ** | **Ms.  Lessner** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------|------------|----------------------|------------|------------------------|------------|-----------------|------------|------------------|------------|
| **2009**                                                                                                                               |       |              |       |          |       |                 |       |                   |       |            |       |             |       |
| Commuting travel and related taxes,including  income tax reimbursementsof $2,126 for  Mr. Ginsburg and $12,583 for Mr. Nevin |       | $                 | 5,811      |          | $          | 33,686               |       | $                      | —     |            | $          | —           |       | $ | — |   | $ | — |   |
| Car allowance                                                                                                                          |       | 14,488            |       | 13,536        |       | 13,536               |       | 13,536                 |       | 13,536          |       | 3,948            |       |
| Company contributions to 401(k) plan                                                                                              |       | 7,350             |       | 7,350         |       | 7,350                |       | 5,829                  |       | 5,875           |       | 2,794            |       |
| Life and disability insurance premiumspaid by the  Company                                                                             |       | 2,488             |       | 2,777         |       | 5,586                |       | 2,046                  |       | 1,455           |       | 712              |       |
| Severance                                                                                                                              |       | $                 | —     |          | $          | —               |       | $                      | —     |            | $          | —           |       | $ | — |   | 274,275 |   |
| Total                                                                                                                                  |       | $                 | 30,137     |          | $          | 57,349               |       | $                      | 26,472     |            | $          | 21,411           |       | $ | 20,866 |   | $ | 281,729 |   |
| ** **                                                                                                                             |       |              |       |          |       |                 |       |                   |       |            |       |             |       |
| **2008**                                                                                                                               |       |              |       |          |       |                 |       |                   |       |            |       |             |       |
| Commuting travel and related taxes,including  income tax reimbursementsof $3,366 for  Mr. Ginsburg and $17,537 for Mr. Nevin |       | $                 | 9,106      |          | $          | 46,949               |       | $                      | —     |            | $          | —           |       | $ | — |   | $ | — |   |
| Car allowance                                                                                                                          |       | 14,488            |       | 13,536        |       | 13,536               |       | 13,536                 |       | 13,536          |       | 13,536           |       |
| Company contributions to 401(k) plan                                                                                              |       | 5,086             |       | 5,086         |       | 5,086                |       | 5,086                  |       | 4,406           |       | 5,086            |       |
| Life and disability insurance premiumspaid by the  Company                                                                             |       | 3,100             |       | 2,590         |       | 2,518                |       | 2,255                  |       | 2,298           |       | 2,255            |       |
| Total                                                                                                                                  |       | $                 | 31,780     |          | $          | 68,161               |       | $                      | 21,140     |            | $          | 20,877           |       | $ | 20,240 |   | $ | 20,877 |   |
| ** **                                                                                                                             |       |              |       |          |       |                 |       |                   |       |            |       |             |       |
| **2007**                                                                                                                               |       |              |       |          |       |                 |       |                   |       |            |       |             |       |
| Commuting travel and related taxes,including  income tax reimbursementsof $717 for  Mr. Ginsburg and $3,855for  Mr. Nevin    |       | $                 | 1,965      |          | $          | 10,557               |       | $                      | —     |            | $          | —           |       | $ | — |   | $ | — |   |
| Car allowance                                                                                                                          |       | 14,488            |       | 13,536        |       | 13,536               |       | 13,536                 |       | —          |       | 11,024           |       |
| Company contributions to 401(k) plan                                                                                              |       | 5,201             |       | 5,201         |       | 5,201                |       | 5,201                  |       | —          |       | 2,650            |       |
| Life and disability insurance premiumspaid by the  Company                                                                             |       | 3,014             |       | 2,456         |       | 2,429                |       | 2,177                  |       | —          |       | 1,559            |       |
| Total                                                                                                                                  |       | $                 | 24,668     |          | $          | 31,750               |       | $                      | 21,166     |            | $          | 20,914           |       | $ | — |   | $ | 15,233 |   |

 

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**Grants Of Plan Based Awards Table**

 

The following tables setsforth the information as to the awards granted for 2009 for each of the namedexecutive officers.

 
| ** **       | ** ** | ** **     | ** ** | **Estimated Possible Payouts Under Non-  Equity Incentive Plan Awards** | ** ** | **All Other Option Awards:** | ** ** | ** **            | ** ** | ** **             | ** ** |
|------------------|------------|----------------|------------|-------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|------------------------|------------|
| **Name**         | ** ** | **Grant Date** | ** ** | **SARs  Units (#)**                                                     | ** ** | **Threshold********($)**     | ** ** | **Target********($)** | ** ** | **Maximum********($)** | ** ** | **Number of  Securities  Underlying  Options********(#)** | ** ** | **Exercise or  Base Price of  Option  Awards********($/Sh)** | ** ** | **Grant Date  Fair Value of  Stock and  Option  Awards ($)** | ** ** |
| Richard Ginsburg |       | 6/3/09(1)      |       | —                                                                  |       | 0                            |       | 217,350               |       | 434,700                |       | — |   | — |   | — |   |
| Darius G. Nevin  |       | 6/3/09(1)      |       | —                                                                  |       | 0                            |       | 143,451               |       | 286,902                |       | — |   | — |   | — |   |
| Peter Pefanis    |       | 6/3/09(1)      |       | —                                                                  |       | 0                            |       | 130,410               |       | 260,820                |       | — |   | — |   | — |   |
| Tony Wilson      |       | 6/3/09(1)      |       | —                                                                  |       | 0                            |       | 65,800                |       | 131,600                |       | — |   | — |   | — |   |
| Eric Griffin     |       | 6/3/09(1)      |       | —                                                                  |       | 0                            |       | 63,176                |       | 126,353                |       | — |   | — |   | — |   |

 

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(1) Theseamounts relate to payments under the 2009 Short-Term Incentive Plan.  See the discussion under “CompensationDiscussion and Analysis” for additional information relating to the 2009Short-Term Incentive Plan.

 

Each named executiveofficer is party to an employment agreement. The terms of Mr. Ginsburg, Mr. Nevin,Mr. Pefanis, Mr. Griffin and Mr. Wilson’s employment agreementsare automatically extended on July 23 of each year for an additionalone-year period, subject to either party’s right to terminate by giving writtennotice at least 30 days prior to the end of the term.  The current employment agreements provide forminimum annual base salaries for each of Mr. Ginsburg, Mr. Nevin, Mr. Pefanis,Mr. Griffin and Mr. Wilson. Pursuant to their employment agreements, the named executive officersare eligible to receive bonus awards, payable in cash or otherwise, and toparticipate in all of our employee benefit plans and programs in effect for thebenefit of our senior executives, including stock option, 401(k) andinsurance plans.  We will reimburse thenamed executive officers for all reasonable expenses incurred in connectionwith the conduct of our business, provided the executive officers properlyaccount for any such expenses in accordance with our policies.  Pursuant to their employment agreements, Mr. Ginsburg’sand Mr. Nevin’s reimbursable business expenses include the travel relatedcosts from and to their homes.  Further,pursuant to their employment agreements, should any portion of ourreimbursement of travel expenses incurred by Mr. Ginsburg or Mr. Nevinconstitute taxable wages for federal income or employment tax purposes, we willpay Mr. Ginsburg and Mr. Nevin an additional amount to cover such taxliability.

 

Pursuant to the terms oftheir respective employment agreements, upon the occurrence of termination ofemployment each named executive officer is entitled to certain payments andbenefits, which are described below under “Potential Payments Upon Terminationor Change in Control.”  The employmentagreements contain provisions relating to non-competition, non-solicitation,non-disparagement and the protection of confidential information, which arealso discussed below under “Potential Payments Upon Termination or Change inControl.” The post year end arrangements discussed above in “2010 EmploymentAgreement Amendments and Equity Incentive Awards”****arenot reflected in the tables below because the tables below are based onarrangements in place as of the end of the last fiscal year.

 

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**Outstanding Equity Awards atFiscal Year-End**

 

The following table setsforth the outstanding equity awards for each named executive officer as of December 31,2009.

 
| ** **        | ** ** | **Option Awards**                                                                                      | ** ** |
|-------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| **Name**          | ** ** | **Number********of********Securities  Underlying  Unexercised  Options********(#)********Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options********(#)********Unexercisable** | ** ** | **Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options********(#)** | ** ** | **Option Exercise  Price********($)** | ** ** | **Option  Expiration  Date** | ** ** |
| Richard  Ginsburg |       | 621,035                                                                                                |       | — |   | — |   | 6.52 | (1) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 195,182 |   | — |   | 5.02 | (2) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 692,010 |   | — |   | 6.86 | (3) | 02/08/2011 |   |
|              |       | 17,500                                                                                                 |       | — |   | — |   | 65.83 |   | 04/16/2011 |   |
| Darius  G. Nevin  |       | 388,147                                                                                                |       | — |   | — |   | 6.52 | (1) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 130,284 |   | — |   | 5.02 | (2) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 461,917 |   | — |   | 6.86 | (3) | 02/08/2011 |   |
|              |       | 1,000                                                                                                  |       | — |   | — |   | 103.50 |   | 02/08/2012 |   |
|              |       | 4,400                                                                                                  |       | — |   | — |   | 60.30 |   | 08/01/2011 |   |
| Peter  Pefanis    |       | 388,147                                                                                                |       | — |   | — |   | 6.52 | (1) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 113,693 |   | — |   | 5.02 | (2) | 02/08/2011 |   |
|              |       | —                                                                                                 |       | 403,097 |   | — |   | 6.86 | (3) | 02/08/2011 |   |
|              |       | 1,000                                                                                                  |       | — |   | — |   | 67.00 |   | 06/04/2011 |   |
|              |       | 900                                                                                                    |       | — |   | — |   | 103.50 |   | 02/08/2012 |   |
|              |       | 2,000                                                                                                  |       | — |   | — |   | 137.50 |   | 06/28/2012 |   |
|              |       | 500                                                                                                    |       | — |   | — |   | 135.00 |   | 09/12/2012 |   |
| Eric  Griffin     |       | 10,000                                                                                                 |       | — |   | — |   | 6.52 | (1) | 02/08/2011 |   |
|              |       | 4,271                                                                                                  |       | 729 |   | — |   | 14.02 | (4) | 7/25/2012 |   |
|              |       | 500                                                                                                    |       | — |   | — |   | 103.50 |   | 02/08/2012 |   |
| Tony  Wilson      |       | 15,000                                                                                                 |       | — |   | — |   | 6.52 | (1) | 02/08/2011 |   |
|              |       | 200                                                                                                    |       | — |   | — |   | 71.88 |   | 1/27/2010 |   |
|              |       | 450                                                                                                    |       | — |   | — |   | 67.50 |   | 3/14/2011 |   |
|              |       | 200                                                                                                    |       | — |   | — |   | 103.50 |   | 2/08/2012 |   |

 

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| (1) |   | These options, which  were granted on February 8, 2005, vest and become exercisable ratably  over a 48-month period****beginning with the first full month  following the grant date, or March 1, 2005, provided that the  options granted to Mr. Ginsburg, Mr. Nevin and Mr. Pefanis  generally vest and become exercisable immediately upon a qualifying  termination, as defined in their respective employment agreements (excluding  a qualifying termination resulting from a voluntary termination for any  reason during the thirty-day period beginning six months after certain  potential change in control transactions), that occurs after any sale by our  Principal Stockholders of at least 60% of their equity interest in Protection  One. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents the base  price of the modified SARs. Due to the May 12, 2006 modification, the  base price on the modified SARs is fixed at $5.02 per SAR. See “Compensation  Discussion and Analysis — *Stock Appreciation  Rights*” above, for additional information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3) |   | Represents the base  price as of December 31, 2009 of the unmodified SARs. Under the SAR  Plan, the base price increases at a rate of 9% compounded annually. See  “Compensation Discussion and Analysis — *Stock Appreciation  Rights*” above, for additional information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4) |   | These options, which  were granted on July 25, 2006, vest and become exercisable ratably over  a 48-month period****beginning with the first full month  following the grant date, or August 1, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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**PotentialPayments Upon Termination or Change In Control**

 

*EmploymentAgreements and Other Certain Plans*

 

We have entered intoemployment agreements with the named executive officers and maintain certainplans that in certain circumstances provide for payments or other benefits upontermination or following a change in control. Illustrative estimated paymentsand benefits that, based on various assumptions, could be provided to eachnamed executive officer in each covered circumstance are shown in the tablesbelow, assuming that the triggering event occurred on December 31, 2009,and at a price per share of our Common Stock equal to the closing market priceas of that date which was $6.48 per share. Accordingly, the tables below do not reflect the 2010 equity awards anddo not reflect payments that would be received if the price per share of ourCommon Stock in connection with the triggering event was greater (or less) than$6.48.  Accordingly, these tables do notreflect actual payments or other benefits that may be received in connectionwith, among other things, an actual change in control of Protection One.  Other assumptions used in preparing theseestimates, the specific circumstances that would trigger these payment(s) orthe provision of other benefits, the types of payment(s) or benefits thatmay be triggered, how payment and benefit levels are determined, materialconditions or obligations applicable to the receipt of payments or benefits,and material factors regarding the named executive officers’ employmentagreements are described in the footnotes to and the narrative following thesetables.

 
| **Richard  Ginsburg,********Chief Executive Officer**   | ** ** | **Non-  Qualifying  Termination  (1)** | ** ** | **Qualifying  Termination  (2)** | ** ** | **Qualifying  Termination  with Change in  Control********(2)(3)** | ** ** | **Death or  Disability********(4)** | ** ** | **Change in  Control  (Without a  Qualifying  Termination)  (5)** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------|------------|
| **Compensation:**                                       | ** ** | ** **                             | ** ** | ** **                       | ** ** | ** **                                                         | ** ** | ** **                          | ** ** | ** **                                                        | ** ** |
| Base Salary                                             |       | $                                      | —     |                             | $          | 1,035,000                                                          |       | $                                   | 1,547,325  |                                                              | $          | — |   | $ | — |   |
| Short-Term Incentive:                                   |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Current Year Pro Rata Amount                            |       | —                                 |       | 778,874                          |       | 1,035,902                                                          |       | —                              |       | —                                                            |       |
| Other Severance Payment Amount                          |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                            |       |
| Long-Term Incentive:                                    |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Stock Options-Unvested andAccelerated  (6)              |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                            |       |
| Stock Appreciation Rights-Unvested and  Accelerated (7) |       | —                                 |       | —                           |       | 284,966                                                            |       | —                              |       | 284,966                                                           |       |
| **Benefits and perquisites:**                           |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Post-Employment Benefits (8)                            |       | —                                 |       | 59,817                           |       | 59,817                                                             |       | —                              |       | —                                                            |       |
| Life Insurance Proceeds                                 |       | —                                 |       | —                           |       | —                                                             |       | 1,035,000                           |       | —                                                            |       |
| Disability Benefits                                     |       | —                                 |       | —                           |       | —                                                             |       |                                | (4)        | —                                                            |       |
| Accrued Vacation Pay                                    |       | 74,639                                 |       | 74,639                           |       | 74,639                                                             |       | 74,639                              |       | —                                                            |       |
| 280G Tax Gross-up                                       |       | —                                 |       | —                           |       | —                                                             | (9)        | —                              |       | —                                                            |       |
| **TOTAL:**                                              |       | $                                      | 74,639     |                             | $          | 1,948,330                                                          |       | $                                   | 3,002,649  |                                                              | $          | 1,109,639 |   | $ | 284,966 |   |

 
| **Darius  G. Nevin,********Chief Financial Officer**         | ** ** | **Non-  Qualifying  Termination  (1)** | ** ** | **Qualifying  Termination  (2)** | ** ** | **Qualifying  Termination  with Change  in Control********(2)(3)** | ** ** | **Death or  Disability********(4)** | ** ** | **Change in  Control  (Without a  Qualifying  Termination)********(5)** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Compensation:**                                            | ** ** | ** **                             | ** ** | ** **                       | ** ** | ** **                                                         | ** ** | ** **                          | ** ** | ** **                                                              | ** ** |
| Base Salary                                                  |       | $                                      | —     |                             | $          | 683,100                                                            |       | $                                   | 1,021,235  |                                                                    | $          | — |   | $ | — |   |
| Short-Term Incentive:                                        |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Current Year Pro Rata Amount                                 |       | —                                 |       | 515,962                          |       | 686,230                                                            |       | —                              |       | —                                                                  |       |
| Other Severance Payment Amount                               |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Long-Term Incentives:                                        |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Stock Options—Unvested andAccelerated  (6)              |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Stock Appreciation Rights—Unvested and  Accelerated (7) |       | —                                 |       | —                           |       | 190,215                                                            |       | —                              |       | 190,215                                                                 |       |
|                                                              |            |                                        |            |                                  |            |                                                                    |            |                                     |            |                                                                         |            |  |  |  |  |  |

 

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| **Benefits and perquisites:** |   |   |   |   |   |      |   |    |      |   |   |
|-------------------------------|--------|--------|--------|--------|--------|-----------|--------|---------|-----------|--------|--------|
| Post-Employment Benefits (8)  |   | — |   | 46,428 |   | 46,428    |   | —  |      | — |   |
| Life Insurance Proceeds       |   | — |   | — |   | —    |   | 683,100 |      | — |   |
| Disability Benefits           |   | — |   | — |   | —    |   |    | (4)       | — |   |
| Accrued Vacation Pay          |   | 49,262 |   | 49,262 |   | 49,262    |   | 49,262  |      | — |   |
| 280G Tax Gross-up             |   | — |   | — |   | —    | (9)    | —  |      | — |   |
| **TOTAL:**                    |   | $      | 49,262 |   | $      | 1,294,752 |   | $       | 1,993,370 |   | $      | 732,362 |   | $ | 190,215 |   |
|                               |        |        |        |        |        |           |        |         |           |        |        |  |  |  |  |  |

 
| **Peter  Pefanis,********Executive Vice President and Chief  Operating Officer** | ** ** | **Non-  Qualifying  Termination  (1)** | ** ** | **Qualifying  Termination  (2)** | ** ** | **Qualifying  Termination  with Change in  Control********(2)(3)** | ** ** | **Death or  Disability********(4)** | ** ** | **Change in  Control  (Without a  Qualifying  Termination)********(5)** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Compensation:**                                                                | ** ** | ** **                             | ** ** | ** **                       | ** ** | ** **                                                         | ** ** | ** **                          | ** ** | ** **                                                              | ** ** |
| Base Salary                                                                      |       | $                                      | —     |                             | $          | 621,000                                                            |       | $                                   | 928,395    |                                                                    | $          | — |   | $ | — |   |
| Short-Term Incentive:                                                            |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Current Year Pro Rata Amount                                                     |       | —                                 |       | 470,819                          |       | 626,190                                                            |       | —                              |       | —                                                                  |       |
| Other Severance Payment Amount                                                   |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Long-Term Incentives:                                                            |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Stock Options—Unvested andAccelerated  (6)                                  |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Stock Appreciation Rights—Unvested and  Accelerated (7)                     |       | —                                 |       | —                           |       | 165,993                                                            |       | —                              |       | 165,992                                                                 |       |
| **Benefits and perquisites:**                                                    |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Post-Employment Benefits (8)                                                     |       | —                                 |       | 44,972                           |       | 44,972                                                             |       | —                              |       | —                                                                  |       |
| Life Insurance Proceeds                                                          |       | —                                 |       | —                           |       | —                                                             |       | 621,000                             |       | —                                                                  |       |
| Disability Benefits                                                              |       | —                                 |       | —                           |       | —                                                             |       |                                | (4)        | —                                                                  |       |
| Accrued Vacation Pay                                                             |       | 44,784                                 |       | 44,784                           |       | 44,784                                                             |       | 44,784                              |       | —                                                                  |       |
| 280G Tax Gross-up                                                                |       | —                                 |       | —                           |       | —                                                             | (9)        | —                              |       | —                                                                  |       |
| **TOTAL:**                                                                       |       | $                                      | 44,784     |                             | $          | 1,181,575                                                          |       | $                                   | 1,810,334  |                                                                    | $          | 665,784 |   | $ | 165,992 |   |

 
| **J.  Eric Griffin,********Vice President and Chief Counsel** | ** ** | **Non-  Qualifying  Termination  (1)** | ** ** | **Qualifying  Termination  (2)** | ** ** | **Qualifying  Termination  with Change in  Control********(2)(3)** | ** ** | **Death or  Disability********(4)** | ** ** | **Change in  Control  (Without a  Qualifying  Termination)  (5)** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------|------------|
| **Compensation:**                                             | ** ** | ** **                             | ** ** | ** **                       | ** ** | ** **                                                         | ** ** | ** **                          | ** ** | ** **                                                        | ** ** |
| Base Salary                                                   |       | —                                 |       | $                                | 225,630    |                                                               | $          | 449,004                             |       | —                                                            |       | — |   |
| Short-Term Incentive:                                         |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Current Year Pro Rata Amount                                  |       | —                                 |       | 148,452                          |       | 221,936                                                            |       | —                              |       | —                                                            |       |
| Other Severance Payment Amount                                |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                            |       |
| Long-Term Incentives:                                         |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Stock Options—Unvested andAccelerated  (6)               |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                            |       |
| Stock Appreciation Rights—Unvested and  Accelerated (7)  |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                            |       |
| **Benefits and perquisites:**                                 |       |                                   |       |                             |       |                                                               |       |                                |       |                                                              |       |
| Post-Employment Benefits (8)                                  |       | —                                 |       | 15,055                           |       | 30,110                                                             |       | —                              |       | —                                                            |       |
| Life Insurance Proceeds                                       |       | —                                 |       | —                           |       | —                                                             |       | 451,260                             |       | —                                                            |       |
| Disability Benefits                                           |       | —                                 |       | —                           |       | —                                                             |       |                                | (4)        | —                                                            |       |
| Accrued Vacation Pay                                          |       | 28,848                                 |       | 28,848                           |       | 28,848                                                             |       | 28,848                              |       | —                                                            |       |
| 280G Tax Gross-up                                             |       | —                                 |       | —                           |       | —                                                             | (9)        | —                              |       | —                                                            |       |
| **TOTAL:**                                                    |       | $                                      | 28,848     |                             | $          | 417,985                                                            |       | $                                   | 729,898    |                                                              | $          | 480,108 |   | — |   |
|                                                               |            |                                        |            |                                  |            |                                                                    |            |                                     |            |                                                                   |            |  |  |  |  |

 

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| **Tony  Wilson,********President CMS**                       | ** ** | **Non-  Qualifying  Termination  (1)** | ** ** | **Qualifying  Termination  (2)** | ** ** | **Qualifying  Termination  with Change in  Control********(2)(3)** | ** ** | **Death or  Disability********(4)** | ** ** | **Change in  Control  (Without a  Qualifying  Termination)********(5)** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Compensation:**                                            | ** ** | ** **                             | ** ** | ** **                       | ** ** | ** **                                                         | ** ** | ** **                          | ** ** | ** **                                                              | ** ** |
| Base Salary                                                  |       | $                                      | —     |                             | $          | 235,000                                                            |       | $                                   | 467,650    |                                                                    | $          | — |   | $ | — |   |
| Short-Term Incentive Plan:                                   |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Current Year Pro Rata Amount                                 |       | —                                 |       | 128,060                          |       | 191,450                                                            |       | —                              |       | —                                                                  |       |
| Other Severance Payment Amount                               |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Long-Term Incentives:                                        |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Stock Options—Unvested andAccelerated  (6)              |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| Stock Appreciation Rights—Unvested and Accelerated  (7) |       | —                                 |       | —                           |       | —                                                             |       | —                              |       | —                                                                  |       |
| **Benefits and perquisites:**                                |       |                                   |       |                             |       |                                                               |       |                                |       |                                                                    |       |
| Post-Employment Benefits (8)                                 |       | —                                 |       | 18,869                           |       | 37,738                                                             |       | —                              |       | —                                                                  |       |
| Life Insurance Proceeds                                      |       | —                                 |       | —                           |       | —                                                             |       | 470,000                             |       | —                                                                  |       |
| Disability Benefits                                          |       | —                                 |       | —                           |       | —                                                             |       |                                | (4)        | —                                                                  |       |
| Accrued Vacation Pay                                         |       | 33,894                                 |       | 33,894                           |       | 33,894                                                             |       | 33,894                              |       | —                                                                  |       |
| 280G Tax Gross-up                                            |       | —                                 |       | —                           |       | —                                                             | (9)        | —                              |       | —                                                                  |       |
| **TOTAL:**                                                   |       | $                                      | 33,894     |                             | $          | 415,823                                                            |       | $                                   | 730,732    |                                                                    | $          | 503,894 |   | — |   |
|                                                              |            |                                        |            |                                  |            |                                                                    |            |                                     |            |                                                                         |            |  |  |  |  |  |

 

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(1)          A non-qualifying termination is any termination notqualifying as a qualifying termination, and includes a voluntary termination bythe named executive without good reason, retirement, a termination by us forcause, or any termination on account of death or disability.  The meanings of the terms “cause” and “goodreason” for purposes of determining potential payments to named executiveofficers upon termination or a change in control are described below.

 

(2)          A qualifying termination is a termination of the namedexecutive’s employment by us other than for cause or by the named executive forgood reason.  These calculations assumethat the named executive’s date of termination was December 31, 2009, andassume that the price per share of our Common Stock on the date of terminationwas $6.48 per share, which was the closing price per share of our Common Stockas of December 31, 2009, reported on the Nasdaq Global Market (the “closingstock price”).

 

(3)          This column applies to a qualifying termination withinfour months prior or one year after a change in control. The meaning of theterm “change in control,” for purposes of determining potential payments tonamed executive officers under their respective employment agreements upon aqualifying termination with a change in control, is described below. Thesecalculations assume that the change in control occurred on December 31,2009.

 

(4)          A termination due to death or disability is not aqualifying termination.  Our long-termdisability coverage provides each named executive up to 66.67% of base salaryup to a maximum monthly benefit of $11,112. The amount of any actual disability payments would depend on the lengthof the disability and other factors, and accordingly, cannot be reasonably estimated.  We provide life insurance coverage equal totwo times the named executive’s base salary.

 

(5)          Assumes that the change in control is also a qualifiedsale and that it occurred as of December 31, 2009.  If a change in control did not constitute aqualified sale, such an event would not trigger a payout on the SARs. We haveassumed for illustrative purposes that we would exercise our discretion underthe 2004 Stock Option Plan to accelerate vesting or terminate options inexchange for consideration in the event of a change in control. If we were notto exercise our discretion under the 2004 Stock Option Plan to acceleratevesting or terminate options in exchange for consideration in the event of thechange in control, then the change in control without a qualifying terminationwould not trigger any acceleration of vesting or termination of options inexchange for consideration.

 

(6)          Only Mr. Griffin held options that had not fullyvested as of December 31, 2009.  Hisunvested options had no intrinsic value as of that date because the exerciseprice per share was higher than the closing stock price.

 

(7)          Represents the intrinsic value of the modified SARs asof December 31, 2009, which had a base price of $5.02 per SAR.  The unmodified SARs had no intrinsic value atthe closing stock price.

 

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(8)          Mr. Ginsburg, Mr. Nevin and Mr. Pefanisare entitled to continuing medical, dental and life insurance coverage forthree years following a qualifying termination. Mr. Griffin and Mr. Wilson are entitled to one year ofcontinuing coverage following a qualifying termination.  In addition, Mr. Griffin and Mr. Wilsonare entitled to two years of continuing coverage following a qualifyingtermination coupled with a change in control. We have agreed to reimburse each executive for any income taxes that arepayable by the executive as a result of providing these post-employmentbenefits.

 

(9)          We have agreed to reimburse each of Messrs. Ginsburg,Nevin, Pefanis, Griffin, and Wilson for all excise taxes that are imposed onthe executive under Section 280G and any income and excise taxes that arepayable by the executive as a result of any reimbursements for Section 280Gexcise taxes.   See the discussion belowunder “Post-Termination Benefits Under Employment Agreements.”

 

In addition to theamounts shown in the tables above, as a result of the 2010 equity awards, andassuming a value per share of the closing stock price, if a change of controlwere to occur, Mr. Ginsburg, Mr. Nevin, and Mr. Pefanis wouldreceive an additional $324,000, $162,000, and $162,000, respectively, based onthe immediate cash-out of the unvested restricted shares of 50,000, 25,000, and25,000, respectively.  Neither the stockoptions nor the SARs would have had value because the closing stock price onDecember 31, 2009, was below the exercise price for both the stock options andthe SARs.

 

As of April 15,2009, Ms. Lessner resigned as executive vice president and chief marketingofficer of the Company.  Pursuant to theterms of her employment agreement, she received a severance payment of$274,275.

 

Below is a description ofadditional assumptions that were used in creating the tables above and certaincontract provisions relating to the potential payments shown in the tablesabove. The assumptions have been modified to take into account the 2010Employment Agreement Amendments.  Unlessotherwise noted the descriptions of the payments below are applicable to all ofthe above tables relating to potential payments upon termination or change incontrol.

 

*Post-Termination Benefits UnderEmployment Agreements*

 

Each named executiveofficer is party to an employment agreement. The terms of Mr. Ginsburg, Mr. Nevin,Mr. Pefanis, Mr. Griffin and Mr. Wilson’s employment agreementsare automatically extended on July 23 of each year for an additionalone-year period, subject to either party’s right to terminate by giving writtennotice at least 30 days prior to the end of the term.  The term of Ms. Lessner’s employmentagreement commenced on March 8, 2007 and continued until herresignation.  Certain terms of theseemployment agreements relating to compensation during the applicable namedexecutive officer’s term of employment are described above in the narrativefollowing the Grants of Plan Based Awards Table.

 

Pursuant to the terms oftheir respective employment agreements, a termination of employment by us otherthan for “cause,” including if weprovide a notice of nonrenewal of the employment agreement, or bythe executive for “good reason,” constitutes a “qualifying termination,” andupon a qualifying termination Mr. Ginsburg, Mr. Nevin and Mr. Pefaniswould be entitled to receive:

 

·                  a lump-sum cash payment equal to:

·                  annual base salary and bonus amountsearned but not previously paid through the date of the termination;

·                  a bonus equal to the average bonus overthe preceding three years (the average annual bonus) pro-rated for the fiscalyear in which the termination occurs, less any amount paid to the executivefrom our annual incentive plan for the fiscal year in which the terminationoccurs; and

·                  the cash equivalent of any accrued paidtime off,

 

·                  a lump-sum cash payment equal to the sumof:

·                  2.0 (or 2.99 for terminations within fourmonths prior to or one year after a “change in control”) times the executiveofficer’s annual base salary, plus

·                  2.0 (or 2.99 for terminations within fourmonths prior to or one year after a “change in control”) times the executiveofficer’s average annual bonus, and

 

·                  continued participation for three yearsin our medical, dental and life insurance plans.

 

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Mr. Griffin’s and Mr. Wilson’semployment agreements also provide that a qualifying termination is defined asa termination of employment by us other than for “cause” or by Mr. Griffinor Mr. Wilson for “good reason.” Upon a qualifying termination, Mr. Griffin and Mr. Wilsonwould be entitled to receive:

 

·                  a lump-sum cash payment equal to:

·                  annual base salary and bonus amountsearned but not previously paid through the date of the termination;

·                  a bonus equal to the average bonus overthe preceding three years (the average annual bonus) pro-rated for the fiscalyear in which the termination occurs, less any amount paid to the executivefrom our annual incentive plan for the fiscal year in which the terminationoccurs; and

·                  the cash equivalent of any accrued paidtime off,

 

·                  a lump-sum cash payment equal to the sumof:

·                  1.0 (or 1.99 for terminations within fourmonths prior to or one year after a “change in control”) times his annual basesalary, plus

·                  1.0 (or 1.99 for terminations within fourmonths prior to or one year after a “change in control”) times his averageannual bonus, and

 

·                  continued participation for one year (ortwo years for terminations within four months prior to or one year after a “changein control”) in our medical, dental and life insurance plans.

 

Mr. Ginsburg, Mr. Nevin,Mr. Pefanis, Mr. Griffin and Mr. Wilson’s employment agreementsprovide that the executives’ rights with respect to any equity awards grantedunder any of the Company’s plans will be governed exclusively by the terms ofsuch plans and the applicable grant agreements, including such rights in theevent of a termination of employment or change in control.

 

The definitions of “cause”and “good reason” in the named executive officers’ employment agreements aredescribed below under “Involuntary Not for Cause Termination and Terminationfor Good Reason.”

 

*Non-Compete, Non-Solicitation,Non-Disparagement and Confidentiality Provisions of Employment Agreements*

 

Each named executiveofficer’s employment agreement with us includes non-competition,non-solicitation, non-disparagement and confidentiality provisions. Thenon-competition provisions in Mr. Ginsburg, Mr. Nevin and Mr. Pefanis’employment agreements that apply if less than 50% of the 2010 equity awardsvest contain meaningful exceptions (we refer to such non-competition provisionsas the “original non-competition provisions”) and apply during the seniorexecutive’s employment and until the second anniversary of the named executiveofficer’s termination of employment (referred to as the non-competitionperiod).  However, if 50% or more of the2010 equity awards vest, then, instead of the original non-competitionprovisions applying for the non-competition period, the exceptions to theoriginal non-competition provisions are generally eliminated, and morestringent non-competition provisions are applied until 18 months after thesenior executive officer’s termination of employment (referred to as the vestednon-competition period).  Afterconsulting with an outside appraisal firm, the Company believes thatapplication of the more stringent non-competition provisions for 18 monthswould provide substantially more value to the Company than would application ofthe original non-competition provisions for two years, because the morestringent non-competition provisions would preclude the senior executiveofficers from working with a competitor with revenue of less than $160 millionor with a non-competitor that begins to compete with the Company through noassistance or plan of the senior executive.

 

The non-competitionprovisions for Mr. Griffin and Mr. Wilson’s employment agreementsapply during their employment and until the first anniversary of theirtermination of employment (which is also referred to as the non-competitionperiod) or the second anniversary in the event they are entitled to paymentsunder certain change in control provisions of their employment agreements.  Ms. Lessner was subject tonon-competition provisions in her employment agreement until April 14,2010.

 

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With respect to thenon-competition period, each named executive officer is generally prohibitedfrom owning, managing, operating or otherwise being connected to any entityengaged, at the time that the named executive officer becomes associated withthe entity, in the business of providing security monitoring services withrevenue in excess of $160,000,000.  Ifthe vested non-competition period applies, then Mr. Ginsburg, Mr. Nevinand Mr. Pefanis are generally prohibited from owning, managing, operatingor otherwise being connected to any entity engaged in the business of providingsecurity monitoring services.  Duringeither the non-competition period or the vested non-competition period, thenamed executive officers are not prohibited from investing in an aggregate ofup to 3% of the publicly traded securities of any corporation listed on the NewYork Stock Exchange, the American Stock Exchange or The Nasdaq NationalMarket.  If a named executive officerchallenges the enforceability of the non-competition provisions of his or heremployment agreement, then he or she forfeits any right to any payments withrespect to base salary, short term incentive plan, benefits and perquisitesunder his or her employment agreement that are triggered by a termination ofemployment, and, to the extent applicable, his or her 2010 equity awards, tothe extent that such payments or benefits have not already been received.

 

The non-solicitation,non-disparagement and confidentiality provisions in each named executiveofficer’s employment agreement are not expressly linked to the receipt ofpayments or benefits upon a termination of employment or a change incontrol.  The non-solicitation andconfidentiality provisions apply during the non-competition period or thevested non-competition period, as applicable. The non-disparagement provisionsare not expressly limited in duration.

 

*Equity Acceleration*

 

The vesting of the 2010equity awards granted to Mr. Ginsburg, Mr. Nevin and Mr. Pefanisin February 2010 will accelerate upon a change of control of the companyif (x) the executive is employed with the company at the time of thechange of control or (y) the change of control occurs within two years ofthe date of grant and within 90 days of the executive’s termination that is aqualifying termination (as defined in the employment agreements).  Upon a change of control, the stock optionswill be cancelled and the executive will receive a payment of cash equal to theexcess of the change of control price over $9.50 times the number ofunexercised options; the SARs will be paid out at an amount equal to thedifference between (i) $7.50, and (ii) the lesser of: (a) $9.50and (b) the change of control price; and the unvested restricted shareswill be cashed out in an amount equal to the change of control price times thenumber of unvested restricted shares.

 

As described inCompensation Discussion and Analysis, under the SAR Plan, the SARs, which areheld by Mr. Ginsburg, Mr. Nevin and Mr. Pefanis, vest and becomepayable upon the earlier of (1) a “qualified sale” as defined in the SARPlan, which generally means the first transaction that results in our PrincipalStockholders and their affiliates having sold, assigned or transferred tounaffiliated parties at least 60% of the equity interest in the Company held asof February 8, 2005, by our Principal Stockholders, provided that, if thequalified sale does not qualify as a permissible distribution event, then thepayment will be made, with interest, in connection with a subsequentpermissible distribution event, and (2) February 8, 2011.

 

*Health Care Benefits*

 

The value of the healthbenefits, which consists of medical, dental and life insurance benefits, isestimated based upon the current costs to us of providing such benefits.

 

Included in the abovetable is an estimate of the associated tax gross-up payments (based on a 35%federal income tax rate, a 1.45% Medicare tax rate and the applicable state incometax rate) of $21,854, $17,196 and $19,015 for the three years ofpost-employment benefits provided to Mr. Ginsburg, Mr. Nevin and Mr. Pefanis,respectively.  The associated taxgross-up estimated payments for Mr. Griffin are $5,488 for one year ofbenefits and $10,975 for two years of benefits. The associated tax gross-upestimated payments for Mr. Wilson are $6,878 for one year of benefits and$13,756 for two years of benefits.

 

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*Involuntary Not for CauseTermination for Good Reason*

 

Each of our namedexecutive officers will be entitled to certain benefits as described in thetables above in the event of a qualifying termination, which means that theexecutive’s employment is terminated by us for reasons other than cause or bythe executive for good reason, as defined in the named executive officer’semployment agreement.

 

A termination of a namedexecutive officer by us is for “cause” if it is for any of the followingreasons:

 

·                  the willful and continued failure of thenamed executive officer to perform substantially his duties with the company(other than any such failure resulting from such named executive officer’sincapacity due to physical or mental illness or any such failure subsequent tothe named executive officer being delivered a notice of termination withoutcause by us or the named executive officer delivering a notice of terminationfor good reason to us) that is not remedied within 30 days after a writtendemand for substantial performance is delivered to the named executive officerby the Chairman of our Board of Directors or the Chairman of the CompensationCommittee or, in the case of named executive officers other than the ChiefExecutive Officer, the Chief Executive Officer, which specifically identifiesthe manner in which the named executive officer has not substantially performedhis duties; or

·                  the named executive officer’s convictionby a court of law, admission in a legal proceeding that he is guilty or plea ofnolo contendere, in each case, with respect to a felony.

 

For purposes of thedefinition of the term “cause,” no act or failure to act by a named executiveofficer will be considered “willful” unless it was done or omitted to be doneby the named executive officer in bad faith and without reasonable belief thathis or her action or omission was in, or not opposed to, our best interests.

 

A termination by a namedexecutive officer is for “good reason” if it is based on any of the followingevents:

 

·                  any change in the duties orresponsibilities (including reporting responsibilities) of the named executiveofficer that is inconsistent in any material and adverse respect (which may becumulative) with named executive officer’s position(s), duties, responsibilitiesor status with the company (including any adverse diminution of such duties orresponsibilities); provided, however, that, with respect to Messrs. Wilsonand Griffin, good reason shall not be deemed to occur upon a change in dutiesor responsibilities (other than reporting responsibilities) that is solely anddirectly due to us no longer being a publicly traded entity;

·                  the failure to reappoint or reelect thenamed executive officer to any position held by him without his consent;

·                  a material breach of the employmentagreement by the company including but not limited to reduction in the namedexecutive officer’s base salary or other reduction in medical, dental, life ordisability benefits (except to the extent such reductions apply consistently toall other senior executives); or

·                  the relocation by the company of thenamed executive officer’s principal workplace location more than 50 miles (35miles for Mr. Pefanis and 25 miles for Mr. Ginsburg and Mr. Nevin)from the workplace location principally used by the named executive officer asof the date of the employment agreement.

 

A termination by Mr. Ginsburgis also for “good reason” if it is based on any of the following events:

 

·                  the appointment by our Board of Directorsof our chief operating officer, chief financial officer or president over Mr. Ginsburg’swritten objection;

·                  causing or permitting, without Mr. Ginsburg’sconsent, any person other than Mr. Ginsburg to present and recommend thebusiness plan to the Board of Directors;

·                  subject to restrictions under our bylawsas of the date of Mr. Ginsburg’s employment agreement, February 22,2010, reducing the hiring or firing authority of Mr. Ginsburg as in effectas of such date (it being understood, however, that Mr. Ginsburg willconsult and collaborate with our Board of Directors prior to the hiring orfiring of any senior manager of the company); or

·                  the appointment of a Chairman of ourBoard of Directors (other than a Chairman who is not an executive or an officerof the company) without Mr. Ginsburg’s consent.

 

In addition, atermination by any of Mr. Ginsburg, Mr. Nevin or Mr. Pefanis isalso for “good reason” if it is based on:

 

·                  our failure to indemnify the named executiveofficer pursuant to the terms of his employment agreement with respect to anypayments previously made to the named executive officer; or

·                  the Company’s common stock ceasing to betraded on an established national stock exchange (such as the Nasdaq GlobalMarket, the New York Stock Exchange or the Nasdaq Global Select Market) inconnection with or following a change of control that occurs in connection withor following a qualified sale.

 

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*Payments Upon a Termination in Connectionwith a Change in Control*

 

Each of Messrs. Ginsburg,Nevin, Pefanis, Griffin and Wilson will be entitled to certain benefitsdescribed if the executive’s employment is terminated pursuant to a qualifyingtermination during the four-month period before or the 12-month period after achange in control, as defined in the named executive officer’s employmentagreement. A change in control means any of the following:

 

·                  individuals who constituted our Board ofDirectors as of February 22, 2010, which persons are referred to asincumbent directors, and persons whose election or nomination for election wasapproved by a vote of at least two-thirds of the incumbent directors then onthe Board, which persons are also deemed to be incumbent directors, cease forany reason to constitute at least a majority of our Board of Directors;

·                  any person, entity or any group (otherthan affiliates of the Principal Stockholders), and certain other entitiesincluding our employee benefit plans, underwriters temporarily holdingsecurities pursuant to offering of such securities, and any entity controlledby our named executive officers and our other employees, becomes a beneficialowner, directly or indirectly, of 33 1/3% of the combined voting power of ourthen outstanding securities eligible to vote for the election of our Board ofDirectors, unless the Principal Stockholders continues to beneficially own agreater number of our shares or has the right to direct the vote of a greaternumber of voting securities for our directors, than that held by such otherperson, entity or group;

·                  a dissolution or liquidation of thecompany; or

·                  a merger, consolidation, statutory shareexchange, sale of all or substantially all of our assets or other similarbusiness combination, unless:

·                  more than 50% of the total voting powerof the surviving parent corporation immediately following the businesscombination is represented by our voting securities that were outstandingimmediately prior to the business combination;

·                  no person (other than the PrincipalStockholders, an employee benefit plan of the Principal Stockholders or thesurviving parent corporation, or a group in which one or more of the PrincipalStockholders holds a majority of the voting power of the subject securitiesheld by such group) is or becomes the beneficial owner of more than 33 1/3% ofthe total voting power of the outstanding voting securities eligible to electdirectors of the surviving parent corporation; and

·                  at least a majority of the members of theboard of directors of the surviving parent corporation following the completionof the business combination were our incumbent directors at the time that ourBoard of Directors approved the initial agreement providing for the businesscombination.

 

*280G Tax Gross-Up*

 

Upon a change in controlof the Company, one or more of our named executive officers may be subject tocertain excise taxes pursuant to Section 280G of the Code.  We have agreed to reimburse each of Messrs. Ginsburg,Nevin, Pefanis, Griffin and Wilson for all excise taxes that are imposed on theexecutive under Section 280G and any income and excise taxes that arepayable by the executive as a result of any reimbursements for Section 280Gexcise taxes, subject to certain potential reductions in payments andexceptions in certain circumstances with respect to the 2010 equityawards.  There is no Section 280Gtax gross-up amount in the above tables, based on the assumptions used in thepreparation of such tables.  However,depending on the facts and circumstances in existence at the time of any actualtermination or change in control, we may be obligated to pay Section 280Gtax gross-up amounts.

 

The payment of any Section 280Gtax gross-up amount will be payable to each of Messrs. Ginsburg, Nevin,Pefanis, Griffin and Wilson for any excise tax incurred regardless of whetherthe executive’s employment is terminated, subject to certain potentialreductions in payments and exceptions in certain circumstances with respect tothe 2010 equity awards.  However, theamount of any Section 280G tax gross-up will change based upon when theexecutive’s employment with us is terminated because the amount of compensationsubject to Section 280G will change. In the event that no compensation is subject to Section 280G, no Section 280Gtax gross-up will be paid.

 

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See “Tax Treatment under Section 162(m),280G and 409A of the Code — Section 280G of the Code” under CompensationDiscussion and Analysis above for further discussion of the Company’s potential280G tax gross-up obligations.

 

**Director Compensation**

 

***2009Director Compensation***

 

During 2009, ournon-employee directors received compensation for their services as set forth inthe table below.  Directors who are ouremployees do not receive additional compensation for their services as directors.  As such, Mr. Ginsburg received nocompensation for his services as a director.

 
| **Name**           | ** ** | **Fees Earned  or Paid in  Cash ($)** | ** ** | **Stock  Awards********($) (1)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive  Plan  Compensation  ($)** | ** ** | **Nonqualified  Deferred  Compensation  Earnings********($)** | ** ** | **All Other  Compensation********($)** | ** ** | **Total********($)** | ** ** |
|--------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|
| Raymond C. Kubacki |       | 50,000                                                    |       | 65,000                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 115,000              |       |
| Robert J. McGuire  |       | 80,000                                                    |       | 65,000                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 145,000              |       |
| Jeff Nordhaus      |       | 35,625                                                    | (2)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 35,625               |       |
| Steven Rattner     |       | 6,667                                                     | (2)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 6,667                |       |
| Thomas J. Russo    |       | 40,000                                                    |       | 65,000                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 105,000              |       |
| Ed Sippel          |       | 40,000                                                    | (2)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 40,000               |       |
| Alex Hocherman     |       | 28,542                                                    | (2)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 28,542               |       |
| Michael Weinstock  |       | 40,000                                                    | (3)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 40,000               |       |
| Peter Ezersky      |       | 10,000                                                    | (2)        | —                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 10,000               |       |
| Arlene Yocum       |       | 50,000                                                    |       | 65,000                                |       | —                  |       | —                                             |       | —                                                        |       | —                                      |       | 115,000              |       |

 

----

(1)          “Stock Awards” represents the aggregate grant datefair value computed in accordance with Accounting Standards Codification (“ASC”)Topic 718.  In 2009, each independentdirector received an annual grant of $65,000 of RSUs, one quarter of whichvests on the grant date in each of the 4 years following the grant.  The 2009 annual grants were made as of June 24,2009 when the stock price was $4.00 per share. Mr. McGuire, Mr. Kubacki, Mr. Russo, and Ms. Yocumwere each granted 16,250 RSUs in 2009, of which none had vested as of December 31,2009.  As of December 31, 2009, Mr. Kubacki,Mr. Russo and Ms. Yocum each held 26,288 unvested RSUs and each hasreceived 4,023 shares for previously vested RSUs.  Mr. McGuire held 26,538 unvested RSUs asof December 31, 2009, and has received 6,773 shares for previously vestedRSUs.

(2)          Director compensation was paid to an affiliate ofQuadrangle Group LLC.  Mr. Nordhaus,Mr. Rattner, Mr. Sippel, Mr. Hocherman and Mr. Ezerskyreceived no direct compensation from us for their services as ourdirectors.  Mr. Nordhaus resignedfrom the Board on September 28, 2009. Mr. Rattner resigned from the Board on February 23, 2009.

(3)          Director compensation was paid to Monarch AlternativeCapital LP.  Mr. Weinstock receivedno direct compensation from us for his services as our director.

 

***DirectorCompensation Plan***

 

Allof our directors, except those who are our employees, receive compensation inaccordance with a compensation plan that was approved by the Board.  The following is the compensation plan forservice as a non-employee director for 2009:

 
| Annual  retainer                                   |   | $ | 40,000 |   |
|----------------------------------------------------|--------|---|--------|--------|
| Annual  retainer for Audit Chair                   |   | $ | 25,000 |   |
| Annual  retainer for Compensation Chair            |   | $ | 15,000 |   |
| Annual  retainer for Audit Committee Member        |   | $ | 10,000 |   |
| Annual  retainer for Compensation Committee Member |   | $ | 7,500  |   |

 

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| Initial  equity award: value of initial grant of Restricted Share Units to a new  member (1) |   | $ | 40,000 |   |
|----------------------------------------------------------------------------------------------|--------|---|--------|--------|
| Annual  equity award: value of Restricted Share Units (1)                                    |   | $ | 65,000 |   |

 

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(1)  Restricted Share Units are granted only tothe independent members of our Board.

 

A total of 65,000 restrictedshare units were issued to directors on June 24, 2009, under the 2009Long-Term Incentive Plan (“2009 LTIP”). The 2009 LTIP, approved by the Company’s stockholders on June 24,2009, is an equity compensation plan that satisfies certain requirements of theMarketplace Rules of The Nasdaq Stock Market and certain requirements ofthe Internal Revenue Code of 1986, as amended, and regulations thereunder,referred to collectively as the Code, relating to deductibility of certainperformance-based executive compensation. The 2009 LTIP provides for thegranting of incentive and nonqualified stock options, stock appreciationrights, restricted shares and restricted share units, performance awards andother equity-based awards to directors, officers and key employees.  Under the 2009 LTIP, 1.5 million shares arereserved for issuance, subject to such adjustment as may be necessary toreflect changes in the number or kinds of shares of common stock or othersecurities of the Company.  No other equity-basedawards have been granted to directors under the plan as of December 31,2009.  In lieu of the 2010 award of$65,000 of restricted share units, the independent members of our Board mayreceive a cash payment of $65,000.

 

**Compensation Committee Interlocksand Insider Participation in Compensation Decisions**

 

Members of theCompensation Committee during 2009 are set forth below.  During 2009, no Compensation Committee memberwas an officer or employee of the Company or its subsidiaries, or formerly anofficer, nor had any relationship otherwise requiring disclosure under the rules ofthe Securities and Exchange Commission, except as described under “Item 13.Certain Relationships and Related Transactions, and Director Independence” as aresult of the affiliation of Messrs. Nordhaus, Hocherman, Sippel, Ezersky,and Rattner with Quadrangle Group LLC, and Mr. Weinstock’s affiliationwith Monarch Alternative Capital, LP. None of our executive officers served as a member of the CompensationCommittee or as a director of any company where an executive officer of thatcompany is a member of our Compensation Committee.  The members of the Compensation Committeethus do not have any compensation committee interlocks or insider participation.  Certain relationships and related transactionsthat may indirectly involve our Board members are reported below.

 

**Compensation Committee Report**

 

The CompensationCommittee has reviewed the Compensation Discussion and Analysis and discussedthat Analysis with management.  Based onits review and discussions with management, the Compensation Committeerecommended to our Board of Directors that the Compensation Discussion andAnalysis be included in this Form 10-K/A. This report is provided by thefollowing directors, who comprise the Compensation Committee:

 

COMPENSATION COMMITTEEMEMBERS:

Robert J. McGuire

Alex Hocherman

 

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**ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**

 

**Equity Compensation PlanInformation**

 

The following chartprovides information regarding compensation plans (including individualcompensation arrangements) under which our equity securities were authorizedfor issuance as of December 31, 2009.

 
| **Plan category**                                          | ** ** | **Number of securities to be  issued upon exercise of  outstanding options, warrants  and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by security  holders:        |       |                                                                                                                                                 |       |                                                                                                        |       |                                                                                                                                                                                                             |       |
| 2008 Long-Term Incentive Plan (a)                          |       | 96,902                                                                                                                                               |       | —                                                                                                      |       | 1,403,098                                                                                                                                                                                                        |       |
| 2004 Stock Option Plan                                          |       | 1,567,829                                                                                                                                            |       | $                                                                                                           | 6.61       |                                                                                                                                                                                                             | 387,473    |   |
| Prior Stock Plans (b)                                           |       | 84,819                                                                                                                                               |       | $                                                                                                           | 54.58      |                                                                                                                                                                                                             | 0          |   |
| Any equity compensation plans not approved by  security holders |       | —                                                                                                                                               |       | —                                                                                                      |       | —                                                                                                                                                                                                           |       |
| **Total (c)**                                                   |       | 1,749,550                                                                                                                                            |       | $                                                                                                           | 8.50       |                                                                                                                                                                                                             | 1,790,571  |   |

 

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(a)          Represents the unvested portion of restricted shareunits as of 12/31/09 awarded to directors in 2008 and 2009.

(b)         Includes 20,535 unvested restricted share units as of12/31/09 awarded to directors in 2006 and 2007. The weighted-average price relates only to the outstanding options and warrantsand excludes the restricted share units.

(c)          The weighted-average price relates only to theoutstanding options and warrants and excludes the restricted share units.

 

Noequity securities of the Company are issuable upon exercise of SARs under eitherthe 2005 SAR Plan or the 2010 SAR Plan. Each such plan provides for only a cash payment upon exercise, and wedid not seek shareholder approval of these plans.  The material features of the 2005 SAR Planand the 2010 SAR Plan are described in Compensation Discussion and Analysis, inItem 11. Executive Compensation.  As of December 31,2009, under the 2005 SAR Plan, there were 1,996,183 SARs outstanding withweighted-average exercise price of $6.45, and there were no SARs remainingavailable for future issuance except for potential reallocations upon anyforfeiture of such outstanding SARs following a termination of employment by aformer executive.  The 2010 SAR plan hadnot been adopted as of December 31, 2009.

 

**Security Ownership of CertainBeneficial Owners and Management**

 

The following table setsforth certain information, as of April 26, 2010, with respect to allpersons known by us to be the beneficial owners of more than 5% of ouroutstanding Common Stock, each of our directors, each of our named executiveofficers and all of our directors and executive officers as a group.  Unless otherwise noted, the address of eachbeneficial owner listed in the table is c/o Protection One, Inc., 1035 N.3rd Street, Suite 101, Lawrence, KS66044.  Information in the table withrespect to beneficial owners of more than 5% of our outstanding Common Stock isbased on such owners’ Schedule 13D as filed with the Securities and ExchangeCommission.

 
| **Name and Address of Beneficial Owner**         | ** ** | **Amount and Nature of********Beneficial Ownership as of  April 26, 2010 (1)** | ** ** | **Percent********of Class** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| POI Acquisition, L.L.C.375 Park Avenue, 14th FloorNew York, NY 10152 |       | 11,803,887                                                                                                                  |       | 46.41                            | %          |
|                                                                      |       |                                                                                                                        |       |                             |       |
| Monarch Alternative  Capital LP535 Madison AvenueNew York, NY 10022       |       | 5,917,732                                                                                                                   |       | 23.27                            | %          |
|                                                                      |       |                                                                                                                        |       |                             |       |
| Richard  Ginsburg                                                         |       | 819,246                                                                                                                     | (2)(7)(9)  | 3.14                             | %          |
| Darius  G. Nevin                                                          |       | 567,658                                                                                                                     | (2)(7)(9)  | 2.20                             | %          |
| Peter  J. Pefanis                                                         |       | 450,944                                                                                                                     | (2)(7)(9)  | 1.74                             | %          |
| Eric  Griffin                                                             |       | 23,996                                                                                                                      | (2)        | *                                |       |

 

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| Tony  Wilson                                           |   | 23,041    | (2)    | *    |   |
|--------------------------------------------------------|--------|-----------|--------|------|--------|
| Raymond  C. Kubacki                                    |   | 14,139    | (5)    | *    |   |
| Robert  J. McGuire                                     |   | 25,109    | (5)    | *    |   |
| Peter  Ezersky                                         |   | 0         | (6)    | *    |   |
| Alex  Hocherman                                        |   | 0         | (3)    | *    |   |
| Thomas  J. Russo                                       |   | 12,109    | (5)    | *    |   |
| Edward  F. Sippel                                      |   | 0         | (8)    | *    |   |
| Michael  Weinstock                                     |   | 0         | (4)    | *    |   |
| Arlene  M. Yocum                                       |   | 13,559    | (5)    | *    |   |
| All  directors and named executive officers as a group |   | 1,949,801 |   | 7.22 | %      |

 

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*                 Each individual owns less than one percent of theoutstanding shares of our Common Stock.

 

(1)          This column reflects our directors’ and namedexecutive officers’ beneficial ownership of shares of our Common Stock.

(2)          Includes shares subject to options that are currentlyexercisable or that become exercisable within 60 days after April 26, 2010as follows: Mr. Ginsburg, 638,535; Mr. Nevin, 393,547; Mr. Pefanis,392,547; Mr. Griffin, 15,292 and Mr. Wilson, 15,650.  For Mr. Ginsburg, Mr. Nevin, and Mr. Pefanisthis amount also includes restricted shares with voting rights that weregranted on February 22, 2010 and vest in one-half increments on second andthird anniversary on date of grant as follows: Mr. Ginsburg, 50,000; Mr. Nevin, 25,000 and Mr. Pefanis,25,000.

(3)          Mr. Hocherman is a Vice President of QuadrangleGroup LLC, an affiliate of Quadrangle GP Investors LLC.  Quadrangle GP Investors LLC is the generalpartner of Quadrangle GP Investors LP, the general partner of each ofQuadrangle Capital Partners LP, Quadrangle Select Partners LP and QuadrangleCapital Partners-A LP (collectively, the “Quadrangle Funds”), which togetherown all of the equity of POI Acquisition, L.L.C. (sometimes referred to as”POIA”).  Mr. Hocherman disclaims beneficialownership of the shares of our Common Stock that may be owned or deemedbeneficially owned by POIA, Quadrangle GP Investors LLC, Quadrangle GPInvestors LP, the Quadrangle Funds or any affiliates or former affiliatesthereof.

(4)          Mr. Weinstock is a Managing Principal of MonarchAlternative Capital LP.  Mr. Weinstockdisclaims beneficial ownership of the shares of our Common Stock that may beowned or deemed beneficially owned by Monarch Alternative Capital LP or anyaffiliates thereof (“Monarch”).

(5)          Includes 6,057 RSUs that will vest within 60 daysafter April 26, 2010.

(6)          Mr. Ezersky is a Managing Member of Quadrangle GPInvestors LLC and a Manager of POIA. Quadrangle GP Investors LLC is the general partner of Quadrangle GPInvestors LP, the general partner of Quadrangle Funds, which together own allof the equity of POIA.  Mr. Ezerskydisclaims beneficial ownership of the shares of our Common Stock that may beowned or deemed beneficially owned by POIA, Quadrangle GP Investors LLC,Quadrangle GP Investors LP, the Quadrangle Funds or any affiliates or formeraffiliates thereof.

(7)          Amounts owned exclude SARs for Mr. Ginsburg, Mr. Nevinand Mr. Pefanis, granted on February 8, 2005 and February 22,2010 pursuant to the management incentive plan. See “Executive Compensation andRelated Information—Compensation Discussion and Analysis” for more informationon the SAR grants.

(8)          Mr. Sippel is a Managing Member of Quadrangle GPInvestors LLC.  Quadrangle GP InvestorsLLC is the general partner of Quadrangle GP Investors LP, the general partnerof Quadrangle Funds, which together own all of the equity of POIA.  Mr. Sippel disclaims beneficialownership of the shares of our Common Stock that may be owned or deemedbeneficially owned by POIA, the Quadrangle Funds or any affiliates or formeraffiliates thereof.

(9)          Includes restricted shares granted on February 22,2010 as follows:  Mr. Ginsburg,50,000; Mr. Nevin, 25,000, Mr. Pefanis, 25,000.

 

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**ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

**Related Party Policy andProcedures**

 

Itis our current written policy to prohibit all related party transactions withus unless the Audit Committee (referred to below as the “Committee”) of theBoard of Directors has determined in advance of the Company entering into anysuch transaction that there is a compelling business reason to enter into sucha transaction.

 

Thereis a general presumption that a related party transaction with us will not beapproved by the Committee.  However, theCommittee may approve a related party transaction if:

 

(1)          The Committeefinds that there is a compelling business reason to approve the transaction,taking into account such factors as the absence of other unrelated parties toperform similar work for a similar price within a similar timeframe; and

(2)          The Committeefinds that it has been fully apprised of all significant conflicts that mayexist or otherwise arise on account of the transaction, and it believes,nonetheless, that we are warranted in entering into the related partytransaction and have developed an appropriate plan to manage the potentialconflicts of interest.

 

Wehave adopted the provisions of ASC Topic 850, “Related Party Disclosures” forpurposes of disclosing related party transactions.  Executive officers, directors and selectedmembers of management are routinely asked to disclose known related partytransactions.  In addition, our Code ofEthical Business Conduct includes provisions prohibiting any action that wouldconstitute a conflict of interest.  Anyemployee, officer or director who becomes aware of a conflict or potential conflictmust bring it to the attention of the appropriate personnel as provided in ourCode of Ethical Business Conduct.

 

During2009, we were not a party to any transaction or series of similar transactionsof a material amount in which any current director, executive officer, holderof more than 5% of our capital stock, or any member of the immediate family ofany of the foregoing, had a direct or indirect material interest, other than inconnection with the transactions described below:

 

***Board of Directorsand Amended Bylaws***

 

If and for so long as POIAcquisition, L.L.C. owns at least 40% of the outstanding shares of our CommonStock, it shall have the right to elect to increase the size of the Board bytwo directors, which it shall be entitled to designate.

 

Our stockholdersagreement also includes voting agreements, certain restrictions on the transferof our Common Stock, drag-along rights in favor of POI Acquisition, L.L.C. andtag-along rights in favor of Monarch, all upon customary terms and subject tocertain customary exceptions (including exceptions for certain transfers amongaffiliates). In addition, the amended and restated stockholders agreementprovides the Principal Stockholders with the right to participate on aproportional basis in any future equity issuance by us, except for issuancespursuant to registered public offerings, business combination transactions orofficer, employee, director or consultant arrangements.

 

***RegistrationRights Agreement***

 

As a condition to theconsummation of the debt-for-equity exchange, we entered into a registrationrights agreement with POI Acquisition, L.L.C. and Monarch.  The registration rights agreement provides,among other things, that we will register, upon notice, shares of our CommonStock owned by such parties.  Under theregistration rights agreement, POI Acquisition, L.L.C. is permitted up to fourdemand registrations and Monarch is permitted up to two demand registrations,subject to certain conditions described in the agreement.  POI Acquisition, L.L.C. and Monarch alsoreceived piggyback registration rights whereby they shall have the opportunityto register their securities pursuant to any registration statement we may filein the future, subject to certain conditions. We are also obligated to pay certain of their expenses pursuant to theregistration of their securities under the registration rights agreement.

 

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***2008Credit Agreement***

 

On March 14, 2008,POAMI, as borrower, Protection One, Inc., the lenders party thereto,Lehman Brothers Inc., as syndication agent, and Bear Stearns Corporate LendingInc., as administrative agent, entered into a Credit Agreement (the “CreditAgreement”) for an unsecured term loan in the amount of $110,340,000 (the “TermLoan”) due March 14, 2013. The Term Loan lenders include, among others,entities affiliated with Quadrangle Group LLC, Monarch Alternative Capital LPand Arlon Group.  Three of our directors,Mr. Ezersky, Mr. Hocherman and Mr. Sippel, and three of ourformer directors, Mr. Nordhaus, Mr. Ormond and Mr. Rattner, areor were affiliated with Quadrangle Group LLC, one of our directors, Mr. Weinstock,is affiliated with Monarch Alternative Capital LP, and one of our formerdirectors, Mr. Tanner, is affiliated with Arlon Group.

 

The Credit Agreementprovides that interest will accrue on the outstanding principal amount of theTerm Loan at the prime rate (as defined in the Credit Agreement) plus 11.5% perannum, with interest payments due semi-annually on each March 14th and September 14th.  Principal amounts outstanding under the TermLoan may be prepaid in part or in full. Any principal prepayments made prior to March 14, 2009, would havebeen subject to a make-whole premium as described in the Credit Agreement;however, none were made.

 

The Credit Agreementcontains covenants, including, among other things, covenants that restrict theability of POAMI, Protection One and its subsidiaries to incur certainadditional indebtedness, create or permit liens on assets, issue certain equitysecurities that mature or have redemption features or engage in certainmergers, consolidations or dispositions. If an event of default under the Credit Agreement shall occur and becontinuing, the principal amount outstanding thereunder, together with allaccrued unpaid interest and other amounts owed thereunder, may be declaredimmediately due and payable.

 

**Director Independence**

 

Because the PrincipalStockholders own approximately 70% of our Common Stock, we qualify as a “controlledcompany” based upon the criteria set forth in the Marketplace Rules of TheNasdaq Stock Market (the “Nasdaq Marketplace Rules”).  As a result, we are not required to have,among other things, a majority of our Board of Directors comprised ofindependent directors, nor are we required to have a compensation committee ornominating committee consisting solely of independent directors.  Currently, Mr. Kubacki, Mr. McGuire,Mr. Russo and Ms. Yocum qualify as independent under the NasdaqMarketplace Rules.  Furthermore, Mr. McGuire,Mr. Kubacki and Ms. Yocum, members of the Audit Committee, alsoqualify as independent based upon the criteria set forth in Section 10A(m)(3) underthe Exchange Act.  Mr. Ezersky, Mr. Hochermanand Mr. Sippel are not “independent” under the Nasdaq Marketplace Rules dueto their respective affiliations with the Quadrangle Stockholders.  Mr. Weinstock is not “independent” underthe Nasdaq Marketplace Rules due to his affiliation with the MonarchStockholders.  Mr. Ginsburg is notindependent under the Nasdaq Marketplace Rules because he is our ChiefExecutive Officer.

 

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**ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

**Audit Fees**

 

The aggregate fees billedby Deloitte & Touche LLP, the member firms of Deloitte ToucheTohmatsu, and their respective affiliates for fiscal years ended December 31,2009 and 2008 are as follows:

 
| ** **              | ** ** | **For the year  ending  December 31,  2009** | ** ** | **Percentage  of service  approved  by the  Audit  Committee** | ** ** | **For the year  ending  December 31,  2008** | ** ** | **Percentage  of service  approved  by the  Audit  Committee** | ** ** |
|-------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Audit  fees (a)         |       | $                                                           | 1,034,000  |                                                                     | 100        | %                                                           | $          | 1,116,357                                                                |       | 100 | % |
| Audit-related  fees (b) |       | 22,450                                                      |       | 100                                                                      | %          | 39,585                                                      |       | 100                                                                      | %          |
| Tax  fees (c)           |       | 28,035                                                      |       | 100                                                                      | %          | —                                                      |       | —                                                                   |       |
| All  other fees (d)     |       | —                                                      |       | —                                                                   |       | 2,500                                                       |       | 100                                                                      | %          |
| Total  fees             |       | $                                                           | 1,084,485  |                                                                     |       |                                                        | $          | 1,158,442                                                                |       |   |   |

 

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(a)          Includes fees for the respective year-end audit andrelated quarterly reviews.  2008 alsoincludes fees related to the SEC comment letter.

(b)         Includes fees for the audits of our employee benefitplans.  2008 also includes fees for our Form S-3filing.

(c)          Includes fees related to review of the 2008 FederalIncome tax return.

(d)         ACL software training.

 

The Audit Committee ofour Board reviewed the services provided by Deloitte & Touche LLP,along with the fees related to such services. The Audit Committee reviews audit fees to be paid to and other servicesto be provided by the independent registered public accountants. The AuditCommittee has considered, and will consider, whether the provision of non-auditservices is compatible with maintaining the independence of our independentregistered public accounting firm.

 

The Audit Committeecharter, which was adopted on March 11, 2005, provides that the AuditCommittee will review and pre-approve all audit and non-audit services(excluding prohibited non-audit services as defined in the Sarbanes-Oxley Actof 2002) to be provided to us by our independent auditor (other than withrespect to *de minimis* exceptions permitted by theSarbanes-Oxley Act of 2002).  The AuditCommittee may consult with management in making its decision, but it may notdelegate this authority to management. The Audit Committee may delegate its authority to pre-approve servicesto one or more committee members, provided that the designees present thepre-approvals to the full Audit Committee at the next regularly scheduledmeeting of the Audit Committee.  Thisauthority has been delegated by the Audit Committee to Mr. McGuire.  The Audit Committee has established policiesand procedures for the engagement of the outside auditor to provide permissiblenon-audit services, which shall include pre-approval of such services.

 

The Audit Committee willperiodically assess the suitability of our independent registered publicaccountants, taking into account all relevant fees and circumstances, includingthe qualifications of other accounting firms. 

 

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**PART IV**

 

**ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

The financial statementsand required financial statement schedules are included in the Original Filing.The following documents are being filed as part of this Form 10-K/A.

 
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                      |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                  |       | Agreement and Plan of Merger, dated as of December 20,  2006, by and among the Company, IASG and Tara Acquisition Corp. (incorporated  by reference to Exhibit 2.1 of the Current Report on Form 8-K dated  December 21, 2006).                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.1                  |       | Amended and Restated Certificate of Incorporation of  the Company, effective as of February 8, 2005 (incorporated by reference  to Exhibit 3.1 to the Annual Report on Form 10-K filed by the  Company and POAMI for the year ended December 31, 2004, as amended (the “Fiscal  2004 Form 10-K, as amended”)). |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.2                  |       | By-laws of the Company, as amended and restated  March 17, 2005 (incorporated by reference to Exhibit 3.1 of the  Current Report on Form 8-K dated March 17, 2005).                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.1                 |       | 1997 Long-Term Incentive Plan of the Company, as  amended (incorporated by reference to Exhibit 10.3 to the Fiscal 2004  Form 10-K, as amended).*                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.2                 |       | Integrated Alarm Services Group, Inc. 2003  Stock Option Plan.*++                                                                                                                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.3                 |       | Integrated Alarm Services Group, Inc. 2004  Stock Incentive Plan.*++                                                                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.4                 |       | 2004 Stock Option Plan (incorporated by reference to  Exhibit 10.3 of the Current Report on Form 8-K filed by the Company  and POAMI dated February 8, 2005).*                                                                                                                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.5                 |       | Form of Option Agreement for Named Executive  Officers under 2004 Stock Option Plan (incorporated by reference to  Exhibit 10.4 of the Current Report on Form 8-K dated  February 8, 2005).*                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.6                 |       | Form of Option Agreement for Non-Named  Executive Officers under 2004 Stock OptionPlan (incorporated by reference to  Exhibit 10.5 of the Current Report on Form 8-K dated  February 8, 2005).*                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.7                 |       | Stock Appreciation Rights Plan (incorporated by  reference to Exhibit 10.6 of the Current Report on Form 8-K dated  February 8, 2005).*                                                                                                                                                                                            |

 

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| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                      |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8                 |       | Form of Grant Agreement under Stock  Appreciation Rights Plan (incorporated by reference to Exhibit 10.7 of  the Current Report on Form 8-K dated February 8, 2005).*                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9                 |       | Protection One, Inc. 2008 Long-Term Incentive  Plan (incorporated by reference to Appendix A to the Company’s Schedule 14C  Definitive Information Statement, filed with the Securities and Exchange  Commission on April 29, 2008).*                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10                |       | Form of Restricted Share Unit Agreement  (incorporated by reference to Exhibit I to Appendix A to the Company’s  Schedule 14C Definitive Information Statement, filed with the Securities and  Exchange Commission on April 29, 2008).*                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11                |       | 2009 Short-Term Incentive Plan of the Company  (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K  dated June 3, 2009).*                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12                |       | Protection One, Inc. 2010 Stock Appreciation  Rights Plan (incorporated by reference to Exhibit 10.6 of the Current  Report on Form 8-K dated February 22, 2010).*                                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13                |       | Form of Stock Option Agreement (incorporated by  reference to Exhibit 10.4 of the Current Report on Form 8-K dated February 22,  2010).*                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14                |       | Form of Restricted Shares Award Agreement  (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K  dated February 22, 2010).*                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.15                |       | Amended and Restated Employment Agreement by and  between Protection One, Inc. and Protection One Alarm Monitoring, Inc.  and Richard Ginsburg dated as of February 22, 2010 (incorporated by  reference to Exhibit 10.1 of the Current Report on Form 8-K dated  February 22, 2010).*                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.16                |       | Amended and Restated Employment Agreement by and  between Protection One, Inc. and Protection One Alarm Monitoring, Inc.  and Darius G. Nevin dated as of February 22, 2010 (incorporated by  reference to Exhibit 10.2 of the Current Report on Form 8-K dated  February 22, 2010).*                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17                |       | Amended and Restated Employment Agreement by and  between Protection One, Inc. and Protection One Alarm Monitoring, Inc.  and Peter J. Pefanis dated as of February 22, 2010 (incorporated by  reference to Exhibit 10.3 of the Current Report on Form 8-K dated  February 22, 2010).*                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18                |       | Employment Agreement dated July 23, 2004  between Protection One, Inc., Protection One Alarm Monitoring, Inc and  J. Eric Griffin (incorporated by reference to Exhibit 10.58 to the  Fiscal 2004 Form 10-K, as amended).*                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19                |       | First Amendment to Employment Agreement dated  February 8, 2005 between Protection One, Inc., Protection One Alarm  Monitoring, Inc and J. Eric Griffin (incorporated by reference to  Exhibit 10.59 to the Fiscal 2004 Form 10-K, as amended).*                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20                |       | Second Amendment to Employment Agreement, dated  December 3, 2008, between and among Protection One, Inc.,  Protection One Alarm Monitoring, Inc. and J. Eric Griffin.*++                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                              |
| 10.21                |       | Employment Agreement, dated July 23, 2004,  between Protection One, Inc., Protection One Alarm  Monitoring, Inc., Security Monitoring Services, Inc. (d/b/a CMS),  and Anthony Wilson (incorporated by reference to Exhibit 10.1 to the  Quarterly Report on Form 10-Q filed by the Company and POAMI for the  quarter ended March 31, 2009).* |

 

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| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.22                |       | First Amendment to Employment Agreement, dated  February 8, 2005, between ProtectionOne, Inc., Protection One Alarm  Monitoring, Inc., Security Monitoring Services, Inc. (d/b/aCMS), and Anthony Wilson (incorporated  by reference to Exhibit 10.2 to the QuarterlyReport on Form 10-Q filed by the  Company and POAMI for the quarter ended March 31,2009).*                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.23                |       | Second Amendment to Employment Agreement, dated  December 3, 2008, betweenProtection One, Inc., Protection  One Alarm Monitoring, Inc., Security MonitoringServices, Inc. (d/b/a CMS), and  Anthony Wilson (incorporated by reference to Exhibit 10.3to the Quarterly Report on Form 10-Q  filed by the Company and POAMI for the quarterended March 31, 2009).*                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.24                |       | Employment Agreement dated July 23, 2004  between Protection One, Inc., Protection OneAlarm Monitoring, Inc and Joseph  Sanchez (incorporated by reference to Exhibit 10.12 tothe Fiscal 2006 Form 10-K).*                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.25                |       | First Amendment to Employment Agreement dated  February 8, 2005 between ProtectionOne, Inc., Protection One Alarm  Monitoring, Inc and Joseph Sanchez (incorporated byreference to Exhibit 10.13 to the  Fiscal 2006 Form 10-K).*                                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.26                |       | Second Amendment to Employment Agreement, dated  December 3, 2008, between andamong Protection One, Inc.,  Protection One Alarm Monitoring, Inc. and JosephSanchez.*++                                                                                                                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.27                |       | Registration Rights Agreement, dated as of  February 8, 2005, by and between the Companyand Quadrangle (incorporated by  reference to Exhibit 10.2 of the Current Report onForm 8-K dated February 8,  2005).                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28                |       | Management Stockholder”s Agreement, dated as of  February 8, 2005 (incorporated byreference to Exhibit 10.8 of the  Current Report on Form 8-K dated February 8, 2005).*                                                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.29                |       | Reorganization Agreement, dated as of December 18,  2006, by and among ProtectionOne, Inc., POI Acquisition  I, Inc. and the other affiliates of Quadrangle Group LLCnamed therein (incorporated by  reference to Exhibit 10.4 of the Current Report onForm 8-K dated December 21,  2006).                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.30                |       | Amended and Restated Stockholders Agreement dated  April 2, 2007, among QuadrangleMaster Funding Ltd., POI Acquisition,  LLC and the Company (incorporated by referenceto Exhibit 10.1 of the Current Report  on Form 8-K dated April 2, 2007).                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.31                |       | Credit Agreement dated March 14, 2008, among the  Company and other parties namedtherein (incorporated by reference to  Exhibit 10.1 of the Current Report on Form 8-Kdated March 14, 2008).                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.32                |       | Second Amended and Restated Credit Agreement dated  November 17, 2009, by and amongProtection One Alarm  Monitoring, Inc., Protection One, Inc., the lenders party thereto  andJ.P.  Morgan Securities Inc., as sole lead arranger and sole book manager, Bank of  AmericaN.A., as  documentation agent and JPMorgan Chase Bank, N.A., as administrative agent(incorporated by reference to Exhibit  10.1 of the Current Report on Form 8-K datedNovember 17, 2009). |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 21.1                 |       | Subsidiaries of the Company.++                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 23.1                 |       | Consent of Deloitte & Touche LLP,  Independent Registered Public Accounting Firm ++                                                                                                                                                                                                                                                                                                                                                                                        |

 

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| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                      |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 for Protection One, Inc. +                                                                                     |
|                 |       |                                                                                                                                                                                              |
| 31.2                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 for Protection One, Inc. +                                                                                     |
|                 |       |                                                                                                                                                                                              |
| 32.1                 |       | Certification of Principal Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 for Protection One, Inc. + |
|                 |       |                                                                                                                                                                                              |
| 32.2                 |       | Certification of Principal Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 for Protection One, Inc. + |

 

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| *      | Each Exhibit marked with an asterisk  constitutes a management contract or compensatory plan or arrangement  required to be filed or incorporated by reference as an Exhibit to this  report pursuant to Item 15(c) of Form 10-K. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                  |
| +      | Filed or furnished herewith.                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                  |
| ++     | Filed or furnished as an Exhibit to our Original  Form 10-K filed on March 24, 2010.                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                  |
|   | (b) The exhibits required by Item 601 of  Regulation S-K are filed or furnished herewith.                                                                                                                                                        |

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrants have duly caused this report to be signed on theirbehalf by the undersigned, thereunto duly authorized.

 
|                       | **PROTECTION  ONE, INC** |
|----------------------------|--------------------------|
|                       |                     |   |
| Date:  April 30, 2010 | By:                      | /s/DARIUS  G. NEVIN |
|                       |                     | Darius  G. Nevin, |
|                       |                     | Executive  Vice President & Chief Financial Officer |

 

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**EXHIBIT INDEX**

 
| 31.1   |   | Certification  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 for Protection One, Inc.                                                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                         |
| 31.2   |   | Certification  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 for Protection One, Inc.                                                           |
|   |   |                                                                                                                                                                                         |
| 32.1   |   | Certification  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for  Protection One, Inc. |
|   |   |                                                                                                                                                                                         |
| 32.2   |   | Certification  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for  Protection One, Inc. |

 

39

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