Document:

Exhibit 10.3

FORM OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as
of ________ __, 2007, by and among Quadrangle Master Funding Ltd, a Cayman
Islands limited company (together with any of its Affiliates that receive
Common Shares in a Permitted Transfer (as defined below), “QDRF”), POI
Acquisition, LLC, a Delaware limited liability company (together with any of
its Affiliates that receive Common Shares in a Permitted Transfer, “POI
Acquisition”), and Protection One, Inc., a Delaware corporation (the “Company”).
Each of QDRF and POI Acquisition is referred to individually as a “Stockholder”
and, collectively, as the “Stockholders”.

WHEREAS, the parties hereto entered into a
Stockholders Agreement, dated as of February 8, 2005 (the “Original
Stockholders Agreement”), providing, among other things, for certain
arrangements relating to governance of the Company and transfers by the
Stockholders;

WHEREAS, pursuant to a merger agreement, dated as of
December 20, 2006, entered into by and between Integrated Alarm Services Group,
Inc. (“IASG”), the Company and Tara Acquisition Corp. (the “Merger
Agreement”), IASG has become a wholly-owned subsidiary of the Company, with
shareholders of IASG receiving Common Shares (the “Merger”); and

WHEREAS, in connection with the Merger the Company and
each of the Stockholders desire to amend and restate the Original Stockholders
Agreement.

NOW, THEREFORE, in consideration of the premises and
of the mutual covenants and agreements herein contained, the parties hereto
hereby agree to amend and restate the Original Stockholders Agreement as
follows:

ARTICLE I

Definitions

Section 1.1.   Definitions(a)   As
used in this Agreement, the following capitalized terms shall have the
following meanings:

Acquisition
Designees:   As defined in Section 2.1(a)(i) herein.

Affiliate:   When used with
respect to a specified Person, another Person that either directly or
indirectly, through one or more intermediaries, Controls, or is Controlled by,
or is under common Control with, the Person specified.

Board of Directors:   The board
of directors of the Company.

 

 

Business Day:  A day other than a Saturday, Sunday, federal
or New York State holiday or other day on which commercial banks in New York
City are authorized or required by law to close.

Cash Equivalents:  Any of the following:

(1)                                  securities
issued or directly and fully guaranteed or insured by the United States
Government or any agency or instrumentality of the United States (provided that the full faith and credit of
the United States is pledged in support thereof), having maturities of not more
than one year from the date of acquisition;

(2)                                  marketable
general obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition of the United States (provided that the full faith and credit of
the United States is pledged in support thereof) and, at the time of
acquisition, having a credit rating of “A” or better from either Standard &
Poor’s Ratings Services or Moody’s Investors Service, Inc.;

(3)                                  certificates
of deposit, time deposits, eurodollar time deposits, overnight bank deposits or
bankers’ acceptances having maturities of not more than one year from the date
of acquisition thereof issued by any commercial bank the long-term debt
of which is rated at the time of acquisition thereof at least “A” or the
equivalent thereof by Standard & Poor’s Ratings Services, or “A” or the
equivalent thereof by Moody’s Investors Service, Inc., and having combined
capital and surplus in excess of $500 million; or

(4)                                  commercial
paper rated at the time of acquisition thereof at least “A-2” or the
equivalent thereof by Standard & Poor’s Ratings Services or “P-2” or
the equivalent thereof by Moody’s Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of investments, and in any case
maturing within one year after the date of acquisition thereof.

Common Shares:  The shares of common stock, $0.01 par value
per share, of the Company.

Control: The possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

Excluded Securities:  As defined in Section 5.2 herein.

Independent Person: A person (x) who
is not: (i) a holder of more than 5% of the outstanding Common Shares, or an
officer, employee or partner of the Company; (ii) a creditor, customer,
supplier or other person who derives more than 10% of its purchases or revenues
from its activities with the Company; (iii) a member of the immediate family of
any such stockholder, officer, employee, partner, creditor, customer, supplier
or other person and (y) who does not 

 

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have a relationship with the Company that may
interfere with his exercise of independence from management and the Company.

Marketable Securities: securities
that are traded on an established securities exchange, reported through an
established over-the-counter trading system or otherwise traded
over-the-counter.

Permitted Transfer: As defined in
Section 3.2.

Permitted Transferee: As defined in
Section 3.2.

Person:  Any individual, partnership, limited
liability company, joint venture, syndicate, sole proprietorship, company or
corporation, unincorporated association, trust, trustee, executor,
administrator or other legal personal representative, regulatory body or
agency, government or governmental agency, authority or entity however
designated or constituted.

POI Acquisition:  As defined in the recitals.

Protection One Entities:  The Company and its Subsidiaries.

QDRF:  As defined in the recitals.

QDRF Designee: As defined in Section
2.1(a)(ii) herein.

Registered Sale: A sale of Common
Shares effected pursuant to an effective registration statement under the
Securities Act in accordance with the Registration Rights Agreement.

Registration Rights Agreement:  The registration rights agreement dated as of
February 8, 2005 by and among POI Acquisition, QDRF and the Company.

Rule 144 Sale: A sale of Common
Shares pursuant to Rule 144 promulgated under the Securities Act (or any
similar rule then in effect).

SEC: The U.S. Securities and
Exchange Commission or its successor.

Securities Act: The U.S. Securities
Act of 1933, as amended from time to time and the rules and regulations
promulgated thereunder.

Stockholder Designee: Any of the
Acquisition Designees or the QDRF Designee.

Subsidiary: An entity in respect of
which another entity owns, directly or indirectly, at least a majority of the
securities entitled to vote for the election of directors or the members of a
similar governing body.

Trigger Event: The Company ceasing
to qualify as a “controlled company” for purposes of the applicable standards
of the securities exchange on which the Common Shares are listed.

 

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(b)   When used in this
Agreement, the term “including” shall be deemed to mean “including, without
limitation”. The words “hereof,” “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article and Section references
are to this Agreement unless otherwise specified.  The meanings given to terms defined herein
shall be equally applicable to both the singular and plural forms of such
terms.

ARTICLE II

Corporate Governance

Section 2.1.   Board
of Directors Representation. 
(a)    Effective as of the date
hereof, the Stockholders and the Company shall use their reasonable best
efforts to cause the Board of Directors to be comprised of nine directors of
whom:

(i)                                     three
shall be designated by POI Acquisition (the “Acquisition Designees”);

(ii)                                  two
shall be designated by QDRF (the “QDRF Designees”);

(iii)                               two
shall be designated pursuant to the Merger Agreement for a period of not less
than two years from the date hereof;

(iv)                              one
shall be Richard Ginsburg, president and chief executive officer of the
Company; and

(iv)                              one
shall be an Independent Person selected by a majority of the other directors,
which person shall initially be Robert J. McGuire.

(b)   At such time as POI
Acquisition shall cease to own Common Shares in an amount equal to at least 25%
of the Common Shares issued and outstanding as of the effective date hereof,
POI Acquisition shall have the right to designate two Acquisition Designees
rather than three Acquisition Designees pursuant to Section 2.1(a) above. At
such time as POI Acquisition shall cease to own Common Shares in an amount
equal to at least 15% of the Common Shares issued and outstanding as of the
effective date hereof, POI Acquisition shall have the right to designate one
Acquisition Designee rather than two Acquisition Designees pursuant to Section
2.1(a) above. At such time as POI Acquisition shall cease to own Common Shares
in an amount equal to at least 10% of the Common Shares issued and outstanding
as of the effective date hereof, POI Acquisition shall cease to have the right
to designate a director to the Board of Directors pursuant to Section 2.1(a)
above. Upon each of the triggering events set forth in this Section 2.1(b)
above, POI Acquisition shall promptly cause one of its Acquisition Designees to
resign from the Board of Directors and all committees thereof. Upon any such
resignation, the Stockholders will use their reasonable best efforts to cause
the directors remaining in office to either decrease the size of the Board of
Directors to eliminate such vacancy or cause the vacancy created thereby to be
filled by a designee selected by a majority of the directors remaining in
office.

 

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(c)   At such time as QDRF shall
cease to own Common Shares in an amount equal to at least 15% of the Common
Shares issued and outstanding as of the effective date hereof, QDRF shall have
the right to designate one QDRF Designee to the Board of Directors rather than
two QDRF Designees pursuant to Section 2.1(a) above. At such time as QDRF shall
cease to own Common Shares in an amount equal to at least 10% of the Common
Shares issued and outstanding as of the effective date hereof, QDRF shall cease
to have the right to designate a director to the Board of Directors pursuant to
Section 2.1(a) above. Upon each of the triggering events set forth in this
Section 2.1(c) above, QDRF shall promptly cause one of its QDRF Designees to
resign from the Board of Directors and all committees thereof. Upon any such
resignation, the Stockholders will use their reasonable best efforts to cause
the directors remaining in office to either decrease the size of the Board of
Directors to eliminate such vacancy or cause the vacancy created thereby to be
filled by a designee selected by a majority of the directors remaining in office.

(d)   At such time as Mr.
Ginsburg ceases to be the chief executive officer of the Company, he shall no
longer be entitled to serve as a director pursuant to Section 2.1(a)
above.  Upon any such resignation, the
Stockholders will use their reasonable best efforts to cause the directors
remaining in office to either decrease the size of the Board of Directors to
eliminate such vacancy or cause the vacancy created thereby to be filled by a
designee selected by a majority of the directors remaining in office.

(e)   Each Stockholder agrees to
vote, or act by written consent with respect to, any Common Shares owned
directly or indirectly by it, at each annual or special meeting of stockholders
of the Company at which directors are to be elected or to take all actions by
written consent in lieu of any such meeting as are necessary, and the Company
shall use its reasonable best efforts to take all appropriate actions as are
necessary, to cause the Board of Directors to be comprised of the number and
type of directors specified in Section 2.1(a). In conjunction with a Trigger
Event and effective immediately prior to the consummation thereof, the
Stockholders and the Company shall take all action necessary and appropriate to
reconstitute the size and composition of the Board of Directors in accordance
with the listing rules of the applicable securities exchange; provided, however,
that in the case of any such reconstitution of the Board of Directors, POI
Acquisition shall remain entitled pursuant to Section 2.1(a) to designate the
Acquisition Designees (subject to Section 2.1(b)), QDRF shall remain entitled
to designate the QDRF Designee (subject to Section 2.1(c)), Mr. Ginsburg shall
remain entitled to serve as a director (subject to Section 2.1(d)) and the
Company shall continue to perform its obligations under the Merger Agreement
with respect to directors designated thereunder.

(f)   Until such time as POI
Acquisition ceases to own Common Shares in an amount equal to at least 40% of
the Common Shares issued and outstanding as of the effective date hereof, POI
Acquisition shall have the right, exercisable at any time upon delivery of
written notice to QDRF and the Company, to elect to cause the Board of
Directors to be increased to include two additional directors and to designate
such directors, and shall similarly have the right to designate one additional
director to the extent that POI Acquisition owns Common Shares in an amount
equal to at least 35% (but less than 40%) of the Common Shares issued and
outstanding as of the effective date hereof (the “Acquisition Election”).
Upon making the Acquisition Election, the Stockholders (and their respective
Stockholder Designees) and the Company shall use their reasonable best efforts
to take all appropriate action to cause the size of 

 

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the Board of Directors to be increased to include the
director(s) designated by POI Acquisition. Upon making the Acquisition
Election, (i) the number of Acquisition Designees set forth in Section
2.1(a)(i) shall be increased by the number of Acquisition Designees so
designated and (ii) at such time as POI Acquisition shall cease to own the
requisite percentage of Common Shares issued and outstanding to designate one
or more directors pursuant to this Section 2.1(f), POI Acquisition shall promptly
cause such Acquisition Designee(s) to resign from the Board of Directors and
all committees thereof. Upon any such resignation, the Stockholders will use
their reasonable best efforts to cause the directors remaining in office to
either decrease the size of the Board of Directors to eliminate such vacancy or
cause the vacancy created thereby to be filled by a designee selected by a
majority of the directors remaining in office.

(g)   If any Stockholder entitled
to designate directors hereunder requests in writing that any of its designees
be removed as a director, the other Stockholder shall vote, or act by written
consent with respect to, all Common Shares owned directly or indirectly by such
other Stockholder and otherwise take or cause to be taken all actions necessary
to remove such director designated by such Stockholder. Unless a Stockholder
shall otherwise request in writing, no other Stockholder shall take any action
to cause the removal of any directors designated by such Stockholder. In the
event that a vacancy is created at any time by the death, disability,
retirement, resignation or removal (with or without cause) of any director
designated by a Stockholder, so long as such Stockholder has the right to
designate a replacement designee at such time, the Company and the other
Stockholder shall use their reasonable best efforts to take all appropriate
action necessary to cause the vacancy created thereby to be filled by the
replacement designated by such Stockholder.

(h)    POI Acquisition and QDRF
each shall be entitled to designate an employee, director or officer of such
entity or its Affiliates to serve as a nonvoting observer to the Board of
Directors (an “Observer”) at any time that such entity owns at least 5%
of the outstanding Common Shares. The Observer shall be permitted to attend all
meetings of the Board of Directors. The Company shall provide the Observer, in
the same manner as provided to directors, notice of such meetings and copies of
all materials, financial or otherwise, which the Company provides to its
directors; provided, however, that the Company may exclude the
Observer from access to any materials or from any meeting, or any portion of
the foregoing, if the Company reasonably believes upon advice of counsel that
such exclusion is reasonably necessary to preserve the attorney-client
privilege, to protect confidential or proprietary information or for other
similar reasons.

(i)   The parties hereto
acknowledge and agree that designation of a director as a Stockholder Designee
does not in itself preclude such director from being deemed “independent” for
purposes of applicable rules and regulations of the United States Securities
and Exchange Commission or the securities exchange upon which the Common Shares
are listed (each such qualifying director, an “Independent Designee”).

(j)   For purposes of this
Agreement, a Stockholder shall be deemed to own its proportional interest of
any Common Shares held by a Person beneficially owned by such Stockholder
(determined based on such Stockholder’s pro rata direct or indirect equity
interest in such Person).

 

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(k)   The Company shall reimburse
each Stockholder Designee and each Observer for their reasonable out-of-pocket
expenses incurred by them for the purpose of attending meetings of the Board of
Directors, the board of directors of any Subsidiary of the Company or the
respective committees thereof.

Section 2.2.   Bylaws   (a) At the first meeting
of the Board of Directors following the date of this Agreement, the bylaws of
the Company shall be amended to provide that (i) until such time as POI
Acquisition ceases to own Common Shares in an amount equal to at least 20% of
the Common Shares issued and outstanding as of the effective date hereof, at
least one of the Acquisition Designees (other than an Independent Designee)
shall be required to be present to constitute a quorum of the Board of
Directors and (ii) until such time as QDRF ceases to own Common Shares in an
amount equal to at least 20% of the Common Shares issued and outstanding as of
the effective date hereof, at least one of the QDRF Designees (other than an
Independent Designee) shall be required to be present to constitute a quorum of
the Board of Directors; provided, however, that (x) any of the
Stockholders may waive such right for any given meeting of the Board of
Directors and (y) none of the Stockholders may use such provision in bad faith
to avoid the taking of any action by the Board of Directors.

(b)   If and for so long as POI
Acquisition has the rights described in Section 2.2(a)(i) above neither the
Company nor any other Stockholder shall, without the prior written consent of
POI Acquisition, take any action to amend the bylaws of the Company in any
manner that would impair POI Acquisition’s rights hereunder.  If and for so long as QDRF has the rights
described in Section 2.2(a)(ii) above neither the Company nor any other
Stockholder shall, without the prior written consent of QDRF, take any action
to amend the bylaws of the Company in any manner that would impair QDRF’s
rights hereunder.

Section 2.3.   Information and Inspection Rights.   The Company shall furnish to each Stockholder that,
together with its Affiliates, owns at least 5% of the outstanding Common Shares
such information regarding the business, affairs, prospects and financial
condition of the Company and its Subsidiaries as such Stockholder may
reasonably request and shall permit such Stockholder or any of its designated
representatives to examine the books and records of the Company and its
Subsidiaries (and to make copies thereof and extracts therefrom), and to
inspect their respective facilities.

ARTICLE III

Transfers

Section 3.1.   Transfer
Restrictions.   (a) Subject to compliance with Sections 3.3 and
3.4, QDRF may directly or indirectly offer, transfer, sell, assign, pledge or
otherwise dispose of any economic, voting or other rights in or to (any such
act, a “transfer”) all or a portion of its Common Shares at any time (i)
in a Permitted Transfer, (ii) in a transfer pursuant to Sections 4.2 or 4.3 or
(iii) subject to compliance with Section 4.1, in any other transfer.

(b) Subject to compliance with Sections 3.3 and 3.4, POI
Acquisition may transfer all or a portion of its Common Shares at any time (i) in a Permitted Transfer or (ii) subject to
compliance with Section 4.2 hereof, in any other transfer.

 

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Section 3.2.   Permitted
Transfers; Indirect Transfers. 
(a)  Notwithstanding any other
provision of this Agreement, a Stockholder may: 
(i) transfer Common Shares to an Affiliate of such Stockholder, (ii)
transfer Common Shares in a Registered Sale, (iii) transfer Common Shares in a
Rule 144 Sale or (iv) in the case of QDRF, transfer Common Shares at any time
it owns less than 10% of the outstanding Common Shares (determined prior to any
such transfer) (a “Below 10% Sale”) (each of the foregoing, a “Permitted
Transfer” and each of the transferees in a Permitted Transfer, a “Permitted
Transferee”).

(b)   To the extent a Stockholder
or Permitted Transferee described in clause (i) above is not an individual or
an estate, and a Person (which is not a Permitted Transferee of the Stockholder
or of such Permitted Transferee, as the case may be) acquires Control of such
Stockholder or Permitted Transferee, (x) such acquisition of Control shall be
deemed to be a transfer of the Common Shares held by such Stockholder or
Permitted Transferee subject to the restrictions on transfer contained in this
Agreement (including, without limitation, Articles III and IV hereof) and (y)
to the extent such Stockholder or Permitted Transferee then holds assets in
addition to Common Shares, the determination of the purchase price deemed to
have been paid for the Common Shares held by such Permitted Transferee in such
deemed transfer for purposes of the provisions of this Agreement shall be made
by the Board of Directors in good faith.

Section 3.3.   Notice
of Proposed Transfer.  No fewer than
10 days prior to any proposed transfer of any Common Shares by a Stockholder
(other than under the circumstances described in Article IV or pursuant to a
Registered Sale or a Rule 144 Sale), the Stockholder shall give written notice
to the Company and the other Stockholder of its intention to effect such
transfer. Each such notice shall describe the manner of the proposed transfer,
the proposed date of the transfer and the number of Common Shares proposed to
be transferred and, if requested by the Company, shall be accompanied by an
opinion of counsel reasonably satisfactory to the Company to the effect that
the proposed transfer of the Common Shares may be affected without registration
under the Securities Act.

Section 3.4.   Validity
of Transfers; Compliance with Laws, Agreement.  (a) 
Any attempt to transfer any Common Shares in violation of this Agreement
shall be null and void.  The Company
shall not record on its stock transfer books or otherwise any transfer of
Common Shares in violation of the terms and conditions set forth herein.

(b)   No transfer may be made
unless (i) the transfer complies in all respects with the applicable provisions
of this Agreement and (ii) the transfer complies in all respects with applicable
federal and state securities laws, including the Securities Act.

(c)   As a condition to any
transfer of Common Shares (other than pursuant to a  Registered Sale or a Rule 144 Sale or a Below
10% Sale), the transferee shall agree (pursuant to an agreement in form and
substance reasonably acceptable to the Company) to become a party to this
Agreement and shall have such rights and obligations of its transferor for
purposes of Articles III and IV; provided, that a transferee of Common
Shares pursuant to clause (i) of Section 3.2(a) shall have all of the rights
and obligations of the transferor Stockholder; 
provided, further, that, in connection with a transfer of
at least 10% of the outstanding Common Shares by a Stockholder, such
Stockholder may also assign its rights and obligations under Section 2.1 to
such transferee, and in such circumstances, the transferee shall have the
rights and obligations of 

 

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the transferor Stockholder under such Section; provided, however, that
such transferee shall not be entitled to designate a Stockholder Designee or an
Observer unless such Stockholder Designee or Observer, as the case may be, is
reasonably acceptable to the Board of Directors.

ARTICLE IV

Right of First Offer,
Tag-Along Sale, Drag-Along

Section 4.1.   Right
of First Offer.  (a)  If QDRF (for purposes of this Section 4.1, a “Selling
Stockholder”) proposes to transfer (unless the proposed transfer is a
Permitted Transfer or a transfer pursuant to such Selling Stockholder’s “tag-along”
rights under Section 4.2, in which case the following provisions need not be
complied with) all or any portion of its Common Shares (the number of Common
Shares proposed to be transferred by the Selling Stockholder, the “Subject
Securities”), the Selling Stockholder shall deliver a notice of intention
to sell (a “Sale Notice”) to POI Acquisition (the “Offeree
Stockholder”) setting forth the number of Subject Securities proposed to be
transferred, an irrevocable offer to sell such Subject Securities to the
Offeree Stockholder and the terms and conditions pursuant to which the Selling
Stockholder is offering to sell such Subject Securities.

(b)   Upon receipt of a Sale
Notice, the Offeree Stockholder shall have the right to elect to purchase at
the price and on the terms and conditions stated in the Sale Notice, all, but
not less than all, of the Subject Securities (as allocated among the Offeree
Stockholder in their discretion).  In the
event that the Offeree Stockholder elects to purchase all of the Subject
Securities, the Offeree Stockholder shall so notify the Selling Stockholder
within 20 days (the “Option Period”) after the receipt by such party of
the Sale Notice.  Any such election shall
be made by written notice (a “Notice of Election”) to the Selling
Stockholder.

(c)   If a Notice of Election
with respect to the Subject Securities shall have been delivered to the Selling
Stockholder, the Selling Stockholder shall sell such Subject Securities to the
Offeree Stockholder designated in the Notice of Election at the price and on
the terms and conditions stated in the Sale Notice.

(d)   The closing of the sale of
Subject Securities to the Offeree Stockholder shall take place at the offices
of the Company, or such other location as the parties to the sale may mutually
select, on a date the parties may mutually select, no later than 30 days
following the expiration of the Option Period (or upon the expiration of such
longer period required to obtain any necessary regulatory approvals).  At such closing, the Selling Stockholder shall
deliver a certificate or certificates for the Subject Securities to be sold,
accompanied by stock powers with signatures guaranteed and all necessary stock
transfer taxes paid and stamps affixed, if necessary, against receipt of the
purchase price therefor by certified or official bank check or by wire transfer
of immediately available funds.

(e)   If the Offeree Stockholder
(and/or its assignee(s)) does not elect to purchase all of the Subject
Securities by the end of the Option Period, such Subject Securities may be sold
to any Person for a period of 180 days following the expiration of the Option
Period at a price not lower than the price specified in the Sale Notice and on
other terms and conditions not more 

 

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favorable to the purchaser than those specified in the
Sale Notice. Any Subject Securities not sold by such 180th day shall again be
subject to the restrictions contained in this Section 4.1.

(f)   The Offeree Stockholder
shall be entitled to assign any or all of their rights under this Section 4.1
to any other Person.

Section 4.2.   Tag-Along
Rights.  (a)  In the event that POI Acquisition (for
purposes of this Section 4.2, a “Selling Stockholder”) proposes to
transfer (other than by way of a Permitted Transfer) all or any portion of the
Common Shares owned by such Selling Stockholder (any of the foregoing, a “Sale”),
then unless such Selling Stockholder is entitled to give and does give a
Drag-Along Notice pursuant to Section 4.3, such Selling Stockholder shall give
notice (a “Notice of Intention to Sell”) to the other Stockholder (for
purposes of this Section 4.2, the “Other Stockholder”) and the Company
promptly, and in any event not more than 10 days after the execution and
delivery by all the parties thereto of the definitive agreement relating to the
Sale, setting forth in reasonable detail the terms and conditions of such
proposed Sale, including the number of Common Shares proposed to be so
transferred, the name of the third party purchaser, the proposed amount and
form of consideration. In the event that the terms and/or conditions set forth
in the Notice of Intention to Sell are thereafter amended in any respect, the
Selling Stockholder shall give written notice (an “Amended Notice”) of
the amended terms and conditions of the proposed Sale promptly to the other
Stockholder and the Company.

(b)   The Other Stockholder shall have the right,
exercisable upon written notice to the Selling Stockholder within 20 days after
such Stockholder’s receipt of any Notice of Intention to Sell, or, if later,
within 20 days of such
Stockholder’s receipt of the most recent Amended Notice, to participate in the
proposed Sale by the Selling Stockholder to the proposed purchaser on the terms
and conditions set forth in such Notice of Intention to Sell or the most recent
Amended Notice, as the case may be (such participation rights being hereinafter
referred to as “tag-along” rights). Each Stockholder may participate with
respect to the Common Shares owned by such Stockholder in an amount equal to
the product obtained by multiplying (i) the aggregate number of Common Shares
owned by such Stockholder by (ii) a fraction, the numerator of which is equal
to the number of Common Shares proposed to be sold or transferred by the
Selling Stockholder and the denominator of which is the aggregate number of
Common Shares owned by the Selling Stockholder. If the Other Stockholder has
not notified the Selling Stockholder of its intent to exercise tag-along rights
20 days after receipt of the Notice of Intention to Sell or, if later, within
20 days of receipt of an Amended Notice, the Other Stockholder shall be deemed
to have elected not to exercise such tag-along rights with respect to the Sale
contemplated by such Notice of Intention to Sell or such Amended Notice, as the
case may be (in the case of an Amended Notice, regardless of its election
pursuant to the Notice of Intention to Sell relating to such Sale).  If the number of Common Shares elected to be
sold by the Selling Stockholder and the Other Stockholder, in addition to the
number of Common Shares elected to be sold by other stockholders of the Company
(“Other Tagging Stockholders”) pursuant to similar tag-along rights as
those contained in this Agreement, is greater than the number of Common Shares
specified in the Notice of Intention to Sell, the number of Common Shares being
sold by each such holder shall be reduced such that the applicable holder shall
be entitled to (and obligated to) sell only its pro rata portion of Common
Shares (based on the number of Common Shares owned by such holder to the total
number of Common Shares owned by all of such electing holders).  If a Stockholder elects not to include the
maximum number of 

 

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Common Shares that such holder would have been
permitted to include in a proposed Sale, the Selling Stockholder, the Other
Stockholder and any Other Tagging Stockholders may sell in the proposed Sale a
number of additional Common Shares owned by any of them equal to their pro rata
portion of the number of Common Shares eligible to be included in the proposed
Sale and not so elected to be included (based on the number of Common Shares
owned by such holder to the total number of Common Shares owned by all of such
electing holders).

(c)   If the Other Stockholder
exercises its rights under this Section 4.2, the closing of the purchase of the
Common Shares with respect to which such rights have been exercised will take
place concurrently with the closing of the sale of the Selling Stockholder’s
Common Shares to the purchaser.

(d)   In connection with any Sale
pursuant to this Section 4.2, the Other Stockholder shall make to the purchaser
in the Sale the same representations, warranties, covenants, indemnities and
agreements as the Selling Stockholder makes in connection with the proposed
Sale (except that in the case of representations, warranties, covenants,
indemnities and agreements pertaining specifically to the Selling Stockholder,
a Stockholder exercising its “tag-along” rights shall make the comparable
representations, warranties, covenants, indemnities and agreements pertaining
specifically to itself); provided, that all representations, warranties,
covenants and indemnities shall be made by the Selling Stockholder, the Other
Stockholder and the Other Tagging Stockholders severally and not jointly. Each
Stockholder and any Other Tagging Stockholder participating in the Sale will be
responsible for funding its proportionate share of any escrow arrangements in
connection with the Sale and for its proportionate share of any withdrawals
therefrom.  All fees, commissions,
adjustments to purchase price, expenses and indemnities of the Selling
Stockholder, the Other Stockholder and any Other Tagging Stockholders
thereunder shall be borne by each of them on a pro
rata basis based on the number of Common Shares sold by each of them
in such Sale.

Section 4.3.   Drag-Along. 
(a)  If (i) POI Acquisition (for
purposes of this Section 4.3, the “Selling Stockholder”) receives a bona
fide offer from any third party who is not an Affiliate of either the Company
or POI Acquisition to purchase (including a purchase by merger, consolidation
or similar transaction) 100% of the Common Shares owned by the Selling
Stockholder at such time, (ii) at least 90% of the fair market value of the
consideration to be received by the Selling Stockholder in such offer is in the
form of cash, Cash Equivalents or Marketable Securities and (iii) such offer is
accepted by the Selling Stockholder, then QDRF (for purposes of this Section
4.3, the “Other Stockholder”) hereby agrees that, if requested by the
Selling Stockholder, it will transfer to such purchaser, subject to Section
4.3(b), on the terms of the offer so accepted by the Selling Stockholder,
including time of payment, form of consideration and adjustments to purchase
price, all of its Common Shares.

(b)   The Selling Stockholder
will give notice (the “Drag-Along Notice”) to the Other
Stockholder of any proposed transfer giving rise to the rights of the Selling
Stockholder set forth in Section 4.3(a) (a “Drag-Along Sale”) not more
than 10 days after the execution and delivery by all of the parties thereto of
the definitive agreement relating to the Drag-Along Sale and, in any event, no
later than 20 days prior to the closing date for such Drag-Along Sale. The Drag-Along
Notice will set forth the number of Common Shares proposed to be so
transferred, the name of the purchaser, the proposed amount and form of
consideration, the number of 

 

 11
 

 

Common Shares sought and the other terms and
conditions of the offer.  The Other
Stockholder shall make the same representations, warranties, covenants,
indemnities and agreements as the Selling Stockholder makes in connection with
the Drag-Along Sale (except that in the case of representations, warranties,
covenants, indemnities and agreements pertaining specifically to the Selling
Stockholder, the Other Stockholder shall make the comparable representations,
warranties, covenants, indemnities and agreements pertaining specifically to
itself); provided, that all representations, warranties, covenants and
indemnities shall be made by the Selling Stockholder and the Other Stockholder
severally and not jointly and provided further that in the event that at
the time of execution of the definitive agreement relating to such Drag-Along
Sale the Other Stockholder no longer retains the right to designate the QDRF
Designee pursuant to Section 2.1(a), the Other Stockholder shall be required
only to make representations, warranties, covenants, indemnities and agreements
pertaining specifically to itself consistent with the representations,
warranties, covenants, indemnities and agreements pertaining specifically to
the Selling Stockholder.  The Other
Stockholder will be responsible for funding its proportionate share of any escrow
arrangements in connection with the Drag-Along Sale and for its proportionate
share of any withdrawals therefrom.  The
Other Stockholder also will be responsible for its proportionate share of any
fees, commissions, adjustments to purchase price and expenses in connection
with the of the Drag-Along Sale.  If the
Drag-Along Sale is not consummated within 90 days from the date of the
Drag-Along Notice (subject to extension to
obtain any necessary regulatory approvals), the Selling Stockholder(s) must
deliver another Drag-Along Notice in order to exercise their rights under this
Section 4.3 with respect to such Drag-Along Sale.

ARTICLE V

Preemption

Section 5.1.   Preemptive
Rights.  (a)  Each Stockholder shall have the right to
purchase for cash its Preemptive Right Pro Rata Share of newly issued (i) Common
Shares or (ii) options or warrants to purchase, or securities convertible into
or exchangeable for, Common Shares (“Rights” and together with Common
Shares, “POI Securities”), in each case that the Company or any
Subsidiary of the Company may from time to time propose to sell for cash.  A Stockholder’s “Preemptive Right Pro Rata
Share” shall be, at any given time, that proportion, calculated prior to
any proposed new issuance, which the number of Common Shares owned by such
Stockholder at such time bears to the total number of Common Shares outstanding
at such time.

(b)   In the event the Company
proposes to undertake an issuance for cash of POI Securities to any Person, it
shall give the Stockholders written notice (the “Preemptive Notice”) of
its intention to sell POI Securities for cash, the price, the identity of the
purchaser and the principal terms upon which the Company proposes to issue the
same.  Subject to Section 5.1(a), each
Stockholder shall have ten Business Days from the delivery date of any
Preemptive Notice to agree to purchase a number of POI Securities up to its
Preemptive Right Pro Rata Share of POI Securities (in each case calculated
prior to the issuance) for the price and upon the terms specified in the
Preemptive Notice by giving written notice to the Company and stating therein
the number of POI Securities to be purchased.

 

 12

(c)   In the event that any
Stockholder fails to purchase all of its Preemptive Right Pro Rata Share
pursuant to this Section 5.1, the Company shall have 180 days after the date of
the Preemptive Notice to consummate the sale of the POI Securities with respect
to which such Stockholder’s preemptive right was not exercised, at or above the
price and upon terms not more favorable to the purchasers of such POI
Securities than the terms specified in the initial Preemptive Notice given in
connection with such sale.

Section 5.2.   Excluded
Securities.  The parties hereby agree
that the preemption rights described in Section 5.1 shall not be exercisable
with respect to any issuance by the Company or any Subsidiary of the Company of
the following securities (“Excluded Securities”):

(a)  
any issuance of securities to officers, employees, directors or
consultants of any Protection One Entity in connection with such person’s
employment, consulting or director arrangements with a Protection One Entity;

(b)  
any issuance of securities in connection with any business combination
or acquisition transaction involving any Protection One Entity, including any
issuance to the equityholders or management of the entity that is the subject
of such business combination or acquisition transaction; or

(c)    any securities issued by the Company or a
Subsidiary of the Company pursuant to a public offering registered with the
SEC.

ARTICLE VI

Miscellaneous

Section 6.1   Effectiveness
and Term.  This Agreement shall
terminate upon (i) as to any Stockholder, the date when such Stockholder owns
less than 1% of the outstanding Common Shares or (ii) upon a written agreement
by the Stockholders and the Company to terminate the Agreement.

Section 6.2   Recapitalizations,
Exchanges, Etc., Affecting Common Shares. 
The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the Common Shares, and to any and all shares of
the Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of the Common Shares, by reason of any
stock dividend, stock split, stock issuance, reverse stock split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. Upon
the occurrence of any of such events, amounts hereunder shall be appropriately
adjusted.

Section 6.2.   Headings.
Headings of articles, sections and paragraphs of this Agreement are inserted
for convenience of reference only and shall not affect the interpretation or be
deemed to constitute a part hereof.

Section 6.4.   Severability.
In the event that any one or more of the provisions contained in this Agreement
or in any other instrument referred to herein shall, for any reason, be 

 

 13
 

 

held to be invalid, illegal or unenforceable, such
illegality, invalidity or unenforceability shall not affect any other
provisions of this Agreement.

Section 6.5.   Benefits
of Agreement.  Nothing expressed by
or mentioned in this Agreement is intended or shall be construed to give any
Person other than the parties hereto and their respective successors and
permitted assigns any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained, this Agreement and
all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective
successors and permitted assigns.  No
assignments of rights under this Agreement shall be permitted and any such
assignment shall be void, except an assignment to a transferee of Common Shares
of a Stockholder (other than a transferee in a Registered Sale, a Rule 144 Sale
or a Below 10% Sale) or an assignment of the Offeree Stockholder’s rights under
Section 4.1.

Section 6.6.   Notices.  Any notice or other communications required
or permitted hereunder shall be deemed to be sufficient and received if
contained in a written instrument delivered in person or by courier or duly
sent by first class certified mail, postage prepaid, or by facsimile addressed
to such party at the address or facsimile number set forth below:

(1)                                  If
to the Company to:

Protection One,
Inc

1035 N. 3rd Street, Suite 101

Lawrence, Kansas 66044

Telephone:  785-575-1707

Facsimile:  785-575-1711

Attention:  Darius G. Nevin

with a copy (which shall not constitute notice) to:

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, Illinois 60601

Telephone:  312-861-2000

Facsimile:   312-861-2200

Attention:  R. Scott Falk, P.C.

(2)                                  If
to POI Acquisition:

c/o Quadrangle Group LLC

375 Park Avenue

New York, New York 10152

Telephone: 212-418-1700

Facsimile: 212-418-1701

Attention: Henry Ormond

(3)                                  If
to QDRF:

 

 14
 

 

c/o Quadrangle Group LLC

375 Park Avenue

New York, New York 10152

Telephone: 212-418-1700

Facsimile: 212-418-1701

Attention: Michael Weinstock

in the case of notice to POI Acquisition or QDRF, with a copy (which
shall not constitute notice) to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3790

Telephone: 212-455-2000

Facsimile:  212-455-2502

Attention:  Joseph H. Kaufman

and

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019-6099

Telephone: 212-728-8000

Facsimile: 212-728-8111

Attention: Michael Kelly

(4)                                  if
to any Stockholder other than POI Acquisition or QDRF, to it at the address set
forth in the records of the Company;

or, in any case, at such other address or facsimile
number as shall have been furnished in writing by such party to the other
parties hereto. All such notices, requests, consents and other communications
shall be deemed to have been received (a) in the case of personal or courier
delivery, on the date of such delivery, (b) in the case of mailing, on the
fifth business day following the date of such mailing and (c) in the case of
facsimile, when received.

Section 6.7.   Amendments
and Waivers.  (a)  Neither this Agreement nor any provision
hereof may be amended, modified, changed or discharged except by an instrument
in writing signed by each of the parties hereto.

(b)   No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

 

 15
 

 

Section 6.8.   Counterparts.  This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one agreement.

Section 6.9.   Specific
Performance.  The parties hereto
intend that each of the parties have the right to seek damages or specific
performance in the event that any other party hereto fails to perform such
party’s obligations hereunder. 
Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.

Section 6.10.   Further
Assurances.  Each of the parties
shall, and shall cause their respective Affiliates to, execute such documents
and perform such further acts as may be reasonably required or desirable to
carry out or to perform the provisions of this Agreement.

Section 6.11.   No
Recourse.  Notwithstanding anything
that may be expressed or implied in this Agreement, the Company and each
Stockholder covenant, agree and acknowledge that no recourse under this
Agreement or any documents or instruments delivered in connection with this
Agreement shall be had against any current or future director, officer,
employee, general or limited partner or member of any Stockholder or of any
Affiliate or assignee thereof, as such, whether by the enforcement of any
assessment or by any legal or equitable proceeding, or by virtue of any
statute, regulation or other applicable law, it being expressly agreed and
acknowledged that no personal liability whatsoever shall attach to, be imposed
on or otherwise be incurred by any current or future officer, agent or employee
of any Stockholder or any current or future member of any Stockholder or any
current or future director, officer, employee, partner or member of any
Stockholder or of any Affiliate or assignee thereof, as such, for any obligation
of any Stockholder under this Agreement or any documents or instruments
delivered in connection with this Agreement for any claim based on, in respect
of or by reason of such obligations or their creation.

Section 6.12.   Confidentiality.
Each Stockholder acknowledges that in connection with its investment in the
Company it shall receive certain non-public, confidential proprietary
information, which may include memoranda, notes, analyses, reports,
compilations or studies prepared by or on behalf of the Company and its
Subsidiaries (“Confidential Information”). Notwithstanding anything to
the contrary contained herein, each Stockholder agrees to use the Confidential
Information only for purposes of evaluating its investment in the Company and
it shall not use such Confidential Information in connection with any competing
business or investment or disclose any such Confidential Information to any
Person, except to the extent (i) such information is already in the public
domain (other than as a result of a disclosure in breach of this Agreement);
(ii) is already known by such Stockholder from a Person under no obligation of
confidentiality to the Company at the time such information was received by
such Stockholder or is obtained by such Stockholder from a Person under no
obligation of confidentiality to the Company, (iii) the Company agrees in
writing that such information may be disclosed; or (iv) such disclosure is
required by law; provided, however, that any such disclosures be
made only to the individual or entity to whom disclosure is required by law and
only after written notice to the Company of the required disclosure. If
Confidential Information is to be disclosed pursuant to a requirement of law,
the disclosing Stockholder agrees to cooperate with the Company if the 

 

 16
 

 

Company should seek to obtain an order or other
reliable assurance that confidential treatment shall be accorded to designated
portions of the Confidential Information. 
Notwithstanding the foregoing, Stockholders may disclose Confidential
Information to their employees, directors, shareholders, partners, members,
agents and representatives who have a need to know of such information in
connection with such Stockholder’s investment in or the management of the
Company; provided, that such Persons agree to be
bound by the terms of this Section 6.13, and such Stockholder shall be liable
for any breach of the Stockholder’s obligations by such Persons.

Section 6.13.   APPLICABLE
LAW.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 6.14.   Jurisdiction;
No Jury Trial. The parties hereby irrevocably and unconditionally consent
to submit to the exclusive jurisdiction of the courts of the State of New York
for any actions, suits or proceedings arising out of or relating to this
Agreement and the transactions contemplated hereby (and agree not to commence
any action, suit or proceeding relating thereto except in such courts, and
further agree that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against such party in any
such court). The parties hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the courts of the
State of New York, and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE
OTHER IN ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT.

Section 6.15.   Entire
Agreement.  This Agreement, together
with the Registration Rights Agreement and the Exchange Agreement constitutes
the entire agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter of
this Agreement.

 

 17
 

 

IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first written above.

	
  

  	
  PROTECTION ONE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  POI ACQUISITION, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  QUADRANGLE MASTER FUNDING LTD

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  

 

 18Exhibit 10.1

AMENDMENT NO. 1 TO

STOCK PURCHASE AGREEMENT

This AMENDMENT
NO. 1 TO STOCK PURCHASE AGREEMENT (this “Amendment  No. 1”), dated February 9, 2007, is made by
and among Harbor Acquisition Corporation, a Delaware corporation (the “Company”),
Elmet Technologies, Inc., a Delaware corporation (“Elmet”) and the stockholders
of Elmet listed on Schedule A-1 and Schedule A-2 of the Stock Purchase
Agreement, as defined hereafter (the “Stockholders”).

WHEREAS, the
parties hereto have entered into that certain stock purchase agreement, dated
as of October 17, 2006, by and among the Company, Elmet and the Stockholders
(the “Stock Purchase Agreement”), whereby the Company has agreed to buy, and
the Stockholders have agreed to sell, all of the shares of Elmet (other than
the Retained Shares, as defined therein, and the Company Warrants, as defined
therein) to the Company under the terms and conditions set forth therein;

WHEREAS, under
the Stock Purchase Agreement, the Stockholders have appointed Knute C. Albrecht
as their true and lawful agent and attorney-in-fact, referred to therein as the
Stockholders’ Representative, who has the full power of substitution to act,
without limitation, in the name of the Stockholders and to execute all
documents on behalf of the Stockholders in connection with the transactions
contemplated in the Stockholder Agreement; and

WHEREAS, the
parties hereto have agreed that the Stock Purchase Agreement be amended, as set
forth herein, to (i) begin the upward adjustment of the Aggregate Value of the
purchase price, as defined therein, in February 2007, rather than in January
2007, and (ii) provide that certain representations to the Elmet’s 2004 and
2005 financial statements refer to such statements as presented in the first Amendment
to the Preliminary Proxy Statement as filed by the Company with the Securities
and Exchange Commission (the “Amended Proxy Statement”).

NOW,
THEREFORE, in consideration of the premises and of the agreements contained
herein, the parties hereto hereby agree as follows:

1.             Amendment No. 1 to the Stock Purchase Agreement.

a.                                       Section
1.2(b) of the Stock Purchase Agreement is hereby amended and restated to read
in its entirety as follows:

“(b)         The “Aggregate Value” is equal to $150,000,000
subject to adjustment based upon the Closing Working Capital determined in
accordance with Section 1.6 hereof. 
Subject to the Company’s compliance with its obligations described in
Sections 4.10(a) and 4.13, the Aggregate Value shall increase automatically and
without any further action on the part of the Company, the Stockholders or
Harbor as follows: (i) if the Closing occurs during the month of February 2007,
the Aggregate Value shall increase by $500,000, (ii) if the Closing occurs
during the month of March 2007, the Aggregate Value shall increase by
$1,000,000, (iii) if the Closing occurs during the month of April 2007, the
Aggregate Value shall increase by $1,500,000, (iv) if the Closing occurs during
the month of May 2007, the Aggregate Value shall increase by $1,875,000, (v) if
the Closing occurs during the month of June 2007, the Aggregate Value shall
increase by $2,250,000, (vi) if the Closing occurs during the month of July
2007, the 

 

Aggregate
Value shall increase by $2,625,000, and (vii) if the Closing occurs on or after
August 1, 2007, the Aggregate Value shall increase by $3,000,000.  The “Net
Equity Value” is equal to the Aggregate Value minus the
aggregate amount of Net Company Debt (as defined in Section 9.12) outstanding
as of the Closing.  The “Closing Consideration” is
equal to the Net Equity Value minus the Contingent Payment Amount (as
defined in Section 1.5(d)).  The “Cash Purchase Price” is
equal to the Closing Consideration multiplied by a fraction equal to (A) the
total number of Company Shares (other than the Rollover Shares and the Retained
Shares) plus the number of shares of Company Common Stock issuable upon
exercise of the Company Warrants, in each case outstanding immediately prior to
the Closing, divided by (B) the total number of shares of Company Common Stock
outstanding on a fully diluted basis immediately prior to the Closing.  The “Rollover
Stockholder Value” is equal to the Closing Consideration
multiplied by a fraction equal to (I) the total number of Rollover Shares
outstanding immediately prior to the Closing, divided by (II) the total number
of shares of Company Common Stock outstanding on a fully diluted basis
immediately prior to the Closing.  The “Continuing Stockholder Value”
is equal to the Closing Consideration multiplied by a fraction equal to (I) the
total number of Retained Shares outstanding immediately prior to the Closing,
divided by (II) the total number of shares of Company Common Stock outstanding
on a fully diluted basis immediately prior to the Closing.”

b.                                      Section
2.5 of the Disclosure Schedules shall be amended such that the audited
balance sheets of the Company as of December 31, 2005 and 2004, and the
statements of income and retained earnings and statements of cash flows for the
years then ended, shall be replaced with the restated financial statements for
such years included with the Amended Proxy Statement, and all references to the
Financial Statements in the Stock Purchase Agreement shall refer to such
financial statements as amended hereby.

2.             Reference to and Effect on the Stock Purchase
Agreement.  Upon the due
execution and delivery of this Amendment No. 1 by the parties hereto, on and
after the date hereof each reference in the Stock Purchase Agreement to the “Agreement”,
“hereunder,” “hereof,” “herein,” or words of like import referring to the Stock
Purchase Agreement shall mean and be a reference to the Stock Purchase
Agreement as amended hereby.  Except as
specifically amended above, the Stock Purchase Agreement shall remain in full
force and effect and is hereby ratified and confirmed.

3.             Execution in Counterparts.  This Amendment No. 1 may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.

 2
 

 

IN WITNESS
WHEREOF, the parties have executed this Amendment No. 1 To Stock Purchase
Agreement as of the date set forth above.

	
  

  	
  HARBOR ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Hanks

  
	
   

  	
   

  	
  Robert J. Hanks, Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ELMET TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John S. Jensen

  
	
   

  	
   

  	
  John S. Jensen, President

  
	
   

  	
   

  	
   

  
	
   

  	
  STOCKHOLDERS

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Knute C. Albrecht

  
	
   

  	
   

  	
  Knute C. Albrecht, Attorney-in-Fact

  

 

 3

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